1. Higher Colleges of Technology, Abu DhabiDecember 22UAEEconomyproject 2011BySalem Abdulla Al BaloushiAbdulrahman Mohamed Al MarzooqiUAE Economy ProjectWaleed Qassim Al Yafaiefor:N410Mohammed Nabeel Al Haj Int. and UAE Economics Dr. Chaher Al Zaman

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UAE Economy project 2011ContentsBackground ................................................................................................................................................... 3GCC and Oil and Gas in the UAE ................................................................................................................... 6 GCC Economics: ........................................................................................................................................ 6 What does it do and what benefit does it give to its members? .......................................................... 7 Discussing trade agreement between GCC nations, and what are their implications on members economies? ........................................................................................................................................... 7 Addressing the actual inner-trading between GCC countries .............................................................. 7 Discussing GCC trading in the UAE economy (how much does it account for as part of the GDP). ..... 8OPEC............................................................................................................................................................ 10Recent Development and Future Prospects of the UAE Economy ............................................................. 11 Unemployment Rate in the UAE: ............................................................................................................ 11 GDP in the UAE: ...................................................................................................................................... 12 External Factors: ..................................................................................................................................... 13 Current and Future of non-oil sector ...................................................................................................... 15References .................................................................................................................................................. 182 ETEC-N410 | HCT. Abu Dhabi 3. UAE Economy project 2011Background Thirty years ago the UAE was one of the least developed countries of the world. Today, ithas achieved an income level comparable to that of the industrialized nations. The UAE did notpass through the hypothetical development stages that most developed countries seem to haveexperienced. Rather, its large oil revenues have allowed her to leap these stages to the stage ofhigh mass consumption. Massive oil revenues have enabled the UAE to short-cut the usuallydifficult and lengthy process of saving and capital accumulation necessary for economicdevelopment. Given an abundance of natural resource endowments (oil and gas), the UAE hasembraced resource-based industries (RBI) as a development strategy, an industrial strategy thatis based on utilization of natural resources. There has been a deployment of windfall income,largely directed at a once-and-for-all boost to the social and economic infrastructure, whichenabled the UAE to achieve a significant degree of economic development within the very brieftimeframe of 1973 to 1982, a period of relatively high oil prices. Before the discovery and export of oil, the economy of the Trucial States (which todayform the UAE) depended mainly on subsistence agriculture, nomadic animal husbandry, theextracting of pearls and the trade in pearls, fishing, and seafaring. The period before thediscovery of oil, therefore, reflected the countrys limited natural resources, and resulted in asimple subsistence economy. The epoch of economic development in the UAE (or the UAEsFirst Development Decade) began in the early 1970s, the federations formation on 2 December1971 (and the establishment of its formal economic, social, and political institutions) coincidingwith a massive increase in oil production and oil exports, followed by the explosive rise in oilprices in 1973. Since its formation in 1971 the UAE has enjoyed a political stability. The existingpolitical structures appear to suit the tribal society of the UAE, and the distribution of huge oilrevenues in the form of social and economic infrastructure, high salaries, a high standard ofsocial services, such as health and education, has raised the standard of living for UAE citizensand considerably reduced the likelihood of internal political and social unrest. It is worth3mentioning that the UAE Government