Dubai - Decypha: With the decline of international oil prices imposing challenges for the Gulf Cooperation Council (GCC) countries, foreign direct investment (FDI) has become the governments’ key priority to lure more cash in, to ensure the region upholds its economic growth strategies.
The United Arab Emirates’ (UAE) is not exception, its government has high hopes it can overcome the challenges and triple its GDP in 10 years, compared to approximately AED 1.8 trillion by the end of 2016, with the FDI being a major contributor in that target.
FDI levels in the UAE have grown at an annual growth rate of 9.3% from 2011 to 2015, making the country a receipt of 27.5% of total FDI influx in the Arab region, according to UAE’s Minister of Economy Sultan bin Saeed Al Mansouri.
Huge amount of FDI would enable the Gulf country to generate high liquidity to be injected in the national economy, boost the economic diversity, improve local competencies and support the country’s economic competitiveness, Al Mansouri said in a December statement.
Investment Climate
Ranking 16th in the Global Competitiveness Report in 2016/2017, the UAE is considered the largest attractor of investments in the MENA region, according to United Nations Conference on Trade and Development’s (UNCTAD) Global Investment Report 2016.
Moreover, the UAE was said to be among top 10 economies that addressed improvements in its business climate, according to the World Bank’s Ease of Doing Business Report 2017.
Adopting new measures to improve the investment climate for investors, the UAE has ranked 21st in the A.T. Kearney FDI Confidence Index 2017, which is an annual survey that measures which markets are expected to attract more investments over a period of three years.
Representing the Middle East region in the top 25 countries, the index, which was issued in April, said that FDI levels in the UAE were steady in 2014 and 2015 at AED 40.40 billion.
“The UAE’s ranking this year is a function of many factors, including excellence in governance, demonstrated resilience, world-class infrastructure and a deep, unwavering commitment to innovation,” said Rudolph Lohmeyer, Vice President of A.T. Kearney’s Global Business Policy Council, in the report.
The united emirates was also said to be the second largest FDI destination in the West Asia region in 2015, according to Abu Dhabi Global Market (ADGM) report released in April 2017.
Government Efforts
The UAE has started adopting measuring to create a more favorable investment climate in the country for foreign investors, including plans to allow 100% ownership for foreign investors.
Drafted to unlock more investment opportunities, the law, which is yet to be ratified, will offer 100% ownership to foreign investment projects or activities that will integrate the UAE’s strategic plan, attain high added value, support using modern technology and promote protecting the environment, according to Al Mansouri.
The UAE’s measures to liberalise the economy was praised by the World Trade Centre’s (WTO) trade policy review published in June 2016, stressing on the need to dissolve obstacles met by investors outside the free zones.
The new law would have a significant impact on investments in the industrial sector, the Minister of Economy told local media in January, adding that it facilitates procedures for businesses to enter the Emirati market.
In the same regard, the government is issuing more legislative measures, such as the new Bankruptcy Law, issued in October 2016, which was said to create a “massive” impact on the investment climate, according to Mark Beer, the chief executive of Dubai International Financial Centre (DIFC) Courts.
The new law determined four ways companies can follow to avoid bankruptcy, and it was applauded by industry entities.
Furthermore, an International sustainable Investment Centre was launched inside and outside Dubai in October to develop, support and promote investments in Dubai, according to Sami Al Qamzi, the director-general of the Dubai Government’s Department for Economic Development.
Favorable Investment Sectors
While the manufacturing, construction, trade and repairing, and services sectors are shaping nearly 74% of the non-oil GDP in Dubai, the advanced technology projects represented 73% of Dubai’s total FDI, according to Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Dubai Executive Council.
As Dubai has attracted AED25.5 billion in FDI in 2016, it has become a desired FDI receipt for foreign investors, especially from Canada, the UK, France, Spain and the US, Sheikh Hamdan said in April commenting on the Dubai FDI Monitor report released by the Dubai Investment Development Agency (Dubai FDI).
Dubai is well-known for encompassing 21 free zones with investments in a wide range of sectors from aviation, automotive, healthcare sectors to academic and financial services sectors.
“Dubai has the highest number of free zones per capita, enabling foreign companies to find among many options those that better cater to them,” Fahad Al Gergawi, CEO of Dubai Investment Development Agency, told Oxford Business Group (OBG) in December.
The real estate sector is also a favourable investment destination for foreign investors in Dubai, according to the OBG report.
As for Abu Dhabi, it has attracted AED95.145 billion worth of FDI in 2016, according to Statistics Centre of Abu Dhabi (SCAD), with 20.2% of them been directed to industrial activities.
The real estate sector has comprised 25.2% (AED24 billion) in Abu Dhabi’s FDI last year, up from AED23.7 billion level in 2015, according to the report.
Abu Dhabi’s financial and insurance investments grew by 10%, while extracting crude oil and natural gas activities grew by 11% in 2016, said the report.
Challenges Facing Foreign Investors
One of the key challenges for foreign investors, which should be resolved through the new law, is the mandate that local partners have to attain a 51% ownership, according to UK Department for International Trade report about doing business in the UAE, published in December 2015.
Each emirate in the UAE has its own regulatory framework with regard to issuing business licenses and establishing corporates, “which can be complex and confusing,” the report stated.
Yet, the country still hold many attractive opportunities for investors, as the OBG highlighted in its 2016 UAE report stating that the country has “fewer restrictions than other countries.”
Based on global ranking and health of the investment climate, the Emirates have little work to be done to secure further investment flow into the country. Despite the above mentioned challenges, the UAE remains the top choice for investors seeking emerging markets.
By Doaa Farid
