Why Is The UAE An Ideal Host State To Foreign Investments Targeting Commercial Space Activities?
The UAE economy continues to thrive, thanks to the leaders’ long-term vision and strategic foresight. The country has become one of the most attractive hosts to foreign investors attracted by its economic diversification marked by its technological transformation and its digital economy growth across all sectors.
As per the UAE Central Bank Quarterly Economic Review, First Quarter 2020 Report, the UAE economy is leading the GCC region in its economic diversification, with 70.2% of its GDP from non-oil sectors in 2019. To steer its nation toward the Centennial Plan 2071, the long-term government plan is designed to make the UAE one of the leading world economic powers, by which the space domain plays an essential role. In fact, space would enable the envisioned national strategies, including the UAE Fourth Industrial Revolution Strategy, the Emirates Blockchain Strategy 2021, and the 2017 UAE Strategy For Artificial Intelligence 2031.
As the UAE is the NewSpace rising star with a great determination to be one of the most important key players within the global space ecosystem, foreign investors are welcomed to take a role in its revolutionary development. Here are several key reasons why the UAE is an ideal host to foreign investors targeting commercial space activities. Investing in a foreign economy involves careful due diligence and analysis of the political, economic, and business risks that may result in unexpected losses. Thus, at the outset of any international investment, foreign investors consider vital factors, including the host state’s political stability, its Foreign Direct Investment (FDI) regime, the taxation system, accounting treatment, the applicable laws to the envisioned activities and the judiciary system among others. The political stability of the host state is at the top of the list to address.
It is not surprising that foreign investors flee countries with high political risks to spare the disruption of their business operations by wars, strikes, terrorism, or by actions ofthe host state’s political or governmental institutions. The latter encompasses direct or creeping expropriation restriction on the expatriation or conversion of the local currency or changes in the host state’s fiscal, regulatory or judicial system to take advantage of the foreign investors’ favourable results within a given sector. That is not the case for the UAE, as the country’s political and economic stability has long attracted foreign investors, especially investors fleeing from lesser stable home countries.
Such a position was reinforced by the excellent management of the health crisis caused by the Covid-19 pandemic. In a tweet on May 2021, His Highness Sheikh Mohammed Bin Rashid revealed that despite the decrease in the FDI flows globally, the UAE FDI inflow increased by 44% in 2020 compared to the prior year. The country’s political stability and economic attractiveness are managed and maintained through long-term strategies and standardized visions, cooperation between the emirates, government transparency and institutional efficiency.
Furthermore, foreign investors address the factors related to the host country’s favourability depending on the type of investment, targeted activities, type of companies involved and the reasons for the operation. It is essential to identify if the foreign investor is aiming for a greenfield investment or a brownfield investment, conflict of laws rules, and the applicability of international treaties between the host and investor states on the FDI transaction that prescribe essential clauses, including a most favoured nation treatment, limits on expropriation and adequate compensation clauses.
Setting up a new company in a host state varies from purchasing an existing company by means of acquisition, merger, or expanding the operation in the home state, among other scenarios. It is always essential to address the foreign investor’s ownership limitation in the host state and the associated degree of FDI liberalization. FDI inflow into the UAE has been progressively liberalized with ease in processes and procedures. The UAE has promulgated legislative reforms with the aim to achieve the UAE Vision 2021 by boosting inward foreign investments. For instance, in addition to the possibility for 100% foreign ownership in offshore companies incorporated in the country’s Free Zones, foreign investments within the mainland continued to be liberalized. After the promulgation of a series of laws to shape a competitive environment for foreign investments, the UAE Federal Law No. 19 of 2018 (The FDI law) came into force, allowing foreign investments falling under its scope of application to own up to 100% of onshore companies within the “positive list,” which included the space sector.
However, a landmark amendment to the Federal Law No 2 of 2015 on Commercial Companies Law (CCL) under the Federal Decree No. 26 of 2020 (the Decree) came into force on the 1st June of 2021 and repealed the FDI law. Before the awaited amendment, the CCL required incorporated companies in the UAE mainland to have one or more Emirati partners or a company wholly owned by Emiratis, to hold at least 51% of the company capital. Now, the Decree permits foreign investors to own 100% of certain UAE onshore companies by way of a sole shareholder company. As such, the Emirati’s general requirement to own 51% of the onshore company share capital or to act as a service agent of a UAE onshore branch office is removed. The new regime empowered each emirate’s Department of Economic Development (DED) to identify the activities with a “strategic impact” for the nation to facilitate the process.
