Section I - Background
The United Arab Emirates can be described as the crossroads of tradition and modernity in the Muslim world. Although an Islamic country at heart, the United Arab Emirates has found a balance between tradition and modernity and its reputation as a center for finance, wealth, and stability in an otherwise unstable region has garnered renown and curiosity for this small Persian Gulf nation. Although a fairly new independent nation, the history of the area tells a story that dates thousands of years. Before the rise of Islam, the area was a crossroads for caravans and its coastal location encouraged seafaring as well. Therefore, like most of the Middle East at the time, much of society was based on caravanning and herding and small farming, although the coastal population was seafarers in both fishing and trade. The unifying source of Islam had not yet changed the society, therefore aside for minor towns and seaside settlements, the majority of peoples in area were organized into tribes. The most profound change to the culture of the United Arab Emirates and even more, the entire Middle East was the rise of Islam brought on by the Prophet Mohammed in 630. Religion provided an adhesive that turned the collection of tribes in the area into a civilization. Islam brought monotheism, culture, modernity and progress to a previously ancient and technologically backward society. The cultural implications of Islam at the time were an advancement of the sciences, mathematics, and medicine and brought rule of law and order to society. The next major event occurred when Portugal seized control of the area to facilitate its trade in the Indian Ocean and more specifically, Indonesia as a sort of a halfway point with the rest of its empire. Portugal never fully annexed the area as part of its empire. By the 16th century, in addition to Portuguese control of some ports, the Ottoman Empire made its move into the nation and occupied a few emirates. From there, the Ottomans launched relentless pirate attacks on European traders. In response to this, the British established a ruling interest in the area in order to protect traders and entered into peace agreements with the sheikdoms. Some attacks still occurred but were much more rare and subdued after a British presence was established. This relationship with the British culminated in 1892 when they signed a treaty with the independent sheikdoms to allow the British a full sphere of influence in the area. The treaty stipulated that the sheiks could not enter into any sort of negotiations with other foreign nations nor forgo their territories to other European powers. This had the benefit of enhancing commerce and connecting all corners of the British Empire. In return, the British offered protection to the sheiks for their cooperation. In the 1960s another unifying force, although not as profound as the rise of Islam, prompted the sheikdoms to unite and eventually form the modern nation of the United Arab Emirates. This force was the discovery of oil in Abu Dhabi one of the emirates. Because oil has such vast economic consequences, the sheiks decided that unification was the best route for protecting their interests and sovereignty. In 1968, the British ended their treaties with the sheikdoms. Since then, the United Arab Emirates, although still deriving much of its wealth from oil, has diversified into finance and tourism.
The United Arab Emirates is a desert coastal state located on the Persian Gulf and covers 83,600 square kilometers, slightly smaller than the state of Maine in comparison. It borders Oman and the larger Saudi Arabia. It is essentially a federation of seven independent, absolute monarchies. Nationally, there is an executive branch with a president, a legislative assembly, half of which are indirectly elected and a judiciary. With only 1% arable land, the United Arab Emirates has always relied on fishing, small farming near the coast and oasis and hunting where possible. In the modern era boom, the UAE now relies on imports for most of their food. It is a Persian Gulf nation of seven emirates united by a common history and culture. It has a population of around 4.8 million, 20% of whom are nationals. About three quarters of the population live in urban areas mostly concentrated in Abu Dhabi and Dubai. This is rare for most nations, wherein the citizens of a country form a minority, but this is due to huge economic boom and multinational corporations that are headquartered in the country which bring in people from all over the world. Culture, ethnicity and citizenship are indistinguishable in Arabic society; therefore it is very difficult to obtain citizenship in the United Arab Emirates which explains their citizens being a minority in their own country. The majority of these immigrants are Iranians and Indians although there are substantial numbers of westerners as well. The transition from a homogenous society to the multicultural one in such a short time has been handled well by the government and citizens, for example, full tolerance for religion is guaranteed by the Emirati constitution despite Islam being the official state religion. The United Arab Emirates has an open, capitalist and thriving economy supported by oil revenues although finance and tourism are becoming major drivers of the economy now as the nation continues to diversify away from oil. With a GDP of $185 billion, and a per capita GDP of $38,893, the United Arab Emirates is one of the most economically stable and wealthy countries in the Middle East. Its per capita figure even ranks 14th in the world and third in the Middle East after Qatar and Kuwait. The country has also diversified into shipbuilding, textiles, fertilizers and aluminum. The currency is the dirham and it trades at 3.67 dirham to the dollar.
