Over the years the country has seen great economic progress and today boasts one of the most developed economies in West Asia. Its name is derived from its seven constituent emirates, which are each ruled by an Emir: Abu Dhabi - the capital, Dubai, Sharjah, Ajman, Fujairah, Ras al-Khaimah and Umm al-Quwain.
The UAE is situated on the southeastern part of the Arabian Peninsula in Southwest Asia, precisely on the East-West trading route. This has granted the country a strong presence on the global commerce stage, and uniquely positioned it as a hub for re-exporting and logistical services. Foreigners from all over the world continue to relocate to the Emirates hoping to benefit from its booming economy; the National Bureau of Statistics reported that expats constituted 88.5 percent of the six million plus population in the second half of 2010, giving it a true international feel.
The country has an open and diversified economy which is divided between industry (53 percent) and services (46.1 percent), with agriculture forming less than one percent. Its Gross Domestic Product (GDP) topped $252.7 billion last year and is expected to surpass $271.4 billion by the end of 2011 according to estimates by the International Monetary Fund (IMF). The government has successfully undertaken several initiatives to reduce its reliance on oil and gas returns, and an increasing part of its economy is being attributed to non-hydrocarbon sectors including trade, tourism, logistics, financial and other business services. Today, its oil and gas returns contribute less than 30 percent of its GDP.
UAE's rise from the desert.
Before oil was discovered on UAE soil in the 1960s, the country was split into small desert principalities in what was largely an impoverished region where pearl diving was the only real income provider for the people. Its waters were known to host some of the finest pearls in the world, but divers would often risk death by drowning to obtain them. Since then the Arab country has witnessed an impressive transformation to a modern state with a high standard of living - GDP per capita at PPP stood at $49,600 last year (CIA world fact-book estimate). It has also become an important global investment player and an international trade and finance center.
The Emirates holds the sixth and seventh largest proven oil and gas reserves respectively worldwide, and the past decade has seen the local economy's GDP increase at an average rate of 14 percent per year with a yearly average GDP close to $150 billion.
In terms of cross-border relations, the UAE government has a longstanding foreign policy based on openness towards other countries, mutually benefiting agreements and an investment encouraging climate. Its liberal views on state modernization and economic policies have reinforced its relations with most Western countries, including Europe's major economies and the US. Its heritage and geographical location ensured strong ties to the Arab world, especially with other members of the Gulf Cooperation Council (GCC) of which it is a founding member, and with many Asian economic powerhouses. This emphasis on foreign relations combined with constantly improving company formation structures has paved the way for the Emirates to play a vital role in facilitating global trade and international business as well as expanding the country's inward foreign direct investment. As of 19 July 2010, the UAE had inked some 52 Double Taxation Agreements (DTAs) and had initiated up to 15 other tax treaty discussions. The country is a member of the World Trade Organization (WTO), the Arab League, the United Nations, and the Organization of the Petroleum Exporting Countries (OPEC) and plays a relatively moderate role in all of them.
A highly ranked offshore trading center.
The UAE impressively houses some 30 free trade zones (FTZ) across all seven Emirates, with more than 18 zones either planned or already under development. For an international business, or indeed a company looking to expand its reach beyond its local market, these zones present a valuable opportunity. Not only do they provide ready-built offices and warehouses with excellent infrastructure and support services, but they also offer highly attractive company structures. With full foreign ownership rights, free movement of capital and profits and a host of tax favorable systems - which virtually exempt companies from different types of taxes including import/export tax, corporate taxes and personal income tax - it is no wonder that firms from all over the world are choosing to set up offices in the UAE. At the end of 2010 there were more than 5000 registered companies in Ras Al Khaimah Free Trade Zone alone, which is constantly ranked as one of the most attractive investment zones and offshore company formation destinations in the Middle East.
The United Arab Emirates was ranked 40th out of 183 economies on the "ease of doing business" in the Doing Business 2011 report jointly published by the World Bank and the International Finance Corporation. The report explores a country's business enhancing and business constraining regulations, then ranks the world economies on a number of different scales. The UAE's trading regulations were remarkably ranked 3rd globally under the "trading across borders" scale. Such an element takes into consideration the number of documents, the time and the cost required to finalize all trading procedures for the transport of a standard shipment of goods by sea. This process in the Emirates is exceptionally efficient, leading to a timeframe of only seven days to import to or export from the country; including documentation, inland transport and handling, customs clearance and port/terminal handling. Another noteworthy ranking in the report is the "starting a business" aspect, on which the UAE ranked 46th internationally, noting that it only requires 15 days to set up a new business there. Conversely, the report showed that "closing a business" in the country with all respective insolvency proceedings, was no simple matter. The Emirates ranked 143 on this scale and the time needed to recover the debt of an insolvent business spanned a period of a little over five years.
