Apple inc. is a based American corporation that manufactures and designs Smart electronic products ranging from computer software, hardware to other consumer electronics. The company has a an outstanding Macintosh personal computer line, Mac OS X, for its exceptional dependable user base which makes them significantly stand out, the iTunes media application and the iPod personal music player. The company has its base in Cupertino, Califonia, having its CEO and founder to be Steve Jobs, the company can beat its chest to having 284 retail locations spreading across 10 different countries.

On the1st, of April 1976 Apple was established by Steve Jobs, Steve Wozniak and Ronald Wayne to sell the Apple I personal computer kit. Steve Jobs was said to own 45% of the company, Steve Wozniak with 45% and Wayne with the remaining 10%

Apple with time has brought about a significant reputation in the consumer electronic aspect. The users of Apple electronics tend to be fascinated about and loyal to the products and on the other hand those who have no experience with Apples product most times criticize them an being too expensive. On August 15, 1998 Apple released the iMac and was able to cover up its past failures which includes the first Apple portable, which was to wrong looking and bulky and the Newton’s, Apple in entering the PDA market. In 2001, after several years of rigorous developments, Apple came up with Mac OS X a universal operating system targeted at both consumers and professionals. The Mac OS X was a different re designs from its previous the Mac OS 9 which could not constrain the power of UNIX while offering a streamlined user experience with a simplified GUI (Graphical User Interface). The iMac line of professional computers combined with the Mac OS X regained Apples profitability coupled with the release of the iPod portable digital audio player, later in the year which was just to crown its productions. The historical success of the iPod created a platform for future product, including the best mobile device in history, the iPhone and the Mac Book line of portable computers and the latest release of the iPad on the 27th of January 2010.

Introduction

This report is based on carrying out a strategic logistic analysis of Apple Inc. with a view to developing opportunities to develop logistic capabilities of Apple Inc. in this cognizance to the swot analysis, five forces analysis and Porter’s Generic strategy, Apples frame work. Virtually all these strategic models were done from the logistic perspective. This report addressed the main strategic approaches to logistics that can be done by Apple Inc. This report also look into management issues with regards to the implementation of a new logistics strategy especially from the perspective existing capital, technical and human resources. Finally, this research also helped to evaluate trend and the importance of new technology especially with respect to the future logistics strategy of new companies, critically evaluative the strategic significance of new technology developments and business trends on future logistic strategies for Apple Inc.

It’s Business

Apple Inc. success in the IT world is as a result of the wide range of products varieties portfolio and the strength of the Mac OS X technology.

• Good brand loyalty.
• Giving a face-lift to desktop and notebook lines.
• Well known hardware and software products, the iPod, iPhone, Macintosh Computer, Mac operating system, iTunes.
• Apple Inc. sells a wide range of third-party Macintosh (Mac), iPhone and iPod compatible products, including application software, printers, storage devices, speakers, headphones, and different other accessories and peripherals via its online and retail stores, and digital content and applications through the iTunes Store.
• Apple Inc. sells to consumer, small and midsized business, education, enterprise, government and creative customers.

Swot analysis

The Apple SWOT Analysis the source for the top level management and data information. The analysis puts in view the organizations essential business structure and all its activities and gives the update of the revenue lines and strategy. (Data monitor April 2009,page 30)

Strengths

• Apple Inc. major in developing its own software and hardware.
• iTunes Music store generates more revenue and the iPod which has easy accessibility on the Windows platform.
• Apple has an alcove audience that gives the organization some deceleration from the direct price competition.
• Providing a whole new dimension to desktop and computer lines.
• Its online access technology can be used to promote product awareness and sales.
• Has more maneuverable low debt ability.
• Excellent brand loyalty is associated with Apple Inc.
• Affiliation with Intel computers in 2006 till date.
• Powerful research and development department.

Weaknesses

• No strong connection between Intel and Microsoft.
• Weak domination in business sector.
• Most Apple product has a very short life cycle which causes revenues to focus on the release of new products and services.
• Having to major its market in the education and publishing not in other markets.
• Slow turn around on high demand products.
• Its market is lacking way behind its Major competitor Microsoft.
• Past communication between the founder and employee which brought about its loss of reputation.

Opportunities

• Large market population which tend to be brand driven.
• High rate of virus on personal computers to provide a constant market for its anti virus software’s.
• The ties of apple other companies are weak, Apple can develop good relationship for joint ventures.
• The high rate of music downloads and Mp3 are increasingly marketable.
• The sale of computer via the online platform are on the increase.

The laptop market growth is increasing so Apple Computers should concentrate on the improvement and development of new models to satisfy the needs of individual customer.

Threats

• Incompatibility with other organizations software’s.
• Dell, HP, Sony and Toshiba are major competitors facing Apple in the laptop sector.
• Free download of music and other software is common with other sites which has high impact on sales for online store sales of music and MP3 download.
• High prices of its product compared to its competitors which make them loose their market.
• The long lasting recession may impact the sales of the company due to higher prices of the products and services.
• The launching of the new Microsoft vista windows 7 which is gaining market share.
• Speedy change in technology is on the increase.

The SWOT analysis above gives us a view that Apple Inc. has strengths that it can use to further develop the brand and invariably increasing its market and gaining an edge over its major competitors. Apple is a company with great success, the iPod music player sales increased its second quarter profit to $320in June 2005 same with its Macintosh computers. The iPod allows the company to in viewing other segments to go into. Apples Mac note books also contribute to the Apples high income. The brand name is one of the most popular brand names in the world, which offers good customer views of its products in the customer’s satisfaction.

Early in 2005 Apple made an announcement on the putting an end to its relationship with IBM the supplier of their micro chips and switch to Intel specialists commented on saying it may make them loose their customer’s confusion. There is weight on the company to pump up the price of its Mp3 and music download from the music industry since most other company make their income from iTunes than selling their compact discs, |Apple has made sales of 22million on sales of its music player the iPod and further sales of 500million on the downloading of songs from its iTunes store. This shows a statistic of 82% of legitimate downloaded music in the US.

The development of the iTunes music store to ease users on tracking their music and downloading it, this was made available, and by the use of the USB cable. Software was made in such a way it allows the pausing of music on incoming calls. There is a great deal of new technological strategies alliance opportunity for Apple. another new software is the Podcast which are downloadable media which is done via the internet and plated back on later events that suits the user. It has a free subscription which Apple can make it a paid subscription to generate more income

The biggest fear of Apple Inc is the high level of competition in the IT markets. As a successful company the rate of competition is high so the company has to work rigorously on its market research in order to maintain and retain its position in the market The vast popularity of iPod and Apple Mac are on high demand, and will be affected if economies begin to falter and demand falls for their products. The level of close product substitution effect in the innovative and fast moving IT market. There for the iPod and MP3 are in the trend today, but only yesterday it was CD, DAT, and Vinyl. The future technology might be completely different and the music player could be displaced by the Wireless technologies.

Five forces analysis

The five forces strategic analysis was developed by Michael Porter. The Five forces framework is widely used as a type of industry analysis b (Johnson et al., 2005). The understanding of the way each of the five forces allow organizations have the basic insight in allowing them model the best fit strategies to be successful in their market (Thurlby, 1998).

Apple operates in two primary industries:

• Computing – Hardware and Software
• Delivery of Entertainment and Media

Apple has always been under intense competition within the computer, software, and entertainment industries.

Figure 1: Five forces analysis for Apple Inc

Competitors

Apple Inc top competitors include Dell, Microsoft, HP, Alien ware, Gateway, IBM.

Strategic positioning

Strategic position is aimed at achieving profitability and competitive advantage. Apple’s strategic position is to offer users the best computing experience by innovating in hardware, software, and Internet offerings.

Environmental Analysis of Apple Inc.

Apple, Inc operates as a multinational corporation that designs and manufactures consumer electronics and computer software products. The external environment is the institutions and people outside a business organization that affect it; these include national and local government, trade unions, competitors, customers, suppliers, etc. The external environment is one of the contingency factors that has to be taken into account in designing an organization.( Ed. Jonathan Law.)

The external environment has three components: the remote macroeconomic environment, the industry environment, and the operating environment within the organization itself. There are key macroeconomic variables that affect Apple: inflation, unemployment, and competition.

The first key macroeconomic variable that affects Apple is inflation. Inflation in an economy can be the result of an increase in aggregate demand that is unaccompanied by an increase in aggregate supply. A rise in any component of aggregate demand can bring about inflation. One reason for a sudden, unanticipated rise in aggregate demand can be an unanticipated rise in the supply of money. Inflation can also result from a decrease in aggregate supply that occurs when businesses find that production inputs have risen in price. Such occurs when labor costs and the price of raw materials such as plastics or metals. Decreases in productivity can also have a negative impact on aggregate supply and, therefore, cause a rise in prices. Apple has been in a situation where the aggregate demand for the iPod touch and the iPhone have been really high but the prices for these products it as a reasonable cost to the consumer.

Another key macroeconomic variable that affects Apple Inc is unemployment. The unemployment rate is the percentage of people who are not working but who are actively seeking employment. Shifts in labor market that can create unemployment. At any given time the unemployment rates may differ greatly among nations. Two reasons for the difference are

1. Different natural rates of unemployment and
2. Nations may be in different phases of business cycle.

McConnell C.R. and Brue S.L. (2004, p. 140). Between 2001 and 2006 the United States unemployment rate was considerably lower than that of Canada. If the unemployment rate is high then that means Apple may have had to lay off a bunch of employees because of the economy. If there aren’t many employees working at Apple then productivity will go down. Wages are an industry variable that is determined by the unemployment rate. If the economy is bad and Apple had to lay off employees then the wages of the existing employees may not go up for a long period of time or may even go down.

The last key macroeconomic variable that affects Apple is gross domestic product (GDP). The gross domestic product (GDP) is a basic measure of a country’s economic performance and is the market value of all final goods and services made within the borders of a nation in a year. It is a fundamental measurement of production and is very often positively correlated with the standard of living. If there is an announcement in the news that there has been an increase in the GDP this will be an indication that the economy is, in all likelihood, in a growth phase. If the GDP number is comparatively weak or declining, this reflects a negative economic environment for the country, indicating a depressed economy. The world economy is depressed and facing a great recession. These facts will lead consumers finding themselves with less disposable income which will eventually cause them not to spend much consumption on luxury products. Apple will be largely influenced by the reluctant consumption needs. However, Apple has better positioned itself in the market. The introduction of new iPhone with a relatively cheap price is reflecting a very good sales strategy to accelerate consumption. Apple has successfully sustained a better profit rate in the last three years despite global economy slow down. However, there is no company that can always increase its profit while the national GDP is decreasing.

There are many opportunities and challenges that exist for Apple, Inc. A big opportunity that Apple has is they open their stores in a slow, even-handed way to make sure each one is profitable. Other companies that over extended themselves in the boom could have to pull back drastically as their customers are reluctant to spend. That opens opportunities for Apple to negotiate more favorable lease terms in struggling shopping malls. Another opportunity would be that as Apple opens more and more international stores, that sector of Apple’s business will be less and less affected by financial troubles in the U.S. An ongoing challenge that Apple faces is keeping the price of their products affordable. Apple’s business plan includes pricing their products so the consumer can afford them. Even with the current recession Apple is still making a high profit from their computers and electronics. Another challenge according to( www.macobserver.com), “Apple’s Mac growth is three times the average PC sales growth, and they’ve sold 120 million iPods, burying the competition. Apple has branched out into the mobile phone market gaining even more consumer awareness. As a result, Apple has had to invest heavily in customer service. Some wonder if they can keep up the pace.

Implementing a new logistics strategy within an organization

Apple has historically taken a far different path than the traditional Windows and Intel combination. Microsoft provides the Windows operating system to separate downstream hardware producers such as Dell. Apple vertically integrated both the operating system software and hardware completely under Apple. A consumer running Microsoft Windows can choose from a myriad of systems based on the Intel processor, while a consumer running Apple’s OS X must purchase Apple hardware.

Apple is adjusting this strategy by migrating their microprocessors from IBM and Motorola PowerPC to Intel. Analysts believe that the Intel-based Macintosh may be able to run Microsoft Windows applications by the end of 2006. (Burrows)

In addition to switching processors, Apple positioned their computers as an immediate option for the traditional Microsoft Windows user. With Apple Boot Camp, users may now use Mac OS X or Windows on an Apple computer. (Sutherland).By allowing users to run Windows on an Intel Mac, Apple reduced the switching costs for traditional PC users. Apple may steal away customers that are willing to pay a premium for a system that runs both Windows and Mac OS X.

Apple continues to retain a strategic option to license its technology to clone makers such as Dell. Past attempts at licensing Apple technology (to IBM, Gateway, and others) failed on accord of Apple’s rigid demands. Many technology leaders (such as a 1985 letter by Bill Gates to Apple CEO John Sculley) criticized Apple for keeping a closed architecture. Apple cofounder Steve Wozniak criticizes this strategy, “We had the most beautiful operating system, but to get it you had to buy our hardware at twice the price. That was a mistake.”Whether Apple would be willing to pursue this reversal of vertical integration is unclear. Although such a move would cannibalize a portion of Apple’s own hardware sales, it would also provide royalty-based revenue that could approach $1 billion annually. (Burrows) Jobs traditionally sided against licensing Apple technology. He referred to Mac clone producers as “leeches” and he personally killed Power Computing by terminating their license in 1997.

Increasing inventry

Despite a weakening economy and a need to meet customer demand, Apple has been able to maintain a fast inventory turnover rate. The Mac and iPhone maker is sitting at five days worth of inventory on any given day, beating Dell’s seven days worth of inventory, according to data from UBS.

Other PC makers are having even more trouble matching Apple’s inventory efficiency. Lenovo, for example, is averaging 15 days of inventory, and HP is sitting at 32 days. Intel, however, is showing a much slower inventory turnover rate at 89 days, and D-Link is sitting on a staggering 131 days worth of inventory.

Apple’s quick turnover rate may have been due in part to preparing for its just announced iMac, Mac mini and Mac Pro updates. The company released new desktop computer. Models on March 3, and keeping inventory low helped assure that there would be fewer of the previous model machines sitting on store shelves. While maintaining a higher inventory level can help a company cope with sudden increases in demand, it can also show a company’s inability to adequately gauge market interest in their products. For now, it looks like Apple is managing inventory better than its competition. (Jeff Gamet)

Future logistic strategies for Apple Inc

The development of Apples coverage device and Once developed the Apple convergence device will provide a wide range of functions and powerful processing capability that can be applied to the field of medical care to enhance efficiency and modernize the industry. Apple should work with medical device companies and care providers to develop a set of criteria for necessary capabilities for consideration in developing the platform.

The device will function as an integral part of an overhauled recordkeeping, care giving, and medical administrative system modernized for the twenty-first century. The device and software it runs will make use of compatible equipment to measure, document, and file measurements, symptoms, and diagnosis in an easily accessible and fully-portable medical files system. The system will help to streamline care giving, administration, and claims filing, by eliminating mountains of paperwork and cumbersome filing systems.

Conclusion

This research will give the reader an overview of the logistics implementation strategy adopted by Apple Inc and how the organisation can help improve its supply chain network now and in the nearest future.

Reference

• http://www.brighthub.com/computing/mac-platform/articles/65346.aspx#ixzz0jRgxpiYB Michael Dougherty
• http://www.researchandmarkets.com/reports/555326 Data monitor April 2009,page 30
• Apple SWOT Analysis. November 23rd, 2009 | Adam | Posted in Marketing www.mba-tutorials.com/marketing/273-apple-swot-analysis.html
• Jeff Gamethttp://www.macobserver.com/tmo/article/apple_beats_competitors_at_inventory_turn_over/
• http://marketingteacher.com/Lessons/lesson_fivefoces.htm
• Thurlby B (1998) “Competitive forces are also subject to change”, Management Decision London
• Johnson, G., Scholes, K. & Whittington (2008) Exploring corporate strategy: text and cases. London: Prentice Hall
• McConnell, C.R. and Brue, S.L. (2002).. Economics: Principles, Problems
• http://www.macobserver.com.
• http://www.spoke.com/info/pY9wQEu/KarenBurrows

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Abstract: This essay examines the emergence of cryptocurrencies and central bank digital currencies (CBDCs) and their potential implications for monetary policy. It explores how these digital assets may impact traditional monetary policy tools, financial stability, and the role of central banks. The analysis considers both opportunities and challenges presented by these technological innovations in the financial landscape.

Introduction

The rapid evolution of digital technologies has profoundly impacted various aspects of the global economy, including the financial sector. Among the most significant developments in recent years has been the emergence of cryptocurrencies and the growing interest in central bank digital currencies (CBDCs). These innovations have the potential to reshape the monetary landscape and pose both opportunities and challenges for monetary policy implementation (Bordo and Levin, 2017).

Cryptocurrencies, led by Bitcoin, have gained significant attention and adoption since their inception. These decentralised digital assets operate on blockchain technology, offering potential benefits such as increased transaction speed, reduced costs, and enhanced financial inclusion (Böhme et al., 2015). However, their volatile nature and lack of central authority oversight have raised concerns among policymakers and economists.

In response to the rise of cryptocurrencies and the broader trend of digitalisation, many central banks worldwide are exploring the possibility of issuing their own digital currencies. CBDCs represent a digital form of fiat currency, backed by the central bank and potentially offering the benefits of digital transactions while maintaining the stability and trust associated with traditional currencies (Auer et al., 2021).

This essay aims to examine the implications of cryptocurrencies and CBDCs for monetary policy. It will analyse how these digital assets may affect traditional monetary policy tools, impact financial stability, and potentially alter the role of central banks in the financial system. The discussion will consider both the opportunities and challenges presented by these technological innovations in the context of monetary policy implementation and effectiveness.

Cryptocurrencies and Monetary Policy

The rise of cryptocurrencies has introduced a new element into the monetary system that operates outside the traditional banking framework. This development has several potential implications for monetary policy:

1. Money Supply and Monetary Aggregates

One of the primary concerns regarding cryptocurrencies is their potential impact on the money supply and monetary aggregates. As cryptocurrencies gain wider acceptance, they could potentially substitute for traditional forms of money, affecting the central bank’s ability to control the money supply effectively (Fernández-Villaverde and Sanches, 2019).

The decentralised nature of most cryptocurrencies means that their supply is not controlled by any central authority but is instead determined by predetermined algorithms. For instance, Bitcoin has a capped supply of 21 million coins, which contrasts sharply with the flexible money supply managed by central banks. If cryptocurrencies were to become a significant portion of the money supply, it could complicate the central bank’s ability to manage inflation and economic growth through traditional monetary policy tools (Prasad, 2021).

2. Interest Rate Transmission Mechanism

The interest rate channel is a crucial mechanism through which monetary policy affects the real economy. Cryptocurrencies could potentially weaken this transmission mechanism. If a significant portion of economic transactions were to occur in cryptocurrencies, changes in the central bank’s policy rate might have a diminished effect on overall economic activity (Fernández-Villaverde and Sanches, 2019).

Moreover, the existence of cryptocurrency markets could provide alternative investment opportunities that are less sensitive to changes in central bank interest rates. This could potentially reduce the effectiveness of interest rate policies in influencing saving and investment behaviour in the broader economy (Prasad, 2021).

3. Financial Stability

The high volatility observed in cryptocurrency markets raises concerns about financial stability. Significant price fluctuations in major cryptocurrencies could potentially spill over into traditional financial markets, especially as the interconnectedness between crypto and traditional finance grows (Carstens, 2021).

Furthermore, the use of cryptocurrencies in leverage and derivative products could amplify financial risks. In the event of a cryptocurrency market crash, there could be systemic implications that might require central bank intervention, potentially complicating monetary policy decisions (Harahap et al., 2017).

4. International Capital Flows and Exchange Rates

Cryptocurrencies facilitate quick and easy cross-border transactions, potentially increasing the volatility of international capital flows. This could complicate exchange rate management and impact the effectiveness of monetary policy, particularly in small open economies (He et al., 2016).

The potential for cryptocurrencies to serve as a substitute for weak national currencies in some economies (a phenomenon known as crypto-dollarisation) could further complicate monetary policy implementation in these countries (Prasad, 2021).

Central Bank Digital Currencies (CBDCs) and Monetary Policy

In response to the challenges and opportunities presented by cryptocurrencies, many central banks are exploring the possibility of issuing their own digital currencies. CBDCs could have significant implications for monetary policy:

1. Enhanced Monetary Policy Transmission

CBDCs could potentially enhance the transmission of monetary policy. By providing a direct link between the central bank and end-users, CBDCs could allow for more precise and timely implementation of monetary policy decisions (Auer et al., 2021).

For instance, interest rates on CBDC holdings could be adjusted directly by the central bank, potentially improving the pass-through of policy rate changes to the broader economy. This could be particularly useful in implementing negative interest rates, which has been challenging in the current system due to the existence of physical cash (Bordo and Levin, 2017).

2. Improved Monetary Control

CBDCs could provide central banks with more detailed and timely information about money circulation in the economy. This enhanced visibility could improve the central bank’s ability to monitor and respond to economic conditions, potentially leading to more effective monetary policy decisions (Mancini-Griffoli et al., 2018).

Moreover, programmable features of CBDCs could allow for targeted monetary policy interventions. For example, CBDCs could be designed to have different interest rates or usage restrictions based on specific economic conditions or policy objectives (Auer et al., 2021).

3. Financial Stability Implications

While CBDCs could enhance financial stability by providing a safe and liquid asset, they also introduce new risks. A key concern is the potential for CBDC-induced bank disintermediation. If CBDCs are perceived as a superior store of value, there could be a shift of deposits from commercial banks to the central bank, potentially affecting banks’ ability to lend and complicating monetary policy transmission through the banking sector (Kumhof and Noone, 2018).

To mitigate this risk, careful design choices would need to be made, such as potentially limiting the amount of CBDCs individuals can hold or implementing a tiered interest rate structure (Bindseil and Panetta, 2020).

4. International Monetary System

The introduction of CBDCs could have significant implications for the international monetary system. CBDCs could potentially facilitate faster and cheaper cross-border payments, which could impact exchange rates and international capital flows (Auer et al., 2021).

Moreover, CBDCs issued by major economies could potentially challenge the current dominance of the US dollar in international transactions. This could have far-reaching implications for global monetary policy coordination and the transmission of monetary policy across borders (Brunnermeier et al., 2019).

Challenges and Considerations

The integration of cryptocurrencies and CBDCs into the monetary system presents several challenges that policymakers need to address:

1. Regulatory Framework

Developing an appropriate regulatory framework for cryptocurrencies and CBDCs is crucial. This includes addressing issues related to anti-money laundering (AML) and combating the financing of terrorism (CFT), as well as ensuring consumer protection and financial stability (Houben and Snyers, 2018).

2. Privacy Concerns

The potential for increased financial surveillance through CBDCs raises significant privacy concerns. Striking the right balance between transaction privacy and the need for financial oversight will be a key challenge in CBDC design (Auer and Böhme, 2020).

3. Technological Infrastructure

Implementing CBDCs would require significant investments in technological infrastructure. Ensuring the security, scalability, and interoperability of CBDC systems will be crucial for their success (Auer et al., 2021).

4. International Coordination

As cryptocurrencies and CBDCs have global implications, international coordination will be essential. This includes agreeing on standards for CBDC interoperability and addressing potential spillover effects of national CBDC policies on the global monetary system (BIS, 2021).

Conclusion

The emergence of cryptocurrencies and the potential introduction of CBDCs represent a significant shift in the monetary landscape, with far-reaching implications for monetary policy. While cryptocurrencies pose challenges to traditional monetary policy implementation, they also drive innovation in the financial sector. CBDCs, on the other hand, offer potential enhancements to monetary policy transmission but also introduce new complexities and risks.

As the digital currency ecosystem continues to evolve, central banks and policymakers will need to adapt their approaches to ensure the effectiveness of monetary policy in this new environment. This may involve developing new policy tools, refining existing ones, and potentially redefining the role of central banks in the digital age.

The successful integration of these digital innovations into the monetary system will require careful consideration of their potential impacts, thoughtful design choices, and a balanced approach that harnesses the benefits of digital currencies while mitigating their risks. As we move forward, continued research, experimentation, and international cooperation will be crucial in shaping a monetary policy framework that remains effective and relevant in the digital era.

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Large Language Models (LLMs) have emerged as a transformative technology in the field of artificial intelligence, with far-reaching implications across numerous domains. These sophisticated neural networks, trained on vast amounts of textual data, have demonstrated remarkable capabilities in natural language processing tasks, from text generation and translation to question answering and summarisation (Brown et al., 2020). However, the development and deployment of LLMs raise significant ethical concerns that must be carefully considered by researchers, developers, and policymakers. This essay examines the key ethical considerations in developing LLMs, exploring issues such as bias and fairness, environmental impact, privacy and data rights, transparency and accountability, and the potential for misuse. By critically analysing these ethical dimensions, we can work towards more responsible and beneficial development of LLM technologies.

Bias and Fairness

One of the most pressing ethical concerns in the development of LLMs is the potential for these models to perpetuate or amplify existing biases present in their training data. LLMs are trained on enormous corpora of text from the internet and other sources, which inevitably contain societal biases related to gender, race, ethnicity, and other protected characteristics (Bender et al., 2021). As a result, LLMs can generate text that reflects and reinforces these biases, potentially leading to discriminatory outcomes when deployed in real-world applications.

Research has shown that popular LLMs exhibit gender and racial biases in various tasks. For instance, Hutchinson et al. (2020) demonstrated that GPT-3, a prominent LLM, displays significant gender bias in occupation-related tasks, associating certain professions more strongly with particular genders. Similarly, Abid et al. (2021) found that GPT-3 generates more negative content when prompted with Muslim-associated names compared to names associated with other religious groups.

Addressing bias in LLMs is a complex challenge that requires multi-faceted approaches. Developers must carefully curate training data to mitigate biases, implement robust evaluation frameworks to detect and measure bias, and explore techniques such as fine-tuning and prompt engineering to reduce biased outputs (Weidinger et al., 2021). Furthermore, it is crucial to involve diverse teams in the development process to bring varied perspectives and experiences to the table, helping to identify and address potential biases that may be overlooked by homogeneous groups.

Environmental Impact

The training of LLMs requires enormous computational resources, which translates to significant energy consumption and associated carbon emissions. As models grow increasingly large and complex, their environmental footprint becomes a pressing ethical concern. Strubell et al. (2019) estimated that training a single large language model can emit as much carbon as five cars over their entire lifetimes.

The environmental impact of LLMs extends beyond the initial training phase. The deployment and continuous operation of these models in cloud-based services also contribute to ongoing energy consumption. As LLMs become more prevalent in various applications, their cumulative environmental impact could be substantial.

To address these concerns, researchers and developers must prioritise energy efficiency in model design and training procedures. This may involve exploring more efficient architectures, developing improved training algorithms, and optimising hardware utilisation (Patterson et al., 2021). Additionally, the AI community should consider the trade-offs between model performance and environmental cost, potentially favouring smaller, more efficient models in scenarios where marginal improvements in performance come at a high environmental price.

Privacy and Data Rights

The development of LLMs raises significant privacy concerns, particularly regarding the vast amounts of data used for training. These models are often trained on publicly available internet data, which may include personal information, copyrighted material, and sensitive content that individuals did not explicitly consent to be used for AI training (Carlini et al., 2021).

One privacy risk is the potential for LLMs to memorise and reproduce verbatim passages from their training data. This could lead to the inadvertent disclosure of personal information or copyrighted material in model outputs. Carlini et al. (2021) demonstrated that large language models can be induced to output memorised training data, including email addresses and phone numbers, raising concerns about privacy breaches.

Another consideration is the use of LLMs in applications that process user-provided data. There is a risk that these models could be used to infer sensitive information about individuals, even if such information is not explicitly provided. For example, an LLM used in a mental health chatbot might infer private health information from user interactions.

To address these privacy concerns, developers must implement robust data governance practices, including careful data curation, anonymisation techniques, and consent mechanisms where appropriate. Additionally, research into privacy-preserving machine learning techniques, such as federated learning and differential privacy, should be prioritised to enable the development of LLMs that respect individual privacy rights (Kairouz et al., 2021).

Transparency and Accountability

The complexity and opacity of LLMs pose significant challenges to transparency and accountability. These models often function as “black boxes,” making it difficult to understand how they arrive at particular outputs or decisions. This lack of interpretability raises ethical concerns, particularly when LLMs are used in high-stakes applications such as healthcare, finance, or criminal justice (Doshi-Velez and Kim, 2017).

The issue of transparency extends to the development process itself. Many state-of-the-art LLMs are developed by private companies, with limited disclosure of training data, model architectures, and evaluation procedures. This lack of openness hinders independent scrutiny and verification of model performance and fairness claims.

To address these challenges, researchers and developers should prioritise explainable AI techniques that can provide insights into model decision-making processes. This may involve developing more interpretable model architectures or creating tools for post-hoc explanation of model outputs (Gilpin et al., 2018). Additionally, the AI community should work towards establishing standards for model documentation and evaluation, such as the model cards proposed by Mitchell et al. (2019), to enhance transparency and facilitate meaningful comparison between different LLMs.

Potential for Misuse

The powerful capabilities of LLMs also raise concerns about their potential for misuse. These models can generate highly convincing human-like text, which could be exploited for malicious purposes such as creating deepfake text, spreading misinformation, or automating phishing attacks (Zellers et al., 2019). The ability of LLMs to generate code also raises concerns about their potential use in creating malware or exploiting software vulnerabilities.

Another ethical consideration is the potential for LLMs to be used in ways that manipulate or deceive users. For example, chatbots powered by LLMs could be designed to exploit cognitive biases or vulnerabilities, potentially influencing user behaviour in harmful ways.

Addressing these concerns requires a multi-faceted approach. Developers must implement robust safeguards and content filters to prevent the generation of harmful content. This may involve techniques such as constitutional AI, which aims to instil ethical principles directly into model behaviour (Bai et al., 2022). Additionally, there is a need for clear guidelines and regulations governing the deployment of LLMs in sensitive applications, as well as ongoing research into detection methods for AI-generated content.

Conclusion

The development of Large Language Models presents both immense opportunities and significant ethical challenges. As we have explored, key ethical considerations include addressing bias and fairness, mitigating environmental impact, protecting privacy and data rights, ensuring transparency and accountability, and preventing misuse. These issues are intricate and often interconnected, requiring nuanced approaches and ongoing research to address effectively.

Moving forward, it is crucial that the development of LLMs is guided by strong ethical principles and a commitment to responsible innovation. This will require collaboration between AI researchers, ethicists, policymakers, and diverse stakeholders to develop comprehensive frameworks for ethical AI development. By proactively addressing these ethical considerations, we can work towards harnessing the potential of LLMs while minimising their risks and ensuring their development aligns with human values and societal well-being.

Ultimately, the ethical development of LLMs is not just a technical challenge, but a societal one. It requires us to grapple with fundamental questions about the role of AI in our society, the values we wish to embed in our technological systems, and the kind of future we want to create. By engaging seriously with these ethical considerations, we can strive to develop LLMs that are not only powerful and capable, but also fair, transparent, and aligned with human interests.

References

Abid, A., Farooqi, M., and Zou, J., 2021. Persistent anti-Muslim bias in large language models. arXiv preprint arXiv:2101.05783.

Bai, Y., Jones, A., Ndousse, K., Askell, A., Chen, A., DasSarma, N., Drain, D., Fort, S., Ganguli, D., Henighan, T. and Joseph, N., 2022. Constitutional AI: Harmlessness from AI feedback. arXiv preprint arXiv:2212.08073.

Bender, E.M., Gebru, T., McMillan-Major, A. and Shmitchell, S., 2021. On the dangers of stochastic parrots: Can language models be too big?. In Proceedings of the 2021 ACM Conference on Fairness, Accountability, and Transparency (pp. 610-623).

Brown, T., Mann, B., Ryder, N., Subbiah, M., Kaplan, J.D., Dhariwal, P., Neelakantan, A., Shyam, P., Sastry, G., Askell, A. and Agarwal, S., 2020. Language models are few-shot learners. Advances in neural information processing systems, 33, pp.1877-1901.

Carlini, N., Tramer, F., Wallace, E., Jagielski, M., Herbert-Voss, A., Lee, K., Roberts, A., Brown, T., Song, D., Erlingsson, U. and Oprea, A., 2021. Extracting training data from large language models. In 30th USENIX Security Symposium (USENIX Security 21) (pp. 2633-2650).

Doshi-Velez, F. and Kim, B., 2017. Towards a rigorous science of interpretable machine learning. arXiv preprint arXiv:1702.08608.

