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UAE FDI Law and its impact across domestic Capital Markets

MEDIA / Articles / 2019 / UAE FDI Law and its impact across domestic Capital Markets
With the UAE’s Foreign Direct Investment Law (Law 19 of 2018 – the FDI Law) enacted, and the UAE’s climbing ranks amongst other global destinations for attracting FDI, multiple observations and commentary has been made with regards to this new policy initiated by the Emirati government.

As is the traditional route, foreign investors can pour onshore investments into the country by way of a local sponsor or partnership; or through one of the more than 50 free zones across the UAE. Despite the seemingly broad options for investment, it is worth noting that investments through free zones are limited in their actual onshore operations and thus, dampening the appetite of foreign investors for greater commitment in the UAE.

It is against this backdrop that the FDI Law seeks to spur an increase in foreign direct investment in certain sectors by removing the restrictions for local sponsorship. Confectionary giant Mars was one of the first multinational corporations to take advantage of this new law. The list of sectors in which 100 per cent foreign investment can be effected, however, specific details are still quite murky and remains to be seen if further successful cases have been completed across the various industries.

The FDI Law is expected to lead to a transformation amongst the UAE businesses, rendering a shift away from agency and or distribution arrangements to the establishment of local manufacturing capabilities with 100 per cent foreign ownership. The recent increase in Emirates NBD Bank’s foreign ownership limits also saw sizeable demand from foreign investors, proving that there is pent-up demand in the market for increased FDI in the UAE.

On a whole, the FDI Law and the unveiling of greater clarity of its coverage will usher in a period of accelerated FDI activity in the country, in line with the lead up to the Expo 2020 and beyond.

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