Government policy has come to the forefront as the UAE emerges from its economic slowdown.Increased public sector spending is likely to have prevented the recession from becoming evendeeper (we estimate 2009 growth at -2.8%), but it is more as an enabler of future growth that thegovernment will have most influence. While there appears to be high-level recognition of the needto improve the UAE’s infrastructure and competitiveness, bureaucracy and a lack of planning canstill hamper the business environment, while the continued failure to provide timely economic dataremains a problem.
Politically, the UAE remains as stable as ever. However, this does not mean that there are notgovernance issues to be addressed within the administration. To us, recent power shortages inSharjah are illustrative of a number of shortcomings, namely the absence of a unified economicdevelopment and planning strategy, and a lack of coordination between various layers of governmentand the state-controlled agencies that control much of the country’s infrastructure. At the sourceof the problem is the fact that, like many of its regional peers, one of the UAE’s main avenues forachieving political stability is the provision of cheap and plentiful basic goods, including energy.
Until it can find a way to reconcile this with the need to incentivise investment in its power sector,supply problems are likely to continue.
A fter 2009’s downturn, we are forecasting a fairly quick rebound for the UAE economy, with our2010 real GDP growth projection currently standing at 3.6%. Growth will be driven by a combinationof rising oil revenues, which will feed through into increased bank liquidity, a slow recovery inhousehold consumption, and a rise in private sector investment. However, we maintain our viewthat a return to the high growth rates of recent years is not on the cards, at least in the short term.Consumers have become altogether more cautious in their spending patterns, as have banks intheir lending practices, which will result in a more sedate growth trajectory going forward.
The UAE’s business environment is improving - it was ranked 33rd globally in the World Bank’srecent Doing Business 2010 report, up from 47th place in 2009. However, there are still areasthat clearly could do with improvement, such as the enforcement of contracts and the protectionof investors. We believe that the economic downturn will have given the authorities pause forthought about its investment climate; indeed, senior ministers have called for an increased focuson competitiveness, as the UAE seeks to rebuild its international reputation following the propertymarket crash.
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