The UAE Government has continued to take action to strengthen the private sector, focusing on steps to improve both the efficiency and transparency of procedures associated with business. The policies of diversification and increased participation in the national workforce by UAE citizens have also continued, with notable progress on several fronts. The development of two major stock exchanges, in Abu Dhabi and Dubai, has encouraged local people to invest in major national enterprises. The remarkable success of the UAE's incentive strategy is due in part to its creation of first-class industrial facilities and business support services, the reduction of red tape and streamlining of administrative procedures, as well as the updating of commercial laws and regulations. Favourable tax laws and political stability also assist in making the UAE a prime business location.
 

CHAMBERS OF COMMERCE 

The individual Chamberes of Commerce play a crucial role in stimulating and assisting local business development. The Abu Dhabi Chamber's Businessman Centre, for example, provides a number of professional services for businessmen, ADCCI members and representatives of firms operating in Abu Dhabi. It aims to attract investors by introducing them to investment opportunities and facilities available in Abu Dhabi. The Centre receives businessmen and investors from both the UAE and overseas, and provides them with a wide range of support services, many of which will shortly be available on-line. The Federation of UAE Chambers of Commerce, with main offices in Abu Dhabi and Dubai, links the individual chambers.
 

THE NEW ECONOMY
 

The 1999-2000 period has been positive for business develpment in the UAE. Sustained strength in oil prices not only strengthened the economy but also stimulated investment and growth in the general business arena. There has been a particular effort to take advantage of the benefits of Internet and e-commerce technologies, helping to create what has become known as the 'new economy'.

Over half a million people currently have access to the Internet in the UAE and industry sources forecast that some 64 per cent of the UAE's population will have access to the Internet by 2002, compared to a mere 14 per cent in 1998. The Middle East is second only to China in the growth-rte of its computer sales. Industry sources expect e-commerce in the Middle East to grow from its present value of a few hundred million dollars, to more than two billion US dollars by 2002.

In a report issued in July 2002, The Eonomist ranked the UAE eighteenth in the world in terms of its Internet structure. The country is particularly well placed to focus on electronic communications, with its established telecommunications infrastructure and its participation in broadband technologies and projects such as FLAG and Thuraya. Coupled with this, trade has long been the cornerstone of business in the Emirates, which is now the third-ranking export and re-export centre in the world (after Hong Kong and Singapore) with its foreign trade network extending to 179 countries. There is no doubt that use of the Internet, applied to this already vibrant business environment, will create new challenges and even greater competition, but also new opportunities for the UAE to maintain and further develop its trading links on a global scale.

Just how important the Internet has become for business in the UAE is reflected by the formation of an 'Internet City' in Dubai where companies may operate under rules that permit 100 per cent foreign ownership and offer a range of attractive commercial incentives. The decree setting up the Internet free-trade-zone was issued in January 2000 by Vice-President and Prime Minister of the UAE and Ruler of Dubai, HH Sheikh Maktoum bin Rashid Al Maktoum. The independent body assigned with running Dubai Internet City, as the zone has been called, is headed by Dubai Crown Prince and Defence Minister, General Sheikh Mohammed bin Rashid Al Maktoum who formally opened the city at the end of October 2000. The flagship project spearheads the emirate's drive to become a regional centre for electronic commerce, technology and information. The total cost of the project is expected to reach US $1 billion and the Dubai Government is investing US $200 million in setting up the zone. Dubai Internet City is exempt from local labour and tax laws and products exported from, or imported to, the one are to be exempt from taxes.

While the name says a lot, it has still left many people wondering about what exactly Dubai Internet City represents. In fact, it is effectively Dubai's third free-trade zone; the first being at Jebel Ali, the second at the Airport Free Zone, and the city seeks to become a regional sales, distribution and trading centre for goods sold over the internet. Apart from the fact that there is no corporation or income tax levied on firms operating in the UAE, those who base themselves at the Internet City will benefit from a number of special conditions not previously available to free-zone companies in the Emirates. The crucial ones are that 100 per cent foreign ownership is allowed, without a local sponsor, and that companies may also obtain 50-year leases on land, providing a level of investment security that has attracted many companies to apply for locations in the city.

Dubai Internet City is being build adjacent to Sheikh Zayed Road on the outskirts of Dubai's main centre, near Emirates Golf Club and the adjoining American University of Dubai. It is to have its own beach adjacent to the new Royal Mirage Hotel and is very close to the new luxury housing development known as Emirates Hills. There is in fact a precedent for such a focused development, i.e. that of Singapore Science Park. The same group of design consultants have been involved in both projects.

