Comparative Analysis: the UAE and Japan - Coursework Example

COMPARATIVE ANALYSIS: THE UAE AND JAPAN Student’s Name: Code + Course name Professor’s name University City, State Date Introduction The United Arab Emirates (UAE) anticipates a slow recovery of its economy following a slowdown in economic growth that emanated from declines in oil prices. However, the country witnessed a 6% growth in real gross domestic product (GDP) over the last decades. The country also continues to experience deteriorating external and fiscal balances. Even though the UAE managed to attain 4.6% growth in 2014, the growth rate declined to 3.4% in 2015. The country continues to witness increasing micro-financial risks from the reduced revenue obtained from hydrocarbons (MENA 2015). Similarly, Japan’s economy is on a gradual recovery phase. In the second quarter of the 2015 financial year, the economic growth of Japan stood at 3.9%. The country had witnessed a positive economic growth for the second consecutive quarter; an indicator that the country was recovering from its previous economic slump. Private consumption suffices to be the main contributor towards the growth in Japan’s GDP. Current, the country has maintained 1% growth in its real GDP in both 2015 and 2016 financial years. The report compares the economies of both countries over a 10-year period. Gross Domestic Product The United Arab Emirates (UAE) It is evident that the UAE is the most developed economy in the Arabian Gulf. The country recorded 3.90% expansion in its real GDP. UAE’s average GDP growth from 2000 to 2015 was 4.76%. The country witnessed 9.80% GDP growth in 2006. This turned out to be the highest recorded GDP growth of the country. In 2009, the UAE recorded -5.20% growth in its real GDP (Trading Economics 2016). This reflected the least ever growth in the country’s real GDP. i. GDP Growth Rate The chart below shows real GDP growth rates from 2006 to 2015. Figure 1: UAE’s real GDP Growth Rate from 2006 to 2015 It is evident that the UAE records high values of real GDP per capita. The economy presents a commodity-based economy. Natural gas and oil shipments account for 38% of the country’s GDP and 40% of the country’s total exports. From the figures, it is evident that UAE’s GDP depends primarily on natural gas and oil shipments. Having identified the overdependence on oil and natural gas, the UAE Government has resorted to alternative economic boosters such as tourism, construction, and financial sectors. As a result, the country realised 42% of its output growth from the manufacturing sector. The contributions of other sectors in the output growth were as follows: transport and communication (23%), restaurants and hotels (15.5%), and wholesale and retail trade (16.5%) (Trading Economics 2016). In the year, the construction sector of the country contracted. ii. GDP Per Capita (US$) In 2015, the Gross Domestic Product per capita recorded by the UAE stood at US $ 39543.71. UAE’s GDP per capita exceeds the average global GDP per capita by 313%. In 1980, the UAE recorded the highest GDP per capita (US $115003.43). In 2010, the UAE recorded the lowest GDP per capita (US $34341.91) (Trading Economics 2016). The chart below shows real GDP per capita in the UAE between 2006 and 2015. Figure 2: UAE’s GDP per capita from 2006 to 2015. Japan i. Real GDP Growth Rate In June, July and August 2016, Japan recorded 0.5% increase in its real GDP. In the previous months, Japan had witnessed 0.2 increments in its real GDP growth rate. The contributors to the GDP gain were private residential investment, government spending, and exports. The economy witnessed a stalling household consumption. Japan recorded 0.48% average GDP growth from 1980 to 2016. The highest and lowest GDP growth rates recorded by the country were 3.20% and -4.10% in 1990 and 2009 respectively. The economy recorded the highest rate of GDP growth in Quarter 2 1990 and the lowest rate of GDP growth in Quarter 1 2009 (Trading Economics 2016). The figure below shows Japan’s real GDP growth rate from 2004 to 2013. Figure 3: Japan’s real GDP Growth rate from 2004 to 2013 ii. Per Capita GDP The chart below shows Japan’s per capita GDP from 2004 to 2013. Figure 4: Japan’s Per Capita GDP from 2004 to 2013 From the chart above, it is evident that Japan’s GDP per capita in 2015 was US $ 44,656.80. Japan’s GDP per capita is approximately 324% the world’s average GDP per capita. From 1960 to 2016, Japan’s GDP per capita averaged at US $ 30238.91. In 2015, Japan recorded an all time high GDP per capita of US$ 44,656.80 (Trading Economics 2016). The country recorded the lowest GDP per capita of US$ 8369.20 in 1960. Consumption as a Percentage of GDP The UAE In 2014, the UAE recorded 63.60 in consumption expenditure (% of GDP) (Trading Economics 2016). Consumption