The Annual Economic Report 2014

The Twenty Second Edition

The Annual Economic Report 2014

Vision “Internationally competitive and diversified economy under the leadership of efficient and knowledgeable nationals”

Mission“To develop the national economy and create a pro-business environment that contributes to achieve balanced and sustainable development of the country, through the enactment and modernization of economic legislations , foreign trade policies, development of national industries and exports, promotion of investment, regulation of competition and Small and Medium Enterprises (SMEs) sector, protection of consumer and intellectual property rights, and diversification of economic activities, under the leadership of efficient nationals, in line with international standards of creativity, excellence and knowledge economies”.

ValuesTransparency: to apply institutional governance principles, unambiguity of information, decisions, conducts, and all communication and interconnectedness mechanisms with customers from inside and outside the ministry.

Respect of Rights: to respect rights of employees, consumers and all customer classes as per applied economic legislations and work regulations.

Excellence: to provide services beyond customers’ expectations and harmonize with best practices and international standards of excellence and exert efforts for uplifting the efficiency of human resources.

Team Spirit: to cooperate and teamwork, support all work groups of ministry ‘s employees and strategic partners to achieve excellence.

Participation: to manage with participation, consider all different ideas and contributions of related classes , hence adding value to work results.

Creativity: to create positive climate for supporting concerned classes inside and outside the ministry convert their ideas to applicable distinguished results serving ministry’s vision and country’s competitiveness.

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The Annual EconomicReport2014

The Twenty Second Edition


His Highness ShaikhKhalifah Bin Zayed Al Nahyan

President of The United Arab Emirates


His Highness SheikhMohammed bin Rashid Al Maktoum

Vice President of Prime Minister and Ruler of Dubai


1314 1819

4950 505054

5556

58

61

2324 272830303436363738394040434344444545454646

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IndexThe Minister’s Statement

First: The economic conditions around the world and the Arab and the Gulf area Global economic conditions Arab economic conditions Gulf economic conditions

Second: National economic performance1 Economic Growth2 Consumer Spending3 Inflation4 The investment environment4.1 Local investment4.2 Foreign direct investment5 Financial and monetary sector5.1 Developments in financial markets5.2 Monetary developments5.3 Banking developments6 Public finance7 Balance of Payments and Foreign Trade 7.1 Foreign Trade7.1.1 National exports7.1.2 Re-exports7.1.3 Imports7.2 Trade in services7.2.1 Service exports7.2.2 Service imports7.3 Investment income7.4 Transfers7.5 Capital and financial account

Third: Population and labour force1 Population2 Labour force2.1 Workforce Distribution by Economic Sectors2.2 Workforce in private Sector

Fourth: Contemporary economic issues1 The economic importance of the UAE winning the right to

organise EXPO2020 2 UAE &sustainable energy

Fifth: Financial projections for 2014


The Ministry of economy is working hard through the unique Emirati government working system to support the UAE government’s strategy to strengthen the global position of the UAE economy and to achieve our vision of a varied competitive global economy driven by qualified national competencies characterised by knowledge.

We are moving forward with confidence and determination towards the goals we have set to strengthen the status of our national economy and to maintain the comprehensive sustainable march of development that is taking place in our beloved country. The UAE continues to draw the attention of the world through a series of notable achievements. The advanced position achieved by the UAE in the global Competitiveness report issued by the Institute of Administrative Development, one of the most important global indicators, also demonstrates the extent of progress and development achieved under the effective approach of our wise leadership as they lead our country. The UAE has made great progress, rising seven positions in the Global Competitiveness Report issued by the World economic Forum “Davos” for the year2015, and achieving advanced positions in various categories in the report.

The greatness of the achievements of our nation and people are now clearly seen, and we would have never achieved these achievements if it was not for our wise leadership’s precise vision and the unlimited support of His Highness Sheikh Khalifa bin Zayed Al Nahyan, President of the UAE (God protect him) and His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister Ruler of Dubai (God protect him) and their Highnesses Supreme Council Members and rulers of the Emirates.

In achieving twelfth position in the Global Competitiveness Report, the UAE has advanced seven positions in one year, rising above many advanced countries in the world in terms of overall competitiveness of their economies. The UAE has reached first position in a number of sub-indicators and overall has improved performance in seventy-eight of the one hundred and fourteen indicators. The value of this achievement is derived from the Global Competitiveness

The Minister’s Statement

Report being one of the most important international indicators of development and economic progress. It is particularly significant as it is distinguished by its careful analysis of the various pillars of economic and developmental data, and classifies various countries of the world according to objective strict criteria without bias or favor.

The development and large strides achieved by our national economy, especially in the light of the shift towards a knowledge economy based on creativity and innovation, and the advanced position of our beloved nation on the international economic scene places a heavy responsibility on all in the Ministry of Economy. We have to provide extra effort to maintain the diverse gains and to compound them through new achievements. By optimising the performance of our jobs we can achieve further progress at various levels. I am confident of the potential, enthusiasm and sincerity of our working manpower, and their devotion to creativity and innovation in performing their duties.

Engineer Sultan Bin Saeed AlmansouriMinister of Economy

01Firstly:

Economic Conditions around the World, and in Arab and Gulf regions.

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1. Global Economic ConditionsThe most prominent global economic developments in 2014 can be summarized as a strong recovery in global economic growth; at a faster pace in the United States than in the Euro zone. The Federal Reserve (The US Central Bank) started to cut back on the quantitative easing program in the first quarter of 2014. This has had the effect of withdrawing the large amounts of US dollars that had previously been pumped into the financial markets. As a consequence there was an appreciation in the value of the US dollar against other major currencies. In particular the exchange rate of the US dollar to the euro has risen, and may reach $1.20 per euro by the end of this year.

The appreciation of the US dollar will weaken the demand for dollar quoted commodities, such as gold and oil, and therefore could lead to a possible drop in their prices. As a result, oil prices in the international market may fall to less than $ 100 per barrel, and this will help to keep inflation in Western countries under control, at an average rate of no more than 2%.

The sovereign debt problem in many developed countries burdened the global economy in 2013, and it was not easy to amend the financial sector budgets in those countries. Direct and indirect measures taken by governments to amend the financial sector budgets have been severe, and have reached a level that could not be handled in many countries, particularly in southern Europe. Although there was some justification for the severity of the policies adopted, this severity also negatively affected the adjustments to the balance sheets of the financial sector in most advanced countries. In general economies in the European Union were in recession while other economies experienced very weak economic growth. Despite this there was a recovery in 2013; however it was a very slow recovery because of expectations of negative risks to economic development.

1.1 GDP: A Trillion USDDuring 2012 the economies of developing country became more significant to the global economy. They also contributed to support the growth of global demand. However, the economic performance of those countries varied depending on their level of resources. Economies of developing countries with an abundance of financial and natural resources were able to overcome the uncertainties that restricted the global economy. The resilience of economies in major developing countries therefore contributed to supporting global demand for natural resources thereby compensating for the decline in demand in developed countries.

Currently, the focus is on emerging economies which have experienced slow growth as a result of monetary policy in the US, which led to an unexpected significant increase in long-term bond yields in the US and in many other countries. This increase created risks for emerging market economies.

15

Table (1): Achieved economic growth in (2012-2013) & expected in (2014-2015)%

Achieved Growth

Released Expectations (Jan

2014)

Divergence from Released Expectations

(Oct 2014)

2012 2013 2014 2015 2014 2015

GWP 3.1 3.0 3.7 3.9 0.1 0.0

Advanced Economies 1.4 1.3 2.2 2.3 0.2 -0.2

Emerging &Developing Economies 4.9 4.7 5.1 5.4 0.0 0.1

USA 2.8 1.9 2.8 3.0 0.2 -0.4

Germany 0.9 0.5 1.6 1.4 0.2 0.1

France 0.0 0.2 0.9 1.5 0.0 0.0

Italy -2.5 0.6 1.1 -0.1 0.1

Spain -1.6 -1.2 0.6 0.8 0.4 0.3

Japan 1.4 1.7 1.7 1.0 0.4 -0.2

The UK 0.3 1.7 2.4 2.2 0.6 0.2

Canada 1.7 1.7 2.2 2.4 0.1 -0.1

Russia 3.4 1.5 2.0 2.5 -1.0 -1.0

China 7.7 7.7 7.5 7.3 0.3 0.2

India 3.2 4.4 5.4 6.4 0.2 0.1

Brazil 1.0 2.3 2.3 2.8 -0.2 -0.4

South Africa 2.5 1.8 2.8 3.3 -0.1 0.0

Source: International Monetary Fund - World Economic Outlook Update - January 2014

Description

16

6

4.5

3

1.5

0

-1.5201220132014201520142015

GWP Advanced Economies Emerging and developing Economies

Graph(1): Economic Growth

Global economic indicators recorded during 2013 showed improvement from the previous year despite the existing risks which included a possible contraction in the euro zone and a rise in the unemployment rate. Accordingly, the International Monetary Fund slightly raised its forecast for global economic growth to 3.7% in 2014 compared to global economic growth of 3 % in 2013. The IMF noted a large disparity between the developed economies on the one hand and emerging and developing economies on the other hand; growth in developed countries reached 1.2% during 2013, compared to 4.5% in emerging and developing countries.

