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Stock Market Lessons from the UAE

29 June 2007 - Features - Editor

It is not surprising that most stock market investors think twice before investing in the Middle East. We have all been taught that it is full of shady characters that keep raising prices for our gas! Nothing could be further from the truth when it comes to the United Arab Emirates, or the UAE as the popular acronym goes.

The UAE is full of surprises for the average stock market operator. The nation is a baby in world terms because it was no more than a loose collection of independent kingdoms or emirates until as late as 1971. The per capita income is a healthy $15 thousand a year or so, which is more than comfortable when you consider the comprehensive set of social security measures which UAE citizens enjoy.

The track record of the UAE government is simply amazing. An impoverished country has been transformed in to a vibrant economy in just three decades. Professional management, helped by World Bank expertise, is the secret of the most eminent UAE success. Stock market analysts, accustomed to analyzing corporations, can take many leaves from the books of rulers in Abu Dhabi, the UAE capital.

A key stock market lesson to be drawn from a study of the UAE case is how well they have managed the diversification of the economy. Many Middle East and North African states rest content with their flowing and abundant oil revenues. UAE strikes an impressive note with two thirds of its GDP emanating from non-hydrocarbon sources. Why do executives not draw lessons from this concrete example of safeguarding stock market revenue streams?

The world of business never tires of criticizing governments for budgetary indulgences. The stock market has also joined in the cacophony of feedback on how public funds should be managed. The UAE government strikes a path of its own by steadily reducing its budgetary deficits to the point of extinction: their 2006 budget actually forecasts a surplus!

The real UAE lesson for the stock market is in the manner in which financial services in the country have been ramped up. Trading systems are liberal and strict at the same time, keeping questionable funds away, but encouraging business in all hard currencies. The sooner we all become active on the exchanges of UAE, the more we stand to gain!

 


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