New financing and financial security channels are likely to help export and re-exporting firms in Dubai cement recent gains and create a foundation for the emirate’s further growth as a retail transit centre.
On March 17 Dubai Customs signed a memorandum of understanding with the Dubai Free Zone Council to implement a virtual stock guarantee (VSG) initiative, a move that will provide financial support to free zone (FZ) companies and Customs warehouses involved in the re-export of the emirate’s retail goods.
The resulting facilities are designed to boost re-exports – or exports of foreign products and services – by making duty guarantees available to FZ-registered firms that send goods abroad via air and sea ports in the emirate, or through land exits to the wider UAE. The VSG policy, which is the first of its kind in the world, is intended to help solicit foreign investment and create a virtual trade zone as part of Dubai Customs’ larger push to develop smart services.
FZ-registered companies and firms that re-export goods stored in Customs warehouses will have access to greater financial flexibility with these guarantees, with more than Dh455bn ($123.9bn) in securities being made available for this purpose. Of that total, Dh327m ($89m) will be allocated to bank guarantees, while Dh128m ($34.9m) will fund cash guarantees.
There are currently over 18,000 companies operating in the emirate’s 24 FZs and 37 Customs warehouses. Such businesses are required to apply to the Client Management Department of Dubai Customs to make use of the funds and other VSG facilities, which became available on March 23.
See also: The Report – Dubai 2019
FZs drive growth in outgoing trade in 2018
The development comes as figures from Dubai Customs show that the growth of non-oil re-exports from FZs was particularly strong last year. Their value rose from Dh173bn ($47bn) in 2017 to Dh225.6bn ($61.4bn) in 2018, accounting for 42.6% of total exports and re-exports, as well as 17.4% of total trade.
Moreover, the 30.4% expansion in FZ re-exports stood in contrast to contractions of 11.3% and 5.4% in exports and re-exports conducted via direct foreign trade, respectively, as well as a mere 1.3% gain in the value of FZ exports.
FZ re-exports are already a major growth driver of Dubai’s outgoing trade, and the VSG has the potential to boost their importance as the policy is rolled out this year. The VSG could also help to ameliorate the 73.5% contraction in non-oil trading experienced by Customs warehouses last year, with the value of imports and exports falling from Dh39.2bn ($10.7bn) in 2017 to Dh10.4bn ($2.8bn).
China remained Dubai’s largest non-oil trading partner in 2018, with total commerce between the two reaching Dh139bn ($37.8bn). India was the emirate’s second-largest trading partner at Dh116bn ($31.6bn), followed by the US (Dh81bn [$22.1bn]), Saudi Arabia (Dh55bn [$15bn]) and Switzerland (Dh49bn [$13.3bn]).
Despite the ongoing tariff dispute between the US and China – two of the emirate’s largest trading partners – and the emergence of a protectionist approach in US trade policy under the administration of US President Donald Trump since 2017, industry stakeholders in Dubai remain optimistic about further domestic growth.
“We have seen growing interest and commitments from both developed countries and emerging markets in improving relations with the UAE, as well as between Dubai and many of its largest trading partners, including China and India,” Hamad Buamim, president and CEO of Dubai Chamber of Commerce and Industry, told OBG earlier this year.
“Evidence of this can be found in the growing trade and investment flows between the Middle East and Asia,” he added.
Among the logistical means used to move goods in and out of Dubai last year, airborne trade was valued at Dh612bn ($166.6bn), followed by sea trade at Dh483bn ($131.5bn) and land trade at Dh205bn ($55.8bn).
DAFZA posts growth and bolsters investment
Underlining the importance of air shipments to the emirate’s overall trade landscape, data from the Dubai Airport Freezone Authority (DAFZA) showed that the site accounted for 11% of Dubai’s non-oil foreign trade last year with a value of Dh146bn ($39.8bn), up from a 7% share worth Dh90.2bn ($24.6bn) in 2017.
That growth was driven by a 90% expansion in the value of exports and re-exports, which reached Dh83.3bn ($22.7bn) in 2018. Meanwhile, imports rose by 35% to Dh62.5bn ($17bn), resulting in a trade surplus of Dh20.8bn ($5.7bn).
The authority’s other indicators were similarly healthy: DAFZA recorded 22% growth in 2018 in the number of companies registered at the FZ, as well as increases of revenue and net profit of 8% and 5%, respectively.
With plans to bolster this sizable contribution to Dubai’s economy, DAFZA announced earlier this month that Dh780m ($212.4m) of its Dh1bn ($272.3m) budget for 2019 – more than three-quarters of its funding – will be allocated to new expansion projects.