Tourists at City Sightseeing Bus in Downtown, Dubai. Image Credit: Ahmed Ramzan/Gulf News archive

Dubai: Businesses focused on the services sector are expected to fare better compared to other sectors in the UAE‘s trade growth amid global macroeconomic volatility, unexpected political developments in US and UK, and a persistent low oil price environment, according to HSBC Trade Forecast.

The bi-annual research series forecasts a full bilateral set of trade flows for total imports and exports of goods between 180 pairs of countries.

Latest data shows that despite the global and regional economic headwinds, the UAE’s relative economic diversity, the country’s services sector — particularly travel and tourism — will drive the rate of the country’s trade growth between now and 2030.

While the hydrocarbon sector will continue to contribute to the majority of trade volumes, its growth rate is anticipated to be slower in the forecast period.

The UAE has been one of the most successful countries in the region for its diversification efforts, and this strategy has been supported by investment in services such as tourism and financial services. HSBC’s research shows that the contribution of services to total exports in the country rose from 16 per cent in 2000 to 23 per cent in 2015.

“We see across the world that countries that value diversification are the ones that are best able to navigate today’s complex market conditions. The UAE’s investment in services, and tourism in particular, is reflective of the government’s well thought out, forward-looking approach,” said Ahmad Abdelaal, Regional Head of Corporate Clients Coverage MENA and Head of Commercial Banking, HSBC UAE.

Businesses focusing on tourism and travel in particular have benefited, with the sector accounting for 58 per cent of services exports last year; up from 43 per cent in 2000. Additionally, HSBC forecasts this share to increase to 62 per cent by 2030.

Projects such as Expo 2020 and Abu Dhabi’s Surface Transport Master Plan are the type of initiatives that are anticipated to drive growth in services. In particular, expectations for the growth in tourism and travel appears to be reiterated by estimates from the UAE Ministry of the Economy, which indicate that the sector will expand 5.4 per cent annually over the next decade and be worth Dh236.8 billion by 2026, up from Dh134 billion last year.

“As a result of the focus on this area and factors such as technological advances, rising consumer spending and falling travel costs fuelling the services sector, businesses operating in this space will benefit from more opportunities than those companies focused primarily on merchandise trade,” said Abdelaal.

Despite the growing importance of services sector the oil sector continues to be a crucial factor for confidence and as a source of funding for investment, with petroleum products contributing to around 40 per cent of projected growth in merchandise exports in the decade to 2030.

While transport equipment will contribute 18 per cent to total import growth in 2016-20 and 15 per cent in 2021-30, while industrial machinery makes up 12-13 per cent of growth over the entire period.

Globally as merchandise exports are anticipated to have contracted by about 3 per cent in nominal terms this year, while cross-border sales of services have risen 1 per cent in nominal terms according to the research. HSBC forecasts the combined value of goods and services trade flows till 2030 to reach $50 trillion (Dh183.65 trillion), but in the context of the unpredictable nature of political and economic events across the world, if these downside risks come into effect, the bank anticipates its projections to drop by 3% to $48.8 trillion in this alternative scenario.