The political/legal environment
Also commonly known as UAE or the Emirates, the United Arab Emirates is an Arab federal country made up of seven emirates. Each of the emirates is governed by Emirs who appoint the overall leadership of the country including the president, prime minister, and the cabinet.
The seven emirates are Abu Dhabi, Dubai, Sharjah, Fujairah, Ra’s al-Khaimah, Umm al-Qaiwain, and Ajman. The country is bordered by Iran, Qatar, Saudi Arabia, and Oman. The federation was formed in 1971 after gaining independence from Britain. Since then, the country has grown to be one of the most important economic centers within the Middle East (Renaud, 2012).
Even with the federal system in place, the seven emirates or principalities enjoy economic and political independence by controlling their natural resources and regulating all commercial activities within their borders. The major role of the federal government is to make and implement laws relating to immigration, communication, foreign policy, and defense.
The United Arab Emirates is one of the most democratic and liberal countries in the Gulf region. In spite of this, there have been a few events in the country’s political scene which are seen to be against democracy. For instance, in 2012, there was internet activism, but the government decided to clamp down on it.
The economy of the country is currently depending largely on oil and service industry. But before oil was discovered, fishing and pearl industries were the two main pillars holding the economy (Zaki, Bah, & Rao, 2012).
The United Arab Emirates is an open market economy with a good annual trade surplus and high income per capita. With a significant decrease in levels of oil reserves, the country has diversified its economy, and only 25 percent of its economic output is currently based on oil and natural gas.
There is increased spending on infrastructure and creation of jobs to attract the global workforce. The legal business regulations make it easy for foreign firms and enterprises to invest in the country. For instance, there is zero taxation and 100 percent foreign ownership on the country’s free trade areas. This makes it very attractive to foreign investors.
According to the 2012 GDP data, the country’s GDP based on purchasing power parity stood at $271.2 billion and was ranked 50th in the world. The GDP figure was an increase from the previous years. The top three sectors that contribute to the country’s GDP include industry, service, and agriculture with 56 percent, 43 percent, and 0.8 percent contribution respectively.
UAE has a labor force of 4.3 million. However, foreign expatriates make up the highest percentage of this figure. Most of the technical and professional work is occupied by foreign workers while less skilled work is done by locals. With regards to inflation, it has a very low rate of inflation owing to its impressive economic performance. It only has an inflation rate of one percent and ranked 9th worldwide.
Major industries in the country include textile, handicraft, boat building, construction, commercial ship repair, fertilizers, cement, aluminum, fishing, and petroleum and petrochemicals. The growth rate of industries stands at 3.2 percent according to the latest data. In the agriculture sector, main products include fish, dairy products, eggs, poultry, watermelons, vegetables, and dates.
Most citizens and foreigners in the country enjoy high living standards because of the great oil wealth. The UAE is considered one of the most competitive economies in the world today according to financial analysts (Fodor, 2010). The economy is currently growing at a rate of 4.5 percent, and this is an increase compared to last years’ rate of 3 percent. The main sector contributing to the growth of the economy is tourism.
The economy used to rely heavily on oil, but now oil only accounts for 3 percent of its gross domestic product. Despite such figures showing recovery from the crunch, the real estate industry is still on a declining rate. However, there is some sense of recovery compared to earlier years (Al-Ali, 2008).
Principal business activities
The traditional working week begins on Saturday and ends on Wednesday. If one intends to schedule for a meeting or book an appointment, it should be done in advance with additional time allocation after the meeting. The people have a relaxed attitude towards time.
Structure of companies
Most companies in the UAE have a structure where there is a huge gap between top management and subordinates. It is important to the recognized status of individuals especially those with high ranking. Therefore, titles such as Sheikh, which implies chief, have to be recognized when addressing such an individual.
It is important to know that in UAE, people prefer to do business in person and with those they know. Family and friends come first even before business or work. For one to become acquainted with business partners and associates, it is important to first hold an initial business meeting.
Analysis of exports/imports
Singapore, Thailand, South Korea, Iran, India, and Japan are the country’s major export partners. The main commodities involved in the country’s export include dates, dried fish, re-exports, natural gas, and crude oil. However, crude oil forms 45% of the entire export goods from the country. In 2012, exports generated a total of $300 billion.
With regards to imports, the main partners include Germany, US, China, and India with food, chemicals, transport equipment, and machinery being the main goods imported into the country (World Economic Forum, 2013).
