COUNTRY PROFILE: UNITED ARAB EMIRATES (UAE)

March 2006

COUNTRY

Formal Name: United Arab Emirates (Al Imarat al Arabiyah al Muttahidah) ةﺪﺤّﺘﻤﻟا ﺔّﻴﺑﺮﻌﻟا تارﺎﻣﻹا. The seven emirates, in order of size, are: Abu Dhabi (Abu Zaby) ﻲﺒﻇ ﻮﺑأ , Dubai (Dubayy) ّﻲﺑد, Sharjah (Ash Shariqah) ﺔﻗرﺎﺸﻟا, Umm al Qaywayn ﻦﻳﻮﻴﻘﻟا ّمأ, Ajman نﺎﻤﺠﻋ, Al Fajayrah ةﺮﻴﺠﻔﻟا, and Ras al Khaymah ﺔﻤﻴﺨﻟا سأر.

Short Form: UAE.

Term for Citizen(s): Emirati(s).امراتى

Capital: Abu Dhabi City. ﻲﺒﻇ ﻮﺑأ

Major Cities: Al Ayn, capital of the Eastern Region, and Madinat Zayid, capital of the Western Region, are located in Abu Dhabi Emirate, the largest and most populous emirate. Dubai City is located in Dubai Emirate, the second largest emirate. Sharjah City and Khawr Fakkan are the major cities of the third largest emirate—Sharjah.

Independence: The United Kingdom announced in 1968 and reaffirmed in 1971 that it would end its treaty relationships with the seven Trucial Coast states, which had been under British protection since 1892. Following the termination of all existing treaties with Britain, on December 2, 1971, six of the seven sheikhdoms formed the United Arab Emirates (UAE). The seventh sheikhdom, Ras al Khaymah, joined the UAE in 1972.

Public holidays: Public holidays other than New Year’s Day and UAE National Day are dependent on the Islamic calendar and vary from year to year. For 2006, the holidays are: New Year’s Day (January 1); Eid al Adha, Feast of the Sacrifice (January 11); Muharram, Islamic New Year (January 31); Mouloud, Birth of Muhammad (April 11); Accession of the Ruler of Abu Dhabi—observed only in Abu Dhabi (August 6); Leilat al Meiraj, Ascension of Muhammad (August 22); first day of Ramadan (September 24); Eid al Fitr, end of Ramadan (October 24); UAE National Day (December 2); and Christmas Day (December 25).

Flag: The UAE flag has three equal horizontal bands of green (on top),

white, and black, with a wider vertical red band on the hoist side.

HISTORICAL BACKGROUND

Early Years: The United Arab Emirates (UAE) was formed from the group of tribally organized Arabian Peninsula sheikhdoms along the southern coast of the Persian Gulf and the northwestern coast of the Gulf of Oman. This area was converted to Islam in the seventh century and for centuries afterward was embroiled in dynastic disputes. Most UAE nationals are descended from two tribal groupings, the Qawasim and the Bani Yas, which emerged as leading powers in the eighteenth century. The Qawasim, mainly land and sea traders, dominated what are today the emirates of Ras al Khaymah and Sharjah. The Bani Yas, who were agricultural and pastoral, lived in what are today the emirates of Abu Dhabi and Dubai. From the seventeenth to the nineteenth century, the area became known as the Pirate Coast, as both European and Arab pirates attacked foreign ships. The British mounted expeditions against the pirates during this period, culminating in an 1818 campaign against the pirate headquarters of Ras al Khaymah and other harbors along the coast. This action ostensibly was taken to safeguard British maritime routes, particularly those of the British East India Company, but some historians have noted that the war waged by Britain was in fact motivated by the desire to establish its supremacy in the region against the claims of other European powers.

British Rule: In 1820 Britain concluded a general treaty of peace with the principal sheikhs of the Pirate Coast and Bahrain. Its purpose was to end plundering and piracy and to establish a commitment to desist from the slave trade. The 1820 treaty includes the first denunciation of the slave trade ever written into a formal treaty. However, this treaty did not in practice prevent regular warfare at sea among the tribes of the coast, and in 1835 the sheikhs agreed to a new truce, pursuant to which they agreed to report aggression to British political or naval authorities rather than to retaliate themselves. This truce was renewed several times until May 1853, with the signing of a treaty to bring a complete halt to all hostilities at sea, establishing a “perpetual maritime truce.” The truce was supervised by Britain, to whom the signatories referred all violations. The coastal sheikhdoms now became known as the Trucial Coast, stemming from the treaties signed with the British that resulted in the maritime truce, or as Trucial Oman, because the treaties separated the sheikhdoms from Oman. These terms remained in use until 1971, upon independence from Britain.

In 1892, as France, Germany, and Russia were developing an interest in the Gulf Region, Britain and the sheikhs of the Trucial Coast signed a new treaty, known as the “Exclusive Agreement.” Under this treaty, the sheikhs agreed not to enter into any agreement or correspondence with any power other than Britain and not to cede, sell, or mortgage any part of their territory to anyone other than Britain without British consent. From this period until independence in 1971, the individual coastal sheikhdoms were under British protection, which meant that Britain assumed responsibility for their defense and external relations, while the sheikhdoms followed the traditional form of Arab monarchy, i.e., each ruler had virtually absolute power over his subjects.

Road to Independence: In 1952 Britain recommended that the rulers of the seven sheihkdoms establish the Trucial Council to encourage the adoption of common policies in administrative matters, possibly leading to a federation of states. The rulers met at least twice a year under the chairmanship of the political agent in Dubai.

Since 1958, when petroleum was first discovered beneath the coastal waters of Abu Dhabi, petroleum assets have largely determined the power structure and relative prestige of the emirates. Onshore petroleum was found in Abu Dhabi in 1960, and commercial production followed in 1962, providing significant wealth to the sheikhdom, which remains the largest and most affluent emirate. Sheikh Shakhbut ibn Sultan Al Nuhayyan, who had ruled Abu Dhabi since 1928, failed to use the income from petroleum royalties to develop the sheikhdom and was deposed in 1966. He was replaced by his younger brother, Sheikh Zayid ibn Sultan Al Nuhayyan, under whose rule Abu Dhabi was transformed, with considerable income from the petroleum industry allocated for public works and the provision of welfare services. In 1966 petroleum was discovered in Dubai, which prospered greatly from this new wealth.

