Economics Essay Sample Paper on United Arab Emirates Economy

United Arab Emirates Economy

  1. Principal Features of an oil Economy

In the 1950s, the Middle East countries experienced political and socioeconomic growth in the world. However, the 20th century was the crucial point for the Middle East expansion. Vast oil reserves were discovered and with their utilization and exportation, the Middle East drastically developed in terms of its social, political, and economic spheres. The oil reserves constitute 66% of the world’s supply and has promulgated to the rapid development of most states, especially the oil-rich countries, such as the United Arabs Emirates, Kuwait, Saudi Arabia, and Bahrain among others; altering the political and economic processes in both the country exporting oil and the entire region as a whole. The vast oil reserves have therefore in greater percentage contributed to economic modernization as well as prosperity.

  1. GCC Economies

The Gulf Cooperation Council (GCC) is an oil-based region that constitutes the largest and purely proven crude oil reserve of nearly 35.7% of the world’s total. The GCC has a comparative advantage in private capital, oil, petrochemical products, and gas. For investors, GCC is an attractive location for the salient consumer market of the imported services and goods, and technology information to the youngest population, but with the highest spending powers in the globe. The common market for economies of six GCC is progressively working to permit national treatment to all firms of foreign investment, and is also open to the investments of the foreign capital. Despite the current crises in global economics, GCC has stand out to be a solid liquid expanse, and has therefore sustained a long-term diplomatic relationship with other countries despite their anticipated growth. GCC economies have been successful in regulating the economic standards in diverse areas, capital mobility, trade integration, and labor creation. The world economy of GCC has been enlarged with an estimation of 4.5% in contrast to 3.3%, which is the annual global average.

  • OPEC and the Global Oil Market

The Organization of Petroleum Exporting Countries was formed in 1960 to control the prices of oil. It was founded by five countries among them Venezuela, Saudi Arabia, Iraq, Kuwait, and Iran. The influence of these five countries on the global oil market remains unchallenged. However, As much as it may look like they control oil pricing, they are not deeply involved in the pricing strategies. The key role of OPEC is to individually and collectively shield the interests of its members. The secondary goal is to seek the means and ways to stabilize oil prices in the global oil markets, with an aim of curbing the unnecessary and harmful fluctuations of oil. Should OPEC naturally decide reduce the production of oil, the theoretical price would rise with limited oil supply. Additionally, should they meet and increase oil production; theoretical price would reduce with an increment in oil supply. Therefore, as much as OPEC cannot out rightly control the oil markets, they have the power to steer oil global markets.

  • UAE in Adherence to OPEC

UAE offers rich sources of natural resources and has advanced as a prominent player in the industry of gas and oil. The UAE is an OPEC member and has been allocated one of the best remarkable positions in gas and oil industry across the globe, and holds 10% of the world’s total oil reserves. The future is blooming for the lucrative prospects in the sector of the natural gas, since this would assist in power generation, manufacturing industry, and petrochemical industry in providing the source of fuel. Under UAE membership, Dubai and Abu Dhabi are the primary emirates in charge of the development and the triumph of energy and oil sector. UAE therefore allocates oil to the world energy markets with an approximation of at least 10 percent of the world’s crude oil supply. In addition, UAE takes up thirty percent of oil exports in GDP, thereby making it relevant to the economy. Moreover, apart from being a global energy supplier, UAE is also the prominent energy consumer; a reality which will progress for the longest time due to its contributions in development on the alternative sources of energy, acceleration of additional growth in hydrocarbon reserves, and the development and diversification of the general economy.

  1. Oil-based Economy to Non-oil Sector

In Arabic countries, UAE country is the second biggest economy with a GDP of $ 377 billion. UAE has successfully diversified the economy with nearly 71% of the total GDP originating from the non-oil sectors. Apart from oil, tourism is another leading source of returns in UAE, hosting an array of lavish hotels and exotic destinations in the world. UAE is however not highly reliant on natural resources as the primary basis of revenue. Along the coastline of UAE’s Abu Dhabi, the export of natural gas and petroleum has a prominent role in the economy. Transportation, commerce, and services also aggregate to the economic growth. Other non-oil economic practices carried by the UAE to boost its GDP include fishing, pearl driving, and seafaring. Additionally, it is being assisted by thriving services sector and the massive construction boom to diversify its economy and has countless projects worth $350 billion.