Dubai Internet City will have a very efficient telecommunications system and this should enable it to become a regional credit card processing processing and telephone customer service centre. The project also hopes to become a centre for IT research and development and will encourage major software developers to test new products within various government agencies and public sector firms.

Dubai Internet City is hosting the prestigious Organization for Economic Co-operation and Development (OECD) Emerging Market Economy Forum on Electricity Commerce (EMEF) scheduled for January 2001. This event involves the participation of 60 countries, including OECD member nations as well as representatives of non-member economies and key e-commerce stakeholders from around the world and indicates that the UAE is widely recognised as the Middle East's centre for information technology.

Companies that have already received licences to operate in DIC include Microsoft and Oracle (both will have dedicated buildings), Gemplus, Sakhr, MasterCard, Hewlett Packard, Dell and IBM. At the time of writing, another 350 companies have applications pending with DIC, which expects to host over 500 firms by 2002 when all project phases are completed.

The exhibitions and conference business, which provides an important boost to local economies in the UAE, particularly that of Dubai, has also focused heavily on the Internet and IT-related business. A number of major exhibitions and conferences in this field were held over the last year. Most were aimed at connecting the UAE's business people with the Internet or arious forms of information technology. A good example was the e-business solutions conference, held in Dubai from 22 to 23 October, which highlighted what it considers to be the six business essentials for an Internet age - business strategy, leadership, human resources, information technology, finance and administration, and marketing.
 
 

WORLD TRADE ORGANISATION
 

The UAE joined the World Trade Organization (WTO) in 1995 in the knowledge that developing countries, including Arab states, cannot ignore WTO - sponsored agreements and their impact on the global economy. At the time, the Ministry of Economy and Commerce argued that joining WTO would provide an opportunity for the country to contribute to future commercial decisions and policies and that, as a country aspiring to become a regional trade hub, adherence to the General Agreement on Tariffs and Trade ( GATT), a WTO - sponsored multilateral trade treaty, would help boost the UAE's industries and exports. Other relevant WTO treaties are the General Agreement on Trade in Services (GATS) and the Agreement on Trade - Related Aspects of Intellectual Property (TRIPS ) . Although the WTO prohibits discrimination in investments or shareholding  between nationals and non-nationals, the UAE has been granted certain exemptions for its financial services sector. Nevertheless, WTO agreements will have a direct impact on domestic services such as insurance, banking, transport, tourism, property, brokerage, investment, construction, communications and information, all of which will be  required to improve performance to be able to compete globally.
 

STOCK EXCHANGES

In early February 2000, President Sheikh Zayed issued a federal law covering the establishment of the Emirates Financial and Commodity Market Authority. The Authority is responsible for licensing and monitoring the financial market and controls the listing, cancellation and suspension of trading in any securities or commodity. Its key functions include the regulation of membership and market transparency, and the arbitration of disputes resulting from trading.

The Dubai Financial Market (DFM) began operating as a stock exchange on 26 March 2000 with trading initially restricted to a small group of well-established companies such as EMAAR. Emirates Bank Internationa, Dubai Investment, Union Property, Dubai Islamic Bank, Dubai National Insurance, TABREED and Emirates Insurance.

The Abu Dhabi floor of the UAE Stock Exchange (Abu Dhabi Securities Market) formally opened on 8 November 2000. Twelve companies including three banks were listed from the opening day. The companies are Abu Dhabi National Hotels, Al Khazna Insurance, Al Wathba Insurance, Abu Dhabi National Company for Building Materials, Abu Dhabi National Foodstuffs, National Corporation for Tourism and Hotels, National Marine Dredging, Oasis Leasing and Al Dhafra Insurance Company. The three banks are National Bank of Abu Dhabi, Union National Bank and Al Wathba Brokerage.

Abu Dhabi's new financial centre, the Saadiyat Financial Market, began its operations from a temporary base in the city during the summer of 2000, pending completion of the purpose-built infrastructure on Saadiyat Island. Initially seven local banks and financial establishments were issued with licenses to operate from the centre and the Abu Dhabi Free Zone Authority (ADFZA) were in the process of considering a large number of licence requiests from other companies wishing to establish themselves at the centre.

Regulations for operating companies wishing to establish an operational base at the ADFZ specify a minimum paid up capital for each company, and lay down a list of approved business categories: i.e. banking; financial and commodities trading, financial and commodities brokering; introductory brokering; insurance and insurance brokering; fiduciary companies; custodian commercial businesses; service providers; asset managers and collective investment schemes (mutual funds). The Authority has also distributed general registration and licensing guidelines, which can be obtained from UAE embassies worldwide.

