UNITED ARAB EMIRATES

The UAE’s economy remains one of the most diversified in the Gulf Cooperation Council, although its key oil, aviation, and tourism sectors have taken a hit from the pandemic. The central bank’s Zero Cost Facility to local banks has shielded the financial sector in key hubs Dubai and Abu Dhabi. New tension will emerge between the two emirates in 2021 as Dubai seeks funding support from Abu Dhabi’s Mubadala sovereign-wealth fund to rescue its distressed assets. A merger of their respective airlines and stock exchanges may also be on the cards, despite political aversion to such plans. Meanwhile, Abu Dhabi’s increasingly assertive foreign policy, military interventions, and worsening relations with Turkey and Iran will frustrate Dubai’s leaders who aim to boost the tourism, financial, and trade sectors.

• The pandemic in 2020 resulted in the merger of more than half of the UAE’s federal agencies to cut costs in face of an economic slowdown. Facing a protracted downturn, Dubai will almost certainly seek support from Abu Dhabi, which will see an opportunity to purchase more of its fellow emirate’s assets. Usually, a sheikh from Abu Dhabi holds the presidency and a sheikh from Dubai the prime ministership. In August 2020, the UAE and Israel reached a historic peace agreement to lead towards full normalisation of relations between the two countries that is set to boost trade, investment, tourism, and food security. The UAE is a strong supporter of Saudi foreign policy and has joined in Saudi military offensives in the Middle East and Africa.
• The UAE armed forces have significant capability and are equipped with mostly US, UK, and French weapon systems. Following a peace agreement with Israel, the UAE is seeking to purchase US-made F-35 fighter aircraft, MQ-9B UAS drones, and munitions worth more than USD 23 billion. The sale, if completed, will be the first American transfer of lethal unmanned aerial systems to any Arab ally, and the UAE would become the first Arab country to get the Lockheed Martin fifth-generation stealth jet, the most advanced fighter aircraft on the market. The purchase of American armed drones will be an incremental upgrade to the UAE’s arsenal, since the quality and capability of the Reapers is superior and will further align the Emirates with their US and UK allies. The acquisition will also give the UAE and its allies an advantage over regional rivals Iran, Qatar, and Turkey.
• Uncertainty over debt levels drive the highest economic risk. Dubai reports public debt at 28 percent of GDP, which does not include many government-related entities. Ratings agencies estimate Dubai’s debts at 77 percent of GDP. Under an extended central bank scheme, zero cost funding facility is available to banks, allowing banks to offer loan deferment to individuals and businesses that are affected by COVID-19. The UAE economy is set to contract in excess of 5 percent this year and return to growth trajectory in 2021. The UAE will diminish the role of Islamic legal codes to attract further investment.