UAE remains resilient to drop in oil prices

Abu Dhabi / WAM

On the occasion of the 45th National Day celebrations of the United Arab Emirates, the Emirates News Agency (WAM) 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% in 2016. For 2015, the UAE projected a similar 3 to 3.5 percent growth in GDP.
“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% in 2021. Big growth will come from non-traditional industries and the knowledge-based economy, which will see huge activity in the coming years,” noted Al Mansouri.
The key to diversification drive is the growth of the industrial sector. The UAE seeks to attract more than US$70bn in industrial investments by 2025, which will help increase the share of the industrial sector in the country’s GDP to 25%, 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 that it aims to increase the contribution of FDI to 5% of the country’s GDP 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 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 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.
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.