The development of the economy based on knowledge. It is imposing a set of changes in the nature and organization of the labour market in the economic environment multiple and distinct basis competition is strong. The thing that prompted many institutions to re-organizational arrangements and strategy to become more efficient manner in accordance with situations such as globalization, technology and new economic values.
Top of Form
UAE economy has grown rapidly. Making the country within the ranks first in terms of some economic indicators, such as rate of per capita income and per capita consumption of energy. Oil was exposed in AD (Abu Dhabi) in the early 1960s that led to rapid confederacy calls by United Arab Emirates sheikdoms. In 1966, Sheikh Zayed bin Sultan Al Nahyan became leader of Abu Dhabi, while the British started losing oil investments & contracts to US oil firms [1].
The British had previously started a progress organization that helped in several tiny developments in UAE. Then it was decided to form a council by the sheikhs of Emirates to harmonize matters between them & took over the development organization. They shaped the Trucial states Council, and appointed Sheikh Rashid bin Saeed Al Maktoum's official advisor Adi Bitar as Secretary General & official Advisor for the Council. The council was ended once the United Arab Emirates was formed [2].
United Kingdom announced its decision in 1968, reaffirmed in march 1971 to end the agreement relations with the seven Trucial Sheikhdom which had been jointly with Bahrain & Qatar under the British protection. The nine tried to form an Arab Emirates union, but in the middle of 1971 they were still not capable to concur on conditions of the union, even though the British treaty relations was to terminate in December 1971 [3].
The rulers of AD & Dubai determined to form a union between their two emirates separately & set up a constitution, then invite the five other emirates rulers to a meeting & suggest them the chance to join. It was arranged between the two emirates rulers that the constitution would be written by 2nd December 1971 [4]. On that day, four emirates agreed to enter into the union at Dubai Guest-house Palace, which had been named United Arab Emirates. In the early 1972, Ras Al Khaimah joined the union [5].
1.2 Veteran Gulf Ruler Zayed's Death
On second of November 2004, the UAE's first leader, Sheikh Zayed Al Nahyan died. His eldest sons Sheikh Khalifa bin Zayed Al Nahyan, did well as ruler of AD. In harmony with the constitution, the UAE's high Council of Rulers elected Sheikh Khalifa as UAE president, and Sheikh Mohammad bin Zayed as Crown Prince of Abu Dhabi.
1.3 Political Systems
In step with the UAE's quick socio-economic developments, main steps have been taken, together at the centralized and local levels, to reform the structure of government in order to make it more receptive to the needs of the country's residents and to make sure that it is better equipped to deal with the challenges of development.
This progression has been focussed, at a federal point, by leader H.H. Sheikh Khalifa bin Zayed, and guided and devised at an supervisory level by UAE Vice President and Prime Minister and Ruler of Dubai H.H. Sheikh Mohammed bin Rashid Al Maktoum. Similar programmes have been launched at the restricted level in the individual emirates of the confederacy.[6]
1.4 IRENA
One most important political success for the UAE in 2009, which as well reflected its growing in the international status, came with Abu Dhabi being selected to host the headquarters of the International Renewable Energy Agency [IRENA]. This is the primary time that a developing country has had the chance to host the headquarters of a chief international organisation. It is also indicates the country's motivation to carry its international responsibilities and help the world to face challenges related to diversifying power sources. [7]
As part of its diplomatic efforts to build bridges and robust partnerships, as well as drum up support for its bid, teams headed by seven UAE ministers lobbied IRENA member states across the world for their support for the UAE's candidacy. Addressing the 136-member IRENA summit ahead of the voting process, Sheikh Abdullah said: "Our vision has from the outset consisted of an IRENA that ensures all voices from all over the world are not just heard, but listened to.
That the concerns of the small, poor, or developing are given equal consideration as those of the big or rich or developed. Moreover, that ideas and expertise that benefit one benefit all…IRENA must serve those countries that need it most. We must ensure that the developing countries are offered opportunities to participate in the agency on an equal footing.
This is a key platform of the UAE agenda and a firm commitment of our bid. No country can be left behind as we move towards a future built on renewable energy…I call on you today to vote for an IRENA that encapsulates our globalised world and that celebrates our differences as well as our commonalities. Let IRENA be an agency of difference and of change. Let IRENA represent the convergence of an unprecedented North-South partnership and a new impetus for the countries that it seeks to serve by being located in the heart of its development."
