Economy
September 2010

UAE Economic Outlook 2010

UAE Economic Outlook 2010

 GDP expected to grow in 2010  Inflation expected to drop to 0.4% in 2010  UAE struggled to post a budget surplus in 2009  Dubai World reaches agreement to restructure its debt
 UAE GDP expected to grow by 0.6% in 2010 The global recession, which started in Q4-2008, halted UAE‟s economic growth significantly. After a 7.5% growth in real GDP in 2008, UAE‟s GDP increased by only 1.3% to reach AED515bn in 2009. Despite the global recession, the non-oil GDP grew by 8.4% in 2009. Due to the decrease in oil prices and production, the non-oil sector contributed 71% of the GDP in 2009 compared to 66% during the previous year.  Overall Broad Money supply decreased by 0.3% as of Q2-2010; grew by 5.4% in 2009 The UAE government implemented expansionary monetary and fiscal policies to stimulate aggregate demand in 2009. Due to the effects of the recession on the economy, the UAE government wanted to expand the money supply and encourage growth. Money Supply (M1) and Broad Money (M2) grew by 3.7% and 2.2% respectively, while the overall broad money (M3) decreased by 0.25% as of Q2-2010 due to a decrease in government deposits.  UAE maintained a budget surplus for its fifth consecutive year The budget surplus in recent years was largely credited to high gas and oil profits due to high oil prices. Total government revenue was almost AED293bn for 2009, a decline of 35% from the previous year, while hydrocarbon revenues contributed 74% of it. Total expenditures increased by 14% in 2009 to AED289bn, compared to AED254bn the previous year. Current expenditures was the largest contributor of expenditures as it represented 68% of total expenditures. Consequently, UAE‟s budget generated a surplus of AED3.6bn in 2009, a decrease of a staggering 98% from 2008.
Nominal & Real GDP Performance
1200 1000

Abu Dhabi and Dubai CDS Spread
700 600 500 400 bps (AED Bn)

800 600 400 200 0 2007 2008 2009* Nominal Real 2010** 2011**

300 200 100 0 30-Jun-09

30-Sep-09

31-Dec-09
Abu Dhabi

31-Mar-10
Dubai

30-Jun-10

Faisal Hasan, CFA Head of Research fhasan@global.com.kw Phone: +965-22951270

Source: National Bureau of Statistics and International Monetary Fund * = Preliminary Data ** = Projections

Source: Bloomberg

 Dubai World reach a deal with 99% of creditors to restructure US$24.9bn After announcing in November 2009 that they have asked all lenders for a standstill agreement Talal AlGharaballi on all its debt payments, Dubai World announced on September 9th, 2010, they have reached an Assistant Financial Analyst agreement with 99% of creditors to restructure US$24.9bn of debt. Dubai World is now “well talgharaballi@global.com.kw positioned to close the restructuring in the coming weeks”. This will boost much needed Phone: +965-22951274 confidence in the emirate and its banks, according to Moody‟s. Immediately prior to the announcement, the credit default swap of Dubai was 473.7points. The CDS of Dubai tightened by 18.3points to reach 455.4points on the first day of the week following the announcement.

Global – UAE Economic Outlook 2010

Annual Indicators
2005 Economic Performance Nominal GDP Nominal GDP Nominal GDP Growth Real GDP Real GDP Real GDP Growth GDP Per Capita Population Oil Sector contribution to GDP Oil Sector/GDP Government Finance Government Revenues Government Expenditures Surplus/(Deficit) Government Revenues/GDP Oil Revenues Oil Revenues/GDP External Debt External Debt/GDP External Debt/Government Revenues Money Supply and Inflation M2 (end-period) M3 (end-period) 3-month Inter Bank Rate Consumer Price Inflation Foreign Trade Total Goods Exports Total Goods Imports Trade Balance Current Account Balance Exports of Oil and Refined products Oil Exports to Total Exports Other Economic Indicators UAE Crude Oil Production Abu Dhabi Securities Exchange Index Dubai Financial Market Index Exchange Rate (AED bn) (US $ bn) (%) (AED bn) (US $ bn) (%) (US $) (mn) (AED bn) (%) 506.8 138 31.0 393.9 107.3 8.2 33625.7 4.1 16268.3 32.1 2006 643.5 175.2 27.0 445.1 121.2 13.0 41428.2 4.2 20785.1 32.3 2007 758 206.4 17.8 472.8 128.7 6.2 46071.4 4.5 24938.2 32.9 2008 934.3 254.4 23.3 509.9 138.3 7.5 53445.4 4.8 31392.5 33.6 2009 914.3 249.0 -2.1 514.5 140.1 1.3 49151.2 5.1 26423.3 28.9 2010 E 928.0 252.7 1.5 517.6 140.9 0.6 48,427.3 5.2 NA NA

(AED bn) (AED bn) (AED bn) (%) (AED bn) (%) (AED bn) (%) (%)

203.9 104.0 99.9 40.2 152.9 30.2 150.6 29.7 73.9

299.1 128.0 171.1 46.5 229.4 35.6 31660.2 49.2 105.9

330.8 167.0 163.8 43.6 235.5 31.1 47526.6 62.7 143.7

450.3 254.0 196.3 48.2 362.1 38.8 48583.6 52.0 107.9

292.6 289.0 3.6 32.0 217.5 23.8 51566.5 56.4 176.2

360.9 271.0 89.9 38.9 281.0 30.3 52432.8 56.5 145.3

(AED bn) (AED bn) (%) (%)

324.1 415.4 3.58 6.2

399.3 504.0 5.21 9.3

565.7 696.2 5.24 11.1

671.3 899.1 4.52 12.6

740.6 947.8 1.94 1.6

768.3 *# 951.3 *# 2.34 *# 0.4

(AED bn) (AED bn) (AED bn) (AED bn) (AED bn) (%)

448.1 344.6 103.5 89.5 202.2 45.1

559.3 414.3 145.0 132.4 257.3 46.0

685.2 609.6 75.6 72.1 270.9 39.5

878.5 647.4 231.1 81.8 374.7 42.7

705.8 551.1 154.8 28.8 249.3 35.3

669.5 496.2 173.3 66.5 263.7 39.4

(mn bpd) (points) (points) (AED: US $)

2.75 5203.0 7426.4 3.6725

2.97 2999.7 4127.3 3.6725

2.90 4551.8 5932.0 3.6725

2.93 2390.0 1636.3 3.6725

2.59 2743.6 1803.6 3.6725

2.32 * 2545.8 # 1512.4 # 3.6725

Source: Central Bank of UAE, International Monetary Fund, BP, "Global" Research * = actual # = as of July 31st, 2010 $ = Q2-2009 to Q2-2010

2

Global – UAE Economic Outlook 2010

Gross Domestic Product
After experiencing several years of prominent growth and expansion, UAE‟s economy has significantly slowed down since 4Q-2008. From 2005-2008, GDP at nominal prices grew at a CAGR of 21.9%. According to National Bureau of Statistics of UAE reports, the nominal GDP for 2009 decreased by 2.1% to reach AED914.3bn, while in the previous year it experienced a growth of 23.3%. The non-oil GDP increased by 4.6% in 2009, while it flourished by 22.1% during the previous year. On the other hand, the oil GDP decreased by 15.6% in 2009, while 2008 enjoyed a rise of 25.5%. That significant decline in hydrocarbon figures can be directly related to the diminishing oil prices. The halt in the economy‟s growth is mostly due to the global recession, decline in real estate value, and Dubai‟s debt crisis.

Chart 1: Real GDP Trend (AED bns)
600.0 445.1 13.0% 13.0% 2006 472.8 6.2% 2007

509.9 514.5 517.6 533.6 7.8% 0.9% 0.6% 3.1% 2008 2009* 2010E 2011E

14%

12%
10%

400.0

7.8%

8% 6% 3.1% 0.9% 0.6%

200.0

6.2%

4%
2% 0%

0.0
2006 2007 2008 2009* 2010E 2011E

Real GDP
Source: Central Bank of UAE & International Monetary Fund * = Preliminary Data

Y-o-Y Growth
E = Estimates

In real terms, the GDP recorded a growth of 1.3% in 2009 (as indicated by preliminary numbers) to reach AED514.5bn, compared to a 7.5% in 2008. The reason for the minimal growth in 2009 compared to previous years is the huge decline in oil prices and in the oil production rate due to OPEC cuts (2.26mn bpd in ‟09 compared to 2.56mn bpd in ‟08). As a result, per capita GDP witnessed a 13% decline in 2009 to reach US$49,150, compared to US$56,530 the previous year. Despite the decline in 2009, UAE‟s per capita GDP is second highest among GCC countries after Qatar.

Table 1: Gross Domestic Product
Nominal GDP Nominal GDP Nominal GDP Growth Real GDP Real GDP Real GDP Growth Per Capita GDP CPI Inflation change Population Units (AED bn) (US$ bn) (%) (AED bn) (US$ bn) (%) (US$) (%) (million) 2005 506.8 138 31% 393.9 107.3 8.2% 33,625.7 6.2 4.1 2006 643.5 175.2 27.0% 445.1 121.2 13.0% 41,428.2 9.3 4.2 2007 758 206.4 17.8% 472.8 128.7 6.2% 46,071.4 11.1 4.5 2008 934.3 254.4 23.3% 509.9 138.3 7.5% 53,445.4 12.3 4.8 2009* 914.3 249 -2.1% 514.5 140.1 1.3% 49,151.2 1.56 5.1

Source: National Bureau of Statistics, UAE & Population Reference Bureau

*=Preliminary Data

3

Global – UAE Economic Outlook 2010

The contribution of non-oil sectors to the GDP increased 4.6% to AED650.1bn in 2009 after a 22% growth during the previous year. The percentage contribution to GDP was 71.1% in 2009 as opposed to 66.4% in 2008. According to Dubai‟s Chamber of Commerce and Industry, as oil prices and production began to decrease, UAE increased state spending on the non-oil sector to provide support for the economy. While the real GDP witnessed a 1.3% growth, nominal GDP for 2009 decreased by 2.1%, or AED20bn. The major reason for the inverse relationship between real and nominal numbers in 2009 is the significant decrease in oil prices. The decline in oil prices caused the nominal GDP figure to decline, while oil production remained the same for most of the year. The maintained level of oil production is what caused the real GDP for 2009 to witness a slight growth. Chart 2: Contribution to Real GDP Chart 3: Average Oil Prices vs. UAE GDP
120
100

160 140 120
100

67.9%

67.7%

67.1%

66.4%

71.1%
US $

80 60
40

US Bns $

80 60 40
20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010*

32.1%
2005

32.3%
2006

32.9%
2007

33.6%
2008

28.9%
2009*

20
0

Hydrocarbon

Non-hydrocarbon

Average Price (US$/Barrel) - OPEC

UAE Real GDP (US$)

Source: National Bureau of Statistics, UAE) Data

*= Preliminary

Source: Energy Information Administration & "Global" Research

Unlike the majority of the GCC countries, UAE‟s GDP depends heavily on the non-hydrocarbon sector. The non-hydrocarbon sector has contributed an average of 67.3% to the GDP from 2005-08. Due to the decline in crude oil prices and production, the non-hydrocarbon contribution to GDP grew to 71.1% in 2009, making it second in the GCC after Bahrain in terms of the non-hydrocarbon sector‟s contribution to GDP. According to the IIF, non-hydrocarbon GDP is the appropriate measure of economic activity in oil exporting countries and the UAE has been doing well despite the global recession. Based on International Monetary Fund projections, non-hydrocarbon growth is expected to be 4.5% a year over the medium-term, which is 4% lower than before the crisis. The reason for the slower growth is less activity in Dubai‟s property sector and increasing costs to gain access to international capital markets

GDP by Emirate
As for GDP contribution by Emirate, the 2009 figures are not yet available. However, in 2008, Abu Dhabi maintained its position as the largest contributor to UAE‟s nominal GDP with a 55.7% contribution. In 2008, Abu Dhabi registered a GDP of AED519bn, witnessing a yearly growth of 30%. Dubai contributed 32.3% of UAE‟s 2008 GDP, which amounted to AED301.5bn (a growth of 14% over the previous year). The remaining five emirates contributed 12% of the GDP in 2008 with a growth of 20%.

