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Wed 7 Dec 2011 10:20 AM

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Opinion split on lift of foreign ownership curbs

UAE companies law may not prove shot in the arm for Gulf state’s economy, say experts

Opinion split on lift of foreign ownership curbs
Under existing laws, expats can only full own companies within designated free zones

The UAE’s move to push through a draft law that could allow foreign
ownership above 49 percent may not prove an immediate shot in the arm for the
Gulf state’s economy, experts said.

The UAE’s cabinet this week approved a draft of the long-awaited
companies’ law expected to lift curbs on foreign ownership in some sectors and
lay out bankruptcy laws to overhaul how firms and individuals unable to pay
down their debt are treated by the law.

But opinion is split on whether the law is far-reaching
enough to bolster the UAE’s efforts to attract foreign companies and
investment, as it moves to diversify its energy-led economy.

“We shouldn’t expect a rush of either equity inflows into
the country buying up stakes in local companies nor should we expect a rush in
foreign companies coming in to set up shop,” said

Farouk
Soussa, chief economist for the Middle East at Citi Investment Research and
Analysis.

Economic
woes in the US and Europe are likely to dampen any fresh flows of foreign investment
from companies, underpinned by concerns about regional political unrest, he
said.  

“I think right now foreign companies are struggling with a
process of deleveraging their balance sheets at home, I don’t think there is
any mood in Europe or the US at least for greater foreign investment in their
companies,” he said. “The one area where that’s probably not true is Asia and I
think Asian firms are probably more likely to set up shop in the UAE as a
result of the law.

“The main constraints remain global uncertainties, regional
and local economic uncertainties, structural issues with respect to the way the
markets work here and with respect to the local economy, they are not to do
with the limits that are set on foreign ownership.”

The UAE has been trying to diversify and modernise its
economy, developing areas including tourism, finance and aerospace, to reduce
its heavy dependence on oil exports.

The law will allow the UAE cabinet to specify the types of
businesses and sectors where a foreign partner may hold more than 49 percent of
a company's capital, state news agency WAM said on Sunday. Full ownership is currently only allowed within designed free zones.

The legislation also lays down a framework for the
governance of public companies, ensuring transparency and disclosure of
financial data, the news agency said.

“[The] changes in the companies’ law are not a major
turnaround of the existing law,” said Essam Al Tamimi, a senior partner at
Dubai-based Al Tamimi & Co. “Companies already setting up in the UAE will
continue to grow in the same path and pattern.”

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Any
efforts to cut red-tape will be welcomed by the business community but the law
will not mark a watershed moment for the UAE, he said.

“I don’t
think the business community should jump in and say ‘Wow, now we have a new
law, the UAE is going to boom’.  It will
have a positive impact because it has eliminated unnecessary practices… but it
will not be a full revolution.”

But Maria
Rubert, partner at Dubai legal firm Cramer-Salamian, said increasing foreign ownership
could encourage expatriates to stay in the country for longer. 

“The UAE
needs to find a way to make people stay here for the long-term. Citizenship is
not an option but people need to feel they have more rights here,” she said.

“With
the crisis, the first thing they did is leave. If they allow people to own 51
percent or more of a company… it will be more difficult for people to leave.”

Hamad
Buamim, director general of the Dubai Chamber of Commerce and Industry told
Reuters on Tuesday that the impact of the changes would not be felt overnight.

“The
impact will not happen overnight, but I think it will affect the psychology of
investors that the government is putting the best practices into place,” he
said.

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