Business | Features

The UAE buys American

With the US looking to export itself out of the recession and create jobs, the UAE could see American imports double in the next year

  • By Derek Baldwin, Business Features Reporter
  • Published: 00:00 August 25, 2010
  • Gulf News

US exports
  • Image Credit: Supplied
  • From $3.6 billion in US exports in 2002 to more than $12 billion in 2009, the UAE enjoyed a 237 per cent growth in exports by last year

American exports to the UAE this year could top $22.2 billion, nearly double the $12.1 billion figure recorded last year, according to projections by the National US-Arab Chamber of Commerce.

If the forecast plays out, it will cement the UAE's ranking as the fastest-growing global destination for American exports.

From $3.6 billion in US exports in 2002 to more than $12 billion in 2009, the UAE enjoyed a 237 per cent growth in exports by last year, a leading American academic said.

Michael Moore, Professor of Economics and International Affairs at George Washington University, said in his latest report that the UAE was leading the pack in terms of growth.

"The increase in US exports to the UAE is impressive by almost any measure, especially when one compares it to other countries. For example, US exports for the world as a whole rose only 53 per cent during this period [2002-09]," Moore said in his May report, The US-UAE Trade and Investment Relationship.

Moore said the UAE's 237 per cent increase dwarfed percentage-wise even the hefty Middle East regional doubling of exports from the US in the same period — from $15.3 billion in 2002 to $32 billion in 2009.

"In 2009, the UAE bought more US goods than any other country in the Middle East," he said, noting that "exports to the UAE exceeded those to Saudi Arabia by 12 per cent and by over 130 per cent to Egypt, the Arab world's most populous country".

Moore said the "continued excellent bilateral trade and investment relationship reflects the increasingly diversified UAE economy and its leading role as a modernising influence in the Arab world … As the UAE economy continues to outperform much of the rest of the world in the years ahead, US business should continue to benefit across many sectors".

National Export Initiative

Economic projections such as Moore's are in line with the aims of US President Barack Obama's new National Export Initiative (NEI), which seeks to boost US exports to more than $3 trillion by 2015 and as a result create more than two million new jobs.

Obama has said that in "a time when millions of Americans are out of work, boosting our exports is a short-term imperative. Our exports support millions of American jobs".

The National US-Arab Chamber of Commerce suggested that exports to the Arab world alone "sustained more than 646,000 direct and indirect jobs in the United States".

In 2008, the US exported $1.7 trillion in goods. In a speech to Dubai Chamber members recently, US Ambassador to the UAE Richard Olson said one of the key elements of the Obama initiative was to "focus on small-and medium-sized businesses".

Olson said that achieving "the ambitious goals of the NEI will require that we not only work to open new markets to US goods, but that we focus on expanding markets where we've already enjoyed strong growth. There is no better example of such a market than the United Arab Emirates".

He attributed part of the US export growth to the UAE to Dubai "trading firms [that] have brought many US companies to this region for the first time. They have helped to introduce American products to the GCC states and are introducing goods to markets traditionally not easily accessible to US companies, including South Asia and East Africa. Dubai is truly the gateway to the world".

Natural fit

Danny E. Sebright, President of the US-UAE Business Council headquartered in Washington, D.C., told Gulf News that the UAE was a natural fit because it was business driven.

"Certainly the growth in US exports to the UAE is a testament to the confidence US companies have in the UAE market. By the same token, various emirates are rapidly developing economic free zones and other incentives which offer an appealing regulatory environment to encourage further investment by foreign firms, including the absence of restrictions on capital repatriation and of corporate taxes," Sebright said.

Export growth is being spurred by US companies setting up in the UAE because they believe they can do well.

"Many US companies have carefully calculated which geographic regions present the highest growth potential, and the UAE, in particular, benefits from that calculus, given its strategic location and its demonstrated willingness to be a solid business partner," Sebright said.

"Moreover, there are many sizeable infrastructure opportunities in the UAE itself, including projects such as ENEC's nuclear energy programme and Union Railway's freight rail line … and with the dirham pegged to the dollar, US exporters face less currency risk there than they do in other markets."

A broad range of US sectors were reaping benefits of shipping their goods to the UAE, Sebright said.

"Automobiles, oilfield equipment, IT, and industrial machines make up some of the largest exports to the UAE after civilian aircraft, service, and parts. Health care products, power generation, green-build, and water and wastewater treatment all are sectors that enjoy strong growth potential in the UAE. Increasingly, sectors heavily knowledge intensive and education will be key growth areas in the future," he said.

Sebright said: "Just under a third of the total exports the UAE receives are re-exported, many of them ultimately are destined for China, India, and some African countries. However, increasingly value addition is occurring in the UAE before these goods are re-exported. The US enjoyed a $10.6 billion trade surplus with the UAE in 2009, its fourth largest bilateral trade surplus, and one which has steadily increased since about 1990".

Ajit Karnik, Professor of Economics at Middlesex University Dubai, said a sudden spurt in imports could create problems for the UAE but noted that, "over the past few years, the UAE has had foreign reserves enough to finance three to four months of imports".

More US exports into the UAE could boost the economy if "goods are imported for purposes of final consumption or for the purpose of inputs into production. To the extent that imports are for production purposes, an acceleration indicates increased production. If this is also an indication of influx of foreign investments into the country this can only help the UAE to grow rapidly".

As the UAE grew, so did its buying power, making it a global player that could help other countries export their way out of recession, he said. "Emerging economies are indeed the ones with surpluses in their balance of payments (BoP) and hence large buying power in world markets," Karnik said.

