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ANALYTICAL REPORT
on
ECONOMIC AND SOCIAL DIMENSIONS
in the
UNITED ARAB EMIRATES
2009
1
uaestatistics.gov.ae
UNITED ARAB EMIRATES
National Bureau of Statistics
ANALYTICAL REPORT
on
ECONOMIC AND SOCIAL DIMENSIONS
in the
UNITED ARAB EMIRATES
2009
April 2010
3
Preface
This first issue of the report was prepared in April 2010 as one indica-
tor of the many achievements of the National Bureau of Statistics which was
established in 2009. We hope that we have achieved one of the most impor-
tant objectives of the report as a vital source of information and analysis for
various academic and private sector entities in the UAE and internationally
which contributes towards the sustainable development of the economy.
3
Table of Contents pages
Preface................................................................................................... 3
Table of Contents............................................................................... 4
List of Tables........................................................................................ 5
List of Figures..................................................................................... 6
Working Team.................................................................................... 7
Executive Summary........................................................................... 8
1. GLOBAL AND REGIONAL ECONOMIC DEVELOPMENTS... 12
1.1 Global economic developments.......................................................... 12
1.2 Regional developments............................................................................. 13
2. ECONOMIC DEVELOPMENTS IN THE UAE............................ 15
2.1 Macroeconomic indicators.................................................................... 15
2.2 Sectoral contribution to GDP................................................................ 20
2.3 Diversification strategy............................................................................. 23
2.4 Foreign trade and foreign assistance.................................... 25
2.5 The special case of Dubai........................................................................ 31
3. SOCIAL DEVELOPMENTS IN THE UAE................................... 33
3.1 Population and labor market................................................................ 33
3.1.1 Population.................................................................................................... 33
3.1.2 Labor force................................................................................................... 34
3.2 Healthcare........................................................................................................ 36
3.3 Education......................................................................................................... 39
3.4 Quality-of-life and social welfare........................................................ 42
3.4.1 Quality of life.............................................................................................. 42
3.4.2 Social welfare.............................................................................................. 42
4. FUTURE OUTLOOK...................................................................... 45
4.1 Price of oil......................................................................................................... 45
4.2 Real GDP growth forecasts..................................................................... 48
4.3 Inflation expectations................................................................................ 51
5. POLICY ISSUES AND RECOMMENDATIONS.......................... 53
5.1 Stabilization policy...................................................................................... 53
5.2 Industrial policy............................................................................................ 56
5.3 Labor policy.................................................................................................... 57
5.4 Trade policy..................................................................................................... 60
REFERENCES........................................................................................ 63
4
List of Tables pages
5
List of Figures pages
6
Working Team
General supervisor:
Authors:
Abdelqader Al Musawi
Ma’moun Kassab
Dr. Ali Al Shehi
Rashed Al Nuaimi
Sufyan Awad
Vidya Prakash
Zeinaldin Salmah
Dr. Ali Tafour
Abdelshafi Al Ashmawi
Abdalafu Jomaa
Mohammad Al Bahi
Abdullah Al Abdullah
Suha Abu Diyah
Design team:
Nesreen Tahoun
Osama Ababneh
Note: The analytical opinions on the databases and indicators in this report
are the opinions of the authors.
7
Executive Summary
The global financial crisis that erupted in 2008 had severe repercus-
sions on the world rate of growth with disproportionate effects on the econ-
omies of industrialized countries. The global rate of growth of GDP fell from
5.2% in 2007 to 3.2% in 2008 and to -2.2% in 2009 associated with dramatic
falls in industrial production and global trade. Governments responded to
the crisis by using expansionary fiscal and monetary policies to stimulate
aggregate demand, with some success, as OECD countries have begun to
show signs of economic recovery. The International Monetary Fund has esti-
mated that world output is expected to increase by 4% and will be primarily
driven by internal domestic demand. GCC economies were also adversely
affected by the fall in the price of oil in 2009 although the price of oil has
shown strong signs of an upward trend in recent months.
The slowdown in the Dubai property market during the same peri-
od was caused by a phenomenon known as Dutch Disease – a situation
in which capital outflows caused a dramatic fall in the profitability of the
previously booming real estate sector and thus causing resources (labor and
capital) to move out of this sector as evidenced by the slowdown in the
Dubai real estate market. Nevertheless, the case of Dubai can be considered
as a special case in the sense that large investments have been made in its
infrastructure such as the Dubai Metro, Burj Khalifa, the Al Maktoum Inter-
national Airport, new roads and bridges, and much more which will have
positive effects on economic growth in the long-run.
Despite the global financial crisis, the population of the UAE was es-
timated at 8.2 million in 2009 according to preliminary administrative re-
cord estimates. The results of the 2009 Labor Force Survey conducted by
the National Bureau of Statistics showed that 24.8% of the population was
below the age of 15 and that workers constituted 53% of the total popula-
tion. The percentage who was not willing to work was about 19.9%, and
the rate of unemployment was 4.2%. The UAE was again one of the most
advanced countries in terms of its healthcare services. It has pursued a strat-
egy of increasing longevity, strived to eradicate all types of diseases, and has
established an effective mechanism of an early detection system of chronic
diseases. The Ministry of Health also continues to develop primary health-
care services through the establishment of an extended network of world-
class clinics all over the country. The UAE also continued to provide equal
educational opportunities to all its residents, nationals and expatriates alike,
and continues to tackle unique challenges in its education system given its
highly diverse population. All of these social achievements have enabled
the UAE to be ranked as the No.1 country with the best Quality of Life in
9
the Middle East and North Africa region as ranked by the highly prestigious
Economist Intelligence Unit (EIU) Survey in 2009, and No.15 in the world
out of 160 countries surveyed.
The future outlook of the UAE economy depends on the future price
of oil and the success of its diversification strategy into non-oil high-value
manufacturing and service sectors. The current price of oil is in the $75-$85
price range with strong upward pressures caused by the recovery in the US
and global economy. Real GDP growth forecasts for the UAE economy have
ranged from a high of 3.2% to a low of 0.6% with an average estimated rate
of growth of 2.25% as reported by the IMF, the UAE Central Bank, and by
various local and international banks and financial institutions. As for the
rate of inflation in 2009, it eased to 1.56% with expectations that it will fall
further to 1.1% at the end of 2010, and will gradually increase to 2-2.5% in
2011 as the global economic recovery gains strength.
10
Perhaps the most significant labor policy implemented in 2009 was
the Wage Protection System (WPS) which was considered as a breakthrough
in monitoring payments to unskilled construction workers. Inspections in-
creased from 45,000 in 2008 to 75,000 in 2009, and 677 companies were
fined for non-compliance of which 436 were first-time offenders, and penal-
ties for 241 repeat offenders were doubled. The UAE government in 2009
also continued to develop trade agreements with its trading partners espe-
cially within a more dynamic and globalized economy which requires much
more aggressive policies to enable it to compete in a more hostile global
trading environment in the face of protectionist policies by the rest of the
world. The free trade policies pursued by the UAE in 2009 will undoubtedly
increase domestic productivity and equip its new and budding high-value
industries to better compete internationally.
