Three ways the coronavirus could have an impact on Middle East economies

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Oil prices, tourism and capital markets hit by the coronavirus can have an impact on Gulf economies, an analyst told CNBC this week.

“For the GCC economies, we’ve identified three channels of transmission of the COVID-19,” Mohamed Damak of S&P Global Ratings said, referring to the novel coronavirus that was first detected in China last year. He spoke to CNBC’s “Capital Connection” on Thursday.

 

The World Health Organization on Wednesday declared the virus a global pandemic after it spread to more than 110 countries and infected at least 121,000 people.

 

Iran, the worst hit Middle Eastern nation, reportedly has around 9,000 confirmed cases and over 350 deaths, according to the Associated Press. Countries such as Saudi Arabia, Bahrain, the UAE and Oman also have multiple cases of infection.

Here are three ways Gulf economies can be impacted by the virus:

Oil prices

Oil is one of the “principal” export products of Gulf Cooperation Council countries, and prices have fallen dramatically this week after OPEC and its allies failed to reach an agreement to cut output.

Crude futures plunged more than 20% Monday after Saudi Arabia said it would raise production and give discounts on its oil. On Thursday afternoon in Asia, Brent crude was down 6.01% at $33.64 a barrel, while U.S. crude traded at $31.15 a barrel, down 5.55%.

 

That is likely to be problematic for countries in the region, many of which rely heavily on oil revenues.

Damak added that S&P Global Ratings revised its price forecast from $60 a barrel to $40 a barrel for the year. That figure is below the fiscal breakeven oil prices for all Middle East and North Africa oil producers, according to IMF data.

“And if you look at the geographic distribution of exports, you can see for example that for Oman, more than 53% of exports go to countries where we see cases of COVID-19 either high or spiking,” he said.

Travel and real estate

Spending by foreigners is also likely to take a hit because of the coronavirus, particularly in Saudi Arabia and the UAE.

The UAE attracts more than 17 million visitors every year, Damak said, and this year it hopes to attract 25 million travelers to Expo 2020 Dubai in October.

Saudi Arabia receives 20 million tourists annually, most of them for religious purposes. The kingdom has temporarily suspended entry to the country for the purpose of Umrah and visiting the Prophet’s Mosque, an important site for Muslims.

Damak said, at this stage, it’s difficult to tell if Expo 2020 and the pilgrimage season — which starts in July — will be affected by the virus outbreak.

“If that were to be the case, then obviously the economic impact on both Saudi Arabia and the UAE would be higher than what we currently expect,” he said.

On the real estate side, he pointed out that Chinese buyers alone contributed to 1% of real estate transactions in Dubai in 2018. But purchasing decisions may be put off due to the “psychological effect” of the coronavirus despite falling interest rates, he said.

Capital markets

There has been “extreme volatility” in capital markets recently, and that may mean companies with “weak credit stories” will have trouble coming to the market, said Damak.

“This means that Bahrain, Oman and maybe also some corporates in the UAE will probably find it a little bit more difficult to get to the market this year.”

For any professional assistance for your business in UAE contact us.

Source : cnbc

Coronavirus more like a global economic crisis

Corona Impact

Wide-ranging efforts to halt spread of illness threatening jobs, paychecks and profits

The coronavirus outbreak began to look more like a worldwide economic crisis over the weekend as anxiety about the infection emptied shops and amusement parks, cancelled events, cut trade and travel and dragged already slumping financial markets even lower.

More employers told their workers to stay home, and officials locked down neighbourhoods and closed schools. The wide-ranging efforts to halt the spread of the illness threatened jobs, paychecks and profits.

“This is a case where in economic terms the cure is almost worse than the disease,” said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics. “When you quarantine cities… you lose economic activity that you’re not going to get back.’

The list of countries touched by the illness climbed to nearly 60. The head of the World Health Organization on Friday announced that the risk of the virus spreading worldwide was “very high”, citing the “continued increase in the number of cases and the number of affected countries.”

UN secretary-general Antonio Guterres urged all governments to “do everything possible to contain the disease.”

“We know containment is possible, but the window of opportunity is narrowing,” the UN chief told reporters in New York.

