Investments in non-oil sectors accelerate UAE growth rate

Investment by the UAE government in the agriculture, industrial, real estate and service sectors has accelerated the country’s growth rate, says the UAE Annual Social and Economic Report 2007 issued by the Ministry of Economy. External trade has also played a significant role in boosting the country’s economy and constitutes a high percentage of the gross domestic product (GDP).

“The increase in earnings due to exports and re-exports is attributed to successful policies and the free zones across the country,” said Sultan bin Saeed Al Mansouri, the Minister of Economy. “The increase in international oil prices in recent years has positively reflected on the performance of all economic sectors in the country, which has witnessed major socioeconomic growth.”

The report says the UAE’s economy have developed significantly, with the non-oil sector contributing 64.3 per cent of total GDP. The country has also encouraged investment in tourism, commerce, infrastructure and industry in addition to financial and banking services.

The report focuses on the performance of the economy last year and includes detailed information about economic and social variables such as final consumption expenditure and external trade.

On social side, the report provides data on population, employment, education, health services and social care. Al Mansouri said the UAE government had implemented different strategies to achieve a balanced and sustainable development and ensure high living standards for UAE nationals.

The report says the UAE’s strong economic performance has maintained its momentum due to the stable political system, solid infrastructure, high oil revenues, excellent geographical location and developed banking system. The country’s successful economic policies have led to high growth rates through productive development projects and a partnership with the private sector in various investment sectors. The country succeeded in diversifying its income stream, which enabled the economy to avoid the fluctuations of the international oil market.

The UAE’s economic strategy rests basically on the liberalisation of the economy and an open economic policy towards global markets at the import and export level.

International oil price increases resulted in a surplus in the trade balance. Gross investment rose from Dh121billion in 2006 to Dh148.5bn in 2007.

Amid all these positive economic developments, inflation appeared as a serious challenge that could hinder economic growth. The inflation rate reached 11.1 per cent in 2007, up from 9.3 per cent the year before. The increase is attributed to both external and internal factors. The depreciation of the US dollar meant that the national economy, which is heavily dependent on imports, experienced imported inflation. Internally, the real estate sector was a large contributor to inflation because of high rent rises. Other causes included the increase in fuel and building material prices.

GDP

Actual GDP growth reached 5.2 per cent in 2007. GDP growth in current prices touched 16.8 per cent.

The growth is attributed to many factors, such as a hike in oil prices of about 13.1 per cent – the average price per barrel reached $69.1. GDP increased to Dh729.7bn.

Non-oil sectors reached Dh436.7bn – more than 64 per cent of GDP. The report added that construction and building achieved a growth rate of 25.6 per cent.

This was mainly the result of various commissioned works such as roads, tunnels, airport development and other projects. The industrial sector also achieved a high growth rate of 19.6 per cent. The government pays particular attention to the development of industries that can reduce the demand for imports and encourage foreign investment in order to diversify industrial production. And the petrochemical industries achieved great success, says the report. The domestic trade sector registered a growth rate of 12.2 per cent. This is considered an effective sector in terms of economic development and it grew as it endeavoured to meet the demands of residents with high living standards.

Fixed capital formation

Fixed investment is considered one of the basic foundations of economic development. Large projects are capable of providing job opportunities to thousands of youth who join the workforce every year.

Fixed investment increased to Dh148.5bn in 2007 from Dh121bn in 2006. The ratio of investment to GDP reached 20.3 per cent last year. This high rate reflects the country’s business environment, which encourages investment. Private sector investment reached Dh84.3bn in 2007 – 56.8 per cent of total investment. Investors, whether individuals or companies, are attracted to the UAE economy by the work environment, advanced infrastructure, streamlined rules and regulations and the ease of capital mobility.

Four sectors lead the development process in the country and account for more than 61.4 per cent of total investment.

The first two are the crude oil and manufacturing sector. Last year the oil sector invested Dh17.1bn – 11.5 per cent of total investments in drilling and digging projects as well as field development. The manufacturing sector is considered responsible for the diversification of income resources. Expenditure on industrial projects reached Dh25.3bn – 17 per cent of the total country’s investments.

The other two sectors are services, transport and communication. The amount spent on roads and communication about Dh27.1 bn. The real estate sector witnessed great development, especially in luxurious housing, as it spent Dh21.7bn.

