Doing Business and Investing in the United Arab Emirates - Research Paper Example

Doing Business and Investing in United Arab Emirates Introduction While most usages of the term globalization are vague, some individuals have used it in a more precise manner. There are five specific definitions that can be pinpointed from the others, of the word globalization. However, by the mere diversifications in the term definitions it shows how confusion surrounds the whole issue altogether. Most are the times that these definitions overlap and show close relationships. The commonest of the ideas is that globalization refers to internationalization. To this, globalization may be viewed to offer a description of cross-border relations among nations and thus can be taken to denote growth in the magnitude of independence as well as international exchange. The growth in trade can be seen by big and progressive flows of capital investment and trade between nations. Also under this definition the term is taken to include huge movements between various nations of messages, people and ideas. The second usage of the term puts a lot of weight on liberalization. From this perspective, globalization is the process through which government set restrictions are gotten rid of upon the movements between nations so as to create an environment of borderless and open economy of the world. Thus, the term here may be taken to refer to international integration of economies. Recently, this is evident due to the abolishment of restrictions on foreign exchange, trade barriers, visas and capital controls. The concept in the third definition is univertilization. The word globalization is viewed or argued to have been coined in in the 1940s and it was taken to mean univertilization, which served as a prelude of synthesis of cultures across the planet in an environment of global humanism. Thus, globalization is the process through which experiences and objects are spread to all the world’s corners. The fourth definition concentrates on westernization or the process of modernization. This specifically seeks to refer to Americanization. Therefore, while this definition is followed it means the dynamism of the modernity’s social structures of rationalism, capitalism, bureaucratism and industrialism among others and their spread to the whole world. In this process of spreading local self-determination and cultures that existed previously are destroyed. The last view of the term globalization refers to deterritorization. This is the spread of supra-territory. Thus, globalization is the geographical reconfiguration such that the social space loses its mapping with regards to places of territory, borderless and distances. Following this, there is transformation in the organization of spatial transactions as well as relations. (Scholte, 2000 pp15, 16) Economic progress may be taken to mean both qualitative and quantitative upsurge in equitable and clean improvements to systems of socio-economy. Qualitative improvements are the changes in capacity to convert usage of physical resources in to services that satisfy human wants. Quantitative improvements are those that make possible for people to meet their vital needs of the present generation while at the same time not negatively affecting the ability of generations to come in meeting their needs. (Oates, 1999 p22) This is a study that is set out to focus on the two aspects. To this there will be a comprehensive answer provided to the study question, “What are the impacts of globalization and economic progress on the UAE employment and also generally?” There will be a vivid focus on UAE as a developing nation while trying to answer this study question. A history and background of the United Arab Emirates The United Arab Emirates was founded from a group of Sheikhdoms that were organized on tribal basis. These were found along the southern coast of the Gulf of Persia as well as the coast of northwestern of Oman Gulf. This region was changed religiously into Islam over the seventeenth century. Over a long period of time the area was rocked by disputes that were dynasty related. The region was called the coast of pirates due to the fact that raiders based along the coast harassed ships from foreign countries. This is despite there being navy patrols by Arabic and European navies starting from the 17th century through the 19th century. During the early times, the British made expeditions in their bid to protect Indian trade from the raiders at the area called Ras al-Khaimah and this resulted into campaigns against the headquarters of Ras-al-Khaimah alongside other harbors along this UAE coast in the year 1819. Following this, in 1820 a treaty of general peace was approved and to which adherence was followed by all Sheikhs along the coast. However, raids continued up to 1835, the period when all Sheikhs reached