UAE enters 5th decade stronger

Has attracted more than $75 billion FDI

Like most other economies, the UAE suffered from a slowdown in 2009 because of the 2008 global financial crisis but its GDP is rebounding by over three per cent this year and is projected to maintain high growth in 2013.

The UAE is entering its fifth decade on a stronger footing, armed by recovering oil prices and massive overseas assets.

Despite varied scenarios about its economic performance in 2009, with some involving a slowdown and others saying there was a contraction, the fact is that the poor performance was in the oil sector as the non-hydrocarbon sector recorded decent growth, according to the International Monetary Fund.

Its estimates showed the UAE’s oil sector, like other Gulf crude producers, dropped by nearly 9.7 per cent in 2009 because of lower prices and a 200,000 bpd cut in its production. But the non-oil sector swelled by about 1.8 per cent to demonstrate its resilience to external shocks following the crisis.

IMF projections showed the UAE would maintain its position as the largest Arab economy after Saudi Arabia as its GDP is expected to keep expanding during 2011-2015 thanks to strong oil prices and massive public spending.

Investment

Experts believe the surge in the UAE economy over the past four decades was a result of sound planning and policies, high public spending, massive investments by the government and private sector, and a surge in foreign direct investment because of improved investment laws and strong economic performance.

Official data showed the UAE has attracted more than $75 billion FDI since it was established to emerge as the second top capital recipient in the region.
Cumulative FDI flow into the UAE totaled around $75.6 billion, nearly 26 per cent of the combined foreign capital received by the six-nation Gulf Cooperation Council (GCC), which controls over 40 per cent of the world’s oil.

Taken together, FDI by the UAE and Saudi Arabia, the largest FDI recipient in the Middle East, accounted for around 80 per cent of the total foreign capital of nearly $278 billion received by the 29-year-old GCC.

In terms of FDI outflow, the UAE emerged as the largest capital exporter in the region and the 30th top investment in the world.
Figures by the UN Conference on Trade and Development showed the country has pumped over $57 billion into foreign markets over the past two decades
The UAE was outstripped only by developed countries as it was ahead of most capital exporters in the developing nations.

UNCTAD’s figures covered only FDI as they did not include capital channeled by the Abu Dhabi Investment Authority (ADIA), one of the world’s largest sovereign wealth funds (SWFs), and other public funds in the country.
 
High spending

Besides FDI, public spending in the UAE has steadily risen by at least 10 per cent annually over the past decade despite sharp fluctuations in oil prices. But expenditure gained momentum in 2009-2011 as the country joined other nations in launching fiscal expansion plans to counter the effects of the crisis.

In 2009, the UAE boosted public spending to its highest ever level of Dh289 billion despite a steep decline in oil revenue because of lower prices and production.

The 2009 expenditure was far above the 2008 spending of Dh254 billion although oil prices in 2008 were nearly 58 per cent higher than in 2009.

In a report on the UAE’s consolidated finance account (CFA), which comprises the federal budget and spending by each emirate, the Arab Monetary Fund cited official UAE government figures as showing revenue in 2009 plunged to around Dh292.6 billion from a record high of Dh450.3 billion in 2008.

It said the decline was a result of a sharp fall in hydrocarbon export earnings to nearly Dh217.5 billion last year from a peak of Dh362.1 billion in 2008.
“Despite the sharp fall, the UAE consolidated finance account recorded a surplus of around Dh3.5 billion in 2009…this is compared with a record budget surplus of nearly Dh197 billion in 2008,” the report said.

In 2010, the consolidated account recorded a deficit because of higher actual expenditure but it turned into a large surplus in 2011 due to higher oil prices.

According to a key western finance group, the surplus stood at around Dh71.5 billion last year although public expenditure remained at one of its highest levels.

The UAE suffered from a deficit in its consolidated financial account (CFA) of around Dh29.5 billion in 2010 as a result of lower oil prices and a sharp rise in spending as part of fiscal stimulus measures adopted after the 2008 crisis.

But a surge of nearly 50 per cent in oil prices allowed the country to rebound into a surplus in 2011, accounting for nearly 5.3 per cent of GDP, the Washington-based Institute of International Finance (IIF) said.

The figures showed higher oil prices boosted the UAE’s total revenue to Dh443.5 billion in 2011 from Dh315.1 billion in 2010 while oil export earnings shot up to Dh353.5 billion from Dh239.3 billion. Spending swelled to around Dh372.1 billion from Dh344.5 billion.

The report showed the UAE is projected to record a surplus of around Dh35.5 billion in 2012 although revenues could fall to Dh416.9 billion because of an expected decline in oil earnings to about Dh314.9 billion. It forecast expenditure to rise slightly to around Dh381.4 billion in 2012.

In a recent study, another bank in the Gulf said it expected the UAE fiscal position to bounce back into a surplus through 2011-2012 following shortfalls in the previous two years due to high spending and lower oil prices.

“The fiscal position of the UAE remains fairly comfortable. At face value, 2009 and 2010 may have seen the UAE record its first budget deficits since 2003, at eight and one per cent of GDP, respectively,” National Bank of Kuwait said.

“But these figures exclude both the income received on the government’s vast overseas assets and profits from the government-owned ADNOC…including these, the budget may not have seen deficits at all.”

Federal expenditure has also steadily climbed over the past years, recording a growth of around seven per cent annually over the past decade.
Revenues recorded slightly higher growth of around eight per cent and the federal budget has ended without deficit in the past five years in line with plans to issue balanced revenue and spending, the Ministry of Finance’s figures showed.

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