Political and legal environment of international business in the United Arab Emirates

UAE

Doing business internationally requires understanding of the local political and legal environments. In a country like the United Arab Emirates (UAE), this can be a complex process, but it is necessary for successful market entry. This paper will explore the political and legal environments of the Emirates.

On a national level, the UAE is generally considered to be an open economy, and is certainly one of the more open economies in the region (CIA World Factbook, 2013). The country has committed resources to infrastructure development and job creation, indicating a willingness to build the economic strength of the nation for the long run. There is a free trade agreement in place with the United States. In addition, several areas have set up Free Trade Zones allowing 100% foreign ownership and no taxes, with the objective of attracting foreign investors (CIA World Factbook, 2013). It is worth noting that such policies are regionally limited. There are seven emirates, and their degree of economic integration with the world varies dramatically. Dubai has the highest degree of integration. Abu Dhabi also has some integration. There are free trade zones in Fujairah, Ajman, Sharjah and Ras al-Khaimah as well. In addition, for foreign companies it is worth considering that the social legal environment can differ significantly between emirates -- Sharjah is much more conservative than adjacent Dubai, for example. There are several government agencies available to assist foreign firms in finding the right free trade zone for investment, again indicating a high level of priority within the political environment for the promotion of foreign direct investment (FDI).

Historically, the emirates have had a high degree of direct involvement in business, and despite the country's openness that still is the case today. Augustine (2012) notes that Dubai's state-owned enterprises contribute between 20-50% of economic value added to the entire Gulf region, much less to the UAE. Key sectors like hydrocarbons, banking, utilities, shipping and tourism development all have a high level of state involvement and oversight (Chmaytelli & Sharif, 2011). This does not preclude foreign investment, but it does imply that foreign firms seeking to enter these industries will require local partners and/or high-level government cooperation.

As noted, there are differences in the legal environment between the different emirates, and also between FTZs and non-FTZs. Tarbuck and Lester (2009) note that Dubai has underpinned its economic development on a strong legal and regulatory framework. The legal framework is based on a combination of civil law principles and shari'a. Civil law derives from Western European tradition -- not British -- and shari'a law contributes guiding principles as well as specific rules to the legal framework of the UAE (Ibid). For investors from areas unfamiliar with either of these legal systems, local assistance should be considered mandatory. Federal codes of law have expanded significant in recent decades as the UAE has matured as a nation, and govern issues such as civil and commercial procedure, intellectual property, industrial law, banking and employment law. Local laws at the emirate level tend to focus on administrative manners, but of course these can also affect a foreign investor (Ibid). The federal government has authority over the legal systems of five emirates, while Dubai and Ras al Khaimah have their own judicial systems. Some free trade zones, such as the Dubai International Financial Centre, have their own judicial and legal systems -- at DIFC the British system is used (Strong & Himber, 2009).

Multinational companies seeking to fit into this environment need to achieve a high level of knowledge and competence of these regulatory and legal frameworks. Typically, this involves working with a local partner who has experience in navigating these issues. It is also possible that local law firms and consultants can contribute to a foreign firm's knowledge base of these issues. Many emirates have government agencies in order to help foreign firms succeed in their investments in the Emirates, by matching them with local partners or providing advice on the political and legal environments to allow for a smoother transition.