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UAE boosting financial inclusion for SMEs

Small and medium enterprises represent around 96 per cent of registered firms in the Arab world, but they face severe financing issues and closing this financial inclusion gap will help generate 15 million new jobs in the next six years, the head of the International Monetary Fund said on Sunday.

“In the Arab region, SMEs represent 96 per cent of registered companies. They also employ half of the labour force. Yet their access to finance is the lowest in the world as lending to SMEs in the region is only 7 per cent of total bank lending,” IMF managing director Christine Lagarde said.

“We found that closing this financial inclusion gap – with respect to the average of emerging and developing countries – would yield multiple economic benefits. It could boost annual economic growth by up to 1 per cent, potentially leading to about 15 million new jobs by 2025 in the Arab region.”

She acknowledged that the UAE, along with Egypt and Jordan, have started to implement comprehensive strategies to increase financial inclusion for SMEs.

“Based on our recent research, we found that promoting SME financial inclusion requires a holistic approach. To achieve meaningful, safe and sustainable SME access to finance, there is no magic bullet. And partial approaches are unlikely to suffice,” Lagarde told the World Government Summit in Dubai.

The seventh edition of the summit kicked off on Sunday with more than 4,000 participants from 40 countries. Lagarde on Saturday called on Arab countries to rein in public debt, which has more than doubled in the last five years.

She also noted that the oil exporters in the Mena have not fully recovered from the dramatic oil price shock of 2014. “Modest growth continues, but the outlook is highly uncertain – reflecting in part the need for countries to shift rapidly toward renewable energy over the new few decades, in line with the Paris Agreement.”

Lagarde called for creating an uneven playing for SMEs and state-owned enterprises as well as a sound banking sector that facilitate market entry for small and medium firms.

She also sees a need for tapping capital markets and supporting the development of SME capital market segments in the Arab world. “Fintech is also a potential game-changer for SMEs. It can increase competition among credit providers and expand credit information.”

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Lagarde urges GCC nations to come up with more reforms

Calls for further reforms in the region were raised again as the outlook for oil-exporting Mena countries is uncertain because regional countries have not recovered from the oil price shock witnessed five years ago, the International Monetary Fund (IMF) chief said on Saturday.

While addressing the fourth Arab Fiscal Forum in Dubai, IMF managing director Christine Lagarde called on Arab nations to rein in public debt, which has more than doubled in the last five years.

“The oil exporters have not fully recovered from the dramatic oil price shock of 2014. Modest growth continues, but the outlook is highly uncertain – reflecting in part the need for countries to shift rapidly toward renewable energy over the new few decades, in line with the Paris Agreement,” Lagarde told the forum.

She emphasised that the economic path ahead for the region is challenging and it makes the task of fiscal policy much harder and even more important to build strong foundations to anchor fiscal policy. “With revenues down, fiscal deficits are only slowly declining – despite significant reforms on both the spending and revenue sides, including the introduction of VAT and excise taxes. This has led to a sharp increase in public debt – from 13 per cent of GDP in 2013 to 33 per cent in 2018.”

Mubarak Rashid Khamis Al Mansouri, governor of the Central Bank of the UAE; Jihad Azour, director for the Middle East and Central Asia at the IMF; and other top executives and officials were also present at the forum.

Meanwhile, an Emirates NBD Research has recently predicted that GCC outlook for 2019 is cautiously optimistic against a backdrop of slowing global growth and heightened geopolitical risks globally.

“We expect average growth of 2.5 per cent in the GCC this year, with the UAE to see faster growth than in 2018. We expect the Saudi economy to expand 2 per cent this year, slower than the government’s estimate of 2.3 per cent growth in 2018,” Emirates NBD’s Khatija Haque, head of Mena research, and Daniel Richards, Mena economist, said. The analysts said that the key impediment to economic growth in non-GCC Mena this year will be domestic political risk.

Lagarde pointed out that sovereign wealth funds in the region directly finance projects, bypassing the normal budget process.

“State-owned enterprises in some countries have high levels of borrowing – again, outside of the budget. Addressing these fiscal risks would not only enhance budget credibility and transparency but would help keep a lid on corruption. Budgetary credibility also calls for better risk management, with a more comprehensive budget based on realistic forecasts,” she said at the summit.

While addressing the forum, Obaid bin Humaid Al Tayer, UAE Minister of State for Financial Affairs, noted that the past few months have seen signs of slowing global growth, accompanied by increasing volatility in financial markets and oil prices. Trade tensions between the United States and China, the confusion over a no-deal Brexit and the tightening of fiscal and geopolitical factors in the region have contributed to global economic uncertainty.

He stressed that Arab countries are close trade partners of both China and the US, and are keen not to be affected by the trade tensions between the two countries. Al Tayer warned that some countries will continue to adopt a protectionist policy, which will put pressure on global trade flows that may ultimately affect the countries adopting protectionist approaches.

He explained that Brexit may offer fresh investment opportunities for Arab countries. He stressed on the importance of avoiding undesirable effects on British investments in the Arab region and tourist inflows.

Al Tayer stressed the role of a strong private sector in enhancing productivity, competitiveness and entrepreneurship, as well as investments in raising education and skill levels. He pointed to the importance of partnering with the private sector to strengthen the economy, and improve legal, institutional and economic frameworks, and the human capacity needed to ensure the efficient use of these resources.