4

Global – UAE Economic Outlook 2010

Chart 4: GDP Contribution by Emirate (2008)
Ras Al-Khaimah 1.7% Fujairah Sharjah 1.1% 7.7%

Um Al-Quwain 0.4%

Dubai 32.3%

Abu Dhabi 55.7%

Ajman 1.2% Source: Ministry of Economy

Due to a significant decline in oil prices during 2009, Abu Dhabi‟s contribution to GDP is expected to have decreased for 2009 because most of UAE‟s oil is located in Abu Dhabi. As oil prices continue to rise in 2010 and into 2011, we expect Abu Dhabi‟s contribution to UAE GDP to jump back to previous levels. Abu Dhabi Economic Vision 2030 In 2006, Sheikh Mohamed Al Nahyan, Crown Prince of Abu Dhabi and Chairman of the Executive Council, instructed the General Secretariat of the Executive Council, the Department of Planning and Economy, and the Abu Dhabi Council for Economic Development to create a long-term economic vision for Abu Dhabi. The goal was to create a long-term „roadmap for economic progress‟ for the Emirate by establishing a common agenda „aligning all policies and plans and fully engaging the private sector in their implementation‟. In 2008, the appointed committees created “Abu Dhabi Economic Vision 2030” which was approved by the Abu Dhabi Executive Council. According to baseline growth assumptions, the year 2030 represents the time when Abu Dhabi could reach substantial levels of economic diversification. The Abu Dhabi Economic Vision 2030 highlights seven areas of „ongoing economic policy focus‟ which are: 1) build an open, efficient, effective, and globally integrated business environment 2) adopting disciplined fiscal policies that are responsive to economic cycles 3) establish a resilient monetary and financial market environment with manageable levels of inflation 4) drive significant improvement in the efficiency of the labor market 5) develop a sufficient and resilient infrastructure capable of supporting anticipated economic growth 6) developing a highly skilled, highly productive workforce, and 7) enable financial markets to become the key financiers of economic sectors and projects. Economic diversification is a key part of the Economic Vision and the sectors that the Emirate is expecting to provide growth are: 1) Energy - Oil & Gas 2) Petrochemicals 3) Metals 4) Aviation, Aerospace, and Defense 5) Pharmaceuticals, Biotechnology, and Life Sciences 6) Tourism 7) Healthcare Equipment and Services 8) Transportation, Trade, and Logistics 9) Education 10) Media 11) Financial Services 12) Telecommunication Services. These sectors, excluding oil, are planned to grow at an aggregate annual rate of 7.5% which should help Abu Dhabi reach a neutral non-oil trade balance.
5

Global – UAE Economic Outlook 2010

Dubai Strategic Plan 2015 In February 2007, Sheikh Mohammed Al Maktoum, UAE Prime Minister and Ruler of Dubai, announced the Dubai Strategic Plan 2015 which was created by the Executive Council of Dubai. The Strategic Plan (DSP) created a strategic approach to develop and enhance the Emirate‟s most active economic sectors. The Executive Council developed the DSP along five key sectors: 1) Economic Development 2) Social Development 3) Infrastructure, Land, and Environment 4) Security, Justice, and Safety, and 5) Government Excellence. The goal of the DSP is to create a clear understanding of Dubai‟s vision through its government entities and to create a unified agenda for the operators of these entities to follow. The Government highlights specific economic goals they intend to reach by 2015 in the DSP. The main economic goal is to maintain a real GDP annual growth rate of 11% while increasing real GDP per capita to US$44,000. The DSP also discusses productivity and sector development goals the Government expects to reach. The four central aims in terms of productivity and sector development were: 1) increase productivity to by 4% annually 2) move existing sectors of strength to new domestic and international frontiers 3) create new sectors of strength with sustainable competitive advantage, and 4) promote innovation to develop new sectors and improve productivity. In June 2009, Sheikh Mohammed Al Maktoum revealed that the DSP-2015 may need to be revised following the global financial crisis. He stated that “the plan is currently under careful review, wherein we are monitoring all the developments in the financial markets and the global economy”. Sheikh Mohammed declared that if the timelines they had set for their goals and aims needed to be adjusted, they will do so allowing them to „maintain a reasonable and actionable plan, and ensure the achievement of its objectives‟. Other Emirates Sharjah is the UAE‟s leading industrial and manufacturing emirate with 19 industrial subdivisions. About 40% of industry in the UAE is based in Sharjah with different types of goods being manufactured in the emirate. Sharjah‟s main economic resources are crude oil and gas with the emirate owning 5% of the country‟s oil reserves. Sharjah has been trying to diversify its economy in order to sustain healthy growth. The emirate‟s government encourages growth in the private sector and greets foreign investment in the manufacturing, trade, and service sectors. One of the biggest real estate projects being developed in Sharjah is Nujoom Islands. The idea of the project is to have environment-friendly properties steps away from the beach. Nujoom Islands will contain villas, office space, a shopping mall, hospital, boutique hotel, along with many entertainment options located on ten naturally occurring islands. The project is expected to be fully completed by 2013, with phase one being completed by October 2011. Ras Al Khaimah (RAK) is the fourth largest emirate of the UAE. Based on Government plans, the real estate sector, infrastructure, and tourism have been recognized as the steps to develop and enhance RAK‟s economy. The economy of RAK is expected to follow Dubai‟s in its growth strategy and Sheikh Saud Al Qasimi, the Ruler of RAK, believes the tourism industry needs to be developed in order to attract investments and encourage economic growth. One of the main projects in RAK currently is Saraya Island, which will cover over one million square meters once completed. The project will be home to waterfront estates, villas, hotels, along with retail stores and restaurants and is scheduled to be completely done in the next five years. RAK enjoys a natural advantage over other emirates thanks to the variety of natural resources it holds. Al Hajar mountain range contains large supplies of high quality limestone, which is a key ingredient for manufacturing cement. The pharmaceutical industry, which is dominated by Gulf Pharmaceutical Industries (Julphar), plays a major role in RAK‟s economy. Julphar is the largest pharmaceuticals manufacturer in the UAE and one of the largest in the region as it exports to over 80 countries. RAK is also home to Masafi mineral water, one of the region‟s leading mineral water brands. Perhaps the most important part of RAK‟s economy is RAK Ceramics, the single largest ceramic tile manufacturer in the world. It produces over 100mn square meters of tiles and 3mn pieces of sanitary-ware annually while exporting to 135 countries.
6

Global – UAE Economic Outlook 2010

GDP by Economic Activity
Since reaching $137/barrel in July 2008, oil prices started declining and reached $44/barrel by the end of 2008. Prices in the beginning of 2009 hovered around US$40-$50 and then gradually started increasing to reach US$80/barrel by the end of 2009 (average was US$61.76/barrel for ‟09 vs. US$93.78 in „08). Due to the significant decline in oil prices, OPEC ordered production cuts at the end of 2008 to limit the supply and raise prices. Oil and gas‟ contribution to GDP was greater than 32% from 2005-08, but fell to 29% in 2009 (AED264bn). Crude oil and gas contribution to GDP grew at a CAGR of 24% from 2005-08, while 2009 faced a decrease of 15.6% to reach AED264.2bn. As seen in the economic development plans of Abu Dhabi and Dubai, diversifying the economy away from oil is the long-term development strategy of the UAE. The non-oil service sectors that the UAE wish to expand into include logistics, tourism, trade, finance, and manufacturing. Since 2005, the greatest contribution to the GDP outside of oil has been through manufacturing, averaging 15.4% of the economy. Manufacturing contributed 16% to UAE‟s GDP in 2009, witnessing a growth of 5% to reach AED148bn in 2009. The construction sector is the second largest contributor to the economy (excluding oil) with a growth of 8% to AED98bn in 2009. Although the real estate and business services sector contributed 8% of the GDP, it experienced a slowdown in 2009 (growth of 4% compared to 30% in 2008). The large infrastructure projects in Abu Dhabi seem to have offset the losses of Dubai in this sector, which enabled it to slightly grow despite a liquidity crunch.

Table 2: GDP by Economic Activity
(At current prices in AED billion) Crude Oil and Natural Gas Quarrying Manufacturing Government Services Whole, Retail Trade, and Repair Services Transport, Storage, and Communication Real Estate and Business Services Construction Agriculture and Fishing Restaurants and Hotels Electricity, Gas, and Water Social and Personal Services Domestic Services and Households Financial Corporation Sector Imputed Bank Services GDP at Current Prices 2005 162.7 1.5 73.5 40.5 46.6 34.5 39.0 45.6 11.2 9.1 9.1 9.1 3.0 28.9 -7.6 506.8 2006 207.9 1.9 102.3 48.3 56.6 43.1 47.0 62.4 12.2 10.9 10.3 10.9 3.9 35.4 -9.0 643.5 2007 249.4 2.3 116.7 59.1 66.7 50.8 55.3 72.8 12.9 12.9 11.4 12.9 4.6 40.9 -9.9 758 2008 313.0 2.8 141.1 70.1 80.4 60.7 71.9 90.6 15.0 15.0 14.0 15.9 4.7 49.5 -12.2 934.3 2009* 264.2 2.7 148.1 73.1 82.3 64.9 75.0 97.8 15.5 16.5 14.6 17.4 4.6 53.0 -12.8 914.3 % of 2009 Contribution 28.9% 0.3% 16.2% 8.0% 9.0% 7.1% 8.2% 10.7% 1.7% 1.8% 1.6% 1.9% 0.5% 5.8% -1.4% 100%

Source: National Bureau of Statistics, UAE & Ministry of Economy

*= Preliminary Data

Wholesale, retail trade and repairing services is another large contributor as it amounts to 9% of the GDP. It grew by a miniscule 2.4% in ‟09 to AED82bn compared to 20.5% the previous year. The quarrying and

7

Global – UAE Economic Outlook 2010

domestic services sectors are the only two that suffered a decrease (2% each) in 2009. As expected, all contributing sectors did not witness growth in 2009 like they did in 2008 due to the global recession. Chart 5: GDP by Economic Activity
Financial Corporation 5.8% Transport & Communication 7.1%

2009
Other 7.8% Oil & Gas 28.9%

Financial Corporation 5.3% Transport & Communication 6.5%

2008
Other 7.2%

Oil & Gas 33.6% Government 7.5% Real Estate 7.7%

Government 8.0% Real Estate 8.2% Wholesale & Retail trade 9.0% Construction 10.7%

Manufacturing 16.2%

Wholesale & Retail trade 8.6% Construction 9.7%

Manufacturing 15.1%

Source: Ministry of Economy

GDP by Expenditure
During 2009, total consumption expenditure witnessed a nominal gain of 2% to reach AED522bn compared to AED512bn during the previous year. Private consumption witnessed a slight increase of 2% to reach AED433bn in 2009. On the other hand, government consumption grew 1.7% to AED88bn in 2009 against a 14% increase in 2008. Consumption expenditure in the UAE represented about 47% of the GDP in 2009 indicating consumer demand is a significant source of economic growth. From 2005 to 2009, consumption expenditure grew at a CAGR of 14.5% indicating the transformation of an oil-driven economy to a consumerdriven one. A large component of total spending is private fixed capital formation which amounted to AED230bn in 2009, or 25% of the GDP. Gross fixed capital formation, which includes private and government components, experienced a growth of 6% to AED318bn compared to a growth of 21% during 2008. The private component share of total fixed capital formation was about 72% in 2009, a reflection of the dominance of the private sector in the UAE. Gross fixed capital formation (GFCF) measures the value of acquisitions of existing or new fixed assets by the government or the business sector. It represents how much of the value added to the economy is invested instead of consumed. In times of a recession or financial uncertainty, business investments in fixed assets will usually decrease because it ties up needed capital for a long period and the risk of the asset not paying out is always a concern. GFCF is usually a good indicator of economic growth, business confidence, and future business activities. Based on IMF projections, GFCF is expected to decrease by about 12.7% in 2010. Total exports of goods and services suffered a decline of almost 16% to reach AED770bn in 2009. Crude oil and natural gas represented 33% of exports in 2009, while it constituted about 41% of exports the previous year. Re-exports represented 19% of total exports in 2009 at AED147.7bn, declining around 9% from 2008.

8

Global – UAE Economic Outlook 2010

The largest component of exports was non-oil exports at AED365bn, which represents 47% of total exports. Non-oil exports declined 2.8% from 2008 when it was AED375.6bn.