The economic ripples have already reached around the globe.

Stock markets around the world plunged again on Friday.

The effects were just as evident in the hush that settled in over places where throngs of people ordinarily work and play and buy and sell.

“There’s almost no one coming here,” said Kim Yun-ok, who sells doughnuts and seaweed rolls at Seoul’s Gwangjang Market, where crowds were thin as South Korea counted 571 new cases – more than in China, where the virus emerged. “I am just hoping that the outbreak will come under control soon.”

In Asia, Tokyo Disneyland and Universal Studios Japan announced they would close, and events that were expected to attract tens of thousands of people were called off, including a concert series by the K-pop group BTS. The state-run Export-Import Bank of Korea shut down its headquarters in Seoul after a worker tested positive for the virus, telling 800 others to work from home. Japanese officials prepared to shutter all schools until early April.

In Italy – which has reported 888 cases, the most of any country outside of Asia – hotel bookings are falling, and Premier Giuseppe Conte raised the specter of recession. Shopkeepers like Flavio Gastaldi, who has sold souvenirs in Venice for three decades, wondered if they could survive the blow.

“We will return the keys to the landlords soon,” he said.

The Swiss government banned events with more than 1,000 people, while at the Cologne Cathedral in Germany, basins of holy water were emptied for fear of spreading germs.

Europe’s economy is already teetering on the edge of recession. A measure of business sentiment in Germany fell sharply last week, suggesting that some companies could postpone investment and expansion plans. China is a huge export market for German manufacturers.

In the US, online retail giant Amazon said on Friday that it has asked all of its 800,000 employees to postpone any non-essential travel, both within the country and internationally.

The chairman of the Federal Reserve, Jerome Powell, said that the US economy remains strong and that policymakers would “use our tools” to support it if necessary. 

Larry Kudlow, the top economic advisor to President Donald Trump, told reporters that the selloff in financial markets may be an overreaction to an epidemic with uncertain long-term effects.

“We don’t see any evidence of major supply chain disruptions. I’m not trying to say nothing’s happening. I think there will be impacts, but to be honest with you, at the moment, I don’t see much,” Kudlow said.

The pain was already taking hold in places like Bangkok, where merchants at the Platinum Fashion Mall staged a flash mob, shouting “Reduce the rent!” and holding signs that said “Tourists don’t come, shops suffer.”

Tourist arrivals in Thailand are down 50 per cent compared with a year ago, according Capital Economics, a consulting firm.

Kanya Yontararak, a 51-year-old owner of a women’s clothing store, said her sales have sunk as low as 1,000 baht ($32) some days, making it a struggle to pay back a loan for her lease. She’s stopped driving to work, using public transit instead. She also packs a lunch instead of buying one and is cutting her grocery bills. The situation is more severe than the floods and political crises her store has braved in the past.

“Coronavirus is the worst situation they have ever seen,” she said of her fellow merchants.

Economists have forecast global growth will slip to 2.4 per cent this year, the slowest since the Great Recession in 2009, and down from earlier expectations closer to 3 per cent. For the United States, estimates are falling to as low as 1.7 per cent growth this year, down from 2.3 per cent in 2019.

But if Covid-19 becomes a global pandemic, economists expect the impact could be much worse, with the US and other global economies falling into recession.

“If we start to see more cases in the United States, if we start to see people not travelling domestically, if we start to see people stay home from work and from stores, then I think the hit is going to get substantially worse,” said Gus Faucher, an economist at PNC Financial.

Some saw dollar signs in the crisis. Twenty people were arrested in Italy for selling masks they fraudulently claimed provided complete protection from Covid-19. Police said they were selling them for as much as 5,000 euros ($5,520) each.

For any professional assistance for your business in UAE contact us.

Source : Khaleej Times

Economic Substance Regulations in UAE

economic-substance-law-uae

​ As part of the UAE’s commitment as a member of the OECD Inclusive Framework, and in response to an assessment of the UAE’s tax framework by the European Union (“EU”) Code of Conduct Group on Business Taxation, the UAE introduced a Resolution on the Economic Substance (Cabinet of Ministers Resolution No.31 of 2019, the “Regulations”) on 30 April 2019.  Guidance that provides further clarity on the application of the Regulations was issued on 11 September 2019. The Regulations require UAE onshore and free zone companies and other UAE business forms that carry out any of the “Relevant Activities” listed below to maintain an adequate “economic presence” in the UAE relative to the activities they undertake. 

