One of the UAE’s main obstacles to further economic efficiency is its dependence on oil. The country has recognized the best way to overcome this hurdle is by diversifying its economy because diversification reduces its reliance on a single industry and makes the country better equipped for economic shocks. This issue has become increasingly relevant as global oil prices have fallen 70% between 2014 and 2016. The government is currently utilizing sovereign investment funds to address debt that has risen due to low oil prices. Nonetheless, long-term solutions need to be crafted to lessen the blow that low oil prices have on the country’s stability. The UAE has recognized this and has developed a strategic plan involving promotion of global trade, tourism, and creating more jobs for nationals through increased private sector employment and investments in education. However, achieving these goals is easier said than done because few oil-rich nations have achieved diversification from oil. The burden is particularly heavy for the UAE because they have a great deal of reserves available. This makes it difficult to spur diversification efforts because there is not a dire need for a new revenue source. Looking forward, the UAE needs to be wary of common obstacles that other oil-rich nations have run into when trying to diversify their economies. These obstacles include economic volatility due to heavily oil reliance, oil revenues posing as a risk of overvalued currency, and increased rates of government and institutional corruption due to oil revenues.

 

Despite these upcoming challenges, the UAE has proven its progress in diversification by being resilient in the face of recent plunges in oil prices. In short, the UAE was able to withstand the fall in prices because of strong infrastructure, logistics capabilities, and technology. A specific source of stability has been its hospitality sector, which continues to develop as the world’s largest hotel brands flock to the UAE to expand their operations.

 

Growth in construction and capital spending has accommodated the growing hospitality sector. In fact, the UAE experienced 4.8% growth in 2014 which was largely driven by capital spending and construction in Abu Dhabi and the hospitality and transportation sectors of Dubai. The transportation sector was vital to growth in 2014 and it is still a source of growth for the country. Airlines are expected to remain stable and yield positive growth, which will support both the hospitality and tourism sectors. Though diversifying its economy will be no easy task, the UAE has been making strides in growing their non-oil sectors, which has shown in their resilience to falling oil prices.