The Business Environment of United Arab Emirates - Essay Example

International Business Name Institution Business Environment in UAE Introduction The countries of today have flourished considerably. In a bigger perspective, the political, economic, technological and socio-culture integration have improved and have been used to define these countries as a success (World Bank, 2015). Such factors mentioned have created platform for conducting business. As the world moves into globalization era, businesses now targets countries with a favorable market and which have the potential of growth to expand their operations. Watkins (2011) argued that United Arab Emirate is one such country which has grown over the years and now forms a great platform for businesses to increase their profits. Therefore, this essay will describe the business environment of United Arab Emirates based on the historical background, current scenario, SWOT and the influence international business have on the UAE business or economic environment. The essay will also provide recommendations how to improve the business environment in UAE. Historical background United Arab Emirates shortened as UAE is a nation situated at the southeast of Persian Gulf and placed at strategically where it borders Saudi Arabia, Oman, Iran and Qatar (Farouk, 2014, p.7). Although, the countries were started as Sheikdoms in 3000 BCE, considerable growth of UAE began after independence in 1971 from the British. Watkins (2011) posited that at the early phase of civilization, there was some evidence of interaction motivated by trading activities particularly copper around Hajar Mountains. In the 19th and 20th centuries, pearling sector flourished hence offering employment and income to locals of Persian Gulf (Kothari Audistors & Accountants, 2012). However, the depression of 1930s led to the collapsed of Pearling industry. Heard (2013, p.42) claimed that the situation marked the discovery of Oil particularly in the current Abu Dhabi, Sharjah and Dubai. With the increased on oil business and export from three oil fields, the rulers started construction program of schools, roads, housing and hospitals. Farouk (2014, p.32) stated that UAE was formally established in 1971 and divided into seven emirates including Abu Dhabi, Dubai, Ajman, Furairah, Ummal-Quwain, Sharjah and Ras al-Khaimah. After independence, the Dubai and Abu Dhabi rulers formed a pact between the two emirates and deiced to draft a constitution and later convinced other rulers from the remaining emirates to join. The union was referred to as the United Arab Emirates. UAE has faced various threats of terrorism activities and pro-democratic uprisings. For instance, after 2001 terrorism attack World Trade center premises in New York, the American authorities argued that UAE is one of financial bases used by terrorists especially Al-Qaeda to transfer money and conduct money laundering (Watkins, 2011). Similarly, in 2011 the region of Middle East was faced with Arab Spring. Current Scenario Currently, UAE has grown to be one of the leading economies and favorable markets in Middle East. In fact, the UAE is the second leading economy in among Arab nation after Saudi Arabia with a gross domestic product of $572 billion by the end of 2014 (Farouk, 2014). The market is diversified and even non-oil industries have contributed towards growth of GDP; although GDP majorly depend on the oil sector. Construction, ship building, financial, hotels and tourism sectors have contributed significantly towards GDP in the recent times. Madichie and Blythe (2011, p.595) claimed that UAE is regarded as one of the fastest rising tourist places in the globe with features for a remarkable holiday, sports, sand, sun, sea, unbeatable shopping, state-of-the-art restaurants and hotels, and welcoming environment with unique traditional culture. The nation presents endless opportunities for investment from local and to global investors, and offers an environment which attracts trade owing to several free zones situated all over the Emirates and provides lucrative incentives (Dubai Chronicle, 2012). The population of United Arab Emirates has grown at a slow pace over the years hence its population majorly consist of expatriates. World Bank (2015) contended that the population of the country stood at 9.3 million with 1.5 million people being Emirati citizens whilst 7.8 million being foreigners. The growth of mixed population encourages business activities (Sambidge, 2009). Other features which have attracted trade are the fact that the UAE government spends billions of money in developing infrastructure making the country one of the developed in terms of infrastructure. Dubai Chronicle (2012) posited that Middle class population has increased making UAE to be considered as high income economy by International monetary funds. SWOT Analysis Strength The country has a stable government at national and emirate level which creates conducive environment for doing business. Even though, terrorisms and Arab Spring unrest in the region, UAE has enjoyed political stability ensured by Emirate rulers and the strong army (Watkins, 2011). Sheikh Mohammed bin Zayed Al Nahyan has stamped his authority in all emirates through his position as the army’s deputy commander. He is also a businessman who understands that business can only thrive through peace and stability. The Country is rich in oil and mineral hence their trade offers employment and income to millions of citizens. Heard (2013, p.42) opined that the oil business is lucrative and has continued to contribute up to 80 percent of GDP. High presence of construction material and minerals has contributed to development of advanced infrastructure such as roads, business premises and hotels. The government has also injected much money into construction of infrastructure ensuring UAE has the best roads, railway, hotels, railway and airports in the Middle East (World Bank, 2015). The country has several free trade zones where local and international businesses can conduct business with multiple exemptions of all the taxes on production. Weaknesses According to Sambidge (2009), UAE has a low population with numerous businesses activities. This means, the country population cannot provide adequate labour hence the country depends on foreign labour. Buying foreign labour is often expensive and increase cost of operations. UAE has a wanting human right records over the past (Bakr, 2009). The situation scares most people willing to work in the country. Women have always discriminated from taking part in businesses and also