Free «Impacts of Globalization on the UAE Economy» UK Essay Sample

Impacts of Globalization on the UAE Economy


Today, the world development is determined by such a significant and comprehensive peculiarity as globalization, which is manifested in the increasing economic, financial, political and social interdependence of countries, formation of a unified planetary market, economic convergence of the world community, and merging of separate countries into a uniform international socioeconomic complex. The Arab world in general and the United Arab Emirates in particular are also influenced by trends inherent to globalization. Preserving its national uniqueness and absorbing the best world strategies, the UAE has become an important participant in global processes and initiatives.

The United Arab Emirates’ Economy from the Historical Perspective

The United Arab Emirates is a young thriving country, which was founded in 1971. It consists of the seven emirates, specifically, Abu Dhabi, Sharjah, Dubai, Umm Al-Quwain, Ajman, Fujairah, and Ras Al-Khaimah. Since the moment of its foundation, the country has been faced with external risks and challenges emanating primarily from the immediate geopolitical environment of the Persian Gulf region, the Western coast of which it occupies. From a historical viewpoint, the Persian Gulf region has always been the crossroads of important marine trade routes. Therefore, this territory was the target of colonial expansion and struggle between various states and nations; the United Kingdom and Portugal were the most powerful parties involved.

The country’s economy-related history is rooted in extreme antiquity. In different epochs, this area was inhabited by wealthy and active civilizations that effectively interacted with coterminous Mesopotamia and small Asian states. There were vast deposits of resources strategically important for different populations. However, natural endowments were not quarried due to technological limitations and undiscovered resources. In ancient times and even at the beginning of the twentieth century, the pearling industry was dominant on this territory. Fisheries, crafts, oasis agriculture, seafaring and transit trade were other traditional sectors of the economy.

The early 1960s became one of the most important milestones in the country’s history because of the discovery of oil deposits and the start of oil export from the deserts of Abu Dhabi. In 1966, Sheikh Zayed bin Sultan Al Nahyan came to power and designed an extensive plan of socioeconomic development and transformation of the infrastructure of Abu Dhabi emirate. Sheikh Rashid bin Saeed Al Maktoum, the ruler of Dubai, also generated a comprehensive strategy for the development of his emirate since in 1969 the region began to receive significant revenues from oil exports. In December 1971, the emirs of 6 principalities announced the formation of the UAE federation, having elected the ruler of Abu Dhabi as the President. In February 1972, they were joined by the Emir of Ras Al-Khaimah. The proclamation of the foundation of the United Arab Emirates, a united and independent country took place in 1972 and enacted the union of the seven emirates of the Persian Gulf identical in their religion, history, and language. The UAE leadership defined the creation of a unified national economy and transition from a traditional to modern model of economic development as the main goal. Although some emirs did not pass all of their powers to the central government, the UAE obtained an opportunity to perform as an independent state on the world stage.

Trends specific to globalization or, more specifically, glocalization became apparent in the UAE economy in 1981, when the United Arab Emirates and five Arab states created the Gulf Cooperation Council (GCC). The UAE was one of the founders of the organization that was aimed at rapprochement, coordination, and cooperation on the way to their association. The main purposes of this supranational union include the coordination, collaboration, and integration of member countries in all economic, social and cultural affairs. Correspondent legislative regulations were introduced to the fields of economy, finance, commerce, customs, communication means, tourism, education, culture, health care, social spheres, and administration. Tariff barriers between these six countries have been abolished and citizens of member countries are now free to perform business operations and negotiate contracts in any state on equal terms. Collaborative initiatives of the Gulf Cooperation Council (GCC) are also developed to promote scientific and technological progress in different industries, transportation, agriculture, and water conservation. “The development of regional cooperative institutions that are efficient and effective appears to be fundamentally driven by the initiative and interests of major regional powers” (Chauffour, 2013, p. 28).