an agreement such that they would not involve in hostilities at this sea. In the year 1853, a treaty was approved by the Sheikhs and the United Kingdom. Under this treaty, Sheikhs agreed to what was known as “perpetual maritime truce.” The UK enforced the treaty and subsequently all disputes were to be referred to the UK for matters of settlement or dissolution. The Sheikhdoms were known as “Trucial Sheikhdoms.” Basically, while reacting to the other European countries’ ambitions, the “Trucial Sheikhdoms” and the UK set up closer bonds in 1892 treaty, which was in line with other treaties by the UK and the other municipalities in the Gulf. In this treaty, the Sheikhs agreed that they would not sell any of their territory apart from the UK as well as they would not enter any other relationship with other countries’ governments without first agreeing with the UK. In return to this, the UK agreed to protect the Trucial coast from any attack or any aggression. In the year 1955, the UK supported Abu Dhabi was in conflict with Saudi Arabia with the Oasis of Buraimi in focus as well as other southern territories. The faceoff between Abu Dhabi and Saudi Arabia would be officially settled in 1974 were not for the lack of ratification by the government of UAE. The Oman border with Saudi Arabia also remained unsettled up to 1999 when both the governments settled the dispute. Since 1999 UAE has put a constructed border between Saudi Arabia and Oman. A brand new fence along the entire distance is most likely to be completed in 2009 together with checkpoints. Following the UK’s decision to terminate all its treaty undertakings with the Arabic Seven Trucial Sheikhdoms alongside Qatar and Bahrain in 1971, the nine Arabic Sheikhdoms tried to establish a union of emirates of Arab. By mid- 1971 they had not reached a common ground of the union formation, though. When the treaty of Sheikhdoms and Britain reached its end in 1971, these became totally sovereign. Towards the end of 1971, six of the Sheikhdoms got into the union referred to as the United Arab Emirates. Another Sheikhdom joined the group in 1972 known as Ras al- Khaimah. The group (UAE) has taken part in peace-keeping missions as it attempted to free Kuwait in the Gulf war of 1990-91. Their troops have also played a major role in the missions of peace-keeping in Lebanon, Somalia, Albania, Bosnia, Kuwait and Kosovo. In the year 2004 the pioneer and only president ever of UAE passed on. His name was Sheikh Zayed Nahyan. Subsequently, his son, Sheikh Khalifa Nahyan took over the leadership of Abu Dhabi. (state.gov, 2007) The rich history of UAE has its anchorage on trade and it is tied to Islam which according to the UAE embassy in the US came in AD 630. The location of UAE between Far East and Europe made merchants attracted all the way from China and India and this was prized by the Dutch, Portuguese, and the British. While the coasts of UAE were being sought by Europeans for control, the Bedouin ancestors inhabited themselves in the deserts of Dubai and Abu Dhabi. In the process Abu Dhabi city became a very vital center. The industry of pearling grew to greater heights in the 19th century through the 20th century, following a series of treaties signed by Sheikhs and the UK. This provided employment and also generated income in the Gulf inhabitants. Most of these inhabitants exhibited semi-nomadic ways of life since they would cultivate the gardens of dates in the season of winter and pearls in the season of summer. The industry was however hard hit by the 1920s/1930s economic depression together with the discovery by Japanese of cultured pearl. In spite of the economic downturn, in the period of 1930s pioneer teams of oil companies did their geological surveys. In the year 1962, the very first crude oil cargo was exported from the region of Abu Dhabi. Revenues earned from oil grew year after another with Sheikh Zayed Nahyah being chosen to be Abu Dhabi’s ruler in 1966. Following his being chosen as the ruler of Abu Dhabi, the Sheikh played a very vital role in the construction of houses, schools, roads and hospitals. His first move was to raise contributions to the Development fund of Trucial states. The biggest donor subsequent to this became Abu Dhabi. Alongside Zayed moves, the Sheikh of Dubai since 1939, Rashid Maktoum took over shipping to take the place of the revenues of pearls. In 1969, when Dubai started to export oil, the Sheikh used these revenues to raise the standards of life of the inhabitants of Dubai. When the British said that they would withdraw their control over the Gulf of Arabia, the Sheikh of Abu Dhabi moved fast to make links with the Emirates. Together with Sheikh Rashid, Sheikh Zayed sought to establish a federation that would have the inclusion of Bahrain and Qatar besides the seven Emirates’ states. An agreement was met by the rulers of