Gilpin, L.H., Bau, D., Yuan, B.Z., Bajwa, A., Specter, M. and Kagal, L., 2018. Explaining explanations: An overview of interpretability of machine learning. In 2018 IEEE 5th International Conference on data science and advanced analytics (DSAA) (pp. 80-89). IEEE.

Hutchinson, B., Prabhakaran, V., Denton, E., Webster, K., Zhong, Y. and Denuyl, S.C., 2020. Social biases in NLP models as barriers for persons with disabilities. arXiv preprint arXiv:2005.00813.

Kairouz, P., McMahan, H.B., Avent, B., Bellet, A., Bennis, M., Bhagoji, A.N., Bonawitz, K., Charles, Z., Cormode, G., Cummings, R. and D’Oliveira, R.G., 2021. Advances and open problems in federated learning. Foundations and Trends® in Machine Learning, 14(1–2), pp.1-210.

Mitchell, M., Wu, S., Zaldivar, A., Barnes, P., Vasserman, L., Hutchinson, B., Spitzer, E., Raji, I.D. and Gebru, T., 2019. Model cards for model reporting. In Proceedings of the conference on fairness, accountability, and transparency (pp. 220-229).

Patterson, D., Gonzalez, J., Le, Q., Liang, C., Munguia, L.M., Rothchild, D., So, D., Texier, M. and Dean, J., 2021. Carbon emissions and large neural network training. arXiv preprint arXiv:2104.10350.

Strubell, E., Ganesh, A. and McCallum, A., 2019. Energy and policy considerations for deep learning in NLP. arXiv preprint arXiv:1906.02243.

Weidinger, L., Mellor, J., Rauh, M., Griffin, C., Uesato, J., Huang, P.S., Cheng, M., Glaese, M., Balle, B., Kasirzadeh, A. and Kenton, Z., 2021. Ethical and social risks of harm from Language Models. arXiv preprint arXiv:2112.04359.

Zellers, R., Holtzman, A., Rashkin, H., Bisk, Y., Farhadi, A., Roesner, F. and Choi, Y., 2019. Defending against neural fake news. Advances in neural information processing systems, 32.

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There are four types of financial crisis. Firstly is bank crisis. It occurs when the investors suddenly withdraw their capital or deposits from the bank in fear that insolvent will occur. Such situation will cause bankruptcy to bank since further withdrawals are done by investors and bank could not recover their short term liabilities. Secondly is global financial crisis. When there is a sudden speculative attack, the currency of a country will be devalued because the investors dump the currency when they expect that the exchange rate will drop. It will results in the loss of the liquid assets or foreign currency of the central bank. Therefore, the currency collapses. Thirdly is sudden stop in capital flow. It occurs when there is a sudden slowdown or discruption in the supply of external financing firms. When firm borrows in advance to pay for the inputs, the sudden stop in capital flow would result in the drop in aggregate demand and lead to a decrease in output. Lastly is wider economic crisis. Recession occurs where GDP shows negative growth for a period of time. If the situation is prolonged, depression occurs (Claessens, 2013).

One of the factors that cause financial crisis to happen is the expansion of the mortgage lending by individuals. The huge increase in mortgage lending has increased the debts of households. When there is a boom in house sales price, households have to pay high monthly payments and it leads to the soar in mortgage deliquencies. Thus, the mortgage value drops. It would lead to the decrease in lending mortgage by households and investors would slow down the economic growth. Besides, leverage contributed to financial crisis too. When people borrow money to invest, they have the potential to earn more money from the investment but also have the high risks to face bankrupcty. Once people face bankrupcty, it will lead to the fail in payments to others and therefore create financial problems indirectly that link from one to another. The occurrence of financial crisis in one country like United States would have huge effects on economic activities which causes a huge drop in the aggregrate output. Thus, there will be large drops in investment, consumption, production, employment and exports and imports (Claessens, 2013).

Economic issue- Global Financial crisis that impact China

The United States subprime crisis that occurred in 2007 has entered into a global financial crisis after the Lehman Brothers bankruptcy in 2008. Economists considered it to be the worst financial crisis since the Great Depression that occurred in 1930. The global crisis has caused world-wide economic downturn and subsequently hit the Chinaâ€s economy very badly. The global financial crisis occured has caused Chinaâ€s GDP to decrease from 13% in 2007 to 6.8% in the fourth quarter of 2008. The industrial production sector growth rate of China has dropped doubled when compared to previous period while many others product sector growth rate has dropped to negative percentage (Yongding, 2010).

The fall in the GDP on the fourth quarter of 2008 is due to the rapid fall of the export sector. This is because the major export markets like Hong Kong, Korea and Taiwan have all slipped into recession due to global financial crisis while China is the country that very dependent on net exports to boost its economic growth. In 2007, Chinaâ€s net exports have contributed over 20% of GDP growth (Ming, 2009). However, due to the impact of global financial crisis, the export of China has slowed down significantly because of the weakening of external demand. China as a labour-intensive sector exports great number of unskilled workers from rural areas to other countries. The sudden collapse of export market has caused many export-led private companies in China to close down and result in about 20 million of unskilled workers lossed their jobs (Ming, 2009). Due to this, the unemployment of China has increased. The number of unemployed workers has increased from 12.51 million in the third quarter of 2008 to 21.71 million in third quarters of 2009 (Huijian, n.d). Since many unskilled workers came from rural area with lower education background, they faced the problem of poverty when being laid-offs.

To stabilize the economic growth, government of China has implemented expansionary fiscal policy. In 2008, government has implemented a US$588 billion investment plan for 2009 and 2010. It is one of the world-wide biggest fiscal rescue plans. The plan concerned on increasing the whole output expenditures and cutting taxes. The budget focuses mainly on investing in the infrastructure of China and taxes rebate for exports (Yongding, 2010). At the same time, China Central Bank (PboC) also released loosening expansionary monetary policy to increase the bank lending by reducing the reserve ratio from 17.5% to 13.5%. The interest rate for loan has been cut down to boost consumerâ€s spending and borrowing. This has result in the increased in bank loan by 1.62 billion (yuan) in January 2009 (Ming, 2009).

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Advantage of dividend payout policy

There is certain amount of people of the rightist position state that company pays a high dividend payout is important for investors for the reasons that paying dividends can convince the shareholders about the company’s financial well-being. The higher rate of dividends payout shows better the company operating as well as larger number of profit, which might attracts the investors.

Dividends are also attractive for the investors who want to get the stable current income easily. “There is also a natural clientele of investors, such as the elderly, who looking to their stock portfolios for a steady source of cash to live on” (P456, Richard, 2008). In principle, the shareholders could sell a part of the shares to gain money even if the company does not pay dividends, but it is more convenience for the investors to get the money if companies pay the dividends by checks. In this case, the payout policy of cash dividends will reduce the cost of transaction as well as the inconvenience for the shareholders selling the shares.

In addition, the long-term stable dividends payouts could help the company less affected by the changes of the dividends. Those companies with long history of stable dividends will be less influenced if the dividends decrease, but will be positively affected when dividends payout increases or even dividends stay the same level. Furthermore, companies without a dividend history are generally viewed favorably when they declare new dividends. The dividends announcement has resulted in a 4% rise of the stock price according to the dividend initiations studied by Healy and Palepu (P448, Richard, 2008).

Many companies have taken the dividends paid back to shareholders as payout policy. For example Microsoft, the largest software company in the entire world, has announced their first dividends payout in 2003. The amount of the money has been divided into two forms of dividends, one was one-time dividends and the other was stock dividends paid quarterly installments by a unit as per share. (P457, Richard, 2008).

Disadvantage of dividend payout policy

Firstly, the radical state that dividends payout can be heavier than capitals gain when taxation of dividends is larger than the capital gains. Under this condition, company should put the spare profit back into the business by repurchase shares. It makes sense for the reasons that the capital gains have a tax advantage. When companies use the money to repurchase the share, the income will be larger because with the lower rate of tax on capital earnings, comparing to dividends payouts to shareholders with higher rate of tax on dividends. In the banking industries, a part of banks have stopped paying dividends to shareholders in 2009, according to the Capital Report. In the meanwhile, there are 202 firms have cut their dividends and 74 of which paid none at all (Web1).

Secondly, the level of dividends payout can reflect the information about the confidence of the management from the company in the future, which will have an influence to the stock price. Generally, companies that pay dividends are sending a message to the market that their earnings are real which will result in the investors comfort about their investment. On the other hand, once the companies decide to cut the dividend it is also sending the information that they cannot maintain the dividends. However, the company might be able to cheat on their operation by overstating the earning to attract investors, but it is risky in the long term because the actual condition of the company will not have sufficient money to pay the dividends. The consequence will be costly if the companies choose a high dividend without getting enough profit. Most managers will not change the dividends without consideration about the operation of company, but they will increase the dividends only if they are confident it can be maintained.

Thirdly, the consideration of a dividend policy might be irrelevant because investors have the ability to create their own dividends. It means that investors can be able to make their own ‘dividend†by adjust the investment into different areas. For example, the investors who prefer a stable income are more likely to put their money into the bonds with the stable interest rates. In the case, the stock with dividends pay back will lose the advantage because of the flexible value. Investors who have invested to the bonds will not pay attention to the dividend policy of a particular company.

Conclusion:

Taking the dividend payout policy can attract certain amount of investors, and it is convenience for those investors who require stable and simple income. But dividends sometimes have tax disadvantage if the tax rate of dividend is higher than capital gains. And dividends are usually more flexible, comparing to the interest rates of bonds. It is important for a company to think whether to take the dividend payout policy by considering the assets, earnings, investments opportunities, market value and other factors about the company.

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The UK economy although viewed as a mainly capitalist economy has government spending taking up 35% of GDP. For the reason that the government pays for health, education, national defence etc. The overall economy is still perceived as capitalist as in the area of private enterprise companies are free to decide what to produce and for whom, and allows for an efficient allocation of resources. Although government intervention means there is a mixed of both planned and market economies.

In the real world, many economies which are viewed to have a capitalist economic system may have government spending taking up 35% of GDP. This is because the government pays for welfare, health, education and national defence. However, the economy is still viewed as capitalist because in the area of private enterprise firms are free to decide what to produce and for whom. (Tejvan.R)

Economic systems based around Capitalism allow for free enterprise and market forces, allocate people and resources to their best use. When profits are re-invested labour and capital become increasingly productive (Hawken,) Firms have to remain competive and productively efficient or risk going out of business, survival in a capitalistic system requires innovation and flexibility to keep up with the changes in supply and demand. Such a system is generally prepared to deal with the influx of competition from external sources and helps create dynamic efficiency, firms change and respond to demand and consumer trends. Any resource shortages that do occur bring forth the development of substitutes.

In a mixed market economy both market forces and government decisions which goods and serviced are produced and how they are distributed. It combines both the characteristics of a free economy and and command economy.

The mixed market economy allows the market to operate and the government to only intervene where the market fails. This means providing such services as law, healthcare and educated which would have been left un-provided by the free market. Public goods are consumed collectively by the market rather than individually so it is difficult to finance their supply through the market.

A greater free market economy is susceptible to boom and slump periods, such as those seen in the UK, it is argued that these downward cycles are built into capitalism. Marxists and others, such as Fredrick Soddy are certain that these crises are endemic to capitalism.

‘Anti- cyclical’ measures of state intervention help to mitigate conjucturual fluctuations. From as far back as the 1930 recession the Government has employed over time an increasingly strong influence on aggregate demand to prevent the boom and bust periods. It provides a growing number of jobs in the non-commodity area, regulates the growth of the social wage. It influences the level of economic activity by means of public sector contracts as well as other forms of intervention.

The government also regulates other problems of a free market such as monopoly power, which operate against public interest. ‘The Privatisation movement n Britain, which began in the Conservative Government in Britain in the 1980s provided force for economic regulation in the last 2 decades of the 20th Century’ (Select Committee of Regulators)

Most of the nationalised industries had monopoly power and retained that when privatised, regulation was needed to prevent abuse of that power, to bring in line prices and standards of service in that of a competitive market. Through government bodies created such as the office of Fair Trading and The Monopolies and Mergers Commission.

The private sector only takes into account their costs in producing goods, and not any negative externalities created, these costs to society such as pollution, noise etc. Government involvement and regulation accounts for these negative externalities which would no be considered with in a free market.

The government intervenes to assist in the correction of inequalities in income and wealth, a characteristic of capitalist economies. This is through the use of taxation system and the government expenditure; such as transfer payment, like retirement pension, sickness benefits and unemployment benefit. Some forms of taxes are relatively more progressive than others, such as Income Tax which take a higher percentage of income of the wealthy.

Some economists do argue that the inequalities in wealth and income provide incentives for us to work harder, conversely some believe governments should intervene more.

The financial global crisis has presented numerous challenges to the UK economy that the increase in the libor rate and the uncertainty of the climate meant many banks were not lending money, amongst themselves and amongst consumers. The fall of the Lehman Brother and Bear Sterns in the US, as well as problems faced to Northern Rock.

‘The Government injected tens of billions of pounds to help increase the liquidity. Banks were able to swap potentially risky mortgage debts for secure government bonds to enable them to operate’ (BBC news)

A lack of lending and decrease in consumer spending and confidence led to a fall in house prices and arise in inflation. In an attempt to kick start the housing market the Treasury introduced a one year rise in stamp duty exemption. Making houses more affordable in the hope of increasing the amount house sales. The Bank of England cut interest rates to their lowest in its 315 year history in an attempt to make mortgage lenders pass it on to consumers. Hoping again to increase house sales and prevent house prices further faller. This was important to the government as many home owners had fallen into negative equity and risked losing their homes.

The Governement announced a £37bn nationalisation of banks in a attempt to fight back from the financial crisis. Banks will effectively be state-run, with the Government-appointed board members put in place to ensure they once again begin lending to businesses and individual customers.

As demand decreased across all sectors, production decreased in line. This leading to many production industries being affected such as car manufacturers. As well as the production sector the retailing sector was also affected, consumer confidence has decreased and led to a decrease in demand across all retail, leading to the bankruptcy of many retailers such as Woolworth etc.

The government introduced further intervention tactic by temporarily lowering VAT from 17.5% to 15.% which was aimed at increasing consumer spending. This would hopefully increase demand in the retail sector and help save further retailers from becoming bankrupt.

During and economic slowdown business look to cut costs through many ways, one option is to make a reduction in the workforce. During the financial crisis unemployment has raised, the number of people claiming benefits is the highest since 1997, the claimant count has increased for 19 months in a row.

There has also been a decrease in the amount of people coming out of unemployment due to the reduction in the job market. More companies are becoming bankrupt creating more unemployment. Companies are not expanding as they may otherwise have done due to lack of capital so fewer jobs are being created.

Jobs across all sectors are being lost, in production the lack of demand has led to loss in jobs in areas such as car manufacturers. In the retail sector many retailers are going bankrupt due to a decrease in consumer confidence leading to a decrease in consumer spending. Due to the lack of available capital the construction sector has seen a considerable rise in unemployment.

White collar workers have also seen an increase in unemployment in sectors such as banking and finance, where companies cannot afford to pay overhead and look to cut costs and rationalise their business.

As the financial crisis continues and the unemployment rate continues to rise there are fewer jobs for an increasing amount of people. Consumer habits have chased, more consumers are deciding to save and be more conservative with their disposable income. Many households have been affected by the recession and unemployment directly so have seen less income coming into the household. Consumers may have been affected by wage freezes or wage cuts so have become more cautious with their income. Consumers are choosing to spend money on necessities and less on luxuries such as eating out, new clothes etc etc. Therefore demand has not increased and as such companies cannot begin to recover and create new jobs.

Consumers shopping habits have changed since the recession and there has been a fall in spending in the luxury goods area. Discount retailers have seen an increase in trade as consumers become more aware of how they spend their money. Consumers are more likely to switch brands in a recession and go for a more affordable option

Bigger items such as car sales have seen a drastic fall, along with the housing market, as consumers are cautious of and preferring to improve what they have, than make a large outlay.

In conclusion the UK has a mixed economy, developed through free market and global economy, which is regulated by the Governnment to prevent market failure.

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The mixed market economy allows the market to operate and the government to only intervene where the market fails. This means providing such services as law, healthcare and educated which would have been left un-provided by the free market.

The government also intervenes to help regulate problems created by a free market such as monopolies and wealth inequalities.

The free market allows goods and services to be produced when they want, for who they want, and as such can respond to the demand and supply of the market. The government attempts to regulate the cyclical nature of the market. But in times of recession into also intervenes to solve challenged created in times such as the current financial crisis. Increased unemployment is a major challenge in the financial crisis, which affects consumer habits and the market as a whole.

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Qatar’s economy is mainly based on petroleum which accounts more than 70% of its government revenue, more than 60% of gross domestic product and 85% of export earnings. Qatar promotes investment, innovation, free trade, open competition and access to resources that will continue to bring long-term economic development to Qatar and much-needed energy to the world’s growing economies.

Macro-economic trend

Qatar is now the richest country in the Muslim world. Current GDP per capita registered a world record-breaking peak growth of 1,156% in the Seventies. This became quickly unsustainable and Qatar’s current GDP per capita contracted 53% in the Eighties. But rising global oil demand helped current GDP per capita to expand 94% in the Nineties. Diversification is still a long-term issue for this over-exposed economy.

This is a table of gross domestic product of Qatar at market prices estimated by the International Monetary Fund with figures in millions of Qatari Rials.

Year

Gross Domestic Product

US Dollar Exchange

Inflation Index

(2000=100)

Per Capita Income

(as % of USA)

1980

28,631

3.65 Qatari Rials

53

266.18

1985

22,829

3.63 Qatari Rials

64

104.82

1990

26,792

3.64 Qatari Rials

77

67.85

1995

29,622

3.63 Qatari Rials

85

55.75

2000

64,646

3.63 Qatari Rials

100

86.03

2005

137,783

3.64 Qatari Rials

115

127.05

For purchasing power parity comparisons, the US Dollar is exchanged at 5.82 Qatari Rials only. Mean wages were $59.99 per manhour in 2009.

In February 2012, the International Bank of Qatar reported that GDP grew by 19.9% in 2011, but estimated that 2012 growth would slow to 9.8%.

Economic outlook of Qatar

Currency

Qatari riyal

Trade organisations

OPEC WTO

GDP

$181.7 billion (2011 est.)

GDP growth

18.7% (2011 est.)

GDP per capita

$102,700 (2011 est.)

GDP by sector

Agriculture (0%), Industry (79%), Services (20.9%) (2011 est.)

Inflation

(CPI 2.8% (2011 est.)

Labour force

1.32 million (2011 est.)

Unemployment

0.4% (2011 est.)

Main industrie

Crude Oil Production and Refining,Ammonia, Fertilizers, Petrochemicals,Steel Reinforcing Bars, Cement, Commercial Ship Repair

Export goods

Liquefied Natural Gas, PetroleumProducts, Fertilizers, Steel

Main export partners

Japan 30.3%, South Korea 13.1%, India8%, Singapore 7.7%, United Kingdom4.2% (2010)

Imports

$25.33 billion (2011 est.)

Import goods

Machinery and Transport Equipment,Food, Chemicals

Main import partners

United States 15.5%, Germany 9%,United Arab Emirates 7.3%, South Korea 6.5%, United Kingdom 6.1%,Japan 5.6%, Saudi Arabia 5.4%, Italy5.3%, France 4.5%, the People’s Republic of China 4.2% (2010)

Gross external debt

$82.05 billion (31 December 2011 est.)

Public debt

8.9% of GDP (2011 est.)

Revenues

$112.79 billion (2011 est.)

Expenses

$37.88 billion (2011 est.)

Economic and Social Development

From the time when H.H. the Emir Sheikh Hamad Bin Khalifa Al Thani has taken his position on 27th of June 1995, Qatar has entered into a new era of national work and strategy. From that time, Qatar has made huge steps towards constructing its economic and political structure. Objectives and vision of this new era in Qatar’s modern history has focused on widening public participation in national decision-making processes and emphasizing the role played by the Qatari people in running their country’s affairs. This was realized through strengthening democracy, principle of liberty, and election instead of appointment in many governmental bodies and authorities. For the first time in Qatar, it went ahead to acknowledge and support Qatari women right to be nominated and elected in municipal elections. Furthermore, this new era was designed with elevating interest in Qatari youth through adopting academic and educational curricula that perfectly meet the community needs and satisfy the country requirements for qualified human resources and providing employments for Qatari fresh graduates. It has also approved and implemented a new approach in planning the national economy and exploiting and investing national natural resources. This approach was based on drawing new strategies and long term plans, encouraging private sector, as well as achieving the optimal use of national and expatriate expertise and cadres, and creating good economic climate to tempt investments.

Standard Living of Qatar

In 2007, Qatar has gained records with unprecedented economic growth rate of above 14% per annum. It is expected that this rate is going to head still upward in the next years. Also government spending is increasing; as the state budget has recorded a growth rate of 23.6% in 2007-2008. In 2008, for instance, the state budget has exceeded QAR 72,465.72 billion, compared to QAR 59,901.8 in 2007.

The state of Qatar is considered one of the highest living standard on earth, it has occupied the 33rd rank in 2009 Report of Human Development, issued by United Nations Development Programme (UNDP). The report stated that Qatar has achieved a major achievement when it reached to the 33rd rank

The new ranking shows what Qatar has got in issues related to human development. The report added that human development index in the state has jumped from 0.875 to 0.910. This index reflects progress and improvement achieved in areas related to health, education and GDP. In education sector, for example, the index indicates illiteracy rate going down to 6.9%, while school admission rate goes up to 80.4%, compared to 77.7% in 2008. Furthermore, in health sector, life expectancy rate increased from 75 years last year to 75.5 this year. The state of Qatar has realized a big hike in income per capita which reached USD 74.882 in 2009.

Qatar National Vision 2030

By 2030, Qatar projects to be an advanced society capable of maintaining its development and catering a high standard of living for its entire people. Qatar’s National Vision defines the long-term outcomes for the country and provides a framework within which national strategies and implementation plans can be developed. The National Vision addresses 5 major challenges facing Qatar:

Modernization and preservation of traditions

Needs of this generation and the needs of future generations

Managed growth and uncontrolled expansion

Size and the quality of the expatriate labor force and the selected path of development

Economic growth, social development and environmental management

The National Vision foresees development through four interconnected pillars:

Human Development: development of its entire people to enable them to maintain a progress of society.

Social Development: development of a just and caring society based on high moral standards, and capable of playing a significant role in global partnerships for development.

Economic Development: development of a competitive and diversified economy capable of meeting the needs of, and securing a high standard of living for, its entire people both for the present and for the future.

Environmental Development: management of the environment such that there is harmony between economic growth, social development and environmental protection.

Qatar National Vision 2030 was approved by Emiri Decision (44) for the year 2008.

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In simple economics this is about commodities like labor. If the price of the commodity is increased the supply tends to increase while the demand falls resulting in a surplus of the commodity. Commodities like wheat are bought by the government when surplus occurs. However, the government does not hire surplus labor; the labor surplus takes the form of unemployment. It is argued that unemployment is higher with minimum wage laws than without them. The basic theory suggests that raising the minimum wage does not help workers who suffer from job loss or job opportunities because of companies cutting back on employment. However, it is argued that the outcomes are much more complicated.

Minimum wage Outcomes:

There is an ongoing debate on the issues revolving minimum wage. Different political, financial, ideological groups have a variety of opinions about the benefits and costs of a minimum wage. Supporters of the minimum wage suggest that it increases the standard of living of workers and reduces poverty. Opponents state that the high effective value increases unemployment.

The advantages of minimum wages are presented by the supporters of the concept. It is argued that it increases the standard of living for the poorest and most vulnerable class in society and raises average.[1] Minimum wage inspires employees to work efficiently. Resultantly it increases the work ethic of those who earn very little, as employers demand more return from the higher cost of hiring these employees.[1] The economy as a whole also benefits in which minimum wage stimulates consumption, by offering low-income people more money to spend.[1] Also, it decreases the cost of government social welfare programs by increasing incomes for the lowest-paid.[1]

The arguments against minimum wage are presented by the opponents of the concept. It is claimed that minimum wage has a greater negative effect on small businesses rather than large ones. The quantity demand of workers is reduced through reductions in the number of jobs or the number of hours worked by individuals. It could also, cause inflation, since businesses raise prices of goods to compensate for the costs. The enforcement of minimum wage could lead the labor force to exclude specific groups while it benefits workers at the expenses of the least productive. Minimum wage provides less room for businesses and employees to develop through training and research. Plus, it discourages the poor to intake further education and drives them to enter the job market. Overall, the minimum wage method is said to be less effective than other methods like Earned Income Tax Credit method at minimizing poverty. This method has a great damaging affect on businesses.

Minimum wage in Bahrain:

Minimum wage is set by the Bahraini government for public sector workers which provides a decent standard of living for workers and their families. The minimum wage for the public sector is specified on a contractual basis. The Bahraini government is trying to institute a minimum wage of around BD200 but most jobseekers are shunning this amount. Only the Banking sector has attracted more Bahraini workers. The average wage in this sector is at BD500.

The Labor Minister in Bahrain is against adopting a minimum wage policy for private sector because of the significant damage it can do for the economy. Al Alawi said that Bahraini citizens should not obtain less than BD 300 a month. However, the minimum wage should not be mandatory in which it will result in many companies going bankrupt.

Alawi said “We cannot accept the article added by the Services Committee to the Labour Law draft, which covers bonuses and salaries by National Salary Council. We do not have such a council, and cannot have one, as its task is to fix a minimum wage, which is unacceptable.”

If we compare Bahrain with Singapore (similar size), there a flexible wage system is placed. All employees are rewarded based on their performance and wages are adjusted by the businesses. It is argued that this system increases employee’s motivation and allows for flexible and quick adjustments to be made during downturns which avoid retrenchment.

Minimum wage and unemployment:

Labor market challenges involve the economic cost of high unemployment as a result of lack of competition due to lack of experience and training and citizens’ dissatisfaction with wage levels and working conditions resulting in high labor turnover. “The unemployment rate in Bahrain has narrowed down to 3.7% in February from the 3.8percent rate recorded in January”, revealed Majeed Al Alawi, the Labor Minister in Bahrain.

Bahrain is facing a great deal of pressure to provide jobs to unemployed Bahrainis. Ten to fifteen percent of jobs need to be created by the coming year. Job opportunities are presented through the boom in construction. New business ventures like malls, theme parks and hotels are being developed. However, they seem to be benefiting the foreigners more than Bahraini citizens because of the issue of wages. Bahrainis recoil from the jobs because of low pay.

Bahrain has taken several approaches to handle the unemployment problem. These measures reduced its rate of joblessness from 16 percent in 2002 to 3.7% in 2010. One of the major arrangements was the foundation of the Unemployment Insurance System, specialized in the Arab World. The system provides financial assistance for six months for unemployed experienced and qualified citizens registered with the Ministry. The members will be assisted by the Ministry to search for a job and could also join a training program. 1,300 jobseekers benefited from this program and employment was attained.

Bahrainisation is the process to easing Bahraini nationals into jobs held by expatriates. However, this concept is considered to be a distant dream. Bahrain’s market will always be dominated by expatriates in the coming years. The work sector is now dominated by sixty or seventy percent foreign workers. That is why it is argued that the attempts of localizing the workforce and the excessive spending on training will not change the labor market’s structure. Several newspaper articles express the concerns of Bahraini employers regarding this issue. For instance it is stated in the article “The Failure of Bahrainisation policy”, “Not unlike the majority of business people in Bahrain, we have been suffering from the Bahrainisation policy adopted and enforced by the government which regulates the labour market and shoves unqualified, unwanted, unproductive and completely useless Bahraini job seekers down our throats and penalises us if we dare fire them. Thus disregarding the basic premise of business which is to make a profit and sustain the economy. The private sector has been used for decades as the scape-goat and the virtual geriatric unit in forcing us to absorb the unqualified labour force.”

In order to improve the competitiveness of Bahraini workers, the labor market introduced the concept of labor fees that is only applicable to non-Bahraini workers. It is assumed that this process will bridge the labor cost differentials. Labor fees and other measures are taken to encourage employers of private sectors to hire Bahrainis.

The labor fees initially calculated in the labor reform background document consist of an entry and renewal fee of approximately BD600 for a 2-year work permit and a monthly fee of around BD75 for each non-Bahraini worker engaged by the employer.  These fees are inclusive of the current training levy and work permit fees which will be collected along with the proposed new fees.

The implementation of the labor fees process is going to be gradual according to the LMRA Board of Directors. It will start with an entry fee of BD 300 with a monthly fee of BD 10. This fee will include visa, medical and smart card fees. However it will not include the training levy that is provided by the Ministry of Labor.

(As shown in the following diagram, the impact of labour fees on labour cost varies greatly by branch of economic activity and has a significant relationship with Bahrainisation: the higher the Bahrainisation rate to the lower the impact of the labour fees)

Concerns were raised on the level of the fees and its uniform application in all sectors and all types of foreign labor. It is argued that the fees, being BD 10, does not have a significant effect on large private sector businesses.

The gradual elimination linked with the fees has also raised a serious concern regarding the Bahrinisation approach. (Alawi blamed low wages and hard work conditions for the low Bahrainisation levels in the private sector and cited reforms to the education and training programs, unifying the job market and reforming the economy as key to addressing the issue.)

The Labor Market Regulatory Authority (LMRA) will be working with Tamkeen and other institutions to achieve the objective of increasing prosperity in the kingdom. Tamkeen is an independent authority which creates operational plans to use the fees collected by the LMRA to invest in Bahraini employability, job creation, and social support. Challenges in the labor market have been pointed out through Human Capital Development and Tamkeen projects. The problems with employability and career progression for Bahraini citizens in the private sector are expected to improve through these programs.

Although the constitution permits workers to organize, the government bans trade unions. With this absence of legitimate trade unions, no collective bargaining entities or collective agreements exist. Workers may express grievances through joint labor-management committees (JLCs). JLCs are generally created at each major company and have an equal number of labor and management representation. As of 2000, there were a total of 20 JLCs. There are no internationally affiliated trade unions, and foreign workers are underrepresented in the General Committed of Bahrain workers which coordinates the JLCs.

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Madhoun & Analoui (2004) [3] contend that Micro and Small Enterprises (SME’s) occupy an important and strategic place in the economies of all countries as they contribute significantly to wealth and employment. All the foretasted benefits of Small and Medium Scale Enterprises cannot be achieved without the direct intervention of the government. SME entry mode choice has been considered one of the most important new research fields on internationalization of firms (Jones, 1999; Burgel, and Murray, 2000) [4] 5. Over the years a number of Market Entry Strategies have been formulated by the government with a view to developing Small and Medium Scale Enterprises. Therefore it is visible that there are several factors which challenge the success of small business. Apart from these challenges, there are several strategic options which will help SMEs to overcome these challenges. Awareness of these issues and challenges and the strategic options in this field is very important factor to these SMEs in Oman for the development of this sector.

This proposal research will discuss deeply the impact of foreign market entry strategies of SMEs on their performance in Oman. In particular, the research will examine several Market Entry Strategies aimed at developing business performance of Small and Medium Scale Enterprises in Oman and focus on evaluating the most appropriate market entry strategies that SMEs should consider prior to penetrating market. The researcher will establish the objectives of the study and will formulate the research statements. Then he will state questions and finally, the methodology to be used is discussed.

1.2 Research Problem

SMEs in Oman, as in other countries, are still facing a number of difficulties and obstacles that are complicating their growth and performance. Firm`s growth and performance are much affected by marketing strategy, and specifically through market entry strategies. Many market entry strategies have been identified by researchers can enhance SMEs performance if these strategies are followed in their business operations there should be improving the performance of the business.

There are few studies that link market entry strategies of SMEs with its performance. The intent of this study is to fill these research gaps by producing empirical evidence to clarify the relationship among SMEs, market entry strategies and organizational performance. The fundamental research questions are whether SMEs and market entry strategies are linked from a performance perspective and whether this link adds to the bottom-line of organizations. The study attempts to improve understanding of the issues that have theoretical and practical relevance. A combination of quantitative (survey research) and qualitative (case studies) research was

In this study the researchers considered only about the market entry strategies adopted by SMEs and its impact on business performance. Therefore it is important to measure the impact of market entry strategies in term of performance for SMEs in Oman.

1.3 Research Questions

The study considers the need of the SMEs to increase their performance due to the increased impacts of the external environment such as economic crisis, competition, and globalization. The researcher can extract several questions to help the study achieve the proposed objectives.

