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U.S. Department of State
1996 U.A.E. Country Commercial Guide
Office of the Coordinator for Business Affairs
COUNTRY COMMERCIAL GUIDE FY 1996
UNITED ARAB EMIRATES
TABLE OF CONTENTS
I. Executive Summary
II. Economic Trends and Outlook
III. Political Environment
IV. Marketing U.S. Products and Services
V. Leading Sectors for U.S. Exports and Investment
VI. Trade Regulations and Standards
VII. Investment Climate
VIII. Trade and Project Financing
IX. Business Travel
-Business Customs
-Travel Advisory and Visas
-Holidays
-Business Infrastructure
X. Appendices
A. Country Data
B. Domestic Economy
C. Trade
D. Investment Statistics
E. Contacts
This Country Commercial Guide (CCG) presents a comprehensive look at the
United Arab Emirate's commercial environment through economic, political
and market analyses.
The CCGs were established by recommendation of the Trade Promotion
Coordinating Committee (TPCC), a multi-agency task force, to consolidate
various reporting documents prepared for the U.S. business community.
Country Commercial Guides are prepared annually at U.S. Embassies
through the combined efforts of several U.S. government agencies.
CHAPTER I. EXECUTIVE SUMMARY
The United Arab Emirates remains the most dynamic, and perhaps the only
expanding economy in the Gulf region, despite the continued weakness in
world oil prices. U.S. exports to the UAE dropped by about 10 percent in
1994 but the first quarter of 1995 shows U.S. exports to the UAE up more
than 25 percent. U.S. exports should reach record levels in excess of
2.2 billion dollars in 1995. The UAE's economic growth is being fueled
by two main factors: an ongoing construction boom in both Abu Dhabi and
Dubai, and expansion of the greater Dubai economic zone (including
neighboring emirates of Sharjah and Ajman) as a regional business center
and trading hub. Major projects throughout the Emirates, ranging from
refinery expansions and petrochemical projects to hotel and tourism
facilities to airport upgrades and expansions will ensure that this boom
continues at least through 1996. Serious efforts at enforcing new
intellectual property rights laws during the past 12 months are
encouraging many U.S. firms, from film and videos distributors to
computer software manufacturers to look seriously at the UAE for the
first time, which should add another boost to the local market and the
UAE's role as regional trade center.
U.S. firms are continuing to pursue major military sales opportunities,
particularly in Abu Dhabi. Procurement of naval frigates, air force
fighters, and heavy transport vehicles tops the list of some US dollars
six billion of military hardware expected to be decided in the next 12 -
18 months. Emirates Airlines will start taking delivery of six Boeing
777 aircraft and may exercise options on an additional six airplanes (a
purchase worth some US dollars 800 million).
The UAE remains a highly competitive market dominated by government
procurement, where the emphasis is on being lowest bidder. This is a
strategy which many U.S. firms prefer not to follow. The blush of
goodwill for US companies and products which followed the 1991 Gulf War
is long gone from UAE markets. Japanese firms have returned to the UAE
with a vengeance, especially in such key sectors as telecommunications,
motor vehicles, heavy machinery, and petroleum equipment. European firms
continue to win a major portion of telecommunications, construction,
power and water, and defense major projects.
The role of the greater Dubai economic zone as a regional business and
trading center expanded phenomenally during the past 24 months. The
Jebel Ali Port (the largest man-made harbor in the world), industrial
complex, and Free Zone at Jebel Ali now boasts more than 1,000
international commercial and industrial ventures including petroleum-
related industries, huge sugar and flour mills, warehouses, and many
light industries. There are daily cargo charter flights from Dubai,
Sharjah and even Fujairah airports to all the former Soviet Union
republics, a volume of trade which reached close to US dollars one
billion in 1994 (and continues to grow in 1995). Dubai airport will
double capacity to 12 million passengers per year by the year 2,000, and
the increasing number (and size) of Dubai's trade exhibitions shows no
sign of slowing down. In sum, the UAE remains the most attractive,
growing business center between the Mediterranean and India, and has
direct trade links with a region encompassing almost one quarter of the
world's population.
AGRICULTURAL EXECUTIVE SUMMARY:
High value U.S. food products with strong market potential in the UAE
include frozen poultry (parts and whole birds, eggs, fresh apples,
almonds, processed cheeses, dressings, dips, hot sauces and snack foods.
In addition, growth in the local food processing industry is driving
demand for semi-processed products such as beverage bases, vegetable
oils, raw peanuts, specialty flours and a variety of food ingredients.
Country Commercial Guides are available on the National Trade Data Bank
on CD-Rom or through the Internet. Please contact Stat-USA at 1-800-
STAT-USA for more information. To locate Country Commercial Guides via
the Internet, please use the following world wide WEB address:
WWW.STAT-USA.GOV. CCGS can also be ordered in hard copy or on diskette
from the National Technical Information Service (NTIS) at 1-800-553-
NTIS.
CHAPTER II. ECONOMIC TRENDS AND OUTLOOK
Major Trends and outlook
The United Arab Emirates (UAE) is a federation of seven emirates located
on the Arabian Peninsula. The UAE has coastline and seaports inside as
well as outside the Strait of Hormuz, which is the entrance to the
Persian Gulf. The seven emirates are Abu Dhabi, Dubai, Sharjah, Ajman,
Umm Al Qaiwain, Fujairah, and Ras Al Khaimah. The total area of the UAE
is about the size of Maine. Each emirate is ruled by a shaikh. The
ruler of Abu Dhabi, Shaikh Zayid Bin Sultan Al Nahyan, is the president
of the federation.
A high degree of political and economic power resides in the individual
emirates. Each shaikh retains control over natural resources, including
oil, within his emirate, and regulates commercial activity. Because
hydrocarbon reserves, and thus revenues, are not equally distributed,
the seven emirates are not equal in terms of wealth, power, or level of
economic development. Abu Dhabi, the largest oil producer, is the
wealthiest and most powerful, followed by Dubai, the federation's
commercial center and second largest oil producer.
The terrain is mostly sand desert, barren mountains, and salt flats.
Before the exploitation of petroleum deposits, beginning in the 1960's,
the UAE had a subsistence economy, which consisted of fishing, date
farming, camel husbandry, trading, and pearling. Now, the UAE is a
prosperous country of global economic significance, with a 1993 per
capita GDP of 16,920 dollars.
GDP, dependent on oil prices, has followed a roller coaster pattern,
soaring during the 1970's and declining precipitously during the 1980's.
These swings in income have caused the authorities to look for ways to
diversify the economy, particularly in Dubai, where oil production is
declining. The search for diversification has been only partially
successful, however. Government spending of past, present, and future
(through borrowing) oil revenues remains the engine that powers the
economy. Oil revenues provided 80 percent of fiscal revenue and about
60 percent of export earnings in the period 1990-1994. Real GDP
declined by 1.4 percent in 1993 but grew by 1.1 percent in 1994. The
growth in 1994 was due to five percent growth in the non-oil sector.
Inflation in 1994 was at 4.6 percent, a slight decline from 1993.
The UAE is in better financial condition than its immediate neighbors.
The government is not delaying payments to contractors or borrowing from
foreign commercial banks to pay its debts. It is however drawing down
its own overseas assets and borrowing from domestic commercial banks in
which it has an ownership share. The UAE maintains an extensive cradle
to grave welfare system for UAE nationals, comprised of numerous
subsidies, grants, loans, and provision of free services. Most
nationals are employed by the government. The government provides many
subsidized services which also are extended to foreigners, who form 80
percent of the total population. In 1994, the government undertook to
reduce these subsidies by increasing fees charged to foreigners for some
services, such as health, water, and electricity. The increases do not
fully cover costs, and nationals still receive many of these services
at reduced rates or free of charge. Government officials have discussed
privatization of government owned industries and the establishment of a
stock market. As of July 1995, no government owned entity had been
privatized and the stock market is awaiting cabinet approval.
Economic analysis in the UAE is difficult because the federal and
emirate governments and their semi-autonomous entities do not publish
comprehensive, accurate statistics in a timely manner. Similarly,
private sector institutions, including banks and foreign oil companies,
are not allowed to disseminate statistics to the public. Information on
oil and gas production and pricing, overseas investments, and government
budgets is only available from external sources.
Principal Growth Sectors
Agriculture
The local food processing industry continues to expand offering export
opportunities for semi-processed agricultural products. Major growth
sectors are beverages (juices and soft drinks), dairy products (ice
cream and yogurt), snack foods and cookies/biscuits.
The Oil Sector
The UAE claims to have nearly 100 billion barrels of proven oil
reserves, or about 10 percent of total proven world oil reserves, most
of it in the emirate of Abu Dhabi, and 5.7 trillion cubic meters of
proven gas reserves, which amounts to 4.6 percent of total world proven
gas reserves, again, most of it in Abu Dhabi, which makes the UAE the
fourth largest gas reserve country in the world after Russia, Iran, and
Qatar. UAE oil production in mid-1995 is at the level of the UAE's OPEC
quota, 2.16 million barrels per day (mmbd), with about 0.3 mmbd coming
from Dubai and the rest from Abu Dhabi. Capacity is much higher. While
Dubai produces at maximum capacity, Abu Dhabi is nearing completion of a
5.0 billion dollar capacity expansion program that will take Abu Dhabi
capacity to 2.5 mmbd by 1996.
Largely because of flat or declining oil prices, oil's share of GDP has
declined from 44.2 percent in 1990 to 33.2 in 1994. Despite this, there
is considerable growth potential in this sector. In Abu Dhabi, the
government is considering whether to expand capacity further. It may do
so, depending on its assessment of future market trends. It has
finally, after years of consideration, decided to go ahead with two
major downstream projects, petrochemicals and refinery expansion.
There are two refineries in the UAE, both in Abu Dhabi, both owned by
the Abu Dhabi National Oil Company (ADNOC), with a combined capacity of
about 215,000 barrels per day (b/d). ADNOC has decided to expand the
larger of the two, located in the Ruwais Industrial area, by adding
facilities to process an additional 130,000 b/d of condensate, a new
crude oil unit to double distillation capacity to 270,000 b/d, expansion
of residual oil conversion facilities, including a new 40,000 b/d
hydrocracker and a 36,000 b/d visbreaker, and other upgrading work.
ADNOC is also seeking a foreign partner to construct a 400,000 ton per
year polyethylene plant, to be located in Ruwais near the existing
natural gas liquid (NGL) fractionation plant operated by Abu Dhabi Gas
Industries Ltd (GASCO). The petrochemical plant would use as feedstock
the ethane that the NGL plant produces as a by product. The ethane is
currently either flared or reinjected. The only existing petrochemical
facility is a joint venture fertilizer plant that produces ammonia and
urea. It is also located in Ruwais.
The rationale for both of these projects is that Abu Dhabi needs to add
value to its basic product in order to increase income from it. It
cannot hope to significantly earn more from oil by producing more, even
though it has the capacity to do so, as long as it adheres to an OPEC
quota that hasn't changed in over two years, unless the price goes up.
Most observers, however, expect oil prices to remain flat or decline.
Non-OPEC production is at an all time high, OPEC is once again in a
swing producer role, and the prospect of Iraqi return hangs over the
market like a cloud. Under these circumstances, Abu Dhabi has finally
decided to go ahead with its long delayed plans for downstream
investment. The authorities have said that following the establishment
of the first petrochemical plant, others will be built, with local
private sector participation.
Abu Dhabi also is in the process of increasing income from its enormous
gas reserves. Abu Dhabi is the only producer and exporter of liquefied
natural gas (LNG) in the region. In 1994 it doubled the capacity of its
LNG plant on Das Island to five million tons per year. LNG accounts for
about five percent of total UAE (not just Abu Dhabi) export earnings.
In addition, the completion of the Onshore Gas Development (OGD) scheme
in 1995 will mean an additional 130,000 b/d of condensate production
that does not count against an OPEC quota. Part of the refinery
expansion project mentioned above will include facilities to process
this condensate.
Crescent Oil Company, based in the emirate of Sharjah, leads an
international consortium planning to build a gas pipeline from Qatar's
North Dome field to Pakistan. Crescent's plan calls for this pipeline
to cross UAE territory. So far, the emirates of Abu Dhabi and Dubai
have shown little enthusiasm about Crescent's pipeline.
