Business Environmental Analysis Report: United Arab Emirates

Country Introduction 

The United Arab Emirates (UAE) is a conglomeration of seven states that have experienced tremendous growth to become an essential economic hub in the Middle East region. UAE is regarded as one of the most liberal countries located in the Gulf due to its tendency of tolerating different beliefs and cultures. However, it still remains a politically authoritative regime. Due to the continued territorial conflicts over the Gulf Islands, UAE has not enjoyed a good relationship with Iran, one of its neighbors. UAE also drew attention as among the few countries that appreciated the Taliban rule in Afghanistan. The economy of the country has experienced an evolution over the years. Before the discovery of the oil in the mid-20 th century, the economy primary depended on fishing and pearl industry as its means of generating income. The society and economy experienced a transformation after the country began exporting oil in 1962 (Ashwin, 2013 p. 7). Through its diversification, UAE has built its reputation around trading and tourism. Most of the firms in the country have also invested abroad. Currently, the UAE is under the leadership of President Sheikh Khalifa bin Zayed. The governance of the country is a function of the Supreme Council of Rulers consisting of seven emirs. The emirs appoint both the prime minister and the rest of the cabinet. The UAE is arguably one of the most significant trade and economic havens in the world. Several socioeconomic and political factors have contributed to the establishment of an enabling business environment which has in turn leveraged the country's economic status in the global community. 

International Trade Activities 

El Mallakh (2014) asserts that following the independence of the UAE, the country maintained an open and free market system built around an international economy (p. 3). Initially, the economy heavily depended on fishing and pearling. However, after the discovery of oil in the 1960s, UAE started creating partnerships with industrialized nations such as France, Great Britain, Germany, Japan, Italy, South Korea, and India, among others. Since then, the country's chief export product has been oil. They exported crude oil and in exchange, received a host of commodities including cars, machinery, food, and transportation equipment. According to Al-Suwaidi (2011), Japan is an essential player in UAE international trade activities as it accounts for almost a third of the country's petroleum exports (p. 46). According to research compiled by the Economic Complexity Index (ECI), UAE is the 32 nd biggest export economy worldwide (El Mallakh, 2014 p. 9). Some of the top export products that the country deals in include crude petroleum, refined petroleum, gold, diamonds, and petroleum gas, among others. Some of the UAE's top destinations include India, Japan, China, Oman, and Switzerland. On the other hand, most of its import products originate from China, India, Germany, the United Kingdom, and Turkey in that particular order (Al-Suwaidi, 2011 p. 78). 

Jabado et al. (2015) stated that the UAE's trade is structurally balanced and is heavily associated with global oil prices. Over the years, the country has also experienced a significant increase in the nonoil business. Information summarized in the website "UAE Foreign Trade in Figures" shows that in 2018, "UAE's nonoil trade grew by 2.5% to USD 330 billion in the first months of 2018, with imports rising to AED 697.2 billion" (UAE Foreign Trade in Figures). The United States is among the countries that enjoy a stellar relationship with the UAE. The last decade has seen an increased trade between the two countries by over 40%. The UAE continues to serve as the top export market for US products in the entire Middle East region. Research conducted in 2018 showed that the trade between UAE and US summed up to $24.5 billion. The healthy trade relationship between the two countries overemphasizes the diversity of the UAE's economy. Today, the nonoil sector alone contributes to about 70% of the gross domestic product (GDP) (Bing & Al-Mutawakel, 2018, p. 112-113). UAE has also sought the help of the US in a bid to protect its assets from the threat posed by the Iraqi. It is also crucial to appreciate that the UAE is still locked in a maritime conflict with Iran. Therefore, their friendship with the US continues to be a significant determinant of its economic stability both at the local and international level. 

According to Al-Suwaidi (2011), the UAE also faces stiff competition from its counterparts in the region. The competitions primarily increased after the Gulf War and the fall of the Soviet Union (p. 99). As a result, the UAE was compelled to enter into trade relations with the likes of the US, China, and the former Soviet Republics. The UAE continues to be a major player in global economics. For many years now, it has shown its ability to diversify its economy, making it an integral part of the global economic community. 

