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Sun 15 May 2011 09:32 AM

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Foreign ownership overhaul needed to boost FDI

Laws stopping expatriates owning majority stakes in UAE firms curbing investment, says analyst

Foreign ownership overhaul needed to boost FDI
Foreign investors are currently only allowed to own 49 percent of firms in the UAE established outside the countrys free zones

Legislation that forbids
overseas investors from owning majorities in firms based outside UAE free zones
is restricting the flow of foreign direct investment (FDI) into the country, an
expert has warned.

Currently, outside investors are
only allowed to own 49 percent of such companies, with the rest being owned
either by a UAE national or a locally owned firm.

“One of the things that the
government needs to do – and they’ve been in talks about this for quite a while
– is to amend the companies law to increase that limit beyond 49 percent,”
Ayesha Sabavala, an analyst at the Economist Intelligence Unit (EIU) told
Arabian Business. 

“I suspect we will see this
happening in certain sectors, specifically those in which the UAE lacks local
expertise.”

Sabavala said that the free zone
model had worked well thus far, but that the UAE risked losing outside
investment to other business hubs in the region.

“Is developing more and larger,
better free zones going to be enough?” she added.  “For example, Dubai World
Central [a new logistics hub near Jebel Ali] is looking to grasp the entire
length of the supply chain. But that has to be done in tandem with making the
labour laws transparent, and increasing foreign ownership outside the free
zones.”

New companies legislation
expected to be released this year may include some amendments to the current
ownership limits.

In April, the head of the Dubai
Chamber of Industry and Commerce said if the UAE might offer higher levels of
ownership for companies involved in strategic sectors that would benefit the
local economy.

“If these companies have a
certain amount of capital – we’re talking millions if not billions – and if
they want to bring such a major investment to our country, we would like to see
them here,” Hamad Buamim told Arabian Business.

“Other than that, we think the
free zones are already giving a good solution for foreign companies to
establish – and we need to keep in mind that Dubai and the UAE doesn’t have any
taxes, so this is a fair trade.”

But Sabavala argued that despite
the tax-free environment, establishing a firm in the country was still an
expensive proposition. 

“The capital costs of setting up
a business, and other licence costs all add up,” she said. “So while it is a
tax-free environment, there is also a lot of competition, and there’s nothing
to prevent companies from setting up in Singapore, if you’re looking at a
central hub through which you can access major regions of the world.”

The EIU predicts that FDI flows
to the UAE will increase by as much as 35 percent during 2011.

 

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Red Snappa 9 years ago

Large multinationals want to control their own destiny in emerging markets and if UAE investors are allowed to own large slabs of European companies and assets outright then the gesture should be reciprocated.

So for instance an Irish company, not necessarily the most apt corporate origin given the state of the old finances I know but we'll be back, could own the Burj Al Arab outright with no local partner then buy up the Jumeirah Beach Hotel a little later.

It is the only way global commerce can actually work effectively in the UAE. Another example would be somebody like Microsoft completely owning and operating internet City, that is the way it must eventually go.