Macro Environment of Business: UAE - Case Study Example

Macro Environment of Business Name: Course: Instructor: Institution: Date of Submission: Table of Contents Table of Contents 2 1.0 Introduction 3 2.0 UAE Economy at a Glance 3 3.0 UAE GDP 4 4.0 Labor Market 5 5.0 Inflation 5 6.0 Financial Market 6 7.0 The Real Estate Market in UAE 6 8.0 Fiscal Policy 7 9.0 Monetary Policy 7 10.0 Short Term Outlook 8 11.0 Conclusions and Recommendations 8 12.0 References 9 1.0 Introduction UAE is one of the most attractive country’s’ with high employment levels, stable incomes, low poverty levels, and national and economic growth. The interest and inflation rates are low, demonstrating a stable economy. Thus, the project will assess some economic indicators of UAE to determine the economic performance of its market. UAE is considered the second largest economy after Saudi Arabia. UAE has a highly-diversified economy and its performance is reliant on oil. However, the prices of oil have been reducing in the world, which may affect the performance of the country. 2.0 UAE Economy at a Glance The UAE is a country that has been attracting many clients with a wealthy and small population. It has not history of terrorism without sectarian tensions, and positive strong relations with the U.S. The country’s democracy level and transparency on the government is low and a heavy oil-funded spending on security and social benefits. Thus, investors are profitable by investing in the country by factors such as ensuring the political and market perspectives are beneficial. For instance, the lower prices of oil have increased as the consumer ad government spending decreases. Thus, at a GDP of about 2.3% in 2016 from a 3.8% in 2015. Thus, the country’s economy anticipates more slowdowns as the discretionary spending, which influences the weaker currencies that affect the spending and investments in UAE. However, there is a possibility that the private sector will encounter slow growth in the year 2016. Figure 2: Economic Indicators Overview (tradingeconomics, 2016) 3.0 UAE GDP Figure 3: UAE GDP The population of the UAE is high, where currently it is 9,297,467 (World0meters, 2016). The population is equal to 0.12%, which is ranked number 93 in the countries by population (World0meters, 2016). Thus, the population of UAE is about 111/km2. 89.5% of the total population lives in the urban sector, with a median age of 33.5 years of all the people. Figure 4: UAE GDP Growth Rate The GDP growth rate of the UAE has expanded to 3.90%, which later reached to a high level of 9.80% in 2006. In 2009, the GDP growth rate was lowest at a level of -5.20%. The country has a high value GDP per capita with a commodity-based economy linked to the shipments of natural gas and oil that accounts for about 38% of the total GDP. The GDP growth rate is also linked to the investments in construction, financial sector and the tourism sector. For instance, in the year 2012, the manufacturing account accounted for 42% of the growth rate, while the tourism sector accounted for about 23% among others (National Bureau of Statistics, 2016). In 2014, from 2010 was the economically strongest year for the county with a GDP of 4.6% and nominal GDP of Dh1.47 trillion, which also stipulate that in the next years, the economy will perform well, given that in 2016, the economy is stable, diversified and have a positive outlook for the future (Al-Maktoum, 2016). 4.0 Labor Market The productivity from the labor maket in the UAE is an issue that is ongoing. There is a high population in the UAE, with a large diversified and stable market. The key employment sectors in UAE include the security activity, deence and public administration.the construction sector is the second largest employer, followed by the retil and wholesale trade (Abudhabi e-government, 2016). Unemployment as presented above is low despite the high population in the country. The low unemployment levels can be attributed to the recovery of the private sector and the stable economy of UAE. The unemployment level is at a level of 4.2%, which is relatively low (weebly, 2016). 5.0 Inflation (weebly, 2016) The inflation levels in UAE are significantly low, which can be associated to the stable economy, banking industry and the growth of the infrastructure sectors. In 2008, during the recession, the economy of UAE deteroriated in such sectors, but with the economic downturn, the levelof nflation has been declining. For instance, based on the graph above, in 2009 the inflation levels were low at a 9.%. Though they are rising slightly, they are still low compared to the inflation levels in 2003 – 2008 (weebly, 2016). The inflation rates are not a key concern as the higher population in UAE have suffient wealth based on the medium income to facilitae the 1.7% inflation. Such an inflation rate can be perceived as a possible risk of economy recession in the country. 6.0 Financial Market In the year 2014, the financial industry of UAE experienced a double-digit growth rate of 15%, with a GDP input of Dh122 billion. The UAE banking sector has continuously since then experienced growth in the market including the banks expansions, with about 57 banks by 2015 end. The country has a financial asset of Dh2.38 trillion as by the beginning of 2015 (Al-Maktoum, 2016). 