The UAE: key economic and socio-political challenges

[“The UAE: key economic, environmental and socio-political challenges going forward”]



Needs to be ‘productive’, if not, GREs and SOEs will become as bloated and inefficient as the bureaucratic echelons of most Government departments and ipso facto will not be internationally competitive.

Challenge  To find ‘productive’ employment for UAE nationals in SOES the quasi- and ‘real’ private sector (Emiratisation in Government departments has already happened – administrative and ‘management’ positions anyhow) without rendering extant private sector entities and flagship commercially-run GREs uncompetitive internationally.

Best Case  The ‘social contract’ is redefined, benefits are fully separated from employment and ever greater numbers of Emiratis seek to engage in more onerous and productive occupations; the cost of recruiting non-nationals becomes more expensive and thus national reservation wage demands are no longer considered prohibitive by much of the private sector.

Worst Case  Emiratisation does not actually work in the real private sector due to skills sets and/or reservation wage demands; in GREs and SOEs it results in inefficiently run businesses that are not internationally competitive and thus will require ongoing Government subsidisation.

Most Likely  Emiratisation will be considered by the real private sector as a form of taxation and will be factored into the cost of setting up in the UAE vis-à-vis the region’s other ‘business friendly’ hubs. But gradually and due to ADEC and a renegotiation of the ‘social contract’ Emiratis will increasingly be able and willing to take on productive roles within GREs and SOEs.


This is a two-fold issue: as it encompasses (a) decreasing the number of low-skilled non national workers – controllable – and (b) measures to increase the national Total Fertility rates – uncontrollable as little evidence exists that the state can positively influence this to a significant degree.

Consult  Middle East Policy, 18(4): 25-43

Challenge  To reduce the ratio of non-nationals to nationals. Presently of a total UAE population of a little more than eight million only c. 900,000 are Emirati citizens.

Best Case  Systemic introduction of labour-saving technologies reduces the need for such numbers of non-nationals, improved education results in bilingual Emiratis (i.e. Arabic no longer under ‘threat’ from English/Hindi etc.) and nationals maintain current TFR rate of above 3.

Worst Case  National TFR continues its downward trend levelling off at around 2.1 and dependence on low skilled non-national labour remains at current levels. Nationals increasingly feel marginalised in unspecified ways as a result of the ‘imbalance’ .

Most Likely  National TFR remain higher than the global average for high-income countries due to improved maternity rights (for citizens at least) and (a) the increased emphasis on labour-saving technologies (b) the gradual removal of the sponsorship system as it currently manifests and (c) the easing off of large scale infrastructure developments results in a net reduction in the number of non-national workers required.


Challenge  To alter the incumbent system whereby (and as a tenet of the ‘social contract’) citizens can benefit financially be granting non-nationals work permits – the opportunity cost being the luxuries afforded by having petrol pump attendants and several domestic workers per household will become a thing of the past.

Best Case  This system that has at times led HRW etc. to consider the UAE to be exploiting South Asian workers etc. becomes a thing of a past, domestic private sector entities invest in technology as opposed to business practices tailored to having access to large pools of unskilled workers.

Worst Case  The status quo continues, the discord between some sectors of the citizenry and large numbers of non-nationals continues.

Most Likely  Gradually the sponsorship system is phased out, at least the cost for nationals to recruit non-nationals – the work permit issuance system – will be made progressively more expensive and thus providing more incentive for businesses to invest in labour-saving technologies.


Presently a key transmission mechanism of the UAE’s ruling bargain is the provision of a well remunerated ‘government job’ for each and every national irrespective of merit.

Consult  Middle East Policy, 17(2): 38-51

Challenge  To distribute oil wealth to the citizenry in ways that do not act to distort the labour market.

Best Case  All associated benefits are detached from (sinecure-type) government jobs, and allocated to nationals via other mechanisms, this will enable the public sector to become more productive and act to normalise private sector employment.

Worst Case  Due to inter alia socio-cultural sensibilities, tribal characteristics the provision of government jobs for the majority of nationals continues apace; this becomes an ever greater recurrent fiscal burden due to the country’s demographic profile and hinders the strategic vision of transitioning to a knowledge-based economy.