1. What is the impact of foreign market entry strategies of small and medium enterprise on their performance in Oman?

2. What is the impact of exporting strategy of small and medium enterprise on its performance in Oman?

4. What is the impact of joint venture strategy of small and medium enterprise on its performance in Oman?

5. What is the impact of licensing strategy of small and medium enterprise on its performance in Oman?

6. What is the impact of foreign direct investment strategy of small and medium enterprise on its performance in Oman?

1.4 Research Objectives

The main objective of the study is to identify the impact of market entry strategies for SMEs in Oman in terms of the organization’s performance. The second objective is determining the appropriate market entry strategies that can be used by the SMEs which lead to improvement in their performance. The specific objectives are to examine the market entry strategies available for SMEs in terms of its performance; and to determine the main barriers to enhance performance of SMEs;

1.5 Justification (Rationale) for Research

Nowadays the globalization of markets has been one of the hottest topics of discussion among academic researchers and business practitioners during the past 25 years. The successive governments in Oman have continued to articulate policy measures and programme to achieve a sustainable industrial growth and development, through appropriate marketing strategies. No study has been available that link between market entry strategies and performance which can be used by SMEs. The researcher hopes that the findings of the research would contribute to the growing body of knowledge on SME`s market entry strategies specifically in terms of performance in the Omani context. It is also hoped that researchers on entrepreneurship would benefit from this study, directly or indirectly, in terms of the research approach and the applicability of results, among others.

The output of this study can be used as a source in variety of ways such as: (1) baseline data for Small and Middle Enterprise (SMEs) to enhance their performance through market entry strategies. (2) basis for policy formulation and implementation by the local and national government in regulating and reinforcing small business industry; and (3) reference for future comprehensive study in the field of market entry strategies.

1.6 Statement of the Hypothesis

The research work sets out to test the following hypothesis:

H0: Foreign market entry strategies of small and medium scale enterprises do not enhance their performance in Oman.

H1: Exporting strategies of small and medium scale enterprises do not enhance their performance in Oman.

H2: Joint venture strategies of small and medium scale enterprises do not enhance their performance in Oman.

H1: Licensing strategies of small and medium scale enterprises do not enhance their performance in Oman.

H1: Foreign direct investment strategies of small and medium scale enterprises do not enhance their performance in Oman.

1.7 Research Methodology

The proposed approach of the study is the use of descriptive approach and using both the primary and secondary data. The secondary data will be collected from the previous studies in the books, newspapers, websites and journals. The method will enable the study to evaluate the effectiveness of the different foreign market entry strategies that are mostly applied by the SMEs in terms of performance. In addition, the primary and secondary data can establish the conceptual framework for these strategies which can be applied specifically in the issues of globalization. The questionnaire is the approach which is used to collect the data in this research. Mcdonough and Mcdonough (2008) [6] sited that to get data for the research; there are two types for asking people questions which are interviews and questionnaires. Kuter and Yilmaz (2001) [7] added that the questionnaire is very benefit to get the data because you can ask many people the same questions in short time. Kuter and Yilmaz (2001) [8] gave that questionnaires are not very expensive like other ways or tools of collecting data and if you use the online questionnaire it is very easy to distribute and analyse. So, the researcher chose to use the questionnaire because it helps to get the ideas of a huge number of people but the interviews are giving the ideas of a few numbers of people. Furthermore, it is very easy to analyze the questionnaires.

In order to achieve the study objectives, the researcher will use analytical descriptive approach which includes sequent of procedures such as identification the population of the study as well as its dimensions and determination study tools to measure the dimensions which we are going to study it. The researcher will use a representative sample which includes all SMEs available in different industrial areas in Oman. The researcher will divide his study into dimensions including the importance of market entry strategies for SMEs in Oman, the evaluation of existing market entry strategies available for SMEs in Oman to measure specifically the extent of satisfaction about those strategies in terms of performance.

1.8 Research Limitation

Several limitations can be seen due to the time and cost constraints. The study is only focused on the manufacturing sector due to its significant contribution to the national economy.

CHAPTER TWO: LITERATURE REVIEW

2. Literature Review

2.1 Introduction

It refers to any company or individual establishment that operates within a certain industrial sector and have a registered capital exceeding $42,300 and more than ten registered employees within the social security program. Bethke & Raynard (2003) [9] states that the contribution MSEs makes towards economic development in developing countries cannot be understated. Allal (1999) [10] support these researchers by stating that MSEs are considered main engines of economic growth. Hodgetts and Kuratko (1995) [11] also suggest that small businesses not only create employment but are the economic engines driving the global quality of life (Hills, 1995) [12] . Bridges (2002) [13] , states that micro, small, and medium enterprises are often the backbone of the private sector in developing world and creating jobs. As per Cagliano et al. (2001) [14] , ‘small enterprises score significantly low on practice related to long term planning and strategic management, such as business vision, manufacturing planning and strategy and performance management as compared to medium enterprises. Batra and Mahmood (2003) [15] support public policy initiatives and call for creating and enabling environment for the development of small business. World Bank Report (2004) [16] despite the success of SMEs strategies in some countries, the majority of developing countries have found that the impact of the SMEs development programs on enterprise performance has been less than satisfactory.

Implementation of international market diversification strategy involves the development of a comprehensive product/market plan that includes choosing a foreign market entry mode (Root, 1987) [17] . Foreign market entry mode is defined as institutional arrangements that allow firms to use their product or service in a country exchange (Calof, 1993) [18] . Entry modes vary in the degree of control the firm has over invested tangible and intangible resources, and the transactions costs associated with that resource commitment (Anderson & Gatignon, 1986; Domke-Damonte, 2000) [19] 20. In terms of the performance implications of internationalization, evidence supports the idea that foreign market entry, regardless of mode, significantly increases returns on sales and assets (Daniels & Bracker, 1989) [21] .

2.2 Small and Medium Enterprises in Oman-An Overview

Oman is a country with unique features. It is a developing and an oil producing country. Oman is a country where there are ample scopes for the local people to generate income from different sources especially after the introduction of Omanisation policy. According to the (Ministry of National Economy,2010) [22] the total number of SME units registered in Oman in 2009 is 118,386 and contribute around 23% of the gross domestic product (GDP) which are scattered in four governorates, Muscat, Dhofar, Musandam and Al Buraimi and five regions, Al Batinah, Al Dhahirah, Al Dakhliyah, Ash Sharqiyah and Al Wusta. According to the Oman Ministry of Commerce and Industry, SMEs represent more than 90% from the total number of enterprises in Oman. These estimation show a considerable potential for the Omani`s SMEs to grow and to be competitive at local and international level. This paper offers contributions to international business studies by providing a conceptual framework of market entry strategies that enhance Omani`s SMEs’ business performance.

3. Conclusion

Small and Medium Scale Enterprises constitute essential ingredients in the lubrication and development of any economy. In Oman, the story makes no remarkable difference as Small and

Medium Scale Enterprises dominate the economy. Government over the years has formulated a number of policies aimed at developing Small and Medium Scale Enterprises. SMEs throughout the world have been considered as the silent drives of a nation’s economy. Their enterprise is laudable and their ability to generate pools of growth and employment, invaluable. This is true for most developed, as well as developing economies.

In the emerging economic order SMEs are the leading edge when it comes to innovation and entering new global markets. The SME story in the Sultanate is not different. SMEs form the backbone of Oman’s economy. The studies show that SMEs’contributions towards GDP and employment creation in Oman is far below when compared to other developed and developing countries. Many failures in SME sectors reported in the past few years were due to the absence of efficient management systems especially the effective market entry strategies in the enterprises. A study of the marketing strategies of SMEs of Oman particularly the market entry strategies will give light to the real issues of this sector and thereby strengthen the very base of the SMEs in Oman.

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Bahrain is the smallest market in the Middle East by population size but it is also one of the most competitive. It was early to liberalize its market and has a well-established regulatory authority. It is also one of the better-documented markets in the region.

It was in 1864 when first Bahrain’s telecommunication link to the world occurred, and at that year there was only one telecom medium in Bahrain, as it was connected to Indo-European undersea telegraphic cable. This remained until the year 1931, then cable and wireless predecessors started to operate radio links that provided telegram and telephony services.

The first telephone in the country was operated during the 1930’s by the electricity department. The installation of Bahrain’s first automatic telephone occurred in the year 1949, right after the first telegraphic was opened in 1947.the company was named the international communication company where later it was incorporated in the wireless telegraph company in the beginning of the year 1949.

Batelco’s entry to the market in 1981 meant to Bahrain that there was going to be a telecom company which was a huge introduction to Bahrain’s market as it would be to any country. Batelco was the only telecom company in Bahrain for a very long period of time (approximately 25 years), which meant that they were a monopoly that had 100% of Bahrain’s telecommunication market under it. Batelco’s history was filled with events and changes, every year Batelco had to have an important addition change or major achievement. Some of batelco’s important dates where as followed. In 1980, the first telephone exchange was opened, in 1981 when Batelco established it; by cable and wireless. In 1989 Bahrain government bought 20% of the cables and wire shares. Bahrain showed a great technology boom where they were they were the first country in the world with complete digitalization of its national and international telephone switches, at a total cost of over BD17 million in 1992. The great deal was introduced in 1994 where Batelco signed a contract that introduced GSM (Global System for Mobiles) at a cost of BD6 million. It was in 1999 when Batelco made a great achievement, where they reached the 100,000th mobile phone customer, and the 100th international roaming operator link established. In 2001 Bahrain market was introduced into a new unique product, it was the Speed net, based on ADSL technology and in 2004 provided the complete telecoms infrastructure for the first-ever Bahrain Grand Prix.

Answering the question that talks about the market structure of Bahrain, I would like to introduce the TRA (telecommunication regulatory authority). This was the organization that responsible for regulating the telecommunication sector.

The Telecommunications Regulatory Authority (TRA):

”The Telecommunications Regulatory Authority (TRA) was established by Legislative Decree No. 48 of 2002 promulgating the Telecommunications Law. The TRA is an independent body and its duties and powers include protecting the interests of subscribers and users, and promoting effective and fair competition among established and new licensed operators.”

The TRA mission is to ” protect the interests of subscribers and users of telecommunications services and maintain effective and fair competition between established and new entrants to the telecommunications market of the Kingdom of Bahrain”.

The TRA made three main points that every company has to have or obey in order to create a structured telecommunication market. First is the licensing’s, then the market operation, and finally the liberalization plan.

1) Licensing

The TRA department is responsible for giving people or groups that want to start a telecom company a license with the consideration of applicable laws and recommending them in regard to the application for a license, and ensuring that they fit all the needed requirements and terms.

National Fixed Wireless Services (NFWS) Licenses Auction

On the 6th of July 2006 an auction was held for the award of fixed wireless access licenses by the board of directors of the telecommunications regulatory authority (TRA).

The market operation for the TRA issued updated national numbering plan On 10 September 2008, and on the 2003 the TRA published the National Numbering Plan (a document outlining the use of telephone numbers in Bahrain in a competitive market). Another important change was that the TRA introduced a numbering change on 1 December 2003 that made all phones in Bahrain both mobile and non mobile to increase a digit, making them 8 digits.

By making that change that increased the number combinations which lead to new operators and new services, however if not managed carefully their might be a chance that they would have to make another numbering change in the future. The TRA owns and administers all the telephone numbers in Bahrain and will apply restrictions to the usage of them, while at the same time encouraging innovative new services requiring ranges of new numbers. After all the arrangements that were made by the TRA they finally got to publish the national numbering plan on the 26th of June 2004.

“The Authority shall have the power to in co-ordination with the Radio communications Authority, monitor and enforce the use of Telecommunications Frequency in the Kingdom in accordance with the law and to ensure the efficient use thereof” Section 3 c11 of the Telecommunications Law

For the initiation of the plan to commence, the TRA was charged to encourage the development and availability of the widest passable range of information and communications technologies and services in Bahrain. Their intention to do this was that TRA department wanted to give private sector companies the needed flexibility to ensure the satisfaction of the user’s needs.

The new National Telecommunications Plan set the high level objectives for telecommunications in the Kingdom over the next three years as competition continued to grow, while the outcomes from the Strategic and Retail Market Review set the milestones for the year. What gave the mobile operators a boost to the completion in the mobile market was the prospect of a third mobile.

Adapting the regulatory environment to support the development of innovative services is not an easy job where as the TRA faced many challenges in processing the use of emerging and converging technologies. These services bring considerable benefits for both consumers and the market. More progress was made in removing some barriers to affect competition, such as the lack of number portability. Working with the industry TRA developed a better way ahead on other issues, such as building telecommunications infrastructure.

The second National Telecommunications Plan

The process was guided by the first National Telecommunications Plan. This set out the Government’s high level objectives of implementing liberalization, establishing the licensing regime, the requirement for universal service and the role of TRA.

Strategic and Retail Market Review

In 2007 TRA commenced made a research on the telecom companies in order to inform and develop its plans for the future. As a result of this review, TRA announced in February 2008 a nine changes in the regulations were made, that would further promote competition and deliver significant benefits to consumers. Eight of these measures were put in place, or the implementation process was started, during 2008. These were:

A third mobile operator license Removal of certain tariff approval processes Data collection, Consumer surveys and price benchmarking Local Loop Unbundling Carrier selection and improved Carrier Pre-Selection (CPS) Competition guidelines Number portability (fixed and mobile) Reform of retail tariff regulation

The final one – the removal of mobility restrictions for National Fixed Wireless Services (NFWS) licenses – is scheduled for 2010.

Last proposal was made in June; the TRA issued its final determination detailing the retail markets in which Batelco was deemed to have significant market power. Third mobile license

These regulations allowed other companies like mtc-vodafoon and STC to enter the market threatening Batelco. It was in 1983, where (MTC) was established by Kuwaiti investors. Zain showed a great development within a short period of In April 2004, MTC-Vodafone secured 10 percent of Bahrain’s market based on its great job that it did in the first quarter. The company of Zain bought out MTC-VODAFON they are a leading telecommunication company in this market.

The Saudi Telecom Company (STC) launched its latest mobile network. VIVA, the third mobile operator in Bahrain, started on March 4, 2010. VIVA is owned completely by STC, and the launch adds to the Saudi Arabian incumbent’s growing international footprint. STC currently has 100mn customers worldwide. The Saudi Telecom Company’s huge budget margin is the biggest threat towards the competition.”

New regulations that were implied by the TRA affected every one positively. The new regulations reduced unemployment, lowered prices of calls, and increased products, by letting new companies entering the market. It was Only Batelco that has bean effected negatively.

UN EMPLYMENT RATES

As we can see that Bahrain in level (1) was at its highest unemployment rate. This was when Batelco was monopolistic in the market, but Zain was introduced to the market. in level(2) Zain offered over 1500 jobs across the middle east and Africa, around quarter of these jobs were offered in Bahrain. In level (3) this is when Viva entered the market with the two companies offering more jobs and opportunity to the locals. As we can see that these companies cam and brought jobs and opportunities with them.

At the same time it harmed Batelco’s, where Batelco’s use to have a perfectly inelastic demand curve, but after Zain entering the market , and viva after them, this effected the elasticity changing it from perfectly inelastic into more elastic curve, and now with STC breaking into the market Batelco telecommunication market situation is even more fluctuated .

Perfectly inelastic

When batelco was alone in the market, and the regulations were deffending batelco, they had a very unelastinc demand, where batelco use to play with the prices, by setting high prices and the consumers hade to deal with them where they didn’t have any alternative.batelco had an elasticety = zero.

When zain entered the market competing with batelco, batelco loss their advantege of a strong unelastic demand curve. Where consumers hade more choices and they were able to alter their choice in any action the batelco takes against thier benefits.

When viva joind the two leader companies in bahrain (batelco and zain) , it made competetion high, by giving a very temting offers causing the curve of batelco to beeven more elastic and equals around (+/- 1).

This also caused the demand of Batelco decrease and the demand on Zain and viva increases due to the offers that they offered in order to steal the market.

The increase in market competition between Batelco Zain and viva has caused the demand on Batelco decreases, where people shifted to Zain. After the entrance of viva the demand of Batelco fell even more. We see a fall in demand, where the demand has shifted to the left (D) to (D1)-(Q) TO (Q1) also causing the price to fall from (p) to (p1), thus occurring a new equilibrium (E1).

In this diagram we can see how the demand on Batelco had even fell more after the entrance of Viva. The demand shifted from (D1) to (D2), causing the prices to fall from (P1) to (P2) and occurring a new equilibrium (E2).

The competition in the market cased the telecommunication companies (Batelco,zain,viva) to offer new and more offers in order to attract customers to them.

As we can see in the diagram that the supply of products and offers to consumers have increased, causing the supply to shift to the right from (S) to (S1), causing prices also to fall from (P) to (P1) and changed (Q) to (Q1) finding a new equilibrium (E1).

Competition has accelerated in the broadband market during 2008 and 2009 with the launch of WiMAX services by two alternative operators. By mid-2009 WiMAX had a 30% share of the broadband access market, with the market share of Batelco’s ADSL services falling to 54%. Mobile broadband had a 13% market share after rocketing to 14% in 2008 and then leveling off

With competition strong in its home market, Batelco as with other operators in the region has ventured abroad to less developed markets in search of profits – although not on the scale of Zain or Etisalat of the UAE. Batelco has subsidiaries in Kuwait, Jordan, Yemen and Saudi Arabia and a 49% share in S Tel, a recently established Indian mobile operator

Conclusion:

Bahrain has the most competitive telecoms market in the Middle East. The TRA added a very great value to Bahrain’s telecommunication market structure, and without them Bahrain wouldn’t have reached to what it is now in telecommunication sector. They had very strict and well structured regulations. The way that the TRA set their regulations gave an advantage for both the consumers and the suppliers, and their latest change in competition laws gave an advantage for the growth of the country in both telecommunication and as in the decrease of unemployment, it also injected money into the economy making it wealthier. Also that Batelco suffered, since it was a monopoly for a long time, until the regulations were modified, causing competition between Batelco Zain and now Viva. Batelco faced a problem where Zain and viva entered the market aggressively offering such great services with a wide range of offers for the consumers, but Batelco existed way before, their infrastructure in Bahrain is very strong. Its not easy to compete with Batelco in the quality that they give, plus they have business out of the country that they rely on in making a stable Income. Batelco has a main internet cable in Jordan and in some other countries, it also has links and telecommunication offers on many countries other than barain.

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The Doha Development Round or Doha Development Agenda (DDA) is one of World Trade Organization (WTO) efforts to liberalize international trade which was commenced in November 2001 with the objective of lowering trade barriers around the world. This allows countries to increase trade globally; permitting free trade between countries; to open agricultural and manufacturing markets and expand intellectual property regulation. As of 2008, talks have stalled over a divide on major issues, such as agriculture, industrial tariffs and non-tariff barriers, services, and trade remedies. The members of Doha Round are consisting of the developed nations which led by the European Union (EU), the United States (USA), and Japan and the major developing countries which led and represented mainly by India, Brazil, China, and South Africa. The Ministerial Conferences and related negotiations have taken place in:

1. Doha, Qatar (2001)

The main issues discussed were the Singapore Issue which comprises the new rules on investment liberalization, competition policy, government procurement, market access, and control on trade and any form of ‘red-tape’ including e-commerce. The Singapore Issue was agreed by the industrial countries at WTO Ministerial meeting in Singapore in January 1996 without negotiating with the developing countries. Furthermore, it also links to the Non- Agricultural Market Access (NAMA) with the method of reducing tariff rates of manufactured product. Besides that, the issue regarding the liberalization and removal of subsidies for agriculture particularly by industrial countries that are reluctant in reducing or removing subsidies caused the failure of agreement.

2. Cancun, Mexico (2003)

The Cancún ministerial collapsed after four days for several reasons such as both the European Union’s Common Agricultural Policy and the United States government agro-subsidies could not come to an agreement with the other countries concerning their subsidies in agriculture sector. Furthermore, the developing countries also rejected the Singapore Issue that erodes country sovereignty. Moreover, the government of the developing countries did not have freedom in drafting and implementing development policies for the people welfare and national interest.

3. Geneva, Switzerland (2004,2006, 2008 and 2009)

It failed in 2006 because of farming subsidies and lowering import taxes. The developing countries were “instructed’ to reduce tariff rates to the level which will harm the domestic industries. However, USA wanted the developing countries to open up their agricultural market, eliminate special treatment given to local industries, and eliminate special safeguards mechanisms (SSM) but yet they themselves reluctant to open agriculture market. Furthermore, the chance of success in this agreement is getting smaller as the Trade Act of 2002 expires in the year of 2007. The broad authority granted will pass to the US president George W. Bush and this will increase the dominant power of US and this would create conflicts between the interests between developed and developing countries.

4. Paris, France (2005)

France disagreed to cut subsidies to farmers, while the US, Australia, EU, Brazil and India failed to come with agreement relating to chicken, beef and rice. Although most are minor points, trade negotiations are facing more problems when dealing with major issues. The ‘delaying tactics” played by EU were charged to be the reason threatened to spoil the round.

5. Hong Kong (2005)

Industrial countries remain unfair towards the developing countries opening up the agriculture sector, services sector, and manufacturing goods. Besides that, the rules that proposed for countries brought negative impact or so called “industry injury” in opening economy to rectify matter which the possible sectors including textile, clothing, sugar, leather products that known as sensitive products. For instance, the Malaysia government opens up the textile market if deal with the agreement. However, in one or two years later, due to the openness of the textile market might hurt domestic textile industries in Malaysia. This is so called the industry injury as it brings negative impact or backslides to local Malaysia textile industries. Hence, the government can increase tariff rate for temporary to protect key industries before exposing them to foreign competitions as what Japan and South Korea did it successfully.

6. Potsdam, Germany (2007)

In June 2007, due to the disagreement on opening up agriculture and industrial markets in various countries and cutting rich nation farm subsidies, the agreement again broke down. The main countries involved in this were the US, EU, India and Brazil.

There are several reasons which result in why the Doha Round negotiation has failed to be concluded until today. First of all, the failure to agree on special safeguard mechanism (SSM) during Geneva 2008 which aimed to protect poor farmers by allowing countries to impose a special tariff on certain agricultural goods when there is a rise in import rise or fall in the price. Under SSM, the United State and EU protect their productions and their domestic markets by giving high subsidies. As a result, the United State farming community enjoys very low cost of production and their products are extremely cheap. The tariff on agriculture products of developing countries have to be reduced and they are only allowed to increase the tariff if their import is rose above 40%. In spite of this, India opposed the policies because it proposed to use such mechanisms when imports of agricultural products and food reached a 10% increase, while the developed countries wanted that these mechanisms triggered at a 40% increase on import. This would possibly caused millions of agricultural workers to have suffered the negative outcomes of this liberalization. Many developing countries support India’s position because India represents the strong voice expressing many poor countries which concern on the livelihoods of millions of small farmers in the developing countries and they want to protect their infant domestic markets. However, United State refused to accept the safeguards proposed by India and this results the Doha Round failed to be concluded because of the disagreement over the special safeguard mechanism (SSM) issue.

Next, the other factor that causes Doha Round failed to be concluded is these negotiations insisted on an exchange. The developed countries would open their markets for developing countries agricultural products while the developing countries would open their markets for the developed countries’ industrial products. These negotiations are known as NAMA (Non Agricultural Market Access). If NAMA is succeeded, this would strengthen the traditional role of developed countries and their transnational corporations as exporters of high-value goods and technology and increase the risk of rapid deindustrialization of the least developed countries, while slowing down the development of the developing countries’ industrial and technological advancement. Meanwhile, this would have an adverse effect on the ability of governments to design and implement policies in order to promote industry for local capitals and small and medium enterprises (SMEs) as part of a sustainable economic development and gender equity in the long term. Under NAMA, governments agreed to increase market access commitments through a tariff reduction formula that will even out or regulating the tariff levels across products to become more standardize. High tariffs will be subjected to steeper cuts than lower tariffs, and tariffs will be cut on a product-specific basis. Besides, this is a real innovation as compared to past rounds where countries were merely required to make an average tariff cut. This allowed them to pick and choose the products on which to cut tariffs and thus allowed tariff peaks to continue. The tariff cuts promoted in NAMA would open industries to competition with imported industrialized goods, which would probably hinder the local production with serious impacts for the loss of millions of employments.

In addition, the global food and fuel crisis is another major factor that caused the Doha Round failed to be concluded. In July 2008, the price of crude oil has increased from USD80 per barrel to USD145 per barrel. The prices of wheat and rice also increased more than 50% from March 2007 to March 2008. The other countries which are already reluctant to compromise on the world trade term will be even reluctant to compromise after the impact. For example, India has to stop the export of its rice to other countries due to the food crisis. This is because the oil price is too high and this will eventually affect the food production. In contrary, US tried to encourage the production of agricultural products by giving farmers generous subsidies. These US products will then flood to the international market and worsen the domestic markets of developing countries. Moreover, reducing tariff would also reduce the income of developing countries. Consequently, the developed nations will not cut subsidies while the developing nations will not reduce their tariffs.

Furthermore, the opting for bilateral or regional free trade area (FTA) by some of the member countries in WTO also one of the factors contributing to the failure of Doha Round. For instance, a deal signed by US and Japan that the US will export rice to Japan if Japan reduces its tariffs on US rice imports by 10%. US reciprocated the deal by lowering tariffs on one of the Japanese products import. However, under the Most Favored Nation (MFN) rule, Japan will need to reduce import tariff on all of its rice importers not only to USA. This rule is deemed by many especially the developed countries as unfair because developing countries become free riders under the system. Besides, countries have the alternative of forming their own FTAs with their preferred choice of trading partner. Therefore, countries participating in the Doha Round are definitely less willing to cooperate as they feel that they have the choice of develop their own FTA later. One of the good examples would be Singapore where it signed a FTA with USA in January 2003. Singapore might deem the relatively slow developments of ASEAN as an impediment to its own growth and thus signed an FTA with US. Therefore, Doha Round still failed to be concluded.

Apart from that, the emergence of China, India and Brazil could be one of the factors that caused the Doha Round fail to be concluded. China, India and Brazil are emerging as the leaders of the developing countries recently. Their role in global trade had been increasing and US is afraid that its importance will override by these countries. Thus, US not willing to compromise in the terms under Doha Round because they do not want to give out any benefits to these rival countries.

Furthermore, there is also lack of commitment from some of the participating countries. During the Cancún 2003, it was questioned whether some countries had come to Cancún with a serious intention to negotiate. In the view of some observers, a few countries showed no flexibility in their positions and only repeated their demands rather than talk about trade-offs. The rich countries are never committed into helping their poorer counterparts but just interested in their own benefits from trades. Developing countries want to gain more profit and want to protect their infant economies by implementing high tariffs. As a result, Doha Round failed to be concluded because the members of the countries refuse to mutually accommodate each others’ requests.

In conclusion, Doha Round has failed to be concluded until today because most of the countries are interested in own benefits than helping another countries. In fact, developed countries are shielding their agricultural sectors too much while developing countries are less interested in opening up their industrial goods markets. For instance, the most recent round of negotiations which was held from 23 to 29 July 2008, broke down after failing to reach a compromise on agricultural import rules. After the breakdown, major negotiations were not expected to resume until 2009. Nevertheless, intense negotiations mostly between the USA, China, and India were held in the end of 2008 in order to agree on negotiation modalities. However, these negotiations did not result in any progress. Thus, in order to achieve the main objective of Doha Round, the self-interested mentality should not exist. Therefore, it is not easy to create a successful conclusion for Doha Round and that is why Doha Round still failed to be concluded until today.

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Besides, in order to promote scientific research and education on its soil and to attract FDI and skilled labour, Qatar is implementing a whole new business environment, through the reshaping of its legal system and multiple financial incentives. Therefore, not only a company wishing to invest in Qatar would benefit from a state-of-the-art research environment, it would also enjoy a much safer political and legal framework than in the majority of other producing countries.

Introduction

Since the 1980’s Qatar has experienced huge changes, with rapid economic development and dramatic FDI increases. A thriving financial centre has grown out of nothing and world class sporting, scientific and educational facilities have been developed.

This report will evaluate the changes in the Qatar business environment and consider several policies and their impact. The focus will move to the oil and gas industry, with key challenges and advantages in the industry identified, before advice will be given for any prospective new firms.

Qatar at a Glance

Qatar is an unusual and unique setting for operations. It is important not to group Qatar with other gulf countries enjoying similar economic and social developments or as another generic Middle Eastern nation. Qatar is not a new Dubai or an Arabic-oriented Miami.

So while Qatar leverages its natural resources, it understands they are finite and can’t be relied on indefinitely. A 2008 document, Qatar Vision 2030, set the Emir’s objectives for Qatar up until 2030; to build tomorrow’s Qatari economy and society by attracting foreign investments and knowledge, diversifying its economy, investing abroad and promoting education and culture; to compete in the knowledge based international business environment.

Qatar natural resources give it the ability to fund this economic diversification. As a wealthy country the main issue is not how to finance a Science Park: it is attracting leading scientists and academics to develop projects there.

Therefore, the Qatari government has launched projects in partnership with foreign companies and universities. Instigated in 1995, after the peaceful coup by the current Emir, a crucial element of these development programs has been Qatar’s paradigm: a small country with huge financial and natural reserves, with complete economic control by the Government.

A Qatari elite comprising of Royalty, government officials and businessmen control the political, economic and business landscape. For instance the Prime Minister is also Qatar Investment Authority (QIA) CEO and the Deputy Prime Minister, Abdullah bin Hamad al-Attiyah, Qatar Petroleum (QP) Chairman. This is relevant as Qatar is an Arabic country. So when a deal is concluded and a contract written, the relationship goes beyond mere economic cooperation.

The possibilities available in Qatar are becoming clearer: Qatar’s energy industry is radically different to elsewhere, such as say Russia. By gaining a foothold in Qatar, a Major in the energy industry doesn’t only drill oil for short term profit to satisfy shareholders; it also has access to a unique environment for building future business models and investing in “flexible options” by benefiting from the Qatar scientific and educational revolution.

The Oil and Gas Industry in Qatar.

The Qatar economy relies upon its energy industry, especially to generate Government income (70% of total). Despite attempting to diversify the economy the energy industry accounted for 50% of GDP and approximately 85% of export earnings.

Qatar is integral to the worldwide energy industry and can become essential, as despite their large reserves they are currently the 22nd largest exporter of oil and 5th in gas production (Exhibit 1).

Exhibit 1

Qatar Oil and Gas Figures

Factor

Barrels

World Position

Oil – Production (A Day)

1.213 million

21

Oil – Consumption (A Day)

0.142 million

69

Oil – Exports (A Day)

0.753 million

22

Oil – Imports (A Day)

0

209

Oil – Proved reserves

2.541 billion

12

Factor

Cubic Metres

World Position

Natural gas – Production (A Day)

76.98 billion

11

Natural gas – Consumption (A Day)

20.20 billion

33

Natural gas – Exports (A Day)

56.78 billion

5

Natural gas – Imports (A Day)

0

144

Natural gas – Proved Reserves (A Day)

25.47 trillion

3

Qatar’s North Gas Field, discovered in 1971, is the world’s largest non-associated gas field. Accounting for 14.4% of world reserves and is sufficient to support planned production of natural gas for 200 years.

Qatar is the world leader in Liquefied Natural Gas (LNG). Large investments have been made in gas to liquid projects, with $20 billion invested in Ras-Laffan Industrial City. Qatar has ordered the world’s largest LNG tankers and trains to help develop their distribution network. QP has stakes in the Qatari LNG operations; Rasgas and Qatargas.

QP is the state owned energy company responsible for all phases of the oil and gas industry in Qatar. It makes huge profits and has a wide asset portfolio (Exhibit 2 and 3). It is a crucial component in the Qatar economy.

Foreign energy companies in Qatar operate through a variety of special contractual arrangements with QP, including joint-ventures (JV) and production-sharing agreements (PSAs).

Exhibit 2

Qatar Petroleum- Selected Income Statement-Year End 2009

2009

2009

2008

2008

QR’000

USD’000

QR’000

USD’000

Sales

118,140,863

32,447,388

168,488,206

46,275,286

Other Operating Income

6,447,876

1,770,909

5,901,367

1,620,810

Total Operating Revenue

124,588,739

34,218,297

174,389,573

47,896,096

Net Income For The Year

35,207,204

9,669,659

55,800,103

15,325,498

Exhibit 3

Qatar Petroleum Selected Balance Sheet – 31 December 2009

2009

2009

2008

2008

QR’000

USD’000

QR’000

USD’000

Non-Current Assets

232,604,448

63,884,812

185,902,097

51,058,011

Current Assets

49,703,545

13,651,079

60,132,185

16,515,305

Total Assets

282,307,993

77,535,890

246,034,282

67,573,316

Qatar Business Environment

Since the 1995 coup, Qatar has continually strived to improve economic freedom, the taxation system and make it easier to set up businesses, attempting to attract FDI. With the most influential set of laws discussed later.

Qatar’s main economic objective is to fund the diversification of its economy through growth in the energy industry. However, as discussed earlier, the country appreciates the need for technological support from international companies.

