Tag Archives: Government

Your health depends on a balanced healthcare playing field

September 4, 2017 By in Economy, Government, Analysis Tags: , , 1 Comment

It is my opinion that one of the greatest moves to support free market capitalism in the UAE is the cancellation for Abu Dhabi Thiqa insurance beneficiaries of the 20% co-pay for treatment at private healthcare facilities.  The 20% co-pay was introduced in June 2016 and at that time there was discussion on the effect on patients.  There was also, however, a massive impact to the economy, but I felt that at that time the personal and social issues should take precedence over the economy. I think that now might be a good time to review that impact of that decision with respect to the economy and the positive effects of the cancellation of the decision.

Why is the co-pay issue important? As a first pass, clearly applying a 20% co-pay to private hospitals would incentivise beneficiaries to choose public hospitals. Money isn’t the only issue for a patient in determining which healthcare facility to visit but in the absence of specialisation issues it is clear that money becomes one of the predominant deciding factors.

The consequence, of course, is material negative impact on the finances of these private hospitals. The effect was quickly felt at three long-term healthcare centres in the Emirate of Abu Dhabi who quickly had their co-pay requirements waived in January 2017,  and the quick government response allowed these institutions to continue providing important healthcare services.

The positive social impact is clear. But what is the positive economic impact? It is the strengthening of the healthcare sector, not because Thiqa is willing to pay for the full cost but because giving private institutions the same economic opportunities as public institutions allows them to not only thrive but to also take risks that only private companies take. Risks such as acquisitions that lead to consolidation in the health care sector and thereby a strengthening of the sector. Continue reading →

SWFs as endowments

August 27, 2017 By in Economy, Finance, Government Tags: , ,

Different sovereign wealth funds (SWFs) have different mandates. The largest are presumed to have a mandate similar to that of an endowment. The idea is that the state owns a large but fixed amount of a valuable commodity, usually oil, and that this oil is the property of not just the living citizens but also of all future citizens. Therefore, some of the income from today’s sale of the commodity needs to be saved for the future. So in effect the SWF is a future generation fund.

The question becomes, how much needs to be saved to make this all fair? Well, one way to define fair is that the government expenditure per citizen across all time should remain the same, adjusting for the time value of money. Another way to state this is that the purchasing power per capita remains constant. I think that most reasonable people would consider this fair. Continue reading →

Venture capital as a substitute for oil in driving economic growth

February 7, 2017 By in Economy, Oil, Government, Venture Capital, Entrepreneurship Tags: , , , ,

Venture capital is critical to the future success of not only the UAE but also the GCC. To understand this we first need to understand the historic formula for our success – oil leads to financial capital, which leads to real estate development, which creates social and business communities that attract people. Repeat.

Even if oil prices had not collapsed, sooner or later the size of the economy would reach a level at which oil alone could not deliver growth. We have not reached a point of reckoning because oil prices halved, that only accelerated the inevitable.

The conventional argument is that SMEs are the engine for growth in any economy. Some might argue that the global conglomerates coupled with global trade are the engines for growth. Whatever idea you subscribe to, in the end one has to accept that whether you believe SMEs drive economic growth or whether it is large companies, the first step is starting that company. Put simply, without start-ups an economy cannot normally achieve sustainable growth.

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The Ministry of Silly Walks to battle Trump, the TRA and the UAE banks and free zones.

November 15, 2016 By in Finance Tags: , , ,

The election of Donald Trump as the next president of the US has caused a ripple or two in world political and economic markets. As I discussed about Brexit, such knee-jerk responses create opportunities.

For example, Mr Trump’s promise to ban all Muslims from America would, one might think, cause stock prices in the travel and hospitality sector to drop seeing as Muslims comprise one quarter of the world’s population. In such a case the correct response would be to short these stocks. But that is the sucker’s play because this equity trade assumes that the American travel and hospitality sector cares about its clients and provides them with some form of quality service levels. Can you see the problem here? I wonder if that is where UAE bankers go to train.

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The GCC's Pension Funding Challenges and Silver Linings

October 13, 2015 By in Economy Tags: ,

The effect of demographics on the economy has been one of increasing concern for countries with ageing populations. The poster child for this issue is Japan although an increasing number of countries in the Western Hemisphere are beginning to take notice as well. The main issue is that declining population growth rates and in some cases negative population growth rates are severely challenging the historical funding of retirees with tax revenue collected from a working population that is greater in number.

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UAE VAT Positive for the Economy

August 25, 2015 By in Government Tags: , 1 Comment

The announcement of the planned introduction of a federal value-added tax (VAT) and a corporate tax in the UAE has stimulated a lot of discussion on what this means for the country and its residents.

I have a slightly different view to the current mainstream opinions, and would like to share it.

The overall premise of the conventional wisdom is that the federal government of the UAE is introducing new taxes to offset a decline in oil revenue due to lower oil prices. The problem is that the federal government does not generate its revenue from oil sales, as it does not own or sell oil. The majority of oil is to be found in the emirate of Abu Dhabi, and oil price changes would affect the emirate’s revenue, not that of the federal government.

What this means is that the tax receipts generated would not be to replace revenue lost to oil price declines, but would instead be additional revenue available to the federal government to spend and invest in the country. That means an expansionary budget at the federal level, a good thing.

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State-owned enterprises can learn from family businesses

June 9, 2015 By in Corporate Governance Tags: , ,

State-owned enterprises (SOEs) are controlled subsidiaries of a government which undertake commercial activities. SOEs are globally common and are involved in a wide variety of activities such as mail services, telecommunications, airlines, airports, railroads, natural resources, broadcasting and healthcare.

Sometimes it is easy to forget that SOEs form an important component of the economy. Just think of the UK’s BBC, Manchester airport, London Underground and London Rail. SOEs are usually connected to natural monopolies and infrastructure thus giving them an even greater influence over the economy.

Since SOEs are expected to act with their commercial interests as their main goal they can learn a lot from the private sector. There is one area though that does not crossover well from the private sector to the SOEs and that is corporate governance. Being a fully owned subsidiary of a government creates unique challenges not least because a government does not hold commercial interest as its overriding goal.

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Taxes give government more command over an economy

May 12, 2015 By in Government Tags: 1 Comment

Direct corporate and personal income tax in the GCC is extremely low or even non-existent. Even when indirect taxes, usually in the form of fees and dues, are added in, the total tax burden in the GCC remains light relative to the rest of the world.

It is not hard to see how this is possible, and the usual debate surrounding this topic centres on the sustainability of such policies. The general position is that the absence of corporate and personal income tax is a unilaterally beneficial state of affairs and that any introduction of a tax would have no benefits to the residents of the GCC.

Perhaps such a view is too one-sided. Could there be benefits to an income tax?

One idea used by taxing governments is that the structure of taxes can be used to influence behaviour. At the top of this list is the saving and investment behaviour of corporations and consumers.

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