Upload
noura-almazrouei
View
218
Download
0
Embed Size (px)
Citation preview
7/31/2019 Understanding UAE Economy
1/16
Understanding Economic
Diversification in the UAE
ECON n400
Economics of the UAE
7/31/2019 Understanding UAE Economy
2/16
Table of Contents
UAE economy including the policy environment.......................................................................2
The concept of economic diversification...................................................................................3The role of government policy and resources in attaining economic diversification................3
Government revenues for the last decade................................................................................5
Government expenditures in the UAE for the last decade...........................................5
The non-oil sector in general.....................................................................................................6
Construction..................................................................................................................6
Trade.............................................................................................................................7
Finance..........................................................................................................................7
Manufacturing...............................................................................................................8
Services.........................................................................................................................8
Correlation analysis of the growth rate in government revenue/spending and the growth
rate of the non-oil sector...........................................................................................................9
Table One: The non-oil sector in the UAE.....................................................................9
The most important factors contributed to the on-going economic diversification in the UAE
and recommendations for enhancing the process of diversification......................................13
References................................................................................................................................14
7/31/2019 Understanding UAE Economy
3/16
UAE economy including the policy environment
Over the past four decades the United Arab Emirates have used the wealth of oil to
modernize infrastructure, create employment, and improve social indicators. The
UAE have been able to accumulate official reserves, maintain relatively low external
debt, and remain important donors to poor countries.
The UAE is known as an open economy with high income per capita and sizable trade
surplus annually. It also has high dependency on oil, a young and rapidly growing
national labor force, and high dependency on expatriate labor, and a dominant
public sector with a significant fiscal surplus.
UAE GDP increased by 3.3% in 2011. According to Trade Economies, the GDP average
increase from 2000 to 2010 was 6.19%. The efforts at economic diversification have
reduced the GDP based on oil and gas to 25%.
The UAE population consists of 8.1 Million people and 60% of them are employed.
The population growth is around 10% with only 13% of UAE nationals and 87%
foreigner expatriates with this huge workforce entering UAE because of real estate
development and investments in the region. UAE growth rate increased dramatically
from 3% in 2002 to 14% in 2007 making the UAE one of the highest growing
populations in the world. The population growth rate in the last four years is still
positive but not as high as before.
According to the Tradingeconomics.com, the UAE unemployment rate averaged
14.75% from 1999 until 2004.In 2010, it's reported that the unemployment rate
reached 4.3%
By January 1, 2011, the UAE was ranked number 179 of unemployment rate of 2.4%,
according to CIA world book. According to The National newspaper article, the
unemployment rate of Emiratis reached 13% according to the federal government
sector. There is high unemployment among Emirati nationals. It has been said that
the UAE is suffering unemployment crisis like other GCC countries and it's moving
upward.
7/31/2019 Understanding UAE Economy
4/16
According to a report released by the Department of Economic Development in
2008, the non-oil sector of the UAE is likely to surpass the oil sector by 2025-2030.
The input of the oil sector will decrease to 40% of the GDP and to less than 20% by
2050. With the steady growth of the non-oil sector, UAE's real GDP is expected totriple by 2025 to about $ 315 billion from $ 105 in 2008.
The concept of economic diversification
Economic diversification is a strategy designed to meet different approaches to
spread industrial commitment over big range of activities or resources so there is no
overdependence on one activity or resource to gain revenue. In other words, for the
UAE the country is trying to focus within the non-oil sector to not depend on oil
sector only for country's future.
The increased levels of public spending for modernizing the infrastructure has been a
significant factor in the diversification of GCC countries toward the non-oil sector.
In order for a country to attain the most effective diversification strategy, it should
first establish great economic institutions and that is done by having institutional
regulatory reform and workforce development initiatives.
The role of government policy and resources in attaining
economic diversification
The UAE has been reported among the emerging economies that have joined
regional trade regimes, significantly progressed on market reforms, and now provide
investors with strong economic growth opportunities owing to the attractive
investment locations.
According to United Arab Emirates Ministry of Foreign Trade, "The UAE became a
contracting party to the General Agreement on Tariffs and Trade (GATT) in 1994, and
subsequently became a member of the World Trade Organization (WTO) in April of
7/31/2019 Understanding UAE Economy
5/16
1996". This makes the UAE committed to international trade and its responsibilities
under the multilateral trade policy rules.
WTO reports say that the UAE tariff is much lower than the maximum tariff that can
be charged under international trade rules. Noting that The UAE tariff is 5% and the
maximum tariff is 15%, compared to other economies similar to the UAE, the UAE
charge lower rates.
