How Innovation and Growth Strategy Will Develop Abu Dhabi Economy Through Abu Dhabi Economic Vision 2030

Subject: Finance
Pages: 12
Words: 3323
Reading time:
12 min
Study level: PhD

Introduction

In the last half a century, the United Arab Emirates has experienced a period of unprecedented economic growth that has put the country among the fastest developing nations of the world (Niblock 23). The period has also seen the country modernize very fast. Currently, it has one of the highest incomes per capita in the world. The fast growth has been facilitated by major oil discoveries and subsequent exploitation of the oil reserves. Indeed, up to the modern times, oil and natural gas resources account for 40% of the nation’s GDP, which stands at approximately $570 billion (AED 2.1 trillion) (Ewers and Malecki 494).

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While Dubai has focused on diversifying its economy to stop depending on oil and natural gas, other emirates, for instance, Abu Dhabi, have remained conservative. They continue to rely on their enormous oil and gas resources. The emirate of Abu Dhabi, which is the largest in the country, hosts the capital city of the UAE. Abu Dhabi is highly dependent on oil and natural gas. Currently, the emirate holds the largest share of the UAE’s oil and natural gas resources at 95% and 92% respectively. Further, Abu Dhabi holds 9% (98.2bn) of proven oil reserves and 5% (5.8 trillion cubic meters) of proven natural gas reserves in the world (Niblock 45). The resources make the emirate among the richest locations in the world in terms of GDP per capita. In the past decade, the UAE and other Gulf Cooperation Council (GCC) states have recognized that oil and natural gas are non-renewable resources. Hence, when exhausted, they may leave the country in political, social, and economic turmoil.

Background of the Study

In recognition of the above uncertainties concerning the sustainability of oil and natural gas as the key economic activities, the UAE has embarked on economic diversification programs that are aimed at changing the country from a predominantly oil-based economy to one that is driven by knowledge and technology (Randeree 71). The current trend towards a non-oil based economy is not only driven by the unsustainability of oil and natural gas but also by the global drifts that are turning many countries towards knowledge and innovation-based economies (Davidson 12). Further, competition has become globalized. Hence, surviving in the global market economy and achieving long-term success require countries and businesses alike to recognize the relevance and centrality of the ability to adapt and innovate to not only overcome the prevailing intense competition but also to respond to the changing demands of the global market economy.

In Abu Dhabi, the emirate has been slow to diversify its economy as compared to Dubai (Randeree 73). The enormous oil and natural gas resources that are available in Abu Dhabi have acted as a deterrent for the government to invest in the region or focus on alternate sources of income. However, the Abu Dhabi Economic Vision 2030 aims at changing the emirate from a resource-based to a knowledge-oriented and non-oil dependent economy. The main deliverable in this vision is to ensure that the knowledge-based economy accounts for 60% as opposed to its current share of 40% of the UAE’s GDP (Randeree 73). The vision focuses on seven key areas of the economy, which include renewable energy, transportation, education, health, water, technology, and space. However, despite the focus on these core areas, innovation is a critical factor that will ensure that the country becomes competitive in those areas (Niblock 26). Without innovation, it will be difficult to compete with other countries that are already leaders in the respective areas. Consequently, for Abu Dhabi Economic Vision 2030 to be achieved, innovation will be an important catalyst as this research proposes.

Aim and Objectives

The aims and objectives of a research help to give a study a direction and scope within which its findings can be analyzed and applied. In this research, the objective is to find out the role of innovation and growth strategy in the achievement of Abu Dhabi Economic Vision 2030. The main aims of the research are:

  • To identify the relevance of innovation and growth strategy in the achievement of Abu Dhabi Economic Vision 2030
  • To identify the key factors that can facilitate innovation to drive Abu Dhabi Economic Vision 2030
  • To identify barriers to innovation for the achievement of Abu Dhabi Economic Vision 2030
  • To provide solutions to the barriers of innovation in Abu Dhabi

Significance of the Study

In the past half a century, the economy of Abu Dhabi and the larger UAE has been predominantly resource-based, driven by enormous oil and gas resources. However, the development and implementation of the Abu Dhabi Economic Vision 2030 is an indicator of the emirate’s desire to expand its market from resource to a knowledge-based economy. The vision has to be achieved within a very short period, yet the emirate has ignored this segment for a very long time as compared to its neighbor, Dubai. Dubai, which has a more diversified economy, is the least dependent on oil and natural gas for its income. Becoming a knowledge-based economy requires a significant investment in research and development (R & D), which will produce innovations that will drive the emirate towards the achievement of the goals of its vision.

