trade, economy and investment monitor report foreign … and investment moni… · trade, economy...

1

Trade, Economy and Investment

Monitor Report

Foreign Trade Division

Foreign Trade Policy Department

2nd Quarter 2015

2

CONTENTS PAGE NO

EXECUTIVE SUMMARY 3

TRADE MONITOR 5

EFTA- GCC FREE TRADE AGREEMENT 6

WORLD TRADE REPORT 10

SILK ROAD ECONOMIC BELT & 21st CENTURY MARITIME SILK ROAD 13

ECONOMY MONITOR 15

WORLD BANK GLOBAL OUTLOOK REPORT 16

IRAN NUCLEAR DEAL 16

UAE STATE OF ECONOMY 18

UAE CENTRAL BANK AND MONEY SUPPLY 22

OIL PRICE AND MARKET ANALYSIS 27

GREECE CRISIS 29

DIFC 10 YEAR STRATEGY 31

INVESTMENT MONITOR 33

UNCATD GLOBAL INVESTMENT REPORT 2015 34

COUNTRY OF FOCUS – GEORGIA 35

INVESTMENT HIGHLIGHTS 46

3

EXECUTIVE SUMMARY

World trade registers modest growth in first quarter 2015 and the volume of world

merchandise trade increased modestly in the first quarter of 2015, with growth in both

exports and imports registering slower growth than over the previous six months.

Effective from July 1st Free Trade Agreement between EFTA and GCC countries will

be implemented and the Agreement covers a broad range of areas including trade in

goods, trade in services, government procurement and competition. The agreement

provides for immediate tariff elimination on most industrial goods originating from

EFTA and the GCC. This agreement will benefit International trade between

countries and also will forge a strong economic relationship between these countries.

Global Economy is expected to grow 2.8 percent in 2015, slightly less than earlier

forecasts and forecasted to strengthen moderately to 3.3 percent in 2016 and 3.2

percent in 2017. Policy Makers around the globe especially emerging nations and

low income countries are worried about two big challenges. One monetary tightening

by US Fed and the repercussions of low commodity prices.

UAE’s Gross domestic Product at current prices in 2014 was recorded at AED 1.46

trillion when compared to AED 1.42 trillion in 2013. GDP at current prices grew at a

rate of 3.2% in 2014 when compared to 3.7% in 2013. GDP growth rate in constant

2007 prices was 4.6% in 2014 when compared to 4.3% in 2013. Growth was

moderate despite low oil prices in second half of 2014.

Currently UAE Central Banks Assets has to AED 332.7 Billion in May 2015 compared

to AED 322.4 Billion in May 2014 a YOY increase of 3.2%. Creation of Money causes

increase in Assets of UAE’s Central Bank which signals an expansionary policy

adopted. Gross Assets of Banks in UAE increased by 3.3% in Q1 2015 to reach AED

2,380 Billion when compared a decline of -0.3% in Gross assets in Q4 2014.

DIFC announced its 10 year Strategy which aims to position the Centre among the

top 10 financial centers globally and domicile 1000 financial firms from its current 362

firms. Apart from this also targets increasing combined workforce of Centre from

17,860 in 2014 to 50,000 by 2024.

WTI Crude Oil bench mark has fallen more than 18% to reach levels of $50 a barrel

from the Highs of $62 per barrel in mid-May. Uncertainty in global economy and

excess supply are the concerns which are driving Oil prices down again. Some of the

factors causing Oil fall are Iran Nuclear deal, Slow-down in China, Greece Crisis and

US Shale supply resilience.

Greece has voted ―no‖ on Europe’s bailout terms and it might have a severe impact

on global economy and this crisis had impacted Equity markets in most of the

developed countries. Chinese Equity markets are falling due to asset bubbles which

crept in Chinese stock markets are about burst. Though Chinese regulators and

policy makers’ efforts to save the crash have not been able to stop equity market

crashes. Turkish markets fell due to political uncertainty after recent national

elections. Though Saudi Stocks rallied due to opening up for Foreign Investors which

is seen as positive move for the region.

Diplomats from the United States, the UK, France, China, Russia and Germany have

finally completed a deal with Iran meant to prevent it from developing nuclear

weapons. In exchange for limits on its nuclear program, Iran will come out from under

4

some economic sanctions while being allowed to continue a peaceful nuclear

program. In a nutshell this deal was reached to set limits on Iran's production of

nuclear weapons

Global foreign direct investment (FDI) inflows fell by 16 per cent in 2014 to $1.23

trillion, down from $1.47 trillion in 2013. FDI inflows declined in contrast to growth in

global GDP, modest growth in Trade and employment figures. The decline in FDI

inflows I 2014 was influenced due to Global crisis and slowdown of major economies,

uncertainty for Investors over government policies, Increased Geo-political risks.

Chinese leadership announced a strategic vision to build belt and road routes

connecting through continents of Asia, Europe and Africa. This project once

succeeded will connect Vibrant East Asia economic circle at one end and developed

European economy at other end. This will be a renewed connectivity both within Asia

and between Asia and Europe, both by land and by the sea, and both by means of

strengthening traditional infrastructure and through building highways of trade,

finance and cultural exchange to strengthen connectivity.

Georgian Economy recorded an impressive growth of 5% in 2014 and it is estimated

that the economy will grow by 5% in 2015. Georgian Economy is dominated by

sectors such as Agriculture, Manufacturing, and Construction & Real Estate

activities, Wholesale & Retail activities. Sectoral contribution of Manufacturing,

Construction and Wholesale & retail services has increased significantly. Georgian

Economy is heavily dependent on foreign direct Investments and any slowdown in

FDI is affecting its economy. Georgia with its competitive advantages include

strategic location, low input costs for Businesses and business friendly government

regulations.

5

TRADE MONITOR

6

EFTA – GCC FREE TRADE AGREEMENT

EFTA AT A GLANCE

European Free Trade Association (EFTA) is an intergovernmental organization set

up for the promotion of free trade and economic Integration to benefit its 4 member

states. EFTA member states are Iceland, Liechtenstein, Norway and Switzerland

The Association is responsible for the management of

EFTA Convention which forms the basis for the free trade relations between

EFTA states. It covers trade in goods and services and includes areas such as

Investment and the free movement of persons

EFTA’s worldwide network of free trade and Partnership agreements and

European Economic Area (EEA) agreement which enables the 3 out of 4 EFTA

member states (Iceland, Liechtenstein, and Norway) to participate in European

Union’s internal market (European Union and three states of EFTA is referred to

as Internal Market).

EFTA ECONOMIC INDICATORS

Country/ Region (Figures in 2013 ) USD Million

Iceland 11,535

Liechtenstein 4,269

Norway 393,098

Switzerland 516,068

EFTA -Total 924,970

World 75,621,858

EFTA's Share in global GDP 1.22%

Exports to EFTA from GCC countries have remained flat over the years at USD 1.1

Billion but Imports have increased from USD 5.5 Billion in 2009 to USD 8.1 Billion in

2013.Growth in Total Trade between EFTA-GCC has been positive and a slight drop

in growth is attributed due to global slowdown. But Exports from GCC to EFTA have

seen a negative trend and recorded -0.3% growth in 2013. Imports have been

increasing at a greater pace and recorded 6% growth in 2013.

GCC EFTA TRADE IN USD BILLION

6.5 6.8

7.8

8.7 9.2

2009 2010 2011 2012 2013

BIL

LIO

N U

SD

TOTAL TRADE EFTA-GCC IN USD BILLION

7

EXPORTS & IMPORTS BETWEEN GCC AND EFTA

EFTA –GCC EXPORTS AND IMPORTS GROWTH

SUMMARY OF FTA BETWEEN GCC & EFTA REGIONS

The Agreement covers a broad range of areas including trade in goods, trade in

services, government procurement and competition. The agreement provides for

immediate tariff elimination on most industrial goods originating from EFTA and the

GCC. Major sectors that will benefit from the elimination of tariffs include

telecommunications, electrical and electronic equipment, petrochemicals, watches

and jewelry, machinery and iron and steel related industries

In addition to this free trade agreement, the GCC and EFTA member states have

concluded agreements on trade in basic agricultural products on a bilateral basis.

Agricultural products originating in the GCC and EFTA will benefit from the

elimination or reduction of tariffs upon the entry into force of the agreements or for a

few products imported into the GCC after a five-year transition period.

