The UAE Economy: from Traditional Roots to a Global Powerhouse

The economy of the UAE stands as one of the most stable globally, and it's not just because of oil and gas, contrary to popular belief. In this article, we'll explore how the Emirates' economy functions and dive into the details that highlight its significance.

Quick facts about the UAE economy:

• UAE's GDP is forecasted to grow by 3.7% 2024, according to The World Bank.

• Key sectors behind this growth are tourism, aviation, hospitality, real estate, trade, and logistics.

• Today, the non-oil sector accounts for more than 70% of the country's GDP and is the biggest contributor to this expansion.

From Desert to Futuristic Economy: The story of UAE transformation

In 2023, the UAE's economy ranked 32nd worldwide based on nominal GDP, totaling approximately $509 billion. If you thought that’s not that impressive — you’re mistaken. Given the UAE's relatively small size in terms of geography and population, this is a remarkable achievement.

To better understand  how the UAE economy reached its status, let's explore some history:

Before oil was discovered in the 1950s, the UAE's economy relied on activities like nomadic farming, cultivating date palms, fishing, pearling, and seafaring. 

This all changed when black gold was found in the Emirates. The economic landscape rapidly shifted towards sectors like crude oil and natural gas extraction. Other industries soon followed. Wholesale and retail trade, repair services, real estate, business services, construction, and manufacturing — are all major contributors to the UAE GDP today. 

Oil and gas, however, are finite and since strategic vision has always been an UAE strongsuite, in the modern era the country is quickly — and rather successfully — diversifying its economy. In a landmark achievement for 2022, the UAE's non-oil foreign trade exceeded AED 2 trillion for the first time, reaching AED 2.233 trillion, — a 17% growth from the previous year.

The UAE economy today: top economics sectors

Here’s a list of non-oil economic sectors that made significant contribution to the UAE GDP in 2023:

Wholesale and Retail Trade: The UAE stands out as a major trading hub, with its wholesale and retail sector adding about 206 billion dirhams to the GDP. This accounts for 12.7% of the country's total economic output, highlighting its crucial role in the region's commerce.

Industrial Sector: In 2023, the UAE's industrial sector made a notable contribution of around 197 billion dirhams ($53.6 billion) to the economy. The sector's success is built on four pillars: creating a supportive business environment, increasing local value, driving technological advancements, and promoting sustainable practices.

Travel and Tourism: The UAE, especially Dubai, has become a prime tourist destination, thanks to aggressive marketing efforts. These efforts have branded Dubai and the UAE as unique places to visit, attracting tourists for its futuristic cityscape, luxury shopping at competitive prices, and diverse attractions. From electronics and jewelry to fashion, Dubai offers an indulgent shopping experience for visitors from near and far.

Agriculture: Agriculture is surprisingly resilient in the UAE's arid landscape. Thanks to advanced irrigation methods, water from underground aquifers, and desalination, vast tracts of land are being farmed. The government backs this sector by providing land, price guarantees, and subsidies, and around 800 companies operate in this sector, particularly in wealthier emirates like Abu Dhabi and Dubai.

Export and import: In 2021, the UAE ranked 15th among all countries in the world in terms of export volume ($425.2 billion), and trade turnover reached a record $772.7 billion. Compared to last year, exports increased by 26.8%, reaching $425.2 billion, and imports by 40.7% ($347.5 billion). Since the beginning of the analyzed period, the country has consistently experienced a trade balance surplus (exports exceed imports).

UAE economy growth: an example of stability

Since 1980, the country's economy has grown steadily at an average rate of 3.4% per year. This is quicker than the average for its region, which is 3.1%, but slower than the average for developing countries, which is 4.4%. The International Monetary Fund (IMF) predicts that this trend will mostly continue in the near future. However, around 2027, the country's economic growth rate is expected to get closer to that of other developing economies.

The amount of ups and downs in the country's economic growth was pretty big early on but has become more stable since 2000.

The early instability was largely due to the economy's strong reliance on oil prices, which often change with the global economy's health. The reason for the stabilization is that the country has successfully reduced its dependence on oil over the years. For example, in 1980, oil and gas made up more than half of the country's economy (55.2%). By the start of 2000, this had dropped to just over a quarter (28.7%), and by the end of 2021, it was at 24.5%. 

UAE economy forecast: what the future holds

Looking into the future of the UAE's economy, it’s no surprise that forecasts show a growth trajectory into 2024 and beyond.

The World Bank has revised its growth projections for the UAE: the country expects an economic expansion of 3.7% in 2024 and 3.8% in 2025. The  UAE Central Bank's is even more bullish and anticipates the country's economy to grow by 5.7% in 2024, up from an earlier prediction of 4.3%. 

The UAE's focus on diversifying its economy is paying dividends and non-oil GDP growth is equally robust. For 2024, non-oil GDP growth. This diversification strategy aims to boost key non-oil sectors like tourism, finance, construction, and technology ensures economic growth in the UAE well into the future.

Wrapping up

To wrap up our exploration of the UAE's economic landscape, let’s recap the main points: 

• Economic stability: The UAE's economy is steadily growing and this growth is not solely dependent on oil and gas, as the non-oil sector now contributes over 70% to the GDP.

• Non-oil economic growth: The non-oil sector's robust performance, including a landmark achievement in non-oil foreign trade exceeding AED 2 trillion in 2022, shows that the country's diversification efforts are already paying dividends.

• Leading sectors: The wholesale and retail trade sector is a significant contributor, alongside an industrial sector and travel and tourism industry, which has branded the UAE, particularly Dubai, as a prime destination.

To help the diversification efforts, the UAE government is providing support to international entrepreneurs looking to establish or relocate their companies to the Emirates. This makes 2024 an ideal time to enter the UAE markets.