Despite prospering from inflated energy prices, the UAE economy is still driving its diversification ambition
Last week’s news of the UAE’s non-oil trade value soaring past the AED1 trillion mark over the first half of 2022, indicates the market remains robust despite global headwinds.
Despite prospering from inflated energy prices, the UAE economy is still driving its diversification ambition. While this headline is certainly positive and telling of the direction the UAE is going, understanding the how and why is also important.
The UAE government has been active in establishing trade agreements—most recently with India, Indonesia and Israel—which naturally help to grow trade volumes. With more agreements expected to be made in the near term, these deals should support further growth in both imports and exports.
However, beyond this, the government has been pushing a strong reform agenda over the past several years and has made notable changes to the business landscape in the post-covid era. This opened up the nation to international talent and foreign investors, with the 8% rise in non-oil exports an indication that this strategy is beginning to bear fruit.
Non-oil imports also rose by 19 percent from 2021, signalling strong domestic demand, which corroborates S&P’s latest Purchasing Managers’ Index (PMI) report. While this suggests the market should remain robust, the much quicker growth in imports against exports widens the non-oil trade deficit. With diversification a key objective of the UAE’s Vision 2030 economic strategy, the deficit will be used as a benchmark for progress.
Another key factor in breaking the AED1 trillion non-oil trade mark was re-exports, increasing 20 percent from the previous year, although this growth will likely be due, at least in part, to rising prices. As a result, these figures could come down should supply pressures start to ease in non-oil commodity markets. Nevertheless, trade agreements, such as the one with India, will help to keep re-export volumes elevated.
Looking through the headline data, the signs are positive for the UAE, as it enjoys a prolonged period of growth, which will ensure the economy remains robust. The strong domestic landscape is expected to continue to boost imports, while investment, reducing trade barriers and new business-friendly reforms will all help maintain export volumes.
Overall, the UAE breaking the AED1 trillion mark for non-oil trade in 2022 H1 demonstrates the nation’s continued robust growth dynamic. Looking forward, the UAE is set to become increasingly competitive and is strengthening its place on the global stage.