Glitzy, cosmopolitan, modern, rich and sophisticated UAE is a country that is well positioned for the future. The lifestyle in ways is Western and luxurious for many while respecting many of the traditional Islamic culture and values in an open moderate society. UAE is indeed a paradise in the Middle East with very pleasant winter temperatures, but brutally hot summers within in a very safe environment as UAE is home to one of the world’s lowest crime rates. Today, UAE is the number three economy in the Arab world behind Saudia Arabia and Egypt. Luxury hotels, skyscrapers and new opulent real estate developments are taking place in several places within the UAE primarily near the coastal areas of the Persian Gulf. The country is 50 percent Muslim with Islam the official religion, but Islamic values are moderate when compared to other Islamic countries such as Saudi Arabia. Expatriates consist of a large percentage of the population base at approximately 80 percent of the 4.1 million citizens, but it is the nationals who have the right to determine policy.
POLITICS: the political structure follows that of a decentralized federal system of government whereby seven emirates make-up the UAE federation, UAE independence was granted in December 1971 from the United Kingdom. There are no political parties in UAE as ruling clans dominate the politics along with the monarchy. They are perceived to be doing a very good job, hence no uprising or demand for official political parties as the country is managed like an efficient corporation. The emirate of Abu Dhabi, the capital of UAE controls the oil wealth and foreign policy, it is the emirate where the political power is concentrated as it is the nation’s political & business centre. Abu Dhabi is responsible for sharing the oil wealth in the form of transfer payments to the other emirates of which the government provides for generous social programs in allocating the oil wealth. Each emirate is free to govern deciding upon policies that best suit their own economic and social development. Political management in the UAE is very efficient, less bureaucracy and intelligent managers. The politicians over the years have wisely invested heavily into infrastructure creating a modern vibrant modern state. The emirate of Dubai today now allows some foreign ownership of real estate thus allowing the construction industry to propel the economy. Dubai is considered to be one of the most successful cities in the world and indeed one of the freest.
ECONOMICS: with no income tax, UAE is prosperous and currently booming with high world oil prices, a diversified economy in areas like tourism, banking, real estate and construction. The hydrocarbon industry is the backbone of the UAE economy as it now represents 33 percent of GDP. Some analysts suggest the UAE real estate market is in a bubble and in jeopardy of a price correction with increased supply on the pipeline. A correction in prices may stagnant the economy and put parts of UAE into recession following much of the global trend in the first world.
Tourism is a major industry component as UAE receives upwards of five+ million visitors a year. The national Emirates airline is considered to be one of the world’s best, the Dubai airport is a major hub in the Gulf for Europe and Asian destinations. The emirate of Dubai on the coast is the commercial re-export centre for the Gulf region. Dubai is a very wealthy emirate although it has minimal oil left in reserves compared to other emirates but it rules the re-export trade acting as a hub for Iran, Central Asian countries and other Gulf domiciled nations. The emirate of Dubai has diversified now providing free-trade zones for business and international businesses in an offshore environment, an Internet hub city attracting knowledge industries has been highlighted for future knowledge growth. UAE has very high Internet penetration with over 1 million users. Dubai’s Internet City employs hundreds of IT firms and thousands of employees.
UAE has attracted many of the global conglomerates with regional offices servicing the Middle East from peaceful UAE. The stockmarket in Dubai has doubled in value in 2004 and is currently trading at record highs. Dubai in addition to being a major shipping trade centre is also a major gold trading centre. To summarize, major industry components for UAE consists of hydrocarbon economy, re-exports, agriculture, tourism, Internet-Knowledge and banking/services.
Oil and Natural Gas Economy
Oil was discovered in 1966 in Dubai, the emirate of Abu Dhabi is home to the world’s 4th largest oil field. UAE is estimated to have over 100 years of hydrocarbon energy reserves remaining equivalent to about 100 billion barrels of oil. However, the emirate of Dubai itself is estimated to only have about 10 years of supply left although its economy is well diversified into several industry components. As an OPEC member, UAE has defined export quotas, annual petroleum exports are worth approximately $25 billion USD. Current UAE oil production is at 2.248 million bpd and 44.4 million cu m per day of natural gas. Daily oil exports are high at 2.048 million bpd as domestic consumption is modestly low. Natural gas production in year 2001 was accounted to 45 billion cu m with 2001 gas exports at 7 billion cu m. The capital city of Abu Dhabi is the headquarters for UAE oil companies.
