February 2012

2

1. Introduction and Context

A knowledge-driven economy and its importance to the UAE

he UAE “Vision 2021” seeks to establish the country as “One of the leading countries in the world

by 2021” (UAE Vision 2021). The vision roots this in UAE’s rich heritage, safety and stability, a

healthy population and a competitive economy. One of the four themes of the vision, “Theme 3:

United in Knowledge” aims to maximize the potential of human capital, and build a powerful,

knowledge-driven economy that is diversified and not reliant on hydrocarbons. Government’s sustained

efforts have already resulted in significantly reducing the economy’s dependence on hydrocarbons – the

oil and gas sector now accounts for 33% of the country’s GDP as opposed to 43% ten years agoi. UAE’s

Federal and local governments have consistently given the creation of a first-tier education system and

evolving a competitive knowledge economy a very high priority. For example, primary and secondary

education strategies focus on student retention and a holistic look at the process of learning for school

students, while higher education will look to enhance its curricula and standards and diversify sources of

funding. Economic strategies will encourage small and medium enterprises (SMEs) in value-adding

sectors, promote innovation, and continue to develop a workforce that is flexible, qualified and

productive.

To be United in Knowledge, the complete system of students, instructors, workers, employers and

administrators needs to work together towards a common set of goals. OECD defines a knowledge-

based economy as the centre-piece of this common purpose: an economy driven by the creation,

sharing and management of knowledge. In such an economy, there is a shift from traditional economic

activity which is focused on cost of labour and availability of natural resources. Instead, a premium is

placed on the value of intangible assets such as intellectual capital. The application of knowledge is

manifested in innovation, research, design of new and tangible products and services, and eventually

the export of unique inventions to a global marketii.

Position statement

TCO has constructed a model to evaluate UAE’s current status towards a knowledge-based economy

and, in this paper; we will progress through the model to document areas of opportunity and related

recommendations. Our analysis reflects that even though UAE is progressing well towards its aim of

being Knowledge based Economy (reflected in UAE’s ranking in the globally accepted indices); there are

several layers of detail under the overall ranks that need to be analyzed to identify challenges that need

to be addressed.

T

3

2. Framework for Assessing UAE’s

Progress Towards a Knowledge

Economy

Our model is based on four main lines of

reasoning, which are:

UAE needs to support value-adding

companies in its economy through sound

management of the financial sector,

intellectual property regime and economic

regulations

Knowledge must be built and retained

within the economy by focusing on

education that appropriately matches the

needs of the labor market

The economy should foster and support

innovating organizations creating unique

knowledge for their customers

The impact of technology and related

infrastructure investments must be

maximized to derive the benefits of a

knowledge economy

Based on the above, our model comprises of

four pillars, as defined in Figure 1.

Four Pillars of a Knowledge Economy

Our framework for evaluating UAE’s knowledge

economy is based on the Knowledge Economy

Indexiii (KEI), and insights from the Global

Competitiveness Indexiv (GCI) and the Global

Innovation Indexv (GII). Refer Figure 2. These

were selected based on our understanding of

their relevance to various government sector

leaders in the UAE. We tested the framework to

the furthest extent possible leveraging our

experience with the Local and Federal

governments in the UAE. Select indicators were

chosen to create a balanced blend of input and

output measures.

Many of the indicators are shared across the

indices. The main sources of data for all three

indices (focusing on the data we used) are:

World Bank Development Indicatorsvi, GCI

Executive Opinion Survey, UNESCO Education

Indicatorsvii, World Bank Ease of Doing Business

Reportviii and the International Labour

Organization (ILO)ix.

The Economy and Institutions

Education and the Workforce

The Innovation Ecosystem

Information and Technology

Protection of intellectual property

Availability of financing for companies

Regulation of the economy and related government procedures

Enrollment and graduation rates

Labour demand and supply

Population dynamics

Magnitude of research and development

Specialized clusters and their development

Penetration of technology

Usage of technology

Key Drivers

An economic and governance model that

incentivizes the efficient creation, dissemination and use of knowledge

An educated and skilled population that matches the requirements of the

economy

A system comprising complimentary

components that foster innovation

An information infrastructure that

supports creation and sharing of knowledge

I II III IV

Figure 1: TCO Framework for evaluating UAE’s knowledge economy

4

“Wealth is not

money. Wealth lies

in men. This is

where true power

lies, the power we

value. This is what

has convinced us to

direct all our

resources to

building the

individual and to

using the wealth

which God has

provided us in the

service of the

nation” – Sheikh

Zayed Bin Sultan Al

Nahyan

Research Methodology

This paper was prepared based on discussions

with relevant stakeholders and secondary

research. We also utilized our prior experience

in engagements with various organizations in

the UAE government. We adopted this

approach to ensure that our conclusions are

based on generally accepted data/information

instead of primary research conducted by TCO.

