The UAE has been able to quickly and successfully transform itself from an oil-based economy into an innovative, knowledge-based economy; actively promoting innovation through policies and initiatives aimed at developing the three pillars of the innovation ecosystem – human, financial and technological capital Being the first-ever World Expo to be held in the MENA region and themed as ‘Connecting Minds, Creating the Future’, Dubai Expo 2020 is expected to strengthen the innovation ecosystem in the region. UAE’s private sector will need to play an increasingly important role in supporting the government’s agenda and promoting the national innovation ecosystem to ensure that the UAE is able to maintain and strengthen its position as a hub for innovation, not just in the Middle East, but across the world.

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UAE – Innovating to Grow & Diversify
 The UAE has been able to quickly and successfully transform itself from an oil-based
economy into an innovative, knowledge-based economy; actively promoting
innovation through policies and initiatives aimed at developing the three pillars of the
innovation ecosystem – human, financial and technological capital
 Being the first-ever World Expo to be held in the MENA region and themed as
‘Connecting Minds, Creating the Future’, Dubai Expo 2020 is expected to strengthen
the innovation ecosystem in the region.
 UAE’s private sector will need to play an increasingly important role in supporting the
government’s agenda and promoting the national innovation ecosystem to ensure
that the UAE is able to maintain and strengthen its position as a hub for innovation,
not just in the Middle East, but across the world.
The United Arab Emirates (UAE), which used to be known as an oil-based economy, has been
able to quickly and successfully transform itself into an innovative, knowledge-based
economy over the past decade. In fact, knowledge-based revenues now constitute a greater

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proportion of the nation’s GDP than oil revenues, having grown from 32.1% in 2001 to 37.5% in
2012. In its move towards becoming a knowledge-based economy, the UAE has diversified its
economy, becoming a key player in the real estate and renewable energy sectors, in addition to
becoming a global hub for trade, financial services and tourism. This vision to become a
knowledge economy is evident in the UAE’s Vision 2021, which aims to build a nation where
‘knowledgeable and innovative Emiratis will confidently build a competitive and resilient
economy’.
The nation has been actively promoting innovation through policies and initiatives aimed at
developing the three pillars of the innovation ecosystem – human, financial and technological
capital.
Let’s talk about the human capital first as it is the most critical and fundamental pillar for all
innovative changes. UAE has advanced its human capital on numerous fronts. Thanks to
consistent investments across all education levels, UAE boasts one of the most advanced
education systems in the MENA region. Moreover, advancing women’s education and
economic participation has led to women taking up leadership roles throughout the country.
The UAE government’s budget allocation to education makes up more than 20% of the overall
budget amount — this is way above than the benchmark average of 13%. Besides overhauling
primary, secondary, and higher education systems, the nation is facilitating expansion of higher
education institutes by establishing world-class local universities, attracting foreign universities
to open branches in the nation, and entering into international partnerships. For instance, the
Masdar Institute was established in 2007 in close cooperation with the Massachusetts Institute
of Technology (MIT). All these efforts have paid off, with the UAE’s rank on the Education sub-pillar
of the Global Innovation Index going up from 65th in 2011 to 15th in 2013.

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Second key element of knowledge economy is the financial capital because even the highly
skilled human capital can fail to perform to its full potential without sufficient funds. Several
sources of funding are available in the nation, including government funds, equity investing and
crowd funding. Government funds typically provide early-stage funding and include the Khalifa
Fund, the Expo 2020 fund, among others. In terms of equity investment, venture capital is the
most accessible, despite the low risk tolerance of VC funds. The number of regional VC funds
actively investing in the region is going up. Also, the number of VC deals has increased by 50%
between 2010 and 2012, with 47% of the investment focused on technology.
Along with human capital and financial capital, technology accounts for another critical
element for facilitating ground-zero innovation. Although the UAE’s R&D expenditure as a
percentage of its GDP (0.47% in 2011) is still below international benchmarks (global average of
2.08% and the OECD average of 2.32%), it is launching several targeted initiatives to develop its
R&D efforts. Besides driving R&D in universities, the UAE government is keen to establish
scientific hubs, for example, TechnoPark was set-up as a science and technology park managed
by the Dubai Institute of Technology (DIT). Also, the Masdar Institute is developing a technology
for desalinating sea water using renewable energy sources, and building the London Array, the
world’s largest offshore wind farm.
The UAE’s innovation ecosystem has been encouraging many residents to become
entrepreneurs. UAE-based technology start-up launches are expected to increase at a faster
rate than the MENA average. By 2015, the UAE is expected to witness 185 new technology-based
start-ups. Furthermore, the UAE government has reviewed its intellectual property and
copyright laws with an aim to align them with international standards.

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Exhibit 1: Snapshot of Some UAE Start-ups
Source: The Global Innovation Index 2014: The Human Factor in Innovation, Cornell University,
INSEAD, and the World Intellectual Property Organization (WIPO)
The UAE topped the World Bank’s Knowledge Economy Index (KEI) among Arab countries,
ranking 42nd globally with a score of 6.94. On all the four pillars of the knowledge economy—
the economic and institutional regime, education, innovation, and information and
communication technologies (ICTs), UAE was ranked among the top four Arab nations.
While the UAE leads the Middle East with a global ranking of 46 in overall innovation
performance, Dubai is the first city in the region to establish first knowledge centers, including
Dubai Internet City, Dubai Media City and Knowledge Village.
Further, the Dubai Expo 2020 is expected to benefit several sectors of the economy such as
hospitality, tourism, trade, shipping logistics and real estate; nearly $7 billion (Dh25.7 billion)
has been allocated for development and infrastructure projects in Dubai so far. Being the first-ever
World Expo to be held in the MENA region, the Expo will also add more than Dh140 billion

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to Dubai’s GDP, create nearly 277,000 new jobs and draw over 25 million visitors. The theme of
Dubai Expo 2020, Connecting Minds, Creating the Futureemphasizes the importance of
partnerships and innovation for building a sustainable world today and in the future. Especially
Dubai Expo’s new 100-million-euro Expo Live initiative will help drive innovation by uniting
research institutes, companies, citizens and entrepreneurs across the globe in finding solutions
to global challenges.
Exhibit 2: World Bank’s Knowledge Economy Index (KEI) Ranking of Arab Nations
Source: IMF, MRD/Orient Planet
Overall, if we look at the UAE’s innovation ecosystem, it seems that the pieces of the puzzle
are falling into the correct places. The nation now boasts a number of unique advantages, such
as strong education system, a diverse talent pool, a growing innovation culture, and a number
of targeted R&D initiatives. While the UAE government has been capitalizing on these strengths
and issuing relevant policies that address the issues of talent, funding and stakeholder
cooperation, the private sector will need to play an increasingly important role in supporting

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the government’s agenda and promoting the national innovation ecosystem to ensure that the
UAE is able to maintain and strengthen its position as a hub for innovation, not just in the
Middle East, but across the world.
The article was originally published at: Arab Business Review
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