Independence: In 1968 the United Kingdom announced its decision, reaffirmed in March 1971, to end the treaty relationships with the seven Trucial Coast states and to withdraw British military forces from the area. In March 1968, the Trucial Coast states joined Bahrain and Qatar (which had also been under British protection) to form the Federation of Arab Emirates, but Bahrain and Qatar seceded from the federation in 1971, opting for separate independence. In July 1971, six of the Trucial States (Abu Dhabi, Ajman, Al Fujayrah, Dubai, Sharjah, and Umm al Qaywayn) agreed on a federal constitution for achieving independence as the United Arab Emirates (UAE). On December 1, 1971, the United Kingdom terminated all existing treaties with the Trucial Coast states, and independence was declared the following day. The seventh sheikhdom, Ras al Khaymah, joined the UAE in February 1972. At the time of independence, Sheikh Zayid ibn Sultan Al Nuhayyan of Abu Dhabi was named the first president of the UAE, a role he fulfilled until his death in 2004. The ruler of Dubai, Sheikh Rashid ibn Said Al Maktum, became vice president, and his eldest son, Sheikh Maktum ibn Rashid Al Maktum, the crown prince of Dubai, was named prime minister. In 1986 Sheikh Rashid assumed the posts of both vice president and prime minister, but on his death in 1990 Sheikh Maktum succeeded his father as ruler of Dubai and as vice president and prime minister of the UAE.

In 1971 the UAE adopted a provisional constitution that was intended to expire after five years, but it was in fact renewed until the adoption of a permanent constitution in 1996. The government was centralized further in 1976, when the federal government attained control over defense, intelligence services, immigration, public security, and border control.

GEOGRAPHY

Location: The UAE is located in the Middle East, situated on the

Arabian Peninsula between Oman and Saudi Arabia and bordering

the Gulf of Oman and the Persian Gulf.

Size: The UAE government estimates the total area of the UAE to be

83,600 square kilometers; excluding the three islands in the Strait of

Hormuz, the area is 77,700 square kilometers (slightly smaller than

the state of Maine). Abu Dhabi has an area of 67,350 square kilometers.

Land Boundaries: The UAE’s land boundaries total 867 kilometers. The emirates border Oman to the north and east (410 kilometers) and Saudi Arabia to the west and south (457 kilometers).

Disputed Territory: In 1974 Abu Dhabi and Saudi Arabia reached agreement settling a dispute over the Al Buraymi Oasis and other territory to the south, but the agreement has not been ratified by the UAE or recognized by Saudi Arabia. The UAE signed and ratified a boundary agreement with Oman in 2003 for the entire border, including Oman’s Musandam Peninsula and Al Madhah enclaves, but the agreement and accompanying maps have not been made public. In 1992 Iran unilaterally took full control over three islands in the Strait of Hormuz—Greater and Lesser Tunb and Abu Musa, which it had shared with the Sharjah Emirate since 1971. At their annual summit in December 2005, Gulf Cooperation Council (GCC) leaders reiterated their support for UAE sovereignty over the three islands and urged Iran, which has expanded its civilian and military presence on all three disputed islands, to respond to efforts for a peaceful settlement, including resolution by the International Court of Justice.

Length of Coastline: The UAE has 1,318 kilometers of coastline along the Persian Gulf and Gulf of Oman.

Maritime Claims: The UAE claims a territorial sea of 12 nautical miles, a contiguous zone of 24 nautical miles, an exclusive economic zone of 200 nautical miles, and a continental shelf of 200 nautical miles or to the edge of the continental margin.

Topography: The UAE is primarily flat or rolling desert. Its coast, which stretches along the southern shore of the Persian Gulf, consists mainly of salt pans that extend far inland. The largest natural harbor is Dubai. The UAE also extends for about 90 kilometers along the Gulf of Oman, an area known as the Al Batinah coast. The UAE’s highest point, at 1,527 meters, is Jabal Yibir in the jagged Al Hajar al Gharbi mountain chain, which splits the UAE from north to south in the northern emirates. Beginning at the UAE-Oman border on the Persian Gulf coast of the Musandam Peninsula, the mountains extend southeastward for approximately 150 kilometers to the southernmost UAE-Oman border on the Gulf of Oman. The mountain slopes tend to run right to the shore, except in the vicinity of Al Fujayrah, where there are sandy beaches. South and west of Abu Dhabi, vast, rolling sand dunes merge into the Rub al Khali of Saudi Arabia.

Principal Rivers: The UAE has no permanent rivers, but the desert area of Abu Dhabi includes two important oases with adequate underground water for permanent settlements and cultivation. The extensive Al Liwa Oasis is in the south near the undefined border with Saudi Arabia. Approximately 200 kilometers to the northeast of the Al Liwa Oasis is the Al Buraymi Oasis, which extends on both sides of the Abu Dhabi-Oman border.

Climate: The climate of the UAE is generally hot and dry. The summer months (July and August) are the hottest, with temperatures exceeding 40º C, coupled with very high humidity. The average temperature in the winter months, January and February, is 17º C–20º C. In the Al Hajar al Gharbi Mountains, temperatures are much cooler as a result of the increased elevation. The average annual rainfall in the coastal area is very low—between 100 millimeters and 200 millimeters—but in some mountainous areas annual rainfall reaches 350 millimeters. Rain in the coastal region falls in short, torrential bursts during the summer months.

Natural Resources: Oil and natural gas are the primary natural resources in the UAE, and petroleum production is the most important industry.

Land Use: Only 0.6 percent of the UAE is considered to be arable land, and 2.3 percent of the land is planted to permanent crops. About 720 square kilometers of land are irrigated.

Environmental Factors: The UAE is subject to frequent sand and dust storms, which can severely reduce visibility. The smaller islands in the Persian Gulf, as well as many coral reefs and shifting sandbars, are a menace to navigation. Strong tides and occasional windstorms further complicate ship movements near the shore. Desalination plants compensate for the lack of freshwater resources, but desertification (land degradation caused by aridity) and beach pollution from oil spills are serious problems.

Time Zone: The UAE is four hours ahead of Greenwich Mean Time.

