Doing Business in the United Arab Emirates - Essay Example

Doing Business in the United Arab Emirates No. Doing Business in the United Arab Emirates Introduction Making decisions regarding investing in a foreign country have never been easy to many investors. This is mainly because there may be certain inherent risks that may affect the overall performance of the business in the new business environment (Abu Dhabi 2012). The United Arab Emirate has proved to be the best region within the Gulf for many investors to establish businesses in. This is due to the favorable business environment politically, economically, socially, legally and technologically. The United Arab Emirates is currently the 36th largest economy by world standards and ranks 2nd in the GCC (Gulf Cooperation Council). Moreover, it was recently ranked number 40 out of the 183 countries with regard to the overall ease of conducting business. This article explores the business environment of the UAE by examining its PESTL environments. Political situation The United Arabs Emirates (UEA) is a Middle East country bordering the Arabian Gulf and Oman Gulf, between Saudi Arabia and Oman. It is a federation of seven countries established in 1971with its members operating under one federal government. The country which is a monarchy is politically stable. Even though democracy sometimes is jeopardized, citizens enjoy a lot of freedom. UAE has four levels of governments: President, Federal National Council, High Council, and Local Emirs. What is evident is that most powers are vested in the hands of the Emirs. As such, no authority is allowed beyond Emirs, implying that citizens from different Emirates have absolutely no say on political issues (Kjeilen 2004). The UAE enjoys favorable diplomatic relations with several countries. It has close ties with most Arab countries including Egypt and Pakistan. The country’s main export markets include Germany and the United Kingdom even as the U.S. and France maintain security related cooperation with the country. The government has made great effort to increase spending on job creation, opening up space for private investor involvement as well as expanding its infrastructural facilities to create a favorable environment for business and investment. The government’s commitment to promote business and investment is also seen when it created a free trade zone in UAE. The zone was mainly established by the government as a way of promoting direct foreign investment in the country. This implies that there are no limits on overseas ownership within UAE. The government in this case allows foreign investors to establish fully-owned companies within the free trade zones, which currently stand at 30 (HSBC 2011). Taxation is also relatively low, which promotes starting and operating a business in the UAE (HSBC 2011). Economic The country ranks top among countries with the most liberal and open economies. It has a large annual surplus and a soaring per capita income. With Dubai and Abu Dhabi as its financial hub, the UAE has a stable commanding economic superiority in the Middle East. Economic survey ranks UEA high in terms of GDP out of all the emerging markets. The GPD of UAE according to the 2011 statistics stood at 257.2 billion Euros with a GNI per capita of US$ 54737.9 million (Lystra 2011). The country’s GDP for 2010 was US$ 386.39 billion and the GDP growth rate for 2012 estimated at 2.3% These figures indicate how strong the economy of the country is, which is also an indication of the brilliant prospects of the area in business terms. However, the 2010 survey showed that export-to-GDP ratio stood at 56.9%, import-to-GDP at 56.4% and trade-to-GDP ratio at 113.3% (Lystra 2011). From the statistics, it is clear that the import to export ratio is almost equal, indicating a balance of trade. The UAE’s major trading partners include the United States, China, Norway, Russia, and Switzerland (Lystra 2011). The favorably business environment has opened up quite a number of economic opportunities in the region. These include tourism, logistics, banking, trade, manufacturing industries, and real estate development (Lystra 2011). The country’s main exports include natural gas, petroleum, aluminum, textiles, iron, and steel. The main imports for the country include transportation equipments, machinery, and manufactured products. Nevertheless, the country weakness is mainly on its monetary policy in which its currency is pegged on the dollar, allowing it little control over monetary policy thus making inflation difficult to control. The other threats in the region regard over-subsidizing of agriculture and utilities as well as adoption of outdated tax system, which results in fiscal deficits (BBC 2012). Social/Cultural situation The UAE’s population was approximated at 8,264,070 in 2010 with natives accounting for only 13% of the population (indexmundi.com 2012). The population growth rate as estimated for 2011 was 3.055 with the birth and death rates being 15.76 births and 2.04 deaths per 1000 respectively. Life expectancy in the country for the total