Foreign ownership… will it happen?

Foreign ownership… will it happen?

It’s back on the table: foreign ownership of companies in the UAE. But will foreigners actually get a bigger slice of the pie, and if they do, how big?

November 30, 2010 2:56 by Samuel Potter

The National reports this week that the UAE government may be preparing to relax laws governing the ownership of companies. Such a move will be welcomed by foreign investors and entrepreneurs, who may be able to take greater ownership of firms in the country. But there’s a catch: at present, it looks likely the changes would only affect professional services firms.

What does that mean? It means the UAE wants to encourage accountants, lawyers and other specialist consultants to set up in the country. Such a move would further consolidate the UAE’s status as a financial and business hub; a competitive, experienced and capable professional services industry in turn attracts major companies across all industries to do their business in the UAE.

But the UAE is playing it smarter still: According to the report, any concessions on foreign ownership will be subject to the UAE in turn receiving lower tariffs to export some of its goods to other countries. A quid pro quo that would lower trade barriers in both directions.

The latest hints of a law change stem from the executive director of foreign trade affairs at the Ministry of Foreign Trade, Juma al Kait. “Under our offer we have opened some service sectors to other countries,” he told a seminar about the Doha Development Agenda (DDA), a long running round of trade talks, according to the National. “The offer is conditional and is subject to other countries’ offers.”

According to the current UAE laws, outside of a free zone foreigners can only own up to 49 percent of a company. The remaining 51 percent must be owned by an Emirati sponsor. Within a free zone it is possible to own a whole company, but the free zone in effect acts as your sponsor, and you must pay a significant fee for the service.

So will it happen? Well maybe, but there’s another catch. The UAE has stopped short of announcing plans for 100 percent foreign ownership. Just a couple of weeks ago, Khalid Al Kassim, Deputy Director General at Dubai’s Department of Economic Development (DED), said he and colleagues were pushing for 100 percent ownership, though he didn’t sound hopeful. “We are trying to push 100 percent ownership for the whole country, but Dubai alone cannot do it,” he told a business meeting, according to Khaleej Times.

But in fact, earlier this year, the UAE government specifically ruled 100 percent ownership out, according to Gulf News. “The new companies law will give some relaxation to foreign ownership,” Mohammad Omar Abdullah, undersecretary of the Department of Economic Development, told the paper on the sidelines of an investment conference. “But it will not be to the extent of 100 percent.”

Majority ownership would, nevertheless, be a major change and would surely encourage the creation of more companies, and hence jobs. For that reason, any change that increases ownership, no matter how small, cannot come soon enough.