UAE now belongs to the world's 20 top economies for FDI

16 July 2020 4 min. read

Targeted government initiatives to promote a business friendly environment appear to be paying off in the UAE, as the country makes an entry into the top 20 on Kearney’s latest Foreign Direct Investent (FDI) Confidence Index. 

UAE ranked 19th on the index, which Kearney based on a survey of more than 500 senior executives – potential investors with more than $500 million in revenue – across the globe. The survey asked these potential investors to rank foreign markets based on the likelihood of drawing a direct investment from them, making it a forward looking FDI barometer of sorts.

The top 25 list was dominated by developed markets this year, with the UAE being one of three developing economies to make the cut alongside China and Brazil. According to Kearney, the UAE’s exceptionally strong performance and presence on the list can be attributed to a shift in the country’s policy framework in recent years.2020 Kearney Foreign Direct Investment Confidence IndexIn a bid to diversify away from the oil trade, the UAE has been engaged in targeted efforts to draw investments into the country. The highlight of these efforts came last year, when the government opened the doors for 100% foreign ownership in more than 120 economic activities across 13 key sectors. 

These include crucial industries from an economic viewpoint, such as manufacturing, agriculture, renewable energy, space, transportation, hospitality and several others. The move was a culmination of efforts that have been underway since the foreign investment law was passed by the UAE government in 2018, which had already allowed for between 50% and 100% foreign ownership for select businesses.

And its not just these policies that have made the UAE more attractive. Kearney points out that UAE is a stable country with vast potential for economic growth, which has driven efforts to improve business conditions even in the domestic market. In fact, the country ranked 16th out of 190 in the World Bank’s Doing Business 2020 index, owing to reduced costs and complexities in opening a business.

Key determinants of investment intentions

Kearney reports that tax and regulatory conditions are among chief considerations during an FDI move, which explains why these developments have boosted UAE’s profile as an investment destination. Another key driver of FDI is the state of tech advancement and readiness in a market.

Here too, the UAE is performing particularly well. In a 2018 survey by KPMG, well over 90% of CEO’s had investments planned in digital innovation, digital skills training and cyber security, all to manage the tech disruption wave. Nearly 70%, meanwhile, had planned investments in digital infrastructure and emerging technologies.

With this signal of readiness to invest in tech, investments have been flowing into the country’s digital space. As an example, Kearney highlighted a flagship deal worth more than $3 billion from last year, where US-based ride sharing platform Uber acquired online car booking service Careem Networks. This is in addition to other significant merger & acquisition (M&A) activity outside of the tech sector.

Having cultivated a regulatory and digital environment ripe for investments, the UAE government has been proactive in its approach to drawing investments. One example is the country’s entry into the Africa Continental Free Trade Area (AfCFTA), which could boost trade with key African markets. Another prime example is the organisation of the Dubai 2020 Expo – a six-month initiative expected to attract more than 25 million investors and visitors into the country. Analysis from EY last year predicted that the effects of Dubai Expo could generate more than $30 billion in gross value added and more than 50,000 full time jobs over the next decade.

Effects of Covid-19

That being said, the AfCFTA has now been put on hold due to Covid-19, while Dubai Expo has been rescheduled to run from October 2021 to March 2022, also for the same reason. This is represents the start of FDI disruption resulting from Covid-19 according to the Kearney survey, which concluded as the virus’ devastating effects were just starting to emerge.

The firm expects FDI figures worldwide to take a significant hit from Covid-19, although the UAE might be in a stronger position than other markets, according to Kearney. “The overall strong business environment was boosting its foreign investment attractiveness, and this economic stability should support the business environment post-COVID as well,” wrote report co-author and Chairman Emeritus of Kearney Paul Laudicina.