Life in the UAE was simple before the discovery of oil. Locals mainly depended on natural resources and activities such as fishing, pearl diving, and horticulture to fulfil their needs.
However, that took a turn in the 1950s when oil was discovered. During this era, the UAE started to experience economic growth and prosperity.
Oil played a dominant role in the country’s economic development over the years and is still a valuable source of income for the country’s future.
With the world’s seventh largest oil reserves, the UAE is considered to be one of the most critical oil producers and suppliers in the global energy market. Today, oil exports alone account for 30% of the gross domestic product of the country.
Diversifying further away from oil
Over the years, the UAE began expanding further away from oil as oil proved to have high price volatilities. Hence came the need to shift towards developing a more diverse, agile, and resilient economy by developing and supporting non-oil GDP sectors.
The UAE adapted 3 main strategies to reach its goals and shift its focus away from oil. Those strategies were implemented firstly by digitalising its economy, setting a strategy to cope with the fourth industrial revolution, and implementing a vision for the future of the economy.
The UAE started digitalising its economy in 2013, which within a short time helped accomplish significant economic achievements. These achievements in e-commerce, technology infrastructure and the increased speed of internet services reinforced the competitiveness of UAE’s national economy and recognition internationally.
In 2019, the UAE was placed 25th globally on the World Economic Forum (New Global Competitiveness Index 4.0), which ranks 141 countries across 12 pillars; Institutions, Infrastructure, ICT adoption, Macroeconomic stability, Health, Skills, Product market, Labour market, Financial system, Market size, Business dynamism, and Innovation capability.
Securing high rankings
In addition to that, the UAE has been successful in securing a high ranking at the IMD World Competitiveness Yearbook for the year 2020 which evaluated 63 countries on 338 different indicators that spread across 4 main factors; economic performance, government efficiency, business efficiency, and infrastructure.
With the ongoing digitalisation of the economy, the UAE launched its plan for leading the world smart cities market. Dubai and Abu Dhabi rank within the top 50 smart cities of the world.
“The UAE’s ascension in global Smart City rankings is testament to the country’s government-led digital transformation,” as researchers expect that smart cities market would grow 23% to accumulate to $546 billion in the next seven years.
In 2017, the UAE government announced its strategy for the fourth industrial revolution. It was the first of its kind globally to address opportunities and challenges in adopting new kinds of technology and directed toward guiding policymakers into the future and achieving UAE’s 2071 centennial goals.
The strategy focused on the development and adaptation of 3 main technology sectors; Physical (e.g., autonomous driving and advanced robotics), Digital (e.g. Artificial Intelligence and internet of Things) and biological technologies (e.g. genetic engineering and genomics)
The implementation of this strategy will boost the UAE’s global position as an industrial hub and fully utilises its strategic geographic location that connects Asia, Europe and Africa.
The world's hub
The strategy also aims to achieve future food and water security by using bioengineering sciences and advanced technologies while simultaneously enhancing economic growth by integrating digital economy and blockchain technologies in financial transactions and services.
As the global economy witnesses change UAE is planning to be in its core. As a result the UAE leaders came up with the UAE’s Vision 2021 National Agenda that focuses on the UAE becoming the touristic, economic, and commercial capital of the world.
The vision lays out specific plans for decision makers on how to transition the economy from being a labour driven economy to a knowledge driven one.
Prompt innovation, research and development, strengthening regulatory framework of key sectors and enhancing high value-adding sectors that will improve the country’s attractiveness to foreign investments and general business environment.
Greater policy reforms are needed in key major sectors: private sector, trade, fiscal policies, and renewable energy sectors. Today the UAE is home to more than 300,000 SMEs that contribute to more than 50% of the non-oil economy GDP and provides over 80% of the market private workforce. SMEs are essential because they contribute to growth, innovation, and job creation in the local market.
Trade is one of the key pillars of the UAE’s economy. According to the Federal Competitiveness and Statistics Authority, FCSA. The total value of non-oil trade in the UAE grew by 3.3% in the first half 2019 compared to 2018’s Dhs760.5 billion led by exports and re-exports.
Viable income source
The UAE should set a strategic plan to increase its scope of bilateral trade and multilateral trade agreements. As trade deemed as a viable income source for the country
Fiscal policies are important for the success of diversifying efforts in the UAE. Such as excise taxes which are taxes that apply on goods that harm the environment and health, and value the value added tax (VAT) which is applied to all taxable goods and services in the UAE with a flat rate of 5% of the price.
The UAE implemented those excise and value added taxes that were non-existent prior to 2017. Those fiscal policies were implemented to help the government diversify its economic budget and aim to achieve a number of macroeconomic objectives that were in line with vision 2021.
The UAE has great strategies and plans for its economy in the future. Efforts are being made to minimise its dependence on oil as it makes up 30% of the country’s GDP.
Focus on the private sector and FDI laws and regulations is also important for the growth of the country’s economy in the medium and long term.
Keeping up with the changing future job market is also important for the UAE’s success in creating expertise for the future and staying on the top of the vastly changing technological and digital market.
Sultan Al Rubaei is the Deputy Head of the Research Sector, Trends Research & Advisory