 
Relevant Activities:
  • Banking Business
  • Insurance Business
  • Investment Fund management Business
  • Lease – Finance Business
  • Headquarters Business
  • Shipping Business
  • Holding Company Business 
  • Intellectual property Business (“IP”)
  • Distribution and Service Centre Business​
 
 
The Regulations provide a definition to each of the above Activities. The provisions of the Regulations shall not apply to Companies in which the Federal Government of the UAE or the Government of any Emirate of the UAE, or any governmental authority or body or any of them has at least 51% direct or indirect ownership in their share capital. The Regulations apply to financial years commencing on or from 1 January 2019. Entities that are governed by the Regulations will need to submit a notification to their Regulatory Authority (defined under Cabinet Decision No (58) of 2019 issued on 4 September 2019) from 1 January 2020 onwards, and prepare and submit to the same Regulatory Authority an economic substance declaration  within 12 months from the end of their financial year (e.g. 31 December 2020 for entities with a financial year ending 31 December 2019). An entity is not required to meet the economic substance test and file an economic substance declaration for any financial period in which it has not earned income from a Relevant Activity. Failure by an entity to comply with the Regulations shall result in administrative penalties, spontaneous exchange of information with the Foreign Competent Authority (as defined in Article 1 of the Regulations), and potential suspension, revocation or non-renewal of its registration.

The Economic Substance Regulations

1.Why has the UAE introduced Economic Substance Regulations?

The UAE introduced Economic Substance Regulations to honour the UAE’s commitment as a member of the OECD Inclusive Framework on BEPS, and in response to a review of the UAE tax framework by the EU which resulted in the UAE being included on the EU list of non-cooperative jurisdictions for tax purposes (EU Blacklist). The issuance of the Economic Substance Regulations on 30 April 2019 (the Regulations), and the subsequent release of the Guidance on the application of the Regulations on 11 September 2019, was a requirement for the removal of the UAE from the EU Blacklist on 10 October 2019. The purpose of the Regulations is to ensure that UAE entities that undertake certain activities (see question 4) are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE.

2.What is the first reportable Financial Year?

The Regulations apply to financial years starting on or after 1 January 2019. Example 

1: A UAE company with 1 January 2019 – 31 December 2019 financial year: First assessable period would be 1 January 2019 – 31 December 2019. Example 

2: A UAE company with 1 April 2019 – 31 March 2020 financial year: First assessable period would be 1 April 2019 – 31 March 2020. No need to comply with the Regulations for the period 1 January 2019 – 31 March 2019.

3.Who are the “Regulatory Authorities”?

The Regulations are administered by the Regulatory Authorities listed in Cabinet Resolution No (58) of 2019 Determining the Regulatory Authorities Concerned with the Business Mentioned in Cabinet Resolution No (31) of 2019 Concerning Economic Substance Regulations 

Does your business fall under Economic Substance Regulations in the UAE?

If your business falls under the entities with the above-mentioned activities in the UAE, then you may need assistance to determine the applicability if Economic Substance Regulations is relevant for you as you need to analyze the implication of this new regulation in the UAE.

The team at Alya Auditors will assist you in providing preliminary assessments of your company’s current compliance obligations, and assist with possible future strategies, in response to this new legislation.

For more details on "Economic Substance" read
Source  :  Ministry of Finance Website

New UAE law to help people facing financial issues

New-Law-in-UAE-2020

UAE Formulated New Law To Help People Facing Financial Issues

Debt-ridden individuals will be protected from criminal prosecution and instead offered support to repay debts within three years, according to a new UAE law.

The UAE Cabinet approved a new Federal Law on Sunday to regulate cases of insolvency.

The new law will protect debtors from legal prosecution, decriminalize the financial obligations of insolvent persons, and offer them an opportunity to work, be productive and provide for their families.