1.5 Economic Growth
Thirty years previously, the UAE was one of the slightest developed countries of the world. Today, it has achieved an income level comparable to that of the industrialized nations. The UAE did not pass through the hypothetical development "stages" that most developed countries seem to have experienced. Instead of its large oil revenues have allowed her to leap these stages to the stage of high mass consumption.
United Arab Emirates has the biggest economy in the Arab Middle East, after Saudi Arabia. Abu Dhabi is the main point of the UAE oil & gas industry, followed by Dubai, Ras Al Khaimah and Sharjah. While Dubai is the trading, financial & tourist centre of UAE. [8]
The UAE has the sixth biggest proven oil reserves in the world by 97.8 billion barrels, according to The World Factbook as at Jan, 1 2010 [9]. Moreover, the seventh biggest proven natural gas reserves, in the world by 6,071 billion cubes feet [10]. It is a main oil & gas manufacturer & is a member of the OPEC.
Figure 1: UAE GDP growth, http://www.indexmundi.com/united_arab_emirates/gdp_real_growth_rate.html
GDP Growth
As one of the leading suppliers of crude oil, the UAE had initially been insulated from the global downturn by high oil prices, which soared to a record US$147 in July 2008. However, the country was eventually affected by the deepening global downturn that led to a slump in the demand for oil, dragging prices to less than a third of the July 2008 peak. In the final months of 2008, the tremors reverberating through international economies were finally felt in the region with the widening of sovereign risk spreads, the reversal of large private capital inflows and a sharp downturn in stock market indices.
Further proof of the UAE's close integration in the global economy was provided by a decline in the country's construction and property sectors, mainstays of the country's economic growth. All these factors meant that the UAE's growth in 2009 was sharply down from previous years. The Ministry of Economy in October 2009 forecasted growth of 1.3 per cent for the year.
The IMF upgraded its GDP prediction in November 2009 to a contraction of about 0.2 per cent instead of the 0.6 per cent decline it had forecast in May. The IMF predicted, however, that the UAE would return to positive figures in 2010 with an expansion of 2.4 per cent. Other analysts are more optimistic: the Economist Intelligence Unit is predicting a 3.4 per cent growth rate, whilst Emirates Industrial Bank expects the economy to grow by up to 5 per cent in 2010.
Figure 2: 2008 GDP growth
1.7 GDP Per Capita
In FEB.2 2007, Dubai announced a 9-year economic plan that will supports an 11% annual increase in GDP to US $108 billion by 2015.The plan as well included a raise in per capita income to US $23,000 by 2010. The rate per capita income reached US $31,000 in 2005, therefore, in five years economic achievements went within those which were planned for a ten-year period. [11]
Figure 3: UAE GDP per capita income 2006-2010 Data source CIA World Factbook
The Bank of America Merrill Lynch data released that UAE economy is poised to recover from the negative growth period of 2009 with 1% in 2010 & 2% in 2011. BOA also suggests that UAE would have the lowest inflation within the Gulf Cooperation Council - GCC, at 1% in 2010 & 2.8% in 2011.
1.8 Economic sectors:
While value added growth rate in the UAE, oil sector was fluctuating during the period 1975-1998, the manufacturing sector value added growth rate was steadily increasing. It increased considerably from DH 472 million in 1975 to DH 9443 million in 1985, and to DH 18,855 million in 1998. Its contribution to GDP increased significantly from 0.9% in 1975 to 3.8% in 1980 and to 12.4% in 1998.
Agricultural production increased more than fourfold from 1975 to 1998 at an average annual growth rate of 12.6%. This consistent increase in agricultural development with generous agricultural incentives & subsidies. A conspicuous sectoral shift & contribution to GDP is evident in the service sector, Tourism, commerce wholesale & retail trade, finance, restaurants, insurance, hotels, storage, transport, communications, real estate's & government services. The service sector contribution to GDP increased from 22.3% in 1975 to 39.7% in 1998.
