Executive Summary
Intellectual Capital according to several key figures in the academe is the new capital and most important factor for business productivity. The United Arab Emirates (UAE) is at the forefront of developing Intellectual Capital since five years ago. Today, it has put Intellectual Capital as part of its National Educational Policy and has provided incentives for higher education institutions for setting up branches in Abu Dhabi and Dubai. Schools from the United States and Europe have started operating in these key cities and have been developing appropriate curricula for students and professionals.
The impact of the development of Intellectual Capital in the UAE is not very pronounced yet but it has proved its worth is key situations. During the financial crisis two years ago, Intellectual Capital development has helped the UAE banking industry through the creation of flexibilities and proactive risk management gleaned from ideas developed through the cultivation of conventional and unorthodox business and banking principles.
As the business evolution rages on, the UAE is becoming more competitive on this aspect, adding to their already resource-rich economy. The long-term impact of the UAE’s move to create a center for Intellectual Capital is still under observation but signs leading to it are all promising.
Introduction
Intellectual Capital, like the business concept of “capital” is a resource (or asset) that will produce cash flows going into the organization in the future. Capital is traditionally tangible, meaning it is a resource that is physical that can be seen or touched. In economics, capital is the sum of all the assets or resources that are put into use which includes the tangible assets and the money that is also utilized.
Companies use its capital to reach its economic goals. In any company, the balance sheet is used to record and report the company’s total capital base, including the machineries, equipment, facilities, vehicles and other physical assets but does not list the other assets that are used by the company. These assets that make up the whole capital base are called intangible assets, which means that they are not seen or held but are equally important (i.e. work force and employee organization) to the organization. The value of intangibles is harder to determine and therefore are not recorded in the balance sheet.
In an interview in with the London Business School (2012), Thomas Stewart, pioneer of the study of intangible assets and the principal behind the term “Intellectual Capital” said that knowledge is the most important factor in economic life and it is knowledge that has become the one indispensable asset of corporations.
Truly, there seems to be a surge in paradoxical rethinking. The concept of the “Idea” being “the capital” of the organization and the rest is “just money” has been taken up by many to be the source of wealth creation today. With the interest in Intellectual Capital today, scholars are in general agreement that Intellectual Capital is valid and is composed of three types:
- Human Capital – availability of skills, talents and know how needed for performing specific roles in an organization
- Structural Capital – availability of information systems, applications and databases
- Relationship Capital – availability of external linkages required for fulfilling specific roles and tasks
Intellectual Capital (IC) can further be described through its characterization. Generally, IC is:
- Multiplexed – unlike tangibles that will only produce one good at a time, IC can be used for producing different products simultaneously
- IC such as Human Capital and Relationship Capital cannot be owned but can be shared with the organization’s stakeholders such as its employees, partners, suppliers, etc.
- Structural Capital can be owned and controlled and often is used in substitute of more expensive physical assets (i.e. just-in-time delivery systems substitute for expensive warehousing)
Findings
Intellectual Capital (IC) is mostly associated with organizations seeking-profit. Cohen and Vlismas (2011) noted that the available empirical study on IC and operational and financial performance is limited to profit-seeking corporations. However the relationship of IC and intangibles has been confirmed across different settings, including national economies. Available literature also says that public organizations exist in an intellectual capital idiosyncrasy thus making effective IC management a possible effective tool to improve public sector efficiency as well. (Kong and Thomson, 2006).
In the last five years, the United Arab Emirates or UAE has embraced the idea of making their country a center for Intellectual Capital development. This move embraces what Michio Kaku, an acclaimed futurist told the media (as reported in the Gulf News, 2007) about his vision for the future. Mr. Kaku said:
"China has discovered this shift from commodities to intellect, and now the Chinese are phasing their development to consume and exploit the economies of commodity, while developing the intellectual skills of the individual to cater for the needs of the next age,"
The United Arab Emirates (UAE)
The United Arab Emirates or UAE is an Arab country on the Persian Gulf. It is bordered countries of Oman and Saudi Arabia. IThe country has ones singe national president who presides over seven seven principalities called “Emirates” which in turn are governed by an “Emir”. The UAE’s capital is the bustling city of Abu Dhabi.
