THE ECONOMY
Introduction
The export of oil and gas (Dh 50.09 billion or US$ 13.65 billion in 1995), is the mainstay of the economy, accounting for a third of GDP, which reached Dh 147.5 billion (US$ 40.2 billion) in 1995. Over the last few years, a programme aimed at diversifying the economy away from hydrocarbons has achieved considerable success. The industrial base has been broadened and private sector activity is at a peak. There are plans to privatise large areas of state enterprise. While GDP fluctuates with oil prices, per capita income compares favourably with the world's most advanced countries.
The UAE's open economy encourages imports, but oil income and a vibrant manufacturing sector, including vigorous free zone activity, help maintain a healthy balance of trade. Export of non-oil products has grown five-fold since 1980, while free trade encourages foreign investment and participation in enterprises from heavy industry to re-export and transit trade.
At a Glance (1995)
- GDP Dh 147.5 billion (US$ 40.2 billion)
- Exports/re-exports Dh. 107.09 (US$ 29.17 billion) preliminary
- Imports Dh 86.20 billion (US$ 23.48 billion) preliminary
- Trade surplus Dh 20.89 billion (US$ 5.69 billion) preliminary
Gross Domestic Product
Estimates suggest that real GDP registered a growth rate of around 2% in 1995, mainly due to the higher oil prices which reached an average of US$ 16.64 per barrel, compared to US$ 15.57 per barrel in 1994.
However, the UAE's efforts to diversify away from too much dependence on hydrocarbons have achieved considerable success. So much so in fact that the contribution of the non-oil sector to GDP increased from 33% in 1975 to 66% in 1995.
Another evidence on the success of diversification is non-oil exports and re-exports which jumped from US$164 million in 1975 to US$ 5.6 billion in 1995! Meanwhile further efforts are being made to consolidate the gains that have been made by expanding private sector participation and encouraging industrial development.
Growth of the Non-Oil Economy
The marked strengthening of the non-oil sector, over the past two decades, has taken place against a background of fluctuations in international oil prices and the UAE's strict adherence to its production quota within OPEC. Successful diversification has not occurred in isolation, nor by chance, but is the direct result of a sustained government policy which has provided the necessary support to the non-oil sectors, ensuring that they have the facilities and means to generate and maintain strong growth in a competitive world. The pay-back for this policy has been a steady increase in the contribution of the non-oil sectors to GDP.
Overall GDP grew by 6.6% in 1995. Oil GDP rose by 9%, while the non-oil economy continued its record of rapid growth registering a growth rate of 5.4%. The major non-oil sectors contributing to GDP included Construction (9.2%), Finance-Insurance and Real Estate (13.1%), Manufacturing (8.7%), together with Trade (12.4%).
Private Consumption
Continuing to grow rapidly, private consumption, the largest area of demand, increased by 12.5% in 1995. This figure can be seen against a modest rise in prices (4-5%), a 6.6% increase in population and a 4.6% increase in the labour force.
Public Expenditure
Government spending is still considered as the main stimulus for economic growth and consolidated public expenditure reached Dh 61.9 billion in 1995, Dh 7.1 billion above its 1994 level.
This increase took place against a 12.9% rise in public revenues, brought about by an upturn in oil prices, further additions to fees charged on government services along with a big jump in customs revenues (due to an increase of 50% in the customs duty on tobacco and the enforcement of a uniform 4% tariff at all customs departments in the UAE for most commodities).
The Federal Budget
Approval of the budget for 1996 was announced on April 8, 1996. The budget was Dh18.25 billion compared to Dh17.95 billion in 1995. The budget estimated revenues of Dh17.40 billion resulting in a planned deficit of Dh858 million, compared to a planned deficit of Dh1.05 billion in 1995.
The budget outlay for the Federal National Council was estimated at Dh17.547 million. Other allocations include Dh190 million for Radio and Television Authority, Dh255 million for the Higher Colleges of Technology, Dh580 million for the UAE University, Dh16 million for the General Information Authority, Dh8.019 million for the Administrative Development Institute and Dh6.15 million for the Federal Environment Authority.
