The UAE has four unique national characteristics that determine its current state and its future path. The first is the fact that the county is capital rich but short of manpower due to the small size of its citizen population.
The second defining characteristic is its abundance of energy through natural oil and gas reserves, contrasted with its severe scarcity of freshwater. The third important characteristic is the country’s small domestic market, which, while making it agile and adaptable to global market conditions, also means it must look to the global market to sell its products and services.
The fourth and final defining attribute is the UAE’s commitment to sustainability and renewable energy. These four traits have already had a significant impact on the UAE today and provide guidelines for the direction of the economic growth that the UAE should be looking at.
The UAE’s limited manpower means its small population has to be channelled to industries that require fewer workers, but have significant rewards. These industries tend to be the capital and knowledge-intensive ones, with high investment costs, but equally high returns.
The UAE leadership has already made moves towards these industries with investment in renewable energy sources, capitalising on the country’s historic experience in the oil and gas industries to develop a new economic growth engine which relies on all sources of energy rather than hydrocarbon alone.
The UAE has also facilitated the growth and innovation of its metals, semiconductors and aerospace industries with the establishment of entities, including Emirates Aluminium and the Advanced Technology Investment Company, etc. Going forward, wider and deeper investment will be needed to ensure that these sectors continue to grow and retain their competitive edge.
Their technologies tend to have half-life of only a few years. Without ongoing innovation, research and development, the UAE’s knowledge economy can lose its edge. It is for this reason that the future of the UAE’s economy will be closely tied to ongoing technological innovation.
This requires directing the country’s limited manpower towards advancing sciences and technologies, which requires the establishment of very advanced educational systems.
The development of capital-intensive industry is already being expedited in advanced economies, due primarily to the use of information and sensor technology, automation and robotics. The US manufacturing sector has recently been expanding its productivity due to incorporation of IT as well as automation and robotics without substantial increase in employment.
For example, the automotive industry can now produce the same automobile with less then 10-15 per cent of the labour force that was required two or three decades ago, thus reducing cost. However, while this also presents the US with an unemployment challenge, here in the UAE, our indigenous manpower shortage means we will greatly benefit from the transition to automated manufacturing.
The second characteristic of the UAE has an equally crucial role in directing future development and investment. The country’s water scarcity and energy wealth are highly interconnected.
The UAE has used its energy to make up for the deficit of water supplies for years, through energy-intensive desalination technologies. Unfortunately, the region as well as the UAE, has not yet developed their own capability in local expertise and their capacity in advanced water technologies.
For the UAE to continue to be able to leverage one abundance to mitigate the lack of another, it now needs to develop its own expertise and water technologies. Rather than being dependent on expensive technology and expertise imports, the UAE has to use its own manpowered wealth to develop its own desalination innovations.
This will not only result in cost savings for the government, which operates the country’s desalination plants, but will also provide the UAE with a valuable export product to other Gulf nations reliant on this form of water supply. This too requires development of an advanced educational system to train the UAE’s promising young engineers to go on to innovate the country’s desalination sector.
The third defining feature of the UAE is its relatively small domestic market. Previously, the UAE’s small population and domestic market had served as a boon. The country enjoyed the enviable position of having one of the world’s largest reserves of the highly necessary and coveted resources of oil and gas paired with only a small population to claim a share for domestic consumption.
That meant that the rest of its oil and gas could be profitably sold in the global energy market, providing the UAE with a steady stream of revenue. The UAE’s initial economic development thus was based on the wealth reserves provided by oil and gas, giving its economy substantial comparative advantage.
Moving toward, the UAE’s future knowledge economy will be fuelled by products and services that must be highly competitive in the global market. Therefore, the economy has to rely on competitive advantages rather than comparative advantages.
That advantage will have to be secured through hard work, high investment and education, as the UAE will be competing with well-established global players. This will require the UAE to establish world-class educational, research and industrial capabilities and strengthen its culture of professionalism and competitiveness.
The last important characteristic of the UAE today is its commitment to the notion of environmental sustainability. This will require not only changes in how we in the UAE live but also, technological innovations to make those changes easy and sustainable.
Technologies, systems and policies for the production, distribution, consumption, storage and recycling of energy and water are needed to help the UAE reach its targets of sustainability.
By leading in the development of these innovations, the UAE will not only reach its own targets for sustainability, it will also provide the global market with much-needed and competitive products and services. Again, strong R&D and human capital are essential towards achieving success in this noble cause.
Given these four characteristics, we are witnessing the transition of the UAE economy. From being an oil-based economy in the past, today it has moved towards the concept of total energy with vast investment in renewable energy deployment.
Tomorrow, the direction the UAE must take is leading innovation through research and development, so it can become an advanced capital-intensive economy. This path of development, transition and innovation will help secure the UAE’s future prosperity and security.
Dr Fred Moavenzadeh is the president of the Masdar Institute of Science and Technology in Abu Dhabi.