Table 3: GDP by Expenditure
Spending (AED billion) Consumption Expenditure Government Consumption Private Consumption Gross Fixed Capital Formation Gov't Fixed Capital Formation Private Fixed Capital Formation Exports Goods & Services Hydrocarbon Non-hydrocarbon Imports Goods & Services Net Exports Change in Stocks
Source: Central Bank of UAE & Ministry of Economy

2005 303.5 51.4 252.1 93.9 46.6 47.3 448.1 202.2 245.9 344.6 103.5 5.9

2006 370.7 58.0 312.7 121.1 54.7 66.4 559.3 257.3 302.0 414.3 145.0 6.6

2007 426.1 76.0 350.1 248.5 64.2 184.2 685.2 270.8 414.3 609.6 75.6 7.3

2008 511.6 86.6 425.0 300.2 82.9 217.3 913.1 374.7 538.4 806.3 106.8 15.0

2009 521.5 88.1 433.4 318.2 88.1 230.1 769.2 256.5 512.7 710.1 59.1 15.0

Total imports of goods and services decreased 12% to AED710bn in 2009. Total imports have grown at a CAGR of almost 20% from 2005-2009, and witnessed a significant increase in 2008 as it grew by 32%. Imports of goods and services have decreased in 2009, but not as much as the exports of goods and services indicating a strong domestic demand despite the collective drop in worldwide trade. Net exports was still a positive number in 2009 at AED59bn yet it witnessed a heavy decrease by 44% during the year. Due to an increase in private consumption, investments and net exports, the Dubai Chamber of Commerce (DCC) is expecting an 8% increase to UAE‟s 2010 GDP in nominal terms. The UAE‟s economy suffered a strong decline, especially since the Dubai World (DW) debt announcement. The IMF estimated a 1.3% rise in UAE‟s 2010 real GDP. After DW announced that they have reached an initial agreement with their creditors to restructure its US$23.5bn, IMF stated that they are willing to revise their initial estimation of growth. IMF have also claimed that despite minimal growth in real GDP in 2010, they believe growth will recover in 2011. The two main reasons for this claim are the increased activity in the oil and trade sectors due to the recovery in Asia, and an organized restructuring of Dubai‟s government-related entities. According to DCC, employment is set to climb by 2% for 2010 which would also be a boost to the country‟s growth and place the economy back on track.

9

Global – UAE Economic Outlook 2010

Public Finance
The UAE budget surplus in recent years was largely credited to high gas and oil profits due to high oil prices. However, it just managed to generate a surplus in 2009 for the same reasons. Total government revenue was almost AED293bn for 2009, a decline of 35% from the previous year. As expected, the decline is attributed to the drop in oil prices and the slowdown in foreign trade which occurred due to the global recession. Hydrocarbon revenues remained the largest revenue generator of UAE as it represented 74% of total revenues in 2009. Oil and gas revenues declined by 40% to reach AED217.5bn in 2009, against AED362bn in 2008. The non-hydrocarbon revenues of 2009 declined by 15% to reach AED75bn against AED88bn during the previous year. Investment income, previously the largest contributor to non-oil revenues, declined by almost 40% in 2009 due to the worldwide recession. Despite a rise of 31% in 2008, profit transfers only managed to grow by 4% due to the current economic conditions.

Table 4: Summary of Consolidated Finances
(AED billion) Total Revenues Hydrocarbon Non-hydrocarbon Customs Profit Transfers Income Tax Fees and Charges Investment Income Other Total Expenditures Current Expenditures Wages and Salaries Goods and Services Abu Dhabi 'federal services' Subsidiaries and Transfers Other Development Expenditure Loans and Equity (net) Foreign Grants Surplus/(Deficit)
Source: International Monetary Fund

2005 203.9 152.9 50.9 3.9 4.6 0.4 8.8 24.6 8.6 104.0 84.3 15.9 25.5 22.8 19.4 0.8 14.0 5.1 1.0 99.9

2006 299.1 229.4 69.7 4.6 8.0 0.6 13.6 33.7 9.3 128.0 103.1 17.7 26.4 25.3 32.7 1.0 15.2 9.0 0.4 171.1

2007 330.8 235.5 95.3 8.0 13.0 0.8 9.7 46.3 17.3 167.0 126.6 21.3 35.8 31.3 36.8 1.4 17.3 20.8 2.3 163.8

2008 450.3 362.1 88.2 6.5 17.0 1.2 12.2 30.2 21.0 254.0 166.8 29.0 49.0 45.6 41.5 1.7 31.5 51.8 3.6 196.3

2009* 292.6 217.5 75.0 5.9 17.7 1.0 12.7 18.3 19.5 289.0 196.7 33.6 61.9 56.2 43.2 1.8 37.9 52.1 2.4 3.6

% of 2009 composition 100% 74.3% 25.6% 2.0% 6.0% 0.3% 4.3% 6.3% 6.7% 100% 68.1% 11.6% 21.4% 19.4% 14.9% 0.6% 13.1% 18.0% 0.8%

*= Preliminary Data

Total expenditures increased by 14% in 2009 to reach AED289bn. Current expenditures, which includes wages & salaries and goods & services, is the largest contributor to total expenditures as it represented 68% in 2009. Current expenditures grew by 18% in 2009 to AED197bn from AED167bn in 2008. All segments of current expenditures managed to grow in 2009, the highest being goods and services which witnessed a rise of 26% to AED62bn. Development expenditures along with net loans and equity, two significant contributors to total expenditures, also increased in 2009 to AED38bn and AED52bn respectively.

10

Global – UAE Economic Outlook 2010

The growth in government expenditures compared to the sharp decline in government revenues led to a steep decline in the budget surplus. The budget surplus for 2009 was a mere AED3.6bn, compared to AED196.3bn in 2008 (a decline of 98%). As we previously mentioned, government revenues decreased by 35% in 2009 while government expenditures increased by about 14%. The inverse relationship between revenues and expenditures led to the massive drop-off in the surplus figure for 2009. According to the IMF, based on the World Energy Outlook‟s oil price projections, the total fiscal position is expected to increase to a surplus of approximately 10% of GDP in 2010. The surplus is expected to grow to 15% of GDP in the medium-term, due to a steady increase in non-hydrocarbon revenues related to the introduction of the VAT. Specifically, Dubai is expected to reduce its deficit in the medium term upon completion of some large investment projects, while Abu Dhabi is projected to record constant, large hydrocarbon-driven surpluses over the medium term.

Chart 6: The Consolidated Government Finance Account
700 600 500

(AED Bns)

400 300 200 100 0 2005 2006 2007 2008 2009 2010* *= Estimates 2011* 2012* 2013* 2014* 2015*

Revenues
Source: Central Bank of UAE & International Monetary Fund

Expenditures

The Federal Government of the UAE has decided to change budgeting methodologies from the traditional incremental budgeting and adopt zero-based budgeting. Under incremental budgeting, Ministry budgeting teams only need to justify increases over the previous year‟s budget without reference to previous levels of spending. By applying zero-based budgeting, each government department must develop every 3-year budget from scratch and all expenditures must be approved, rather than just approving increases in spending. According to the National Bureau of Statistics, zero-based budgeting “better reflects changing economic circumstances and is much more appropriate in rapidly growing economies because of the need to finance large-scale infrastructure development projects”. The first 3-year zero-based budget of the UAE would be implemented from 2011 through 2013.

11

Global – UAE Economic Outlook 2010

Current Account
Total exports of goods and services (FOB) witnessed a decrease of 19.7% to reach AED706bn in 2009. Hydrocarbon exports attributed to 35% of the total exports against 43% in 2008. On the other hand, total imports of goods and services decreased by 3.2% to AED626bn from AED647bn during the previous year. Consequently, the trade balance for 2009 was AED79.6bn surplus, as opposed to about AED231bn surplus in 2008. Meanwhile, the current account suffered a large drop of 65% in 2009 while its surplus represented 3% of the GDP.

Table 5: Trade Balance
Particulars Total Exports (FOB) Exports of Hydrocarbon Hydrocarbon as % of total exports Oil Exports Petroleum Products Exports Gas Exports Non-oil Exports Re-exports Free Zones Exports Other Goods Total Imports (FOB) Balance of Trade (FOB) Balance of Trade as % of GDP
Source: Central Bank of UAE

2005 448.1 202.2 45.1% 159.7 21.3 21.2 245.9 146.1 64.0 35.8 344.6 103.5 20.4%

2006 559.3 257.3 46.0% 213.3 17.9 26.1 302.0 172.7 75.3 54.0 414.3 145.0 22.5%

2007 685.2 270.9 39.5% 224.5 17.9 28.5 414.3 259.1 83.7 71.5 609.6 75.6 10.0%

2008 878.5 374.7 42.7% 313.7 22.1 39.1 538.4 345.8 97.5 95.1 647.4 231.1 24.7%

2009* 705.8 249.3 35.3% 198.8 20.0 30.5 456.6 294.3 96.2 66.0 551.1 154.8 16.9%

*= Preliminary Data

The trade balance and the current account balance witnessed declines in 2009. The trade balance dropped by 33% to almost AED155bn. The increase in the trade balance in 2008 was mainly attributed to the strong growth in hydrocarbon exports and re-exports. Meanwhile, the large decrease in the trade balance in 2009 was mainly due to a drop in oil prices. Oil exports decreased by 37% in 2009, compared to an increase of 40% in 2008.

Chart 7: Non-Oil Exports by Destination (2008)
Others 22%

Chart 8: Re-Exports by Destination (2008)

India 35%

Others 22%

India 21%

Iran & Other Asian Countries 14% Other Arab Countries 17% Source: International Monetary Fund GCC 12%

Other Arab Countries 17%
Other Asian Countries 10%

Iran 17%

GCC 13%

Source: International Monetary Fund 12

Global – UAE Economic Outlook 2010

Non-oil exports continued to dominate total exports of the UAE, representing 65% in 2009. During the year, non-oil exports declined by 15% to AED457bn, compared to AED538bn in 2008. Re-exports represented 64% of total non-oil exports while decreasing by 15% in 2009. The decline in re-exports was the main reason for the decline in total non-oil exports during 2009. Despite heavy losses in the trade balance, free zones exports declined by only 1% to AED96.2bn in 2009 against AED97.5bn. UAE‟s hydrocarbon exports dropped by 33% to reach AED249bn in 2009. The plunge in hydrocarbon export figures was due to the abnormal drop in oil prices in 2009 although production cuts were ordered to control the price per barrel. Crude oil exports dropped by 37% to reach AED199bn in 2009, compared to AED314bn in 2008. In 2009, petroleum and gas exports witnessed declines of 10% and 22% respectively. According to IMF projections, UAE‟s total exports in 2010 will grow by 12% while hydrocarbon exports will grow by 26%.

Chart 9: Percentage of Total Exports

54.9%

54.0%

60.5%

57.3% Source: International Monetary Fund

64.7%

45.1%

46.0%

39.5%

42.7

35.3% 2009

2005

2006 Oil

2007 Non-Oil

2008

Source: National Bureau of Statistics, UAE

India was by far the largest importer of all UAE exports as it represented 35% and 21% of UAE‟s non-oil exports and re-exports, respectively. Based on IMF projections, India‟s real GDP is expected to grow at an average of 7.5% annually for the next five years. India‟s imports are expected to grow by 20% in 2011 and continue to grow at a rate of 11% annually for the following three years. Since India‟s economy is projected to witness healthy growth in the medium-term, we believe that will have a positive effect on UAE‟s economy as UAE‟s exports should increase consequently. China is another economy that is expected to grow at a solid pace in the medium-term as IMF projects their real GDP to grow at an average annual rate of 9.7% for the next six years. Based on the same projections, China‟s imports will grow by 46% in 2010 and continue to grow at an average annual rate of 16% for the following five years. As China‟s import demands increase, primarily oil, we believe the trade between UAE and China will increase which in effect will have a positive impact on UAE‟s economy. Total imports (FOB) of the UAE for 2009 decreased by 15% to reach AED551bn. The rise of activity in the non-hydrocarbon sector, the increase in population which led to a rise in domestic demand, and the reduction of the re-export trade caused the imports level to have this reasonable drop despite much stronger declines in exports figures. Consumer goods represented 54.6% of total imports in 2009, while capital goods and intermediate goods represented 35.9% and 9.5% of total imports in 2009, respectively.

