- United Arab Emirates Economic Overview 2015
The United Arab Emirates (UAE) continues to drive regional change with an economy that has remained exceptionally buoyant throughout 2014. The country boasts one of the most agile economies in the world and has witnessed strong growth. As a result, the UAE consistently scores high across all global competitiveness indices compiled by both regional and international organisations.
Due to a demand-driven increase in oil production, the UAE economy was expected to expand by 4.5% this year. Recent market volatility has now reduced the anticipated pace of growth to 3.5%. Dubai’s GDP is, however, forecast to increase by 4.5% in 2015 and 4.6% next year.
The sharp drop in all prices caused – unsurprisingly– some hesitation in the marketplace. However, the low price of oil is generally considered to constitute merely a challenge rather than a crisis.
In 2008, oil prices shot up even further than they did in 2014, only to drop to a level lower than the current one. In spite of that, the UAE kept moving forward, consolidating numerous achievements.
The share of oil revenues in the composition of the UAE’s GDP is set to decrease from approximately 30% to 5% by 2021. The non-oil sector currently accounts for 69% of the country’s GDP. The UAE government is determined to continue its economic diversification policies in an effort to reduce the country’s dependency on oil.
According to the Institute of International Finance (IIF), the UAE economy is expected to reach $435 billion in 2016 – up from $419 billion in 2014 and $405 billion in 2015. These numbers are based on an average baseline oil price of $78 and $85 per barrel, respectively, in 2015 and 2016.
Weak oil price should help to contain inflationary pressures. Official inflation is expected to hover at around 2.5% this year as the fall in the oil price helps lower the price of imports.
ENSURING LONG-TERM PROSPERITY
Sheikh Mohammed bin Rashid Al Maktoum, vice president and prime-minister of the UAE and ruler of Dubai, said that under the leadership of President Khalifa bin Zayed Al Nahyan the country’s economy has become quite resilient and now offers a strong foundation upon which the UAE may build its leading international position. President Al Nahyan called the Emirates’ economic model both sustainable and responsible and expressed confidence that, as such, current policy will ensure the long-term prosperity of the nation.
Almost half of the UAE’s 49.1 billion dirham ($13.37bn) federal budget for 2015 is slated for social spending on healthcare, education, and other welfare services squarely aimed at promoting further growth within the public sector. The Council of Ministers approved the 2015 budget with a 6.3% increase (2.9 billion dirham / $790m) in expenditure over 2014. It is expected that the UAE’s fiscal accounts will continue solidly in the black with annual surpluses ranging from 6.9% to 10.5% of GDP.
The strong performance of the country’s banking sector is a reflection of the UAE economy: credit growth projected at around 10% for 2015. The UAE’s foreign direct investment (FDI) industry is also performing well thanks to consistent policies that attract outside investors. Many of the key factors contributing to FDI growth are already in place. Even so, a new FDI legal framework is in the works that will help to boost investment in the country. FDI increased by 25% in 2015 to $13 billion. Minister of Economy Sultan Al Mansouri, stated that: “this law is expected to allow for a remarkable growth in FDI flows and will help accelerate the diversification of the economy.”
The UAE economy is resilient and can accommodate changes to market dynamics, open new frontiers, and diversity thanks to the country’s strong infrastructure, technology, and logistics. The UAE seeks to create new sustainable and competitive economic models and adopt more flexible approaches that boost cooperation between the public and private sector. This particularly suits the country’s international position as a main economic player and the MENA (Middle East and North Africa) hub on par with other global key markets such as London, New York, and Tokyo.
The UAE’s economy has remained sustainable thanks to its emphasis on sectors such as leisure & hospitality, financial services, and education. Training and development are widely considered key to ensuring the UAE continues its role as a centre if innovation for years to come. The future will be embraced with full confidence buoyancy even when the last barrel of oil has shipped as the nation invests in its capacities for enterprise and innovation – the country’s real wealth. Despite the many challenges faced by the Middle East, the UAE has consistently conveyed a message of optimism to the world: it is a safe country, here to stay and do so at the top.
Written by Hisham Farouk, CEO
Featured in cfi.co magazine