While the sharp drop in oil prices this year may be making politicians in the petroleum-exporting economies of the Arabian Gulf a bit jittery, a strengthening US dollar has meant good news for the region’s consumers as durable imports such as mobile phones and cars get cheaper.
In Dubai, which is one of the world’s biggest trading hubs after Hong Kong and Singapore, this is not only welcomed by residents facing increasing housing, utility and school fees costs but also by the UAE’s government, as the dollar’s climb of more than 10 per cent against the world’s major currencies also means that the emirate can import more for the same amount of money, bolstering its revenues from trade.
In turn, that – along with its focus of attracting tourists and building itself into the region’s financial centre – lessens the country’s reliance on hydrocarbons as a source of revenue. This is especially urgent in a year when the price of Brent crude has dropped nearly 50 per cent amid waning demand and an increase in supply from countries like the United States.
“Dubai’s trade statistics for the first nine months of 2014 clearly show the emirate’s solid foothold as a regional and international trading and investment hub, as it maintained a high value despite the global decline in commodity prices,” Ahmed Mahboob Musabih, the director of Dubai Customs, said yesterday. “This reflects Dubai’s trading capability to increase the volume of foreign trade, including imports, exports and re-exports, to compensate for any drop in prices.”
Dubai’s non-oil trade in the first nine months of 2014 totalled Dh988 billion, with imports accounting for Dh621bn, re-exports Dh280bn and exports Dh86bn, Dubai Customs data released yesterday showed. That compares to total non-oil trade of Dh1 trillion and Dh610bn of imports in the same period last year. This year, phones topped imports, rising 8 per cent from the previous year to a value of Dh129.4bn, while the value of car imports increased 31 per cent to Dh48.6bn, the Dubai government said.
China was Dubai’s top trading partner, followed by India and the US. Saudi Arabia was fourth overall.
Inflation in Dubai began to ease last month as the effects from the recent drop in commodity prices filtered through to consumers. Prices in November gained 4.15 per cent year-on-year, compared with a 4.38 per cent increase in October year-on-year, according to data released by the Dubai Statistics Centre, as food costs fell and the rate of rent rises slowed.
While the value of trade has not risen significantly from the same period last year, volumes have.
DP World, one of the world’s biggest port operators, said in October that the volume of containers it handled in the first nine months of the year through its UAE ports including Jebel Ali gained 12.6 per cent, boosted by growth in business in the Asia-Pacific region, Indian subcontinent region, Europe and the UAE.
And that is mainly because of the appreciation of the dollar and the fact that Asia and Europe are the UAE’s main trading partners. While the peg to the dollar compels the UAE and other Arabian Gulf economies to follow US monetary policy, it has the benefit of giving it the strength and stability of tracking the world’s de facto currency – especially as the greenback firms against other currencies such as the euro and the yen, making imports from Europe and Japan cheaper.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, has risen 11 per cent this year, set for the biggest annual gain since 2004. The dollar has gained 14 per cent this year against the yen, a third straight annual advance. It has risen 13 per cent against the euro, the biggest gain since 2005.
“You have to be long-term bullish on the dollar next year,” Rob Zukowski, a senior technical analyst at 4Cast based in New York, told Reuters.
Still, that may be a small consolation amid the declining price of oil, an export commodity that provides the country with more than 50 per cent of its revenue. Concern over the more than 45 per cent slide in crude prices has roiled UAE equity markets in recent weeks as investors fret that the economy will be dented by falling oil revenues.
Oil producers, led by Opec, are betting that an improvement in the global economy will boost demand for crude.
Follow The National's Business section on Twitter