The automotive sector in Dubai has seen some spectacular growth in recent times, with a recent and widespread economic recovery and the new mood of consumer optimism driving domestic demand.
At the same time, there has also been major growth in exports and re-exports in recent months, with Dubai’s geostrategic location and good logistical links clearly feeding the emirate’s development as an international automotive hub. In this too, the benefits of Dubai’s free trade zones are also a significant help.
Indeed, a recent Economist Intelligence Unit (EIU) survey showed that the UAE ranked 9th in the world in terms of positive growth expectations for automotives, excluding the BRICs. A Nielsen survey in spring 2014 also forecast that in the UAE, the next two years would see around three-quarters of the population (74%) buy a new or pre-owned car.
Maintaining that edge while responding to an increasingly competitive global market facing a generalised international slowdown is the challenge. Keeping abreast of the latest developments in world trade talks and free trade areas is also crucial, as the planet moves towards even more integrated crossborder production and distribution.
Facts & Figures
In 2013 a total of 360,800 vehicles were sold in the UAE, according to industry statements in the local press, which indicated annual growth of 16% on 2012. The figure also meant that the previous record for annual sales – around 350,000 in 2008, pre-crisis – has now been broken.
For the year to May 2014, sales were reported to be 12% up on the year to May 2013, with industry insiders suggesting that the year-end figure would be around the 400,000-unit mark. Thus, while slowing, expansion is still well above that in many other markets, with specialists Alix Partners suggesting overall annual MENA growth would average approximately 7% over the next five years.
According to the latest data available from the Dubai Statistics Centre (DSC), vehicles, aircraft and vessels accounted for some Dh14.64bn ($4bn) in reexports in the first half of 2014, along with Dh1.34bn ($364.7m) in exports and Dh35.95bn ($9.8bn) in imports. The figures for the whole of 2013 were Dh28.28bn ($7.7bn) in re-exports, Dh591m ($160.9m) in exports and Dh70.06bn ($19.1bn) in imports, suggesting that 2014 will see small growth in re-exports and imports, along with substantial growth in exports.
Separating out the contribution to these figures made by the automotive sector is not straightforward, but in September 2014, Ibrahim Mohammed Al Janahi, the chief commercial officer of Economic Zones World (EZW), which is the parent company of the Jebel Ali Free Zone Authority (JAFZA) and which was recently bought by DP World, told reporters that the free zone’s 625 automotive companies – by far the highest concentration of the sector in the emirate – had generated trade worth Dh17bn ($4.6bn) in 2013, a figure some 13% up on 2012.
JAFZA figures also show a pattern of continuous growth – in 2011 the zone saw automotive trade worth Dh14bn ($3.8bn), compared to around Dh10bn ($2.7bn) in 2009. He also said that the number of automotive companies located in the zone had increased four-fold in the previous 10 years. Indeed, JAFZA figures show that 504 automotive firms were active in the zone in 2011 compared to 467 in 2010. According to Dubai Customs statistics quoted in the local press, the emirate’s automotive exports are led by automotive parts and accessories, tyres, vehicle body parts and engine parts. The main trans-shipment destinations for the sector were Iran, Saudi Arabia and Afghanistan in 2013, with the auto parts trade having grown 27% in the four years to the end of 2013.
The Attraction
JAFZA has become the centre for the sector due to a number of factors. First, there are the considerable advantages of the free zone itself. These include the option of 100% foreign ownership of companies based there, exemption from corporate taxes for 50 years, on a renewable basis, and exemption too from personal income tax, import and re-export duties. Firms in the zone can also hire whom they like, as they are not bound by Emiratisation policies, and there are also no currency restrictions. The free zone also offers one-stop-shop services for setting up companies, visas and permits.
