United Arab Emirates

major macro economic indicators

(e): Estimate (f): Forecast *General government gross debt

RISK ASSESSMENT

Growth will accelerate in 2022

Economic growth in the United Arab Emirates (UAE) is expected to accelerate in 2022 on the back of rising hydrocarbon production and exports. A strong rise in oil revenues will also boost domestic demand.   Private consumption    (35% of GDP) should  be the key driver because of economic normalisation thanks to the high vaccination rate (90%), rising confidence, and some reforms implemented by the authorities to attract foreign workers and residents who had deserted in 2020 (i.e. long-term residence visa, retirement visa, prohibition on keeping employees' passports, protection against unemployment, etc.). Despite having ended in March 2022, the Expo 2020’s boost to employment will also sustain household spending. Tourism revenues (around 8% of GDP   in 2019) could increase to USD 40 billion in 2022  from around USD 25 billion in 2021, thus exceeding pre-COVID levels, thanks to the Expo, the Qatar 2022 World Cup and the introduction of multiple entry and long-term tourist visas. The withdrawal of the last OPEC+ production restrictions in 2022 will be the other main growth driver. After rising by nearly 14% in the first four months of 2022, the UAE’s hydrocarbon production (around 30% of GDP) should increase by nearly 13%   in 2022. Investments (20% of GDP) will also increase, backed by the economic diversification plan of Abu Dhabi and the increase in hydrocarbon revenues. The emirate announced plans to invest USD 6 billion over the next five years in cultural and creative industries to reduce its dependence on oil, after having spent around USD 2.5 billion in the past five years. On the other hand, Abu Dhabi National Oil Company (ADNOC) launched a five-year USD 122 billion plan to increase its crude oil production, which will support both investments and exports. The authorities are also making efforts to develop the natural gas industry and clean energy. In November 2021, ADNOC announced investments of up to USD 6 billion to enable drilling, to boost its oil   production to 5 million   barrels per day (m/d) by 2030 and reach gas self-sufficiency.  The  construction sector (9% of GDP) is expected to grow by around 3% in 2022 supported by the further development of the railway network and solar power plants, after collapsing by 10% in 2020 due to the sharp fall in tourism and expatriate population. The delayed Expo 2020 helped the construction sector in 2021, but the project pipeline for commercial and residential buildings will be weaker in 2022 as many of the projects have been completed. Nevertheless, projects such as Heart of Europe, Hassyan IWP project and Ruwais expansion will continue to sustain the sector. The U.S. Fed’s hiking process will push the UAE’s central bank to increase its rates to maintain the currency peg. However this should have little impact on activity, although the competitiveness of non-oil sectors could suffer.

Current account surplus will rise thanks to higher oil prices 

High oil prices (20% of total merchandise exports) and the removal of the OPEC+ cap on oil output will allow hydrocarbon exports to surge by around 65% YoY in 2022. Regarding non-oil exports, growth in the key trading partners, such as Saudi Arabia, the U.S., China and India, will result in higher demand for polymers, chemicals, jewels, gold and diamond re-exports, sulphur, limestone, cement, glass, metals, machines, etc. The rise in tourism revenues on the back of Expo 2020 will improve the trade in services surplus  . The high level of vaccination and the removal of all travel restrictions for vaccinated people will allow the country to benefit greatly from international tourist inflows. New variants of COVID-19 remain a downside risk to this outlook, as they could entail a closure of borders. On the other hand, the secondary income balance should remain in deficit because of higher services payments and remittances outflows from foreign workers. The UAE will continue to benefit from large financial buffers. As of February 2022, the central bank had nearly USD 130 billion in foreign exchange reserves, equivalent to over five months of imports. Additionally, the Federation is estimated to have around USD 700 billion of assets in its sovereign wealth funds. High oil prices will also boost fiscal revenues, 50% of which are generated by hydrocarbons. Meanwhile, rising private consumption will increase non-hydrocarbon related revenues. The government has recently announced that it aims to increase spending by   1.23 billion dirhams (USD 335 million) in the 2022 budget, while revenues   are estimated to be 375 million dirhams higher, resulting in a strong surplus.

Political stability will remain, regional competition on the rise

The UAE should remain one of the most politically stable countries in the Gulf region. It will continue to have close relations with the US. Improved relations with Israel will open doors for new investments and trade opportunities, particularly in the tourism, infrastructure, and technology sectors. Economic ties between the UAE and Turkey are also growing stronger, which will offer greater opportunities especially for trade and investment. Rising competition with Saudi Arabia may be economically challenging as some Saudi decisions (i.e. pushing multinationals to move their operations to Saudi Arabia,) threaten the UAE’s global ,  and regional, shipment and trade hub position. However, this competition is expected to remain on the economic front and not affect their political cooperation. A series of programmes worth USD 150 billion announced by the UAE in September 2021 to diversify its economy away from oil will feed that competition. Maintaining its neutrality in the Russia-Ukraine war has so far allowed the UAE to keep their trade and tourism relations with Russia intact. In a policy of balancing the regional powers, the country should also continue to hold closer relations with Syria in order to keep Iran’s influence under control.  