The UAE possess the 7th largest oil reserve in the world and the seventh largest natural gas reserves of the world as well. It is the 30th largest economy and has world’s seventh highest per capita income. The UAE also has a very high Human Development Index (30th in the world) and is classified as one of the high-income developing economies by the International Monetary Fund (IMF).
UAE and IC
According to Dr. Fred Moavenzadeh, President of the Masdar Institute of Science and Technology in the UAE said that this is the first time a country that is not North American or European has becoming the leading party to a solution making the action commendable, exciting yet challenging. Dr. Moavenzadeh is referring to the UAE, a country that has publicly declared its pursuit of becoming the Intellectual Capital of the world for the 21st century. According to the New York Institute of Technology (NYIT) President, Prof. Edward Guiliano the UAE will be an intellectual capital because of its rapid growth in higher education that was an impressive vision for the country. With all these accolades from respected personalities from the academe, it is a valid question to ask, what has the UAE done to prepare itself for becoming an Intellectual Capital and what do they expect to receive from it?
UAE IC Roadmap and Outcomes
The United Nations and the World Bank propose that for a country to develop its Intellectual Capital, it must provide a comprehensive strategy that will result in the following:
- Significant increase in human investment through education and training;
- Shifting of view of workers into intellectual assets; and
- Significant increase in programs to develop innovation and cost efficiency.
Available literature indicates that the UAE is currently working on all the items but is specially paying attention to the completion of item 1. The UAE has notably done the following:
- UAE’s educational policy agenda describes its well-rounded approach to education and development. The development agenda for education are listed below as they appear in Abu Dhabi’s Education Policy Agenda. The agenda lists the country becoming a knowledge-based economy instead of just being a resource based economy.
- High quality education, healthcare, and infrastructure systems.
- Empowered private sector.
- Development of a knowledge-based economy.
- Transparent regulatory environment.
- Security at the international and domestic levels.
- Diplomatic international relationships.
- Optimized use of resources.
- Preservation of Abu Dhabi’s values, culture, and heritage.
- A significant and on-going support for the federation of the United Arab Emirates at all levels
- The following higher education intuitions are located in the UAE.
- Emirate of Abu Dhabi
- Emirate of Dubai
- Emirate of Sharjah
- Emirate of Ajman
- , now
- Emirate of Ras Al Khaimah
- Emirate of Fujairah
- The effect of IC on the economy is profound. Magdi El-Bannany (2012) stated that the effect of IC on UAE’s economy during the global financial crisis has helped UAE’s banks manage the fluctuations of the market expertly.
Conclusions and Recommendations
There is no doubt that Intellectual Capital, the sum of Human, Structural and Relational Capital is an important asset for a corporation or an economy. A country that is resource rich and capital rich can take the next big step and invest in human resources to refine its Intellectual Capital.
The UAE is one such country. Blessed with abundant oil and having one of the highest human capital indices in the world, the UAE is transforming itself into an IC powerhouse through the proactive development of a knowledge-based national educational policy. The result of this initiate is the proliferation of higher education institutions in the UAE, signifying the world’s acceptance of the UAE as an IC center.
The empirical evidence that would quantify IC’s effect on the UAE economy is sparse and work still needs to be done to ascertain its real effects. The early indications however, show that IC is important in keeping competitiveness and sustainability, as witnessed by UAE banks during the recent global financial crisis.
Work has to be conducted on the topic of Intellectual Capital development in the United Arab Emirates. As of this writing, the significance of IC on national economies, particularly in Arab economies have not been fully documented and analysed.
Research could be utilized for future policy agendum, adding value to legislators and national leaders in crafting strategies that would enable their respective economies to become more agile, prepared and suited for the next millennia.
References
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Magdi El-Bannany, (2012) "Global financial crisis and the intellectual capital performance of UAE banks", Journal of Human Resource Costing & Accounting, Vol. 16 Iss: 1, pp.20 - 36
