UAE Pursuant to the Purchase

UAE

Pursuant to the purchase of an existing enterprise in the United Arab Emirates, it is important to understand the social and business infrastructures of the UAE. It is also imperative that we understand the relevance of that market to the world economy, so that we ensure our decision is aligned with our strategy.

The United Arab Emirates is one of the most important nations in the Middle East. The company has taken great strides in the past couple of decades to diversify its economy, such that the country is now less dependent on oil than any Arab states besides Egypt and Morocco. The UAE now has one of the highest per capita GDPs of any nation on earth, and a standard of living comparable with nations in the west. The UAE is relatively liberal, which has allowed it to be politically active within the region. The country, Dubai in particular, is rising rapidly onto the world stage.

In part, this has been achieved by opening up the economy to foreign investment. The economy is the UAE is, for the most part, open. Only certain sectors, such as utilities, remain protected. That said, the country is making strides to open up to foreign investment even more. For example, the country has agreed to enter into negotiations to set up a free trade agreement with the U.S.

To spur investment, the UAE set up Free Trade Zones (FTZs) that offered foreign firms the capacity to take 100% ownership and pay no taxes. These zones are scattered throughout the country, although the most significant business infrastructure exists in Dubai, Sharjah and Abu Dhabi. It should be noted that each zone is governed by an independent entity known as the Free Zone Authority (FZA), so will be subject to different requirements and opportunities. We will need to become acquainted with the governance of the zone in which our target purchase operates.

The rapid ascension of the UAE has resulted in rapid inflation in recent years. This has resulting in increasing operating costs for businesses. Moreover, viable land has become scarce, pushing the price of both it and capital assets skyward. This represents a significant challenge in terms of cost reductions and foreign currency exposure. The dirham, which is currently pegged to the U.S. dollar, may be subject to a free float in coming years in recognition of the country's emergence as a world economic power in its own right.