Question

Read the case study and answer the questions in the end. Towards a diversified knowledge economy ECONOMIC DVERSIFICATION DRIVES GROWTH IN THE UAE UAE expects higher non oil growth in 2018 due to diversified economy 3.5 70 TOP COUNTRY Source www.putees.co sF KY ScroRs 100 MLLION 25 240 5 200 30 Diversification is important to promote economic development, to create job opportunities for a rapidly growing local workforce, but also to reduce or spread the risk of a high economic concentration, which makes an economy vulnerable to external events, such as changes in the price of the dominant commodity An increased economic diversification can improve the performance of the economy, minimize volatility and facilitate the path of sustainable development. More specifically, overall volatility and its ensuing spillover effects can be mitigated with the effective development and diversification of high-value-added production, but also by an increase in exports of goods and services of high quality. It is well known that modem growth economics has focused on technological innovations and high technology research and development as the engine factors for economic growth. 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 cconomy 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 cconomy 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 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 the UAE celebrates its 44th National Day, its pace of development over these four decades truly demonstrates the resilience of its economy and one that is no longer reliant on oil. The cconomy has become more independent and flexible in coping with sharp fluctuations in oil prices, which fell by more than 55 per cent in the last 18 months. Many observers, who are interested in following economic activity in the region, often wonder about what is the real secret behind the resilience and continuous growth of the UAE economy and irrespective of what happens to oil. Even as oil prices have deteriorated since the middle of last year, the UAE economy achieved a growth rate of 4.5 per cent in 2014. Despite the continuing soft prices, the economy is expected to achieve 3.5 per cent this year. This is because of the rapid growth of non-oil sectors, which accounts for about 65 per cent of GDP. So, "the UAE is on the threshold of a new phase of growth that does not only rely on the volume of oil revenues as t 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 impressive development in key sectors over recent years, such as in tourism and air transport, trade an and financial services, as well as manufacturing and alternative energy" The UAE has begun to reap the fruits by maintaining the growth momentum and high living standards. This policy marks a great success that many oil-producing countries are trying to emulate. The UAE experience has become a development model on how to utilize depleting resources in paving the infrastructure for sustainable development. The impact of the sharp decline in oil prices will be insignificant in the greater implement mega-projects in various sectors, context, given that the UAE has the financial reserves to especially in infrastructure and renewable energy. The UAE is also working on the Etihad Rail project, which will offer a qualitative leap in land transport. There have been other developments the UAE has sought to make full use of. The strategy to develop a knowledge economy is making strides another milestone in the UAE's economic diversity. The transitioning to a smart economy is proving a resounding success. In this regard, the private sector is expanding its activities to catch up with the rapid growth of the public sector in more than one direction. This means creation of many job opportunities and increasing the private sector's contribution to GDP and cconomic diversity, which is not just the government's goal but of society at large. This solid ground, backed by reports issued by multilateral organizations and rating agencies, has created great confidence in the UAE economy and attracted foreign capital alongside domestic investments. This has accelerated the non-oil sector's growth, which is based on sophisticated infrastructure. For example the Dubai International Financial Centre has turned into the most important regional financial hub, while the Abu Dhabi Global Market has recently started its functions. Together, they have added greatly to the depth of the financial services sector. UAE's achievements in this year and the past will reinforce the cconomy's foundation and add more flexibility. This will continue to be the case as the non-oil sectors develop into full maturity According to the World Bank the four pillars of a knowledge economy are: economic incentive and institutional regime; education and human resources; the innovation system; information and communication technol ogy (ICT). But, ultimately, a knowledge-based economy is characterized by ecosystem of interconnected elements and networks that allows a country to generate, adopt, adapt, diffuse an and commercialize knowledge-intensive products and services. Making effective use of knowledge in an economy requires the development of appropriate policies, institutions, investments, and coordination across these four pillars. Therefore, knowledge economies are increasingly based on intangible assets that foster economic development. The transformation towards knowledge economies will necessarily determine a shift in the proportion of national income towards knowledge-based industries, but also a change in the percentage ofthe workforce employed in knowledge-basedjobs and in the ratio of firms using new technologies to innovate; however, the institutional setting is also very important to achieve a knowledge-based economy (Sehilirò 2012). Ifwe want identify the key drivers of UAE's competitiveness in the long run, which constitute also the main factors for the development of the GCC region, we must concentrate on knowledge, education, institutions (i.e. institutional arrangements and regulatory policies), technology (i.c. new cquipment and organizational capacity), environment, entrepreneurial skills His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, has underlined the human factor as the foundation of the development system in the UAE and stated that the country will continuc to invest in human resources, update the legal and regulatory frameworks, and further strengthen infrastructure, pursuing new levels of development. Reiterating that ongoing investment in the human capital enables the UAE to achieve its goal of being number one across all global indices. It has also pursued that diversification of the national economy since its early stages, focusing on improvement of all economic sectors and monitoring global trends to identify opportunities "Perhaps the UAE's barren desert climate gave birth to unequivocal will and an unparalleled sense of purpose to overcome every challenge it encountered. Hence it remarkably transformed itself in a very short time into a beacon of success and development in the region," Sheikh Mohammed said adding that the UAE has also chosen to strategically invest in building sustainable infrastructure that would establish the country as the main gate for trade in the region and beyond. QUESTIONS Why diversification is a need in the rapid globalization process? Do you think it is only for specific I economies? Justify II UAE as an oil based economy is ambitious to have, "sectoral diversification", how can it be achieving? Suggest your ideas as a managerial economics researcher "The collective skills, knowledge, or other intangible assets of individuals that can be used to create economic value for the individuals, their employers, or their community is called human capital" To what extent you agree that knowledge will bring an increase in productivity. Draw a UAE knowledge economy roadmap in line with the Vision 2021 III IV v. Give example(s) of any successful knowledge cconomy, which has generated resources through human capital

Answer 1

1. Economic diversification is most important to curb volatility, mitigation of risks, offset losses from particular sectoral degrowth, stabilise economy from spillover effect and maintain robustness irrespective of geopolitical shocks. This is for every economy who relies on single source of GDP.
2. UAE has achieved economic diversification by reinvesting Wealth from oil sectors to non oil sectors and streamlining legal framework, investing human capital resources, new emerging innovation technologies, easier business rules and regulations.
3. Human capital is definitely ought to bring self sufficiency and risk immunity to nation as economy can bounce back from any adcerse situation if human capital is adequate and skilled and can cope with any business challenges or cycles. Human capital has power to bring wholesome changes and widescale implications and hence is strongly recommended for GDP growth.
4. UAE moves to its vision 2021 of knowledge based economy by implementing the 'Creative Industries Contributions Index' and 'UAE cultural development fund' which will foster leadership growth, cultural diversity, increase technological shifts, human capital investment, cultural integration and development.
5. Knowledge based economy like India have successfully launched programs like Digital India, Skill India, Make In India, and various educational programs, manufacturing seminars and conferences, nationwide upskilling portals, Digital infrastructure for spread of education such that human capital is empowered in remotest of areas woth high education densification and knowledge proliferation.