The current economic malaise could be used as a catalyst to launch federal bonds by issuing a range of maturities to create new liquidity, a top investment bank suggested.
At present there are no UAE federal bonds in issuance.
“The Federal government could use a form of “credit structure arbitrage” by issuing bonds and channeling the money to Dubai Inc entities,” said Shehab M Gargash, Chief Executive Officer of Daman Investments.
Releasing a report on the UAE economy on Monday, Gargash said the real estate sector is going through a transformative phase from one of asset creation to that of asset management.
“The emphasis will be on income producing assets as the regional industry takes a long term view on property. The correction in the real estate market is leading to a new focus among developers by catering to the needs of end users in the middle segment of the UAE real estate sector.
“A major milestone will be in the proliferation of dedicated real estate funds, REITS and the like focusing on the UAE,” he said.
On the ills of the stock markets, Gargash said recovery will take more time when bounty-hunters are out and serious players take centre stage.
Markets need additional liquidity from government funds to provide depth to the markets and regain investor confidence,” he said.
“Channel government liquidity directly into the markets. At present Sovereign Wealth funds do not directly participate in the markets, but rather own large stakes in listed companies. If they were to come into the market this would send a positive signal to market participants. For example, a recent precedent set by the Kuwait Investment Authority, was to launch a number of funds with local managers, whereby having KIA as a co investor gave confidence to investors in the market as well as other investors in the funds.
"There should be a programme for creating sustained activity including pension funds and government funds," Gargash said.
As it is, the UAE markets are the worst-performing among Gulf peers so far this year for want of institutional participation.
Gargash suggested that there is a need for setting up of secondary pension fund providers.
“The absence of secondary fund providers in both the UAE and the GCC is a glaring anomaly when compared to more developed markets. This may be due to the fact that, with the exception of Saudi Arabia, the bulk of the populations within the GCC are made up of expatriates which tend to be transient by their very nature,” the report said.
The Daman report ‘The UAE economy at a crossroad’ painted a not-so-bright picture of the economy.
“There are tough factors to consider, and tough decisions to be made. While the economic miracle that is the UAE is far from dead, the very real economic crisis in which the country finds itself has thrust upon it a set of challenges that will require courage and ingenuity to overcome,” the report said.
The report suggested that the UAE needs to go back to basics and refocus on sectors such as trade and hydrocarbon by building new trade partnerships and rekindling old ones.
“Focus on core competency. Historically it has been the trade and hydrocarbon sectors that had been at the heart of the UAE’s success. During the giddy years of real estate / construction fuelled growth, the focus had shifted
“What will be needed is a healthy collaboration between both the public and private sphere to engender such relationships,” it said.