Abu Dhabi Paving the Way for “Made in China”: Opportunities and Advantages
The Abu Dhabi government is actively supporting the development of the manufacturing industry and attracting foreign investors, including Chinese enterprises.
Recognizing the need for diversification beyond the over-reliance on the oil industry, Abu Dhabi offers incentives such as tax reductions, customs exemptions, and favorable pricing to establish industrial and free trade zones.
The Chinese manufacturing industry can integrate into the Middle Eastern market and leverage Abu Dhabi’s advantages in land, electricity, and natural gas prices, as well as lower corporate and personal income taxes.
1. Government Support
As the economically most powerful emirate in the UAE, Abu Dhabi has taken various measures and initiatives to support the development of the manufacturing industry and attract foreign investors to its shores.
China, as the global manufacturing center, has become a key focus for Abu Dhabi’s attention.
(1) Why Abu Dhabi Supports Manufacturing
Abu Dhabi holds 90% of the UAE’s oil and natural gas reserves, making its fiscal revenues surpassing half of the entire UAE, far more than the famous star emirate, Dubai.
However, over-reliance on the petrochemical industry has led Abu Dhabi’s government to recognize the importance of economic diversification in recent years.
Thus, supporting manufacturing and reducing dependence on petrochemicals have become the current economic development direction for Abu Dhabi.
Transitioning from petrochemical industries to manufacturing allows Abu Dhabi to align with the global trend of sustainable development, preserving natural resources, reducing carbon emissions, and avoiding marginalization in the development of green economies.
Additionally, the Abu Dhabi government aims to keep up with global technological changes, and a robust manufacturing sector can drive technological advancements and innovations.
The government intends to support research and development activities in the manufacturing industry to enhance Abu Dhabi’s technological competitiveness on a global scale.
(2) How Abu Dhabi Supports Manufacturing
The Abu Dhabi government offers numerous investment incentives to encourage both local and foreign companies to invest in the manufacturing sector.
These incentives include tax exemptions, customs waivers, preferential pricing on land, electricity, and natural gas to enhance the competitiveness of the manufacturing sector.
To improve Abu Dhabi’s industrial infrastructure, specialized industrial and free trade zones have been established, such as Khalifa Industrial Zone (KEZAD), equipped with advanced facilities, including modern factories, logistics centers, and utilities.
2. Business Opportunities
The Chinese manufacturing industry can tap into the Middle Eastern value chain, access end markets, and leverage the region’s strategic location to re-export products to other markets, opening up vast opportunities for growth.
(1) Integrating into the Local Value Chain
The Chinese manufacturing industry can become a part of the Middle Eastern manufacturing value chain by integrating into the local industrial supply chain. This involves sourcing raw materials, spare parts, and services from local suppliers and selling products and services to local industrial enterprises.
The Middle East has established a strong industrial base in industries such as petrochemicals, metallurgy (steel and aluminum), plastics and packaging, construction materials, pharmaceuticals, and machinery and equipment, with many global giants operating in these fields.
Many Chinese companies already have a presence as suppliers or buyers for these giants. Establishing manufacturing capabilities in Abu Dhabi can optimize logistics and ensure timely product delivery, while the prices of many raw materials in the Middle East are lower than those in China, significantly reducing costs and increasing profit margins for Chinese enterprises.
(2) Accessing the Middle Eastern End Market
The Middle East region has a rapidly growing population, including a large number of young people. Some countries, such as the UAE, Qatar, and Saudi Arabia, have high per capita income and strong purchasing power.
Furthermore, e-commerce in Middle Eastern countries, especially the UAE and Saudi Arabia, is growing rapidly, providing a vast consumer market for Chinese manufacturing. Many Middle Eastern countries are heavily investing in infrastructure development, including transportation, energy, and urban development projects.
For example, the Saudi government has planned a series of major infrastructure projects, such as developing new cities, expanding railway networks, and building new airports and seaports, generating significant demand for construction, engineering, and transportation equipment.
(3) Re-exporting to Other Markets
The Middle East’s strategic location near Europe, Asia, and Africa provides an advantage for Chinese investors to set up manufacturing operations in the region and then export products to other markets.
It is important to note that the Middle East has signed free trade agreements with several countries and regions, resulting in lower tariffs for Middle Eastern products in these export markets compared to Chinese products.
Chinese investors with factories in Abu Dhabi will have a significant advantage in these markets compared to their Chinese counterparts.
For example, the UAE has free trade agreements with Turkey, India, and Israel. Additionally, as part of the Gulf Cooperation Council (GCC), which includes the Gulf States as a whole, the UAE has signed free trade agreements with Singapore, Japan, and Australia.
