History

The origins of the country lie in a truce signed in 1820 between nine Arab sheikhdoms in the area. Called the General Treaty of Peace, the treaty was imposed by the British, who were keen to exploit the trade passage through the Gulf to India. As a result of the growing trade relationship with India, the British looked to obtain dominance over the region and bring an end to piracy in the area. Fights between the British and the powerful Qawasim, a maritime tribe based in Ras al-Khaimah and Sharjah had been frequent and after decades of unrest, a major offensive by the UK in 1819 led to the destruction of the Qawasim fleet and the occupation of its main ports, paving the way for the new treaty.

The first traces of hyrdrocarbons were discovered in the Bab field in 1954

By 1853, after various modifications made in response to the sheikhs’ disinclination to adhere to treaty terms, it was renamed as the Treaty of Peace and Perpetuity, which allowed for British arbitration of disputes among the sheikhs. The territory it concerned came to be known as the Trucial Coast, a name it retained until 1971. The subsequent years of peace allowed its pearl industry to flourish. It is estimated that by the turn of the 20th century, 4,500 boats manned by 30,000 men were owned and operated by the sheikhdoms. Historian Richard Le Baron Bowen says the industry was valued at $1,500,000 at its peak in 1896, with approximately 70,000-80,000 workers.

Arabian pearls were traded worldwide, mainly through India and Europe, but their worth began to decline in the 1920s when Japanese cultured pearls entered the market. The industry was further hit by a fall in demand as a result of the Great Depression, which began in 1929, and the Second World War. By 1949, Le Baron Bowen estimates that only 530 pearl boats remained and the value of the industry had fallen to $200,000.

Throughout the 1930s, the world’s oil exploration giants turned their attention from Iraq to the lower Gulf. By 1939, Petroleum Development (Trucial Coast), made up of the UK’s BP, Anglo/Dutch Shell Group, France’s Total, ExxonMobil of the US and Partex of Portugal, had signed an exploration agreement with Abu Dhabi, drilling the first well at Ras Sadr in the northeast of the emirate in 1951. The first traces of hydrocarbons were discovered in the Bab field in 1954. Offshore exploration had also begun under BP subsidiary Abu Dhabi Marine Areas and in 1958 enormous quantities of oil were discovered at Umm Shaif, which went into production in 1962. Once oil was discovered, it was necessary to determine the boundaries of the separate sheikhdoms to prevent each ruler laying claim to his neighbour’s territory.  Eventually, the borders of the seven emirates that constitute the present-day UAE were drawn.

With the pearling industry in decline, the Trucial states began exploring other trading options. During the 1950s and 1960s, Sheikh Rashid bin Saeed al-Maktoum – first as regent, then as ruler of Dubai – developed shipping facilities along Dubai Creek, the first steps in establishing the emirate as a centre of regional trade and logistics.

Just as the energy industry began to take off in the Trucial states, the British announced their withdrawal from the area. The ruler of Abu Dhabi, Sheikh Zayed bin Sultan al-Nahyan, acted fast in a bid to strengthen the ties between the states, calling for a new federation that also included Qatar and Bahrain. Initially, an agreement was only reached between the six rulers of Abu Dhabi, Dubai, Ajman, Sharjah, Umm al-Quwain and Fujairah and on 2 December 1971 the UAE was formed. Further negotiations ensued and Ras al-Khaimah joined the federation two months later. Qatar and Bahrain elected not to join, in part due to the distance between the territories.

The UAE is a member of the UN, the Arab League and the GCC, a six-member economic, political and military grouping, formed in 1981, which also includes Saudi Arabia, Kuwait, Oman, Bahrain and Qatar.

Overview

The seven emirates that make up the UAE are Abu Dhabi, Dubai, Ajman, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain.

The states maintain a high level of autonomy, but the UAE as a whole is governed by the Supreme Council of Rulers, composed of the seven emirs, who appoint a prime minister and cabinet.

HH Sheikh Zayed bin Sultan Al-Nahyan, the principal architect of the seven emirates, was the ruler of Abu Dhabi and president of the UAE for over 30 years from 1971 to 2004.

