The economic signs are pointing toward a brighter future - we just haven't felt it yet
We are living through a period that may be as important as the years after 2002 when foreigners were first allowed to own freehold property in the UAE.
While granting longer visas to a limited number of people, along with full foreign ownership of an as-yet undefined category of businesses, will not in itself propel the next great leap forward, as Habib Al Mulla notes in a candid interview, this is the thin end of a wedge.
These changes are a recognition that the country must now level the playing field by winding down its effective subsidies for nationals while at the same time ending the no-tax free-for-all that expats have long enjoyed. Neither scenario is practical if the UAE is serious in its long-term goal to be a world leading economy, which it most certainly is.
Before we get carried away by grand statements, let’s look at the UAE economy right now. It’s no secret that the last few years haven’t been easy. While the country bounced back strongly from 2009, with growth peaking at 6.8 percent in 2012, the years since have been considerably slower. Growth fell to 4.7 percent in 2013 and then hovered around three percent for three years before falling to 1.5 percent last year. This wasn’t bad in a global context but was not what anyone here was used to. Not for nothing were some calling this period of hard-won small increments the “new normal”.
While the non-oil sector accounts for 70 percent of the UAE economy, healthy oil prices are still critical to the GCC as a whole”
Arguably a bigger problem was sentiment, which is important when talking about economics – positive indicators count for little if people don’t feel the benefits. And in the past couple of years there has been a perfect storm of a sluggish economy coupled with stubbornly high prices for the big ticket items of rent and education. With the addition of VAT this year that feeling persists, and you don’t have to listen in on too many conversations before hearing grumbles about how expensive it is to live here.
But I would argue that under our noses a great many changes are taking place that, taken together, will reset not only the data, but the way we feel about that data.
Real estate is the big one. Many have pointed to sustained price falls as proof of a troubled economy. It’s actually more about oversupply, and I don’t feel sorry for the short-term pain felt by landlords and property owners. Lower rents mean more money to spend on other things. And it will attract more people to the city, soaking up the supply and contributing to growth for everyone.
Education is a different story. While fees haven’t fallen substantially, they aren’t rising much either. Plus there is way more choice than was the case five years ago and the mad scramble to get into any school is, for now, a thing of the past.
While the non-oil sector accounts for 70 percent of the UAE economy, healthy prices are still critical to the GCC as a whole. When the price of a barrel fell to below $30 in 2016 that was a massive problem for the region, but this year it has mostly hovered between $60 and $70. While its future direction is uncertain, there are unlikely to be any dramatic falls thanks to healthy global demand. Those higher prices will feed into more GCC investment across the board.
And talking of spending. Dubai’s infrastructure outlay is up 46.5 percent on 2017 as it gears up for the Expo home straight. That’s a huge jump and it will keep rising for the next two years.
Finally, factor in the new laws to encourage inward investment and lengthen stays here and you have the makings of another perfect storm – except this time in a good way. Costs are lower and the economy is growing.
It’s not surprising then that one analyst I spoke to last week, who has the ear of dozens of top CEOs in the UAE, said their year-on-year Q1 results were the most impressive that any of them have seen in recent years.
The signs are clear. While we may not be feeling it just yet, the pieces are falling into place to make the run up to Expo 2020 and beyond a time when growth accelerates and we all – finally – start to feel good again.