How Does Ramadan During a Pandemic Impact the UAE Economy?
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How Does Ramadan During a Pandemic Impact the UAE Economy?
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By Syeda Saniya Fatima, Research Intern, Botho Emerging Markets Group
May 4, 2021
Ramadan 2021 comes at a challenging time for the UAE economy. Historically, Ramadan has spurred consumption-led growth in the UAE as Muslims stock up on essential goods, organise feasts, and attend community and charity tents to celebrate the social spirit of Ramadan. As the month sees an increased focus on fasting, feasting and spirituality, leisure activities in the region take a back seat, only to spike during Eid. However, reduced working hours coupled with an ongoing pandemic will likely result in very different economic trends compared to previous years, including 2020.
The IMF’s forecasts for the MENA region in 2020 estimate a 50-year low due to the “twin shock” of the coronavirus pandemic and low oil prices. For the UAE, in particular, the contraction estimates have ranged between 5.8% - 6.9% in 2020. Contextually, the pandemic has been a major roadblock for UAE’s economy, which was on course to recover from the 2019-2020 oil price crisis. However, the UAE’s relative resilience to the Covid-19 pandemic due to its stable political environment, aggressive vaccination drive, high ICT adoption, and SME-friendly financial system has led to optimistic outlooks for the country's economy in 2021, despite the second wave of the coronavirus. These macro trends are likely to be indicative of an economically encouraging Ramadan for some sectors while posing challenges for the others. Specifically, e-commerce is expected to grow significantly, as the hospitality sector and the Food and Beverages (F&B) industry will experience variable growth due to ongoing restrictions.
The Impact of Reduced Ramadan Working Hours
This year, fasting hours will amount to roughly 14 hours a day, as Ramadan falls on the cusp of summer. Research indicates that “longer Ramadan fasting has a negative effect on output growth in Muslim countries,” because lengthening the fast can cause a decline in output growth of as much as 0.7% per hour. To accommodate fasting Muslims, the UAE shortens the work day during Ramadan for all employees, regardless of religion, by at least 2 hours. A 2011 joint survey by Ogilvy Noor and DinarStandard calculated a loss of 4% in monthly GDP for each hour of work reduced every day, despite 77% of Muslims trying to maintain the same level of productivity.
However, experts at Shuraa Business Setup believe: “While meetings and certain official processes get hampered due to the reduced working hours in the governmental sectors, it does not imply that the productivity of workers is affected. They are able to pack the same amount of work in the given hours.” They assert it is a myth that no work can be processed in the Gulf during Ramadan, given that the UAE government’s business-friendly initiatives ensure most industries perform well. For example, the Ajman government’s decision to extend economic activities till 4 AM during Ramadan is a testament to the government efforts in supporting business activity during challenging economic times.
Encouraging Signs Despite the F&B Industry Falling Short of Full Recovery
A similar business-friendly move has recently been implemented by the Dubai government, which relaxed Ramadan regulations for restaurants in the emirate. Now restaurants no longer require a license and do not need to cordon off dining areas during fasting hours. Ryan Andrews, Director of Marketing at Eat App — a restaurant app tracking reservations, table management and marketing campaigns — attributes this move to the government’s efforts to support the industry that has been adversely affected by the pandemic.
Traditionally, Ramadan leads to a 10% increase in food sales, as 46% of UAE’s consumers report increased spending during the month. This uptick is largely driven by a rise in spending on food and drinks due to lavish Iftar (post-fast meal) and Suhoor (pre-fast meal) spreads. Food consumption during Ramadan has traditionally accounted for 15% of annual food consumption. With a second consecutive Ramadan taking place during the pandemic, the usual feasting and banquet trends in restaurants are set to be affected as the emirates have advised against large gatherings.
Pre-pandemic, the sector saw restaurant sales peaking in Ramadan. According to Andrews, Ramadan is possibly the “biggest F&B marketing and revenue generator of the whole year for a certain segment of the market.” In 2019, restaurant reservations increased 30% in Dubai over the month of Ramadan compared to the previous month. Expectedly, 2020 was a hard year owing to the pandemic, with reservations across the Eat App platform during Ramadan dropping by 90% compared to 2019. The Ramadan tents brought in the most revenue for the hotel-anchored restaurants hosting Iftar banquets. However, currently, despite decreased restrictions, the F&B industry is only gradually recovering, recovering by about 70-80%. As Ramadan tents have been banned this year, these restaurants will have to wait longer before they can experience pre-pandemic growth again. This is despite government efforts to bolster the dining experience during fasting hours, by not requiring dining areas to be cordoned off, for example.
