How did the financial downturn impact business for PwC in the UAE? Which business lines are currently seeing the most growth?

JARRAR: PwC is working in the Middle East across 12 countries and the financial downturn has impacted all of them differently. In The UAE the financial downturn was not as severe as people expected or have noted. Some sectors have struggled such as real estate in Dubai, but as PwC, we have been growing over the past 3 years. In 2008, the most difficult year, we grew about 25% and the year after we grew 30% and we have seen continued growth since then. So we saw this all as a chance to invest as a firm. The downturn has had major impact on investment, mergers and acquisitions, and deals going through, but that was a shorter spell than people expected and we see the pulse coming back again. Given the investments that we have made, the business lines that we have, we work in assurance, we work in tax, we work in consulting, and in deals and advisory, the deals practice, mergers and acquisitions, due diligence and all of the investment banking type of work has slowed down. On the other hand, government reform, government restructuring, and consulting for family businesses has witnessed tremendous growth. Assurance is a defensive business and people have to extend assurance and hence that was not really affected. So what we really felt was the financial sector slowdown, the sentiment slowdown and the banking issues. At the same time, there was a lot of restructuring. Problems needed to be solved and businesses needed to be restructured and hence there was a completely new set of business opportunities; different from what was in the boom years, but still major restructuring, major refinancing and major recapitalization.

In what ways are family companies becoming more sophisticated today?

JARRAR: Family businesses are actually very interesting. The region, especially when we talk about the Gulf region, has grown on family businesses. These are businesses that are all now approaching the second or third generation. It is a combination of the effects of the environment, the sophistication of the trade with other countries and free trade agreements, and a generation of family business owners who are now coming in who are much better educated than the founders, who were much more entrepreneurial and market savvy. The second and third generations are different; they want change. They want to talk about sustainability for the business. So generational change is putting a lot of emphasis on professionalization of the business. Also the market conditions are not as they used to be with the global financial crisis and political difficulties. You will now find the largest proportion of family businesses in the UAE are very clearly looking at the way they run the business, the way they separate ownership from management and the portfolio of what they offer. They probably have done too many things in too many places and want to focus on their core competitive advantages.

The UAE ranks very highly on the World Bank’s Easy of Doing Business Report at number 40 overall. However, it ranks very low in several categories including protecting investors, enforcing contracts, and closing a business. What needs to be done to improve these three areas specifically?

JARRAR: In terms of doing business in the UAE, specifically looking at protecting investors, closing a business, and enforcing contracts, the UAE has always been aware that these are issues. However, these are things that are extremely difficult to change overnight. Over the last 10 years, there have been a lot of structural changes to improve some of these. For example, as a shortcut and to get things up and running in certain sectors, DIFC started their own courts to protect investors and enforce contracts. Many of the free zones have also done the same thing. Changing the law of the land is a bit more difficult because we have 7 emirates that have to march in tandem and the federal government has to work on these laws federally. In terms of closing a business, the federal government is now in the process of finalizing new laws. This was accelerated given the financial crisis and its impact on the more traditional sectors. So we see a lot of positive improvements across all three levels, some much faster than others. But in terms of awareness of the need to fix these issues, it is there. Some emirates, such as Dubai, have taken their own steps already, but I think within the next 2 years, the UAE will make major jumps especially in the World Bank index as we have seen in our neighboring countries. Saudi Arabia has jumped to number 12, so I think this will be an area to keep an eye on in terms of quick improvements.

What are the greatest challenges for foreign companies in the UAE today?

JARRAR: Foreign companies operating in the UAE today have many opportunities. This is a major growth story. The IMF recently predicted that the growth engine of the GCC will be the UAE and Qatar through 2015. With this major growth story and a very entrepreneurial country, the challenges are not profound. If I had to list the major challenges that companies like us face, talent is certainly one of them. When I say talent, I refer to access to talent and being able to attract and retain talent. Because of the nature of the labor market, talent is very transient. Hence, attracting the right talent and retaining it is extremely important. Of course there are issues with enforcing contracts in the UAE. This is not as profound an issue as it was 10 years ago, but it is still there. The UAE is also seen for many businesses as a base to do business in the region, and therefore, there will be many other challenges that companies will face around the region. This is a regional challenge as opposed to a reflection on the UAE itself. What we are seeing the UAE government do now in terms of regulation is very positive. They are actively working on alleviating some of the challenges we faced in the last 10 years. However, access to talent is probably a bigger issue anyway. This will involve reforming higher education, labor laws, immigration laws, etc. and I think this challenge will remain with us for some time.

Which taxes should potential investors be aware of when entering the UAE?

JARRAR: The UAE is a tax-free environment as it is marketed around the world. This is a place where there is no income tax or company tax, so the major standard taxation system around the world does not apply here and therefore it is attractive to many. The government has revenue sources and various service charges that people who live in the UAE and organizations that operate in the UAE do pay. These are not income related, they are much more service related, and in that sense, they are to some extent voluntary. If you partake in certain services, you pay for them. The customs union for importers and exporters in the GCC is very well known. There are many municipal taxes that people have to pay living in the UAE. There are government services that, in most parts of the world, are paid over and above income taxes. When people say to me that in the UAE there are various hidden taxes that people have to pay, I do not agree with them. I think there are a lot of government services that people pay for just like they pay for those anywhere else in the world. Maybe in London, they call it council tax and here we pay a service charge for the municipality and that is for using the services of the municipality. But these exist everywhere around the world. Over and above that the taxation pieces of income and revenue and profit do not exist and that makes it a very attractive tax-free environment.

