The UAE promotes a liberal business environment and has a high standard of living that continues to attract expatriates from around the world. The UAE is diversifying its economy away from a reliance on oil and gas. The global economic downturn will reduce growth in the UAE from its historic recent highs of over 10%. The sectors most likely to be affected are construction, real estate and financial services.
In order to stimulate the economy and keep strategically important infrastructure projects on track, the UAE has been announcing major increases in public spending in the last few years.
For more information and up-to-date statistics, please see the UAE National Bureau of Statistics: www.uaestatistics.gov.ae/EnglishHome/tabid/96/Default.aspx
The long-term economic outlook for the UAE is positive. Abu Dhabi’s oil and gas- driven wealth underpins economic development throughout the UAE, with approximately 94% of the UAE’s proven oil reserves, of around 100 years. The UAE also owns some of the world’s biggest investment funds, including the biggest, ADIA, founded for the purpose of managing the Emirate’s excess oil reserves, estimated to be between US$500 and US$900 billion.
Source: US Energy Information Administration, Oil & Gas Journal
The Global Competitiveness Report of the World Economic Forum’s (WEF) Global Competitive Index assesses each country’s competitiveness based on twelve qualitative and quantitative factors such as infrastructure, macroeconomic environment, education, market efficiency and innovation.
The latest report (Sept. 2014) has placed the UAE 12th in the world, seven places higher than last year, between Norway and Denmark and only three behind the UK – indeed the UAE is ranked higher than 22 EU members. It is also the highest-rated economy in the Arab world. By way of comparison, Switzerland is now ranked 1st, Singapore 2nd, the United States 3rd, and the UK 9th.
UAE leaders have set themselves the target to enter the top ten in the world. The WEF assessment of the UAE points to the need for further progress on healthcare, primary education, R&D and innovation, but the UAE’s current strong economic growth owes much to the government’s (particularly Dubai’s) focus on competitiveness.
The UAE was judged first in the world for the quality of its roads, low inflation and the absence of organised crime. Furthermore, it received favourable scores e.g. for the stable macroeconomic environment, its overall infrastructure, the effectiveness of government institutions, and the ease of access to finance and its tax.
Also, the UAE has seen continuous economic growth amidst global economic turbulence. Various sectors benefitted from the overall favourable economic conditions, for example, construction is expected to continue its upward trajectory with more stalled projects being approved throughout the coming years.
For more information and up-to-date statistics, please see the UAE National Bureau of Statistics (Department of Economic Statistics – National Accounts Division): www.uaestatistics.gov.ae/EnglishHome/tabid/96/Default.aspx
The UAE aims for top ten rankings in various indices. The benefits of this approach are demonstrated by the UAE’s success in attracting business and investment, and their relative success in diversification.
Source: UAE National Bureau of Statistics (Department of Economic Statistics – National Accounts Division), June 2015
Together, Abu Dhabi and Dubai contribute the vast majority of the country’s GDP (approx. 60% and 30% respectively), but Dubai is primarily responsible for the strong growth in the majority of non-oil sectors.
Source: FCO Research and analysis: “UAE Competitiveness”, Sept 2014
The volume of the country's foreign trade reﬂects the rank of the UAE on the global economic and trade map, as it continues to operate as a vital trade hub in the region and the world. In fact, the State has played an important role in achieving economic growth through improving the efficiency of the customs sector in accordance with the modern concept of implementing a free economic mechanism. It has also encouraged a growing role and increased authority for the various customs departments in the national economy system, which through many innovative initiatives has upgraded the competitiveness and efficiency of the economy among the countries in the region.
The UAE showed a 0.65% growth in total foreign trade between 2013 and 2014, re-exports grew by 4.97% from 2013 to 2014. This revealed the UAE’s significant role in the world re-export trade, whether in the direct non-oil or free-zone trade. Companies and factories established in the UAE are playing a critical role in facilitating trade, especially in Asia and the Middle East region, the Arab Gulf, Europe and Africa.
Source: UAE National Bureau of Statistics, June 2015
In 2008, inﬂation stood at 12.3%, as substantial revenues from higher oil prices fuelled economic growth, creating shortages of property and services. At the same time, the weaker dollar and higher global food prices made imports more expensive. Inﬂation had increased to 2.33% by 2014. With housing costs making up nearly 40% of the consumer price index, lower house prices and food costs have contributed to deflationary pressures in the economy since 2008. The projected inflation rate for 2017 is 1.48%.
