UAE firms could tap Iran market

Abu Dhabi - Non-oil sectors, especially Dubai's, likely to benefit.

The Iran-US deal offers an "opportunity" to make money for domestic as well as MNCs based in the UAE, say economists and a leading businessman.
The nuclear deal that went operational is seen as an "opportunity" by Hamad Al Awadhi, board member of the Abu Dhabi Chamber of Commerce and Industry.
Talking to Khaleej Times, Al Awadhi quoted UAE Foreign Minister Shaikh Abdullah bin Zayed Al Nahyan, who remarked that the UAE-Iran trade is just four per cent of the nation's total trade. So any deal will not alter the UAE's tall position as a regional business hub and re-export centre, he said.
"Iran is a thirsty market," Al Awadhi said, adding that the best market to satisfy that thirst is the UAE.
"Iran's main export partners are China, India, Turkey, Japan and Korea. and trade will improve with neighbouring countries especially Turkey and the UAE," said Alp Eke, senior economist at National Bank of Abu Dhabi, in a November 16 research note.
Dr Monica Malik, chief economist at Abu Dhabi Commercial Bank, in a recent research note saw the UAE and particularly Dubai's non-oil sectors as a key beneficiary.
"Any pickup in Iran's economic activity, which has been severely hampered by the sanctions, should boost trade and financial flows," the note said. Around 39 per cent of Iran's imports in 2014 originated from the UAE. Iran is the second most important non-oil export destination for the UAE after India, Dr Malik said.
Iran is a sizeable emerging market, with a population of 78 million and nominal gross domestic product of around $400 billion.
However, the economy contracted by around 10-12 per cent in 2012 and 2013 combined in real terms as a result of sanctions, falling oil production, the weakening currency, and rising inflation.
Iran will create solid base for a lot of UAE-based MNCs to setup their operations, Al Awadhi said.
Dr Malik said Iran may well enjoy a period of a strong economic growth of six to eight per cent per annum in the coming years on the back of the lifting of trade and financial sanctions, with growth supported by pent up demand, the low economic base and increased export revenues.
"We have been conservative regarding support for the UAE's non-oil economy from Iran's strengthening economic growth. Most trade with Iran is in the form of re-export, which have a relatively low value add to the UAE economy," she said. "We are also waiting to see the pace of Iranian demand recovery for key UAE non-oil sectors such as tourism and hospitality."
Once the momentum gathers pace, the strengthening in Iran's economic activity could eventually add one to 1.3 percentage points to real non-oil growth, Dr Malik said.
Iran constituted 16.5 per cent of the UAE's re-export market in 2014, though this was down against 2011 prior to the tightening of sanctions in 2012. A pickup in Iranian demand and ability to move funds would also support the UAE's service sectors, such as tourism and hospitality, as well as its real estate market. Iranian tourist numbers to Dubai have fallen, from a peak of 550,000 visitors in 2010 to 275,000 in 2013.
The UAE would also likely become the main hub for international companies looking to invest and conduct business in Iran.
However, any increase in the UAE's foreign investment into Iran will likely be gradual due to the snap back clause and hurdles to conducting business in Iran, she said.
Al Awadhi said that Iran has a lot to do to gain the trust of the regional nations. "Without changing their foreign policy and showing their real change... I don't think anybody would ever risk of doing business," with it.
And for that Iran has to get out of the circle it has drawn around itself after the revolution 30 years ago, Al Awadhi said.
Dr Malik saw a greater multiplier effect on real non-oil sectors from Iranian demand for services, especially tourism and real estate, which could provide upside to ADCB's 2016 non-oil growth forecast. Ultimately, rising Iranian demand could support investment in key UAE non-oil sectors.
Iran will be able to rehabilitate the oil sector and add almost half million barrels by mid 2016.
Within five to six quarters, possibly by mid-2017, Iran will be able to reach pre-sanction levels of 4 million barrels of liquid fuel, NBAD said.
The ADCB research note said "the expected increase in Iranian exports will likely keep the market oversupplied in the year".
On the impact on GCC, the expectation of greater oil exports from Iran has been the central in the January plunge in oil prices, alongside global market volatility.
"We see GCC real non-oil GDP growth decelerating further in 2016 with the pullback in government spending and subsidy reforms. The reforms should also lead to high inflation in 2016," Dr Malik said.
- haseeb@khaleejtimes.com