He was succeeded by HH Sheikh Khalifa bin Zayed Al-Nahyan who maintains the role today. His brother, HH General Sheikh Mohamed bin Zayed Al-Nahyan, is the Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces of the UAE.

On 4 January 2006, HH Sheikh Mohammed bin Rashid Al-Maktoum became the ruler of Dubai following the death of Sheikh Maktoum bin Rashid A- Maktoum.

The members of the UAE Supreme Council also elected Sheikh Mohammed as the UAE’s vice president and prime minister.

There is a large economic imbalance between Abu Dhabi and Dubai and the five poorer northern emirates.

While Dubai’s activities may generate more headlines in the media, Abu Dhabi is the economic powerhouse among the emirates, owing to the fact that it possesses the lion’s share of hydrocarbon reserves.

Accounting for 90 per cent of UAE oil and gas production, Abu Dhabi has more than 90,000 million barrels of recoverable crude and the world’s fifth largest deposits of natural gas.

Consequently, it remains the lead contributor to the federal budget and therefore the five northern emirates have been heavily dependent on Abu Dhabi for upgrading their infrastructure.  

Despite the diversification efforts of the country, the UAE economy remains heavily dependent on oil and on foreign labour, especially in the private sector where roughly 90 per cent are expatriates.

An Emiratisation drive is in progress, which has been successful in some sectors, but had limited success overall.

The government is keen to increase private sector involvement in the economy. Several independent water and power projects (IWPPs) have already been successfully implemented.

In foreign affairs, the UAE has a longstanding territorial dispute with Iran over three Gulf islands, Abu Moussa, Lesser Tunbs and Greater Tunbs, which Iran has occupied since 1971, but there are signs of a thaw in relations.

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People & culture

Population estimates for the UAE vary greatly. The country’s National Bureau of Statistics puts the figure at 8.2 million, while international sources such as the International Monetary Fund (IMF) say there are about 5 million people living in the UAE. Expatriate workers make up about 80 per cent of the population. Until the financial crisis struck, the population had been growing at about 5 per cent a year due to the large number of expatriates arriving in the country.

Foreigners wishing to do business in the UAE [must] understand the traditional manners and customs

Arabic is the official language of the UAE, although English is more commonly spoken. Despite nationals being a minority in the country, it is important that foreigners wishing to do business in the UAE understand the traditional manners and customs.

When you first meet a UAE client, you should not immediately begin to discuss business matters. Usually, tea will be served, followed by coffee. Occasionally, considerable time will be spent exchanging courtesies. The key to successful negotiations is trust and you may be requested to return on a second, third or even fourth occasion. Ultimately, a national’s word is considered a bond. Courtesy may inhibit a firm no, but it is rare for a national to back down from an agreement.

The notion of wasta (power and influence) still holds strong in the UAE. That means if you have the right connections or family background you can get things done. Personalities play a significant role in the business place, as does understanding the subtle influences present in individual markets and maintaining a steady physical commitment to the UAE.

The national dress is a symbol of identity worn by nearly all locals. Most men wear the white ankle-length shirt or dishdasha and a white or sometimes red-chequered head cloth or gutra, with a black coil or agal to hold it in place. Under this they wear a skull cap or taqia. Sheikhs also wear a cloak with gold braid. UAE women wear a black cloak or abaya and a headscarf or shayla.

Islam is the official religion of the UAE and is widely practised. Most Emiratis are Sunni Muslims. The Islamic holy day is Friday. Other religions are tolerated in the federation and there are several churches and Hindu and Sikh temples.

Economy

The combination of Dubai’s exposure to international financial and real-estate markets and Abu Dhabi’s reliance on oil and gas earnings meant that the UAE was the hardest-hit of the Gulf economies in the global downturn of the past two years.

Having enjoyed real gross domestic product (GDP) growth of more than 5 per cent in every year from 2005 to 2008 and in excess of 8 per cent in 2005 and 2006, the UAE’s economy shrank by 0.7 per cent in 2009.

The downturn in fortunes that began in Dubai with the property market crash in 2008-09 was followed by a collapse in confidence in the emirate’s ability to service the tens of billions of dollars in debt it had accumulated in order to finance its building spree.

In November 2009, state-owned conglomerate Dubai World sent shockwaves through global financial markets by announcing that it was requesting a six-month standstill on $24.9bn worth of debt repayments.

