United Arab Emirates Country Report

Infortal Worldwide Geopolitical Risk Summary

The United Arab Emirates is a dynamic regional player in the Middle East. 

It is located on the Arabian Peninsula along the coast of the Persian Gulf between Saudi Arabia and Oman. Its location brings both significant opportunity and risk. Easy access to one of the world’s busiest shipping lanes in the Persian Gulf and a key transit area between Asia, Africa, and Europe makes the UAE strategically situated as a regional logistics and services hub. 

The UAE’s natural resource endowments, namely extensive oil and natural gas reserves, have rendered it a significant player in the global energy market. Revenues from this industry have led to high levels of development but also left its economy at risk of fluctuating oil prices based on regional and global geopolitics and demand. Economic policies aimed at attracting foreign investment have helped to diversify its economy and create a relatively business-friendly environment. However, these opportunities do not come without risks, as the UAE has been susceptible to money laundering schemes, geopolitical disputes with neighboring Gulf states, and a largely foreign-based workforce. Regional tensions and conflicts also render it susceptible to shipping delays and other risks. 

Political Update

The UAE is governed by a supreme council consisting of the seven Sheiks or leaders of the seven emirates that constitute the country, with the head of state traditionally being the Sheik from the wealthiest and largest emirate- Abu Dhabi. The UAE has played an active role in the region, and its actions have generally aligned with the foreign policy of Saudi Arabia, mainly based on their mutual distrust of Iran. They have also sought to have a pro-western foreign policy outlook. For example, the UAE views Hamas as a threat to regional peace and security. Although they have been proponents of de-escalation in the Israel-Hamas conflict, they have maintained ties with Israel. 

In 2017, the UAE joined Saudi Arabia, Bahrain, and Egypt in a diplomatic boycott of Qatar for its alleged support of Islamic extremist groups throughout the region. This led to turbulent relations among the Gulf states for some years, although diplomatic relations between the two countries have warmed some with the reopening of its embassy in Qatar in 2023. 

In 2022, the Financial Action Task Force (FATF) listed the UAE on its ‘grey list’ for a jurisdiction of heightened monitoring of money laundering and terrorist financing. Since then, the government of the UAE has committed to implementing better anti-money laundering (AML) controls to be delisted and become compliant with international standards.  

Economic Update

The United Arab Emirates (UAE) is a regional economic powerhouse. The UAE has been a significant producer of oil and natural gas, which has fueled development in the country. Efforts to diversify its economic platform have made the UAE a regional hub for logistics, business, and money services, including fintech and a growing tech industry. 

Economic opportunities in the UAE vary from emirate to emirate as each maintains a level of autonomy, resulting in varying policies and financial aims. For example, Abu Dhabi’s economy is primarily oil-based, as it holds the largest explored oil reserves in the country. In contrast, Dubai’s economy independently is not oil-based, with an economy centered on finance, real estate development, and tourism, among others. Special economic zones throughout the country have successfully attracted foreign investment from all over the globe. The UAE’s approach to attracting foreign investment is not particularly discriminative to regions, resulting in diverse partnerships worldwide. 

Although economic activity varies from emirate to emirate, the main driver of GDP is still oil. This makes its economy reliant on global demand trends, which affects prices. This can make accurate predictions for economic growth difficult. Concerted efforts to diversify the economy will yield more stable predictions as the UAE becomes less oil-dependent. 

Key Investment Sectors

The UAE has made considerable efforts towards economic diversification. Government spending, careful planning, and policy creation have led to an increase in foreign direct investment. Creating special economic zones has facilitated the ease with which foreign companies operate in the country. The UAE has highlighted the following sectors as target areas for growth: 

• Artificial Intelligence – The UAE is striving to become the world capital of AI innovation. A lot of investment is available in this sector at the start of 2024. 
• Trade and Logistics: the UAE’s central location between Africa, Asia, and Europe has brought significant opportunity to the trade and logistics industry. They have become an important international trade and logistics player, with 12 commercial trading ports and numerous oil ports. The institution of free trade areas and special economic zones has served to attract foreign investment and foreign firms by enhancing the ease and efficiency of doing business.
  
• Tourism and hospitality: Dubai has invested significantly in its infrastructure, including world-class hotels and resorts for foreign audiences. Luxury real estate development has also attracted foreign buyers. Tourism has been a significant industry in diversifying the UAE’s economy and will continue to play a role in the UAE's future economic prosperity.
  
• Financial Services: The Dubai International Financial Center (DIFC) has led Dubai’s robust financial services sector, attracting multinational corporations, banks, and financial institutions worldwide. Significant investment into the financial services industry, including fintech, has led to the UAE becoming a regional hub for financial services.
  
• Technology: Significant emphasis has been placed on developing a robust local tech industry. The establishment of Dubai’s Smart City and Abu Dhabi’s Hub71 has attracted foreign tech firms and professionals. The UAE has also pursued the development of AI and AI products and is the leading producer of AI in the Middle East.
  
• Renewable Energy: The UAE has emphasized the development of renewable energy products as global demand begins to shift in favor of alternative energy sources. In 2023, they pledged a $54 billion investment into renewable energy, opening significant opportunities for the industry. 

Recommendations for Companies and Investors

Companies seeking business in the UAE should understand that licensing and regulations may vary between emirates and their special economic zones. Each jurisdiction has its list of acceptable business activities specific to its free and special economic zones. They understand how the legal framework regarding foreign businesses and the services provided for them will help you know how to formulate your business plan. For example, companies looking to engage directly with the local market will need a local sponsor to share 51% of the company's ownership. However, businesses operating in free economic zones will be able to retain full ownership. 

In addition, understanding local laws is essential to understanding local customs and culture. Most Emiratis are Sunni Muslims, and Islam is the official religion in the UAE. Sensitivity to rules and customs in business practices, including marketing campaigns, will be critical to your success. 

Despite efforts to increase compliance with international standards of anti-money laundering and terrorist financing, the UAE continues to be a country at risk of these financial crimes. Because of this, companies looking to do business in the UAE or with firms from the UAE should conduct adequate due diligence and risk analysis to ensure that they are not implicating themselves in criminal activity. 

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