1.9 Industry and Diversification
Diversification remains the watchword for future growth of the UAE's economy as it seeks to reduce its reliance on oil. The non-hydrocarbon sectors accounted for 63 per cent of GDP in 2008, despite high oil and gas prices, contributing US$590 billion to the economy. The UAE is hoping to further reduce the contribution of the hydrocarbons sector to approximately 20 per cent in the next ten to 15 years, through promoting growth elsewhere in the economy.
In 2009, Abu Dhabi unveiled its 2030 Economic Vision, setting out a roadmap for achieving greater economic diversification. The plan aims to reduce Abu Dhabi's reliance on the oil sector as a source of economic activity and, instead a greater focus on knowledge-based industries.
Manufacturing and industry continues to be an important component of the country's ambitions for economic transformation, building on already thriving sectors such as aluminium smelting, ceramics and pharmaceuticals.
A major step towards reaching this goal was achieved in 2009 with the announcement of plans by Abu Dhabi's Advanced Technology Investment Company (ATIC) to purchase Chartered Semiconductor Manufacturing and thus create the second-largest chipmaker in the world. When the Dh6.56 billion acquisition is completed, Chartered Semiconductor will be merged with Global foundries, the chip manufacturer that ATIC runs in a joint venture with the US chip company AMD.
1.10 Tourism
Tourism is an important growth sector in the whole of the UAE economy. Abu Dhabi has recently re-branded itself and prime quality hotels and leisure resorts are increasingly important throughout the country; from the island resort of Sir Bani Yas in western Abu Dhabi, to the desert resorts of Qasr Al Sarab in the Liwa, and Al Maha and Bab al-Shams, in Dubai.
There are also a host of coastal resorts throughout the UAE, including the east coast, as well as flagship projects such as Emirates Palace Hotel, Burj al-Arab, Madinat Jumeirah, and the Burj Khalifa, with the result that the UAE has much to offer the most demanding visitors. The country is expected to attract 11.2 million tourists in 2010, underpinning the success of its attempts to boost investment in the hospitality industry.
1.11 Fiscal Policy
UAE has succeeded in accomplishing important developments in the direction of restoring balance to the Single Treasury Account, which has suffered from structural imbalances & chronic deficits during the long years as a result of fluctuations in oil prices. The government continued to maintain a surplus in their balance sheet to be taken because of rational economic policies in one hand, and developments in the world oil markets on the other hand.
1.12 Taxation
There is not any federal taxation, income or consumption tax, withholding or capital gain tax, corporate tax or value added tax in UAE, United Arab Emirates in "no tax" country. Moreover, there is no individual income tax to be paid by the residents of UAE. The government has thought-out introducing VAT (value added tax), but there are no plans to do so in the near future. [12]
1.13 Interest rate
The standard interest rate in UAE was last reported at 1.8%. The formal interest rate is the rate on Facilities to maintain liquidity at bank from 2006 until this year the UAE average interest rate was 3.11% getting a historical high of 5.53% in Dec, of 2006 & record low of 1.46% in Nov. Of 2009 [13]. The Central Bank "CBUAE" aligns interest rates with the US to manage money supply growth. Where one United Arab Emirates dirham = 0.272257 U.S. dollars.
Figure 4: UAE Interest Rate (monthly average): http://www.tradingeconomics.com/Economics/Interest-Rate.aspx?Symbol=AED
1.14 UAE Trade
The year 2009 proved to be a tumultuous one in the global economy. From the dark depths of the recession, which saw banks around the world require bailouts and job losses mount, the first shoots of recovery emerged in the latter half of the year. The UAE has been close to the forefront of this recovery, with its economy reinvigorated thanks to the strong response of monetary and fiscal policymakers and an increase in oil prices from a low point in late 2008 and early 2009.
The swift and decisive action of the UAE Government to support the local economy, under a programme initially launched in late 2008, when the global economic crisis first began, was well-demonstrated in the aftermath of the announcement by Dubai government-controlled conglomerate Dubai World in late November 2009 that it was seeking a six-month extension on debt payments.
The Abu Dhabi government stepped in to provide Dubai's government with a US$5 billion (Dh18.35 billion) loan that was used, in part, to allow Dubai World to reduce its indebtedness, both to overseas bondholders and to local suppliers, a move that eased concerns among international investors.
