By Massoud Derhally
In its latest survey, the International Monetary Fund has applauded the United Arab Emirates on turning the “oil curse” into a blessing.
In its latest survey, the International Monetary Fund has applauded the United Arab Emirates on turning the “oil curse” into a blessing.The survey highlights the Emirates’ achievements and its ability to use the benefits of oil production to tangible results in other sectors within the country. “The country has managed to avoid the pitfalls that so often plague developing countries with vast natural resources,” said the Fund, adding, “Although regional disparities remain important, the country as a whole has benefited from its hydrocarbon wealth.”The UAE, which accounts for 10% of the world’s oil reserves and 4% of gas reserves, was commended by the Fund on achieving real economic growth of 9% in the 1990s. The Fund attributed the growth to low tariffs and a free market.The survey went on to say that fluctuations in the oil market have not adversely affected the country as it has taken measures that have insulated its economy from wide swings in the price of oil. In particular, the country’s ability to maintain external account surpluses was seen as a positive step in accruing assets that have strengthened its monetary standing. The assets, said the Fund, “give the country ample latitude to respond to oil price fluctuations and remain an important donor to poor countries.”“In terms of diversification of our economy, Dubai has started doing this quite a few years ago,” Saeed Al Muntafiq, director general of the Dubai Development and Investment Authority, told ITP.net. “All we want to do now is make sure that our reliance on crude over the next lets say eight years drops down to single digits and we are focusing heavily on the services sector, the financial sector, and moving forward we are focusing on corporate governance, on designing a platform and financial system that allows for foreign investment to use Dubai in two ways for access to the UAE but also access to the region.” Al Muntafiq said the plan is to make Dubai the gateway for foreign direct investment to the region, and that Dubai would achieve that by, “creating enough confidence and transparency.”Of the seven emirates that make up the UAE, Dubai was singled out for its ability to attract large amounts of foreign direct investment through its free zones. The Fund explained that the country’s ability to attract US $1.4 billion in 2000 and diversify the non-oil sector, “reflects sound economic policies, political stability, simple and fast administrative procedures, strategic geographic location, and efficient infrastructure and communications systems.” The survey concluded that the UAE still faced challenges and certain issues needed to be addressed in order to strengthen the country’s economic standing in an increasingly competitive global economy. The six recommendations made, include: diversifying the country’s revenue stream through redirection of budget expenditure and creating a modern tax structure, taking into consideration the possibility o f low oil prices in the future, a more balanced development strategy that will include universal policies on foreign investment and labour, creating job opportunities by investing in education and encouraging entrepreneurship, encouraging the participation of the private sector and stepping up privatisation initiatives, and last, improve the quality and public access to data.“If you look at the recommendations made by the IMF, really those are the mandates for the authority of Dubai. If you look at our objectives and what we are going to be tackling for the next four to five years it is exactly that,” said Al Muntafiq. “We have already started our entrepreneurship drive in creating the establishment for young business leaders and with that we are creating the culture, coming up with laws and regulations that assist start ups and we have a 750Dhs fund that lends to young business leaders starting their own businesses, we have created and incubator and trying to make sure they have enough exit opportunities as they move forward,” he added.Al Muntafiq pointed out that foreign direct investment follows multinational corporations (MNCs) and as such, the authorities in Dubai are working very closely with the MNCs in Dubai and convince them to develop and invest more in the back end of their value chains. When asked if the UAE had plans to levy a tax on foreign expatriates, similar to the 10% tax that Saudi Arabia is considering, Al Muntafiq said, “That is not on our horizon at the moment and there is a reason for that, Dubai has always used that [tax free status] as a key value proposition to encourage talent, knowledge transfer, companies to set up here and we have used this successfully.” “We see the introduction of tax on any aspect of business as really a hindrance and a barrier to entry,” he added.The Fund concluded, “An open economic system and sound economic management have allowed the UAE to escape what for some countries has been the curse of oil, but its ability to sustain strong growth and retain investor confidence will hinge on continued fiscal discipline, a strong financial sector, labour market flexibility, and full private sector participation in the development process.”