3. Pillar I – The Economy and

Institutions

The perception of the business environment is

extremely critical to an economy such as that of

the UAE as it is dependent on foreign direct

investment (FDI) inflows. In order to build a

knowledge-producing economy, UAE needs to

ensure that business owners and investors are

protected and eager to do business.

Government should also create an environment

that supports businesses that blend with its

traditional strengths and create value in the

economy.

Business-friendly market regulations and efficient government procedures are required to create a positive environment and perceptions of doing business

While the regulatory

environment in UAE is

generally perceived as

good (and this trend has

increased since the

inception of specialized

free zones), there are

several areas reflected in

international indices that

require attention.

UAE still ranks low in the

cost and time required

to start a business,

according to World Bank

Development Indicators .

The ‘Cost to Register a

Business as a Percentage

of GNI Per Capita’ is at

6%, placing UAE in the

50th percentile.

Moreover, with an

World Bank Knowledge

Economy Index

World Economic Forum Global Competitiveness Index 2010 -

2011

INSEAD Global Innovation Index 2011

UAE Ranking 45 out of 145 25 out of 139 34 out of 125

Number of Indicators

(Total) 109 111 60

Number of Qualitative Indicators

23 78 28

Frequency Updated as new indicator

data becomes available Updated annually Updated annually

Remarks

TCO built its own model closely based on KEI due to its relevance to the subject and its focus on quantitative data

A widely used ranking in UAE government with an extensive opinion survey as its primary

data source

A compilation of indicators shaped into a model that assesses the innovation

inherent within an economy

Figure 2: Indices used in evaluating UAE’s knowledge economy

5

average of 17 days to start a business, UAE is

ranked in the 62nd percentile worldwide.

The World Bank’s Regulatory Quality Index

measures incidence of market-unfriendly

policies such as price controls or inadequate

bank supervision, as well as perceptions of the

burdens imposed by excessive regulation in

areas such as foreign trade and business

development. UAE most recently (2009) ranked

in the 69th percentile out of all countries.

Litigation to protect against violation of

contracts is expensive – it costs 26.2% of the

contract value, in attorney and court fees, to

enforce payment against a contract. This places

UAE in the 47th percentile worldwide, as per

the World Bank Development Indicators.

These statistics highlight significant challenges

that need to be addressed in order to

sustainably attract FDI.

An economy that attracts knowledge related FDI needs a strong intellectual property (IP) regime

Protection of IP is typically a dual role played by

implementers (various agencies) and the

judicial system.

Implementers protect IP through a strong, well-

connected network that acts quickly,

communicates well with IP owners and is

consistent across the country. This network

comprises protagonists such as Customs,

Inspection Agencies, Police and legal

representatives of a company, individual or

group. Our research reflects that while all these

implementers exist, they have varying degrees

of ability in each Emirate. Channels for

communication across the network and across

Emirates are not always open, which leads to

inconsistent protection across the country.

A study conducted by the Property Rights

Alliance (International Property Rights Index )

highlights the linear relationship between IP

protection and the economy, showing that

countries with stronger IP regimes tend to have

higher GDP per capita and FDI net inflow figures

3 and 4.

Figure 4: Correlation between intellectual property protection and GDP

UAE is ranked 19th out of 139 on Intellectual

Property Protection based on the GCI executive

opinion poll, however our analysis identifies several

issues that need to be resolved. In this context it is

difficult to see how UAE can be ranked higher than

countries such as Japan and United States, who

have much more sophisticated IP protection

systems

Figure 3: Correlation between intellectual property protection and FDI

6

Furthermore, the current legal framework

employed within the judicial system does not

permit the treatment of IP infringement as a

distinct legal subject (International Survey of

Specialized IP Courts). The current IP laws

within the UAE are narrow, and do not cover all

typologies of IP, when compared to the leading

countries in IP management and protection.

Figure 5 outlines this disparity – some countries

have developed their IP laws to a high degree of

complexity, while UAE only currently has three

covering trademarks, copyright and patents and

industrial designs.

