GCC business outlook: United Arab Emirates (page 1 of 2)

The UAE accounts for 23% of the GCC economy, behind Saudi Arabia which totals 47%, according to Standard Chartered Bank Middle East.

Nevertheless, the UAE (4.7 million people) has a regional effect like no other GCC member state.

Since the creation of Dubai's Jebel Ali Free Port in 1981, the key to the Gulf state's success has been diversification of the national economy.

By setting up more than 25 free zones as platforms for nearly all industry segments (including finance and biotechnology) the seven emirates Abu Dhabi, Dubai, Sharjah, Ajman, Umm al-Qaiwain, Ras al-Khaimah (RAK) and Fujairah became less dependent of oil: the black gold only accounts a quarter for the UAE's GDP (compared to 48% in Saudi Arabia).

Abu Dhabi's liquidity is the UAE's lifebelt

But although energy revenues have declined in significance, they are still a life insurance for the country.

The emirate of Abu Dhabi in particular, where nine tenths of the UAE oil is located, emerged as the driving force behind counter measures against the impact of the economic crisis. Dubai is in a transforming phase. Its role as a centre for trade and tourism made it more vulnerable to the decline in global activity than Abu Dhabi. Standard Chartered Bank Middle East estimates that the UAE economy will grow only grow 0.5% in 2009.

But Abu Dhabi's sovereign wealth fund, Adia, has used windfall revenues during the oil price boom from 2004 to 2008 and amassed estimated assets of $900bn. Although analysts say that this wealth has shrunk by 25%, it functions as a cushion during hard economic times. The UAE Central Bank subscribed the first $10bn tranche of its $20bn bond in February this year.

Magnet for business

The Dubai government has realised that the objectives of the Dubai Strategic Plan, launched in 2007, are not up-to-date anymore (eg, a target annual growth of 11% through to 2015) and has started to examine how these objectives have to be adjusted in light of the financial crisis.

It has accumulated liabilities of more than $80bn over the years. Nevertheless, foreign business people familiar with the Middle East agree that Dubai provides a world class infrastructure.

And despite some Western media having launched a negative campaign against the UAE and Dubai in particular, the Gulf state is still attracting global players such as Hitachi, Microsoft, Saxo Bank or private equity firm Kohlberg Kravis Roberts, all firms which have recently enlarged or started their operations in Dubai.

Government investment

'Comparing Dubai with Iceland, which defaulted, has no rational basis,' says Dr Nasser Saidi, Chief Economist at the Dubai International Financial Authority. While Dubai will be the centre for banks insurers and a logistic hub, Abu Dhabi will remain a centre for oil and gas and its related research in this field.

All seven emirates have in common that they will move ahead with massive investments in the real estate and infrastructure sector.