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Costly fuel, sponsor issues could hit investment

UAE has emerged as the most attractive Arab FDI destination after Saudi Arabia, receiving over $73 billion since its foundation. (AP)

By Nadim kawach

A surge in fuel prices is allying with a long-standing term for national partnership in projects and other factors to obstruct capital flow into the UAE despite its advanced infrastructure and low tax, according to an official study.

While the UAE, the largest Arab economy after Saudi Arabia, has emerged as one of the best destinations for foreign direct investment (FDI) in the Middle East, it still can improve that status if it works on eliminating investment obstacles, said the study by the Abu Dhabi Department for Economic Development.

It listed 14 main hurdles blocking more FDI flow into the UAE, including a steady increase in fuel prices over the past few years, the existing term for national partnership in most projects set up outside free zones in the UAE, high production and operation costs, a shortage in land and other property, complicated administrative procedures for some projects, lack of skilled labour, absence of investment information and the current bank credit squeeze.

The study, which covered Abu Dhabi in particular and the UAE in general, said authorities should work on removal of those barriers and called for concentration on capital-intensive industries and projects that are based on oil and gas.

It also recommended the creation of heavy industrial projects on the grounds they are more viable and play a bigger role in economic diversification.

“There are several factors and facts that make the potential investment climate in Abu Dhabi and the UAE in general very attractive…these include the country’s strategic location, its advanced infrastructure, the presence of major international establishments in the UAE, the mushrooming of free zones, low income taxes, financial surpluses, and abundant energy resources,” it said.

“On the other hand, there are 14 barriers to investment flow into Abu Dhabi and the whole UAE…on top of them are the surge in the prices of petrol and other fuel, the national sponsorship terms, and lack of property and land.”

The study urged authorities to work for “facilitating and expediting” the registration and licensing of new projects, providing financial incentives, electricity and other services, tackling problems facing those projects and supporting industrial ventures so they can compete in regional global markets.

“The efforts should focus in the first place on reducing the price of fuel, mainly diesel, given its immediate impact on the increase in industrial production….this will allow local industrialists to compete in foreign markets.”’

According to official data, the UAE has emerged as the most attractive Arab FDI destination after Saudi Arabia, receiving over $73 billion since its foundation.

The report by the UN Conference on Trade and Development (UNCTAD) also showed the UAE remained the largest capital exporter in the region, pumping a cumulative $53.5 billion into global markets.

The bulk of the FDI flows into the UAE were received during the oil boom, mostly through 2004-2008. From around $7.8 billion in 2003, FDI flow into the UAE surged to $17.8 billion in 2004, to nearly $28.7 billion in 2005 and to around $41.5 billion in 2006. It leaped to $55.7 billion in 2007 and $69.4 billion in 2008.

But FDI plunged from around $13.7 billion in 2008 to about $four billion in 2009 after most countries were affected by FDI slowdown because of the crisis.

Despite the surge in its FDI outflow and the plunge in 2009, the UAE has remained a net capital importer, recording a total net FDI surplus position of about $19.9 billion.