CURRENT STATUS OF FTA

The EFTA-GCC Free Trade Agreement entered into force on 1 July 2014. While the

EFTA States have fully applied the agreement since the date of entry into force, GCC

countries have not yet implemented the agreement due to some technical issues, in

particular in connection with the use of the certificate of origin (form EUR.1). Member

1.0 1.3 1.2 1.1 1.1

5.5 5.5

6.7

7.6 8.1

2009 2010 2011 2012 2013

BIL

LIO

N U

SD

EXPORTS & IMPORTS BETWEEN GCC & EFTA

GCC Exports to EFTA GCC Imports from EFTA

4.8%

15.7% 11.4%

5.3%

27.8%

-9.5% -4.7% 0.3%

0.6%

21.5%

14.2% 6.0%

-20%

-10%

0%

10%

20%

30%

2010 2011 2012 2013

GR

OW

TH

IN

PE

RC

EN

TA

GE

EFTA GCC TRADE GROWTH

Total Trade EFTA-GCC GCC Exports to EFTA GCC Imports from EFTA

8

states of the GCC have now informed EFTA they will fully apply the EFTA-GCC Free

Trade Agreement as from 1 July 2015.

IMPACT OF FTA WITH EFTA ON UAE

1. Increased volume of International Trade between UAE and EFTA Countries

Total trade between UAE & EFTA in 2013 was around AED 47.4 Billion.

Trade between UAE & EFTA to total trade of UAE with world was around 4.4% in

2013 which is significant portion of UAE’s International trade. With the

implementation of GCC-EFTA free trade agreement, it is expected that volume of

trade will increase due to less trade restrictions or barriers such as import quotas,

taxes and non-tariff barriers. This FTA shall give Businesses in UAE free access

to EFTA region and focus on comparative advantages of the two regions which

will increase the volume and variety of products & Services traded between EFTA

and UAE.

Source: UAE National Bureau of Statistics


2. Exports become cheap for UAE exporters

Non-oil exports from UAE to EFTA countries have seen a declining trend over the

past five years. Non–oil Exports to EFTA region by UAE was AED 8.7 Billion in 2009

and increased drastically to AED 55.7 Billion in 2012 and then fell sharply to AED 9.1

Billion. With the Implementation of Free Trade agreement, Exporters based out of

UAE will have a positive impact due to removal of duties on Goods and services

originating from UAE. This FTA will benefit UAE more than other GCC Countries as

UAE is top trading partner with EFTA region.

23.9 31.1 34.1

83.0

47.4

2009 2010 2011 2012 2013TR

AD

E I

N B

ILL

ION

AE

D

UAE EFTA TRADE (Billion AED)

3.6% 4.1%

3.7%

7.8%

4.4%

2009 2010 2011 2012 2013

PE

RC

EN

TA

GE

EFTA -UAE TRADE AS % OF UAE -WORLD TRADE

9

3. Increase in Foreign Direct Investments from EFTA region Free trade agreement between GCC and EFTA will encourage companies from

EFTA & GCC region to set-up their manufacturing and regional distribution

centers in corresponding regions. FTA will not just eliminate tariffs, they also

address cross border barriers that impede the flow of goods and services

between parties, encourage investment, enhance cooperation, and can address

other issues, such as intellectual property, e-commerce and government

procurement. EFTA region has more than 16 companies which are in top 500

companies in the world. These MNC’s with access to capital and technology will

bring Investments and technology to UAE which will help in economic growth of

the region.

POLICY SUGGESTIONS

1. Awareness creation about GCC-EFTA free trade agreement:

Awareness creation about GCC-EFTA free trade agreement among the

businesses in UAE and encouraging exporters from UAE to identify new trading

opportunities which will increase Volume of Exports and Imports and highlight

potential benefits to businesses due to implementation of FTA.

2. Increasing Collaboration between UAE & EFTA region:

UAE government can proactively build platforms for collaboration of companies

from EFTA and UAE to exploit opportunities in trade and Investment.

Government delegations between UAE and EFTA

Connecting UAE & EFTA Commerce & Business associations

Sector specific events connecting Businesses

3. Identification of Products and Services in demand in EFTA Region

Government of UAE can formulate Market study to understand the EFTA region

and publicize the report among business communities to generate initial interest

for Outward FDI Investments and Trading opportunities for UAE businesses.

The Study shall focus on achieving below results

Identification of Services and Products which are in demand in EFTA region

and which companies based out of UAE can potentially have an advantage to

meet the identified demand

Sectors of interest for Trade and Investment opportunities which are

potentially attractive and suits the Investor & traders appetite in UAE

11.0 12.2 16.0

19.8

34.8

8.7 16.0 14.5

55.7

9.1

4.1 2.8 3.5 7.4 3.5

2009 2010 2011 2012 2013

AE

D B

ILL

ION

UAE TRADE WITH EFTA COUNTRIES

Imports from EFTA to UAE Exports from UAE to EFTA Rexports from UAE to EFTA

10

4. Technology transfer to support Innovation strategy of UAE

EFTA region is known for some of the top companies in world. These Multi-

national companies which have access to technology and capital can be attracted

for FDI in UAE and technology transfer to support Innovation strategy.

WORLD TRADE REGISTERS MODEST GROWTH IN FIRST

QUARTER 2015

The volume of world merchandise trade increased modestly in the first quarter of

2015, with growth in both exports and imports registering slower growth than over the

previous six months. According to preliminary estimates issued on 24 June by the

WTO and the United Nations Conference on Trade and Development (UNCTAD),

world trade as measured by the average of exports and imports grew 0.7 per cent in

the first three months of 2015, based on seasonally adjusted data. World exports

increased by 0.4 per cent in the first quarter of this year, down from the 2.1 per cent

growth registered in the previous quarter. Imports grew by 0.9 per cent in the same

period, down from 1.5 per cent in the previous quarter.

Source: UNCTAD Database


133.1 133.9 134.4

135.3 136.3 136.5

138.3

141.1 141.7

1.7%

0.6% 0.4%

0.6% 0.7%

0.1%

1.3%

2.1%

0.4%

0%

1%

2%

3%

125

130

135

140

145

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

- G

row

th i

n %

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

WORLD EXPORTS

130.9 131.6 131.8

133.2 134.0 133.8

135.7

137.8

139.0

1.2%

0.5%

0.2%

1.1%

0.6%

-0.2%

1.4%

1.5%

0.9%

-1.0%

0.0%

1.0%

2.0%

126

128

130

132

134

136

138

140

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

- G

row

th i

n %

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

WORLD IMPORTS

11

DEVELOPING ECONOMIES IMPORTS AND EXPORTS TRENDS



Exports of Developing countries marginally increased by just 0.4% in Q1 2015 when

compared to a growth of 2.1% in Q4 2014. Imports increased by 0.9% in Q1 2015

when compared to a growth of 2.8% in Q4 2014.

TRANSITIONAL ECONOMIES IMPORTS AND EXPORTS TRENDS


182.7 180.1 184.6

189.8 191.4

1.6%

-1.4%

2.5% 2.8%

0.9%

-2%

-1%

0%

1%

2%

3%

4%

172

176

180

184

188

192

196

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex,

seaso

nall

y

ad

just

ed

(2005=

100)

- G

row

th i

n

%

Volu

me I

nd

ex,

seaso

nall

y

ad

just

ed

(2005=

100)

DEVELOPING ECONOMIES- IMPORTS

136.3 136.5

138.3

141.1 141.7

0.7%

0.1%

1.3%

2.1%

0.4%

0%

1%

2%

3%

132

136

140

144

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Volu

me I

nd

ex, se

aso

nall

y a

dju

sted

(2005=

100)

- G

row

th i

n %

Volu

me I

nd

ex, se

aso

na

lly a

dju

sted

(2005=

100)

DEVELOPING ECONOMIES- EXPORTS

202.1 197.2

192.2

177.0

165.7

-4.0%

-2.4% -2.5%

-7.9%

-6.3%

-9%

-7%

-5%

-3%

-1%

1%

100

120

140

160

180

200

220

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex, se

aso

na

lly

ad

just

ed

(2005=

100)

- G

row

th

in %

Volu

me I

nd

ex, se

aso

na

lly

ad

just

ed

(2005=

100)

TRANSITIONAL ECONOMIES- IMPORTS

12


Transitional economies are economies which are changing from a centrally planned

economy to a market economy. This category includes countries like china, Russia,

Kazakhstan etc. Imports to these transitional countries have seen a long term

negative trend of falling imports in volume and this trend has continued even in Q1

2015. Imports to these countries have declined by -6.3% in this quarter when

compared to -7.9% in previous quarter. Volume of Exports have increased

tremendously from 0.7% in Q4 2014 to 8.9% in Q1 2015

DEVELOPED ECONOMIES IMPORTS AND EXPORTS TRENDS



126.9

123.2 123.3 124.2

135.3

1.8%

-2.9%

0.1% 0.7%

8.9%

-4%

0%

4%

8%

12%

116

120

124

128

132

136

140

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

- G

row

th i

n %

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

TRANSITION ECONOMIES- EXPORTS

111.3 112.1 113.1 114.4 115.8

0.4%

0.7%

0.9% 1.1%

1.3%

-1%

-1%

0%

1%

1%

2%

100

105

110

115

120

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex,

seaso

nall

y

ad

just

ed

(2005=

100)

- G

row

th i

n

%

Volu

me I

nd

ex,

seaso

nall

y

ad

just

ed

(2005=

100)

DEVELOPED ECONOMIES- IMPORTS

121.8 122.4

123.7

125.6 125.1

0.0%

0.5%

1.0%

1.6%

-0.4%

-1%

0%

1%

2%

116

120

124

128

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

- G

row

th i

n %

Volu

me I

nd

ex,

seaso

nall

y a

dju

sted

(2005=

100)

DEVELOPED ECONOMIES- EXPORTS

13

Imports to developed economies have seen a long term and steady gains over the

previous quarters. Imports to these countries have increased by 1.3% in this quarter

when compared to 1.1% in previous quarter. Volume of Exports have declined

tremendously from 1.6% in Q4 2014 to -1.4% in Q1 2015.

