Abdulrahman Al Ansari discusses figures which suggest that the United Arab Emirates’ (UAE) economy will continue to expand in 2016, but at a slower pace than the year before.
Statistics from the Organisation of Petroleum Exporting Countries (OPEC), an organisation composed of 13 oil-exporting nations, show that oil and gas account for roughly 40% of the UAE’s GDP (Gross Domestic Product).
The world’s facing an oil price crisis. Brent Crude (the trading classification which acts as a benchmark for worldwide oil purchase prices) was selling at a record high of over $100 per barrel in June 2014. However a number of factors including increased US oil production have resulted in the value of Brent Crude declining by more than half in the last 18 months. The price of oil recently fell to a new low of $37 per barrel.
London-based financial services company Standard Chartered Bank suggested continually falling oil values will impact the Emirates’ economy in 2016. According to the Khaleej Times, an online Middle East news agency, the Bank predicted that due to sliding oil prices the UAE’s economy will expand by just 2.9% in 2016, down from an estimated 3.5% in 2015.
In a research note, Standard Chartered predicted that Emirati real GDP growth will rise to 3.6% during 2017 due to higher oil prices. The country attempted to offset lost oil revenues and support real economic expansion by accelerating oil output in the first quarter of last year. Output peaked at three million barrels per day (bpd) in July, but fell to 2.9 million bpd at the end of the year, indicating that UAE oil production levels are currently close to full capacity.
Meanwhile, Carla Slim, the Middle East and North Africa economist at Standard Chartered, expects UAE credit expansion to average 4% this year. The UAE’s Central Bank stated in November that credit to public sector corporations or government related enterprises who are involved in business and commercial activities grew by 4.6% year-on-year, and by 3.7% in the first 11 months of 2015.
The Emirates’ private sector seems to have appetite for credit, registering a 5.4% increase in the year to November. Furthermore, inflation in the Middle Eastern country reduced from 4.94% in the year to August 2015 to 4.29% at present. Standard Chartered’s research note suggested it’ll hold steady at around 4.3% through 2016.
Turning away from oil
Continually falling global oil prices could hinder the UAE’s economic growth next year, there are some signs that the Emirates’ is moving away from oil. The country’s economy minister, Sultan Bin Saeed Al Mansouri, recently said that the non-oil sector represents 70% of GDP, but they want to increase this to 80% in the next 10-15 years. We’re already seeing this with the growth of credit extension to the private enterprise sector in the country, and the fact that Standard Chartered believe inflation could hold steady this year. As non-oil activity gradually replaces production we could see the UAE’s economic fortunes soar to new heights.
About Abdulrahman Al Ansari
Abdulrahman Al Ansari has more than 18 years of experience in the global financial services industry. He serves as the chairman of a number of reputable financial firms including AMA Investment Holding and Bid Capital Management Consultancy.
Abdulrahman’s professional portfolio encompasses a diverse range of sectors from commodities and natural resources to education, healthcare, oil & gas and investment banking. He has earned a reputation as an innovator, who consistently develops new ideas and solutions to address the complex and demanding challenges which confront his clients every day. Over the years, Abdulrahman has cultivated a special interest in the continued economic and community development of the UAE.