11
1. GLOBAL AND REGIONAL ECONOMIC DEVELOPMENTS
1.1 Global economic developments
The global financial crisis that began in late 2007 and extended into
the 2008-2009 period was perhaps the most severe crisis since the Great
Depression of 1929-1933. Global GDP fell by at least 2.2% in 2009 associated
with dramatic falls in industrial production and global trade1 . The primary
cause of the crisis was the simultaneous bursting of the real estate and stock
market bubbles which were fuelled by low interest rates and easy credit.
The crisis was expectedly accompanied by high unemployment rates which
will take well into 2011 for a full recovery into its pre-crisis levels due to
permanent structural changes as certain industries have been completely
relocated. The most visible effect of the crisis has been a global shortage of
liquidity and a vertiginous loss in the appetite for risk. The crisis could be
characterized as a ‘liquidity trap’ – a situation in which the rate of interest is
so low that neither financial intermediaries nor the public desire to engage
actively in lending and borrowing activities.
12
cent months, there is a looming fear that the recent upward trend in global
stock and real estate markets might be a sign of renewed bubbles fuelled by
government stimulus packages instead of economic activity being fuelled
by genuine consumer demand3 .
3 Consumer demand in high-income countries can be as high as 70% of total demand com-
pared to the share of investment demand or foreign trade.
4 See IMF (January 2010).
5 See IMF (October 2009).
6 See General Secretariat of the Arab League (2009), United Arab Economic Report, pp 13-18.
13
system to support the loan making capabilities of financial intermediaries
and re-establishing confidence. In addition, these governments formulated
economic plans and policies to increase government investment and sup-
port economic activities that were adversely affected by the crisis.
GCC economies were also adversely affected by the fall in the world
price of oil which fell from an average of $96 per barrel in 2008 to an aver-
age price of $60 in 2009. OPEC countries, specifically GCC countries, played
an important role in preventing further falls in the price of oil by cutting oil
production which caused a 30% decline in the nominal GDP of GCC econo-
mies in 2009 compared to 2008, or from $1.2 trillion in 2008 to $835 billion
in 2009. Consequently, GCC countries experienced a consolidated budget
deficit of $5 billion in 2009 compared to a surplus of $225 billion in 2008,
and inflation rates during the same period fell sharply to an average of 1.5%
in the UAE and 6% in Qatar in 2009 from 12.3% and 13.1% respectively. Arab
countries are expected to experience a rate of growth of 5.2% in 2010 which
should considerably increase transfers and remittances to countries such
as Jordan, Syria, Lebanon, Morocco, Sudan, and Egypt with positive effects
on the labor market. This higher rate of growth will directly and indirectly
affect economic activity and trade between the GCC and other economies
in the region. GCC countries were not affected as severely as other countries
due to their huge oil revenues and which will witness tangible and strong
growth in 2010 based on their large oil revenues, relatively small size, small
populations, increases in income, and the completion of large and high-
quality infrastructure projects. Moreover, GCC countries enjoy political and
security stability and are considered as open economies with very low tax
rates compared to tax rates in the rest of the world.
14
2. ECONOMIC DEVELOPMENTS IN THE UAE
2.1 Macroeconomic indicators
15
conducive investment environment. Government purchases9 constitute
about 19% of total final demand which is on par with percentages in other
high-income countries. The importance of this component of aggregate de-
mand has been increasing in recent years due to the deeper involvement of
the government in the economy in the form of expansionary fiscal policies
in short-run stabilization policies to offset reductions in consumer expen-
diture and investment as a source of aggregate demand to boost GDP. The
final component of aggregate demand in the UAE economy is net exports10
which was at a relatively small trade surplus of $16 billion, down by 45%
over its 2008 level. This was primarily due to the large decline in the price of
oil from about $145 in mid 2008 to about $70 in 200911 .
16
Table 2.10 Selected Macroeconomic Indicators 2005-2009 ($ billion)
18
service sectors such as real estate, banking, and tourism at the expense of
traditional tradable sectors such as manufacturing. This phenomenon was
clearly visible in the 2006-2008 period in the UAE during which large capital
inflows, caused by abnormally high oil prices, increased the cost of living,
especially in Dubai where the rate of inflation hovered around 10%. The
global financial crisis and the relatively low price of oil have placed downward
pressure on the CPI with estimates of inflation ranging from 1 to 2%13 . Thus,
it is very useful to look at the sectoral contribution of GDP to determine the
changing influence of various sectors on aggregate economic activity.
13 These estimates were calculated by the Price Indices Department at the National Bureau
of Statistics.
19
2.2 Sectoral contribution to GDP
The oil sector in 2009 contributed about 29% to GDP with the
rest accounted for by the non-oil sector14 . As outlined in the economic
development plans of both Abu Dhabi and Dubai15, the long-term economic
development strategy of the UAE is to diversify the economy away from oil
into non-oil service sectors such as trade, logistics, tourism, and finance,
and high-value manufacturing, to name just a few. As shown in Table
2.20, the GDP contribution of the non-oil sector in 2009 was 71% with the
share of manufacturing the highest at 16.2% followed by the construction
sector at 10.7% and wholesale and retail trade and repairing services at
9.0%. Although the real estate & business services sector experienced a
considerable slowdown in 2009, it still contributed a relatively large share
of 8.2% to GDP with some large infrastructure projects in Abu Dhabi
offsetting the decline in Dubai. The role of the government in the provision
of various types of government services has traditionally been high in the
UAE at 8% which reflects the heavy involvement of the public sector in the
provision of health and education services to both its nationals and the
expatriate population. Although the financial sector has been identified as
an important driver of growth in the diversification strategies of both Dubai
and Abu Dhabi, financial corporations contributed about 5.8% to GDP in
2009 with considerable improvements in their sophistication, although
their lending abilities were considerably constrained by the global financial
crisis and the consequent shortages in liquidity especially their ability and
willingness to give out loans to small and medium enterprises, an important
contributing factor in the general slowdown in economic activity in 2009
compared to previous years. Tourism was also adversely affected by the
global financial crisis although this is not evident from the data in Table 2.20
since the tourism sector is considered as a ‘satellite’ account in the System
of National Accounts (SNA)16 .
14 The oil sector includes oil and natural gas and is sometimes referred to as the ‘hydrocar-
bon’ sector.
15 For the economic development plan of Dubai, see Dubai Strategic Plan (2015); and for the
Abu Dhabi plan, see Abu Dhabi Economic Vision (2030).
16 See European Commission et al (2009), System of National Accounts (SNA 2008), pp 531-
534.
20
The country has also made important advances in new sectors with
high expected rates of growth in the medium and long-terms. Both Dubai and
Abu Dhabi have the required infrastructure to propel a successful aerospace
sector by developing capabilities in the manufacturing and maintenance of
civil and military aerospace equipment and parts, defense electronics, and
other related equipment. In promoting a pharmaceutical, biotech, and life
sciences sector, the UAE has also started to develop capabilities in key areas
such as Intellectual Property Rights (IPRs), international trade agreements,
Foreign Direct Investment (FDI) attraction mechanisms, and world class
marketing and distribution capabilities. The country’s geographical
position in the Middle East and its advanced telecommunications network
will also enable it to compete effectively in this high growth sector. The
telecommunications sector is a high-tech fast-paced capital-intensive
(and expensive) business that requires constant investments in new and
upgraded infrastructure, an undertaking that can only be carried out by
wealthy countries such as the UAE to drive its diversification strategy into
these new sectors17 .
