Uae Economy Essay Example

share in total GDP increasing to 46. 7% and 10. 6% respectively in 2007 from 45. 9% and 10.

1% recorded in 2006. What is noteworthy is that the gross capital formation, which is mainly the capital spending by the government and the private sector, increased by an impressive 19. % which inturn has come on the back of 29. 0% growth achieved in 2006 and stood at 20. 7% of GDP in 2007 as compared to 20. 2% in 2006.

UAE government posted second consecutive budget surplus in 2006 primarily on account of high oil prices throughout 2006. The total revenue for 2006 increased by 39. 5% and stood at AED200. 7bn as compared to AED143. 9bn in 2005. Preliminary estimates of the balance of payments indicate that both the trade and the current account balance have increased during 2006.

The surplus in the trade balance (FOB) increased by 31. 8% in 2006 and touched AED207. bn compared with AED157. 2bn in 2005.

The increase in the trade balance surplus is mainly attributable to an increase of 21. 5% in the value of total exports and re-exports in 2006, when compared with 2005. UAE’s oil exports increased by 27. 3% and reached AED257. 4bn in 2006, against AED202.

3bn in 2005 on the back of high oil prices and increased production. Consequently, the contribution of hydrocarbon exports to total exports further increased to 49. 2%. Inflation continued to be a concern for the UAE economic progress and was at all time high of 9. 3% in 2006 as recorded by Consumer Price Index.The reported consumer price index (CPI, 1999-2000=100) increased from 121.

7 in

2005 to 133. 0 in 2006. UAE Economic and Strategic Outlook Global Research - UAE Global Investment House 2 March 2008 UAE’s currency continues to remain pegged to the US$. The Central Bank (CBUAE) manages money supply growth by aligning interest rates with that in the US, and by issuing certificates of deposit (CDs) to commercial banks in addition to other tools.

With the US$ peg and complete capital mobility, nominal interest rates in the domestic market have tracked corresponding US rates closely.Accordingly, interest on 3 months interbank deposits are on a declining trend. The high inflation and low interest rate environment resulted in increasingly negative real interest rates. This coupled with expansionary fiscal stance have added to the upsurge in credit growth and increased development activity leading to high inflationary pressure.

The broad money supply, as measured by M2, has exhibited consistent positive trend during the past few years. The broad money supply (M2) increased from AED399. 3bn at the end of 2006 to AED507. 0bn at the end of Q3-2007, an increase of 27. 0%.

Banking sector continues to grow in the UAE as a result of relatively low interest rate environment, high oil prices and a flourishing economy. The UAE has a remarkably high number of banks to serve a population of around 4. 5mn and an economy with an annual GDP of about US$190bn. As of Sep-2007, UAE had 22 local banks, 27 foreign banks, two specialized banks and around 65 representative offices of other foreign banks. The total assets of banks operating in the country have grown by 43. 4% to reach AED1,232.

5bn at the end of 2007, against AED859.

6bn at the end of 2006 making it the largest among the GCC countries.This has come on the back of a strong y-o-y growth of 34. 7% reported at the end of 2006.

The total banking assets have grown at a CAGR of 35. 4% in the past four years from 2003-2007. UAE’s stable economy and the development of economic and social activities in the country have positively reflected on the insurance sector with the gross premium collection growing at a CAGR of 25. 4% during the period 2001-2006. There remains a considerable potential for further development and growth in the insurance industry. The rapidly growing private sector and the opening of real estate markets are expected to increase demand for property insurance.

Rising income levels and a growing population of expatriates should also widen the market for life insurance policies with a savings component. The current oil boom has led to an increased economic confidence with a surge in investments and government spending. As a result a lot of infrastructure development activities are currently going on in the emirates with Dubai being the centre of much activity. Almost all sectors are undergoing rapid development and expansion as the country seeks to lay solid groundwork for future economic growth.The UAE accounts for most of the ongoing and planned infrastructure projects among the GCC countries, amounting to an estimated over US$680bn in investments over the next few years as per MEED projects.

