The Effects of Political Instability on the Deregulation of Competition - Research Proposal Example

The role of unstable political structures on the effects of deregulation on competition Table of Contents Table of Contents 2 Literature review 3 Introduction 4 Conceptual issues: 5 Proposition/hypothesis 6 Conclusion 8 Bibliographies 10 Literature review Trends to globalization and improved technology demands have precipitated swift privatization and deregulation in the world. There is always a high demand for investment opportunities in growing economy. United Arab Emirates (UAE) economy has been on increase for the past years. This has been attributed by political stability in the country. However there have been several problems that have prevented investors from exploiting the opportunity. First there has been a problem of political instability in Middle East. M idle East is considered to be one of the volatile regions in the world; UAE has suffered due to political instability in some of its neighboring countries like Pakistan. This literature looks in detail the effects of political instability in the region in attracting foreign investment in the region. The telecommunication industry in UAE has shown incredible progress, this has been propelled by the government's effort intended at the deregulation of telecommunication market and bringing in competition. This has been an initiative of Telecommunication regulatory authority (TRA) which aims at enhancing competition in UAE telecommunication market. The literature looks in depth the flourishing telecom sector in UAE and gives an insight of market trends dominating telecommunication market (Jones; 46; 2006). Political willpower in UAE has also been criticized due to its failure to create conducive environment for economic players to venture in its market. Corruption in Middle East has also been a major hindrance in creating a fair play environment for investors. The literature focuses specifically on UAE liberalization of its telecommunication industry. It looks in detail effects of deregulation in UAE telecommunication market in bringing competition (Ritchie; 123; 1994). Introduction United Arab Emirates (UAE) is a federation made up of seven self-governing states. UAE was declared independent in 1971 from Britain. In November 2004 president Sheikh Zavid Ibn Sultan Al Nuhayyan died ending 33 years of power since independence. His son Sheikh Khalifa ibn Zayid Al Nuhayyan who had been prince of Abu Dhabi succeeded his father in a smooth transition. UAE has enjoyed political stability through combination of a unique political system, which is made up of a mixture of traditional and modern administrative structures. There are no democratically chosen political parties as well as institutions. The UAE government has been under criticism by human rights group for restricting freedom of speech and that of press. The Media does not criticize its government directly also freedom of speech and religion has also been curtailed in the Islamic run country. The government has put in place a law that allows ministry of information to approve the selected editors and to license all publications. The law also controls press content and press is expected to practice self censorship (WTO; 2009). Those who comment negatively against Islam, ruling families and the government risk life imprisonment. All imported materials are reviewed by ministry of information and culture before it is distributed. Membership in the professional body of journalists (Association of journalists) is restricted to those who only work for the government run media companies. UAE telecom is one of the most developed markets with highly technological advanced infrastructure in Middle East. However until 2007 UAE's telecommunication industry had been dominated by one company, Emirates Telecommunication Corporation (Etisalat).Another company by name Emirates Integrated Telecommunication company (EITC) running by brand "du" was installed to manage telecom services in UAE (Frauke; 139; 2004). Conceptual issues: Political instability refers to a situation where a state or country is undergoing political havoc. In this case the country economy deteriorates. Political instability also refers propensity of government downfall. Both political instability and economic growth are jointly determined thus the stable the country the more the economic growth Deregulation is where the government's control over businesses is minimal or is eliminated. It's a move toward free market where government control on how businesses are done is reduced. The main aim of deregulation of businesses is to increase competition thereby increasing productivity and effectiveness (Oxford Economic Country Briefings; 2007). Corruption is a term with different definition but according to World Bank it's regarded as misuse of public authority for private advantage e.g. corruption by bureaucracy, corruption by political leadership. It is difficult to measure corruption quantatively. Corruption is derived from various sources which fall in areas of governance according to transparency International, it's measured using corruption perception index (CPI). Researchers depend on indirect measures to check corruption prevalence in a country or institution. The data collected covers political stability of a country, rule of law, voice and accountability, quality of regulation and government effectiveness (Jones; 47; 2006). Proposition/hypothesis President Sheikh Khalifa ibn zavid Al Nuhayyan has brought reforms in the UAE which include privatization of a number of government assets, encouraging foreign and domestic investment and liberalizing economic policies. In May 2005, the supreme committee for