Economics of the United Arab Emirates - Research Paper Example

Economics of the UAE Table of Contents Introduction to the Country 3 UAE the Economy 4 Economic Data of (1991-2000) 5 Highlights of the Era 6 Economic Data of (2001-2007) 7 Highlights of the Era 8 Economic Data of (2008-2012) 9 Key Performance Indicators as on Date 11 Comparative Benchmarks (Other GCC Countries) 11 Comparative Benchmarks outside GCC (China, Iran, Hong Kong Etc.) 12 Central Bank of UAE 13 Outlook for the Future 14 Your Observations 14 Suggestions to Improve the Economic Performance 15 Conclusion 16 Works Cited 17 Introduction to the Country The United Arab Emirates (UAE) is positioned in the Arabian Peninsula and is bordered by the Arabian Gulf. The capital of the country is Abu Dhabi. The total area of the nation has been identified to be nearly 83,600 square kilometers or 32,278 square miles. The climatic condition of the country is quite warm as well as sunny during winters and hot at the time of summer months. The imperative natural resources of the UAE are gas and oil that are located mostly in the capital of the nation i.e. Abu Dhabi. Though a significant portion of land area of the UAE is arid desert, it is also known to be a country filled with contrasting landscapes. According to the estimation made in July’2012, the total population of the nation stood at 5,314,317. The majority of the population belonging to the UAE has been viewed to be the Muslims, apart from other religious groupings such as Hindus and Sikhs. The currency of the country has been recognized to be Emirati Dirham and Arabic is regarded as its official language. Apart from Arabic language, the other languages that prevail in the UAE include English, Urdu, Persian and Hindi. Most importantly, the country emphasizes upon educating both men along with women and is making considerable investments in this particular sector. The UAE government is a federal one that is structured with specified legal powers (The Cultural Division of the Embassy of the United Arab Emirates, “UAE Facts in Brief”). In this report, a detailed analysis about the economics of the UAE considering both qualitative as well as quantitative data will be taken into concern. UAE the Economy The UAE possess an open sort of economy bearing a high ‘per capita income’ along with a large yearly trade surplus. The country has undergone a deep transformation from the region of arid desert to a modern state since the detection of oil in the country. With this detection, the living standards of people of the UAE had raised by a significant level. It has been viewed that the government of the UAE has enlarged its spending in two significant arenas that include infrastructure development and job creation with the intention of enhancing the economy of the country at large. The various decisive factors such as the worldwide financial crisis, deflated prices of the assets and the tight international credit contributed in constricting the economy of the UAE in the year 2009. The different industries that prevail in the UAE which comprise petrochemicals, transport, real estate, pharmaceuticals, cement, aluminum and ceramics among others considerably affect the economy of the country by a greater extent. With regard to assess the economic condition of the UAE, it has been observed that the country is regarded as the third biggest exporter especially of crude oil in the global world. The important long-term challenges that are normally faced by the country include highly reliance upon oil, huge expatriate personnel and mounting pressure of inflation. In order to cope up with these significant challenges, the strategic plan of the country emphasizes upon diversification and generation of more opportunities for the residents of the nation through delivering enhanced education as well as private sector employment (CIA, “The World Factbook”). Economic Data of (1991-2000) The UAE was regarded as one of the least developed nations in the global world during the last thirty years. However, today, the country has transformed itself to be considered as one of the biggest industrialized nations throughout the globe due to its attainment of enormous oil revenues. In an economic context, it has been viewed that the Gross Domestic Product (GDP) of the country was gradually augmented during the years 1991-2000 with the enlargement in the population. In this similar context, the GDP of the nation was amounted to 126 Dh billion in the year 1991 and 181.5 Dh billion in the year 1999. These figures ultimately revealed that the GDP of the country rose consistently during the decade 1991-2000. However, the real GDP growth (%) of the country remained negative particularly in the years 1991-1995 which was calculated as -2.4%, -0.9%, -0.6%, -2.4% and -0.8% respectively. Apart from the significant concern of GDP, it has also been observed that the total exports of the country also rose steadily during the years 1991-2000 which stood at 22.15$ billion in the year 1991 and 32.28$ billion in 1999 (Shihab, “Economic Development in the UAE”). The economic data of the UAE during the decade 1991-2000 can better be understood with the help of this graphical representation. Source: (Shihab, “Economic Development in the UAE”) Highlights of the Era In relation to natural resources, it has been viewed that the UAE bears the fourth biggest natural gas reserves in the global platform. In this similar concern, the production of natural gas on a daily basis of the nation was estimated