POLICY SUGGESTIONS 1. Focus on increasing Exports from UAE to developed countries

2. Shifting sources of Imports for UAE from developed countries to Transitional

Countries

SILK ROAD ECONOMIC BELT AND 21ST

-CENTURY

MARITIME SILK ROAD

Chinese leadership announced a strategic vision to build belt and road routes

connecting through continents of Asia, Europe and Africa. This project once

succeeded will connect Vibrant East Asia economic circle at one end and developed

European economy at other end. This will be a renewed connectivity both within Asia

and between Asia and Europe, both by land and by the sea, and both by means of

strengthening traditional infrastructure and through building highways of trade,

finance and cultural exchange to strengthen connectivity. China has received a warm

response supporting the initiative from more than 60 countries and a number of

international organizations. Apart from plan route China has offered its economic

compatibility with many of the countries and also offered technological assistance to

countries in key industries.

The land-based “New Silk Road” will begin in Xi’an in central China before

stretching west to reach the border of Kazakhstan in Central Asia. The Silk Road

then runs southwest from Central Asia to northern Iran before swinging west through

Iraq, Syria, and Turkey. From Istanbul, the Silk Road crosses the Bosporus Strait and

heads northwest through Europe, including Bulgaria, Romania, the Czech Republic,

and Germany. Reaching Duisburg in Germany, it swings north to Rotterdam in the

Netherlands. From Rotterdam, the path runs south to Venice, Italy — where it meets

up with the equally ambitious Maritime Silk Road.

The Maritime Silk Road will begin in Quanzhou in China before heading south to the

Malacca Strait. From Kuala Lumpur, the Maritime Silk Road heads to Kolkata, India

then crosses the rest of the Indian Ocean to Nairobi, Kenya which may include a stop

in Sri Lanka. From Nairobi, the Maritime Silk Road goes north around the Horn of

14

Africa and moves through the Red Sea into the Mediterranean, with a stop in Athens

before meeting the land-based Silk Road in Venice.

Strategic Objectives or Reasons for the Initiative:

Geo-Strategy: New Silk Road Strategy will increase the Chinese economic

dominance over the continents and can be seen as a counter strategy to America’s

Trans-Pacific partnership (TPP).

Access to Raw materials such as Oil and metals: China is a net importer of Oil

and metals which are consumed by its manufacturing units. It will give Chinese

companies the access to cheap raw materials available in Africa and Asia which

when connected well can be imported at cheaper costs and will also save importing

time. It will give Chinese competitive edge over other countries.

New Markets: New Silk Road Strategy will give China access to new markets

especially for its export oriented products

Creation of Jobs: Infrastructure building to support the strategy will help Chinese

companies which can execute the projects with proved technology and at best

possible price. It will create job opportunities for Chinese labor.

Drivers for the countries to join the initiative:

1. International Trade with China:

China is the No.1 trading partner with many Asian countries and many countries

trade with China has been increasing at double digit growth over the past

decade.

2. Capital and Technology:

The Silk Road Fund set up by China of $40 billion, and the AIIB with an initial

capital of $100 billion, will help jumpstart the region's infrastructure and the

overall development drive. A $40bn infrastructure fund will be used to build

bridges, roads and airports at staging posts along the route, while a new $16bn

Silk Road gold fund is intended to stockpile the metal and support mining projects

along the trade routes. It is expected that this connectivity would generate $2.5

trillion of additional trade for all those involved over the next 10 years.

Chinese companies are capable of providing high quality, low cost and affordable

infrastructure projects. They are already active in the region and Chinese

companies signed up for more than 1,000 projects for building infrastructure in

the region.

Challenges: 1. Communication:

China has to communicate to the countries that this strategy will be a win-win

situation for co-operating countries which help them in economic prosperity.

2. Dealing with Sovereign Countries:

So far China has been successful in generating positive response for the project.

Change in politics can expose to political risks for the project

3. Operational Risks:

Infrastructure projects usually run out of time and are difficult when it comes to

execution and hence poses a serious operational risks.

http://www.reuters.com/article/2014/11/08/us-china-diplomacy-idUSKBN0IS0BQ20141108

15

ECONOMY MONITOR

16

WORLD BANK RELEASES GLOBAL OUTLOOK REPORT

Global Economy is expected to grow 2.8 percent in 2015, slightly less than earlier

forecasts and forecasted to strengthen moderately to 3.3 percent in 2016 and 3.2

percent in 2017.

REAL GDP 2012 2013 2014E 2015F 2016F 2017F

World 2.4 2.5 2.6 2.8 3.3 3.2

Developed Countries

1.4 1.4 1.8 2.0 2.4 2.2

Developing Countries

4.9 5.1 4.6 4.4 5.2 5.4

Source: World Bank Outlook report - June 2015

Policy Makers around the globe especially emerging nations and low income

countries are worried about two big challenges. One monetary tightening by US Fed

and the repercussions of low commodity prices. US Monetary policy rate increase for

the first time after financial crisis will put downward pressure on capital flows to

developing countries and might rise borrowing costs in an already challenging

environment. Commodity-exporting countries may face downward pressures due to

decline in commodity prices and weaker demand. Oil exporting nations due to lower

oil prices are facing increasing fiscal, exchange and inflationary pressures.

Developed countries are expected to gather momentum, while a broad based

slowdown appears underway for developing countries.

IRAN NUCLEAR DEAL AND ITS ECONOMIC IMPACT

Nuclear Deal in Nutshell:

Diplomats from the United States, the UK, France, China, Russia and Germany have finally completed a deal with Iran meant to prevent it from developing nuclear weapons. In exchange for limits on its nuclear program, Iran will come out from under some economic sanctions while being allowed to continue a peaceful nuclear program. In a nutshell this deal was reached to set limits on Iran's production of nuclear weapons.

IMPACT AND POLICY SUGGESTIONS

Multi-Billion Dollar opportunity for major Oil & Gas companies

Currently Iran is opening up more than 50 projects and is targeting nearly USD 100

Billion worth of investments in the next 5 years. According to Wood Mackenzie, a

consultancy, the country ranks as the world’s third-largest holder of oil and gas, with

more than 250bn barrels of oil equivalent in remaining reserves. Iran offers a golden

opportunity for integrated Oil companies and nationally owned giants as many energy

groups are struggling to find new oil discoveries.

17

This gives UAE based Oil Companies and Sovereign funds will have good potential

opportunities to invest in Iran’s Oil and gas sector which is in need of Investments to

upgrade its existing facilities and technological advancements.

Increased Trade Opportunity

The IMF forecasts that US$13 billion will be added to the UAE’s economy by the

ending of sanctions on Iran, as trade between the two countries steps up between

now and 2018. The UAE is well positioned to benefit from an opening of the Iran

market by serving as a transshipment point for renewed trade activity. Total trade

between UAE and Iran in 2014 was around AED 46.8 Billion contributing to 4.4% of

the UAE’s total International trade. Iran has significant amount of Re-exports from

UAE which is around AED 40 billion and contributing to 16.5% of total re-exports

from UAE. That is equivalent to a 1 per cent gain in real GDP growth each year over

the next three years, the IMF said.

Increase in trading of goods and services as Iran needs to boost its Infrastructure in

order to support its economy and much of the Capital goods and materials used for

building Infrastructure. And significant part of them will have to pass through UAE’s

ports before reaching Iran.

