Market Profile

United Arab Emirates (UAE*)
8 Jan 2007

Major Economic Indicators

Recent Developments

• The surge in oil prices has substantially strengthened the UAE economy. While UAE's oil industry has received a boost, demand from its neighbouring countries has also strengthened its re-export activities.
• The UAE government endeavours to further diversify its economy. While investing in the downstream oil industry such as petrochemical production, the government renders strong support to its non-oil sectors, with a visionary plan to turn the country into a regional commercial centre, covering trading, tourism, finance, information technology and media.
• The UAE is Hong Kong's largest export market in the Middle East. Hong Kong's total exports to the UAE grew by 7% to US$1,859 million during January-November 2006, while its imports from the UAE increased by 7% to US$1,308 million.
  

Current Economic Situation

The United Arab Emirates, or UAE, consist of seven emirates, namely Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Fujairah, Umm al-Qaiwain and Ajman. Notably, the oil sector plays an important role in the UAE economy, as it represents more than one-third of its GDP. High oil prices, though slackening somewhat recently, have therefore given the UAE economy a boost, while demand from its neighbouring countries has also strengthened its re-export activities. The UAE economy is expected to have grown by 10.2% in 2006, and expand by another 8.1% in 2007.

In addition to exporting crude oil, the UAE continues to invest heavily in the development of its petrochemical industry. The major strategy of the UAE, however, is to diversify its economy by developing trading, financial and technological industries as well as tourism. Dubai is already a well-known trading hub in the region.

Endowed with abundant petroleum and gas reserves, Abu Dhabi contributed to almost 60% of the UAE's GDP. Other emirates with stronger role in the national economy include Dubai and Sharjah. There are economic specialisations among different emirates: Abu Dhabi in energy-based industries; Dubai in commercial and financial services, telecommunications, tourism and trading; Sharjah in light manufacturing; and the northern emirates in agriculture, quarrying and cement manufacturing. In the coming years, Abu Dhabi will concentrate on the development and manufacturing of hydrocarbons and other petrochemicals. It will also accelerate the pace of private participation in government projects, such as infrastructure. Meanwhile, Dubai will speed up its economic diversification, developing the emirate's trading, tourism, media, shipping, and financial and commercial services.

Indeed, tourism in the UAE, particularly Dubai, has made remarkable achievements over the past decade. For example, the number of Dubai's hotel guests exceeded 6 million in 2005, a double from the level in 1999.

As part of its diversification initiatives, the UAE government makes great effort on developing its free zones. Today, there are 13 free zones in operation in the country. Many of them have specialised themes, for instance, in IT, media, finance, gold and jewellery and healthcare. To encourage foreign participation, 100% foreign ownership of companies is allowed in free zones. Among the free zones, Dubai's Jebel Ali free zone (JAFZ) is the largest one. Today, more than 4,000 business entities from over 100 countries are represented in JAFZ.

The UAE currency, i.e. dirham, remains sound, reflecting the public's confidence in its peg to the US dollar at Dh3.671:US$1. This is largely due to the build-up of current-account surplus in addition to substantial official and unofficial foreign reserves.

Trade Policy

The UAE is a member of the World Trade Organisation (WTO), and maintains a rather liberal trade regime. Imports are subject to few controls except for the import of arms and ammunition, alcoholic beverages, agricultural pesticides, narcotics and pork products. Israeli goods are also prohibited. There are no exchange controls in the UAE. However, all importers have to apply for a licence, and an importer can import only those goods specified in the licence.

Customs duty is calculated on the CIF value at the rate of 5% for most products. Imports of intoxicating liquors, however, are subject to a 50% customs duty on their CIF value, while the rate for tobacco products is 100%. CIF value will normally be calculated on the declared value of the shipment. But the UAE Customs is not bound to accept the figures shown, and may set an estimated value on the goods, which shall be final, as far as the duty is concerned.

There is no specific labelling requirement on goods in general, but food labels have to contain product and brand names, production and expiry dates, country of origin, name of the manufacturer, net weight in metric units, and a list of ingredients and additives in descending order of proportion. All fats and oils used as ingredients must be specifically identified on the label. Labels should be in Arabic, or both Arabic and English.

The tie between the UAE and its fellow members of the Gulf Co-operation Council (GCC) -- Bahrain, Kuwait, Oman, Qatar and Saudi Arabia -- is strong. In November 1999, the GCC agreed to form a customs union. The customs union took effect from 1 January 2003. The accord establishes a single tariff of 5% on 1,500 imported items from non-member countries. It also provides a list of other essential items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs.

Hong Kong's Trade with UAE ^

The UAE is Hong Kong's largest export market in the Middle East. Hong Kong's total exports to the UAE grew by 7% to US$1,859 million during January-November 2006, after levelling off at US$1,922 million in 2005. Major export items during January-November 2006 included pearls, precious and semi-precious stones (16% of the total), telecommunications equipment and parts (16%), non-electric engines and motors (12%), watches and clocks (7%) and parts and accessories of office machines/computers (6%).

On the other hand, Hong Kong's imports from the UAE increased by 7% to US$1,308 million during January-November 2006, after stagnating at US$1,313 million in 2005. Major import items during January-November 2006 included pearls, precious and semi-precious stones (25% of the total), glassware (19%), telecommunications equipment and parts (19%), non-electric engines and motors (15%) and parts and accessories of office machines/computers (4%).

^ Since offshore trade has not been recorded by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.
* Insignificant