According to legal experts, the law is the end of ‘bad news’ for people faced with spiralling debts.

“This will stop people with financial difficulties from running away from the country,” said Ashish Mehta, founder and managing partner of the legal firm in UAE.

Social workers hailed the law saying ‘it is a great gift’ to many families knee-deep in debt.

The law, which will enter into force in January 2020, will assist debtors in settling their financial obligations through one or more experts, to be appointed by the court.

It will support individuals who are facing existing or anticipated financial difficulties, rendering them unable to settle their debts. Individuals will be allowed to reschedule their debts and will have the opportunity to avail of new concessional loans.

The laws aims at enhancing the competitiveness of the UAE by ensuring the ease of doing business, creating favourable conditions for individuals facing financial difficulties and protecting those who are unable to pay their debts from going bankrupt, Wam reported.

The law is part of the government’s efforts to ensure convenience for citizens and residents, and respond to their needs.

The experts appointed by the courts will coordinate with the debtor and creditors to come up with a plan, lasting no longer than three-years, to settle the financial liabilities and fulfil all obligations stipulated in the plan.

During this period, the debtor will be prevented from taking any loans until the court decides, upon the request of the expert, the debtor or any of the creditors, that the implementation of the plan has been accomplished.

The law also contains special provisions that contribute to the swift completion of legal procedures and reduces the fees charged for rescheduling and restructuring the debts, with a view towards finding a fair compromise for both creditors and debtors.

The legislation not only contributes to enhancing the credit-worthiness of the country and its future growth prospective, but also enhances the competitiveness and strength of its economy, thus ensuring and enabling an environment that encourages entrepreneurship and provides favourable conditions for doing business.

The law, which complements existing financial laws, will contribute to increased transparency, in terms of civil debt repayment transactions, and will ultimately strengthen the UAE’s position as an ideal hub for investment, where the rights of all parties are guaranteed.

“The law essentially gives some hand-holding for individuals and assures them that there is no need to cross the coast. I will say this is fantastic news,” said lawyer Ashish Mehta.

According to him, when people take extreme measures like running away from the country to escape debts or legal prosecution, they leave a trail of losses that affects hundreds or even thousands including his clients or employees.

“That will stop now as the law gives them a breathing space to restructure their debts and rebuild their lives. And in turn, this will also boost confidence of businesses and investors as there will be more confidence in the market.”

“More than just helping businesses, this is a great humanitarian gesture,” said Naseer Vadanapally, a social worker based in Dubai.

“I know cases where debts have driven people to extreme measures like suicide. In fact, mounting debts and harassment from banks were the reasons for the majority of the suicide cases I had dealt with in the past.”

According to him, families will hugely benefit from the law because most of them are eager to negotiate and settle their debts so that they can continue to live and work in the UAE.

Courtesy to Khaleej Times

New UAE law to help people facing financial issues

New Law in UAE 2020

UAE Formulated New Law To Help People Facing Financial Issues

Debt-ridden individuals will be protected from criminal prosecution and instead offered support to repay debts within three years, according to a new UAE law.

The UAE Cabinet approved a new Federal Law on Sunday to regulate cases of insolvency.

The new law will protect debtors from legal prosecution, decriminalise the financial obligations of insolvent persons, and offer them an opportunity to work, be productive and provide for their families.

According to legal experts, the law is the end of ‘bad news’ for people faced with spiralling debts.

“This will stop people with financial difficulties from running away from the country,” said Ashish Mehta, founder and managing partner of the legal firm in UAE.

Social workers hailed the law saying ‘it is a great gift’ to many families knee-deep in debt.

The law, which will enter into force in January 2020, will assist debtors in settling their financial obligations through one or more experts, to be appointed by the court.

It will support individuals who are facing existing or anticipated financial difficulties, rendering them unable to settle their debts. Individuals will be allowed to reschedule their debts and will have the opportunity to avail of new concessional loans.

The laws aims at enhancing the competitiveness of the UAE by ensuring the ease of doing business, creating favourable conditions for individuals facing financial difficulties and protecting those who are unable to pay their debts from going bankrupt, Wam reported.

The law is part of the government’s efforts to ensure convenience for citizens and residents, and respond to their needs.

