MULTI NATIONAL BUSINESS FINANCE

UNITED ARAB EMIRATES

Presented to; Prof. Narayanswamy

Presented by; Syed Abdul Ahad Fin-2 (FW2010-12)

MONETARY POLICIES
The banking sector; The process of establishing a central bank started in 1973. The bank was in charge of issuing the national currency and maintaining its parity. The early 70's witnessed a sharp increase in oil prices that translate into higher government expenditure and a rapid monetization of the UAE economy. By 1975, the domestic liquidity almost quadrupled from AED 2.26 billion in 1973 to AED 8.82 billion in 1975. As a result, the board started to exercise some banking supervision and monetary management. To control domestic liquidity, the board started by indirect measures and increased the required reserve ratio from 5% to 7.5% on dirham deposits. In 1978 the board lowered the ratio on dirham deposits to 7% (and stopped paying interest rate on them), while maintained the ratio on foreign deposits at 5%. The board also introduced measures related to capital adequacy, loan to deposit ratio and allowed swap operations. Commercial banks became subject to periodic examination when the board established a banking supervision unit in 1978.

MONETARY POLICIES
Conduct of monetary policy in the UAE 1991 to present ; By the end of 1991, the bank restructured its various departments, and worked towards enhancing the soundness of the banking system. The bank kept domestic interest rates and the US dollar rates moving together to maintain the nominal dirham US dollar peg. In addition, the bank continued to use the reserve requirement for the control of the short-term movement The average required reserve ratio has been 6.5 to 7 % during the 90's. Banks are discouraged from making net short-term dirham deposits abroad through a high reserve requirement of 30% on deposits for up to one year. Effective tools available to the central bank for liquidity management include the central bank certificate of deposits (CDs) these are designed to develop some type of open market operation. The central bank has adopted a number of measures to ensure the soundness of the banking system. These measures include the move toward adopting international accounting standard (IAS) plus the requirements of provisions for non-performing loans, capital adequacy ratio, risk assessment by the central bank, loan to stable resource ratio, limits on personal loans, and limits on large exposures.

MONETARY POLICIES
Decomposing the Sources of Base in UAE ; Domestic credit expanded dramatically from AED1.8 billion in 1973 to AED28 billion in 1980. The expansion, which went mainly to the private sector, was due to the oil boom and the expansion in the construction and trade sectors. During the second phase of the expansion 1980 to 1997, domestic credit increased to AED103.2 billion.

FOREIGN EXCHANGE SYSTEM

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. In March 2005, negotiations between the United States and the UAE began on a bilateral free-trade agreement (FTA). The economy follows Fixed Peg exchange rate system. Current exchange rates to major currencies; USD- 0.272242 GBP- 0.1738 YEN- 0.0438 EURO- 4.779 INR- 13.7449

TARIFF BARRIERS
The UAE is a member of the Arab Gulf Cooperation Council (AGCC) which utilizes a common tariff. A harmonized rate of five per cent is applied to most imports. Cigarettes - 100 per cent; alcohol- 50 per cent; cigars and tobaccoAED200/- per kilogram or 100 per cent CIF, whichever is higher. Food products are free from duty. Exempt categories only include some food products and medicines. Customs regulations in the United Arab Emirates (UAE) are quite generous. Visitors are allowed to import:
Up to 2000 cigarettes or 400 cigars or two kilograms of tobacco Two litres of wine or spirits (except in Sharjah, where alcohol is banned)

NON-TARIFF BARRIERS
Trade;
A foreign business must have a UAE national sponsor, agent, or distributor. Once chosen, have exclusive rights. They cannot be replaced without their agreement. To be registered, a company must have 51 percent UAE ownership

Tenders;
Government tendering is conducted according to generally accepted international standards. Majority of tenders is for local Companies, Some Done Internationally to Supply spar parts For Power generators . To bid on federal projects, a supplier or contractor must either be a UAE national or a company in which at least 51 percent of the share capital is owned by UAE nationals. Federal tenders are required to be accompanied by a bid bond in the form of an unconditional bank guarantee for five percent of the value of the bid. There is a ten percent price preference on procurement and tenders.

