Introduction
The unprecedented economic transformation which has taken place in the UAE since the formation of the state has been largely funded by the judicious use of oil revenues. However, although oil and gas production remain the primary source of public revenue, the secret of the country's current economic success has been a determined government strategy of economic diversification, leading to the creation of new productive sectors. This, combined with re venue from foreign investment, has meant that the UAE economy has been relatively immune to the effects of plummeting oil prices: the weighted average of oil per barrel dropped from US $18.8 in 1997 to US $12.4 (-34 per cent) in 1998. During the 1970s and 1980s such a decline would have triggered a major setback.
General Economic Trends 1998
According to the Central Bank Annual Report for 1998, UAE gross domestic product at current prices (GDP) decreased from Dh 180.6 billion in 1997 to Dh 170.1 billion in 1998 (-5.8 per cent), despite substantial growth in most economic sectors. This drop was largely attributable to a 31 per cent decline in the value of the oil sector output, from Dh 53.5 billion in 1997 to Dh 37 billion in 1998, due to low oil prices. In addition, because of the close link between oil and gas prices and petroleum products, which constitute the bulk of the manufacturing sector's output, values decreased in this sector, albeit very slightly, from Dh 20.23 billion in 1997 to Dh 20.19 billion in 1998, despite increases in production volume. However, overall, the non-oil sector contribution to GDP rose from Dh 127.1 billion in 1997 to Dh 133.1 billion in 1998, achieving growth rate of 4.7 per cent, partially alleviating the negative impact of the decline in the oil sector.
The relative significance of the wholesale, retail trade and maintenance services sector increased to 12 per cent in 1998, (up from 10.8 per cent in 1997), following an increase in domestic trade activity and the decline in manufacturing output mentioned above. Accordingly, this sector was ranked second after the oil sector which had a 21.7 percent share of total GDP. Government services retained its third place position in 1998, accounting for 11.6 per cent of GDP, nearly half the oil sector's contribution. This is mainly attributed to continued investment in education, health and cultural services to keep pace with population growth.
The real estate and business services sector, at 10. 7 per cent, recorded a sizeable growth of 5 per cent in 1998, compared with 1997, while the construction sector increased by 1 per cent over its 1997 value to reach 9.6 per cent. Efforts made to promote tourism and trade reflected positively on the hotel and restaurant sector which grew by 7.2 percent in 1998, compared with 1997. This sector, according to the Central Bank, has recently been one of the most attractive for investment. Advances in air, sea and land transportation and storage, as indicated in foreign trade data, in addition to continual development of communications, led to a 5.7 percent increase in the value added to this sector in 1998. Financial institutions and insurance grew by 6 per cent in 1998 as a result of increased activity in the banking and financial sector. Significant increases were also recorded in the electricity, gas and water sector which grew by 11 per cent in 1998, to become the fastest growing sector. This was mainly attributed to major capital investment directed at improving and expanding services in response to burgeoning domestic consumption. Abu Dhabi emirate's share of GDP continued to account for more than half of total GDP, though it dropped from 59 percent in 1997 to 55.3 percent in 1998. In contrast, Dubai and Sharjah's shares rose slightly in 1998 to reach 27.9 per cent and 9.9 percent respectively, while the remaining emirates ranged between 0.6 per cent and 2.8 percent. The decline in GDP, on the one hand, and the increase in population on the other, caused GDP per capita to drop to Dh 61,600 in 1998, a 10.5 per cent fall when compared with 1997 per capita GDP. Available data on GDP by major expenditure categories show that final consumption reached Dh 119.3 billion in 1998, a 4.3 percent increase compared with 1997. T h e ratio of final consumption to GDP also rose from 63.3 per cent in 1997 to 70.2 percent in 1998. This increase was mainly concentrated in private consumption which rose by 5.1 percent to reach Dh 90.7 billion in 1998, against Dh 86.2 billion in 1997. This was due, in part, to the rise in population, increased demand for re - exports and increased levels of individual expenditure. On the other hand, despite an expansion government services, public consumption rose only slightly to reach Dh 28.6 billion in 1998, up from Dh 28.1 billion in 1997, an indication of the success of fiscal policy in rationalizing expenditure.
The UAE dirham continued to strengthen during 1998, benefiting from its fixed rate against the US dollar which, in turn, witnessed marked improvement in its exchange rate against other major currencies. With regard to monetary and banking developments at the end of 1998, compared with 1997, money supply rose by 9.5 percent to reach Dh 27.8 billion. This increase was distributed between monetary deposits, which grew by 1.59 billion (8.8 per cent), and currency with the public, which rose by Dh 829 billion (2.2 per cent) to Dh 71.04 billion. As increased private sector demand for money and quasi-money continued, private domestic liquidity expanded by 4.2 per cent to reach Dh 98.83 billion.