expenditure refers to the sum of private consumption (final consumption expenditure) of all households including general government consumption (government final expenditure consumption). The chart below shows the final consumption expenditure as a percentage of the GDP in the UAE from 2006 to 2014. Figure 5: UAE’s Consumption expenditure (% of GDP) Japan As opposed to UAE’s consumption expenditure that has exhibited fluctuations over the past decade, Japan has recorded increments in consumption expenditure over the last decade except in 2007 and 2010 where the country recorded declines in the consumption expenditure. In 2013, Japan’s final expenditure (% of GDP) was 81.71 (Trading Economics 2016). The chart below shows Japan’s consumption expenditure from 2006 to 2013. Figure 6: Japan’s final consumption expenditure (% of GDP) from 2006 to 2013 Investment as a percentage of GDP The UAE In 2015, investment (% of GDP) in the UAE stood at 23.841%. In world ranking, the UAE occupies position 71 in terms of its investments as a percentage of the real GDP. The UAE’s investment (% of GDP) exceeds the world’s average (21.76%). This indicates that the UAE figure exceeds the world’s figure by 2.08%. In 2014, the UAE recorded 24.67% in investment (% of GDP). At the end of 2016, the estimated investment (% of GDP) in the UAE is 25.73% implying that the economy will record a 7.9% increase in its investment (% of GDP) as compared to the value recorded in 2015 (Economy Watch 2016). The table below shows the estimated investment (% of GDP) in 2016 as well as other figures recorded over the last decade. Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 Investment (% of GDP) 18.395 24.358 23.689 26.101 22.407 23.149 24672 23.841 25.726 Table 1: Investment (% of GDP) in the UAE Japan In 2015, Japan’s investment (% of GDP) stood at 21.998%. Under the variable, the UAE outperforms Japan since it occupies position 89 in global ranking. Considering the world average of 21.76%, it is evident that Japan’s value exceeds the world’s average by 0.24%. Japan’s investment in 2014 was 21.82%. Japan anticipates a forecasted investment (21.78%). This indicates that Japan’s investment in 2016 will reflect a 1.00% decline in comparison to the figure in 2015 (Economy Watch 2016). Comparing the UAE and Japan reveals that the UAE’s investment (% of GDP) is greater than Japan’s investment over the past decade. The figure below shows the trend of Japan’s investment (% of GDP) from 2006 to 2015. Figure 7: Japan’s investment (% of capital) from 2006 to 2015. Exports of Goods and Services (% of the GDP) The UAE In 2015, UAE recorded exports of goods and services as a percentage of the GDP was 97.958%. The results indicated a slight decline in comparison with the exports recorded in 2013 (101.34%). Since 2001, the country has recorded increasing levels of exports (% of GDP) except in 2010 and 2014 respectively where exports declined from 79.653% to 78.754% and 101.34% to 97.958% respectively. On the other hand, Japan has recorded fluctuating exports since 2001. In 2015, Japan recorded 17.901% exports (% of GDP) (World Bank 2016). The table below shows exports (% of GDP) for both countries. 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 UAE 68.631 72.384 78.868 79.653 78.754 90.333 100.634 101.34 97.958 Japan 16.172 17.747 17.711 12.696 15.222 15.176 14.724 16.188 17.744 17.9 Table 2: Export of goods and services (% of GDP) in the UAE and Japan From the table above, it is evident that exports form a greater proportion of the GDP in the UAE than in Japan. Unemployment Unemployment rate presents a measure of the proportion of job seekers to the total labour force in an economy. The UAE In the 1970s, the UAE witnessed an economic boom following the boom in oil price. This resulted into shortage of national labour in the public sector. In response, the UAE complemented its labour shortage with imported labour that comprised of individuals from other countries. The composition of non-nationals in UAE’s total labour force was approximately 80% in the 1980s. In the 1990s, demographic pressures and the decline in oil prices resulted in the decline in the proportion of non-nationals in the total labour force since nationals began seeking jobs. The UAE presents one of the lowest unemployment rates in the world. By 2001, the rate stood at 2.4%. The country had employment 2 million nationals out of an estimated total labour force of 2.1 million individuals (Albuainain 2004). The latest unemployment indicators indicate that the UAE recorded a decline in the unemployment rate from 4.6% in 2011 to 4.2% in 2012. Between 1985 and 2012, the UAE has recorded an average unemployment rate of 3.12%. In 2011, the economy recorded an all-time high unemployment rate of 4.60% (Trading Economics 2016). The record