Structure of the economy of the United Arab Emirates

For a long time, the characteristic feature of the economy of the United Arab Emirates remained its dependence on oil. However, the development model adopted for the coming years entails increasing diversification. Tourism, manufacturing, construction, and transportation are actively developing.

Historical background:

For a long time, the economy of the territories, which have now turned into a prosperous oasis in the desert, depended on fishing and pearl diving. From the beginning of the East India Company until the 1950s, when oil fields were discovered in Abu Dhabi, the UAE was under British control. The UAE did not exist as a state back then; it consisted only of several emirates artificially united under British protectorate.

When in 1968 Britain decided to withdraw its armed forces from areas east of the Suez Canal, the rulers of Abu Dhabi and Dubai decided to create a federation. Besides the five emirates that joined in the following years (Fujairah, Sharjah, Ras al-Khaimah, Umm al-Quwain, and Ajman), Bahrain and Qatar were supposed to be part of it, but they formed independent states.

Recent history:

In the 1970s and 1980s, there was a surge in oil prices due to the Arab-Israeli conflict. This provided a boost to the UAE's economy: oil brought money into the young Arab state. However, UAE leaders knew that oil would run out, so they sought other sources of revenue for the state treasury. Thus, the first ruler of Dubai and his successor focused on globalization (which proved successful later): a new port was built, futuristic skyscrapers appeared. Although natural resources still remain a significant part of the UAE's economy, by 2030, the Emirates plan to reduce the oil contribution to GDP to 20%. Currently, it stands at 32%, whereas in 2009, it was over 85%.

Key features of the United Arab Emirates' economy at the current stage include:

• Adherence to high standards of culture and national priorities, including healthcare, education system, and competitive economy.
• Socio-economic planning in five-year cycles and annually.
• Efficient resource management.
• Application of best practices in developing the national economy, considering the peculiarities of the Arab region.
• Creation of favorable conditions for doing business and attracting investments. Investor and entrepreneur satisfaction is paramount.

To achieve medium and long-term goals, the government has recently approved programs such as the Closed-Loop Economic Policy (until 2031), the Green Agenda, the UAE Centennial Policy (until 2071), and others. These developments unite roadmaps for key sectors of the economy, taking into account the region's development specifics. Additionally, a unified structure will be established between the government and local authorities to ensure effective collaboration in decision-making procedures.

Natural resources:

In addition to oil and natural gas, the UAE produces coal, iron ore, and rare earth metals. Significant deposits of phosphates and gold (the country produces 1% of the world's gold) have been discovered in the emirates.

The main natural resources of the United Arab Emirates are oil and gas. The main hydrocarbon reserves - 5.6% of confirmed world oil reserves and 3% of gas reserves - are concentrated in Abu Dhabi and Dubai. According to experts' estimates, the state will be able to actively trade in oil and petroleum products for the next 100 years, after which the reserves will be depleted. However, the UAE is already preparing for post-oil times - this approach to planning and development defines the success and competitiveness of the economy not only now but also in the future.

Labor Relations:

Labor legislation complies with the basic requirements of international law. One of the peculiarities of the UAE is its tolerant attitude towards non-Muslims and the relaxation of strict religious rules, all for the sake of attracting foreign capital and valuable talent. Currently, the country ranks 33rd in the world and first in the region in the Economic Freedom Index, which includes assessments of the rule of law, business freedom, labor relations, and market openness.

Despite high positions in international rankings, underground labor camps are occasionally discovered in Dubai and other emirates, where foreign unskilled workers are held in slave-like conditions. Unskilled foreign workers can become victims of exploitation and human trafficking – this is not unique to the UAE but a global problem. Cases of child labor exploitation and sexual enslavement of women are not excluded. The UAE authorities are trying to combat slavery. With each passing year, labor relations become more transparent and subject to stricter control.

Tourism:

The Emirates rank 4th in the world in tourism revenue. The expenditures of more than 25 million tourists who visited Dubai in 2022 amounted to about $35 billion. The hospitality sector provides jobs for nearly 400,000 people, which is about 5% of the country's population. It is expected that by 2027, tourism and travel revenues will be estimated at $72 billion, accounting for 12.4% of the UAE's total GDP.

Energy:

Due to the active development of the automotive industry, freshwater extraction, oil production, and processing, the UAE's demand for energy resources is growing exponentially. The population is also increasing: for example, it is expected that by 2040, there will be 5.8 million people living in Dubai (compared to 3.5 million as of 2022). To maintain a high standard of living, more and more electricity is required.

A peculiarity of the UAE's energy complex is its integration with regional water supply. Due to climatic conditions, water resources in the country are limited, so seawater desalination is necessary. To create a highly efficient economic complex, the government of the United Arab Emirates is building additional thermal power plants, hydropower plants, and desalination plants.

