The Strength of the UAE Economy in the Face of Crises

  • 7 May 2014

Commenting on the strength of the nation’s economic fundamentals, the Institute of International Finance (IIF) described the UAE in a recent report as one of the few countries among the world’s oil-exporters that is able to overcome fluctuations in oil prices, and as one of the most resilient of GCC states in this regard. This stems from the fact that the growth rate of non-oil economic sectors in the UAE (roughly 5.2%, according to the Institute’s estimates) now exceeds that of the national economy as a whole (amounting to roughly 4.7%).

A recent report published by Standard & Poor’s supported the conclusions of the IIF, asserting the strength, durability and stability of the UAE economy. It traced these attributes to a variety of precautionary actions taken by the UAE to reduce the potential risks to its economy, including commitments to invest financial surpluses from oil sales responsibly, maintain a flexible economic policy, and alter behavior in a number of critical sectors, such as finance, banking and real estate.

The UAE is a central player and a major force in the world’s energy markets. Its proven oil reserves are estimated at 97.8 billion barrels – the seventh largest in the world – oil production is roughly 2.7 million barrels per day, and it is considered one of the most important oil-exporting countries. As a result, according to OPEC, UAE oil revenues are estimated at 118.1 billion dollars (based on 2012 data)—the second largest among the member states of the Organization after Saudi Arabia, the world’s largest oil-exporting country.

However, the magnitude of these oil revenues has not undermined the UAE economy, which in recent decades has successfully diversified away from dependence on the oil and gas sector by utilizing oil revenues to fund development programs in non-oil sectors such as infrastructure, industry, tourism, financial services and banking, domestic and foreign trade, and technology.

The UAE has achieved a renaissance in these sectors, raising their contribution to about 70% of GDP and helping to diminish the relative importance of oil revenues as a source of national income—which now account for roughly 30%, despite the magnitude of the absolute value of revenue generated.

This shift towards non-oil sectors has rendered the UAE economy more stable than ever before by significantly reducing the proportion of the economy exposed to disruptions caused by global energy markets. This was illustrated in the second half of 2008 when the economy was able to absorb the negative impacts of a sharp decline in oil prices from about $147 to around $32 per barrel. More importantly, this structural transformation has strengthened the UAE economy against even the deepest of external financial and economic pressures, as evidenced by the UAE’s ability to both weather the intense pressure generated by the early stages of the global financial crisis and avoid the subsequent waves of economic contraction experienced by many other economies around the world.

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