The Impact of Tourism Industry on the UAE Economy - Assignment Example

UAE: TOURISM PART A Discuss the impact of tourism industry on the UAE economy Tourism business has an encouraging impact on the employment development in UAE. One in every 8.5 percent of jobs is travel and tourism associated. This is expected to increase to 9.1 percent by 2016. Also in terms of exports, some 10.4 percent are travel and tourism related (United Arab Emirates Tourism Report Q4 2010). Tourism in the Northern part of the UAE gives about two percent to the Gross Domestic Product (GDP) (Business Monitor International, 2010). The tourism sector is estimated to have generated 19 billion US dollars in 2007 alone UAE’s economy. According to WEF Global Competitiveness Report 2010-2011, United Arab Emirates (UAE)’s GDP was estimated at AED 844 billion (US$230 bn) in 2009. In the same year, the annual GDP per capita in UAE accounted for about AED 171,965 (US$46,857) (Bualhamam, 2009). Tourism in UAE is also associated with negative economic impact for example, rather than creating new jobs, extra jobs; tourism development has only served to redistribute existing labour particularly in Dubai, well known for tourism in the region. Discuss tourism in Dubai? Dubai is considered one of the best internationally known tourist destination. Its successes as the major tourist destination are related to various factors. First, it enjoys stability and considerable level of independence and autonomy in economic policy making. In addition, it is viewed as relatively liberal and cosmopolitan society, with little threat of civil unrest and low crime rates. In fact, expatriates make up about 80% of its 1.2 million populations (Bualhamam, 2009). In addition, Dubai is well endowed with good infrastructure and its aviation industry has progressed remarkably. Its airport is the sixteenth busiest measured by international passenger movements (Bualhamam, 2009). Apart from this, Dubai has placed itself in Western markets as an foreign, although secure, coast tourism site with entertainments of shopping and mixed cultural and natural heritage attractions (Henderson, 2006). Being one of the best tourist destinations, Dubai is not without challenges. First, in terms of Stability and government tourism policy, Dubai being a member of UAE may not be resistant to disorder emanating from the domestic and outside change and unpredicted proceedings. Being a commercial centre, it relies on the health of world and regional economies, both of which can perform erratically. Tourism is affected by economic movements and eroded by political instability and terrorism, ongoing problems throughout much of the Middle East, and Dubai owing to proximity to Iraq could suffer as long as that country is unsettled (Bualhamam, 2009). Which nationalities perform tourism in the UAE? Some of the nationalities who perform tourism in UAE include Emirati 19%, other Arab and Iranian 23%, South Asian 50%, other Nationalities (includes Westerners and East Asians) 8% Table 1 gives the summary of nationalities. Table 1: Nationalities involved In Tourism in UAE Nationality Percent of population Emirati 19 Arab and Iranian 23 South Asain 50 Other Nationalities 8 Source: The UAE's economy: a tale of two cities in 2010’, Middle East Economic Digest, Richard Nield (2010) In Dubai which is considered the best tourism destination, nationalities involved in tourism are as follows: 42.3% Indian, Emirati 17%, Pakistani 13.3%, Bangladeshi, 7.5%, other Arabs, 9.1% and other nationalities 10.8% (Nield, 1020). Has it benefited from Government spending on the infrastructure? Dubai has considerably shown high government spending on infrastracture particularly geared towards promoting tourism. According to a report by the UAE’s economy, more than 45 per cent of 2010 budget expenditure (US$4.71 billion) was allocated to infrastructure and transport alone (Business Monitor International, 2010). The UAE is also progressing with strategy to be component of the US$100 billion GCC Railway Project that will connect the Gulf countries as one by rail. The rail project includes a 1,500km local rail network that is due to be transported by 2015 with an estimate value of US$11 billion. Light rail and metro systems are also under consideration. The Government also initiated a US$4.1 billion upgrading of airport that was intended to accommodate or handle 40 million passengers by 2010 and 100 million by 2025 (Matthews, 2003). Discuss the telecommunication industry of the UAE. Is it very competitive? How does it support other industries in the UAE? Telecommunication industry of the UAE The UAE's telecommunication has grown significantly in the recent past. Today UAE is said to be is among the most technologically sophisticated countries in the Middle East. At the heart of the growing information technology market, the UAE IT sector grew from US$ 6.9 billion in 2003 to more than US$ 9.5 billion in 2005 (United Arabs Emirates Country Profile, 2007). The tremendous growth in telecommunications