Andrews also points out that the F&B industry’s performance in the UAE stands in stark contrast to other countries, like Bahrain, where some restaurants close down completely during the holy month. The Ramadan effect in a place like Bahrain has a “larger impact as many restaurants have no revenue”, which is very different from Dubai, where restaurants operate throughout the day, possibly due to its large expat population.
FMCG Driven Growth To Boost E-commerce Sales In Ramadan
Fast Moving Consumer Goods (FMCG) is another industry that traditionally sees growth in Ramadan. Shuraa experts say, “Business slows down for the hospitality, travel and tourism industries, whereas the FMCG sector does well. This is due to residents observing the holy month focusing more on stocking up on essentials and activities surrounding Ramadan and none or less on recreational activities.”
This Ramadan-driven FMCG spending spree is likely to further bolster e-commerce platforms. The pandemic has driven e-commerce growth across the globe, but with the UAE’s impeccable infrastructure, this growth has been immense, as a Mastercard study reveals that 73% of UAE consumers are shopping more online since the start of the pandemic. In 2018, according to an advertising company working with ecommerce sites, Criteo, online retail sales witnessed a 106% increase during the second week of Ramadan, including a 35% rise in sales of some essentials during Ramadan last year. This trend is likely to continue this year, as local e-commerce giant Noon.com expects, as the industry is bolstered by social distancing norms, people being less inclined to venture outside during the summer, and Muslims refraining from consuming food and water during the day.
Eid Set To Bring Joy For Leisure & Hospitality Sector After A Slow Ramadan Period
However, while social distancing norms and Ramadan have spurred growth in the e-commerce sector, the leisure industry is set to suffer from a double jolt — observing Muslims tend to spend less time on leisure and more on spiritual activities in Ramadan while Covid restrictions also hinder the industry. Back in 2013, the leisure industry suffered from a fall of sales as much as 80% during Ramadan. While the recent figures are not available, it is safe to assume the trend will continue as cinemas are seen offering large discounts in a bid to attract moviegoers this year.
The hospitality sector will also witness a slow down during Ramadan. Reports indicate that hotels are set to see the lowest occupancy rates this year -- as low as 30-40% during Ramadan. However, there is light at the end of the tunnel, because the hospitality sector also sees a spike during Eid when the country is set to have a 4-5 day public holiday.
Similarly, certain sub-sectors within the retail industry see an increase in sales during the tail end of Ramadan as Eid approaches. Spending on textiles, gifts, chocolates and perfumes typically rises during Eid as observers prepare for the festive occasion and exchange gifts. However, yet again, consumers may well opt for online retail over brick-and-mortar stores for their Eid purchases in keeping with last year’s trend— in 2020, online sales increased by as much as 42%.
The UAE Government’s Efforts Ensure Minimization of Adverse Effects On The Economy
As the global pandemic still rages on, Ramadan in the UAE will continue to impact the economy in unique ways compared to previous years. However, as the country has been one of the robust adopters of technology and an all encompassing vaccination drive, the challenges posed by the pandemic during Ramadan have ensured that the setbacks are minimized. The F&B industry, which experienced massive losses due to last year’s lockdown, is on track for its recovery and that is only possible due to the government efforts. With adoption of foodtech for delivery, opening up of dining spaces and Dubai’s policy relaxation of Ramadan regulations for restaurants, the F&B industry is set to have a more positive Ramadan than last year. One of the biggest gainers of technology adoption in the country has been the e-commerce sector who will further grow during the month as consumption increases. Similarly, as Dubai has opened up to tourism, Eid will likely be a welcome reprieve for the dual-hit leisure and hospitality industry as vacation-starved residents and foreign tourists look towards the country. While there are contractions due to reduction of day-time working hours, the month serves as a marketing and economic opportunity for many of the UAE’s most dynamic commercial sectors during the pandemic.
By Syeda Saniya Fatima, Research Intern, Botho Emerging Markets Group