Penalties for infringement of IP are not

stringent enough to be a deterrent and are low

when compared with penalties in countries

such as Japan and the United States as shown in

figure 6 below. As an example, jail sentences for

trademark infringements have never been

Plant Variety Protection

Integrated Circuits

Genetic Resources

Traditional Cultural Expressions

IPR Regulatory Body

Geographic Indications

Chip Topography

Technology Transfer

Trade Secrets

IPR Laws in Singapore, Japan, Germany and USA

Copyright

Trademarks

Patents & Industrial Designs

Copyright

Trademarks

Patents & Industrial Designs

Dedicated IPR laws in UAE

Cultural Expressions

Trade Secrets

Implemented in the UAE

Drafted for implementation in the UAE

Not implemented in the UAE

Trademark MaximumFine (USD)

Maximumyears of

imprisonmentfor Trademark

infringement

2,70014,00062,00077,300

UAEGermanyJapanSingaporeUSA

2,000,000

1

555

10

UAEGermanyJapanSingaporeUSA

Figure 5: Comparative Analysis of Intellectual Property Protection Laws in the UAE, against those most commonly found in leading knowledge-driven economies

Figure 6: Penalties for IP infringement

7

passed in the UAE, with the maximum first time

offense penalty being AED 2,700 (USD $735). In

addition, litigation takes a long time and is often

not considered worth the effort.

Small and Medium Enterprises (SMEs) can become the foundation of a knowledge-based economy if they are in knowledge-intensive industries and have access to capital

Small-Medium Enterprises (SMEs) are often

touted as the core of the economy in developed

nations. They usually range from 15 to 500

employees and manage revenue of less than US

$30m.

In UAE there is no uniform definition for SMEs

and this becomes a critical issue when seeking

avenues of funding. For example, the European

Union has a common definition for SMEs: small

businesses have less than 50 employees and an

annual turnover of 10m Euros; medium

businesses have less than 250 employees and

an annual turnover of 10m Euros. In the Emirate

of Dubai, which accounts for 50% of the

country’s SME population, the Mohammed Bin

Rashid Establishment for SMEs has worked with

multiple stakeholders to create a uniform

definition. It would follow that this definition is

adopted across the country.

UAE possesses the 6th highest start-up

expectation rate amongst 59 Global

Entrepreneurship Monitor (GEM) countries –

43% of people want to start their own business

in the next three years. However this promising

outlook is moderated by UAE having the highest

business discontinuation rate among the twenty

wealthiest GEM countriesx.

Accessing finance is often cited as the biggest

barrier to SME development, according to the

GEM UAE report. The Executive Opinion poll of

the GCI also cites ‘Access to Finance’ as the

most problematic factor to doing business in

UAE. This is supported by a ‘Domestic Credit to

Private Sector as Percentage of GDP’ ranking in

the 66th percentile out of all countries,

according to the World Bank Development

Indicators.

The nature of SMEs in the UAE has a unique

mixture which does not lend to knowledge

creation at the SME level. 53% of new business

activity in UAE is classified as ‘Consumer and

Oriented Services’ which includes industries

such as retail, restaurants and social servicesxi.

These are typically not knowledge creating or

Trading Manufacturing Services

Employees Turnover Employees Turnover Employees Turnover

Micro

Small

Medium

(AED mn)Headcount

AND

<= 9

<= 35

<= 75

<= 9

<= 50

<= 250

(AED mn)Headcount

AND

<= 20

<= 100

<= 250

<= 10

<= 100

<= 250

(AED mn)Headcount

AND

<= 20

<= 100

<= 250

<= 3

<= 25

<= 150

Ente

rpri

se C

ate

gory

Industry Group

Figure 7: SME definition, Mohammed Bin Rashid Establishment for SME Development

8

high technology industries.

An additional 31% of new business activity is

related to construction, manufacturing and

transportation. While there is scope for

innovation and the creation of efficiencies in

these sectors, the relatively low cost of labour,

especially unskilled labour, leads to low

adoption or creation of new technologies. SMEs

account for up to 90% of employees in the UAE.

Overall, 97% of start-ups are classified as using

no or low levels of technologyxii.

There have been several SMEs with success

stories in the knowledge-creating space. One of

these is Zawya, which began as a small database

of businesses in the MENA region but grew into

the leading business intelligence firm in the

region, providing news, research and data.

Notwithstanding some encouraging and

progressive SME activity in the knowledge

sphere, significant and integrated policy level

changes are required to alter the nature of

SMEs currently operating in the UAE.

4. Pillar II – Education and

Workforce

The education system serves as a supply line to

the labour market in any economy, even one as

unique as the UAE with its transient population.

This necessitates a strong link and a common

understanding between educational institutions

and employers in order to prepare students to

enter the workforce with the commensurate

skills and relevant subject knowledge.

The UAE economy draws a significant amount

of its labour supply from outside the country

and analysis of its population indicate that

many knowledge workers do not remain in the

country for extended periods of time.