to be nearly about 2940 million cubic feet in the year 1999. With regard to agricultural resources, the country had made a minimum contribution towards GDP in the year 1999 that amounted to 3.8%. One of the key highlights concerning the economic condition during the decade 1991-2000 is that the country experienced superior female participation that eventually supported it towards lessening its reliance upon foreign labor. During the years 1991-2000, it has been noted that the country was highly urbanized in nature. This was due to the presence of numerous public services, service-based industrial segments, financial business markets and transportation along with communication. During the years 1975-1998, the oil sector of the country was noted to be quite fluctuating but the manufacturing segment developed and rose steadily. Moreover, apart from oil and manufacturing segment, the agricultural production of the country was also observed to have increased at a yearly growth rate of 12.6% during the years 1991-2000. In addition, the employment share particularly in the service sector of the UAE was also significantly enlarged from the year 1975 when it was estimated to be 51.91% to 57.9% in the year 1998 (Shihab, “Economic Development in the UAE”). Economic Data of (2001-2007) The UAE has experienced a rapid alteration from a small desert region to a highly industrialized one due to the booming of several financial segments of the nation. The segments include mass communications, shipping as well as logistics, tourism, retail and most importantly oil. The financial development of the country has been directly linked with the trends as well as the prospects of the global oil market. In this connection, it has been apparently observed that the total GDP consisting of both oil and non-oil GDP of the UAE significantly increased during the years 2001-2007. In the year 2001, the total GDP was amounted to be 254.2 billion Dirhams and it rose to 729.7 billion Dirhams at the end of the year 2007. According to various evidences, it has been viewed that the GDP growth rate concerning oil and non-oil GDP remained much fluctuating till the year 2001, after which the growth rate became quite stabilized and raised from the year 2002. The major reason for the augmented growth can be the concentration that was placed by the country on resource based advancement policies rather than accumulating savings as well as capital (Pradhan, “Growth and Economic Diversification”). This can be better understood with the help of the following graphical representation. Source: (Pradhan, “Growth and Economic Diversification”) Highlights of the Era One of the decisive highlights concerning the economic condition of the UAE during the period of 2001-2007 was regarding its nominal GDP. In this similar concern, it has been noted that the nominal GDP of the nation had grown largely at an average growth rate of 14-15% during the years 2000-2009. The GDP of the country was estimated to be nearly AED 723 billion in 2007. According to the reports that were published by The Ministry of Economy, it has been viewed that the GDP of the UAE had immensely risen from AED 141 billion in the year 1993 to AED 729 billion by the year 2007-2008. Moreover, as per the data that was provided by The Ministry of Economy, the oil and gas industry of the UAE had improved the economy of the nation by a considerable level. This is owing to the reason that the contribution of oil to the overall GDP of the country had significantly increased from the year 2001 to the year 2007. In this regard, the contribution of oil to GDP particularly in the year 2001 was amounted to be 2, 54,236 AED million and 7, 29,732 AED million in the year 2007. Besides, apart from the oil contribution to GDP, the total exports as well as imports also raised considerably (Scribd Inc., “Oil and Gas Industry (2001-2009)”). A pictorial illustration about this particular aspect has been depicted hereunder. Source: (Scribd Inc., “Oil and Gas Industry (2001-2009)”) Economic Data of (2008-2012) The UAE has been recognized to have significantly recovered its economic condition after experiencing 2009 economic crisis. The nation had strengthened especially its banking sector through the means of important capital injections as well as restructuring debt of different government-related entities (GRE). During the mid of the year 2008, the prices of the real estates in certain provinces of the UAE such as Dubai and Abu Dhabi had dropped by more than 60%. During the year 2011, the significant factor of inflation stayed subdued at an average rate of 0.9% owing to the reason of decline especially in the housing rents. The real GDP growth of the country also remained much fluctuating during the years 2008-2011 that can better be understood with the help of the following figure (International Monetary Fund, “Recent Developments”). Source: (International Monetary Fund, “Recent Developments”). As per the report of The Ministry of Finance and Industry, it has been viewed that the nominal GDP of the nation augmented by a considerable portion i.e. 20.8% in the year 2012 which amounted to $360 billion in comparison with $298 billion in the year 2011. By taking into concern, the current nominal GDP growth rate, the country i.e. the UAE is regarded as one of the fastest mounting economies in the global world (Skyline University College, “Economy of UAE”). Key Performance Indicators as on Date The conception of Key Performance Indicators (KPIs) helps a particular