Economic Stability Evolution of United Arab Emirates, Desert Heat Scenario - Case Study Example

Evolution of UAE Name Tutor Course Date Evolution of UAE Introduction United Arab Emirates (UAE) is one of the countries with the highest potential to achieve a high growth rate. The country had a population of 9.2 million people in 2013 with 1.4 being Emirati citizens and 7.8 million being expatriates (Schumtz, 2016). Currently, UAE has the seventh largest oil reserves in the world and the seventeenth largest natural gas reserves in the world. The economy of the country is dependent on the oil and natural gas industry. However, the economy of the country is considered as one of the most diversified in the Gulf Cooperation Council. This is as a result of the emergence of its aviation industry as well as global city. The international profile of the country is increasingly on the rise as a result of its improved economy. UAE also has a rich historical background as it has been inhibited for more than 130,000 years. Tourism is one of the important sectors in the country as millions of tourists visit the country every year. The main religion in the country is Islam which has been practiced for centuries. The country maintains a good relationship with most of its neighbours as well as the Gulf Cooperation Council members (Schumtz, 2016). The official language in United Arab Emirate is Arabic. The government is led by a Federation of 7 hereditary monarchies. The GDP per capita of the country is $ 66,996 and it is the 7th in the world. The country is however yet to fully embrace technology in most of its sectors. Scenarios are stories about the future and it is provoked by the current trends as well as assumptions. Three important scenarios have been made about United Arab Emirates and it includes the fertile gulf, sandstorm and oasis (World Economic Forum, 2007). Scenarios play an important role in representing imagined future of the countries. The scenarios can play an important role in enhancing the robustness of the strategies that have been put in place by a country. A better understanding of the strategic decisions can also be obtained as a result of developing a scenario. The authorities can use the scenarios for the purpose of putting in place risk mitigation measures. This is important in ensuring that the country is able to come up with better strategies of meeting its goals and objectives. Awareness of the external environment is also developed through the scenarios. The response to the unexpected events can be enhanced through the use of the scenarios. The scenarios are not forecasts or predictions as they are intended to generate discussions about the future of the country (World Economic Forum, 2007). The scenario can be use to promote productive discussions about the future of UAE. This can be used for changing polices that have been put in place by the country. The vision of the country can be discussed in details through subjecting it to the different scenarios. The scenario also discusses the issues of governance as well as the economic situation in the country. The paper is thus a scenario known as Desert heat. Discussion Analysis of current situation and trends United Arab Emirates has been experiencing an economic growth every year. In 2015, the economic growth of the country was 3.1% although it is considered the lowest in the last five years (Prayag, 2013). This can be attributed to the drop in the oil prices globally. Oil and gas are the major commodities that the country is known for. Over the years, the oil industry has greatly contributed to the growth of the economy. The unemployment rate in the country is also of concern although it is still low. As of 2015, the unemployment rate in the country was below 4%. In the region, the economy of the country is ranked 2nd and 25th globally (Prayag, 2013).The public debt of the country is below 15% which can be attributed to the success of the oil industry. In terms of business, the UAE nationals have to own at least 51% of any business that has been set up by the foreign companies. There are several state owned enterprises which are performing well both locally and globally. This includes the Emirates Airline and Emirates National Oil Company. The country does not have income tax and federal-level corporate tax. However, the total tax burden is about 22.4% of the domestic income tax (Prayag, 2013). The inflation rate is below 1% which is relatively low as compared to most of the countries. This low level of inflation has a direct impact on the cost of living in the country. Generally the economy of the country is performing well although it is slowing down. In the United Arab Emirates, the number of expatriates is much higher as compared to that of the locals. There are about 7.8 million expatriates and 1.4 million UAE nationals (McCoy, 2014).The expatriates are mainly in the country to work. Expatriates earn less than the UAE nationals even when they are doing the same jobs. Few incidences of the expatriate employees being mistreated have also been reported. The labour regulations in country are also flexible which makes it difficult to address some of the issues. In terms