ECONOMIC DEVELOPMENT - UAE Interact

84UNITED ARAB EMIRATES YEARBOOK 2006ECONOMIC DEVELOPMENT85Other sectors grew by varying amounts and more or less kept pace with theoverall increase in GDP. The real estate and business services sector was the newrising star in economic terms, growing by 14.1 per cent (from Dh23.3 billion in2003 to Dh26.5 billion in 2004). Not surprisingly, restaurants and hotels werein a close finish for top pegging in the growth stakes, increasing by 12.2 per cent(from Dh5.7 billion in 2003 to Dh6.4 billion in 2004). The financial corporationsector also put in impressive growth, increasing by 11.2 per cent (from Dh18.9billion in 2003 to Dh21.1 billion in 2004). Other rising sectors were electricity, gasand water, which grew by 11 per cent (from Dh5.8 billion in 2003 to Dh6.4 billionin 2004); the transport, storage and communications sector, by 10.1 per cent(from Dh21.1 billion in 2003 to Dh23.3 billion in 2004); the agriculture, livestockand fishery sector, by 9.6 per cent (from Dh8.9 billion in 2003 to Dh9.8 billion in2004), and of course the construction sector, which rose by 6.6 per cent, fromDh23.8 billion in 2003 to Dh25.4 billion in 2004, ranking it the sixth largest sector,after: 1. oil and gas, 2. manufacturing, 3. wholesale, retail and repair, 4. governmentservices and 5. real estate and business services.POPULATIONThe UAE’s population is rising at a rate of around 6.9 per cent, reaching 4,320,000in 2004 compared to 4,041,000 in 2003. With output growth increasing at aslightly faster pace than population, GDP per capita (at constant 2000 prices)increased in 2004 to Dh74,900 against Dh74,600 in 2003. By the end of 2005there were almost five million people living in the UAE. A strong economy,healthy social development and political stability have supported a steady risein population, making the UAE one of the fastest growing nations on earth.Additional factors supporting this growth include the influx of foreign workers,a sharp drop in infant mortality and a comparatively higher birth rate.The new census (see chapter on Social Development), which will be completedby the end of 2005, will provide the Government with more accurate figures onwhich to base future socio-economic planning.The UAE’s diversification programme has focused on a number of key areas,including aviation, port facilities, tourism, finance and telecommunications. Ithas also vigorously pursued various trade and investment agreements, bothwithin the Gulf region and with the rest of the world. Free-trade zones, whereforeign companies are allowed 100 per cent ownership, have also encouragedinward investment. The country’s strong transportation and communicationsinfrastructure has provided a basis for creating one of the world’s key trade andtrans-shipment hubs.Buoyancy in industries such as tourism, construction, aviation and servicescontinue to fuel the UAE’s economy and several reports issue at the end of thefirst half of 2005 predicted growth rates for the year. A July report predicted agrowth rate of 5.9 per cent for the year with inflation forecast to reach a highof 3 per cent and to stabilise thereafter. This inflation spiral was attributed to aweakness of the US dollar along with high liquidity and low interest rates in UAE’smarkets. The UAE Government, concerned about inflation, is particularly aware ofits impact on lower and middle income groups and salaried consumers. It is seenas a problem that needs to be quickly solved in order to maintain market stabilityand to avoid a lending crisis in which consumers borrow more to spend more.As trading and business conditions remained positive for the UAE, forecasts ofgrowth rates (and inflation) were revised upwards in the third quarter. A report byfinancial analysts EFG-Hermes, issued on 31 August 2005, predicted an expansionrate of 6.6 per cent in 2005, compared to 7.4 per cent in 2004, but suggestedthat this will slow to 3.6 per cent in 2006. Meanwhile, consumer price inflationwas expected to surpass 6 per cent in 2005, up from 4.6 per cent in 2004, asrobust domestic demand continued to fuel inflationary pressures, particularlyin the real estate sector.Another economic think-tank, Business Monitor International, issued a report inAugust 2005 stating that the UAE’s real GDP would grow 6.2 per cent in 2005,fuelled by record oil prices, but would slow to 4.3 per cent in 2006 and 3.9 per centin 2007 as oil prices ease.THE ECONOMY IN 2005A report by the World Bank (Economic Developments and Prospects for the MiddleEast and North Africa, 2005) highlighted the UAE’s ‘marked success’ in reducingits dependence on oil. The UAE’s non-oil exports were 52.3 per cent of the totalin the five years from 2000 to 2004 compared to 31.9 per cent in the 1970s and29.5 per cent in the 1980s. ‘Greater diversification enables an oil exporter tomore readily mitigate some of the negative effects of oil price decline’, thereport’s authors remind us. With recent oil price trends up rather than down,the economy has received a double boost, not just from extraordinary growthin the non-oil sector but also from higher than budgeted oil revenues.ECONOMIC OUTLOOK FOR 2006At the time of writing this edition of the UAE Yearbook (third quarter of 2005),official government reports provide provisional figures for 2004 and preliminaryestimates for 2005 but do not generally go beyond that. A number of economic‘think-tanks’, however, make forward predictions using information currentlyavailable. Whilst these may prove imprecise as a result of unforeseen circumstances,they are interesting in so far as they calculate how present performance andeconomic decisions are likely to impact on future growth. In mid-2005 theEconomist Intelligence Unit (EIU) issued a report that predicted a continuedstrong economic performance for 2005/06.