The United Arab Emirates is one of the most well connected countries in the Middle East with over nine million cell phones in use exceeding the population as well as three million internet users. There are 15 television stations. In addition to being well connected electronically and communicatively, the UAE also boasts a developed transportation system, especially for a country its size. There are 41 airports and over 4000 kilometers of paved roadways connecting the emirates with each other and with the world. They have a small military force and only 3% of their GDP is military spending and most of their equipment is bought from other countries, especially the United States.
The most recent Report on Observance of Standards and Codes (ROSC) put the United Arab Emirates in a stable and ethically positive light with a few minor negative observations. The country has developed a well established banking system that is low on systemic risk, but lack a solid supervisory structure in the securities and insurance sectors. Insider trading plagues the domestic securities market in addition to simply being underdeveloped especially for such a developed country. Insurance supervision is weak and its oversight committee does not have a chairman. With its vast wealth, the UAE has the ability to absorb any economic shocks and seems poised to be able to withstand any liquidity crisis. Despite some supervisory and oversight issues in securities and insurance, the UAE has solid oversight and regulation in the banking system, headed by its own central bank although they do not have a deposit insurance system. The authorities in the UAE take money laundering very seriously since it is heavily invested in the gold trade where money laundering typically thrives. The results of the UAE's transparency in financial and monetary policy were mixed. Although generally transparent, the report found that the UAE needs to seek more input from stakeholders and also be more transparent, not of its findings, but in how it operates and how it is structured. Overall, the ROSC results show that the UAE is stable and well developed with sound markets, solid regulation and transparency and the ability to absorb macroeconomic shocks or anything else that could disrupt the markets.
Hofstede's cultural dimensions provide a detailed means to describe and compare the culture of the United Arab Emirates. The country scores high in power distance paralleling its monarchical government. The UAE has a low individuality rating stemming from its family based culture and the uniting force of the Islamic religion. In addition, its adherence to strict citizenship laws promotes their collectivized culture. The United Arab Emirates scores medium to medium-high in masculinity dimension of the framework, probably slightly higher than the Arabic nations due to the great influx of multinational corporations and immigrants. Finally, the United Arab Emirates has medium uncertainty avoidance slightly higher than other Arabic Countries. This stems from the liberal economic system and influx of foreign corporations and their workers. It's difficult to evaluate the United Arab Emirates using Hofstede's cultural dimensions because the nation welcomes so many cultures and immigrant workers from different backgrounds. Gray's accounting values put Hofstede's cultural dimensions into business practice. With such high uncertainty avoidance and collectivism, the UAE is geared more toward statutory control and would stress uniformity versus flexibility thanks to the high emphasis on large power distance and lack of individuality. The country would also tend to be more conservative in its accounting and business practices thanks to its more collective and less masculine cultural dimensions. Finally, the United Arab Emirates would have the value of secrecy versus transparency based on its original Arabic culture, but because of the multinational business atmosphere and the multicultural society, stricter laws stipulating transparency have been passed in order to facilitate and attract business from abroad.
The United Arab Emirates ranks 30th least corrupted in the Corruption Perspectives Index scoring 6.5 in the system. Their open economy, federation style government and willingness to change and adapt to the times has allowed the UAE to be one of the least corrupt nations in the Middle East and the entire world.
Section II - Accounting (Financial, Managerial, and Tax) Environment
The UAE has a federal political system, governing the seven emirates in foreign affairs, defense, health, and education. However, there is no federal tax legislation in place. Each Emirate is responsible for its own tax law. Several of the Emirates have tax decrees in place dating back to the 1960s, but their scope is limited to oil/energy companies, hotels, and foreign banks with local offices. While not explicitly stated, businesses that service nationals are not subject to tax. Oil companies mainly derive their profits from international sales, hotels, and foreign banks with local branch offices that send their profits back to headquarters. Corporate taxation rates differ depending on the Emirate, but all Emirates implement a sliding scale with rates as high as 55%. There are also several laws in place covering the avoidance of double taxation, a concept prevalent in the US corporate tax structure. Most of the laws dealing with double taxation are in place to provide international companies an incentive to operate in the UAE.
