Uae Analysis

1. Introduction

A. General Information

The United Arab Emirates (U.A.E) is a federation of seven Emirates that was formed on December 2 1971. It is located between the Arabian Gulf and the Gulf of Oman and it is bordered by Saudi Arabia and Oman. The country has a total population of 3,740,000 as of 2004. Approximately 85% of those resideing the in UAE are not native to the country. Arabic is the official language, however, English is widely considered the official "business" language. Communication should not be a problem for English speaking people. The Muslim faith is practiced by the majority of people, but there are a significant number of Christians and Hindus. Islam does not play an important role in business practices. The business culture more closely resembles the culture found in America or Great Britain.

The UAE has a well developed infrastructure. The capital city of Abu Dubai and the city of Dubai are both very modern cities. They have a modern and extensive public transportation system including buses, highways, commercial seaports and an international airport. The country also has a number of government run hospitals. The country is primarily known for their petroleum production, like most of the countries in the region. Their extensive petroleum reserves have allowed them to achieve tremendous economic and social development. Most of the UAE's petroleum reserves are located in the Emirate of Abu Dhabi. Currently, the country is working hard to try and diversify into other sectors of the economy.

The UAE has a federal constitution that divides power between the federal government (based in Abu Dhabi) and the governments of the constituent Emirates. However, throughout the Emirates, if a foreign company or investor wishes to establish a presence in the UAE they will be required to have a UAE national. A UAE national is another term for an agent, partner or sponsor who will counsel and guide them in while in the country. The UAE is an active member of the United Nations, the Organizations of the Islamic Conference (OIC), the Arab League, and the Arab Gulf Cooperation Council (AGCC).

The UAE constitution also provides for a federal court system. It also allows for each Emirate to maintain an independent court system. There are three divisions to the federal court system. They are civil, criminal and Sharia (Islamic). The Sharia division has jurisdiction over matters of personal status (marriage, divorce and inheritance) and in cases of non-Muslims; it is required to apply the religious or civil law of the parties. Recently the Sharia has also taken jurisdiction over certain criminal matters such as drug offenses. The criminal division handles all other criminal cases. The civil division handles all other matters, including commercial and business disputes.

2. Economy

A. Macro-Economic Trends

The UAE is one of the riches nations in the world as measure by per capita GNP. The economy is primarily based on the oil and gas commodities and that tends to cause it to fluctuate with the commodity prices. Figure 1 below gives recent economic indicators. The UAE has seen a steady rise in their GDP which has been driven mainly by the high demand and prices for oil and gas. The relatively high rate of population increase has kept the GDP per capita from increasing as much as the GDP. Industries in the UAE include petroleum, fishing, petrochemicals, construction, boat building, pearling, textiles and some handicrafts. The economy has shown steady growth for the past five years as the GDP has more than doubled. However, oil's share in the GDP has declined over time attributed to the strategic plan pursued by the UAE government to diversify it's economy away from oil dependence.

Figure 1

Recent Economic Indicators

2001 2002 2003 2004 2005 2006

GDP (US$bn) (current prices): 68.70 74.60 88.20 104.60 129.60 176.80

GDP per Captia (US$bn) 19689.00 19864.00 21815.00 24059.00 27700.00 35099.00

Real GDP Growth (% change YOY) 1.70 2.60 11.90 9.70 8.50 11.50

Current Account Balance(US$m) 6590.00 3045.00 7148.00 10650.00 19075.00 37216.00

Current Account Balance(%GDP) 9.60 4.10 8.10 10.20 14.70 21.00

Goods exports (%GDP) 69.20 68.70 76.10 86.60 91.40 n.a

Inflation(% change YOY) 2.80 2.90 3.10 5.00 8.00 7.70

B. Currency

The currency of the UAE is the Dirham. The Dirham has been the currency of the UAE since December 2, 1971. The first currency of the UAE was the Bahraini Dinar. This continued until December 2, 1971, when the United Arab Emirates Dirham became the official currency. The AED was issued by the United Arab Emirates Currency Board from 1973 until 1982. Thereafter, it was issued by the United Arab Emirates Central Bank. Since 1981 the UAE has maintained an exchange rate of 1 US$=3.67330UAE Dirhams. As inflation in the US continues to be a concern it is reasonable to expect that the UAE central bank will not widen the spread of the Dirham and the US dollar. The UAE's confidence in the peg remains high and the UAE central bank is under no pressure to change the peg. The forcast strength of the UAE's foreign currency reserves makes it even more unlikely that there will be any change to the peg system. Particularly, as the UAE central bank will ensure that the local interest rates will track the expected increase in the US dollar.

C. Central Bank

The UAE central bank was created in 1980 replacing the UAE currency board. The central bank is entrusted with the issuance and management of the country's currency and the regulation of the banking and financial sectors. It is a government agency with it's capital owned by the federal government. Under the UAE's banking laws the central bank has the responsibility for regulating commercial banks, investment banks, financial institutions, brokerages, foreign exchange houses, investment companies, representative offices of foreign banks and investment consultants. The central bank is tasked with directing monetary, credit and banking policy for the entire country. The central bank is also responsible for establishing the exchange rate against other major currencies. In practice, the Dirham has been pegged