Impact of Covid-19 on Tourism Industry of UAE Essay

Impact of Covid-19 on Tourism Industry of UAE Essay

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Impact of Covid-19 on Tourism Industry of UAE Essay

Abstract

The major source of economic stabilization in Middle East countries is oil production and export. The recent pandemic is causing turbulence to the economies of the Middle East region. A sudden drop in domestic and external demand for goods and products especially crude oil, downfall in the crude oil prices, halts in the production due to labor shortage are some of the major impacts observed in the region.

Additionally, falling consumer confidence coupled with the tightened financial condition is also decreasing the economic activities in the region. The World Travel and Tourism Council have warned the COVID-19 pandemic could cut 50 million jobs worldwide in the travel and tourism industry.

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Once the outbreak is over, it could take up to 10 months for the industry to recover. The tourism industry currently accounts for 10% of global GDP. The UAE economy derives much from its tourism industry. Studies project the travel and tourism industry will contribute about Dh312.4 billion to the UAE’s GDP by 2027.

It is apparent that the industry and its employees are the backbone of the economy. But if businesses in this industry don’t receive immediate aid from the government, the chances of them surviving the coronavirus outbreak are slim even though they were growing at a commendable rate before the outbreak (Hill, 2020).

The corona virus epidemic is putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year. The United Arab Emirates has implemented a travel ban on non-Emiratis residents, reduced customs fees and municipality fees, cut interest rates and is rolling out a $27 billion stimulus package to attempt to reduce the impact of the corona virus on the economy.

With tens of thousands infected across the region and thousands of lives lost, it is clear that Covid-19 will exacerbate governance failures, sectarianism, tensions between secularists and Islamists, and deepens economic cleavages within and between the states. The United Arab Emirates began implementing social distancing measures whilst the virus was still at its infancy.

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The impact would be felt most on the economic front as capital markets tumble, tourists evaporate in the midst of a ban on flights and lockdowns, and oil prices contract. Chinese buyers are involved in a significant portion of real estate transactions in the UAE. With China still recovering from the virus, these Chinese buyers have postponed making new purchases.

Given the vast economy of UAE with its glut of property, even before the virus, this city-state is confronting economic catastrophe. With the UAE cancelling its Expo 2020and Saudi Arabia not allowing the annual haj pilgrimage to take place, hundreds of millions of dollars were lost for both states.

The UAE was expected to attract 25 million visitors to its Expo 2020 event which was to be held in October 2020. It is perhaps in tumbling oiI prices, the core export for most Gulf Cooperation Council (GCC) states, where the greatest economic impact will be felt.

Literature Review

Author and Title- “Coronavirus: The world economy at risk” (OECD2020)

Model – NiGEM macro model

Assumptions- Monetary policy is allowed to be endogenous. The automatic fiscal stabilizers are allowed to operate fully in all countries, implying that governments do not react to the shock by attempting to maintain a previously announced budget path

Scenarios;

• Contained Outbreak (short lived but severe downturn in China)-Domestic demand in China and Hong Kong, China is reduced by 4% in the first quarter of 2020, and 2% in the second quarter of 2020. Global equity prices and non-food commodity prices are lowered by 10% in the first half of 2020.

Higher uncertainty is modeled via a small rise of 10 basis points in investment risk premia in all countries in the first half of 2020. This raises the cost of capital and reduces investment. Results -China GDP loss = -0.2 percentage point in 2020H1; Reduction of China import demand = -6%; World GDP is reduced by to 0.5 percentage point in 2020; Global trade declines 0.9% in 2020 (and 1.4% in first half of 2020)

• A “domino” scenario: broader contagion- -Domestic demand in most other Asia-Pacific economies, including Japan and Korea, and private consumption in the advanced northern hemisphere economies are reduced by 2% (relative to baseline) in the second and third quarters of 2020.

Global equity prices and non-food commodity prices are lowered by 20% in the first nine months of 2020. – Heighted uncertainty is modeled via an increase of 50 basis points in investment risk premia in all countries in 2020. Results -World GDP is reduced by up to 1 ½ per cent; World trade is declining by around 3 ¾ per cent in 2020

To carry out the literature search efficient literature search techniques and strategies have been implemented by the researcher, for instance, the keyword and Boolean Operators techniques along with strategies like most recent and relevant literature are selected. The most important technique of literature search is searching the important literature with the help of keywords.