the six states of Emirates. These were; Dubai, Abu Dhabi, Umm al-Qaiwain, Sharja, Ajman and Fujairah. As per the December 2nd of 1971, the region was named the United Arab Emirates. In 1972, Ra’s al-Khaimah joined the Emirates as the Seventh state. Since 1972, the seven states of emirates have formed a strong national identity. The political system of UAE is a combination of modern and traditional and this aided in establishing a structure of modern administration while at the same time maintaining preserving and adapting the past traditions. (uae-embassy.org, 2009) Overview of the UAE Economy and State of Their Economic Progress The UAE’s economy is an open one characterized by high levels of income per capita coupled with a huge trade surplus per year. The governance of UAE has seen to a successful process of economic diversification that has left the economy with smaller portion of the GDP coming from gas and oil output to around 25%. Oil was discovered in the UAE more than three decades ago and since then it has gone under a huge phase of transformation economically from a very poor desert state to a sophisticated modern nation with high living standards. There are huge amounts of spending dedicated to expansion of infrastructure and creation of employment courtesy of the government. The government is also making it easier for the private sector to take part in the economic expansion. In early 2004, the United Arab Emirates approved an agreement on investment and trade with Washington and towards the end of the year the UAE also agreed to have negotiations aimed at achieving a Free trade agreement with the United States of America. The UAE also has zones of free trade that give a whole foreign ownership together with zero taxation and this aids in the attraction of investors from foreign countries. Consumer inflation and huge rise in prices of assets was witnessed in the period from 2005 to 2007 due to shortages in housing, cheap credit, high levels of liquidity and large revenues from oil. However, due to the recent credit crunch hitting the globe nad the declining prices of oil led to a deflation in the prices of assets. This would also mean a slower growth in the economy in the year 2009. Challenges on the economy come up especially in long run due to high dependence upon the huge expatriate labor force and oil. The strategy of UAE is to come up with a plan over the near future to ensure diversification as well as more opportunities’ creation for its citizens by way of an upgraded system of education coupled with escalated levels of employment in the private sector. According to the statistics provided by CIA world fact book, the UAE had a GDP OF US$ 184.3 billion in year 2008, which enhanced their getting position 56 over the entire globe. This shows a significant rise in the GDP levels since in 2007 it had a GDP of approximately $171.6 billion and $159.3 billion in the year 2006. This translated into per annum growth rates of 9.4%, 7.7% and 7.4% in the years 2006, 2007, and 2008 respectively. Over the same period per capita GDP was $37,400 in 2006, $38,600 in the year 2007 and $39,900 in the year 2008. Sectoral compositions of the GDP were; 35.7% services, 1.5% agriculture and 62.7% industry. The UAE’s workforce consists of around 3.266 million as per the estimates of 2008. This placed the nation at position 97 in the world. Of the 3.266 million workers, 85% of them were expatriates. While categorizing the labor force into three major occupations, the statistics were as follows: industry 15%, services 78% and agriculture 7% as per the year 2000 estimates. The rates of unemployment were 2.4% in year 2001 and this made the UAE to attain a not badly off position of 25 in the globe. The economy of UAE has had many stages of development and growth. Towards the end of the decade of 1950s, the UAE economy was rocked by limited rates of both human and natural resources. Over the same period, the UAE economic activities were mainly concentrated upon agriculture (that is, rearing of livestock, date cultivation and also vegetables that are commonly locally). The population of this nation stood at around 72,000 in 1950 and 86,000 in 1958. The nations’ economy took a new turn to another stage in 1962 when there was an upsurge in foreign trade. This was made due to the production as well as the export of oil that started in 1962 in Abu Dhabi, 1969 in Dubai while in Sharjah it commenced in 1970. The main impact of oil was felt in the whole decade of 1970s when the UAE economy started to realize development and evolution due to the huge revenues to the government emanating from oil production and its exportation. The UAE’s oil production rose from 253 million barrels in the year 1970 to around 619 million barrels in 1975. Over the same period from 1970 to 1975 was mainly due to the escalation in adjustments by the