Law planned to boost investment

The Government plans to increase efforts to boost foreign investment in the UAE with a law that will provide legal protection for overseas investors.

The Government plans to increase efforts to boost foreign investment in the UAE with the publication this year of a draft law that will provide legal protection for overseas investors. The foreign investment law will set down "systematic incentives" to attract international money to the country as it speeds up economic diversification in response to the global financial crisis.

"We are preparing a draft law that guarantees a suitable climate for investors to do business according to the fundamentals of justice," said the Minister of Economy, Sultan al Mansouri, in a speech to the Dubai Chamber of Commerce and Industry (DCCI). The legislation, which is in draft form until it receives Cabinet approval, has been in the pipeline for some time. It comes as signs emerge that foreign investment is starting to make a tentative return to domestic markets.

Last year saw the withdrawal of an estimated Dh180 billion (US$49bn) in "hot money", invested in local markets on the expectation of a dirham revaluation, when it became clear the currency peg would be maintained. Some of that cash may now be starting to return with more than Dh2bn invested in the nation's stock markets in the second quarter and so far in the third quarter of the year, according to Mr al Mansouri. This compares with an outflow of Dh656 million in the first quarter. The first wave of foreign deposits leaving UAE markets began in the second half of last year.

The draft law is the latest move by ministers to entice international investors to return to the UAE following the Government's scrapping last month of the minimum capital requirement of Dh150,000 to start a business. Officials will also hope the UAE's rise by eight places in the latest rankings of global competitiveness from the World Economic Forum (WEF), announced on Tuesday, will act as a further magnet for overseas investment.

"This law will be positive in encouraging investment on top of the decision to scrap minimum requirements for companies to set up here," said Ian Munro, head of research at MAC Capital Advisors. "Foreign businesses need to be able to protect themselves against contract disputes and other legal issues." The law forms part of a number of significant reforms to the economy's legislative framework to reduce its dependance on oil revenues.

The oil and natural gas industry accounted for 38 per cent of the country's Dh929bn GDP last year, Mr al Mansouri said on Tuesday. "In the next 10 to 15 years getting down to 20 per cent is possible to achieve," he said. "We need to come up with a clear plan of how we're going to achieve that." Two other strategic laws, the companies and industrial laws, are both in the final stages of preparation, Mr al Mansouri said.

The industrial law will regulate industry and encourage the establishment of industrial projects including SMEs. Investments in the industrial sector reached Dh2.3bn so far this year, compared with Dh1.92bn last year, he said. The DCCI has worked with the ministry to help reform business laws in the UAE, said Hamad Buamim, the director general of the chamber. "We are aware that reforming our regulation is a priority and during this period we have an opportunity to improve our economy as most of these regulations have been in place for 20 or 30 years and we believe they are outdated," Mr Buamim said. He added that moves by the Central Bank to allow banks to significantly lower their capital-adequacy ratios, or the capital they hold to back up their lending, could help improve access to cheaper capital for businesses.

"In the UAE we have put the worst of the global economic crisis behind us," Mr al Mansouri said, adding that the outlook for next year was positive. Sheikha Lubna Al Qasimi, the Minister of Foreign Trade, said last week that the UAE economy was on track to achieve 3 per cent growth by the end of this year. [e-mail]