Could the UAE Join the G20?

The United Arab Emirates (UAE) has been invited to attend the 17th G20 Heads of State and Government Summit in Bali this November under the Indonesian presidency. Joko Widodo, Indonesia’s President, extended the invitation to Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, during a phone call on 5 May.[i] It is the third time — after the 2011 Summit in Cannes and the 2020 Summit in Riyadh — that the UAE will participate as a guest at the G20 Summit. This will give the UAE the opportunity to contribute to the high-level discussions of the economic and financial grouping that represents more than 80% of world GDP, 75% of international trade and 60% of the world population.[ii]

 

What is the G20?

 

The G20 (the Group of Twenty) is an intergovernmental forum consisting of some of the world’s largest developed and developing economies—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States. The European Union (EU), which is the only member organisation of the G20, is indirectly representing its 27 member states, three of which also belong to the Group. This grouping has been static since its formation in 1999 with no new members or removals despite changes in the economic weight of countries and compatibility with G20 goals. The closest a country has become to acceding the forum is as a permanent guest (Spain) while other economies may be invited as guest countries by the G20 president of that year.[iii] The exclusive nature of the G20 membership has led to initiatives, such as the Global Governance Group (3G), which represents small and medium-sized non-G20 countries, including Bahrain, Kuwait, Qatar and the UAE, and facilitates their engagement with the G20 to ensure more inclusive outcomes.

 

Born out of the late 1990s financial crisis, the Group aims to promote sustainable economic growth and prevent financial crises by shaping economic and financial policies that impact the global economy. This includes, for example, the digital economy and climate change, but also other relevant ad hoc crises, such as the COVID-19 pandemic. They often set commitments – implemented by political will – such as last year’s endorsement of a global minimum corporate tax of 15% on multinational companies.[iv] This year’s agenda, under the theme ‘recover together, recover stronger’, will concentrate on the global health architecture, digital transformation and sustainable energy transition.[v] Held under the clout of the Russian invasion of Ukraine, the Bali Summit will feature the Ukrainian President for the first time as some G20 members voiced support for excluding Russia from the Group.

 

How does the UAE compare to the G20 economies?

 

With the UAE invited as a guest this year, it poses the question of how it fits into the G20 and fares against the members. The UAE is the 35th largest economy in the world (2021), coming in last place among the G20 economies and just one spot after South Africa, which has a six times larger population than the UAE.[vi] Although, future projections do place the UAE in front of South Africa. Despite its smaller economic size, however, Dubai is rising in the financial ranks vis-à-vis the competitiveness of its financial centres, coming in 17th in the Global Financial Centres Index, after the US, UK, China, France and Japan.[vii] It is largely regarded as a leading financial hub in the Middle East, attracting many businesses due to favourable regulations and low taxes. Attempting to better align with the G20 commitment to a global minimum corporate tax rate, the UAE has announced that it will introduce a corporation tax of 9% from 2023.[viii] That said, the Financial Action Task Force did recently grey list the UAE, meaning it is now subject to increased monitoring due to its vulnerability to money laundering and terrorist financing.[ix] Turkey is the only G20 country, which is also on the grey list.

 

In terms of its commitment to relevant G20 ambitions, such as healthcare, digital transformations and sustainable energy, the UAE has equally put such ambitions as a priority for its development. Indeed, it was labelled one of the most COVID-19 resilient countries, taking 3rd place in Bloomberg’s Covid Resilience Ranking – just after Norway and Ireland – due to low social and economic disruption, owing largely to its high vaccination uptake and low fatality rates.[x] Nonetheless, regarding the health of citizens and access and quality of health care, the UAE ranks average within the G20.[xi]

 

In tandem, the UAE has invested heavily in digital technologies, adopting several strategies to do so, including its latest Digital Economy Strategy. With more than 30 initiatives and programmes, the strategy aims to increase the digital economy’s contribution to its GDP and augment the country’s position as a hub for the digital economy.[xii] It is also the first country with a minister dedicated to Artificial Intelligence (AI), whose portfolio was expanded in 2020 to the digital economy and remote work applications. This corresponds with the country’s high rank in the IMD World Digital Competitiveness Ranking, which measures the capacity and readiness of economies to adopt and explore digital technology; the country came in 10th place globally, ahead of all G20 economies, except the US.[xiii]

 

And lastly, Abu Dhabi is also investing in mitigating climate change, particularly as it is hosting COP28 next year. Indeed, its National Climate Change Plan sets out a framework for transitioning into a climate-resilient green economy with a target to achieve net-zero by 2050.[xiv] That said, the UAE has a far way to go, still being heavily reliant on fossil fuels, which account for about a third of its GDP, and having one of the highest per capita CO2 emissions (2020), similar to Australia, Canada and the US.[xv] In that respect, it only ranks 41st regarding its capabilities in developing a sustainable, low-carbon future, according to MIT’s Green Future Index 2022, making it average for the G20 economies.[xvi]

 

On the way to becoming a permanent guest?