SOCIETY

Population: The UAE’s last official census was conducted in 1995. In that year, the total population was about 2.4 million. The UAE began Census 2005, the most comprehensive census to date, in September 2005. The population for 2004 was 4.3 million, estimated to increase to 4.7 million in 2005. The annual growth rate between the years 1999 and 2004 averaged 8 percent. The majority of the population (almost 3 million) is urban and lives in the two largest emirates—Abu Dhabi and Dubai.

Demography: The UAE’s population is predominantly young. According to the government, at the end of 2004 more than half the population of 4.3 million (about 2.4 million people) was 15–39 years of age, and roughly one-quarter of the population (about 1.1 million people) was less than 15 years of age. Of the remaining population, approximately 800,000 people were 40–59 years of age, and almost 70,000 were 60 and older. The population is male dominant, with males numbering 2.9 million and females, 1.4 million. In 2005 the birthrate and death rate were estimated to be 18.8 per 1,000 and 4.3 per 1,000, respectively. The infant mortality rate, like the population, is estimated to be higher for males—nearly 17 deaths per 1,000 live births, as compared with about 12 female deaths per 1,000 live births. The UAE has a relatively high level of life expectancy: 72.7 years for males and nearly 77.9 years for females, or 75.2 years overall. The country’s fertility rate is greater than 2.9 children per woman.

Ethnic Groups and Languages: UAE citizens constitute less than 20 percent of the population. The rest are foreign workers, predominantly from South and Southeast Asia (approximately 50 percent of the population). The remainder of the expatriate population includes a significant number of other Arabs—Palestinians, Egyptians, Jordanians, Yemenis, and Omanis—as well as many Iranians, Pakistanis, Indians, Bangladeshis, Afghanis, Filipinos, and West Europeans. Arabic is the official language. Other languages spoken include Persian, English, Hindi, and Urdu. English is widely understood in the UAE.

Religion: The vast majority (approximately 96 percent) of the UAE’s citizens are Muslims; approximately 85 percent of Muslims are Sunni and 15 percent, Shia. The government funds or subsidizes almost 95 percent of Sunni mosques and employs all Sunni imams. A central federal regulatory authority distributes weekly guidance to both Sunni imams and Shia sheikhs regarding the content of sermons.

The UAE’s constitution declares that Islam is the official religion of all seven of the constituent emirates of the federal union. Muslims are expressly prohibited from converting to other religions, but conversion by non-Muslims to Islam is viewed favorably. During Ramadan, all residents and visitors are required to abide by restrictions imposed on Muslims. Islamic studies are mandatory for citizen children attending public schools and for Muslim children attending private schools. Religious instruction in non-Muslim religions is not permitted in public schools.

According to the U.S. Department of State, non-Muslim religious leaders within the UAE and outside the country regard the UAE as one of the most liberal and broad-minded countries in the region in terms of governmental and societal attitudes toward other faiths. The UAE government generally follows a policy of tolerance toward non-Muslim religions and, in practice, does not interfere very much with their religious activities. However, the government does prohibit non-Muslims from proselytizing or distributing religious literature under penalty of criminal prosecution, imprisonment, or deportation, deeming such behavior to be offensive to Islam. In 2004 the government hosted an international conference designed to encourage moderation in religious preaching and condemn extremism and terrorism. In that same year, construction began on Coptic Orthodox and Greek Orthodox churches.

Education and Literacy: According to the UAE government, the literacy rate is 91 percent for females and 84 percent for males. The United Nations has estimated that the overall literacy rate for the population aged 15 to 24 exceeds 90 percent. The government has set a goal of achieving full literacy before 2010.

The government has increased funding for education significantly over a 10-year period, spending US$67.3 million in 1994 and nearly US$1.5 billion in 2003. Public education is free for male and female citizen children through the university level. The UAE has one of the lowest pupil-to-teacher ratios (12:1) in the world. Education is compulsory through the ninth grade, although, according to the U.S. Department of State, this requirement is not enforced. Citizen children are required to attend gender-segregated schools through the sixth grade, the last grade of primary education. In 2004–5 approximately 9.9 percent of students in grades one through five and 8.3 percent of students in grades six through nine did not complete their education; this rate rose to 9.3 percent in grades 10–12.

The Ministry of Education has adopted “Education 2020,” a series of five-year plans designed to introduce advanced education techniques, improve innovative skills, and focus more on the self-learning abilities of students. As part of this program, an enhanced curriculum for mathematics and integrated science was introduced at first-grade level for the 2003–4 academic year in all government schools. In addition, the UAE government believes that a poor grasp of English is one of the main employment barriers for UAE nationals and consequently will introduce a new English syllabus in all government schools over the next three years. In February 2006, the new prime minister, stating that the cabinet would give top priority to improving the quality of education, directed the education minister to take initial steps toward achieving this goal, including the provision of permanent classrooms, computer laboratories, and modern facilities.

At the higher education level, numerous institutions are available to the student body. In 1976 UAE University (UAEU) was established in Al Ayn in Abu Dhabi. Consisting of nine colleges, it is considered by the UAE government to be the leading teaching and research institution in the country. More than 15,500 students were enrolled at UAEU in the academic year 2004–5. In 1988 the first four Higher Colleges of Technology (HCT) were opened. In the academic year 2005–6, 12 all-male campuses offered more than 75 programs with a combined enrollment of 16,000 students. The commercial arm of the HCT, the Centre of Excellence for Applied Research and Training, is allied with multinational companies to provide training courses and professional development. In 1998 Zayid University was opened for women with campuses in Abu Dhabi and Dubai. The current enrollment of 2,500 women nationals is expected to more than double after a new campus in Dubai opens in 2006.

In 2003 Dubai established a dedicated education zone, Knowledge Village, based at Dubai Internet City, to bring together globally recognized international universities, training centers, e-learning, and research and development companies in one location. It has met thus far with only limited success, unable to attract the prestigious American universities that have instead chosen to be based in Qatar’s Education City.

Health: Standards of health care are considered to be generally high in the UAE, resulting from increased government spending during strong economic years. Total expenditures on health care in 2002 constituted 3.1 percent of gross domestic product (GDP); in that same year, the per capita expenditure for health care was US$802. Health care currently is free only for UAE citizens. Effective January 2006, all residents of Abu Dhabi are covered by a new comprehensive health insurance program; costs will be shared between employers and employees. The number of doctors per 100,000 (annual average, 1990–2003) is 177. The UAE now has 40 public hospitals, compared with only seven in 1970. The Ministry of Health is undertaking a multimillion-dollar program to expand health facilities⎯hospitals, medical centers, and a trauma center⎯in the seven emirates. A state-of-the-art general hospital has opened in Abu Dhabi with a projected bed capacity of 143, a trauma unit, and the first home health care program in the UAE. To attract wealthy UAE nationals and expatriates who traditionally have traveled abroad for serious medical care, Dubai is developing Dubai Healthcare City, a hospital free zone that will offer international-standard advanced private health care and provide an academic medical training center.