Dubai DED, for example, has issued the guidelines with a list of more than 1,000 commercial and industrial activities that are open for 100% foreign ownership, including satellites manufacturing and investment in outer space objects. However, companies may be subject to further licensing requirements of a UAE board representation or minimum UAE local ownership. In addition to the general framework to attract investors into the UAE, various factors related to the UAE space endeavours are favourable to foreign investors. The UAE has been at the forefront of formalizing and organizing its national space sector, allowing it to make giant leaps in a short period, comparing to the other newcomers to the NewSpace race. The UAE 2016 Space Policy aims to ensure that space exploration is conducted to support the national economy, particularly the UAE’s vital sectors. In addition to leveraging the benefits of Research and Development, scientific missions, and space science and technology for the country’s socio-economic growth and the UN sustainable development goals achievement, the UAE space policy aims to establish and expand the UAE’s Leadership in Space Regionally and Internationally, and to develop and foster a sustainable and innovative commercial space industry. Since the latter is one of the global space economy’s key transformations and since the NewSpace race is the race to commercialize space, the UAE is shaping a competitive national ecosystem to attract foreign private actors into its space sector.
Her Excellency Ms. Al Amiri, the Minister of State for Advanced Technology and chairperson of the UAE Space Agency (UAESA) explained in her interview with the National News on 21 April 2020 that developing the private space sector is essential to position the UAE “as a global industrial hub by 2031” following the “Operation 300bn” strategy. The private space sector is set to increase the industrial sector’s Gross Domestic Product (GDP) contribution from Dh133 billion to Dh300 billion by 2031.
Her Excellency added that the space sector’s transformation would be done through creating an advanced space systems hub by 2031. She emphasized the role of the private sector, notably the Public-Private Partnership (PPP), in the development of the private space sector. The reduction of the commercial space sector’s dependency on institutional funding and the rise of private investment schemes will be one of the main transformations in the UAE. Various initiatives were taken by the UAE authorities to promote space investments and attract local and foreign investment vehicles to consider the funding opportunities in the national space sector. Among the many initiatives to attract investors, the UAESA launched various initiatives, including the Space Investment Promotion Plan, aiming to contribute to the transformation of the UAE into the envisioned commercial space hub.
In the pursuit of growing foreign investors’ confidence in the national ecosystem while balancing the private and public interests and mitigating the risks and liabilities in conformity with the international obligations, the UAE Federal Law No. 12 of 2019 (The UAE Space Law) was issued on 19 December 2019 to foster the UAE’s leaders plan. Furthermore, the UAE Space Law promotes the long-term space sustainability, integrates the international space law principles and best practices into the UAE legal framework which could make the UAE a competitive host to all stakeholders seeking sustainable economic growth. Furthermore, since the space ecosystem is not a stand-alone ecosystem, the competitiveness of the host economy impacts the space sector’s evolution and profoundly influences its attractiveness to foreign actors.
In fact, the UAE’s economic competitiveness reinforces the country’s position to attract foreign investors into a growing knowledge-based economy. As per the IMD World Competitiveness Ranking 2021, the UAE is rated the most competitive economy in the Middle East and ranked the 9th of 64 economies. According to IMD, the UAE ranked higher than countries like the US, Germany, UK, France, and China, thanks to its government efficiency, economic performance, business efficiency and infrastructure. The covid-19 pandemic has exposed governments’ efficiency around the world and their ability to face economic challenges during global crises. Nonetheless, the UAE’s leadership enabled the country to rank higher in competitiveness, thanks to the developed capacity offering a competitive advantage compared to the others.
While charting the steps toward building a sustainable commercial space sector and achieving the long-term vision toward the 2117 Mars project, the UAE is creating significant opportunities for the private sector and shaping favourable conditions to attract foreign investors into a knowledge-based economy.
Furthermore, upon the Hope Probe’s triumphant arrival to Mars, His Highness Sheikh Mohammed Bin Rashid stated that the achieved unprecedented milestone was only the start of the nation’s ambitions. “The Hope probe’s historic arrival to Mars is the greatest celebration of the 50th anniversary of our country. It sets the beginning of the next 50 years with boundless ambitions and dreams.” His Highness Sheikh Mohammed Bin Rashid Vice-President and Prime Minister of the UAE and Ruler of Dubai.