This study is significant since it seeks to highlight and discusses in-depth how innovation is central to the accomplishment of the emirate’s vision. In addition, the study will also provide factors that facilitate and those that hinder the process of innovation to the extent of promoting or derailing the expected development towards a knowledge-based economy. Lastly, the study is significant since it seeks to offer solutions that are relevant to the case of Abu Dhabi. These solutions will have far-reaching positive outcomes in the process of not only driving innovation but also in aiding the development of the knowledge-based economy of Abu Dhabi. Consequently, the research is noteworthy since it will not only analyze and discuss key factors of innovation but also provide solutions to some of the challenges and barriers of innovation that will be identified.

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Hypothesis

The research will be based on the following hypotheses:

  1. Innovation and growth strategies are of immense relevance to the achievement of the Abu Dhabi Economic Vision 2030
  2. Political, economic, and social environments are the likely factors that may facilitate the successful innovation for change to a knowledge-based economy in Abu Dhabi and the achievement of the emirate’s vision
  3. Political, economic, and social factors are also the likely factors that may hinder successful innovativeness for a change to knowledge-based economy in Abu Dhabi
  4. The solutions provided will offer best approaches to ensuring an innovative and knowledge-based Abu Dhabi Emirate economy by 2030

Literature Review

The Change to Innovation and Knowledge-based Economy in Abu Dhabi

Abu Dhabi is undoubtedly one of the wealthiest regions in the world, yet the dependency on oil and natural resources places the emirate and the whole nation at a serious risk of economic turmoil in the event that such resources are exhausted or become redundant. More discoveries of oil and natural gas in other countries, as well as the increased demand for a shift towards renewable energy, presents a major risk to the relevance of oil and natural gas as sources of energy and ultimately a major challenge to countries that depend on the commodity (Randeree 72). Further, developments in the world of technology and the shift towards knowledge and service-based economy present significant challenges to economies such as the UAE and Abu Dhabi, which depend highly on natural resources. However, at the same time, such a shift to knowledge-based economies is still in its inception and hence the opportunity for rich oil-producing countries such as UAE and regions such Abu Dhabi to invest in innovation, including the adoption of knowledge-based economic activities, which will consequently allow the country to have a smooth transition.

While the emirate continues to exploit oil and other natural resources, such a narrow focus does not offer the necessary competitive advantage that is needed for the modern technology and knowledge-based economy. The highly globalized market makes it difficult for countries, regions, and businesses to remain relevant and aggressive (Knight 223). The most important and immediate remedy to this problem is for different entities to continually invest in research, development, and innovation. For the case of Abu Dhabi, innovation has the potential of offering the emirate the opportunity to develop unique and difficult-to-imitate industrial and knowledge-based capabilities and competencies that will ensure that it becomes competitive in a wide range of economic activities (Ewers and Malecki 496). With such changes, the emirate is bound to emerge a more economically sustainable and competitive region that can compete in the local and global market economy.

Innovation as an Important Tenet in Economic Development

Innovation is a commonly used term in the media. Mostly, it implies the ability to develop brand new and advanced solutions for well-off and sophisticated customers through the exploitation and use of the most recent knowledge. However, such a shallow meaning implies the kind of innovation that is only accessible to the highly educated labor in R&D-intensive enterprises and developed countries (Ewers and Malecki 496). However, from a broader perspective, innovation involves a wide range of new or improved products, processes, or ways of doing things that mostly relate to economic activities. It constitutes not only the development of technologically new products and processes but also improvements in areas such as distribution, marketing, and logistics among others. Using this definition, innovation can appear in even the low-tech industries where such it can have enormous economic effects on an enterprise, region, or a country (Davidson 42). Innovation may also manifest itself through the adoption of technologies and processes from other countries and regions that are currently unavailable in the areas where they are adopted.

The relevance of innovation to economic development is contested with various explanations put forward by different researchers and theorists. Firstly, the “old” neoclassical growth theory sought to explain the role and significance of innovation in economic development (Niblock 29). The theory was based on the notion that knowledge and economic development are intertwined and that the access to knowledge is an important factor for developing countries. However, economists did not define development from this perspective. Instead, the focus was more on accumulated capital per worker when explaining the differences in income or productivity. However, with the introduction of machines, the concept of ‘accumulated capital per worker’ became obsolete since mechanization took over, thus paving the way for new explanations of the role of innovation in economic development.

