Globalization, Economy, Society, and Business in the UAE
Widely it is accepted that sustainability of the economic in any country, its communities should move from small scale subsistence activities towards industrialization and increased productivity. This results in economic and social changes, which bring about good business atmosphere. Since the United Arab Emirates was established, it has achieved phenomenal improvement at both social and economic levels (Shihab, 2000). The UAE is regarded as the ideal model, which can be followed by poor but resource endowed countries on tap global demand for their resources to change a lot of their people.
Apart from its trailblazing achievements in the social and economic spheres, it has also created a good business atmosphere, which has attracted foreign investment from across the globe. With the modern legal framework, globalized economy and political stability, new economic sectors have fuelled unprecedented development. Apart from the impressive infrastructural development, welfare systems have Free State services for citizens from when one is born until one dies. Global economic and social changes have resulted in increased reliance on oil and gas products hence, more revenue for the UAE to provide services and enhance good business environment (Darrat, Abosedra, & Aly, 2005).
The services include; education up to university, modern health care, housing for the low income groups, social security, subsidized water and electricity, and family allowances. This has been an effective way of ensuring that all the nationals benefit from federal wealth while enjoying results of global economic and social changes. The outcome has been a highly conducive business environment, which has attracted several times more immigrants than native Emirati.
The global financial crisis, which hit the world economy in the mid of 2008, resulted in aftershocks in the UAE due to its free trade and open policy. The global economic crisis had more negative effects on the highly developed nations, when compared to the less developed nations. There was unprecedented fall in the global GDP to – 2.2% in 2009 down from 5.2% and 3.2% in 2007 and 2008 respectively (CIA, 2013).
The governments responded to the problem by use of expansionary monetary and fiscal policies. These were aimed at stimulating aggregate demand, and this was successful in a number of OECD countries, which have almost totally recovered. Due to the huge oil and gas revenues, United Arab Emirates was able to leap the several stages, which are normally associated with most developed countries. Because the United Arab Emirates has over the years enjoyed political stability, it has been able to maintain an unprecedented phase of growth over the years despite the global nature of its economy.
The 2009 global crisis resulted in a 4% shrinking of the economy, while construction and property sectors underwent a decline (“Reasons for doing business in the UAE”, 2013). This impacted negatively on the UAE Businesses, especially in the real estate. However, buoyant trade, tourism and the retail sector were backed by the foreign investment in supporting the economic recovery. One of the lowest ebbs for the UAE was when the government construction company, Dubai World attempted to delay debt payment resulting in the dramatic fall of property prices. This shows how any changes in the global economy can affect the developed nations, whose assets are spread worldwide.
Due to the large hydrocarbon wealth, the UAE has one of the highest GDP per capita globally. Most of these resources are owned by Abu Dhabi with 6% of gas and 95% of oil deposits. As a result, 9% of all proven oil reserves are in Abu Dhabi. The former Arabian Gulf fishing and pearling community is now a home to several magnificent metropolis boasting some of the best amenities known to man and the potential looks endless.
This modern day havens, such as Dubai and Abu Dhabi, have offered its nationals, residents, and its huge expatriate community job opportunities, comfort, and security. The annual inflation has slowed down in the Emirates to 0.7% in 2012 according to the IMF. The traditional causes of inflation namely; rising restaurant, food, hotel, and educational costs have been blamed for the inflation but the main sources for deflationary pressure are the falling rents, utility costs, and housing.
Following in the vision and foundation laid down by its founding fathers, and especially Sheikh Zayed Bin Sultan Al Nahyan, the nation has secured its position in the world map as tourism, residential, and investment destination of choice for people from across the globe (Utaybah, 1977). Its point of strength both currently and in the future lies in its departure from dependence on oil as the country’s main source of revenue. United Arab Emirates has diversified into other areas of the economy, which include agriculture, tourism real estate, and industry. They have been directly involved in the recent boom of the capital and are also doing an important job in anchoring the national economy.
Prior to oil discovery, the populace lived as nomads in the vast dessert. They would move from one Oasis to the other seeking water. These people were dispersed across the entire country, and they lived in palm frond huts or mud plastered houses for the few privilege (Shihab, 2000). These dessert inhabitants grew dates while also engaging in camel rearing. The Arabian sailors used to man the dhows, while pearl divers plunged to the floor of the ocean searching for oysters (Utaybah, 1977). It was such a harsh life for the Bedouins, which entailed traveling long distances across the dessert and subsistence way of life. However, global changes, which brought about increased thirst for oil and gas products, have changed the situation making the UAE a global business hub.
