Free Trade Zones

UAE 100% Foreign Ownership Will Boost Investor Confidence and Lower Cost of Operations


(MENAFN – Khaleej Times)

The UAE’s announcement of 100% foreign ownership in all areas as of June 1 is being touted as a game changer and a masterstroke. This was the biggest request from various works councils in decades. The current system requires 51 percent local sponsorship as well as majority representation on the board, with the president being Emirati. In a country where over 80% of the population are expatriates and the economy is relatively better diversified than its GCC counterparts, the opening of property doors cannot be better timed.

Multiple waves of Covid are ravaging global economies, including the United Arab Emirates, whose GDP is expected to shrink by 6.6% (IMF) with the largest budget deficit on record. It has also led to an exodus of expatriates due to job losses, resulting in a population decline of 10% with heavy economic consequences. Attracting expatriates and tourists will require an economic stimulus induced by considerable investments. Although the UAE has been quite successful in attracting FDI, it is mostly found in the oil and gas sector, followed by the digital economy. Being a service economy and a global tourism destination, the UAE can certainly do well to attract more FDI in several other sectors and this reform is aimed at just that. In addition, Expo 2020 is fast approaching and will need a conducive business environment for this to happen effectively.

Business reform such as 100% foreign ownership in all areas can really be the icing on the cake as it improves investor confidence and also lowers the cost of operations, which is an essential business requirement. With a visa-friendly regime now in place, the business environment is now at its best.

On the other hand, the economic model of free zones will come under intense pressure where it was previously the only place where 100% foreign ownership was allowed. There are over a dozen free trade zones in the UAE and they have done quite well compared to other GCC free zones.

It will be interesting to see if other GCC countries, especially Saudi Arabia, do the same. While the need to attract FDI may be important for all GCC countries, many of them have confined their local populations in an effort to improve employment opportunities for residents.

The response to the Covid pandemic has been very different across the world. Many advanced economies are putting money directly into people’s pockets as part of what is called a fiscal stimulus. They also receive generous help from central banks, which have promised to keep interest rates low for a good period in the future. However, the reaction of emerging markets has been mainly in the form of reforms, as they do not have the deep pockets to put the money directly into the hands of the citizens. Additionally, global economies have started to turn inward after Covid. Restoring the supply chain, global transport and tourism will certainly take longer than expected. This will have a significant impact on trade and FDI for many countries around the world. The UAE has positioned itself as a hub of world trade and therefore trade is the central nerve. In this scenario, opening up the economy before others through such reforms can be seen as not only opportune, but also wise in opening the doors to trade. The UAE is certainly showing the world the way.

Mr. R. Raghu is Managing Director of Marmore Mena Intelligence. The opinions expressed are his own and do not reflect the policy of the newspaper.


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