The findings of the report also show that the UAE opened an encouraging and
competitive trade environment. UAE had a 98% increase in exports and a 133% rise
in imports from 1995 to 2004 which shows that the UAE expand its economy and
consistently adapt to the changing world.
Following the years of success in promoting diversification of the UAEs economy
and creating opportunities for private investment in UAE-based businesses, there is
still considerable scope for investment growth, both through encouragement of
private national investment in the UAE, as well as owing to further attraction of
foreign direct investment.
The government improved its investment climate to generate investor's interest and
become most attractive destination in the region. Following this view, a number of
economic zones offer free-tax incentives to investors and provide a selection of
business and industry sectors which are being developed.The UAE economic diversification is primarily concentrated on such core areas as
construction, aviation, port facilities, finance, tourism, and telecommunications.
Sound domestic financial regulation maintains the unprecedented growth rate onthe local investment market since the establishment of Abu Dhabi Securities Market
and Dubai Financial and International Financial Markets.
7/31/2019 Understanding UAE Economy
6/16
Government revenues for the last decade
From 2001 to 2010, the revenue of oil and gas represented the total revenues of the
country which is 80% of the revenue, growing from 51.6 billion AED in 2001 to 176.3
billion AED in 2007. In 2008, the oil and gas revenue increased dramatically to 98248.
In year 2009, there was a huge decrease in oil and gas revenue due to the lower
demand of oil and the decrease of prices because of recession. By 2010 the revenue
rose by 24% to 73445.
Government expenditures in the UAE for the last decade
On the other hand, expenditures which are: wages and salaries, subsidies and
transfers, goods and services have and average represented of 81% of total
expenditures from 2001 to 2007. Capital expenditures revealed an upward trend as
they grown from AED 13.3 billion in 2001 to AED 17.3 billion in 2007 which indicated
the continued role of UAE government in developing the infrastructure of the
country over the last decade.
7/31/2019 Understanding UAE Economy
7/16
The non-oil sector in general
Construction
Over the recent decade, the entire GCC region, and particularly UAE, has been
featured by the unprecedented construction boom involving projects worth
hundreds of billions USD. UAE construction industry is approximately estimated at
$221 billion, which is the largest indicator compared to other Gulf countries.
The largest focus of the planned construction is centred in Dubai. Reputable
property developers permanently announce new construction and development
projects worth billions USD. The construction boom in the country is mainly
explained by the increased demand for housing especially among young population,
and the capacity of the oil revenues to enlarge housing demand from public and
private sectors.
The construction boom occurred mainly owing the increase in oil revenues, and
repatriation of GCC money inspired by low interest rates and splendid business
opportunities. Dubai alone provides beneficial incentives to attract foreign direct
investment into the national construction sector, including: market stability and
sound investment environment; comparatively high investment return; availability of
financial resources, and national legislation allowing expatriates to freehold property
ownership. Furthermore, the Dubai construction sector is regarded as one of the
main sources of income, growth and employment. Over 2000-2004, the sector
evidenced an unprecedented growth of 166% with an annual average rise of 27%,
which had significantly contributed to the UAE non-oil GDP.
In addition to this, UAE domestic economy is conventionally considered as one of the
most favourable environments for foreign investments. To this end, the government
introduced freehold property ownership to attract more funds from non-residents.
Therefore, experts forecast enormous investment inflows into the developing real
estate market of UAE. Experts also believe the UAE construction market as the most
dynamic in the world, where architects vision of creativity known no limitations.
7/31/2019 Understanding UAE Economy
8/16
Trade
(http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113458.pdf)
According UAE Ministry of Trade, the UAE experienced a 98% increase in exports in
the period 1995 to 2004 and 133% rise in imports. This increase happened before
being a part of WTO. Less than half of UAE exports directly come from oil and gas
products. The trade is increased dramatically over the last decade due to
infrastructure and tourism growth.
Examples of some UAE's major imports partners: India, China, US and Japan. Examples of some UAE's major export partners: India, Japan, Iran, South
Korea and Thailand.
Example of major trade partners: India, EU, Japan and ChinaFinance
The financial sector had developed fast over the last years due to UAE's banking
sector and government extension of unconditional backing to run the integrity of the
financial system. Free Trade Zones, growth of GDP and the increase of trade are
paving the way for financial institutions in the country.
