The UAE should relax foreign-ownership restrictions, foster public-private partnerships and concentrate on innovation to attract more investment and cope with low oil prices, a senior IMF official has said.
While the UAE remains the most diversified economy in the region, it has to do more to continue this process, as oil prices are forecast to remain low.
“There are areas in which they [the UAE] could continue to take action,” said Masood Ahmed, the IMF’s Middle East and Central Asia department director.
“Among these, the main ones are efforts to try to improve the public-private partnership framework, relaxing restrictions to foreign ownership and continuing the promotion of innovation, which they are already doing, including through some of the financing tools, easing access to finance for start-ups and SMEs.”
The UAE is targeting foreign direct investment (FDI) to make up 5 per cent of GDP by 2021, according to Sultan Al Mansouri, the Minister of Economy.
FDI in the UAE was last year stable at US$11 billion, despite low oil prices and geopolitical uncertainty in the region, according to the United Nations Conference on Trade and Development.
The UAE is also aiming for innovation to account for at least 5 per cent of GDP by 2021, according to Mr Al Mansouri.
With regard to public-private partnerships, Dubai has introduced a law to foster greater involvement of the private sector in government projects, which were mostly financed from the fiscal budget. The model has been used to build independent power plants in Dubai and Abu Dhabi.
The IMF kept the UAE’s growth forecast at 2.3 per cent last week. Its economy grew by 4 per cent last year. The Abu Dhabi economy is forecast to grow 1.5 per cent this year, down from 4.3 per cent last year; and Dubai is projected to grow 3.3 per cent this year, compared with 3.5 per cent last year, the IMF said.
The UAE economy continues to be affected by low oil prices, which have recovered since January but are still at slightly more than half the level they were at in 2014.
A new factor that will influence growth in the UAE is Brexit, Mr Ahmed said. “The upward effect of higher oil prices is more or less offset by the lower effect from Brexit.”
The UAE, particularly Dubai, relies on UK investment and tourists to fuel its economy. Britain remained in Dubai’s top three tourist source markets last year, with numbers growing by 11 per cent to about 1.2 million visitors.
The UAE economy’s diversified nature means it will also have to grapple with headwinds from wobbly global economic growth.
“The UAE has become a regional hub in some ways for trade, transport (and) logistics that have served it very well. These are all strengths it can build on,” Mr Ahmed said. “The challenge for the UAE is that it is going to need to continue the process of diversification, and it has to do that in a global environment that has more uncertainty, and where the economic outlook in many parts of the world remain quite modest for years to come.”
Last week, the IMF cut its world economic growth forecast after the UK’s vote to leave the European Union, with better-than-expected performance earlier this year giving way to a more pessimistic outlook.
It now forecasts the world economy to grow by 3.1 per cent and 3.4 per cent, respectively, this year and next, 0.1 percentage points lower than forecasts made in April.
Follow The National’s Business section on Twitter