UAE Economic 04 2009

Global Research Economic
UAE
UAE Economic & Strategic Outlook
Different landscape... April 2009
Global Investment House KSCC
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Faisal Hasan, CFA

Head of Research
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Abir G. Ahmed
Senior Manager
agouda@global.com.kw
Phone No:(965) 22951272
Digvijay Tanwar
Financial Analyst
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Phone No:(965) 2295 1275
Table of Contents
Summary 1
Annual Indicators 4
Economic News Flow 5
Macroeconomic Profile 8
Gross Domestic Product 10
Public Finance 16
Current Account 18
Monetary Policy 23
Inflation 26
Population and Labor Force 28
Sectoral Performance
Oil and Gas 32
Banking 39
Infrastructure 47
Real Estate 50
Manufacturing sector 63
UAE Stock Exchange Performance 67

Global Research - UAE Global Investment House
Summary
Since the past few years, UAE’s economy had been performing exceptionally well on the
back of surge in oil prices and strong growth in non-hydrocarbon sectors. In last three years
(2005-08), GDP at nominal prices grew at a CAGR of 21.9%. During 2008, preliminary
estimates from the Ministry of Economy indicate that the nominal GDP has grown by 27.4%
to reach AED929.4bn as the region remained largely unaffected by the economic crisis
during the first half of 2008 and grew at an accelerated rate supported by the surge in oil
prices. The non-oil GDP too witnessed sharp growth and is expected to have grown by 23.4%
during 2008.
GDP in real terms too recorded a growth of 7.4% in 2008, as indicated by preliminary
estimates, to reach AED535.6bn as compared to a growth of 5.2% achieved in 2007 and
11.6% achieved in 2006. The contribution of non-oil sectors in the GDP is estimated to
have grown to reach about AED577.5bn in 2008, over AED467.9bn in 2007. However, the
percentage contribution has decreased to about 62.1% in 2008, compared with 64.1% in
2007.
During 2008, the gross final consumptions witnessed a sharp increase of 32.0% to AED483.9bn
compared to AED366.5bn in 2007. This increase in gross final consumption has come on the
back of 20.3% increase witnessed in 2007 which was backed by sharp increase in government
consumption. Gross fixed capital formation jumped sharply by 76.1% to AED261.4bn against
AED148.5bn in 2007.
UAE government continued to post third consecutive budget surplus in 2007. The budget
surplus in recent years was largely attributed to better oil & gas earnings backed by high
oil prices. During 2007, total government revenue increased by 13.7% to AED228.8bn as
compared to AED201.2bn in 2006. The rise in revenue was mainly driven by oil & gas
exports earnings and other non tax revenue during the years. For 2008, we believe UAE
would have again recorded a high fiscal surplus which is estimated to be in the range of 10-
15% of the country’s gross domestic product as oil prices remained high for major part of
the year.
During 2008, as per preliminary estimates total exports of goods and services increased to
AED746.7bn. Crude oil constituted 36.2% of commodity exports structure in 2008, whereby
re-export comprised 38.8%, free zones exports 11.2%, oil by products 2.5%, gas 4.5%
and other exports 6.8%. On the other side, total imports of goods and services increased
to AED562.6bn in 2008. As such, trade surplus amounted to AED184.1bn in 2008. Higher
weighted average oil prices in 2008, increasing non-oil exports, free zone exports, moderation
in commodities prices globally etc. would boost the current account in 2008. However, rising
level of debit balance of services is the key concerns which may reduce the growth in current
account balance.
During the first nine months of 2008, the money supply as measured by M1 grew by 29.5%
to AED235.3bn compared to AED181.7bn at the end of December 2007. The rise in M1 was
mainly attributed to spurt growth in monetary deposits which increased by 28.7% to reach
AED200.4bn compared to AED155.7bn at the end of December 2007. Sharp cuts in repo rate
at a time of surging liquidity in the economy resulted into steep decline in deposit rates in the
April 2009 Economic & Strategic Outlook

country. The three month AED deposit rate has witnessed declined from 4.34% in Q1-2007
to 1.82% in Q3-2008.
As per IMF estimates, inflation in UAE stood at 12.7% in 2008. We expect that the inflation
is likely to come down significantly in 2009 and may stand in the range of 4%-6%. The
slump in property prices particularly in Dubai and falling rentals coupled with lower food
prices, a shrinking population and slower money supply growth due to reduced oil liquidity
will all weigh on inflation rates during the year.
Over the past decade, the population in UAE grew at a CAGR of 6.3% which is one of the
highest in the world. During 2008, the population in UAE grew by 4.7% to 4.7mn compared
to 4.5mn in 2007. The high growth in the recent time was largely attributed to the continuous
influx of expatriates with higher employment opportunities. Of late, a large number of laborers
have lost their jobs during 3Q-08 and 1Q-04 as many projects have either been shelved or
postponed and redundancies have spread to professionals in the real estate, hospitality and
financial sectors. With most visas for foreign workers tied to employment, those that lose
their jobs often have only a few weeks in which to find new employment before being forced
to leave the country. As such there is all likelihood of a drop in UAE population for 2009.
The Banking sector in UAE until recently had been growing significantly mainly as a result
of relatively low interest rate environment, high oil prices and a flourishing economy. With
high GDP growth rates achieved in the recent past and surge in oil prices, the sector had been
growing over 30% year on year in the past five years. At the end of 2008, the total assets
of UAE banks stood at AED1,480.5bn, the largest among the GCC countries. The sector
comprised of 24 national banks and 28 foreign banks having aggregate branch network of
638. The presence of 52 banks to serve a population of 4.7mn is relatively high which makes
UAE one of the highest penetrated banking countries in the world.
Over the last decade, UAE has witnessed sharp growth in infrastructure development and
created world class infrastructure in the country. Oil boom in the recent time has led to an
increase in government spending on infrastructure development in UAE. These developments
are particularly evident in the larger emirates of Abu Dhabi and Dubai. However, governments
in the northern emirates are rapidly following suit, providing major incentives for developers of
residential and commercial property. Considering the tight liquidity, spending on infrastructure
is coming from the public sector which remains buoyant on the back of economic stimulus
packages, which have been strengthened by government surpluses accumulated during the
period of high oil prices. The federal government in its budget for 2009, late last year allocated
US$11.5bn, a 24% increase in infrastructure spending versus 2008.
We expect the property market to witness further correction in 2009. However, the prices
of projects towards completion are not expected to witness sharp drops as those seen in off-
plan sales. Also, the trends will be different across the Emirates. Unlike Dubai, the property
market in Abu Dhabi and other emirates seems to be more resilient to the downturn. In
Dubai, we expect to see further price correction for freehold properties in the range of 15%
to 30% in 2009. We expect further correction in office rents in the range of 10% to 25% as
businesses downsize and hold their expansion plans. In Abu Dhabi, we expect the residential
market to stabilize with the new supply coming from mega projects such as Al Reem Island
and Al Raha beach in 2009.
Economic & Strategic Outlook April 2009

Manufacturing sector in UAE is the largest segment of nonhydrocarbon sectors and a

significant growth driver of non oil economic growth. After the hydrocarbon sector, the
manufacturing sector is the biggest contributor to the GDP with a share of 12.9% in 2007 and
an estimated share of 12.2% in 2008. Since past few years, UAE is investing heavily in its
manufacturing sector, stimulated by the need to diversify the economy. The manufacturing
sector is performing well and growing at double digit rate. Manufacturing sector is crucial
for future prospects of the UAE economy. Favourable economic environment, government’s
various initiatives, emergence of free trade zones, etc. would be driving force for UAE’s
manufacturing sector in years to come.
The year 2008 was a difficult year for the financial market led by the financial turmoil in
USA and other developed economies and its effects on the other parts of the world. 2008 was
also tough year for GCC region. Though during the first half, the GCC markets performed
well on expectations that the markets would remain relatively immune from the financial
crisis because of their limited exposure to sub-prime and/or related instruments, but things
deteriorated due to global impact of financial turmoil. Among the GCC markets, UAE market
declined the most in 2008. The National Bank of Abu Dhabi’s (NBAD) UAE general index
witnessed sharp decline of 56.6% in 2008 over 2007.
Compared to 2007 performance, corporate earnings came down in 2008. If we look at 2008
numbers alone the aggregated profits of companies listed on both ADX and DFM show a
marginal decline of 4.7% with ADX listed companies showing a growth of 10.0% while the
profitability of DFM listed coming down by 24.6%. The real impact on corporate profitability
was witnessed in 4Q-08 with massive write downs by most companies due to their exposures
to real estate markets and investments. The profitability of ADX based companies in the
fourth quarter of 2008 came down to AED2.7bn, a decline of 73.0% from AED10.0bn
achieved in the corresponding quarter of 2007 while that of DFM based companies the profits
of AED7.2bn achieved in 4Q-07 culminated into losses of AED4.7bn.
The economic outlook for 2009 looks grim as low oil prices, stricter lending requirements by
banks and greater caution among investors who have lost by the collapse in real estate prices
translate into a significant number of projects either being postponed or shelved completely.
Government spending will limit the downside and help reduce the job losses in key sectors,
but will not be sufficient to fully counteract the contraction in trade volumes, the slowing of
consumer spending on the back of population losses, and the severe cutting back of investment
plans making us believe that the economy will likely post its first contraction in real GDP that
would be in the range of 0.5-1.0% for 2009 with more of a downside risk.

Annual Indicators
2005 2006* 2007** 2008#
Economic Performance
Nominal GDP (AED bn) 513.1 624.6 729.7 929.4
Nominal GDP (US$ bn) 139.8 170.2 198.8 253.2
Nominal GDP growth (%) N/A 21.7 16.8 27.4
Real GDP (AED bn) 424.8 473.9 498.7 535.6
Real GDP (US$ bn) 115.7 129.1 135.9 145.9
Real GDP growth (%) N/A 11.6% 5.2% 7.4%
Per Capita GDP (US$ ’000) 35.1 40.2 44.3 54.0
Population (mn) 4.0 4.2 4.5 4.7
Oil Sector contribution to GDP (AED bn) 185.1 224.1 261.8 351.9
Oil Sector/GDP (%) 36.1% 35.9% 35.9% 37.9%
Government Finance
Government Revenues (AED bn) 143.9 201.2 228.8 N/A
Government Expenditures (AED bn) 104.4 126.0 159.7 N/A
Surplus/(Deficit) (AED bn) 39.5 75.2 69.0 N/A
Government Revenues/GDP (%) 28.0% 32.2% 31.3% N/A
Oil Revenues (AED bn) 111.4 164.8 176.3 N/A
Oil Revenues/Total Revenues (%) 77.4% 81.9% 77.1% N/A
External Debt (AED bn) 150.6 302.2 489.5 533.6
External Debt/GDP (%) 29.3% 48.4% 67.1% 57.4%
External Debt/Government revenues (%) 104.6% 150.2% 214.0% N/A
Money Supply and Inflation^

M2 (end-period) (AED bn) 324.1 399.3 565.7 676.4
M3 (end-period) (AED bn) 415.4 506.6 696.2 815.5
3-month Inter Bank (%) 3.58 5.21 5.24 2.13
Consumer Price Inflation (%) 6.2% 9.3% 11.1% N/A
Foreign Trade
Total Goods Exports (AED bn) 430.7 534.7 664.3 746.7
Total Goods Imports (AED bn) 273.6 323.4 428.2 562.6
Trade Balance (AED bn) 157.2 211.3 236.2 184.1
Current Account Balance (AED bn) 89.4 131.9 135.9 N/A
Exports of Oil and Refined products (AED bn) 202.3 257.4 309.9 315.1
Oil Exports to Total Exports (%) 47.0% 48.2% 46.7% 42.2%
Other Economic Indicators

UAE Crude Oil Production (mn bpd) 2.4 2.5 2.5 2.6
UAE Stock Market Index Points 7,537.9 4,481.1 6,434.2 2,792.4
Exchange Rate AED: $ 3.6725 3.6725 3.6725 3.6725
Source: CBUAE, IIF and Global Research
*Preliminary Data **Estimated #Preliminary Data issued by the Central Statistics Department ^ For 2008
- 3Q-2008 Data

Economic News Flow

− Abu Dhabi's is coming with a US$10bn Global Medium Term Note Program which has
been rated ‘Aa2’ by Moody’s. The rating for the Program and the initial benchmark size
issuance (also rated Aa2 with a stable outlook) is in line with the Aa2 foreign currency
issuer rating of the government of Abu Dhabi, which was assigned in July 2007 and has
a stable outlook. (Source: Dow Jones Newswires)
− Dubai issued a US$20bn Bond Program to help it meet its financial obligations and press
ahead with its development plans with the Central Bank of UAE wholly subscribing to the
first tranche of US$10bn in February 2009. (Source: The National)
− The value of Dubai real estate transactions by the end of Feb 2009 has fallen 45% to
AED14.7bn from AED26bn in the first two months of 2008 as the emirate's property
sector struggles amid the wider global financial crisis. The value of sales in January
and February, meanwhile, fell 40% to AED7.6bn from a year earlier. The fall in the
value of transactions so far this year is further confirmation that Dubai’s six-year property
boom is over. In recent months, financing has evaporated, sales have slumped, developers
and brokers are cutting jobs and prices in some areas have fallen sharply. (Source: Gulf
News)
− Dubai's non-oil foreign trade grew 38% in 2008 to AED934.7bn compared to AED678.5bn
in 2007, according to Dubai World's Statistics Department. Foreign trade through
Dubai's free zones increased by 29% in 2008 compared to the previous year, rising
from AED237.7bn to AED307bn. Imports recorded 33% growth, from AED141.6bn to
AED187.8bn, whereas exports rose by 24%, from AED96.1bn to AED119.1bn. China
ranked as Dubai's top partner in imports with respect to direct non-oil foreign trade
in 2008 at AED57bn, while India came second at AED48bn, followed by the U.S. at
AED34.5bn. (Source: Gulf News)
− Dubai and its government-controlled companies will boost spending by 11% in 2009 from
2008 in an effort to stimulate the economy. The city-state's finance department estimates
the new spending will result in a modest fiscal deficit, Dubai's first ever. Dubai officials
said they plan to borrow on international markets, if the conditions are right, to fund the
shortfall. If debt markets aren't favorable, Dubai can tap reserves built up after years of
running surpluses. Dubai's finance department expects the deficit to be AED4.2bn, or
1.3% of Dubai's estimated GDP of AED301bn. (Source: Zawya Dow Jones Newswires)
− Consumer confidence in the UAE fell for the third consecutive time in 2008 as the credit
crunch crimps growth in the Persian Gulf’s second-largest Arab economy after Saudi
Arabia, according to the latest survey by Bayt.com and YouGovSiraj. The survey, which
indicated a drop of 3.4 index points for consumer confidence in the emirates, said 40% of
respondents in the country believe that job availability will worsen in 2009. The results
of the survey follow a wave of redundancies that have seen thousands of workers lose
their jobs in the UAE in the final quarter of 2009 as companies cut back on costs amid
falling sales and a worsening economic outlook. (Source: (Source: Zawya Dow Jones
Newswires)

− Hotel occupancy rates in Dubai have fallen by as much as 25% in December 2008,
prompting a bout of heavy discounts. Many middle-market hotels and those that rely on
business visitors are experiencing occupancy rates of 70%, down from the high 90s in
December 2007. (Source: The National)
− Dubai’s government plans to increase spending by about 20% in 2009 in an attempt to

stimulate its economy. Much of the spending will be dedicated to transportation and
infrastructure. “We are going to complete all announced infrastructure projects so once
the global economic storm passes we can be the first city to rebound,” said Nasser al-
Shaikh, Director General of the emirate’s department of finance. (Source: UAE Interact)
− The Dubai Government issued a new mortgage law as part of moves to regulate Dubai’s
booming real estate sector. Sheikh Mohammad Bin Rashid Al Maktoum issued the
decree, legalizing the housing finance sector in a 35-article law based on international
best practices. The law, which comes into effect 60 days after its publication in the
official newspaper, stipulates that mortgage contracts be registered with the Dubai Land
Department, specifying the size of the loan, the repayment period and the value of the
property to which the loan is linked. The law also requires that mortgages taken out on
properties in Dubai be sold by registered financial institutions and be insured. (Source:
UAE Interact)
− The UAE’s oil reserves are expected to last for at least 100 years and fetch a net of
AED5.8tn if current output levels are maintained, according to the International Monetary
Fund. (Source: Zawya Dow Jones Newswires)
− The UAE transferred a record AED175.8bn to its overseas assets in 2007 as it pushed
ahead with long-term plans to take advantage of strong oil prices and build a massive
investment empire. The surge in the transfers was a result of swelling budget surpluses,
a steady rise in gas and petroleum products exports, and a rapid growth in non-oil public
income. The figures by the Central Bank showed 2007’s transfers were far above the
official transfers of AED146.5bn recorded in 2006 and AED61bn in 2005. They were
also more than quadruple the 2003 transfers of only AED39bn. In previous years when
oil prices were weak and the budget was reeling under heavy deficits, the transfer balance
was negative as the UAE used to use part of the return on its overseas investments to
finance the budget shortfall. (Source: Emirates Business 24/7)
− Dubai and Abu Dhabi have fallen in the list of the world’s most expensive cities, despite
soaring inflation in the United Arab Emirates, according to the most recent cost-of-living
survey by the international consulting firm Mercer in July 2008. Dubai ranks as the 52nd
most expensive city, while the U.A.E. capital is at number 62. According to the report,
Dubai ranked 32 in 2007, while Abu Dhabi ranked 45th. (Source: Zawya Dow Jones
Newswires)
− The Securities and Commodities Authority (SCA), which supervises the Abu Dhabi and
Dubai bourses, issued a new circular stipulating any listed firm must obtain a credit
rating from the authority before issuing bonds. It excluded government institutions from
the new rules. The circular, which was published in the official gazette, covered both
traditional and Islamic bonds (sukuk) and asked potential bond issuers to ensure such

a rating must be obtained in advance from an authorized credit rating agency. (Source:
Emirates Business 24/7)
− The Emirates Securities and Commodities Authority (ESCA) approved the final draft of
the margin trading regulations. Margin trading permits brokers to allow their clients to
buy shares on the market by keeping a certain portion of the value of the trade as a margin
(deposit) with them. (Source: Dow Jones Newswires)

Macroeconomic Profile
UAE is the second largest economy after Saudi Arabia in the GCC and one of the most open
and integrated economies in the region. With the surge in oil prices (except sharp downturn
in the second half of 2008) and strong economic activity, the UAE economy performed quite
well with nominal GDP recording double digit growth rates since 2003. In last three years
(2005-08), GDP at nominal prices grew at a CAGR of 21.9% which is one of the highest in
the world.
During 2008, preliminary estimates from the Ministry of Economy indicate that the nominal
GDP has grown by 27.4% to reach AED929.4bn as the region remained largely unaffected
by the economic crisis during the first half of 2008 and grew at an accelerated rate supported
by the surge in oil prices. This has come on the back of growth of 16.8% achieved in 2007
when the nominal GDP reached AED729.7bn. GDP in real terms recorded a growth of 7.4%
in 2008, as indicated by preliminary estimates, to reach AED535.6bn. Construction, real
estate, banking and tourism have been the main drivers underpinning the real GDP growth
in recent times.
However, global economic slowdown coupled with substantially lower oil prices, reduced
oil production and lower consumer spending along with the fall in Dubai real estate has
severely marred the UAE economy and consequently the economic growth rate is expected
to be negatively impacted. Given the scenario, UAE is likely to post its first contraction in
real GDP which as per our estimates would be around 0.5-1.0% for 2009.
Credit shrinkage, deferment of projects, significant number of layoffs across the board and a
significant number of expatriates leaving the country made headlines which also reflects the
battered state of the emirate’s real estate, construction, retail and banking sectors that have
been caught in the global economic downturn. Credit Default Swaps touched record highs,
customer confidence ebbed out, demand evaporated and a general gloom prevailed all over.
Corporate profitability of UAE companies in the fourth quarter of 2008 was severely marred
with most companies recording significant losses. A large number of laborers have lost
their jobs as many projects have either been shelved or postponed and redundancies have
spread to professionals in the real estate, hospitality and financial sectors. As such, there
is all likelihood of a drop in UAE population for 2009 which inturn will negatively impact
demand and may further dent the real estate prices.
The factors which will help UAE withstand the current downturn include macro economy
fundamentals, prudent government norms and the fact that the country is largely domestically
driven economy. In such times, when the demand has dried up from the private sector, it’s
the government sector that can propel demand and the UAE government is upto the cause.
In October 2008, the UAE government approved a growth oriented budget for 2009 with a
21% increase in allocation.
The real estate market in UAE too is expected to recover despite recent slump in the Dubai
real estate market. Although, real estate sector in UAE may see price correction in next one
or two years particularly in Dubai, Abu Dhabi real estate market appears to be fundamentally

in a better shape. The government is taking all the necessary steps to keep the market steady.
Enough cash has already been pumped into the banking system to maintain liquidity. Also
steps are being taken to introduce user friendly payment plans and postponing mortgage
payments. A Financial Stability unit has been set up especially to keep a close watch on the
markets and manage the real estate services. All these steps will surely ease up the pressure
and the property market will be able to endure any major setbacks if inflicted upon it.
Although 2009 appears to be a difficult year, we are hopeful that the strong fiscal surplus
achieved in the past five years will help cushion the impact of economic crisis. Huge
investments by the government too has been planned to expand capacity in real estate,
tourism, transportation, manufacturing, and hydrocarbon sectors. These investments could
set the stage of a structurally higher productivity growth and output potential.