In the 1950s, Robert Solow put forward the ‘neoclassical growth theory’, which was based on neoclassical tenets and assumptions such as perfect competition and information, no externalities, the absence of economies of scale, maximizing behavior, and positive and decreasing marginal products (Knight 226). In this theory, the amount of capital that each worker operates determines the level of productivity. However, as more capital is added, its marginal productivity goes down and gradually reaches capital-labor ratio constant, which indicates no further growth. In such a case, the only way to guarantee continued growth without arriving at the capital-labor ratio constant is to have what Solow referred to as the “technological progress” (Knight 226). In this theory, “technology” or “knowledge” is a public good that is accessible to everybody freely. Based on this assumption, if technology is unreservedly available, it should be found in all countries (Niblock 32). However, in this case, the contribution of knowledge should be almost the same size in all companies, regions, and countries. The only factor that may explain the difference between different countries’ GDPs is the “transitional dynamics” whereby the initial conditions before the adoption of technology differ widely to the extent of affecting the rate of growth and benefit of new technology (Ewers and Malecki 499).

Using such an explanation, the poor and resource-scarce countries may grow faster since capital is scarce when compared to labor and hence the higher returns on capital and faster growth in terms of wealth accumulation. This situation leads to growth towards equilibrium for advanced and rich economies. It ensures that all countries have similar economies (Randeree 75). However, the theory is practical since many countries that have been historically rich have remained so while the poor ones have maintained their pitiable status. Based on the above discussion, the role of innovation is controversial based on its relevance to development. Innovation plays an important role in creating new knowledge, processes, and technologies that facilitate a country’s competitiveness in the global market. However, many factors, other than production, capital, and labor play a major part in the process of ensuring innovativeness.

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Political, Social, and Economic Factors of Innovation in Abu Dhabi

Innovation on the scale that the Abu Dhabi Economic Vision 2030 is planned requires major political, social, and economic support. Firstly, the emirate’s vision is fully supported by the government of the emirate, which has invested billions of dollars in major developments in areas of infrastructure, electricity, and water (Davidson 28). For instance, since 2014, the emirate has invested more than $100 billion in the development of critical infrastructure and resources such as roads, schools, hospitals, among others. These developments have been described as leading to “quantum leap” to the future of the emirate. Infrastructure is very critical in terms of enhancing business operations and flow of new technologies and innovations from both within and outside the emirate, including the global front (Randeree 81). On the other hand, schools are important innovation incubation centers where high-quality research and development can be undertaken to enhance innovation that can lead to unprecedented economic growth in non-oil segments of the economy.

Social factors are also an important area that influences the innovativeness of a country. How is the population prepared to innovate? For instance, compared to other countries such as Finland and Sweden, it is evident that the UAE has a less innovative society (Knight 224). In this case, while Finland and Sweden have more than 170 innovations per 100,000 people, the UAE only has 2.5 per 100,000. Therefore, it is imperative for the country to invest more in creating a society that is more willing to take the risk and innovate towards a knowledge-based economy by 2030.

In terms of economic factors, Abu Dhabi is the richest emirate in the UAE. This rank gives the emirate many financial resources to invest in innovation and technology development for the achievement of the Abu Dhabi Economic Vision 2030 (Ewers and Malecki 498). Further, as part of its efforts towards the attainment of its vision, the emirate has focused on encouraging the private sector to take charge of major areas of the economy to promote competitiveness, and hence innovativeness, which will facilitate the development of the region to a knowledge-based economy.

Research Methods

Both qualitative and quantitative research methods will be used to analyze and discuss the role of innovation and strategy in the realization of the Abu Dhabi Economic Vision 2030.

Data Collection

To ensure that adequate data is collected for the purpose of the analysis of this study, questionnaires, online surveys, and interviews will be utilized extensively. These data collection techniques will target mainly people in the economic, technology, political, and education segments of Abu Dhabi. The interviews will be undertaken, where possible, on experts in the economic development of GCC countries, and most importantly Abu Dhabi. In addition, data will be collected through in-depth analysis of secondary resources on the economic development of Abu Dhabi, and in extension, the UAE. The information will be obtained from the University Library and government official communications and reports on Abu Dhabi. In addition, data will be collected from the existing research from other scholars who have discussed the economic development, innovation, and strategy towards the achievement of Abu Dhabi Economic Vision 2030.

