Dubai: The UAE must overcome numerous challenges this year to maintain its competitiveness in the global economy, local economists said yesterday.
Oversupply in the real estate sector, ongoing debt restructurings and bond repayments are among the key issues facing the local economy in 2012.
Despite those concerns, however, a new survey showed yesterday the UAE had climbed 12 places – from 28th to 16th - in the 2012 World Competitiveness Yearbook (WCY) rankings; conducted annually by IMD, a global business school based in Switzerland.
The rankings aim to reflect the overall prosperity of a nation by measuring its economic growth along with other key indicators such as access to food, security, quality of life and sustainability. Analysts said the improved performance was driven by a number of factors but also cited anomalies in the report.
"IMD methodology overlooks country specific issues in numerous instances. For example, UAE foreign currency reserves appear to be understated because the data only takes into account Central Bank reserves," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.
"The bulk of foreign currency assets are held through sovereign wealth funds in the UAE. Similarly, IMD methodology assumes higher inflation is automatically negative whereas deflation could also be symptomatic of economic problems," he added.
Gokkent says short term challenges for the UAE include a real estate glut, ongoing restructurings and rollover risks for certain entities, adding that building human capital was a long-term goal.
"Another example of country specific refinement required is with regards to banking sector assets as a proportion of gross domestic product (GDP). IMD has shown this as one of the decline categories in the case of the UAE with the idea that banking sector penetration became lower," Gokkent said.
"In fact, oil prices tend to be volatile and were up in 2011. An alternative measure of financial sector depth could be to consider banking sector assets as a proportion of non-oil GDP," he added.
IMD asked more than 4,200 international executives to select the five key attractiveness indicators of each country's economy from a list of 15. The UAE scored highly for its reliable infrastructure, business-friendly environment and the dynamism of its economy.
Shady Shaher, senior economist at Standard Chartered, believes the UAE's improved performance in this year's IMD report was driven by a combination of structural and policy factors.
"The UAE's infrastructure - with ports and airports providing easy access in and out of the country - along with free zones such as the Dubai International Financial Centre make it a very attractive model for businesses," he said.
"However, there are several challenges facing the UAE's economy in 2012 due to the global environment, particularly the situation in the Eurozone. It is important the UAE continues to explore new markets along with increasing its exposure to faster growing economies in the East.
"Oil prices will have an impact in terms of growth. But Dubai, in particular, is a trade hub and regional currents will overwhelm any slowdown internationally," he added.
According to IMD, the most competitive nations in Europe are Switzerland (3), Sweden (5) and Germany (9). Meanwhile, the report says Ireland (20), Iceland (26) and Italy (40) look better equipped to bounce back than Spain (39), Portugal (41) and Greece (58) as the Eurozone struggles to contain its sovereign debt crisis.
Emerging economies are not yet immune to turmoil elsewhere. China (23), India (35) and Brazil (46) have all slipped in the rankings, while Russia (48) climbed only one place. All Asian economies have declined apart from Hong Kong (1), Malaysia (14) and Korea (22). Latin America also had a tough year, with every nation falling except Mexico (37).
"The UAE's significant jump is further evidence of the government's commitment to policies and measures that support and encourage a vibrant and successful private sector, which has created the highly competitive environment in the UAE," Her Excellency Reem Al Hashimy, Minister of State and Chairwoman of the Emirates Competitiveness Council.
"In particular, the report highlights the continued progress and development of the UAE in the areas of Education, International Trade, Business Legislation, Finance and Technological infrastructure—the result of concerted action on the part of government entities," she added.
