Political Risk Assessment of the Business Environment of the United Arab Emirates

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United Arab Emirates
Business Environment Shell

Analysis by
Trever Morley

1. Introduction and Disclaimer

In our group’s effort to match our enthusiasm for this class with our love for engineering marvels and innovative ideas, the country of choice for us was the United Arab Emirates. Thanks mostly to the recent oil boom and spikes in demand for petroleum based products, the UAE and most other Oil and Petroleum Exporting Countries are now finding themselves in a position of power and are noticing a lot more revenue flowing into their country. I think what mostly attracted our team to the UAE is the way that they have reinvested their profits into the country to bolster their tourism using state-of-the-art designs and innovative engineering concepts. Unfortunately, despite a warning from Professor Pang, our stubborn desire to analyze the political risk in the UAE put our group at a disadvantage when it came to collecting data and finding information. The business environment shell, like the macroeconomic/financial shell, is meant to be mainly statistic and data-driven. Much of the data used to make our analysis is incomplete and much of the data that we had expected to use in our analysis has simply not been made publicly available. Despite this disadvantage, we believe that our analysis of the country is as thorough as it can be given the minimal amount of data that is made available. We hope that our analysis will allow the reader to gain an overall better understanding of what risks to expect when considering a business venture in the United Arab Emirates.

2. Data and Methodology

After collecting the data, it is important to quantify it and apply a “PangRiskMeter” political risk score in order to more easily determine where the largest risks are at that may affect the business environment. The “PangRiskMeter” is a meter on a scale from 0-5, where 0 means full of risk, 5 means free of risk, and 2.5 means average risk. The Middle East’s regional average is used to represent the average (PangRiskMeter = 2.5), and by using simple algebra a PangRiskMeter ranking can be applied to both the UAE and its comparative representative country, Qatar. A PangRiskMeter ranking is assigned to Qatar in order to be able to compare side-by-side UAE with one of its neighbor and competitors across different variables affecting business environment, although the average score itself is determined from the regional average. For rankings the median ranking is considered average (i.e. World Economic Forum Ranking ranks 134 countries, the country ranked #67 will receive a PangRiskMeter ranking of 2.5) and using algebra, UAE’s ranking can be determined. All of these PRA score calculations are shown in Appendix 3. There are also several variables that cannot really be quantified, or issues were brought up as potential risks but did not provide direct data. In these cases, I would determine a score based on the impression I got about the risk from the source. For instance regarding a score for national treatment of FDI, I gave a PangRiskMeter score of a 5 because the UAE is continually opening up Free Trade Zones throughout the Emirates in order to allow more foreign direct investment into the country, and I viewed this as the country being very receptive towards inflows of FDI and they are attempting to make it easier for foreign countries to invest in them. 3. Potential Risks Identified for UAE Business Environment

In analyzing all areas of the business environment for the United Arab Emirates, it was difficult to pinpoint a lot of risks for a couple of reasons. First, there is not a lot of data available, and that keeps a lot of potential risks hidden from the rest of the world. There also exist inconsistencies in the data made available, which could suggest that some numbers have been exaggerated to give UAE the perception of a less-risky country worthy of foreign investment....
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