Dubai: The economic transformation of the UAE since its independence in 1971 stands as one of the most spectacular in the modern economic history of nation states.
From a cluster of villages on the Arabian Peninsula engaged in pearl diving and spice trading, a nation has emerged with enviable economic strength.
Going beyond the stunning economic growth, the country is fast emerging as an example for the world in all round human development ranging from science and technology, education, art and culture and tolerance.
Although historians have traced human habitation and civilisation in the current UAE to BC 6000, recorded history of the area is more visible from the time of the arrival of Islamic civilization in the seventh century AD. The Islamic civilisation flourished in the Gulf region during the Umayyad Caliphate AD661 to 750 and Abbasid Caliphate AD750 to 1258. Along with fishing and agriculture, sea trade prospered between the Gulf region and other areas in South East Asia and along the West African coast and ships' craftsmanship spread in the region.
Arrival of Europeans
The arrival of European traders in the region was a new chapter in the economic history of the region. The Portuguese were the first Europeans to arrive on the Arabian Peninsula in 1498. They took over the role of intermediary for trade between the ports of the Indian Ocean from the members of the indigenous mercantile strata.
In the early seventeenth century, the Dutch and the English followed. With the weakening of both the Portuguese and Dutch colonial power in the Indian Ocean, the British emerged as the lone foreign power that held sway over the region.
In 1892, the UK entered into exclusive agreements with the Trucial States by virtue of which the Trucial States could neither dispose any of their territories except to the UK nor enter into relationships with any foreign government without the consent of the UK. In return, the British would defend the emirates from foreign aggression. In early 1968, the British declared their intention to withdraw from the Gulf by the end of 1971.
Decline of pearling, and oil discovery
Pearl diving was once the most lucrative profession in the UAE early 1900s until the Japanese discovered how to make artificial pearls.
However, the discovery of oil in the UAE in 1958 changed the fortunes of the country for good. Coincidently, oil was discovered under an old pearling bed, Persian Gulf, Umm Shaif, in 1958, and in the desert at Murban in 1960. The first cargo of crude was exported from Jabel Dhanna in the Emirate of Abu Dhabi in 1962.
However, the discovery of oil in the in the UAE in 1958 changed the fortunes of the country for good. Coincidently, Oil was discovered under an old pearling bed, Persian Gulf, Umm Shaif, in 1958, and in the desert at Murban in 1960. The first cargo of crude was exported from Jabel Dhanna in the Emirate of Abu Dhabi in 1962.
Founding of the UAE
If discovery of oil was the major trigger for the rapid economic growth of the UAE in the second half of the 20th century, the political wisdom of its leaders form unified modern state served as an enduring force in the economic transformation.
Soon after assuming power on 6 August 1966, as the Ruler of Abu Dhabi, Late His Highness Sheikh Zayed bin Sultan Al Nahyan underscored the importance of a united country. On 18 July 1971, the Rulers of six of the seven emirates that made up the Trucial States, (except Ras Al Khaimah), decided to form a union.
Today, the UAE is rightfully termed as a global phenomenon. In 50 years, the country has emerged from a sandy desert into a futuristic economic hub. Clearly, in early years following the independence oil played a key role in the economic growth of the young nation.
Growing past oil boom
In fact, few countries in history can boast of such a huge shift in development and growth in such a short period of time, comparable to that of the UAE.
Today, the production of petroleum and natural gas contributes about one-third of the nation’s GDP, which is on par with those of leading Western European nations. While the UAE has the most diversified economy in the GCC, the country is constantly on a move towards a knowledge and innovation driven economy, relying more on human capital and technology than hydrocarbons.
We must not rely on oil alone as the main source of our national income. We have to diversify the sources of our revenue and construct economic projects that will ensure a free, stable, and dignified life for the people.
Over the last twenty years, the UAE's economic diversification programme has led to the rise of several non-oil industries ranging from financial services, real estate, airlines, hospitality, tourism, ports and logistics. The country is fast emerging as a hub for knowledge driven enterprises such as information technology, artificial intelligence, biotechnology, and blockchain- driven trade, financial services and global supply chain management.
COVID impact and recovery
Like all the economies in the world, the UAE too witnessed a sharp decline in GDP growth in 2020 following the outbreak of COVID-19 that impacted oil price and domestic industries.
Despite the 6 per cent contraction last year, global agencies such as the International Monetary Fund, Institute of International Finance and credit rating agencies project the economy is poised to grow in excess of 2 per cent this year and reach pre-COVID levels of growth rates in 2024.
While affirming a sovereign credit rating of AA2 and assigning positive outlook to the UAE recently, rating agency Moody’s said the recovery in global trade is supportive of UAE growth in both maritime and air cargo transportation, supported by the normalization of factory output in China and seeing re-exports returning close to pre-pandemic levels by the third quarter of 2020.
Meanwhile, the UAE's progress in vaccinating its population against the coronavirus is a source of potential upside for the economic outlook, which could allow for an easing of inbound international travel, supporting a faster than expected recovery in the tourism sector, and providing a boost to the hospitality and retail sectors.
UAE's recovery Imminent
Next wave of growth driven by digital push
The pandemic has highlighted the importance of digitalisation. Based on the World Economic Forum’s Index on Information and Communications Technology (ICT), the UAE has made major progress in recent years, and now ranks among the top 15 countries in the world.
The UAE National Innovation Strategy prioritizes digital technology as one of the top seven national sectors, including the application and rapid adoption of new disruptive technologies across sectors.
The UAE authorities have set clear goals for encouraging diversified and knowledge-based growth to achieve a competitive knowledge-driven economy and are implementing a broad range of policies to achieve their goals. Such reforms will increase productivity growth and boost the supply of highly qualified labour.
Foreign residents in the UAE represent at least 80 per cent of the population. The government has introduced number of changes to residency and secular leaning legal changes to attract global talents that support a knowledge-based economy.
The progress in digital transformation has opened opportunities for small and medium size enterprises (SMEs) and offered the potential of enhanced productivity.
Digitalisation is gradually expected to make a greater impact on the UAE economy. The SMEs in the UAE have made digital technology an integral part of their business, thanks to the rapid growth of the e-commerce sector.
Ambition and commitment
The UAE’s 50-year growth story has been one of ambition driven by strong leadership and commitment.
The strategy of the country is to increase investment in industrial and other export-oriented sectors, including heavy industry, transport, petrochemicals, tourism, information technology, telecommunications, renewable energy, aviation and space, and oil and gas services.
Much has already been achieved in these fields, especially in satellite and telecommunications, the aviation sector and in renewable energy, and although short-term priorities have been altered to accommodate changing realities, the long-term strategy remains the same.
The UAE aims to establish the first inhabitable human settlement on Mars by 2117. There is little scope for cynicism or doubt, if we look at the record of accomplishment of the country.