01 Mar Who are the biggest foreign investors in Dubai and how can entrepreneurs get some of the action?
Dubai retains great lustre and appeal as a foreign direct investment (FDI) location. The most recent figures show clearly that the city has strongly cemented its position among the top global destinations for FDI capital.
In 2016, with investors from leading industrial countries such as the US, Canada, the UK and France all demonstrating high levels of confidence in the emirate, Dubai attracted AED 25.5bn (around USD 7bn) of foreign investment, strengthening its reputation as both a trustworthy and stable home for foreign capital and an ideal location for entrepreneurs and new ventures.
A closer look at the data reveals even more useful information for would-be entrepreneurs: knowing which sectors are attracting inward investment, and which sectors are generating large numbers of FDI projects, can help business founders better target their own setups, whether they’re sector-specific or downstream.
Who’s investing in Dubai?
According to the Dubai Investment Development Agency’s FDI Monitor, the first ever city-level analysis observing FDI investment trends and data, the last three years have witnessed high levels of inward investment into Dubai from a broad range of countries.
In 2015, the Kingdom of Saudi Arabia was the biggest single source of FDI, followed by the US, the UK, India and Kuwait, between them generating around AED 15bn of investment inflows.
In 2016, Canada was the largest inward investor, accounting for 30%, followed by the UK (13%), France (11%), Spain (8%) and the US (7%). These five countries alone generated nearly 70% of Dubai’s total inward investment in 2016.
In the first half of 2017 – the latest period for which figures are available – total capital inflows from all countries amounted to AED 9.5bn, with the US topping the list of individual countries. In the second quarter the US contributed over 34% of FDI, ahead of France (20%), the UK (13%), and Thailand (12%) – in other words those four countries alone accounted for around 80% of all FDI capital coming into the emirate.
What does this actually mean for entrepreneurs in Dubai?
While it’s encouraging to see such a broad scope of countries rushing to invest in the city, what’s more revealing is an analysis of FDI inflows by sector, and sector involvement by FDI project. Targeting business setup in – or downstream of – these sectors can help potential business founders gain quick traction in their market and allow them to take advantage of the vast capital inflows that Dubai continues to see.
In 2015 the power generation and distribution sector absorbed the bulk of FDI, accounting for more capital than the next four sectors put together. Along with capital inflows into management offices, accommodation and food services (AFS), construction and transport logistics, these top five sectors made up nearly two-thirds of the total capital attracted to Dubai that year. But 2016 saw a shift in the investment landscape. Commercial construction emerged as by far the biggest sector for FDI capital, followed by AFS, scientific research and development, real estate rental and leasing, and retail and wholesale trade. And in 2017 the pattern has continued to evolve, with AFS taking over as the leading sector, generating almost three-quarters of the total monitored FDI; and followed by commercial construction, data processing, educational services and administration and support.
The important thing to note here is the sheer variety of sectors benefiting from high levels of FDI, reflecting the growing diversification of Dubai’s economy and the fact that over the years it is evolving rapidly.
These trends are also borne out by the FDI Monitor analysis which shows number of FDI projects (as opposed to levels of investment). Important sectors by number of projects in the first half of 2017 included administration and support services, accommodation, retail, insurance and finance, and enterprise management. These five sectors accounted for over half of all projects (by number) and more than three-quarters of FDI (by value) in the second quarter of 2017.
Other sectors which have generated a good number of FDI projects over the last three years are software publishing and scientific research and development. Remarking on the 2016 FDI Monitor results, the CEO of Dubai FDI, Fahad Al Gerawi, noted that FDI flows into Dubai were contributing to a growing investment ecosystem in the knowledge, digital and creative economies. He pointed to a rise in research, development and innovation projects – along with the high level of technology components in many FDI projects – as being further testament to Dubai’s success in attracting strategic sustainable investments.
So why are people investing?
International investors are attracted to Dubai because it is an increasingly favourable environment for foreign investment. To put it simply, it’s a great place to do business. The government has helped by taking some major legislative steps to promote Dubai as a foreign capital destination: the 2016 Bankruptcy Law modernised the UAE’s previously unpredictable insolvency laws, and a new UAE investment law due to come into effect in Q1 2018 will for the first time allow foreign equity ownership of up to 100% of onshore UAE companies in certain strategic sectors, removing the historic requirement to have a local partner holding a 51% stake. This change, in particular, is expected to attract yet more FDI into the emirate.
The government’s efforts to actively attract and encourage FDI growth are also part of its Dubai Plan 2021, which cites FDI explicitly as a key performance indicator (KPI) of the success of the government’s future strategic vision. As His Excellency Sami Al Qamzi, Director General of Dubai’s Department of Economic Development, pointed out in the 2016 Dubai FDI Monitor report, Dubai has continued to gain global investors’ trust and sustain its leading position among top global cities. The Director General added that the capital inflows and number of new FDI projects observed in 2016 are continuing proof of Dubai’s diversified economy and the thriving investment environment. This is thanks in part to Dubai’s prime location at the gateway between east and west, placing it within an eight-hour flight of two-thirds of the world’s population – so foreign investors see the city as an ideal access point into regional markets. This favourable geography allows investors to potentially reach more than 1.7 billion consumers in the Middle East and North Africa, Pakistan and India alone, further enhancing Dubai’s reputation as a global platform for trade and investment.
Other key factors which attract capital inflows are of course the emirate’s zero-rate income tax regime and the absence of any exchange controls or restraints on the repatriation of funds. In addition, Dubai offers flexible rules governing the acquisition of real estate by foreign investors and enjoys a large pool of expatriate labour.
The city’s infrastructure, advanced technology and business-friendly environment afford plentiful opportunities for growth and innovation as well. And assistance is provided by several government agencies. Dubai SME, for example, maintains support for entrepreneurs who are running small and medium-sized businesses in all phases of their development; while Dubai Future Accelerators helps cutting-edge entrepreneurs, in partnership with Dubai’s government, to use the city as a ‘testbed for creating solutions to the global challenges of tomorrow’.
But does all this make Dubai a favourable place to do business? The international investment community seems to think so. Reflecting the UAE’s constantly improving business environment, the World Bank rated the Emirates 21st out of 190 countries in its 2018 Doing Business report, a jump of five places from its previous ranking.
Dubai’s government is not alone in actively promoting growth in FDI. A number of international chambers of commerce and government trade missions in the UAE have also been established to promote investment and trade into the UAE and Dubai and to provide support, advice and assistance to make it easier for investors to make the step into Dubai.
For example, the Canadian Business Council in Dubai offers assistance for Canadian-related businesses and professionals wishing to establish a base in Dubai through its professional services, business and government networks. From its UAE embassy, the UK’s Department for International Trade offers UK-based companies professional and authoritative help with investment and business setup in the emirate. A number of trade organisations also work alongside the government providing guidance and encouraging inward investment from the UK: the UAE-UK Business Council, for example, actively promotes trade and investment between businesses, from SMEs to multinationals, in both countries. And local business groups (such as the British Business Group Dubai & Northern Emirates) work closely with both governments to provide support to British businesses in the UAE, as well as those looking to establish a commercial foothold in Dubai.
Targeting the capital
Whether you’re looking to set up directly in any of the key FDI sectors highlighted in this article, or downstream of them, the wealth of reliable FDI data now available is making targeted setup increasingly effective. Capital is pouring in and business setup support is plentiful. All you need to do is decide where to target your business launch.