Gross Domestic Product

Since the past few years, UAE’s economy had been performing exceptionally well on the
back of surge in oil prices and strong growth in non-hydrocarbon sectors. In last three years
(2005-08), GDP at nominal prices grew at a CAGR of 21.9% which is one of the highest in
the world. During 2008, preliminary estimates from the Ministry of Economy indicate that
the nominal GDP has grown by 27.4% to reach AED929.4bn as the region remained largely
unaffected by the economic crisis during the first half of 2008 and grew at an accelerated rate
supported by the surge in oil prices. This has come on the back of growth of 16.8% achieved
in 2007 when the nominal GDP reached AED729.7bn. The non-oil GDP too witnessed sharp
growth and is expected to have grown by 23.4% during 2008.
GDP in real terms too recorded a growth of 7.4% in 2008, as indicated by preliminary
estimates, to reach AED535.6bn as compared to a growth of 5.2% achieved in 2007 and
11.6% achieved in 2006. The robust economic performance in 2008 was owed to the higher
oil prices in major part of the year and boost provided by the non hydrocarbon sector.
Chart 01: GDP (Real) Trend

550 14%
500 11.6%
450 12%
400 10%
350
AED bn
300 8%
7.4%
250 6%
200
5.2% 4%
150
100 2%
50
- 0%
2005 2006 2007 2008 (E)
GDP YoY growth
Source: CBUAE, Ministry of Economy (MOE)
The contribution of non-oil sectors in the GDP is estimated to have grown to reach about
AED577.5bn in 2008, over AED467.9bn in 2007. However, the percentage contribution has
decreased to about 62.1% in 2008, compared with 64.1% in 2007.
During 2007, UAE’s nominal GDP stood at AED729.7bn, registered a growth of 16.8% over
previous year while real GDP stood at AED498.7bn, indicating a growth of 5.2% over 2006.
The growth numbers although strong, appears to be low when compared with a nominal
GDP growth of 21.7% and a real GDP growth of 11.6% witnessed in 2006. This moderation
was largely attributed to lower hydrocarbon sector’s output during the year on account of
the capacity constraints and high base. Also, due to UAE’s commitment to OPEC and heavy
maintenance of oil fields at 2007 year end, oil production had come down to 2.49mn bpd from
2.64mn bpd recorded in 2006. However, oil production in 2008 is estimated to be around
2.6mn bpd. During 2007, growth was slowed by 1.2% contraction in hydrocarbon sector.
However, the non hydrocarbon sectors continued to expand rapidly as the non hydrocarbon
real GDP recorded growth of 8.7% in 2007 over the previous year, albeit at a slower rate than
in the past five years.
10 Economic & Strategic Outlook April 2009

The spurt in economic growth witnessed in past few years was largely attributable to strong
growth in oil revenue with about 74% of government’s total fiscal revenue accounted by
oil in 2007. Other economic activities in non hydrocarbon sectors also performed well and
contributed handsomely in the overall economic growth in the past few years. As a result,
UAE’s per capita GDP also witnessed sharp move in the past few years. Per capita GDP at the
end of 2008 stood at US$53,881 registering a CAGR of 15.5% over 2005-08. Within GCC
countries, UAE had the second highest per capita GDP after Qatar. During 2008, relatively
higher growth in GDP at nominal prices against population growth led to per capita GDP
growing by 21.6% over 2007.
Table 01: Gross Domestic Product

Particulars Units 2005 2006* 2007** 2008#
Nominal GDP (AEDbn) 513.1 624.6 729.7 929.4
Nominal GDP (US$bn) 139.8 170.2 198.8 253.2
Nominal GDP growth (%) 21.7 16.8 27.4
Real GDP (AEDbn) 424.8 473.9 498.7 535.6
Real GDP (US$bn) 115.7 129.1 135.9 145.9
Real GDP growth (%) 11.6 5.2 7.4
Per Capita GDP (US$) 35,056.7 40,245.2 44,304.2 53,996.7
Population (mn) 4.0 4.2 4.5 4.7
Source: CBUAE, Ministry of Economy (MOE) *Preliminary Data **Estimated #Preliminary Data issued by
Ministry of Economy
UAE’s economy continued to be dominating by non-hydrocarbon activities unlike other

GCC countries. In 2007, non-hydrocarbon sector contributed 75.9% of total real GDP, which
is the highest among the GCC countries after Bahrain. Over the past few years, contribution
from non-hydrocarbon activities in total real GDP is increasing from around 67% in 2001 to
current 75.2% in 2007. Increased in contribution from non-hydrocarbon activities was largely
attributed to relative higher growth in it compared to hydrocarbon sector. The hydrocarbon
contributed 24.8% to total real GDP in 2007.
Chart 02: Contribution to GDP (Real)
69.8%
74.1% 75.2% 76.5%
30.2% 25.9% 24.8% 23.5%
2005 2006 2007 2008E

Hydrocarbon Non-hydrocarbon
Source: CBUAE, Global Research
GDP by Emirates…
Abu Dhabi remained the largest contributor in total (nominal) GDP of UAE in 2007 as it
contributed 54.8% of total GDP at nominal prices. During 2007, Abu Dhabi recorded GDP
growth of 17.2% to AED400bn as compared to AED341.3bn in 2006. Dubai contributed
April 2009 Economic & Strategic Outlook 11

31% to the total UAE’s GDP. In 2007, Dubai’s GDP grew by 17.3% to AED226.5bn against
AED193.1bn in previous year.
Chart 03: GDP contribution by emirates (2007)
31.0%
54.8%
9.4%
1.3%
0.4%
1.9%
1.2%
Abu Dhabi Dubai Sharjah Ajman Umm Al Qaiwain Ras Al Khaimah Fujairah
Source: Ministry of Economy, Global Research
GDP by economic activity…
The surge in oil prices continued in 2007 and first half of 2008. However, oil prices witnessed
sharp downturn from the peak in the second half of 2008. The weighted average oil prices
increased to US$71.7/b in 2007 against US$63.5/b recorded in 2006. Despite recent sharp
correction in oil prices, the weighted average oil prices in 2008 stood at US$94.5/b. During
2007, there were production cuts from OPEC and heavy maintenance work at the end of the
year because of which oil production had come down. Despite lower production during 2007,
the value added by the oil and gas sector recorded an increase of 16.8% to AED261.8bn as
compared to AED224.1bn in 2006 mainly due to higher oil prices in 2007. The contribution
of oil sector to total GDP remained unchanged at 35.9% in 2007. During 2008, the percentage
contribution of oil sector in total GDP increased to 37.9% driven by the hike of oil revenue as
a result of increase of prices of crude oil.
The non-hydrocarbon sector continued its double digit growth trajectory even in 2007 as
well as 2008. Appropriate economic policies, increasing economic activities, particularly
in the construction and building, manufacturing, financial, real estates, transportations and
communications sectors over the past few years have made this growth possible in non-
hydrocarbon sectors.
The construction sector continued its high growth trajectory as it recorded highest growth
of 25.6% in 2007 as compared to growth of 29% in 2006. The value-added of this sector
increased to AED58.3bn in 2007 against AED46.4bn in 2006, while its contribution to GDP
increased from 7.4% in 2006 to 8%.
With continued commitment from government in providing higher standard public services
to meet the increasing requirements of growing population, the output of the government
services grew sharply by 19.5% to AED55.5bn in 2007 as compared to AED46.4bn in
previous year. As a result of sharp increased in output of government services, its contribution
to GDP witnessed increase of 20 bps to 7.6% in 2007.

Table 02: GDP by economic activity

(At current prices in AED mn) 2005 2006* 2007**
Crude oil and Natural Gas 185,050 224,119 261,841
Quarrying 904 1,122 1,243
Manufacturing 61,843 79,010 94,480
Government Services 38,839 46,383 55,438
Wholesale, Retail trade and Repairing services 51,764 58,847 65,966
Transport, Storage and Communication 31,267 39,491 43,877
Real Estate and Business Services 36,178 47,174 55,796
Construction 36,000 46,435 58,311
Agriculture and Fishing 8,839 9,601 9,592
Restaurants and Hotels 9,035 11,483 13,419
Electricity, Gas and Water 9,068 10,059 11,283
Social and Personal Services 8,825 10,192 11,532
Domestic Services and Households 2,629 3,077 3,594
Financial Corporation Sector 42,575 48,763 55,766
Imputed Bank Services (9,727) (11,133) (12,406)
GDP at Current Prices 513,089 624,623 729,732
Source: CBUAE, Ministry of Economy (MOE) *Preliminary Data ** Estimates
The second largest contributor to the UAE’s GDP, manufacturing sector witnessed growth of
19.6% to AED94.5bn in 2007 against AED79.0bn in 2006. The increased in manufacturing
output during 2007 was due to rise in prices of petroleum products and gas, in line with the
increased in oil prices. The rise in economic activities in UAE in the past few years was
reflected from the handsome growth in real estates & business services, wholesale, retail trade
& maintenance sector and transport, storage & communications as these sectors witnessed
growth of 18.3%, 12.1% and 11.1% in 2007 respectively over the previous year.
Chart 04: GDP by economic activity

2006 2007
7.4% 7.8% 8.0% 7.6%
7.6% 7.6%
5.3% 5.1%
6.3% 6.0%
9.4% 36.1% 9.0%

36.1%
7.4% 7.6%
12.6% 12.9%
Mining & Quarying Manufacture Government Services Wholesale, Retail Trade & Repairing Services
Transport, Storage & Communication Real Estate & Business Services Construction Financial Corporation Sector Others
Source: CBUAE, Ministry of Economy (MOE)
GDP by expenditure...
During 2008, the gross final consumptions witnessed a sharp increase of 32.0% to
AED483.9bn compared to AED366.5bn in 2007. This increase in gross final consumption
has come on the back of 20.3% increase witnessed in 2007 which was backed by sharp
increase in government consumption. Government consumption had increased by 31.5% to
AED76.2bn in 2007 against AED58.0bn in 2006. Private consumption increased modestly

by 17.7% in 2007 to AED319.7bn in previous year. The growth in private consumptions was
largely attributed to population growth and higher prices. The significant increase in gross
final consumptions in 2008 resulted in increased in its ratio to total output from 50.2% in
2007 to 52.1% in 2008. The strong growth in gross capital formation is critical for the long
term growth of the economy.
During 2008, gross fixed capital formation jumped sharply by 76.1% to AED261.4bn against
AED148.5bn in 2007. The gross fixed capital formation break up by institution for 2008
is not available yet but in 2007, gross fixed capital formation by private sector increased
sharply by 27.7% to AED84.3bn against 66.3bn in 2006. As a result of sharp increased, the
share of the private sector in gross fixed capital formation rose from 54.8% of total capital
formation in 2006 to 56.8%. However, share of the government and the public sectors in total
capital formation dropped from combined share of 45.2% in 2006 to 43.2% in 2007, a clear
indication of expanding private sector activity in the UAE. In 2007, capital formation by the
government and public sector increased by 26.3% and 13.3% respectively over the previous
year and reached at AED21.2bn and AED43bn respectively.
Table 03: GDP by type of expenditure

Spending (AED in mn.) 2005 2006* 2007** 2008#
Consumption expenditure 276,152 304,607 366,540 483,900
Government Consumption 51,544 57,961 76,190 NA
Private Consumption 224,608 246,646 290,350 NA
Gross fixed capital formation 93,798 120,999 148,479 261,400
Government 14,042 16,748 21,159 NA
Public Sector 32,509 37,942 42,992 NA
Private 47,247 66,309 84,328 100,000
Net exports Goods & Services 137,415 192,354 207,278 184,100
Exports Goods & Services 448,305 559,813 693,862 746,700
Imports Goods & Services 310,890 367,459 486,584 562,600
Change in stocks 5,724 6,663 7,435 NA
Indirect Taxes 5,070 6,234 7,559 NA
GDP at Current Prices 513,089 624,623 729,732 929,400
Source: CBUAE, Ministry of Economy (MOE) *Preliminary Data **Estimates # Preliminary Estimates
Total exports of goods and services have increased to AED746.7bn in 2008, compared
with AED693.8bn in 2007, achieving a growth of 7.6%. Crude oil has constituted 36.2% of
commodity exports structure in 2008, whereby re-export comprised 38.8%, free zones exports
11.2%, oil by products 2.5%, gas 4.5% and other exports 6.8%. On the other side, total imports
of goods and services increased to AED562.6bn in 2008 compared with AED486.6bn.
In 2007, imports of goods and services increased by 32.4% to AED486.6bn as compared to

AED367.6bn in previous year. The sharp increased in imports indicate increased in domestic demand.
On the other hand, exports of goods and services witnessed growth of 23.9% to AED693.8bn in
2007 against 559.8bn in 2006. Relatively higher growth in imports resulted in modest growth of
7.8% in net exports in 2007 to AED207.3bn as compared to AED192.4bn in 2006.
The economic outlook for 2009 looks grim as low oil prices, stricter lending requirements by
banks and greater caution among investors who have lost by the collapse in real estate prices

translate into a significant number of projects either being postponed or shelved completely.
Government spending will limit the downside and help reduce the job losses in key sectors,
but will not be sufficient to fully counteract the contraction in trade volumes, the slowing of
consumer spending on the back of population losses, and the severe cutting back of investment
plans making us believe that the economy will likely post its first contraction in real GDP that
would be in the range of 0.5-1.0% for 2009 with more of a downside risk.
We are also hopeful that the UAE economy will be able to come back in 2010 on the back
of robust balance of payments positions, growing non-oil sectors and strong fiscal surplus
achieved in the past five years when oil prices touched record highs.

Public Finance
UAE government continued to post third consecutive budget surplus in 2007. The budget
surplus in recent years was largely attributed to better oil & gas earnings backed by high
oil prices. During 2007, total government revenue increased by 13.7% to AED228.8bn as
compared to AED201.2bn in 2006. The rise in revenue was mainly driven by oil & gas
exports earnings and other non tax revenue during the years.
The non tax revenues continued to remain largest revenue generator for the UAE as it
contributed 94% of total revenue in 2007. During the years, non-tax revenue increased by
11.3% to AED214.9bn against AED193.1bn in previous years. Oil & gas earnings remained
largest revenue generator in 2007 as it contributed 82% of total non tax revenue. The oil
and gas revenue increased by 7% to reach AED176.3bn in 2007 against AED164.8bn in
2006. The moderate growth in oil & gas revenue was on account of lower production during
the year. Other non-tax revenues increased sharply by 69.6% to AED32bn in 2007, against
AED18.9bn in 2006. However, profits of joint stock companies dropped by 30.2% in 2007 to
AED6.6bn compared to AED9.5bn in previous year.
Table 04: Summary of Consolidated Government Finances

(AED mn) 2004 2005 2006* 2007**
Total Revenue 94,751 143,905 201,166 228,750
Non-tax revenues 85,185 137,095 193,139 214,917
Oil & gas 73,322 111,377 164,775 176,265
Profits of Joint Stock Corporations 3,322 4,624 9,478 6,613
Others 8,541 21,094 18,886 32,039
Tax revenue 9,566 6,810 8,027 13,833
Customs 3,040 3,852 4,461 8,020
Others 6,526 2,958 3,566 5,813
Total Expenditure 96,274 104,430 125,977 159,726
Current Expenditure 80,984 84,255 103,907 121,314
Salaries and wages 15,628 16,654 17,693 21,265
Goods and services 25,032 24,383 26,177 35,420
Subsidies and transfers 11,666 18,916 30,806 29,692
Others 28,658 24,302 29,231 34,937
Capital Expenditure 15,207 14,042 15,225 17,271
Loans and Equity Participations 83 6,133 6,845 21,141
Surplus/(Deficit) (1,523) 39,475 75,189 69,024
Source: CBUAE, Ministry of Economy (MOE) *Preliminary Data **Estimates
Tax revenues (customs duties, other charges and revenues) witnessed growth of 72.3% to
reach AED13.8bn, against AED8bn in 2006. The robust increased in tax revenue was on
the back of solid rise in customs duties which increased by 79.8% to AED8bn as compared
to AED4.5bn in 2006. In 2007, total tax revenue contributed 6% in total revenue of the
government.
During 2007, the expenditures grew sharply by 26.8% to AED159.7bn from AED126bn
in 2006. The spurt in total expenditure was on the back of 16.8% increased in current
expenditure over previous year. Current expenditure occupied largest chunk in total

government’s expenditure in 2007 as it constitutes 76% of total expenditure incurred by the

government in 2007. In current spending, expenditure on salaries and wages rose by 20.2%
in 2007 to reach AED21.3bn. Likewise, expenditure on goods and services increased by
35.3% to AED35.4bn and other unclassified current expenditure increased by 19.5% to reach
AED34.9bn in 2007. However, expenditure on subsidies and transfers dropped by AED1.1bn
to stand at AED29.7bn.
The development expenditures increased moderately by 13.4% to reach AED17.3bn in 2007,

compared to AED115.2bn in 2006. The capital expenditure constitute only a small portion
of the massive government-led investment plans which are underway due to the fact that
much of these investment plans are kept off-budget and on the books of public enterprises
such as Mubadala and TAQA. The development expenditure accounted for 10.8% of total
expenditure incurred during 2007. The loans and equity participations increased sharply by
208.9% to AED21.1bn in 2007 as compared to AED6.8bn in previous year.
Relative higher growth in government’s total expenditures than revenue resulted in drop
in budget surplus to AED69bn in 2007 against AED75.2bn in 2006. The surplus in the
consolidated government finance now accounted for 9.5% of UAE’s GDP at nominal prices
against 12.5% in 2006. The surplus as percentage to GDP in 2006 was highest in previous
five years.
Chart 05: The consolidated government finance account

250,000
200,000 Surplus
150,000
AED mn
100,000
50,000
Deﬁcit
0
2003 2004 2005 2006* 2007**
Revenue Expenditures
For 2008, we believe UAE would have again recorded a high fiscal surplus which is estimated
to be in the range of 10-15% of the country’s gross domestic product as oil prices remained
high for major part of the year.
UAE remain in a financially strong position, despite lower oil prices, as a result of the
substantial liquidity they have amassed over the past five years of oil run. The government
is likely to maintain their investment budgets at high levels, particularly for core long term
infrastructure projects to rekindle growth and because oil prices are expected to be much
lower in 2009 vis-à-vis what they had been in the preceding three years, we believe the
federal public finances are forecast to register deficits in 2009.

