Attracting International Investment – the UAE Experience

1. GCC: the Next International Investment Destination Attracting International Investment – the UAE Experience 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 worldat 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 • Dubai’s 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 UAE’s 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. Non-oil % of GDP Oil % of GDP 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 Source: UNCTAD 2004

11. Inward FDI Performance Index Ratings 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 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 Source: UNCTAD

16. So why the discrepancy between potential and reality?

17. 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 The usual suspects

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 region’s 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