Abstract / Executive Summary
Summary of Article
The minister from the United Arab’s economy reported that it is anticipated that the GDP of UAE will mark Dhs 1.6 trillion in the current year growing over 3.5%. Sultan Saeed Al Mansouri commented in an interview to the WAM (news agency), elevation in the growth rate evidence that the region is capable of maintaining economic competence and has gained sufficient success with the help of diversification. He further clarified that industrial zone of the UAE is continuously advancing and is positioned presently between 10%-14%. Additionally, Sultan Saeed delivered his expectation for the investments volume to double in the industrial zone of UAE in the following 5 years.
In the previous year, the highest growth in the UAE was witnessed with the increment of 4.6% in the real GDP while Dhs 1.47 trillion were recorded under nominal GDP. However, the reduction in the oil prices upset the vision of long-term growth in the UAE though it is considered as the most diversified in the Gulf States. In the beginning of the current year, the low prices of oil compelled the IMF to slice the estimated growth of Emirates for its economic impact of oil prices. Moreover, according to an assessment of IMF, there will be an overall advancement in the economy of Abu Dhabi by 3% that generates most of the revenues from hydrocarbon whereas the advancement of 5.5% is scheduled for the oil-free economy in the year 2015.
As per Fund: The economy of Dubai is expected to grow for the time being by 4.6% in 2016 and it was anticipated to advance by 4.5% in the previous year. There have been strong efforts by UAE to extend its focus on diversification and to achieve this objective; it has scheduled strong plans with intense investments for upgrading innovation. Also, it has been declared by the UAE’s government to carry on with the infrastructure expansion plans to boost the growth.
Also, recently few months before, Sheikh Mohammed bin Rashid Al Maktoum the Vice President of UAE, Ruler of Dubai and Prime Minister commented in his note that there are strong and appropriate plans for the non-oil division’s share to the mark of 80% by the year 2021 via severe investments in the field of tourism, industrial sector, maritime transportation, air transmissions, in the field of re-exporting and imports along with numerous projects and plans related to the knowledge economy .
There is a close link between the economic cycle and the overall business; there is a slow growth symbolized by a reduction in GDP rate when there is an economic recession, the cycle obtains the position of a boom right after that. EPRI Economic Policy Research Institute of Dubai conducted a study stating that there is no set rule for the duration of economic activity, it can end up shortly or may take a long time relying on the policies developed by the government to deal with the economic hazards. EPRI played an important role in conducting detailed analysis on the effects of global economic crunch on the economy of UAE. It worked under the Dubai Economic Council for planning the chain of studies to identify and tackle several features of global monetary crisis particularly with the focus on the consequences of the recession on the UAE’s economy in last 30 years.
The matter of the research disclosed that immense liquidity fall in the economy of UAE resulted in the recession and slowdown. The average rate of growth in the nominal GDP per annum was 16% through the years 1974 and 2006 whereas the domestic liquidity rate of growth on average was nearly 17% per annum. On the other hand, the growth rate of liquidity from the recessionary phase sustained between 3%-11% per annum. In consideration of the government’s early implementation of the monetary policy, the study also declared that the dollar pegging has caused the alignment of the UAE’s monetary policy with the USA’s monetary plan. Consequently, it is regarded inactive and does not adequately cater the needs of local economic necessities.
For example, interest rates were increased by the USA to control the inflation. Likewise, the Central Bank in the UAE incremented the rate of interest that affected the investment and it was observed to fall in the period of 1982-1988 and 2007-2008. The study also revealed the observation that the adoption of the policy to decrease the rate of interest by the Federal Bank of Reserves in regard to counter inflation was implemented in the US, it was replicated in the UAE too though the economy was confronting high rate of inflation that caused the increment in the interest rates.
According to the conclusions of the study; there is a need for the assessment of the economic plans of UAE in the recessionary stages and substitute the policies with expansionary ones .
In the year 2012, the UAE drive out with an extension of 4.4% economic growth under the adjustment to inflationary terms. It was the speediest recovery after 2006 as there was an improvement in activities of all divisions as reported by the records from the statistics office. Dubai went through strong prices of oil along with tourism and trade enrichment that facilitated in recovery from the real estate bubble. It also supported in lifting the growth of GDP in the year 2012 as expected from the previously dropped 3.9% GDP in the preceding year.
As pronounced by the National Bureau of statistics, constant prices of oil have been among the essential features in the revival of GDP in the period of one year. As per official records, the growth of GDP in 2011 was 4.2% whereas the Minister of Economy Sultan Saeed projected an increment of about 4%, the additionally nearly same rate is anticipated for the year 2013.
