The Economy

The UAE (Economic Overview)

The summary account of the seven emirates comprising the United Arab Emirates indicates that its economy is not totally reliant on oil. The UAE economy is rather uniquely diversified into a number of industries and sectors yielding a substantial national revenue that exceeds expectations of a relatively small nation.

The UAE population is of a cosmopolitan mix with foreign labour and expatriates forming the bulk of the inhabitants. According to 2013 statistics, the UAE’s total population amounted to 5.4 million heads, 80 percent of which were foreigners including skilled and unskilled labour, in addition to expatriates. With an economy characterized by fast growth and rapid development, the UAE economy has always been remarked by low unemployment due to the persistent demand for labour. However, during the years that followed the 2008 global crisis, signs of unemployment surfaced. According to many economic analysts, the unemployment is only due to the global crisis and will eventually be correct by steep budget deficits, government policy an excess spending by the federal government. This proved correct in the years that followed 2013 when the unemployment rate dropped from 12.5% to less impactful rates… In terms of CPI, the inflation rate in the UAE in 2013 was 0.9 percent, which is a reflection of a healthy, sound and stable economy. During the same year, the UAE’s foreign direct investment amounted to $7.7 billion, while its GDP figure was at the $258.8 billion mark. Remarkably, the UAE economy enjoys an outstanding annual growth of 4.9 percent and an exceptional GDP per capita $48,158 per head.

Politically, the UAE enjoys a great degree of stability based on its neutrality and good relations with the rest of the world. This has enabled a dynamic business environment for multinationals and entrepreneurs. It also extends a favorable and transparent business environment, where corruption levels are kept to very low levels.

So far, the nation has not imposed income tax on individuals and corporations. However, there are certain industries in some emirates that undergo marginal corporate tax on specific activities. These include externality taxes in the form of pollution tax and other related activities. There is no sales tax in the UAE, so the tax burden is 7.1 percent of domestic income (total), which is quite low. The spending of the UAE government accounts for 22.3 percent, based on the entire domestic output. The revenues generated from oil are large and have succeeded in keeping public debt to fewer than 20 percent of the UAE’s GDP, while government budgets remain totally covered at most times.

Import, Export and Balance of Payments

While the general perception that the UAE exports oil and imports everything else, the sheer truth is somewhat different. Thus, although the UAE is a major exporter of crude oil and the majority of its exports are based on oil and byproducts, the UAE exports other finished goods based on its light manufacturing industries. The UAE also acts as a major re-exporter in the region with its strategic seaports open to the rest of the world. The UAE also exports recyclable material to India and other smelters in Asia. These include scrap metal, paper, PVC and scrap machinery.

As for imports, the UAE in turn, imports a large variety of consumer goods. Its domestic production contributes to the nation’s requirement of some light consumer goods, including edible perishable products.

Invisible exports, such as tourism contributes positively to the UAE’s GDP while net investment, as a result of high FDI, contributes positively to the GNP. The UAE balance of payments’ deficit has been narrowing in recent years based on growing industries such as hospitality, banking and shipping with invisible exports reducing the gap between total exports and total imports.

Foreign ownership

In a similar fashion to neighboring GCC states, the UAE government has been cautious to the notion of foreign ownership. Ownership by firms is strictly monitored by local governing bodies and kept to a minimum level. To establish a non-listed firm, the foreign investor should have a local sponsor owning at least 51% of the entity, which creates a barrier to entry for beyond the border investments. To avoid being under this 51% ownership by the local sponsors, many investors resort to forming establishments where they own 100% of the newly formed entity while appointing a local sponsor as a service agent against an annual fee. Moreover, in the last 2 decades or more, local governments of each Emirate established Free Zones in which companies and multinational can operate freely with being restricted to having a local partner or sponsor. These zones offer far lesser restrictions on full foreign ownership and require less documentation to establish a firm.

The UAE stock market

In light of the financial boom witnessed across the economy during the late 90’s, the government established the UAE stock market in both Dubai and Abu Dhabi for a single purpose; to enable high income earners citizens to invest their money within the UAE economy, as opposed to resorting to investing abroad.