x Abu Dhabi, UAEThursday 27 July 2017

Foreign ownership is on the agenda

The need to combat the negative impact that sponsorship has on profit for the long-term future of the nation will remain, whether or not the Doha Development Agenda comes into effect.

The question of liberalising the UAE's private businesses has long been on the agenda. Departments have been reconfigured and a mixed bag of solutions offered. But the Government is now prepared to relax sponsorship conditions if the Doha Development Agenda (DDA) is successful, as The National reported yesterday. Whether or not the DDA conditions are met, it remains in the nation's interests to continue on the road to greater openness.

"Under our offer, we have opened some service sectors to other countries," Juma al Kait, the executive director of foreign trade affairs at the newly reorganised Ministry of Foreign Trade said on Monday. "The offer is conditional and is subject to other countries' offers."

A quid pro quo agreement stipulates an increase in foreign ownership in return for lower tariffs on key exports, including petrochemicals and aluminium. Under current laws, foreigners can own a maximum 49 per cent of a business, with an Emirati sponsor retaining a majority stake. These rules don't, however, apply in free-trade zones.

But Monday's offer to phase out the current sponsorship framework is neither unique, and nor is this its first time on the table. A blueprint for a revised Companies Law was circulated years ago, but opposition by local business leaders proved to be a formidable stumbling block.

Various proposals have sought to bridge the deadlock. In October, for instance, the Minister of Labour, Saqr Ghobash, said that while the sponsorship system in the UAE will not be abolished, the nation should consider changing many of its practices.

His point is not without reason: the UAE's ability to leverage its position as an innovative hub is constrained by the inefficiencies of the current system. Foreign investors find ploughing capital into the nation a less attractive proposition, while incentives for Emirati entrepreneurs to drive innovative ventures forward are muted.

Industry leaders agree: "The UAE is well positioned to benefit from the DDA as it is a sophisticated and open economy," said Peter Pedersen, a councillor at the World Trade Organisation. The need to combat the negative impact that sponsorship has on profit for the long-term future of the nation will remain, whether or not the DDA comes into effect.