How the UAE’s trade pacts lift the growth path

The government of the United Arab Emirates is pursuing deepening trade and investment relations with countries including India, Turkey, Israel, and Indonesia in the form of Comprehensive Economic Partnership Agreements (CEPAs). The specific scope of the CEPAs goes beyond mere trade agreements and includes rules for investment, competition, and public procurement.

The UAE's recent CEPAs are likely to enhance economic growth, although the magnitude of the effect is debatable. The more CEPA agreements are eventually signed and set in force, especially with countries that promise excellent investment opportunities, the better for the UAE economy. Trade with CEPA members will most likely outpace trade growth with the Gulf Cooperation Council (GCC) members as trade with CEPA members will catch up to the level that has already been achieved in the free trade-relations with the GCC. Inclusion of other GCC members — most importantly Saudi Arabia — in the growing network of CEPA agreements would likely supercharge the level of economic integration in the Arab world and beyond.

According to the UAE government, negotiations are ongoing with 26 countries over similar CEPAs. Since the average negotiation time for the first round of CEPAs has been relatively short — between six and nine months — we expect the next CEPAs to be announced in the next couple of months with relatively high frequency. Countries that the UAE is currently in negotiations with include Malaysia, Vietnam, Thailand, Philippines, Ukraine, and Serbia.

Growth-enhancing effects

The UAE has amassed huge oil-sponsored wealth in the last couple of decades. The windfall in 2022 from high oil prices only added to that. These funds need to be prudently and securely invested, which means that the UAE has incentives to ensure that investments are safe. A CEPA is a perfect way to do that. The UAE also has developed expertise in the energy sector, including renewables, where both the host country as well as the UAE could benefit from further deepening ties and sharing expertise.

The UAE imports most of its non-energy basic goods, such as food products. Securing a steady flow of food imports from countries like Turkey is essential for the UAE economy and is essential for the competitiveness of the UAE's tourism sector. It would also maintain the UAE's attractiveness as a location for residents.

With Jebel Ali, the UAE already has the most important regional port and one of the leading ports globally. Likewise for air transport, the Dubai airport is a critical hinge for air travel and transport between the commercial centers of Asia and Europe. In 2021, the latest year for which comprehensive trade data for the UAE is currently available, re-exports already accounted for 45% of total exports (including re-exports) from the UAE. The CEPAs will cement this position and hand the ports opportunities to develop further.

Cheap imports, new investment opportunities in innovative sectors, trade routes, provision rules for government, and functioning competition rules are all elements of a fast-growing economy. S&P Global Market Intelligence believes that there is considerable potential for the UAE economy to create jobs once those elements are added up. Investment inflow to the UAE was the highest in the Middle East and North Africa (MENA) region in 2022; according to UNCTAD, the UAE received US$22 billion of direct investments last year. This signals the UAE's attractiveness for investment flows.

Services and regulations governing procurement of public services will likely play an important role for stimulating growth. India is a service provider (e.g., business-process outsourcing) and a consumer of services (e.g., tourism), and services trade between India and the UAE will likely develop considerably and stimulate growth.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.