This means that Chinese manufacturing companies in Abu Dhabi can enter these markets with very low tariffs.
3. Cost Advantages
Abu Dhabi’s government provides highly favorable conditions for manufacturing companies in terms of land, electricity, and natural gas prices. These prices are not only more cost-effective than those in China but also more advantageous than in other Middle Eastern regions, such as Dubai.
(1) Land Prices
In Abu Dhabi’s largest industrial park, KEZAD, the annual rental price for industrial land is 28 AED per square meter, equivalent to about 55 RMB.
In addition to this, the Abu Dhabi Industrial Development Bureau offers three levels of more preferential land prices to newly established enterprises in the electrical manufacturing, electronics manufacturing, chemical manufacturing, food processing, pharmaceuticals, machinery and equipment manufacturing, and automotive manufacturing industries. The annual rental prices for these three levels of land are 5 AED, 7.5 AED, and 10 AED per square meter, respectively, equivalent to about 10 RMB, 14 RMB, and 19 RMB.
(2) Electricity and Natural Gas Prices
The Abu Dhabi Industrial Development Bureau has introduced preferential gas and electricity rates to enhance the emirate’s industrial competitiveness. The bureau assesses companies based on a published formula to determine which rate category they fall into.
The preferential electricity rates are divided into three tiers: 0.2 AED, 0.22 AED, and 0.25 AED per kilowatt-hour. For natural gas, the three tiers are 7.9 AED, 9.1 AED, and 10.3 AED per MMBtu.
By comparison, Dubai’s industrial electricity rates for the three tiers are 0.35 AED, 0.4 AED, and 0.45 AED per kilowatt-hour, respectively, exceeding Abu Dhabi by more than 75%.
4. Investment Environment
The UAE boasts a favorable business environment, relatively robust legal framework, high policy transparency, economic openness, and low tax rates.
(1) Company Establishment
In Abu Dhabi’s free trade zones, such as Abu Dhabi Global Market (ADGM) and KEZAD, foreign investors can own 100% of the company. In June 2021, the UAE Ministry of Economy revised the Commercial Companies Law (CCL), easing restrictions on foreign investors’ ownership of UAE companies. Now, outside free trade zones, foreign investors can fully control their UAE-registered companies without the need for local partnerships. The UAE government only restricts foreign investors’ ownership to no more than 49% in a few industries involving finance, education, and health.
(2) Corporate Tax
Starting from June 2023, the UAE began levying corporate tax (also known as corporate income tax). Companies with taxable income below 375,000 AED are subject to a 0% tax rate, while those exceeding this amount are taxed at 9%. For companies in free trade zones that meet the relevant criteria, the tax rate is 0%, irrespective of the amount of taxable income. In comparison, the corporate tax rates in other Gulf countries are as follows
Saudi Arabia 20%, Oman 15%, Qatar 10%, and Kuwait 15%. The UAE’s tax advantage is evident.
(3) Value-Added Tax (VAT)
The UAE has a standard VAT rate of 5%, which applies to most goods and services. The VAT rate for commercial exports and international logistics services is 0%. When declaring VAT, companies can offset input tax against their expenditure costs. Companies with annual revenues exceeding 375,000 AED must register for VAT. Companies with revenues below this threshold can voluntarily register for VAT.
(4) Personal Income Tax
Currently, the UAE does not levy personal income tax. This means that individuals, regardless of their nationality or the source of their income, are not subject to income tax. However, companies are required to pay social insurance for UAE nationals. Workers are required to contribute 5% of their total compensation as social insurance, while companies must contribute 12.5% of the workers’ compensation.
5. Conclusion
In conclusion, the Abu Dhabi government is actively promoting the development of the manufacturing industry through various support and incentive measures, aiming to achieve economic diversification, sustainable development, and technological innovation. The Chinese manufacturing industry has numerous business opportunities in Abu Dhabi, including integrating into the local value chain, accessing the Middle Eastern end market, and leveraging its strategic location to re-export products to other markets. Abu Dhabi provides cost advantages to Chinese manufacturing companies in terms of land, electricity, and natural gas prices. Additionally, the favorable investment environment, legal system, and low tax rates in the UAE offer favorable conditions for Chinese investors. Thus, Abu Dhabi becomes an important partner for the Chinese manufacturing industry to expand into international markets, allowing both sides to achieve mutually beneficial outcomes. Through collaboration, the Chinese manufacturing industry can expand its market share, improve product quality, and technological standards, while Abu Dhabi can promote local economic diversification, industrial upgrading, and sustainable development.