Expo 2020 and Its Impact on UAE Industries

Jay Krishnan ,Partner

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HLB HAMT - Accounting Firm in UAE
Phone:- +971 4 327 7775
Mobile:- +971 55 160 1291
Email:- dubai@hlbhamt.com

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    Expo 2020 is the current buzzword that has been stealing limelight for quite a while. Ever since Dubai was selected as the venue to host the event, the people and media of UAE have been celebrating every minute progress regarding the event. It’s an excellent opportunity for the city to showcase who they are, what they can offer to the world and why they are the best.

    Expo 2020 will undoubtedly have a significant impact on the economy of the country, with massive shift expected across almost every business sector in UAE. Right from tourism and hospitality to real estate and construction, the impact of Expo 2020 will be huge and impressive. Let’s have a look at some of the sectors that will witness a massive transformation with Expo 2020 around the corner-

    Tourism and hospitality

    Tourism forms a major part of UAE’s economy and with Expo 2020 a major upgrade to the industry is expected. Approximately 25 million visitors will make it to the expo, with more than 70 percent coming from outside the country.

    Along with tourism, hospitality sector will also witness a significant change in its business. Accommodating the large number of visitors is indeed a challenge and to tackle this, up to 45,000 additional hotel rooms will be added to the existing 82,000 room supply.

    Numerous hotels are under construction and a total investment of US$7.2 billion is required in hotel capacity by 2020.

    Food and beverage

    Providing accommodation for visitors is important; equally important is pleasing their palette. It is indeed a unique, one-time opportunity for food businesses in Dubai, to provide service to a large sector of population.

    Expo 2020 opens plethora of opportunities for food businesses looking to establish and expand their base in the country, even if it is a small hotel or a food truck. More than 200 Food and Beverage outlets covering an area of 30,000 sqm will be featured at the site and 85,000 meals are expected to be served every hour. 

    Cleaning

    Another industry that is expected to undergo huge transformation during  Expo 2020 is cleaning industry. Hotels, exhibition centres, commercial complex, residential and commercial projects will require the facilities of cleaning companies.

    Currently, the cleaning and hygiene industry stands at AED 80 billion and this is likely to reach AED 300 billion by the end of 2020.

    Again, this is the best time to pitch in if you wish to start or expand your cleaning business in the country. A cleaning license is mandatory if you wish to carry out cleaning business in the country.

    Real Estate & construction

    UAE’s real estate market has not been all that great in the last couple of years. But, Expo 2020 has led to an increase in the number of businesses in diverse sectors, which has helped boost the real estate sector of the country.

    One can expect a thriving and successful UAE real estate market post expo 2020. Investors shouldn’t miss out on this excellent opportunity to set up their real estate business in the city.The construction sector is expected to contribute AED 25.7 Billion, before expo starts.

    Up to $17.7 billion revenue will be generated, if the expo turns out to be a success, and it sure will be!

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    Cyber Security Strategies in UAE

    Vimal Ramachandran, Director

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    Mobile:- +971 52 830 7998
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      UAE, a highly advanced digital economy, has been at the forefront of embracing technologies, be it block-chain, artificial intelligence or cloud. With the advancement in technologies, the question of security arises. To provide a shield to prevent attacks, a national cyber-security strategy is a must.

      The UAE National Cyber-security Strategy was launched recently by The Telecommunications Regulatory Authority (TRA), that aims towards a safe cyber infrastructure. According to H.E. Hamad Obaid Al Mansoori, TRA Director General, “The cyber-security strategy is based on a well-known reality, that cyberspace provides vast horizons and endless opportunities for well-being, happiness and sustainable development. However, it also provides a gateway for hackers and phishers. It is obvious that the battle between the two sides is a battle of knowledge and technology, a battle of intelligence, perseverance and patience. Yet, in essence, it is a manifestation of the eternal conflict between good and evil.”

      The increase in the number of cyber-attacks across the globe, that results in losing data, money and reputation, has compelled the government to develop the strategy.  The strategy is based on 5 pillars and 60 initiatives, that intends to mobilize the whole cyber-security ecosystem in the UAE.

      Pillars and goals of the strategy

        1. Implement a framework that will include all types of cyber crimes
        2. Protect the current and developing technologies
        3. Secure SMEs against most common cyber threats
        4. Enabling a vibrant cyber security ecosystem by:
          • Tapping into the opportunity of AED 1.8 billion cyber-security market in the UAE and the AED 18 billion cyber-security market in MENA
          • Enhancing the talents of more than 40,000 cyber-security professionals, motivating professionals and students to opt for a career in cyber-security, developing cyber-security abilities and nurturing a vibrant ecosystem of cyber-security training providers
          • Providing awareness to citizens on cyber-security and help them realize the risks related to the cyberspace. Even institutions should see to it that proper training on cyber-security is imparted.
          • Organizing national awards programme to acknowledge excellence in cyber-security and encourage entities to drive cyber-security programmes.
        5. Setup a robust ‘National Cyber Incident Response Plan’ that will aid in instant, coordinated response to cyber incidents in the country by:
          • Streamlining the identification and reporting of cyber security incidents
          • Setting up standardized severity assessment matrix to mobilize the required support.
          • Establishing advanced capabilities that can respond to all types of cyber incidents.
        6. Protecting critical assets of the country that belong to the following sectors:
          • Energy
          • ICT
          • Government
          • Electricity and water
          • Finance and insurance
          • Emergency services
          • Health services
          • Transportation
          • Food and agriculture.
        7. Mobilizing the whole ecosystem through local and global partnerships to jointly attain cybersecurity goals and ambitions. This would include:
          • The public sector
          • The private sector
          • Academia
          • International consortia.

