Attracting International Investment

1
Attracting International Investment the UAE
Experience
GCC the Next International Investment
Destination

• Mohamed Ali Alabbar
• Director General
• Department of Economic Development
• Government of Dubai
• May 4, 2004

2
The UAE A Success Story

• UAE GDP in 2003 US 79 billions
• UAE ranked as top investment destination in the
  Arab world
• One of the highest per capita incomes in the
  world at nearly 19,000 in 2003 
• Average annual growth in GDP of 6 per cent over
  ten years

3
A dynamic global economy

• Strategic re-export market
• Blue chip MNCs use Free Zones as strategic
  access points for global markets
• 16 commercial ports with capacity of 70 million
  tons
• Among top five locations in the world for ship
  supplies and bunkering
• Annual turnover in ship supplies of 300 million
• Dubais trade in re-export rising on average by
  14 per cent per annum

4
A blue chip destination

• UAE is the destination of choice for many
• business sectors
• Information Technology
• Banking and Financial
• Shipping and transportation
• Oil Gas
• Media
• and more

5
Global endorsement

• Good infrastructure and a business-friendly
  environment, particularly in the free trade
  zones, have made the UAE a very attractive place
  to invest for companies wishing to serve the
  growing markets of the Middle East, North Africa
  and Asia.
• Source IMF Country Report-United Arab Emirates,
  Article IV Consultation

6
Sound fundamentals

• Executive Directors noted that the UAEs open,
  market-oriented economic system, and the
  authorities sound economic management have
  helped sustain robust economic growth, low
  inflation and a comfortable external position,
  notwithstanding the wide fluctuations of global
  crude oil prices over the years.
• Source IMF Article IV Consultation

7
Successful diversification
8
Huge potential

• Third largest Arab economy after Saudi Arabia
  Egypt
• 8.2 billion private investment in industry and
  other productive sectors in 2003
• Combined public and private investments - 17.4
  billion in 2003 compared to 463 million in 1972
• Reform process well underway with utilities
  privatization and corporatization
• Liberalisation of most sectors especially telecom
• WTO member since 1996
• Dubai International Financial Centre set to
  repatriate billions of dollars of Arab funds

9
The UAE A Success Story?
10
The most attractive country for FDI flows A
Global ranking
1 China
2 India
3 United States
4 Thailand
5 Poland and the Czech Republic
7 Malaysia and Mexico
9 Singapore, UK and the Republic of Korea
Source UNCTAD 2004
11
Inward FDI Performance Index Ratings
1988-1990 1991-2001
Bahrain 23 56
Qatar 110 98
Oman 32 129
Kuwait 102 132
UAE 92 136
Source UNCTAD (Index covers 140 economies)
12
As per UNCTAD figuresThe UAE is the least
favored investment destination in the Gulf!
13
FDI as of Gross Capital Formation
1990 2000
East Asia and Pacific 3.5 8.2
Europe and Central Asia 0.4 13.6
Latin America and Caribbean 3.8 19.1
Middle East and North Africa 2.2 2.7
South Asia 0.5 2.3
Sub-Saharan Africa - 12.3
Source World Development Indicators from the
World Bank
14
In Sum

• The UAE and the rest of the Arab World have
  historically failed to capture their fair share
  of global FDI flows

15
We are not alone
Inward FDI Stock as a percentage of the worlds total Inward FDI Stock as a percentage of the worlds total
UAE 0.02
Saudi Arabia 0.45
Bahrain 0.10
Kuwait 0.01
Oman 0.04
Qatar 0.03
Source UNCTAD
16
So why the discrepancy between potential and
reality?
17
The usual suspects

• Limited liquidity of Arab Stock Markets
• Small economies
• Family based businesses not ready for
  transparency
• Lack of integration of regional stock markets
• Ineffective public enterprise reform and
  privatisation
• Mismatch between labour skills and market needs

• No database of skilled educated labor for
  recruitment
• Political instability
• Corruption
• Inadequate reform of state and its institutions
• Insufficient liberalization of trade, investment
  and prices
• Unsatisfactory labour market reforms

18
The international perspective

• Conflict and regional instability 
• Unpredictable macroeconomic conditions and public
  policy choices
• Weak institutions and high administrative
  barriers  
• Inadequate infrastructure  
• Underdeveloped financial sector  
• Inadequate availability of a skilled and flexible
  workforce
• Sami Haddad, Director MENA Department
• 
  International Finance Corporation

19
What we need to increase the flows

• Integration of regional financial markets
• Improved quality of government
• Elimination of red tape
• Elimination of corruption
• Enabling legal and regulatory environment

20
And provide the catalyst

• Employment growth needs to rise sharply
• Raise labour productivity
• Higher investment
• Reforms to energise the private sector
• Raise efficiency with which labour and capital
  are used

21
The Action Plan

• Develop clear investment promotion laws
  consistent with international best practice
• Create single central agency responsible for FDI
• Ensure sound regulatory framework to protect
  investor rights
• Introduce reforms on company legislation

22
And a new philosophy

• The promotion of entrepreneurship
• The creation of new financial instruments
• Supportive role of multilateral agencies
• Extensive role of knowledge management

23
Promotion of entrepreneurship

• Government and Investment Promotion Agencies
  (IPAs) to market small businesses
• as investment opportunities
• in terms of their products
• putting them in touch with sources of FDI
• Business plan competitions

24
Creating new financial instruments

• Private equity instruments
• Institutional support for such funds
• Stronger regulatory and legislative support for
  new products

25
Role of multilateral organisations

• Lend credibility to operations
• Share expertise
• Link financing to microeconomic financial
  fundamentals
• Encourage good business practices

26
Role of knowledge management

• Research and teaching of entrepreneurial
  economics and finance
• Creating programmes that encourage new firm
  creation
• Creation of regional training centres for small
  businesses
• Equity funds to link loans to firms that
  participate in education programmes
• Creation of institutions that leverage the
  regions potential and create more competitive
  investment opportunities

27
Future UAE initiatives

• Create a regional momentum for securing greater
  FDI inflows
• Lead the way by addressing critical issues
• Create a role model for the Arab world

28
Finally

• The message emerging from this survey is that
  countries are expected to intensify their efforts
  to attract FDI, reflecting increased competition
  worldwide for FDI projects.The general
  expectation is that countries will become more
  active in promoting FDI, in particular, through
  further liberalisation measures, additional
  incentives and increased targeting.
• UNCTAD Corporate Location 2004
• Worldwide survey of 87 international direct
  investment location