The IMF forecast that the global economy in 2014 will be healthier than in 2013 with increasing demand and stocks in developed economies. However, the IMF warned at the same time that these optimistic prospects are vulnerable to potential setbacks that could cause an increase in global interest rates, and potential fluctuations in capital flows caused by of the US Federal Reserve Board’s withdrawal of the massive monetary incentives that helped the US economy to overcome the crisis they experienced.

The improvement in activity is expected to continue during 2015 because of the expected recovery in advanced economies in particular. The global economy is expected to grow by 3.9% in 2015.

1.2 Foreign TradeGlobal exports rose during 2013 to reach $ 18.78 trillion, compared with $18.3 trillion in 2012, and $18.2 trillion in 2011, while global imports also rose to $18.87 trillion, bringing World trade volumes last year to $ 37.5 trillion.


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China, the United States and Germany occupied the first three positions in the World Trade Organization list in 2013 with more than $5 trillion in total exports between them.

China accounted for 11,8% of total world exports ($ 2.2 trillion), the United States of America accounted for 8.4% ($ 1,57 trillion), , while Germany’s accounted for 7,7% ($ 1,45 trillion).

The Global Trade Organization expects a slight increase of 4.7% in the volume of world trade in 2014, but it ruled out a return to the historic growth rate of 5.3% experienced in 2013.

These expectations were a result of the weak outcomes of last year as the volume of world trade rose only to 2% with $ 18.8 trillion.

The World Trade Organization noted that the developing countries and the Commonwealth of Independent States will record the best performance in 2014 as their trade volume will increase by 6.4%, compared to 3.6% in developed countries. In terms of exporting, the Asian countries will remain in the lead with a growth of 7% followed by North America, South America, and then Europe.

South Korea assumed the eighth position in terms of world trade volume during the first half of 2014, one position higher than the previous year according to the World Trade Institute. The volume of foreign trade in South Korea reached $546.4 billion during the period the first half of 2014, which is the eighth largest volume amongst the top 71 countries.

South Korea also registered annual growth in exports by 2.5% with $283.3 billion during the first half of 2014 to become the seventh largest country in the world for exports and the ninth worldwide for imports with $263.1 billion.

According to the report, China was top of the list with total volume of trade of $2.02 trillion, followed by the US with $1.98 trillion and Germany with $1.39 trillion. According to the WTO statistics, the three countries were also in the first three positions on the list of the world’s largest importers of goods and services.

The value of US imports reached about $2.33 trillion which is about 12.4% of the world’s total imports, followed by China, which accounted for imports of $1.95 trillion which is about 10.3% of the world’s total imports, while Germany was ranked third in the world with total imports of $1.18 trillion which is about 6.3% of world’s total imports.

In the Arab world, Saudi Arabia came sixteenth on the list of the largest exporters in the world during 2013 with total exports of about $365 billion last year. Also, the Kingdom joined the WTO’s list of the thirty largest importers in the world in 2013, in 29th position with total imports of $245 billion.

1.3 Inflation The global economy witnessed a continuous fall in inflation in 2013, as advanced economies recorded an inflation rate of 1.7% during 2012, compared to 2.7% in 2011. The fall in inflation continued in these economies to 1.4% in 2013. The euro zone recorded a 2.2% inflation rate

18

8

7

6

5

4

3

2

1

02014 2013 2012 2011 2010

Advanced Economies Worldwide Emerging and advancing Economies

Graph (2)

2. Arab Economic Conditions2.1 Economic GrowthIn 2013, the Arab countries faced a lot of economic difficulties because of the continuous unstable political and security situation, while the Gulf Cooperation Council (GCC) witnessed an economic boom because of the rise in oil prices in global markets. The outcome was a general decline in the Arab GDP growth rate to 3.4%, compared to 9.3% in 2012.

2.2 Income per capitaThe Arab per capita income advanced to $8,200 in 2013 with large variations between different Arab countries.

in 2012, and 1.3% inflation rate in 2013, compared to 2.7% inflation in 2011. In emerging and developing economies the inflation rate was 6% in 2013.

The global inflation index showed unusually low levels of inflation during the past five years. At the end of June 2014, data from China showed an economic deceleration as prices rose annually by 2.3% in June, compared with an annual rise of 2.5% in May. On the other hand India, with a strong inflation rate of 10% in 2011, witnessed an inflation rate of only 5.5 % in June 2014. A similar trend was experienced also in Europe as prices rose by 0.5% in June in 18 countries of the European Union.


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2.3 Arab stock markets The total stock of foreign currency in Arab countries totaled approximately $ 1,400 billion, the bulk of which is in the oil-exporting Arab countries. This is in addition to a pool of foreign currency held by sovereign funds of the Gulf Cooperation Council countries of more than $1,100 billion by the end of 2012. These developments reflected positively on the performance of Arab stock markets in those countries, and on the flow of domestic and foreign investments. These developments have established the GCC countries as an essential partner in the global economy for both Asian and Western countries, which have come to see the GCC countries as major commercial financial partners.

2.4 Foreign TradeExports of Arab goods and services fell to $1,499 billion, while imports of goods and services into Arab countries rose to $1,130 billion in 2013. In 2013 the trade balance was in surplus in 8 Arab countries, namely the Arab Gulf Cooperation Council (GCC), Algeria and Iraq, while there was a deficit in the rest of the Arab countries.

2.5 Arab BudgetsMost Arab countries are suffering from chronic budget deficits; however most of the Gulf Cooperation Council (GCC) were running fiscal surpluses during 2013 as a result of the effect of oil revenues.

2.6 InflationOverall the inflation rate dropped during 2013 to 5.7%.

2.7 Arab Sovereign DebtsThe total external Sovereign debt of Arab countries reached about $780.6 billion in 2013. With reference to international standards, there are 12 Arab countries within the safe external debt limits, where the debt-GDP ratio does not exceed the benchmark of 48%, while there are 3 Arab countries with a ratio between 49.5% to 90%, and 3 countries with a ratio of more than 100%.

3. GCC Economic Conditions3.1 Gross domestic product (GDP)GCC countries are trying to increase the contribution of some economic sectors to the GDP, especially the industrial sector. This is in the context of the expectations of the Gulf economy to grow up to 4.2% in 2014, totaling about $1.7 trillion, compared with $1.65 trillion in 2013.

The Federation of Chambers of the Gulf Cooperation Council (GCC) in the semi-annual economic report prepared by the Secretariat of the Union confirmed that the GCC countries aim at raising the contribution of the industrial sector to 25% by 2020, compared with about 10% at

20

the present time. The aim is to take advantage of the continued growth of this sector and the level of government and private investments that are flowing into industrial projects.

Investment in Gulf Industry is expected to reach nearly $1 trillion by 2020, compared with about $323 billion at the present time, after completion of the building of the industrial cities which are currently underway in the GCC countries.

The GCC countries have included strengthening the industrial sector as part of their national strategies. These are based on diversification of income sources and creating investment opportunities in sectors other than oil and gas. This is despite the many challenges still facing this sector, most notably the decline in the contribution of the small and medium size industries in the total industrial activity. The small and medium industries are import in creating job opportunities and achieving economic growth.

The GCC countries stressed working within their plans support for small and medium industries. These institutions account for more than 86% of the total industrial establishments in the GCC countries, but the size of their investment does not exceed 22% of the total investments in the Gulf industrial sector.

The SME (small and medium enterprise) sector is expected to gain some government investment in the face of limited funding opportunities from the financial market and banks (despite the job opportunities provided by the SME sector).

The Gulf private sector will play a pivotal role in the Gulf economy through alliances with international companies to transfer technology and take advantage partnership to improve productivity. It will also facilitate the procedures for obtaining the input of industry into the private sector enabling investment in manufacturing industries. It is also important to promote national partnerships between the private sector and companies of petrochemical and mineral industries. This will enable the localisation of knowledge-based industries, increased spending on research and development and the unification of technological research with the targeted industrial sectors.

3.2 Foreign TradeThe two-way trade between the Gulf countries grew by 5.5% during 2013 to reach $93 billion/AED 341.5 billion, compared with $88 billion/AED 323.2 billion) in 2012. Total GCC foreign assets reached $2.2 trillion (about eight trillion dirhams),which proves the durability of the Gulf economies, and their ability to put their imprint on the global economy as a global economic power

3.3 Inflation As shown in the following table, the GCC countries have demonstrated a great ability to maintain low rates of inflation due to the fiscal and monetary policies pursued the free market, and the abundance of goods and services.

21

201120122013

5

3.8

2.5

1.3

0

-1.3

Graph (3): Inflation in GCC

Kuwait Qatar Oman Saudi Arabia Bahrain Emirates

Resource: The Cooperation Council for The Arab States of The Gulf, Statistics

Resource: The Cooperation Council for The Arab States of The Gulf,

Table (2): Inflation in GCC

Year/Country 2011 2012 2013

UAE 0.8 0.66 1.1

Bahrain -0.4 1.2 2.6

KSA 3.7 2.9 3.7

Oman 4 2.9 3.3

Qatar 1.9 1.9 3

Kuwait 4.7 2.9 3.3

22

The inflation index in the GCC countries recorded rates ranging between 0.63% and 3.1% in July 2014, compared to the same month in 2013.

