Economy and Vision 2021

Creating and maintaining a sustainable and diversified economy is a component of 'United in Knowledge, a pillar of Vision 2021. Vision 2021 states: (By the year 2021,) The UAE will benefit from a sustainable and diversified economy, flexible in adopting new economic models, and capitalising on global economic partnerships to guarantee long-term prosperity for current and future generations of Emiratis.

Developing a 'competitive knowledge economy' is one of the pillars of National Agenda in line with Vision 2021. The Government is focusing on the UAE becoming the economic, touristic and commercial capital for more than two billion people. To achieve this, the Government has set 12 Key Performance Indicators (KPIs). They are:

• Non-oil real GDP growth
• Gross National Income (GNI) per capita
• Net Inflow of Foreign Direct Investment as a percentage of GDP
• Global Competitiveness Index
• Share of UAE nationals in the workforce
• Ease of Doing Business Index
• Emiratisation Rate in the private sector
• SME's contribution to non-oil GDP
• Global Entrepreneurship and Development Index (GEDI)
• Global Innovation Index
• Share of 'knowledge workers' in the labour force
• Research and development expenditure as a percentage of GDP.

Economy in the past and present

Before the discovery of oil in the 1950s, the region's economy was driven mainly by nomadic farming, date palm cultivation, fishing, pearling and seafaring.

Since the discovery of oil, the economy has been influenced mainly by the following sectors:

• extraction of crude oil and natural gas
• wholesale and retail trade
• repair services
• real estate
• business services
• construction
• manufacturing.

According to the Economic Report 2018 released by the UAE's Ministry of Economy, the estimated GDP for 2017 rose by 0.8% at real (constant) prices, amounting to AED 1422.2 billion at the level of the state, compared to AED 1411.1 billion at the end of 2016.

The following table shows the contribution of the economic sectors in the GDP for 2017 at real prices of 2010:

On the level of economic diversification and the relative importance of economic activities in the GDP, preliminary estimates indicate that the GDP estimates at current prices of the non-oil sectors amounted to about AED 1092 billion, a growth rate of 3.2% (at current prices) and at a rate of 2.5% at real (constant) prices by the end of 2017 compared to its value by the end of 2016.

Features of the UAE's solid economy

Despite recent fluctuations in oil prices and the global economic recession, the UAE enjoyed a stable economy. Some of the features of the UAE's economy are:

• Strategic location

The UAE enjoys a strategic location between Asia, Europe and Africa. Thousands of Chinese businesses use Dubai as a hub for trading in Africa. Indian traders use the emirate to access the world. Latin Americans see the country as a launching platform into South Asia. Western nationals use Dubai as a hub for the Middle East.

• Strong financial reserves

The UAE maintains strong financial reserves and has a durable banking sector, which makes it safe for investment. According to a report in Khaleej Times, International Monetary Fund forecasts that the gross official reserves of the UAE would grow from USD 76.8 billion in 2015 to USD 118.4 billion in 2020. The current account surplus would grow from USD 17.6 billion in 2015 to USD 33.4 billion by 2020.

According to a report in The National, Standard & Poor's, a financial services company, has rated Abu Dhabi AA indicating that its capacity to meet its financial commitment is very strong in the long term.

Sharjah and Ras Al Khaimah were rated A/A-1 indicating that their capacity to meet its financial commitment is strong in the short term.

• Large sovereign wealth fund

According to the June 2016 figures of Sovereign Wealth Fund Institute, Abu Dhabi Investment Authority is the largest sovereign wealth fund in the Middle East and the fifth largest in the world with USD 792 billion.

• Promising investor home economies

According to an UNCTAD World Investment Report of 2014, the UAE ranks 11th as the most promising investor home economies.

• Consistent government spending

Government spending on infrastructure continues to receive a major injection of capital. Abu Dhabi continues to develop the infrastructure required for one of the wealthiest cities in the world.

Dubai is implementing new projects for hosting World Expo in 2020; AED 30 billion will be spent on infrastructure at the Expo site and the city.

The UAE plans to spend AED six billion on major infrastructure developments across the country, including road networks and federal buildings. Khalifa Initiative in the Northern Emirates is designed to ensure that inhabitants of these emirates enjoy the same facilities as those living in the larger emirates of Abu Dhabi and Dubai.

The UAE is also working on the Etihad Rail project, which will offer a significant leap in land transport by year 2021.

• Progressive policy of economic diversification

The policy of economic diversification has led into impressive development in key sectors such as tourism, air transport, trade, financial services, manufacturing and alternative energy. The UAE has made progress towards ending its economic dependence on hydrocarbons. Oil industries accounted for around 30 per cent of GDP in 2014, down from 79 per cent in 1980.

