Abu Dhabi's move to cut business set-up fees set to boost FDI and non-oil economy

The slashing of fees by 94% will support SMEs and raise private sector employment, economists say

The move to cut business set-up costs will help Abu Dhabi to attract more foreign direct investment. Khushnum Bhandari / The National

Abu Dhabi’s move to slash business set-up fees by 94 per cent will strengthen its position as a destination for new ventures and boost foreign direct investment into the emirate, economists say.

In addition to improving the emirate's competitiveness, the Abu Dhabi Department of Economic Development's initiative to reduce fees to Dh1,000 will create more jobs and support small and medium businesses across several sectors, bolstering the emirate's non-oil economy, they said.

“The objective is to attract FDI to support different sectors of the economy, alongside developing new industries that will lead future growth,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “It certainly makes Abu Dhabi attractive to new ventures and start-ups.”

The new fees are applicable to six activities within the business licence and will cover all fees from Abu Dhabi government entities.

Licence renewal fees have also been reduced to Dh1,000. The new fees structure will be effective from July 27, 2021 but all federal fees will continue to apply, the economic department said on Sunday.

“It is a strong move at a time when competition between the major business centres in the Gulf [region] is becoming more intense,” said Scott Livermore, chief economist at Oxford Economics. “These are important steps forward.”

The latest government initiative needs to be taken in conjunction with other measures, said Ms Malik.

To boost its non-oil-economy and support businesses, especially SMEs, Abu Dhabi unveiled the Dh50 billion Ghadan initiative. It also introduced visa reforms geared to attract more investors.

The emirate has also unveiled several packages to cut the cost of doing business during the pandemic. It provided rent rebates, discounts on utility bills and loan guarantee packages to businesses and SMEs and over the past year.

In 2020, the government also detailed a plan to stimulate economic growth through strategic investments and 16 initiatives to support the private sector.

"More than each measure by itself, it is the accumulative impact of these moves that is making the change in the UAE, as whole, and [in] the emirate,” said Ms Malik.

Abu Dhabi has adopted a “very proactive overall stance” and “the clear focus, not only from this measure but also from others, is on strengthening the business environment, lowering costs and increasing the ease of doing business”, she said.

Despite Covid-19 headwinds and a global economic slowdown last year, the emirate is in a strong fiscal position to extend support to businesses.

Abu Dhabi's economic fundamentals and large fiscal buffers are supported by revenue from the hydrocarbon sector, S&P Global Ratings said in June when it affirmed its investment grade rating.

Its economy is expected to grow by between 6 per cent and 8 per cent over the next two years, driven by government spending, financial services and foreign direct investment, Mohammed Al Shorafa, chairman of Department of Economic Development, said earlier this year.

The latest move also aligns with the government’s policy to support diversification of the economy “through modern sectors such as digital and creative industries where competition for to attract these firms is becoming more intense”, said Mr Livermore.

“This is not just about attracting new investors from outside Abu Dhabi, however, but also encouraging expats already in Abu Dhabi to invest in the economy,” he said.

SMEs across several sectors of the Abu Dhabi economy will “significantly benefit from the decision to sharply reduce business set up and license renewal fees”, said Jaap Meijer, managing director and head of research at Dubai investment bank Arqaam Capital.

Companies interested in procuring supply contracts from the government also stand to benefit as the latest incentive lowers the cost of establishing a local presence and will support the emirate’s push to develop its in-country value programme, Mr Livermore said.

The reduction in business set-up fees and increased foreign investment will create “new jobs and more opportunities, which leads to an increase in income and more purchasing power”, which in turn will lead to an overall boost to Abu Dhabi’s economy, said Hettish Karmani, head of research at Muscat-based U-Capital.