Reports by doomsayers doing the rounds say that Dubai is becoming a ghost town. The ground realities are far from that. The recession may have its share in impacting the economy, but innovative policies and timely reforms highlight the resilient power of the emirate.
No economy in the world is insulated from recession or growth retardation. Dubai is no exception, though the resilient power of the economy on the strength of timely and proactive reforms has kept the growth momentum intact. Though Dubai depends less on oil income, fluctuations in crude oil prices have its impact on all sectors. The lingering slowdown has its toll on the small and unorganised sectors in the form of unpaid dues for companies, unpaid wages for workers and job losses.
Dubai is among the expensive cities globally in terms of cost of living for expatriate families. Many Indian expatriates have been sending their families back in the wake of increasing cost of living. Rents, both commercial and residential, have been increasing, but is now showing a downtrend and the property market started attracting global investors.
There have been misplaced priorities. When the International Monetary Fund (IMF) advised the Gulf countries to explore revenues other than oil in the wake of the drastic drop in oil prices, they all heeded the “advice” of the multilateral agency to impose taxes on income and trade. Thus, the region saw for the first time a new tax regime and Value Added Tax (VAT) was introduced from January 2018 in Saudi Arabia and the UAE.
Cost of living has gone up. The new tax, increase in government fees and many other charges have negatively impacted businesses. Originally, businesses flocked to the region for the single reason of it being a tax-free regime. But VAT and other indirect taxes started hitting their bottom lines. Perhaps this has prompted the spread of the ‘ghost town’ theory, which is far from reality.
The proactive leadership realised the danger of losing the cutting edge advantage and came out with liberalised rules. The UAE Cabinet has abolished the mandatory bank guarantee of AED3,000 ($817; '55,500) per worker for labour recruitment which has to be paid by private companies, and has replaced it with a new insurance scheme that costs just AED60 annually per worker.
The bank guarantee scheme was introduced in 2001 to protect the interests of foreign workers. Companies employing fewer than 100 workers were required to furnish a bank guarantee for AED3,000 per employee for granting employment visa. Abolishing the bank guarantee will bring down the recruiting cost. On an average an employer has to spend about AED10,000 ('1,83,000) as visa expenses per employee, including this AED3,000 bank guarantee. Now that the bank guarantee system has been abolished, the cost of recruitment will come down to that extent.
A new six-month visa will be introduced for job-seekers who overstayed their visa but wish to work in the country. This temporary visa will enhance the UAE’s position as a land of opportunities, a destination for talent and professionals. The Cabinet also approved a new legislative package, as part of which a two-year extension of residency will be granted to dependents of their parents after finishing their university studies. All these reforms and liberal rules are aimed at retaining the expat population in the country.
Stimulus package
Under the new measures approved, the government will scrap 19 fees related to the aviation industry as it seeks to attract more than AED1 billion ($275 million) of foreign investment into the sector.
Last month, Dubai and Abu Dhabi announced they were exempting companies from administrative fines for at least the rest of the year, as part of efforts to stimulate business growth. Dubai announced in April plans to implement new measures to help boost economic growth, attract new investment and cut the cost of doing business across sectors ranging from tourism to financial services.
The UAE economy is expected to bounce back thanks to the higher oil prices and the various fiscal reforms. Recently announced fiscal boost in terms of higher government spending, reduced fees combined with incremental capital spend related to Expo 2020 will be the key drivers of revival of non-oil economic growth. And Dubai will remain the most attractive job market for Indians, and the most sought-after tourism destination, debunking the ghost town theory.
