UAE urged to profit from slump in US
The UAE has been urged to take advantage of cheaper United States exports helped by an expected slump in its economy, as the World Bank reports a booming Middle East imports market. The import sector of Middle East and North Africa (Mena) region recorded an unprecedented growth of an estimated 12 per cent during 2007, five times higher than the US, which stood at two per cent, said the World Bank’s study of global trade.
The Mena region reached a high of 19.1 per cent growth rate during 2006 and is expected to maintain 10 per cent into 2008. Wasseem Mina, assistant professor at the Department of Economics and Finance at the United Arab Emirates University, said an attractive US export market presented opportunities for sustained growth in UAE imports.
“The growth of imports in this region builds on the assumption that the US economy will be in recession over the coming year or so. This means that you have a weaker dollar and therefore cheaper US exports. The UAE should capitalise on this since we import a lot of technology from the US, so this will be helpful,” said Mina.
The World Bank said in 2006 that import growth across developing countries was generally 14.3 per cent, compared to 7.9 per cent in the high-income countries, which includes the US and Japan.
Mina added: “You also have better economic conditions in developing countries who are importing a lot of US exports. The growth in imports of these countries will also help to buffer the overall situation of world trade.” World Bank figures reveal global trade has grown steadily for the past 15 years, but trade in developing countries has accelerated in recent years.
During the 1990s, developing countries’ export volumes increased at an annual pace of 6.8 per cent, roughly the same as the 6.9 per cent export gains of the developed countries. But since 2000, developing countries’ exports have been growing twice as fast as advanced countries, 10.8 per cent a year versus 5.1 per cent a year.
Imports across developing regions were growing at double-digit rates during 2006, as export revenues, which had been boosted by high-volume growth and sharp increases in commodity prices, were being expended, according to the study.
The Global Economic Prospects report said in the coming years developing countries are expected to be the source of more than half of growth in global imports.
Mina said it is likely there will be an increase in the UAE’s imports affecting the services sector, manufacturing and consumer goods sector, areas where prices in US exports are particular attractive. The slowing of developed countries’ imports and of developing countries’ exports was put down to much weaker investment and consumption growth in the US, said the World Bank.
But Mina warned that the strength of the US dollar and depreciation of exports posed a problem for the UAE’s inflation rate.
“The weakening dollar helps to boost inflation in the UAE and the region, thanks to the pegging of the currency to the weak dollar. The UAE should do something about this, perhaps a revaluation of the dirham,” he said.
His comments come after talks over a free-trade agreement between the UAE and the US broke down last month. Officials from the countries confirmed that negotiations would not be resumed under the current US administration. According to the US Trade Representative office in Washington, the two countries have decided they would not be able to conclude FTA negotiations within the time frame originally established by the Trade Promotion Authority granted by the US Congress.
The latest World Bank report also found that at a global level, the slowing of US imports had been offset in part by the strengthening of import demands across developing countries driven partly by robust domestic demand. Over the past seven years, world trade volumes have increased at an average rate of 6.7 per cent. Trade volumes are expanding more than twice as fast as industrial production (global GDP has grown three per cent a year since 2000, up from 2.8 per cent a year during the 1990s).
In current dollar terms, world trade doubled during the 1990s and has doubled again since 2000. The World Bank predicts that growth in developing countries should provide a cushion from the recession expected in key OECD economies over in 2008.
Reversal of fortune
The increase in trade in developing countries also reflects in their share of the world markets. Their market share increased gradually in the 1990s, from 20 to 25 per cent, but since 2000 their share has jumped to 35 per cent, supported in part by higher commodity prices. During the 1990s developing countries’ import growth of 5.7 per cent a year lagged behind that of advance countries (seven per cent), but over the past seven years that position has reversed.
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