The Non Oil Sector
Several factors have contributed to the growth of the non-oil sector in
recent years. These included government investments in electricity,
water, and other infrastructure, development of financial services, and
strong demand for re-exports. An open economic system, free movement of
capital, and financial stability has also contributed. Government
support through provision of incentives and subsidies, along with a high
level of government expenditure in housing, have also played an
important role.
In percent of GDP, the largest contributors after oil (33.2 percent in
1994) are, in descending order, government services (12 percent), trade
(11 percent), construction (10 percent), manufacturing (8.6 percent),
real estate (6.7 percent), transportation, storage, and communications
(6.2 percent), and finance and insurance (5.6 percent). The real growth
rates of these sectors in 1994 were minus 5.8 percent for oil, 4.5
percent for government services, 4.4 percent for trade, 7.5 percent for
construction, 0.7 percent for manufacturing, including natural gas and
petroleum processing, 6.9 percent for real estate, 4.6 percent for
transportation, storage, and communications, and 5.7 percent for finance
and insurance.
Government Role in the Economy
The UAE has a mixed economy, with the most productive assets owned by
the governments of the individual emirates but considerable scope given
to private enterprise, with a legal regime that favors UAE nationals
over foreigners. In both Abu Dhabi and Dubai, international oil
companies maintain equity interests in their operations.
Some banks are privately owned. They represent one of the principal
types of commercial establishment in which stock is sold to the public.
Only UAE nationals are permitted to own stock in UAE joint stock
companies. Foreigners are permitted to own up to 49 percent of a
limited liability partnerships. The remaining 51 percent must be owned
by a UAE national. Foreign companies can market their products in the
UAE either through these limited liability companies or through 100
percent UAE national owned distributorships. Foreign contractors or
service businesses require UAE national sponsors, one for each emirate
in which they do business. Foreigners are not allowed to own land in
Abu Dhabi or Dubai.
The UAE federal government is attempting to establish a legal framework
covering all aspects of doing business in the UAE. The most recent
additions were the intellectual property rights protection laws, passed
in 1992 and enforced in 1994, and the commercial code, passed in 1993
and containing for the first time in the UAE provisions for bankruptcy.
There are no restrictions on the import or export of either the UAE
dirham or foreign currencies, by foreigners or UAE nationals, with the
exception of Israeli currency and the currencies of those countries
subject to United Nations sanctions. Otherwise, all currencies can be
freely exchanged in the UAE at market rates.
The government sector includes the accounts of the federal government as
well as the accounts of the seven individual emirate governments. Only
the federal budget, a small part of the total, is published. For 1994,
outside observers estimate the consolidated fiscal deficit at 12 percent
of GDP. It is financed by domestic borrowing, principally by overdrafts
from banks, usually those in which government entities have an ownership
share, and drawing down overseas assets. The UAE does not borrow from
foreign commercial banks or issue bonds. Various utilities and public
services (including medical treatment) in 1994 instituted higher fees,
in some cases a scaled fee structure with higher charges imposed on
foreigners.
The UAE federal government is considering a draft bill to establish an
official UAE stock market. Currently, shares in about 30 UAE companies
are traded informally. Authorities of the federal government and some
emirate governments are also considering offering to the public (UAE
nationals only) shares in some existing government owned businesses.
There is no income tax in the UAE. Foreign banks pay a 20 percent tax
on their profits. Foreign oil companies with equity in concessions pay
taxes and royalties on their proceeds. There are no consumption taxes,
and the highest customs duty assessed is four percent. There is no
minimum wage.
Balance of Payments Situation
In 1994, the UAE ran a current account surplus of 455 million dollars.
This represented 1.3 percent of GDP. The surpluses had been declining
steadily from 5,460 million dollars in 1990, which represented 16.2
percent of GDP in that year. Outside observers project that by the year
2,000, based on present world oil prices, the current account will run a
deficit of 2,074 million dollars, equivalent to 4.3 percent of GDP.
Outside observers estimate that the current account surplus will decline
to 25 million dollars, or about 0.1 percent of GDP in 1995. Total
exports are expected to increase by 10 percent, but imports will also
increase by about the same amount, and the outflow of private transfers
will increase.
In 1994, the United States took 2.2 percent of UAE exports and provided
8.5 percent of UAE imports, down from 9.2 percent in 1993.
The UAE maintains a free exchange and liberal trade system. The UAE
dirham has been pegged to the U.S. dollar at a rate that has not changed
since 1980. this has helped to maintain a low inflation rate and
fostered private sector confidence. Recent sharp depreciation of the
U.S. dollar against Japanese yen has hurt the UAE's terms of trade, in
that Japan is the UAE's largest crude oil export market and provides 15
percent of UAE imports. However, the UAE is committed to maintaining
the dollar link.
The Gulf Cooperation Council (GCC), grouping the UAE, Saudi Arabia,
Kuwait, Bahrain, Qatar, and Oman has been discussing a common external
tariff for some years. In a step toward establishing a common external
tariff, the UAE in 1994 took the decision to raise its import duties
from one to four percent. This rate is applied on less than 25 percent
of imports, however.
The UAE enjoys a booming re-export trade. In 1995, 34 percent of all
exports were re-exports. Traditional re-export markets are the GCC
states and Iran, but UAE traders have aggressively sought out new
markets in such areas as Russia, the newly independent states of central
Asia, and South Africa, particularly as Iran, formerly the largest re-
export market, has sharply restricted imports in an attempt to come to
grips with a deteriorating economy and mounting debts.
A problem affecting compilation of the UAE's balance of payments
statistics is that the government does not provide statistics for many
transactions. Major gaps include workers' remittances, investment
income, oil and gas revenues, foreign direct investment transactions,
and capital transactions.
Infrastructure Situation
The UAE has a fairly well developed and modern infrastructure. Land
transportation is by road. A concrete highway network links all main
cities. Authorities in Abu Dhabi and Dubai are busily engaged in
widening existing roads and replacing worn stretches. There is no rail
system in the UAE, nor any domestic air transportation network, despite
the fact that the country has 6 modern airports. All emirates also have
modern seaports. The port of Jebel Ali in Dubai is the largest man made
port in the world. Goods are imported for the most part by sea and
distributed by truck within the UAE and to nearby locations in
neighboring GCC countries.
As part of its drive to diversify its economy away from oil to regional
trade, Dubai has developed two seaports and it's airport to handle re-
export cargo with considerable expertise and precision. Given that
international shippers operating between Europe and the Far East prefer
to make only one stop in the Gulf, Dubai has managed to secure the
lion's share of the business of unloading, breaking down, and reloading
cargo for onward shipment. Dubai's physical facilities and sheer
expertise in this area make its ports the preferred stops for most
shippers on these routes. Dubai aggressively seeks out new re-export
markets, and, though it still depends on its traditional re-export
markets of Iran and the GCC, it has developed trade ties with the newly
independent Central Asian states of the former Soviet Union, South
Africa, and the subcontinent. Road and rail lines carry cargo unloaded
at Dubai and ferried across the Gulf to Iranian ports to markets it
central Asia. This route shows great promise, particularly if central
Asian states succeed in developing their enormous oil and gas reserves
and become booming markets for imports as a result. Dubai's cargo
village at its international airport handles more air cargo than any
other airport in the world, much of it coming into Dubai by sea from the
far east or the subcontinent and then going out by air to Europe.
Other ports in the region, including in the UAE, have noticed Dubai's
success and are seeking to take some of the re-export business for
themselves. While they may never be able to match Dubai for sheer
expertise, two of them at any rate, Khor Fakkan and Fujairah, both in
the UAE, possess something Dubai never will -- they are located on the
Gulf of Oman outside the straits of Hormuz entrance to the Persian Gulf.
An international cargo ship can cut 24 hours off the sailing time from
Europe to the Far East by not joining the queue to pass through the busy
straits, not to mention the savings from lower insurance rates for not
entering the Gulf.
A private commuter airline operating between Abu Dhabi and Dubai
airports was shut down two years ago only a month after its start up by
Abu Dhabi authorities fearful that it would drain international travel
away from Abu Dhabi International to Dubai International. Similar
concerns block the establishment of a rapid transit system that would
connect the principal cities of the UAE, as such a system would permit
individuals to reside and work in different cities, with consequent
negative effects on demand for rental property in cities less desired as
residential sites.
The UAE has well developed water and electricity utilities. The federal
and emirate governments have constructed facilities to generate
electricity, either using gas (which the UAE has in abundance) turbines,
with steam turbines added to make them combined cycle units, or steam
turbines in conjunction with gas fired boilers. In many plants, flash
distillers are added to the turbine units to produce desalinated
seawater using the waste heat from the turbines or boilers.
The UAE has about 5,000 megawatts of installed electricity generating
capacity at present. It plans to install at least 3,000 more by the end
of the decade. In addition, plans are underway to establish an
electricity grid linking the seven emirates. After that is done, the
UAE and Omani grids will be linked as a step toward a GCC-wide
electricity grid.
The UAE currently produces over 200 million gallons per day of
desalinated water, and projects currently underway but not yet finished
will add over 100 million gallons per day more. Desalination plants
currently provide 74 percent of non-agricultural water and 29 percent of
all water used in the UAE.
Chapter III: POLITICAL ENVIRONMENT:
Nature of Bilateral Relationship with the United States:
Relations between the UAE and the United States are friendly and strong.
The two countries have similar viewpoints on most issues of
international concern. The UAE supports the Arab-Israeli peace process
and is firm on upholding U.N. Security Council sanctions against Iraq.
It views with concern Iran's efforts to build up its military, acquire
weapons of mass destruction and support international terrorism. The
U.S. has made a number of military sales to the UAE, and U.S.naval
vessels call at ports in the UAE more frequently than in any other
country of the world.
Major Political Issues Affecting Business Climate:
The UAE, especially Dubai, has considerable trade with Iran. At the
same time, there is an ongoing dispute between the UAE and Iran over
three islands in the Gulf (Abu Musa and the Greater and Lesser Tumbs)
which the UAE seeks to resolve by peaceful means. In 1994, the UAE
joined the other GCC states in declaring an end to the secondary and
tertiary aspects of the Arab boycott against Israel.
Brief Synopsis of Political System, Schedule for Elections, and
orientation of major political parties
The UAE is a federation of seven emirates. Each emirate retains a high
degree of autonomy within the federal system. The president of the UAE
is chosen by the Supreme Council, which is composed of the rulers of the
seven emirates. Abu Dhabi Ruler, Shaykh Zayid Bin Sultan Al Nahyan has
been president of the UAE since the country's foundation in 1971. In
addition to the Supreme Council, the federal structure includes a
Council of Ministers, a Federal Judiciary, and the Federal National
Council (FNC), which consists of 40 members representing the seven
emirates. The FNC does not have the power to legislate, but it can
summon ministers; and it performs an oversight function. There are no
political parties or elections in the UAE.
CHAPTER IV: MARKETING U.S. PRODUCTS AND SERVICES
A. Distribution and Sales Channels:
U.S. exporters do business in the U.A.E. by: selling directly to the
end-user; selling through an informal, non-exclusive re-seller
arrangement; selling through an agent/distributor; establishing a
company presence through a joint venture; or by authorizing a local firm
to sell its products via a licensing or franchising arrangement. Re-
seller arrangements avoid the legal problems associated with U.A.E.
federal agency laws, and they are suitable for products where local
promotion and after-sales service are not factors. While re-seller
relationships are not uncommon because they offer low-risk arrangements,
they are also a passive, reactive form of marketing with very limited
growth and profit potential. A more aggressive, proactive, and growth
oriented marketing program should select an alternative method to
penetrate the U.A.E. market.
Distribution and Sales Channels - Agriculture
There are numerous food importers, many of whom are also wholesales,
distributors, and retailers. Four to five companies dominate retail
food sales. Many fruit and vegetable importers also import eggs.
Dubai is a major transhipment center for a variety of food products. It
is estimated that about 60 percent of total UAE food imports are re-
exported to other destinations, primarily other Gulf countries, Iran,
India and increasingly the former Soviet Union.
B. Use of Agents/Distributors; Finding a Partner:
U.A.E. law does not distinguish between an agent or distributor,
referring to both as commercial agents. All agents must be registered
with the Ministry of Economy and Commerce. Selection of the right agent
is probably the most important decision that the exporter can make.
Agents may not be terminated, except with sufficient cause as determined
by a government committee that has usually ruled in favor of the local
agent. In most cases, compensation to a terminated agent is required
even if the committee rules for the foreign firm. Only U.A.E. nationals
or companies wholly owned by U.A.E. nationals can register with the
Ministry of Economy and Commerce as local agents.
