The trends of 2022 paint positivity for 2023

First, the good news. The UAE has been bucking volatile international trends with both economic performance and outlook. The UAE’s GDP is expected to top 6 percent growth in 2022, up from 3.8 percent in 2021, according to the International Monetary Fund (IMF). In Abu Dhabi alone, the first half of 2022 saw GDP grow by over 11 percent.

The number of new business licences issued in Dubai reached nearly 25,000 in the first quarter of this year, up almost 60 percent on 2021, helped by what Dubai’s Department of Economy and Tourism referred to as the “robust fundamentals, resilience and sustainability of Dubai’s economy”.

But what else has changed in 2022, and how might it affect the outlook for the years ahead? From rising real estate to nose-diving crypto, from visa and legislative changes to VC investment, this article takes a closer look at some of the most significant details.

Dubai records 25 percent rise in new business licences issued in first half of 2022

Startup ecosystem

This year, Dubai’s Crown Prince Sheikh Hamdan launched a $100 million venture capital fund for startups to increase the number of SMEs, boost their future success and encourage growth and expansion into international markets. This initiative goes hand in hand with the Ministry of Economy’s Entrepreneurial Nation scheme, which aims to transform 20 startups into unicorns – privately owned companies with a valuation of over $1 billion – by 2031.

These initiatives come hot on the heels of Sheik Hamdan’s Dubai Next, a digital crowdfunding platform for innovative startups that supports young innovators from around the world with access to project funding. This is in addition to the already well-established support offered to overseas and local startups.

This year also saw the official opening of a new UN programme for Arab SMEs – the Economic and Social Commission for Western Asia (ESCWA). Its e-commerce Acceleration Programme (eCAP) is designed to help up to 100 SMEs from eligible Arab countries, including all GCC states, to build and optimise online platforms as part of a transition to online selling.

Company formation/ business setup

Following various changes to company ownership rules – 100 percent foreign ownership is now permitted in mainland and freezone companies – corporate taxation rules came into force early this year for financial years beginning June 1 next year. The tax will be levied at 9 percent on profits over AED375,000, but where free zones have provided 50-year tax free guarantees to free zone incorporated companies, they can continue to enjoy those guarantees so long as they don’t conduct business in mainland UAE.

In addition to changes to visa rules discussed below, the UAE has recently introduced a new five-year Green Residence visa to attract and retain skilled workers. According to the government’s own Dubai FDI Monitor, foreign investment in the first half of 2022 grew by nearly 15 percent over the same period last year, making Dubai the world’s premier FDI hub.

Venture Capital landscape

Dubai’s 60 percent increase in new business licences shows strengthening investor confidence in the UAE and a growing appetite among founders for its healthy startup ecosystem.

Although total VC funding was slightly down on 2021 levels across the MENA region, the UAE was the leading destination for VC funding this year. The first three quarters of 2022 alone accounted for $845 million in UAE VC investment, with fintech taking almost 30 percent of the total deals.

Visa changes

In the biggest shake-up and relaxation of the visa system in recent years, new regulations came into force in April, giving foreign expats greater flexibility and a more tangible stake in the local economy. The changes include a relaxation of the need for a sponsor in certain circumstances and a permanent extension for visitor visas from 30 to 60 days. The new rules extend the period parents can sponsor male children, with the age limit rising from 18 to 25, to incentivise expats’ children to remain in the UAE after completing their formal education.

In addition, the “Golden Visa” scheme has been broadened to cover skilled professionals earning more than $8,000 per month. Previous rules governing the maximum duration permissible outside the UAE have been removed, and the long-term Golden Visa means that foreign nationals can now live, work and study in Abu Dhabi without the requirement for a national sponsor, whilst retaining 100 percent business ownership on the UAE’s mainland.

Real estate

In the first half of 2022, real estate transactions in Dubai hit $43 billion. Figures from the Dubai Land Department (DLD) show that in the first six months of this year, there were 60 percent more property transactions than in the same period in 2021, with an overall increase in value of around 80 percent compared to 2021.

