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Beyond the Dirham: A look at the UAE’s Economic Policy

December 19th, 2019

As we usher in a new decade, the UAE growth story is expected to gain significant momentum, after a slow recovery post the 2014-17 oil crisis. Increased spending measures, economic diversification, improved fiscal policies, and rate cuts to match federal reserves are some changes in the UAE’s economic policy that will provide a significant tailwind in the coming years despite the threat of a global economic slowdown.

The International Monetary Fund (IMF) has forecast that the UAE’s GDP will grow at 1.6%, with a substantial uptick of 2.5% in the UAE’s economic growth in 2020. The gross official reserves of the UAE are estimated to grow from USD 76.8 billion in 2015 to USD 118.4 billion in 2020, with the current account surplus almost doubling from USD 17.6 billion to USD 33.4 billion during the same period.

The upward and forward-looking UAE economic policy for 2020 will drive business optimism, fuelled by the increased fiscal spur in both the government and private sector across projects associated with the Expo 2020 in Dubai.

Optimistic outlook for UAE’s economic growth

Abu Dhabi and Dubai, two of the strongest emirates in the UAE could be the most significant contributors to the country’s GDP growth. According to the Institute of International Finance (IIF), Abu Dhabi’s real GDP growth is expected to touch 2.3% and 2% in 2019 and 2020 respectively, while Dubai’s economy is expected to grow at 2.1% and 2.3% over the same period. Overall, the UAE’s GDP is estimated to be approximately USD 460 billion in 2019. 

What are the key drivers of the UAE economy? Yes, it is primarily driven by oil and natural gas resources and industries, which accounted for nearly 30% of the GDP as of 2017. However, off late, the trajectory for UAE’s economic growth also focuses on the non-hydrocarbon sector. The IIF hints at modest yet sustained growth of the economy, assisted by strengthening credit growth and improved liquidity in the banking sector.

The UAE continues to be the most attractive destination for FDI in the Gulf region, with over AED 40.3 billion (USD 11 billion) flowing in, in 2018, accounting for 2.9% of the GDP. Based on the projections of the UAE economic policy, authorities are looking to incentivise FDI inflows up to 5% of the GDP, by 2021.

World Expo 2020

Dubai sets the stage to host the world’s third-biggest event, Expo 2020, which will have a tremendous impact on the UAE’s economic growth prospects. Spread across 48 hectares in Jebel Ali, the UAE government is looking to spend USD 30 billion on the Expo site and city, with infrastructure development of new roads, metro extension, hotels, buildings, and facilities to accommodate visitors.

An estimated 25 million people will be attending Expo 2020, thereby providing an impetus to the construction industry, hotels and hospitality businesses, transportation, retail business, and media and communications. In totality Expo 2020 may give a fillip to the economic development of the country.

This massive event may create employment opportunities for expats, who constitute almost 90% of the workforce in the UAE. Estimates suggest that the run-up to the Expo may generate about 277,000 jobs, of which 60% will be in the construction industry and the rest in the travel and tourism sector. Over the long term, as per a report by Ernst & Young, the Expo may generate as many as 905,200 full-time equivalent job opportunities in the UAE, going all the way to 2031.

Expat workforce and remittance market

The workforce from developing nations is expected to rise by 470 million in the coming years, and there is a good chance that a large number will be looking to migrate to the UAE. A conscious shift from a hydrocarbon driven economy and the boom expected from Expo 2020 may strengthen the UAE’s position as a destination of choice for employment.

The country is taking concrete steps to reduce the disparity between the local and expat workforce. Further, the government recently introduced long-term visas for expats. It also launched the Equal Pay and Gender Equality Law in May 2018, which will award equal wage and non-wage benefits to male and female employees from the expat labour force as well. 

In a bid to promote talent and inclusiveness, the government is looking to enhance education and training in areas within the private sector where demands for employment are high.

On the currency front, over the last couple of years, the dirham has been on an upward move. As a petro currency, its movement is in conjunction with the monetary policy decisions in the US. Due to geopolitical tensions and slower global growth, the currencies of most other repatriable nations (such as India, Pakistan and the Philippines among others ) have depreciated against the dirham.

Also Read: Let’s talk UAE remittances

The appreciating UAE dirham has been a boon for expats. The increased purchasing power of the currency has improved consumption and standard of living and encouraged repatriation to home countries. UAE sent out remittances amounting to a staggering AED 169.2 billion in 2018, a 3% increase from the previous year.

Despite the high volumes, the cost of remitting funds remains high. However, money transfer operators like Xpress Money are changing the landscape by providing not only a prompt remittance service but also a completely transparent model – right from pricing to monitoring fund transfers. With Xpress Money, you can track exchange rates in real-time and be aware of all associated costs and charges before you initiate the transfer