It’s plain to picture an oil-dependent United Arab Emirates (UAE) quivering at the prospect of such a surplus as oversupply fears stifle the global oil price’s trudge back upwards after its flirtation with the underbelly of the $50 mark late last year. However, this isn’t the case anymore.
In recent years, the UAE has undergone a macroeconomic transformation, driven by a desire to move away from the one-commodity economy that it was once known for. The launch of a 5% VAT in 2018, as well as significant, initiative-driven developments in infrastructure, education, healthcare, and green energy, have all led to the UAE’s expanded diversity. As a result, the UAE has been able to withstand rapid swings in oil and gas prices.
With markets plummeting in the current ‘black gold’ saga in 2018 (prices dropped 30% in November), the UAE was able to bear a considerable portion of the shock thanks to its large fiscal surplus. However, the company’s diversification journey is far from complete; oil remains its primary source of revenue. According to Majid Saif Al Ghurair, Chairman of the Dubai Chamber of Commerce, in order to reduce this focus even further, it is pushing to redefine itself as a potential city by creating a vibrant, sustainable, and stable market environment.
With projected spending increases accelerating to 17.3 percent in 2019 from 5.5 percent in 2018, the federal budget for 2019 is the artery financing this year’s transition. The focus of this investment is inward, with just over 40% of the budget going to ‘community growth,’ which includes housing, education, and healthcare. With non-oil sectors accounting for more than 70% of the federal government’s revenue and various government programs aimed at increasing this figure currently underway, the indicators for economic diversification are encouraging.
While government-led investments and a rise in hydrocarbon projects in Abu Dhabi are expected to improve the oil market, lower oil sales would have a significant effect on the country’s growth rate. The government must also consolidate spending and encourage private-public alliances to help the non-oil sector expand.
The United Arab Emirates is also putting a premium on its technical infrastructure. Dubai’s administration, in particular, is working on a Smart Dubai 2021 project. Smart Dubai is collaborating with academia, the private sector, and the government to empower, deliver, and encourage an effective, smooth, clean, and impactful city experience for residents and visitors.
One noteworthy aim of the project is to become the first country in the world to use blockchain technologies to process any of its services. If efficient, blockchain technology has the potential to revolutionize the efficiency of real estate, finance, and commerce. Artificial intelligence (AI) is also high on the UAE’s priority list, with the country positioning itself as an AI center. According to a study published by Accenture in 2018, artificial intelligence (AI) could improve the UAE’s economy by 1.6 percent and add $182 billion by 2035. According to research, smart technology may help a variety of important industries in the UAE. First and foremost, this industry is the financial sector either forex or crypto or even stocks and shares. There are some important indicators that show the increased popularity and demand for those industries in the country, for example, UAE Forex trading brokers, crypto trading platforms, etc. This will help to create a ‘sandbox’ climate, promoting technical innovation and drawing both global capital and tech firms.
About two-thirds of the world’s population is within an eight-hour flight of the UAE, which seeks to use its strategic position between east and west to become the “Capital of the Islamic Economy” and a key trading gateway into Africa, Asia, and Europe. Dubai’s Silk Road policy aims to catalyze this ambition by orchestrating cooperation between emirates, free zones, and transportation authorities, upgrading Dubai’s capabilities in trade and logistics. The UAE government’s flexibility in implementing new economic models and capitalizing on global economic partnerships was recognized in the World Trade Organization’s Trade Policy Review of the UAE in 2016, which established the UAE government’s flexibility in adopting new economic models and capitalizing on global economic partnerships to ensure long-term stability. It did, however, recognize that in order to maintain a long-term competitive advantage, it would invest in expanding new strategic markets and services.
State-sponsored programs such as the “UAE Vision 2021” and the “National Innovation Strategy” have been launched to carry out this intended diversification. The need to move to a knowledge-based economy underpins these policies, with the ‘Vision 2021′ aiming for excellence in six national focus areas:
- Healthcare at the highest caliber
- Excellent educational system
- Infrastructure and the climate that is both sustainable
- Identity preservation and a cohesive culture
- Public safety and a just judiciary
- Knowledge-based economy that is competitive
The UAE government has been encouraging banks to expand credit investment in non-oil sectors while improving the regulatory mechanisms of each main industry to help these sectors evolve. All of these tactics are intended to boost market competitiveness and raise capital.
The UAE’s Energy Strategy 2050, in line with its initiative-driven investment, seeks to fuel the country and achieve its environmental targets using a mix of clean energy, electricity, nuclear, and clean coal sources. To do so, the UAE government plans to spend AED 600 billion by 2050 to “meet the increasing energy demand and ensure the country’s economy’s sustainable growth.” In the United Arab Emirates, nuclear technology is a top priority. It has been defined by the government as the primary potential source of non-hydrocarbon electricity. It is hoped that its four nuclear reactors, which were built in South Korea and are expected to be operating by 2020, would provide about 25% of the UAE’s electricity needs.
However, projects such as the construction of nuclear power plants have not been exclusively the responsibility of the government. The government has aggressively sought out international investors to form joint ventures in order to finance and run projects such as power plants, solar panels, potable water stations, and renewable energy research and development laboratories.
The government’s 2019 fiscal budget was its highest yet, as anticipated, due to the upcoming Expo and various initiatives. However, with oil prices hovering about $60 a barrel and the UAE Vision 2021 only two years out, the UAE has recognized the importance of bringing more foreign investment to the country. The UAE is proud of its industry-specific free zones for their productivity and attractiveness.
The zones provide for 100 percent foreign ownership and have laws and regulatory mechanisms in place to encourage inward investment. The UAE has attempted to liberalize current domestic ownership constraints ‘onshore’ in the UAE in order to raise this statistic. It is hoped that the Foreign Direct Investment Law (FDI Law) would draw more foreign investment into the region, assisting it in achieving even and sustainable growth.