Value in Billion AED Imports No-Oil Exports Re-exports Total Non-Oil Exports Total trade

Iran’s Trade with UAE 4.51 1.93 40.24 42.17 46.68

Total UAE

International Trade

696.43 132.22 243.73 375.95 1,072.38

Iran as % of total Trade 0.6% 1.5% 16.5% 11.2% 4.4%

0 50 100 150 200 250 300 350 400

Turkmenistan

UAE

Iraq

Qatar

Canada

Saudi Arabia

US

Iran

Venezuela

Russia

Barrels of Oil Equivalent (bn) 2015

Top 10 Countries by Oil & Gas Reserves

Liquids Gas

18

Boosts Investment Activity

Iran is estimated to have around USD 100 billion foreign assets of which more than

50% are frozen. Once the sanctions are lift and Iran gradually acquires these assets

it will start investing these assets. With strong trade and Investment ties with UAE

this money is likely to flow in to UAE stock markets, real estate and Trade between

the UAE and Iran. Iranian nationals accounting for roughly 2.6 per cent of the Dubai

real estate market in terms of value, according to the Real Estate Regulatory

Authority (Rera), which is expected to increase.

UAE’s STATE OF ECONOMY

GROSS DOMESTIC PRODUCT


UAE’s Gross domestic Product at current prices in 2014 was recorded at AED 1.46

trillion when compared to AED 1.42 trillion in 2013. GDP at current prices grew at a

rate of 3.2% in 2014 when compared to 3.7% in 2013.


GDP growth rate in constant 2007 prices was 4.6% in 2014 when compared to 4.3%

in 2013. Growth was moderate despite low oil prices in second half of 2014.

947

1,159

931 1,051

1,280 1,371 1,422 1,467

2007 2008 2009 2010 2011 2012 2013* 2014*

AE

D B

ILL

ION

GDP AT CURRENT PRICES

3.2% 3.2%

-5.2%

1.6%

5.2%

6.9%

4.3% 4.6%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2007 2008 2009 2010 2011 2012 2013* 2014*

Grw

oth

in

Perc

en

tage

GDP GROWTH AT CONSTANT 2007 PRICES

19


In 2014 overall GDP growth in current prices was at 3.2% where as Non-oil GDP

growth (Excluding Oil sector) was at 8.1%. Over the past three years Non-oil GDP

growth has surpassed the overall GDP growth which clearly indicates UAE’s

diversification of economy away from Oil sector.

Oil’s contribution to GDP in 2014 has dropped down to 34.3% from 37.3% in 2013.

This trend of declining contribution of Oil to GDP in percentage can be seen over the

past 4 years. There was an increase in Oil contribution to overall GDP from 2009 to

2011 and this trend has reversed in 2012 and is declining till 2014. With lower oil

prices and UAE government’s efforts to diversify it is expected that by end of 2016

Oil’s contribution to GDP might fall below 30%.

Source: UAE National Bureau of Statistic

International trade has been a significant driver of growth for UAE’s economy. In

2014 UAE’s international trade has grown marginally by 1.8% to reach AED 2.58

Trillion in 2014 when compared to 2013 it was at AED 2.53 Trillion and grew by 5%.

Slowdown in global economy has resulted in muted growth in International Trade.

12.8%

21.8%

3.7% 3.2% 5.8%

8.0% 7.1% 7.1%

8.1%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2007 2008 2009 2010 2011 2012 2013* 2014*

Gro

wth

Rate

s in

Perc

en

tage

COMPARING GDP & NON-OIL GDP GROWTH

GDP Growth Rate @ Current Prices Non-Oil GDP growth @ Current Prices

33.8%

36.9%

27.0%

31.6%

39.3% 39.3%

37.3%

34.3%

2007 2008 2009 2010 2011 2012 2013* 2014*

Perc

en

tage

OIL CONTRIBUTION TO GDP IN PERCENTAGE

20

INTERNATIONAL TRADE


Exports in 2014 were at AED 1.43 Trillion and Imports during the same period were

at AED 1.14 Trillion. Over the past decade exports have surpassed imports and

growth rate of exports was more or almost similar to growth rate of Imports which

makes UAE an export driven economy. But the growth of exports has dropped to 0%

and Imports increased by 5% in 2014 and Exports & Imports grew by 6% in 2013.



1,296 1,721 1,429 1,586

2,082 2,413 2,533 2,580 137%

149% 153% 151% 163%

176% 178% 176%

100%

140%

180%

220%

-

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011 2012 2013* 2014*

INT

ER

NA

TIO

NA

L T

RA

DE

AS

% O

F G

DP

INT

ER

NA

TIO

NA

L T

RA

DE

IN

AE

D B

ILL

ION

INTERNATIONAL TRADE

Total International Trade International Trade as % of GDP

686

914

742 827

1,156

1,380 1,441 1,437

610

807

687 759

925 1,033

1,092 1,143

2007 2008 2009 2010 2011 2012 2013* 2014*

AE

D B

ILL

ION

INTERNATIONAL TRADE

Exports Imports

0%

6% 5%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2007 2008 2009 2010 2011 2012 2013* 2014*

PE

RC

EN

TA

GE

GR

OW

TH

EXPORTS AND IMPORTS GROWTH COMPARISION

Exports Growth Imports Growth

21

UAE NATIONAL SAVINGS AND GROSS CAPITAL FORMATION


Total National Savings in 2014 were at AED 472 billion when compared to AED 513

Billion in 2013. In 2014 National Savings declined in 2014 by -8.1% and in 2013 they

declined by -0.7%. National Savings as percentage GDP have declined to 32% when

compared to 2013 which was at 36%. Over the past two years National savings in

absolute terms have declined. Some of the reasons attributed to decline in National

savings are rise in cost of living, low interest rates and lack of attractive saving

instruments for retail investors.


Gross fixed Capital formation (GFCF) has increased to AED 348 Billion in 2014 when

compared to AED 322 Billion in 2013. Increase in Gross fixed Capital formation in

2014 was at 4.8% in 2014 when compared to modest increase of 0.3% in 2013.

When comparing GFCF as percentage of GDP it was around 23.7% in 2014 whereas

it was 22.6% of GDP in 2013.

212 244

209 223

394

517 513 472

2007 2008 2009 2010 2011 2012 2013* 2014*

AE

D B

illi

on

NATIONAL SAVING

22.3% 21.1% 22.4% 21.2%

30.8%

37.7% 36.1% 32.1%

2007 2008 2009 2010 2011 2012 2013* 2014*

PE

RC

EN

TA

GE

National Saving as % of GDP

22


UAE CENTRAL BANK AND MONEY SUPPLY

CENTRAL BANK ASSETS

Source: UAE Central bank Data

Currently UAE Central Banks Assets has to AED 332.7 Billion in May 2015 compared

to AED 322.4 Billion in May 2014 a YOY increase of 3.2%. Creation of Money causes

increase in Assets of UAE’s Central Bank which signals an expansionary policy

adopted.

Percentage change of Assets of Central Banks of economies such as US and

Europe have seen a significant change in previous years. US Federal Reserve

expansionary monetary policy in 2014 resulted in increase of US Fed Assets and

with taper in progress a decline in Assets of US Fed can be seen clearly. In contrary

to US, European Central Bank has adopted an Expansionary policy and as part of

quantitative easing ECB is buying Assets or bonds increasing the Balance Sheet

starting from Q1 2015 and assets are expected to grow further in coming quarters.

The Size of UAE Central bank’s balance sheet has slightly decreased or remains

mostly unchanged over the past three quarters.

223 259 269 263 278

309 322 348

23.6% 22.4%

28.9%

25.0%

21.7% 22.5% 22.6% 23.7%

0%

5%

10%

15%

20%

25%

30%

35%

-

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012 2013* 2014*

PE

RC

EN

TA

GE

AE

D B

ILL

ION

GROSS FIXED CAPITAL FORMATION

Gross Fixed Capital Formation Gross Fixed Capital Formation % of GDP

200

220

240

260

280

300

320

340

360

Ja

n 2

012

Ma

y 2

012

Sep

20

12

Ja

n 2

013

Ma

y 2

013

Sep

20

13

Ja

n 2

014

Ma

y 2

014

Sep

20

14

Ja

n 2

015

Ma

y 2

015

**

AS

SE

TS

IN

AE

D B

ILL

ION

UAE CENTRAL BANK ASSETS

23

Source: IMF Data Base (E-library)

UAE CENTRAL BANK FOREIGN EXCHANGE RESERVES

UAE’s central Bank forex reserves increased slightly to AED 316.3 Billion in May

2015 when compared to AED 315.7 Billion in April 2015. Comparing Quarterly data

forex reserves in Q1 2015 declined by -4.3% when compared to Q4 2014 but

regained slightly by 2.9% & 0.2% to reach AED 315.7 Billion & AED 316.3 Billion

respectively in April and May 2015.