The literature search has been carried out in few integral steps which are question formulation, defining the key concepts and keywords, selection of databases, carry out a search, evaluation of the search results, lastly selection of the most relevant pieces of literature for conducting the study and collecting important information for the study.

For keyword searching the research, question has been broken into several parts to find out the key concepts of the study. Then, the keywords and their entire synonyms and acronyms are used to search the essential literature. Apart from the keywords technique, the Boolean operator method is also used to search for the necessary literature for the study. The essential secondary data has been collected from the selected literature to carry out an authentic research study on the topic

Research Methodology

We ought to use primary data and the best way is through interviews and questionnaires. In terms of indicators, the evaluation should aim to draw on different types of indicators (i.e., latest inputs, outputs, outcomes, impacts,) to reflect the key results in the disease’s theory of change.

Impact evaluations of (COVID-19) should ideally use the indicators that were selected for monitoring performance throughout the disease implementation period, and how coronavirus pandemic has spread across the UAE and the world in general.

We can also employ and have links to data collection instruments, including surveys, for assessing COVID-19-relevant Behavioral and Social Science (BSSR) domains for clinical or population research where participants will voluntarily give their feedback.

We would also observe COVID-19 related Lifestyle Change (work, sleep, school, testing positive, family, and exercise) and how this has impacted tourism and travel in the UAE. Analyze disruption to daily activities and social interactions–how the pandemic has impacted routines, social activities and interactions.

Financial Hardship how the COVID-19 pandemic has affected finances and created and/or exacerbated financial hardships reduced both local and international tourists. Scrutinize perceived benefits; how experiences with the pandemic have led to any perceived benefit or positive contribution and counter the opposite too.

Functional social support; access how availability and use of social resources during the pandemic has impacted the tourism industry. Finally, access perceived stress management and ability to manage stress and how this has influenced ability to implement skills to manage pandemic related stressors. We would also look at trends in social media platforms and media houses for this data.

Research Objectives

The objective of this study is to measure the impact of the occurrence of Covid-19 on the tourism industry in United Arab Emirates.

The report will cover:

• A comprehensive research methodology of the pre and post-COVID-19 impact on the UAE economy based on tourism.
• A detailed and extensive tourism market overview with key analyst insights.
• An exhaustive analysis of macro and micro factors influencing the tourism market guided by key recommendations.
• Analysis of regional regulations and other government policies impacting the UAE economy in regards to tourism.
• Insights about international tourism market determinants which are stimulating the UAE economy.
• Detailed and extensive tourism market segments with regional distribution of forecasted revenues.
• Extensive profiles and recent developments of market players in the tourism industry.

Data Analysis and Interpretation

Prior to the outbreak, airlines had planned to increase seat capacity in 2020 by 3.5%

(International by 3.2% and domestic by 3.7%), compared to 2019. According to the latest estimates, passenger seat capacity could instead drop from the above Baseline by 32% to 59% (international by 38% to 71% and domestic by 28% to 51%). This capacity level would be 30% to 58% (international 36% to 70% and domestic 25% to 49%) below the 2019 level.

Biggest capacity reduction (%) is expected to be in Europe, followed by Africa and Middle East. To prop up the economy, the UAE Central Bank has announced a $27bn support plan for banks, while Dubai has announced $409m in direct stimulus for the energy, trade, retail and tourism sectors.

Individual government-related entities have also begun issuing support packages for their business partners and suppliers. According to Aljazeera, recent travel restrictions imposed to curtail the outbreak could pose a very serious risk as well to the hospitality and tourism industry in the UAE, which is set to host Expo 2020 in Dubai and attract a staggering 11 million tourists to the area. Predictions like these, however, are largely speculative.

As it stands, the city’s financial sector is still performing well, the country’s gross domestic product (GDP) saw a growth of 2.9 percent in 2019, and there is no indication that passenger numbers have declined. The UAE has adopted a series of policies that appear to have prevented a full-scale outbreak on its territory as well as preserve its vital commercial ties to Asia.

While many nations around the world have seen both, medical and economic fallout in recent weeks, with Southeast Asia being dealt a serious blow, the UAE’s balanced approach is one that can and should be replicated.