has maintained a relatively good record on human rightssince the formation of the state. This in turn has promoted political and social stability. ETEC-N410 | HCT. Abu Dhabi 4. UAE Economy project 2011 The UAE is an active member of many regional and international associations such as theArab League, the United Nations, the Non-Aligned Movement, the Arab Gulf CooperationCouncil, and the Organization of the Islamic Conference. Relations with many countries of theworld, particularly the Western democratic countries, have been traditionally warm. Political andsocial stability has gone hand in hand with liberal trade policies and has paved the way forinvestment (domestic and international) in the industrial sector. The UAE is endowed with vastreserves of oil, both offshore and onshore. Associated gas from crude oil production and non-associated gas is also produced. Since the early 1970s the UAEs phenomenal growth hasdepended largely on the discovery and exploitation of oil. The oil and gas industries are wellmanaged and the latest technology is continuously harnessed to increase productive efficiency. According to the UAE Ministry of Petroleum and Mineral Resources, the UAE maximumsustainable daily capacity of oil production (maximum production rate that can be sustaineddaily for one year in present conditions of exploitation) is 2 million barrels a day. Its installedproduction capacity is over 3 million barrels per day. In 2000, proven oil reserves in the UAEwere 98.8 billion barrels, the third largest oil reserves in the world after Saudi Arabia, and Iraq.The UAEs proven oil reserves were estimated to be almost 10 per cent of the proven world oilreserves in June 2000. On the basis of current daily oil production of 2 .2 million barrels per day,it is estimated that oil reserves in the UAE will last for more than 122 years. While value added growth rate in the UAE oil sector was fluctuating during the period19751998, the manufacturing sector value added growth rate was steadily increasing. Themanufacturing value added increased considerably from Dh 472 million in 1975 to Dh 9443million in 1985, and to Dh 18,855 million in 1998 (at constant prices). Its contribution to GDPincreased significantly from 0.9 per cent in 1975 to 3.8 per cent in 1980, and to 12.4 per cent in1998. Nonetheless, it is obvious that the substantial increase in the manufacturing value addedhas made a modest contribution to the UAEs total output growth. Agricultural productionincreased more than fourfold from 1975 to 1998 at an average annual growth rate of 12.6 per 4cent. This consistent increase in the agricultural output is attributed to the sustained efforts of theUAEs Government to promote agricultural development with generous agricultural incentivesETEC-N410 | HCT. Abu Dhabi 5. UAE Economy project 2011and subsidies. Changes in the contribution to GDP of the non-oil sector (agriculture), however,increased at a moderate rate. In 1998, the agricultural sector comprised about 3.6 per cent ofGDP. A conspicuous sectoral shift and contribution to GDP is evident in the service sector,commerce (wholesale and retail trade), restaurants, hotels, transport, storage, communications,finance, insurance, real estates and government services. The service sector contribution to GDPincreased from 22.3 per cent in 1975 to 39.7 per cent in 1998. Relative importance of UAES non-oil sectors 1975-1998Sectors 1975 1980 1985 1995 1998Agriculture0.7 0.9 1.5 2.03.6Manufacturing0.9 6.9 9.2 8.712.4Electricity and Water0.5 1.3 2.2 2.11.8Construction 9.0 8.3 8.8 8.49.4Commerce, Restaurants & Hotels 9.3 9.0 8.810.113.7Transport, Storage & Communications3.0 3.4 3.8 5.57.0Financing & Insurance1.6 3.5 5.1 4.36.7Real Estate2.5 3.8 4.9 6.210.5Government Services4.8 7.0 10.5 10.911.8Table 1.0 Percentage of GDP of non-oil sectors.Abu Dhabis Vision 2030 is a government-backed development plan for the emirate thatsets guidelines for key infrastructure, real estate, tourism and financial targets for the next 20years, as the city aims to assert its place as a global hub and capital of the UAE federation. It hasbeen developed using international best practices from key world cities, mixing these with itsspecific cultural and environmental heritage, with sustainability playing a key part in theplanning. The plan also focuses on the logistical growth of Abu Dhabi, as it aims toaccommodate estimates of 3.1 million residents by 2030. New public transport infrastructure isbeing planned and implemented, as are provisions for affordable housing for UAE nationals and5low and mid income groups. The Abu Dhabi Government believes that the growth targets set bythe Vision are achievable. If at all the Emirate misses the annual growth target in an adverse ETEC-N410 | HCT. Abu Dhabi 6. UAE Economy project 