Central Bank figures indicate that rationalisation of expenditure has helped to tackle the national budget deficit. From a projected deficit of around 1.4 billion dirhams for 1994, the actual figure was reduced to only 15 million dirhams; whilst the projected 1.7 billion dirhams ($463 million) deficit in 1993 was cut to 23.9 million ($6.5 million).
The UAE enjoyed large financial surpluses before a sharp decline in crude prices turned them into deficits in the mid-1980s. A Central Bank report issued in 1995 showed current expenditure, which covers salaries and purchase of equipment and services, accounted for the bulk of the 1994 spending, standing at $4.05 billion. Excluding expenditure on defence and security, these sectors accounting for the largest shares of public expenditure were education at $653 million and health at $299 million.
The Banking Sector
The 19 national and 28 foreign banks experienced strong growth over the last year with net profits in this sector soaring by 17.5 per cent to 2.31 billion dirhams ($629 million). The profits rise was linked to an increase in loan income related to upswings in trade and construction. Shareholders' equity, which includes capital and reserves, rose to 18.3 billion dirhams, up from 15.9 billion dirhams in 1993. According to statistics by the Central Bank, significant growth rates were achieved in a number of fields. Credits for mining and metallurgy sector increased from 813 million dirhams in 1993 to 3.075 billion dirhams in 1994. Industrial sector credits rose by 33.7 per cent, and finance (except banks) surged by 26.9 per cent to 1.8 billion dirhams.
According to the Central Bank of the UAE, the total net domestic credit at the end of the first quarter of 1996 had decreased by 3.6% to reach Dh 67.42 billion from Dh 69.91 billion at the end of the fourth quarter of 1995. In the private sector, credit grew from Dh 71.83 billion to Dh 72.42 billion during that same period. Credit to the government sector fell by 29.5% from the end of 1995 to reach Dh 13.33 billion while credit to offical entities also fell by 5.2% to reach Dh 5.55 billion. Credit to other financial institutions rose by 10.4% to reach Dh 2.79 billion at the end of the first quarter of 1996.
Accounting for 50 to 60 % of the total balance sheet majors in 1996 are five local UAE Banks whose performance has enabled them to dominate the UAE banking scene. The National Bank of Abu Dhabi, leading with the highest assets figure of Dh 23,415 million; the National Bank of Dubai, leading with the highest profit figure of Dh 352.1 million; the Emirates Bank International; the Mashreq Bank and the Abu Dhabi Commercial Bank have managed to outshine not only other local banks but the international banks in the UAE as well.
Inflation
Annual inflation is running at 4-5% and is expected to remain close to this level. However, since Japan is the main supplier of consumer goods, analysts are concerned about the impact of the decline in the US dollar against the Japanese yen during 1995.
Given that consumer imports are rising and the cost of water and electricity have also increased, there is little doubt that cost of living within the UAE will also show a rise. The value of the dirham is certainly a key to inflation with prices tending to rise if the dirham depreciates against major currencies, whereas prices do not tend to fall so easily when the dirham strengthens.
Official data for the year 1995 reveals an inflation rate of around 4.5% , and forecasts for 1996 show a similar figure.
Selected Economic Indicators 1991-1995
|
1991 |
1992 |
1993 |
1994 |
1995 |
|
| Population (millions) |
1.9 |
2.0 |
2.1 |
2.2 |
2.4 |
| Labour Force (thousands) |
734 |
799 |
860 |
913 |
955 |
| GDP (billion Dhs) |
126.3 |
131.7 |
132.1 |
136.3 |
147.5 |
| Inflation (%) |
3.0 |
3.5 |
4.5 |
4.5 |
4.5 |
| Exports & Re-exports (Bn Dhs) |
92.6 |
93.0 |
97.9 |
100.5 |
107.1 |
| Oil Exports (billion Dhs) |
52.7 |
51.6 |
44.9 |
41.8 |
44.6 |
| Imports (billion Dhs) |
53.9 |
67.3 |
76.3 |
83.3 |
86.2 |
| Oil Price (US$/barrel) |
18.3 |
18.3 |
16.1 |
15.6 |
16.6 |
| Exchange Rate (Dh/US$) |
3.671 |
3.671 |
3.671 |
3.671 |
3.671 |
