Business Guide: Doing Business in Dubai & the United Arab Emirates: Start Your Business Now!

U.A.E.

1 Introduction

1.1 Subject matter and objectives

Increasing competition forces companies to internationalisation, whether it be to generate new sources of income outside of an exhausted domestic market, to extend the product life cycle, or to establish a cost-effective manufacturing base. In each case, companies are confronted both with the decision to select an appropriate market to enter and then to approach and integrate into the selected market.¹

A closer look should be given to the Middle East region, as it is becoming one of the most attractive regions in the world in which to do business. Countries of the Middle East showed an average annual GDP growth of five to seven per cent over the last few years with the United Arab Emirates taking the lead with 11.5 per cent of GDP growth in 2006.² Projects currently under development in the Gulf region reached more than USD1,000 billion by mid-2005 whereas half of the projects are construction projects and the other half is projects in the area of industrial production, oil- and gas, energy- and water supply and other infrastructure projects.³

The population in the Arab countries is also increasing at a fast pace creating demand for products and services. The population of Iran and Saudi Arabia more than doubled in the last 25 years,⁴ and today the Middle East region has an estimated population (and therefore a potential market) of 300 million people.⁵

In particular, the U.A.E., which is located in the centre of the Middle East, offers a perfect starting point to develop a market in the region. With its strategically important location, the U.A.E. acts as a gate to the Middle East, India, Africa and Asia, potentially reaching a market of more than 1.8 billion customers.⁶ The U.A.E. government has managed to turn an economy solely based on oil exports into a diversified economy showing highest growth rates in the Middle East since the 1990s. Because oil revenues are reinvested in their own country, the U.A.E. is aiming to develop a more diversified industry in order to reach independency of oil in the future. In addition, as more and more projects are launched, infrastructure has to be continuously expanded, and foreign labour and imports of various products and services is needed.⁷

The U.A.E. stands for political stability and liberal economic policy as well as a pro-Western attitude. Investors in this region find a well established infrastructure, tax exemptions, and low labour costs, all of which are key factors to developing a successful business venture.⁸

The objective of this business guide is to explicate the economical, political, legal and social environment prevailing in the U.A.E. in order to provide a basis for foreign companies that have the intention to invest in the U.A.E. to make an informed decision. Furthermore, recent business opportunities will be presented, along with concrete ways of establishing business relations and how to set up a company in the area.

1.2 Methodology and structure

Working for a Dubai based consultancy in the business development sector, along with the opportunity to get in touch with governmental institutions and business organisations from various sectors provided the author with invaluable input in developing this business guide for foreign companies who are intending to do business in the U.A.E.

The work is based on up to date research from books, magazines, web sites, and personal interviews. Due to the rapid development of the business environment in the U.A.E., the author decided to establish an online portal providing additional information. A free monthly newsletter offers up-to-date information on issues such as business, legal, real estate, mega-projects and more. The ‘Dubai Business Portal’ can be accessed at http://www.dubai-business-portal.de.

Chapter two gives the reader a detailed profile of the U.A.E., with an emphasis on its governmental system, infrastructure, demographics, culture, labour market, education, and fundamental economic data.

The third chapter explains the business environment by providing information on business culture, investment climate and major business sectors in the U.A.E. After detailing major legal and tax related issues, different business forms and free trade zones will be presented.

Chapter four provides information about current business opportunities and discusses various approaches to doing business in the U.A.E.

Lastly, a conclusion summarises the information of the previous chapters and gives an insight on future developments in the U.A.E.

¹ cp. Terpstra and Sarathy, 2000, p. 10 et seqq.

² cp. Bfai Bundesagentur für Außenwirtschaft, 2007 Feb 27

³ cp. Bfai Bundesagentur für Außenwirtschaft, 2006 Dec 12

⁴ cp. Bfai Bundesagentur für Außenwirtschaft, 2007 Feb 27

⁵ cp. GIC German Innovation Centre, without year

⁶ cp. Bär, 2005 Jan, p. 8

⁷ cp. Ochs, Heidel and Rengert, 2005, p. 16

⁸ cp. Reza, July 2006, p. 3-5

2 The United Arab Emirates

2.1 Geography

The U.A.E. is located in the northeastern part of the Arabian Peninsula, bordered by Saudi Arabia to the south and west, and by Oman to the east and north. The country is made up of the seven emirates Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Fujairah and Ras Al Khaimah. Abu Dhabi, located in the emirate Abu Dhabi, is the capital city of the U.A.E.⁹ The total area of the seven emirates, which consists mainly of deserts riddled with oases, is around 83,600 square kilometres (excluding islands: 77,700sqm) of which Abu Dhabi covers the majority. The coastline extends 644 kilometres along the Arabian Gulf and 90 kilometres along the Gulf of Oman:¹⁰

Graph 1: Map of the United Arab Emirates

Source: CIA, 2007

Influenced by the desert and the coasts, the subtropical climate of the U.A.E. is hot and dry. Coastal areas are affected by extremely high humidity during summer. Temperatures can reach 50° Celsius during the summer months from June to September and average a pleasant 20° Celsius during the winter months from October to March. In the eastern mountains it generally gets cooler.¹¹

2.2 History

Archaeological evidence indicates settlement from as early as 4000 B.C., with high culture developing around 2500 B.C. Historically the population has mainly been composed of Bedouins and fishermen. Before 1820, when Great Britain concluded a contract with the sheikdoms of Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Fujairah and Ras Al Khaimah, the area was known as the Pirate Coast. The treaty brought stability in the area, thereafter known as the Trucial States, as under the treaty the sheikhdoms became a colony under British protectorate. The sheikhdoms’ political and economical relations were thereafter restricted by Britain.¹²