To attract FDI, especially the energy industry Majors, the country has implemented two major sets of policy: the reshaping the economic and legal environment, and the construction of a knowledge-based society.

A Changing Economic And Legal Environment.

Economic Snapshot

Since 2000 GDP growth has been strong and forecasts predict the economy will continue to grow rapidly (Exhibit 4).

Exhibit 4

Qatar GDP at constant prices

Many of the reforms target the energy sector: the objective is to fund growth of other sectors through Government revenues from energy.

Exhibit 5 and 6 suggests that this appears to be succeeding as there is a correlation between the growth in the energy sector and other sectors.

Exhibit 5

Qatar Gross Domestic Product at Constant Prices by Economic Sectors (2006 – 2010)

Exhibit 6

The recession affected all sectors and led to low 2008 and 2009 growth rates. This was due to low oil prices reducing the budget surplus, and thus government investment. However, Qatar recovered well in 2010 with GDP growth doubling to 17.4% in 2010 from 8.6% previously.

Exhibit 7

Heritage 2010 Index of Economic Freedom- Qatar

Year

Overall Score

Business Freedom

Trade Freedom

Fiscal Freedom

Government Spending

Monetary Freedom

Investment Freedom

Financial Freedom

Property Rights

Freedom From Corruption

Labour Freedom

2002

61.9

55

77

87.5

56.7

81.2

50

30

50

70

–

2003

65.9

55

73

87.5

70.2

87.1

50

50

50

70

–

2004

66.5

55

76.6

87.5

69.7

90

50

50

50

70

–

2005

63.5

55

76.6

99.9

75.5

81.7

30

50

50

56

60

2006

62.4

60

74.6

99.9

71.7

75.7

30

50

50

52

60

2007

62.9

60

76.4

99.8

71.4

72.4

30

50

50

59

60

2008

62.2

60

70.8

99.8

72.1

69.4

30

50

50

60

60

2009

65.8

75.7

81.6

99.9

69.1

67.3

40

50

50

60

64.7

2010

69

73.7

82.2

99.9

73.7

65.9

45

50

65

65

69.1

When all the aspects of economic freedom are considered, Qatar is ranked 2nd regionally and 39th in the world with a score of 69 (Exhibit 7and 8). Qatar ranks 50 in the ease of starting a business, as well as showing a rapid improvement in its Business Freedom score (Exhibit 7, 9 and 13).

Exhibit 8

Exhibit 9

Overall freedom to start, operate and close business is relatively well protected in Qatar. The new 2010procedure to register for taxes and obtaining a company seal, increased the number of days required for starting business from 6 to 12 (Exhibit 10), but this is lower than the world average of 35 days. The Heritage Business Freedom score has also improved, especially since 2008 (Exhibit 7), and is above the international average; however there is room for improvement to be a world leader.

Exhibit 10

Setting up a Business in Qatar

Procedures (Number)

8

Time (Days)

12

Cost (%of income per capita)

9.7

Minimum Capital Required (% of income per capital)

79.8

Exhibit 11

Qatar Global Competitiveness Report

While most economic freedom indicators have improved since 2000 the property rights, business and fiscal freedoms have experienced tremendous improvements (Exhibit 7).

Exhibit 12

Exhibit 13

Selected Producing Countries Doing Business Score

Country

Doing Business Rank 2011

Doing Business Rank 2010

2011 Reforms

Saudi Arabia

11

12

4

United Arab Emirates

40

37

2

Qatar

50

39

0

Kuwait

74

69

0

Algeria

136

136

0

Nigeria

137

134

0

Angola

163

164

1

Equatorial Guinea

164

161

0

Iraq

166

166

0

Venezuela

172

170

1

Those evolutions (partly due to changes in the legal systems discussed later) have attracted an increasingly number of foreign companies, as shown by the increase in FDI and Net Foreign Assets (Exhibits 14 and 15).

Exhibit 14

FDI into Qatar 2000-2010

Exhibit 15

Qatar- Net Foreign Assets

As already mentioned, FDI and Foreign Assets are crucial for Qatar: to increase energy industry revenues and to create its knowledge-based society, it has to attract skilled labour and technology-based companies.

An Evolving Legal Framework

These improvements of its business environment have been possible thanks to the reshaping of its legal framework.

Financial Liberalisation

The 2000 investment law is a milestone in Qatar history: it has turned the country from a hostile-environment for FDI into a magnet for investors.

It is also important to note that the Articles 2, 5 and 8 of this law directly target the energy industry (Exhibit 16). By creating the opportunity to own oil “blocks” and to settle for 50 years in Qatar, the government expect foreign companies to bring their technology and skilled labour to undertake long-term projects that will be mutually benefit. The effect of this has been seen with the large increase in FDI since the law was enacted (Exhibit 14).

Exhibit 16

Qatar 2000Investment Law

Article 2

Foreign investors may invest in all the sectors of the national economy provided that they have one or more Qatari partners whose share is not less than 51% of the capital.

The Minister may issue a decree allowing foreign investors ‘ share to exceed 49% up to 100% of the project’s capital, in the sectors of agriculture, industry, healthcare, education, tourism, exploitation and development of natural resources, energy or mining.

Article 5

Requiredreal estate may be leased to the foreign investor to establish his investment project, for a period not exceeding 50 years renewable.

Article 8

The foreign investments shall not be subject, eitherdirectly or indirectly, to expropriation.

Another major shift was the creation of the QFC (Qatar Financial Centre) and QSTP (Qatar Science and Technology Park, studied in more depth later), two, tax free, free trade zones in which sponsors are not required and 100% foreign ownership is allowed. Improvements in fiscal freedom have also been seen with the corporate tax rate slashed to 10% from 35% in 2010 for a foreign corporation in Qatar.

The QFC aims to attract banking and insurance companies while QSTP targets technology-based firms; they both have the same regulation. Therefore, from a legal point of view, both institutions share the same financial and legal incentives (Article 12; Exhibit 17).

Exhibit 17

Law No. (7) (2005) – On the promulgation of Law for the Qatar Financial Centre.

Article 5

The objectives of the QFC Authority shall be the following:

To establish, develop and promote the QFC as a leading location for international finance and business designed to attract international banking, financial services, insurance businesses, corporate head office functions, as well as other business.

…

Article 12

Notwithstanding any provision to the contrary in any other law or regulation, entities that are approved, authorised or licensed to carry on their activities in and from the QFC will:

1. not be subject to any nationalisation or expropriation measures or any restriction on private ownership;

2. have freedom to repatriate profits and realise investments;

4. Not be subject to any taxes except those set by or determined in accordance with the Regulations.

5. Be owned up to 100% by persons, companies and other entities which are not nationals of, or resident in, the State.

A Knowledge-Based Economy

As explained, Qatar has attempted to transform itself into a knowledge-based society by attracting foreign companies and universities to bring their skills and knowledge to Qatar and pave the way for the construction of a diversified economy and educated country.

For that purpose the Qatar Foundation was created in 1995. It then lead to the creation, in 2009, of Education City within QSTP (Exhibit 18).

Exhibit 18

Qatar Science and Technology Park (QSTP)

The idea underpinning QSTP is to attract foreign investors by providing them with world-class research facilities and a network of informal contacts that allow firms to benefit from each other’s knowledge generation. The legal and financial incentives have already been discussed.

By entering QSTP, foreign companies, especially in the energy industry, may take a decisive option for the future of their business: the large range of opportunities offered to them, through partnerships with other companies, can help them to shape their future business model.

Exhibit 19

Qatar Science and Technology Park Projects

Firms participating in the project

Project

ExxonMobil

ExxonMobil Research Qatar

ExxonMobil is working to develop automated remote gas-detection technologies to identify emissions at liquefied natural gas production and transportation facilities.

Airbus, Qatar Petroleum, Qatar Airways, Rolls Royce, Shell and Qatar Fuel

The consortium is working on developing a clean-burning aviation fuel derived from natural gas.

Shell

The programme builds upon Shell’s extensive experience in the GTL field and focuses on catalyst testing, product development and GTL by-product research.

Total

The Total Research Centre

It will undertake R&D activities in: multiphase oil and gas production carbonate reservoir modelling, acid gas management, polymer production and air-quality management.

Comparison with the USA

It is interesting to compare Qatar with the USA to identify areas of success and areas with room for improvement.

One key difference between Qatar and the US is that they epitomize two opposite political paradigms, while managing to both be magnets for technology-based companies.

Two opposite Political Systems

The US is one of the biggest countries in the world, the economic powerhouse of the world and epitomizes the spirit of entrepreneurship. Contrary to Qatar, each individual is expected to succeed through hard work and innovation. As shown earlier, in Qatar major scientific, economic or educational projects are launched by the government and individuals have little room for manoeuvre. For example, in the energy industry QP instigates projects.The US has little to no state ownership. The largest US company energy company, ExxonMobil, is the world’s largest publically traded energy corporation. Government intervention in the market is limited to regulations. The Government intervention in Qatar means that selected individuals have large power and this encourages corruption. As Exhibit 16 shows 2004 was the high point, which coincided with Qatar’s GDP growth and the availability of profitable opportunities. Recent efforts by the authorities have reduced corruption and the situation is improving.

The low level of corruption and the high property rights scores (Exhibit 22) mean that it much safer to do business, through easier contract enforcement and a more independent judicial system, in the US than Qatar; though Qatar is improving due to the 2000 laws.

Exhibit 20

Exhibit 21

Selected Comparison of Economic Freedoms available in USA and Qatar

Economic Freedom

USA

Qatar

Economic Freedom Ranking (Out of 179 countries)

8th

39th

Total Economic Freedom Score (Out of 100)

78.0

69.0

Property Rights (Out of 100)

85.0

65.0

Business Freedom (Out of 100)

91.3

73.7

Investment Freedom (Out of 100)

75.0

45.0

Freedom from Corruption (Out of 100)

73.0

65.0

Exhibit 22

One common objective: attracting skilled labour and fostering innovation, scientific research and education

Both countries encourage scientific research, creating partnerships between universities and companies and attracting technology-based companies.

A comparison of QSTP and Silicon Valley gives an indication of different approaches towards one objective. Silicon Valley has a location-specific advantage in the generation of knowledge related to the computer industry. One may consider that QSTP is the Qatari equivalent to the Silicon Valley, except that it is specialised in the energy field. Indeed, both have similar characteristics: they foster innovation by clustering companies, universities and scientists. If they share similar objectives, they were built through opposite processes: while Silicon Valley was created bottom-up, QSTP was constructed top-down. Silicon Valley was built organically thanks to innovative entrepreneurs, while QSTP is an artificial government creation: if both places operate the same way to foster innovation, they also reflect the economic patterns of both countries and can be used as examples of the business environment as a whole.

PESTEL Analysis

Political

Some major families (Al Thani, Al fardan, al-Attiyah…) are at the head of the country’s political and economic institutions.

The government is strong and active: Its intervention regards all the economic and social aspects.

Economic

A booming economy: GDP growth averages 15% annually.

Skyrocketing FDI.

A developing stock market.

Social

A three-strata society: Locals ,Western expatriates, Asian (Indian) expatriates.

The Kafala system can cause maltreatments regarding blue collar Asian and Indian workers.

Education system developing under the Supreme Education Council and Qatar Foundation.

Development of health care provisions by Supreme Council of Health, and the Hamad and Sidra Medical and Research Centres.

Technological

Attraction of foreign companies and skilled workers to foster technological headways.

Construction of research centers (QSTP).

Technological improvements are mainly undertaken in the energy and “green” industry.

Environmental

A stable political and economic environment.

Protection of foreign investors.

Low corruption, through favouritism and political connections.

Qatar Vision 2030: Government initiative- fostering education, scientific and economic diversification through major projects.

A favorable tax environment (tax rate was reduced to 15%).

Legal

Law No. (13) 2000:obligation to enter into a JV, as minority shareholder, to set up a business in Qatar, except for specific exceptions where 100% ownership is allowed.

Expropriation is forbidden.

Creation of free-trade zones (QSTP and QFC), with 100% ownership and no tax.

Advantages and challenges of doing business in the Oil and Gas Industy in Qatar

Advantages

A diversified asset portfolio

When entering in Qatar, a company has the possibility to create a diversified and audacious assets portfolio. In fact, Qatar is one of the only countries worldwide to have built LNG integrated supply chains and to have its own ships. Therefore, for instance, ExxonMobil has its most diversified asset portfolio in Qatar: it has taken positions in short, middle and long term options, with different levels of risks as shown by Exhibit 23.

Exhibit 23

Exxon Mobil Qatari Activities

This possibility to invest in flexible options given by QSTP is almost unique. By providing scientific and educational facilities to address the exhaustion of natural resources, Qatar also offers foreign and domestic companies state-of-the-art facilities to develop energy alternatives to fossil fuels. The programs developed for instance by Shell in QSTP (Exhibit 19) allows it to develop futuristic gas-to-liquids technology while producing LNG to finance this investment.

A safe business environment

The other major advantage of implementing an energy business in Qatar is the increasingly safe environment and the ease with business can be conducted, shown by independent ranking systems, compared to other producing countries. (Exhibit ?).

As already mentioned, it is possible to run oil and gas operations in Qatar through two main options: either a JV (minority shareholding) with QP or a 100% ownership of a hydrocarbon “block”.In many countries, like Russia, in which BP experienced difficulties in a JV, the political instability and the lack of protection of minority shareholders make a participation in a JV very risky. In Qatar a company involved in a JV is well protected (Exhibit ?).

Regarding the ownership of a “block”, we have seen that companies are well protected against expropriation and since the mid-1970s and the nationalization in of Shell and Dukhan Services there have been no cases of expropriation of foreign investment in Qatar. Qatar is vastly improving in regards to its respect of property rights with a 30% increase in their property rights score from Heritage in 2010, ranking it well above average.

So Qatar is a safe country to invest in, especially when comparing with other producing countries (Exhibit ?).

Challenges

Doing business in Qatar involves high costs

There are extra costs caused by the political and economic structure of the country combined with the already expensive nature of the industry.

First, as already mentioned, the political and economic scenes are completely intertwined in Qatar, therefore to succeed in Qatar excellent relationships must be maintained with influential individuals and families. Regular reporting and contact increases administration costs.

Maintaining good relationships with some of the richest families in the world has a price. In the Arabic culture gifts are a token of appreciation, and to reciprocate the gift must be of similar quality. As the Emir-related families in Qatar are known for offering expensive gifts, a company that operates in Qatar has to reciprocate. Therefore in Qatar complying with these social conventions are as important, if not more so, than the contractual obligations.

A program called Qatarization imposes employment targets of Qataris, they are highly paid and have a reputation for underperforming. This situation should improve as the education system does.

Finally costs are increased by the need for extensive legal support and advice. In Qatar confirming watertight contracts is crucial in protecting business deals and opportunities. Therefore sufficient legal representation is an essential, if costly, requirement.

A lack of transparency and clarity

As discussed earlier Qatar is attempting to create a safe and welcoming environment for FDI, Qatar has instigated heavy fines and prison sentences for corruption.

Qatar is well ranked in the Corruption Perception Index Ranking, 22nd in the world, and has an improving freedom from corruption score (Exhibit 7). However, despite The Amir, his Heir, and the Minister of Energy all fighting corruption it still exists. With favouritism and returning of political favours causing the major problems. Therefore, one of the major issues of foreign companies when they do business in Qatar is the lack of information and transparency regarding certain decisions.

Suggestions for a MNC entering the Qatar Oil and Gas industry

Positive Relationships

It is crucial to develop good relationships with high-ranking QP and government officials and the influential families. As discussed earlier there is little divide within Qatar between government and business. It is the Qatar Investment Promotion Department (QIPD) that liaises between businesses interested in FDI into Qatar and local businesses and government. With their support doing the process is easier.

This leads into the collaboration with QP, which is normally necessary. Several different options are available and the strategy selected should be dependent upon internal expertise, industry and the acceptable risk and reward relationship. The JV terms must be carefully selected as once an agreement is reached it cannot be cancelled. In Qatar no deal is complete until the document is signed; it is therefore advisable to only deal with companies that are happy to commit everything to paper. While this may not be an issue with QP, it could be with local suppliers.

While these relationships are crucial it is advisable to not become over reliant on local partners. Creating internal local connections and knowledge is crucial. Having internal Arabic speakers will allow a better understanding of the local environment as news and tender announcements can be released in Arabic four days before English.

Extensive Feasibility Research and Contingency Planning

A thorough feasibility study prior to entry is essential. Entering Qatar has high levels of uncertainty with asymmetrical knowledge, favouring locals. Therefore an exhaustive study will reduce this and identify possible problems and allow contingency planning to cover most eventualities.

An important consideration following on from this when entering Qatar is that while large profits are possible, it is a capital intensive process. Cost of living is high and expatriates are necessary, due to the shortage of local skilled labour. Therefore, before market entry the necessary resources must be available to complete the project, and that the expected returns are worth the risk.

Appropriate Representation and Support

A key piece of advice upon entering Qatar is to have legal representatives fluent i

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It is however important not to try and group Qatar with many of the other countries in the gulf enjoying similar economic and social developments: Qatar is not a new Dubai or an Arabic-oriented Miami. Qatar plans to become the “Singapore of the Middle East”.

In accordance with their “QATAR VISION 2030” various economic modernizations, good governance and business friendly policies were brought about making Qatar most attractive hub for various trade investments in the past decade.

Qatar is aware that their hydrocarbon resources will eventually run out, hence political and economic focus has moved towards diversifying its economy, investing abroad (through Qatar Investment Authority) and promoting healthcare, infrastructure, education and culture using the revenue generated from oil and gas industry.

Qatar also knows that it won’t succeed in transforming its economy alone. As a wealthy country of only 146,262 native Qatari (Qatar Census 2010), the main issue is not to source the finance to develop a Science Park: it is to attract foreign inventors, scientists and academics to build up projects within the Park. Therefore, Qatari government has launched major scientific and educational programs in collaboration with foreign companies and universities enabling them to foster research on its soil and build a “knowledge based economy” (World Bank).

Instigated in 1995, after the peaceful coup of the former Emir by his son who has a great vision “QATAR VISION 2030”, a crucial element of these development programs has been country’s paradigm: Qatar is a very small country with huge financial and natural reserves, with complete control of the economy by the Government.

The possibilities available in Qatar are therefore becoming clearer: investing in Qatar’s oil and gas industry is radically different from investing in Russia, Saudi Arabia, Kuwait, Brazil or Algeria. By gaining a foothold in Qatar, a Major in the energy industry doesn’t only drill as much oil as possible, boosting its short term profit and satisfying its shareholders, it also provides itself with access to a unique environment for building its future business model and investing in what we could call “flexible options”. It becomes part of the Qatari Vision Project, and benefits from the scientific and educational revolution that is occurring in Qatar.

ECNOMIC SNAPSHOT

The Qatar economic growth started in 1995, ever since the country has been endeavoring to develop the oil and gas sector. When all the aspects of economic freedom is taken into consideration Qatar is ranked 2nd in regional ranking and 39th among the world with a score band of 69. (Exhibit 5). Qatar ranks 50 in the ease of starting a business (exhibit 8). Overall freedom to start, operate and close business is relatively well protected by Qatari government. By addition of a procedure to register for taxes and obtaining a company seal in 2010 number of days required for starting business have gone up from 6 to 12 days, but still stands much better compared to world average of 35 days. Obtaining a business license takes much less than the world average of 218 days, but costs are comparatively high.

Procedures(number)

Time(days)

Cost(%of income per capita)

Min Capital(% of income per capital)

8

12

9.7

79.8

Starting Business information chart (www.doingbusiness.com)

There is tremendous increase in FDI and Net Foreign Assets due to enactment of 2000 investment law. Corporate tax has been slashed to 10% from 35% in 2010 for a foreign corporation in Qatar. The overall tax burden is very low paving way to 99.9% fiscal freedom. (Exhibit 5&9). Rise in volume of Exports and imports and revenue year by year depicts the increase of industrial activity in Qatar

Qatar’s GDP confirms to be one of the fastest growing economies in the world with an average growth of 17.14% over the past five years (2005-2009 ) According to IMF Forecast Qatar’s GDP shows an upward trend which makes it a more fertile place for foreign investors.(Exibit1&2).

Affect of recession was seen in most of the aspects discussed but however Qatar bounced back well in 2010 with a GDP growth more than doubling to

17.4% in 2010 from 8.6% in 2009 (IHS Global Insight (USA), Inc.)

Qatar is more efficient in enforcing contracts in comparison with other oil producing countries. (Exhibit 10). Government spending on public amenities like roads and infrastructure is increasing making Qatar a good place to invest.

LEGAL FRAMEWORK:

Qatar being politically and socially very stable a legislative revolution was brought about way back from 1995(exhibit 13) which reflects Qatari desire to attract foreign investments and to make foreign investors to invest in Qatar, which it succeeded in.

.

LAW NO (13) OF 2000 INVESTMENT LAW:

This Law stands an exemplary of Qatar ambition to attract FDI and transform in to a industrial zone. This law brought about huge incremental changes in GDP, FDI, Net Foreign Assets, revenue, volume of exports and imports with many foreign companies investing in oil and gas and many other industries in Qatar over the past decade. (Exhibits 1, 2, 11&12).

Features:

This law allows 100% ownership in agriculture, health, education, tourism, development and exploitation of natural resources, energy or mining industries which was not permitted earlier.

right to lease land for setting up enterprises for up to 50 years, renewable for another 50 years at a nominal rent.

Right of duty free imports of raw materials and equipment required for establishment, operation or expansion of projects which are not available locally.

Foreign investments shall not be subject to expropriation.

Foreign investors are free to import and repatriate funds, as well as transfer profits and assets, and exchange money (Article 9).

Investment disputes can be settled through domestic or international commercial arbitration panels (Article 11).

Foreign companies may be granted tax holidays for 5 to 10 years and tax exemptions may be provided on a case-by-case basis.

LAW NO (7) OF 2005: QATAR FINANCIAL LAW

A new legislation was made law no (7) 2005 Qatar financial (QFC)law to establish “QATAR FINANCIAL CENTER” a financial and business centre, designed to attract international financial services, and major multi-national corporations. The first class business environment created by QFC enables firms to quickly establish their physical presence. QFC helps its firms in generating new and sustainable revenue streams providing access to local markets easily by paying local market rents.

QSTP:

Qatar science and technological park (QSTP) was set up in 2009 to attract foreign investors by providing them with ready to occupy world class research facilities labs, enabling companies to work and develop future projects.

Establishment of specific free trade regions like QFC and QSTP where regulations are eased and companies are given much more freedom along with various incentives like 100% ownership, duty free imports etc coupled with legal setup paved way for Qatar rapid growth.

Various other incentives and laws have contributed to the rapid growth of Qatar like:

Providing natural gas and electricity at subsidised rates.

well developed infrastructure

Low cost financing through Qatar Industrial Development Bank;

liberal immigration laws to avail services of foreign labour

easy access to world markets with air and sea connections

Laws(exhibit 13)

Appendix

Exhibit 1

For 2010, Qatar Economic Review, QNB Capital. Reference:(http://www.qnb.com.qa/qnb/DocIndex.jsp?currentPage=QNBEconomicReviewHYPERLINK “http://www.qnb.com.qa/qnb/DocIndex.jsp?currentPage=QNBEconomicReview&LangPref=en”&HYPERLINK “http://www.qnb.com.qa/qnb/DocIndex.jsp?currentPage=QNBEconomicReview&LangPref=en”LangPref=en)

Exhibit 2

IMF GDP forecast for Qatar to 2015 http://www.tradingeconomics.com/qatar/gdp-at-constant-prices-imf-data.html

Exhibit 3

Selected Graph from IMF http://www.tradingeconomics.com/qatar/gdp-at-constant-prices-imf-data.html

Exhibit4

Selected Graph from IMF http://www.tradingeconomics.com/qatar/gdp-at-constant-prices-imf-data.html

Exhibit5

Selected Graph from IMF http://www.tradingeconomics.com/qatar/gdp-at-constant-prices-imf-data.html

Exhibit 5

Year

Overall

Business

Trade

Fiscal

Government

Monetary

Investment

Financial

Property

Freedom From

Labor

Score

Freedom

Freedom

Freedom

Spending

Freedom

Freedom

Freedom

Rights

Corruption

Freedom

2010

69

73.7

82.2

99.9

73.7

65.9

45

50

65

65

69.1

2009

65.8

75.7

81.6

99.9

69.1

67.3

40

50

50

60

64.7

2008

62.2

60

70.8

99.8

72.1

69.4

30

50

50

60

60

2007

62.9

60

76.4

99.8

71.4

72.4

30

50

50

59

60

2006

62.4

60

74.6

99.9

71.7

75.7

30

50

50

52

60

2005

63.5

55

76.6

99.9

75.5

81.7

30

50

50

56

60

2004

66.5

55

76.6

87.5

69.7

90

50

50

50

70

–

2003

65.9

55

73

87.5

70.2

87.1

50

50

50

70

–

2002

61.9

55

77

87.5

56.7

81.2

50

30

50

70

–

2001

60

55

75

87.5

47.1

75.2

50

30

50

70

–

2000

62

55

75

87.5

47.1

73.6

50

30

50

90

–

Economic Freedom Index Chart Reference:(http://www.heritage.org/index/Explore.aspx?view=by-region-country-year)

Exhibit 6

Created Graph for Overall Score from Economic Freedom Index Chart

Reference :(http://www.heritage.org/index/Explore.aspx?view=by-region-country-year)

Exhibit 7

Created Graph for Business Freedom from Economic Freedom Index Chart

The post Economic Overview Of Qatar Economics Essay appeared first on UKEssays.com.

Successive periods of business expansion and contraction in the United States and several other countries, has been identified by The National Bureau of Economic Research in the course of its study in business cycles. Business cycle peak dates indicate the ending of a period of expansion and the starting and begin of a period of contraction and cutback; trough dates signify and suggest the end of a period of contraction followed by the start of a period of expansion. For the United States, the chronology can be traced back in time until we reach year 1854 on a monthly and quarterly basis, and to 1834 on an annual basis. Between 1854 and 1981 (which was last peak or climax date) some thirty peaks and thirty troughs have been known and recognized. These dates identify thirty expansions and twenty-nine contractions. The contraction periods are commonly identified as recessions.

Literatures give us real explanation about the recession, that it is a period of general economic decline, which is defined usually as a contraction in the GDP for six months (two consecutive quarters) or even longer. Noticed by high unemployment rate, drop in retailing sales, and stagnant wages, a recession generally does not last longer than one year and is much milder than a depression, which can be seen ad Alleviative depression, that will not stay for long. Although recessions are considered as a normal part of a capitalist economy, until now, there is no one unanimity and agree from economists on its causes (http://www.businessdictionary.com).

Recession is a part of a normal business life cycle when an economy that grows over a period of time tends to slow down. After growing for 6 to 10 years, economy is expected to prone into a recession. Consequently, we can put it together and say that economic recession is a drop phase of the business lifecycle. In this paper, I’m going to elaborate on the reasons of recessions in general and the possible reasons credited for the current recession. In addition, I will explore into the effect of this recession on developing countries and the possible policy responses.

1.1. REASONS OF RECESSION

Recession can be attributed to several major factors which can arise concurrently. It can be attributed to either significant drop in prices, or significant increases in prices. The first indicates that the GDP is decreased when people may spend less money. On the other hand, an increase in price may also diminish private and public spending and as a result, decreasing the GDP. Few of the major causes of recession are inflation, currency crisis, speculation, national debt, and so on.

There are the external reasons of recession which can be attributed to wars and other factors which are beyond the control of a particular economy. Aside from these reasons, other reasons can be high oil prices (as most countries depends upon oil import for industrial growth), weather conditions, some kind of national calamities among others. Several other economic factors also affect recession factor like, lower interest rates which adversely affect savings of households and accordingly banks. Since there is very little savings, banks cannot afford providing loans and that causes severe bottle neck for major infrastructure project which as a final point lead to slow economic growth and impending recession.

Even though the precise causes of recession are still a enigma, it is commonly agreed that recession is primarily caused by the actions taken to control the money supply in the economy. Thus, in the United States many economists think the reason that we went into recession was because of the Federal Reserve. This is because that it is the Federal Reserve responsibility and job to sustain an ideal balance between money supply, interest rates and inflation.

There is another theory which ascribes the causes of economic recession to the events that hurt particular firms or industries rather than events that impact the entire economy. The reason that makes economists support this theory returns to the negative effect of recession on some industries while other industries seem to thrive during these hard times. The economists believe that this happens because either a major innovation or a change in the price of a key item can adversely affect some firms. This adverse effect leads them to lay off workers and reduce their production, which slows down that industry even further because their demand is greatly reduced. It is also believed that each recession has a unique cause, while others think those recessions usually only have a single cause. Moreover, there are some economists who believe that globalization has changed the nature of the business cycle and this is what is caused recession.

1.2. HISTORY OF RECESSION

The first recession of the United States can be traced back to the period between 1797 and 1800. It was called the panic of 1797, and it was primarily caused by the deflating effects of the Bank of England as they crossed the Ocean to American soil. The commercial real estate markets were greatly affected by this recession. Britain’s economy was in a strained state already, because it was fighting France in the French Revolutionary wars at the time. This indicates how the effects of recession on one country can travel quickly to another.

Between 1807 and 1814, the next recession occurred. It was called the depression of 1807. This depression was primarily caused by the Embargo Act of 1807, signed into effect by then President Thomas Jefferson. This act destroyed a good part of the shipping related industries, and it was fought hard by the Federalists, who allowed smuggling to take effect in New England as a result of the Act.

Later, following the panic of 1819, this was considered the first major financial crisis to uncover itself before the relatively new U.S. economy. This panic resulted in widespread foreclosures, failing banks, huge unemployment rates, and a gigantic slump in manufacturing and agriculture that caused havoc among Americans. This recession also marked the end of great economic expansion that had taken place following the War of 1812.

Recessions continued to plague not only America, but the rest of the world as well. Countries like Kuwait, KSA, Oman and Bahrain have all had trouble with recessions. In the year 2001, the early 2000s recession hit America. The collapse of the dot.com bubble was truly the cause of these recessions, as well as the attacks that occurred on September 11th on the World Trade Center Towers in New York City.

2. THE CURRENT RECESSION

Many factors should be taken into account in order to date the beginning and end of a recession. The unemployment rate is one of the hall marks that directly involve individuals and families. The U.S. unemployment rate stood at 6.7 percent in November 2008 and is sure to climb in the coming months (U.S. Bureau of Labor Statistics, 2008). Between 1995 and 2007, the annual unemployment rate was below 6 percent in every year except in 2003. However, in the period between 1974 and 1994, the average unemployment rate topped 6 percent for 16 of those years and 7 percent for 11 of them. The annual unemployment rate exceeded 9 percent during the worst years 1982 and 1983. During the 1974-75 and 1980-82 recessions, the unemployment rate’s decline coincided with the end of the recession. But the downturns of 1990-91 and 2001 saw unemployment continue to climb even after the recessions ended; declining only a year or more after the economy had started growing again.

The current financial crisis had its origins in an asset prices bubble that interacted with new kinds of financial innovations that masked risk. The increase in the prices of homes each year from the mid 1990s to 2006 was a significant indicator in inflating house prices. Also, the rapid rise of lending to subprime borrowers helped inflate the housing price bubble (Baily Martin et al, 2008).

Thus, The US credit crisis began as a result of negligence and irresponsibility, whether by the people they or the companies related directly or indirectly to the problem of the credit crisis and the housing mortgage. People were allowed and even encouraged to buy homes they could not afford, and were advised they could re-finance later. People did not think deeply enough about the problem and thought that the worst thing to happen was they will be allowed to refinance or sell their homes later, and that if the matter got worse, they would be able to give up their houses and start renting their homes again (Crane, 2007).

Figure (1) US Total New Privately Owned Housing Units Started.

2.1. THE SHIFTING COMPOSITION OF MORTGAGE LENDING

After recovering from the 2001 recession, the expansion of mortgage lending was in conformable and other prime mortgages, but as the boom proceeded, a larger fraction of the lending was for so-called ‘non-prime’ lending that consists of subprime, Alt -A and home equity lending (Baily Martin et al, 2008). Subprime mortgages are loans made to borrowers who are perceived to have high credit risk, often because they lack a strong credit history or have other characteristics that are associated with high probabilities of default. Having emerged more than two decades ago, subprime mortgage lending began to expand in earnest in the mid-1990s, the expansion spurred in large part by innovations that reduced the costs for lenders of assessing and pricing risks. In particular, technological advances facilitated credit scoring by making it easier for lenders to collect and disseminate information on the creditworthiness of prospective borrowers. In addition, lenders developed new techniques for using this information to determine underwriting standards, set interest rates, and manage their risks ( Bernake, Chairman, 2007).

