ECONOMY ANALYSIS FOR SAUDI ARABIA AND THE UAE

A research report submitted in partial fulfillment

for the of degree of

Masters in Business Administration

Submitted To Submitted By

Dr Harnita Chowdhary B55 Priyanka Datta

B56 Rajan Mahalingam

B57 Shovana Sahu

B 58 Deepak Verma

B59 Smita Kadian

B60 Jaikumar Rajavelu

Symbiosis Institute of Management Studies

Symbiosis International University

Pune

INDEX

SNO TOPIC PAGE

I SAUDI ARABIA

1 INTRODUCTION

2 PEST ANALYSIS

3 CIRCULAR FLOW

4 FUTURE PROGNOSIS

II UAE

1 INTRODUCTION

2 PEST ANALYSIS

3 CIRCULAR FLOW

4 FUTURE PROGNOSIS

SAUDI ARABIA

Saudi officially known as the Kingdom of Saudi Arabia is the largest Arab state in Western Asia by land area. Its population is estimated to consist of 16 million citizens and an additional 9 million registered foreign expatriates and 2 million illegal immigrants.

Saudi Arabia has the world's second largest oil reserves which are concentrated largely in the Eastern Province. Oil accounts for more than 95% of exports and 70% of government revenue, although the share of the non-oil economy has been growing recently. This has facilitated the transformation of an underdeveloped desert kingdom into one of the world's wealthiest nations. Vast oil revenues have permitted rapid modernisation, such as the creation of a welfare state. It has also the world's sixth largest natural gas reserves.

PEST ANALYSIS

POLITICALThe Kingdome of Saudi Arabia is a monarch. The King governs through a Council of Ministers, on which he serves as President.

The Kingdom of Saudi Arabia is divided into 13 provinces, each of which is administered by a provincial governor appointed by the King. Provinces a r e subd iv ided i n to gove rno ra t e s , d i s t r i c t s and enter. It is politically stable and undergoing slow reforms. Local body elections were held in 2005 for the first time and more reforms are expected in the coming years. It is governed by Islamic laws. But has business Friendly government regulations.

The stability of the government could face a challenge due to the high unemployment rate among its youth and public sector corruption. Most of the Middle East countries face the same problem. Saudi Arabia has an edge over its neighbours with its strong economic performance and weak opposition pattern.

ECONOMYSince the discovery of oil in 1938 has grown to be among the wealthiest nations. And it produces more than 5% of the total production of petrochemicals in the world. The Saudi Arabian economy is mostly controlled by the government, but private participation is on the increased dues to business Friendly government regulations that came into picture after the formation of Supreme Economic council in 1999.

We can call it more of a capitalist economy. As part of its effort to attract foreign investment and diversify the economy, Saudi Arabia acceded to the WTO in 2005 after many years of negotiations. And six new economic cities are being built across Saudi Arabia.

The Saudi Arabian economy registered an annual average growth of 4.0% during 2002–08. The economy decelerated in 2009, recording growth of 0.6% compared to 4.2% in 2008. The economy remains heavily dependent on oil, meaning that GDP growth will remain subject to oil prices and output. This was evident in 2009, when oil output cuts kept GDP growth at just 0.6%. However, the economy recovered to post growth of 3.6% in 2010. This was mainly due to oil price increases of 2008–2009 have triggered a second oil boom, pushing Saudi Arabia's budget surplus to $28 billion (110SR billion) in 2005. Tadawul (the Saudi stock market index) finished 2004 with a massive 76.23% to close at 4437.58 points. Market capitalization was up 110.14% from a year earlier to stand at $157.3 billion (589.93SR billion), which makes it the biggest stock market in the Middle East.  

Government, through its ninth five-year plan, has taken measures to draw private investment to help fuel the expansion of Saudi Arabia’s non-oil sector. Within the country’s economy, the service sector is a major contributor. The government plans diversification efforts to focus on the power generation, telecommunication, natural gas exploration, and petrochemical refineries to promote and diversify its economic activity.