Public Finance 1998
The Central Bank reported that the consolidated government account revenues (the consolidated accounts group the federal budget and the budgets of the larger emirates) dropped by 24 percent in 1998 to Dh 42.7 billion, as opposed to Dh 56.2 billion in 1997. This was mainly due to a decline in earnings from exports resulting from the fall in oil prices. Tax revenues (customs duties, fees and other revenues) decreased by 4.8 percent to Dh 7.9 billion, accounting for 18.4 per cent of total re venues. Ne ve ruthless, during this period customs revenues actually increased by 8.7 per cent to Dh 1.8 billion, the decline occurring in other tax revenues. Non-tax revenues decreased by 27.3 per cent in 1998 to reach Dh 34.8 billion, against Dh 47.9 billion in 1997, forming 81.6 per cent of total revenues. The drop was mainly attributed to lower receipts for oil and gas exports as joint-stock corporations actually rose by Dh 899 million (41.8 per cent) over the period to reach Dh 3.1 billion. Likewise other non-tax re venues increased by Dh 1.6 billion (35.2 per cent) to reach Dh 6.3 billion.
Expenditures recorded a substantial increase in 1998, reaching Dh 71.6 billion, against Dh 64.4 billion in 1997 (11.2 per cent). In particular development expenditures rose by 28.2 per cent to reach Dh 13.9 billion in contrast to 10.8 billion in 1997. Loan and equity participation increased by 30.6 percent in 1998 compared with their 1997 level, reaching Dh 7.2 billion, of which 41.2 per cent was spent locally. The substantial decline in oil and gas revenues, which resulted from the fall of oil prices and the country's adherence to its production quota as set by OPEC, coupled with the increase in development expenditure and in the amount of loans and equity participation, had an effect on the deficit which reached Dh 28.9 billion in 1998, in comparison to an adjusted deficit of Dh 8.2 billion in 1997. The entire deficit was financed by returns on government investments. The total deficit constituted 17 per cent of GDP in 1998, compared with 5.1 percent in 1997 and 13 percent in 1996.
Balance of Payments 1998
The Central Bank reported that the UAE balance of payments (trade of goods and services, transfers and capital flow) achieved an overall surplus of Dh 2.8 billion in 1998, compared with 1.2 billion in 1997, despite a drop in the surpluses of both the trade balance and the current account. Preliminary data on foreign trade indicated a decrease, for the second consecutive year, in the trade balance surplus which reached Dh 11.6 billion in 1998, against Dh 27.2 billion in 1997 (-57.5 per cent). Exports and re-exports totaled Dh 111.49 billion in 1998 from around Dh 124.8 billion in 1997, while imports were recorded at Dh 99.92 billion slightly higher than the 97.7 billion figure for 1997. The current account surplus of around Dh 6.5 billion was well below the 1997 surplus of Dh 23.1 billion. The report showed that the balance of payment re c o rded a surplus mainly due to a sharp decline in capital outflow, which shrank to Dh 6.3 billion from Dh 24.3 billion. Net services also dropped to Dh 7.8 billion from Dh 8.5 billion and investment income to around Dh 17 billion from Dh 17.5 billion.
Economic Tends 1999-2000
GDP at current prices is expected to grow by about 5.2 percent in 1999 to Dh 185.08 billion, according to a study by the Research and Studies Department of the Abu Dhabi Crown Prince's Court released in mid-July 1999. This is significantly higher than earlier forecasts due to improved oil prices and more sustained growth in non-oil sectors. The study also estimated a 2.6 percent increase in 1999 GDP at fixed prices to Dh 160.94 billion.
Average per capita income at current prices was estimated by the study at Dh 62,957 in 1999 and forecast to be Dh 63,471 in the year 2000. Government revenues were projected to reach Dh 53.06 billion in 1999, of which Dh 35.31 billion were estimated to be revenues from oil exports. Expenditure is expected to reach Dh 77.35 billion, resulting in a budget deficit of Dh 25.6 billion, or 13.8 per cent of GDP.
Other forecasts for 1999 predict that import growth is likely to slow, but public spending on both current and capital items will push the import bill up to over Dh 128.49 billion by the year 2000 despite lower import prices from Asian suppliers. However, strong growth in other exports and re-exports will boost export values by 8 percent a year in 1999 and 2000.The trade surplus is expected to rise to nearly Dh 25.70 billion by 2000 and investment income continue to grow. The current account balance is projected to increase to Dh 25.32 billion in the year 2000 and its ratio to GDP to rise to 13.2 percent. At the time of writing the continued strength of oil prices would suggest that oil exports could well exceed Dh 40 billion despite the UAE's decision to cut oil output by more than 300,000 barrels per day in line with an OPEC agreement to trim production to stabilize supplies and support prices. The agreement has already pushed prices up by nearly 100 per cent and the price of UAE crude oil is projected to average more than US $15 in 1999.
Into The New Millennium
The UAE is expected to increase its industrial diversification drive in the new millennium. Emphasis on development of the finance, trade and services sectors will also be accelerated. Globalization will encourage the formation of larger banking units through mergers while the move towards emiratisation will also gain momentum. Having invested heavily in infrastructure since the establishment of the state, the Government is actively encouraging the private sector to participate in further infrastructure development in transport, communications, telecommunications, energy and ports. Private sector investment in industry, involving public shareholding, inflow of foreign capital and technology transfer is expected to increase. New corporate, stock market and banking legislation, a review of the laws governing economic activity and the development of additional legislative and administrative frameworks that promote efficiency and transparency will be key factors in economic development.