The new financial market created as part of the Saadiyat project has been carefully planned to provide all the necessary elements of a successful financial market. These include Saadiyat International Stock Exchange (SISE), Saadiyat Futures and Options Exchange (SFOE), and the Saadiyat Commodities Exchange (SCE). The Saadiyat Clearing House (SCH) also forms part of the infrastructure. The ADFZ project is expected to be a significant engine of growth and wealth generation, not only for the UAE, but also for the wider region.

SISE was the first of these bodies to become operational and was established by a small number of member firms, with a capacity to expand as the market capitalisation increases. It is a self-regulating body that has responsibility for running a securities and trading operation that is equitable for all investors. Initially it is functioning as an electronic order driven market but it has the capacity to become a fully electronic scriptless market with straight-through processing capabilities.

The SFOE was due to commence operations in late 2000 and will provide facilities to trade in financial commodities and derivatives, such as futures and options, particularly those of regional interest such as oil, gas and petro-chemicals. It is  member-owned limited liability company and is also a self-regulatory body. As a futures and options exchange, SFOE is to provide opportunities for farmers, corporations, small businesses and others to structure their investments through hedging or offsetting the price risk of any cash/spot market position.

The SCE will also operate as a self-regulating body and provide a market for trading of physical commodities, particularly those produce in the region. As such it will provide a forum for prie comparisons, liquidity and financial guarantees, enabling traders to operate with greater efficiency and competitiveness in the global economy. As a spot/cash and forward market it will permit trading in all of the 67 commodities listed by the UN Committee for Trade and Development.

Executive responsibility for development of the Saadiyat Market is in the hands of the Emirates Global Capital Corporation (EGCC) which is capitalised at US $3.3 billion. In addition to setting up the above authorities, EGCC is establishing art exhibition centre, storage facilities, commercial buildings, a hotel, residential and leisure amenities, on Saadiyat island. ADFZA has granted EGCC a 50-year concession that can be extended for a further 50 years. EGCC is also the first company to be listed on the SISE and is being floated on the London Stock Exchange. It will earn its revenues from real estate sales, fees from infrastructure services and deveopment, and from financial and commodity activities.
 
 

BANKING SECTOR
 

Depiste the steady improvement in business conditions in the UAe, the country's economy is inextricably linked to global conditions and 1999 was a challenging period. Nowhere was this felt more actuely than in the banking sector which experienced a difficult year in which overall net profits slumped by 20.87 per ent to Dh 3407 million. Profits had risen 3.9 per cent to a record Dh 4305.58 million in 1998, following a sharp 21.75 per cent rise to Dh 4143.92 million the previous year. Based on figures provided by 45 UAE-based banks, the analysis indicated a general downturn in the banking sector during 1999. Local banks fared better than theiri foreign counterparts with overall net pfotit shrinking 5.4 per cent to Dh 3096.93 million, as against the 69.94 per cent plunge to Dh 310.27 million recorded by the foreign banks.

Foutunately, figures for the year 2000 have shown a sharp recovery for many of the banks surveyed. By the end of the first quarter of the year the Central Bankl was already drawing attention to the quick recovery, pointing out that average net profit of banks amounted to Dh 1.11 billion in the first three months of 2000 compared with Dh 866.42 million in the same period of 1999. The Central Bank predicted futher improvements would become apparent as the year progressed - a prediction subsequently supported by a long chain of financial reporting.

Several UAE banks earned international awards during the year. In July 2000 the National Bank of Abu Dhabi (NBAD) received the prestigious Euromoney award for the best domestic bank in the UAE. The cititation stated that during the past year NBAD had continued to strengthen its private and corporate business and had increased market share in terms of consumer lending. Euromoney also noted the strength of the bank's branch network and its substantial 14 per cent market share of customer deposits. Heavy investment in new information technology initiatives, including Internet and GSM banking-based electronic delivery channels, was also highlighted in the Euromoney report.

Following the disappointing banking sector results of 1999, many banks were quick to endorse the Central Bank's optimism by drawing attention to their improved performances. The Emirates Bank Group (EBG) reported a near 75 per cent increase in net profit to Dh 255.58 million for the six months ending 30 June. The comparable figure for 1999 was Dh 147.31 million. Earnings per share were Dh 0.86, against Dh 0.50 for the first half of 1999. The National Bank of Abu Dhabi announced a huge increase in profits for the first half of 2000. The increase in net profit was repoted to be due to an increase in disbursement of personal loans and retail business in general. Meanwhile Emirates Industrial Bank (EIB) posted a net profit of Dh 16.5 million for the same period, a rise of 68.4 per cent from Dh 9.8 million for the corresponding period of 1999.

