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Since its formal creation on December 2, 1971, the United Arab Emirates (UAE) has witnessed dramatic and major economic and social changes (Gonzalez 92). While it was initially a poor country, the country has put the revenue from gas and oil production into good use (Gonzalez 92).
Though a rather dry, hot and a country with scarce groundwater, UAE has become the longest surviving and successful country in federation of the Arab world (Barbier 283). Although the country lacks sufficient water, on the other hand, it has one of the world’s highest water consumption. Nevertheless, the federal government meets increased demand by offering subsidies through the water industry.
The country also has well planned institutional, political, cultural, social, and economic systems (Oliver 76). In fact, UAE has matured to become a country which not only offers its population a decent lifestyle, but also widely recognized as having a significant role to play within the global nations.
It is, therefore, clear that development economics cannot be separated from the social, institutional, cultural, political and economic context. The following paper hopes to discuss the economic development of United Arab Emirates. The current status of the country, the history, economy, challenges facing economic development and the country’s competitive advantage will be discussed.
When the country which was initially referred as ‘Trucial’ was established on December 2, 1971, nobody took much interest (Oliver 71). Within ten years, however, the UAE had become an admirable nation and a country to be befriended by most oil consuming countries (Gonzalez 88). UAE is an independent and sovereign state which is located at the Arabian Gulf with its capital city in Abu Dhabi (International Monetary Fund [IMF] 12).
The country borders Oman and Saudi Arabia while sharing maritime boarders with Iraq, Qatar and Iran (IMF 12). UAE is made up of approximately 4.5 million people and occupies a total area of 83,600 square kilometres.
While the foreign workers occupy the highest percentage of the whole population, local Emiratis occupy only 19 percent (IMF12). UAE is also made up of seven emirates including Dubai, Abu Dhabi, Ajman, Sharjah, Fujeirah, Ras Al-Khaimah and Umm Al-Qiwain (Aldosari 114).
With the exception of the North-central Oman Mountains and the Omani territory in the North-Eastern Ru’us al-Jibal (Musandam Peninsula), UAE occupies a large portion of land which flanks the Southern Shores of the Arabian Gulf between the Gulf of Oman and the Qatar Peninsula (Gonzalez 87).
While forming United Arab Emirates after British withdrawal, the seven emirates formed a federation that created the government (Aldosari 116). Much of UAE’s land consist of relatively low lying rolling dunes in a country located at the South East of Arabian Peninsula in the Persian Gulf and the Arabian Peninsula (Oliver 73).
Although the highest population practice Islam, only 80 percent of native Emirati are Sunni Muslims. Most residents are foreigners from other parts of the world including Europe, East and Southeast Asia, Iran, North America and Southern Asia who settle in Emirates to look for jobs (Aldosari 116; Oliver 75).
The United Arab Emirates has two histories: the history of the region for many years before oil discovery and the history of the century since the oil boom began (Gonzalez 87). As observed by researchers, there is no nation that has changed faster than UAE since oil was discovered (King 2; Feiler 407). Earlier history sets a long and colorful past while portraying the scene for the story of the modern nation.
During the Stone Age era, economic activities included rearing sheep, cattle and goats while growing barley, wheat and palm dates (Feiler 407). At one point, camels were also domesticated and used to establish inland settlements at oases and wadis (King 3). Trade items such as copper and pottery were also being shipped to the early civilizations of Mesopotamia.
As early as 2000 B.C., UAE had developed a well governed maritime trade which acted as an important part of the regional economy (Feiler 408). By 300 B.C, UAE had become part of a trade network that linked the Mediterranean world including Rome and Greece and the cultures of Indian Ocean and Africa (Feiler 409).
While the Coastal communities continued relying on maritime trade, camel caravans bearing such goods as frankincense had made their way to the North through Western Arabia (Dasgupta 202).
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UAE and its neighboring oil producing countries are of great importance to the world (Soubbotina 133). After oil discovery and boom, the country was entirely transformed. Hunger and poverty disappeared and shabby houses and streets were replaced by spectacular and complex infrastructures (International Monetary Fund ([IMF] 7).
Since then, the Emirati and their leaders have adopted intelligent planning of the country’s future (Feiler 409). The leaders have also adopted a moderate principle in its dealings with other oil producing countries and the world at large.
The country has also joined other oil producing countries including Kuwait, Saudi Arabia, Bahrain, Oman and Qatar to form the Gulf Cooperation Council which aims at strengthening security and self defense (Badr-el-din and Ibrahim 78).
UAE also relies on major nations that depend on oil including America to protect itself against other countries that threaten its sovereignty (Gonzalez 91; Feiler 409). The country is also being actively involved in anti-terrorism campaigns since America’s attacks in 2001 (United Nations [UN] 5).
Initially, the country was considered one of the least developed countries of the world (Abed and Hellyer 249). The country has today achieved an income level which is comparable to some industrialized countries. UAE did not pass through the hypothetical development stages that most developed countries have passed (Feiler 409). Instead, its large oil revenue has enabled the country to attain the stage of high mass production.