What is your general economic outlook for the UAE? What indicators are showing the most positive trends and which are showing the most negative?

JARRAR: In terms of economic indicators, first of all and very important, the macroeconomic indicators are stable. There is a stable outlook supported by the resource pool and global consumption. So the macroeconomics are stable, the banks are in a good position, especially after the 2008 crisis. They have now been recapitalized and much more stringent controls have been put in place. So macro-economically, it is a good picture. Government spending can only continue if not increase, there is very little deficit and that is positive, and we see this continuing. So government spending and macroeconomics aside, which I think are balanced and will be stable, if you look at sectors, the engine of growth in the UAE is going to be in the private sector. The private sector in the UAE is going to do what it has done in Dubai over the last 10 years. Given the regional issues, the Arab Spring, and other regional challenges, we started seeing more people coming to the UAE; more investors, more SMEs. These are people who have bright ideas or have money to invest and who saw the UAE as a stable environment. The stability that the UAE offers is on more levels than one; the government is stable, there is political stability, there is security and safety, and these thing are going to become even more of a factor in the region. The region is a region that does not have a business capital; a place for banking, finance, or development. There are 400m people in the MENA region; there is a lot of money and a lot of talent.

There is also the reconstruction of Iraq and the reconstruction of Libya and Egypt in many places. So all of these are going to pull certain sectors in the UAE to grow much faster. The real estate sector will come back. When I look at the real estate sector, we are not just talking about real estate stock being sold on the street in Dubai, we are talking about real estate and construction companies like Emaar. They are going to be major players in Libya and in Egypt. So real estate and construction companies from the UAE will use the experience they have gained here in the UAE over the years to do business abroad. Tourism is booming. In Dubai, some hotels reported 97% occupancy in July; 55 degrees centigrade and they have 97% occupancy. Destinations are being built in the UAE from Ferrari World in Abu Dhabi to some of the museums. So it is tourism, real estate, and the signature sector that people keep forgetting, logistics. The UAE, both in Dubai and more Abu Dhabi now, is a re-export and trade hub. Dubai and Abu Dhabi have always been cities of merchants. We also have Etihad, and Emirates, the ports, and that can only grow. We see Ras Al Khaimah investing in infrastructure and Sharjah on the East coast investing in ports. On top of being the center of the world literally, and being a secure and stable country with some of the best companies who have experience in real estate, construction, and logistics, there is another 10 year boom in the UAE that I think will be much more sophisticated than the last 10 year boom. So if anybody wants to do business in the region, it should be here.

What continue to be the best investment opportunities in the UAE today?

JARRAR: Everybody has heard of Dubai in the last decade. Dubai was a symbol of growth and superlatives; the largest, the tallest, and people have always been curious to come and see Dubai. So those who came and saw Dubai decided to invest here and then the story grew and the UAE began to take shape in terms of branding and positioning. So now the UAE is a big story in terms of potential and opportunity. However, many people around the world are not fully aware of the opportunities here because the view from the outside is that the region is a bit politically unstable. The region always has its high risks and the region has many challenges. So people look at the UAE for the sake of the UAE and it is not a large market. If you look at Oman for Oman's sake, it is not a large market. But if you look at the region in totality, then the opportunity starts becoming extremely exciting for many reasons. The region is very resource rich and this resource wealth is shared. Saudi and Qatar are going to fund a lot of the development in Egypt. So it is not a matter of does Egypt have oil or not, it is a matter of this will be shared. Libya is a very wealthy nation and has to be rebuilt. There is no place in the world where there is such a high level of resource availability. About 5 to 6 nations are being rebuilt, and rebuilt in the positive sense in terms of the infrastructure, the political economy, and all of the national talent development.

In the last 10 years all of this existed by way of trade and we used to talk about the UAE as the center of the world in terms of being a trading hub and a center of logistics. But now I think it is a development hub. This is where the region is going to be developed in many ways, from infrastructure to investment to talent. So people who look at it from the outside need to be aware of this major development opportunity and the demographics, where 60% to 70% of the population are under the age of 25. The consumer power in the region is very large and the internet penetration is extremely high. The education levels are very high; some countries like Jordan have reached a 99% literacy rate. So the demographics and the macroeconomics of this region are very attractive if we look at it as one region. The difficulty of looking at it as one region is that you have to have a higher risk appetite. This is a region that will reward early comers and this is a region that will reward people that are looking for growth. However, it is not a challenge if you have the proper footing and you have the understanding of how to do business in the region. It is not politically unstable in the sense that there are security issues. Some places like Iraq are going to get better. But I think people need to look at this as one region; look at the micro and macro indicators and see the huge opportunity that we have here. We now have companies coming from China looking to invest in infrastructure development. The perception is that China is growing so fast that they do not have time to serve themselves and ASEAN let alone here. We have family businesses from India coming and asking for feasibility studies for starting schools in the region because they realize countries like Saudi and Egypt require tens of thousands of schools to be built and operated in the coming years to accommodate the number of youth. If you look at the specific sectors, education, healthcare, infrastructure, it is a fantastic story that I think everyone will come to be aware of. Those who come in the next 2 to 3 years with a higher risk appetite will be rewarded much larger. But eventually, within 10 years, I think there will be another story to be written about the region. It is going to be more challenging, but I think it is going to be much more rewarding.