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In 2018, the United Arab Emirates, or UAE, passed several laws to attract foreign direct investment (FDI) to help diversify its economy and reduce its dependence on oil.
The first major move to attract FDI was made on May 20, 2018, when the UAE Council of Ministers granted foreigners the right to own 100 percent of their companies. Foreign investors and professionals with expertise in certain fields were also made eligible for a 10-year residence permit.
The UAE previously required foreigners to share ownership of their company with an Emirati citizen. But the idea of relinquishing half a company’s ownership to a local sponsor often dissuaded investors from setting up businesses in mainland UAE. Analysts and officials in the UAE now predict that this amendment will generate a 15 to 20 percent annual increase in FDI.
Neil Petch, the chairman of Virtuzone, an enterprise devoted to helping foreign companies set up businesses in the UAE, said that the May announcement should be welcomed with open arms. In his eyes, there are more benefits for investors to set up companies in mainland UAE than in any of the country’s free zones.
For instance, companies operating in free zones are restricted from increasing their personnel or office space and from competing in the local market. But none of these restrictions exist in the mainland, which allows for unlimited growth.
Petch notes that mainland business also have the advantage to take one government work, which is a very profitable business in the UAE. In 2016, government-awarded contracts in Abu Dhabi totalled nearly $5 billion, while $272 billion worth of government tenders was handed out across the Emirates in the first six months of 2017.“Overseas investors who are new to the Emirates can now get straight down to business, without the need to look for an Emirati company or individual to act as a partner,” Petch wrote in the Arabia Business. “This will likely reduce time to market, and remove the additional red tape and documentation that comes with setting up such a business relationship.”
Nevertheless, the result of the new legislation is expected to accelerate the growth of FDI in the UAE. FDI in the country had already soared 26 percent in the first six months of 2018, indicating that previous efforts to diversify the economy and support startups were successful. The Dubai Investment Development Agency (DIDA), which is part of thee Department of Economic Development in Dubai, also noted that FDI initiatives increased by 40 percent in the same period.
“The rise in FDI capital and projects reinforces Dubai’s leading position as the preferred global location for global businesses, startups, and in pursuing growth and expansion. It also clearly reflects investor confidence in Dubai’s economy,” Sheikh Hamdan bin Mohammed bin Rashid, the Crown Prince of Dubai and chairman of the Executive Council, said in a statement.
The truth, however, is that investors have been hesitant to conduct business in Dubai due to a recent recession. Nevertheless, the founder and chief executive of the restaurant chain Man’oushe Street, Jihad El Eit, noted that entrepreneurs and startups were now benefiting from less red tape in the emirate. In his assessment, opening up a business in Dubai is significantly more cost-effective today than it was three years ago.
“The government is making a lot of incentives for people to do business,” El Eit told The National, the state-funded paper in Abu Dhabi. “[They] are doing things we haven’t seen before, such as cancelling guarantees for labour insurance and supporting trade licenses.”
In October 2018, the UAE passed a new FDI law that will benefit companies that are operating in sectors such as transport, insurance, water and electricity provision, and banking and finance activities.
An FDI Unit will be overseeing the law, and this unit will operate under the Ministry of Economy. It will be tasked with establishing a database for all UAE investments, including data on existing FDI projects. All information in the database will be reviewed and updated periodically.
Emiratis hope that the FDI unit will help attract more FDI in the country by assisting companies with the registration and licensing of their businesses. Mohamed Juma Al Musharrkh, the CEO of Sharjah FDI Office, noted that the FDI law aligns with sound economic principals.
“Economic growth is impacted by modern-day legislative systems and policy decisions. The UAE has many competitive advantages, which have bolstered its position as a formidable hub for trade and commerce in the region,” he told Khaleej Times. “With this decree, the UAE continues on its mission to offer a first-rate investment environment to foreign businesses.”
The FDI law essentially protects companies against expropriation of assets for public interest, while safeguarding their real estate in the UAE mainland. The law also makes it illegal for the state to confiscate FDI projects without a court decision, while FDI projects that are rejected by the FDI unit will have the opportunity to appeal.
The chairman of Sobha Group PNC Menon said that he believes entrepreneurs from Asia and India, as well as Africa, will particularly benefit from the more friendly business environment in the Emirates introduced by the new FDI law. He said that the longer residency permits in particular are attractive to investors from these regions, since that enables them to stay in the UAE and focus on long-term growth.
“A lot more business houses in India will have a very serious presence in the UAE,” he told Arabian Business. “I’m not saying it will happen overnight, but this will definitely give a boost to Indian entrepreneurs, and especially the large ones.”
Despite the optimism, some questions about the Investment Law remain unanswered. For instance, it is unclear whether owners of foreign businesses that are currently co-owned with an Emirati can apply to become the sole owners of the company. But what does appear certain is that the FDI law will help create jobs and increase the country’s GDP, helping to accelerate the diversification of the UAE’s economy.