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UAE economy has a bright outlook for next 50 years

Dubai - 50 years of UAE economic excellence sets stage for future on robust fundamentals

The UAE economy has expanded 57 times in the last five decades, rising from Dh6.5 billion to about Dh353.90 billion in 2020, on the back of bourgeoning services and industries.

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In 2021, gross domestic product (GDP) is expected to swell to Dh373.15 billion as per the estimates of the International Monetary Fund (IMF).

A steady rise in economic activity over the years has allowed the UAE to become the 35th-largest in the world, up from about 140th half a century ago. While oil and gas has been the most dominant industry over the decades, propelling the economic engine of the UAE, its diversification drive has ensured the economy is reducing its reliance on this space. Trade, transportation, tourism, retail and real estate have been the five key drivers of growth in recent years.

“Moving away from complete oil dependence half a century ago, the share of hydrocarbon activity in the economy fell to 65 per cent in 1990 and 29 per cent last year. The share of services rose to half the economy, while the share of manufacturing rose to just under a tenth,” said Giyas Gokkent, chief economist of Mena House.

“The increase in the share of non-hydrocarbon activity to almost three-quarters of the economy moved hand-in-hand with a more than fifty-fold increase in the population from 180,000 in 1968 to about 9.5million,” he added.

Another sector that has witnessed commendable growth in recent years is manufacturing, particularly in sectors such as metal processing, furniture, industrial preparation of food stuff, aluminium production, construction materials, fertilisers and real estate. Industry now comprises 46.2 per cent of GDP and employs 34 per cent of the workforce.

“In the last 10 years, light manufacturing and some heavy manufacturing activities have taken root and shown signs of maturing and becoming major players in the non-oil sector. Manufacturing is growing very significantly and is diversifying into new areas. For instance, if we look at Abu Dhabi, the emirate is diversifying into aerospace and health equipment,” says Sanjay Modak, professor of economics at RIT Dubai.

“Health tourism is another sunrise industry, and there is growing interest in agriculture too,” he added.

Agriculture, for now, contributes merely 0.7 to the economy and gives employment to 1.4 per cent of the workforce, but it has potential to mature and expand to emerge as an export sector.

Considering the significant leaps the UAE has made in the past 50 years, it could be a tough act to replicate the scale and speed of development in the next 50 — and what’s needed is a shift in strategy.

“It will require a shift towards a more manufacturing and knowledge-based economy, while still nurturing services. Now, this has already been underway with services and manufacturing doubling their share in activity since 1990,” added Gokkent.

“The share of hydrocarbon activity will decline further hopefully because of this steady shift towards increased non-hydrocarbon activity. Changes in technology and, over time, depletion of hydrocarbon resources make this shift imperative.

“In brief, the UAE economy needs to continue to open up and invite business and people to continue along its success story of the previous half a century.”

Khatija Haque, chief economist and head of research at Emirates NBD, agreed: “Looking ahead, the focus is likely to shift to new technologies and industries across different sectors, including agriculture [agritech], financial services [fintech],and clean energy.

“However, the recently-released Dubai 2040 urban development master plan suggests that there will be continued investment in physical infrastructure as well, including transport, housing and leisure facilities to improve the quality of life for residents and to make Dubai a desirable place to live and work in the coming decades.”

However, building smart cities and adopting new technology won’t be enough.

“The UAE has been adopting new technology and applying it well in various sectors. But if we want to create a sunrise industry then we will have to build an ecosystem that attracts new talent and encourages people to innovate and invent, not just adopt new technologies,” says Modak.

— suneeti@khaleejtimes.com