Our Experience with Structuring Economic and Investment Climate Reforms Aref Al Farra Economic Advisor- Ministry of Economy- UAE Bahrain- June 26 th , 2007
Our Experience with Structuring
Economic and Investment Climate Reforms
Aref Al Farra
Economic Advisor- Ministry of Economy- UAE
Bahrain- June 26th, 2007
Today’s Topics
•Economic sectors leading the way
•Why investments flourished in the UAE
•What the government has done/ is doing
•Communication Efforts
In the UAE, change has been very
dramatic: we have moved from the pre-
industrial to the post-modern age in less
than a couple of generations...
0
20
40
60
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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
US
D b
illi
on
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
gro
wth
rate
average oil prices (US$ per barrel) UAE exports (US$ billion) nominal GDP (US$ billion)
average oil prices- % growth UAE exports- % growth nominal GDP- % growth
Successful diversification and the increase in international
oil prices led to a doubling of nominal GDP over four
years…
And yet the total share of the non-hydrocarbon
sector increased over the last few years!
• The non-hydrocarbon sector contribution to real GDP growth has
been increasing steadily over the past few years, even with
soaring international oil prices…
» 46% in 1990
» 62.5% in 2006
• This is indicative of successful economic diversification policies
by the government
• Most tourists come to the UAE for
recreational ―triple S‖ (sun, sea and sand)
tourism, shopping tourism, and MICE
tourism
(meetings, incentives, conferences and
exhibitions)
• We attract a number of tourists that is
approximately double our population
• Hotel occupancy is above 90% for most
of the year!
Success Story: Tourism
• Emirates Airlines established itself as
a global transport hub which has
serviced a thriving world class tourist
industry
• Ettihad Airlines is providing tough
competition, while Air Arabia is
focusing on the lower-income niche
• Currently, the UAE‘s commitment to
an ‗open skies‘ policy means that
more than 100 airlines connect
through our airports
Success Stories: Air Transportation
•It is estimated that around 25% of the
world‘s cranes are currently working on
UAE construction sites—quite an
achievement for a country that makes up
less than 0.1% of the world‘s population!
•Nakheel is building the huge new real
estate development project of "Palm Island"
or "the World" in Dubai. These projects and
others will add 1,500 km of waterfront to
Dubai
Success Story: Real Estate
•The Information and Communication
Technology sector has witnessed rapid growth
in:•m-penetration (mobile penetration), which in
2006 exceeded 100% of the population
•e-penetration (internet penetration): at least
one in five subscribers use broadband, which
is one of the highest rates in the Middle East
•The second operator (―Du‖) with a
comprehensive license has begun commercial
operations in the first quarter of 2007
Success Story: ICT
The UAE had 215 greenfield
investments, up from 88 greenfield
investments in 2002*
144% increase in number of greenfield
investments over four years
25% a year
Indications of the UAE’s Success
*Source: the 2006 World Investment Report of the United Nations
UAE is the regional leader in both the numbers of
inward and outward greenfield investment projects…
*Source: ibid
Indications of the UAE’s Success
*Source: ibid
“The UAE received FDI inflows of
$12 billion, to become the largest
recipient of FDI in West Asia in
2005. The next largest was
Turkey, primarily on account of a
few mega cross-border M&A sales
in services”
•100% foreign ownership
•No minimum capital investment requirements
•No corporate or personal income tax
•Low tariffs (around 5% for virtually all goods)
•No restrictions on repatriation of profits or capital
•Excellent infrastructure, support services, and communications
•At least 40 double taxation agreements and at least 30 bilateral investment treaties
•An opportunity to penetrate fast growing neighboring markets
Advantages of Investment in UAE Free Zones
Why Investments Flourished in the UAE
Water tariffs—US$ per cubic metre (m3)Water Tariffs- US$ per cubic meter Gas tariffs—US$ per cubic metre (m3)Gas Tariffs- US$ per cubic meter
Power tariffs—US$ per kilowatt hour (kWh)
Power tariffs- US$ per kilowatt hour (kWh)Comments
Cost Efficiencies
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0.15
0.20
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UAE
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ysi
a
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tnam
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ey
Spain
USA
U.K
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and
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nce
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gapore
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UAE
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ysi
a
U.K
.
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and
Canada
USA
Spain
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ey
Fra
nce
Sin
gapore
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1.0
1.5
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ysi
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USA
UAE
Fra
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and
Spain
U.K
.
