Desert Breeze

Economic Stimulus Package

Abu Dhabi unveiled the new stimulus package, Ghadan 21, in effort to counter the post-oil crisis slowdown. While it might be too soon to call for the end of austerity measures, it definitely signifies the leadership's commitment to grow the Emirate's economy.

The announcement of the AED50-billion stimulus package came as a breath of fresh air for Abu Dhabi’s economy. The drop in oil prices in 2014 led to sluggish performances through 2017, and Abu Dhabi has so far witnessed a slow recovery, dubbed by many among government and private sector leaders interviewed by TBY as a “necessary adjustment.” Regardless of the percentage of non-oil GDP contributing to the economy, the correlation between oil prices and GDP growth remains high. Slower growth from oil sector impacting the overall GDP growth and IMF data showed that Abu Dhabi’s oil GDP contracted 2.4% in 2017, with flat growth ahead for 2018 and 2.4 % growth in 2019. But it is not only about numbers. Since 2015, government austerity measures led to a wave of restructuring, layoffs, delays in megaprojects, and increased electricity tariffs at around 30% both for expats and locals. January 2018 saw the introduction of the 5% VAT, which, although a progressive measure per se, has as its short-term effect of further slowing down consumption.

While the Western world was recovering in the years immediately following the 2008 financial crisis, Abu Dhabi was shielded from the harsh realities outside its borders but learnt the value of responsiveness. When the oil crisis hit, the Emirate was quick to respond and laid out a number of strategic visions that, if anything, sought to preserve investor confidence. As such, in a country where government spending has historically acted as the engine of growth, businesses have been silently waiting for an extra push. That push has now been announced under the name of Ghadan 21. Ghadan is Arabic for tomorrow, and Ghadan 21 is a three-year, USD13.6-billion plan encompassing dozens of economic initiatives designed to stimulate Abu Dhabi’s economy. At the heart of the plan are 10 initiatives designed to cover infrastructure, legislative outlines, and social projects aiming to improve ease of doing business, create thousands of jobs, and enhance the work experience of UAE nationals and residents over the next three years. Strategically, the plan features an inward-looking approach aimed at generating money from within the borders, rather than just focusing on increasing FDI.

Based on four main tenets—business and investment, society, knowledge and innovation, and lifestyle, Ghadan 21 follows a previous announcement in 2018 regarding ownership reformations intended to attract higher levels of FDI, which have been on the rise since they last dropped in 2015, but are still short of pre-2008 levels. Among these regulatory updates, Abu Dhabi now allows foreign ownership of companies without an Emirati partner; grants longer visas to some expatriates; issues dual licenses for companies in Abu Dhabi free zones to allow them to work outside the free zones and bid for government tenders, along with permanent home licenses that will exempt the requirement of having an office or work space for two years.
On a macro level, the stimulus package seems a deliberate decision. Prospects of crowding out, when higher government spending leads to an equivalent fall in private sector spending, are bleak: surplus savings in the economy, which the Fed rates hikes have contributed to increase, are a result of a negative output gap that lasted for the past 30 months. More specifically, the stimulus package will directly affect the real estate sector by reducing costs for developers, promoting partnerships between the public and private sectors. Given the importance the private sector plays in the Emirate’s economy, this policy will help move Abu Dhabi in the right direction.

The full scope of the economic stimulus package is yet to be confirmed, but given Abu Dhabi’s recent economic aridity, it surely comes as a breath of fresh air.