Many of the banks are introducing Internet services. Dubai Islamic Bank, for example, announced a Dh 35 million three-year programme to upgrade its existing IT systems and to introduce Intetnet-based banking services.
 
 

CORPORATE SECTOR
 

After the relatively difficult conditions of 1999 many companies experineced greatly improved conditions at the start of the new millennium and the balance sheets of those companies whose financial years spanned the two calendar years reflected the general economic upswing. A case in point is The Emirates Group, which is the holding entity for Emirates Airline and DNATA among others. The group, which is targeting a profit of Dh 500 million in 2000-2001, braved what its chairman, Sheikh Ahmed bin Saeed Al Maktum, described as a 'difficult year' in 1999 to emerge 'with flying colours'. The group's financial year, ending on 31 March 2000, showed reenues up by 15.9 per cent to Dh 5.6 billion from Dh 4.8 billion for the previous year. Operating profit surged 17.9 per cent to Dh 627.7 million from Dh 532.4 million. The revenue of Emirates Airline rose by 15.4 per cent to Dh 5.1 billion from Dh 4.4 billion for the previous financial year, while the operating profit rose by 19.7 per cent to Dh 523.2 million from Dh 437.2 million. In the case of DNATA, the total revenue was Dh 673.4 million against Dh 564.1 million for the previous year, an upswing of 19.4 per cent.

Emirates Airline, an important part of the group, carried 4.7 million passengers or 12 per cent more than it carried in 1998-99. Freight traffic rose by 26 per cent to 270,000 tonnes. Overall capacity of the airline was up by 22.9 per cent with seat load factor averaging a high of 71.9 per cent and overall load factor over 68 per cent.
 
 

UAE OFFSETS GROUP
 

The UAE has made it a condition that foreign firms bidding for lucrative defence contracts should invest a percentage of the value of the deals in joint venture projects with local partners. The UAE Offsets Group (UOG) (http://www.uaeoffsets.org/), which manages this offset programme, has become a pioneering institution in the establishment of joint ventures. Under the programme, foreign defence firms may hold a stake of up to 49 per cent in the joint ventures with the rest being held by local private investors. Projects must generate added value to the UAE within a period of seven years.

Projects, already in operation, range from a shipbuilding company to a health care centre. Abu Dhabi Shipbuilding Company was one of the first public shareholding firms to be set up under the scheme. The two biggest ventures are the Oasis Interntional Leasing Company, an aircraft leasing firm, and TABREED, which has developed innovative cooling systems. Dessault, with which the UAE signed a US $3.2 billion defence deal, has contributed to five separate offset projects, including a horticulture project, a plant for manufacturing fire-fighting materials, a business services company, and fish processing and fish farming companies.
 
 

NEW BUSINESS SUPPORT SERVICES IN DUBAI
 

Dubai has also been streamlining its administrative procedures to provide an efficient service for investors. A telephone and fax hotline has been installed at the Dubai Naturalization and Residency Department. The 24-hour computerized system, operating in Arabic and English, can handle enquiries about documents needed for all types of visas, including visit, transit, investor, work and domestic servant visas. Callers can access information about documents needed to open a company file at the department, documents for stamping and canceling visas, court appointments, changing visas and departure certificates. A 50 percent reduction in municipality fees levied on business in Dubai, which was announced during 1999, should also assist business development in that emirate. The municipal levy, originally set at 10 percent of the lease rental, is a major establishment cost for any company. Dubai Municipality, the Department of Economic Development and the Dubai Chamber of Commerce and Industry are working together to ensure that the new system operates efficiently.
 

INTELAK

In an effort to ensure that the smallest investor is not forgotten, Dubai has also launched an innovative programme in which ‘individual establishment’ trade licenses are granted to UAE nationals to set up businesses at home once they have satisfied home ownership requirements. The experimental programme aims to encourage housewives, nationals with spare time, and those who have low-budget projects to establish businesses without facing the competitive risks of the open marketplace. Introductory seminars and technical and economic advice will be provided. Products from such businesses will be marketed through promotional shows and on the Internet.
 
 

DOLPHIN GAS NETWORK
 

UOG's participation in the Dolphin Regional Gas Network, a US $8–10 billion project to build a regional gas network from Qatar to UAE and Oman was announced in early 1999 (See section on Oil and Gas). The Dolphin project represents a strategic initiative to attract i n vestment in industrial sectors in the UAE and other regional countries by modernizing the gas supply infrastructure and is intended to provide a framework to stimulate investment in a variety of related industries throughout the value-added gas chain. It will provide employment and wide investment opportunities in financial and other industrial fields. Key potential regional customers for gas from Dolphin will include the offset programme’s own initiatives, especially Sina'at which has been set up with a capital of Dh 550 million to develop basic industries and petrochemical facilities. Other customers will include independent power producers, aluminum smelters, iron and steel plants and gas trading operations.
 

