Previous Quarterly Editions
Expropriation Risk: 40 39 38 40 ▲Political Violence Risk:35 35 35 35 ►Terrorism Risk:20 38 38 36 ►Exchange Transfer and Trade Sanction Risk: 35 35 35 35 ►Sovereign Default Risk:15 15 15 26 ▲
TREND ►
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: LowFood/fuel policy protests: Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Inflation in the UAE is not a significant problem. An IMF report from November listed 2022 inflation at 5.2% and projected it at 3.6% for 2023. With a healthy economy, the country is unlikely to require significant austerity measures in the short to medium term. When the country does experience economic downturns, its large expatriate labour force tends to bear the brunt, rather than the Emirati population, and this serves to limit the political ramifications. With two prosperous emirates – Abu Dhabi and Dubai – the country can aid the smaller emirates of Ajman, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain.
Over 80% of UAE residents are expatriates. The social contract in the UAE assumes the government will provide for the needs of Emiratis and offer opportunities for expatriates to earn money. As long as the authorities fulfil that contract, they are well able to control political activities. If inflation became very high, or the fiscal and economic situation became very bad, that contract could deteriorate and risk instability. The authorities are aware of those risks and put significant resources into long-term economic planning, to ensure both economic and political stability. In the short to medium terms, the government has sufficient resources to manage the population’s needs.
The UAE federal and emirate governments allow significant freedoms and prosperity while tightly controlling political speech and activities. Human rights organisations have reported that multiple figures who criticized the government are unjustly imprisoned. Authorities have extensive surveillance capabilities, which help to reduce crime and serve as tools to control political dissent. Protests are rare, though they occasionally occur, for example, Afghan evacuees temporarily living the UAE held a minor protest last year asking for faster resettlement.
Most accusations about human rights abuses stem from treatment of migrant workers, especially poorer workers working in construction and domestic services. The sponsorship system restricting migrants from changing jobs or leaving the country without their sponsoring employers’ permission receives international criticism and also effectively prevents many workers from openly demanding more rights. Most expatriates, regardless of their class background, come to the country to earn money, which reduces their incentives to protest and risk deportation.
During the COVID-19 pandemic, some expatriate workers faced significant problems, including an inability to return to their home countries, lost wages due to the economic downturn, crowded living conditions that fuelled COVID-19 infections, and lack of healthcare. Even under such circumstances, there was little public protest. Significant numbers of migrants left during the pandemic, and the UAE reformed some elements of the sponsorship system and launched a strategy for recruiting and retaining talent in 2021. Strikes are not permitted; when workers have gone on strike in the past, they often were deported, frequently with significant lost wages.
TREND ▲
Expropriation risks are very low. The UAE leads several other Gulf countries in pursuing foreign investment as part of efforts to diversify its economy and expand domestic capital markets.
The recently formed company ADNOC Gas started trading on the Abu Dhabi stock exchange on March 13. The state-owned Abu Dhabi National Oil Company (ADNOC) retains its 90% stake, while the Abu Dhabi National Energy Company (TAQA) holds 5%. The other 5% was floated in the initial public offering, which became the largest ever on the Abu Dhabi stock exchange to date. More than 50 times oversubscribed, the offering saw extensive demand and raised 2.5 billion dollars.
Additional initial public offerings are expected in Abu Dhabi this year, with Bloomberg reporting at least eight companies are expected to list in 2023. The rush is part of a broader regional competition with Saudi Arabia for foreign investment. This policy, spearheaded by national corporate champions, further suggests very low expropriation risks within the UAE.
The country also has worked to attract high-net-worth individuals. A recent report from Dash Venture Labs indicated Dubai experienced 18% growth in such individuals since the pandemic. Last year, the Dubai International Financial Centre announced it would open a new Global Family Business and Private Wealth Centre, which includes a strong focus on high-net-worth individuals. The UAE’s policy of attracting foreign investors, global talent, and high-net-worth people further militates against expropriation risks.
There is regulated space for citizens to lobby the government. The government classifies all forms of anti-state dissent as terrorism and is likely to increase surveillance of residents amid strengthening ties with Israel and the resurgence of the Taliban in Afghanistan.
The government will watch for any Islamist organising. In parallel, Abu Dhabi, through the federal budget, will continue to provide fiscal transfers to the less-developed northern emirates, to pre-empt any social instability over wealth disparities.
