The Growth Forecast

The UAE Central Bank (CBUAE) in its December report projected a stronger economic growth of 4.2% in 2022 more than the previously estimated 3.8%. The UAE’s economic recovery is expected to strengthen further in 2022 and the country’s banking system can support the financial system and its growth, CBUAE said.

The banking regulator convened a meeting with chief executives of national and foreign banks based in the UAE on Thursday, 16th December 2021 and remarked just after the meeting saying that the Emirates’ banking sector also demonstrated resilience amid the covid 19 pandemic, helped by the CBUAE’s Targeted Economic Support Scheme (TESS).

The ongoing support of the local financial system by the CBUAE through the Tess scheme was welcomed by the chief executives.

Rapid and widespread Covid-19 vaccination and testing drive for mitigating the pandemic

played the most vital role in strengthening the economic growth rate, the CBUAE 2021 second-quarter review reported.

The UAE celebrated the Golden Jubilee of the Union in 2021. “Looking ahead, expectations on the role of the banking sector will increase further,” remarked H.E. Khalid Mohammed Balama, governor of the CBUAE.

The governor emphasized saying “The banks will be expected to contribute significantly to our nation’s far-reaching and ambitious agenda, and to become leaders not only in the region but also in the global financial industry.”

The Tess scheme has supported the banks in liquidity management during the economic crisis caused by covid 19 as the CBUAE provided a stimulus package of Dh 100 billion consisting of a direct Dh 50 billion fund infusion through collateralized loans at no cost.

Earlier, during October 2021 the Chairman of the UAE Banks, Abdulaziz Al Ghurair highlighted that the banking assets of UAE are expected to grow by 8 to 10% in 2022 as the country’s economy continues recovering from the pandemic-led slowdown and benefitting from hosting Dubai Expo 2020.

CBUAE stressed that the banks in UAE need to endeavour actively towards achieving full compliance with Consumer Protection Regulations and Standards as these measures would boost consumer trust in the banking sector and positively impact the UAE banking industry and the national economy.

Other Positives

UAE is all set to witness a steady increase in government’s public spending, improved credit growth, higher employment and better business sentiment in 2022, the CBUAE predicts.

The economic activities in the non-oil private sector registered faster growth during December 2021, the IHS PMI data showed. Data also revealed that increased new order booking continued to support the expansion of economic activities in this sector.

Crude oil price gained almost 60% in 2021 and has been found moving higher during the first three trading weeks of 2022. More than 5% gains were registered by the global benchmark indices including Brent and WTI in the first week of the year taking oil prices to their highest since November 2021.

“Year-on-year residential real estate sales prices in Abu Dhabi rose for a third consecutive quarter, following five years of decline while declining in Dubai at a marginal pace. Both, the dirham effective nominal and real rates depreciated on a year-on-year basis due to lower inflation compared to main trading partners and in line with the US dollar trend,” the central bank highlighted.

Data released by the CBUAE also revealed that total bank deposits increased on both a yearly and quarterly basis. The rate of yearly Gross credit contraction also eased and registered moderate growth.

CBUAE also reported that on the back of economic recovery, financial soundness indicators remained mostly satisfactory.

Reforms- The Growth Enablers

2021 remained the year of reforms for UAE and the country, the 2nd largest economy in the Arab world witnessed numerous policy and administrative changes in legal, economic and social structures. All these reforms focused on enhancing the country’s business landscape, boosting foreign fund flow, acquiring high skilled professional and technical talents and providing incentives to companies for doing business in Dubai and UAE as a whole.

Some important reforms included changes in personal and labour laws, widening of longer-term residency visa rules, granting of 100% foreign ownership for onshore companies and very recently, the changing and shortening of workweek schedules in alignment with major economies in the world.

The cabinet also approved new regulations concerning industrial property law to further promote the intellectual property rights and patent registration process.

The new industrial property and patents law assumes particular importance in providing benefits to investors and academic institutions. R&D facilities, SMEs startups and technology companies are going to benefit the most.

All these reforms are designed for improving the business, investment and overall economy of the country. Garbis Iradian, Chief Economist, International Institute of Finance remarked, “New regulations could further help increase foreign direct investment to around $26 billion in 2022, one of the highest in terms of GDP among emerging and developing economies.” He also emphasized, ” These measures will boost efforts to diversify further the UAE’s hydrocarbon dependent economy, improve the business environment, make the economy more competitive and efficient, and thus raise potential growth.”

