Our comprehensive assessment of the United Arab Emirates' operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect the United Arab Emirates, as well as the latest industry developments that could impact the United Arab Emirates' industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in the United Arab Emirates before your competitors.

Country Risk

United Arab Emirates Country Risk

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Core Views

  • Our baseline scenario sees relatively solid growth over the coming quarters, with real GDP forecast to expand 3.9% and 4.0% in 2014 and 2015 respectively.

  • We expect Dubai to outperform Abu Dhabi, with the former benefitting from increased activity in the trade and tourism sectors, in addition to our expectation that the all-important real estate industry is now set for sustained growth.

  • Credit growth to the private sector will remain relatively slow through 2014 as commercial banks continue to increase provisioning against potential loan losses due to the debt funding cliff.

Major Forecast Changes

  • On the back of a stronger-than-expected recovery in Dubai's residential property sector, we have revised up our 2014 average inflation...

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United Arab Emirates Operational Risk Coverage (9)

United Arab Emirates Operational Risk

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The costs to businesses from property crime and organised crime are negligible. Furthermore, there are few risks facing foreign workers from developed countries, but there have been increasing concerns regarding the living and working conditions of low-wage migrants from Asia. Partly on the back of this, the UAE lags Oman, Qatar and Kuwait - its Gulf peers- countries which normally compete with the UAE for investment. The UAE receives a score of 59 out of 100 in the BMI Security Risks ratings, placing it fourth in the region. This score is due to its very low crime rate and correspondingly good policing and rule of law.

The UAE faces a moderate risk of terrorism due more to the country's location rather than inherent challenges. Unlike much of the region however, there have been no major cases of bombings against civilian or military targets on UAE soil. Nevertheless, the UAE could be an attractive target to...

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United Arab Emirates Crime & Security

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The UAE receives a score of 58.8 in the BMI Security Risks ratings, placing it fourth in the region. This score is due to its very low crime rate and correspondingly good policing and rule of law. The costs to businesses from property crime and organised crime are negligible. Furthermore, there are few risks facing foreign workers from developed countries, but there have been increasing concerns regarding the living and working conditions of low-wage migrants from Asia. Partly on the back of this, the UAE lags Oman, Qatar and Kuwait - its Gulf peers- countries which normally compete with the UAE for investment.

The UAE faces a moderate risk of terrorism due more to the country's location rather than inherent challenges. Unlike much of the region however, there have been no major cases of bombings against civilian or military targets on UAE soil. Nevertheless, the UAE could be an attractive target to international...

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United Arab Emirates Labour Market

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The UAE's ranking in our Labour Market Risk Index is significantly boosted by a relatively flexible workforce and very low costs of employment. While substantial migration lowers basic skills levels in the labour market, it is also the backbone of competitiveness, providing almost three quarters of the workforce and helping keep the cost of labour down.

We have given the UAE a score of 57.1 out of 100 in our Labour Market Risk Index. The country is in fifth place in the Middle East and North Africa (MENA), between its Gulf Co-operation Council (GCC) neighbour Saudi Arabia and Jordan, and 12.6 points below the regional leader, Israel. At a global level, the UAE is 49 th, below most developed countries but ahead of Brazil, China, and India.

The UAE's high rate of urbanisation, widespread literacy and a large proportion of the working age population in employment mean the country offers a comparatively large...

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United Arab Emirates Logistics

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Overall, the UAE is a regional outperformer with regard to its logistical risks. It has relatively efficient and cheap trade procedures for importing and exporting goods, largely due to the efficient and excellent international transportation infrastructures in place. These two trading attractions ensure that its position at a geo-strategically advantageous location as a crossroads between three large land masses does not go unutilised, and ensure that the country's trading and economic forecasts look positive. For these reasons, the UAE is awarded a score of 73 out of 100 for its Logistics Risks, placing it foremost in the region and 19 th in the global rankings.

Perhaps the largest risks to investors come in the form of an impending gas crisis, which could impact fuel, electricity and water prices and availability. While the country is doing all it can to increase gas extraction capabilities and reduce its dependency on the...

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United Arab Emirates Trade & Investment

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The United Arab Emirates is one of the most attractive destinations for trade and investment in the Middle East and North Africa (MENA) region. The country possesses a well defined and implemented legislative environment, as well as strong intellectual property rights. We see little in the way of direct trade and investment risk, particularly given government support of pro-market policies.

