United Arab Emirates Autos Report Q3 2008

The UAE is aiming to become an automotive producer in the Gulf, but current plans are unlikely to lead to large-scale assembly, according to BMI's latest UAE Automotives Report. A number of plans for assembly plants have been mooted, with some more advanced than others. In May 2008, Hafilat Industries of the UAE won an AED30mn (US$8.17mn) contract to supply locally-assembled buses for export. The buses will be built on the chassis of Euro IV compliant Mercedes-Benz models, imported from Spain, but will take the form of the 'New Generation City Bus' developed by Australia's Volgren, which is made from aluminium to be lighter and stronger. Production of the buses began in May 2008, while the order should take four months to fill. Hafilat already assembles articulated, double-decker, compressed natural gas, hybrid and trolley buses for public transport.

In November 2007, Abu Dhabi-based Gulf Automobile Industry Corp (GAIC) produced a double cab pick-up truck with around 40% local content from the Gulf Co-operation Council states. In order to achieve its target of exporting half its output, GAIC will incrementally raise its output from the one truck per day rate in 2007 to 3,500 per year in 2008. Plans have also been put forward in the passenger car segment. Although majors have ruled out establishing manufacturing operations in Dubai, in November 2007, Dubai-based engine producer Praktiko GT announced plans to begin volume car production in the UAE, in line with BMI's predictions. It intends to produce the Tiger Kub budget model for export to Africa and India. BMI believes the Praktiko car assembly project will generate interest from foreign autos majors. The UAE's geographical position, low labour costs and relatively liberal investment regime make it an attractive investment destination, although high construction costs could deter some investors.

The UAE is also establishing itself as a major trade hub for the global automotive industry. Trade in spare parts rose by almost 30% in value terms to AED18.22bn in 2007, compared with AED14.05bn in 2006.

In terms of existing trends, Japan remains the leading source of imported spare parts in Dubai, with imports worth AED2.7bn. Total spare parts imports were worth AED11.05bn and accounted for 60.65% of total spare parts trade. Libya was Dubai's leading export destination, taking in AED31.3mn worth of spare parts, while the UK was second with AED30.5mn and Yemen third with AED30.3mn. Re-exports of spare parts from Dubai remained strong with Iran, Iraq and Russia ranking as the top three destinations.

The UAE scores 56.3 points (out of a theoretical maximum of 100) in the BMI automotive business environment rating this quarter, putting it 0.4 points behind Bahrain and 1.5 points ahead of Turkey.

Lying in second place, the UAE is the fastest growing automotive market in the GCC. The UAE is likely to secure its place as a regional car retail hub. Recent investment liberalisation in Abu Dhabi, the federation's largest Emirate, is a welcome development, but the country is unlikely to become a mass car producer over the next five years. Further liberalisation of property ownership and investment regulations would improve its ranking.