Macroeconomic overview of United Arab Emirates, is it a good country to invest?

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Individual Country Report: Macroeconomic overview of United Arab Emirates, is it a good country to invest?

Economics in Global Scenarios- MITB39

Author: Talbi Feliks Faiz

University: ESIC Madrid, 2017

Table of contents 

General overview        3

1.1   United Arab Emirates        3

1.2   Macroeconomic Indicators        4

1.2.1 GDP and GDP per capita        4

1.2.2 Inflation        6

1.2.3 Exchange rate        6

1.2.4 Unemployment rate        6

1.2.5 Balance of Trade        7

1.2.6. Foreign Direct Investments        9

Investing in UAE        10

2.1 PESTLE Analysis        10

2.2 SWOT analysis        11

2.3 FDI related laws and regulations        12

2.4 FDI stimulating measures        12

Conclusions on FDI and general conclusion        13

Biblioghraphy        14

Table of Graphs and Figures        16

General overview

1.1   United Arab Emirates

 United Arab Emirates is a federal state in the Middle East, southeast region of Arabian Peninsula, consisting of seven emirates, each of which represents an absolute monarchy: Abu Dhabi, Ajman, Dubai, Ras Al Khaimah, Umm al-Qaywain, Fujairah and Sharjah. Some of these emirates fall under the definition of a dwarf state (figure 1).

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              Figure 1: Map of United Arab Emirates (Source: Pinterest (2017))

 In the head of UAE is the President of the United Arab Emirates, the Emir of the largest emirate - Abu Dhabi. The capital of the United Arab Emirates is also the capital of Abu Dhabi emirate, the city of Abu Dhabi. UAE’s population is estimated at 9.4 mln. , out of which only 11% are natives, roughly 1/3 of the population are ethnic Arabs (Worldpopulationreview.com. (2017)). The economy of the UAE is determined by large oil production, which provides the majority of government revenue and almost all foreign exchange earnings. The main branches of the economy are oil and gas, petrochemical industry, fish, metallurgy, small shipbuilding etc. United Arab Emirates is among world’s largest oil producers and exporters, member of OPEC (Organization of the Petroleum Exporting Countries) and the Gas Exporting Countries Forum (GECF).

1.2   Macroeconomic Indicators

1.2.1 GDP and GDP per capita

The Gross Domestic Product of UAE reached $348.74 bln. in 2016 (Graph 1), GDP (purchasing power parity) reached $671.1 bln. in 2016 with 3% of growth rate (cia.gov, 2017).

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As we can see the GDP lowered significantly since 2014, which can be explained by decrease in oil prices during the same period (Graph 2).

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This fact shows how important oil export and production are for UAE’s well-being. Furthermore, in UAE’s GDP composition Energy sector has the majority and represents roughly 31% of total GDP, followed by Real Estate (22%) (IMF, Economic diversification of Oil-Exporting Arab Countries, April 2016).

GDP composition by sector of origin was as follows in 2016: agriculture: 0.8%, industry: 39.5%, services: 40.1% (Cia.gov. (2017)).

GDP per capita in UAE is equal to $37,622.21 which is almost twice more compared to its neighbor Saudi Arabia ($20,082) and which places UAE 22nd in world gdp per capita ranking. Moreover, GDP per capita adjusted by purchasing power parity is equal to $67133.10 and puts UAE on 7th position in world rankings (Data.worldbank.org. (2017)).

1.2.2 Inflation

The inflation rate in UAE was 1.77% as for 2016, it was going down because of slight increase in oil prices, but went up to 4% in 2015 when prices went drastically down (knowing that at 2013 inflation rate was at 1.1% (Graph 3)

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1.2.3 Exchange rate

Currently 1 US Dollar is equal to 3.67 Arab Emirates Dirham, and it always was since 1997 when AED was fixed (pegged) at a rate of 3.67 to $1. It was done so for mainly two reasons: Oil prices are denominated in US dollars making the fixed AED convenient for oil transactions and stabilize UAE’s economy, while US remains a stable economy, UAE through this peg is benefiting from it (no exchange rate fluctuations).

1.2.4 Unemployment rate

Unemployment rate in UAE is low and keeps in range from 3% to 4% (Graph 4)[pic 9]

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This is one the lowest unemployment rates in the world, can be explained by high living cost, which prevents people from quitting a job before finding a new one. Knowing that only 11% are natives gives us a simple fact that the rest are people who came from abroad, and these people are required to have an employment visa in order to say in the country.

1.2.5 Balance of Trade

United Arab Emirates is the country highly depending on exports and imports, being a valuable player on international area because of its resources. The trade balance for 2016 was at $27.7 bln. with total export value of $298.6 and import value of $270.8 making it a positive balance of trade (Tradingeconomics.com. (2017)). On the graph 5 we can see the evolution of the balance of trade[pic 11][pic 12]

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