Additionally, university enrollment and

graduation rates are low, and studies have

highlighted a mismatch between educational

qualifications and employer requirements. The

World Bank ranked UAE 79th (out of 145) in the

53%

31%

16% Other

Construction,

Manufacturing and

Transportation

Consumer and

Oriented Services

None or low levels of technology

Medium or high levels of technology

97%

Figure 8: Technology use in industry (Global Entrepreneurship Monitor Report)

9

“A country’s

greatest

investment lies

in building

generations of

educated and

knowledgeable

youth” –

Sheikh Khalifa

Bin Zayed Al

Nahyan

“Investment in

education means

investment in

peace and security,

which our people

undoubtedly

deserve” – Sheikh

Mohammed Bin

Rashid Al Maktoum

world on its Education

Index, a normalized

average of literacy rates

and secondary and tertiary

enrollment rates.

Enrollment and graduation rates across different levels of education need to be higher while matching the requirements of the labour market

According to the UNESCO Institute for Statistics,

the UAE rates low across all education

enrollment indicators. It is ranked 83rd

worldwide in primary school enrollment, 46th in

secondary school enrollment and 84th in

tertiary school enrollment.

The case of public (primary and secondary)

schools in the UAE (figure 9) presents a more

detailed characterization. Only 32% of students

graduate on time, with 47% repeating years and

21% of students dropping out of school

altogether. Emirati male students are an area of

concern in this regard. Of those who graduate

high-school, only 27% choose to pursue tertiary

education.

Government expenditure as a percentage of

GDP on public education, according to the

World Bank Development Indicators is at 1%,

and places UAE in the 10th percentile among all

countries on this metric. While the education

system considers these issues and revises its

approach, employers can provide

complementary support.

Low enrollment rates imply alternatives are

available – individuals with qualifications too

low to join knowledge-intensive jobs may join

family businesses or the public sector, and

Nationals can join the military or police.

This poses a significant challenge to UAE’s

aspirations of progressing to a true knowledge

economy.

University students aware of the opportunities available in the labor market after graduating should be appropriately prepared to meet labor demand

We have established the relatively low supply of

university graduates to

the workforce, and

highlighted the

opportunity for

employers to be more

involved in improving

that supply. A deeper

complexity relates to

preferences of university

students.

Drop-Out

47%

32%

Repeat

100%

21%

All Students

in UAE Public

Schools

Graduate on Time

Figure 9: UAE Public School Student Status Statistics

10

UAE ranked 5th

out of 139 in

terms of brain

drain, in the

GCI executive

opinion poll,

implying it

does not suffer

from lack of

knowledge

retention.

Analysis of

UAE’s

population

dynamics of

UAE do not

support this

perception

The Abu Dhabi Education Council conducted a

study and published statistics revealing a

significant disparity between higher education

students’ majors and labor market needs.

Interestingly, the majority of graduates pursue

degrees in more generic fields, rather than

technical knowledge-creating disciplines such as

Engineering, ICT or Education.

Figure 10: Supply & Demand misalignment between graduates and Labour market requirements

Further, according to the UNESCO Institute of

Statisticsxiii, UAE only ranks in the 43th percentile

worldwide in terms of Science and Engineering

(university) enrollment ratios. The Executive

Opinion Survey of the World Economic Forum’s

Global Competitiveness Report stated that, for

employers in the UAE, the second biggest

problem faced in doing business was the

inadequately educated workforce.

This reflects a disconnect between employers

and universities, and contributes to a low

number of knowledge intensive workers. The

International Labor Organization reports that

only 18% of workers in the UAE are classified as

‘professional or technical’ workers, putting UAE

in the 45th percentile worldwidexiv.

Knowledge retention within the economy requires long-term preservation of human capital

Approximately 89% of UAE’s population

consists of expatriates. While there are many

who have remained in UAE over long periods of

time, expatriates are by definition temporary

residents - their stay in UAE is contingent on

maintaining a job.

This transient population has an impact on

retaining knowledge within UAE’s economy. In

particular this includes technical know-how and

an understanding of UAE’s unique economic

environment.

In 2008, the financial

down-turn resulted in

many expatriates losing

their jobs and therefore

being forced to leave UAE.

Our research indicates that

approximately 9% of UAE’s

knowledge workers left

UAE in 2009.

While 2009 may have been

a year with extraordinary

circumstances, there are

other challenges for UAE’s

labour market; GCC

countries are rapidly

developing and require

large amounts of labour,

creating competition for

skilled workers.

Knowledge is flowing out of the UAE year-on-

year, and trends indicate that it will continue to

do so unless effective mechanisms for retaining

workers are implemented.

0

5

10

15

20

25

30

0 5 10 15 20 25 30

Engineering

Business

Education

Medicine

ICT

Law

Natural Sciences

Administration

Humanities and Social Sciences

% Labour Market Demand by Specalization

% S

tud

en

t En

roll

me

nt

by

Dis

cip

lin

e (S

up

ply

)

Surp

lus

Deficit

11

“In today’s

knowledge-

based economy,

what you earn

depends on

what you learn.

