Seeing an opportunity to boost economic activity through increased foreign investment, the United Arab Emirates business community eagerly anticipates passage of the UAE Commercial Company Law. Introduced last year, the law opens full company ownership to foreigners. Currently, the law restricts foreign investors to a maximum 49 percent stake in any UAE onshore business. The Commercial Company law provided it receives final approval, will allow foreign investors to acquire stakes of up to 100 percent.
Approval still needed
The government has yet to give the final nod. Approval must come from the Federal National Council, which is currently reviewing the proposed final draft, according to Sultan bin Saeed Al Mansouri, the UAE Minister of Economy. Sultan bin Saeed Al Mansouri expects the council will grant approval in the final quarter of 2018.
Increased investment to help UAE economy expand beyond oil
As with most of its counterparts, the UAE’s economy hinges on oil demand, a situation many in the region consider precarious. Downward swings in oil prices could wreak havoc on development plans. In the long-term, as electric cars gain a foothold, oil exports may grow far less lucrative. Many in the UAE see increases in other industries as key to the UAE’s future.
The UAE economic panel FocusEconomics predicts the new law will improve foreign direct investment inflows, particularly to large infrastructure projects. Part of the UAE’s economic strategy consists of building a cutting-edge technological environment that will make the UAE a center of the new world economy. This strategy is already paying off. The UAE is already the premier Middle East destination for foreign direct investment. In 2017, it received $11 billion, 22 percent of foreign direct investment in the Middle East. If the UAE Commercial Company Law comes to fruition, economists expect those inflows to increase by 15 to 20 percent.
The UAE’s business-progressive plans stand to give it a leg up in the region. While other Middle Eastern countries are also diversifying their economies beyond oil, the UAE continues to surge to the head of the pack.
Additional reforms are already assisting UAE economy
Reform of the UAE business bankruptcy code has already helped propel foreign investment forward. The reforms provided UAE businesses with the ability to restructure debts, which, in turn, has increased foreign investor confidence. The 2015 Commercial Companies Law has also assisted in making the UAE a more attractive option for foreign money. These, and the pending law are expected to help continue the trend of changes in UAE business practices.
Cutting out the intermediaries
Until the new law passes, foreign investors wishing to control more than 49 percent of a UAE company must partner with a UAE investor or firm. This partner can then assume a 100 percent stake and act on the behest of the foreign owner. This common practice should quickly disappear once the new law takes effect.
A progressive bend has served the UAE economy well in recent years. The reforms have proved that foreign investment in non-oil based sectors can propel UAE GDP forward. With the funds needed to continue advancing its infrastructure and technological base, the UAE stands to remain at the forefront of Middle East development.