UAE's economic growth reflects its success
The unprecedented economic transformation which has taken place in the UAE since the formation of the state has been largely funded by the judicious use of oil revenue. However, although oil and gas production remain the primary source of public revenue, the secret of the country's current economic success has been a determined government strategy of economic diversification.
According to the Central Bank Annual Report for 1998, UAE gross domestic product at current prices decreased from Dh 180.6 billion in 1997 to Dh 170.11 billion in 1998, despite substantial growth in most economic sectors.
This drop was largely attributable to a 31 percent decline in the value of the oil sector output due to low oil prices.
However, overall, the non-oil sector contribution to GDP rose to Dh 133.1 billion in 1998, a growth rate of 4.7 percent.
The relative significance of the wholesale, retail trade and maintenance services sector increased to 12 percent in 1998.
Government services retained its third place position in 1998, accounting for 11.6 percent of GDP. This is mainly attributed to continued investment in education, health and cultural services to keep pace with population growth.
The real estate and business services sector, at 10.7 percent, recorded a sizable growth of 5 percent in 1998, while the construction sector increased by 1 percent to reach 9.6 percent. The hotel and restaurant sector grew 7.2 percent and, according to the report, is one of the most attractive for investment.
Advances in air, sea and land transportation and storage, in addition to continual development of communications, led to a 5.7 percent increase in this sector in 1998. Financial institutions and insurance grew by 6 percent in 1998. The electricity, gas and water sector grew by 11 percent in 1998, to become the fastest growing sector.
Non-tax revenues decreased by 27.3 percent in 1998 to reach Dh 34.8 billion, forming 81.6 percent of total revenues. The drop was mainly attributed to lower receipts for oil and gas exports.
The substantial decline in oil and gas revenues, coupled with an increase in development expenditure and in the amount of loans and equity participation, had an effect on the deficit, which reached Dh 28.9 billion in 1998. The total deficit constituted 17 percent of GDP in 1998, compared with 5.1 percent in 1997.
The Central Bank reported that the UAE balance of payments achieved an overall surplus of Dh 2.8 billion in 1998, compared with 1.2 billion in 1997. Exports and re-exports totaled Dh 111.49 billion in 1998, while imports were recorded at Dh 99.92 billion. The current account surplus of around Dh 6.5 billion was well below the 1997 surplus of Dh 23.1 billion.
The report showed that the balance of payment recorded a surplus, mainly due to a sharp decline in capital outflow, which shrank to Dh 6.3 billion from Dh 24.3 billion. Net services also dropped to Dh 7.8 billion from Dh 8.5 billion and investment income to around Dh 17 billion from Dh 17.5 billion.
GDP at current prices is expected to grow by about 5.2 percent in 1999 to Dh 185.08 billion, according to a study released in mid-July 1999. This is significantly higher than earlier forecasts due to improved oil prices and more sustained growth in non-oil sectors.
Average per capital income at current prices was estimated by the study at Dh 62,957 in 1999 and forecast to be Dh 63,471 in 2000. Government revenues were projected to reach Dh 53.06 billion in 1999, of which Dh 35.31 billion were estimated to be revenues from oil exports. Expenditure is expected to reach Dh 77.35 billion, resulting in a budget deficit of Dh 25.6 billion, or 13.8 percent of GDP.
The trade surplus is expected to rise to nearly Dh 25.70 billion by 2000.
The UAE is expected to increase its industrial diversification drive in the new millennium. Emphasis on development of the finance, trade and services sectors will also be accelerated. Globalization will encourage the formation of larger banking units through mergers while the move toward emiratization will also gain momentum.
The government is actively encouraging the private sector to participate in further infrastructure development in transport, communications, telecommunications, energy and ports.
Private sector investment in industry is expected to increase. New corporate, stock market and banking legislation, a review of the laws governing economic activity and the development of additional legislative and administrative frameworks that promote efficiency and transparency will be key factors in economic development. (Source: UAE Yearbook 1999)