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Role of services sector in economic diversification in UAE Assignment Help

Please highlight the role of services sector in diversification of the UAE economy & make a mention of UAE’s Vision 2021 that provides a clear direction to the services sector to grow and become internationally competitive. The process of economic diversification is challenging. It requires carving a sustainable competitive advantage. Explain the challenges. make few recommendations for the sustainable growth of the services sector of the UAE economy.

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Oil is not a long time dependable resource for economy generation in United Arab Emirates. For that matter all traditional energy resources are going to get depleted in coming near future. Due to high dependence on the oil based revenues, it is a great concern for Middle Eastern countries in general. UAE also depends considerably on the oil revenues and hence it is a matter of great concern for the country and there is need to take up immediate measures to sustain the economic revenues of the country. In this connection, the role of services sectors in economy diversification of the country gathers significance and the article discusses about these concerns in detail (Ahmed, 2015). The total GDP based on real oil has got contracted by about 2.9% for UAE in the recent financial year 2017. Non oil based revenues sustained the growth rate of 3.3%. The growth of the non oil sectors is about 2.9% as per latest statistics (Mahmah & Kandil, 2018). Services sector do have considerable role in expanding the economies of the country in this connection. The country has taken up a proactive vision-2021 to provide clear direction to the services sector of the country and for the growth of the economy. The oil and gas sectors of UAE do have considerable role to play in the economy of the country. There are about 25.9% of revenues from the UAE's GDP while the retail and whole trade has a considerable contribution of about 11.2% in the total economy of the country. Apart from that the financial services occupies a total of 9.2% in the total GDP and the manufacturing sector has about 8.9%, building and construction has about 8.3% fraction in the total GDP of the country. Hence services sector can be considered as a potential sector and any improvement of the same can have considerable impact over the economic diversification of the country specifically from the current objective of revenues growth from the non-oil sectors. The most important services sectors of the country include travel and tourism industries. They do have considerable role to play in diversification of the economy of the country. Financial services do come next in the domain. Heavy investments are being made by the state in these sectors for enabling more versatile economic diversification in the region. As of now the prominent actors of the services sector in UAE economy include trade, restaurants, entertainment, hospitality (hotels, transport, transit and storage) communications, finance and insurance and real estate business services make up other important elements of the UAE financial sector of operations. As of 1990, the total labour force deployed in services sector of UAE is about 58% of the total labor force in the country. As of 1998, the total value addition by the services sector is next only to the oil sector in the country. The contribution of the services sector is about 21% annual growth since 2000. The trade sector revenues share are increasing and also the manufacturing sector revenue share rates are increasing since 2000. Hence any improvements done in the services sector revenues increment will contribute to the overall economic diversification of the country(Schiliro,2014).

Challenges faced by services sector

The services sector makes up a key element of overall economic diversification of the country. Any initiative taken up in this direction can contribute to the overall economic diversification of the nation. However there is need to develop a sustainable competitive advantage to boost up the services sector operational performance in the country. There is much to speak of the regulatory means and efforts in the country. The country is still in the early stages of development and regulations particularly in the domains like financial services were not matured to take up the complex developments occurring in the region. Regulations related with the reserve capitals in the financial institutions the extent of disclosure; the governing regulations in these aspects have not yet matured. There is need for improving the same to take up much broader and proactive role of diversifying the services sector in this domain. Currency depreciation in the most popular visitors to the country like Russia have negative implications to the revenues in the hospitality sector of the country. Even there is considerable fall in other regular visitor countries like Kuwait. It is a major challenge to keep up the market from these countries to realize the vision 2021 by the country. Real estate services are also challenged by the global fall in the economic standards. With increased fall in the overall currency rates, the potential to tap investments from several of the other countries has fallen considerably(Seraphim and Haq,2019). However this is not a permanent challenge, UAE has always options to seek investments from the other nations which are well off. Since UAE is mainly depend on the oil exploration there is no much base for diverse industries in the country. When compared with the developed countries like US, Europe etc, as well when compared with the developing countries like India, China etc, the technical expertise of UAE is limited and it take up long time for developing global competency. At the same time, there is much to do with the dependence on the expatriate expertise, since the availability of the skilled labour and knowledged staff is limited in UAE. There are associated challenges of cultural tolerance to face these issues. Emiritazation policies of the country are also limiting the free intake of expatriate manpower into the critical domains of the industries. This is a potential limitation in terms of competency development in rendering industrial services from the country. Also other important challenge still lies in terms of the cost effectiveness of the initiatives taken up by the country. Cost effectiveness of the services sector reforms is still to be proved, particularly the huge investments being made in the tourism sector need to be justified by proper returns (Sharpley,2002). Other services sectors like health care sectors also facing similar challenges with the lack of indigenous skilled manpower (Medhekar and Haq, 2017). Hospitality industry challenges include increase in the supply into the market, as new players from FDI(foreign direct investment) entered the market from several other countries, the fierce competition to grab the marketshare is actually limiting the revenue margins in hospitality sector.


There is need to tap large markets from the untapped markets of several other popular source countries like UK, China, India, Germany, Australia and GCC as well. There is untapped Moroccan market, Scotland. Hongkong, Brisbane etc. Developing new flight routes through these countries will enable better outreach to the customer locations and this in turn will impact revenues growth to the country. Venturing into new schemes like cruise tourism development etc can create significant markets for exploring new market revenues. UAE is one of the significantly culturally open, socially relaxed and economically open country and this is a unique opportunity to take advantage of for tourism sector. Better promotion and outreach with the prospective customers can realize taking considerable advantage of this sector. Seeking investments in the real estate from the well-off countries is to be systematically planned, better promotional strategies to be developed and included in this direction. Free zone developments (Al-Shayeb & Haterni, 2016) and better outreach to the emerging markets of the world will contribute to the betterment of economic diversification of UAE. Improving the quality of the services and continuous exploration for new service opportunities and enhancing the existing service standards are some of the several ways and means in which the country can take up the facing of the challenges in utilizing the services sector for economic diversification in UAE.

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