United Arab Emirates: A Success Story

United Arab Emirates: A Success Story

Before the discovery of oil in the 1950s, the UAE economy was mostly dependent on seafaring, pearling, fishing, date palm cultivation, and nomadic agriculture. Soon after the discovery of oil in the 1950s, the economy of the UAE was diversified and influenced by sectors such as extraction of natural gases & crude oil, retail & wholesale, manufacturing, real estate, construction, business services, and tourism.

Growing GDP led by Service and Industrial Sectors

The GDP of UAE grew by 1.7% in 2018 when compared to 0.5% growth in 2017. The GDP amounted to AED 1550.5 Billion in 2018 compared to AED 1416.1 Billion in 2017. The service sector contributes 46.9% to the GDP, followed by the industrial sector contributing 46.8% to the GDP. The manufacturing industry has been experiencing rapid growth in recent years. The sectors such as construction material, real estate, fertilizers, aluminium production, foodstuff, industrial preparation have been thriving in the UAE.

The main factors contributing to the growth of the sector are exhaustive advertisements through different channels, healthy competition within the industrial sector, the strategic location making it a perfect place for trading, and huge physical capital investments.

The service sector in the country has been performing well for the past few years especially, the tourism and travel industry. The travel and tourism industry is expected to drive the growth for trade in UAE, post the pandemic. Though the hydrocarbon sector contributes to the majority of the trade revenue, the growth expects to slow down in the coming years. However, the tourism and travel industry in the UAE is expected to expand & grow at a steady 5.4% in the next ten years and is expected to generate a revenue of AED 236 billion by 2026.

Now let us explore the leading business sectors in UAE

The Wholesale and Retail Sector

The UAE retail sectors consist of traditional and contemporary outlets, with more focus on mall-based formats. In Dubai, there are more than 60 malls and ten under construction as of late 2018. Dubai Mall, the Biggest Mall in the world, currently has over 80 million people visiting per year. The visit by non-nationals and tourists to the malls also helps in boosting not only retail but also the tourism sector. In 2019, Dubai received over 17 million overnight visitors with more than 20% spending money on food and beverages and another 31% spending on shopping from retail stores.

Construction and Building Sector

The UAE government has been focusing on improving the infrastructure of UAE for world expo 2020 (which is now scheduled from 1 October 2021 – 31 March 2022) that boosts growth for the construction sector. The energy and utility construction market has experienced a growth rate of 6.81% which is contributed by the heavy government investments. By 2050, the UAE government is expected to invest AED 600 billion in the sector. The UAE government is slowly shifting towards renewable energy from traditional fossil fuels to generate power. The development of infrastructure for the renewable energy sector by government investments is primarily driving the construction industry in the country.

Being a hub for the world market, the residential construction market in UAE expects to grow with the support of the UAE government. The UAE federal government has announced an AED 1.4 billion investment for the development of housing projects in UAE.

Manufacturing Sector

The rising manufacturing sector in the UAE now focuses on achieving sustainable economic diversification for the Economic vision of UAE 2030. The few factors that contributed to the growth of the manufacturing sector are competition in the market, the exposure for trade, and the capital investment made by private and public entities.

The availability of low-cost energy has driven the growth in the number of manufacturing establishments, especially in Dubai, Abu Dhabi, and Sharjah emirates. It is indicated that the profit from the manufacturing sector has improved by 50% over the past few years.

Transportation & Storage sector

The major drivers for the growth of transportation and logistics in the UAE are the development of export-oriented canters, free trade zones, and economic diversification. The geographical location of Dubai that connects between the west and east with its well-connected sea and air routes attracts tourists and businesses to the region. Dubai is also considered a gateway to developing the Asian and African markets. The logistics, transport, and storage market of UAE consists of warehousing, freight forwarding, cargo transportation, and passenger transportation.

E-commerce giants have identified the importance of efficient, timely, and reliable logistics systems that are necessary for the success of E-commerce. With the continued popularity of online shopping and same-day delivery in the UAE, the demand for space with high quality continue to grow in the region.

Jebel Ali Free Zone (Image courtesy : Gulfnews)

Industries performing well during COVID 19 pandemic

• Healthcare: The health care industry has been the most significant industry during the current circumstances. The demand for respirators and sanitizers helped the pharma & healthcare industry to thrive during the pandemic. Some of the pharmaceutical companies have started offering products such as sanitizers, Ethanol sprays to stay relevant in the market.
• Online grocery stores: The pandemic has caused people to stay at their homes. But people will inevitably run out of essential items. To combat this challenge, many grocery stores and supermarkets started online delivery services. Retail stores and companies that are operating online and handling orders are doing well during the pandemic.
• Online Remote work platform: The number of people working from home has increased drastically after the virus has struck. To work with colleagues remotely, employees are using videoconferencing and other productivity platforms. The platforms such as Slack, Skype, and Zoom have reported an increased number of users in the region.
• Product & service delivery: Online companies that provide service in delivering essential items have experienced significant growth during the pandemic. A UAE based company, Instashop has recorded more than a 50% increase in online orders during this period. Although taxi companies like Uber are experiencing sufficient hit during the pandemic, these companies started the delivery of products and services across the country.

The start-ups in UAE are experiencing growth. The ministry of economy in the UAE has reported that 94% of the companies in the UAE are SMEs. The Government has started addressing the challenges faced by start-ups and has been encouraging tech giants, venture capitalists, tech accelerators to enter the country. The coming 5-10 years will set the direction for UAE’s economic diversification and boosting various non-oil industries in the country. The RAG Business group is a team of widely experienced business consultants in UAE providing solutions to business aspirants seeking opportunities to kick start a company in the UAE. Contact us Toll Free # 800724249 or write to: info@ragroup.ae to know how we can support you to set up a business in the United Arab Emirates.