The Levant News Exclusive – by Mohamad Hassan -Dubai – The UAE is considered the second-largest economy in the Arab world (after neighboring Saudi Arabia) and a regional business hub with economic growth of 1.4% in 2017 and a positive economic outlook in 2018. Moreover, it ranked 16th in the Global Competitiveness Report for 2016-2017. In the last few years, the UAE has diversified its economy depending widely on innovation- and knowledge-driven megaprojects, the hospitality industry, a strong manufacturing base, oil revenues, and a stable political system.
The UAE economy has recorded an overall economic growth of 1.4% in 2017 according to the International Monetary Fund (IMF). Additionally, despite the oil price fall (oil revenues account for 25% of total GDP), the UAE, thanks to its diversified economy and ample foreign assets, has been affected slightly. It has improved its ranking in the 2017 Global Innovation Index (GII), topping the Arab world and ranking 35th globally as one of the world’s most innovative countries. An analysis conducted by the First Bank of Abu Dhabi (FAB) concluded that UAE’s banking system remains the big banking system in the Gulf Cooperation Council (GCC) with regard to assets in the first half of 2017.
The IMF has forecast an economic growth at the rate of 3.4% in UAE gross domestic product (GDP) in 2018 supported by massive foreign investment and 19.5% increase of spending in the 2018 state budget (with the help of partial recovery of oil prices) in preparation for World Expo 2020 in Dubai, which is expected to attract 25 million visitors (70% overseas). As Jihad Azour, Director of the IMF’s Middle East and Central Asia Department, stated: “Economic diversification efforts of the UAE led by both Dubai and Abu Dhabi and some of the efforts at structural reforms are getting reflected in economic growth outlook of the UAE next year.”
The Ministry of Economy reported that value-added tax (VAT) is not expected to have a significant effect on economic growth and the population. The inflation rate is projected to increase to 2.9% in 2018 as a result of the VAT but is forecast to moderate after that. Additionally, sharp increase in prices is not likely due to the effective scrutiny system and low consumption rate after the new tax system.
VAT implementation has come into effect (excluding free zone companies) since 1st January at 5%, including goods and services, with limited exemptions such as basic food items, public transportation, healthcare, and education.