Oil No More: The UAE Diversifies

In its most recent report, the International Monetary Fund (IMF) cut its economic growth forecast for the UAE owing to the recent decline in oil prices. According to the fund, the UAE is expected to see GDP growth of 3.5 per cent in 2015 and 2016, down by a full one per cent from its October 2014 estimate.

Abu Dhabi, highly dependent on hydrocarbon revenues, is set to see overall economic growth of three per cent while its non-oil economy is slated to grow 5.5 per cent in 2015, the IMF said. Meanwhile, Dubai’s economy is projected to grow by 4.5 per cent this year and 4.6 per cent in 2016, it added.

Although hovering around the $60 per barrel mark, oil prices reached near six-year lows earlier this year, and some experts warn that they could drop again owing to increased supply in the market.

However, officials in the UAE assert that the country’s dependence on oil has dropped sharply in the last few years. Speaking at the recent Government Summit in Dubai, senior ministers emphasised that the UAE’s diversification efforts were paying off.

The current drop in oil prices was a “challenge, but not a crisis,” the UAE’s Deputy PM and Interior Minister Sheikh Saif bin Zayed stated at the event.

Currently, the contribution of oil revenue to the country’s GDP stands at roughly 30 per cent, he said. “In the 70s, the UAE used to depend on oil revenues for 90 per cent of its GDP. If 30 years ago the oil prices fell to extreme lows, we would have been affected. But today, it’s a challenge we can overcome,” the minister said.

Thanks to diversification of the economy, the contribution of oil revenues to the UAE’s GDP is set to drop to just five per cent by 2021, he added.

His words echoed similar sentiments expressed by Abu Dhabi’s Crown Prince and Deputy Supreme Commander of the UAE Armed Forces Sheikh Mohamed Bin Zayed Al Nahyan, who said that the UAE would ride through the drop in oil prices.

The country’s economy is buoyed by its focus on education, health, economic diversity, and security, he said.

“In the next 50 years or so, we may not have any oil or gas. And this is something that the government is thinking about.

“Maybe in the next 50 years, after we ship off our last barrel of oil, will we be sad? If we invest today in the right sectors, we will celebrate at that moment,” he said.

The country has already started seeing progress in industrial sectors through companies like Strata, which manufactures parts for aircraft makers Airbus airport and Boeing. Sectors such as aviation and tourism are also booming, with Dubai International even becoming the busiest airport in the world after welcoming over 70 million passengers last year.

Sheikh Mohamed also highlighted the UAE’s nuclear programme, which aims to supply up to 25 per cent of the country’s power needs when completed. The first plant under his programe is scheduled to go live in 2017.

While admitting that the dramatic drop in oil prices was causing panic and fear in the market, he stressed that the UAE has seen worse.

“People forget that in 2008 oil prices were even higher than last year’s high, and then they dropped even lower [after the financial crisis] than the current low. Despite that, the UAE kept moving forward and we have seen several achievements,” he said.

The most important thing is to invest in the “right kind of education”, which provides skill sets for the next 25 years and beyond, Sheikh Mohamed said.

“Unity and strength of the country are also essential to ensure our sustainability in the face of challenges.”