Jobs in the IT

sector, for

example, pay

85% more than

the private

sector average”

– Bill Clinton

5. Pillar III – Innovation Ecosystem

An innovation economy can be defined as an

ecosystem where companies, academia and

government collaborate to further economic

development through the creation of unique

products, services and employment that match

the needs of the countryxv.

An innovation ecosystem requires all its

constituent parts to function in harmony, from

the research stage to the creation and

protection of intellectual property. Both

government and private sector play critical roles

in ensuring that the ecosystem has sufficient

resources, is strategically planned and is

producing satisfying

results.

Our study of innovation

ecosystemsxvi in East Asia,

North America and Europe

(for which overall research

and development (R&D)

expenditure ranged from 2

– 5% of each country’s

GDP) reflects that

approximately 75 – 80% of

expenditure on R&D came

from the private sector in

these countries, and the

majority of expense was geared towards

product-driven research. The logical conclusion

from this is that the majority of R&D in these

countries is directed towards finding innovative

solutions to market needs. Further, about 8 –

12% of total country expenditure on R&D

comprises strategic investment by government,

either through research funds, universities,

incubators or collaboration with companies.

Universities are typically the powerhouses of an

innovative environment, however there have

been instances where government prefers to

invest resources directly in partnership with the

private sector. As a result, university

expenditure on R&D tends to range from 10 –

25% year-on-year, in the countries reviewed by

TCO (countries that were researched are

illustrated in Figure 12 on next page).

Exploration and discovery can be fuelled by unlocking funding for academic research

Government budgets were understandably

reviewed in 2010 with the emphasis on

managing costs. As a result, public universities

have had their budgets frozen up until 2013xvii.

There are three public universities in UAE, each

with a number of campuses across the country.

All of these universities are in debt to the tune

of AED 100m (US $ 27.2m) eachxviii. As recently

Visas cancelled each year for knowledge

workers

52,497(9%)

Economically Active Knowledge

Workers

585,286(8%)

Completed Higher Education

877,929(12%)

Over legal working age (18+)

5,852,858(80%)

Total Expatriate Population

7,316,073(100%)

Figure 11: 9% of knowledge workers left UAE in 2009

12

as June 2011, the Federal Government

approved a total increase in budget of AED

150m (US $ 40.8m) for public universities for

this yearxix, but this still left them AED 278m (US

$ 75.5m) overall in deficit.

UAE’s Vision 2021 highlights the need for

universities to be strategically positioned to be

the engines of innovation and research in UAE

as per Vision 2021, but it is difficult to see UAE’s

public universities fulfilling this mandate while

struggling with budgetary constraints. Indeed,

the focus of Higher Colleges of Technology in

the coming yearxx seems to be able to serve all

the incoming students in the coming fall by

having sufficient faculty and classroom facilities,

rather than fostering any ambitious plans for

upgrades. It is difficult to foresee R&D getting

the attention and resources required in this

situation.

While at the frontline success will be reflected

by dollar value of investment into academic

research, the infrastructure and long-term

sustainability of related initiatives will depend

on integrated national level planning for the

sector. This can be in the form of a national

R&D strategy, which places a mandate on both

government and the private sector to

collaborate in unlocking funding.

R&D activity in the economy is reflected by the proportion of the country’s GDP dedicated to R&D and needs to be increased to boost the levels of innovation in the UAE

These funding issues were highlighted in a

recent article entitled “Growing shortage of

skilled graduates”, published in The National

newspaperxxi. In addition to the universities’

plight, it remarked upon the need for private

universities to ‘close the research gap’ created

by the reduced funds available to Government

universities and the disparity between GDP

(estimated at 1 trillion AED or US $ 271 bn. in

the same article) and the allocated funds for

research, particularly when compared with

some of the larger global economies.

82%

74%74%

18%

26%26%

27%

Israel Finland South Korea USA Singapore Malaysia

Na

tio

na

l fu

nd

ing

as %

of

GD

P

• Corporate industry-based funding

• Can partner with higher education

• Can utilize in-house or private contracted

R&D facilities

Private sector funding Government funding

73%

5.0%

2.5%

Split between private and government

funding

• Through government agencies,

higher education institutes or

R&D funds

• Focus on academic research

71%

29%

82%

18%

Figure 12: International R&D Expenditure Comparison

13

Typically, country R&D expenditure is a

composite of government spending, private

sector investment and university budgetary

allocation, with private sector investment

forming the majority. Our research estimates

UAE’s R&D expenditure as a percentage of GDP

to be approximately 0.1 – 0.2%.

As an added indication of R&D activity in the

country, the World Economic Forum’s Global

Competitiveness Index Executive Opinion

Survey asked respondents to rate UAE on a

scale of 1-7 (7 being the highest) on university –

company collaboration. The average rating UAE

received was 3.4, placing it at 59th out of 139

countries.

