The economy of the United Arab Emirates (UAE) has historically been built around the exploitation of oil resources. This dependence on hydrocarbons has enabled rapid development, but has also exposed the country to high levels of vulnerability to the volatility of energy markets. Against a backdrop of global transition to more sustainable economic models, the UAE has embarked on a series of initiatives aimed at reducing its dependence on oil and diversifying its sources of growth.
Four aspects of this transition are discussed below. Firstly, the place occupied by oil in the Emirati economy and its evolution over time. Secondly, the policies implemented by Abu Dhabi and Dubai to structure their economic diversification. The role of sovereign wealth funds as tools for reinvesting oil revenues is also analyzed. Finally, an overview is offered of the emerging sectors that are helping to reshape the country's economic landscape.
Since its foundation in 1971, the United Arab Emirates has built its economic development on the massive exploitation of oil resources. Revenues from hydrocarbon exports have enabled the country to modernize rapidly, financing infrastructure, public services and urban projects. In 1980, almost 90% of Emirati exports still came from oil (Piram, 2015), a figure that reveals the extent of this dependence in the early decades of the federation.
This dynamic is illustrated by the progressive evolution of the share of non-oil GDP in the national economy over the last decade:
This economic model has been consolidated thanks to major political decisions, such as the nationalization of the oil sector as early as 1971 and early membership of OPEC. (Piram, 2015) Furthermore, the UAE's strategic position within the global energy market has enabled it to maintain a central role. In 2012, oil still accounted for 32.6% of GDP, and 27.4% in 2021 (Crupi & Schilirò, 2023), demonstrating a structural dependence that is still present, albeit gradually attenuated.
This concentration on hydrocarbons has made the Emirati economy vulnerable to external shocks, particularly volatile energy prices. As an example, the COVID-19 pandemic highlighted this fragility: total GDP fell by -4.96% in 2020, and even non-oil GDP dropped by -5.43%, illustrating the ripple effect of the oil sector on the economy as a whole. (Crupi & Schilirò, 2023)
At the same time, it should be noted that several sectors classified as non-oil, such as construction, transport or tourism, are nonetheless dependent on low-cost energy resources or capital derived from oil revenues. This interdependence blurs the lines between oil and non-oil sectors, and limits the economy's real autonomy in the face of its structural dependence on hydrocarbon revenues. (Piram, 2015)
To overcome their dependence on hydrocarbons, Abu Dhabi and Dubai have each developed an ambitious diversification strategy, structured around long-term visions. Despite their common goal of transformation, their respective approaches are adapted to the economic and social specificities of each emirate.
With Abu Dhabi Vision 2030, the emirate aims to reduce the share of hydrocarbons in its GDP, increasing the contribution of the non-oil sector to 64% by 2030. (The Government of Abu Dhabi, 2008)
To achieve this, the government is focusing on developing high value-added sectors such as industry, financial services and technology, attracting private investment and increasing the participation of Emirati nationals in the local economy.
The vision also calls for the diversification of public revenue sources and the modernization of infrastructure in the fields of energy, transport and telecommunications.
The Dubai Urban Master Plan 2040 aims to organize the emirate around five urban centers, improve connectivity, densify economic hubs, and promote sustainable housing and green spaces.
In addition, the Dubai Industrial Strategy 2030 targets six priority sub-sectors, including aerospace, precision technologies and food, selected for their export potential and global competitiveness.
Abu Dhabi has adopted a progressive strategy, based on public investment, while Dubai, historically less dependent on oil, has relied more on tourism, services and trade to position itself as a regional hub.
However, the two emirates share converging objectives: economic balance, modern infrastructure and international attractiveness. Their transition is also supported by several complementary sector strategies, such as the Abu Dhabi Industrial Strategy, the UAE Tourism Strategy 2031 and the National Space Strategy, which target specific areas and reinforce the diversification dynamic.
As part of its economic transition, the United Arab Emirates has made sovereign wealth funds a central lever for managing and reallocating oil surpluses. These entities, mainly concentrated in Abu Dhabi, aim to transform hydrocarbon wealth into diversified assets capable of supporting both macroeconomic stability and long-term strategic projects.
The country's two largest funds alone, the Abu Dhabi Investment Authority (ADIA) and the Mubadala Investment Company, manage assets in excess of USD 1,300 billion. These institutions, though distinct in their mission and operations, both contribute to the strategy of diversifying the national economy by reinvesting oil surpluses in non-hydrocarbon sectors.
On the one hand, the Abu Dhabi Investment Authority (ADIA), founded in 1976, acts as a long-term savings fund. With assets estimated at USD 1,057 billion by the end of 2024 (Reddy, 2024), ADIA favours prudent, diversified management: equities, bonds, real estate, infrastructure and advanced technologies. At the same time, it has increased its presence in areas such as artificial intelligence and digital infrastructure, in line with the country's strategic priorities. ADIA also plays a stabilizing role in Abu Dhabi's fiscal policy, notably by supporting the zero deficit policy pursued since the 1990s.
On the other hand, the Mubadala Investment Company, founded in 2002, takes a more active approach. With USD 302 billion in assets under management by 2023 (Rahman, 2024), it invests in strategic sectors such as aerospace, semiconductors, healthcare and sports. Its strategy is based on international partnerships and large-scale projects such as Masdar City, a city dedicated to environmental innovation and renewable energies, with an estimated budget of 22 billion USD. (Piram, 2015)
Together, ADIA and Mubadala illustrate strategic management of oil surpluses: one favors a long-term approach based on financial stability and global diversification, while the other acts as a more direct catalyst for the Emirates' industrial and technological development.
On a global scale, emerging technologies are redefining the engines of growth. The McKinsey Tech Trends 2024 report identifies 15 major trends, among which generative artificial intelligence, cleantech, biotech, cloud and cybersecurity stand out as the most mature and promising in terms of investment, added value and transformational impact. (McKinsey & Co., 2024)
Figure 2 shows the state of investment in each technology area. It highlights both areas in a strong deployment phase, such as cloud or applied AI, and those still mostly in the exploratory phase, such as quantum or space technologies.
In this context, these dynamics have a direct influence on the economic orientations of countries wishing to diversify their industrial base, modernize their infrastructures and attract high value-added investment.
The United Arab Emirates has aligned its diversification strategy with global technological dynamics, focusing on sectors with high innovation potential.
On the one hand, digital technologies and artificial intelligence are playing an increasingly important role in national strategies. Supported by investments from sovereign wealth funds and local industrial policies, they are being applied to a variety of fields, including cybersecurity, data analysis, connected healthcare and smart urban infrastructure.
Advanced industrial technologies are also a priority. The Emirates are focusing in particular on semiconductors, precision manufacturing and medical devices, with a view to moving up the industrial ladder and creating local added value.
In addition, clean technologies and energy efficiency are supported by large-scale public initiatives, notably through investment projects in renewable energies.
Finally, the tourism sector is also a strategic pillar of diversification. The UAE Tourism Strategy 2031 aims to increase tourism's contribution to GDP to AED 450 billion, with annual growth of AED 27 billion, through investment, diversification of the offer, and consolidation of the national tourism identity. (The United Arab Emirates Government, n.d.)
These priorities reflect a clear determination to adapt the economy to the demands of a post-hydrocarbon world.
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