The United Arab Emirates (UAE) provides a stable operating environment for international firms. Tensions between the UAE and Iran are on the rise but are unlikely to lead to direct military confrontation. However, the UAE’s involvement in the Saudi-led coalition in Yemen increases the risk of domestic terrorism.
The UAE is increasing its military presence in the region and continues to build bases around the Bab-el- Mandeb Strait, in locations such as Somaliland and Eritrea. Its ambitions are demonstrated by the UAE’s short-lived increased military presence on Yemen’s Socotra Island in May 2018. The location of the UAE’s trading activities around the Horn of Africa and construction of military bases suggest a prioritisation of the Red Sea and the Gulf of Aden in its strategic ambitions. The UAE is likely being emboldened by President Donald Trump’s support for Sunni monarchies in the region and marginalisation of Iran.
While a violent confrontation with Iran is not expected, relations between Iran and the UAE are deteriorating. In September 2018, Iran claimed that a terrorist attack in Ahvaz that killed 25 people was sponsored by the UAE and Saudi Arabia.
The UAE’s involvement in the Saudi-led coalition in Yemen increases the risk of domestic terrorism. In addition to Islamic State and al-Qaeda, UAE forces are combatting Iran-backed Houthi rebels in Yemen. While the UAE is less likely to be targeted than Saudi Arabia, there is a moderate risk of terrorist attacks against Emirati airports, ports and energy infrastructure. In July 2018, Houthi militants claimed to have carried out an attack on Abu Dhabi airport with an unmanned aerial vehicle. Officials from the UAE rejected the claims but acknowledged that an incident took place with a supply vehicle.
The UAE’s oil and gas output is forecasted to rise by 3.1% this year as OPEC production quotas are lifted. Real GDP growth is forecasted at 2.2% in 2018 and 2.8% in 2019, supported by higher oil revenues and government spending. The oil sector accounted for around 48% of GDP in 2017 and remains an important pillar of the economy. However, the UAE has made progress towards economic diversification, and Dubai’s Expo 2020 will attract investment in a range of sectors including the construction, tourism, trade and transport sectors. Abu Dhabi has meanwhile announced a USD 13.3 billion stimulus package, which will support consumer and business confidence.
While Abu Dhabi remains the wealthiest of the UAE’s emirates it is reliant on its maturing oil sector, and Dubai’s more diversified economy is set to outperform it over the coming years. Higher oil prices and production will support a fiscal surplus of 4.3% of GDP in 2018, while general government debt-to-GDP is low, at 20.3% in 2018. Government-related entities in the UAE have elevated levels of debt, but the country is supported by the Abu Dhabi Investment Authority, the emirate’s sovereign wealth fund, which manages an estimated USD 577 billion of assets.
In May 2018, the UAE announced reforms that would increase the length of visas for expatriates and open up economic sectors to a greater share of foreign ownership. Under the plans, restrictions on foreign ownership in sectors including manufacturing and hospitality are expected to be lifted, but caps are likely to remain in the oil and gas industry.
Current laws restrict foreign ownership to 49% of Emirati businesses, with relatively few exceptions. Local investors are likely to be favoured in disputes with international counterparts, but the country’s reliance on foreign investment ensures that there is a low risk of expropriation.
In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iraq, Egypt, Qatar and United Arab Emirates all of which have been the subject of recent enquiries from JLT's client base.
The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.
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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email firstname.lastname@example.org.
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