United Arab Emirates

The UAE economy grew by around +3% in 2023, thanks to moderately favorable hydrocarbon prices, higher revenues from tourism and continuous growth in the real estate and construction sectors at large. This year, growth is expected to reduce to around +2.3%, with the non-oil economy losing some grip because of the resurgence of conflicts in the region and increased caution by foreign investors. Despite such headwinds, the overall performance is likely to post among the best results across the Gulf.

Resurgent energy demand following the pandemic, along with a steep spike in international oil prices, led to a rapid increase in oil output and exports in 2022, fueling rapid development in the non-oil economy alongside the full reopening of non-oil industries such as tourism. The latter, along with real estate and logistics, has risen significantly after the pandemic. These trends have continued into 2023, with occupancy rates of hotel rooms in Dubai exceeding 90% and partially offsetting the fact that oil demand growth slowed down and OPEC+ set stricter production quotas. The UAE has been the most vocal opponent of OPEC+ output cuts, and the implementation of a 9% corporate tax rate in July helped increase much-needed non-oil revenues.

Consumer demand remains robust as federal and emirate governments spend extensively on capital programs and resident assistance to alleviate cost-of-living constraints. Government efforts such as easing residency rules for foreign nationals, inflation-relief initiatives and private-sector support are driving economic prospects.

The UAE is a young federation with a history dating back to 1971-1972 and faces typical succession dynamics that may raise concerns despite a general sense of stability perceived by foreign investors. In April 2023, President Mohammed bin Zayed nominated his eldest son Khaled as crown prince, ending the kingdom’s succession dilemma. MbZ was appointed as the UAE’s third president in May 2022 after becoming the country’s de facto ruler in 2014. The appointment took 10 months and involved creating internal consensus with his five full brothers.

Aside from its role in the Israel-Gaza crisis, the UAE has also been sparring with Riyadh over key mediation topics such as Sudan and the Yemen crisis, oil-production strategies, and geostrategic dominance in the Red Sea. In May 2023, the UAE suspended participation in a US-led maritime alliance to protect shipping in the Persian Gulf after Iran seized two oil tankers.

Relations with Russia have improved, sparking skepticism from Western partners. Over a million Russians visited the UAE between January and October 2023, representing a +67% increase over the previous year. Tens of thousands of Russians have also relocated to the UAE, establishing businesses, and purchasing real estate. Western governments are concerned that the influx may conceal the involvement of sanctioned oligarchs and have been pressuring the UAE to restrict relations with Russia. However, major corporate and financial institutions have taken a more cautious approach than authorities.

Insistent allegations that the UAE is becoming a transit point for products like electronics and semiconductors that can be repurposed to support Russia’s war campaign raise reputational risks and may trigger sanctions. Exports of electronic parts from the UAE to Russia rose by more than seven-fold last year, making it the largest type of commodity delivered in that direction. Triangulations to bypass trade sanctions and increased concerns over limited money laundering and counterterrorism controls may restrain diplomatic and commercial relations with key partners and ultimately alienate Western businesses.