International Institutions Activities 

The UAE has managed to establish a friendly relationship with other global players in various continents. Since its independence, the country has managed to develop close and extensive commercial and diplomatic ties with other countries. Currently, it is one of the leading members of the Organization of the Petroleum Exporting Countries (OPEC) founded in 1960 and has 14 nations (Nyarko, 2010 p. 12). The UAE is also a member of the United Nations (UN). Over the years, the country has primarily focused on creating cooperation-based relations with other countries across the world. Other organizations that the UAE has managed to play a significant role in include the International Monetary Fund (IMF), World Bank, Organization of Islamic Cooperation (OIC), and the Arab League. Notably, the UAE has managed to foster close ties with Egypt becoming the primary investor in the region. Another country that acts as a major trade partner is Pakistan. 

UAE has also established a close friendship with China. They share positive cultural, political, and economic relations. The largest expatriate group present in the UAE consists of the Indian population. However, it is crucial to appreciate that the UAE continues to have problems with Iran regarding the maritime bodies. The US has demonstrated its commitment towards ensuring its protection. Katzman (2010) asserted that the US had been described as the best anti-terrorism option for the UAE (p. 23). The UAE also enjoys fruitful relationships with other global players such as Germany and the United Kingdom (UK). The positive foreign relations demonstrated by the country have Emirati passport rank as one of the best in the whole world. Therefore, traveling to the UAE has also become easier for many people. It is in this regards that most citizens from countries such as the UK and Germany have managed to reside in the UAE without any problem. 

Natural Resources and Environmental Sustainability 

Before assessing the natural resources of the UAE, it is essential to note its location in the Arabian Peninsula, Western Asia. The countries bordering UAE include Saudi Arabia and Oman. The primary natural resources that the country owns include petroleum and natural gas, which are the backbone of the economy. Approximately 90% of these resources emanate from Abu Dhabi (Ulrichsen, 2012, p. 64). Oil is the leading natural resource that the country produces. Worldwide, it is the 7 th largest producer of oil. Among the Organization of the Petroleum Exporting Countries (OPEC), it is the 4 th largest producer of petroleum. The government of the UAE has declared that the country has up to 99 billion barrels of oil reserves. Other than the oil, the other vital natural resource that UAE boasts is the natural gas. According to Ulrichsen 2012, the country has a magnificent 6 trillion cubic meters of the natural gas (p. 114) with Abu Dhabi being the largest custodian. The amount of natural gas that the country holds is 4 th and 7 th in the Middle East and the world, respectively. The production of natural gas has continued to grow over the years. More importantly, it should be noted that the UAE has the potential of producing even more natural gas in the future, but the only stumbling block is the fact that it continues a lot of sulfur. 

Solar energy is one of the most reliable natural resources due to increased exposure. Mokri, Ali, & Emziane (2013) assert that the UAE has a long term policy that extends to 2050 aimed at balancing energy production and consumption. In this endeavor, solar energy will remain an integral part (p. 340-341). A majority of the UAE is a desert. However, it is estimated that 1% of the total area is arable land. However, through artificial integration, the country has managed to increase the area under crop plantation to about 2.4% of the total land (Fisher, 2013 p. 234). Environmental sustainability remains part and parcel of the country's primary consideration. The UAE has a strategy known as Vision 2021, which strives to ensure that the country has an increasingly diversified economy that does not only rely on oil. In 2012, the country launched a program known as "A green economy for sustainable development." The information outlined in the government official website states, "Under this initiative, the UAE seeks to become a global hub and a successful model of the new green economy, to enhance the country's competitiveness and sustainability and preserve its environment for future generations" (Green Economy for Sustainable Development). The initiative is based on the assumption that it is only through environmental sustainability that the country can achieve long-term economic growth. 

The Sheikh has demonstrated his willingness to build an economy that not only protects the environment but also supports looks into the needs of the future. Some of the most crucial tenets of the strategy include the use of renewable energy, investment in the green economy, the creation of urban policies that preserve the environment, and the rationalization of water resources. 

