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| 13 June, 2018

UAE's reform measures to help offset impact of VAT-induced slowdown

Economic growth poised to accelerate on wave of policy initiatives

Modern architecture Gate Tower, DIFC, Dubai. Image used for illustrative purpose.

Modern architecture Gate Tower, DIFC, Dubai. Image used for illustrative purpose.

Core Savills/Handout via Thomson Reuters Zawya

The recent spate of investor-friendly reform initiatives by the UAE government, including 10-year visas for investors and professionals as well as a move to allow 100 per cent foreign business ownership, along with some proactive stimulus packages unveiled by Abu Dhabi and Dubai separately will stir up investor confidence and accelerate the growth of the second largest Arab economy, experts and corporate leaders said.

Combined, the three-pronged stimulus programmes, undertaken by the federal government and two emirates, will give a major fillip to real estate, construction, information technology, small and medium enterprises sectors. In addition, these bold measures along with the easing of liquidity through the Dh50 billion package announced by Abu Dhabi will help banking and manufacturing sectors while considerably easing pressure on business community, analysts said.

They said other critical measures, taken by Dubai, including a one-year freeze on school-fee hikes, waiver of some fees on aviation and real estate transactions, and cutting charges levied on businesses, will help arrest cost of living and doing business.

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Most analysts and corporate leaders believe such bold strategies would help offset the impact of VAT-induced slowdown while reinforcing investor confidence leading to a pick up in foreign direct investments.

Rashed Al Blooshi, chief executive of the Abu Dhabi Securities Exchange, said the Dh50 billion stimulus package for Abu Dhabi reflects the vision of the country's leadership to establish the UAE as a leading global economy.

Stressing that the Abu Dhabi move came at a good time, as the emirate's economy continues to grow, he said the infusion of liquidity would positively impact the business sector over the next three years. Al Blooshi noted the move to clear late payments of companies involved in government business is a timely measure.

"Pending payments hinder the progress of SMEs and settling them would help increase liquidity and enable these organisations to contribute to the economic development of the nation. This, in addition to reviewing the fines and fees imposed on SMEs, which help to support the local business environment, especially in terms of issuing instant licences," he said.

Dr Azad Moopen, founder chairman and managing director of Aster DM Healthcare, welcoming the move to curb the rising cost in Dubai by the Executive Council, said there has been significant impact on the life of the common man as well as profitability of the business due to the increase in various expenses in the last five years.

Atik Munshi, senior partner at Crowe Mak, said such positive measures would bring about enhanced investor confidence, "particularly from multinationals and overseas investors who have been sitting on the fence so far". As the impact will be long term, the results are expected to last much beyond 2020.

"I think such stimulus should be seen in conjunction with the recent announcement of 10-year visa and 100 per cent ownership for foreign investors. I believe that this is a game-changer," Munshi said.

"Although the government has announced some sectors like innovation, manufacturing and education to benefit from the visa and legislative reforms, we need to await specific plans from the authority. Overall, even if such stimulus is targeted at certain sectors, its effect will percolate to the entire economy positively over a period of time."

Jitendra Gianchandani, chairman and managing partner at Jitendra Consulting Group, said recent stimulus measures would have far reaching positive impact.

"Measures such as 10-year visa to professionals, 100 per cent ownership in mainland companies and five-year to 10-year visa to students will reignite investor confidence across all the sectors," he said.

Maryam Eid AlMheiri, CEO of Media Zone Authority - Abu Dhabi and twofour54, said the new, forward-thinking initiatives would create more opportunities for all companies in Abu Dhabi.

"By making it easier for private sector companies to do business, it will create more opportunities for growth," she said.

Firoz Merchant, founder and chairman of Pure Gold Group, said the new measures of the Dubai Economic Department to boost business and attract foreign direct investments approved by the Dubai Executive Council would greatly enhance the growth of the economy. "Such measures, coupled with the recent Dh50 billion stimulus package for Abu Dhabi, will strengthen economic stability, sustainability and growth in the country," he said. "Apart from the strong initiatives that will help the SME sector, I believe that relaxation of VAT for the gold industry will bolster Dubai's tourism sector for which the gold trade is relevant and will enable increased consumer spending on the gold and jewellery," he added.

Analysts said the Dubai initiative to exempt companies from penalties and trade violations is aimed at ensuring continued business growth and to reduce the financial burden on businesses.

As per the decision of the Executive Council, Dubai has waived fees on 19 business activities related to aviation industry and aeroplane landing with a view to attracting more than Dh1 billion in aviation sector investments. The move aims to make Dubai a global hub in the aviation industry in line with Dubai Plan 2021 and Dubai Industrial Strategy 2030. The government is halving the market rate, a municipal charge on businesses, to 2.5 per cent and waiving a four per cent fee for delayed property registration.

A research note from Emirates NBD said the new measures should offer some relief for businesses across all sectors as well as providing a boost to the key transport and logistics sector. "The measures were broader in scope than we had expected following the instructions to reduce the cost of doing business in the emirate and take steps to accelerate economic growth," the bank said.

Al Blooshi of the ADX added that the decision to establish the Abu Dhabi Accelerators and Advanced Industries Council under the title of Ghadan, comes at a time when the emirate is attracting and supporting investments and value-added technologies that contribute to Abu Dhabi's knowledge-based economy.

"Supporting the issuance of double licences to Abu Dhabi Free Zone companies will also allow them to operate outside free zone areas and participate in government tenders," he said.

Munshi said SMEs are a major contributor to the employment in the country and a substantially large number of entities in the UAE belongs to this category as it accounts for 95 per cent of the total enterprise population in Dubai and employs around 42 per cent workforce of the emirate. However, the sector needs a bigger support to play its due role in the success of economy.

"SMEs at times need a little hand holding to ensure commercial success. Currently bank-lending norms for SMEs are stringent, which hinders startups and expansion. In some countries, the central bank issues directives to banks to lend a certain percentage of loans to SME sector, a similar step may help," Munshi said.

Most analysts are of the view that the real estate and construction sectors would be major beneficiaries of the Dh50 billion stimulus drive. Sectors that will reap the benefits immediately include construction and infrastructure developments, which have been facing payment delays due to cash constraints that had a cascading impact on all associated sectors.

 

 

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