Foreign Trade

Total foreign trade reached 157.7 per cent of GDP in 2007, up from 144.3 per cent the year before. The trade balance surplus increased by 6.3 per cent in 2007, mostly due to the increase in exports from Dh534.6bn to Dh664.3bn in 2007. Oil and gas exports increased by 22.5 per cent. Re-exports increased by 32.4 per cent.

Despite the increase in imports, there was a surplus in the trade balance. Imports reached Dh486.6 billion in 2007, compared to Dh367.4bn in 2006.

Imports of capital, intermediate and consumer goods increased by 36 per cent due to increasing demand as well as global price increases and the depreciation of the US dollar. Free zone imports also experienced a remarkable increase of 19 per cent because of massive developments in free zone operations.

Financial corporations

Commercial banks played an effective role in the hike in stocks and share prices in the market. Private sector credit increased from Dh385.8bn in 2006 to Dh530.8bn in 2007. In addition, monetary deposits increased from Dh120bn in 2006 to reach Dh181.7bn in 2007. Financial corporation sector consists of the Central Bank, considered as the monetary authority in the country and it includes 49 commercial banks which have 736 branches all over the UAE. There are two investment banks and 16 financing companies. There are 80 representative offices of foreign banks. In addition, there are 105 exchange companies having more than 457 offices in the country.

Social Development

Economic growth alone is not sufficient to attain real development in its broad meaning which should include social and cultural development. At the time the UAE endeavours to raise its GDP, it is deeply concerned in human development through developing educational and technological skills. Here, there is a steady belief that man is the real power behind building the promising future and accomplishing all the economic gains.

The government realised that the guarantee of continuous development and achieving high standards of living is human investment through providing a set of complete and balanced services including education, health and social care needed to develop humane services to reach higher levels.

Emirates Business

Emaar leads pressure on Dubai index

Emaar Properties’ stock declined to its lowest price in three years yesterday after it broke through its critical support level of Dh9 and closed for the first time at Dh8.77.

The decline in Emaar’s stock also created selling pressure on the Dubai Financial Market (DFM) General Index.

The stock was the leading player by the end of the week, topping the most active lists by both value and volume. Other leading stocks in the market, including DFM and ENBD, declined during the session, leading to more pressure on the index.

The DFM closed at 4689.17 yesterday, after it lost 59.59 points, or 1.25 per cent.

The index also entered its critical support channel of 4650-4700 points after managing to close over this level for the previous four sessions. The index broke through its support level with increasing turnover rates as trade volume reached 149.3 million shares at a total value of Dh740.1 million, nearly double the turnover in the previous session.

The market was fluctuating during the last few sessions without breaking the support level, giving negative indicators that the downturn trend will continue on the short-term.

Fears increased among analysts that the negative sentiment in the market may lead the index to further loses and reach the level of 4400 points, while others expected that the range of 4550-5600 points would be the last wave in the current downturn trend.

Despite increasing expectations that the downturn trend has lost its momentum and the high selling pressure in the market have started to ease, there are increasing worries that the deep loses would affect the expected reversal.

Analysts also noticed continued selling pressure during the downturn trend and this is creating more negative sentiment among many investors.

“The DFM is projected to lose another 100 points which is the expected base of the market. The continued decline has several factors such as the tightness in liquidity, low turnover and continuous selling pressures. However, we expect the base will start formulating by the third week of Ramadan, or probably by the end of next week,” said Ahmed Al Rawi, head of trading at Dubai Financial Brokerage.

“Foreign investors are still selling their holdings, while local investors have not returned to the market yet.

“We expect these selling pressures will ease after a few sessions and new liquidity will start entering the market very soon. Emaar’s stock reached very low levels and it may decline to about Dh8.50.

“However, we expected a short rebound early next week. The current wave of declines is expected to be the last wave and any reversal in the market is expected to attract huge liquidity,” Al Rawi said.

ADX continues its downturn

The Abu Dhabi Securities Exchange (ADX) continued its downturn trend to an important support level of 4300 points. The index closed yesterday at 4311.01 points, after it lost 33.05 points, or 0.76 per cent.

Aldar and Sorouh, the leading active stocks in the market, declined through their support levels, with Aldar closing at Dh8.95 and Sorouh reaching Dh6.89. Mohamad Al Beheiri, head of trading at Amana Financial Services, said the next support level for Aldar would be Dh8.50 while Sorouh would face a support level at Dh6.25. He added that heavyweight stocks would continue to support the ADX index during the near future despite the long-term trend in the market being on the downturn.

Emirates Business