1998 A
YEAR OF MIXED FORTUNES FOR U.A.E.
When the
Asian financial crisis broke in 1997, it was thought that the meltdown would have little
impact outside the region but as 1998 progressed it became clear that spill over effects
were slowly hitting the world economies one by one.
Towards the 2nd half of 1998
the looming spectre of the recession also started casting its shadows in the AGCC region
and U.A.E. could not remain unaffected. Oil prices slump resulted in 5.5 percent fall in
GDP. Other troublesome areas relate to productivity performance, stagnate real wages, a
declining trade surplus and government deficits - all implying to reduce capacity to save
and subsequently, invest. |
U.A.E. officials were alert to the situation.
The planners got busy to identify the major industrial clusters here to incorporate them
into the strategic plan necessary for Diversification. While the ongoing job undertaken,
by Emirates Centre for Strategic Studies and Research to devise the alternative economic
strategies to reduce the country’s long term dependence on crude oil and natural gas,
has been accelerated.
NO PANIC :
There is hardly a panicky situation emerging. UAE is better off at weathering the current
economic downturn than other Gulf states despite low oil prices. Diversification should
ease dependence on oil related revenues - currently around 31% of the GDP. Thanks to the
U.A.E. Government’s vision of continuing a sustained “open-door” economic
policy. According to the 1999 economic index compiled by Heritage Foundation as reported
by the Wall Street Journal; U.A.E. has been ranked as the “Second” most Free
economy in the region and Fourteenth overall. Rating Agencies also have given a favourable
verdict to UAE’s prospect for 1999 with a vigilant eye on the government expenditures
and by controlling the unnecessary imports and through industrial activities. |
1998 REVIEW :
The year witnessed several important developments which are going to echo for many years
to come. Because of a very good First Half of 1998, especially in Trading, Banking and
Finance sectors there will be no immediate problems.
Shaikh Hamdan Bin Rashid, U.A.E.’s
Finance and Industry Minister reaffirmed that “low oil prices may not prove
troublesome for the U.A.E. in next (3) three years”.
G.D.P.
As per U.A.E.’s Industrial Bank report, the UAE’s GDP growth was 2 percent in
1997 which is dhs. 180 billion which now stands at 170 billions, a decline of 5.5 percent.
However, the Non-Oil GDP continued to increase from 127 billion in 1997 to Dhs. 133
billion in 1998. According to planning Minister Shaikh Humaid Bin Ahmed Al-Mulla, UAE
economy will recover from the oil crisis in 1999 and expect the GDP to increase upto Dhs.
176 billions, out of this the non-oil sector is expected to rise upto 137 billion Dhs as
against Dhs. 133 billion in 1998. This increase of Dhs. 5 billion in the non-oil sector
can be attributed to the govt’s efforts to diversify the revenue sources through
industrial activities.
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Breakup of Economic Performance :
Commercial activities and Wholesale and Retail Trade contributed 15.4% of the total GDP in
1998 with the private sector playing the major role in the field.
The Real Estate sector contributed 13.7%
while Construction and building accounted for 12.2% followed by Transportation, storage
and communication sector with 9.2 per cent.
Government investment increased to 28.9 per
cent of the total GDP which amounted to Dhs. 49 billion. These investments were to support
immediate projects in Health, Education and Public Utility Sectors. Health and education
which received 14.8 per cent especially laid emphasis on Technical and Higher education
institutions.
Oil projects including the development of oil
fields and petrochemical industries received large shares of investment in 1998. It is
true that oil revenues are still playing a major role in the UAE economy and the decline
by 36 per cent last year might readjust the priorities, but the role of foreign trade
sector can offset the draw back to a great extent and the trade surplus can be still
maintained at 10 - 12 billion in 1999 and further. |
| SILVER LINING |
MARKET ORIENTED ECONOMY |
STRONG BANKING SECTOR |
| According to the Central
Bank governor Mr. Al Suwaidi, despite the decline in oil prices, manufacturing sector
which has become the second largest economic sector in the GDP continues to register
healthy growth. Various medium and light industry projects have been established to serve
the local and neighbouring markets. The Tourism Industry is attracting a lot of attention,
money and customers. Hotel revenues increased from Dhs. 2.7 billion in 1997 to 3.2 billion
in 1998. |
U.A.E. follows
a market oriented economy with complete freedom on the movements of capital and full
convertibility of the UAE Dirham. There are no restrictions on foreign exchange. The rate
of the exchange of Dirhams into U.S. Dollar has not basically changed since November 1980. |
The stability
of the Dirham and full freedom of the Trade brings demand for financial services. There
are 27 foreign banks with 10001 branches in the country alongside 20 UAE national banks
with 281 branches. There are 35 representative offices of the foreign banks and financial
institutions. There are also exchange offices, financial investment companies and finance
companies. |
UAE BANKS are
expected to extend full support to weather oil price slump. Thomson Bankwatch, a US
ratings Agency has categorically rejected the fears that banking sector would be adversely
affected due to oil price turmoil. It is merely short sightedness and outmoded to assume
that the fall in oil prices will automatically translate into poor results of UAE banks.
