Despite Gulf producers’ success in forcing the price of crude up to around $70 a barrel, the strains of several years of lower oil prices are ever more apparent, even for the richest Gulf states. Adding to the pressure, several governments have had to shoulder the burden of huge military expenditure in Yemen and the cost of unprecedented diplomatic and other ‘soft power’ initiatives, as hydrocarbons revenues dropped away. These trends have driven a new burst of policy-making creativity in the UAE. Mindful of the need to generate more revenues, the authorities have launched a renewed drive to boost the economy’s competitiveness amid signs of sluggish growth.
In response to the federation’s economy expanding by just 0.8% in 2017, in part due to voluntary oil production cuts, the authorities have introduced a multi-faceted stimulus package. Last year’s economic performance prompted some concern about a slowdown and even fears a recession might be around the corner. In a bid to shore up confidence, both the federal government and authorities in Abu Dhabi have announced measures to promote more investment.
The federal government’s eye-catching measures followed a cabinet meeting chaired by UAE Vice President and prime minister and Dubai Ruler Sheikh Mohammed Bin Rashid Al-Maktoum (MBR) on 16 September. Electricity fees have been slashed for industrial users, down 29% for large factories and by 10%-22% for smaller users; connection fees for new factories will be waived. MBR said the move would “affirm [the] UAE’s position on the global map as an attractive investment destination”.
From next year residency visas will be offered to retired expatriates over 55 years of age. The visas will last five years but can be renewed. To qualify, applicants must have invested at least Dh2m ($545,000) in property, have savings of at least Dh1m or have an income of at least Dh20,000 a month.
The cabinet also approved the launch of a ‘one-day court’ system to provide speedy rulings for minor civil offences. The government aims to cut the processing time of other civil cases to 15 days from the point of registration, justice minister Sultan Bin Saeed Al-Badi said. In criminal cases, Al-Badi said the Criminal Court will adjudicate some misdemeanours in one day, once they have been investigated by the Public Prosecutor’s Office and transferred to the court. All this could represent a notable departure for a legal system where people can languish in detention for many months without formal charges or the chance to defend themselves in open court (although pushing cases through quickly may also raise the risk of miscarriages of justice).
Some details have emerged of Abu Dhabi’s Dh50bn Ghadan 21 stimulus package announced in June (GSN 1,062/11). Formally given the green light by Abu Dhabi Crown Prince Sheikh Mohammed Bin Zayed Al-Nahyan on 16 September, some Dh20bn of Ghadan 21 funds will be spent in 2019 as the three-year, 30-project programme begins. The aim is to stimulate investment activity, promote economic development and create more jobs for locals. Meanwhile, to speed up the planning process, zoning and regulatory information for all plots across Abu Dhabi will be available online by end-October and new building permits will be issued within ten days. A new working capital credit guarantee programme should be launched later this year, to facilitate Dh10bn in financing for smaller businesses from local banks over the next three years, and a public/private partnership (PPP) law is promised ‘soon’. Up to five PPP projects should be tendered by end-March 2019. And taxes on tourism activities, including the levy on hotel rooms, are to be cut. Separately, the Abu Dhabi Department of Economic Development said it would start issuing dual licences allowing companies to operate onshore and in free zones. Firms will need to present a non-objection certificate from their existing free zone, but with the right paperwork a licence could be issued in 20 minutes.
Taken together these measures could positively impact on the UAE’s short- to medium-term economic prospects. Dubai-based bank Emirates NBD said lower electricity bills “will perhaps have the most direct impact on growth in the near term”. The hugely important property market, which has been in the doldrums amid signs that conditions are getting worse rather than better, could also benefit. Real estate prices in Dubai fell 7% year-on-year in July, according to London-based Capital Economics. Linking long-term visas to property investment could create fresh demand.
Fears of a recession may be misplaced as the UAE non-oil sector grew by 2.5% in 2017, when the diversified Dubai economy grew by an estimated 3.3%. With oil output increasing, Oxford Economics forecasts UAE GDP to grow by 2% this year, rising to 3.1% in 2019. Go-ahead businesses will be hoping that improved numbers don’t lead the government to walk back from reforms. This week the Abu Dhabi government acknowledged it had fallen behind in paying businesses their dues, but it promised to put its house in order by 15 November for any ‘non-contested’ overdue payments.