13

Global – UAE Economic Outlook 2010 Chart 10: Percentage of Imports by Emirate Remaining (2009)
Emirates 2.1%

Chart 11: Percentage of Imports by Country (2009) Saudi
Arabia France 2.7% 3.1% Others 3.6%

Sharjah 5.7% Abu Dhabi 21%

Italy 3.8% Republic of Korea 3.9%

India 13.8%

Dubai 71%

UK 4.2% Japan 6.0% Germany 6.7%

China 10.7% USA 9.3%

Source: Ministry of Economy

Source: National Bureau of Statistics

Asia continued to be the greatest source of UAE‟s imports in 2009. India and China remained the two largest exporters to UAE at 13.8% and 10.7% of total imports respectively. United States were third at 9.3% of all imports while Germany was the largest European exporter to UAE at 6.7% of total imports. Saudi Arabia was the largest Arab exporter to the UAE at 2.7% of total imports. Dubai continued to be the emirate with the largest portion of imports at 71% of total UAE imports in 2009. Dubai‟s domination of imports is due to the fact that they established themselves as the major re-exporting hub in the region. In 2008, Dubai International Airport Cargo Gateway underwent major restructuring and is now considered one of the most technologically advanced cargo-handling facilities. Dubai has also started building Al-Maktoum Airport Cargo Gateway, an air freight terminal worth around US$75mn located in Jebel Ali, which is scheduled to open in 2013. Dubai is anticipating an immense growth in air freight, and upon completion, AlMaktoum Cargo Gateway will be the largest in the world of its kind.

UAE Free Zones The UAE has become a familiar destination for many international corporations looking to set-up offices abroad. One of the main reasons for the ease of starting and operating a business in the UAE is free zones. A free zone is an area within a country where goods can be imported, handled, and manufactured without paying taxes or tariffs. Setting up a company in a free zone allows the owner full ownership (no need for a local partner) and full repatriation of profits and capital. Free zones make it easy to set up a company as they provide offices, factories, warehouses and simple start-up and licensing procedures. According to World Bank‟s Doing Business report, UAE ranks third in the GCC, after Saudi Arabia and Bahrain, and 33rd in the world, in terms of „ease of doing business‟. Despite the economic downturn, UAE continues to establish new free zones across all emirates, especially in Dubai, which are expected to be completed during 2012.

14

Global – UAE Economic Outlook 2010

List of Selected UAE Free Zones
Name Jebel Ali Free Zone Dubai International Financial Centre Dubai Multi Commodities Centre Dubai Gold & Commodities Exchange Dubai Media City International Media Production Zone * Dubai Studio City * Dubai Internet City Dubai Silicon Oasis Authority Dubai Knowledge Village Dubai International Academic City * Dubai Healthcare City Dubai Maritime City * Hamriyah Free Zone (Sharjah) Industrial City of Abu Dhabi Ras Al-Khaimah Free Trade Zone Ras Al-Khaimah Media Free Zone Ahmed Bin Rashid Free Zone (Um Al-Quwain) Type Industrial and Financial Financial Financial Financial Media & Technology Media & Technology Media & Technology Media & Technology Media & Technology Educational Educational Health Industrial Industrial Industrial Industrial and Financial Media & Technology Industrial Established 1985 2004 2002 2005 2001 NA NA 2000 2002 2003 NA 2002 NA 1995 2004 2000 2006 1998

Source: UAE Chamber of Commerce and Industry & Government of Dubai * = not completed, under development

The current account declined by 65% in 2009 to reach AED28.8bn compared to 2008. The main reason for the large slump in 2009 was the decrease in the goods account which dropped 33%. The reasons for the decrease in the trade balance (exports and imports) are discussed in detail on pages 12 and 13. While the current transfers account remained almost unchanged, the services account witnessed a significant decrease. The debit balance of services, which includes freight and insurance, travel, and transportation, decreased to AED137.6bn in 2009, compared to AED159.5bn in 2008, a decline of almost 14%. Within debit balance of services, travel witnessed the largest decline of 22%, which is to be expected in such economic conditions. The credit balance of services rose from AED35.2bn in 2008 to AED37.3bn in 2009, an increase of 6%. Despite decreasing by 15%, freight and insurance continued to represent the largest portion of net services at 75%, i.e. AED75bn in 2009.

15

Global – UAE Economic Outlook 2010

Table 6: Current Account Balance
Particulars (in AED billion) Current Account (a + b + c) a. Goods Exports (FOB) Imports (FOB) b. Services (net) Travel Transport Freight and Insurance Government Services c. Current Transfers Private Public Net Investment Income
Source: Central Bank of UAE

2005 89.5 157.2 430.7 273.6 (53.6) (10.9) (5.5) (37.3) (0.1) (14.1) (22.8) (1.9) 10.6

2006 132.4 211.3 534.7 323.4 (66.2) (14.2) (8.1) (44.1) (0.1) (12.7) (28.1) (2.0) 17.4

2007 72.1 170.9 656.0 485.2 (95.4) (19.1) (10.0) (66.2) (0.1) (3.4) (32.0) (2.2) 30.8

2008 81.8 231.1 878.5 647.4 (124.2) (22.5) (13.4) (88.3) (0.1) (25.0) (36.7) (2.3) 14.0

2009* 28.8 154.8 705.8 551.1 (100.3) (11.0) (14.1) (75.1) (0.1) (25.6) (35.0) (2.4) 11.8

*= Preliminary Data

Net investment income, which falls under the transfer payments segment of the current account, declined from AED14bn in 2008 to AED11.8bn during 2009, a drop of about 16%. In the meantime, workers transfers‟ abroad decreased by 4.6% to reach AED35bn in 2009 from AED36.7bn in 2008.

Table 7: Financial Account
Particulars (in AED billion) Financial Account Private Capital -Direct Investment -Portfolio Investment -Banks -Private Non-banks Public Sector Enterprises Errors and Omissions
Source: Central Bank of UAE

2005 (53.9) 55.2 26.3 22.6 (12.5) 18.9 (109.1) (26.1)

2006 (59.0) 87.6 7.0 4.4 35.6 40.6 (146.6) (49.5)

2007 105.4 217.3 (1.4) 5.3 178.3 35.1 (111.9) 5.7

2008 (203.1) (94.9) (7.7) 8.1 (44.9) (50.4) (108.2) (50.8)

2009* 8.4 28.4 4.7 9.0 (36.3) 51.0 (20.0) (59.8)

*= Preliminary Data

The net balance of UAE‟s financial account reached a positive figure in 2009 after a huge loss during the previous year. The net financial account balance was AED8.4bn in 2009 compared to a negative balance of AED203bn the previous year. The AED211.5bn swing during the year from 2008 to 2009 was mainly due to the private capital inflows. Within the private capital inflow, banks managed to decrease the negative balance of AED45bn in 2008 to AED36bn in 2009. Portfolio investment, which has managed to remain positive in the five years being covered in this report, gained 11% from AED8bn in 2008 to AED9bn in 2009. Private non-banks were the largest contributor to private capital‟s positive net balance. From witnessing more than AED50bn outflows in 2008, preliminary data showed private non-banks ended 2009 with a AED51bn inflow. Direct investments experienced an AED11bn swing (from AED7.7bn outflow to AED4.7bn inflow)

16

Global – UAE Economic Outlook 2010

from 2008 to 2009. Public sector enterprises were the second largest contributor to the net balance of private capital in 2009. Remaining negative, the public sector managed to reduce the outflows from AED108bn to AED20bn in 2009.

Table 8: Overall Balance
Particulars (in AED billion) Current Account Capital Account Financial Account Overall Balance: surplus/(deficit) As a % of GDP Change in reserves Central Bank net foreign assets Reserve position with the IMF
Source: Central Bank of UAE *= Preliminary Data

2005 89.5 NA (53.9) 9.5 2% (9.5) (10.2) 0.7

2006 132.4 NA (59.0) 23.9 4% (23.9) (24.0) 0.1

2007 72.1 NA 105.4 183.2 24% (183.2) (183.1) (0.1)

2008 81.8 NA (203.1) (172.0) -18% 172.0 172.2 (0.2)

2009* 28.8 NA 8.4 (22.5) -2% 22.5 22.8 (0.2)

Foreign direct investments (FDI) have played a major role in UAE‟s economy in the past. Due to the global recession, FDI has decreased heavily all over the world, including the UAE. FDI inflows of the UAE for 2009 were US$4.0bn, down 71% from the 2008 figure. The economic uncertainty surrounding Dubai was a major reason for the slowdown in FDI in 2009. Once the UAE government-related entities improve their transparency and find a timely solution to the piling debt, we believe FDI in UAE will grow back to previous figures. FDI is very beneficial to a country‟s economy. It aids in the economic development of the country being invested in as it creates new jobs and improves salaries of employees. FDI provides a major source of capital to the country, along with advanced technology, which can then be used in the country to improve market sectors and increase the country‟s competitiveness. FDI also creates products and services which can be exported and increase the volume of trade between countries. Therefore, it is essential for the UAE to improve their reputation among investing countries so it can benefit from the inflowing investments as it did in the past. Based on IMF projections, the current account is expected to have a surplus of approximately 7% of the GDP in 2010. IMF is forecasting the 2010 GDP to be around AED932bn, which would allow the current account to have a surplus of AED65.3bn. That growth would result in a 127% increase over the 2009 figure, and IMF is projecting the current account to grow steadily in the following years.

17

Global – UAE Economic Outlook 2010

Monetary Policy
UAE‟s Dirham remains pegged with the US Dollar. As a result, the Central Bank of UAE (CBUAE) is limited in the options it has to control inflation and administer the money supply due to this pegging. By aligning interest rates to those of the US and issuing certificates of deposit to commercial banks, the CBUAE is able to manage money supply growth.

Chart 12: Interest Rate Trends
5 4.5 4 3.5

Percentage

3 2.5 2 1.5 1 0.5 0

We expect the EIBOR to follow the trends of the interest rates

Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10* Q4-10* Q1-11* Q2-11* Q3-11* Q4-11*

EIBOR
Source: Bloomberg

US Federal Fund Rate

LIBOR (US)

Following US interest rate patterns, the UAE witnessed cuts in their key interest rates in 2008 and 2009. The Central Bank has lowered its interest rate on repurchase of certificates of deposit from 5% in Q4 of 2007 to 2.25% in Q1 of 2008 in line with several cuts by the US Federal Reserve. The repurchase rate witnessed more cuts and reached 1.5% in Q4 2008 before reaching 1% on Q1 2009 and remained at that rate ever since (Q22010). Similarly, the 3-month interbank rate (EIBOR) witnessed a decline in Q1-2008 to 3.07% and further dropped to 1.93% the following quarter. However, the EIBOR increased at the end of 2008 to 4.52% and floated around 2.25%-3.5% for the first three quarters of 2009 due to fewer customer deposits and the strong need for credit. EIBOR rates of 2010 have been above 2% and are currently floating around 2.3%.

Table 9: Interest Rates in UAE
In % 3-month Inter-bank rate (average) Repurchase Rate (REPO)
Source: Central Bank of UAE & Bloomberg

2008 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 3.07 1.93 2.85 4.52 3.51 2.53 2.28 1.94 2.1 2.31 2.25 2.00 2.00 1.50 1.00 1.00 1.00 1.00 1.00 1.00

In order to stimulate aggregate demand, the UAE government responded to the financial crisis by implementing expansionary monetary and fiscal policies. The main goal of implementing such policies was to expand the money supply in the economy and encourage economic growth. They also decreased the rate on its previously issued liquidity support facility from 2.5% to 1.5% to increase investments by reducing the cost of

18

Global – UAE Economic Outlook 2010

borrowing. The ratio of liquid assets to short-term liabilities, which is used to determine banks‟ solvency, improved from 76% in January to 92% in April 2009, according to the National Bureau of Statistics. At the end of 2009, the money supply, as measured by M1, grew 9% to AED223.5bn from AED205bn at the beginning of the same year. An increase in both monetary deposits and currency in circulation led to the rise in M1. Monetary deposits increased by 9% to AED186bn, while currency in circulation jumped 10% to AED37bn during 2009. From end of 2005 to end of 2009, the money supply expanded at a CAGR rate of 21%. In the first three months of 2010 money supply rose about AED7bn.

Table 10: Money Aggregates (in AED billions) Currency in circulation outside banks Monetary Deposits Money Supply (M1) Quasi Money Broad Money (M2) Government Deposits Overall Broad Money (M3)
Source: Central Bank of UAE

2005 17.5 86.9 104.4 219.6 324.1 91.3 415.4

2006 21.8 98.2 120.0 279.3 399.3 104.7 504.0

2007 25.9 155.7 181.7 384.0 565.7 130.5 696.2

2008 34.0 171.2 205.1 466.2 671.3 227.8 899.1

2009 37.2 186.3 223.5 517.1 740.6 207.2 947.8

Q1-10 37.4 192.3 229.7 518.3 748.0 186.8 934.8

Q2-10 NA NA 231.8 525.4 757.2 188.1 945.3

Due to solid growth in money supply and stronger growth in quasi money, the broad money supply as measured by M2 grew by 10% to AED741bn during 2009 from AED671bn at the end of the previous year. Quasi money witnessed a growth of 11% to AED517bn at the end of 2009, compared to AED466bn at the end of 2008. The increase in quasi money during 2009 came on the back of 15% growth in time deposits (AED304bn to 348bn) and 12% growth in savings deposits (AED31bn to AED35bn). Since Q4-2005 to Q42009 broad money supply was able to increase at a CAGR rate of 23%. Broad money supply witnessed an increase of AED8bn during the first quarter of 2010.

