Backgrounder: The United Arab Emirates

Backgrounder: United Arab Emirates.

An introductory brief on the United Arab Emirates covering geography, contemporary history, political structure, business environment, economy and trade, population, and geopolitics.

Geography of the UAE

The United Arab Emirates is situated on the Persian Gulf and shares land borders to its south and west with Saudi Arabia and to its east with the Sultanate of Oman. Maritime borders buttress Qatar and Iran. The northeast pocket of the UAE straddles the Gulf of Oman, allowing an oil pipeline running 380 kilometres from Abu Dhabi to Fujairah to bypass the Strait of Hormuz. The UAE presents flat desert topography except for the Al Hajar mountains along its eastern border with the Gulf of Oman. The nation is dry, dusty with little natural vegetation outside of major oases in Al Ain, or the manicured gardens in the cities in Dubai and Abu Dhabi.

Contemporary history

The seven emirates collectively formed a federated nation, the United Arab Emirates, on 2 December 1971 following the British decision in 1968 to withdraw its protection from the region. Britain had been securing the Trucial States, as they were then known, since 1820 with the return assurance that the Emirs of the Trucial States would not cede land to any other foreign power, nor enter into treaty agreements without British oversight and approval. During their withdrawal Britain influenced the demarcations between the individual emirates, precluding conflict between the ruling families. Infighting amongst family members and warring between tribes was commonplace in Emirati history: On numerous occasions have family members overthrown one another to gain power. There have been two coup attempts in Sharjah alone, in 1972 and 1987. Initially, Bahrain and Qatar were in discussions to be founding members of the UAE, though both later declined to move forward with the federation. Ras al Khaimah officially joined as a member emirate in February 1972. Sheikh Zayed bin Sultan al Nahyan, then-ruler of Abu Dhabi, and his counterpart, Sheikh Rashid bin Saeed Al Maktoum, then-ruler of Dubai, positioned themselves as the president and vice-president respectively of the newly formed federation. Both held their positions until their passing, Sheikh Rashid in 1990 and Sheikh Zayed in 2004, whereupon their designated heirs inherited their positions both with their individual sheikhdoms, and within the UAE.

The seven sheikhdoms, or emirates, of the UAE are each ruled by a different tribal family: Abu Dhabi (Al Nahyan), Dubai (Al Maktoum), Ras al Khaimah (Al Qasimi), Sharjah (Al Qasimi), Amjan (Al Nuami), Fujairah (Al Sharqi), and Umm al Quwain (Al Mualla). The ruling families of Ras al Khaimah and Sharjah are related as two branches of the same house. Abu Dhabi, the de facto capital of the United Arab Emirates, is the largest state within the union, representing 87 percent of the landmass and is the centre of economic power based on its oil and gas resources. Neighbouring Dubai, to the north of Abu Dhabi, recognised internationally for its towering skyline, is home to the second-largest economy in the Emirates. Due to its modest oil reserves, Dubai began a process of positioning itself as a business-friendly city state in the 1990s. Leveraging its mercantile history and port infrastructure, the emirate promoted logistics and shipping, tourism, property development, and financial services.

Political structure of the UAE

Various terms are used to describe the political system of the UAE, with elected constitutional monarchy being the preferred official nomenclature, though neither the head of state nor the parliament are elected by the public. There are no political parties in the United Arab Emirates. The rulers of the individual sheikhdoms of the UAE hold their positions hereditarily, and the passing of a ruler sees his appointed heir elevated from the position of crown prince. Of the seven emirates, Abu Dhabi and Dubai hold effective veto power over presidential elections; ipso facto, the ruler of Abu Dhabi is the president of the UAE. This circumstance arose from the founding of the UAE: Sheikh Zayed bin Sultan al Nahyan, the then-leader of Abu Dhabi, was the most influential figure in the Emirates, and Abu Dhabi is the largest geographical territory with the most significant oil wealth, and hence economic muscle.

The president in turn will appoint the ruler of Dubai to the vice-presidential and prime ministerial role. As of 2019, the UAE president is Khalifa bin Zayed al Nahyan and the UAE vice-president and prime minister is Mohammad bin Rashid al Maktoum. Presidential terms are five years, though there are no term limits in the UAE; Khalifa bin Zayed al Nahyan has held the post since 3 November 2004. Sheikh Khalifa is only the second president in UAE history, a post previously held by his father, Zayed bin Sultan al Nahyan, from independence in 1971 until his passing on 2 November 2004. However, the ill health of Sheikh Khalifa (he suffered a stroke in January 2014 and is rarely seen in public) has seen the effective day-to-day operations of the Emirate ceded to his younger brother, Crown Prince Mohammed bin Zayad al Nahyan.