Clusters have the potential to be the nerve-centres of innovation if they coordinate and incentivize businesses to create rather than only trade

Through 2000-2008, the Emirate of Dubai

introduced a number of specialist free-zones to

encourage further diversification of its

economy, and attract international and local

organizations. Other Emirates in the UAE

followed suit, resulting in the establishment of

economic zones such as Fujairah Free Zone and

RAK Free Zone. Some of these specialist free-

zones (which include but are not limited to,

Dubai Silicon Oasis, Dubai Internet City and

Dubai Biotechnology and Research Park) focus

directly on technology and research; however

anecdotal evidence suggests that very few

facilitate the innovation or manufacturing of

technological products, and instead focus

predominantly on providing liaison services,

offices and warehousing space.

A review of UAE’s performance against some

export indicators leads to similar conclusions.

UAE’s trade volumes (export plus import) as a

percentage of GDP are at 159% according to

World Bank Development Indicators, which

places it in the 91st percentile worldwide. A

similar healthy performance is reflected in the

export of goods and services as a percentage of

GDP, at 91%, placing UAE in the 97th percentile

worldwide. These point to a healthy export and

re-export volume, facilitated by location and

facilities such as the Jebel Ali Free Zone.

UAE’s FDI inflows as a percentage of GDP are

also high, at 7.77%, placing it at the 84th

percentile worldwide.

However, a review of “exports”, not including

re-exports, UAE’s status as a net importer of

goods and as not producing goods and services

is exposed. According to World Bank

Development Indicators, UAE’s gross capital

goods exports are valued at an average of $37m

year-on-year from 2003-2007, placing it in the

18th percentile when compared worldwide.

Furthermore, the value of high technology

exports as a percentage of manufacturing

Percentile (0 – 100)

Gross capital goods exports, 18th

percentile

Hi-tech exports as %’age of manufacturing exports,

21st percentile

FDI inflows as %’age of GDP, 84th

percentile

Export of goods and services as %’age of GDP,

97th percentile

Trade volumes as %’age of GDP, 91st

percentile

Figure 13: UAE’s performance against trade indicators

14

The GCI Executive

Opinion Poll rated UAE as

20th out of 139 in terms of

availability of scientists and

engineer; however this perception

seems to be misplaced as reflected in figure 14.

exports was only 1% (placing UAE in the 21st

percentile worldwide).

There are 32 free zones in the UAE, with 26 in

Dubai mainly acting as centers for trade and

services. The common set of incentives across

the free zones has led to a consolidation of

purpose: regional market presence and re-

export base.

Notably, FDI Magazine, in a global review of

free zones ranked four UAE free zones among

the top 10 free zones in the world (Dubai

Airport Free Zone, Dubai Knowledge Village,

DuBiotech, Dubai Media City) in terms of

economic potential, cost effectiveness, facilities

and transportation. To this effect, the World

Economic Forum’s Executive Opinion Survey

asks respondents about the state of cluster

development: UAE’s ranking was 28th in the

world.

While an analysis of trends in the ‘Ease of Doing

Business’ over the past 10 years reveals the

benefits to UAE of the establishment of free

zones (namely due to the time and cost

components of starting a business and 100%

ownership) by increasing foreign direct

investment (FDI inflows), there has been limited

evidence that free zones have contributed to

the promotion of exports (not re-exports),

technology transfer and creation of linkages and

synergies with the local market.

The difference between the positive

perceptions of UAE’s free zones versus the lack

of results in terms of innovation and exports

indicates a disconnect that needs to be

addressed as significant investment has been

made in the free zones.

An innovative economy is driven by a high incidence of scientists and engineers in various sectors

One of the greatest

challenges UAE faces is the

low current and imminent

supply of scientists and

engineers available in the

UAE. We have previously

discussed the gap in supply

and demand between

graduates and industry

requirements; however the

gap is increasingly evident

when considering and

reviewing the distribution of the workforce

across the UAE. Considering the Ministry of

Economy’s, and the relevant Emirate level

economic departments’ classification of the

economic sectors and worker occupation

categories, 76% of the workforce has non-

technical or managerial roles, whilst 10% have

technical roles, 8% are professionals and 6% are

either legislators or members of senior

managementxxii.

The economic sectors with the greatest

representation of technical and professional

workers are interestingly, manufacturing,

construction, automotive (most likely involved

with vehicle maintenance as there are no auto

and ancillary industries in UAE), real estate, and

the public sector (assumed to be senior

government representatives and managers).

15

Overall, there are a low number of technical

workers in the UAE. Those technical workers

that do exist reside in non-innovative sectors.

This points towards a system where high-tech

companies either do not form a significant

portion of the economy, or are unable to attract

the right technical talent.