Table 11: Asset Growth in Banks
(in AED billion) Net Foreign Assets Foreign Assets Foreign Liabilities Net Domestic Assets Claims on Private Sector Net claims on Government Claims on official entities Claims on Nonbank Financial Institutions Capital and Reserves Other
Source: Central Bank of UAE

2005 166.82 253.18 (86.36) 157.24 290.30 (47.33) 24.80 15.24 (79.69) (46.08)

2006 155.63 334.61 243.66 385.79 (51.88) 33.00 32.36 (49.96)

2007 160.33 482.82 405.56 530.97 (61.38) 45.39 55.21 (32.19)

2008 33.13 316.89 651.21 777.19 (75.03) 56.06 97.94 (39.38)

2009 46.95 298.71 693.67 786.55 10.00 77.26 91.45 (26.06)

Q1-2010 47.01 299.24 (252.24) 701.00 774.91 30.76 81.67 105.64 (255.65) (36.32)

(178.98) (322.50) (283.76) (251.76)

(105.65) (132.44) (165.57) (245.53)

Despite solid growth in the money supply and broad money supply, overall broad money as measured by M3 only managed a growth of 5% from AED899bn to AED948bn during 2009. The reason for the moderate growth in M3 (compared to M1 and M2) was the decline in government deposits. Government deposits decreased by 9% to reach AED207bn during 2009 compared to AED228bn in 2008. Having experienced

19

Global – UAE Economic Outlook 2010

moderate growth in 2009, overall broad money still grew at a CAGR rate of 23% from 2005 to 2009. Due to a 10% decline in government deposits, overall broad money supply decreased by AED13bn as of Q1-2010. UAE‟s banks‟ assets have witnessed mixed results in the last five years. During 2009, net domestic assets rose 7% to equal AED694bn. This mild increase came after a massive growth of 61% in 2008. UAE still managed growth in 2009 despite the financial crisis and the two primary reasons for that were the claims on official entities and net claims on government. There was not a distinguishing trend of loans to the private sector among individual banks, which seems to have resulted in an overall decrease in the claims to the private sector. The only evident trend we witnessed was that lending to the services and trade sector decreased, while claims to the government have grown. As of the first quarter of 2010, net domestic assets increased by AED7bn. Surprisingly, net foreign assets climbed 42% in 2009 after falling 79% during 2008. Despite foreign assets declining by 6%, net foreign assets managed to pull off that strong growth. Foreign liabilities decreased by AED32bn, which is what allowed net foreign assets to witness growth during 2009.

Chart 13: Certificate of Deposits of the Central Bank of UAE
200 180 160 140 120 100 80 60 40 20 0

(AED bns)

2002
Source: Central Bank of UAE

2003

2004

2005

2006

2007

2008

2009

Q1-2010

In order to regulate money supply, the CBUAE generally issues or buys back certificates of deposit (CDs). Since 2000, CDs constituted a minor portion of the Central Bank‟s liabilities. This either means that the Central Bank was issuing few CDs or was buying them back in order to increase the money supply. On the other hand, excessive cash in the economy during 2007 led to a surge in CDs which was more than 400% of the previous year‟s CDs. Outstanding CDs in 2006 amounted to AED32bn, while it jumped to AED174bn in 2007. At the end of 2008, outstanding CDs declined to AED47bn as a result of the government‟s efforts to reduce liquidity and the financial crisis that started in Q4-2008. CDs increased by 51% in 2009 to AED71bn and equaled 38% of CBUAE‟s total liabilities. In order to sustain economic activity and protect UAE‟s economy from the financial downturn, the CBUAE took several steps to ensure that adequate liquidity remained in the system. The Government of Abu Dhabi took vital steps through equity injections and loans to its government-related banks of AED16bn, hence strongly recapitalizing banks. The Central Bank deployed bank liquidity support facilities and lowered interest rates to improve the monetary position and stimulate credit offtake. The Federal Government rolled out large scale liquidity injections and provided AED50bn to the inter-bank market, along with guaranteeing bank deposits. The Government of Dubai announced a support package of US$20bn to finance the needs of Dubai‟s government-related entities. The Dubai Financial Support Fund was established to manage the provided support to Dubai.

20

Global – UAE Economic Outlook 2010

Inflation
Based on reports released by National Bureau of Statistics, inflation as measured by the Consumer Price Index (CPI) equaled 114 in 2009, and compared with its 2007 base year, the increase of prices was 1.56% against 2008 prices. The CPI increase in 2008 was 12.26% and was the highest it reached since 2000. The main reason for the minimal growth in inflation was the decline in real estate prices which affectively declined rents.

Table 12: Consumer Price Index
(2007=100) All Items Housing Food and Soft Drinks Transportation Textiles, Clothing, and Footwear Communication Miscellaneous Goods & Services Restaurants, Cafes, and Hotels Furniture and Household Goods Education Recreational and Cultural Goods & Services Medical Care Alcohol and Beverages Weight % 100.0 39.3 13.9 9.9 7.6 6.9 5.3 4.4 4.2 4.0 3.1 1.1 0.2 Consumer Price Index 2008 2009 112.25 114.00 113.43 113.90 116.27 117.18 105.74 110.79 119.77 114.06 100.96 104.15 112.06 115.68 123.68 129.70 106.97 113.56 108.55 119.25 105.24 104.40 107.77 106.18 103.71 114.58 Inflation Rates % increase/(decrease) 1.56% 0.42% 0.78% 4.78% -4.77% 3.16% 3.23% 4.87% 6.16% 9.86% -0.80% -1.48% 10.48% CPI Q2-2010 114.13 113.05 120.96 112.40 109.16 97.63 115.55 131.27 117.56 127.41 106.33 105.27 116.06

Source: Ministry of Economy & National Bureau of Statistics, UAE

Many factors led to the surge in inflation rates in 2008, the main one being the rising pressure on rents. The increased prices of oil during that year also increased the CPI by increasing fuel prices in the UAE and around the world. The expansionary fiscal policy implemented by the UAE led to low interest rates which in turn increased liquidity and consumer spending. The surge in consumer spending led to an increase in wages, which led to higher retail prices passed on to consumers. Increases in prices of imports, especially food items, also led to high inflation rates. Since a large portion of UAE‟s imports are from Europe, the drop of the US dollar against the Euro and other major currencies is what led to the increase in imports‟ prices.

Chart 14: UAE Inflation Trend
14 12 10 8 6 4 2 0

Percentage

2001
Source: Ministry of Economy

2002

2003

2004

2005

2006

2007

2008

2009

21

Global – UAE Economic Outlook 2010

In 2009, the „housing‟ sector, which constituted 39% of the CPI, witnessed a very slight increase of 0.4%, the main attribute for the slim gain in consumer prices. According to Asteco, the rental rate of apartments and villas in Abu Dhabi and Dubai declined considerably during 2009. In Abu Dhabi, apartment rents decreased by an average of 10% during Q4-2009 due to new supply of housing entering the market, and people relocating to Dubai on the back of cheaper rents. Dubai apartment rents did not suffer as much as Abu Dhabi during Q42009, while leasing rates for villas began to stabilize. During Q2-2010, apartment rents in Abu Dhabi continued its downward trend and lost 7%-15% and that number is expected to continue its trend in 2010 as more supply is delivered to the market. During the same quarter, Dubai apartment rents declined by an average of 8% which can also be attributed to new supply entering the market. The economic crisis is forcing consumers to save more money and spend less which is placing a downward pressure on price levels. Likewise, private investment expenditures by foreigners decreased which lowered prices by slowing aggregate demand. A positive influence of the low inflation rate of 2009 is that it is lowering production costs and improving the competitiveness of the economy.

Table 13: Inflation by Emirate Emirate
Abu Dhabi Dubai Sharjah Ras Al-Khaimah Ajman Fujairah Um Al-Quwain UAE
Source: Ministry of Economy * = CPI increase from June 2009 to June 2010

2008
14.90% 10.73% 11.26% 11.19% 11.78% 10.53% 10.45% 12.26%

2009
0.78% 4.06% 2.10% 0.15% 0.56% 2.44% -0.05% 1.56%

Q2-2010
0.21% 0.15% -0.06% 0.07% 0.16% -0.19% 0.56% 0.11% *

According to the National Bureau of Statistics estimates, the inflation rate at the end of 2010 is expected to be as low as 1.1% and will steadily rise to 2-2.5% at the end of 2011 as the global economic recovery finds pace. Food price indices are expected to increase by mid-2010, as witnessed by rising pressure on sugar and rice prices which gained 15% and 20% in Q1-2010 respectively. As of June 2010, the CPI was 114.13 points, which is similar to the end of 2009 CPI of 114.00 points. It has however increased by 0.95% compared to its value as of the end of June 2009.

22

Global – UAE Economic Outlook 2010

Population and Labor Force
The population of the UAE has grown 113% to reach 5.1 million in 2009, compared to 2.4 million in 1995. That is one of the highest population growth rates in the world over that time period. According to the National Bureau of Statistics, despite the slowdown in economic activity and decline in labor demand due to the global financial crisis, there have been indications that expatriates, mostly males, continued to migrate to the UAE in 2009.

Chart 15: Population Trend

6

4 in millions 2 0 Source: Ministry of Economy

The demographic profile shows that the male population in 2008 constituted 69% of the total population. The higher number of males in the UAE compared to females is mainly due to the number of expatriates, as the majority of expatriates are male. According to the National Bureau of Statistics, expatriates represented 81.7% of the 2009 total population; 79% of the expatriates are economically active.

Chart 16: UAE Population by Age Group 1.3% (2009)

Chart 17: UAE Population by Nationality (2009)
Nationals 18.3%

16.8% 0-14 15-59 60+ 81.9%

81.7%

Expatriates
Source: National Bureau of Statistics, UAE Source: National Bureau of Statistics, UAE 23

Global – UAE Economic Outlook 2010

A major portion of the UAE‟s population reside in Abu Dhabi and Dubai, as population of the two emirates represents two thirds of the total population. This shows that both emirates are the major destinations in the country for business and job creations for expatriates and nationals. This is also reflected in the economically active population, with Abu Dhabi and Dubai combining to represent 67% of the economically active population of the UAE in 2008. According to the 2009 Labor Force Survey conducted by the National Bureau of Statistics, economically active men were more than twice as many as economically active women, at 89% and 42% respectively. Based on the same survey, 69% of the total population was employed, with the high of 74% in Dubai.

Table 14: Population by Emirate and Gender (in thousands) 2007 Emirate Male Female Total
Abu Dhabi Dubai Sharjah Ajman Um Al-Quwain Ras Al-Khaimah Fujairah Grand Total
Source: Ministry of Economy

2008
Male 1,020 1,220 625 153 33 144 91 3,286 Female 539 376 321 84 20 87 52 1,479

Total
1,559 1,596 946 237 53 231 143 4,765

982 1,121 581 144 32 138 86 3,084

511 357 301 80 20 84 51 1,404

1,493 1,478 882 224 52 222 137 4,488

year-on-year growth 4.4% 8.0% 7.3% 5.8% 1.9% 4.1% 4.4% 6.2%

Another key characteristic of UAE‟s demographic profile is the large number of the working population, which constitutes of people between the ages of 15 to 59. During 2009, the working population represented 81.9% of the total population, which is also a result of the large number of expatriates working and living in the UAE. The higher the number of working population in the country, the lower the dependency ratio and the higher the per income generation will be. The dependency ratio shrunk to 22% in 2009, from 26% in 2007. Having a large working population could also create some problems if the country is not well-prepared for it. UAE must be able to create new jobs regularly as the national and expatriate population steadily increases.