The UAE central bank which is the main bank that directs monetary, banking policy
and credit in the country acts as the main bank for all the banks operating in the
UAE. According to the UAE central Bank, the banking sector was opened in reply to
WTO since the country joined it in response of making trading easy and cost less. In
2004, new foreign banks were established in the UAE for the first time and that grow
the input of money coming to the country.
http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113458.pdfhttp://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113458.pdfhttp://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113458.pdf7/31/2019 Understanding UAE Economy
9/16
Manufacturing
According to an online article, the government of the UAE is competing on an
international scale in producing aluminium, petrochemicals and steel. In year 2009,
the manufacturing sector represented 16.2% of the countrys GDP according to the
UAE Minister of Economy and it will increase substantially over the next years. In the
last decade, the manufacturing sector boomed to become the third important
sectors of the nation.
Services
According to an article the service sector presented 45.2% of GDP in year 2003. And
it increased slightly after.
The most growing service is tourism sector especially in Dubai Emirate which have a
lot of hotels and there is burj Khalifa which is the highest building in the world.
The UAE has one of the highest levels of per capita transport infrastructure
according to a report. The UAE is currently building mainline railway network at a
cost of 11 billion dollar. There is also Dubai Metro; the passengers using it reached
97991452 passengers since it was lunched until the end of 2011. Also, the number of
passengers at Dubai Airport grew by 7.8% during the first months of 2011 to 46.28
million. The movement of flights increased by 6% and reached 296799 by 2011.
Aircraft movement in the UAE hit a new record of 683389 movements in 2011 and
by 7.6% compared to year 2010. The increase of air traffic is because of business and
tourism in the country.
The UAE witnessed an increase in flow of visitors in the last decade due to its
environment amid regional political, advanced tourism and hospitality,
infrastructure, sports events such as Formula one and Grand Prix etc.
7/31/2019 Understanding UAE Economy
10/16
Correlation analysis of the growth rate in government
revenue/spending and the growth rate of the non-oil sector
Table One:The non-oil sector in the UAE
Year Trade Manufacturing Finance Construction Service Total Non-oil sector
percentage
2001 6219 9566 4587 4750 15283 40405 -
2002 7868 10268 4714 5848 16189 44887 9.985073629
2003 9659 11495 5419 7044 18638 52255 16.4145521
2004 11833 13487 6707 7892 20199 60118 15.04736389
2005 14095 16839 11593 10619 22853 75999 20.89632758
2006 27061 23039 12637 11852 23369 97958 28.893801232007 34043 26313 14722 14944 26909 116931 19.36850487
2008 40413 30836 17059 18848 30429 137585 15.01181088
2009 36366 27323 19562 31932 49987 165170 20.04942399
2010 38110 28957 20237 34672 53885 175861 6.472725071
This graph shows the percentage of non-oil sector GDP in the period 2001 to 2010.
As can be seen from the graph, the growth rate increased dramatically in this period
due to the growth of the following sectors: Trade, manufacturing, finance,
construction and service. The GDP of non-oil sector grew by 152.1395832% from
2001 to 2010, causing major changes in the country. Services sector got the highest
percentage of increase, after it come the construction sector followed by trade,
manufacturing and finance. The total GDP of non-oil sector in 2001 was 40405, and it
rose by 2010 to 175851 according to the table above showing that the country non-
oil GDP is growing because of diversification effort.
7/31/2019 Understanding UAE Economy
11/16
Table Two: Government Revenue and expenditures
Year Revenue Expenditures Growth Rate of
Revenue
Growth rate of
expenditures
2001 18688 25993
2002 15580 23585 -16.63099315 -9.264032624
2003 20970 24897 34.59563543 5.562857749
2004 25800 26215 23.03290415 5.293810499
2005 39211 28455 51.98062016 8.544726302
2006 54814 34326 39.79240519 20.63257775
2007 62330 43492 13.71182545 26.70279089
2008 98248 70590 57.62554147 62.3057114
2009 59058 76475 -39.8888527 8.336874911
2010 73445 90563 24.36079786 18.42170644
From 2001 to 2010, the revenue of oil and gas represented the total revenues of the
country which is 80% of the revenue, growing from 51.6 billion AED in 2001 to 176.3
billion AED in 2007. In 2008, the oil and gas revenue increased dramatically to 98248.
In year 2009, there was a huge decrease in oil and gas revenue due to the lowerdemand of oil and the decrease of prices because of recession. By 2010 the revenue
rose by 24% to 73445.
On the other hand, expenditures which are: wages and salaries, subsidies and
transfers, goods and services have and average represented of 81% of total
expenditures from 2001 to 2007. Capital expenditures revealed an upward trend as
they grown from AED 13.3 billion in 2001 to AED 17.3 billion in 2007 which indicated
the continued role of UAE government in developing the infrastructure of the
country over the last decade.
