The business landscape has been dampened by new taxes and slumping asset markets.
A decree by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum cancels fines imposed by the Department of Economic Development through the end of 2018, the DED announced on Tuesday; over 60 different fines, some worth thousands of dollars, are levied for commercial violations.
Omar Bushahab, head of the DED’s business registration section said that this decree is a positive step in promoting economic growth and consolidating Dubai’s position as one of the important commercial and economic centres internationally, according to Reuters.
The International Monetary Fund (IMF) expects GDP to exceed three per cent this year as Dubai is showing growth, in part due to Government spending in preparations for Expo 2020 Dubai.
However, some businesses have felt the pinch by the introduction of five per cent value-added tax (VAT) across the UAE at the start of 2018. Geopolitical tensions and an unstable Iranian riyal threaten Dubai’s role as a center for Iran trade, Reuters said.
The residential property market is slumping with prices down by 4.2 per cent from a year earlier in the Q1, according to a central bank report released on Tuesday. The drop has hurt the stock market. Dubai is one of the region’s worst performing markets with DFMGI down 13 per cent year-to-date.
The Government announced it would not raise official for three years to keep the economy internationally competitive in March. Last week, the cabinet announced that it would grant 100 per cent foreign ownership to UAE-based businesses and grant 10-year visas to foreign investors and certain professionals.
Details of the reform remain unclear which could have a long-term effect on luring foreign investment.
It is not certain if foreigners will need to remain employed to hold the new 10-year UAE visas, as is the case with current, shorter-term visas. If that requirement persists, many foreigners may remain reluctant to buy homes and there may be little benefit for Dubai asset prices, Reuters said.
The free zones within Dubai already allow 100 per cent ownership and have attracted substantial investment, but the question remains regarding how these would be disrupted if full foreign ownership is extemded across the country.
One factor behind Dubai’s drive to make itself more attractive to investment is concern about the long-term impact of economic reforms in Saudi Arabia, according to fund managers, who said that portfolio money has been flowing from Dubai to Riyadh since late 2017 in anticipation of Saudi Arabia joining emerging market equity indexes, which will make Riyadh more important than Dubai for many international fund managers, added Reuters.
If Riyadh’s efforts to launch new non-oil industries such as shipbuilding, logistics and tourism succeed, Saudi Arabia could also start to compete with Dubai for foreign direct investment in coming years.
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