Diversification makes UAE's economy more competitive
The UAE leads the Arab world in competitiveness as increased diversification makes its economy more resilient, according to a study by the World Economic Forum and the World Bank Group.
The UAE, ranked 17th globally in competitiveness, has been able to weather the double shock of lower oil and gas prices and reduced global trade, and maintain a stable macroeconomic environment due to its diversification, the Arab World Competitiveness Report 2018 said.
"The resilience of the UAE fiscal policy will be further strengthened in the future because the Emirates was, together with Saudi Arabia, among the early adopters of the new VAT agreed upon by GCC members," said the report.
The IMF predicts GDP growth to pick up again this year to 3.4 per cent, driven also by the good performance of the non-oil economy.
Philippe Le Houérou, CEO of International Financial Corporation of the World Bank Group, said in order to further increase its competitiveness, the UAE would have to speed up progress in spreading the latest digital technologies (currently ranked 36th globally) and upgrading education (36th).
"Over the past decade, the UAE has experienced significant improvement across all dimensions of competitiveness and closed the gap with the OECD average in all of them except for higher education and training and [to a small extent] health and primary education. In relative terms [i.e., with respect to the country's performance across all pillars], innovation, financial market development, and market size are weighing on the UAE's competitiveness, while the country benefits from strong institutions, good infrastructure and a good level of health and primary education," said the report.
The drop in oil and gas prices had a significant effect on the country's fiscal situation, which moved from a fiscal surplus of 10.3 per cent (in 2015) to a deficit of 4.1 per cent of GDP (2016), while public debt increased from 35.8 to 47.6 per cent of GDP in the same years.
"In spite of unprecedented improvements in technological readiness, the Arab world continues to struggle to innovate and create broad-based opportunities for its youth. Government-led investment alone will not suffice to channel the energies of society towards more private sector initiative, better education and ultimately more productive jobs and increased social mobility," said the report.
At the same time, a number of countries in the region are trying out new solutions to previously existing barriers to competitiveness, it said.
"The UAE has increased equity investment in technology firms from $100 million to $1.7 billion in just two years, while Bahrain is piloting a new flexi-permit for foreign workers to go beyond the usual sponsorship system that has segmented and created inefficiencies in the labour market of most GCC countries. Saudi Arabia has committed to significant changes to its economy and society as part of its Vision 2030 reform plan, and Algeria has tripled internet access among its population in just five years, while in ten years, Morocco has nearly halved its average import tariff from 18.9 to 10.5 per cent, facilitated trade and investment and benefited from sustained growth," it said.
"We hope that the 2018 Arab World Competitiveness Report will stimulate discussions resulting in government reforms that could unlock the entrepreneurial potential of the region and its youth," said Houérou. "We must accelerate progress toward an innovation-driven economic model that creates productive jobs and widespread opportunities."
"The world is adapting to unprecedented technological changes, shifts in income distribution and the need for more sustainable pathways to economic growth, "said Mirek Dusek, Deputy Head of Geopolitical and Regional Affairs at the World Economic Forum. "Diversification and entrepreneurship are important in generating opportunities for the Arab youth and preparing their countries for the Fourth Industrial Revolution."
With a few exceptions, such as Jordan, Tunisia and Lebanon, most Arab countries have much less diversified economies than countries in other regions with a similar level of income, the report pointed out.
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