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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007
ABU DHABI SECURITIES MARKET
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Political stability appears assured during the
near term. This favorable forecast has been
underpinned by the smooth transfer of power
following the death of the emir of Dubai,
Sheikh Maktoum bin Rashid al-Maktoum, in
early 2006 and the death of the president of
the UAE and ruler of Abu Dhabi, Sheikh Zayed
bin Sultan al-Nahyan, in late 2004. Sheikh
Zayed had been president of the UAE since
its foundation and ruler of Abu Dhabi since
1966, raising the prospect that his demise
could have been destabilizing. However,
power transferred smoothly to the longserving
crown prince, Sheikh Khalifa, who has
firmly established his authority as the new
ruler. Sheikh Khalifa enjoys support from
within the ruling families of the seven
emirates, and most UAE nationals appear
satisfied with family rule in the country,
particularly at a time of high oil prices and
rising public largesse.
The UAE's pro-Western orientation will not
change, although the government remains
concerned over some aspects of US policy in
the region, particularly its strong support of
Israel in the recent conflict in Lebanon, as well
as its management of the situation in Iraq and
the prospect of full-scale civil war there. It is
also very uneasy about the possibility of US
military action against neighboring Iran.
This latter development would have
particularly harmful consequences for both
the political and the economic future of the
UAE. The UAE's pro-US stance is out of step
with regional popular opinion (and, to an
extent, domestic sentiment too), which is
hostile to US policy in the Middle East.
Although the economy has ridden out regional
conflict in recent years, its geographical
proximity to Iran makes it more likely that it will
experience negative repercussions from any
conflict there.
The federal economy and planning minister,
Sheikha Lubna al-Qassimi, will continue to
promote a progressive economic agenda,
built around economic liberalization,
diversification and enhancing the role of the
private sector. With support from Sheikh
Khalifa the government is also expected to
take steps to promote foreign investment
further, including the possible abolition of the
sole agency law and regulations that restrict
foreigners to minority stakes in local firms.
However, these measures will be hotly
contested by prominent local families with
business interests. There has already been
lobbying against the possible revocation of
the commercial agencies law, which grants
UAE companies local monopolies to distribute
imported goods. In August 2006 the federal
government scrapped the monopoly
distribution rights for some essential goods,
mainly food items, but it now appears unlikely
that any further significant dilution of the
commercial agencies law will be
forthcoming–at least in the near-term.
Economic Performance
It is forecasted that the UAE economy will
expand by an average annual rate of around
7% in real terms. Industrial growth will be the
mainstay of the overall expansion,
underpinned by continued–albeit modest–
rises in oil production. Growth in non-oil
industrial output will be perhaps an equally
important direct driver, however, as
investment in manufacturing and heavier
industrial projects (focused mainly on energyintensive
sectors such as petrochemicals and
metals) brings new capacity on stream and
the competitiveness of UAE exports is
bolstered by the weakness of the US dollar,
particularly in 2007. Both domestic and
foreign investment in new projects are
expected to remain strong, and capital
spending on real estate and infrastructure
schemes (including new roads and highprofile
programs such as the Dubai metro
project and airport expansion) will also stay
high. The services sector should also attract
substantial investment. Current demand for
services is likely to pick up, led by the tourism
industry, especially in Dubai. Continued rapid
growth in the population, fuelled largely by
increases in the size of the expatriate
workforce, will also underpin robust domestic
demand.
Inflation has picked up over the past 18
months, as the surge in domestic demand
has generated price pressures, particularly
in real estate and some parts of the services
sector. This has begun to drive up wage
demands in the private sector. The weakness
of the dollar is also adding to inflationary
pressures. Official data show that price
growth averaged around 6% in 2005.
However, the official data are indicative only
of the price trends experienced by the
minority Emirati population, which continues
to benefit from a range of subsidies on core
goods and services.
There is little prospect of a change in the
exchange-rate regime, and the UAE dirham
is expected to remain pegged to the US
dollar at the current value of Dh3.67:US$1.
Confidence in the peg remains high, bolstered
by the Central Bank of the UAE's long track
record of maintaining the dollar value of the
dirham and its absolute commitment to
holding the peg in place.*
* The Economic Intelligence Unit Ltd., October 2006
Key Information Contacts
Abu Dhabi Chamber of Commerce and Industry www.abudhabichamber.ae
Central Bank of UAE www.uaecb.gov.ae
Ministry of Finance and Industry www.uae.gov.ae/mofi
Ministry of Planning www.uae.gov.ae/mop
Ministry of Economy and Commerce www.uae.gov.ae/moec
2005-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
2005-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Industry
Agriculture
Services
Private consumption Fixed investment Government consumption
Change in stocks Exports of goods & services Imports of goods & services
50.6
46.5
2.9
100
80
60
40
20
0
-20
44.1
11.1
21.3
1.2
89.3
-40
-60
-80
-66.0
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