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Dubai as Investment Destination, Research Paper Example

Pages: 5

Words: 1510

Research Paper

Dubai is one of the seven states of United Arab Emirates (UAE) (CIA) and arguably the most developed in economic terms. Despite being in the Middle East, UAE’s economy is comparable to many in the western world. The country is also notable for its extremely diverse population which totals approximately 5.47 million of which only 19 percent are Emirati while other notable groups include non-Emirati Arabs, Iranians, South Asians, and western expatriates. The country’s official language is Arabic while other major languages spoken in the region include English, Persian, Hindi, and Urdu. The average age of UAE population is only 30.3 which makes it an attractive investment target (CIA).

UAE’s GDP is approximately $259 billion and per capita GDP is a little over $48K (The Heritage Foundation). In contrast, U.S. per capita GDP is approximately $50K (CIA). It is clear that UAE has earned its status as a wealthy country. The country also ranks quite favorably on UN Human Development Index with 41st ranking among 186 countries. The expected life expectancy is 76.7 years and the country scores particularly well in income levels and quality of healthcare (United Nations Development Programme). Even though UAE has progressed significantly as compared to its neighbors and has also done a better job of diversifying its economy, political rights and civil liberties status remains poor as compared to the west. UAE provided support to crush Bahrain’s pro-democracy movement and the country also arrested the most outspoken activists who demanded greater political rights even though the President later pardoned them. Not surprisingly the country gets a score of 6 in terms of freedom and not deemed as a free country regarding political rights and civil liberties (Freedom House).

UAE is not a democracy and the political power is shared by the dynastic rulers of the seven emirates of which Dubai is one. These seven rulers form the Federal Supreme Council which is the highest national executive and legislative body. The Federal Supreme Council elects the President and the Vice President and the President appoints the Prime Minister and his cabinet. The Presidency has always gone to the emirate of Abu Dhabi (Freedom House). UAE’s Government could be considered a federation with certain powers held by the federal government while the rest delegated to the member states (emirates).

UAE also has a 40-member Federal National Council of which half was elected for the first time by nearly 7000 electoral college in 2006 while the other half is appointed by the government for two-year terms. The council primarily acts as an advisory body. The country has no political parties and citizens have limited sayings in the political system. The country’s constitution also prohibits insulting the ruling family or government and the government regularly monitors the conduct of the media. To its credit, the country does rank quite positively on the Transparency International’s Corruption Perception’s Index and is one of the least corrupt countries in the region (Freedom House).

The country’s highest court is Federal Supreme Court, consisting of the court president and four judges. The country’s president appoints the judges which are approved by the Federal Supreme Council. Lower order courts include Federal Court of Cassation which is primarily responsible for evaluating the constitutionality of laws at federal and state levels, federal courts of first instance, and federal appeals courts. Each emirate also has its own judicial system. The country’s legal system has elements of both Islamic law and civil law which is not surprising because Islam is the official religion of the country. UAE’s constitution was created on its independence day on December 2nd, 1971 but only became permanent in 1996 (CIA).

UAE has an open economy and the country has taken a host of measures to reduce its reliance on oil. The government has made significant investments in infrastructure and has been opening several public sectors to the private sector. Industry is the largest contributor to the national economy, accounting for about 56 percent of the national GDP while services come close at 43.2 percent. The country also benefits from budget surplus as well as extremely low inflation rate which was 0.7 percent last year (CIA).

UAE and particularly, Dubai make a very strong case for international investors. The country ranks high on trade freedom. The Heritage Foundation ranks the country as the 28th freest country in the world. The market regulations encourage open-market policies and a stable political system also reduces risks for international investors. UAE also has free trade zones which allow full foreign ownership and also imposes zero percent tax. The country has no income-tax as well as federal level corporate tax which also create strong economic incentives for foreign direct investment. But there are still areas in which the country can improve to enhance its investment attractiveness. Foreign investors do face restrictions regarding investment in land and in some cases, 51 percent or the majority of the stake must be owned by a UAE national (The Heritage Foundation).

