By Shane McGinley
UAE has earmarked funds for home loans, housing projects for Emiratis
Oil-rich Abu Dhabi is to allocate AED7bn ($$1.9bn) from its 2011 budget to be distributed to citizens in the form of housing loans, state news agency WAM said.
In a meeting of the Gulf state’s executive council on Monday, Crown Prince Mohammed bin Zayed Al Nahayan called for the “speeding up” of schemes aimed at supporting Emiratis.
The UAE has ringfenced budget funds for housing projects, home loans and infrastructure spend, WAM said, without specifying the value.
Abu Dhabi's local government planned to spend AED207.5bn ($56.5bn) last year, around 74 percent of overall fiscal spending in the UAE.
The UAE, which has escaped social unrest unlike nearby Bahrain, Oman and Yemen, promised in March to spend $1.6bn on electricity and water networks in northern emirates, which are a sharp contrast to oil-rich Abu Dhabi and trade hub Dubai.
The world’s third largest crude oil exporter also moved in May to cap the price of around 400 food and household items across 70 retailers, and raise military state pensions by 70 percent.
Soaring food prices were a key factor in the popular uprisings that swept rulers from power in Egypt and Tunisia.
Abu Dhabi is spending $2.5bn on the Al Falah housing project alone, to create 4,857 affordably-priced villas for UAE nationals.
Al Nahayan said Monday government training schemes had equipped more than 6,000 Emiratis for jobs in the public sector, and urged government and state-linked firms to find roles for them.
According to latest figures, there are 35,000 unemployed Emiratis in the UAE. Only seven percent of nationals work in the private sector, according to the Ministry of Economy
Labour Minister Saqr Gobash said on May 5 that the Gulf state’s private sector must create up to 20,000 jobs a year in the next decade for Emiratis, as young school-leavers enter the workplace
In neighbouring Saudi Arabia, the most populous Gulf state, King Abdullah has unveiled more than $100bn in social handouts since March.
Let's do the math...first, 20,000 new jobs per year in the PUBLIC sector for Emiratis. Let's assume a low starting salary of AED 10,000 per month. I really have no idea what a starting salary is for an Emirati in a government agency but 10K makes my math easy.
20,000 x 10,000 = 200,000,000 per month or AED 2.4 billion in 1 year.
To again make the math easy let's assume there are no salary increases over the next 5 years and each year 20,000 new Emirati jobs must be created as the article states:
100,000 (5 years of new employees) x AED 10,000 a month =
AED 1,000,000 per month and AED 12 billion per year.
At a salary of 15K per month the total would be AED 18 million a year.
Is this public sector growth realistic? Is it sustainable? Where is the money coming from to pay these salaries? Oil is the easy answer but is it the correct answer?
Wealthy Gulf countries should learn from the mistakes Western governments have made regarding over spending, "hand-outs" and debt.
I'll make this a very easy equation for you
2,500,000bpd x $100 = $250,000,000 per day.
Thats how much income Abu Dhabi is generating: 250 million dollars per day.
But lets assume - for the sake of assumption only - that all oil production ended in the UAE as of tomorrow. How will the UAE cope? The total value of various UAE SWF funds comes up to about 500 billion, depending on who you are talking to (some say 700 billion, others say 350). If we assume that the SWF funds are returning 15% per year:
$500,000,000,000 x 15% = $75,000,000,000
So even if there is absolutely no oil being produced, the UAE can very easily live off the return of its SWF funds.
If we take the above facts, it becomes easy to understand that the oil option is the easy option and will continue to be the dominant option until the UAE is done with overhauling its education system and diversifying its non-O&G industries. Until then, let the locals enjoy the wealth their country generates.
JT, assuming oil at $100 seems a little bit aggressive, historically it has been much lower and it is only the last 10 years we have seen this price levels.
Assuming 15% returns on the funds is also quite aggressive, do you have anything backing this up? I would be interested to know. Keep in mind that if you were to withdraw from from oil as per your example you would be talking not of capital gains, but cash flow needs, something very different when talking about long-term investments.
There are very good reasons why the AD government (and the UAE) are trying to diversify away from oil; commodities are extremely volatile and in today's market you are essentially marrying your economy to an overheated China .
You can find very few (if any) examples of commodity-producing countries that have successfully managed to develop a more sustainable economy, it is far more difficult than you think.
You are right that oil is the easy option but the OP is also right to worry about complacency.