Macroeconomic Performance of the UAE - Essay Example

?Macroeconomic Performance of the UAE Table of Contents Table of Contents 2 Introduction 3 Macroeconomic Performance of the UAE 4 GDP 4 Inflation Rate Fluctuations 6 Population Rate of UAE 7 Imports and Exports 9 Unemployment Rate 11 Balance of Payment 11 Recommendations 12 Conclusion 13 References 15 Introduction This paper has been focused on the economic conditions currently prevailing within United Arab Emirates (UAE), since the last ten years. Thereon, the strengths and weaknesses in the economy of UAE have been addressed in this study. In this context, the discussion concentrates upon the drivers of economic performance in UAE taking into account its Gross Domestic Product (GDP) performances, inflation rates, population rate, unemployment scenario along with the Balance of Payment (BoP) aspects. The study also focuses on those factors which can be improved with the aim of increasing the economic stability of the nation. It has been observed in this regard that UAE strongly believes in diversification of the economy, followed by strong resources for supporting the initiatives for development in fields of education towards enhancing the overall competency of the nation. The economy of UAE is one of the fastest growing economies in the world (Ministry of Economy, 2008). Contextually, the economy of UAE offers large scope to foreign investors. The scope of Foreign Direct Investments (FDIs) is very high in UAE which makes the nation one of the most potential hubs for foreign nationals to penetrate through business outsourcing. As UAE has been developing vibrantly, there are many areas or sectors of development which are rendered with utmost priority by the government such as banking, education, industrial and infrastructural development, oil industries among others (Heyzer, 2009). The keys sectors in UAE that has achieved excellence within the last ten years will be highlighted in this study along with the areas where UAE is criticised to be lacking behind. Correspondingly, an effort will also be made in this study to identify the areas in which future development will be much promising to ensure economic prosperity of UAE. Macroeconomic Performance of the UAE The macroeconomic performance of UAE can be assessed with reference to the major indicators including the GDP growth rate, inflation rate, population rate and its leading industrial components with due significance to the dimensions of oil reserves and oil exports. Contextually, the attributes signifying the diversification and the composition of GDP, international trade (with respect to its performances in terms of exports and imports), unemployment level, BoP, fiscal policies and all the major sectors of growth i.e. industries, infrastructures, banking and education can also be considered as useful when assessing the macroeconomic performance of UAE. With this concern, the economic performance of each of these indicators has been conducted through a brief discussion in the below sections. GDP A degradable growth in GDP has been observed in UAE over the past few years. For instance, in the recent years, its GDP has been falling from 5% in 2012 to 3.7% in 2013. It is worth mentioning in this context that economists have been arguing that the main reason for the decline is largely due to the enactment of new policies which are formed with the sole intention to control oil productivity, ensuring limits over the environmental hazards caused by this particular industry sector, which is often regarded to be the main source of national income in UAE. According to a global report, UAE’s GDP has been observed to have increased by 6.8% in 2012, quite admirably after its steep fall in the year 2008 owing to the occurrence of global recession as can be observed in the pictorial representation below (Mubasher Info, 2013). With an increased rate of GDP in 2012 it can be expected to have more increase in the GDP rate in the year 2013 which can be considered as strength of the economy. But at the same time, the GDP growth rate may fall if the economic performance of the nation cannot meet the market demands and thus can prove to be a major source of weakness for the nation. This particular fact implies that UAE, as an open-economy is strongly influenced by international economic fluctuations. Source: (Blooloop.com, 2005) According to other reports, growth in non-oil sectors has been a major concern for the economy in its recent practices to facilitate economic diversity and lesser dependence on international relations. As a result, the performance of non-oil sector deciphered better results which ultimately increased the overall economic performance of the nation (GCC Economic Outlook, 2012). Inflation Rate Fluctuations The rate of inflation in UAE had been observed as steeply rising in the period before the fiscal year 2009 which had again steeply declined in the year 2011 and thus far has been witnessed as increasing at a steady pace. For instance, the inflation rate observed in UAE during the year 2006 was recorded to be below 7% which increased to more than 12% in the fiscal