Arabian Business - What are the top challenges facing the growth of FDI in the UAE and how can they be overcome?

Vijay Valecha, Special to Arabian Business May 11, 2022

With more than 50 percent of all of Dubai’s announced FDI projects classified as greenfield FDI, the emirate has consolidated its status as a smart and sustainable city of the future, a gateway to regional growth markets, and a leading global business hub in 2020, but there are still certain challenges that need to be overcome, experts told Arabian Business.

Dubai achieved the top ranking in the world in attracting foreign direct investment (FDI) during 2021, with a record number of 418 greenfield FDI projects. However, challenges rising from an unprecedented health pandemic, geopolitical conflicts, disruptions in value chains, and bank financing, among others need to be addressed to maintain sustainable investments.

“While we take pride in Dubai’s achievements as a leading FDI Global City of the Future 2021/2022, we also take inspiration from the hundreds of investors that choose to invest in Dubai to grow their future business sustainably, despite the unprecedented global challenges of 2020,” Mohammed Shaheen, the CEO of Seven Capitals, said.

The ICAEW economic advisor, and chief economist and managing director of Oxford Economics Middle East, Scott Livermore, added: “The main challenges relate to global FDI potentially being hampered by ongoing economic uncertainty. The competitive landscape for FDI is becoming tougher.

“This means that remaining at the forefront of business-friendly reforms is critical for sustaining a strong FDI performance.”

As business around the world are tested in so many fronts, it is becoming increasingly important for the FDI industry to become obsessed with the main actors of the industry – the foreign investor.

The managing director of Cities & Collaboration Ltd and the lead author of Dubai’s FDI Investment Aftercare guide, Carolina Arriagada, said: “We need to understand the pains of foreign investors better, how decision making takes place in boardrooms, and what transformations they need to go through to address the challenges they face.

“In fact, FDI is becoming less about the host location, but about the capacity of the host location to develop a symbiotic relationship with the foreign investors to foster growth, both for profit and for the common good.”

Additionally, experts have also pointed to how potential challenges rising from the upcoming corporate tax regulations, bank financing, and value chain disruptions can be overcome.

“The introduction of the corporate tax could be a challenge for at least some of the new businesses since the country was generally known as a tax-free nation. While corporate tax does impact the company’s profits, small companies are exempted from the new federal tax laws. To support small and medium-sized enterprises, there will be a zero-tax rate for taxable profits up to AED 375,000,” Vijay Valecha, the chief investment officer at Century Financial said.

Experts state that managing cash flows and capital requirements in the initial phase could be a challenge as many firms require at three years of audited financials to obtain bank financing.

“Taking the help of a financial consultant can speed up the process of familiarisation with local financial institutions,” Valecha suggested.

Carolina Arriagada also called for innovative finance solutions that not only look at one host economy, but at financing whole value chain markets.

Furthermore, Arriagada highlighted the need to foster talent to address the search for the best candidates no matter where they are based.

“With remote working companies less focused on where the talent is based, the availability of local talent will be as important as accessing remote talent.

“If we are to help companies grow locally, we need to help them grow internationally and offer what I would like to call ‘growth highways’. This is an area future rankings will be focused on,” Arriagada concluded.