GCC limits block foreign investment

Business reforms are needed to attract more foreign investment, says the OECD.

Foreigners are limited in the size of their ownership in businesses they start in the GCC.

Foreign ownership limits and licensing delays are among the main barriers to foreign investment in the GCC, says a report by the Organisation for Economic Co-operation and Development (OECD).

"[The] private sector perceives the restrictions to foreign ownership and approval requirements as key obstacles," said the report, published in draft form yesterday.

Restrictive quotas such as nationalisation policies and sponsorship requirements were other hurdles to international business, it said.

The study's release comes as recent unrest in parts of the Middle East puts pressure on governments to relax regulations. The UAE and other countries are also considering reforms to spur growth.

Produced by the Mena-OECD Investment Programme - a regional arm of the policy advising body - the research assesses investment policies in the GCC. It also surveys the views of the private sector.

"It appears quite clearly from the survey conducted with the private sector that the decision to invest in GCC countries and ultimately in economic and investment zones relies on investment laws and barriers to foreign investments," it said.

Foreign ownership limits and requirements where a domestic sponsor is needed to start projects were among the obstacles to foreign investment, it said.

In the UAE and many other GCC states, foreigners are limited in the size of their ownership in businesses they start.

The UAE is working on laws that would relax existing 49 per cent caps on international ownership of firms established in some sectors outside free zones.

Other laws are planned to improve support for small and medium enterprises and overhaul insolvency laws.

Across the GCC, the OECD report recommends enhancing business conditions by strengthening laws and improving transparency of regulations.

Promoting a gradual easing of economies and lifting investment barriers is suggested by the organisation, based in Paris.

Allowing investors more control over their investments in host countries, including relaxing nationality requirements and labour policies, especially for managerial and skilled positions, is also deemed important. Balancing shareholders' rights and improving contract enforcement should be prioritised, said the report.

Simplifying investment procedures through the creation of one-stop shops and offering investors alternatives to free zones are recommended.

The report also acknowledged the impact of unrest in parts of the Middle East on GCC economies.

"Apart from the short-term consequences of the current political turmoil … there are also a number of challenges that the GCC economies will be facing," it said.

To offset the impact of fluctuations in oil prices, the report urges regional governments to intensify efforts to diversify their economies away from a reliance on hydrocarbon revenues. Finding ways to create jobs across the region should also be a priority, it said.