‫مكروكنومي[ نظرة عامّة [‬

‫المارات العربيّة المتّحدة‬

‫‪10‬‬
Macroeconomy – Overview

United Arab Emirates

‫المارات العربيّة المتّحدة‬
Presented by
Team 10
 History
• UAE is a constitutional federation of seven emirates:
– Abu Dhabi (capital and the largest city of the federation)
– Dubai
– Sharjah
– Ajman
– Umm al-Qaiwain
– Ras al-Khaimah
– Fujairah
• The federation was formally established on 2nd
December, 1971
 Facts
• Area : 83,600 sq km
• Four-fifths of UAE is a desert
• One of the world's fastest growing tourist destinations
• President : HH Sheikh Khalifa bin Zayed Al Nahyan
• Population : 4.106 million (December, 2005)
– Only 20% UAE nationals, 80% expatriates

• Environment - current issues: lack of natural freshwater

resources compensated by desalination plants; desertification;
beach pollution from oil spills
• Strategic location along southern approaches to Strait of
Hormuz, a vital transit point for world crude oil
 Economic Overview
• Officially proved crude oil reserves of about 97.8 billion
barrels – almost 8.5% of the world crude oil reserves
• Petroleum accounts for nearly 30% of GDP, 45% of
export earnings and 40% of government revenue

• Diversification efforts
• Legislation now allows 100% foreign ownership in Free
Trade Areas
• The UAE has traditionally struck a delicate balance between
maintaining strong ties with the US and other Western allies
and appeasing Islamist sentiment.
Inflation
 Inflation
• Improvement expected because of diversification
• UAE is not as much dependent on oil for revenues as other
GCC’s
• Big risk for budget revenues - hydrocarbons constitute
around 80% of revenues
• Consumer Price Inflation flared up at 10.1% in 2006
compared to 7.8% in 2005, attributed to increase in prices
of non-oil imported goods priced in Euro or Yen,
increasing domestic demand pressures
• Higher oil revenues, strong liquidity, and cheap credit in
2005-2006 led to a surge in asset prices and consumer prices
• UAE being an open economy and the national currency
pegged to the US Dollar, the fluctuation of the US Dollar
directly affects the UAE currency
 GDP
Real GDP grow th (%)

14 11.9
12
9.7
10 8.2 8.9
8
6
4 2.6
2
0
2001-02 2002-03 2003-04 2004-05 2005-06
Year
Oil – GDP
 Growth
• 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
• Second largest economy of the GCC region,
following Saudi Arabia
• The nominal GDP grew at a robust yearly rate of
29.2% in 2006 to US$168.26 billion compared to
US$130.26 billion in 2005.
GDP - Sectorwise
 Currency and Exchange Rate
• Currency – AED (Arab Emirates Dirham)
• AED – Currency is pegged to US Dollar
• Conversion Rate – 3.67

• Advantages of pegging
– Hedging against oil price volatility

• Disadvantages
– Dependence on US monetary policy leaving real interest rate too
low
– Imports are not from US, hence doesn’t give benefits in terms on
imports; cost of imports increased with appreciation of Asian
currencies against Dollar.
 Monetary Policy
Tools to control inflation
• Interest Rates
- Nominal UAE interest rate follow US interest rate
 Monetary Policy
• Open Market Operations
- High reserves, hence not used by govt. to issue public debt

• Minimum Reserves Requirements

– 14 percent of current, savings and call accounts.
– 1 percent of time deposits.
– Goals: to encourage longer-term dirham deposits, to repatriate dirham
deposits with offshore banking units, and to discourage placing inter-
bank dirham deposits abroad.

• Certificates of Deposits (CDs)

– Main instrument to control domestic liquidity
– Maturity period increased from 18 months to 3yrs

How does it affect?

– Absence of independent & active monetary policy
– Dollar pegging leads to import price inflation
– De-pegging scheduled for 2010 for GCC states
 Fiscal Policy
• TAX: No income tax / consumption tax
• Fiscal performance directly correlated with oil prices
• High oil prices offsets govt. expenditure leading to revenue surplus
• Investment vehicles of govt.-
– Abu Dhabi Investment Authority (ADIA)
– Dubai International Capital (DIC)
• Govt. follows expansionary fiscal policy
• Abu Dhabi accounts for about 65 % of expenditures and 80 % of
revenues
• Huge investments being made to increase crude oil capacity
 Fiscal Policy
• Huge investments being made on non-oil diversification
arenas like tourism, real estate, energy
• Development of new free zones – Dubai Airport Free Zone,
Dubai Media City, Ajman Free Zone, Dubai Techno City,
Gold & Diamond park
• Oct 2000: Opening of “Dubai Internet City”, a new free
export zone developed with a $250m investment
• The Jebel Ali Free Zone established in 1985 has been a key
element of the economic transformation of the U.A.E.; it now
hosts 2,200 companies
• Nov 2000: Opening of the Abu Dhabi Security Markets and
the Dubai Financial Markets Stock Exchange
 Balance of Payment
2000 2001 2002 2003 2004* 2005* 2006
Current Account Balance 13.76022 8.754768 3.408719 7.555858 10.59673 27.25613 35.17984
Trade Balance (FOB) 14.83379 10.2861 14.64033 21.32425 27.58311 46.35695 56.42234
Total Exports of Hydrocarton NA NA 23.20981 29.58311 38.82834 55.08447 70.14714
Total of Non Hydrocarbon Exports 11.29155 12.55858 10.63488 14.14986 18.3297 25.93733 26.42779
Total Exports and Re-Exports
(FOB) 49.86921 47.6049 52.19891 67.18256 91.05995 115.7357 142.6022
35.0327 37.3188 42.6812 52.10899 72.13079 91.22343 97.92916
Total Imports (CIF) -35.0327 -37.3188 -42.6812 -52.109 -72.1308 -91.2234 -97.9292
Services (NET) 2.891008 2.681199 -7.72752 -9.0654 -12.0708 -14.594 -17.782
Investment Income (NET) 5.095368 5.06812 0.926431 -0.03815 0.722071 2.888283 4.741144
Transfers (NET) -3.96458 -4.21253 -4.42779 -4.66485 -5.67847 -6.73025 -8.20163
Capital of Financial ACC. -10.9237 -8.26975 -1.49864 -6.6921 -6.50409 -26.8774 0
Net Errors & Omissions -10.049 -7.27793 -2.32425 0.433243 -0.91553 -7.11444 -12.5995
Overal Balance: (+)/(-) 2.836512 0.485014 -0.41417 1.288828 3.495913 2.588556 6.509537

