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Dubai: Daily per capita consumer spending in the UAE, at $27, is about eight times higher than that of other Arab countries, which Abu Dhabi's Department of Planning and Economy (DPE) termed 'hidden poverty' in its latest report.
Consumer spending grew 17.7 per cent last year to Dh319.86 billion, up from Dh271.79 billion in 2006, the DPE report said.
"Semi-official reports indicate that daily per capita consumer spending in the UAE stands at $27 while average daily spending in the rest of Arab countries is $3.5 per day.
"This huge gap is set to expand even more, especially in view of existence of parties that are ready to fuel these unnecessarily lavish spending trends," said the report, cautioning of its adverse impact.
"This situation has resulted in what could be called 'hidden poverty', a situation where a certain segment of the society seek to possess luxurious items at the expense of essential goods."
The situation calls for a review of government's economic policies, especially in relation to strengthening domestic production of consumer goods.
"Fiscal policy could play a greater role in regulating domestic demand. In particular, expenditure increases - including by public and quasi-public entities - should be consistent with the country's absorptive capacity," the International Monetary Fund said in its annual report last year.
"This, together with efforts to alleviate capacity constraints, would help subdue inflation and support a continued economic expansion with macroeconomic stability."
High consumer spending for almost half of the UAE's GDP, rising by 122 per cent during the last five years from Dh144 billion in 2002 to Dh320 billion in 2007, DPE said.
"This means consumer spending has been on the rise at the average annual rate of 18 per cent, a rate that is twice as high compared to the overall economic growth rate of the country during the same period," DPE observed.
As consumer spending is one of the main aspects of economy, an excessive rise would have a negative impact.
"Such behaviour could have helped the local economy if only there was a strong manufacturing base as such high consumption creates aggregate demand for domestic production," Dr. Amzad Hossain, Assistant Professor of Economics and Finance at Al Ain University said.
"But unfortunately this is not the case. As 85 per cent consumer goods are imported, this consumption trend helps the producers of the imported goods. I think the UAE needs to develop its domestic production base to benefit from this."
The heavy consumption trend in the UAE is sustained by many factors.
"One of these factors is high inflation rate which reached 10.9 per cent last year. Growth in the population rate which continues to be fuelled by massive development projects is another," it said.
Incentives
However, there are other factors that have combined with the above factors to propel consumption rate to unprecedented levels.
DPE identified these as - incentives offered by commercial companies; media publicity and advertising, which tends to push consumers to buy goods they do not really need.
"Above all, this consumption trend is fed and reinforced by banks," it said, adding, "which are more than happy to dish out cash, with easy terms and installment payments that run for as long as five years."
The combination of easy loans in addition to propaganda have combined to plunge consumers into a spending spree, it said.
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