The overall Consumer Price Index (CPI) reached 126.03 in July 2015, an increase of 0.29% compared to its value at the end of june 2015, and an increase of 4.43% compared to its value at the end of July 2014). It is projected to be 124.58 in 2017 (base year 2007=100).
Source: UAE National Bureau of Statistics, June 2015
Industry and diversiﬁcation
Ever since the foundation of the UAE in 1971, the UAE's economic strategy has been consistent in terms of maximising beneﬁts from its oil and gas resources and looking ahead to the day when non-renewable resources will no longer be available. Much of the oil revenues are reinvested by the government to ﬁnance infrastructure for the non-oil economy.
In the medium term, the UAE economy continues to rely on its huge oil and gas reserves to underpin economic development. Meanwhile, the government emphasises moving away from dependence on oil by way of diversifying its economy as a regional ﬁnancial, services and tourism centre. Extensive efforts are being made by Abu Dhabi and Dubai in particular to diversify their economies and deliver long-term development and employment opportunities.
Abu Dhabi has made signiﬁcant investments into the establishment of aerospace, defence, information technology (micro-processing), photochemical and clean tech industries – the latter for example represented by the multi-million dollar initiative to establish ’Masdar Future City’, a carbon-free city outside Abu Dhabi.
Dubai Emirate has also diversified into tourism, ICIL re-export and ﬁnancial sectors. Taking advantage of its position near the head of the gulf, it has consolidated its historical reputation as a regional entry-point. Dubai has developed prestigious hotels, massive port facilities and a range of free trade zones to attract both manufacturing and services industries.
Ras Al-Khaimah Investment Authority (RAKIA) launched an innovative theme industry zone creating clusters of manufacturing facilities covering sectors including plastic and rubber, minerals, metals, electrical equipment, transportation and logistics, chemicals and food, and around 7,000 companies have since set up premises in the business zones.
The business hub, made up of two sites – the 7 million m² Al Hamra site and the 23 million m² Al Ghail Industrial Park – has undergone more than 1 billion AED of infrastructure development, offering purpose-built premises, financial incentives and strong transport links to Saqr Port, RAK airport and Etihad railway.
Fujairah has created a virtual free zone in the emirate, the ﬁrst in the UAE, and designed to assist small companies and individuals in knowledge-based industries such as media, marketing, advertising and consulting to open a new business from a home or office in the UAE within ten days.
While Abu Dhabi's oil and gas reserves are projected to last for another 100 years, the UAE is therefore relatively well insulated from periods of low oil prices due to the success of its movement towards a diversiﬁed economy.
During the past few years, the UAE Government and the Ministry of the Economy have strengthened the legal framework supporting the UAE's economic activities, to make it more competitive in the global marketplace. The government has also been undertaking efforts to establish a clear-cut investment policy which would contribute to the growth and increased competitiveness of various sectors within the country.
Plans for Law of Foreign Direct Investment that allows 100% foreign ownership of companies outside the free zones are at an advanced stage. The law is intended to help the country to attract fresh foreign investment, innovation and technology transfer in sectors selected and identified by government as strategically important. The law incorporates certain criteria and conditions to encourage new technology and environmentally friendly projects.
The UAE has performed well at a domestic, regional and international level, and is recognised by the World Trade Organisation (WTO) as one of the top 20 trading nations in the world, maintaining its position as the Middle East's most vibrant economy. Furthermore, the UAE has steadily improved its Trade Index ranking. The Enabling Trade Index, last published in 2014 by the WTO, conﬁrmed the UAE’s position as a global trade hub and one of the world's preferred re-export destinations, leading the entire Arab and MENA region at 16th position worldwide, and ranking well in almost all commercial and infrastructure-related variables.
At the core of the report, the Enabling Trade Index benchmarks the performance of 138 economies in four critical areas: market access, border administration, transport and communications infrastructure, and regulatory and business environment. As a widely-used reference, the report helps economies integrate global value chains and companies into their investment decisions. See: www.weforum.org/reports/global-enabling-trade-report-2014
Leading sectors attracting FDI
Leading sectors attracting FDI include oil and gas ﬁeld machinery and services, power and water, computers, medical equipment, telecommunications and franchising.
The renewable energy sector is another huge incentive for investments, especially with sustainable and renewable energy gaining prominence globally. The UAE plays a strategic role in this regard with Abu Dhabi hosting the headquarters of IRENA. The UAE is keen to enhance its cooperation in renewable energy initiatives and the government plans to source 7% of the country’s power use from renewable energy sources.
