Abu Dhabi and Dubai currently make very different contributions to their respective GDPs because the specific sectors targeting foreign direct investment (FDI) differ greatly. As for the other 5 emirates, they fill the economic gaps in between, be they in manufacturing, real estate, logistics, hospitality, trading, or free zones, taking advantage of their lower cost base in doing business, and offering more affordable cost of living. There have been various economic reforms over the past few years, both at federal level and at emirate(s) level, in order to facilitate the flow of capital and open up the economy to more FDIs. The UAE recently implemented long-term residency visas called “golden visas” which are valid for ten years, and allow expats to live, work, and retire in the country. Registering companies has become easier, and many of the restrictions to setting up businesses, such as the pre-requisites to have a national sponsor or a partner, have been removed.
Furthermore, the UAE has taken deliberate steps recently to position itself as a safe haven for investment with a variety of measures to build confidence in attracting FDIs. This was clearly aided by the country’s brilliant pandemic response, particularly in Dubai. When the globe was shut for business, the UAE found a window to open the economy whilst still protecting the population through a massive vaccination roll-out campaign. In January 2023, the emirate of Dubai announced a rather ambitious, yet well-articulated USD 8.7 trillion plan to double the size of its economy by spurring trade and investments over the next decade. As many as one hundred transformative projects have been identified, with already more than 300,000 investors on board. The ultimate aim is to attract over USD 17 billion in FDIs annually for the next ten years. A series of privatization by Initial Public Offerings (IPO) of five successful public companies took place in 2022, raising USD 2.65 billion.
The United Arab Emirates’ real estate market saw a gainful year despite a global slowdown, benefiting from the implemented reforms and the geopolitical events, particularly the Ukraine war. People have pointed to the UAE, where everyone was welcome, as a safe haven to invest, and a conducive place to live, work and do business. There is quite a lot of development going on at the luxury high end of the real estate market with frequent launches of new residential projects. Prices for this niche sector are quite resilient and can be rather inelastic. The mid-level or mid-tier real estate segment will face challenges in the medium term due to potential over-supply. Dubai boasts of having more than 140,000 hotel keys, and judging by the current ongoing hotel projects, this number will grow to 195,000 hotel keys by 2026. It is estimated that Dubai would need to have an additional five million tourists per year to maintain a 60% occupancy across all its hotels. The World Expo that was held in Dubai just after the pandemic was very successful and attracted a large number of visitors including investors, hotel operators and developers.
Interestingly, the demographics of FDI are changing in the UAE. Historically, there was a lot of money inflow from GCC countries, mostly Saudi Arabia and Qatar, and India. Less inflows came from countries of the MENA region, Eastern Europe, and Russia. In post pandemic times and during the war in Ukraine, most of the investments particularly in real estate are now coming from Russia, Ukraine and India, and to a lesser extent from China, Azerbaijan and their neighbouring countries. The devaluation of the Euro and the Pound Sterling against the USD have resulted in less investments recently from EU countries and the UK.
While the UAE may prevail and beat expectations in the short term, a correction course, particularly in the real estate market is likely to happen as the UAE cannot be insular from adverse global events in the medium to long term. Over the span of one year until November 2022, Dubai residential market prices rose by 9.5%. Triggered by the war in Ukraine, the globe is most likely heading into a recession with many countries facing rising levels of unemployment, downturn in economic activity, negative GDP growth, massive inflation, falling retail sales, high interest rates, and contracting measures of income. That being said, the UAE remains a haven of stability, a welcoming destination, a safe environment, and offers a peaceful coexistence among its more than 150 nationalities.