Labor Force
The total number of employees in the UAE rose to 3.5 million in 2009, an increase of 5% over the 3.3 million in 2008. Due to the global economic crisis, the year-on-year growth of the employed portion of the population has not grown as much as it has in the previous years. Many projects have been postponed or cancelled due to the lack of liquidity, which led to lay-offs in the real estate, hospitality, and financial sectors. The National Bureau of Statistics stated that the unemployment rate for 2009 was 4.2%, which is an increase over the 2008 rate of 4%. Among the seven emirates, Dubai had the lowest unemployment rate while Fujairah had the highest in 2009. The trade and repair services sector was the major source for jobs and accounted for 15.4% of all employees in 2009. It was followed by domestic services, which accounted for 13.1% of all workers. The construction and maintenance sector, which used to employ the most workers in 2007 and 2008, only accounted for 12.3% of all workers in 2009. As per the Labor Force Survey, conducted by National Bureau of Statistics in 2009, 77% of expatriates and 39% of nationals are employed. Among national workers, the general administration, defense, and social security sector dominated other sectors as it provided jobs for 61% of all employed citizens. The second highest employer among nationals was the

24

Global – UAE Economic Outlook 2010

education sector at 8.7%. Among non-national workers, the trade and repair services sector was the highest employer at 17%. Domestic services along with construction & maintenance accounted for 14.6% and 13.7% of all employed non-nationals respectively.

Table 15: Employment by Sector (2009)
Sectors Agriculture, Hunting, Forestry & Fishing Mining & Quarrying Manufacturing Electricity, Gas & Water Construction & Maintenance Trade & Repair Services Hotels & Restaurants Transport & Storage Financial Intermediation Real Estate, Renting & Business Services General Admin., Defense & Social Security Education Health & Social Work Other Social & Personal Services Domestic Services Extra-Territorial Organizations & Bodies Total
Source: National Bureau of Statistics, UAE

Number of Employees 132,831 69,911 269,157 38,451 429,951 538,313 139,822 286,634 111,857 241,192 443,934 150,308 87,389 94,380 457,916 3,496 3,495,540

% of jobs held by Expatriates Nationals 4.1% 0.6% 1.9% 3.0% 8.5% 1.7% 1.0% 1.7% 13.7% 1.0% 17.1% 1.9% 4.5% 0.2% 8.5% 5.9% 3.1% 4.6% 7.3% 3.8% 6.7% 61.0% 3.7% 8.7% 2.5% 2.9% 2.7% 2.2% 14.6% 0.7% 0.1% 0.1% 100% 100%

The Labor Force Survey revealed that the private sector was the highest employer among the entire population as is accounted for 58% of all jobs. On the other hand, Federal and local governments were the highest employers among nationals as they accounted for 46% and 39% of local population respectively.

Table 16: Economically Active Population (2008)
(in thousands) Emirate Abu Dhabi Dubai Sharjah Ajman Um Al-Quwain Ras Al-Khaimah Fujairah Total
Source: Ministry of Economy

Employed 1,079 1,186 637 156 31.9 150 95 3,334

Unemployed used to work 11 5 4 2 0.3 2 1 24

Unemployed never worked 37 24 24 9 0.8 9 7 110

Total 1,127 1,215 664 167 33 161 102 3,469

25

Global – UAE Economic Outlook 2010

One of the biggest challenges that UAE and the entire GCC is facing is unemployment. According to a study conducted by Booz & Company in 2008, national unemployment in the UAE was close to 14%, despite rapid growth in the country‟s economy. One of the main causes of the region‟s unemployment issues is that the educations systems are not properly supporting the needs of modern industry. For that reason, the government is the major employer of nationals which has led to overstaffing and ineffectiveness in government services. According to World Bank Projections, the GCC labor force will grow 30% by 2020 to 20.5million, while it is currently at 15.6million. That has placed significant pressure on the entire region to generate hundreds of thousands of jobs annually.

26

Global – UAE Economic Outlook 2010

Dubai’s Debt Problem
On November 25th, 2009, Dubai World, the emirate‟s flagship holding company, announced they have asked all their lenders for a „standstill‟ agreement on their debt payments as they negotiate to extend maturities of its liabilities. The company stated that they are planning to restructure debt amounting to US$26bn, US$6bn of which belongs to Nakheel, DW‟s real estate subsidiary. There have been many reports that claim the total debt of DW is US$59bn. That number is the total liabilities figure of DW, while the debt is estimated to be around US$26bn as we mentioned above; total debt of the Emirate of Dubai is estimated to be around US$110bn.

Chart 18: Dubai's Total Debt (US$ bns)

Other jointly owned entities 24

Dubai World 26

Government of Dubai 24

Dubai Holding 15

Investment Corporation of Dubai 20
Source: International Monetary Fund and Institute of International Finance estimates

Abu Dhabi, the leader of the UAE economy, has provided US$20bn to Dubai in financial aid through the recently established Dubai Financial Support Fund. The purpose of the fund is to maintain debt payments to creditors, investors, and contractors while DW continues its debt restructuring negotiations. Part of that financial aid has been used to pay off the US$3.5bn Islamic bond of Nakheel which matured in December 2009. According to the IIF, Abu Dhabi‟s assistance will remain selective i.e. just enough to limit the contagion on the UAE economy and the banking system. Sheikh Mohammed bin Rashid Al-Maktoum, ruler of Dubai, issued a decree effective December 13, 2009, to establish a unique insolvency law to assist the reorganization and restructuring of DW and its subsidiaries. According to the IMF, one of the main reasons why the Government of Dubai viewed this new law as necessary was that DW was not subject to any insolvency framework in the UAE. Another reason is “subjecting DW and its subsidiaries that operate under several legal regimes within the UAE to a unified system would minimize the potential of applying different insolvency frameworks”. The last main reason, according to the IMF, is that although the DIFC insolvency framework is considered consistent with international standards, the federal insolvency framework is not used heavily and might not be adequate for sophisticated insolvency issues. The decree also created a special tribunal to handle all legal issues relating to debt restructuring of DW and its subsidiaries. The tribunal has exclusive authority to mediate all claims against DW or any person related to the

27

Global – UAE Economic Outlook 2010

debt restructuring of its companies. The tribunal is made up of three internationally known judges and all their decisions are conclusive and irreversible. Despite this being a welcoming note to creditors, it still remains to be seen whether the tribunal has the ability to enforce foreign rulings against DW, and if the tribunal‟s decisions will be accepted and enforced outside the UAE. On May 20th, 2010, DW announced it had reached an in-principle agreement with main creditors to restructure US$23.5bn of its debt. The details of the restructuring are as follows:         The deal was reached with the coordinating committee of creditors which accounts for about 60% of DW's bank lenders. The remaining 40% of creditors still have to accept the deal. Post restructuring the company's financial indebtedness will be approximately US$14.4bn and comprise of 2 tranches. Tranche A of US$4.4bn will be paid in 5 years with a 1% cash pay interest but no government guarantee on shortfall. Tranche B of US$10bn will be paid over 8 years with 1% interest plus varying payments in kind and comes with simultaneously varying government guarantee over a shortfall. Lenders will have to choose between 3 options, depending on their exposure and on their priorities in regards to the shortfall guarantee and payment in kind. The Government of Dubai will convert US$8.9bn of debt and claims into equity in Nakheel and commit to fund up to US$500mn of operating expenses and an interest facility of up to US$1bn while maintaining 100% ownership of the company. As part of the deal, Nakheel's trade creditors were offered repayment through a mix of 40% cash and 60% in Sukuk, with a 10% annual return.

The news regarding DW‟s debt restructuring was taken positively by the market which ended a recent losing streak; DFM inched up by 0.4% and ADX by 0.2% that day. Moreover, Dubai's 5-yr sovereign credit default swap (CDS) spreads tightened to 465bps from 469bps on the previous day, hinting possibly at further shrinkage. Albeit, news of the restructuring reaching its eventual conclusion is expected to bring in much awaited clarity for UAE, Dubai, and directly affected parties in particular.

Chart 19: Exposure to Dubai World Debt (US$ billion)

International Banks & other Investors 13

Dubai Banks 8

Abu Dhabi Banks 4

Source: International Institute of Finance

GCC Banks 1

28

Global – UAE Economic Outlook 2010

Debt restructuring needs to be complemented with methods to promote long-term corporate health in order prevent restructuring in the future. Some of these methods include shutting down „sick‟ businesses, improving financial disclosure and auditing standards, and sale of bad assets. Transparency, along with financial disclosure and corporate governance, need to meet international standards in order to allow the company to build stronger relations with its investors. To lessen speculation and improve credit-worthiness, details of the restructuring plans should be communicated thoroughly to the public. Also, disclosing financial accounts and business strategies of all government-related entities would rebuild Dubai‟s reputation and encourage local and foreign investors. While the restructuring of DW debt comes with cheers, the short and long term effects of this event need to be evaluated. Dubai‟s ability to continue to lure foreign capital will suffer a temporary stall. That could change once the relationship between the government and government-related entities is explained and financial transparency and disclosure are improved. In terms of banks, we understand that after restructuring, a shortfall in the present value of future payments will lead to an increase in provisioning requirements, which could be a burden on a bank‟s bottom-line depending on its exposure to DW and the level of shortfall in the present value of future payments. A successful restructuring of DW may still result in banks taking a strong pinch over their earnings. Preliminary estimates reveal that this effective „haircut‟ could be in the range of 15-20% of loans exposure. ADCB, one of the most exposed banks to DW (and related entities), has recently revealed that its exposure will require provisions of AED1.035bn (15.7% of DW loans exposure). This is nevertheless highly dependent on the guidelines issued by the Central Bank of the UAE in conjunction to the opinions of the major audit firms. We believe that the likelihood of banks taking provisions on account of DW, despite its restructuring, is imminent. DW invited creditors to a meeting on July 22nd, 2010, to discuss details of its multi-billion dollar debt restructuring. The week prior to the meeting, Nakheel presented its lenders with in-depth terms of its restructuring plan to reduce their debt burden. DW‟s subsidiaries include DP World, Drydocks World, Dubai Maritime City, Economic Zones World, Istithmar World, Limitless, and Nakheel. Details of the debt surrounding DW and its subsidiaries through 2012 are as follows:

Table 17: Dubai World and Its Subsidiaries Debt Till 2012
Issuer Limitless Dubai World Dubai World Free Zone World & Ports Drydocks World Nakheel DP World
Source: Thomson Reuters Loan Pricing Corp.

Amount (US$ billion) 1.20 2.10 2.40 1.00 1.70 1.85 3.00

Maturity Mar-10 Jun-10 Jun-11 Sep-11 Nov-11 Aug-12 Oct-12

On September 9th, 2010, DW announced it has reached an arrangement with 99% of all its lenders to restructure US$24.9bn of its debt. The company expects it will finalize the restructuring deal by the end of September 2010. The news of the arrangement is expected to have positive effects on the UAE as a whole and boost investor confidence in its banking sector. The news of the restructuring comes at a very opportune time with UAE markets being included amongst the emerging market index of the FTSE. This essentially means that about 170 funds tracking this index will need to gain access to the UAE markets, which will lead to capital inflows in the emirate.

29

Global – UAE Economic Outlook 2010

Credit Ratings
Similar to many companies in the UAE, the credit ratings of Dubai government-related entities by credit rating agencies, such as Moody‟s and Standard & Poor‟s (S&P), were downgraded during 2009 due to the economic downturn. Despite enjoying explicit support of the government, Dubai GRE‟s still suffered rating downgrades given the sheer magnitude of the financial crisis. Many would also argue that the support of the government could have been the main cause of the rating downgrades as credit analysts saw weakness in the financial standing of the government itself. Following the November 2009 DW‟s announcement regarding its outstanding debt, six GREs‟ ratings were immediately downgraded even further by Moody‟s and Standard & Poor‟s and left them on review for possible downgrade.

Table 18: Credit Ratings of Dubai GREs
Company Moody's DP World Dubai Electricity & Water Authority DIFC Investments Jebel Ali Free Zone Dubai Holding Commercial Operations Group Emaar Properties Standard & Poor's DP World Dubai Multi Commodities Center Authority DIFC Investments Jebel Ali Free Zone Dubai Holding Commercial Operations Group Emaar Properties
Source: Moody's and Standard & Poor’s * = below investment grade

Ratings after DW Announcement Baa2 Baa2 Ba1 * Ba1 * Ba2 * Ba2 *

Previous Rating A3 A3 A3 Baa1 Baa1 Baa1

BB+ B+ B+ B+ BB+ BB+

BBBBB BBBBBBBBB+ BBB-

On the other hand, the support shown by the Government of Abu Dhabi towards its GREs was seen as a positive step, which prevented their credit ratings from suffering heavy downgrades. However, on April 7th, 2010, S&P placed four Abu Dhabi GREs on CreditWatch with negative implications as well as downgrading three Dubai GREs. DP World was downgraded from BB+ to BB with a negative outlook, while Emaar Properties‟ credit rating was lowered from BB+ to BB and was placed on „CreditWatch negative‟. Meanwhile, Dubai Multi Commodities Center Authority was downgraded from B+ to B and remained on credit watch with negative implications.

