UAE rejects easing of foreign ownership rules

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A government body in the United Arab Emirates has rejected draft legislation that would have eased tight controls on foreign ownership of companies, with members citing security fears and threats to local businesses.

The Federal National Council (FNC), a partly elected body with a mainly consultative role, is reviewing the draft of a new companies law that would update legislation dating back to 1984.

At present, foreign firms can, generally, only operate in the UAE outside so-called "free zones" by partnering with a local entity in which they can only hold minority stakes.

The council rejected a clause in the draft law that would have given the UAE cabinet the power to let foreign parties own stakes of up to 100 percent in companies outside the free zones.

While UAE citizens are among the wealthiest people on the planet, they account for only about a tenth of a population of roughly 8.3m - the rest are expatriate workers.

So, fears of a loss of identity and control over their own country and economy run deep.

"This situation is very bad. These clauses are completely contradictory and could lead to foreign investments being outside the control of the state and its supervision, and this, in turn, could lead to destabilisation of security," FNC deputy Ahmed al-Zaabi told the assembly.

Economy minister Sultan bin Saeed al-Mansouri, who debated the law with deputies in Wednesday's session, said it had been agreed that the clause on foreign ownership would now be included in a draft foreign investment law being prepared.

"What we have decided is to move this clause to the foreign investment law because it is much more suitable, and to review some of the terms and conditions that will be applied," he told reporters. "They (FNC deputies) wanted more details," he said.

The draft foreign investment law is being reviewed by a technical committee at the Ministry of Justice.

"It will be passed to the FNC hopefully before June, so they will discuss it after they come back from the summer break," Mansouri said, adding he expected the legislation to be passed this year.

Worries over increased competition for the Emirati business community also caused resistance among some deputies.

"They are concerned that if they open the country without any specifications or conditions that it will affect competition, and the Emirati businessman," said Ali Essa al-Nuaimi, an FNC member who sits on its finance committee.

The UAE attracted about AED30bn (US$8.2bn) direct foreign investment last year, the prime minister said on Monday.

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Posted by: Big Bob

Bottom-line they dont want competition. Can you imagine if foreigners were allowed to compete to operate international brands. So instead of ONE guy owning Mercedes you had two...quality of service goes up, prices go down, and guess what consumers have a choice!

Posted by: Frances

But what is ironic is that when it came to Emirates you heard a big lecture on how European and Canadian governments were against competition, and how they should be punished and so on.

Posted by: Sole

It is well known that when the UAE want to pass long waited laws with contradicting articles they go back to the same old method of keep delaying the law issuance for year till they make sure that people are very frustrated and desperate to accept any conditions and in the end you find out that the new law is no difference from the existing one but the date of issuance and they start labeling it as the latest and most modernized law in the history of human kind .

The same practice is done with insolvency law, modification of the civil court practice law, company laws ? etc , all of them has been dragged for years and people reach stage of accepting any article or even statement that will be labeled as Laws .

Posted by: mo1

well that will be detrimental the the economy in the long run, who is advising these people on their fiscal policies? More importantly its detrimental to competition and alarmingly will only amplify the problem of high indigence unemployment rates. With a rapid population growth, rising unemployment, less demand for oil and gas, slow down of the BRIC economies and they want to fix the local market conditions?

Posted by: Roozbeh Salehi

The concern is legitimate, but even with the current law, people are using loopholes and locals with share majority in many cases have no say in the business, unless the local is a real partner not just the business sponsor. One of the major concern, which might cause the revision in the law a necessary, is the Bankruptcy law, which will involve the locals in the bankruptcy cases. So, if the current law doesn't get revised, bankruptcy law also will not get established. Definitely there are other sides to this law and it's revision.

Posted by: Omar

This is a natural response, where the leading business entities (being only a handful of nationals out of the total population, including the country's leadership) do not want to see their control over business weaken.

It does not make much difference anyway. The UAE despite its restrictive foreign owenership laws has been a generous "land of opportunity" to many foreigners. Just look at the 50 wealthiest Indians list, who made their fortunes in the UAE.

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