Figure (2) volume of Mortgage Lending

In 2001 there were $2.2 trillion worth of mortgage originations, with 65 percent of these in the form of conventional conforming loans and Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans. An ad­ditional 20 percent were prime jumbo mortgages, issued to those with good credit buying houses that were too expensive to be conforming, meaning that 85 percent of originated loans in 2001 were prime quality. There was a huge expansion of mortgage lending over the next couple of years, and in 2003 nearly $4 trillion worth of loans were issued, but the share of prime mortgages remained steady at 85 percent as the volume of conformable mortgages soared ( Baily Martin et al. 2008. P. 14). The total volume of mortgage lending dropped af­ter 2003, to around $3 trillion a year in 2004-06 but the share of subprime and home equity lend­ing expanded greatly.

Total Mortgages organizations by Type: with share of each product; billions, percent. The increasing defaults in the summer of 2007 on mortgages signaled that the subprime market was in crisis. The prices of houses and financial stock started to drop. As a result, the value of household wealth in the US is dropped by trillions. These defaults and drops in house and stock prices were the main reason for the solvency of Fanny Mae and Freddie Mac as well as a number of well known international financial institutions ( Naude, Wim, 2009, P.3). Therefore, on 7 September 2008, the US government nationalized Fanny Mae and Freddie Mac (ibid). After that, on 15 September 2008, the firm of Lehman Brothers filed for bankruptcy; with US$639 billion in assets, it was the largest in the history of the US (ibid). This resulted in a great financial panic with large scale selling of stocks.

2.1.1. THE SUBPRIME MORTGAGE CRISIS

The subprime mortgage crisis is considered among the most serious economic events affecting the United States since the Great Depression of the 1930s. Subprime mortgage lending is considered a financial innovation. Subprime mortgage lending arises because of three factors (Bernanke, 2005). The first factor is related to the existence of previously undeserved borrowers and investors. Subprime borrowers were desirous to use mortgage loans to finance home purchases. Meanwhile, large numbers of investors were also desirous to earn the relatively high interest rates promised on U.S. subprime mortgage securities. The second factor which contributed to the emergence and expansion of subprime mortgage lending is the catalyst of advances in technology and know-how. State-of-the-art tools are applied to securitize subprime mortgage. The third factor is the creation of a benign and even encouraging regulatory environment. In spite of the fact that U.S. mortgage lenders are faced with a complex system of state and federal regulations, few of these regulations impeded the evolvement of subprime loans. In addition, the existing system of commercial banks capital requirements provides banks with strong incentives to securitize many of the subprime mortgage loans they have originated.

There are some benefits gained from subprime mortgage lending. It is estimated that subprime mortgage lending has funded more than 5 million home purchases. This included first time acquisition of homes for about more than 1 million households. Young and minority households have been among the primary beneficiaries (Jafee, Dwight, 2008. P.3). these are the basic benefits gained from the long-standing U.S. policy goals for increased home ownership. Increased homeownership has consequently contributed to a rapid increase in new home construction.

2.1.2. LOAN MODIFICATIONS FOR DEFAULTING BORROWERS

Home mortgage lenders and servicers didn’t accept the idea of modifying loan terms as they were afraid that all borrowers (current and future) ask for such changes. Servicers also face contractual limitations. In spite of all this, lenders and servicers were subject to current government plans because the resulting loan modifications can be characterized as one-time emergency transactions.

Since defaulted borrowers were unable to pay their default debts, the costs imposed by subprime loan foreclosure were limited as they simply gave up their home in lieu of making the mortgage payments. The incomplete disclosures and securitization process caused investors to be involved into purchasing high-risk subprime mortgage securities. However, the purchasers of these securities include only the most sophisticated institutional investors worldwide. In summary, the securitization process per se was not a fundamental source of the subprime mortgage crisis.

Real estate prices are not constant. They are always changing. They always pass in boom and bust cycles. Therefore, the main reason in the moral hazard of subprime mortgage lending is the failure of lenders, investors, the credit rating agencies, and the monetary authority to recognize that mortgage lending booms almost inevitably end in crashes ( Jaffee, Dwight, 2008.p.4).

The credit rating agencies (CRAs) systematically underestimated the risk on subprime mortgage pools, attributing too much weight to FICO scores and too little weight to the likelihood of falling house prices and its powerful effect in creating mortgage defaults. For similar reasons, the CRAs also underestimated the risk on collateralized debt obligations (CDOs) that were backed by subprime securitization tranches. The major CRAs announced plans to modify their rating methodologies for subprime mortgages pools and CDOs.

The losses which inflicted many subprime mortgage investors are the direct result of the concentration of those risks by leveraging their positions with borrowed funds. The use of ten leverages for example, can transform a 10 % loss for a given initial capital. In addition, many of the positions were funded with very short-term loans. This strategy parallels that of the savings and loan associations of the 1980s, who also used maturity mismatched and leveraged portfolios, and with similarly dire results (Allen, Franklin, and Douglas Gale, 1994).

2.1.3. TRANSMISSION OF THE CRISIS TO THE DEVELOPING WORLD

There are many conditions which contributed to the transmission of the financial crisis from the US to the developing world. The echo of the financial crisis which inflicted the US caused tremendous fear in the developing world in both direct and indirect ways. Banks in developing countries can be affected to the extent to which they hold assets contaminated by subprime mortgages.

Many developing-country banks had limited interrelationships with international banks. Foreign owned banks are not significant players in most countries in Latin America and Africa (Naude, Wim, 2009. p.4). The exposure to subprime mortgages of United States origin in China, where the financial sector is largely controlled is minimal. However, there is a more serious indirect threat represented by declines and deterioration of stock market prices and housing prices.

As a result, the capital of banks is reduced. This might cause certain problems where they don’t hold sufficient levels of their capital in cash. In these situations, it is likely that banks will reduce lending in order to support their capital. Worse than that is that banks might face solvency problems and may require their governments to recapitalize them. Reduction in investment will be the direct result of reduction and shortage of capital. This will lower growth rates and increase unemployment rates which in turn will reduce economic growth further.

The second factor which contributed to the transmission of the crisis is reduction in export earnings. In recent years, most developing countries are basing their economies growth on exports. The most significant cases include China, India, Japan, Korea, Malaysia, and others. It is likely that the crisis will lead to a substantial decline in the countries’ export earnings. The IMF expects growth in world trade to decline from 9.4 per cent in 2006 to 2.1 per cent in 2009.9. The expected declines will come through a combination of a decline in commodity prices, a decline in demand for their goods from advanced economies and a decline in tourism (Naude, Wim, 2009).

Export earnings are deeply affected by declines in commodity prices. The World Bank predicts that non-energy commodity prices shall decline by 19% in 2009 (Naude, Wim, 2009). A large proportion of countries which depend on commodity prices are in Africa. Over the past seven years, the prices of commodities, including copper, nickel, platinum and petroleum have risen to record highs, and contributed significantly to good growth in these countries.

The third factor is financial flows. The global financial crisis will have significant effects on international financial flows, with private financial flows developing countries expected to fall rapidly from record highs in 2007. The latest research of Massa and Te Velde (2008) indicates that net financial flows to developing countries may fall by as much as $ 300 billion over two years which is equivalent to $ 4.500 billion in two years (Massa and Te Velde, 2008). Some countries, including successful African countries, are more vulnerable than others. Various types of international resource flows will be affected as a result of the impact of the financial crisis. This will include private capital flows such as Foreign Direct Investment (FDI), portfolio flows and international lending; official flows such as development finance institutions; and capital and current transfers such as official development assistance and remittances.

The World Association of Investment Promotion Agencies anticipates a 15% drop in FDI 2009. FDI to Turkey has already fallen 40% over the last year and FDI to India dropped by 40% in the first six months of 2008. FDI to China was $6.6 billion in September 2008, 20% down from the monthly average in year 2008 so far, and mining investments in South Africa and Zambia have been put on hold (Velde, Willem, 2008).

As a result of the financial crisis, developing countries are suffering from a drop in bond and equity issuances and sell-off of risky assets. The average volume of bond issuances by developing countries was only $6 billion between July 2007 and March 2008, down from $ 15 billion over the same period in 2006. Between January and March 2008, equity issuance by developing countries stood at $5 billion, its lowest level in five years. As a result, World Bank research suggests some 91 International Public Offerings have been withdrawn or postponed in 2008 ( Velde and Willem, 2008).

Figure 3: GDP growth in Developing and high income countries, 1981 – 2007

It is a well known fact that there is financial contamination and stock markets have fallen around the world, with the largest losses since the 1930s. This has triggered entrenchment by investors, with reports that they have withdrawn $45 billion from Korea, $6.1 billion from South Africa, and $16 billion from India this year. Turnover on the nascent stock market in Uganda has fallen 60% this year. Remittances to Mexico (which depend almost exclusively on migrants to the USA) have decreased by 4.2%, with the strongest declines in August. Remittances to Kenya (which also depend on the US economy) have been hit even harder, with the Central Bank estimating a 38% year-to-year drop in August.

Export revenues are falling rapidly for many countries. Zambia has been affected with the price of copper falling by 40% since July 2009. Tourism bookings are down 40% in Cambodia. And visitor arrivals (and revenues) to Kenya fell 30% over the first 9 months of 2008. Many developing country policy makers suggest that the global financial crisis might by pass developing countries. However, it is now clear that all countries will be affected, with the effects varying by country. The year 2008 was the year of the global financial crisis and beginning of recessions in the UK, US and Germany. However, developing countries shall witness the fall out in 2009. Therefore, they should be prepared. They have to set up a crisis task force to gain a better understanding of the real and financial effects, followed by immediate action.

2.2. TAKING THE TEMPERATURE OF THE CURRENT FINANCIAL CRISIS

Colorful graph of the TED Spread are provided by Yves Smith Company, which has become the consensus indicator of the depth of the current financial crunch:Fig (4) Taking the temperature of the current Financial crisis.

The National Bureau of Economic Research indicated that the deterioration in the labor market throughout 2008 was one key reason why it decided to state that the recession began last year.

Payrolls have been trimmed by 1.2 million jobs in the first 10 months of this year. The NBER considered certain measures such as real personal income, industrial production as well as whole sale and retail sales. All those measures reached a peak between November 2007 and June 2008. Moreover, the gross domestic product is also put into consideration.

The current recession is one of the longest downturns since the Great Depression of the 1930’s. The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.

Figure 4: Taking the temperature of the current financial crisis

In a statement, White House Deputy Press Secretary Tony Fratto said that even though the recession is now official, it is more important to focus on the steps being taken to fix the economy. Tony Fratto also said that “the most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that’s where we’ll continue to focus,” furthermore he add that “addressing these areas will do the most right now to return the economy to growth and job creation.” The real concern for economists is that there is no end in sight for the downturn.

Thus we can say that because of the contraction of the housing market and problems in financial markets the degree of the current recession could be the most severe in decades, perhaps comparable to the great depression. There is a significant relation between the severity of the decline and the duration of the recession. These two measures are not independent.

2.3. THE EFFECTS OF GLOBAL RECESSION ON KUWAIT

The effects of global recession is not exclusive only to the business community, but among Kuwait’s workforce as well. A good number of companies have reportedly already shed jobs. However, the banking assets in Kuwait increased 10.6 percent in 2008 compared to previous year. The increase in banking asset value was 3.2 billion Kuwait Dinars (about 11.52 billion U.S. dollars), shooting up from 35.5 billion dinars in 2007 to 39.3 billion dinars in 2008.

All sector in Kuwait suffered the impact of global financial meltdown including the real estate sector. It has been affected by Laws 8 and 9 for the year 2008, which could prevent companies from doing business in the residential sector and prevent banks from offering finance for residential real estate market, he said. “Although Kuwait property sector has suffered from inflation in prices, due to global recession, the time is now ripe for the market to begin recovery process”.

Al-Haddad explained that the real estate companies listed on the Kuwait Stock Exchange (KSE) are among those, whose shares are being actively traded, which implies that the sector involves confidence of traders and investors. Signs of easing in property market have already commenced with courts exempting Islamic Banks from constrictions of Law 8 and 9, enabling them to resume funding for residential real estate market again, he concluded.

2.4. THE POSSIBLE OUTCOMES

The current world concern is to anticipate the possible results of banking failures and reductions in domestic lending, reductions in export earnings, and reductions in financial flows to developing countries. It is anticipated that this will result in reducing private sector investments and household consumption. Government expenditures will be reduced as governments will now face the higher costs of raising funds coupled with less tax income. Low investment, consumption and government expenditures could sell higher unemployment and poverty across the developing world.

The IMF forecasts average world growth to decline to 3.0 per cent in 2009, down from 5 per cent in 2007 (IMF 2008) (Naude and Wim, 2009). The United Nations baseline forecast for world growth projects a decline from 2.5 per cent in 2008 to 1 per cent in 2009. Their worst-case scenario sees a contraction of 0.4 per cent in the world economy in 2009.

As far as developing countries are concerned, the World Bank has revised its estimate for growth downwards from 6.4 to 4.5 per cent for 2009 (World Bank 2008). For Africa, home too many of the least developed countries, growth expectations are also down, given the continent’s dependence on exports and commodities. However, as Harsch (2009) shows, many of these countries are more resilient than before, and expectations are that African countries will continue with good growth in 2009, of around 4.7 per cent according to the IMF forecasts and 4.1 per cent according to UN-DESA forecasts ( Naude and Wim, 2009). Also, the expectations of GDP growth of two of the largest economies, China and India, are also down, although these countries are still expected to continue growing at high rates of around 7 to 8% in 2009 (Naude and Wim, 2009).

Thus, developing countries are paying an enormous economic price for a crisis that evolved at the center of the world’s financial system. They have to study carefully how to protect themselves from external financial shocks. In addition, most developing countries are striving hard to build a more functionally efficient financial system. Therefore, this crisis should be seized as an opportunity to expose the hidden risks of financial development and how more sophisticated financial systems require more, not less, regulation.

During 2008, the United States stock market lost about 35 per cent of its value. Compared with other industrial countries and with the largest emerging markets, it did relatively well. All large emerging markets had dollar returns which were well below those of the United States (United Nations Conference on Trade & Development, 2009).

Figure 5: Equity Market Dollar Returns, 2008

Figure 6: Emerging Market Spread, January 2007 – December 2008.

2.4.1 FINANCIAL DEVELOPMENT REQUIRES MORE AND BETTER REGULATION

The financial system of the developing countries is less efficient than that of the developed ones. Recognizing the importance of finance for investment in fixed capital and growth, many developing countries adopted ambitious structural reform programs which aim at modernizing and improving their own financial systems. However, there are serious doubts as to whether these pro-market policies were successful in their aim of increasing the social efficiency of their financial sector (UNCTAD, 2008).

The financial system of developing countries is often characterized by a non-competitive financial system in which banks make good profits by paying low interest on deposits and charging high interest rates on loans which are only paid to super-safe borrowers. Shareholders and bank managers are highly satisfied with rents emerging from limited competition, but the financial system is hardly conductive to investment in fixed capital and to economic development. Credits will limited and unlikely to flow to potentially high-return investment projects in the productive sector. The task of reforming the financial system will not be an easy one. Even if policymakers recognize that financial instruments that may have high social returns in a more developed countries may not be appropriate for their less developed economy and try to target the reform process to the real needs of their country, financial regulators will soon start facing new problems. By reducing bank margins, the reform process leads to a whole new set of incentive problems.

Although the old system was inefficient, it was easy to control. A more competitive environment changes the incentive structure of bank managers in two ways (Ragan, 2005). First, as their compensation now depends on ROI, bank managers are prone to face more upside risk-taking. This is problematic if bank officers are used to operating under the “3-6- 3 risk management rule” (borrow at 3 %, lend at 6%, and be on the golf course by 3 PM) and end up assuming risk that they don’t understand. Along similar lines, regulators used to an inefficient but stable banking system may not understand the new risks and vulnerabilities.

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1. Business Environment in Oman

1.1 Cultural Environment in Oman

Language: Arabic is the official language of Oman, and English and Asian languages such as Hindi, Urdu, and Baluchi are also widely spoken. Swahili is spoken by some, a legacy of Oman´s former East African presence. English is widely used in business.

Ethnic groups: Arab, Baluchi, South Asian (Indian, Pakistani, Sri Lankan, Bangladeshi), African

Religions: Ibadhi Muslim 75%, other (includes Sunni Muslim, Shi’a Muslim, Hindu) 25%

Omani Culture – Key Concepts and Values

Investing or doing business in Oman successfully requires an in-depth understanding of Oman’s unique business culture and etiquette.

Omani attitudes to time are much more relaxed than in many Western cultures. People and relationships are more important than schedules and punctuality.

Status is an important part of Omani society and is determined by factors such as age, wealth and family or tribal relations. Those with status have a high level of authority and should be shown deference.

The hierarchy present in Omani society is often seen in the use of titles and formal greetings. When first entering a room or greeting your Omani counterparts for the first time, for example, you should shake hands with the most senior person first using their appropriate titles.

Relationships and mutual trust are paramount for any successful business interaction and can only be developed through face-to-face meetings. It is important to therefore spend time with your Omani business counterparts and have frequent meetings to ensure that the relationship continues to develop.

As part of the relationship building process, guests are often invited to partake in festive occasions or simply share a meal together. Accepting these invitations will help strengthen your relationship with your Omani counterparts. If you are a businesswoman or have a female partner, however, be prepared to be separated from the group since men and women do not eat together during traditional meals or religious festivals.

1.2 Political Environment in Oman

Political power in Oman is dominated by Sultan Qaboos ibn Said Al Said who is responsible for all major decision-making and government appointments. Since coming to power in 1970 in a coup d’etat, Sultan Qaboos has committed himself to promoting the country’s modernization, economic diversification as well as continued political stability (EDC Economics).

Oman ranked 31st out of 180 countries in Transparency International’s 2009 Corruption Perception Index, receiving a score of 5.5/10, with higher scores indicating less corruption.

1.3 Economic Structure and Growth in Oman

Oman is a rural, agricultural country, and fishing and the government’s economic development policy emphasizes the expansion of such non-oil sectors as agriculture, fishing, industry, and mining in its bid to diversify the economy and diminish its dependence on oil exports.

2. International Trade in Oman

2.1 The Nature of Oman’s International Trade

Overseas trading is important to Oman. The discovery of oil drastically improved Oman’s economy. Sustained high oil prices in recent years have helped build Oman’s budget, trade surpluses and foreign reserves. Crude oil, refined petroleum, and natural gas account for most exports while imports consist mainly of machinery and transport equipment, basic manufactured goods, and foodstuffs. Some manufactured products are also exported. In spite of the fact that over the past 30 years, Oman has come to rely more and more on imports, Oman has enjoyed trade surplus through advantage of exporting the production of crude oil.

Among the country’s major trading partners are China, Japan, South Korea, and the United Arab Emirates. (See Appendix 1)

2.2 Attitude to International Trade of Oman

Oman has diplomatic relations with over 140 countries and is a member of over 105 regional and international organizations.

On 7th October 1971, Oman gained membership in the UN and its specialized organs (IMF, World Bank); the nation belongs to ESCWA and all the non-regional specialized agencies except IAEA. Oman also participates in G-77, GCC, and the Arab League, as well as the Islamic Conference. Oman accessed to the World Trade Organization (WTO) on November 9, 2000, which facilitated Oman’s integration into the global marketplace. In addition, Oman has sign several co-operation agreements with 20 countries. It concluded a free-trade agreement (FTA) with the United States, signed on 19 January 2006, covering trade in goods, IPRs, and services (WTO nd). Through these formal economic co-operations with other nations, Oman has become more dependable trading partner and more attractive destination for majority foreign-owned investment. Thus, the potential for exporting telecommunication equipment into Oman is closer.

The government’s trade policy space, as measured by the wedge between bound and applied tariffs (the overhang), has been relatively constant in the recent years and in 2008 it was 8.3 percent for Oman. Oman has a very liberal services trade regime, and as such is ranked 13th out of 148 countries according to the GATS Commitment Index.

Moreover, the Oman’s government is engaged in an aggressive effort to woo foreign investors and enhance international trade links as part of the ambitious Vision 2020 program of economic diversification aimed at reducing the country’s dependence on shrinking reserves of oil.

3. Viewing Oman’s International Trade Through Theories Related

3.1 The nature of Advantage

Daniels and Radebaugh (1998) have summarised advantage in the context of International Trade Theory into five categories as below:

Natural advantage refers to climate, soil and nature resources;

Acquired advantage refers to technology and skill development;

Comparative advantage against another nation’s endowment of assets;

Country size as a proxy for the range of natural factors such as climate, soil, minerals and etc, size of population that provides opportunities to process materials and create markets;

Factor proportions that suggest their optimum utilisation in production.

Daniels, Radebaugh and Sullivan (2004) Framework, the evolution of International Trade Theory is depicted as below:

Besides Porter’s Competitive Advantage of Nations theory, this research will use Product Life Cycle theory and Absolute Advantage theory to explore the status of international trade in Oman.

Adam Smith’s Absolute Advantage Theory

According to Adam Smith (1776), a country’s would be either natural or acquired. Relating to Oman, this country’s economy is heavily reliant on oil exports for revenue, though diversification into natural gas production has mitigated this to a degree. About two-thirds of Oman’s total energy consumption comes from natural gas and the remainder comes from oil, reflecting the country’s relative abundance of oil and natural gas reserves.

3.2 Justification of Telecommunication Equipment Industry Potential in Oman

The Oman’s government has embarked on an ambitious campaign to develop the information technology (IT) sector. Agreements between Oman Telecommunications Company (Omantel) and foreign firms hold the potential to significantly expand telecommunications services and lay the ground for the establishment of a state-of-the-art IT infrastructure. In May 2006, Telecommunication Minister Mohammed bin Abdullah bin Isa Al-Harthi announced that the government is preparing to “fully liberalize” the telecommunications sector, with private companies permitted to offer fixed-line and Internet services (U.S Commercial Service 2009).

In July 2005, the government, which was required per WTO commitments to liberalize its telecom sector, floated 30 percent of its shares in state telecoms giant Omantel (formerly known as the General Telecommunications Organization, or GTO).

3.3 Summary of Oman current trade position using the extended form of Porter’s Diamond of National Competitiveness

According to Porter (1994), there are four principal attributes of a nation’s international success in a particular industry such as: Factor conditions; Demand conditions; Related and supporting industries and; Company strategy, structure and rivalry. In addition, Porter defines the role of chance as well as the role of government as the secondary determinants. However, a further research by Dunning (1993) proposed that multi-national business activities bring additional factors that may encourage advances in support industries, etc.

In term of exporting telecommunication equipment into Oman, the four board attributes of the nation are:

Factor conditions would be capital, quality of infrastructure.

Demand conditions would be determined that “Overall telecommunications infrastructure and service in Oman remains less developed than in its Gulf neighbors. Fixed line and Internet penetration rates are low, yet the young and growing population is generating increased demand for modern telecommunications and broadcasting systems” (U.S. Commercial Service 2008) .

Related and supporting industries would be the profitable oil and gas industries. Oil and Gas is the leading economic sector (U.S. Department of State 2007). Revenue generated can help the Kazakhstan’s government fund the healthcare industry. Firm strategy, structure, rivalry would be depicted as below:

“In 2008, imports of U.S. equipment reached an estimated $31 million, while market share declined to 3.8%. America’s closest competitors are Russia, Germany, and Japan. Local production of medical equipment in 2008 accounted for only 1.7% of the total market” (U.S. Commercial Service 2001-2009).

Relating to exporting medical equipment into Oman, the three secondary determinants are:

Chance for Oman is observed that in term of oil and gas reserves this country is ranked the 24 and 29 respectively in the world (CIA nd). Besides that, Oman has a strategic geographic location for marine trade.

The role of government would relate to: “In July 2005, the government, which was required per WTO commitments to liberalize its telecom sector, floated 30 percent of its shares in state telecoms giant Omantel. The company is now looking for a strategic investor in advance of government efforts to open the fixed-line communications sector through the issuance of additional licenses. All telecommunications companies are governed by the Telecommunications Regulatory Authority, which was established by the government in 2003 to oversee all aspects of privatization and regulation.” (U.S. Commercial Service 2008).

Multi-national Business Activities in telecommunication industry in Oman have played important role in supplying technology and equipments or software solutions for development of Oman’s telecommunication market. Omantel has contracted with Ericsson, Siemens and Motorola to expand GSM service in some areas of Oman (U.S. Commercial Service)

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Under the control of former President Sheikh Zayed, the UAE transformed from a nation of large-scale poverty to a highly developed and wealthy country. With the death of Zayed in 2004, his son, Sheikh Khalifa, immediately took over as president. Although the government structure in the UAE is not democratic, both Zayed and Khalifa have bear the responsibility of retain the country’s development. The government has constantly received appreciation for its efforts to creating business opportunities in Oman. The country’s tax rule is also considered among the best in the world for businesses. The UAE market is capable to with a well-built telecommunication network and, as a result, the country’s IT market is slowly becoming competitive. However, the level of science education remains low. The country has a strong integrated environmental development program. Its ecological procedures are integrated with the Environmental Impact Assessment (EIA) program, which is part of business practice in the UAE.

PESTEL ANALYSIS OF OMAN COUNTRY

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(Sources: www.google.com)

INTRODUCTION

PESTEL stands for Political, Economical, Social, Technological, Environmental and Legal. It is used to describe an analysis that determines the opportunities and risks of global growth. It is also termed as a PEST or PESTLE analysis.

Political, Economical, Social, Technological, Environmental and Legal issues differ from one country to another. As a company looks to influence the advantages that the democratization of technology, information and finance, and grow beyond the national borders that previously controlled them, it is necessary that they consider a PESTEL analysis to accompany their SWOT analysis.

The PESTEL analysis provides a strong outline which is used by global and multinational firm to set the stage to develop specific strategy to ease the risks involved in carry out their vision in new environments.

This PEST country analysis report on Oman provides a holistic view of the country, with understanding analysis of current and future issues, supplemented with significant quantitative data to support trend analysis.

FEATURES AND BENEFITS

Following are benefit that business will gain if they implement pestle analysis in their planning process:

Useful to know political environment:

It is helpful to understand the political system in Oman through examination of key factors in the country and governance indicators.

Useful to know economic situation:

It is useful to understand the economic situation in Oman through a balanced evaluation of core macroeconomic matter.

Useful to know demographics analysis:

To understand the customer demographics in Oman through analysis of income distribution and the rural-urban split, as well as healthcare and education.

Use to evaluate technology advancement:

It is use to evaluate the technological background in Oman through analysis of related laws and policies, as well as patent data.

Useful for controlling changes:

By making effective use of PEST Analysis, it makes sure that it has united positively with the forces of change that are affecting the world. Good use of PEST Analysis helps to avoid taking action that is meant to failure for reasons beyond control.

Helpful to know about new country or region:

PEST is useful when we are start operating in a new country or region. Use of PEST Analysis helps to break free of lifeless assumptions, and helps to quickly adapt the reality of the new environment.

HIGHLIGHTS

The political landscape section discusses the evolution of the political scenario in Oman, as well as the country’s economic, social, foreign, and defence policies. The section also discusses the country’s performance according to World Bank Governance Indicators.

The economic landscape section outlines the evolution of Oman’s economy, as well as the country’s performance in terms of GDP growth, composition by sector (agriculture, industry, and services), fiscal situation, international investment position, monetary situation, credit disbursement, banking sector, and employment.

The social landscape section analyzes the government’s social welfare policies, as well as the country’s performance in terms of healthcare, income distribution, and education.

REASON TO USE PESTLE & SWOT ANALYSIS

Following are the main reason for using pestle & swot:

Useful to formulate goal:

Strategic management is an essential aspect of managing modern businesses that involves forming goals and implements the programs that fulfil those goals.

Useful to intact environmental scanning:

Environmental scanning is a component of strategic management where mangers study various economic, political and social factors that might affect the business.

It is helpful to small business also:

It can help small businesses to identify intact markets and avoid costly mistakes. Small businesses can better compete by using these critical tools to assess opportunities and challenges.

It is useful to manager for conducting an effective business:

SWOT analysis and PESTLE analysis are two common strategic management equipment that the help managers brainstorm and organize their ideas during the environmental scanning process.

It is broad & wider concept:

A main reason companies use both SWOT and PESTLE is because these tools offer broad and efficient analyses of key areas of a strategic plan. SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. PESTLE has wider coverage of business and external issues, including political, economic, social, technological, legal and environmental factors.

POLITICAL ENVIRONMENT IN OMAN

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INTRODUCTION OF THE SECTOR

The stability and structure of a country’s government gives a basis to understand future changes in the region’s political environment. Policy at the local or federal level can differ significantly. Political power in Oman is dominated by Sultan Qaboos ibn Said Al Said who is responsible for all major decision-making and government actions. Decision-making authority rests with the Sultan with contribution from his advisors, the appointed Majlis al-Dawla and members of Oman’s leading merchant families. Succession is a key risk concern. Sultan Qaboos has dedicated himself for promoting the country’s reconstruction, economic diversification as well as continued political stability.

A process of limited elected reform has been in progress over the last several years including the introduction of direct elections for members of the counselling assembly in 2000 and universal suffrage in 2003. In recent October 2007 elections, Oman records a strong 68% voter turnout. While Oman is gradually moving forward on political liberalization efforts, the Councils role remains largely advisory.

Following is the political structure of Oman country:

POLITICAL STRUCTURE

MONARCHY

Head of State

Sultan Qaboos bin Said Al-Bu S aid

Council of Ministers

Composed of the Sultans Advisors

State Council (Majlis al-Dawla)

57 Appointed tribal and religious leaders

Consultative Council (Majlis al-Shura)

84 member Elected body with advisory functions

Major Parties

Illegal

Last Elections Consultative Council

October 2011

THE MONARCHY

The Sultan is a direct heir of Said bin Sultan, who had first opened relations with the United States in 1833. The Sultanate is neither political parties nor governing body, although the bicameral representative bodies provide the government with advice. The present Sultan has no direct heir, and has not publicly selected a successor. Instead, the ruling family should generally select a new Sultan after his death. If they do not select a new ruler after three days, then they open a letter left to them by the late Sultan, containing a proposal for a new Sultan.

Current Sultan of Oman, Majesty Sultan Qaboos bin Said Al Bu Said holds an unexpected amount of power. Along with his position as Sultan, he is prime minister, defence minister, finance minister, foreign affairs minister and chair of the central bank. Moreover, Qaboos has only a few family members in his cabinet and the offices they hold are considered quite powerless. His cousin Hay him for example, is minister of national legacy and culture while his uncle, Shabib is special advisor for environmental affairs. This style of control has suggestion as none of his family members have gained the necessary managerial skills to rule Oman after Qaboos death.

JUDICIAL SYSTEM

The court system in Oman is regulated by Royal Decree 90/99. There are three court levels in Oman; the Elementary Court is the lowest court, followed by the Court of Appeal, and then the Supreme Court as the highest court in the country. In addition to this there is an Administrative Court that looks into cases made against the government.

GOVERNMENT ATTITUDE TOWARDS FDI

The government keenly support foreign direct investment into the country to increased employment opportunities for Omanis. Omanisation allowance are currently in force for six industries in the private sector, i.e. the transport, storage and communications sector at 60%,finance, insurance and real estate at 45% and industry at 35%. Authorities created the Omani Centre for Investment Promotion and Export Development (OCIPED) in 1997 with the aim of providing foreign investors with a one-stop-shop for licensing and registration procedures. Judicial transformation is in progress and the court system is considered largely fair. Corruption level are low by regional standards and do not act as a significant obstacle to foreign investment.

LAND OWNERSHIP

In Oman the regulation for land are expected to be less because the minister wants to increases the opportunity for tourism. The Ministry of Housing, Electricity and Water may grant permission to a company or a foreign national the Right to use a certain property for operations that promote the economic development of Oman.

INCENTIVES

Government incentives to promote local and foreign investment include tax exemptions; the provision of industrial plots in industrial zones for nominal charges; preference in the allocation of government land; interest-free or subsidized loans with longer terms for repayment; reduced charges for water, electricity and fuel; financial assistance for the development of economic and technical possibility studies; and the accelerate arrangement of immigration visas and permits for foreign workers.