6. Pillar IV – Information Technology

The availability of technology infrastructure in a

country is usually a critical decision-point for

investors and business owners. According to

executive opinions from the GCI survey, UAE

has set up a world-leading infrastructure,

ranking 11th out of 139 countries for the

availability of technologies and 5th for firm level

absorption of available technologies. However,

the usage of technology at the individual or

household level has not been as high, bringing

to the forefront the question of cost vs. benefit

of the government’s investment into

technology.

Penetration of technology is high and with

relatively low levels of investment across

multiple forms of technology, UAE represents

one of the highest penetration rates in the

world. It ranks in the 99th percentile worldwide

for telephone lines per 1000 people, and 79th

percentile for computers per 1000 people. UAE

also ranks 10th in the world for number of

internet users per population according to the

United Nations’ International

Telecommunications Union statistics.

In terms of infrastructural investment, this is

good value for money, as business opinions rate

UAE highly on availability of technologies and

firm level absorption of technologies.

Furthermore, the investment in terms of

international internet bandwidth per person

76%

10%

8%

6%

Health and Social Work

Education

Public Administration, Defence and Compulsory Social Secu

Real Estate, Renting and Business Activities

Financial Intermediation

Other Community, Social and Personal Service Activities

Hotels and Restaurants

Wholesale and Retail Trade, Repair of Vehicles, Motorcycl

Construction

Electricity, Gas and Water Supply

Manufacturing

Transport, Storage and Communications

Mining and Quarrying

Agriculture, Hunting and Forestry and Fishing

Occupation Group

1%2%

5%

14%

13%

5%

8%3%

22%

13%

1%10%

3%0%

Professionals and

Engineers as a % of the

total UAE workforce

Distribution of Professionals and Engineers

across main economic sectors

Other

Technicians and Associate Professionals

Professionals

Legislators, Senior Officials and Managers

Figure 14: Assessment of UAE workforce occupational distribution, by economic sector

16

15

5

1

10

10

11

41

46

Lack of relevant content in preferred language

Lack of internet service providers

Family members do not use the internet

Other challenges

Have free access to internet elsewhere

Complex technology

Cost is too high

Do not need internet

according to the World Bankxxiii is only in the

67th percentile when marked worldwide.

This indicates that technology is readily available

and the country has been cost effective in reaching

these levels of penetration.

However, in order to maintain its edge, UAE will

continually need to improve the “quality of

service” and cost of access. Our interactions

with rapidly expanding free-zone entities such

as the Dubai Mercantile and Commodities

Center (DMCC) reflect that cost of

telecommunications remains a big concern for

almost all the businesses establishing

operations in DMCC.

Utilization of a high class technology infrastructure should improve efficiency

While penetration is, to some extent, an

indicator of success of the country’s investment

into technology, it doesn’t reflect the purposes

for which technology is being used.

In an ICT Household survey carried out by UAE’s

Telecommunications Regulatory Authority in

2010xxiv, it was identified from this survey that

some of the main reasons for 37% of the

population not having an internet connection at

home was related to either not having any need

for the internet at home, cost, or complexity of

technology.

Based on the fourth most prevalent response

from the survey (“Have free access to internet

elsewhere”), it is possible to assume that

internet usage is perceived to be more ‘work’

related, rather than have a recreational,

communication or personal efficiency-

enhancing application.

Surprisingly, only, 5% of the respondents stated

that they did not have an internet connection

due the ‘lack on internet service providers’,

which indicates that suitable infrastructure to

provide either broad-band or even dial-up

internet does not exist across all regions of the

UAE, presumably within rural parts of the

Emirates.

The respondents appear to be utilizing the

internet for basic tasks, with a minority using

the internet to streamline and automate tasks

that would traditionally require manual

interaction, such as shopping and the payment

of bills. Additionally, just 6% are reported to be

creating knowledge through the internet

(posting information), when compared to 34%

reading or downloading the news, 30%

downloading media, 26% getting information

about goods or services, as an example.

The GCI Executive Opinon Poll supports this,

with ‘Extent of Business Use’ ranked 47th out of

139.

There is limited to evidence to conclude if the

technology infrastructure is creating efficiencies

Figure 15: Reasons for not having an internet connection at home (% of respondents who reported to not have an internet connection at home)

17

Figure 16: Usage of internet survey

and promoting the practical use of

technologies. Anecdotal evidence also reflects

that lack of enough and quality Arabic content

also impedes the achievement of expected

objectives from the investments.