"This is true of Asian countries as well as Middle Eastern countries. On the other hand the western countries have significant deficits in their BoP. To the extent that emerging countries are significant buyers of goods from the West these global imbalances will be re-dressed gradually."

Imports can continue to flow into the country thanks to the heavy exporting of oil by the UAE, Karnik said.

"Sustainability depends on the extent to which the UAE is able to earn foreign exchange. So long as oil and non-oil exports bring in foreign exchange, the country will be able to sustain a high level of imports," said Karnik.

Ayesha Sabavala, Deputy Editor and Economist for Middle East and North Africa with the Economist Intelligence Unit, said figures showed that the bulk of US exports to the UAE fell within two sectors, "transport equipment and machinery and electrical equipment".

Growing interest

The increase in US exports to the UAE hasn't gone unnoticed by other countries wanting to boost domestic manufacturing output for shipping abroad.

"From the exporter's [US] point of view, the US and other western countries are increasingly looking at diversifying their export markets into high-growth emerging economies such as those in the Middle East and Asia," said Sabavala.

"With weak growth in developed economies, western countries are looking to diversify and find new export markets. The Middle East provides an ideal trade partner because of the high GDP/capita that countries such as the UAE, Saudi and Qatar enjoy. In the UAE, according to EIU estimates, the GDP per capita [at market exchange rates] has increased from over $21,000 in 2000 to an estimated $38,000 in 2009."

Simon Williams, Chief Economist with HSBC in Dubai, agreed that American companies were looking to capitalise on the UAE's spending power as an emerging market.

"There are many companies looking to export their way out of distress," Williams said in an interview. "There are going to be a lot of countries around the world, especially western economies, looking to export their way out of recession. They are targeting markets in the Gulf. The western world is growing weakly but global growth is growing by emerging markets."

Given current forecasts, Williams suggested that the "UAE will certainly be outperforming the larger western economies" leading to a push by North American firms to enter the markets here.

US commercial aircraft tops list of imports

The UAE's dominant rank in the Middle East as a leading importer of American goods is a natural fit and will continue this year, thanks to the country's growing role as a "trans-shipment hub for multinational companies," the National US-Arab Chamber of Commerce said.

In its US-Arab Trade Outlook Report, the chamber said that as a transport hub, the UAE's top airlines were firm subscribers of American aircraft.

"US aerospace products and services were the lead export to the UAE in 2009, as Emirates airlines continues to expand its Boeing 777 fleet," the report said.

"Etihad Airways purchased new aircraft while flydubai, a new low-cost carrier, began taking to the air with an all-Boeing 737 fleet," the report stated.

The UAE aviation sector has also spent a fortune building new airport facilities at both the Abu Dhabi airport as well as in Dubai.

"Dubai International Airport added capacity in 2009 when it inaugurated the new $4.5 billion Terminal 3 and launched the construction of Concourse 3, which is slated for completion in 2012," the report said.

According to figures from the US Bureau of Census, Washington — the host of aircraft manufacturer Boeing — topped the list of states exporting to the UAE in 2008 with $3 billion in exports.

Dubai Chamber seeks to attract new investment

The Dubai Chamber is encouraging US investors to sink more cash in the UAE. The Chamber reported that "total exports and re-exports in the first two quarters of 2010 stood at Dh103.2 billion ($28 billion)".

In a bid to increase investment, the Chamber rolled out the red carpet for US business interests earlier this year.

"As a first-of-its-kind initiative to present Dubai as a potential business investment decision in the region for US businesses, Dubai Chamber hosted a large group of American Chamber of Commerce executives," the Dubai Chamber said in a statement.

"The US business leaders' mission to Dubai has paved the way for the emirate's business community to consolidate trade ties with their US counterparts and to promote the Emirate as a lucrative business destination for American businessmen."

The National US-Arab Chamber of Commerce said US exports to the Middle East were expected to reach $75 billion this year, up sharply from the reported $63 billion last year.

At a Doha conference in April, David Hamod, President and CEO of the US-Arab Chamber of Commerce, said: "Our research suggests that in 2010, the Middle East and North Africa will play a significant role in the global economic recovery".

The US-Arab Chamber expects "infrastructure build-out will continue to be the most significant driver behind foreign investment and exports to the region". Gulf countries "are making huge investments in upstream and downstream energy projects, power generation, water and waste treatment, ports and airports, roads and rail, hospitals and schools".

The chamber believes the "Arab world is a high-growth market of over 300 million consumers" with "consumer confidence translating into increased purchases of US goods and services".

Top sectors

American businesses looking at foreign direct investment in the UAE are being advised to observe five top sectors that promise major growth in the next four years. These include:

1 Materials handling equipment: 40 per cent growth annually with a $251 million US export opportunity.

2 Nuts: 36 per cent growth annually with a $187 million US export opportunity.

3 Agricultural machinery: 55 per cent with a $74 million US export opportunity.

4 Bakery products: 26 per cent growth annually with a $39 million US export opportunity.

5 Automotive tyres and tubes: 49 per cent annual growth rate with a $37 million US export opportunity.

Source: National US-Arab Chamber of Commerce

Top 10 exports

Value of goods shipped to UAE in 2010 (estimate)

1 Civilian aircraft engines, equipment, and parts $3 billion

2 Passenger cars new and used $1.7 billion

3 Drilling and oil field equipment $719 million

4 Industrial engines $512 million

5 Industrial machines $431 million

6 Telecommunications equipment $422 million

7 Electric apparatus $370 million

8 Jewellery $338 million

9 Gem diamonds $332 million

10 Computers $322 million

Source: National US-Arab Chamber of Commerce

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