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 UAE is one of the most attractive destinations for investment in the MENA region given its integrated supply chain network, openness to foreign investment and very low tax rates. However, the comparatively small size of the country's skilled-labour pool means that companies rely on expatriates due to limited labour availability especially in the private sector. Overall, the UAE is one of the most investor friendly destinations in the Gulf, and a world leader in terms of ease of trading and absence of bureaucracy.  

The UAE is an attractive destination for foreign investors on account of its status as one of the Middle East's largest economies, its minimal tax burden and position as world leading trade hub. In sum, the UAE offers comparatively low risks to investors with regards to the good quality of its transport network and utilities costs, the comparatively limited bureaucracy surrounding trade flows (reducing...

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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 57.9 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 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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The UAE is a regional and global leader in terms of its logistics network. It benefits from advantages such as its location on the Arabian Peninsula, which makes its ports a key stopping point on East-West shipping routes. Its strong maritime and air connections have been facilitated by a number of free trade agreements with major trading partners, such as the US, and its regional peers, through the Gulf Co-operation Council (GCC). The UAE also benefits from low utilities costs, one of the fastest growing import markets in the region and high internet penetration. We give the UAE a ranking of 73.0 out of 100 in our Logistics Risk Index, in first place in the region and 9.1 points ahead of second placed Israel. Aside from the rating for extent of transport network, the country scores above than 70 for all segments in the logistics index.

In line with much of the Gulf, the UAE's utilities sector presents substantial saving opportunities for...

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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: Th e volume and value of trade in IT products will grow steadily over the medium term, helped by strong domestic consumption in the run up to the 2020 World Trade Expo in Dubai. However, the re-export market faces considerable downside risks in the long term from the likely improvement in the competitiveness of other countries in the region, both in terms of logistics facilities and country risk factors. 

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'...

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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: We downgraded our forecast for the UAE IT market over the next five years to 2018 to reflect the increasing downward pressure on PC sales, especially in the consumer segment where desktops and notebooks are being cannibalised by more mobile form factors such as smartphones and tablets. We expect investments in high capacity servers for data centres to be a key growth driver in the hardware division of the IT market. This will, in turn, boost value growth in the software and services sector s, with cloud-based services expected t o grow rapidly during our forecast period. Meanwhile, the anticipated uptick in investments and visitors into the country in the run-up to 2020 World Trade Expo poses a significant upside risk to growth forecast. We expect...

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Infrastructure

United Arab Emirates Infrastructure

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BMI View:   We are retaining our bullish forecasts for the UAE's construction sector for   2014 and indeed over the next five year period.   2013 saw the reactivation of numerous delayed projects and the awa rd of many new ventures , as well as Dubai being awarded the 2020 Expo.   Dubai's real estate market is raising alarm at the pace of recovery, although at present we view the risk of overheating as minimal.

Factors Driving Construction Industry Growth

  • Numerous measures are being undertaken, such as rent caps and requirements of...

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Insurance

United Arab Emirates Insurance

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BMI View: Looking ahead to the latter half of 2014, we maintain an optimistic outlook for the UAE insurance sector. However, growth will be some way off the market's potential capacity. This is in spite of positive macroeconomic figures for the country as a whole. 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) ]

Considering forecast economic expansion, as well as instability in neighbouring countries, we remain of the view that the UAE will maintain its position as a dominant regional insurance market over the forecast period. The financial reports from listed insurance companies for 2013 and...

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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.

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 CAGR, whilst patient aids are expected to register the lowest CAGR.

    ...

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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 :   The UAE has continued its steady recovery from the global financial crisis without any major disruptions. As the political and economic elite were able to successfully return the country towards a   stable investment climate, the fruits of these efforts ultimately created the conditions   for the UAE to maximize the potential of its significant oil and natural gas reserves. In 2013, according to the country's National Bureau of Statistics (NBS), the UAE's economy grew by over 5%. A major contributing factor cited by the NBS was the country's steadily rising oil exports. This dynamic will bring the UAE that much closer to its target of increasing oil production to 3.6mn barrels per day (b/d) by 2019. We expect steady growth in oil and gas production over the course of our...

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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 continues to appeal to businesses thanks to its growing economy, which will increasingly be driven by the non-oil sector. In particular, the four northern emirates (Ras al-Khalmah, Ajman, Fujairah and Umm al-Quwain) will receive a welcome boost from significant investment and government spending plans. One downside risk is that state intervention in drug pricing is set to become more heavy-handed and frequent as the Gulf Cooperation Council region attempts to unify drug pricing over the next five years. Despite these measures, the region's burden of disease, relative wealth and healthcare infrastructure will make it an attractive region for pharmaceutical companies.

Headline Expenditure...

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Power

United Arab Emirates Power

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BMI View: 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.

Key Trends And Developments

  • Although the UAE is not without its challenges, it is seen as one of the more...

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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 in 2012, and handled 1mn containers in 2013, but the established behemoth, Jebel Ali, has announced plans for a new container terminal, helping it to keep ahead from the growing competition in the region. 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 2014.

Headline Industry Data

  • Sharjah Terminals container throughput (KCT and SCT) is forecast to grow by 5.6% in 2014, averaging 4.8% over the medium term.

  • Jebel Ali container throughput is forecast to grow by 3.0% in 2014...

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Telecommunications

United Arab Emirates Telecommunications

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BMI View: Convergence services will drive long-term growth for telecoms service providers in the UAE , given the growing demand for bundled services on the back of extensive next generation broadband access infrastructure and high consumer spending. du's 'Smart Home' services will resonate with consumers, but the operator faces intense competition from incumbent operator Etisalat in the budding convergence services market. Competition between the operators and the device manufacturers has led to greater innovation as the companies look to differentiate their services.

Key data

  • The mobile market grew by 4.9% q-o-q in Q114 and 17.1% y-o-y in the 12 months March 2014.

  • The fixed-line sector grew by 1.2% q-o-q in...

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Tourism

United Arab Emirates Tourism

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BMI maintains a broadly optimistic stance towards the UAE's tourism sector at the mid-point of 2014. We forecast 8.3% growth in tourist arrivals from all regions, with tourism receipts set to rise by around 9.4% in US dollar terms.

Recent data back up our optimism. According to latest figures from Dubai's international airport, 6.4mn passengers passed through in May 2014, an increase of 11.6% year-on-year (y-o-y). Hotel occupancy rates have also remained robust, averaging 86.1% in Dubai for 2013, up from 82.6% in 2012. Figures for Abu Dhabi are also encouraging. In February 2014, Arabian Business cited figures from the Abu Dhabi Tourism and Culture Authority that showed a total of 2.8mn tourists staying in the emirate over 2013, up by 18% on 2012's figures.

However, despite the good growth seen in Abu Dhabi arrivals, Dubai will continue to account for the lion's share of total UAE arrivals over...

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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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