Re­turn to Growth

The UAE is back on the track to gal­lop­ing growth.

Southasia - - COVER STORY - By John Old­field

The UAE, with Dubai gen­er­ally seen as the jewel in the crown, has prob­a­bly seen more dy­namic growth over a short time than any other place on earth. The ‘Asian Tiger’ economies have had their day in the sun, In­dia and China have long been in fo­cus, but no other place has seen such a dra­matic and rapid trans­for­ma­tion, in par­tic­u­lar Dubai. The fas­ci­nat­ing ques­tion now is, af­ter a pe­riod of stag­na­tion dur­ing the world­wide down­turn, what does the fu­ture hold?

The signs for the past 18 months look bright. It was re­cently re­ported that the UAE has over­taken China and South Korea to be­come Asia’s third strong­est econ­omy in terms of GDP per capita ac­cord­ing to the Boao Fo­rum for Asia Asian Com­pet­i­tive­ness An­nual Re­port 2013.

The UAE con­tin­ues to be a world leader in fa­cil­i­tat­ing trade, de­spite stiff com­pe­ti­tion from other world economies, re­tain­ing its po­si­tion as num­ber one in the MENA re­gion, and num­ber five in the world in Trad­ing across Bor­ders cat­e­gory, ac­cord­ing to the lat­est World Bank Do­ing Busi­ness Re­port 2013.

Suc­ces­sive reg­u­la­tory re­forms have pushed the UAE’s over­all global rank­ing in the Do­ing Busi­ness In­dex from 37th two years ago to 33rd last year, and to 26th this year.

Dubai's econ­omy is headed for the fastest ex­pan­sion in six years, with the gross do­mes­tic prod­uct surg­ing to 4.9 per­cent in the first half, buoyed by vi­brant growth in trade and tourism, ac­cord­ing to the gov­ern­ment's Sta­tis­tics Depart­ment. Dubai's real GDP grew to Dh169 bil­lion in the first half of 2013 from Dh161 bil­lion in the first half of 2012 and growth cov­ered al­most all non-hy­dro­car­bon sec­tors. With such an ac­cel­er­ated growth rate, Dubai has gained a new mo­men­tum to make a fur­ther big leap in spite of the lin­ger­ing global fi­nan­cial malaise, bol­ster­ing its el­i­gi­bil­ity to host World Expo 2020.

Dubai and Abu Dhabi are among the best cities in the world for in­vestors, ac­cord­ing to the New York-based Rep­u­ta­tion In­sti­tute's City RepTrak re­port, which is based on a sur­vey con­ducted last year among 18,000 re­spon­dents from the G8 coun­tries. Both cities beat some of the world's most rep­utable met­ro­pol­i­tan ar­eas such as Zurich, Geneva and New York. In­di­vid­u­als and com­pa­nies ex­pressed a pref­er­ence to in­vest in na­tions

where in­vest­ments are se­cure, the pop­u­la­tion is friendly and there is re­spect for the rule of law.

It would be an over­state­ment to say there is rivalry be­tween Abu Dhabi and Dubai, but a sense of sib­ling com­pet­i­tive­ness per­haps ex­ists. The two places are, of course, hugely dif­fer­ent.

Part of the suc­cess and re­silience of the UAE has been due to the way in which the gov­ern­ment was ini­tially es­tab­lished. The con­sti­tu­tion – which was clas­si­fied as pro­vi­sional un­til be­ing made per­ma­nent in 1996 – left sovereignty with the in­di­vid­ual seven emi­rates, par­tic­u­larly in ar­eas per­tain­ing to their own de­vel­op­ment. This in­cluded ad­min­is­tra­tion, eco­nomic and so­cial pol­icy, and even con­trol over each emi­rate’s own min­eral and oil wealth. This ar­range­ment gave each in­di­vid­ual emi­rate the as­sur­ance that the com­bined en­tity rep­re­sented a dis­tinct net ben­e­fit with re­spect to col­lec­tive sus­tain­abil­ity and pros­per­ity.

Be­ing the cap­i­tal of the UAE, Abu Dhabi’s econ­omy is strongly in­flu­enced by the gov­ern­ment and gov­ern­ment spend­ing. The pri­or­i­ties are tra­di­tional ar­eas such as oil and gas, power, the mil­i­tary and in­fra­struc­ture projects such as Eti­had rail and the ex­pan­sion of the air­port. In 2013, Abu Dhabi re­port­edly spent about $50bn on var­i­ous projects. Abu Dhabi has a dom­i­nant role as it holds most of the UAE’s oil and gas re­serves, as well as 87 per­cent of the land area and 43 per­cent of na­tion­als. Abu Dhabi’s hy­dro­car­bon rev­enue per na­tional is US$232,000, the high­est in the GCC. As a re­sult, Abu Dhabi has a per capita GDP of US$82,000, more than dou­ble the UAE av­er­age.