 

Overall, the UAE largely matches up with the G20 economies and their ambitions, despite being smaller in size. It is a growing economic power and a financial hub with an expanding international profile. To that end, in the upcoming G20 Summit in Bali, the UAE can contribute to developing and refining the G20’s global commitments, particularly in the digital sphere and resilience to pandemics. In fact, as the UAE seeks to extend influence beyond its neighbourhood, it may even seek the status of a permanent guest, like Spain, arguing that it holds economic sway and aligns with G20 ambitions but also is committed to multilateralism. Although if Abu Dhabi does, it is unlikely to materialise any time soon given that the G20 has not admitted any other major economies seeking a more permanent status in the forum.

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13 May 2022

 

 

References

[i] Emirates News Agency (WAM). ‘Mohamed bin Zayed receives Indonesian President's phone call.’ WAM, May 4, 2022. https://wam.ae/en/details/1395303044360.

[ii] G20 Indonesia 2022. ‘About the G20.’ G20 Indonesia 2022, n.d. https://g20.org/about-the-g20/ - about.

[iii] G20 Indonesia 2022. ‘About the G20.’

[iv] OECD. ‘International community strikes a ground-breaking tax deal for the digital age.’ OECD, October 8, 2021. https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-the-digital-age.htm.

[v] G20 Indonesia 2022. ‘Recover Together Recover Stronger.’ G20 Indonesia 2022, n.d. https://g20.org/g20-presidency-of-indonesia/#recover.

[vi] International Monetary Fund (IMF). ‘World Economic Outlook Database.’ IMF, 2022. https://www.imf.org/en/Publications/WEO/weo-database/2022/April/.

[vii] The Global Financial Centres Index. ‘GFCI 31.’ The , Global Financial Centres Index, March 2022. https://www.longfinance.net/publications/long-finance-reports/global-financial-centres-index-31/.

[viii] Emirates News Agency. ‘Ministry of Finance to introduce federal corporate tax on business profits, effective for financial years starting on or after 1 June 2023.’ Emirates News Agency, January 31, 2022. http://wam.ae/en/details/1395303016461.

[ix] Financial Action Task Force (FATF). ‘Jurisdictions under Increased Monitoring – March 2022.’ FATF, March 2022. https://www.fatf-gafi.org/publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-march-2022.html.

[x] Bloomberg. ‘The Covid Resilience Ranking.’ Bloomberg, April 27, 2022. https://www.bloomberg.com/graphics/covid-resilience-ranking/.

[xi] Legatum Institute. ‘The Legatum Prosperity Index 2021: Health.’ Legatum Institute, 2021. https://www.prosperity.com/rankings?pinned=&filter=.

[xii] The UAE Government. ‘Digital Economy Strategy.’ UAE, 2022. https://u.ae/en/about-the-uae/strategies-initiatives-and-awards/federal-governments-strategies-and-plans/digital-economy-strategy.

[xiii] IMD. ‘World Digital Competitiveness Ranking.’ IMD, 2021. https://www.imd.org/centers/world-competitiveness-center/rankings/world-digital-competitiveness/.

[xiv] The UAE Government. ‘National Climate Change Plan of the UAE 2017-2050.’ UAE, October 12, 2021. https://u.ae/en/about-the-uae/strategies-initiatives-and-awards/federal-governments-strategies-and-plans/national-climate-change-plan-of-the-uae; The UAE Government. ‘UAE Net Zero 2050.’ UAE, November 9, 2021. https://u.ae/en/information-and-services/environment-and-energy/climate-change/theuaesresponsetoclimatechange/uae-net-zero-2050.

[xv] Our World in Data. ‘Annual CO2 emissions (per capita).’ Our World in Data, n.d. https://ourworldindata.org/grapher/co-emissions-per-capita?tab=table.

[xvi] MIT Technology Review. ‘The Green Future Index 2022.’ MIT Technology Review, 2022. https://www.technologyreview.com/2022/03/24/1048253/the-green-future-index-2022/.