According to the latest statistics released by the Statistical Centre of the GCC, Qatar recorded the highest inflation rate amongst the GCC countries with 3.1%, followed by Bahrain and Kuwait with 2.7% each, then KSA with 2.6% and the UAE with 2.33%, while Oman recorded 0.63%, the lowest rate among the six GCC countries. (During any year, and a review of percentages/year)

When comparing the recorded index for July 2014 to the recorded index for June 2014, it can be seen that the inflation rate increased in Qatar, KSA and Bahrain by 0.3%, in Oman by 0.25%, in the UAE by 0.09% while the rate was unchanged in Kuwait.

The food and beverage sector recorded an increase in July 2014 compared to the same month of the previous year in all GCC countries except for Qatar and Oman. The index rose by 2.3% in Bahrain, 2.0% in KSA, 1.96% in Kuwait and 1.42% in the UAE, declined in Qatar by 0.8% and 0.03% in Oman.

With regard to the highest major expenditure segments in each country during July 2014, compared to the same month of the previous year, the data showed the leading growth segment in each country: tobacco segment in Kuwait at 12.58%, culture and entertainment segment in KSA at 10.4%, housing, water, electricity, gas and other fuel types segment in both Qatar and Bahrain at 7.6% and 5.4% respectively, household furnishings, household equipment and routine maintenance segments in Oman at 7.28%, and miscellaneous goods and services segment in the UAE at 5.64%.

In contrast, the data indicated the most declined segments in July 2014 compared to the same month of the previous year, in all GCC countries were as follows: health segment in Kuwait declined by 1.18%, transport segment in Oman declined by 1.17%, food & beverages and tobacco segments in Qatar declined by 0.8% , while no decline was recorded in major segments in KSA, Bahrain and the UAE for July 2014.

In GCC countries, in general, the housing, water, electricity, gas and other fuels segments grew in July 2014. The highest percentage rise of 7.6% was in Qatar, followed by Bahrain at 5.4%, Kuwait at 4.39%, KSA at 2.8%, the UAE at 2.74 % and finally Oman at 1.39%.

02Secondly:

National Economy Performance

24

Table (3): GDP at constant prices for the period (2011-2013)

Graph (4): GDP at Constant Prices in the UAE

1. Economic GrowthThe UAE economy continued to grow at a rapid pace from the beginning of 2013 until the first half of 2014, supported by the strong recovery in domestic demand.

Data Growth Rate

1100

1050

1000

950

900201320122011

1073.2

1020.3

977.7

5.20%

4.40%

4.90%

Resource : National Center for Statistics


4.90%

4.40%

5.20%

977.7

1020.3

1073.2

2011

2012

2013

Growth rate%DescriptionYear

25

Table (4): Contribution of (Oil & Non-oil) Sectors in GDP (2012-2013)


Because of the strength of the structural components and the policy of economic diversification pursued and practiced by the country, recovery and strong performance of the national economy continued in 2013, despite the difficulties of volatile economic conditions experienced by the global economy, which affected most countries in the world to varying degrees. GDP reached about AED 1.1 trillion in real terms, up from the level of AED 1.0 trillion in 2012. The real growth rate was 5.2% compared to the real growth rate of 4.7% in 2012. This development was due to the increased production of the non-oil sectors from AED 694.2 billion in 2012 to AED 731.8 billion in 2013, a growth rate of 5.4%. Hence their contribution in GDP true constant prices increased from 67.2% in 2012 to 67.3% in 2013 and therefore the contribution of the oil sector declined from 32.8% in 2012 to 32.7% in 2013. This development in non-oil sectors was the result of good dynamic growth in the sectors of tourism, transport, storage, communications, real estate, business services, construction, foreign trade and financial projects. The activity of Emirates Securities Market rose by a large margin, Dubai Mercantile Exchange (DME) achieved first place in the list of global stock markets with a growth rate exceeding 106%, and Abu Dhabi stock exchange market by a remarkable rate of 63%.

20132012 Growth %

GDP in current prices

GDP of Oil Sectors in Current prices

GDP of Non-oil Sectors in Real Prices

The Contribution of Non-oil Sectors in Constant Prices

The Contribution of Oil Sectors in Constant Prices

GDP of Non-oil Sectors in Current Prices

GDP in Real Prices

1367.3

828.2

539.1

1033.5

694.2

339.3

67.2

32.8%

1477.6

903.5

574.1

1087.3

731.8

355.5

67.3%

32.7%

8.1%

9.1%

6.5%

5.2%

5.4%

4.8%

-

-

Billion AED

Description

GDP of Oil Sectors in Real Prices

26

Table (5): The Contribution of Economic Activities to GDP & Growth Rates

959699

6952

341504

339312

2193

94865

30487

96530

123398

19769

96944

68626

28318

122955

26294

68687

58587

4117

57586

1033504

694192

Sector of Non-financial Projects

Agriculture & Fish and Animal resource

Extractive Industries

Oil & Natural Gas

Stone Quarry

Manufacturing Industry

Electricity, Gas & Water

Building and Construction

Retail/ Wholesale & Repairing Services

Hotels & Restaurants

Transportation, Storage & Communication

Transportation, Storage & Other

Communication

Real Property & Business Services

Personal & Social Services

Financial Projects Sector

Government Services Sector

Household Services

Minus: Calculated Bank Services

Total

Total Sectors without Oil

5.1%

-5.5%

7.3%

7.6%

-26.6%

5.2%

15.2%

-6.7%

0.7%

4.6%

6.1%

8.6%

0.5%

12.1%

6.4%

3.4%

13.5%

2.0%

20.1%

4.7%

3.3%

1006960

6872

357918

355457

2461

96678

32146

100218

126417

21064

104042

75025

29017

133698

27907

74730

64409

4150

63003

1087246

731789

4.9%

-1.2%

4.8%

4.8%

12.2%

1.9%

5.4%

3.8%

2.4%

6.6%

7.3%

9.3%

2.5%

8.7%

6.1%

8.8%

9.9%

0.8%

9.4%

5.2%

5.4%

Growth %Growth %Value

MM AEDValue

MM AEDEconomic Activities

20132012

Source: National Center for Statistics.

27

According to the data from the table (5), and after deducting calculated banking services, it is clear that the productive sectors (agriculture, oil, gas and quarrying, manufacturing, electricity, gas and water, and construction) contributed about AED 559.8 billion compared with the previous year of AED 539.3 billion, a growth rate of 3.8%. The proportion of its contribution to real GDP declined from 52.2% in 2012 to 51.5% in 2013. The construction sector achieved a positive growth of 3.8% in 2013 after a negative growth in 2012 as a result of continuous and strong recovery in the sector while the manufacturing sector growth declined from 5.2% in 2012 to 1.9% in 2013.

The productive service sectors (comprising the wholesale and retail trade, repairing services, restaurants and hotels, transport, storage and communications, real estate and business services and financial projects) achieved a real GDP that evolved from AED 408.7 billion in 2012 to AED 433.9 billion in 2013, a growth of 6.2%. Their contribution to real GDP increased from 39.5% in 2012 to 39.9% in 2013. Overall the contribution of all sectors to GDP was very good with increases in the growth rates in the past two years.

The service sectors (social, personal, and government and household) achieved a result that increased from AED 84.9 billion in 2012 to AED 91.4 billion in 2013, a growth of 7.6%.

2. Consumer SpendingIn the context of achieving the country’s vision for 2021 and activating the government’s strategic priorities in terms of achieving high quality of life in a sustainable giving environment, maintaining luxury and high standards of living and providing the best education, health and public services for citizens and residents, real consumer spending rose from 630.5 billion dirhams in 2012 to 698.1 billion dirhams in 2013, an increase of 10.7%. The proportion of real consumer spending to real output also rose from 61.0% in 2012 to 64.2% in 2013.

Source: The National Statistics Center Data Base

Table (6): Total Consumer Spending between (2012-2013)

2012 2013 Growth rate%

Government consumer spending 81.3 84.7 4.2%

Private consumer spending 549.2 613.3 11.7%

Total consumer spending 630.5 698.1 10.7%

Total consumer spending / Total real

output61.0% 64.2% -

Billion AED

Description

28

3. Inflation Despite the higher rate of inflation in the UAE in 2013 at 1.1% (compared to its level in 2012 of 0.7%) with an average index of consumer prices at the country level for of 118.07 in 2013 (compared to 116.78 in 2012) it is still within normal parameters and helps in attracting long-term investments that contribute to raising the rate of economic growth. This is clearly shown in the high level of the indices of financial markets and the increased level of lending, as a result of the reduction in the cost of projects.

This increase between the two years was due to the rise of most major constituent groups of the consumer basket. Alcoholic beverages and tobacco prices rose by 14.25%, education by 5.38%, food and non-alcoholic beverages by 2.69%, restaurants and hotels by 1.94%, transport services by 1.0%, home equipment by 0.93%, recreation and culture by 0.87%, health services by 0.39%, housing by 0.26%, and clothing and footwear by 0.25%. On the other hand, the group of miscellaneous goods and services declined by 0.22% and communications by 0.02%.

