The IMF – as reported by the Khaleej Times – expects the UAE economy to grow by 4.4% during 2018, the fastest of any Middle East country and a significant increase on the 2017 forecast of just 1.5%. What are the key factors fuelling this growth?
Ask most people in Abu Dhabi about 2017, and they will probably say that it has been a tough year. A reduction in staff numbers in government companies, a number of large cost cutting mergers and acquisitions, a general reduction in budgets, plus pressure on the oil, gas and construction industries peppered the year.
The good news is that 2018 should start to show signs of an uplift. With oil prices sustainably back above US$50 per barrel, and much of the cost cutting already done, the government is starting to look again at the feasibility of some of the larger projects which were put on hold. We are seeing a significant lift in enquiries from people wanting to set up new branches and LLCs in the region ahead of some of tenders arising from this uplift in attitude.
The following are some of the key initiatives that we believe will fuel growth in 2018:
We are still seeing significant construction projects starting in Dubai as well as in Abu Dhabi and Fujairah in the lead up to Expo 2020. It is a competitive industry with a lot of small and large specialist providers coming in to undertake the various works and support. There are just two years left to finish off all the construction so this high profile project will continue to fuel investment in building projects and preparations.
Healthcare and education
The government has ambitious plans for these sectors. Businesswire.com reports that the education sector in UAE has been witnessing rapid growth over the past few years with seven new private schools opening in Abu Dhabi this year alone. The rising demand by expatriates for quality education is fuelling growth while simultaneously the government is taking measures to promote public education for the UAE for nationals. The Which School Guide forecasts that there will be a 5% growth in schools year on year until 2020. MENA Research Partners say that that the UAE’s healthcare sector is “… poised to record strong growth of 60% in next five years to AED103 billion by 2021.”
Research and development
The 2030 Industrial Strategy aims to develop Dubai into “an international hub for knowledge-based innovation and sustainable industrial activities”. This led the government to announce an increase of US$190.6 billion in funding for research and development in the 2017 budget.
Renewable energy and transport
The UAE is also looking at renewable energy and other futuristic innovations like flying cars and the Hyperloop. Many companies are waiting for government announcements on big transport projects like rail and renewables. In 2018 we expect to see some of those coming online, certainly with some design phase tenders coming back. Companies will likely need a local onshore license to be able to prequalify for these large government projects.
Growth in entrepreneurship
The government is seeking to reduce the cost and speed with which entrepreneurs can set up. According to the recent Global Entrepreneurship Index report, the UAE ranks 16th in the list of countries that are most attractive to entrepreneurs. We feel that the UAE will rise up this list next year. Companies should use a government liaison officer and company formation specialist to assist with the set up. They can significantly reduce the time and complexity, making it more attractive for new companies entering the region.
IT, digital and e-commerce
We have seen a lot of growth in digital companies. We expect this to continue during 2018. Souq.com was recently purchased by Amazon, which will have a big impact on e-commerce in the region and the distribution of goods across the UAE. Digital and e-commerce companies across Asia, Africa and the Middle East can base themselves here and protect the trademark and IP fairly easily. The patents, trademarks and branding regulations are robust and are being strengthened continually.
Tourism is still a key revenue earner for the region, and significant new developments are underway. The launch of the Louvre in Abu Dhabi is an eye-catching one, of course, which helps the intention to turn Saadiyat Island as the capital’s cultural hub into reality, and Yas Island into the most popular island for entertainment.
While there are many positive investment programmes underway, there are two things that may cause a drag; the introduction of VAT and an influx of new property developments flooding the market.
At an economic level VAT will increase the costs of doing business in the region whilst hiking up prices for consumers and business purchasers. Companies will either need to absorb these costs or pass them on. This may cause a small administrative burden but is not likely to have a major impact beyond this.
New construction may be good for the real estate sector, but it also means an influx of new properties being released onto the market. For example, there are as many as ten residential developments launching in the Raha Beach area of Abu Dhabi alone next year. The recent exit of many expats combined with a possible overcapacity could exacerbate a downward pressure on rental prices and property sales.
People are moving here from some other regional hubs such as Singapore and Hong Kong. Transport links by air are excellent. Jurisdictional and legal frameworks are now present and strengthening all the time. Security is strong. And the UAE business structure is being continually simplified. With a phase of cost reduction, and oil prices stable, despite some warning signs the economy is well placed to support an accelerated growth rate next year.
James Swallow is Commercial Director of PRO Partner Group and specialises in the formation of companies in the UAE. For further information on how PRO Partner Group can assist with establishment and approval process of your company within the oil and gas sector, please contact James on firstname.lastname@example.org or call a member of the team on:
+971 (0)4 456 1761 (Dubai)
+971 (0)2 448 5120 (Abu Dhabi)
UAE Business Predictions for 2018. The good news is that 2018 should start to show signs of an uplift. #TopTips #BusinessSetUp #CompanyFormation #UAE #Dubai #AbuDhabi #PROPartnerGroup #BusinessPrediction #BusinessTips https://t.co/L3BPMcsg0q
— PRO Partner Group (@PROPartnerGroup) January 2, 2018