Question

Mention some key factors that have contributed to the UAE’s economic growth over the last 15 years. You may use quantitative data and information to illustrate your arguments

Answer 1

The United Arab Emirates, (UAE) today, is the second largest Arab economy and is also a high income country. The UAE has not gone through the “stages” of development that most developed countries have undergone. The huge oil revenues have allowed UAE to shorten the usually difficult and lengthy process of saving and capital accumulation required for economic development.

Previously, the UAE, like other economies of the Gulf Cooperation Council region, was very sensitive to changes in the prices of oil. While the non- oil sectors have not fully matured and still have the  structural weaknesses, such as inefficient  labour, capital, knowledge and technology. The UAE became an independent state in 1971, when its economic, social, and political institutions were established.

From 2000 to 2012, the growth rate of UAE GDP averaged 4.7 per cent, a good performance keeping in mind the severe global economic crisis of 2009. In 2012 the economy of the United Arab Emirates has seen a growth of about 4 per cent despite the difficulties by the eurozone and the global outlook negative. The oil and gas sector represents the largest share in the GDP of the United Arab Emirates, since the country is blessed with huge resources of oil and gas. So the UAE’s economy has a relatively high contribution of GDP in the oil sector and in related industries. Such type of economic model cannot be considered sustainable in the long run, since depends heavily on the fortunes of dominant sectors. Like other oil exporting countries of the Gulf region, the motivation for the statism was to support the emerging private sectors. The industrial sector has made remarkable achievements since the number of enterprises have increased. The hydrocarbon industry is one of the most important economic sectors of the economy and the number of workers employed are less since this industry is highly capital intensive. Also it is well known that natural resources creates few jobs directly. So this is why the non-oil private sector has to take the challenge of unemployment. The UAE has also created viable small and medium enterprises in manufacturing and services. During the years before the global economic crisis economy of UAE was performing really well. The United Arab Emirates GDP Growth Rate reached an all-time high of 9.8 percent in 2006, while in the next two years (2007 and 2008) it diminished to 3.2 percent at constant prices. The Non-Oil sector recorded the highest rate of growth of 9.3 percent in 2007 and a good 6.0 percent in 2008.

Conversely, the global crisis has hit the UAE’s economy hard, so the GDP contracted at 4.8 percent at constant prices in 2009, due to fall in manufacturing and also in real estate. The manufacturing industries have particularly suffered with a decrease of 14.1 percent. But, the economy regained confidence after the crisis.

In 2010 the growth of GDP was 1.3 percent at constant prices. During 2011 the GDP has grown in the UAE at a rate of 4.2 percent at constant prices, despite the political events in some Arab countries, the lower rate of growth of the global economy from 5.2 percent in 2010 to 3.8 percent to 2011, and the financial crisis at the Eurozone which led to decline in the GDP rate of growth in the advanced economies to 1.6 percent. In 2011 the public debt was 16.9 percent of GDP, whereas the Government’s fiscal budget was in surplus of 11.2 percent of GDP, but during 2012 it is improved further to 12 percent of GDP.

Diversification is important for economic development, creation of job opportunities and to reduce or spread the risk of a high economic concentration, which makes an economy vulnerable to external events. The overall volatility and its spillover effects can be mitigated with the effective development and diversification of high-value-added production.

The modern growth economics has focused on technological innovations and high- technology research and development as the factors for economic growth.

Environment constitutes an important element of the process of growth. In UAE, there is a too great consumption of energy, in particular oil, due to its low cost. But these natural resources are not in abundance and their high consumption has negative effects on the environment, therefore a new model of growth should aim at adopting alternative renewable resources. Entrepreneurial skills are another basic element to develop a knowledge economy. One important thing to be done to favour entrepreneurship is to create an economic environment where not only the business culture is welcomed, but also where the behaviour towards responsibility and risk is looked positively.

The UAE’s Government should improve the regulatory systems. The objective of macroeconomic stability, through effective monetary, fiscal and exchange rate control policies, is also important to implement structural reforms and to facilitate the action of investors The functioning of labor market must be improved, in order to create more productive employment. Also, total factor productivity must be increased to enable growth. Most importantly the gender gap must be passed within a period of time not too long and the youth should find more opportunities for entrepreneurship and business activities.

The research and development must be at the heart of the government policies of the UAE, as well as higher education. The environmental policy is another important aspect for implementing a new growth model.

Finally, the new areas of business should be recognised in the innovative industrial activities and innovative services, professional and technical, whose products and services, must be allocated to both domestic and foreign markets.