The Banking Executive Magazine - March 2021

Global Economic Outlook 2021 aging effects on the economy, with oil output in Q3 reaching an almost decade low. As Covid-19 cases recorded new daily highs, the U.A.E government has done everything in its power to avoid extreme lockdown measures, including authorizing the emergency use of Chinese-owned company Sinopham’s vaccines, which have so far proven to be effec- tive in the first two clinical trials. Whilst the economy is set to contract by 6% in 2020, U.A.E. officials can take comfort in the resilience of their non-oil private sector, which has reached a 16-month PMI high. This was not at all a stroke of luck but rather a result of careful planning and decision making. Domestic markets: The Central Bank of the United Arab Emirates an- nounced specific policies to deliber- ately ensure the survival of local businesses. It launched the Compre- hensive Economic Support Scheme, with a goal to use a total of $27.23 billion to relieve private businesses and retail consumers of interest ac- cumulated on outstanding loans, which is meant to act as a monetary stimulus to both strengthen supply and demand in the economy. Fiscal policies were also adopted, with the Central Bank launching the Targeted Economic Support Scheme and the UAE Cabinet declaring a further $4.36 billion stimulus package. The policies’ main objective being the support of domestic companies by cutting the cost of doing business and investing heavily in infrastruc- ture projects. U.A.E is already one of the most diversified oil-exporting economies, and the country plans to further strengthen more non-oil re- lated sectors in a bid to shift to a more modernized strategy. The fi- nancial sector will be pivotal in de- termining the success of such plans with the U.A.E counting on their easygoing lines of credit to fund proj- ects mounting to a total value of $868 billion. $672 billion of the aforementioned valuation are pipeline projects of which $417.7bil- lion are construction related. More- over, the U.A.E also aims to revolu- tionize its travel and health care in- dustries through heavy digitization. Country officials aim to continue in- troducing and expanding AI systems into these sectors to improve produc- tivity, facilitate data collection and redistribution, and reduce human error. The U.A.E has already tested these AI models in their National Unified Medical Record, an AI cen- tral database in Dubai that was suc- cessful in redefining the region’s health care industry, and that is now being implemented nation-wide Cross-border operations: The UAE’s recent success in negotiating an agreement with Israel to build a pipeline in Ashkelon is projected to substantially increase Emirati oil de- mand as the pipeline will be used to transport oil into Europe. On the 6th of January 2021, the U.A.E and Qatar agreed to fully reestablish diplomatic ties, which were severed on the 5th of June 2017 as part of the Qatar diplomatic crisis. Consequently, the U.A.E should see first quarter boosts to its trade and travel sectors. Lastly, it is predicted that the UAE will find itself largely unaffected by regional political instability, despite heavy Iranian tensions. As for domestic pol- itics, the system is also expected to prove itself stable with a possible transfer of power from Abu Dhabi ruler His Excellency Khalifa bin Zayad Al Nahyan to Crown Prince Mohammed bin Zayed Al Nahyan expected to flow smoothly if the for- mer’s health issues are to further de- teriorate. Political reality: In 2021, UAE’s economy is set for a recovery of 2.5% in real GDP, as well as a much- anticipated political reform. His Highness Sheikh Mohammed bin Rashid Al Maktoum has announced that the U.A.E will alter, merge, and change a number of governmental bodies in a bid to facilitate future governmental reforms by creating a more “agile, flexible, and speedy government”. Possible Risks: Economists have been predicting a harsh expat exodus fac- ing the UAE, with the UAE losing ap- proximately 10% of its residents owing to a loss of 900,000 jobs. Due to expats having no welfare schemes and no permanent-citizenship routes, the loss of jobs has left most of them unable to bear the burden of the pandemic and contemplating a move back to their original countries. Nevertheless, the UAE once again acted swiftly to mitigate the effects of such a disaster by passing a decree that allows expats to use their native laws instead of the Sharia when deal- ing with personal affairs. It has also launched a virtual visa scheme that allows working professionals to relo- cate to Dubai and enjoy access to unfettered services, and started a re- tirement program for foreigners over 55, all in the hopes of encouraging foreign labor. On the supply side, Dubai has commenced an e-com- merce platform called the Virtual Company License that allows busi- nesses from all over the globe to freely explore the UAE market, with the platform set to attract over 100,000 companies in the near fu- ture. However, all of the aforemen- tioned schemes, stimuli, and policies to protect the economy from the ef- fects of the pandemic may backfire. As a result of these generous meas- ures, Dubai’s governmental debt is estimated to have reached 77% of GDP ($80billion), and if we were to add government-related entity debt to that number, ratings agency S&P predicts that total debt is an astro- nomical 148% of GDP($153.8 bil- lion). To summarize, the UAE will start re- covering in 2021 but future growth might slow down as a result of Dubai’s growing debt and the possi- bility of an Abu Dhabi bail-out simi- lar to the one in 2009. A shift to increased diversification and fast vaccine rollout has helped the econ- omy resist a further contraction of GDP but oil still remains fundamen- tal. As such, lower-for-longer com- modity prices are set to also the BANKING EXECUTIVE 28 ISSUE 147 MARCH 2021