Cardiovascular disease is the principal cause of death in the UAE, constituting 28 percent of total deaths; other major causes are accidents and injuries, malignancies, and congenital anomalies. In 1985 the UAE established a national program to prevent transmission of acquired immune deficiency syndrome (AIDS) and to control its entry into the country. According to World Health Organization estimates, in 2002−3 fewer than 1,000 people in the UAE were living with human immunodeficiency virus (HIV)/AIDS.

Welfare: Among developing nations, as categorized by the United Nations, the UAE ranks 41 out of 177 countries on the human development index, a measure of life expectancy, education, and standard of living. In 1999 the Federal National Council approved legislation providing monthly social security benefits to national widows and divorced women, the disabled and handicapped, the aged, orphans, single daughters, married students, relatives of jailed dependents, estranged wives, and insolvents. Also eligible are widowed and divorced national women previously married to foreigners and expatriate husbands of UAE national women. In 2003 the government distributed approximately US$179 million to 77,000 beneficiaries of social welfare, the largest group of recipients being the elderly (12,000). In October 2005, welfare payments to UAE nationals, including the unemployed, increased by 75 percent. The recipient population has dropped since 1980, but the cost to the government has risen by 16 percent per person. Social security entitlements constitute 1–2 percent of gross domestic product.

ECONOMY

Overview: In the 40 years since oil was first discovered and exported, the UAE has been transformed from a region of small sheikhdoms subsisting on pearling, fishing, herding, and agriculture to a modern state with a high per capita income and substantial trade surplus. The largest and wealthiest emirate, Abu Dhabi, is the principal petroleum producer and financier of the federation. Dubai, the second largest emirate, thrives on wealth derived from a services-based economy (tourism, construction, telecommunications, media, real estate, and financial services). Together, the two emirates provide more than 80 percent of the UAE’s income, while the northern emirates remain relatively undeveloped. Key economic policy decisions are made at the emirate level with little coordination among the seven emirates.

The UAE economy remains heavily dependent on oil and natural gas; the revenue from oil exports in particular enables the government to finance infrastructure for the non-oil economy. Statistically, however, the oil sector has declined in recent years as a percentage of the gross domestic product. Economists forecast that in 2005–6 the oil sector will account for less than 10 percent of the annual increase in the size of the economy, which is expected to grow at an average annual rate of approximately 6.5 percent. Investment in manufacturing and energy-intensive sectors such as petrochemicals and metals will drive the non-oil sector, aided by exports made more competitive by the weakness of the U.S. dollar. The services sector, primarily tourism, is expected to continue to gain strength.

Sheikh Khalifa ibn Zayid Al Nuhayyan, who succeeded his father as president of the UAE in November 2004, is expected to continue the relatively liberal economic policies of his predecessor: privatization of some government assets; provision of incentives for foreign and domestic private investment; maintenance of no national income or sales tax; and curtailment of both money laundering and the use of the banking system to foster terrorist activities.

Gross Domestic Product (GDP): In 2003 the UAE’s GDP was US$87.6 billion. In 2004 the government reported a real growth rate of 7.8 percent, driven by an increase of almost 10 percent in non-oil GDP. Economists calculate the 2004 real GDP growth rate at 7.4 percent, with GDP exceeding US$103 billion. Per capita GDP for 2004 was high compared with other Arab countries—almost US$24,000. For the period 2005–6, real GDP growth is expected to remain strong, driven not only by high oil earnings but also by sustained expansion in the non-oil sectors. Real GDP is forecast to grow 6.7 percent in 2005, with GDP exceeding US$118 billion.

Government Budget: In mid-2005 the UAE Ministry of Finance and Industry released the 2005 federal budget, which accounts for approximately 25 percent of total federation fiscal transactions; the remainder consists of the fiscal operations of the individual emirates, and the combined expenditures constitute the consolidated accounts. According to UAE government figures, in 2005 the UAE is projected to have a balanced budget, as a result of a 4.5 percent rise in revenue over 2004 coupled with a 4.9 percent decrease in expenditures. This budget is the first in more than 20 years that does not assume a deficit.

Other sources calculate that based on rising global oil prices offset by significant public-sector pay increases and higher capital expenditures, the 2004 budget ran a relatively small deficit of US$233 million (0.2 percent of gross domestic product, as compared with deficits in 2002 and 2003 that were 11 percent and 4.5 percent of gross domestic product, respectively). In 2005, as a result of the rapid rise in oil revenues, the budget is expected to generate an estimated US$5.8 billion surplus (4.7 percent of gross domestic product). However, economists caution that UAE fiscal data inaccurately reflect the actual strength of the government’s finances, for two reasons. First, a significant portion of Abu Dhabi’s oil earnings are not reported as current revenue but rather are paid directly into reserve accounts. Second, the data do not reflect the substantial income generated by the emirates from overseas investments, most of which are held by Abu Dhabi. Both of these revenue streams fund part of the federal deficit, and were they to be factored into the budget equation, the government budget could actually show no deficit in 2004 and a higher surplus in ensuing years.

Inflation: Inflation in the UAE is more marked than in most of the oil-based Gulf economies and has risen sharply in recent years, reaching approximately 4.5 percent in 2004 according to UAE government figures. This rise is attributed to a surge in domestic demand generated by escalating international oil prices, higher government spending, low interest rates, and strong population growth. Economists estimate that the rate of inflation will rise to approximately 6 percent in 2005. They note, however, that UAE government data reflect only costs incurred by UAE nationals, who constitute only one-fifth of the population and are protected by an extensive system of subsidies that restrict price increases on a range of core goods and services. A more realistic measure of the cost of living for all UAE residents (factoring in the weakening of the dirham against major currencies) would result in an inflation rate close to 10 percent.