2011year, it will not impact the ultimate achievement of the long-term growth and diversificationtargets. In any year of good growth, Abu Dhabi will easily exceed the set annual growth target,the Chairman of Abu Dhabi Department of Planning and Economy Nasser Ahmed Al Suwaidisaid in a recent interview. The long-term nature of the Economic Vision 2030 ensures that thetransformation of Abu Dhabis economy will be unaffected by short-term economic events.Successfully implementing the Economic Vision 2030 will ensure that the Emirate remains in astrong position to withstand global economic challenges such as those the world is currentlyfacing.GCC and Oil and Gas in the UAEGCC Economics:The year 2011 marked 30 years since the establishment of the GCC. The GCC is TheCooperation Council for the Arab States. The Council, consisting of the six Arab monarchies ofthe Gulf region, which are: The United Arab Emirates, Kingdom of Saudi Arabia, Sultanate ofOman, State of Qatar, State of Bahrain and State of Kuwait. This union was a response ofgeographical and political nature to the Khomeinistic revolution, and the Iran-Iraq war thatfollowed. The GCC was established in view of the special relations between the Gulf States,their similar political systems based on Islamic beliefs and common objectives. The proximity of 6these countries geographically and the adoption of free trade and economic policies are factorsthat encouraged them to establish the GCC.ETEC-N410 | HCT. Abu Dhabi 7. UAE Economy project 2011What does it do and what benefit does it give to its members? The objective of the establishment of the GCC is to coordinate and merge between theGulf States in different fields and aspects, having lows that are similar in different fieldseconomically, financially, trading, legislation, administration, customs and tourism, to haveunified ideals, opinions and ventures, which in turn will benefit the GCC members in makingprocesses easier and faster.Discussing trade agreement between GCC nations, and what are their implications onmembers economies? GCC members have adopted ambitious investment strategies on institutionalinfrastructure, creating free-trade zones for manufacturing and developing services and facilitiesthat will attract increasing numbers of businesses, skilled knowledge workers, and tourists.Witnessing the recent surge in multibillion-dollar infrastructure projects in Saudi Arabia and theUnited Arab Emirates, including King Abdullah Economic City and the Saudi Power Network. The GCC states are also making huge financial investments in the developed world: InAugust 2007, the petrochemical manufacturer Saudi Basic Industries Corporation (SABIC) spent$11.6 billion to acquire Massachusetts-based GE Plastics. The previous year, SABIC paid $700million to acquire UK-based Huntsman Petrochemicals. In autumn 2007, the MubadalaDevelopment Company, an investment vehicle of the government of Abu Dhabi, purchasedstakes in the private equity firm Carlyle Group and in the California-based chip maker AMD.And in June 2008, Abu Dhabi Investment Authority, the sovereign wealth fund of Abu Dhabi,invested $7.5 billion in New Yorkbased Citigroup.Addressing the actual inner-trading between GCC countries Official data showed cumulative foreign direct investment (FDI) among the GCCcountries is estimated at around $74 billion until the end of 2008, more than a quarter of the 7overall FDI attracted by the six members. The figures showed the UAE is the largest capitalexporter to other GCC members, with a total capital of around $45.7bn including nearly $44.4bnETEC-N410 | HCT. Abu Dhabi 8. UAE Economy project 2011in Saudi Arabia. A large part of those investments are controlled by Emaar Properties andEtisalat, according to the figures by the Kuwaiti-based Inter-Arab Investment GuaranteeCorporation (IAIGC), a key Arab League establishment. Kuwait came second with total FDI inthe GCC standing at around $13bn, most of which are based in the UAE and Saudi Arabia.Bahrains investment in the other GCC members stood at about $10.2bn, mostly in Saudi Arabia,while Saudi FDI in the 30-year-old Gulf group are estimated at nearly $3bn, including around$2.4bn in the UAE. FDI by Qatar and Oman stood at $1.75bn and $0.46bn respectively. Besides investment, merger moves by the GCC countries also sharply boosted tradeexchange between them, jumping by more than six times to a record high of around $91 billionin 2009 from nearly $15 billion in 2002. Despite the global crisis, which depressed tradeworldwide, inter-GCC commercial exchange soared by nearly 40 per cent in 2009 from its 2008level of about $65bn, according to the Emirates Industrial Bank.Discussing GCC trading in the UAE economy (how much does it account for as part of theGDP). In the year 2000, the spread in per