’Dubai Economic Outlook’ Shows Openness And Diversification To Boost Growth In 2018 And Beyond
3.5% growth expected in 2018, thanks to domestic and external factors
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, according to the ‘Dubai Economic Outlook’ report released on the sidelines of the ‘UAE Economic Outlook’ forum, which concluded today in Abu Dhabi. The report says that Dubai will achieve 3.5% growth in 2018, also drawing on the continued recovery in global trade and the highest growth rates in most developed economies.
The report reviews 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 as well as developments in the wholesale, retail, banking, transport & storage, real estate & construction, manufacturing and hospitality sectors are captured in the report.
In terms of openness, Dubai ranks 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 AED 1.28 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 AED 270.8 billion between 2011 and 2015 and in 2016, the emirate ranked 7th among the leading cities of the world attracting AED 25.5 billion in FDI. As an open economy, Dubai is affected by global trends but FDI receipts are expected to recover in 2017-2018.
It is important that Dubai continues to attract more foreign direct investment to maintain the growth of key sectors of its economy. 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% 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%).
Dubai’s economy in 2016-2017
Dubai's real GDP grew to AED 376.8 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, totalling AED 46.1 billion in 2016, came from tax revenues (customs duty and taxes on banks), fees and fines, oil revenues and investment returns.
Inflation in Dubai fell from an annual rate of 3.7% in 2015 to 2.9% in 2016 after rising steadily from 1.3% in 2013, due to slower price inflation in the housing, water, electricity, fuel and health sectors. In contrast, other major spending groups such as restaurants, hotels, food, non-alcoholic beverages, education and entertainment saw higher inflation rates in 2016. Rising interest rates in 2017 coupled with a liquidity contraction suggest that inflationary pressures will remain moderate in 2018.
Dubai's official statistics are divided into 19 independent sectors and seven of these accounted for 77.2 per cent of Dubai's GDP of AED 376.8 billion in 2016. The sectors include wholesale and retail trade, transport and storage, financial services and insurance, manufacturing, real estate activities, construction, accommodation and food services, ranked according to their respective GDP contribution.
Wholesale and retail trade
The wholesale and retail trade sector (which also includes the motor vehicles and motorcycles repair) is the largest sector in the economy of Dubai with an added value of AED 103.4 billion and 27.5% of GDP in 2016. The sector is the most heavily employed sector in Dubai and accounted for 22.4% of the workforce in 2015. It plays an important role in supporting consumer spending in the economy and h its backward and forward linkages sustain economic activities in other sectors such as transport, warehousing, food and accommodation. Real value added by the sector was 1.3%, less than the overall growth rate in 2016.
Foreign investment has helped turn Dubai into a global shopping and tourism destination. Gross fixed capital formation in wholesale and retail trade was AED 17.1 billion between 2013 and 2015 and total investment in the sector was AED 76 billion between 2011 and 2015. A labour-intensive but relatively low wage sector, wholesale and retail ranked seventh in terms of productivity in Dubai.