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Important Things To Know About Dubai (UAE)

Table of Contents
Introduction

For an extended period, the defining aspect of the United Arab Emirates’ economy was its reliance on oil. However, the envisioned development strategy for the forthcoming years entails a significant emphasis on diversification. Sectors such as tourism, manufacturing, construction, and transportation are undergoing notable growth.

Historical Context

Long before transforming into a flourishing oasis in the desert, the economy of what is now the UAE relied on fishing and pearl diving. From the era of the East India Company until the 1950s, when oil reserves were discovered in Abu Dhabi, the UAE was under British influence. At that time, the UAE didn’t exist as a unified state; it comprised several emirates brought together under British protection.

In 1968, when Britain decided to withdraw its military presence from regions east of the Suez Canal, the rulers of Abu Dhabi and Dubai opted to form a federation. While initially five emirates joined (Fujairah, Sharjah, Ras al-Khaimah, Umm al-Quwain, and Ajman), Bahrain and Qatar were also intended to be part of this federation but instead became independent states.

Recent history

In the 1970s and 1980s, there was a surge in oil prices due to the Arab-Israeli conflict. This provided a boost to the UAE’s economy: oil brought money into the young Arab state. However, UAE leaders knew that oil would run out, so they sought other sources of revenue for the state treasury. Thus, the first ruler of Dubai and his successor focused on globalization (which proved successful later): a new port was built, futuristic skyscrapers appeared. Although natural resources still remain a significant part of the UAE’s economy, by 2030, the Emirates plan to reduce the oil contribution to GDP to 20%. Currently, it stands at 32%, whereas in 2009, it was over 85%.

Key features of the United Arab Emirates’ economy at the current stage include:

  • Adherence to high standards of culture and national priorities, including healthcare, education system, and competitive economy.
  • Socio-economic planning in five-year cycles and annually.
  • Efficient resource management.
  • Application of best practices in developing the national economy, considering the peculiarities of the Arab region.
  • Creation of favorable conditions for doing business and attracting investments. Investor and entrepreneur satisfaction is paramount.

To achieve medium and long-term goals, the government has recently approved programs such as the Closed-Loop Economic Policy (until 2031), the Green Agenda, the UAE Centennial Policy (until 2071), and others. These developments unite roadmaps for key sectors of the economy, taking into account the region’s development specifics. Additionally, a unified structure will be established between the government and local authorities to ensure effective collaboration in decision-making procedures.

Natural Resources

Aside from oil and natural gas, the United Arab Emirates also extracts coal, iron ore, and rare earth metals. Notably, significant deposits of phosphates and gold have been uncovered in the emirates, with the country contributing 1% to global gold production.

The primary natural resources of the United Arab Emirates are oil and gas, primarily concentrated in Abu Dhabi and Dubai. These reserves account for 5.6% of the world’s confirmed oil reserves and 3% of gas reserves. While experts predict that the state can continue to actively trade in oil and petroleum products for approximately the next century, preparations for a post-oil era are already underway. This forward-thinking approach to planning and development is pivotal in defining the economy’s current and future success and competitiveness.

Labor Relations

Labor laws in the UAE adhere to fundamental international standards. Notably, the UAE exhibits a tolerant stance toward non-Muslims and relaxes strict religious regulations to attract foreign investment and talent. Currently ranked 33rd globally and first in the region in the Economic Freedom Index, which evaluates factors such as the rule of law, business freedom, labor relations, and market openness.

Despite its high international rankings, sporadic discoveries of underground labor camps in Dubai and other emirates, where foreign unskilled workers endure exploitative conditions, underscore ongoing challenges. While efforts are made to address these issues, including combatting slavery and enhancing transparency and oversight in labor relations, concerns such as exploitation and human trafficking persist, reflecting broader global challenges.

Tourism

The Emirates rank fourth globally in tourism revenue, with Dubai alone welcoming over 25 million tourists in 2022, generating approximately $35 billion in expenditures. The hospitality sector employs nearly 400,000 individuals, constituting around 5% of the country’s population. Projections suggest that by 2027, tourism and travel revenues will reach $72 billion, contributing 12.4% to the UAE’s total GDP.

Energy

Due to the active development of the automotive industry, freshwater extraction, oil production, and processing, the UAE’s demand for energy resources is growing exponentially. The population is also increasing: for example, it is expected that by 2040, there will be 5.8 million people living in Dubai (compared to 3.5 million as of 2022). To maintain a high standard of living, more and more electricity is required.

A peculiarity of the UAE’s energy complex is its integration with regional water supply. Due to climatic conditions, water resources in the country are limited, so seawater desalination is necessary. To create a highly efficient economic complex, the government of the United Arab Emirates is building additional thermal power plants, hydropower plants, and desalination plants.

