The UAE’s Foreign Direct Investment Windfall

Foreign direct investment (FDI) flows into the UAE surged around 20 per cent to reach Dhs32.9 billion ($8.9 billion) in 2012, with Dubai accounting for almost 90 per cent of the flows, according to official data.

The emirate alone attracted FDI flows of Dhs29.4 billion in 2012, up 26.5 per cent compared to the previous year.

Proximity to strategic markets, domestic growth potential, expanding infrastructure and logistics, improvements in business climate and regulations are the key drivers bringing in foreign investments, according to Dubai FDI, the foreign direct investment office in Dubai’s Department of Economic Development.

Addressing the gathering at the third edition of the Annual Investment Forum (AIM) in Dubai, Fahad Al Gergawi, CEO of Dubai FDI, said that the emirate was the favoured destination for businesses looking to expand in regional markets.

In 2012, the FDI office supported 165 new companies to shift to Dubai, up from 77 firms in 2011.

“We are attracting investments because we are able to show them growth [across the region]. We will take them to Saudi Arabia, Qatar and Egypt,” he said.

Neighbouring Abu Dhabi is currently focusing on attracting investments in 12 specific sectors including manufacturing, oil and gas, financial services and tourism, among others.

As a step in this direction, the Abu Dhabi government announced recently that it would set up a financial free zone, called the Global Marketplace Abu Dhabi, on Al Maryah island.

The zone will offer numerous services including banking, fund management and commodities trading, and benefits such as zero tax, customs duties exemption on imports and easy repatriation of profits.

Similar to the Dubai International Financial Centre (DIFC), it will also have an independent regulator – the Financial Services Regulations Bureau – and two courts with a chief justice, the emirate’s Office of Government Communications said in a statement.

The zone is slated for launch in the fourth quarter of 2013 and aims to attract financial institutions from across the world.

“The free zone will bridge the gap in the global markets between 7 am and 11 am, between Asia and Europe, due to the strategic location of the UAE,” the statement said.

Although aspects of the new zone place it in direct competition with Dubai’s established financial hub, officials say they can co-exist harmoniously.

“I think it will be complementary,” said Hamad Abdullah Al Mass, executive director, International Economic Relations Sector at the Abu Dhabi Department of Economic Department.

“In Abu Dhabi, we need investment tools, we need to develop a debt market, so we will complement Dubai in many financial aspects,” he said.

The emirate will also be developing free zones for certain industrial sectors, Al Mass stated.

Fighting For The Funds

While Abu Dhabi’s new zone may not be rivaling Dubai’s DIFC, the emirates are and must compete for overall FDIs.

“We like competition… It helps us discover new ideas and promotes our drive for excellence,” said Dubai FDI’s Gergawi.

While the UAE has common regulations for areas such as licensing and company registration, each emirate also can promote certain businesses in areas such as free zones, he said.

“It is better for us to compete within ourselves rather than compete outside,” he added.

The UAE is also preparing to bring out a new federal FDI law that is expected to further ease operations for international companies and investors.

Brazil Knocking

Boasting one of the biggest stands at AIM, Brazil is rapidly establishing strong ties with the UAE and the wider GCC region.

Although almost 12,000 kilometres away, the South American nation is now expanding its presence here, according to Sidney Alves Costa, Middle East director of ApexBrasil, the Brazilian Trade and Investment Promotion Agency.

“In recent years, the Brazilian presence here has increased a lot. We have 34 companies present here in different sectors such as food, we have regional operations of Embrear, the world’s third largest manufacturer of airplanes, we have two Brazilian banks present here, we have companies in sectors of cosmetics, spare parts and medical devices,” he said.

Last year, Brasil Foods (BRF), the world’s largest poultry exporter, also announced plans to set up a $120 million factory in Abu Dhabi’s Khalifa Industrial Zone (Kizad).

“This shows that the UAE is one of the most important markets for our production for chicken – it makes sense to process it here and export to regional markets,” said Costa.

The main concern for investors from Brazil is that they don’t know much about the region, he says, but that is changing.

“We have around nine or 10 companies that are debating whether to come here and we hope to enter 2014 with at least 40 companies.”

According to Costa, although Brazil has established its reputation in the UAE’s food sector, the country has much more to offer.

“We have extremely qualified construction companies that have solutions for some needs that even US and European firms don’t have and people are not aware of this.

“We are also very qualified in some sectors of IT, and we are bringing some tech companies to share technology and have partnerships.

“Our objective is to a have a closer relation with the UAE and to be a strong partner in diversifying mutual investments,” he added.