Economic Development in the UAE - Case Study Example

Economic Development in the UAE Contents Economic Development in the UAE 1 Contents 2 Introduction 3 Result and Discussion 3 Economic and Institutional Constraints 4 Political and Social Stability 5 Oil and Mineral Resources 6 Structural Changes in the UAE’s Economy 7 Structural Change in the UAE’s Employment Patterns 8 ECONOMIC DEVELOPMENT IN THE UAE 8 Balance of payments of UAE 9 Impact of the fiscal policy and monetary policy on economic performance in UAE and their interpretation 9 Fiscal Policy of the UAE 9 Analysis 10  Monetary Policy of the UAE 10 Bibliography 12 Introduction 30 years ago, UAE was the least developed nation across the world. UAE in recent years as attained an income level of comparable to the undestrialised nation. UAE never passed through the hpothethical development phases that many countries experienced. Instead, the country’s large oil revenue that permitted UAE to leap these stage to the phase o high mass consumptions. Presence big oil reserves made the country to shortcut the normal hard and long process of saving and capital growth (OIL and gas). UAE has embrace resource based industry as a development plan, an industrial plan that on the basis of utilization of natural resource. there has been a use of windfall income, mainly directed toward once and for all boost to the societal and economic development that lead to attainment of substantial degree of economic progression within the shortest time of 1973 and 1982 , a period that is high for oil price. This paper focus on undertaking a forecast of the economic performance of UAE for the seven years and takes into account the societal, economic and political context. It a well as takes into consideration the different al other human aspect that contribute to economic progression for UAE. Result and Discussion Table 2.10 Selected Macroeconomic Indicators 2011-2015 ($ billions) GDP and prices 2011 2012 2013 2014 2015 Nominal GDP (billion AED) 506.8 643.5 758 934.3 914.3 Nominal GDP 138 175.2 206.4 254.4 249 Real GDP 107.3 121.2 128.7 138.3 140.1 Real GDP (% change) 13.1 13 6.2 7.4 1.3 Real Hydrocarbon GDP 34.4 39.2 42.3 46.4 40.5 Real non-hydrocarbon GDP 72.9 82 86.4 91.9 99.6 CPI inflation (average % change) 6.2 9.3 11.1 12.3 1.56 Consumption expenditure Private consumption expenditure 68.7 85.2 95.4 115.8 118.1 Investment Private investment 14.5 19.9 52.2 63.3 66.8 Private fixed capital formation 12.9 18.1 50.2 59.2 62.7 Change in stocks 1.6 1.8 2 4.1 4.1 Government purchases Total Government Purchases 26.7 307 38.2 46.2 48 Government consumption expenditure 14 15.8 20.7 23.6 24 Government fixed capital formation 12.7 14.9 17.5 22.6 24 Gross savings Gross savings 42.6 59.3 72.8 92.4 82.9 Savings-investment balance 28.1 39.4 20.6 29.1 16.1 External sector Exports and re-exports of goods & services 122.1 152.4 186.7 248.8 209.6 Hydrocarbon 55.1 70.1 73.8 102.1 69.9 Non-hydrocarbon 67 82.3 112.9 146.7 139.7 Imports of goods & services 93.9 112.9 166.1 219.7 193.5 Net exports (Exports – Imports) 28.2 39.5 20.6 29.1 16.1 Sources; “National Bureau of Statistics, Abu-Dhabi, United Arab Emirates” Economic and Institutional Constraints Prior to discovering and export oil, the economy of UAE placed reliance on the nomadic, agriculture, fishing and seafaring. The time prior to discouraging oil and thus, depicted the national’s scarce resource and lead to simple subsistence economy (Arrunada, 2013). The era of economic development in UAE started in early 1970 followed by explosive growth in oil prices in 1973. Political and Social Stability This one of the main contributes to economic progression UAE. Since its formation in the year 1971, UAE enjoyed stable politics, the presence of political structure that turns to suit the society in UAE and the supply of huge oil income in the form of societal and economic development, high salary and high standard of societal services like the health and education lead to improved living standards and reduction in chances of internal political and societal unrest. It is worth outlining that UAE government has upheld a good record on human right. This lead to promotion of political and societal stability. The UAE is an aggressive and active member of many regional and international associations. Political and societal stability depict a strong correlation with liberal trade policy and has opened ways for venture in the economy of UAE (Balian, 2009). Table 2.20 Sectoral contribution to GDP (%) 20011 - 2015 Sector 2011 2012 2013 2014 2015 Agriculture, livestock and fishing 2.2 1.9 1.7 1.6 1.7 Mining and quarrying 32.4 32.6 33.2 33.8 29.2 Crude oil and natural gas 32.1 32.3 32.9 33.5 28.9 Quarrying 0.3 0.3 0.3 0.3 0.3 Manufacturing 14.5 15.9 15.4 15.1 16.2 Electricity, gas, and water 1.8 1.6 1.5 1.5 1.6 Construction 9 9.7 9.6 9.7 10.7 Wholesale and retail trade, and repairing services 9.2 8.8 8.8 8.6 9 Restaurants and