The annual GDP reporting office also revealed that the oil prices have increased from $109 to $112 per barrel as compared to 2011. UAE hold the third rank among export of crude oil. As per the computation of the Reuters based on the information, there was an annual increase in the hydrocarbon division in the year 2012 accounting for 6.3% increment which was a little smaller increase than the preceding year’s 6.6% increment. The contribution of hydrocarbon is one-third of the economy of $383bn. UAE’s major crude oil is produced by Abu Dhabi which is among world’s leading independent wealth accounts is the main operator of the hydrocarbon making a share of 65%in the economy of UAE.
The share of property, land and business is one-tenth of the GDP observed a double growth around 6.3% while growth in the construction sector included a 0.1% growth in 2012 after observing a fall of 2.5% in the previous year. Dubai construction firms are seriously taking actions against the delayed building projects which were influenced by the recovery in the economy following a reduction of 50% in the real estate value after confronting the crest of 2008, it activated the debt restructuring in the state-operated companies in a sequence. The key airport of Dubai tackled with extra 13% passengers leaving the Hong Kong behind and obtaining the third rank in the most occupied international commuters.
According to the projection of the analysts, it was believed that the growth will shrink in the year 2013 for an incremented supply of oil and cut in the demand from the Europe. According to another analysis by Chief economist, Giyas Gokkent at National Bank of Abu Dhabi: the oil division will level down in 2013 automatically reducing the growth rate as compared to previous year. It is planned by the Abu Dhabi authorities to invest $90bn in the city on the projects expansion projects in the next 5 years whereas there is an extensive developmental plan in the Dubai-based on 100 hotels and new city accommodating the largest shopping center of the world .
The image of UAE has caused to secure it for offering cover to many along with the big fiscal and outer shields that facilitated them in the guarding against the destructive effects of the shrinking prices of oil, slow growth around the world and instability in the economies of the emerging markets as stated by the IMF in the previous year. According to the recent report from the IMF regarding the economy of UAE; healthy growth was observed in the non-oil division accounting for 4.8% in the year 2014 that resulted from the increment in the construction, advancement in tourism that all ended up in capital spending in the Abu Dhabi. The Deputy Prime Minister and interior minister commented in the government summit that by 2021, the reliance on oil by the UAE will be its GDP’s only 5% .
The energy Minister Suhail bin Muhammad Faraj stressed that the economy of the UAE is liberated from the pressure of the global oil prices. At Abu Dhabi, he also informed at the intelligence of the Gulf energy Forum that UAE will continue to progress further with an intention of advancing its ability for the production of gas and oil along with its 2030 strategy which is planned to focus on achieving efficiency in production, its management, and validation. He also added that UAE would improve its refining capability by 2015 to 1mn barrels daily.
According to the Minister, the existing prices of oil were temporary and anticipated to inflate at a higher rate around the globe as compared to the current prices. Though he was hopeful about the economic revival and expected the gas and oil demand to grow in future. He also communicated that there was an investment prospect for everyone around the globe and that reduction in the prices of oil can also lead to contract assessment and review. He also highlighted the TAQA (National Energy Company of Abu Dhabi) and Mubadala Petroleum can also look into international markets as per their strategic global goals. The Forum plays a significant role in binding the national energy industry of UAE and its partners worldwide in the beginning of every year for exchanging the ideas and thoughts over the energy issues .
UAE has been beneficial in many terms for its global image along with the huge external and fiscal; shields. In the year 2014, in a broader sense, Dubai experienced a progression in the services divisions and the policies related to economic expansion adopted in Abu Dhabi also assisted in recovering from the effect of reduced oil prices in the year 2014.
The overspending of the government of Abu Dhabi specifically capital transfers kept the consolidation of the 2% GDP related to non-hydrocarbon that was intended to merge as per the opening data of 2014. However, it failed to appear in reality and the fiscal standing was based on expansionary policy with the deficit adjusted for the non-hydrocarbon rising from 35.4% to 36.7% in 2014 which also caused the increment in the oil prices breakeven agreed on fiscal forum raising from $69 to $78 in 2014. However, the total economic surplus experienced a reduction from 10.4% of GDP in 2013 to 5% in 2014 .
In the near future, the economic movement remains secured for the persistent financial position under the expansionary plan and observes a strong credit enhancement. On the whole, capital expenditures are expected to minimize even though strategic projects are based on the protection schemes. Regardless of the financial damage, Saudi Arabia is doubtful to give way its policy on the energy .