Consumer prices recorded an increase of 1.91% during the first half of 2014 compared to the first half of 2013. This increase between the two periods was due to the rise of all major groups of the consumer basket with the exception of health services group. Education group prices increased by 4.47%, household furnishings and equipment increased by 3.73%, housing, water, electricity and gas by 2.32%, food and non-alcoholic beverages by 2.16%, alcoholic beverages and tobacco by 1.66%, restaurants and hotels by 1.16%, miscellaneous goods and services by 1.39%, transport services by 1%, recreation and culture by 0.76%, clothing and footwear by 0.58% and communications by 0.32% while health services dropped by 0.16%.

As a result of the increasing prices of commodity groups within the consumer basket during the first half of 2014, f the general index of prices rose during the same period.

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Table (7): Inf lation Rate in the UAE

2011

2012

2013

January 2014

February 2014

March 2014

April 2014

May 2014

June 2014

July 2014

August 2014

Inflation rate for the first half of 2014

0.88

0.66

1.1

1.5

1.75

1.85

2.12

2

2.2

2.3

2.42

1.91

Growth Rate %Year

Source: National Center for Statistics.

30

Table (8): Total Fixed Capital by Sector for (2012-2013) (in Current Prices) AED Billions

Resource: National Center for Statistics- Raw Data- May 2014

4. Investment Environment4.1 Local InvestmentInvestment is the basis for building a productive national economic system that is able to promote development, provide goods and services both for domestic consumption and for export, and to create employment opportunities. All this is done by injecting these investments into economic activities and sectors, financing new projects, and maintaining and replacing capital equipment for existing projects. This will maintain the policy of diversification of income sources, and support the country’s strategic approach of establishing a competitive knowledge-based economy.

The data in Table (8) demonstrates the increase in the volume of investments from about AED 299.3 billion in 2012 to AED 324.6 billion in 2013, a growth of 8.4%. Private sector investment rose to AED 203.9 billion in 2013 compared to AED 189.4 billion in 2012, a growth of about 7.7%, thus emphasizing the country’s liberal economic policy and expanding the contribution of the private sector to development. Public sector investment increased from AED 109.9 billion in 2012 to AED 120.8 billion in 2013, a growth of about 9.9%, because of the country’s keenness to renew and maintain some of the infrastructure, and to execute strategic projects and initiatives to deliver a competitive knowledge-based economy.

8.4%

12.8%

8.5%

7.7%

100%

12.0%

25.2%

62.8%

324.6

38.8

81.9

203.9

100%

11.5%

25.2%

63.3%

299.3

34.4

75.5

189.4

Total Fixed Capital

Government Sector

Public Sector

Private Sector

2013*

Growth Rate %

Contrib-ution %

Contrib-ution % ValueValueDescription

2012

31

20122013

400

300

200

100

0

Graph (5):Total Fixed Capital by Sector for (2012-2013) (in Current Prices)

Total Fixed CapitalGovernment sectorPublic sectorPrivate sector

32

Table (9): Total Fixed Capital by Economic Sectors for (2012-2013)

4.1.1 Analysis of Investment by Economic Sector

Billions AED

Resource: National Center for Statistics- Raw Data – May 2014

Agriculture, Fishing and Animal resource

Oil & Natural Gas

Quarrying

Manufacturing


Building & Construction


Transportation, Storage & other Services

Communication

Real Estate & Business Services

Social & Personal Services

Financial Projects Sectors

Government Service Sector

Total

0.3%

14.6%

0.1%

15.3%

7.5%

4.1%

5.4%

2.0%

13.1%

2.3%

16.0%

5.4%

2.3%

11.5%

100.0%

0.9

43.7

0.4

45.9

22.6

12.3

16.1

6.0

39.2

6.8

47.8

16.2

7.0

34.4

299.4

0.3%

14.3%

0.1%

14.9%

7.4%

4.2%

5.2%

2.0%

13.2%

2.2%

16.5%

5.5%

2.4%

11.9%

100.0%

0.9

46.4

0.4

48.5

24.1

13.5

16.8

6.5

42.7

7.0

53.5

17.7

7.9

38.8

324.6

Wholesale and Retail Trade & Repairing Services

Economic Sectors Contrib-ution %

Contrib-ution %

Value Value

2012 2013

33

Graph (6): Total Fixed Capital by Economic Sectors for (2012-2013)

Government Service Sector

Financial Project Sector

Social & Personal Services

Real Property & Business Services

Communication

Transportation, Storage & other Communication


Wholesale and Retail Trade & Correctional Services

Building & Construction


Manufacturing

Quarrying

Oil & Natural Gas

Agriculture, Fishing and Animal Resources

60

2012 2013

50 30 15 0

34

The real estate and business service sector accounted for the highest proportion of the total executed investments in 2013 with about 16.5% of the total. The manufacturing sector accounted for about 14.9%, oil and natural gas sector was about 14.3%, transport, storage and other communications was about 13.2%, and government service sector was about 11.9% of total investments. The combined total for all these sectors was about 70.8% of the total volume of investments carried out in 2013.

4.2 Foreign direct investmentTo support its strategic initiative to strengthen development and to shift towards a knowledge economy, the country relies on foreign direct investment and partnerships with multinational global companies. This provides a driving force and an important tool to transfer and localise advanced technology, and to assist in training qualified skilled local personnel. Subsequently it will facilitate establishment of the rules and principles that will attract more foreign investment, by pursuing an open-door policy to foreign investors who want to access the country’s markets. This is being done by facilitating procedures, reducing tax rates and the renewing the infrastructure that will allow them to exercise their business smoothly. (The UAE occupies 19th place in the Global Competitiveness Report for 2013/2014, and rose to 23rd among 189 countries in the Doing Business Report for 2013 issued by the World Bank). The UAE also prepared a new investment law that provides the legislative framework to regulate and protect foreign direct investments and to regulate the flow of foreign direct investments. The new investment law allows foreign ownership of up to 100% of companies outside the free zones, to support the strategic policy to transfer the country towards a diversified knowledge economy. It also provides a regulated environment for the business sector in general. This law is expected to be issued soon. In addition, the country, represented by the Ministry of Economy, prepared a draft of an investment map to enhance its position on the world’s investment map, to attract foreign investment to each emirate according to its needs, to be a destination for investors and capital, and to showcase the country’s investment opportunities around the world.

During 2014, the country embraced «the Fourth World Annual Investment Forum” which was organized by the Ministry of Economy. The Forum attracted the participation of 60 ministers from various countries around the world, as well as investors and businessmen from the UAE and Arab and foreign countries. In the forum, the participants discussed the prospects for developing successful investment partnerships, and provided a list of appropriate and viable investment options for International and regional investors with different investment budgets. The forum discussed investment operations in agriculture, tourism, recreation, infrastructure and logistics sectors. The forum also examined the investment opportunities provided by Dubai, investment risk management, marketing investment, the institutional dynamic for private investment, and investment in energy, manufacturing and financial sectors. The forum aimed to achieve rapid changes in developing economies, countries and industries to help enhance their potential. It also attracted a mix of high-level government officials, asset owners, and entrepreneurs from all over the world.

35

2013

11

8.3

5.5

2.8

0201020112012

The flow of foreign direct investment in the country has grown for the fourth consecutive year due to the stable political and security climate which provides a safe haven for foreign direct investment in the turbulent region, and Dubai’s success in gaining the right to host Expo2020. The net flows are shown in the following table:

Table (10): Flows of foreign direct investment in UAE (2010-2013)

Graph (7): Flow of foreign direct investment (2010-2013)

Billions AED

Annual flow of foreign direct investments

Billions AED

Resource: UNCTAD

77.7

85.4

95.0

105.5

10.7%

5.5

7.7

9.6

10.5

24.1%

2010

2011

2012

2013

Average Annual Growth %

Total cumulative flow of foreign direct investment

Net flow of foreign direct investments

Year

36

In 2013 alone the country attracted foreign direct investments of $10.5 billion, putting it in second place globally (after Turkey) as the largest destination for foreign direct investment among developing countries, according to the latest report issued by the United Nations Conference on Trade And Development (‘‘UNCTAD’’). According to the report, a large part of this improvement in the flow of foreign investment into the sector was due to the recovery in real estate and banking. Companies in these sectors benefited from the high liquidity and increased lending to real estate projects, which revived the life in the building and construction sector which had been one of the hardest hit sectors as a result of the global financial crisis. Data from Table (10) shows the increase in the volume of foreign direct investment flow from $5.5 billion in 2010 to $ 10.5 Billion in 2013. The average annual growth rate during that period amounted to 24.1%. The total cumulative flow of foreign direct investments increased from $ 77.7 billion in 2010 to $ 105.5 billion in 2013 with an average annual growth rate of 10.7%.

