The UAE’s economic growth is set to accelerate next year as non-oil revenue expands on the back of government measures introduced in 2018 and higher spending, economists said.
The UAE’s economy, the Arab world's second largest, which grew 0.8 per cent in 2017, mainly due to oil output and price declines, is set to accelerate next year thanks to a slew of government measures aimed at propelling the non-oil sector, which contributes to over 70 per cent of the country's gross domestic product (GDP). The Central Bank of the UAE forecasts the economy will, as a result of the government reforms and measures, accelerate 4.2 per cent next year.
The government approved a foreign direct investment law that is expected to boost FDI flows by up to 20 per cent next year, from an average growth rate of 8 per cent, economy minister Sultan Al Mansouri said in November. Foreign investment is forecast to rise to $11.5 billion (Dh42.4bn) in 2018 from $10.8bn last year.
The government also plans to grant long-term visas of up to 10 years and approved new low-cost employee insurance policies to help retain talent and attract investors.
“The main drivers of non-oil GDP growth would be services on the production side, private consumption and investment on the expenditure side,” said Garbis Iradian, chief Mena economist at the Institute of International Finance, adding that government reforms measures “will encourage private investment and boost growth”.
Oxford Economics is forecasting non-oil GDP growth of 3.6 per cent next year, up from 3 per cent this year, while oil GDP will expand 1.3 per cent in 2019 compared with 0.7 per cent in 2018. Overall growth is projected at 2.3 per cent for 2018 and 2.9 per cent in 2019.
“Expansionary fiscal policy at the federal and emirate levels, continued investment ahead of Expo 2020, improving tourism, government stimulus plans, reforms and rising inflows of FDI,” will contribute to non-oil GDP growth next year, said Mohamed Bardastani, senior Middle East economist at Oxford Economics.
Individual emirates are also implementing specific measures to support economic growth.
Dubai and Abu Dhabi are exempting companies from administrative fines, as part of efforts to stimulate business growth and economic development.
Dubai slashed aviation and municipality fees as part of initiatives aimed at lowering corporate and government charges, creating jobs and making it easier to do business in the emirate. The emirate will scrap 19 fees related to the aviation industry as it seeks to attract more than Dh1bn of foreign investments into the sector.
Abu Dhabi announced in June a three-year Dh50bn stimulus package that will be accompanied by initiatives to stimulate growth in the emirate and create at least 10,000 jobs for Emiratis.
The UAE government’s measure “will help the economy through reducing the cost of doing business for the private sector, attracting and retaining talent, and facilitating and attracting FDI”, said Mr Bardastani. “All these measures are expected to contribute positively to economic growth and diversification.”
The UAE is also boosting spending across the country.
The Dh60bn federal budget for 2019, which is an increase of 17.3 per cent from last year’s budget, is the largest in the country’s history. More than half of the balanced budget is earmarked for education and social development.
Sharjah, the country’s third largest emirate, approved a Dh25.7bn budget for 2019, a 10 per cent increase from a year earlier.
“A more accommodative fiscal stance at both the emirate and federal level underpins our view of faster non-oil-sector growth in 2019,” said Standard Chartered in a report.
In Abu Dhabi, Adnoc plans to spend Dh486bn on energy projects over five years, a plan that will help stimulate growth. “These projects could support medium-term growth, depending on their pace and implementation,” according to Standard Chartered.
All of the government measures will help offset the impact of price fluctuations in the oil market as the UAE’s compliance with a global oil pact that will trim output next year will naturally mean a tapering in growth of the oil related economic sector.
The Opec+ group, which includes members of Opec and other producers led by Russia, agreed in December to cut 1.2 million barrels of oil per day from January next year to help shore up crude prices and lower inventories.
Brent oil prices, which breached $85 per barrel in early October, have since dropped to around $60 a barrel because of US waivers granted to countries importing oil from sanctions-hit Iran, higher US oil output and tepid global demand for crude.
Thus the growth of the UAE’s non-oil GDP in 2019 will depend on the extent of the Opec+ agreement, which will be reviewed in April, and the subsequent trajectory of oil price.