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Investment Reform in the UAE

Aref Al Farra

Senior Economic Advisor- Ministry of Economy- UAE

Amman- September 4th, 2007

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Todays Topics

Economic highlights

Why investments flourished in the UAE

Highlights of the Draft Foreign Investment

Law

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0

20

40

60

80

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

USD

billion

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

growthrate

average oil prices (US$ per barrel) UAE exports (US$ billion) nominal GDP (US$ billion)average oil prices- % growth UAE exports- % growth nominal GDP- % growth

Successful diversification and the increase in international

oil prices led to a doubling of nominal GDP over four

years

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And yet the total share of the non-hydrocarbon

sector increased over the last few years!

The non-hydrocarbon sector contribution to real GDP growth has

been increasing steadily over the past few years, even with

soaring international oil prices

46% in 1990 62.5% in 2006

This is indicative of successful economic diversification policies

by the government

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Emirates Airlines established itself as a

global transport hub which has

serviced a thriving world class tourist

industry

Ettihad Airlines is providing toughcompetition, while Air Arabia is

focusing on the lower-income niche

Two other airlines are being

established in Ras Al Khaima andFujaira

Open Skies Policy

Success Stories: Air Transportation

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It is estimated that around 25% of the

worlds cranes are currently working on

UAE construction sitesquite an

achievement for a country that makes upless than 0.1% of the worlds population!

Nakheel is building the huge new real

estate development project of "Palm Island"

or "the World" in Dubai. These projects andothers will add 1,500 km of waterfront to

Dubai

Success Story: Real Estate

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The Information and Communication

Technology sector has witnessed rapid growth

in:m-penetration (mobile penetration), which in

2006 exceeded 100% of the population

e-penetration (internet penetration): at least

one in five subscribers use broadband, which

is one of the highest rates in the Middle East

The second operator (Du) with a

comprehensive license has begun commercial

operations in the first quarter of 2007

Success Story: ICT

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The UAE had 215 greenfield

investments, up from 88 greenfield

investments in 2002*

144% increase in number of greenf ield

investments over four years

25% a year

Indications of the UAEs Success

*Source: the 2006 World Investment Report of the United Nations

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UAE is the regional leader in both the numbers of

inward and outward greenfield investment projects

*Source: ibid

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Indications of the UAEs Success

*Source: ibid

The UAE received FDI inflows of

$12 bil l ion, to become the largest

recipient of FDI in West Asia in

2005. The next largest was Turkey,

primari ly on account of a few mega

cross-border M&A sales in services

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100% foreign ownershipNo minimum capital investment requirements

No corporate or personal income tax

Low tariffs (around 5% for virtually all goods)

No restrictions on repatriation of profits or capitalExcellent infrastructure, support services, and communications

At least 40 double taxation agreements and at least 30 bilateralinvestment treaties

An opportunity to penetrate fast growing neighboring markets

Advantages of Investment in UAE Free Zones

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Why Investments Flourished in the UAE

Water tariffsUS$ per cubic metre (m3)Water Tariffs- US$ per cubic meter Gas tariffsUS$ per cubic metre (m3)

Gas Tariffs- US$ per cubic meter

Power tariffsUS$ per kilowatt hour (kWh)

Power tariffs- US$ per kilowatt hour (kWh)Comments

Cost Efficiencies

0.00

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0.10

0.15

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France

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Foreign companies investing

in the UAE enjoy cost

efficiencies, mostly in powerand gas

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What the government has done and is doing

ConcludedSeveral rent ceilings were

issued at the Emirate level to

deal with the rent increases in

the short to medium run

A Consumer Protection Lawwas passed late 2006

A National UAE

Development Strategy was

announced in April 2007

In the PipelineThe Ministry of Economy has

drafted a Competition Law- the law

will be the main vehicle to combat

cartels and abuse of dominant

position

The government is currently

working on introducing a Foreign

Investment Law that will furtherincrease private sector competition

A Statistical Bureau is being

established in line with a

recommendation from the National

UAE Development Strategy

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The NIRA Process andProgress towards a Foreign Investment Law

Mandate

from the

Cabinet to

Form a

National

Investment

Reform

Agenda

Committee

NIRA

Workshop

Discussions with

all relevantstakeholders

(two meetings

held)

Legal Process with the Ministry of Justice

Drafting a

Foreign

InvestmentLaw

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Goals of the Draft Foreign Investment Law

To attract investments in areas that are not the countrys core

competencies

To further develop the investment climate in the UAE

To attract investments that achieve any of the following objectives:

Increase economic diversification

Increase technology transfer

Training local citizens

High value added industries and services

To direct investments towards underdeveloped geographical locations

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Highlights of the Draft Investment Law

The law would apply to all foreigninvestments in the country with theexception of:

investments in oil, gas, electricity and water-these are regulated by the relevant laws at

the Emirate-level investments in the Free Zones

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Highlights of the Draft Investment Law (cntd)

A Higher Committee for Foreign Investmentwould be established by the Council ofMinisters and would comprise the Ministry of

Economy, relevant Ministries and Federalinstitutions, local governments, and privatesector representatives

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Highlights of the Draft Investment Law (cntd)

A Foreign Investment Department wouldbe established in the Ministry of Economyand would engage in the following, inter

alia: Establish a database of existing FDI

Create periodic foreign investor guides

Engage in investment promotion

Assist local governments in streamliningregistration procedures

Engage in dispute settlement

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Highlights of the Draft Investment Law (cntd)

Expropriation or confiscation of foreigninvestments is not allowed except forpublic benefit and with fair compensation

according to the relevant laws of thecountry

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Highlights of the Draft Investment Law (cntd)

The Council of Ministers, upon the Minister ofEconomys recommendation, issues the list of

sectors open to foreign investment as well as theforeign ownership caps for the differenteconomic sectors

Incentives may be given to foreign investors

based on its economic significance, valueadded, use of local resources, technologytransfer, registered capital and other factors

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...Thank you