capita GDP between the six GCC states was noticeable:Qatar US $ 28442UAE US $ 26914KuwaitUS $ 17328Bahrain US $ 12344OmanUS $ 8254Saudi ArabiaUS $ 80318 ETEC-N410 | HCT. Abu Dhabi 9. UAE Economy project 2011 45000US dollars 40000 35000Qatar 30000UAE 25000 20000Kuw ait 15000 KSA 10000Bahrain5000Oman 01975 197719791981 198319851987 198919911993 199519971999 UAE GDP p/cBahrain GDP p/c KSA GDP p/c Oman GDP p/c Qatar GDP p/c Kuwait GDP p/c GDP Growth(%)300250200150growth100Kuwait (% ) 5001969 1970 19711972 19731974 19751976 1977 19781979 19801981 19821983 1984 19851986 19871988 19891990 1991 19921993 19941995 19961997 1998 19992000 2001-50 -100 UAE growth Bahrain growth KSA growth Oman growthQatar growth Kuwait GDP growth9ETEC-N410 | HCT. Abu Dhabi 10. UAE Economy project 2011OPECOPEC is an international Organization of eleven developing countries which are heavilyreliant on oil revenues as their main source of income. Membership is open to any country whichis a substantial net exporter of oil which shares the ideals of the Organization. The currentmembers are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, TheUnited Arab Emirates and Venezuela.The OPEC Statute, written when OPEC was formed in 1960, declares that OPEC isdedicated to providing a stable petroleum market, with steady supplies to consumers, reasonableprices and fair returns to investors in the oil industry. In pursuit of these aims, OPEC has formany years maintained a limit on the oild produced by its member countries. This has providedfor a relatively stable oil industry with reasonable prices.Since oil revenues are so vital for the economic development of these nations, they aim tobring stability and harmony to the oil market by adjusting their oil output to help ensure abalance between supply and demand. Twice a year, or more frequently if required, the oil andenergy Ministers of OPEC members meet to decide on the organizations output level, andconsider whether any action to adjust output is necessary in the light of recent and anticipated oilmarket developments. OPECs eleven members collectively supply 40% of the worlds oil output, and possessmore than three-quarters of the worlds total proven crude oil reserves.According to reference case of OPECs World Energy Model (OWEM), total world oildemand in 2000 was put at 76 million barrels per day. As world economic growth continues,crude oil demand will also rise to 90.6m b/d in 2010 and 103.2m b/d by 2020. This illustrateshow the world depends increasingly on OPEC resources.The first five countries that have the largest oil resources of the world are all OPEC countries.Table 2.2.0 OPEC countries have the largest oil resources (M brls) 10ETEC-N410 | HCT. Abu Dhabi 11. UAE Economy project 2011These are, however, not the largest oil producers. As we have learnt, the OPEC cartel makes theproducers more cautious, they tend to exploit their resources more slowly than other countries.The largest producers of the world are: Table 2.2.1 The largest oil producers (Million barrels per day) Oil is a limited resource, so it may eventually run out, although not for many years tocome. OPECs oil reserves are sufficient to last another 80 years at the current rate of production,while non-OPEC oil producers reserves might last less than 20 years. The worldwide demandfor oil is rising and OPEC is expected to be an increasingly important source of that oil. If wemanage our resources well, use the oil efficiently and develop new field, then our oil reservesshould last for many more generations to come. Its interesting to see that not all OPEC membershave equally huge reserves. The remaining 6 OPEC countries still have considerable amount ofcrude oil, but less than the others. The largest OPEC country has 75 times more oil than thesmallest one. There are large and small countries in this cartel.Recent Development and Future Prospects of the UAE EconomyUnemployment Rate in the UAE:Unemployment rate is simply defined as the number of people not working but are seeking jobsand are willing to work. In the UAE, unemployment rate has recorded a decrease over the lastdecade, and number of employees has been increasing. The graph below shows how number oflabor force is increasing, reaching its highest percentage in the current year. 11 ETEC-N410 | HCT. Abu Dhabi 12. UAE Economy project 2011Since unemployment rate has serious negative effects in general, and the UAE is no exception,government has set a new policy which it has called Emiratization. Emiratization is a plan toreplace non-national employees in the UAE by Emirati employees over a certain period of time,and on certain percentage every year (Al Zaabi, Mayed), and Emiratization is done in both publicand private sectors. This policy is one of the reasons that led to decreasing the