-20%

-10%

0%

10%

20%

30%

40%

2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1

PE

RC

EN

TA

GE

CH

AN

GE

CENTRAL BANK ASSETS PERCENT CHANGE

US UK Euro Area China India UAE

282.9

296.9

307.2

317.2 320.6

306.7

315.7 316.3

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Apr 2015 May 2015**AS

SE

TS

IN

AE

D B

ILL

ION

UAE CENTRAL FORIEGN CURRENCY RESERVES

24


UAE MONEY SUPPLY

M1 is the physical money in circulation held as Cash or securities easily convertible

to cash.M1 Measures the most liquid component of money supply. M1 was at AED

470.9 Billion at the end of Q1 2015 an increase of 4.3 % from AED 451.6 Billion in

Q4 2014. Increase in M1 usually has a direct positive impact on domestic demand

and boost spending of the residents.

Money Supply M1 = Currency issued (Currency in Circulation and Cash at banks) +

Monetary deposits (All Short term deposits on which bank customer can withdraw

without prior notice).


M2 is the broader money classification than M1 as it includes even assets that are

highly liquid and convertible to cash. M2 includes savings deposits, money market

mutual funds and other time deposits, which are less liquid and not as suitable as

exchange mediums but can be quickly converted into cash or checking deposits. M2

at the end of 1st Quarter 2015 was around AED 1,191.9 Billion an increase of 3.1%

when compared to Q4 2014 which was around AED 1,156.6 Billion.

M2= M1 + Quasi Monetary deposits (Resident time and savings deposits +

Commercial payments + Resident deposits in foreign Currencies).

313.3 311.7

306.7

315.7 316.3

Jan 2015 Feb 2015 Mar 2015 Apr 2015 May 2015**

AS

SE

TS

in

AE

D B

ILL

ION

UAE CENTRAL BANK FOREIGN CURRENCY ASSETS - MONTHLY

423.9

447.2

446.2 451.6

470.9

7.8%

5.5%

-0.2%

1.2%

4.3%

-2%

0%

2%

4%

6%

8%

10%

400

410

420

430

440

450

460

470

480

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

PE

RC

EN

T C

HA

NG

E

AE

D B

ILL

ION

M1 QUARTERLY TREND

25


M3 is the broadest measure of an economy's money supply. It emphasizes money as

a store-of-value more so than money as a medium of exchange – hence the inclusion

of less-liquid assets in M3. It helps in estimating the entire money supply within an

economy, and governments can be used to direct policy and control inflation over

medium and long-term time periods.

M3 decreased by -0.8% in Q4 2014 but increased by 2.2% in Q1 2015 to reach AED

1,377.2 Billion.


UAE BANKING INDICATORS

Gross Assets of Banks in UAE increased by 3.3% in Q1 2015 to reach AED 2,380

Billion when compared a decline of -0.3% in Gross assets in Q4 2014.

1,136.2

1,155.5 1,149.6

1,156.6

1,191.9

6.2%

1.7%

-0.5%

0.6%

3.1%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

1,100

1,125

1,150

1,175

1,200

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

PE

RC

EN

T C

HA

NG

E

AE

D B

ILL

ION

M2 QUARTERLY TREND

1,292.1

1,341.3

1,357.7 1,347.5

1,377.2

3.8% 3.8%

1.2%

-0.8%

2.2%

-1%

0%

1%

2%

3%

4%

5%

1,240

1,260

1,280

1,300

1,320

1,340

1,360

1,380

1,400

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015P

ER

CE

NT

CH

AN

GE

AE

D B

illi

on

M3 QUARTERLY TREND

26


Gross credit expanded by more than 2.3% in Q1 2015 when compared to a decline in

Credit in Q4 2014 by -0.3%.


POLICY SUGGESTIONS

1. In Order to boost economy, Government has to take measures to improve

credit growth and it has to grow more than 5% QOQ which will help

businesses to access capital for short and long term needs.

2. Few Priority Sectors which are of strategic importance to nation can be

identified and a fixed Quota for banks to for lending can be identified and

Banks can be given Quota as percentage of total lending where they to meet

the Quota compulsory each year.

2,180 2,237

2,311 2,305

2,380

3.8%

2.6%

3.3%

-0.3%

3.3%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2,050

2,100

2,150

2,200

2,250

2,300

2,350

2,400

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

GR

OS

S A

SS

ET

S G

RO

WT

H

GR

OS

S A

SS

ET

S I

N A

ED

BIL

LIO

N

UAE BANKS' GROSS ASSETS

2.2% 2.0%

3.9%

-0.3%

2.3%

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

PE

RC

EN

TA

GE

CREDIT GROWTH (Quarter on Quarter )

27

OIL PRICE AND MARKET ANALYSIS

OIL AGAIN APPROACHING BEAR MARKET

WTI Crude Oil bench mark has fallen more than 18% to reach levels of $50 a barrel

from the Highs of $62 per barrel in mid-May. Uncertainty in global economy and

excess supply are the concerns which are driving Oil prices down again.

Oil Prices started falling again due to several factors such as

1. Iran Nuclear deal

It is expected that Iran will reach a nuclear deal with Western countries in coming

days. Once nuclear deal is finalized it is expected that sanctions on Iranian

exports will be lifted and Iran is expected to export 800,000 to 1 Million Barrels of

Oil per day and this will add to already excess supply of Oil and may pull down

the oil prices further down. According to political analysts Iran deal is approaching

a closure and might start oil exports to Europe beginning next year. Iran is likely

to sell anywhere between 30 to 50 Million barrels from inventory the country has

stored in oil tankers at sea during sanctions which might have an immediate

impact on prices in the short term.

2. Slow-down in China

China which has emerged as a manufacturing hub of the world and growth

engine for global economy. There are clear signs of china slowing down and is

growth rate is expected to moderate in the coming quarters. Slow growth in China

45

50

55

60

65

Jan

01, 2015

Jan

21, 2015

Feb 1

1, 2015

Mar

03, 20

15

Mar

24, 20

15

Ap

r 15, 2015

May 0

6, 2015

May 2

5, 2015

Ju

n 1

5, 201

5

Ju

l 06

, 2015

US

D P

ER

BA

RR

EL

WTI CRUDE OIL

90.7 91.4

92.6 93.0

91.7 91.6

93.1 92.6

93.5 90.4

91.3 91.8 91.9 92.2

93.0

94.1

95.3 95.3

1Q

20

13

2Q

20

13

3Q

20

13

4Q

20

13

1Q

20

14

2Q

20

14

3Q

20

14

4Q

20

14

1Q

20

15

Mil

lion

Barr

els

per

day

WORLD OIL SUPPLY AND DEMAND

Total demand Total Supply

28

will put downward pressure on demand for Oil which might push Oil prices further

down.

3. Greek Crisis

Greece’s decision to reject bailout package and fears of exit from European Union

also had a significant impact on oil demand and prices. US dollar has strengthened

against Euro and other major currencies. Since oil is priced in US dollar and dollar

strengthening will have an inverse impact on oil prices.

4. US Shale Oil Supply Resilience

The number of oil rigs drilling in the US rose for the first time in 29 weeks, in a sign

some shale companies have successfully squeezed down costs and moved to

reposition drilling rigs to the most productive plays. US crude oil inventories also rose

last week and are above 465m barrels, a level never recorded before 2015. US

producers are finding the current price levels not so difficult to manage as expected

earlier.

5. Increase in OPEC Output

OPEC’s oil production has also been on the rise, hitting a three-year high in May

with output from Saudi Arabia and Iraq close to the highest level on record. Total

OPEC production reached 37.95 million barrels per day in May 2015 which is more

than 30 million barrels per day target set by OPEC internally to maintain supply

levels. Saudi Arabia’s decision to chase market share instead of balancing oil price

have resulted in increase in Oil output by OPEC.

POLICY SUGGESTIONS

1. With US Shale supplies and Iran entering oil export market after lifting

sanctions will increase competition for market share. UAE in line with Saudi

Arabia and other OPEC members shall focus on increasing its market share

by increasing supplies and strategically partnering with oil importing nations.

2. UAE based oil producers shall focus on cost reduction by deploying new

technologies which efficient and effective in producing oil at lower costs

36.97 37.00

37.55

37.9 37.95

4Q14 1Q15 Mar 15 Apr 15 May 15

MIL

LIO

N B

AR

RE

LS

PE

R

DA

Y

TOTAL OPEC PRODUCTION

29

GREECE CRISIS

GREECE HAS VOTED “NO” ON EUROPE’S BAILOUT TERMS AND ITS

IMPACT ON GLOBAL ECONOMY

WHAT HAS HAPPENED IN GREECE?

Crisis crept in to Greece and some of the pain points which worsened its situation are

1. External Debt

External Commercial borrowings of Greece government increased overtime

and reached more than 200% of the GDP and making difficult for the Greece

government to pay off interest payments to International agencies.

2. Uncollected Tax Receipts

Greece government was unable to collect Tax receipts and many businesses

defaulted their tax payments. It was estimated that 85% of tax receipts were

uncollected.