SOCIALAs mentioned earlier that Saudi Arabia is governed by Islamic laws. Adherence to Islamic values and maintenance of social stability in the context of rapid economic change has been consistent goals of its development plans. Major variations in accumulated wealth, although distinctive income groups exist they all are bound together either by kinship, religion.

Saudi society has a number of issues and tensions. Main social concerns are unemployment (at 10% in 2010), corruption and religious extremism.Crime is not a significant problem. However, Saudi Arabia’s objective of being both a modern and Islamic country, coupled with economic difficulties, has created deep social tensions. Connections to the West have caused some Saudis to desire the overthrow of the Al Saud. Others want a reformed and more open government and to have more influence in the political process. On the other hand, juvenile delinquency, drug-use and use of alcohol are getting worse. High unemployment and a generation of young males filled with contempt toward the Royal Family is a significant threat to Saudi social stability. Some Saudis feel they are entitled to well-paid government jobs, and the failure of the government to satisfy this sense of entitlement has led to considerable dissatisfaction. Additionally, the Shiite minority, located primarily in the Eastern Province, and who often complain of institutionalized inequality and repression, have created civil disturbances in the

past. Terrorist attacks in Saudi Arabia have made it clear that Saudi Arabia does harbour indigenous terrorists.

The countries population has increased from 5 million to 28 million in past 30 years. And there is mix of culture, as they rely a lot on external brain i.e. they provide tremendous opportunities to young and talented people from different countries specially countries of south East Asia. Saudi’s account for one fourth of the population. The industry and service sector account for 88 per cent of the labour force. Their main aim is on technical education to keep pace with the global technological changes.

TECHNOLOGICALCurrently, Saudi Arabia is becoming a technological focused. Modern high technology arsenal makes Saudi Arabia among the world’s most densely armed nations. Although internet was introduced late in 1999, there was a growth rate of 3750% by 2000. The spending on connectivity and human resources have been increased. With growing private sector, systems with advanced and innovative technologies is the need and same efforts are made in IT sector to make it an integral part of educational system

THE UNITED ARAB EMIRATES

The UAE is a federation of seven emirates, each governed by a hereditary emir, with a single national president. The constituent emirates are Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. The capital is Abu Dhabi, which is also the state's center of political, industrial, and cultural activities

The UAE has hardly been touched by the political turmoil in the Arab world. The economic andsocial factors that have contributed to the unrest elsewhere in the region are less significant in theUAE and historically, the UAE has one of the most stable political systems in the wider Arab region. Even so, concerns exist on the medium to long-term fallout of the regional turmoil. The situation on the real estate market remains troublesome, especially in Dubai and to a lesser extent in Abu Dhabi. The aggregate UAE fiscal balances remain healthy, due to large oil export revenues which have led to continuous current account surpluses. As a result, the external position of the UAE is in very healthy shape. The economy is expected to grow a sound 3.5% in 2012.

Things to watch:

Situation in the real estate market Medium to long-term fallout of the regional turmoil Volatility of global oil prices

Fig 1 Some Facts About The United Arab Emirates

Source: EIU, CIA World Factbook, UN, Heritage Foundation, Transparency International, Reporters Without Borders, World Bank

