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Inflation, cybersecurity and taxes: PwC’s update from Dubai

What happens in Dubai … well, happens everywhere

On March 1, PwC Dubai hosted a LinkedIn webcast, “Transforming Our Region,” featuring commentary by Stephen Anderson, PwC Middle East markets leader; Richard Boxshall, PwC chief economist for the region; and Hanan Abboud, a partner in PwC’s International Tax & M&A practice. This latest episode of the webcast series, which started in the summer of 2020, included three main themes, two of which likely resonate strongly outside the Middle East region.

Global inflation can be a drag, but regionally not so bad

First, Anderson and Boxshall noted recent regional economic growth and an overall positive picture, particularly as the pandemic begins to wane, but cautioned about inflation as a damper in the near term, with a critical caveat: Many of the global inflationary pressures and trends have been more muted in the Middle East, particularly within the economies of Saudi Arabia and the United Arab Emirates (UAE). Boxshall reported that inflation has been relatively low and well managed locally, at around 2% for the region, but varies widely across countries.

Like elsewhere, energy prices and supply chain snafus drive most of the inflationary concerns and effects in the Middle East, but high oil prices act as a double-edged sword for some of the most important regional economies, as more money flows into government coffers while demand is put at risk of being suppressed in the long run. Overall, PwC reported on the cautious sentiment in the region as the business leaders it surveyed see inflation elsewhere and hope for sustained smart economic stewardship to keep inflation low in the region.

Cybersecurity tops concerns

Investment and innovation comprised a second regional trend with global echoes, primarily because of the main concern about what could hold back growth: cybersecurity risks. According to Anderson, cybersecurity generated more worry among Middle East business leaders than geopolitical tensions or lingering pandemic-related healthcare risks. Notably, PwC’s survey did not factor in Russia’s invasion of Ukraine, which could bring geopolitics to the forefront. In TBR’s view, consultancies like PwC that can address clients’ cybersecurity concerns in concert with offerings around innovation, transformation and sustainability will continue to outpace cyber-centric or niche vendors as client leaders increasingly appreciate the business value of integrating cybersecurity into enterprisewide strategy.

Joining the global movement toward 15% tax rate

The last development PwC highlighted will have the greatest near-term effect in the UAE but bodes well for global economic growth and regional good governance. Anderson and his colleagues noted that the UAE became the first country in the region to announce plans to adhere to Organization for Economic Co-operation and Development (OECD) guidelines by instituting a 15% minimum corporate tax rate. With the country planning to implement the 15% tax rate effective June 1, 2023, and the local business corporate tax rate capped at 9%, PwC acknowledged plenty of unknowns and expects plenty of exemptions. But overall UAE is continuing its decades-long efforts to keep the country economically attractive and closely intertwined with the global economy.

Advising clients on adjustments to the new 15% tax rate, to include navigating free-trade-zone rules, will provide near-term opportunities in the UAE and longer-term revenues as other regional governments adopt similar tax structures. For PwC, a new UAE tax regime aligns perfectly with PwC’s The New Equation strategy and emphasis on trust, transparency and global interconnectedness. As TBR noted in November, “Globally, PwC partners were leaning into the trust and leadership components of The New Equation and finding clients receptive to, and even welcoming of, PwC’s efforts to ‘peek around the corner’ at trends, challenges and opportunities on the near and far horizons.”

Don’t bet against the Emirates

In TBR’s estimates, PwC’s 2021 management consulting revenues in the Middle East topped $670 million, roughly one-third of the firm’s APAC revenues but growing faster than any other PwC region. Inflation spikes and cybersecurity strikes may slow that growth, but a more likely scenario is that the UAE, the Kingdom of Saudi Arabia and other regional economies will maintain their rapid growth as their booming talent pools and friendly tax and corporate governance structures continue to draw investments and continue to create opportunities for consultancies like PwC. I served in Dubai, UAE, as a foreign service officer for the State Department in the late 1990s and know it’s a fool’s bet to think the UAE won’t, eventually and sometimes in surprising ways, do exactly what they say they’re going to do.

COVID-19’s societal pressures kick up a Digital Dust Bowl

Evolving business activity and social interaction have been on a collision course with dated public policy best practices for decades

Three years ago, TBR put out a report called The impending Digital Dust Bowl: Mitigation, survival and interdependence, in which we evaluated the social, economic and political arenas and examined how the pivot to digital business and social interactions was disrupting society. In the interim, we have discussed what seems to be transpiring as a societal rebirth, arguing that while there would be pain involved as a normal component of bringing about new life, the end result would be a better world because of what the technology industry can enable the world to do. Big changes are on the cusp of commercialization as blockchain ensures data accuracy, machine learning addresses new queries, and quantum provides the compute horsepower needed to tackle the world’s most intractable problems.

Three years ago, in discussing AI’s impact, the historical comparison we settled on was the Great Depression, fueled by manufacturing automation, which appeared to be a reasonable analogy. Henry Ford launched his first assembly line in 1913; Watson beat a human on “Jeopardy!” in 2011. These were the comparative touchstones.

At this juncture, we may view that historical comparison as a best-case example and may find mechanization in the early to mid-1800s as a more appropriate parallel. The mid-1800s radically transformed agrarian economies, and that disruptive impact spurred the revolutions of 1848 in Europe and was a contributing economic factor to the U.S. Civil War.

Few conversations today are held without discussing the implications of COVID-19 on our daily lives. Technologists and other pundits talk of the accelerating trends the pandemic triggers. Whether social, business or political trends as we know them, COVID-19 has certainly quickened the rate at which those trends are being felt by virtually everyone around the globe. It is a unique time and highlights the need for career technologists to step forward and participate heavily in the dialogues occurring throughout society on how to remediate the dysfunctional aspects of modern life on which COVID-19 has shined a very bright light.