UAE’s FDI ecosystem to lead future global trends
editor's pickWednesday 26, December 2018
Sharjah hosted the fourth global forum on Foreign Direct Investment (FDI) under the theme, Global FDI: New regulations and Business Trends. The UNCTAD’s Global Investment Trends Monitor report stated that global FDI flows fell by 16 per cent in 2017 to an estimated $1.52 trillion, from a revised $1.81 trillion in 2016.
The steep decline in global FDI trends has been attributed to policies of protectionism, economic fundamentals as well as value chains and other factors that have dominated the world economic stage. A -27 per cent slump in FDI flows to developed countries was also fingered as the principal factor behind the global decline.
A strong decrease in investment flows was reported in Europe as well as in North America, mainly due to a return to prior levels of inflows in the UK and the US after spikes in 2016. On the contrary, FDI in developing economies remained stable, at an estimated $653 billion, two per cent more than the previous year. Flows increased marginally in developing Asia and Latin America and the Caribbean but remained flat in Africa.
The Middle East and Asia regained positions as the largest FDI recipient regions in the world followed by the EU and North America. According to HE Marwan bin Jassim Al Sarkal, the Executive Chairman, Sharjah Investment and Development Authority (Shurooq), the UAE government has been supportive through the enacting of laws and regulation that seeks to boost FDI.
UAE FDI ecosystem
The President of UAE, HH Sheikh Khalifa bin Zayed Al Nahyan recently issued new investment laws which is believed to boost and retain foreign investment for the UAE to lead the FDI sector by 2071. The Emirates shrugged off the negative trend in global FDI by achieving a 7.8 per cent growth in FDI inflows in 2017 totalling $10.4 billion.
Looking to the future, authorities seek to focus on manufacturing, transport as well as renewable energy, agriculture and water sector in the short term to attract FDI. HE Sultan bin Saeed Al Mansouri, the UAE’s Minister of Economy, said that the new FDI law will be integrated with several supplementary laws and a list of incentives to lead future FDI trends with an aim to reach between $11-11.5 billion.
The UAE expects the implementation of FDI to boost non-hydro economic growth. An array of measures meant to attract investment to the country were introduced this year. These included visas for people with special skills and student undertaking studies, 100 per cent ownership business ownership among others.
With an expat population of about 80 per cent, the UAE introduced a new visa in September which will allow foreigners to obtain extended residency after they retire, a major policy shift designed to give expatriates a bigger stake in the economy and foster longer term growth. The new law comes into effect in 2019, where a retiree must either have a property investment worth at least AED 2 million ($544,500), savings of no less than AED 1 million or a monthly income of no less than AED 20,000.
HE Juma al-Kait, Assistant Undersecretary for Foreign Trade at the Ministry of Economy, said that the UAE expects up to 15 per cent growth over the next year attributing this projection to Federal Law No. 19 of 2018, which was recently issued by a presidential decree. The granting of long-term visas to the country’s largely expatriate population will benefit investors and people with specialised expertise like doctors, researchers and those in the technology field.
The UAE introduced support for the industrial sector by agreeing to reduce electricity fees for UAE factories. Under the plans, larger factories would receive a 29 per cent reduction in tariffs while small and medium-sized units would have fees reduced by between 10 and 22 per cent.
HE Eng. Sultan bin Saeed Al Mansouri showing HH Sheikh Sultan bin Muhammad Al-Qasimi one
of the real-estate and property projects by Eagle Hills Sharjah called Mariam Island.
The open market system
The UAE is moving towards an open market to encourage foreign investment to compete with the local market but at the same time measures are being put in place to protect Emirati firms. However, the UAE is also proud to see local companies leading the global market--DP World has operations in 40 countries and operates 78 marine and inland terminals fulfilling the cooperate social responsivity of the firms.
On the other hand, Emirates operates 52 group of companies across the globe, among them Destination Asia and Emirates Leisure Retail in Singapore and in Australia. In the first half of 2018, in a bid to become a pioneer in blockchain technology, the UAE launched the UAE Blockchain Strategy 2021, in accordance with a resolution to which 50 per cent of government transactions will be conducted using blockchain technology by 2021.
