As the UAE celebrates its 44th National Day, its pace of development over these four decades truly demonstrates the resilience of its economy and one that is no longer reliant on oil. The economy has become more independent and flexible in coping with sharp fluctuations in oil prices, which fell by more than 55 per cent in the last 18 months.
Many observers, who are interested in following economic activity in the region, often wonder about what is the real secret behind the resilience and continuous growth of the UAE economy and irrespective of what happens to oil.
Even as oil prices have deteriorated since the middle of last year, the UAE economy achieved a growth rate of 4.5 per cent in 2014. Despite the continuing soft prices, the economy is expected to achieve 3.5 per cent this year. This is because of the rapid growth of non-oil sectors, which accounts for about 65 per cent of GDP.
So, the UAE is on the threshold of a new phase of growth that does not only rely on the volume of oil revenues as was the case for the better part of four decades. Rather, it depends on growth of non-oil sectors after implementation of a policy of economic diversification, which has led to an impressive development in key sectors over recent years, such as in tourism and air transport, trade and financial services, as well as manufacturing and alternative energy.
The UAE has begun to reap the fruits by maintaining the growth momentum and high living standards. This policy marks a great success that many oil-producing countries are trying to emulate. The UAE experience has become a development model on how to utilise depleting resources in paving the infrastructure for sustainable development.
The impact of the sharp decline in oil prices will be insignificant in the greater context, given that the UAE has the financial reserves to implement mega-projects in various sectors, especially in infrastructure and renewable energy. The UAE is also working on the Etihad Rail project, which will offer a qualitative leap in land transport.
There have been other developments the UAE has sought to make full use of. The strategy to develop a knowledge economy is making strides — another milestone in the UAE’s economic diversity. The transitioning to a smart economy is proving a resounding success.
In this regard, the private sector is expanding its activities to catch up with the rapid growth of the public sector in more than one direction. This means creation of many job opportunities and increasing the private sector’s contribution to GDP and economic diversity, which is not just the government’s goal but of society at large.
This solid ground, backed by reports issued by multilateral organisations and rating agencies, has created great confidence in the UAE economy and attracted foreign capital alongside domestic investments. This has accelerated the non-oil sector’s growth, which is based on sophisticated infrastructure.
For example, the Dubai International Financial Centre has turned into the most important regional financial hub, while the Abu Dhabi Global Market has recently started its functions. Together, they have added greatly to the depth of the financial services sector.
UAE’s achievements in this year and the past will reinforce the economy’s foundation and add more flexibility. This will continue to be the case as the non-oil sectors develop into full maturity.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.