The package is a massive shot in the arm for the economy, although it will take time for the results to work their way through the system, writes Peter Hellyer
The Dh50 billion stimulus package has injected optimism into the economic landscape
As Ramadan draws to a close, there is a new topic of conversation in coffee shops, majlises and elsewhere. It is not the arrival of the full blast of summer heat and humidity nor plans for Eid but the announcement by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, of a Dh50 billion package of measures to stimulate the local economy.
Simply, they represent a massive shot in the arm for the economy, with the package said to be worth about six per cent of local gross domestic product, although it will take time for the results to work their way through the system. Within the three-year timeframe, the intention is to create at least 10,000 jobs for Emiratis in both the public and private sectors while implementing 10 initiatives to promote growth.
Over the last few years, as oil prices have continued to have an effect on the economy, businesses have been obliged to tighten their belts. Job losses have led to the departure of significant numbers of people, affecting enrollment in private schools and reducing consumer expenditure across the board. Sales of high-value items like cars have been under pressure while shops, both small and large, talk of declining takings, even if footfall has not decreased dramatically. All of that is only partially offset by a decline in rental prices.
Now, however, directions have been given that the government should devise ways for the Dh50 billion stimulus to the economy to be deployed in the most effective way. Within 90 days, the executive council must prepare a plan with detailed initiatives covering infrastructure and legislative projects, small and medium-sized enterprises and industrial and social projects.
“Taken together,” according to one well-informed commentator, Niall O’Toole, of lawyers Clyde and Co, “these could constitute major changes to the fabric of how business is done in Abu Dhabi. Potentially, government departments in Abu Dhabi will need to conduct a root-and-branch analysis of their policies and procedures to ensure that the crown prince’s vision is achieved.”
One part of the overall package alone can make a significant difference – steps to resolve issues related to the slow payment by government-related entities for contracts. Money released in a more timely manner will enable companies to retain rather than reduce staff and will also trickle down very quickly. Too many firms have been put in difficult positions because of delayed payments.
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Two other initiatives, in particular, have caught my eye.
One is the decision to allow for dual licencing for free zone companies so that they can compete onshore on an equal basis for government business. The overall concept of free zones like Abu Dhabi Global Market, TwoFour54 and Masdar might need reviewing but this is clearly a positive step.
The other is the decision that people can now work legally from home without the immediate need to take on expensive, unnecessary office space. The existing rules, in my view, have acted as a barrier to innovation.
Modern technology increasingly allows people to work from home or on a laptop, providing enormous scope for facilitating the establishment of new SMEs that, perhaps, might one day grow into major contributors to the economy. People with years of work experience who have been made redundant or would like to try to establish their own company, qualified housewives unable to take on full-time employment, bright young university graduates with an innovative idea but with little or no capital – all of these can benefit from being able to work from home.
Some of these ideas, I am confident, will prove of interest to the new Abu Dhabi Accelerators and Advanced Industries Council, Ghadan – meaning tomorrow – as it seeks to support value-added investments and technologies that will further grow the local economy.
As I noted earlier, we shouldn’t expect an overnight change in sentiment about the economy. It might be early next year before we really see tangible results.
Now, however, perhaps the most significant benefit of the announcement is the optimism it has injected into what was a rather sombre scene.
Those who have longed for the ability to work from home are dusting off ideas. Companies who have been struggling to cope with delayed payments can now plan ahead on the basis of an improved cashflow.
More than 2,300 years ago, the Greek philosopher Aristotle coined the phrase “one swallow does not a summer make”.
As we enter into our own hot summer, the stimulus package announced by Sheikh Mohammed and the optimism engendered by its announcement suggest that many swallows bearing better economic news might be on their way.
Peter Hellyer is a consultant specialising in the UAE’s history and culture