The experts appointed by the courts will coordinate with the debtor and creditors to come up with a plan, lasting no longer than three-years, to settle the financial liabilities and fulfil all obligations stipulated in the plan.

During this period, the debtor will be prevented from taking any loans until the court decides, upon the request of the expert, the debtor or any of the creditors, that the implementation of the plan has been accomplished.

The law also contains special provisions that contribute to the swift completion of legal procedures and reduces the fees charged for rescheduling and restructuring the debts, with a view towards finding a fair compromise for both creditors and debtors.

The legislation not only contributes to enhancing the credit-worthiness of the country and its future growth prospective, but also enhances the competitiveness and strength of its economy, thus ensuring and enabling an environment that encourages entrepreneurship and provides favourable conditions for doing business.

The law, which complements existing financial laws, will contribute to increased transparency, in terms of civil debt repayment transactions, and will ultimately strengthen the UAE’s position as an ideal hub for investment, where the rights of all parties are guaranteed.

“The law essentially gives some hand-holding for individuals and assures them that there is no need to cross the coast. I will say this is fantastic news,” said lawyer Ashish Mehta.

According to him, when people take extreme measures like running away from the country to escape debts or legal prosecution, they leave a trail of losses that affects hundreds or even thousands including his clients or employees.

“That will stop now as the law gives them a breathing space to restructure their debts and rebuild their lives. And in turn, this will also boost confidence of businesses and investors as there will be more confidence in the market.”

“More than just helping businesses, this is a great humanitarian gesture,” said Naseer Vadanapally, a social worker based in Dubai.

“I know cases where debts have driven people to extreme measures like suicide. In fact, mounting debts and harassment from banks were the reasons for the majority of the suicide cases I had dealt with in the past.”

According to him, families will hugely benefit from the law because most of them are eager to negotiate and settle their debts so that they can continue to live and work in the UAE.

Courtesy to Khaleej Times

Searching for a Business Sale

Selling-Your-Business-uae-dubai

There may come a time when you decide to sell whole or part of your business and the reasons behind your decision can vary. You want to retire or the next generation are not interested in going into the family business. You may even contemplate selling part of your business for strategic purposes for example selling to get access to new markets or obtaining equity investment enabling the business to grow and add greater value to it.

Whatever the reason behind your decision to sell business owners should plan ahead before putting the ‘for sale’ sign up and inviting bids. If looking to sell in 5 years’ time for example then in the run up period one should ensure that the business is running efficiently as it can.

The importance of cost efficiencies

Focus on cost efficiencies and control and tidy up the balance sheet. So follow up on any old debts or sell any redundant assets. Working capital management is important as you don’t want cash tied up. Essentially you want to ensure that you are getting maximum value for your business when it comes to selling. It will only improve your position if efficiencies are brought in during the negotiating period.

Ensure that all financial and tax filings are up to date and be able to demonstrate a history that these have been filed on time. Reliance will be placed on the financial statements so have if they have been independently audited then this will add credibility to them.

By having a strong management team in place, the business should be able to continue trading once you are out of the picture. It is important to remember it is the business that you are selling not you and the business has to be able survive with you.

Review your client portfolio

Review your client portfolio, as clearly if the business is reliant on small number of customers then this will impact on the valuation, so ideally you should look to have broad customer base in place before you sell. Where there is a concentration on a small number of clients then a prospective buyer will want to see the strength of that relationship, for example copies of signed contracts. Remember the prospective purchaser wants certainty that customers will be retained.

Prepare a realistic forecasts and future cash flows of where you see the business going. Undoubtedly there will be some assumptions that will be challenged but if you are able to demonstrate the strength of client relationships (e.g. signed contracts) and a history of growth then this should help you when challenged.

Make sure you get the right advice and support from professional advisers. Undoubtedly there will be various complex accounting, tax and legal issues that will arise. You may not recognise these and you don’t want them coming back to haunt you. It is therefore important to have the right accountants and legal advisers to guide you along. Alya Auditors can surely help you out in all you business needs.

For more information then please contact us on 052 475 4007 or email us at audit@alyaauditors.com .