UAE Logistics LandscapeFrost & Sullivan

Logistics industry-related investments gravitate to and surge in the UAE

Transportation and storage sectors contributed nearly US$ 20 billion to GDP, accounting for more than 5 % of UAE GDP in 2021—Frost & Sullivan

Strong recovery during the post covid growth, improved oil prices, and e-commerce are some factors leading the growth in the UAE in 2022. Freight activity improved significantly in 2021, Jebel Ali Port handled 13.9 million TEU in 2021, and overall economic growth picked up to 3.2 % in 2021, asserts TJ Sivan, Senior Consultant, Supply Chain & Logistics Practice, Frost & Sullivan, the respondent to our questionnaire.

Global Supply Chain got the lowdown on the UAE logistics landscape for this special country report in an exclusive Q&A with Frost & Sullivan’s TJ Sivan, our regular contributor, analyst, and consultant.

Global Supply Chain (GSC): What is your preliminary assessment of the logistics landscape of the UAE? TJ Sivan (TJS): The impact of Covid-19 on the logistics sector has been severe due to supply chain ‘disruptions,’ stringent restrictions on movement, and border control measures. GDP growth declined by 2.8% in 2020, the non-oil sector, which contributed 73% of the GDP, was declined by 3.9% in 2020, and export growth declined by 20% in 2020.

Improved oil prices positively impact government finance and overall GCC growth. Policies are targeted toward easing restrictions and making UAE an attractive destination for investment.

With improving economic and trade growth, the logistics landscape is shifting towards an investment-friendly environment with increasing participation of the private sector, and prospects look bright for the logistics sector. GSC: Why, in your evaluation, does the UAE occupy a place of pride as a premier logistics hub in the region? TJS: Transportation and storage contributed nearly US$ 20bn to GDP, accounting for more than 5% of UAE GDP in 2021. Being a major logistics hub in the region, connectivity with regional neighbours has improved significantly, driven by growth in trade. GCC is a major destination for non-oil exports and re-exports, accounting for 20% and 29%, respectively.

Major re-export markets for UAE include Saudi Arabia, Iraq, Oman, Kuwait, India, and China, accounting for 50% of total re-exports.

The recently signed landmark Comprehensive Economic Partnership Agreement (CEPA) with India, is expected to increase bilateral trade by US$ 100bn, and a separate agreement with Israel is also expected to further boost bilateral trade by US$ 10bn by 2027.

With a focus clearly on trade expansion and economic diversification, expansion and modernization of transportation and logistics infrastructure will be given priority and UAE will remain a hub for not only for logistics but also for other

end-user sectors like e-commerce, entertainment, and medical tourism, and hub for the financial market.

GSC: The UAE economy is being boosted by surging oil prices and revenues. What implications does this have for the UAE’s economy in real time and what is your assessment of the same? TJS: The oil economy accounted for 2% of Dubai’s GDP and 50% of the GDP of Abu Dhabi.

Overall, oil contributed to 28% of the GDP of UAE. Dubai has benefitted from economic diversification initiatives and, as a result, reduced dependence on the oil sector.

For example, Expo 2020 has helped to boost activity between October 2021 to March 2022, and the relaxation of travel restrictions has contributed to a strong recovery in the tourism and hospitality sector in 2021. Improved oil prices are expected to have a positive impact on government revenue, but expenditures will be focused more on priority sectors.

GSC: How is Etihad Rail a game-changer for the UAE? TJS: The UAE Railway Programme, which was launched in 2016, comprises three key projects, namely Etihad Rail freight services, Rail Passenger Services, and the third project is the Integrated Transportation Service.

Etihad rail services connect Ghuwaifat on the border with the Kingdom of Saudi Arabia to the Port of Fujairah on the UAE’s eastern flank the Gulf of Oman. The UAE government has prioritized completion of rail infrastructure development as part of its ‘Projects of the 50’ development initiative.

UAE Railway Programme will connect 11 cities spread across seven emirates (from Al Sila to Fujairah) and reduce

travel time significantly. Passengers can travel from Abu Dhabi to Dubai in 50 minutes and from Abu Dhabi to Fujairah in 100 minutes. As part of the Integrated Transportation Service, smart transportation solutions will be developed with a focus on planning and booking travel plans and providing integrated logistics solutions by connecting customs with logistics operations.

GSC: When fully complete and operational, what implications will this have for the logistics sector in the UAE? TJS: Completion of Etihad Rail will transform the UAE freight logistics in many ways. The national railway is expected to reach an annual capacity of over 50 million tonnes of goods between ports and consumption and production centres.

