International business and finance has developed due to increased globalization and internationalization. This has led to development of new economies, which are driven by development of communication and technology. This paper will focus on United Arab Emirates (UAE) as one of the emerging economy and its suitability to attract foreign direct investments. United Arab Emirates is located in the Middle East and has been among the most developed and with highest potential among the countries in the Middle East. It received its independence on 2nd December 1971 from Britain. It contains seven emirates and the capital city is Abu Dhabi. However, the richest emirate is Dubai followed by Abu Dhabi due to high levels of oil explored from the states. Oil has been the major source of income for the economy and the country has enjoyed stable economic growth. The current president of the UAE is Sheikh Khalifa Bin Zayed who has been described as a visionary leader. The UAE has witnessed economic empowerment and this has led to its emergence in the global market as a world player. The president has ensured the maintenance of stable political environment, which has made the country to be among the best alternative for global multinational corporations. However the country has a devolved system of governance with seven emirates. These emirates are governed by rulers who retain absolute authority over the governance of the emirate. The main language of communication in UAE is Arabic while the dominant religion is Islam and sharia laws are widely applied in business and society in general.
UAE exercises a federal system of governance comprising of seven emirates Dubai, Abu Dhabi Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. These emirates are formed under certain federal structure with certain powers, which facilitate governance of the emirates. The federal system of governance contains the supreme council which is composed of various ministers and it has the responsibility of electing the president and the vice president. The supreme council consists of the rulers of the seven emirates and they have both the executive and legislative authority. The supreme council has various powers in the governance of UAE since they approve formulation of policies and laws. Therefore the country has experienced stability in its political leadership, since there have been no political instabilities in the governance.
The country’s population has been growing tremendously and the number of young people in the country has been high. The country has also enjoyed long periods of economic stability due to consistent income from the oil exploration. The country has also adopted attractive policies to attract multinational organization to establish business in the country. This has been through introduction of economic free zones where fully owned foreign corporations can operate tax free. The foreign corporations operating in these economic free zones are allowed to expatriate their income to their countries of origin. The country has the highest per capita income in the globe showing that the purchasing power of the people is high. This high population with high purchasing power will form a strong customer base for organizations operating in the country. In addition, they act as strong indicators of high potential development of the organizations establishing their operations in the country. The population has shown indicators of growth and population is very essential in facilitating development and growth of organizations.
UAE is largely composed of Arabs practicing Islamic religion since 95% of the population in the UAE is composed of Islam (http://www.emirates.org/)
Sharia laws are practiced in both business and in social platforms and multinational corporations seeking to establish business in UAE should have a clear understanding of these laws. UAE has established multiple foreign investments in the global market with various countries in Europe, America, Africa, Asia and other numerous countries. The country has been on trading blocs with other countries such as the gulf cooperation council (GCC), which facilitate free trade among the gulf countries. The country has established numerous foreign investments through various means such as the famous Abu Dhabi investment group, which has established investment all over the world (Al Abed, Hellyer and Vine 74). The country has had surplus balance of payment due to increased oil production and the escalating oil prices in the global market. Global security concerns have increased but security system in UAE have been enhanced. In addition, the country has maintained peaceful coexistence in the globe and terrorist attacks have not been a major threat to security in UAE.
Multinationals prospecting to invest in UAE will have to learn the various laws and regulations governing introduction and operation of business. Organizations will have to comply with various laws and regulations set under the UAE constitution and under the laws of the emirates. The organization will have to comply with various laws such as company law, labor laws, protection of intellectual property, trademarks, protection of industrial property onshore and offshore regulations authorities. There certain regulations that a company establishing business in thee UAE has to comply with. These include an operating license from Dubai Economic Department and other regulatory authorities established under the UAE laws (Katzman, 97). However, Ministry Economics and Commerce approves certain types of business operations such as multinational organizations dealing with finance and insurance. License will be an authorization to the company to operate business in the UAE without a license the organization will not be able to operate business. Organization prospecting to establish business in UAE will have to learn the international laws and organizations which control the operations of business in UAE. These include International Financial Authority, which regulates operations of offshore firms operating in UAE. Offshore organizations are the multinational foreign companies operating not only in Dubai but internationally.
United Arab Emirates has been under stable political status, which has been one of the factors attracting massive foreign investment. This has led to flourishing of the economy, has made the country of the most promising destination of multinational corporations seeking to expand their influence in the global market. The country have enjoyed long period of economic stability due to increased oil production which has made the country to enjoy surplus in its balance of payment. The country has the highest per capita income showing the population has high purchasing power. Therefore, organization establishing business in UAE has a high potential of growth due to high purchasing power of the population.
