United Arab Emirates
Executive summary
This is a comprehensive analysis of the United Arab Emirates in which the company hopes to expand its international operations. The analysis gives an in-depth discussion of the country's macro environment by describing its level of development, important industries, infrastructure, its history of inward foreign investments and significant industries available within its borders. Also discussed in the report are the country's economic ties with other nations, its political situation and the legislation that might affect inward foreign investments including government subsidies, tariffs, intellectual property protection and informal trade barriers.
The company intends to set up foreign operations in a foreign country, and this can only be done after an unequivocal analysis of the prospective foreign country. In order to make invaluable recommendations, this analysis also incorporates various economic conditions experienced in the United Arab Emirates including currency stability and economic growth statistics. Also included in this analysis for the purposes of this study are the cultural issues that might hinder social stability and perhaps workforce skills. It is noteworthy that the risks and benefits that might be associated with doing business in this country will also form an integral part of this study.
Introduction
The UAE is majorly an Arab-Islamic nation situated in the GCC section of the Middle East. It is noteworthy that the UAE comprises of seven emirates 3. These include Abu Dhabi, Dubai, Sharjah, Ajman, Ras Al Khaimah, Fujairah and Umm Al Quwain 1. Despite being one of the youngest Middle Eastern nations, the United Arab Emirates has exhibited a steady economic growth largely because of the exportation of crude oil and related products 6.
United Arab Emirates macro environment
One ought to recognize that the economy of the United Arab Emirates is primarily run by the export of oil. United Arab Emirates and its environs are known for their abundant oil reserves that have seen the region exhibit an overwhelming development of economy3. However, the economy of this region also depends on tourism, subsistence agriculture and nomadic animal husbandry. The increased production of oil and related products has escalated not only the establishment of political, social and formal economic institutions but also infrastructure 1. It is worth noting that the widespread development of agriculture has also been instigated by tourism in the region that has hit peaks in the last two decades 2.
Various multination companies have invested in the United Arab Emirates, and this is an indication of a favorable business environment in the region 7. For instance, the Marriot Hotel, which is an international brand of numerous five-star chain hotels all over the globe, has set up its branches in major cities within the region 6. Other multinational corporations like FedEx and Pepsi amongst many others also have their operations within the borders of United Arab Emirates. It is imperative to note that the UAE was ranked 23rd in the Ease of Doing Business Report done in 2014 by the World Bank 3.
A 2013 Global Corruption Perceptions Index done by Transparency International on 177 nations placed the United Arab Emirates at 26th position; same score and position as Austria. These statistics indicate that this country enjoys a rather liberal economic environment that is almost free from barriers like corruption. Additionally, United Arab Emirates was ranked 23rd in a Bribe Payers Index study done in 2011 on 28 countries 1. The BPI research measures the possibility that corporations from these countries would pay bribes abroad 10.
United Arab Emirates’ political situation
The political situation always plays a significant role when conducting a feasibility study on the suitability of a nation for foreign investments. One ought to note that the United Arab Emirates has been politically stable since its inception in 1971. The current political structure in the country appears to conform to the tribal society in the region 7. Political stability in United Arab Emirates is primarily attributed to the equal distribution of oil revenues in terms of economic and social infrastructure, high standards of living and good healthcare and education services that limit the chances of social animosity 5.
Legislations that may have an influence in the inward trade investments in United Arab Emirates
The United Arab Emirates is highly ranked as a major investment and trade hub in not only the Middle Eastern region but also other regions like North Africa and south East Asia. Despite the high levels of investment in the country, the legal and regulatory framework tends to favor local investors over foreign investors 1. It is important to note that the nation hardly has any form of a national treatment for investors. That notwithstanding, there is legislation in the country that restricts ownership of land to only the domestic and not foreign investors. Stocks are also restricted in the United Arab Emirates 2.
