The IMF recently upgraded the global growth outlook for 2018, and the oil price is trading at its highest levels since 2015. These are both positive developments for the UAE economy, which is expected to see an uptick in growth in 2018. But will this be the beginning of a sustained period of growth, or will it just be a rebound from the recent slump in growth?
The IMF has raised its projections for GDP growth in the UAE to 3.4 percent in 2018, up from 1.7 percent in 2017. This is just below the growth of 3.5 percent forecast for the region.
The lower oil price over the past few years may turn out to be a blessing in disguise in the long term. It is forcing policymakers to diversify away from historical dependence on oil.
In an increasingly globalised world, there are certain industries where the UAE will always struggle to compete. Global e-commerce is dominated by companies in the US, Europe and increasingly China. Online retail is dominated by the likes of Amazon.com and Alibaba. While online banking tends to remain dominated by the local banks in each country, other online financial services industries are becoming increasingly globalised. International payments are dominated by PayPal and the Western Union while Forex trading is dominated by global online brokers. These are all US and European companies with strong positions in their respective industries
The banking sector is a beneficiary of growth, but cannot be the main driver. The biggest driver of growth for the banks has been the real estate sector which has been a mainstay of urban economic growth in Dubai and Abu Dhabi. Real estate development has also contributed to Dubai’s status as the leading tourist destination in the region. However, it is doubtful that real estate can continue to drive growth indefinitely. Dubai’s real estate sector has already witnessed a crash in 2008 and a slowdown over the past few years. The problem is that we may have already seen the bulk of the growth we will see in these sectors.
Dubai’s next big economic initiative is Expo 2020, which opens in October 2020. The theme for the event is ‘Connecting Minds, Creating the Future.’ Sub-themes include Sustainability, Mobility, and Opportunity. The UAE will need to ride the momentum created by this event to position itself as a regional technology hub.
The success of Silicon Valley companies like Google, Apple, and Tesla has proven that technology is where future growth will be focussed. Dubai has a world class infrastructure and has proved itself an attractive destination for expats. It is also ranked first in terms of ‘ease of doing business’ in the Middle East and North Africa region. These are the attributes the UAE needs to leverage to create sustainable growth by building a technology hub.
Oil now accounts for roughly one-third of the UAE’s economy. While oil prices have recovered from the lows of 2016, we may not see $100 a barrel again. New sources of oil and gas are being tapped in North America, while the cost of renewable energy is falling every year. The UAE will need to develop its technology sector if it wishes to sustain the growth rates it has experienced over the past two decades.
Also published on Medium.