Abu Dhabi’s move to slash business set-up fees by 94 per cent will strengthen its position as a destination for new ventures and boost foreign direct investment into the emirate, economists say.
In addition to improving the emirate's competitiveness, the Abu Dhabi Department of Economic Development's initiative to reduce fees to Dh1,000 will create more jobs and support small and medium businesses across several sectors, bolstering the emirate's non-oil economy, they said.
“The objective is to attract FDI to support different sectors of the economy, alongside developing new industries that will lead future growth,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “It certainly makes Abu Dhabi attractive to new ventures and start-ups.”
The new fees are applicable to six activities within the business licence and will cover all fees from Abu Dhabi government entities.
Licence renewal fees have also been reduced to Dh1,000. The new fees structure will be effective from July 27, 2021 but all federal fees will continue to apply, the economic department said on Sunday.
“It is a strong move at a time when competition between the major business centres in the Gulf [region] is becoming more intense,” said Scott Livermore, chief economist at Oxford Economics. “These are important steps forward.”
The latest government initiative needs to be taken in conjunction with other measures, said Ms Malik.
To boost its non-oil-economy and support businesses, especially SMEs, Abu Dhabi unveiled the Dh50 billion Ghadan initiative. It also introduced visa reforms geared to attract more investors.
The emirate has also unveiled several packages to cut the cost of doing business during the pandemic. It provided rent rebates, discounts on utility bills and loan guarantee packages to businesses and SMEs and over the past year.
In 2020, the government also detailed a plan to stimulate economic growth through strategic investments and 16 initiatives to support the private sector.
"More than each measure by itself, it is the accumulative impact of these moves that is making the change in the UAE, as whole, and [in] the emirate,” said Ms Malik.
Abu Dhabi has adopted a “very proactive overall stance” and “the clear focus, not only from this measure but also from others, is on strengthening the business environment, lowering costs and increasing the ease of doing business”, she said.
Despite Covid-19 headwinds and a global economic slowdown last year, the emirate is in a strong fiscal position to extend support to businesses.
Abu Dhabi's economic fundamentals and large fiscal buffers are supported by revenue from the hydrocarbon sector, S&P Global Ratings said in June when it affirmed its investment grade rating.
Its economy is expected to grow by between 6 per cent and 8 per cent over the next two years, driven by government spending, financial services and foreign direct investment, Mohammed Al Shorafa, chairman of Department of Economic Development, said earlier this year.
The latest move also aligns with the government’s policy to support diversification of the economy “through modern sectors such as digital and creative industries where competition for to attract these firms is becoming more intense”, said Mr Livermore.
The objective is to attract FDI to support different sectors of the economy, alongside developing new industries that will lead future growth
Monica Malik,
chief economist, Abu Dhabi Commercial Bank
“This is not just about attracting new investors from outside Abu Dhabi, however, but also encouraging expats already in Abu Dhabi to invest in the economy,” he said.
SMEs across several sectors of the Abu Dhabi economy will “significantly benefit from the decision to sharply reduce business set up and license renewal fees”, said Jaap Meijer, managing director and head of research at Dubai investment bank Arqaam Capital.
Companies interested in procuring supply contracts from the government also stand to benefit as the latest incentive lowers the cost of establishing a local presence and will support the emirate’s push to develop its in-country value programme, Mr Livermore said.
The reduction in business set-up fees and increased foreign investment will create “new jobs and more opportunities, which leads to an increase in income and more purchasing power”, which in turn will lead to an overall boost to Abu Dhabi’s economy, said Hettish Karmani, head of research at Muscat-based U-Capital.
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Terror attacks in Paris, November 13, 2015
- At 9.16pm, three suicide attackers killed one person outside the Atade de France during a foootball match between France and Germany
- At 9.25pm, three attackers opened fire on restaurants and cafes over 20 minutes, killing 39 people
- Shortly after 9.40pm, three other attackers launched a three-hour raid on the Bataclan, in which 1,500 people had gathered to watch a rock concert. In total, 90 people were killed
- Salah Abdeslam, the only survivor of the terrorists, did not directly participate in the attacks, thought to be due to a technical glitch in his suicide vest
- He fled to Belgium and was involved in attacks on Brussels in March 2016. He is serving a life sentence in France
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Washmen Profile
Date Started: May 2015
Founders: Rami Shaar and Jad Halaoui
Based: Dubai, UAE
Sector: Laundry
Employees: 170
Funding: about $8m
Funders: Addventure, B&Y Partners, Clara Ventures, Cedar Mundi Partners, Henkel Ventures
The specs: 2018 Alfa Romeo Stelvio
Price, base: Dh198,300
Engine: 2.0L in-line four-cylinder
Transmission: Eight-speed automatic
Power: 280hp @ 5,250rpm
Torque: 400Nm @ 2,250rpm
Fuel economy, combined: 7L / 100km
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