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Living costs remain biggest concern
When a group of Indian construction workers went to remit money to their hometown sometime late last year, the teller at the money exchange counter asked for more dirhams for the same amount of Indian rupees they remitted earlier.
- By Saifur Rahman, Business News Editor
- Published: 00:36 January 1, 2008
Dubai: When a group of Indian construction workers went to remit money to their hometown sometime late last year, the teller at the money exchange counter asked for more dirhams for the same amount of Indian rupees they remitted earlier.
It came as a shock! The dirham had always appreciated against the rupee. So what had gone wrong?
They had become, without realising it, a victim of the global financial system.
They took this issue to their employer and asked for a raise in wages. It ended in 12,000 workers going on a massive work stoppage for a few weeks, seeking remedy. The crisis was averted following government intervention.
The event underlined the biggest concern of those living in the Gulf, and many others throughout the world, namely the cost of living.
Talk of a currency de-pegging and revaluation became the UAE's main economic focus, especially during the last quarter. It caused speculation, driving the dirham up to a 17-year high, and mounting pressure on the peg.
That apart, 2007 (and possibly the new year 2008) was dominated by the familiar concerns of rising inflation and soaring rents - all due to an explosive growth that the UAE and the Gulf region are witnessing.
Driving factors
"Inflation in the UAE is mostly driven by the real estate sector, with demand on houses far exceeding supply and land prices almost doubling," Reem Mansour and Yasmin Al Batrawy, researchers of HC Securities Brokers, said in their latest report.
"Housing constitutes 36.14 per cent of the Consumer Price Index (CPI). A shortage in the supply of housing units is expected to [remain] in 2008."
Officials state that the main reason behind the surge in the inflation rate is the rising rents. In due course, the government capped the rents at seven per cent in 2007.
On Friday this week Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, lowered the rent cap in Dubai to five per cent.
In turn, the Real Estate Regulatory Agency (Rera) is working on creating a tenancy system that guarantees the rights of both of the contracting parties involved.
The UAE's GDP is projected to increase by 16.5 per cent by the end of 2007, reaching a record high of Dh698 billion from Dh599.2 billion in 2006, according to the UAE Ministry of Economy.
To iron out the imbalances in this growth, the UAE last year announced a three-year federal strategy that will link the development strategies of the seven emirates to that of the federal government and put in place the regulatory frameworks that would ensure similar standards and fair play across the country, and empower the private sector as well enhance the contribution of the non-oil sector.
Non-oil sectors
Although the economy's main driving force is the hydrocarbon sector, which comprises an average of 37 per cent of GDP as of 2006, growth is expected to come from a surge in the non-hydrocarbon sector; specifically tourism (13 per cent of GDP), construction (nine per cent of GDP), industry (25 per cent of GDP), and trade (15 per cent of GDP).
The non-oil sector is estimated to have outperformed the hydrocarbon sector, growing by about 21 per cent, in 2007.
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