The United Arab Emirates (UAE) is among the top ten oil-producing countries in the world. Located in the Arabian Gulf, the UAE demographic statistics indicate a population of about 4.32 million people with a free-market economy.
Additionally, the country does not restrict private-sector enterprises and has enacted policies that encourage foreign investment and international trade. In fact, even with the current global economic meltdown, the economy of UAE has remained steady and resilient.
Definitely, the future economic environment of the UAE looks even brighter with renewed confidence in many sectors of the economy, such as manufacturing and real estate. According to the International Monetary Fund (IMF), the Gross Domestic Product (GDP) of UAE grew up from US$386 billion to US$394 billion between 2012 and 2013 due to the increase of oil and non-oil GDP by 6.6% and 3.1% respectively (Goyal, 2003).
The IMF also projects a 3.7% and 3.8% growth rate in 2014 and 2015 respectively. Due to its robust competitive edge, some of its major cities like Abu Dhabi and Dubai have become premier commercial destinations (Shediac, Abouchakra, Moujaes, & Najjar, 2008).
Abu Dhabi oil industry
As one of the largest oil producers in the world, UAE’s economy normally relies on the oil and gas industry. Although there are many companies mining oil in the UAE, Abu Dhabi National Oil Company is the most dominant.
The company exports over 2.9 barrels of crude oil daily to various countries, such as USA, China and Japan, 30% of non-oil merchandise to India, 23% to neighboring countries, and 12% to European countries. Since 1998, when the UAE doubled its oil and gas prices, the country has never experienced an economic growth rate of less than 1.7% (Krane, 2012).
Dubai Aluminum
To cut the overreliance on oil for economic development, the UAE continues to encourage Foreign Direct Investment (FDI) by investing over US$20 billion and US$6.8 billion for industrial development. Consequently, this has led to massive industrialization and some companies such as Shell and Dubai Aluminum are leading exporters of goods mined in the country.
Today, major cities such as Abu Dhabi, Sharjah and Dubai are emerging as manufacturing destinations of petrochemicals, computers and consumer electronics.
Opportunities
In 1962, the UAE was a small nation with a sluggish economy. However, since its first oil export the year later, the country has risen into a pearling nation and it currently ranks among the fastest-growing economies in the world.
Since 1980, the UAE has experienced massive industrialization, setting up high-technology industries for electronics and pharmaceuticals. Equally, other sectors of the economy such as tourism have expanded with over 5 million tourists visiting the country, and 16 million passengers using airport facilities per year (UAE Ministry of Economy, 2012).
To attract FDI, the UAE has created “offsets” program that allows companies to invest 60% in non-oil industries with added benefits such as office space and no withholding taxes. This has made cities such as Dubai a leading financial centres that compete with some of the world’s best financial centers such as New York, London and Zurich. Foreign companies now have their offices in the major cities in the UAE.
The country also allows non-citizens to buy land on freehold, which has led to massive developments in the real estate industry. Additionally, Fly Emirates has become one of the leading airline companies in the world. There are also opportunities in the re-export sector that contributes so much to the economy. For instance, Dubai is emerging as the centre for re-exporting pharmaceuticals, computers and consumer electronics goods.
Currently, the GDP of the UAE stands at US$103 billion making it one of the countries with the highest per capita income of around US$24,000. Capital investment in other sectors of the economy has attracted foreign labor, thus making it more economically competitive (World Bank, 2012).
Challenges
Emiratisation
This is a policy that was initiated by the UAE government to give first priority to UAE nationals on employment opportunities arising in both public and private institutions. Although the program had a positive impact on the public sector, only 0.34% of the UAE nationals work in the private sector.
This can be attributed to the fact that many people prefer cushy public jobs with numerous employee benefits as opposed to those in the private sector. Nonetheless, emiratisation has its own fare of social, political and economic challenges, as many employees are not competent leading to organizational inefficiency.
Renegotiating the Social Contract
In order to ensure that every UAE national enjoys social and economic benefits, the government has created many programs to empower its people. However, by hiring jobless people, the government risks injuring the economy, as many are unqualified and are therefore less productive.
Additionally, tribal inclinations and sensitivities towards culture in government jobs continue to hinder the country’s strategic vision of making the UAE the best knowledge-based economy in the region (Vij & Vij, 2012).
Conclusion
According to Schilirò (2012), the economic growth of the UAE largely depends on oil exports, however, the government has invested in sectors such as real estate, manufacturing and international trade. The country continues to reap great economic incentives from foreign direct investment, tourism, transport and construction industries.
Many multinational companies have their headquarters in major cities within the UAE. With the continued rise in oil prices, IMF predicts the economy of UAE to grow by 4.5% in the next two years (Goyal, 2003). However, to meet its long-term economic strategic vision, the UAE should streamline its legal framework on foreign investment to allow investors to enjoy ownership rights for more Greenfield investments.
References
Goyal, R. (2003). Non-Oil Growth, Competitiveness, and the Labor market in United Arab Emirates: Selected Issues and Statistical Appendix. IMF Country Report No. 03/67. Washington: International Monetary Fund.
Krane, J. (2012). An Expensive Diversion: Abu Dhabi’s Renewables Investments in the Context of its Natural Gas Shortage. Cambridge: Cambridge University Press.
UAE Ministry of Economy. (2012). Annual Economic Report 2012. Abu Dhabi: United Arab Emirates.
Schilirò, D. (2012). Knowledge-Based Economies and the Institutional Environment. Theoretical and Practical Research in Economic Fields, 3(1), 42-50.
Shediac, R., Abouchakra, R., Moujaes, N., & Najjar, M. (2008). Economic Diversification. The Road to Sustainable Development. Abu Dhabi: Booz and Co.
Vij, M. and Vij, A. (2012). Tourism and Carbon Foot Prints in United Arab Emirates-Challenges and Solutions. Journal of Environmental Management and Tourism, 3(1), 41-54.
World Bank. (2012). Economy Profile of the UAE Report. Washington: World Bank.