The United Arab Emirates plans to build a strategic reserve of essential foodstuffs and introduce selective subsidies as the government seeks ways to curb rampant inflation to a new target of 5 percent in 2008. Sultan Al-Mansouri, UAE's newly appointed economy minister, said on Wednesday the federation would within six months complete a feasibility study on building six months' worth of staple food reserves to enable the government to control food prices as it seeks to tame inflation. The government is also considering subsidizing essential foodstuffs for its citizens, who make up one-fifth of the expatriate-dominated UAE. Other Gulf states such as Saudi Arabia, Kuwait and Oman have introduced some food subsidies, as states try to ease inflation without resorting to revaluation or delinking from the dollar peg. “We need a formula to control prices once they are out of our control,” he said. Inflation is rising across the oil-rich Gulf, threatening competitiveness on ample oil-fuelled liquidity, rising government spending and low interest rates due to the country's peg to the US dollar. It is also hurting residents' finances. The UAE is set to introduce a new companies law opening up some sectors to 100 percent foreign ownership within six months, the economy minister also said. Al-Mansouri said the government would raise the foreign ownership threshold only in sectors that benefit the economy, declining to elaborate. The UAE currently forces foreign businesses to hold minority stakes or to operate from “free zones”. The law has been delayed for years in part by vested interests opposed to opening the economy too quickly at the expense of domestic businesses. It aims to reform regulations and encourage more initial public offerings by allowing firms to retain control and float less than 55 percent of their equity on the Dubai and Abu Dhabi stock markets. Sheikh Mohammad Bin Rashid Al-Maktoum, vice president, prime minister of the UAE and ruler of Dubai, issued a decree on Wednesday exempting cement and steel from customs fees until further notice, and to allow all contractors and real estate developers to import these materials without restriction. The measure aims to control the rising prices of construction supplies. Analysts estimate inflation in the UAE rose to about 10 percent last year, but the economy ministry will not release its analysis of last year's inflation figure for at least another month. Mansouri signed an initial agreement with a cooperative supermarket chain to maintain 2007 prices in 16 basic foodstuffs throughout 2008. Union Coop will spend AED45 million ($12 million) to absorb expected food price rises of up to 40 percent this year on rising domestic demand and global food price increases. The company said the move was part of its commitment to “corporate social responsibility”. He said the government would consider introducing price curbs in the coming year. Abu Dhabi and Dubai have already introduced biannual rent caps of 5 percent in a bid to cool the rental market. __
