Dubai: Coronavirus pandemic pressed pause on the global economy’s progress. The UAE’s open economy hinged on tourism and oil encountered attacks from many directions. As the economy recuperates, its priorities over the next few years are expected to change.
A year into the fight between disease and development, the ramifications of the event are apparent. The Federal Competitiveness and Statistics Centre said the UAE’s economy contracted by 6.1 per cent in 2020. As the world’s air travel hub and an international centre of trade and business, the global restrictions on movement stunted the economy.
A look back
The Arab world’s second biggest economy witnessed the first contraction of its GDP since the financial crisis in 2009 as the pandemic led to a significant slump in rent, trade, foreign investment and energy prices.
The oil reliant Gulf region confronted a double whammy shock with a dip in both price and demand of oil. Prices collapsed with the shock of the virus on economies at large while demand shrank as global energy demand dissipated.
The International Monetary Fund (IMF) said, recovery from the pandemic relies on vaccine rollouts, exposure to tourism and government policy enhancements, in its latest report.
Vaccines are making all the difference
The UAE’s inoculation drive is ranked among the fastest in the world. About 64.7 per cent of the population got vaccinated with over 12.6 million vaccines administered till date, according to data from Reuters. The acceleration of vaccination could foster the flow of tourists into the country.
Expo 2020 Dubai later this year is expected to kickstart tourism and lift up employment and infrastructural growth. The FIFA World Cup scheduled in 2022 in Qatar is estimated to continue the positive sentiment in the tourism and hospitality sectors.
To uphold the expected development in infrastructure and to keep the economy afloat, the federal and local governments spent over 395 billion on recovery since the beginning of the pandemic. The Central Bank’s Targeted Economic Support Scheme, Dh50 billion worth of zero-cost loan initiative, was extended to improve the flow of money in the economy until June 2022.
When will COVID stop wounding the economy?
Government data estimates coronavirus wounds to the economy will be wiped within the next year with improvement in credit growth and positive spending through the year. The Central Bank said in its Annual Report that real GDP, the value of the country’s goods and services assessed with regard to inflation, is expected to elevate 3.5 per cent in 2022.
Ratings agency Moody’s reaffirmed a positive rating for UAE and praised the economy for the government's rapid and sufficient support to cope with the shock. The agency estimates the country’s GDP to return to pre-pandemic levels in three years.
As the third largest oil exporter from the Gulf, the hydrocarbon sector weighs on the UAE’s structural growth. The Organisation of Petroleum Exporting Countries (OPEC) forecast global oil demand to grow by 6 million barrels per day in 2021.
The US Energy Information Administration forecast Brent crude prices to average $60.67 a barrel in 2021 and $58.51 a barrel in 2022. The IMF released a similar estimate with prices edging up in 2021 and tapering down steadily till 2025 and expects GDP growth to mirror the same trend.
Oil prices touched a 20-year low in 2020 when oil producers got into price wars during the pandemic. Concerns of prolonged oil price instability remains as the rebound of $60 per barrel is below the fiscal breakeven, the minimum oil price required to balance the country’s budget, and further support would be needed for the economy if prices fall again, Oxford Economics said in a report.
The oil dependent Gulf countries aim to reduce reliance on oil and embark on diversification, following the lead of the UAE. The UAE boosted solar and nuclear energy power plants to diversify its energy portfolio and estimates at least 20 per cent of power generation to come from renewable sources in the next three years.
In 2021, commercial operations of the country’s first nuclear plant began, as part of its clean energy 2050 strategy according to which almost half of its energy consumption would come from renewable energy, 12 per cent from coal and the rest from natural gas.
The renewed focus on minimising the country’s carbon footprint was ushered in by a global shift towards clean energy. The pandemic renewed focus on the climate crisis and structural inequality all across the world and companies in Europe and America are evaluating their structural, social and governance(ESG) factors to improve their sustainability. The investment landscape around the world is trying to accommodate ESG measures aimed at making a ‘green recovery’ from the pandemic.
In the UAE, the pandemic also brought a wave of digitisation with it. UAE adapted to the new ecosystem with ease compared to its regional peers as companies quickly adapted to digital payment systems, remote working and e-commerce.
Laws were passed in favour of skilled immigration including the introduction of 100 per cent foreign ownership of companies and a virtual working program granting a one year permit to work remotely from Dubai. The government extended the 10 year golden visa, a long term residence visa issued without the backing of a national sponsor, to highly qualified professionals, namely researchers in the fields of science and knowledge such as doctors, specialists, scientists, inventors, as well as creative individuals in the field of culture and art.
Scott Livermore, Chief Economist from Oxford Economics Middle East said “the reform covering visa and ownership are targeted at attracting and retaining foreign capital and talent. The new rules will strengthen investor confidence and help the economy benefit from the expected upswing in the global economy. This will contribute to the development in the medium term of new sectors such as creative industries, clean energy and digital sectors. These sectors will become mainstays of economic growth, even if near-term prospects are more dependent on travel and tourism.”
-Hannah Paul is a freelance writer based in Bengaluru India