7/31/2019 Understanding UAE Economy
12/16
Table 3: The non-oil sector, revenue and expenditures
Year Non-oil government
rate
Government revenue
growth rate
Government
expenditures growth rate
2001
2002 9.985073629 -16.63099315 -9.264032624
2003 16.4145521 34.59563543 5.562857749
2004 15.04736389 23.03290415 5.293810499
2005 20.89632758 51.98062016 8.544726302
2006 28.89380123 39.79240519 20.63257775
2007 19.36850487 13.71182545 26.70279089
2008 15.01181088 57.62554147 62.3057114
2009 20.04942399 -39.8888527 8.336874911
2010 6.472725071 24.36079786 18.42170644
This table shows the percentage of non-oil government rate, growth rate of
government revenue and expenditures.
Correlation Expenditures 0.109228527
Correlation Revenue 0.172626754
The relationship between non-oil sector and government revenue and the
relationship between non-oil sector and governed expenditure both are positive but
it indicates a little or no association correlation.
7/31/2019 Understanding UAE Economy
13/16
-60
-40
-20
0
20
40
60
80
0 5 10 15 20 25 30 35
RevenueGrowthRate
Non Oil Growth Rate
Revenue Growth Rate
Series1
-20
-10
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35
EpendituesGrowthRate
Non oil Growth Rate
Expenditures Growth Rate
Series1
There is no evidence of a straight line. The relationship is week between
Revenue growth rate and the non-oil growth rate because 80% of the revenue
comes from oil.
There is no way of determining from these points, if the pattern is rising or
falling. There is no evidence of a straight line.
7/31/2019 Understanding UAE Economy
14/16
The most important factors contributed to the on-going
economic diversification in the UAE and recommendations for
enhancing the process of diversification
Considering the abovementioned developments, it is so far apparent that in spite of
the global economic slowdown the UAE has managed to sustain the status of the
most dynamic and highly-emerging Middle East economy. Apart from the strong
emphasis on oil wealth, the country has witnessed an unmatched development and
economic transformation over the last two decades. Namely oil exports and the
attraction of foreign investments into the domestic economy have served as two key
drivers that predetermine the UAE role in the region. The dynamic economic
progress has fuelled an unprecedented construction growth and infrastructure
development. The attracted international investment has been mainly allocated for
the development of infrastructure projects in hospitality, tourism, healthcare and
retail industries.
Recommendations:
Experts argue that the government endeavours to attract foreign investments into
the emerging gulf market and diversify from oil-oriented profit will further drive
infrastructural developments in coming years. Mainly, high commitment to the
development of infrastructural projects in tourism, housing, healthcare and
education amenities, transportation, commercial and industrial facilities,
communications, utilities, airports and ports will potentially bring UAE enormous
benefits in the years to come. Thus, the country opens vast business and investment
opportunities to the dedicated national and international players.
7/31/2019 Understanding UAE Economy
15/16
References
Al Abed., Vine 2006, UAE at Glance, [Online]: Available at
http://www.uaeinteract.com/uaeint_misc/glance/ataglance.pdf
Amlak, The prospectus, 2004. Dubai Property investment guide, Cross Border legal
Publishing, 2004.
Estates Dubai 2009, UAE construction sector outlook for 2009 appears bleak, [Online]:
Available athttp://www.estatesdubai.com/2009/02/uae-construction-sector-
outlook-for.html
Estates Dubai 2009, Middle East property sector shows signs of recovery, [Online]: Available
athttp://www.estatesdubai.com/labels/Latest%20News.html
http://www.estatesdubai.com/2007/12/dubai-property-prices-unlikely-to.html
Estates Dubai 2008, Gulf Realty Companies likely to report strong growth in 2008, [Online]:
Available at
http://www.estatesdubai.com/2008/04/gulf-realty-companies-likely-to-report.html
Fenton, S 2009, UAE construction sector on track, Gulf News, [Online]: Available at
http://www.gulfnews.com/BUSINESS/Construction/10282633.html
HSBC 2009, Dubai property prices slump 23%: HSBC, [Online]: Available at
http://www.estatesdubai.com/2009/01/dubai-property-prices-slump-23-hsbc.html
HSBC 2009, $75bn worth real estate projects cancelled in Dubai: HSBC, [Online]: Available at
http://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.html