low unemployment rate was in 1985 (1.15%). The chart below shows the unemployment rate in the UAE from 2006 to 2012. Figure 8: Unemployment Rate in the UAE between 2006 and 2012 Japan Just like the UAE, Japan has also recorded low levels of unemployment. However, during the ‘lost decade’, the situation was different in the economy. During the ‘lost decade’ (1991 to 2002), Japan’s unemployment rate in 2002 was a record 5.5%. The analysis of Japan’s situation during the rise in unemployment levels revealed a decline in private investment. Japan’s participation in the East Asian crisis overburdened the labour market thereby contributing to the rise in unemployment rates (Agnese & Sala 2008). Just like the UAE, Japan has also recorded the lowest rates of unemployment in the world. Before 1975, Japan recorded low unemployment rates that did not exceed 2%. The global oil crisis in 1973 worsened Japan’s economy thereby increasing unemployment rates. In the aftermath of the crisis, the economy’s unemployment rates have surpassed 2.0% (Sorrentino 1984). In July 2016, Japan recorded the lowest unemployment rate for the past 21 years (3%). In the previous month, Japan had recorded an unemployment rate of 3.1%. This indicates that despite the stagnating economy, unemployment levels in Japan are still very low (BBC 2016). As of October 2016, the unemployment rate still stood at 3.0% (Japan Macro advisors 2016). The line chart below shows Japan’s seasonally adjusted unemployment rates from 2006 to 2016 as at December 31st of each month. From the line chart below, it is evident that Japan’s unemployment rate rose steadily between 2007 and 2009 after which the country has recorded continually declining unemployment rates to date. Figure 9: Unemployment rate in Japan from 2006 to 2016 Inflation i. Consumer Price Index (CPI) The UAE The UAE recorded an increase in consumer price index (CPI) from 126.03 Index Points (July) to 127.89 Index Points in August 2016. Between 2008 and 2016, the UAE recorded an average CPI of 118.09 Index Points. August 2016 yielded the highest CPI Index Points (127.89). Between 2008 and 2016, the UAE recorded the lowest CPI Index Points in January 2008 (107.75) (Trading Economics 2016). Japan Just like the UAE, Japan also recorded an increase in its CPI Index Points from 99.80 Index Points (September) to 100.40 Index Points (October). This indicates that Japan’s CPI is comparatively lower than the UAE’s. Japan recorded an average CPI Index Points of 73.38 between 1957 and 2016. In October 1998, the economy recorded the highest CPI (104.50 Index Points) and the lowest CPI (18.00 Index Points) in October 1998 and February 1957 respectively (Trading Economics 2016). The figure below compares the monthly CPI Index Points of the UAE and Japan between November 2015 and August 2016. Figure 10: CPI Index Points in the UAE and Japan from November 2015 to August 2016 From the column chart above, it is evident that the UAE’s CPI exceeds Japan’s in the selected period. ii. GDP Deflator The GDP deflator is an index that provides a comparison between nominal GDP and real GDP. In comparison with the CPI, it is evident that the measure provided by the GDP deflator is more comprehensive than the CPI Index Points since the former includes domestic goods and services produced within the country (VCCLC 2013). The line chart below compares the GDP deflator measure between the UAE and Japan from 2006 to 2016. Figure 11: Comparison of the GDP Deflator Measure between the UAE and Japan In 2015, the UAE’s GDP deflator (annual %) was measured at -10.159% (World Bank 2016). Since the GDP deflator indicates the productivity of the economy, the line chart reveals that Japan has been experiencing a decline in its productivity. However, in recent years (from 2013), Japan started to record positive values of the GDP deflator measure implying a rise in its productivity. On the other hand, the UAE’s GDP statistics over the select period indicate different results. Before 2013, the UAE recorded positive values of the measure except in 2009 where it recorded -15.183. The positive values indicated that the productivity of UAE’s economy was improving. However, the UAE started witnessing a decline in its productivity from 2013 as indicated by the negative values of its GDP deflator measure. Foreign Direct Investment The UAE The average growth rate of FDI in the UAE stands at 45.3% per annum over the last ten years. In 2012, UAE’s FDI was approximately 27% of its GDP and was worth US$ 95 billion. Ever since the 2008 global financial crisis, FDI investment in the UAE has not recovered fully. The main areas of foreign direct investment in the UAE include real estate, construction, and finance. Top FDI nations that invest in the UAE include Germany, United Kingdom, Chile, United