number ofunemployment rate in the UAE, said Al Zaabi.GDP in the UAE:The GDP (Gross Domestic Product) is an indicator of all services and goods produced in acountry over a certain period, and it considers the market value of goods and services to reach anumber used to evaluate the growth rate of the economy (wisegeek.com).The UAE GDP is worth 0.37% of the world economy (tradingeconomics.com), and since thediscovery of oil, the UAE economy has dramatically changed to a better situation.GDP in the UAE has increased over the last decade, and it has reached its highest value in 2009,as shown in the graph below, yet it slightly decreased in 2010.12 ETEC-N410 | HCT. Abu Dhabi 13. UAE Economy project 2011When talking about GDP in any region, we have to highlight to different GDPs, and those arenominal and real GDP. According to investopedia.com, nominal GDP is a GDP figure that hasnot been adjusted for inflation, whereas real GDP is it is a nations total output of goods andservices, adjusted for price changes (investorglossary.com). The charts below show both valuesin the UAE over the last five years. The charts show that nominal GDP has reached its highestvalue in 2008, and lowest value in 2005, where rel GDP was in its highest value in 2006, and itslowest valuein 2009.External Factors:The UAE economy is in a very good status, and has been improving over the last decade. Thishas been observed in many ways, and some of those ways are: The UAE has attracted many international exhibitions to be held in different cities, and those exhibitions are in different fields include but are not limited to industrial, educational, technical. The UAE has attracted many international investors to invest their projects and businesses within the country, and this has been seen in different fields. We have witnessed buildings that are constructed and designed by international companies. Also,13 we have seen some international institutes that have taken place in the UAE such as New York University and Paris Sorbonne.ETEC-N410 | HCT. Abu Dhabi 14. UAE Economy project 2011 Specialists in different fields have approached the UAE to work in, and this has been seen in in almost every field in the UAE such as industrial, technical, educational, economical, law, etc.All indicators show that the UAE economy will continue growing due to the wise leadership andcreative thinking of our local government that tend to create partnered projects with othergovernments. Our economy is well connected with other countries, and is based on externalfactors, as well as internal. This means that as much as those external factors are supporting oureconomy, they may as well negatively affect our economy. Such external factors that may affectthe UAE economy are the following: Other countries may stop approaching the UAE for oil due to the use of other energy source such as solar energy or any natural or environment friendly source. This will lead to a major economic drop since UAE mainly depends on oil as a source on nation income. The best way to avoid this economic drop is to look for other energy sources that the UAE can depend on as an income source, and the UAE has currently started to provide alternatives. One of the alternatives that the UAE has focused on is nuclear energy, and this was emphasized in the establishment of Emirates Nuclear Energy Corporation (ENEC) in December 2009 to provide safe nuclear energy that is needed to support the UAEs economic growth (enec.gov.ae). Another option that the UAE has focused on is the renewable energy, and this has led to found Masdar, a commercially driven organization that works to reach the broad boundaries of the renewable energy and sustainable technologies industry (masdar.ae). 14ETEC-N410 | HCT. Abu Dhabi 15. UAE Economy project 2011 Specialists that approach the UAE for job opportunities may approach other destinations due to the existence of better offers. The UAE is relatively a new born country compared to other nations, and there are not many nationals specialized in all fields needed to grow the economics of the country. Therefore, the UAE welcomes specialists in different fields to work in, and provide them with the best offers ever to attract them to work in different organizations based on their experiences. This will help developing all fields in the UAE, because those specialists implement their experience and talent in the UAE. If those specialists are attracted by other offers, they will approach because it is everybodys target to develop and improve his status. The best way to avoid this incident is to allow UAE nationals to gain those experiences, and this may be done by several ways. Government may provide opportunities to UAE students for adequate higher education, and give them chance to get certificates in