hotels 1.8 1.7 1.7 1.6 1.8 Transport, storage, and communications 6.8 6.7 6.7 6.5 7.1 Real estate and business services 7.7 7.3 7.3 7.7 8.2 Social and personal services 1.8 1.7 1.7 1.7 1.9 Financial corporations 5.7 5.5 5.4 5.3 5.8 Government services 8 7.5 7.8 7.5 8 Domestic services of households 0.6 0.6 0.6 0.5 0.5 Less: Imputed bank services 1.5 1.4 1.3 1.3 1.4 Sources; “National Bureau of Statistics, Abu-Dhabi, United Arab Emirates” Oil and Mineral Resources UAE is endowed with wide oil reserves that are linked to crude oil production. Since the year 2011, UAE growth placed reliance mainly on discover and exploration of oil. The oil and gas industry are well controlled and with the use of latest technology is progressively harnessed to grow the productivity effectively, as per the UAE ministry of petroleum and mineral resources, UAE utmost sustainable day to day capability of oil production is 2 million barrels daily, the county installed production capacity is more than 3 million barrel daily. In 2012, proven oil reserve in UAE was estimated to be 98.8 billion barrels, 3rd biggest oil reserves in the world after Saudi Arabia and Iraq (Ibrahim Abed, 2001). The UAE proven oil reserve were approximated to be almost 10% of the proven global oil reserves in June 2011. Based on dailly production of 2.2 million barrels daily, it is approximated that the oil reserves will last for more than 122 years. The gas is estimated to be almost 6 trillion cubic meters with an estimated natural gas equivalent to more than 4% of the global gas. UAE holds the 4th biggest reserve of natural gas globally. The daily gas production is appointed to be 2940 million cubic feet. The gas reserves are approximated to last for more than 60 years. These is one the main contributor to economy progression in UAE Other mineral resource e in UAE is divided into three main segments; rocks sand and soil and metals. The exploration of mineral is mainly limited to rocks and sands. The rock and gavels are employed for the construction, limestone, sand, marl, gypsum are employed to manufacture cement (Low, 2012). Structural Changes in the UAE’s Economy The economic progression might be considered as change in the structure of the economy in UAE. The structural changes refer to terms like the industrialization, demographic changes, urbanisation of local and production, foreign trade, funding as well as job opportunities. In taking into the structural changes in UAE’s economy, we will examine and explains the trend in economic progression in UAE economy growth and to establish its attained level of economic progression It is evident that the eco0nomic trend of the change in economic trend for UAE is the share of trend of the industrial growth as GDP increases. After the Second World War, drastic industrialization was depicted as precondition for modernization and structural transformation. The dissimilarity in the output and the contribution to gross domestic product of the industrial division in developing nation unlike to its place in developed nations was depicted as the key manifestation of economic stinted growth and reliance (Mallakh, 2014). While value addition growth rate in UAE oil division is changing at the time of 2009/10 due to economic recession, the manufacturing sector value addition growth rate was steady and improving. The manufacturing value addition grew from DH 572 million in 2015 to Dh 9443 million in 201 AND 18.6 million in 2015., its contribution to county’s GDP lead to an increase from 0.9% to 3.8% by the year ending 2015.. Nevertheless, it is evident the main growth in the manufacturing value addition; lead to modest contribution to the UAE net output growth. An apparent sectoral shift and contribution to gross domestic product is apparent in the service sector, commerce, transport, storage, communication, financial, insurance, real estate and government service. The service sectors contribution to gross domestic growth firm 22.3% in 2012 to 39.7% 2015 (Wilber, 1998). Structural Change in the UAE’s Employment Patterns The service sector, which includes trade, restaurants, hotels, transport, storage, communications, Finance, insurance, real estate, business services, community, social and personal Services, ranks first in size of employment (58 per cent of the labor force), which reflects Its powerful dominance in the UAE. The share of employment in the service sector increased From 51.91 per cent in 1975, to 56.97 per cent in 1980, and to 57.9 per cent in 1998, Corresponding to the increase in the sector’s real output over the same period 1975–1998. 