Current Account
During 2008, as per preliminary estimates total exports of goods and services increased to
AED746.7bn. Crude oil constituted 36.2% of commodity exports structure in 2008, whereby
re-export comprised 38.8%, free zones exports 11.2%, oil by products 2.5%, gas 4.5% and
other exports 6.8%. On the other side, total imports of goods and services increased to
AED562.6bn in 2008. As such, trade surplus amounted to AED184.1bn in 2008.
In 2007, the balance of payments indicates increased in both trade balance and current account
balance. However, the increase in both trade and current account balance was lower than the
growth in previous year. During 2007, surplus in the trade balance (FOB) increased by 11.8% to
AED236.2bn as compared to trade balance of AED211.3bn in 2006. The increased in trade balance
in 2006 was 34.5%. The increased in the trade balance surplus in 2007 was largely attributed to
strong growth in total exports and re-exports. However, the growth in imports outpaced the export
growth and as a result of that the overall trade balances grew at slower pace than previous year.
The dominance of non-hydrocarbon exports continued even in 2007. During the year, UAE’s
non-oil exports surged by 27.8% to AED354.4bn as compared to AED277.2bn in 2006. The
spurt in non-oil exports was largely attributed to surge in re-exports which grew 32.4% to
AED228.7bn over the previous year. Exports from free zones grew moderately by 11.1% to
AED83.7bn against AED75.3bn in previous year. During the year, exports classified under
“other goods” grew sharply by 43.9% to AED42.1bn as compared to AED29.2bn in 2006.
Table 05: Trade Balance

Particulars (in AED mn) 2004 2005 2006* 2007** 2008#
Total Exports 334,186 430,737 534,666 664,345 746,700
Total Exports of Hydrocarbon 142,500 202,277 257,442 309,922 322,574
Hydrocarbon exports as a% of total 42.6% 47.0% 48.2% 46.7% 43.2%
Crude Oil Exports 108,800 159,761 213,372 261,422 270,305
Petroleum Products Exports 16,240 21,300 17,995 20,000 18,668
Gas Exports 17,460 21,216 26,075 28,500 33,602
Non Oil 191,686 228,460 277,224 354,423 424,126
Free Zones 52,587 63,928 75,286 83,661 83,630
Other Goods 14,680 18,414 29,232 42,068 50,776
Re-Exports 124,419 146,118 172,706 228,694 289,720
Total Imports (FOB) 232,955 273,583 323,364 428,194 562,600
Emirates Imports 171,490 210,283 na na na
Free zone Imports 61,465 63,300 na na na
Balance of Trade (FOB) 101,231 157,154 211,302 236,151 184,100
As a% of GDP 26.2% 32.4% 33.8% 32.4% 19.8%
Source: CBUAE *Estimated, **Preliminary Data #Preliminary Estimates – Ministry of Economy
UAE’s oil exports increased by 20.4% to AED309.9bn in 2007 against to AED257.4bn in

2006. The increased in the value of oil exports attributed to the rise in oil prices, condensates
and petroleum products. The weighted average oil prices rose from US$63.3/barrel in 2006 to
US$71.7/barrel in 2007. During 2007, crude oil exports increased by 22.5% to AED261.4bn
as compared to AED213.4bn in 2006. Petroleum products and gas exports witnessed modest
growth of 11.1% and 9.3% over the previous year.
Relatively higher growth in non-oil exports in 2007 resulted in increased in contribution of

non-oil exports in total exports to 53.3% from 51.8% in 2006.

Chart 06: Proportion of total exports
56.0% 53.0% 51.8% 53.3%

57.4%
47.0% 48.2% 46.7%

44.0% 42.6%
2003 2004 2005 2006 2007

Oil Non-oil
The rising population, the need to meet the requirements of re-exports, a higher propensity to
spend among individuals, increasing commercial activities in the country, increase in prices
of commodities in countries of origin, increase in numbers of tourists and depreciation in US
dollar has resulted spurt in total imports of UAE in 2007. During the year, value of import
(FOB) witnessed an increase of 32.4% to AED428.2bn against AED323.4bn in 2006.
Pearls, precious metals and jewellery exports surge…
Pearls, precious metals and jewellery continued to contribute largest chunk in overall non-
oil exports of UAE. During 2007, pearls, precious metals and jewellery exports accounted
for 32% of overall non oil exports of the country followed by base metals at 14%, mineral
products by 12%, plastics and rubber by 10% and foodstuff and beverages contributed 8%
of overall non oil exports of UAE. As far as geographical distribution of non oil exports is
concerned, Asia continues to be the major destination of UAE’s non-oil exports in 2007 and
accounted for 50% of total non-oil exports. Within Asia, India continued to be the single
largest destination of non-oil exports from the UAE accounting for almost 33.2% of the
total non-oil exports of the UAE. This is mainly due to proximity to the region. Asia was
followed by Arab countries that accounted for 31.9% of total non-oil exports with GCC
countries accounted for 20.6% of total non-oil exports. On the other side Europe, African and
American region contributed 7.7%, 4.7% and 2% of overall non oil exports of the UAE.

Chart 07: UAE non-oil exports by main categories 2007
Others Foodstuffs &
9% beverages
8%
Machinery and
electrical Mineral products
3% 12%
Base metals
14%
Chemical and
allied products
3%
Plastics & rubbers

10%
Textiles
Pearls, stones, 3%
precious metals
and jewellery Furniture, glass, stones
32% & allied products
6%
Source: CBUAE

During 2007, re-exports also witnessed sharp growth and the growth in re-exports has
been across the board. The re-exports of pearls, precious metals and jewellery continued to
contribute biggest share in total re-exports made during the year as it contributed 30.9% of total
reexports. Other major contributor in total reexports in 2007 were machinery & electrical at
22.6%, vehicles of transports at 16.4% and textiles at 6.9%. The geographical distribution of
re-exports structure was almost similar to that of non-oil exports with major chunk occupied
by the Asian countries at 47.4% followed by Arab countries at 28.3%, European at 12.9%,
African at 7.5% and American at 1.5% of the total re exports made during 2007.
Rising population, higher economic confidence, increasing investments by both government and
private, surge in infrastructure development in the country, rising commercial activities, higher
per capita income, etc. boosted the UAE’s imports in recent times. For the period 2002-07, UAE
has witnessed surge in imports of commodities like pearls, precious metals and jewellery, base
metals, cement, ceramic products, chemicals, etc. with these categories increasing by 42.6%,
23.7% and 23.8% respectively. During 2007, major imports were for machinery and electrical
accounting for 23% of total imports of the country. This was followed by pearls, precious metals
and jewellery at 19.8%, vehicles of transport at 13.2%, base metals at 11.7%, chemicals at 5.6%,
textiles at 4.5% and vegetable products at 3.1% of the total imports during the years.
Chart 08: UAE Imports by main categories 2007

Others
Vehicles of transport 15.4%
13.2%
Vegetable products
3.1%
Chemical products & Industries

5.6%
Machinery and Plastics and rubber

electricals 3.7%
23.0% Textiles
4.5%
Pearls, stones, precious

Base metals metalsand jewellery
11.7% 19.8%
Source: CBUAE
Asia remained largest source for UAE for imports as Asian countries contributed 46.5% of
total imports of UAE during 2007. China and India continued to be the largest regions for
sourcing import requirements as both these countries contributed 11.6% each in total imports
of UAE. Other major regions for imports source were Europe at 30.4%, America at 10.5%,
Arab countries at 6.4%, Oceanic at 2.7% and Africa at 2.3% of total imports
Growing international trade in the past few years was largely attributed to surge in oil prices;
increasing populations backed by solid growth in expatriates, increasing levels of commercial
activities in the region, favourable trade environment in the country, emergence of free zones,
etc. and we believe that the current buoyancy in the international trade in UAE would remain
for coming three to five years.
Growth moderated in current account balance…
The current account surplus remained significant at AED135.9bn in 2007 witnessing a

growth of 3.1% over the previous year. However, the growth in current account surplus

has moderated during 2007 compared to a growth of 40.3%, 130% and 47.5% witnessed in
2004, 2005 and 2006 respectively. The moderation in current account balance was largely
on account of slower growth in trade balance due to higher imports growth and also higher
growth in debit balance of services. As a result of moderation, the current account surplus
narrowed from 21.1% of GDP in 2006 to 18.6% in 2007. However, the current account
balance has remained positive in the past five years.
The debit balance of services, which includes freight and insurance, tourism, travel and
government services continued to rise rapidly. During the year it has witnessed growth of
31.4% to AED87.6bn as compared to AED66.7bn in 2006. With in debit balances of services,
freight and insurance witnessed highest growth of 32.4% to AED58.4bn and occupied largest
chunk of 66.7% in total debit balance of services in 2007.
Sharp growth in property and entertainment income in 2007 resulted in negative growth of
0.7% in net current transfers in 2007 to AED12.6bn compared to AED 12.7bn in 2006. With
rising income levels and increasing employment, workers transfers abroad also increased
moderately by 13.8% to AED31.9bn against AED28.1bn in 2006.
Table 06: Current Account Balance

Particulars (in AED mn) 2004 2005 2006* 2007**
Current Account (a+b+c) 38,889 89,444 131,912 135,941
a. Goods 101,231 157,154 211,302 236,151
Exports (fob) 334,186 430,737 534,666 664,345
Imports 232,955 273,583 323,364 428,194
b. Services (net) (44,346) (53,600) (66,690) (87,600)
Tourism (10,575) (10,900) (14,610) (19,170)
Transport (2,119) (5,500) (8,090) (10,160)
Direct Purchases by Govt. Abroad 115 110 110 120
Freight and Insurance (31,767) (37,310) (44,100) (58,390)
c. Current Transfers (net) (17,996) (14,110) (12,700) (12,610)
Property and Entrepreneurial Income 570 10,600 17,400 21,500
Worker’s Remittance (17,066) (22,830) (28,080) (31,950)
Other Current Transfers (1,500) (1,880) (2,020) (2,160)
Current account balance as a % of GDP 10.1% 18.4% 21.1% 18.6%
Source: CBUAE * Estimated **Preliminary Data
The net balance of financial account reached to a positive belt first time in last five years.
During 2007, the net financial account balance reached to AED41.5bn against negative
balance of AED59bn in previous year. This was mainly due to an increase of 148% in private
sector inflows to AED217.3bn in 2007 as compared to AED87.6bn in 2006. Within private
sector inflow, banking sector has witnessed highest capital inflow of AED178.3bn against
AED35.6bn in 2006. This was mainly due to sharp growth in foreign borrowings of the
UAE banks in 2007. However, net direct investments in the UAE have decreased in two
consecutive years. During 2007, it reached to net outflow of AED1.4bn against net inflow of
AED7bn in 2006.
Portfolio investments which witnessed solid decline in 2006 have shown moderate increase of
20.5% to AED5.3bn against AED4.4bn in 2006. The overall buoyancy in the stock market in
2007 was attributed to this growth in portfolio investments. On the other hand, capital flows

from the public sector enterprises remained negative. However, public sector enterprises
capital outflow grew moderately by 19.9% to AED175.8bn against AED146.6bn in 2006. As
a result of spurt in inflows from private sector and modest growth in public sector outflow
resulted in net financial account surplus of AED41.5bn in 2007.
Table 07: Financial Account

Particulars (in AED bn) 2004 2005 2006* 2007**
Financial Account (23.9) (53.9) (59.0) 41.5
Enterprises of Private Sector 44.4 55.2 87.6 217.3
- Direct investment 28.6 26.3 7.0 (1.4)
- Portfolio investment 7.3 22.6 4.4 5.3
- Banks (0.7) (12.5) 35.6 178.3
- Non-banks 9.1 18.9 40.6 35.1
Enterprises of Public Sector (68.3) (109.1) (146.6) (175.8)
Net Errors and Omissions (2.2) (26.1) (49.5) 5.8
Source: CBUAE *Estimated **Preliminary Data
Higher weighted average oil prices in 2008, increasing non-oil exports, free zone exports,
moderation in commodities prices globally etc. would boost the current account in 2008.
However, rising level of debit balance of services is the key concerns which may reduce the
growth in current account balance.
Table 08: Overall Balance

Particulars (in AED bn) 2004 2005 2006* 2007**
Current account 38.9 89.4 131.9 135.9
Capital Account NA NA NA NA
Financial Account (23.9) (53.9) (59.0) 41.5
Overall Balance-surplus/(deficit) 12.8 9.5 23.9 183.2
As a% of GDP 3.3% 1.9% 3.8% 25.1%
Change in reserves (12.8) (9.5) (23.9) (183.2)
Central bank net foreign assets (13.0) (10.2) (24.0) (183.1)
Reserve position with the IMF 0.1 0.7 0.1 (0.1)
Source: CBUAE *Estimated **Preliminary Data
On the capital and financial account, which recorded net inflow of AED41.5bn on the back
of sharp increase in foreign borrowings of the commercial banks, is expected to record net
outflow in 2008 mainly on account of expectations of higher capital outflow from the public
sector enterprises, net FDI outflow, etc.
For 2009, we believe that the export earnings are likely to come down significantly mainly
on account of oil production cuts and fall in oil prices which are expected to remain much
lower in comparison to 2008. Given the scenario, the current account is likely to move into
deficit for 2009.

Monetary Policy
The peg of the UAE’s currency with US dollar continues. As a result of this pegging
central bank has limited choices to curb the inflation and mange the money supply in the
country. The Central Bank (CBUAE) manages money supply growth by aligning interest
rates following the interest rate development in the US, and by issuing certificates of deposit
(CDs) to commercial banks in addition to other tools.
By following interest rate cuts in US, interest rate in UAE also witnessed several cuts in its
key interest rates. Accordingly, the central bank has lowered its interest rate on repurchase
of Certificates of Deposits (CD) from 5% in September 2007 to 1.0% in January 2009 in
line with the several interest cuts by the Federal Bank in US. Similarly, the 3 month inter
bank rate witnessed sharp decline from the 5.14% in December 2007 to 1.94% in March and
witnessed further decline to 1.75% in Q2-2008. However, with deceleration in the resident
deposits and continued strong demand for credit 3 month EIBOR has witnessed upward
move in the recent time and current EIBOR is in the range 2.7%.
Sharp cuts in repo rate at a time of surging liquidity in the economy resulted into steep
decline in deposit rates in the country. The three month AED deposit rate has witnessed
declined from 4.34% in Q1-2007 to 1.82% in Q3-2008.
Table 09: Interest rates in UAE

2007 2008
(In %) Q1 Q2 Q3 Q4 Q1 Q2 Q3
3 Month Inter-bank Rate (average) 5.38 5.26 5.17 5.14 1.94 1.75 2.71
Lending rate to business (average) 8.14 7.47 7.77 7.98 8.84 8.71 7.79
3 month AED Deposit Rate 4.34 4.3 4.22 4.23 1.54 1.94 1.82
Source: CBUAE
The interest rates for business loans that had increased from 7.9% in Q1-2006 to a high of
8.1% by the end of Q1-2007 decreased to 7.5% in Q2-2007. However, the interest rates again
witnessed sharp increased from second quarter of 2007 to high of 8.8% in Q1-2008 and saw
some moderation in Q3-2008 to 7.8%. With the rising inflation rate in the past few years,
the real lending interest rate falls into negative zone in past couple of years. This coupled
with expansionary fiscal stance have added to the upsurge in credit growth and increased
development activity leading to high inflationary pressure.
Chart 09: Inflation and interest rates

14%
12%
Negative real lending rate
10%
8%
6%
4%
2%
0%
2003 2004 2005 2006 2007 2008E
Lending rate to business Inﬂation
Source: CBUAE

In line with the nominal GDP growth, the monetary indicators have exhibited consistent
positive growth. During the first nine months of 2008, the money supply as measured by
M1 grew by 29.5% to AED235.3bn compared to AED181.7bn at the end of December 2007.
The rise in M1 was mainly attributed to spurt growth in monetary deposits which increased
by 28.7% to reach AED200.4bn compared to AED155.7bn at the end of December 2007.
Currency in circulation too grew substantially in the first nine months of 2008 by 35.5% to
AED42.9bn against AED31.6bn at the end of 2007.
With the solid growth in money supply and modest growth in quasi deposits, the broad
money supply as measured by the M2 grew by 20.4% during the nine month period to reach
AED681.4bn compared to AED565.7bn at the end of December 2007. During the first nine
months of 2008, quasi deposits grew moderately by 16.2% to AED446.1bn over its level at
the end of December 2007. The positive growth in broad money in the recent time (2004
- Q3-2008) was mainly attributed to the increase in private sector time and savings deposits
(Quasi Money) as well as monetary deposits in past few years.
Table 10: Money Supply

(in AED mn) 2004 2005 2006 2007 Q1-2008 Q2-2008 Q3-2008
Currency in Circulation (1) 18,492 21,033 26,832 31,672 35,245 37,764 42,922
Currency held by Banks (2) 2,714 3,511 4,995 5730 6313 6522 8048
Currency outside Banks (3)=(1)-(2) 15,778 17,522 21,837 25,942 28,932 31,242 34,874
Monetary Deposits (4) 65,040 86,927 98,182 155,722 192,925 212,839 200,420
Money (M1) (5)=(3)+(4) 80,818 104,449 120,019 181,664 221,857 244,081 235,294
Quasi Money (6) 161,424 219,615 279,274 384,038 402,500 432,285 446,079
Money Supply (M2) (7)=(5)+(6) 242,242 324,064 399,293 565,702 624,357 676,366 681,373
Deposits General Government (8) 61,912 91,319 107,348 130,527 130,218 139,145 149,968
Money Supply (M3) (9)=(7)+(8) 304,154 415,383 506,641 696,229 754,575 815,511 831,341
Source: CBUAE
With consistent rise in money supply and broad money supply, the overall money supply as
measured by M3 also witnessed positive trend in recent years. During the first nine months of
2008, overall money supply grew moderately by 19.4% to AED831.3bn against AED696.2bn
at the end of December 2007. The moderate growth in overall money supply as compared to
M1 and M2 was primarily due to relatively slower growth in government deposits during the
period. Government deposits grew just by 14.9% to reach AED150.0bn as compared to its
level of AED130.5bn at the end of December 2007.
Growth in bank assets continued….
The healthy growth in credit to private sector in the recent time (2004 – Sep-08) resulted
into positive growth trend in bank assets in past few years. During the first nine months
of 2008, the net domestic assets of the banks in UAE witnessed growth of 56.2% to reach
AED633.3bn over its level of AED405.4bn at the end of 2007. The good thing about this
growth is that, it came over the high growth of 66.4% in 2007. The healthy growth in net
domestic bank assets was primarily due to spurt in private sector credit and negative growth
in others category. During the first nine months, credit to private sector grew by 42.1% to
AED754.5bn against AED530.8bn at the end of 2007.

Table 11: Asset Growth in Banks

(in AED mn) 2004 2005 2006 2007 Sep-08
Net Foreign Assets 145,313 166,820 155,634 160,326 48,036
Foreign Assets 194,654 253,177 334,614 482,821 375,683
Foreign Liabilities (49,341) (86,357) (178,980) (322,495) (327,647)
Net Domestic Assets 96,930 157,244 243,659 405,376 633,337
Net Claims on Government (31,294) (47,331) (51,882) (61,380) (74,357)
Claims on Private Sector 204,795 290,302 385,789 530,790 754,468
Others (76,571) (85,727) (90,248) (64,034) (46,774)
Source: CBUAE
However, net foreign assets buck the trend and declined by 70.0% to AED48.0bn at the end of
Q3-2008 as compared to AED160.3bn at the end of 2007. This was largely attributed to negative
growth in foreign assets. During the nine month period, foreign assets declined by 22.2% to
AED375.7bn against AED482.8bn at the end of 2007. The foreign liabilities remained more
or less stagnant during the period and recorded a moderate growth of 1.6% to AED327.6bn
compared to its level in December 2007. Thus relatively higher decline in foreign assets and a
moderate rise in foreign liabilities resulted in higher declined in net foreign assets.
Buyback of Certificate of Deposits to restore liquidity…
The most popular method used by the CBUAE to regulate money supply is issuing and
buying back of Certificate of Deposits (CDs). Previously, there had been a major reduction
in the liabilities corresponding to CDs of the Central Bank. This shows that either the Central
Bank was issuing fewer CDs, or was buying them back from the market, in turn increasing
the money supply. However, excessive liquidity in the system during 2007 and first quarter
of 2008 resulted in surge in outstanding CDs by almost four fold to AED173.6bn at the end
of 2007 and it further increased to AED185.6bn at the end of first quarter of 2008 against
outstanding CDs of AED32.3bn in 2006.
Chart 10: Outstanding Certificate of Deposits of the Central bank

200
180
160
140
120
AED bn
100
80
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 Mar-08 Jun-08 Sep-08
Source: CBUAE
However during Q2-2008, outstanding CDs witnessed sharp decline to AED117bn compared
to outstanding of AED185.6bn at the end of Q1-2008 and a further reduction to AED64.1bn at
the end of Q3-2008. The sharp fall into outstanding CDs in Q3-2008 was largely on account
of government’s efforts to release liquidity in the system on the back of global financial
turmoil and its effects on the UAE’s economy.

