The UAE government plans to publish later this year a draft law that will provide legal protection for overseas investors.

 

The foreign investment law will set down “systematic incentives” to attract international money to the UAE as it speeds up economic diversification in response to the global financial crisis.

 

Last year saw the withdrawal of an estimated Dh180 billion (US$49bn) in “hot money”, invested in local markets on the expectation of a dirham revaluation, when it became clear the currency peg would be maintained.

 

The legislation, which is in draft form until it receives Cabinet approval, has been in the pipeline for some time.

 

Analysis and forecast: decreasing risk

 

The draft law is the latest move by the UAE government to attract international investors to return to the UAE.

 

Confidence in the UAE economy in general, and Dubai’s in particular, has been shattered resulting in a massive outflow of foreign investment. The lack of protection to foreign investment (such as lack of bankruptcy laws) has been exposed during the crisis leading to a further shattering of confidence.

 

Foreign investment is crucial to Dubai’s economy as it forms the majority of spending on real-estate, the back bone of the Dubai economy. Foreign investment is also becoming increasingly more important for Abu Dhabi as it diversifies its economy, partly replicating much of Dubai’s real-estate boom, that relies heavily on attracting foreign investors.

 

It is often the case that plans to introduce laws and reforms, are never realized. This particular law has been talked about for many months. It is therefore by no means certain that the law will be passed. However, the statements by the economy minister indicate that the federal government is moving on this front. It is likely that the government will want to improve the conditions for foreign investors after the current crisis. If and when the proposed law is passed, it will improve the investment conditions and help jump-start the Dubai economy in particular, and more generally the UAE economy.