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MJ - Morris@qut - Edu.au: Introduction To The United Arab Emirates
MJ - Morris@qut - Edu.au: Introduction To The United Arab Emirates
Chapter 47
Dr Mervyn J Morris
mj.morris@qut.edu.au
The United Arab Emirates (UAE) is part of the geographic region known as the
Middle East. With a land mass of 82,000 square kilometres, predominantly desert
and mountains it is bordered by Oman, Saudi Arabia and the Arabian Gulf. 1 The UAE
is strategically located due to its proximity to other oil rich Middle Eastern countries
such as Kuwait, Iraq, Iran, and Saudi Arabia. The UAE was formed from a federation
of seven emirates2 (Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Ajman, Fujuriah,
and Um Al Quain) in December 1971 (Ras Al Khaimah did not join the federation until
1972) (Heard-bey, 2004, 370). Abu Dhabi is the political capital, and the richest
emirate; while Dubai is the commercial centre. The majority of the population of the
various Emirates live along the coast line as sources of fresh water often heavily
influenced the site of different settlements. Unlike some near neighbours (Iran and
Iraq) the UAE has not undergone any significant political instability since it was
formed in 1971. Due to this early British influences the UAE has had very strong
political and economic ties with first Britain, and, more recently, the United States of
America (Rugh, 2007). Until the economic production of oil in the early 1960’s the
(goats and camels), pearling and subsidies from Britain (Davidson 2005, 3; Hvit,
2007, 565) Along with near neighbours Kuwait, Bahrain, Oman, Qatar and Saudi
2
Arabia, the UAE is part of the Gulf Cooperation Council (GCC), a trading bloc.
While the country is a Federation, and the Federal government has control of
such issues as national issues as defence, foreign policy, immigration, labour and
social affairs, education, health, a great deal of power remains with the governments
of each emirate (United Arab Emirates Yearbook, 2007, 39). Each Emirate enacts its
own regulations in relation to business issues. At each Emirate level the ruler of the
Emirate (either the Sheik or the Crown Prince) oversees a variety of Emirate specific
government bodies with significant autonomy from the Federal level. (Davidson,
2005, 188-200) The country is a moderate, and probably the most liberal, Islamic
country in the Middle East (Davidson, 2007). The country has never been subjected
to any terrorist or terrorist related attacks, although some members of 9/11 group
came from one of the northern emirates (Davidson 2007, 83). Until the commercial
production of oil in the early 1960’s economic and social development was sporadic.
The oil price hikes of the 1970’s added further impetus to the overall
development of the country. Oil prices in 1973 increased from US$5 per barrel to
US$41 per barrel, then dropped back to US$32 in 1978 before it rose to US$67 per
barrel. The final price increase was in 1982, to US$68 per barrel. Prices fell rapidly
until it reached US$20 per barrel in 1986, and prices have fluctuated ever since
(WTRG Economics, 2006)3 With the increasing revenue being gained from oil
somewhat unevenly between the different Emirates. However, the dependence upon
3
oil revenues has been lessened, particularly in Dubai where oil revenues have been
More recently economic growth in the UAE has seen real GDP growth rates of
11.8 percent in 2003 and 7.4 percent in 2004, with a GDP per capita of $US25,000
(UAE Yearbook, 2007, 79)4. GDP has been projected to continue growing, with an
estimated growth rate of 9.7 per cent for 2006; and projected growth rates of 8 per
cent and 6.9 per cent for 2007 and 2008 respectively (Gulf News, 7/8/07). While
much of this growth can be attributed to rising oil prices the governments of Abu
Dhabi and Dubai have been working to lessen the reliance on oil revenues (UAE
Yearbook 2007, 79) although each emirate has been pursuing differing strategies
Yearbook, 2007, 71), with by far the greatest proportion going to the Federal
example the International Monetary Fund (IMF) found that ‘economic growth has
been impressive…’(2006, 1) and has resulted in the UAE being ranked 32 out of 125
world economies, making it the highest among the Gulf Cooperation Council (Khaleeji
Times, 27/9/06). The government of the UAE has concentrated on a number of other
telecommunications (Al Abed et al, 2006, 37). The IMF, during visits in 2005 and
4
2006, were overall satisfied with the directions and development of the UAE
economy. A number of areas were of concern to the IMF (reducing the size of the
public sector, tightening up financial regulations for stock exchanges and banks) but
generally there were no major economic problems highlighted. The accelerated rate
resources needed to meet the expansionary demands of the public and private
sectors.
