With $30.4bn in FDI in the UAE over the past three years and with the UAE already moving rapidly up the global rankings for attracting FDI, what is the likely impact of the FDI Law, which was enacted last year, on investment flows into the UAE?
First, let me explain the FDI Law to you. On September 23, 2018, an FDI law was issued to develop, foster and nurture foreign investment in accordance with the policies of the UAE.
The Law tasks a committee known as the Foreign Direct Investment Committee with proposing a "positive list" to the UAE Cabinet which will set out the economic sectors in which greater levels of foreign direct investment will be permitted.
Why was there a need for such a law?
Until the enactment of the FDI Law, foreign investment into the UAE had to be effected either with the support of a local sponsor or partner (for onshore investment) or, if local sponsorship was not preferred, directly into one of the UAE free zones.
However, in the case of investment through free zones, the ability of foreign investors to operate onshore in the UAE has been considerably restricted.
And this had impacted the appetite of investors from outside the GCC to commit fully to investment in the UAE.
The FDI Law has changed the need for local sponsorship in certain sectors and provides for 100 percent foreign direct ownership in such sectors.
This is where the positive list and negative list comes into play.
With regards to potential investment into restricted sectors on the negative list, there is likely to be little change in the investment climate for FDI. To the extent that investors are keen to invest into negative list sectors, they will still be able to do so through local sponsor arrangements.
Where an investor may seek control of over 51 percent of a negative list entity, they will be able to apply for approval from the regulator (expected to be either the Foreign Direct Investment Unit or the Foreign Direct Investment Committee) for such control.
However, where there is likely to be a considerable increase in FDI is in investment into positive list sector companies.
Increased appetite for establishing local manufacturing businesses; evolution of the UAE as a regional manufacturing hub for the wider GCC, Indian sub-continent and African markets; Utilising UAE’s geographic location for improved transport and logistics networks.
This may be through the likes of Emirates and Etihad, or through the major logistics hubs of DP World’s Jebel Ali Port or Abu Dhabi Port’s Khalifa Terminal.
Now the key challenge will be for the UAE government to strike a balance between encouraging increased investment and maintaining some control of investment through the negative list.
But the initial signs are that the FDI Law is being seen as a significant step forward, and that it should drive up levels of investment in the UAE.
(Source: Arabianbusiness.com YouTube channel)