Companies law to signal new era

For the past three or four years the new companies law has been a hot topic in the emirates – up there with property prices and, bizarrely, the weather.

Once every few months or so a story is published in one or more of the newspapers saying the draft legislation is on the table and will be passed soon allowing as much as 75 per cent company ownership by foreigners.

It’s that time again it seems. Yesterday’s report quoting Mahmood Ibrahim Al Mahmood, Chief Executive Officer of Al Qudra Holdings, has raised expectations that the new law will be in place this year.

Foreigners can currently own no more than 49 per cent of UAE companies. This has been the bedrock of local economics, trade and business. A change in this rule, while not being a new idea, will be nothing short of revolutionary when it finally happens. It will make the opening up of the property market look like a garage sale.

The authorities know this, business owners know this and investors know this, and that is why we have been teased for years that the new law is close to completion. When it does appear on the statute books, it should not involve a revolution but be something that the economy takes in its stride. Factored in and any consequences totally expected.

During this period of anticipation business practices gradually change, unofficial loopholes and methods to allow foreigners to own more of their business appear and disappear and the economy adjusts to the new environment.

A long drawn out process allows a preservation of the status quo, encourages stability and ensures that no one can unfairly take advantage of the transition process. For an extreme example of how not to do it, look at what happened in Russia after the collapse of the Soviet Union. The fall out from the fast-paced liberalisation and sale of the country’s assets is still being felt economically and politically. Billionaires created during that time are now on run and hide missions around the world hoping not to have their fortunes taken from them or their lives in some cases.

It is also dangerous to make predictions but it will be a surprise if the new law will be passed before the fourth quarter of this year. In fact, 2010 is a more likely date. The new law is inevitable and it really is a case of when, not if.

Al Mahmood says it could come within the next three to four months – this will excite the stock markets immediately. It would be likely that a roll back of the limits on foreign ownership of companies also applies to the restrictions placed on foreign ownership of shares in listed firms.

The most traded stocks on the local markets including developer Aldar, logistics firm Aramex and banker Shuaa Capital are trading close to these limits. Analysts expect that their share prices will jump on the back of an easing of the limits. There will also be greater liquidity flowing through capital markets. There has been lacklustre trading of late, particularly in the stocks affected most by the limits on foreign shareholders.

However, the impact of the companies law will also be far reaching and long term. Already a hive of entrepreneurial activity, it is more than likely that the UAE will be a global centre for business owners, inventors and the most creative of business people looking to have equity in their own businesses.

With one of the world’s most attractive tax environments, excellent air travel infrastructure, the new companies law could be the wormhole to a completely new dimension of financial and economic growth. The second era or age of the evolution of the UAE perhaps.