17 For a comprehensive description of these new sectors for the case of Abu Dhabi, see Abu
Dhabi Economic Vision (2030), pp 113 – 120.
21
Table 2.20 Sectoral contribution to GDP (%) 2005 - 2009
Sector 2005 2006 2007 2008 2009
Agriculture, livestock and fishing 2.2 1.9 1.7 1.6 1.7
Mining and quarrying 32.4 32.6 33.2 33.8 29.2
Crude oil and natural gas 32.1 32.3 32.9 33.5 28.9
Quarrying 0.3 0.3 0.3 0.3 0.3
Manufacturing 14.5 15.9 15.4 15.1 16.2
Electricity, gas, and water 1.8 1.6 1.5 1.5 1.6
Construction 9 9.7 9.6 9.7 10.7
Wholesale and retail trade, and
9.2 8.8 8.8 8.6 9.0
repairing services
Restaurants and hotels 1.8 1.7 1.7 1.6 1.8
Transport, storage, and
6.8 6.7 6.7 6.5 7.1
communications
Real estate and business services 7.7 7.3 7.3 7.7 8.2
Social and personal services 1.8 1.7 1.7 1.7 1.9
Financial corporations 5.7 5.5 5.4 5.3 5.8
Government services 8 7.5 7.8 7.5 8.0
Domestic services of households 0.6 0.6 0.6 0.5 0.5
Less: Imputed bank services 1.5 1.4 1.3 1.3 1.4
Source: National Bureau of Statistics, Abu-Dhabi, United Arab Emirates.
22
2.3 Diversification strategy
Although the oil sector will continue to play a leading role in the
economy of the UAE, other non-oil sectors are planned to grow at an annual
average rate exceeding 7% in Abu Dhabi, and 11% in Dubai, with lower growth
rates in the other emirates18. The diversification strategy of Abu Dhabi
focuses on 12 sectors, namely, energy (oil and gas); petrochemicals; metals;
aviation, aerospace, and defense; pharmaceuticals, biotechnology, and life
sciences; tourism; healthcare equipment and services; transportation, trade,
and logistics; education; media; financial services; and telecommunication
services19. In Dubai, six ‘strategic thrusts’ were identified, namely, travel
and tourism; financial services; professional services; transport and logistics
services; trade and storage; and construction, thus maintaining the focus on
high-value sectors that boost overall economic growth.
One can deduce from this above brief description of the UAE’s
diversification strategy that ‘service’ sectors are expected to play increasingly
important roles in the foreseeable future20. The question that needs to be
asked is does this strategy work to offset or reinforce dominant market forces
especially within an increasingly globalized world? To answer this question,
we need to identify the market forces that allocate resources between
tradable (manufacturing) and non-tradable (service) sectors21. Given that
the UAE is an important supplier of oil to the global economy, capital flows
(both inflows and outflows), fuelled by changes in the world price of oil,
will affect the domestic economy. Specifically, as the global price of oil
increases, the domestic manufacturing sector will lose its competitiveness
and resources will begin to move from the tradable manufacturing sector
18 See Abu Dhabi Economic Vision 2030 and Dubai Strategic Plan 2015.
19 See page 113 in Abu Dhabi Economic Vision 2030.
20 Service sectors are also sometimes known as non-tradables in the sense that they cannot
be ‘traded’ internationally, the classic example being ‘haircuts’ which cannot be exported or
imported. Non-tradables are formally defined as goods and services that are produced do-
mestically and are used only for domestic consumption, construction and real estate being
good examples.
21 Although the strategic thrust of the UAE is towards service sectors, support to manu-
facturing is not neglected especially by Abu Dhabi as demonstrated in the establishment of
capital intensive manufacturing plants for petrochemicals, pharmaceuticals, and the like.
23
to the non-tradable service sector. In other words, a diversification strategy
during periods of high oil prices (above $50) will reinforce the strategic
thrusts into the service sectors. Conversely, a diversification strategy during
periods of low oil prices (below $50) will offset the movement of resources
into service sectors22.
22 This phenomenon is known as Dutch Disease (or de-industrialization). For a more detailed
examination of this phenomenon, see de Silva (1994).
23 See Imbs, J. and Romain Wacziarg (2003).
24
2.4 Foreign trade and foreign assistance
As for sources of imports, Table 2.41 and Figure 2.41 show that imports
from India grabbed first place, followed by imports from China and the US.
Imports from Germany were at fourth place at AED 30 billion, followed by
imports from Japan, the UK, Republic of Korea, Italy, France, Saudi Arabia,
and from the rest of the world with a total value of merchandise imports at
AED 447.4 billion for 2009.
25
Table 2.41 Value of imports from major sources 2009 (AED billion)
Country Imports %
India 61.7 13.8
China 47.8 10.7
United States 41.5 9.3
Germany 30.0 6.7
Japan 26.9 6.0
United Kingdom 18.8 4.2
Republic of Korea 16.9 3.9
Italy 17.5 3.8
France 14.0 3.1
Saudi Arabia (KSA) 12.2 2.7
Other countries 160.2 35.8
Total 447.4 100
Source: National Bureau of Statistics, Abu-Dhabi, United Arab Emirates.
26
Non-oil merchandise exports totaled about AED 66 billion in 2009
destined to various countries most prominently to India, Switzerland and
Qatar, followed by Saudi Arabia, Iran, Oman, Pakistan, Nigeria, Iraq, and
Kuwait as shown in Table 2.42 and Figure 2.42.
Imports
Country %
(AED billion)
India 21.9 33.5
Switzerland 8.7 13.3
Qatar 4.9 7.5
Saudi Arabia 3.0 4.6
Iran 2.0 3.1
Oman 1.9 2.9
Pakistan 1.8 2.8
Nigeria 1.4 2.1
Iraq 1.1 1.7
Kuwait 1.2 1.8
Other countries 17.4 26.6
Total 65.3 100
27
Figure 2.42 Value of non-oil exports to major destinations 2009
(AED billion)
28
As for re-exports, Table 2.43 and Figure 2.43 show that Iran, India, and
Iraq grabbed the highest shares followed by Saudi Arabia, Qatar, Switzerland
and other countries, reaching slightly over $40 billion in 2009.
