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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006
ABU DHABI SECURITIES MARKET
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The UAE's political outlook remains favorable.
Sheikh Khalifa has successfully established
his authority during his first year as ruler of
Abu Dhabi and president of the UAE.
Domestically, relations between the emirates
will stay strong, with Abu Dhabi remaining the
dominant member, not least because of its
financial strength, which will allow it to
continue to support the other six emirates
financially. Dubai will play a more important
policymaking role than in the past. Dubai's
growing economic success and high global
profile will also add to its political weight.
The UAE's pro-western orientation will not
alter, but the government remains concerned
over some aspects of US policy in the region.
Officials remain anxious that the situation
in Iraq could deteriorate further and spill
across its borders, and are uneasy over the
possibility of further US military action
elsewhere in the region, particularly against
Iran. In part this reflects an awareness that 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. The UAE is also
aware that any escalation of conflict in the
region has economic implications for the
Emirates, undermining the bullish projections
for growth in tourism, construction and foreign
investment that the country's medium-term
economic strategy is based on.
The federal economy and planning minister,
Sheikha Lubna al-Qassimi, will continue to
promote a progressive economic agenda,
built around economic liberalization and
diversification and enhancing the role of the
private sector. Dubai will remain at the
forefront of most new initiatives, and will seek
to accelerate its diversification process,
compensating for the decline of its small
oil industry by building on its emergent
position as the region's service hub.
Abu Dhabi, meanwhile, will continue to
invest heavily in the development of its large
upstream hydrocarbons resources and
downstream industrial projects, notably in the
petrochemicals sector. As the wealthiest
emirate, Abu Dhabi will also dominate the
federation's public finances, providing the
bulk of overall revenue and commanding
considerable influence over spending
decisions.
Economic Performance
Sheikh Khalifa bin Zayed al-Nahyan will
maintain the UAE's well-established, relatively
liberal social and economic policies, as well
as its pro-Western foreign policy stance.
The program of economic reform and
liberalization will continue and may pick up
pace, as a result of both the new ruler's
leadership and external pressure from bodies
such as the World Trade Organisation. Real
GDP growth will remain strong, bolstered by
high oil earnings and sustained expansion in
the non-oil economy. The strength of oil
revenue will ensure that the public finances
also remain robust, and that the trade and
current accounts continue to record large
surpluses. The economy is expected to
expand at an average annual rate of around
6% in real terms. Industrial growth will be
the mainstay of the overall expansion,
underpinned by continued, albeit modest,
rises in oil production, as high prices allow
OPEC to relax quota enforcement. Growth
in non-oil industrial output will be a more
important direct driver. Domestic and foreign
investment in new projects is expected to
remain strong, and capital spending on real
estate and infrastructure schemes will also
stay high. The services sector should also
attract substantial investment.
Continued rapid growth in the population,
fuelled largely by increases in the size of the
expatriate workforce, will also underpin robust
domestic demand, as will the recently
announced public-sector pay increases,
particularly as they are likely to push privatesector
pay settlements upwards. 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 further
promote foreign investment, including the
abolition of the sole agency law and
regulations that restrict foreigners to minority
stakes in local firms. Official data showed
price growth averaging around 4.5% in 2004,
and by around 6% in 2005. However, the
official data are indicative only of the price
trends being experienced by the minority
Emirati population, which continues to benefit
from a range of subsidies on core goods and
services. As a result, we it is now estimated
that consumer price growth exceeded 10%
last year and inflation is expected to ease this
year, but to remain high at around 8.5%
before falling to 7% in 2007 as real estate
bottlenecks in particular begin to be resolved.
There is little prospect of a change in the
exchange-rate regime, and the dirham is
expected to remain pegged to the dollar at
the current value of Dh3.67:US$1.
* The Economist Intelligence Unit Ltd, May 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
2003-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Crude oil Manufacturing Government services
Wholesale & retail trade Construction Finance & insurance
Other
2003-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Private consumption Fixed investment Government consumption
Change in stocks Exports of goods & services Imports of goods & services
13.7
10.0
80
78.3
8.8
6.4
6.3
60
40
20
0
-20
49.1
14.3
22.7
0.9
31.9
22.9
-40
-60
-80
-64.3
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