Aviation Industry in UAE - Example

Aviation Industry in UAE Name Institution Table of Contents Table of Contents 2 Introduction 3 Purpose and Scope of Report 4 The Economy of the United Arabs Emirates 4 Oil and Gas Industry Development 5 Benefits of OPEC Membership 6 Contribution of Tourism and Aviation Industry to UAE Economy 8 Tourism Industry before Financial Crisis 10 Employment in the United Arabs Emirates 11 Directs Effects of the Financial Crisis on Tourism and Aviation Industry 12 Indirect Effects of Financial Crisis on Tourism and Aviation Industry 13 Conclusion and Recommendation 13 References 15 Appendices 16 Introduction The United Arabs Emirates are a country in the Middle East that was formed by joining together the small kingdoms that were found in the Middle East. The United Arabs Emirates is among the largest economies in the world which d thrives on oil and gas industry. Due to the fast growing economy that was based on oil and gas industry, the United Arabs Emirates become one of those economies where different businesses were attracted resulting in the emergency of different industries such as tourism and international trade. Although the economy had initially grown as a result of oil and gas exploration, the United Arabs emirate become a major tourist’s destination such that many tourists from different parts of the world started visiting the country (Sharpley, 2008). This means that the aviation industry also opened up due to the oil and gas industry and growth of tourism in the country. The country’s economy was estimated to have a growth domestic product growth rate of 9.4 per cent. During the financial report of 2008, the United Arabs Emirates had a growth domestic product of about 270 billion US dollars. This meant that the country was ranked as the third largest growing economy in the middle east and ranked 38th in the whole world. However, the global financial crisis had an impact on the economic growth of the United Arabs Emirates. This is because the financial crisis affected the basis economic activities of the United Arabs Emirates such as the tourism industry, airline industry and the oil industry (Swiss Business Hub GCC, 2012). Purpose and Scope of Report The purpose of this report is to highlight the different economic sources of the United Arabs Emirates and analyse he economy of the country. Although the economy of United Arabs Emirates is dominated by oil and gas industry, the report will evaluate and discuss the roles that are played by the tourism industry and aviation industry in the economy of the country. The report will discuss the economy of United Arabs Emirates before the global financial crisis and how the country performed in the international market. The centre of focus will be the oil and gas industry, the benefits of the country being a member of the Organization of Petroleum Exporting Countries, the contribution of tourism, and aviation to the country’s economy, the effects of the global financial crisis. Since the sectors of an economy are all interlinked, the tourism and aviation industries are linked to all other sectors of economy. This implies that the financial crisis had both direct and indirect effects on the tourism and aviation industry of the country. The effects of the financial crisis on other sectors, such as the oil and gas industry, means that the tourism and aviation industries are also affected. Hence, the report analyses the scope of the aviation and tourism industries in the United Arabs Emirates at times when the financial crisis phases passed and different prospects of the industries after the financial crisis. The Economy of the United Arabs Emirates The United Arabs Emirates economy is based on different sectors namely the oil and gas o industry, tourism industry and the aviation industry. The economy of the country is divided in what is called as free zones. The free zones are zones which are industrially developed and companies that are found in these zones can be 100 per cent owned by foreigners. This means that the country was an ideal place for international trade. The zones have business centres, industrial parks, Dubai Media City, Maritime city and other businesses in different sectors. Oil and Gas Industry Development The oil and gas industry in the Arabs Emirates has been for among time one of the major sectors that support the economy of the country. The United Arabs Emirates is an important producer of oil in the world. The country is ranked as the seventh largest oil producer in the world with oil barrels of about 97.8 billion which is about 7.1 per cent of the total oil produced in the world. Although the economy of United Arabs Emirates to date is built from different sectors, the country has for a long time depended on oil as the main source of economic growth. This means that in the past United Arabs Emirates entirely depended on oil and gas as the main sources of revenues. Since the country was a leading oil producer, it was a member of the Organisation of Petroleum Exporting Countries in the Middle East. This implies that the country enjoyed several benefits of the membership to the organisations. Although the country had a quota of 1.89 million b/d in the year 2002, the country had a production capacity of 2.65milion b/d (Figure 1). It was estimated that the country would increase its production capacity to 3.6 b/d by the year 2005 and to 4 million b/d in 2010. However, the oil and gas was estimated to get depleted by the year 2015, something that made the country to turn to other means of economic growth (Swiss Business Hub GCC, 2012). Figure 1: UAE oil and gas production, prices 2002-2010 Benefits of OPEC Membership Countries that are members of OPEC enjoy a different economic growth as compared to non-member states. This is because OPEC is an international organization that influences the prices of oil in the international market. This is through control of production levels. Since the United Arabs Emirates was one of the largest producers, it means that the country enjoyed stable prices and controlled production of its oil deposits. This enabled the country to growth economically since