Investment programmes to boost UAE’s non-oil economy

The UAE Cabinet approved last year a Dh248 billion federal budget for the next five years, with a prime focus on education, social development and health, as the country bucks the regional purse-tightening trend.

The UAE’s non-oil economy is expected to reach a growth rate of 4.6 per cent by 2020, partly thanks to robust investment programmes, particularly in infrastructure, said the Minister of Economy.

"The UAE's expansion and revitalised sectors will be influenced mainly by modern infrastructure development, which will stimulate investment and business growth; improved legislative framework; enhanced administrative and economic environment in accordance with globally recognised standards; and strategic development projects," said Sultan Al Mansouri in an emailed reply to questions from The National.

Dubai and Sharjah have announced budgets with projected upticks in spending on infrastructure, while the federal budget for the next five years will also focus on increased expenditure.

“Investment spending on strategic projects will grow further this 2017,” said the minister. “The 100 initiatives in health, education, energy, transport, water and technology sectors are part of these programmes and an estimated Dh300 billion has been allocated specifically for them.”

Dubai unveiled last month a Dh47.3 billion budget for this year to create thousands of jobs.

The construction sector will receive a major boost from a 27 per cent increase in infrastructure spending as the emirate prepares for Expo 2020.

The budget shows a 3 per cent rise in overall expenditure, while revenues will be lower because of the restructuring of the budget. It anticipates a deficit of Dh2.5bn, representing 0.6 per cent of GDP. Sharjah has approved a record Dh22bn budget for this year, with spending on infrastructure increasing by 7 per cent from last year and representing 30 per cent of the total.

Sharjah’s overall expenditure this year will be 3 per cent higher than in 2016, while its revenue will increase by 7 per cent compared with last year.

The Cabinet approved last year a Dh248bn federal budget for the next five years, with a prime focus on education, social development and health, as the country bucks the regional purse-tightening trend. “Deficit-financed public investment raises demand and private-sector productivity. That raises growth, which generates higher income and tax revenue. That in turn creates fiscal space, helping resolve the long-term budget concerns. In contrast, a fiscal austerity agenda could transform that pattern into a vicious circle,” the Minister said. “Thus, fiscal austerity would lower public investment, thereby lowering growth, reducing fiscal space and compelling more fiscal austerity.”

Overall growth in the UAE is forecast to recover to 2.5 per cent this year, after falling to 2.3 per cent last year, according to the IMF.

The federal government is maintaining spending over the next five years despite a drop in oil prices, which has eaten into its biggest source of revenue.

The government has undertaken a series of measures to shore up its non-oil revenue and reduce current spending. These include removing subsidies on energy products and raising gas and electricity tariffs in the emirate of Abu Dhabi.

Meanwhile, the inflation rate in the UAE is forecast to fall to 2.7 per cent this year, from a projected 3.2 per cent last year, the minister said. The rate stood at 4.1 per cent in 2015.

The ministry is also working on boosting the participation of small and medium-sized enterprises in the economy and is working on various laws, such as the investment law, to help attract more foreign direct investment to the country, the minister said.

The outlook for Dubai’s economy is improving, thanks to a stronger-than-expected recovery in the construction sector, according to a new report.

An uptick in construction activity in Dubai in December helped buttress the non-oil economy, which expanded at the fastest rate since July. Strong private sector business sentiment across the key sectors of travel and tourism, wholesale and retail and construction was the highest since June 2015, according to the seasonally adjusted Emirates NBD Dubai Economy Tracker Index.

The gauge rose to 55.9 last month, up from 55.2 in November, the highest since July. A reading above 50 implies expansion and lower than 50 contraction.

“The rebound in construction sector activity in December is particularly encouraging after relatively sluggish performance for most of H2 2016,” said Khatija Haque, head of Mena research at Emirates NBD. “We expect construction will be a key driver of growth in Dubai in 2017 as preparations for Expo 2020 move up a gear.”

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