The terms and conditions of agency contracts vary greatly. Commissions
and other forms of compensation typically depend on the amount of work
required of the agent, and sales volume. The agent's responsibilities
and performance measures should be clearly defined. Agents may be
appointed on a project basis, with the relationship restricted to that
project and terminated automatically upon reward or completion.
Establishing the geographic territory of an agent is critical. U.A.E.
law automatically awards exclusivity to the agent in the geographic area
covered by the agreement. An agent must have a presence and be licensed
to operate in each emirate he does business in. There is no blanket
license for the whole of the U.A.E. Consequently, U.S. exporters
seeking U.A.E.-wide coverage must appoint a separate agent for each
emirate, or appoint a master agent with offices or sub-agents in each
emirate. Virtually all of the most successful trading houses fall into
the later category.
Local agency laws prohibit the importation and sale of brand name food
products by other than the principle agent.
Use of Agents/Distributors - Agriculture
Local agency laws prohibit the importation and sale of brand name food
products by other than the principle agent.
C. Franchising:
The U.A.E. market is poised for considerable growth during the next five
years. Currently, franchises are operating in fast foods; dine-in
restaurants and clubs; auto leasing; apparel; soft drink bottling;
beauty products; hotels; toys; photography; jewelry; vending machines;
dry cleaning; furniture; hardware; natural health products;
publications; and sporting goods. The largest segment is the fast food
franchise group which is highly sought after by local companies. Most
of the major U.S. fast food companies are already established in the
market. However, the industry is currently going through a
restructuring with several major franchises being sold to new owners.
These changes are seen as a positive change from weaker to stronger
management, and not a reflection of weakness in the market. There
remains considerable potential for franchises of all kinds.
There is no special legislation for franchises in the U.A.E. General
contract and commercial law apply to franchise agreements. U.A.E. law
mandates that only U.A.E. citizens or corporations wholly owned by
U.A.E. citizens are allowed to conduct retail operations, the most
common type of franchise. U.S. businesses must work through a local
partner as licensee, or enter into a joint venture. Franchisees usually
prefer to own 100 percent of the franchise themselves. In other cases,
the franchisee enters into a joint venture with the franchisor to
operate all outlets as "company owned" stores employing local managers.
As with other types of business operations in the U.A.E., the selection
of the local partner is critical. One common practice used by
franchisors in the past that has, in many cases, caused considerable
problems and significant lost sales is the selection of a master
distributor to cover the entire Gulf through the use of sub-distributors
in each country. Each market is different and requires qualified local
partners to exploit its opportunities.
Master distributors, when operating outside their primary market, even
with a local agent, often do not service these secondary markets
sufficiently, and lack the local influence to solve problems that may
arise. In the U.A.E. an additional concern must be the ability of
franchisees to conduct business in each separate emirate. U.S.
franchisors are strongly urged to consider the above factors before
appointment of any franchisee.
D. Direct Marketing:
Other than for large orders, usually related to private or public
project procurement or large businesses for their own use, the direct
sale to the end-user approach is suitable only for infrequent, low
volume exports. For most exporters seeking a high volume, fast turnover
sales network, a more aggressive campaign executed through local
distributors has been the best marketing strategy.
E. Joint Ventures/Licensing:
There are distinct advantages in maintaining a local presence in the
U.A.E. Local businessmen and government officials prefer to deal with
someone they know and trust. Personal relationships are much more
important to doing business in the Middle East than they are in the
United States. In addition, local firms are closer to the local and
regional market, customers, contacts, and other elements affecting
business.
In general, U.A.E. law requires that all companies be licensed and at
least 51 percent owned by U.A.E. nationals. There are exceptions to
this rule, the most relevant for U.S. firms being those for firms
operating within free zones, professional or artisan companies, and
branches or representative offices. Each of these exemptions allows 100
percent foreign ownership, but with restrictions on the allowable scope
of business activities.
While joint ventures with foreign firms require local majority
ownership, profit and loss distribution can be prescribed. There is no
need to license the joint venture or publish the terms of agreement.
The foreign partner deals with third parties under the name of the local
venture.
Banks, insurance, and financial companies must be run as public
shareholding companies. This requires minimum capitalization of Dhs. 10
million (us$ 2.725 million), the chairman and majority of directors
being U.A.E. nationals, and a more restrictive distribution of profit
than allowable under a joint venture. However, foreign banks, insurance
and financial companies can establish a presence in the U.A.E. by
operating a branch or representative office. This option allows 100
percent foreign ownership, but, in general, limits business activities
to offshore operations.
Licensing of manufacturing processes is a growing market, especially
with the U.A.E.'s desire to increase the quality and diversity of local
production. However, the total market for industrial licenses remains
relatively small due to the limited amount of manufacturing done in the
U.A.E.
The majority of licensing is done for the fabricating and/or marketing
of trademarked items. Licensees of U.S. sports logos, universities,
animated characters, etc., are servicing a very active market with one
of the world's highest disposable incomes. Licenses to sell U.S.
branded products (an authorized dealer), as distinct from a standard
distribution arrangement, or U.S. logos/names/characters on a non-U.S.
product, are becoming very sought after, especially in the apparel
market. Licensing is often the best way to rapidly and effectively meet
the current demand, especially among young consumers, for american
styles.
F. Steps to Establishing an Office:
In the U.A.E., economic activity is regulated by the individual
emirates, as well as the federal government. The exact requirements
that a U.S. firm setting up an office will face will depend mostly on
the nature of the business the firm is engaged in, its level of
involvement in the U.A.E., and the emirate where it locates. This last
item is usually the least important, in terms of procedure, because the
laws are very similar among emirates.
First, firms will need a local sponsor, both for the firm and for its
resident employees. A sponsor must be a U.A.E. citizen, or institution,
such as a free zone. The sponsor can be involved in the business, or
simply a service sponsor providing, for a fee, legally required
administrative functions.
Second, firms are required to be licensed by the emirate of domicile
before beginning business activities. In general, individual emirates
will issue: Trade Licenses covering all kinds of trading activity;
Professional Licenses covering professions and services; Industrial
Licenses for industrial and manufacturing activities; and Vocational
Licenses for craftsmen and artisans. Licenses for some categories of
business require approval from certain federal ministries and other
authorities: for example, banks and financial institutions from the
Central Bank of the U.A.E., insurance companies and related agencies
from the Ministry of Economy and Commerce, manufacturing from the
Ministry of Finance and Industry, and pharmaceutical and medical
products from the Ministry of Health. More detailed procedures apply to
businesses engaged in oil and gas production and related industries.
In addition to the required licenses, all firms must be registered with
the chamber of commerce in each of the emirates where the business is
licensed to operate. In the U.A.E., chambers are part of the government
and membership is mandatory.
Firms must decide on the purpose of the office it wishes to establish,
as this will determine ownership requirements. For firms conducting
regional marketing or administrative functions, a representational
office, allowing 100 percent ownership, may be best. For firms
conducting offshore services, a branch office, also allowing 100 percent
ownership, is suggested. Establishing an office in any of the free
trade zones available in the U.A.E., regardless of activity, allows 100
percent ownership. While the above options allow maximum ownership,
they restrict activities allowed in the U.A.E. market itself.
For U.S. firms wanting to establish an office to directly conduct
business in this market, U.A.E. law requires a joint venture with U.A.E.
nationals owning a minimum of 51 percent of the venture. Exceptions to
this rule include professional or artisan companies where 100 percent
foreign ownership is permitted.
G. Selling Factors/Techniques:
The commercial tradition of the U.A.E. is that of the middleman or
trader acting as a conduit for goods from large manufacturers to South
Asia, the Gulf, and East Africa. Today, with Dubai as the hub, the
U.A.E. services those markets and North Africa, South Africa, West
Africa, Central Africa, the rest of the Middle East, and the newly
independent states of Central Asia. International trade customs
(predating letters of credit and international bank finances)
traditionally required merchants trusting business associates from other
tribes and ethnic groups with items of value over an extended period of
time and distance, fostering a business style that put a very high
premium on personal relationships and perceptions of integrity. Thus
price and personal relationships are the key determinants in the U.A.E.
market.
Traditional approaches to business are beginning to change. One of these
changes is a more sophisticated understanding of long term value, as
opposed to initial purchase price, takes hold. There is a growing
emphasis on quality, after-sales service, and maintenance requirements
and costs. As traditional one man and family businesses get larger and
more complex there is a layering effect that separates the top echelon
from all but the most important business decisions. The many expatriate
managers of these firms also are not part of this traditional business
world and bring with them more modern concepts of management.
This new trend, of the impersonal businessman/consumer, has changed some
of the business style, but does not yet represent the dominant practice.
Personal relationships, particularly when U.A.E. nationals are involved,
still predominate. Since these relationships take time to nurture, U.S.
firms are advised to invest time in the market with, preferably, a local
presence, or at least very frequent trips. This is not an activity that
can be done long distance. Face-to-face contact is essential. In
addition, U.S. firms should seek a local sponsor, agent, or partner with
sufficient access and influence in those circles most important to that
particular business.
In addition to personal relationships, price remains most often the
dominant buying factor. For U.S. firms selling to traders, which is the
dominant business type in the U.A.E., there is no substitute for price.
Government procurement also places heavy emphasis on selection of the
low bidder, as long as the lowest price bidder is compliant with all
technical specifications.
Even though the U.A.E. is relatively less conservative than other Arab
states and English is widely spoken, sensitivity to local traditions and
Islamic beliefs is essential, and the use of Arabic in packaging and
advertising is both desirable and effective in the marketing of consumer
goods.
H. Advertising and Trade Promotion:
The U.A.E., in particular Dubai, serves as the commercial center for the
region. From late September through May, with the exception of the holy
month of Ramadan, the U.A.E. hosts an almost continuous and growing
series of well attended major trade exhibitions and conferences. U.S.
firms new to this region are advised to consider participation in one of
these shows as an excellent method of market evaluation and initial
penetration.
Advertising plays a significant role in sales promotion. The language
of business is English. Only about 30 percent of the population are
native Arabic speakers from the U.A.E. or other Arab states. The
balance of the population is a mixture of South and East Asian, Iranian,
and European/North American. However, Arabic is the official language
and required for all governmental documentation. In addition, duel
English/Arabic usage is common on signage and for many publications.
English-only promotional literature is acceptable, but those that are in
both English and Arabic have a decided edge as Arabic speakers in key
decision making positions appreciate the extra effort and sensitivity to
their culture that bilingual publications imply. Arabic labeling for
consumer products, especially foodstuffs, is an important advantage in
competitive marketing.
There are two major English language daily newspapers, the Gulf News and
Khaleej Times, and several weekly and monthly English language magazines
that are effective consumer market vehicles. There are also Arabic and
third country language publications available. Radio and television
broadcasts are primarily in English, Arabic, and Hindi. The U.A.E., and
other Gulf states, are Islamic nations and have a different perspective
on certain issues than non-Islamic states. U.S. firms are strongly
urged to consider cultural sensitivities in the preparation of any
promotional activity.
It is important to stress quality since U.S. foods tend to be higher
priced than products from other origins. Gulf consumers recognize the
high quality of U.S. food products and are willing to pay a premium for
such products.
List of Newspapers:
English Newspapers
Gulf News
P.O. Box 6519, Dubai, UAE
Tel. 971-4-447100, Fax. 971-4-441627
Contact Mr. Nihal Kaniera, Senior Editor
Khaleej Times
P.O. Box 11243, Dubai, UAE
Tel. 971-4-382400, Fax. 971-4-382238
Contact: Mr. Nihal Singh, Exec. Editor
Emirates News
P.O. Box 791, Abu Dhabi, UAE
Tel. 971-2-451446, Fax. 971-2-453662
Contact: Mr. Peter Hellyer, Managing Editor
Arabic Newspapers
Al Khaleej
P.O. Box 30, Sharjah, UAE
Tel. 971-6-598777, Fax. 971-6-599336
Contact: Mr. Ghassan Tahboub, Managing Editor
Al Bayan
P.O. Box 2710, Dubai, UAE
Tel. 971-4-444400, Fax. 971-4-447846
Contact: Mr. Khaled Mohammed, Editor
Al Ittihad
P.O. Box 791, Abu Dhabi, UAE
Tel. 971-2-455555, Fax. 971-2-451653
Contact: Mr. Obeid Sultan, Managing Editor
Al Fajer
P.O. Box 505, Abu Dhabi, UAE
Tel. 971-2-478300, Fax. 971-2-478436
Contact: Mr. Obeid Al Mazroui, Chief Editor
I. Pricing Products:
For consumer goods, price is the primary buying factor for the middle
and lower classes. These market segments are served through small
stores and shops in traditional souks, or markets. Retailers in this
category operate under razor thin margins, one to two percent is common,
and rely on volume. Since the population of the U.A.E. is small,
approximately 2.4 million, the volume is supplemented by the over one
million business and tourist visitors that come to the U.A.E. each year.
