Opinion: UAE ‘Dutch disease’ offers lesson

“Dutch disease”, rather than a blight afflicting trees or a human illness, refers to the problems the Netherlands faced in the 1960s when its economy slumped after the discovery of natural gas.

One might think such a bonanza would be entirely beneficial but economists have observed that a boom in the resource sector usually leads to a real appreciation in the currency, either through higher inflation or a stronger currency (or both). This typically damages the competitiveness of other sectors and deprives non-resource sectors of necessary investment.

In addition, when countries become overly reliant on the resource sector, which is capital intensive, they often neglect human capital – investing in fields such as education. As a result, resource-rich countries often find themselves underperforming countries such as Singapore and Hong Kong that have no natural resources.