Harmonizing and consolidating the UAE’s markets and infrastructure will ensure the United Arab Emirates retains its position as the gateway to the region
From the shacks of the pearl divers huddled beside the creek in Dubai to skyscrapers soaring from the scorching desert – in less than 40 years, the United Arab Emirates has transformed itself into the Arabian Gulf ’s powerhouse.
Today, these seven emirates, with Abu Dhabi as their capital, are increasingly recognizing the benefits of unity envisioned by the UAE’s founding President, the late Sheikh Zayed bin Sultan Al Nahyan. The UAE is one of the world’s foremost tourist destinations, a financial hub for the Middle East and a beacon of stability in a turbulent region. As the UAE’s President and ruler of Abu Dhabi, Sheikh Khalifa bin Zayed Al Nahyan, said at the height of the economic crisis in March 2009: “We are members in one entity and parts in one strong, coherent body.”
The UAE’s growth was fuelled in the early 1960s by the discovery of oil and gas, but its rulers have long been planning for the day when the wells run dry. Already the country is thought to earn more from managing money, in the form of its sovereign wealth funds, than from hydrocarbons.
The emirate of Dubai, with only a tiny percentage of the country’s oil and gas, initiated an ambitious plan to build a long-term, sustainable economy by encouraging the development of diversified industries. Foreign companies, particularly in the knowledge and services sectors, have been enticed to its economic free zones, such as the Dubai Multi Commodities Center and Dubai International Financial Center, encouraged by tax breaks and other incentives. With them came a building boom, leading to projects such as the Palm Jumeirah and the world’s tallest tower, Burj Khalifa.
Cushioned by its ownership of more than 90 per cent of the UAE’s energy reserves, Abu Dhabi was late in adopting diversification. But it too has opened economic free zones and developed impressive buildings, including the Yas Marina Circuit, home to the season’s final Formula One race, and Capital Gate, the building that looks as if it has vertigo.
Following the economic downturn, the UAE, for so long the region’s leader in economic growth, is lagging behind the recovery. Questions remain over its longterm economic model, especially around population growth and Sheikh Mohammed bin Rashid Al Maktoum’s belief that “if you build it, people will come.” The domestic credit squeeze looks likely to continue in the short term, as loan-to-deposit ratios remain over 100 per cent, and foreign direct investment fell 70 per cent in 2009, according to HSBC.
Meanwhile, competition from other Gulf markets is increasing. Many are developing their infrastructure and have good locations and political stability, and Qatar and Bahrain retain aspirations to challenge the status quo.
But the assets that made the UAE attractive in the first place – oil, political stability, highly developed infrastructure and ease of doing business – are still in place, and they remain positive indicators for future trade and investment. Recognizing this advantage, Britain is stepping up its interest in the UAE. Priti Patel, treasurer of the UK’s All Party Parliamentary Group to the UAE, says: “Our countries have a prosperous and cooperative relationship. Britain’s long established economic and trading ties with the United Arab Emirates will go from strength to strength as the British government seeks to elevate links with the Gulf and boost relations that have not been maximized in recent years.”