At the other end of the scale is the very large number of U.A.E.
nationals, expatriate residents, and visitors that have considerable
purchasing power. For this group price is not a primary buying factor
and retail margins are exceptionally high. This segment is serviced
through specialty shops. U.S. exporters must be ready to use price
aggressively to gain market share in order to gain market acceptance of
their products non-price features.
The average importer markup on food products is about 10-15 percent.
Retail food prices are generally 20-30 percent above import/wholesale
prices.
J. Sales Service/Customer Support:
The commercial and industrial markets are also very competitive. For
these markets price is also a key purchase factor, but quality,
durability, and after-sales service are increasingly becoming dominant
determinants for purchases by government and business. The increasing
emphasis on after-sales service favors those products backed by local
distributors with adequate part stocks and routine maintenance
capabilities. The training of qualified maintenance and repair
personnel is a critical marketing factor when catering to the more
sophisticated end of the market.
K. Selling to the Government:
Government buyers are either the federal or emirate governments.
Federal purchases are administered through the respective agency in Abu
Dhabi or Dubai. Purchases by the emirates are arranged by the relevant
local authority, often with the assistance of a federal agency. In most
cases for non-military purchases, government entities will deal only
with firms registered in the U.A.E., or the particular emirate, and will
favor local products over imports. Only when a good or service of
acceptable quality is not available locally will the procurement
authority seek outside sources. It is common for bids not to go out on
a public tender, but are sent to select firms that were prequalified
with the organization in question.
There are two military structures in the U.A.E. operating under the
Ministry of Defense: the national military elements (Army, Air Force,
Navy) reporting to the General Headquarters (GHQ) in Abu Dhabi; and
Dubai's Central Military Command. The federal organization is
significantly larger. Its procurement rules prohibit the use of agents,
and requires the use of offset arrangements for 60 percent of the value
of the contract. The Central Military Command allows, but does not
require, a Dubai-based agent, but there are no offset requirements.
For all types of government procurement and projects, U.S. firms are
encouraged to seek a presence in the U.A.E, and get their
goods/services prequalified to bid. Competition in the public sector is
very strong. Besides some very large military procurement projects,
governments in the U.A.E. are investing heavily in infrastructure
projects such as roads, power generation and distribution systems,
desalination facilities, sewage systems, public housing, recreational
facilities, hospitals and other medical facilities and services,
schools, athletic facilities, refineries and other hydrocarbon
facilities, airports, government buildings, and many other areas. U.S.
goods and services enjoy an outstanding reputation for quality, but,
with the exception of hydrocarbon-related industries, are under-
represented in this market.
L. Protecting Your Product from Copyright Infringement:
The U.A.E. was a major center for the production, sale, and export of
pirated and counterfeit products. However, during the last two years
the U.A.E. government has passed new IPR laws and begun enforcement
actions aimed at reducing or eliminating such practices, and bringing
its IPR regime up to international standards. While there has been
considerable improvement in the overall IPR situation, particularly in
copyright enforcement for audio and video recordings, and to a lessor
but still significant extent for software, there remain important IPR
issues yet to be addressed. This is particularly true in the patent
area, especially for pharmaceuticals. It is significant that the U.A.E.
has joined the General Agreement on Tariffs and Trade (GATT), and wants
to become a member of the World Trade Organization. Membership in the
GATT requires adherence to certain minimum standards of IPR protection,
which should help sustain and expand the initiatives already taken. The
U.A.E. is currently on the U.S. Watch List administered by the U.S.
Special Trade Representative because of its IPR deficiencies. However,
in recognition of its efforts to improve its IPR regime, the U.A.E. will
be the subject of a mid-cycle review in the fall of 1995, the findings
of which could change its Watch List status. U.S. firms wanting to
register their trademarks, copyrights, or patents in the U.A.E. should
contact local legal counsel for assistance.
M. Need for a Local Attorney:
The need for a local attorney will obviously be affected by the size,
complexity, and nature of the business to be conducted. However, there
are some general points that U. S. firms should consider before doing
any type of business in the U.A.E. First, the legal system of the
U.A.E. is very different from that of the U.S. Prior to the modern era,
business was conducted according to the dictates of religious law, The
Sharia, and traditional custom. Codified law based on modern standards
is new and still evolving, as are practices based on the law, such as
court and other legal procedures. Second, where laws appear to govern
certain practices according to commonly accepted principles, terms and
definitions are often at variance with usual interpretations. What the
law says is one thing, what the law means is another thing. Third, the
requirements of licensing, registration, sponsorship, immigration and
labor laws for a workforce almost totally expatriate, the difficulty of
termination of agency agreements, partnership requirements, and the
preferences given to locals in dispute resolution, among other
differences with the U.S. system, argue strongly for U.S. firms to
consult local legal counsel. There are many law firms with experience
in dealing with U.S. clients, and some U.S. attorneys experienced in the
local market.
CHAPTER V: LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
NON AGRICULTURAL:
Part 1. Title Line: Best Prospects- U.A.E.
Rank of sector: 1
Name of sector: Architecture/Construction/Engineering Services
Three-letter ITA Industry sector code: ACE
Part 2. Narrative:
The ACE related services are increasing in Abu Dhabi and Dubai, less so
in the Northern Emirates. The increase is based on UAE government
agencies developing plans for the year 2010. In Abu Dhabi, the
government has allocated US$ one billion for the construction of 1,666
high rise buildings and villas and a new ministries area to house
federal government headquarters. Similarly, in Dubai the ACE related
major projects include Chicago Beach Hotel, which will cost US$327
million for which two U.S. contractors, J.A. Jones Construction and
Turner Steiner are competing and the expansion of Dubai international
airport, valued at US$200 million, for which International Bechtel is
the consultant. U.S. firms such as Alliance Architects, Hellmut, Obata
& Kassabaum, MMM, Turner Construction and J.A. Construction are new
entrants to the UAE market.
Government laws call for preregistration and prequalification.
Strong competition comes from local, European, Korean and Canadian
firms.
In 1994, the U.S. market share was 25 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Mining Engineering Services 300
o Petrochemical engineering services 200
o Energy Conserv/Bldgs: Design/Retro-fit 100
o Designing Engineering 50
Part 3. Data table:
1994 1995 1996
Total market sales 1012 1124 1405
Sales by local firms 251 271 338.7
Sales by local firms 0 0 0
Sales by Foreign owned firms 761 853 1066.25
Sales by US owned firms 250 293 366.25
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market size.
Part 1. Title Line: Best Prospects - U.A.E.
Rank of sector: 2
Name of sector: Defense Industry Equipment
Three-letter ITA Industry sector code: DFN
Part 2. Narrative:
There are two principal entities in the U.A.E. engaged in the
procurement of defense equipment - the General Headquarters of the Army
(GHQ) in Abu Dhabi and the Central Military Command (CMC) in Dubai.
U.S. firms wishing to do business with the UAE Military must register
their interest with the Director General of Purchasing. Only pre-
qualified companies are invited to bid in tenders. Defense equipment,
including the navy and air force, ranges between spare parts for armored
vehicles to communications and fighter planes.
GHQ has plans to purchase Air Defense systems, four frigates, 80 fighter
planes, heavy duty armored trucks and the expansion of its Command
Control and Communication (CCC) project. Currently, Westinghouse is
working on US$300 million contract for the upgrade of its CCC. AT&T was
awarded US$120 million fiber optic project in March of this year.
Major competitors include companies from Russia, U.K. France, Germany,
Italy and Spain.
In 1994, the U.S. market share was 30 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the
estimated 1996 total market size of each:
o Heavy duty armored trucks 350
o CCC Communications 150
o Telecommunication spare parts 70
Part 3 Data table:
1994 1995 1996
Total market size 700 900 1,500
Total local production 0 0 0
Total exports* 0 0 0
Total imports 700 900 1,500
Total imports from U.S. 210 315 450
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market size. All
figures are estimates in millions of USD.
Part 1. Title Line: Best Prospects- U.A.E.
Rank of sector: 3
Name of sector: Oil and Gas-Field Machinery & Services
Three-letter ITA industry sector code: OGM
Part 2. Narrative:
Major oil and gasfield projects are the backbone of Abu Dhabi's economic
program. Recently, the Supreme Petroleum Council approved several major
projects, including the expansion of Ruwais refinery, valued at US$1.5
billion and Ruwais petrochemical complex valued at US$1.5 billion.
Fluor Daniel, Foster Wheeler and MW Kellogg, all U.S. firms were
shortlisted for the Ruwais refinery expansion. Several U.S. firms are
expected to compete for the Petrochemical complex.
Although U.S. suppliers dominate this industry, competitors from Europe
such as B.P, Technip, John Brown Engineering, and Japanese firms
including Mitsui Corp., Chiyoda, and Mitsubishi is intense.
In 1994, the U.S. market share was 48 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Oil/Gas Field Mach/Svcs: Oilfield Eq 300
o Oil/Gas Pipeline Con Eq: Compres/Cntrls 150
o Oil and Gas Pipeline Systems 100
o Oil/Gas Field Mach/Svcs: Chemicals 60
Part 3. Data table:
1994 1995 1996
Total market size 539 590 708
Total local production 0 0 0
Total exports* 36 40 25
Total imports 575 630 733
Total imports from U.S. 259 285 342
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
NOTE: Reexports indicated where total imports exceed market
size. All figures are estimates in millions of USD.
Part 1. Title Line: Best Prospects - UAE
Rank of Sector: 4
Name of Sector: Construction Equipment
ITA Industry Code: CON
Part 2. Narrative:
The construction industry is one of the most active sectors of the UAE
economy. The government has earmarked two billion dollars for the
construction of new infrastructure projects and government, commercial,
and residential buildings in 1995. In addition, new investment by the
private sector for commercial and residential construction during 1995
is expected to reach one billion dollars.
Industry sources are confident that the upward trend in the construction
industry will continue during the next three years. Thus additional
construction equipment will be in demand to support this high level of
construction activity in the UAE.
All construction equipment needs are met through imports. U.S. market
share is expected to increase during the next three years. Market
sources related in growth directly to prices as a result of the
appreciation of the Japanese Yen against the dollar. In addition, U.S.
manufacturers and exporters enjoy an excellent reputation for product
quality and durability.
The most promising subsector within this sector, with the estimated 1996
total market size of each:
O Heavy Construction Machinery 113.8
O Road Construction Machinery 99.4
O Earth Moving Machinery 89.2
Part 3. Data table:
1994 1995 1996
A: Total Market Size 272.9 317.9 356.4
B: Total Local Production 0 0 0
C: Total Exports* 106.2 123.6 138.5
D: Total Imports 379.1 441.5 494.9
E: Imports From U.S.A. 156.8 184.4 213.8
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
POTENTIAL GROWTH FOR U.S. EXPORTS IS 17 %
Part 1. Title Line: Best Prospects - UAE
Rank of Sector: 5
Name of Sector: Building Products
ITA Industry Code: BLD
Part 2. Narrative:
The UAE import of building products is influenced largely by the level
of construction activities. Local market demand for building products
is growing rapidly as public and private sectors are floating tenders
for the construction of diversified commercial residential and
institutional buildings. Local importers and distributors of building
products indicated that U.S. manufacturers/suppliers have an excellent
reputation for supplying quality-engineered products and foresee an
increase in the U.S. market share. The primary reason for this expected
growth is due to the satisfaction among end-users with the quality of
the U.S. building products. There are no significant trade barriers to
the importation and sale of building products in the UAE. Custom duties
are four percent.