2.0 Analysis
2.1 UAE International Trade
Since liberty, the United Arab Emirates has maintained a free open souk* system with close links to the global economy. Traditionally the Emirate's major industries were fishing & pearling. The union's closest trading partners have industrialized in Asia & Europe, in the first place France\ Japan\ India\ Italy\ Britain\ Germany & South Korea [14].
The WTO "World Trade Organization" ranked the UAE among the top 30 countries in trade in good & services in the world during the past year, unexpected improvement sort during this year & the next year under the signs of recovery return to the international trade movement.
2.2 UAE - France Trade
The ambitious policies adopted by the authorities of the State United Arab Emirates over the past years, have set the way to a diversified, dynamic & open economy. This makes the United Arab Emirates among the Gulf countries to be the major trading partner of France in the Middle East. Said by Nicolas the President of France. [15]
2.3 US Trade with the UAE
Last year, UAE became the largest export market for the US between the Middle East countries. UAE exports rose to the United States by 53% from $971.7 million to $1.49 billion "between" 2000-2009. While the UAE imports of United States goods increased in 2000-2009, from $ 2.29 billion to $ 12.1 billion [16]. As shown in the below figure.
Figure 5: US Trade with the UAE, http://www.uae-embassy.org/business-trade/trade-export
(*Souk refers to market)
2.4 UAE Industry
There are several factors characterized by the UAE, which was a direct factor to attract a lot of capital & businessmen to invest in the industrial sector, branches & various production lines. Briefly because of the investment climate in the country, such as:
Encouraging economic legislations, which are based on a clear and consistent economic policy.
Stability political factor, which the country enjoys in a light balanced relations with the world countries.
Geographical proximity of the global markets, making the UAE the major station in the re-export trade to the various parts of the world.
The availability of domestic capital, which encourages to joint ventures with businessmen in the friendly countries.
The existence of specialized banks and other commercial and national, Arab & global providers of facilities in various banking services required by the project.
Some of the UAE industries are cement companies, castings, mining companies, security control equipment and other industries [17]. The Cement industry in the UAE has achieved a major development since the founding of the first company in the country in 1971 [Union Cement Co.]. Taking advantage of the renaissance in overall development of the country in all sectors.
This industry contributed to the renaissance of development in the country through the coverage of the requirements of the internal market. The cement consumption has jumped from 2.6 million metric tons in 1992 to 8 million metric tons according to estimates by 2003. And the proportion of per capita consumption of up to 2100 KG which is the highest consumption per capita in the Middle East and possibly in the world.
2.5 Exports & Imports
UAE is one of the members of WTO "World Trade Organization" since 1996; the country supports the open trade and has stable trade relations with countries in the world.
Crude oil industry is one of the leading manufacturing sectors in UAE, with $ 161.6 million worth in 2008 making up 45% of the total exports. Besides natural gas, dried fish, re exports & dates exports. The total value of exports is $ 174.73 billion. Where the major exports partners are Japan with 17.27%, followed by South Korea with 10.49% and other Asian countries.
While the main imports are machinery and transport equipment, chemicals & food. The total value for the imports is $ 144.5 billion. Whereas the main import partners are China in the first place with 15%, followed by India 14.27% And US with 8.44%.
2.6 Balance of Payment
The balance of payment (BoP) had deficit pointed by 87% in 2009 after a demur in imports and a huge improvement in net capital run due to the global economic downturn. Even though the quick fall in total exports, the balance of payment of the UAE recorded a quite low deficit of DH 22.5 billion in 2009. Compared to a high gab trace of around DH 172 billion in 2008 [18].
2.7 Balance of Trade
The UAE's trade balance in 2008 increased by 35.3 per cent from Dh170.85 billion in 2007 to Dh231.09 billion. This increase was largely due to a 33.9 per cent rise in the value of exports and re-exports. The value of oil exports rose by 39.7 per cent in 2008 to Dh313.74 billion, mainly because of a rise in average oil prices that went up by 27.3 per cent from US$70.07 a barrel in 2007 to US$90 in 2008. Gas exports also increased by 37.1 per cent to Dh39.08 billion.
