Economic diversification and the role of non-oil sector in the united arab emirates

Abstract

The Vision 2021 plan which was implemented by the UAE government is almost near to its completion. The success of UAE in diversifying away from oil is noteworthy and currently, the UAE is a successful and apt model of economic diversification to the rest of resource dependent economies in the world. Although it is the most diversified economy among the six Gulf Cooperation Council countries, the economy is yet to attain self reliance from oil dependency completely. In recent years, the contribution of non-oil sector in the UAE has surpassed that of the oil sector to GDP, however, investments and expansion of the non-oil sector requires huge oil revenues from the government. Therefore, the economy is still highly dependent upon oil and gas exports and is not resilient from oil price volatilities, especially oil price downturns. With the exception of Dubai, rest of the five UAE Emirates is dependent on oil revenues and sensitive to oil price fluctuations. Petroleum and natural gas continue to play a central role in the economy, especially in Abu Dhabi. In this context, this paper examines to what extent the UAE has diversified away from oil dependency. For this purpose, we analyze the pace and success of economic diversification through 1. The Herfindahl-Hirschman (HH) Index over the time period 2001–2016 in the UAE. Apart from HH index, the paper examines the main contributors of diversification by analyzing 2. Percentage Contribution of Oil rents to GDP 2. 3. Percentage Contribution of the Non-Oil Sector to GDP 4. Sector wise contribution to GDP in % 5. The role of private sector and 6. Importance of Human Resource and education. The final conclusion of this case study is that over the years, the UAE economy has successfully diversified and attained significant self-reliance from oil dependency.