UAE An Emerging Market

 

Description

There are 7 states in the UAE. The country is an attractive market place in the Gulf area. However, due to unstable political conditions through many years in the Gulf region, the UAE’s economic market has not seen much development until recent years. Entering into the UAE market requires deep understanding of its political, social, economic and cultural challenges and barriers. The UAE has been famous for being an oil exporter but with recent diversification, it now opens doors for other industries as well. This case study outlines how to enter the UAE’s emerging market identifying key challenges, opportunities and competitive industries.

Introduction

The GDP of the country is nearly equal to the average of countries of the world. Among the Arab countries, it comes second  after Saudi Arabia. A third of its GDP is from its oil revenues. It has relatively high Human Development Index among all nation countries due to its strong economy and regulatory controls. Apart from oil resources, the UAE has petroleum  and natural gas as other natural resources; however, in recent years, after the 2008 economic recession in oil markets, the UAE diversified its economy into financial services, tourism and construction sectors (Wikipedia, 2014). The UAE is ranked by World Bank as 14^th best nation in the world for doing business (The World Bank, 2012)

Analysis

Apart from the above positive indicators, there are certain challenges that the UAE faces. These challenges include having a critical geographical location for being a prime location and connected to South-West Asian countries where the drug trafficking rate is high. This makes UAE a central financial hub for money-laundering activities which require much tighter controls on borders and law enforcement within the UAE; especially when the informal banking remains unregulated in UAE.  However, considering the location is another opportunity as the UAE serves as a central location to reach many important regions. The UAE’s location makes it most favourite for transportation, trade and creating communication networks with the Gulf region. Its sea borders with South Asian countries give it another competitive advantage over other countries.  

On trade development, the UAE now offers free-trade zones offering 100% foreign ownership and zero taxes but there have been recent global financial crises. Though the UAE economy is recovering from the global economic crises, a large expatriate workforce and growing inflation pressures are significant long-term challenges. The variety is now being extended into education, healthcare, infrastructure and tourism, creating more opportunities for nationals and private sector development (The World Factbook, 2014). Due to these initiatives, in the MSCI report of 2014 the UAE is not classified as an emerging market, along with Qatar (MSCI, 014).  This will create a positive impact on a global scale while attracting global investors with leading investment portfolios and global corporate investment funds.

On the labour management side, the UAE has some challenges such as restricting trade unions, collective bargaining and the right to strike. Migrants involved in any strikes can face legal implications including cancellation of work permits or deportations. There are very few anti-discrimination laws which might be of serious concerns to global investors and/or expatriates.

The rule of law is well maintained but thejudiciary in not independent and court rulings are subject to review of political leadership whenever required. (Sambidge, 2013). The largest state, Abu Dubai, doesn’t offer property ownership to anybody except in limited areas. The positive aspect of the UAE economy is it doesn’t put income tax or federal level corporate taxes in a standardized manner; only few corporate taxes exist based on particular business activities. (The Heritage Foundation, 2014)

Conclusion

The UAE, being an emerging market, holds a promising outlook for some industries such as tourism, transportation, communication networks, infrastructure and real estate due to recent diversification into these sectors. However, some regulatory challenges are still in place which constrain foreign investments such as property ownership, labour regulations, no-free judiciary and cultural differences which might be of concern to foreign workers. As the UAE is into a development phase where it is streamlining most of its regulations to attract global investments, it can be hoped that investment and property rights along with other labour-related regulations will be made more investment friendly in near future. The UAE’s prime geographic location, booming sectors of tourism and infrastructure and being a hub for reaching two thirds of the Gulf region, are the strong aspects for any global investors while investment options are to be considered carefully keeping in view the local laws and cultural aspects.

References

MSCI. (May, 2014). Market Classification. Retrieved April 28, 2014 from http://www.msci.com/products/indexes/market_classification.html

Sambidge, Andy. (November, 2013). Dubai Bubble Concerns ‘Overly Negative’, Says Cluttons. Retrieved April 28, 2014 from http://www.arabianbusiness.com/dubai-bubble-concerns-overly-negative-says-cluttons-527431.html#.U14xHvmSxqU

The Heritage Foundation. (2014). 2014 Index of Economic Freedom: United Arab Emirates. Retrieved April 28, 2014 from http://www.heritage.org/index/country/unitedarabemirates

The World Bank. (2012). Doing Business in a more transparent world. Retrieved April 28, 2014 from http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pdf

The World Factbook. (April, 2014). Middle East: United Arab Emirates. Retrieved April 28, 2014 from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html

Wikipedia. (2014). United Arab Emirates. Retrieved April 28, 2014 from http://en.wikipedia.org/wiki/United_Arab_Emirates