ECONOMIC STRUCTURE AND GROWTH

Economic development started in the United Arab Emirates (UAE), only after oil was discovered off the coast of Abu Dhabi. In 2009, the UAE produced around 3.3% of the world's crude, but was home to around 8% of proven reserves. Abu Dhabi is the largest, most powerful, oil-based and traditional emirate. Dubai has a more modern atmosphere, depending on international retail, tourism and financial services, but it lacks oil resources. The other five emirates have always played a minor role. For almost four decades, oil and global finance drove the UAE's economy. The UAE has accumulated substantial wealth, since the country’s per capita GDP is now on a par with those of leading Western European nations. In regional perspective, the emirates have, thanks to successful economic strategies, a diversified and open economy with the share of hydrocarbons in total GDP at 25% in 2010. But the economy's openness made it vulnerable to the crisis of 2008-2009. Financial services, manufacturing, retail, and the hospitality and real estate sectors were severely hit by the downturn in regional and global growth, especially in Dubai. The Abu Dhabi authorities responded by increasing government spending and boosting liquidity in the banking sector and provided a bail-out to Dubai.In 2009, Dubai World, a state-owned investment vehicle, experienced acute financing difficulties, via its real estate daughter Nakheel. Fortunately, it was saved from bankruptcy as Abu Dhabi lent Dubai USD 4.1bn for a bailout package. Since then, Dubai’s external financing situation has improved, reducing the need for further Abu Dhabi support, particularly with the completion of the restructuring of Dubai World in mid-2010.

Figure 2 Growth Performance Figure 3 Growth per sector

Source: EIU (Economic Intelligence Unit) Source: IIF (Institute of International Finance)

However, several other government-related entities are still in the process of restructuring, and the situation in the real estate market is still troublesome. Since mid-2008, real estate prices havefallen by more than 60 percent in Dubai, and to a lesser extent in Abu Dhabi. In Dubai, the officevacancy rate (30 percent at end-2011) is expected to increase further as the supply will increase by a large margin this year. Retail and hotel vacancy rates (20 and 25 percent at end-2011, respectively) could stabilize as fewer new projects are in the pipeline and demand continues to be substantial. In Abu Dhabi, the real estate supply and demand gap continues to widen. The office market vacancy rate (23 percent at end 2011) is expected to grow in light of the expected large new supply. In the hotel segment, vacancies remain high at 35 percent. Overall, the large supply overhang and the completion of additional projects in the coming years render an early and broad-based recovery of the real estate sector unlikely and will continue to be a drag on economic growth.The excess capacity in the real estate sector and the debt overhang still limit lending opportunities for the banking sector. Lending to the private sector has remained sluggish and lagged behind the credit growth seen in neighbouring Gulf Country Council (GCC) countries. The troubles in the real estate sector resulted in acute financing difficulties for the small Dubai Bank, which was owned by shareholders of Dubai Holding, a troubled conglomerate and by Emaar Properties, a large real estate group. The government dealt swiftly by bailing out Dubai Bank in May 2011 to protect depositors as loan losses increased rapidly and it ordered government-owned Emirates NDB bank to take over Dubai Bank. The banking sector in general has remained well-capitalized and profitable, as the net interest margin has remained comfortable, despite a continued rise in nonperforming loans.After the inception of the global financial crisis, the UAE economy returned to positive growth in 2010, largely driven by higher oil prices and output. In Abu Dhabi, non-oil growth accelerated through large public spending on infrastructure, while in Dubai, higher activity in services drove growth. Dubai is very dependent on spending originating in Iran and India, the main trading partners of Dubai. Going forward, the economy is forecast to grow 3.5% in 2012. The hydrocarbon sector is expected to grow 4%, as potential for further increases in oil production is limited. Also, oil production levels are already close to maximum capacity and a possible slowdown in Asia could hurt demand for UAE’s exports. Japan, South Korea, Thailand and India are the country’s largest export partners. The non-hydrocarbon sector is expected to grow by 3-4%, supported by strong trade, tourism, logistics and manufacturing. Downside risks to this scenario are a more pronounced impact of the international sanctions on Iran that could affect the UAE, Dubai in particular, through a reduction of bilateral trade, real estate demand, tourism, and financial services to Iran-based consumers. Also, a possible deepening of the soverign debt troubles in the peripheral euro zone and a worsening of global financial conditions pose a significant downside risk.

