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UAE’s dilemma about diversifying the economy

The United Arab Emirates will soon have to face some serious issues in terms of the main contributors to its economy. The topic is of course, about oil and how it has managed to build the UAE economy into what it is today.

Although many would suggest that the country will be in serious financial trouble in the near future, it’s nowhere near what nearby countries such as Qatar, Saudi Arabia, and Bahrain are facing.

You see, the economic diversification project is well underway in the Emirates thanks to Dubai turning into a massive commercial, diplomatic and financial hub in the region. Many foreign investors prefer to go to Dubai as their choice of investment compared to the countries listed above.

This is mostly due to the city’s history of providing adequate returns as well as not being part of the majority of world politics, thus promising consistency and safety. But now with political turmoil in the region and oil prices dropping as low as ever, the local economy is already starting to feel some pressure. In this article, we can start discussing the numerous ways the UAE could diversify its economy.

Alternative investment hub

The Middle East has always faced serious issues in terms of retail investors due to the local culture. The religion dictates that speculation (interest rate involved in buy/sell exchange) is off-limits, and most online speculation does indeed carry interest rates with it.

However, the financial markets have been adapting to this predicament and creating specific accounts for Muslim clients. After halal accounts were introduced, many residents of the UAE started to speculate on the Forex market as well as the stock markets, with cryptocurrencies just recently being added to the UAE regulated companies list.

Should this trend continue in the future, it is likely for the UAE to become not only a hub for real-estate investments but a hub for financial companies to finally cover the Middle Eastern region.

The reason why it would be a very attractive offer is due to the GDP-per capita in the country/city as well as the average annual income. Forex brokers alongside stock exchanges will mostly have access to VIP customers, meaning trades numbering in the millions. All it takes is just small tweaks to the regulation in order to allow halal Forex brokers to enter the market.

Transport hub

Although Dubai is already considered a popular destination, it’s not necessarily a transport hub. Considering the country’s geographical location it’s unlikely for it to ever be a logistics hub either. But it does have the potential of being the commercial flight hub.

You see after the whole US-Iran crisis began, flights were still quite common. But the moment a Ukrainian plane was accidentally shot down flights stopped immediately. However, stopping flights doesn’t necessarily mean canceling all the future ones. Planes now simply avoid Iranian airspace and take a huge detour. Most of this currently happens over the Caspian Sea, but the rest is pretty much all UAE airspace.

Should the UAE offer additional relay flights, it’s likely for the local airports to profit immensely from this crisis, which is poised to continue for quite a while.

Financial Technology

Although financial technology could technically be part of the alternative investments option, it’s still important to differentiate between the two of these industries.

In the UAE’s case, the hardware is simply not an option considering the lack of workforce and of course the need to import raw resources. However, when it comes to software, it’s proven to require a significantly smaller workforce, no raw resources to import and a much more lucrative product in the end.

Pairing this software with the financial markets is guaranteed to bring additional income to the country. Naturally, most of these startups would be dedicated to the blockchain as it’s the fastest-growing trend right now, but delving into AI technologies and outsourcing services to most of the region is guaranteed to shore up the losses caused by abandoning oil.

Reduced FDI

Although it’s not a market to focus on for the economy, it is still one of the biggest issues that the UAE faces. Most of the local companies that contribute to Dubai’s or Abu Dhabi’s economy are not necessarily 100% local. The majority of companies are either subsidiaries or directly owned corporations by foreigners.

Although it still brings in some form of income through jobs and consumer spending, it also dampens the country’s fiscal policy significantly. You see, the more a foreign company makes in the UAE, the more money is funneled outside of the country.

Reducing the FDI requirements for the future would guarantee fewer foreign companies setting up shop. But this doesn’t mean that locals should sit idly by. Focusing on local startups could guarantee that jobs and consumer spending remain the same, while funds leaving the country are considerably reduced.

Oil is still a good asset

Although everybody is warning about the issues that the Oil industry could face in the future, it doesn’t mean that the UAE’s rich resources should be abandoned. No matter how much the environmental agenda of international organizations hamper the industry, there will still be demand, so why not be along the ride as prices rise significantly as supply runs low?

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