Dubai should focus on productivity growth — DED chief economist

Dubai’s growth has been fuelled by an expanding low-skilled, low-productivity workforce, but that is expected to change, Dubai Department of Economic Development chief economist Dr Mohammad Lahouel told the UAE Economic Outlook Forum.

In a detailed, sector-by-sector analysis of the emirate’s growth and productivity over the past 20 years, Lahouel revealed that labour productivity grew an average 1.7 per cent per annum, but that the workforce grew fourfold over the same period.

During that time Dubai experienced an average GDP growth of 8.4 per cent per annum, although that declined after 2007, due to both the international economic environment and the effects of a maturing market, he said.

Labour inflows were responsible for 82 per cent of Dubai’s GDP growth between 1995 and 2015, he said, comparing that to 12 per cent in China, and 59 per cent in Singapore and Hong Kong.

“That has implications for sources of growth and for wealth,” Lahouel told delegates to the forum in Dubai on Wednesday

He added, “We want to have growth that is originating in productivity growth,” pointing out that small increases in productivity had major impacts on growth in the long term.

While skilled labour had driven productivity growth in Dubai’s financial sector, its utilities, and its transport and logistics, these were sectors with a relatively small labour force. Construction, one of the biggest sectors in terms of employment, hotels and restaurants showed the lowest productivity.

“The problem is that labour, as it is utilised, is not concentrated in the high productivity sectors,” Lahouel said.

The UAE’s investment in research and development was also low, at around 0.7 per cent of GDP, he said.

Nevertheless, he said, the reliance on cheap, unskilled labour was likely to wane with the development of automation and the growth of a skilled, knowledge-based workforce. A highly skilled workforce, made up of both expatriates and nationals, would help drive innovation, he said.

Dr Wifag Adnan, distinguished fellow at INSEAD, had conducted a detailed survey of innovation in Abu Dhabi, with results she said were also applicable to Dubai.

She discovered that the construction sector had the highest propensity to innovate, though it was a low-tech sector.

And although small and medium enterprises (SMEs) are considered important innovators, she demonstrated that their impact globally was not as effective as it could be — primarily because larger firms could afford to absorb R&D costs, and because markets were dominated by long-established companies, she said.

“These are the two factors that cause the most complaints from private firms,” she said.

Abu Dhabi held a good ranking in the innovation index, she said, with its natural resource economy — primarily oil and gas — ranking third in performance and its other sectors ranking 21st.

Nevertheless its regulatory framework acted as an anchor on innovation, she said

source : gulfnews