page 1 The UAE and Foreign Investment References Griffin and Pustay, Chapter 6; Hamilton and Webster, Chapter 2 The UAE and Foreign Investment, MBA | 2 Topics addressed » Outward FDI: UAE Sovereign Wealth Funds » SWF Objectives and ‘first’ and ‘second’ generation funds » Inward FDI: Strategic Goals » FDI Statistics for the UAE » Company Law and Foreign Ownership in the UAE
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
page 1
TheUAEandForeignInvestment
References Griffin and Pustay, Chapter 6; Hamilton and Webster, Chapter 2
The UAE and Foreign Investment, MBA | 2
Topicsaddressed
» OutwardFDI:UAESovereignWealthFunds» SWFObjectivesand‘first’and‘second’generationfunds» InwardFDI:StrategicGoals» FDIStatisticsfortheUAE» CompanyLawandForeignOwnershipintheUAE
page 2
The UAE and Foreign Investment, MBA | 3
Sovereign Wealth Funds
A SOVEREIGN WEALTH FUND IS:
astate‐ownedinvestmentvehiclethatplacessurplusrevenueintoavarietyofoverseasfinancialinstrumentssuchasequityshares, governmentbondsandother assetssuchasproperty.
The UAE and Foreign Investment, MBA | 4
Key SWFs
» Largestsovereignwealthfundsbyassetsundermanagement
Rank Country Funds Assets Origin
1 Norway GovernmentPensionFund‐ Global(est.1990) 838.0 Oil
2 UAE ADIA(est. 1976) 773.0 Oil
3 Saudi Arabia SAMAForeignHoldings 675.9 Oil
4 China ChinaInvestmentCorp(est.2007) 575.2 Non‐oil
5 China SAFEInvestment Company(est.1997) 567.9 Non‐oil
6 Kuwait KuwaitInvestmentAuthority(est.1953) 410.0 Oil
7 ChinaHongKong Hong KongMonetaryAuthority(est.1993) 326.7 Non‐oil
10 Qatar Qatar InvestmentAuthority(est.2005) 170.0 Oil
18 UAE ‐ Dubai InvestmentCorporationofDubai(est.2006) 70.0 Oil
20 UAE– AbuDhabi InternationalPetroleumInvestmentCo(est. 1984) 65.3 Oil
Source: SOVEREIGN WEALTH FUNDS INSTITUTE, 2014
page 3
The UAE and Foreign Investment, MBA | 5
SWF Objectives
» SWFstypicallyhaveoneormoreofthefollowingthreeobjectives:
» Itmaynotalwaysbepossibletoachievealloftheseobjectivessimultaneouslyastheyrequiredifferentinvestmentstrategies
1. Stabilization
2. Long‐termsaving
3. Economicdevelopment/diversification
» ADIAhascombinedstabilizationwithlongtermsaving,whileMubadala hasfocusedoneconomicdevelopment/diversification
The UAE and Foreign Investment, MBA | 6
SWF Developments in the UAE
Contrast‘firstgeneration’SWFsintheUAEwith‘secondgeneration’SWFs:
» FirstgenerationSWFs:historicallytendedtoinvestinindustrialisedworldequityandgovernmentbonds
» Forexample,ADIAtendedtoinvestpassively,orindirectly,holdingabroadrangeofassetclasses,suchasequity,fixedincomeetc.
» WhilesecondgenerationSWFsintheUAE:haveamandatetomakeactiveforeigndirectinvestmentsinordertoaidtheeconomicdiversificationprocessandcreatesynergieswithnascentdomesticindustries
» E.g.relativelynewpublicinvestmentfundssuchasMubadala,whosemotivescanbeclassedas‘strategicassetseeking’
page 4
The UAE and Foreign Investment, MBA | 7
Case Study: Mubadala Development Company
The UAE and Foreign Investment, MBA | 8
UAE Outward FDI: The ‘Partnership’ Model
» WhilemostSWFinvestmentisinequitiesandbonds,IPICandMubadala haverecentlyacquired‘active’stakesinawiderangeofhi‐techcompanies,thisprovidestheUAEwithcutting‐edgetechnology
» A‘partnership’modelhasemergedwithMubadala providingcapitalandforeigncompaniestechnicalexpertiseand‘knowhow’
Synergiesinclude:
» Aerospace&+
Microchips&+
page 5
The UAE and Foreign Investment, MBA | 9
Outward FDI Stock from the UAE
» OutwardFDIstockislessthaninwardandexhibitsaregionalbias
» Duetofactorssuchas(a)previouslymuchGCCFDIwasportfolioinvestmentand(b)duetogeographicproximityandculturalsimilaritiesAconsiderableproportionofSaudiandKuwaitioutwardFDIflowsintoBahrainandtheUAE
AnnualStockof OutwardFDI($mn) Asa%ofGDP
1995 2008 2012 1995 2008 2012
UAE 710 50,822 57,737 1.1 16.2 17.1