Fig: Global Economic Effects of COVID-19

Fig: Projected Government Fiscal Balances Relative to GDP In percent shares of Gross Domestic Product

Fig: Gross Domestic Product, Percent Change

Travel and Tourism

Air transportation is an important source of revenue for the UAE, being home to Emirates, the world’s largest long haul airline, as well a center for other major regional carriers such as Etihad Airways and Air Arabia. According to a 2019 report from the International Air Transport Association, air transportation accounted for $19.3 billion, or around 5% of the U.A.E’s GDP last year.

Tourism doubles this figure. The World Travel and Tourism Council had travel and tourism accounting for over 11% of the U.A.E’s GDP in 2018. All airlines will have to contend with cancellations as further flight restrictions come into effect.

With global travel almost certain to be severely disrupted well into Q2 of 2020, this is definitely a key part of the U.A.E’s economy that will take a hit. Shares in Air Arabia fell to lows of 1.08AED during Monday’s trading session before recovering slightly in the following days. They are currently down more than 30% year-to-date.

Flights halted- A given hotel, which has reduced staffing to 20%, is among hundreds of similar establishments facing similar strains in Dubai, where tourism accounts for more than 11% of GDP and supports the retail, transport and construction sectors. The hotel put 300 employees on unpaid leave and shut its pool bar and beach club, after the pandemic hit global travel and led the United Arab Emirates to close most public venues.

The World Travel & Tourism Council said Dubai was the third largest city in the world in attracting direct international tourism spending, with $28 billion in 2019. More than 16 million tourists visited the city last year, the government said. State-owned Emirates airline, which posted 862 million dirhams ($234.70 million) in profits in the first half of 2019, halted passenger flights even before the UAE suspended all passenger flights, except evacuations trips.

Dubai is the most vulnerable Middle East economy to coronavirus travel curbs and state firms could be forced into a debt restructuring or seek help from UAE capital Abu Dhabi. Dubai’s debt burden is at around $135 billion (125% of GDP), almost half due before end-2024, Capital Economics estimates.

Abu Dhabi last year rolled over for a second time a $10 billion loan made to Dubai in the global credit crisis, which saw Dubai’s real estate market crash. This is generally bad for the economy of UAE. Hotel occupancy rates in the UAE, a federation of seven emirates, were down 28.2% year-on-year in the first week of March, while revenue per available room was down 43%, preliminary data from analytics specialist STR showed.

The spread of the disease is also putting at risk the EXPO 2020 world fair which Dubai is preparing to host from October, with a target of 20 million tourists. “We can confirm that some of our properties in the Middle East have temporarily closed,” Marriott International said in a statement to Reuter Chinese tourists, who until recently thronged the city’s main tourist attractions, are largely absent.

Shopping malls in the city are noticeably quieter and taxi drivers lament a lack of customers. Hotels have slashed rates in a bid to sustain occupancy, with some reportedly asking staff to take leave to cut costs through the downturn. Technically the outbreak has prompted the cancellation or postponement of a host of other events in the UAE, from music festivals and business conferences to Art Dubai, the Gulf’s most prominent art fair.

Possible Solutions from the government after the pandemic to help boost the tourism industry will be:

1. a) The government should provide cash loans equivalent to a minimum of three months of working capital. The release of these funds can be micromanaged based on a month-on-month analysis of the budget.
2. b) The government should waive mortgages, loans, and credit card payments for at least three months until the industry recovers from the pandemic. They should also do the same with credit card repayments.
3. c) Companies would be applicable for zero visa cost if they hire any new employees in the next six months. This will be a boon for the looming high unemployment rate.
4. d) The cost to renew licenses would be waived off for this year.
5. e) Utility and housing fees could be cut by half for vacation rental homes, which will allow investors to save money to survive these tough times.

The Abu Dhabi Government has also announced the suspension of tourism and municipality fees for the tourism and entertainment sectors until the end of this year.Restaurants are authorized to resume activity with 30% capacity since April 24th.

Conclusion

Small businesses have played a huge role in creating and maintaining the successful UAE economy, with vacation rentals being in top form. Dubai is hosting the Expo 2020 on October 20, 2020. If these businesses aren’t given the support they need, they will most likely not be around.

The UAE government has always supported the SME industry, which has helped it soar to great heights of success, and it is our belief they will continue as such. In these tough times, we look up to the government and are sure they will provide the aid needed as they always have in the past.

After all, while people have multiple ways to distance ourselves from the virus breakout, businesses need some ammunition to brave this storm and emerge victorious. This research paper has examined the greater impact that is being created by the virus on tourism.