the sources of revenue were assured. In addition, the OPEC offers as a bargaining power for membership rights in the international market. This is because the organisation was free from the influence of the west which was seen as the forces that control international market prices. The OPEC ensured that members have secure fare shares of the value of their oil resources in order to accelerate their economic growth. Moreover, the organization protects all the members’ interests in the international oil market. This means that the interest of United Arabs Emirates as one of the global oil producers was protected in order to allow economic growth of the country. OPEC was seen as the promoter of sustainable development in the country such that it allowed for the creation of job opportunities in the country (Khusanjanova, 2011). Figure 2: dependence of OPEC countries on petroleum Although the United Arabs Emirates had entirely dependent on oil and gas as the main source of economy, the productivity of these products have greatly reduced. This means that the country is slowly turning to other sectors such as aviation and tourism in order to promote economic growth. In order to promote tourism, the country relied on the major airlines in the country to promote the economy. The major airlines in the United Arabs Emirates are the Emirates airways, Etihad airways, which operates within the major international airports such as Abu Dhabi, Dubai, Fujairah, and Al Ain. Contribution of Tourism and Aviation Industry to UAE Economy Among the places in the United Arabs Emirates is Dubai which is the hottest shopping, trading and tourist destination in the world. Dubai has a well-established infrastructure that facilitates the growth of tourism industry in the United Arabs Emirates (Sharpley, 2008). The economic and political foundation of the country which was based on oil industry ensured that the country has the best infrastructure in terms of roads and profitable airlines with modern facilities for tourism. The political stability, security cultural activities and availability of health facilities in the country encouraged the development of tourism and aviation industry in the United Arabs Emirates (Henderson, 2009). The United Arabs Emirates had annual earnings of AED98. 6 billion in the year 2006 this was projected to reach AED170 billion by the 2016. This means that the tourism and aviation sector was playing an important role in the building of the economy. According to the world tourism and travel council, the United Arabs Emirates was ranked 18th in terms of international tourism in the whole world. This implies that the tourism and aviation sector was a major contributor to the country’s GDP. In fact the share of GDP contributed by the tourism industry was 19 per cent, a percentage which is 5 per cent higher than that of the United Kingdom and 7 per cent higher than the United States of America. In order to attract more tourists, the United Arabs Emirates has invested a lot of capital in building skyscrapers and modern international airlines in order to offer quality airline services to the tourists (WTTC, 2011). The building of modern architectural buildings in the United Arabs Emirates has served as one of the tourist attraction since many tourists visits the country to see different architectural designs as indicated in figure 3 and 4. This also meant that the United Arabs Emirates were shifting its source of economic growth from oil and gas to tourism and aviation. In the Middle East the aviation industry account for about 20 per cent of the country gross domestic product. This means that the tourism industry was becoming a major economic source which promoted the aviation industry that serves as a complimentary industry in increasing the country’s GDP. The United Arabs Emirates has a higher capacity in terms of airline industry. This means that the country generates and contributes a higher amount of money to the country’s GDP (Swiss Business Hub GCC, 2012). Figure 3: Aviation sector as percentage GDP and GDP per capita Figure 4: arrivals of tourists in UAE IN 2011 Tourism Industry before Financial Crisis The United Arabs Emirates has been for a long time been a tourist destination. The country has been working in order to become one of the major international tourist destinations. This was seen as the government tried to improve the infrastructure of the country in order to make it compete with international standards in tourism. The government then encourages foreign investments through the establishment of free zones that saw the building of sporting centres, skyscrapers, luxurious hotels and buildings as well as industrial parks that can serve as tourist attraction centres (Sharpley, 2008). In fact the country was the first one to build a seven star hotel, the Burj Al Arab hotel. Shopping centres and mall of modern designs and architecture re built in places such as Dubai in order to attract more tourists. Since the aviation sector had shown improvement by recording a growth rate of 7 per cent, the government ensured that it improved the aviation sector in order to offer high class business and luxurious airline services to promote tourism in the country and international trade. Since the country had a lot of trading sports, the aviation industry grew rapidly since people and travelled in the country to have a stake in the growing economy. This ensured that the air transport sector grew and contributed to the increased revenues of the country. Hence, the United Arabs Emirates started to enjoy the revenues that were collected from the booming oil industry and the tourism and aviation sector (WTTC, 2011). Employment in the United Arabs Emirates The growth of the tourism and aviation industry as complementary industries for the oil industry meant that there were a lot of job opportunities for both local residents and international individuals. The economic growth in the country also meant that more technologies were introduced in the country which required different experts. This means that the country employed both local and foreign residents since the free zones had companies that were