According to the National Center for Statistics, the distribution of foreign direct investment by economic activity in 2012, showed financial institutions and insurance received 56% of the total foreign direct investment, real estate activities and business services received 27%, and wholesale and retail trade and repair services received 22%. According to the source the UK was the highest direct foreign investor with a cumulative balance of $10.0 billion at the end of 2012. This represented over 13% of total foreign direct investment. India and France were second highest jointly with a share of nearly 6% each.

Some of the promising economic sectors which provide large scope for future foreign direct investment are the industry sector, maintenance, transportation, shipping and storage, tourism, entertainment, financial services, health care, hospitals, universities, electronics, consulting companies in the field of construction and engineering operations, and telecommunications.

5. Financial and Monetary SectorBecause of the wise balanced financial and monetary policy in the UAE, the banking system was able to meet the liquidity requirements of other economic sectors. The monetary and financial sector continued the positive growth achieved in 2012 and indeed took a big leap forward in 2013. The output of the monetary and financial sector, at current prices, rose from AED 87.4 billion in 2012 to about AED 98.0 billion in 2013, constituting growth of 12.2% at current prices 8.8% at real prices. The contribution of the financial sector to GDP (at current prices) rose from 6.4% in 2012 to 6.6% in 2013. Also, the contribution percentage of the sector’s output to non-oil GDP rose from 10.5% in 2012 to 10.8% in 2013. This is a clear indicator of the extent of the progress made in fulfilling the objectives of the policy to diversify sources of income.

5.1 Developments in Financial MarketsFinancial markets in the country are currently in the growth and recovery phase with active investment movement and a rising performance trend. Despite a decline in the number of companies listed on financial markets between 2012 and 2013 (123 to 120), the general index of the stock prices still almost doubled from 2561.2 points to 4313.6 points in two years, with a growth rate of 68.4%. The market value of shares traded also nearly doubled from AEED 379.1 billion in 2012 to AED 646.3 billion in 2013 with a growth rate of 70.5%. These figures show that the markets have gone beyond the recovery phase required in response to the global financial crisis, to the phase of boosted strong performance in an improved investment climate.

37

Table (11): Developments in Financial Markets (2012-2013)

Source: Securities and Commodities Authority

5.2 Monetary DevelopmentsMoney supply (n0), consisting of cash in circulation plus retained cash at banks, Increased from AED 57.8 billion in 2012 to AED 63.9 billion in 2013, a growth of 10.6%.

Money supply(n1), consisting of cash in circulation and retained by banks plus current accounts and accounts under demand, increased from AED 299.2 billion in 2012 to AED 379.6 billion in 2013, a growth of 26.9%.

Money supply (n2), consisting of (n 1) plus quasi-monetary deposits (savings accounts, foreign currency deposits), increased from AED 862.4 billion in 2012 to AED 1056.8 billion in 2013, a growth of 22.5%.

Money supply (n3), consisting of (n2) plus government deposits with banks and the Central Bank, increased from AED 1,083.1 billion in 2012 to AED 1,219.9 billion in 2013, a growth of 12.6%.

Number of listed companies

General share price index (point)

Total stock market value (billion AED)

2013

120

4313.6

646.3

2012

123

2561.2

379.1

Growth %

-2.4%

68.4%

70.5%

Description

38

Table (12): Monetary Developments (2012-2013)

Source: Central Bank

Billions AED

2012 2013 Growth %

57.8

299.2

862.4

1083.1

63.9

379.6

1056.8

1219.9

10.6%

26.9%

22.5%

12.6%

Money Supply (n0)

Money Supply (n1)

Money Supply (n2)

Money Supply (n3)

Description

Table (13): Banking developments (2012-2013)

Source: Central Bank

Billions AED

1791.6

1167.8

1099.1

94.1%

2025.8

1278.9

1177.3

92.1%

13.1%

9.5%

7.1%

-

2012 2013

Total assets

Total deposits

Loans

Loans/deposits ratio

Description Growth %

5.3 Banking Developments

39

Affirming the strength of the banking system in the country, total assets of commercial banks operating in the country increased to AED 2,025.8 billion at the end of 2013 compared to AED 1,791.6 billion at the end of 2012, a growth rate of 13.1%. The value of customer deposits in banks rose from AED 1,167.8 billion in 2012 to AED 1,278.9 billion at the end of 2013, a growth rate of 9.5%.

The value of loans increased from AED 1,099.1 billion in 2012 to AED 1,177.3 billion at the end of 2013, a growth rate of 7.1%, and then the loans-to-deposit ratio declined from 94.1% in 2012 to 92.1% in 2013.

6. General FinanceThrough regulations and rules regulating financial activity, the country organizes public spending and revenues to be consistent with its economic and social objectives. In line with that, and as a continuation of activating the economy and stimulating movement in markets, public spending rose from 451.9 billion dirhams in 2011 to about 494.0 billion dirhams in 2013. The average growth rate of 4.6% was due to further spending on strategic projects in tourism, industry, and infrastructure which has taken an upward trend especially after the county’s winning the right to organize Expo 2020. As a proof of the country’s keenness to maintain the welfare and happiness of the citizens, the size of current spending rose from 344.4 billion dirhams, 76.2% of public spending, in 2011 to 387.3 billion dirhams, 78.4% of public spending, in 2013.

Table (14): Public revenues and spending in the country for (2012-2013)

Resource: The UAE, the National Center Statistics, Raw Data, May 2014

Billion AED

Description 2011 2012 2013 Growth rate %2011/2012

Total Public Revenues 379.9 412.7 465.4 12.7%

Total Public Spending 451.9 479.3 494.0 3.1%

Deficit /Surplus (72.0) (66.6) (28.6) (-56.9%)

40

General revenues in the country have achieved a significant improvement as they rose from 379.9 billion dirhams in 2011 to 465.4 billion dirhams in 2013 with an average growth rate of 10.7%. This was due to the improvements in oil revenues, with an average growth rate of 6.4%. This has increased from 262.4 billion dirhams in 2011 to 297.2 billion dirhams in 2013. Other revenues also improved by an average growth rate of 19.7% from 117.4 billion dirhams in 2011 to 168.2 billion dirhams in 2013.

The financial account of the country achieved a decline in deficit from 72.0 billion dirhams in 2011, to 66.6 billion dirhams in 2012, and then to 28.6 billion dirhams in 2013.

7. Balance of Payments - Foreign Trade 7.1 Foreign TradeAccording to WTO estimates, the total trade of the UAE during 2013 reached about AED 2.2 trillion ($610 billion) compared to about AED 1.9 trillion ($520 billion) in 2012, a growth of 15.78%. This put the country on the list of the 25 best business countries in the world in terms of exports and imports

The annual report of WTO showed the UAE’s increased its share of world trade during 2013 to reach 1.6%. This compares with its share of 1.4% in 2012, and 1.1% in 2011. UAE exports rose by 4% and imports grew by 7% during 2012.

The data reported world exports (including EU) estimated at $ 18.8 trillion. The UAE recorded exports of AED 1.33 trillion ($365 billion) in 2013 up from AED 1.1 trillion ($300 billion) in 2012, accounting for a high 1.9% share, of world exports.

World imports estimated at 18.87 trillion. UAE imports in 2013 rose by 1.3% to 899 billion dirhams ($245 billion), compared with 807 billion dirhams ($220 billion) in 2012.

According to the WTO classification for 2013, the UAE advanced to 17th place globally among exporting countries, compared to 18th place in 2012, and 20th place in 2011.

With the exclusion of intra-regional trade in the European Union, which includes 27 countries (as one business entity); the UAE was ranked 12th globally on the list of exporters compared with the 13th in 2012 and the 14th in 2011. The UAE was above India, which was ranked 13th with exports of $312 billion, China with exports of $305 billion, Australia with exports of $253 billion, Brazil with total exports of $242 billion, and Switzerland which was ranked 17th in the world.

According to data from the WTO for goods and services trade over the past year, the UAE jumped from 23rd position globally in 2012, to 18th in terms of total imports, capturing 1.5% of total world’s imports (including the EU).

41

Table (15): Balance of Payments Summary (2012-2013)

The numbers indicate the increase in the payments’ balance surplus during 2013 to AED 77.0 billion, compared to AED 36.3 billion in 2012 with a large growth of 112.7%, which led to a rise in foreign assets’ net in the Central Bank.

Despite the decline in the current account surplus from AED 253.3 billion in 2012 to AED 237.5 billion in 2013, down by -6.2%, there was a rise in the trade surplus (FOB) from AED 484.7 billion in 2012 to AED 503.7 billion in 2013, a growth rate of 3.9%.

The rise of the balance of trade (FOB) surplus was a result of the increase in hydrocarbon export sector and other exports in the last two years, rising by AED 11.0 billion and AED 40.1 billion respectively. Also, the re-export value increased by AED 53.9 billion and the rise in the value of imports (FOB) was AED 88.2 billion.

The deficit of service balance rose from AED 176.6 billion in 2012 to AED 197.4 billion in 2013.In addition, the deficit of net financial account rose from AED 145.8 billion to AED 163.7 billion in two years as a result of increased capital outflows by the public and private sectors.