GOVERNMENT REGULATIONS AND POLICIES

A foreign national desire to engage in a trade or business in Oman or to acquire an interest in the capital of an Omani company must obtain a license from the Ministry of Commerce and Industry. In general, the ministry grants a license if the paid-up capital of the Omani company in which the investment is made is at least Rs 150,000 (US$ 390,000) and if the foreign ownership of the company does not exceed 49%. The Social Security Law requires private-sector employers and their Omani employees to pay monthly contributions to an insurance fund for old age, disability and death benefits. Oman does not impose personal income tax. Income tax is levied on people that are wholly owned by Omani nationals, entities with foreign participation, branches of foreign companies and Omani sole proprietorships. All companies incorporated in Oman irrespective of the extent of foreign ownership and branches of companies registered in the other member states of the Gulf Co-operation Council (Bahrain, Qatar, Kuwait, Saudi Arabia and the United Arab Emirates) are taxed at a rate of 12%, for income exceeding RO 30,000. A single tax rate applies to branches of foreign companies, at rates ranging from 0% to 30%. Petroleum companies are subject to tax under specific provisions and rates. Omani sole proprietorships are taxed at a rate of 12%.The Omani Labour Law requires employers to pay end-of-service benefits to expatriate employees.

FOREIGN INVESTMENT

With the exemption of certain restrictions on the foreign-currency holdings of commercial banks, Oman does not impose exchange controls. In general, Oman does not restrict the transfer of funds overseas of equity or debt capital, interest, dividends, branch profits, royalties, management and technical service fees, and personal savings.

RESTRICTIONS ON FOREIGN INVESTMENT

The Foreign Capital Investment Law (Royal Decree No. 102 of 1994) governs foreign investment in Oman. If the foreign body want to invest in Omani companies they must file applications for licenses with the Ministry of Commerce and Industry. The ministry grants licenses to applicants if  both of the following conditions apply: The paid-up capital of the Omani company in which the investment is made is at least Rs.1, 50, 000(US$390,000). The foreign ownership of the company does not exceed 49%.The Ministry may exempt the following entities from the licensing conditions : Companies conducting business through special contracts or agreements with the government; Companies established by Royal Decree; and Parties conducting a business that the Council of Ministers declares necessary to the country.

TAX EXEMPTIONS

In Oman tax is exempted from corporate tax and customs duty which may be granted by the Ministry of Finance. From the following activities tax is exempted such as manufacturing, mining, agriculture, fishing, fish farming, fish processing, aquaculture, animal breeding, tourism, the export of manufactured and reprocessed products, operation of colleges, universities, and higher education institutes, private schools, training institutes, private hospitals and public utilities. Exemptions are granted for five year periods effective from the date when production begins or services are first rendered; a five year extension may be granted. .Management agreements and construction contracts do not qualify for tax exemptions. Companies engaged in the activities listed above may also obtain an exemption from the payment of customs duty on exports and on imports of equipment, spare parts and raw materials.

IMPORTING

The import of goods into Oman requires an import license. The import of certain classes of goods, including alcohol, firearms and explosives, requires a special import license. Goods entering Oman must have certificates of origin. Oman follows Arab boycott rules, which forbid the import of goods originating from Israel.

EXPORTS

Oman does not restrict exports. However, the export of items of historical value requires an export license.

CUSTOMS DUTIES

In Oman most imported goods are subject to pay customs duty at a flat rate of 5% on their cost-insurance freight (CIF) value. Consumer goods, including food substance are exempt from customs duty whereas alcohol and tobacco are subject to pay higher rates of duty. Goods produced within the GCC generally may be imported duty-free. In certain circumstances, Oman may allow the contractors to import duty-free equipment and materials for use the on government, PDO and OLNG projects. Since from 2005 Oman has entered into a Free Trade Agreement with the United States of America.

POWER ON THE TOURISM SECTOR

The government promote foreign contribution to develop the country tourism industry. Since the mid-1980s, the government has gradually opened its desert, mountains and coastlines to foreign tourists and the Ministry of Tourism has share part in various international tourism exhibitions to introduce Oman to the world tourist trade. Due to recent changes made in visa a regulation that had increases arrival of a large number of populations which in turn are likely to increase the flow of tourists in Oman. Due to the development of International Airport which increase the tourist probable of the country. A new Tourism Ministry was set up in 2004 to provide push to this sector. The Ministry of Tourism has free provisional tourist arrivals figures for 2011. These showed a slight decline of 1.8% in arrivals over the year to 1,427,611. In light of this to some extent unsatisfactory figure, BMI has change down it’s predict for tourist arrivals in 2012, believe that an increase of 10% is now the most likely outcome for the year, down from 15% previously. BMI’s predict is in line with the government’s outlook for the industry.

ECONOMIC ENVIRONMENT

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(Sources: www.google.com)

INTRODUCTION OF THE SECTOR

Oman’s economy is based mainly on petroleum and natural gas. With limited energy reserves, Oman has decided to expand its economy away from oil and gas production. The ‘Oman Vision 2020’ development plan highlighted the need for the Omani economy to expand its economy through a process of industrialization and privatization. The main single industrial investment target is the port city of Sohar, near the UAE border. The government has direct with several main privatization programs, including power generation projects, and other power and water generation plan. Oman expects to triple the industry’s one percent contribution to GDP and finally create over 1, 14,000 tourism-related jobs. Besides these the government had built a second airstrip and new terminal at Muscat International Airport by 2011.

The government is also in the procedure of expanding its privatization efforts to its wastewater and solid waste management operation. In addition to this the Omanis aggressively marketing itself as a enchanting, environmentally aware tourist goal. The Omani government is developing a port at Duqm, an evenly populated area along the Arabian Sea. This strategy call for the construction of a dry dock facility, oil refinery, petrochemicals complex and fish processing centre to ultimately fight with Dubai’s Jebel Ali port complex. The Duqm development plan also calls for the construction of an airport to facilitate passenger and cargo shipments and a three-hotel tourism resort complex.

MACRO ECONOMIC DATA

Following is the macro data of Oman country.

YEAR

2005

2006

2007

2008

2009

2010

2011

GDP

Normal GDP

309.5

36,804

4,198

60,299

46,115

56,251

61,840

Real GDP

4.0

5.5

6.8

12.8

2.0

3.6

3.8

Origin of GDP

Agriculture

-2.9

-4.6

4.6

0.5

1.5

1.6

1.6

Industry

5.6

-1.7

3.6

11.9

0.3

3.8

3.9

Services

6.7

12.2

9.5

1.3

1.2

3.4

3.7

Population & income

Population

2.5

2.6

2.7

2.9

3.2

3.3

3.4

GDP per head

20,396

21,639

22,360

24,629

22,960

23,151

23,440

Fiscal indicators

Govt. Indicators

38.0

35.2

36.7

32.9

38.1

36.3

34.0

Govt. Expenditure

35.4

34.9

36.5

32.6

41.9

37.1

35.0

Govt. Balance

2.5

0.3

0.2

0.4

(3.8)

(0.8)

(1.0)

Net public debt

4.9

3.8

3.1

2.5

5.5

4.5

4.1

Prices & financial indicators

Consumer prices (average, %)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Lending interest rate (average %)

7.1

7.4

7.3

7.1

7.4

6.8

6.9

(Sources: GCC construction fact sheet)

GROWTH RATE

GROWTH RATE

AMOUNT

GDP ( APPROX)

$59.946billion

PER CAPITA GDP (APPROX.)

$21,646

REAL GDP GROWTH RATE (APPROX.):

7.8%

The government is looking to expand the economy beyond the hydrocarbon sector, which still account for about 75% of export earnings, given the limited sector possible to force and maintain growth beyond 2020. Foreign investment maintain of natural gas projects, along with the government investments will sustain growth. Oil prices & natural gas represents a small proportion of GDP and export revenues. To this end, the government is shifting its plan to aim renewable energy as a key developmental goal with hope that it will contribute

about 30% of GDP by 2020.

PURCHASING POWER

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(Sources: www.google.com)

The inflation rate for the year ended 2010 was about 4%. This was the outcome of declining crude oil prices. The oil and natural gas being the core business of Omanis & it play an important role in determine the per capita income and their purchasing power. However, the situation is changing. There is gradual boom in the per capita income.

The period of rapid growth has come to an end, and in the absence of a sharp recovery in oil prices Oman looks set to grow in the 3-4% range over the coming 5-10 years. The cost of living in Oman is high as most of the goods are imported.

MINERAL RESOURCES

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Oman’s mineral resources include chromite, dolomite, zinc, limestone, gypsum, silicon, copper, gold, cobalt, and iron. Several industries have grown up around them as part of the national development process which, in turn, has boosted the minerals sector’s contribution to the nation’s GDP as well as providing jobs for Omanis. The mineral sector’s operations include mining and quarrying, with several projects recently completed, including: an economic feasibility study on silica ore in Wadi Buwa and Abutan in the Wusta Region, which confirmed that there were exploitable reserves of around 28 million tonnes at the two sites; a feasibility study on the production of magnesium metal from dolomite ore; a draft study on processing limestone derivatives; a project to produce geological maps of the Sharqiyah Region; economic feasibility studies on the exploitation of gold and copper ores in the Ghaizeen area; a study on raw materials in the wilayats of Duqm and Sur for use in the Sultanate’s cement industry; and a study on the construction of a new minerals laboratory at Ghala in the Governorate of Muscat. Metkore Alloys will build a world-class 1,65,000 tonnes per annum capacity ferro chrome smelter project in Oman with an envisaged investment of $80 million.

SOURCE OF FUNDS AND THEIR COST

Oman commercial banks are the primary source of short, medium, and long-term credit. Because there is no restriction in obtaining credit in Oman they can also obtain credit from commercial banks in the neighbouring Gulf countries. The Oman Development Bank they grant loans to small and medium-size companies, for less than Rs.2,50,000. Investors also obtain financing from the Gulf Investment Corporation located in Kuwait which is established by the GCC, is a major financial institution whose main purpose is to invest in the equity and provide loan funding to the new companies.

SECURITIES MARKET

The Capital Market Authority in Oman is established in 1998 which regulates the securities market. Muscat Securities Market, which began its operations in 1989, over sees the flow of funds into securities and develops the local financial market. Membership in the exchange is compulsory for Omani licensed banks, specialized loan institutions, authorized financial intermediaries, joint stock companies and Omani public authorities whose shares are registered on the securities market.  Commercial banks, joint stock investment and brokerage companies which is registered in Oman they may establish investment funds called joint investment accounts. The accounts are listed on the Muscat Securities Market and may be up to 49% foreign-owned & these funds are exempt from taxation.

INFRASTRUCTURE AND PHYSICAL FACILITIES

The Omani government is developing a port at Duqm, which is a less populated area along the Arabian Sea. This plans call for the construction of a dry dock facility, oil refinery, petrochemicals complex and fish processing centre to eventually fight with Dubai’s Jebel Ali port complex. The plan also calls for the construction of an airport to facilitate passenger and cargo shipments and a three-hotel tourism resort complex. . Oman is focusing on its port infrastructure as well. Two of Oman’s principal ports, Sohar and Salalah, are aggressively moving forward on expansion of their respective. To increases the tourism facilities the government will build a second runway and much-needed new terminal at Muscat International Airport in 2011, they also built a new taxiway at Salalah Airport in 2010, and new airports at Sohar, Ras al-Hadd, and Duqm. Oman is focusing on its port infrastructure as well. Two of Oman’s prime ports, Sohar and Salalah, are aggressively moving forward on expansion of their respective.. Oman is focusing on its port infrastructure as well.

SIZE OF MARKET

In 2002, Oman attracted some 1.2 million foreign visitors; about 7,00,000 came from the GCC (GULF CO-OPERTION COUNCIL) states. And of those700, 000 tourists, an overwhelming 85 percent of them came from the UAE. For all the talk in Muscat and Salalah about bringing in European tourists, the fact remains that the bulk of the sultanates visitors come from a lot closer to home- and, of those, huge numbers are simply driving across the border for a very short-term stay. Oman has so much more to offer than the other Gulf States in terms of culture and history. Oman offers an real Arabian experience that’s not easily available elsewhere in the region.

TRADE:

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(Sources: www.Omannet.Om)

The Omanis have been trader since ancient times. Their transport and group carried Omani goods – including frankincense, dates and limes – across the seas and over the old frankincense and silk routes, encourage cultural interactions with other peoples.

Today, Oman is a part of a number of economic communities including the Arab Gulf Co- operation Council (AGCC), the Greater Arab Free Trade Zone, the Indian Ocean Rim Association for Regional Cooperation (IORARC) and the World Trade Organisation (WTO).

The Sultanate has raised its laws on investment activity and has begun “One Stop Shop” permission facilities along with easy, transparent procedures. There is protected coordination between the bodies and authorities involved in providing services for investors, while current progress towards the establishment of e-government have led to a growing confidence on electronic channels. Commercial laws and regulations are being modernized, including the Law on Trade Marks, Descriptions, Trade Secrets and Protection against Unfair Competition, the regulation of foreign trade representation offices, the Consumer Protection Law and the Law on the Protection of Intellectual Property. Beside these measures, the country has also raised its ports and established free trade zones in all Mazyounah and Salalah.

Omani goods are exported to the markets to world countries. Government authorities and departments give main concern to Omani products when making purchases and Omani goods are actively promoted in the local market through seminars and exhibitions.

Broader promotion campaigns are also held in the regional and world markets, where Omani products have already begun to make their mark because of their high quality specifications. The Ministry of Commerce and Industry has established a certificate by the United Kingdom’s Human Investment Programme, recognizing it as an investor in human resources.

SOCIO-CULTURAL ENVIRONMENT

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(Sources: www.google.com)

INTRODUCTION OF THE SECTOR

Since Oman is a Muslim country, all the activities are influenced by the Muslim culture. The main characteristic of Omani culture is respect for others and it prevents others from letting their face down. In Oman the foreigners have to make sure that they don’t make any unpleasant remarks in the public places. Otherwise they feel insulted and let down in the society.

Language: In Oman country Arabic is local language.

LIFE STYLE OF THE OMANIS:

Following are key factors that determine the living style of the population in Oman.

CULTURE:

In order to fully understand any country culture, is very important to know because it influence society whole. In Oman Islam culture is followed by every people. Oman is the Muslim country so majority of them follows Ibrahim sect & it is very conservative culture. Islam directs every part of a Muslim life, from holidays to the food they eat to how they dress and do business. Kindness, humility and respect for others are key thought which are present in both social and professional field of life.

ART:

Traditional handicraft such as silver and gold jewelry, goat- and camel-hair carpet, woven baskets, water jugs, weapon and “khanjar”, a special type of dagger etc are generally practiced in this country. Besides these, drawing, painting, photography etc are also practiced.

MUSIC:

Music in Oman is a vital part of art. The traditional folk songs are very popular and practiced in the country. Arabic music has left a deep influence in the Oman music.

Health:

Life expectancy at birth in Oman is approximate to be 74.47 years in 2012. As of 1999, there were an approximate 1.3 physicians and 2.2 hospital beds per 1,000 people. In 1993, 89% of the population had access to health care services. In 2000, 99% of the population had access to health care services. During the last three decades, the Oman health care system has established and account great achievements in health care services and preventive and curative medicine. In 2001, O

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Even in its modernity, Oman remains distinctly Arabic and offers many unique old-world wonders. As the oldest independent state in the Arab world, Oman has a wealth of archaeological and historical marvels, including ancient walled cities, forts and mosques.

Oman has transformed access to education over the past 40 years, and is now expanding post-school education and training. Oman is diversifying its economy away from oil and gas, and there has been strong growth in tourism, IT and the knowledge-based economy in recent years. Oman has a predominantly young population, with over 70% of people under the age of 30.

The Sultanate of Oman (maps) occupies the southeastern tip of the Arabian Peninsula – 300,000 sq. km boasting some 1,700 km of coastline stretching along the Indian Ocean and the Arabian Gulf. It is the second largest country in Arabia, and has the most diverse landscape including fjord-like rugged mountains in the far north, magnificent tracts of desert and a lush south.

An ancient civilization, Oman’s history can be traced back to 12,000 BC. The country is strategically located on the crossroads of several trade routes that linked the ancient world. It became a center of power in the 17th century with Omani rule extending from Zanzibar in East Africa to parts of Persia and Pakistan.

Oman takes pride in its rich cultural and architectural heritage bestowed by hundreds of years of international trading and foreign occupation. Evidence of a glorious ancient past is spread all over the country which spread all over the country which boasts more than 500 forts, castles, and towers. Their diversity and numbers reflect the high standards achieved by Omanis in architecture. Trips to the Oman museum at Qurm and to the Natural History Museum in Al Khuwair are invaluable in helping the visitor gain an insight into Oman’s history.The Sultanate’s varied geography makes for a wide range of climatic conditions. The best time of the year to visit Oman is between October and April, when the weather is pleasantly warm in the day and cool in the evening. Temperature average is 25-35 degrees centigrade during the day and plummet to 17-19 degrees centigrade at night.

Oman enjoys many unique features including an unspoiled culture and lifestyle traditional in almost every aspect. The people are friendly and offer incomparable hospitality. A rich variety of flora and fauna abound, together with panoramic beauty witnessed in its mountain ranges, deserts and sand dunes.

Overall Industrial view of Oman

Industrial development receives great importance in the country’s development plans so as to reduce Oman’s heavy reliance on oil. A number of projects are engaged in producing intermediate goods for construction, and a wide variety of manufacturing goods are produced in the country, ranging from food and beverages to furniture, textiles, paper products, chemicals, fabricated metal products, electrical goods, consumer products, etc.

New manufacturing industries have been growing through continuous encouragement by the government through soft loans, good infrastructure and facilities, import duty exemptions, etc. The government has also established industrial estates in Rusayl, Raysut, Sohar and Nizwa. The small size of the local market and free imports are major constraints on development of the manufacturing sector. The manufacturing sector contributes more than 10% to the GDP. However, this contribution is expected to increase with plans to develop gas intensive industries including a petro chemical complex, a fertilizer plant, an aluminium smelter plant, etc. The government is actively promoting Sohar as an industrial Center, through the Sohar port and providing incentives to the private sector. The Omani Center for Investment Promotion and Export Development was established by the government to promote private sector and foreign investments, and to support the export of Omani products. The Center also acts as a one stop shop, offering various services to investors including processing of proposals, assistance in raising finance, facilitating / obtaining of licenses, approvals, exploring foreign markets / customers, etc.

Market Opportunities

Oman offers stability, security, a predictable investment climate, respect for free markets and property rights, rule of law, access to capital, good health care and schools, easy access to global markets through a modern infrastructure network, and a strong demonstrated commitment to Intellectual Property Rights enforcement.

Although oil and gas production will remain the backbone of Oman‟s economy for years to come, the non-oil sector of the economy is making great strides. Growth areas include: infrastructure, including rail and airports; water and power projects; medical equipment, services and supplies; construction and engineering services; building products; renewable energy construction, technology, and services; industry; and aquaculture. The Ministry of Finance announced that as part of the 2011-16 Eighth Five Year Plan, RO13bn ($33.8bn) would be spent on infrastructure, e.g., ports, highways, rail and airports, with RO8bn (S20.8bn) focused on financing oil and gas projects to achieve 15-17% growth in the sector and RO3.4bn ($8.84bn) for the electricity sector in order to keep pace with 7-10% annual demand growth fueled by tourism and industry. RO700m ($1.8bn) has been allocated to the tourism sector, which is aiming for 11% growth with a focus on meetings, industry conventions, and exhibitions; RO 500m ($1.3bn) will be

directed toward resorts and conference centers while RO 200m will be earmarked for infrastructure.

The GoO is spending $9bn to develop various economic zones around the country, with $3bn invested just in Salalah port and free zone. Salalah boasts a unique location astride international shipping lanes, connecting American cargo to India, Southeast Asia, and the Middle East within two weeks. The port has also recently announced a new intermodal facility in partnership with OmanAir. Duqm special economic zone, the newest, will be one of the largest in the world once completed, and has attracted $6bn in public and private investment so far, with up to $15bn expected in the next decade. A joint venture with the Port of Antwerp, Duqm can accommodate the largest ships in the world and is located near Al Wusta, the site of many minerals as well as oil and gas resources. By 2014 the Port of Duqm expects to be able to accommodate ships of up to 150,000 deadweight tons in its multi-purpose, container, and dry bulk terminals, with liquid jetties following in phase two. Plans for Duqm Economic Zone include: an oil refinery and petrochemical complex, a ship repair and construction dry-dock, fuel storage and bunkering facilities, a fish farming complex, and the construction of two tourist hotels. In addition, the new surrounding city will require sewage treatment, drainage, water desalination, power plants, buildings, telecom services and landscaping. A joint venture with the port of Rotterdam, Sohar port and free zone also hosts the world‟s largest vessels, offers cargo, liquid and container terminals, and is also located in a mineral rich region. Sohar has found success hosting downstream industrial activities such as sulfur processing, aluminum rolling and steel pelletizing in its adjacent free zone. The port/free zones offer investors well-equipped facilities outside the congested Strait of Hormuz to serve as low-cost manufacturing and re-export hubs; in 2011, Oman‟s chemical exports achieved a 121.5% growth rate, while base metal exports grew by 51.5%.

American investment in Oman is addressed in the U.S.-Oman Free Trade Agreement. American companies may register as an Omani firm, with 100% American ownership. GCC investors are also permitted to fully own companies in Oman. Other nationalities are bound by the Foreign Business Investment Law of 1974, as amended. In general, the law limits non-American / non-GCC foreign shareholding to 65% of any company, thus requiring other foreign investors to partner locally unless they seek an exception from the Omani Cabinet, which may decide to allow a fully foreign-owned company to form in Oman based on national interest. American companies must only demonstrate capital reserves of OR 20,000 ($52,000) to start a basic LLC, whereas other foreigners are subject to a minimum of OR 150,000 ($390,000). Corporate profits are taxed at a flat rate of 12%, and the first $78,000 is tax free. For special free trade zones there is up to a ten year holiday on taxation. Oman does not have a personal income tax or sales / value-added taxes. There are a few local and “luxury” taxes mostly aimed at tourist facilities, and temporary consultancies that do not establish long enough in Oman to pay the annual corporate tax are subject to 10% withholding on royalties and other management or research fees.

Advantages of investing in Oman

Oman offers following advantages to the foreign investors to invest in Oman.

Political stability.

Liberal foreign ownership in companies permitted.

Oman is rich in oil and gas.

Capital and profits of a business entity is fully repatriable.

No personal income-tax. All individuals can fully repatriate their savings.

Committed to privatization, industrialization, economic diversification and development.

Free trade and open market policy.

Low income tax rate structure for companies and double taxation relief treaties available with many countries.

Income tax holiday period of five years renewable for further period of five byears, available for business entities engaged in priority areas of economic development.

Geographically ideally located, proximity to Gulf, Asian and African markets.

Well regulated stock exchange.

Industries fulfilling certain conditions can get interest free/ soft loans, exemption from custom duty on import of plant, equipment and raw materials and export credit insurance.

Government leased land available at a concessional rate with good utilities.

Modern infrastructure with good roads, airports, sea ports, and state of the art telecommunications and other services.

English is used widely in day to day business commerce

Education in Oman

Before 1970, only three formal schools existed in the whole country, with less than 1,000 students receiving education in them. Since Sultan Qaboos came to power in 1970, the government has given high priority to education to develop a domestic work force, which the government considers a vital factor in the country’s economic and social progress.

Today there are 1,052 state schools and about 563,236 students. In 1986, Oman’s first university, Sultan Qaboos University, opened. Other post secondary institutions include a law school, technical college, banking institute, teacher training college, and health sciences institute. Some 200 scholarships are awarded each year for study abroad.

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Pre-university education

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Pre-university education in Oman has three stages: primary, preparatory, and secondary. Six years of primary schooling are followed by three years of preparatory school. Academic results of the preparatory exams determine the three years of secondary education the student will receive.

Higher education reform

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Nine private colleges exist, providing 2-year post secondary diplomas. Since 1999, the government has embarked on reforms in higher education designed to meet the needs of a growing population, only a small percentage of which are currently admitted to higher education institutions. Under the private university applied colleges reformed system, five public regional universities are created, and incentives are provided by the government to promote the upgrading of the existing nine private colleges and the creation of other degree-granting private colleges.

Education statistics

Adult literacy rate (% ages 15 and above) 2006 (83.7).

As of 2005, 76% of primary-school-age children were enrolled in school, while 75% of those eligible attended secondary school

In 2001, there were 346 literacy centers and 214 adult education centres.

Six teacher training college are functioning at the moment with 9000 students.

The Institute of Agriculture at Nazwa became a full college by 1985.

Sultan Qaboos University opened in 1986 there are currently some 12.000 students at the University.

What are the Opportunities for Us?

As we know that the adult literacy rate in Oman is 83.7% and people also ready for spending on the higher Education so, we have a chance or we can say the opportunities to open our own higher educational institutions in Oman.

We can provide them Under graduation and Post graduation Education.

The per capital income in Oman is very high so, they can affored the education to their child and also they are ready to spend on the education.

Government is also helping the new comers in education

From Gujarat we can get the professional people at cheaper cost for establishing the education institutes at Oman.

Health Care

The standard of healthcare in Oman is high thanks to the efforts of the government to ensure investment in a national health service over the past few decades. Both public and private medical facilities provide a good standard of care, and there are now over 180 local, district and regional health facilities in Oman, with the largest and best facilities located in Muscat.

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The majority of Oman’s medical doctors and staff are expatriates. However, with the government’s policy of Omanization, this is slowly changing, and the government is trying to encourage Omani nationals to go into the medical field.

Medical treatment in Oman can be expensive and facilities may expect payment upfront. Expats should ensure that they full medical insurance.

2001

2000

1995

1990

1985

1980

1975

1970

Number

of hospitals

56

55

53

52

44

30

24

2

Hospital beds

/10,000 people

21.0

21.6

21.8

24.3

22.0

18.6

12.6

0.2

Govt health centres,

clinics, dispensaries

166

161

163

136

130

80

51

22

Doctors

/10,000 people

13.7

13.6

11.8

9.0

6.9

5.1

1.8

0.2

Nurses/10,000 people

32.3

32.6

28.9

26.0

16.6

10.8

5.6

NA

Hospitals in Oman

There are 58 hospitals in Oman and 897 medical centers, dispensaries and clinics. Only 9 hospitals are private and the rest are Government hospitals.

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Opportunities For Gujarat Enterprenures:

From the above information we can say that there are very less private hospitals and medical facilities provider there in Oman. Even they are very costly because of the less number of hospitals in these country.

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As we know that India is the only country whose Doctors and Chartered Accountants are very famous for their excellent services.

The Indian doctors are very experts in their field or we can say that they are having very good knowledge regarding their work because of regular Practices and experience.

Yearly hospital per capita expenditure in Oman is 294.6$ which is high as compared to India.

The average age or the life Expentacy of Omani people is 74.76 year which is high as compared to India 63.5 year.

So these people are living more years as compared to Indian so, they are having more old life as compared to India and the the research says that the Hospital expenses are more in old age as compared to the young age.

So, the chances for Indian doctors or we can say the enterprenures are more in Oman.

We can open our own Hospital and Medical in Oman for providing the health care services to the Omani citizens.

Here we may face a competition with the doctors of U.S., Pakistan, Europe, Egypt, etc., but we are able to face this competition because we can provide better Quality (Experts) services at reasonable price.

These is because of we are having good professional at cheaper cost.

We can open our own private hospital and medical facilities in Oman through which we can enter the Omani market and can earn by serving the Omani people.

They are ready for spending on the good medical and hospital facilities.

The Omani people are having good trust on the Indian doctors as compared to the rest of the country because these people (Indian Doctors ) are having good practical knowledge as compared to the others because in India we are having very large population and the rate of illness is very high in India.

These doctors are having regular practice and also passing from different-different types of illness.

Agriculture in Oman

Prior to the discovery of oil in the 1960s, the agricultural sector was central in the Omani economy. However, in 1999 the sector contributed only 3 percent to GDP and was heavily subsidized by the government. Oman is not self-sufficient in food and in 1995 the country spent US$572 million on food and live animals. This figure rose to US$650 million in 1999.

There are efforts underway to develop self-sufficiency in staple foods. The main crops grown in Oman are tomatoes, eggplant, dates, bananas, limes, and carrots.

The principal agricultural area is found along the Batinah coast, in the northeast between Muscat and Diba al-Hisn, which accounts for about half the total crop area of approximately 101,000 acres. In the south, agriculture is centered on a small coastal plain that is fed by monsoon rain coming from the Indian Ocean. In spite of its small contribution to GDP, the agricultural sector is still a major employer. In 1994, the World Bank estimated that over half the Omani labor force was working in the agricultural sector. The Omani government reports that a total of 140,000 people are employed permanently in this sector and that 47,000 of these people are unpaid family workers. Agricultural employees are primarily of Oman descent.

Oman is famed for producing very high quality agricultural goods and the highest quality products are usually exported to the neighboring Gulf Cooperation Council (GCC) countries. (On 26 May 1981 an agreement was sign between the six conservative monarchies of the Gulf; Saudi Arabia, Bahrain, United Arab Emirates, Kuwait, Oman, and Qatar to co-ordinate their economic, political, cultural, and security policy.) However, the agricultural farm is threatened by many problems, including outdated technology and an increase in the salinity of the water. The government has responded to these issues by investing more into the sector. Its goal is to obtain self-sufficiency in food production by improving agricultural conditions. In working to make the agricultural sector internationally competitive, the government has introduced incentives for foreign investors. These exemptions include tax reductions, utilities discounts, loans, and tariff protection. The government has also helped Omani firms in exporting their products.

Agriculture in Oman has been important for centuries. The government’s economic development policy emphasizes the expansion of such non-oil sectors as agriculture, fishing, industry, and mining in its bid to diversify the economy and diminish its dependence on oil exports. The goal is to establish a sustainable economic base in preparation for the time when hydrocarbon reserves are depleted. The government launched several economic campaigns, naming 1988 and 1989 as Years of Agriculture and 1991 and 1992 as Years of Industry. Through these campaigns, the government has encouraged private-sector investment by allocating generous amounts of cash support for private industry to be disbursed mainly through official development banks. For example, the Oman Bank for Agriculture and Fisheries, created in 1981, extends loans at concessionary rates to individuals for whom farming or fishing is the principal activity. The bank acts as a distributive institution, receiving an interest subsidy from the government. In 1990 there were 1,308 loans, totaling RO4.7 million. Development programs also incorporate the government’s policy of indigenization, with a large component of funds.

Oman has five distinct agricultural regions. Going roughly from north to south, they include the Musandam Peninsula the al Batinah coast the valleys and the high platform of the east region, the interior oases, and dhofar region, along the narrow coastal strip from the border with Yemen to Ras Naws and the mountains to the north.

In the early 1990s, interior farming areas accounted for more than one-half of the country’s cultivated land. Rainfall, although greater in the interior than along the coast, is insufficient for growing crops. Most of the water for irrigation is obtained through the falaj system, in which a vertical shaft is dug from the surface to reach water in porous rock. From the bottom of this shaft, a gently sloping tunnel is dug to tap the water and allow it to flow to a point on the surface at a lower level or into a cistern or underground pool from which it can be lifted by bucket or pump.

A falaj may be many kilometers in length and require numerous additional vertical shafts to provide fresh air to the workers digging the tunnels and to permit the removal of the excavated rock and soil. A falaj requires tremendous expenditure of labor for maintenance as well as for construction. Because private maintenance efforts during the 1970s and early 1980s proved inadequate, the government initiated repair and maintenance of the falaj system to increase the quantity of water available to cultivated areas.

The cooler climate on the high plateau of the Al jabal al Akhdar enables the growing of apricots, grapes, peaches, and walnuts. The Al Batinah coastal plain accounts for about two fifths of the land area under cultivation and is the most concentrated farming area of the country. Annual rainfall along the coast is minimal, but moisture falling on the mountains percolates through permeable strata to the coastal strip, providing a source of underground water only about two meters below the surface. Diesel motors are used to pump water for irrigation from these shallow wells.

By the mid-1980s, the water table along the Al Batinah coast had dropped to a low level, and salinity of the wells had increased, significantly reducing the water quality. This was caused by the combined effect of cultivating land too close to the sea and pumping more well water than was being recharged by nature, thereby permitting seawater to encroach.

Over farming and attendant water problems caused the government to establish the Ministry of Water Resources in 1990 with the mandate of limiting water consumption and improving irrigation. A freeze on new wells was imposed in addition to delimiting several “no drill zones” in areas where groundwater supplies are low. The ministry is also considering the installation of water meters.

Recharge dam are designed to hold rainwater in the wadi for a period of time to facilitate the trickling of water down into the ground; replenishing aquifers have been built mainly in the northeastern Al Batinah region, where the groundwater levels are up to five meters below sea level.

