Dr. Mehmood Ul Hassan Khan
UAE is the leading economy in the GCC and MENA and second largest after Saudi Arabia. Its economy is strong, stable and sustainable. It is resilient because of its rigorous diversification of channels of production and industrialization. It is one of most competitive and smarter economies in the region as well as in the world.
UAE’s Main Elements for Robust Economic Growth (2017-18)
The country’s Gross Domestic Product (GDP) is expected to cross 400 billion dollars in 2018 with a GDP around 4 per cent rising from the moderate growth of 1.4 per cent in 2017.
Being prominent region expert on UAE & GCC I am hopeful that UAE’s economy will continue to gain momentum in 2018, driven by an expanding non-oil sector, policy recalibration, and massive infrastructure investments.
IMF Estimations (November 2018)
As per IMF estimates, UAE is expected to double its GDP growth rate in 2018 to around 3.4 percent. Abu Dhabi’s economy that is expected to grow by 3.2 percent in 2018, substantially up from a flat growth of 0.3 percent in 2017. Meanwhile, growth in Dubai will edge up by 0.2 percent to 3.5 percent in 2018. The non-oil sector in both, Dubai and Abu Dhabi is expected to accelerate by 3 percent.
Global Rankings
UAE has been rated the most competitive economy in the world and first in the GCC and MENA. It has introduced constant economic reforms due to which it now receiving its diversified dividends. Its private sector is vibrant. Its service sector is booming. Its tourism sector is the money minting machine to its national economy. Its civil aviation sector is progressing and has become connecting hub in the region. Its industrialization national drive has been a grand success story which has widened its diversification. It has become ideal center of re-exports and innovations.
It has been receiving highest ratios of Foreign Direct Investments (FDIs) in the region for the last so many years. Its banking system is resilient from any financial shocks of cyber-attack.
UAE’s Macroeconomic Indicators
(Real GDP Growth Trends & Estimations %)
Government Policies
UAE has institutionalized various meaningful short and long terms economic policies owning to which it has surpassed all the regional economies. Its visionary leadership has continually ushered the economy towards increased diversification into non-oil sectors, sustainable growth, and human capital development. Consolidation in state run entities will continue to gain momentum alongside investment into state of the art infrastructure. The later will be aligned with UAE’s ambition of becoming a world class player in global tourism, retail, and supply chain industry- dimensions, where it already holds a strong international positioning.
UAE’s Sectorial Growth
UAE is one of the most diversified and developed economy in the region. It will continue to hold prominent placement amongst international investors. UAE’s incredible positioning amongst global investors also results from its political stability, higher transparency, crime free rates and a very cosmopolitan society, where nationals from over 200 countries happily reside.
It is hoped that sectors such as education, healthcare, retail, and tourism will be greatly contributing to UAE’s overall GDP. UAE government is giving tremendous weightage to knowledge economy, human capital development, skill enhancement, and nurturing an innovation centric society. It has earmarked 20.5 percent of the federal budget for education.
Tourism (2018 & Beyond)
It is estimated that tourism will one of the leading contributors of its economy. With a tourist arrival of 16 million in 2016, Dubai holds 6th position in the list of top 10 most cities around the globe. Other cities such as Abu Dhabi and Sharajah are also extending investment into tourism and hospitality. Potential growth opportunities can also be identified in UAE’s burgeoning manufacturing sector, where the PMI index averaged around 55 indicating robust optimism and potential returns for investors.
UAE’s Economic Forecast (2018-2020)
UAE: Outperformed Regional Economies 2018
UAE economy during 2018 has outperformed all the regional countries. It is mainly driven by the projected growth of the non-oil GDP in excess of 3.3 per cent compared to 3.1 percent estimated in 2017. Also, the partial recovery of the oil GDP will have a consequent impact on the overall economic growth of the country. UAE government has invested heavily into diversification and infrastructure development projects. The de-regulation of the oil prices is expected to make an even bigger contribution to the diversification of the economy enabling the government to drive additional investments into the non-oil sectors.