  1. Economic Development Patterns and External Factors

Nearly thirty years ago, UAE was among the list of developing countries in the world. However, it has currently achieved an equal level of income to that of industrialized nations. To archive its success, the UAE did not pass the regular hypothetical development stages like most developed countries. The big oil reserves have enabled her to soar over these phases of increased mass consumption. Apart from being endowed with both the on-shore and offshore oil reserves, the gas obtained from crude oil is relatively produced alongside other non-associated gas productions. All these have amounted to the general economic growth within the country and beyond. Gas and oil industries are well supervised with the incorporation of the latest technology to increase the efficiency of production, hence a developed economy.

  • External Factors on Economy

PEST analysis is an instrument used to analyze the external factors of environment. PEST is an initial denoting the external factors affecting economy and the initials include political, economic, social and technological factors. Political factors tackle the framework of politics, economy factors major on the national and international developments, social factors exploits the culture, opinion and ideas of market participants while technological factors are very essential for industrial companies, since it underlies the rapid technological changes.

  • The Economic Sectors of UAE

UAE has advanced into a prominent business centre with diversified and advanced economy within the last three decades. UAE has a tactical location and is the largest re-exporting centre in the Middle East. The liberal government policies, excellent infrastructure, and the international outlook are the key factors, which attract investors. The success of UAE is however attributed to several economic sectors, such as its political and economic stability, its world-class infrastructure and service sector, open and free economic system, its competitive cost structure, excellent living conditions, and improved quality life. Also, wide choice of potential business partners and strong local commercial traditions, major achievements in exports and re-exports performance, and extensive foreign trade and the rapid manufacturing sector, which produces high quality export.

  1. Non-oil Sectors and its Impacts on  the UAE Economy

 Increased dependency on oil sectors resulted in economic recessions, hence affecting price fluctuations observed in oil commodities. Focus is also required in the real estate and tourism sector since they enable the country to advance in the non-oil sector and also offer viable revenue to the economy. The real estates in the UAE are governed by performance in Abu Dhabi and Dubai. The real estate earns a major portion in the country’s development. These non-oil sectors have contributed to the diversification of assets into sectors, for instance, the capital investment, tourism, and the development of real estate, hence playing a role in the development and economic growth.

  • Free Trade Zones

Free Trade Zone is a selected geographical area where goods are manufactured, landed, reconfigured, handled, and re-exported without indulging the custom authorities. Free zones are in addition taken as a lever for promoting technological knowhow. The key functions of free zones are to multiply exports. The government often adds some paybacks, including financial and administrative incentives, tax, and regulatories to the package. The UAE governments have constructed industrial zones to attract specific sectors.

  • The Benefits of FTZ to investors in UAE

Free trade zones are purposely implemented to advance regional development by attracting foreign investors. This direct investment in turn yields the income of multiplier effect and promotes employment in the region. Other benefits enjoyed by the UAE investors under FTZs include the creation of labor specialization, specific technologies and scopes and scales of economies in the long run. It also facilitates a closer cooperation of similar producers within the nations of FTZs. Furthermore, FTZ curbs time wastage, in which the imported intermediate parts are normally prolonged for custom clearance. Additionally, FTZs eliminate the import quotas, which exist for a country. Import quotas diverse the function of productivity, thereby reducing the efficient use of mix resources. Last but not least, the demonstration goods under FTZ are not subjected to tariffs.