Country Re-exports %
Iran 26.0 17.6
India 24.6 16.6
Iraq 14.3 9.7
Saudi Arabia 6.3 4.3
Qatar 4.9 3.3
Switzerland 4.1 2.8
Bahrain 4.0 2.7
Afghanistan 3.9 2.6
Hong Kong 3.9 2.6
Oman 3.3 2.2
Other countries 52.4 35.5
Total 147.7 100
29
Figure 2.43 Value of re-exports by destination 2009
The UAE has also provided substantial material and financial support
at the international level that reached over $ 8.7 billion (AED 32 billion)
during the 2000 – 2008 period which is considered as a very high amount
compared to the contributions of countries such as Australia at $14.7 billion,
Turkey at $ 3.3 billion, Norway at $21.8 billion, and which have higher national
incomes and much larger populations compared to the UAE24. The UAE
has also provided both material and financial support at the international
level through its foreign assistance programs such as developmental and
humanitarian aid, and charitable contributions to more than 140 countries
worldwide through 25 foreign assistance organizations. The value of this
foreign assistance reached AED 132.6 billion (or $36.1 billion) for the 1971 –
2009 period of which over AED 32 billion (or $8.7 billion) was for the 2000
- 2008 period alone. The Middle East region received the highest share of aid
at 46.7% followed by the North Africa region at 22.3%.
30
2.5 The special case of Dubai
31
international markets. Hence, because of these higher profitability levels
in the non-tradable service sectors (such as real estate, business services,
banking, transportation, etc) resources (both labor and capital) began
to move into these sectors as evidenced by the booming real estate and
construction sectors. The global financial crisis that erupted in mid 2008
caused a ‘reverse’ Dutch Disease effect and reduced the profitability of the
real estate sector as reflected in the slowdown in economic activity. In other
words, the global financial crisis caused large capital outflows which in turn
caused prices to drop as reflected in a low rate of inflation of 1.56% in 200927
compared to an inflation rate of 12.3 % in 2008.
The case of Dubai is ‘special’ also because very large investments have
been made in its soft infrastructure, in both industry and government, which
will have highly positive effects on the long-run development of the emirate.
When economic commentators speak of productivity, they normally imply
labor productivity. But labor productivity also depends on the amount of
capital that is ‘mixed’ with labor, on his or her level of education, on his or her
health, and on many ‘other’ factors which influence the overall productivity
of an economy – what is known as total factor productivity. But perhaps the
biggest improvement in the overall productivity of the UAE in general, and
specifically in Dubai, is the high efficiency of Dubai government agencies and
departments which adopt first-best policies and international best practices
in the smooth operations of a truly business enabling environment28 . One
is caught by surprise to notice that in the IMF’s Article IV Consultations
with the UAE Federal Government, both of these issues - the phenomenon
of Dutch Disease and the improvements in total factor productivity – are
not even mentioned as contributing factors to the slowdown in the Dubai
real estate sector and the long-term improvements in overall productivity
respectively, which will position Dubai as truly one of the most competitive
cities in the long-run, although the IMF’s Consultations acknowledge a
gradual and sustainable economic recovery in the medium-term29.
32
3. SOCIAL DEVELOPMENTS IN THE UAE
3.1 Population and labor market
3.1.1 Population
Estimates based on administrative records show that the population
of the UAE in 2009 reached about 8.19 million compared to 8.07 million in
2008 (See Table 3.10). Despite the global financial crisis which contributed
to the slowdown in economic activity and the associated decline in the
demand for labor in various projects throughout the GCC region, there are
indications that expatriates continued to arrive in the various emirates with
males constituting a larger share than females due to the large number of
male expatriate workers pouring into the various emirates in search of work.
The proportion of workers in the 15-59 age group was also the highest at
81.9 % of the total population in both 2008 and 2009 as shown in Table 3.10.
Table 3.10 Distribution of UAE population by age-group 2008, 2009
2008 2009 *
Age Group
Pop % Pop %
0 -14 1,354,707 16.8 1,375,913 16.8
Data from the Labor Force Survey conducted by the National Bureau of
Statistics in May 2009 also show a natural growth of the population pyramid
in the 20-44 age group, for both males and females, with a larger increase
for males due to greater activity in migration and expatriates of this group.
This is due to the larger immigration of expatriates in this group to attract
working age employees. The results of the survey show that the percentage
33
type of nationals reached 103% meaning that for each 100 females, there
were 103 males with a country average of 5.3 individuals per household
and an average of slightly over 8 individuals per household for nationals.
The survey also showed that the share of the population with secondary
degrees and higher reached 54% with an illiteracy rate of 5% in the country
as a whole. As for nationals, it was shown that the share of nationals with
secondary degrees and higher reached 47% with an illiteracy rate of 7%. As
for the educational status of nationals for both males and females, illiteracy
rates and the share with university degrees rose concurrently between
males and females with females preferring to pursue their higher levels of
education.
34
and technical occupations, and finally clerical occupations. Nationals were
primarily employed in service and sales occupations followed by military
services and scientific and technical occupations. Male nationals were
primarily employed in military services (25.6%), followed by services and
sales occupations (24.3%), and finally technical and scientific occupations
(17%). National females were mainly employed in technical and scientific
occupations (33.8%), followed by clerical occupations (27.7%), and as
technicians in scientific and technical fields (21.3%). The survey also
showed that the private sector was the biggest employer (58.4%), followed
by employment at local and Federal Government entities for nationals at
39.1% and 45.8% respectively for both males and females.
35
3.2 Healthcare
Human development has always been at the heart of the sustainable
development strategy of the UAE Among the most important achievements
in this respect is the provision of excellent healthcare services which are
comparable to the highest international standards in terms of both the
quantity and quality of healthcare. This has led to a noticeable increase in the
health standard of its citizens, on par with standards in other high-income
courtiers. The UAE has continued to develop its healthcare and preventive
medical programs and has established the necessary institutions to cater for
the health of its growing population over the years.
36
to international best practices and criteria, and the development of the
capabilities of healthcare employees in all fields and specializations in close
cooperation with local agencies, universities, distinguished foreign partners,
and with many others, with the aim of building an extended medical network
capable of achieving its many delegated tasks in the UAE. The Ministry of
Health has also developed a comprehensive medical drugs policy with laws
and regulations that govern the distribution and use of drugs for medical
purposes, and for controlling side effects. At the same time, the Ministry of
Health has extensively developed primary healthcare services through the
establishment of an extended network of clinics all over the country. These
clinics provide basic medical services, dental services, health awareness, and
preventive medicine which cover the monitoring and fighting of diseases,
early detection, vaccinations, and the provision of excellent healthcare
services to terminally ill patients, including various health awareness and
educational programs with specialized entities throughout the UAE.
Data from various sources show that 6.2 million medical prescriptions
were handed out in 2007 through 160 government pharmacies, and the
number of hospitals reached 34 hospitals with 7,607 beds and more than
197 clinics and health centers compared to only 7 hospitals, 700 beds, and
12 clinics and health centers in 197131. The development of healthcare
services continued throughout the past decade during which the number
of government hospitals reached 32 hospitals in 2008, 243 government
clinics and health centers, 2,886 government doctors and 365 dentists,
and 15,443 government nurses in various specializations as shown in Table
3.20 with high international standards. The private sector’s role has also
gained importance in recent years with over 50 private hospitals and over
2000 private clinics and health centers. In 2008, there was also a noticeable
increase in the number of doctors by about 30% to 13,311 medical doctors,
and a 40% increase in the number of nurses to 24,131 nurses with various
specializations which are clear signs of considerable improvements in
healthcare services.
