Dubai: A new law that reduces red tape for Gulf companies looking to set up shop in the UAE has been welcomed by analysts. But they warn that the region is still far from being a level playing field.
The rules, which allow Gulf companies to easily open branches in the UAE even if they have no local partner, have yet to be followed by the other members of the Gulf Cooperation Council (GCC).
Even if they are, analysts say, the ease of opening an office is only one of a number of issues vis-a-vis doing business in Qatar, Oman and particularly Saudi Arabia, the region's biggest economy.
"I expect that this will not be as straightforward. The rest of the Gulf is very protectionist, even against other Gulf companies," Saeed Hirsh, a London-based economist at Capital Economics, said.
He cited how much of the development work in Saudi Arabia and Qatar involves state contracts, with the government preferring to grant major projects to local firms instead of regional competitors. "Even if Saudi Arabia went ahead and announced it, that doesn't mean you would see Arabtec going in and taking projects from Saudi Bin Laden," he said.
Concurring with him, Farouk Souza, chief Middle East economist at Citigroup, said: "Both here and in Saudi, there are large dominant holding companies owned by merchant families. It is a difficult environment to enter even if the legislative hurdles have been removed," he said.
Influx of businesses
"These companies are not operating in a competitive corporate landscape. You can open up your markets but there are a lot of monopoly suppliers of different brands, there are different ways of protecting the market."
Haissam Arabi, chief executive officer, Gulfmena Investments, said the specifics of how the law would operate remain unclear. "Less red tape and equal opportunity would be great for UAE companies like Arabtec and Drake and Scull. However, it still remains to be seen which sectors that will entail. Can a financial institution or a bank open up branches with the same ease?" he said.
Arabi said that Qatar, which is preparing to host the FIFA World Cup and bid for the Olympic Games, could benefit from an influx of UAE companies.
Analysts had mixed feelings about the impact of the new law on GCC economies. "Red tape has always been a problem (in the UAE). So if they are removing that then it is a good thing," Hirsh said. "But I do not expect a boost in employment or in GDP. Is it going have a major effect on the country's economy? No."
But in terms of the effect on UAE companies, should the rules spread to Saudi Arabia and Qatar, he was upbeat. "I would expect the UAE's business in particular to benefit even if this is not applied to the spirit of the agreement," he said.
"Ultimately, more competitive and dynamic businesses will do better than those purely protected by their governments. The latter have no incentive to become more efficient or innovate."
Citigroup's Souza was more sceptical. "I think it is great that they are putting this legislation in place, but this is only one element of the necessary infrastructure," he said.
