April 1, 2011 / 6:08 PM / 8 years ago

FACTBOX-Political risks to watch in the United Arab Emirates

DUBAI, April 1 (Reuters) - As political upheaval sweeps through the Arab world, the federation of seven emirates remains one of two unaffected Gulf Arab states, in addition to Qatar.

The per capita incomes of the UAE and Qatar remain among the highest in the world — eighth and third, respectively — thanks to their relatively small populations and oil and gas wealth.

Emboldened by popular protests in the region, intellectuals and political activists in the UAE have become more vocal in their calls for reform and less censorship, but so far there has been little sign of calls for rallies that might trigger unrest.

As a federation of seven absolute monarchies, the UAE has no parliament, but there is a 40-member advisory council with limited powers, chosen by appointment and from an electorate of 6,500 representing less than one percent of the population.

Responding to calls by former council members demanding greater representation, the country’s rulers have tripled the number of voters handpicked to elect council members this year.

The UAE’s biggest city, Dubai, which had built itself into a finance and trade hub only to see it clouded by a real estate and asset bust in 2009, faces risks restructuring its finances and keeping investors from taking their money out of the region.

Longer term, there are lingering worries about an escalation of Iran’s nuclear dispute with Western powers, a long-running territorial row with Iran and Islamist radicalism.

DOMESTIC UNREST

The risk of domestic unrest is widely viewed as lower than in other regional Arab states, due to the country’s wealth.

Last month, the UAE said it would invest $1.6 billion to improve infrastructure in less-developed emirates, and a range of supermarkets agreed this year with the economy ministry to cut prices for food and other essential commodities for a month.

Potential unrest would most likely come from the five northern emirates, whose citizens have benefited less from capital Abu Dhabi’s vast oil wealth or business hub Dubai’s trade and property-fuelled development.

Ras al-Khaimah, one of the northern emirates, has seen small protests in past years but they were quickly crushed by Abu Dhabi security forces.

WHAT TO WATCH:

Any calls for protests which might trigger investor concerns

Debates over political reform

DUBAI DEBT AND FINANCIAL WOES

The United Arab Emirates economy is expected to show growth of 3.4 percent in 2010, the slowest in the Gulf Arab region, weighed down by large debts at many of Dubai’s state-linked firms and worries over how its government will raise funds.

Dubai’s finances sparked concern after the global financial crisis burst a property bubble, shelving multi-billion-dollar projects and triggering thousands of job cuts.

A $1.25-billion Dubai bond issue in September 2010 marked the emirate’s return to debt markets after the crisis.

The emirate shocked markets when Dubai World [DBWLD.UL], one of the Dubai government’s three flagship holding companies, said it would seek a delay in repaying $26 billion of debt linked mainly to property units Nakheel [NAKHD.UL] and Limitless.

Abu Dhabi, the home to most of the UAE federation’s oil wealth, lent Dubai $10 billion, helping to avert default on a bond issued by Nakheel.

Dubai World managed to restructure some $24.9 billion of liabilities with creditors and the company has said it is prepared to sell prized assets including previously ring-fenced ports firm DP World DPW.DI to try to raise as much as $19.4 billion to repay creditors. [ID:nLDE67O15E]

But investors are still worried about debt troubles at Dubai Inc, as the network of state-linked firms is known, even as top officials have tried to reassure them that Dubai, known for extravagant real estate projects, is back on a sound footing.

Dubai’s debt crisis has also strained relations with wealthier but more staid Abu Dhabi. The two emirates have shared the financial and political reins of the UAE since its inception in 1971, but further assistance to Dubai could boost Abu Dhabi’s role, possibly upsetting a delicate power balance.

WHAT TO WATCH:

Will Dubai’s government-linked firms be able to make their debt repayments?

Will Abu Dhabi have to intervene further to meet any Dubai debt obligations?

REGIONAL ISLAMIST MILITANCY

The United Arab Emirates, the world’s third largest oil exporter, has so far been spared al Qaeda attacks. But as a business and tourism centre aligned with Western interests, Dubai could make an attractive target for militants.

In 2009, al Qaeda’s Yemeni and Saudi branches merged into a Yemen-based regional arm. They claimed responsibility for a failed plot in October 2010 to send two parcel bombs to the U.S., which were intercepted in Britain and Dubai.

The group, al Qaeda in the Arabian Peninsula (AQAP), has threatened attacks on Westerners in the region and seeks the fall of the Saudi royal family.

The UAE has tight security that may have helped it ward off attacks, but as a regional trade centre it has had an open door, making it vulnerable to international score-settling. In 2010, a Hamas leader was killed in Dubai, a hit widely blamed on Israel.

WHAT TO WATCH:

Any expansion of AQAP attacks in the region could mean other Gulf countries, including the UAE, are at risk.

IRAN ESCALATION, SANCTIONS

The Gulf Arab region, of major strategic value, is concerned about being drawn into any armed conflict if a nuclear row between Iran and Western powers escalates.

A leaked U.S. diplomatic cable said UAE leaders saw Iran as “its primary external threat, and one that is existential in nature”. The same cable portrayed Abu Dhabi’s crown prince, one of the most powerful figures in the UAE, as holding the view that “the logic of war” dominates in the Gulf Arab region when it comes to dealing with the Iranian threat.

This explained his “near obsessive efforts to build up the UAE’s armed forces”, the cable said.

The UAE’s extensive purchases of U.S. arms and facilities it offers to the U.S. military could make it a potential target for revenge if the nuclear dispute spirals into a military conflict.

Dubai’s close economic ties with Iran have attracted scrutiny from Washington, which has tough sanctions on Tehran.

WHAT TO WATCH:

Any signs the Iran nuclear dispute could turn into a military conflict. Western powers accuse Iran of seeking to develop nuclear weapons capability. Tehran denies this.

More sanctions on Iran, a major Dubai trade partner, could affect a recovering UAE economy.

For political risks to watch in other countries, click on [ID:nEMEARISK] (Compiled by Cynthia Johnston, Reed Stevenson, Erika Solomon and Raissa Kasolowsky)

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