Central Bank data has shown a huge rise in the UAE's monetary supply with an increase of over AED 187 billion during 2007. Over this period, the figure rose from AED 505.64 billion to AED 692.4 billion, in a move considered to be the fastest monetary growth rate experienced by the country in five years.

Economics expert, Dr. Ahmed M. Al-Samerai, Chairman of SAHARA Group, commented: "The expansion of industrial, logistical and real estate sectors, coupled with huge economic and real estate progress in the region, in addition to ascending trade revenues and rising current accounts, due to commercial transactions, plus various other facilities, has contributed enormously to the huge liquidity flow into the country.

"This flow was accompanied by the addition of several different foreign capitals for investment which exceeded USD 19 billion in 2006 alone. This led to an increase in liquidity which keeps flowing into the country as a result of several important factors that are driven by high petroleum revenues".

"However, little of these excessive funds are invested in legitimate, profitable investments due to investment opportunities being narrow and mostly exclusive to real estate and financial sectors. Real estate revenues ranged between 10%-50% in Dubai, while revenues didn't exceed 8% in Belgium and 7% in the US, which does not include tax rates or cut off revenues. The need for opening new investment outlets became dire to control inflation and maintain economic growth earnings", added Al-Samerai, who also runs SAHARA Public Relations, a public relations company who is currently conducting campaigns for a real estate portfolio, which exceeds USD 150 billion, that belongs to the biggest companies of its type in the region.

Despite high liquidity, the Ministry of Economics reported an 11.1% inflation rate in 2007, which was considered the highest in 20 years. This matter stirred controversy over the contrast between high liquidity and the resulting inflation, as Dr. Al-Samerai explains: "Flocking of liquidity over projects due to the favorable investment environment made opportunities scarce, which in turn led to lack of investments and incensement at available investments prices, which ultimately led to increased prices as a result of competition. Inflation rates also increased because liquidity demands outlets.

"One must also bear in mind that the size of consumer expenditure partakes in elevating inflation rates by consuming total revenue, not to mention recent reports stating that consumer expenditure reached AED 320 billion, which means that it consumed relatively 50% of local revenue total, leaving excessive liquidity useless, which led to prices reaching high grounds due to competition, which translates into more inflation rate rises".  

Active private companies reported AED 51.7 billion profits in 2007, 36% more than in 2006. Many expect profits for private companies listed in Abu Dhabi and Dubai markets to rise by about AED 70 billion by end of 2008, compared to 50% in first quarter of 2007, and the number of rich individuals in the country also increased by 15% annually to reach 75,000.

These statistics confirm the need to diversify investment resources, to spread investment awareness, and to show the importance of economic process mechanisms for both the investor and consumer, in addition to supporting acceptable levels of investment revenues to avoid quick profits that eventually lead to fall prey to delusory trade, and to avoid further damage to the economy.         

-Ends-

© Press Release 2008

 

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