37
Table 3.20 Healthcare indicators 2007, 2008
38
3.3 Education
The success of the education system in the UAE is reflected in the spread
of educational opportunities throughout the 7 emirates as demonstrated in
Table 3.30 in which the number of public schools reached 1,183 schools
with 750,234 students in 2008-2009 compared to 1,181 schools and 684,967
students in 2007-2008.
39
Table 3.30 Number of schools, students, and teachers in 2007/2008
and 2008/2009
Description 2007 / 2008 2008 / 2009*
Number of schools 1,181 1,183
Public 727 721
Private 454 462
Number of students 684,967 750,234
Public 262,029 262,373
Private 422,938 487,861
Number of teachers 40,163 47,267
Public 22,778 22,732
Private 17,385 24,535
* Preliminary estimates.
Source: National Bureau of Statistics, United Arab Emirates.
The number of private schools in the UAE reached 462 schools serving
487,861 students, and the number of faculty and administrative staff reached
a total of 47,267 employees of which 22,732 were in the public sector and
24,535 in the private sector32. Universities and colleges of higher education
also spread rapidly in the last few years compared to only one university in
1977. There were 64 universities and colleges of higher education in 2009
which produced over 15,000 graduates of which 9,400 were nationals and
5,600 were expatriates33. The UAE government continues to develop the
educational system for the coming years as demonstrated in its strategy to
support growth at its highest levels to be on par with advanced countries
through the allocation of the required funds by the Ministry of Education
to expand model schools, support teacher training, and create a highly
conducive environment for businessmen to invest in educational facilities
which will generate benefits to all.
32 Annual Reports for 2008-2009 and 2008-2007. Ministry of Education, United Arab Emir-
ates.
33 Annual Economic and Social Report 2008, Statistics Center, Ministry of Economy, Abu
Dhabi, UAE.
40
It has become increasingly important to coordinate between
demographic, educational, and health policies to determine the future
needs of the labor force for the long-term growth of the UAE economy. This
requires the development and upgrading of educational curricula in schools
and universities, teacher training, upgrading of skills and qualifications,
and much more, such that the supply of graduates from the educational
system matches the demand for labor, especially for nationals so that they
are able to substitute for the large expatiate labor force with all its different
specializations. To achieve this, the initial steps should start in schools by
improving student performance at both private and public schools such
that they reach the highest standards of education globally. This would
also require improvements in both the soft and hard infrastructures of
the educational system such as construction of modern schools and
improvements in the technical qualifications of the teaching faculty and
administrative staff. Educational policies have also strived to deepen the
role of higher education institutions such as colleges and universities to
fulfill societal requirements and achieve a much needed balance between
the supply of graduates from these institutions on the one hand, and the
demand for labor in its various specializations on the other.
41
3.4 Quality-of-life and social welfare
3.4.1 Quality of life
The UAE was ranked the No.1 country with the best quality of life
in the Middle East and North Africa region by the Economist Intelligence
Unit (EIU) 2009 Quality of Life Index34. Globally, the Quality of Life Index
ranked the UAE 15th in the world out of 160 countries surveyed. This
reflects the prosperity the UAE has seen in the past years and the result
of the ongoing strategic initiatives by the UAE Government across all sec-
tors including economy, security, health and education. The Economist
Intelligence Unit’s Quality of Life Index relates subjective life satisfaction
surveys to objective determinants of the quality of life across 160 countries.
The UAE ranking was based on the country’s impressive civic development
and administration and high GDP growth, as well as family and healthcare
services, life expectancy, and safety and security. All that has been offered
and achieved so far in terms of improvements in the standard and quality of
life reinforces the sound policies, initiatives, and procedures adopted by the
UAE in support of various economic and social activities which will further
enhance its rankings in the coming years, placing the UAE in the top 10
countries globally in terms of its quality of life.
34 See Economist Intelligence Unit (2009). The Quality of Life index is based on a unique
methodology that links the results of subjective life-satisfaction surveys to the objective de-
terminants of quality of life across countries.
42
Table 3.40 Public social organizations for the 2004-2009 period.
44
4. FUTURE OUTLOOK
4.1 Price of oil
The current price of oil is hovering around $80 per barrel of crude
oil with somewhat weak upward pressures caused by the weak global
recovery especially in OECD countries. This $80 price level is compared
with an abnormally high price of about $150 per barrel in mid 2008 which
fell to $60 at the end of 2009. These large fluctuations are neither good for
consuming countries nor for producing countries and both of these groups
have tacitly agreed at a ‘fair’ price of around $75. However, the current
economic recovery will place an upward pressure on the price of oil but this
pressure will be subdued due to first, a relatively weak global recovery as
OECD governments begin to adopt a more laissez-faire policy approach and
somewhat hold back their expansionary monetary and fiscal policies which
were pursued aggressively in the past 2 years, and secondly, OECD countries
have shifted away from manufacturing sectors, which are fuel-intensive, to
service sectors, which are more labor and technology intensive35. On the
other hand, the economic growth strategies pursued by many oil producing
countries, especially in the Gulf region, is estimated to increase domestic
demand for oil by 4.5%, or by 320,000 barrels per day in 2010 alone36. Unless
production is increased substantially, this will put an upward pressure on
prices as global supply is diverted to domestic consumption. The net effect
on the price of oil will ultimately depend on the extent to which the increase
in domestic demand is met by the increase in new production. However,
advances in renewable sources of energy will determine the consumption
share of these sources of energy although it is estimated, as shown in Figure
4.10, that these sources of energy were only 3.5% of total consumption in
2007.
35 Manufacturing during the past 20 years has moved from OECD countries to emerging
economies especially to Asian countries due to globalization effects.
36 See International Energy Agency, Paris, March 2010.
45
Figure 4.10 Total final world consumption by fuel 2007 (%)
37 The National newspaper, March 8, 2010, “ADNOC to lift curb on oil output”, Abu Dhabi,
UAE.
38 Non-conventional oil deposits are deeper than conventional ones and require consider-
ably more drilling efforts and capabilities.
46
up later in the year to mop-up the excess supply39. These promised cuts in
production were 4.2 million barrels per day with a compliance rate of only
53%. Supply side factors are also heavily influenced by competition from
non-OPEC oil producers40.
The abnormally high price of oil in mid 2008 at almost $150 per barrel
and the subsequent fall to $60 in 2009 has created a psychological price-floor
of $50 below which the price of oil is not expected to fall in the foreseeable
future especially in light of the current global economic recovery. As most
analysts, oil producers, and consuming countries have stated, a price of $75
is considered a ‘fair’ price, high enough to provide a cost effective revenue
to oil exporters to meet their investment requirements, and low enough
not to decrease the relative cost of alternative renewable sources of energy.
