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UAE on the Way of Further Economic Diversification

Mehmood Ul Hassan Khan

According to latest report of the IMF (October, 2012), prospects of global economy is so healthy in the days to come. European Union austerity measures are not producing desired results. US economy is still weak. China economy has further slower in the 3rd quarter of the 2012. Despite all the bad news about regional and global economies, the macro-economy of the United Arab Emirate (UAE) has performed extraordinary during 201-2012 and may achieve 4.1 percent of GDP. Constant policies to encourage the diversification of economy is one of the main secretes of its steady progress towards socio-economic prosperity.

Economic diversification guarantees generation of lots of business activities in the country. It ensures employment for the skilled and semi-skilled workers throughout the country. It provides ideal platform to policy makers, businessmen and of course investors to bear happening of any sudden regional or global economic crises. It accelerates the upward march of macro-economy which facilitates to achieve desired targets of GDP. It widens horizon of national economy. It also sharpens the skills of laborers.

Right from the beginning, the successive leaders of the have been successfully institutionalized the economic diversification drive. It followed and implemented effective economic policies and financial reforms to achieve further economic diversification. It announced technical course in its educational sector which facilitated the process of economic diversification. It invested billions of funds in the different mega infrastructural projects which are now contributing in the national economy of the UAE. It harnessed service sector including tourism, real estate and hotel industry. Moreover, soft image companies are making handsome revenues and further speeding up its economic diversification drive.

In recent months, the UAE government announced many meaningful policies for the rapid growth of Small and Medium Enterprise (SMEs). Now, SME is one of the most productive sectors of its economy and its contribution to GDP is on the rise. Aviation, Islamic banking and insurance industry have increased its share in the GDP %. Engineering, manufacturing, alternative energy resources/industries and agro-based smaller industries have the huge potential to strengthen the high levels of further economic diversification.

Although oil is one of the main sources of national revenues and GDP, petrochemical, steel and aluminium sectors are also contributing substantially in the overall GDP. Re-exports and soft image exhibitions corporations are making inroads in the UAE GDP. Gradual but constant economic diversification has opened new avenues for investment in the UAE with the non-oil sector contributing to 71 per cent of the UAE GDP in 2009. UAE’s sustainable growth model stands for its core focus on the industries of the future i.e. transport logistics, hospitality, tourism and renewable energy resources. In this connection, UAE economic department report (September, 2012) also says that the contribution of oil in Abu Dhabi’s GDP dropped to 49 percent in 2009 due to sharing by other economic sectors that include manufacturing, agriculture, education, health, transportation and financial services. It is hoped that steady progress of its diversification drive would further lessen the oil contribution to its GDP in the years to come.

Abu Dhabi Chamber of Commerce and Industry report (2012) indicates Abu Dhabi’s private sector has steadily grown over the past years to reach nearly a third of the emirate’s GDP and largely surpass the government sector. It would grow by around 6.4 per cent in 2012 while the non-oil government is projected to expand by 5.5 per cent. It showed that the private sector’s contribution to GDP was estimated at around Dh218 billion in 2011 and is forecast to climb to Dh232 billion in 2012. The report further said that the non-oil government sector stood at about Dh126 billion and could swell to nearly Dh133 billion in 2012. The report indicated that the overall real GDP is projected to rise by nearly 8.5 per cent to a record high of around Dh750 billion in 2012 to maintain the emirate’s position as the largest UAE economy, controlling over 60 per cent of the country’s GDP. Moreover, a breakdown showed services sectors will grow by around seven per cent to Dh244 billion in 2012 from Dh228 billion in 2011 while non-oil productive sectors will increase by 4.5 per cent to Dh161 billion from Dh154 billion.

The Federal Customs Authority (FCA) also said that the UAE non-oil foreign trade maintained a sturdy year-on-year growth of 11.5 per cent till last October. FCA preliminary statistical data confirmed that the value of the country’s non-oil foreign trade during the first ten months of 2010 jumped by Dh62 billion to Dh605.4 billion from Dh543.2 billion in 2009.

The Abu Dhabi Economic Outlook Report, (2012-2016) expects healthy contribution of the private sector in the years to come. The Outlook suggests Abu Dhabi real GDP growth of about 3.9% in 2012, and assures that the economy will continue to grow in subsequent years, achieving an average annual growth rate in the range of 5.7 percent during the period 2013-2016. It forecasts non-oil real GDP growth of 5.5 percent in 2012, supported by the implementation of projects in the public and private sectors. It is hoped that further diversification drive would be useful for the national economy during 201-2012.

Many countries are still feeling the heat of ongoing global economic and financial crises. Even mega multi- corporations are at its lowest ebbs. Diversification drive of the UAE government along with its resilient banking system has mitigated the bad effects of the regional uncertainty and international slowdown. It still offers unlimited opportunities for businessmen and investors for achieving better future.

