Diversification oils UAE growth

As Dubai is hosting Expo 2020, the mega projects will enhance the retail and tourism sector of the region.

The UAE's real GDP is projected to grow at a strong rate, driven by infrastructure spending and economic diversification with non-oil sectors contribution rising to nearly 90 per cent y 2025, according to a Frost & Sullivan's research report.
The UAE will pump in huge funds in the development of oilfield projects, Expo 2020 projects and other mega projects related to tourism and retail sectors. In addition, removal of sanctions on Iran will also benefit the UAE from increased trade, said Malabika Mandal, senior research analyst - visionary innovation group at Frost & Sullivan.
"The average growth of the UAE GDP (nominal GDP) by 2025 would be 5.6-5.9 per cent and real GDP growth is expected to be 4.6-5.1 per cent by 2025. The infrastructure investment and economic diversification would be the main drivers for the economic growth in UAE. Oil production in UAE is expected to rise due to investments in oilfield development."
As Dubai is hosting Expo 2020, he said the mega projects coming up will enhance the retail and tourism sector of the region.
"The lifting of sanctions on Iran will render increased trade. Fiscal and external balances are expected to recover over the medium term; with a reversal of the fiscal deficit expected and recoil in the current account surplus to 3.2 per cent of GDP by 2018."
Post the announcement of Expo 2020 event, Dubai is a wave of opportunity with government setting aside Dh17 billion in 2016 budget for infrastructure development till 2020.
"The investment will be spread over different asset classes broadly covering housing, roads, railways, schools, health facilities and public buildings. Abu Dhabi is also soon becoming a hot destination for investors eyeing long-term growth. The emirate has earmarked $100 billion to be invested till 2030 and majority of it will be ploughed in real estate and transportation sector," Mandal noted.
IMF earlier this month projected UAE's 1.3 per cent real GDP growth for 2017 and 3.4 per cent for the next year.
"The UAE has continuously been investing on infrastructure making it one of the most connected countries in the world - be it air, sea or land. This unique selling point makes the country extremely attractive for investment, businesses and tourism," said Avin Gidwani, CEO, BNC Network.
Sectoral contributions
Malabika projected that the non-oil sectors are expected to account for nearly 90 per cent of UAE's economy by 2025, with the highest contribution from manufacturing, followed by aviation and logistics.
Among the non-oil sectors, it is expected that manufacturing will contribute highest with 21 per cent by 2025 followed by aviation at 16 per cent and logistics at 15 per cent. Sectors like real estate and construction, finance, and tourism will each contribute 11 per cent by 2025. Other sectors like education, media, and healthcare will contribute around 5 per cent to the UAE economy by 2025.
According to Frost & Sullivan study, the UAE, which leads the Middle East when it comes to the maturity of the internet economy, is expected to hold this position through the next 10 years also with Internet contributing nearly 5.4 per cent of UAE economy - up from 4.2 per cent in 2016.
Earlier, IMF had projected non-oil growth to rise from 2.7 per cent in 2016 to 3.3 per cent and 3.4 per cent in 2017 and 2018, respectively, reflecting increased domestic public investment and a pickup in global trade. Over the medium term, non-oil growth is expected to remain above three per cent, supported by accelerating investment in the run up to the Expo 2020.
Commenting on the non-oil sectors that will drive the economy, MR Raghu, managing director of Marmore Mena Intelligence, said hospitality, construction, logistics, real estate and services will lead the diversification of economy.
"Hospitality revenue in the UAE is forecast to increase by 10.8 per cent annually from last year to $9.8 billion by 2020, thanks to a steady growth in international tourists at 7 per cent per annum, and the opening of new attractions such as theme parks, are expected to drive this increase," he said.
The UAE's construction industry is poised to witness strong growth in coming years as more than $34.6 billion (Dh127 billion) worth of urban, industrial, transport, utilities and oil and gas projects are in the pipeline.
The UAE logistics sector is expected to grow by 4 per cent in 2016, with a compound annual growth rate (CAGR) of 5.7 per cent between 2015 and 2020. The key drivers of the industry are Expo 2020, national logistics development plans, and trade with Asia and Sub-Saharan African countries.
Though, according to NBC Network's Gidwani, hydrocarbon represents a third of the UAE economy but the UAE's growth will be dominated by the service sectors - aviation, tourism, real estate, construction, transport and logistics sectors. All sectors are expected to grow; however hospitality, healthcare, education and transportation will lead growth in the region.
As per the BNC Project Intelligence, the UAE is expected to spend over $5.5 billion in the infrastructure projects which include rail, road, marine and other infrastructure development works. Some of the important projects fueling this growth in the infrastructure sector are Dubai Metro Red Line Extension, Expo 2020 worth $2.9 billion, Container Terminal 4 at Jebel Ali Port Expansion worth $1.6 billion and Passenger Terminal Building and expansion of Al Maktoum International Airport - phase 1 worth $1.5 billion.
VAT contribution
Mandal said the UAE would progress in economic diversification through increase in the non-oil tax revenue collections in order to reduce oil dependency and meet the priority spending needs.
The UAE is expected to implement a GCC-wide value-added tax (VAT) by 2018, and is considering increasing excise taxes and introducing corporate tax. Key investment areas will be sustained in the next decade, as obvious by the recently announced nuclear energy project.
"The GCC countries non-oil tax revenue collections are low when compared to other emerging oil exporter economies and low-income countries. The non-oil tax revenue covers less than 5 per cent on average of government expenditures in the GCC countries, whereas it covers more than 40 per cent in countries like Mexico and Kazakhstan and more than 20 per cent in Algeria, Angola and Nigeria," she added.
"GCC countries need to increase the non-oil revenues to reduce oil dependency and meet the priority spending needs. The UAE is expected to implement a GCC-wide value added tax (VAT) by 2018. This will definitely benefit the UAE economy. It is expected that within one year of implementation of VAT it will contribute around 1.4 per cent of the economy," she concluded.
- waheedabbas@khaleejtimes.com