United Arab Emirates Trade Procedures And Governance Analysis

Fitch Solutions / Operational Risk / United Arab Emirates / Mon 16 May, 2022

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Key View: The UAE is one of the best connected markets for international trade and its well-developed infrastructure and strategic location attract major logistics and shipping firms. The government has also encouraged trade and investment by scaling back bureaucratic requirements and offering numerous free trade zones strategically close to major trade routes, which further expedite customs procedures and lower administrative costs for exporters and importers. These factors make the UAE a highly attractive location for companies reliant on efficient international trade for business operations. Consequently, the UAE is a regional outperformer for Trade Procedures and Governance, placing first out of 18 states in the MENA region, and eighthout of 201 global markets with a score of 94.0 out of 100.

Robust Efficiency & Optimisation Levels Implemented

MENA - Trade Procedures & Governance

Note: 100 = lowest risk; 0 = highest risk. Source: Fitch Solutions Logistics Risk Index.

Latest Trade Procedures And Governance Analysis

  • The UAE’s reform drive bodes well for overall investment activity in the country. Indeed, the easing of the Covid-19 health crisis and rising economic competition between the UAE and Saudi Arabia will continue to provide impetus for the authorities to implement business-friendly reforms to attract foreign investment.
  • The UAE is set to benefit from strong investments from China that would support long-term diversification strategies. This will result from deepening ties between China and the Gulf Cooperation Council (GCC), including the UAE.
  • The country’s favourable business environment, especially Dubai, along with political stability and neural position in the ongoing Russia-Ukraine War could help it to attract Russian investors looking for new locations to invest. This could increase investment in Dubai and support economic growth.
  • The planned introduction of the corporate tax rate in June 2023 is unlikely to significantly deter investment activity as the UAE’s tax rate will remain attractive compared to its GCC peer.


Ease And Costs Of Trade

The UAE's appeal to investors is considerably boosted by the quick and simple regulations and procedures involved in the importing and exporting of goods across the country's borders. Businesses benefit from streamlined customs procedures that present minimal obstacles to trade, making the process of trading from the UAE among the fastest in the region and reducing firms' exposure to corruption by customs officials. This state of affairs underpins the UAE's score of 93.8 out of 100 for Ease of Trading, which places it firmly in first position regionally, and 11th out of 201 global markets.

The UAE has streamlined procedures to process documents and reduced the time required to clear customs, mainly by introducing wholly electronic clearance procedures and a risk assessment system. The UAE's trade procedures are therefore viewed competitive both regionally and globally. The UAE is most competitive in the burden of customs procedures, as well as port infrastructure. Nevertheless, the country still requires that imports be processed by a designated trade agent, and nationality restrictions are applied in this respect. A trade agent requires a trading licence, granted only to UAE nationals and to companies that are at least 51% owned by UAE nationals.

Attractive Business & Regulatory Environment

UAE - Trade Procedures Scores, % deviation from regional & global averages

Note: Higher value = better relative performance. Calculation based on percentage difference from the average score for the region/world. Source: World Bank Logistics Performance Index, Fitch Solutions

The efficiency of trade procedures is slightly dampened by the less competitive associated trade costs. The most costly and time consuming element of both exporting and importing is border compliance, where the UAE performs below the GCC and Middle East and North Africa (MENA) regional averages. Consequently, the UAE scores 94.2 for Connectivity, ranking first regionally, and eighth out of 201 global markets. The costs for import and export procedures are among the highest in the GCC and MENA region. This does not add substantially to the burden of trade procedures as conducive policies towards customs duties, as well as efficient port handling times, ensure that costs for other procedures remain low, further boosting the UAE's appeal to investors and securing its position as an attractive trade hub.

UAE - Trade Procedures And Governance Risks
Border Compliance
  • The UAE's appeal to investors is considerably boosted by the transparent and streamlined regulations and procedures involved in the import and export of goods across the country's borders. The UAE has the shortest completion time frame for export border compliance out of the six Gulf Cooperation Council (GCC) states (27 hours). This increases the UAE's appeal as an international maritime and aviation freight transit and trade hub.
  • Oman's ports are emerging as key competitors to those of the UAE owing to significant investment being channelled into four special economic zones along the Omani coast - Sohar, Salalah, al-Mazunah and Duqm. However, Oman has a slightly longer time burden for export border compliance - estimated at 28 hours.
  • On average, border compliance for importing into the UAE will cost an estimated USD553.
Documentary Compliance
  • Businesses in the UAE enjoy streamlined trade procedures characterised by bureaucratic efficiency, which minimises supply chain delays for businesses and reinforces the UAE's position as the most developed and efficient trade hub in the region.
  • The burden of export documentary compliance is very low. In order to export out of the UAE, businesses are only required to collate around six documents, taking approximately five hours. This is shorter than Qatar (10 hours) and Oman (seven hours).
  • For import documentary compliance, only around seven documents need to be collated; this takes approximately 12 hours, which is the shortest out of the six GCC states. Import documentary compliance takes around 23 hours in Oman and around 72 in Qatar.
  • Cost burdens are relatively high. Export documentary compliance costs around USD140 in the UAE, which is higher than Qatar (USD150) and Oman (USD107). Import documentary compliance costs around USD283 in the UAE, which is higher than in Oman (USD124).
Ports And Inland Transport
  • The time taken to trade is also shortened due to the proximity of major industrial and free zones to port infrastructure, where businesses enjoy a streamlined process of inland transportation and handling. This is in part due to the small size of the country and ongoing investment in the development of internal transport networks and strategic industrial zones, with Dubai and Abu Dhabi at the centre of international trade.
  • The potential for increased liner connectivity, rail development and expansion of road infrastructure will have a positive impact on the efficiency of ports and terminal handling, and improve overall lead times. Such procedures will become even more streamlined with the eventual completion of the Etihad Rail Project.
  • The Etihad Rail - Dubai - Abu Dhabi phase wad completed in March 2022 and around 70% of stage 2 had been competed by April 2022. While various phases are expected to gradually come online and connect the seven UAE emirate states, the full project is expected to be completed by 2030.
  • Businesses face a low risk of being solicited for bribes when dealing with any government department. This is aided in the case of customs procedures due to the streamlined nature of the process and the increasing provision of e-services.
  • This lowers risk of reputational damage over time and mitigates trade-related legal costs.
Source: World Bank, Fitch Solutions

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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