Political Forces 

The UAE has developed a reputation as one of the most modern and open states located in the Middle East region. The form of government that rules the country is known as the federal presidential elected monarchy. The monarchs ruling the seven emirates are responsible for the election of the president. On the other hand, each monarch possesses both a local and a municipal government. The fact that each of the emirates has a sense of autonomy has contributed to the overall effectiveness in management across the country (Zahlan, 2016 p. 245). The UAE has been described as an attractive area for investment due to its political stability. Also, the open-mindedness and a culture of tolerance have also significantly impacted operations. Over the past decade, there has been a crackdown on "Al Islah," a conservative Islamic organization. According to the UAE government, making the UAE a conservatively Islamic country would have significant implications on investment and tourism. The government has, therefore, opted to dismantle the sect in a bid to make the country more attractive for investors and tourists. Important to note is that the Arab Springs experienced in the last decade had adverse impacts on the political stability of the Middle East region. 

In the wake of the Arab Springs, UAE saw an increased income as many companies relocated to the country in a bid to avoid the protests, demonstrations, and wars seen in other neighboring areas which started in 2010. The UAE government was hell-bent on staying away from the violence. The existence of the UAE in the Gulf Cooperation Council (GCC) has significant impacts on its political stability. The GCC, in its current constitution, has six countries, including Kuwait, Bahrain, Qatar, Saudi Arabia, Oman, and the UAE. The GCC advocates for a comprehensive policy which is contrary to the turbulence promoted by the non-member states such as Yemen and Syria. However, this does not mean that the UAE does not possess threats to its political stability. The UAE and Iran are held in a conflict over maritime ownership of three islands that include Abu Musa, Persian Gulf, and the Greater and Lesser Tunbs (Zahlan, 2016 p. 123). However, with the establishment of close ties with the US, the country has managed to protect its assets and further mitigate any threats directed towards it. The UAE has established close ties with different countries across the world, a factor that has played a fundamental role in ensuring that it has strong political ties. 

Business is expected to continue booming in the country due to the widely enjoyed sense of stability. The unification experienced in 1971 was responsible for the long-term peace in the entire region (Zahlan, 2016 p. 134). Although governance is primarily characterized by a significant lack of democracy and political freedom, no major political upheavals have been experienced in the last three decades. In summarizing the future plans of the UAE, Ashwin, (2013) says, "The UAE will likely continue to take pro-active measures to mitigate domestic social tensions while aligning its regional response with that of its fellow Gulf Cooperation Council (GCC) countries" (p. 1). 

Legal Forces 

The first crucial aspect of assessment regards whether the justice system upholds the equal treatment of nationals and foreigners. However, this could be problematic for foreigners seeking to establish their businesses in the country because the judicial system does not guarantee the impartial treatment between the two citizens. As regards the language used in justice, local courts tend to prefer the use of Arabic. The official language of the court is Classical Arabic. In some instances, English and Gulf Arabic can also be used. The Sharia or Islamic law defines the official jurisprudence (Dhabi, 2016 p. 23). It is applied to matters such as personal status and criminal cases. Some emirates rely on the Sharia laws to solve a host of commercial disputes. Several legal codes are fundamental in the guiding business activities throughout the country. Examples include the company code, maritime code, commercial code, labor law, and penal procedure code. The company code guides the creation of companies and determines the conditions for working. The maritime code guides freight regulations and shipping trade law. The commercial code on its part seeks to guide a host of commercial activities. The Sharia laws have been described as rigid and inflexible. As such, they are likely to adversely impact business, especially for foreigners due to the high level of bureaucracy. 

However, it remains critical to take into consideration certain fundamental aspects of the Sharia laws that have since influenced the way business operates in the country. For instance, the charging of interest or usury is strictly forbidden. The Sharia laws assert that money should not be classified as a commodity for trading. Also, money does not accrue any value if left unused after a period of time. Sharia laws also encourage the sharing of risks. The laws further prohibit the uncertainty that comes with the creation of a contract. It is the obligation of both parties to undertake the contract based on the full knowledge of the contents. Therefore, information regarding the capital or goods should be well stipulated and agreed upon heading into the contract signing. The Sharia law further emphasizes that the parties in a contract must have the necessary legal capacities to understand the obligations outlined in the contract. Generally, business persons wishing to invest in the UAE must understand a host of laws that govern their business. Other essential areas of the law that are illuminated include the protection of labor rights, protection of the environment, and governing the free zone. One of the most common laws affecting companies is known as the UAE Commercial Company (13) of 1988. The law stipulates that companies are prohibited from undertaking any financial obligations (Dhabi, 2016, p. 87). 