year 2008-2009 (during the occurrence of the global recession). The rate was again observed to dip at below -2% in the fiscal year 2011 which has been, since then, rising steadily. Such fluctuations signify that the economic stability of UAE is highly depended on the stability of the international economy (Trading Economics, 2012). Also, such kind of fluctuations and rise in the inflation rates shall prove to be a major source of weakness for the nation as the common public may get adversely affected from these fluctuations. Source: (Trading Economics, 2012) Population Rate of UAE The population rate of UAE has been on an expanding mode for the last ten years. The below diagram indicates the steep rise in the aggregate population of UAE, particularly in the year 2005 when the population of UAE stood at 1,200,000 approximately. According to the records it was also found that there was an overall rise in the population of UAE by 17 % in 2006 than the past year. To be precise, the aggregate population in UAE was recorded to be 1,422,000 which included 10, 73,000 males and 3, 49,000 females for the year 2006 as can be observed from the diagrammatic representation below (BBC, 2013). Source: (BBC, 2013) Oil Reserves and Oil Exports Oil is considered to be one of the major contributors to the overall national income in UAE. Oil is considered to be a major strength for the nation as it has been contributing substantially to the national income of UAE since the past ten years. Correspondingly, the country has been highly involved with oil extraction and its export all over the world. The oil reserve of UAE was regarded as the largest in the years 2007 and 2008 in the whole world of nearly 25% of the entire world production. In lieu of this achievement, the country is reportedly planning to set up new oil reserve plants for increasing its overall oil reserve capacity by the year end 2014 as a strategy to secure its dominant position in the global economy (Minerals yearbook, 2012). UAE as a nation is considered to be one the most potential locations which attract foreign investors to a whole new level which can prove to be a great source of strength for the nation. Source: (Trading Economics, 2012) As can be observed from the above presented diagram, the oil reserve of UAE for the year 2013 is 98 billion barrels of crude oil. It can also be noted that UAE comes 7th on the basis of its aggregate reserves of oil in the global context. Consequently, oil exports of UAE are on an all time high scale as can be witnessed in the diagrammatic representation below (Crude Oil Peak, 2013). Source: (Crude Oil Peak, 2013) Imports and Exports The economy of UAE offers large scope to foreign investors for generating income. In a broader context, the overall international trade relations performed by UAE are very dynamic in nature. The scope of Foreign Direct Investments (FDIs) is very high in UAE as there are numerous opportunities for FDI from investors from all around the world which can generate a lot of profits acting as a major strength of the economy. According to the recent reports, it has been noticed that UAE is actively involved in importing activities rather than exporting, apart from oil. This makes UAE one of the most prospective nations for making FDIs by international traders. It is in this context that UAE has been a major importer of goods from Hong Kong, wherein the quantity imported by the country has been rising substantially as can be observed from the below diagrams (Dubai Chamber of Commerce & Industry, 2013; Hong Kong Export Credit Insurance Corporation, 2013). Source: (Dubai Chamber of Commerce & Industry, 2013; Hong Kong Export Credit Insurance Corporation, 2013) Unemployment Rate According to various reports, unemployment rate in is found to be increasing in UAE as compared to other gulf countries fundamentally owing to a rising rate of immigration. As can be apparently observed from the below figures, the unemployment rate in UAE has been increasing since the last ten years which mandates the necessity of the government in controlling immigration (Trading Economics, 2012). Source: (Trading Economics, 2012) Balance of Payment All activities related to BOP are controlled and initialized by the Central Bank of the UAE. Policy formulation is one of the topmost functions of the bank ensuring a balance between the cash and credit lending of the economy for the development of the entire nation at a steady pace. One of the most important functions performed by the bank has been the valuation of UAE Dirham as against foreign currencies maintaining a balance in terms of currency exchange rates. Contextually, the bank acts actively to maintain a fixed exchange rate for U.S Dollar against UAE Dirham (Bank of the United Arab Emirates Central, 2013). Recommendations With reference to the above analysed economic factors in UAE, few limitations can be observed in the economic structure which might, in the future, inhibit its economic performance. For instance, UAE is weak in terms of high degree of dependency on the international economy, increasing population rate and growing