Investment Reform in the UAE

Aref Al Farra

Senior Economic Advisor- Ministry of Economy- UAE

Amman- September 4th, 2007

Today’s Topics

•Economic highlights

•Why investments flourished in the UAE

•Highlights of the Draft Foreign Investment

Law

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average oil prices (US$ per barrel) UAE exports (US$ billion) nominal GDP (US$ billion)

average oil prices- % growth UAE exports- % growth nominal GDP- % growth

Successful diversification and the increase in international

oil prices led to a doubling of nominal GDP over four

years…

And yet the total share of the non-hydrocarbon

sector increased over the last few years!

• The non-hydrocarbon sector contribution to real GDP growth has

been increasing steadily over the past few years, even with

soaring international oil prices…

» 46% in 1990

» 62.5% in 2006

• This is indicative of successful economic diversification policies

by the government

• Most tourists come to the UAE for

recreational “triple S” (sun, sea and sand)

tourism, shopping tourism, and MICE

tourism (meetings, incentives,

conferences and exhibitions)

• We attract a number of tourists that is

approximately double our population

• Hotel occupancy is above 90% for most

of the year!

Success Story: Tourism

• Emirates Airlines established itself as a

global transport hub which has

serviced a thriving world class tourist

industry

• Ettihad Airlines is providing tough

competition, while Air Arabia is

focusing on the lower-income niche

• Two other airlines are being

established in Ras Al Khaima and

Fujaira

• Open Skies Policy

Success Stories: Air Transportation

•It is estimated that around 25% of the

world’s cranes are currently working on

UAE construction sites—quite an

achievement for a country that makes up

less than 0.1% of the world’s population!

•Nakheel is building the huge new real

estate development project of "Palm Island"

or "the World" in Dubai. These projects and

others will add 1,500 km of waterfront to

Dubai

Success Story: Real Estate

•The Information and Communication

Technology sector has witnessed rapid growth

in:•m-penetration (mobile penetration), which in

2006 exceeded 100% of the population

•e-penetration (internet penetration): at least

one in five subscribers use broadband, which

is one of the highest rates in the Middle East

•The second operator (“Du”) with a

comprehensive license has begun commercial

operations in the first quarter of 2007

Success Story: ICT

The UAE had 215 greenfield

investments, up from 88 greenfield

investments in 2002*

144% increase in number of greenfield

investments over four years

25% a year

Indications of the UAE’s Success

*Source: the 2006 World Investment Report of the United Nations

UAE is the regional leader in both the numbers of

inward and outward greenfield investment projects…

*Source: ibid

Indications of the UAE’s Success

*Source: ibid

“The UAE received FDI inflows of

$12 billion, to become the largest

recipient of FDI in West Asia in

2005. The next largest was Turkey,

primarily on account of a few mega

cross-border M&A sales in services”

•100% foreign ownership

•No minimum capital investment requirements

•No corporate or personal income tax

•Low tariffs (around 5% for virtually all goods)

•No restrictions on repatriation of profits or capital

•Excellent infrastructure, support services, and communications

•At least 40 double taxation agreements and at least 30 bilateral investment treaties

•An opportunity to penetrate fast growing neighboring markets

Advantages of Investment in UAE Free Zones

Why Investments Flourished in the UAE

Water tariffs—US$ per cubic metre (m3)Water Tariffs- US$ per cubic meter Gas tariffs—US$ per cubic metre (m3)Gas Tariffs- US$ per cubic meter

Power tariffs—US$ per kilowatt hour (kWh)

Power tariffs- US$ per kilowatt hour (kWh)Comments

Cost Efficiencies

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Foreign companies investing

in the UAE enjoy cost

efficiencies, mostly in power

and gas

What the government has done and is doing…

Concluded…•Several rent ceilings were

issued at the Emirate level to

deal with the rent increases in

the short to medium run

•A Consumer Protection Law

was passed late 2006

•A National UAE

Development Strategy was

announced in April 2007

In the Pipeline…•The Ministry of Economy has

drafted a Competition Law- the law

will be the main vehicle to combat

cartels and abuse of dominant

position

•The government is currently

working on introducing a Foreign

Investment Law that will further

increase private sector competition

•A Statistical Bureau is being

established in line with a

recommendation from the National

UAE Development Strategy

The NIRA Process and

Progress towards a Foreign Investment Law

Mandate

from the

Cabinet to

Form a

National

Investment

Reform

Agenda

Committee

NIRA

Workshop

Discussions with

all relevant

stakeholders

(two meetings

held)

Legal Process with the Ministry of Justice

Drafting a

Foreign

Investment

Law

Goals of the Draft Foreign Investment Law

•To attract investments in areas that are not the country’s core

competencies

•To further develop the investment climate in the UAE

•To attract investments that achieve any of the following objectives:

•Increase economic diversification

•Increase technology transfer

•Training local citizens

•High value added industries and services

•To direct investments towards underdeveloped geographical locations

Highlights of the Draft Investment Law

• The law would apply to all foreign

investments in the country with the

exception of:

– investments in oil, gas, electricity and water-

these are regulated by the relevant laws at

the Emirate-level

– investments in the Free Zones

Highlights of the Draft Investment Law (cnt’d)

• A Higher Committee for Foreign Investment

would be established by the Council of

Ministers and would comprise the Ministry of

Economy, relevant Ministries and Federal

institutions, local governments, and private

sector representatives

Highlights of the Draft Investment Law (cnt’d)

• A Foreign Investment Department would be established in the Ministry of Economy and would engage in the following, inter alia:

– Establish a database of existing FDI

– Create periodic foreign investor guides

– Engage in investment promotion

– Assist local governments in streamlining registration procedures

– Engage in dispute settlement

Highlights of the Draft Investment Law (cnt’d)

• Expropriation or confiscation of foreign

investments is not allowed except for

public benefit and with fair compensation

according to the relevant laws of the

country

Highlights of the Draft Investment Law (cnt’d)

• The Council of Ministers, upon the Minister of Economy’s recommendation, issues the list of sectors open to foreign investment as well as the foreign ownership caps for the different economic sectors

• Incentives may be given to foreign investors based on its economic significance, value added, use of local resources, technology transfer, registered capital and other factors

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