253 ECONOMIC DEVELOPMENT IN THE UAE The service sector value addition entails the 2nd biggest value added in UAE GDP in 2015. The agricultural sector employed 7.5% of the UAE labor force in 2-14, the 4th making sector in labor ranking sector in labor force supply. The job employment share grows from 4.6% in 2008 to 7.5% in 2015, matching to steady growth in real output over the same period. Even though the manufacturing sector accounts for low share of employment (12.7% of the labor force), its portion of employment grow from 5.8% in the year 2008 to 7.41% in the year 2015 matching a growth in real output over the same period. In employing 1.6% of the labor force, quarry, petroleum extraction as well as mining division was ranked last in share of employment, in spite of its significance in UAE economy, de[citing the fact that the oil sector is very capital intensive (Wilber, 1998). Balance of payments of UAE The balance of payment surplus in UAE depict a decline in surplus by more than half in 2014 worth AED 34 Billion down from AED 73 Bn in 2013 as [per the official data. The 53% decline in the nation balance of payment surplus was chiefly driven by the main decline in oil and hydrocarbon exports by almost AED 65Bn as per the central bank of USE reports. The oil export decline by 13, 4% to AED 410 Bn in 2014, as against the AED 475 Bn in 2013. Nevertheless, the report point that the national economy was in a position of alleviating the effect of the decline in price of oil in 2014 by growing the economic diversification and reliance on non oil sector hence upholding the growth sustainability. In spite of the slow economic growth in 2014, the report provides a positive forecast of the national economy’s outlook for the year 2015 (Balian, 2009). Impact of the fiscal policy and monetary policy on economic performance in UAE and their interpretation Fiscal Policy of the UAE Analysis UAE depict a wide and expansionary fiscal policy that encourage high expansion in country gross domestic product the rules of UAE efficiently manages the very ut inclusive of the oil which is very important in the economy of UAE. This has been the key source of UAE capacity of investing in many projects to diversify the economy. The over sings of UAE’s employment of government income to venture in capital supply of aviation might recommends a very hands in fiscal policies that is focused in national growth and rational self interest , stabilizing the price and ensuring that the unemployment rate is kept low and are the same time encouraging growth (McEachern, 2016).  Monetary Policy of the UAE Analysis UAE uses the active expansionary monetary policy that is committed to expanding the economy and producing the needed economic objective of stable prices, low rate of unemployment and improved economic objective. Dubai is planning to dispose more bonds so as to fund a more diverse economy plan. Summary With alot of cash in hand, Dubai will go ahead with its plans to increasing the real GDP by growing government spending on infrastructure and venture in the aviation industry. This is a plan that is in lock step with the government fiscal policy so as to attain the economic objectives. Whilst the government doesn’t change, the effect is harsher and potentially more harmful. As with fiscal policy, there is an improved comprehension of the manner to which this might or might not impact the economic object by dichotomizing the active monetary policy or the free market monetary policy. Furthermore, it is comprehended that the free market monetary policy in reality implies a little or no government involvement that is eventually a challenge of monetary policy.  Summary and Conclusion the UAE had been improving and providing to be triumphant in its implementation of fiscal and monetary policy. UAE is centered on attaining the three economic objectives and permitting the citizen to continue on their improved living standard that is in line with the western European countries. The question is that of sustainability and enthusiasm to become accustomed on the ever growing gloabliazation and worldwide economic growth. At first, it would seem that UAE is on the right path to improved economy in which the price are low, high employment rate and improved future economic expansion. A comprehensive assessment might corroborate that UAE is employing the free market active fiscal policy, is correctly on the right path to attaining the entire economic objective. Bibliography Arrunada, B. (2013) The Economics of Audit Quality: Private Incentives, London: Sprigner. Balian, O. (2009) The Secret of Dubai's Long-Term Economic Success, London. Hubbard, G. (2012) Essentials of Economics - Page 453, New York. Ibrahim Abed, ‎.H. (2001) Ohan Balian, New York. Jan Peil, ‎.v.S. (2009) Handbook of Economics and Ethics, New York: John Wiley & Son's. Low, L. (2012) Abu Dhabi's Vision 2030: An Ongoing Journey of Economic Development. Mallakh, R.e. (2014) The Economic Development of the United Arab Emirates, Dubai. McEachern, W. (2016) Economics: A Contemporary Introduction - Page 540, New York. sexton, R. (2014) Principles of Economics Volume 2 of 2 - Page 744, London. Wilber, C. (1998) Economics, Ethics, and Public Policy - Page 127, Sidney : Springer.           Read More