telecommunication in UAE empowered by the government issued a license for a new and second company to offer telecommunication services. Telecommunication in UAE had been provided solely by Etisalat until 2006. Etisalat is a state owned telecommunication operator which has been providing telecommunication services since 1976.The Company has enjoyed monopoly thus investing heavily in telecommunication infrastructure. Its services include maintenance of national and international telephone network, mobile telephone operations as well as television cable services. The body allows legal protection to its members in case of legal dispute (CIA, 2008). The United Arab Emirates telecommunication regulatory authority (TRA) was established by UAE Federal law by decree in 2003.TRA role was to reform and to liberalize UAE telecom. It required Etisalat to block all offensive sites and materials in United Arab Emirates. The government dominates the telecommunication sector. Sheikh Khaled bin Zayed, a prominent businessman noted that it was difficult for other stake holders to compete with Etisalat because of its government support and money. He added that there was need for government intervention to break the monopoly. Though UAE enjoys a relative free economy, there existed no competition in telecommunication sector. This gave Etisalat flexibility to randomly set the prices. High prices have been experienced in some point under monopoly of Etisalat (Regional Opportunity, 2007). In February 2006, TRA in its liberation process allowed admission of new telecommunications company, Emirates Integrated Telecommunication (EITC) which used "du" as its marketing name. The company was expected to compete against Etisalat although most of company's shares are owned by the government. This makes the telecommunication market in UAE to be run by two players who are largely owned by government .This restricts other players to the market. In reality there is little competition between the two companies with choice of provision of services being determined by geographical boundaries. 'du' has monopoly in some zone while etisalat has monopoly over others. This monopoly has made UAE internet provision to be slow and expensive. UAE was rated as politically and civically not free by Freedom House ranking in 2007. This was contributed mostly by restriction on freedom of press, speech and association. The government was also said to be authoritative thus undermining fair play environment for all stake holders (Jones; 46; 2006). Corruption in Middle East has been prevalent powered by the existence of autocratic regimes thus undermining stability and prosperity in the region. Corruption has also been created due to lack of strong institutions and lack of government procurement and audit systems. Middle East countries have been lagging behind in making major reforms in areas of governance. Although many have made improvement, this has not been consistent. According to transparency international Middle East countries lack regulatory quality and voice and accountability e.g. UAE has failed setting up its regulatory authority for telecommunication industry creating conducive environment for corruption. Authoritarian rule in many Middle East countries creates hindrance for accountability and lack of voice leading to unrestricted spending (Oxford Economic Country Briefings; 2007). Conclusion Although there has been a decree by the government which seeks to deregulate telecommunication industry in United Arab Emirates (UAE), the war is far from end. This is by the fact that monopoly in telecommunication sector has survived for a very long time suggesting lack of commitment at the government. The terms of competition declared by the government are yet to be known in UAE despite growth experienced in telecommunication sector. UAE government continues to hold the largest share in all telecom operators furthered by effective control of the independent regulatory body. The few efforts by the government to liberalize telecommunication by constituting a regulatory authority and a policy committee are seen as first steps of whole a lot measures needed to meet full deregulation. The country is yet to get full opening up of the market to foreign investors in the telecommunication industry. This may be impossible if the government will continue to retain the highest stake in each company that enters the market. Another problem that hinders deregulation is the fact that there is no independence in regulatory authority in the UAE. Members entrusted to run the regulatory authority are appointees of government officials who can be fired by anytime. There are cases where government officials also perform some functions in the present telecommunication operators. The question that is disturbing many is how the government will be opening up its market to foreigners. Bibliographies Jones, Rhys. "Viva Dubai" Middle East 371 (2006) : 46-47. Oxford Economic Country Briefings (2007)"United Arab Emirates." Oxford Economic Country Briefings 14 June 2007 "Regional Opportunity." (2007) Dubai International Financial Center. Retrieved on 5th April, 2009 from http://www.difc.ae/about_difc/regional_opportunity/ CIA World Fact Book, (2008). Economic Development of UAE. Retrieved on 5th April, 2009 from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html World Trade Organization (2009). The Economy of United Arabs Emirates. Retrieved on 5th April, 2009 from http://www.wto.org/english/thewto_e/countries_e/united_arab_emirates_e.htm Ritchie Ovendale, The Longman Companion to the Middle East since 1914, London etc.: Longman 1994 Frauke Heard-Bey, From Trucial States to United Arab Emirates, Dubai : Motivate Publishing (1982) 2004 Read More