RSM UAE

UAE To Gain Economic Momentum In 2020

The UAE in general and Abu Dhabi in particular is well known around the world for its massive oil reserves. Earlier, the economy was heavily dependent on oil, but since 2010, the government has taken strong, tangible steps to diversify the economy and shift its focus to other revenue sources for long-term growth and development. This plan was chalked out in 2010 and was billed Vision 2021. While economy is just one aspect of it, the Vision 2021 is a set of six national priorities that the UAE has outlined to achieve by 2021, the year when the country celebrates 50 years since the birth of the Emirates.

UAE Vision 2021’s core economic goal calls for “a shift to a diversified and knowledge-based economy"

The Government has invested in making the vision a reality. Oil prices are down from 2014’s high of $100+ and are hovering at $60, but still the country’s central bank has upgraded the growth estimates to 2.4% for FY2019 from the previous estimate of 2% in May 2019. The twin engines of growth have been travel and tourism sector on one side and the burgeoning construction and real estate sector on the other.  Dubai Expo 2020 is a culmination of those two engines and will power economic momentum which is not limited to the 4.38 Square Km of the expo site.

The various recent highlights of the economy are:

  1. The oil sector will be powering economic growth and the Dh400 billion investment of Abu Dhabi National Oil Company over a five year term is the centerpiece of this forward momentum. The goal is to expand the scope of downstream projects and gas explorations. This will herald the progress of the Emirates into petro chemicals and other value added oil-based products.
  2. The country is also experiencing strengthening of the non-energy (non-fuel) economy stemming from the country’s effort of relaxing the restrictions on foreign ownership. Another important role will be the extended visas for businessmen, which will make UAE a global hub for international business.
  3. Dubai, one of the celebrated Emirates, witnessed a real-estate contribution of 13.6%, adding up to the non-fuel income for the country, in 2018. The Emirate saw close to 53,000 transactions amounting to Dh223 billion, along with the total investments of over Dh 80 billion through 41,000+ investments by approx. 31,000 investors globally.
  4. The logistics sector of the country is assumed to reach a whopping 8% of GDP by 2021, compared to the current 5.4%, as stated by an official on the UAE government portal. In-line with the country’s Vision 2021, Abu Dhabi Economic Vision 2030 and Dubai's Industrial Strategy 2030, the growth of the logistics sector is of great importance for the long term success of the national economy. This growth is powered by the county’s free zones and huge infrastructure investments.
  5. The economic sentiment also upgraded in Q2 (second quarter) attributing to the Purchasing Managers' Index reading averaged to 58.2, the highest quarterly reading since 2014 end. 
  6. The recent implementation of VAT in the country in January 2019 has also surfaced as another source of the non-fuel based revenues.

Expo-2020 will boost travel and tourism, with 25 million tourists expected during the 6-month period alone. Total investment envisaged is north of USD 33 billion.

RSM Insight

The economy has been performing strongly on all major indicators, despite global slowdown. The momentum is expected to remain strong in 2020 as Dubai welcomes the Global Expo and the Emirates rejigs’ visa rules to attract long-term investors.

The Bottom Line

The UAE economy has been experiencing great advancements in line with the Vision 2021, a strategy that holds one of its prime purposes to diversify the economy from oil to a more competitive and knowledge-based economy with other non-fuel sources of income. While the global economy is in throes of a slowdown, the economy of the UAE has grown due to a focus on innovation and strong investment in the knowledge economy by the government. This can be attributed to the timely diversifications that have been made by the country to revive and diversify its economy.

RSM Insight

This is a great opportunity to invest in the UAE as a business owner. The economy is extremely welcoming to foreign entrepreneurs, the visa scheme is liberalizing to promote long term stays for expats and the UAE acts as the nerve center to conduct business in the GCC and Africa. With a deep talent base and a strong infrastructure, the UAE is poised to retain its position as an economic powerhouse in the region and the world. Potential sectors that will specifically see major benefits of the government’s diversification initiatives and Expo 2020 are travel, logistics, construction and real estate.

 

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