Qatar 5 12,265 18,572 0.1 6.5 11.2
SA 2847 10,876 29,970 2.0 4.3 5.3
WestAsia 9957 126,679 161,029 1.5 6.5 7.7
DevelopingCountries 330,042 2,342,750 3,131,845 5.7 15.1 17.9
World 3,615,425 15,982,295 20,408,257 12.7 27.2 33.6
The UAE and Foreign Investment, MBA | 10
Attracting Inward FDI: A Strategic Goal
AccordingtotheUAEGovernment:
“thereisgrowingrecognitionoftheneedtopromoteforeigninvestmentasoneoftheinstrumentsofeconomicdiversification”
ObjectivetwoofAbuDhabi’sEconomicVision2030states:
“itisimportanttoenlargetheenterprisebasethroughthecontinuedattractionofFDIinleadingedgetechnologysectors...thiswillencourageinnovationandmitigateagainstfutureeconomicshocks”
page 6
The UAE and Foreign Investment, MBA | 11
Inward FDI stock for the UAE
» FDIflowsintotheregion,asaproportionofthetotal,havebeenverysmalluntilthelastfiveyears
» Thisis(a)becauseofthedominanceofthepublicsector,(b)thesmallsizeofthedomesticmarketsand(c)untilrecentlyforeignownershiphasbeenverymuchrestricted
AnnualStockofInward FDI($mn) Asa%ofGDP
1995 2008 2012 1995 2008 2012
UAE 1770 68,224 95,008 2.7 21.7 26.9
Qatar 442 17,769 30,804 5.4 15.4 16.9
SA 17,056 111,632 199,032 12.0 23.4 30.7
WestAsia 42,601 386,983 660,217 8.0 18.4 25.7
DevelopingCountries 850,536 4,367,449 7,744,523 14.4 24.8 30.4
World 3441,326 15,586,249 22,812,680 11.5 25.5 32.2
The UAE and Foreign Investment, MBA | 12
The UAE: Inward FDI Potential
» TheUAEiscurrentlyconsideredthe14thmostdesirableFDIdestinationworldwide:
USA
China
Brazil
Canada
India
Australia
Germany
UK
Mexico
SIngapore
UAE
Source: A.T. KEARNY, 2013, FOREIGN DIRECT INVESTMENT CONFIDENCE INDEX
Low confidence High confidence
1
2
3
4
5
6
7
8
9
10
14
15
19
page 7
The UAE and Foreign Investment, MBA | 13
The UAE: A favoured investment location
Asurveyin2011ofbusinessexecutivesbytheEconomistIntelligenceUnit,commissionedbyHSBCfoundthat:
» TheUAEisthemostfavoureddestinationintheMiddleEast,citedby63%ofrespondentsasthemostpopularinvestmentandtradinglocation
» TheUAE’sprominenceasabusinessdestinationisgreaterthanwhatitsGDPorpopulationwouldsuggest
» RatherthanfocusingontheUAE’sdomesticmarket,largecompaniestypicallyuseitasanexportgatewaytothewiderMENAregion,andoftenintoSouthAsia.
» Companiestypicallycitethewell‐developedinfrastructure,freetradezonesandexpatriate‐friendlylifestyleamongtheirmainreasonsforoperatinginplaceslikeDubai.
The UAE and Foreign Investment, MBA | 14
UAE – Top Destination for FDI in MENA
Source: fDI intelligence 2012.
page 8
The UAE and Foreign Investment, MBA | 15
Top Country Investors in the UAE
Top investors by ranking
Source: fDI intelligence 2012.
The UAE and Foreign Investment, MBA | 16
UAE Company Law and Foreign Investment
“TheFederalCommercialCompaniesLaw(No.8of1984)anditsamendments:UAEnationalsmustholdatleast51%ofthecapitalofanycompanyestablishedinUAE.”(Mina,2012)
» TheUAE’slimitof49%onforeignownershipofcompaniesoutsidetheFTZshasprovedcontroversialinFreeTradenegotiationsandlimitsforeigndirectinvestmentopportunities
» Anewcompanieslawisbeingdiscussedwhichmightopenupsomesectorsoftheeconomyto100%foreignownership
page 9
The UAE and Foreign Investment, MBA | 17
A New Foreign Investment Law?
ImplicationsofanewforeigninvestmentlawofferingforeigninvestorssimilarrightstothoseofUAEnationals:
PotentialPros:
» Willconsumersbenefitfrommorecompetition?(betterservice,morechoice,lowerprices)
» WillEmiraticompaniesbecomemoreefficientandinnovativeasaresultofcompetitionandthusbebetterequippedtoexpandinternationally?
PotentialCons:
» Willsomedomesticcompaniesnotbeabletocompetewithmoreproductiveandinnovativeforeigncompanies(initiallyatleast)?
» WillcontrolandownershipofEmiraticompaniesendupinthehandsofforeigninvestors?
» Willtheprosoutweighthecons?
Related Documents