Last updated: July 2022

PAYMENT

The most common methods of payment in the United Arab Emirates (UAE) are cash, credit and debit cards, Open Accounts, Letters of Credit, Documentary Collections, and cheques.
Cheques are the most common and preferred method of payment in the country, especially in commercial transactions, as there are no costs involved with issuing cheques, unlike transactions that are backed by a Letter of Credit or any other type of a bank guarantee. Cheques constitute a reliable debt recognition title that may be enforced directly before a judge. In addition, UAE criminal law states that a person who delivers a cheque in bad faith without sufficient consideration may be imprisoned.
Until 2016, post-dated cheques were considered the best protection against late payments, and were frequently used in the UAE as guarantees, as bounced cheques are considered as a criminal offence. The new law is silent regarding Non-Sufficient Funds (NFS) cheques, and only states in Article 32 that all the legal proceedings, procedures, and execution procedures against the debtor’s assets shall be suspended once a decision is initiated until the ratification of the scheme of composition. Composition is defined in Article 5 of the new law as proceedings aiming to assist the debtor to reach a settlement with creditors pursuant to a scheme of composition under the supervision of the court, and with the help of a trustee to be appointed in accordance with the provisions of this law. In light of the above, any claims or legal proceedings filed against the debtor – whether related to NSF cheques or another instrument (this also applies to criminal proceedings relating to NSF or bounced cheques) – will be suspended once the court has accepted the debtor’s application for the aforementioned prevented composition. It worth noting that any claim related to an NSF cheque will be treated in the same way as any other unsecured claim which may be filed against the debtor.
UAE banks are part of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which is used when transferring money between banks, particularly for international wire transfers.

DEBT COLLECTION

Amicable phase

Debt collection begins with the amicable approach, during which the debtor receives a notice for payment, followed by a phone call from the creditor or an agency, with the goal of reaching a payment agreement.

Legal proceedings

The UAE Courts are comprised of:

• the Court of First Instance;
• the Court of Appeals;
• the Abu Dhabi Supreme Court.

Located in each Emirate, courts of first instance have general jurisdiction and include a Civil Court, a Criminal Court and a Shariah Court. Following a judgement from one of these courts, the concerned parties have the right to appeal to the Court of Appeals on factual and/or legal grounds. Following this, aggrieved parties have the right to appeal to the Supreme Court on matters of law only. Shariah Court handles civil matters between Muslims.

Fast-track proceedings

An order of payment is a procedure where a party applies to the courts for summary judgment against a defendant for commercial debts, substantiated by a valid but unpaid commercial instrument such as a bill of exchange, promissory note or cheque. If a defence is filed, the dispute must be solved via an ordinary lawsuit before the court of first instance.

Ordinary proceedings

Proceedings start by filing a plaint (complaint) in the relevant court. It must meet procedural requirements, and include both the debtor’s information and the details of the debt. The court issues a summons to be served to the defendant, which includes an endorsed hearing date.

Once an answer has been filed by the debtor, the trial process is adjourned to allow the creditor to respond. Further adjournments are given so that memoranda can be submitted by both parties. Once the court believes that the case has been sufficiently pleaded, it reserves the matter for judgment. The entire proceeding is based on written submission supported by documentary evidence. The court will issue remedies in the form of specific actions and compensatory damages. Injunctive relief is not generally available and attachment orders are difficult to obtain.

Enforcement of a Legal Decision

A court judgment becomes enforceable once it is finalised. If the debtor fails to comply with the court’s decision, the creditor may request enforcement mechanisms before the judge, such as an attachment order, or even the imprisonment of the debtor.
Any foreign awards must first be recognized as a domestic judgment. When bilateral or multilateral reciprocal recognition and enforcement treaties exist, this requirement is simply a formality. In the absence of such agreements, an exequatur procedure is provided by domestic private international law.
The latest law update in UAE is related to commercial claims, which can now be filed via performance order lawsuits if the financial claim is subject to the enforcement of a commercial contract, or the right holder is a creditor with a commercial paper and debt is acknowledged.
Procedures and Duration of Order: 

