The fall in oil prices has reinforced the UAEs commitment to economic diversification
The main issue for the global economy in 2015 has been the fall in crude prices. As the worlds third-largest oil exporter, the UAE is no exception.
This year the UAE has had to deal with the prospect of declining revenues, and while this has dominated the economic agenda in recent months, the countrys Economy Minister Sultan bin Saeed al-Mansouri remains optimistic as he still expects growth this year. For him, the fall in oil prices is just a reminder that ultimately the focus has not changed and his mission remains the same: diversify the economy by supporting and developing new sectors.
I have mentioned some [growth] figures before, and it depends of course on what happens with oil prices because 30 per cent of the GDP of the UAE still comes from oil, but if I put my finger on one figure for now, it is 3.5 per cent, he says.
The UAE is not the only economy affected by the uncertainty of oil prices in 2015. We are part of this global economy and we are affected by oil prices, everyone is, says Al-Mansouri. From the UAE side, we have been working on the diversification of the economy to bring its dependency on oil down to 30 per cent [of GDP], which is the situation across the rest of the GCC and many other countries of the world, says Al-Mansouri. This is because industry, services and the financial sectors have been built up.
Outside the UAE and the oil exporting economies, the fall in oil prices has provided a boost. Because the world economy was going through a difficult period, [I] feel this has provided momentum and a chance for economies that are affected negatively by high oil prices; it is a chance for them to pick up on building their economy again and starting with saving on the cost of importing oil, says Al-Mansouri. This opportunity is not going to last; the price went down to $40 a barrel and it is now more than $60 a barrel.
Al-Mansouri has a keen interest in the global economy as one of the key sectors for the UAE is trade. To facilitate stronger trade links, the ministry has been visiting emerging markets to promote UAE businesses.
In late April, the Economy Ministry and Dubai Chamber of Commerce & Industry led a trade delegation to the Czech and Slovak republics in Central Europe as part of a broader initiative to promote trade in emerging economies.
We are looking in every direction, says Al-Mansouri. The reason is that since the global financial crisis in 2007 and 2008 we had to review all the sectors of UAE economy to make sure we get the most out of each sector. We do not want to reinvent the wheel immediately, but we have to focus on all our sectors, and that includes trade. With that in mind we reviewed the best countries to trade with, specifically the ones with positive signs of growth in their economies.
Within Europe we identified countries, including the Czech Republic, which have upcoming economies and we are focusing our efforts on building relations with them. We are also looking at Central Asia republics such as Azerbaijan, Turkmenistan, and Kazakhstan, as they also have potential for us for increasing bilateral trade, Africa is also offering GDP growth of 5-6 per cent and there is an opportunity for us to be part of that.
Although emerging markets where the UAE can gain real traction are the focus, traditional markets will not be ignored. We are not ignoring other big partners such as China, India and North America, and they will continue to be big trading partners for the UAE, says Al-Mansouri. We need to fill in some of the gaps. There are other countries we have to build relations with.
Focusing on innovation
As well as trade and other existing sectors, innovation has been identified by the government as a key driver for the UAE economy of the future.
We are now looking to introduce innovation, which is an important challenge for the diversification of UAE, says Al-Mansouri. Our target is that up to 5 per cent [of GDP] should come from innovation. Innovation doesnt happen overnight, it takes time to build it up, starting from a strong education system, a [research and development] R&D culture within companies, and it is not something the government can do directly because it is the private sector that leads innovation. We the government, we are the enablers.
Another driver of growth will follow recent legislative change to the UAEs Companies Law, which is expected to encourage more firms to consider listing on the local exchanges. The legislation, which was announced on 1 April, allows businesses to float just 30 per cent of their shares on the exchange, rather than the previously required 55 per cent.
The Companies Law has been in the making for the past 20 years and it raised a lot of challenges, says Al-Mansouri. There was a Federal National Council (FNC) session that was the longest discussion of any kind of law. The discussion went for more than 35 hours over four days. We came out with a good law and it has created a balance and addressed a lot of challenging issues when it comes to the formation of companies and businesses in the UAE.
The UAEs family businesses are set to benefit from the new rules as it will make it easier for them to list and diversify their capital base. For family businesses, it [the Companies Law] creates an opportunity for them to [launch an initial public offering] IPO, says Al-Mansouri. We are going through a phase in the UAE. We are moving from the first generation to the second and third generations, and we are starting to see some challenging issues with the management of these businesses. This law provides opportunities for two types of IPO. There is the general one and another one where there is more of a limited number of participants.
The next major piece of legislation to be revamped is the Foreign Investment Law. After finishing the Companies Law we are going to move to the Foreign Investment Law, says Al-Mansouri. In Saudi Arabia, they have already introduced a law that opens the foreign ownership to more than 49 per cent; similarly, in the UAE we are developing a law. We are finishing it right now and we are in discussions at different levels with the [seven] emirates.
The law, which will allow foreign companies to own majority stakes in local companies, will have some limitations as the government seeks to promote opportunities in sectors that need development. The law will open up the ability of foreign ownership and investment to go beyond the 49 per cent, says Al-Mansouri. There are certain terms and conditions because we need to point the economy in the right direction, and not just open it and create imbalance. There are specific sectors, specific areas that we will work on to enhance the UAE economy. I do not want to elaborate on the sectors, but this has been given to the UAE cabinet and it is for them to decide.