Currently, "the Emirates do not levy a personal income, capital gain, withholding, value added, or corporate tax on their citizens" (Zayed University). In place of a tax, a service charge is levied on individuals who eat at restaurants or stay at hotels. Local municipalities are responsible for enforcement at rates which are, on average, from 10-15% depending on the Emirate. Municipalities also enforce the property tax, which is payable even on rented properties. With the exception of a few service charges and property taxes, most individuals and local businesses operate tax free. Lately, the issue of implementing a more formalized tax structure that imposes a tax on all citizens and entities has developed, with the UAE responsible for the implementation of a federal tax system. Citizens and local government representatives argue that the Emirates already enjoy a high standard of living relative to the rest of the world. However, the UAE is looking to diversify from oil exportation and this will require investments in other businesses. This transition will require changing their financial position on taxation in order to attract Foreign Direct Investment (FDI).
The UAE is currently undergoing massive changes in their financial sector. As they continue to diversify, they realize that the way they manage their money from tax collecting to accountability has to change. For the last three decades, the UAE has been using the cash accounting system. However, many larger, more developed countries have implemented the accrual based system. Naturally, as a country increases their expectations for commerce, they should be prepared to match the standards of their business partners. In this case, the UAE's prospective business partners are developed countries that have successfully implemented accrual accounting. The government launched an independent analysis of the benefits and risks associated with transitioning from cash to accrual accounting. Their finding stated, "Unless the accruals system is used effectively and the right conditions exist, the greater risk of loss of financial control lies with a cash system. The rewards are great but the risks are high" (UAE Business). Their analysis led them to implementing a modified form of accrual accounting until determining an appropriate method for valuation.
The UAE, in large part Dubai, is attempting to make the transition to an international financial hub like New York, London, and Tokyo. In order to remain relevant in the world market, the UAE would have to adopt a more commonly accepted valuation system than historical cost. The implementation of fair value accounting has been recent for the UAE, and the move was made in an attempt to comply with International Financial Reporting System (IFRS) standards and the International Accounting Standards Board (IASB)/Financial Accounting Standards Board (FASB). However, companies in the UAE have been exploiting the "fair value" accounting rule to inflate their earnings, which placed an emphasis on net income over cash flow. This practice has not helped the UAE with their credit crisis. However, fair value accounting did not cause their credit crunch and the UAE is now in compliance with IFRS 7, International Accounting Standards (IAS) 32, and IAS 39, which outline the standards for disclosure, presentation, and recognition/measurement, respectively. Proponents of this accounting system include investors, regulators, credit rating agencies, and auditors, all of whom have an active interest in the transparency of financial statements.
The UAE has been getting pressure to adopt a common accounting standard. With many countries in Asia and the European Union utilizing IFRS, it seems to be the likely standard. The two catalysts for expediting this transition are the introduction of a formalized tax structure and their current credit crisis. The Companies Law outlines that accounting principles should in line with the generally accepted practice and principles of accounting, but does not go into detail what these practices are. Banks and financial institutions in the UAE are required to prepare the financial statements in accordance with IFRS, but all other companies have no IFRS requirement. In addition to a lack of a formal accounting standard, no clear auditing standards exist. Even for those companies that have to prepare their financial statement in accordance with IFRS, there is no financial watchdog, similar to the Securities and Exchange Commission (SEC), to verify their veracity. In 2007, the International Monetary Fund (IMF) tested their system for auditing and found there was no compliance to the IAS standards on auditing (eStandards). Even without an accounting standard like IFRS, auditing procedures need to be in place to verify financial statements. Not having controls and verification of financial statements makes borrowing riskier for the lender and will either increase the cost or decrease the opportunity. For a country looking to expand and attract foreign investment, this should not be overlooked.