We have given the UAE a score of 66.3 out of 100 in our Trade and Investment Risks Index, placing the country first out of the 18 countries covered in the MENA region. As one of the largest Arab economies, as well as being well-placed for trade elsewhere, the UAE offers a large market to foreign investors. Moreover, a low tax regime and relatively strong intellectual property rights help to bolster it score. Furthermore, compared with the rest of the Gulf Cooperation Council, the UAE has many incentives to foreign direct investment (FDI) and its tax and...

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United Arab Emirates Industry Coverage (21)

Autos

United Arab Emirates Autos

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New car sales have seen healthy growth in the UAE during 2014 to date. H114 was sales rise by a reported 20% to 199,277 units. June was a particularly strong month, with sales rising by 24% year-on-year (y-o-y). BMI believes this performance was bolstered in part by seasonal promotions. Given the positive start to 2014, we have decided to make an upwards revision to our 2014 sales forecast. We are now forecasting 10% growth, an improvement on our previous forecast of a 7% increase. This will take new car sales in the full year to just shy of 400,000 units.

BMI's positive view on the medium-term outlook for the UAE economy underpins our upbeat stance on the automotives sector. We forecast economic activity across the UAE to remain relatively robust over the coming quarters. Our core scenario sees real GDP growth of 3.9% in 2014, before picking up to 4.0% in 2015 as concerns over Dubai's debt...

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Commercial Banking

United Arab Emirates Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

United Arab Emirates Consumer Electronics

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BMI View:   The average selling prices of consumer electronics products are falling rapidly owing to intense competition among vendors and retailers as well as the influx of low-cost products across different segments. While this has the potential to boost volume sales, as reported by retailers in the summer of 2014, it poses a downside risk to our value growth forecast.

Headline Expenditure Projections

Computer Sales: USD1.8bn in 2014 to USD2.3bn in 2018. Strong demand in the enterprise segment will sustain growth amid changing consumer preferences in favour of more mobile form factors.

AV Sales: USD1.5bn in 2014 to USD2.6bn in 2018. Strong growth in the real estate sector and telecoms operators' convergence services will sustain growth of TV sales....

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Defence & Security

United Arab Emirates Defence & Security

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BMI View:   The UAE continues to scale up its defence equipment procurement and its own initiates to establish itself as a regional hub in terms of defence equipment manufacturing. A key focus for the sector in the country has been diversification - in terms of trying to procure defence equipment from a diverse range of markets (chief among them being the US, the UK, France and Italy) in terms of trying to export its own manufacturing to a wider audience (primarily currently other markets in the Middle East and North Africa region) and in terms of diversifying its military equipment base to improve its ability to cater to new regional threats (ie the emergence of terrorism and piracy, in addition to more traditional surveillance needs).

The UAE has been one of the largest spenders on defence in the Middle Eastern region....

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Food & Drink

United Arab Emirates Food & Drink

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BMI View:   We maintain our bullish outlook on the UAE's economies as a wealth of data points to continued growth. Consumer and business sentiment remains positive, underlining our particularly bright outlook for household consumption and fixed investment over the coming quarters. Following estimated real GDP growth of 4.1% in 2013, we are projecting the economy to expand by a more moderate 3.9% in 2014, before picking up to 4.1% in 2015. We forecast real private final consumption growth to come in at 6.5%. While this would be a slowdown on last year, we believe growth will average 7.3% per year between 2015 and 2017.

Headline Industry Data

  • 2014 food consumption growth (local currency terms): +5.5%; compound annual growth rate (CAGR) 2013 to 2018: +6.9%.

  • 2014 per capita food...

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Freight Transport

United Arab Emirates Freight Transport

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The UAE is expected to continue to see strong growth in 2014, across all of its freight modes. The country is rapidly developing one of the world's top logistics markets through investments in ports, airports, rail and free trade zones. These are utilised by the country's air freight and logistics companies, which are becoming a familiar presence throughout the world, serving the globe from their UAE hubs.

Headline Industry Data

  • 2014 air freight tonnes through Dubai International Airport forecast to grow by 5.5% and to average 5.0% to 2018.

  • The Khalifa Port is forecast to enjoy gross tonnage handling growth of 25.5% in 2014. Growth over the medium term will average 13.2%.

  • The UAE's total trade real growth in 2014 forecast to be 7.2% and to average 5.3% over the medium term to 2018.

...

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Information Technology

United Arab Emirates Information Technology

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BMI View:   Th e   UAE has seen a steady rise in the number of new businesses in the last two years, partly due to the government's economic diversification efforts and the country's status as a regional gateway for the Middle East and North Africa (MENA) region. This will drive for IT solutions in the enterprise segment during our forecast period, ending in 2018. Large scale government IT initiatives such as smart city projects and e-government programmes will also remain a key growth driver for the IT sector. Although high income levels bode well for consumer demand, growth in that segment will be weighed down by the shift towards mobile devices for basic computing functions.

