Dubai economy set to expand by 3.5%

(1/11/2018 6:01:00 AM)

Diversification and the high degree of openness in Dubai along with the positive impact of global trends will boost economic growth in the emirate in 2018 and beyond by 3.5 per cent, according to the Dubai Economic Outlook report released on the sidelines of the UAE Economic Outlook forum, which concluded on Wednesday in Abu Dhabi.

The report said that Dubai is also drawing on the continued recovery in global trade and the highest growth rates in most developed economies.

The report reviewed the major macro and sectoral levels developments in Dubai in 2016 and 2017, and points to the prospects for 2018 in the context of foreign direct investment, Expo 2020 and other transformational initiatives aimed at the sustainable development of the emirate in the medium term as well as regional and global trends. Macroeconomic factors such as GDP per capita, fiscal and monetary policy and developments in the wholesale, retail, banking, transport and storage, real estate and construction, manufacturing and hospitality sectors are captured in the report.

In terms of openness, Dubai ranked third in the world after Luxembourg and Hong Kong, with a high degree of dependence on foreign trade for income. Dubai’s openness ratio was 321% in 2016, meaning that trade flows were more than three times higher than the net value added in the economy. The total value of Dubai’s trade in non-oil goods was Dhs1.28 trillion in 2016, but its trade balance has been characterised by a permanent deficit as Dubai is a global hub for global and regional trade. Dubai’s imports are much more than its total exports as most imports are transported to other emirates and to neighbouring countries without them being registered as re-exports. Dubai’s unique geographic location as a link between Asia and Europe, as well as its excellent cargo and air transport links and free zones, make it an attractive location for international companies to participate in Global Value Chains, GVCs.

The extent of a country’s involvement in GVCs determines its attractiveness and ability to attract foreign direct investment, which plays a key role in promoting the country’s economic growth and development.

Total FDI into Dubai stood at Dhs270.8 billion between 2011 and 2015 and in 2016, the emirate ranked seventh among the world leading cities attracting Dhs25.5 billion in FDI. As an open economy, Dubai is affected by global trends, but FDI receipts are expected to recover in 2017-2018.

The Dubai Industrial Strategy unveiled in 2016 to boost its industrial output and thus participate in GVCs require FDI in high-tech manufacturing industries. Industrial FDI into Dubai grew relatively slowly compared to other sectors and accounted for 4.2 per cent of total investment in 2015. The wholesale and retail trade sector was the largest sector attracting FDI, accounting for 38.2% of the total in 2015, followed by the finance and insurance sector 22.1%, and the real estate sector 21.7 per cent.

Dubai’s real GDP grew to Dhs376.8 billion in 2016, up 2.9% from 2015. The Government of Dubai has in recent years adopted a fiscal policy to rationalise public spending by reducing budget deficit as a percentage of GDP from 2% in 2010 to 0.4% by 2013. Dubai has since maintained balanced accounts in 2015 and 2016 following which the government adopted an expansionary fiscal policy to stimulate the economy. The emirate’s success in reducing the budget deficit helped stabilise macroeconomic factors and resume growth in various sectors, especially banks, financial markets, trade, tourism and real estate.

One of the factors that boosted Dubai’s ability to balance its budget was a drop in public investment spending as many major projects were completed. The ratio of investment to total public spending has dropped from a peak of 36% in 2010 to about 17% in 2016, passing a low ratio of 11% in 2014. Government revenues, totallin

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