population stands at 76.71 years (indexmundi.com 2012). Zero point nine percent of the population comprises persons above 65 years in age (indexmundi.com 2012). The UAE is also a diverse country which several immigrants from countries such as India, Iran, Pakistan, Bangladesh, Sri Lanka, and Philippines. Others include Europeans, Arabs, and Americans. The predominant culture is Arabic with most of the population being Muslims, accounting for about 96% of the population (indexmundi.com 2012). Other religious groups that feature in the country include Christians, Hindus, and Sheikhs. The locals are very hospitable people, thereby making it easy for foreigners to do business in the region (Bureau of Near Easter Affairs, 2012). UAE also has one of the best infrastructural facilities, an initiative taken by the government to promote business in the region. The government provides several free services to citizens (both male and female) including education up to the tertiary level, high-quality healthcare, family allowances, social security, water, electricity, and housing at subsidized cost to low income earners. Non-citizens, however, have to pay for some services in government institutions such as schools. The UAE government took this initiative as a way of distributing wealth derived from oil to its population. This is not discriminatory since even immigrants benefit especially in the line of medical care with is subsidized to all regardless of nationally, gender, color, ethnic affiliation, or religion (Taylor 2012). Technology Trend UAE just like any other country is at the forefront of automating most of its services to ensure efficiency, and timely delivery of quality services. The government is especially investing a lot of money on research and development especially in the line of technology. It has gone a step further in promoting professions that are technology oriented to ensure that the country remain at the top in terms of technology. Among the technologies that have been adopted currently, include e-commerce, which is seen as one of the means of promoting efficiency in businesses. Furthermore, most services in the country are automated (Khaleej 2012). The UAE has a well developed transport network with road transport being the most widely used. The country has close to 680 miles of paved roads and a railway network connecting different parts of the country. The country has several sea ports including Ajman, Umm al Qaiwain, Rashid and Fujairah among many others, and at least 40 airports. Furthermore, the country enjoys high Internet and mobile penetration as part of its highly developed communications infrastructure. The government encourages the free flow of communication and research in various areas in order to boost growth and national development. Legal UAE is one such country that is committed to creating favorable business environment to all corporations in the country. One of the legislations that the government has passed aims at promoting business was the passage of listing ceiling for companies. This legislation opened up space even for family businesses to go public. This federal government legislation brought down the ceiling threshold to 25% from 55% (Gulf Legal Services Ltd, 2011). Several regulations govern business activities in the UAE. Registration of business is a required and strict adherence to various regulations is demanded by government. Businesses may be registered as sole proprietorships, limited liability company, or partnership among other business forms (business.abudhabi.ae 2012). Establishing a business in the UAE is relatively easy as taxes are law and registration takes a relatively short duration depending on the business type. Environment Despite the political situation, UEA government has been at the forefront of ensuring that the environment in the area remains hospitable to promote business. Both the government and private businesses value a clean and healthy environment. Environmental laws (law No. 24) have been instituted to ensure environmental protection, conservation and balance. The country also recognizes several international protocols and conventions relating to the environment. In the UAE, the paternalistic management style mostly applies considering the country’s Arabic background (worldbusinessculture.com 2012). Managers are expected to give clear and straight forward directions that will be strictly followed by subordinates. Doing more than instructed by a manager is considered disobedience. Conclusion It is evident that the UAE is a good country to invest in since it offers a conducive environment for businesses. This is because the country is stable politically, economically, socially, and has advanced technologically to ensure that the needs of every stakeholder is catered for. References Abu Dhabi (2012), Business laws in UAE, viewed from http://business.abudhabi.ae/egovPoolPortal_WAR/appmanager/ADeGP/Business?_nfpb=true&_pageLabel=p_business_homepage_hidenav&did=227594&lang=en [Accessed 13 October, 2012] BBC (2012). 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