The UAE has come a long way since its unification in 1971. In just five decades, it has transformed from a collection of a few trading posts with a population reliant on fishing and pearling to one of the world’s most vibrant economies.
In that time, GDP has jumped to $421 billion (Dh1,442.5bn) in 2019 from $1.4bn in 1971, according to World Bank figures, and the UAE currently ranks as the second-biggest Arab economy after Saudi Arabia. But what is the secret of the UAE’s success? The recipe for this economic miracle?
Economic diversification away from reliance on oil and gas has been at the heart of the UAE’s development strategy over the past 50 years, according to analysts. The non-hydrocarbon sector now accounts for about two-thirds of GDP, a reversal of the situation five decades ago.
“Construction, real estate, transport and logistics have underpinned the UAE’s growth over the last half century, as the country developed into one of the largest trade hubs in the world,” says Khatija Haque, chief economist at Emirates NBD, one of the UAE’s biggest banks. “Over the past decade, it has been the services sectors which have seen the fastest growth, including education, healthcare and of course financial services. Manufacturing, utilities, information and communication and real estate services have also contributed to the significant growth in the non-oil sectors of the economy.”
Hydrocarbon resources have been the driver of the UAE’s growth, with the government pursuing industrial development by investing in manufacturing relating to oil and gas. Low taxes, stable government and cheap labour costs proved attractive to business. Meanwhile, the surge in oil prices in the 1970s and 1980s also allowed the UAE to invest in public infrastructure and catalysed a construction boom.
In the 1990s, banking, insurance and real estate services started to emerge as the population began to grow. In the late 1980s and early 1990s, the emirate of Dubai also took a strategic decision to establish itself as a major international tourist destination. The opening of the iconic Burj Al Arab hotel in 1999 encouraged other hotels, resorts and entertainment venues to blossom.
The UAE’s Vision 2021, launched in 2010, has guided the nation’s economic development over the past decade. With diversification and sustainable development at its core, this strategy also helped the UAE recover from the global financial crisis of 2007-08. Between 2000 and 2020, the UAE’s GDP growth rate averaged 3.9 per cent, according to Trading Economics.
Even with the disruptions related to the Covid-19 outbreak, the nation’s economic growth has taken a faster route driven by rising business optimism, fiscal stimulus and higher government and private sector spending in projects related to Expo 2020 in Dubai – the first World Expo to take place in the Middle East in the event’s 168-year history. Over its six-month run from October 2021 to March 2022, Expo 2020 is forecast to add about 1.5 per cent to the UAE’s annual GDP, or Dh22.7bn, according to an economic impact study by consultancy EY.
“The largest global event in the Arab world is key to the repositioning of the UAE economy, helping revive tourism, services and the property market, while cementing the country as a leading business, travel and investment destination,” said HSBC in a recent research report.
Non-oil business activity jumped to a two-year high in October, helped by optimism around Expo, according to IHS Markit’s Purchasing Managers’ Index. “The big benefits of events such as the Expo 2020 is to provide a platform for know-how sharing, to provide a platform for best practice sharing,” Carsten Menke, Head of Next Generation Research at Swiss wealth manager Julius Baer told GN Focus in an earlier interview.
Non-oil resurgence
The resurgence in non-oil growth means the UAE economy is expected to expand by 2.2 per cent this year and 3 per cent in 2022 after plummeting 6.1 percent in 2020, according to October forecasts by the International Monetary Fund (IMF).
Meanwhile, cognizant of the efforts its GCC neighbours — especially Saudi Arabia — are making to improve competitiveness, the UAE has introduced a raft of sweeping reforms to drive economic liberalisation and attract new foreign investment. These include new laws permitting foreign investors to own 100 per cent of local companies, legal reforms, and a path to citizenship for expatriates. This last step “aims at appreciating the talents and competencies present in the UAE and attracting more bright minds to the Emirati community in a way that contributes to the development and prosperity of the country”, the government said in a news statement earlier this year.
“A future-oriented approach has proven beneficial. Forward thinking and foresight into potential risks and opportunity analysis have been key economic development contributors, as have agility at the government level and citizen-centric programmes and services,” said Leila Hoteit, Managing Director and Senior Partner at Boston Consulting Group in Dubai. “And most recently, these factors have proven key for the UAE’s economic rebound following Covid-19, although other levers have also played their part.”
With the conclusion of Vision 2021, the UAE has adopted a multitude of other development plans, including Abu Dhabi Economic Vision 2030 and the Centennial Plan 2071. Also on the cards is ‘Projects of the 50’, a series of projects that aim to accelerate the UAE’s development.
“Looking ahead, the authorities will increasingly focus on supporting more value-added sectors of the economy including technology, manufacturing and industry and clean energy,” says Emirates NBD’s Haque. “In order to support the shift to a more skills-based economy, the government has introduced a number of reforms to attract and retain human capital, and to make the UAE an attractive place to live, work and invest.” ■
The UAE government is taking concrete steps to establish a strong digital economy. Today, the digital economy contributes about 4.3 per cent to the UAE’s gross domestic product, which is equivalent to Dh100 billion, government figures show. Leading this front is the emergence of fintech services, which has decisively transformed the UAEs financial services industry. The impact has been significant, according to Olivier Crispin, co-founder and chief executive of Zand, the first fully digital bank in the region to combine both retail and corporate banking. “What these fintechs have achieved is making things much easier for people, much simpler,” he says. “Fintechs are able to use data and analytics to come up with products that are really relevant to [each individual]. And I think that has obliged traditional banks as well to make an effort on that.”
