The UAE, the world’s eighth largest oil producer, maintains a free-market economy and is also one of the most politically stable and secure in the region. This ensures that the country has a robust competitive edge as the region's premier commercial hub and second largest economy.
Economic growth in the UAE is steady despite a short-lived hiatus as the global economy faltered. Recovery was helped by high oil prices, increased government spending and a resurgence in tourism, transport and trade. In addition, successful restructuring of debt owed by high-profile companies, solidarity among the emirates and accommodative monetary and fiscal policies all played a role in bringing significant economic stability to the market.
Following the dip in 2010, UAE GDP rose to reach US$419 billion at the end of 2014, up 4.8 per cent on 2013. The IMF predicts that GDP will continue to grow at a rate of 4 to 5 per cent over the next seven years.
Despite high economic performance, inflation rates are expected to remain between 2 to 3 per cent.
On the fiscal front, the federal budget surplus for 2014 is expected to be in the region of 9 per cent, double the figure for 2012.
The draft federal budget for 2015, adopted in October 2014, was set at Dh49.1 billion (approx. US$13.36 billion), an increase of Dh2.9 billion (US$790 million) over the 2014 figure. Approximately 49 per cent, or Dh24 billion (US$6.53 billion), has been allocated for service projects, social development and social benefits, including health, education and social services. Other projected expenditure in the 2015 budget includes Dh20 billion (US$5.44 billion), or 41 per cent, for government affairs, along with Dh1.8 billion (3.7 per cent) for infrastrucure, 1.6 billion (3.2 per cent) for financial assets and another Dh1 billlion (2.1 per cent) for other federal spending.
Although oil has been the mainstay of the UAE economy and continues to contribute signifcantly to economic prosperity, a determined and far-seeing policy of economic diversification has ensured that non-oil sectors now account for 69 per cent of GDP, with oil supplying the remaining third.
Abu Dhabi’s Economic Vision 2030 and Dubai’s Strategic Plan 2015 are leading the drive towards diversification. The strategy is to increase investment in industrial and other export-oriented sectors, including heavy industry, transport, petrochemicals, tourism, information technology, telecommunications, renewable energy, aviation and space, and oil and gas services. Much has already been achieved in these fields, especially in satellite and telecommunications, the aviation sector and in renewable energy, and although short-term priorities have been altered to accommodate changing realities, the long-term strategy remains the same.
At the federal level, the UAE is pursuing its 2021 Vision, which aims to place innovation, research, science and technology at the centre of a knowledge-based, highly productive and competitive economy by the time of the federation’s golden jubilee in 2021. Significantly, the jubilee year is also the target date for the launch of the first Arab Islamic probe to Mars by the newly established Emirates Space Agency.
Tourism has played a large part in the success of economic diversification and during 2014 the UAE has continued to strengthen its position as a top tourist destination. Abu Dhabi's 156 hotels recorded their best year ever in terms of visitor numbers, whilst Dubai's 634 establishments have also experienced a significant increase in guests. Other emirates are following suit.
The UAE's two world-class airlines, Etihad and Emirates, as well as constant upgrading of aviation infrastructure, have played a major role in the advance of the tourist industry and are key contributors to the economy. Dubai, in particular, expects that the aviation industry will contribute 32 per cent to its GDP by 2020.
The year 2020 has further significance for Dubai since it the year (and into the jubilee year 2021) that it will host the first ever World Expo to be held in a region that extends from Morocco to India. Expo 2020 expects to welcome 25 million visitors to its many attractions. As well as driving tourism, the Expo will also create thousands of new jobs and enormous demand for new facilities, including housing, hotels, shopping malls and entertainment complexes. This has given a kickstart to the faltering real estate and construction industries. Several key projects placed on hold at the time of the 2008 downturn have been dusted off and are now off the drawing board and into the construction phase.
With the dark days of the slump in property prices now a fading memory, a number of major new development projects have also been announced in Abu Dhabi, Dubai and other emirates.
Trade has played a major role in UAE economic life for many centuries. This is not altogether surprising considering the country's strategic geographical position. However, focused and far-seeing investment in airports, ports and services, as well as an enabling business environment, has ensured that the UAE has become an important trading hub connecting regional markets to the outside world. Steady recovery of most economic sectors has also led to an increase of foreign trade.
The UAE foreign trade indices bounced back in 2013 to pre-global financial crisis levels whilst bulk commodity exports, including oil, are expected to grow by 5.8 per cent to US$381 billion in 2014, compared with US$354 billion in 2013.
The Asia-Pacific region maintained its leading position among UAE's trade partners in terms of non-oil trade, accounting for 43 per cent or Dh106 billion of total direct trade volume. Europe remained in second place, contributing 27 per cent or Dh67.2 billion to total trade, followed by the MENA region with 14 per cent or Dh35.1 billion. The US and Carribean ranked fourth with 10 per cent of total non-oil trade (Dh24.1 billion), followed by West and Centra Africa (4 per cent, or Dh9.4 billion) and East and South Africa (3 per cent or Dh7 billion).
The UAE's economy is the most closely integrated of all the Arab economies into the global economic system and efforts are continuing to enhance the country's business friendly environment, both to facilitate trade and attract inflows of foreign direct investment, which will help to achieve balanced, sustainable development. This process continues through the signature of many bilateral and multilateral cooperation agreements. Locally, these efforts have embraced reforms and updating of legislation, including a new Competition Law, which came into effect in 2014.The new law regulates economic activities and exploitation of intellectual property rights (IPR). This is expected to promote competition and to contribute to efforts to meet the objectives of Vision 2012, which seeks to build a knowledge-based economy.
According to the 2013 Global Investment Report published by UNCTAD, the UAE benefitted from inward FDI flows in 2013 of approximately US$10.5 billion.
The UAE was also the top Arab capital exporter over a 32-year period from 1980 to 2011: UNCTAD figures show that over this timeframe, the UAE pumped nearly US$55.5 billion into global markets accounting for nearly 31 per cent of the total Arab FDI outflow of about US$175.8 billion. Outward FDI in 2012 amounted to US$2.5 billion and US$2.9 billion in 2013.
The UAE in general, and Abu Dhabi in particular, have extensive sovereign wealth funds (SWFs), established to secure and maintain the future welfare of Emiratis. With assets worth US$733 billion, the UAE's Abu Dhabi Investment Authority (Adia) is the second richest SWF in the world, investing in a wide range of assets, from equities and fixed-income securities to infrastructure. It also plays a leading role in the development and governance of the industry. Other UAE SWFs, such as Abu Dhabi Investment Council (US$90 billion), International Petroleum Investment Company (US$68.4 billion), Mubadala (US$60.9 billion) and Emirates Investment Authority (US$15 billion) play significant roles in investment.