Establishing new mega industrial projects, completion of many ongoing infrastructural plans, opening of new regional trade routes and searching of new partners are expected to increase ongoing drive of economic diversification. World Economic Forum (2011-2012) says UAE is now among the top 20 nations in the world in terms of trade, which is a truly great achievement, considering the size of the country and its population. UAE is now focusing to further increase its trade ties with China, South Korea, Japan, Russia, India, the EU, other Arab countries, as well as the GCC and the last but not the least, looking for business partners in Africa (East Africa, South Africa and the West African nations) and Latin America to further strengthening of its macro-economy through consolidating economic diversification. According to the official data, by virtue of economic diversification, UAE achieved 12.5 percent growth in its aviation sector in the last year. It registered 80 percent increase in trade related activities. It secured more than 22 percent rise in foreign trade. The report further said that the UAE achieved 45 percent and 26 percent in its exports and re-exports respectively.

Abu Dhabi Economic Vision (2030) provides the guidelines to achieve further diversification in the macro- economy. Healthy participation of private sector, growth of SMEs, pursuits of alternative energy and successful commercial diplomacy are interrelated to its drive of further economic opening/diversification. According to Abu Dhabi’s Urban Planning Council (UPC) some $200 billion (Dh734 billion) will have been pumped in by 2013 into various infrastructure project.

Economists are of the opinions that enhanced connectivity of sea, air, road and rail-network would increase its economic diversification campaign manifolds. It would increase its national, regional and global trade out-looks. It would raise its non-oil GDP.
It is hoped that due to its massive infrastructural development Abu Dhabi will be home to one of the world’s most advanced deep-water seaports and a world-class countrywide railway network within the next few years.

In recent times, massive industrialization process and setting-up of manufacturing units have been areas of particular focus in Abu Dhabi. The Khalifa Port and Industrial Zone (KPIZ) are the systematic way forward to achieve further economic diversification. It covers 100 km2 in the first phase. It would serve several industrial sectors including base metals, heavy machinery, transport vehicle assembly, chemicals, shipyards, building materials, processed foods and beverages, medium and light industry, small and medium industry, trade and logistics, information and communication technology, and clean technology and alternative energy. It is hoped that it would be home to the Mubadala and Dubal aluminum smelter as well as a steel mill. The port and industrial zone are expected to increase the trade volumes entering the emirate, with the Abu Dhabi Ports Company predicting a compound annual growth rate of 12 percent. It has led to predictions of 20.66 million tons of general cargo by 2015 and 29.8 million tons by 2020.

Projects are small and big sizes are under construction in the different areas of the country. Abu Dhabi Ports Company (ADPC) planed a 417 square kilometre Khalifa Industrial Zone (Kizad) in Abu Dhabi’s Taweelah, the largest industrial zone in the region, with its phase one being launched with an investment of Dh26.5 billion in 2011 would speed up further industrialization in the UAE. Most recently, the Emirates Steel, a subsidiary of the Abu Dhabi Basic Industries Corporation, has announced to produce 3 million metric tones steel products per annum through a Dh9 billion expansion plan. Borouge, a provider of innovative, value creating plastics solutions, tripled its annual production capacity in Abu Dhabi to 2 million tonnes and an additional 2.5 million tonnes per year is scheduled for completion by the end of 2013 to create the world’s largest integrated polyolefins plant. The electronic sector in the UAE continues to maintain huge growth too. Moreover, Emirates Alum-inium, a joint venture between Dubai Aluminium Company Limited (Dubal) and Abu Dhabi’s Mubadala Development Company to produce 1.5 million tonnes of aluminium a year.

Most recently, UAE has further consolidated its economic diversification drive. Fujairah one of the seven emirate has built the biggest textile factory in the Middle East. Its producing capacity is 10,000 tonnes of cotton per annum. The project was built at a cost of Dh225 million (US$61.2m) by the Azerbaijan government, in partnership with Fujairah Government. It is indeed a giant step in further diversification of the UAE economy. It has a capacity of 45,600 spindles. It is 44,250 square metre factory which is estimated to make Dh140m in sales per year, employs a workforce of about 225 people.

The yarn will be used as a raw material for industries such as clothing and garment-making, as well as knitting furniture fabrics. It will be exported to markets in Asia, the United States, North Africa, Europe and the Middle East.

Conclusion

Economic diversification is the key to further success. It would be necessary for achieving desired goals of socio-economy in the days to come. It would be backbone of its macro-economy in the future. It would speed-up national Emiration campaign by providing unlimited opportunities of employment and self-reliance.

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