UAE seeks 27 trade deals as global growth slows

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• Global trade forecast to expand by 3% this year, a slowdown from 2021
• UAE ranks second in Commodity Trade Index, with US taking top spot
• Developments in virtual assets set to reshape trade
• 2,000 UK firms in Dubai Multi Commodities Centre, 10% of members

Global trade growth is forecast to remain resilient this year, expanding at a rate of three percent, despite a fierce onslaught of headwinds, according to the Dubai Multi Commodities Centre. 

But that represents a significant slowdown from nearly 10 percent in 2021 when global trade hit a record-high of $28.5 trillion.

DMCC’s Future of Trade Report 2022, launched in London on Tuesday, forecasts that global trade should also remain robust over a five-year period despite the economic upheaval of soaring inflation, rising interest rates and commodity prices, as well as tightening monetary policy brought on by Russia’s invasion of Ukraine.

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The UAE looks well placed to weather any economic storm, with the government planning to sign 27 trade deals, including eight before the end of the year, the report revealed.  

Future trade will be driven by a new era of multilateralism with increased bilateral, regional and multiparty deals helping to drive cross-border agreements in new sectors, predominantly in digitalisation and sustainability.

There are already signs of a growth in regionalisation, according to the report, which points to emerging trade corridors between the Middle East and emerging and developing economies of Asia.

Speaking at the launch event, Ahmed Bin Sulayem, executive chairman and CEO, DMCC, said: “Beyond the immediate support from a rebound in pent-up demand from the Covid-19 shock, there are also more long-term changes underway that should support cross-border trade in the years ahead.

“These include increased regionalism, strength in services trade, innovation, and climate politics.

“There is a joint imperative for the future of trade and the building of more crisis-resilient economies – financing the shortfalls in infrastructure and in trade finance.

“Tackling both in a way that is environmentally sustainable will be crucial. So too will be closing the digital divide between countries and sectors to bring the benefits of global trade to all.”

Developments in virtual assets, including central bank digital currencies, stand to reshape global trade by reducing costs and barriers to entry.

The report notes that adoption of blockchain can bring about an 80 percent reduction in data entry requirements and therefore is expected to grow in importance for developing and emerging economies.

Digitalising trade facilitation processes can also lead to faster customs procedures which can help offset the persistent increase in trade costs.

“The extreme volatility that we are currently witnessing in the crypto markets may affect the uptake of digital infrastructure and technologies in trade over the next few years,” Feryal Ahmadi, COO of DMCC, told AGBI.

“But it will be hugely beneficial in the long run, especially in the role it can play in facilitating sustainable cross-border trade and investment.”

While the report is broadly optimistic in its outlook, it doesn’t shy away from highlighting the myriad challenges that lie ahead for global trade.

The fallout from the war in Ukraine has led to a dramatic spike in commodity prices and shipping costs, which in turn are exacerbating supply chain challenges that were already feeling the strain from the global pandemic.

Meanwhile, soaring inflation is leading to both lower import demand and deteriorating export competitiveness.

According to the 2022 Commodity Trade Index, which features in the report, the UAE currently ranks second among the top 10 global trading hubs with the US taking the top spot.

The UAE’s ranking was buoyed by its attractive tax rates and strong performance in trade logistics.

Earlier this month, the DMCC recorded its strongest ever first-half year performance, registering 1,469 new companies in the first six months of 2022.

This represents a 19 percent increase over the same period last year. In June alone the DMCC welcomed 323 new businesses, the best monthly performance since its inception in 2022.

This follows on from record-breaking numbers for 2021 when the DMCC attracted 2,485 new members. Today there are over 21,000 registered businesses.

Growth has been driven by high volumes of trade for diamonds, tea and coffee and continued interest in the DMCC Crypto Centre since its launch in mid-2021; 14 percent of new company registrations this year relate to crypto activities.

New markets

European and South American firms have been leading the charge to set up in the free zone, accounting for 40 percent of new registrations in the first half of 2022.

China and India meanwhile constitute a combined 20 percent of new members for the same period.

“China and India continue to be crucial target markets for DMCC, but we are also looking to foster greater trading ties with other countries such as the Philippines, Egypt, Lebanon, as well as the US and the UK,” Ahmadi said.

The DMCC has also been forging new partnerships to drive growth.

In June DMCC signed an agreement with the United States’ Brooklyn Chamber of Commerce that will see the two entities collaborate on a number of initiatives to promote bilateral trade and support the international expansion of American businesses through Dubai.

And in May the DMCC announced that it had signed a memorandum of understanding (MoU) with international investment holding company UVentures to co-develop a trade hub and free zone in Colombia.

The zone, which will be modelled on the DMCC, will be located in the coastal city of Cartagena and become South America’s first common law district arbitration centre.

The UAE’s bilateral trade relationship with South America is valued at nearly $7 billion, but Colombia represents just five percent of its total trade volume.

“Colombia is a commodity-rich country that offers huge potential for increased trade,” said Ahmadi.

“And the DMCC has a lot of expertise that we can share. We are certainly open to exploring MoU’s with other countries.”

Last year the Dubai government announced a five-year plan to elevate the emirate’s foreign trade from AED1.4 trillion ($381.16 billion) to AED2 trillion.

The UK launched free trade negotiations with the GCC last month aimed at securing a free trade deal. While the deal was originally slated to close by the end of 2022, industry experts have said this now looks unlikely. 

“Such deals are complicated to draw up as they involve many players and so they take time,” Ahmadi said.

“The UAE, and we at the DMCC, have been creating our own partnerships with the UK which puts us in a strong position to increase trade going forward.”

The DMCC has been playing an active role in developing UAE-UK trade relations and is currently home to almost 2,000 British companies, equating to 10 percent of all members.