Naturally, a country that prides itself on being an international business center needs a strong, well regulated, stable and mature banking system that provides businesses with a wide array of both onshore and offshore financial services. The UAE has just that. By June 2010, the number of local commercial Emirati incorporated banks reached 24 with around 500 branches across the country, while 27 foreign banks were operational at the time with about 120 branches offering offshore banking facilities Trade financing and credit services are available to business firms operating in the Emirates. Additionally, wealth management companies and financial institutions offer private banking and investment portfolio management services.
Perhaps in an sign of the country's global trading exposure, its top 5 import partners for 2009 were spread across three different continents with India ranking top, then China, the US, Germany and Japan.
China's gateway to the Middle East, Africa and beyond.
Chinese - Emirati diplomatic and economic relations date back to November 1984, as both states recognized the importance of their bilateral cooperation at an early stage. Since then they have been keen to constantly improve and develop these ties. Currently, the United Arab Emirates is home to 200,000 Chinese nationals and close to 3,000 Chinese companies. The country's geographical location and advanced trading infrastructure is proving of great significance to China, as the latter plans to keep its exports at high levels in these less than stable economic times. With its close geographical proximity to Central Asia's economies, the Indian subcontinent and the African continent, the Emirates offers Chinese investors great opportunities for business expansion and entry to new markets.
The UAE estimates that its two-way trading levels with China are to reach a staggering $100 billion by 2015. A DTA between both countries has been in place for over 25 years and the UAE is China's largest export market in the Middle East (ME). But perhaps even more importantly, current trade between China and the ME is estimated at $240 billion and is expected to increase many folds over the next decade. Such a massive trading potential with the ME will no doubt continue to attract Chinese companies to the UAE, using this extremely well developed re-exporting hub as a steppingstone to gain access to the rest of the region. In addition to the mutual agreement on double taxation avoidance, the UAE holds DTAs with four of China's top five export partners by country and with many of the EU member states, the block that has now overtaken the US as China's top trading partner. This extensive network of taxation agreements offers Chinese businesses setting up offices in the UAE with potentially great benefits in their trading operations.
In the latest high governmental visit between the two sides, Mr. He Guoqiang, a member of the Standing Committee of the Politburo of the Communist Party of China (CPC), Central Committee and Secretary of the Central Commission for Discipline Inspection of the CPC, visited the UAE earlier this year in July. He met with H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. During the visit they both attended the signing of a Memorandum of Understanding (MoU) between UAE's Central Bank and the China Banking Regulatory Commission. The MoU is primarily focused on enhancing cross-border banking supervision and cooperation through information sharing and jointly coordinated crisis-management measures.
In the past two years, Chinese businesses have secured contracts in the UAE worth over $4.8 billion according to the Chinese Ministry of Commerce. While China remains hungry for energy resources to fuel its booming economic growth, it stands to truly profit from the UAE's reserves as it aims to obtain full-benefits of these resources by providing development and exploration support within the country. Yet, cooperation is not limited to energy, trade and business services. Both countries can still greatly benefit from mutual collaboration in a number of other sectors such as education, agriculture, project contracting and advanced technology - especially as the Chinese tech sector evolves over the next decade.
Learning from the crisis and building for the future.
During the financial crisis, the Emirati economy was hit hard with a 12 percent decrease in GDP between 2008 and 2009. Dubai's real estate market was one of the worst effected sectors in the country, with many construction projects coming to a complete stop. Its local government's investment arm faced many difficulties that forced it into several debt restructuring procedures and eventually required Abu Dhabi's bailout of an amount close to $10 billion to settle but half of its debts. With businesses and local governments both facing solvency issues, the Emirati officials had to take swift and decisive action to weather the financial crisis effects. The government took strong steps to contain those effects with liquidity injections, recapitalization of financially troubled companies or governmental investment institutions, and finally with banking deposit guarantees and new risk related provisions from the Central Bank. The Emirates' high dependence on a foreign workforce, fluctuating oil prices, inflation increases and property market price-correction are some of the current pressing challenges for the UAE.
Government Related Entities (GREs), which were previously a major contributor to the country's economic growth, are now possibly weighing on the recovery process. Some of them are currently receiving governmental financial support, while others are finding themselves in danger of similar short and long term concerns. These GREs, however, continue to be an important drive of the UAE's local and international business dealings and hence the government wisely chose to closely monitor their risk exposure and financial transactions but without shackling their core business.
The future economic outlook for the UAE remains very positive, as long as the government maintains its stability supporting policies and ensures a close coordination between its seven Emirates. The country's position as a trade and logistics center is being cemented by the nearly constant rise in number of company registrations and its excellent economic relations with many of the world's major economies. Oil and other resources are set to be available in abundance, especially in the Emirate of Abu Dhabi which holds the largest part of proven oil reserves. The newly observed risks resulting from the political turmoil in the Middle East and North Africa could have a positive effect on certain sectors of the economy in the Emirates, as investors look for diversification within the region and tourists look for some leisurely respite.