The country's free zones saw a 16.4 per cent increase in exports, which reached Dh97.46 billion in 2008. Meanwhile, re-exports reached Dh345.78 billion, a rise of 33.4 per cent. Rising domestic demand due to increases in population and income levels, together with a positive growth in the re-export trade, helped to push the value of imports up by 33.4 per cent to reach Dh735.70 billion.
In 2008, the UAE's debit balance of services, which includes freight, insurance, tourism, travel and government services rose 27.6 per cent to Dh159.48 billion, compared to Dh124.96 billion the previous year.
Figure 6: 2008 trade balance.
2.8 Inflation
Inflation in the first 11 months of 2009 stood at 1.7 per cent, significantly down from previous years. Lower housing prices and food costs contributed to deflationary pressures in the economy. Housing costs make up nearly 40 per cent of the consumer price index.
Consumer prices posted a slight gain in November 2009 after declines in the previous four months.
The price of a basket of consumer goods and services rose 0.2 per cent in November from the same period the previous year, according to the National Bureau of Statistics. The official inflation rate is calculated by measuring the percentage change in prices in a representative basket of goods and services consumed by the average household in the UAE.
Economists expect deflationary pressures to subside in 2010 because of continued international weakness of the US dollar, to which the dirham is pegged and higher food prices.
The UAE Central Bank, which has so far resisted gearing its monetary policy towards raising interest rates, has indicated that its policy would aim to keep official interest rates at low levels in order to revive economic growth. Meanwhile, persistent dollar weakness led the US Federal Reserve to signal it will not elevate interest rates for the foreseeable future.
Figure 7: Inflation rates from Jan-Nov 2009.
International Investments
2.9 Inward Investment
Between 2003 and 2008, the UAE was the third largest recipient of foreign direct investment (FDI) in West Asia, behind Saudi Arabia and Turkey, according to the UN Conference on Trade and Development (UNCTAD).
The country attracted an inflow of around Dh51.4 billion in 2008, UNCTAD said in a study on West Asian FDI published in its annual report for 2009. However, it warned that a lack of activity in global credit markets was likely to lead to a decline in FDI in 2009.
The Government has been active in its efforts to improve conditions to meet with the aspirations of international investors. A planned new company's law is expected to lead to a relaxation of foreign ownership rules. Once implemented in 2010, the law will enable international firms in certain sectors, such as industry, to be allowed to own a greater stake in businesses they establish in the Emirates.
The law now requires foreigners to have an Emirati as a sponsor and limits them to a maximum 49 per cent ownership of businesses. The exceptions are free zones, where foreign companies can have 100 per cent ownership.
Figure 8: inward investment-doing business change in rank.
2.10 Outward Investment
Investment in overseas markets has long been integral to the UAE's strategic drive to create a security net for future generations who will one day face the prospect of a depletion of the country's hydrocarbon reserves. Among the major international investment bodies in the Emirates are:
Invest AD
A subsidiary of Abu Dhabi Investment Council, Invest AD, a government investment vehicle similar to ADIA, was established in1977 as Abu Dhabi Investment Company. In 2007, its mandate and its name changed when the Council decided to allow outside investors to put their money in alongside it, making it perhaps the only sovereign fund in the world to welcome external funds. Invest AD's business now includes a proprietary investment arm that continues to invest on behalf of the government and a third-party investment division for attracting capital from external investors.
Abu Dhabi Investment Authority (ADIA)
ADIA's mission is to secure and maintain the current and future prosperity of the emirate through management of its investment assets. ADIA is a leading international investor and for the past 33 years has established itself as a responsible and trustworthy investor and a strong supplier of capital. ADIA oversees a substantial global diversified portfolio of assets across varying sectors, regions and asset classes, including public listed equities, fixed income, private equity and property. It does not seek active management of the companies it invests in, only long-term sustainable financial returns.
The Investment Corporation of Dubai (ICD)
Investing to create stability and foster diversification, the ICD owns 60 per cent of Borse Dubai, a holding company that in turn acts as a holding company for Dubai Financial Market and NASDAQ Dubai.
Abu Dhabi Investment Council (ADIC)
Responsible for investing part of Abu Dhabi's surplus financial resources, ADIC employs a globally diversified investment strategy focused on gaining positive capital returns across a range of asset classes.
