United Arab Emirates Case Study: How would you diversify your single resource economy?

It is risky for a nation’s economy to be overly dependent on any one business, especially a single raw commodity, like oil.  Such commodities are subject to sudden fluctuations in price.  While world demand for oil is high, and while a nation’s reserves last, that nation might be very wealthy.  But what would happen to that economy if oil prices fell?  If demand for oil fell as a result of new, greener energy technologies in the 21st century?  If oil supplies ran out, as all finite supplies do?

The answer of course, is that that nation’s economy would be developed.  Nations like Saudi Arabia and Venezuela – prosperous by world standards, as a result of large oil reserves – have recently suffered very dramatic economic contractions a result of falling oil prices.  According to The Independent, shopkeepers in Venezuela have begun weighing cash rather than counting it – a sign of catastrophic hyperinflation as the nation’s economy spirals out of control.  The paper writes,

“Oil makes up a staggering 95 per cent of Venezuela’s exports, and accounts for a quarter of the country’s economy, with oil-related revenues having historically supplied roughly half the government budget. This kind of over-reliance on a single export notoriously depresses all other industries in a country.”

arab-oil-exporters

The United Arab Emirates enjoys one of the highest per capita GDP levels of any oil-exporting Arab nation.  This is the result of a relatively low population and a high production of oil.  But what will this map look like fifty years from now as new technologies and priorities decrease world dependence on oil? (Source: IMF)

The United Arab Emirates – per capita, one of the wealthiest nations on Earth – is seeking to avoid this fate.  More than 60% of the UAE’s GDP comes from oil and natural gas.  Abu Dhabi and Dubai are the two richest emirates.  They are also reinvesting a large portion of this wealth into other sectors in an effort to diversify their economies by the year 2030.

As Gulf News summarizes, “The UAE is on the threshold of a new phase of growth that does not only rely on the volume of oil revenues as was the case for the better part of four decades. Rather, it depends on growth of non-oil sectors after implementation of a policy of economic diversification, which has led to an impressive development in key sectors over recent years, such as in tourism and air transport, trade and financial services, as well as manufacturing and alternative energy.”

Economic Diversification in Oil-Exporting Arab Countries,Prepare

Which nations’ economies are most dependent on oil? Which are least dependent? Explain your answer using information from the composition, percentage, and revenue charts above to answer this question. (Source: IMF)

  1. Imagine that you are hired by Sheik Khalifa bin Zayed Al Nahyan as an economic consultant.  Develop a proposal on how to best reinvest current oil revenue to build for the United Arab Emirates a more diverse, stable economy suited to the 21st century.  Based on figures from 2012, the UAE had an annual revenue of $130 billion, with expenses of $99 billion, leaving a surplus of $31 billion dollars which you can assume as your starting investment.  Your plan should consider the geographic and environmental circumstances of the UAE, changing technologies, and challenges and opportunities presented by factors like climate change.  Wherever possible, cite numbers, facts, and predictions by organizations like the IMF to make your proposal as sound as possible.  Your final proposal should be presented in the form of a Prezi or a YouTube video.
  2. Research the work of Masdar Corporation, a UAE-based company investing heavily in solar, wind, and other green technologies.  Compare and contrast this to sustainability efforts in your city or state.  Consider the pros and cons of current investment in such technologies – why would the UAE wish to invest in expensive technologies for which there is not currently a wide demand?

  3. Imagine that you are hired by your city government as an economic consultant.  Develop a proposal on how to best develop your local economy into a more diverse, stable economy suited to the 21st century.  In order to do this, research the major industries and business already active in your region.  Your plan should consider the geographic and environmental circumstances of your city, changing technologies, and challenges and opportunities presented by factors like climate change.  Wherever possible, cite numbers, facts, and predictions by government agencies like the Bureau of Labor Statistics, the Department of Commerce, and your state and city government to make your proposal as sound as possible.  Your final proposal should be presented in the form of a Prezi or a YouTube video.

THIS LESSON WAS MADE POSSIBLE THROUGH A GENEROUS GRANT FROM THE BILATERAL US-ARAB CHAMBER OF COMMERCE.

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