Apart from water problems, the agricultural sector has been affected by rural-urban migration in which the labor force has been attracted to the higher wages of industry and the government service sector, and by competition from highly subsidized producers. As a result, agriculture and fishing have declined in relative sectoral importance. In 1967 the two sectors together contributed about 34 percent of GDP; by 1991 they accounted for 3.8 percent of GDP. The government encourages farming by distributing land, offering subsidized loans to purchase machinery, offering free feedstock, and giving advice on modern irrigation methods. As a result, the area under cultivation has increased, with an accompanying rise in production. But extensive agricultural activity has also depleted freshwater reserves and underground aquifers and has increased salinity.

The area under cultivation increased by almost 18 percent to 57,814 hectares over the period from 1985 to 1990. Fruits were grown on 64 percent, or 36,990 hectares, of the area under cultivation in crop year 1989-90. Dates accounted for 45 percent of the total area, or 70 percent of the area under fruit cultivation. Grains such as barley, wheat, and corn accounted for 19.2 percent, or 11,092 hectares and vegetables accounted for 16.8 percent, or 9,732 hectares, of the total area under cultivation.

In the same five-year period, overall agricultural production increased by 3 percent to 699,000 tons. Field crops, largely alfalfa, accounted for more than one-half of total production, or 354,300 tons, a 40 percent increase in the five-year period. Fruit production (including dates and limes) was 182,400 tons, up from 154,500 tons. Vegetable production totaled 162,300 tons, an increase of almost 50 percent.

What are the opportunities for Gujarat Entrepreneur?

From the above information we can say that there are salinity of water and outdated technology in Oman. So, Oman is very less resources for the agriculture.

As we know that the Water is inevitable natural resource for mankind. It is necessary at every step that the human being take to live. So it is also important for Agriculture activity.

In Oman there is a lack of the kind of water that can be use for Agriculture purpose. And at a same time there is also a lack of updated Technology that can be used for increasing the effectiveness of the agriculture activity that the farmers are doing.

So it is the opportunity to provide above mentioned facilities to grab the opportunity by establishing the business there.

Agricultural development in the state is to a large extent dependent on availability of water. A large percentage of the water in Gujarat State (both surface and groundwater) is consumed by the agricultural sector.

Ground water and surface water are the two different sources from which water is utilized for irrigation purposes. These two sources are mainly replenished by rainfall and stream flows.

As mentioned above we can say that water source is easy available in Gujarat. In Gujarat farmers are very experts in farming activities. So, farmers of Gujarat are working huge amount of farming in Oman.

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UAE’s economy has seen extreme growth in recent years, as seen by above average GDP and eight figure year-over-year trade surpluses since 2003. This economic boom is more impressive when considering the country’s strong push to alleviate its reliance on oil exports and diversify into other industries. Currently, profits from oil exports represent roughly 33% of the economy. Volatile oil prices, which heavily correlate to UAE profitability, are becoming less important to overall financial growth. Actions like this help to mitigate risk for potential investors and should make the UAE more attractive in the foreign investment arena.

Capital markets in the UAE are also modern and robust. They enjoy two stock exchanges, have implemented an extensive market oversight organization to protect the integrity of their markets, and have created several government-owned investment institutions to help foster investment diversification. The Emirates welcome new business, as they have established Free Trade Zones that offer many benefits to investors that set up operations within UAE borders. The UAE ranks number one among Arab countries in foreign investment and is considered a global business center for its constant pursuit of social, economic, and technological advancement.

Political reform has been prevalent in the UAE throughout history. The first federal constitution was established in 1971 that brought these seven Trucial States together to operate as one entity. Although the UAE has experienced some growing pains in transferring authority from individual states to a federal governing body, the political stability is high. The UAE has recently rolled out a detailed, objective action plan called “Vision 2021” to help them methodically reach their goal over having balanced power among state dictatorship and federal policy.

The UAE has seen massive growth in its economy, population, infrastructure, and energy consumption for many years. The citizens of the UAE emit more greenhouse gases per person than any other country, and because of its geographic location, nearly all of their buildings are air-conditioned and water is obtained through energy-intensive desalination plants. Because of the exponential increases in demand for electricity, the UAE has focused its efforts on developing renewable energy sources. Estimates currently project that the demand for domestic power will more than double by 2020, and the UAE is tackling these consumption hikes head-on. Abu Dhabi, the capital of the UAE, is aiming to obtain 7% of its energy from renewable sources by 2020 and is currently planning the construction of a zero-waste city that will rely solely on renewable energy sources. This renewable energy push poses significant foreign investment opportunities, as an already economically-thriving country aims to eliminate energy reliance in parallel with having world-leading economic growth.

United Arab Emirates

Background

The United Arab Emirates (UAE) was established in 1971 and is comprised of seven independent emirates or states, Abu Dhabi, Dubai, Sharjah, Umm al-Qaiwain, Fujairah Ajman and Ra’s al-Khaimah. It is located on the Arabian Peninsula and occupies 32,000 square miles between Saudi Arabia and Oman on the Persian Gulf. The country is over 80% desert and has no natural water sources. (The UAE, 2010)

As the largest of the emirates, occupying more than 75% of the country (United Arab Emirates, 2011), Abu Dhabi is the country’s capital. Another major city is Dubai, which is considered to be a financial and commercial mecca for the country.

History

The UAE’s history dates back to the 18th and 19th centuries when the dominant tribe in the area was the Qawasim. The Qawasim’s control of the maritime trade routes in the lower Persian Gulf and much of the Indian Ocean eventually provoked the British into a naval attack in 1819. After defeating the Qawasim, the British signed a series of treaties with the sheikhs of each of the emirates to preserve a maritime truce. This eventually led to the area becoming known as the Trucial States. In the truce, the sheikhs agreed not to engage in foreign relations or to relinquish any of their territories without British consent. In exchange, they were promised protection against naval attack, and assistance in any land attacks.

In January 1968 the British announced that they would be withdrawing from the Persian Gulf. Over the next three years, the emirates that made up the Trucial States worked to form their own federation. Agreement was finally reached between Abu Dhabi, Dubai, Sharjah, Umm al-Qaiwain, Fujairah and Ajman on December 2, 1971, and the United Arab Emirates was formed. On February 10, 1972 the seventh and final emirate, Ra’s al-Khaimah, joined the federation. (United Arab Emirates, 2011)

Currency & Exchange Rate Arrangements

After federation of the UAE in 1973, a new national currency was created, the Emirati Dirham (AED). In 1997 the AED was fixed and pegged to the US Dollar (USD). Currently pegged at a rate of 3.673 (The World Factbook: United Arab Emirates, 2011), this remains the country’s currency arrangement today. However, prior to the implementation of the AED in 1973, a host of different currency arrangements were used throughout the region.

Prior to 1966, the Persian Gulf rupee was the currency utilized in the Arabian Peninsula, which was pegged to the British pound (GPD) at a rate of 13.33. (Symes) Due to a devaluation of this currency in June 1966, the Bahraini dinar and the Qatar-Dubai riyal were adopted by the emirates.

The Bahraini dinar (BHD) debuted in 1965 in Bahrain, an island nation located north of the UAE in the Persian Gulf. The BHD was adopted by Abu Dhabi in 1966 and was used until 1973 when it was replaced by the Emirati Dirham. (Symes) It is currently pegged to the US Dollar at a rate of 0.377.

The Qatar-Dubai riyal was introduced in 1966 as a result of the Qatar-Dubai Currency Agreement. This agreement was reached between the countries of Qatar and Dubai because of a push by Britain for the Trucial States to take responsibility for their economic future. The Qatar-Dubai riyal was used by all of the emirates except Abu Dhabi from 1966 until 1973. Its value was equal to that of the Persian Gulf rupee prior to its devaluation. (Symes)

Political Structure

The formation of UAE meant significant changes to the overarching political structure. The creation of the constitution of the United Arab Emirates in 1971 established some formality within the conglomerate, although individual states still maintained significant power to control finances and natural resources. Since much disparity exists between the size, maturation, and political complexity within each emirate, the political environment is much different as well. The most developed emirates, Abu Dhabi and Dubai, have fairly sophisticated governments comprised of multiple hierarchical levels, while more remote settlements typically have only one ruler and several local representatives who are appointed solely by the ruler.

The UAE constitution established executive, legislative and judicial branches of government, and called for the formation of a number of fundamental councils to sustain these branches. The Federal Supreme Council has both legislative and executive powers, and is comprised of each emirate’s ruler and a separate President and Vice President who are elected by the Council every five years. All general policy, enactment or ratification of federal laws, overarching financial decisions, and international relations strategies are made by the Federal Supreme Council. The Federal National Council, UAE’s version of a Parliament and main legislative entity, is a 40-member body that represents the voice of the UAE constitution. Fifty percent of these members are chosen by an Electoral College, while the remaining twenty members are chosen by emirate rulers. The FNC has the authority to amend federal legislation and, amongst other duties, is responsible for reviewing the federal budget and managing international activities. The UAE constitution also formed the Federal Judiciary, which consists of five appointed judges. These judges have the authority to try cases involving senior officials, and often rules on disputes between emirate entities.

The biggest barrier that the UAE government has faced since its inception is the lack of cohesion between local policy and federal oversight. The UAE is growing and developing rapidly, and it is imperative to tailor the political systems to make them more responsive to the country’s needs as it faces the challenges of this development. Much emphasis has been placed on formalizing the local political environment to provide more stability and consistency from emirate to emirate, as well as ensuring that local government policy is representative of the federal political strategy and values. The first major breakthrough occurred in 2007, when the UAE launched the “UAE Government Strategy”. This strategy outlined a number of initiatives aimed at enhancing the six UAE government strategy sectors: social development, economic development, public sector development, justice and safety, infrastructure, and rural development. This initial reform strategy was undoubtedly a success, as the UAE has made significant strides towards unifying political efforts and operating within a common framework.

In 2010, the UAE announced its “Vision 2021”, which vowed to steer the country through upcoming challenges by operating efficiently and responsibly, displaying determination and innovation, and by being proactive in all governmental matters. The UAE is driving towards their vision very methodically, as the government recently released its “Government Strategy 2011-2013” as the first step to achieving the goals outlined in Vision 2021. This Government Strategy outlines seven general principles, seven strategic priorities, and seven strategic enablers that will be used when developing strategic and operational plans and will push the country closer to its vision (See Exhibit 1).

The political environment of the UAE is changing rapidly. The balance of power is slowly shifting from individual states to a central government entity through the establishment of an overarching constitution and the creation of formal federal councils. Individual emirate states have been slow to embrace this cohesion. Inter-state relationships have historically been relatively unstable in the UAE, which was highlighted in 2009 when Abu Dhabi provided Dubai with a $10B bailout when they could not repay a $4.1B Islamic bond and was in financial turmoil with creditors. This bailout caused strife between the two largest and most powerful UAE entities, and questions still linger as to whether Dubai will be able to meet its financial commitments.

Despite these recent events and overall political reform, the UAE political system is relatively stable. World Bank currently ranks the political stability of UAE in the 74th percentile of countries, while all Middle Eastern countries have a combined rating in the 37th percentile. Government effectiveness is also rated exceptionally high: in the 77th percentile (Middle Eastern countries combined are rated in the 48th percentile). Business Monitor International ranks UAE political stability at 82.1 (of 100). BMI uses specific objective data to analyze political risks, including distribution of wealth, policy stability, foreign relations, etc. These political risk ratings highlight the effectiveness of UAE’s government reform efforts. Despite residing in a hostile region, having individual states that control almost all local governmental matters, and the presence of rivalries within the states, UAE is viewed as having a stable political environment (See Exhibit 2).

Economy

Over the past forty years, the UAE has transformed from a relatively unknown country into a thriving economic force. The UAE economy is the third largest in the Middle East behind Saudi Arabia and Iran. Their financial success started with the exportation of oil, an abundant resource in the UAE, and since then their economy has grown into other industries such as financial services, trade, retail sale, real estate, and tourism. The following discusses the UAE economy in detail.

Foundations of Economy

Oil was discovered in the lands of what is now the UAE in the early 1930’s. Once discovered, oil exportation began, and oil sales continued to grow, especially throughout the 1960’s. In 1971, the seven emirates formed the UAE, becoming the only Arab federation in the world. As the oil business continued to grow and prosper, the UAE used its financial success to develop the country and expand their economic goals. The UAE has since grown exponentially as an economy, due to success in areas such as natural gas exportation, foreign investment, trade, financial services, real estate, and tourism. Its government policies have also helped to spur this rapid growth. The UAE promotes a free market through its free trade zones created to attract foreign investment.

As much of the world faced financial struggles in the past few years, Dubai was hit especially hard. Similar to the real estate problems recently faced by the U.S., Dubai real estate prices rose constantly due to over-speculation on the assumed future value of property. When demand for real estate did not meet investors’ high expectations, Dubai was left owing billions in debt it could not pay. The Central Bank of the UAE provided Dubai a $10 billion loan to pay off its debt obligations. As a result of these recent financial difficulties, growth in the short term appears to be slower than recent years as the country recovers from its financial downturn. The UAE economy grew at a rate of 2.5 % in 2010. However, the economy should rebound in time. Its projected growth rate in 2011 is 3% and targets a 5% rate in 2012 and beyond. In the long term, the UAE will more than likely return to the fast-paced economic growth it enjoyed in previous years.

Current Analysis of UAE Economy

As discussed above, the country has faced extreme financial growth in the early 2000’s, but has dropped significantly in growth through 2008, 2009, and 2010. We will now analyze the performance of UAE’s economy by examining the gross domestic product, economic performance indicators, international trade, and resources and infrastructure.

Gross Domestic Product

Since 2003, the UAE’s Gross Domestic Product (GDP) growth rate has exceeded the worlds GDP every year. In 2009, the GDP of both the UAE and the world declined, but the UAE’s growth rate of -0.7% was better than the world’s growth rate of -1.9% (Worldbank). According to the UAE government website, this decrease in GDP was based on a decrease in oil prices. The per barrel price dropped from $95 in 2008 to $60 in 2009. The government projected a real GDP growth of 2.5% for 2010. The UAE currently ranks 35th in the world in GDP at around $230 Billion (Worldbank). UAE’s per capita GDP rose steadily from $23,523 in 2003 to $58,272 in 2008, but fell to $50,070 in 2009. The overall world per capita GDP faced a decline in 2009 as well. The UAE ranks 7th in the world in per capita GDP. The GDP growth and GDP per capita indicators show that the UAE’s economy is growing at a high rate in comparison to the rest of the world.

The non-oil sector industries that contribute to UAE’s GDP (UAE Govt Website):

• Manufacturing – 16.2%
• Construction – 10.7 %
• Wholesale and retail trade and repairing services – 9%
• Real estate – 8.2 %
• Government services – 8.0 %
• Transportation, storage, and communication – 7.1 %
• Financial services – 5.8 %
• Hotels and restaurants – 1.8 %
• Agriculture, livestock, and fishing – 1.7 %
• Electricity, gas, and water – 1.6 %
• Household services – 0.5 %

Economic Performance Indicators

The UAE faced double-digit inflation rates from 2005 through 2008, anywhere from 13-19% per year. In 2009, the UAE’s inflation rate dropped to -11.3% (Worldbank). These dramatic increases and decreases are substantially different from the 2-3% cost of living annual increase that most economies target. UAE officials project that inflation will remain around 2% this year (Khaleejtimes).UAE’s unemployment rate has slowly risen from 2.75% in 2004 to 4.25% in 2010 (Trading Economics). Although unemployment has risen, it is still low in comparison to many other countries around the world. UAE’s Growth Rate of Industrial Production was 3.2% in 2010 (estimate), ranking them 102nd in the world (CIA)(analysis). The current interest rate of the UAE, called the Emirates Interbank Offered Rate (EIBOR), is 2.5% for a one year loan (Worldbank). The EIBOR one year interest rate has remained at or near 2.5% since the end of 2009. The average overall interest rates have dropped in the past four years. In 2007, the average interest rate was 5.5% (Trading Economics). As of January 2011, the current average interest rate in the UAE was 1%. The UAE government spent around 32% of its GDP in 2010, and the UAE government will continue to operate in a budget surplus. The EIU forecasts that UAE’s budget surplus will continue to narrow in coming years, as the government budget will face deficits from 2013-2015 (EIU).

International Trade

The UAE exported $192 Billion in 2009 and imported $150 Billion, resulting in a trade surplus of $42 Billion (Trading Economics). The UAE has enjoyed a trade surplus between $20 Billion and $62 Billion since 2004. The UAE’s top importing partners are China, India, US, Germany and Japan (UAE Embassy). The top five exporting partners of the UAE are Japan, South Korea, India, Iran, and Thailand. The major exports of the UAE are oil, natural gas, re-exports, dried fish, and dates. The major imports of the country are machinery, transport equipment, chemicals, food (UAE Embassy).

Resources and Infrastructure

UAE land is rich in natural resources. The UAE contains about 10% of the world’s oil reserves, and has the world’s seventh largest supply of natural gas (UAE Embassy)(See exhibits 4 and 5). The exportation of oil is the major source of revenue for the UAE, accounting for about 30% of its annual GDP (UAE Embassy). The UAE government has used this oil revenue to invest heavily in the country’s infrastructure. These investments in the country have promoted the rapid growth of other industries in the UAE including tourism, re-export commerce, and telecommunications (UAE Embassy).

Short-Term and Long-Term Prospects/Forecasts

Short Term Forecast and Prospects

As the UAE continues to recover from the global financial struggles, growth in the next few years will be slower than the extreme growth rate it enjoyed in the recent past. The UAE’s GDP is expected to grow by 3.3% in 2011 (7days). Dubai plans to pay off its debt in 2011, which is a positive for the country. After 2011, the economy’s anticipated growth is 5% per year for the next few years (EIU). Inflation in the UAE is expected to rise by 2.8% in 2011(Arabian Business).

Oil exportation will remain a solid revenue stream for the country. Existing and newly developing non-oil industries will also enjoy growth in the coming years. Trade, tourism, and business service industries should maintain strong growth as the UAE continues to diversify its economy. Healthcare and Information Technology (outsourcing services, smartphones, servers, and disk storage) industries are anticipated to increase by 15-20% this year (Arabian Business).

High food prices are an immediate concern to the UAE and other countries in the Middle East. The UAE government has subsidized the food markets in the country. Political unrest in the Middle East and unused real estate in Dubai are also concerns. Inflation from rapid economic growth in non-oil industries is also a risk.

Long Term Forecast and Prospects

The UAE economy should remain strong for the next twenty years. Oil exports will provide a constant income source to the country. Volatile oil prices can be a threat to the economy, but the country’s foreign investments should provide enough support if and when oil prices drop (EIU). Other UAE industries should develop further as long as the country continues to invest in expanding these industries. Developing and employing its country’s people will be a focus in the coming years, as the country is heavily dependent on foreign workers. Inflation could also be a concern as the country continues to grow.

Exchange Rate Behavior and Forecasting

The United Arab Emirates dirham is pegged to the International Monetary Funds’s Special Drawing Rights. It is effectively also pegged to the U.S. dollar most of the time with the average exchange rate at 3.6725 USD/AED (See Exhibit 5).

In 2008, after reviewing its currency regime, the UAE decided to keep the dirham pegged to the US dollar for the next 30 years.

Capital Markets

The capital markets of the United Arab Emirates are very modern. There are two stock exchanges in the UAE: the NASDAQ Dubai and the Abu Dhabi Securities Market (ADSM). In keeping with Muslim teachings, all trading is based on assets or other tangible goods in order to avoid what is considered usury, which is not in compliance with sharia, an Islamic ethical foundation. Sharia has impacted the structure of financial institutions and the way certain investments such as gold are traded, but most offerings and services are similar to other parts of the world.

Stock Exchanges

NASDAQ Dubai opened in September 2005 and maintains investment standards that it considers comparable to those of leading international exchanges in New York, London and Hong Kong. NASDAQ Dubai offers both primary and equity listings for companies based in the region, as well as internationally-based companies representing Australia, China, United Kingdom and the United States.

NASDAQ Dubai offers a variety of options of investments including equities, debt, derivatives and other securities. As the market continues to grow, it has plans to expand its offerings including exchange-traded funds, subject to regulatory approval.

NASDAQ Dubai has set itself up to be the “international listing destination for equity securities in its region”. (NASDAQ Dubai) The region is defined as the Gulf Cooperation Council (GCC), which includes the UAE, as well as the Middle East and North Africa, Turkey and the Indian sub-continent.

NASDAQ Dubai is the only exchange in the GCC region that offers:

• A book-building IPO with full access for foreign investors
• A free float of as little as 25% of issued share capital
• International standards of regulation
• Links to investors through a broad mix of local, regional and international Members
• Contractual market-making, to provide liquidity
• Multi-currency listings – including US dollar and UAE Dirham
• Minimum lock-up period of 180 days for founding shareholders
• Over The Counter (OTC) trading

(NASDAQ Dubai)

The Abu Dhabi Securities Exchange (ADX) was established in November 2000 and is primarily UAE companies. ADX is located in the emirate of Abu Dhabi but also has branches in Fujeirah, Ras al Khaimah, Sharjah and Zayed City.

The exchange has high standards of protecting investors by requiring fair and accurate transactions with stringent controls. They also ensure financial and economic stability by creating trading that ensures liquidity and stability of the prices for the securities listed on the exchange.

Market Oversight

The UAE created the Securities & Commodities Authority (SCA) in 2000. Its mission is:

to protect investors and enhance the principles of sound and fair practices, and to improve the efficiency of UAE capital markets through the development of the necessary legislations, the enhancement of supervisory regulations and the development of investment and legal awareness. (Securities and Commodities Authority (UAE))

The UAE is trying to ensure that its markets are attractive to investors from around the world for listing and investing.

Government-owned Investment Institutions

The UAE has created several government-owned investment institutions that act like private-equity firms to help invest diversify the government’s investments. The focus is to create more overseas investments because the UAE realizes that its natural resources will one day be depleted.

These investment institutions recently clarified their roles and investment approaches in order to enhance international understanding and cooperation.  In particular, they clarified that they haven’t ever and will never use its investment organizations or individual investments as a foreign policy tool. (UAE US Embassy)

Foreign Investment

The Arab World Competitiveness Report 2007, issued by the World Economic Forum (WEF), ranks the UAE in the top position among Arab countries and in the 29th position among the 40 most advanced economies. It states that “Sound economic management has contributed to stabilizing the macroeconomic environment and strengthening public institutions.” (UAE US Embassy Financial Sector)

The UAE is considered a global business center and is trying to diversify from their reliance on natural resources by building up their economy in a variety of industries. While the UAE is becoming a more global economy, business is conducted on the basis of personal relationships and mutual trust so it is important to be patient and build these relationships rather than being too direct. Companies are still a family affair, with the ultimate decision-maker being the head of the family.

Establishing a Business

The regulations around the establishment and conduct of businesses are shared at the federal and emirate levels. There are three methods for establishing a business in the UAE:

• Joint Partnerships
• Branch Offices
• Free Trade Zone
• Joint Partnership

In order to establish a business that sells products or services freely throughout the UAE, at least 51% of the business must be owned by a UAE national. This type of business structure offers the broadest alternatives for operating a company in the UAE. All businesses require a license and licensing procedures vary from emirate to emirate.

Branch Offices

Foreign companies can establish wholly-owned branches and representative offices in the UAE, provided that a UAE national is appointed as a local agent. The UAE considers a branch office as a regular business that is permitted to perform and enter into contracts or conduct other activities as specified in the license of its parent company.

The UAE national that is the local agent for the branch office assists with all the administrative requirements of setting up the office including obtaining visas, licenses and dealing with local authorities.

Free Zones

The UAE has numerous Free Trade Zones (FTZs) that can be an attractive alternative for foreign investors and businesses to set up operations. There are over 20,000 companies in 21 Free Zones around the UAE. Businesses in a FTZ can only conduct business within the FTZ or abroad. If the company desires to sell products in the UAE, a UAE official agent is required, and a joint venture needs to be formed.

Companies located in FTZs do not have the UAE ownership requirements that come with a joint partnership. All imports and exports in and out of the FTZ are exempt from tax and all profits are fully repatriated without penalty back to the company’s parent country. FTZs also offer no corporate tax for the first 15 years which is renewable for an additional 15-year period. No personal income tax exists either.

An independent Free Zone Authority (FZA) governs each free zone and is responsible for issuing FTZ operating licenses and assisting companies with establishing their business in the FTZ. Companies can either register a new company in the form of a Free Zone Establishment (FZE), which is a limited liability company governed by the rules and regulations of the Free Zone in which it is established, or establish a branch or representative office of their existing company based within the UAE or abroad.

Financial Market Performance, Future Outlook and Investment Opportunities

As a mainstay to the economy, oil exports now account for about 30 percent of total UAE gross domestic product. Since the UAE began exporting, it has been using the associated revenues to improve the quality of life for her people since 1969. The UAE is in a strategic location bordering the Gulf of Oman and the Persian Gulf, a vital transit point for world crude oil. With a prime location on the global map, the UAE has invested billions of dollars in logistics and infrastructure, capitalizing on its potential as a world-class logistics hub.

As the UAE builds wealth from oil exports, their rapid development will continue. The building of roads, office buildings, housing and so forth – all require more energy. Rising populations consume more energy as well (See Exhibits 6). Natural gas plays a disproportionate role in energy generation, accounting for 98 percent, and the increasing demand is surpassing available supply.

Economic growth across the UAE has led to massive increases in the demand for electricity. Current estimates indicate that the domestic demand for power will more than double by 2020, even given the global economic slowdown.

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PRESENT ECONOMIC SITUATION

The economy of the UAE at present is fairly recovering from downfall and diversifying in different sectors to enhance growth. Due to the rise of oil prices, oil sector represent the more than one third of the GDP. Demand from its neighbouring countries has also strengthened its export activities.

UAE is likely to see real GDP growth of 2.5% in 2010 and double to 5% next year which is 2011, as a risk appetite grows and investments began to flow in Dubai in real estate sector. Investors who were shying away from committing their money have once again started to show interest in long term investments. 2010 is considered a year of recovery and it is also a year of consolidation. Increasing oil prices will continue to be fundamental to original recovery in the short term. Over the next 12months energy, technology and green sectors would see maximum interest with an increased appetite for mergers. Oil is still the number one sector contributing 63.6% to GDP in Abu Dhabi. Dubai’s GDP rose to 0.3% in the first quarter of year 2009. In the first quarter of 2008 it was DH 68.21m rose to DH 68.397 million in 2009. The five most pre dominant sectors which have shown resilience to the economic downturn and led to the first quarter rise are wholesale trade, retail trade, manufacturing, restaurants and hotels. Dubai’s inflation eased to 4.1% in 2009 from 11.3% in 2008 which was the highest inflation rate in over 20years.

Due to the diversification strategy of the UAE, economy growth will be more dependent on the non oil activities such as manufacturing, construction, transport, tourism, financial services and trade services.

GOVERNMENT POSITION ON TRADE

UAE sits between the east and the west and will continue to maintain a global competitive position in trade and investment. UAE government is focused more on creating a friendly environment for the investors worldwide to invest. Government of UAE is led by bureaucracy and is fast in processing licenses and other requirements. This specially creates a high quality life in Dubai which is the business hub. More and more companies are going to invest in Abu Dhabi and it will turn out as a mode of attraction of the knowledge or skilled workers from all over the world.

SHORT-TERM OUTLOOK FOR THE UAE

The short term outlook of the UAE economy is expected to be fairly favorable, because of rapid development in the fields of construction, manufacturing and tourism. But the real GDP growth rate is expected to fall from its current level of growth. It is expected that GDP growth rate will be an average of 7% during the span of 2008-2012. Because of the diversification strategy of the UAE economy it will be more dependent on the non-oil sectors such as manufacturing, construction, transport, tourism, financial services and trade services. In UAE Abu Dhabi plans 26 new infrastructure projects in 2010 valued at 19b dh .As per the fact it is spending the most money than any other six nations throughout the world. The UAE GDP per capita is dh.162000.

SWOT ANALYSIS

STRENGTHS

Economic strengths:

Consistent high oil prices supports the government injecting large amounts of windfall oil revenues into the local economy to stimulate the non-oil sector, increasing the disposable incomes of the poorer segments of the population.

Recovering & Robust Economy.

World’s third largest exporter of crude oil with 22.2m barrels of crude oil export per day.

Stable, freely convertible currency pegged to the US dollar.

No foreign-exchange controls.

Healthy balance of payments

No trade barriers.

Competitive labour costs.

Competitive real estate costs.

Geographical strengths:

Strategically located in the Middle East, with easy access to not only key Middle Eastern and European markets but also to China, South Asia, Malaysia, Indonesia, Philippines and other Asian markets as well.

Highly developed ports and access to major sea routes.

Image as a regional leader and trendsetter with other countries in the area looking to it as a model of development.

Commercial strengths:

Zero personal and corporate taxation.

No taxation information exchange agreements with other countries.

Free Trade Zones, relative ease of business start up.

Pro-business immigration policies.

Business environmental strengths:

Business friendly environment.

High level of administrative support from authorities.

No need to file any accounts.

Stringent IP laws and enforcement.

No levy on exports and imports.

100% ownership of business allowed.

100% repatriation of capital allowed.

Established tourism hub.

Socio-cultural strengths:

Primary business language – English.

Tolerant, stable, progressive society.

Ease of hiring.

Cosmopolitan/Progressive Work Environment.

Infrastructural strengths:

Full range of ultramodern and sophisticated banking sector providing a variety of services for its wealthy expatriate clientele.

Banking system is so private that it is now often compared to that of Switzerland.

High-end telecommunication facilities and IT infrastructure.

Efficient transport and distribution facilities.

Well-planned amenities – roadwork and waterworks.

100+ airlines connecting to 146+ destinations.

Premiere Logistics Infrastructure.

An abundant and inexpensive energy supply.

WEAKNESSES

Many of the strong service sectors reserved for UAE nationals.

Real Estate Services.

Rental/Leasing Services relating to Cars.

Services Incidental to Agriculture.

Hunting and Forestry.

Services Incidental to Fishing.

Placement and Supply Services of Personnel Investigation and Security Services.

Passenger and Freight Road.

Each Emirate has its own business setup rules and regulations.

Not an English common law jurisdiction.

One needs a network of people in order to expand opportunities.

OPPORTUNITIES

Gateway to 1.5 Billion Middle East and African markets.

Huge export market.

Trade missions and agreements with major industrial countries (Japan, Singapore, EU, Mercosur, India, Turkey, China and many more upcoming.

Serve existing markets in Europe and Asia while setting up for access to growth markets in Middle East, Indian Subcontinent, & Africa.

UAE is seeing increase in international trade with imports growing steadily at eight per cent year-on-year over the forecast period.

Improved bilateral trade with the US, Iran and South Africa, among others.

Drive to boost the tourism industry through major expansion projects in hotels and airports.

The next decade will witness a transformation of education, healthcare, culture and tourism. Services will make an increasing contribution to GDP, with growth in air and maritime transport, tourism, financial services and a host of other services.

Abu Dhabi plans 26 new infrastructure projects in 2010.

Upcoming projects like world’s biggest arc bridge, Dubai moving sky scrapers, trump hotels, towers and various other projects.

THREATS

Rising cost of living in key emirates

Perceived real estate-induced economic volatility as potential risk.

And being a part of a volatile region, the country’s risk profile could be affected by issues concerning regional and international relations. (regional militant groups and Iran’s nuclear programme)

Heavy government subsidies on utilities and agriculture and its obsolete tax system. (BMI report)

Sandstorms and dust storms occur frequently.

4) Industry and customer analysis:

The industry is dominated by a few very large companies, such as Caterpillar, Komatsu, Terex, Deere and company, Ingersoll Rand, and Linde AG. Of these major competitors, Caterpillar is the largest, with approximately 33% market share followed by Terex and Komatsu with 6%. Last year, Caterpillar reported sales of approximately $32.396 billion and Komatsu, Ingersoll Rand, and Linde AG each reported around $8-9 billion for 2009. Each of these giants has large or multi segment marketing strategies that provide general equipment for large blocks of customers.

The construction machinery industry experienced revenue of approximately $30174 million last year 2009. The construction machinery industry is a recovering market with expecting approximately five percent annual growth. Global demand for construction machinery is projected to increase 5.3 percent annually through 2013. This study analyzes the $108 billion world construction machinery industry by products like cranes, excavators and draglines; loaders; off-highway trucks and tractors; mixers and pavers; graders and rollers, world region for 23 major countries.

Customers who purchase machinery equipment require reliability, rapid servicing/availability of parts, and versatility for a variety of anticipated and unanticipated uses. Customers are influenced by reputation and cost, since equipment purchases can be the most significant portion of the customer’s long-term assets.