Inflation
As per official figures (released annually) by the government, inflation as measured by the
Consumer Price Index (CPI) surged to 11.1% in 2007 as compared to 9.3% in previous year,
which was the highest in the past five years. The reported CPI (base year-2000) increased
from133 to 147.8 in 2007.
Table 12: Consumer Price Index

y-o-y
End of Period (2000=100) Weight 2004 2005 2006 2007 increase
Food, Beverages and Tobacco 14.4% 112.0 117.0 123.5 130.4 5.6%
Clothing and Footwear 6.7% 112.0 114.8 119.2 127.7 7.1%
House Rent and Related House Items 36.1% 119.0 130.1 150.1 176.4 17.5%
Transport & Communication 14.9% 111.5 116.6 127.7 133.0 4.2%
Furniture and Related Items 7.4% 106.9 110.5 113.2 122.3 8.0%
Medical Care & Health Services 1.9% 117.0 123.4 127.5 134.4 5.4%
Recreation, Education & Cultural Services 10.3% 117.1 121.7 124.6 128.3 3.0%
Other Goods & Services 8.2% 111.1 117.8 125.0 146.1 16.9%
General Index 100.0% 114.6 121.7 133.0 147.8 11.1%
Inflation 5.0% 6.2% 9.3% 11.1%
Source: Ministry of Economy
The surge in inflation in 2007 was largely attributed to sharp rise in “House Rent and Related
House Items” which also has maximum weight of 36.1% in CPI. During the year “House
Rent and Related House Items” witnessed rise of 17.5% over the previous year. In past few
years, house rents in UAE have witnessed sharp increase and grew at a CAGR of 11.9%
during 2003-07 period. The rise in housing rents in the recent time was largely attributed to
increase in housing demands particularly from expatriates. “Transport & Communication”
which has second highest weight in CPI grew moderately by 4.2% in 2007 as compared to
9.5% rise in previous year while “Food, Beverages and Tobacco” with a weight of 14.4% in
CPI grew by 5.6% in 2007. “Other goods and services” grew sharply by 16.9% over 2006
and it has weight of 8.2% in CPI.
Chart 11: Inflation by categories

20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2004 2005 2006 2007
Food, Beverages and Tobacco Clothing and Footwear House Rent and Related House Items Transport & Communication
Furniture and Related Items Medical Care & Health Services Recreation, Education & Cultural Services
Other Goods & Services General Index

The surged in consumer prices during 2007 is attributable to both domestic as well as external
factors. Domestic factors like strong aggregating demand from infrastructure projects, rising
populations, supply bottlenecks, etc. fuelled inflation in 2007. On the other side, external
factors like sharp upward trend in international food and primary goods prices and the
depreciation in US dollar during 2007 and the first half of 2008 further boosted the consumer
prices in the country.
During 2008, due to the surge in oil prices in the first half of the year and a depreciating
dollar, inflation remained high and we believe it would have even breached 2007 inflation
levels. Consequently, the federal government took steps to curb inflationary pressures in the
country. During 2008, the federal government revised cap to annual rental increases to 5% in
Abu Dhabi and Dubai from earlier cap of 7% in the beginning of 2008 to control the sharp
rise in housing rent. The move seems to have been partially successful, reducing the annual
rate of rent increases. However, the rate of increase is still significantly higher than the cap,
suggesting widespread non-compliance. Furthermore, there is no protection for new comers
or those changing accommodation as the rent cap, even when enforced, is only applicable to
renewals. Further, with an intention to control the construction cost in the country government
lifted custom duties on cement and steel in March 2008.
As per IMF estimates, inflation in UAE stood at 12.7% in 2008. However, a long awaited
reversal in the US dollar’s international valuation did bring real relief to the inflationary cycle
in the UAE. By mid-2008 it was clear that the dollar had been strengthening against other
major currencies and the Governor of the Central Bank reaffirmed that there was no change
in the region’s exchange rate policy. The strengthening of the US dollar since mid-2008 will
help ease imported inflation.
We expect that the inflation is likely to come down significantly in 2009 and may stand in
the range of 4%-6%. The slump in property prices particularly in Dubai and falling rentals
coupled with lower food prices, a shrinking population and slower money supply growth due
to reduced oil liquidity will all weigh on inflation rates during the year. The recent plans by
the government to and the signing of new deals with major food retailers by the Ministry of
Economy to cut the cost of basic foodstuffs in the UAE add weight to our view that inflation
rates will fall during 2009.

Population and Labor Force

Over the past decade, the population in UAE grew at a CAGR of 6.3% which is one of the
highest in the world. During 2008, the population in UAE grew by 4.7% to 4.7mn compared
to 4.5mn in 2007. The high growth in the recent time was largely attributed to the continuous
influx of expatriates with higher employment opportunities.
Chart 12: Population trend

5,000
4,500
4,000
3,500
in '000
3,000
2,500
2,000
1,500
1,000
500
-
68
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
E
08
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Major chunk of the UAE’s population is concentrate in Abu Dhabi and Dubai as population
of both these emirates constitutes more than two third of total UAE’s population. It reflects
the fact that both emirates are the major destinations for business and job creation for both
expatriates and nationals.
Table 13: Population break up by gender of Emirates

(in ‘000) 2006 2007 y-o-y
Emirate Males Females Total Males Females Total growth
Abu Dhabi 945 485 1,430 982 511 1,493 4.4%
Dubai 1,032 340 1,372 1,121 357 1,478 7.7%
Sharjah 539 282 821 581 301 882 7.4%
Ajman 135 77 212 144 80 224 5.7%
Umm Al Qaiwain 31 19 50 32 20 52 4.0%
Ras Al Khaimah 132 82 214 138 84 222 3.7%
Fujairah 81 49 130 86 51 137 5.4%
Grand Total 2,895 1,334 4,229 3,084 1,404 4,488 6.1%
The demographic profiles shows that males continues to outnumber females in the total
population as total male population in UAE in 2007 is estimated to constitutes 68.7% of
total population. According to 2007 MOE estimates, expatriate workers represented 80.7%
of total population in UAE. Higher number of expatriates in overall population is the key
reason for lower proportion of female population in the country as the majority of expatriates
are male.

Chart 13: Break-up of UAE population by nationality (2007)

Nationals
19.3%
Expatriate
80.7%
Higher number of working population
Another key distinctive characteristic of UAE’s demographic profile is presence of higher

number of working population (age group 15-59). As of 2007, the working population
estimated to constitutes around 79.2% of total population. This is again largely due to higher
number of expatriates work force in the country. The larger number of working population in
the country leads to lower dependency ratio and higher per capita income generation.
Chart 14: Age profile of the population

1.5%
19.3%
79.2%
0-14 15-59 Above 59
Labour Force
During 2007, the total number of employees in the UAE rose by 8% to 3.1mn as compared to
2.9mn in 2006. The high level of construction activity drove expatriate labour to the country.
This coupled with the rising participation rate amongst women, had translated into a rapidly
growing labour force. The faster growth in labour force compared to population growth
resulted into rise in participation rate to 69% in 2007 as compared to 67.9% and 64.6% in
2005 and 2006 respectively.
The construction industry remained to be a major source for job creation and accounted for
19.9% of all workers employed in 2007. This was followed by the wholesale, retail trade and
maintenance services sector with 18.7% and then the manufacturing sector employing 12.5%
of all workers. The oil industry, on the other hand, employed only 1.2% of the work force.

Table 14: Employment by sector

Sectors 2005 2006 2007*
Non-Financial Enterprises Sector 2,150,026 2,328,478 2,511,493
Agriculture, Livestock and Fisheries. 193,044 209,066 225,499
Extractive Industries. 38,694 41,906 45,199
Crude Oil & Natural Gas 33,200 35,956 38,783
Quarries 5,494 5,950 6,416
Manufacturing Industries. 336,585 364,521 393,173
Water, Gas and Electricity 34,207 37,046 39,958
Construction and Building 534,398 578,753 624,242
Wholesale / Retail Trade and Maintenance 502,427 544,129 586,897
Restaurants and Hotels 116,615 126,294 136,220
Transportation, Storage and Communication 162,768 176,278 190,133
Real Estate and Business Services. 77,858 84,320 90,947
Social and Private Services. 114,736 124,259 134,026
Financial Enterprises Sector 31,015 33,589 36,229
Government Services Sector 286,105 309,851 334,207
Household 222,506 240,975 259,916
Total 2,689,652 2,912,893 3,141,845
Source: Ministry of Economy * Estimated
Moving into 2008, a large number of laborers have lost their jobs during 3Q-08 and 1Q-
04 as many projects have either been shelved or postponed and redundancies have spread
to professionals in the real estate, hospitality and financial sectors. With most visas for
foreign workers tied to employment, those that lose their jobs often have only a few weeks in
which to find new employment before being forced to leave the country. As such there is all
likelihood of a drop in UAE population for 2009. The government is reportedly re-examining
its immigration regulations, with a view to making it easier for unemployed expatriates to
remain in the country while they search for new jobs.
The Ministry of Economy estimates that the unemployment rate stood at 4% in 2008,
increasing from 3.45% for 2007. The figure for 2008 combined the expatriate unemployment
rate of 2.6% and that of UAE citizens of 12.7%. Although on the face of it, the figures
looks good and matches that of developed countries but because foreigners, who account for
around 80% of UAE population, on loosing their jobs need to leave the country within one
month, the figure may not be a true indication of the level of unemployment in the country
and we believe it to be relatively higher than the official figure indicates.

Sectoral Performance

Oil and Gas

Crude oil prices have witnessed sharp movement ever since 2002. The year 2008, was highly
volatile in terms of crude oil price movement. During the first half of 2008, oil prices have
witnessed sharp upward movement and monthly reference basket price of OPEC touched a
high of over US$140.0/b in July 2008. However from August 2008, oil prices have witnessed
downward pressure on the back of slowing oil demand due to global economic slowdown.
Prices as measured by OPEC yearly reference basket increased at a CAGR 27.4% over
2003-08. Average yearly prices increased from US$28.1/b in 2003 to US$94.5/b in 2008.
Despite, sharp correction in oil prices in recent time the average oil prices for 2008 was
higher by US$25.4/b to US$94.5/b compared to average price of US$69.1/b in 2007. The
sharp increased in oil prices in past five to six years baring sharp drop in the recent time was
largely attributed to strong demand of crude oil across the globe especially from the USA,
EU region and emerging economies like China and India.
Chart 15: Monthly oil price movement

140
120
100
80
US$/barrel
60
40
20
0
07
07
07
08
08
08
*
-0
l-0
-0
-0
l-0
-0
09
n-
p-
n-
p-
ar
ar
ay
ov
ay
ov
n-
Ju
Ju
Ja
Se
Ja
Se
M
M
M
M
N
Ja
Source: OPEC
* upto January 15,2009
The average crude price remained above US$50/b since 2005 and touched a record average
high monthly price of US$131.2/b in the month of July 2008. However, then onwards oil
prices dipped sharply on the back of weak global economy undermining demand of oil.
Table 15: Trends in spot crude prices

US$/barrel 2003 2004 2005 2006 2007 2008 Change
OPEC Reference Basket 28.1 36.1 50.6 61.1 69.1 94.5 25.4
Differential - Brent/Dubai 2.0 4.6 5.1 3.6 4.2 3.5 -0.7
Differential - WTI/Brent 2.3 3.2 2.1 0.9 -0.3 2.6 2.9
Source: OPEC Monthly Oil Market Report.
In 2008 trend in spot crude prices shows growth of 36.7% to US$94.5/b. In addition to
geopolitics, the main factors behind the upward trend were the US$ weakness in the recent
years which encouraged inflows of new money into the crude futures market, persistent
refinery outages and weather-related supply disruptions. However, crude oil prices in 2009
are expected to remain under pressure on the back of slowdown in demand and ongoing
global turmoil. The average monthly basket prices fall to US$38.6/b in December 2008,
the lowest monthly average price since January 2005 before strengthening to US$40.9/b in
January 2009 (up to 15/01/2009).

Chart 16: OPEC reference basket average yearly price

100 94.5
90
80
69.1
70
61.1
60
US$/barrel
50.6
50
40 36.1
27.6 28.1
30 23.1 24.4
20.3 18.7
20 17.5
12.3
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: OPEC
Demand remains unchanged in 2008…
World oil demand in 2008 remains broadly unchanged from the previous assessment, showing
a decline of 0.1 mb/d, the first year of negative growth since 1983. It has been growing on
an average of 1.1 mb/d or 1.88% since then, adding 26.64 mb/d to total world oil demand. In
2008, oil demand was 85.8 mb/d as compared to 85.9 mb/d in 2007 and 85.8 mb/d in 2006.
Erosion in US oil consumption is considered the major factor behind the vanishing growth
in oil demand in 2008. Demand of oil from North America reduced by almost 1.3mb/d to
24.3 mb/d against 25.6 mb/d in 2007 and is expected to further decline to 23.7 mb/d in 2009.
For the whole OECD region, the decline reached 1.6 mb/d to 47.7 mb/d as compared to 49.2
mb/d in 2007, more than enough to off-set the growth seen in other regions. Despite the ease
in oil prices, world economic turbulence managed to reduce oil demand growth in the non-
OECD by a third or 0.5mb in the second half of 2008.
Table 16: World oil demand

Volume Increase (%) Share (%)
(mn b/d) 2007 2008 2009E 2007 2008 2009E 2007 2008 2009E
North America 25.6 24.3 23.7 1.1 -5.0 -2.4 29.8 28.3 27.7
Western Europe 15.4 15.2 15.0 -1.7 -0.8 -1.6 17.9 17.7 17.5
OECD Pacific 8.3 8.2 8.0 -1.0 -1.9 -2.0 9.7 9.5 9.3
Total OECD 49.2 47.7 46.7 -0.1 -3.2 -2.1 57.4 55.5 54.5

Other Asia 9.0 9.3 9.4 2.2 3.5 0.9 10.5 10.9 11.0
Latin America 5.4 5.7 5.8 2.9 6.1 1.6 6.3 6.7 6.8
Middle East 6.5 6.8 7.1 4.7 5.6 3.5 7.6 8.0 8.3
Africa 3.1 3.2 3.2 4.0 1.0 1.0 3.6 3.7 3.7
Total Developing Countries 24.0 25.1 25.5 3.3 4.3 1.8 28.0 29.2 29.8

Former Soviet Union 4.0 4.1 4.2 2.1 4.0 1.2 4.6 4.8 4.9
Other Europe 0.9 1.0 1.0 3.3 2.1 1.0 1.1 1.1 1.1
China 7.6 8.0 8.3 6.4 5.4 3.9 8.9 9.3 9.7
Total Other Regions 12.5 13.1 13.5 4.8 4.7 2.8 14.6 15.3 15.7
Total Demand 85.8 85.9 85.8 1.5 0.1 -0.2 100.0 100.0 100.0
Source: OPEC Monthly Oil Market Reports * Totals may not add due to independent rounding

OPEC production for 2008….
According to latest data, OPEC total crude oil production (including Indonesia production)
increased by 3% to 31.9mnb/d against 31mnb/d in 2007. The growth in OPEC crude oil
production was largely attributed to sharp increased in production in Saudi Arabia, Angola
and Iraq. Saudi Arabia remained largest contributor in total OPEC crude oil production as its
production accounted for 28.6% of total oil production by OPEC in 2008. During the years,
Saudi Arabia witnessed growth of 46.2% in crude oil production to 9.1mnb/d (similar level
of 2006 production) against 8.7mnb/d in 2007.
Table 17: OPEC’s crude oil production

(mnb/d) 2004 2005 2006 2007 2008 Change
Algeria 1.2 1.3 1.4 1.4 1.4 3.1%
Angola NA NA 1.4 1.7 1.9 22.2%
Ecuador NA NA 0.5 0.5 0.5 -0.3%
Indonesia 1.0 0.9 0.9 0.8 0.9 1.5%
Iran 3.9 3.9 3.8 3.8 3.9 3.8%
Iraq 2.0 1.8 1.9 2.1 2.3 24.8%
Kuwait 2.3 2.5 2.5 2.5 2.5 7.4%
Libya 1.5 1.6 1.7 1.7 1.7 0.2%
Nigeria 2.3 2.4 2.2 2.1 2.0 -17.7%
Qatar 0.8 0.8 0.8 0.8 0.8 3.2%
Saudi Arabia 9.0 9.4 9.1 8.7 9.1 46.2%
UAE 2.4 2.4 2.5 2.5 2.6 5.5%
Venezuela 2.6 2.6 2.5 2.4 2.3 -4.9%
Total OPEC 29.0 29.9 31.4 31.0 31.9 3.0%
During the year, Iraq witnessed production of 2.3mnb/d as compared to 2.1mnb/d, a growth
of 24.8%. Angola’s production also increased sharply by 22.2% to 1.9mnb/d against 1.7mnb/
d in previous year. In 2008, almost all members of OPEC have witnessed increase in
production except Nigeria, Venezuela and Ecuador. Crude oil production in Nigeria declined
by 17.7% to 2mnb/d as compared to 2.1mnb/d in 2007. Venezuela and Ecuador witnessed
decreased in oil production by 4.9% and 0.3% over the previous year respectively.
Non-OPEC countries continue to lead the supply in 2008…
During 2008, non-OPEC supply is expected to average at 50.57mnb/d, an increase of 80 thousand b/d
over 2007. In 2008, developing countries contributed the most to supply growth based on the current
estimate of 260 thousand b/d, while OECD countries’ supply showed a heavy decline of around 350
thousand b/d. Latin America experienced the highest growth on a regional basis, especially Brazil
and Colombia, followed by China, Africa, OECD Pacific, the FSU and Other Asia.
Table 18: World crude oil demand supply balance

(mnb/d) 2003 2004 2005 2006 2007 2008
World Oil Demand 79.0 82.1 83.3 84.5 85.9 85.8
Non-OPEC Supply 52.3 53.9 53.0 53.0 54.5 55.0
Implied Call on OPEC 26.6 28.2 30.3 31.6 31.4 30.8
OPEC Oil Production 27.0 29.0 29.9 31.4 31.0 31.0

In 2008, Latin America saw growth of 0.2mnb/d over the previous year as Brazil witnessed
another year of strong performance with growth of around 130 thousand b/d. China registered
strong growth of around 96 thousand b/d in 2008. Production for the Former Soviet Union
(FSU) registered an increase of around 30 thousand b/d for 2008 over the previous year.
The forecast for Western Europe, North America, and the Middle East showed declines.
Western Europe supplies displayed the heaviest drop among the other regions in 2008 of
around 200 thousand b/d. The UK and Norway displayed declines of 120 thousand b/d and
110 thousand b/d, respectively. In North America, the heavy decline of 310 thousand b/d
in Mexico outpaced the significant growth in Canada of around 100 thousand b/d and USA
growth of around 40 thousand b/d. USA supply has suffered and is still partially affected by
the impact of hurricanes Gustav and Ike.