2%

81%

Internet banking

45%

Getting information about goods or services

34%

Downloading or streaming multimedia

Education or learning activities

Downloading software

Playing computer games

Paying utility bills

Getting information from government organizations

Getting health related informationInteracting with government agencies

Purchasing goods or services

Posting information

Instant Messaging

Other

30%

26%

23%

17%

15%

Sending or receiving email

Reading or downloading the news

12%

11%

9%

14%

6%

6%

6%

6%

Visiting social networking sites

18

7. Recommendations

The Economy and Institutions

Undertake a full revamp of the IP regime (regulations, compliance and recourse). This should

necessarily include consultation and engagement with all the protagonists of the knowledge eco-

system. The revised regime should be implemented in a phased manner to ensure that the economy

is not adversely affected

Review of SME funding priorities to ensure availability of funds for the knowledge based companies.

Collaborate with financial institutions to provide incentives and risk management approaches that

allow them to lend to knowledge based companies

Harmonize G2B requirements and processes across the country to improve “ease of establishing and

running a business”

Education and the Workforce

Undertake a national labor requirements and productivity study to identify the labor demand,

supply gaps/surplus with regard to the economic growth aspirations. This study should be used as a

basis for undertaking a labor reform and establishing a productivity improvement strategy for the

UAE

Establish partnerships with the private sector to establish funding and employment pathways for

high caliber students. Special emphasis should be given on developing Emirati talent in key and

emerging areas such as nuclear engineering/technology, environment/climate change and venture

capital/private equity in sectors relevant for the economy

Undertake an integrated program comprising a review of curricula, teaching methods, incentives

and awareness (students and parents) to improve the enrollment rates in secondary and tertiary

education

The Innovation Ecosystem

Implement specific budgetary quotas and allocations for R&D (e.g. Doctors of Philosophy related

funding) at the Universities

Establish partnerships with the private sector for product based R&D

Implement an integrated program comprising components such as economic incentives,

immigration policies and talent availability to encourage R&D related FDI

Information and Technology

As part of a comprehensive labor reform, consider economic incentives that motivate the

companies to leverage the technology infrastructure to improve productivity rather than resort to

“cheap” labor

Raise IT proficiency of school teachers and promote new education pedagogies that embed creative

uses of technology among the students at an early age

19

TCO Management Consulting is an initiative born out of the need for first-class consulting support in the

delivery and implementation of strategic initiatives across all forms of government. We provide

advisory services to public sector organizations in the UAE and MENA region. Through our precise focus

on the quality of service delivery, capability development, and knowledge management, TCO aspires to

be a Strategic Partner in Public Sector Innovation.

This White Paper was prepared by:

Vineet Chhatwal, Chief Operating Officer and Practice Lead at TCO based in Dubai Twitter: @vineet_chhatwal

Turan Malik, a Principal Consultant with TCO based in Dubai Twitter: @turan100

.

Dhruv Deepak, a Consultant Analyst with TCO based in Dubai

For more information please contact: T: +971 (0) 4 350 6500 or E: info@tcoconsulting.com

Visit http://www.tcoconsulting.com to learn more about TCO Management Consulting

© Copyright 2012

20

8. References

The following sources of information and data-points were used to inform our thinking, and the

statistics utilized in this document.

i UAE economic growth report

http://www.uaeinteract.com/docs/UAE_may_see_3.3_real_GDP_growth/46586.htm

ii OECD: Competencies for the knowledge economy

http://www.oecd.org/dataoecd/42/25/1842070.pdf

iii World Bank

iv World Economic Forum

v INSEAD

vi http://data.worldbank.org/indicator

vii http://www.uis.unesco.org/

viii http://www.doingbusiness.org/

ix http://www.ilo.org/global/statistics-and-databases/lang--en/index.htm

x http://www.gemconsortium.org

xi www.iser.ae/files/contents/GEM%20UAE%20Report.pdf

xii Global Entrepreneurship Monitor Report on UAE 2009

http://www.iser.ae/files/contents/GEM%20UAE%20Report.pdf

xiii http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=198&IF_Language=eng

xiv http://laborsta.ilo.org/

xv http://www.oecd.org/dataoecd/35/56/2101733.pdf

xvi TCO collective research on UAE’s R&D regime

xvii http://www.thenational.ae/news/uae-news/spending-freeze-on-uae-universities-for-2011

xviii http://www.edarabia.com/16406/some-federal-universities-in-the-uae-are-under-debt/

xix http://www.mof.gov.ae/Budget/En/Sitepages/LatestNews.aspx?Id=57

xx http://www.thenational.ae/news/uae-news/politics/budget-cuts-starting-to-bite-fnc-says

xxi http://www.thenational.ae/news/uae-news/education/growing-shortage-of-skilled-graduates

xxii UAE National Bureau of Statistics

xxiii http://info.worldbank.org/etools/kam2/KAM_page3.asp?default=1

xxiv http://www.tra.gov.ae/download.php?filename=ICT_Survey%20English%202010.pdf