Photo: iStock
Ildikó Nagy
05/10/2023 06:00
The economic policy reforms and visions that have been implemented in the monarchy since the 1970s are a perfect example of how an oil-based economy can develop into a diversified, knowledge-based, innovative and modern country. While in 1972 the oil industry accounted for more than 63% of the country’s GDP, today this share is around 30%.
The reasons for the diversification of the economy are, on the one hand, the volatility of oil prices and the huge oil revenues, which have made possible and required the reorientation of the economic structure. The success of the Emirates can be traced back to the concept of the developmental state, characterised by a strong vision and outstanding economic organisation.
The main virtues of governance that create political and social stability are speed of decision-making, the promotion of competition, a business approach and trust. This approach helps to maintain the dynamism of investors, while attracting demand to the country by creating supply in the services sector (iconic buildings, artificial islands, etc.). The UAE’s service economy is also a knowledge-based economy: drawing on a global workforce base and knowledge capital, it can flexibly exploit new market trends. From the very beginning, premium positioning, quality and innovation as primary objectives have been the guiding principles.
Currently, technology and innovation are at the heart of economic development in the UAE, laying the foundations for sustainable and knowledge-based growth. The cornerstones of the monarchy’s modern economic strategy follow the megatrends of the 21st century:
One of the foundations of Dubai’s success is its centralised state organisation, effectively complemented by forward-looking planning and decision-making. In its economic policy planning, Dubai has built on the international, knowledge-based services sector and made it the foundation of its economy, ensuring rapid and innovative growth.
The Abu Dhabi Global Market (ADGM), a free trade zone in Abu Dhabi, the capital of the UAE and a premier international financial centre, has as its main objectives to lead the way in sustainable development; to increase business confidence in the legal system through innovation; to create an ecosystem favourable for financial institutions and talent; and to serve as a model for employee engagement and operational excellence in the region.
Also located in Abu Dhabi is the country’s other major free trade zone, the Masdar City Free Zone, which is one of the leading sustainable urban development projects in the world and an excellent destination for business start-ups and development. It is a diverse and innovative hub for start-ups, SMEs and multinationals alike, offering unique and comprehensive business support and services. There are special incentives for 100% company ownership, as well as corporate and personal income tax exemptions, import duty exemptions, freedom to repatriate profits and favourable financing conditions for companies setting up here.
The country is a traditional ally of the United States, but is also steadily building its relationship with China. As a result, China is now not only interested in oil supplies, but is also investing in the Emirates’ renewable energy industry, ports, healthcare and 5G infrastructure, among others, through the ‘One Belt, One Road’ project and other initiatives. This also allows the United Arab Emirates to benefit from the Western and Eastern partnership.
Ildikó Nagy - the author is an international adviser at Magyar Nemzeti Bank, the central bank of Hungary
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