Electric Power Complex

Sources of electricity include thermal power plants running on oil refinery products. Traditional sources provide up to 75% of the total electricity produced. An outstanding feature of the UAE is the active development of the alternative energy sector. For example, the cost of solar energy production in Dubai is one of the lowest in the world. It is expected that by 2030, solar panels will be installed on the roofs of all buildings in the UAE.

Current State

The UAE has two solar power plants, 10 operational thermal power plants, which account for 95% of the electricity produced. The construction of the Barakah Nuclear Power Plant in Abu Dhabi is in its final stages: reactor 3 of the power unit was launched in September 2022, and the connection of another reactor to the grid is expected. In the Persian Gulf, 44% of the construction of a solar power plant, operating on solar energy, has been completed.

Macroeconomic Indicators of the UAE: How the GDP and Trade Turnover of the Country Are Structured

The UAE’s economy is characterized by significant state influence (oil and gas companies are nationalized), dependence on oil revenues, and a high GDP. Currently, there is a focus on diversifying the economy, promoting locally manufactured products, and developing industry. The main objectives of the UAE economy are:

  • Development of the so-called knowledge economy.
  • Introduction of highly efficient technologies in the manufacturing sector.
  • Creating a foreign capital-friendly investment and business environment.
  • Increasing production volumes in manufacturing industries.
GDP

Over the past 25 years, the GDP level has increased 8-fold. Active development has allowed the country to become the second-largest economy in the Arab region after Saudi Arabia. The GDP volume in 2021 amounted to 415 billion dollars, with an annual growth rate of 8.5%.

UAE Economic Growth Forecasts

According to the World Bank’s assessment, in the coming years, the UAE’s economy will grow due to the development of sectors not related to oil. Significant driving forces are expected to be high business activity and population growth with high purchasing power. Given the current geopolitical realities, increased business activity may become a feature of development for the entire Arab region.

In 2024, the UAE Central Bank predicts economic growth of 4.3% and a slowdown in inflation to 2.8%. Over the next 10 years (according to a new program developed in 2022), the government plans to double the GDP, increase non-oil exports by 800 billion dirhams, enter the top 10 countries in terms of scientific innovation and attracting foreign talent.

Exports and Imports

The UAE imports precious stones and metals, automobiles, and electronic equipment from abroad. The structure of imports by country is as follows:

  • China – 20.8%;
  • India – 12.1%;
  • USA – 8.1%;
  • Hong Kong – 4.7%;
  • Germany – 4%.

The main export items include oil, petroleum products, natural gas, plastics, aluminum, and iron products. The UAE exports goods to India (17.9%), China (11.9%), Japan (11.3%), Iran (6.9%), and Singapore (5.2%). An important feature of the UAE is that a significant portion of the trade consists of re-exports.

Inflation

The dirham exchange rate is firmly pegged to the dollar, allowing the UAE government to control inflation. Consumer prices remained virtually unchanged from 2017 to 2021. In 2022, inflationary pressure increased: prices rose by 3.7% year-on-year, but this is still 2.5 times lower than inflation in Europe.

Unemployment

The labor market in the UAE is quite stable. The unemployment rate reached its peak in 2021 (3.35%), exceeding the previous peak in 2005 by only 0.24 percentage points. UAE citizens accounted for in the unemployment statistics receive assistance.

Investments

A significant feature of the UAE’s economy is substantial foreign investment. The United Arab Emirates attracts the largest volume of foreign direct investment in the Arab world. Private investors can invest capital in various sectors of the UAE economy: agriculture, industry, tourism, and trade.

To enhance the attractiveness of the UAE to investors, the Dubai International Financial Center (DIFC) was established – the first free economic zone (FEZ). This contributed to the Middle East, particularly the United Arab Emirates, becoming a region where the startup ecosystem is actively developing, high technologies are growing, and venture capital is increasing.

The UAE’s economic model, including the creation of free economic zones, has attracted more foreign investment and trade activity than any similar program in the world. In the free economic zones, foreign businesses are offered favorable conditions for conducting business, tax exemptions, and other support measures. This characteristic of the UAE’s free economic zones has defined the influx of foreign capital.

If you want to take advantage of the benefits offered to foreign companies and investors in the UAE, contact the specialists of GenZone. We provide consultations and support for relocation and business opening in the UAE.

The economy of the United Arab Emirates is becoming increasingly diversified: in addition to the extraction and processing of oil products, tourism and direct investments make up a significant share of the GDP. Industries such as manufacturing, construction, and agriculture are developing. Success is largely determined by well-thought-out strategic planning, a successful socio-economic development system, and national priorities, where the main goal is to ensure the highest living standards for citizens.

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