The Federal Supreme Council (FSC) is the highest legislative and constitutional authority in the UAE and comprises the seven rulers of the individual emirates. Though each member has one equal vote, in reality “substantive issues” require the support of both Khalifa bin Zayad al Nahyan, ruler of Abu Dhabi and president of the UAE, and Mohammed bin Rashid al Maktoum, ruler of Dubai and vice-president and prime minister of the UAE.

The Federal National Council (FNC) is the main legislative body, though its role is in reality limited to that of consultation and advisory. The forty members of the FNC are apportioned to each emirate according to size and economic influence, with Abu Dhabi and Dubai naturally representing the majority of positions. In 2006 the process for selecting the 40 members was altered by Supreme Council Resolution No. 4. Twenty members are directly appointed by the rulers, and 20 are elected by a body of voters in each emirate, which in turn are directly designated by the ruler of the sheikhdom. The Resolution calls for a body of voters equal to 300 times the number of seats assigned to the emirate. Therefore, Abu Dhabi and Dubai would each have an electoral body of voters equal to 2400 citizens.

Federal National Council

Figure 1: FNC Seat Allocation per emirate

The executive branch of the UAE government is the Council of Ministers (also referred to as the Cabinet). As of January 2019, key ministerial posts are held as follows:

  • Prime Minister and Minster for Defence, Sheikh Mohammed bin Rashid Al Maktoum

  • Deputy Prime Minister and Minister for Interior, Sheikh Saif bin Zayed Al Nahyan

  • Deputy Prime Minister and Minister for Presidential Affairs, Sheikh Mansour bin Zayed Al Nahyan

  • Minister for Finance, Skeikh Hamdan bin Rasid Al Maktoum

  • Minister for Foreign Affairs and International Cooperation, Sheikh Abdullah bin Zayed Al Nahyan

  • Minister for Economy, Sultan bin Saeed Al Mansouri

  • Minister of State, Foreign Affairs, Dr. Anwar bin Mohammed Gargash

  • Minister for Energy and Industry, Suhail bin Mohammed Faraj Faris Al Mazrouei

  • Minister of State, Artificial Intelligence, Omar bin Sultan Al Olama

  • Secretary General of the UAE Cabinet, Abdulla bin Touq

Business environment in the UAE

English is widely spoken and is the de facto business language in the Emirates. Combined with world-class infrastructure and low taxation, Abu Dhabi and Dubai share similarities with Singapore as a business destination.

According the World Bank’s Ease of Doing Business Report in 2018, the UAE ranks 11th out of 190 countries reviewed (the focus being on Dubai), with particularly high scores for starting a business, connecting electricity, registering property, contract enforcement, and ease of paying taxes. There is zero corporate tax and zero personal income tax in the UAE. The exception is in respect to entities involved in oil and gas, mineral extraction and banking, where corporate tax is levied.

Corporate registrations are administered by the relevant Department of Economic Development. As of November 2018, companies (most commonly LLCs) registering onshore UAE are eligible for 100 percent foreign ownership, (previously the requirement was to have a 51 percent local shareholder) though there remains a requirement for local shareholders in specific sectors including, inter alia, oil and gas, publishing, defence, insurance and banking . There are 24 free-trade zones in Dubai. Free-trade zones allow for 100 percent foreign ownership of the registered entity.

The UAE economy, finances and trade metrics

Abu Dhabi contains the vast majority of oil reserves of the UAE – the seventh largest proven oil reserves in the world – totalling approximately 92 billion barrels, out of a total of 98 billion for the Emirates as a whole. Although the UAE has been proactive in its attempts to diversify its economy, oil and gas production accounts for 40 percent of government revenue and represents 31 percent of GDP. The UAE gross domestic product stands at USD 382 billion at current USD value and the economy experienced a growth rate of 2 percent in 2018. It is forecast a 3 percent growth rate in 2019. Abu Dhabi accounts for 57 percent of the UAE economy and Dubai for a further 30 percent.

