Trade Between Uae and Ksa

1213 Words Oct 5th, 2010 5 Pages
Trade Discussion

Saudi Arabia is considered to be UAE’s most important neighbor. It is the largest neighbor in terms of economy, geographical size and population. KSA’s gross domestic product (GDP) in 2007 was $ 376 billion while UAE’s GDP was $193 billion [1]. Both UAE and KSA are oil-producing countries, which implies that the exports and imports commodities are not crude oil. However, UAE imports refined petrochemicals and plastics, which are considered to be the downstream product of crude oil. Other commodities the UAE imports are steel, cement, fertilizers and foodstuff. On the other hand, UAE exports to Saudi Arabia are re-exports goods such as cars and electrical commodities. In fact, UAE is the third most important re-export
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In fact, UAE is expected to have trade surplus with most of the countries that do not produce oil because of the high price of oil and the addiction of countries likes USA, China and UK to crude oil as a source of energy.

Conclusion and Recommendation

To sum up, the UAE exports to KSA are increasing dramatically, while the UAE imports from KSA starts showing a decrease pattern. Thus, it is expected that the trade balance is heading toward a surplus in the near future. To reach this trade surplus, the UAE economics decision maker should consider the factors affecting the trade balance. The exchange rates are one of those factors. Therefore, the UAE should observe the dollar performance in the market. If the dollar keeps going down, they should reconsider pegging the dollar to the emirate dirham. It is suggested that they change from fixed pegging to move pegging like China. Another factor is the trade agreement and trade barriers. It is suggested that both KSA and UAE agree on reducing the barriers of entry to the market. However, at immature industries such as the petrochemical and plastic industry, it is better to keep entering Saudi 's firms into UAE market restricted because UAE is new to the plastic industry "Borouge established in 1998" . This restriction will protect domestic producers. On the other hand, UAE should convince the Saudis to open their market for UAE firms that are well experienced like communication firms such as