Many businesses in the UAE have already adopted accounting standards like Generally Acceptable Accounting Practices (GAAP) and IFRS. Generally, international business partners set the tone for accounting standards for UAE businesses. Inside the UAE, far more companies deal with business utilizing IFRS than GAAP. The demand for a global accounting standard has been around for decades and with the focus on transparency of financial information, countries not adopting a generally accepted standard focus will not function effectively. "While emerging countries' economies enjoy greater wealth than developing nations, they are similarly faced with a desire for capital to promote further development" (Research Online). The UAE realizes that the oil supply is finite and is trying to expand their development beyond oil and energy. Even with the cash flow from oil, expansion requires capital funding. The large multinational corporations and banking institutions have adopted IAS and IFRS. In order to become considered for economic aid, any company or country requesting funds will have to utilize the same standards.
The UAE is aware of the 'requirement' to implement IFRS for funding and development, but little guidance has been given on the actual process of implementation. Most countries adopting IFRS have been established with similar accounting principles, making the transition easier. The UAE has faced problems reforming its regulatory and economic structures to comply with IFRS and overcome "a culture of secrecy, limited regulation, and accountability." (Research Online) Companies are not accustomed to transparency, but the desire to expand is still there and the president of the UAE has taken an aggressive approach to marketing the country as good for business. The problem with adoption has not been the government, who is trying to attract FDI, but in educating local businesses on how to comply and overcome their cultural tendencies. Fortunately, the UAE has a strong income source from oil and they have dedicated themselves to learning IFRS. They have spent considerable sums of money in training and businesses are importing expertise. It is only a matter of time before the country formally adopts the accounting standard.
Section III - Legal Environment
Legal environments can be complicated but are a very important element for understanding how a country operates. The purpose of this segment is to provide an understanding of the legal environment of the United Arab Emirates (UAE). It will identify the type of legal system, legislative authorities, judicial process, individual and company rights, and other key policies. For an Arab country the United Arab Emirates (UAE) has very liberal laws.
Type of legal system
The UAE has a civil law jurisdiction, which has a prevailing principle to provide all citizens "with an accessible and written collection of the laws which apply to them and which judges must follow...the primary source of law is the legal code, which is a compendium of statutes, arranged by subject matter in some pre-specified order. However, Shari'a or Islamic law is applied to aspects of family law, inheritance, and certain criminal acts" (http://en.wikipedia.org/wiki/Civil_law_(legal_system)). Civil is the most common type of legal system in the world and is contrasted by common and religious legal systems.
The Constitution of the United Arab Emirates provides the legal framework for the UAE. It was authored by Adi Bitar, former judge and legal advisor came into effect on December 2, 1971, and was permanently accepted in May 1996. It has ten parts and 151 articles. Some highlights include maintenance of independence and sovereignty, free-movement of capital and good between emirates, equality, social justice, ensuring safety and opportunity for all citizens, family as basis of society, protection of private property, establishment of union authorities, and the establishment of union armed forces.
The legislative authorities in the UAE were established by the Constitution. They include the Supreme Council, Federal National Council, President, Cabinet and Judiciary.
The Supreme Council shall be the highest legislative authority in the UAE per the Constitution. It consists of seven-members, the rulers of each Emirate. They approve laws presented to them and also are responsible for electing the president and vice president to five-year terms (http://www.uaeinteract.com/government/political_system.asp).
The Federal National Council (FNC) has forty-members with representatives from each of the Emirates. Twenty members are elected while twenty are nominated by their respective emirates. The FNC doesn't have the legislative power but instead have the advisory tasks. They are responsible "under the Constitution for examining, and, if it wishes, amending, all proposed federal legislation (http://en.wikipedia.org/wiki/Federal_National_Councilhttp://en.wikipedia.org/wiki/Federal_National_Council).
The president and vice president are part of the Executive branch of the government. The president roles include "head of government, including foreign affairs, security and defense, nationality and immigration issues, education, public health, currency, postal, telephone and other communication services, air traffic control, labor relations, banking, etc.. All responsibilities not granted to the national government reside with the emirates (http://en.wikipedia.org/wiki/Uae).
The Cabinet is the "country's primary executive decision-marking body, and operates under the direction of and reporting to the UAE supreme council. In particular the Cabinet directs and approves policies and programs and oversees their implementation; and it presents legislation for approval. It is headed by a prime minister and has twenty-four members, which are chosen by the President. (http://www.moca.gov.ae/english/book%20english.pdf).