The most promising subsector within this sector, with the estimated 1996
total market size of each:
o Wood & Wood Products 184.2
o Architectural Glass 146.7
o Electrical Products 132.4
o Ceramic Products 122.1
o Plumbing Products 63.4
Part 3. Data Table:
1994 1995 1996
A: Total Market Size 998.9 1,175.9 1,380.1
B: Total Local Production 165.4 183.2 208.8
C: Total Exports* 213.6 263.8 311.3
D: Total Imports 1,047.1 1,256.5 1,482.6
E: Imports From U.S.A. 125.6 150.8 177.9
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
POTENTIAL GROWTH FOR U.S. EXPORTS IS 20 %
Part 1. Title Line: Best Prospects - U.A.E.
Rank of sector: 6
Name of sector: Water Resources Equipment
Three-letter ITA industry sector code: WRE
Part 2: Narrative:
U.A.E. imports of water resources equipment in 1994 amounted to US$470
million. The water desalination equipment segment alone amounted to
US$376 million. The Government has allocated US$1.5 billion for the
development of its power and water desalination capacity during 1995/6.
Among the largest projects planned
is the final phase "C" of the Abu Dhabi Taweelah Power/Water
Desalination plant calling for the addition of power generation of 400
MW and water desalination production capacity of 40 mgpd. Taweelah "C"
is reported to be planned for implementation in 1996. Demand for water
has been growing at a rate of 20 percent per annum. More than 20
percent of water is used for irrigation and agricultural purposes.
U.S. companies face tough competition from French, Italian, British,
German and Japanese companies.
In 1994, the U.S. market share was 21 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Desalination equipment 385
o Irrigation Equipment 75
o Water supply/Dist. systems 100
Part 3. Data table:
1994 1995 1996
Total market size 422 509 555
Total local production 0 0 0
Total exports* 48 51 55
Total imports 470 560 610
Total imports from U.S. 99 151 157
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market
size. All figures are estimates in millions of U.S.
dollars.
Part 1. Title Line: Best Prospects - UAE
Rank of Sector: 7
Name of Sector: Airconditioning & Refrigeration
ITA Industry Code: ACR
Part 2. Narrative:
The combination of booming construction sector, high population growth
and harsh climatic conditions make the UAE excellent market for
airconditioning and refrigeration equipment. Total new investment by
the private sector alone in office/residential construction during 1995
is expected to reach one billion dollars.
The United States and Japan together supply over 50 percent of the UAE
import market. During 1994, the United States became a leading supplier
of airconditioning and refrigeration equipment to the UAE. The key
factor that boosted the demand for U.S. made products in 1994 is the
relatively weak position of the U.S. Dollar against the Japanese Yen.
Use of CFC (Chlorinated Fluor Carbon) is not prohibited but there is a
tendency to replace it by non hazardous chemicals that will not affect
the ozone layer in the atmosphere.
The most promising subsector within this sector, with the estimated 1996
total market size of each:
o Central Airconditioning 95
o Window Airconditioning 59
o Mini Split Airconditioning 61
o Cold Storage Equipment 60
Part 3. Data table:
1994 1995 1996
A: Total Market Size 215 247 282
B: Total Local Production 11 12 14
C: Total Exports* 52 60 68
D: Total Imports 256 295 336
E: Imports From U.S.A. 82 106 135
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
POTENTIAL GROWTH FOR U.S. EXPORTS IS 28 %
Part 1. Title Line: Best Prospects - UAE
Rank of Sector: 8
Name of Sector: Computers/Peripherals
ITA Industry Code: CPT
Part 2. Narrative:
Computer utilization is on the rise with current computer users moving
towards upgraded and higher capacity computers. Government offices and
businesses are shifting from mainframes to more flexible, faster and
cheaper micro computers or personal computers in networking
environments.
The current price war in the computer industry in the U.A.E. have made
computers of U.S. origin more affordable; and making it more attractive
to persons who wish to buy quality products. In 1994 U.S. market share
rose to 46 percent against 35 percent in 1993. U.S. computer
manufacturers are looked upon as market leaders and will maintain their
edge to the extent that they continue to be able to introduce state-of-
the-art technology and products at competitive prices. Major
competitors are Japan, U.K., Netherlands, Taiwan and Singapore.
It is estimated that re-exports to Iran for computers/peripherals will
increase due to U.S. sanctions in place.
There are no regulatory/demand issues impacting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Personal Computers 70
o Workstations 45
o Computer Monitors 40
o Printers, computer 38
o LAN equipment 34
o Modems 23
Part 3. Data table:
1994 1995 1996
A. Total Market Size 164 203 251
B. Total Local Production 0 0 0
C. Total Exports* 66 73 80
D. Total Imports 230 276 331
E. Imports from the U.S. 75 90 110
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
Potential Growth for U.S. = 41%
Part One. Title Line: Best Prospects- U.A.E.
Rank of Sector: 9
Name of sector: Telecommunications Equipment
Three-letter ITA Industry sector code: TEL
Part 2. Narrative:
ETISALAT is the local PTT of the UAE. During the next two years,
ETISALAT plans to invest an average of US$300 million per year in the
procurement & expansion of telecommunication services. In addition they
have appointed a German consultant to prepare a feasibility study for
the purchase of two satellites. The project is expected to cost US$250-
300 million.
Other end users include Abu Dhabi National Oil Company (ADNOC), Dubai
Petroleum Company, Ministry of Interior and the UAE Armed Forces/GHQ.
ADNOC's subsidiary ZADCO awarded Societech of France a US$70 million
telemetry/SCADA contract this year. Similarly, Westinghouse, AT&T,
Northern Telecomm are competing with Marconi/Plessey, British Telecom
and Alcatel for large communication projects in the UAE Armed Forces.
U.S. companies face strong competition from Japanese, British and French
companies.
In 1994, the U.S. market share was 13 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Satellite Telecommunications Equipment 300
o Fiber optic transmission equipment 100
o Telephone switching systems 80
o Local Area Networks 50
o Telecommunications: ISDN Equipment 50
o Teleconferencing Equipment 20
Part 3. Data Table:
1994 1995 1996
Total market size 401 441 535
Total local production 0 0 0
Total exports* 128 141 155
Total imports 529 582 690
Total imports from U.S. 45 50 90
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
All figures are estimates in millions of U.S. dollars.
*NOTE: Reexports indicated where total imports exceed market
size.
Part One. Title Line: Best Prospects- U.A.E.
Rank of sector: 10
Name of sector: Electric Power Systems
Three-letter ITA Industry sector code: ELP
Part 2. Narrative:
U.A.E. power demand is projected to increase to 6,900 MW by 1999, up
sharply from 4,200 MW in 1994. Electricity consumption is rising 15-20
percent annually. Existing expansion plans include the expansion of
Taweelah "A", the final phase "C" of the Abu Dhabi Taweelah Power/Water
Desalination plant calling for the addition of power generation of 400
MW and water desalination production capacity of 40 mgpd. Taweelah "C"
is reported to be planned for implementation in 1996. Dubai Electricity
and Water Authority has plans to construct a 600MW power station at Al-
Awir. Bid deadline for this US$272 million project is mid-July 1995.
Early this year, the Federal Ministry of Electricity and Water awarded
two separate turbine contracts, to General Electric for US$60 million &
European Gas Turbine (EGT) for US$30 million, both of which will supply
seven gas turbines to produce 210 MW of power. Kuljian Corporation is
presently drawing up a 25 year study of water and electricity needs for
the northern emirates, where power and water shortages are most acute.
Similarly, International Bechtel is studying water and electricity
demand for the Emirate of Abu Dhabi, until the year 2010.
Major competitors include ABB, Siemens, Ansaldo, Mitsubishi, John Brown,
and Nuova Pignoni.
In 1994, the U.S. market share was 13.6 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the
estimated 1996 total market size of each:
o Electrical generating equipment/turbines 313
o Electrical distribution & transmission equipment 67
o Electrical power distribution 63
Part 3. Data Table:
1994 1995 1996
Total market size 360 396 475
Total local production 0
Total exports*
Total imports 407 449 535
Total imports from U.S. 49 54 90
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market size. All
figures are estimates in millions of USD.
Part 1. Title Line: Best Prospects - U.A.E.
Rank of Sector: 11
Name of Sector: Automotive Parts and Service Equipment
ITA Industry Code: APS
Part 2. Narrative:
With per capita income among the highest in the world, the automotive
sector has traditionally fared well in this small but lucrative market.
U.S. cars are increasing market share due to more favorable exchange
rates vis-a-vis Japan and Germany. Most well known brand names are
already represented in this highly competitive market. Local companies
are increasingly interested in joint ventures/licensing agreements to
manufacture in the U.A.E. items such as spark plugs, shock absorbers,
air/oil/fuel filters etc. for the regional market. SRF Limited, India
is currently setting up a tire cord factory with an investment level of
US$27 million in the Jebel Ali Free Zone. Trial runs are scheduled for
November 1995 with exports to India initially, with the objective of
ultimately entering other markets. U.S. market share for 1994 was 14
percent. It is estimated that re-exports to Iran for automotive parts
and service equipment will increase due to U.S. sanctions in place on
June 5, 1995.
There are no regulatory/demand issues impacting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Automotive Engine Parts 153
o Automotive Repair Maintenance Equipment 46
o Automotive Accessories 41
o Motor Vehicles H/V/A/C Equipment 23
o Automotive Electronic Parts 15
Part 3. Data Table:
1994 1995 1996
A. Total Market Size 267 295 327
B. Total Local Production 0 0 0
C. Total Exports* 119 137 157
D. Total Imports 386 432 484
E. Imports from the U.S. 38 42 46
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market
size.
Potential Growth for US = 8%
Part One. Title Line: Best Prospects- U.A.E.
Rank of sector: 12
Name of sector: Security & Safety Equipment
Three-letter ITA industry sector code: SEC
Part 2. Narrative:
With the allocation of Abu Dhabi government of US$ one billion in the
construction area together with a new ministries area to house federal
government headquarters, there is a very good market for safety and
security equipment. Similarly, the development of additional hotels by
Dubai's Commerce and Tourism Promotion Board should present
opportunities for access control and fire and smoke detection equipment.
There are 58 banks operating in the UAE. Most offer ATM services and
are required by the UAE Central Bank to provide maximum security alert
equipment. The UAE Government is serious to provide safeguards to its
industrial installations, airports, petrochemical plants, industrial
zones and marine surveillance. Opportunities in this field alone
represent more than US$15 million annually.
In 1994, the U.S. market share was 24 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Alarms & other detection apparatus 25
o Industrial Security Equipment 25
o Electronic Surveillance/Access control Eq. 15
o Banking Automation & Security Systems 10
o Hotel Security systems 5
Part 3. Data Table:
1994 1995 1996
Total market size 135 149 160
Total local production 0 0 0
Total exports* 26 28 32
Total imports 161 177 192
Total imports from U.S. 38 42 46
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market
size.
Part 1. Title Line: Best Prospects - U.A.E.
Rank of Sector: 13
Name of Sector: Cosmetics/Toiletries
ITA Industry Code: COS
Part 2. Narrative
Innovative new product formulations and increased promotional activity
characterize this highly competitive market. Opportunity for further
development and expansion exist especially for hypo-allergenic and
therapeutic skin care products. Demographic trends indicate an ageing
population which offers potential further growth for anti-ageing
products. U.S. market share for the U.A.E. is 15 percent. U.S.
companies offering natural cosmetic/toiletry products comparable to the
Body Shop, U.K. have excellent potential in the U.A.E.
Market share for U.S. and competitor countries for total imports into
the U.A.E. are: U.S. 11%; France 28%; U.K. 16%; Germany 6%; Italy 3% and
Spain 2%.
Cosmetic creams which offer recuperative or restorative skin care must
be approved by the Ministry of Health before market entry into the
U.A.E.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Cosmetics 69
o Perfumes 58
o Skin Care Products 41
o Haircare Products 35
o Cosmetics & Toiletries - Men 29
Part 3. Data Table:
1994 1995 1996
A. Total Market Size 202 228 256
B. Total Local Production 16 18 19
C. Total Exports* 88 97 107
D. Total Imports 274 307 344
E. Imports from the U.S. 30 35 40
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market
size.
Potential Growth for U.S. = 18%
Part 1. Title Line: Best Prospects - U.A.E.
Rank of Sector: 14
Name of Sector: Franchising
ITA Industry Code: FRA
Part 2. Narrative:
It is increasingly being recognized in the U.A.E. that in most instances
franchise operations is a relatively safe and profitable business
concept with fewer risks than traditional distribution/retail practices.