PEST ANALYSIS

POLITICAL AND SOCIAL SITUATION

Historically, the UAE has one of the most stable political systems in the wider Arab region. The federation has maintained stability since unification in 1971 and there have been no reports of imminent upheaval since, even though the political system is inflexible and characterized by an almost complete lack of political freedom. The distribution of power between the emirates and the federal government is hardly contested, with the overall balance of power firmly and increasingly tilted in Abu Dhabi’s favor given its size and wealth, but latent rivalries between and within individual emirates do exist. Government institutions may change, but society will remain overwhelmingly tribal and dominated by clans and patronage. Modern-minded Dubai is most prone to opt for a liberal economic agenda and its more easy going lifestyle, as it continues to seek private-sector investments. But its impact on federal institutions is reduced, as indebted Dubai lost political ground due to its home-grown financial crisis to more conservative and wealthy Abu Dhabi. The UAE has hardly been touched by the political turmoil in the Arab world. The economic and social factors that have contributed to the unrest elsewhere in the region are less significant in the UAE. With more than 85% of the labor force expatriate, the country’s small national population of less than one million enjoys a high living standard in -from a regional perspective at least- a relatively open and tolerant society. Nationals enjoy financial advantages through generous social security and housing support. But unemployment among nationals is high (14% in 2010) and concentrated in the smaller, less relevant Emirates, where the authorities responded with promises of public investments, wage raises and higher food subsidies. ‘Emirization’ of the labor market is thus a high political priority. The income disparity (millionaires vs. underpaid migrant workers) is extremely wide and a potential source of social tension.The UAE government has not been outspoken on the Arab Spring protests in the region. There is no doubt the government is concerned about the potential longer-term fallout, not least given the heightened tensions in Bahrain. With regards to Bahrain, the UAE has similar fears as Saudi Arabia. It not only fears the possibility that a Gulf monarchy could be overthrown, but also the possibility of a Shi'a state emerging on the Gulf that could serve to boost Iran's sense of influence and power in that area. Yemen's continued descent into political turmoil is another major concern for the UAE due to Al-Qaeda's resurgent presence in the countryThe UAE will likely continue to take pro-active measures to mitigate domestic social tensions, while aligning its regional response with that of its fellow Gulf Cooperation Council (GCC) countries.

ECONOMIC POLICY

The UAE’s financial position will remain based on hydrocarbons, although economic diversification is underway. Daring Dubai led the way in diversification, which now slowed as it needs to focus on repaying its debts through spending cuts. Abu Dhabi’s diversification program consists of large scale government investment in infrastructure and industry, while Dubai seeks to stimulate private sector involvement in trade and tourism.Data show that the aggregated UAE fiscal balances remain in surplus. Changes in revenues levels are largely determined by oil prices changes. Abu Dhabi National Oil Company’s profit transfers and Abu Dhabi Investment Authority’s (ADIA) investment income are the most important sources of revenues. There are no income taxes, while only foreign banks and foreign energy firms pay ‘charges’, but introducing broader taxation (incomes and VAT) is under consideration. On the expenditures side figure not only food and housing subsidies and large investment outlays, but also substantial capital support for the financial sector and Dubai, where further equity and loans injections may be needed.

Figure 4: Public finances Figure 5: Interest rates and inflation Source: EIU Source: EIU

The level of these contingent Dubai-related liabilities are at UAE level considered manageable, given ADIA’s estimated reserves of USD 300bn. At the level of individual emirates, non-oil and indebted Dubai continues to report deficits. These are now decreasing and compensated by abundant oil-based surpluses of Abu Dhabi. The minimal oil price needed to break-even the consolidated budget increased from USD 30 per barrel in 2003 to around USD 92 per barrel in 2011. This higher minimum break-even price reflects much higher government expenditures and is a risk in the event of declining oil prices. We expect a budget surplus of 5.4% in 2012.Average annual inflation is down from around 12% in the boom years to only 1-2% since the financial crisis of 2009, as especially rents kept inflation low. Inflation is expected to average a modest 2.1% in 2012. Although the decade-long, uncontested and still credible peg of the UAE dirham to the low yielding USD severely restricts interest rate policies to steer the economy, the peg provided some economic and financial stability over the past decades, like in other Gulf States.In 2009, the UAE withdrew from the dollar-dominated Gulf Co-operation Council monetary union project, due to UAE-Saudi rivalry over the location of the seat of the GCC’s central bank. The present peg will remain.