5) Market entry strategy:

Primarily focuses on its target market, the large construction companies in Abu- Dhabi and Dubai, through distributors and via its various relationship and referral networks to build goodwill in the initial 2 years and change our strategies further according to the achievements and success in the UAE. Further most we will also expertise in selling all types of construction spare parts 24/7 which will act like a one stop shop. This would enhance our credibility and will also play as catalyst in selling our primary product “Tower cranes”. In addition, a significant amount of investment will be made in advertising to promote product awareness through various social networks like facebook, twitter and YouTube. Another essential element would be to provide feasible donations to government charitable funds of UAE. Selling through distributors of particular construction machinery is far more effective in closing sales as well as in terms of sales and marketing costs.

Potential clients’ travel cost to site or any other charges which occurred during contacting or meeting with company management for establishing current sales and future sales or we can say that product demonstrations is covered by our company .

Product demonstrations are a critical step in the sales process.  This is the opportunity to prove the capabilities of our products, educate the potential client, and establish a relationship. Our strategy in this current scenario is to give low price with premium quality and services. Company finds distributors for their products with the help of department of international trade, foreign affairs Canada, and other institutions those advice on selecting agents and distributors abroad to promote country’s overall exports.

Competition and buying patterns of customers and a way to overcome it:

Cropac faces approximately 55 major competitors in Canada and U.S. The top player is Caterpillar and has been in the market for 42 years.  Their name is very well known and

Their products are trusted.  Their products practically sell themselves. Large construction companies typically look for the most widely used equipment that has an established name and reputation for quality, durability, and versatility.  Our strategy in this current scenario is to give low price with premium quality and services. Product demonstrations are a critical part of the buying process, especially when a buyer is working with a smaller, less known company. Beside with this we apply all value propositions during business that even a small company will definitely get success and will be able to compete with its powerful competitors.

Main competitive edge is that we are going to export and will just concentrate on few product lines only, rather than dealing in many manufacturing machineries. Lastly, we are going to give 5 years repair and replacement warranty, which is the best way to attract our customers and the best way to retain our existing customers so that we achieve a quality standard in particular field in the industry and whenever anybody in UAE, (Dubai being our hub) wants the machinery, he will contact our company because of goodwill in the market having number of grades in the product line.

Market Needs: UAE’s economy at present is recovering from a downfall and diversifying it in different sectors to enhance growth, expecting a GDP of 2.5% in 2010 and 5% in 2011. Abu Dhabi is coming up with new 26 infrastructure projects in 2010 which all need construction based machinery, which can be considered as a biggest opportunity for our company. Our strategy in this current scenario is to give low price with premium quality and services. As we all know that UAE is the fastest growing economy in regards to its infrastructure and spends most of its money than any other six nations throughout the world, its key industries are construction, real estate, and oil and gas industry. One of the important thing is that out of every 100 buildings on 70 buildings construction work is going on and there are number of man-made lands that are going to be built up over there i.e.(palm, world’s biggest arc bridge, moving sky scrapers, and Disney world, etc. ) and Dubai has a great number of tourists visited per year. So conclusion from this all is that we have great opportunities and there is fair level of market demand of the construction machinery in UAE.Modern complex designs, earthquake proofing, and other factors have increased demand for higher precision and accuracy in controls of heavy machinery equipment in commercial construction operations.

6) Marketing strategy:

product:

Cropac will export tower crane parts for construction needs.  Primary focus will be placed on product engineering and manufacturing processes to ensure the highest quality, a high level of product features, and the most efficient manufacturing process possible.

Brief description of product:

Our product for the business plan is:

Tower cranes:

The construction crew uses the tower crane to lift steel, concrete, large tools like acetylene torches and generators, and a wide variety of other building materials.

We are going to export two types of tower cranes:

HDT80:

SK315:

Offering multiple mast heights and jib lengths, Continuous operation whether you’re on a spacious job in the country Or a highly congested site in the city. Along with its physical versatility, both features electrical operation, providing a quiet, clean lifting Solution to customers who may be limited by noise and emissions regulations.

price:

Cropac is going to export

And sell their products with the help of agents appointed in their respective emirates. As our company has 30 years of core experience in the field of construction machinery and has earned goodwill in the massive markets, we have to build our name by influencing potential buyers over there by fixing low prices in the beginning by lowering down our profit margin so that consumers get attracted towards our products and buy our product, and also enhance long term customer relationships in the market by serving the previous clients. Therefore after a period of time, we will attain success in our business; we will change our price strategy too and increase our profit margin on the later stage. So according to all of these strategies, we decided to select a penetration strategy of pricing.

Our company is going to start business with low prices by lowering down our profit margin, which is the most competitive edge in the pricing of our company in comparison with the other competitors.

We used the marginal cost pricing method because in this method, the price of an item is kept to a minimum, reflecting only the extra cost of labor and materials.

place:

The Company is going to appoint an outside resource (freight forwarder) for this entire task as their third party logistics. So, due to this reason we do not need to take care of the shipping strategy and other issues. It is the responsibility of freight forwarder to do the tasks like warehousing, packing, transportation, labelling, etc.

We select a freight forwarder that has a great experience in that field; name of our freight forwarder is fast freight forwarders co. ltd. And they have 35 years of great experience with a quality service. They are located in Toronto itself.

As Tower crane is a high end product and it is huge in size, we cannot ship it directly, hence we have to ship them in parts from Canada to Dubai. For the storage of our tower crane parts in Dubai we are going to rent a public warehouse named Jabel Ali Industrial Warehouse.

With the help of internet service, we are taking orders and sending quotes online to potential customers in the whole of UAE.

promotion:

Our company will educate or provide awareness of our products through referral networks, trade fairs, etc. to our potential customers. A significant amount of investment will be made in advertising to promote product awareness through various social networks like facebook, twitter and YouTube. As there is a saying that as “more and more public hears about you, the better your chances are for achieving brand recognition, credibility, and greater market share”.

Service:

We will provide quality after sales service to our customers in the best and cost effective way. We are going to give 5 years repair and replacement warranty, which is the best way to attract customers and an efficient way to retain existing customers.

7) Value propositions:

Keys to success will include:

A high level of quality in its product line.

Maintaining and growing its referral networks to generate new and repeat sales.

Significant investments in research and development and engineering with the aim to focus on precisely controlled equipment.

Improving efficiencies of operations.

Providing better after sales services i.e. (repair or parts replacement warranty).

Establishing trust with customers so that future sales will be protected and communication skills among management should be excellent so that they cannot go anywhere else and also referring the name to their further contacts (we mean to say that company’s first dealing should be that much trustful and attractive so that’s goodwill in the foreign market will be grooming).

8) Operations: Cropac buys key components like engines and gears, hydraulic pumps and hosing, and structural steel, machine screws and castings from parts suppliers some of these are:

Amaco construction parts Inc. (Mississauga, Ontario)

Amre supply co. ltd. (Brampton, Ontario)

Afterwards performs various finishing operations, and assemble the components. Materials represent 60 percent of finished product costs.

In the brief manner we are going to buy some parts of the machinery from the given supplier above and some parts are produced by themselves in the factory itself.

The post Current Strengths And Weaknesses Of The UAE Economy appeared first on UKEssays.com.

The South Korean government implemented interventionist policies and reforms to promote export-oriented industrialization.

Map of South Korea (Lew and Im)

In the early 1900s, the Joseon Empire of Korea was deeply agrarian. Komatsu Midori, an official of the Japanese foreign ministry during the Japanese annexation of Korea (1910-1945), described his first hand experiences, stating that “commerce in its true sense did not exist in [Korea]. The only branch of human activity remaining in the country was agriculture” (Midori).

Because South Korean history in the 20th century was one wrought with political strife and warfare that interrupted and destroyed their attempts at development and modernization, South Korea’s industrial state remained relatively unchanged after World War ⅠⅠ. Indeed, South Korea was one of the world’s poorest countries until the 1960s (Park and Ok 203), lacking both domestic capital and the natural resources necessary to attract foreign investors (“The Korean Economy … “). However, in less than a century, South Korea was able to miraculously transition from a developing state with minimal production and commerce (Cetin and Karadas 93) to the economic powerhouse it is today (Lew and Im).

Surmounting all odds, South Korea grew at an average annual growth rate of 9% between the 1960’s – 1990s with a hundredfold increase in per capita income. For this reason, historians call this period of rapid growth and industrialization ​The​ ​Miracle on the Han ​(Lew and Im). During this time, the South Korean government implemented interventionist policies and reforms to promote export-oriented industrialization that caused South Korea’s extraordinary boom in economic growth.

The first important form of government intervention was Land Reform on agricultural land during the early years of the presidency of Syngman Rhee (1948 to 1960). Until then, South Korea had a land tenure system, where in 1930, 77.5% of farmers were tenants who paid up to 60% of their annual crop yields to mostly absentee landlords, or ​yangban,​ who controlled around two thirds of total farmland (Shin 14). The tenure system caused the formation of a very small wealthy aristocracy, ​the yangban​, but kept the majority of the population in a cycle of chronic poverty as subsistence farmers, burdened by hefty rent and taxes.

Complete lack of expendable income for most of the population inhibited social mobility and economic diversification, especially since very few rural families could send their children to school or spend money on anything but food and basic necessities. The system also limited agricultural production as there was no incentive for tenant farmers to be more efficient by increasing input supply or improving technology (Shin 15) as only the absentee landlords would reap the benefits. The faulty system persisted during the Japanese occupation because the yangban ​would inevitably have surplus crops which the Japanese authorities wanted to import.

At the beginning of Rhee’s presidency, urgent reforms were called for and procured in the form of the Land Reform Act of 1950. The purpose of the act was, as set forth in its own first article, ” to improve the living conditions of farmers [and] to keep the balance of and to develop the national economy by increasing agricultural productivity” (qtd. in Pak 1015). The reforms effectively abolishing tenancy by setting the limit for maximum farm size at 7.35 acres (Pak 1015) causing the redistribution of 577 chungbos of land to 1.6 mil farmers (Shin 14). This had two main impacts.

First, a new commoner class emerged of land-owning farmers who were no longer burdened by high rent costs and were incentivized to increase production (Lew and Im). This increase in agricultural production created a strong foundation for population increases and meant that fewer farmers were needed to sustain the population, allowing for less focus on agriculture.

Second, because the previous landowners could no longer invest their money in land, they invested in businesses and schools. The presence of more schools combined with the ability of families to send children to school meant that modern education increased rapidly after 1953 (Lew and Im) which is why, between 1945-1960, enrollment in higher education increased tenfold (Seth). By 1961, South Korea had a well-educated young workforce which built the foundation for later economic growth (“The Government Role … “).

The combination of increased capital and educated individuals set the stage for economic diversification, so while 61% of the population were farmers in 1961, by 1980 that number had fallen to 38% (Seth). Land reform policies redistributed the wealth of ​yangban​ towards education, commerce and industry, helping with the lack of capital for development beyond agriculture.

While some of President Rhee’s policies helped set up South Korea for rapid industrial growth, his policies weren’t the catalyst for the Miracle on the Han. In 1963, General Park Chung Hee seized power in a coup d’état, launching a new prosperous era through his Japan-inspired developmental state model and commitment to export-oriented industrialization.

A developmental state is a political system where the government, through interventionist economic policies, is the main actor in getting a country past periods of underdevelopment. Export Oriented Industrialization policies are policies that promote the production and exporting of goods in which the nation holds a comparative advantage to develop a country’s economy (Lee).

A key goal of the governments of General Park and his successor Chun Doo Hwan was to reform the South Korean economy to be able to compete in international markets (Heo et al. 5) through export oriented industrialization.

General Park’s priorities had a significant impact on South Korea’s industrial structure. Earlier that decade, 40-50 percent of the total industrial structure in South Korea was based around agriculture and a mere 10-20 percent was manufacturing, but with General Park’s guidance, it evened out to approximately 30 percent of the industrial structure each, balancing out the agriculture to manufacturing disparity by the late 1960s (Heo et al. 6).

In previous regimes, especially President Rhee’s, corruption hindered growth, so when General Park took power he reformed the bureaucracy to perfect his developmental state. He established the Ministry of Economic Planning Board (EPB) in 1961 to guide the path to rapid industrialization. The EPB was filled with bureaucrats known for their high intellectual capability and educational background in business and economics (“The Government Role … “), especially those with ties to major corporations. This created strong bonds between the government and private sector, enabling the EPB to ascertain better economic policies (Lee).

The EPB analyzed international economic demands and chose key industries of focus (Jeong 16), allocating financial resources, and formulating corresponding policy accordingly (“The Government Role … “). The EPB was responsible for the creation of seven Five Year Economic Plans, series of socioeconomic policies to achieve specific development goals that dictated the structure of the South Korean economy from 1962 to the turn of the 21st century (Park and Ok 203).

The First Plan (1962-1966) was meant to strengthen the foundation of the economy, with a focus on transforming the economy from its foreign aid-dependence amid declining US aid. The government provided assistance to basic industries and invested in the improvement of economic infrastructure (Heo et al. 5), leading to the age of light industrial products like textiles and footwear (Seth) that were produced in small factories (“The Korean Economy … “) Additionally, because a consumption-oriented economy was not self-sufficient, a major government objective was to decrease the dependence on foreign oil, a major import at the time. Thus, the First Plan prioritized the expansion of domestic electrical and coal energy industries (“The Government Role … “).

With the Second Five-Year Economic Development Plan (1967- 71), the government planned on fostering industries specifically for export promotion” (Heo et al. 5). Due to the lack of capital, significant natural resources, and advanced technology, the government initially promoted labor-intensive light industries for export (Heo et al. 6) to take advantage of the countries abundant workforce. The government aided the formation and survival of these new industries in two ways.

First, new industries were promoted through import substitution (i.e. the government would make the importation of certain goods very difficult to force domestic production). Once the new industries formed, the government would aid and encourage the export of the new manufacturing goods by reducing taxes for exporters and exempting raw materials imported for export production from tariffs (“The Government Role …”).

Second, the government used their authoritarian power to crack down on labor unions, preventing labor rights, limits, and safety requirements because South Korea needed low labor costs to reduce production costs to stay competitive internationally. An example of this was on May 18th, 1980, when protestors calling for labor reforms were killed, tortured, and raped during what was later called the Gwangju Massacre (Lee).

The 3rd (1972-1976) and 4th plans (1977-81) were characterized by a shift in government focus from light industries to heavy-chemical industries. (Heo et al. 6). As the economy grew with the increase in exports and there was more available initial capital, the government started pushing for Heavy-Chemical Industrialization (HCI) in order to supply new industries with raw materials and to decrease dependence on foreign funds, appointing iron and steel, transport machinery, household electronics, shipbuilding, and petrochemicals as five strategic fields (“The Government Role …”).

However, at the time, HCI was considered an expensive and risky investment that many enterprises were reluctant to embrace. So, in 1972 when Park declared martial law and assumed dictatorial power, he nationalized all banks, including commercial ones and used corporate dependency on government credit allocation alongside low-interest loans to incentivize the redirection of the economy (Heo et al. 6, Seth).

Although the upfront costs were higher with HCI than with light industries, very favorable export performance internationally made up for it. The upfront costs for HCI were similar globally, but because of South Korea’s low wages, the cost of production was uniquely lower in South Korea. Because high-quality, low-cost products could be produced in South Korea, Heavy and Chemical Industries grew by 51.8 percent in 1981 (“The Government Role … “).

South Korea’s newfound role as an international competitor would soon be challenged by internal political changes. Park was assassinated in 1979, and his successor ​Chun Doo-hwan was ousted in 1987 due to popular dissatisfaction. A new constitution and the first free presidential election that year marked South Korea’s permanent transition to democracy. Without the authoritarian suppression of labor unions and labor rights, the working classes who were now ​politically powerful started strikes and protests. These strikes were very effective, and from the 1980s-1990s, wages increased by 18% per year because of labor unions (Seth). This removed the low-wage advantage of South Korean products, as it increased production costs. In order to maintain a competitive advantage with their exports, the government was forced to prioritize the innovation of more creative products (Jeong 25), ultimately causing the government to shift focus to capital and innovation-intensive industry (Seth).

South Korea’s 5th and 7th economic plans reflected the shift in emphasis away from HCI to technology-intensive industries, such as precision machinery, electronics, and information. According to “The Government Role … ” the South Korean government theorized that unique high-technology products would be in demand on the world market regardless of incremental price increases.

The government developed its high technology industries on two fronts. First, South Korea spent money on education to develop human resources from a young age (Cetin 95), increasing the number of technical colleges and vocational secondary schools (Seth). Compared to other developing nations at the time, South Korea had a very well educated population, which enabled it to achieve rapid growth. In the case of the technology industry, it meant an abundance of trained engineers and entrepreneurs. Second, the government took steps to foster more research and development (R&D). The government allocated funds to research centers which helped increase R&D alongside technology and science expertise (Seth). In fact, after the 1980s most government funding went to large firm R+D (Cetin and Karadas 95) to accelerate the development of science and technology in the capable hands of large conglomerates. The government’s goal was to raise the ratio of R&D investment from 2.4 to 3 percent of GNP by 1991 (“The Government Role in Economic Development”).

Even as the specific prioritized industries changed, two aspects of government control did not change.

First, the exchange rate was monitored and aggressively managed to minimize fluctuation in the value of the South Korean Won. The only way to keep a stable exchange rate while an economy is growing at fast rates was to lower it artificially. This provided an incentive to export because it ensured that South Korean exports were cheaper and thus in higher demand (Heo et al. 7).

Second, the government aided the rise in the 1960s and growth of family-controlled business conglomerates called ​chaebols ​that still control the majority of South Korea’s economy today. In the 1960s, General Park used state-controlled credit flow to provide subsidies, favorable loans, and tax breaks to successful enterprises at the time (i.e. the future chaebols) (Lee) to help them meet export targets established by the EPB. If the targets were met, the companies would receive additional government subsidies and more access to the growing domestic markets, but if they weren’t, government funds would be withdrawn (“The Government Role…”).

More successful ​chaebols ​were incentivized to continue to achieve and gain more market control and the government gained significant control over the private sector (Lee). In order to maximize economic efficiency, the state minimized unnecessary competition by limiting export licenses so that a few ​chaebols dominated each sector (Seth). Because ​chaebols​ already had the necessary capital base, the state pushed pre-existing ​chaebols​ into new industries instead of allowing new firms to emerge so that ​chaebols ​could develop economies of scope and scale.

Chaebols had a few special structural features which aided their success. First, government guided diversification ( i.e. the expansion of production into different industries) meant that ​chaebols ​had many affiliates. This benefitted R&D because technology was freely shared across affiliates and group R&D centers were commonplace.

Second, as ​chaebols​ grew they could begin vertical integration (i.e. indigenizing inputs for different stages of production) through economies of scale which decreased production times and production costs.

This efficiency made the exports of c​haebols​ very competitive on a world stage (Jeong 6). An example of this is the South Korean steel industry, where production increased 14-fold by 1972. The industry was led by Pohang Iron and Steel who owned the world’s largest steel making complex and were a very powerful global competitor. South Korea’s prowess in the shipbuilding industry was similar, and they became the second-largest shipbuilder in the world (Seth).

In conclusion, government intervention guided the South Korean economy into a period of rapid growth by making their exports internationally competitive, prioritizing and subsidizing the most advantageous industries, and promoting the growth and supremacy of ​chaebols, ​allowing South Korea to achieve growth that took 100 years for western nations in less than 40 years (Cetin and Karadas 94).

Illustration:

South Korea’s History of Economic Growth (Lee)

Annotated Bibliography

Çetin, Rahmi, Dr, and Songül Karadas. “Han Nehri Mucizesi: Ekonomik Kalkınmada Güney Kore Örneği” [“The Miracle on the Han River: South Korean Economic Development “]. ​Istanbul Journal of Economics​, no. 68, 2018, pp. 93-112, doi:10.26650/ISTJECON405372. Accessed 10 Dec. 2019.

This research article is from the Istanbul Journal of Economics, a peer-reviewed, academic journal funded by Istanbul University’s Faculty of Economics with articles in both Turkish and English, catering to academics, researchers, and graduate students.

The study examines the long-term macroeconomic performance of South Korea between 1963 and 2015 through a close-up perspective of space and a landscape perspective of time.

I am confident in the credibility of this article because articles from the Istanbul Journal of Economics are heavily vetted and peer-reviewed by experts in the field before being published in one of the biannual publications. Songül Karadaş is a Professor of Economics at Kahramanmaras Sutcu Imam University, and Rahmi̇ Çeti̇n is the Head of Department of Economics at Kahramanmaras Sutcu Imam University in Kahramanmaras, Turkey, demonstrating their significant knowledge in the field.

The abstract and extended abstract provided me with helpful context and important statistics, but I was unable to gain a deeper understanding of the topics discussed in the abstract as the rest of the article was in Turkish.

“The Government Role in Economic Development.” ​South Korea: A Country Study​, edited by Andrea Matles Savada and William Shaw, Federal Research Division of the Library of Congress. Country Studies/Area Handbook Series. ​Country Studies​, countrystudies.us/south-korea/47.htm. Accessed 18 Dec. 2019.

This book is from a website that contains the on-line versions of books previously published in hard copy by the Federal Research Division of the Library of Congress as a part of The Country Studies Series, an effort sponsored by the U.S. Department of the Army that was designed to provide U.S. government officials and American citizens with information on lesser-known areas of the world or regions in which U.S. forces might be deployed.

This book contains a comprehensive and lengthy description and analysis of South Korea’s geography, society, economy, political systems, and foreign policies throughout time. Open online access renders it available for a general audience, but high levels of detail will likely deter all but researchers and academics looking for specific information. Although the whole book is a panorama perspective of time as it covers Korean history from the founding of Choson before 1100 BCE to the late 1900s, I pulled information from a section that focused specifically on the government’s role in economic development after the 1950s.

I am confident in the credibility of this source as it was published by the Federal Research Division and was written and edited by a multidisciplinary team of accredited social scientists who have written many other Country Studies.

Heo, Uk, et al. “The Political Economy of South Korea: Economic Growth, Democratization, and Financial Crisis,” ​Maryland Series in Contemporary Asian Studies​: Vol. 2008: No. 2, Article 1. The ​Maryland Series in Contemporary Asian Studies​ is an academic journal and a publication of the East Asian Legal Studies Program at the University of Maryland School of Law that focuses on publishing scholarly articles on the significant political, economic, social, and legal issues concerning the East Asian region.

This particular article provides a landscape perspective of time of the political economy of South Korea (i.e. 1961-1997). I pulled information from the second and third sections that highlighted the factors that contributed to South Korea’s economic development during the authoritarian regimes of Park Chung-Hee and Chun Doo-Whan.

I am confident that this source is credible because, as an academic journal, it has been thoroughly peer-reviewed, and because Uk Heo is a professor of Political Science at the University of Wisconsin-Milwaukee whose work has been published in many academic journals, demonstrating his knowledge on the topic.

Jeong, Gookjin. ​Miracle on the Han River: A Regression Analysis of the Effect of Chaebol Dominance on South Korea’s Economic Growth​. 2015. University of Colorado, Boulder, Undergraduate Honors Thesis.

This undergraduate thesis was written by Gookjin Jeong to enable him to graduate with a degree in International Affairs from the University of Colorado Boulder with Latin honors. Jeong does a regression analysis of the effects of Chaebols on South Korea’s economic growth. While the thesis is free for all to access, its complex vocabulary and calculations make it most suitable for an expert audience. Its approval for inclusion in Undergraduate Honors Theses by administrators, including Brian Cadena, Ph.D. (Economics) and Vicki Hunter, Ph.D. (International Affairs), of CU Scholar demonstrates its credibility.

Johnson, Jean Elliott, and Donald James Johnson. ​The Human Drama: World History: From 1450 C.E. to 1900. Princeton, Wiener, 2011.

It provides a panoramic perspective of space and time, as it describes​ important historical events from 1450 to 1900 that happened all around the world and that occurred over more than four centuries. Although it was written as an educational resource for students, it can be understood by a general audience as well. I read the sections on Industrialization in the Americas and Europe, but they weren’t very relevant to South Korean Industrialization.

Being an assigned textbook for my sophomore history course, I am confident in its credibility, and the fact that it cites numerous secondary and primary sources in its bibliography only strengthens those beliefs. Donald and Jean Johnson were both history teachers who received numerous awards, furthering their credibility.

“The Korean Economy – the Miracle on the Hangang River.” ​KOREA.net​, Korean Culture and Information Service, an arm of the Ministry of Culture, Sports and Tourism, www.korea.net/AboutKorea/Economy/The-Miracle-on-The-Hangang. Accessed 10 Dec. 2019.

This article was published on Korea.net, an official website of the Korean government that is a part of the Korean Culture and Information Service, an arm of the South Korean Ministry of Culture, Sports and Tourism. It is supposed to serve as a communication bridge to promote Korean news, history, and culture overseas to a diverse foreign audience, providing service in nine languages. This article takes a landscape perspective through time and a closeup perspective through space, focusing on the economic transformation and growth of South Korea from the beginning of the Miracle on the Hangang period to 2017.

Although this article’s analysis is likely to be slightly biased because its purpose is to promote Korea, the fact that it is a government publication ensures that the statistics are credible.

Lee, Andy S. “The Other Side of the Miracle on the Han River.” ​McGill International Review​, 16 Jan. 2019, www.mironline.ca/the-other-side-of-the-miracle-on-the-han-river/. Accessed 10 Dec. 2019.

This article was published on the website of The McGill International Review, an online undergraduate journal of international affairs operated by the International Relations Student Association of McGill University. Written by an undergraduate student for undergraduate students as well as other young academia, this article posits that South Korea’s developmental state and the resulting growth came at the cost of citizen security and freedom through a close-up perspective of time (i.e. the 1960s-80s), citing numerous hyperlinked academic journals to ensure credibility.

I found this article to be helpful as it provided a clear explanation of the developmental state and export-oriented industrialization and their application in South Korea. This article also provided me with a graph of South Korean GNI per capita growth over 74 years, starting in 1952.

Lew, Young Ick, and Hyug-Baeg Im. “Economic and Social Developments.” ​Encyclopedia Britannica​, by Bae-ho Hahn et al., Encyclopedia Britannica, 5 Dec. 2019, www.britannica.com/place/South-Korea. Accessed 9 Dec. 2019.

This section, from a lengthy article from Encyclopedia Britannica on the social, geographical, political, cultural, and historical aspects of South Korea throughout time, looked at economic and social developments through a landscape lens (i.e. 1950s-2010). Written simply with lots of background information and graphics, the article is accessible to a general audience, often forgoing detail for ease of explanation. Still, I was able to find helpful simple statistics about the social impacts of land reform within the section and a detailed political map of South Korea.

I am confident that the section I read is credible because Young Ick Lew is a Professor of Korean History at the Graduate School of International Studies of Yonsei University in Seoul and Hyug-Baeg Im is a Professor of Political Science at Korea University, demonstrating knowledge in their respective fields.

Midori, Komatsu. “The Old People and the New Government.” vol. IV, part I: 1-12, 1912. ​Royal Asiatic Society-Korea Branch​, www.raskb.com/transactions/VOL04Part1/VOL04Part1_1.docx. Accessed 11 Dec. 2019. Address.

This is a transcript available online on the Royal Asiatic Society’s website of a talk given by Komatsu Midori, an official of the Japanese foreign ministry and Director of Foreign Affairs of Government General of the Japanese protectorate of Korea, to resident, primarily British and American, foreign members of Seoul’s Royal Asiatic Society shortly after the annexation.

The purpose of the talk was to justify the annexation of Korea to the rest of the world, and within his speech, Midori pushes the idea that Japan was trying to help with Korea’s concerning underdevelopment. Midori mixes ancient lore with shared Japanese and Korean history through a landscape perspective of space and a panoramic perspective of time to suggest that the Japanese and Korean peoples originated from one nation.

While Midori is biased in that his job is to portray Japan as a savior, his first-hand description of South Korea’s economic state really enforces the idea that South Korea was behind the times with industrialization, especially compared to Japan.

Pak, Ki Hyuk. “Outcome of Land Reform in the Republic of Korea.” ​American Journal of Agricultural Economics​, vol. 38, no. 4, 1 Nov. 1956, p. 1015. ​Oxford Academic​, doi:10.2307/1234244. Accessed 9 Dec. 2019.

As the title suggests, its an article from the ​American Journal of Agricultural Economics​ on the outcome of land reform policies in South Korea. This source helped me deepen my understanding of the actual reforms. I could only access the introduction without an Oxford Academic account, suggesting that the primary audience of this article is academia.

Because this article has been published in an academic journal, I know that it is credible because it has been peer-reviewed by experts in the field. Additionally, the author has a Ph.D. from the University of Illinois and wrote their dissertation on Land Reform in Korea, demonstrating the extent of their knowledge on the topic.

Park, Kyoungho, and Gwang Ok. “Context: The Birth of South Korea.” ​Media, Sport, Nationalism: East Asia: Soft Power Projection via the Modern Olympic Games​, by Tianwei Ren et al., e-book, Berlin, Logos Verlag Berlin GmbH, 2019, pp. 201-04.

This section focuses on South Korean modernization through a landscape perspective focus on the second half of the 20th century and is a part of an online version (both through space and time) print book that is a collection of essays on the relationship between soft power dynamics in East Asia and the modern Olympic games. I gained a helpful historical context from the book’s balance of detail and background information. Although the book may not be appealing to the general populace, it is quite accessible to readers beyond the academic community and presents unique connections between cultural and political entities and ideas.

I am confident that this book is credible because the contributors combine unique analysis with evidence from academic journals and experts in their fields.

Seth, Michael J. “South Korea’s Economic Development, 1948–1996.” ​Oxford Research Encyclopedia of Asian History​, Oxford UP, 19 Dec. 2017, oxfordre.com/asianhistory/view/10.1093/acrefore/9780190277727.001.0001/acrefore-978019027772 7-e-271. Accessed 11 Dec. 2019.

This article from the Oxford Research Encyclopedia of Asian History explains the different stages of South Korea’s Economic Development between 1948–1996 and was very useful because it had an abundance of specific examples and details alongside context. While it is not a very complex read, it is dense and lengthy and thus most suitable for an audience of researchers. It provides a landscape perspective of time as it spans close to a half-century and is a close-up perspective of space as it focuses on South Korea.

I am confident it the credibility of this source because Seth cites 6 primary sources and references 37 books and journal entries written by experts in the field.

Shin, Yong-Ha. “Land Reform in Korea, 1950.” ​Bulletin of the Population and Development Studies Center​, vol. 5, 1976, pp. 14-31. ​JSTOR​, www.jstor.org/stable/43798330.

This journal article on South Korea agricultural land reform in 1950 was published by the Institute for Social Development and Policy Research (ISDPR) in the ​Bulletin of the Population and Development Studies Center​ and made available on JSTOR for a high-level academic audience, as evidenced by its complex diction, data, and calculations. The article examines the background, process, and results of a land reform undertaken in South Korea in 1950 through a close-up perspective of time as it examines land reform and its effects on the following decade and a close-up perspective of space as it focuses solely on land reform in South Korea. This source helped deepen my understanding of the land tenure system and specific land reform policies, emphasizing the resulting implications on economic and social systems.

I know this that this source is credible because it was published in an academic journal and therefore went through thorough expert peer reviews and because the author cites numerous primary sources and official government documents.

Spielvogel, Jackson J. “Toward the Pacific Century: Development of the Asian Nations (1945 to Present).” World History: The Human Odyssey​, Cincinnati, West Educational Publishing, 1998, pp. 1104-05.

This source is a panoramic view of both time and space as it covers history from all over the world over a wide range of time and presents it in the form of a history textbook for students. With a simple explanation and context, this textbook is most suitable for a high school audience. Even though I didn’t cite this source in my research paper, I read the section on South Korean development within the chapter that took a landscape perspective through time and space in regards to Asian Development from 1945 to present day, and the information was in my mind while researching and writing.

I know the source is reliable because Jackson J. Spielvogel, the author, is the associate professor of history at Pennsylvania State University and received the Penn State Teaching Fellowship in 1988, demonstrating his credibility and accomplishments as a historian.

Vance, Carter. “Assessing the Miracle on the Han River.” ​Medium​, 30 July 2018, medium.com/@cartervance/assessing-the-miracle-on-the-han-river-8ef1ab293aab. Accessed 10 Dec. 2019.

Written simply for the diverse audience that reads blog posts and articles on Medium, this article provides a close-up perspective through space and a landscape perspective through time, focusing solely on the 40 year period of rapid economic development in South Korea that started in 1961 (i.e. The Miracle on the Han). The fact that this article has been published on Medium does not ensure its credibility, as Medium is an online publishing platform for social journalism and has a hybrid collection of amateur and expert writers, professional publications, or exclusive blogs or publishers.

However, the author, Carter Vance, has a master’s degree from Carleton University’s Institute of Political Economy and cites articles and academic journal entries from ten experts in the field, establishing the credibility of this particular article.

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