The Emirates were given the constitutional authority to join the Federal judicial system or to maintain their own independent system. Dubai and Ras Al Khaima are the only emirates who maintain their own independent system (http://gulf-law.com/uae_judicial.html).
The federal courts are similar to most countries in the region. They have two main divisions: civil and criminal. There is also a small third division that handles important cases with a security aspect. They are divided into three stages of litigation: Courts of First Instance, Appeal, and the Federal Supreme Court (also referred to as Court of Cassation) (http://gulf-law.com/uae_judicial.html).
Judges of the Federal Supreme Court are approved by the Federal Supreme Council and appointed by the President (http://en.wikipedia.org/wiki/Uae). Other federal judges are nominated by the Minister of Justice (tasked with oversight of court administration) and then appointed by the President. Judges who serve in the two independent systems are appointed by Emiri Decrees (order by head of state that has force of law) (http://www.undp-pogar.org/publications/judiciary/nbrown/uae.html).
"Practicing lawyers have to be licensed to practice law in the Federal courts by the Ministry of Justice and in the Emiri Diwan in the other Emirates. In most all cases lawyers must be graduates of a recognized law / Shariah college and be qualified UAE nationals (http://gulf-law.com/uae_judicial.html). As noted in discussions with Dr. Reza Barkhi expatriates just don't have access to the same resources that UAE citizens do.
Individual and company rights
Individual rights are well protected by the Constitution of the UAE. Notably "equality, liberty, rule of law, presumption of legal innocence in legal procedures, inviolability of the home, freedom of movement, freedom of opinion and speech, freedom of communication, freedom of council and association, freedom of occupation, freedom to be elected to office and others onto all citizens, within the limit of the law (http://gulf-law.com/uae_judicial.html). Worth noting is property rights vary by location. Dr. Reza Barkhi noted that there are designated areas where expatriates cannot own land.
The business legal environment in the UAE is one that has seen a lot of changes as the country has become more progressive. "All businesses, whether industrial, professional, trading or services, must be licensed to operate in the UAE. Licensing procedures vary from emirate to emirate. Trade Agencies Law and Commercial Companies Law are the primary legislative framework for commercial activity (http://www.uaeinteract.com/business/settingup.asp).
There are also designated progressive areas in the country where businesses do not have to conform to UAE laws. An example is the Dubai International Financial Centre (Dr. Reza Barkhi noted in discussions). It is referred to as a "near-shore financial hub containing a capital market designated as a financial free zone. It is established to create an environment for growth, progress and economic development. The zone is benchmarked with international standards (http://en.wikipedia.org/wiki/Dubai_International_Financial_Centre).
Section IV - Potential Application of the Base of the Pyramid Protocol
Base of the Pyramid (BOP) applications have been researched by many economists, including Stuart Hart in Capitalism at the Crossroads. From an economic perspective the BOP is the largest, but poorest socioeconomic group. Globally, this group is represented by about three billion individuals that live on less than $2.50 per day. The focus of the research on these socioeconomic groups has been on "developing new models of business that deliberately target this demographic, often using new technology" (http://en.wikipedia.org/wiki/Bottom_of_the_pyramid). The purposes of this segment are to highlight success factors for BOP applications, present examples of successful BOP applications, provide an understanding of the socio-economic structure of the United Arab Emirates (UAE), and identify potential business applications at the BOP for the UAE.
Success factors for BOP applications
Business applications at the BOP should involve a non-traditional business approach for success. The International Business Leaders Forum has produced a set of guidelines for companies to consider when developing successful BOP products and services. Companies should respond to specific needs. This includes taking an inside-out approach that considers local conditions and cultural norms. Companies should adapt product and brand development timeframes. Patience, thoroughness, and buy-in are critical elements here. Companies should build trust. It must be done by ensuring all stakeholders feel like real and valued customers. This can prove difficult with low-income consumers and governments. Companies should engage non-traditional business partners. These are the partners that often possess the most market intelligence so they could prove critical to success. Companies should measure development impacts. Public health, job creation, and the environment are examples of socio-economic variables that could be impacted. Companies should harness innovation. This can be done by ensuring an understanding of how products are used and a model of flexibility to allow for adjustments. Companies should find the right people to work on projects. Local knowledge, empathy, cultural and open-mindedness are examples of traits the people will need to possess. Companies should achieve scale. Often margins at the BOP are small so this is important. Lastly, companies should collaborate. In doing so they can acquire beneficial information from the community, other companies, suppliers and distributors, and possibly form clustering efforts to serve BOP markets (ref. for paragraph: http://www.iblf.org/resources/general.jsp?id=123917).
