Asia Trade & Business
While the world's economy is struggling with a big crisis there are countries busy with preparing for the future. It is possible that the powerful economies of the world will be exposed to big changes now that Asia is rapidly expanding its powers. This assignment will be about one of these powers. The United Arab Emirates is a powerful force in the Asian economy which is increasing its powers every day. The United Arab Emirates (UAE) are interesting to investigate because of their way of expending their businesses. Also the main ingredient for their success is interesting to look at if you imaging that they could run out of it in a couple of decades. This assignment will provide a look at these issues but also will provide a good look at the country itself. Subjects like Economy, International trade history, demographics, Infrastructure, Politics and many more will be brought into picture. Also Asia as a expending economic world power will be brought into picture because the UAE is an important player in this economy. For the UAE and Asia several economical issues will be discussed and also suggestions will be given at the end of the assignment. The end of the assignment will also provide a conclusion about the UAE and a view on their future.
The United Arab Emirates
The Emirates are a federation that are ruled by monarchies. There are seven emirates situated in the southeast of the Arabian Peninsula in Southwest Asia on the Persian Gulf, bordering Oman and Saudi Arabia. Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah are the seven emirates that are all together in the United Arab Emirates.
The capital and second largest city of the United Arab Emirates is Abu Dhabi. This is also the country's center of political, industrial and cultural activities. As shown on this image the coast of the UAE stretches for more than 650 kilometers along the southern shore of the Persian Gulf. Dubai has the biggest natural harbor of the emirates although the plans for a bigger one are in the making. The population of the United Arab Emirates is about 4.8 million and the most people live and work in Dubai.
The politics of the UAE consists out of a framework of a federal elective monarchy. The president of the UAE is the head of state and the prime minister is the head of government. The UAE government consists out of three branches.
The executive branch belongs to the president, vice president, prime minister federal supreme council and the cabinet. The federal supreme council is composed of the emirs of the seven emirates. They elect the president, vice president, members of the council of ministers and judges of the federal supreme court. This supreme council also formulates government policy, proposes and ratifies national laws and treaties.
The infrastructure of the UAE is very modern. There have been great investments done to their oil and gas, construction, petrochemicals, power and water sectors. All this is done with the eyes on the future. Also real estate, tourism and leisure are sectors where huge investments are done. The roads in the UAE are very extensive round the city´s. They are prepared for big increasing use of it and are in good condition. Outside the big city´s roads can be dangerous because of lower maintenance. Public transportation is also growing in the UAE and there are already very big projects finished.
Economy of the United Arab Emirates
In the 1960´s the UAE started with their oil finds which leaded the UAE to a higher rating in wealth and progress. In the years afterwards their economy has grown more and more dependent on oil. Also some of the world's biggest nations were dependent on the UAE for their oil. This product of great value brought the UAE a great opportunity for a bright future.
Although the world´s hunger for oil remains, the UAE know that this source which drives there economy cannot last forever. They know that they must invest in other resources that could take over oil to drive there economy and they invested successfully. Over the last 20 till 30 years the UAE´s success is largely owned to a national focus on developing alternatives for the oil industry. This involves successful programs to turn designated ports of the emirates into giant trade centers, development of industries and refining of oil. Also the UAE has done a lot for the agricultural sector in their country like for example they made the country self-sufficient of fruits and vegetables and they created about 6 percent of the total territory of the UAE into cultivated land which leads that agriculture contributes 3 percent of the GDP and employing 130.000 people. Also fishing is an important food source bringing more than 50 kg per person per year.
The UAE has an open economy with a high per capita income and a sizable annual trade surplus. The successful efforts of economic diversification have reduced the portion of GDP based on oil and gas output to 25 percent. Still oil and gas is the most important for the UAE economy. Although only three of the seven emirates have oil exploitation of a large scale oil and gas keep being the most important products because there is still a lot of oil reserves in all the emirates. In the UAE the standard of living is high. The government has increased spending on job creation and infrastructure expansion and is opening up utilities to greater private sector involvement. In April 2004, the UAE signed a Trade and Investment Framework Agreement with Washington and in November 2004, the UAE agreed to undertake negotiations towards a Free Trade Agreement with the United States. The countries free trade zones are offering 100 percent foreign ownership and zero taxes which helps to attract foreign investors. The UAE is very attractive for foreign investors because of the main industries that the UAE has. These are the main industries of the UAE:
- Ship repair
- Construction materials
- Boat building
The UAE has several main export partners in Asia. These are:
- Japan 23.6 percent
- South Korea 9.2 percent
- Thailand 5 percent
- India 4.8 percent
Main import goods:
- Crude oil, Natural gas, Re-exports, Fish
Main import partners:
- China 12.8 percent
- India 10 percent
- US 8.7 percent
- Japan 6.1 percent
- Germany 5.9 percent
- United Kingdom 5.3 percent
- Italy 4.6 percent
The UAE external trade had major increases in imports with manufactured goods, machinery and transportation equipment which together accounted for 80 percent of the total imports. Another important exchange earner is the Abu Dhabi Investment Authority (ADIA). This is a sovereign wealth fund owned by Abu Dhabi, United Arab Emirates and controls the investments of Abu Dhabi which is the wealthiest emirate and manages an estimated 360 billion in overseas investments and an estimated 900 billion in assets.
