Giyas Gokkent, chief economist and head of research of the asset management group at the National Bank of Abu Dhabi has been quoted as saying, “Growth is coming back,” while also admitting that excessively rapid growth in the past created vulnerabilities in the local economy. Those excessive growth rates, of 22 percent in 2007 and 36 percent in 2008, have declined to a more manageable four percent growth in GDP forecast by Standard Chartered Bank for 2011.
Underpinning that forecast is a rise in oil prices from a low of $33 per barrel in December 2008 to a projected average of $86 per barrel. But as the UAE continues to successfully diversify its economy away from a dependence on oil and gas, other factors need to be addressed. The property market remains a cause for concern, as the huge oversupply of housing and commercial premises in some areas waits to be mopped up.
Of greater concern is the shortage of liquidity in the financial markets to support new business ventures. A recent report by Standard Chartered Bank notes, “…bank loans still exceed deposits. The gap narrowed from Dh40.2 billion in June to Dh26.6 billion in July, but this was solely the result of increased deposits and flat credit growth on a month on month basis. The lack of credit growth is draining liquidity from the system.”
The recent financial crisis and its own focus on encouraging foreign investment has spurred the government to address some much needed reform of laws surrounding the private sector. Restrictions governing access to finance, workers’ visas, bankruptcy laws and property ownership are all now being addressed in an effort to establish the UAE as the largest FDI recipients in the GCC region.
At the recent opening of the Commercial Attaches and Business Councils Forum, Sultan bin Saeed Al Mansouri, UAE Minister of Economy noted the success of the government’s strategy. “Non-oil activity constituted 71 percent of our GDP in 2009. Today, growth and diversification in the UAE is led by traditional sectors such as trade, logistics, and tourism”, he said. “We offer businesses the advantage of 100 percent ownership in our free zones, in addition to clearly defined policies and procedures that enable business growth. The industries sector currently contributes 16 percent to our GDP and we have a stated goal of increasing this to 25 percent”.
This growth in enterprise and foreign investment is going to need skilled manpower, and most of that will come from abroad. Currently as many as 80 percent of the 8.1 million people living in the UAE originate from outside the country. The largest expatriate communities are from Iran, India, Pakistan and Bangladesh, although it is estimated that up to 200 other nationalities are represented.
For many foreign workers, employment in the UAE was not always a positive experience. Former sponsorship laws that tied an employee to the employer often resulted in exploitation through delayed payment of wages, substitution of employment contracts, premature termination of services and excessive working hours.
These issues are now being addressed, with the first labour reforms to come into effect early this year. The new regulations govern the conditions and criteria of issuing work permits, making it possible for a foreign worker to terminate an existing service contract and enter a new one with another employer if it can be proven that the initial employer has not fulfilled its obligations, and abolishing the six month waiting period between contracts.
“Giving the private sector more freedom of movement will have automatic impact on employers by the way of preserving their interests through creating many options for recruiting skilful workers as per the supply-demand equation,” comments Labour Minister, Saqr Ghobash. “The new regulations constitute key elements of labour reforms which … will be in place in the near future.” These measures, he added, were designed to play a major role in advancing efforts towards creating an efficient labour market and sharpening competitiveness in the transformation towards a knowledge-driven economy.
But according to Neil Edwards, international business development manager at healthcare recruitment specialists, Your World, the UAE needs to do more to attract highly skilled workers in sectors like healthcare where they are competing with countries like the UK, US and Australia to attract staff. “Every single Gulf nation is building new hospitals but the need to staff them is not really being addressed and recent press reports in the region have suggested that the number of qualified nurses and doctors will have to double in the next decade. And with the UAE looking to take a lead in the market for medical tourism, the skill shortage can only get worse.”
What the region needs, suggests Edwards, is a multi-faceted solution with imported skills and experience working alongside new graduates. This fits with the UAE strategy of attracting high quality foreign universities to set up branch campuses or establish cooperative agreements with local universities, and making the education of Emiratis a top priority. Foreign universities already established include the American University, University of Michigan and the University of Wollongong. More recently, partnerships have been set up between local institutions with the UK’s Cambridge University and Switzerland’s University of Geneva.
As government cutbacks in other developed countries begin to bite, some of the UAE’s staffing problems may be resolved by actively recruiting abroad. According to Aberdeen and Qatar-based recruitment specialist, LA Recruitment, the effect of the downturn has created a pool of experienced jobseekers with a wide range of skills, many of whom are willing to consider a lifestyle change by moving overseas.
Those who make the move will benefit from a benefits package that typically includes accommodation, transport, travel allowance and utility bills – and no income tax. However, the cost of living is considered to be high, and foreign workers should be aware that they are expected to respect the cultural traditions of the country.
They will also find themselves living at the centre of one of the world’s political flashpoints. Situated as it is in close proximity to the leading Arab nations, Israel and the key shipping lanes of the Middle East, the UAE of necessity treads a very delicate diplomatic line.
For example, as of 2010 an estimated 100,000 Iranians live in the UAE and more than 10,000 Iranian companies do business there. Bilateral trade between the two countries was estimated at $15bn in 2009, making Iran one of the UAE’s largest trading partners. Mindful of these important economic ties, the UAE Foreign Minister was among the first international leaders to congratulate Iranian President Mahmoud Ahmadinejad on his re-election in 2009, despite criticism from Western allies.
However, despite strong bilateral relations with Iran and frequent moves to extend cooperation, the UAE is aware of a growing threat to the region if that country is successful in its bid to develop nuclear weapons.
In 2009, the Financial Times reported that the United Arab Emirates had seized an Iranian bound ship after discovering several containers of North Korean weapons including rocket-propelled grenades and ammunition allegedly ordered by a company linked to Iran’s Islamic Revolutionary Guard Corps. Then in the summer of 2010 following the adoption of a United Nations Security Council Resolution strengthening sanctions against Iran, the UAE took measures against Iranian financial assets in the country, including the freezing of forty-one accounts.
The Emirati ambassador to the United States, Yousef al-Otaiba, recently summed up feeling in his country, during an interview at the Aspen Ideas Festival. Said Otaiba, “We cannot live with a nuclear Iran. I am willing to absorb what takes place at the expense of the security of the UAE.”