3. Unemployment

Unemployment remained a major challenge for Greece Economy and

reached levels of more than 25% to total labor force.

4. Withdrawal Of Deposits From Greece Banks

WHAT IS HAPPENING IN GREECE?

Greece's government last week missed a critical debt payment to the International

Monetary Fund, and its banks have been forced to close.

Greece citizen’s rejected an austerity package that European leaders insisted that

the country implement in exchange for continued financial assistance. With 90

percent of the voting, 61 percent of voters rejected the European program. The

essence of the debate was whether Greece should do austerity on Europe's terms —

or its own. In other words, does it have to cut social spending significantly more, as

the Europeans want, or can it reduce deficits by raising taxes, as the Greeks wanted.

30

Now Greek banks have run out of cash and there is an immediate need for Capital

injection in to Greek banks. European central bank has to give money to Greece

banks as Greek central bank do not have the capacity to print Euro and utilize it. If

ECB denies any new funding to Greece banks then Greece might consider the option

of dumping Euro as currency and printing its own currency.

IMPACT ON GREECE EXIT FROM EURO ON ITS OWN ECONOMY:

NEGATIVE IMPACT

1. Greece will have to issue its own currency ―Drachma‖ and it will depreciate

2. Inflation will increase in double digits

3. Companies based out of Greece borrowed in Euros might go bankrupt

4. Unemployment which currently at 25% might increase further in coming years

POSITIVE IMPACT:

1. After two or three years Greece with devalued currency might help exports by

making them competitive

2. Greater autonomy and control of Greece government over its economy and

monetary policy.

IMPACT ON GREECE EXIT ON EUROPE

NEGATIVE IMPACT:

1. European Central Bank which lend Greece government and Greek banks will

lose money. It is estimated that ECB has lent around Euro 240 billion to

Greece government and Euro 90 billion to Greece banks as loans. In total

ECB will lose Euro 330 billion.

2. Borrowing costs for countries facing financial difficulties such as Italy, Spain

and Portugal might increase which will be very difficult to manage.

3. If Greece succeeds in future other Euro countries might also consider leaving

European Union which will threaten stability of the Union.

POSITIVE IMPACT

1. Greece leaving Euro will add more pressure to already declining Euro and will

make exports from European region more competitive

IMPACT ON GREECE EXIT ON GOBAL ECONOMY

1. Weak Euro means a strong dollar which will make exports from US & around

the globe to Europe expensive.

2. Prices of crude oil, metals will further fall due to weak demand in Europe.

IMPACT ON UAE ECONOMY:

US dollar will become stronger which will also make AED stronger as it is pegged to

USD. Stronger AED in comparison to Euro will make exports to Europe costlier from

UAE and also Imports from Europe to UAE cheaper. Europe one of the important

trading partner will have an impact on International trade due to currency fluctuations.

31

POLICY SUGGESTIONS

1. Central bank of UAE can assess the exposure of local banks to Greece banks

and companies and suggest corrective actions

2. Equipping Banks and Financial Institutions with exposure to Euro with more

risk management tools in case more countries decide to leave Eurozone

3. Due to crisis valuations in Greece will look cheap and might fall below their

intrinsic value. Investors based out of UAE can look for distressed businesses

and assets as it is perfect time for Investors with contrarian or value investing

approach to invest in Greece.

DIFC ANNOUNCES 10 YEAR STRATEGY

AIM AND VISION:

Aims to position the Centre among the top 10 financial centers globally

Plans to domicile 1,000 financial firms in the next 10 years, in comparison to

362 in 2014

Targets increasing combined workforce of Centre from 17,860 in 2014 to

50,000 by 2024

Aims to align DIFC 2024 Strategy with Dubai Plan 2021 to strengthen

Centre’s position as a global hub for Islamic legislation and financial services

Aims to support the financial services sector to contribute 18% to Dubai’s

GDP in the next 10 years

Year 2013 2014 2024E

Number of Employees 15,667 17,860 50,000

Growth% 14.0% 180.0%

Domiciled Financial Firms 1,038 1,225 2,225

Growth% 18.0% 81.6%

Commercial Office Space (Square feet) 245,217 282,000

Growth% 15.0%

15,667 17,860

50,000

2013 2014 2024E

DIFC - WORKFORCE EXPANSION PLANS

DIFC Plans to triple the size

32

EXPECTED GROWTH POTENTIAL

1. Apart from European and American Financial companies, DIFC plans to attract

more number of financial firms from emerging countries and bridge the south-

south corridor that links Dubai with Asia & Africa

2. Private Banking and Wealth management is another area of growth as it is

estimated that the Private Wealth of Family offices and Ultra rich based out of

MENA region to be around USD 7 trillion

POTENTIAL CHALLENGES FOR DIFC

1. Global Crisis:

Financial crisis coupled with slowdown has affected the global banks negatively.

Top global banks such as HSBC are cutting their workforce and slashing the

Investment Banking operations

2. Regional Instability:

MENA region which is considered politically risky by global financial firms still

poses a challenge in attracting more number of financial firms to DIFC.

3. Competition:

Saudi Arabia, Qatar and Abu Dhabi are building financial centers which are close

to DIFC and will compete for finite pool of resources especially in the sectors of

wealth management and private banking and would look to attract part of the

market share of DIFC. Shanghai & Mumbai are also emerging as financial

centers in Asia and pose a challenge in attracting financial firms from Asia.

POLICY SUGGESTIONS

1. Aggressive marketing to Asia Pacific banks

Asia pacific banks which are emerging and trying to expand their global foot print

and Dubai which has a strategic advantage can attract these financial firms to set

their base to cater businesses in Africa and Middle East.

2. Developing Financial Markets by introduction of complex Financial

Products

Financial Markets in MENA region lack in offering complex financial products

which are required for the businesses for risk management due to volatile global

environment

3. Attracting Small & Medium sized Financial Services firm

Boutique Investment & Advisory firms, specialized financial service firms have to

be attracted as they offer niche services which are complimentary and required to

execute transactions in complex global world. These firms can be supported can

be offered Infrastructure and communication services at subsidized or

competitive prices

33

INVESTMENT MONITOR

34

UNCTAD GLOBAL INVESTMENT REPORT 2015

Global foreign direct investment (FDI) inflows fell by 16 per cent in 2014 to $1.23

trillion, down from $1.47 trillion in 2013. FDI inflows declined in contrast to growth in

global GDP, modest growth in Trade and employment figures. The decline in FDI

inflows I 2014 was influenced due to the following

1. Global crisis and slowdown of major economies

2. Uncertainty for Investors over government policies

3. Increased Geo-political risks

Source: UNCTAD Investment Report 2015

Inward FDI flows to developing economies reached their highest level at $681 billion

with a 2 per cent rise. Developing economies thus extended their lead in global

inflows. China became the world’s largest recipient of FDI. Among the top 10 FDI

recipients in the world, 5 are developing economies. Whereas FDI flows to developed

countries dropped by 28 per cent to $499 billion. Global FDI inflows are projected to

grow by 11 per cent to $1.4 trillion in 2015. Expectations are for further rises to $1.5

trillion in 2016 and to $1.7 trillion in 2017. However, a number of economic and

political risks, including ongoing uncertainties in the Eurozone, potential spillovers

from conflicts, and persistent vulnerabilities in emerging economies, may disrupt the

projected recovery.

FDI INFLOWS REGIONAL BREAKUP

1.47

1.23 1.4

1.5

1.7

2013A 2014A 2015F 2016F 2017F

FD

I In

flow

(B

illi

on

US

D)

GLOBAL FORIEGN DIRECT INVESTMENT INFLOWS

Developing Asia

40%

Europe

25%

Latin America and

Caribbean

14%

North America

12%

Transition

Economies

4%

Africa

5%

FDI BREAK UP REGION WISE IN 2014

35

FDI inflows to Africa remained flat at $54 billion. Although the services share

in Africa FDI is still lower than the global and the developing-country

averages, in 2012, services accounted for 48 per cent of the total FDI stock in

the region, more than twice the share of manufacturing (21 per cent). FDI

stock in the primary sector was 31 per cent of the total.

Developing Asia (up 9 per cent) saw FDI inflows grow to historically high

levels. Asia reached nearly half a trillion dollars in 2014, further consolidating

the region’s position as the largest recipient in the world.

FDI flows to Latin America and the Caribbean (down 14 per cent) decreased

to $159 billion in 2014, after four years of consecutive increases. This is

mainly due to a decline in cross-border M&As in Central America and the

Caribbean and to lower commodity prices, which dampened FDI to South

America.

FDI inflows to developed countries fell by 28 per cent to $499 billion.

Divestment and large swings in intracompany loans reduced inflows to the

lowest level since 2004.

FDI inflows to developed countries fell by 28 per cent to $499 billion.