Billions AED

Resource: Central Bank-2013 annual report

253.3

484.7

44.0

-176.6

1.1

-56.0

-145.7

-71.2

36.3

237.5

503.7

52.1

-197.4

0.6

-69.3

-163.7

3.4

77.2

-6.2%

3.9%

18.4%

11.8%

-45.4%

23.7%

12.3%

-104.8%

112.7%

2012 2013

Current account balance

Oil and non-oil trade balance (FOB)

Non-oil trade balance

Service balance (net)

Investment income (net)

Remittances

Capital and financial account

Errors and omissions

Total balance

Description Growth%

42

Table (16): Trade Balance (2012-2013)Billions AED

Source: Central Bank- 2013 Annual Report

484.7

44.0

440.6

352.1

35.3

53.2

354.2

184.5

169.7

488.7

1283.5

-798.8

- 939.7

-667.5

-250.0

-22.2

503.7

52.1

451.6

361.3

36.2

54.1

396.4

186.6

209.8

542.6

1390.6

-886.9

-1043.4

-754.6

-265.7

-23.1

3.9%

18.2%

22.9%

2.6%

2.5%

1.7%

11.9%

1.1%

23.6%

11.1%

8.3%

11.0%

11.0%

13.0%

6.3%

4.0%

( Oil and non-oil trade balance (FOB)

Non-oil trade balance

Hydrocarbon export sector

* Crude oil exports

* Petroleum product exports

* Gas exports

Non-hydrocarbon exports

* Free-zone exports

* Other national exports

Re-exports

Total exports and re-exports (FOB)

Total imports (FOB)

Total imports (CIF)

Commodity imports

Free-zone imports

Gas imports

2012Description 2013Growth

%

43

Source: Central Bank- 2013 Annual Report

7.1.1 National exportsIn the context of the country’s policy and efforts to support the development of national exports, find new outlets and markets, and reduce imports, trade delegations and participation in events and trade fairs outside the country were intensified. In addition, joint economic committees and agreements were established with countries around the world. National non-oil export value increased from AED 169.7 billion in 2012 to AED 209.8 billion in 2013, a growth of 23.6%. The proportion of national exports in the country›s total exports in 2013 reached about 15.1%, while the free zone exports contributed about 13.4%, a growth of 1.1 % from the level in 2012.

7.1.2 Re-exportsAs a result of the country’s strategic location and its highly advanced logistical infrastructure the UAE is considered an important center regionally and globally for re-export trade, which constitutes a huge share of the overall foreign trade of the country. The value of re-export trade increased from AED 488.6 billion in 2012 to AED 542.6 billion in 2013, a growth of 11.1%. The contribution of re-exports to total exports and re-exports (fob) reached about 39.0%. The re-export activity is associated with two way relations with many of the most important logistics activities, particularly transport, storage, lacemaking , unloading, shipping, ports, telecommunications, and manufacturing where gold, diamonds and jewelry are made and reshaped the and then re-exported.

Table (17) The relative distribution of national exports and re-exports (2013)

Crude oil exports 26%

Petroleum product exports 2.6%

Gas exports 3.9%

Free-zone exports 13.4%

Other commodity exports 15.1%

Re-exports 39%

44

7.1.3 ImportsIn the context of the country’s efforts to achieve the strategic vision goals for 2021, there was an increase in demand for raw materials, intermediate and production goods to promote and support the various economic sectors. In addition there was a rise in the imports of consumer goods. These two factors led to a rise in the value of imports to AED 886.9 billion in 2013 compared with AED 798.8 billion in 2012, a growth rate of 11.0%. Gold, diamond, jewelry, cars, airplanes and airplane parts were amongst the most important imports.

7.2 Trade in services

Table (18): Service Balance (2012-2013)Billions AED

Resource: Central Bank-2013 Annual Report.

Services (net)

Service exports

Travel

Transportation

Government services

Service imports

Travel

Transportation

Government services

Insurance and shipping

2012

-176.6

55.3

38.1

14.3

2.9

-231.9

-55.3

-32.1

-3.5

-140.9

2013

-197.4

63.3

42.5

17.8

3.0

-260.7

-65.0

-35.4

-3.8

-156.5

11.8%

14.5%

11.5%

24.5%

3.4%

12.4%

17.5%

10.3%

8.6%

11.1%

Description Growth%

45

The country’s growing economic and trade relations with all countries around the world, in addition to tourism and travel, led to the development of inwards service trade. The UAE effectively improved its role in the economic activity and in the development of land, sea and air transportation, ports, airports, telecommunications, insurance and other support services sectors.

Service trade constituted about 14.2% of the total foreign trade of the country in 2013, up from 12.8% from in 2012. The value of Service trade increased from AED 287.2 billion in 2012 to AED 324.0 billion in 2013. The deficit in the service trade balance grew by 11.8% from AED 176.6 billion in 2012 to AED 197.4 billion in 2013.

7.2.1 Service exportsService exports increased from AED 55.3 billion in 2012 to AED 63.3 billion in 2013, a growth rate of 14.5%. This increase was a result of the increased contribution from travel and transportation by 11.5% and 24.5% respectively, due to the growing transport and tourism movement of people and goods

7.2.2 Service ImportsThe value of external payments for insurance and shipping increased from AED 140.9 billion in 2012 to AED 156.5 billion in 2013, a growth rate of 11.1%. This was a result of the growing trade movement. These payments alone constitute 60.0% of the total service payments. Travel payments also grew by 17.5%. The total value of service imports increased to AED 260.7 billion in 2013 compared to AED 231.9 billion in 2012, a growth of 12.4%.

7.3 Investment IncomeNet receipts from foreign investments proceeds of public sector companies made around AED 29.8 billion in 2013 compared to AED 27.0 billion in 2012, a growth of 10.4%. The net payments of foreign oil companies, the private banking and non-banking sectors, and loan interest increased to AED 29.1 billion in 2013 compared to AED 25.9 billion in 2012. These brought the net investment returns surplus to AED 0.7 billion dirhams in 2013 compared to AED 1.1 billion in 2012.

46

Table (19): Net Investment Income (2012-2013)

7.4 Remittances Net remittances from workers abroad increased from around AED 56 billion in 2012 to AED 69.4 billion (including AED 65.9 billion for private sector workers and about AED 3.5 billion for government and public sector workers) in 2013, a growth of 23.9%.

7.5 Capital and Financial AccountDirect investments by the private sector inside the UAE grew by 9.1% to about AED 38.5 billion in 2013. Investments in foreign financial portfolios grew by 13.9% to reach AED 4.1 billion in 2013. The total investment flows abroad (direct private and indirect banking, non-banking and public) reached about AED 206.3 billion. In addition, the net capital account increased to AED 163.7 billion in 2013 compared to AED 145.8 billion in 2012, a growth of 12.3%

Billions AED


20132012

1.1

-5.2

-5.6

27.0

-4.1

-11.0

0.7

-5.7

-6.5

29.8

-4.8

-12.1

-45.5%

9.6%

16.1%

10.4%

17.1%

10.0%

Net investment income

Banking sector

Private non-banking sector

Public institutions sector

Public debt service (interest)

Foreign companies working in hydrocarbon sector

Description Growth%

47

Table (20): Capital and Financial Balance (2012-2013)Billions AED


-145.8

-30.8

24.8

-10.5

35.3

3.6

-32.1

-5.1

-27.0

-27.0

-115.0

-163.7

-44.8

25.7

-12.8

38.5

4.1

-45.5

-22.1

-23.3

-29.1

-118.9

12.3%

45.5%

3.6%

21.9%

9.1%

13.9%

41.7%

333.3%

-13.7%

7.8%

3.4%

20132012

Capital and financial balance

* Private sector

Direct investment

* Direct investment abroad

* Direct investment inside

Investments in foreign financial portfolios

Banks’ investments

* securities Investment

* other investments (deposits & loans)

Private non-banking investment

Public sector institutions

Description Growth%


49

03Thirdly:

Population and Labour Force

50

1. PopulationKnowing the population number and growth in the UAE is an essential step and an important compass for planning, economic, social, and urban development, and the implementation of programs. Populations are a development tool and axis. Populations are also the target of development and its most important challenge. Since the country has a distinctive speed of demographic change and population levels resulting from non-traditional causes of population growth and structural distribution, and since there has been no census since 2005, the National Center for Statistics initiated an estimate of population for the year 2010. The estimate population was 8,264,000. Based on this, and on the rate of population growth in recent years, estimates indicate that the total population in the country increased to 8,543,304 by 2013. This had risen by 1.2% from the 2012 level of 8,442,000.

2. Labour ForceAccording to the National Center for Statistics, Labour force data is collected from periodic surveys made regularly by the statistical centers. These surveys are made in accordance with international recommendations and standards. There has been no census of the Labour force for the years 2010-2012. Based on the Labour force census by the National Center for Statistics in 2009 and estimates made by international organizations, the participation rate in the Labour force in 2012 reached about 79.0% of the total population aged 15 years and above. The number of workers averaged about 76.0% of the total population aged 15 years and above. The unemployment rate fell to about 4.0% of the size of total workforce in 2012 from 4.6% in 2011.