organization or a nation to define as well as fulfill its expected strategic and operational targets. In this similar context, the three imperative KPIs as on date of the UAE has been viewed to be education as well as human resources, innovation system and Information and Communication Technology (ICT). From the perspective of education along with human resources, the country has been identified to be incessantly partnering with a few of the world’s foremost educational institutions with the intention of enhancing its education segment and most significantly raising the research output by a significant level. With regard to the KPI concerning innovation system, the country is making deliberate efforts towards strengthening its working atmosphere and institutional structure for the motive of increasing the competitiveness of the nation at large. From the standpoint of ICT, the UAE remained much committed towards offering its people with pioneering technological advancements. In this regard, the country strongly realizes that the introduction of enhanced ICTs would ultimately play an imperative part in distributing valuable technical as well as scientific information to the people of the UAE (Emirates Competitiveness Council, “The UAE’s Progress towards a Knowledge and Innovation-Driven Economy”). Comparative Benchmarks (Other GCC Countries) The business setting of the UAE can strongly be compared with the other Gulf Cooperation Council (GCC) nations that include Kuwait, Oman and Bahrain. In this similar context, one of the imperative strengths of the nation is regarding its encouraging tax policy. It has been viewed in this concern that the government of the UAE employs an attractive tax policy as compared to other GCC nations that broadly attracts the foreign investors by a considerable level. Apart from the execution of attractive tax policies, the different aspects that include free-trade zones, well-advanced capital markets and universal political constancy that are possessed by the UAE ultimately makes it quite distinct from other GCC nations. From the perspective of microeconomic level, the UAE possess strong governance arrangement and dynamic trade environment in comparison with other GCC nations (Al-Hashemi, Lamanauskas, Kumail, Kholjigitov, and Antony, “National Competitiveness Analysis”). A pictorial representation concerning this topic has been portrayed hereunder. Source: (Al-Hashemi, Lamanauskas, Kumail, Kholjigitov, and Antony, “National Competitiveness Analysis”). Comparative Benchmarks outside GCC (China, Iran, Hong Kong Etc.) One of the comparative benchmarks of the UAE has been identified regarding considerable investments that the nation made in one of the outside GCC nations i.e. in China. In this connection, the UAE made substantial investments particularly in China in the year 2003 that stood at $370 million as compared to China whose investments were calculated to be $50.1 million. Moreover, the country had declared several plans that comprise a $700 million investment particularly in a port facility of China. Besides, the economic ties that took place between the UAE and Iran can also be considered as other comparative benchmarks of the nation outside GCC countries. In this regard, Iran receives a significant portion of exports of the UAE which eventually enhances the profitability of the country along with mostly developing its economy by a significant level (The Nixon Center, “Energy First, but Not Last”). Central Bank of UAE The banking sector of the UAE has observed a moderate financial development in the year 2010. In this regard, one of the major liabilities of UAEs’ Central Bank is to devise as well as to execute different effective policies relating to cash and banking credit for the motive of improving and balancing the national economy of the country by a greater extent. The bank pays utmost attention in organizing various financial institutions particularly the banks, upgrading the management of the institutions and appropriately utilizing the available resources. It issued numerous regulations as well as circulars in order to accomplish its desired objectives i.e. balancing along with enhancing the national economy of the UAE. It has been apparently observed that the Central Bank of the UAE has been incessantly emphasizing upon raising liquidity especially in the financial sector for the motive of improving the monetary situations of the country at large (Bank of the United Arab Emirates Central, “Services”). Outlook for the Future The UAE is presently undergoing fast expansion in every economic sphere by making considerable investments and properly utilizing the valuable resources. In order to provide a general outlook for the future of the UAE, it can be stated that the country needs to focus upon two significant aspects that comprise education and governance in the upcoming years for the motive of enhancing its economic condition by a greater extent. From the perspective of education segment, the country must ensure that its education system offers the nationals or residents with required competency development opportunities that are demanded by its mounting private sector. This particular aspect would ultimately support the country to accomplish its one of the expected targets i.e. attaining long-term financial stability. Apart from education, the UAE also needs to emphasize upon forming effectual governance arrangement. This feature would ultimately assist the country to develop its future by a considerable