UAE’s Diversification Policy
UAE is the champion of diversification in the region and one of the leading economies in the world. It has successfully transformed its national economy from sand to sky-rappers. Its national journey from oil based economy to non-oil market is a successful transition which has now widened its basic core and economic outlook.
Phenomenal growth in manufacturing industries, knowledge industries, aerospace industry, transport, storage, financial services, tourism, new and renewable energy and construction during 2018 has accelerated economic growth of the UAE. These sectors played a role in providing the right conditions to attract foreign direct investment and promote innovation, stressing that this development has been a catalyst for the establishment of industrial and free zones and the formation of partnerships with multinational companies.
Phenomenal growth in manufacturing industries, knowledge industries, aerospace industry, transport, storage, financial services, tourism, new and renewable energy and construction during 2018 has accelerated economic growth of the UAE. These sectors played a role in providing the right conditions to attract foreign direct investment and promote innovation, stressing that this development has been a catalyst for the establishment of industrial and free zones and the formation of partnerships with multinational companies.
World Economic Forum and the World Bank Group (2018)
According to the World Economic Forum and the World Bank Group (2018) the UAE leads the Arab world in competitiveness as increased diversification makes its economy more resilient. The UAE, ranked 17th globally in competitiveness, has been able to successfully maintain a stable macroeconomic environment due to its diversification. Moreover, the IMF predicts GDP growth to pick up again this year to 3.4 per cent, driven also by the good performance of the non-oil economy. Over the past decade, the UAE has experienced significant improvement across all dimensions of competitiveness and closed the gap with the OECD average in all of them except for higher education and training and to a small extent health and primary education. In relative terms with respect to the country’s performance across all pillars], innovation, financial market development, and market size are weighing on the UAE’s competitiveness, while the country benefits from strong institutions, good infrastructure and a good level of health and primary education. The UAE has increased equity investment in technology firms from $100 million to $1.7 billion in just two years.
Abu Dhabi Economic Vision 2030
The Abu Dhabi Economic Vision 2030 provides for a shift from dependency on hydrocarbon exports towards an advanced, knowledge-based economy. Multiple diversification initiatives are already well-advanced, with Abu Dhabi’s tourism, manufacturing, energy, transportation, logistics and media sectors achieving a remarkable transformation over the past few years. The emirate’s economy is forecast to grow by 3.9 per cent in 2018. Inspired by a vision to build a sustainable and diversified, high value-added economy well integrated into the global marketplace, Abu Dhabi has developed an open, efficient and effective investment regime validating its position as a regional hub. In Abu Dhabi, for example, the Government has been following a vibrant roadmap, targeting non-oil segments to capture more than 60 per cent of the overall economy by 2030.
FDIs
It maintains its historical position as the leading recipient of foreign direct investment (FDI), which flows into Abu Dhabi, accounting for 27 per cent of overall FDI stock. Given Abu Dhabi’s leading reputation as one of the GCC’s real estate hotspots, backed by the government’s on-going well-diversified range of projects, the way ahead looks optimistic, capitalising on the maturing nature of UAE’s property market in general.
Abu Dhabi promotes more Competitive Investment Climate
Being expert on UAE & GCC I am strongly confident that Abu Dhabi’s on-going efforts are increasingly capable of promoting a more competitive investment climate, to attract both local and foreign investors, offering an optimum environment for businesses to flourish.
Recent announcements by the UAE Government have included thousands of new jobs, the relaxation of some immigration rules and a Human Development Report that plans to increase the number of working women in the nation.
UAE’s Friendly Business Environment (2017-18)
UAE has also introduced a plan to create a friendly business environment, facilitate access to finance and provide a solid basis for the implementation of public-private sector partnership projects. It is hoped that such initiatives and projects will have a significant impact on the stature and reputation of the UAE as an ideal destination for conducting business as it moves on from simple diversification from oil and gas and attempts to build a sustainable, knowledge-based economy.
Stimulus Plan (2018)
Abu Dhabi has announced the new Dh50 billion stimulus plan which will help lift gross domestic product growth, increase consumption and revitalise the property market as the Government takes advantage of high oil prices to finance economic expansion.
