The United Arab Emirates, with its investor-friendly policies, is the world’s third fastest emerging economy according to the Foreign Direct Investment Confidence Index.
While the United Arab Emirates (UAE) has rapidly emerged as one of the most attractive business economies for investors in recent years, thanks to the country’s strategic location, stable economy and favourable business policies, at the same time it is moving towards stricter compliance rules to curb illegal activities.
Has the UAE got the balance right?
The United Arab Emirates, with its investor-friendly policies, is the world’s third fastest emerging economy according to the Foreign Direct Investment Confidence Index and has emerged as an economic leader in the Middle East region. The UAE has grown by 7.6% in 2022, which showcases its economy’s strong comeback after the economic slumber caused by COVID-19.
New research from the Boston Consulting Group shows that the Emirates is expected to see financial wealth reach $800bn in 2027 with an annual growth rate of almost ten per cent.
The country has excellent infrastructure, including world-class ports and airports, making it easy for investors to transport goods and services across the globe. In addition, the UAE has invested heavily in its transportation and logistics infrastructure, making it an important hub for global trade.
In 2020, UAE changed its company law by allowing 100% foreign investments in most business activities (except Activities of Strategic Effect). This removed a major block for the foreign investors legally bound to involve UAE nationals in their investments in the country. This measure will bring new players to the market previously dominated by UAE nationals
The UAE has recently been actively pursuing bilateral trade agreements with countries worldwide. These agreements aim to boost trade and investment flows between the UAE and its trading partners while providing a platform for deeper economic cooperation. For example, the recent agreements signed with India, the UK, Israel, South Africa and Turkey along with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) are expected to positively impact the UAE’s economy by increasing trade and investment flows in a range of sectors.
For instance, a year after signing India-UAE Comprehensive Economic Partnership Agreement, bilateral trade between the two nations grew by 27.5%. The UAE’s foreign trade hit 2.2 trillion dirhams ($599 billion) in 2022, up 17% on the year, while it has signed bilateral trade agreements with global partners spanning India, Israel and Indonesia.
In 2021, the United Arab Emirates, to celebrate the 50th anniversary of the nation, launched a series of programmes to stimulate and diversify its economy, seeking to attract some $150 billion in new foreign investment in the coming decade. These fifty new projects and initiatives included easing visa regulations to attract foreign workers, measures to boost technological development in the country, attracting software engineers and coders, along with other steps to increase trade.
The rapidly-changing regulatory environment is one of the biggest challenges businesses face in the UAE.
The government constantly introduces new laws and regulations, and businesses must comply with these. This can be time-consuming and expensive, particularly for small and medium-sized enterprises (SMEs) with limited resources. Additionally, the legal system in the UAE can be complex and opaque, making it difficult for businesses to navigate.
These regulations have been implemented to ensure businesses operate transparently and responsibly while protecting the interests of investors, customers and employees.
The increased flow of money brings a risk of increased illegal activities including money-laundering and terror financing. To mitigate these risks, the UAE has enacted several laws and regulations known as the Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) laws. These measures include conducting customer due diligence, maintaining accurate records and reporting suspicious transactions to the relevant authorities.
UAE has created a mechanism to recognise an entity’s Ultimate Beneficiary Owners (UBOs), which requires the business entities to maintain adequate and up-to-date information about their shareholders and their ultimate beneficiary owners. In addition, the UAE has also established the Financial Intelligence Unit, which is responsible for collecting and analysing information on money-laundering and terrorist financing activities in the country.
The UAE government 2021 also introduced massive changes to the labour laws, which aimed at curbing discrimination, forced labour, harassment and bullying. The law fixes working hours and provides detailed provisions related to maternity benefits for women. The UAE has also established a Labour Market Regulatory Authority, which monitors and enforces labour laws in the country.
The nation is fast becoming a hub of start-ups and technology-driven businesses, making the UAE a global leader in innovation in the coming years. As a result, it is moving away from the traditional energy-driven economic model and is becoming a top attractive investment site. However, businesses need regular guidance from experts to tackle the complex legal and compliance framework of each Emirate. To succeed in the UAE, businesses must understand these challenges and develop strategies to comply with the regulations while still achieving their business objectives. This may include investing in local expertise and careful planning and executing compliance strategies.
Article written by Thomas Paoletti
Published in The Arab Weekly