Figures in Billion USD

 Increase in
current account balance
• UAE has a current account
surplus since 2000 mainly
attributed to trade surplus
• Exports grew almost three
folds since 2000 from
around 50 Billion to 150
Billion
• Imports also grew almost
2.7 times since 2000 from
35 Billion to 95 billion
 Trade Surplus
• Oil exports grew more than 3 times from 23 billion in 2003 to 70 billion
in 2006
• Oil sector exports grew from 44% of total exports in 2003 to 50% of total
exports in 2006
• Non-oil exports also more than doubled since 2000 from 11 billion in
2000 to 26 billion in 2006

300

250

200

150

100

50

0
1 2 3 4 5 6 7

Oil exports Non oil exports trade balance

 Growth in oil exports
• Thanks to oil prices worldwide!!!
• As oil prices went down in 2002, overall balance went
down
 Growth in non-oil exports
• Attempts to reduce its dependence on crude exports and
create jobs for its growing population.
• Numerous Free Trade zones in the country
• Third most important re-export center in the world (after
Hong Kong and Singapore) – one third of trades
• Investment in tourism, real estate and financial services
• Construction increased 16%, manufacturing 13%, electricity,
gas and water 15% - Growth in year 2006
 Recycling of petrodollar
Growth in imports
• UAE on spending spree
• Substantial growth in commodity imports – mainly
attributed to population increases
• Imports grew from 35 billion in 2000 to 95 billion in 2006
• Principle imports are machinery and electrical equipment,
precious stones, precious equipments, transport
equipment.
• Money is recycled back to the world economy – Main imports
from US, China, India and Germany
 Export - Import

Main Export destinations 2006 Im port Destinations 2006

India
10% Germany
Thailand
16% US
13% 29%

Japan
South 55% India
Korea 26%
22%
China
29%
 FDI
• Favourable sectors for FDI
– Energy
– Infrastructure
– Hospitality
• UAE ranks first in attracting FDIs. Right now foreign
national can hold only 49% in the companies in UAE.
• In FTA, its 100% ownership
• UAE has 23 Free zones, mostly in Dubai
 FDI contd…
• Development setting the foreign direct
investment (FDI) average in the UAE at only
US$18 million per year from 1998 to 2002,
increasing to US$8.4 billion in 2004 and to
US$12 billion in 2005.
• According to the UAE government, FDI was
valued at US$10 billion in 2005
 Growth Projections
Key indicators 2006 2007 2008 2009 2010 2011

Real GDP growth (%) 8.9 8.2 8.6 8.2 7.4 7.2

Consumer price inflation 13.5 12 9.5 7.5 6 5

(av; %)
Budget balance (% of GDP) 11.8 9.9 8.9 7.4 6.1 6.6

Current-account balance 21.4 18.6 15.3 13.5 11.7 12.9

(% of GDP)
Exchange rate Dh:US$ (av) 3.67 3.67 3.67 3.67 3.67 3.67

Exchange rate Dh:€(av) 4.61 4.95 5.06 4.85 4.69 4.63

 Key predictions
• The government will continue to boost spending in 2007-
11
• Monetary policy will continue to be dictated by the UAE
Dirham's peg to the US dollar
• Relatively robust growth in non-oil goods and services
earnings and persistently high international oil prices
• The government will continue to attempt to attract
investment during 2007-08 by offering low tax rates,
imposing few trade or exchange controls, providing solid
infrastructure and projecting a positive attitude to
private-sector investment.
 References
• http://www.emirates.org/
• http://uae.gov.ae/Government/economy.htm
• http://www.centralbank.ae
• http://www.state.gov/r/pa/ei/bgn/5444.htm
• http://economist.com/
• http://www.gcc-g.org/gccstatvol15/toc/chapter3e.htm
• http://library.gcc-sg.org/Arabic/Books/
• The CIA World Factbook
‫شكرت أنت‬
Shukran