Moreover, the developmental needs of emerging economies in the Gulf
countries will increase the need for producing more oil as ‘internal’ domestic
47
demand increases. This induced increase in supply and the autonomous
modest increases in both domestic and global demand for oil will more or
less offset each other, and, depending on the relative effects of these opposing
market forces on the price level, it will most likely have a negligible effect
on the short-term price of oil barring any unforeseen political, security, or
other external shocks to the global oil market, leaving the global price of oil
to fluctuate between $70 and $90 per barrel in the short-term.
Figure 4.20 Real GDP growth forecasts by various entities for 2010
48
This relatively wide disparity in GDP forecasts is due to the different
weights attached to the various drivers of growth in the UAE. Chief among
these is the world price of oil which is expected to hover around the $70-
$90 price range in the short-run given the recovery in the global economy
especially regionally in Asia which is expected to boost the regional demand
for oil by about 4% in 2010-201141. The UAE also plans to pump more oil to
meet this extra demand as recently announced by the Abu Dhabi National
Oil Company (ADNOC), although it was agreed in the most recent OPEC
meeting in Vienna (March 18, 2010) that production quotas will remain
unchanged to maintain the current ‘fair’ price of oil in the $70-$90 range.
The global economic recovery will also increase the non-oil GDP growth
rate to 1%-1.5% after growing at a relatively low rate of 1% in 2008 and
an average rate of growth of 8% for the 2005-2007 period. In the medium
and long-runs, the UAE will leverage its excellent infrastructure, both soft
and hard, to meet the regional demand for services and logistics especially
in Dubai where trade, logistics, and financial services have been slowly
replacing real estate activities. Tourism is also beginning to rebound from
its lows in 2008-2009, and large infrastructure projects such as the Dubai
Metro, Burj Khalifa, Al Maktoum International Airport, Dubailand, the
Yas and Saadiyat Island developments in Abu Dhabi, and many others will
definitely attract more tourists as the global recovery gains momentum
in the coming few years. On the monetary side, although growth in the
broad money supply (M2) will slow down to 6.3% in 2010, the Central Bank
has moved decisively to guarantee all bank deposits by creating an AED 50
billion ($13.6 billion) credit facility, in addition to a liquidity injection of
AED 70 billion ($19 billion) into the banking system in 2009. In addition
to these drivers of growth, the Ministry of Economy has just started to
implement its many initiatives to diversify the economy in-line with the
National Charter 2021 by promoting growth in industry, entrepreneurship,
small and medium enterprises, renewable energy, and many other sectors
to help build a competitive economy and create a highly attractive business
environment.
49
Against this positive background, the growth prospects of the UAE are
somewhat subdued due to weaknesses in the global economic recovery and
the slowdown in the real estate sector which has traditionally taken much
longer to recover than other sectors. The restructuring of the $24.8 billion
debt of Dubai World42 will undoubtedly slow down the rate of growth of
the Dubai economy but this will be more than offset by strong growth in
Abu Dhabi especially if the world price oil holds at its ‘fair’ value of $70-
$90 in 2010-2011 which will finance the diversification strategy of the UAE
across all the 7 emirates. Consumer spending has also been held back by
the reluctance of banks to provide loans which grew by only 2.4% in 2009
compared to an unprecedented 40% growth rate in 2008. Non-Performing
Loans (NPLs) are expected to increase from 4.4% in 2009 to 6.5% in 2010
although the Central Bank has taken precautionary measures by creating
special credit facilities to the banking system. Some observers have argued
that the delays associated with the Dubai World debt restructuring process
will have a negative impact on growth since foreign banks and investors
are reluctant to invest under this uncertainly. But as stated on more than
one occasion, the Federal Government stands ready to support individual
emirates even though the increasing role of the government in the day-
to-day operations of a market type economy is not to be encouraged as
demonstrated by the ‘exit strategies’ of many governments in high-income
countries. GDP growth prospects of the UAE will be more favorable than
high-income countries in advanced economies but will lag behind other
emerging economies, especially in Asia, in the short to medium terms.
Moreover, the current low rate of inflation has worked to the advantage of
the domestic economy by lowering the cost of production and improving
the competitiveness of the economy43.
50
4.3 Inflation expectations
The rapid pace of economic development during the period before the
financial crisis in 2008 caused high rates of inflation throughout the emirates
where it exceeded 12% until the end of the crisis. In 2009, the rate of inflation
eased to 1.56% with expectations that it will be as low as 1.1% at the end of
2010 and will gradually increase to 2-2.5% in 2011 as the global economic
recovery gains momentum44. In 2008, the main cause of the increase in the
inflation rate to 12.3% was the upward pressure on rents which constitutes
about 45% of the total basket of goods and services used in the calculation
of the Consumer Price Index (CPI)45. This high rate of inflation was also the
result of increases in the price of fuel compared to other countries in the GCC,
and increases in the price of imports especially of foodstuffs which reached
85% of the total food requirements of the UAE. This ‘imported inflation’ was
caused by the fall in the value of the US dollar against the euro and other
major currencies especially since a large percentage of UAE imports are
from the EuroZone Area46. Low rates of interest, as a result of expansionary
monetary policies, also contributed to the high rates of inflation in 2008 as
liquidity increased and consumer spending exploded which contributed to
the increase in wage rates and which, in turn, were passed on to consumers
through higher retail prices.
In 2009, the UAE witnessed a large fall in prices during which the rate
of inflation was at a very modest 1.56%. This achievement was primarily due
to the extended efforts of the Ministry of Economy to protect consumers by
checking the increase in prices. Moreover, the recent economic slowdown
has forced many consumers to spend less and save more which has placed
further downward pressure on the price level. Similarly, private investment
expenditure by foreigners and domestically was considerably reduced due
to market uncertainties which lowered prices further by slowing down
aggregate demand. At the retail level, food price indices have exhibited a
downward trend until mid 2010 after which prices are expected to rise as
the economic recovery gains momentum. This was evidenced by the recent
44 See Bani Melhem, Ahmad Q. (2010).
45 See Jomaa, Abdalafu (2010).
46 The UAE adopts a fixed exchange rate regime with the US dollar at $ 0.27 per UAE dirham.
51
upward pressure on the prices of sugar and rice which increased between
15% and 20% in the first quarter of 2010. The gradual economic recovery in
2010, especially in the real estate sector, is expected to slightly increase the
rate of inflation between 1% and 1.5% by the end of 2010, and between 2%
and 2.5% in 2011. On a quarterly basis, the UAE experienced a slight reversal
in the inflation rate by 0.01% at the end of the 1st quarter in 2010 compared
to the end of the 1st quarter in 2009 which shows that inflation is no longer
a major threat and that the authorities have succeeded in reducing the rate
of inflation. The inflation rate also improved further by 0.51% at the end of
the 1st quarter of 2010 compared to the 4th quarter of 2009.