various fields. Also, employees in different fields may be given training in special areas that are filled by expatriates, thus they are able to replace them if anything happens, and those expatriates get to leave their jobs for any reason. Training may be provided in different ways such as on-job-training, courses, on-line training, shadowing, and many other different and effective methods.Current and Future of non-oil sectorAs mentioned previously in this paper, oil is considered the main income of the UAE hat haspositively affected its GDP. Moreover, the oil production in the UAE keeps rising, and it rose byalmost one percent last October to reach 2.33 million barrels per day (gulfnews.com).Nevertheless, the UAE must consider other options due to any emergencies that may lead to15ETEC-N410 | HCT. Abu Dhabi 16. UAE Economy project 2011decreasing oil production in the UAE. This will allow the UAE to remain stable and healthyeconomy.The UAE has thought about two alternatives that may replace oil if production is affected, andthose options are the following: Nuclear Energy: Nuclear energy is produced from the splitting of uranium atoms in a process that is called fission. At the power plant, the fission process is used to produce heat for producing steam, which is used by a turbine to generate electricity. Advantages of nuclear energy are: The Earth has limited sources of non-renewable energy. Nuclear power plants could still produce electricity non-renewable energy becomes rare. Nuclear power plants require less fuel than ones which burn fossil fuels. Non-renewable energy burning plants pollute the air. Nuclear power plants do not release contaminants into the environment.16 ETEC-N410 | HCT. Abu Dhabi 17. UAE Economy project 2011The image below show how nuclear energy is produced.The UAE has realized that energy demand is growing, and yet oil may not be enough tosatisfy that demand. Therefore, it has started working in this field after the founding ofEmirates Nuclear Energy Corporation in 2009, and since then, it has talking the challengereaching the target of delivering electricity to the UAE grid in 2017. Also, it is projectingthat by 2020 it will produce almost quarter of the nations electricity need (ENEC.gov.ae. Renewable EnergyRenewable energy is simply defined as energy that never exhaust such as wind and sun.The thought of using alternative source of energy has come from the fact that theconsumption of non-renewable energy such as crude oil and coal has led to existence ofharmful gases that negatively affect the environment. Therefore, the UAE hasincorporated the use of renewable energy, and the government has assigned a specialentity to manage and operate that task. Masdar, being established in 2006, startedoperating to manage the process of using renewable energy within Abu Dhabi.17ETEC-N410 | HCT. Abu Dhabi 18. UAE Economy project 2011Referenceshttp://www.investopedia.com/terms/u/unemploymentrate.asp#axzz1hCAYiFW7, December 20th,2011http://www.tradingeconomics.com/united-arab-emirates/unemployment-rate,December 20th,2011Interview with Mayed Al Zaabi, Emiratization Officer, Department of Transport.http://www.wisegeek.com/what-is-gdp.htm, December 20th, 2011http://www.tradingeconomics.com/united-arab-emirates/gdp, December 20th, 2011http://www.cityscapeconnect.com/Global/ResearchDocuments/Cluttons-Abu-Dhabi-Property-Market-Update-Q2-2011.pdf, December 20th, 2011http://www.investopedia.com/terms/n/nominalgdp.asp#axzz1hCAYiFW7, December 20th, 2011http://www.investorglossary.com/real-gdp.htm, December 20th, 2011http://www.menafn.com/updates/research_center/UAE/Economic/kamco130411.pdf, December20th, 2011http://www.enec.gov.ae/about-us/history/, December 20th, 2011http://www.masdar.ae/en/Menu/index.aspx?MenuID=42&CatID=12&mnu=Cat, December 20th,2011http://gulfnews.com/business/oil-gas/uae-oil-production-rises-to-2-33m-barrels-a-day-1.714245,December 20th, 2011http://edugreen.teri.res.in/explore/renew/what.htm, December 20th, 2011http://www.westinghousenuclear.com/Community/WhatIsNuclearEnergy.shtm, December 20th,182011ETEC-N410 | HCT. Abu Dhabi 19. UAE Economy project 2011Abu Dhabi Urban Planning CouncilAmeinfo.com The ultimate Middle East business resourceMcRizer, Dr. Eye. Economics of the United Arab Emirates. Abu Dhabi: Higher Colleges OfTechnology, 2006. Print.uaeinteract.com - Over 50,000 Pages of News and Information on the UAEKawach, Nadim, Meet to spur inter-GCC investment, http://www.emirates247.com/news/meet-to-spur-inter-gcc-investment-2010-12-09-1.326964 , December 15, 2011.Al-Uwaisheg, Abdel Aziz Hamad Director - Economic Integration Department Gulf Cooperation Council(GCC), Search for criteria of economic convergence in the GCC Area (Presentation), Athens, Greece - 3February 2003.19ETEC-N410 | HCT. Abu Dhabi