  • UAE economic diversification

Economically, the UAE has majored on the growth of hydro-carbon strategies. The objective of the top-down development scheme is to obtain revenue from the exported minerals so as to design an industrial base for maintained growth after the exhaustion of natural resources. Most of UAE states use their wealth resource to set up economies, which is separate from the hydrocarbon sector. Such economies include construction, tourism, transportation, telecommunication and financial services industries. Unfortunately apart from Dubai, most of these states have not succeeded in the diversification of such goals. Even after Kuwait’s government indulgence to encourage distribution networks and downstream operation, petroleum sector is still the economy booster. Additionally, UAE lack direct investments, hence they miss out on FDI benefits. Although UAE states have higher rank earnings from oil trade, their economies lack diversification, broad-based integration and international competitiveness with the economy of the global market.

  • financial funding investments in Non-oil Sector

Fuelled by government programs, the UAE non-oil sector is in progressive growth. For instance, the non-oil sector in Dubai grew up to 15% per annum between the years 2000-2005. This growth however advanced to 21% in 2007 primed by manufacturing and port operations, building and construction, air transport and tourism. Inflation has therefore emerged amounting from the rapid growth. Additionally, the flexibility to comply in terms of monetary policy is limited in relation to the pegging of UAE to the US dollar. The inflation rate is likely to increase up to 10% in the coming years.

  1. Labor Force Impact on UAE Economy

 The United Arabs Emirates has been the popular destination of temporary labor migrants, seeking for employment opportunities and improved living standards. In the previous year, UAE was ranked fifth in the largest international migrant stock across the globe, with 7.8 million migrants. The workforce mostly originates from Pakistan, India, and Bangladesh, and comprises 90% of the total private workforce in the country. UAE welcomes both  the high skilled and low skilled workforce because of  its modern communications, significant political stability, and its vast growth spheres.

  1. Expatriates Contribution to UAE Economy

UAE greatly relies on foreign labor to maintain the country’s economic growth and to improve the standards of living. It was out of this reason that the UAE government decided to implement a program known as the Kafala Sponsorship System. The program is a temporary guest worker platform that permits the expatriates, companies, and nationals to hire migrant workers. The expatriate program however comes with several challenges in the policy making of UAE. The primary challenge is to ensure the economic opportunities for UAE nationals address the concerns of migrants’ victimization to labor, and the UAE human rights abuse.

  • Changes in the UAE Workforce

In the past years, however, the AUE reformed some laws to address the issues condemning the Kafala program for exposing the domestic workers for abusive practices. However, the recent measures have outlawed the employer confiscation of workers passport and permit the workers to navigate the employer sponsorship, and have introduced the measures of wage protection. Due to poor enforcement, the human rights organization has persistently been subjected to abusive practices.

  1. Future Plans and Strategies for UAE Economic Development

The UAE supreme leadership majors on adopting prominent concepts of growth across all institutions, authorities, ministries and government agencies. It offers national initiatives and strategic programs, among them the issuance of the Emirates Identity Authority (Emirates ID). The Emirates ID was based on laws and regulations stipulating the activities of the authorities. The Emirates ID strategic intents are to develop a world-class service organization, facilitate the delivery of innovative electronic services and contribute to the individual and national security as the key identity provider in UAE. Additionally, the UAE government outlined strategies on social progress, rural areas growth, economic, communications, law and security, and government sector development.

  1. The Future Role of Oil Sector in UAE

The oil sector has adversely contributed to the growth of UAE for the last thirty years and this role is expected to progress through different channels. The difference could be as a result of the changes in the relative size of the sector in relation to the overall economy, challenges in the oil and gas sector and the investment needs. Providing new supplies of oil to the market will necessitate noteworthy investment in the allied infrastructure, upstream and downstream in OPEC states. Unlike the previous years whereby investment levels stagnated, in the coming years there will be an increment in investments in the gas and oil sector of GCC. Gas operations investments, for inter-regional trade, export or domestic use will still be a necessity in the Arabic countries.

  • The future Role of Non-oil sector in UAE

The non-oil sector has a prominent role to play and some of its roles to the UAE economy include fiscal linkages, which will shape the growth pattern of macroeconomic policies and the countries that produce oil. It also offers forward linkages, which convert gas and oil fuels into energy industries. Moreover, it will enhance consumption linkages, which equates to the expenditure of oil to the economy of the nation. Oil will further have some contributions to other Arab economies. Such contributions include the implementation of bilateral and multilateral aid, investment flows, tourism flows and remittances.