It has also showcased the ultimate harm it created on the economy of the country and the globe too at the same time. It is being thought that the impact will continue for some more time and that is of much more concern in recent times

References

1. Aguiar, Angel, Maksym Chepeliev, Erwin L. Corong, Robert McDougall, and Dominique van der Mensbrugghe. 2019. “The GTAP Data Base: Version 10.” Journal of Global Economic Analysis 4 (1): 1–27. https://doi.org/10.21642/jgea.040101af.
2. Brahmbhatt, Milan, and Arindam Datta. 2008. On SARS type economic effects during infectious disease outbreaks. World Bank Policy Research Paper No. 4466, World Bank, Washington, D.C. http://documents.worldbank.org/curated/en/101511468028867410/On-SARS-type-economiceffects-during-infectious-disease-outbreaks.
3. Hill, Andrew and Emma Jacobs, “Covid-19 May Create Lasting Workplace Change,” Financial Times, February 27, 2020. https://www.ft.com/content/5801a710-597c-11ea-abe5-8e03987b7b20
4. El-Erian, M. (2020). The Coming Coronavirus Recession and the Uncharted Territory Beyond. Foreign Affairs, Media Report. Available at: https://www.foreignaffairs.com/articles/2020-03-17/coming-coronavirus-recession
5. McKibbin, Warwick, and Roshen Fernando. 2020. “The Global Macroeconomic Impacts of COVID-19.” Brookings Institute, no. March: 1–43. https://www.brookings.edu/wpcontent/uploads/2020/03/20200302_COVID19.pdf.
6. “UAE CORONAVIRUS (COVID-19) UPDATES”. UAE’s national emergency crisis and disaster management authority. “Dubai’s Emirates cuts passenger flights to 13 destinations”. 22 March 2020
7. Turak, Natasha (29 January 2020). First Middle East cases of coronavirus confirmed in the UAE CNBC.com.

What is the age of the top manager of the business 34 years and younger 35 years of age and older Don’t Know 11 5 54 Is this establishment currently registered with or licensed by a national authority Yes, registered business Freelancing/independent/consultant No, unregistered business Do not know 55 5 0 10 Does the business participate in international trade? No, we buy and sell within our country only We import but do not export We export but do not import We export and import 19 11 25 15 Has business operations been affected by the coronavirus (COVID-19) pandemic? Strongly affected Not affected Slightly affected Moderately affected 20 10 5 35

When could this closure occur?

Sales 1 month or less 3 months 6 months or more Business closure not envisaged 30 20 15 5

Ability To Purchase Inputs

ability to purchase inputs

Difficulty accessing inputs domestically Difficulty importing inputs from abroad Lower domestic sales to consumers Increased domestic sales Lower domestic sales to businesses Difficulty exporting Improved exporting Don’t know 10 7 3 5 15 20 5 5

Has the coronavirus (COVID-19) pandemic affected your enterprise Temporary shutdown Employee absences due to sickness or childcare Clients not paying their bills Reduced logistics services Reduced certification services New problems with infrastructure, e.g. internet or roads Increased administrative bottlenecks Reduced investment None of the above Other, please specify: Don’t Know 10 7 3 3 2 20 15 1 3 5 1

Have you adopted any of the following strategies to cope with the crisis Temporarily reduced employment Laid off employees Loaned employees to other enterprises Teleworking Rescheduling of bank loans Increase marketing efforts Online sales Customized / new products Started sourcing from new suppliers Filed for bankruptcy Other None 9 8 3 3 2 17 13 1 3 5 5 1

Government Measures That Would Be Most Helpful As You Cope With The COVID Crisis

government measures that would be most helpful as you cope with the COVID crisis Employment programs (e.g. temporary unemployment programs or social security waivers) Financial programs, such as low interest credit line or credit guarantees Tax waivers or temporary tax breaks Reduction of tariffs on imported inputs Rent subsidies Cash transfers Support to self-employed Other services, please specify: 17 3 10 15 5 5 2 13

How easy is it to access information and benefits from government COVID-related SME assistance programs? Very easy Easy Standard Difficult Very difficult 10 15 35 3 7 How many full-time employees does the business have 0 1-4 5-19 20-99 100-249 250 and more 0 0 0 10 45 15 What is the gender of the top manager of the business? Male Female Don’t Know 14 36 2

Impact of Covid-19 on Tourism Industry of UAE Essay

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