UAE Oil and Gas Sector

The oil gas sector in 2008 continued to contribute more than one third of total GDP output
of UAE. Despite substatntial diversification towards non-hydrocaron sector, oil & gas sector
represented about 46.7% of total export and about 77.1% of governmnet fiscal revenues in
2007. Over the past few years, oil & gas sector in UAE has witnssed sharp growth as it grew
at a CAGR of 23.9% for the period 2005-2008. Higher growth in oil & gas sector in recent
times was largely attributed to sharp run in oil prices since 2002 until August 2008. During
2008, oil and gas sector grew by 34.4% to AED351.9bn as compared to AED281.3bn in 2007
and contributed 37.9% to the total Nominal GDP against 35.9% in 2007.
Chart 17: Oil & gas sector output and its contribution to GDP
400 37.9% 40%
36.1% 35.9% 35.9%
350 31.9% 35%
300 28.6% 30%
250 25%
AED bn
200 20%
150 15%
100 10%
50 5%
0 0%
2003 2004 2005 2006 2007 2008E
Output % of GDP
Realtively higher growth in oil & gas sector in the past few years against other sector have
resulted into increase in contribution to GDP from 28.6% in 2003 to 37.9% in 2008. Oil
and gas production has been the mainstay of the UAE economy and will remain a major
revenue earner long into the future, due to the vast hydrocarbon reserves in the country.
Proven recoverable oil reserves are currently put at 98.2bn barrels or 8% of the global crude
oil proven reserves. Based on current rates of production, these reserves give the country a
production horizon of over 100 years.
Abu Dhabi leads other emirates in terms of proven oil reserve with an estimated oil reserve of
about 92.6bn barels and accounts for 94.3% of total oil reserves of UAE, followed by Dubai
with 4.0bn barels, Sharjah with 1.5bn barels and Ras Al Khaima with 0.1bn barels.
Chart 18: Oil reserve by emirates
Abu Dhabi, 94.3%
Dubai, 4.1%
Sharjah, 1.5%
Ras Al Khaimah, 0.1%
Source: Publish Media, Global Research

Abu Dhabi is the heart of UAE’s hydrocarbon and industrial power. Abu Dhabi National Oil
Company (ADNOC) is the largest state owned company, operating 17 subsidiaries and has
the right to take up to 60% share in all new major oil projects. Around 66bn barels of proven
crude oil is contained in the Zakum oil field which is the largest in the country and the third
largest in the Middle East. The UAE’s crude price is relatively expensive compared to other
Middle Eastern benchmarks due to its sweet and light composite.
Bouyancy in the oil prices in past few years, resulted into sharp growth in oil & gas revenue.
Over the period 2002-07, the oil & gas revenue of UAE grew at a CAGR of 32.8%. However
during 2007, oil revenue grew moderately by 7% to AED176.3bn against AED164.8bn in
previous year. The moderation in oil revenue was on account of production cut during the
year. Nevertheless, oil revenue in 2008 is expected to see sharp upward movement despite
staganant production on the back of higher average crude oil price in 2008.
Chart 19: Oil Revenue Trend

200,000
150,000
AED mn
100,000
50,000
0
2003 2004 2005 2006 2007
Source: CBUAE
Production…
During 2008, crude oil production grew by 2.7% to 2.6mnb/d as compared to 2.5mnb/d in
2007. Production in 2007 have declined from 2.6mnb/d in 2006. the contraction was due to
the UAE keeping in line with OPEC’s decision to cut production in early 2007 and to some
extent due to some mainatance work in the major offshore fields.
Chart 20: UAE’s Oil Production

3,000
2,500
2,000
in '000 barrels
1,500
1,000
500
0
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Minstry Of Economy, Global Research

Refining…
The refining capacity of UAE remained at 781.3 thousand b/d spread over five facilities. The
three main refineries are Ruwais, Umm Al-Nar and Jebel Ali. The largest two are Ruwais
with a capacity of 0.35 mb/d and Umm Al-Nar with a capacity of 0.15 mb/d, both owned and
operated by ADNOC.
Table 19: UAE’s Refinery Capacity

thousand b/d 2002 2003 2004 2005 2006 2007 2008
Refinery Capacity 514.8 514.3 514.3 514.3 781.3 781.3 781.3
Source: EIA, Publish Media
Expansion Projects…
UAE continues to invest heavily in developing both upstream and downstream projects
in hydrocarbon sector given the fact that hydrocarbon sector remains the major revenue
driver for the government despite heavy investments in non-hydrocarbon sector in the past
few years. Further, large part of diversification and infrastructure building are financed by
revenues generated from oil and gas production and export.
Table 20: Major oil & gas projects in UAE

Projects Scheduled Cost in US$bn
ADNOC – Sour Gas Development 2008-11 10
ADNOC – Upper Zakkum Oil Field 2008-12 8
DOLPHIN Sub-Sea Gas Pipeline 2008-13 5
TAKREER – Ruwais Refinery 2008-10 4
ADCO – SAS Oilfield Development 2007-10 3
GASCO – Gas Treatment Plant 2007-10 2
IMPEL Dubai LNG Storage Hub 2009-12 2
ADMA– Nasr Filed Development 2009-12 2
ADCO – 1.8 MMBPD – Development 2008-12 2
ZADCO – Umm Al Lulu Field 2008-12 1
IPIC - Fujairah Refinery 2010-13 1
Source: IIF, Global Research
The way ahead…
The oil prices are expected to remain volatile in 2009 and downward pressure is also expected
to continue on the back of slowdown in the global economy. However, demand for oil to
remain buoyant on the back of huge energy requirements of emerging economies like China,
India, etc. The projected fall in demand for oil from the OECD countries is expected to be
largely offset by the continued robust demand for oil from non-OECD countries, particularly
from Asian emerging economies, Latin America, and the Middle East. On the supply side,
the decline in oil prices will be limited (to the some extent) by the cuts in the oil production
by the OPEC nations.

Banking
The Banking sector in UAE until recently had been growing significantly mainly as a result of
relatively low interest rate environment, high oil prices and a flourishing economy. With high
GDP growth rates achieved in the recent past and surge in oil prices, the sector had been growing
over 30% year on year in the past five years. At the end of 2008, the total assets of UAE banks
stood at AED1,480.5bn, the largest among the GCC countries. The sector comprised of 24
national banks having aggregate branch network of 638 and 28 foreign banks having aggregate
branch network of 82. The presence of 52 banks to serve a population of 4.7mn is relatively
high which makes UAE one of the highest penetrated banking countries in the GCC.
Chart 21: Banking sector growth

60%
50%
40%
30%
20%
10%
0%
2001 2002 2003 2004 2005 2006 2007 2008
Deposits Advances Total Assets
The aggregate total assets of banks operating in UAE grew at a CAGR of 32.2% over the 2003-
08. The sharp growth during this period was largely attributed to high credit and investment
growth. At the end of 2008, the total assets of UAE banks stood at AED1,480.5bn, registering
a Y-O-Y growth of 21% over AED1,223.0bn at the end of 2007. What is noteworthy is this
growth has come on the back of strong 42.3% growth achieved at the end of 2007.
Table 21: Aggregated assets of banks in UAE

Particulars (AED mn.) 2003 2004 2005 2006 2007 Sep/08
Cash & Deposits with CB 27,283 38,515 46,987 63,415 236,852 124,576
Due from Resident Banks 15,362 17,046 29,366 34,793 44,377 51,737
Foreign Assets 111,727 126,108 175,028 231,938 196,896 223,410
Claims on Government 19,650 29,184 39,306 47,885 58,402 62,387
Claims on Official Entities 12,215 12,479 23,254 31,513 39,823 51,218
Claims on Private Sector 162,769 201,789 283,104 376,170 512,316 727,661
Claims on Other Financial Institutions 2,272 3,501 7,475 18,594 36,941 68,110
Domestic Investments 6,886 10,046 19,195 32,116 53,226 73,725
Unclassified 8,744 11,079 14,297 23,150 44,240 63,475
Total Assets 366,908 449,747 638,012 859,574 1,223,073 1,446,299
Source: CBUAE
Looking at the assets, cash and deposits with the Central Bank witnessed YTD decline of
47.4% to AED124.6bn as of Sep 2008 against AED236.9bn at the end of 2007. The decline
in cash and deposits with central bank was largely due to shortage of funds to cope up with
high credit demand in the country. This decline has come over the sharp y-o-y growth of

273.5% at the end of 2007. Foreign assets of all banks in UAE at the end of Sep-2008 stood at
AED223.4bn, registering a growth of 13.5% over AED196.9bn at the end of 2007. However,
foreign assets registered negative y-o-y growth of 15.1% in 2007. Claims on private sector
continued to exhibit high growth during the first nine months of 2008 as it recorded growth
of 42.0% to AED727.7bn as compared to AED512.3bn at the end of 2007. The same has
recorded a CAGR of 23.3% over the period of 2000-07.
On the liability side, monetary deposits continued to grow fast. During the first nine
months of 2008, it recorded growth of 28.7% to AED200.4bn over year end 2007 figure of
AED155.7bn. This high growth has come over the high growth of 58.6% in 2007 over 2006.
Quasi monetary deposits recorded modest YTD growth of 16.2% to AED446.1bn at the end
of Sep-2008 over year end 2007 figure.
Table 22: Aggregated liabilities of banks in UAE

Particulars (AED mn.) 2003 2004 2005 2006 2007 Sep/08
Monetary Deposits 44,477 65,040 86,927 98,182 155,722 200,420
Quasi-monetary Deposits 138,288 161,424 219,615 279,274 384,038 446,079
Foreign Liabilities 35,059 48,793 85,215 177,688 320,970 326,250
Government Deposits 39,418 51,274 79,179 93,680 114,579 136,761
Government Lending Funds 23 18 17 16 16 15
Due to Central bank 163 18 209 168 94 35,030
Capital and Reserves 44,455 52,463 78,132 104,089 130,882 169,995
Due to Resident Banks 17,899 19,607 29,795 38,397 46,026 54,938
Unclassified Liabilities 47,126 51,110 58,923 68,080 70,746 76,811
Total Liabilities 366,908 449,747 638,012 859,574 1,223,073 1,446,299
Source: CBUAE
Increases in the foreign borrowings of the banks in UAE have resulted in sharp rise in foreign
liabilities in the recent time. The foreign liabilities of all banks operating in UAE grew at
a CAGR of 42.7% over 2000-07. This high growth trajectory was witnessed even in 2007
as it recorded growth of 80.6% to AED321.0bn against AED177.7bn at the end of 2006.
However, during 2008, foreign liabilities of all banks registered a marginal growth of 1.6%
and reached AED326.3bn at the end of Sep-2008. The amount due to Central Bank has
witnessed sharp move in the first nine months of 2008 from just AED94mn at the end of 2007
to AED35.0bn. Due to the credit squeeze, most banks relied on borrowings from the central
bank. Further, sharp cuts in the repo rate in the recent time from the peak of 5% to current
1.0%, have insisted the banks to borrow through CDs from Central Bank.
Change in assets compositions with increasing proportion of domestic assets …
Over the past few years, the UAE banking system has witnessed increasing proportion of
domestic assets in total assets of the banks. Domestic assets of all banks operating in UAE
grew at a CAGR of 27.7% over 2000-07. On the other hand foreign assets grew at a CAGR of
11.6% over the same period. The higher growth in domestic assets in the recent years resulting
into increasing proportion of domestic assets in total assets of all banks collectively.

Chart 22: Asset composition

2000
Sep/08
Foreign Assets
33% Foreign Assets
15.4%
Domestic
Assets
84.6%
Domestic
Assets
67%
As of Sep-2008, domestic assets accounted for 84.6% of total assets of all banks against 67%
in 2000. The change in asset composition was mainly attributed to sharp growth in domestic
investments which have grown at a CAGR of 48.9% over 2000-07 and 35.3% YTD in the first
nine months of 2008. The sparkling growth in the domestic investments was primarily due to
rising activities in the local equities market, abundant private equity investment opportunities
and availability of Shariah compliant debt instruments like Sukuks. Sharp growth in domestic
credit was also contributed to increasing proportion of domestic assets in total assets.
Increases in foreign borrowings of the banks in the recent time resulted into negative net
foreign assets in 2007 and at the end of Sep-2008. However, net foreign liabilities have
declined to AED102.8bn against year end 2007 figure of AED124.1bn.
Chart 23: Net foreign assets of banks in UAE

150
100
50
AED bn
-
2000 2001 2002 2003 2004 2005 2006 2007 Sep/08
(50)
(100)
(150)
Credit growth likely to slowdown…
The sharp growth in the commercial activities, rising population, surge in banking deposits,
etc. have resulted in buoyant credit growth in past few years. Rising trade and increasing
construction activities particularly in Abu Dhabi and Dubai that was witnessed in the first
nine months coupled with the sharp growth in population and low interest rate environment
drove credit expansion. Bank credits to residents in UAE grew at a CAGR of 24.7% over
2000-07. This buoyancy continued even in 2007 and 9M-2008 as bank credit expanded by
36.6% (y-o-y) and 40.4% (YTD) respectively. The growth in credit to residents in the recent
time was attributed to credit expansion to private sector. This excessive loan growth has
increased pressure on liquidity.

Bank credit extended to non-residents also grew sharply at a CAGR of 22.6% over 2000-07.
The high growth in credit to non-residents was largely driven by loans, advances and overdrafts
which grew at CAGR of 21.4% over the same period. However, bank credit to non-residents
grew moderately by 11.6% to AED70.6bn in 2007 as compared to AED63.3bn at the end of
2006. Further, it recorded YTD decline of 1.4% to AED69.6bn at the end of Sep-2008.
Credit extended to Real Estate Mortgage Loans has grown at breath taking pace. Total credit
extended to Real Estate Mortgage Loans has grown at a CAGR of 77.1% for the period 2004-
07 and at 89.9% in 2007. At the end of Sep-2008, total credit extended to Real Estate Mortgage
Loans stood at AED118.5mn, almost doubling over AED59.8mn at the end of 2007.
Table 23: Bank credit

(AED mn.) 2003 2004 2005 2006 2007 Sep/08
Total Credit to residents 196,905 246,953 353,139 474,161 647,482 909,376
Loans, Advances and Overdrafts 180,516 228,148 327,026 433,623 575,311 770,867
Real Estate Mortgage Loans 10,472 10,604 17,224 31,016 58,859 115,744
Discounted Commercial Bills 5,917 8,201 8,889 9,522 13,312 22,765
Total Credit to Non-Residents 29,107 39,767 41,754 63,264 70,598 69,602
Loans, Advances and Overdrafts 24,722 31,270 34,538 54,188 61,166 57,144
Real Estate Mortgage Loans 114 161 294 479 946 2,706
Discounted Commercial Bills 4,271 8,336 6,922 8,597 8,486 9,752
Total Credit to Residents & Non-Residents 226,012 286,720 394,893 537,425 718,080 978,978
Source: CBUAE
Sectoral distribution of bank credit…
Buoyancy in economic activities in the recent years increased the credit requirements of
almost all sectors in the country. During the first nine months of 2008, most economic sectors
witnessed an increase in the amounts of bank credit received. Credit extended to Financial
Institutions (excl. Banks) sector witnessed highest growth in credit expansion in 9M-2008 as
it witnessed YTD growth of 84.4% to AED68.1bn.
Table 24: Bank (gross) credit to residents by Sector#

(AED mn.) 2003 2004 2005 2006 2007 Sep/08
Agriculture 830 862 955 1,403 1,664 2,391
Mining and Quarrying 2,077 2,692 3,712 5,810 8,067 12,644
Manufacturing 11,082 13,602 17,813 24,262 34,041 49,643
Electricity, Gas and Water 11,110 9,099 10,534 11,091 12,536 18,445
Construction 26,845 31,681 41,897 54,344 68,417 107,241
Trade 57,053 69,501 85,093 92,637 106,191 130,845
Transport, Storage and Comm. 6,325 6,834 10,702 19,416 21,987 24,295
Financial Institutions (Excl. Banks) 2,272 3,501 7,475 18,594 36,941 68,110
Government 19,650 29,184 39,306 47,885 58,402 62,387
Personal Loans for Business Purposes 23,965 35,519 70,458 87,979 110,343 159,259
Personal Loans for Consumption Purposes 21,443 24,069 27,256 31,257 43,457 64,934
All Others 14,254 20,409 37,938 79,483 145,436 209,181
Total 196,906 246,953 353,139 474,161 647,482 909,375
Source: CBUAE
# Ex-Inter bank lending

Personal credits which include both loans for business purpose as well as consumption purpose
and collectively account for largest pie of 24.7% in total credit expanded to AED224.2bn at
the end of Sep-2008 against AED153.8bn at 2007 end. Trade credit which occupied second
largest pie into total credit extended at the end of Sep-2008, recorded YTD increase of 23.2%
while credit extended to construction sector accounting for 11.8% of total credit to residents
grew YTD by 56.7%. Credit to government recorded YTD increase of 6.8% and as of Sep-
2008, accounted for 6.9% of total credit.
Chart 24: Bank credit by economic activities

2000 Sep 2008
Personal Loans for
Construction Trade Personal Loans for Consumption Purposes
15.7 30.4 Business Purposes 7.1%
Electricity, Gas 17.5%
& Water All Others
0.3% Transport, Storage 23.0%
& Comm. Government
Manufacturing 3.0% 6.9% Agriculture
7.0% 0.3%
Financial
Mining & Quarrying Institutions Financial
2.1% (Excl. Banks) Institutions Mining & Quarrying
1.4% (Excl. Banks) 1.4%
Government 7.5%
Agriculture 9.1%
1.2%
Personal Loans for Transport, Storage Manufacturing
Business Purposes & Comm. 5.5%
All Others 12.4% 2.7%
6.7% Personal Loans for Trade Electricity, Gas
Consumption Purposes 14.4 Construction & Water
10.6% 11.8% 2.0%
Source: CBUAE
National banks continue to dominate …
At the end of 2008, there were 52 banks in UAE. Out of this 24 were national banks and 28 foreign
banks. Though in numbers foreign banks outpaced the national banks but in terms of branches
and assets size national banks plays bigger role than foreign banks due to various regulatory
restrictions which include a 20% corporate tax rate and maximum 8 branch license limit. At the
end of 2008, national banks in UAE had 638 branches against 82 branches of foreign banks.
Chart 25: Share in total banking assets (Sep 2008)

Foreign banks,
23.1%
National banks,
76.9%
Source: CBUAE
Growing Islamic banking…
Over the periods, Islamic banks have become an increasingly important part of the UAE
system and growing rapidly along with conventional banks. A range of Shariah-compliant
products was introduced in the market and Islamic products like Ijarah and Murabaha
have become common in property transactions. The region has witnessed Islamic Sukuks
attracting large investor volumes with subscriptions exceeding planned issuance, even in

large-sized mandates. The significance of Islamic banking was further underlined as some of
the major banks started an Islamic banking wing or in some cases converted themselves into
Islamic banks. For instance, Emirates Bank International formed Emirates Islamic Bank by
converting its subsidiary, Middle East Bank into an Islamic one. New issuance of licenses
includes Abu Dhabi-based Al-Hilal bank in 2007 and Ajman bank in 2008.
Table 25: Major Islamic banks in UAE

Bank Company type
Abu Dhabi Islamic Bank Listed
Dubai Islamic Bank Listed
Sharjah Islamic Bank Listed
Emirates Islamic Bank Listed
Dubai Bank Private
Al Hilal Bank Private
Ajman Bank Private
Noor Islamic Bank Private
Source: Zawya, Global Research
Performance of UAE Banks …
The banking profitability for 2008 did not indicate severe downturn in profitability with
the aggregate profits of the 19 listed banks on ADX and DFM exchanges falling 4.2% over
2007. The UAE’s largest bank, Emirates NBD, reported net profits down 7% from 2007, at
AED3.7bn. Abu Dhabi Commercial Bank recorded a decline of 35% in its 2008 profits which
stood at AED1.4bn. Mashreq Bank saw its profits for the full year going down by 13.6%
while Dubai Islamic bank saw its profitability tumble 31.2%.
However, if we look at 2008 results alone, the true picture of the downturn is marred as most
banks reported significant jump in their profitability during the first half when oil prices touched
record highs and the GCC economies were relatively unscathed of the global gloom.
Table 26: Performance of UAE Listed Banks

Bank Total Assets Net profit y-o-y Net profit Q-o-Q
Figures in AED mn Dec-08 2008 2007 Growth 4Q-08 4Q-07 Growth
Emirates National Bank of Dubai 282,413 3,681 3,958 -7.0% 14 1,200 -98.8%
National Bank of Abu Dhabi 164,653 3,019 2,505 20.5% 492 744 -33.9%
Abu Dhabi Commercial Bank 147,728 1,358 2,085 -34.8% (262) 502 -152.1%
First Gulf Bank 107,523 3,005 2,000 50.3% 671 613 9.5%
Mashreqbank 93,243 1,643 1,901 -13.6% 124 549 -77.3%
Dubai Islamic Bank 85,030 1,730 2,513 -31.2% 1 626 -99.8%
Union National Bank 65,225 1,441 1,179 22.2% 66 338 -80.5%
Abu Dhabi Islamic Bank 51,209 851 769 10.7% 114 286 -60.0%
Commercial Bank of Dubai 35,757 771 936 -17.6% (56) 287 -119.4%
Emirates Islamic Bank 26,402 401 239 67.9% (42) 95 -144.9%
Bank of Sharjah 15,820 410 404 1.5% 69 157 -55.7%
Sharjah Islamic Bank 15,537 232 302 -23.3% (56) 130 -142.7%
National Bank of Ras Al Khaimah 13,921 636 401 58.4% 155 109 42.1%
National Bank of Fujairah 12,833 (50) 324 -115.5% (117) 95 -223.6%
Commercial Bank International 11,118 129 319 -59.5% (41) 145 -128.6%
Invest Bank 9,138 5 290 -98.4% (190) 90 -311.0%
National Bank of Umm Al Qaiwain 8,430 284 334 -15.0% 47 102 -53.6%
United Arab Bank 7,559 250 211 18.4% 68 60 13.0%
Ajman Bank 1,021 3 - - (7) - -
Total 1,154,560 19,798 20,670 -4.2% 1,051 6,128 -82.8%
Source: Company filings, Global Research

The real impact is witnessed when we look at the fourth quarter profitability of these banks
when the difficult global economic environment had a negative impact, although the severity
of the impact was varied across the sector. The total profitability in the fourth quarter was
down by 82.8% over the corresponding figure of 2007 with most banks booking significant
loses. With the exception of First Gulf Bank, National Bank of Ras Al Khaimah and United
Arab Bank, the fourth quarter profitability of all banks took a sever beating. Emirates NBD,
which recorded a profit of AED1.2bn in 4Q-07 saw its 4Q-08 profits coming down to
AED14.0mn, a decline of 98.8% over 4Q-07 figures. Abu Dhabi Commercial Bank recorded
a loss of AED262mn against AED502mn profits achieved in 4Q-07.
Federal Support to Replenish and Guarantee Deposits
Some of the measure taken by the Federal Government to restore confidence and bring
stability to the woes of the banking sector were:
September FY08 - AED50 billion enhanced liquidity facility in which banks are allowed
to borrow funds up to the Cash Reserve Requirement (CRR), i.e. 14% on current, savings
and call deposits and 1% of time deposits at 3%; however, banks seeking to avail funding in
excess of the CRR would be charged 4.5%.
November FY08 – The Ministry of Finance (MoF) announced that it would provide an
additional AED70 billion to local banks as deposits on top of the already existing emergency
liquidity facility. The first tranche (AED 50 billion) of the facility has been placed in the
form of 3-5 year deposits as per their respective share of system assets. The deposits are
payable in lump sum on maturity and carry an interest rate of US Treasury 5 year notes plus
120 bps or 4%, whichever is higher. Apart from these, the government also announced that it
will provide a 3-year guarantee on all deposits and savings in all banks operating in the UAE,
including guarantees on interbank loans.
December FY08 – Introduction of the Dirham/Dollar Swap facility and the announcement that
banks operating in the country had used AED3.7bon under this facility. Simultaneously, in an
effort to shore up their liquidity, commercial banks also rapidly withdrew their Certificates of
Deposits with the CBUAE which as of 2008 recorded AED47bn, a decline of 73%, compared
to AED174bn at the end of 2007.
February FY09 – The Government of Abu Dhabi, with the intention of strengthening
the balance sheet of banks, announced that it will subscribe to AED16.0bn worth of non-
convertible Tier 1 notes for 5 Abu Dhabi banks. The notes will bear interest at a rate of 6%
per annum payable semi-annually in arrear from (and including) the issue date for a period
of five years, and thereafter at a floating rate, reset and payable semi-annually in arrear,
reflecting the initial margin. The notes are non-voting, non-cumulative perpetual securities,
and are callable subject to certain conditions.
March FY09 – Allowing banks convert their share of the AED70bn federal government
deposits into regulatory capital in a bid to improve regulatory capital ratios.