  • Current Free Trade and Industrial Zones in UAE

The UAE is among the list of the most attractive business destinations due to its political stability, investor-friendly policies and developing infrastructure. Additionally, UAE adheres to some of the best global practices, coupled with suitable environment for smooth business operation with ample opportunities for investors around the globe. The country also benefits from its geographic strategic location; where diverse cultures, trade and commerce have interacted for several years. Interested investors can set up their business with varying emirates in free trade zones, special economic zones and industrial cities with just a single window licensing with quick turnaround of visa processing and registration. Additionally, specialized zones for finance, technology, media, healthcare and education are added dimensions to the commercial environment and trade.

  • Impacts and Opportunities for Privatization in UAE Economy

Privatization is the relocation of asset functions from an open sector to private sector. It plays a major role in quest for growth, and is practiced in all the regions of the world. Privatization can cause a country to succumb to fiscal condition. It should therefore be levied from government finance expenditure and also in settling future debts. Nonetheless, it assists a country to settle portion of its debt, thereby minimizing the rate of interest and elevates investment levels. By minimizing the public sector, the government cuts down total expenditure and collects taxes from privatized enterprises. Additionally, privatization offers ownership to a bigger percentage of its population. With established rights of property, people get motivated and acquire self-drive because they are compensated directly for their efforts. This will in turn multiply investment for a different reason.

  • Role of Stock Exchange in UAE

Throughout the history, the stock exchange has had a big role in promoting the practices of corporate governance, such as the UAE oil company among other companies. The primary role of stock exchange is the monitoring of compliance and standard disclosure. Stock exchange further attributes to effective frameworks of corporate governance, as an agent of other regulatory agencies. Taskforce members second that the Arab stock exchange in advocating for good governance practices among their issuance. Arab bourses are organized public institutions and is spared from the conflict interest pertaining to private stock exchange

  1. Economic Costs and UAE benefits in GCC and WTO

The liberal nature of investment and trade and technological change are the key forces of globalization. Innovations on technology in communication and transport have shortened distances, and in the process costs have been reduced. In the long run, this has enlarged the magnitude and size of global economic activities. For instance, the telephone calls of transatlantic have drastically reduced by 99%, the costs on air transport have reduced by 80% while the cost on ocean-freight reduces by 50% over the years. The liberal nature of trade takes place under the General Agreement on Tariffs and Trade (GATT), but mostly within the context of the World Trade Organization (WTO). In industrial countries, GATT reduced the average trade tariff from 47% to 5% over the years.

The tariffs imposed on imports by industrialized countries from the developing countries have also reduced at varying degrees. Being the main income in GCC economies, the tariff rates of oil are still high in the industrial countries. GCC countries have also experienced liberal trade during the formation of liberal trade by the six Arabic countries.

  1. Trends in Development of UAE e-government

The immeasurable investment in relation to the e-government initiatives across the globe is yet to succeed in delivery of expectations and the outcomes desired. E-government was initiated by the practitioner’s perspective and its concepts was based various practices of the e-government across the world. The UAE government has a vision in the e-government transformation. UAE offers an innovative framework to uphold the implementations of the e-government. The e-government approach guides UAE to develop a leverage and top down strategy to realize the long term transformation of e-government.

  • Trends in E-commerce

Advancement in technology has resulted into a contemporary era, whereby the focal point of society is based on new technologies. Information technology has advanced how people communicate and has expanded the domain to online businesses. The UAE E-commerce demands for distinguished presentation in global markets. The E-commerce in UAE has a solid ground to advance its spiral growth, resulting from the advanced infrastructure.

  • Development in E-commerce

One of the prominent advancement in E-commerce is the application of the electronic commerce. The advanced technology is mostly used to implement the vision of OCED, expansion of world trade, potential economic growth and in social conditions. OCED analysis has granted broad-based policy to reflect the establishment of the digital economy, environment favoring electronic commerce and the adequate infrastructure.