UAE economy: Diversified, vibrant, resilient

Dubai - The country has evolved as knowledge economy driven by innovation

Driven by a passion for innovation and diversification, the UAE economy, which has recorded a phenomenal pace of growth that is quite unparalleled in recent history of nations, is right on track to bounce back to 3.5 per cent growth in 2016 despite headwinds posed by multiple factors.
The bold and farsighted diversification policies and reforms initiated over the past 45 years had helped the nation not only in forging ahead, regardless of the volatile oil fortunes, but also to evolve as a trail-blazing economic role-model for the whole region.
Thanks to a pragmatic and visionary leadership, the nation has evolved as knowledge economy driven by innovation even as it drastically reduced its reliance on oil from 90 per cent in 1970 to 30 per cent at present.
As the International Monetary Fund has noted, the UAE continues to benefit from diversification and innovation policies that have helped limit negative spillovers from lower oil prices, sluggish global growth, and volatility in emerging market economies.
In its latest UAE forecast, Capital Economics said that the UAE's economy is poised to start recovery in 2017-18 on the country's strong balance sheet, but is likely to record its slowest growth since 2010 this year,
The forecast said recovery is expected in the 2017-18 fiscal year. "The UAE has been more proactive in terms of economic diversification than other GCC states and is, therefore, expected to cope relatively well with a prolonged period of low oil prices and to be one of the Gulf's best-performing economies in the coming years."
Despite low oil prices, the UAE's economy held up well last year with GDP growth picking up to 3.8 per cent from 3.1 per cent in 2014 - helped by strong growth in the oil sector, it said. The non-oil economy, on the other hand, recorded its weakest growth in five years. "This was largely due to fiscal tightening - fuel prices were deregulated last year and electricity and fuel prices were hiked, while Abu Dhabi cut spending by 20 per cent," it said.
The country's $450 billion economy has shown remarkable resilience even in the face of global slowdown, geo-political turmoil and oil price plunge as it expanded its dependence on multiple resources, including real estate, tourism, aviation, banking and finance, manufacturing and retail to propel growth, economists pointed out.
Over the past four decades, the country has recorded significant holistic growth across all sectors. Average GDP growth over 2000 to 2006 in the UAE was about 8.4 per cent - the highest in the GCC, which averaged 6.5 per cent. The GDP for 2014 was $419 billion. Sultan bin Saeed Al Mansouri, Minister of Economy, said in a drive to transform the Fourth Industrial Revolution into a global movement spearheaded by the Arab world's second largest economy, the UAE Government has launched a six-pillar plan, which was set in collaboration with the World Economic Forum, WEF.
In a major boost to the ongoing economic development drive, His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, launched the world's first government accelerators just recently. The accelerators have multiple tasks and responsibilities to boost the pace for achieving the goals of the National Agenda and projects.
Directives have been issued for all government bodies under the umbrella of the accelerators programme to develop initiatives, laws, policies and services that support national indexes and programmes. The government bodies will also be tasked with implementing joint projects in record time in order to shift government services into advanced standards by 2021.
The industrial sector, which contributes 14 per cent to the GDP, is also forecast to expand and contribute 20 per cent in 2021. Economists forecast that significant growth would come from non-traditional industries as the knowledge-based economy will witness spectacular growth in the coming years.
To drive this all-round growth, the government has issued new rules and regulations to further improve the business environment.
According to Al Mansouri, the key to diversification drive is the growth of the industrial sector. The UAE seeks to attract more than $70 billion in industrial investments by 2025, which will help increase the share of the industrial sector in the country's GDP to 25 per cent, up from the current 16 per cent, thus ensuring that the sector will become the driving force in the country's economic growth in the future.
The country's vibrant Small and Medium Enterprises, or SMEs, will be another key growth driver. The government is giving big priority to SMEs across its policies and initiatives with an aim to boost the share of the segment in national economy to 70 per cent from 60 per cent by 2021.
SMEs currently account for 86 per cent of the total workforce in the country, and are the chief enablers of economic diversification, innovation and the shift to a knowledge-based economy.
Al Mansouri has said SMEs make up more than 94 per cent of the companies operating in the UAE, totalling 350,000, and as many as 73 per cent of companies in the wholesale and retail trade and 16 per cent in the services sector are SMEs. The manufacturing sector also has an 11 per cent share for SMEs.
The country's open and investor-friendly policies have been helping enhance its attractiveness to Foreign Direct Investment, FDI.
The Ministry of Economy announced in 2016 that it aims to increase the contribution of FDI to five per cent of the country's gross domestic product over the next five years. This is in line with the goals of the National Agenda of the UAE Vision 2021.
The UAE is the second largest FDI recipient in the Middle East region, according to the 2015 UNCTAD World Investment Report.
Increased FDI pushed the UAE to 1st rank regionally and 22nd globally in the World Investment Report 2015.
The drive for diversification does not come at the expense of the oil sector. With the world's seventh largest proven crude oil reserves, the UAE is a responsible producer and critical partner in global energy markets.
- issacjohn@khaleejtimes.com