One of the pressing questions in the economy of Dubai is the productivity of the factors of production labour and capital. This article addresses this issue using data from Dubai Municipality economic survey for the private sector establishments for 2002-2003. The survey intended full coverage of Dubai business sector, which is shown to consist of 31,927 establishments spreading over 16 economic sectors, this gives on average 1995 establishments per sector. According to the survey eight sectors contributed about 96% of Dubai total value added in 2002-2003. These sectors are Manufacturing (excluding Handicrafts); construction; Trade; Hotels; Transportation; Communication and Storage; Insurance; Banking and Finance; Real Estates and Business Services.
Partial labour productivity
Partial labour productivity is defined as the value added per employee. It is called partial because only labour input is considered at a time. The value added is measured in current prices in Dirham and the labour input is measured by number of persons employed. The number of hours worked would have been a better measurement of labour input, but it is extremely difficult to come by. Figure 1 shows the partial labour productivity of the abovementioned eights sectors and that of Dubai economy. As Figure 1 shows, labour is relatively more productive in the sectors of insurance, manufacturing, trade, real estates and banking respectively. The transportation, construction and hotels sectors are below the average labour productivity of Dubai economy. Labour is least productive in the hotels and construction sectors.
Source: Calculated from the survey data, 2002-2003
Partial capital productivity
Capital here refers to the book value of the fixed assets of the surveyed establishments. Figure 2 shows the value added per unit of capital by sector, that is, how much output is produced by one unit of capital. Output here refers to value added. Both output and fixed assets are measured in current prices in Dirham. The basic idea is that the less capital units you need to produce one unit of output the more productive is capital.
As Figure 2 shows, capital is more productive in the sectors of insurance, trade, banking and construction. One unit of capital produces about 22 units of output in insurance, 13 in trade, 7 in banking and 4 in construction. The most unproductive use of capital is in the hotel and real estates sectors. In the hotel sector, 3 units of capital produce one unit of output, while in the real estate sector 1 unit of capital produces 1 unit of output. Transportation and manufacturing sectors are, more or less, tracking the average capital productivity of Dubai economy.
The explanation for the relatively high capital productivity of the insurance, trade, banking and construction is found in the capital-labour ratio, which shows how much capital is used per unit of labour. Among the eight sectors, these four sectors have the lowest capital-labour ratio, that is, they are using less capital per given labour input. This is consistent with the economic theory which predicts that for a given amount of labour input the more you add capital the more its productivity will fall. Therefore, since these four sectors have the lowest capital-labour ratio, it is expected that their capital productivity is higher relative to the other sectors that are using more capital per unit of labour input.
Source: Calculated from the survey data, 2002-2003
It is interesting to note that the relatively high productivity of the factors labour and capital in the insurance sector is reflected in the dividend yield of the sector in the stock market. The dividend yield is an indication of the income generated by a share and it is calculated as the annual dividends per share divided by the price per share. According to the UAE stock market statistics, the dividend yield of the insurance sector is 6.23 per cent per annum, which is high when compared to 2.13 per cent for the financial services sector and 2.12 per cent for the telecom sector. The return on equity (ROE), which indicates the profitability of the sector, is relatively high for the insurance. It is 11 per cent compared to 8.9 per cent for the property (i.e. real estates).
In conclusion, the insurance and the trade sectors are doing very well in terms of both labour and capital productivity, while the hotels sector is not faring well on both counts. The sectoral productivity performance is immediately reflected in the UAE stock market, which means that economic information is absorbed in the share prices of the companies listed in the stock market and therefore the value of the company is determined by its performance.
Benchmarking Dubai economic sectors at the productivity level stimulates the inter-sectoral transfer of knowledge, technology and managerial best practices.
Data Source: The Economic Bulletin Feb 05 - Volume 2 - Issue 8
UNCTAD, WB, and Dept. of Ports & Customs, Dubai
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This press release is issued by Dubai Chamber of Commerce and Industry (DCCI). Established in 1965 by virtue of late Highness Sheikh Rashid bin Saeed Al Maktoum Ruler of Dubai. DCCI has been the backbone of the commercial and economic activities of the Emirates and a source of development and progress. Its mission is to be indispensable source of competitive advantage for the business community in Dubai.
© Press Release 2005
