Impact of COVID-19 in UAE Economy and Recovery

The spreading of COVID-19 pandemic has affected the businesses of many countries and the UAE was no exception. The economy experienced positive sentiments during the first two months of 2020. However, after the spread of COVID-19, many business activities have experienced slowdown. During the second quarter of 2020, the overall UAE GDP fell by -7.8% while the non-oil GDP fell by -9.3%.

The economy witnessed decreased exports (both oil & non-oil commodities) and severe impact on other areas like retail trade, hospitality, and tourism during the last 6 months period. The deterioration of investor sentiments has led to the fall of FDI also.

On the brighter side, the economic activity is expected to return to normal in the latter half of 2020. According to FCSA and the Central Bank of UAE, The GDP fall expects to slow down by -5.2% compared to -7.8% in the earlier quarter. The extent of the policy support measures launched by the government is expected to help in determining the recovery of the economy. Further, the TESS (The enhanced Targeted Economic Support Scheme) and the stimulus package by the local and federal government is expected to boost the non-oil activities, employment, real estate prices with a positive impact once the risk of the virus is under control.

The business indicators are slowly recovering to pre COVID 19 period. For e.g.: The Purchase Managers Index (PMI) of UAE has increased to 51 in September from 49.4 in august. The PMI has reached an all-time low at 41.7 in April. The September reading was the first highest reading since October of 2019. The rise of output in the last four months was at a faster rate, the number of new ordered increased and, the export sales grew continuously for the past two months.

The purchase mangers index is an economic indicator and economic trend of the service and manufacturing sectors. The index tells about the purchasing manager’s perspective of the market condition. The index indicates whether a business is expanding, contracting, or staying at home.

Post COVID-19 Plans & Strategies for Recovering the Economy

UAE’s Post COVID-19 strategy

The UAE post-COVID-19 strategy focuses on developing business plans and policies to ensure short, medium, and long-term Government development which enables the country to combat social and economic challenges post COVID-19. The main area of focus for the Government currently are health, public governance, economy, education, food, and the society. The strategy is a two-phase recovery plan. H. H. Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates (UAE), and ruler of the Emirate of Dubai has decided that UAE will:

• Review the size and the structure of the UAE government constantly to deal with the COVID-19 impact.
• Bring changes to the ministries to be more flexible, agile, and provide speedy governance.

Government Infuses Dh100 Billion

The government has taken measures to reduce the impact of the pandemic on the financial performance and business operations of the organisations in both private and public sectors. The measures include a stimulus package of Dh100 billion to help the economy recover along with other incentives such as interest rate cuts, reduced municipality fees, and reduced customs fees.

UAE Public-Private Alliances

UAE has responded to the pandemic situation with its emergency readiness, resilience, successful planning and action. With the economy gradually returning to normalcy, UAE serves as a model for how public-private alliance helps in combating challenges. The UAE’s leadership took strong measures to ensure the wellbeing of the community and then facilitating the business continuity. As a result, Business in UAE has returned to near normal working hours with safety protocols set in place. According to UAE, these steps are critical for the recovery of the economy.

The UAE government also pointed out that the public and private should continue to build a partnership for the benefit of the economy. Organisations should discover new innovative ways to maintain a new business order and support government efforts to combat the crisis. National oil companies in UAE are collaborating with Dubai Municipality and Dubai health authority to ensure a sufficient supply of resources for the people. The landlords in various parts of the UAE has also offered rent-free incentives for struggling businesses.

UAE Companies are making operational changes to become more resilient

Private companies in UAE are implementing changes to their operations to become more resilient after the problems faced due to COVID-19, according to a study conducted by HSBC. Companies are heavily investing in the security of the supply chain which includes finding and securing critical suppliers. Business in UAE has also pointed out that collaboration with other companies helped them to sustain operation during the pandemic. Despite the improved collaboration, companies are now trying to build resilience in the next 5-6 months to complete issues such as Employee morale, maintain sufficient cashflows and other external factors which are beyond their control.

