Strategy Note /
United Arab Emirates

UAE calls citizens of the world

  • Path to citizenship announced for specific categories of expats; exact criteria to come (but dual citizenship allowed)

  • Whether this is silver reform bullet matters less than its demonstration that UAE will do whatever is needed for growth

  • Citizenship policy a positive signal for property developers in the way December tourists were for hospitality-retail

UAE calls citizens of the world
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
30 January 2021
Published byTellimer Research

Normalisation of relations with Israel, the re-opening of tourism prior to mass vaccination, and now the reforming citizenship rules; in the past few months, the UAE is demonstrating that it is prepared for as radical reforms as necessary to reignite growth. Few taboos remain (eg the currency peg and licensed gambling).

The UAE's relatively small size, political structure, sovereign wealth, and government-related debt creates a combination of political mandate for reform, capability for quick policy implementation, and incentive for change which is rare globally. Of course, some of the most important factors impacting demand – eg oil price, Covid-19, global growth, and regional geopolitics – are out of its control.

Equities in Dubai, more than Abu Dhabi, arguably reflect sufficient pain from the depressed global demand environment and offer an attractive entry point to this demonstrable reform commitment.

The United Arab Emirates is opening up a path to citizenship for different categories of foreigners (eg investors, doctors, engineers, artists) and their families, according to announcements on 30th January. This move builds upon structural changes in recent years to liberalise foreign ownership of businesses, reform bankruptcy protection, create more types of expatriate residency visa, and establish longer-term expatriate residency.

The precise criteria are still to be announced, but any candidates will likely require nomination by local governing bodies and dual citizenship will be allowed. It is also unclear, at this stage, to what degree new citizens would benefit from the welfare benefits (eg education and healthcare subsidies, and nationalisation employment quotas) or be subject to commitments (eg national service).

UAE population compound annual growth rate collapsed from 10% in decade to 2010 to 1.5% in the decade since

Whether this is the silver bullet of reform matters far less than its demonstration that the UAE authorities are prepared to undertake previously unthinkable reforms to reignite growth. In the same way that the recent New Year holiday season was a positive demonstration of the massive pent-up demand for the recurring revenue businesses (hotels, malls) geared to leisure tourism (regardless of the subsequent Covid-19 spike, which simply confirms any recovery will be a stuttering one), this citizenship announcement arguably provides a positive signal for beleaguered property developers.

Citizenship reform should ultimately help property developers, who are otherwise simply adding to over-supply

UAE property prices (finished residential apartments) are about 30% below the 2014 peak. While Abu Dhabi prices are below the 2012 trough, Dubai prices still have another c20% downside to the 2010 trough.

UAE property prices 35% (Dubai) and 30% (Abu Dhabi) below 2014 peak, but in Dubai, 2010 trough was another 18% lower

Equity valuation is more attractive, on the basis of trailing price/book relative to history, in Dubai (where real estate related companies are a weightier component) than Abu Dhabi (where government-related banks and telecom companies feature more). That makes Dubai equities a more geared play to signs of a pick up in tourism and, long-term, real estate expansion, whereas Abu Dhabi equities tend to offer a safer haven during a downturn.

Dubai equity index on a 13% discount to 5-year median price/book, whereas Abu Dhabi on a 13% premium

Related reading

Dubai Covid-19 cases surge, again a lesson for all EM tourism (January 2021)

UAE doing all it can to reignite expats, Dubai equities still cheap (November 2020)

Dubai real estate prices falling fifth year in a row and still not bottomed (October 2020)

UAE-Israel: Geopolitical and economic aspects of the deal (September 2020)

Dubai: The VIP Room (March 2017)