UAE service sector expands rapidly - NBD report

DUBAI - The UAE's service sector has shown remarkable resilience and continued to expand rapidly even when the country's GDP growth just about managed to remain on the positive during the Asian crisis and after the September 11 attacks on the World Trade Centre (WTC).

By Utpal Bhattacharya

Published: Fri 11 Apr 2003, 12:02 PM

Last updated: Wed 1 Apr 2015, 7:38 PM

In 2001 despite the hit the economy got from the aftereffects of the WTC attacks, growth in service exports out of the UAE rose some 9.4 per cent compared to 4.7 per cent in the previous year. The domestic demand for service imports also showed impressive growth in this period, according to a National Bank of Dubai (NBD) economic report.

The report said that even following the Asian crisis when commodity exports were cut from an annual average of 12.6 per cent growth during 1993-1997 to -16.3 per cent in 1998, service exports continued to grow, albeit at a slower pace of 11.8 per cent compared to the annual average of 17.8 per cent for the five prior years.

It said that the UAE economy posted an average annual growth rate of 6.1 per cent for the whole economy and 8.4 per cent for the non-oil economy during 1993-2001. But there is a marked difference in performance if one compared how the economy behaved before the Asian Crisis and immediately after.

It said that the UAE economy grew by an average of 7.4 per cent annually, while the non-oil sector posted a remarkable 9.7 per cent annual rate of growth in the period during 1993-1997. But following the occurrence of the Asia shock in 1998, the economy's growth rate hit a low of 1.4 per cent, while its non-oil portion was up by five per cent. With the return of normalcy the economy bounced back in 2000 and grew 12 per cent over the previous year, although the events of September 11 again caused the engine to falter and GDP growth was limited to 1.3 per cent in 2001.

The NBD report said that while the strong performance of certain sectors in the country even during the periods of economic downturn has been remarkable, the rebound of the economy immediately after a bad period like 1998, could be attributed to prudent fiscal policy. Nonetheless, the indicators also point out that the UAE is vulnerable to regional and global changes and fluctuation, a sign that the UAE is fully integrated with the global economy.

Pointing to investment activity during crises, it said that UAE saw investment decisions during the crises periods being postponed or curtailed and even cancelled. Following the Asian crisis, capital accumulation in the UAE's non-oil economy declined to 5.6 per cent from an annual average growth of 11.3 per cent during 1993-1997. The response to the terror shock of 2001 was much deeper as the growth in fixed capital formation in the country's non-oil sectors slid from 7.2 per cent in 2000 to 2.8 per cent in 2001.

The Asian crisis saw capital accumulation in manufacturing falling to -10.4 per cent in 1998 from an annual average of 12.8 per cent in the period of 1993-1997. In the same period capital accumulation in real estate dropped from 26.6 per cent to -2 per cent, other services from 28.2 per cent to 6.5 per cent, finance from 28 per cent to 7.3 per cent and government services from 17.5 per cent to 1.2 per cent.

Sectors that were significantly hit by the September 11 events were trade, where capital accumulation declined from 10.5 per cent 2000 to 1.8 per cent 2001, while for restaurants and hotels it dropped from 21.9 per cent to 12.3 per cent and manufacturing from 23.6 per cent to -16.3 per cent.

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