The United Arab Emirates' (UAE) ambitious plan to diversify its economy beyond oil is experiencing a slowdown, with growth in non-oil businesses facing increasing pressure from a more competitive landscape. While the sector continues to expand, the pace has moderated significantly compared to the highs of late 2023.
A recent report by S&P Global Market Intelligence highlights this trend. Their Purchasing Managers' Index (PMI) for the UAE non-oil private sector, a key indicator of economic health, dipped to a 16-month low in June 2024. This suggests a softening in growth momentum, although it remains positive overall with a reading above 50.
This slowdown is primarily attributed to intensifying competition within the UAE's non-oil sectors. Businesses reported feeling the squeeze as they vie for market share and new clients. This competitive environment can be attributed to several factors. The UAE's strategic focus on attracting foreign investment and fostering entrepreneurship has led to a surge in new businesses across various industries. Additionally, the regional economic recovery is bringing renewed vigor to neighboring countries, creating a more competitive landscape for the UAE's non-oil exports.
Despite the headwinds, there are positive indicators. The S&P Global report also revealed a strong rise in new work during June, indicating continued customer demand. Businesses reported healthy sales pipelines, suggesting optimism about future growth prospects. This ongoing demand is likely fueled by the UAE's ongoing infrastructure projects and its position as a key trade and tourism hub in the region.
Economists remain cautiously optimistic about the UAE's non-oil sector. David Owen, Senior Economist at S&P Global Market Intelligence, acknowledges the slowdown but emphasizes the underlying strength:"The UAE PMI highlights a slowing growth trend in the non-oil sector throughout 2024 so far. . . Nevertheless, companies are still enjoying strong customer demand and robust sales pipelines. "
The UAE government is also taking steps to mitigate the impact of competition. Initiatives aimed at fostering innovation, streamlining regulations, and upskilling the workforce are expected to bolster the competitiveness of domestic businesses. Additionally, the country's strategic investments in technology and infrastructure are likely to create new opportunities for non-oil sectors in the long run.
While the UAE's non-oil sector is experiencing a period of adjustment, the fundamentals remain strong. The ongoing demand, coupled with government efforts to enhance competitiveness, suggests the sector is well-positioned to navigate the current challenges and resume its growth trajectory.