UAE LIKELY TO BECOME THE WORLD'S TRADE CAPITAL
SAAD ANWAR HASHMI
Mar 12 - 18, 2012
UAE, particularly Dubai, holds a valuable asset that is oil exported globally. In 1980s, the Middle East was viewed as fishing and trading town with not much development apart from trading of commodities alongside exports of crude oil.
Being proactive in approach, UAE that was running its economy primarily through oil sales realized that a substitute needed to be found before the revenue stream in the form of oil exports depleted.
In early 1990s , under the leadership of Sheikh Maktoum bin Rashid al Maktoum, UAE and in particular Dubai was decided to be transferred as a tourist and business hub which will ensure GDP growth even if the oil stocks finish.
As part of long-term business strategy, investments in infrastructure and various development projects were planned to support business growth.
UAE oil exports account for only 70 per cent of GDP whereas remaining is contributed through industrial growth.
In 1985, Emirates airline started operations with two airplanes and today the airline has 170 aircrafts with more than 240 under order. The Dubai airport handled 34 million passengers and connections to 205 destinations through its network of flights in 2011. This simply became possible because of the growth witnessed in the UAE markets and the need of both domestic and international travelers to fly in and out of UAE.
With influx of companies starting operations in Dubai, there is an increased need to establish trade links with rest of the world. Jebel Ali is regarded is the trade hub to support the shipping industry and expected to be the largest ship handling facility in the world over the next 5 years with the current growth. As China exports world over, it has been observed that more and more companies from China are establishing offices in Dubai to meet client orders.
Strategically placed, the Middle East is also viewed as the hub for all freight carriers to visit for offloading and reloading fresh cargo for other destinations. The prime advantage of doing business in UAE are the free zones which cover various industries located in Dubai, Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. Free zones sometimes called a free economic zone, duty free zone, tax free zone, trade free zone, or free trade zone in the UAE allow 100 per cent foreign ownership and carry no taxes usually guaranteed for 15 to 50 years.
Each free zone has its own specific requirements regarding minimum office, warehouse space and permitted activities. Companies outside the free zones require a local sponsor and allow maximum 49 per cent foreign ownership. The advantage to companies establishing offices in UAE is a waiver from corporate taxes and benefit derived from infrastructure required to support such growth.
The UAE markets are also gaining recognition for finance activities alongside trade. Dubai International Finance Centre (DIFC) is regarded as the fastest growing hub for banking and finance activities, which primarily includes companies involved in banking and capital markets, insurance, wealth management and professional services. Companies as part of the DIFC are connected with global market for trade related activities. DIFC also houses the Dubai Mercantile Exchange (DME), which is the first exchange in UAE established for trading of oil.
There is a growing argument that when it comes to economic activity, the question is more about Dubai than all of UAE. Dubai actively competes with Bahrain and Qatar for trade business and infrastructural growth. Companies with regional presence in Asian markets including Africa and Europe are choosing Dubai as their regional headquarters to coordinate all economic activities in the region.
To boost trade and establishing of free zones, the UAE further encourages international trading. The UAE is expected to grow at a rate of 10 per cent throughout CY12 whereas tourism is expected to grow by more than 10 per cent over the next 5 years. The work environment is diversified with 87 per cent of the population comprising of expatriates who are settled in the UAE for career opportunities.
In order to attract business and finance and further attract international companies to establish their regional offices in the UAE, the government is making a conscious effort to create an enabling environment by investing in amusement and retail infrastructure to induce spending by residents and encourage tourist to earn foreign exchange. In recent times, mega architectures such as Burj Al Arab, Palm Islands, World Islands, and the Burj Khalifa appeared in Dubai to make it a promising land for foreign investment.
UAE is gradually reducing its reliance on oil and increasing share of industrial and manufacturing sectors in GDP. UAE revenues obtained through oil exports have been used for such development in improving the infrastructure and investment in construction.
Going forward, the UAE is regarded as the fastest growing regions in the world for economic development with GDP growth expected to remain above 10 per cent year on year. The only aspect, which may affect the economic uplift of the UAE, will be global recession rather than micro economic specific issues. The business strategy of UAE will continue to diversify into non-oil sectors. The main challenge of the UAE is to develop all of emirates in addition to Dubai. Expansion of free zones will encourage new businesses.
With jobs constantly being created, it is expected that each year almost two million jobs will be created in the UAE until 2020 for which development plans need to be underway and streamlined. The financial sector is further expected to grow its footing to support the ever-growing corporate sector with international banks commencing operations in the region.
International investment by the private sector is the key for success for which UAE government is striving hard to create an environment, which supports trade and industry. Like New York, London, Singapore, Japan, and Frankfurt regarded as financial hubs of the world, UAE is emerging as the trade capital of the world.