of the rule of law, the citizens are required to observe the law at all times. UAE is considered as one of the least corrupt countries in the Middle East. As a monarchy, most of the decisions are made by the ruling families. Although the law is generally well maintained, the judiciary is not totally independent as some of the decisions are subjected to review by the political leadership. In terms of the civil liberties, the country is ranked as not free. A large number of the expatriate population in UAE is from India (McCoy, 2014). As a result of the high number of expatriates, UAE has formed diplomatic ties with many other countries across the world. In the Arab World, UAE is a close ally of Saudi Arabia and Egypt. The country is also a top ally of the United States of America as well as European Union Countries. This has seen the country participating in joint activities with other countries. The foreign policies of the country also contribute to its growth and development. The foreign policies are mainly focused on maintain good relationships with other countries in order to promote trade. Currently, the country is however involved in several conflicts in the Middle East. UAE is a member of Saudi led coalition g that is carrying out bombing campaigns in Yemen. In one incident, the country lost about 50 soldiers in a single rocket attack on its base (Cammett, Diwan & Waterbury, 2015). UAE is also involved in the US led coalition that is carrying out air raids in Syria. The military involvement of the country in different conflicts may have both positive and negative implications. Through diplomatic efforts, the country is set to establish strong trade ties with countries like Iran which is also a regional power house. UAE has developed vision 2021 which is aimed at improving the quality of air, preserving water resources, implementing green growth plans and increasing the contribution of clean energy. The development of infrastructure to world-class standards is also part of the vision (Cammett, Diwan & Waterbury, 2015). This will play an important role in terms of promoting the growth and development of trade in the country. The vision is also aimed at ensuring that the country is able to emerge as an economic hub in the region. The growth of the economy is however dependant on both the external as well as internal factors. Plans are also underway to develop the telecommunications infrastructure in order to enable the country to enhance its capacity to provide smart services. Potential threat of the current model The current model though successful, exposes the country to some major challenges that may impact negatively on its growth and development. The country is still dependant on the oil industry for generating oil. This is a major challenge as the oil prices are on the decline. Currently, a barrel of oil is as low of $ 34.This means that the country may be unable to generate more revenue as compared to the past (Kilian & Lee, 2014). The sanctions on Iran were lifted by the United Nations and other world powers. This may see an increase of oil in the market as Iran is a los a top producer. Such an increase will drive the prices even lower leading to low revenues. The country is also dependant on expatriates for labour which is a threat to the economy. Most of the expatriates have cited mistreatment and poor working conditions (McCoy, 2014).This means that the expatriates may end up boycotting the country. This will have a negative impact on the productivity and economy of the country. Labour is an important factor of production and it has a direct impact on the growth and development of the economy. UAE is also faced with a challenge of maintaining its growth and development. Accelerating the reforms process in the country can be a challenge as the process requires a lot of political goodwill. Transforming the economy is also a challenge to the current model. Difficulties in transforming the economy may impact negatively on the country. The foreign policy of the country may also expose it to security challenges. The country is exposed to the threat of terrorism from extreme groups like ISIL and Al-Qaeda (Goldschmidit Jr & Boum, 2015). This is considering that the country is already involved in fighting ISIL in Syria. The threat of terrorism has a direct negative impact on the economy of the country. Tourism which is a major contributor to the economy may be affected by the threat of terrorism. The country may also end up losing revenue as a result of terrorism threat. The governance structure in the country may also affect the entry of foreign investors. The people in authority hold lot of power as compared to the people. The decision making process is also dependant on those who are in power. This form of governance may be considered autocratic by the foreign investors who do not understand the dynamics of the Arab World (Goldschmidit Jr & Boum, 2015). The governance structures may therefore hinder some of the investors from the western world. The confidence levels of the investors may be affected if they feel that their businesses may be unfairly targeted due to the autocratic tendencies. The current model also makes it