unemployment rate in the current stature of the economy among others. Correspondingly, UAE has been striving to make the overall education system of the economy better to further enhance the employment scenario. It has been found in many reports that the nation is actively involved in importing products from foreign countries which makes it one of the most preferred international markets for foreign traders which can in turn facilitate it with growing employment opportunities subjected to the availability of skilled labour force to compete in the global market. Along with imports, the company is actively involved in exporting of oil, in particular, to the foreign countries which have further enhanced its economic growth in terms of FDI inflow. On the contrary, such dependency has also curved its way towards increasing influences from global economic stability. It is in this context that the economy should render due significance towards identifying the rudimental factors which tend to cause such issues in relation to the macroeconomic performance of UAE. For instance, one of the fundamental limitations of the economy has been observed as its over dependence on global economy, wherein fluctuations in the international context gives rise to deteriorating conditions within UAE such as during the period of global recession. In the similar context, the rising migration rates have been affecting the population growth rate of the economy to a substantial extent fuelling up the unemployment rate in the nation. Hence, it shall be suggestible for UAE to focus on facilitating its home country industries such as Information Technology (IT) industry, aviation industry, tourism industry and port industry as well as hand looming industry. Such a stance is quite likely to increase national sovereignty power of UAE by not only increasing employment opportunities for nationals, but also lessening the negative influences caused by global economy fluctuations on UAE. Additionally, the economy should also consider strict measures to control immigration rates to facilitate employment opportunities as well as counter rapid increase in its population. However, such measures should strictly comply with the norms of ethical concerns towards anti-discrimination as well as transparency so as to effectively restrain national resources for the benefits of the nationals for a longer period of time. Conclusion UAE is certainly one of the rapidly developing nations in the current day context. With reference to the above study, it can be apparently observed that UAE, in its recent operations have been focusing on economic diversification shifting its focus from few particular sectors including the oil industry and the aviation industry among others, towards the overall economic structure with due significance to its smaller industries such as tourism as well as hand looming industries. The nation has achieved excellence in producing crude oil along with enormous export of crude oil in the overseas nations rendering it a wider scope for higher FDI inflow. Additionally, its openness towards international investments and global affairs have also been quite beneficial in developing the economy as one of the most preferred international business hubs in the current day context. However, significant deficiencies have been observed with respect to the macroeconomic performances of the nation in terms of its increasing dependency on global economic performances, international relations and FDIs. It has also been identified that the level of employment in UAE has been declining, particularly owing to the increasing immigration rates and poor educational prospects in comparison to the global standards. In simple words, the major limitations of UAE can be identified with reference to its social factors including the education sector, the population rates, the employment scenario and similar other dimensions of the current economic stature of UAE. The assessed scenario of the macroeconomic performance of UAE also indicates the interdependent relationship of social and economic factors as major determinants of the overall economic stability. It is in this context that with the aim to preserve its long run efficiency and competitive stance in the global plethora, UAE needs to render due significance towards controlling its social factors effectively to attain the desired level of macroeconomic performance. References Al Nisr Publishing LLC, 2013. Business. Inflation in the (UAE). [Online] Available at: http://gulfnews.com/business/economy/inflation-in-uae-stands-at-12-1.112004 [Accessed May 16, 2013]. Blooloop.com, 2005. Attractions Market in Dubai. Home. [Online] Available at: http://www.blooloop.com/Article/Attractions-Market-in-Dubai-Treading-carefully/267 [Accessed May 16, 2013]. BBC, 2013. Population structure. Population pyramids. [Online] Available at: http://www.bbc.co.uk/bitesize/ks3/geography/interdependence/population_migration/revision/5/ [Accessed May 16, 2013]. Crude Oil Peak, 2013. Shrinking Crude Oil Exports a Tough Game For Oil Importers. Using JODI Data. 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