• Free zones

The UAE has several multi-specialty free zones which offer several economic incentives such as exemption from corporate taxes and import/export duties and full foreign ownership with 100 per cent profit repatriation. There are about 45 free zones in the UAE. According to a report in Gulf News, free zones contributed to 33 per cent of the UAE's non-oil trade in 2014.

• Increased foreign direct investment (FDI)

According to the Economic Report 2018 released by the UAE's Ministry of Economy, the UAE attracted about USD 10.4 billion of foreign direct investment during 2017 with an average growth rate of 1.6 per cent during the period from 2012-2017. The UAE was ranked first among the countries most attractive to foreign direct investment in the Middle East and Africa region. 

Assets of the UAE

UAE Central Bank's total assets stood at AED 417.7 billion in December 2018 compared to AED 406.4 billion in December 2017, which signals the adoption of an expansionary policy. Foreign assets of the UAE Central Bank rose from AED 347.66 billion in December 2017 to AED 362.55 billion in December 2018.

Gross assets of banks in the UAE increased by 6.8% in December 2018 to reach AED 2,878 billion in December 2018 as against 2,693.8 billion in December 2017.

Gross credit expanded by 4.8% in December 2018 to reach AED 1,656.6 billion as against AED 1,580.3 billion in December 2017.

Related links:

• Gross UAE bank assets surge 6% to Dh2.85 trillion – Khaleej Times

The UAE's competitiveness level

IMD World Competitiveness Yearbook 2018

According to the IMD World Competitiveness Yearbook, the UAE is ranked 1st regionally and 7th globally amongst 62 countries reviewed for their capability to manage their resources for long-term value creation.

UAE is number one globally in 23 indicators including “Government Decisions” and “International Talent”.

Related links

• UAE makes ‘tremendous progress’ in global competitiveness ranking – Gulf News

Ease of doing business (World Bank Report)

According to the World Bank report which measures the performance of 190 countries in “ease doing business”, the UAE was ranked first in the Arab world and 11^th globally.

It was ranked 1st globally in getting electricity, 2^nd in paying tax, 5^th in dealing with construction permits, 7^th in registering properties, and 9^th in enforcing contracts.

Related links:

• UAE economic ranking regionally and globally - Federal Competitiveness and Statistics Authority
• UAE's advanced ranking on WB Ease of Doing Business report hailed - WAM

National development strategies

The UAE has developed several strategies to promote its overall economic and social position and diversify its national income based on a sustainable and knowledge-based economy.

Islamic economy

The UAE Government has recognised the importance of the Islamic economic sector, driven by the increase in the global Muslim population that numbers approximately 1.6 billion.

Dubai was the first to establish Islamic banks worldwide with the opening of Dubai Islamic Bank (DIB) back in the 1970s, in addition to having the Dubai Financial Market (DFM), which is the first global Shari'a compliant exchange.

According to the third edition of the Global Islamic Economy Indicator (GIEI), which measures the strength of the Islamic economy for 73 countries, across supply and demand drivers, governance, awareness and social considerations, the UAE was ranked second after Malaysia and took the first position in 5 sectors.

Related links:

• Dubai Islamic Economy Development Centre

Green Economy for Sustainable Development

By virtue of Vision 2021, the UAE is striving to diversify its income resources by moving away from oil. In January 2012, Sheikh Mohammed launched the Green Economy initiative under the slogan: A green economy for sustainable development. Under this initiative, the UAE seeks to become a global hub and a successful model of the new green economy, to enhance the country's competitiveness and sustainability and preserve its environment for future generations.

Through this initiative, the UAE aims to become one of the world leaders in this area as well as a centre for the export and re-export of green products and technologies, and to maintain a sustainable environment to support long-term economic growth. The initiative includes a range of programmes and policies in the areas of energy, agriculture, investment and sustainable transport in addition to new environmental and constructional policies.

Sheikh Mohammed aims to build an economy that protects the environment as well as an environment that supports the growth of the economy.

The Green Economy initiative includes six major fields covering a wide range of legislation, policies, programmes and projects which are:

1. The first field of green energy aims to promote the production and use of renewable energy.
2. The second field includes government policies aimed to encourage investments in green economy and to facilitate the production, import, export and re-export of green products and technologies.
3. The third field relates to developing urban planning policies that preserve the environment and to raise the efficiency of housing and buildings environmentally.
4. The fourth field consists of means for dealing with the effects of climate change, promote organic agriculture, maintain biodiversity and protect the ecological balance.
5. The fifth field aims at rationalising the use of water resources, electricity and natural resources and recycle waste.
6. The sixth field includes development and promotion of green technology.

Useful links:

• State of Green Economy Report - 2016 - Dubai Carbon Centre of Excellence

Economy and innovation

In 2015, the UAE government injected AED300 billion to foster a knowledge economy, driven by innovation to prepare the UAE for a world after oil. The Emirates Science, Technology and Innovation Higher Policy launches 100 initiatives with major investments in education, health, energy, transport, space and water. It includes fields such as robotics, solar power, developing intellectual property, stem cell research and biotechnology.