has been propelled by various factors but not limited to government initiatives aimed at the deregulation of the market and introduction of competition, liberalization in the sector and new legislation adopted in 2004 resulted in the creation of a new "independent" regulator, the Telecommunications Regulatory Authority (TRA) Prior to liberalization, the UAE’s telecommunications market had a single entity, Emirates Telecommunications Corporation (Etisalat), operating in the capacity of both a telecom regulative body and a fully-fledged telecom service provider, at the same time. Other factors include facilitation of an enabling legal and regulatory framework combined with the existence of national data and advanced communications infrastructure, the use of mobile network can also be linked to the growth of improved telecommunication industries (Henderson, 2006). According to the U.S. government, in 2005 the UAE had more than 4.5 million mobile cellular telephone subscribers, as compared with 1.2 million landlines in use. These numbers stand for a infiltration rate of, correspondingly, 101 and 28 lines per 100 people. Telecommunication development in UAE is not without challenges. For instance, the fixed-line sector remains underdeveloped, with fixed-line penetration standing at just over 30% in 2007 mainly attributed to high tariffs and absence of fixed-line networks. Again, the UAE does not have a federal level initiative to tackle the issue of accessibility and affordability of ICT services, especially to people with disability, children and elderly (Business Monitor International, 2010). Is it very competitive? Telecommunication industry is quite competitive particularly with the liberalization in UAE. Prior to this, the UAE’s telecommunications market had a monopolistic single entity, Emirates Telecommunications Corporation (Etisalat), operating in the capacity of both a telecom regulative body and a fully-fledged telecom service provider, at the same time (Bualhamam, 2009). How does it support other industries in the UAE? There are various ways in which telecommunication support other industries within UAE. One is that, the development in ICT communication networks and services significantly influences the organization of firms and their relations to the market. For-instance, telecommunication is behind the success story of tourism development in UAE. Telecommunications liberalization, together with technological modernization, has considerably enhanced access to communications, the major link of tourism. In addition, providers of different services in the tourism industry for instance, airlines, hotels, convention and tourism boards, travel publication editors, local media, and others generally use telecommunication for its marketing (Wam, 2011). Telecommunication sector has also remarkably improved speedy technological improvement and productivity growth within UAE. Companies utilize ICTs to categorize transnational networks in reaction to global competition and the rising call for for strategic communication. Consequently, international companies are a major vehicle of the high rate of globalization development. PART B 1. GDP and Tourism How much does Tourism contribute to the GDP? The Gross Domestic Product is simply defined as the market value of all the goods and services produced by labor and property located in a region, usually a country. It is one of the most used macro economic indicators for measuring output since the rate of growth of this index depicts the gain or loss of wealth in a country. So how much does it contributes to GDP? It is estimated that the contribution of travel and tourism sector to the state's GDP in 2010 alone to be around 16.6 per cent, amounting to $42.56 billion (Dh156.3bn). Out of this, Abu Dhabi, Dubai and Sharjah accounted for 93 per cent of the total contribution of tourism sector in the UAE’s GDP, and is predicted that the average growth of the sector's contribution to the GDP will be more than 8.1 per cent annually during the period from 2011 to 2020. According to statistics supplied by Department of Economic Development in the Emirate of Ras al Khaimah (RAK) (2007), tourism in the Northern part of the UAE contributes about two percent to the Gross Domestic Product (GDP) (Business Monitor International, 2010). Does Tourism affect the aggregate Supply parameters of Technology, Labor, Physical Capital, Human Capital, and Natural Resource? Tourism does affect the aggregate Supply of aforementioned parameters. Tourism promotes the use and investment in technology thus affecting the aggregate supply. This can be attributed to the inherent relations between the two. For stance, technology plays a major role within tourism particularly as creator, protector, enhancer and even focal point. It can both promote conservation of natural resources but also jeopardize it through improper use and overexploitation thus affecting the aggregate supply. Places with rich natural resources attract tourists and new inhabitants who try to find