Examples of successful BOP applications
History provides so many examples of business applications that have been successful at the BOP. This segment provides several examples, which serve as insight for the type of areas to consider business applications useful in the bottom socioeconomic groups of the UAE.
After realizing that only two percent of all Chinese households owned a microwave, Galanz, a Chinese-based company, decided to expand into the microwave market. They developed a very basic, energy-efficient, and inexpensive microwave that was small and affordable enough for the low-class in China. As demand increased their prices fell even further, making their product more attractive. By 2002, Galanz had become the "largest producer of microwave ovens in the world, with a global market share of 35 percent" (Hart, Capitalism at the Crossroads, pgs.122-23).
Micro credit has become very popular in developing countries where lower socio-economic groups are prevalent. Micro credit is defined as the "extension of very small loans to those in poverty designed to spur entrepreneurship. It is generally accepted that the business practice originated with the Grameen Bank in Bangladesh. The practice has been proven successful in India, areas of Southeast Asia, and Africa (http://en.wikipedia.org/wiki/Microcredit).
Another example of successful application at the BOP involves agriculture. eChoupal, a network in rural India, helped to eliminate inefficiencies and corruption in the intermediaries of agricultural supply chains. It involved an extensive understanding of agricultural operations to develop eChoupal and it helped honest, hard-working, lower-class farmers achieve higher revenues (http://en.wikipedia.org/wiki/Bottom_of_the_pyramid).
The last example is GrameenPhone. There mission has been to "bring telecommunications service to the rural poor in Bangladesh (average per-capita income of $286 per year)". It required disruption of the existing business model. A thorough pilot test program was implemented and the end result was success, with each call saving the average user $2.70 to $10.00, a large portion of monthly income (Hart, Capitalism at the Crossroads, pg. 123 - 125).
Understanding of the socio-economic structure of the UAE
With examples of successful BOP applications in mind, it's important to obtain a better understanding of the socioeconomic environment in the UAE to help identify possible target products / services. Islam is the official religion and Arabic is the official language. The UAE is "one of the wealthiest nations in the world and its citizens enjoy (http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/United-Arab-Emirates-POVERTY-AND-WEALTH.html). With that said, individual wealth varies greatly (including across the seven emirates) and is not distributed evenly.
There is a large presence of low-class in the UAE. The percentage population of low-class is said to be about 50-60 percent, with 20 percent living in poverty (http://www.adcci.gov.ae:90/public/media/Magazines/May2000/management.htm). With a population of ~ six million in November, 2009 that means over three million people represent the lower class, with one million living in poverty at the base of the pyramid (http://uaeinteract.com/news/default.asp?ID=134). It's important to note that individuals in this class focus on necessities and products that help them enjoy today.
A key distinction to make in the UAE population is also the difference between the emirati people and expatriates. Emiratis represent about 16.5% of the population and are the citizens of the country and represent the local populations that possess the power. Expatriates, the other 83.5% of the population, are those visiting the country, most largely hailing from India, Pakistan and Bangladesh (almost 2/3 of the population) (http://en.wikipedia.org/wiki/Emirati_people). The emirati people, or citizens, have more access to resources. They "command salaries roughly double those of expatriates in similar jobs and have access to numerous subsidies, grants, loans, free services, and pensions unavailable to expatriate workers. Citizen workers also receive preferential treatment for many government jobs" (http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/United-Arab-Emirates-POVERTY-AND-WEALTH.html).
Dr. Reza Barkhi, associate professor at Virginia Tech, vouched for the wealth and power disparity with first-hand experience. He spent three years as a department head at American University of Sharjah. Although he lived and worked long hours at the University, he spent time traveling and interacting with locals, primarily in Sharjah and Dubai. He noted the large presence of the working, lower-class population, and also commented on their lack of power in the UAE. He did not spend any time following the everyday lives of the impoverished but he did note a lot of them live in the same apartment complexes and often rode buses together to their work sites. Dr. Barkhi emphasized that he always felt welcome and safe, the locals were very friendly, and the service in Dubai was extraordinary. He cited the lack of loyalty due to the large expatriate population as one of the problems in the stability of the economic system.
