Business News
Dubai will make government-owned companies play by private sector rules
Sep
Dubai: Going forward, government-owned businesses in Dubai will not compete directly with the private sector. That, in a nutshell, is what Dubai did earlier this week with the passing of Executive Council Resolution (No. 23) of 2020, which sets out clear guidelines on the launch of any new company by the government.
According to market sources, the Dubai Government wants to give private businesses enough space to operate and not have to constantly worry about whether government-funded entities will come and take over that space. It is particularly relevant now as Dubai and its entities commit more resources into developing the digital economy, and enterprises associated with the ecommerce space.
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This is essentially what Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Dubai Crown Prince and Chairman of The Executive Council, had to say about the new Resolution.
“We are keen that the private sector plays a major role in shaping the future of the national economy and achieving sustainable development,” Sheikh Hamdan said in the statement. “A legislative framework that protects their interests is critical to their growth and success.
“We do not want to be a competitor to the private sector… but rather seek to complement it.”
A decisive move
In a post-COVID-19 environment, governments are clear about what their roles should be – and where that of the private sector should begin. Clearly, there will be overlaps, and which will create instances of them competing.
But if the Dubai Government ensures, with this Resolution, to reduce the chances and sectors where this will happen, then it’s a huge plus for the private sector.
“We look forward to studying the bylaws that will guide the implementation of this new resolution with great excitement,” said Afzaal Hussain, Chief Operating Officer at Azizi Developments. But “with principles such as those of fair competition being upheld, and no other advantages being given in the form of financial support, tax, fee, charges or tariff exemptions, we see this decree as way for the public sector to complement the private sector rather than competing with it.”
And here’s why Hussain says so. As per the Resolution, a government-owned entity is allowed to establish a company only if its “main activity falls within the objectives of the entity”.
“It should also contribute to Dubai’s sustainable development plans and offer products and services of strategic economic importance,” it states.
The Resolution is effectively protecting the interests of public and private sectors
And any such company created must stick to the principles of “fair competition”. It will not receive any financial support from the government. Government-owned companies should pay all taxes, fees, charges and tariffs specified by federal and local legislations.
This is all groundbreaking from a Dubai and UAE perspective. That a government-owned entity will not get preferential treatment itself will lead to the creation of some sort of level playing field.
Real estate as a marker
Nowhere is the presence of government-owned enterprises more visible than in the property development space. “In a good year, government developers (or affiliated ones) would make up about 50-55 per cent of overall sales in the Dubai property market,” said the chairman of one of the biggest private developers in the city.
“So, all the rest of the private developers are essentially competing for the rest of the piece, and that can be quite tough.
“Not just that, when the market gets tough, government developers’ have more visibility. They can afford to be more aggressive on promotions that private developers can never hope to match. On those occasions, their overall share could swell past the 60-70 per cent mark.”
Not just in ecommerce
Private sector sources say what happened in real estate could easily happen in other sectors, not least anything to do with online. Ecommerce is one example, while government-supported initiatives in next-generation financial services – or fintech – could be easily pursued and become dominant.
This is the concern that the Dubai Government is trying to dispel with the latest Executive Council Resolution.
So, all government-owned companies under the purview of this Resolution must abide by the provisions within two years of the date of its activation. The Director-General of the Department of Finance will issue all the bylaws required to implement the Resolution.
Giving it more clout is the fact that the Resolution “annuls any other legislation that contradicts or challenges its articles”.
A change in all directions
The balancing of public and private sector dynamics is only one of the changes being brought on. Vijay Gandhi, regional head at the consultancy Korn Ferry Digital, points to the more flexible attitudes public and private sector employee benefits.
“By aligning benefits between public and private sector, we are bringing down gaps and making the private sector be a more attractive employee value proposition for UAE nationals,” he said. “The UAE Federal Labor Law amendment on a five-day paternal leave is such a step and encourages young talent to explore opportunities in private sector.
“Flexibility is key to have higher employee engagement. The UAE is making workforce flexibility a reality. These policies work best when implemented to address both employees’ need for work-life support and an organization’s need for productivity.”
The UAE is making workforce flexibility a reality
