#UAENationalDay45: WAM Report - The UAE Economy

On the occasion of the 45th National Day celebrations of the United Arab Emirates, the Emirates News Agency, WAM, has issued a series of reports regarding the achievements of the state over the past year. In part five, we examine the state of the UAE economy.

2016 saw a sudden drop in oil prices that took many producing and consuming countries by surprise. However, the UAE, a key crude producer, remained resilient to the drop, thanks to the country's diversification policy.

As it celebrates its 45th National Day anniversary, the UAE has begun to reap the fruits of its economic diversification policy which has been successful in moving the economy from its full dependence on the oil sector to depending on multiple resources.

The national economy has grown exponentially over the past few years, and today it is driven by its own factors, while its productivity foundation is stronger, more resilient and diversified.

This comes as a result of the country's diversification policy, implemented in line with the guidance of President His Highness Sheikh Khalifa bin Zayed Al Nahyan, and His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President, Prime Minister, and Ruler of Dubai, under the follow-up supervision of His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces and Their Highnesses, the Members of the Federal Supreme Council and Rulers of the Emirates.

For Sultan Saeed Al Mansouri, Economy Minister, the diversification policy under which the country’s dependence on oil steadily decreases year after year, has helped the UAE neutralise the oil price decline. "Oil has so far had limited impact on the economy and major infrastructure projects in Abu Dhabi, Dubai and other emirates will continue," he said.

Oil revenues currently contribute 30 percent to the UAE’s GDP, a drop from 90 percent in the 1970s.

The International Monetary Fund said that the UAE has continued to benefit from diversification and innovation policies that have helped limit negative spillovers from lower oil prices, sluggish global growth, and volatility in emerging market economies.

Al Mansouri said the zero-deficit 2016 budget reflected the limited impact of the low oil prices. "The UAE is the country least affected by low oil prices as non-oil sectors contributed nearly 69 percent of the Gross Domestic Product," he said.

Despite the steep drop in oil prices, the UAE economy is expected to grow between 3 and 3.5 percent in 2016. For 2015, the UAE projected a similar 3 to 3.5 percent growth in GDP.

"We have faced similar circumstances and challenges before. We were optimistic and we dealt with those challenges professionally at the level of the government, at the level of leadership, local government and the private sector and we managed the situation to continue our growth," noted Al Mansouri.

The government has issued new rules and regulations to further improve the business environment. The industrial sector, which contributes 14 percent to GDP, is forecast to expand and contribute 20 percent in 2021. Big growth will come from non-traditional industries and the knowledge-based economy, which will see huge activity in the coming years.

The key to diversification drive is the growth of the industrial sector. The UAE seeks to attract more than US$70 billion in industrial investments by 2025, which will help increase the share of the industrial sector in the country's GDP to 25 percent, up from the current 16 percent, thus ensuring that the sector will become the driving force in the country’s economic growth in the future.

Another sector that is expected to bolster diversification is Small and Medium Enterprises, or SMEs. The Government is giving big priority to SMEs across its policies and initiatives with an aim to boost the share of the segment in national economy to 70 percent from 60 percent by 2021.

According to official reports, SMEs account for 86 percent of the total workforce in the country, and are the chief enablers of economic diversification, innovation and the shift to a knowledge-based economy.

SMEs make up more than 94 percent of the companies operating in the UAE, totaling 350,000, and as many as 73 percent of companies in the wholesale and retail trade and 16 percent in the services sector are SMEs. The manufacturing sector also has an 11 percent share for SMEs.

Open economic policies helped enhance the UAE's attractiveness to Foreign Direct Investment, FDI.

The Ministry of Economy announced in 2016 that it aims to increase the contribution of FDI to five percent of the country's gross domestic product over the next five years. This is in line with the goals of the National Agenda of the UAE Vision 2021.

The UAE is the second largest FDI recipient in the West Asia region, according to the 2015 UNCTAD World Investment Report.

Increased FDI pushed the UAE to 1st rank regionally and 22nd globally in the World Investment Report 2015.

The drive for diversification does not come at the expense of the oil sector. With the world’s seventh largest proven crude oil reserves, the UAE is a responsible producer and critical partner in global energy markets.

The country has always believed that the long-term demand for oil outstripped supply, and that for companies with strong balance sheets and a long-term view, now was the time to invest, not to withdraw.

"The oil industry is inherently cyclical - this is a basic point that often gets overlooked in the short-term noise - and finding equilibrium between supply and demand is almost impossible," Minister of Energy, Suhail bin Mohammed Faraj Faris Al Mazrouei, said on the sidelines of the VIP Programme on the UAE’s Future Energy Vision in November.

In 2016, the UAE Government launched a six-pillar plan, which was set in collaboration with the World Economic Forum, WEF, and seeks to transform the Fourth Industrial Revolution into a global movement spearheaded by the UAE.

