Dubai is exempting companies from administrative fines in a fresh effort to stimulate business, which has been dampened by new taxes and slumping asset markets.
A decree by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum cancels fines imposed by the Department of Economic Development through the end of 2018, the DED said on Tuesday. It levies over 60 different fines for commercial violations, some worth thousands of dollars.
“This decree is a positive step in promoting economic growth and consolidating Dubai’s position as one of the important commercial and economic centres internationally,” said Omar Bushahab, head of the DED’s business registration section.
Overall, Dubai appears to be growing solidly, partly because of government spending on preparations for the emirate to host the 2020 World Expo; the International Monetary Fund expects gross domestic product to expand over 3 per cent this year.
But some businesses have been hurt by the introduction of 5 per cent value-added tax across the United Arab Emirates at the start of 2018. Geopolitical tensions and an unstable Iranian riyal threaten Dubai’s role as a centre for Iran trade.
Meanwhile, the residential property market is slumping; prices dropped 4.2 per cent from a year earlier in the first quarter, according to a central bank report released on Tuesday.
That has hurt the stock market, which is down 13 per cent year-to-date, making Dubai one of the region’s worst-performing markets.
In March, Dubai’s government pledged not to raise official fees for three years to keep the economy internationally competitive.
Last week the UAE cabinet, chaired by Sheikh Mohammed, said it would permit 100 per cent foreign ownership of some UAE-based businesses, up from the current 49 per cent limit, and grant long-term residency visas of up to 10 years to foreign investors and some professionals.
This triggered a brief rally in Dubai’s stock market but it has since given up almost all its gains, because details of the reforms have not been revealed and it is not clear they will have a long-term effect in luring investment.
“New expatriate visa and ownership rules announced on 20 May are small positives for the long-term, non-oil, economic outlook of the UAE,” investment bank Exotix said.
“But these non-oil sectors, outside the luxury segment, remain constrained by high costs and regional geopolitics. Population growth has decelerated substantially since 2012.”
It added, “The increase in oil prices probably matters much more than these new rules in the foreseeable future, in terms of both the funding for government-related spending and the inbound investment flows from regional wealth tied to oil.”
One uncertainty is whether foreigners will need to remain employed to hold the new 10-year UAE visas, as is the case with current, shorter-term visas. If that requirement persists, many foreigners may remain reluctant to buy homes and there may be little benefit for Dubai asset prices.
Special “free zones” in the UAE, which have attracted substantial foreign investment, already permit 100 per cent foreign ownership. Extending this to the whole country could disrupt operations of the free zones.
One factor behind Dubai’s drive to make itself more attractive to investment is concern about the long-term impact of economic reforms in Saudi Arabia, fund managers say.
Portfolio money has been flowing from Dubai to Riyadh since late 2017 in anticipation of Saudi Arabia joining emerging market equity indexes, which will make Riyadh more important than Dubai for many international fund managers.
If Riyadh’s efforts to launch new non-oil industries such as shipbuilding, logistics and tourism succeed, Saudi Arabia could also start to compete with Dubai for foreign direct investment in coming years.