Most FDI in the UAE comes from non-Arab nations

Most of the Dh68.6 billion in foreign direct investment (FDI) into the UAE is from non-Arab countries, according to statistics released recently by the Ministry of Economy.

Heading the list of countries with the highest amount of investment in the UAE is the United Kingdom, with a total of Dh16.8 billion or 24.6 per cent of the total FDI pie. Japan comes second with Dh14.2bn or 20.7 per cent, followed by India with Dh7.6bn or 11.2 per cent. Making up the top five are the United States and Iran with Dh4.2bn – 6.2 per cent – and Dh2.8bn – 4.1 per cent – respectively.

In the list of Arab states, Kuwait tops with Dh2.5 billion, which is only 3.7 per cent of the total FDI in the UAE. This means that Kuwaiti investments are about eight times less than British investments in the country. Saudi Arabia comes second among Arab countries with a total investment of Dh2.4 billion, which makes up 3.6 per cent of the FDI.

The top five countries – the UK, Japan, India, the US and Iran – contribute more than 66 per cent of the total FDI and have investments in the UAE with a combined value of Dh45.6 billion.

Aref Al Farra, Economic Advisor at the Ministry of Economy, said there were no obstacles for foreign investments in the UAE from anywhere in the world and the door was open for everyone. He attributed the unprecedented inflow of non-Arabic foreign investments to the UAE to the country's friendly investment environment.

The UAE grants 100 per cent ownership to foreign investors at its free zones, does not have taxes and there are no restrictions on the transfer of capitals to and from the country. The cost of gas and electricity in the UAE is low and the exchange rate of the dirham against the US dollar is stable since 1980, which has led foreign investors to believe that their projects and money are safe, said Al Farra.

Established international financial houses have praised the investment climate in the UAE, he said, with Morgan Stanley saying that the UAE comes first in the Middle East in terms of the absence of risk for investments.

Al Farra added that the UAE's ideal business environment has made the country the regional leader in terms of attracting new FDI. According to the international investment report issued by the United Nations, the UAE's share of international projects in 2007 was 215. Turkey came second with 62, followed by Saudi Arabia with 49. This reveals that the UAE market is open, Al Farra said.

Non-Arabic foreign investments in the UAE concentrate on strategic and important sectors in the country, such as insurance, financial brokerage, contracting and construction, wholesale and retail trade, transformational industries, transport and telecommunication, water and electricity and the oil industry. Arabic investments, on the other hand, concentrate on light industries, real estate and stocks.

Analysing the reason for this, Albert Matta, President of the Lebanese Business Council in Abu Dhabi, said Arab investors were not "sophisticated" like Indians and Europeans. He believed Arab investors lacked the spirit of adventure, worried about their money and were averse to taking risks. This, he said, was applicable to Arabs across all nationalities without exception.

He gave as evidence the fact that Arab investors do not invest their money in strategic sectors that have big guaranteed returns in the long term, such as energy and heavy industries. Instead they prefer to invest in light industries and the real estate sector, especially in buying and re-selling of residential units.

Matta added, however, that there is a remarkable increase in the number of Arab investors in the UAE, especially from the GCC and Lebanon. He cited Arabian Construction Company (ACC) as an example. The ACC is currently heavily involved in executing Al Dar and Sorouh's projects in Abu Dhabi.

"I am optimistic about the future, especially as Arab companies learn from the experiences of the big foreign firms with which they partner in the UAE. I wish the Arabic companies worked in other sectors, such as in oil, energy, insurance, wholesale and retail trade and heavy industries.

"They also need to go in for mergers to have a bigger capital enabling them to compete. Mergers have become a global phenomenon and they can be beneficial. But it is important that the merged entities make profits and stick around and grow." Matta said.

Ali Ibrahim, Deputy Director General for Executive Affairs at the Department of Economic Development (DED), agreed with Matta about the increase of Arabic investments in the UAE over the past few years, especially from the GCC.

He said an essential reason behind the strength and success of non-Arab foreign investments in the UAE is the support they enjoy from their respective governments. This assistance was through embassies, trade attaché offices and the signing of trade agreements facilitating the work of the companies.

Another reason, Ibrahim felt, was the promotional and marketing campaigns organised by the UAE bodies abroad, which have mainly concentrated on European and American countries where there is the availability of big capital. He said these campaigns played a big role in promoting the UAE and its investment climate to top non-Arab foreign investors, which prompted them to come to here and invest.

It was only a few years ago that the UAE started to organise such promotional campaigns in Arab countries also, Ibrahim said. In addition, after the events of 9/11, the UAE diverted a big part of its own foreign investments to Arab countries. This resulted in a reciprocal flow of Arab investments into the UAE from these countries.

Ibrahim also said that Arabic companies, unlike European ones, did not have large amounts of money to invest. In addition, the majority of Arabic companies lacked the efficiency and managerial skill that the Indian, Japanese and European companies had and, unlike their counterparts in other countries, neither did they have the desire to expand. Also, Arabic companies do not communicate effectively with their countries' trade offices in the UAE, Ibrahim added.

Economist Dr Mohammed Al Assoumi, while analysing the domination of non-Arabic foreign investment, pointed to history as the reason. He said non-Arabs, especially Europeans, have been present in the Gulf for along time now and have a long experience of its markets.

They were the first to seize the important investment opportunities, he said. They established the first banks and organised trading agencies in the UAE and the region. For example, Standard Chartered Bank set up shop in the UAE in 1921 and British Petroleum was present in the UAE even in the twenties. There are many other companies that came to the UAE early; they had the first-mover advantage and have been able to develop and grow considerably.

However, Dr Al Assoumi said he did not trust the figures released by the Ministry of Economy on the US investments. He said US investments are lower than estimated, as the Americans no longer prefer to invest their money in the region, especially after the 9/11 attacks. Unlike the Europeans, they do not even have firmly-established historical relations with the UAE, he said

Dr Al Assoumi also said that a big part of the Saudi and Kuwaiti investments in the UAWE were invisible, because they are in properties and stocks. He felt Arabic companies have huge opportunities to develop their business here and raise their profits, and they should take advantage of the UAE economic conditions.

Emirates Business obtained statistics from the Agency Department at the Ministry of Economy, which reveal the extent of foreign investments in the UAE through agencies spread in all sectors.

According to the statistics, the number of trade agencies in the UAE by the end of 2007 was 4577. The UK came first with 862 trade agencies, the US second with 662 and Germany third with 433. Italy occupied the fourth spot with 411. They were followed at a great distance by Saudi Arabia with 62, Egypt 33, Jordan 14 and Qatar three.

There was only one agency each for Iraq, Palestine, Somalia, Djibouti, Mauritania and Tunisia.

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