Introduction to UAE
The United Arab Emirates (UAE) is an Arab nation located in the Southeast of the Arabian Peninsula. It borders Oman to the East and Saudi Arabia to the south. In addition, it shares sea borders with countries such as Qatar and Iran. The country is a group seven emirates administered by Emir who are answerable to the overall president. These seven components include Abu Dhabi, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. The capital city of United Emirates is Abu Dhabi, which not only serve as the country’s focus of political and industrial activities but also cultural activities (Peck & Malcolm 12). It is important to understand that the economy of UAE has flourished for decades. The country serves as an economic hub in the area. Economically, UAE possesses large oil reserves in the Middle East and exports it for foreign revenues. The fact that the country is situated in the arid tropical region of Asia makes its climate influenced by the Indian Ocean. This country has also acted as an attraction point for tourists, a fact that has promoted tourism sector in the region. Temperatures of the country vary considerably with summers registering higher humidity ranges. Notably, the economy of UAE has continued to improve much ever since the discovery and exploitation of oil in 1962.
The UAE’s Economy
Before the oil discovery of in 1950s, the UAE’s economy largely depended on fishing industry as and the currently deteriorating pearl industry. Abu Dhabi started exporting oil in 1962. Ever since then, the Economy of UAE changed from discreet backwater to one of the Middle East’s most imperative economic centers. The oil reserves in UAE are placed at number seven globally. Additionally, in terms of size, its natural gas reserve is ranked at number seven worldwide and it is considered as one of the most industrialized nations in western Asia. According to the Heritage foundation report, the UAE’s Economic freedom tally is 71.1. This makes its economy be ranked 28th in the 2013 index. Again, it improved by 1.8 more compared to former years. This regarded the aspects of developments in business autonomy, good use of resources, immunity from corruption, and financial liberty. United Arab Emirate takes a third place out of fifteen nations in the Middle East area, and its general score is higher with respect to World and regional averages (El & Mallakh 85). Concurrently, it is vital to note that the country enjoys an open economy despite the challenges and other economic downturns experienced globally
Economic Data of UAE 1991-2000
The main UAE‘s economic indicators between 1991 to 2000 were as shown in table below:
Highlights of the Era
Even though value added advancement rate in the UAE oil segment was changing between this period, the value added growth rate for the manufacturing sector was increasingly growing. As a result, its contribution to the national GDP improved substantially 12.4%. Nonetheless, it is important to understand that remarkable advancements in the economic growth contributed slightly to the UAE’s general productivity. Agricultural sector also enhanced immeasurably to for an annual average growth rate of above 12%. This provision related to the aspects agricultural production and the support given to it by the government so as to expand the economic productivity of the country. Variations in the impact of GDP on the non-oil sector developed at an average rate. Other sector that showed an increase in their contribution to GDP include the service sector comprising of transport, finance, insurance, hotels and restaurants, communications, real estates and government services (Noack & Sascha 89). This is a critical provision in the context of economic growth.
Economic Data of 2001-2007
Highlights of the Era
Nominal domestic product improved from 36.3 billion dollars in 1993 to 87.7 billion dollars in 2003, and improved even further to 198.8 billion dollars in the year 2007. Contribution of non-oil GDP also improved substantially over the same period from 23.1 billion dollars to 62.5 billion in 2003 and 127.2 billion dollars in 2007. Just like other Gulf neighbors, the economic development of UAE can be closely related to trends and predictions of the international market. As can be observed, GDP growth rates fluctuated till 2001 then became stable thereafter. The main motive for this trend has been the deteriorating addiction on oil as well as increased diversification comprising of oil-based progress and service focused industrialization.
Economic Data of 2008-2012
Highlights of the Era
Obviously, the country continued to make substantial economic progress over this period. The 2008 global financial crisis had its influences on the country, most manifestly in the remarkable clatter of the Dubai real estate market, causing the termination of several costly pipeline projects. However, by the start of the year 2011, the UAE resumed to progressive economic growth combined with a resilient mood of positivity for the years to come. Actually, it can be viewed that, the crisis-generated slump is an optimistic development of the nation, since it attracted the government executives as well as the private sector to reconsider the major activities that had contributed to economic growth of emirates initially. These were robust commitment to infrastructure advancement as well as open trade strategies that links other arts f the world to the welfare of UAE.
The influence of the oil and non-oil sector of the UAE economy to the price stability and the long-term economic development of the nation will be measured through the foreign exchange rates and the US dollar stability on which the foreign markets are operated. Although, UAE is known for its huge exportation of oil, there are other sectors that contribute to its annual GDP. Among the prominent sectors by the year 2010 included the construction and the tourism industry. UAE is famous for its extra-ordinary sceneries that attract many tourists from the West. The study intends to evaluate these non-oil sectors in their diversity and assess the influence they exercise on price stability. It also determines how these sectors are influenced by the policies adopted by the Central Bank. This is a critical provision in the context of economic growth.
Key performance indicators as on date
According to the national statistics of United Arab Emirates, the average interest rate as at December 2012 was 1.42% while the average inflation rate at November 2012 was 2.35%. In January 2013, their average currency is 3.67 and average stock market index point is 2844.26. Average consumer price index (CPI) was at 114.83 points in November 2012. These Key performance indicators suggest that the economy of UAE has continued to record growth even at present (Ṣabrī & Niḍāl 54). Precisely, it is vital to agree that the performance indicators in regard to UAE are varied. The Real GDP of the country was approximated at 3.1 % as at 2012. The UAE’s economy is driven by exemplary performance in both the oil and non-oil economic divisions. The macro-economic variables are crucial economic indicators since they show and help in predicting the economic prospects of UAE. Evidently, R-GDP of UAE considers the exact GDP of the country, a core economic indicator. The UAE’s stable and escalating R-GDP rates show its economic prosperity. Conversely, inflation rates indicate the instability and escalation of prices within a given economy.
The figures emerging from calculating the discussed macro-economic variables signify the progress or slump of economy to the people of UAE. This might affect the economy in numerous sectors since the purchasing rates of commodities will diminish hence compromising the circulation of cash. Additionally, low business rates are evident translating into reduced revenue of a country in a given period. High inflation rates indicate a poor economic progress while low inflation rates depict stability and economic prowess in the period under review. Another considerable indicator is the inflation rates. Unemployment rate is another crucial economic indicator. High unemployment rates depict recession, which is an unpleasant economic indicator. The figures emanating from macro-economic variables are indicators of progress of the UAE’s economy.
Comparative benchmarks
Economic growth of United Arab Emirates has been escalated by oil exploitation and considerable investments in the construction industry. This has not only occurred in the public sector but also private enterprises as well over the recent years. UAE surpassed Saudi Arabia economically to become largest construction centre within the GCC territories. This is a critical provision in the context of economic growth. The United Arab Emirates contributed to approximately 20% of the entire Arab construction production in 2008. In spite of the slow growth in 2009 in the middle of the global economic distress, the UAE production industry was able to record a robust growth during 2007-2009 and accounted to averagely 8% of the country’s GDP in 2009 (Middle East Review 2003/04 1). Other GCC countries such as Kuwait have neglected such measures and opted for a basket of currencies instead. However, the research covers the role of Central bank, the oil sector and the non-oil sector in influencing the price levels conclusively. It is observable that the GDP growth rates fluctuated till 2001 then became stable thereafter. The main motive for this trend has been the deteriorating addiction on oil as well as increased diversification comprising of oil-based progress and service focused industrialization.
Comparative benchmarks outside GCC
The economy of UAE can be compared to other countries outside GCC as outlined in the table below in 2012.
Central Bank of UAE
The central bank of UAE started to operate in 1980 and plays a very significant role in the county’s economy with the major responsibility in formulating and executing the investment, credit, and financial policy to ensure stabilization of price, and to sustain the Dirham and its unrestricted convertibility. Besides it acts as the bank of all other banks in the UAE. It is majorly concerned with forming financial institutions, particularly banks, as well as improving their management, capacity of utilizing available resources and financial reliability. The roles assumed by the UAEs’ Central Bank in the sustenance of the price stability in the country is critical. For better comprehension, analysis should be done in reference to the year 2010. The purpose of the study is to create awareness of the possible measures that can be utilised to control the level of inflation in an economy. This can be used as a reference point by other nations with similar economies. Moreover, it offers a good reference point for the country itself in the future years, especially when confronted by situations such as the recent global recession. The central bank of UAE also hopes to illustrate how different sectors contribute to the economic development in relation to the price stability of different commodities. This is a critical provision in the context of economic development and stability.
UAE’ central bank has evaluated the country’s economic strategies, either monetary or fiscal, that are instituted by the economic sectors in order to keep the level of inflation at sustainable levels. It also evaluates when and how each of the strategies should be applied. Specific focus is laid on the strategies employed by the Central bank in reducing the inflation from 1.5% in 2009 to 0.9% in 2010. UAE central bank, with relatively few tools considering the US dollar peg, can influence monetary policy by imposing laws that will helps in restoring the money market values. Additionally, the Policy should be sensitive to the operational interest rates. If these interest rates are normal, the entire lending phenomenon normalises. UAE central bank has regulated its operational lending interest rates depending on the financial situation thus affecting the financial markets considerably.
Outlook of the future
UAE’s economy is predicted to grow at a rate of approximately 3 % this year as claimed by the “Economy Minister”. This follows a drastic decline in the cost of oil in the world market. Again, he predicted that the inflation rate will range between 1 and 1.5 per cent this year. The previous year GDP stood at 4.2%, this is expected to increase over the coming years. In General, the economy of United Arab Emirates is expected to continue growing steadily in the future (Gaeta & Gordian 312). The regulation of inflation in UAE will be attained through different avenues. Some of these may not be instituted by the Central Bank. This study concerns itself with how the monetary policies those are within the mandate of Central Bank. It ignores other governmental actions that could influence these policies. Moreover, it does not go into details of how, the pegging of the Dirham on the US dollar limits the freedom of the Central Bank in effecting its role or regulating the price stability. As indicated before, other GCC countries have neglected such measures and opted for a basket of currencies instead. However, the research covers the role of Central bank, the oil sector and the non-oil sector in influencing the price levels conclusively.
Observations
Since its independence, UAE has undergone through a remarkable transformation from low national economy, which depended majorly on pearl trading and fishing, to avenue of bountiful opportunities. Its prosperous economic sectors comprise of oil, real estate, and construction industries. Other industries that contributed to the economic growth of UAE include tourism, mass communication, retail and finance hospitality as well as shipping and logistics. The United Arab Emirates’ economic vision represents the success of an inventive state-led commercial growth model (Alzami & Anwar 114). The UAE government institutes different measures to avert the causes of economic downturn. This is effected through the different governmental bodies especially those that regulate the exports, imports and the monetary circulations such as the banks. As indicated before, one such institution is the Central Bank. The central bank has been charged with the responsibility of controlling the level of economic hitches and interest rates through various monetary and fiscal policies. It consistently evaluates the current position of the UAE’s economy and institutes the relative policies that ensure the level of economic growth within the country remains steady.
Suggestions to improve Economy
Although dependency on oil by the United Arab Emirate has declined considerably due to economic divergence and inventive strategy that offers new opportunities for economic growth, the major sectors driving development besides oil are highly profitable in nature. Thus, the economy is vulnerable to fluctuations based on the commercial cycle of these sectors, which took place with the present financial crisis. To further improve the economy of UAE, diversification is very should be embraced. Science and technological innovations should be incorporated to promote economic development (Al & Abed 76). As argued in diverse contexts, the country should react to economic hitches instantaneously as it expands its oil, agriculture, and service industries significantly. Concurrently, numerous firms in UAE should have long-term or visionary measures meant to restrain emerging economic hiccups. Notably, this is a considerable factor when scrutinized critically in the UAE’s context. While enhancing its economic sectors, political, social, legal, technological, and fiscal/economical factors should be stabilized and handle with vision.
In addition, the issue of innovation and global investment is critical to the UAE’s economy and national security. Innovation, being one of the biggest achievements, will advance the country’s economic systems and controlled the use of critical materials that can harmful to the entire world. The UAE government must act with promptness because it is capable of handling use of critical materials and economic provisions. Critical economic do not only refer to GDP increase but also to the minor and significant economic contributors. Technology is also considered to be critical although its utilization must be controlled. Some of the critical materials apart from weapons are materials made out of reactive elements. These materials should be properly disposed to avoid environmental pollution. The fact still remains that the UAE government can handle the economic hitches and the recent economic crisis by embracing innovation.
Through innovation, security, fight against terrorism, and ratification of technology within the country, the country will enhance its economic growth through globalization. For example, innovation has helped in strengthening security systems in the U.S., and this has reduced the use of critical materials to some extent. Debatably, there are very many sectors in the US security system that operate or carry out their duties to perfection with the help of various technological tools. The UAE should launch various debates aimed at discussing the improvement of economic advancements worldwide to stabilize its economic mandates. The mandate of the government is to ensure that the country’s economy outstands among others. On the other hand, it is believed that the UAE states are capable of solving the economic hitches.
Conclusion
The economy of United Arab Emirates has continued to improve ever since the discovery and exploitation of oil in the region. Other sectors of economy have also been improved to further enhance the entire economic growth rate. Some of these sectors include tourism, hospitality, mass communication, transport, fishing, agriculture as well as retail and finance. Currently the GDP of UAE is at 3.27 according to 2012 national statistics. However, to further improve the economy, it has been suggested that much diversifications are necessary as well as incorporation of science and technology in industrial development. Economically, UAE possesses large oil reserves in the Middle East and exports it for foreign revenues. The fact that the country is situated in the in the arid tropical region of Asia, it has its climate influenced by the Indian Ocean. This provision has also acted as an attraction point for tourists, a fact that has promoted the tourism sector in the region. Temperatures of the country vary considerably with summers registering higher humidity ranges. It is agreeable that the economic growth of United Arab Emirates has been escalated by considerable investments in the construction, tourism, and service industries. This has occurred both in the public and private sectors over the recent years. As mentioned earlier, UAE surpassed Saudi Arabia economically to become largest construction centre within the GCC territories.
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