Table 19: Credit Ratings of Abu Dhabi GREs
Company Tourism Development and Investment Company International Petroleum and Investment Company Mubadala Development Company Aldar Properties Emirate of Abu Dhabi
Source: Moody's and Standard & Poor's 30

Moody's Rating/Outlook A1/Stable Aa3/Stable Aa3/Stable Ba3/Negative Aa2/Stable

Standard & Poor's Rating AA AA AA BBAA

Global – UAE Economic Outlook 2010

In Abu Dhabi, Tourism Development and Investment Company (TDIC), Mubadala Development Company, International Petroleum and Investment Company (IPIC), and Aldar Properties were the GREs placed on „CreditWatch negative‟ with downgrades of one or two levels expected to occur to the four companies within a month of the announcement. This action came as a result of the rating agency reconsidering their current rating practices of GREs. These GREs also suffered downgrades of one and two notches by Moody‟s on March 4 th, 2010. On May 12, 2010, however, S&P removed TDIC, Mubadala, and IPIC from „CreditWatch negative‟ and affirmed their ratings of AA, while only Aldar Properties‟ credit rating witnessing a downgrade.

Credit Default Swaps
The credit crunch and global economic slowdown has hindered growth in UAE significantly. Due to this hindrance, the credit default swaps (CDS) on sovereign debt has increased, especially in Dubai. CDS are a common type of derivative contract that pay out in the event of default. When CDS spreads widen it means investors are willing to pay more for protection against defaults. A spread of 250bps means an investor buying US$1mn worth of protection must pay US$25,000 a year.

Chart 20: 5-Year CDS of Abu Dhabi and Dubai
1000 900

800
700 600

500
400 300 200

100
0 1-Jan-09
Source: Bloomberg

1-Apr-09

1-Jul-09

1-Oct-09

1-Jan-10 Dubai CDS

1-Apr-10

1-Jul-10

Abu Dhabi CDS

The 5-year CDS of Abu Dhabi and Dubai witnessed a large increase during Q1-2009, the highest being 475bps for Abu Dhabi and 977bps for Dubai. The CDS spread for both emirates started tightening during Q2-2009 and into Q3-2009. Following the announcement of DW‟s standstill agreement with its lenders in November 2009, the CDS of the Emirate of Dubai jumped almost 360bps to reach 675bps while the CDS of Abu Dhabi also increased by 83bps to reach 183bps. Since the beginning of 2010, the CDS spreads of most Dubai GREs widened due to increased uncertainty towards the Emirate and its ability to make timely debt payments.

31

Global – UAE Economic Outlook 2010

Table 20: CDS Spreads at Significant Events Company Nov-23-2009 1
DHCOG* Government of Dubai DP World Government of Abu Dhabi 670 317 355 100

Nov-27-2009 2
1450 675 740 183

Dec-14-2009 3
1599 428 454 153

Most Recent 4
1074 427 344 115

Source: International Monetary Fund & Bloomberg * = Dubai Holding Commercial Operations Group 1 = Immediately prior to DW standstill announcement 2 = 3 days after DW standstill announcement 3 = Immediately after announcement of Abu Dhabi assistance package 4 = September 15th, 2010

In September 2010, following DW‟s announcement of reaching a restructuring deal with 99% of its lenders, the CDS of most GREs tightened. The 5-year CDS of the Emirate of Abu Dhabi tightened by 2 bps to reach 115.3 points, while the Emirate of Dubai‟s tightened by 18.3points to reach 455.4points. Once DW reaches and announces a final agreement with all its creditors, we believe CDS spreads of GREs and banks would tighten substantially. Higher oil prices along with meeting economic growth expectations in 2010 would push the UAE into a better economic standing which would consequentially tighten the CDS spreads of Dubai and Abu Dhabi.

32

Global – UAE Economic Outlook 2010

UAE Stock Market Performance
In 2009, financial markets were fighting back against the previous year‟s disastrous decline that led to a global recession. The UAE, along with the rest of the GCC, were also recovering from the losses they suffered in 2008. During the first half of 2009, GCC markets were able to create healthy gains against year-end 2008 figures. Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM) gained 10% and 9% respectively. Due to DW‟s announcement that they would ask their creditors for an extension of their debt maturities, the exposure of the GCC to UAE markets led to a significant slowdown in GCC markets during the second half of 2009. Abu Dhabi and Dubai gained a mere 4% and 1%, respectively, while Kuwait and Bahrain decreased 13% and 8%, respectively.

Chart 21: GCC Stock Market Performance
Abu Dhabi
30.0%

Dubai

Kuwait

Saudi Arabia

Oman

Qatar

Bahrain

20.0%

14.8% 10.2%

10.0%

0.0% -5.2% -9.8%

-10.0%

-20.0%

Source: Bloomberg * = January 1st, 2010 to September 15th, 2010

2009

Year-to-Date *

Among GCC markets, the Saudi Arabian market, as measured by its Tadawul All-Share Index, witnessed the strongest gains in 2009 at 27.5%. The second highest gainer for the same year was Abu Dhabi, as measured by its ADX General index, which witnessed a 14.8% increase. Several governments, including the GCC, had implemented bailouts and stimulus packages to try to enhance the economy. Interest rate cuts and the guarantee of bank deposits also aided the governments‟ attempts to bring life to equity markets and the economy in general. UAE adopted monetary and fiscal expansionary policies to turn the economy around. UAE monetary authorities began to examine banks‟ liquidity more thoroughly to assess the health of banks and their assets‟ quality in early 2009. A recovery was well on its way until the shocking news of DW‟s debt problems. Along with the fall in the real estate market in Dubai, DW‟s debt crisis shrunk liquidity further as some large domestic banks were exposed to the debt. Acting aggressively, the CBUAE wanted to assure financial markets of its willingness to support banks struggling with non-performing loans. The CBUAE created a AED70bn facility for domestic banks and further reduced interest rates to encourage economic growth and consumer expenditure.

33

Global – UAE Economic Outlook 2010

Despite remaining volatile due to the inherent uncertainty, UAE markets managed to stay above the new low set on November 25, 2009, the day of DW‟s debt announcement. Since DW‟s announcement that it had reached an agreement with 99% of its lenders in September 2010, ADX and DFM have been witnessing healthy gains. From September 1st, 2010 to September 20th, 2010, the ADX has gained 5.6% while the DFM has increased by an impressive 13.2%, thus cutting the YTD losses to 5.1% in the case of ADX and 9.8% in the case of DFM. Clarity about the debt repayment and removal of uncertainty surrounding Dubai should provide a lift to equity markets in the UAE. On September 16th, 2010, FTSE Group, the index provider in the UK, announced that it has added the UAE as a secondary emerging market to its global equity index. While FTSE initially made the announcement in 2009, the move should familiarize the international market with the country‟s largest listed companies. Since indices provided by FTSE are used by portfolio and fund managers worldwide, we believe the UAE companies that have been added to the index will witness increased trading activity. Many foreign investors withdrew their money from the UAE because of the doubt that had been surrounding Dubai. Due to the FTSE inclusion of UAE in the emerging market index and DW reaching an agreement with almost all of its debtors, we believe foreign investors will establish new positions in UAE equity markets.

Sector Performance
Abu Dhabi and Dubai sectors had mixed results in 2009 compared to the previous year. In Abu Dhabi, the general index increased by 15% while the banking sector was the best performer as it gained 21% against 2008. The insurance sector, the worst performer in Abu Dhabi, declined by 10% in 2009. On the other hand, Dubai‟s general index grew by 10% in 2009. The real estate sector, the best performing sector in Dubai, gained 50% against 2008. Although that might seem like a substantial jump, the sector is still significantly below its 2007 point of 13,680. The worst performer of Dubai in 2009 was the banking sector as it slipped almost 12% against the previous year. In 2010, almost all major sectors in Abu Dhabi and Dubai declined year-to-date, while the real estate sector in Abu Dhabi lost the most at 44%.

Table 21: UAE Sector Performance

Sector
General Banking Real Estate Insurance

Market
Abu Dhabi Dubai Abu Dhabi Dubai Abu Dhabi Dubai Abu Dhabi Dubai

2007
4551.8 5932.0 6015.6 3414.5 1525.9 13681.1 3264.6 4629.7

2008
2390.0 1636.3 3168.6 1096.8 507.0 2375.9 3499.8 3336.1

2009
2743.6 1803.6 3830.5 968.7 542.0 3563.6 3142.2 3467.0

% change
14.8% 10.2% 20.9% -11.7% 6.9% 50.0% -10.2% 3.9%

Most Recent *
2,601.10 1,627.15 3,854.95 911.49 302.04 3,132.05 2,576.15 2,899.06

% change
-5.2% -9.8% 0.6% -5.9% -44.3% -12.1% -18.0% -16.4%

Source: Dubai Financial Market and Abu Dhabi Securities Exchange * = September 15th, 2010

Market Capitalization
After taking a strong hit in 2008, UAE stock markets were mixed in 2009 as Abu Dhabi‟s market capitalization increased while Dubai‟s continued to shrink. The ADX‟s market capitalization grew to AED292bn, which was a 15% increase. In Abu Dhabi, the sector with the largest market capitalization was telecommunications at AED107bn, an increase of 25% from the previous year. The second largest sector, banking and financial services, grew 17% compared to 2008 to reach AED105bn. In 2009, the only two sectors of the ADX that

34

Global – UAE Economic Outlook 2010

decreased were construction and insurance, by 44% and 8% respectively. As of September 15th, 2010, the market capitalization of ADX decreased by 7%. The largest sector in terms of market capitalization was telecommunications and, along with banking & financial services, was the only sector to grow during that time. The real estate sector suffered the most as its market capitalization decreased by 44%.

Table 22: Market Capitalization by Largest Market Sectors in AED billion
ADX Banking & Fin. Services Real Estate Insurance Telecommunications DFM Banking Financial Services Real Estate Insurance
* = September 15th, 2010

2007
161.3 52.3 12.1 148.4

2008
90.0 19.2 14.0 85.4

2009
105.2 20.5 12.9 107.0

% change
16.9% 6.9% -8.1% 25.2%

Most Recent *
105.8 11.4 10.5 112.7

% change
0.5% -44.4% -18.7% 5.4%

162.5 95.0 138.3 11.4

82.6 43.4 31.0 9.3

54.1 36.9 42.9 10.0

-34.4% -15.0% 38.3% 7.1%

50.2 27.4 37.7 8.9

-7.3% -25.8% -12.0% -11.3%

Source: Abu Dhabi Securities Exchange and Dubai Financial Market

The market capitalization of DFM shrank by 8% to reach AED213bn in 2009. The Banking sector, which had the largest market capitalization, declined by 34% to reach AED54bn. The Real Estate sector witnessed healthy growth of 38% during the same year. DFM‟s market capitalization declined by 7.5% as of September, 15th, 2010. All sectors of DFM, except the Materials sector, declined in terms of market capitalization. The Financial Services sector‟s market capitalization decreased the most, as it lost 26% to reach AED27bn. As of September 15th, 2010, the sector with the largest market capitalization in Dubai was the Banking sector, which suffered a 7% decrease to reach AED50bn. Materials was the second largest sector in terms of market capitalization, as it increased by 29% to reach AED37bn.

Chart 22: Market Capitalization of ADX by Sector
Insurance 3.8% Energy 6.9% Telecommunications Other 8.4%

Chart 23: Market Capitalization of DFM by Sector
Other 11.5% Transportation 13.3% Materials 19.4% Fin. Services 13.0% Source: Dubai Financial Market 35 Real Estate 17.9%

Banking 24.9%

Real Estate 3.9%

36.7%

Banking & Fin. Services 36.9%

Source: Abu Dhabi Stock Exchange

Global – UAE Economic Outlook 2010

Trading Volume
The trading volume in both UAE markets, which had increased rapidly leading into 2008 due to an increase in listed companies and heavy economic growth, was mixed in 2009. The DFM trading volume witnessed growth of 45% to reach 110.6bn shares in 2009. On the other hand, the ADX trading volume decreased and by 25% to 37.6bn shares in 2009. The DFM volume YTD as of August 31st, 2010, was 27.7bn shares while the ADX volume was 10.9bn shares. Based on the volume figures as of August 31st, we believe the trading volume of both UAE markets at the end of 2010 will be significantly lower than at the end of 2009. In terms of ADX, the real estate sector witnessed the largest trading volume in 2009 at 17.2bn shares, which was an increase of 38%. Despite its trading volume decreasing by 29% in 2009, the utilities sector was the second largest at 10bn shares. The third largest sector, banking and financial services, declined by 27% in 2009 to reach 5.5bn shares.