For further reading:

• Science, Technology and Innovation Higher Policy (PDF 2MB)-MOCAF

The UAE's post-oil strategy

The UAE retreat on post-oil phase was held on 30 and 31 of January 2016 at Bab Al Shams Resort in Dubai. Federal and local government officials took part in the retreat and discussed ideas and initiatives that would contribute in diversifying the UAE's economy and ensuring its sustainability with an emphasis on human capital, knowledge and innovation.

Currently, the UAE is underway to launch its roadmap for a future after oil. The strategy will include ideas and initiatives concluded in the retreat. It will work to strengthen the competitiveness of the current economic sectors as well as gradually introduce new sectors, which will achieve a giant leap in the UAE's economy in accordance with the highest international standards.

Entities responsible for economic activities

• Ministry of Economy

Department of Economic Development in the emirates of:

• Abu Dhabi
• Dubai
• Sharjah
• Ajman
• Umm Al Quwain
• Ras Al Khaimah

Other entities:

• Abu Dhabi Council For Economic Development
• Fujairah Municipality

Useful links:

• The Annual Economic Report 2018
• The Annual Economic Report 2017
• The Annual Economic Report 2015
• GCC- European Free Trade Association - Free Trade Agreement - Ministry of Economy
• Trade exchange statistics - Ministry of Economy

Digital economy

What is digital economy?

International Monetary Fund says that digitalisation has penetrated many activities, and, indeed, almost the entire economy could be included in the ‘digital economy’ broadly defined. While the term ‘digital sector’ refers to a concrete perimeter of economic activities, the term ‘digital economy’ is often used to indicate that digitalisation (e.g., the use of Internet) has spread across all sectors of the economy, from agriculture to warehousing.

Deloitte network, which provides consultancy and advisory services, defines digital economy as the economic activity that results from billions of everyday online connections among people, businesses, devices, data, and processes. The backbone of the digital economy is hyperconnectivity which means growing interconnectedness of people, organisations, and machines that results from the Internet, mobile technology and the internet of things (IoT).

The UAE’s digital economy

The strategic plans of the national economy are mainly based on the digital economy, as it contributes to creating real opportunities for foreign direct investment. Digital economy in the UAE is being implemented through the adoption of the UAE Strategy for the Fourth Industrial Revolution as one of its aims is to enhance economic security by adopting digital economy and blockchain technologies in financial transactions and service.

The UAE Strategy for the Fourth Industrial Revolution

Blockchain

The UAE adopted Emirates Blockchain Strategy 2021 and Dubai Blockchain Strategy. The Emirates Blockchain Strategy 2021 aims to capitalise on the blockchain technology to transform 50 per cent of government transactions into the blockchain platform by 2021. The Dubai Blockchain Strategy will help Dubai to be the first city fully powered by Blockchain by 2020 and make Dubai the happiest city on earth. The strategy will be using three strategic pillars: government efficiency, industry creation, and international leadership.

Computational thinking

The UAE believes that creating an environment that fosters computational thinking will help developing advanced mindsets which in turn stimulate critical thinking. In addition, it also believes that ICT companies must enhance digital literacy and other skills of the youth. This can be done by:

1. creating an advanced infrastructure to support digital transformation
2. promoting the agenda of creating job opportunities
3. strengthening the infrastructure and supporting the long-term visions to enhance the UAE's digital economy agenda.

Enhancing the role of young people

The UAE also believes in enhancing the role of young people in achieving a digital economy as the youth are quick to adopt the latest technology. It is to be noted that the UAE is ranked first in the world in the use of information and communication technologies, government efficiency, and coverage of the mobile network in terms of percentage of population. The UAE is proud to have 100 per cent smart phone usage. Enhancing the role and skills of the youth is one of the ways in which the citizens contribute to a digital transformation.

Impact of growth of digital economy

WAM reports that the UAE has accomplished significant achievements during its transition to a digital economy since 2013. These accomplishments have helped to reinforce the competitiveness of the UAE’s national economy, according to indexes published by international organisations, including the World Economic Forum, which ranked the UAE as the leading Arab and regional e-commerce centre in 2017.

The UAE’s digital economy contributes 4.3 per cent to the GDP, with expectations that this rate will significantly increase in the coming period. 40 per cent of the UAE’s population uses government digital services more than once a week. On the retail front, eCommerce in the UAE is growing rapidly and is playing a major role in expanding sales, while traditional retail sales in the country are slowing down.

The country is expected to further reinforce its position in the digital economy, supported by factors that include developments to eCommerce, improvements to the information technology infrastructure, the increased spread of Internet services, the use of smartphones and the expansion of electronic payment systems, as well as significant government support for digital transformation.

Read how digital technology is transforming Dubai.