Foreign companies have a way of establishing a permanent presence in the UAE. They either need to register their business as a limited liability company or a sole proprietorship. Another alternative is to open a branch office in the Free Trade Zone. Some of the benefits associated with this move include corporate tax exemptions that extend for over 15 years. Secondly, all exports and imports have 100% tax exemptions (Dhabi, 2016 p. 190). 

Economic and Socioeconomic Forces 

The UAE records an economic freedom score of 77.6. In terms of freeness, the economy is ranked 9 th in the world, according to research completed in 2019. The country performs well in terms of its economic input. The combined import and export value forms approximately 172.8% of the GDP. In 2018, the World Trade Organization (WTO) asserted that the UAE had up to 69 nontariff measures in place (Dhabi, 2016, p. 233). Over recent years, there has been a shift from the oil-based economy to other areas, but the progress has been at a slow rate. Several factors have come into play in the UAE's quest to expand its economy. The first strategy has been the diversification of the economy by focusing on more nonoil sectors. Secondly, strengthening the business climate has been another significant area of consideration. The UAE lacks the rationale for collecting the federal corporate tax and the income tax. Overall, the country has a tax burden of about 9% of the entire domestic income (2019 Index of Economic Freedom). Several other factors have been mentioned to contribute to the country's robust economy. They include strategic location, presence of foreign investors, proper government spending, and the free economic zones. As earlier noted, the country has established Vision 2021, whose primary focus is to enhance diversification and sustainability, two fundamental aspects expected to take the country to new economic heights. 

It is also significant to appreciate that the UAE is among the few countries in the world with the highest per capita GDP. Compared to many developed countries across the world, the UAE has one of the lowest rates of unemployment. Due to its friendliness and connection worldwide, UAE has one of the highest levels of foreign direct investments (Dhabi, 2016 p. 256). Thanks to the strong economy, many people in the country are living a good life. The oil economy has enabled the nation to generate a lot of income, which has been at the forefront of the development of infrastructure. Also, the good economy has eradicated unemployment and instead allowed people to work in well-paying jobs. The impact of the growing economy on globalization cannot be overemphasized. Many people from different parts of the world are migrating to different emirates in such economic emancipation. As such, this has led to the integration of different cultures from various parts of the world, such as America, Asia, and Africa. The impact of religion in the UAE cannot be underestimated. First, it has significantly contributed to the legal system, which has, in turn, had an impact on business laws. Religion has far-reaching consequences on mannerism and business etiquette. 

Dubai is often cited as the economic hub of the UAE. This is due to the high percentage of natural resources such as oil and natural gas it possesses. The high population of investors and business people also makes it the most ideal economic region not only in the UAE but the entire Middle East region. With more efforts placed on sustainability, it is expected that the UAE will continue to prosper not only economically but also socioeconomically. 

Financial Forces 

The current GDP of the UAE is at $691.9 billion. Over the years, the growth rate has been at 1.3%. The GDP per capita is at $68,200. The country also boasts a gross national saving of 24.8% of the national GDP. Some of the budget areas that characterized the financial use of the country include household consumption and government consumption at 50.5% and 12.1% (Chen, 2019 p. 1). Approximately, the total revenue collection of the country is at $83.44 billion. On the other hand, the expenditure is at $112.4 billion. The taxes and other revenues account for up to 22% of the GDP. A 2017 estimate also shows that the country has a public debt that amounts to 60.3% of the GDP. The inflation rate in the country is at 2.1%. Based on the 2017 estimates, the export and import values were at $314.7 billion and $241.3 billion respectively. As per the US dollar, the exchange rate currently at about 3.673 AED (Chen, 2019 p. 1). The currency is known as the United Arab Emirates Dirham. The currency has been used since 1973 after it replaced other different currencies initially used in the country. The currency is issued by the Central Banks of the UAE. In a bid to combat the problem of counterfeiting, the notes are accompanied by a watermark emblem. According to investors, the dirham is one of the most stable currencies in the world. According to the International Institute for Management Development (IMD), the dirham is ranked the 24 th most stable world currency (Chen, 2019 p. 1). 