Several other economic variables warrant consideration prior to identifying potential business applications at the BOP for the UAE. Most UAE citizens can depend on a welfare state that is rivaled by few in the world. "In 1998, more than 90 percent of the UAE population had access to safe water, health services, and sanitation". Collectively though Abu Dhabi and Dubai control 83.2 percent of the UAE's GDP. This is largely because of Abu Dhabi's oil production and Dubai's commercial base. Sharjah has depended on trade, oil, and manufacturing. The other four emirates have little oil and in 1999 only accounted for 6.9 percent of GDP. They are largely dependent on government subsidies and their future is unclear. Lastly, across emirates, there are also economic distinctions based on nationally (as noted above) and gender.
Potential business applications at the BOP for the UAE
Gained insight from research and Dr. Barkhi's first hand accounts provide several potential applications at the BOP in the UAE. To make any final determinations an inside-out approach involving sufficient time, appropriate people, and investigative work would be necessary (as emphasized by philosophers of BOP application). Nonetheless, here are some potential target areas at the BOP that warrant further research and consideration:
Populations in the smaller emirates (fewer resources): Ahjman, Umm al-Quwain, Ras al-Khaimah, and Fujairah are the four smaller and more impoverished states in the UAE. Ahjman has 500,000 people and is primarily agricultural. Ras al-Khaimah has close to 500,000 people and is primarily industrial (cement). Fujairah has close to 200,000 people, is mountainous, is funded primarily by government grants, and has industrial elements including cement, stone crushing, and mining. Umm al-Quwain is the smallest emirate, with 62,000 inhabitants, and had the least information available (wikipedia.org).
Agriculture and industry: Do the lower class have access to adequate safety equipment? Are there cheap solutions that could increase agricultural productivity?
Funding: Do the poor have access to capital or is there a potential untapped market for micro-lending?
Climate: Are the impoverished able to stay cool? With access to oil this may not be a problem but it warrants consideration.
Transportation and Communication: Are the lower-income workers, especially expatriates, able to get from one location to another okay, and communicate with loved ones?
Necessities and products that help low-income enjoy today: Does the lower class have everything they need to sustain a healthy life? Or, are there cheap products that could enhance their livelihood? Are there cheap forms of entertainment that would be culturally acceptable that they don't have access to?
Section V - Globalization: The Good, The Bad, and The Ugly
While there are still many countries in the Middle East that are mired in traditions of the past, the United Arab Emirates has completely opened up to globalization and it has transformed the nation into an economic giant in the region. The transformation began with the discovery of oil reserves beneath the country and lead to a united federation of emirates to protect their interests. Now the UAE has a booming economy and sensing the obvious end to oil reserves, has diversified into other industries in order to secure its future. Globalization has brought one of the highest standards of living in the world and serves as an example to other Arabic countries trying to harmonize their past with the future. While globalization has brought prosperity to the UAE, one industry that has suffered is the culturally based industries. If a traveler is in the market for an Arabic culture based vacation, they would be smart not to visit the UAE. Although inherently Arabic, much has changed in the nation especially since only 80% of the nation isn't native to the area. Culturally based tourism is difficult when the country you're visiting doesn't even compose a plurality of the nation's population. In response to this, the United Arab Emirates have embarked on numerous spending projects to include the world's tallest building, indoor ski slopes and dredged parts of the coast in order to create islands shaped like continents. Some of these project display the great wealth that globalization has created, but at the same time displays that the country has fully succumbed to globalization and sold its character. In essence, globalization has caused the United Arab Emirates to lose its traditional character. The oil industry has caused a lot of air and water pollution and the UAE's diversification into other industries recently has had profound impacts on the environment. For example, the metals industry has caused pollution in the form of metal deposits along the coastal creeks. Everything has a cost and globalization is no exception. The cost of globalization seems to have been the traditional cultural identity of the United Arab Emirates but the benefits have been increased literacy, economic status, and overall quality of life.
