Suddenly, the Arabian Gulf is awash with stimulus packages and strategies to attract foreign investment and foreign expertise to the region, and to make the lives of the expatriates living there more comfortable.
Saudi Arabia has had in place a rolling program of government-sponsored investment lures for the past couple of years, all under the banner of Vision 2030, and has an expansionary budget in place for the first time in three years.
But in the past few weeks, the UAE has taken the lead in further opening up its already pretty open economy, with a series of decrees and initiatives all intended to shift the economy into a higher gear.
Taken as a whole, the Emirates’ measures are aiming to reboot commercial and business life in the UAE just as the national economy was seemingly stuck in a rut caused by the dramatic fall in oil prices four years ago. Pursued to their logical end, they amount to a new framework for future development in the UAE.
Since the start of the holy month of Ramadan, the measures have come thick and fast. First Sheikh Mohammed bin Rashid Al-Maktoum, prime minister of the UAE and ruler of Dubai, announced a new visa regime that would give long-term residency to top investors and professions, coupled with a move to allow foreign businesses to own 100 percent of companies outside free zones.
Then, earlier this week, Sheikh Mohammed Bin Zayed Al-Nahyan, crown prince of Abu Dhabi, unveiled a $13.6 billion government spending package to create new jobs for Emirati nationals in the public and private sectors, and to co-ordinate investment in high-value technology industries. It also eased the restrictions on free zone companies that prevented them from doing government work.
In the past 24 hours, Dubai hit back in what was beginning to look like a stimulus race. Sheikh Mohammed bin Rashid Al-Maktoum, in his capacity as chairman of the Executive Council, announced a series of measures to reduce the burden on foreign companies and individuals doing business in the emirate. A swathe of aviation fees were scrapped, and real estate levies eased.
The country’s future prosperity depends more than ever on widening its appeal to foreign investors and workers
Frank Kane
Most eye-catching of all, private schools in Dubai, which educate the children of expatriates, were forbidden from raising school fees for the next academic year. You could almost hear the whoops of delight on the morning school run.
It was a clear sign that policymakers had heard the increasingly loud complaints of foreigners about the cost of living in the UAE, and were acting.
But even while UAE policymakers were being applauded for their new expansionary mindset, the economists were explaining how it had been forced on them by the cold realities of Gulf economics.
The oil price shock of 2014 was met by a set of austerity measures, especially in Abu Dhabi where energy revenue accounts for 40 percent of GDP. Government contracts were canceled, workforces slashed and higher government levies imposed. There was a significant exodus of top foreign talent from the UAE as expat workers were laid off and the cost of living rose, inflated by the introduction of value-added tax at the beginning of this year.
Even the IMF — usually a fan of austerity and tax — said that the axe-swinging had gone too far, and was endangering future growth. In particular, the non-oil economy was stuck in a rut of low growth that put all the plans for diversification at risk.
The recovery in oil prices has given UAE policymakers the flexibility to ease up on austerity, for sure, but it also appears to be a wider recognition that the country’s future prosperity depends more than ever on widening its appeal to foreign investors and workers.
The ruler of Dubai recently summoned a top-level gathering of Emirati and expat business leaders to a brain-storming session at one of his residences, where, according to participants, he heard that there were serious concerns about the continuing competitiveness of the UAE economy, especially in comparison to other hubs. He obviously took those concerns to heart.
One sign is that there is an unusual urgency to the new measures. The ten-year visa and 100 percent ownership plans are due before the end of the year; the Abu Dhabi stimulus will be allocated within 90 days; school fees are frozen with immediate effect.
Will the new initiatives have the desired effect quickly enough?
The UAE is on an immovable deadline. In two years it has to be ready to stage the Expo 2020 global business exhibition, with all the completed infrastructure — roads, transport systems, hotels, real estate — to accommodate the biggest influx of visitors, some 20 million people over six months, it has ever seen. That will be the real test of the UAE’s rebooted economy.
- Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai.