A holistic overview on the UAE

Good news for the United Arab Emirates in this year 2015, which has been full of political and social downturns and general world instability. It seems in fact that good economic performance is forecasted for the end of the current year, even if it has slightly deteriorated compared to 2014.


According to recent forecasts, the UAE is going to end 2015 as the second growing economy in the Middle East and North Africa region, right after Qatar, although last months have been characterized by a slight slowdown in economic growth, due to the fall of oil prices


However, the UAE is still one of the most diversified economies in the region, leading to satisfactory performance in non-hydrocarbon activities such as financial services, retail sales, and other business activities.


A research from Coface group says that the growth of the UAE would slow a bit down to 4.2% on a yearly basis, compared to the 4.3% last year, and compared to an astonishing 6.2% growth in Qatar. The outlook for oil exporting countries remains more favorable with the exception of Libya, Iran, and Iraq.


The consequences of the Arab spring and the conflicts affecting some of the OPEC members have been severe for those countries experiencing the downturn of social instability, revolutions, and sudden political changes.


However, oil-exporting countries uninvolved in conflicts are experiencing strong growth and significant financial surpluses. A growth that is supposed to strengthen on high levels of security and mega projects funding needs.


In order to be achieved through an increase of public expenditure, the above funding generates a strong upward pressure on the fiscal balance. This could put the public finances at high risk, with an impact on oil prices.


Diversification is the key for the oil exporting countries in the future, with a general growth in the MENA region for 2014 measured at 2.6%, expected to increase to 3.2% in 2015 on the back of the global economic recovery and preliminary signs of political consensus in some countries of the region.


Nevertheless, this growth represents a decline compared to the stunning performances of the decade 2000-2010, with an average growth of 5.4% in the region. According to forecasts of the IMF, the growth expectations of the fund have decreased from 3.9% to 3.3%.


Moving further to the GCC, the expected average growth was measured in 2014 as a good 4.2% and it is expected to be 4.1% at the end of 2015, a growth fed by non-hydrocarbon activities and large budget surpluses.


These surpluses will in fact be recorded at an average of 13.4%, anyway dropping by 30% compared to the previous year. However, it is mandatory to keep in mind that not all countries will register a surplus in their balances. Saudi Arabia and Bahrain among others will have fiscal deficits.


Almost all MENA countries, that are exporting oil, will record a consistent growth, much higher than the western countries, which import oil. After a period of political and social agitations, it seems like the economic indicators are finally tending to stability over time.


Focusing on a local dimension, Dubai is every year more becoming the preferred hub for business in the Middle East and North Africa (MENA) region, according to a new report from commercial and residential property services firm Jones Lang LaSalle (JLL).


International investors are attracted by the status of the safe harbor of Dubai (and the UAE in general) with capitals inflowing in the domestic economy and the city becoming particularly popular among the overseas buyers.


Building companies are working at a high pace to create space, with Dubai achieving an absorption rate of at least 112,000 square meters per year, just in its central business district, more space than has entered the market since 2011.


According to the JLL’s report, the market will drive the UAE growth in the coming years, and the GDP will grow by 3 percentage points in the three year between 2015 and 2018. In the same period, the population and the labor force will both grow by around 2%.


According to a report issued by the Oxford Business Group (OBG) the growth of Dubai in the next years will be driven by five major sectors, namely capital markets, maritime, transport, real estate and retail. These sectors will be the attraction of major foreign investments.


Dubai has a role as a regional financial center. It will maintain this role in the near future, boosting liquidity levels and generating new interest among companies considering listing. Similarly, maritime industry is witnessing volumes increase because the emirate’s role as a regional hub has been increasing over the past few years.


Moreover, the transport sector will be a significant contributor to this growth with Dubai airports being at the center of a huge effort to capitalize on recent trends. Dubai International Airport has recently become the world’s busiest airport with more than 70 million international passengers last year.


According to OBG, the real estate sector will continue to drive the emirate’s growth in the next years, with residential supply back on the rise recording an increase of 10% in the years between 2011 and 2014, with good forecast for 2015 and on. Retail is also supposed to attract the interest of investors.


The hosting of Expo 2020, coincident with the full recovery from the financial crisis, will put Dubai's “economy on course to notch up GDP growth of around 4.5 per cent this year and in 2016,” as the report says. This is in line with the assessments given by some of Dubai’s senior officials over the last few months.


About Dr. Angelo Corelli

Dr. Angelo Corelli joined AUD in fall 2015 as Associate Professor of Finance prior to which he had been teaching Finance at all levels in several European countries, and Turkey, in the last 9 years. His field of expertise is Financial Risk Management, with a focus on Credit Risk. The main focus of his teaching in the past years has been on Corporate Finance with a deep knowledge of Corporate Valuation mechanisms.


Dr. Angelo has also attested experience in curriculum development, course design and assessment techniques. His textbook “Understanding Financial Risk Management” is published by Routledge since 2014, being included in the prestigious “Routledge Advanced Texts in Finance and Economics” textbooks series.


Dr. Angelo has a Ph.D. in Economics and Finance from the University of Verona, a Master’s degree in Economics and Finance from the University of Venice and a Bachelor’s degree in Banking from the University of Siena all in Italy.




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