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UAE well-placed to lure firms shifting out of China

Issac John /Dubai
issacjohn@khaleejtimes.com Filed on August 30, 2020 | Last updated on August 30, 2020 at 05.58 pm
The UAE is already home to a diversified range of industries. - File photo

The UAE has laid strong foundations to leverage on the new opportunities.

The UAE with its well-diversified economic ecosystem has laid strong foundations to leverage the new opportunities arising as global manufacturers gear up to shift up to 20-30 per cent of their production capacity, valued at an estimated total of $500-750 billion in exports, out of China.

The UAE currently ranks first in economic diversification in the GCC and 16th in global rankings for ease of doing business after climbing up 12 spots within five years, according to UBS, the world's leading global wealth manager.

The UAE has strong foundations to leverage the new opportunities arising while not all countries will be winners in this gradual shift from global to local. "We believe that those governments, entrepreneurs, and investors who incorporate this long-term thinking into their current decision-making will be better prepared for the future," says UBS in its report on investing in emerging markets after the Covid-19 pandemic and the key implications of a less global world.

The China-UAE Industrial Capacity Cooperation Demonstration Zone Project, established in the Khalifa Industrial Zone Abu Dhabi with Jiangsu Provincial Overseas Cooperation and Investment Company has attracted more than 20 Chinese companies since it was officially launched in 2018 with investments of more than Dh6.2 billion.

The UBS report highlights UAE's potential to thrive under the new paradigm and capitalise on more localised supply chains thanks to its business-friendly environment, successful diversification of the economy, access to an international workforce, and the government's forward-looking, technology-embracing attitude.

The UAE has set clear strategies on promoting robotics and advanced manufacturing techniques to better position the local economy for the future. The second largest Arab economy is already home to a diversified range of industries including, among others, metals, pharma, food and beverages, and transportation, defence, and aerospace equipment, the report said.

Niels Zilkens, head Arabian Gulf at UBS Global Wealth Management, said emerging markets will encounter opportunities and challenges informed and shaped by the new dynamics created after the Covid-19 pandemic. "Building human capital, developing a specialized yet flexible economic structure, and creating a business-friendly regulatory environment does not happen overnight -and neither does the relocation of supply chains."

According to the report, globalisation and its boost to international trade have benefited emerging markets over the past decades, but negative side effects have evolved in parallel. The coronavirus crisis has accelerated the trend for increased localization.

Michael Bolliger, chief investment officer, Emerging Markets at UBS Global Wealth Management, and co-author of the report, said the Covid-19 crisis has made the world structurally less global, accelerating further the de-globalization and nearshoring trends which will be affecting significantly emerging markets in the years to come.

"Although the shift will take place gradually, investors should be exploring the increased importance of sustainable investing, the opportunities and challenges arising from the fourth industrial revolution-digitalization, automation, and the use of robotics are all on the rise and, finally, climate change and its effects on food security."

Recent surveys conducted by the UBS Evidence Lab illustrate that businesses are keen to relocate their foreign operations as a result of coronavirus-related shutdowns. Interestingly, of the US, North Asian, and Chinese firms surveyed, 85 per cent, 76 per cent and 60 per cent, respectively, have moved or are planning to move production out of China.

US firms surveyed would move 46 per cent of their China production, while Chinese manufacturers reported they would move 30 per cent of their export capacity outside of the country. The equivalent number for the North Asian firms included in the survey was 33 per cent. These plans suggest that 20-30 per cent of capacity could be moved out of China, an estimated total of $500-750 billion in exports. As a response, companies and governments are already acting to diversify these chains and bring them closer to home, with further changes to come.

UBS expects the trend toward more localized economies to advance in the years ahead as it relies on a range of crucial factors such as the complexity of supply chains, access to a competitive workforce, energy or commodities, appropriate infrastructure or business environment, geographical proximity to final sales markets or subsidies, environmental costs, digital adaptation and protectionism. - issacjohn@khaleejtimes.com

author

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.


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