Saturday, September 20, 2008

Dubai - Reducing the dependence on Oil (A quick look at an economy's successful diversification)

The UAE controls roughly 10 percent of the world's oil supply and nearly 5 percent of the world's proven natural gas reserves. Oil and gas production provides about one-third of the GDP ($57.7 billion - 2003 est.)

Although the UAE's economy has been based mainly on the export of oil and gas, nevertheless the UAE government has been implementing several plans as means of diversifying the economy. The new industries which have been created as part of this plan include: Construction, Information Technology, Finance, Manufacture of consumer goods, Tourism.

Another industry which has been part of the government's diversification strategy has been the establishment of re-export centres and Free Trade Zones. Such areas offer various incentives to investors such as the right to 100% foreign ownership and the absence of taxes and absence of import and export duties. As a result the UAE government has managed to make this industry into another major source of income for the country. Other smaller industries include Agriculture and Fisheries.

At the same time UAE is making serious headway in its plans to become a major financial centre in the region through the creation of the "Dubai International Finance Centre - DIFC". The UAE government hopes that the DIFC's size and reputation will rival those of London and New York. Evidence of strong international confidence in the DIFC's future came with the recent decision by the Al Salam Group, a Saudi Arabian development company, to invest 550 million dirhams ($150 USD million) in purchase and construction of the DIFC. This is thought to be one of the largest foreign direct investment of its type in the Middle East.

The results of the diversification plan show that the government has been successful as the country's dependency on oil and gas has been reduced from a figure of 70% to estimates ranging from 30 - 50%.

UAE's main export commodities (crude oil, natural gas, reexports, dried fish, dates) are sold to exporting destinations such as: Japan, South Korea, Iran. UAE's main import commodities (machinery and transport equipment, chemicals, food) are imported mainly from: China, Japan, Germany, US, and France.

Most of UAE's economic development has been concentrated in the two richest and most powerful of the seven Emirates which are Abu Dhabi and Dubai. In comparison the remaining five Emirates are relatively underdeveloped.

UAE continues to play a role in the Petroleum market as a member of the OPEC, as well as a member of the GCC Customs and tariffs Union. The country's strategic position on the shores of the Persian Gulf and its proximity to the straight of Hormuz have placed it on the map of many shipping companies as well as trading organisations as an important trading point. UAE's important position in the region is likely to continue owing to its economic strength.

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