After weathering turbulence from the global economic crash of 2008 and the region’s geopolitical events in subsequent years, the UAE has made an impressive recovery in receiving foreign direct investment (FDI).
Preliminary results from the International Institute of Finance say FDI inflows to the UAE rose to $11 billion (Dh40.39 billion) in 2017 and won a 22 per cent share of investments made in the Middle East and North Africa.
Within a smaller geography, the UAE has the lion’s share of inward FDI in the GCC region, attracting a 47 per cent share valued at $80.8 billion between 2013 and 2016, according to research from Kamco Investment Company.
“Continuous efforts by authorities towards ease of setting up and doing business, improving procedures to access credit locally, reducing bureaucratic interruptions and launching processes to improve transparency are drivers that have led to the UAE as the preferred investment destination in the region,” says Faisal Hassan, Head of Investment Research at Kamco.
“The growth of small and mid-cap companies in the UAE have also led to the creation of newer structures of FDI participation such as joint ventures, strategic partnerships, alliances, and subcontracting and licence arrangements,” says Hassan. “These factors should see an even more increased preference of FDI towards the UAE.”
While these rankings are reason enough to rejoice, the UAE’s ambitions are far more widespread —and worldly.
Strength in partnerships
In March, Dubai Investment Development Agency (Dubai FDI) partnered with Dubai Multi Commodities Centre, Dubai South, Emirates airline, Emirates SkyCargo, Dubai Tourism and the US-UAE Business Council to lead a mission to Ohio to attract investments into key industries and business sectors in the UAE.
By highlighting infrastructure and innovation from multiple industries and authorities, their mission is simple enough — explore potential and cement partnerships in bilateral investment.
Dubai is one of the world’s top FDI destinations in real estate, according to new research from consultancy JLL. In its report, World Cities: Mapping the Pathways to Success, Dubai sits alongside a new group of hybrid cities, which compete in specialised markets but benefit from access to larger markets.
Pertinently, the report says it is the emirate’s ongoing progress in improving real estate transparency that has resulted in elevated levels of foreign investor activity in the last cycle. Earlier, Dubai was also named the most transparent real estate market in the Middle East in JLL’s 2016 global real estate transparency index.
Role of realty
Apart from the superior ‘liveability’ associated with Dubai’s hybrid city ranking, the real estate sector is also playing a prominent role in attracting FDI to the emirate, and to the country.
“When you look at rental yields in the UAE, it is much better than other global markets in US dollar terms,” says Praveen Mehta, Business Development Manager at realtors Coldwell Banker UAE. “Although it may seem to have touched the bottom, yield is still greater than the cost of finance.
“Government authorities have already proven and continue to create outstanding developments in infrastructure, healthcare and education,” he says. “These are the primary keys to attract foreign investors who can expect to avail high capital gains over a three-to-four-year horizon.”
He also lauds the collaborative efforts of private and public sectors in promoting the UAE as an attractive investment destination.
“Both sectors complement each other in their roadshows, exhibitions and other efforts to attract both institutional and individual investors. These efforts are fulfilling the expectations of foreign investors, either in terms of rental yields or long-term capital gains, especially as there is no tax levy on these returns.”
Realty-related activities accounted for about 24 per cent of the UAE’s incoming FDI in 2016, largely driven by the high-quality infrastructure platforms of Dubai and Abu Dhabi, says Kamco’s Hassan. But he joins several experts in predicting that other sectors will rise to prominence as the UAE tries to dilute its erstwhile concentration in hydrocarbons, and water and electricity production.
“We see a lot of potential for other sectors to attract FDI, especially technology, manufacturing, scientific research and development, and information and communications technology. The interests of Boeing and Airbus in Abu Dhabi’s aerospace manufacturing sector is one such example.”
Single window focus
From 2009 to 2016, Abu Dhabi attracted Dh95 billion in foreign investments — with an average annual growth of 8 per cent — and the newly established Abu Dhabi Investment Office or ADIO wants to take this beyond 10 per cent. It hopes to achieve this through consolidation and diversification.
At the inauguration of the new entity in February, Khalifa Bin Salem Al Mansouri, Undersecretary of Abu Dhabi Department of Economic Development, says that while earlier attempts by smaller, independent units were perfunctory, their consolidation into ADIO will strengthen efforts.
“We want to have double-digit investment growth because we believe Abu Dhabi was not really open for investment previously. Now our message is: Abu Dhabi is open for investment, and all investors are welcome.”
ADIO will focus on promoting FDI in Abu Dhabi’s education, health, manufacturing, logistics, tourism and financial services sectors.
Hassan says governmental efforts can be better boosted by the private sector, especially in the financial services arena. “In the UAE’s case, Dubai Expo 2020, UAE Vision 2021 and the transparency and accountability of VAT implementation are great measures to attract new FDI. But in our view, the banking and financial sector also hold the key to bring in more capital.
“A more modernised sector and increased availability of data such as credit information will further augment direct investment from the international market,” says Hassan. “This requires joint support from commercial and investment banking, insurance, leasing and other allied services.”
Praveen Mehta is more specific about the role of banking.
“I believe easing bank leverage can boost the market and take it up to a different level. Long-term mortgages with loan-to-value ratios of 80-85 per cent must become available to overseas investors, not only on ready properties but also on off-plan editions.”
On track for investment
In March, the Federal Transport Agency, Land & Maritime (FTA-LM) said the UAE’s new railway law will provide a regulatory framework to reassure private rail investors. Dr Abdullah Mohammad Bel Haif Al Nuaimi, UAE Minister of Infrastructure Development and Chair of the FTA-LM, said private investment would shape the future development of railways.
“Any successful development will definitely have the private sector as an important partner in the business,” he said. “And maybe 60-70 per cent of the legal framework of the law is to comfort the private sector to get in.”
The 264km first phase of Etihad Rail, the UAE’s stretch of the larger Gulf Railway, is already operational between Shah, in Abu Dhabi’s Western Region, and Ruwais, near the Saudi border.
Law to add allure
A new UAE investment law in the works could change the nation’s investment landscape by attracting more FDI, especially into non-oil sectors. The law is expected to bring three significant changes:
• Restriction precluding foreign investors owning more than 49 per cent shareholdings in UAE firms will be partially lifted for certain sectors.
• Up to 100 per cent foreign ownership of onshore UAE companies may be allowed.
• The practice of UAE national shareholders entering into commercially negotiated schemes of arrangement — to act as nominee shareholders on a beneficial basis to the order of a minority foreign shareholder — may be ended.