UAE’s Business Friendly Environment routinely scours the globe for business friendly countries that offer significant competitive advantages to small businesses.  In this report we examine the United Arab Emirates which has grown into the financial and tourism capital of the Middle East.  It offers small business owners tremendous benefits for basing their headquarters and operations there.

UAE Demographics

  • Estimated UAE population – 4.76 Mn
  • Estimated Dubai population – 1.59 Mn
  • Estimated Abu Dhabi population – 1.55 Mn
  • Ratio of expats to locals: 81.2:28.8

Gulf Cooperation Council

  • 6 Arab countries of the Persian Gulf namely Bahrain, Qatar, Kuwait, Saudi Arabia, Oman and UAE signed a unified economic agreement in Nov. 1981 in Riyadh.
  • Common market for free movement of investment and services across these countries was launched in Jan 2008.
  • Present Secretary General – Abdul Rahman Ibn Hamad Al Attiyah, since April 2002.

UAE Economy

The following are the important constituents of the UAE economy identified by and the current state thereof:

  • Oil production – UAE is the fifth largest exporter of oil in the world
  1. Falling of the prices of oil to almost $40 per barrel and 80% of the UAE  revenues being in form of petro –  dollars (So: Emirates Business 24|7, accessed Feb 23,09)
  2. Moreover alignment to the dollar standard and the crunch in dollar availability in the world market due to US financial crisis has led to a liquidity crisis for the banking sector (discussed later)
  3. Major dependence on Abu Dhabi for the oil revenues
  • Tourism and Financial Services
  1. The Global recession has taken its toll on the tourism sector as job cuts and credit crunch has strained the tourists’ pockets, especially those from the West. Strong relations with the USA lead by the UAE Ambassador has helped the sector recover ahead of estimates however.
  2. Banks are facing liquidity crunch on the face of dried up global sources of funds and mounting bad loans (result of Global recession) straining further on lending. Banking crisis has been discussed in detail ahead.
  • Infrastructure and Construction
  1. Has been adversely hit due to the drying up of project funding which is again due to Global recession
  2. Major housing asset price correction, especially in Dubai which has caused a dent on the sources of income of the construction project financiers, causing them to withdraw major projects

It goes to the credit of Dubai to have undergone a diversification of its economy in the form of last two components. Analysis:

The above breakdown of the major constituents of the UAE  economy show that certain factors have played a critical role in the 2012 economy, global recession being an important factor.

Apart from this, the alignment to the dollar standard has created issues for UAE, esp. after the US economic crisis.

Other risk to the economy is the mass exodus of expatriates on the face of global recession and job cuts. These expats form 80% of the population. This has resulted in manifold risks like bad loans, lower consumer demand and fall in housing demand and prices.

Fall in oil demand and oil prices have further aggravated the economic problem. Real Estate price correction was inevitable and has presently gripped Dubai economy in particular.

Over all this, opacity of public and private sector data has hindered risk analysis. 

UAE issues of tomorrow:

Small Button

  • Dealing with World recession
  • Gulf monetary Union
  • Changing the dollar standard
  • Growth of Islamic Banking – as a possibly safer alternative to conventional banking
  • Imposing of Direct taxation


UAE Banking Sector Analysis


  • Fitch ratings for 2009 for this sector – ‘Challenging’.
  • Moody’s investor service outlook for 2009 – ‘Negative’ (So: Khaleej Times)
  • Moody’s revised Dec.’08 ratings for following banks is ‘Negative’

a)      Abu Dhabi commercial Bank

b)      First Gulf Bank

c)       Dubai Islamic Bank

It has changed from positive to stable for Dubai Bank.

Gap of $30 Bn between loans and deposits in UAE banking system (UAE Central bank, so:, dated 10 March 2009)

Major Concerns:

  • Liquidity crisis – This has been a by-product of global crisis and dollar standard in UAE. (The latter hampers the injection of sufficient domestic currency [So: Emirates Business 24|7, Feb.23,2009]) In response, Abu Dhabi injected $ 4.4 Bn funds as bonds to the 5 big banks . To date, reports that the UAE government has made 120 billion dirhams available to help banks operate in the country amid the financial crisis. (So: Online Wall Street Journal,  dated Feb.5, 2009)
  • Asset price correction in Dubai – Real estate and construction sector has seen a major slowdown which in turn has affected the lending capacity of the Banks on the face of loan defaults.
  • Lower regional growth – Gulf Arab states to grow at an estimated rate of 3.5% in 2009. (IMF)

This is due to slowdown in Tourism, infrastructure and fall in oil revenues which in turn is due to Global crisis. (Discussed above) This has dented the deposits with the banks.

  • Increased funding costs due to lower liquidity and loss of business confidence – esp. affected the construction sector and hence the Banks.

Equity price collapse has also contributed to the lowering of repayment capability of customers, individual and corporate.

Focus by the banks in 2013 is on garnering deposits and reducing exposure to real estate, construction, and hospitality sector.

The silver lining is a high support environment by the Govt and its officials, (Dubai Govt. recent issuance of bonds worth $20 Billion is a case in point) and NPA loans being provided for.