Trends and Predictions of Foreign Direct Investment (FDI) in the UAE For 2024

The last few years have witnessed the UAE emerge as a major destination for FDI, attracting global players. While there was a major decline in FDI in 2022 due to socio-economic and geopolitical issues, the country continues to be one of the most stable investment destinations globally.

As per the World Investment Report 2023 (WIR) of 2022, FDI inflow in the UAE hit $22.7 billion, recording a 10% increment compared to the previous year and outperforming other Gulf countries. Forward-thinking businesses hire professional services for company formation in Dubai, eyeing the lucrative opportunities.

Major Investors and Sectors in the UAE

The UAE stands out as a major investment hub, attracting businesses amidst global uncertainties. The country leaves no stone unturned to enhance its financial inflow. Particularly, the UAE-India Comprehensive Economic Partnership Agreement (CEPA) has been facilitating trade and fostering stronger business ties. Entities in the UAE can benefit from a multiplicity of perks under the CEPA. For instance, the provisions include 0% customs duties on most of the tariff lines and preferential access for marketing that benefitted both nations. Bilateral trade between the two countries witnessed a 27.5% spike within one year after the CEPA was signed.

In the energy sector, the UAE has enhanced its involvement with China. In May 2023, the two countries signed three agreements with the nuclear energy organizations in China. FDI in the energy sector will be a strong foothold in the country.

International tech entrepreneurs also find the UAE a major hub for investment. The country boasts a progressive tech infrastructure, drawing a pool of investors. This goes a long way in rapidly scaling up businesses and seeking early exit routes. Thus, the Gulf country appeals to significant start-ups, which hosts three of the six unicorns in the Middle East.

The key investment sectors in the UAE are:

• Greenfield Projects
• Healthcare
• Stock Markets
• Renewable Energy
• Real Estate

Opportunities of FDI in the UAE

The UAE has taken several strategic measures to attract FDI. These include waiving taxes and restrictions on capital repatriation, allowing the movement of free labor in the UAE, and incentives to foreign investors. The 2021 Commercial Companies Law (CCL) reforms further boosted FDI, enabling 100% foreign ownership of onshore entities in the UAE in certain sectors. Previously, the limit was fixed at 49%.

In the UAE, investment avenues are of three major types:

• Positive list activities that allow 100% foreign ownership of onshore entities
• Free zone entities in the UAE enjoying 100% foreign ownership
• 51% Emirati-owned and 49% foreign-owned onshore businesses

In 2022, the Ministry of Economy in the UAE launched the NextGenFDI, a nationwide initiative to attract global businesses operating digitally. These businesses got their market entry and thus, they could launch their ventures and scale them within the UAE. NextGenFDI facilitated fast company incorporation, pacified banking services, helped in issuing bulk visas, and provided lease incentives for tech companies moving to the UAE.

Through Hub71, Abu Dhabi has established a unique tech ecosystem across the world to bring investors and founders together, grow tech companies, and scale them. A new license for start-ups, technology companies, and entrepreneurs was also introduced by the Dubai International Financial Centre at just $1,500 per year. UAE also established the Invest in Dubai platform, which investors found beneficial in procuring trade licenses to launch their businesses swiftly.

Key Threats for Investors in the UAE

Although the UAE appears to be an alluring destination for investors, considering the prime threats is worth it. A lot of new laws and regulations have become effective in the country. Global entities operating in the UAE find it challenging to understand and implement necessary tactics to adhere to the same. This turns out to be a time and cost-intensive process, which often alienates SME businesses, particularly the ones from other countries. The regulatory uncertainty in the UAE will test its attractiveness, particularly in comparison to established economies in Europe.

A greater capital inflow also puts the UAE at risk of illegal activities like financing terrorists and money laundering. Since 2022, the UAE has been on the ‘grey list’ of the Financial Action Task Force, which serves as a threat to foreign investment.

Key Predictions for 2024

• M&A activities, along with projects driven by renewable and Greenfield sectors with sizable corporate restructuring and asset portfolio consolidations will pick up pace to do away with non-sustainable assets based on fossil fuels
• A spike in M&A activities driven by the education and healthcare sectors is on the cards with a growth in the population in the UAE
• The UAE will witness the establishment of start-ups focussing on digital and technological innovations
• Established corporate companies in the UAE will be focussing on ESG ratings due to the country’s involvement in COP28
• Foreign investors in the UAE will make the most of legal reforms and business platforms involving investment, data privacy, protection, and regulation

Professional Assistance for Setting up a Business in the UAE

While the FDI growth in the UAE may experience some moderation in 2024 and face challenges from regional competition and regulatory concerns, its strategic initiatives, diverse investment opportunities, and commitment to sustainability are likely to sustain its attractiveness to foreign investors. The IMC Group continues to be one of the most trusted business setup consultants in Dubai. With professional support, businesses can confidently adhere to new legal norms and establish their identities in the UAE.