Agriculture, Forestry, and Fishing: As a result of adverse climatic conditions (nutrient-poor soil, extreme aridity, and high summer temperatures) in the UAE, in 2004 agriculture represented a relatively small portion (an estimated 2.7 percent) of the country’s gross domestic product. Employment in the agricultural sector occupied only approximately 7 percent of the employed population in 2004, but because a relatively high proportion of UAE nationals are employed in farming, the sector receives a disproportionate share of government subsidies at both the federal and local levels. Dates remain the UAE’s major crop in terms of area cultivated, but the production of vegetables has increased dramatically, particularly in Abu Dhabi, and currently generates the most revenue. Other major products are eggs, dairy products, and poultry.

Fishing and pearl diving traditionally were an important part of the economy, but the pearl industry collapsed with the development of cultured pearls. Fishing is done almost exclusively for domestic consumption. There is no fish-processing industry in the UAE to provide a market for the 20,000 or more tons of fish caught each year that exceed local demand, and the surplus is either exported or returned to the sea.

Mining and Minerals: The UAE’s economy is dominated by the hydrocarbons sector, which accounts for more than 30 percent of total gross domestic product. The Supreme Petroleum Council, headed by the crown prince of Abu Dhabi, has ultimate control over energy policy in the UAE. Despite the crown prince’s commitment to diversifying the economy by reducing dependency on oil, production continues to rise, with the goal of increasing capacity to 3 million barrels per day by 2007.

According to statistics published in November 2005, the UAE contains proven crude oil reserves of 98 billion barrels, or almost 10 percent of the world total. Of this amount, Abu Dhabi holds 94 percent (approximately 92.2 billion barrels). Dubai contains approximately 4.0 billion barrels. Under the UAE’s constitution, each emirate controls its own production and resource development. Abu Dhabi became a member of the Organization of the Petroleum Exporting Countries (OPEC) in 1967, but Dubai does not consider itself part of OPEC or bound by its quotas. As of late 2005, the UAE’s OPEC production quota stood at 2.5 million barrels per day, and as of third quarter 2005, its crude oil production was 2.5 million barrels per day, which is close to its sustainable capacity.

According to statistics published in January 2005, the UAE has natural gas reserves of 212 trillion cubic feet, the fifth largest supply in the world after Russia, Iran, Qatar, and Saudi Arabia. Abu Dhabi holds the largest reserves—196.1 trillion cubic feet. The emirates of Sharjah, Dubai, and Ras al Khaymah hold considerably smaller reserves. UAE natural gas production rose from 1,100 billion cubic feet in 1995 to 1,500 billion cubic feet in 2002, surpassing consumption demands.

Industry and Manufacturing: Industry (including mining, manufacturing, construction, and power) accounted for an estimated 55 percent of the gross domestic product (GDP) in 2004 and employed an estimated 35 percent of the workforce in that year. The major heavy industries in the UAE are related to hydrocarbons, and the bulk of the manufacturing industry is centered in the Jabal Ali Free Zone in Dubai and the Jabal az Zannah-Ar Ruways industrial zone in Abu Dhabi. The main products are liquefied petroleum gas, distillate fuel oils, and jet fuels. Manufacturing constituted 15.7 percent of GDP in 2003 and employed 11 percent of the workforce in 2003. Aluminum has emerged as a key manufacturing activity over the last 20 years as a result of the growth of Dubai Aluminum, owned by the Dubai government. The company’s 2004 production capacity of 600,000 tons per year placed it as one of the world’s top 10 producers. Other manufacturing sub-sectors are steel and chemicals.

In November 2004, in an effort to strengthen its industrial base, Abu Dhabi entered into a US$1.3 billion joint venture with Volkswagen of Germany to buy Leaseplan, a European car fleet firm. Volkswagen also will manufacture commercial vehicles in Abu Dhabi’s new industrial zone, which is expected to be operational by 2006.

Energy: In 1997, in response to the UAE’s rising demand for electric power, coupled with volatile swings in peak loads, the Abu Dhabi government formed the Privatization Committee for the Water and Electricity Sector to assess the emirate’s energy requirements and consider privatization as an option. This committee recommended that Abu Dhabi’s water and electricity department be changed to a semi-autonomous regulatory body, the Abu Dhabi Water and Electricity Authority (ADWEA), and that the emirate’s power stations be partially or totally privatized. The privatization of production through the creation of independent water and power projects (IWPPs) has become the cornerstone of ADWEA’s strategy to meet continuing increased demand for power and water (estimated to rise 10 to 15 percent a year). As of 2005, there were four major IWPPs in Abu Dhabi.

The first IWPP was the Taweelah A–2 project, commissioned in 2001, which added 710 megawatts of power and 50 million gallons per day of desalinated water to the UAE’s supplies. As in all IWPP joint ventures, ADWEA has a 60 percent share in the company established to build, own, and operate the plant. Taweelah A–1, a project expanding an existing facility to bring capacity to 1,350 megawatts and 84 million gallons per day, was commissioned in May 2003. The Taweelah B plant, where capacity is currently 1,000 megawatts and 90 million gallons per day, is slated for a US$3 billion expansion. An international consortium has completed an agreement with ADWEA; by 2008 power capacity will be doubled to 2,000 megawatts and water desalination capacity raised by 65 million gallons per day.

The US$3.5 billion Dolphin gas pipeline project was formulated in 1999 to bring gas from Qatar’s massive offshore North Dome Field to the UAE via a 182-kilometer export pipeline. In its initial phase, scheduled to begin in late 2006, the pipeline is expected to carry 3 billion cubic feet per day of Qatari natural gas to the UAE and Oman, almost 10 percent of total world natural gas supplies shipped by pipeline. This project is important to the UAE’s northern emirates, especially Dubai, where natural gas resources are not meeting demand. In addition, the pipeline is viewed as a long-term solution to the rising demand for power and water, because natural gas is the primary fuel for power generation and desalination plants.

The UAE is positioning itself strategically in the Gulf region by participating in a US$1 billion project to build a regional power grid throughout the Gulf Cooperation Council (GCC) countries. The first phase links Saudi Arabia, Bahrain, and Qatar. The UAE and Oman would participate in the second phase, contingent on each country’s having its own unified power grid. In 2003 the UAE awarded a contract to Electricité de France to connect all the power stations along its western coast with the central region.

Services: According to the UAE government, the services sector (including financial enterprises and government services) produced 45.2 percent of the gross domestic product (GDP) in 2003 and 42.1 percent of GDP in 2004. This sector employed more than 1.3 million persons in 2003 and more than 1.4 million in 2004, which is approximately 60 percent of the total work force.

