Is it safe to say that the UAE economy has lost its sheen and is just a shadow of its affluent past?
According to IMF, the MENA region, of which UAE is a part, has lost more than US$340 billion in oil revenues in 2015. And it’s not just the oil industry which is taking a toll. A recently released research by the Emirates NBD Economy Tracker Index has shown that private companies from different sectors are showing a decline in operating conditions for the first time since 2010.
This also led to the appalling statistics in the UAE job market. The number of jobs has declined by 12% compared to 2015 and it is not looking bright in 2016 so far. Further, the insecurity surrounding the global economy hasn’t helped UAE’s cause either.
But here is where the nation’s great vision and forethought must be commended.
It took preemptive measures to counter losses in revenue from oil industry by increasing its fiscal efficiency and diversifying the economy. It used the surplus revenues garnered through generations from oil, to establish sovereign wealth funds which are one of the biggest in the world, as a cushion for any huge fluctuations in oil prices.
When most of its neighbours suffered huge setbacks after the plunge in oil prices, UAE stood tall amidst the ruins. Not taking a cue from other Gulf states which have announced cuts in their spending and also introduced VAT, the UAE Government has, in fact, announced a 12% rise in its budget for 2016, compared to the 9% increase announced for 2015.
This is mainly to gain a strong foothold in alternative non-oil avenues, with the Government committed to spending on infrastructure, transport, and tourism. The signs have already been encouraging for the past decade or so with UAE’s dependence on oil constantly decreasing.
UAE was, in fact, one of the least affected among the oil exporting countries. The UAE Banking Federation has also come to the rescue of many small and medium-sized enterprises (SMEs) which were in deep financial crises, by introducing packages and also suspending and restructuring future payment of loans.
If the talks to introduce the long-awaited bankruptcy law come to any fruition, it will further assist small firms during such gloomy periods.
Looking ahead, a major shot in the arm for UAE has to be the EXPO 2020 to be held in Dubai. It has brought in a sense of optimism at a time when uncertainty was looming predominantly.
The EXPO 2020 is touted to be the third largest global event in terms of magnitude after the Olympics and the FIFA world cup, estimated to lure about 25 million visitors, 17 million of which will be foreigners, over a span of 6 months.
It means improving on the already thriving tourism sector by constructing new hotel complexes which are set to result in more than 200,000 new jobs in construction, tourism, and hospitality sectors due to increased demand for the labour force.
The transport infrastructure would need remodelling as well. Some analysts have also predicted that Dubai would attract Foreign Direct Investment (FDI) to the tune of $150 billion from 2014-2020. Though there are fears of escalating property rents and the standard of life in Dubai after the event, which would lead to conditions of inflation, it is quite clearly outweighed by the benefits the nation as a whole would receive.
Another important global event that served as a blessing in disguise for UAE was the lifting of trade and economic sanctions in Iran. UAE came off as one of the biggest benefactors of this decision. IMF forecasts that there will be an influx of US$13 billion into the UAE economy due to the lifting of sanctions till 2018, which is equivalent to a 1% increase of real GDP each year over three years.
It would also imply more Iranian tourists in UAE and a quarter of all trade which was permanently lost between the two nations is said to be reinvigorated.
The geographical location would mean that it is strategically viable for big MNCs to set up shops in UAE in order to invest in Iran. It will also act as a trade gateway due to its impeccable ports and infrastructure. A lot of money would be invested by Iran in UAE and the banks and real estate sector will certainly benefit from the additional liquidity in the economy.
Startup culture is the way ahead and UAE is showing promising signs as it has the most entrepreneurs under 35 in the world.
While it does seem that there is light at the end of the tunnel, it won’t be an easy year ahead. Drop in oil prices, political instabilities in the region and the ever-strengthening US dollar will make life difficult for both the private and public sectors.
Even if they achieve the projected growth rate of around 2-3%, it would be an impressive performance, but knowing the means through which this country foresees and handles crises, it is safe to say that they will come out of it relatively unscathed and prepare themselves for the exciting times ahead.
References -UAE moving towards bright future, Khaleej Times 31.07.2016
-Oil price recovery, Expo 2020 to provide impetus for UAE economic growth, Meed report says, The National 30.7.2016
-Future looks bright as UAE builds on its economy through diversification, Abu Dhabi World 28.03.16
-How will the lifting of sanctions in Iran affect the UAE, Kippreport, 07.09.2015
-Sanction-free Iran a positive development for UAE economy, Gulf news, 17.01.2016