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The UAE gets down to business.

This month sees the 21st birthday of the United Arab Emirates. Cobbled together from the former Trucial States on the eve of Britain's departure from the Gulf in 1971, it has survived remarkably under the leadership of Sheikh Zayid bin Sultan, the ruler of Abu Dhabi and president of the federation. In this Special Report The Middle East looks at the return of business confidence to the UAE after the Kuwait crisis and reports on the development plans of Abu Dhabi and Dubai, the two largest member states.

THE UAE IS GETTING back successfully to doing what it does best -- looking after its own business. The shadow of the Kuwait crisis has been definitively lifted and the uncertainties created by the collapse of BCCI are largely forgotten. Commercial confidence has returned and the level of economic activity attained before Iraq's shock invasion of Kuwait will certainly be surpassed by the end of this year.

This month the UAE celebrates its 21st birthday. Composed of Abu Dhabi and Dubai (the two wealthiest emirates), Ajman, Fujairah, Sharjah, Ras al Khaimah and Umm al Quwain, it has survived by creating a coherent if not altogether integrated federal structure while allowing considerable autonomy to the member states.

It is testimony to the degree with which the UAE focussed on the business repercussions of the Gulf upheaval that it has shown no sign of being distracted by any domestic political debate. In the aftermath of the Kuwait crisis, Saudi Arabia has taken steps towards nominating an advisory council, a similar body was promised last month in Bahrain, while Kuwait held parliamentary elections in October. All three moves were more or less directly inspired by murmured questioning of the traditional order in the Gulf after August 1990 when Iraq swept effortlessly into Kuwait.

No such murmuring seems to have affected the UAE. Western diplomats report little significant pressure for broader participation in the political decision-making process. The only political issues which excite any interest, such as access and influence or questions of succession within the ruling families, are habitually discussed with the utmost discretion. The embarrassment caused by revelations emerging from the BCCI scandal is testimony to the discomfort caused by the public airing of sensitive issues.

At least for the foreseeable future, the traditional political structure should be capable of handling the requirements of UAE citizens who make up only a fifth of the total population of around two million. Despite the extraordinary fluctuations of oil-based revenues, moreover, the federation as a whole continues to enjoy a healthy cash flow.

The UAE incurred costs of $5.5bn from the Kuwait war, but against this earned almost $16bn in oil income during 1990 (more than half as much again as in the previous year) due to the sudden increase in prices. Last year, revenues were down to $13.9bn because of lower prices but the UAE managed to counteract the weaker market by raising production from 2.06m b/d to 2.39m b/d.

Oil remains the foundation of the UAE economy and will continue to be so (although there are encouraging signs of success in the effort to diversify into non-oil sectors). The UAE is Opec's third largest producer after Saudi Arabia and Iran. About 80% of this comes from Abu Dhabi with most of the remainder being lifted in Dubai.

The UAE is believed to have invested around $14bn between 1975 and 1985 in developing oil resources and the expansion programme continues apace. Estimates of crude reserves have been increased from 31.3bn barrels in 1978 to 98.1bn barrels today. Gas reserves have also been extended from 5.7 trillion cubic metres in 1988 to 9.5 trillion cubic metres.

One indication of the federal government's improved self-confidence was the announcement of the 1992 budget at the beginning of March, only two months after the start of the financial year. This is in marked contrast with previous years when the budget has been given final approval far later in the year, at times only shortly before the beginning of the following financial year. (Apart from the federal budget, each emirate has its own internal budget, mainly for spending on local infrastructure and development of oil resources.)

The 1992 federal budget predicted revenues of $4.32bn (Dh15.9bn), an increase of 4.6% over last year. Expenditure, however, is due to grow by almost 6% to $4.7bn (Dh17.3bn), incurring a deficit of $380m (Dh1.4bn), 16.7% higher than in 1991.

This can easily be met by drawing down on reserves, but some analysts expect the UAE will soon feel the need to raise extra cash in the form of government bonds or treasury bills. Oman has now introduced government bonds as a deficit financing measure and Saudi Arabia has started to issue treasury bills. In an interview earlier this year, Sultan Nasser al Suweidi, the governor of the Central Bank, left open the possibility of the UAE following suit. "The UAE has a flexible policy," he said. "We will consider measures which are in the interest of the economy and the population. If we find it necessary |to raise extra funds~, then we will proceed with measures such as government bonds."

An encouraging sign is the healthy growth of the non-oil sector of the economy. The oil sector's share of gross domestic product fell from Dh59bn in 1990 to Dh51bn last year, while the non-oil sector's contribution rose from Dh65bn to Dh68bn. This positive development meant that the overall decline in GDP was held at just 2%.

Eighteen months of stability in the Gulf have revived an environment in which long-term capital investment in the UAE looks increasingly attractive. It may still be too early to assess accurately the degree to which the business upturn in the federation is just a return to pre-crisis levels and how much it marks the beginning of a new boom. Nonetheless, Abu Dhabi and Dubai, the two biggest emirates, are confidently pursuing their established and complementary development strategies.
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Title Annotation:Special Report; United Arab Emirates' revitalized economy
Publication:The Middle East
Date:Dec 1, 1992
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