difficult for technology to be used in most of the sectors including the education sector. The emphasis on science is still low in the country and it affects its application in most of the sectors. The growth and development of the economy may therefore be affected if technology is not fully utilized as it is the case in most of the countries. The regional conflict in the Middle East is an external factor that has negative impacts on the growth and development of the country. The war in Yemen is already costing the country as it has send troops and it is also involved in air raids (Goldschmidit Jr & Boum, 2015).Depending on how long the conflict lasts, the country will be forced to use its resources and it may end up hurting its economy. The Syrian conflict may also see the country spending a lot of resources. In the Middle East, any conflict affects the economic activities and hence leading to loses for the country. The region is also experiencing diplomatic problems between Iran and other close allies of UAE such as Saudi Arabia, Kuwait and Bahrain. This may lead to the country limiting its trade activities with Iran in support of its allies. Such a move will impact negatively on the growth of the economy. Iran is also set to be a regional power house in the region after the sanctions were lifted (Goldschmidit Jr & Boum, 2015). The rise of Iran may create a regional imbalance and hence impacting negatively on the growth and development of the economy. More investors may opt for Iran as compared to UAE and its allies and hence negative effects on the economic growth. There is also a wave of rebellion against the monarchs in the Arab World. This has direct negative effects on the governance of the countries. Any form of revolution will completely shutter the economy of the country. Desert Heat scenario Country level dynamics 2016-2020: The UAE struggles to deal with the plummeting oil process and low revenues. Low revenues from the oil sector leads to diversification of the economy in order to improve on the generation of revenue. Most of the oil projects postponed with the investment in state owned oil companies reduced. The production rate of oil has to be reduced in order to cope with the poor market conditions. A reduction in oil production leads to job losses and the number of expatriates in the country drops significantly. Unemployment rate among the UAE nationals increases which leads to an increase in poverty levels. Inflation increases as the country tries to deal with the poor revenues. The number of foreign investors drastically reduces driving the country in further chaos. The rise of Iran causes major changes in the Middle East. With Iran as the economic leader in the region, new alliances have to be forced. UAE is forced to increase its trade ties with Iran and its allies in order to survive. The end of conflict in Syria and Yemen creates a major relief to UAE. The country will no longer be required to use its resources in the war. However, on the diplomatic end, the country has to make new alliances as the Syrian government under president Assad continues to rule. The Houthi rebels continue to rule some parts of the country. The country therefore losses major allies and trade partners in the region leading to poor economic growth. 2021-2023: Increased tension between Syria and Turkey drags Russia into the region. UAE strengthens its ties with Russia to remain relevant. Economic trade ties improved with Russia leading to an improvement in the economic growth. The oil price in the market improves leading to an increase in production of oil. The economy of the country starts to recover from the difficulties. The revenue collected is used to diversify the economy to avoid a repeat of the problems in case the oil prices plummets. An increase in the number of UAE nationals involved in the growth and development of the economy. UAE to shield the economy from deteriorating further through diversification. The security situation in the country is affected by internal terrorist attacks as a result of radicalization. Radicalized youth who had travelled out of the country to support various groups in Syria and Yemen return. The tourism industry is further affected by the increased attacks leading to a reduction in the number of tourists. The revenue collected from the tourism industry faces some decline. However, the real estate industry continues to grow as a result of internal investments in the industry. The number skyscraper increases leading to a boom in the industry. The economy of the country is further enhanced by increased internal investments. The country invests in information technology in order to utilize modern technology. The country strengths its diplomatic relations with its traditional allied including the United States of America. Modern technology is also incorporated in the oil industry. 