Foreign Companies Needing UAE Partner is One Hell of a Business Model

Jo Tatchell, in her book on the changes that have taken place in Abu Dhabi, comments on the background to the practice whereby foreign companies setting up in the UAE require a local partner:

Zayed, whom Political Agent Sir Archie Lamb described as the man with the wind of heaven blowing through his bisht, cloak, had his people behind him. Shrewd, he was committed to shielding his people from exploitation. He renewed the oil contracts, squeezing higher percentages and better rates than those agreed by Shakhbut, and decreed that every foreign business should take a local partner, who would receive 49 per cent of the profits. “Often for doing almost nothing,” my father chuckled, “but it gave all those who were interested the chance to involve themselves and learn. And it got money churning back into their system. It was one hell of a business model…”

“In the first days of exploration the locals were used as labourers, but I was never under any illusions about who was boss. The local guy was top dog.”

Zayed wanted to safeguard Abu Dhabi's future. As a child, he had witnessed the collapse of the pearling industry, which had proved to him the danger of relying on an economy that was at the mercy of foreign commercial interest. With the advent of the Japanese cultured pearl, Abu Dhabi’s livelihood had drained away. Zayed never wished to see such depression again.

Every man received a leg-up onto the ladder of perpetual income with cash and property. As the old barasti huts were pulled down to make way for modern houses, the owners were recompensed with cash and at least three pieces of building land, for a home, a hop and an industrial site. In the Liwa and other interior villages, families were allocated farmland and machinery. Zayed wanted his people to come up with ideas and show initiative. Every business scheme bubbled with the potential for productivity, skill development and the novelty of adventure.

With free water, gas, electricity and no taxes, Abu Dhabian citizenship became a byword for privilege. For the first time in its history there was enough wealth to lift everyone out of subsistence.

Emiratis and expats will have a variety of opinions about the wisdom of this business model and how it transformed life in the Emirates but it is fascinating to see the rationale for establishing this practice in the early days.

Setting up business within and without a freezone has different rules governing the practice, as stated in this advice on business in the UAE:

“Any company, located outside of free trade zones and other designated areas, must have a minimum of one UAE national partner who owns at least 51 per cent of its capital; however, the partners may make an agreement to share the profits in different proportions from their share of capital. Since 2005, GCC nationals have been able to enjoy 100 per cent ownership of a company in the UAE.”

Source
Jo Tatchell, A Diamond in the Desert, 99-100.

Related
Living in the Emirates Insh’Allah, FIF, 9 December 2010.
Stuck in a Velvet Rut in the Emirates? FIF, 2 November 2010.

Geoff Pound

This article is also posted on the Fujairah in Focus Facebook Page.

Image: “One hell of a business model.”