emotional and spiritual relations with environment. Since these inhabitants value environment, special natural environments are conserved, protected, and reserved from further natural decrease. Tourism also affects the aggregate supply of human capital due to the role of human capital in the sector. It is been argued that this importance is particularly high in the tourism and hospitality industry, where the quality of service continues to be the most important characteristic differentiating a company or a destination from its competitors (Stipanuk, 1993). Does tourism impact on investment which is the driver for growth in any nation? Tourism does impact on investment of a country; it offers an avenue of investment that can ensure a better and lucrative return, thus contributing more to the national economy through its Multiplier effect since it has a wide range of inputs and, as a result, expenditures on inputs are distributed more widely than in most traditional industries. Possible areas of investment may include Transport sector, telecommunications, accommodations and residents among other things (Wam, 2011). 2. Tourism and Unemployment How much does tourism impact on employment in the UAE for all UAE residents and nationals in specific? Tourism industry has had a significant impact particularly for all UAE residents and nationals. As observed earlier, it is one of the leading job creators in UAE’s economy. For instance, it is estimated that one in every 8.5 percent of jobs is travel and tourism related which is also expected to increase to 9.1 percent by 2016. However, it has also been argued that rather than creating new job, tourism development only serves to redistribute existing labour that is to say, the potential attraction of working within tourism means traditional industries for instance in agriculture and oil lose their lab our force and go into decline (Business Monitor International, 2010). 3. Monetary Policy Does Tourism impact on the money supply? It certainly does boost the economy. Utilization of airlines, trains, buses, hotels and domestic sight viewing, shopping, all bring money to the country visited. Does the UAE monetary policy impact on Tourism? UAE’s country’s monetary policy is centralized and controlled by the Central Bank of the UAE. However, the UAE Dirham is pegged to the US Dollar, as this fixed exchange rate reduces volatility in export revenues. Because the UAE is a resource-based exporter, currency strength is strongly associated with economic health. The pegged-exchange rate mechanism limits the power of the Central Bank, as it minimizes options to curb inflation and manage money supply. Inflation is known to negatively affect tourism. 4. Fiscal Policy Does the UAE fiscal policy affect tourism? Fiscal policy is basically the combined practices of government with respect to revenues, expenditures, and debt management. The UAE remains monetarily sound. The UAE government has been aware of driving a reasonable budget by supporting expenditure with incomes. This automatically affects tourism. As economic activity fluctuates, fiscal expenditures and taxes respond automatically in ways that stabilize the economy (Bualhamam, 2009). 5. Trade Does tourism influence the overall trade balance of the UAE? Tourism has remarkably influenced the overall trade balance of the UAE. This has been possible through direct and indirect generation of revenue for the country. As observed earlier, there is a close link between tourism and infrastructural development. Import spending is likely to increase as domestic demand for capital goods to support infrastructure projects increases. The overall effect on the UAE’s economy is an estimated trade surplus of nearly US$47 billion in 2006 and a projected trade surplus of more than US$41 billion in 2007 and 2008 (Bualhamam, 2009). Works Cited Business Monitor International. United Arab Emirates Tourism Report Q4 2010, October 21, 2010 David M. Stipanuk. Tourism and Technology: Interactions and implications, Tourism Management, Vole 14, issue 4, Aug, 1993. Joan C. Henderson. Tourism in Dubai: overcoming barriers to destination development international Journal of Tourism Research, Volume 8, Issue 2, pages 87–99, March/April 2006. Mathews N. Expansion spree: airports in the Middle East will be building new runways and terminals through 2015. Aviation Week and Space Technology 159 (2003) (22): 42. Mohamed R. Bualhamam. The study of urban growth impact in tourism area using remote sensing and GIS technique for north part of the UAE, Journal of Geography and Regional Planning (June, 2009) Vol. 2(6), pp. 166-175 Richard Nield. The UAE's economy: a tale of two cities in 2010’, Middle East Economic Digest, 2010. UAE Country Profile: United Arab Emirates (UAE) Library of Congress – Federal Research Division July 2007 Wam. UAE travel and tourism one of key contributors to GDP:Emirates leads Mideast among nations with most advanced travel and tourism sectors Published in Emirates 24 News, Sunday, August 28, 2011 Read More