1. Country Profile

1.1 Economic and Social Indicators – UAE and Sri Lanka

Source: The World Fact book / Central Bank of Sri Lanka/Sri Lanka Customs

1.2 Economic Overview

• The UAE has an open economy with a high per capita income and a sizable annual trade surplus. Successful efforts at economic diversification have reduced the portion of GDP from the oil and gas sector to 30%.
• Since the discovery of oil in the UAE nearly 60 years ago, the country has undergone a profound transformation from an impoverished region of small desert principalities to a modern state with a high standard of living. The government has increased spending on job creation and infrastructure expansion and is opening up utilities to greater private sector involvement. The country’s free trade zones – offering 100% foreign ownership and zero taxes – are helping to attract foreign investors.
• The global financial crisis of 2008-09, tight international credit, and deflated asset prices constricted the economy in 2009. UAE authorities tried to blunt the crisis by increasing spending and boosting liquidity in the banking sector. The crisis hit Dubai hardest, as it was heavily exposed to depressed real estate prices. Dubai lacked sufficient cash to meet its debt obligations, prompting global concern about its solvency and ultimately a $20 billion bailout from the UAE Central Bank and Abu Dhabi Government that was refinanced in March 2014.
• The UAE’s dependence on oil is a significant long-term challenge, although the UAE is one of the most diversified countries in the Gulf Cooperation Council. Low oil prices have prompted the UAE to cut expenditures, including on some social programs, but the UAE has sufficient assets in its sovereign investment funds to cover its deficits. The government reduced fuel subsidies in August 2015, and introduced excise taxes (50% on sweetened carbonated beverages and 100% on energy drinks and tobacco) in October 2017. A five-percent value-added tax was introduced in January 2018. The UAE’s strategic plan for the next few years focuses on economic diversification, promoting the UAE as a global trade and tourism hub, developing industry, and creating more job opportunities for nationals through improved education and increased private sector employment.

Source: Source: World Fact book – Page last updated: August 02, 2022

1.3 UAE’s Regional Trade Agreements

RTAs in force

• Gulf Cooperation Council (GCC)
• Gulf Cooperation Council (GCC) – Singapore
• Morocco – United Arab Emirates
• Pan-Arab Free Trade Area (PAFTA)

RTAs for which an early announcement has been made

• EFTA – GCC
• Australia – Gulf Cooperation Council (GCC)
• Japan – Gulf Cooperation Council (GCC)

 2. Sri Lanka UAE Bilateral trade relations

(Value in Mn US$  | Source: Sri Lanka Customs )

• Tea, natural rubber, coconut oil, desiccated coconut, copra, cashew nuts, essential oil, fruits and vegetables, processed food, sea food, rubber products and toys are the major export commodities from Sri Lanka to the UAE.
• However, Tea was the major export item from Sri Lanka to the U.A.E in 2015.The value of tea export to U.A.E amounted to US$ 96 Million representing around 35 % of the total exports.

Trade Issues with UAE

• Alcoholic beverages, tobacco products and pork products are restricted to import into UAE and Irradiated food products are prohibited to import into UAE.
• UAE has introduced new trade policy on all imported meats- beef and poultry products, require a health certificate issued by the country of export and a “Halal” slaughter certificate issued by an approved Islamic centre in that country. In May 2013, the Emirates Standardization and Metrology Authority (ESMA) announced that all food products claiming to be halal need to have a halal mark and certification with effect from 2014 this opportunity has given by UAE Authorities to Sri Lanka only.

Tea Market in UAE

• India and Kenya account for over 80% of the teas imported in to Jebel Ali Free Zone (JAFZ) leaving the balance 20% for Sri Lanka, China and other tea producing countries.
• The Unilever tea packing plant that has an annual capacity of approximately 25,000 MT is the major importer of tea in to the free zone.
• The origins of tea imported by JAFZ are not available but as per trade information, JAFZ imports more CTC tea, the reason for Kenyan and Indian tea dominance in the Free Zone imports.

The details of Sri Lanka tea exports to UAE are shown below (volume in MT).

(Source: ITC calculations based on UN COMTRADE statistics. )

• Sri Lanka tea exports to UAE further declined in 2012 due to the impact of international sanctions on Iran on the UAE-Iran re-exports trade and 2013 it has been increased.
• The country was able to export only 11,888 MT of tea in 2012 a drop of 10,687 MT or 47%, compared to 22,575 MT supplied in the previous year and in 2013, 20,249 MT has been exported.
• The USA financial sanctions on Iran that affected the Dubai Banks and frequent fluctuation of Iran currency were the main reasons that hit the re-exports trade of tea badly in 2012.
• As Dubai based tea importers were unable to receive their payments through banking sector most of them channeled their tea business direct from Colombo to Teheran.

2.2 Sri Lanka’s Major Imports from the UAE [2011 – 2015]

(Value in Mn US$  | Source: Sri Lanka Customs )

• Among the items imported from the UAE, Petroleum oils and oils obtained from bituminous Petroleum oils is the major import commodities accounting for 56% of total imports. Other items include urea, lentils, iron & steel and machinery & parts.

3. Sri Lanka- UAE Joint Committee for Trade and Economic Cooperation

The Sri Lanka- UAE Joint Committee for Trade and Economic Cooperation (JCTEC) was signed in 2014 and its 01st Session was held in Abu Dhabi on 26 & 27 January 2014. Mutually important matters on the Treaty on Mutual Legal assistance in criminal matters, Treaty on Extradition and justice, MOU on the Establishment of Business Council between Sri Lanka and the UAE, Labor Empowerment Agreement and a MOU on Tourism promotion etc, were key matters discussed at the 1st Session.

4. Foreign Direct Investment from U.A.E

• UAE was the 8th in terms of FDI origins to Sri Lanka in 2019.
• There is a Double Taxation Avoidance Agreement between the two countries which was signed on 24th September 2003 and came into effect in 2004/2005.

Source: Board of Investment, Sri Lanka

5. Scope for further expansion of Sri Lanka’s Exports to UAE

Identified potential items which can be further promoted in UAE are as follows;

• Prepared or preserved tuna
• Telephone sets and other voice/image transmission apparatus
• Palm oil and fractions
• Reception apparatus for television
• Footwear
• Cane sugar
• Shrimps and prawns
• Coaxial cables and conductors
• Men’s suits of wool/fine animal hair
• Soap in flakes/granules/powder/paste
• Men’s suits of synthetic fibre
• Flat rolled products of iron or non-alloy steel
• Scarves, veils and similar of silk
• Broken rice
• Electric conductors
• Women’s and Men’s ensembles of synthetic fibre
• Bars and rods of iron or non-ally steel

6. Tourism

• Tourist arrivals from UAE to Sri Lanka has been decreasing since 2016.
• UAE was the 50th place among tourist source markets of Sri Lanka in 2019.
• In 2021, tourist arrivals from UAE decreased by 27.84 % compared to 2020 due to the adverse effects associated with the Covid-19 and measures taken to combat the same.

Tourist Arrivals from UAE

Source: Sri Lanka Tourism Development Authority