UAE economy to gain $13bn from lifting of Iran sanctions, IMF predicts

Equivalent to a 1 per cent gain in real GDP growth each year over the next three years.

Market traders at the Iranian Spice Souk in Dubai.  Stephen Lock  /  The National
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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.

That is equivalent to a 1 per cent gain in real GDP growth each year over the next three years, the IMF said in its annual report on the country’s economy.

In 2013, Iran accounted for 12 per cent of the UAE’s non-oil exports, valued at $12bn that year. Most of this came in the form of re-exports traded through Dubai’s Jebel Ali Port.

The potential boost comes amid more bearish forecasts from IMF for economic growth in the Emirates. It predicts that the UAE economy will grow by 3.0 per cent this year, and 3.1 per cent next year.

That’s considerably slower than its previous estimate of growth of 4.5 per cent for this year – and has been revised down three times in nine months in light of the size of the impact of low oil prices, and the magnitude of UAE government spending cuts.

The IMF also said this week that the UAE’s planned spending cuts would shave 1 per cent off GDP growth each year until 2020.

However, the impact from the lifting of sanctions could be much bigger as Iranian tourists make their way back into Dubai’s hotels.

The number of hotel guests from Iran almost halved in the wake of sanctions, with 4,000 visiting in 2013, down from 8,000 in 2010.

The IMF estimates that about a quarter of all trade between the two countries has been permanently lost.

“The UAE is well positioned to benefit from an opening of the Iran market by serving as a transshipment point for renewed trade activity,” the IMF said.

Ahmed Badr, regional chief executive at investment bank Renaissance Capital, said: “Dubai and the UAE will most likely be the trade gateway to Iran because the country has the ports and infrastructure. It is the easiest place for multinationals to locate in order to invest in Iran.

“In finance, trade, banking, real estate investment – it will all be managed from Dubai. If you are a multinational, it makes sense geographically and economically to manage your business in Iran from Dubai.”

This means that the city will register an even bigger influx of expats, Mr Badr said, which will benefit banking and real estate.

But investment from Iranians, who have had their money trapped in the country since its citizens were frozen out of the international Swift money transfer system, is also likely to make a big contribution to Dubai’s economy.

“We are going to see a lot of investment coming out of Iran coming into Dubai as well,” Mr Badr said. “There is a lot of money in Iran – there was no flight of capital or pre-movement of capital before sanctions. So it makes sense that over the first two years you will see this money entering Dubai. Dubai banks and real estate will benefit from the extra liquidity,” he said. “Dubai is regarded as a safe haven within the region – especially when it comes to real estate investment.”

The Middle East Economic Digest estimates that there are about $167bn of planned or under way energy projects that will become available to international investors after the lifting of sanctions. These include the construction of a $4.5bn gas project off Kish island, and a $3.2bn oil refinery in the west of Iran.

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