The oil revenue, in this case, enables the country to cut short the usually lengthy and difficult processes of capital accumulation and saving (Szirmai 588). With its abundant natural resources endowment (gas and oil), UAE has been able to embrace resource-based industries as a development strategy (Feiler 409).
It has also adopted an industrial strategy which is often based on the utilization of natural resources. This enabled a significant degree of economic development to be achieved during the period of high oil prices (1973 to 1982) (Feiler 409).
The United Arab Emirates is an association of seven emirates that formed the government although they were initially poor (Aldosari 120). Economic development has been rapid while changing the demographics of the population and the appearance of the cities and other sectors. As formerly British protectorate, UAE regained its national sovereignty in 1971 after the colonizers moved out of the country (Aldosari 122).
Oil as a resource in UAE is above 25% of the country’s Gross Domestic Product (GDP) (Feiler 409). Oil exports, in this case, finance a significant portion of government’s spending which helps in driving other sectors of the economy (Barbier 284). The country also enjoys one of the highest standards of living in the whole world. The country is, in fact, considered a major player in the global oil industry.
Historically, the emirates are rated world’s fourth largest oil producers (Aldosari 121). Abu Dhabi Emirate, for instance, contributes 10% of the world’s oil production. Although Ras al Khaymah, Ash Shariqah and Dubai have smaller amounts of oil, they are also of great significance as long as world oil reserve is concerned (Szirmai 589).
UAE also takes pride in producing about three percent of the world’s natural gas reserves (Aldosari 121) hence offering the largest share of gas production. At the present rate of oil production in Dubai, it is estimated that oil within the Emirates may last for more than 100 years and 200 years for gas production (Soubbotina, 133).
Other natural resources that contribute to UAE’s economy include iron, uranium, modest deposits of Chrome, and fishing within the Gulf of Oman and the Persian Gulf.
Additionally, the United Arab Emirates is recognized as a major producer of both export and import consumption. Agriculture and fishing also contribute to the economic development of the country. The emirates and the federal governments have also encouraged diversification hence reducing oil overdependence (Soubbotina 135).
For instance, Abu Dhabi uses its rich natural gas in fuelling new industries including fertilizers and petrochemicals. The emirate also has a successful aluminium smelting industry. Actually, aluminium and other related industries account for 60 percent of other exports which are not related to oil (Szirmai 289).
Other manufacturing industries in the country include final stage assembling of goods, electronics and light engineering. Ash Shariqah also produces paint, plastics and cement. The government is also encouraging development of hi-tech technology and sustainable development within all sectors (Szirmai 289). Construction industry is also a major contributor of UAE’s economy and an employer of many workers.
On the other hand, although construction companies rapidly grew during the 1990’s boom, the emirates are currently oversupplied and the industry is quite unstable and alternates between bends and resilience (Abed and Hellyer 249). Some traditional industries including pearling, decorative arts and boat building have also survived.
Economic Problems, Challenges and Constraints
The speed at which economic growth and development took place at the United Arab Emirates raised enough environmental and social problems. The local population, for instance, did not have the right qualifications and skills to attend to the natural gas, oil and other service industries that flourished within a short duration.
The country had to also rely on foreign workers who occupy a significant portion of the country’s population. The fact that foreign workers form more than 90% the labour force makes the country’s economy to be potentially vulnerable to international political influence (Aldosari 120).
Before the discovery and export of oil, the United Arab Emirates mainly depended on nomadic animal husbandry, subsistence agriculture, seafaring, fishing and extraction and trade in pearls (Abed and Hellyer 249). This period reflected the country’s limited natural resources which resulted to a simple subsistence economy.
Economy started improving in early 1970s during the formation of federation of December 2,1971 (Abed and Hellyer 250) and the establishment of its formal social, economic, and political institutions. This coincided with a massive increase in oil production and oil experts which was followed by a massive rise of oil prices in 1973 (Szirmai 289).
Similarly, although the government has made enough efforts to create more opportunities for Emiratis, the locals are not willing to take the lower status and lower paid jobs which are largely filled by foreigners (Aldosari 120). Consequently, the increasing numbers of educated Emiratis face difficulties while trying to obtain suitable jobs that suit their education qualification.
In the same way, the country over depends on oil which makes it susceptible to price fluctuations in the world oil market (Rostin 16). When the world oil price is high, UAE receives additional revenue for development programs and government expenditure.
When the price is low, on the other hand, development and other government priorities are postponed or rescheduled. This may, at times, threaten the expected growth and development of the country. Nevertheless, UAE may be considered one of the most successful nations in the Gulf region as far as diversification of economy is concerned (Rostin 16).
Additionally, the confederation agreed that some emirates should have control of their own natural gas and oil revenues. However, few of the emirates do not have oil reserves, hence reflecting economic development differences between them.