UAE’s free trade zones merit special attention because they probably offer some of the most attractive economic incentives in the world. First of all, international investors have 100 percent ownership of any enterprise they set in the free trade zone. They also don’t pay any export or import taxes and also benefit from 100 percent capital and profits repatriation. The investors also qualify for 15-year exemption from corporate taxes and the exemption is renewable for another 15 years. The employees and the management pay no income taxes and the investors also receive assistance with labor recruiting as well as other forms of support (Baker Tilly MKM, August 2008).

The country also has an active stock exchange in Dubai whose standards are comparable to the leading stock exchanges in the world such as New York, London, and Hong Kong. The country is also a party to the World Trade Organization (WTO) and companies in Dubai or other parts of UAE benefit from free movement across all 7 emirates as well as GCC countries. Another benefit is the absence of trade unions in the country and labor disputes are tackled in accordance with the applicable labor laws (Baker Tilly MKM, August 2008).

The country continues to revise its regulations to attract more international investors. For example, a new law gives power to the cabinet to allow certain types of businesses that could be majority-owned by foreign investors outside the free trade zone. The possibility of such exceptions is specifically high in business sectors. New legislations are also intended to reduce the time it takes an international investor to establish a company. Laws may also be introduced to allow companies to raise more funds through equity issues. In addition, access to lending sources is also cheaper in Dubai as compared to other countries in the region including Qatar, Bahrain, and Saudi Arabia. The UAE Government has also been taking steps to improve intellectual property rights and the country is already the best performer in the region in this regard. Similarly, the country has an established infrastructure in place to facilitate international trade. The country also has one of the busiest ports in the world in Port Rashid and Jebel Ali Port (Dubai FDI Office).

Even though Dubai is well-developed and qualifies as a wealthy region, not all of UAE has experienced the same degree of economic and social progress. Thus, any company looking to invest in the region that also wants to make positive contributions towards social development could focus their attention to certain other emirates, particularly northern areas of the country. There is a reason why UAE Government has been making multi-billion investments in emirates such as Sharjah, Ras Al Khaimah, Fujairah, Umm Al Quwain, and Ajman. In other words, all other emirates besides Dubai and Abu Dhabi can use help in social development and economic infrastructure. The government has also been building houses and funding other social projects in less-developed areas (Nowais, 2013).

Even though UAE still has a long way to go in areas of political rights and civil liberties, the country scores high marks in almost every other area that concerns international investors. The government continues to introduce measures to enhance incentives for international investors even though the current incentives are already among the most generous in the world. Companies that believe in making positive social impact may find fewer opportunities in Dubai but could make contributions to other emirates. Doing so may help such companies score significant goodwill with the government as well as the local population.

References

Baker Tilly MKM. (August 2008). Doing Business in the United Arab Emirates. Baker Tilly International.

CIA. (n.d.). United Arab Emirates. Retrieved October 23, 2013, from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html

CIA. (n.d.). United States. Retrieved October 23, 2013, from https://www.cia.gov/library/publications/the-world-factbook/geos/us.html

Dubai FDI Office. (n.d.). Why Dubai. Dubai: Department of Economic Development, Dubai.

Freedom House. (n.d.). United Arab Emirates. Retrieved October 23, 2013, from www.freedomhouse.org/report/freedom-world/2012/united-arab-emirates

Nowais, S. A. (2013, August 20). Progress UAE: Dh16bn Northern Emirates development on track. Retrieved October 23, 2013, from http://www.thenational.ae/news/uae-news/progress-uae-dh16bn-northern-emirates-development-on-track

The Heritage Foundation. (n.d.). 2013 Index of Economic Freedom: United Arab Emirates. Retrieved October 23, 2013, from http://www.heritage.org/index/country/unitedarabemirates

United Nations Development Programme. (n.d.). United Arab Emirates. Retrieved October 23, 2013, from http://hdrstats.undp.org/en/countries/profiles/ARE.html

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