It is not new that the countries of the Persian Gulf take the oil sector as one of the main sources of income for their economies. The shocks of 1973 and 1979 brought terrible consequences for non-oil developing countries and even for already developed ones. However, exporters of this fossil fuel experienced a great surplus in their current account balances.
The oil business has reported wealth, influence and attention to a large part of the States of the Arabian Peninsula. Catar, the United Arab Emirates (UAE) and Saudi Arabia are of great importance in the region due to their large oil reserves and their effective exploitation. However, we must zoom in and ask ourselves: "Have all the countries of the Arabian Peninsula managed this sector and the wealth it provides in the same way?" The answer is a resounding no.
Oil is a fossil fuel which, no matter how abundant it may be in each State, runs out. Such shortages have led Gulf monarchies to seek alternative plans to diversify their economies. For this reason, today practically all the States in this region are launching alternative economic plans in search of new sectors that allow them to reduce dependence on the oil sector.
The UAE could be taken as a good example of "know-how" in this regard. This country is made up of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Qaidan. Each one is governed by an emir and the emir of Abu Dhabi is also the one who acts as president of the country. The State enjoys the fifth largest oil reserves on the planet discovered to date and the hydrocarbon sector accounts for 30% of its GDP. It is the fourth largest crude oil exporter, which accounts for 20% of its surplus. current account balance. Despite being such an important activity, it does not enjoy the same relevance throughout the national territory, since only Dubai and Abu Dhabi concentrate the large oil reserves.
In some countries, such as China, significant restrictions are established on foreign investment in certain sectors. The Chinese government decides in which foreign companies can invest and in which they cannot, being quite jealous of those economic activities that support the country's progress. Applying Robert Mundell's Unholy Trinity, UAE allows freedom of capital movements, simply with certain controls on direct investment, specifically on transactions of royal estate and for credit and investment institutions. This feature and a conventional Peg exchange rate regime place it far from an autonomous monetary policy. Taking Rodri's Unholy Trinity as an optic, UAE is in a golden straitjacket, since it moves within a framework of globalization and nation-state.
Due to the above, this country is in a favorable situation to make its economic transition towards other sectors: the freedom of capital movements facilitates foreign investment in the country and international actors capable of forging this change towards new ones also participate in its future. goals. For example, when the Vice President of State, HH Sheikh Mohammed bin Rashid Al Maktoum presented the UAE Vision 2021 plan to diversify the sectors that were producing surpluses in its balance of payments, this served as an incentive for several hotel chains to open new establishments in the country. This openness has made Dubai in one of the tourism summits in Asia.
I believe that the transition towards this new diversification is being done correctly, but was it initiated at the right time? Should the UAE have already considered changing the direction of its economy before 2010? It is true that the plan was presented that year but previously the Public Administration had been preparing this gigantic sectoral translation. Compared to Saudi Arabia, the UAE's diversification has not come late. For the first one, In 2019, oil accounted for 80% of the country's exports, almost 70% of State income and more than 40% of GDP.
That is, even though the Saudi economy owes its surplus to the oil sector more than the UAE does to its own, Saudi Arabia took longer to present its own diversification plan. And referring to the present, its diversification attempts seem not to be on the right track due to a lack of investors, who consider that Saudi institutions obey the discretion of their monarch and not the legal security they find in other surrounding countries such as the UAE. In monetary terms, the Emirati dirham is pegged to the US dollar and this gives confidence to its stakeholders. In fact, practically all oil-exporting countries in the Persian Gulf have opted for this type of exchange, as has also been the case of Oman and Qatar. All of this, however, It does not imply a dollarization of your economy.
Returning to the golden straitjacket situation, this concept helps us understand the future of the country's economic diversification. For this transfer of sectors, the UAE requires strict prior consultation with business and investment agents from abroad and also with the markets, since it is these who from the outside influence how the decisions of the Emirati government should be to achieve economic well-being and social of its citizens. It is nothing new that the diversification of the UAE would need to establish constant contacts with the private sector, but to reach these new economic fields they will need new foreign companies to make up a new tourism and technological sector.