Due to the country's reliance on the oil economy, it has largely pegged its currency to the US dollar. According to the officials in the country, this comes with a plethora of benefits. First, it is crucial to appreciate that all the oil process are denominated in dollars. Therefore, pegging the UAE currency against the US dollar allows the government to limit any potential volatility of its exports (Chen, 2019 p. 1). The stability of the economy has also played a significant role in the performance of the currency against world leaders such as the US. The principle of diversification has led to an increased concentration to other areas of the economy, such as wholesale, retail, real estate, construction, and manufacturing. It is estimated that by 2021, these sectors will play a significant role in the creation of government revenue. It is also puzzling to appreciate that the UAE collects revenue without necessarily having an income tax. As previously noted, the country operates with a tax-free system. Both the expatriates and locals are not subject to any form of taxation. However, essential to note is that each emirate has its own provision on corporate tax, which is primarily levied on companies dealing with oil and gas. The country also enjoys an efficient system of taxation. A large portion of the government funds emanates from fines such as the traffic fines for over-speeding. Lastly, the government collects funds through the provision of services such as licensing. 

Implications for the US Managers 

From the discussion, it remains apparent that the US and the UAE continue to enjoy strong ties characterized by economic dependence. Out of the many countries in the Middle East and the Middle East and North Africa (MENA) region, UAE forms a significant destination for many US products and commodities. The American economy has also received a significant boost thanks to the vast array of oil products that flow to the US. Therefore, the US-based managers wishing to invest in the UAE have several incentives that might work out for them. First, the general political stability is an essential factor that should be taken into consideration by the US managers. Investors wishing to bring their companies to the UAE will be guaranteed that they will be free from political tensions and protests which have been a mainstay in the region. It should be noted that the UAE is a major tourist destination center due to its warm weather (Nyarko, 2010, p. 124). For this reason, political stability will be a significant factor that will not only be of importance to the US but also the UAE. As seen in the discussion, the country has favorable laws that could work well for foreign investors. A US expatriate willing to work in the UAE will not be subjected to large sums of fines that might have an adverse implication on their business. More so, the government only levies a tax on oil and natural gas-related companies. A US manager, therefore, has plenty of business options that will not be put on taxation. 

The US is an industrial country and therefore, significantly relies on oil and oil products. Therefore, the US company managers must remain keen to foster positive relations between the two countries as the basis of enhancing trade. The US managers will also need to take advantage of the Vision 2021 of sustainable economic development developed by the UAE (Nyarko, 2010 p. 198). As previously discussed, the country is willing to diversify its economy and concentrate more on other products that are friendly to the environment. The US managers can take this opportunity and establish companies but in America and UAE, that will effectively partner to assist the country in achieving its goal. Based on the social and economic factors, the country is an ideal destination for various US-based commodities. It is without a doubt that the UAE enjoys a stable economy with the rates of unemployment at an all-time low. The citizens have enough money to spend. Therefore, large corporations such as Apple, Walmart, and Target, among many others, can find significant benefits by venturing into the market. The accommodative culture will not only bolster tourism but enhance their attitudes towards the new American products. Thus, the demographic and the psychographic factors all favor investment, a factor which the US managers can find significance in. 

With America playing a vital role in shielding the UAE from their enemies, Iran, the friendship is expected to grow with both countries mutually benefitting from one another. With UAE planning on diversifying their economy, more opportunities will be created not only for the US but also for other allies across the country. 

