Business-friendly government initiatives in the UAE
The latest government initiatives are expected to revitalize business sentiment in the UAE according to several analysts.
In the latest initiative, the UAE government introduced on Wednesday new rules for insurance of employees in the private sector, which it expects to allow companies to save around 14 billion dirhams ($3.8 billion) in obligatory guarantees that they can use instead to develop their business.
“This will release 14 billion dirhams back to the private sector companies and will further lower the cost of doing business,” he said.
The new insurance system will cost 60 dirhams a year per employee, slashing the current mandatory deposit of 3,000 dirhams. It will cover the end of service benefits, vacation and overtime allowances as well as unpaid wages, return air ticket and work injury worth 20,000 dirhams a person.
Visas will also be renewed without the need for leaving and re-entering the country as it has been the case, according to legislation cleared by the government. A six-month temporary visa will be granted to workers who lost their job at no cost so they can find new work.
In May, the UAE federal government gave a green light to a reform that would allow for 100 percent ownership of UAE-based companies by foreign investors outside of free zones by the end of 2018, compared to the current limit of 49 percent.
“Opening most sectors to 100 percent foreign ownership would provide a significant medium-term boost to FDI (foreign direct investment), especially given the low tax base, convenient geographic location and high level of infrastructure that the UAE offers,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“The breadth and eligibility of the liberalization criteria will be central to the potential support to the economy,” she said.
The full foreign ownership of UAE companies is likely to be limited to specific industries seen as essential to the economy in key elements such as job creation and technology transfer.
At the cabinet meeting last month, Sheikh Mohammed asked his economy minister to submit a study on the impact of the decision in the third quarter of this year.
The country’s numerous free zones, which have attracted tens of billions of dollars in foreign investment, may be impacted by the measure as full foreign ownership has been their key selling point so far. A local partner is needed for some free zone businesses to sell products on the UAE market.
The policy change is a part of a wider package that also aims to grant long-term residency visas of up to 10 years to foreign investors and some professionals in scientific, technical, medical and research fields and five to 10-year visas to students, based on their academic results.
“The UAE will remain a global incubator for exceptional talents and a permanent destination for international investors,” Sheikh Mohammed said in a statement.
“Our open environment, tolerant values, infrastructure and flexible legislation are the best plan to attract global investment and exceptional talents in the UAE,” he added.
It is not clear whether foreigners will have to remain employed to stay entitled to the new 10-year visas, as is the case under the current rules, and how many may actually qualify.
If such an obligation stays, it may have a little impact to motivate foreigners to buy homes and help lift the slumping residential property market in Dubai.
“A 10-year visa would increase the propensity for expatriates to save in the UAE and buy properties given the outlook for longer-term residency,” ADCB’s Malik said.
The government announcement spurred a brief rally in Dubai’s stock market but it later reversed most of the gains due to a lack of clarity on reform details, which makes it hard to asses longer term impacts on investment.
At the same time, residential property prices declined 4.2 percent year-on-year in the first quarter, central bank data showed. Analysts expect residential rents and sale prices to keep falling due to excess supply and subdued economic growth.
Adding to the federal measures, Abu Dhabi revealed last week a 50 billion dirham package to encourage business activity in the UAE’s largest emirate and create thousands of new jobs.
The new three-year plan, which will add over 5 percent annually to government spending, also aims to expedite contract payments to the private sector and exempt new licenses from the requirement of having a physical presence in the emirate in the first two years.
The emirate’s Executive Council should draw up a working plan for allocations within 90 days, Abu Dhabi Crown Prince Sheikh Mohamed Bin Zayed said on Twitter.
“Additional government spending will support non-oil growth, particularly when coupled with ongoing efforts at the federal level to improve the business environment,” Thaddeus Best, analyst at Moody’s Investors Service, said in a research note.
Other initiatives include new dual licenses for free zone companies to allow them operate outside of these zones and compete for government tenders as well as home work licenses that will exempt the requirement to have an office or work space for two years.
At least 10,000 jobs for Emiratis in the private and public sectors should be created over the next five years.
Meanwhile, Dubai came up with its own effort to stimulate businesses and consumer spending, exempting companies from administrative fines and freezing school fees.
A decree by the Dubai ruler cancelled in May fines imposed by the Department of Economic Development through the end of 2018.
“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, CEO for Business Registration and Licensing Sector at the DED.
“It also helps to remove concerns among investors and entrepreneurs looking to expand their business.”
Over 60 different fines are charged by the DED for a range of commercial violations with some worth thousands of dollars.
Dubai will also freeze private school fees for the next academic year, waive the 4 percent late-payment fine for the Land Department transactions and cancel or reduce a number of government fees to support key sectors, such as the aviation.
The emirate’s Executive Council also approved plans to cut Dubai Municipality levies on businesses to 2.5 percent from 5 percent.
“This will help reduce pressure on corporates, which have had to discount prices and reduce margins to boost demand, especially following the introduction of VAT (value added tax) in January 2018,” ADCB’s Malik said.
Helped by recovery in oil prices, the UAE economy should see growth accelerate to 2.0 percent this year from mere 0.8 percent in 2017, the International Monetary Fund forecast. However, that is still well below an average rate of 4.6 percent seen in 2011-2016.
“While this package could be seen as a sign that the economy has been slowing down, it also shows that UAE authorities are being proactive, which is a very good sign,” Al Mal Capital said in a note.
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