No economy in the world is insulated from recession or growth retardation. Dubai is no exception. Though Dubai depends less on oil income, fluctuations in crude oil prices have affected all sectors of its economy. The slowdown took its toll on the small and unorganised sectors in the form of unpaid outstanding dues for companies, unpaid wages for workers and large scale job losses.
Dubai is among the most expensive cities globally in terms of cost of living for expatriate families. Greedy landlords have been hiking rents with impunity, schools have been raising tuition fees, and the generally lower food prices started going up, putting middle class expatriates, who account for almost 85 per cent of the population, in a quandary, caught between inflation and uncertain income. Nobody knows if he will have his job the next day. Large-scale job losses were the order of the day. Thousands of Indian expatriates were forced to send their families back home, who were feeding the huge shopping malls and retail chains.
There have been misplaced priorities. When the International Monetary Fund (IMF) advised the Gulf countries to explore revenues other than oil in the wake of the drastic drop in oil prices, they all heeded the “advice” of the multilateral agency to impose taxes on income and trade. Thus, the region saw for the first time a new tax regime and Value Added Tax (VAT) was introduced from January 2018 in Saudi Arabia and the UAE.
Cost of living has gone up ever since VAT was introduced. Companies were being closed down, debts and defaults mounting, banks’ non-performing assets (NPAs) rising, and defaulters absconding, leaving their employees and creditors in the lurch. Perhaps this has prompted the spread of the “ghost town” theory.
The proactive leadership realised the danger of losing the cutting edge advantage and came out with liberalised rules. The UAE Cabinet has abolished the mandatory bank guarantee of AED3,000 ($817; '55,500) per worker for labour recruitment which has to be paid by private companies, and has replaced it with a new insurance scheme that costs just AED60 annually per worker.
The bank guarantee scheme was introduced in 2001 to protect the interests of foreign workers. Companies employing fewer than 100 workers were required to furnish a bank guarantee for AED3,000 per employee for granting employment visa. Abolishing the bank guarantee will bring down the recruiting cost. On an average an employer has to spend about AED10,000 ('1,83,000) as visa expenses per employee, including this AED3,000 bank guarantee. Now that the bank guarantee system has been abolished, the cost of recruitment will come down to that extent.
A new six-month visa will be introduced for job-seekers who overstayed their visa but wish to work in the country. This temporary visa will enhance the UAE’s position as a land of opportunities, a destination for talent and professionals. The Cabinet also approved a new legislative package, as part of which a two-year extension of residency will be granted to dependents of their parents after finishing their university studies. All these reforms and liberal rules are aimed at retaining the expat population in the country.
Stimulus package
Under the new measures approved, the government will scrap 19 fees related to the aviation industry as it seeks to attract more than AED1 billion ($275 million) of foreign investment into the sector.
Last month, Dubai and Abu Dhabi announced they were exempting companies from administrative fines for at least the rest of the year, as part of efforts to stimulate business growth. Dubai announced in April plans to implement new measures to help boost economic growth, attract new investment and cut the cost of doing business across sectors ranging from tourism to financial services. The UAE economy is expected to bounce back thanks to the higher oil prices and the various fiscal reforms. Recently announced fiscal boost in terms of higher government spending, reduced fees combined with incremental capital spend related to Expo 2020 will be the key drivers of revival of non-oil economic growth. And Dubai will remain the most attractive job market for Indians, and the most sought-after tourism destination, debunking the ghost town theory.