The pandemic has also forced many companies to invest in technology strategy to improve the business processes. Virtual working has become a new norm during the past few months with both private and government organizations operating remotely.

According to a study conducted by Visa, more than 44% of the business in UAE have facilitated contactless payment, which is twice when compared to the global average. The result also shows that around 90% of the consumers in the UAE have changed their traditional cash payment to contactless payment and online payment.

UAE Government Level Support for Post COVID 19 Recovery

The Federal Government support:

• The UAE government released a stimulus package of $27 Billion in March 2020 to combat the COVID-19. Further, the Central Bank of UAE announced new measures to guarantee liquidity in the banking system accounting to another $43 Billion.
• The measures included a renewable six-month suspension of the work permit fee, reduction of labor and other fees, accelerate major infrastructure projects, supporting small businesses, and cutting costs for doing business.

H. H. Sheikh Mohammed Bin Rashid Al Maktoum Meeting for post-COVID Strategies

Photo Credit: Emirates New Agency

Dubai Government support

H. H. Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates had launched a stimulus plan that contains 15 core initiatives. The initiatives aim at simplifying the business procedure in the energy, tourism, trade, retail, and commercial sectors as well as reduce the cost of doing business.

• Reduced electricity and water bills by 10%.
• Exempted companies from fees charged for the cancellation and postponement of sports and tourism events in 2020.
• For the import of products sold in Dubai, 20% of the customs fee will be refunded.
• Without the mandatory renewal of the lease contract, permission can be obtained for renewing commercial licenses.
• 7% to 3.5% reduction in the municipality fee imposed on sales at hotels
• The fee for classification/rating of hotels froze
• The fee charged for issuance of a permit, sales of the ticket, and other fee-related entertainment and business events froze
• The fees imposed on the submission of customs documents reduced by 90%
• The down payment for installation-based payment of government for renewing or obtaining a license has reduced by 25%
• Dubai freezes 2.5% of the fees imposed on all facilities operations

Abu Dhabi Government support

Abu Dhabi executive council also have announced 15 initiatives to support SMEs and easing the availability of loan for local companies.

• The electricity connection fee for start-ups reduced until the end of 2020
• The annual registration fee for commercial vehicles eliminated until the end of 2020
• No tariff from road tolls until December 31st of 2020.
• Dh3 billion allocated for the SME credit guarantee scheme which is under the Abu Dhabi Investments
• To enable SMEs navigate the current market environment, the office of Abu Dhabi Investment is financing initiatives
• 25% reduction in the industrial land leasing fee
• Exemption of certain industrial and commercial penalties
• Exemption of the real estate registration fee until the end of 2020
• Tawtheeq fees for commercial and industrial activities are exempted until the end of 2020
• A new committee formed for reviewing the lending options for local companies
• The entertainment, tourism, and restaurant sectors have a 20% rebate on rental values
• The bid bonds are suspended and exemption of performance guarantees from startups for projects up to Dh 50 million

RAK Government Support:

To support the economy and to ensure business continuity Ras Al Khaimah emirate has announced a stimulus package. The package is expected to help the private companies across sectors for their business continuity.

• Ras Al Khaimah has launched an initiative which involves planting tree instead of paying fine for environmental violations.
• The fine for violating the conditions of the Hemaya security systems imposed on various establishments reduced by 50%.
• The cost of some of the business licenses reduced by 50%
• The fee on new workers housing application reduced by 25%
• Fines are exempted for delayed renewal of commercial license.
• The tourism licensing fee is eliminated for the 3rd quarter of 2020.

The country’s government and businesses are optimistic that the current uncertainties will also in turn create opportunities for the UAE’s economy, especially on the potential changes to the structure of the economy. RAG Business Group has deep experience in launching entrepreneurs (company formation, market research, distributor search, etc.) in the United Arab Emirates. Contact us at Toll Free Number 800724249 or write to: info@ragroup.ae to know how we can support you in launching a new company in UAE.