government and the production levels’ rise. The 1970s’ changes that were experienced in the UAE were unforeseen and these brought a lot of challenges as well as opportunities to the government. These challenges were three-fold since they involved the economic, social as well as political dimensions. The challenges were mainly due to the fact that seven-state United Arab Emirates had just been established in the year 1971 and these oil deposits were mostly created in Abu Dhabi. Therefore, most of the revenues from oil went to Abu Dhabi and only a little to Dubai. Thus, this set the challenge to the government concerning the usage of the revenues to make stronger the federation, expanding and improving the social services in order to raise the living standards of the UAE’s inhabitants and also develop the productive economic base besides the oil-driven base. In the process, President Sheikh Zayed promoted and supported development in a unified manner throughout the economy. However, the 1970s did not go without achievements since, the UAE achieved a monetary integration in the year 1973, when UAE monetary agency was launched together with the issuing of a national currency of UAE known as the Dirham. In the year 1980 this monetary agency was done away with and the UAE Central Bank took over. The economy of UAE has grown by about 26 times from 1972 to 1998 when measured by GDP terms. These were in nominal terms, though. The real GDP was seen to grow by 4.161 times over the same period due to the purchasing power erosion and the rise in inflation levels by around 6.34 times. The growth in the UAE economy is mostly associated with the crude oil subsector development and most of the economic activities in this region were directly or indirectly associated to it. (Abed and Hellyer, 2001 pp207-211) As the government made its progress, the UAE economy continued to grow and the mean growth rate in GDP from 2000-2006 of the UAE economy was around 8.4%. Today, oil exports just account for 30% of the UAE GDP. Besides its being a significant supplier of energy, the UAE also turned into a huge customer of energy. It is continuously developing new forms of energy like hydrocarbon alongside other sources of energy. (uae-usa.org, 2009) The Impact of Rapid Economic Change or Growth on Employment and the Workforce in General During the 1970s there was a price boom of oil that resulted to gigantic steps in the UAE’s economic development. This was followed by a shortage of the supply of national workforce where mostly the workers were employed in UAE’s public sector. Subsequently, there was need for more labor and this resulted in importation of labor. Due to the high rates of importation of labor, in the 1980s the non-nationals continuing in the UAE’s labor force were about 80% as per the estimates by the MENA report on development of 2004. In the year 1986, there was a fall in the prices of oil that caused a domino effect of the non-nationals work-force fall as well as the rise in the number of the UAE’s citizens seeking for employment. This tendency continued to the 1990s and this pressure increasing as the demographic changes were witnessed over the following years. As per the estimates of 2002, the unemployment of the UAE was taken as one of the world’s lowest. By the end of year 2001 it was approximated at 2.4% and this was translated from the 2.1 million labor force of which 2 million job seekers got employment. However, the figure of 2.1 million is not inclusive of those illegal expatriates that entered the UAE illegally on the basis of contracts. Thus, the real rate of unemployment could have been higher among the citizens. In the recent past, due to the rise in population levels as well as the expansion of graduates from high schools and universities in the UAE, unemployment among citizens has become a huge predicament. In mid-2003 the employment among the nationals of UAE stood at around 10.4%, while at the same time unemployment in the overall economy was a mere 2.8%. Statistics showed that rates of unemployment were especially higher amongst the females. It was about 16.5% among the female citizens of the UAE in comparison to 8.4% among the male citizens. The levels of unemployment have very huge effects upon the economy and the society of UAE. This puts the government under a lot of political pressure and this means that it has to spend more money on social benefits. Thus, the economy would be so unsuitable as well as misallocation of factors of production. Emanating from unforeseen negative impacts, the government of the UAE set new policies on labor so as to put citizens in both the private and public sectors’ jobs, which were filled by non-emirates prior to the move. The policies had their focus on a specific sector like the finance sector, such that they would achieve a set target of 30% occupation of jobs by