The UAE is an economic powerhouse in the Middle East thanks to its large oil and gas reserves, as well as the extensive economic diversification efforts undertaken since the 2000s. UAE founder, Zayed bin-Sultan Al-Nahyan, started economic diversification efforts after the oil shocks of the 1970s, funding the development of infrastructure, tourism and the financial sector with oil money. His son Mohammed bin-Zayed has continued these efforts, turning the UAE into a key commercial hub in the Middle East. The Emirati state also holds strong commercial ties with India, Iran and Saudi Arabia. However, the UAE remains heavily reliant on oil income and is thus dependent on fluctuating oil prices. Furthermore, a volatile housing market and banks under stress from the Covid-19 pandemic remain key challenges for MBZ.
The Center of UAE’s Economy: Oil and Gas
The UAE’s oil reserves account for 10% of the world’s total supply, while its natural gas reserves are the world’s fifth-largest. MBZ is the vice-chairman and de-facto ruler of the Supreme Petroleum Council, Abu Dhabi’s highest governing body of petrol, oil and gas. This position gives him oversight over the centerpiece of the UAE’s economy, and thus, the authority to rule over the Emirati federation. Being a member of OPEC (Organization of Petroleum Exporting Countries) gives MBZ strong links to other nations, providing him an opening for further economic and political cooperation. Bin-Zayed has notably exploited his relationships within OPEC to put in place the Qatar diplomatic crisis. As one of the planet’s most important oil and gas exporters, the Crown Prince holds vast influence over global energy politics and security, amplifying his influence on the world stage.
In 2018, the oil and gas sector contributed 26% to overall GDP and 36% of government budget. Abu Dhabi has by far the biggest reserves of oil and gas in the UAE, giving the kingdom a very strong power base within the 7 Emirates. The 2008 financial crisis severely hurt Dubai, which was bailed out by Abu Dhabi oil money. Acting as the guarantor for the economies of the other Emirati kingdoms has reinforced Abu Dhabi and MBZ’s leadership position in the UAE. Thus, oil and gas are key to MBZ’s leadership in the UAE.
Although oil and gas form the bedrock of MBZ’s authority over the UAE, he has undertaken extensive economic diversification efforts. Abu Dhabi’s Crown Prince knows that the UAE’s economy is vulnerable to fluctuation of oil prices. To lessen the risk of an economic crisis created by an oil shock, which could hamper UAE’s geopolitical projection, MBZ is invested in diversifying the Emirati economy.
MBZ’s Role in Diversification Efforts
The UAE is MENA’s (Middle East-Northern Africa) most diversified economy. Although still reliant on oil and gas, MBZ has piloted the creation of a strong tourism industry and the implementation of multinationals in the UAE. The Crown Prince has also sought to develop the UAE’s private sector and make the Emirates a key financial hub in the Middle East.
Economic diversification is financed by the Abu Dhabi Investment Authority (ADAI), the world’s largest sovereign wealth fund, with assets valued at $875 billion. A separate entity from the government of Abu Dhabi, ADAI manages surplus oil reserves and invests it in financial markets. MBZ is a board member at ADAI, holding significant influence over the fund’s investments and management. This influence in the Abu Dhabi Investment Authority makes bin-Zayed an important player in world finance, while giving him vast resources to invest in Abu Dhabi and the UAE.
The UAE’s diversification projects started under MBZ’s father, Zayed bin-Sultan Al-Nahyan, and focused on building infrastructure in the UAE. Impressive time-lapse showing the evolution of Abu Dhabi since the 1980s are widely circulated on the internet, with megacities rising out of the desert within 30 years. Early infrastructure projects involved building highways, railways and port infrastructure, culminating in building the world’s highest tower, the Burj Khalifa.
These trends have continued under MBZ, who is the head of the Abu Dhabi Council for Economic Development (ADCED) and Mubadala Development Company, another Emirati sovereign wealth fund. The Crown Prince’s efforts as chairman of these institutions have focused on economic diversification. Bin-Zayed’s crowning infrastructure projects involve the Barakah nuclear power plant and the museum hosting Saadiyat Island. The Barakah nuclear power plant allows the UAE to be less reliant on fossil fuels and potentially sell energy to neighboring countries, while Saadiyat Island (Hosting the Louvre Abu Dhabi and Guggenheim Abu Dhabi) is another piece of the UAE’s tourism industry. Luxury tourism accounts for the Emirates’ biggest non-oil revenue stream.
MBZ was also able to attract many investors and large companies to the UAE, allowing them to install their headquarters in the Emirates. This was done by setting up a business-friendly tax code for private businesses, providing high-quality office space, land ownership and creating a financial regulatory system that heavily benefits these companies. Building a financial and business hub has been successful, as the UAE is ranked in the top 30 on the World Economic Forum’s “most-networked countries” and in the top quarter of Transparency International’s least corrupt countries.
MBZ has also been tasked with developing the UAE’s defense industry, notably through the Defense and Security Development Fund, which has a starting capital of $680 million. UAE’s defense industry cooperates closely with Western defense companies (such as Lockheed Martin, Dassault Aviation). Bin-Zayed’s goal is to build an industrial base for the Emirati defense sector, which would at first provide support to the UAE’s foreign bought weapon systems, and by 2030 represent 50% of the UAE’s military/security spending. Thus, through diversification, MBZ hopes to make the UAE more independent in terms of armaments production, and potentially create a worldwide armaments industry for niche markets (the UAE’s defense industry will not be able to rival leading armaments companies from the US, France, UK, China, Russia but can provide services/technology in specific areas that are less developed).
If the UAE is able to form its own defense industrial base, MBZ will be able to project far more geopolitical influence with military power throughout the Middle East and Arab World (following the example of Turkey, which has been developing its own defense industry since the 1970s, and is now able to embark in widespread geopolitical ambitions throughout the Arab World thanks to its military and by independently providing Turkish military supplies to allied groups.)
Mohamed bin-Zayed’s economic diversification efforts have been far-ranging, from energy to the defense industry, and highly successful, making the UAE MENA’s most diversified country. These economic diversification trends have been developing since the 1980s, and will continue for the decades to come until the UAE is no longer completely dependent on oil and gas. The UAE’s economic diversification goals are close to those of Abu Dhabi Economic Vision 2030, which outlines MBZ’s future challenges in the economic field. MBZ’s notable projects involve the continuation of infrastructure projects to support economic growth, the development of a highly skilled and productive Emirati workforce, and further development of the financial sector.