subjected to Sharia laws. Keane and McGeehan (2008, p.83) claimed that some parts of country especially Dubai has enacted dressing code laws which bars women who gone against such laws from purchasing in some malls. UAE has extreme hot and cold weathers from distract people from conducting businesses during summer and winters. Opportunities UAE’s population comprises of high number of middle class citizens which have high disposable income which can be used to buy luxury products and services (Farouk, 2014). Watkins (2011) claimed that the country has no income tax, corporate tax and even controls on foreign hence foreign investments can capitalize on the policy such as to increase their revenues. Tourism industry has grown and is predicted even to grow further in the next five years. The good unique landscape and climate during winter and spring, state of the art hotels continue to attract tourists in Dubai and Abu Dhabi (Dubai Chronicle, 2012).. Growth of tourism sector improves other sector of the economy. Threats Terrorism is one of the issues facing UAE government. As a country which had been identified as financial base where terrorist used to transfer funds, the tag still leaves with the country (Watkins, 2011). Threats of terrorism prevent tourism and people from working in a foreign. Companies may also consider investing in such countries as they term them unsafe and risk to their businesses. Dubai Chronicle (2012) asserted that fluctuating world economies and currency exchange rate is a threat UAE business environment because it may make businessmen to stay away from investing. Influence of International Business on the Business Environment in UAE The influence of international business on UAE has been massive over the years. Just like many other countries of world, UAE has freed its economy so as to benefit from what it does not produce. Farouk (2014) affirmed that the economic freedom of UAE has a high score of 72.4, and rated the 25th freest economy in the world. The country is known to export oil and mineral to other countries across the globe. In addition, UAE also exports natural gas, Aluminum, dates and dried fish (Watkins, 2011). In quest to participate in world trade and import and export its products, the country with other members such as Oman, Saudi Arabia, Qatar, Kuwait and Bahrain formed Gulf Cooperation Council. According to Farouk (2014) UAE is a member of World Trade Organization, an association which has helped it expand its trading activities in the UK, US, Germany and Japan. The trade has influenced business environment in UAE. The citizens have been able to get the best and latest machinery, chemicals, cars, electronics and foods (World Bank, 2015). For example, UAE exports crude oil to Japan and in return it gets cars. This international trade has led to advancement of technology and other infrastructure. The country has unique landscape and scenery which attracts tourists all over the world. In exchange, UAE receives foreign exchange which its uses to develop more hotels and infrastructure. International trade has led to increase of population has other people cross borders to work in UAE (Keane & McGeehan, 2008, p.84). Since the country’s workforce cannot meet demand, world trade has enabled it get foreign labor hence production efficiency. Conclusion and Recommendations UAE has created an ample platform for local and international business people to conduct business and improve their revenues. The country has grown significantly and even has the potential to grow due to political stability, oil business and even leaders who have interest in business activities. Business have also been boasted by the growth of tourism sectors as tourists throng Abu Dhabi, Dubai and other emirates for business and leisure. Despite the growth of business, the country faces various threats which must be death with to improve the business environment in UAE. Therefore this essay provides various recommendations; 1. Human Rights UAE has a bad record on human rights. The law in the country continues has encouraged torture, stoning and other actions which are against human rights. The state have continued to abduct both its citizens and expatriates and torturing them to death. The government must therefore enact laws which protect human rights for the environment to continue attracting foreign businesses. 2. Terrorism As a country which has been associated with terrorism due to association with Al-Qaeda and Taliban, the government must move with speed and dissociate with such militia and terrorist gangs and market UAE as safe and peaceful country. In that way, it will attract more tourists and foreign investment from the west. 3. Media UAE media is not free hence cannot air what the government has not approved. The situation might give advantage to business allied to government compared to private businesses. In a big perspective, it creates some form of favoritism. 4. Increase of Population The low population of the local population has facilitated great reliance on the foreign labour. Many countries both domestic and foreign now outsource labour from other countries to help in operations. Buying labour is very expensive and often increases cost of operation. Therefore, the citizens need to increase birthrate to help in supply of labour. Reference Bakr, A. (2009). UAE ruling family member says not guilty of torture. Reuters Dubai Chronicle (2012). Abu Dhabi remains dedicated to diversification of local economy. Dubai Chronicle. Farouk, H. (2014). Doing business in the United Arab Emirates. Thornton Grant UAE Heard, D. (2013). From Pearls to Oil. Motivate (UAE). pp. 41–42. Keane, D., & McGeehan, N. (2008). Enforcing Migrant Workers' Rights in the United Arab Emirates. International Journal on Minority and Group Rights 15, p. 81-90. Kothari Audistors & Accountants. (2012). About UAE. Retrieved 17th August 2015 from http://www.kothariauditors.com/aboutuae.html Madichie, N.O., & Blythe, J. (2011). The “bold and the beautiful” of the UAE retail environment. Marketing Intelligence & Planning, 29(6), 593–601. Sambidge, A. (2009). UAE population hits 6m, Emiratis make up 16.5%. ArabianBusiness.com Watkins, W. (2011). Doing Business in the United Arab Emirates. 29th April 2015 from http://www.lw.com/upload/pubcontent/_pdf/pub2783_1.pdf World Bank. (2015). Doing Business 2015 Going Beyond Efficiency: United Arab Emirate Economy Profile 2015United Arab Emirates. World Bank Group. Retrieved on 29th April 2015 from http://www.doingbusiness.org/~/media/giawb/doing%20business/documents/profiles/country/ARE.pdf Read More