However, the UAE is dependent on foreigners beyond direct investments. The oil sector and any other sector that requires qualified technical knowledge also needs workers qualified for these technical tasks. This human capital does not come from Emirati society, but generally from abroad. The government of the emirates grants important privileges and financial aid to citizens with the country's nationality (this is only acquired by descent, never through marriage), which has curtailed the entrepreneurial culture throughout the State. The UAE has a population of 9.630.959 people, of which 89,16% are foreigners, making it the country with the largest number of immigrants on the planet. even above Luxembourg.
In conclusion, out of every ten citizens, almost nine are immigrants. This clearly shows the country's dependence on foreign human capital, not only in terms of quantity but also of know-how and training. Young Emiratis usually pursue higher education such as Arabic philology or other religious studies, which, in some way, do not correspond to the kind of requirements of the market economy in their country.
The UAE case is probably one of those that clearly demonstrates the link between “capitalism” and “innovationism”. It is only through the development of comparative advantage, constant improvement and the search for alternatives and areas of diversification that the UAE has gone from being a desert landscape to an economic hub in that part of the world in just thirty years.
Thus, UAE Vision 2021 is a plan with a direct vocation abroad and in the economic agents that can turn the helm of the State's economy towards new interesting places. From this platform it is shown that from 2017 to 2018 all economic sectors of the country, except for oil, They have grown by 2,50% and from 2018 to 2019 by 1%. In 2019, 0,94% of its GDP was invested in R&D&I.
UAE Vision 2021 No. es just a document that studies alternative paths for the country, but a true roadmap to provide the country with a very broad change in all aspects. The State wants to appear before its stakeholders international as a territory where foreign investment can multiply its benefits, but preserving the traditions and idiosyncrasies that are its own. For its citizens and inhabitants, the government wants this plan to be an opportunity to be even more in contact with the outside world and wants to make them understand that the ultimate goal of this strategy is to guarantee their well-being and solvency in addition to the survival of the UAE as a State.
UAE Vision 2021 has as its definitive objective the diversification of the Emirati economy, but it also establishes other medium objectives: transfer of know-how towards national institutions and people, promoting entrepreneurship, increasing the value and quantity of foreign direct investment, increasing the number of Emirati nationals employed in the private sector and increasing the level of innovation. All of this acts as small impulses that together aim to give a unique turn to the State's economy.
Personally, I have always been struck by how countries with smaller territories or located in complex enclaves have used the attraction of foreign investment and low tax pressure to survive. If we look at it, it is a practice that is repeated on practically all continents: a very small State, or one with complex terrain, that lacks a strong economic sector to sustain it and that tries to find the source of wealth in the international or foreign component. The examples are several: Andorra, Singapore, Luxembourg, Liechtenstein, Gibraltar, Hong Kong or Panama. Is the UAE also a country that needs foreign investment to prosper due to the lack of its own resources? To a large extent this statement is true. The oil sector has given it a certain independence and preeminence with respect to the international community, but we must not forget that important individuals and business corporations participate in the processes of extraction, conversion and export of oil, so in some way the country has a great object of attraction, but needs others to be able to take advantage of it.
Therefore, based on the theory of comparative advantage could be considered that UAE must enhance its capabilities as a financial, business and tourism hub of the region, because these are their main ways to escape the finitude of their fossil resources. Recognizing the weak economic sectors in a certain State should not be rejected by it. On the contrary: this recognition allows us to observe its economic reality in a more lucid and critical way to subsequently make better executive decisions.
I am a graduate of the master's degree in international affairs from the Universidad Pontificia Comillas (ICADE) and I am currently studying the master's degree in access to the legal profession at the University of Oviedo. I have participated in projects at the Legal Clinics of the University of Luxembourg, Oviedo and the Universidad Pontificia Comillas, and I have completed a six-month scholarship at the BBVA General Secretariat in 2022. My main professional areas of interest are law private international and commercial advice.
Hello, everything is wonderful, outstanding, I appreciate providing information about your ABS development model. Thank you!!