The government of the United Arab Emirates (UAE) plans to deepen economic reforms to attract more investment. As part of the reforms, the state has told some of its largest business families that it plans to remove their monopolies on the sale of imported goods, the Financial Times reported.
Under existing trade agency agreements, foreign companies were required to designate local partners to distribute their goods. The government has now proposed legislation to end the automatic renewal of existing agreements, which will give multinationals the option of distributing their own goods or changing their local agent when respective contracts expire.
Officials said the new law must be approved by the government, but the timing remains uncertain. The government of the United Arab Emirates did not comment.
The proposed reform would replace decades of protecting local interests in favor of foreign entities and sever the long-standing social contract between the government and influential merchant families, including historic names such as Al Futtaim, Al Rostamani and Juma. Al Majid.
“This is one of the hardest taboos to touch due to its impact on local family businesses, one of the largest sectors of the UAE economy,” said Habib Al Mulla, executive chairman. of the Middle East branch of the law firm Baker McKenzie.
Family businesses, from small businesses to conglomerates, make up 90 percent of the UAE’s private sector, which itself accounts for around three-quarters of jobs. These families dominate a retail sector that underpins Dubai’s thriving tourism sector, which is rebounding again.
The UAE aims to attract more investment through competitive legal and social changes, such as long-term residency programs and fewer restrictions on cohabitation and alcohol.
The pace of reforms has accelerated against a background of emerging economic rivalry with Saudi Arabia. As part of its own plans to diversify away from hydrocarbons, the kingdom has imposed tariffs on imports from the Gulf and put pressure on multinationals to relocate their regional headquarters to Riyadh.
In recent years, some new entrants, including Apple and Tesla, have been allowed to open their own stores in the UAE without local agents. Other multinationals have asked their local partners to turn agency agreements into joint ventures, giving them more control over marketing and increasing their potential returns.
The families of traders, recognizing the inevitable end of archaic agency deals, have accepted such requests, according to the report citing people. When the sales agency agreements expire, local agents are likely to receive compensation for their investment in retail infrastructure and sales channels.
âIt’s the right thing to do now, but maybe not the right way to introduce it,â said a family business owner.