The project comes in line with the environmental policy of the UAE, and it will reduce carbon emissions by 70% to 80% over a 50-year period and will reduce the stress of road freight in the UAE. It will improve connectivity and open up opportunities in multimodal logistics solutions.

GSC: UAE’s Port of Fujairah has a unique location situated on the Gulf of Oman outside of the Arabian Gulf and the notorious Straits of Hormuz. What potential for streamlined logistics does the Port of Fujairah hold for the country? TJS: According to the Fujairah Strategic Plan 2040, the Fujairah seaport is expected to expand capacity and new terminals for oil, marine services, dry bulk, and containers.

The throughput of Fujairah Port is estimated to increase from 0.72 million TEU to 1 million TEU by 2030, which will reduce the stress on other key ports in the region. This will open up logistics opportunities and improve connectivity with GCC and neighbouring regions.

As part of Stage 2 of the Etihad Rail project, Fujairah and Khorfakkan ports will be connected with production and consumption centres located in the other emirates.

GSC: Where are the new opportunities and challenges for investment in the UAE’s logistics segment, and which sectors hold the most promise and potential? TJS: Transportation infrastructure, warehousing, and e-commerce logistics are some of the logistics segments that have opened opportunities. Road and rail connectivity will remain a priority area - Etihad Rail development project, connected

About the Author:

TJ Sivan has over 15 years of experience in economic, industrial, supply chain, and logistics research and consulting space. He has hands-on experience developing insights and actionable strategies for various strategic and operational challenges relating to supply chain and logistics.

and smart technologies are expected to be the key drivers in this space.

Sea and airport modernization infrastructure will remain the focus due to increased trade growth in the east-west trade lanes. Rapid growth in e-commerce with UAE positioning itself as regional e-commerce will increase demand for warehouse and Fulfillment Centres.

GSC: How significant is the logistics and supply chain industry to the UAE economy? TJS: UAE economy has undergone transformational changes due to economic diversification initiatives which helped reduce dependence on the oil sector. As a result of the strong infrastructure development focus, transport and tourism benefitted from the government policy initiatives.

In recent years, the policy focus has shifted towards building a knowledge economy and strengthening digital infrastructure. In essence, UAE is expected to witness transformational changes in two areas, namely maritime connectivity, and logistics hub.

Major ports in Europe and Asia are well connected with UAE ports which will allow logistics service providers to offer multimodal solutions for the shipment of goods to other countries in the MENAEA region.

As a major regional distribution centre due to strong trade relations with GCC and North and East African Countries, UAE will remain a major redistribution centre for food, electronics, healthcare, and e-commerce sectors.

GSC: How significant are FDI and the free zones for the UAE’s logistics-heavy economy? What percentage roughly of the country’s economy do these constitute? TJS: Foreign investment Inflow into UAE is estimated at US$ 19.9bn in 2020 and US$ 20.7bn in 2021, which stood at 5.4 percent of GDP in 2020. Business environment policies, free zones, and increasing trade opportunities driven by economic diversification initiatives are some factors that made the UAE an attractive investment destination in the GCC region.

Policy measures undertaken by UAE authorities include legislative reforms aimed at ease of doing business and removed ownership restrictions on foreign direct investment. Free trade zones in Dubai focus on light and heavy industries, technology, and financial services and have made Dubai a regional business hub. UAE attracted over US$ 50bn between 2016 and 2021, and FDI stock has increased from UD$ 119bn in 2016 to US$ 170bn in 2021.

GSC: Do you believe the UAE has reached its peak or saturation point in the current scheme of things, or is there scope for further growth and utility of its present infrastructure TJS: Government focus will continue to be on diversification as per recent initiatives Vision 2021 and the UAE CENTENNIAL 2071. Transformation of the UAE into a knowledge-based economy is the focus area in both initiatives focusing on increasing productivity, enhancing competitiveness, and investing in digital infrastructure.

The UAE Policy for Advanced Industries focuses on developing competitive manufacturing firms and enhancing cooperation among public, private, and free zones. Industrial Strategy (2021-2031) aims to increase the contribution industrial sector from US $ 36bn (AED 133bn) in 2021 to US$ 81bn (AED 300bn) by 2031.

As a result, trade and industrial growth are expected to play a key role in the next decade, which is expected to transform the supply chain and logistics industry in UAE. Transportation infrastructure, port modernization, and upgradation will continue to be a priority area for national policymakers, and as a result, growth momentum is expected to continue during the next decade.