BALANCE OF PAYMENTS

The current account is in healthy shape, it has posted an average surplus of 5.7% of GDP in the past five years. In 2012, it is expected to post a surplus of 5.9% of GDP. The trade balance is the main pillar of these consistent current account surpluses, with an expected surplus of 16.4% of GDP in 2012. The UAE structurally records large trade surpluses ranging from 15-26% of GDP due to oil exports. These are supplemented by small surpluses on the income balance (profits and interest); a surplus of 0.3% of GDP is expected in 2012. On the other side, the services and transfer balances show structural deficits. The services balance by 7.8% of GDP and the transfer balance by 2.9% of GDP in 2012 due to expatriates (8% of the population) transferring funds to their families abroad. We forecast no significant changes in 2013, but the largest risks to this forecast are a significant and unexpected increase or decrease in the oil price and an accelerated growth slowdown in Asia, the UAE’ largest export market. The annual current account surpluses are reflected in the stock of official FX-reserves, which is expected to grow to USD 57bn at end-2012, up from USD 53bn at end-2011.

Figure 6: Current account Figure 7: External liquiditySource: EIU Source: EIU

EXTERNAL POSITION

The external debt of the UAE is estimated at USD 167bn (40% of GDP), most of which is owed by Dubai. Dubai’s high external debt burden has reached over 100% of its own GDP. Total gross foreign assets of the UAE are estimated at about USD 450bn at end-2010. These include foreign assets held at the Central Bank of the UAE (USD43bn), commercial banks’ foreign assets (USD64bn) and foreign assets of ADIA of around USD300bn. These would result in an overall net external asset position of USD 292bn, equivalent to 116% of GDP in 2010. The net external position of the UAE is projected to improve further, given the expected continuation of current account surpluses.Liquidity indicators are not as strong as in many other oil exporting countries. Official FX reserves cover less than 3 months of imports, but when the foreign assets of government regulated and owned ADIA are included, this import cover will increase dramatically to around 20 months. Similarly, other liquidity indicators will improve dramatically. In terms of ability to pay there is little to fear in the medium term for federal UAE or exposures explicitly backed by Abu Dhabi.

Figure 8 Statistical Data (2007-12)Source: EIU

GDP: $336.5 billion

Government expenditure(public) classified as:1.Wages & Salaries2.Goods & Services3.Subsidies & Transfers4.Loans & Equity

Export commodities: crude oil 45%, natural gas, dried fish, datesImport commodities: machinery and transport equipment, chemicals, food

CIRCULAR FLOW (ABU DHABI NATIONAL OIL COMPANY)

COSTS

RESOURCES: labour(Oil Drillers), Land (Oil rich zone),Capital (drilling/transportation equip, Entrepreneurial

RESOURCE MARKET

HOUSEHOLD (CONSUMERS)

ABU DHABI NATIONAL OIL COMPANY (PRODUCER)

PRODUCT MARKET

REVENUE

MONEY INCOME

CONSUMPTION

PRODUCTS

FACTORS OF PRODUCTION

PRODUCTS: Petroleum,crudeoil,natural gas,

RESOURCES: labour, Land,Capital

EXPLANATION:

The above diagram represents a circular flow with respect to the household and abu dhabi national oil company which is the producer/business.

Households are made up of individuals who both spend money and are the recipients of money.It is important to note that the flow of goods and services is in one direction (blue arrows), while the flow of money expenditures is in the opposite direction. Both flows make a complete circle.

RESOURCE MARKET: The resource market is where businesses purchase what they use

to produce goods and services. Resources are in the form of labor, natural resources, capital, and entrepreneurship, all of which are supplied by households.In our particular case, labour (oil drillers), Land(oil rich zone), Capital for purchasing drilling,transportation equipment etc.

