x Abu Dhabi, UAEFriday 19 January 2018

Speaker's options for company law reform

A long-awaited revision to the law governing ownership of companies in the UAE could allow foreigners to take a majority stake in certain enterprises.

ABU DHABI // A long-awaited revision to the law governing ownership of companies in the UAE could allow foreigners to take a majority stake in certain enterprises, according to Abdul Aziz al Ghurair, Speaker of the Federal National Council. "I can tell you that everybody wants this law to come, because it really will modernise the way we do business," Mr al Ghurair told The National in an interview.

"Company laws are very important. The way we manage our own companies is very important." At present, ownership of firms is regulated by the 1984 Company Law, which allows foreigners to own no more than 49 per cent of UAE-based ventures, except in the economic free zones. The possible legislation, which was anticipated to be passed as early as 2004, is expected to give foreign investors greater ownership rights.

An early prediction was that it would allow as much as 70 per cent foreign ownership of UAE ventures. Mr al Ghurair said there were also a number of less sweeping options, including granting full ownership only in sectors that are likely to bring capital and technology to the Emirates. "We have probably to go selective, which industry we will allow 100 per cent to UAE nationals, which industry will open up," he said. "That's one of the areas in the companies law that is being discussed."

It is not clear whether the legislation will be discussed at the FNC's next session, which starts in October, but Mr al Ghurair stressed a need to speed up the process. Analysts have argued that, because of the economic downturn, the UAE could benefit from an increase in foreign direct investment, which helped East Asian nations during their economic crisis of 1997-98. Ongoing discussions in the Government have yielded numerous views about what provisions the law should contain, Mr al Ghurair said.

One view advocates keeping the 49 per cent-to-51 per cent ownership ratio, which is designed to ensure Emirati control over companies. But that view is unlikely to hold sway because the regulation is already regularly circumvented through "side agreements" in which Emiratis effectively relinquish their control of companies. The Combating Commercial Concealment Law was passed in 2004 to outlaw this circumvention, but the Ministry of Economy has repeatedly requested the postponement of its enforcement.

The concealment law presumably would be annulled with the adoption of a revised law on foreign-ownership rights. A second view, Mr al Ghurair said, would allow only large-scale ventures to be mostly owned by foreigners, "billions of dollars that come in, that kind of investment that will help the economy of the UAE". Then there is the view that only ventures that could help the transfer of technical know-how to the UAE should be allowed to be fully foreign-owned, he said.

But others think that only small and non-strategic operations should be so designated. "All these issues are being revisited," Mr al Ghurair said. "You have to strike a balance. What is that balance? We need to study it in depth. At the end of the day, you don't want all businesses owned by foreigners, leaving nationals no role to play in the economy of the UAE." A change in the 49-to-51 ratio has had high-level support in the past.

In 2005, Sheikha Lubna Al Qasimi, then Minister of Economy and Planning and now Minister of Foreign Trade, suggested that foreigners be allowed, in some cases, to own more than 49 per cent of companies. Furthermore, a Dubai Government official told a business gathering in May that the emirate was lobbying to allow foreign investors to fully own companies outside economic free zones. Mr al Ghurair has argued that all existing economic laws needed to be reviewed if the nation was to continue prospering, emphasising this view on several occasions in his meetings with foreign investors and government officials.

Although the FNC's decisions are not binding on the Government, almost all federal laws have to be discussed in its chamber, and the FNC has the power to postpone or even reject laws. In its last session before the summer recess on June 30, the council postponed the creation of the Emirates Development Bank amid concerns over the law that would govern it. "All laws, for every sector of the economy, we need to revisit because we have to move on in this development cycle," Mr al Ghurair said "We are a major player in the region. Therefore, our laws have to be modernised. We have to introduce new rules and laws to create the right environment for the economy to prosper."