Most Likely  Security services aside, more and more nationals will accept undertaking additional vocational courses and positions other than administrative ones in GREs and SOEs; gradually the Government remove the additional benefits attached to ‘government jobs’ and thus make the pull of this sector less stark.


Challenge  To fulfil the aims and objectives set out in the 2008 manifesto, the physical infrastructure is realisable as the Emirate can afford the strategic acquisitions/ investments (off-set program) and recruit the human capital required to put this in place. Therefore the challenge will be to foster/incubate the indigenous human capital required to render this vision sustainable in the longer term,

Best Case  Within reason the aims and objectives are met and the current generation of nationals residing in Abu Dhabi are suitably skilled and motivated to take part as a result of the systemic educational reforms that are being spearheaded now by ADEC.

Worst Case  Not only is the national human capital not in place but many of the flagship projects are either not completed or are but do not meet the expectations of society and business.

Most Likely  Most of the key infrastructural projects are in place (and are well received) and, in terms of human capital, a situation somewhere in between the above two.


Challenge  As the key actors that have been set up and tasked to implement the main aspects of the Economic Vision, these entities need to created a motivated, suitably skilled and competitively priced workforce and acquire strategic assets and add-value locally respectively.

Best Case  ADEC systemically overhauls the Emirate’s education system and this is then rolled out across all Emirates. The industries that Mubadala are now investing in are (a) commercially viable and (b) attractive to future generations of Emirati jobseekers. Moreover, the schemes that are now limited to the Emirate of Abu Dhabi – once deemed to be successful are rolled out/replicated in the Northern Emirates.

Worst Case  (1) The changes that ADEC try to implement are not well received (esp. the focus on English to the ‘detriment’ of Arabic) and do not produce the desired human capital. Mubadala’s investments do not become competitive and remain dependent on Government subsidies (directly or indirectly). (2) The investments in the Emirate of Abu Dhabi are not replicated in the Northern Emirates and result in an increasingly divided Federation in terms of employment prospects and the quality of educational attainment levels.

Most Likely  To far off to forecast with any degree of credibility.


While competition within and between Emirates can be construed as positive in terms of driving innovation and competitiveness, in two areas aviation and finance such duplicity between Abu Dhabi and Dubai may be inefficient at the state level.

Challenge  How best to merge Emirates/Etihad and DIFC/ Sowwah Island. If this can be achieved the UAE would stand a good chance of becoming the Middle East’s if not the world’s key aviation hub and the MENA region’s de facto financial hub.

Best Case  Dubai becomes the leading aviation hub in the world and the (possibly renamed)Mattoon International Airport (which is anyway on the Abu Dhabi board) becomes the home of Emirates-Etihad. Abu Dhabi – home of the Central Bank – and backed by its resource wealth and SWFs – in close proximity to Dubai’s commercial and transport hub (DP World) -becomes the de facto financial hub for the MENA region.

Worst Case  Such duplicity continued and grows and ultimately wastes the financial resources of both Emirates and potential synergies are not realised.

Most Likely  Hard to say, but AD may become the financial hub irrespective of a merger between the two Emirates stock markets and there is constant talk of Dubai relinquishing some degree of control over Emirates airline in return for assistance with debt repayments.


Challenge  To legislate UAE-wide binding and unambiguous legislation on property ownership rights for non-nationals (all cohorts), in order to re-establish investor confidence.

Best Case  A unified property ownership-law is put into law and is deemed as credible by all classes of international investor.

Worst Case  The discord resultant from Hydra Properties etc. etc. is repeated and the UAE is never able to attract second-home owners as it was prior to 2007, and will only be capable of temporarily attracting speculators and war-refugees.

Most Likely  Due to the seemingly perpetual regional instability a great many people will continue to want to own a property in the UAE – even if ambiguities remain – such buyers will mostly be from other Arab states and South Asia, not Europe and the US.


A sustainable source of non-oil income – exemplified by ‘Visit Abu Dhabi – travellers Welcome; Dubai’s malls and Fujairah’s beaches – but one that necessitates the provision of alcohol and nightclubs etc.

Challenge  To find a balance between on the one hand attracting more tourists and on the other minimising the – real or perceived – costs such tourists are considered by some sectors of the local population to have on the country’s socio-cultural fabric. (The inter-Emirate competition in this sector can be considered as a positive.)

