Return to Growth
The UAE is back on the track to galloping growth.
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.