Abu Dhabi produces some 3.5 million barrels of oil and 9.8 billion cubic feet of gas per day. In 2017, 93 percent of UAE crude was exported to Asia, with the largest purchasers of Emirati oil being Japan (35%), India (15%), Singapore (13%), South Korea (11%), China (9.4%) and Pakistan (4.2%). The UAE’s largest import partners are China (11%), India (11%), United States (10%), Japan (5%) and Germany (5%). Non-oil exports from the UAE are destined for India (11%), Turkey (11%), Saudi Arabia (7%) and Oman (6%).

In October 2018 the UAE federal government passed legislation allowing the issuance of federal sovereign debt. Although both Abu Dhabi and Dubai have been issuing bonds for the past decade, this is the first time such issuances can be conducted at the federal, as opposed to emirate, level.

According to the Central Bank of the UAE, government debt to GDP for the UAE in 2017 equalled 20.7 percent, which has risen from 14.2 percent in 2014. As of December 2018, the central bank held AED 365.4 billion (USD 99.5 billion) in gross international reserves, slightly up on 2017 with AED 350.2 billion, and states total assets of AED 417.7 billion (USD 113.7 billion).

The Ministry of Finance’s budget for 2018 saw 43.5 percent of the total federal budget allocated to social development and social benefits, highlighting the nature of the Emirates’ welfare-based social contract. Healthcare received AED 4.5 billion (USD 1.22 billion) , with AED 10.4 billion (USD 2.83 billion) earmarked for education (general and university), AED 8.9 billion (USD 2.42 billion) for infrastructure and economy, and AED 4.4 billion (USD 1.2 billion) for social programs and pensions.

Population statistics of the UAE

Abu Dhabi and its neighbour emirate Dubai together represent 72 percent of the population of the UAE, which reached 9.6 million by 2019. Emiratis are a minority in the UAE constituting less than 10 percent of the inhabitants. Foreign workers from South and Southeast Asia (India, Bangladesh, Pakistan and the Philippines) comprise the greater portion of the population: India alone, with 2.6 million nationals, accounts for 27 percent. Population growth in the Emirates has been explosive over the past six decades, rising from approximately 50,000 in the 1950s. This points to the enormous reliance on foreign workers. Gender imbalance is stark in the UAE with males outnumbering females 2.5 to 1, second in the world to Qatar.

It is noteworthy that approximately 30 percent of Emiratis can trace their roots to Iran. Dubai has historically been a close trading partner of Iran and there remains a significant amount of Iranian investment and Iranian diaspora in the emirate.

Geopolitics of the UAE

The UAE – more specifically, Abu Dhabi – nurtures a close relationship with Saudi Arabia. In particular, Mohammad bin Zayad al Nahyan, the crown prince and de facto leader of Abu Dhabi, and Mohammad bin Salman, the crown prince of Saudi Arabia have developed a close relationship. The UAE, led by Abu Dhabi, tends to support Saudi foreign policy as observed in the war in Yemen and the blockade of Qatar.

In 2014 it was estimated that approximately USD 200 billion of Iranian investment was deployed in the UAE, largely in Dubai. In recent years, as Abu Dhabi has strengthened its relationship with both Washington and Riyadh, Dubai has been under pressure to mute what are traditionally close ties with Iranian businesses.

Relations between Abu Dhabi and Dubai have historically experienced tension. The two families emerged from the same Bani Yas tribe, predating the federation of the Emirates. Dubai’s ruling family separated itself from Abu Dhabi’s back in the 1830s and the two engaged in armed conflict in the 1940s. Dubai with its natural harbour has historically been the trading hub of the region. However, economic power shifted dramatically toward Abu Dhabi with the British discovery of oil in the late 1950s.

Abu Dhabi was seen to gain leverage over Dubai when its neighbour, heavily indebted, suffered a financial crisis in 2009. The government holding company, Dubai World, alone amassed USD 56 billion in debt, which it was unable to service. Abu Dhabi eventually bailed out Dubai to the tune of USD 20 billion. Further, the Burj Dubai was renamed Burj Khalifa, after Abu Dhabi’s ruler, following Sheik Khailfa’s bailout funding to Emaar, a Dubai-based property developer.

The Emirates also witnessed internal frictions when in 2003 then-Crown Prince of Ras Al-Khaimah, Sheikh Khalid bin Saqr al-Qasimi, was deposed. Street protests ensued in support of the crown prince, which were eventually quelled when Abu Dhabi sent in military armoured vehicles and troops. Sharjah has also been witness to two coup attempts since the founding of the United Arab Emirates.