nationals. The estimates of the ministry of planning had it that in the year 2003 the citizens in the workforce were approximately 9%. This reflected a picture that would be interpreted as that there were few nationals with the right qualifications to match the requirements of the labor market. To resolve the problem of there being few nationals qualified to work in the labor market, the UAE’s government requested of the educational institutions to make sure that the gap existing between the labor market and programs of academics would be closed by way of a specialized approach to training and the practice. The levels of unemployment in the UAE are highly among the young people, who constitute more than half the unemployed population, with minute significant job skills and just an intermediate education level. In Abu Dhabi, unemployment levels were estimated at 6.5% in the year 2003 by the ministry of planning. These statistics portray Abu Dhabi’s situation as a better off than any other of the Emirates of the UAE. This employment rate is, however, set to rise from 2008 as well as the following years if no proper action was taken to save the situation. On the levels of individuals it means that citizens would lose their self esteem and earnings, which would lead to a further accumulation of debts as well as a decline in their purchasing power. (Albuainain, 2004) Since the UAE took up oil exports the 1970s, the economy has been highly dependent upon the same. However, due to the falling oil prices the government has sought to diversify the economy and the non-oil sector has had a 3.9% as per the year 2000. This rise was as a result of investments by the government in the water, electricity and other infrastructures, financial services development and the high levels for re-exports demand. The nature of this economy which is an open one together with the free capital movement and the stability of the nation financially has also aided the UAE to make big steps ahead. Manufacturing constituted of 11% of GDP, retail trade was 10%, services of the government were 9.6%, construction 7.4%, business 8% and oil 34.2% as per the estimates of year 2000. (USA International Business Publication, 2007 pp33, 34) Possible challenges or opportunities facing UAE The UAE is not free of challenges and predicaments. For instance, it faces hardships like unemployment of citizens, in the UAE’s workforce, future levels of population, issues about sustainability, concerns about the system of education, gender predicaments and the diversity problems. Generally the challenges facing the UAE can be divided into three; ‘sand storm’, ‘Oasis’, and ‘Fertile Gulf.’ the challenge of ‘sand storm’ is where the UAE is faced with a hardship and which leaders are only able to solve in a reactive manner. To reform the situation, the government needs to stabilize the local conditions, such that the raised levels of government spending do not lead to economic predicaments and the demographics problems. The ‘Oasis’ refers to the future situation where the government of the UAE will be able to leverage integration fronts so as to minimize the levels of volatility due to the instability in the region while in the process of improving its human resources to ensure inclusion of nationals in the labor force. The ‘Fertile Gulf’ means that the challenges posed by a world where as a global economic player, the UAE consolidates this to become an area of innovation as well as an industrial center such that prosperity and investment spreads over the seven UAE emirates. (Adams, 2009) Many opportunities are there for the economy of UAE. For instance; if more women took part in the economy, as is the trend in the recent past, would ensure diversification. Morale has particularly risen among the women especially after the announcement of the 2010 vision in the year 2005 together with the increased growth in the economy. Most women take part in education and health care sector which would translate to people with more skills and thus more employable nationals in the UAE. (Augsburg, et al 2009 pp8,9) The economy of UAE needs to fund investments that the government in planning. To do this, there are many opportunities to ensure expansion especially of its financial sector. This calls for the expansion of secondary markets of finance in derivatives and debts. There are particularly big opportunities in the financial sector of Islam. Another vital trend is to liberalize the UAE economy so as to meet the timetable of transition set by the World Trade Organization and attract foreign investors as well. This will ensure more jobs creation. The UAE, as it continues to expand in economic terms, that are driven by both the demographies and the non-oil economic factors will create challenges in the UAE. However, it is only after the economy has been diversified that new opportunities