Issue: Nov 2005


UAE becoming a destination for automotive manufacturers



by Michael Stewart

The United Arab Emirates (UAE) are known around the world for their rich oil reserves. The Emirates are starting to make a name for themselves in the automotive industry – which consumes the bulk of their output.
UAE trade relations with Germany have been strengthening. While oil-exporting Middle Eastern countries (most notably Saudi Arabia) have come to appreciate utilising the ‘Made in Germany’ label on their hardware products, German car manufacturers have started to realise the potential that the region has to offer in sourcing components, says exhibition manager Michael Dehn.

The UAE has been identified as a possible new location for manufacturing automotive components because of its lower costs. Unlike Europe, which faces trading rules pertaining to carbon dioxide emissions and also rising electricity costs, the UAE offers favorable energy prices to car companies interested in moving their production there. In addition, it is also a cheaper supplier of raw materials such as aluminum, he says.

Another attraction are the region’s development zones. The United Arab Emirates consists of seven Emirates (Abu Dhabi, Dubai, Sharjah, Fujeirah, Ras Al Khaimah, Ajman and Um Al Quwain). Many of these have free trade zones where companies can own and operate their businesses without any form of taxation or local involvement.
Logistics systems and links with the major auto markets are already in place. Dubai in particular is well placed with one of the world's largest container ports (Jebel Ali) offering all forms of logistical support, from trans-shipping to storage. Many multi-nationals use Jebel Ali Port as a regional distribution hub for the Middle East, Africa and South West Asia, according to Dehn..

The port was built around 25 years ago and has consistently expanded ever since to a point now where it handles over five million TEUs annually. It is the regional home to numerous automotive manufacturers, from Chrysler to Toyota, plus many others involved in the supply of components to a wide range of industries.
Foreign investment

The UAE is also a trade partner to European, African and Asian countries. In Finnish countries, for instance, UAE imports were rated as the highest in the Arabian Peninsula Countries during 2002 – even higher than that of Saudi Arabia.

The South African Department of Trade and Industry has met with UAE countries to discuss commercial and economic interests between the two countries. The total volumes of foreign non-oil trade from UAE to S.A. have increased. In 1999, it was estimated to be US$93.4-million and in 2003 it grew to US$294.6-million.
In Pakistan, the state bank shows that UAE is the fourth major investor in foreign direct investments and private investments. The UAE’s interest is most noted in the Pakistan’s power generation, automobile and housing sectors.

In Japan, UAE continues to be the main supplier of mineral fuels. The country also imports semi-finished aluminum, which is used for automobiles and electronics. Trade between the two countries have been strengthened as Japan, already having over 150 of its companies operating in the UAE, is showing increasing interest in investing in the region through its participation in infrastructural developments.
Growing auto trade

Signs of UAE’s emerging interest in the automotive market can be seen in both their exports and imports.
Export demand has grown considerably for transport equipment from Japan. Vehicle exports of passenger motor cars with gasoline engines from Japan to UAE have increased the most.

The UAE and other countries in the Middle East are the main importers of Toyota Camrys from Australia. Also, in 2002, the third highest amount of merchandise imports for Dubai, Abu Dhabi and Sharjah were for vehicles and other transport equipment that was imported to the value of US$3 986-million.

Independent proof of UAE’s strong economic performance can be found by the 2003 World Trade Organization’s report which ranked the UAE has the world’s 30th largest exporter of goods. The report also stated that the total number of commodities exported by the region totaled $US58.1 billion. This was owed to the upsurge in business activity in the province. However Dubai emerged as one of the highest export earners. The country’s transshipment centre surged to $US20billion, from $US17.8billion in the same period.

Contrary to a perception of Dubai as a shopper’s destination, this paradise has more to offer than bargain shopping and sightseeing. Dubai is gaining a reputation for its labor capability and growing wealth.
With 62.6 per cent labor force participation, Dubai has the largest workforce in the seven Emirate countries, according to the 2004 International Monetary Fund report. The country also has the lowest rate of unemployment. With a population of around 4.5 million people of which around 20% is made up of the local population, much of the labor force is expatriate. Many are drawn from the sub-continent, but the UAE has proven to be an attractive place to live and work for just about every nationality under the sun.

Employees with technical skills tend to come from India, Europe, South Africa and Australia - there are an estimated 150,000 British expatriates in the UAE with about 50,000 South Africans! Whilst the local pool of employment is quite small, many employers continue to recruit from overseas. The tax free status remains an attraction for many.
In 2003, Dubai’s total revenue amounted to US$2 742-billion, most of which was sourced from non-tax revenue from oil and gas. However, the country’s wealth is also reflected by its main bank. Commercial banks in Dubai are rated as one of the richest in the Emirates region. The National Bank of Dubai, for instance, is the largest among the United Arab Emirates banks. These banks have the funds needed to establish and grow sustainable auto manufacturing facilities, according to Dehn.
The Middle East’s largest auto spare parts and aftermarket show, Automechanika Gulf, will be held in Dubai from May 28 to May 30, 2006. The website is http://www.automechanikagulf.com


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