The UAE’s intelligence-sharing with regional allies and its well-paid security forces and stringent vetting, alongside its strong civil surveillance, reduce the risk of successful terrorist attacks. Houthi forces targeted Dubai and Abu Dhabi with missile and drone attacks in the first half of 2022. Today, conflict in Yemen continues but at a less intense level than previously.
In March, China brokered a rapprochement between Saudi Arabia and Iran, which offers some hope for de-escalating the conflict in Yemen, which, in turn, could improve UAE security. The UAE government welcomed the resumption of diplomatic relations between Tehran and Riyadh, which has the potential to improve regional security. The UAE and Iran also have pursued improving their relations over the last few months, and those efforts appear to have continued in the wake of the Iran-Saudi agreement. However, the government knows de-escalating tensions with Iran is uncertain and will continue efforts to ensure the country’s security.
The Abraham Accords’ sensitivity (the deal was signed between Israel, the UAE, and the U.S. in 2020) means Abu Dhabi will continue strengthening its intelligence capabilities, emphasizing cybersecurity and AI-powered surveillance.
The UAE’s development model is based on openness to global capital, so the risk of capital controls or to the repatriation of profits is very low. The government’s robust reserves support this orientation, also providing confidence in the country’s ability to maintain its currency’s peg to the US dollar. Inflation is under control; as noted, an IMF report from November listed 2022 inflation at 5.2% and projected it at 3.6% for 2023.
There is some trade sanctions risk: Dubai is a transit point for weapons and drugs smuggling by criminals and militants based in South and Central Asia, East Africa, and the Middle East. The U.S. has repeatedly chastised the UAE for hosting individuals and entities that assist Iran and, to a lesser extent, Russia in circumventing sanctions. On January 30-February 1, Brian Nelson, the U.S. Undersecretary for Terrorism and Financial Intelligence, visited the UAE to encourage it to improve sanctions compliance. The U.S. has sanctioned a number of entities based in the UAE; in just one example, Washington added several UAE-based entities to its sanctions list in March, alleging they help Iran to evade financial sanctions.
‘Dirty money’ flows are another concern. In March 2022, the Financial Action Task Force (FATF) placed the UAE on its ‘grey list’ of countries that are assessed to have “strategically deficient” frameworks for anti-money laundering and countering the financing of terrorism. However, in February, the FATF noted the UAE has “demonstrated significant progress” on its FATF action plan.
Overall, the UAE has low sovereign default risk. In November, the IMF reported the country’s economic growth was strong, and that high oil prices and pandemic recovery had further strengthened external and fiscal surpluses. In October, Fitch affirmed the UAE’s AA- rating and projected a budget surplus of 9.4% of GDP for 2022, likely to decline to 4.4% in 2023. With a breakeven oil price of 63 dollars per barrel for 2023-24, according to Fitch, the country is well positioned for moderate oil prices, though it remains overly reliant on oil revenues. Fitch forecast UAE federal government debt to be around 29% of GDP for 2022.
AA-rated Abu Dhabi enjoys positive credit ratings by the main rating agencies, owing to its strong financial buffers and low government debt. However, the economy’s concentration in hydrocarbons is a downside risk, as it makes growth and revenue strength vulnerable to the likely long-term decline of oil prices.
Dubai’s model of credit-fuelled development and its much smaller oil and gas reserves mean it is far more indebted than Abu Dhabi. In October, Fitch forecast Dubai’s debt at nearly 81% of GDP for 2022. However, the implicit guarantee that Abu Dhabi would shore up Dubai’s liquidity ensures sovereign default risks are contained. Also, the IMF noted in November that tourism and “activity related to the Dubai World Expo” were contributing to the economy and fiscal resources, as the economic hits to Dubai from the pandemic subside.
The economically smaller emirates take varying approaches to fiscal policy, while lacking the oil and gas resources of Abu Dhabi and the commercial success of Dubai. In May 2022, Fitch improved Ras al-Khaimah’s rating to “positive,” reflecting its fiscal management and potential revenue from a planned casino. Sharjah has fared less well; in July, Moody’s reduced the emirate’s credit rating to Ba1 – junk status. Analysts have expressed concern about Sharjah’s growing debt. The wealthier emirates will continue financial support for the poorer emirates, but the latter might face growing pressure to improve fiscal practices.
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