http://www.uaeinteract.com/uaeint_misc/glance/ataglance.pdfhttp://www.uaeinteract.com/uaeint_misc/glance/ataglance.pdfhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.estatesdubai.com/labels/Latest%20News.htmlhttp://www.estatesdubai.com/labels/Latest%20News.htmlhttp://www.estatesdubai.com/labels/Latest%20News.htmlhttp://www.estatesdubai.com/2007/12/dubai-property-prices-unlikely-to.htmlhttp://www.estatesdubai.com/2007/12/dubai-property-prices-unlikely-to.htmlhttp://www.estatesdubai.com/2008/04/gulf-realty-companies-likely-to-report.htmlhttp://www.estatesdubai.com/2008/04/gulf-realty-companies-likely-to-report.htmlhttp://www.gulfnews.com/BUSINESS/Construction/10282633.htmlhttp://www.gulfnews.com/BUSINESS/Construction/10282633.htmlhttp://www.estatesdubai.com/2009/01/dubai-property-prices-slump-23-hsbc.htmlhttp://www.estatesdubai.com/2009/01/dubai-property-prices-slump-23-hsbc.htmlhttp://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.htmlhttp://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.htmlhttp://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.htmlhttp://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.htmlhttp://www.estatesdubai.com/2009/02/75bn-worth-real-estate-projects.htmlhttp://www.estatesdubai.com/2009/01/dubai-property-prices-slump-23-hsbc.htmlhttp://www.gulfnews.com/BUSINESS/Construction/10282633.htmlhttp://www.estatesdubai.com/2008/04/gulf-realty-companies-likely-to-report.htmlhttp://www.estatesdubai.com/2007/12/dubai-property-prices-unlikely-to.htmlhttp://www.estatesdubai.com/labels/Latest%20News.htmlhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.estatesdubai.com/2009/02/uae-construction-sector-outlook-for.htmlhttp://www.uaeinteract.com/uaeint_misc/glance/ataglance.pdf7/31/2019 Understanding UAE Economy
16/16
International Monetary Fund (IMF), Regional Economic Outlook: Middle East and Central
Asia, 2008
Khaleej Times 2007, UAE construction sector braces for new challenges, [Online]: Available
at http://www.uae-tour.com/article/652/2/
Mathias, A. 2006, Scaling new heights [Online] Available at:
http://www.gulfnews.com/supplements/construction/main_story/10010918.html
UAE Government 1999, Business Environment, [Online]:
Available athttp://www.uae.gov.ae/Government/business.htm
U.A.E. Trade Policy . (n.d.). UAE Trade Office in Washington D.C.. Retrieved May 15, 2012,
fromhttp://www.uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64
Financial Sector . (n.d.). UAE Trade Office in Washington D.C.. Retrieved May 15, 2012, from
http://www.uaetrade-usa.org/index.php?page=economic-sectors-in-uae&cmsid=42
UAE manufacturing sector steps up to the plate . (n.d.). Technical Review Middle East -
Construction, Power, Logistics, Manufacturing, Business & Management,
Information Technology. Retrieved May 15, 2012, from
http://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-
sector-steps-up-to-the-plate-.html
UAE economic articel. (n.d.). Menafn. Retrieved May 16, 2012, from
www.menafn.com/updates/research_center/UAE/Economic/audi310112.pdf
http://www.uae-tour.com/article/652/2/http://www.gulfnews.com/supplements/construction/main_story/10010918.htmlhttp://www.uae.gov.ae/Government/business.htmhttp://www.uae.gov.ae/Government/business.htmhttp://www.uae.gov.ae/Government/business.htmhttp://www.uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64http://www.uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64http://www.uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64http://www.uaetrade-usa.org/index.php?page=economic-sectors-in-uae&cmsid=42http://www.uaetrade-usa.org/index.php?page=economic-sectors-in-uae&cmsid=42http://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-sector-steps-up-to-the-plate-.htmlhttp://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-sector-steps-up-to-the-plate-.htmlhttp://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-sector-steps-up-to-the-plate-.htmlhttp://www.menafn.com/updates/research_center/UAE/Economic/audi310112.pdfhttp://www.menafn.com/updates/research_center/UAE/Economic/audi310112.pdfhttp://www.menafn.com/updates/research_center/UAE/Economic/audi310112.pdfhttp://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-sector-steps-up-to-the-plate-.htmlhttp://technicalreviewmiddleeast.com/events/eventnews/292-uae-manufacturing-sector-steps-up-to-the-plate-.htmlhttp://www.uaetrade-usa.org/index.php?page=economic-sectors-in-uae&cmsid=42http://www.uaetrade-usa.org/index.php?page=uae-us-relations&cmsid=64http://www.uae.gov.ae/Government/business.htmhttp://www.gulfnews.com/supplements/construction/main_story/10010918.htmlhttp://www.uae-tour.com/article/652/2/