52
5. POLICY ISSUES AND RECOMMENDATIONS
5.1 Stabilization policy
The global financial crisis caused severe liquidity shortages in the UAE
banking system which forced banks to hold back their loan making activities,
in turn constraining consumer spending. The government intervened
through expansionary monetary and fiscal policies to cushion the adverse
effects of the downturn by adopting counter-cyclical stabilization policies
to support aggregate demand and ensure sufficient liquidity in the financial
system. In a fixed exchange rate system, as adopted by the UAE with the US
dollar, interest rates in both countries become closely linked. As a result, the
low rate of interest in the US was clearly reflected in the low rate of interest
in the UAE, and the ‘degrees of freedom’ available in using expansionary
monetary policies by reducing interest rates further were severely
constrained. In addition, the fall in the real estate market in Dubai and the
ensuing Dubai World debt crisis squeezed liquidity further as Several do-
mestic banks were exposed to the crisis. This temporary loss of confidence
caused a capital flight and reduced bank liquidity further. The monetary
authorities of the UAE, specifically the Central Bank, moved aggressively to
reassure financial markets of its readiness to support any bank domestic
and foreign in the face of increases in Non-Performing Loans (NPLs) or large
exposures to Dubai World. To this end, the Central Bank created an AED 70
billion (about $ 19 billion) facility for banks in the UAE and lowered interest
rates further to boost economic growth and consumer expenditure. In early
2009, the monetary authorities also began to monitor bank liquidity more
closely to determine the health of banks and the quality of its assets. The
ratio of liquid assets to short-term liabilities increased from 76% in January
to 92% in April 200947. Banks had also continued to increase their deposit
base while at the same time slowing loan growth. Bank deposits reached
AED 950 billion ($259 billion) at the end of the first quarter 2009 compared
to AED 840 billion ($ 229 billion) at the end of June 2008. Bank’s capital and
reserves also increased by 18% (from September 2008 to March 2009) and
47 This ratio means how much extra cash banks have on hand compared to their upcoming
payments and is used to determine their solvency.
53
the average capital adequacy ratio (CAR)48 of locally based banks stood at
16.4% in mid 2009.
At the same time, the shortage in liquidity and the fall in consumer
spending caused by the decline in the real estate sector49, especially in Dubai,
resulted in a fall in the money supply (M1)50. As a result, bank lending was
stable at around AED 1 trillion ($273 billion) in July 2009 which contrasts
sharply with events in the past 5 years when the oil-fuelled investment
boom encouraged consumers to spend more and enabled new lending to
grow by an average of about 30% every year. To increase lending, the mone-
tary authorities reduced the rate on its previously created liquidity support
facility51 from 2.5% to 1.5%. This policy was designed to boost investment
and consumption expenditure by reducing the cost of borrowing of the
end users. This rate cut was just another part of the monetary authority’s
policy to lower the Emirates Interbank Offered Rate (EIBOR). In 2009, the
Central Bank also overhauled the panel of providers for EIBOR in the hope
that it would lower interest rates which it has said are too high and do not
reflect existing market conditions. The new 11-bank panel includes 4 new
local banks and dropped 2 international banks which were in the ‘old’ bank
panel.
48 The Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital to risk. More specifically,
it is a bank’s core capital expressed as a percentage of its assets weighted credit exposure.
Note that foreign banks operating in the UAE have a slightly lower capital adequacy ratio of
15% which is considered ‘high’ by international standards.
49 The fall in consumer spending is the result of what is known as the Pigou effect (or wealth
effect) where consumers feel ‘poorer’ as the value of their assets such as homes and other
durable goods decline causing them to consume less.
50 The M1 definition of the money supply is the broadest of definitions which encompasses
currency in circulation and demand (current) deposits.
51 The rate cut refers to a facility created in 2008 by which banks could deposit securities with
the Central Bank in exchange for liquidity.
52 Includes expenditures of the governments of the individual emirates and the Federal Gov-
ernment.
54
real estate market. As a result, the consolidated expenditure of the UAE
government increased from AED 254 billion ($69.2 billion) in 2008 to AED
289 billion ($78.8 billion) in 2009 or by 14%. This increase in government
expenditure occurred at a time when government revenue fell by a massive
35% from AED 450.3 billion ($122.7 billion) in 2008 to AED 292.6 billion ($78
billion) in 2009 due to the fall in the price of oil and ‘losses’ in investments
abroad53. These large expenditures and the concurrent fall in government
revenue completely wiped out the budget surplus in 2009. The UAE Federal
Government in 2009 also introduced an important methodological change
in its budgeting practice by adopting zero-based budgeting as opposed to
incremental budgeting. In the latter methodology, Ministry budgeting teams
need to only justify increases over the previous budget without reference
to previous levels of spending. Under zero-based budgeting, individual
government departments would have to build each 3-year budget from the
ground-up including approving all expenditures rather than just increases
in spending. The first 3-year budget of the Federal Government would
run from 2011 to 2013 using zero-based budgeting since it better reflects
changing economic circumstances and is much more appropriate in rapidly
growing economies because of the need to finance large-scale infrastructure
development projects as is the case in all the emirates as the UAE builds
its soft and hard infrastructures to achieve sustainable growth targets for a
more balanced and diversified economy in the near future.
53 See Consolidated Government Finances in IMF Article IV Consultations, Table 3, page 33.
55
pressure on the price of oil with potential inflationary effects on the UAE
as oil revenues are increased further resulting in large capital inflows which
would increase liquidity and drive consumer spending and investment.
For all these reasons, the authorities must be careful in their exit strategies
by ensuring that an appropriate dose of stimulus is given to the economy
such that inflationary pressures are checked and excessive spending is
restricted. These expansionary policies must therefore be fine-tuned much
more carefully which can be achieved by measuring economic performance
more accurately by designing better economic indicators, one of the main
objectives of the newly established National Bureau of Statistics.
54 ‘Industrial’ does not mean only industrial and manufacturing in the traditional sense. It
also encompasses services such as financial, telecommunications, logistics, and many other
non-tangibles.
55 See Rodrik (2004) for an excellent discussion of these best practices.
56
economy into high-value and high-tech manufacturing sectors, in addition
to logistics, finance, and tourism as demonstrated in the development of
various industrial parks and touristic attractions56.
56 Most prominently the massive projects in the Yas and Saadiyat islands which will host a
wide range of artistic, cultural, sports, and other recreational activities.
57 Informational failures arise because when entrepreneurs enter into the production of ‘new’
products, they need to incur high discovery costs with no guarantees that these costs will be
recouped. The government therefore needs to interfere by supporting these entrepreneurs to
reduce their discovery costs. Coordination failures arise because for some industries to suc-
ceed, other ‘related’ industries must be established at the same time. The establishment of
these other ‘related’ industries is very expensive and can only be provided by the government.
58 There are 13 such elements as outlined in Rodrik (2004).
59 On designing a first-best institutional framework for industrial policy, see Balian (2010).
57
introduction of the Wage Protection System (WPS), which obliges all
companies to pay wages via electronic transfer rather than in cash, was the
most important development of the year. The system was designed to help
the Ministry of Labor track and fine companies which were making late or
irregular salary payments. This resulted in considerable improvements in
the living conditions of workers as echoed by the Embassy of the Philippines
especially since there are over half a million Filipinos working in the UAE of
which 60% are skilled or professional workers, 25% are in the service sector,
and 15% are household workers. The year 2009 also saw a significant increase
in the number of inspections carried out by the Ministry of Labor to identify
day-time break violators60. Inspections increased from 45,000 in 2008 to
75,000 in 2009 and 677 companies were fined for breaching the regulation
of which 436 were first-time offenders and penalties for 241 repeat offenders
were doubled. In May 2009, the Ministry of Labor along with the Health
Authority – Abu Dhabi (HAAD) launched a Safety and Health campaign
to raise awareness among workers of the importance of drinking enough
water during the summer months. This campaign targeted 465 companies
employing close to a million workers at more than 4,500 construction sites
and 1,800 labor accommodation camps61. Regular inspections were con-
ducted throughout the year to ensure that workers were accommodated in
conditions according to the law. While legislation has been in place for a few
years, it was more widely implemented in 2009.
