The global recession has made conditions in the UAE favourable for an increase in the number of private companies, which the government should encourage in order to give a fillip to the country’s economy, a new study has found.

Truth Economic Consultants (TEC), one of Abu Dhabi’s biggest economic studies and research companies, said in its most recent study that the number of private companies registered with the Ministry of Economy (MoE) needs to rise. It said conditions were ripe at present for setting up private ventures, especially in industry, real estate, insurance, banking and finance, as the UAE’s economic environment is conducive to their success.

"Stopping or delaying setting up of new companies due to the repercussions of international financial crisis is a huge mistake. Current conditions are very suitable for new private companies, especially in the industrial, real estate, tourism and financial markets sectors," Ridha Muslim, Director-General of TEC, told Emirates Business.

"In 2010, the global economy will formulate a bottom in this recession and stabilise. International prices of technology products as well as share values will be at their lowest due to the fall in demand. The activity of investors in the UAE’s private sector is expected to start after oil prices improve at the end of 2010 despite the crisis. This is because the UAE has become a destination and a safe haven for international investors," he added.

"The UAE's economy is expected to witness big growth as a result of globalisation and because oil prices will start to increase again. Other factors that will help are the launch of several giant projects and the government increasingly privatising all sectors, especially the energy and oil field services," said Muslim.

The study shows the growth rate in the UAE was 20 per cent between 2000 and 2008. In addition, the value of the country's fixed assets, according to TEC's projections, has reached Dh25 trillion based on the 2009 prices. Total capital accumulation touched Dh1.7trn and the value of net fixed capital accumulation is Dh1.4trn, which generated a national income close to Dh1trn in 2008.

The value of strategic reserve assets of crude oil is 98 billion barrels, which accounts for eight per cent of confirmed global reserves and can be sufficient for 92 years. The country has six trillion cubic metres of natural gas, which forms five per cent of global reserves, along with big financial surpluses. Moreover, the UAE's sovereign wealth fund, the biggest in the world, is estimated at Dh3.6 billion.

The study also said national income rose from Dh264bn in 2000 to Dh948bn in 2008, an annual growth rate of 20 per cent. This was accompanied by the rise of average individual income from Dh81,000 per individual in 2000 to Dh199,000 per individual in 2008, an annual growth rate of 12 per cent. These figures point to an investment environment and economic climate full of hope and the promise of good return on investment.

The UAE has a flexible financial policy, which led to the increase of the country’s total liquidity by four-and-a-half times within seven years. Liquidity rose from Dh277bn at the end of 2000 to more than Dh1223bn in 31 December 2007, an annual growth rate of 24 per cent. In addition, there is no progressive taxation on net profits and capital returns, the study noted.

It said there were two positive points in the UAE economy for the next period. The first is the fall of inflation to a low rate of three per cent along with oil prices starting to creep back up again after they reached bottom.

The study expected the number of business establishments in the country to grow by five per cent annually over the next few years, an increase of about 13,000 establishments a year. Their number totalled 263,000 at the end of 2008 and the demand gap totaled 14 per cent annually. The continuity of this demand encourages investment due to the influx of foreign and regional capital looking for a safe haven.

There are a total of 303 private and public joint-stock companies in the country ranging from industry, insurance, banking and services sectors, including 126 private companies and 177 public joint-stock companies.

This number is insufficient and should be increased, the study said. The first sector that needs new private companies is the industry sector, as it contributes to the UAE’s GDP by 50 per cent. The factories most desirable in GCC and UAE markets are the ones characterised by high-quality technology, equipped with environment protection requirements, characterised by economic fuel consumption and the use of renewable energy.

The number of industrial establishments registered in the MoE rose from 2,334 in 2001 to 4,219 in 2008, an annual growth rate of 8.8 per cent. This rate indicates that the industry sector is heading for a sectoral balance and bolstering its role in sustainable development.

Multi-storey buildings that will be constructed in near future will exceed 800, the study said. This will provide a total of 43,000 residential and office units. Out of the 800 towers, there will be 300 in Abu Dhabi with 15,000 units. Dubai's share is 400 with 20,000 units. Out of 1,275 new buildings constructed in the first half of 2009, some 168 were multi-storey towers.

The number of new contracting companies totalled 266 in the first five months of 2009 and 15 new consulting offices were registered. The study also confirmed that investment returns from rent were still high. More than 800,000 people who work in Dubai stay far from the central areas of the city. The 40 per cent fall in Dubai rents will attract this category to stay in the city, the study predicted, and added that there were 8,400 buildings under-construction in the emirate in the middle of 2009.

The study showed that residential towers in the UAE were mainly concentrated in Abu Dhabi, Dubai, Sharjah and Ajman. It said the towers would soon be full, as the number of residents has risen considerably over the last few years. It said the population rose from 6.5 million in 2007 to 7.2 million in 2008, an increase of 12 per cent (Official estimates, however, say UAE’s population will peak at nearly 5.066 million at the end of 2009).

This unnatural increase in any society in the world requires serious work to meet the needs of the increasing numbers of new residents, it commented.

The study said the UAE is regarded as an international financial and trade hub and it was no surprise that the insurance and financial sectors grew by 20 per cent annually. The insurance sector rose from Dh15bn in 2000 to Dh63bn in 2008. This points out that the UAE economy is robust and sound. In addition, total bank assets were valued at Dh1.5tr in the middle of 2009.

The contribution of the financial sector was expected to rise from Dh63bn in 2000 to Dh173bn in 2018, at an annual growth rate of six per cent. The study said the added value generated by the insurance sector in the country will rise from Dh6bn in 2007 to Dh31bn in 2018, showing an annual growth rate of 11 per cent. The contribution of the insurance sector to the GDP was expected to rise from 1.3 per cent in 2007 to 2.1 per cent in 2018.

Helping the insurance sector was the rapid gain in personal wealth, which had an influence on people’s lifestyles, the study found.

"In Abu Dhabi, the number of luxury cars rose by more than 56 per cent in 2008. Private planes and yachts increased by 12 per cent annually between 2000 and 2008. These assets are characterised by high annual premiums through comprehensive insurance," the study said.

The size of the UAE's securities markets totaled Dh434bn, which was the value of the total shares of the 131 companies listed in the Abu Dhabi and Dubai stock markets. Investors in local securities markets were mainly locals, and UAE nationals earned the majority of net profits.

Local savings were the main source of capital, some of which also come from regional and global sources. National savings rose from Dh75bn in 2000 to Dh358bn in 2008 at an annual growth rate of 22 per cent.

The market values of some stocks were close to fair value, generating suitable annual returns on capital. These stocks include Aldar Properties, Sorouh Real Estate, etisalat, Tabreed, Abu Dhabi National Bank, Abu Dhabi Islamic Bank, local insurance companies and Abaar, the study found.