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Key UAE sectors wait on Iranian breakthrough

A deal to ease sanctions will have an almost immediate rub-off on local economy

Image Credit: Pankaj Sharma/Gulf News archives
Goods loading on a boat to Iran at Deira side of Dubai Creek. Even when sanctions were in place, movement of goods from Dubai or other locations in the UAE had never fallen off the radar.
Gulf News

Dubai:

Key pillars of the UAE economy such as re-exports, logistics, retail, banking and insurance are already setting their schedules to a day in not-so-distant June. Because if negotiations give way to a deal being struck on Iran’s nuclear programme and thus ease the sanctions on it, these are the sectors in the UAE that could be in line for a major lift.

And potential deals involving UAE businesses could scale up quite quickly once sanctions are lifted, given the bottled up demand that the Iranian marketplace has been experiencing for years now. “Releasing assets that were erstwhile ‘frozen’ will translate into Iran having significant means to acquire goods, pay for services and conduct much needed investments [especially in energy infrastructure and communications],” said Karim Souaid, CEO of Growthgate, the asset management firm. “Concurrently US/EU businesses would become free to trade with Iran without fears of sanction thus increasing trade lanes in all directions.

“It is anticipated that businesses in the UAE — and especially in Dubai — would tremendously benefit in the short-to-medium term. Dubai has both the competitive and comparative advantages over any other location, where its physical and human infrastructures are uniquely positioned to benefit from the opening of such a prized market of circa 79 million people and an estimated 2015 GDP of $403 billion.

“With time, Iran is expected to build its own infrastructure base and hubs for professional services. However, the UAE and Dubai in particular will remain for a while due to its first mover’s advantage and its continuous developmental drive,” he added.

Even when sanctions were in place, movement of goods from Dubai or other locations in the UAE had never quite fallen off the radar completely. There was always a more or less steady market for pre-owned cars sourced from here to Iran, while luxury labels and electronics and tech gadgets too were in constant demand.

Currently, freight rates from Dubai to Iran would be $100-$125 a TEU (Twenty-foot equivalent units) depending on how well the interested parties were willing to negotiate with the logistics firm. If the sanctions were to go post June, freight rates could see a marked dip as cargo movements increase significantly.

According to Mustafa Vazayil, Managing Director of Gargash Insurance, “One shouldn’t be surprised to see UAE re-export business, especially Dubai’s, doubling in the first year since Iran will need huge amounts of goods and services. As it rebuilds considerable investments will move from the GCC to Iran.

“Equally important, Iranian capital will move to UAE, particularly to Dubai as investment. Real estate will be a major beneficiary.

“All this will certainly help increase insurance volumes in the UAE, especially in Dubai. We expect the direct increase in annual insurance premium as a result of enhanced economic activity will result in between 5 and 10 per cent of the total premium written in the UAE — this is substantial.”

But the Iranian rial’s weakness over the recent past can be a source of concern. “This weakness has been a hurdle and will continue to be in the short- to medium term,” said Sameer Lakhani, Managing Director of Global Capital Partners. “Over a longer timeframe, however, data suggests that this is not a significant factor in investment decisions.

“If there were a deal [on the nuclear programme], then an important hindrance would have been removed, thereby facilitating increased cross-border trade and without any uncertainty embedded in the process.”

The Iran factor can turn out to be quite decisive for the UAE economy from the second half of this year, and compensating immensely for any weaknesses that might stem from being part of a strong dollar currency regime [given the dirham’s peg]. It could make up for any slack in Russian or Eurozone visitor activity in the local retail, trading and hospitality sectors.

All that needs doing between now and end June is for the deal to come through.

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