Divestment and large swings in intracompany loans reduced inflows to the

lowest level since 2004.

COUNTRY OF FOCUS - GEORGIA

ECONOMIC SNAP SHOT OF GEROGIA

Georgia is one of the fastest growing economies in the world. It has an impressive

track record of growth over the past decade, though economy has slowed down a

little due to economic crisis in Europe and global slowdown. Agriculture, chemicals,

metals, machinery, mining and production of liquor are the main industries of the

Georgian economy.

Source: National Statistics Office of Georgia

Georgian Economy recorded an impressive growth of 5% in 2014 and it is estimated

that the economy will grow by 5% in 2015. Average economic growth over the past

decade has been around 6% with few exceptions in 2008 and 2009 due to global

crisis.

11,637 14,439

15,847 16,140 16,529

2010 2011 2012 2013 2014

GD

P i

n M

illi

on

US

D

CURRENT GDP IN USD

11,637

14,439

15,847 16,140 16,529

2010 2011 2012 2013 2014

GD

P P

er

Cap

ita U

SD

GDP Per Capita in USD

36

Source: IMF World Economic Outlook Database (* Estimates)

GEORGIAN ECONOMY BREAK UP BY ACTIVITY

Georgian Economy is dominated by sectors such as Agriculture, Manufacturing, and

Construction & Real Estate activities, Wholesale & Retail activities. Sectorial

contribution of Manufacturing, Construction and Wholesale & retail services has

increased significantly.


FORGIEN DIRECT INVESTMENT TRENDS IN GEORGIA

Georgian Economy is heavily dependent on foreign direct Investments and any

slowdown in FDI is affecting its economy. Foreign direct investment in Georgia in

2014 amounted to 1.2 Billion USD and recorded an impressive growth of 35% when

compared to FDI in 2013. FDI reached a peak of 2 Billion USD before Global crisis in

2007 and is still below its peak even in 2014. Significant efforts are made by

Georgian government to attract FDI and is expected to increase in the coming years.

The chart below shows the Trend of FDI over the past two decades.

11.1%

5.9%

9.6% 9.4%

12.3%

2.3%

-3.8%

6.3% 7.2%

6.2%

3.2%

5.0% 5.0%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* 2015*

GEORGIAN REAL GDP GROWTH (%)

Agriculture and Related

9%

Mining and

Manufacutring

11%

Electricity,Gas & Water

Supply

3%

Construction and Real

Estate Services

16%

Wholesale & Retail

services

17%

Hotels and Restaurants

2%

Transport

8%

Communication

3%

Financial Services

3%

Public Administration

10%

Education

5%

Health and Social Work

Services

6%

Household Production and

other Services

7%

GEORGIAN ECONOMIC ACTIVITY BREAK UP IN 2014

37


Share of FDI by major sectors in 2014 were as follows

Manufacturing – 14%

Construction – 23%

Transport and Communication – 27%


Major Investor Countries in 2014 were Netherlands, Azerbaijan, China and United

Kingdom. Considering contribution of FDI over the past 8 years, UAE is considered

among the top 5 Investor countries in Georgia.

4

243 265 82 131 110 167

340 499 450

1,190

2,015

1,564

658 814

1,117

912 942

1,272

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

FDI in Georgia (Million USD)

Manufactu

ring

14%

Energy

sector

8%

Constructi

on

23%

Transport

s and

communic

ations

27%

Real

Estate

7%

Financial

sector

6%

FDI BREAK-UP SECTOR WISE IN

2014

Manufact

uring

15%

Energy

sector

15%

Constructi

on

8% Transport

s and

communic

ations

20%

Real

Estate

11%

Financial

sector

10%

FDI BREAK-UP SECTOR WISE (8

YEAR AVERAGE)

Netherlands, 331

Azerbaijan, 302

China, 195

United Kingdom,

114

Luxembourg, 85

United States, 80

Turkey, 67 Russia, 66

FDI - COUNTRY WISE IN 2014 (In Million USD)

38


GEROGIA - COMPETITIVE ADVANTAGES

1. STRATEGIC LOCATION:

Georgia is situated at the strategically important crossroads where Europe meets

Asia and this Strategic Location which makes Georgia perfect for forming regional

hub for exporting products to regions (Caucasus, Central Asia and CIS countries).

2. COMPETITIVE INPUT COSTS:

Low Cost of Labor

Current Unemployment rate is around 14.6% which is considered to be very high

when compared to neighboring European countries. Average Monthly salary in

2014 was around 490 USD (Including Blue and white collar workers). High

unemployment rates and low cost of living have helped to keep the cost of labor

very low.

Low Energy Costs

Cost of Production of Electricity in Georgia is cheaper when compared to

neighboring countries as approximately 80% of the power is generated using

Hydro which is cheap among all the sources of power.

3. SOLID SOVEREIGN BALANCE SHEET:

Rating agencies rate Georgia as a stable economy and with government’s focus on

controlling operating expenses has resulted in reducing fiscal deficit.

4. EFFICIENT AND CORRUPTION FREE GOVERNMENT Georgia is considered one of the least corrupt countries in world and ranks high

in Global Corruption Barometer.

Netherlands, 163

United Kingdom, 93

Azerbaijan, 92

Turkey, 89

United Arab

Emirates, 88

United States, 69

FDI TOP COUNTRIES 8 YEAR AVERAGE (In Million USD)

39

Source: Transparency International 2013 (Global Corruption Barometer)

SECTORS ATTRACTIVE FOR INVESTMENT

1. AGRICULTURE AND FOOD PROCESSING SECTOR

0%

1%

1%

1%

2%

2%

4%

9%

9%

15%

18%

Georgia

Denmark

Norway

South Korea

Canada

Switzerland

UK

United States

Armenia

Turkey

Ukraine

Percenatge of

Users Paying a

bribe to tax

authorities in

2013

1%

2%

2%

2%

2%

2%

5%

11%

14%

16%

20%

22%

Hungary

Georgia

Denamrk

Norway

South Korea

Canada

Switzerland

UK

United States

Armenia

Turkey

Ukraine

Percentage of

Users paying a

bribe in

Registry and

Permit services

Real Estate and

Hospitality

Agriculture

Logistics

Manufacturing

Energy

671

824 859

976 1,028

3.6%

22.8%

4.2%

13.5%

5.4%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2014 AG

RI

SE

CT

OR

GR

OW

TH

IN

%

AG

RI

SE

CT

OR

SIZ

E I

N U

SD

MIL

LIO

N

GEROGIAN AGRICULTURE SECTOR

Agri Sector Size in USD Million Agri Sector Growth

40


Source - Georgian National Investment Agency

Source - Georgian National Investment Agency

Sources: National Statistics Office of Georgia & Georgian National Investment Agency

316 349 437 512

774 824 724

870

1088 1165 1180 1180

-408 -521

-651 -653

-406 -356

-1000

-500

0

500

1000

1500

2009 2010 2011 2012 2013 2014

US

D M

ILL

ION

GEORGIAN AGRICULTURE TRADE

Agriculture Exports Agriculture Imports Net Trade of Agri Products

10%

25%

17%

51%

6%

20%

25% 7% 1% 0%

0%

10%

20%

30%

40%

50%

60%

2010 2011 2012 2013 2014

GR

OW

TH

IN

%

YEAR ON YEAR GROWTH OF GEORGIAN AGRICULTURE TRADE

Agriculture Exports Agriculture Imports

49% 52% 53% 60%

79% 80%

112%

130% 132% 136% 121%

115%

-63% -78% -79% -76%

-42% -35%

-100%

-50%

0%

50%

100%

150%

2009 2010 2011 2012 2013 2014

PE

RC

EN

TA

GE

CO

NT

RIB

UT

ION

TRADE OF AGRICULTURE PRODUCTS AS % AGRI SECTORAL

CONTRIBUTION TO GDP

Exports as % of Agri Sector Imports as % of Agri Sector

Net trade as % of Agri Sector Linear (Exports as % of Agri Sector)

41

CHALLENGES:

Small and Marginal farmers –Lacking Economies of Scale

Traditional Methods of Agriculture – Need for modernization

Low Productivity

COMPETITIVE ADVANTAGES:

Growing Domestic demand for agricultural products

Increase in Per capita Income of citizens of Georgia has increased the standard

of living of the people and hence demanding for more agricultural products for

domestic consumption. Current demand is met by importing the Agricultural

products and government plans to substitute the imported products by producing

them in Georgia.

Favorable Climate for agriculture

Endowed with a rich natural abundance of fertile soil, clean water and favorable

climate, Georgia has traditionally produced a wide diversity of crops native to

temperate zones.

Availability of Agriculture land

It is estimated that Georgia still has more than 800,000 Hectares of land which is

fertile and suitable for agriculture.