Headline Expenditure Projections

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Infrastructure

United Arab Emirates Infrastructure

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BMI View:   O ur bullish forecasts for the UAE's construction sector for   2014 and th e next five year period are premised on a recovery in the vitally important residential and non-residential sectors as well as an increasingly buoyant infrastructure project pipeline . Some investors remain cautious, especially given the pace of house price increases over 2014 in Dubai, although at present we do not believe there to be a risk of overheating in the market.  

Factors Driving Construction Industry Growth

  • Numerous measures have been undertaken, such as rent caps and requirements of...

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Insurance

United Arab Emirates Insurance

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BMI View: W e maintain an optimistic outlook for the UAE insurance sector. Significant growth will be generated from health insurance which has become compulsory for all employees. G rowth outside of health will be some way off the market's potential capacity. P ositive macroeconomic figures for the country will still maintain good growth in other lines . Barriers to expansion, including low penetration levels, a fragmented market and price competition, continue to hinder companies. Moreover, the life segment is largely reliant on expatriate demand. Nevertheless, the UAE represents one of the most dynamic and stable insurance sectors in the Middle East and North Africa (MENA) .

...

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Medical Devices

United Arab Emirates Medical Devices

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Espicom Industry View:  The UAE is among the top 40 largest medical device markets in the world, and ranks fourth in the Middle East & Africa (MEA) region. Manufacturing capability is limited, therefore the market will continue to rely on imported medical devices. A changing epidemiological profile, a growing medical tourism industry, continuous healthcare infrastructure developments, an expanding health insurance and increasing health expenditure are factors contributing to market growth. The UAE is becoming the regional hub for leading medical device multinationals.

Headline Industry Forecasts

  • The medical device market is projected to expand at a 2013-2018 CAGR of 8.7%, which should see it grow from an estimated US$0.8bn in 2013 to around US$1.3bn in 2018. Orthopaedics & prosthetics are expected to record the highest 2013-2018...

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Metals

United Arab Emirates Metals

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BMI View: The UAE will see rapid growth in metals consumption over the coming years after a slew of construction projects. P roduction growth will also be high given expansion plans by the major players and thus the UAE will remain a major metals exporter in the region.

We expect the UAE to be a key driver of metals demand on a global level as the country embarks on an infrastructure spending binge. Given our expectation for rapid growth in the economy, as well as the hosting of the World Expo 2020, steel and aluminium consumption growth will be in double digits for the period to 2018. Production growth will also be significant given plans by Emirates Global Aluminium and Emirates Steel and ensure the country maintains its position as the Gulf's largest metals exporter in the coming decade.

Booming...

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Oil & Gas

United Arab Emirates Oil & Gas

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BMI View :   Much of the future success within the UAE's oil and gas industry will be inextricably linked to the country's short-term economic diversification efforts, primarily investment and growth in the non-hydrocarbon sectors. The most consequential economic success that the country has experienced in the last 5 years has been skilfully recreating the conditions of a stable investment climate, which the immediate after-effects of the global financial crisis negatively impacted.

In 2013 the UAE's economy grew by over 5%, heavily being contributed by the country's steadily rising oil exports. This year merely continued this positive trend, bringing the UAE that much closer to its target of increasing oil production to 3.6mn barrels per day (b/d) by 2019. However, as a recent economic studies have argued, investments and focus on the non-...

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Petrochemicals

United Arab Emirates Petrochemicals

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The UAE is driving up petrochemicals capacities, but producers face a challenging external market as well as the prospect of rising naphtha feedstock prices, according to BMI's latest UAE petrochemicals report. Borouge will remain the focus of the development of the UAE's petrochemicals industry over the medium term, with an additional 2.5mn tonnes per annum (tpa) coming onstream in 2014 following the completion of Borouge 3 in Ruwais, Abu Dhabi in May 2014, when the operators started test runs on the cracker facility.

Borouge began test runs at its new 1.5mn tpa ethane cracker in Q214, although it will be some months before full commercial production is achieved and downstream units of the Borouge 3 complex are fully operational, including two Borstar polyethylene (PE) units with a combined capacity of 1.08mn tpa, two Borstar polypropylene (PP) units with a combined capacity of 960,000tpa and a 350,000tpa low...