FREE ZONES

The increased number of free zones operating in the country is serving to offer a wider range of options to potential investors, including 100 percent ownership of investments. The massive Jebel Ali Free Zone (JAFZ) has become one of the largest industrial complexes worldwide which, together with the adjacent port, the world's largest manmade harbour, has continued to attract investors. Fujairah Free Trade Zone (FTZ), which was awarded an ISO 9002 certificate in 1999, offers businessmen the location advantage of an east coast port as well as the benefits of partnership with the Fujairah Government. FTZ has been growing at a rate of 20–22 percent annually and currently has over 125 projects registered at the zone, representing sector investment worth Dh 750 million. Trade value out of the zone by the end of 1999 should top Dh 1 billion. Arab, Gulf and international capital investment in Sharjah’s Hamriyyah Free Zone had exceeded Dh 2.5 billion by the end of 1999, with local investment accounting for 50 percent. The Sharjah Government has invested Dh 600 million in infrastructure projects in the zone.
 
 

SAADIYAT FREE ZONE AUTHORITY
 

The US $3.3 billion Emirates Global Capital Corporation (EGCC), which was incorporated in April 1999, has been granted a 50-year concession by Saadiyat Free Zone Authority (SFZA) to establish a major new commodities market and free zone on Saadiyat island near Abu Dhabi. The concession covers an area of 26 square kilometers. EGCC will develop a 50,000 square meter trading center with a stock exchange, futures exchange and clearing house and warehouses, the requisite commercial and residential real estate and physical infrastructure, including a port with storage facilities and a freight airport. Construction of the necessary infrastructure is scheduled to take three years to complete. Planned facilities on the island, which will have a six-lane bridge to link it with Abu Dhabi, will include a marina, an extensive exhibition center, a luxury hotel, a golf course, an equestrian club, a motor racing circuit, water and power plants, a telecommunications network and other utilities. The Basic Law for the Authority imposes no restrictions on foreign ownership of companies and assets and allows full repatriation of capital and profits as well as exemption from all taxes. Companies and residents will be offered land on lease for periods of 50 years or more and leases will be fully transferable. Since the announcement of its creation in July 1996, the Saadiyat project has attracted considerable attention from regional and global investment and banking circles. The project will have a major impact on many economic sectors including trade, industry, agriculture, real estate, building contracting and engineering, banking, brokerage, insurance, tourism, hotel, entertainment and services, as well as providing employment for nationals. Saadiyat Free Zone, shares in which will be offered on domestic and international markets, will give a major boost to the UAE ’s investment policy and is intended to complement the Jebel Ali Free Zone and other zones in the country and the AGCC.
 
 

DUBAI AIRPORT FREE ZONE AUTHORITY

Dubai Airport Free Zone Authority (DAFZA), one of the most recently established free zones in the UAE, grants licenses to companies with an international reputation who intend to invest properly in environment-friendly projects that are not labour-intensive. The emphasis is on long-term gains within the context of a five-year business plan. By mid-1999, 54 percent of the 50 companies operating out of DAFZ were European, 32 percent American, 4 per cent each from the Far East, Middle East and GCC states and 2 percent from Africa. Applicants to date include  global dealers in the jewellery, diamonds, crystal, cosmetics, electronics and computer industries. The free zone has been allocated an area of 1.2 million square meters, including 473,000 square meters of apron space, which will be developed in stages over the coming years.
 
 

AJMAN INFORMATION TECHNOLOGY PARK
 

Ajman Free Zone (AFZ) commenced work in July 1999 on the region's first information technology park. The park will be developed in two phases, the first of which, a pilot project of 10 offices, is under way. A further Dh 5 million will be invested in a purpose-built block that will house 100 offices. The IT park will offer a ‘move in and plug in’ facility in which a company can start operating as soon as it occupies designated premises . The park offers all the facilities needed for an effective business operation – PCs, ISDN, phone and fax lines, Internet access and related services – to attract IT developers and IT support centers, besides emerging Internet retailing, wholesale and e-commerce business. AFZ already has a wide cross-section of companies involved in textiles, medical equipment, furniture, foodstuffs, tobacco derivatives, watches, electrical appliances, paper, metal and plastic products. In 1998 the number of companies operating out of AFZ quadrupled and in the first six months of 1999 the zone grew by 7.5 percent from 400 to 430 companies. Total capitalization of companies now stands at Dh 1.1 billion (US $300 million).