U.A.E. investors seek successful, efficient, and reliable franchises to
develop. Although many major franchise operations are already in the
U.A.E., this sector is still underdeveloped relative to potential
demand. Industry experts expect the number of franchise operations to
grow at a rate in excess of 20 percent over the next few years. The
U.S. enjoys an excellent reputation for the variety, quality, and name
recognition of its franchises. U.S. franchising companies are advised
to seriously consider entry into the U.A.E. and assess the market
potential for their particular type of operations. It is estimated that
U.S. market share was 57 percent for 1994.
Franchisors in the food industry should ensure that all packaging of
their food products is as required under U.A.E law. There are no
regulatory/demand issues impacting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Franchising: Soft drinks 60
o Franchising: Fast Food 80
o Franchising: Automotive 43
o Business to Business Services 12
Part 3. Data Table:
1994 1995 1996
A. Total Market Size 156 181 208
B. Total Local Production 14 15 15
C. Total Exports* 0 0 0
D. Total Imports 142 166 193
E. Imports from the U.S. 47 86 105
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market
size.
Potential Growth for U.S. = 18%
Part One. Title Line: Best Prospects - U.A.E.
Rank of Sector: 15
Name of sector: Medical Equipment
Three-letter ITA industry sector code: MED
Part 2. Narrative:
Comments: The Ministry of Health's budget for 1996 is estimated at $600
million. During the next two years, approximately $400 million will be
spent on construction and procurement of equipment for several clinics
and hospitals. New projects include a 150 bed psychiatry and Neurology
hospital and narcotics prevention center; the extension of the present
Corniche hospital to 480 bed pediatric hospital; 20 VIP wings at Medina
Zayed hospital; rehabilitation hospital in Abu Dhabi; a 200 bed general
hospital in Ajman and a 150 bed hospital in Dubai (Al Barahq hospital).
Major imports from the U.S. continues to be diagnostic, therapeutic and
patient monitoring equipment as they are perceived as sources of new and
high technology.
The U.K., and Germany are the major competitors.
In 1994, the U.S. market share was 20 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each:
o Diagnostic eq: CAT/MRI/Radiology 30
o Disposable medical products 25
o Patient Monitoring Systems/Apparatus 7
o Physiotherapy Equipment 7
o Anesthesia and Resuscitation Equipment 5
Part 3. Data Table
1994 1995 1996
Total market size 87 94 100.5
Total local production 0 0 0
Total exports* 9 10 11
Total imports 78 84 89.5
Total imports from U.S. 17 19.3 22
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
*NOTE: Reexports indicated where total imports exceed market
size. All figures are estimates in millions of USD.
Part 1. Title Line: Best Prospects - U.A.E.
Rank of sector: 16
Name of sector: Airport/Ground Support Equipment
Three-letter ITA industry sector code: AVG
Part 2. Narrative:
There are six international airports and two military bases in United
Arab Emirates. Some of these airports are planned for expansion during
1995/1998. Abu Dhabi Public Works Department (PWD) has prequalifed
turnkey contractors for the construction of an additional runway at Abu
Dhabi International Airport and construction of a VIP lounge and three
hangers for Amiri (Royal) Flights Directorate. These projects in Abu
Dhabi will cost well over US$150 million. The winning contractor will be
responsible for supplying the necessary airport ground support
equipment.
Dubai's Civil Aviation Department has selected Int'l Bechtel, Inc. of
the U.S. as consultant for the construction of new passenger terminal
building to accommodate 22 aircraft. Contractors for this US$100
million project are expected to be invited to bid by end of 1995 or
early 1996. Other plans in Dubai include construction of a new airport
in Dubai to support bi-annual Dubai Airshow event, and construction of
an 82/78 meters hanger to house Royal Flight B-747 at a cost of US$ 110
million.
In 1994, the U.S. market share was 24 percent.
There are no regulatory/demand issues affecting the market.
The most promising subsectors within this sector, with the estimated
1996 total market size of each.
Airport Control Systems 18
Airport Ground Support Equipment 11
Commercial Maintenance 13
Part 3. Data Table:
1994 1995 1996
Total market size 23 37 45
Total local production 0 0 0
Total exports* 5 4 7
Total imports 28 41 52
Total imports from U.S. 7 13 19
The above statistics are unofficial estimates.
Exchange rates used US$ 3.671
Part 1. Title Line: Best Prospects - U.A.E.
Rank of Sector: 17
Name of Sector: Pollution Control
ITA Industry Code: POL
Part 2. Narrative:
Although the environmental control industry is only at its infancy,
protection of the local environment has drawn the attention of various
UAE government authorities. In 1993, the UAE formed the new Federal
Environmental Agency (FEA). It will have the power to draft, carry out
studies and propose general environmental policies in the country.
The principal areas of pollution which are of most concern in the UAE
are the inadequate handling and recycling of solid waste, treatment of
hazardous waste, and upgrading the standards of governmental hospital
incinerators. In addition the UAE is facing problems with the
salination and fast depletion of its underground water supplies.
Therefore, the government has been focusing on reusing sewage water for
irrigation to meet increasing demand for water. Priority has been given
to sewage and rain water drainage projects and landfills that use modern
technology.
U.S. Manufacturers of pollution control equipment have competitive
advantages over third-country suppliers in the UAE market since their
equipment is designed to meet U.S. EPA requirements which are accepted
internationally.
UAE firms will allocate substantial funds to purchase pollution control
equipment as the new Federal Environmental Agency starts enforcing new
legislative requirements for the protection of the UAE environment.
The most promising subsector within this sector, with the estimated 1996
total market size of each:
o Solid waste management equipment 33
o Water treatment 16
o Air pollution control/measuring equipment 15
Part 3. Data Table:
1994 1995 1996
A: Total Market Size 56 60 65
B: Total Local Production 0 0 0
C: Total Exports* 7 8 9
D: Total Imports 63 68 74
E: Imports From U.S.A. 24 27 31
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
POTENTIAL GROWTH FOR U.S. EXPORTS IS 14 %
Part 1. Title Line: Best Prospects - U.A.E.
Rank of Sector: 18
Name of Sector: Hotel and Restaurant Equipment
ITA Industry Code: HTL
Part 2. Narrative:
Plentiful sunshine, great low cost shopping, beaches, tennis, golf and
water sports and personal safety are key elements that have earned Dubai
a growing reputation as one of the world's most rapidly developing
leisure destinations.
The fast growth in tourism is boosting construction of hotels and
leisure facilities, including a new island and offshore leisure complex
and several large theme parks. An ambitious project to reclaim 500
hectares at The entrance of Dubai Creek, estimated to cost over USD 500
million, is under consideration. A new tourism development project in
Dubai to build a 200 room hotel on a reclaimed island off Chicago Beach
Hotel is currently under construction. Total estimated cost of the
project is well over USD 400 million. There are four other luxury
resort hotels in the construction phase. The Oberoi Hotel group are
currently negotiating to build and operate two major hotel complexes in
Dubai.
The most promising subsector within this sector, with the estimated 1996
total market size of each:
o Food Preparation Equipment 65
o Restaurant Equipment 41
o Laundry Equipment 6
o Vending Machines 2
Part 3. Data Table:
1994 1995 1996
A: Total Market Size 98 107 118
B: Total Local Production 0 0 0
C: Total Exports* 27 30 33
D: Total Imports 125 137 151
E: Imports From U.S.A. 12 13 15
Exchange Rate: USD 1 = Dhs. 3.673
The above statistics are unofficial estimates in millions of U.S.
dollars.
*NOTE: Reexports indicated where total imports exceed market size.
POTENTIAL GROWTH FOR U.S. EXPORTS IS 15%
Best Agricultural Prospects:
Name of Sector: Dairy, Livestock and Poultry
PS&D Commodity Heading: Table Eggs
Comments: Within the past few years, the United States has become the
UAE's leading egg supplier. Demand for U.S. eggs is expected to remain
strong due to their high quality and competitive price. Holland and
Saudi Arabia are main competitors. Local egg production remains limited
due to harsh environmental conditions and high production costs. A
reduction in the shelf life of table eggs to three months has caused
concern for some U.S. suppliers.
Data Table:
1994 1995 1996
(million dozen)
A. Total Market Size 32 34 36
B. Total Local Production 18 19 20
C. Total Re-exports 14 15 17
D. Total Imports 20 30 33
E. Total Imports from U.S. 1/ 14 15 16
1/ Assumes continuation of Export Enhancement Program.
Name of Sector: Dairy, Livestock and Poultry
PS&D Commodity Heading: Poultry Meat
Comments: Demand for U.S. frozen poultry, particularly parts is strong
due to high product quality, competitive prices and packaging
improvements. Most U.S. whole birds are sold to caterers and other
institutional end users while most parts are sold to the retail sector.
Brazil, Denmark and France are major competitors. Local production is
marketed as fresh at premium prices and does not compete directly with
frozen imports. Two pound trays are the market standard for parts; 900-
1,200 grams are the most popular whole bird sizes.
Data Table:
1994 1995 1996
(1,000 MT)
A. Total Market Size 65 66 68
B. Total Local Production 18 19 20
C. Total Re-exports 36 41 44
D. Total Imports 83 88 92
E. Total Imports from U.S. 1/ 12 15 18
1/ Assumes continuation of Export Enhancement Program
Name of Sector: Horticultural and Tropical Products
PS&D Commodity Heading: Apples, Fresh
Comments: U.S. origin apples are very popular in the UAE because of
their high quality. Demand from institutional end users is particularly
strong. Iran is currently the principal supplier of apples (mostly
golden) to the UAE. Chile, France, Turkey and Lebanon are other major
suppliers. Due to improvements in shipping and storage technology, U.S.
origin apples are available in the local market virtually year round.
Data Table:
1994 1995 1996
(1,000 MT)
A. Total Market Size 40 44 50
B. Total Local Production 0 0 0
C. Total Re-exports 50 56 60
D. Total Imports 90 100 110
E. Total Imports from U.S. 11 14 16
CHAPTER VI. TRADE REGULATIONS AND STANDARDS
Trade Barriers, Including Tariffs, Non-Tariff Barriers, and Import Taxes
Tariffs in the UAE were raised in 1994 from one percent to four percent.
However, over 75 percent of imports still enter duty free. Each emirate
operates its own customs authority, but tariffs and general policies are
coordinated through a national committee. Only firms with the
appropriate trade license can engage in importation. Documentation
requirements follow international standards and delays in custom
clearance have been infrequent. The competition for business between
the port facilities of the different emirates has kept user rates to a
minimum and put a premium on services. There are no duties on exports.
For religious and security reasons, there are various restrictions on
import of alcohol, tobacco, firearms, and pork products.
The UAE maintains non-tariff barriers to trade and investment, in the
form of restrictive agency/sponsorship/distributorship requirements and
there is still a lack of adequate intellectual property rights
protection.
In order to do business in the UAE outside of one of the free zones (see
below), a foreign business must have a UAE national sponsor, agent, or
distributor. Once chosen, sponsors, agents, or distributors have
exclusive rights. They cannot be replaced without their agreement.
Government tendering is not conducted according to generally accepted
international standards. Retendering is the norm, often as many as
three or four times. To bid on federal projects, a supplier or
contractor must either be a UAE national or a company in which at least
51 percent of the share capital is owned by UAE nationals. Federal
tenders are required to be accompanied by a bid bond in the form of an
unconditional bank guarantee for five percent of the value of the bid.
The UAE has no requirement that a portion of any government tender be
subcontracted to local firms. There is a ten percent price preference
on procurement and tenders. The UAE requires a company to be registered
in order to be invited to receive government tender documents. To be
registered, a company must have 51 percent UAE ownership. However,
these rules do not apply on major project awards or defense contracts,
where there is no local company able to provide the goods or services
required.
In 1992, the UAE passed three laws protecting intellectual property: a
copyright law, a trademark law, and a patent law. Implementation of the
copyright law began in September 1994. As a result, pirate versions of
western audio and video tapes are no longer present in the market.
Unfortunately, legitimate versions of western video tapes are also
largely absent from the market, as producers have hesitated to fill the
vacuum left by the pirates.
In April 1995, the United States Trade Representative announced that he
would maintain the UAE on the Special 301 Watch List for a fifth year.
He cited incomplete enforcement of software copyrights and inadequate
patent protection, particularly in the area of pharmaceuticals, as the
reasons.
