UAE’s resilience puts it on track to double economic growth in 2018
The UAE economy, resilient to global and regional headwinds, has been on a steady rebound in 2017, despite predictions of a slowdown in economic growth elsewhere in the region.
Economists and analysts predict that the UAE – marking its 46th year as one of the fastest-growing economies in the world – is set to almost double its expansion rate in 2018.
The Institute of International Finance (IIF) affirms that the UAE is on track to be one of the best performers among the Middle East and North African economies over the next five years as its vibrant growth continues to be driven by trade and tourism.
“The UAE continues to be the best managed economy in the region. It possesses large financial buffers – estimated at around $670 billion, safe-haven status, excellent infrastructure and a relatively diversified business-friendly economy, which will help the economy cope with the prolonged low oil price environment,” says Garbis Iradian, chief economist for the Washington-based IIF.
Riding a wave of diversification, particularly into tourism, non-hydrocarbon trade and financial services, the economy is better-positioned than its peers to continue to mitigate the adverse impact of low oil prices. Hydrocarbon GDP accounts for only 30 per cent of total GDP and oil exports for slightly less than 40 per cent of total exports.
The International Monetary Fund said in its latest outlook for the UAE that better days are ahead for the country with the economy right on track for a rebound with a 3.4 per cent surge in 2018.
Jihad Azour, director of the Middle East and Central Asia at the IMF, projected a 1.3 per cent growth in UAE’s real GDP in 2017, while the overall GCC growth is expected to bottom out at 0.5 per cent this year, the lowest since the 0.3 per cent growth recorded in 2009 in the wake of the global financial crisis.
The IIF said the UAE’s economic performance would improve in 2017 and 2018 with firming oil prices, an improvement in global trade and the expected easing pace of fiscal adjustment. But headline growth – oil and non-oil combined – will decelerate to 1.5 per cent in 2017 due to oil production cuts under the extended Opec agreement.
“We expect non-oil real GDP growth to accelerate to three per cent in 2017 and 3.5 per cent in 2018, supported by investment and non-oil exports of goods and services. Several high frequency economic indicators, including the Purchasing Managers’ Index [PMI], retail sales and number of tourist arrivals over the first nine months of 2017, suggest improvement in sentiment and private sector activity,” said the IIF.
The UAE’s PMI averaged 55.8 in the first three quarters of 2017 as compared with 53.8 during the same period of last year (a 50.0 threshold separates expansion from contraction). Non-oil activity in Abu Dhabi is improving after a challenging two years during which deep government spending cuts slowed activity. Key projects, such as the construction of nuclear plants and airport expansion, are progressing, albeit with delays, economists said.
While inflation in the UAE will remain subdued as the continued decline in rents offsets higher imports prices, inflationary pressures from the introduction of VAT on January 1, 2018 will be partly offset by further declines in rents.
Banks in the UAE are well-regulated and supervised and continue to weather the effects of low oil prices and the moderation in non-oil economic activity. Most analysts expect annual credit growth to recover from 1.7 per cent at end-2017 to about five per cent in 2018.
They are also of the view that ongoing UAE reforms to develop the domestic capital markets would increase financing and saving options in the economy.
A joint report by the Institute of Chartered Accountants in England and Wales and Oxford Economics says that the UAE will record an accelerated growth in 2018 to 3.6 per cent from 1.7 per cent in 2017. The momentum will further gain pace in 2019 to post 3.6 per cent growth. The report echoes the GDP growth projected by the IMF, which said recently the UAE economy; overall GCC growth, meanwhile, is poised to rebound to 2.2 per cent.
Sultan bin Saeed Al Mansouri, UAE Minister of Economy, said that the outlook for the economy is brightening despite regional and global macroeconomic challenges.
“With two years into Expo 2020 Dubai, the economic growth momentum is expected to pick up on the back of a vibrant non-oil sector as the country remains on track to establish a diverse knowledge- and innovation-driven economy,” Al Mansouri said.
Hafez Ghanem, World Bank vice-president for the Middle East North Africa, said Dubai is a good example of how an oil exporter should diversify. He noted that low oil prices are providing an impetus for Gulf economies to diversify away from the oil industry.
The World Bank official, however stressed the need for the private sector to drive most of the economic growth, and private-public-partnership models will be very important in securing that. He believes that the privatisation drive will help prop up the capital markets.
The Washington-based IMF has projected a 1.3 per cent growth in UAE’s real GDP in 2017, which it expects to surge to 3.4 per cent in 2018. While consumer price inflation in the UAE will edge up slightly from 2.1 per cent in 2017 to 2.9 per cent in 2018, the UAE will record current account balance at 2.1 per cent this year and next, the IMF said.
According to the UAE Vision 2021 plan, the creation and maintaining of a sustainable and diversified economy is a key component of future planning, and progress has continued to be made towards that objective.
The intention is that, by 2021, the UAE will have an economy that is flexible in adopting new economic models and that is able to capitalise on global economic partnerships to guarantee long-term prosperity for current and future generations of Emiratis.
Developing a ‘competitive knowledge economy’ is one of the pillars of the UAE National Agenda in line with Vision 2021. According to an official report by the Ministry of Economy, the government has continued in 2017 to focus on the UAE becoming the economic, tourist and commercial capital for more than two billion people. To achieve this, the government has set 12 key performance indicators: non-oil real GDP growth; gross national income per capita; net inflow of foreign direct investment as a percentage of GDP; global competitiveness index; share of UAE nationals in the workforce; ease of doing business index; Emiratisation rate in the private sector; the contribution by small and medium enterprises to non-oil GDP; global entrepreneurship and development index; global innovation index, share of ‘knowledge workers’ in the labour force; and research and development expenditure as a percentage of GDP.
Effective October 1, 2017, the UAE marked the beginning of a new era in its history, as it started implementing excise tax, exactly three months ahead of the launch of value added tax, another landmark region-wide tax initiative. Initial estimates suggest that the tax will generate up to around Dh7 billion in annual revenues for the federal budget.
In the key oil and gas sector of the economy, the most significant development of the year was the announcement that the Abu Dhabi National Oil Company (Adnoc), was to list a minority stake in its subsidiary, Adnoc Distribution, on the Abu Dhabi Securities Exchange.
Announcing the step at the 2017 Abu Dhabi International Petroleum Exhibition and Conference in early November, Dr Sultan bin Ahmad Sultan Al Jaber, UAE Minister of State and CEO of Adnoc Group, said that: “the planned IPO, to be listed on the Abu Dhabi Securities Exchange, will offer both UAE and international investors an unprecedented opportunity to invest alongside Adnoc in one of the region’s leading retail brands.”
At an international level, the UAE has continued to perform well against its competitors. In the latest World Competitiveness Ranking of 63 countries by the IMD World Competitiveness Centre, issued in May 2017, the UAE rose to 10th place, making it the only Arab country to find a place among the super league of the global top nations.
In the most recent edition of the Global Competitiveness Report 2017-18, issued by the World Economic Forum, the UAE topped the Arab world and ranked 17th globally in the global competitiveness ranking. The report also ranked the UAE among the top 20 competitive economies globally for the fifth consecutive year. The country also maintained its ranking to be among the world’s most significant innovation-based economies for the 11th successive year.