Banking and Finance: The UAE Central Bank was established in 1980 to direct monetary, credit, and banking policy. It maintains the UAE government’s reserves of gold and foreign currencies, acts as the bank for banks operating in the UAE, and acts as the state’s financial agent at international financial institutions. In response to pressure from the World Trade Organization to open the banking sector to more foreign competition, in late 2004 the UAE Central Bank stated that it would consider allowing new foreign banks to establish themselves in the UAE for the first time in 20 years, but as of late 2005 no new licenses had been issued. Relative to its population and gross domestic product, the UAE has an unusually high number of banks—21 local, 25 foreign, 2 specialized, and approximately 50 representative offices of other foreign banks. The top five commercial banks control 65 percent of total banking assets and reported very strong profit growth from 2002 through the third quarter of 2005.

The Dubai International Financial Center (DIFC) opened officially in September 2004. The DIFC is a self-regulating financial free zone, operated independently of the UAE Central Bank and including more than a dozen international financial institutions. In September 2005, it established the Dubai International Financial Exchange, which provides markets for equities, bonds, funds, sharia-compliant products, and derivatives and is fully open to foreign investment.

The Dubai Financial Market (DFM) opened in March 2000 and by February 2004 had 14 listed companies. It reported an increase in trading volume of 49 percent between 2002 and 2003. The Abu Dhabi Securities Market, which has been linked electronically to the DFM since 2004, reported an increase in trading volume of 176 percent between 2002 and 2003. The Shuaa Capital UAE General Index has shown exceptional growth. It rose by 103 percent in 2004 and at the end of November 2005 was up 125 percent since the beginning of the year.

Terrorism is financed using the banking system in two primary ways—through money laundering and through financial transactions in the hawala system, which is a traditional alternative remittance system that operates outside the control of the conventional banking sector. After 9/11 a link was drawn between branches of Citibank in the UAE and the United States and financing of the terrorist attacks. In response, the UAE Central Bank has frozen the assets of organizations suspected of having ties to al Qaeda or to the former Taliban regime in Afghanistan. Legislation was enacted in 2002 tightening reporting requirements for financial transactions and increasing penalties for money laundering. Hawala operators, thought to be the conduit for much of the funding earmarked for terrorist activities, are now licensed in the UAE and required to report suspicious transactions to the UAE government. However, it is unclear how effective these regulations are.

Tourism: The primary source of the UAE’s rapidly growing tourism sector is the Dubai Emirate, which hosts the world’s tallest hotel. It has seen dramatic growth in hotel revenue (a 42 percent increase from 2003 to 2004) and reports hotel occupancy rates over 80 percent. The emirate hosted 5.5 million visitors from India, Pakistan, Iran, Lebanon, the Philippines, Europe, Australia, and South Africa in 2004, two-thirds of whom were traveling for business purposes. The main attractions for tourists are beaches, nightlife, shopping, and luxurious accommodations. Dubai has grandiose plans for the future—the building of four man-made island structures off the coast (valued at US$3 billion each) that will house more than 100 new hotels, as well as residential villas and apartments.

Labor: Numerous labor issues plague the UAE, resulting directly from the disproportionate number of expatriates (80 percent of the population) living and working there. In 2004 expatriates constituted 2.5 million of the total labor force of 2.7 million, which means that nationals constituted less than 10 percent of the employed population. Nationals make up an estimated 80 percent of the federal and emirate-level civil service but hold only 2 percent of jobs in the private sector, which provides 52 percent of the jobs in the UAE. Recognizing that foreigners dominate the private sector, both as employers and employees, and that by 2006 there will be more than 100,000 secondary school and approximately 70,000 technical college/university graduates seeking employment, the concept of “emiratisation” is becoming the predominant theme in the debate over government labor policy. In addition to evaluating ways to create employment opportunities in various economic sectors (including enforcing a minimum quota of UAE nationals across the private sector, as currently exists in the banking sector), the government is developing enhanced school curricula to reflect the need for stronger math and science skills, as well as improved English language skills.

Hundreds of thousands of low skilled, poorly paid (often unpaid) South Asians work in the UAE in substandard living conditions without any rights or recourse for alleged abuses. Workers reportedly are denied health care, and there have been numerous instances of industrial accidents, particularly in the construction industry, which is the main employer of expatriate Asian labor. According to the U.S. Department of State, in 2005 there were approximately 20 widely publicized organized demonstrations of workers complaining of unpaid wages and unsuitable working conditions, and in September 2005 approximately 1,000 construction workers blocked a main thoroughfare in Dubai to protest unpaid wages. These incidents attracted widespread media coverage; in response, the UAE has begun to crack down on errant companies.

Confirming his pledge on taking office to promote the interests of UAE nationals, in early 2005 the UAE president announced a 25 percent pay increase for all citizens working in federal government institutions as well as the UAE armed forces and employees of the Abu Dhabi Emirate, effective May 1, 2005. Expatriates working in the public sector are eligible for a 15 percent raise.

Foreign Economic Relations: In 1977 the Arab Monetary Fund (AMF), based in Abu Dhabi, was established by 20 Arab states to provide loans to member states, primarily for balance-of-payments support. In 1981 the UAE joined with Saudi Arabia, Kuwait, Bahrain, Qatar, and Oman to form the Gulf Cooperation Council (GCC). Although the GCC was created primarily in response to regional stability and security concerns, it also serves to coordinate the economic and monetary policies of its members. The UAE is a member of the Organization of Arab Petroleum Exporting Countries, and Abu Dhabi joined the Organization of the Petroleum Exporting Countries in 1967. The UAE has been a member of the World Trade Organization (WTO) since 1996; WTO policies apply to each of the seven emirates.

In September 2003, the International Monetary Fund and World Bank held their joint annual meeting in Dubai, the first time the conference had been held in the Middle East and a clear reflection of the UAE’s pro-Western stance. In early 2004, the UAE and the United States signed a Trade and Investment Framework Agreement, the first step toward negotiation of a bilateral free-trade agreement (FTA). In November 2004, the United States formally announced that it would negotiate an FTA with the UAE and Oman, and negotiations began in March 2005. Saudi Arabia has opposed FTAs between GCC member countries and the United States as violations of an existing GCC external tariff agreement and has argued that the GCC should negotiate trade agreements as a bloc, as it is doing with the European Union.