GDP as measured by market price came in at $75.6 billion USD (2004). GDP as measured by PPP is at $57.7 billion USD (2003) with corresponding GDP/Capita (2004) at $24,200 USD. Real GDP growth for 2004 at 3.6 percent, 2005 at 4.5 percent projected. Inflation figures have year 2004 at 3.4 percent, 2005 is forecasted at 2.1 percent. Other inflations numbers include year 2003 at 3.0 percent. Year 2003 current account surplus is at 17 percent of GDP, 2002 at 12 percent. Total external debt stood at 16.6 billion USD (2003). Unemployment is at 2.5 percent. Export partners include Japan, South Korea while imports are from China, Japan and Germany.
POSITIVE: safe and secure, powerful military equipped with hi-tech hardware, good life expectancy, desalination plants provide for water sources. CONCERN: prostitution.
BANKING SYSTEM: modern and sophisticated. Year-end 2003 foreign exchange reserves including gold stood at $15.8 billion USD equivalent to 4 months of import coverage. Central bank reserves maybe diversified going forward away from the USD towards gold bullion, Gold dinar, sterling and the Euroland euro. Banking solvency risk to the system will be minimized even with a serious decline in UAE real estate values going forwards as much of the financing was obtained from foreigners. Banks for the most part are well capitalized and profitable. Critics in the past have stated that UAE has had lax banking supervision although steps have been taken to prevent money laundering and financing of terrorism with the registration of Hawalas (popular informal money transfers in the Middle East). UAE is recognized as a good place for foreigners to establish a bank account as bank privacy, security and safety reign supreme.
REGIONAL ANALYSIS: Persian Gulf, Saudia Arabia, Iran, Qatar, Oman
The UAE is strategically located as it is about midway between Europe and Asia with the emirate of Dubai home to over 120 shipping lines and 100 airlines. The region alone is home to 1.6 billion people as political change is underway from greater democracy and freedoms (Iraq election -winter 2005). UAE like many other regional countries are seeking to diversify their respective economies, plans for increasing tourism while currently benifiting from high world oil prices. This oil boom underway will enhance regional stability, greater prosperity equals greater stability.
KNOWLEDGE: Major Construction Projects in Dubai
Dubai and its 1.2 million citizens sparks no bounds for luxury, the opulent seven star Burj Al Arab hotel in the shape of a billowing sail is a masterpiece, a national famous landmark reaching 280 meters in height. Dubai will be the destination of choice once the Burj Dubai is completed, expected to be the world’s tallest tower when built. The Palm is a mega resort real estate development spearing out into the Persian Gulf. Palm Islands is a massive man-made beach housing development in the giant shape of a palm tree. Dubai is also home to many extravagant shopping malls home to world’s finest brands. Dubailand theme park under construction at a cost of $5 billion USD is one of the world’s largest to be opened in 2007.
CURRENCY: ISO Symbol ‘AED’, United Arab Emirates dirham, Emirati dirham. At time of review on March 17, 2005, the dirham had an exchange value of 3.673 AED to the US-dollar (USD). The dirham is fixed to the USD at 3.67, limited flexibility. As measured by purchasing power parity, the dirham is upwards of 70 undervalued to the USD (May 2004) but back in 2002, on par in valuation for PPP to the USD. No currency controls.
CURRENCY HISTORY: historical exchange quotes include: August 1998 at 3.674 AED to the US-dollar (USD), January 2000 at 3.675, January 2002 at 3.676 and February 2005 at 3.676.
CURRENCY FORECAST: terrorism risk is minimal to UAE, appreciation ahead for the dirham. Over the medium term, there may quite possibly be a trend towards moving away from the USD peg and/or having investments in USD as many in the Middle East prefer to divest out of USD as the threat of USD assets being frozen grows as America’s war on terror expands. The dirham at some point maybe re-pegged to a higher valuation reflecting stronger domestic economy and weaker USD. This new peg may include a basket of currencies including the Euroland euro, gold bullion, Japanese yen and USD (smaller percentage). As time passes, the demand for the Islamic Gold dinar servicing the 1.2 billion Muslims in the region will grow. The Gulf Cooperation Council (GCC), countries which include Saudia Arabia, Kuwait, Qatar, Bahrain, Oman and UAE may align themselves for greater economic union. Discussions have take place for a new regional single currency servicing GCC by 2010 in similar concept to the Euroland euro circulating the European Union.
UPDATED: March 17, 2005