In May this year, it emerged that Dubai Holding, another state-owned company, was also seeking to restructure several billion dollars worth of debt.

The shock was less that the companies were struggling – market pressures were known to be squeezing them hard – but that the state seemed reluctant to intervene.

During the economic boom of 2003 to mid-2008, banks had assumed that, in the case of default, these companies would receive the full backing of the government and that the risk they were taking was on a sovereign level rather than a corporate one.

This proved not to be clear-cut. Shortly before the Dubai World announcement, the Dubai government announced that it was “under no obligation to extend support to any government-related entity (GRE).” Since then, many GREs have come forward to declare debt problems and been left unassisted by the state, prompting a raft of downgrades by global ratings agencies Moody’s and Standard & Poor’s.

Dubai World’s announcement on 27 October that it has secured full approval from all its creditors for its $24.9bn debt restructuring deal has certainly injected some much-needed confidence into the economy and marks a key milestone in the debt-laden emirate’s recovery.

Dubai’s debt woes are far from over. The property development unit of Dubai World, Limitless, is still negotiating a debt restructuring resolution on its $1.2bn Islamic loan, following an extension in March this year.   

On 7 September, Dubai Holding Commercial Operations Group (DHCOG), the main unit of Dubai Holding, delayed for the second time repayment on a $555m loan until 30 November.

Dubai’s debt pile is estimated at $109bn according to the International Monetary Fund (IMF).

In the next couple of years, economists expect the focus to be on deleveraging and more stringent borrowing conditions in order to aid economic recovery. However, any recovery is likely to be a slow one.

The bursting of Dubai’s real-estate bubble saw prices drop by as much as 50 per cent, but there is still some argument as to whether the property market has bottomed out. Certainly, real estate will continue to be a drag on the economy for some time.  

The downturn in its property market is encouraging Dubai to place greater focus on its key strengths: as a global logistics centre, a tourism hub and as a retail centre.

Regional economists believe that Dubai has learnt its lessons the hard way, but that it will grow more sustainably in the future. The 42 per cent increase in government expenditure in 2009 has been followed by a 6 per cent spending cut for 2010.   

Furthermore, of the $9.64bn in budgeted expenditure, just less than half - $4.71bn – has been earmarked for infrastructure and transportation. This is a deliberate move aimed at providing a platform for inward investment, but also for building the foundation for more sustainable growth in the future.  

The country is also making efforts to boost its levels of transparency, something it has increasingly come under fire for since the onset of the downturn.

On 6 May, the government issued a decree authorising the establishment of the first credit bureau, Emirates Credit Information Company, which will help creditors make more informed decisions on dispensing loans.

A new Federal Statistics Law and the creation of a National Bureau of Statistics will also foster a culture of financial transparency and disclosure.

After having shrunk by 0.7 per cent in 2009, the UAE’s growth in 2010 is likely to be little better, at 0.6 per cent, according to the IMF. The recovery will be stronger in 2011, with growth reaching 3.1 per cent.

Despite the overall poor fortunes of the UAE as a result of the downturn, Abu Dhabi has fared the storm rather well, owing essentially to the fact that it holds most of the nation’s hydrocarbon wealth.  

This has provided a significant cushion during the downturn and left it with a deep pool of liquidity. It has used these same capital reserves to help aid the recovery process in 2008 and 2009.  

Furthermore, it has played an invaluable role in keeping Dubai’s economy afloat during the downturn, bailing its sister emirate out with $20bn.  

Its real GDP is expected to grow 4.1 per cent in 2010, compared to a fall of 0.4 per cent in Dubai, according to figures from Egyptian investment bank EFG-Hermes.

With oil currently hovering around $80 per barrel, it will have the budget surplus to forge ahead with infrastructure development spending.

But the symbiotic relationship of the two emirates should not be underestimated and until Dubai gets back on its feet, it is unlikely that the UAE economy as a whole will fully recover.

The UAE’s total government debt as a percentage of GDP is set to decline from 27.1 per cent this year to 24.7 per cent and further to 21.6 per cent of GDP in 2011, according to the IMF’s Regional Economic Outlook for the Middle East and Central Asia, which was published in October 2010.