Economic Risks Facing Business in UAE
The country has been having high income due to production of oil and extensive foreign direct investments. This has led to reduction of the state debts, the current gross external debts of United Arab Emirates are $151.8 billion but the country has a GDP of $360 billion. This shows that the country has the ability to pay any accruing external debts without burdening the economy. This has enabled the country’s per capita income to increase and thus high living standards among the people. The country exports stand at $212.3 billion while the imports stand at $161.4 billion; this shows that the country has a surplus of $50.9 billion. The trading surplus is due to high production of oil in the country and the oil prices have been escalating in the recent global economies. Therefore, an organization prospecting to establish business in the UAE has a high potential to grow since the country has a stable economic development (Wikipedia Arab eemirates). The country has also diversified it economy with numerous introductions of manufacturing companies especially in Dubai (Noack, 40). The country has been classified 33rd country globally with ease of running business. UAE has been classified as a high income economy, for example Dubai was expressed as one of the most expensive city in the world. The high income per capita has led to increased rate of saving among the people causing increased rate of investment in the country. The tax rate in UAE is determined in the emirates since each emirate operates its own tax system. However, it has been designed to attract foreign direct investments since the tax rates are low to attract foreign direct investments. The country infrastructural development has been modernized with modern road network and electric trains especially in Dubai and Abu Dhabi. Many multinational financial and service organizations are in operation in UAE (Abed and Hellyer 89). For example, multinational banks and insurance industries are in operation in UAE also the local institutions are found on strong legal foundations.
Economic growth pattern of UAE
UAE has been experiencing continued economic development and the GDP has expanded with the growth rate averaging 5.95% from 2000 to 2011. UAE has an open economy and the per capita income have remained all-time high. The trade surplus has been sizable in the past few years since the discovery of oil. The government has put various efforts to diversify the economy and reduce the high dependence on oil. The GDP growth rate for the last three years has been 1.4% for the 2010-2011 periods. In the year 2011 and 2012 the rate of GDP increased to 3.3%. This shows that efforts by the government to diversify the economy have led to growth of the economy (United Arab Emirates GDP Growth Rate 3). The goods and services produced in the economy have increased hence the economic development.
Structural reforms and economic
The UAE government in the effort to diversify the economy has developed various structural reforms to encourage private investors to invest. This has been through various privatization programs by the government. This has been made to encourage private investments in the efforts of the government to diversify economic growth. UAE has also adopted various policies in its effort to liberalize the economy and facilitate diversification of the economy. This was to encourage participation of more people to economic development of the economy. Liberalization of the economy in the UAE was brought about by the government to open the economy and encourage foreign investment. Liberalization is essential for an economy that wants to achieve accelerated economic development. This attracts both the direct foreign investment and domestic investments.
Infrastructural development of UAE
UAE is among the fastest growing economy in the Middle East. The government of UAE has made massive investments in infrastructural development in both private and public. Despite the stalled economic development in the period of 2009 UAE construction industry recorded strong development and growth. The contribution of construction industry in the period of 2007-2009 was 8% and the projected contribution to the economy in the year 2012 is 20%. This has been due to development in the tourism industry, housing educational facilities, transport industry, communication, utilities, ports and airports (Construction activities and infrastructure development in the UAE 5). This has led to improved infrastructural development in the country which has continued to attract foreign direct investments.
Employees’ skills in UAE
The development of skills and knowledge is essential to development of the economy. In addition, the current development of information and technology has complicated the issue of skills and knowledge. However, UAE has adopted policies that encourage adoption of technology in the production system. This has been through adoption of technology in the educational programs, which encourage development of skills. Skills and knowledge affects employability and the general economic growth. To maintain sustainable development in the economy UAE has facilitated development of skills through adoption of information technology in the education system.
The stability of the political system in UAE should encourage organization to establish business in the country. This will reduce interruptions due to instability of the economy. The infrastructural development in UAE has the ability to support business activities and this will facilitate smooth learning of the organization activities. In addition, the country tax system provides incentives for establishing firms thereby an establishing firm will enjoy various benefits. The support industry in UAE has been established on strong legal frameworks which enables the organization to grow.
In conclusion, multinational corporations identifying prospective countries of investment should consider the political environment and various factors affecting business operations. UAE has been one of the best destinations for MNC due to its political stability and economic growth. The living standards of the people have been high and the country has experienced surplus in its balance of payment. Therefore, UAE is a good country which multinational corporation should.
"::..United Arab Emirates @ Emirates.org..::." ::..United Arab Emirates @ Emirates.org..::. N.p., n.d. Web. 27 Aug. 2012. <http://www.emirates.org/>.
Katzman, Kenneth. United Arab Emirates (UAE): Issues for U. S. Policy. New York: DIANE Publishing, 2010.
Abed, brahim and Peter Hellyer. United Arab Emirates, a New Perspective. Dubai: Trident Press Ltd, 2001.
Al Abed, Ibrahim , Peter Hellyer and Peter Vine. United Arab Emirates Yearbook. Dubai: Trident Press Ltd, 2006.
Noack, Sascha. Doing business in Dubai and the United Arab Emirates. New York: GRIN Verlag , 2007.
Construction activities and infrastructure development in the UAE Feb 26, 2010 -
UAE Construction Industry Outlook to 2012