In order to increment the real GDP, an expansionary financial plan is adopted by the UAE. To accomplish this goal, the infrastructure in the oil sector has been extended and the taxes are lowered so that private businesses may take advantage from it to prosper and boom. With the elevated export of oil and government investments in trade and tourism in the Abu Dhabi has caused GDP of UAE targeted to increment at 4.6%.
There has been a reduction in the corporate taxes also. A new tax scheme was also introduced for big businesses in the UAE that allowed giant firms to pay fewer taxes. The policy will direct the reduction in unemployment and increased continuous development. In the latest period, prices have been observed to even out but there is a disparity between the proportional increases.
Arab Business Journal reported that the oil increase accounted for $10.67 per annum while the oil prices incremented around $3.89 on a yearly basis in the boom phases of the economy and the 2000’s. Though, the revised taxation scheme allowed the firms to increase their profit by 45%. Also, it was observed that the inflation was also constant in UAE even when government spending was elevated but resided between 3.2% - 3.6% .
Implications
In order to have improved comprehension of the expansionary plan in the long-standing period and its potential outcome, the fiscal plan of the UAE will be observed on how separately each of the three economic objectives is being implemented and examining it from two diverse sides: active and free market (Hands-on and Hands-off) financial policy. Free market or Hands-off is excluded as the word “fiscal” necessitate the involvement of the government at some level to make it the “fiscal policy”. For the purpose of this study, both ideologies will be compared to identify the differences between the scopes of the two thoughts.
High and sustained economic growth
It is clearly indicated that active fiscal policy is adopted by UAE for the known reality that the Emirates Airlines are sponsored and funded by the Sovereign Wealth Fund of Dubai as affirmed by the article attached.
An additionally supported free market or Hands-off policy may perhaps promote private companies and beings to head the operations with the very little government intervention. It would also call for an increased confusion and disorder with this side of the policy though parting the state and economy could have been a stronger aspiration in the long run.
If the Hands-on policy is employed by Dubai, it is agreed the fact that absolute objective of persistent and visible economic enhancement could be achieved but the disagreement of the long-term consequences are considered more advantageous methodology that should opt.
Low unemployment
With the adoption of the Hands-on policy, the gains from the utilities like oil are funded for the aviation market infusions in order to achieve efficiency by conferring the demands of travelers. This infusion has caused the elevation in the requirement of the skilled labor like pilots, engineers, and mechanics.
There would have been the similar results by employing the Hands-off fiscal policy like maintaining low unemployment and elevating the job positions in the labor market. However, the results are achieved by avoiding the hidden shortcomings of the dependence of people on state waiting for the government schemes and projects tracking the opportunities provided only by the state and would potentially lose one’s inner talent and individual potential. Individuals have zero space to discover the new venues best suited for them.
Although Hands-on policy provides clear outcome but the cost of adopting the policy is not estimated and comprehensible.
Stable prices
The prices in the aviation marketplace for the consumers will sustain if it does not cut by contesting the adoption of the Emirate’s admission in the market by stimulating cash.
The skill labor prices will increment as the need for the mechanical expertise will augment along with the market of materials like steel and concrete employed in building and construction will surely climb up. The cumulative inflation will grow as a consequence of Dubai’s Hands-on fiscal scheme but this short term cost will bring long-term benefits in the economy.
There is no argument by the Hands-off side regarding the alarm of inflation; instead, supply should be incremented to follow demands that will ultimately lead to lifting the prices. Among many other parcels, innovation is also a key character in sustaining low prices. When technological up gradation is achieved, it imposes less pressure on the demand-supply mechanism making use of limited resources. Active free markets bring innovation along and it does not fit in the contracted and restricted idea of Hands-on policy .
Conclusion
The expansionary scheme of the UAE is well defined and detailed that encourages and support the GDP growth for its people. The management of the UAE authorities is adequate in monitoring most of the utilities, oil being most important and profitable among them.
Diversification has been an important tool adopted by the UAE that stabilized their economy by investing in multiple projects. In the article “Rulers of the Silk Road”, a single case is taken to explain the compliance of the UAE government to enlarge the economic sphere by recognizing a specific need like aviation. Also, later taking calculated risks associated with the capital provisions like airplanes and the associated materials.
The UAE’s plan to invest in the capital provisions from the government revenue direct the fiscal policy indicated towards the national development and personal interest with the help of 1) controlling prices 2) maintaining a low level of unemployment and 3) encouraging sustained economic growth. It generally sounds that short term profits guarantee active results but the further discussion might reveal that within the expansionary policy, the undesirable result can be obtained with the wider implications in the long run plan.
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