Thus, since the early 1960s, the oil factor became of crucial importance for the formation of socio-economic and political image of the United Arab Emirates. Being included in its economic basis as the major element, the oil factor entered multifaceted correlations with historical, cultural and other conditions of the country evolution. Modifications and fluctuations in the oil industry acted as specific limiters of socio-economic and political processes in the UAE, producing a multidimensional impact on globalization-associated development of the country.

Scientific progress, political transformations of the world community, growing competitiveness in all businesses and industries, universal price formation, and expanding cross-cultural interactions all together contribute to globalization of the modern world. Economy liberalization, which implies the expansion of freedom of economic activities and full or partial removal of political, legal and administrative restrictions of private initiatives, is the main driving force of globalization. Today, human relationships in economic, social, political, cultural, technological and other areas are globally integrated. Globalization is considered to be the globality formation process. Globality contemplates the existence of formal and informal institutions of interactions which are uniform in all international relations, systems, and local communities. From this point of view, globalization is determined as both a process and result of the distribution of these institutions.

However, globalization is mainly regarded as an economic phenomenon. Economic globalization is usually interpreted as a special stage of the integration of public production and internationalization of economic life, spanning almost all countries throughout the world. From the economic perspective, globalization is commonly defined as the process of transformation of dispaate national economies into the integrated global economy (Chauffour, 2013, p. 25).

The emergence of global financial and commodity markets, development of unified communication systems, enhancement of foreign direct investments, and universal informatization processes are some of the trends attributed to globalization. They are accompanied with the formation of a global system of values and uniform culture. Globalization is urged to create the integrated world economy that can eventually lead to the standardization of business processes, formation of shared values and norms of life, and creation of monolithic culture. This should contribute to efficient allocation of resources and lead to growing welfare of citizens in all regions of the planet.

Nevertheless, implications of globalization for developed and developing nations are intensely debated issues today.  Economic processes are characterized by cyclical crises. They result from the fact that after a period of innovation and expansion of production, a decline in profits and the depletion of the markets becomes evident, leading to recession and stagnation. Globalization increases the probability of large-scale financial and economic crises. Natural and man-made disasters become exacerbated by global ecological imbalance. Many social and economic problems spiral out of control, outpacing the international community’s ability to respond to them effectively and in a timely manner. Spontaneously evolving and frequently occurring economic processes pose a serious threat to the global economy and humanity as a whole in the modern age. Globalization of the world economy is not a homogeneous, but rather a complex multidimensional process that occurs very rapidly in the developed world and significantly straggles in developing countries, especially in the poorest of them. The establishment of a new globalised order is under the direct influence of the strongest participants in the global arena, providing developing nations with only a faint possibility of adapting to new economic conditions. Thus, globalization can aggravate social and economic inequality.

Impacts of Globalization on the United Arab Emirates’ Economy: An Overview

Facing numerous economic, political, and social challenges of the globalised world, the United Arab Emirates appeared to be able to outstrip other countries in the Gulf region in a number of socio-economic indications. In the 1970s, oil and hydrocarbon sectors were “the main export and a dominant sector in the economy” (Haouas & Heshmati, 2014). At the present stage of its development, an important feature of the UAE’s economy is the use of oil revenues not only for the diversification of national production, but also for the transformation into a major international center of various services and operations, especially in financial, credit and tourist areas. In 2013, the UAE’s segment GDP based on gas and oil output reduced to 25% due to the economy diversification (Central Intelligence Agency, 2014). Measures of the national economy liberalization, which have been consistently implemented in many areas, can be considered real manifestations of globalization in the United Arab Emirates. In order to strengthen the spirit of competition, leadership, initiatives and innovations in the business environment, the United Arab Emirates’ economic philosophy should be based on the principles of freedom of economic activities and provision of equal opportunities to all participants in the development process. This is achieved through the elaborate legal and regulatory framework. The UAE reforms reflect inevitable and increasing impacts of such modern world trends as scientific and technological progress, informatization, and introduction of innovative technologies.