2.1 Workforce Distribution by Economic Sectors

51

Table (21): Workforce and Wage Estimates by Economic Sectors for (2012)

4.5%

1.3%

0.2%

12.2%

1.2%

20.4%

19.3%

4.9%

7.1%

0.3%

3.9%

4.0%

1.4%

11.0%

8.4%

100%

246

68

12

659

65

1,108

1,050

264

388

14

213

219

78

596

454

5,434

Agriculture, fishing & animal resources

Crude oil & natural gas

Quarrying

Manufacturing

Electricity, water & gas

Construction

Retail and wholesale & repairing services

Restaurants & Hotels

Shipping, Storage and other communication

Communication

Real estate & business services

Personal and social services

Financial project sector

Government services sector

Household services

Total

Sectors%

1.1%

3.6%

0.1%

10.4%

1.4%

12.4%

13.5%

3.4%

9.0%

1.3%

11.1%

7.2%

5.4%

18.5%

1.6%

100%

%

*Workers **The volume of wages

Number (thousand)

3,812

12,372

328

35,760

4,982

42,732

46,698

11,737

31,059

4,473

38,517

24,942

18,623

63,841

5,451

345,326

Amount (MN AED)

**Resource: National Center for Statistics * Estimates

52

Graph (8): Distribution Rate of Workforce by Economic Sectors for (2012)

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53

1% 4% 0%

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Graph (9): Compensation Distribution Rate for Workforce by Economic Sectors (2012)

According to data from the distribution of workforce by economic sectors, the construction sector was at the forefront of all economic sectors in terms of employment numbers with 20.4% of the total workforce. It was followed by retail and wholesale trade and repairing services sector which accounted for 19.3%, the manufacturing sector at 12.2%, the government services sector at 11.0%, and household services at 8.4%. These five sectors combined accounted for 71.3% of the total estimated number of the national workforce in 2012. In terms of wages and compensation for employees, the government services sector accounted for the highest amount with 18.5% of the total compensation for employees. It was followed by the Wholesale and retail trade and repair services sector and the construction sector with 13.5% and 12.4% respectively. Then the real estate and business services sector with 11.1%, and the manufacturing sector with 10.4%. The combined compensation of these five sectors amounted to 65.9% (about AED 227.5 billion) of the estimated total compensation for employees in the country during 2012.

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54

2.2 Workforce in private SectorData from the Ministry of Labour indicates that employment in the private sector increased from 3.9 million in 2011 to about 4 million in 2013, a growth rate of about 1.3%.

Table (22): Workforce in the Private Sector in the UAE (MN workers)

Resource: National Center for Statistics.

According to the data from the workforce survey conducted by the National Center of Statistics in 2009, the ratio of citizens working in the private sector to the total working citizens did not exceed 7%. The total number of citizens working in the private sector and registered in the Ministry of Labour amounted to 28.198 citizens by the end of October 2014. The rate of unemployment among citizens in the private sector is estimated at 14% or approximately 35,000 unemployed citizens in the country.

Most important sectors for workforce Localisation

Number of workers(million)

Year

Construction - Trade - Real Estate and business services-manufacturing industries- transport, storage and communications –hotels and restaurants- financial management.

3.9

4.0

4.0

2011

2012

2013



04Fourthly:

Contemporary Economic Issues

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1. Economic Importance of the UAEs Winning the Organization of World Expo 2020.The «World Expo» is considered the largest phenomenon for the demonstration of art, culture, and science in history and it is the most prominent global forum involved in promoting human innovation and creativity. It encourages ways of finding creative solutions to overcome all challenges in life and helps to discover new development prospects and use them for the good of mankind. The exhibition was first launched in London in 1851 under the title «The Great Exhibition of Industry Products from Countries around the World» as one of the outstanding events aiming at strengthening international relations, celebrating cultural diversity, and appreciating technological innovations. The exhibition is held every 5 years.

1.1 The UAE’s Participation in World ExposThe history of the country’s participation in World Expo exhibitions goes back four decades when Abu Dhabi participated in the Expo in Osaka, Japan in 1970. The latest UAE’s participation was in the «World Expo 2012» in Yeosu, South Korea. The country will also participate in the Expo Milan 2015, which will be held under the theme «Feeding the Planet, Energy for Life.»

1.2 Expo Imprints on the International CommunityExpo’s traditions of creativity and innovation have continued since its first beginnings, and have left clear imprints on various cultural, technological and architectural fields. The following table illustrates them:

Table (23)

1851

1876

1889

1900

1904

1906

1915

London, Britain Building Victoria and Albert Museum

Eiffel Tower erection - scientific and technological developments

Eatable Ice cream cones-the celebration of the centennial of Louisiana Purchase

The opening of the Panama Canal - the celebration of the San Francisco’s

establishment.

Paris, France

San Louis, USA

San Francisco, USA

Philadelphia, USA

Paris, France

Milano, Italy

The first telephone device - the first typewriter - Heinz tomato sauce.

Escalators - diesel engines - theme park giant wheels - speaking movies - the

second Olympic Games - Paris Metro.

Finishing Simplon tunnel

Country Achievements Year

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Country Achievements Year

Belgium

Osaka, Japan

Vancouver, Canada

Hannover, Germany

Yeosu, Korea

Milano, Italy

Montreal, Canada

Lisbon, Spain

Brisbane, Australia

Shanghai, China

The huge monument “Alotomiom” made of crystal steel, which is considered one of the most important landmarks in Brussels.

The first prototypes of mobile phones.

Electric train - Sky Train - and Gondola boats and water taxis.

Germany gained $7.3 billion. The south-eastern region surrounding Expo Plaza turned into a center for information technology, design, media and arts in Hanover.

Awareness of the importance of preserving the marine ecosystem and the impact of climate change.

The development of the highway AutoRoute Décarie – The construction of Louis-Hippolyte Lafontaine Bridge–Tunnel - the exhibition was a source of inspiration for naming the baseball team known as the Montreal Exspos - The exhibition site turned into the distinctive Park that commemorates the death of Jean Drapeau who was linked to a number of outstanding achievements in Montreal - Montreal Metro.

The expansion of Lisbon Metro

Using 2000 km wire connection in the construction of “World Expo” site in Brisbane, Australia.

The heavy industrial area of central Shanghai area transformed into a vibrant commercial and cultural area - the establishment of the Shanghai Museum of Contemporary Art - China Palace of Arts.

1958

1967

1970

1998

1986

1988

2000

2010

2012

2015

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1.3 Factors that qualified the UAE to Organize Dubai Expo 2020:1- The international infrastructure in the country in general, and in Dubai in particular.

2- Dubai’s organizational capacities; the emirate has organised many international events and conferences.

3- Active diplomacy.

1.4 Economic and Social Importance of the UAE’s Winning the Organization of Dubai Expo 2020The UAE’s financial returns from organizing the exhibition is expected to reach up to about AED 139.0 billion, as the country is expected to receives more than 25 million visitors during the exhibition period of up to six months. 70% will be from outside the country which will give a strong boost to the economic and commercial activity in the country especially to tourism, air transport and infrastructure projects.

Initial studies also suggest that hosting the exhibition will cause an upturn in Dubai’s economy that might triple economic and commercial production, creating nearly 277,000 jobs in the country between 2013 and 2020. Each of these opportunities will create demand for another 50 jobs in surrounding areas, stretching from Africa to southern Asia, and throughout the Arab world.

The cost of infrastructure and logistics for «Expo 2020» is expected to be more than $ 9.0 billion in addition to the cost of building thousands of new hotels, creating new giant cities such as Mohammed Bin Rashid City, and comprehensively developing the infrastructure in the emirate.

The exhibition will be a major meeting point for the international community to share innovations and achieve progress on issues of concern to the economy, sustainable development and improving the standard of living.

2. The UAE and Sustainable EnergyThe UAE is considered a global platform for cooperation and international debate on renewable energy issues and climate change. It has achieved this status through hosting several important international conferences such as the World Future Energy Summit that is annually held in Abu Dhabi, implementing the directives of His Highness Sheikh Khalifa bin Zayed Al Nahyan, may God protect him.

The UAE plays a leading role in the field of renewable energy and climate change issues. The success of these efforts is shown through hosting the International Renewable Energy Agency headquarters «IRENA» in Abu Dhabi. This agency aims to address the implications of climate change, to achieve energy security and ensure access for all.

The UAE is the primary engine driving the region in the field of investment in renewable energy. «The Source» initiative is a successful model in this area. There are many projects carried out by the UAE in the field of renewable energy, including «Shams 1» which is the largest solar power plant in the world and produces 100 MW power, the plant that produces energy from waste in Abu Dhabi which will produce 100 megawatts, and the solar park in Dubai.

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The UAE has made great efforts in the field of renewable energy. It has made the first drive for clean energy in the region through a series of measures including; «Source» which is considered a strategic initiative for the long term; the Source Institute which is the first graduate level university in the world dedicated to providing factual solutions for issues related to sustainability; the scholarship program which provides 20 grants annually; the London Array Project which is the largest plant for the production of energy from offshore wind; a solar PV production project in Mauritania; and a project for energy production from wind in the Seychelles.