In a show of regional unity, and of greater political and diplomatic than economic consequence, the UAE and Qatar have announced they will build a US$1.8 billion causeway linking the two countries. The causeway project will be part of a network that eventually will link four of the six GCC states by one road.

Imports: Imports totaled US$54.2 billion in 2004 and are projected to increase to US$60.2 billion in 2005, US$65.6 billion in 2006, and US$68.2 billion in 2007. Principal imports are machinery and transport equipment, chemicals, and food. The principal source of UAE imports in 2003 was China (10.3 percent of the total). Other major countries of origin included India, Japan, and Germany.

Exports: In 2004 UAE exports totaled US$82.7 billion; this number is projected to increase to US$103.7 billion in 2005, as a result of record oil prices, and to US$106.8 billion in 2006. According to official balance-of-payments statistics, hydrocarbon exports account for almost 60 percent of the UAE’s total export revenues (including re-exports). Non-oil sectors of the economy contribute approximately 40 percent of the country’s total exports. The primary destinations of UAE exports in 2004 were Japan (26 percent of total exports), South Korea, Thailand, and Iran.

Trade Balance: The UAE has recorded merchandise trade surpluses every year for more than 20 years. As a result of the improved outlook for international oil prices, economists expect continued significant increases in export revenues. Import spending also will continue to rise as domestic demand increases. The overall effect on the UAE’s economy is a trade surplus of US$29 billion in 2004, and a projected trade surplus of US$42 billion in 2005 and 2006.

Balance of Payments: Economists point to two primary factors contributing to the UAE’s current-account surplus: growth of services exports and greater return on the emirates’ large portfolio of foreign assets, fueled by higher interest rates. Although these inflows will be offset by higher costs associated with rising import volumes and continued reliance on foreign labor, a net current-account surplus of US$12.7 billion is calculated for 2004 (about 14 percent of gross domestic product—GDP), and a surplus of US$26.2 billion is estimated for 2005 (about 22 percent of GDP). The surplus is expected to narrow to US$23.3 billion in 2006 and to US$15.6 billion in 2007.

External Debt: The UAE does not release data on external debt, but the Organisation for Economic Co-operation and Development reported that foreign borrowing was US$18.6 billion at the end of 2000, which represented 27 percent of gross domestic product. Economists estimate that the debt stock rose to US$22.9 billion by the end of 2004. These amounts are attributed to the growing number of infrastructure projects financed through medium- and long-term foreign borrowing. According to U.S. government and International Monetary Fund estimates, UAE reserves of foreign exchange and gold in 2005 ranged from US$19.8 billion to $23.5 billion.

Foreign Investment: The UAE traditionally has resisted establishing a liberal economic environment favorable to foreign investment, and each emirate retains close controls on foreign ownership rights. In 2004 economists cited statistics from the United Nations Conference on Trade and Development setting the foreign direct investment average in the UAE at US$150 million to US$200 million per year in previous years but noted that factoring in private investment in joint ventures such as the independent water and power projects in Abu Dhabi would yield a much higher dollar amount. The Kuwait-based Inter-Arab Investment Guarantee Corporation has reported that between 1985 and 2001 the UAE received approximately US$2.1 billion in Arab capital while it in turn placed nearly US$1.3 billion into Arab markets.

The level of foreign investment in the UAE may well increase in the near future, as laws are liberalized and investment opportunities increase. At present, the UAE’s companies’ law stipulates that foreign investors may own a maximum of 49 percent of a company registered in the UAE; the controlling share of the company must remain with a UAE national. Companies located in designated “free zones” may be 100 percent foreign-owned. The UAE government views the establishment of these trade zones (most of which are in Dubai) as an effective magnet for foreign investment. Companies doing business there are eligible for corporate tax holidays, exemption from personal taxes, repatriation of capital and profits, and exemption from import duties and currency restrictions. Work is near completion on a new companies’ law that would allow foreigners to have a majority share, possibly 100 percent, of UAE-based firms. The UAE government is also expected to repeal the sole agency rule that requires firms wishing to sell goods in the UAE to operate with a single local partner.

In August 2005, the UAE president and ruler of Abu Dhabi issued a decree allowing non-Gulf Cooperation Council (GCC) foreigners to own property in that emirate through 99-year renewable leases on residential and commercial buildings; land ownership will remain restricted to UAE nationals. On March 14, 2006, the Dubai government issued Law No.7 allowing UAE and GCC citizens as well as expatriates to acquire freehold and 99-year lease property in designated areas in the emirate. In addition, World Trade Organization requirements will force the UAE government to reform, by mid-2006, a number of other business regulations that currently impede foreign firms doing business there.

The Dubai International Financial Exchange, opened at the end of September 2005, is a bond, equity, and derivatives exchange that is 100 percent open to foreign investment. The UAE wants to attract foreign issuers, particularly from the Arab world, South Africa, and India.

Foreign Aid: The Abu Dhabi Fund for Development assists developing countries in the development of their economies by extending project loans, guarantees, technical assistance grants, and equity participation. Since its founding in 1971, the fund has given approximately US$5.2 billion in aid to 56 countries; the majority of its loan commitments (80.5 percent) have gone to Arab countries. Asian countries receive 9.5 percent of the fund’s total assistance, and African countries, 7 percent.

Currency and Exchange Rate: The UAE’s currency is the dirham (Dh), which is valued at Dh 3.67 per US$1. The dirham has been pegged to the U.S. dollar at this rate since the mid-1980s. In December 2001, the Gulf Co-Operation Council agreed to establish a single currency for the region, the “dinar,” by January 2010.

Fiscal Year: The UAE’s fiscal year coincides with the calendar year.

TRANSPORTATION AND TELECOMMUNICATIONS

Overview: The UAE’s modern internal transport system was developed primarily in the 1960s and 1970s, with the construction of main roads to link the major cities. Maritime trade is a mainstay of the economy because of the UAE’s strategic location on the Persian Gulf, and Dubai’s ports at Mina Rashid and Mina Jabal Ali (the largest man-made port in the world) are considered the UAE’s premier maritime facilities. The road network is well advanced in urban areas, and a light rail system is under construction in Dubai City. The UAE has six international airports, and the emirates of Abu Dhabi and Dubai are both making major investments in airport infrastructure, potentially increasing passenger traffic exponentially over the next 10 years.

