Major Economic Indicators

Source: IMF, EIU
* IMF or EIU estimate

Recent Developments

• The financial tsunami has hit the UAE[1], particularly Dubai, an emirate which has borrowed high levels of debt to finance its development. However, Dubai officials reassured that the emirate can service its debts.
• In December 2008, the Gulf Cooperation Council (GCC, consists of the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman) reaffirmed their commitment to creating a single currency by 2010, with the exception of Oman.
• The UAE is Hong Kong's largest export market in the Middle East. Hong Kong's total exports to the UAE grew by 4.6% year-on-year (YoY) to US$2,711 million in 2008, while its imports from the UAE increased by 11.7% YoY to US$1,677 million.

Current Economic Situation

The UAE economy grew by 7.4% in 2008. It is reported that, however, real GDP growth for the UAE will only be 3.3%, according to IMF forecast. Lower oil prices and a slowdown in construction activities are likely to curb economic growth. Notably, the oil sector plays an important role in the UAE economy, as it represented 23% of its GDP in 2007.

Endowed with abundant petroleum and gas reserves, Abu Dhabi contributed to around 60% of the UAE's GDP in 2007. Other emirates with a strong role in the UAE economy include Dubai and Sharjah. There is economic specialisation among different emirates: Abu Dhabi in energy-based industries; Dubai in commercial and financial services, telecommunications, tourism, logistics and trading; Sharjah in light manufacturing; and the northern emirates in agriculture, quarrying and cement manufacturing.

In addition to exporting crude oil, the UAE strives to diversify its economy by developing trading, financial and technological industries as well as tourism. To achieve this goal, the UAE government has been investing a massive amount in infrastructure projects, although a fair number of projects have been put on halt due to the current economic situation.

Its ambitious infrastructure plans have met challenges amidst the financial tsunami. Dubai's government-related companies owe at least US$47 billion, or 100% of the Emirate's 2006 GDP, according to Moody's, a ratings agency, in a report released in October 2008. Fitch, another ratings agency, estimated Dubai's debt amounted to some US$70 billion in September 2008, of which US$60 billion was government debt, and US$10 billion was owed by government-affiliated companies. Of the sum, US$16.2 billion, or 23.5%, will mature by the end of 2009. Mr David Eldon, head of Dubai International Financial Centre (DIFC), said in November 2008 that concerns over Dubai's debt are overdone. He mentioned that Dubai has the backing of the UAE. In February 2009, the UAE Central Bank purchased half of the US$20bn unsecured bonds issued by Dubai, signalling the federal government's support to the emirate.

The UAE government's diversification effort has achieved some results. For example, tourism in the UAE, particularly Dubai, has made remarkable achievements over the past decade. As an indicator for its success, the number of Dubai's hotel guests reached 5.8 million in 2007, up 207% from 2.8 million in 1999.

Dubai has also emerged as an important trading hub in the region. Its container throughput rose from 6.4 million TEUs to 10.7 million TEUs between 2004 and 2007, up 67.2%, placing it as the sixth busiest seaport in the world in 2007.

In terms of the UAE's development in finance, the Dubai International Financial Centre (DIFC) was opened in September 2004. It is a self-regulated financial free zone, exempt from the Central Bank's financial code. Though at its infant stage (Abu Dhabi's stock exchange is still the largest in the UAE), the stock exchange of DIFC handled the IPO of DP World, one of the world's largest IPOs of 2007. DP World is an investor in Hong Kong's ports.

As part of its diversification initiatives, the UAE government makes great effort on developing its free zones. 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, nearly 6,000 business entities from over 110 countries are represented in JAFZ.

The UAE currency, dirham, remains pegged to the US dollar at US$1:Dh3.67, similar to other GCC states except Kuwait.

In December 2008, GCC members, with the exception of Oman, reaffirmed their commitment to creating a single currency by 2010. A monetary council will be created in the first stage prior to the establishment of a central bank. The council is expected to draft the legal and regulatory framework of the future single currency in preparation for the launch.

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 GCC 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 were down 10.9% YoY to US$359 million in the first two months of 2009. Major export items included telecommunications equipment and parts (US$78 million, 21.7%), pearls, precious and semi-precious stones (US$78 million, 21.6% of the total), watches and clocks (US$24 million, 6.7%), jewellery (US$18 million, 5.1%) and silver and platinum (US$17 million, 4.8%).

On the other hand, Hong Kong's imports from the UAE were down 35% YoY to US$203 million in the first two months of 2009. Major import items included pearls, precious and semi-precious stones (US$61 million, 30.1%), telecommunication equipment and parts (US$46 million, 22.6%), jewellery (US$28 million, 13.8%), non-electric engines, motors and parts (US$12 million, 6.1%), and glassware (US$9 million, 4.7%).

^ 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.

 [1] The UAE consists of seven emirates, namely Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Fujairah, Umm al-Qaiwain and Ajman