Integration of Faith and Learning 

Christianity, in itself, is a diverse religion that comprises of different people without any dominant expression. Therefore, a Christian manager must have this important aspect in mind when negotiating a business deal with a foreign culture. Despite the attitudes that a person might have about a different culture, they have an obligation to embrace it and respond to it. The Christian manager has the moral duty of embracing foreigners and accepting them for who they are. Such an attitude is expressed in the book of Mathew 8:5-13 when the centurion went to Jesus for help despite being a foreigner. He had immense faith, and eventually, his servant was healed. It is, therefore, a lesson that Christian managers should not despise foreigners or the culture for it can have significant impacts in their life. When interacting with a foreign culture, Christian managers should show compassion and treat foreigners the same way they would treat their people. Similar sentiments were expressed in the book of Mathew 15:32-38 when Jesus fed the disciples where he opened by saying, "I feel sorry for these people, they have been here with me for three days, and they have nothing left to eat." Thirdly, it is crucial for Christian managers to obey the rules of the foreign culture they are working in. Also, they must respect the government and the local leaders. When the Pharisees tempt Jesus whether it is right to pay taxes, Jesus said that they should give Caesar what belongs to Caesar and God what belongs to him. 

A Christian manager is obliged to show love to foreigners. In James 2:8-10, part of the verse, says, "Love your neighbor as you love yourself." In this context, neighbors are the immediate people that the manager interacts within the new environment. Lastly, the Christian manager must practice tolerance. The book of Romans 14:1-4 asks Christians to accept even the believers that are weak in faith. Moreover, Christians are warned against arguing with the non-believers and the weak in faith. Similarly, when entering a new market, the Christian manager should not seek to challenge or criticize the local culture. It is only imperative to accept the situation as it is and conform to the required standards and conditions. On the other hand, it is wrong for a Christian manager to practice favoritism in a foreign culture. They should not discriminate employees and customers based on their cultural affiliations, beliefs, or perceptions (Mahoney, 2019). Secondly, the book of Romans chapter 14:10 warns against condemning other people. The authority to judge should only be left to God. Thirdly, the Christian manager should not develop stereotypes based on what they see. They should not also prejudice to clog their minds. The book of Colossians in chapter 3:11 provides a modernistic view of how people should view one another irrespective of religion, creed, civility, slavery status, and the state of circumcision. 

Lastly, Christian managers should not break the laws of foreigners. They should strive to obey them and avoid the circumstances that the Israelites underwent for their failure to obey the ten commandments. They should observe their holidays and respect their practices without necessarily criticizing or rebuking (Mahoney, 2019). 

References  

2019 Index of Economic Freedom: UAE https://www.heritage.org/index/country/unitedarabemirates 

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Ashwin, M. (2013). Country Report the United Arab Emirates. Country Report https://economics.rabobank.com/publications/2013/may/country-report-united-arab-emirates/ 

Bing, Z. Y. & Al-Mutawakel, O. (2018). Infrastructure developing and economic growth in the United Arab Emirates. Business and Economic Research, 8(1), 95-114. 

Chen, J. (2019). AED (United Arab Emirates Dirham). Investopedia https://www.investopedia.com/terms/forex/a/aed-united-arab-emirates-dirham.asp 

Dhabi, A. (2016). The United Arab Emirates. Countries and Territories of the World, 444. 

El Mallakh, R. (2014). The Economic Development of the United Arab Emirates (RLE Economy of Middle East). Routledge. 

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Jabado, R. W., Al Ghais, S. M., Hamza, W., Henderson, A. C., Spaet, J. L., Shivji, M. S., & Hanner, R. H. (2015). The trade-in sharks and their products in the United Arab Emirates. Biological Conservation, 181, 190-198. 

Katzman, K. (2010). United Arab Emirates (UAE): Issues for US Policy. DIANE Publishing. 

Mahoney, Kelli. (2019, June 25). Bible Verses about Cultural Diversity. Retrieved from https://www.learnreligions.com/bible-verses-on-cultural-diversity-712366 

Mokri, A., Ali, M. A., & Emziane, M. (2013). Solar energy in the United Arab Emirates: A review. Renewable and Sustainable energy reviews, 28, 340-375. 

Nyarko, Y. (2010). The United Arab Emirates: some lessons in economic development (No. 2010, 11). Working paper//World Institute for Development Economics Research. 

UAE Foreign Trade in Figures https://en.portal.santandertrade.com/analyse-markets/united-arab-emirates/foreign-trade-in-figures 

Ulrichsen, K. C. (2012). Small states with a big role: Qatar and the United Arab Emirates in the wake of the Arab Spring. 

Zahlan, R. S. (2016). The origins of the United Arab Emirates: A political and social history of the Trucial States. Routledge.