Oil and Non-Oil Economy of the UAE Essay

The general dichotomization of the economy of the unite Arab Emirates is into the vegetable inunct and non- vegetable crude orbits. While the total output remains dependent on oil production, the joined Arab Emirates is focusing on the reading of its non-oil field as part of its variegation plan. However, its ability to develop fully its non-oil empyrean depends on the performance of its oil sector. superstar consideration is the relative contribution of the oil and non-oil sectors to the economy. The other consideration is the ability to the oil-sector to victuals the variegation plan in the non-oil sector.Abed and Hellyer (2001) explained that in 1998 the production of crude oil accounted for slight than a quarter or 22 part of gross home(prenominal) product. However, correct if the contribution of crude oil production to aggregate output is less than a quarter, the impact of the sector on the economy is much bigger. oil exports contributed 37 percent of earnings in impertinent exchange and 60 percent of public sector revenue. The oil sector contributes to the aggregate economy in four fronts, which are business investment, household income and consumption, public spending, and earn exports.This substantiates the claim that the oil sector comprises the backbone of the UAE economy. Further growing occurred in the oil sector in 2006 with the Ministry of Information and Culture (2006) reporting that the oil and gas sector contributed 28 percent to aggregate output. Concurrently, there is to a fault branch in the non-oil sector, particularly in manufacturing and financial sectors. The UAE Federal ensnarement (2008) only reported that oil and gas production experienced further growth by contributing one third to gross domestic product.This is primarily due to programs intending to optimize oil and gas production in the several(predicate) emirates. At the same time, there is also solid growth in the non-oil sector. In the next years, the contribution of the oil sector should brace at one third of the economy and the non-oil sector becoming a stronger contributor to sparing growth. This would allow the UAE to maximize returns from the oil and gas sector to boost growth in the non-oil sector. UAE sparing Developments to Achieve variegationThe United Arab Emirates is already on its way towards frugal diversification. Although, the oil and gas sector remains as an important sector, the UAE has achieved developments in the non-oil sector. There are areas of stinting developments that the UAE has to focus on to achieve diversification. Dunning (2005) identified the optimization of preference stand as a way of life of achieving diversification. The UAE has to hone the potency of its key resources to establish distinguishable industries. The country has already done this by continuously underdeveloped its oil and gas sector.However, it also needs to optimize the resource sales booth for the non-oil sector such as the development of land through urban planning or the urbanization of peripheral lands to provide venues for manufacturing and services sectors or the maintenance of natural resources for tourism. Another economic development needed to can diversification encompasses structural changes. According to Shihab (2006), the economic structure needs to comport the needs of the non-oil sector. One way of achieving this is influencing barter patterns to develop labor squash for the non-oil sector.This means investing in human services such as education and health to tally labor productivity. Muysken and Nour (2006) stressed on the deficiencies in the educational system and low level of skills of the labor force as areas for improvement if the UAE wants to succeed in diversifying its economy. Another way is the disposal of different industries to broaden the economic base and create employment. A third economic development is integration of infrastructure and social structures to su pport diversification.DeNicola (2005) explained that infrastructure developments are necessary to attract investments and create employment opportunities for non-oil industries. Shihab (2006) explained that social factors such as the development of a culture of consumerism and calm co-existence among local minorities and expatriates support growth in the non-oil sector. Justification for Diversifying the UAE Economy Imbs and Wacziarg (2003) explained that the overall justification for economic diversification is concurable growth by spreading economic risk crossways different industries.Economies reliant on a single sector such as the reliance of the member countries of the Gulf Cooperating Council on the oil sector also face high risks in the long-term because oil is a non-renewable resource (Fasano & Iqbal 2003). There are also specific reasons for the goal of the UAE for diversifying its economy. One is avoidance of the effect of the oil curse theory, which explains that colo ny on oil has long-term negative effects on the economy. cover exporting countries elucidate revenue by relying on price fluctuations in the global trade alone, which does not require investments or efficiency that in turn precludes long-term development of economic capabilities or competencies. Revenue generated from oil is sufficient to support welfare services, placing focus on allocation instead of production. (HSBC Middle due east 2003 DeNicola 2005) Another justification is the maximization of revenue generation through resource development. Diversification would enable an oil dependent economy such as the UAE to gain revenue from its other resources.Sole reliance on oil limits the revenue generating potential of the economy and hampers economic efficiency by groundlessness resources. (Shihab 2006) Another related reason is resolving revenue volatility. Dependence on oil involves the downside of volatility in the long-term because oil is non-renewable, which means oil rese rves will eventually run out in the future. Oil dependent countries need to develop other sources of revenue to ensure persistency of revenue generation even after oil reserves have dwindled. (Gylfason 2004) Still another justification is human development by creating employment opportunities for the young population.The UAE has a predominantly young population, which means a jackpot of intellectual and skill resource able to support the development of non-oil industries. Diversification enables the economy to develop its human resources to increase quality of life and sustain productivity. (HSBC Middle East, 2003 Muysken & Nour 2006) Non-Oil Sector in Economic Diversification for Sustainable Economic Development The Ministry of Information and Culture (2006) explained that the non-oil sector contributed 72 percent of the gross domestic product of the UAE.This reflects the potential of developing the non-oil sector to achieve economic diversification and ensure sustainable economi c development. The non-oil sector comprises goods manufacturing and services, with the former contributing 57. 9 percent and the latter contributing 42. 1 percent to GDP from the non-oil sector. Industries under goods manufacturing are agriculture, livestock and fisheries, mining, manufacturing, construction, and electricity, gas and water. Industries under services include restaurants and hotels, transportation, storage and communication, sure estate and business, and social and private services.Diversification is already apparent in these various industries and there is still wide room for the development of these industries and the establishment of new industries. Hejmadi (2004) explained that development of the economic free zones were crucial to the development of different industries in goods manufacturing and services. These zones provided a venue and incentives for the flow of both domestic and extraneous investments into diverse industries to create employment opportunitie s and contribute to the growth in aggregate output.Apart from the continuous development of these industries, a potential persistence for diversification in the non-oil sector is tourism. Sharpley (2002) explained that tourism is becoming a ubiquitous means of achieving economic diversification for many countries seeking to secure long-term economic growth. Tourism fits the resource approach to sustainable growth since the UAE has many tourism destinations to attract tourists and its cultural openness also comprise an impetus for foreign tourists.Blanke and Mia (2006) reported that blend in and tourism already exist as an industry in the UAE and contributing 1. 1 percent to GDP. There is wide potential for development. However, there are challenges to tourism development requiring investments in destination development and promotions (Sharpley, 2002 Henderson 2006)ReferencesAbed, I. & Hellyer, P. (Eds. ), 2001. United Arab Emirates a new perspective. London Trident Press Ltd. Blan ke, J. & Mia, I. , 2006. Chapter 22 assessing travel & tourism competitiveness in the Arab world.Online Available at http//www. weforum. org/pdf/Global_Competitiveness_Reports/Reports/chapters/2_2. pdf Accessed 25 January 2009 DeNicola, C. , 2005. Dubais political and economic development an oasis in the desert?. Williamstown, MA Williams College. Dunning, T. , 2005. Resource dependence, economic performance, and political stability. Journal of Conflict Resolution, 49(4), pp. 451-482. Fasano, U. & Iqbal, Z. , 2003. GCC countries from oil dependence to diversification. Washington, DC International Monetary Fund.