NON-TARIFF BARRIERS
Intellectual Property Rights;
Implementation of the copyright law began in September 1994. pirate versions of western audio and video tapes are no longer present in the market. The UAE had reached agreement with the other GATT contracting parties on its services schedule, but not on its market access schedule for goods. The three UAE IPR laws do not conform with GATT TRIPS standards. The UAE is not a member of any international IPR convention. It is a member of the World Intellectual Property Organization (WIPO), and has hosted WIPO IPR seminars.

NON-TARIFF BARRIERS
Agriculture;
The UAE Currently levies a four percent import duty on all processed food products from non-GCC countries. Bulk agricultural commodities and semi-processed food products are exempt from the duty.

Customs;
Maximum duty in UAE is 4% of C.I.F value for most goods, with duties of from 25 to 50 percent levied on alcohol and tobacco products. Many essential items, including food stuffs and pharmaceuticals, are allowed duty free status.

Import licenses; The U.A.E is heavily dependent on Imports and this is reflected in its Import Regulation. Import licenses are generally not required for Import Of goods. Importers of products intended for resale may only import those products for which they are Licensed for in there trading business . Imports from Gulf Cooperation Council (GCC) countries receive favorable treatment and are not subject to any custom duty. All imported beef and poultry products require a health certificate from the country of origin and a halal slaughter certificate issued by an approved Islamic center in the country of origin.

INTERNATIONAL TRADE
The UAE traditionally has resisted establishing a liberal economic environment favorable to foreign investment, and each emirate retains close controls on foreign ownership rights. the foreign direct investment (FDI) average in the UAE at only US$18 million per year from 1998 to 2002, increasing to US$8.4 billion in 2004 and to US$12 billion in FDI average in the UAE at only US$18 million per year from 1998 to 2002, increasing to US$8.4 billion in 2004 and to US$12 billion in 2005. According to the UAE government, which valued FDI in the UAE at US$10 billion in 2005, the UAE ranks first in the Arab world in terms of attracting inward investment. The level of FDI in the UAE may increase in the near future if existing laws are liberalized. At present, the UAEs companies law stipulates that foreign investors may own a maximum of 49 percent of a company registered in the UAE. Companies located in designated free zones may be 95 percent foreign-owned. Foreigners can own property in that emirate through 99-year renewable leases on residential and commercial buildings, but not land ownership.

RISK ANALYSIS
Sovereign Risk; Stable. It has been revised down from positive to stable as the full impact of the Dubai World (DW) crisis will be felt in the second half of 2010, and there is a risk of more debt restructurings by quasi-state companies. However, we maintain that the UAE, as a whole, is comfortably able to meet its debt obligations owing to Abu Dhabis vast oil reserves and large holdings of foreign assets. Currency Risk; Stable. The authorities are committed to maintaining the currency peg, but US dollar volatility will weigh on the rating. The UAEs withdrawal from the proposed Gulf Co-operation Council single currency does not affect the rating. Banking sector Risk; Stable. UAE banks have yet to book non-performing loans relating to DW. Uncertainty over the extent of the write-downs on the DW debt will mean banks will be hesitant to start lending again. Therefore, we expect lending by banks to remain subdued until they fully account for their exposure to DW.

RISK ANALYSIS
Political Risk;
The domestic political scene is stable, and the emirs continued dominance over policymaking is unlikely to face serious opposition.

Economic Structure Risk;

The UAEs foreign assets will continue to support the economy. However, banking, services and construction are suffering.

ETHNICITY
Ethnic Groups and Languages: UAE citizens constitute approximately 20 percent of the population. The rest are foreign workers, predominantly from South and Southeast Asia (approximately 60 percent of the population). The remainder of the expatriate population includes a significant number of other Arabs Palestinians, Egyptians, Jordanians, Yemenis, and Omanisas well as many Iranians, Pakistanis, Indians, Bangladeshis, Afghanis, Filipinos, and West Europeans. Arabic is the official language. Other languages spoken include Persian, English, Hindi, Persian, and Urdu. English is widely understood in the UAE. Religion: The vast majority (approximately 96 percent) of the UAEs 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 Library of Congress - Federal Research Division Country Profile: United Arab Emirates, July 2007 regulatory authority distributes weekly guidance to both Sunni imams and Shia sheikhs regarding the content of sermons.

EVOLUTION OF GDP

REVENUE AND EXPENDITURE

THANK YOU