To get the UAE into a leadership position the UAE requires at least 51 percent local citizen ownership in all business operating in the country, except in the free trade zones.
International Trade History
The United Arab Emirates have a rich trade history since independence. The UAE has maintained an open free market system with attention towards the international economy. A long time ago the UAE main industry was fishing but when the oil and gas discovery's began, a lot of things changed for the country. The UAE changed to a country of wealth and opportunities. The oil and gas were very interesting for industrialized nations like the UK, Italy, Japan, India, Germany and France. The UAE exchanged there precious oil for machinery, cars, transportation equipment and food. The most important countries for the UAE to do business with were the Asian countries because they wanted the biggest amount of oil.
The United Arab Emirates later suffered a lot from the wars around them which leaded them to ask help from the United States to continuo their trade. These were difficult times for the UAE and after the Gulf War the UAE faced new competitors. In response they increased their trade with China, The United States and the former Soviet republics. These countries supported the UAE with trade and improvements of their infrastructure. In response to this the UAE helped the United States to overtake Japan in 1996 as the leading exporter to the UAE. Because of this event the United States exports to the UAE increased by 14.5 percent alone in 1999.
The most successful years for the UAE were in the 1950s and 1960s. Imports raised from 3 million pounds in 1958 to 8 million pounds in 1967 and 41.7 million pounds in 1967. After this the oil unpredictable discovery´s disorientated the economic development . Lack of coordination in economic development and duplication in facilities and industries are problems that needed to be solved. Although this was the case they brought a lot of money in the pocket of the Emirates. In the 1970s the country had problems to deal with the rapid pace of development and problems with their massive amounts of imports began to occur. In the 1980s there was a economic slowdown caused by factors like lower oil revenues and completion of projects for the infrastructure. This caused the GDP to fall from $32.5 billion to an estimated 26.7 billion. The export of oil raised in the 1990s and brought the GDP back to $34 billion.
Trade (expressed in billions of US$): United Arab Emirates
International Monetary Fund. International Financial Statistics Yearbook 1999.
The United Arab Emirates today
The Emirates in the present day suffers from a lower demand of their oil. The economical crisis has been bad for their businesses and the current developing trends will make things worse. The world wants to be less depended from oil and the UAE needs to take action before there oil reserves will run out. The future of the UAE isn't secure if they won't become less depend on their oil sources. Therefore the Emirates are busy with making their country less depend on oil. Big oil money investments are done to create a new world business center and to attract tourism. Everything is done to establish a reputation of a land where everything is possible. The UAE has set up three major objectives in a federal strategy that have to be met, these are:
- Achieve sustainable and balanced development
- Provide the best standard of living to all UAE nationals
- Develop a federal government mechanism to raise performance levels in all federal entities.
The UAE government aims to become a leader in public administration and government service in the Arab World. It seeks to ensure maximum synergy between the local and federal governments in order to achieve excellence at all levels in the UAE. The general principles of the UAE federal strategy are:
- Maintaining cooperation between federal and local authorities.
- Improve the decision making mechanism
- Improve legislation and regulation
- Empower ministries to run their activities based on public and joint policies.
- Developing civil service regulations and human resources.
- Improve government bodies and customer service standards.
The strategy will cover six major sectors of development:
- Social development
- Economic development
- Justice and safety
- Government sector development
- Infrastructure development
- Rural areas development
The UAE has already established lots of projects coming from this business plan to make the United Arab Emirates the place to go and to do business. Some examples are:
- Luxury villa's in the ocean
- Luxury Hotels
- An airfield with lots of expansion possibilities
- Indoor skiing facility
- Massive sky scrapers
- Large harbors
- Racing circuits
Problems and difficulties for the United Arab Emirates
The economic growth and development is successful but still there are problems that the nation has to solve to be more effective in their development. First of all there are political tensions between several countries surrounding the United Arab Emirates. These tensions must be monitored closely which increases the costs for the country. The UAE needs to be prepared for everything to protect their nation and economy. The Persian Gulf is a relatively small geographical area. The army's of the gulf states are not very large and the oil industries depend on access to the sea. If something would happen with their harbors or airfields than the emirates economy will collapse. Also the emirates have offshore oil drilling, processing and loading facilities which are highly endangered of surprise attacks from potential enemies.
