SME stimulus plan to increase Dubai's long-term growth potential

SME stimulus plan to increase Dubais long-term growth potential

By Waheed Abbas

Published: Tue 3 Sep 2019, 5:32 PM

Last updated: Tue 3 Sep 2019, 7:34 PM

The economic stimulus programme announced for small and medium-sized businesses, public-private partnerships, and 100 per cent foreign ownership of companies will improve Dubai's business climate as well as its long-term growth potential, global ratings agency S&P said on Tuesday.
"New economic stimulus plans to promote small and midsize enterprises and public-private partnerships, announced recently by the government, could gradually increase Dubai's long-term growth potential. A new law to allow full foreign ownership of companies outside existing free economic zones should also encourage private investment and improve the business climate," said Shokhrukh Temurov, sovereign credit analyst at S&P.
Dubai's Department of Finance had announced new initiatives in March such as five per cent allocation of government capital projects to SMEs, payment of dues to SMEs within 30 days instead of 90 days, reduction in the value of insurance for the SMEsto the range of 1-3 per cent instead of 2-5 per cent and few others.
S&P expects the emirate's economy will pick up during 2019-22 on the back of increased economic activity for Expo 2020 and traditional growth engines such as trade and transportation.
"We expect a marginal pickup in economic growth to 2.4 per cent in 2019, with support coming largely from the construction and real estate sectors. We expect the completion of Expo 2020-related infrastructure projects and additional residential housing supply to enter the market from existing projects this year. A boost to tourism and related spending linked to Expo 2020 should drive somewhat stronger growth in 2020," he said.
However, after the Expo, economic growth will likely to ease to around two per cent through 2022, sustained by traditional growth engines such as trade and transportation, he said.
"Although we expect demand created by Expo 2020 to ease the pressures temporarily, Dubai's commercial real estate might suffer from oversupply afterward, further reducing the financial cushion of real estate developers."
Quoting Bloomberg data, S&P said that market perceptions of the Dubai government's credit risk, informed by spreads on five-year credit default swaps, have improved significantly since the corporate debt crisis in 2009 and remain relatively contained. The cost of insuring Dubai's sovereign bonds against default fell by about 850 basis points from a record high of almost 1,000 bps in February 2009 and has ranged from 120 to 140 bps in recent months.
S&P warned that low oil prices, accompanied by slower regional demand and rising protectionism in the US and China could slow Dubai's transshipment trade flows.

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