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United Arab Emirates: Close Economic Ties with China

Highlights
CapitalAbu Dhabi
Population9.3 million
CurrencyUAE dirham (pegged with USD at 1 AED = 0.272 USD)
Official languageArabic
Form of governmentFederation of seven emirates

 

Major Exports (% of total, 2015)Major Imports (% of total, 2015)
Manufactured goods (45.6%)Manufactured goods (78.7%)
Fuels and mining products (23.8%)Agricultural products (8.6%)
Agricultural products (3.9%)Fuels and mining products (5.7%)
Top Three Export Markets (% of total, 2015)Top Three Import Markets (% of total, 2015)
Iran (3.2%)European Union (14.3%)
India (3.2%)China (8.0%)
European Union (3.1%)US (6.7%)

Sources: Economist Intelligence Unit, World Trade Organisation

Political Highlights

The United Arab Emirates (UAE) is a federation of seven emirates. The political environment of the UAE is broadly stable thanks to the country’s prosperity and generous social welfare benefits.

The UAE has no income tax and no federal-level corporate tax, but the persistently low global oil prices have hurt the country’s oil export revenues and prompted changes in fiscal policy. In a bid to strengthen its public finances, the UAE reduced state spending and removed some fuel subsidies in a politically sensitive reform. Other measures included the introduction of excise taxes on tobacco, alcohol, and soft drinks from 1 October 2017; and value-added tax (VAT) from January 2018.

The UAE is located at a strategic position bordering the Arabian Gulf, the Indian Ocean and the Strait of Hormuz, and less than 100 miles from Iran. The United States is the country’s important ally and main security guarantor. In the face of regional insecurity, the UAE has adopted an increasingly active foreign policy. In June, the UAE joined Saudi Arabia, Egypt and Bahrain in cutting diplomatic ties with Qatar, accusing it of supporting terrorism and destabilising the region.

Economic Trend

Economic Indicators2014
2015
2016
2017*
2018*
Nominal GDP (US$ bn)403.2357.9348.7378.7400.9
Real GDP growth (%)3.33.8 3.01.33.4
GDP per capita (US$)43,347*37,361*35,384*37,34638,436
Inflation (%)2.34.11.82.12.9
Budget balance (% of GDP)1.9-3.4-4.1*-3.7-2.2
Current account balance (% of GDP)13.34.72.42.12.1
Government debt (% of GDP)15.5 18.720.7*20.720.8

* Estimates
Source: International Monetary Fund (IMF)

The UAE is among the world's major oil producers and is a member of the Organisation of the Petroleum Exporting Countries (OPEC), but successful efforts at economic diversification have reduced its reliance on the oil sector. Free trade zones, which offer 100% foreign ownership and zero taxes, and a generally liberal trade regime help attract foreign investment. The UAE is now a regional hub for trade, finance, transport and tourism.

Although the UAE’s economy is less dependent on the oil sector than other neighboring Gulf states, it has still been weighed by the persistently low oil prices and OPEC-mandated cuts in oil production. Real GDP growth is expected to decelerate further to 1.3% this year, its slowest pace in nine years. Despite continued fiscal consolidation, lower oil revenues have caused the country to register fiscal deficits since 2015. Having said that, the UAE has ample financial reserves which help support the country’s economic and fiscal resilience. In addition, the UAE maintains close economic ties with China. Both countries have agreed to establish a joint strategic investment fund worth US$10 billion, financed equally by both countries. Meanwhile, the UAE is one of the most active Middle East countries using the yuan for direct payments to China and Hong Kong. The latest available data showed that the currency accounted for over 80% of these payments by value in August 2016.

Chart: Hong Kong total exports to UAE
Chart: Hong Kong total exports to UAE

Hong Kong-UAE Trade

Total exports from Hong Kong to UAE increased by 13.2% from HK$46,942 million in 2015 to HK$53,140 million in 2016. The top three export categories to UAE were: (1) non-metallic mineral manufactures, nes (+32.0%), (2) telecommunications, audio & video equipment (+23.1%), and (3) office machines & computers (-16.0%), which represented 78.3% of total exports to UAE.

HKECIC Underwriting Experience

The HKECIC imposes no restrictions on covering UAE buyers. The Corporation’s underwriting experience on UAE has been acceptable, with one payment difficulty case and three claim cases reported from October 2016 to September 2017, involving jewellery, clothing and chemical products.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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