Before 1962, when the first oil exports were made, the economy of the UAE was dependant on agriculture, herding, fishing and production of pearl. But after 1973, the world oil prices started increasing and petroleum slowly started dominating the economy and saw it account for UAE’s most export earnings. This saw UAE receive massive opportunities for development. By 2011, the estimated UAE proven oil reserves were 97.8 billions barrels. It is further estimated that the supplies could last for more than 150 years at the present production rates. For example the UAE produced 2.41 million of oil barrels per day in 2009 (Shihab).
According to the CIA factbook, the UAE has an open economy with a very high capita income. The country has a sizeable annual trade surplus. The country has recently seen a successful diversification of economy from overdependence from oil to focusing on other sectors of the economy. This has seen UAE reduce its GDP portion that was formerly based on oil and gas to 25%. Since its first discovery of oil, the UAE has transformed itself from an impoverished desert nation to a modern state with one of the highest standards of living in the Middle East. The UAE government has seen increased on job creation modalities as well as increasing private sector involvement in its economy. For example, in 2004 the UAE government signed a Trade and Investment Framework Agreement (TIFA) with the US and later negotiations were undertaken towards a Free Trade Agreement (Central Intelligence Authority).
In the recent past, UAE has seen major imports, especially in machinery, transportation equipment, manufactured goods which have recently accounted for 70% of its total imports. This is a big break from overreliance on oil. The diversification has seen emergence of different foreign exchange earners like the Abu Dhabi Investment Authority that controls all investments in Abu Dhabi while also managing estimated investments worthy $600 billion invested overseas. The diversification of the economy has seen Dubai host more than 6,000 companies from over 120 countries where most of them operate from the Jebel Ali Complex. The complex has such facilities like a deep water point, a free trade zone where goods are manufactured and distributed on a free trade zone. This means that exports and imports are treated to a 100% duty exemption. This has encouraged such companies like a major power plant with desalination units, a steel fabricator unit and an aluminum smelter (U.S. Department of State).
The CIA factbook comments further that the Free Trade Zones in the UAE have helped it to attract foreign investors. However, the recent global financial crisis in 2009 and 2010 hit the country hardest, and especially Dubai, as it was exposed to a depressed real estate sector. The government had tried to round the crisis by boosting liquidity in the banking sector and increasing spending but it lacked adequate cash to meet its debt obligations. This prompted a global concern for the country’s insolvency. This saw the central bank of UAE and Abu Dhabi based banks buy largest shares and in 2009 Dubai received a loan of $10 billion from the Emirates. The economy then showed signs of growth, in spite of a slow rebound (Central Intelligence Authority).
The country’s problems at the moment and in the near future seem to be dependence of oil, growing inflation pressures and a large workforce of expatriates. However, the UAE’s strategic plan for the next few years has focused on diversification. This will see creation of more opportunities for its nationals through an improved education sector as well as involvement of the private sector. For businesses operating in the country, the UAE requires a 51% local participation in its attempt to place its citizens in leadership positions. The UAE is a member of the Gulf Cooperation Council and, thus, participates in the GCCs activities aimed at bolstering economic issues like consultations and develop common policies that cover trade, banking, investments, telecommunications and even property rights (U.S. Department of State).