60 The regulation, which was introduced almost 5 years ago, requires employers to allow
outdoor workers a break from 12:30 noon to 3:00 in the afternoon in the months of July and
August, and to provide them with appropriate shaded and cool areas.
61 See Health Authority – Abu Dhabi (HAAD), United Arab Emirates.
58
very extended periods of time, forcing them to work on minimal subsistence
wages. Supply side imperfections thus require close cooperation and
coordination with labor exporting countries, and the UAE has been at the
forefront of GCC countries signing and ratifying labor agreements with its
partner countries. Nevertheless, given the large size of the unskilled blue-
collar labor force in the UAE, especially the size of the labor force in the
construction sector, the UAE authorities have genuinely strived to achieve
more since they are increasingly aware of the fact that long-term sustainable
economic development requires a strategy of human capital development to
effectively assimilate workers into the domestic endogenous labor force. To
this end, the UAE authorities have aggressively investigated and prosecuted
employers which violate UAE labor laws, have prohibited companies from
doing business with recruitment agencies (both in the UAE and abroad)
that charge workers fees for travel and /or employment visas and contracts,
have substantially increased the number of inspectors responsible for
overseeing the treatment of migrant workers by private companies, and
have taken various actions to inform workers of their rights upon arrival to
the UAE. Moreover, although a sizeable share of the expatriate labor force is
comprised of low-skilled construction workers, this share has been somewhat
reduced in the wake of the recent slowdown in the real estate sector and
the diversification of the UAE economy into high-value manufacturing and
service sectors.
59
the UAE which is accompanied by a feasible demographic policy through
which we can attain a balanced demographic composition and build the
structure of a labor market capable of allocating UAE resources efficiently
which ultimately is the basis of a strong economic foundation.
62 A Customs Union is a group of countries between which there are no tariffs and there is
a common tariff (5% in the GCC) against countries which are not in the group. A Free Trade
Area, on the other hand, is a group of countries which, again, do not have tariffs between
themselves but each country is ‘free’ to set its own tariff against countries which are not in
the group.
63 The EFTA countries consist of Switzerland, Norway, Iceland, and Lichtenstein.
60
other’s markets with a minimum of restrictions64. This FTA covers various
areas such as trade in goods, trade in services (including financial services),
e-commerce, and government procurement. The GCC-Singapore FTA is
expected to consolidate commercial relations and stimulate investment
flows between the two blocks. It will also allow the unrestricted flow of
goods and services between the blocks benefitting numerous sectors such
as professional services, distribution, tourism, and air and maritime trans-
port. The FTA between the EFTA states and the GCC was signed in Norway
in June 2009 and covers a wide spectrum of agreements including trade in
goods and services, competition policy, and government procurement. The
EFTA-GCC joint committee established by the agreement will supervise the
implementation of the agreement which also provides for dispute settlement
through arbitration. Finally, a draft FTA between the GCC and New Zealand
was signed in October 2009 which aims at liberalizing trade in commodities
and services to promote mutual trade and investment between the two, de-
velop commercial partnerships, promote competition, and improve market
access to each other’s markets. It also established a dispute settlement
mechanism within the World Trade Organization (WTO) framework to
settle trade disputes and refer them to international arbitration.
In the global arena, the UAE continued to improve its rankings in various
categories published by various international organizations. In the Doing
Business 2009 Report published by the World Bank65, the UAE was ranked
number 46 out of 181 countries in terms of ease of doing business, jumping
8 ranks from its ranking in 2008. This composite indicator was measured
by 10 individual indicators where UAE’s ranking increased in 3 indicators,
decreased in 5, and was unchanged in 2. The largest increase in rankings
was the increase from 116th to 68th in the ‘obtaining credit’ indicator. As
for trade across borders, the UAE in 2009 was ranked number 14 out of 181
countries in the World Bank’s report. In the Global Competitiveness Index
64 These restrictions can be tariff or non-tariff barriers (NTBs). The latter are restrictions such
as standards and specifications on imports and various other non-price measures which un-
fairly restrict trade. These types of barriers have been used more frequently in recent years
since they are ‘hidden’ forms of restrictions and are extremely difficult to detect.
65 See Doing Business (2009).
61
2009/2010 published by the World Economic Forum (WEF)66, the UAE was
ranked number 23 out of 131 countries, moving up 8 places from 2008.
This improvement in UAE’s ranking reflects a highly favorable assessment
of its institutions, technological readiness, and innovative capacity. This
ranking has placed the UAE ahead of a number of very large economies
such as China, India, Russia, Brazil, Malaysia, Ireland, and Italy, to name
just a few. The report also ranked the UAE as the 21st and 25th in terms
of efficiency and innovation respectively, and 6th, 9th, and 10th in terms
of infrastructure, institutions, and market efficiency respectively. The
report argues that institutions, infrastructure, technological readiness, and
innovation will continue to support the long-term competitiveness of the
UAE economy in the global marketplace for many years to come. Similarly,
Edelman’s global survey released annually at the World Economic Forum
(WEF) in Davos, Switzerland, has revealed that UAE opinion-formers have
relatively high levels of trust across most institutions, business and media.
Trust in institutions in the UAE is among the highest in the world at 67 %,
while trust in banks is high at 75%, compared to levels as low as 29 % in
the United States and 19% in Germany67. Moreover, the Index of Economic
Freedom has ranked the UAE as the 46th most economically free country
which is higher than some of the world’s major countries such as France,
Italy, Saudi Arabia, and China68.
62
REFERENCES
Abu Dhabi Economic Vision 2030 (2008). Government of Abu Dhabi, United
Arab Emirates.
63
Edelman’s Global Trust Barometer Survey (2010). World Economic Forum,
Davos, Switzerland.
International Monetary Fund (2010). United Arab Emirates: Staff Report for
the 2009 Article IV Consultation. Washington D.C.
Jomaa, Abdalafu (2010). CPI Estimates in the United Arab Emirates for
2010-2011 using DEMETRA Time-Series Analysis. Department of Economic
Statistics, Prices and Indices Division, National Bureau of Statistics, Abu
Dhabi, UAE.
Labor Force Survey (2009). National Bureau of Statistics, Abu Dhabi, United
Arab Emirates.
64
National Bureau of Statistics (2010), Economic Statistics, Price Indices
Division, Abu Dhabi, UAE.
World Bank (2010). Global Economic Prospects: Crisis, Finance, and Growth.
Washington D.C.
65
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