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Comparison of Germany and UAE Economy
Comparison of Germany and UAE Economy
1 INTRODUCTION
1.1 ORIGIN
This report is submitted to Dr. Asima Shirazi, lecturer of TBS905 at the University of
Wollongong in Dubai on 3rd December, 2014. The report conducts a comparative
analysis between the economies of UAE and Germany.
1.2 OBJECTIVE
The objective of this project is to compare the economic characteristics of the United
Arab Emirates and Germany. This is done to analyze how the two economies have
been performing, to ascertain their current position and give an opinion on the future
outlook.
1.3 DATA
The data has been taken from the WDI (World Bank) database for the variables
selected to compare the two economies. Data has been considered for a period of ten
years ranging from 2002 to 2012. This is because of the limitation of arriving at
accurate data for the year 2013 for all variables selected.
2 ECONOMY PROFILES
2.1 UNITED ARAB EMIRATES (UAE)
The economy of United Arab Emirates (UAE) is the second largest and most
diversified in the Middle East. It is part of the Gulf Co-operation Council, an
economic alliance of six other countries. Despite following Sharia law, UAE is
quite liberal and tolerant towards other religions and beliefs, which is
apparent when you realize that the expatriates make up more than three
fourth of the population. The economy is not anymore totally dependent on Oil
except to a certain extent in the emirate of Abu Dhabi. The per capita GDP is in line
with western developed nations as UAE has acquired significant wealth in recent
years. The Government has made significant investments in infrastructure and tourism
thereby leading to job creation. The Free Trade Zones in the UAE have attracted
investors because of zero taxation and 100 percent foreign ownership. UAE too has
faced its part of the crisis, especially in Dubai, which is exposed heavily to the real
estate market. Dubai is the major contributor to the countrys economy after
Abu Dhabi. The emirate of Dubai has become a major center for tourism,
transportation, commerce and is also emerging as the financial center in
the Middle East. (CIA World Fact Book, 2014) (Theodora)
The emirates of Dubai and Abu Dhabi have formulated their strategic plans to focus
on diversification namely Dubais Strategic Plan 2015 and Abu Dhabis Economic
Vision 2030. UAE at the Federal level is strongly following its 2021 Vision, which
focuses on innovation, science, technology and research to make the economy highly
competitive. (UAE Interact)
2.2 GERMANY
Germany is the most industrialized nation in Europe today. Its excellent infrastructure,
industries and innovation in technology make it one of the largest exporters in the
world. Its economic policies are centered on the idea of social market economy.
Germany is famous for its automobiles and engineering products. Heavy investments
in Research and Development (R&D) and service oriented manufacturing contributes
to the overall competitiveness of Germany. Its central location in Europe make it a
transport hub. Germany is also blessed with large reserves of natural resources like
lignite, copper and potash salt. The country is moving towards renewable energy after
deciding to shut down its nuclear reactors by 2022. In the last couple of years, higher
tax revenues and drastic reductions in spending have helped reduce budget deficits
significantly. (CIA World Fact Book, 2014) (Theodora)
3 VARIABLES
3.1 GDP GROWTH (Annual %)
The GDP is the most important indicator to determine the strength of an economy. It
is the total monetary value of all goods and services produced in an economy during a
given period of time. It is usually calculated annually. It is commonly known as GDP
= C + I + G + (X-M). Here, C refers to consumption expenditure, I refers to the
domestic business spending and investments, G refers to the Government spending
and investments and (X-M) refers to the net exports, which is the difference between
total exports and total imports. (Investopedia)
12
10
8
6
4
UAE
GERMANY
2
0
-2
-4
-6
UAE
20000
GERMANY
15000
10000
5000
0
This variable represents the total value of all exports of goods and services to the rest
of the world. It is represented as a percentage of the GDP of the economy.