INVESTMENT
IN FLOWS : UAE has a perfect infrastructure conducive to foreign
investment - the superb road network, modern and efficient port handling, cargo handling
facilities parallel to any developed country of the world, separate airports for freight,
global connections with air. No shortage of water and electricity.
Most modern telecommunication system,
suitable buildings for offices and warehouses. Spate of the Freezone are well known all
over the world. Already almost all the world famous Trading Houses are operative here.
Manufacturing units can be easily established with confidence.
There is only seemingly problem of rather a
severe Climate - 42º temperature and humidity which are to overcome but to counter that
we have here enough power and airconditioning facilities.
Information technology facilities are
increasing day be day. There is no restriction on imports and remittance.
Any kind of skilled and semi-skilled labour
can be hired from any part of the world.
Free Zone experience has been a great
success. UAE exposure as a centre of the business activities and its geographical position
are all plus points to attract industrial establishment from all over the world.
Oil slump or otherwise, UAE is already a
focus of the world business captains to settle down here to avail of the above mentioned
advantages.
1999 is going to witness substantial inflow
of foreign investment to prop up its economy - yet another step forward towards
Diversification.
STOCK
MARKET MOVES INTO THE LIMELIGHT
Major development during 1998 tended to
centre around The Stock Market. Despite the sharp deterioration in fourth quarter of 1998.
Unofficial stock market performed well and produced a healthy return of 23.55 per cent for
the over all year according to Emirates Bank Group Emnex report.
The 24.4 p.c. increase in the local market in
1998 compared well against other Gulf bourses all of which showed decline except for
Qatar. Oman lost 51.48 percent, Kuwait shed 38.55 per cent and Saudi Arabia was down 30.59
per cent.
The Bank index recorded the best performance
in the year to date with 26.2 percent. The other sector is insurance and services -
followed with 23.2 percent and 22.6 percent. Insurance scrips were the biggest gainers led
by Al-Buhaira, Al-Sharjah and Al-Wathba.
Among the 18 banking stocks, 16 gained with
First Gulf bank, National Bank of Sharjah and Invest Bank leading the pack.
In services Emarr properties and Union
properties recorded handsome gains.
There has been spurt of IPOs (Initial Public
Offerings) by new joint stock companies, the National Shareholders, base of UAE has risen
to more than 220,000. There are 90 joint stock companies more companies are being formed
and all pre-requisites to organise and supervise the Stock Market has been arranged
including Electronic System of Trading which will provide full disclosure of amounts and
the demand and supply of Stocks and thus will ensure the stability of the Stock Exchange.
Also on card is the Regularity Authority to
be based in Abu Dhabi which would be under the Central Bank of UAE. Involvement of
international financial institutions will be decided by the Regularity Authority.
Towards the end of 1998, before its formal
launch in March 1999, UAE Stock Market capitalisation has reached Dhs. 6 billion. The
buying frenzy was continuing unabated.
There is a possibility that expatriates may
be allowed to buy local shares. In a related development, the Al-Fahim announced plans to
go public in the process of breaking down new ground among family businesses which may be
joined by other reputed business houses of the UAE. Al Fahim Group has really set an
example. |
GROWTH OF
INDUSTRIES IN THE UAE IN 1998
Last year the small and medium sized
industries in the UAE grew to 1527 representing a work force of 130,000 and total
investment of Dhs. 13 billion. According to the study by UAE Ministry of Finance, Abu
Dhabi accounted for 166 industrial units with a capital of Dhs. 2.5 billion. Dubai topped
with 539 units with an investment of Dhs. 6.2 billions. Sharjah has 499 units with 1.9
billion investment. Ajman 211 units (Dhs. 367 millions) Ras Al-Khaima 90 units, Umm Al
Quwain 28 units and Fujairah has set up 24 ne w industrial units. Emirates Basic
Industries (SINANAT), an industrial joint stock had identified seven projects involving
Dhs. 4.8 billions as being basic industries.
