New York/Dubai: The United Arab Emirates will be “less afflicted” than other oil producers by falling prices due to its economic diversification, and the credit crisis won’t halt infrastructure spending, the UAE’s ambassador to the US said.
“We’re well on our way to making sure that price fluctuations, whether they’re big or small, do not affect the overall economic livelihood of the UAE,” Ambassador Yousef al-Otaiba said in a Bloomberg News interview in New York.
Some 65% of the UAE’s gross domestic product comes from industries other than oil and gas, a figure the government hopes to increase, al-Otaiba said. The UAE has budgeted for an average oil price this year of between $40 and $45 a barrel.
“They are very conservative estimates, and anything above that is considered a windfall,” al-Otaiba said.
Oil has fallen 72% from its July 11 record $147.27 a barrel.
Gulf states, which had boomed on the back of record oil prices, are now struggling after prices tumbled.
The Gulf Co-operation Council, which groups Saudi Arabia, the UAE, Kuwait, Qatar, Oman and Bahrain, pumps almost 20% of the world’s oil. Saudi Arabia’s King Abdullah said in November that $75 a barrel was a fair price for oil.
The UAE’s economy, which has enjoyed seven consecutive years of growth in excess of 2.5%, will grow by 3% in 2009, al-Otaiba said. The Emirates comprise seven members including Abu Dhabi and Dubai. Its economy is the second-largest in the Arab world after Saudi Arabia’s.
The global financial crisis will mean some real estate projects, such as Dubailand, a plan to make a 3bn sq ft (279mn s m) leisure and tourism destination, will be “re-evaluated based on the financial situation in Dubai,” al-Otaiba said. Other infrastructure projects should not be affected.
“All infrastructure programs are going to continue on track,” including cultural, educational and health programs, the Dubai metro, highways and energy, he said.
In real estate, there may be a “rational, logical downturn,” as the markets “correct themselves,” he said. “Prices were shooting very high, both in Dubai and Abu Dhabi, and what we’ve seen is a correction in how fast the prices increase.”
The global financial crisis and sharply falling oil prices have hit Dubai hard. The emirate’s once, red-hot property and stock markets have slumped, real estate projects are being canceled or scaled back and companies are being forced to lay people off.
Ratings agencies have raised concerns that Dubai may struggle to refinance $80bn in debt taken on in recent years to finance its explosive growth. – Bloomberg, Zawya Dow Jones