UAE enters new year on strong footing

Country’s GDP to rebound by 2.4% in 2010 and gain pace in 2011

Like most other economies, the UAE suffered from a sharp slowdown in 2009 because of the 2009 global financial crisis but its GDP is rebounding by nearly 2.4-2.5 per cent this year and is projected to pick up in 2011.

After a difficult year in terms of economic and financial performance, the UAE is back on track this year and is entering its 40th anniversary in 2011 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 projections showed the UAE’s oil sector, like other Gulf crude producers, slumped 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 expand by around 2.4 per cent this year and 3.2 per cent in 2011.

Forecasts by UAE Minister of Economy Sultan Al Mansouri appeared slightly more optimistic as they showed real GDP could be up by 2.5 per cent this year and around 3-3.5 per cent in 2011.

In current prices, the country’s GDP is forecast to grow by around 7.1 per cent from nearly $223 billion in 2009 to $239.6 billion in 2010 after shrinking by nearly 12 per cent because of the decline in crude prices. Nominal GDP will further swell by around 6.7 per cent to around $255 billion in 2011.

Growth is expected to cover UAE despite Dubai’s debt problem as the emirate expects the settlement of the debt and corporate restructuring to bring it back on track this year and in the next years.

Dubai growth

According to a Dubai government official, the emirate’s real GDP is forecast to swell by around 2.3 per cent in 2010 following a recovery in the first half.

 “Dubai enjoys an infrastructure that makes it attractive for business and foreign capital…this has enhanced Dubai’s economy and allowed it to overcome the global crisis as it recorded growth in the first half of this year…growth is projected to reach 2.3 per cent through 2010,” Aref Al-Muhairi, Executive Director of the Dubai Statistics Centre, said in recent local press comments.

He said most non-oil sectors are growing this year, including manufacturing, transport, trade, hotels and restaurants, and government services.

When it was established in 1971, the UAE was a tiny oil producer and its economy was one of the smallest economies in the region.

But massive public and private investments have turned it into the second largest economy although its population is one of the lowest in the Arab world.

Official data showed the UAE’s GDP has rocketed by nearly 114 times since the country was created from seven emirates.

According to Minister of Economy Sultan bin Saeed Al Mansouri, the UAE’s GDP was only Dh6.5 billion in 1971, one of the smallest economies in the Middle East.

 “The country’s economy has jumped by nearly 114 times since 1971 as a result of economic diversification policies by the UAE leadership,” he said.

“As a result of these wise economic and fiscal policies, the UAE now controls the second largest economy in the Arab region.”

Mansouri said diversification programmes had also sharply depressed the oil sector’s contribution to the GDP as it accounted for only around 28 per cent in 2009 compared with as high as 70 per cent in 1971.

“Besides these policies, the UAE has also dealt with high professionalism with financial problems seen by many as a major obstacle to growth,” he said, referring to the Dubai World (DW) debt issue and the cash shortage crisis that hit the UAE banking sector in the wake of the 2008 global fiscal distress.

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 $73 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 $73.4 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 $53 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), with assets of between $300-900 billion.

The report showed FDI flow out of the UAE climbed to a record high of around $15.8 billion in 2008 from $14.5 billion in 2007 before plunging to nearly $2.7 billion in 2009 apparently because of the crisis and lower oil prices.

 High spending

Besides FID, 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 and 2010 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 in 2009 despite a steep decline in oil revenue because of lower prices and production, according to the Abu Dhabi-based Arab Monetary Fund (AMF).

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 AMF 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.

The UAE has not yet released budget details for 2008 and 2009 but official data for its CFA in the past four years showed it has recorded massive surpluses. The surplus stood at around Dh75 billion and Dh69 billion in 2006 and 2007 respectively and was achieved despite a steady rise in actual spending.

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.

From Dh22.91 billion in fiscal year 1999, federal spending leaped to nearly Dh42.2 billion during 2009, an annual growth rate of seven per cent.

Revenue swelled from about Dh20.43 billion to Dh42.2 billion in the same period, recording an annual rise of nearly eight per cent, the report showed.

Both spending and revenue sharply fluctuated during 1999-2004 before they were balanced in 2005 as part of the Ministry of Finance’s stated policy of releasing a deficit-free federal budget.

As a result, the budget recorded a rapid increase after 2005, jumping by around 21.5 per cent annually between that year and 2009, the figures showed.

 Trade and banking

In terms of trade and banking, the UAE has become the dominant power in the region, largely overtaking Saudi Arabia in imports and closing the gap in exports.

IMF figures showed the country’s total trade of goods and services climbed to a record high of around $389.8 billion in 2009 while Saudi Arabia’s exchange stood at nearly $366.1 billion although the Kingdom is the largest Arab economy, its population is nearly five times that of the UAE.

The IMF figures showed the UAE’s imports of goods and services stood at around $187.5 billion in 2009, nearly 20 per cent of the total trade of $909 billion in the Middle East and North Africa (MENA) region.

Its exports were estimated $202.3 billion, slightly lower than Saudi Arabia’s exports of about $202.5 billion. But the UAE’s imports far exceeded those of the Kingdom’s $163.6 billion, the figures showed.

The UAE was ranked ahead of all other MENA countries despite a sharp fall in its 2008 trade of around $468.5 billion. Imports in 2008 peaked at nearly $219.7 billion and exports at around $258.4 billion.

A large part of the UAE’s non-oil trade is based by Dubai, the region’s commercial entrepot which handles over 20 per cent of the Gulf non-oil trade.

Government data showed the UAE’s exports of goods last year stood at around Dh206.8 billion and re-exports at nearly Dh628.7 billion. Imports, mostly by Dubai, were put at about Dh942.5 billion

According to the Kuwaiti-based IAIGC, a key Arab League establishment, the UAE accounted for around 1.4 per cent of the world’s total exports and 1.1 per cent of the global imports of goods in 2009. Saudi Arabia amounted to around 1.5 and 0.7 per cent of the global exchange respectively.

“The UAE has strengthened its regional and international position with regards to foreign trade during 2009…it has been able to do so primary through its open market approach and the fact that it is an international trade hub that conducts extensive export and re-export activities with 202 countries,” Minister of Foreign Trade Sheikha Lubna al Qassimi said in recent press comments.

Her figures showed the UAE’s exports grew by around eight per cent in 2009 despite a 11.9 per cent decline in global trade.

“Additionally, the balance of trade improved by around 31 per cent in the same period, achieving a surplus of nearly Dh107 billion…in 2009, an improvement was witnessed in the volume of trade with countries such as those of the Arab world, the Gulf Cooperation Council and the United States.”

As for its banking sector, the UAE continued to dominate the scene in the Arab world with a large rise in its bank assets over the past two years.

Central Bank figures showed the combined assets of the country’s 23 national banks and 28 foreign units swelled to an all time high of Dh1,584 billion at the end of September compared with around Dh1,519 billion at the end of 2009 and nearly Dh1,456 billion at the end of 2008.

The banks also controlled the largest capital base in the region, estimated at nearly Dh255 billion. UAE banks also dominate in loans and deposits, which stood at Dh1,038 billion and Dh1,013 billion respectively in September.

Concerning oil, the UAE is pumping a staggering Dh220 billion into the hydrocarbon sector over the next 10 years to boost crude output capacity to 3.5 million bpd and maintain its position as one of the world’s top oil exporters.

The UAE controls around 98 billion barrels of proven oil resources, accounting for nearly nine percent of the global crude deposits. It also sits atop 6.5 trillion cubic metres of natural gas, nearly five per cent of the world’s total gas wealth.

 

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