However, globalization poses some limitations to the UAE economic development. Haouas and Heshmati (2014) state that the country cannot carry out its monetary policy independently because “the exchange rate in the UAE is pegged to the US dollar” (p. 3).  Moreover, according to Al-Malkawi, Marashdeh, & Abdullah (2012), up to 2008, the United Arab Emirates’ economic “system was still in the transition phase and needed to reach a certain level of development before it would be able to promote economic growth” (p. 111).

The complete evaluation of impacts made by globalization on the United Arab Emirates’ economy should consider the country’s favorable geographical position. The strategic value of the Persian Gulf has always been and remains valuable in global politics and intentions of external powers of the world. In addition, routes of thousands of pilgrims from Asia to Mecca and Medina, the major holy sites of Islam, pass through the UAE’s territory. Imperishable value of the country as a place of intersection of oil transportation arteries, a leading regional center of trade and re-exports, and an important site of international communications at the crossroads of Asia, Africa, and Europe contribute to the United Arab Emirates’ success in the globalised arena.

Impacts of Globalization on the UAE Finance

In the 1980s and several years later, the inertia of the oil-based development model, ensuring an extensive growth of socio-economic system of the United Arab Emirates, faced a problem of reduced financial opportunities. This was accompanied with a rapid increase in loads on the UAE public finances and the use of the tools of internal and external public debt and foreign assets. Rooted in the public consciousness of indigenous citizens, stereotypes of the state paternalistic role did not allow the government to revise radically funding levels of the majority of economic and social programs.

Numerical indicators provided by the Central Intelligence Agency represent the UAE financial and economic growth, as well as the country’s successful adaptation to impacts of globalization. In 2013, its GDP (Gross Domestic Product) measured in terms of purchasing power parity (PPP) comprised $269.8 billion, having increased by $10.5 billion in comparison with that of 2012 ($259.3 billion) (Central Intelligence Agency, 2014). Purchasing power parity is a measurement technique based on correlations between two or more currencies of different countries ascertained by their purchasing power in relation to a particular set of goods and services.

Living conditions of the UAE populations have also been improved. An income per capita also grew in the United Arab Emirates in 2013, totaling $29,900; that is $300 more than in 2012 ($29,600) (Central Intelligence Agency, 2014).

However, the global financial crisis negatively influenced the UAE’s economy. In 2007, in terms of the volume of foreign direct investment, the United Arab Emirrates ranked 15th in the world and 2nd in West Asia, while in 2013, the stock of FDI comprised $103 billion and the country was ranked the 41st in the world. In order to achieve its previous indices of foreign direct investments, the UAE actively stimulates overall economic activities, the influx of foreign investment, and implementation of innovations in all industries and businesses. Furthermore, the country is extremely popular with foreign investors due to its favorable investment environment. The Emirates occupy a strategically important position in the international relations between Asia and Europe. This is one of regions that develop faster than others. Companies entering this market can get unlimited access to millions of customers. Policies designed for foreign investment remain open and liberal in the country. The UAE’s taxation is flexible; the infrastructure and engineering services are characterized with convenience and handling abilities. Dubai provides foreign companies with the most beneficial performance conditions; they can operate here without a local partner or agent. The UAE’s progressive economic movement, accelerated pace of its development and modernization, transformation of separate emirates into a cohesive state, and government vision of external problems contributed to the expansion of international horizons and gave momentum to the country’s integration into the global economy. In addition, increasing financial assistance and sponsorship provided to foreign countries and organizations, including international Islamic organizations, were followed by growing diplomatic support of this activity.

