When lawmakers ponder on a new law, there are a number of considerations they have to juggle with, including its impact, personal beliefs, policy direction from the leadership, and political expediency. But often, there may be another more subtle force at work — that is of peer effects.
Such an impact has been widely documented in western economies. In Dubai, we see the impact on the ground when it comes to the rapidly changing laws that impact everything from local cultural heritage to economic dynamics that affect the status quo.
With the onset of asset and financial liberalisation, there has always been a debate about the recalibration of the local versus expatriate share of the economy. With real estate as an asset class having taken off in terms of popularity, it stands to reason that future narrative in this space will be dominated by international citizens.
However, with the private sector dominating the economic landscape, there has been rising levels of debate about its responsibility and the need to hire UAE nationals. This has been done in sectors like banking through the imposition of quotas.
Debates therefore have centred around a quid pro quo framework; that as the UAE liberalises more of its sectors and opens up for foreign ownership, the private sector should reciprocate by inducting more of the local workforce into their employment. The counterpoint to this has been the disparity in salaries between nationalities.
The resultant impact has been that government sector corporations remain the major employers of UAE nationals. The logical consequence of this trajectory is taxation, a framework where there is a safety net that is created for UAE nationals, as is the case in most countries. When we scrutinise the narrative of the debate, we see two opposing sides — one favouring imposition of additional mandatory quotas, and the other that revolves around an incentivised framework for the private sector.
These opposing impulses have played out in other parts of the Middle East, with the conservative and liberal factions of society indulging in animated debate as to what the optimal policy outcome should be.
In my opinion, given the ethos of the UAE — which is always one for openness and tolerance — an incentivised framework narrative works better. For example, given the impending FDI law, which is expected to liberalise foreign ownership in certain sectors, it would be beneficial if it were linked to the awarding of certain exemptions. (For example, a waiving of license fees if a certain percentage of employees hired would be national.)
This could be fleshed out further in the area of awarding government contracts for infrastructure projects and/or under a framework of public/private sector joint collaboration projects. In certain cases, this framework exists already, but it would be beneficial if it were made more explicit.
For start-ups, there could be the promise of certain funding that would be made available if the content would be in Arabic. Likewise, training and vocational institutes would be funded at beneficial rates if and only if there was local content and employment that would be inculcated as part of the curriculum.
In sector by sector, such incentives could be curated to facilitate a greater buy in. Schemes could accordingly be introduced for tax and fee exemptions that would go hand in hand with the hiring of the local workforce.
The trajectory of the UAE economy is likely to be dominated by SMEs for the decade to come. The challenge therefore appears to be one where there is an alignment of incentives by lawmakers such that the private sector works hand-in-hand with the local workforce to create a job engine that becomes the bulwark of economic growth.
Lawmakers always have to debate between the carrot and the stick. Economic history suggests that offering the carrot always ends up being the more advantageous economic framework.
Nasser Malalla Ghanem is Senior Partner at the law firm of NM Associates, which has a joint venture with GCP.