Section VI - Impact of NGO's, IMF, UN, WTO, and World Bank
The UAE Ministry of Social Affairs has established a web portal for all non-governmental organizations (NGO) to present volunteering opportunities and broadcast features and developments. The company Du, developed the website as a part of their corporate social responsibility initiative and is hoping that it will assist in nation-building efforts and community building. NGOs are a prominent part of UAE culture and include focuses on charities, emergency relief, specialized diseases, human rights, general philanthropy, and education. Strong support of NGOs is evidenced by the country's tax policy and general sentiment of support in the form of volunteerism.
The IMF is a financial powerhouse and the UAE has been reviewed and scrutinized by them carefully over the last few years. As the UAE attempts to diversify beyond oil exportation, the IMF realizes that their role will be critical in FDI. In the IMF's analyses, they have found that poor compliance in the areas of market infrastructure and financial supervision. The exception is the banking industry, which conforms to IFRS reporting standards. As of 2007, the UAE is on "no compliance" with five of the IMF standards (Estandards). However, the UAE has expressed their intention to adopt the international best practice standards for Corporate Governance and Securities Market Regulation.
The IMF has many practices and standards they test for compliance. Countries that meet more stringent standards fall under less scrutiny. In July of 2008, the UAE began participating in the less stringent General Data Dissemination System (GDDS). IMF's goal is to have the UAE comply with their more stringent system, the Special Data Dissemination Standard (SDDS). The more stringent system improves upon the GDDS's statistical framework and requires establishment of a National Bureau of Statistics. As countries adopt more internal standards, the responsibility of the IMF to oversee basic financial reporting operations diminishes. Of the five criteria listed, the more difficult standards to adopt are implementing IFRS and a Code of Good Practices on Transparency in Fiscal Policy. Both of these are top priorities for the UAE and multiple training programs are in place to assist in educating citizens. As a member of the IMF, greater compliance will open doors in the form of foreign investment for the UAE.
The UAE joined the World Bank as partners in the Technical Cooperation Program (TCP). The World Bank has started the TCP in the states of the Arab Nation and in Northern Africa by providing client governments with the "capacity for assessing and validating strategic and policy options" (World Bank). The program is designed to develop the infrastructure of closely linked, distinctively characterized countries. This program has assisted the UAE with issues ranging from economy planning to industry policy. The program has allowed for significant growth in the UAE, mainly due to collaboration fostered by the trust of networking countries with similar needs and goals. The World Bank has also created a business partner by aiding in their development and is seen as a valuable for resource in government planning.
The UAE works closely with the United Nations and is currently a partner in the United Nations Global Initiative to Fight Human Trafficking (UN). The initial donation by Sheikh Mohammed bin Zayed al Nahyan, the crown prince of Abu Dhabi, contributed greatly to the creation of this program. The UAE is also a member of several affiliate UN agencies, such as the International Labour Organization (ILO), World Health Organization (WHO), and World Intellectual Property Organization (WIPO). The UAE also partners with the United States in providing security and funds for UN personnel as they travel in dangerous areas throughout the middle east.
The UAE, a member of the Gulf Cooperation Council (GCC), joined the World Trade Organization (WTO) in 1995 with the hopes of liberalizing free trade. As a member, trade regulations are transparent and designed to encourage the trade of goods between countries. As such, tariffs levied on imported goods are low, ranging from 0-5%, except for alcohol. This tariff is a requirement of the GCC, and would likely not be imposed by the UAE on its own. These low tariff rates are a measure to ensure compliance with the General Agreement of Tariffs and Trade (GATT), a treaty that helps boost industries and exports for all WTO affiliates. The UAE has also agreed to other important WTO treaties, including the General Agreement on Trade in Services (GATS), a treaty that covers the guidelines for the provision of services. The UAE is a provider of many of the world class services covered in the GATS, including maritime transportation and telecommunications. The UAE is also a partner in the Related Aspects of Intellectual Property (TRIPS), which governs the commerce related to intellectual property. The UAE has a clear stand in the legislation, economic policy, and voluntary commitment to organizations like the UN, IMF, and WTO to promote social responsibility, collaboration in commerce, and strong trade relations.
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