Modern infrastructure
The United Arab Emirates (UAE) is a country located in West Asia on the Arabian Peninsula, consisting of seven emirates with a population of 9.4 million. Due to its strategic location, economy diversification projects, and focus on international trade, the UAE is a promising investment destination, especially for investors seeking to enter markets in the MENA region and South Asia.
The UAE provides a modern infrastructure, a diverse customer base, and a business-friendly environment. Economic growth is fueled also by 46 free trade zones across the country. In 2021, the UAE’s gross domestic product was $415 billion ($44,315 per capita). Regarding the GDP structure, services account for 51.6% of GDP, industry for 47.48%, and agriculture for 0.91%. And as for the business environment, 95% of companies are small or medium-sized enterprises (SMEs).
Emirates constituting the United Arab Emirates:
Dubai – international economic center with the city of Dubai known for its investor-friendly environment, rapid growth, and location of innovation and high-tech companies. Dubai offers various incentives for foreign investors interested in expansion.
Abu Dhabi – the capital and the UAE’s second-largest city. It underwent rapid industrialization in the 20th century, which made it a political and economic center. Abu Dhabi does not offer as many incentives as Dubai but attracts investors with international programs.
Sharjah – third-largest emirate. Offers low taxes and trade facilitation to attract foreign investors. Investors who apply for licenses may expect fast procedures.
Ajman – emirate with growth drivers in the real estate and tourism sectors. Two free trade zones are another key driver of economic development.
Umm Al Quwain – the least populated emirate in the federation. Like Dubai, it offers various tax and investment incentives. Along with the free trade zone, these boost the local economy.
Ras Al Khaimah – emirate with a highly diversified economy. It is based on construction materials manufacturing (cement and limestone), real estate, tourism, and high-tech industries.
Fujairah – emirate, which is a regional shipping center. The authorities are trying to attract investors by following the solutions implemented in Dubai. In addition to ship service activities, investment in tourism development is being increased.
Population of the United Arab Emirates
The United Arab Emirates has a population of 9.4 million, of which the Emiratis make up 12%. As such, the UAE is home to one of the highest percentages of expatriates in the world. The largest foreign communities in the UAE are Indians (39.8%), Bangladeshis (12.6%), Pakistanis (11.4%), Egyptians (10.3%), and Filipinos (6.5%). The largest European communities are British (0.33%) and French (0.21%).
The largest city is Dubai, currently home to 3.5 million people. Each year the population of the United Arab Emirates increases by tens of thousands of people. Contributing to the population growth is a strong economy, good infrastructure, liberal visa policies, political stability, and no income tax, making the Emirates an attractive destination for foreign investors.
In addition, the United Arab Emirates enjoys one of the best healthcare systems worldwide. Skilled personnel and innovative technologies improve the quality of healthcare. As a result, life expectancy has increased significantly in the UAE. While in 1950 it was 41 years, today it is 79 years.
Economy of the United Arab Emirates
The currency of the United Arab Emirates is the dirham (AED), which is pegged to the dollar. The economic growth is based on oil production and trade, investment in high-tech, and the influx of foreign workers. Because of its dependence on oil prices, the government is implementing programs for economic diversification. In November 2015, the government launched an $81.7 billion plan to stimulate the economy with innovation and increased investment in healthcare, energy, transportation, and space industries.
Tourism, retail, real estate, and construction industries benefit the most from the transformation. Some best-known infrastructure development projects include the Dubai Metro, Jumeirah Lake Towers, Atlantis Hotel, and Palm Gateway beaches. Infrastructure was also developed for Expo 2020, held in Dubai from October 2021 to March 2022, after a delay due to the COVID-19 pandemic. The transformation also involves education reform and job creation for UAE citizens (known as Emiratization).
State-owned Emirates Airlines (part of the Emirates Group), the largest operator of Airbus A380 aircraft, is one of the strongest in the international aviation market. The government also invests in renewable energy projects. One of the milestone initiatives in this regard is the construction of Masdar City near Abu Dhabi, which will be a hub for clean technology companies. The emerging city is home to the International Renewable Energy Agency (IRENA) headquarters.
