The UAE's economic outlook is positive and is supported by strong domestic activity after it expanded at its fastest pace in more than a decade last year, the International Monetary Fund has said.
“UAE economic growth strengthened in 2022, benefitting from a rapid and effective Covid response, supportive fiscal measures and the benefits of earlier social and business-friendly reforms,” the Washington-based lender said on Monday at the conclusion of a consultation with Emirati officials.
On Sunday, the UAE's Federal Competitiveness and Statistics Centre said the economy grew by 7.9 per cent last year, after expanding by 3.9 per cent in 2021, supported by its non-oil sector, as the country continues with its diversification strategy.
The economy is forecast to expand by 3.3 per cent this year, reflecting oil production cuts agreed upon by Opec+ members, the UAE Central Bank said in its latest Quarterly Economic Review.
Strong reform efforts under the UAE 2050 strategies and advanced progress in comprehensive economic partnership agreements (Cepa) talks will boost trade and integration in global value chains and further attract foreign direct investment, the IMF said.
The UAE aims to boost trade and economic relations with countries around the globe and is working towards signing 26 Cepas as it seeks to attract more investment and diversify its economy.
The country has already signed Cepas with India, Cambodia, Georgia, Israel, Indonesia and Turkey. It is close to finalising a similar agreements with Kenya and has started talks with Costa Rica.
Through the agreements, the Emirates aims to eliminate unnecessary trade barriers, increase market access and set up investment and trade ventures with its partners.
It aims to deepen trade and investment ties with fast-growing economies in Asia, Africa and the Middle East, as well as attract $150 billion in foreign investment to its domestic non-oil industries and diversify its export profile.
The country aims to double the size of its economy to Dh3 trillion by 2031, with a focus on boosting non-oil exports and the tourism sector.
The UAE's goods trade with the rest of the world hit $1.02 trillion in 2022, with exports and imports increasing due to higher crude oil prices, according to the World Trade Organisation's Global Trade Outlook and Statistics report released in April.
In addition to the trade partnerships, the IMF said the “benefits of artificial intelligence and digitalisation and investments in enabling infrastructure will further support economic diversification, foster a smooth energy transition and help address vulnerabilities from global decarbonisation efforts”.
It cited the UAE's “commitments to climate initiatives and a balanced approach to energy transition”.
Looking ahead, the fund said fiscal and external surpluses are expected to remain high on the back of elevated oil prices.
Banks in the Arab world's second-largest economy are adequately capitalised and liquid, while property prices have risen sharply in some segments, it said.
The fund also commended the Emirates on its “major efforts” to further strengthen its financial regulatory regime.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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UAE currency: the story behind the money in your pockets
Milestones on the road to union
1970
October 26: Bahrain withdraws from a proposal to create a federation of nine with the seven Trucial States and Qatar.
December: Ahmed Al Suwaidi visits New York to discuss potential UN membership.
1971
March 1: Alex Douglas Hume, Conservative foreign secretary confirms that Britain will leave the Gulf and “strongly supports” the creation of a Union of Arab Emirates.
July 12: Historic meeting at which Sheikh Zayed and Sheikh Rashid make a binding agreement to create what will become the UAE.
July 18: It is announced that the UAE will be formed from six emirates, with a proposed constitution signed. RAK is not yet part of the agreement.
August 6: The fifth anniversary of Sheikh Zayed becoming Ruler of Abu Dhabi, with official celebrations deferred until later in the year.
August 15: Bahrain becomes independent.
September 3: Qatar becomes independent.
November 23-25: Meeting with Sheikh Zayed and Sheikh Rashid and senior British officials to fix December 2 as date of creation of the UAE.
November 29: At 5.30pm Iranian forces seize the Greater and Lesser Tunbs by force.
November 30: Despite a power sharing agreement, Tehran takes full control of Abu Musa.
November 31: UK officials visit all six participating Emirates to formally end the Trucial States treaties
December 2: 11am, Dubai. New Supreme Council formally elects Sheikh Zayed as President. Treaty of Friendship signed with the UK. 11.30am. Flag raising ceremony at Union House and Al Manhal Palace in Abu Dhabi witnessed by Sheikh Khalifa, then Crown Prince of Abu Dhabi.
December 6: Arab League formally admits the UAE. The first British Ambassador presents his credentials to Sheikh Zayed.
December 9: UAE joins the United Nations.
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