Nov 242010
 

Mehmood-Ul-Hassan Khan

Despite ongoing global financial meltdown and increasing of public debts ratios around the world, UAE economy achieves sustainable growth. According to the latest Global Competitiveness Report by the World Economic Forum (WEF), UAE has been included in the most advanced stage of ‘innovation-driven economies’ in the world for the second consecutive year. The UAE also ranked 25 in the world for its competitiveness and it has been named among the top 10 countries in more than 18 indicators of competitiveness globally in the WEF report for 2010-2011. It has been decided on the 12 pillars include: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. Moreover, the UAE has been ranked among the top 10 countries in more than 18 indicators of competitiveness globally, and has reached an advanced position among the 139 countries in the WEF report.

Initiatives of UAE

(a) Setting up of appropriate legislative frameworks
(b) Provision of developed infrastructure that will further enhance the country’s status as a regional and global destination for investments
(c) Legislative measures and drafting of new competition law
(d) Extended business and investment friendly policies of the government
(e) Economic diversification strategy

Quality of infrastructure

According the WEF report the UAE ranked third in the world for quality of infrastructure three positions ahead of its classification in last year’s report, and also ranked third in ‘government provision of high-technology products. The government of UAE plays very important role in achieving high standards of global competitiveness and furthermore the government’s commitment to the development of infrastructure and building new economic sectors based on innovation are also instrumental.

Positive business environment

WEF report ranks the UAE fourth in the world with regards to stability, security and its association with a positive business environment and ‘quality of infrastructure for air transport. Most recently, the UAE has been labeled the most ideal destination for the FDI in the world which is achieved under the visionary leadership of the UAE. UAE has the biggest Airport, biggest Cargo terminal and one of the most competitive airline in the region which has already gathered lots of appreciations and recognitions.

Goods market efficiency

The report also ranks the UAE sixth in the world with respect to goods market efficiency, four positions ahead of last year’s classification, and sixth in the world on the ‘quality of road infrastructure’, advancing from seventh position in last year’s report. The UAE maintained the sixth position in ‘foreign direct investment’ and ‘technology transfer’ indicators.

Federal Customs Authority (2010)

According to the primary statistical data of the Federal Customs Authority (July, 2010), the growth of non-oil trade volume of the UAE increased by 14 percent by the end of May 2010 compared with the same period in 2009. It was 52.075 billion Dirhams in last May to 59.604 billion Dirhams in May this year. Sheikha Lubna Bint Khalid Al Qasimi, Minister of Foreign Trade, highlighted the UAE pivotal role as a meeting point between the western economies and emerging Asian economies. Buoyed by a 71 percent growth in non-oil sectors, the UAE economy grew by 1.3 percent last year despite the world economic slowdown moreover; UAE non-oil foreign trade stood US$ 180 billion in 2009.

According to the statement of the central bank governor of the UAE economic growth would be in the range of 3 to 4 per cent this year which is reasonable under the current circumstances of the global economy. The UAE Ministry of Economy has forecast a gross domestic product, or GDP, growth of 2.0 to 3.2 per cent in 2010 based on oil price projections of $75 to $85 a barrel

Bright prospects of banking sector

In 2010, the UAE’s rank came in No 20 at the World Economic Forum in Davos, for the countries which have achieved the best financial development in 2009. Sultan bin Nasser Al Suwaidi, the governor of the Central Bank of the UAE said that the UAE economy is ‘resilient, with a 2.3 percent rise in bank lending last year, so there is no need for the government to inject more liquidity into the banking system. He further elaborated that the UAE’s banking system has not stalled as loans and advances went up 2.3 per cent in the year 2009.

According the latest report of the central bank of the UAE (2010), the overall performance of its banking sector is positive, stable and sustainable. Standard & Poor’s believes that the UAE authorities have a strong incentive, as well as willingness and capacity, to preserve the stability of their banking sector. For its part, Moody’s said it was unlikely the proposed Dubai World debt restructuring scheme would have “negative rating implications” on UAE banks.

Total assets

The recently data of the central bank shows that the total assets (net of provisions) of UAE banks increased to Dh1,554.4 billion in July from Dh1,538.8 billion. In July last year, total bank assets were valued at Dh1496.3 billion. According to the published data there is ample liquidity in the UAE banking system with the country’s banks cumulatively holding deposits worth Dh998.9 billion at the end of July. It also shows that bank deposits have been rising in 2010, a sign that investors’ faith in the country’s banking system is getting stronger.

Total deposits

Total deposits held by all UAE banks reached around Dh1 trillion for the first time in 2010, showing the return of investor confidence in the country. According to the data the total deposits, which stood at Dh968.1 billion in January, had risen to Dh985.4 billion by June. In July 2009, deposits were at Dh964.1 billion. Total deposits year-to-date increased by Dh16.3 billion while total loans during the first seven months increased by Dh7.8 billion.

Banks’ loans

The data indicated that the banks’ loans and advances (net of provisions) in July stood at Dh1025.5 billion, of which personal loans were at Dh215.1 billion. The July loans and advances figure was slightly lower than the June figure of Dh1025.6 billion. However, it was higher than the Dh1007 billion at the end of July 2009. Personal loans issued by banks increased by Dh2 billion to Dh215.1 billion by the end of last month, compared to Dh213.1 billion in the previous month. Personal loans increased by Dh5.3 billion during the year. Letters of credit fell by Dh3.2 billion to Dh107.6 billion by the end of last month.

UAE bank’s credit portfolio grew at the rates of 37.7 per cent in 2005, 36.1 per cent in 2006, and 34.3 per cent in 2007 and during the crisis year at 41.1 per cent. When the crisis hit, banks stopped extending credit to customers.”

Total investment

The central bank data revealed that the UAE banks’ total investment at the end of July was at Dh121.5 billion, higher than Dh120.4 billion in June and Dh117.4 billion at the end of July last year. Their specific provisions for non-performing loans in July stood at Dh37.3 billion, higher than Dh36.9 billion in June. The general provisions of the banks rose to Dh14 billion in July from Dh13 billion in June.

Money supply

The UAE Central Bank also said the country’s M1 money supply in July was estimated at Dh228.5 billion, while M2 was at Dh768.3 billion. M3 stood at Dh951.3 billion.

Inter-bank deposits

According to Governor central bank of the UAE inter-bank deposits of the UAE banking system constitute approximately 10 per cent of the liability and foreign inter-bank deposits constituting five per cent, which is a remarkable reduction as a result of increased reliance on customer deposits sourced within the UAE.

Concluding Remarks

United Arab Emirates has succeeded to achieve news skies of productivity, progress and macro-economic liberalization. The visionary leadership introduced integrated financial reforms which now transformed financial and banking sector of the UAE a vibrant, resilient and sustainable entity. Marco-economy indictors are strong, stable and moving in right direction. Prospects are very bright for rapid socio-economic growth in UAE in the days to come.

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