The Emirati economy is an open and friendly environment for foreign investors. The UAE currently hosts 46 free zones. These are tied to finance, logistics, media, healthcare, textiles, and automotive. One of the largest free trade zones is the Jebel Ali Free Zone (Jafza), established in 1985. The zone is home to 9,500 companies, including over a hundred on the Fortune Global 500 list.
International trade
The United Arab Emirates is the world’s 35th largest economy by gross domestic product, 15th largest exporter, and 17th largest importer. Emirati exports are worth $425.1 billion, and imports are worth $347.5 billion. The UAE’s main trading partners are Saudi Arabia, India, Iraq, Hong Kong, Oman, Kuwait, China, Switzerland, the United States, and Iran.
The largest group of imported goods are precious stones and metals (21.3%), electrical machinery (12%), oil and mineral fuels (10.6%), industrial machinery (8.23%), motor vehicles and parts (5.3%), pharmaceuticals (1.89%), plastics (1.77%), iron and steel (1.59%), copper (1.1%), and precision instruments (1.1%). Other goods include aircraft, iron and steel articles, cosmetics, clothing, furniture, fruits, meat, and organic chemicals.
Among the most frequently exported goods are oil and mineral fuels (51.1%), precious stones and metals (14.5%), electrical machinery (8.04%), industrial machinery (4.38%), motor vehicles and parts (2.75%), plastics (2.18%), aluminum (1.92%), tobacco (1.15%), cosmetics (1.07%), and iron and steel (0.986%). In addition, exports include pharmaceuticals, aircraft, precision instruments, clothing, rubber, fruit, furniture, paper, footwear, and watches.
Trade agreements
The United Arab Emirates has concluded many trade agreements. One is the agreement with Gulf Cooperation Council (GCC) countries. As part of the GCC, the UAE has economic ties (common market and customs union) with Saudi Arabia, Bahrain, Qatar, Kuwait, and Oman. Under the Greater Arab Free Trade Area Agreement (GAFTA), the UAE has free access to Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, Jordan, Egypt, Iraq, Lebanon, Morocco, Tunisia, Palestine, Syria, Libya, and Yemen.
The UAE has also signed bilateral agreements with the following countries:
Algeria
Argentina
Armenia
Azerbaijan
Georgia
India
Indonesia
Israel
Kazakhstan
Maldives
Morocco
Netherlands
Pakistan
South Korea
Turkey
Agreements with associations of countries:
Gulf Cooperation Council (GCC)
European Free Trade Association (EFTA)
Agreements concluded by the GCC:
Singapore
United Arab Emirates – European Union relations
United Arab Emirates-European Union relations previously operated under the 1988 EU-Gulf Cooperation Council Cooperation Agreement. It established ties with GCC countries. Bilateral relations were intensified in later years based on shared political interests in the region.
The United Arab Emirates is the European Union’s largest investment partner in the GCC and the second-largest trading partner in the region. In 2020, trade between the UAE and the EU amounted to 34.6 billion euros. The value of exports from the European Union amounted to 26 billion euros and imports to 8.6 billion euros.
Exports from the EU to the UAE are diversified and mainly include industrial products, such as equipment in the energy sector, locomotives, aircraft, and electrical and mechanical machinery.
Opportunities and challenges
The UAE authorities are committed to internationally liberalized trade. The Federal Customs Authority (FCA) handles its administration and regulation. The legal framework is based on international agreements and standards. All emirates have the same obligations regarding customs processes. The general duty is 5%. Alcohol is taxed at 50% and tobacco at 100%.
Imports of weapons, ammunition, drugs, pesticides, and pork are prohibited. Importers must apply for a license, which strictly defines import conditions. There are no special rules on product labeling. Food products must be labeled with the brand name, production date, expiration date, country of origin, weight, and list of ingredients and additives. All oils and fats must be labeled as ingredients. All labels must be in Arabic or English and Arabic.
Potential investors seeking to establish a business in the UAE will face competition, as incentives result in a large influx of foreign companies. Aside from Dubai, the other emirates are more bureaucratic and less open. There are challenges in obtaining credit and loans. Delayed payments, contract modifications after they are signed, and difficulties with terminating contracts can also prove problematic, especially if investors have to deal with brokers.