Plans to increase the number of foreign companies investing in the United Arab Emirates have hit the buffers after lawmakers threw out draft legislation.
Instead, members of the Federal National Council (FNC) opted to move the legislative draft to a new law set to be discussed later this year.
The council’s members voiced fears over national security and worries to local firms as reasons for the rejection.
The Emirate’s business community also raised its worries over what increased competition would bring.
Currently, foreign companies can set-up in the UAE’s ‘free zones’ without restriction. If they want to expand out of those areas, they have to work with an Emeriti business but can only hold a minority stake in the joint venture.
Fiercely protective
The UAE’s cabinet had drafted changes to a 1984 law which would have allowed foreign companies own 100% of the company operating outside a free zone.
The move has proved controversial since only 10% of the Emirate’s 8.3 million population are nationals, while the rest are expat workers.
The result is that UAE citizens, who are among the world’s richest people, are fiercely protective of any moves which threaten a loss of national identity or which undermine their control of the economy or country.
Ahmed al-Zaabi, deputy of the FNC, said: “This situation is bad. These clauses are completely contradictory and could lead to foreign investments outside of the control of the state, and this, in turn, could lead to the destabilisation of security.”
Sultan bin Saeed al-Mansouri, the Emirate’s economy minister, said the agreement was reached to move the foreign ownership clause to another draft law on foreign investment, which is currently under preparation.
Compromise expected
He said: “Moving this clause to the foreign investment law is much more suitable, and we will review some of the terms and conditions that will be applied.”
However, one expert says that the UAE’s lawmakers should consider the benefits of what foreign firms could bring to the country.
Alan Wood, who is based in the Dubai offices of law firm Pinsent Masons, said: “When the FNC has the opportunity to debate the issue again, it will be persuaded of the benefits to the UAE economy, and its status as the regional commercial hub.
“A compromise might involve preserving the involvement of an Emirati national by requiring wholly foreign-owned companies to appoint a national in a non-equity participation role akin to the national service agent role applicable to branches or foreign companies.”
