UAE Economy Set to Grow Despite Oil Price Slump

02 May UAE Economy Set to Grow Despite Oil Price Slump

The United Arab Emirates: A Desert Oasis of Economic Growth

Strategically situated at the crossroads of Asia, Africa, and Europe, the United Arab Emirate (UAE) has transformed from an underdeveloped region to a global economic powerhouse. This federation of seven emirates has defied odds by transitioning from heavy reliance on oil and gas to ambitious economic diversification plans. 

The UAE’s visionary leadership has invested in developing diverse non-oil sectors like tourism, trade, finance, real estate, and aviation. Dubai’s iconic skyline and attractions exemplify the nation’s pursuit of excellence, while Abu Dhabi leverages its resources to lead in energy and strong growth in finance, technology, and aerospace sectors.

Factors Fueling the UAE’s Economic Boom

The United Arab Emirates (UAE) has transformed from a resource-rich nation into a diversified economic powerhouse. While its vast oil and gas reserves provided a solid foundation, the UAE leadership recognized the need to move beyond a solely hydrocarbon-dependent economy. This section explores the key factors driving the UAE’s remarkable growth, highlighting its diversification strategies, business-friendly environment, strategic location, visionary leadership, and focus on human capital.

Diversification Strategies: A Move Beyond Oil Output

The UAE has implemented a multi-pronged approach to reduce reliance on oil and gas. This includes:

• Promoting Non Oil Sector: The government actively fosters the growth of key non-oil sectors like tourism, trade, finance, real estate, and aviation. Dubai, with its iconic skyline and world-class hospitality, has become a global tourist destination. Jebel Ali Free Zone, one of the largest in the world, facilitates international trade. The UAE also boasts a robust financial services sector, with Dubai International Financial Centre attracting major financial institutions.
• Investing in Innovation: The UAE is actively developing knowledge-based industries. Initiatives like Dubai Silicon Oasis and Masdar City in Abu Dhabi promote research and development in technology, clean and renewable energy, respectively.

Cultivating a Business Oasis: Incentives for Growth

The UAE has established itself as a haven for foreign investment through its pro-business policies and attractive incentives. These include:

• Low Tax Rates: The UAE boasts a competitive corporate tax regime, with most businesses enjoying a 0% tax rate on profits generated within the country.
• Free Zones: Strategically located Free Zones offer companies complete or partial tax exemptions, customs duty benefits, and streamlined business setup procedures.
• Modern Infrastructure: The UAE has invested heavily in world-class infrastructure, including airports, seaports, and transportation networks, facilitating seamless movement of goods and people.

A Strategic Hub: Gateway to the World

The UAE’s advantageous geographical location plays a crucial role in its economic success:

• Global Trading Hub: Situated at the crossroads of East and West, the UAE serves as a vital link between Asia, Africa, and Europe. Its world-class logistics and transportation networks, including Dubai International Airport, a major global air cargo hub, enable efficient movement of goods.

Visionary Leadership: Charting the Course

The foresightful leadership of the UAE’s rulers has been instrumental in shaping its economic development. Long-term strategic plans like Dubai Vision 2030 and Abu Dhabi Economic Vision 2030 provide a clear roadmap for economic diversification, infrastructure development, and knowledge-based industries.

Investing in People: A Skilled Workforce

The UAE recognizes the importance of a skilled and diverse workforce. The government invests heavily in education and training programs to equip its citizens with the necessary skills. Additionally, the UAE welcomes talented professionals from across the globe through expatriate-friendly policies, fostering a dynamic and multicultural workforce.

UAE Economy Set to Grow Despite Oil Price Slump

The oil and gas industry, with its history of booms and busts, is currently experiencing its deepest oil prices drop probably since the 1990s. Oil prices have plunged, with the price of a barrel of oil, dipping by over 70 percent compared with June 2014 levels. While the price recently jumped to over $45 a barrel, this is still below what producers need to drill profitable wells. Experts reckon it will be years before oil prices returns to $100 a barrel, a value that was pretty much standard over the last decade.

The aftermath of the oil price drop has hit employment in the UAE’s oil and gas sectors, with recent data estimates revealing that the country’s expat workforce has declined by 9 percent compared with last year.

Why now?

It’s down to simple economics.

1. United States’ domestic oil and gas production has nearly doubled over the last several years. So, oil from Saudi Arabia and African countries such as Nigeria and Algeria that was sold in America is now competing for Asian markets, driving producers to drop prices.
2. Canadian and Iraqi oil production and exports are rising.
3. Oil production is itself falling because of the decline in exploration investments.
4. The demand for oil in several countries in Europe and developing countries is lagging a bit with vehicles becoming more energy-efficient, although there seem to be signs that demand is rising in America.

Amidst falling oil price, is this still a good time for company formation in the UAE?

Yes. Here’s why.

1. While it’s no secret that the oil prices drop has slowed down growth, the UAE’s economy is forecast to grow this year. This is down to the country’s several resilient economic policies that have pushed diversification and decreased reliance on oil. At present, the non-oil sector’s contribution to the UAE GDP growth (gross domestic product) stands at about 69 percent.
2. The total volume of UAE foreign investments have exceeded $100 billion in the last decade. With numerous multi-speciality free zones, complete foreign ownership has now been made possible with zero tax rates and a 100 percent profit transfer.

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How do I begin the process of company formation in the UAE?

Give us a call or drop into our office!

As a business solutions advisory firm, we at BSC, we help you explore the myriad company formation and UAE residency options available. A team of passionate and professional consultants, we offer the most optimum experience through knowledge of UAE’s free zones, expertise and understanding your objectives.

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