States, France, Luxembourg, and Belgium. The UAE presents a high FDI potential (Mina 2014). In 2015, the UAE recorded an increase in its FDI to AED 38200 million. Between 2007 and 2015, the UAE recorded an average FDI of AED 34966.67 million. The highest and lowest FDI investments in the selected period were AED 52100 million and AED 14700 million respectively (Trading Economics 2016). The bar chart below shows FDI investment in the UAE between 2007 and 2015. Figure 12: UAE’s FDI from 2007 to 2015 Japan The difficulty associated with trading services has compelled the Japanese Government to withdraw restrictions on FDI as a strategy of encouraging foreign direct investment into the country. The country records low FDI stock despite the fact that the economy is witnessing a rapid increase in its FDI (Ito & Fukao 2005). In September 2016, Japan recorded an increase in FDI to JPY 44889 hundreds million. Japan’s average FDI between 1996 and 2016 stands at JPY 5370.12 hundreds million. Within the select period, the highest and lowest FDI values recorded in Japan were JPY 44889 hundreds million and JPY -3825.00 hundreds million in September 2016 and January 2010 respectively (Trading Economics 2016). Contrary to Japan’s FDI, the UAE did not record any negative FDI figure in the selected period. The chart below shows Japan’s FDI between October 2015 and September 2016. Figure 13: Japan’s FDI from October 2015 to September 2016 Human Development Index The UAE The Human Development Index provides a measure of the long-term progress of human development in three dimensions that include decent living standard, knowledge access and a healthy and long life. In 2012, the HDI value recorded by the UAE was 0.818. The value placed the country at position 41 out of 187. This represented a decrease in the country’s HDI value from 0.831 in 2005. This implied that between 2005 and 2012, the HDI value decreased by 2% per annum. In 2011, the UAE’s HDI ranking improved from position 41 to 40 out of 187 after attaining a HDI value of 0.817 (UNDP 2013). Japan In 2014, Japan recorded a HDI value of 0.891. The score placed the country among nations that exhibit high levels of human development. Consequently, the score placed Japan at position 20 out of 187 on the global scene. Japan recorded an increase in its HDI value from 1980 (0.769) to 2014 (0.891). This translates into a 15% increase in value or an annual increase of 0.43%. Over the period, Japan recorded an increase in its life expectancy at birth by 7.3 years. The other HDI aspects that increased over the period include expected schooling years (2.1 years) and mean schooling years (2.8 years). Japan also recorded an increase in its GNI per capita by approximately 82% within the selected period (UNDP 2015). The line graph below compares HDI values for the UAE and Japan. Figure 14: HDI Values for the UAE and Japan between 1990 and 2014 From the line chart above, it is evident that Japan outperforms the UAE on the human development index. Conclusion Being the most developed nation in the Arabian Gulf, the country recorded an average GDP growth of 4.76% between 2000 and 2015. In 2015, the GDP per capita recorded in the UAE was US$ 39543.71. On the other hand, Japan recorded an average GDP growth rate of 0.48% between 1980 and 2016. Japan’s GDP per capita in 2016 was US$ 44656.80. Even though the UAE’s GDP growth rate exceeds Japan’s rate, Japan’s GDP per capita in 2015 is greater than that of the UAE. The UAE’s consumption as a percentage of GDP in 2014 stood at 63.60%. On the other hand, the consumption as a percentage of GDP recorded by Japan was 81.71% in 2013. This indicates that consumption expenditure forms the bulk of Japan’s GDP. Investment as a percentage of GDP in the UAE and Japan stood at 23.841% and 21.998% respectively in 2015. This indicates that there is a slight difference between the UAE and Japan on the proportion of investment in the GDP of both countries. The recorded exports of goods and services as a percentage of the GDP in the UAE and Japan were 97.958% and 17.744% in 2014. This indicates a huge difference (80.214%) in the recorded exports of both countries as a percentage of the GDP. The UAE and Japan recorded unemployment rates of 4.2% (2012) and 3% (July 2016). As of August 2016, the UAE and Japan recorded 127.89 and 99.7 CPI Index Points. Reference List Agnese, P. and Sala, H., 2008. Unemployment In Japan: A Look At The'lost Decade'. The Asia Pacific Journal of Economics & Business, 12(1), p.15. Albuainain, R.M., 2004, February. Unemployment Rate in the United Arab Emirates: The Case of Abu Dhabi. Economic Research Forum. BBC., 2016. Japanese unemployment rate hits two decade low. Available at: http://www.bbc.com/news/business-37218507 Economy Watch., 2016. 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