To solidify its vision, the UAE also issued regulations on the use of crypto assets, blockchain as well as cryptocurrencies. The UAE is among the first countries in GCC together with Bahrain to introduce a digital currency friendly economic environment which in turn is expected to be a boost, as majority global economies now prefer to operate in countries which are not restrictive to technological innovations. In an exclusive interview with Banker Middle East, HE Marwan bin Jassim Al Sarkal, said that technology is the future.
“Technology is like electricity back in the days and the UAE is the first country to have a Minister of Artificial Intelligence in light of the need to fully invest in the digital industry,” Said Al Sarkal. In June 2018, Abu Dhabi Global Market (ADGM) launched a framework to regulate cryptoasset activities including those undertaken by exchanges, custodians and other intermediaries in ADGM, was followed by the launching of a blockchain-based digital wallet called e-Mal was launched in UAE.
The economic systems and legislation adopted by government directly affect the attractiveness of investments, and it is the UAE’s vision is to transform the country into a knowledge-based economy. This is not only aimed at attracting investments but also to ensure their sustainability. The UAE has many economic laws and regulations that deals with investor rights, guarantees property rights as well as arbitration law, insolvency law and corporate law, added Al-Kait.
Additionally, the UAE also has advanced infrastructure such as free zones and ports that are spread across the country, well-established road networks and faster communication systems, all of which are technologically advanced to harness competitiveness and attractiveness for investors.
Technology is changing the pattern of FDI and countries in developing economies are being urged to use technology to their advantage. While the UAE has adopted a development, vision based on a free-market economy and the promotion of the private sector, it also recognises the Government’s fundamental role in ensuring the efficiency of doing business. The introduction of Smart UAE also means that it is now easy to register an investor’s company which is a positive development for the economy.
Countries that witnessed a decline in the volume of FDI last year, such as the US, China as well as Canada and a number of European countries, are also among nations that are facing a decline in various aspects of their socio-political and economic relations.
The factors hindering global FDI growth include the ongoing trade war waged between the Trump administration and the Chinese government, currency wars between the US and Turkey, BREXIT and restrictions as well as slow developments in digitisation. “The economy today is operating in a village like set up because we are operating on a global scale,” added Al Sarkal.
Brexit dealt a blow to Britain’s financial-services industry which saw a drop in foreign investment while some of its European counterparts enjoy big gains. In a report, EY stated that that foreign investment into Britain’s financial services firms fell 26 per cent in 2017 and in contrast, Germany experienced a 64 per cent increase, while the figure for France more than doubled.
Speaking on the side lines of the Sharjah FDI Forum, Harald Djedka, the Senior Investment Policy and Promotion Officer at the World Bank Group, said, “That the reason for the fall of foreign direct investment in many developed nations over the past two years has been negative economic policies and protectionism in many countries.” London still attracted more inward investment in financial services than any other EU city, but the gap with Paris, Frankfurt and Dublin is said to be closing.
Brexit is threating jobs of around 750 000 people and the existence of companies in Britain after March 2019, with global conglomerates like Tata Motors and Airbus already looking for alternatives in the event of pulling out of the UK. Additionally, Goldman Sachs announced that it would be will shifting jobs away from London while adding several hundred in Europe.
Effects of protectionism policies
Moreover, trade wars between developed economies impacts FDI in both emerging markets and developing economies. The 10 per cent levy that President Donald Trump imposed on aluminium imports as part of measures designed to protect US industries has had a snowball effect across all aluminium exporting countries. The tariffs which fall within policies of protectionism affected global companies like London-based Rio Tinto which operates aluminium smelting plants in Canada.
The unfavourable market conditions also impacted on the UAE’s Global Aluminium, which produces about four per cent of the metal globally. The effects of policies on FDI will not be explained enough without mentioning the raging US-Sino trade war. In September President Trump ordered his administration to levy 10 per cent tariffs on about $200 billion in Chinese goods and there is room to increase the rate in January 2019 to 25 per cent if Beijing refuses to offer trade concessions.
In retaliation, China hit US goods, ranging from wheat to textiles, with five per cent to 10 per cent tariffs. Policies of protectionism are hurting FDI in both the developed and developing economies. However, the UAE is coming up with a number of open market policies which are meant to invite foreign investors to compete locally, at the same time the Government is also encouraging local companies to compete globally.
The on-going trade war between the US and China is hurting global FDI, European countries among other emerging countries are no longer feel safe doing business with China because they are afraid of being penalised by the Trump administration.