In addition the energy led sector in Abu
Dhabi has been not only successful but has set the basis for a vertical integration of the
economic activity in the country.
The initiative to establish a petrochemical
company is perhaps the most vital steps taken. It would ushere in major attention to down
stream activity and also create the basis upon which allied industries can be developed.
After Stock Market the 2 Petrochemical Industries one in Abu Dhabi and one in Dubai is the
most important event towards providing an industrial base.
Abu Dhabi Non-Oil Trade Soars 20.4 Per cent
Abu Dhabi's total non-oil trade in 1998 has showed an increase of 20.4% over 1997,
reflecting the Capital's growing trade. According to the yearly figures released by Abu
Dhabi Customs Department on Feb 2, 1999, Abu Dhabi exports, re-exports, imports of non-oil
trade have taken an upward trend in 1998; valued Dh20.91 billion in 1998 as compared to
Dh17.36 billion in 1997.
Exports from Abu Dhabi soared to Dh975.4
million from Dh595.2 million in the previous year, registering an impressive increase of
63.86% rise. Re-exports included machinery, sound recorders, parts, top the Table Dh414
million . Vehicles accounts for Dh292 million, Base metal and related articles amounts
Dh246.6 million. Re-exports showed an increase of 10%. Imports spurted from Dh15.59
billion to Dh18.71 billion.
A comparative summary of exports/re-exports
indicate that Qatar is the leading export destination with substantial value of goods
going there. The other top re-export destination for Abu Dhabi in 1998 were Saudi Arabia,
UK, Iran, India and the USA.
UAE IN LEAD IN
SATELLITES
1998 also saw the UAE entering into the
Satellite communications by offering the most technologically advanced Satellite System -
CABSAT, the biggest show of its kind in the region, underscoring the country’s
increasing role in developing the telecommunication industry in the region. In March
CABSAT 99 will run at the Dubai Trade Centre, the digital era in the Middle East is set to
receive a boost. This revolutionary step has been backed by the UAE in response to the
market demand for more channels and speed, CD quality, audio, LD quality video and the
interactivity that is more convenient to digital system.
Throughout the Middle East viewers can find
over 80 digital free to air channels and 100 more will be added once the Arabsat 2 and 3
Nilesat and Asiasat start sending programs to the Middle East in 1999. Thus UAE is
expected to lead the phenomenal regional growth by initiating the CABSAT System.
THE OTHER LAND MARK
ECONOMIC EVENTS OF 1998 IN UAE
- Abu Dhabi spent Dhs. 11 billion on
developmental projects which pertain to the PWD, Municipality and the Water and
Electricity departments only.
- The Al-Manah power project planned for $1
billion plant in Abu Dhabi.
- Annual gold imports shot up 90 percent to
set the highest tonnage record ever at 660.3 tonnes.
- Dubai lobbied against the 6 percent E.U.
tarrif on primary aluminium.
- Global Exide set up Dhs. 18.5 million car
battery plant in Dubai.
- The UAE’s second pharmaceutical unit
in Abu Dhabi would make anti addiction drugs.
- UAE has been declared as the regions leader
in projecting Intellectual Property by the USA.
- Mashreq Bank was voted one among six
“Centres of Excellence” by Euromoney.
- Sharjah started work on its third oil
refinery to attain a capacity of 80,000 barrels per day. Sharjah also spent Dh. 75 million
on airport expansion plan. Sharjah also emerged as the Top Middle East Cargo Airport
according to Airport Council International.
- A work on a $ 100 million steel bar rolling
mills commenced in Abu Dhabi. Abu Dhabi also announced, it intended to spend $10 billion
on gas in utilities in 1999.
n Amendment of company laws is on the card
while banks queued up to finance $500 million debt to finance Thurayya’s project.
- Swiss Energy giant ABB won the contract to
build 500 MW power plant in Abu Dhabi. Norwegian firm also signed a contract on a new $
100 million steel bar rolling mill in Abu Dhabi.
- Abu Dhabi based start-up Ara Trading Co. is
going to set up a Smart Card plant in the UAE. Capitalisation of the new firm National
Smart Card production Co. was to be Dhs. 55 million. Japanese and US firms won contract
for the $356 million Abu Dhabi desalination plant.
- US electronic giant Hughes and Ascom would
supply 250,000 satellite phones for Thurrayas project.
- The UAE Central Bank brought in a new Risk
Assessment System to control fraud.
- Etisalat announced Dhs. 167 billion
dividend, equal to 50 per cent of its capitalisation.
- Boeing confirmed its Dhs. 220 million
investment on the new spare parts facility at the Dubai Airport Free Zone.