both locally owned and foreign owned. With the increasing demand in hotel and tourism industry, there was an increased demand for labour in the country. This implies that job opportunities become available in the country such that people started travelling to the United Arabs Emirates o work. The influx of foreign workers in the country attracted different business organisations in both manufacturing and service industry since there was a ready market for their products and a stable economy based on oil and tourism industries. Female job opportunities were much concentrated in domestic duties such as in the hotel industry and hospitality as well as in the airline services as air hostesses. On the other hand male job opportunities became available in al sectors of the economy such as in construction and building of skyscrapers and aviation industry. Therefore, the United Arabs Emirates become a major economic hub that had both domestic and international labour demands. Figure 5. Contribution of aviation to employment Directs Effects of the Financial Crisis on Tourism and Aviation Industry The increased economic development in the United Arabs Emirates was due to government efforts to promote tourism by investing in real estate and hotel industry. The revenue that was used to build skyscrapers and other facilities in the aviation sector was generated from the export of oil and gas in the country (Sharpley, 2008). The financial crisis affected the United Arabs emirate by affecting the Dubai Emaar which was the biggest real estate company. During the crisis, Dubai Emaar in the United States became bankrupt resulting in a payment delay of six months by Dubai. This means that the financial crisis in the United Arabs Emirates became exposed to the world such that investments in the country were affected. Dubai had a debt of 59 billion USD which delayed the investment in the country for around six months. Since the United Arabs Emirates was depending on Dubai, the effects of financial crisis on Dubai meant that the country was affected. The plans to pay the debt failed. During the financial crisis the United Arabs Emirates suffered huge losses in the tourism industry and the home prices of different commodities in the Emirates dropped by 50 per cent making Dubai unable to pay its debts (Kumah et al., 2010). Indirect Effects of Financial Crisis on Tourism and Aviation Industry The financial crisis in United Arabs Emirates resulted into a down fall of the real estate and tourism industry. This resulted in a slowdown of the growing economy in the United Arabs Emirates. This means that the revenues from the different industries were not generated as before the crisis hence the government was not able to sustain the growth. Since the tourism and aviation industry had become major source of economy, a slump in the industry means that the economy of the country was affected (Kumah et al., 2010). This resulted in lack of ability by the government to regulate foreign investments something that led to a slowdown in investments. The bankruptcy of the biggest real estate company, Emaar resulted in a slowdown of the major projects that would have promoted foreign investments and tourism in the United Arabs Emirates. The main cause of the economic downfall of the United Arabs Emirates was not as a result of the financial crisis but its overdependence on debts. Hence, the financial crisis had an indirect effect by affecting g the inability of the United Arabs Emirates to pay its debts (Swiss Business Hub GCC, 2012). Conclusion and Recommendation The United Arabs Emirates is among the largest economies in the world which d thrives on oil and gas industry. Due to the fast growing economy that was based on oil and gas industry, the United Arabs Emirates become one of those economies where different businesses were attracted resulting in the emergency of different industries such as tourism and international trade. The country’s economy was estimated to have a growth domestic product growth rate of 9.4 per cent. During the financial report of 2008, the United Arabs Emirates had a growth domestic product of about 270 billion US dollars. This meant that the country was ranked as the third largest growing economy in the middle east and ranked 38th in the whole world. The tourism and aviation sector was a major contributor to the country’s GDP. In fact the share of GDP contributed by the tourism industry was 19 per cent, a percentage which is 5 per cent higher than that of the United Kingdom and 7 per cent higher than the United States of America. However, the global financial crisis had an impact on the economic growth of the United Arabs Emirates. The financial crisis that was seen in the United Arabs Emirates was due to mismanagement of the resources that were available. This is because the United Arabs Emirates focused on investing all its revenues from oil industry in promotion of tourism and airlines without having any necessary measures to deal with any shock in the economy. The support by the banking sector on the ailing tourism may be a starting point for the United Arabs Emirates to revive it economy. The United Arabs Emirates should ensure that it has the required leadership in managing tourism industry in order to have positive results. References Henderson, J. (2009). Food Tourism Reviewed. British Food Journal, 111(4), 317-326. Khusanjanova, J. (2011). OPEC’s Benefit for the Member Countries. Research in World Economy, 2(1), 14-23 Kumah, F., Hasan, M., Khamis, M., Prasad, A., Semlali, S., & Sensenbrenner, G. (2010). Impact of the Global Financial Crisis on the Gulf Cooperation Council Countries and Challenges Ahead. London: International Monetary Fund Sharpley, R. (2008). Planning for Tourism: the Case of Dubai. Tourism and Hospitality Planning and Development, 5(1), 13-30. Swiss Business Hub GCC. (2012). United Arab Emirates Business Sectors. Retrieved from www.osec.ch. WTTC (2011). Travel & Tourism Economic Impact 2012 United Arab Emirates, World Travel & Tourism Council. http://wttc.org/site_media/uploads/downloads/united_arab_emirates2012.pdf Appendices Appendix 1: Sector origin of UAE GDP Read More