2024-2025: The country embarks on the development of the infrastructure leading to an increase in business opportunities. The airline industry continues to thrive with Emirates Airline and Etihad Airways experiencing a higher growth. The labour industry suffers unrests as the expatriates protest poor working conditions and low pay. The relationship between the UAE and the countries that the expatriates come from is further strained. The countries advise their citizens to stop travelling to the UAE in search of employment opportunities. The GCC countries face unrest as a result of demonstrations and protest calling for regime change. UAE forced to make political changes in the government to avoid the spillover of the revolt. The government expands the basic freedoms and enhances its human rights records. The people in power however continue to rule. The citizens enjoy more civil liberties and freedoms. More investors travel to the country as a result of the political changes. More institutions are reformed to meet the needs of the market and growing economy. The country is forced to fully embrace technology in all the sectors. The involvement of the state in different sectors of the economy is reduced leading to a high level of privatization. The process of oil stabilizes and the country is able to regain its economic success but under new governance and rules. The GCC is weakened and unable to coordinate the activities of its member countries. The foreign policies of the country are changed to ensure non-interference with the affairs of the other countries. Global and regional environment In the global environment, the situation is always fluid with the major concern being security. This is also the same of the GCC countries and the entire Middle East. The threat of terrorism is high in globally and this has negative impacts on the environment. Terrorist organizations like ISIL and Al-Nusra Front have the potential of destabilizing the region (Goldschmidit Jr & Boum, 2015). In term of economic performance, most of the GCC countries are facing challenges in embracing sustainable reforms that stimulates economic growth (Ftiti, et al, 2014). Sustainable development is affected by various factors including climate change and security challenges. Most of the GCC countries are already experience the effects of diverse climatic conditions. The level of pollution in the GCC Countries including the UAE is quite highly. This can be attributed to the production of oil which requires vigorous activities. Diversification of the economic activities is also a problem in the GCC countries. Most of the countries mainly rely on the oil resources. In terms of the social environment, there are mixed development in different sectors. The level of illiteracy is continuously being reduced in most parts of the world including the UAE. However, lack of employment opportunities has seen a lot of conflicts between the locals and the foreigners. In most cases, the foreigners are usually exploited and this is also a problem that the UAE is faced with. Radicalization is a new social challenge that is affecting the globe as well as GCC countries. A high number of youthful people have willingly joined terrorist groups including ISIL. The eternal relationships between the countries are increasingly becoming fluid. Alliances are changing from time to time due to various political reasons. However, most of the countries in the GCC region still maintain a good relationship. The United States of America has continued to maintain a good relationship with the GCC countries which has created new economic opportunities. However, the influence of Iran is growing in the Middle East. Russia is also becoming a major stakeholder in the region and it has come out strongly to support Iran and Syria (Goldschmidit Jr & Boum, 2015). UAE is an ally of both the United States of America and Russia. However, most countries are increasingly facing a strained relationship with the USA and other western countries due to their foreign policies. Leadership and governance is increasingly becoming a contentious issue globally as well as in the GCC regions (Hashem, et al, 2013). The local people are increasingly beginning to ask questions about the legitimacy of the governments. The Arab spring is one of the indicators that people are increasingly becoming impatient with their governments. The problem of legitimacy is common among most of the GCC countries where the level of autocracy is high. Bahrain is one of the closest allies of UAE that has faced violent demonstrations. The issue of governance has also been raised in the countries such as Saudi Arabia. However, in most of the GCC countries the government usually suppresses the dissenting voices with a lot of brutality (Hashem, et al, 2013). The governance issues are directly related to the economic performance of a country. Recommendations for the policy makers It is recommended that the UAE should put in place measures to promote the diversification of the economy. The reliance on the oil industry should be reduced as the industry is increasingly becoming less profitable to the producing countries. UAE should ensure that it continues focusing on the tourism industry as well as the construction industry where it is also performing well. Capacity building among the UAE nationals should also be carried out in order to improve on the economy. It is recommended that the country should train its people so top the overreliance on the expatriates for labour. The country should