Then there are the considerable advantages of Dubai itself for export, import and re-export businesses. These include the port of Jebel Ali, where the zone is located, which has a 15m-container-per-year capacity and is serviced by some 170 different shipping lines, making it one of the most interconnected ports in the world. Dubai also enjoys excellent air connections, with Dubai International the world’s 8th busiest air cargo terminal. Road links are also excellent for forward shipment to neighbouring emirates, Saudi Arabia and Oman. Soon too, the pan-Gulf rail network will link Jebel Ali to all the major cities of the GCC region via the UAE’s own stretch, run by Etihad Rail.
A sister organisation to JAFZA, and also run by EZW, is the Dubai Auto Zone (DAZ), where industry buyers, sellers, providers, principles and traders are all brought together. Located on the highway midway between Jebel Ali port and Dubai International Airport, according to EZW, DAZ saw a 63% increase in trade in the first half of 2014, up $544.5m to reach the Dh5bn ($1.4bn) mark.
Growing Markets
Around 420 companies were located within DAZ in July 2014, according to EZW, with the zone offering facilities to enable the sale and purchase of cars without any taxes or restrictions. The main markets for DAZ are Africa, Asia and in recent times, Russia. The zone was full mid-year, with plans to extend it in the pipeline.
Driving DAZ’s success is the growth in disposable incomes in a number of emerging markets, coupled with Dubai’s connectivity and reputation for having a seamless trading infrastructure. Thus, recent years have seen countries such as Tanzania, Burundi and Rwanda become important markets for vehicles that have passed through DAZ, along with Asian markets such as the Philippines. According to comments by Frost & Sullivan in the local press, sub-Saharan countries such as Nigeria, Angola, the Republic of Congo and other North African countries currently account for around one-third of all auto-exports from the UAE, with expectations strong that this may rise to 50% in the next few years, due to economic growth in Africa. The top brands in this re-export trade were Japanese, due to their overall high resale value.
Key in developing this trade too has been EZW’s Dubai Cars & Automotive Zone (DUCAMZ). This was set up in 2000, as part of DAZ, and re-exports used cars to the African and Asian markets. DUCAMZ is located at Ras Al Khor, with easy access to ports and highways. As a free zone, firms located there are entitled to all the benefits of other EZW sites.
Accounting for some of the recent surge in vehicle sales has also been the return to easier availability of credit. This has bolstered the second-hand car market too, with deposits of around 20% and interest rates sometimes under 4% available in 2014.
UP MARKET: Dubai – and the UAE more generally – is also a regional hub for luxury and high-end car sales. Indeed, 2013 saw the number of millionaires in the UAE return to its pre-crisis levels, with WealthInsight forecasting 54,600 millionaires in the UAE by the end of that year – 59% of them resident in Dubai.
Rolls-Royce dominates the ultra-luxury segment of this market – those cars that sell for over Dh1m ($272,200) – with a market share of around 70%, according to local dealers. AGMC, which sells the brand in the UAE, reported a 24% surge in sales in the UAW during the first half of 2014.
AGMC is also the official importer for BMW, with the dealer reporting sales of these surpassing 5000 for the first time ever in 2013. Insiders suggested that while Saudi Arabia has twice the volume in car sales of the UAE, the UAE has around twice the luxury car sales of Saudi Arabia.
Dubai has also been building its own supercar in recent times, with the Dubai Roadster, retailing at around Dh400,000 ($108,880), due to go on sale in 2015. This is the first such vehicle to be built in the UAE, with Emirati engineers working on the project. The sports car will have a 400-HP engine, capable of accelerating 0-100 Kph in 3.5 seconds. The project illustrates the emirate’s growing local skills base, with spin-offs for the wider automotive sector in terms of technology transfer and innovation.
Going Forward
With the long-term goal of making the emirate a centre for global innovation, this latter point could well be a future direction for the automotive market. Yet for now, Dubai looks set to continue to develop as a re-export and export hub, combined with a vibrant domestic market.
With much of its overseas trade tied to markets that are likely to see sustained future growth – such as Africa and Asia – the prospects are especially good for Dubai, with other trends, such as falling oil prices, also likely to give the sector an added boost.
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