The country has a population of 8.26 million people according to estimations by the UAE 2010 census. Out of this figure, only 15 percents are locals or UAE nationals. The remaining part of the population largely constitutes foreign expatriates and professionals. The foreign expatriates are mainly from Asian, but at least every continent and region in the world is represented with a significant number of professionals in the country.
Islam is the main religion. However, there is freedom of worship whereby the government is tolerant of other religions. This implies that religion and social, cultural factors have played a role in influencing the country’s business environment. It is evident in the country’s economic prosperity over the years (Tessler, 2002).
UAE is among the countries in the world that have embraced green technology. The cities in UAE are a den of modern technology as buildings are built to make use of renewable forms of energy available in the country. Also, the interest in technological development has gone a notch higher by building institutions for research and development in science and technology.
The country is rich in culture because of its diverse nature. As a result, the single most acceptable cultural norm is accepting everyone. This sets a good environment for enterprises in the country. The society also has a culture of embracing diversity. Ethnic differences existing in the UAE society are accepted and used to unite society.
Hofstede’s Country Characteristics
Power Distance Index
The power distance index is high based on a stratification using social standings and wealth. This shows that upward mobility is relatively lacking.
The individualism index is low based on the fact that there is a culture oriented towards teamwork and group work in the country. It is important for one to appreciate and be loyal to groups associated they are with, for instance, being loyal to a company, a social group, or family.
The index for masculinity and femininity is moderate. This is because there is a recognition of gender differences in addition to distinctions between religion and culture.
Uncertainty Avoidance Index
The uncertainty avoidance index is moderately high. This is based on the likelihood of society to resist risk and change. It is also based on the fact that there are strict regulations governing the business environment.
The score for long term orientation is also high because of the social obligations, beliefs, and values that people give more attention to. There are regulations that have been put in place to ensure that people follow their values and social obligations.
Future Prospects of Trade
The volume of trade has shown a rise in the country for the last two decades. The future, however, lies in nonoil sectors due to the exhaustion witnessed in the country’s oil reserves. Exports for nonoil products have increased thereby showing a lot of prospects. With heavy investment in infrastructure, the real estate is currently a well perfuming sector in the country.
Investment in the real estate industry is a viable business in the whole of UAE. This is because the country has decided to shift its economy from over-reliance on oil and natural to infrastructure development. The global financial crisis slowed down the growth of real estate in the country.
It can, however, be seen that even though the real estate market is gradually making a rebound, there are still significant losses made at the moment primarily because of the current economic situation and challenges. According to a market research report that looks at the real estate market of Dubai reveals a marginal recovery.
Demand for real estate property has continued to increase thereby creating a balance between supply and demand. Since 2010, residential housing units in Dubai have become affordable because of the economic rebound. These two factors have been noted within the report to have been the major contributors to the recent marginal recovery (Zembowicz 2009).
In conclusion, United Arabs Emirates currently offers entrepreneurs a perfect opportunity for investment. The country shows a lot of potential in terms of economic growth which investors can use to their advantage. However, due to the public outcry about the influx of foreigners in the country, the business environment is likely to take a new shift.
At the same time, the diversification of the economy from being dependant on the oil and natural gas has opened up other investment opportunities which attract foreign investors. For instance, infrastructure development, manufacturing, and real estate are some of the major sectors earmarked to boost the economy.
Al-Ali, J. (2008). Emiratisation: drawing UAE nationals into their surging economy. The International Journal of Sociology and Social Policy, 28(2), 365-379.
Fodor, M. (2010). Free zones: Benefits and costs. Organisation for Economic Cooperation and Development. The OECD Observer (275), 2(1), 19-21.
Renaud, B. (2012). International Articles:Real estate bubble and financial crisis in Dubai: Dynamics and policy response. Journal of Real Estate Literature, 20(1), pp. 51-77.
Tessler, M. (2002). Islam and Democracy in the Middle East: The Impact of Religious Orientations on Attitudes Toward Democracy in Four Arab Countries. Comparative Religious studies, 4(1), 345-376.
World Economic Forum. (2013). The global competitiveness report. Geneva: World Economic Forum. Web.
Zaki, E., Bah, R., & Rao, A. (2012). Analysis of Financial Crisis in UAE Financial Markets. International Research Journal of Finance and Economics, 33(1), 121-133.
Zembowicz, F., (2009). Remodeling Dubai: The Emirate’s Housing Market. Harvard International Review, 30(4), 12-13.