will be created and in new economic sectors. This will also increase its sophistication giving UAE a bigger security against the fluctuations of oil prices. (Oxford Business Group, 2006 p43) Other Interesting Facts about the UAE Other issues that cannot go without one noticing are that as per 2003, there were border disputes after which an agreement was approved between UAE and Oman in the year 2003. This included the whole border with the Al Madha and Musandam Peninsula of Oman in the whole deal. However, contents of this agreement as well as the maps that are detailed which show the whole alignment are yet to be published. There is also a dispute between UAE and Iran over Islands of Abu Musa and Tunb and which Iran still occupies to date. There is also a big challenge facing the UAE where it serves as a point of drug shipment. Traffickers of drugs find UAE as a vantage point since it is so near the Southwest countries of Asia which produce drugs. It also serves as a position of vital financial center that makes it prone to laundering of money. Though there are anti-money- laundering measures in place it still has an informal banking sector which is not regulated. (cia.gov, 2009) In the past few years the levels of biodiversity in the UAE have been falling due to the fast urban and rural development. Approximately 340 flowering plants’ species, 300 birds, 40 reptiles and 40 mammals are listed in the UAE’s terms of terrestrial ecosystem. Also the land utilization patterns are varying. Resulting from the high increase in the levels of agriculture, plantations of forests, as well as the development of coastal and inland cities, there is a huge need of clean water. Despite this need, the water resource in the UAE is overexploited. For example, the levels of underground water declined by about 32 feet from the year 197 to the year 1984. The falling water levels have caused a fall in agricultural yields, the dying of acacia and prosopis trees. Dams have been constructed to curb the predicament, but this does not seem logical since the underlying rock’s permeability cannot be controlled. There is also a high rate of evaporation in the UAE. In the UAE, agriculture as a sector contributes about 2% to the nation’s GNP and this follows that it also employs a small number of individuals. Arable land in the whole of UAE occupies an approximated 19,000 hectares and of this area 27% is enhanced through irrigation. Attempts are being made to improve the situation of agriculture in the region by way of research in the laboratories and firms alike. (Mares, et al 1999 p571) Conclusion While concluding the study it is vital to note that the region of UAE came to be in the year 1970. The region also owes much to the late president Sheikh Zayed Nahyan who ensured that the region was uniformly developed and that the UAE diversified to other sectors of the economy aside from the revenues gained from oil exportation. It is also good to note that the nation has moved or transformed from one of the most impoverished states in the globe to a well performing economy. For instance, the economic growth levels were 9.4%, 7.7% and 7.4% in the years 2006, 2007 and 2008 respectively. Somehow, the region has been successful in diversifying the economy but much still is left to be improved. Besides this one can note from the study that there are high unemployment levels among the nationals of UAE and this has been blamed on the lack of skills that are needed for various jobs and instead the foreigners are taking up the jobs. So much therefore, needs to be rectified concerning the education system as a major challenge of the UAE. More and more females need to be taken to form part of the workforce as well. The UAE also has the challenge of providing enough clean water to its citizens since the product seems to be diminishing. Agricultural contribution to the GDP is also very minute and thus ways should be improvised to raise the output levels. This is while answering the study question, “What are the impacts of globalization and economic progress on the UAE employment and also generally?” Work cited: Adams, Mark. Human capital, innovation and leadership are key to the future of the United Arab Emirates. 2009. Retrieved October 14, 2009 http://www.weforum.org/en/media/Latest%20Press%20Releases/ScenariosUAE07PR Abed, Ibrahim Al and Hellyer, Peter. United Arab Emirates: A New Perspective. Trident Press Ltd. Edition illustrated, 2001. Albuainain, Reem M. Unemployment Rate In The United Arab Emirates: The Case of Abu Dhabi. 2004. Working Paper 0404. Augsburg, Kristin. et al. Leadership and the Emirati Woman: Breaking the Glass Ceiling in the Arabian. LIT Verlag Berlin-Hamburg-Münster, 2009. Mares, Michael A. et al. Encyclopedia of Deserts. University of Oklahoma Press. Edition illustrated, 1999. 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