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UAE economy bucks global slowdown

DUBAI THE UAE economy has continued to gain momentum despite the slowdown that major world economies have suffered in the recent past and today rightly finds its place as the regional service and manufacturing hub.

Standard Chartered Bank in a commentary on the UAE said that maintaining and building on the current momentum in the economy is the key objective of the UAE government and local businesses. It said that while investment has slowed the world's major economies, the reverse has happened in the UAE. The step up has come as the UAE strives to cement its position as the regional services and manufacturing hub, according to it.

Pointing to Dubai, it said that the focus remains on creating the emirate as the prime commercial location of the region. It described Dubai's decision to allow non-AGCC nationals to buy property as one of the two decisions of the local government that is likely to have far reaching positive implications in this direction.

Dubai recently became the first place in the whole of AGCC to allow non-AGCC nationals to buy property.

According to Standard Chartered, this move will transform the real estate sector in the emirate, something that is partly evident in the strong interest that has been seen from the investors in premium residential projects such as the Palm Island.

The Bank also pointed to the creation of the Dubai Executive Council and Dubai Economic Council and said that both these will be staffed by local industry leaders representing an important move by the local authorities to give businesses a stake in the development of the economy.

Pointing to some of the other efforts of the emirate, it said: "Dubai continues to set up free trade zones with imagination. Dubai's Internet and Media cities are set to be joined by textile, healthcare and festival cities. And the most high profile addition will be the creation of the Dubai International Financial Centre, which represents Dubai's ambitions to establish itself as the regional banking and insurance hub."

The report also mentioned initiatives taken by the Abu Dhabi government in its drive towards privatisation and said the emirate's success is being replicated by Ajman and Sharjah and being closely watched by Dubai.

Abu Dhabi's emphasis is on development of its extensive oil and gas resources and over the next two years over $7 billion will be invested by Abu Dhabi National Oil Company and its subsidiaries making the emirate's hydrocarbon sector as the most active in the Gulf. On the oil side, implementation of several projects will increase oil production by 600,000 barrels a day, bring the emirate a step closer to its target of achieving three million barrel a day by 2005. But this also poses the UAE economy certain challenges. While the UAE has successfully diversified its economy with oil and gas sector contributing only 25 per cent to the GDP in 2001, the risk still remains. It said that oil still provides a major support to the economy and directly or indirectly underpins much of the local investment. Given the reliance of both external and fiscal accounts on oil revenues a steep fall in oil prices would lead to tightening of belt.

Another concern is that the current wave of spending may lead to over capacity in the non-oil economy, particularly in residential real estate and tourism. It said so far demand has kept up with supply, but current plans point to a huge expansion in both the sectors and given the possible backdrop of higher global interest rates and sustained fall in oil prices, the economy could be hit by both shrinking margins and slowing demand.

These challenges are balanced by opportunities. Over the next years the Middle East may change beyond recognition. It said that the Gulf War of 1991 highlighted the UAE's position both as a safe haven and as the regional entrepot for the subsequent reconstruction of Kuwait. A similar role could beckon again.