The way ahead…
Severe liquidity crunch, plummeting equity markets, eroding property valuations, rising
NPLs and that too amidst low oil prices coupled with production cuts are problems that will
brutally undermine the asset growth trajectory of the banks in the UAE. As a result, for 2009,
UAE is likely to face a very challenging economic environment, as the effects of lower oil
prices and the global financial crisis take its toll.
During FY09 we expect the banking sector to witness negative earnings growth in addition
to a sharp contraction in loan growth, relative to what has been achieved over the past couple
of years. Funding pressures for the sector is likely to continue, on the back of both aggregate
deposit growth failing to keep pace with loan disbursements.

Infrastructure
Infrastructure development across the GCC will have to increase to keep pace with the
growing population. Historically, GCC countries have underinvested in the development of
their infrastructure – between 1998 and 2007, 20% of GCC’s combined GDP was invested in
the economy, as compared to 39% and 30% in China and South Korea, respectively. In recent
years, however, the GCC countries have increased their investments. The oil surplus has been
put to good use by building the infrastructure in entire GCC region and almost all countries
in GCC region diverted their substantial oil windfalls towards this cause.
Over the last decade, UAE has witnessed sharp growth in infrastructure development and
created world class infrastructure in the country. Oil boom in the recent time has led to an
increase in government spending on infrastructure development in UAE.
These developments are particularly evident in the larger emirates of Abu Dhabi and Dubai.
However, governments in the northern emirates are rapidly following suit, providing major
incentives for developers of residential and commercial property. In addition, UAE President
Sheikh Khalifa bin Zayed Al Nahyan has allocated AED16bn for infrastructure projects in the
northern emirates. The allocation will be used to fund the construction of road networks, new
housing communities, drainage networks and other projects, providing integrated solutions
to some infrastructure deficits in these areas.
However, the current global turmoil has impacted the development activity with many projects
in real estate and infrastructural development either being stalled or activity reduced. According
to Proleads, a Dubai based market research firm, 52.8% of the total current civil construction
project portfolio of the UAE (much of which is in the real estate) worth a combined total
US$582bn is put on hold while a further US$698bn remains in operation. The research firm also
stated that the number of project cancellations continues to rise, with a risk that the relatively
untouched infrastructure sector could be affected by the downturn in other sectors.
Considering the tight liquidity, spending on infrastructure is coming from the public sector
which remains buoyant on the back of economic stimulus packages, which have been
strengthened by government surpluses accumulated during the period of high oil prices. The
federal government in its budget for 2009, late last year allocated US$11.5bn, a 24% increase
in infrastructure spending versus 2008.
The infrastructure development activity in Abu Dhabi has not been impacted much. The emirate
will witness major infrastructure projects in coming years and expected to see investments
worth over US$200bn over the next five to six years. Abu Dhabi Planning Commission
has led down comprehensive urban development plan called “Abu Dhabi 2030”. This plan
is designed to help Abu Dhabi filter and respond to current and future development needs,
establish a planning culture and introduce strong guiding principles for new development.
Abu Dhabi too is seeking to alleviate the effects of the global financial crisis through increased
public spending, manifested by an overhaul of the entire transportation system.
Dubai too has unveiled plans to augment its economic growth by allocating 42% more money
for building more capacities in its infrastructure, transport, social services related projects
in order to keep the economy on fast track. Infrastructure spending alone will see a 33%

increase over 2008, with 45% of the overall budget allocated to road and transportation,
Dubai municipality, and port projects.
The emirate has embarked on vast infrastructure expansion in transport capacity during
the year to consolidate its position as the region’s aviation hub. Along with the continued
development of the Al Maktoum International Airport, part of a US$120bn project to make
the emirate a centre of air travel and aviation services, Dubai firms placed some of the world’s
biggest orders for new aircraft in 2008. Dubai Aerospace Enterprise Capital, the leasing and
financing arm of state-owned Dubai Aerospace Enterprise (DAE), placed an order to buy 100
Airbus aircraft in a deal worth US$13bn in July-2008. Meanwhile, in the same month, new
low cost carrier FlyDubai, which is scheduled to take to the skies by June-2009, placed orders
worth more than US$3.74bn with manufacturer Boeing for 50 Next-Generation 737-800s.
Many other projects have already been launched. The Department of Transport (DOT) has
drawn up a shortlist of contractors to develop a 325km-long highway that will cross the
Western Region and link Mafraq with Ghweifat near the Saudi Arabian border. According
to officials, the project is in the pre-qualification stage and the tendering process will be
launched soon. Construction is scheduled to begin by the end of 2009 at an estimated cost of
around US$2.5bn.
The US$2.5bn Khalifa Port and Industrial Zone development too is currently under way. The
new port will have an initial capacity of 2m TEUs (Twenty-foot Equivalent Units) that will
gradually be expanded to reach 6m TEUs. Khalifa Port will eventually absorb all of Mina
Zayed’s operations in 2010, with the capacity to manage an expected growth in imports and
exports in the longer term.
At the same time work on Dubai Metro is taking place around-the-clock with the project
on schedule. Major construction work is going on as per schedule on the 52.1-km Red Line
between Jebel Ali Port and Al Rashidiya. Progress is also visible in the construction of the
44.1 km of elevated track as well as on the 12.6 km of track that will run underground, 300m
of which will be under the Creek, and partially start services by September 2009.
Abu Dhabi airport too is undertaking a massive expansion project. In January 2009, it
announced a short-list of contractors considered for the US$6.8bn Midfield Terminal
expansion. The first phase of the project calls for a 220,000 sq meter terminal which will
accommodate 20m passengers per year (up from 12m currently). Ultimately, it aims to handle
50m passengers and 2m tonnes of cargo a year.
Among many ambitious plans to overhaul the sector, the Abu Dhabi Surface Transport
Master Plan, which is set to be finalized in the second quarter of 2009, studies the possibility
of building two metro lines in Abu Dhabi. The first would link Saadiyat Island and Al Mina,
and pass through Central Station and Airport Road to the Grand Mosque district, Capital
district, and Raha Beach. The other line would cross the downtown area, connecting Al Reem
and Al Suwwah to Central Station and the Marina Mall area. According to the local press, the
entire system, if implemented, would be operational by 2016.
Finally, plans for a national railway are underway after members of the Federal National
Council urged the Ministry of Public Works to fast-track the project. The 537km regional

railway will significantly reduce traffic on the heavily congested roads connecting the emirate.
It will ultimately unite with a trans-GCC network that will connect all six member-states. The
first phase of the UAE’s rail network would see a double track railway built from Ruwais in
Abu Dhabi to Fujairah. Eventually, there would be about 900km of track running from the
coast to the Saudi border. The regional mega-project is estimated at around US$14bn, and the
first stage of construction, is expected to be completed by 2016.
The way ahead…
UAE remain in a financially strong position, despite lower oil prices, as a result of the
substantial liquidity they have amassed over the past five years of oil run. The government
is likely to maintain their investment budgets at high levels, particularly for core long term
infrastructure projects to rekindle growth. As such, the global turmoil would not affect UAE’s
infrastructure project much as the large number of mega projects are government backed.
The government has pledged to reinforce public expenditure which will help accelerate the
recovery of the UAE economy and see that the economic momentum does not get much
impacted by the global economic slump.

Real Estate
For the past five years, the GCC region enjoyed an unprecedented property boom.
Construction projects planned or under development in the GCC have crossed the US$ 1
trillion mark, and around two thirds of these mega projects are concentrated in the UAE. The
real estate sector in UAE has been shooting up by double digit growth rates on a year on year
basis and contributing around 15% to the country’s GDP. Each day, a new state-of-the art
project was advertised, be it a man-made island or another skyscraper. With all these projects
announcements, there was a lot of debate on when the construction bubble would burst, or to
put it more simply when the market would correct.
Table 27: Real Estate contribution to GDP

(AED mn) 2005 2006 2007
GDP at market prices 513,089 624,623 729,732
GDP Growth 21.7% 16.8%
Construction, Real Estate and business services 72,178 93,609 114,107
Contribution to GDP 14.1% 15.0% 15.6%
Source: CBUAE
A lot of controversy emerged recently regarding a possible correction and an oversupply

situation in the real estate market, especially in Dubai, which is witnessing most of the
activity. There were a lot of predictions of price stabilization or possibly a correction once
the new supply come on stream by 2009-2010. However, the correction started in 2008 and
the reason was not an oversupply. After five years of unrelenting growth, the global financial
crisis has casts its shadows over the much debatable UAE property sector. For the first time
in years, the UAE property market is slowing down as credit tightens, projects are scaled
down, jobs are cut, and prices fall following the global credit crunch of September 2008.
Real Estate Financing
Total credit extended to the real estate sector has been growing at a double digit growth rate.
The latest published figures revealed that real estate mortgage loans stood at AED87.5bn in
June 2008 growing by 49% compared to AED58.8bn at the end of 2007. However, the recent
credit crunch forced UAE banks and lending institutions to toughen their lending criteria.
HSBC lowered its loan to value ratio to 70%, down from 85%. Lloyds TSB has stopped loans
for purchase of apartments and dropped its loan to value ratio on villas in the UAE to 50%.
Table 28: Credit to Real Estate Sector

( AED mn) 2004 2005 2006 2007 Sep-08
Total Credit 246,953 353,139 474,161 647,482 909,376
Real Estate Mortgage Loans 10,604 17,224 31,016 58,859 115,744
Share of Mortgage Loans to Total Credit 4% 5% 7% 9% 13%
Credit to Construction Sector 31,681 41,897 54,344 68,417 107,241
Share of Construction Sector Loans to Total Credit 13% 12% 11% 11% 12%
Source: CBUAE
Responding to the liquidity situation, the UAE government has been proactive in introducing
policies aimed at regulating and stabilizing the market and restoring investors’ confidence,

most important of which was the decision taken by the UAE central bank in October 2008 to
pump AED120bn into the banking system, which we believe is a positive step for both the
lending and construction sector as it proves the government’s support and gives confidence
to investors. In a similar move, the government promised to guarantee bank deposits and
protect national banks from credit risks. The decision to guarantee bank deposits will last for
three years and also cover foreign banks with core operations in the country.
In another unprecedented development aimed at easing market conditions, the UAE

government merged Amlak and Tamweel, the country’s two largest mortgage providers. The
government will provide funds to support the new real-estate finance company formed by
the merger of the two Dubai mortgage lenders Amlak Finance and Tamweel and two Abu
Dhabi-based banks - Real Estate Bank and Emirates Industrial Bank, to form a combined
entity called Emirates Development Bank. Amlak and Tamweel will be supported by new
federal government funding channeled through the Real Estate Bank. Both Amlak Finance
and Tamweel had been trying to get a banking license. However as they could not get the
banking license and thus channelize retail deposits, funding was getting costlier for them
and the severe credit crunch has just added to the problem which negatively impacted both
companies. Due to this, we believe the merger proposed by the government is a sensible
step as this will create a stronger entity which will function. We expect to witness more
consolidations going forward in the sector.
Similarly, in an effort to ease the liquidity squeeze, Abu Dhabi launched a government-backed
lender, Abu Dhabi Finance, which is an AED500mn joint venture between the emirate’s Abu
Dhabi Commercial Bank, Aldar, Mubadala Development Co., Sorouh Real Estate and the
Tourism Development & Investment Co. The new JV announced that it will offer mortgages
with loan-to-value ratios as high as 85% and debt service ratios of up to 55%.
Recent Real Estate Regulations
The Dubai lands department and the Real Estate Regulatory Agency (RERA) introduced new
measures aimed at reducing the degree of speculation and stabilizing the market. We believe
there will be more measures to follow, which will restore investors’ confidence in the market.
Among the new measures introduced:
• The Law No 13 of 2008 regulating ‘Initial Property Registration in Dubai’ from the Real
Estate Regulatory Agency (RERA), which is a mandatory system of pre-registration for
off-plan sales contracts for real estate units at the Land Department.
• The Land Department had recently issued a circular entailing that in the case of cancelling
a contract between the purchaser and the developer, the developer may retain up to 30%
of the “contract’s value”, or the unit’s purchase price. This means that off-plan buyers
wishing to cancel purchases will have to obtain a cancellation notification from the
developer and forfeit 30% of the total value of the unit.
• The previous 5% cap imposed on rents in Dubai was removed, and Decree No.1 for
2009 was introduced to govern rentals in Dubai. The new decree, which applies to both
residential and non-residential properties, prevents increases in rents during 2009 for
tenants who are renewing rental contracts signed in 2008 - as long as the rent value in

2008 was equal to or lower by a maximum of 25% than the average rents in the recently
introduced index of RERA.
Significant Market Drivers
Boom Time 2009
• Oil prices crossing the US$100 per barrel • Oil prices hovering around US$50 per barrel
mark
• Economic boom with real GDP growing at a • Economic slowdown with an estimated real
CAGR of 8.1% during 2003-2007 GDP growth rate of -0.5% in 2009
• High influx of expatriates leading to a steady • Lay-offs and business activity scale down
growth in population by more than 7% in the leading to a decline in expatriates, and slower
last five years population growth
• Availability of cheap funding. Banks increasing • Restricted lending. Banks lowering their Loan
their Loan to Value ratio up to 95%. to Value ratios to 50% in some cases
Source: Global Research
Sector Performance & Outlook
Tighter credit markets and the negative sentiment among investors following the credit
crunch have pressure the market. According to Mazaya, the general price index for real
estate transactions executed in the UAE during the month of October 2008 fell by 13.3%
on a monthly basis, compared to a decline of 6.9% during the month of September 2008.
The volume of sales also declined by 35.3% during the month of October compared to the
previous month, while the value index declined by 42.3% affected by both the decline in
demand and the fall in prices. However, there were variations in trends across different
segments and different Emirates.
Table 29: UAE Real Estate Index

Price Index Value Index Quantity Index
Oct, 2008 1,537.7 -13.3% 37,023.8 -42.3% 20,734.9 -35.3%
Sep, 2008 1,773.2 -6.9% 64,197.6 18.2% 32,066.1 25.9%
Aug, 2008 1,904.6 -0.5% 54,322.8 -26.0% 25,474.7 -25.6%
Jul, 2008 1,913.6 3.4% 73,379.6 -16.2% 34,228.3 -18.6%
Source: Mazaya Real Estate Index
Dubai
Residential Segment
Dubai, which has been traditionally known as a main business hub in the Middle East region,
attracted lots of expatriates. Sales and rental prices have thus appreciated by double digit
growth rates during the past five years. According to a recent report published by real estate
consultancy Colliers International, Dubai witnessed a y-o-y growth of 80% in the overall
residential properties prices in Q3 2008, compared to Q3 2007. However, since the start

of Q4 2008, we witnessed a slowdown in growth in line with the recent developments in

global markets and the credit crunch. Despite the decline witnessed in Q4 2008, the increase
in the first three quarters resulted in an average growth of 6% in apartment prices in 2008,
according to a recent report published by Asteco property consultants. However, the degree
of decline varied across different developments. Projects which were launched originally at
high price levels were affected the most, whereas more affordable housing projects were less
affected. Downtown Burj Dubai apartment prices have decreased from AED3,750 per sqft in
Q3 2008 to AED2,700 per sqft in Q4 2008 recording a 28% decline. Dubai Marina rates have
also declined by 18%, from AED2,200 per sqft to AED1,800 per sqft in Q4 2008.
Chart 26: Average Apartment Sales Prices (Q1-Q4 2008)

4,000 20%
3,500
3,000 15%
A E D /s q ft
2,500 10%
2,000
1,500 5%
1,000
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Q1 Q2 Q3 Q4 Average Growth Rate

Source: Asteco
The Villa segment on the other hand fared better than the apartment segment with an average
growth of 13% in 2008, also with varying trends across different developments. Concerning
the freehold market, it is important to distinguish between sales of finished or nearly completed
properties, off-plan sales and the sales in the secondary market. It has been reported that
prices of off-plan sales and sales in the secondary market have been hit the most. However,
it all depends on the location. Projects that were announced in 2008, and launched outside
the CBD radius (5 km radius from Burj Dubai) have been affected the most. Properties in
the secondary market have fallen as deep as 40%. Luxury villas on the Palm, for example,
were reduced to AED13.5mn from AED24mn in 2007. It is important to note, however, that
these Villas were originally priced at AED5mn, which means that they are still sold with
good profit margins, though not like those achieved earlier, which sometimes reached 300%.
Prices of finished properties such as Arabian Ranches or those near completion, such as
Jumeirah Village on the other hand, declined by 15 to 25% on a y-o-y basis in 2008.
Looking ahead in 2009, we expect to see further price correction for freehold properties in the
range of 15% to 30%. However, completed or nearly completed projects in prime locations
will fare better than other projects.

Table 30: Villa Sales Price in Q4 2008

Development Completion BR Area (Sqft) Price (AED) Price/sqft (AED)
Arabian Ranches Completed 2 2,219 3,744,000 1,687
Jumeirah Village Jan’2009 3 2,523 2,742,183 1,087
Jumeirah Village Apr’2009 2 2,691 3,601,400 1,338
Jumeirah Village Mar’2010 4 4,896 4,712,694 963
Jumeirah Park Apr’2010 3 5,490 4,879,936 889
Jumeirah Park Mar’2009 3 7,276 5,616,000 772
Jumeirah Park Dec’2010 3 6,679 5,627,924 843
Jumeirah Island Completed 4 5,230 9,453,600 1,808
Dubailand Jun’2010 3 2,534 2,475,327 977
Dubailand Completed 2 1,785 3,308,494 1,853
Dubailand May’2011 2 1,887 3,911,295 2,073
Source: Freehold Weekly
As for the rental market, after years of double digit growth rates, the rental market in Dubai
has started to cool-off in 2008. Rents for apartments and villas have been stabilizing with
average annual growth rates of 4% and 8% respectively in 2008. The global financial crisis
had little effect on the rental market which was almost stable in Q4 2008. Nevertheless, the
stiff credit conditions, and the shortage in mortgage financing have forced many potential
buyers to turn into the lease market. Unlike the freehold market which witnessed a lot of
speculative activity in recent years, the rental market is more demand driven.
Chart 27: Annual Rental Range in 2008

AED
50,000 200,000 350,000 500,000 650,000 800,000 950,000
1 BR Apartment
2 BR Apartment
3 BR Apartment
3 BR Villa
4 BR Villa
5 BR Villa
Source: Asteco, Global Research
Likewise, we expect rents in Dubai to decline in 2009 due to the lack of demand in line with
the economic slowdown that forced many Dubai firms to downsize or halt their expansion
plans which will likely result in a decline in the number of expatriates in Dubai who form
around 90% of the emirate’s population. However, we expect rental rates to be more resilient
to the downturn than the prices of freehold properties. As mentioned earlier, the rental market
is more demand driven, and although demand is likely to slowdown in the short term owing
to slower population growth, there are many potential buyers who have recently turned into
the rental market in the absence of liquidity. The lack of funding also had a positive impact
on the rental market as landlords relaxed their payment terms, allowing tenants to pay up to
12 cheques per year instead of two to three cheques.