The bright lights of Dubai, to­gether with as­tute mar­ket­ing, have made it a suc­cess­ful tourist cen­tre and al­most a manda­tory stop-over desti­na­tion. Now once again in­fra­struc­ture projects are start­ing to progress. But the en­gine of Dubai is still the pri­vate sec­tor. Dubai has his­tor­i­cally drawn on a long tra­di­tion of in­ter­na­tional com­merce to cre­ate an un­ri­valled re­gional hub for trade and man­u­fac­tur­ing, now fo­cused on the Jebel Ali port and free zone, as well as a broader ser­vices econ­omy. The value of Dubai's for­eign trade in the first half of 2013 set a new record, reach­ing Dh679 bil­lion, com­pared to Dh584 bil­lion in the same pe­riod of 2012, show­ing a growth of 16 per­cent.

Op­er­at­ing au­tonomously, it seems Abu Dhabi and Dubai will re­main in friendly rivalry, while al­ways be­ing the twin gi­ants of the UAE. Shar­jah is the third largest emi­rate and has some oil and gas re­serves. Sit­u­ated next to Dubai and, along with ad­ja­cent Aj­man, it forms the small­est but most densely pop­u­lated emi­rate. As a re­sult of cheaper rents in th­ese emi­rates, hun­dreds of thou­sands of work­ers com­mute from there to Dubai daily.

The other three emi­rates have smaller ex­pa­tri­ate pop­u­la­tions. They are sub­si­dized by rev­enue trans­fers from the fed­eral gov­ern­ment. Umm al-Quwain, the small­est emi­rate, has re­cently be­gun pro­duc­ing gas from a small off­shore field. Ras al-Khaimah, at the UAE’s north­ern tip, is the fourth largest emi­rate, with a lit­tle off­shore gas. Fi­nally, Fu­jairah is the only emi­rate sit­u­ated on the east coast. It is ris­ing in im­por­tance as the ter­mi­nus of a strate­gic new pipe­line by­pass­ing the Straits of Hor­muz and as­so­ci­ated down­stream in­dus­tries.

So, af­ter a some­what roller­coaster re­cent past, the key ques­tion for the UAE must be one of eco­nomic sus­tain­abil­ity. No county in the world is im­mune from the ad­verse ef­fects of a world­wide slump, but some lessons have been learned.

The In­sti­tute of In­ter­na­tional Fi­nance (IIF) has voiced con­cerns about the pos­si­bil­ity of a "re­newed cy­cle of risk tak­ing" de­spite rais­ing the UAE growth fore­cast for 2013. But the IIF also wel­comed the plan of the Cen­tral Bank of the UAE that in­cludes lim­its on banks' ex­po­sure to real es­tate and gov­ern­ment-re­lated en­ti­ties.

Lo­cal gov­ern­ments have started to in­cor­po­rate en­vi­ron­men­tal poli­cies into their re­mit. Au­thor­i­ties have also turned their at­ten­tion to re­new­able en­ergy; Abu Dhabi now hosts the U.N. In­ter­na­tional Re­new­able En­ergy Agency (IRENA), and is ad­vanc­ing in its plans to es­tab­lish the first car­bon­neu­tral city.

The UAE gov­ern­ment has pub­licly com­mit­ted it­self to fight­ing cor­rup­tion, and has put var­i­ous anti-cor­rup­tion mech­a­nisms in place. This has in­cluded rat­i­fy­ing the United Na­tions Con­ven­tion against Cor­rup­tion, join­ing the Arab Anti-Cor­rup­tion and In­tegrity Net­work and es­tab­lish­ing the State Au­dit In­sti­tu­tion (SAI) as a fed­eral au­dit au­thor­ity over­see­ing the use of pub­lic funds.

It can be said that the grand vi­sions for Abu Dhabi and Dubai held by Sheikh Zayed bin Sultan Al Nahyan and Rashid bin Saeed Al Mak­toum have been re­alised and be­ing built upon. There can be no doubt that the coun­try has con­tin­ued to make in­cred­i­ble progress to the point that it has be­come a role model for oth­ers. The 2009 fi­nan­cial cri­sis un­doubt­edly had its im­pact on the county, but even that proved to be only a blip. The UAE had re­turned to pos­i­tive growth cou­pled with a buoy­ant mood of op­ti­mism for the com­ing years. The writer has been cre­ative di­rec­tor with Ogilvy & Mather, BBDO, McCann Erick­son and Saatchi & Saatchi in var­i­ous parts of the world. For the past two years he has been based in Dubai as Re­gional Cre­ative Lead­er­ship Of­fi­cer for Pi­rana Com­mu­ni­ca­tions. He con­trib­utes reg­u­larly to the U.K.’s Cam­paign mag­a­zine.

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