Emerging markets to lead growth in next five years

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Al Maktoum International Airport

By Aya Lowe  gulfnews.com

About two-thirds of the world’s economic growth will be generated by emerging markets in the next five years, according to a recent report released by the Economist Intelligence Unit.

Al Maktoum International AirportBy 2015, emerging markets are projected to account for 41 per cent of global GDP, compared to an estimated 31 per cent in 2011.

This growth is reflected in GCC-emerging markets trade patterns. In 2009 the emerging-market share of GCC trade reached 45 per cent up from 15 per cent in 1980 according to the Economist Intelligence Unit.

Last January, Dubai’s non-oil trade reached a record high of just under $15 billion (Dh55 billion), an increase of 28 per cent compared to the year before.

This boost was helped along by Dubai’s two biggest trading partners, India and China both superpowers in emerging markets.

During the first 10 months of 2010 total exchange values amounted to just under $33.5 billon or 26 per cent of Dubai’s global trade according to a recent report conducted by the Economist Intelligence Unit in partnership with Falcon and Associates FZ-LLC. Out of that total, UAE trade with China alone amounted to $33 billion.

China focus

“The UAE will want to lock China in as an export market for oil and there has been a lot of investment in China’s refineries. There has also been investments in consumer goods because of the expanding middle class,” Ayesha Sabavala, economist for UAE and Mena region at the Economist Intelligence Unit told Gulf News.

Increasing demand for oil and other export products along with an expanding middle class in these emerging markets present the UAE with a host of new trade opportunities in industries such as energy and port operations, tourism, retail, financial services (especially sharia-compliant finance) and telecoms.

Data from the Customs Authority shows that gold took the first position among import items, followed by diamonds, then automobiles. Gold also took the first spot in exports. “According to Dubai foreign trade statistics, gold, pearls, precious stones and metals are the largest foreign trade category. The largest component is gold due to growing demand from a rising middle class in India. This category is closely followed by electrical equipment and machinery then vehicle aircraft vessels,” said Sabavala.

Sub-Saharan Africa

Industry analysts also cite sub-Saharan Africa as another important emerging-market region for GCC trade. Dubai’s non-oil trade with the Common Market for Eastern and Southern Africa (Comesa) increased five-fold between 2002 and 2009, from $1.42 billion in 2002 to $7.24 billion in 2009.

The UAE that imports almost 80 per cent of its food is looking at opportunities to invest in Africa’s arable land and establishing export-oriented farming businesses.

Foreign Direct Investment (FDI) is also expected to enjoy a boost this year with a 30 per cent increase in investment to South American and Asian countries predicted for 2011.

“Because of South America’s expansive land, agriculture is a key industry for the UAE. Investors are increasingly looking to secure their food supply so there have been a lot of investment in land and agriculture,” said Sabavala.

In Asia, GCC will direct FDI in building infrastructure as large populations and a shortage of capital provide investment opportunities for GCC investors.

Service

Dubai’s strengthening logistics sector is also playing a big part in boosting this trade. DP World currently operates container terminals across every continent and is developing projects in Brazil, China, India and Turkey, amongst other countries.

In 2010, the DP World network handled 49.6 million containers, a 14 per cent increase on 2009 according to a report released by the Economist Intelligence Unit. The emirate is also serviced by over 120 airlines.

“In recent years, billions of dollars have been invested to develop the warehousing and transportation infrastructure in Dubai with the construction of new projects such as Dubai Logistics City and Al Maktoum International Airport, as well as the expansion to current developments such as Jebel Ali Port and Dubai Cargo Village. This investment will ensure that sufficient capacity exists in order to continue the high growth trajectory,” Dr Ashraf Ali Mahate, head of export market intelligence at Dubai Exports told Gulf News.

However, to capitalise on these opportunities there is a need to strengthen labour markets and improving regulatory environments becomes as important as ever as the rise of new economic powers also means new competition. OECD companies and markets will remain important economic partners for the GCC, especially in knowledge-intensive sectors.

“In terms of attracting FDI and foreign companies into Dubai, we will probably see an amendment to the companies law particularly in sectors where the UAE is lacking in expertise. Free zones have been the primary vehicle in attracting FDI’s but amending and making labour laws will keep the UAE competitive,” Ayesha Sabavala, economist at Economist Intelligence Unit said.

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