The SME sector in the UAE is an emerging sector with lots of open opportunities. The first SME forum was held as a strategic launch, marking the commitment of the government to make this vital sector a major contributor to the national economy.
Islamic finance and banking was estimated to be worth around US$1 trillion dollars in 2014. Islamic banking, which is inherently resistant to risk, has withstood the global ﬁnancial crisis with limited repercussions. One of the lessons of the crisis is the need to adopt strong corporate governance measures and the highest standards of transparency. These are the basic ethos of Islamic banking.
The UAE was the ﬁrst country in the world to establish a fully-ﬂedged Islamic bank, in 1972, and by 2014 the UAE had eight Islamic banks, which contribute signiﬁcantly to the ﬁnancial sector. UAE Islamic banks account for around one-fifth of all banking assets in the country and approximately 30% of the global Islamic banking industry.
Andrea Leadsom MP, The UK’s Economic Secretary to the Treasury, visited Dubai in October 2014 to attend the 10th World Islamic Economic Forum, where she spoke about the popular inaugural UK Sovereign Sukuk issued earlier in 2014, the first by a western country. She highlighted a suite of developments including the creation of an Islamic Index on the London Stock Exchange, the creation of the first Islamic Underwriting Agency, the UK Export Finance’s ambition to enter the Sukuk Market – potentially with an Airbus customer, and the commencement of feasibility work in 2015 on a Shari’ah-compliant deposit facility at the Bank of England, to improve the access to liquidity for Islamic banks.
The taxation regime in the UAE is favourable to the investor, particularly in light of the relative scarcity of personal and corporate taxes. The UAE is the only country where no taxation is applicable, except to branches of foreign banks, hotels and major oil and gas companies.
Furthermore, the UAE has entered into numerous double taxation treaties. These agreements avoid instances of tax being levied against a person in connection with the same matter in the two different countries. Foreign companies with a presence in the UAE can gain considerable competitive advantage and beneﬁts compared with competitors abroad by reason of this tax regime in the UAE and other investment incentives offered in the UAE to foreign investors.
For some time, new and wide-ranging innovative initiatives have been gaining attention at the government level in the UAE. Renewed socioeconomic and political changes have triggered increased interest in government systems and practices, as well as in ways to make them work better. Increased demands of citizens and challenging requirements for integrating and succeeding in the new global economic and political environment have put mounting pressure on governments worldwide to rethink policies and streamline operations.
As an indication of the importance they place on this issue, the leadership of the UAE launched the UAE National Innovation Strategy at the end of 2014, aiming to make the UAE the most innovative nation in the world by 2021. The federal cabinet declared 2015 the year of innovation in the UAE, and has now followed this by an announcement (early 2015) of the creation of a new post – a Chief Executive Officer of Innovation – for every government department.
The National Innovation Strategy focuses on bringing innovation into seven sectors, namely renewable energy, transport, health, education, technology, water and space, and carried out in phases, with the first stage consisting of 30 national initiatives to be completed by 2017. The initiatives cover new legislation, innovation incubators, investment in specialised skills, international research partnerships, private-sector incentives and an innovation drive within government.
The UAE is also launching seven new educational initiatives in schools and universities with the aim of promoting innovation, and has signed an agreement with Cambridge to train 60 Innovation CEOs. The initiatives include the launch of robot labs, developing a curriculum that promotes innovation, making innovation part of every school’s evaluation, starting an annual National Innovation exhibition, creating innovation incubators in schools, discovering future innovators from the age of five to seven, and establishing extensive summer training camps for innovative young people. These are all intended to make research, analysis and innovation at the core of an effective learning process.
“The UAE is already the most innovative Arab nation. Our target is to be among the most innovative nations in the world. The competitiveness race demands a constant flow of new ideas, as well as innovative leadership using different methods and tools to direct the change,” said Sheikh Mohammed bin Rashid, Vice President and Ruler of Dubai.
Trade between the UK and UAE
The UAE is one of the UK Government’s designated High-Growth Markets, and in 2014 was the UK’s 12th largest export market for goods globally (up from 15th) in 2011). It is also the UK’s largest export market in the Middle East and North Africa. Around 40% of those exports are re-exported around the region, a testament to the UAE’s importance as a regional import and export hub. The background to these impressive figures is the UK’s strong historical links with the UAE.