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Pharmaceuticals & Healthcare

United Arab Emirates Pharmaceuticals & Healthcare

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BMI View: The UAE is one of the more developed markets in the Middle East and has a strong existing healthcare infrastructure. As the UAE is aiming to introduce comprehensive health insurance throughout the country , allowing businesses to shoulder much of the cost of this expanded coverage, the government will gradually contribute less to the country's healthcare spending. Between 2013 and 2018, we expect private sector healthcare spending to outpace public. However, the public sector will remain the main source of healthcare expenditure, contributing over 60% of total spending by 2023.

Headline Expenditure Projections:

  • Pharmaceuticals: AED7.02bn (USD1.91bn) in 2013 to...

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Power

United Arab Emirates Power

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BMI View:   This quarter our forecasts for the country remain virtually unchanged. UAE authorities at both   F ederal and E mirate levels continue to prioritise generating capacity expansion programmes focusing on expanding the country electricity mix to include a wider range of fuel sources, spanning to traditional steam and gas turbines to carbon-light technologies, such as renewables and nuclear . Yet we remain sceptical about the ability of the country to meet its targets with the anticipated speed.

Although the UAE...

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Real Estate

United Arab Emirates Real Estate

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BMI View :   Economic   growth in the UAE will strengthen both property fundamentals and capital markets, resulting in a more favourable outlook for tenant retentions, rental growth, development activity, financing and asset values.

The UAE real estate sector is emerging as an outperformer within the Middle East and North Africa (MENA) region. Recent financial results by local property developers have overshadowed those by other sectors with companies recording an 82.4% growth in revenues during Q1 2014. This trend has been continuing in H2 2014 with a strong macroeconomic backdrop supporting high levels of consumer spending as well as trade growth, which has filtered through into demand for retail and industrial space in particular.

...

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Retail

United Arab Emirates Retail

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BMI View: Dubai is set to become an increasingly important growth driver in the UAE over the next few years . T he emirate is forecast to record the fastest GDP growth rates in the UAE, on the back of its tourism, real estate and retail sectors. Preparation for the World Expo 2020 in Dubai will act as a catalyst for growth, and we are broadly bullish on real estate markets across the UAE. In addition, consumer sentiment towards the UAE is picking up, which bodes well for the retail sector. Strong underlying economic growth, expatriate wealth and Dubai's growing importance as a fashion hub are all factors that are likely to lead to a strong rise in household spending across all retail subsectors between 2015 and...

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Shipping

United Arab Emirates Shipping

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The UAE will continue to dominate the Gulf region's shipping sector as it continues to invest heavily in its facilities. Not only has the massive Khalifa Port had a hugely successful opening since beginning operations at the close of 2012, but the established behemoth, Jebel Ali, has continued to expand its capacity, helping it to keep ahead from the growing competition in the region. Its capacity will be increased to 19mn containers in 2015. Even the smaller Sharjah terminals are performing well, with record growth in recent years. As such we project continued strong growth at the facilities, especially as the global economy looks set to continue its resurgence from the doldrums in 2015.

Headline Industry Data

  • Sharjah Terminals container throughput (KCT and SCT) is forecast to grow by 5.9% in 2015, averaging 4.5% over the medium term.

  • Jebel Ali...

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Telecommunications

United Arab Emirates Telecommunications

Tourism

United Arab Emirates Tourism

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BMI continues to hold a broadly optimistic stance towards the UAE's tourism sector. We forecast 8.3% growth in tourist arrivals from all regions in 2014, with tourism receipts set to rise by around 9.4% in US dollar terms. However, we would also like to flag up some of the more intangible risks to our current upbeat forecasts. Over the past quarter, the regional threat posed by Islamic State (IS) has grown substantially. To combat this threat, the US and its regional allies (including the UAE) launched air and missile strikes in Syria for the first time on September 23 2014. This move substantially expands the military role of the Arab Gulf states.

Saudi Arabia, the UAE, Qatar, Jordan and Bahrain all took part in the military operation; although their exact roles in the military action were unclear, they were reportedly involved in the bombing rather than providing purely logistical support. We believe that the US and...

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Water

United Arab Emirates Water

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BMI View:   Improved - and more rigorously enforce - water management plans, and the reduction of leakage and wastage, will help the UAE to overcome its water shortages. Moreover, the potential increase in tariffs will also discourage wastage and, we feel, result in more conservative consumption by both domestic and commercial users.

The announcement earlier this quarter of a USD1mn prize for the development of solar powered desalination solutions for water scarcity highlights that this is likely to be a key development area for the UAE over the longer term. Solar powered desalination is, in our view, going be an extremely attractive means of generating desalinated water in countries with suitable climates. It will not only help to defray the substantial and electricity needs involved in setting up and maintaining desalination facilities, but will also enable the UAE...

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