Reforms will ease cost of doing business in UAE

Current bank guarantees worth Dh14 billion will be released back into the local economy.

Members of the UAE business community have welcomed the new UAE legislation that replaces bank guarantees for private sector labour recruitment with a low-cost insurance policy that will reduce costs for employers.

It does away with the Dh3,000 bank guarantee companies currently have to deposit for each new hire. They will be replaced by a Dh60 insurance policy that offers workers protection for their entitlements - such as end-of-service benefits, holiday allowance, overtime allowance, unpaid wages, return air ticket and cases of work injury, with the maximum payout capped at Dh20,000 per person.

The current Dh3,000 system is deposited with the Ministry of Human Resources and Emiratisation, Current bank guarantees worth Dh14 billion will be released back into the local economy, which will enable firms to further invest in the development of their business.

"The recent string of measures announced by the Cabinet will help the business environment and sentiment. The replacement of the mandatory Dh3,000 bank guarantee with a Dh60 insurance will bring such confidence that costs of operating businesses are being seriously looked into, besides releasing a significant amount of Dh14 billion into the economy. This along with the other measures being taken to make it easy and affordable for businesses to operate will benefit all stakeholders and send out a message for new businesses to consider Dubai and the UAE as a destination for their growth," says Sanjay Chimnani, managing director, Raine and Horne.

Praising the move, Nick Grassick, managing director, PH Real Estate, says: "It's impressive how the UAE government has developed a process which simultaneously returns a significant amount of capital to the private sector, while lowering the entry barrier for new employees to join the workforce."

The new rules will be particularly helpful to small and medium-sized companies which will experience improved cash flow to inject back into their businesses.

According to Lewis Allsopp, CEO, Allsopp & Allsopp: "It is going to provide a huge boost to the economy. The benefits are two-fold - it is going to make hiring new talent a lot easier and it's going to ease the cash flow of any potential business in the market. If you have 100 employees for example, you're going to be Dh294,000 better off. This is money that you can reinvest into the business to make your business bigger and stronger which will in turn lead to more job creation and more cash going into the economy. If you're hiring 10+ staff, then you're saving anywhere from Dh30,000 upwards."

The move comes on the back of a series of new government measures, including Abu Dhabi's Dh50 billion stimulus package, aimed at lowering the cost of doing business in the UAE to attract more foreign direct investment and create jobs.

"The recent measures announced are part of the overall suite of initiatives designed to stimulate the economy and make specific sectors more flexible and competitive. Reducing the insurance costs ensures that specific labour-intensive sectors get a much-needed reprieve and will allow for expansionary activity to take place, offsetting the impact of cost creep that was of some concern recently," observes Hussain Alladin, head of IR and research, Global Capital Partners.

The Cabinet also announced that visas can now renewed without the need for leaving and re-entering the country and a new no fee, six-month temporary visa to help those that have lost their jobs find new employment.

"These labour and visa reforms will have a positive impact on anyone living, working or travelling to the UAE. Keeping the UAE economically competitive will only attract more investors. The reduced costs insurance system will enable us to re-distribute investments in new talent to other areas such as training. The new temporary six-month visa for job seekers should have a high impact, giving new talent a better opportunity to find the right employer. Also not having the leave the country for a visa will take a big burden off new starters. It is great to see the government showing more support to expats joining the UAE workforce, introducing new reforms for an easier and more cost-effective recruitment process," reckons Amy Stephens, head of recruitment, Espace Real Estate.

The visa reforms are aimed at safeguarding employee rights. "Collectively, the set of initiatives announced by the UAE Cabinet are likely to stimulate the economy and have a positive impact on hiring trends across the region," says Jessica Taylor, head of human resources at Cavendish Maxwell.

- deepthi@khaleejtimes.com

Deepthi Nair

deepthi@khaleejtimes.com