Subdued domestic and external demand combined with regional tensions created a challenging economic environment for Dubai in 2019.
The UAE’s growth, however, was notably higher than the regional average, with the national economy expanding at an estimated 1.6% and Dubai’s slightly higher at 2%.
Growth in the emirate was supported by a series of regulatory reforms and strong performance in a number of key sectors. Tourism, for example, brought in an estimated 16.7m foreign overnight visitors in 2019, an increase of 5.1%, substantially bolstered by a rise in Chinese arrivals.
See also: The Report – Dubai 2020
Macroeconomic changes in 2019 and expected shifts for 2020
The UAE experienced deflation of 1.5% in 2019, but is expected to reach an inflation rate of 2.8% in 2020.
In light of the lower-than-expected growth in 2019, Dubai’s government has announced an expansionary budget of $18bn for 2020, representing a 17% increase on 2019. Some of the increased spend is allocated towards Expo 2020 – itself set to provide a major fillip to the emirate’s economy in 2020.
In business terms, there was a 90% rise in the number of business licences issued by the Department of Economic Development in 2019, totalling 38,377. The top-three nationalities receiving these licences were citizens of the UK, Saudi Arabia and India.
The body interpreted this sharp increase, particularly of foreign businesspeople, as an indicator of the emirate’s economic competitiveness, as well as a result of extensive Expo 2020 preparations in the tourism and hospitability sectors.
Regulatory changes have played an important role in fostering business activity throughout 2019 and into 2020.
The UAE’s foreign direct investment (FDI) law, which came into force in October 2018, is one such example. The new law allows for 100% foreign ownership of local firms – up from 49% previously –across 122 economic activities in 13 sectors of the economy, including ICT, renewable energy, health and education.
In addition, it stipulates that each emirate is able to set its own percentages for foreign ownership according to its own economic requirements.
Another important regulatory change in 2019 came in the form of the new insolvency law, which was passed by the UAE Cabinet in November 2019 and entered into force this January.
The law allows debtors to settle their financial obligations by facilitating mediation through a court-approved process and the introduction of congressional loans, thereby boosting recovery rates by aiding debtors with their repayments.
It is hoped that the introduction of institutional support structures such as this will encourage risk-taking among small and medium-sized enterprises in Dubai and the wider UAE.
Innovation and the digital economy
Long a regional centre for the digital economy and consistently ranked as the most innovative city in the region, Dubai’s tech ecosystem and wider digitalisation initiatives continued to evolve throughout 2019.
It is now considered one of the world’s top-10 financial technology (fintech) hubs. The Dubai International Financial Centre noted that in the first half of 2019 the emirate’s fintech ecosystem grew from 80 to 200 companies and the number of registered companies rose from 35 to 80.
This growth has been founded on a number of recent government policies. In April 2019 the UAE Cabinet adopted its National Artificial Intelligence (AI) Strategy 2031 with the goal of positioning the country as an AI leader globally.
The strategy will foster policies focused on developing AI in fields as varied as customer service, human capital training, research and data-driven infrastructure.
Boosting e-commerce growth
The UAE has been labelled the most advanced e-commerce economy in the MENA region, with a penetration rate of 4.2%. While this is still low compared to more advanced markets such as the UK this has been growing steadily in recent years and demonstrates that significant room for expansion remains. In nominal terms, a recent study estimated e-commerce in the UAE reached AED16bn ($4.4bn) in 2019, and contributed AED3bn ($816.9m) to government revenue.
To further bolster this growth, last September Sheikh Hamdan bin Mohammad bin Rashid Al Maktoum, Dubai’s crown prince and chairman of Dubai Executive Council, launched a new e-commerce strategy designed to boost FDI and assist Dubai-based firms in expanding their local and regional distribution capabilities. The policy looks at possible ways to reduce the costs of e-commerce for stakeholders by up to 20%, in light of a full review of associated costs including warehousing, value-added tax, transport and Customs fees.