On the background of the UAE’s rapid economic progress, the influx of immigrant workers significantly increased due to the shortage of local skilled labor. Simplified procedures of obtaining visas and residence permits for foreign companies’ owners and employees contribute to the powerful flow of immigrants. According to Abdalla, Al‐Waqfi, Harb, Hijazi, & Zoubeid (2010), until recently, foreign employees dominated in “almost all labour market activities” (p. 163). Moreover, according to the Central Intelligence Agency (2014), in 2013, expatriates accounted for roughly 85% of the UAE workforce. Today, 7% of workers are engaged in agriculture; 15% work in different industries; 75% work in services, including the hospitality industry. These numerical indicators reflect current trends in the diversification of the UAE economy. Representatives of approximately 60 nationalities work in the United Arab Emirates. There are certain nation-based trends in the foreign workforce. Immigrants from Afghanistan sign on as laborers; the Bengalis and Pakistanis drive trucks and work as dock labourers; the Egyptians traditionally apply for a job of cooks and teachers; the Filipinos clean apartments and hotel rooms. In order to reduce unemployment rates in nationals, “Foreign workers are hired on a temporary basis and are assigned to the jobs in economic sectors where local skills and expertise are lacking” (Abdalla et al., 2010, p. 165).

Working hours across the country range from 48 to 54 hours (in Umm Al-Quwain and Ras Al-Khaimah emirates). The highest medium annual salaries are in Dubai and Abu Dhabi; the lowest ones are in Ras Al-Khaimah. Payments in the public and private sectors significantly differ due to discrepancies in their regulatory frameworks. Favorable working environment, job security, schedule flexibility, career prospects, and other employment-related benefits are associated with the private sector. Although a huge variation in wages, incentives, and length of work is observed, the UAE domestic labor market does not satisfy local residents’ requirements in terms of working conditions and payments. Abdalla et al. (2010) consider that the expectations of local people in terms of wages and benefits are unrealistic (p.175). These trends resulted in growing rates of unemployment among the national workforce.

Wages and salaries are closely connected with an employee’s level of education and skill development (Abdalla et al., 2010, p. 173). The rapid spread of knowledge through scientific or other intellectual interchange is a peculiar characteristic of globalization; knowledge, competences, appropriate skills, and qualifications are the global currency of contemporary globalized economies. The UAE envisages a diversified knowledge-focused economy. In order to meet the world standards of qualified workforce and provide the UAE residents with employment opportunities, the system of public education was improved at all levels. The UAE strives to ensure social stability and decent life of all inhabitants of the country. Recent Emiratization programs and state initiatives are aimed at replacing non-citizens in the public sector with local residents. Specific laws on pensions and social security were adopted. Making rational use of revenues from oil exports, the UAE is one of the most socially prosperous countries in the Middle East.

Implications of Globalization for the Real Estate Market

A sharp increase of the UAE population caused by immigrants from Europe, the Gulf countries, and Indian subcontinent has led to a housing boom; growing performance in trade, banking, and insurance businesses; national production of building materials, concrete blocks, furniture, aluminum windows, and so forth. Although the global financial crisis adversely influenced the UAE real estate market, the country’s integration into global cooperation facilitated the real estate market recovery. Business prospects associated with the Expo 2020 have a positive impact on residential property prices in Dubai and Abu Dhabi.

Impacts of Globalization on the United Arab Emirates’ Agriculture

The United Arab Emirates is located in one of the driest areas in the world, with a minimum of annual rainfall, but the country is not a barren desert. Taking into consideration limited arable areas and water shortages, it was very risky to develop agriculture in the UAE. Nevertheless, comprehensive risk management and the rulers’ foresight justified themselves: the market is saturated with fruit and vegetables from the surrounding fields and gardens; the canning industry is provided with raw materials; some fruits, specifically dates, are exported to neighboring countries and Europe. Since the formation of the United Arab Emirates in 1971, traditional agriculture has been complemented with investments that led to the development of thousands of hectares of farmland. The average yield comprises of more than 600,000 tons of cereal crops. The Central Intelligence Agency (2014) identifies dates, vegetables, watermelons, poultry, eggs, dairy products, and fish as the UAE basic agricultural products.

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