Table 23: Trading Volume by Largest Market Sectors in million shares
ADX Banking & Fin. Services Real Estate Utilities Telecommunications DFM Banking Financial Services Real Estate Transportation
* = January 1st, 2010 to August 31st, 2010

2007
12,892.0 13,892.1 10,651.0 552.3

2008
7,606.5 12,487.2 14,019.0 572.5

2009
5,530.4 17,188.7 9,990.2 282.5

% change
-27.3% 37.7% -28.7% -50.6%

Year-to-Date *
1,671.3 4,251.6 3,724.6 180.1

11,823.0 19,901.3 29,785.0 35,717.0

13,255.8 13,060.9 21,323.4 21,977.0

6,999.6 20,526.0 55,709.0 16,900.0

-47.2% 57.2% 161.3% -23.1%

1,791.6 5123.9 15,848.1 2,901.4

Source: Abu Dhabi Securities Exchange and Dubai Financial Market

Real estate, which was the largest sector of the DFM by trading volume, increased by 161% in 2009 to reach 55.7bn shares. Financial services, the second largest sector, increased by 57% to reach 20.5bn shares the same year. However, transportation, which was the largest sector by trading volume in 2008, declined by 23% in 2009 to reach about 17bn shares. The banking sector also witnessed a fall as it dropped 47% to 7bn shares in 2009.

Trading Value
The value of the traded shares on both UAE markets witnessed a heavy decline in 2009 as the total value of ADX and DFM combined dropped by 55% to reach AED244bn against AED537bn the previous year. Specifically, the ADX trading value decreased by 70% to reach AED70bn while the DFM trading value reached AED173.5bn at the end of 2009. The trading value of the ADX reached AED22bn YTD as of August 31st, 2010, while the DFM trading value reached AED52bn. Based on the value numbers as of August 31st, we believe the trading value figures at the end of 2010 will be significantly lower than the figures at the end of 2009.

36

Global – UAE Economic Outlook 2010

Table 24: Trading Value by Largest Sectors in AED million
ADX Banking & Fin. Services Real Estate Energy Construction DFM Banking Financial Services Real Estate Transportation
* = January 1st, 2010 to August 31st, 2010

2007
45,123 63,860 25,808 25,913

2008
40,298 75,670 39,560 38,998

2009
10,235 35,238 13,372 3,846

% change
-74.6% -53.4% -66.2% -90.1%

Year-to-Date *
3,962.2 10,212.9 3,776.2 456.0

64,390 82,195 145,128 55,390

65,348 60,514 115,830 38,893

12,690 31,991 100,178 16,585

-80.6% -47.1% -13.5% -57.4%

3,054.4 7,869.5 36,725.7 2,848.3

Source: Abu Dhabi Stock Exchange and Dubai Financial Market

In terms of ADX, the real estate sector had the largest trading value in 2009 as it declined by 53% to reach AED35bn. The second largest sector, energy, decreased by 66% to AED13bn in 2009 compared to AED40bn the previous year. After having a trading value of AED39bn in 2008, the construction sector dropped by 90% in 2009 to reach a mere AED4bn. Despite the entire country‟s market dropping strongly in terms of trading value, the real estate sector of DFM decreased by only 13.5% to reach AED100bn in 2009 from AED116bn in 2008. Banking, which was the second largest sector of DFM in terms of trading value in 2008 at AED65bn, decreased by 80% in 2009 to reach about AED13bn. The financial services sector was the second largest of DFM in 2009 as it declined by 47% to reach AED32bn from AED60.5bn the previous year.

Corporate Profitability
Compared to its 2008 performance, the UAE markets‟ corporate earnings declined in 2009. The total corporate earnings of all companies listed in the UAE equaled AED31.5bn, a decrease of 26% from 2008. The total ADX earnings amounted to AED24.8bn in 2009, which was a 23% decrease from the previous year. The ADX sector that suffered the most in 2009 was energy which fell 86% to reach AED270mn. The real estate and insurance sectors dropped 71% and 59% to reach AED1.7bn and AED204mn, respectively. The healthcare sector‟s profits gained the most in 2009 as it grew by 31% to reach AED219mn. Compared to Q1-2009, the ADX Q12010 earnings grew by 11% with the energy sector growing the most by gaining more than AED360mn. The profits of all DFM securities amounted to AED6.6bn in 2009, which was a 35% drop from the previous year. The real estate sector suffered the most in 2009 as it dropped to AED957mn, a decrease of 73% from 2008. The banking sector also suffered as it reached AED3.9bn which was a 61% slump compared to the previous year. The sector that gained the most was telecommunication as its profits grew by a staggering 937% to reach AED270mn in 2009. The insurance sector, whose profits gained 81%, reached AED785mn in 2009 compared to AED433mn the previous year. Compared to Q1-2009, the DFM Q1-2010 earnings grew by 45% while the telecommunication sector managed a 279% growth. During the same time, the financial services sector managed to turn a AED862mn loss from Q1-2009 to AED125mn in Q1-2010.

37

Global – UAE Economic Outlook 2010

Table 25: Corporate Earnings of UAE companies by Sector
(in AED million) Sectors Abu Dhabi Stock Exchange Banking Real Estate Energy Consumer Construction Insurance Telecommunication Industrial Healthcare Total Dubai Financial Market Banking Financial Services Insurance Real Estate Transportation Materials Consumer Staples Telecommunication Utilities Total Grand Total
Source: Zawya and "Global" Research

2008 12,540.2 5,684.3 1,945.2 824.2 578.1 494.7 9,600.4 566.4 167.4 32,400.8

2009 11,029.0 1,659.8 270.6 817.0 669.6 204.3 9,348.6 651.1 218.6 24,868.6

% change -12.1% -70.8% -86.1% -0.9% 15.8% -58.7% -2.6% 15.0% 30.6% -23.2%

Q1-2009 568.7 958.8 (32.0) 188.9 94.9 (66.6) 782.8 83.3 63.1 2,641.2

Q1-2010 698.3 (271.4) 330.3 193.4 169.1 177.6 1,434.8 150.6 46.9 2,929.6

% change 22.8% NA NA 2.4% 78.3% NA 83.3% 80.9% -25.6% 10.9%

10,042.81 3,933.37 (3,145.66) (2,012.34) 433.32 785.39 3,499.32 957.08 2,602.42 2,651.62 (3,291.06) (116.52) (3.32) 123.09 26.03 269.82 0.07 (1.12) 10,163.93 6,590.39 42,564.72 31,459.01

-60.8% 2,050.8 1,570.5 NA (862.2) 124.5 81.3% 270.1 212.9 -72.6% 637.5 934.1 1.9% 618.9 322.0 NA (390.3) 124.0 NA 13.7 20.7 936.7% 25.8 97.7 NA 10.8 40.4 -35.2% 2,375.12 3,447.00 -26.1% 5,016.3 6,376.6

-23.4% NA -21.2% 46.5% -48.0% NA 51.5% 278.6% 275.4% 45.1% 27.1%

NASDAQ Dubai
In November 2008, the Dubai International Finance Exchange (DIFX) was rebranded as NASDAQ Dubai. The move reflected Dubai as an international financial center and allows NASDAQ Dubai to serve the region between Western Europe and East Asia. One-third of NASDAQ Dubai is owned by NASDAQ OMX Group, the world‟s largest exchange company, and the remaining is owned by Borse Dubai, a government holding company which owns DFM. NASDAQ Dubai currently lists twelve equities, Sukuks, derivatives, conventional bonds, and gold securities.

38

Global – UAE Economic Outlook 2010

Table 26: NASDAQ Dubai Performance (in billion) 2007
Trading Volume (shares) Trading Value (US$) Market Capitalization (US$)
Source: Zawya & "Global" Research * = January 1st, 2010 to September 15th, 2010

2008
2.34 1.72 14.13

2009
3.10 1.06 26.25

Year-to-Date*
1.92 0.89 27.92

1.13 1.06 29.08

On July 11, 2010, NASDAQ Dubai reached an agreement to outsource its key market operations (trading, clearing, settlement, and custody functions) for equities to DFM. This move grants DFM‟s individual investors easier access to NASDAQ Dubai and its products. The outsourcing is „part of a strategy to increase trading volumes on NASDAQ Dubai and strengthen Dubai‟s role as a center of capital markets activity‟. The move also brings NASDAQ Dubai‟s international institutional investors in one liquidity pool with DFM‟s half a million individual investors.

The Way Ahead...
The UAE economy, which had been growing rapidly in the past few years, has slowed down since the global financial crisis that started in Q3-2008. The government has taken measures to strengthen the economy by pumping liquidity into the market and expand the revenue-generating sectors of the economy. On January 2010, the Emirates Securities and Commodities Authority announced that it will develop stock market regulations to make it aligned with the latest practices of international markets. They also announced that they will continue to conduct awareness and counseling campaigns to serve all stakeholders in that sector. The new rules and regulations of the UAE market had been enforced since the beginning of May 2010.

39

Global – UAE Economic Outlook 2010

This material was produced by Global Investment House KSCC (‘Global’), a firm regulated by the Central Bank of Kuwait. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Global may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Global may, to the extent permitted by applicable Kuwaiti law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Global from sources believed to be reliable, but Global has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Global accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Global shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Global for, or sent by Global to any person and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside Kuwait where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations.

40

Global – UAE Economic Outlook 2010

Global Investment House www.globalinv.net Global Tower Sharq, Al-Shuhada Str. Tel. + (965) 2 295 1000 Fax. + (965) 2 295 1005 P.O. Box: 28807 Safat, 13149 Kuwait
Brokerage Fouad Fahmi Darwish (965) 2295-1700 fdarwish@global.com.kw Wealth Management - Kuwait Rasha Al-Qenaei (965) 2295-1380 alqenaei@global.com.kw Global Kuwait Tel: (965) 2 295 1000 Fax: (965) 2 295 1005 P.O.Box 28807 Safat, Kuwait Research Faisal Hasan, CFA (965) 2295-1270 fhasan@global.com.kw Wealth Management International Fahad Al-Ibrahim (965) 2295-1400 fahad@global.com.kw Global Bahrain Tel: (973) 17 210011 Fax: (973) 17 210222 P.O.Box 855 Manama, Bahrain Global Saudi Arabia Tel: (966) 1 2994100 Fax: (966) 1 2994199 P.O. Box 66930 Riyadh 11586, Kingdom of Saudi Arabia Global Jordan Tel: (962) 6 5005060 Fax: (962) 6 5005066 P.O.Box 3268 Amman 11180, Jordan Index Rasha Al-Huneidi (965) 2295-1285 huneidi@global.com.kw

13149

Global Dubai Tel: (971) 4 4477066 Fax: (971) 4 4477067 P.O.Box 121227 Dubai, UAE Global Qatar Tel: (974) 4967305 Fax: (974) 4967307 P.O.Box 18126 Doha, Qatar

Global Abu Dhabi Tel: (971) 2 6744446 Fax: (971) 2 6725263/4 P.O.Box 127373 Abu Dhabi, UAE Global Egypt Tel: (202) 24189705/06 Fax: (202) 22905972 24 Cleopatra St., Heliopolis, Cairo

Global Wealth Manager E-mail: contactus@global.com.kw Tel: (965) 1-804-242

Disclaimer
This document and its contents are prepared for your personal use for information purposes only and is not an offer, or the solicitation of an offer, to buy or sell a security or enter into any other agreement. Projections of potential risk or return are illustrative, and should not be taken as limitations of the maximum possible loss or gain. The information and any views expressed are given as at the date of writing and subject to change. While the information has been obtained from sources believed to be reliable we do not represent that it is accurate or complete and it should not be relied on as such. Global Investment House, its affiliates and subsidiaries can accept no liability for any direct or consequential loss arising from use of this document or its contents. At any time, Global Investment House or its employees may have a position, subject to change, in any securities or instruments referred to, or provide services to the issuer of those securities or instruments.

41