Foreign direct investment (FDI) flows into the UAE surged 20 per cent in 2013 reaching $11.5 billion from $9.6 billion in 2012. The country also has the lion’s share of total FDI inflow to the middle East, as the receiver of 34 per cent of all regional investments according to a senior official.
“In 2013, the UAE was able to attract three times more FDI than expected and is the third most attractive country in West Asia for FDIs according to United nations conference on Trade and Development (UNCTAD) figures,” said Abdulla Al Saleh, undersecretary, UAE Ministry of Economy, Foreign Trade Sector.
“The UAE also attracts around 40 per cent of the FDIs flowing into the GCC and we think we can increase that number.”
Policymakers are expecting another year of windfalls in terms of UAE FDI. According to Al Saleh, the gulf state is looking to attract investments worth $14.4 billion in 2014, up 20 per cent from its current FDI levels.
The official asserted that the Emirates’ successful Expo 2020 bid would further whet the appetite of foreign investors to invest in the UAE’s service sector this year. “In the UAE, the economy is back on the growth path, thanks to a balanced national strategy based on our comparative advantages and supportive policies towards entrepreneurship and private sector development,” said Saleh.
“Increased government spending and a significant resurgence in tourism, transport and trade have contributed to this upswing.” He said that the UAE offers an ideal economic and investment environment, supported by a modern integrated structure of airports and ports, communications, transportation and logistics services.
Al Saleh added that the large number of tourists projected to visit the country during Expo 2020 is also helping fuel investor interest.
Addressing the Annual Investment Meeting (AIM) in Dubai, the UAE’s Minister of Economy, Sultan Saeed Al Mansoori, said that the accumulated value of foreign direct investment in the country amounted to more than $92 billion. He attributed the large inflow of FDIs to an open approach that facilitates investment.
He also emphasised the importance of proper laws and regulations attracting investors to the country while highlighting the relevance of stability.
“Investment to the UAE is largely dependent on the stability of the country – both political and economic,” said Al Mansoori.
“That is also what we look for when investing in other countries. When I talk about political stability it is not just about wars and other disturbances but also about government stability.”
The UAE minister also said that countries should reform their policies and laws so they become favourable to investors.
“Sometimes the legal system does not help investments in the country where investors are told they can’t transfer the money or can only transfer part of it.”
The UAE has been reviewing its legislation in a bid to attract more investment and business in the coming years.
The country’s long-awaited companies law has now passed the scrutiny of the Federal National Council and is expected to be ratified by the president soon, said Al Mansoori.
The new law has a number of provisions that make the operation of joint stock companies in the UAE simpler.
The legislation also aims to provide for companies’ documentation to be made publicly available, leading to a more transparent corporate environment in the UAE.
ON A ROLL
According to the annual FDI report released at AIM, the global FDI market is recovering following a slump after the economic recession from 2008 to 2009.
Emerging markets bagged a significant portion of FDI, accounting for around 60.5 per cent of global FDI flows and 54.9 per cent of cross border M&As in 2013, according to the report.
UNCTAD estimates that global FDI flows rose eight per cent in 2013 to amount to $1.46 trillion. This positive sentiment is expected to spillover to the region with the Middle East and Africa estimated to achieve 10 per cent growth per annum in FDI flows over the next five years.
Although the region saw an increase of foreign investment in Greenfield projects, cross-border M&As fell in 2013 with deal value decreasing 40.1 per cent to reach $19.1 billion last year.
But experts say that economic conditions are improving in the region, leading to a rise in M&A deals.
“The last six to eight months have witnessed a definite increase in M&A activity in the region, in the range of at least 15 to 20 per cent,” said Vikas Papriwal, head of transactions and restructuring, KPMG UAE.
“There are several reasons for this. Investors who had written off the Middle East following the events of 2009 are showing renewed interest in the region as companies have established a baseline in earnings and are back to growth.”
Papriwal said that a number of factors have made MEA attractive to investors.
“A young demographic, a high per capita spend and a strong tourism industry hold the region in good stead and continue to drive global opportunities. A consumption-driven economy opens up more global opportunities for investment and the UAE has no dearth of this minus the blip of 2009.”
Capital markets are also opening up with an increase in the level of activity such as listings on local exchanges, further fuelling M&A activity, he added.
“The region’s economy is stabilising and the GDP is increasing, both signs of buoyant growth. Further, access to two of the world’s fastest growing economies – India and China – as well as a natural trade route into the GCC region opens up more opportunities for investors and businesses who find the UAE a convenient base for their operations,” Papriwal said.