Only four days after a late-May announcement by the United Arab Emirates that it was proposing key changes to its foreign ownership laws, Gulf rival Qatar announced that it too would be making similar changes.

Both states – on opposite sides of the now year-old Gulf crisis – now hold out the prospect of 100% foreign ownership of local companies and more long-term visa regimes – with Qatar’s proposals even more far-ranging than the UAE’s.

Both sets of proposals come, too, as the result of long-standing issues within both states’ economies. Yet they are also the consequence of a shorter-term cocktail of low energy prices and geopolitical tensions.

Meanwhile, with foreigners comprising some 80-90% of the resident population in both countries – and in many other Gulf states – shifts in foreign ownership can also be a potential source of discomfort for locals.

Up to now, nationals of the UAE and Qatar have been guaranteed a majority stake in almost all enterprises operating on their territory, while foreigners have usually been limited to short-term stays, their visas tied to their job contracts.

Changing the foreign ownership and visa regimes may, therefore, have more than just economic consequences – potentially altering a delicate political and social balance between the expatriate majorities and national minorities.

Ringing the changes

On May 20, the UAE’s state-run news agency, WAM, announced that current rules, under which companies in the Emirates must have a minimum 51% local ownership, would be changed to allow 100% foreign equity.

At the same time, residency visas of up to 10 years for specialists in scientific, medical and technical fields – along with top students – would also be made available.

Not to be outdone, this was then followed on May 24 by the state-run Qatari news agency announcing that a draft law had been issued in Doha also allowing up to 100% foreign ownership.

A week later, the agency then announced another draft law, this time allowing permanent residency cards for non-Qataris and for the children of Qatari women married to non-Qatari men – a grouping previously denied such status.

The key driver behind both countries’ decisions is primarily economic. Both Qatar and the UAE are determined to attract more foreign investment, as part of long-term plans to diversify their economies away from dependency on oil and gas.

As international prices of these have fallen in recent years, the financial pressure on their respective governments – both of which maintain large public sectors and a range of subsidies for nationals – has increased. The UAE has also been involved in a range of costly overseas conflicts in recent years, with the war in Yemen the most draining.

Boosting foreign ownership will likely act to bring in more foreign investment. Easing limitations on visas can also make a country a more appealing prospect for the kind of highly-skilled professionals needed to raise the economic game.

“We highly applaud these landmark decisions by the UAE Cabinet,” Jaap Meijer, the Managing Director and Head of Equity Research at Arqaam Capital in Dubai, told Asia Times. “We expect a significant positive effect on foreign direct investments.”

Changing times

This is not the first time plans to boost foreign ownership limits and ease visa restrictions have been announced in Doha or Abu Dhabi, however.

In 2016, Qatar first proposed 100% foreign ownership for certain industries, while back in 2017, both the UAE and Qatar proposed permanent residency visas for certain foreigners.

What may be making a difference this time is the increased pressure on both created by the Gulf crisis.

One year ago, Saudi Arabia, the UAE, Bahrain and Egypt began a blockade of Qatar, charging it with supporting and financing terrorism and helping Iran – charges it vehemently denies.

This rupture has, however, galvanized change – in Qatar in particular, although also in the UAE. The blockade has incentivized both to make long-put-off reforms.

“Qatar has the opportunity to do this the right way now, rather than be obliged to do it later once oil and gas revenues decline,” says Nader Kabbani, Senior Fellow and Director of Research with the Brookings Doha Center. “If Qatar can take advantage of the blockade to push through some necessary reforms, it can come out ahead in terms of its long-term interests.”

Doha has also made moves to improve workers’ conditions, for example, since the blockade began, opening an International Labour Organization office in its capital back in April.

Local heroes

Yet for some, the long-term interests of Qataris – and Emiratis – may not be so clear-cut.

Opening up to 100% foreign ownership challenges a whole series of benefits now enjoyed by local businesses and investors, while also potentially undermining one of the UAE’s – and Qatar’s – big success stories: free trade zones.

These are dotted throughout both countries and usually already allow 100% foreign ownership, along with many other incentives, such as relaxed visa rules and repatriation of profits. These may lose some of their competitive edge if 100% foreign ownership becomes possible elsewhere.

At the same time, the current ownership rules ensure local participation in company management and local control of businesses – important factors for many nationals in countries where 80%-90% of the resident population are foreign.

“The proposed changes are uncomfortable for some people,” said Kabbani. Locals “want foreigners to come and invest and help build, not siphon off their wealth.”

Conscious of the potential pitfalls, a few days after announcing the changes, the UAE’s undersecretary for foreign trade and industry, Abdulla Al Saleh, announced that a committee would be formed to decide which industries would be included under the 100% foreign ownership provision – and which not.

“The changes won’t be across industries,” says Rita Al Semaani Jansen, a partner with international law firm Ince & Co Middle East LLP (Dubai Branch), “but will likely focus on areas such as innovation, artificial intelligence, technology and health. It will likely apply to companies and entities that the UAE doesn’t currently have and wishes to attract.”

Qatar, too, has announced that companies listed on its stock exchange will still have to be at least 51% Qatari-owned.

“The trick is for Qatar to strike a balance,” said Kabbani. “Qatar needs to be able to say these sectors are for locals only and these ones are for foreigners too, giving its citizens some sectors that are not subject to the full force of competition with foreign entities.”

The months ahead will likely see governments in both Qatar and the UAE striving to achieve this difficult balancing act, boosting their attractiveness to foreign investors and foreign professionals – while at the same time, ensuring locals don’t feel increasingly removed from the controls of their own economy.