Country Report United Arab Emirates August 2017
- August 2017 •
- Report ID: 1698147
Outlook for 2017-21
- We expect the UAE to remain stable. Given the poor health of the emir of Abu Dhabi, Sheikh Khalifa bin Zayed al-Nahyan, a succession to Sheikh Mohammed bin Zayed al-Nahyan is possible before 2021, but will be smooth.
- The UAE will retain its assertive foreign policy, including military involvement in Yemen and Syria. The dispute with Qatar will have a modest direct impact on the UAE but will damage commercial links and affect regional relations.
- OPEC-mandated production cuts, which have been extended to early 2018, and the stagnation of oil prices at a modest level will keep the fiscal position in deficit throughout 2017-21, despite new revenue-raising measures.
- The federal authorities and individual emirates, particularly Abu Dhabi, will prioritise further diversification away from reliance on hydrocarbons, with government investment efforts focused on non-oil sectors.
- An extended period of output cuts and limited liquidity growth, which will constrain non-oil demand, will keep growth modest initially, with a slightly stronger recovery thereafter, averaging 3.1% in 2017-21.
- Export earnings will recover on average from 2017 and the current account will remain in modest surplus in 2017-21.
- The Abu Dhabi National Oil Company (ADNOC) appears to be ending its purchases of condensate from its traditional supplier, Qatar, and is seeking ultra-light oil from elsewhere, following the boycott of Qatar by the UAE.
- The Ministry of Finance has outlined which sectors will be exempt from value-added tax, due to be implemented from January 2018; exemptions include some service sectors and goods for export outside the GCC.
- State-owned ADNOC is planning an initial public offering of minority holdings in some of its service units, in an opening to international companies, including upstream, midstream, refining and petrochemicals.
- The UAE's main sovereign wealth fund, the Abu Dhabi Investment Authority, will be looking to private equity investments in future, after it reported lower returns for 2016. The Dubai state investment fund, Investment Corporation of Dubai, also reported a drop in net profits in 2016, to Dh18bn (US$4.9bn)
- The UAE medium-term growth outlook appears more challenging than the authorities had hoped, despite recovery in the non-oil private sector, as oil prices languish and oil production falls following the OPEC agreement.
- Credit demand in the UAE has stabilised in the second quarter of 2017, following a strong pick-up in the previous quarter, as demand for business and personal loans is levelling off.