        The national cyber security strategy is not the sole initiative by the government to enhance security and reduce risk. A strategy specifically intended towards strengthening Dubai’s position as a world leader in innovation, safety and security, has also been on the agenda of UAE government. This resulted in the launch of Dubai cyber security strategy.

        Protection against the dangers of cyberspace, support for innovation in cyberspace and the growth of the emirate and its economic prosperity, are the motives of Dubai cyber security strategy.

        Adopting latest technologies is a must when it comes to surviving in this competitive world; so is ensuring the security of your data.

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      UAE Implements New Law to Support Financially Insolvent Individuals

      Jay Krishnan, Partner

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      HLB HAMT - Accounting Firm in UAE
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      Email:- dubai@hlbhamt.com

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        The UAE Cabinet has approved a new Federal Law to manage insolvency cases, wherein support will be offered to debt-ridden individuals to repay debts within a span of three years. This will also ensure that they are protected from facing criminal prosecution.

        Along with protecting debtors from legal prosecution and decriminalizing the fiscal obligations of insolvent persons, the new law will also see to it that they are provided with the opportunity to work, be productive and provide for their families.

        The news comes as a savior for people struggling with financial difficulties and it will stop them from taking extreme steps.

        The law will come into force in January 2020. Court will appoint one or more experts to help debtors take care of their financial obligations. These experts will work with the debtor and creditors and work out a plan, that will help settle the financial liabilities and fulfill all obligations. This will be done within three years.

        Special provisions are included in the law that intends to complete the legal procedures quite fast and to reduce the fees charged for rescheduling and restructuring the debt.

        The debtor cannot take any loans during this period until the court decides, upon the request of the expert, the debtor or any of the creditors, that the plan has been successfully implemented.

        The law will lead to greater transparency, in terms of civil debt repayment transactions, and will reinforce the position of the country as an ideal destination for investment, where equal rights are given to all the parties. It helps in creating an atmosphere that encourages entrepreneurship and creates favorable conditions for doing business.

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        New Accounting Requirements bring Leasing into the 21st century

        Nithin N. K , Director

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        HLB HAMT - Accounting Firm in UAE
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          IFRS 16 is an International Financial Report Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for leases.

          It is expected to give many enterprises a significant headache during its initial implementation phase – as teething problems are a common occurrence when it comes to new robust financial regulations.

          However, on-hand to help businesses navigate their way around all these tricky implementation issues, is Nithin NK, Director, Audit at HLB HAMT.

          NK explained: “IFRS 16 can initially cause trouble to the entities as there are huge changes in the lessee’s books of accounts. It was issued in January 2016 and will be applicable for financial periods starting January 1st, 2019 or later.”

          IFRS 16 in a snapshot:

          What do you need to know? Potential Impact?

          For lessees, most leases will come on balance sheet

          Operating leases capitalised with corresponding recognition of the liability & Right-of-use asset

          Lease operating expenses will be replaced with Depreciation and In­terest costs

          Companies using EBITDA as KPI will see positive impact post 01st Jan 2019

          Impact on the presentation of the financial statements and changes to financial ratios will need careful communication

          Shareholders/investors will need to be educated on the financial impact at transition

           

          According to NK, these are the five implementation issues enterprises can face:

          1.Identification of lease

          Whether there is an identifiable asset – Supplier has no right to substitute the asset.

          Whether there is a right to control the use of asset.

          IFRS 16 contains a slightly revised definition of a lease but in practice this is likely to only cause differences at the margins. Where previously there were difficult judgments as to whether a contract contained a lease, those past conclusions may need to be revisited.

          However, while the definition might lead to very similar conclusions, it could still cause problems in practice.

          For example, whether a contract was an operating lease or a contract for services did not make a big difference under IAS 17; the expense was generally recognized straight line over the term of the contract.

          Under IFRS 16 however, if it is a lease, it will affect the balance sheet. One area this could have a practical effect on would be some IT contracts.

          For example, software service contracts might contain leases of equipment, such as a dedicated fiber optic connection. Finding and reviewing all these contracts and then applying the standard’s definition of a lease could be time-consuming.

          2. Completeness of lease information

          Many companies with several subsidiaries would find it difficult to identify the leases where regular payment happens. Data analytics are required to identify such leases.

          3. Gathering all the documentation

          Gathering contracts from several departments like property, IT, legal team etc. Some of these documents can be very long, and occasionally poorly drafted. This can add considerable time to the analysis process.

          4. Determining estimates

          The standard requires a very large number of estimates to be made, including the stand-alone selling prices of lease and non-lease components; the length of the lease term where the lessee has either an extension or termination option; the interest rate implicit in the lease; and amounts payable under residual value guarantees.

          Stand-alone selling prices are to be used to allocate the payments under the contract to the lease and non-lease components pro-rats. For example, a lease contract might contain both the right to use a floor in a property, the lease component, and a payment for services such as cleaning and reception services, the non-lease component.

          A practical expedient provides, by class of underlying asset, an election not to separate lease and non-lease components. Although if selected, this election requires all payments to be capitalized as though the entire contract was a lease.

          Estimating the interest rate implicit in the lease could also be problematic. If the interest rate implicit in the lease cannot be determined readily, the standard does allow the incremental borrowing rate to be used but estimating this could also be challenging.

          When the entity’s incremental borrowing rate is used, it is not simply the entity’s WACC or overall incremental borrowing rate. The incremental borrowing rate is supposed to be asset specific (i.e, what rate would be obtained to borrow the same amount as the right-of-use asset over a similar term and with the same security).

          5. Modifications

          Modification in lease are accounted either as new lease or adding to the existing lease. Determining this requires obtaining information about whether the modification increases the scope of the lease by adding the right to use one or more underlying assets and whether the consideration for the lease modification represents the stand-alone sales price for the modification.

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