Building economic diversity seems to be the new mantra for the UAE. The country has built itself by bringing world to threshold of its gates, shading the conventional image of an oil-based desert economy to a new global hub for non-oil economy.
A peak at the journey of the UAE's non-oil economy and its contribution to gross domestic product surged from 60.7 per cent in 2011 to 65.7 per cent in 2014 and now it has been forecast by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, that the efforts will be made to bring this non-oil component to 80 per cent of GDP by 2021.
Sheikh Mohammed noted that new figures from the National Bureau of Statistics indicate that 2014 saw a real GDP growth of 4.6 per cent, while nominal GDP reached Dh1.47 trillion.
Looking towards the future, Sheikh Mohammed said he expects a significant rise in the contributions of the non-oil sector to the national economy between now and 2021, which currently stands at 68.6 per cent of the country's constant price GDP.
"We have put in place all the necessary plans to take that contribution to as high as 80 per cent in 2021 through intensive investment in the industrial and tourism sectors, air and maritime transport, import and re-export, as well as supporting a range of projects and initiatives based on the knowledge economy," he said.
"By developing new sectors, such as the Islamic economy, and investing in innovation, content development and other such activities, our aim is to build towards economic diversity in 2021 in order to strengthen the economic and financial stability of the UAE and fortify ourselves against the inherent fluctuations and instabilities of world markets," he added.
Economic diversification initiatives, growth in non-hydrocarbon sectors, pegged currency, large forex reserves, well-developed infrastructure and a moderate inflation environment are factors that signal towards the continued growth of the UAE economy.
"The UAE banking sector is robust with good profitability and adequate capital cushion. The credit availability also provides a fillip for the business. Expo 2020, expansion of the Al Maktoum International Airport in Dubai South, expansion of the Dubai Metro, GCC rail and several infrastructure projects are all signalling the growth of the UAE. In short, the prospects for UAE are bright and promising. Though the contribution of hydrocarbon sector to the UAE economy still remains high, the diversification initiatives undertaken by the UAE government is helping in an all-round economic growth. Currently two-thirds of the UAE's GDP is non-oil based. The GCC region's economic diversification measures have started yielding results with the region emerging as an aviation hub, a preferred destination for energy-intensive industries and also a popular tourist destination," said Rohit Walia, executive chairman of Alpen Capital.
"Additionally, the UAE government is focusing on the growth of non-oil sectors such as tourism and retail to bring about the much-needed economic diversification. Dubai's successful bid to host World Expo 2020 paves the way for further growth of its non-oil sector, lending momentum to the construction, tourism and hospitality sectors. The volatility in oil prices could lead to cut-backs in public expenditure.
"UAE has sizeable reserves and will likely tap it address any budgetary shortfalls. It should be noted that with the exception of 2009, the UAE has recorded 10 years of consolidated surpluses. This has enabled it to accumulate large external reserves, most of which are in the Abu Dhabi Investment Authority, one of the largest sovereign-wealth funds in the world. UAE stock markets have witnessed a nice comeback after the volatile year-end, thanks to renewed investor sentiment. We see clients are actively looking at growth opportunities through M&A and value added financial transactions."
It may be recalled earlier this month that the Federal Customs Authority also stated that the UAE's non-oil trade rose six per cent in first quarter of 2015 to Dh270.1 billion as gold, diamonds and jewellery dominated in imports, exports and re-exports from the emirate. The non-oil trade data showed that year-on-year imports rose 2.4 per cent during the January-March quarter to Dh170.8 billion. It further recorded a 35 per cent growth in exports, which hit Dh40.6 billion in the first quarter of 2015 while re-exports improved by two per cent to Dh58.7 billion during the period.
The UAE's non-oil trade is witnessing strong growth in recent years due to flexible trade policy and ease of doing business in the country as the government successfully removed most of the obstacles hindering trade. Simplification and standardisation of the customs procedures in all the UAE entry ports also benefitted the trade and economy.
"In 2012, 2013 and 2014, the non-oil contribution to GDP [at current prices] was 60.7 per cent, 62.7 per cent and 65.7 per cent, respectively. The non-oil contribution to GDP is expected to inch upward over the coming two years, as well. However, any development that drastically compromises oil prices further may have a dampening effect on the non-oil growth, too, as consumer confidence falls," said M.R. Raghu, senior vice-president for research at Markaz.
"The UAE has developed a comprehensive knowledge-based diversified economy blueprint, as per which the country has set a target of achieving Dh750 billion [$200 billion] in non-oil exports by 2021. In order to develop the industrial footprint, focus areas have been identified as petrochemicals, aluminium, glass, steel and its downstream industry. The idea seems to be to start diversifying through developing productive capacity in adjacent industries and spreading out over time into an expanding circle of capabilities. Initiatives like the Khalifa Industrial Zone Abu Dhabi should be seen in such context. Thus, the strategy and the intent are definitely there. It remains to be seen whether the execution backs up the vision."
The fruits of economic diversification allied with an export-led strategy, though in infancy, may already be bearing fruits. For instance, according to the Dubai Chamber of Commerce and Industry, UAE-manufactured exports stood at Dh290 billion in 2014, a substantial rise over the mere Dh30.5 billion registered in 2000.
Source: Khaleej Times