In-depth interviews offer an opportunity for the interviewee and interviewer to have a direct and personal interaction, which is unparalleled by other data collection methods (Saunders 12). Such an approach eliminates the rate of non-response. It also guarantees flexibility, which is necessary for clarification of questions and responses. As such, interviews will be an important method, especially when collecting information from experts, who may offer exceptional insights and conclusions that are crucial for the study.

Data Analysis

The analysis of the collected data will use content analysis to generate themes and sub-themes that are essential for showing the relevance of innovation and strategy in the achievement of the Abu Dhabi Economic Vision 2030. According to Saunders, content analysis offers an important approach to organizing information collected from interviews, questionnaires, and secondary information into themes that are easily comparable and/or which can be used to make deductions necessary for the study (25). Another advantage of the approach is that it allows the collected data to be reduced and simplified with the objective of producing results that can be measured and analyzed qualitatively and quantitatively. The method further allows the data to be gathered in a manner that reflects the objectives of the research, thus making it easy to guarantee relevance of the data that has been obtained.

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Ethical Considerations

The current study will face various ethical issues, which must be addressed adequately. Firstly, all the respondents will be required to sign a written consent regarding their participation in the study. Further, they will be provided with a briefing letter, which will ensure that they are aware of their rights and responsibilities in their participation. In this case, participation and withdrawal from the study will be consensual. The respondents’ participation or withdrawal will be voluntary. They will be free to stop their participation in the study at any stage. Another important ethical consideration will be on the application of confidentiality. The respondents will not be revealed. Further, their information will be used solely for the purpose of the current study.

Limitations

The research has various limitations that are likely to affect its successful completion. Firstly, resource constraints present a major challenge. The study focuses on a particular geographical area where it uses various data-gathering strategies. Getting such data from respondents is expensive. Thus, inadequate resources may affect its thorough and successful completion. Access to the necessary information is another area that may present limitations to the research. In this case, crucial information on innovation and government strategy on the development of Abu Dhabi to a knowledge-based economy may be lacking or difficult to access. The study will occur within a given duration, which may pose difficulties in accessing critical information that can inform the research. Another important limitation may arise from the use of questionnaires. In most cases, a single informant will respond to questionnaires targeting important government departments or experts. Such a situation poses risks from the bias that may arise from the respondent. However, where possible, questionnaires will be sent to several individuals in an organization to reduce the bias.

While data will be collected from various organizations and government departments, the generalizability of the findings may be limited to those segments of the economy that have been covered in the research. This case will pose a challenge in trying to apply the findings to other locations and organizations. The content analysis also has its shortcomings, which can affect the credibility of the findings. In this case, the analysis approach presents researchers with the risk of misinterpreting the obtained data, which can consequently lead to false and unreliable conclusions.

Conclusion

The research seeks to offer important insights into the relevance and role of innovation and strategy in the development and transition of Abu Dhabi from a resource-based economy to a knowledge-based economy as envisioned in the Abu Dhabi Economic Vision 2030. The study will utilize various research methods. For instance, both qualitative and quantitative research methods will be used. The data collection will involve the use of questionnaires, interviews, and secondary data. The data will be evaluated using content analysis. Through these approaches, the study will aim at achieving the stated aims and objectives.

References

Davidson, Christopher. Abu Dhabi: Oil and Beyond, New York, NY: Columbia University Press, 2009. Print.

Ewers, Michael, and Edward Malecki. “Leapfrogging into the Knowledge Economy: Assessing the Economic Development Strategies of the Arab Gulf States.” Tijdschrift voor Economische en Sociale Geografie 101.5 (2010): 494-508. Print.

Knight, Jane. “Education Hubs: A Fad, a Brand, an Innovation?” Journal of Studies in International Education 15.3 (2011): 221-240. Print.

Niblock, Tim. Social and Economic Development in the Arab Gulf (RLE Economy of Middle East), New York, NY: Routledge, 2015. Print.

Randeree, Kasim. “Strategy, Policy and Practice in the Nationalization of Human Capital: ‘Project Emiratisation’.” Research and Practice in Human Resource Management 17.1 (2009): 71-91. Print.

Saunders, Mark. Research Methods for Business Students, New Delhi: Pearson Education India, 2011. Print.