It is estimated that Abu Dhabi alone will spend upwards of US$200bn over the next five years on infrastructure projects. During 2007, the Abu Dhabi government published a comprehensive urban plan called “Plan Abu Dhabi

2030” that is designed to create a coherent and sustainable blueprint for the emirate’s development.The infrastructure projects being planned in the UAE, many of which are still on the drawing board will see that the construction activity would continue to be brisk for quite some time. Work to improve the country’s infrastructure has pressed ahead, with the Dolphin gas pipeline coming on-stream, the first two lines of the new Dubai Metro rail system nearing completion and other major projects well under way, such as work of the new Khalifa Port, north-east of Abu Dhabi, the expansion of Abu Dhabi International Airport and the construction of the world’s largest airport, “Al Maktoum International”, near Jebel Ali, which is due to open for usiness during 2008. UAE Economic and Strategic Outlook Global Research - UAE Global Investment House March 2008 3 UAE real estate and business services sector in nominal terms continues to grow recording a CAGR of 20% during 2003 - 2007.

In 2007, real estate and associated business services constituted 8% of UAE’s GDP, or AED55. 8bn recording a substantial growth of 21% in 2007. This sector was buoyed by the increasing investment in infrastructure, due to the country being positioned as an attractive tourist destination in addition to the increase in the residential and non-residential units.With construction sector, both sectors accounted for 16% of GDP in 2007. Generally, real estate sector is seen by many as a safe haven for investments and UAE is no different.

The sector’s key drivers include among others; growing influx of expatriate population, ample liquidity, and friendly regulatory environment. Moreover, being a regional hub for investments UAE attracts international

companies to establish offices. UAE tourism sector is enjoying good revenue growth and high occupancy rates of above 80% reported for 2007 in Abu Dhabi, Dubai and Sharjah respectively.According to Department of Tourism and Commerce Marketing (DTCM), Dubai accounts for over 75% of tourists visiting the UAE and is set for strong growth with US$354bn worth of hotels, aviation and other hospitality infrastructure projects underway. Dubai remain the UAE’s tourist hub though will face increasing competition from Abu Dhabi which plans to attract 3. 0mn visitors by 2015 up from 1.

45mn visitors in 2007. After the hydrocarbon sector, the manufacturing sector is the biggest contributor to the GDP with a share of 12. % in 2006 which has grown to 13% in 2007. The manufacturing sector continued to grow in UAE with a substantial growth of 23. 6% in 2007 to reach AED90.

8bn as compared to AED73. 4bn recorded in the previous year. The growth in the manufacturing sector has been steady since 2003 and has recorded a CAGR of 21. 1% during 2003 - 2007. As per Ministry of Finance and Industry’s 2008 Statistical Industrial Book, investments in the UAE’s non-oil industrial sector continued to grow and reached AED72.

6bn at the end of 2007 on the back of igh economic confidence among both government and private institutions in the potential for growth in manufacturing throughout the UAE. The strong all round macro economic growth and high liquidity in the region was reflected in the performances in capital market in the region with all markets rebounding from the poor performance of 2006 and posting above 25% return for the year 2007. The

growth in UAE capital market was remarkable with the National Bank of Abu Dhabi (NBAD) General index gaining 43. % in 2007 which is second only to Oman’s performance in the GCC in 2007. With stock markets relatively in a much better shape along with good corporate earnings and positive investor sentiment, 2008 is expected to show substantial rise in new listings in UAE with the National Bank of Abu Dhabi announcing its expectations to manage at least eight IPOs in 2008, with three aiming to raise at least US$1bn by the end of June.

The UAE continues to remain one of the most dynamic and diversified economies in the GCC region.With OPEC production target raised for 2008 and considering the renewed focus on using improved production capacity, oil is likely to play a crucial role in UAE’s growth in the next few years. However, non-oil GDP is likely to dominate overall growth in real and nominal terms with private sector playing a bigger role in future helped by relentless surge in oil prices that has boosted the oil earnings and helped to underpin public investment and private confidence.