Cash and flow: The government is looking to bring in more FDI

Against a backdrop of lower global oil prices, Sharjah has recently been taking steps to bolster foreign investment in order to further promote economic diversification. The emirate already benefits from an attractive investment environment, and a range of legislative changes to bolster its appeal have recently been passed or are in the pipeline.

Investment Inflows

Figures for overall foreign direct investment (FDI) inflows into Sharjah and FDI stocks are not available. However, the total value of foreign investment in the emirate’s manufacturing sector – one of the largest sectors of the economy, as well as the major destination for FDI – stood at Dh1.43bn ($390m) in 2014, according to latest available figures as of January 2017 from the Department of Statistics and Community Development. The overall figure was barely changed from 2012 – statistics for 2013 are not available – when it stood at Dh1.4bn ($381.7m). Of the total in 2014, Dh626.29m ($170.8m) came from other GCC member states and Dh802.08m ($218.7m) from outside of the region. The machinery and equipment segment was the largest destination for FDI from the GCC, at a total of Dh262.95m ($71.7m), followed by textiles in second place with Dh116.62m ($31.8m), and food products and beverage at Dh76.23m ($20.8m). In terms of investment from outside the GCC, fabricated metal products attracted more investment than any other manufacturing segment at Dh240.83m ($65.7m), followed by “other” non-metallic mineral products (excluding refined petroleum products, chemicals and chemical products, and rubber and plastic products) at Dh173.3m ($47.3m), and chemicals and chemical products with Dh95.71m ($26.1m).

The value of FDI inflows into the UAE as a whole stood at $10.98bn in 2015, according to latest available data from the UN Conference on Trade and Investment, which is up from $10.82bn the previous year and $9.49bn in 2013. FDI inward stock stood at $111.14bn, up from $63.87bn in 2010 and more than one hundred-fold from $1.1bn in 2000.

Attracting Investments

The UAE as a whole is seeking to accelerate efforts to diversify its economy away from hydrocarbons. In keeping with this, Sharjah has recently been stepping up its efforts to attract foreign investment into the emirate, something that had not previously appeared to be a priority for the authorities. In September 2016 Mohamed Juma Al Musharrkh, director of the Sharjah FDI Office at the Sharjah Investment and Development Authority (Shurooq), told OBG the body was seeking to raise FDI levels by 30%, with a particular focus on health care, logistics, tourism and renewable energy, and that it had been working to secure new investments from China, India, the UK and the US in particular.

Key components of the authorities’ strategic efforts to attract investment include the Sharjah FDI Forum, a two-day event first launched in 2015. The second edition took place in 2016, during which Shurooq launched a new initiative known as “Invest in Sharjah”, based around attracting new inflows by streamlining processes for investors. Industry will be a key focus in the coming years, which should benefit Sharjah in particular given its status as a national and regional industrial hub, with around a third of the UAE’s manufacturing capacity based in the emirate. Sultan bin Saeed Al Mansouri, federal minister of economy, in November 2016 announced that the UAE intended to raise industrial investment levels to $70bn by 2025 in order to raise industry’s contribution to GDP from 16% to 25%. The figure in Sharjah already stands at around 22%.

Investment Environment

Investors in Sharjah already benefit from an attractive and continuously improving national investment environment. In the World Bank’s 2017 ease of doing business index the UAE ranked 26th out of 190 countries, which was up eight places from 34th the previous year. The country benefits in part from the fact that it has no major taxes – though this is due to change in 2018 with the planned implementation of value-added tax on retail purchases. It ranked first in the paying taxes category and placed highly in the categories dealing with construction permits and getting electricity, ranking 4th in both, as well as protecting minority investors (9th) and registering property (11th). Its worst rankings were in the categories of trading across borders (85th), getting credit (101st) and resolving insolvency (104th); however, the last of these appears likely to improve shortly, as the rankings were compiled before the country’s new bankruptcy law went into effect at the end of December 2016 (see Financial Services chapter). The country’s jump in the rankings was in large part due to an improvement in the protecting minority investors category from 48th place to 9th, which was likely in turn a consequence of the approval of a new companies law (see below).

Rising Star

The UAE is similarly highly ranked by the World Economic Forum. The body’s “Global Competitiveness Report 2016-17”, which also looks at the wider social and economic context in addition to business environment issues, ranked it 16th out of 138 countries, up from 17th a year before. Of the report’s 12 pillars, the country scored particularly highly in the categories of good markets efficiency (3rd), infrastructure (4th), institutions (7th), labour market efficiency (11th), business sophistication (13th) and technological readiness (18th). The 12 pillars are based on scores given out seven and the country did not score lower than 4.6 in any category.

While no such data is available for Sharjah itself, Shurooq is seeking coverage of the emirate in both business ratings, which Mathias Angonin, sovereign risk group lead analyst at Moody’s Investors Service Middle East, told OBG could help attract investment by boosting the availability of information on the emirate. In addition to such national-level advantages, Sharjah itself also benefits from a range of attractions, including low costs compared to nearby investment destinations, that should help to support FDI levels. FDI Intelligence, a magazine from the Financial Times, ranked Sharjah in as one of the top 10 small and medium-sized cities of the future in 2015. “Sharjah is attractive in terms of costs for companies that do not need a presence in Dubai, as they can serve the region from here just as well,” Ahmed Obaid Al Qaseer, COO at Shurooq, told OBG. “Indeed, the current slowdown could even boost investment as companies become increasingly cost-conscious.”

Legislative Changes

The authorities have also been working on a range of efforts to further boost the appeal of both the emirate and the wider UAE to international investors. One key such measure is a planned new investment law that, if approved, will allow for 100% foreign ownership of companies in some, as yet unspecified, economic sectors. In March 2015 Abu Dhabi-based daily The National reported that a first draft of the legislation had received approval from a Ministry of Justice committee and the Cabinet. In June 2016 The National then reported that the plans had been dropped after a number of government departments failed to come to an agreement on certain measures.

However, in July 2016 the authorities submitted a report to the World Trade Organisation, stating that the government was working on the ratification of a new investment law that “will lead to increasing the percentage of foreign ownership of projects up to 100% in the sectors or the activities prescribed by the law.” The following September a draft of the law had been finalised and was expected to be submitted to the Cabinet for final approval. Currently, UAE nationals must own stakes of least 51% of any company established in the country, with a number of exceptions including free zones, the ownership of professional companies and some sectors in which companies may be fully owned by GCC entities. Sharjah already has two major free zones in which full foreign ownership is allowed, namely the Hamriyah Free Zone, adjacent to Hamriyah Port, north of Sharjah city, and the Sharjah Airport International Free Zone, which is located by Sharjah International Airport.

These plans follow on the heels of other legislative changes intended to improve the business environment, which should serve to further bolster FDI levels. These include a new Commercial Companies Law passed in 2015 that, among other changes, allows for one-person companies, reduces equity listing requirements for stock market flotations, bolsters protections for minority investors and raises corporate governance standards. Furthermore, under a new bankruptcy law approved in September 2016 it is no longer a criminal offence to fail to declare bankruptcy within 30 days of failing to pay a debt, and it allows companies that have bounced cheques to seek a stay of prosecution under one of several new court-backed processes to rescue such firms.