The regional and global economic developments in 2009 resulted in very profound effects on the United Arab Emirates economy, especially due to its as a leading global supplier of oil. On the aspect of macroeconomic performance, investment takes 27% of the GDP, while consumption expenditure has over the years been the largest GDP component standing at 47%. This reflects the highly favorable investment environment of the United Arab Emirates (NBS, 2009).
The UAE government has been aggressively pursuing diversification into high value service and manufacturing sectors so as to reduce its overreliance on oil (Khondker, 2008). Despite the ups and downs of an economy, which is also vulnerable to global financial down turns, the UAE has been a leading provider of humanitarian and developmental aid, as well as charitable contributions to more than 140 nations across the globe. Most aid from the UAE is channeled to the Middle East (46.7%), while North African region also gets more than 25% of its annual aid (CIA, 2013).
The economic crisis also resulted in capital outflows, which led to a dramatic fall in profits in the formerly booming real estate sector (NBS, 2009). This caused resources, such as labor and capital, to move from this market. All said and done, income in the UAE is among the highest in the world although, there exist huge differences among the Emirates with Dubai, Sharjah, and Abu Dhabi producing the most oil. However, the other Emirates have also benefited from a trickle down of oil wealth due to employment in the state institutions and the federal welfare system. This has led to the emergency of business opportunities even in the less endowed states (Darrat et al., 2005).
The national economy diversification efforts have led to growth of commerce, construction, industry, free trade zones, farming, tourism, communications and fisheries. Due to quick development of these sectors, there has been marked reduction of dependence on oil. In 1998, 70% of the estimated $ 45,590 million GDP came from the non-oil sector. The UAE is the third largest gas and crude oil exporter in the gulf. It is also a respected member of OPEC (Organization of Petroleum Exporting Countries). The Emirati society is composed of two social categories. These are the Emirate born citizens and immigrants from other nations. Among the citizens, there are four main social classes. These are:
- The powerful and immensely wealth Sheikhly families, who control political power and most resources.
- The merchant class, which is referred to as the al-tujjar, and has been traditionally made up of the pearling merchants, who presently trade in various international consumer commodities.
- There is also a new middle class composed of high numbers of professionals, who have gained from the Free State sponsored educational system.
- Finally, there are the low income earning groups, which are made up of former pearl divers, Bedouin nomads, and oasis farmers.
Among the category of Emirati immigrants, there are those, who receive different social and economic rewards. These are the technocrats and top professionals, who have international contracts and hence, several benefits as well as high salaries (Terterov, 2006). There are also middle range professionals like teachers and company salesmen, as well as the unskilled and semi skilled workers. The benefits, which accrue to these people, are dependent upon their employment sectors. Most lowly paid workers, unskilled and semi-skilled workers are of the Asian origin. Generally, the nationals make up a privileged minority, who benefit from both business regulations and state laws.
There are departments responsible for trade name registration and commercial licensing while commissioning studies on how the private sector players can be promoted and encouraged. They focus on leadership roles in driving the UAE’s economic agenda of sustainable, balanced and diversified economy. This is geared towards promoting its competitiveness in the world economy while guaranteeing prosperity of its people (NBS, 2009). There is an anticipated massive overhaul of the public transport system so as to expand it under the framework adopted by Emirate’s transport Master Plan. This expansion, which is not beyond the huge oil revenue and income from other sectors, is expected to revolutionize the transport system. The planners aim at new tramways and/or routes of bus rapid transit, as well as metro routes.
There are many skyscraper projects, which have been approved or proposed and they are expected to dramatically transform the UAE skyline. There are also political reforms, which are aimed at giving the residents/citizens more power in the determination of the UAE affairs, and also increased representation at the federal level. Abu Dhabi Fund for Development (ADFD) is also leading efforts to offer economic diversifications. 18% of the contributions to this fund at present come from the industrial sector. ADFD’s activities cover many countries in Africa and already it boasts about 55 projects. Therefore, global business and economic changes have aided the UAE businesses to spread across the globe. These projects range from agriculture to telecommunications industry and they are funded through its concession loans.
The United Arab Emirates has been spending billions of dollars in the establishment of infrastructural framework (Terterov, 2006). These infrastructural projects are especially evident in the more illustrious and bigger emirates of Dubai and Abu Dhabi. However, the northern emirates are also quickly following suit, hence providing incentives to commercial and residential property developers. Billions of dollars have also been allocated for construction of new housing communities, road networks, drainage and integrated infrastructural solutions to tackle existing problems and spur investment (Darrat et al., 2005). Dubai International Airport was ranked the 6th busiest globally in terms of international passenger traffic in 2008.