 

Dubai’s retail sector set for 5percent growth

Dubai’s retail sector will continue its dominance over the next five years, with a compound annual growth rate of 5.2 per cent over the period, supported by strong international visitor spending, robust demand fuelled by a high frequency of mega-sales and shopping festivals, and growing e-commerce activity, according to new analysis conducted by Dubai Chamber of Commerce and Industry.

Other key factors that are expected to fuel the growth of the sector in the medium term include the growing popularity of traditional and app-based delivery services, sector expansion ahead of Expo 2020 and an increasing number of tourists from China, Russia and other top source markets, following recent decisions to ease visa restrictions. According to the analysis by Euromonitor International, Dubai’s retail sector generated an estimated Dh142 billion in sales during 2018, marking a growth rate of 6.8 per cent. Store-based retailing continues to dominate sales, accounting for a market share of 95 per cent, while e-commerce continues to grow rapidly, with a 19 per cent year-on-year growth and Dh5.5 billion worth of sales recorded in this segment.

Hamad Buamim, president and CEO of Dubai Chamber, said that the analysis reflected the strength and resilience of Dubai’s retailers, as well as the tremendous potential that the retail sector offers local, regional and international industry players. “Retail remains one of the main contributors to Dubai’s economy and one of the most attractive sectors for investment in the emirate. The analysis has identified several positive trends and factors that are expected to fuel the future growth of the sector, and enhance the emirate’s attractiveness as one of the world’s most sough-after shopping destinations.”

Key drivers of e-commerce activity in Dubai include strong government support in line with its commitment to transform Dubai into the world’s smartest city, and a high mobile penetration rate, along with Dubai’s expanding logistics networks. Furthermore, despite the implementation of value added tax (VAT), many hypermarkets have managed to keep their prices competitive which have helped offset such costs. Meanwhile, smaller retailers, such as convenience stores, have continued attracting consumers by enhancing their customer service with extended opening hours and delivery services.

Saudi needs oil at $80-85 a barrel to balance its budget in 2019

Top oil exporter Saudi Arabia would need oil priced at $80-$85 a barrel to balance its budget this year, an International Monetary Fund official said.

Riyadh’s breakeven oil price depends on several factors, including the level of oil production, how much of Saudi oil revenues are transferred to the budget, and how non-oil revenues perform this year.

“But if you take the (2019) budget as presented with everything remaining equal, a breakeven point would be around $80-$85 dollars,” Jihad Azour, director of the IMF’s Middle East and Central Asia department, told. Crude oil prices have dropped more than 30 per cent from a peak above $86 a barrel hit in October. Benchmark Brent crude was trading at around $62 a barrel on Monday.

Such price volatility has had an impact on the public finances and economic growth of all oil-exporting countries.

“It will not affect their ability to finance themselves, because when you look at Saudi, its (bond) spreads are very tight, but it has an effect on fiscal accounts,” Azour said.

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Dubai Airbnb market worth over $101m

Revenues for properties listed on Airbnb in Dubai increased by 69 per cent in 2018, compared to the previous year, reaching $101 million in the emirate, a new report by Chestertons Mena has found.

As of December 2018, active listings had increased by 26 per cent to 5,009 units compared with 2017 during which 3,987 units had been listed, and increased by 81 per cent compared with 2016 when there were just 2,775 units listed on the site. Active listings in the report are based on entire units, as per current legislation. The report also outlines that demand has supported the increase in available units with average occupancy levels reaching 65 per cent during Dubai’s peak season in March 2018. During the same period in 2017, occupancy levels were at 50 per cent. During the low season months of June, July and August 2018, occupancy averaged 49 per cent which was higher than the same period in 2017 where occupancy averaged just below 40 per cent.

“Looking at the increase in listings in the last nine years, we can see a meteoric rise from just two in 2010 to 5,009 by December 2018 which has resulted in Airbnb’s market value growing exponentially to over $101 million as at the end of last year,” said Ivana Gazivoda Vucinic, head of Advisory and Research, Chestertons Mena.

“There are a number of factors contributing to the popularity of the online platform. Dubai has a buoyant tourist market and travelers are increasingly looking for personal and authentic holiday experiences, which Airbnb can offer through ‘host’ interaction. The other factor is a growing number of individuals, who are either coming to the emirate for contract work, or are on probation, and cannot commit to a traditional annual rental contract as the tenancy cannot be registered if the residency visa is still to be granted. As such, holiday rentals are a practical alternative,” she added.

In terms of rental sizes, the mix ranges from studios to five-bedroom units, with one-bedroom units dominating the market and accounting for 42 per cent of supply, perhaps due to the flexibility of sleeping arrangements. Chestertons Mena noted in their most recent Dubai residential market report that one-bedroom properties have been particularly susceptible to market adjustments over the last 12 months which presents an opportunity for many landlords to utilise Airbnb as an attractive alternative to long-term renting. With regards to rental returns Airbnb landlords are typically experiencing an ROI of 2-4 per cent higher than the long-term rental yields currently witnessed in the emirate.

“There are a number of reasons why consumers are increasingly turning to Airbnb as their accommodation of choice in Dubai. Notwithstanding the cheaper daily rates and additional space available compared to a hotel room, holiday lets also offer kitchen facilities and can now compete with amenities such as communal gyms, pools, beach access and even concierge services. As Dubai prepares for Expo 2020, we expect a significant increase in Airbnb rentals over the six-month period of the event,” said Vucinic.

The report identified Downtown Dubai, Palm Jumeirah, Dubai Marina, Dubai Media City 2 and Al Barsha as the densest areas for holiday home rentals, with each area commanding an Average Daily Rate (ADR) of $241, $359, $218, $129 and $188 respectively.

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