UAE implemented a framework for non-tariff barriers to all investments in terms of sponsorships, restrictive agency and distributorship requirements 3. As a result of this, a foreign investor is compelled to have a UAE agent, sponsor or distributor who owns at least 51% of the enterprise or business venture 10. There have also been concerns by the foreign investors that the nation has inappropriate dispute resolution mechanisms especially when the dispute involves a local and a foreign business 1. Some foreign investors in the United Arab Emirates have also expressed concerns over the shoddy intellectual property rights protection and the inadequate regulatory transparency 8.
The economic state in the United Arab Emirates
The United Arab Emirates is endowed with enormous oil reserves, both offshore and onshore. Aside from that, the region is also known for its subsistence agriculture and tourism that largely contribute to its GDP 2. According to the 2011-2012 Global Competitiveness Report presented in the World Economic Forum of 2012, the United Arab Emirates was ranked 27th out of the 142 countries analyzed for this study 5. It had a Global Competitiveness Index (GCI) of 4.9 1.
The cultural and social issues that may have an effect on business and social stability in the United Arab Emirates
One of the most outstanding cultural identities in the region is the Islamic culture which can be a determinant when it comes to setting up business 8. Foreign investors ought to take into consideration the fact that most people living in the United Arab Emirates are Muslims 3. Therefore, it is imperative that the business conforms to the norms and practices of the Islamic culture in order to proper. Being a Muslim nation, weekends begin on Friday because this is perceived as the holiest day for Muslims 2. This too can be a determinant for an upcoming foreign investment 1.
The basic and advanced factors and modes of production in the United Arab Emirates
UAE is mostly known as an investments hub in the Middle East. For this reason, the country embraces capital as its major mode of production. However, the fact that subsistence agriculture also forms part of the country's economic pillars, land is also a factor of production in the country. In addition to that, the United Arab Emirates is also famous as a tourist destination. Therefore, human labor is considered as a dominant factor of production in the country. This is because the tourism industry is the least, mechanized industry in the world and thereby making it labor-intensive 8.
Labor, capital and land are the predominant production factors in the United Arab Emirates and thus one can easily tell the kind of investments that can be supported by the economy of this country 9. The hospitality and tourism industry provides an ample investments opportunity in the region. Other investments opportunities favored by this nation are real estate and banking 5.
Conclusion and recommendation
A number of positive revelations have been made after a comprehensive analysis of the economic, political and social environment of the United Arab Emirates. UAE is not just a hub for foreign investments in the Middle East but also Northern Africa and South Asia 2. This is an implication that the nation provides favorable business environments and supports local investors 1. Despite having disclosed some worrying legislation that might hinder the development of a foreign investment in the region, the fact that the United Arab Emirates is ranked very highly in the Global Corruption Perceptions Index and the Global Competitiveness Index makes it suitable for the prospected foreign operations for our company. Additionally, its low ranking in the Bribe Payers Index is evidence enough that the UAE is intolerant to corruption. This fact makes the country the best for our company’s international investment plan.
Bibliography
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- Organisation for Economic Cooperation and Development. 2005. Investment for Development 2005 Annual Report - Investment Policy Co-operation with non- OECD Economies. Paris: OECD. http://encompass.library.cornell.edu/cgi- bin/checkIP.cgi?access=gateway_standard&url=http://dx.doi.org/10.1787/978926 4012998-en.
- The United Arab Emirates (UAE). UAE Overview. Last modified on 29th September 2014. http://www.dubaifaqs.com/united-arab-emirates.php
- U.S. Department of State. 2013 Investment Climate Statement - United Arab Emirates. Last modified on 29th September 2014. http://www.state.gov/e/eb/rls/othr/ics/2013/204755.htm
- U.S. Department of State. 2014 investment climate statement. New York: Bureau of Economic and Business Affairs, 2014. http://www.state.gov/documents/organization/227510.pdf
- Young, Karen E. 2014. The political economy of energy, finance and security in the United Arab Emirates: between the Majlis and the market. http://www.palgraveconnect.com/doifinder/10.1057/9781137021977.
Appendices
The pillar rankings of United Arab Emirates’ Global Competitiveness Index (GCI)
Source: The Global Competitive Report 2013-2014 (Full Data Edition)