PRODUCT MARKET: Product markets are where goods and services are sold. In the case of ABU DHABI NATIONAL OIL COMPANY, it could be petrol/diesel stations, LPG distributorship, inland depot, aviation fuel stations, lubricants and greases outlets etc..

FUTURE OUTLOOK

Formerly reliant on its vast reserves of natural resources, UAE is now trying to diversify its economy by expanding its presence in industrial sector

The UAE is likely continue with its growth but at a lower rate Unemployment will reduce but inflation may increase Dubai Chamber based on market sentiment is forecasting the value of retail sales to

grow beyond 9%

3 sectors - agriculture, manufacturing and service

ECONOMY - OVERVIEW

The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Successful efforts at economic diversification have reduced the portion of GDP based on oil and gas output to 25%. Since the discovery of oil in the UAE more than 30 years ago, the UAE has undergone a profound transformation from an impoverished region of small desert principalities to a modern state with a high standard of living.

Dubai has changed dramatically over the last three decades, becoming a major business centre with a more dynamic and diversified economy. Dubai enjoys a strategic location and serves as the biggest re-exporting centre in the Middle East.

Its low logistical and operational costs and excellent infrastructure, international outlook and liberal government policies are attracting investors in a big way. Activities such as trade, transport, tourism, industry and finance have shown steady growth and helped the economy to achieve a high degree of expansion and diversification.

1. Agriculture

Agriculture contributes just 1% to the GDP of UAE.Agricultural products includedates, vegetables, watermelons; poultry, eggs, dairy products; fish.

Getting into details only about 81,000 hectares (200,000 acres) of land are cultivated. About 24% of cultivated land is used to grow vegetables, 30% fruit, 10% feed crops, and 36% for other uses. The most productive region is Ra's al-Khaimah, which receives underground water supplies from the nearby mountains of Oman and which enjoys the most plentiful rainfall. The main crops are tomatoes, melons, and dates.

The Ministry of Agriculture and Fisheries reported a 48% increase in vegetable production between 1992 and 1995. Dates, traditionally grown on oases by nomads, are becoming less important because of vegetable and fruit production. In 1999, the UAE produced 295,000 tons of dates. The UAE currently satisfies about 60% of its domestic fruit and vegetable demand; bans on imports of certain vegetables and government incentives and subsidies are used to encourage domestic production. Roses and chrysanthemums are grown for export to Europe.

2. Manufacturing Sector

In an increasingly globalised business climate, worldwide expansion of trade and manufacturing has become imperative. The UAE is no exception to this rule and has already recognised the benefits of boosting its manufacturing sector. In fact, by 2015 the UAE hopes that manufacturing will comprise 25% of its GDP.Currently, Dubai's industrial production alone is valued at $54.4bn, contributing 13% of the Emirate's GDP with the sector averaging growth of 8% a year since 2007. GVA from the manufacturing sector grew by Dhs18bn from 2006 to 2011 - a 24% increase overall - while 7.7% of the UAE's employed population was also found in the manufacturing sector in 2011.

Manufacturing in the UAE centres around eight main segments: food, beverages and tobacco; textiles, clothing and leather; wood products including furniture; paper products, printing and publishing; chemical and plastic products; non-metallic mineral products; and fabricated metal and equipment. Exports (FOB) of basic manufactures in 2011 amounted to $33.6m (Dhs123.4m); non-metallic manufactures stood at $25.4m (Dhs93.4m); while miscellaneous manufactured goods were valued at $11m (Dhs40.7m).

Challenges faced by the manufacturing sector around the world revolve around lending shortages, the volatility of currencies, sustainability concerns and the impact on supply chains, as well as the downward pressure on prices.

The Eurozone's manufacturing sector has contracted for the past year, while the USA's sector also found itself contracting in July and August this year. However, in the UAE overall this year (2012) the manufacturing sector was predicted to post growth of 6% - double that of 2011.

So why has this growth been predicted? According to the Oxford Business Group, the manufacturing industry in Dubai specifically has increased in importance over the past few years. This is mainly due to other sectors taking more of a back seat, such as real estate and construction - which were both his particularly hard by the global financial crisis in 2008.

