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Tue 12 Jan 2016 10:52 AM

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Sebastian Henin, Head of Asset Management at The National Investor: Reasons to be optimistic about 2016

Despite a challenging 2015, new projects due to be completed this year will help the UAE’s bid to diversify away from oil.

Sebastian Henin, Head of Asset Management at The National Investor: Reasons to be optimistic about 2016

2015 was a challenging year in the United Arab Emirates. Oil prices have declined by 30 percent and closed out the year near their lows. This plunge is expected to produce a fiscal deficit, putting pressure on budgeting. Key sectors of the UAE economy such as real estate and hospitality have suffered from the global economic slowdown but also from the strength of the dirham. Last but not least, the country has stepped into a new foreign politics era by joining the Saudi Arabian led coalition against the Houthis rebellion in Yemen.

Despite these facts there are good reasons to be optimistic. Lessons were learned from the 2008 crisis and thanks to multiple measures taken by all stakeholders, real estate prices are not driven any more by speculation but by real supply and demand. The sector is not a systemic risk as it was in 2008. At the same time, the government has been prompt to react by cutting subsidies and by contemplating implementing VAT and corporate taxes.

Moreover, the UAE economy might benefit from positive surprises. The lifting of the sanctions against Iran should benefit the country in many ways. Dubai will act as the logistics hub for Iran due to the latter’s poor infrastructure capabilities. Ports, airports, warehousing but also free zones will benefit from this opening. Many foreign companies might decide to establish a presence in Dubai to target Iran, the last frontier market of 80 million inhabitants where 35 years of embargo policy has created some great investment opportunities.

The 2020 Dubai Exposition should also start getting some traction, with tender offers related to construction sites being launched next year. This major international event is expected to attract 25 million visitors between October 2020 and April 2021. The investment is worth $8.7bn for construction and directly related infrastructure and more than $40bn will be spent on current infrastructure to increase facilities and to double the number of hotel rooms in Dubai.

Some sectors should also continue to grow such as finance. The DIFC has celebrated 10 years and is moving from being a leading regional financial hub to a global one. The free zone has been able to go beyond its natural playground and has started to attract financial institutions which are not linked to the region for their business or their investment decisions, a sign of international recognition. The DIFC has not only benefited from a lack of regional competition and a good geographical positioning between Asia and Europe, but also from a strong regulatory environment and great competitive facilities. The expansion will benefit the local economy by adding a highly skilled workforce who rank first in salary studies. In total, the DIFC employs 18,000 financial professionals, compared to 165,000 in Singapore and 248,000 in Hong Kong. There is room for growth and Dubai should follow the development of these Asian peers.

2016 will also see the launch of two major projects with the opening of the Dubai Parks & Resorts theme park and the Louvre Museum. These two future icons of the UAE landscape will play a key role in reinforcing the growth in the tourism sector and consolidating the entertainment offering. The Dubai Parks site will become the largest regional theme park resort, bringing for the first time to the region leading brands such as Lego. The construction of a Bollywood park, a world first, will attract people from India, the largest population in the sub region. The opening of the Louvre museum, the most respected brand in the cultural space, is ticking a new box. These two developments will improve the attractiveness of the country as a leisure destination but it’s also a foray into the world of cultural tourism, a complementary offering in the most lucrative tourism segment which has been so far monopolised by developed countries.

This economic policy - which is being encouraged and implemented at a high speed despite the current headwinds - shows the commitment of the country to diversify the economy away from oil.

Sebastian Henin, Head of Asset Management at The National Investor.

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