Introduction and Failure Identification
- The article revolves around the 2014 oil shock that impacted the UAE economy;
- Economy faced deficit because of the decline in oil revenues;
- Account surplus fell to 2,4% in 2016 (” United Arab Emirates: Economic Outline and Political Outline“);
- Economic performance was still subdued in 2017;
- Trade deficit continued to grow.
Market failure occurs when traditional regulations that are expected to boost the development of particular spheres do not work. Similar phenomena can be found in the discussed article that outlines the 2014 oil shock, decline in prices for oil and these factors` pernicious impact on the economy (“United Arab Emirates: Economic Outline and Political Outline“).
The work reveals that the economy of the UAE acquired the deficit and experienced a serious stagnation as performance remained subdued (“United Arab Emirates: Economic Outline and Political Outline“).
The decline of account surplus along with the growing trade deficit preconditioned the need for particular actions.
Government Intervention
- Introduction of 5%-VAT (” United Arab Emirates: Economic Outline and Political Outline“);
- Focus on the diversification of the economy;
- Attempts to decrease the importance of oil revenues;
- Investments in alternative forms of energy production;
- Development of infrastructure;
- Solar and renewable sources of energy;
- Use of banking and tourist sector to minimize losses (” United Arab Emirates: Economic Outline and Political Outline“);
- Expo 2020 to attract investors.
The given market failure triggered a particular reaction of the government. First of all, it introduced a 5%-VAT to generate AED 12 billion (“United Arab Emirates: Economic Outline and Political Outline“). At the same time, other governmental interventions presuppose diversification of the economy to decrease the dependence and importance of oil revenues (“United Arab Emirates: Economic Outline and Political Outline“). It can also be achieved by the development of alternative forms of energy production (“United Arab Emirates: Economic Outline and Political Outline“). For this reason, the government promotes the rise of solar and renewable source. Finally, the traditionally healthy tourist and banking sectors were used to minimize harm done to the economy. Finally, Expo 2020 is used to attract investors and boost the economy.
Expected Outcomes
- Diversification of the economy can be reached;
- Pernicious impact of the oil crisis mitigated;
- Highly developed welfare system;
- New working places for employees in the energy industry;
- Decreased importance of oil revenues;
- Expo 2020 promotes the rise of various industries.
The interventions mentioned above are expected to promote several outcomes. First of all, the economy of the UAE will be diversified due to the governmental support. At the same time, the reconsideration of the development`s vector will result in the decreased importance of oil revenues along with the mitigation of the negative impact of the 2014 oil crisis (“United Arab Emirates: Economic Outline and Political Outline“). Finally, the cultivation of renewable sources of energy will help to minimize unemployment and create new working places for local residents. Expo 2020 is another significant achievement of the government as it will help to attract investors and promote the national product (“United Arab Emirates: Economic Outline and Political Outline“).
Conclusion
- UAE still depends on oil revenues;
- There are attempts to diversify the economy;
- Focus on new sources of energy;
- Governmental regulations to mitigate outcomes of the market failure;
- New workplaces to create workplaces;
- Expo 2020 as the way to attract investors;
- Potent other sectors and industries.
The article shows that the UAE is too dependent on the oil industry and its revenues. For this reason, the 2014 oil crisis preconditioned the market failure and the emergence of multiple critical problems in the sphere. The government introduced a set of regulations such as the cultivation of new energy sources, diversification of the economy, specific taxation policy, and organization of Expo 2020 to attract investors. All these measures can help to alter the business environment of the state and promote its further rise.
Work Cited
“United Arab Emirates: Economic Outline and Political Outline.“ Santander, 2018, Web.