UAE well positioned for post-COVID economic recovery

With sweeping changes to its regulatory environment, the United Arab Emirates has achieved another milestone in its remarkable two-decade transformation, attracting more foreign investment and jumpstarting its economic recovery after the coronavirus pandemic.

As a part of Drive 2021, a virtual festival for leaders of small and medium businesses worldwide, HSBC invited banking, economy and legal experts to discuss how the UAE’s new rules translate into business opportunities, as well as its economic outlook.

“What we have seen in the UAE is considerable progress in diversification of the economy through a number of initiatives, and regulatory changes to develop international business in a way that is easy across the whole Arab region,” says Dan Howlett, Head of Commercial Banking at HSBC MENAT.

Significant regulatory changes

“In the fourth quarter of 2020, the UAE was without doubt the most prolific issuer of law and regulation in any jurisdiction I’ve ever seen,” says Andrew Tarbuck, Partner and Head of Capital Markets Dubai at law firm Al Tamimi & Co.

In particular, an amendment to the Commercial Companies Law eliminates the requirement for firms outside of free zones to be majority owned by UAE nationals or their companies, thereby allowing for 100 percent foreign shareholding.

“It's a real landmark development, which gives tremendous opportunities to foreign and local investors,” Tarbuck says.

“It encourages foreign companies to come in and set up branches and be able to operate pretty much normally onshore,” he notes.

Improved access to financial markets

From November 2020, UAE free-zone companies were able to list on the Dubai Financial Market (DFM) and Abu Dhabi Securities Exchange (ADX).

“This is a very big structural development and hugely encourages SMEs, because there is a significant amount of those incorporated in the free zones,” Tarbuck says.

The UAE’s third stock market, Nasdaq Dubai, which previously allowed free zone access to initial public offering (IPO) capital, also amended its offering rules, granting more flexibility for companies wishing to participate in its growth market.

Long-term visas to retain talent

On the labour market front, the government recently implemented a new system for long-term residence visas, aiming to stabilise the workforce and retain expatriate talent.

Known as Golden Visas, these allow expatriates to live, work and study in the UAE without a national sponsor, and with 100 percent ownership of their businesses onshore.

“It shows you that the UAE is keen to attract foreign direct investment and attract people to stay and have a long-term commitment to the country,” says Professor Greg Clark, Head of Future Cities and New Industries at HSBC.

Economy well set for post-COVID recovery

Nearly 39 percent of the UAE population have been fully vaccinated against COVID-19, one of the highest rates in the world. ¹ Over 12 million doses had been administered by 24 May, according to the UAE Ministry of Health and Prevention. ²

“The UAE has been able to manage the COVID crisis effectively, and that has a direct correlation to FDI,” Howlett says.

Bucking the global trend of falling investment, FDI inflow into the UAE soared by 44 percent to U.S.$19.9 billion in 2020, the highest level since 1970, partly due to large deals by Abu Dhabi National Oil Co (ADNOC), the government said. ³

In April, business conditions in the UAE non-oil private sector continued to improve, with new business growth reaching a 20-month high, IHS Markit UAE Purchasing Managers’ Index (PMI) showed. ⁴

The oil price recovery to nearly U.S.$70 per barrel from October lows of under U.S.$38 will help reduce fiscal stress in the country this year, freeing pressure on domestic policy and lifting business sentiment, according to a presentation by HSBC Global Research.

An estimated U.S.$649 billion worth of accumulated sovereign wealth at Abu Dhabi Investment Authority, the third largest in the world according to the Sovereign Wealth Fund Institute, adds an exceptional buffer to deal with future macro shocks. ⁵

Compelling business opportunities

With the rapid pace of vaccinations, the UAE is well placed to catch the early tailwinds of normalisation in external demand for services such as travel and tourism, which are central to the country’s economic prospects, HSBC Global Research says.

While it is still hard to estimate when that happens given the uneven progress fighting COVID in other parts of the world, the UAE economy is likely to expand by 3.1 percent this year and 2.6 percent in 2022 after a 5.9 percent plunge in 2020, according to April forecasts by the International Monetary Fund. ⁶

The openness and connectivity of the UAE economy, which at an estimated U.S.$402 billion is the second largest in the Arab world, combined with its remarkable transformation drive, make it a compelling proposition for businesses looking for chances to grow in the region.

With its further shift away from commodities dependence towards services and innovation, the UAE is likely to offer an increasing number of opportunities for investors in healthcare, education, agri-tech and renewables.

Expo stimulus

The upcoming Expo 2020 Dubai, the Arab world’s largest global event, will be key to the repositioning of the economy, making it more visible on the global stage.

“It will be truly transformative. The event is critical, because a number of sectors have been hard hit, including travel and tourism,” Howlett says.

Growth in partnership with HSBC.
The country’s technological agility, ability to adapt quickly and sustainable drive are in line with HSBC’s strategy to deliver the latest innovative financial services to its clients based on its outstanding digital capabilities and global network.

“We are looking to strong growth in the UAE. We see this is a region that will continue to grow and offer lots of opportunity for our customers,” says Howlett.

Miles Thornhill, Head of Business Banking at HSBC UAE adds: “HSBC is dedicated to opening up a world of opportunities for our customers. We are excited about the opportunities the UAE economic environment brings to businesses and how we can help businesses take their next step.”