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WEEKLY NEWSLETTER
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United Arab Emirates
Index
Offshore oil rig; oil is the major revenue source of the
United Arab Emirates.
Courtesy Embassy of the United Arab Emirates, Washington
Mina Jabal Ali, southwest of Dubayy, a major port engaged
in the transshipment trade
Courtesy Embassy of the United Arab Emirates, Washington
Before the discovery of oil, the separate amirates that
now
constitute the UAE had similar economies. The raw
materials of
these economies were the fish and pearls of the gulf and
the
meager soil and scarce water onshore. In this forbidding
milieu,
the rich and poor fought heat, disease, and famine to make
a
living. Occupations ranged from slaves who dived for
pearls and
artisans who hammered coffee pots or stitched sandals to
wealthy
pearl merchants and powerful shaykhs. Among the sources of
revenue for ruling shaykhs were the collection of customs
fees,
the issuance of fishing licenses, and the imposition of
levies on
date groves. Pearl merchants, many of whom were also
landholders
and moneylenders, gained political influence through their
wealth
and connections. In addition, there were cultivators of
dates in
oases, nomadic livestock herders, and small-scale traders.
Pearls from the rich banks off the amirates' coast were
probably the single largest source of wealth until the
1930s and
1940s. In 1905 the pearling trade involved 22,000 men from
the
amirates working in about 1,300 boats, and income amounted
to
£600,000. Trade and fishing were also important maritime
activities. Sharjah, the principal port and political
power in
the nineteenth century, was in the twentieth century
eclipsed by
Dubayy. A large boatbuilding industry, using timber
imported from
India, developed along the coast; the industry supplied
vessels
of varying sizes and designs for pearling, fishing, and
transport. The Great Depression of the 1930s, coinciding
with the
development of the Japanese cultured pearl industry,
severely
disrupted markets for the Persian Gulf. At about the same
time,
large numbers of men from the amirates began to migrate to
work
in the fledgling oil industries of Kuwait, Bahrain, and
later
Qatar and Saudi Arabia.
Agriculture is limited to those few locations where
fresh
water is available. In the Al Buraymi and Al Liwa oases
and the
plains of Ras al Khaymah, relatively abundant water
resources
permit settled agriculture, especially the cultivation of
date
palms and fodder crops. The wells of the oases also
provide water
for the nomadic population, who migrate with their animal
herds
throughout the desert areas in search of seasonal forage.
British hegemony in the Persian Gulf had positive and
negative economic consequences for the inhabitants.
British
suppression of maritime raiding, for example, meant that
pearling
fleets could operate in relative security. (The fleet had
previously been unable to sail during periods of unrest,
losing
vital income for divers and merchants alike.) Some shaykhs
and
merchants benefited from regular visits by steamships from
Britain and from other countries. For a period of time,
local
Indian merchants received deferential treatment as a
result of
Britain's control of India. On the negative side, however,
the
British prohibition on raiding and trading in slaves and
arms
meant an important source of income was lost to some
shaykhs and
merchants. In addition, because non-British powers were
kept out
of the gulf, trade and development opportunities were
lost.
British development assistance began piecemeal in the
1940s
and 1950s, prompted by fears that the United States and
other
countries would gain a foothold in the region and compete
for oil
concessions. Total outlays in 1954-55 were £50,300 and
funded a
water resources study, an irrigation restoration project,
improvements at the hospital in Dubayy, and school
construction
in Sharjah. In 1961-62 the amount rose to £550,000. The
total
British investment between 1955 and 1965 was £1 million.
Neighboring Qatar provided a freshwater system for Dubayy
and the
first bridge across the city's creek. Saudi Arabia built a
road
from Sharjah to Ras Al Khaymah. Britain also paid
Sharjah's ruler
to allow the establishment of a military base there in
1966.
Trade began to grow, especially in Dubayy, in the 1950s
and
1960s. Imports increased from £3 million in 1958 to £8
million in
1963 and £41.7 million in 1967. Gold, often smuggled into
India,
greatly enriched Dubayy merchants and bankers during this
period.
An estimated 250 tons of gold brought revenues of about
£80
million in 197O.
The discovery and export of petroleum resulted in a
major
transformation of the amirates' economies. Before
federation, oil
revenues enriched the royal families who ruled the
amirates in
which production occurred and provided funding for local
economic
development. After the formation of the UAE, oil revenues,
especially from Abu Dhabi and Dubayy, continued to fuel
local
development but increasingly became the main engine of
growth for
the national economy.
Oil revenues became significant in Abu Dhabi in 1963,
in
Dubayy in 1970, in Sharjah in 1975, and in Ras al Khaymah
in
1984. The disparity in resource endowment and timing of
oil
discoveries led to uneven economic development before and
after
federation. The governments of Abu Dhabi and Dubayy, which
together in 1991 accounted for 99 percent of the UAE's
production, expend significant portions of their oil
revenues on
infrastructure development, including airports, highways,
and
port facilities. Nonetheless, Abu Dhabi's economic
predominance
has created tensions with the other amirates. Lack of
coordination in economic development and duplication in
facilities and industries are problems that political
federation
had not solved as of 1993.
The rapid pace of development brought other problems.
In the
early and mid-1970s, the distribution system could not
keep up
with the massive amounts of imports. Shortages resulted,
and
inflation exceeded 30 percent per year. By 1982, however,
the
rate of inflation had declined to about 10 percent.
Between 1975
and 1980, the gross domestic product
(GDP--see Glossary)
in constant 1980 prices increased by an average of 16 percent
per year. Although oil production declined after 1977, sharp
increases in world oil prices in the 1979-80 period
brought windfall revenues to the amirates, pushing per capita GDP
up to US$29,000 in 1981, one of the world's highest.
During the early 1980s, the economy began to contract.
This
economic slowdown was caused by several factors, including
lower
oil revenues, the completion of several large industrial
and
infrastructure projects, and the Iran-Iraq War (1980-88).
By 1983
GDP had fallen to an estimated US$26.7 billion, down from
US$32.5
billion in 1981.
The mid-1980s were a period of recession, with GDP
falling
from a little less than US$29 billion in 1983 to US$21.5
billion
in 1986, caused in large part by a 40 percent drop in oil
revenues. Exports fell by 33.5 percent in 1986, and the
federation's trade surplus dropped 58 percent compared
with 1985.
As a result of the austere conditions, the 1986 federal
budget
allocated funds mainly for current expenditures, stalling
many
new projects.
The late 1980s and early 1990s saw improving
conditions, with
oil exports increasing. A spurt in oil prices as a result
of
Iraq's invasion of Kuwait helped push GDP to almost US$34
billion
in 1990. Contracts to help rebuild Kuwait after its
liberation
aided the UAE economy. But the invasion also had negative
effects. Banks lost between 15 and 30 percent of their
deposits,
and development projects were halted. Trade declined as a
result
of uncertainty and higher insurance premiums. And the UAE
paid
out about US$6 billion to the United States and Britain to
help
defray the military costs of the war and to contribute to
a fund
that supported countries whose economies were severely
hurt by
the war.
The collapse of the Bank of Credit and Commerce
International
(BCCI) in the summer of 1991 caused ripples throughout the
UAE
economy
(see Banking
, ch. 6). The BCCI collapse became a
major
international scandal because the bank had become a
significant
financial institution in several countries, including
Britain and
the United States, and because members of Abu Dhabi's
ruling
family were major shareholders in the bank.
Data as of January 1993
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