Since its emergence as an independent federation in 1971, the United Arab Emirates (UAE) has emerged as one of the most wealthy and prosperous states at regional and global level. The strategic location, huge reserves of natural resources and strong macroeconomic fundamentals have made the UAE as one of the global leading financial hubs and a success story to be followed. In the ancient times, the economy of the UAE was driven primarily by fishing, pearl diving and trade to East particularly India. In the last fifty years, the country has made tremendous economic progress due to oil reserves and diversification of its economy to various other sectors.
Located in West Asia, the UAE economy is fourth largest in the region with a Gross Domestic Product (GDP) of 421 billion dollars. Since the oil discovery in 1962, the UAE has relied majorly on oil imports and exports, which has charted the economic growth. In the past few decades, the country has witnessed consistent and impressive economic progress thereby making it the second largest economy in the Gulf Cooperation Council (GCC). Today, there are various sectors and areas that drive the economic success story of the UAE namely oil, natural gas, tourism, manufacturing, real estate, services, construction, banking, etc. In the IMD World Competitiveness Rankings of 2019, the UAE ranked as top five competitive economies out of the 63 countries of the world. According to World Economic Forum, the UAE was ranked in the top position as the most competitive economy in the West Asia and North Africa (WANA) region in 2019 for the fourth time. The accelerated economic growth of the UAE can be gauged from the fact that it jumped two places to be ranked at 25th position out of 140 countries as per the 2019 Global Competitiveness Report.
The UAE, which is an elective monarchy, consists of seven emirates namely Abu Dhabi (capital city), Dubai, Sharjah, Ajman, Fujairah, Ras Al Khaimah and Umm Al Quwain. The federation of these seven emirates implies that the economy of the UAE is wide and diverse in terms of sources of revenue and expenditure. For instance, Abu Dhabi is predominantly dependent upon revenues from petroleum and natural gas. On the other hand, as Dubai has lesser reserves of oil as compared to other emirates, it is believed that the city is more open to diversification.
The discovery of oil in 1962 had led to eventual drastic transformation of the UAE’s economy from desert sand country to one that symbolizes modernity. In the past, the oil revenues were utilized by former UAE President Zayed Bin Sultan Al Nahyan to build and expand roads, housing, schools, health infrastructure and construction sectors of the country. The significance of oil in the economic growth of the UAE can be gauged from the fact that in 2020 the oil accounted for approximately 29 percent of the country’s GDP. On the other hand, the non-oil sectors namely agriculture, construction, tourism, real estate, trade, services, transport, industries, etc play a vital role in the UAE’s overall economy and continue to expand amidst post-pandemic recovery.
The diversification of the economy has been an important strategic and long-term goal of the UAE leadership. Economic diversification in case of the UAE implied reducing the dependence on crude oil by develop traditional non-oil sectors such as agriculture, infrastructure, construction, services, etc. The diversification plan aims at developing the non-oil economy to satisfy the needs of the population and to assure sustainable development even after the exhaustion of oil reserves. The fluctuating oil prices and sole dependence on the same necessitated the diversification of the UAE’s blooming economy.
The efforts of the UAE’s leadership at various point of time in the past led to implementation of the diversification plan of the economy. For instance, former UAE Vice-President Rashid Bin Saeed Al Maktoum began investing the revenues from limited oil reserves of Dubai that led to making the city a modern and global financial hub today. Further, the crashing oil prices in the decade of 1980s further accelerated the diversification programme of the UAE economy.
In the UAE, the diversification implied shifting the focus from labour-intensive and conventional sector to a more innovative, knowledge-based, skilled labour and technology driven economy. In the recent past, the federation and individual Emirates have made huge investments in tourism, aviation, telecommunication, aluminum production, among others. Abu Dhabi’s Economic Vision 2030 and Dubai’s Strategic Plan 2015 are key in implementing diversification policies in the country. The aim is to increase investments in sectors such as heavy industry, information technology, travel, space along with oil and natural gas reserves. The UAE’s 2021 Vision is also leading the drive towards diversification that prioritizes innovation, research, science and technology and makes them core of a knowledge-based and competitive economy by 2021 to mark the 50th year of federation’s independence.
For instance, as an important stopover for international air travellers, Dubai has become a global tourist destination centre over the years. As a result, infrastructure, number of hotels and other areas of hospitality sector in Dubai have improved considerably due to increasing number of tourist arrivals every year. According to the Department of Tourism and Commerce Marketing (DTCM), 11.6 million tourists visited Dubai in 2017. Further, according to the “Travel and Tourism Economic Impact 2017 UAE” published by the World Travel and Tourism Council (WTTC), the tourism sector contributed 18.6 billion dollars to the UAE economy in 2016. The WTTC predicts tourism’s contribution to the UAE GDP at the rate of 5.1 percent per annum this decade and reaching 5.4 percent of GDP by 2027.
In order to mark the 50th year of the country’s independence, huge number of economic initiatives have been announced by the leadership to fasten the economic growth. Several programmes and policies as part of diversification plan have been announced to attract approximately 150 billion dollars in this decade in the form of new foreign investments. For instance, visas form the core of the UAE’s economy with approximately 90 percent of the total 10 million population constituting expatriates. The 10-year Golden Visa, introduced recently, is granted to the selected investors and residents. Further, the new changes in Visa scheme such as Green Visa, which will enable the skilled individuals to expand self-residency, and Freelancers Visa that will lead to self-sponsorship of the self-employed in the UAE.
At present, the leadership is taking series of commendable reforms and initiatives for making the environment conducive for business. For instance, the country has permitted 100 percent foreign ownership of firms in 13 sectors including renewable energy, manufacturing, etc. Further, the UAE leadership has also introduced insolvency law to help the residents to address bad debts problem. The economic resilience shown by the UAE in recent years can be attributed to government efficiency in its effective managing of tax policies and public finances as well as business efficiency in terms of increasing productivity of labour market. Interestingly, the increasing number of patent applications in the past few years and reduced time to establish a start-up in the UAE are some of the major steps taken in advancing entrepreneurship in the country’s economy.
The recently organized Dubai Expo 2020 (1 October 2021- 31 March 2022) in the UAE with the theme “Connecting Minds, Creating the Future” is associated with a significant rise in the UAE’s GDP. The Expo has been focusing on sustainability, mobility and opportunity with an aim to provide further boost to the various sectors of the UAE economy.
Over the years, the leadership of the UAE has taken concrete steps and adopted pragmatic approach in making the country as one of the strong economic performers, not only in the WANA region but also globally. The transformation from an oil based to a diversified economy has led to the UAE’s integration into the global economic order. However, consistent economic development is the need of the hour for a speedy economic recovery of the Gulf nation in the post-pandemic world.