UAE makes pivot to outbound investment

28 June 2022
How outgoing foreign direct investment could help secure the UAE’s commercial capital status

The UAE’s economic strength owes much to inward investment as companies position themselves regionally with a base in the country.

However, as the nation continues its journey of economic diversification, there is a noticeable gain brought by investments flowing in the opposite direction — from the UAE out beyond its borders.

In 2021, investment outflows from the UAE reached AED82.6bn ($23.5bn), marking a record-breaking 789 per cent growth in the past 10 years.

As of the end of 2021, the cumulative outward investments amounted to AED830.5bn ($226.1bn), according to the UAE’s Ministry of Economy.

These figures underline the growing interest among UAE entities in investing in foreign markets, and the positive effects these entities experience from outward foreign direct investment (FDI).

In late 2021, the UAE outlined economic agreements with eight countries, including South Korea, Indonesia, Kenya, Turkey, India, Ethiopia and Israel, which comprise 10 per cent of the world’s economic output. These strategic exchanges in growing markets have the potential to deliver various benefits to the recipient nations, as well as investors back home.

The fruits of these efforts go far beyond solely a return on investment but also an expanded footprint that will continue fuelling the economy
Khalid bin Kalban, Dubai Investments

Cutting tariffs

One key benefit felt by UAE-based enterprises as a result of economic agreements signed with other countries to facilitate FDI into external markets is reduced tariffs.

“A drop in business tariffs typically serves to lower the cost of goods or services purchased from foreign markets,” notes Khalid bin Kalban (pictured, right), CEO of Dubai Investments, which is invested in enterprises both within and outside the UAE.

“This, in theory, leads to lower prices being passed down to consumers, boosting their spending power and, as a result, potentially stimulating the economy.”

The UAE signed a strategic economic agreement with India in February 2022 along precisely these lines, with the two nations agreeing to cooperate over strategic investments to boost bilateral and economic ties, as well as to lower fees for Indian businesses in the UAE.

Revenue growth

Alongside reduced tariffs, investment across borders may allow UAE-based companies to identify and capitalise on untapped potential in countries that offer access to high-growth sectors.

According to a 2021 report and survey commissioned by the Dubai Chamber of Commerce, sectors including fintech, agriculture, health tech and e-commerce display great potential in African markets, provided companies can access the necessary investments to address challenges such as weak digital infrastructure, limited public amenities and unfamiliar regulations.

Funds channelled to these markets may address these challenges, eventually unlocking higher returns as the performance of local businesses rises.

The same survey from Dubai Chamber found that among business leaders in Africa, fintech is expected to see the most growth in 2022 — of up to 89 per cent, followed by agriculture and food, by 89 and 87 per cent, respectively.

These figures indicate Africa’s position as an attractive investment destination with the potential to generate higher returns on investment in the long term.

In May, Abu Dhabi forged a $10bn trade and investment partnership with Egypt and Jordan backed by a fund managed by Abu Dhabi-backed ADQ Holding to accelerate growth in five key industrial sectors.

The UAE, Egypt and Jordan have entered into an Industrial Partnership for Sustainable Economic Growth to expand in the agriculture, food and fertilisers; minerals; petrochemicals; pharmaceuticals; and textiles sectors

Untapped markets

For the UAE, investments into untapped or underutilised markets are a ready means of expanding the overall reach of the country’s business footprint and reinforcing its position as a global hub.

Past commentary from the Dubai Chamber highlighted Asean (Association of Southeast Asian Nations) markets as one such unrealised opportunity.

According to the organisation, the percentage share that Dubai businesses have in Asean imports — worth approximately $1.4bn in 2020 — sits in the single digits. This is despite these same specific imported products being among Dubai’s top 20 exported products in 2020.

Much more could be done through better investment into or country-level agreements with such markets to boost trade.

“FDI is a valuable tool in bolstering the UAE’s GDP, should businesses be able to uncover new and unrealised opportunities outside of home shores,” says Bin Kalban.

“By identifying opportunities in untapped markets and allocating funds for the same, the UAE is well placed to reap the benefits. The fruits of these efforts go far beyond solely a return on investment but also an expanded footprint that will continue fuelling the economy.”

Investment in the UAE remains a fundamental pillar of the nation’s economic future and its post-pandemic resurgence as the region’s commercial capital. However, much stands to be gained when UAE-based businesses invest overseas, with the advantages felt on the ground among consumers right up to the economy at large.

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