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Non-oil sector tops 71% of UAE GDP

Economic diversification went a long way to softening impact of global crisis - Al mansouri

Gulf News

Dubai : Oil's contribution to the UAE's gross domestic product has fallen to 29 per cent for the first time and speaks volumes for the successful diversification of the country's economy, according to the UAE Economic Report of 2009, Minister of Economy Sultan Bin Saeed Al Mansouri announced.

The non-oil sector's contribution to GDP touched 71 per cent for the first time in 2009 from 66.5 per cent in 2008.

Al Mansouri said the country's economic diversification policies have helped it to ride out the impact of the global financial crisis. The UAE's focus on trade, tourism, service sectors, logistics, financial services and industries played a big role in achieving 1.3 per cent GDP growth last year, he said.

"GDP at current prices has reached Dh914 billion and GDP at current prices Dh514.5 billion in 2009," he said at a media briefing yesterday.

Manufacturing represents 16.2 per cent of GDP, followed by construction at 10.7 per cent, while electricity, gas and water contributed 1.6 per cent.

Al Mansouri said the condition of the real estate sector in Dubai doesn't reflect the sector's real contribution to GDP as development is continuing throughout the country.

"UAE construction projects are glowing as there are massive construction works currently taking place in Abu Dhabi, Ras Al Khaimah and other emirates in addition to the airport development projects, Dubai Metro, Union Railway and other infrastructure projects," he said, adding that ongoing projects have placed Dubai right at the top among international business destinations.

"The GDP growth could range from 2.5 to 3.2 per cent this year depending on oil price. We could achieve 3.5 per cent growth rate if the oil price remains at $85 per barrel," he said.


The UAE Economic Report of 2009 shows that non-oil exports were primarily destined to India, Switzerland, Qatar, Saudi Arabia, Iran, Oman, Pakistan, Nigeria, Kuwait and Iraq, representing about 73.4 per cent of total non-oil exports.

Re-exports were primarily destined to Iran, India, Iraq, Saudi Arabia, Qatar, Switzerland, Bahrain, Afghanistan, Hong-Kong and Oman, representing about 64.5 per cent of the total.

The global economic recovery will also increase the UAE's non-oil GDP growth rate by 1 to 1.5 per cent after growing 1 per cent in 2008.

It is expected that the growth rate of the UAE will be higher than the growth rates of high-income industrialised countries, the report showed.

In 2009, the UAE enjoyed a fair increase in its exports despite the global financial crisis as the total exports and re-exports bill reached $209.6 billion and exports and re-exports of non-oil products was $139.7 billion while exports of oil fetched $69.9 billion.

According to the econ-omic report, the oil sector contributed about 29.4 per cent to GDP in 2009. It is expected that the price of oil will fluctuate in the $70-$90 range in the short term.

"I feel comfortable with an oil price band between $80 and $85 per barrel that will help the market and enhance UAE economy."

Moreover, the report said that technological developments in alternative sources of energy will change the share of consumption from different sources of energy despite the fact that consumption of renewable resources does not exceed 3.5 per cent of total final consumption in 2007.

Inflation is expected to rise to 2.5 per cent in 2010, up from 1.56 per cent in 2009.

"We suffered from high inflation in 2007-08 which reached 12.3 per cent. It had very negative implications for the UAE economy," Al Mansoori said.

"However, inflation dropped to 1.56 per cent in 2009 with expectations that it will reach to 1.1 per cent by the end of 2010. The inflation rate exhibited a slight decline by 0.01 per cent at the end of the first quarter 2010 compared to first quarter 2009. It fell by 0.51 per cent by the end of first quarter 2010 compared to the price level in fourth quarter 2009," he said.

It is expected that inflation by the end of 2010 will be 2 to 2.5 per cent as the global economic recovery gains pace, he added.

Strategic move

The UAE Government is developing the small and medium enterprises (SMEs) sector as a strategic move to make it a major contributor to the national economy, Al Mansouri said.

"Already the SMEs' contribution to GDP has reached 60 per cent. However, we want to expand this sector and increase its share of GDP to 98 per cent. As in the developed countries, we need to formulate a unified SMEs law to help this sector grow.

The law will regulate this sector and encourage the setting up of SMEs which in turn will encourage national industries," he said.

Al Mansouri said the government will continue to adopt industrial policies for sustainable economic development in the long-run in all the emirates.

"I hope that the industrial sector contributes 20 to 25 per cent to GDP in five or ten years, he said.

Focus on pursuing free trade regime

Dubai:  The UAE continued to pursue a free and open trade regime signing a number of free-trade agreements within the framework of agreements between GCC countries. As for trade across borders, the UAE was ranked 14th out of 181 countries in the World Bank's 2009 report.

The UAE was also ahead of a number of very large economies such as China, India, Russia, Brazil, Malaysia, Ireland and Italy with respect to its institutions, technological readiness and innovative capacity.

Pact with EU

Regarding the Free Trade Agreement with the European Union, Al Mansouri said: "We have completed 18 years of negotiations and our relationship was quite good, but since non-economic issues have become their concern, we have lost confidence and trust in the implementation of this agreement."

Al Mansouri said that if Arab countries were to improve mutual trade ties in the region, they would have to take down customs barriers and implement the Arab Customs agreement in the right spirit.

Crisis response

Confidence measures

  • The Central Bank continued to restore confidence in the domestic financial market.
  • The Central Bank established a Dh70 billion ($19 billion) liquidity facility.
  • Bank deposits reached Dh950 billion at the end of the first quarter of 2009 compared to Dh840 billion at the end of June 2009.
  • The monetary authorities reduced the rate of interest from 2.5 per cent to 1.5 per cent on this facility to support borrowing by banks.
  • The Federal Government increased its expenditure through expansionary fiscal policies to offset the decrease in aggregate demand.
  • The government will be following zero-based budgeting during the 2011-2013 budget cycle.