(World Bank)
100
90
80
70
60
50
UAE
40
GERMANY
30
20
10
0
Population refers to the total number of residents in a country. It does not take legal
status or citizenship into consideration. (World Bank)
90000000
80000000
70000000
60000000
50000000
UAE
40000000
GERMANY
30000000
20000000
10000000
0
The population of UAE is much lower compared to Germany, mainly because of its
geographic size. The total population in 2002 was 3.22 million and has grown to 9.20
million in 2012. This significant increase is primarily due to immigration, excellent
infrastructure, zero taxation and quality of life. In fact, recently, Dubai (part of UAE)
was awarded The Best City to Work and Live in. This was judged on the basis of
economic dynamism, cost of living and overall attractiveness. (Gulf News, 2014)
In Germany, the population was at 82.48 million in 2002 and over a period of ten
years, has fallen to 80.42 million in 2012. The workforce has been ageing and this has
become a significant issue. It is surprising to note that assembly lines in factories are
being re-designed to minimize work load that includes bending and lifting. The
Government has been increasing spending on family subsidies but the desired results
have not been achieved. Having more aged people is not good for the economy in the
long run. (Bloomberg, 2012) (Daily Mail, 2013)
Unemployment level refers to the percentage of workforce who are seeking jobs but
have no avenues for jobs. (World Bank)
12
10
8
6
UAE
GERMANY
4
2
0
Inflation refers to the general level of increasing prices for goods and services in a
country. The variable chosen to measure inflation is the GDP Deflator, so as to help
compare GDP with other time periods in constant US Dollars. The GDP Deflator
considers the changes in consumption patterns or introduction of new goods and
services. (Investopedia).
The GDP Deflator is calculated as the ratio of GDP at current market prices (Nominal
GDP) to the value of GDP at base year prices (Real GDP). (Econport)
GDP Deflator = Nominal GDP / Real GDP
25
20
15
10
5
UAE
GERMANY
0
-5
-10
-15
-20
measures will have to be taken by the German Government and the ECB. (Wall Street
Journal, 2014)
UAE
GERMANY
6
4
2
0
For Germany, the ratio was at 5% in the year 2002 and the lowest was seen in 2007 at
2.6%. The non performing loans as a percentage of total loans again increased in the
year 2009 to 3.3% when the global economy was hit by the crisis. It was at 2.9% in
9
UAE
GERMANY
highest. The figure for 2012 is $ 34707.2 million and $ 32627.49 million in 2013. The
instability was mainly caused by the global crisis and then followed by the crisis in
the Euro Zone. The FDI levels are expected to stabilize by 2014 and grow from there.
Companies from China followed by India have been increasingly investing in
Germany. (Santander Trade, 2014)
4 FUTURE OUTLOOK
4.1 UNITED ARAB EMIRATES (UAE)
After successfully winning the bid for hosting the EXPO 2020, Dubais economy has
shown strong signs of recovery after the crisis. The expected infrastructure spending
could exceed $ 40 billion. The UAE Government has taken significant measures by
way of passing laws with respect to controlling property prices to avoid another
bubble. The development spending across the Emirates is backed by Abu Dhabi,
which has very strong finances, contributed by significant oil revenues. The UAE
faces some challenges too and it is to be seen how well it manages them. First is
effective management of infrastructure projects in the run up to EXPO 2020 and to
ensure there is no over supply post 2020, which can cause a bubble in real estate
prices. Also, the falling oil prices can cause a panic as the economy though in the
process of diversification, is still dependent on oil revenues. Inflation is also rising
due to the sudden uptick in prices. GDP is expected to grow between 4-5% in 2014
and 2015. New investment laws and upgradation of legal infrastructure is expected
soon and this will further increase the foreign investment in the economy and improve
the fundamentals. The future certainly looks bright for the United Arab Emirates.
(Samba, 2014) (Gulf News, 2014)
4.2 GERMANY
The German economy has made a headstart in the first quarter of 2014 but it remains
to be seen if it can continue the growth momentum. Exports and retail sales have
shown growth. The problems of Italy and Spain however may dent the growth of
Germany and it remains to be seen how the Euro nations recover from their debts.
Another challenge faced by Germany is their contracting and ageing workforce. The
worsening of the crisis in Ukraine is another threat in the short term. The partial
recovery of the Euro crisis has certainly lifted the Euro. The GDP is expected to grow
at between 1.2 to 2 % in the years 2014 and 2015. The economic fundamentals of
Germany remain strong. (Bundes Bank, 2014) (EY, 2014)
5 CONCLUSION
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From the above comparison and analysis of data of the economies of UAE and
Germany, it can be said both the countries have recovered well post the financial
crisis in 2007. UAE has been on a growth trajectory since and after Dubai winning the
bid for hosting the EXPO 2020, the fundamentals have improved. Germany did face
some bottlenecks post 2007 too in form of the Euro crisis. Germany seems to have
stabilized now and is expected to grow and retain its position of being the largest
economy in the Euro Zone.
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