There are not only dangers from outside the country also inside the borders there are problems. One of those problems is the low amount of fresh water in the region. The UAE are located between the desert and the sea so extreme lack of fresh water has always been a problem. To handle this problems there are several big desalination plants build but this is not enough for the rising demand of fresh water for people and farms. To solve this there are also more wells drilled but this allowed seawater to encroach on lowlands, and many farms closed down as a result.
Another problem is that fish is an important product for the economy of the UAE and that over-fishing has at this moment reached a level where it can have big effects in the near future. The government must act quickly to prevent the loss of a whole sector.
Another economical problem is that higher oil revenue, strong liquidity, housing shortages and cheap credit in 2005 till 2007 led to a surge in asset prices (shares and real estate) and consumer inflation. The global crisis and the tight international credit market and falling oil prices have already begun to deflate asset prices and will result in slower economic growth for 2010. Dependence on oil and a large workforce are important long term challenges. The UAE strategic plan for the next few years focuses on diversification and creating more opportunities for nationals through improved education and increased private sector employment.
The UAE is also encountering problems with organizations like the World Trade Organization because except in the free trade zone, the UAE requires at least 51 percent local citizen ownership in all businesses operating in the country to bring the nation into a leadership position but this law is under review and the majority ownership clause will very likely be scrapped to follow the regulation of the World Trade Organization.
The Economic Crisis is also still a difficult situation for the UAE. They have lost a lot of confidence that other countries had in their economy. This is because at the moment the country still has debts to pay and is struggling with oil supplies and tensions between countries in the region.
The economy of Asia is in a rapid growth phase, countries like Japan, Taiwan, South Korea, Singapore and the United Arab Emirates are bringing great possibilities to the continent. Also the countries India and China are growing about 8 percent a year were the US and Europe grow about 2 percent a year.
The economy of Asia consists out of three sectors. The Primary sector, Secondary sector and the Tertiary sector. In the primary sector there are the important resources in the Asian ground like oil and gas, but also gold, iron, lead, titanium, uranium and zinc. In the primary sector you can also find a high productivity of agriculture (especially rise) which means a high density in many countries like Bangladesh, Pakistan and Cambodia. Also forestry and fishing is very important for Asia because it are products that finance the smaller countries.
In the secondary sector is the manufacturing business in Asia present. China, Taiwan, Japan, South Korea and Singapore are countries were the manufacturing business is expanding. In these countries are products manufactured from very big brands like Sony and Samsung. Because of the low labor costs these countries also attract western companies to place factories in these countries. Especially the textile manufacturing business is really attracting these western brands towards Asia.
In the tertiary sector there are the six important financial sectors of Asia located in Dubai, Mumbai, Hong Kong, Shanghai, Singapore and Tokyo. Also the software export, call centers and Business process outsourcing in the Asian countries and especially India are important businesses in this sector because they are engine's that drive the Asian economy.
Asia is a continent with great diversities. Although a couple of great nations are growing rapidly, some others stay behind. Although this is a fact Asia can have a great future ahead of them.
Asia has lots of potential but the economy is facing some problems. Looking at the future Asia faces severe disparities, which is a source of major tension in the region. While the Tiger economies such as China, India, South Korea, Japan, Taiwan and Malaysia keep growing stronger and more powerful. There are countries who are in great need of assistance in that area.
Asia also needs to face political problems that threaten the economy and the general stability of the region and the world. Some of the countries in Asia are a threat for others because they have powerful military sources. It is difficult for smaller Asian countries to create protection for themselves against these powerful military sources because they have financial problems. Also this creates tension between the Nations in Asia.
Asia also feels the problems of the United Arab Emirates. Their economy have been dependent on oil and are finding it hard to establish another pillar in their economy.
Another big economical danger posed by the economy of Asia to the rest of the world is the growing accumulation of foreign exchange reserves. Countries with the largest foreign reserves are all in Asia. The Euro, USD and GBP are heavily influenced by the Asian central banks because of this.
Because of these problems it is difficult to predict the future of this region. Some countries are very successful but there are other countries who have some problems.
The situation where Asia and the United Arab Emirates are in looks positive. Although problems need to be solved the countries seems to deal well with several difficulties. It is difficult to predict what the economy will do with this nations in the future, but the current situation looks promising. Very important for Asia is to keep the peace between their nations. A war can have dramatically results for their large but fragile economy. Also Asia needs to accept the fact that the times of cheap labor and production will soon be at an end and that the living standards will go up. This will be positive for the nation but not for the economy. Also Asia needs to take account of the fact that they need to be less dependent on oil and need to find other solutions for boosting their economies. Although some countries are already busy with this problem there is still a lot to be done. Asia can be ready in a couple of years to be the economic world leader if it deals with the problems it faces. For the United Arab Emirates the future looks also positive, they are well aware of their situation and looking at their projects they are well under way to deal with their problems. Their idea of investing the oil money into things as real-estate is a positive development looking at the possibilities that the land can offer and what not. Also if they can regain confidence of other countries in there economy they can pay off their debts more easily.
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