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Recovery: the future of the UAE lies in diversification

8 October 2020: The United Arab Emirates, like the rest of the world, is re-imagining its economy post-COVID. What might the UAE economy look like once we turn a corner? Increasingly diverse is the answer.

The UAE economy depends heavily on both the flow of international trade and migration. The global pandemic has clearly not helped.

The economy itself is based on three main elements: oil, a migrant-based labour-force, and trade. It is notorious for being a centre of excellence for trade within the region, and it is generally accepted that it connects the east and west as a business hub.

Mazen Houalla, Partner in KPMG Lower Gulf, focuses on the Public Sector in the UAE. He manages federal and local government clients from around the Emirates but largely in Dubai, Abu Dhabi and Sharjah. His focus is on transformation strategy, project management and performance excellence. 

Houalla points out that COVID restrictions vary from one Emirate to another. Dubai took precautions back in March/April with complete lockdown – everything now is back open. By contrast, entry into the Emirate of Abu Dhabi is impossible without a valid PCR (COVID) test, showing you have not contracted the virus, within the last 48 hours. 

While the various measures worked originally, the number of cases is up again. We are seeing this the world over. “The airports have opened, and children have gone back to school in Dubai. That has had a major impact,” says Houalla. “Meanwhile, Abu Dhabi has decided to continue with e-learning.”

The tourism sector has been severely impacted in the UAE. “Closed airports and cancelled flights have had a major impact on the number of people coming in, whether for business or for leisure and tourism,” says Houalla. “Tourism was a key reason for the government’s decision to open the airports and give assurance to the global community that it is taking robust measures to ensure facilities are being sanitised to high standards.”

The UAE’s two major international airlines – Etihad and Emirates – are now seeking efficiencies and, says Houalla, are looking to their partnerships with low-cost airlines to accommodate the reduced demand. There is also a shift towards cargo operations for obvious reasons.

The UAE’s modern economy has been built off the back of its infrastructure projects. It has taken heavy investment for the UAE to become a leader in the region and now neighbouring countries are adopting a similar model but, points out Houalla, the UAE was the pioneer.

He points out that, regrettably, cancelled events, restricted trading and closed airspace do not convey the message to the international community that the UAE is open for business – a message it has worked hard to craft over the last three decades.

However, the UAE is unlikely to sit back. He is quick to remind us that the UAE has traditionally been awash with government initiatives that have built its economy, including free zones, start-up support, investment incentives and the enablement of inward investment. Consequently, and unlike other countries in the region, more than 98% of the total number of companies operating in the UAE contribute 52% of non-oil GDP. This 98% represents the SME sector. Yes, a staggering 98% of all businesses operating in the UAE are SMEs.

This is a clear demonstration of how important the start-up scene, government support and technology are to the future of the UAE economy. Nevertheless, it will not be immune to global economic shock.

That is why the UAE is nurturing its economy through diversification. Infrastructure, education, healthcare, renewable energy – these are all sectors that are all on its list. “Following the pandemic, I think there will be more focus on opportunities for diversification,” says Houalla. “We need to be laser sharp about what sort of industries the UAE needs to focus on, especially if this pandemic continues. Diversification should present an opportunity for the UAE to flourish in the region in particular.”

Of course, COVID will slow down business and investment decisions but there is still much thinking to be done and action to be taken. For example, does the UAE have the right talent to fulfil its future ambitions or, to recover and achieve its diversification plans fully, does it need to act around education?

“There has been an emphasis on the quality of higher education,” confirms Houalla. “Not just on elevating the quality of the teaching but also moving in a different direction. There is a new focus on research and less so on teaching. This is a complete shift for the UAE.”

He continues: “We are also rethinking supply chains and reducing dependency on Chinese manufacturing. We are encouraging the setting up of a good network of manufacturers when establishing a business in the UAE. This goes back to the diversification strategy.”

Houalla points out that there have been increased requests for collaboration and partnership with the UAE – the country is moving on from the old-fashioned model of simply importing and exporting.

But, he says, further diversification is needed, not just in terms of sectors but also investment. The opening up of trade with the State of Israel is a case in point. “I think this will have a very positive impact in terms of the inflow of investment and opportunities. It is an example of measures that need to be taken in challenging times,” says Houalla.

Importantly, he says, the slowdown and the diversification strategy will present opportunities for local talent, especially relating to the jobs of the future. These are bound to be significantly focused on digital.