Complex Made Simple

VAT and other Dirhams at work: Any fears for UAE economy?  

Residents of the UAE should rejoice at the news that the country is on a path of growth and prosperity, which will lighten the mood around the 5% VAT that they now have to pay.

Abdullah Al Saleh, undersecretary of the ministry of economy for foreign trade, citing a forecast by the UAE Central Bank, said UAE’s economy is expected to grow at nearly 4% in 2018 helped by more inflows of foreign direct investment (FDI), as well as growth in tourism and travel sectors.

“The country keeps excelling in growth economically and is encouraging foreign investment. We expect a growth of around 2 to 3% in FDI in 2018,” Saleh said.

Both the IMF and Emirates NBD predict 3.4% growth for 2018, following a 3% uptick in 2016, and yet uncalculated figure for 2017, though Bloomberg expects to be at 1.3%.

Saleh said that he expected the non-oil economy, which currently makes up more than 60% of the country’s total GDP, to rise to 80% by 2021.

VAT Dirhams, expected to net the UAE AED12 billion ($3.3bn) in the first year and Dh20bn ($5.3bn) in the second year, will play a role in these projections.

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“The government will be able to launch new projects that will boost growth. VAT is positive for the economy,” said Saleh.

How will Dubai do?

Dubai: Driven

Dubai’s economy is expected to grow by 3.5% in 2018 and 3.7% in 2019, according to Sami Ahmad Al Qamzi, director general, Dubai Economy.

“In addition to hosting the Expo 2020, Dubai has continued to roll out mega infrastructure projects. The cyclical recovery in the global economy and the relative economic slowdown that prevails in the region due to oil price correction and the fiscal controls have been well factored into our growth projections,” he said.

Al Qamzi expects Expo 2020 will introduce 270,000 new jobs that will cater to the influx of some 25 million visitors to the emirate.

“An additional Dh15 billion ($4.8bn) is estimated to be spent on road and transportation for expo related projects.”

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Abu Dhabi: Shock absorbing

Saif Mohammad Al Hajeri, chairman of Department of Economic Development, Abu Dhabi, predicted a growth rate of approximately 3% for the capital by end 2018, aided by 4.2% non-oil growth.

“Despite the instability of the global economy, the Abu Dhabi’s economy has proven that it is capable of absorbing all shocks and dealing with various challenges successfully,” Al Hajeri said.

He also said GDP growth between 2012-2016 reached 4.2% on average in relation to fixed prices helped by non-oil growth of 5.7% on average.

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Oil revenues jump

Bloomberg reported Jihad Azour, head of the IMF’s Middle East and Central Asia Department, as saying: “The non-oil sector both in Dubai and Abu Dhabi is almost growing at the same speed, around 3%. The recovery in Abu Dhabi, which holds about 6% of the world’s proven oil reserves, will be helped by a recovery in oil output in 2018 after the OPEC-led agreement to reduce production caused exports to decline in 2017.”

The IMF expects oil prices to average $53 in the next two to three years. Saudi Arabia and Russia have indicated they support extending production cuts through 2018 to shore up prices.

According to Bloomberg, growth in the UAE has been slowing since oil prices plummeted to below $30 a barrel with authorities in Abu Dhabi and Dubai delaying projects and cutting spending amid the slump.

“With crude recovering to about $55-$60 a barrel in 2017, Dubai plans to increase spending and create jobs, according to its 2017 budget announced in December,” said Bloomberg late 2017.