As the UAE marks its Golden Jubilee, it celebrates its rise to an economic powerhouse that is helping to shape the course of the Arab world and the global economy.
Adaptable policy frameworks, regulatory changes and a flexible business and corporate environment have underpinned the country’s progress and propelled it to become the Arab world’s second-largest economy.
Its strong foundations and embracing of the digital age and the fourth industrial revolution will help policymakers chart the course of the next 50 years.
Today, the Dubai International Financial Centre and Abu Dhabi Global Market are home to some of the world’s largest banks, investment houses, insurers, asset managers, cryptocurrency exchanges and a host of technology-focused start-ups, disrupting sectors from financial services to health and education.
Dubai Multi Commodities Centre, one of the world’s fastest-growing commodities hubs, is hosting companies that deal in everything from tea and coffee to rough diamonds and currency futures.
Consistent investments to develop the UAE’s trade and financial infrastructure over the past decades have helped to shape the business and corporate environment in the country, said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“These centres have broadened and deepened the non-oil economy of the UAE,” Ms Malik said.
“Having the infrastructure in place and the legal environment has helped companies move to the UAE and supported employment growth in the country.”
These free zones have put the UAE on the global map and helped boost foreign direct investment flows to the country. They have not only contributed directly and indirectly to the country’s gross domestic product growth, but also added to its resilience to global economic shocks, said Scott Livermore, chief economist at Oxford Economics Middle East.
“They have been instrumental in attracting FDI to the country and helping transform the economy,” Mr Livermore said. “They have also allowed prototyping key reforms and regulation that have eventually been rolled out on to the onshore economy.”
Despite the pandemic shock last year that sent the global economy into its deepest recession since the 1930s, the UAE economy has bounced back strongly. It is forecast to grow by 2.1 per cent this year, driven by pandemic-mitigation measures, and expand by 4.2 per cent in 2022, according to the central bank's second-quarter review.
In March, the UAE announced plans to increase the manufacturing sector's contribution to gross domestic product to Dh300bn over the next decade as it embarks on a national programme to boost output.
The UAE plans to create world-beating light and heavy industries in sectors that can help cut its reliance on global supply chains. The “Operation 300bn” strategy is focused on expanding the UAE’s advance manufacturing base in sectors including energy, petrochemicals, plastics, metals and green fuels. Building partnerships with global industrial champions and boosting FDI is part of the broader industrial growth plan.
FDI inflows to the Emirates surged by 44 per cent to about $20bn in 2020 despite coronavirus-induced headwinds around the world. The UAE expects FDI to grow further as it continues to liberalise the economy and institute policy reforms to enhance its standing as an investment-friendly destination.
Rules allowing full foreign ownership of onshore companies have already come into effect from June this year. Changes to the commercial company ownership laws, which were first announced in November last year, remove the requirement for onshore companies to have a major UAE shareholder.
In November, the Central Bank of the UAE, the Ministry of Economy and the Ministry of Justice also enacted amendments to the Commercial Transactions Law regarding the decriminalisation of bounced cheques.
In July, Minister of Economy Abdulla bin Touq said the country intends to unveil many “new or updated laws such as [a] family-owned companies law, co-operative societies law, commercial registry law and industrial property rights law … that will transform the economy into a more flexible, sustainable and globally competitive ecosystem”.
“The important thing is that the UAE doesn’t stand still and keeps looking forward,” Ms Malik said. “It keeps trying to improve and strengthen its business, legal and regulatory frameworks.”
There’s a heavy focus now on developing a knowledge-based digital economy, driven by data analytics and artificial intelligence. The UAE approved employing facial recognition technology in February to further develop the services provided by private and government sectors.
Lenders in the country that were increasingly pivoting away from traditional brick-and-mortar operations are ramping up digitalisation of services. In August, Abu Dhabi Islamic Bank went into partnership with the Ministry of Interior to allow customers to open accounts remotely and digitally through facial recognition.
The UAE, which is developing a super computer and aims to train 100,000 coders, has already introduced measures including 10-year investor visas and a path to citizenship for talented individuals, moves that will help to attract global talent to the UAE.
“This all goes hand-in-hand with the development of a knowledge-based economy,” Mr Malik said. “This is part and parcel of improving the environment for individuals and companies to be in the UAE.”
Last year, the UAE unveiled its road map for the next 50 years of development and economic growth, which focuses on new technologies, the fourth industrial revolution and AI. More importantly, the road map also looks to develop renewable and clean energy; oil, petrochemical and mining industries; and land and sea transport and storage sectors.
“The conversation is beginning about what the next normal could entail and how sharply its contours will diverge” from the factors that have previously shaped the economy, said Ehsan Khoman, head of emerging markets research at MUFG Bank.
Dubai, the commercial and tourism hub of the Middle East, has already taken a lead, he said. He added that the government’s recent announcement that the “digital economy” will be at the centre of the emirate’s next chapter of growth is “positive news”.
Mr Livermore said the country is already moving in the right direction by investing in developing a “dynamic and entrepreneurial economy” that supports the small and medium-sized enterprise and start-up ecosystem, creating the environment for these entities to “grow big”.
“The UAE has created a something very solid, as reflected by the companies based here and the broadening and growth of the economy,” Ms Malik said.
“The growth in the next 50 years will be underpinned by adaptive and proactive policy backdrop. That has really been central to growth in the past 20 years and will be critical going forward.”