UAE. A recent Dubai Chamber of Commerce and Industry study indicates that despite heightened regional geopolitical risks, four out of six GCC countries and the UAE in particular, are poised to witness robust economic growth this year in comparison to the previous year.
According to the latest International Monetary Fund (IMF) data combined with data from national authorities, the UAE will see a year on year GDP growth of 4.5% in 2012 while Kuwait, Oman and Bahrain will record a year on year growth of 4.9%, 4% and 3% in 2012 respectively (Table 1).
Also, the continued upward trajectory of oil prices should strengthen the fiscal and current account balances of GCC countries, although to different magnitudes. In Saudi Arabia, Kuwait and the UAE, larger fiscal surpluses and greater accumulation of reserves are projected. As such, for the GCC as a whole, IMF projects that fiscal and current account surpluses will stand at 13.1% and 22.2% of GDP in 2012 respectively. (Table 3).
Table 1: Main highlights of Real GDP growth and Growth of the Hydrocarbon Sector
The study further states that regional growth is supported by its ongoing expansionary fiscal policies. This is the reason why Saudi Arabia, according to its 2012 budget, is expected to raise spending by an additional 2.4% this year on top of a 23% increase last year, while Qatar and Kuwait are also expected to increase spending in their 2012-2013 budgets.
Higher allocations to current public spending, notably on wages such as those recently announced in the UAE and Kuwait, will boost domestic demand and non-hydrocarbon growth (Table 2).
Table 2: Main highlights of Non-Hydrocarbon growth and Inflation
Table 3: Main highlights of Current Account and Fiscal balances
In fact, non-hydrocarbon growth reached a record high in Saudi Arabia in 2011 increasing by 7.8% year on year, while it is projected to remain at high levels in 2012 with 5.3% year on year increase.
Similar trends are projected to take place in Kuwait and Oman, where fiscal spending has been on the rise. In UAE, the upward trajectory of the non-hydrocarbon sector remains elevated in 2012 as projected to increase by 3.9% year on year from 3.3% in 2011 and 2.1% in 2010.
Focusing on the developments of UAE economy, recent announcements indicate a general increase in consolidated public spending. On the one hand, the UAE government has announced increases in federal wages and pensions in addition to an AED 10 billion fund to be used to pay down debts of low income UAE nationals.
On the other hand, the Abu Dhabi Executive Council (ADEC) has ratified its investment strategy pointing out the need to finalise a number of projects such as the Khalifa Port and the development of the Khalifa Industrial Zone. Added to that, the UAE government has recently allocated additional AED 16.8bn (USD 4.6bn) in support of Aldar through property purchases and debt cancellation.
Dubai’s economic prosperity and stability
Contrary to the above investment pattern, Dubai’s primal target remains its commitment to fiscal consolidation. According to Dubai Department of Finance, the emirate’s fiscal efforts resulted in an estimated reduction in spending by 4.4% of total public expenditure in comparison to the 2011 budget, while the infrastructure, transportation and economic development sector took up 41% of total public expenditure.
Last but not least, the 29% of the total public expenditure will be allocated to the social development sector including areas of health care, education, housing and culture. Moreover, Dubai’s GDP growth projection in 2012Q1 was over 4%, whereas according to available estimates, it grew by more than 3% in 2011 and by about 2.5% in 2010.
The study reveals that the main driver behind the emirates’ economic prosperity is the strategy of generating new business opportunities through diversification. Specifically, the emirate’s economic prosperity and stability has been focused on the trade, tourism and logistics sectors supported by its buoyant infrastructure and its growing reputation as an international business hub.
Together, logistics, trade, tourism, and transportation accounted for almost 60% of Dubai’s GDP in 2011. The aforementioned sectors have recorded substantial growth backed by the significant increase in passenger traffic through Dubai International Airport in 2010 and 2011.
The study highlights the need for policymakers to further enhance diversification in UAE, which will help boost economic growth and prosperity, while enhancing the competitiveness and productivity levels of the economy.
This can be attained by committing to initiate strategic investments in specific sectors and industries where there is a competitive advantage as well as growth potential, like for example the technology industry.
In its conclusion, the study suggests that the UAE can provide the GCC region business patents and a strong research and development culture while the issue can be addressed through investing in human capital by increasing education levels in the education sector; developing new financing schemes and instruments in the financial sector, optimising the exploitation and use of natural resources in the environment and enhancing technology and knowledge with the aim of entrenching innovation in technology, research and development.
About Dubai Chamber of Commerce and Industry
Established in 1965, the Dubai Chamber of Commerce and Industry is a non-profit public entity, whose mission is to represent, support and protect the interests of the business community in Dubai by creating a favourable business environment, supporting the development of business, and by promoting Dubai as an international business hub.