Hosting Future Energy Summit events in the capital Abu Dhabi confirms the UAE’s support for international efforts to promote renewable energy. Summit events were attended by more than 1,000 participants, experts and officials from 150 countries who participated in drawing the road map to a sustainable energy future. Abu Dhabi will continue to push the discussion with respect to renewable global energy.

The UAE has also made huge achievements and reached a turning point in providing advanced services, and building hospitals, schools and mosques in the country and in other parts of the world.

«IRENA» announced new projects, including the road map for renewable energy, the redrawing of the renewable energy map in 2030, and the launch of the «REMAP» initiative which focuses on doubling renewable energy and providing sustainable energy for all. There are about 32 experts from various countries around the world cooperating with «IRENA» to work on renewable energy applications around the world. These initiatives will focus on doubling renewable energy.

The Global Atlas initiative will also be launched, and it includes renewable evaluation of energy stocks and resources and future global energy availability until 2030. Fifty countries will participate in the Global Atlas project in cooperation with energy Laboratories in Germany and America, where an innovative system for sharing information was implemented.

A unique database was created that detail about 9,000 generators or providers of energy, and projects to calculate the energy cost. It showed that the cost of transporting renewable energy decreased by 55% with the use of optical fiber. «IRENA» has also provided a comprehensive study about the transport and the cost of energy used along with other studies on solar energy, bio-energy, and heating and cooling.

We live in an era of unexpected changes in the field of renewable energy. The world’s scene in the next twenty years will change the economic growth, urbanization and the growing demand for energy. We, as a global community, have to find innovative solutions for the challenges we face as population which was about 6.9 billion people in 2010 and is expected to reach 8.3 billion by 2030, of which 1.3 billion people are in cities in developing countries, and this will raise the demand for energy. The population of middle classes will increase from 2.5 billion to 3.9 billion people in developing countries, leading to further increases in the consumption of energy, water and food.

The scale of the future challenges is clear because energy is the basis of almost all economic activities. Forecasts indicate that there will be an increase of 33% on the global energy demand by 2030. There are also forecasts for increases in demand for transport of 30%, for heating of 20%, and for health services of 60% by 2030. On the other hand, one billion people will live without electricity in the year 2030, and 2.5 billion people will be without clean cooking facilities. All this will enhance the growing energy demand, particularly in Asia, Africa, and India. Energy demand will grow to up to three times current demand, leading to serious implications for climate change as carbon emissions will reach 400 million molecules, which will have a tremendous impact on energy production and consumption.

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To clarify the magnitude of this problem, 1.3 billion people have no access to energy, and renewable energy is part of the solutions for environment, energy, security and human development issues. In addition renewable energy projects will provide 5.7 million jobs worldwide.

«IRENA» has conducted many studies and researches in collaboration with international research centers on assessing the readiness of renewable energy in 18 countries; in Russia, Africa, the Pacific, and Latin America. There is growing demand from several countries to conduct research and studies on renewable energy in addition to IRENA’s efforts to overcome many obstacles. For example, some island countries lack energy, so «IRENA» focuses on them by conducting research and studies on their energy status as some of the islands spend up to 20% of their GDP on fossil fuel imports.

«IRENA» is also working to help Latin America and the Caribbean to achieve a high share of renewable energy. There is also an ongoing project for geothermal energy in the Andes and a clean energy corridor project in America.

To illustrate the magnitude of the problem the modern renewable energy production rate since 2008 increased much faster than fossil fuel. Regional energy consumption has increased by 15% between 2007 and 2010 due to population and economic growth. Total new investments in renewable energy reached $ 2.9 billion in 2012 an increase of 40% from 2011. Studies on pricing energy are being conducted in Egypt, Libya, Jordan, Morocco and Tunisia.

Renewable energy will become a billion dollar industry in the GCC countries. Renewable energy projects will provide 116,000 jobs per year in these countries, in addition to reducing carbon dioxide emissions to about 1.2 gigaton and saving 3.9 billion barrels of oil with a value of $200 billion. There are also projects for renewable energy in Saudi Arabia such as the establishment of a power plant to produce energy from wind with a capacity of 70 MW, and a solar power plant in KSA with 54 MW production capacity.

Thus, the UAE is the leading country in the region in the field of renewable energy and has also inspired the GCC countries to adopt ambitious plans for the use of renewable energy.

05Fifthly:

Economic Expectation for 2014

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Oil prices are expected to remain at high levels because of the expected recovery of the global economy. The country›s economy continues to achieve positive growth rates of up to about 5.0% in 2014, according to the World Bank (5.2% according to the ESCWA) driven by good results from previous years and by positive indicators and changes made in 2013.

In the manufacturing sector, the country will be the world’s largest producer of aluminum in the coming years. The industrial cities and quality Industries (ships and aircraft) will also contribute to raising the proportion of the sector›s contribution to GDP and will further diversify income sources. The travel and tourism industry is expected to continue its rapid growth since the country has become an international tourist destination and won the right to host Dubai Expo 2020. The foreign trade sector will witness remarkable growth during the current year as commodity exports (including oil exports) are expected to rise by up to 5.8%, to reach about AED 1.4 trillion compared to about AED 1.3 trillion in 2013. Due to the recovery and expected increase in the activity of re-exporting, the value of imports will also go up by a large margin this year to about AED 885 billion compared to AED 797 billion in 2013.

The general budget surplus is expected to be equivalent to 9% of GDP, which is double the level achieved in 2012, and the inflation rate is not expected to exceed 2.0%, because of the resilience of the national economy, and the capacity and mechanisms to make the appropriate decisions to adjust prices and curb inflation.

Given the growth rate of 20.0% in the volume of foreign direct investment in 2013, the country’s markets and economic environment are expected to constitute an attractive destination for more of these investments during 2014. In many non-oil economic sectors, especially in the tourism sector, real estate, construction, and financial markets as they are all expected to rise to around AED 44 billion.

International financial institutions agreed that the national economy is able to continue the high pace of growth in the coming years, despite the current volatility in global oil prices, due to its high levels of diversity which is reflected in the high growth of non-oil sectors. Growth is estimated to be 5.2 % by the end of 2014.

The report by the Institute of International Finance, Middle East and Africa showed that the first nine months of 2014 witnessed acceleration in the pace of growth of non-oil sectors, led by tourism, transport, trade and real estate. The fiscal and monetary policies in the county are expected to maintain their outstanding performance which will reflect on the growth in GDP of the UAE which will reach 4.6% by the end of 2014.

The report noted the positive effect of hosting Expo 2020 which will support Dubai’s economic growth in particular and the national economy in general over the coming years. It pointed out that the UAE succeeded through its stable investment, economic and political environment in attracting significant capital investment from several emerging markets such Russia, India and China, in addition to surrounding markets, during the past few months. These funds amounted to about $12 billion which is equivalent to about 3% of GDP.

The report highlighted the strength of the banking system; the recapitalization in the UAE banking system, the increasing profitability of the banking system after the improvement in the operating environment, the quality of assets and the decline in the level of provisions set aside

63

to cover bad debts. Bad debts rates are expected to fall to 7.4% in 2014, compared with 8.1% in 2013 and 8.7% in 2012.

The International Monetary Fund expects UAE GDP to reach $474.2 billion (AED 1.74 trillion) in 2018, compared with about $ 377 billion last year. The IMF report also noted the positive macroeconomic indicators of the UAE, reflecting the stronger growth in the country’s economy.

Economic Growth Prospects in Emerging and Developing EconomiesGDP is expected to slightly improve in emerging and developing economies in 2014, due to the relatively slow growth increase rate in China from 7.5% in 2013 to 7.7% in 2014. There are persisting structural and political challenges facing China however there was a positive strong rebound in China’s growth during the second half of 2013 which was mostly due to accelerated investment activity. However, some of the major emerging economies still face many structural flaws and limitations that hinder further faster investment and productivity growth. Growth in emerging and developing economies is expected to reach 5.1% in 2014 and 5.4% in 2015. Any deceleration in China’s growth will affect many other emerging and developing economies, especially commodity-exporting countries.

China and a number of emerging market economies have started a new economic cycle and are taking advantage of the improved external demand in advanced economies. Their growth rates are expected to remain higher than the growth rates of the advanced economies but less than the high levels recorded in recent years.

Comparing the growth rates achieved in emerging and developing regions emerging Asia had the highest growth with a growth rate of 6.3% in 2013, compared to 5% for sub-Saharan Africa, 2.3% for Central and Eastern Europe, and 2.1% for the Middle East and North Africa.

Volatility in the financial markets and capital flows remain a source of concern in emerging economies as the surplus in the current account of emerging economies and developing countries is expected to decline as a proportion of GDP from 1.4% in 2012, to 0.83% in 2013, and then to 0.81% in 2014. Eastern and central Europe is expected to register a deficit of 4.5% of GDP during the current year, the Independent Commonwealth of Countries is expected to register a surplus of 1.6%, emerging Asia is expected to register a surplus of 1.31%, Latin America and the Caribbean is expected to register a deficit of 2.4%, sub- Saharan Africa is expected to register a deficit of 4%, and the Middle East and North Africa is expected to register a surplus of 9.26%.

Documents

The Annual Economic Report 2014