As of July 1995, the UAE had not joined the World Trade Organization
(WTO). The UAE had reached agreement with the other GATT contracting
parties on its services schedule, but not on its market access schedule
for goods. An April 26 deadline was missed, and it was apparent that
the process could last into the fall at least. The three UAE IPR laws
do not conform with GATT TRIPS standards. The UAE is not a member of
any international IPR convention. It is a member of the World
Intellectual Property Organization (WIPO), and has hosted WIPO IPR
seminars.
Agricultural Trade Barriers
The UAE Currently levies a four percent import duty on all processed
food products from non-GCC countries. Bulk agricultural commodities and
semi-processed food products are exempt from the duty. In May 1995, UAE
officials announced that the duty on processed food products would be
eliminated, possibly as soon as July 1, 1995.
Customs Valuation:
Maximum duty in the UAE is 4 percent for most goods, with duties of from
25 to 50 percent levied on alcohol and tobacco products. Many essential
items, including foodstuffs and pharmaceuticals, are allowed duty free
status.
Import Licenses:
All imported beef and poultry products require a health certificate from
the country of origin and a halal slaughter certificate issued by an
approved Islamic center in the country of origin.
Export Controls:
All goods exported or reexported from the UAE must have proper
documentation issued by the Ministry of Economy and Commerce and the
various Chambers of Commerce in the respective individual emirates. U.S.
firms seeking to export or reexport goods from the UAE should consult
the appropriate legal authorities for specific guidelines.
Import/Export Documentation:
Standard trade documentation, including certificates of origin, bills of
lading and various government/embassy attestations must be presented for
all imports and exports. A Guide to Doing Business in the UAE which
details documentation requirements is available from all U.S. Department
of Commerce District Offices, the Department in Washington, and the U.S.
Commercial Offices in Abu Dhabi and Dubai.
Temporary Entry:
Goods may be imported duty free and stored in any of several free zones
in the UAE. Goods which enter the UAE from these free zones must pay
the (minimal) duty noted previously. There is no provision for duty
free entry of parts or components which are intended for manufacture of
products which are subsequently exported. In practice, as duties are
already so low, this has not been a major impediment to manufacturing
industries in the UAE.
Labeling
Food labels must contain product and brand names, production and expiry
dates, country of origin, name of the manufacturer, net weight in metric
units, and a list of ingredients and additives in descending order of
importance. All fats and oils used as ingredients must be specifically
identified on the label. Regulations require that labels be in Arabic
or Arabic/English, but English only labels are currently permitted.
Prohibited Imports
Irradiated food products are prohibited. Imports of alcohol and pork
products are strictly regulated.
Standards:
The UAE currently has no central standards authority. However, both the
national and emirate governments, as well as professional associations
are reviewing standards requirements. This is particularly true for the
construction industry. Currently, government agencies and private firms
stipulate the standards required on a project-by-project basis. This
allows for a wide range of acceptable product performance, makes health
and safety monitoring difficult, and permits the use of low quality
products and manipulation of tender specifications. A UAE company first
qualified for ISO 9000 certification in 1993. Since then, more have
received the designation, and the EU is funding a standards center in
the UAE to implement ISO 9000 certification.
Free Trade Zones
There are at present three free zones operating in the UAE and three
more are planned. Since UAE tariffs are low and are not levied against
most imports, the chief attraction of the free zones is the waiver of
the requirement for majority local ownership. In the free zones,
foreigners may own up to 100 percent of the equity in an enterprise.
The largest and most successful of the free zones is the Jebel Ali Free
Zone (JAFZ) in Dubai. Each free zone offers special incentives to
attract tenants, such as no taxation for many years, subsidized energy
rates, and full repatriation of capital and profits. In addition, for a
nominal fee the zone authorities provide significant support services,
such as sponsorship, worker housing, dining facilities, recruitment, and
security.
Within the JAFZ, three types of licenses are issued. The licenses are
valid while a company holds a current lease from the free zone authority
and are renewable annually as long as the lease is in force. They are
the general license, the special license, and the national industrial
license. The special license is issued to companies incorporated, or
otherwise legally established, within the free zone or outside the UAE.
In such cases, no other license is required, and the ownership of the
company may be 100 percent foreign. The license is issued for any
activity permitted by the free zone authority, including manufacturing.
A company with a special license can operate only in the Jebel Ali Free
Zone or outside the United Arab Emirates, but business can be undertaken
and sales made in the UAE through or to a company holding a valid Dubai
Economic Department license. However, a company with a special license
can, itself, purchase goods or services from within the UAE.
Membership in Free Trade Arrangements:
The UAE is a member of the Gulf Cooperation Council (GCC). In 1981, the
GCC issued the Unified Economic Agreement, a plan for complete economic
integration among the six member states (Saudi Arabia, Kuwait, the UAE,
Bahrain, Qatar, and Oman). In practice, the provisions of this
agreement have not all been implemented.
Under the agreement, all agricultural, animal, industrial, and natural
resource products from member states are exempt from duties and other
charges when traded among member states. To qualify as a GCC national
product, the value added in a GCC member state must not be less than 40
percent of the final value, and produced kin a factory with at least 51
percent local ownership, unless 100 percent is owned by GCC nationals,
and licensed by the respective ministry of finance and industry. All
intra-GCC shipments claiming this exemption must be accompanied by a
duly authenticated certificate of origin.
The GCC has been conducting talks with the European Community on the
subject of establishing a free trade agreement between the respective
blocks for a number of years, but so far with little progress. The GCC
also conducts economic dialogues with Japan and the U.S.
CHAPTER VII. INVESTMENT CLIMATE
Openness to Foreign Investment
The regulatory and legal framework favors local over foreign investors.
There is no national treatment for investors in the UAE. Except for
companies located in the free zones, at least 51 percent of a business
establishment must be owned by a UAE national. A business engaged in
importing and distributing a product must be either a 100 percent UAE
owned agency/distributorship or a 51 percent (UAE) - 49 percent
(foreign) limited liability company (LLC). Subsidies for manufacturing
firms are only available to those with at least a 51 percent local
ownership. Foreigners cannot own land or buy stocks.
Most of the infrastructure described in section IV above and the most
productive areas of the economy are in government hands. No new
upstream investment in the oil and gas sector is being accepted by Abu
Dhabi authorities, although this is the sector in which there is the
most interest on the part of potential foreign investors. Similarly,
private investment in power generation is not permitted in the UAE.
Ninety percent of residential and commercial construction in Abu Dhabi
is funded by the emirate government. Severe restrictions on land
ownership and transfer of land exist in Abu Dhabi and Dubai.
There is no privatization program in operation in the UAE. Although the
authorities have discussed the possibility of offering shares (to UAE
nationals only) in five businesses owned by the Abu Dhabi General
Industries corporation (GIC), a bank partly owned by the federal
Ministry of Finance, a poultry and dairy farm owned by Abu Dhabi
emirate, and a retail gasoline distribution chain owned by the federal
Ministry of Finance, as of June 1995, none of these entities had been
privatized. The authorities first developed a plan to establish a stock
market in the early 1980's, as of June 1995, none had been established,
although the Central Bank drafted a second plan for one in 1994.
The Abu Dhabi authorities in the late 1980's instituted an offset
program. Under it, defense sales contractors are required to invest an
amount equal to 60 percent of their contract in the UAE. The terms of
investment and amount are subject to negotiation with the UAE offset
office, which must approve each investment project. The projects must
show a profit after seven years. The contractor may not own more than
49 percent of the project. The remaining 51 percent must be held by UAE
nationals. By July 1995, the program had resulted in 22 projects, and
it was not clear whether they would show the required profit.
Meanwhile, a large backlog of offset obligations has accumulated, as the
UAE armed forces continues to make purchases. Principal problems
associated with the program are a dearth of investment opportunities,
with so much of the economy off limits to private foreign investment,
difficulty in finding UAE national partners for the majority 51 percent,
and difficulty in obtaining cooperation from emirate and federal
bureaucracies for required permits, licenses, and other documentation
needed to establish any new project.
Foreign banks are required to pay a 20 percent income tax, although
there is room to negotiate the actual payment of the tax. Domestic
banks pay no income tax. No other foreign companies pay income taxes to
the UAE government. Neither foreign nor UAE nationals pay individual
income or property taxes in the UAE.
There are no significant government financed and/or subsidized
industrial research and development programs in the UAE.
Visas, residence permits, and work permits are required of all
foreigners in the UAE. U.S. citizens receive ten year, multiple entry
visas, authorizing stay up to six months per entry, with the possibility
of a six month extension.
Conversion and Transfer Policies
There are no restrictions on the transfer of funds into or out of the
UAE, except that the currency of Israel may not be bought or sold in the
UAE. All other currencies are traded freely at market determined rates.
No license is required to change money. The UAE dirham has been pegged
to the dollar at 3.671 dirhams per dollar since 1980. At present, there
is a divergence of about 2.0 percentage points or more in U.S. and UAE
inflation rates. Despite this, the authorities are under no pressure to
adjust the peg.
Expropriation and Compensation
There have not been any expropriations in the UAE involving foreigners.
There are no set rules governing compensation were expropriation to
occur, and individual emirates would treat this, as so many other
matters, differently. In practice, authorities in the UAE would not
expropriate unless there were a compelling developmental or public
interest need to do so, and in such cases compensation would be
generous.
Dispute Settlement
There have been no significant investment disputes over the past few
years involving U.S. or other foreign investors, but there have been
several contractor disputes in the UAE. Most disputes have eventually
been satisfactorily handled through arbitration. However, dispute
resolution can be difficult and uncertain. Arbitration may commence by
petition to the federal courts on the basis of mutual consent, a written
arbitration agreement, independently by nomination of arbitrators, or
through a referral to an appointing authority without recourse to
judicial proceedings. Enforcing judgments has not always been easy.
The UAE is a member of the international center for the settlement of
investment disputes.
In 1993 the Abu Dhabi Chamber of Commerce and Industry formed the Abu
Dhabi Commercial Conciliation and Arbitration Center in an effort to
accelerate commercial dispute resolution. The center is chaired by the
president of the chamber, and the president of the chamber's customs and
arbitration committee acts as the center's general secretary. The
center has jurisdiction to conciliate or arbitrate commercial disputes.
The center's executive regulations govern its conciliation and
arbitration procedure. Referral by two adverse parties of a dispute to
the center entails the parties acceptance of the finality of the centers
decision. The proceedings of the center may be in arabic of in any
other language selected by the parties. The efficacy of the center will
depend in part on the willingness of local courts to grant rapid
enforcement to the center's awards.
The Dubai Chamber of Commerce and Industry promulgated commercial
conciliation and arbitration rules last year which appear to be quite
flexible, in the judgment of western legal experts. The rules permit
parties to agree to have conciliation or arbitration under the auspices
of the chamber but under other rules.
The UAE federal supreme court has held that a foreign arbitration clause
in a registered commercial agency agreement is unenforceable as a matter
of public policy. The decision was based on the commercial agencies law
of 1981, which states that the courts of the UAE shall have jurisdiction
over commercial agency disputes. The federal supreme court did not
comment on the wisdom of registration of commercial agency agreements
that contain clauses, such as foreign arbitration clauses, that could
later be held unenforceable.
The provisional constitution of the UAE established a federal court
system while acknowledging the right of the individual emirates to
maintain a court system of their own. The federal court system consists
of federal courts of first instance, two federal courts of appeal and a
federal supreme court. The court of first instance consists of civil,
criminal, and shariah (Islamic religious) courts. The shariah and civil
legal systems exist concurrently for the most part. Commercial disputes
involving foreign parties tend to come before the civil courts and major
commercial disputes are ordinarily heard by a panel of three judges.
All cases involving banks and financial institutions are required to be
heard by civil courts and not by shariah courts.
In 1992, President Zayed issued a new code of civil procedure. The code
contains new rules on arbitration, conciliation and amicable settlement
of disputes. According to an analysis prepared by western trained
attorneys, the new arbitration rules are similar to those recommended by
the Federation of the UAE Chambers of Commerce and Industry. The
agreement of the parties to a dispute to refer it to arbitration is
recognized and made enforceable. No party is now permitted to file a
claim with a court if such party has already agreed to refer such claim
to arbitration. Reference to arbitration may be made at any stage
during litigation. The new code sets out in detail rules governing the
qualification and disqualification of arbitrators and many other aspects
of the arbitration process. The venue of arbitration is required to be
within the uae, and if not, the resultant award is to be treated like a
foreign judgment. There are also rules to ensure the prompt enforcement
of awards. The new code also introduced procedures to expedite certain
business claims. Comprehensive rules were provided in connection with
the various types of preventive and provisional remedies prior to the
litigation process and upon the issuance of judgments, including
attachment of property, confiscation of the defendant's passport and
prohibitions on travel, as well as the detention of the defendant in
certain instances.