On the supply side, we expect lot of projects to be delayed or cancelled in the current market
conditions, which will add to the shortage of supply. According to the Director-General of
the Dubai Department of Finance, there have been statements claiming 70,000 residential
units would be offered in 2008. However, that figure might fall to 28,000 due to operational
delays at some contractors. In 2009, the number of new units will not exceed 32,000. On the
other hand, there has been a significant decline in the volume of transactions in the secondary
market due to the lack of interested buyers and the lack of liquidity. Accordingly, we expect
buyers who originally bought properties for the purpose of flipping to start offering them
for rent. There is a lot of opposing supply-demand forces at play in Dubai’s rental market.
However, we expect the demand to fall at a higher pace than supply. Accordingly, we expect
rents to decline by 15% to 25% in 2009.
Office Segment
Dubai’s office market has been growing at double digit growth rates since the start of the
property boom, driven by the economic boom and the influx of foreign business into the
country. Vacancy rates in Dubai office market did not exceed 2%, reflecting the demand-
supply gap in the market. Deira has been Dubai’s traditional business district, including
Bur Dubai and master developments along the Sheikh Zayed Road. However, the recent
establishment of economic free zones such as Dubai International Financial Center, Dubai
Media City, and Downtown Jebel Ali has gradually fragmented the office space in Dubai
away from Deira. Up to Q3 2008, prices and rents were escalating in Dubai’s office market.
According to Asteco, sales prices in economic free zones such as Dubai Silicon Oasis
and Downtown Jebel Ali grew by 33% in Q3 2008 on q-o-q basis. Office sales prices in
Dubai ranged from AED1,100 to AED8,000 per sqft with an average of AED2,500 during
2008. During Q4 2008, office price sales did not experience the sharp correction witnessed
in residential property prices. The average growth in office sales prices in 2008 was 10%
according to Asteco.
Chart 28: Average Office Sales Prices (Q1-Q4 2008)

8,000 16%
7,000 14%
6,000 12%
5,000 10%
A E D /s ft
8%
4,000
6%
3,000 4%
2,000 2%
1,000 0%
- i li rk s rs
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Source: Asteco
Rentals rates on the other hand have been subject to an approximate increase of 10% on a
q-o-q basis with Deira reporting the highest increase of 40% growth in Q3 2008 due to high
demand, shortage of space and its proximity to the upcoming Dubai Metro. However in Q4

2008, there was a dramatic shift in the market in light of the recent credit crunch and the
global economic slowdown which forced many businesses in Dubai to either downsize or
put a hold on their expansion plans in the current market conditions. According to Asteco,
Dubai office rents have dropped by 11%-16% in the last quarter of 2008. The free zone
developments Sheikh Zayed Road, Bur Dubai, and Deira business district were the mostly
affected. Office rentals at Jumeirah Lake Towers dropped by 16% in Q4 2008 on a q-o-q
basis, while Dubai Media City and Deira fell by 11% and 14% respectively. The overall
average growth for office rental rates in 2008 however was a positive 4%.
Chart 29: Average Office Rents (Q1-Q4 2008)

600 9%
500 8%
7%
400 6%
A E D sq ft
300 5%
4%
200 3%
100 2%
1%
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Source: Asteco
We expect further correction in office rents in the range of 10% to 25% as businesses
downsize and hold their expansion plans. However, the long term outlook for the office
market in Dubai remains positive, given the current shortage of supply, especially in Primary
grade office. In addition, project delays will add to the shortage of supply.
Retail Segment
The successful marketing of Dubai as a global leisure and shopping destination had its impact
on Dubai’s retail scene. The retail sector in Dubai has been buoyant with shopping malls
annual rents averaging US$1,200 per sqm, and increasing to an average of US$1,800 in
premium retail destinations such as Mall of the Emirates, Dubai Festival City and Burjuman,
according to Colliers. The recent addition to Dubai’s retail’s scene was Dubai Mall, which
opened in 2008 with a total GLA of 344,000 sqm. Another large scale development which is
scheduled to launch in 2010 is Mall of Arabia (Phase 1), which will add an additional GLA
of 400,000 sqm.
We expect the forthcoming retail supply which will likely hit the market in 2009, and 2010
to result in an oversupply situation which will likely push rental rates downwards in 2009,
coupled with the general global economic slowdown which will likely lead to a decline in
footfall and spending.

Table 31: Major New Retail Developments in Dubai

Project Year GLA (sqm)
The Dubai Mall 2008 344,000
The Walk (JBR) 2008 71,500
Oasis Mall 2008 60,000
Mirdiff City Center 2009 183,000
Dubai Marina Mall 2009 77,000
Mall of Arabia (Phase 1) 2010 400,000
Source: Colliers International
Hospitality Segment
Dubai has emerged in recent years as a major tourist destination. The number of hotels
sprouting across Dubai has been increasing over the years. However, the recent global financial
crisis seems to have had its toll on the booming market. According to recent data published
by Dubai’s Department of Tourism and Commerce Marketing (DTCM), though the number
of visitors to Dubai increased by 3% to 1.79 million visitors during Q3 2008 compared to
the same period in 2007, occupancy levels at hotels dropped to 73% from 85%, indicating a
14% drop compared to the same period in 2007. Hotel apartments occupancy also declined
to 76% in Q3 2008 compared to 86% in 2007, a decline of 11%. According to Colliers, the
hotel room supply is expected to reach 50,280 rooms in 2010 as opposed to 29,280 rooms at
the end of 2008. Looking ahead, the expected increase in hotel rooms coupled with the global
economic slowdown is expected to lead to further declines in occupancy rates.
Chart 30: Dubai Room Supply

60,000
50,000
N um ber of R oom s
40,000
30,000
20,000
10,000
-
2005 2006 2007 2008 2009 2010
Abu Dhabi
Residential Segment
Unlike its neighbor Dubai, the real estate market in the capital and richest emirate of the UAE
has been less affected by the global financial crisis. Unlike Dubai which has been experiencing
a real estate boom since 2002, the real estate market in Abu Dhabi is somewhat in a different
stage of the real estate cycle, and still lags behind Dubai. The residential market in Abu Dhabi is
deeply undersupplied, with a population of 930,000 at the end of 2007, and only 180,000 units
available as estimated by the Urban Planning Council at the end of 2007. According to Colliers

the supply of residential units is expected to increase by 213,000 by 2010. An additional 140,000
units are expected between 2011 and 2013 following the completion of residential components
within Al Raha Beach and Al Reem Island mega projects. According to Colliers, vacancy rates
in Abu Dhabi’s residential market have dropped from an average of 2.5% to less than 1%.
Property sales prices have grown by 89% between Q4 2007 and Q4 2008, on the back of
sales of properties in premium developments such as Al Raha Beach, which witnessed an
average price increase of 130% since its launch. Rents on the other hand witnessed the
highest y-o-y increase since 2001, growing by 65% between Q4 2007 and Q4 2008, despite
the revision of the rental cap imposed in Abu Dhabi from the 7% cap introduced in 2007 to
5% in 2008, as landlords were revising their asking rents. According to Asteco, The annual
apartment rental rates in Q3 2008 have ranged between AED80,000 to AED170,000 for
one bedroom apartments, from AED120,000 to AED250,000 for two bedroom apartments,
and from AED140,000 to AED350,000 for three bedroom apartments. In Q4 2008, rental
rates in Abu Dhabi increased slightly by 1% on a q-o-q basis for one and two bedroom
apartments, while rents for three bedroom apartments were stable. Rental rates for villas in
Abu Dhabi continued to increase in Q4 2008. The average annual rental rates for villas in
Abu Dhabi is AED375,000 for three bedroom villas, AED445,000 for four bedroom villas,
and AED535,000 for five bedroom villas. With the addition of new residential units to the
market, we expect the residential market in Abu Dhabi to stabilize with the new supply
coming from mega projects such as Al Reem Island and Al Raha beach in 2009.
Chart 31: Average Annual Rents in 2008

600,000
500,000
400,000
AED
300,000
200,000
100,000
-
lla
lla
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rtm
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BR
BR
BR
pa
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A
A
BR
BR
BR
1
Average Annual Rent

Source: Asteco, Global Research
Office Segment
The office market in Abu Dhabi is undersupplied especially primary office space. Office
rental rates have appreciated by 14% between Q4 2007 and Q4 2008 according to Colliers
international, with vacancy rates of almost 1%. Rents in the Central Business District ranged
from AED2,500 to AED4,000 per sqm in Q4 2008. According to Colliers, the upcoming
supply between Q4 2008 and Q4 2010 will be concentrated in Abu Dhabi Island, and then
will be gradually fragmented to different locations including ADNEC Capital Center, Al
Raha Beach, and Al Reem Island. According to Asteco, the office segment has witnessed an
increase of 11% in prices in Q4 2008.

Chart 32: Average Annual Office Rent in 2008

3,500
3,000
2,500
2,000
A E D /s q m
1,500
1,000
500
0
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Source: Colliers International, Global Research
We do not foresee any decline in Abu Dhabi’s office rental rates in the medium term.
However, a slowdown in the rate of growth is expected due to the lack of demand in line with
current financial crisis and the slowdown of economic activity.
Retail Segment
Unlike its neighbor Dubai, which turned into a major shopping destination, the Abu Dhabi retail
market is mainly driven by Abu Dhabi residents and not tourist inflows. The launch of Marina
Mall, and Abu Dhabi Mall in 2001, introduced in Abu Dhabi the concept of mega-malls based
on international retail standards. Shopping mall supply in Abu Dhabi is expected to increase from
the current GLA of 820,000 sqm to 1.4mn sqm by 2010 according to Colliers. According to Plan
Abu Dhabi 2030, retail space in Abu Dhabi will spread across the city evenly, with the existing
downtown, Al Reem Island, Capital District, Sadaiyat Island, and Al Yas Island being key retail
areas. During 2008, the average annual retail rental rate in Abu Dhabi was US$950 per sqm, and
increased to an average of US$1,500 in premium retail destinations such as Marina Mall, Abu
Dhabi Mall, and Al Wahda Mall. Given the lack of supply, we do not foresee a softening in rental
rates in Abu Dhabi’s retail market in the short term until new space is delivered in 2010.
Table 32: Major New Retail Developments in Abu Dhabi

Project Year GLA (sqm)
Marina Mall (Phase 3) 2008 39,000
Central Market 2008 60,000
Al Jaber Mall 2008 20,000
MBZ City Mall 2009 23,200
Rotana Khalifa Park 2009 11,000
Darwish Island City 2010 70,000
Al Reem Mall 2010 130,000

Hospitality Segment
Unlike Dubai, Leisure tourism is an emerging sector in Abu Dhabi as the majority of Abu
Dhabi’s demand is from business-based tourism. Corporate visitors account for around 75%
of total visitors to the Emirate. However, the Abu Dhabi Tourism Authority (ADTA) is
planning to increase the share of Abu Dhabi leisure tourism to 40% by 2015. Currently, there
is a high demand for hotels in Abu Dhabi. Occupancy rates have been in the range of 85-90%
in 2008. Abu Dhabi Tourism Authority expects another 4,000 hotel in the emirate by the end
of 2009, bringing total room capacity to over 17,000 rooms. ADTA expects an increase in
demand of over 3mn hotel guests in 2013.
Chart 33: Abu Dhabi Room Supply

20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
-
2007 2008 2009 2010
We believe that the outlook for Abu Dhabi is positive considering the ADTA international
marketing campaign which focuses on leisure tourism. There are a number of projects in the
pipeline that will support ADTA’s target such as the Formula one race track, the Ferrari Theme
Park, and the cultural district on Sadiyat Island which will house the Louvre Museum.
Northern Emirates
In Northern Emirates, residential rents have been increasing by 11%, and 10% in Q2 2008,
and Q3 2008 respectively, and stabilized in Q4 2008 with a 3% average growth according to
Asteco. Ras Al Khaimah reported the highest growth in rental rates, with an average growth
of 12%. Ras Al Khaimah has been experiencing a construction boom triggered by the activity
in the tourism and the hospitality sector. Sharjah and Ajman have been attracting low and
middle income expatriates working in Dubai for its relatively lower rents.
Apartment rental rates in Sharjah and Ajman peaked during 9M-08 but remained constant
during Q4 2008 resulting in an average growth rate of 6% for 2008. Fujairah and Um Al
Quwain have seen rental rates increase triggered by the construction activity and businesses
in free trade zones. We believe that among these emirates Ras Al Khaimah will be the best
performer. The Emirate has been long known as a second home and resort destination.

Chart 34: Annual Apartment Rents in 2008 (Q1-Q4 2008)

60,000 14%
50,000 12%
10%
40,000
AED
8%
30,000
6%
20,000
4%
10,000 2%
- 0%
Sharjah Ajman Umm Al Fujairah Ras Al
Quwain Khaimah
Source: Astesco
Outlook
The UAE property boom was fuelled to an extent by speculators who helped inflate property
prices to skyrocketing levels through purchasing the property off-plan with minimum down
payments, and then flipping it within a short period of time in order to achieve higher returns.
Those speculators, encouraged by cheap and available liquidity, drove the prices of off-plan
or un-built properties to the levels of completed properties or properties near completion.
Now the tables have turned, and off-plan sales which used to witness the largest hikes are
also the ones who are experiencing the greatest hit.
It is worth noting that the magnitude of the effect of the credit crunch on the UAE property market
has been more severe with off-plan sales, partly since the same speculators who were rushing
to enter the market are now rushing to get out and are driving off-plan sale prices down, a trend
known as “Panic Selling”. We expect panic selling to continue to drive prices down. However,
the prices of projects towards completion are not expected to witness sharp drops as those seen in
off-plan sales. As mentioned earlier, the trends will be different across the Emirates. The outlook
for Abu Dhabi property market remains stronger than Dubai. Unlike Dubai, the property market
in Abu Dhabi and other emirates seems to be more resilient to the downturn.
Emirate Segment 2009-2010 Outlook
Dubai Residential Ú
Dubai Office Ú
Dubai Retail Ú
Dubai Hospitality Ú
Abu Dhabi Residential Û
Abu Dhabi Office Ò
Abu Dhabi Retail Ò
Abu Dhabi Hospitality Ò
Source: Global Research
Given the lack of financing in light of the recent global financial crisis, we expect the
slowdown in the market to continue in the short term in line with the economic slowdown
which will result in project cancellations or delays. Also, massive layoffs and the freeze in

business activity will likely to result in lower expatriate population growth and therefore
lower demand on both residential and commercial properties. Developers who will weather
the storm are those with solid branding, good track record, and available financing.
On the upside, project cancellation and delays will increase the pent up demand as supply
is delayed. Nevertheless, market correction will allow buyers who were previously deterred
by high prices, to enter the market at more affordable prices. Accordingly, going forward,
we expect the UAE property market to be dominated with end users rather than speculators,
especially with the government’s commitment to introduce legislations regulating the
market.
We expect the government to continue supporting the market, and inject liquidity when
needed. Therefore, we believe that despite the recent downturn in the market, the outlook is
still positive in the long term supported by strong fundamentals, and proactive government
policies which will drive away speculators and stabilize the market. Once the market
stabilizes, opportunities will arise for investors with long term perspectives who are willing
to pay higher down payments and settle for lower returns than those achieved in the boom
period.

Manufacturing sector
Diversification of the economy away from oil has led to rapid industrial development in
UAE. Good infrastructure, low labor and energy costs, favorable tax laws and political
stability have also contributed to the growth of UAE’s manufacturing sector in recent time.
Major manufacturing industries include cement, building materials, aluminium, fertilizers,
foodstuffs, garments, furniture, plastics, fiberglass, processed metals, etc.
Manufacturing sector in UAE is the largest segment of nonhydrocarbon sectors and a

significant growth driver of non oil economic growth. After the hydrocarbon sector, the
manufacturing sector is the biggest contributor to the GDP with a share of 12.9% in 2007 and
an estimated share of 12.2% in 2008.
Chart 35: Manufacturing sector’s contribution to GDP (at nominal price)

13.5%
13.1%
13.0% 12.9%
13.0% 12.6%
12.5% 12.1% 12.2%
12.0%
11.5%
11.0%
10.5%
2003 2004 2005 2006 2007 2008(E)
Over the past few years, manufacturing sector in UAE has recorded healthy growth on the
back of government’s focus on diversifying from hydrocarbon sector, low labor and energy
costs, favorable tax laws and political stability, emergence free zones etc. For the period
2005-07, manufacturing sector grew at a CAGR of 23.6%. The growth in manufacturing
sector in the recent time was largely dominated by aluminium and petroleum products.
Growth trajectory continued even in 2007 and well into 2008. The sector recorded a growth
of 19.6% to AED94.5bn in 2007 as compared to AED79.0bn in 2006.
Chart 36: Growth in manufacturing sector production

120,000 27.8% 30%
23.3%
100,000 25%
18.8% 19.6%
80,000 20% 20%
AED mn
60,000 11.9% 15%
40,000 10%
20,000 5%
- 0%
2003 2004 2005 2006 2007 2008(E)
Manufacturing y-o-y Growth
UAE’s manufacturing is highly dominated by metal sector particularly by aluminium

products. As per Ministry of Finance and Industry (MOFI), metal firms accounted for 27.1%
of total industrial firms at the end of 2007.

According to Ministry of Economy Annual Industrial Report 2008, investments in the UAE’s
non-oil industrial sector continued to grow and reached AED77.0bn at the end of 2008 on
the back of high economic confidence among both government and private institutions in
the potential for growth in manufacturing throughout the UAE. The investment made during
2008 was higher by 6.1% over 2007 investments of AED72.6bn. The investment received
during 2008 into manufacturing sector was 8.3% of nation’s GDP at nominal rate vs. 10%
in 2007.
During 2007, Out of this total investment in 2007, domestic investors contributed 85%, FDI
was 11% and balance 4% was contributed by Gulf investors. Abu Dhabi emerged as largest
investment destination in manufacturing sector as it attracted 53.6% of total investments
made during 2007 into manufacturing sector followed by Dubai at 23.6%, Fujeirah at 8.9%,
RAK at 5.7%, Sharjah at 5.6%, Ajman at 2.1% and Umm Al – Qiwain attracted 0.7% of total
investments in 2007.
Table 33: Investments by industrial firms by Emirate

Emirates ( AED mn) 2003 2004 2005 2006 2007
Abu Dhabi 15,622 34,327 38,552 38,614 38,922
Dubai 14,324 14,660 15,112 16,341 17,115
Sharjah 3,531 3,666 3,732 3,897 4,039
Ajman 995 1,038 1,283 1,435 1,497
Umm Al - Quwain 402 416 438 466 483
Ras Al – Khaimah 3,052 3,055 3,191 3,662 4,118
Fujairah 5,721 5,816 5,915 6,009 6,462
Total 43,647 62,978 68,223 70,424 72,636
Source: Ministry of Finance and Industry
Although Abu Dhabi was the largest industrial investor, it had a low number of projects,
which totalled 334 at the end of 2007. A large number of projects in Abu Dhabi have a high
capital. However, much of the small and medium-size enterprise (SME) activity has been
based in industrial quarters of Dubai and Sharjah, while Abu Dhabi has concentrated on
developing its own industrial city.
Chart 37: Manufacturing sector investments break-up 2007

Non-metalic
minerals
12.2%
Basic Metal
10.0%
Chemical, Petroleum &
Plastic Products
21.3% Fabricated Metal
7.0%
Paper products
& Printing Other
2.5% 0.2%
Furnnitures
1.1% Food ,
Textiles Beverages
1.3% 44.3%
Source: Ministry of Finance and Industry
During 2007, Food and beverage attracted major investments among the manufacturing
sector. Food and beverage sector witnessed investments of AED32.1bn which accounts for
44.3% of total investments in manufacturing sector during 2007. Other major contributor

includes chemical and petroleum products which attracted investments worth AED15.4bn in
2007 and accounted for 21.3% of total investments into manufacturing sector. Non metallic
minerals, basic metals, and fabricated metals investments accounted for 12.2%, 10% and 7%
of total manufacturing sector investments respectively.
Free Trade Zones to boost trade and industrial growth…
With an intention to boost industrial sector, UAE has established numerous Free Trade Zone
areas. Initially, free zones were created to attract foreign investment and promote foreign
trade. They were notified areas where special laws operated with regard to ownership,
taxation, recruitment of labour, value addition and income repatriation. As globalization
gained ground, free zones became the preferred areas for foreign investment as they offered
the most cost effective mix of factors of production, transportation and distribution in addition
to benefits numerated earlier. The Free Trade Zones in the UAE are well equipped with all
the amenities, facilities and communication infrastructure required to set up a business. The
increased number of free zones operating in the country is serving to offer a wider range
of options to potential investors. Furthermore, 100% foreign ownership is allowed with no
recruitment or sponsorship requirements. Corporate tax and customs duty exemption on
imported raw materials and equipment and no levy on exports and imports are some of the
other benefits.
Currently, about 29 free zones are operating in UAE and about 80% of the UAE’s non-oil
exports originate from the free zones. The UAE’s first free zone was established at Jebel
Ali in 1980. Its success in attracting foreign investment and technological expertise, and the
growth of re-exports and transhipment as a major commercial activity led the other emirates
to create such free zones to attract inward investment, employment generation and significant
economic development.
Following the success of the Jebel Ali Free Trade Zone, the UAE currently has a wide range
of specialized free zones. Most of these zones are located in Dubai, though the other emirates
are following the lead. Some of the zones cater to service sectors (e.g. Dubai Internet City,
Dubai Media City, Dubai Healthcare City, Academic City, Dubai International Financial
Centre), while others are industrial zones (e.g. Hamriyah Free Zone, Fujairah Free Zone,
Ajman Free Zone and the Dubai Gold and Diamond Park).