Another factor adding to this growth in the UAE is the general move in the sector from West to East. An increased focus on India and Asian countries as the West remains in economic turmoil, has allowed the UAE to benefit from the knock-on effect of regional manufacturing trade boosts.

Looking to the future, manufacturing will provide a way for the Middle East and other economies to move away from their dependence on oil and gas. Manufacturing - including fertilisers and metal production) are predicted to drive real GDP growth in the non-oil sector. Growth is forecasted at 7.3% over the next year, which will lead to real GDP growth in the GCC of 4.6%.

3. Services Sector

Complementing its world class infrastructure is a sophisticated service sector that features leading regional and international freight forwarders, shipping companies, insurers plus major international hotels, banks and financial service firms, lawyers, accounting firms, consultants, advertising agencies, top international exhibition and conference facilities, high quality office and residential accommodation, first class hospitals, schools, shopping centres and recreational facilities

UAE’s service sector is an important driver for growth. As explained earlier it contributes 74% to the Gross Domestic Product which is on par with most developed world economies. Presently services sector such as consultancy, aerospace, IT, retail and telecommunications rank as the highest users of certified project management systems, noting that these sector’s play an important role in the UAE’s output.

In more recent years, the Emirate has become a major venue for a number of growing, profitable industries and activities:

• Meetings, conferences, exhibitions

• Tourism

• Energy – Oil & Gas

• Petrochemicals

• Metals

• Aviation, Aerospace and Defence

• Pharmaceuticals, Biotechnology, & Life Sciences

• Healthcare Equipment and Services

• Transportation, Trade, & Logistics

• Education

• Media

• Financial Services

Energy – Oil and Gas

Abu Dhabi is one of the world’s most important hydrocarbon suppliers, ranked among the top five exporters of crude oil and top 25 exporters of natural gas. The Emirate’s participation in the oil and gas sector spans the entire range of activities, including exploration, production, transport, refining and marketing of oil and gas. It also covers the fabrication of high-value energy-related equipment and the provision of related services.

Exploration and Production:

The Abu Dhabi National Oil Company (ADNOC) is leading a number of initiatives in order to increase production, with an objective of raising crude production to more than 3.5 million barrels per day over the next decade. These initiatives include the redevelopment of currently producing fields, as well as the development of smaller fields that had not previously been placed into production. Such developments will require significant capital investment, but promise commensurately high rates of return on that investment\

Refining:

The Abu Dhabi Oil Refining Company (TAKREER) and IPIC are pursuing new projects in the refining sector, which will nearly triple the Emirate’s current refining capacity of 485,000 barrels per day. These projects, which include the expansion of the existing Ruwais refinery within the Emirate of Abu Dhabi, as well as the construction of a new refinery within the Emirate of Fujairah represent a tangible example of the application of Abu Dhabi’s future strategy of expanding its participation along the entire hydrocarbon value chain.

Transportation:

UAE is also making major investments in its oil and gas transportation infrastructure, supplementing its existing fleet of oil and LNG tankers via the construction of a 1.5 million barrel per day pipeline to the Emirate of Fujairah, which will allow for significant oil exports outside of the Straits of Hormuz

Metals

UAE’s interest in the sector covers the production of iron, steel, aluminium and other basic metals as well as advanced materials. Globally the sector is worth some $1,470bn a year and is expected to grow at 19% a year in the short term. Profitability is calculated at a healthy 27%.

Aviation, Aerospace and Defence

Aviation and aerospace is a fast growing market worth nearly $500bn worldwide in 2005 and returning strong profits.

Pharmaceuticals, Biotechnology & Life Sciences

The sector’s output in 2006 was almost $700bn worldwide and witnessed strong annual growth and profitability, making it an attractive prospect. Global demographic changes such as aging populations in Europe and North America and increased spending power in emerging marketswill act as demand drivers over the coming decades.