Historically the UAE has not had a labour force in sufficient numbers, or with
the necessary skills, to meet the needs of the public and private sectors. The UAE
1968 when the total population was estimated at 180,226; of this figure 68,485 were
expatriates5. By 1975, after the first significant oil price rises, when the first census
was carried out, this total had increased to 558,000, of which nationals represented
202,000 and expatriates 356,000 (Davidson, 2005, 145; Human Resources Report,
2005, 9). As the UAE economy has grown so to has the demand for labour
economic development of the UAE. As the most recent census reveals, the total
population of the UAE is 3.8 million; of this number 824,921 (20 percent) are
nationals, with the balance being made up of expatriates from a variety of developed
and developing countries (Ministry of Economy, 2006). While the UAE has always
used a certain number of expatriates to bolster their workforce the current social and
dominate many areas of the economy of the UAE and can be found in managerial,
professional, technical and unskilled positions. The Federal government has had to
attempt to balance the needs of the national workforce, with the needs of the
employers. One way the government does this is through controlling the issuing of
work visas.6 While at the same time controlling the supply of expatriate labour, the
demand for national labour. A number of areas have been targeted by the Federal
Government (financial services sector and trade); through the use of limited quotas;
or reserving specific occupations for nationals – for example, public relations officers;
increasing the numbers of nationals in the private sector workforce have had a limited
degree of success but nationals seem to still display overwhelming preference for
work in the public sector (88 percent, 2007 UAE Yearbook, 217). While there are
significant numbers of jobs created every year, paradoxically there are Emirati who
are unable to find employment. The most recent data for Emirati unemployment is 15
per cent (Hanouz and Yousef, 2007, 34). Despite the best efforts of the Federal
Government and its attempts to Emiratise7 the workforce, success has been limited.
One of the reasons attributed for this by Davidson (2005) and Preiss (2007) has been
an oil dependency culture which has meant Emirati males do not necessarily have to
work.
Prior to the discovery of oil and commercial exploitation in 1960’s the country
was basically a subsistence economy. Although oil exploration was first started in
1930s it was not until 1963 that oil began to be exploited in commercial quantities
6
(UAE Yearbook, 2007, 16). With the initial oil revenues, economic progress was
steady rather than spectacular, and very uneven throughout the emirates. With the
oil price hikes of the 1970’s, the rulers of Dubai and Abu Dhabi had access to
significant oil price rises took place after Federation in 1971 and instead of oil
revenues being ‘hoarded’ by Abu Dhabi, the riches were shared with the other
Emirates, either by direct subsidy or used for the funding of local projects. It is
currently estimated that the UAE has 9.6 percent of the world’s total oil reserves; this
ranks the UAE with the fifth largest reserves in size in the world (UAE Yearbook,
2007, 117). While the figures refer to the UAE, the oil reserves are actually in, and
“Economic development is considered one of the most urgent priorities and goals for
the United Arab Emirates” (Ministry of Economy, 2006, 3). In pursuing these goals,
Government policy has had to balance the need for economic development with the
need for ensuring such development does not disadvantage the national population.