Table 34: Free zones in UAE

Free Trade Zones in UAE
Dubai Airport Free Zone Dubai Healthcare City
Jebel Ali Free Zone Dubai International Financial Centre
Hamriyah Free Zone Dubai Knowledge Village
Sharjah Airport International Dubai Logistics City
Ras Al Khaimah FTZ Dubai Maritime City
Dubai Internet City Dubai Multi Commodity Centre
Dubai Media City Dubai Outsource Zone
Abu Dhabi Ports Company Dubai Silicon Oasis
Abu Dhabi Airport Free Zone Dubai Studio City
Ahmed Bin Rashid FZ Fujairah Free Zone
Ajman Free Zone Zones Corp
Dubai Auto Zone International Media Production Zone
Dubai Biotechnology & Research Park Intl. Humanitarian City
Dubai Flower Centre Techno Park
Dubai Gold and Diamond Park
Upcoming Free Zones
Dubai Academic City Dubai Design Centre
Dubai Auto Parts City Dubai Energy City
Dubai Building Materials Zone Dubai Textile City
Dubai Carpet FZ Heavy Equipment & Trucks Zone
Dubai Cars & Automotive Zone
Source: uaefreecones.com, Global Research
The way ahead…
Since past few years, UAE is investing heavily in its manufacturing sector, stimulated by the
need to diversify the economy. The manufacturing sector is performing well and growing at
double digit rate. Manufacturing sector is crucial for future prospects of the UAE economy.
Favourable economic environment, government’s various initiatives, emergence of free trade
zones, etc. would be driving force for UAE’s manufacturing sector in years to come.

UAE Stock Exchange Performance

The year 2008 was a difficult year for the financial market led by the financial turmoil in
USA and other developed economies and its effects on the other parts of the world. 2008 was
also tough year for GCC region. Though during the first half, the GCC markets performed
well on expectations that the markets would remain relatively immune from the financial
crisis because of their limited exposure to sub-prime and/or related instruments, but things
deteriorated due to global impact of financial turmoil. As a result of this all the markets in
the GCC region witnessed sharp fall during second half of 2008 which wiped off all the gain
made during the first half and turned into negative performance for the full year.
Among the GCC markets, UAE market declined the most in 2008. The National Bank of Abu
Dhabi’s (NBAD) UAE general index witnessed sharp decline of 56.6% in 2008 over 2007.
The Saudi Arabia market was the second largest looser in 2008 as it recorded fall of 56.5%
over the previous year’s closing. The least affected market in GCC was Qatar, as it witnessed
relatively lower downside of 24.6% in 2008.
Chart 38: Stock market performance UAE vs. other GCC in 2008
-24.6% Qatar
-33.5% Bahrain
-39.8% Oman
-45.4% Kuwait
-56.5% Saudi Arabia
-56.6% UAE
-60% -50% -40% -30% -20% -10% 0%

Source: NBAD, Global Research
Recovery of markets appears to be imminent. Since March, globally, slow improvement has
begun as a consequence of announcements of stimulus packages by various governments.
The GCC governments have also followed suit by announcing market stabilizing stimulus
packages. They have also taken several steps to aid economic recovery and reduce the impact
of financial crisis. These include rate cuts by central banks in the region in line with rate cuts
by Federal Reserve (since most of the currencies are pegged to US Dollar). Other steps include
the guarantee of bank deposits, capital infusion into banks, purchase of investment portfolio
of banks, liquidity infusion into the banking system and economic stimulus packages. These
changes together with further action that is expected in the region as well as worldwide, is
expected to have a cumulative impact on the market by second half of 2009.
As far as UAE is concerned, among the major developments on the economy front for 2008
were, as part of confidence building measures, UAE’s Ministry of Finance and Industry
(MOFI) announced a plan to inject AED70bn in the banking system to boost the local
market’s liquidity and it already released the first portion of funds by transferring AED25bn
into banks based on the size of their loan portfolios. Apart from this during October 2008, the
UAE government has also approved a growth oriented budget for 2009 with a 21% increase
in allocation. The UAE Cabinet also approved a series of internal preventive steps and
measures. Among these are, the federal government will ensure that no UAE national bank

will be exposed to credit risks, guarantee deposits and savings in all national banks, guarantee
all inter-bank lending operations between banks operating in the UAE and inject sufficient
liquidity in the financial system if and when necessary.
In addition to this, the Cabinet gave the green light to the market regulator, the Emirates Securities
and Commodities Authority (ESCA), to ease restrictions on share buybacks so as to boost the
stock market. Besides this, The Central Bank of the UAE has also set up a new taskforce that
could help the country’s financial industry deal with the global economic downturn. The task
force, known as the Financial Stability Unit, will keep an eye on potential threats to the financial
system. All these measures taken by the government, including a growth-oriented budget, are
steps in the right direction and would help gain investors confidence.
Sectoral performance…
All the sectors in UAE were down significantly in 2008. Service sector which recorded
highest gain during 2007, fell the most in 2008 as NBAD’s service sector indices witnessed
sharp fall of 64.5% over the previous year. The banking sector also recorded negative return
but relatively lower than the general index as it declined by 50.8% against 56.6% decline in
general index. Insurance sector was the best performing sector in 2008 as it witnessed least
fall of 7.3% over the previous year.
Table 35: Sectoral performance

Index 2003 2004 2005 2006 2007 2008 Change
General 1,809.1 3,460.6 7,537.9 4,481.1 6,434.2 2,792.4 -56.6%
Banking 2,179.7 3,918.6 7,939.5 4,724.2 6,052.6 2980.1 -50.8%
Services 1,322.6 2,748.5 6,423.2 3,775.6 5,945.9 2109.4 -64.5%
Insurance 1,537.2 2,429.1 4,842.9 3,265.7 3,293.0 3,051. -7.3%
Source: NBAD, Global Research
Market capitalization…
Buoyant stock market performance backed by solid economic growth, increasing participations
of foreign investors, increasing number of companies on the exchanges, etc. has resulted into
sharp increase in market capitalization in the past few years. Over the past five years (2003-
08), the market capitalization of both Abu Dhabi Securities Market (ADSM) and Dubai
Financial Market (DFM) grew at a CAGR of 25.2% to AED484.4bn at the end of 2008.
However, sharp fall in the stock market resulted into decline in market capitalization in 2008
over 2007. During the year, market capitalization both ADSM and DFM collectively declined
by 48.7% over the previous year’s market capitalization of AED944.6bn.
Table 36: Market capitalization by sectors

(in AED bn) 2003 2004 2005 2006 2007 2008 % change
Banking 66.6 145.6 352.5 219.0 323.9 172.6 -46.7%
Insurance 5.5 12.1 34.4 23.4 23.6 23.3 -1.2%
Industrial 65.1 12.9 65.7 39.9 61.2 68.3 11.7%
Services 20.4 162.1 433.0 325.4 536.0 220.2 -58.9%
Total 157.7 332.7 885.6 607.8 944.6 484.4 -48.7%
Source: ADSM, DFM bulletins and Global Research

Services sector which accounted for largest pie in total market capitalization witnessed fall of
58.9% over the previous year. It accounted for 45.5% of total combined market capitalization
of ADSM and DFM. The banking sector witnessed a decline of 46.7% in market capitalization
in 2008. However, industrial sector which accounted for 14.1% of total market capitalization
buck the trend and witnessed an increase in its market capitalization by 11.7% over the
previous year. The insurance sector accounted for 4.8% of overall market capitalization
witnessed a marginal fall of 1.2% in market capitalization in 2008.
Chart 39: Market capitalization distribution across sectors
Banking
35.6%
Services
45.5%
Insurance
4.8%
Industrial
14.1%
Trading volume…
Trading volume in UAE markets which had been picking up in the past few years on the back
of increasing stock market activities, increased in number of companies on the exchanges,
splits, etc. came down during 2008. While 2006 and 2007 witnessed a growth of 82.5% and
210% respectively in the volume of shares traded, there was a decline of 19.6% in the trading
volume at both the exchanges collectively which stood at 126.4bn shares as compared to
157.3bn shares in 2007.
Table 37: Sector wise trading volumes

(mn shares) 2004 2005 2006 2007 2008 % change
Banking 456.9 1,703.3 2,684.7 24,716.0 20,862.3 -15.6%
Insurance 34.6 1,364.5 3,469.8 3,895.1 6,946.1 78.3%
Industrial 416.5 809.0 5,324.4 10,924.0 25,787.2 136.1%
Services 293.7 23,931.3 39,277.4 117,782.4 72,843.8 -38.2%
Total 1,201.7 27,808.1 50,756.4 157,317.6 126,439.3 -19.6%
Service sector continued to dominate the largest share in overall trading volume during 2008
as it accounted for 57.6% of total trading volume of both the exchanges. During 2008, trading
volume in services sector declined the most by 38.2% to 72.8bn shares against 117.8bn shares
in 2007. The banking sector also witnessed decline in trading volume by 15.6% over 2007.
On the other side industrial and insurance sector witnessed sharp increase in trading volume
by 136.1% and 78.3% over 2007.

Trading value declined moderately…
Despite sharp downturn in stock markets, value of shares traded at both ADSM and DFM declined
marginally by 3.1% to AED537.1bn in 2008 as compared to AED554.3bn in 2007. There has
been significant jump in trading activity beginning 2005. The buoyancy in trading value in past
few years was largely attributed to increasing trading activities on both the exchanges.
Table 38: Sector wise value of shares traded

(AED mn) 2004 2005 2006 2007 2008 % change
Banking 13,993.0 91,405.6 50,327.9 109,514.2 105,646.8 -3.5%
Insurance 1,153.7 11,212.7 16,335.0 14,912.7 32,493.5 117.9%
Industrial 1,699.8 16,578.6 17,522.3 26,831.0 84,782.7 216.0%
Services 49,959.4 390,595.0 332,356.0 403,071.2 314,211.5 -22.0%
Total 66,806.0 509,792.0 416,541.2 554,329.1 537,134.4 -3.1%
During 2008, industrial sector witnessed growth of 216% in value of shares traded on the
exchanges on the back sharp rise in trading volume in the sector. The insurance sector also
witnessed an increase of 117.9% in value of shares traded. However, service sector which
accounted for 58.5% in overall value of shares traded on both the exchanges witnessed a
decline of 22% in trading value. The banking sector’s trading value also decreased by a
marginal 3.5%. The negative growth in value of shares traded in services and banking sector
grabbed the overall performance of value of shares traded into red.
Chart 40: Sector wise distribution of value of shares traded during 2008
Services Banking
58.5% 19.7%
Insurance
6.0%
Industrial
15.8%
Severe dent in Corporate Profitability….
Compared to 2007 performance, corporate earnings came down in 2008. If we look at 2008
numbers alone the aggregated profits of companies listed on both ADX and DFM show a
marginal decline of 4.7% with ADX listed companies showing a growth of 10.0% while the
profitability of DFM listed coming down by 24.6%. However this does not reflect the true
picture as during the first half of 2008, record numbers were posted by companies due to
ample liquidity and buoyant markets as oil prices touched record highs.

Table 39: Corporate earnings growth of the UAE based companies

Sectors* Net profit AED Net profit AED
In AED mn Dec-08 Dec-07 Change % 4Q-08 4Q-07 Change %
Abu Dhabi Stock Exchange
Banking sector 11,858.5 11,497.8 3.1% 817.3 3,542.8 -76.9%
Real Estate Sector 5,610.1 3,694.9 51.8% 181.5 1,206.1 -85.0%
Energy Sector 2,793.8 1,372.2 103.6% 171.6 554.5 -69.1%
Consumer Sector 602.8 729.9 -17.4% 44.0 233.0 -81.1%
Construction sector 565.9 1,893.4 -70.1% (637.4) 471.9 -235.1%
Insurance Sector 607.9 1,446.5 -58.0% (364.7) 574.2 -163.5%
Telecommunication Sector 11,908.1 10,281.3 15.8% 2,108.9 2,958.0 -28.7%
Industrial Sector 579.4 372.6 55.5% 173.6 176.0 -1.4%
Health Care Sector 207.6 278.0 -25.3% 207.6 278.0 -25.3%
Total 34,734.0 31,566.7 10.0% 2,702.2 9,994.5 -73.0%

Dubai Financial Market
Banking Sector 8,224.9 9,545.5 -13.8% 41.4 2,756.1 -98.5%
C-Staples Sector (3.3) 60.6 -105.5% (27.3) 19.2 -242.5%
Investment Sector 1,848.6 4,002.3 -53.8% (916.2) 1,412.7 -164.9%
Insurance Sector 497.8 1,438.3 -65.4% (1,911.7) 801.0 -338.7%
Materials Sector 195.2 201.9 -3.3% (2.5) 55.0 -104.5%
Real Estate Sector 5,959.3 8,388.6 -29.0% (2,109.1) 2,246.8 -193.9%
Telecom Sector 4.1 (885.3) NA 78.2 (146.6) NA
Transportation Sector 805.3 519.6 55.0% 167.8 66.6 152.2%
Utilities Sector 73.0 71.9 1.5% (1.0) (1.2) NA
Total 17,604.9 23,343.5 -24.6% (4,680.5) 7,209.6 -164.9%

Grand Total 52,338.90 54,910.16 -4.7% (1,978.33) 17,204.05 -111.5%
Source: Company reports, Zawya and “Global” Research
*UAE based companies listed on DFM or ADX
However, the real impact on corporate profitability was witnessed in 4Q-08 with massive write
downs by most companies due to their exposures to real estate markets and investments. The
profitability of ADX based companies in the fourth quarter of 2008 came down to AED2.7bn,
a decline of 73.0% from AED10.0bn achieved in the corresponding quarter of 2007 while
that of DFM based companies the profits of AED7.2bn achieved in 4Q-07 culminated into
losses of AED4.7bn. No sector with the exception of few at the DFM exchange remained
untouched with all recording negative growths.
IPO activity 2008…
The year 2008 saw eight IPOs – four at Dubai Financial Market Exchange and two each at
Nasdaq Dubai Exchange and Abu Dhabi Stock Exchange.

Table 40: Major IPOs in the UAE and their sizes in 2008
Listing Over - Size of Offering Equity
Issuer Exchange Sector Date subscribed (US$mn) Offered
Green Crescent Insurance Co. Abu Dhabi SE Financial Services 26Mar09 76.92 x 38.4 55.0%
Drake & Scull International Dubai FM Construction 16Mar09 101.50 x 332.6 55.0%
Dar Al Takaful Dubai FM Financial Services 04Aug08 89.58 x 15.5 55.0%
Takaful Al Emarat - Insurance Dubai FM Financial Services 20Jul08 51.00 x 23.1 55.0%
Damas International Nasdaq Dubai Consumer Goods 08Jul08 1.00 x 270.6 27.9%
Ajman Bank Dubai FM Financial Services 22Jun08 85.00 x 152.8 55.0%
Methaq Takaful Insurance Co. Abu Dhabi SE Financial Services 11May08 43.60 x 23.1 55.0%
Depa Nasdaq Dubai Construction 23Apr08 3.00 x 432.3 43.0%
Source: Zawya & Global Research
The total aggregate offering into the market stood at US$1.3bn, a fifth of the total offering of
US$6.6bn raised from the market in 2007. Depa was the biggest IPO that had hit the market
in 2008. The company raised a total of US$432.3mn from the issue by offering 43.0% stake
into the market. As the aggregate offering was much lower in 2008 in comparison to 2007,
the oversubscription rate shot from 10.2x in 2007 to 56.5x. The high oversubscription rate
seen in 2008 was mainly influenced by the issue of Drake and Scull International that was
oversubscribed by over 101 times and Ajman Bank which was oversubscribed 85times.
Table 41: IPOs in the UAE

2005 2006 2007 2008
No. of Issues 8 5 3 8
Total Amount (US$ mn) 1,839.9 1,753.5 6,559.0 1,288.4
Average Size of Offerings (US$ mn) 230.0 350.7 2,186.3 161.1
Average Oversubscription 202.4 192.4 10.2 56.5
Source: Zawya & Global Research
The way ahead…
The UAE economy has been growing at strong pace for past many years. However, with the
fall in Dubai real estate prices and the liquidity tightening, 2009 appears to be a difficult year.
Nonetheless, the government is committed and have taken measures to boost the growth and
has committed to spend huge amounts on infrastructure and hydrocarbon projects over the
coming years. These projects present significant opportunities to almost all the economic
sectors such as power, telecom, banking, financial services, construction and service sectors
related to these industries.
At the same time, sincere efforts are being made by the authorities in each emirate to diversify
its economic base so as to de-risk the economy from oil and sustain future growth. The
authorities in each emirate thus have been liberalizing their policies and encouraging both
private and foreign companies to invest and become a part of the country’s growth.
For the first quarter ending March-09, UAE was the only market to close in green. The markets
remained in positive on news that the government will pump more liquidity into the system if
required to help ease clogged local debt markets. According to UAE Economy Minister Sultan
bin Saeed Al Mansouri, liquidity is available from the government and it’s a matter of how to
allocate it at the right time and to the right people. However given the changing global macro-
scenario, it is very early to say that whether that we will see a long rally from here on.

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UAE Economic 04 2009

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Faisal Hasan, CFA

Economic News Flow 5

Gross Domestic Product 10

Population and Labor Force 28

UAE Stock Exchange Performance 67

April 2009 Economic & Strategic Outlook 

 Economic & Strategic Outlook April 2009

Manufacturing sector in UAE is the largest segment of nonhydrocarbon sectors and a

April 2009 Economic & Strategic Outlook 

Money Supply and Inflation^

Other Economic Indicators

 Economic & Strategic Outlook April 2009

Economic News Flow

April 2009 Economic & Strategic Outlook 

− Dubai’s government plans to increase spending by about 20% in 2009 in an attempt to

 Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook 

 Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook 

Gross Domestic Product

Chart 01: GDP (Real) Trend

10 Economic & Strategic Outlook April 2009

Table 01: Gross Domestic Product

UAE’s economy continued to be dominating by non-hydrocarbon activities unlike other

Chart 02: Contribution to GDP (Real)

30.2% 25.9% 24.8% 23.5%

2005 2006 2007 2008E

April 2009 Economic & Strategic Outlook 11

Chart 03: GDP contribution by emirates (2007)

GDP by economic activity…

12 Economic & Strategic Outlook April 2009

Table 02: GDP by economic activity

Chart 04: GDP by economic activity

9.4% 36.1% 9.0%

Source: CBUAE, Ministry of Economy (MOE)

April 2009 Economic & Strategic Outlook 13

Table 03: GDP by type of expenditure

In 2007, imports of goods and services increased by 32.4% to AED486.6bn as compared to

14 Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook 15

Table 04: Summary of Consolidated Government Finances

16 Economic & Strategic Outlook April 2009

government’s expenditure in 2007 as it constitutes 76% of total expenditure incurred by the

The development expenditures increased moderately by 13.4% to reach AED17.3bn in 2007,

Chart 05: The consolidated government finance account

Source: CBUAE, Global Research

April 2009 Economic & Strategic Outlook 17

Table 05: Trade Balance

UAE’s oil exports increased by 20.4% to AED309.9bn in 2007 against to AED257.4bn in

Relatively higher growth in non-oil exports in 2007 resulted in increased in contribution of

18 Economic & Strategic Outlook April 2009

Chart 06: Proportion of total exports

56.0% 53.0% 51.8% 53.3%

47.0% 48.2% 46.7%

2003 2004 2005 2006 2007

Pearls, precious metals and jewellery exports surge…

Plastics & rubbers

April 2009 Economic & Strategic Outlook 19

Chart 08: UAE Imports by main categories 2007

Chemical products & Industries

Machinery and Plastics and rubber

April 2009 Economic & Strategic Outlook

Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook

Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook

Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook

Economic & Strategic Outlook April 2009

April 2009 Economic & Strategic Outlook