First Pillar: The UAE Government will establish the Fourth Industrial Revolution Council, the first of its kind in the world. The council will report directly to the cabinet and will be supervised by the Ministry of Cabinet Affairs and the Future. Council members will include representatives from government, private-sector, and academic organisations.

Second Pillar: Working closely with the World Economic Forum and through the Global Future Councils to formulate a global governance framework that regulates legislative and executive efforts to implement Fourth-Industrial-Revolution technologies, and to create global markets for them in collaboration with governments and relevant private-sector organisations.

Third Pillar: In collaboration with the World Economic Forum, the UAE Government will work to establish Fourth Industrial Revolution Councils, which aim to provide advisory support to decision makers around the world. These councils will be tasked with studying the effects of Fourth-Industrial-Revolution technologies on economic and social systems, determining economic and investment opportunities within key sectors where these technologies can be implemented, and providing advisory support for governments looking to set legislative and executive frameworks – along the lines of the governance framework formulated through the plan’s second pillar – in order to implement these technologies.

Fourth Pillar: Launching a programme that seeks to include governments from around the region in the network of experts that take part in the Global Future Councils and, consequently, enhancing the event’s role in supporting economic development in those economies. The network includes more than 5,000 members and experts from governments, international organisations, private companies, and academic research institutions. The programme will come out with several plans, events, and initiatives that will be announced at a later date.

Fifth Pillar: The UAE will be the first country in the world to experiment with and implement the technologies of the Fourth Industrial Revolution, creating new markets for them. This builds on the steps the government has already implemented through initiatives and strategies promoting technologies such as blockchain, smart transportation, 3D printing, and artificial intelligence.

Sixth Pillar: The UAE Government will be the first in the world to design and build a framework within its national agenda that aims to prepare governments for the future, in collaboration with the World Economic Forum. The framework focuses on measuring the readiness of governments in the next ten years against six main criteria: technology and innovation, economy, society, natural resources and the environment, security, and governance.

"The UAE Government realises the importance of planning for the future," explained Mohammad Abdullah Al Gergawi, Minister of Cabinet Affairs and the Future. "With that in mind, it set off to proactively turn the technologies of the Fourth Industrial Revolution into reality," he added.

In a major boost to the ongoing economic development drive, the year 2016 also saw Vice President, Prime Minister and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, launching the world’s first government accelerators.

According to Sheikh Mohammed, the accelerators have multiple tasks and responsibilities to boost the pace for achieving the goals of the National Agenda and projects.

Directives have been issued for all government bodies under the umbrella of the accelerators programme to develop initiatives, laws, policies and services that support national indexes and programmes. The government bodies will also be tasked with implementing joint projects in record time in order to shift government services into advanced standards by 2021.

The first group of government accelerators will focus on five ministries: the Ministry of Interior, Ministry of Economy, Ministry of Human Resources and Emiratisation, Ministry of Climate Change and Environment, and Ministry of Education. He directed officials to intensify efforts to achieve a 100 percent completion rate for the National Agenda goals.

The UAE's Vision 2021 names Innovation, research, science and technology as pillars of a knowledge-based, highly productive and competitive economy, driven by entrepreneurs in a business-friendly environment where public and private sectors form effective partnerships. Based on that, the country has given great importance to the concept of green economy, to go side by side with the endeavours for sustainability.

According to Dr. Thani Al Zeyoudi, Minister of Climate Change and Environment, in order to transform the national economy to a green, sustainable and low-carbon economy, the responsibility must rest not only upon the government, but also on the various segments of society, as well as public and private sectors.

"Our government institutions have been working to co-ordinate efforts in leading development and progress, and laying the foundations for their successful implementation. With that in mind, we have adopted a series of strategies and policies and begun implementing them, all working towards raising awareness of the importance of green economy at all levels, in addition to capacity building, and the encouragement of sustainable production and consumption," Dr. Al Zeyoudi added.

The establishment of a green economy is a critical element to achieving the United Nations Sustainable Development Goals 2030, and the Paris Climate Agreement, COP 21." Ensuring a coordinated international effort is key to facilitating this transition to a green economy on a global scale, and we are confident that the World Green Economy Summit will enable this," he said.

The UAE also started to lend attention to an Islamic economic system. For Sheikh Mohammed bin Rashid Al Maktoum, adopting the Islamic economic system presents a real opportunity to develop management methods, economic growth and trade by specialists in these areas.

Islamic financing, based upon values of justice and inclusiveness, offers global investment opportunities estimated to reach US$3 trillion by 2020.

Leaving no stone unturned in pursuit of comprehensive and sustainable economic development, the UAE is now looking at innovation to be the next economic breakthrough.

Comfortable with economic diversification level, the Government is planning for innovation to contribute 5 percent to national GDP by 2021.

The 2021 strategy focuses on fostering innovation in health, transport, renewable energy, education, technology, water and space.