The UAE is one of the best-placed countries in the world to lead the recovery from the pandemic. While sectors such as aviation and tourism remain deeply impacted, key areas such as Dubai real estate and Abu Dhabi’s oil and gas projects sector are already returning to growth.
The UAE boasts the highest sovereign credit rating of any country in the region and has made the most progress on Covid-19 vaccination. It led the world during the pandemic in terms of testing infrastructure. In October, the UAE will be further boosted when Expo 2020 Dubai opens, symbolising the world’s return to business in the wake of the pandemic.
The IMF forecasts that the UAE’s GDP will rebound to 3.1 per cent growth in 2021, after crashing by -5.9 per cent in 2020. It projects 2.6 per cent GDP growth in 2022.
The main caveat is the weakness in the UAE’s projects market activity, which fell off markedly in 2020 and has remained subdued despite high hopes at the start of the year.
Companies can expect a recovery in project spending in the UAE in the final quarter of 2021 as confidence returns
As a hub for travel, trade and business, as well as being one of the world’s biggest exporters of oil and gas, the UAE was doubly exposed to the economic fallout from the pandemic. Spending was shut off to all but the most important projects. As a result, the value of contract awards slumped 37 per cent to about $19bn of awards in 2020, compared to $30.5bn in 2019, and an average annual spend of $34bn a year since 2011.
Companies can expect a recovery in project spending in the UAE in the final quarter of 2021 and in 2022 as confidence returns. The UAE has a pipeline of more than $500bn of planned projects, many of which are vital if the country is to achieve the diversification, investment and job creation objectives of its national visions.
The challenge is finance. While the UAE is well-positioned to increase borrowing, or draw from its national reserves, the fiscal legacy of the pandemic will force the authorities to keep a tight rein on spending. This will accelerate the shift to alternative models such as public-private partnership.
Spending will be spurred by new oil and gas projects in Abu Dhabi led by the Hail and Ghasha sour gas programme. However, construction sector expenditure is expected to remain muted in 2021 and even beyond until demand picks up and oversupply dwindles.
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