The United Arab Emirates has bucked global trends this year, showcasing remarkable economic performance amidst global uncertainties and challenges. This success can be attributed to its well-balanced policies centered around the process of economic diversification.
The non-oil sector has emerged as a crucial pillar of the GDP, fostering economic growth with substantial state investments. The UAE’s focus on innovation and technology has positioned it as a regional leader in various industries.
The World Bank anticipates the UAE’s non-oil GDP growth to reach 4.5 percent in 2023, a growth rate coveted by many major nations. This expansion is expected to be propelled by robust performances in tourism, real estate, construction, transport, manufacturing sectors, and increased capital expenditure.
This positive economic trend is evident in the non-oil private sector activity, recently reaching its highest level since mid-2019. The sector is marked by a significant surge in demand, as indicated by the S&P Purchasing Managers’ Index.
The country is experiencing a substantial influx of wealth, thanks to reforms that foster a business-friendly environment. Such reforms have reinforced the UAE’s status as a safe haven for capital and foreign labor flows. Moreover, foreign investment flows to Dubai reached about AED 21 billion ($5.7 billion) during the first half of 2023, encompassing 511 projects and contributing to 6.58 percent of total global projects.
“During the first half of this year, Dubai retained its position as the best global destination for attracting new FDI projects,” Dubai Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum said.
Last year, the UAE attracted more foreign investment for new projects following the United States, Britain and India.
Investment in renewable energy
The UAE’s ongoing reform efforts are bolstering medium-term growth and facilitating a seamless transition to alternative energy sources. These measures have positioned the UAE to host the United Nations Climate Change Conference (COP28), instilling confidence among experts regarding the conference’s potential outcomes. Consequently, this event marks the first comprehensive global assessment of progress since the adoption of the Paris Climate Agreement in 2015.
An unprecedented number of participants, exceeding 70,000 individuals, will be in attendance, including notable figures such as Pope Francis and King Charles III, alongside a diverse assembly of heads of state and government, ministers, representatives from non-governmental organizations, employers, lobbyists and journalists.
In terms of investment, the Abu Dhabi Investment Authority has committed substantial resources to renewable energy projects, with an estimated investment of $45 billion. This has resulted in a production capacity exceeding 40 GW, sufficient to power 17 million homes with clean energy. Moreover, in 2022 alone, the UAE directed approximately $36 billion of its overseas investments toward renewable energy initiatives. Looking ahead, the country has ambitious plans to invest an additional $160 billion over the next 30 years in the renewable energy sector, aiming to achieve climate neutrality.
Robust Banks
Analysts frequently draw parallels between the UAE and Singapore, highlighting the UAE’s emergence as a prominent banking hub within the region. The nation’s economy consistently secures top positions, boasting robust growth exceeding 3.5 percent, minimal inflation rates, and a plethora of expanding projects. Consequently, the UAE has ascended to regional leadership, propelled by its formidable banking sector.
Alvarez and Marsal’s assessment of the third quarter this year underscores the robust performance of UAE banks. Their profitability primarily hinges on a surge in non-interest income and a reduction in depreciation provisions.
Fitch Credit Ratings anticipates a stellar performance from UAE banks in 2023. This expectation follows the announcement of half-year net profit records by banks categorized by the agency, constituting 96 percent of the country’s banking sector assets totaling AED 38 billion. Consequently, the projected strong annual return on average shareholder equity is set at 20.3 percent, a notable increase from the 14.5 percent recorded in 2022.
Recent data reveals that the combined net profit of 13 UAE banks listed in the financial markets reached 50.5 billion dirhams ($13.7 billion) in the initial nine months of the current year.
Lessons learned
Certainly, the UAE stands as an exemplary model for nations aspiring to excel in projects and initiatives. The country has not only forged global success stories but has also motivated millions to seize opportunities within challenges. It is a nation adept at leveraging circumstances and capitalizing on its strengths. Moreover, the UAE has made substantial investments in artificial intelligence and technical economics, recognizing their significance in shaping the future. Some experts now posit that the UAE could rank as the third most influential country in the realm of artificial intelligence, trailing only behind the US and China.
The state’s leadership has further underscored its significance as a pivotal trade center situated at the crossroads of Africa, Asia, and Europe. This has been achieved through the establishment of robust government institutions and the creation of an impressive port that enables DP World to manage approximately a tenth of the total global shipping container traffic.
Furthermore, the UAE has fostered inclusive economic partnerships with numerous countries, opening up novel opportunities for exporters, investors, and entrepreneurs. A key element of this effort is the Comprehensive Economic Partnership Agreements, integral to the “Projects of the 50” inaugurated in September 2021. These projects are designed to bolster the UAE’s global standing as a preferred destination for trade, business, and investment. Presently, the UAE has inked agreements with 7 countries, with discussions progressing to advanced stages for similar accords with 12 other nations.
With these partnerships, the UAE aspires to facilitate the influx of foreign direct investment, aiming to attract $150 billion by 2031, thereby solidifying its position as a key player in the global economic landscape.
Talent
The UAE has welcomed foreign talent prioritizing efforts to enhance its appeal as a desirable destination for residence and business activities. To achieve this objective, it has implemented various incentives, including specialized visa programs for foreign workers, alongside the introduction of an unemployment insurance program.
According to the 2023 IMD World Talent ranking, the UAE stands out as a leader in the Arab world in both attracting and retaining talent. It secured the 22nd position among 64 economies globally, driven by improvements in quality of life indicators, management rewards, health infrastructure, education quality, and workforce expansion, as highlighted in the World Competitiveness Ranking.
Challenges in 2024
The global economic landscape faces persistent uncertainties. Challenges include a decline in oil demand, sluggish world trade, and reduced tourism due to slower global growth. Additional factors such as prolonged high-interest rates, more stringent fiscal conditions, or geopolitical developments could adversely affect growth, placing strain on public finances and external balances.
In its assessment of the UAE economy, the International Monetary Fund says adequate financial security measures are in place to mitigate risks. The IMF recommends efforts to stimulate private sector employment and further develop the domestic capital market. The UAE’s economy stands to benefit from investments in digital and green initiatives, contributing to the ongoing diversification efforts and fostering medium-term growth. To support these endeavors, sharing and disseminating economic data can play a crucial role, building on the nation’s achievements and facilitating continued progress.
Recently, the UAE has outlined an economic roadmap aimed at bolstering its economic performance and cultivating a dynamic economy. Leveraging its flexible legislative framework and advanced logistical infrastructure, the country is poised to stand at the forefront of global economies. This strategic direction will be a key focus in the future.
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