UNITED ARAB EMIRATES - UAE
The UAE is a Federation of seven Emirates including Dubai, Abu Dhabi, Sharjah, Ajman, Al-Fujayrah, Umm Al-Quwain and Ras Al-Khaima, which are governed by the Federal Supreme Council (FSC) of rulers. Abu Dhabi and Dubai, the largest and the wealthiest two Emirates, dominate the UAE economy. It is a rich and open economy with a high per capita income and a sizable annual trade surplus. It has official proven crude oil reserves of about 97.8 billion barrels – almost 7.2% of the world crude oil reserves and 20% of the GCC reserves. With a current level of production at about 2.256 million barrels a day, oil reserves will last for about 119 years. Oil and Gas account for nearly 25% of GDP, 45% of export earnings and 40% of government revenue. Since the discovery of oil in the UAE more than 30 years ago, the UAE has achieved a profound transformation from a small desert region to a modern state with very high standards of living. The government has increased spending on job creation and infrastructure expansion, and opened up its utilities to greater private sector participation. The sound policies supported by structural reforms have enhanced the role of the private sector, contributing to growth of the non-hydrocarbon sector and diversification of the economy. They have also enhanced economy's resilience to external shocks. Foreigners have been allowed to buy property in Dubai since 2002 and have usually received long-term visas, allowing them to settle in the Emirates. Higher oil prices, increased export revenues, strong liquidity, housing shortages and cheap credit in 2005-08 led to a surge in asset prices (shares and real estate) and consumer price inflation. But the global financial and economic crisis, tight international credit, falling oil prices, and deflated asset prices, caused the UAE economy to shrink in 2009. The UAE authorities increased spending and boosted liquidity in the banking sector to tackle the crisis. The crisis hit Dubai hardest than its counterparts in the GCC region, as it was heavily exposed to depressed real estate prices. The UAE’s strategic plan for the next few years focuses on diversification and creating more job opportunities for nationals through improved education and increased private sector employment. In its diversification efforts, the UAE has developed its tourism sector and held the leading position for the destinations attracting business in the future. The UAE will continue to be opened for international investors due to its economic vibrancy and flexibility in legislation that allows 100% foreign ownership in Free Trade Areas to attract foreign investors.
The UAE is the second largest economy in the region, recording one of the highest economic growth rates in the Arab region because of its growing oil and gas exports and on-going economic diversification programs. During 2004 to 2008, the UAE economy more than doubled (increased by 145%) to $261.4 billion, fueled by a strong growth of oil, hydrocarbon and non-oil sectors. Nominal GDP however shrank by -12% to $230 billion due to a slump in the world oil market. Nominal GDP is expected to rebound and grow by 9.9% and 7.4% to $252.7 billion and $271.5 billion in 2010 and 2011, respectively in view of the global economic recovery. Real GDP decreased by (-0.7%) in 2009 compared to an increase of 5.1% in 2008, which is expected to rebound and grow by 1.3% and 3.1% in 2010 and 2011, respectively, supported by relative stability in oil and non-oil sectors, and the expected global economic recovery.
Inflation in the UAE has remained in the range of 1.3% to 3.2% during 2000 to 2003 but increased thereafter. Consumer price inflation flared up to peak rates of 11.7% in 2007 and 11.5% in 2008. This was attributable to depreciation of the US Dollar against the world major currencies, increase in prices of non-oil imported goods priced in Euro, Japanese Yen, or British Pound Sterling and increasing domestic demand pressures. Although high food prices, rents and imported inflation were important contributing factors, yet rising real-estate and property prices was the main driver behind inflation. CPI inflation slowed down to 1% in 2009 due to wise and timely policies of fiscal and monetary management by the government in view of the global financial crisis, decline in oil prices and decrease in liquidity. Inflation is expected to remain manageable at 2.2% and 3% in 2010 and 2011, respectively, in view of the likely global economic recovery.
High oil prices, an increased oil production until late 2008, and the economic and financial reforms undertaken, have boosted business confidence and economic growth in the UAE. Higher oil revenues have enabled the government to take expansionary fiscal stance and implement huge tourism projects. The UAE earned budget surpluses of 26.7% and 12.4% of GDP in 2007 and 2008, respectively, on the back of increased oil revenues. Budget surplus however plunged to a marginal rate 0.4% of GDP in 2009 in view of the global crisis and the oil market slump. Fiscal surplus however is expected to expand to 5.6% and 9.6% of GDP in 2010 and 2011, respectively, due to a likely increase in oil revenues. Government and private sector seek to improve infrastructure and create more job opportunities for the nationals.
The United Arab Emirates Dirham (AED) has been pegged to the US Dollar at the exchange rate of around Dh. 3.67: US$ 1 since November 1980. The UAE's currency and interest rates would continue to be linked to the US Dollar in the medium-term, supported by current account surpluses and a build up of foreign reserves and assets. Consequently, the fluctuations of the US Dollar against other major currencies, particularly the Euro and the Japanese Yen, strongly impact the purchasing power and inflation through changes in import prices. Foreign reserves minus gold stood at US$35 billion at the end of 2008 compared to US $27.2 billion at the end of 2007, but declined to US$32 billion in 2009. Foreign reserves minus gold are expected at $30 billion each at the end of 2010 and 2011.
The UAE has enjoyed huge surpluses on trade and current accounts during 2004 to 2008 on the back of high oil export, non-oil and re-export earnings. But due to the global financial and economic crisis, and the world oil market slump, a deficit of (-$7 billion) (-3.1% of GDP) was realized in 2009 compared to a surplus of $22.2 billion (8.5% of GDP) in 2008. However, the balance of current account is expected to rebound and achieve surpluses of $19.8 billion (7.8% of GDP) and $20.9 billion (7.7% of GDP) in 2010 and 2011, respectively, on the back of expected increase in earnings from oil, non-oil exports and re-exports.