While Abu Dhabi emirate, for instance, has the highest oil reserves while contributing 25% of the GDP, Ras al Khaymah does not have oil or well developed manufacturing sector or services (Ulrichsen 101). The country also faces problems while trying to incorporate increasing newcomers and foreigners from other parts of the world without destroying the values and customs of the country.
Economic Competitive Advantage
Since its inception in 1971, emirates have enjoyed political stability (Abed and Hellyer 250).
Actually, the existing political structures seem to suit the tribal society of the UAE and massive distribution of oil revenues in form of high salaries, developed economic and social infrastructure and provision of high standard social services including education and health, hence raising the standard of living for the UAE citizens, and considerably reducing the possibility of social unrest and political instability (Ulrichsen 102).
The UAE government has also maintained a good record on human rights since the state was formed which has greatly promoted social and political stability.
The economic advantage of UAE is also attributed to the fact that the country is an active member of many regional and international associations including the United Nations, Arab League, the Arab Gulf Cooperation Council, the Non-Aligned Movement and the Organization of the Islamic Conference (Abed and Hellyer 250).
These unions contribute immensely towards the country’s economic growth. UAE also has very good relations with other countries especially the Western democratic countries, hence offering a better competitive advantage. Social and political stability has also gone hand in hand with liberal trade policies, while paving ways for investment (international and domestic) in the industrial sector.
The United Arab Emirates also benefits from massive resources of oil on both onshore and offshore (Ulrichsen 101). UAE has also benefited from associated gas from crude oil and non-associated gas which is produced in the region. Since the early 1970’s, UAE has largely depended on the discovery and exploitation of oil (Abed and Hellyer 250).
The oil and gas industries are in this case well managed with the latest technology being continuously used to increase production efficiency. As cited by the Ministry of Petroleum and Mineral resources, the UAE’s maximum sustainable daily capacity of oil production is two million barrels per day (Ulrichsen 105).
This is actually the maximum production rate that can be sustained daily for one year in present conditions of exploitation. The country’s installed production capacity is, on the other hand, three million barrels per day (Ulrichsen 101). In 2000, UAE was rated the third largest oil reserve in the world after Saudi Arabia and Iraq respectively.
The country in this case produced 98.8 billion barrels within a period of one year (Abed and Hellyer 251). By June 2000, the oil reserves were estimated to be almost 10 percent of the proven world oil reserves (Abed and Hellyer 251).
Based on the current daily oil production of 2.2 barrels of oil per day, it is estimated that oil reserves in UAE are capable of lasting for more than 122 years (Abed and Hellyer 251). The country is also considered the fourth largest reserve of natural gas (Ulrichsen 101). UAE, therefore, possesses large reserves of gas and oil which are capable of sustaining long-term economic growth.
The country also prides in other minerals which boost the economy. The minerals are in this case divided into three categories including soils and sand, rocks and metals (Ulrichsen 101).
While sand and gravel are used for construction, the exploitation of minerals is more restricted to sands and rocks. Sand, limestone, gypsum and marl are also used to manufacture cement. These resources heavily contribute to the country’s economic growth and development.
The government has also realized that social and community services, such as health care, teaching and government employment, are important sources of livelihood. It has developed these sources to boost the economy in this case. The emirates are also blessed with one of the most highly developing financial and banking sectors.
Dubai International Financial Centre has, for instance, acted as a major contributor to regional, commercial and financial centre development (IMF 13). The rapid growth of tourism has also put the emirates to a better competitive edge by placing the country on the international tourist map. Each emirate has also established a free zone trading area where taxation and duties are not imposed.
This has encouraged foreign countries to invest in the emirates, hence promoting foreign currency earnings. The United Arab Emirate’s membership to the Organization of Petroleum Exporting Countries (OPEC) has also supported a flexible oil pricing policy which is often calculated to improve total earnings (Ulrichsen 104).
The country has also developed a highly efficient transport and communications systems which promote effective trade. The country, for instance, has a total of 1,088km paved roads (Ulrichsen 104). The major highways also run along the Persian Gulf connecting the capitals of six emirates (Ulrichsen 101).
Although the country is significantly small, it also possesses six international airports and two main ports. UAE also has an advanced and modern telecommunication system, and most citizens have access to internet and cellular phones.
Economic growth and development of any country are measured by percentage increase in Gross Domestic Product (GDP) or annual Gross National Product. UAE is a developing country which is capable of maintaining sustainable economic growth and development through efficient utilization of resources.
Research clearly indicates that economy of any nation can improve extensively by effectively using the available resources or through increasing the available resources including capital and labour. Increasing labour, on the other hand, does not improve the income per capital growth.
Nevertheless, income per capital improves the living standards of citizens. This is attained and improved by effective utilization of resources and combination of the right resources. As the case with UAE shows, it is clear that economic growth requires economic development. In this case, all nations should endeavor to enhance economic development through innovation and proper utilization of resources.
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