United Arab Emirates Business Guide
Introduction
The United Arab Emirates (also the UAE or the Emirates) is a Middle Eastern country situated in the southeast of the Arabian Peninsula in Southwest Asia on the Persian Gulf, comprising seven emirates: Abu Dhabi, Ajmân, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain. Before 1971, they were known as the Trucial States or Trucial Oman, in reference to a nineteenth-century truce between Britain and several Arab Sheikhs. It borders Oman and Saudi Arabia. The country is rich in oil and, although it lacks other natural resources, it expects recent additional economic diversification to draw more financial and banking firms. The United Arab Emirates, a desert-and-coastal nation, has become a highly prosperous country after gaining foreign direct investment funding in the 1970s.
Economy
The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Despite largely successful efforts at economic diversification, about 30% of GDP is still directly based on oil and gas output, and the fortunes of the economy fluctuate with the prices of those commodities. Since the discovery of oil in the UAE more than 30 years ago, the UAE has undergone a profound transformation from an impoverished region of small desert principalities to a modern state with a high standard of living. The government has increased spending on job creation and infrastructure expansion and is opening up its utilities to greater private sector involvement. In April 2004, the UAE signed a Trade and Investment Framework Agreement (TIFA) with Washington and in November 2004 agreed to undertake negotiations toward a Free Trade Agreement (FTA) with the US. Higher oil revenue, strong liquidity, and cheap credit in 2005-06 led to a surge in asset prices (shares and real estate) and consumer inflation. Rising prices are increasing the operating costs for businesses in the UAE and degrading the UAE's allure to foreign investors. Dependence on a large expatriate workforce and oil are significant long-term challenges to the UAE's economy.
Market Overview
The United States and the United Arab Emirates have a strong bilateral relationship, based on a joint commitment to the security and stability of the Gulf region. Our two governments also share many similar concerns on a host of other international issues. Exports in both directions have increased almost every year since the UAE, a federation of seven emirates on the Arabian Gulf, was founded in 1971.
The prosperity of UAE citizens is based in great part on the country’s vast oil and gas reserves, most of which lie in the largest emirate and seat of the capital, Abu Dhabi. The UAE has nearly ten percent of the world’s proven oil reserves and five percent of proven gas reserves. Other emirates include Dubai, Sharjah, Ras al Khaimah, Fujairah, Ajman, and Umm al Quwain. The country is an active member of the Gulf Cooperative Council (GCC), which includes Saudi Arabia, Kuwait, Oman, Qatar, and Bahrain. Per capita GDP in 2006 was estimated at over US$22,000.
The UAE, long recognized as the commercial and business hub of the Arabian Gulf, is home to the busiest man-made port in the world, Jebel Ali. This Gulf powerhouse has no corporate taxes (with the exception of banks and foreign oil companies that have concessions in UAE oilfields), no income taxes, and a relatively low import duty of five percent. The UAE is currently the largest export market for US goods in the Middle East and North Africa, having recently surpassed Saudi Arabia and Israel. US goods exports to the UAE rose over 45% in 2006, to over US$11.5 billion, while imports from the UAE were just under US$1.45 billion. With a US$160 billion a year economy and excellent infrastructure, the UAE is an ideal location for US companies to conduct business. The presence of over 700 US firms here underlines this fact. To name just a very few: AM General, Citibank, Honeywell, Lockheed Martin, Boeing, General Electric, Raytheon, Northrop Grumman, General Dynamics, FedEx, Ford, Johnson & Johnson, MSD, ExxonMobil, Microsoft, Motorola, and many more. US companies see the UAE as an excellent place to establish a regional presence because of the can-do, pro-business orientation of the leadership, and the stability of the country.
The UAE, a model for digital readiness in the Middle East, has embraced the Internet age. Mobile phone and PC usage levels are among the highest in the Middle East. The Emirate of Dubai, capitalizing on its strategic trading position between Central Asia, the Middle East, and Africa, is growing dramatically. This emirate has attracted international investment, companies and visitors with landmark projects such as vast housing developments and the ambitious man-made Palm Islands, which include private residences and hotels. Abu Dhabi has also begun developing several new megaprojects of its own, including Sadiyat Island, which will feature the Abu Dhabi Guggenheim Museum, designed by famed American architect Frank Gehry. Dubai’s Jebel Ali Free Zone (JAFZ) has over 2,500 companies, including 150 US-owned firms. Other Dubai free zones include Media City, Knowledge Village, Internet City, and Dubai International Financial Center. Borrowing on the success of JAFZ, other emirates have also created free zones.
The UAE is a member of the WTO and a signatory to the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Service (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).
Market Challenges
The UAE, although an attractive market for a wide variety of products, can be a difficult place for American firms to do business. It is not a market for the first-time exporter. The legal system protects local entities. Foreign companies find it difficult to legally dismiss a non-performing local agent without protracted litigation, and it is difficult, if not impossible, to sell without a local agent. Payments tend to be slower than in the US and Europe. The US Embassy strongly advises companies wanting to do business in the UAE to seek competent legal counsel while exploring the market and to get to know their prospective client or business partner well prior to entering into an agreement.
Market Opportunities
Although oil and gas production will remain the backbone of the UAE economy for years to come, the non-oil sector of the economy is growing at a rapid pace. Major growth areas include: aircraft & parts, security and safety equipment; IT equipment and services; medical equipment, services and supplies; architecture, construction, and engineering services; building products; air conditioning and refrigeration equipment; environmental and pollution control equipment; and sporting goods and equipment. Water and power projects continue to offer considerable opportunity due to the UAE’s unquenchable thirst for water and electricity. There is no personal income tax.
US fast food and casual dining restaurants are popular in the UAE, particularly with the younger generation. Many of the ingredients are imported from the United States. Good prospects for U.S. food exports, in descending order include: Vegetable oils, beverage bases, breakfast cereals, poultry parts, fresh fruits (specifically apples and pears), honey, frozen vegetables, snack foods, cheeses, almonds, fruit and vegetable juices, and miscellaneous food products, particularly hot sauces, salad dressings, catsup, mayonnaise, vinegar, iodized salt, ice cream, frozen dough mixes, Tex-Mex foods, and coffee whiteners.
