Having experienced its strongest economic year since formation, coupled with Dubai’s bid to host Expo 2020, the UAE has positioned itself as one of the world’s most promising investment destinations for foreign companies. In 2014, inward FDI saw a 25 percent year-on-year increase to reach $13bn, accounting for approximately 40 percent of the total inward FDI of the GCC region.

The UAE maintains a position as the major trade and investment hub for a large geographic region, which includes not only the Middle East and North Africa (MENA), but also southern Asia, central Asia, and sub-Saharan Africa. In the World Bank’s Doing business 2015 report, the UAE ranked 22nd out of 189 economies, up three places on last year’s list. This makes the UAE the best country in the Middle East in which to do business.

Multinational companies cite the UAE’s political and economic stability, rapid population and GDP growth, and efficient and fast-growing capital markets as positive factors maintaining the state’s attractiveness to foreign investors. What’s more, the UAE’s diversification policy constitutes an important pillar of its economic performance. In 2014, the contribution of the non-oil sector to the national economy reached 68.6 percent of constant-price GDP.

Several major laws have either recently been enacted, or are in draft status, and are set to address the concerns that may have discouraged foreign investment in the UAE

Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Emir of Dubai, recently announced plans to increase this contribution to as high as 80 percent by 2021. He says this will be achieved through intensive investment in the industrial and tourism sectors, air and maritime transport, and import and re-export, as well as by supporting a range of projects and initiatives based on the knowledge economy.

With its positive outlook, strong and stable leadership, and maturing regulatory framework, the UAE continues to attract foreign investors from all markets. However, it is the country’s evolving investment laws that stand to be most conducive for increasing inward foreign investment.

Overcoming barriers
Although the UAE enjoys its position as the most competitive country in the Middle East (according to the World Economic Forum’s Global Competitiveness Index), it does lag behind other advanced economies in terms of business laws. Company principals often explain that they don’t necessarily – from afar – have faith in the legal systems available to address potential dispute resolution.

For example, majority local ownership for onshore businesses incorporated in the UAE still presents a deterrent to foreign companies. Federal Law No. 2 of 2015, concerning commercial companies, still requires a local national to hold a minimum 51-percent share of the company. It is important to understand that this local ownership requirement does not mean having to give up ownership control. It is possible, imperative in fact, when setting up an onshore limited liability company in the UAE, to protect ownership interests and identify clear succession planning by using a nominee corporate partnership. This is a model Links Group pioneered in 2002, in association with Dubai FDI, and provides foreign businesses with a corporate entity to act as their 51-percent nominee, local partner, shareholder or sponsor, thereby minimising the risks associated with appointing an unknown individual nominee.

Another barrier to entry is the UAE insolvency law. Historically, regulations did not support businesses struggling to make payments to stay afloat, with bankruptcy cases and bounced cheques sometimes carrying criminal implications. The ability to enforce contractual arrangements or judgments through an unknown and foreign-language court system was another red flag waved by foreign companies wanting to access Middle Eastern markets.

However, the government is striving to improve transparency within the state to reduce any perceived risks among investors of doing business in this rapidly developing economy. The government has publicly declared its commitment to cut red tape for foreign investors, with the intention of not only becoming the most competitive economy in the Gulf region, but one of the top economies globally.

In with the new
Several major federal laws have either recently been enacted, or are in draft status, and are set to address a number of the concerns that may have discouraged foreign investment in the UAE. In a promising move, the government has approved the long awaited insolvency law, which aims to regulate accumulated debts, ease restructuring, and support troubled businesses as the country seeks to increase foreign investment in the region. If passed, the draft law, approved July 5, will provide an effective and modern framework for foreign companies to satisfy their internal risk assessment criteria, and enter the UAE market with confidence.

Another law that has been revised is the commercial companies law. This law, which came into effect in July, provides greater flexibility for investors. It decreases the minimum ‘free float’ of shares in company flotations on the two main stock markets in the UAE from 55 to 30 percent, in an attempt to encourage companies to go public. Companies will also be able to carry out floats by selling existing shares, instead of issuing new equity, and flotation prices will be allowed to be set by book-building, or by obtaining indicative bids from fund managers, rather than through a fixed-price evaluation method.

Protection of minority investors is also key to attracting foreign investment to the UAE. For this reason, the government has mooted plans to amend the current foreign ownership law to allow 100-percent foreign ownership of companies in free zones in strategic sectors. A first draft of the law has been approved by a Ministry of Justice committee. It will now be redrafted by the Ministry of Justice before it is sent to the Federal National Council and the cabinet for approval. This long-awaited law is currently expected to take effect in 2016.

Another piece of legislation that has been passed in 2015 is the public-private partnerships law. It aims to encourage the private sector to participate in major infrastructure and development projects, and to increase the overall investment level in these projects. The law will remove the need for project-specific legislation for entities and for the government to act as guarantor for projects. The law is seen as a huge step forward for the future, for the development of a PPP market in Dubai.

The signing of memoranda between the Dubai International Financial Centre courts and judicial entities in the UK and Australia is also helping to build confidence in the UAE’s legal system. These agreements enable reciprocal rights under the internationally recognised and understood English common law system, in a bid to strengthen legal and trade relations between Dubai and those countries.

With the UAE government focused on creating a business environment that ensures economic and social stability, the country is set to become even more attractive to foreign investors. More than 25 percent of the world’s 500 largest companies have already chosen the UAE as their operational headquarters within the MENA region. As the country’s legislative environment becomes more efficient and aligned with international arbitration standards, we expect investment flow into the country will gather significant momentum over the next few years.