Best Case  The UAE continues its rise as an internationally recognised tourist attraction. Will be augmented once all of the planed attractions on Sadayat Island are completed. (Tourist numbers could be substantially boosted if either of the two national airlines were to offer subsidies short-stay stopovers for the many transit passengers.)

Worst Case  The developments planned for Sadayat Island do not come to fruition the novelty of Dubai wares off – a distinct possibility if the non-mall components of ‘Dubailand’ are not at some point actual implemented.

Most Likely  Barring any unforeseen and sustained terrorist attacks targeting tourists; the best case scenario.


Challenge  To ensure that prior to the depletion of commercially extractable oil and gas, the UAE is able to sustainably maintain the current living standards experienced by Emiratis. (This is a challenge that may not need to be faced for several generations.)

Best Case  The Abu Dhabi Economic Vision 2030 is successfully realised and is subsequently duplicated in the Northern Emirates. ADIA et al. Accumulate enough resources so that this sovereign wealth can act as a sustainable substitute for the current oil-rent.

Worst Case  The current levels of living standards are considerably reduced.

Most Likely  To far off to forecast with any degree of credibility.


Challenge  To ensure that water shortages are avoided.

Best Case  The country’s water and electricity requirements are able to be met by way of Abu Dhabi’s nuclear power program, which may need to be expanded for that which is currently going to be constructed.

Worst Case  The Northern Emirates suffer from more electricity and water cuts and this becomes a key bone of contention for FNC members from these Emirates.

Most Likely  Abu Dhabi’s nuclear program is capable of providing enough energy for desalination to provide enough water, but current excesses/luxuries (e.g., European grass lawns) are less common and are priced at non-subsidised rates.


Consider the recent case of Dubai no longer being willing to subsidise the petrol pumps of the Northern Emirates and Abu Dhabi’s Emirat (ADNOC) having to step in.

Challenge  To reduce the amount of petrol, water and electricity that is needlessly consumed, in no small part due to the extent to which such products are subsidised.

Best Case  Nationals and non-nationals are to pay for such utilities at non-subsidies prices (poorer members of either cohort could be given an allowance for sensible usage levels).

Worst Case  The status quo is maintained.

Most Likely  The degree to which non-nationals have such utilities subsidised is gradually cut until they pay the actual cost price, after which more and more nationals are to pay cost price for such utilities over and above a free allowance for what is considered sensible usage levels.


Dubai is – if only for commercial reasons – a lot closer to Iran than is Abu Dhabi, this divergence is likely to keep the UAE away from being the West’s regional ally in any pre-emptive action targeted at Iran.

Challenge  To seek to mitigate against any negative consequences of Western (read Israeli-led) aggression towards Iran be it security costs, loss of international investor confidence, reduction in numbers of tourists.

Best Case  The UAE officially opposes any attack and does not in any way facilitate such actions (as might other Gulf states due to the US military assists housed there), and benefits as it indirectly did from the wars in Afghanistan and Iraq as many wealth Iranians seek shelter in the UAE for themselves and their capital.

Worst Case  If the long-run dispute over the three islands of Greater and Lesser Tunb and Abu Musa becomes part of the case against Iran, and the UAE in some practical way aides an attack on Iran; Western interests in the UAE could conceivably become targets for Iranian retaliatory actions. (This is a worst case scenario but is within the realms of the possible.)

Most Likely  Any attack on Iran is limited and is seen by Iran for what it most probably will be, an Israeli-led and motivated targeted attack and therefore, the UAE will not be blamed and thus be subjected to actual Iranian retribution; the UAE will continue to benefit as a conduit for investment of Iranian oil wealth.


This is mentioned as other analysts may raise this as a challenge/issue going forward, but I do not see this as likely in terms of it posing a serious socio-political threat. This holds for both national and non-national cohorts. Disenfranchisement and dissatisfaction with rights etc. respectively are not forecast to lead to any serious threats.


This is mentioned as other analysts may raise this as a challenge/issue going forward, but I do not see this as likely. Abu Dhabi and ADIA can more than cover/underwrite the debt and are unlikely to wait to the 11th hour again to ‘bail out’ Dubai as this backfired to an extent on Abu Dhabi’s own credibility.

Rutledge, E.J. (2012) for Oxford Analytica
Oxford Analytica