In the second week of November 2020, the world welcomed news of two vaccines for Covid-19 that promise over 95 per cent effectiveness. People breathed a sigh of relief. Suddenly, there was hope. Global equity markets moved up, and CEOs started offering their predictions of when life will go back to normal.
While the vaccines are certainly welcome news, the pandemic is, unfortunately, far from over and its economic impact will stay with us throughout 2021 and beyond. The fallout will long outlive the immediate health crisis. In the words of Winston Churchill during the Second World War, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Governments, businesses and individuals are learning to accept that there might not be a return to the “2019 normal”. We are entering uncharted territory and will witness the emergence of the “post-2020 normal”.
In 2019, the world was watching three mega-trends shaping our future: climate change and the growing stress on our planet’s resources, the technological and biological revolution and the shift in economic power from the West towards the East. Covid-19 came as a force-multiplier to all these trends and pressed “fast-forward”, bringing that future much closer.
Today, we can see a light at the end of the Covid-19 tunnel. 2021 is poised to be a recovery year, while we can anticipate a rebound in 2022 and beyond. In 2020, global foreign direct investment flows decreased by 40 per cent, according to the UN Conference on Trade and Development. They are expected to recover in 2022, though not back to 2019 levels and not uniformly across countries.
There will be new winners and losers. The nations that lead the future will be those setting the right policies today in terms of technology adoption – be that in robotics-enabled automation, enhanced supply chain digitalisation or additive manufacturing. The pace and extent of this technological adoption will partly depend on the policy environment for trade and investment, which is trending towards more interventionism, rising protectionism and a shift to regional and bilateral frameworks.
Closer to home, we see more positive signs of recovery. While uncertainty remains regarding the speed of the Covid-19 vaccine roll-out, all signs point to 2021 seeing a return to growth for the GCC. IHS Markit’s December 2020 country-specific Monthly Economic Outlook forecasts that all countries in the region will return to economic growth – in terms of real GDP – in 2021, with the UAE in the lead with a growth estimate of around 3.9 per cent. Indeed, in the first few weeks of 2021, economic activity is already improving as purchasing managers’ indices (PMIs), a measure of economic trends in manufacturing, also improve.
In the Emirates, growth projections are buoyed by an ambitious domestic vaccination programme. The country ranks second globally in Covid-19 inoculation rates. High immunisation numbers will mean the UAE could be among the first countries to open for international tourism and business. It could also utilise its logistics expertise and large international airlines and ports to further its strategy of becoming a vaccine hub for both commercial and diplomatic ends.
The financial sector may see margins under pressure as broader economic support provided by government is gradually withdrawn and banks restore obligations deferred during the pandemic. But, while 2021 might be bumpy, FDI will see a boost from policy innovation, setting the pace for growth acceleration in 2022. The UAE introduced 100 per cent foreign ownership of companies in the base economy across most economic activities and an expansion of its 10-year long term visa programme.
However, this growth will be neither smooth nor even. While most sectors are expected to grow in 2021, the speed of growth will across them will depend on economic policy decisions and consumer behaviour.
Today, the UAE is standing on firm footing for economic recovery in 2021 and is poised for accelerated growth in 2022. Less than a month into the new year, the UAE’s exchange-traded funds (ETFs), which reflect the outlook for a broad basket of financial products, are the second-best performing among emerging markets with 11.3 per cent growth. All eyes in the country will be on Expo later this year, and the impact of this major global event on the country’s travel and tourism sectors.
What is ahead has been termed a K-shaped recovery, in which some sectors will thrive and others increasingly suffer. A sector that has promising prospects is the green economy. The mantra of build back better has been held up by many in Europe, and now the administration of US President Joe Biden in Washington is linking climate change to national security. We will see a major jump in sustainable investments in the region, with even more focus on renewable energy and climate technology. The UAE has already appointed a senior climate envoy, and announced major plans for hydrogen power in the first few weeks of 2021.
All in all, despite the trials of the past several months, the UAE is taking all of the right steps to maintain a good position going forward. That is a promising note on which to start to the year.
Yasar Jarrar is managing partner at International Advisory Group and adjunct professor at Hult International Business School