• Sending a notary public legal notice to the debtor.
• Notifying the notice to the debtor with a successful result.
• Five days minimum from the date the debtor receives the notice as a period to allow the debtor to settle the dues.
• Register the Performance Order at the court or on the electronic system of the court according to the spatial jurisdiction of each court.
• The decision shall be issued by the judge within 3 working days by either acceptance or rejection.
• In case of issuance of the decision in creditor favor, a request to notify the debtor shall be submitted.
• The court shall notify the debtor in the manner prescribed by the law.
• An appeal period of 15 days from the date of the decision is notified if the debtor will appeal.
• The appeal court will review the debtor defense if it’s valid the court will schedule a hearing and invite both parties to investigate, if the court see the defense is not valid, the court will reject the appeal directly.
• If the debtor didn’t appeal in a period of 15 days from the date, he receives the decision notice, then the execution shall take place.
• Duration of the whole process approximately: 90 to 120 days.

Insolvency Proceedings

On September 4, 2016, the final draft of the Federal Law on Bankruptcy was approved. The new insolvency law proposes three new insolvency procedures:

Financial Reorganization Procedure

An out of court, private conciliation process that is applicable to entities who have not yet formally entered the zone of insolvency, which has the aim of achieving a consensual, private settlement between parties. An independent mediator with bankruptcy expertise is appointed by the commission for a period of up to four months to oversee discussions between the debtor and its creditors.

Protective Composition Procedure (PCP)

A debtor that is (a) experiencing financial difficulties, but is not yet insolvent; or (b) has been in a state of over-indebtedness or cessation of payments for less than 45 days, proposes a compromise with its creditors outside of formal bankruptcy proceedings. The PCP includes a moratorium on creditor action (including enforcement of secured claims) and places the debtor under the control of an office holder appointed from the Commission’s (the government agency that has the authority to oversee the insolvency proceedings) roll of experts, for an initial observation period of up to three months.
Other key tools of the PCP process include the ability to raise debtor-in-possession (DIP)-style priority funding, which may be secured on unsecured assets or take priority over existing security, and ipso facto previsions that prevent the invocation of insolvency-linked contractual termination provisions – provided the debtor performs its executor obligations. The debtor is given time to file a plan, which is then voted on by creditors.

Bankruptcy

The procedure is split into two elements:

• a rescue process within formal bankruptcy proceedings, which is procedurally similar to the PCP (including an automatic moratorium and the ability to raise DIP funding);
• a formal liquidation procedure.

Recent Update to Bankruptcy Law:

• Various changes announced on 22 October 2020, but yet to be published in the official gazette. 
• Key change – New Concept: “Emergency Financial Crisis” (EFC), which is defined as: “A general situation that affects trade or investment in the country, such as a pandemic, natural or environmental disaster, war, etc.”
• New provisions changing the Bankruptcy Law during an EFC.
• UAE Cabinet to determine when an EFC exists and it has yet to do so. It would appear that a UAE Cabinet decision is required before parties can rely on the new provisions;
• If an EFC is announced, the new law provides certain protections for debtors, including:
  • Debtors not required to file for bankruptcy if he has failed to pay his debts within 30 days due to EFC;
  • Debtors can still file for bankruptcy during EFC and court may elect not to appoint a trustee in the proceedings if debtor proves the disruption to his business was caused by the EFC;
  • Creditors cannot file as the court will not accept bankruptcy applications against any debtors during the EFC.

Settlement with creditors (only applies to debtor filings):

• If bankruptcy is accepted by court, the debtor may request 40 business days to negotiate settlement with his creditors. If approved by the court, it shall be published and include an invitation to creditors to negotiate settlement within 20 business days;
• Settlement period offered to creditors shall not exceed 12 months;
• If settlement reached with creditors with 2/3rds of the debt, it shall be binding on all creditors (even those who did not participate);
• Settlement negotiations must be in writing and approved by the court.

Existing Bankruptcy Proceedings

• Bankruptcy proceedings filed prior to the declaration of an EFC will continue, although the court can double the time periods set under the Bankruptcy Law.

Directors’ Liability

• During an EFC directors may pay unpaid salaries of employees (excluding allowances pay rises and other contingent payments), without incurring any liability.

New Money

• Debtor may obtain new financing (secured and unsecured) during an EFC with court approval. This will have priority over existing debts.

Other changes - suspension of legal proceedings

• Amendments provide for an end date of the suspension of legal proceedings that did not previously exist under Articles 32 and 162 of the Bankruptcy Law.
• Proceedings shall be suspended until (i) the ratification of the restructuring plan; or (ii) the lapse of ten months from the date of commencement of the bankruptcy / preventive composition.
• The Court may extend this period by an additional four months.
• Secured creditors may apply to the Court to grant them an exception to the suspension of proceedings so that they can enforce their rights.