7.0 The Real Estate Market in UAE The year 2015 was one of the years that led to a significant rental and capital growth in UAE’s real estate (Deloitte, 2016). In 2015, the market experienced slowdowns, though it still remains a top performing city (Deloitte, 2016) given it has the primary power and wealth linked to its diversification from oil, where 40% of the GDP is from services (BMI Research, 2016). External pressures that demanded the rising of the industry caused the slowdowns. The falling prices of oil will stretch the economy, which may affect the growth of the industry (BMI Research, 2016). The year 2015 statistics show that the hotel and restaurant industry had an economic growth of 9.2%. Infrastructure projects and expansion of the airports also support the strength of the economy current including its stability (Deloitte, 2016). The sale of residential properties has improved in the UAE with an average value of AED 1.7 million, which is lower to the 2014 value of AED 2.0 million. The difference is positive since it shows that residential homes are now more affordable than the year before. Thus, the residential sale transactions will continue to grow. 8.0 Fiscal Policy UAE gives the fiscal policy high significance in the country. Currently, the UAE operates in an expansionary policy developed to meet the increasing spending of the government associated to the growth in the production of oil. The expansionary fiscal policy aim is to reduce the 2008 recession affects while increasing the country’s’ GDP yearly. That is; the policy has steered to developments in the oil productiveness structures and reduced tax on private business to support their growth. The benefit of the expansionary policy is that to improved the low unemployment levels, which are perceived to date and the high growth perceived in GDP gains (weebly, 2016). In the recent years, the oil prices have increased with private business improving their profits with about 45%. Government spending is stable as well as the inflation rate in the country, which is low. Thus, the benefits of the expansionary fiscal policy are linked to the reduced expenditures and improvement. The government spending is cntrolled. GDP growth is promoted while increasing its economic horizons. According to the hart above the fiscal policy supports invesments on the supply of capital, and focuses on broadening the deman in major economic sectors such as airports. Consequently, one perceives that the fiscal policy aim is to increase the national growth through low unemployment levels, economic growth sustainability and ensurin stability of prices (weebly.com, 2016). 9.0 Monetary Policy The aim of the UAE monetary policy is to ensure the interest rates are low and that the supply of money is stable in the country to ensure businesses such as airline assess the money easily. Currently, the interest rates in the country are significantly low, which increases the availability of cash in the country including loans where the interest for paying is low. The low interest rates are also observed in the water companies and oil production. Prices in the UAE market are consistent as the government also maintains a stable inflation rate in the country to manage the prices. Unemployment is low, and supply of cash is high. The UAE aims at controlling the supply and demand without affecting the inflation rate in the market. The low interest rates lead to increased supply of money in the country, which increases the borrowing levels and consequently, improves the economy as projects linger to occur. Projects that benefit the economy; such as emirates borrowing to expand its horizons or invest in more planes. 10.0 Short Term Outlook The inflation rates in the country since 2008 have reduced, which is a positive impact for the UAE. Thus, it signifies that the prices in the country are stable, which is profitable for the economy. The unemployment level is significantly, which is associated with the infrastructure jobs, which can be perceived as a short-term issue, since the construction projects will end soon. The monetary and fiscal expansionary policies will guarantee the national growth, economic stability and growth. 11.0 Conclusions and Recommendations The actions presented above support that in short-term activities, the UAE will attain a high stability and national growth. That is; the unemployment levels are low, prices are stable economic growth and stability is consistent, and the future seems positive. However, I would recommend that the government utilize more policies that are concerned with long-term unemployment objectives. With low inflation rates, the prices in the market are stable. Prices stability is linked to the low inflation. The paper presents that UAE is also intended on increasing demand. With an increase in demand, prices will likely increase, stating they will not stay low, which will influence the rate of inflation in UAE, and subsequently the market performance. 12.0 References Abudhabi e-government. (2016, 10 13). Abudhabi e-government. Retrieved from Abu Dhabi Labour Market: https://www.abudhabi.ae/portal/public/en/citizens/work_and_employment/employees_rights_and_duties/gen_info51?docName=ADEGP_DF_20192_EN&_adf.ctrl-state=7eqljykjy_4&_afrLoop=9662867609088148#! Al-Maktoum, R. B. (2016). A Note on the State of the UAE's Economy by Mohammad Bin Rashid Al Maktoum. Vice President Releases note Ahed of Annual Statistical Report . Gulf News Economy, 1-1. BMI Research. (2016, 10 12). BMI Research: A Fitch Group Company. Retrieved from United Arab Emirates: http://www.bmiresearch.com/united-arab-emirates#marketo-pdf-download Deloitte. (2016). Middle East Real Estate Predictions: Dubai. #RealEstatePredictions, 1-16. National Bureau of Statistics. (2016, 10 12). Trading Economics UAE. Retrieved from United Arab Emirates GDP Growth Rate 2000 - 2016: http://www.tradingeconomics.com/united-arab-emirates/gdp-growth tradingeconomics. (2016, 10 12). United Arab Emirates / Economic Indicators. Retrieved from Trading: http://www.tradingeconomics.com/united-arab-emirates/indicators weebly. (2016, 10 12). United Arab Emirates: Economics. Retrieved from http://unitearabemirateseconomics.weebly.com/fiscal-policy-expansionary.html weebly.com. (2016, 10 12). The United Arab Emirates. Retrieved from Fiscal Policy of the UAE: http://thinkman.weebly.com/fiscal-policy.html World0meters. (2016, 10 12). United Arab Emirates Population. Retrieved from Populaion: http://www.worldometers.info/world-population/united-arab-emirates-population/ Read More