UAE will stay resilient to headwinds
The UAE is aiming to scale down the share of hydrocarbon revenues in its economy by 20 per cent by 2025. Oil receipts accounted for 30 per cent in 2014.
Dubai - Non-oil sectors contribute to more than two third of the country's GDP.
A sustained weakness in oil prices, slowdown in Europe, China and other emerging markets, volatility in local and global stock markets, slump in real estate prices, unabated geopolitical tensions and a depressed investor appetite are expected to impact the UAE, keeping its growth rate at the same 2015 level of 3.5 per cent this year.
While the country's economy has been resilient despite headwinds posed by a worldwide slowdown, a tightening of liquidity across the GCC is expected to have its repercussions in the UAE in 2016, according to analysts.
They argue that while the banking sector's fundamentals remain strong, the impact of lower oil prices and subsequent decline in government revenues will have its impact on liquidity. There are also indications of a deceleration in financing growth, pressure on spreads and a deterioration in credit quality, banking analysts said.
However, like some of the major oil and gas exporters in the region, despite the price plunge, the UAE is better prepared to weather the lean times. In fact, most GCC economies can face the cycle of two to three years of low oil prices through strategic spending plans and structural reforms, including deep subsidy cuts and new initiatives to generate state revenues like the introduction of taxes and fees.
While some projects, including investments in oil-related sectors, will be delayed in 2016, most of the strategic projects will go ahead as planned.
As the UAE Minister of Economy Sultan bin Saeed Al Mansouri has said, indicators to the fundamental strength of the national economy is very apparent for the second largest Arab economy. Quoting forecasts by the International Monetary Fund, or the IMF, that the UAE economy will grow by more than three per cent, Al Mansouri explained that ratio is good, given the current global economic climate.
Focus on SMEs
He is optimistic that the small and medium enterprises (SMEs) sector will continue to deliver a good performance and will remain a major contributor to the non-oil national income.
Economic indicators released by the Ministry of Economy and reports from the Federal Competitiveness and Statistics Authority show that the UAE non-oil sectors contribute to more than two third of the country's gross domestic product (GDP).
"If we continue to see minimum increase in the price of oil, we expect a three to 3.5 per cent growth in 2016," Al Mansouri said.
The UAE is also aiming to scale down the share of hydrocarbon revenues in its economy by 20 per cent by 2025. Oil receipts accounted for 30 per cent in 2014.
In 2014, the UAE's GDP grew 4.6 per cent, reaching Dh1.47 trillion, with the year marking the country's best economic performance in the past 44 years. While the minister said he expected 2016 to be slower, he said the country's economy will continue to grow.
"My optimism for the UAE's economy in 2016 comes from knowing that we have been through such cycles before, and we were able to overcome them and grow past them. I am optimistic about 2016 and seeing positive growth," Al Mansouri said.
As part of a drive to diversify the economy away from oil, the UAE targets increased economic contribution from SMEs - a sector that accounted for 60 per cent of the UAE's non-oil GDP in 2014. The government seeks to raise the figure to 70 per cent by 2021. The UAE also aims to see a five per cent contribution by 2021 from the innovation sector.
"We admit that there are other countries that excelled in fields of innovation and knowledge . and we are in talks with countries in North America, Europe and Asia about collaborations in order to boost our knowledge economy," he said, adding that the UAE has invested over Dh300 billion in the fields of knowledge and innovation.
The UAE's industrial sector currently accounts for 14 per cent of GDP, and the figure is expected to reach 20 per cent by 2025.
The minister is upbeat about the flow of foreign capital to the UAE in the next six years as a result of giant projects, led by the renewable energy and retail sectors.
He pointed out that the accumulated volume of foreign investments has soared to $126 billion by the end of 2015, compared with $115 billion at the end of 2014, mainly driven by increased investment in manufacturing and other heavy industries such as aluminum and petrochemicals as well as other sectors, including tourism and aviation.
The minister pointed out that the security, safety and political stability in the UAE provide a safe and attractive economic environment in a region beset by political and economic crises.
Abu Dhabi growth
Rashed Al Zaabi, acting executive director of planning and statistics at the Abu Dhabi Department of Economic Development, expects Abu Dhabi emirate's average growth rate to be around 4.2 per cent between 2015 and 2019. He expects Abu Dhabi's non-oil sector to grow 4.6 per cent in 2015 and 5.3 per cent in 2016.
Abu Dhabi's GDP reached Dh960.1 billion in 2014, marking a three per cent increase from the Dh931.8 billion recorded in 2013. Oil GDP dropped in 2014, however, to reach Dh489.7 billion - down from Dh511.9 billion in 2013.
Dubai's GDP has been growing steadily over the years. The sustained growth was also reflected in the latest Dubai budget which showed a surplus at a time when many other economies around the region are witnessing deficit due to lower fuel prices.
Dubai's budget allocation for 2016 is 12 per cent more than the previous year and seeks to provide more than 3,000 job opportunities. The budget will stimulate economic growth and has total expenditure of Dh46.1 billion, with an operating surplus of Dh3.4 billion.
For Dubai, the trade sector has been its backbone since its inception and has grown substantially over the last 10 years.
From Dh480 billion in total trade value in 2005, the non-oil trade has grown to Dh966 billion during the first nine months of 2015, registering a growth of more than 100 per cent in the last decade.