“In 2020, World Bank ranked the UAE among the top 16 countries out of 190 countries in terms of ease of doing business. I expect the announced measures or approved new regulations will improve further the UAEs business environment and rank the emirates among the top 10 best countries in the World in terms of ease of doing business by 2023. The manufacturing and trade sectors will benefit most,” the Chief Economist commented.

Dubai Budget 2022

Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, approved a general budget for the fiscal cycle of 2022-2024 with a total expenditure of Dhs 181 billion. Dhs 59.95 billion expenditure has been budgeted for 2022 with an operating surplus of Dhs1.8 billion representing 3% of the expected total revenue.

The Dubai Government continues its journey to realize its future goals of an accelerating economy and enhancing its business competitiveness by consolidating its position as a leading global commercial hub to attract foreign investors for company formation in Dubai.

The Takeaway

Besides CBUAE, most of the industry experts, entrepreneurs and financiers are very upbeat about UAE’s stronger economic growth in 2022 in light of the Expo and growth in the real estate, banking, finance and tourism sectors compared to the previous years. The government has also done lots of positive work in the last 12 months in terms of regulatory reforms and investments in the economy.

UAE with its world-class infrastructure, business-friendly policies, rich and attractive social life and the credible labour market is expected to attract high levels of FDI flow in its economy. The UAE authorities have been relentlessly striving for a diversified and knowledge-based economy and continuing its focus on a broad range of policy reforms, clean and renewable energy, innovative technologies and the fourth industrial revolution to accomplish socio-economic goals.

On 18th February 2022, India and the United Arab Emirates (UAE), entered into a Comprehensive Economic Partnership Agreement (CEPA) and signed a wide-ranging trade and investment pact, that is set to benefit almost 90% of trade, both exports and imports, between the two nations and boost bilateral trade to more than $100 billion over the next five years.

In a meeting held virtually, the Prime Minister of India and the Crown Prince of Abu Dhabi, and Deputy Supreme Commander of the United Arab Emirates (UAE) Armed Forces, mutually agreed on a futuristic partnership roadmap between the UAE and India for broader economic cooperation. The two countries agreed to work together and address shared global challenges to achieve shared objectives of development and promotion of new trade and investment.

The CEPA was the first bilateral trade accord concluded by the UAE and was also the first for India in the MENA region and was concluded in a record time of just 88 days.

The pact will come into force by May 2022 and the provisions of CEPA will be implemented once the relevant constitutional legalities are put in place by the two countries.

INDIA AND UAE ENJOY STRATEGIC BUSINESS PARTNERSHIP

India is the second-largest trade partner of the UAE, accounting for 9% of the UAE’s total foreign trade and the number one trading partner for non-oil exports, accounting for nearly 14% of total non-oil exports. The UAE, on the other hand, is the third-largest bilateral trade partner of India. The bilateral trade between the two nations is expected to surpass $60 billion in the current financial year.

According to an estimate by the Indian Embassy in the UAE, the UAE’s cumulative investments in India are about $17-18 billion, of which more than $11 billion is in the form of FDI. While India mostly invested in the coal, oil and gas and real estate sectors, the FDI inflow from the UAE has primarily been in the real estate and ceramics and glass. The UAE is the eighth biggest foreign investor of India and its future investments in India are expected to flow in healthcare, infrastructure, and renewable energy sectors.

KEY FEATURES OF INDIA UAE CEPA

STRINGENT RULES OF ORIGIN

The trade pact between India and UAE has enforced stringent rules of origin conditions, with 40% value addition needed on exporting items to prevent routing of products manufactured in third countries to India via UAE.

As per government officials, there is a need for substantial processing of up to 40% value addition under this trade deal and a certificate of origin issued by the Ministry of Economy, UAE. Some high-valued items are kept out of these stringent value-addition requirements.

The deal also incorporates a permanent safeguard mechanism to address issues with a sudden surge in Indian imports.

TARIFF ELIMINATION AND ZERO DUTY ACCESS ON A RANGE OF ITEMS

The trade deal will eliminate 80% tariffs on Indian and Emirati goods, and 100% tariff elimination will take place within 10 years. The pact will provide the UAE zero duty access to 90% of India’s exports to the country in value terms.

Indian products set to benefit are gems and jewellery, textiles and pharmaceuticals while on the UAE side, commodities like aluminum, copper, and petrochemicals are set to benefit from the removal of tariffs.

