The UAE is one of the countries that have had unprecedented economic growth in the past couple of years. In the financial year 2013-2014, the country was ranked at position 19th among the World Economic Forum’s 2013-2014 Global Competitiveness Index. It was also ranked at number 23 on the World Bank’s 2013 Doing Business report. The country has had long spells of political stability, which creates a good environment for investment both by local and foreign investors. In addition, its Gross Domestic Product, as well as the population, has grown steadily, further presenting a good environment for investment.
The UAE is a country that is highly attractive to multinational organisations due to these factors, among others (US Department of State, 2014). The capital markets in the country have been growing at a high rate. The fact that there is no corporate tax also means that foreign investors will be more attracted, as this will lower their tax obligation by a great percentage and increase their net profit. In addition, there have been few or no cases of corruption in the country. This is a positive indicator for foreign investors as they will be almost assured of transparent and accountable business deals.
The only and the major issue that tends to turn away foreign investors is the lack of a legal framework that favours them. The current legal framework is more favourable to local investors. In fact, foreign investors are not allowed to own land in the country. The restrictive agencies, sponsorships, as well as distributorship needs, are other barriers that the country maintains to foreign investors. However, there are laws that are due to be passed, which will play a big role in encouraging foreign investors to the UAE once they are passed. This means that the country will be a major destination for multinationals in the future.
Singapore is also an economy that has been on the rise in a recent couple of years. It is an open economy and has been considered as the easiest country to do business due to the few restrictions that exist in the country. The economy of Singapore has, for a long period, been dependent on trade. These are the two major facts that make Singapore the most attractive destination for multinational organisations (US Department of State, 2014). The government of Singapore has also been instrumental in encouraging foreign investors into the country. It is the aggressive pursuit of FDI by the government that has gone ahead to become the major pillar of the country’s economy.
The government focuses mainly on value-added manufacturing, as well as service activities, which are investments targeted at lowering labour intensity. Singapore is a country that has plenty of labour for foreign investors due to its population. The cost of investment is also relatively low. One reason contributing to this trend is that the government has engaged in a strategy to offer tax incentives to financial institutions, a move that lowers the borrowing cost and makes it easier for investors to raise more capital for investment. It should be noted that Singapore has many multinational organisations that have affected its economy in a positive way.
How the UAE can attract more foreign business
One of the reasons why foreign investment has not been very successful in the UAE is the fact that there are no laws and regulations that attract foreign investors. The country has a population and GDP that is highly attractive to foreign investors (US Department of State, 2014). It should be noted that foreign direct investments can be essential in stirring the economic growth of the country further. A case example is China, which has risen to become an economic powerhouse in the world. Therefore, it is important that the government and the authorities of the UAE consider encouraging foreign investors into the country.
To do this, the government can first consider revising the current investment-related laws. National treatment for foreigners in the country has been absent, which has led to low investments in the country. It is the high time that the government devises laws that allow foreigners to own land and stocks in the country with no or with fewer restrictions. Another factor that has been of concern and has barred foreign investments are the barriers that the country has put to investments.
They include distributorship requirements, restrictive agency, as well as sponsorships, among others. The government should consider eradicating these barriers to make the country more attractive to foreign investors (US Department of State, 2014). By encouraging sponsorships, for instance, foreign companies will be able to sponsor certain events in the country. This money will be a positive contribution to the national economy.
The tax obligations in the country are also another factor that needs to be considered in a bid to encourage foreign investment. It should be noted that the major motive behind the formation of any business organisation is to make profits. Therefore, businesses will always find ways of reducing the number of expenses to increase profits. Tax is usually an expense to businesses. Therefore, the government should consider reducing corporate tax to encourage foreign investors into the country. In addition, it should also reduce the personal tax to encourage partnerships and sole forms of businesses further to invest in the country.
There are federal laws that affect business and foreign investment in the country that need to be reviewed to encourage foreigners in the UAE. The laws include, among others, commercial agency laws, company laws, tender government laws, as well as industrial laws. The government should increase the number of tenders offered to foreign investors. It should also develop industrial laws that encourage foreign industries to be established in the country.
The company laws should be favourable to foreign companies to encourage them to invest in the country. Finally, commercial agency laws also need to be made more favourable. Improving all the laws that affect foreign investments and make the environment favourable for FDIs will make the country grow further economically.
Reference
US Department of State (2014). Bureau of economic and business affairs. Web.