- An estimated Dhs. 8 billion was to be spent
on Building projects in Abu Dhabi.
- A public institution to administer and
regulate a comprehensive Pension & Social Insurance Scheme for UAE nationals has been
set up. The body has been sanctioned an initial capital of Dhs. 500 million.
- Abu Dhabi Chamber of Commerce &
Industry called for government protection of the UAE Insurance Sector.
- Etisalat signed 95.5 million deal with
France’s Alcatel to increase Abu Dhabi’s GSM net work.
- Abu Dhabi Airport will set up a Dhs. 35
million cargo area.
- The UAE software piracy rate fell to 60 per
cent. Government started an all out vigilance campaign against piracy to get its name
removed from the US watchlist.
- Several companies, led by banks and
financial institutions announced capital increase to face the challenges stemming from the
UAE’s joining the World Trade Organisation and the countdown to new millennium.
- World Gold Council regional office called
on UAE Central Bank to step up gold reserves, even as Indian bullion demand from UAE
showed no sign of abating, despite doubts expressed after India allowed a dozen banks to
import gold directly.
- UAE’s only pharmaceutical company
Julphur announced plans to raise capital to Dhs. 300 million in a move to ward off
possible hostile take over.
- The UAE and Kuwait confirmed participation
in a multi-national petroleum company set up by four Arab countries to facilitate Regional
Transportation of Crude.
- The largest of its kind in the world Abu
Dhabi Islamic Bank started operation.
- It has been made compulsory for industries
in the UAE to have ISO-14001.
n UAE’s sole ammunition factory goes in
for a multimillion Dirhams expansion.
- Abu Dhabi Federal Supreme Court ruled that
banks are not allowed to charge compound interest. Interest rate on commercial loans
limited to 12 pc. Ceiling for non-commercial transaction is 9 per cent.
- Abu Dhabi awarded the prestigious Taweelah
project to CMS on BOO basis.
- Adco awarded $100 million gas gathering
contract to Snampro getty and Germany set up its offset project in Abu Dhabi.
- Abu Dhabi International Airport drew up a
$600 million expansion plan.
- France’s TOTAL clinched Abu Dhabi -
Dubai gas supply deal.
- Al-Fahim got the go ahead to float Hotels
Division. The second family owned business in the UAE, Abu Dhabi Al-Manhal Group to go
public.
- Sudatel joins Thurayya project with $1
million subscription. Also a $600 million syndicated loan for Thurayya was finalised.
- Abu Dhabi Ship Building awarded a $100
million contract for new facility in 1999.
- Health for all Targets achieved. UAE offers
one doctor for every 600 people, and one nurse for 300 people,7000 beds for house
patients; considered to be the best rates all over the world.
FUTURE OUTLOOK
The above mentioned economic events/trends in
a volatile year (1998) point to the stable and sustained future outlook despite the
declined oil revenues in the coming years. The challenges are there but not impossible to
ensure the continuity of the over all development and progress of the UAE.
With the onset of the 21st century the
country is facing an era of “Increasing Competition” which calls for alternative
planning and diversification beyond its existing oil and gas sector.
Additional industrial and commercial
activities which have already been more or less identified need to be re-evaluated and
implemented to leverage the country’s human, financial and locational assets.
Manufactured imports should be curbed because
high consumption and low productivity economy tends to reduce the capacity to save
nationally and would at some point hinder the capacity to invest.
Country’s strength rests in public
infrastructure which is guarantee to future growth.
The low inflation, the flat labour cost
outside of manufacturing are signs that non-oil sector is beginning to grow.
Private sector investment in activities in
Free Zones are becoming very visible in the export data, an indication of their success.
NEED FOR
CONCENTRATION ON SOME ASPECTS
The key measure of success being export
competitiveness in World Trade and globalisation of the economy, following 8 (eight)
areas/sectors should be targetted as a possible “Thrust Areas” namely;
1) Petroleum and Gas and Refining
2) Agriculture
3) Fishing, Food Processing
4) Aluminium and Cement (Capital Intensive)
5) Textiles and Clothing
6) Travel and Transport
7) Banking and Financial Services
8) Tourism
Besides government should keep a strict
vigilance on Financial/Stock Markets “National” human resources’ effective
utilization and a review of the policy of importing foreign labour.
With the inherent “Blessings” of
the Rulers’ sincerity, Transparency of the government policies, and superb
infrastructure and above all the general good will of the people of the UAE, the daunting
task of weathering the problem as a result of the slump in oil prices can be carried on
without panic “Insha Allah”.
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