Distortion of UAE trade | Distortion of UAE trade -

Distortion of UAE trade

: Sunday, August 24 - 2014 @ 13:22

By Philip P. Merrell

Following recent reports commending the UAE’s non-oil trade figures, AMEinfo feels compelled to clarify the media’s misrepresentation of these reports and reveals their negative implications.  

“Driven by stronger performance in all economic sectors and the country’s more advanced position on many global indices”, the UAE’s non-oil trade figures for Q1 2014 have ‘hit’ $69.7 billion.

Following a press release issued by the Federal Customs Authority (FCA) last Tuesday (August 19), most local media sources echoed the euphoria that high figures “reflected the continuous momentum of the country’s non-oil foreign trade”.

What tabloid headlines have excluded, however, is any mention of growth or indeed any percentage indicating that non-oil trade is expanding – for one main reason, it is not.

In Q1 2013, the UAE’s non-oil trade stood at $73.5bn, suggesting a year-on-year drop of 5.2 per cent.

What’s more, if we dissect the facts further, there are even more causes for concern, particularly within the domestic exports sector.

Namely, out of the $69.7bn of non-oil trade, the UAE has spent $45.3bn on imports, when compared with the $24.4bn it has gained from exports and re-exports together – signifying a 46.6 per cent trade deficit.

Moreover, if taken separately, the UAE’s re-export industry contributed $16.2bn, approximately double the amount it exported, meaning domestic exporters only make up 11.8 per cent of all non-oil trade. Giyas Gokkent, a senior economist at the Institute of International Finance, tells AMEinfo that a key factor as to why exports may appear low is because the “price of metals, a key export commodity in the UAE, is in global decline – including steel, which is experiencing a year-on-year drop of eight per cent”.

Having one of the world’s top ten largest ports in Jebel Ali, as well as one of the world’s largest airports (while building the world’s largest airport in Dubai World Central), it comes as no surprise that the UAE is utilising its assets by continuing to expand its booming re-export hubs. However, although re-exports have the potential to generate considerable non-oil GDP, they will almost entirely focus around the logistics sector, if not a handful of firms associated with the given ports.

The worrying fact is that even if the UAE’s, or specifically Dubai’s, growing influence as a trade hub was to result in re-exports overtaking imports in years to come, it will still do very little in developing the country’s (non-oil) production levels and building a truly diverse economy.

As is the case with most GCC states, diversification is a key budgetary principle the UAE government is promoting and, for its part, the country has, indeed, become one of the most diverse economies in the region.

However, moving towards other large tertiary sector industries, such as logistics or aviation, does not necessarily equate to widespread economic diversification. The vast bulk of GDP still remains with a cluster of large companies and so does the country’s reliance on a handful of industries – a marginally better scenario than complete hydrocarbon dependence, considering the services sector is itself overwhelmingly dependent on oil prices.

In order to truly diversify, growth needs to spread across the economy, including SMEs, which make up 80 per cent of UAE companies. This will drive production levels up, which will, in turn, increase exports. “A rise in non-oil exports and improvement in the non-oil trade balance, excluding re-exports, would improve macroeconomic fundamentals further,” adds Gokkent.

As such, the FCA report, which shows that non-oil trade has dropped in 2014 and that UAE products account for a mere 11.8 per cent of this overall trade, is damning.

What is just as worrying is the enthusiastic reaction from the FCA and various media outlets.


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Sunday, August 24- 2014 @ 13:22 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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