GRM 2010 GRM 2011

Abstract Details

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Title of Paper:
The economic diversification of the United Arab Emirates: The role of family businesses
Paper Proposal Text :
The United Arab Emirates (UAE) has long been a single-resource dependent economy. The reliance on one commodity for income dates back to the time before the formation of the federation. In the pre-oil era, pearling provided the livelihood for the early Trucial States. This pre-oil reliance on pearling as the single source of income has significant parallels with the present dependence on the revenue from fossil fuels. While the discovery of oil brought great wealth and development to UAE, it reinforced a system of income dependence on the part of the rulers, initially with revenue from the pearling industry and later from oil. Since the discovery of oil, the Gulf States have been described as largely allocative (Luciani, 1990), meaning that the functioning of the state is disconnected from the local economy, and where the primary function of the state is the distribution of oil rents. With reference to the UAE, most of the state’s revenue originates form oil revenues. However, the current decline in, and the uncertainty of, future oil prices means that the UAE government may not be able to guarantee a consistent level of income from hydrocarbons as the main source of revenue. As a result, economic diversification was seen to be a necessary evolution for the economy of the UAE. The process of economic diversification “normally refers to exports, and specifically to policies aiming to reduce the dependence on a limited number of export commodities that may be subject to price and volume fluctuations or secular declines” (Routledge Encyclopedia 2001: 360). For the case of the UAE, diversification entails a shift from one sector (hydrocarbon sector) to another, and generally from a primary to secondary and tertiary sectors. While the UAE has, to an extent, had some success in its diversification drive, non-oil GDP currently accounts for two thirds of its economy (UAE Interact, 2013a) and that growth of the non-oil sector is at higher rate than the hydrocarbon sector (Emirates 24/7, 2013), approximately 80% of the government’s total revenues still originate from the export of fossil fuels (Schiliro, 2013). Moreover, these diversification efforts have all been state lead, and in effect has been the recycling of petro-dollars, as opposed to the creation of a new and sustainable revenue stream. While impressive economic shifts are evident, they have not produced the desired independence from fossil fuels.

The private sector, and in particularly family businesses, has been underutilized in its contribution to the economic diversification in the UAE, as much of the efforts to date have been state lead and involve little coordination with the private sector. The role that the private sector can potentially play in income generation is vital for the UAE’s diversification efforts. As family businesses comprise most of the private sector, they are a crucial element in the UAE’s ambition to reduce reliance on fossil fuels. Historically, even before oil was discovered, merchant families played an important role by contributing to the economic development through commercial activities in trading and shipping. Today family businesses in the UAE have diversified to include a range of sectors, giving them resilience to economic fluctuations, and hence great potential to contribute to diversification efforts. Moreover, despite being firmly rooted in the private sector, family businesses are well integrated with the government and are thus aligned with national objectives. Further, UAE family businesses benefit from the ruling bargain ; they have abundant opportunities including special access to capital, business networks, and information, making them well placed to contribute to diversification efforts. This is particularly the case with large family businesses, which are transnational, and therefore have the potential to generate wealth independent of the state. Yet, despite these advantages and the significant involvement of family business in the economy, the contribution of these businesses to the economic diversification has been limited. This can be attributed to many factors, some structural, but also inconsistent and poorly defined government policy, the maintenance of the ruling bargain and nature of the rentier state play a role in hindering contribution to economic development and diversification. Essentially, the ruling bargain, encompassed in rentier structure of the state, which implies among other things the absence of taxation, creates a situation where the private sector is dependent on the state and hence unable to finance pubic services. This situation contributes to its inability to contribute to the economic development of the state. This paper will therefore, examine the role of family businesses as an actor in the private sector, with specific attention to large and transnational organisations. It will show that, while there is significant potential for them to contribute to economic growth, the maintenance of the rentier structure and the ruling bargain, makes it difficult for the private sector to genuine contribute to diversification of the economy.


Luciani, Giacomo (1990) “Allocation vs. Production States: A Theoretical Framework” in The Arab State, Luciani, Giacomo (eds.), University of California Press, Los Angeles

Routledge Encyclopedia (2001) Search term: ‘Diversification’, in R. J. B. Jones (ed.), Routledge Encyclopedia of International Political Economy. London: Routledge, Vol. 1, p. 360

Schiliro, Daniele (2013) “Diversification and development of the UAE's economy” MPRA Working Paper 47089 University Library of Munich, Germany,

UAE Interact (2013a) “UAE real GDP exceeds Dh1trn for first time” UAE Interact, 15th October, 2013,

UAE Interact (2013b) “UAE real GDP exceeds Dh1trn for first time” UAE Interact, 5th October, 2013