Utilizing the UAE’s Geographical Coordinates

01 Jun 12:43 AM

Sector : Economy & Int'l Relations Country : UAE

 By Dr Miguel Lobo

Throughout history the world economy has gone through lengthy cycles under the ascendancy of a dominant power. Whether it was the Roman Empire, the Caliphates, the British Empire, or most recently, “the American Century,” these are times when a clearly dominant economic center defines much about the world.

 

From an economic center around which others orbit, a pattern of trade develops in a hub-and-spoke structure. A dominant business culture, and even a dominant language, set the norms to which others default. But we tend to pay less attention to what happens inbetween these periods of hegemony, which is unfortunate on two counts. First, these interregnums can last a very long time indeed and, for those living in them, they are not an interregnum but simply the way the world is. Second, we are entering one such period.

Saying that new powerful economic actors are rising to challenge the economic centers of the 20th century is no longer accurate. In East Asia, Japan, China and South Korea have already risen. Soon others will join, including the usual suspects India, Russia, and Brazil. So who are the winners in a multi-polar world? The answer can be everyone, as such periods have often been a time of great creativity and development. But some will benefit more than others. Being at the crossroads, able to create a bridge between many others becomes a far more valuable asset as patterns of trade shift from a hub-and-spoke to a more complex network structure.

A Culture of Openness 

While oil and gas were the initial drivers of growth and wealth, and in many ways still are, transportation and logistics have become central to the UAE’s economy. It is a natural way point between Europe and East Asia, as well as between Africa and Central and East Asia. But this geographical reality reaches further than the present logistical advantages it confers. The UAE has a long and rich tradition that comes from being in this position, a cross-roads both for sea trade and desert routes. This has nurtured a culture that is open to outsiders, an understanding that we can work with those who are different from us without having to become like them or expecting them to become like us. This tradition of openness to the world is now, in this multipolar world, an even more valuable asset. Having the world in one country builds-in a competitive advantage for companies that set roots or develop in the UAE.

For instance, while the success record of large multinationals in managing international acquisitions is a very mixed one, UAE companies have often done well. The willingness to recruit high-quality talent internationally while investing in nurturing and developing home-grown talent, has certainly helped. But much of the success is likely due to the culture and cosmopolitan nature of a country with a pool of talent experienced in dealing with diversity. When your home base is already multi-cultural, there is less of a risk of making gross management errors because of not being able to read and work with others’ cultural references and expectations.

To give another example, INSEAD’s choice of Abu Dhabi as the location for our third campus, after Fontainebleau, France, and Singapore, was motivated by these advantages. As an international school in ethos and practice, close proximity to two major international airports that are both hubs for the region and highly connected to three continents is an invaluable advantage. Likewise, given our singularly diverse international mix of faculty, staff, and students, a country where citizens of the world feel welcome makes for a comfortable home.

An East-West Bridge

The UAE does have challenges to overcome in order to fully capture the potential of its role as a bridge among many places in a multi-polar world. Much of the country’s economic opportunities come from its ability, geographically and culturally, to bridge East and West. However, while the cultural and economic links to Pakistan and India run deep, the country’s ties are much weaker when looking further East. When, beginning in the 1970s, the UAE was racing to catch up in its development, it was doing so in a world where the West, especially the USA, had uncontested dominance. This made the West the default choice not just for leading technology and for reference business practices, but also for the best educational resources. Both among highly skilled expatriates and in the education received by Emiratis, this imbalance is evident. Both government and private business will be thinking about how to ameliorate this imbalance, cultivating economic and educational ties to China and Asia more broadly. 

There is of course competition from other small Gulf countries, Qatar, Bahrain, and Kuwait to some extent, for this brokerage position, logistically and financially, between Europe, Asia, and Africa. But such competition has motivated more than hindered progress: it wasn’t inevitable that a hub would develop in the Gulf. In this race, given that all countries have a similar geographic context, good legal and regulatory frameworks are the key competitive advantages. The UAE has developed advantages on regulation and sound government, but is arguably behind others on the legal framework. In this, being a multi-Emirate state, where federal-level governments have substantial autonomy, seems to be an advantage: the diversity allows for experimentation, innovation, and emulation, with a healthy dose of friendly competition between the Emirates as additional motivation. For many private businesses, the stability of the cosmopolitan talent that the country has nurtured is a related concern. The short-term visa regime creates uncertainty for businesses about the long-term commitment of staff, which reduces incentives to invest in their development, putting at risk their ability to remain competitive. 

Given that the end of the American hegemonic era also means the increasing erosion of the security envelope it provided, strategic security risks in the region are part of the UAE’s challenges. However, if history is any guide, economic growth is the greatest guarantee of security and political autonomy. The awareness of the risks has surely motivated the country’s leadership to create an environment conducive to growth and attractive to international investors. As the strategic realities of the Middle East are unlikely to change for a long time, this pragmatic motivation will remain firmly in place and the UAE can be expected to continue using its advantages, of geography and of cultural openness to the world, to drive economic growth.

 
 
Miguel Lobo
Associate Professor of Decision Sciences
Director of Abu Dhabi Campus | INSEAD
 
 
Miguel Sousa Lobo holds MS, MA, and PhD degrees from Stanford University, USA, and completed his undergraduate work at Instituto Superior Técnico, Portugal. After two years working with startup companies in Silicon Valley, and prior to joining INSEAD, he held academic appointments at Duke University’s Fuqua School of Business and, as visiting professor, at Columbia University’s Graduate School of Business.

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