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The foreign ownership law should boost FDI prospects from a low base, as FDI stood at just $10.3 billion (2.7 per cent of GDP) in 2017, but the scope of deregulation is critical. The UAE authorities introduced a landmark law that will allow, by year-end, foreign investors to own 100 per cent of companies in the UAE in specific industries deemed essential, up from 49 per cent previously. Decision on sector inclusion will likely be based on factors such as potential for job creation and technology transfer, and will likely exclude sensitive sectors such as defense. Currently, foreigners are able to fully own a company in designated free-zones. The appeal of free-zones could thus be diminished somewhat, although we note that such zones also benefit from tax, law and regulatory advantages.
The new UAE long-term and temporary visa system should facilitate retention of white-collar expatriates. As we expect longer-term visas not to be linked to continued employment, this may increase expatriate incentives to acquire property and support real estate demand. This would support consumption and reduce remittance outflows (Dh129 billion or 9.3 per cent of GDP in 2017). Improved prospects for human capital accumulation could modestly raise medium-term non-hydrocarbon potential growth.
The introduction of a new insurance scheme for workers' guarantees is likely to provide a one-time boost to corporate profits. However, the timing of implementation remains unclear. Also, corporates may choose to hoard cash rather than invest at this stage. Should corporates invest, we estimate this could lead to a one-off 0.1 per cent boost to the UAE non-hydrocarbon real GDP growth.
Dubai authorities reduced the fee on total sale value for hotels from 10 per cent to seven per cent, modestly improving the competitiveness of the hospitality sector. Dubai authorities waived 19 fees imposed on the aviation industry and aircraft landing permits. Authorities also waived a four per cent fee on delays in property registrations imposed by the Dubai Land Department. Authorities reduced the market rate (municipal charge on businesses) from five per cent to 2.5 per cent. Plans to freeze private school fees for a year were approved.
The 2018 Dubai central government budget appears expansionary in pursuit of implementation of Expo 2020 commitments. Compared to fiscal surpluses realised over 2014-2017, the 2018 budget pencils in a deficit of 1.55 per cent of GDP (Dh6.2 billion). Budgeted spending is targeted to increase by 19.6 per cent, with infrastructure spending targeted to increase 46.5 per cent to stand at 21 per cent of total. Budgeted revenues are targeted to increase by 12.5 per cent due to Dubai's share in VAT and excise dues, and higher fee revenues. "While there are a number of uncertainties surrounding meeting tourism targets and spending forecasts, we estimated Dubai Expo could raise Dubai's GDP growth over the period of the fair in 2020-21 by 2ppt through higher job creation, consumption and tourism flows," Bank of America Merill Lynch said.
Abu Dhabi authorities approved a Dh5 billion (six per cent of Abu Dhabi GDP) three-year stimulus package. A working plan for allocations would be drawn up within 90 days. "While we await full details to pass judgment, we estimate the stimulus could add 0.4ppt annually to Abu Dhabi real non-hydrocarbon GDP growth (equivalently, 0.2ppt to UAE real non-hydrocarbon GDP growth). The annual stimulus fiscal cost of $4.5 billion should be financeable in the context of high oil prices. Adnoc also recently announced a five-year investment plan of Dh165 billion to expand downstream capacity alongside global partners, which, if realized through domestic rather than overseas investments, could add annually a further 1.1ppt to Abu Dhabi real non-hydrocarbon GDP growth," Bank of America Merill Lynch said. -issacjohn@khaleejtimes.com
Customers can earn miles with every purchase made with any linked payment card across all Union Coop stores and online
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