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New Laws Seen as a Spur for FDI

The new draft laws on foreign investment and industries, to be submitted to the Cabinet within two months, are among a number of significant reforms that aim to strengthen the country’s legislative framework.

Many analysts believe that the planned laws will help attract big multinationals to the UAE mainland instead of to certain free zones where they are currently confined.

“The main hurdle for attracting FDI into the UAE’s manufacturing industry has been the ownership issue. With the new law addressing this issue, many organisations from across the globe would be encouraged to set up manufacturing facilities in the UAE,” said Raju Menon, Managing Director for Morison Menon, a Dubai-based investment consultancy company.

The law on foreign investment will address a key investor concern about protection against contract disputes and other legal issues. It will further enhance the UAE’s position in the global competitiveness ranking by the World Economic Forum, analysts said.

The investment law could not have come at a more opportune time, as signs of a resumption in the flow of foreign investment to the UAE are already evident, said Sunny Varkey, founder and Chairman of GEMS Education, an operator of schools and hospitals.

The new industrial law, for its part, will incentivise more multinationals to set up manufacturing plants and high-tech ventures here, leading to “huge employment generation,” Varkey said. “This will revive the property sector and provide a boost to service sectors such as healthcare and insurance sectors.”

James Mathew, Managing Director of Horwath MAK International Consulting, said that a foreign company would be primarily looking for advantages such as tax incentives and high-quality infrastructure.

“If a foreign company sets up a branch in the UAE, it will have to pay tax in its home country. In the new scenario, an industry can come here as a separate entity or as a 100 per cent subsidiary, and will not be required to pay tax in the home country on the income earned,” he said.

“Hence the new law is a great advantage to overseas companies.”

Dr Qaiser Anis, President of the Pakistan Business Council in Abu Dhabi, described the new draft laws as the right move at the right time. “Pakistanis, who have invested billions of US dollars in the free zones, will greatly be encouraged to invest further in the UAE. More investors will line up... as it is already one of the top re-export hubs in the GCC, Asia and Africa regions,” he said.

Yusuffali MA, Managing Director of EMKE Group, said that a tax-free environment, the availability of cheap labour, and an abundance of energy resources have already changed the composition of the UAE economy.

“The new law can attract investors who are looking out to reduce their costs of doing business and wanted to capitalise on tax advantages,” said Yusuffali, who also is Director of the Abu Dhabi Chamber of Commerce and Industry.

“The UAE is a perfect destination for those industries that are becoming unviable due to high energy expenditure and rising labour costs. Abu Dhabi’s investments into petrochemical industries have already brightened prospects for investors from Taiwan, Japan and elsewhere.”

Menon argued that full foreign ownership rights in the manufacturing sector could attract India’s booming industries, which face several operational hurdles at home including costly and intermittent power supplies, lower labour productivity, transport strikes and union issues. “The UAE fares much better in all these areas,” he said.

“And with a world-class infrastructure for road, air and sea transportation, managing the logistics of large manufacturing plant is also made easy.”

· issacjohn@khaleejtimes.com

· haseebhaider@khaleejtimes.com