Tourism

A vibrant business, culture, leisure, and sports segment is being developed in the Emirate which will be supported by a fast growing hotels sector to cater to the growing number of high end tourists and visitors, as well as the National and resident population. The Emirate has a strong appeal to tourists and visitors for its large number of natural islands, beautiful beaches, cultural and heritage assets, appealing weather for most of the year and diverse landscape.

Healthcare Equipment and Services

Increasing international demand for medical products and services has created a rapidly growing market, with a global output of more than $3000bn in 2007. Health tourism is also a growing phenomenon. Affluent patients across the world are willing to travel to find the best hospitals

and healthcare services, and Abu Dhabi intends to successfully compete in this market by developing world-class healthcare facilities.

This all became possible due to Dubai’s warm, welcoming people, world class facilities and infrastructure and farsighted, open and liberal economic policies. Finally, committed to a progressive vision of itself, keen to diversify its economy and diminish its reliance upon shrinking oil revenues, Dubai has begun to develop into the Arabian Gulf’s premier international business centre.

PROGNOSIS FOR OF FUTURE U.A.E. ECONOMYThe prognosis can be done by analyzing the SWOT of UAE

SWOT ANALYSISSTRENGTHS

1. OIL WEALTHThe Middle East is home to the world's largest oil reserves, and this has enriched many regional governments and enabled them to invest in economic diversification

2. LARGE EXPATRIATE POPULATIONThere are a large number of Middle Eastern expatriates living across the world and these havepositively contributed to development by sending funds and investing in their home countries.

WEAKNESSES1. POOR GOVERNANCE

Weak management of public affairs in many countries has led to corruption, poor delivery of services, poor tax administration, red tape that weaken the business environment.

2. INCREASING POPULATIONAn increasingly young and expanding population across the region is creating employment issues, as many are left jobless, especially in some of the weaker economies.

OPPORTUNITIES1. WEAKENED ECONOMIES

The global economic turmoil has motivated investors in many corporations across industries to turn to the Middle East for future growth opportunities.

2. DEVELOPMENT OPPORTUNITES

Infrastructure is still underdeveloped in many countries, be it in terms of tourism, Transportation or other types, and the time is therefore ripe for investors to contribute to developing this.

THREATS1. POLITICAL INSTABILITIES

Protests and revolutions plague more than one market in the region, and are now spreading to previously stable markets, creating negative perceptions of the region.

2. STRONG DEPENDENCY ON OIL

Many regional economies remain reliant on oil revenues. Price fluctuations in the sector can therefore be dangerous.

FUTURE PREDICTIONS OF UAE ECONOMYThe Arab Spring puts pressure on GDP growth

RENEWED TURMOIL1. A new type of crisis is unfolding in the Middle

East and North Africa in 2011, making short-term growth prospects for the region unclear

2. While some economies have been affected by the social and political unrest, higher oil prices are boosting economic growth in the region's oil-exporting countries like the UAE, Saudi Arabia and Qatar

3. Egypt, Tunisia, Libya, Syria and Yemen are likely to suffer the most, as some enter a period of transition while others continue to suffer from violence and uncertainty.

WINNERS AND LOSERS EMERGE1. Several markets were affected by uprisings and

the associated violence, while other, more stable markets may take advantage of the unrest

elsewhere by attracting more investment and more tourists2. Dubai has seen a surge in demand since January 2011, as revolutions in other regional

markets encouraged tourists to turnto safer destinations, like the UAE. Mövenpick hotels, for example, reported more than 80% occupancy at the Deira outlet during January and February 2011.

3. International travellers have ceased to regard the Middle East homogeneous and having the same issues across all countries, and are better educated on the social and political differences that exist from market to market. Stable markets will thus continue to see growth in tourism.

4. The Middle East is a tourism "hotspot", and the second fastest growing regional economy in the world, with average GDP growth standing at 5.5% in 2010, second only to East Asia-Pacific, with 6.4%.

BIBLIOGRAPHY