Why Sheikh Mohammed bin Zayed’s intervention is game changer for the capital’s economy,
▶ Ten measures to make the emirate more competitive, combined with Dh50 billion in stimulus, will have immediate and positive impacts, writes Mustafa Alrawi
There is likely to be an immediate and positive impact on the non-oil economy from the Dh50 billion of stimulus.
The accompanying 10 key measures will further liberalise the business environment, creating a much more competitive landscape in Abu Dhabi.
The timing is significant, coming only a few weeks after new visa and foreign ownership rules were announced for the UAE.
It is worth noting that Abu Dhabi, perhaps more so than other emirates, is a government-led economy. At the heart of every non-oil sector, including construction, property, retail, finance and industry, has been the driver of government spending.
It has historically been the catalyst of any period of economic boom. But over the past eight years, the need to maintain spending levels has been outweighed by a focus on efficiency and sustainability. The period of lower oil prices in 2015 and 2016 made reforms even more urgent.
The pace of economic diversification has also gathered pace and new income streams have been developed, including from Value Added Tax. The flip side of this has been a reduction in subsidies and other expenditure.
As a result, in recent years government-led spending has been a diminishing part of every segment of the Abu Dhabi economy, relatively speaking, and rather than spurring on the private sector to fill the gap, its reduction left little impetus for growth.
This is partly because the UAE has for two decades been very much a demographic play. Bring in more people to visit, work and live here, resulting in an increase in the population, and fill the homes, offices and shopping malls being built. This creates wealth for all strata of society.
Dubai’s growth continues to be fundamentally a nexus of property and tourism, led by demographics. The new visa rules and allowing 100 per cent foreign ownership outside free zones are designed to bring in more foreign investment and skilled professionals to attract this funding.
Similarly, the 10 initiatives from Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, will put the emirate front and centre with investors in the UAE, the region and the world, who are looking for the ideal environment in which to operate and profit.
Allowing more freedom of movement between onshore areas and offshore free zones will be an important part of a more attractive landscape.
Arguably, removing the requirement of a physical office space for business licence registration will be more so, in particular for start-ups, small and medium enterprises and freelancers, creating a wider pool of skilled workers, service providers and support infrastructure for the bigger companies.
Amid the lower spending by the public sector, as government jobs were reduced and the reforms kicked into gear, businesses moved from Abu Dhabi to other parts of the UAE or abroad.
This was led by business rationale. If your biggest client – ultimately for most here it is the government – is spending less, then you have to rethink your entire model. Costs and expenses become a bigger part of the discussion when profits shrink.
Until recently, Abu Dhabi could not realistically offer a low-cost operating environment as compared with other destinations.
But even amid this more measured approach, big projects backed by the Government have continued to be developed, not least Louvre Abu Dhabi, a true game changer for the tourism and culture sectors.
Infrastructure has always remained a priority. Now, critical projects that will be a boost for all, are back in play and the action on slow payment of private contractors by the public sector ordered by Sheikh Mohammed will ensure that these are developed as efficiently as possible.
Overall, homes, shops and offices were always being built, led by long-term fundamentals and plans are being made reality across the emirate including on Yas and Reem islands, in Ruwais in Al Dhafra and elsewhere.
We have also come through a period of mergers and alliances, such as in banking and property, which promise stronger local corporations for the future.
But the long-term belief in Abu Dhabi has never wavered, even throughout the most challenging periods that have involved no little amount of economic pain for all stakeholders.
This announcement by Sheikh Mohammed signals that it is now the appropriate time to draw a line under that era and to look forward with confidence, especially in the short-term.
The Ghadan initiative sends the message that the future is bright and that there is the talent and the resources available in Abu Dhabi to be a leading part of it, developing and harnessing technology locally. Reducing the burden on entrepreneurs and innovators will give them every chance to help in that effort.
The Dh50bn will be a stimulus for all parts of the economy and should give the private sector confidence that they are supported by the leadership.
The deadline of 90 days for the emirate’s Executive Council to map out the implementation of these measures and how these billions should be spent is a clear indication that it is understood we have no time to lose in embarking on this new era of growth. The time is now.
The impact of these new measures will be to make Abu Dhabi super-competitive and technology-driven, which will – along with its reputation as a stable and secure market, the benefits of economic and financial reforms, and a more efficient government sector – immediately improve sentiment for investment locally and internationally.
Becoming more competitive is more important than ever given the rapidly evolving business climate across the Gulf region, with, for example, Saudi Arabia implementing its own reforms and diversification plans.
The reality of this is that there will be more opportunities than ever for investors looking at the region to consider and Abu Dhabi will need to retain an even sharper edge to draw them in.
This greater investment should spur job creation and opportunities for small and medium enterprises, drawing back more companies and stimulating a tech-related private sector.
The Government is taking responsibility for triggering this potential windfall with its new measures but it will ultimately be down to all of us to build on it and reap the rewards for ourselves. The latter is the key point.
Ultimately, all of the above should lead to wealth creation, whether in terms of new businesses, through higher consumer spending, bigger volumes on the local stock market, increased liquidity in the property market and greater ease of borrowing. Sheikh Mohammed’s new plans put wealth, as much in terms of quality of life in the emirate as financial gain, front and centre.