Thomas Paoletti participates in the IR Global Guide – The Middle East & North Africa: A dynamic region for inward & outward investment

Foreword by Andrew Chilvers

The Middle East and North Africa (MENA) region is a hugely diverse cultural and geographical mix that stretches from Morocco in northwest Africa to Iran in Southwest Asia.

The region is home to a range of economies with vastly different levels of openness to international trade and investment. But with the help of international organisations such as the OECD and IMF, along with local and foreign investment, much of the region has started to make giant strides in economic development in recent years.

Despite the Covid-19 pandemic that resulted in negative growth of 3.8% for 2020, most analysts agree the region continues to offer ideal opportunities for businesses and investors going forward. Indeed, with the pandemic starting to ease, an estimated $4.1 trillion of projects are planned or underway in many countries across the region as they continue to diversify and expand their economies.

Moreover, to ease the stress on local companies while offering incentives to foreign investors, most MENA countries recently announced a series of fiscal stimulus packages including tax payment reductions and loan guarantees for businesses. These moves have been popular inside and outside the region for encouraging investment and many analysts predict growth increasing to as much as 3.1% for the region in 2021.

Nevertheless, this uptick in economic growth depends on several factors including the ongoing success of the Covid-19 vaccine rollout across the region and the stabilising of oil and gas prices. Furthermore, if geopolitical tensions continue to stabilise, many believe oil exports will recover to 1.8% for 2021 and this will be supported by the resumption of large-scale capital investment projects that were largely put on hold during 2020.

Starting a business in/out of MENA: How easy is it for entrepreneurs and businesses in/out of MENA to start a business in your jurisdiction? How can you help smooth the process for your clients and overcome common pitfalls?

From a UAE perspective, what is important for investors when they decide to enter the market is to define the strategy; short, medium and long-term. Once you have the strategy, we can then define the best options for the client. They often don’t know themselves. For example, clients often believe it’s better to open a company in a free zone, but then they realise they want to do business onshore. Our task is to advise clients about the risks and how to carry out business on the mainland.

Of course, when it comes to mergers and acquisitions, it’s crucial to understand how to conduct appropriate due diligence. From a legal and accounting perspective, this was particularly true for regional companies up to 2018. Many of them did not have well-maintained bookkeeping records. It’s always a risk when you do due diligence for a business to verify the content of the documents to their counterparts in the deal.

For company incorporation, it’s critical that when you draft the corporate documents, they are in line with what the client is looking at. In the past, clients have come to us after the company has been established and complained that they often lack operational capabilities. For example, a managing director suddenly finds he can’t open a bank account because he doesn’t have the authority from the other company in the deal. Typically, when we define the strategy, we also want to look at the kind of authority that needs to be given to that managing director who newly arrived on the ground. Eventually, when the deal is done, all those small details will be taken care of if the strategy has been defined from the start.

What we do is draft a shareholder resolution, get it approved from the local authority and send it to the client. Then the client signs it and send it back to us, once it is attested by the UAE Embassy. It may take a little bit more time at the start, but it’s important to make sure that all the elements are properly collected from the client from the very beginning.

What are the key recent developments your clients should be aware of when investing in/out of the MENA region to your jurisdiction? What grants and incentives are available to overseas investors?

From a UAE perspective, the local authorities have adopted multiple measures to increase and attract new investors into the country, so there’s more foreign direct investment coming here. For example, this has been helped by a new federal law, which came into force on January 2nd this year, and foreign companies no longer need local shareholder and overseas businesses with 100% foreign ownership can be set up in the UAE. You no longer need to have a local Emirati entity or individual to sponsor your company. This, of course, is helping to open up the market for future investors in the region.

Meanwhile, the government has also introduced measures during Covid-19 for employees to be able to work remotely from home. For foreign staff working here and stuck because of the pandemic, they just need to prove they have an adequate salary and they can have a permanent resident visa in Dubai and work from Dubai.

Elsewhere, UBOs and Economic Substance have become important. Companies that are registered in the UAE need to show their activities and that decisions have been taken by the directors or managers who live in the UAE. It’s worth remembering that this is a country where we don’t pay taxes. There is no income tax or no corporate tax and there are a lot of opportunities for investors if they can clarify their activities and ownership.

What are the latest trends shaping business growth and creating opportunities in MENA for clients in your jurisdiction? What markets offer the most stability and growth and where would you advise your clients to invest?

In the UAE there’s a big incentive towards technology and sustainability, including the production and use of renewable energy, investing in the green economy and increasing environmental efficiency and infrastructure projects.

There are significant opportunities for investment and businesses in high tech technology, particularly the fintech and blockchain start-ups environments. Dubai and Abu Dhabi are competing with each other to provide opportunities for investors in these areas. In Abu Dhabi, for example, if you invest in the programme, there are moves to offer staff accommodation and waiver office space cost for a few years. That’s one of the reasons why we decided last year to open our office in Abu Dhabi, so we could be close to start-up companies specialising in digital innovation.

We work with these start-ups and go through the entire process, and partner with them. And they’re not just in the UAE; these high-tech firms are from all over the region. Even Saudi Arabia is creating a hub for high tech start-ups in the MENA region.

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Contributing Advisors