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29 March 2024

Opinion: Diversify economy, increase skills base

Published
By Amanda Line

When Minister of Economy Sultan bin Saeed Al Mansouri announced that the UAE economy is expected to grow by around 3.5% in 2011 it provided a boost in optimism.

The events of the last few months have raised a lot of questions over the economy. As oil prices shoot up, what will the effect be on the region? What about the long term?

No one can predict the future, but for businesses to plan properly intelligence on the likely economic directions and trends can be very valuable, which is why economic forecasting is so important.

So what are the current key trends?

     Oil is high, but this may not last

The political unrest has sent oil prices soaring, boosting the economies of the oil-producing nations. But can this be sustained? The higher prices go, the more likely they are to choke off demand. High revenues are great news for producers now, but it would be unwise to plan on prices staying this high.

     High oil revenues are masking the lag in the rest of the economy

The non-oil economy in the Mena region is lagging behind in productivity terms by international standards, particularly emerging economies in Asia. In the first quarter of 2011, imports to Asian economies grew by 17%, whereas Mena growth was 9%, reflecting the different trajectories of the two regions.

     Global economy looks set to cool

It looks likely that the global economy will slow in 2011. Data shows that Middle East economies follow the global economy, so this is likely to impact on local markets.

This is what is happening now. A key challenge to the Middle East economies is to ensure they are as attractive to the international markets as possible and ensure businesses are as efficient and productive as they can be. There are a few areas in need of attention in order to achieve this.

     Diversify the economy – increase skills base

Being too dependent on oil revenues means being locked into any slowdowns, so it is crucial to develop more legs on which to stand. Increasing the pool of skilled finance professionals, with sound financial management skills, is a key prerequisite for driving innovation and strengthening the non-oil economy.

     Enhanced transparency and disclosure

High quality financial reporting is vital in order to attract global investment and international trade.

It means bigger businesses can compete and operate internationally and smaller companies can reassure investors and banks and can, in turn, get easier access to finance.

Good, transparent financial reporting is attractive to both traders and investors.

     Robust insolvency regime

Currently it takes an average of five years to close a business in the UAE, and the emphasis is firmly on debt recovery rather than saving viable businesses through restructuring or refinancing. A robust and transparent insolvency regime is critical to a confident business environment.

The Middle East is enjoying sound economic growth currently and this should be a source of confidence for business in the region.

However, research suggests the markets need to think long term and not rest their hopes on oil, as the boom is not likely to last forever.

The writer is ICAEW Middle East Regional Director