Foreign investment influx reaches record high

The introduction of new laws in Dubai allowing foreigners to own property in more designated areas could be the tip of the iceberg as developments across the region promise to bring a flood of foreign cash to the Middle East

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By  Andrew Mernin Published  May 11, 2006

|~||~||~|The mounting number of new projects in the tourism sector, changes to property laws, the massive growth of the region as a key business hub and widespread international free trade talks (see page 19) could all contribute to a flood of further foreign investment entering the Middle East over the coming months. And as the gates to foreign cash swing open, the outlook looks bright for flourishing regional businesses and economies. Last month, despite a 21.4% rise in fuel expenditure, partly due to record oil prices, travel operator Emirates Group posted profits of US $762 million (AED2.7 billion) for the financial year ending 31 March 2006, a 5% rise on the previous year. The group, whose subsidiaries include the UAE’s major passenger airline, sky cargo and hotel divisions, turned over huge revenues of US $6.6 billion (AED24.2 billion) in 2005, a 27% increase on 2004, while its cash balance stood at US $3 billion, up 28.6% on the previous year’s figures. Away from the UAE, it emerged in April that the Saudi Arabian Monetary Agency, as well as autonomous government institutions and local commercial banks, held foreign assets valued at more than US $200 billion by the end of 2005, an increase of 42.9% over the previous year – showing massive growth in foreign cash travelling across the region’s borders. According to International Fairs and Promotions, the organisers of ‘Project Qatar’, which will welcome over 550 companies from 30 countries to the region, the event will double its deal revenue to US $200 million compared to US $100 million last year. Even more cash from overseas is likely to arrive on Middle Eastern shores in the coming months following a multitude of recent announcements. Currently awaiting formal approval from the government, Dubai’s new property law, allowing foreigners to own property in an increased number of designated areas of the city, looks set to encourage even more foreign investors to the region. Adel Lootah, executive director of Dubai Property Group (DPG) told CEO Middle East that the law was another “milestone” for Dubai. “The laws will be welcomed by foreign investors who have been waiting to buy their own properties. Over-regulation can kill a sector, so I think this is a move for the better and that the law will give an example for other Middle Eastern countries to follow.” Addressing property delegates at a meeting in Dubai last month that analysed the new laws, Essam Al-Tamimi, senior partner at Al-Tamimi & Company advocates and legal consultants, said: “I truly believe that the UAE property law is revolutionary and I don’t think the people in Dubai understand the impact it will have.” As the new regulations help to develop the region’s growing reputation as an international business centre, an array of other developments are also strengthening the Middle East’s status as a tourist destination. Ingo Guerges, senior director of business development for Europe, in the Middle East and Africa at Worldhotels, said: “With travel and tourism set to generate US $148 billion of economic activity in the Middle East this year alone, we are looking to add further up-market properties in Dubai, Abu Dhabi, Muscat, Cairo, and Doha to our portfolio.” In Dubai, where according to the World Trade Organisation the number of hotel visitors has increased by over 3.1 million between 1999 and 2005, UAE investment house Istithimar PJSC announced last month that it would invest AED18.3 billion (US $5 billion) on new hotel and resort developments. Another recent announcement will see a partnership between Emirates Group and Premier Travel Inn, the UK’s largest hotel chain, to bring budget hotels to Dubai at a cost of US $70.7 million. The biggest of them all, however is the 27 square kilometre Saadiyat project being built 500 metres off the Abu Dhabi coast and which incorporates 38,000 apartments. The project could be yet another major honey-pot for foreign investment via the region’s tourism sector. The scheme’s development is being overseen by the Tourism Development and Investment Company, a new Abu Dhabi-based public joint stock company, and is expected to attract a gigantic US $27.2 billion in investment. On a larger scale, a recent flurry of behind closed doors discussions could encourage more two-way trade between the Middle East and the rest of the world’s financial heavyweights. Among others, free trade agreement (FTA) talks between the US and UAE resume this month, while an FTA between Bahrain and the US will be introduced next month – another catalst for more foreign investment in the Middle East. As stock exchanges across the region evolve and become better regulated, foreign investors are also listing their companies on Middle Eastern markets and investing in regional businesses, both large and small, en masse. In April, leading oil and gas pipe supplier Man Industries, listed global depositary receipts worth US $35 million to become the first securities listing by an Indian company on the Dubai International Financial Exchange. As developers continue to increase the region’s tourism infrastructure and restrictions against foreign-ownership are loosened, the tide of foreign direct investment should continue to flow for a long time to come.||**||

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