UAE Attractive yet challenging
Atiq Anjarwalla and Ian Gaitta of Anjarwalla Collins & Haidermota examine the factors that make the UAE an attractive yet challenging regional investment destination
T
he last 12 months in the United Arab Emirates (UAE) have seen increased activity in the real estate, tourism and hospitality, oil and gas and retail sectors, notwithstanding the global eco- nomic slowdown. There has been a significant increase in the number of foreign investors
seeking to establish their business presence in the UAE. The principal drivers for these developments range from the effects of the unrest in other parts of the region arising from the Arab Spring (with the UAE being seen as a safe haven for capital) to the continued development of the UAE as a world class transportation and logistics hub for regional and international business. The UAE not only offers polit- ical stability and economic growth potential but is seen as a friendly and safe business and social envi- ronment. In addition, the UAE’s geographic position is in proximity to major global economic centres. It has also made strides in improving the legislative and regulatory framework in key sectors. All these factors contribute to the continued attractiveness of the UAE to foreign investors. The country offers several longer-term investment opportunities. The UAE continues to upgrade and
expand its transport and logistics infrastructure, and this is expected to facilitate increased trading activi- ty in the UAE. Developments of note include the KIZAD integrated port and industrial zone in the Emirate of Abu Dhabi. A UAE railway system has also been proposed to serve freight traffic. The UAE is also undertaking various measures aimed at diversifying its economy from reliance
on hydrocarbon revenues to fuel its growth. The diversification efforts will present new opportuni- ties to investors. The banking industry in the UAE is governed by the Central Bank Law (Federal Law No. 10 of
1980). This law and the regulations issued pursuant to it govern the operations of commercial banks. Financial services entities licensed to operate in the DIFC are subject to the regulation of the Dubai Financial Services Authority (and DIFC-licensed entities are not permitted to conduct commercial banking activities onshore in the UAE). The UAE Central Bank exercises substantial authority over its licensees and there have been var-
ious measures introduced and/or enforced by the UAE Central Bank following the global financial crisis with a view to improving the prudential management of banks, for example through the introduction of various prudential guidelines based on the Basel II prudential standards. Significant sovereign exposure as a result of lending to government-related entities continues to
be a challenge to the UAE banking sector and the UAE Central Bank has taken steps to introduce limits to the sovereign exposures of commercial banks. Development of a robust regulatory frame- work for creation and enforcement of security interests would also be of benefit to banks and bor- rowers alike as it would reduce the current reliance in the UAE market on criminal law sanctions for loan default. The threat of criminal law sanctions for commercial loan default is a major disin- centive to the taking of credit by investors in the UAE. The UAE has been politically stable since its inception as an independently administered feder-
ation of emirates. Its political system comprises a federation of seven Emirates. A federal constitu- tion regulates the relationship between the Emirates, and each Emirate has a hereditary system of leadership. The head of the federal government is the ruler of the Emirate of Abu Dhabi who is also the president of the UAE. The UAE is also a member of the Gulf Co-operation Council (GCC), a regional organisation which also includes Bahrain, Qatar, Saudi Arabia, Kuwait and Oman. The federal constitution recognises private ownership rights and there is no history of unlawful
state expropriation of foreign investors’ assets. The UAE currency is freely convertible against major hard currencies and there are no exchange controls. The UAE dirham is pegged to the US dollar. Although the UAE is seen to be politically stable, events and circumstances outside the UAE in
the broader Middle East region could have an impact on regional stability and the flow of trade and investment in or from the UAE.
www.iflr.com IFLR|FOREIGN DIRECT INVESTMENT 037 “ No corporate
income tax is imposed at federal or Emirate level in the UAE
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