Canada
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ey
Foreign companies investing
in the UAE enjoy cost
efficiencies, mostly in power
and gas
Why Investments Flourished in the UAE
New York London
Frankfurt
UAE
A bridge between east and west
(CPI based ) Inflation Rates
-5
-4
-3
-2
-1
0
1
2
3
4
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7
8
9
10
11
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
infl
ati
on
ra
te (
%)
United Arab Emirates Bahrain Kuwait Oman Qatar Saudi Arabia Jordan
Inflationary Pressures Have Become a Challenge Facing the
GCC and the Region…
Source: IMF; note that not all CPI indices factor in rental prices, and therefore these estimates have to be analyzed carefully
In the UAE, inflation has been mostly a result of
both exogenous and endogenous factors…
•Increasing rent prices •Due to supply shortages, rent prices increased significantly in Dubai,
Abu Dhabi and even Sharjah
•Rent constitutes around 36% of the average household expenditures
•Increasing money supply post September 11th
•Returning UAE and Arab Capital
•M1 grew by at least 30% a year over the last few years
•A one-time increase in the price of fuel•Fuel prices increased by 31.5% in 2005
•The decline in the USD vis-à-vis other world currencies and its
analogous effect on GCC currencies•The dollar lost around 30% of its value since 2001
What the government has done and is doing…
Concluded…•Several rent ceilings were
issued at the Emirate level to
deal with the rent increases in
the short to medium run
•A Consumer Protection Law
passed late 2006
that has already managed to
reduce prices of some basic
commodities
•A National UAE
Development Strategy was
announced in April 2007
In the Pipeline…•The Ministry of Economy has
drafted a Competition Law- the law
will be the main vehicle to combat
cartels and abuse of dominant
position
•The government is currently
working on introducing a Foreign
Investment Law that will further
increase private sector competition
•A Statistical Bureau is being
established in line with a
recommendation from the National
UAE Development Strategy
Goals of the Competition Law
•To create an enabling environment for business and to encourage
competitiveness and sustainable development
•To combat anti-competitive practices, cartels and abuse of
dominant position
•To prevent any actions that limit competition
•To support SME growth
Progress on the Competition Law
Mandate
from the
Cabinet to
Draft a
Competition
Law
Drafting a
Competition LawDiscussions with
all relevant
stakeholders
Legal Process with the Ministry of Justice
Goals of the Draft Foreign Investment Law
•To attract investments in areas that are not the country‘s core
competencies
•To further develop the investment climate in the UAE
•To attract investments that achieve any of the following objectives:
•Increase economic diversification
•Increase technology transfer
•Training local citizens
•High value added industries and services
•To direct investments towards underdeveloped geographical locations
The NIRA Process and
Progress towards a Foreign Investment Law
Mandate
from the
Cabinet to
Form a
National
Investment
Reform
Agenda
Committee
NIRA
Workshop
Discussions with
all relevant
stakeholders
(two meetings
held)
Legal Process with the Ministry of Justice
Drafting a
Foreign
Investment
Law
Communication Efforts
• Rapid legal reform has to be accompanied by an
effective communications campaign
• Currently we rely on diverse communication tools
such as:
– Newspaper articles
– TV appearances
– MUPIs/ road signs
– Booklets and brochures
• Other communication tools can be adopted based on the
exact target group
Three Main Types of Communication
G2G- government to government
(e.g. Ministry to Ministry, or intra-Ministry Communication)
G2B/ G2P- government to business/ government
to private sector
G2C- government to citizen/ resident
Each of these relationships require
different communication tools
G2B
• Main interface with the Ministry of Economy
Licensing and registration, FTA negotiations,
Consumer Protection Department, and
(potentially) Competition Department, input on
proposed Federal legislation
• Communication tools:
Brochures and publications, newspaper articles,
periodic meetings with Chambers of Commerce
and Industry, and other tools
Why Involve the Private Sector?
أهل مكة أدرى بشعابها
“The people of Mecca know Mecca best”
• Reduce any potential resistance
• Create ownership and buy-in
– The suggested advocacy reflects the private sector’s
aspirations and concerns
• Get feedback from the private sector
G2C
• Main interface with the Ministry of Economy:
Consumer Protection Department, Statistics and information requirements
• Communication tools: brochures and publications, newspaper articles, MUPIs/ road signs, and telephone hotline to receive complaints from consumers, TV appearances of key officials
• Potential ideas: SMS messages to the public
...شكرًا
Thank you