ONE MILLION JOBS FOR INDIAN LABOUR-INTENSIVE INDUSTRIES

CEPA is expected to generate one million jobs for Indian labour-intensive industries including textiles, gems and jewellery, leather, footwear, sports goods, pharma, plastics, furniture, agricultural items and automobiles. Besides goods, CEPA will also include 11 service sectors and more than 100 sub-sectors that would benefit from the pact including construction, education, tourism, computer-related services, health, travel, nursing, engineering, finance among many others.

India-UAE CEPA will provide automatic registration and marketing authorization of Indian generic medicines within 90 days if approved by FDAs of developed countries including the USA, Japan, EU and UK.

AGREEMENT ON LIBERALIZED VISA REGIME FOR INDIANS

Under India UAE CEPA, a liberalized visa regime for Indians has been agreed including a three-year visa for intra-corporate transferees and a 90-day visa for business visitors and contractual service suppliers from India. The 90-day visa is extendable for contractual service suppliers.

THE NEGATIVE ITEMS AND SECTORS

Some items including dairy, fruit, cereals, vegetables, tea, coffee, tobacco, dyes, soaps, footwear, petroleum, tyres, toys, aluminum scrap, copper, processed marble, among others, have been kept out of the trade pact with the UAE by India. These are part of the negative list of items with a purpose to protect the domestic industry.

Some areas where manufacturing has been robust and sectors wherein the government has introduced production-linked incentive schemes (PLI SCHEMES) have also been put on the negative list,

AGREEMENTS AND MOUs OF INDIA UAE CEPA

The partnership between the two countries has resulted in joint work on several agreements and Memorandum of Understanding (MOU) in different areas as outlined below.

Economy

Some of the economic partnership agreements include establishing a dedicated India Mart in Jebel Ali Free Zone, enhancing investments in infrastructure projects for both countries, establishing a dedicated investment zone for UAE companies for doing business in India, and establishing a food corridor to boost food processing in India.

The partnership also calls for exploring investment opportunities for Indian investors in establishing specialised industrial advanced technology zones and initiating business setup in Dubai,  Abu Dhabi and other free zones, in areas of logistics & services, pharmaceuticals, medical devices, agriculture, agri-tech, steel and aluminum.

Security and Defence

The bilateral partnership in this area includes

sharing of experiences, training and capacity building, and defence exchanges and maintaining regional peace and security.

Education

India will set up an IIT in the UAE and for the first time outside India.

Energy and Renewables

The partnership agreement includes collective efforts in attaining the global energy transition in future with the ongoing investment from UAE in India’s renewable energy sector.

Recognising the immediate need for climate action, the two countries agreed to strengthen cooperation for facilitating the implementation of the Paris Agreement. Working closely with the International Renewable Energy Agency (IRENA) and the International Solar Alliance (ISA) has also been part of this agreement besides establishing a joint Task Force for the production of Green Hydrogen.

Advanced Technology

The two sides agreed to collaborate and expand emerging technologies and promote e-businesses and e-payment solution platforms. The agreement also reached on promoting startups and focusing on areas such as agritech, prophecy, fintech, edutech, health care, logistics and supply chain and chip design.

Other Areas

The two countries entered into partnership agreements in other areas including International Corporation, Health Cooperation, Food Security, Skills and Cultural Cooperation.

MOUs

Two MOUs reached are

• MOU between India’s Gift City (IFSCA) and Abu Dhabi Global Market (ADGM)on financial space including projects and services
• MOU between India’s Agricultural and Processed Food Products Export Development Authority (APEDA) and the UAE’s DP World and Al Dahra on Food Corridor as a food security agreement

CEPA BENEFITS – INDIA

1 Greater access to the GCC and North African markets including markets in Europe and the Commonwealth of Independent States (CIS)

2. Increased business prospects for ready-made apparel and jewellery exporters

3. Cheaper imports of gold and plastic due to reduced tariff

4. Access to certain European countries and Africa

5. Increased Access to 40 free zones in UAE

CEPA BENEFITS- UAE

UAE’s economy is expected to grow by 1.7% in 10 years with a value of $9 billion with this CEPA with India including increased exports by 1.5% amounting to $7 billion, increased imports by 3.9% amounting to $14 billion, and increased employment, generating 140,000 new high-skilled job opportunities.

CONCLUSION

The CEPA between India and UAE is a win-win deal and has spread waves of new hopes amongst the stakeholders across industries of both countries. UAE’s strategic location is all set to open new trade vistas and Dubai company incorporation.