x Abu Dhabi, UAESunday 21 January 2018

Good news for foreign investment

To say that the reform of the Companies Law has been a long time coming would be understatement.

To say reform of the companies law has been a long time coming would be understatement.

Foreign investors in the UAE have been awaiting the reform almost since the original law was first implemented in 1993; records show the Federal National Council first discussed "loopholes" as far back as 1999.

The spirit of the legislation is clear: Emiratis should be empowered to take control over a domestic economy that was for years dominated by foreign interests.

This law was first enacted in 1984 as a gesture of national empowerment at a time when many other countries in the region had thrown off the yoke of colonisation.

But observance of the legislation has always been precarious, to say the least. From day one, the law's implementation was suspended for nine years until 1993 to allow a generous "grace period" for companies to comply.

When it was finally implemented, thousands of foreign companies migrated to newly-created free zones, which allowed 100 per cent foreign ownership and in many cases turned a blind eye to companies that offered services in the country.

Many of the companies that remained "onshore" complied with the law by drawing up complex legal agreements that gave an Emirati partner a 51 per cent share, but cut him out of any decision making or profits except an annual fee.

Some nationals have built up literally hundreds of companies under their "control". But it has served neither the national nor the foreign interest.

It has encouraged rent-seeking behaviour among a small group of sponsors while introducing a large risk and extra costs for investors. The country needs to encourage foreign investors to achieve its goals of greater employment of nationals and diversification of the economy.

So at a time of increased competition for global capital, the reform of the companies law, albeit with cabinet discretion over foreign control, is a step in the right direction.