The economic climate in the Middle East has slowed. There is no escaping that reality; the fall in crude and wider political instability has lead to a slow in growth of the UAE private sector. Newly released research by the Emirates NBD Economy Tracker Index indicated that private companies in the region have displayed the first decline in operating conditions since data collection began in 2010. The decline is not exclusive to one particular industry, nor one particular area, with tourism, retail and construction all affected.
Many argue that this is a time for reconsideration, a readjustment to the glory days of high crude prices and a tourism boom to the UAE. However, the UAE is battling on. Unlike other Gulf states who have announced spending cuts and adjustments to their credit ratings, the Dubai Government announced in December 2015 a 12% rise in its budget for 2016, following on from a 9% increase the previous year. With the Governments’ commitment to spending on infrastructure, transport and economic development there will be an increase by roughly the same amount, which in turn will provide a boost to the many contractors and service companies who rely on the pipeline of future projects remaining strong.
This projected optimism is somewhat reflected in the private sector, despite the slow in growth, with the UAE Banking Federation putting together packages to support the SMEs in financial difficulty, including the suspension and restructuring of future payments. The introduction of a long-awaited bankruptcy law will no doubt assist these efforts, and provide support to businesses that may not be able to ride out the changing economic climate without additional support.
That being said, it is certainly not going to be an easy year for the economies of Dubai and the wider UAE. As noted, external headwinds, such as the low oil price, regional instability and the strong US dollar will all play their part to make life difficult for the Emirate’s companies. But if, as expected, the UAE’s economy grows by between 2.5-3% this year – compared to a projected average of 3%, that would be an impressive performance in the current circumstances, and signal that this shift is merely passing, and not an indicator of worse to come.