level. Moreover, the country can be able to attract the foreign investors at large by forming an effective governance structure within its economy (World Economic Forum, “The United Arab Emirates and the World: Scenarios to 2025”). Your Observations After acquiring a brief idea about the economic conditions of the UAE, it has been observed that the country pays much attention towards changing the nation into a diversified and self-sustaining along with market-driven economy. In order to enhance the economic condition and attain long-term financial stability, the country has formed as well as executed broad assortment of important reforms in several fields that encompass labor markets, education systems and financial policies among others. Moreover, it has also been observed that certain imperative laws relating to foreign and property ownership have been executed by the country with the intention of enhancing the transparency along with regulatory control especially in the financial market. The country i.e. the UAE has increasingly become a balanced society not only with respect to income distribution but also concerning political as well as gender participation. In addition, it has been viewed that the country preserves superior level of security as well as scrutiny of several undertaken policies for the motive of increasing global protectionism by a greater extent. On the basis of the above observations, it can broadly be affirmed that the country might become quite successful in enhancing its economic situation at large in future (World Economic Forum, “The United Arab Emirates and the World: Scenarios to 2025”). Suggestions to Improve the Economic Performance One of the imperative suggestions for the UAE for improving its economic performance is about following the approach of diversification rather than depending much upon its oil industry segment. The conception of diversification would certainly aid the country to expand its different strategic sectors where it can construct a long-term competitive position. Moreover, in order to develop the economic performance, the country should direct all the organizations about adopting customer-centric approach in an effective manner. In addition, the country must design a dynamic information as well as communication infrastructure for the purpose of enhancing its financial performance by a significant level. The other valuable suggestions concerning the improvement of economic performance of the UAE include upholding economic diversification, maintaining effectual coordination as well as collaboration with different financial investors and most significantly ensuring substantial investments in capital extensive along with export-oriented segments (World Economic Forum, “The United Arab Emirates and the World: Scenarios to 2025”). Conclusion The UAE has been noted to have transformed itself as one of the biggest industrialized nations in the entire globe due to the attainment of huge oil revenues. The economy of the UAE has been recognized to be an open one bearing a high ‘per capita income’ along with a large yearly trade surplus. It has been apparently observed that the GDP of the country rose considerably during the years 1991-2007 with the increase in the population of the country. However, the GDP growth of the country remained quite fluctuating during the years 2008-2012. In this context, the different aspects such as innovation system, ICT and education along with human resources acted as major KPIs for the country. The various features such as advanced capital markets, universal political constancy and attractive tax policies can be regarded as essential benchmarks for the UAE in comparison to other and outside GCC countries. The Central Bank of the country intends to develop national economy by upgrading the management of different financial institutions such as banks and suitably utilizing valuable resources. In order to flourish well in the future, the country needs to emphasize upon two significant aspects that include governance structure and education system. Most importantly, the country should make considerable investments particularly in export-oriented as well as capital extensive segments in order to enhance its economic performance by a greater extent. Works Cited Bank of the United Arab Emirates Central. Services, 2013. Web. 12 Jan. 2013. CIA. The World Factbook, 2013. Web. 11 Jan. 2013. Emirates Competitiveness Council. “The UAE’s Progress towards a Knowledge and Innovation-Driven Economy”. Policy in Action 01 (2011): 1-10. Print. Hamed Al-Hashemi, Tomas Lamanauskas, Ali Abu Kumail, Golib Kholjigitov, and Angela Antony. National Competitiveness Analysis. Abu Dhabi-UAE Petrochemical Cluster, 2012. Web. 12 Jan. 2013. International Monetary Fund. Recent Developments, 2012. Web. 12 Jan. 2013. Pradhan, Samir. Growth and Economic Diversification. The UAE’s Economic Policy and the Current Global Meltdown: An Appraisal, 2009. Web. 12 Jan. 2013. Shihab, Mohamed. Economic Development in the UAE. United Arab Emirates: A New Perspective, n.d. Web. 11 Jan. 2013. Scribd Inc. Oil and Gas Industry (2001-2009), 2013. Web. 12 Jan. 2013. Skyline University College. Economy of UAE, 2013. Web. 12 Jan. 2013. The Cultural Division of the Embassy of the United Arab Emirates. UAE Facts in Brief, 2011. Web. 11 Jan. 2013. The Nixon Center. Energy First, but Not Last, 2010. Web. 12 Jan. 2013. World Economic Forum. The United Arab Emirates and the World: Scenarios to 2025, 2007. Web. 12 Jan. 2013. Read More