The three-year package and 10 initiatives aim to stimulate growth in the emirate and create at least 10,000 jobs for Emiratis in the public and private sectors. Abu Dhabi’s Executive Council has been given a deadline of early September to draw up a detailed execution plan, with initiatives that will cover infrastructure and legislative projects, small and medium-sized enterprises and industrial and social projects. The announcement seems to be positive, further highlighting an increased focus on supporting growth and strengthening the business environment.
The stimulus is quite substantial as well, corresponding to up to 6 per cent of Abu Dhabi’s GDP addressing several key policy areas like facilitating doing business, stimulating SMEs, encouraging public private partnerships and developing infrastructure. The latest announcements also support non-oil sector growth in the UAE.
The 10 initiatives from Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, will put the emirate front and centre with investors in the UAE, the region and the world, who are looking for the ideal environment in which to operate and make returns.
Allowing more freedom of movement between onshore areas and offshore free zones will be an important part of a more attractive landscape. Arguably, removing the requirement of a physical office space for business licence registration will be more so, in particular for start-ups, small and medium enterprises and freelancers, creating a wider pool of skilled workers, service providers and support infrastructure for the bigger companies.
Amid the lower spending by the public sector, as government jobs were reduced and the reforms kicked into gear, businesses relocated from Abu Dhabi to other parts of the UAE or even abroad.
The UAE as a nation has remained steadfast and consistently buoyant in creating new opportunities for growth, while quickly addressing challenges and immediately finding solutions. As part of a globalized economy, it undoubtedly felt the impact of economic challenges of major economies in the world. However, it has proactively exerted efforts to be at the forefront by developing key mechanisms that ensure its economy remains stable in uncertain times.
Strengthening the UAE Economy less than half a century ago, the UAE was not known to the global economic community. For decades, the country relied mostly on pearl trading and maritime commerce, scant agricultural and livestock activities, and traditional manufacturing to sustain its subsistence economy.
Now the UAE is the most diversified economy in the Gulf Cooperation Council region. The non-oil sector currently accounts for around 70 per cent of the national GDP, with the figure expected to swell to 80 per cent by 2021.
UAE Vision 2021 Development Strategy
Each of the seven Emirates has different economic conditions and priorities, although they all adhere to an overarching UAE Vision 2021 development strategy. While Abu Dhabi holds most of the country’s oil and gas reserves and controls most national savings, Dubai acts as the commercial hub of the country. Domestic economic growth will continue to be driven largely by these two emirates, with Dubai attracting huge foreign investments as it prepares to host the historic 2020 World Expo and Abu Dhabi injecting more funds into infrastructural works. The economies of the two emirates exceed those of other GCC neighbors.
The UAE’s rankings on various global economic indices reflect the success of nationwide efforts to accelerate diversification, create an unparalleled business and investment environment, and nurture a knowledge-driven economy.
UAE’s Latest Policies
Most of the latest policies are based on reforms and improvements for facilitating the transition to a post-oil era. The Ministry of Economy is presently working on various laws related to foreign investments, industry regulation, protection of industrial property and industrial design, commercial transactions, and arbitration to further boost economic productivity and expand the contributions of the non-oil sector. Key fiscal and economic policies enacted since 201517 have improved the country’s resilience to global economic pressures as well as its ability to remain financially and monetarily stable and sustain growth. It includes fiscal consolidation efforts that have increased electricity and water tariffs and removed fuel subsidies, among others. More policy introductions and structural reforms are forthcoming to further enhance the business environment, increase credit access, and modernize the labor market.
The UAE successfully maintained growth from 2010 to 2016. Its average real GDP growth of 4.6 from 2011 to 2016 surpassed the global average thanks mainly to non-oil activities. The IMF affirms that the UAE economy has been able to emerge relatively unscathed from the post-2014 oil shock. The country’s financial cushions, sound banking fundamentals, global safe-haven reputation, business-friendly environment and diversified sources of income are put its macro-economy on right track of further advancement