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100% foreign ownership: New UAE investment law to spur FDI, GDP growth

UAE’s game-changing investment law, which will allow up to 100 per cent ownership to foreign investors in some specific onshore business sectors, is expected to prop up private and foreign direct investments when it will be finally introduced in the last quarter of this year, economists and analysts said.

The law, eagerly awaited by the business community, was widely expected to be introduced in the first quarter of 2018, and is expected to change not only the investment landscape of the UAE, but also create significant growth opportunities by attracting more foreign direct investments, especially into the non-oil sectors, experts said.

Sultan bin Saeed Al Mansouri, Minister of Economy, has said the final draft of the landmark law is awaiting the UAE Federal National Council approval before it becomes a law by the last quarter of 2018.

FocusEconomics’ panel of economists said while a new investment law set to be unveiled by the end of year should further boost FDI inflows, looser fiscal policy, and notably large investments in infrastructure, should prop up growth in the non-oil economy by supporting private investment momentum.

“This, along with higher oil prices and tourism, is poised to help private consumption bounce back from the VAT implementation. On the other hand, the Opec agreement should keep oil output largely stable in the year. The main risks are a flare up of regional tensions, which could harm investment, and a downturn in oil prices,” panellists said while forecasting the GDP to expand 2.7 per cent in 2018. For 2019, the panel sees the economy growing 3.2 per cent.

Economists expect an annual surge of up to 15-20 per cent in FDI flow once the law comes into effect. In 2017, the UAE remained the main destination of FDI inflows at about $11 billion, accounting for 22 per cent of total foreign direct investment to the Middle East and North Africa region, according to Garbis Iradian, Chief Economist at the Washington-based the Institute of International Finance.

“The UAE’s friendlier business environment, excellent infrastructure, relatively diversified economy, and political stability continue to position it as one the most preferred investment destinations in the world,” said Iradian.

Economists said the UAE has been working on several other bold reform initiatives, including the bankruptcy law, to boost investor confidence over the past several years. The UAE bankruptcy law, which allows companies in financial distress to restructure, has already come into effect.

Tom Watkins, partner at Hadef & Partners, said the new Investment Law, along with the 2015 Commercial Companies Law and the 2016 Bankruptcy Law of 2016, is a substantial legislative step that has been taken towards acknowledging, supporting and enhancing the continued growth of the UAE as a global investment hub worthy of international investment.

Watkins said the impending law could also change significantly a number of business practices that have become commonplace in the UAE.

“One consequence could be an end to some of the practices whereby UAE national shareholders enter into commercially negotiated schemes of arrangement, to act as nominee holders of shares on a beneficial basis and to the order of a minority foreign shareholder. Such arrangements, though historically subject to certain legal uncertainties as regards enforceability, have formed the basis for many joint venture partnerships for many years,” explained Watkins.

However, much may turn on the range and breadth of industry sectors to which the Investment Law will apply in this regard, which will become apparent in due course, said Watkins.

The new UAE Commercial Companies Law, which was introduced last year, contrary to the expectations of the global investor community, did not amend the 49 per cent limit on foreign ownership. Under the new CCL, a foreign investor can only own a maximum of 49 per cent of a locally incorporated company, apart from companies incorporated in a free zone in which they can own 100 per cent.

In a public joint stock company, while there is no 51 per cent UAE ownership needed, but there is a 51 per cent GCC stake-holding requirement.

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