Emerging Markets – Opportunities & Threats: United Arab Emirates

by Sterling J. Scott, Marketing Communications Coordinator, MHI | @mhi_sterling

The United Arab Emirates (UAE) has the second largest economy of the Middle East after Saudi Arabia and is a federation of monarchies in Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al-Khaimah, Sharjah, and Umm al-Qaiwain. The population of the UAE grew over 15% on average from 2007 to 2010 and roughly 5% on average since then. GDP growth has hovered around 4%; however, GDP per capita has fallen, with the sharpest decline experienced leading up to 2010. The UAE’s growth stems from oil exports, 90% of which comes from Abu Dhabi. Hydrocarbons account for 40% of the country’s GDP. The government is in the process of diversifying the economy by developing the UAE as a high-class tourist destination and international financial center. Dubai has been established as the tourism and financial center.

As with any economy based on natural resources, especially oil, there exists the “resource curse.” While the UAE has been successful in diversifying its economy, it still relies heavily on oil production and exports. As the economy is vulnerable to fluctuations in supply and demand, the oil-rich country is in a high-risk, high-reward situation.

Resource Curse: A paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. The resource curse occurs as a country begins to focus all of its energies on a single industry, such as mining, and neglects other major sectors. – Investopedia

Sharp declines in economic growth and continued declines in GDP per capita reveal that the UAE has much work to do in diversifying its economy. The government realizes this as the plan for diversification is long-term and seeks to meet its goals by 2030.

The UAE is experiencing healthy economic growth and is diversifying its economy in order to be less dependent on oil production and exports. While the tourism and financial sectors are the focus of diversification. The UAE also has a strong construction and housing market as the country continues to build cities, communities, and tourist attractions.

More information on supply chain trends, recommended strategy, and innovations that drive supply chains are available in the 2014 MHI Annual Industry Report which can be downloaded at www.mhi.org.