While total real estate transactions in Dubai reached AED18.3 billion in May alone, would-be property investors who might previously have had trouble accessing the necessary capital to fund property investments are beginning to side-step that problem with crowdfunding options. This approach enables property investors to appeal to a broader group of investors, and participants can invest much smaller amounts across a broader and less risky portfolio.

Administrative, social and legislative changes in 2022

Coming into effect at the beginning of 2022, the UAE’s official weekend was changed from Friday and Saturday to Saturday and Sunday, although it coincided with the establishment of a half-day from midday on Fridays. This has aligned the country with the common working week pattern in most parts of the rest of the world, although many other Gulf States have retained the Friday-Saturday setup. Although it only officially applies to government enterprises and schools, much of the private sector has adopted the changes.

Perhaps more significant is the new Federal Crime and Punishment laws that came into force in January 2022. Although not entirely comprehensive, some of the reforms involve added protection for women – for example, rape now carries a life sentence, the legal definition of the age of a minor has been raised from 14 to 18 years, and consensual relationships outside of marriage have been decriminalised.

Crypto

We’ve left the biggest story until last, as we felt the fall-out from the year’s FTX-related events needed more in-depth examination. Its effects are shocking, far-reaching and demoralising, calling into question the very existence of unregulated virtual assets. In short, this crypto saga is a huge story with potentially unlimited ramifications.

Dubai authorities understood a while ago that establishing a government body to provide crypto oversight and governance is essential to regulate the industry and promote a local crypto industry to attract the best of the best from around the world. Dubai’s answer is the Dubai Virtual Asset Regulatory Authority (VARA), which will oversee all cryptocurrencies in the UAE and be responsible for the licencing, regulation and governance of all virtual assets. Being well prepared for a renaissance in crypto, should that ever come, will give Dubai an edge over other jurisdictions.

So, let’s bite the bullet and take a closer look at this year’s biggest news in crypto: FTX. Bloomberg called its collapse “one of history’s greatest-ever destructions of wealth”. Its implosion has focused minds on the fact that the much-hyped utopian crypto dream of a new world order and more transparent financial system was little more than a smokescreen for rogue billionaires to gamble investors’ cash with little or no risk exposure to themselves.

The ripple effects of FTX’s collapse are far-reaching, and it’s no surprise that effective altruism has suffered a potentially terminal blow after the collapse of the multi-billion-dollar Ponzi scheme run from disgraced FTX Bankman-Fried’s $40-million penthouse apartment in the Bahamas. But cultural subtleties aside, FTX’s customers are more concerned with the fact that they’re about $8 billion short, as are its one million creditors and investors, who have pumped in some $1.8 billion over the last few years.

The affair has underlined the grotesque cynicism of Bankman-Fried’s alleged philanthropy and the murky unregulated world of crypto. In short, it has called into question the ethics and moral compass of the crypto Wild West, as well as fads such as effective altruism.

Whether crypto can ever recover from this year’s events, only time will tell. As news site Vox notes, “crypto may be the cat with nine lives: it’s just not clear which life it’s on right now”. But other commentators are probably far closer to the truth – as one noted recently, “[Bankman-Fried’s] antics have turned back the clock, and what looked like a winter is starting to feel more like an ice age”.

Oil to the rescue

With many western economies facing uncertain and turbulent futures, Dubai’s startup ecosystem is looking healthier and more attractive for foreign founders and investors by the day. Hydrocarbon-exporting MENA economies are thriving thanks to the high price of oil and gas, with GCC countries expecting more than 6.5 percent growth in GDP in 2022. Higher commodity prices have protected the region from a faltering global economy and have offered protection against the worst effects of high inflation, recession and a global energy crisis.

The result? All GCC states, including the UAE, have a very positive outlook for 2023.

https://www.arabianbusiness.com/opinion/dubai-startups-golden-visa-metaverse-shift-business-reform-venture-capital-point-to-optimism-in-2023