In terms of investment value, in 2014 the value of imports from the UK amounted to AED 24.6 billion (3.53% of the UAE total), compared with AED 81.3 billion from China (11.68%) and AED 17.7 billion from France (2.54%). The UK was the UAE’s 6th largest importer, behind China, USA, India, Germany and Japan.
Source: UAE National Bureau of Statistics, June 2015
Strengths of the UAE market
Dubai is regarded as a regional hub
No taxation on personal income and capital gains
English is widely spoken and accepted as the business language
Main entry route to other Gulf Cooperation Council (GCC) and Middle Eastern and North African (MENA) countries
The UAE is the UK’s largest export market in the region
Majority of the UAE population are expatriates
More than 250,000 British nationals are estimated to be living, working and studying in the UAE, and they are helping to drive prosperity and development, establishing a particularly strong presence for British businesses.
British goods cover a wide spectrum of sectors such as telecommunications, power generating machinery and equipment, electrical goods, transport, office machinery, interior and retail goods and non-metallic mineral manufacture. A significant proportion of imports are re-exported to Saudi Arabia and Iran.
Figures released by the UK’s Office for National Statistics at the end of 2014 showed that bilateral trade between the UAE and UK had reached £12.36 billion (AED 72 billion) in 2013. This means that the £12 billion (AED 70 billion) target for 2015, which the two governments set in 2009, had been met and surpassed two years ahead of the deadline. When the target was set in late 2009, bilateral trade stood at £7.5 billion a year, so great strides have been made in a very short time.
The increase has been achieved across a wide range of sectors including energy, financial and professional services, education, healthcare and infrastructure, as well as defence and aerospace.
The UAE-UK Business Council, which was created in 2011, took the lead in working towards this target. The Business Council’s mission is to increase bilateral trade and investment, and to help and encourage UK companies do business in the UAE and vice versa, as well as identifying opportunities for UK/UAE cooperation in third markets.
Source: UK Office for National Statistics “pink book” October 2014
Commenting after the release of the figures, His Excellency Ambassador Abdulrahman Ghanem Almutaiwee CVO, the UAE’s Ambassador to the UK said:
“The UAE UK bilateral relationship has gone from strength to strength in the past years, this is only a building block to our longstanding relationship dated from the 1950s. Thanks to our ministers and the co-chairmen of the UAE-UK business council, their hard work and efforts have assisted all parties in reaching our target of £12 billion before 2015. This success should motivate businesses in the UAE and the UK to take advantage in exploring potential business opportunities and partnerships in the future.”
Mr Philip Parham, Her Majesty’s Ambassador to the UAE commented:
“I am delighted that we have already achieved our ambitious target of increasing bilateral UK-UAE trade to £12 billion a year – two years ahead of schedule. This demonstrates the depth and breadth of the UK’s relationship with the UAE, which became the tenth biggest export market for British goods in 2013. Emirati exports to the UK have also grown significantly.
But we should strive to boost trade and investment between the UK and UAE even further. The British Government will work hard with the UAE Government and the members of the UK-UAE Business Council to achieve that.
The UK provides one of the most business-friendly environments in the world, which has been attracting major UAE investments. Hundreds of British companies have established operations in the UAE, and we look forward to helping many more do business and set up in market through the recently launched British Centre for Business in Dubai with Abu Dhabi to follow next year. These investment ties create wealth for both countries, and in turn stimulate increasing levels of trade. We will continue to do all we can to encourage them.”
Mr Samir Brikho, co-chair of the UAE-UK Business Council said:
“I am delighted that we have hit our 2015 trade and investment target in 2013. We must now recalibrate and set ourselves further challenging goals for 2015 and beyond. The UAE-UK Business Council is proving to be a really dynamic engine for growth between our two countries.”
Source: FCO, 13 November 2014
The seventh UAE-UK Business Council took place in Dubai on 20th October 2014 bringing together business leaders from the UK and UAE to further drive commercial ties between the two countries.
Opportunities in the UAE
The UAE offers significant innovative business opportunities for UK companies, with the following priority sectors identified as particularly lucrative by the UAE Federal Government:
Travel and tourism
Transport and logistic services
Education and healthcare
Looking at this in connection with economic data and fiscal stimulus initiatives, it would seem that the main opportunities are likely to be in oil & gas, energy, construction, mass transport, security, health and education, although given the immense number of innovative projects now coming to the fore, there is great potential for UK businesses in most areas of the economy.
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