however look into the allegations of poor working conditions among the expatriates in order to come up with effective labour laws. The expatriates should not be subjected to harsh conditions as this may affect the diplomatic relationship between UAE and the local countries of the expatriates (Gary, 2014). The issue of unemployment among the UAE Nationals should also be solved by creating opportunities. The education sector in UAE should be reformed so as to ensure that more emphasis is placed on the concepts of information technology. The concepts of information technology will play an important role in ensuring that it is applied in other sectors. Technology can be used to automate services which will reduce the need for employing a high number of expatriates to carry out manual activities. It is recommended that UAE should work closely with other countries from different parts of the world. This will play an important role in increasing the market for its products and services. A better relationship between UAE and other countries will play an important role in expanding its destination for its airline companies. A change in foreign policies will be required so as to ensure a friendly relationship is developed with more countries. It is recommended that the country should also reduce its participation in external conflicts as it ends up in diplomatic conflicts with more countries. However, it is recommended that the country should enhance its internal security so as to deal effectively with the threat of terrorism. This may require close relationship with partners such as USA and Russia who have the expertise and equipment that can be used to deal with terrorism (Goldschmidit Jr & Boum, 2015). The country should also spearhead reforms in the GCC so as to improve on its ability to solve the regional problems. Political reforms are requires in the country in order to ensure that it is able to address the issues of governance. Political reforms will play an important role in boosting the confidence of the external investors. The public image o the country will also be improved as a result of political reforms. The country should continue developing future goals and objectives through different visions. It is recommended that the country should also improve on its civil liberties. This is for the purposes of preventing political unrest and enabling the local people to participate in the running of the country. UAE is has the potential to be a world class economy if the recommendations are implemented. Conclusion In conclusion, it is evident that the UAE is enjoying a lot of economic stability. The oil industry has been playing an important role in enhancing the economy of UAE. The country also has potential in other sectors such as construction and tourism. It is evident that the oil industry is facing a tough time and this has a direct negative impact on the oil industry in UAE. The scenarios play an important role in generating discussions that may influence policy change. The Desert Heat scenario points out several issues that are directly related to the economy of the country. The scenario mainly points out the pressure that the country is likely to face based on the current trends. Some of the challenges that the country is likely to face includes a decline in economy, rise of Iran, regional conflicts, terrorist threats, governance issues and diplomatic issues. It is evident from the scenario that the UAE is likely to face tough times although the economy will also experience some recovery. The economic recovery will however be influenced by both the internal as well as external factors. It is evident that the country requires some form of political reforms in order to deal with the challenges that it is likely to face. A lot of diplomatic efforts as well as enhanced internal security will be required by the UAE. Diversification of the economy will however play an important role in promoting the economy of the country. Works Cited World Economic Forum. (2007). The United Arab Emirates and the world: Scenario to 2025. World Scenario Series. Schumtz, J. (2016). Power and society in the Gulf: An introduction to Gulf studies. Jj-02-a. Prayag, G. (2013). When Middle East meets West: An exploratory study of UAE young potential visitors' motivations and perceptions of Paris as a luxury destination. Informatics. McCoy, L. (2014). United Arab Emirates. Mason Crest. Cammett, M., Diwan, I., & Waterbury, J. (2015). A political Economy of the Middle East. Westview Press. Kilian, L., & Lee, T. K. (2014). Quantifying the speculative component in the real price of oil: The role of global oil inventories. Journal of International Money and Finance, 42, 71- 87. Goldschmidit Jr, A., & Boum, A. (2015). A concise history of the Middle East. Westview Press. Ftiti, Z. et al. (2014). Evolution of Crude Oil Prices and Economic Growth: The case of OPEC Countries (No. 2014-421). Hashem, W, et al. (2013). Structural and Stratigraphic Parameters as Tools for the Geozoning Project of Al-Ain City, UAE. In Second EAGE International Conference on Engineering Geophysics. Gary, M. (2014). Global Security Watch-Saudi Arabia. Santa Barbara: Santa Barbara. Read More