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posted on 30/11/2002: 1967 views

UAE GDP growth put at 8.4pc; oil sector grows 7.7pc

This is the statement made by Mohammed bin Eid Al Muraikhi, Chairman of the UAE Central Bank, to mark National Day. In order to reduce the impact of oil price fluctuations on the country's economy, the UAE in 2001-2002, has adopted an economic policy that depends on diversified sources of income. However, oil remains the major source of income as the country has oil and natural gas reserves sufficient for a further 200 years. At the same time, the government is doing its best to encourage the private sector to contribute to the national economy.

The UAE follows a free market economy mechanism. There are no constraints on imports and exports, and movement of capital, as is the case with foreign currency where there is no control over foreign currency movement or rate. The country enjoys a strong financial status supported by a proper banking system that operates on equal footing with its counterparts in major industrial countries. It is important to note in this context, the great role played by the 12 free economic zones in the country, where one free zone operates at least in each of the seven emirates of the country.

The largest and the most important such zone in the country was established in 1985 at Jebel in Dubai. Two additional modern free zones have been established recently in Dubai – the Dubai Internet City and Dubai Media City. These are considered to be world's first ever e-commerce free zones. Efforts are at final stage to set up the Dubai International Finance Centre (DIFC) and the Dubai Metals and Commodities Centre (DMCC) – an international market for the exchange and trade of valuable commodities and metals.

The success of these free zones is attributed to the proper economic policy with a direction, political stability, easy and simple administrative procedures, the geographical location of the country, and the modern infrastructure. There are currently more than 4,000 companies operating in these zones, 2,157 of which are located in Jebel Ali alone. The total amount of money invested in these zones as of 200-end was to the tune of $10 billion.

These zones offer 100 per cent foreign public ownership. Investors enjoy exemption from customs duty. Customs duties are only levied on commodities manufactured in these zones, only if such commodities are sold within the UAE or GCC markets, with exception to companies holding national licences. Companies are also exempted from income tax for a number of years. Apart from the fact that no personal income tax is imposed. Investors could own real estate for longer periods, and use cheaper sources of energy.

During 1995-2001, the gross domestic product (GDP) of the country grew at an annual rate of 8.4 per cent. The oil sector grew in the same period at an annual rate of 7.7 per cent. Fixed capital owned by the private sector has grown at an annual rate of 4.8 in the same period.

During 1995-2001, the population has increased by 6.35 per cent (both nationals and expatriates). This is attributed to the economic boom which attract into the country large number of expatriate labour force. The size of workforce during the same period has grown at a rate of 9.5 per cent to more than 1853,000 by the end of 2001.

As there is no federal tax on personal incomes or profits, government expenses depend primarily on oil revenues. Oil revenues in 1994 constituted 76.59 per cent (Dh 37.46 billion) of the total government revenues. Oil revenues constituted 71.39 per cent of the total revenues in 2001 (Dh67.97 billion). This was mainly due to the government investments made in the non-oil sources of income. Total expenses jumped from Dh 54.95 billion as of 1994 to Dh93.73 billion in 2001, which is mainly because of the higher investments made in order to improve and expand government services.

The banking policy is considered to be a very important tool in the implementation of economic policy in a country. This plays a very important role in organising cash flows within the country and with the rest of the world. The law authorises the Central Bank (CB) to supervise and organise cash flow to protect the rights of the different parties involved.

The Central Bank provides local banks with their requirements of bank notes, where the amount of the UAE currency in circulation outside the banks has jumped from Dh6.4 billion as December 1995 to Dh10.3 billion in 1999. This has gone up to Dh10.5 billion in December 2001 and to Dh10.9 billion in September 2002.

The bank deposits have jumped from Dh14.4 billion in 1995 to Dh19.98 billion as of 1999 end, which reached Dh28.9 billion by December 2001 and Dh34.14 billion as of September-end 2002, reflecting the growth the country achieved in the economic activity. Government deposits, which jumped from Dh22.09 billion in 1995 to Dh38.48 billion by the end of 2001, soared to Dh40.45 billion by the end of September 2002.

The Central Bank employs three methods to organise the level of the liquidity position in the banks. With respect to the first method, it obligates local banks to keep a particular reserve at the Central Bank, which can be used whenever required by these banks. The Central Bank has changed these rates in the last quarter of 1999 in order to curb unexpected fluctuations in deposits. Since 1984, the rate of interest has been left by the Central Bank to be governed by the supply and demand mechanism.

Apart from this, the Central Bank issues certificate of deposit, which helps absorb the cash surplus in banking system. The local banks' position in certificates of deposit has jumped from Dh5.924 billion in 1995 to Dh15.624 billion by the end of 2000, which dropped to Dh13.951 billion towards the end of September 2002. The Central Bank has continued to adopt an exchange rate of Dh3.671 to a dollar until November 1997. Thereafter the gap is narrowed to be set at Dh3.6725 to a dollar.

The net foreign assets of the country have jumped from Dh63.89 billion as of 1995 to Dh120.69 billion by the end of 2001. Due to the increase in the international oil prices the assets improved to Dh125.24 billion towards the end third quarter, the current year.

The total local credit granted to expatriate has grown from Dh91.51 billion as of 1995 to Dh138.23 billion by the end of 2000, which further grew to Dh158.23 billion as of September 2002, reflecting the increased economic activity during the said period. During November 1997, the Central Bank set a number of rules for loans granted for financing the purchase of shares of public joint stock companies (PJSCs).

However, the Central Bank had set a ceiling that these loans should not exceed 100 per cent of the total government deposits, capitals, and reserves kept in the banks. The Central Bank has prepared Federal Draft Law No. (10) for 1980 to organise work of the financial institutions. It has also reviewed a number of rules issued to organise some financial professions and financing investment activities. (The Gulf News)


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