What will the economy of the United Arab Emirates look like in the coming years?
Dubai: The coronavirus pandemic has put the progress of the global economy on hold. The UAE’s open economy was built on tourism, and oil has come under attack from many directions. As the economy recovers, its priorities over the next few years are expected to change.
A year after the start of the struggle between disease and development, the ramifications of the event are evident. The Federal Competitiveness and Statistics Center said the UAE’s economy contracted 6.1% in 2020. As a global air transport hub and international trade and business center, global restrictions on the movements held back the economy.
The Arab world’s second-largest economy experienced the first contraction in GDP since the 2009 financial crisis, as the pandemic drove rents, trade, foreign investment and energy prices significantly.
The oil-dependent Gulf region faced a double shock with falling oil prices and demand. Prices collapsed with the shock of the virus on economies as a whole, while demand declined as global demand for energy dissipated.
The International Monetary Fund (IMF) said recovery from the pandemic hinges on vaccine deployment, tourism exposure and improvements in government policies, in its latest report.
Vaccines make all the difference
The UAE’s vaccination campaign is ranked among the fastest in the world. About 64.7% of the population has been vaccinated with more than 12.6 million vaccines administered to date, according to Reuters data. The acceleration of vaccination could encourage the influx of tourists into the country.
Expo 2020 Dubai later this year is expected to boost tourism and boost jobs and infrastructure growth. It is estimated that the FIFA World Cup scheduled for 2022 in Qatar will maintain positive sentiment in the tourism and hospitality sectors.
To maintain the expected development of infrastructure and keep the economy afloat, federal and local governments have spent more than $ 395 billion on recovery since the start of the pandemic. The Central Bank’s Targeted Economic Support Program, a zero-cost lending initiative worth MAD 50 billion, has been extended to improve cash flows in the economy until June 2022.
When will COVID stop hurting the economy?
Government data estimates that the injuries caused by coronaviruses to the economy will be wiped out over the next year with improved credit growth and positive spending throughout the year. The central bank said in its annual report that real GDP, the value of the country’s goods and services measured against inflation, is expected to increase by 3.5 percent in 2022.
Moody’s rating agency reaffirmed a positive rating for the UAE and praised the economy for the government’s quick and sufficient support to cope with the shock. The agency estimates that the country’s GDP will return to pre-pandemic levels in three years.
The third largest oil exporter in the Gulf, the hydrocarbons sector weighs on the structural growth of the UAE. The Organization of the Petroleum Exporting Countries (OPEC) predicts that global demand for oil will increase by 6 million barrels per day in 2021.
The US Energy Information Administration predicts that Brent crude prices will average $ 60.67 per barrel in 2021 and $ 58.51 per barrel in 2022. The IMF released a similar estimate with prices rising slightly in 2021 and steadily declining until 2025 and expects GDP growth to reflect the same trend. .
Oil prices hit a 20-year low in 2020 when oil producers entered a price war during the pandemic. Concerns about the prolonged volatility of oil prices remain as the rebound of $ 60 per barrel is below the fiscal break-even point, the minimum oil price required to balance the country’s budget, and additional support would be needed for the country. economy if prices fall again, said Oxford Economics report.
The oil-dependent Gulf countries aim to reduce their dependence on oil and embark on diversification, like the United Arab Emirates. The UAE has boosted solar and nuclear power plants to diversify its energy portfolio and estimates that at least 20% of electricity production will come from renewable sources over the next three years.
In 2021, commercial operations for the country’s first nuclear power plant began, as part of its 2050 clean energy strategy that nearly half of its energy consumption would come from renewables, 12% from coal and the rest of natural gas.
The renewed focus on reducing the country’s carbon footprint was ushered in by a global shift towards clean energy. The pandemic has renewed attention to the climate crisis and structural inequalities around the world and businesses in Europe and America are assessing their structural, social and governance (ESG) factors to improve their sustainability. The investment landscape around the world is trying to adapt to ESG measures aimed at achieving a “green recovery” from the pandemic.
In the United Arab Emirates, the pandemic has also led to a wave of digitization. The UAE has adapted easily to the new ecosystem compared to its regional counterparts, as businesses quickly adapted to digital payment systems, remote working and e-commerce.
Laws have been passed in favor of skilled immigration, including the introduction of 100% foreign ownership in companies and a virtual work program granting a one-year permit to work remotely from Dubai. The government has extended the 10-year golden visa, a long-term residence visa issued without the support of a national sponsor, to highly qualified professionals, namely researchers in the fields of science and knowledge such as doctors, specialists, scientists, inventors, as well as creative people in the field of culture and art.
Scott Livermore, chief economist of Oxford Economics Middle East, said that “visa and property reform aims to attract and retain foreign capital and talent. The new rules will boost investor confidence and help the economy take advantage of the expected global economic recovery. This will contribute to the medium-term development of new sectors such as the creative industries, clean energy and digital sectors. These sectors will become the pillars of economic growth, even if the short-term prospects depend more on travel and tourism. “