Electric Power Complex:

Sources of electricity include thermal power plants running on oil refinery products. Traditional sources provide up to 75% of the total electricity produced. An outstanding feature of the UAE is the active development of the alternative energy sector. For example, the cost of solar energy production in Dubai is one of the lowest in the world. It is expected that by 2030, solar panels will be installed on the roofs of all buildings in the UAE.

Current State:

The UAE has two solar power plants, 10 operational thermal power plants, which account for 95% of the electricity produced. The construction of the Barakah Nuclear Power Plant in Abu Dhabi is in its final stages: reactor 3 of the power unit was launched in September 2022, and the connection of another reactor to the grid is expected. In the Persian Gulf, 44% of the construction of a solar power plant, operating on solar energy, has been completed.

Macroeconomic Indicators of the UAE: How the GDP and Trade Turnover of the Country Are Structured

The UAE's economy is characterized by significant state influence (oil and gas companies are nationalized), dependence on oil revenues, and a high GDP. Currently, there is a focus on diversifying the economy, promoting locally manufactured products, and developing industry. The main objectives of the UAE economy are:

• Development of the so-called knowledge economy.
• Introduction of highly efficient technologies in the manufacturing sector.
• Creating a foreign capital-friendly investment and business environment.
• Increasing production volumes in manufacturing industries.

GDP

Over the past 25 years, the GDP level has increased 8-fold. Active development has allowed the country to become the second-largest economy in the Arab region after Saudi Arabia. The GDP volume in 2021 amounted to 415 billion dollars, with an annual growth rate of 8.5%.

UAE Economic Growth Forecasts

According to the World Bank's assessment, in the coming years, the UAE's economy will grow due to the development of sectors not related to oil. Significant driving forces are expected to be high business activity and population growth with high purchasing power. Given the current geopolitical realities, increased business activity may become a feature of development for the entire Arab region.

In 2024, the UAE Central Bank predicts economic growth of 4.3% and a slowdown in inflation to 2.8%. Over the next 10 years (according to a new program developed in 2022), the government plans to double the GDP, increase non-oil exports by 800 billion dirhams, enter the top 10 countries in terms of scientific innovation and attracting foreign talent.

Exports and Imports

The UAE imports precious stones and metals, automobiles, and electronic equipment from abroad. The structure of imports by country is as follows:

• China - 20.8%;
• India - 12.1%;
• USA - 8.1%;
• Hong Kong - 4.7%;
• Germany - 4%.

The main export items include oil, petroleum products, natural gas, plastics, aluminum, and iron products. The UAE exports goods to India (17.9%), China (11.9%), Japan (11.3%), Iran (6.9%), and Singapore (5.2%). An important feature of the UAE is that a significant portion of the trade consists of re-exports.

Inflation

The dirham exchange rate is firmly pegged to the dollar, allowing the UAE government to control inflation. Consumer prices remained virtually unchanged from 2017 to 2021. In 2022, inflationary pressure increased: prices rose by 3.7% year-on-year, but this is still 2.5 times lower than inflation in Europe.

Unemployment

The labor market in the UAE is quite stable. The unemployment rate reached its peak in 2021 (3.35%), exceeding the previous peak in 2005 by only 0.24 percentage points. UAE citizens accounted for in the unemployment statistics receive assistance.

Investments

A significant feature of the UAE's economy is substantial foreign investment. The United Arab Emirates attracts the largest volume of foreign direct investment in the Arab world. Private investors can invest capital in various sectors of the UAE economy: agriculture, industry, tourism, and trade.

To enhance the attractiveness of the UAE to investors, the Dubai International Financial Center (DIFC) was established - the first free economic zone (FEZ). This contributed to the Middle East, particularly the United Arab Emirates, becoming a region where the startup ecosystem is actively developing, high technologies are growing, and venture capital is increasing.

The UAE's economic model, including the creation of free economic zones, has attracted more foreign investment and trade activity than any similar program in the world. In the free economic zones, foreign businesses are offered favorable conditions for conducting business, tax exemptions, and other support measures. This characteristic of the UAE's free economic zones has defined the influx of foreign capital.

If you want to take advantage of the benefits offered to foreign companies and investors in the UAE, contact the specialists of The Level Consulting consulting agency. We provide consultations and support for relocation and business opening in the UAE.

The economy of the United Arab Emirates is becoming increasingly diversified: in addition to the extraction and processing of oil products, tourism and direct investments make up a significant share of the GDP. Industries such as manufacturing, construction, and agriculture are developing. Success is largely determined by well-thought-out strategic planning, a successful socio-economic development system, and national priorities, where the main goal is to ensure the highest living standards for citizens.