According to Dubai Economic Report, a half-yearly publication of National Bank of Dubai, while the stock of FDI in the UAE has dropped by 20 per cent in three years - from $1.77 billion in 1999 to $1.4 billion in 2002, the UAE investment abroad has grown substantially - from $98 million in 1999 to $3.13 billion in 2002.

Quoting United Nations Conference on Trade and Development, the report said most of the FDI in the UAE was accounted for by oil and power station investments in Abu Dhabi. "In recent years Dubai has attracted a considerable amount of investment in distribution and regional offices. These offices certainly stimulate the service economy, but they do not represent a big commitment of capital on the part of companies and they are vulnerable to being closed when foreign parents reorganise their operations or have to cut costs. There has been little investment of substantial sums of capital in industrial production or major service operations."

The principal barriers to foreign investment in the Emirates, the report points out, have been two pieces of legislation - the Commercial Companies Law and the Commercial Agencies Law. The first of these includes the regulations that oblige foreign companies to have local sponsors or partners holding 51 per cent of their equity. "This does not suit large corporations that are likely to make substantial investments and want to have complete management control over their operations."

The second law states that foreign non-resident companies must have a local agent to sell their products. It contains provisions for exclusivity. Other barriers, the report points out, include the restriction on foreigners - individuals and companies - owning land. "There is no question that Dubai's international image would be improved by greater transparency," it said. Stressing the need for transparency, the report maintains that the Commercial Agencies Law is coming under pressure to change. "Within WTO there are always rounds of negotiations in progress, intended to make trade between members ever more free, and the current round is supposed to reach completion in 2005. In the negotiations, the UAE is under pressure to reform the Agencies Law - but it is not thought very likely that agreement will be reached on this in the time available."

The report said that a change in Agencies Law would most likely be brought about by a later round of negotiations, following a legal challenge. "It may well be that a foreign company experiencing difficulties in changing an agent will challenge the Commercial Agencies Law before the WTO tribunal. It may well be that change in the UAE legislation will come initially through an amendment which will remove the exclusivity of agencies. This would have almost the came effect as legislation making it easier to change agents."