The Governments at both the Federal and Emirates levels have attempted to strike
this balance by using two strategies. First, the Federal Companies Law requires that
any business (irrespective of the nature of the business) be 51 per cent owned by a
local (Federal Companies Law, Article 22)8. While there is little solid evidence, strong
anecdotal evidence would suggest that the national owners often simply collect a ‘fee’
from the manager of the business and have no involvement whatsoever in the
7
running of the business. The second strategy is possible as the Federal Companies
Law (Article 2) does not apply to Free Trade Zones (FTZ) set up in and by the
within the Emirate which then allows the establishment and development of one
FTZ and Special Economic Zones already in operation or planned (World Economic
Forum Report, 2007, 200). Of all the Emirates, Dubai especially has made significant
use of this facility, establishing its first free trade zone in 1975, the Port of Jebel Ali
(Davidson, 2007, 39). One of the consequences of this approach is that many of the
more dynamic entrepreneurial businesses tend to be found in the Free Trade Zones,
while the majority of very small businesses (less than ten employees) and the
Taken together, the Federal government, and the governments of the various
Emirates tend to not differentiate between SMEs and multinationals. While there are
businesses, irrespective of size, face a level playing field. One policy which has
activities is the willingness of the governments of the different Emirates to assist the
there are no Federal corporate or income taxes and no sales taxes (Ministry of
Economy, 2006, 3). Companies established in FTZs are free to repatriate capital and
profits, and there are no currency restrictions (UAE Yearbook, 2007, 77). The only
8
Federal law which imposes taxes on businesses is a 5 percent import duty. This
does not mean there is a laissez faire approach to businesses in the UAE. There are
provisions and regulations enacted by the different emirates which restrict the
behaviour of businesses which, according to Preiss, (2007, 69) have not been
reduce the regulations and time taken to establish a business in the UAE.
entrepreneurs and small business enterprises. There are regulations that govern
what businesses can do at both a Federal and emirate level. The major policy of the
UAE governments at all levels has been to actively encourage the establishment and
development of most kinds of businesses. The individual emirates will enact their
policies in different ways. Any decisions in this regard are left to the governments of
limited in its bureaucracy, and fast in the processing of licences and other
Hvidt (2007, 573) supports this general statement in relation to Dubai, arguing
business].”
Monitor (GEM) (Bosma and Harding, 2007) one could come to the conclusion that the
environment within the UAE does not encourage the formation and development of
SME’s and an entrepreneurial culture within the country. The GEM survey indicates
that in terms of GDP per capita 2006, in Purchasing Price Parities (PPP), the early
stage entrepreneurial activity rate was around 4 per cent (Bosma and Harding, 2007,
13). In terms of rankings, this placed the UAE with the forth lowest level of early
stage entrepreneurial activity by country, with only Belgium, Japan, Sweden, and Italy
having lower rates. Wilson (2007, 200) agrees, pointing out that while the UAE has
distinct lack of innovation and entrepreneurship. That GDP growth rates seem to
indicate that there is a significant level of economic activity, but not within
being developed (e.g. every emirate has a port facility; all emirates have at least one
international airport (Dubai is currently building a second)); and with the absence of
any railways, road transport networks are extensive and well maintained. For
example, Abu Dhabi plans to invest over Dh555 billion in the coming five years in the
billion), power and water (Dh35 billion) and oil (Dh80 billion)(UAE Yearbook, 2007,
77).
Another aspect to the environment is that some of the most significant and
most prominent entrepreneurs are actually the governments of the Emirates (UAE
Yearbook, 2007, 41; Davidson, 2007, 41; and Hvidt, 2007, 571). Companies are
owned, either directly or indirectly by the governments of the different emirates (UAE
Yearbook, 2007, 103-104). For example, more than 90 percent of the lucrative oil
production is owned by the Abu Dhabi government (UAE Yearbook, 2007, 117);
Emirates Airlines are owned by the Dubai Government; one of the largest property
demonstrates in relation to Dubai, the line dividing the public and private sectors is
continually blurred – the government and business leaders are often the same
people, or at least from the same kinship group (Hvidt, 2007, 571). Governments
11
government leaders and their intimates (in relation to Dubai, see Hvidt, 2007, 570).
The World Economic Forum Survey (2007, 198) examined the “…most
problematic factors for doing business” in the UAE and what was notable was that
there was not any single outstanding dominant factor. Instead there were a number
workforce 15.9 percent; poor work ethic among Emiratis 13.7per cent and inflation
13.6 percent were the main areas for concern.10 Inflation appears to becoming a
major concern generally for the Emirates. According to the IMF, inflation grew from
Yearbook, 2007, 79). The Abu Dhabi government is considering what actions to take
as inflation is adding to the growing cost of doing business (Gulf News, 6/08/07).
