Our Experience with Structuring

Economic and Investment Climate Reforms

Aref Al Farra

Economic Advisor- Ministry of Economy- UAE

Bahrain- June 26th, 2007

Today’s Topics

•Economic sectors leading the way

•Why investments flourished in the UAE

•What the government has done/ is doing

•Communication Efforts

In the UAE, change has been very

dramatic: we have moved from the pre-

industrial to the post-modern age in less

than a couple of generations...

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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

• Currently, the UAE‘s commitment to

an ‗open skies‘ policy means that

more than 100 airlines connect

through our airports

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

Why Investments Flourished in the UAE

New York London

Frankfurt

UAE

A bridge between east and west

(CPI based ) Inflation Rates

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United Arab Emirates Bahrain Kuwait Oman Qatar Saudi Arabia Jordan

Inflationary Pressures Have Become a Challenge Facing the

GCC and the Region…

Source: IMF; note that not all CPI indices factor in rental prices, and therefore these estimates have to be analyzed carefully

In the UAE, inflation has been mostly a result of

both exogenous and endogenous factors…

•Increasing rent prices •Due to supply shortages, rent prices increased significantly in Dubai,

Abu Dhabi and even Sharjah

•Rent constitutes around 36% of the average household expenditures

•Increasing money supply post September 11th

•Returning UAE and Arab Capital

•M1 grew by at least 30% a year over the last few years

•A one-time increase in the price of fuel•Fuel prices increased by 31.5% in 2005

•The decline in the USD vis-à-vis other world currencies and its

analogous effect on GCC currencies•The dollar lost around 30% of its value since 2001

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

passed late 2006

that has already managed to

reduce prices of some basic

commodities

•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

Goals of the Competition Law

•To create an enabling environment for business and to encourage

competitiveness and sustainable development

•To combat anti-competitive practices, cartels and abuse of

dominant position

•To prevent any actions that limit competition

•To support SME growth

Progress on the Competition Law

Mandate

from the

Cabinet to

Draft a

Competition

Law

Drafting a

Competition LawDiscussions with

all relevant

stakeholders

Legal Process with the Ministry of Justice

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

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

Communication Efforts

• Rapid legal reform has to be accompanied by an

effective communications campaign

• Currently we rely on diverse communication tools

such as:

– Newspaper articles

– TV appearances

– MUPIs/ road signs

– Booklets and brochures

• Other communication tools can be adopted based on the

exact target group

Three Main Types of Communication

G2G- government to government

(e.g. Ministry to Ministry, or intra-Ministry Communication)

G2B/ G2P- government to business/ government

to private sector

G2C- government to citizen/ resident

Each of these relationships require

different communication tools

G2B

• Main interface with the Ministry of Economy

Licensing and registration, FTA negotiations,

Consumer Protection Department, and

(potentially) Competition Department, input on

proposed Federal legislation

• Communication tools:

Brochures and publications, newspaper articles,

periodic meetings with Chambers of Commerce

and Industry, and other tools

Why Involve the Private Sector?

أهل مكة أدرى بشعابها

“The people of Mecca know Mecca best”

• Reduce any potential resistance

• Create ownership and buy-in

– The suggested advocacy reflects the private sector’s

aspirations and concerns

• Get feedback from the private sector

G2C

• Main interface with the Ministry of Economy:

Consumer Protection Department, Statistics and information requirements

• Communication tools: brochures and publications, newspaper articles, MUPIs/ road signs, and telephone hotline to receive complaints from consumers, TV appearances of key officials

• Potential ideas: SMS messages to the public

...شكرًا

Thank you