At the mid-nineteenth century the economy varied by emirate in accordance with the area, population and resources within each. Main industries in the U.A.E were pearl fishing, fishing, trade, agriculture, dates, grazing and handicraft. At that time Bedouin and fishermen lived a simple life. In the following decades Abu Dhabi and Dubai evolved as important pearl fishing and trade centres. However, after the discovery of artificial pearls by Japan in 1930 the pearl industry suffered an economic blow in the Gulf region and almost completely broke down.¹³

Everything quickly changed after the discovery and export of oil in Abu Dhabi in 1962. The Trucial States were able to increase their national power and impose pressure on Britain resulting in Britain’s withdrawal from the region in 1968.¹⁴ In July 1971 the rulers of the emirates agreed on the formation of a union called United Arab Emirates which was officially formed on 2nd December 1971 and included the six emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain and Fujairah. Ras Al Khaimah joined the federation in February 1972 as the seventh emirate. Qatar and Bahrain, also subject for membership, decided to stay independent.¹⁵

In the following three decades the U.A.E. was able to implement a modern administrative system that continued to honour the traditions of the past. By investing oil revenues into their own country and adopting a free economy policy, the U.A.E. was able to turn the country into a world class business location which continues to show new growth records every year in all industry sectors.¹⁶

2.3 The seven emirates

2.3.1 Abu Dhabi

Abu Dhabi is the largest emirate with 67,340 square kilometres covering over 86 per cent of the landmass of the U.A.E. The coastline spans more than 400 kilometres along the Arabian Gulf and the interior of Abu Dhabi mainly consists of desert area. The two major cities within the emirate are Abu Dhabi, which is the capital of the U.A.E., and Al Ain, which lies at the foot of the Hajar Mountains bordering Oman. The city Abu Dhabi hosts the country’s federal government offices and Federal National Council.¹⁷

More than ninety per cent of the U.A.E.’s oil reserves are located in Abu Dhabi, which also operates the largest oil refinery in the U.A.E. While oil revenues are still the major contributor to Abu Dhabi’s GDP, the emirate is currently pursuing diversification into various industry sectors such as manufacturing, trading and tourism.¹⁸

2.3.2 Dubai

Dubai is the second largest and most populous emirate covering 3,886 square kilometres with a shoreline of approximately 72 kilometres. The emirate is located between Abu Dhabi in the southwest and Sharjah in the northeast.¹⁹

Historically, Dubai has been recognised as the city of merchants in the Middle East. Nowadays, Dubai functions as the leading trading and business hub in the region as the city is strategically located between the Far East and Europe on the east-west trading routes, and between the former Soviet Union and Africa on the north-south axis.²⁰

Due to limited hydrocarbon reserves, Dubai began to diversify its economy early on in order to secure independence from the oil industry in the long run. Dubai balanced and diversified its industry into sectors such as tourism, trade, construction, manufacturing, finance and other services showing immense growth every year. Therefore Dubai is by far the most strategic location for potential investors and businesses in the U.A.E.²¹ Appendix 1 shows a list of projects currently under development in Dubai.

2.3.3 Sharjah

Sharjah is the third largest emirate covering an area of 2,590 square kilometres. It neighbours Dubai and is the only emirate bordered by two oceans, the Arabian Gulf on the west coast and the Omani Gulf on the east coast.²²

Due to its traditional cultural policy Sharjah has restored historic buildings, and maintains impressive mosques, museums and traditional markets reflecting Islamic design.²³ Sharjah was appointed cultural capital of the Arab world by UNESCO in 1998.²⁴

Sharjah’s rapid economical development resulted in an enormous industrial variety with main sectors in metal, chemical and plastics production.²⁵ The government provides substantial assistance by subsidising seventy per cent of utilities, energy and water. Labour and accommodation is available at reasonable costs and its proximity to Dubai makes it a very attractive alternative for investments in the production industry.²⁶

2.3.4 Ajman

Ajman, with a sixteen kilometres coastline, is located northeast of Sharjah’s capital city. With only 259 square kilometres it is the smallest of the seven emirates and is equivalent to only 0.3 per cent of the U.A.E.’s total landmass.²⁷

Ajman possesses no oil reserves and is plagued by infertile soil, therefore making it the poorest emirate which is dependent on subsidies from the other emirates. Garment and trade are the leading industries.²⁸

To increase Ajman’s attractiveness the emirate launched a USD4 billion project in 2006 called Emirates City which includes residential and commercial projects with lakes, shopping malls, hotels, and educational and medical centres. The proximity to Dubai promises success and new road infrastructure makes Dubai reachable in about twenty minutes.²⁹

2.3.5 Umm Al Quwain

Umm Al Quwain is situated north of the U.A.E. and occupies an area of 777 square kilometres. The capital Umm Al Quwain is located on a small peninsula encircled by a large creek. Major industries are fishing, mariculture and agriculture. Like most of the other emirates Umm Al Quwain is currently trying to develop its tourism sector.³⁰

2.3.6 Fujairah

Fujairah is located on the east coast of the U.A.E. facing the coast of Oman. Its area covers 1,488 square kilometres and includes a breathtaking coastline extending about ninety kilometres. Fujairah is bordered by the Sultanate of Oman on the eastern side, and by Ras Al Khaimah and Sharjah on the western side. Its strategically important location offers the U.A.E. its only passage to the Indian Ocean.³¹

With its well established infrastructure including an airport and seaport and its natural wealth of raw materials, Fujairah is an attractive area for industrial, commercial and agricultural developments.³²

2.3.7 Ras Al Khaimah

Ras Al Khaimah lies on the Strait of