Source: Georgian National Investment Agency

Abundant Availability of Fresh Water Resources Water resources are one of the most important natural resources of Georgia.

There are 26,060 rivers with total length 58,987 km. A base of hydrographic

network are small rivers with length less than 25km and total length 50,480 km.

Georgia has one of the most abundant fresh water resources amounting to

12,955 Cubic meter per capita of fresh water resources, one of the highest in the

world.

6,700

3,694

3,006

2,204

802

Total land Non-Agriculture Land Agriculture land Cultivated Land Arable Land

(Available)

BREAKDOWN OF LAND RESOURCES

(Thousand Hectares)

42

Source: World Bank Database

OPPORTUNITIES:

1. Scope for Import Substitution:

Demand for Dairy Products & Meat is in increasing trend and most of the demand

is met by importing these Products. There is opportunity to invest in building

capacity which can cater to domestic market.

2. Opportunity to Mechanization of agriculture:

Most of the farmers still use traditional methods of agriculture due to which

productivity levels are very low. Investment can be made in supply of machinery

and farm equipment for sale or rent, quality fertilizers and high yielding seeds.

3. Export Opportunities – Wine & Spirits, Mineral Water:

In 2014, export of Wine and Spirits reached 183 Million USD and 95 Million USD.

With wide variety of grapes available and growing demand for Georgian wine across

the world offers a great potential for Investment.

Mineral Water from Georgia is famous for its high quality and taste and the exports

for fresh and mineral water reached 137 million USD in 2014. Government is still

open for licensing of springs and well known Georgian brands offer both green field

and brown field opportunities to Investors.

4. Food Processing Plants, Storage and distribution Infrastructure

Recently International food producer brands have set up their processing facilities

in Georgia. Imports of process food such as juices, tomato pastes and canned

vegetables was around 41 Million USD and exports just reached 18.3 Million

USD. Though Georgia is rich in Fruits and vegetables but lack in Infrastructure

which supports storage, distribution and processing of food and Beverages.

30,056

12,955

8,914

3,029 2,304 2,262 606

7,889

2,967

Russian

Federation

Georgia United

States

Turkey Armenia United

Kingdom

Hungary Europe &

Central

Asia

European

Union

CU

BIC

ME

TE

RS

RENEWABLE INTERNAL FRESHWATER RESOURCES PER CAPITA

43

2. ENERGY SECTOR:

Georgia has a developed, stable and reliable energy sector. The most promising

source of additional energy generation is hydropower and the Government is focused

on securing private investments for construction of new hydropower stations.

Currently, only 12 % of Georgia’s hydropower potential is being utilized.

Over the last decade, consumption has grown largely in line with real GDP growth

rate and reached 10.2 TWh in 2014. According to estimates, Georgia has a potential

to generate up to 33 TWh electricity from renewable sources (Mostly Hydro

resources 24 TWh)

DOMESTIC DEMAND AND SUPPLY PROJECTIONS

Note: * High Scenario Assuming a growth of 5% CAGR and ** Low Scenario

assuming a 3.5% CAGR


Thermal Power

Genration, 7%

Hydro Power

Generation, 75%

Imported Power, 18%

Electricity Consumption Break up in 2014

1.5

14.8

2.5 2.5

2.9

10.4

17.3 5.4

Current

Electricity

Generation

Generation of

soon to be

Finished HPP’s

Projected

Demand

2025

Demand

Overhang to

be covered

High

Scenario*

Low

Scenario**

44


Demand Drivers

Domestic Demand is growing and estimated electricity deficit by 2025 is more

than 5 TWh

Export Opportunities to neighboring countries like Turkey, Russia, Armenia and

Azerbaijan

Competitive advantages

Government of Georgia can offer Power purchase agreement up to 100% of total

generation

860 MW Transmission lines available to Turkey and Russia and no export Tariff

set and are exempted from Value added Taxes

600 Million Euros to be invested to upgrade transmission and grid Infrastructure

by 2018-22

Georgia is surrounded by countries which have power deficit like Turkey and

Russia or countries which have high power generation costs (Armenia and

Azerbaijan)

Investment Opportunities

There are over 90 potential small and medium sized (Less than 100 MW) and 6 big

HPP projects on the Pre-feasibility study level with Financial and Technical Projection

Success Stories

Note: HPP stands for Hydro Power Projec

3. MANUFACTURING SECTOR:

Georgia has a location advantage as a gateway between the Europe and Asia which

provides benefit to the manufacturers. Apart from location advantage Georgia offers

competitive labor and low energy costs which will help manufacturers to produce

goods at reasonably low cost. Well connected logistics with neighboring countries

accompanied by numerous preferential/free trade agreements can help companies to

set up their regional manufacturing and distribution centers

15 HPP Projects -

Under Constrution

, 544

15 HPP Projects -

Awaiting Permits,

1350

36 HPP Projects -

Feasibility Studies,

600

Sucess Stories - Capacity in MW

45

Currently Georgia has two free Industrial zones in which businesses are exempted

from all tax charges except Personal Income Tax.

Opportunities

Import Substitution in Food Processing, Construction Materials, Household goods

etc.

Advantages of handling large transshipment flows, low cost of power generation,

availability of raw materials and intermediate products provide opportunities in

Large Industrial projects such as Production of Iron, Aluminum and Steel

products


Food & Beverages has the highest potential in terms of volume

Textile& Apparel, Chemicals are promising and have growth potential

27.0%

1.5%

5.0%

5.6%

17.6%

22.4%

4.1%

-5.5%

27.1%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0 50 100 150 200 250 300 350 400 450 500

CA

GR

2008-2

013

SIZE OF SECTOR OUTPUTIN 2013 (USD Million)

MANUFACTURING SUB SECTOR GROWTH & SIZE MATRIX

Textile & Apparel

Chemicals

Wood & Paper

Machinery & Equipment

Transport Equipment

Non -Metallic Products

Food & Beverages

Rubber & Plastic

Metals

46

4. HOSPITALITY & REAL ESTATE SECTOR:

Source: Georgian National Tourism Administration

Number of International tourists’ arrivals is expected to grow by 8-10% during the

next five year

Average duration of Stay of Tourists is 5 nights and their average spend is USD

650

Fastest growing sector recording 40% growth in 2014 when compared to 2013

Investment Opportunities in Hospitality and Real Estate Sector

Considerable potential to develop Hotels, Leisure, residential, Retail and office

premises.

Home to more than 12,000 historical and cultural monuments

8 National parks and 84 different categories of protected areas

UAE INVESTMENT HIGHLIGHTS

RAK CERAMICS FULLY ACQUIRES IRAN UNIT

UAE based RAK Ceramics one of the largest makers of ceramic goods in the

world and has a distribution network covering more than 60 countries has fully

acquired its subsidiary in Iran after the announcement of nuclear deal. RAK

ceramics has acquired the remaining 20% equity shares from RAK Iran and

financial details were not disclosed. RAK ceramics has long term vision for the

Iranian domestic market and as an export hub for Central Asia has

encouraged RAK Ceramics to pursue this deal. Financed by World Bank this

Plant was set up in 2003 with an Investment of UAD 40 million and has been

running even after Iran sanctions were imposed.

0.6 1.0 1.1

1.3 1.5

2.0

2.8

4.4

5.4

5.6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

NUMBER OF INTERNATIONAL TRAVELLERS

47

DUBAI INVESTMENT PARKS ATTRACTED 436 NEW COMPANIES IN

FIRST FIVE MONTHS 2015

Dubai Investments Park (DIP) has attracted 436 new companies in the first

five months of 2015, taking the total number of companies within the 2,300-

hectare development to nearly 4,500.

During the period, the new companies leased warehouses, distribution

centers, office spaces and light industrial units across a total area of 580,000

square feet. The sub-tenants include well-known brands such as Splash Gulf,

Majan Food Industries, Galaxy Metal Industries, Four Zone Décor, Royal

Cosmetics and 4 Corner General Trading

Also DIP plans to build eight new Hotels and Serviced Apartments Projects

over next five years within DIP in order to cater demand that will be generated

by Expo 2020.

OMAN AND BRUNEI SOVERIEGN FUNDS JOINTLY ESTABLISH AN

AIRCRAFT LEASING COMPANY

Sovereign wealth funds from Oman and Brunei are partnering to establish an

aircraft leasing firm with capital of USD 520Million. Oman's State General

Reserve Fund (SGRF) is setting up the firm with Oman Brunei Investment Co

(OBIC), which is itself a 50-50 venture between SGRF and the Brunei

Investment Agency. The new venture, Oman Brunei Aviation Leasing Co

(OBALC), will invest in and manage the purchase and lease of commercial

aircraft operated by airlines in the Middle East and globally.

trade, economy and investment monitor report foreign … and investment moni… · trade, economy...

Documents