- Dubai Chamber
Automotive sector plays a vital role in promoting the UAE’s competitiveness in the region
Dubai, UAE: A recent study by Dubai Chamber of Commerce & Industry informs that demand for both luxury and volume cars will remain strong in the UAE despite the development of world-class public transport infrastructure.
The automotive sector plays a vital role in promoting the UAE’s competitiveness and makes the country stand out against competing economies in the Middle East, the report states.
The study, based on a recent Business Monitor International report, highlights the important drivers of growth for the automotive market, which include increasing populations, higher incomes, urbanization, energy efficiency and low-cost automobiles.
It recommends that car dealers be aware of developments in these areas and be ready to act as they occur overtime in order to meet increased demand.
Challenges and Prospects for the UAE Automotive market
The UAE Automotive market is an important part of the UAE wholesale, retail trade and repairing services sector. The UAE automotive market caters to the growing demand for automobiles in Dubai and the UAE which is expected to grow as both the population and income of residents continues to increase.
Efficient transportation lowers the cost of doing business, creates synergies for various sectors and improves a country’s competitiveness. Therefore, the UAE’s automotive sector plays a vital role in making it stand out as compared to other economies in the Middle East and North Africa region and beyond. Although the UAE has developed world-class transport infrastructure it is expected that the demand for both luxury and volume automobile brands will remain strong as the need for having a car remains.
Drivers of growth
Important drivers of growth for the automotive market include UAE demographics, urbanization, energy efficiency and low-cost automobiles. Each of these is a challenge but also a business opportunity and therefore a potential growth driver.
Population increase through natural growth and immigration will continue to create demand for cars, both luxury brands and budget vehicles. The preference for people to live and work in urban areas is also likely to lead to greater need for automobiles, including fuel efficient vehicles. This leads to the third growth driver, in which the need for greater cars combined with urbanization creates a need for greater fuel efficiency. Energy efficient vehicles emitting low amounts of carbon emission are therefore likely to be an important trend and growth driver in the future. The last important growth driver is likely to be cost efficiency. While the demand for luxury cars is on the rise, so is the need for low cost vehicles required by budget consumers. While some existing car makers are also trying to introduce cheaper models, newer Asian manufacturers are also attempting to capture a part of this market worldwide. In the future we could see cheaper vehicles with newer brand names gain market share in the UAE.
Prospects for the UAE automotive market
The UAE automotive market is expected to experience strong growth as the demand for automobiles and related products increases. Future forecasts for the UAE automotive market are shown in table 1, in which total auto sales are expected to expand significantly registering a Compound Annual Growth Rate (CAGR) of about 8% between 2010 to 2014, while total re-exports are expected to increase at a CAGR of 5% in the same period. This increase in auto sales is accompanied by increase in car ownership as a percentage of the population, which is expected to increase to a high of about 57% by 2014.
Table 1: Growth forecast for UAE automotive market
Using Revealed Comparative Advantage (RCA), table 2 shows countries for which Dubai has high RCA values for re-exports under the Harmonized System (HS) chapter: Vehicles other than railway or tramway, HS code 87.
Table 2: Countries with High RCA in vehicles other than railway or tramway
Source: Dubai Chamber based on UN COMTRADE and Dubai Customs.
An RCA value of above 100 indicates that Dubai is better than the rest of the world at exporting a particular product to a target country. As shown in the table, Dubai has high re-export RCA for export to Pakistan at 317 followed by Libya at 307, Saudi Arabia at 235 and Egypt at 174. These values are meant to assist automotive market traders in identifying important markets of interest to increase their re-exports. Dubai and UAE business people should also do their own detailed analysis regarding specific trade opportunities in target markets.
Challenges for the UAE automotive market
Although the environment is generally positive, the UAE automotive market does face some challenges. In the near term, the automotive market needs to continue to recover from the impact of the recent downturn and try to expand sales as the UAE economy as a whole also recovers. Streamlined regulations for auto-financing can lead to more new car purchases. Over time, the need for more fuel efficient vehicles that emit fewer carbon emissions will lead to increased demand for such vehicles from consumers. Automotive dealers need to be aware of these developments and be ready for them as they occur overtime.
Markets with potential to increase exports may exist both in the GCC region and beyond and more should be done to analyze these opportunities and exploit them. One such step could be to attract global brand names to produce locally and then export automobiles. However, creating local assembly plants also brings with it a human resource challenge as skilled people are required to run these facilities. Therefore, while encouraging investment in assembly plants, the government can help overcome this challenge by integrating various stakeholders including dealers, potential automotive assembly businesses and educational institutions to create a more competitive automotive market. Enterprising businesses can then be encouraged invest in assembly plants in the UAE to re-export to the entire region and beyond. The government can also encourage the use of eco-friendly cars in Dubai and UAE. This will help lower emissions and help promote UAE and Dubai as more responsible centers of business and commerce.