This shows the global importance of the United Arab Emirates. It is also worth noting that only 13% of the UAE’s estimated 8,264,070 populations are the UAE nationals with the rest expatriates, who have come to seek livelihood. The net migration rate for UAE is the world’s highest standing at 21.71. As such, they run most businesses either for multinationals, as entrepreneurs or employees of varying positions. Over the past few years, an increasing number of expatriates have been clamoring for the UAE citizenship, but there is no naturalization legislation in the UAE (Shihab, 2000).
The South Asian immigrants far outnumber the Emiratis with 2009 estimates pegging their proportion in the population at 58.4% to Emiratis 16.5% (Khondker, 2008). This serves to show how globalization and economic opportunities have served to increase the UAE population. The business and work opportunities have also greatly increased the number of Europeans, especially in the multicultural cities, such as Abu Dhabi and Dubai. The life expectancy in the UAE was approximated to be 76.7 years in 2012, which is the highest in the Arab world (CIA, 2013).
Due to large numbers of expatriates and business opportunities in the urban areas, 88 % of the UAE population resides in the urban areas. The open economy and borders of the UAE have won praise despite production of financial excesses, human trafficking, social ills and opportunity for the Iranian businesses running from their international sanctions, which have found their base in the United Arab Emirates.
Dirham, the UAE’s currency is pegged to the dollar and hence, freely convertible and secure. Further, there exist no restrictions to capital repatriation and profit transfer (Darrat et al., 2005). The import duties are also low and it is less than 4% for almost every category of goods. For goods, which are imported to be used in the free zones, it does not even exist. Another important factor, which has made the UAE destination of choice for investors, is zero personal and corporate tax (“Reasons for doing business in the UAE”, 2013). When all these factors are coupled with bilateral investments treaties and numerous double taxation agreements, many businesses have thrived leading to better social and economic wellbeing for the UAE populace and hence, a preferred business destination.
When the effects of the global financial crisis in Emirates became evident, the UAE Central Bank created a $ 19 billion facility for the UAE banks and started monitoring their liquidity more closely. These measures have succeeded in stimulation of aggregate demand through increased investment, consumption and expenditure by the government as the leading drivers for economic growth (“Reasons for doing business in the UAE”, 2013).
Apart from these short term measures to stabilize the UAE economy, the federal government continued its efforts in adoption of industrial policies, which are aimed at sustainable development and a future economy, which will not be overly dependent on oil. The UAE is a party to several international trade statutes. These include the GATT (General Agreement on Tariffs and Trade since 1994 and WTO (World Trade Organization) from 1996. It is also a member of GAFTA (Greater Arab Free-Trade Area) under whose auspices all the Gulf Cooperation Council (GCC) countries participate.
These and other memberships have played a big role in facilitating the participation of UAE businesses in the global economy (“Reasons for doing business in the UAE”, 2013). Over the years, the UAE has scored impressively on global business related indices. Due to regulatory reforms, the UAE has been ranked favorably by the World Bank’s doing business index and it is currently placed at number 13 globally. The UAE scores very impressively in the category on cross border trade and is ranked as the best in MENA region and at number five in the world.
Other areas, where the UAE has scored highly, include the categories of: payment of taxes (1st globally), dealing in permits for construction (13th), property registration (12th), and electricity availability (7th). The UAE has asserted that it is making use of the index findings so as to improve in those categories, where it has not been doing well. Some of the economic sectors in the United Arab Emirates actually gained from economic turmoil in other nations across the globe (“Reasons for doing business in the UAE”, 2013). For instance, it attracted diverted capital while the number of tourists increased in 2012 when compared to the previous years. There was a 13% increase in the number of tourists, who passed through Dubai during this period.
Further, the numbers and sizes of the real estate transactions have been stabilizing steadily over the years. Also many companies opt for Dubai as the best place from where to do business with the other regional countries and companies. The economic priorities and the high oil prices have meant strong regional growth and investment. This has led to increased number of foreign businesses, which prefer to do business in Dubai with most of the companies actually making Dubai the regional base for their operations.
These are some of the reasons, which have made the UAE to boast of a high Human Development index in Asia and at number forty one worldwide. One of the issues, which may face expatriates from countries, where trade unions thrive, is the fact that the UAE constitution does not allow for trade unions. Further, right to strike and the right to collective bargaining are non-existent .The labor ministry possesses the power to force employees back to their work stations. In addition, any migrant employees, who attempt to take part in strikes, can have their work permits withdrawn, be jailed or deported (Reuters, 2008).
Therefore, the global social and economic changes have changed the UAE from their status before oil discovery when the populace lived as Bedouins. Currently, many of them are in businesses or political offices brought about by global social and Economic changes. Economy of UAE has proven its extreme resilience despite many global economic challenges. Still business opportunities are many, and many entrepreneurs are still flocking into the country in search of the petrodollars. Thus, global social and economic changes have greatly impacted on the UAE businesses.