Roads: Transport within the UAE is almost entirely road-based. Development of the road network since the 1970s has been rapid, and the quality of the roads is good, particularly in Abu Dhabi and Dubai. The UAE has 1,088 kilometers of paved roadways, including 253 kilometers of expressways. Dubai Municipality, which is responsible for government transportation policy in that emirate, has announced plans to introduce tolls on its busiest roads in an effort to reduce growing traffic congestion. It also plans to expand Dubai’s urban bus network and promote commuter ride-sharing to alleviate this problem.

Railroads: The UAE currently has no rail network, but construction began in October 2005 on Dubai Metro, a US$3.5 billion, 70-kilometer, two-line urban light rail system. This project, slated for completion in 2009, will be 100 percent financed by the Dubai Municipality.

Ports: According to the UAE government, 15 commercial ports (including oil terminals) currently serve the country, with a total capacity of more than 70 million tons. Located in the city of Dubai, Mina Rashid, completed in 1972, is the leading port of the Gulf region. It has modern facilities to handle almost all types of commercial and passenger shipping, including roll-on-roll-off containers. Also located in Dubai, Mina Jabal Ali, completed in 1979, is the largest port in the country and the largest man-made harbor in the world. It deals primarily in bulk cargo and industrial material for the Mina Jabal Ali Free Zone, an international investment haven. In 2004 the two ports had a combined annual traffic of more than 77 million tons of cargo, nearly 6.5 million 20-foot-equivalent-units of containers, and 14,000 vessels. The two ports, collectively, ranked tenth in the world in terms of total container throughput in 2004.

In August 2005, the Dubai Ports Authority began the first stage of a multiyear, US$1.4 billion expansion project at Mina Jabal Ali that will increase storage-handling capacity to 2.5 million 20-foot-equivalent units by 2007 and to 5 million 20-foot-equivalent units by 2008. In September 2005, the Dubai Ports Authority merged with Dubai Ports International Terminals to create a single global port operator—Dubai Ports World, owned by the Dubai government. A new regulatory body, the Dubai Ports and Jabal Ali Free Zone Authority, was created to oversee the regulation and administration of Dubai’s port operations.

Mina Zayid, established in 1972, is Abu Dhabi’s main general cargo port. Its container terminals have a capacity of 15,000 20-foot-equivalent-units. A 15-year expansion of this port has been underway since 1998. The first phase, scheduled for completion in 2006, is expected to double the port’s container handling capacity.

Inland Waterways: The UAE has no waterways of any significant length.

Civil Aviation and Airports: The UAE has 35 airports, 22 of which have paved runways, as well as two heliports. Of the 35 airports, six are international.

Dubai is attempting to become a leading passenger and freight hub by undertaking several major initiatives. Dubai International Airport, which now supports 105 airlines, is undergoing a US$4.1 billion expansion, including the construction of a third passenger terminal, two new concourses, and a cargo terminal enabling cargo capacity of 3 million tons per year by 2018. As of third quarter 2005, passenger traffic at the airport had reached 18.5 million; by year’s end, this volume was expected to increase to 25 million passengers. The expansion is expected to increase passenger capacity to close to 60 million people per year. Also under construction is a major international airport at Mina Jabal Ali, which will have six runways and the capacity to handle 100 million passengers per year. In addition, the state airline, Emirates, is planning a major expansion. It has ordered 45 Airbus A380 “superjumbo” airliners, the largest single order for the aircraft from any airline.

Abu Dhabi International Airport, which supports 50 airlines, is undergoing a multi-year, US$500 million expansion project; a second terminal opened in 2005, raising passenger capacity to approximately 3 million per year. Al Ayn International Airport, built in 1994, supports 10 airlines, and plans have been made to spend US$20.5 million to expand its facilities. In 2003 Abu Dhabi launched Etihad Airways to compete with Emirates and has announced a US$7 billion investment program to expand the fleet from 35 to 100 aircraft by 2010.

Sharjah International Airport, the first airport to be built in the UAE, launched the low-cost Air Arabia Airlines in 2003 to serve destinations in the Middle East and Asia. The airport handles 1.3 million passengers per year. There are currently plans to spend US$61 million over the next two years to expand this airport’s facilities.

Pipelines: According to the U.S. government, as of 2004 the UAE had a total of 6,365 kilometers of pipelines. This total includes pipelines designated for various products: condensate, 469 kilometers; gas, 2,655 kilometers; liquid petroleum gas, 300 kilometers; oil, 2936 kilometers; and oil/gas/water, 5 kilometers.

Telecommunications: The US$250 million Dubai Internet City (DIC), opened in 2000, has made Dubai the regional center for e-commerce, attracting major international telecommunications firms. The DIC offers various incentives to companies that locate there, including 100 percent foreign ownership rights, tax-free corporate earnings (guaranteed for 50 years), exemption from customs duties, and full rights to repatriate profits.

Etisalat, the UAE state telecommunications operator, provides Internet access to 1.1 million users and has a virtual monopoly on the country’s telecommunications; it also operates and maintains the national and international fixed telephone line network, mobile telephony, and cable TV services. The company has been highly successful, has expanded outside the UAE, and has invested heavily in telecommunications infrastructure. Efforts are underway to end Etisalat’s monopoly in 2006, on expiration of the 10-year monopoly exemption negotiated with the World Trade Organization (WTO). In 2004 the UAE government established the Telecommunications Authority to oversee the general process of telecommunications deregulation.

The UAE is believed to have the best telecommunications network in the Arab World—the highest voice connection and broadband Internet connectivity capacity per capita. The UAE also has the lowest mobile-phone rates in the Arab world (US$0.06 per minute). According to the International Telecommunication Union, the UAE has more than 3 million mobile cellular telephone subscribers, as compared with nearly 1.2 million landlines in use. These numbers represent a penetration rate of, respectively, 85 and 28 lines per 100 residents. The technology used for domestic lines includes microwave radio relay and fiber optic and coaxial cable.

Except for those located in Dubai’s Media Free Zone, most television and radio stations are government owned. The government-owned Emirates Media owns Abu Dhabi’s radio and television stations. As of 2004, 15 television broadcast stations and 13 AM, 8 FM, and 2 short-wave radio stations were in operation.

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