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The United Arab Emirates, or UAE, doesn’t like to talk about its flagging economy. The wealthy emirate of Dubai is particularly in trouble. In 2018, the prices of luxury apartments in its posh Jumeirah Beach Residence district were down 15 percent from a year ago, a clear indicator of recession.
The country’s stock market has also slid 13 percent. But perhaps the most telling fact is that Dubai only issued 4,722 new business licenses in the second quarter of 2018, which is down more than 25 percent from two years ago, when new licenses were at an all time high.
Emirati officials say that the slump is temporary and that the economy will recover once oil prices increase. But some experts are forecasting a long-term slump. They note that while Dubai’s population was expected to expand to over 3 million people this year, most of the newcomers were low-wage workers in the construction or service sectors.
Hasnain Malik, a Dubai based global head of equity research and strategy at Exotix Capital, said that its clear that Dubai’s transport industries and business zones aren’t attracting or retaining enough foreign white-collar workers to support the real estate market.
The fact that 90 percent of Dubai’s population are foreigners is also worrisome, since in many sectors, losing a job often means leaving the country. And the uptick in people leaving has severely impacted the real-estate sector. With a massive supply of homes, yet little demand, real-estate prices have dropped considerably.
Dubai’s retail companies are also downsizing to avoid going out of business. The reason is clear: fewer people are shopping in the city, and those that do are more cautious with their spending than in previous years. Tourism is also in trouble due to a surplus of hotels.
“The competition is now so cut-throat, some hotels are even charging less than what is needed to break even just to stay in the game,” an Indian hotel owner told Asia Times.
Nobody who spoke to the Asia Times revealed their full names, citing the lack of freedom in the emirate and the sensitivity around the issue of the economy.
That said, most complained about shrinking wages and rising prices, which is due to a 5 percent value added tax which was imposed at the beginning of 2018. Two years earlier, a 3 percent municipality fee and a 10 percent hotel tax on tourists was added. These taxes have compounded the challenges for low-wage workers.
“They said, you come here, you’ll make a lot of money,” a taxi driver named Kasir told Asia Times. “But it’s not true. It’s a hard life, working all the time and then at the end, after you spend on rent, on food, on fuel and give the taxi company its share, you have nothing left.”
Dr. Abdulkhaleq Abdulla, a prominent Emeriti political scientist speaking from Dubai, argues that the economic recession is exaggerated. He states that the emirate has one of the most diverse and mature economies in the region. He told Fanack Chronicle that Dubai’s economy is competing with New York and London and that any recession is part of a natural cycle for any vibrant economy.
“There is a slide in the economy now, but I don’t think it warrants a great deal of concern,” Dr. Abdulla said. “The decline is due to regular economic principles, regional tensions, and war.”
The UAE is nonetheless trying to alleviate the pitch. On November 27, Abdu Dhabi announced that it would suspend economic license fees for two years, waive the municipal fees on 75 services and reduce other fees by 10 to 15 percent. The slashes only apply to corporate business and reportedly took effect on December 1.
While businesses in Abu Dhabi should benefit from the move, the International Monetary Fund (IMF) predicts Dubai will recover faster by next year, in time for the city hosting the Expo 2020 event, just as Dr. Abdulla predicts.
Time will tell. But by the UAE’s own measure, the country has taken drastic steps to try and revive the economy. In May 2018, it even allowed foreigners to own their businesses in Dubai or Abu Dhabi without having a local partner. Some foreign professionals are now eligible for a 10-year residence permit, which was never possible before. The decision, pundits say, is part of a broader shift in the Gulf Cooperation Council to move away from fossil fuels.
“The U.A.E. needs to keep pace or stay ahead if it doesn’t want to lose its competitive advantage,” said Khatija Haque, the head of Middle East and North Africa research at Emirates NBD, Dubai’s biggest bank. “When oil was at $100 a barrel for several years there wasn’t that much need to attract foreign investment. Clearly that has changed.”
In 2017, the UAE generated more than $10 billion in direct foreign investment, which is the highest of any Arab country. Yet the rulers of the UAE are aware that more investment is needed to compensate for low oil prices, which is why a special unit in the economy ministry was established. The unit was established via presidential decree and is tasked with luring foreign investors. It has already ordered to treat foreign companies like national ones, hoping to significantly reduce red tape.
One UAE developer, who told Bloomberg that he was waiting for the market to improve before starting a $4 billion project in the country, predicts the economy will flag for another few years despite attempts by UAE officials to improve the economy quickly.
“The government is aware of the challenges and the rulers are prioritizing economic development,” said Waleed Zaabi, the chairman of the closely-held Tiger group. “This is positive. But rents are down 30 percent since 2016 and it will take two or three years before prices increase.”
Zaabi added that one strategy that the UAE could adopt is to provide permanent residence to Arab property buyers who have come to the UAE from politically repressive or fractured countries like Iraq, Syria and Egypt. He stresses that dozens of employees have left his company in recent years to go to Germany or Canada, despite taking a considerable cut in their paycheck. “It would benefit the U.A.E. to examine these immigration laws,” Zaabi said. “Some middle-class Arab professionals are moving to countries that extract almost half their salaries in taxes in return for education, health care and a path to citizenship. Many would prefer to stay here.”