extent, even within the limited geographic area of the Middle East. Certainly, there
are UAE companies which compete with other larger companies on the international
stage (for example, RAK Cermanics is one of the largest providers of tiles and
Yearbook, 2007, 144)); and there are some signs that other investment companies
are expanding their horizons (UAE Yearbook, 2007, 76 and136), but there is little
direct evidence of entrepreneurs doing so. There is anecdotal evidence again that
12
would suggest that a number (how many is pure speculation) are increasingly doing
business with China, particular in the areas of home furnishings, but this is on the
import side, rather than the export side. There is a thriving re-export economy and
aluminum and cement are important export products but these are generally owned
Not surprisingly, the petroleum sector accounts for 75 percent of total UAE exports
Conclusion
The UAE continues to change at a significant rate. The rate and quality of economic
and social growth that has occurred since the significant rises in the price of oil has
propelled the UAE into a position of prominence in the Middle East area. Much of
this growth can be attributed to the pro business attitudes at all levels of government.
There is certainly every reason to believe that the UAE governments will continue to
expatriates) in this most dynamic of countries. There is, however, one area in need
Early entrepreneurial activity is extremely low (ranking the forth worst in the 2006
GEM study) yet economic growth has been consistently strong. How and why this
worth pursuing.
13
References:
Al Abed, Ibrahim, Paula Vine, Peter Hellyer and Peter Vine (Eds)(2006), UAE at a
Centre for Labour Market Research and Information (2005), Human resources
Davidson, Christopher M., (2005), The United Arab Emirates: A study in survival,
Davidson, Chistopher, (2007), The Emirates of Abu Dhabi and Dubai: contrasting
Gulf News (2007), SMEs exempt from Companies Law change, 21/03/07,
8/8/07.
Gulf News (2007) Abu Dhabi plans policy actions to contain inflation, 6/8/07,
Gulf News (2007), Real GDP growth of Gulf countries to slow down, 7/08/07,
Hanouz, Margareta D., and Tarick Yousef (2007), Accessing competitiveness in the
http://www.weforum.org/pdf/Globalcompetitivenessreports/Reports, accessed
12/4/07.
14
Heard-Bey, Frauke, (2004), From Trucial States to United Arab Emirates, Motivate
Publishing, Dubai.
Hellyer, Peter (2001), The evolution of UAE foreign policy, in Al Abed, Ibrahim and
Peter Hellyer, United Arab Emirates: a new perspective, Trident Press, London,
161-178.
Hvit, Martin, (2007), Public-private ties and their contribution to development: the
Khaleej Times (2006), “UAE’s economy is most competitive among Gulf states”,
accessed 27/7/07.
Ministry of Economy, (2006), The Annual Economic and Social Report 2005,
Minister of Economy (2007) quoted in Gulf News SMEs exempt from Companies
accessed 22/3/07.
Preiss, Kenneth, (2007), GEM Global Summary 2006: United Arab Emirates, in
Rugh, Andrea B., (2005), The political culture of leadership in the United Arab
UAE Interact (2007), Dh300 million fund set up by Abu Dhabi to support SMEs,
26/07/07.
http://:www.worldforum.org/pdf/Global_cometitivenessreports/Reports, accessed
12/4/07.
Shah of Persia in 1979 it is generally referred to in the Middle East as the Arabian Gulf.
2
It should be noted that the name of the largest city in an emirate is also the name of the emirate. For example,
Abu Dhabi is the political capital of the UAE and also the name of the emirate. This can, at times, create some
International Monetary Fund; the World Bank; and, most recently the World Economic Forum – see Hanouz and
prospective employee.
7
As a matter of policy, the Federal Government is attempting to reduce the level of unemployment among
nationals by following a path towards Emiratisation, with nationals replacing expatriates in the workforce.
8
This law is currently under review as UAE’s commitments to the World Trade Organisation. However, it is
proposed that the revised law exclude SME’s – thus allowing nationals maintain their 51 percent equity capital
that have been established outside FTZ. Often these much larger businesses will take the form of trading
companies, and have agency agreements with multinational companies for example, all the major car
manufacturers have agency agreements with trading companies registered in the UAE and headed by a
national.
10
It is difficult to understand the reasons for the first two comments in relation to labour market issues, given the
liberal government attitude towards labour market issues. And when one takes into account that 88 percent of
nationals work in the public sector (UAE Yearbook, 2007, 217) the responses are even more difficult to
understand.