Political violence (as it may affect investments): None
Performance Requirements/Incentives
Incentives are given to foreign investors in the free zones. Outside
the free zones, no incentives are given.
Right to Private Ownership and Establishment
Except as detailed elsewhere in this report, there are no restrictions
on the right of private entities to establish and own business
enterprises and engage in all forms of remunerative activity.
Protection of Property Rights
With the exception of some intellectual property issues, private
property is protected and respected in the UAE.
Regulatory System
The federal commercial code, the last building block in the edifice of
federal commercial legislation in the UAE, was promulgated on september
20, 1993. The commercial code devotes an entire chapter to bankruptcy,
which is the first comprehensive legislation in the UAE on the subject
of bankruptcy. Prior to enactment of the commercial code, creditors of
bankrupt persons were often faced with a race to the courthouse with
other creditors in order to obtain satisfaction of their claims. The
commercial code chapter on bankruptcy, however, governs the procedures
and effects of bankruptcy in the UAE and should provide a mechanism for
the orderly evaluation and distribution of assets of a bankrupt entity,
in the judgment of western legal experts.
The concept of a mortgage does not exist. With few exceptions, title to
all land in Abu Dhabi, the largest emirate, resides in the ruler. Most
construction, commercial and residential, is financed by a specialized
agency of the government of Abu Dhabi. Commercial banks finance the
remainder. Their collateral traditionally has been access to the rent
stream of the building or the personal guarantee of the developer. In
the past, developers unable to pay off bank loans simply walked away
from the problem. The new commercial code's bankruptcy provisions seek
to give lenders access to the assets of persons issuing personal
guarantees. These provisions have not been tested in court however.
The laws and regulations governing foreign investment in the UAE
evolving but are expected to remain conducive to foreign investment.
Therefore, it is recommended that potential investors consult a local
attorney to obtain the most current investment information at an early
stage of planning.
Regulation of the establishment and conduct of business in the UAE is
shared at the federal and emirate levels. In general, foreign companies
which undertake business activities in the UAE or make their products
available in the UAE have either entered into a joint venture with UAE
nationals for the establishment of limited liability companies,
appointed commercial agents, or set up branch offices.
The fundamental instrument by which all of the emirates regulate
business activity is the requirement that any place of business must be
properly licensed by the municipal authorities of an emirate. A license
is not required unless a place of business is set up in the UAE.
Therefore, foreign businesses exporting to the UAE but without a regular
or continuing business presence in the UAE do not need a license.
Licenses available include trade licenses, industrial licenses, service
licenses, professional licenses, and construction licenses.
Several federal regulations govern business activities in the UAE
outside free trade zones. Activities within the free zones are governed
by special bylaws.
1. The Federal Companies Law: the companies law applies to all
commercial companies established in the UAE and to branch offices of
foreign companies operating in the UAE. The following provisions are of
particular importance:
A. Companies established in the UAE are required to have a minimum of
51 percent UAE national ownership. However, profits may be apportioned
differently.
B. Branch offices of foreign companies are required to have a national
agent unless the foreign company has established its office pursuant to
an agreement with the federal or an emirate government.
C. All general partnership interest must be owned by UAE nationals.
D. Foreign shareholders may hold up to a 49 percent interest in limited
liability companies.
There are seven types of local companies that may be organized under the
companies law:
1. General partnership
2. Limited partnership
3. Share partnership
4. Joint venture company
5. Limited liability company
6. Publicly held company
7. Private shareholding company.
Among the forms of business activities under the companies law, the
limited liability company is now considered to be the most suitable form
of joint ventures between local and foreign entities.
2. The Commercial Agencies Law: the commercial agencies law requires
that foreign principals distribute their products in the UAE only
through exclusive commercial agents that are either UAE nationals or
companies wholly owned by UAE nationals. The foreign principal can
appoint one agent for the entire UAE or for a particular emirate or
group of emirates. The law provides that an agent may be terminated
only by mutual agreement of the foreign principal and the local agent,
notwithstanding the expiration of the term of the agency agreement.
3. The Federal Industries Law. The industry law stipulates that
industrial projects must have 51 percent UAE national ownership. The
law also requires projects either to be managed by a UAE national or
have a board of directors with a majority of UAE nationals. Exemptions
from the law are provided for projects relating to extraction and
refining of oil, natural gas, and other raw materials. Additionally,
projects with a small capital investment or special projects governed by
special laws or agreements are exempt from the industry law.
4. Government Tenders Law: under the tenders law, a supplier,
contractor, or tenderer with respect to federal projects must either be
a UAE national or a company in which at least 51 percent of the share
capital is owned by UAE nationals. Therefore, foreign companies wishing
to bid for a federal project must enter into a joint venture or agency
arrangement with a UAE national or company. Federal tenders are
required to be accompanied by a bid bond in the form of an unconditional
bank guarantee for five percent of the value of the bid.
Bilateral Investment Agreements
The UAE has bilateral investment agreements with a number of countries,
including the UK. There is no bilateral investment treaty with the U.S.
OPIC and Other Investment Insurance Programs
The U.S. And the UAE signed an agreement on investment guarantees (an
opic agreement) in september 1991. The UAE is a member of the
multilateral investment guarantee agency (MIGA)
Labor
The Right To Organize and Bargain Collectively:
UAE law does not grant workers the right to engage in collective
bargaining, and it is not practiced. Workers in the industrial and
service sectors are normally employed under contracts that are subject
to review by the Ministry of Labor and Social Affairs. The purpose of
the review is to ensure that the pay will satisfy the employee's basic
needs and secure a means of living. For the resolution of work-related
disputes, workers must rely on conciliation committees organized by the
Ministry of Labor and Social Affairs or on special labor courts.
Domestic servants and agricultural workers are not covered by UAE labor
laws and thus have great difficulty in obtaining any assistance in
resolving labor disputes. In the free port where manufacturing takes
place, the same laws and regulations apply as in the rest of the
country.
Prohibition of Forced or Compulsory Labor
Forced or compulsory labor is illegal and not practiced. However,
foreign workers may be recruited in their own countries by unscrupulous
agents who bring them into the UAE under conditions approaching
indenture.
Minimum Age for Employment of Children
Labor regulations prohibit employment of persons under age 15 and have
special provisions for employing those aged 15 to 18. Laws prohibiting
the employment of children are enforced by the Department of Labor.
Labor regulations allow contracts only for adult foreign workers. In
January, 1993, the government announced new regulations prohibiting the
employment of young children as camel jockeys and decreed that camel
jockeys should weigh no less than 45 kilograms. It also created a camel
racing association which is expected to enforce the new rules. Small
children who were employed as jockeys were returned to their parents.
Acceptable Conditions of Work
There is no legislated or administrative minimum wage. Supply and
demand determine compensation. However, according to the Ministry of
Labor and Social Affairs, there is an unofficial, unwritten minimum wage
rate which would afford a worker and family a minimal standard of
living. As noted in Section 6.B., the Labor and Social Affairs Ministry
reviews labor contracts and does not approve any contract that
stipulates a clearly unacceptable wage.
The standard workday and workweek are set at eight hours per day, six
days per week, but these standards are not strictly enforced. Certain
types of workers, notably domestic servants, may be obliged to work
longer than the mandated standard hours. The law also provides for a
minimum of 24 days per year of annual leave plus 10 national and
religious holidays. In addition, manual workers are not required to do
outdoor work when the temperature exceeds 45 degrees celsius (112 F.)
Most foreign workers receive either employer-provided housing or a
housing allowance, medical care, and homeward passage from their
employers. The vast majority of such workers, however, do not earn the
minimum salary of 5000 dirhams (approximately 1370 U.S. dollars) per
month currently required for them to sponsor their families for a UAE
residence visa (the UAE raised the minimum from about 1000 dollars to
1370 dollars in August, 1994. Employers have the option to petition for
a ban from the work force of one year for any foreign employee who
leaves his job without fulfilling the terms of his contract.
The government sets health and safety standards, which are enforced by
the Ministry of Health, the Ministry of Labor and Social Affairs,
municipalities, and civil defense units. Every large industrial concern
is required to employ an occupational safety officer certified by the
Ministry of Labor. If an accident occurs, a worker is entitled to fair
compensation. Health standards are not uniformly observed in the
housing camps provided by employers. Workers' jobs are not protected if
they remove themselves from what they consider to be unsafe working
conditions. However, the Ministry of Labor may require employers to
reinstate workers following an investigation of the alleged unsafe
working conditions. All workers have the right to complain to the Labor
Ministry, whose officials are accessible to any grievant, and an effort
is made to investigate all complaints. The Ministry, which oversees
worker compensation, is, however, chronically understaffed and
underbudgeted so that complaints and compensation claims are backlogged.
Foreign nationals, especially from India, Pakistan, the Philippines,
Bangladesh, and Sri Lanka, continue to seek work in the UAE in large
numbers. There are many complaints that recruiters in the country of
origin use unscrupulous tactics to entice manual laborers and domestic
servants to the UAE, promising unrealistically high salaries, housing
and other benefits and may even bring them in illegally. In return,
workers may pay a fee up front and/or promise the recruiters several
months of future wages to secure their passage. When they arrive, there
are often no jobs waiting for them so they seek jobs as undocumented
workers, accepting wages far below the accepted minimum. Such
complaints may be appealed to the Labor Ministry and, if this does not
resolve the issue, to the courts. However, many laborers choose not to
protest or to engage in such a lengthy process for fear of reprisals or
of deportation. Moreover, since the UAE tends to view foreign workers
through the prism of their various nationalities, employment policies,
like immigration and security policies, have at times been conditioned
upon national origin.
A number of accounts, including some in the local press, continue to
call attention to abuses suffered by domestic servants, particularly
women, perpetrated by individual employers. These have included
allegations of excessive work hours, extremely low wages, verbal abuse,
and, in some cases, physical abuse.
Capital Outflow Policy
There are no restrictions or incentives with regard to the export of
capital and outward direct investment.
Major Foreign Investors
Principal foreign investors are the UK, U.S., France, India, and
Germany.
CHAPTER VIII. TRADE AND PROJECT FINANCING
Brief Description of the Banking System
The banking sector has rebounded from Desert Storm and the failure of
the Bank of Credit and Commerce International (BCCI). Steady economic
growth and the implementation of new Central Bank directives to
strengthen the banking system are leading to the emergence of a sounder,
more rational, more profitable banking sector in the UAE.
In the UAE there are 19 UAE-owned banks with 207 branches inside the
country and 43 abroad, 28 foreign banks with 119 branches, one
restricted license bank, two investment banks, and 10 representative
offices. The National Bank of Abu Dhabi, according to the Central Bank,
operates an off-shore banking unit. The Central Bank requires a ten
percent capital adequacy ratio for all UAE banks. At present, the UAE
is rated by the Bank for International Settlements (BIS) as a high risk
lending area.
The Central Bank also prohibits lending an amount greater than seven
percent of a bank's capital base to any single customer. The Bank
defines customer as an individual, a company, or a group of companies
under common ownership and capital base as local capital. Foreign banks
with branches in the UAE are not permitted to calculate loans as a
percentage of their global capital (which may however be used to
calculate the capital adequacy ratio). In a revision to the rule, the
Bank in 1993 said it would exclude from the requirement non-funded
exposures, such as letters of credit and guarantees. In general, the
banking sector enjoyed a very profitable year in 1994. The Central Bank
has also announced its intention to implement internationally recognized
and accepted accounting principles, in the form of the International
Accounting Standard (IAS) number 30 on disclosure. The rule would unify
the basis of bank reporting and significantly increase the level of
disclosure by banks in the UAE.
Other federal rules require banks to display interest rates, charges and
fees and express loan rates on a reducing balance (annual percentage
rate) basis and bank guarantors for personal loans for expatriates. The
Central Bank is considering the introduction of a deposit insurance
scheme.
As the UAE dirham is tied to the dollar, interest rates in the UAE tend
to parallel those in the U.S. When rates were low, banks and their
corporate borrowers sought to strengthen their balance sheets rather
than engage in new lending and borrowing. However, there are
indications that interest