Electronics re-exports on their way down in Dubai

Changing tecnhology, shifting politics and new supply chains are all affecting the emirate’s status as a trade hub for mobiles and computer. Nabila Popal writes.

Mobile phones were 12 per cent of Dubai’s foreign trade last year. AFP

In an earlier article on these pages we explained the workings of the re-export trade through Dubai for IT products in general. Today, we examine how this trade varies for three specific lines of technology.

Mobiles

Dubai Customs recently said that phones were the most traded commodity in the emirate. That is quite a statement, considering the size of Dubai’s trade. The overall trade in telephones totalled Dh42.5 billion in the first quarter of last year, up 126 per cent since the first quarter of 2010, making phones 12 per cent of Dubai’s foreign trade.

Mobile feature phones are a large part of this. Most feature phones that are officially shipped into the UAE are not consumed by the UAE market. Almost 50 per cent are re-exported to developing countries in the Middle East and Africa, where there is strong demand for ultra-cheap phones. Some phones cost as little as Dh49. This is across all vendors and models, although Nokia and Samsung have the largest volume. However, the volumes being traded have fallen significantly since 2013 because of the rise of low-priced smartphones.

Smartphones are also subject to this re-export trade, but to a lesser degree because of their higher price. The most popular brands for re-export are Samsung and Apple. Depending on price, most smartphones are routed to the surrounding GCC countries; farther afield even to the likes of Kazakhstan, Azerbaijan, Pakistan, Afghanistan, Iran and Iraq; or into Africa – Sudan, Kenya, Nigeria, Angola, Zimbabwe, Cameroon and the Democratic Republic of Congo.

This trade doesn’t only exist for the big brand names. Even millions of white-box phones (no-brand phones from China) are finding their way into the re-export market because of their low price.

Overall, re-exports of smartphones recently have fallen drastically as key vendors such as Samsung and Apple have made huge strides in addressing factors that drive this trend, such as price and availability. iPhones used to be released in the Middle East up to a year or more after the United States, creating huge grey market demand throughout the region. However, the gap has now been reduced to just a few weeks, as demonstrated with the launch of the iPhone 6. Before April 2013, in many GCC countries about 80 per cent of the iPhones purchased had come through the grey market, a figure that is now 20 to 30 per cent.

Samsung has also tried to address this issue by investing large amounts in raising awareness of the benefits of buying from official sellers, with a particular emphasis on warranty and after-sales service.

In the GCC, the average proportion of Samsung phones coming from the grey market has fallen by half.

PC monitors

IDC research shows that as much as 60 per cent of PC monitor shipments into the UAE are ultimately re-exported. All brands are re-exported, and 95 per cent of the devices are sent to three regions – the Middle East with 51 per cent, Africa with 34 per cent and eastern Europe with 10 per cent. Iran, Iraq, Jordan, Egypt, Kenya and the CIS countries have traditionally been some of the key re-export destinations for monitors.

However, there have been some notable changes to these trends recently. Re-exports to Egypt have fallen significantly since last year because of vendors setting up their own factories in Egypt. There has also been a drastic decline of all brands re-exported to Iraq since last June because of the political crisis in the country. This has resulted in an influx of overstock of monitors in the UAE, which has led to price wars among the major brands in the re-export market.

Although initially the major traders were hoping for the Iraq situation to stabilise and re-export volumes to resume to previous levels by this year, it is unknown when or even if that will happen.

Price remains the most important factor for buyers in the re-export market because of the price sensitivity of the re-exporters.

As such, the cheapest entry-level models such as the 18.5-inch screen sizes are most popular. However, distributors are being pushed by vendors to sell larger screen sizes to increase profitability. Therefore, re-exports of larger screen sizes such as the 23.6-inch have increased slightly in the past year, but mainly only for re-exports within the GCC.

Notebooks and PCs

A notable portion of the UAE’s PC shipments comprises re-exports. Both the desktop and portable categories are re-exported widely. Key destinations include Iran, Iraq, Pakistan, the CIS countries and several parts of Africa.

The PC models slated for re-export primarily belong to the entry-level and midrange price bands, and most are DOS-based PCs. The volume of re-exports leaving the UAE is expected to continue declining as official channel structures elsewhere in the region are strengthened and sanctions against Iran ease.

With the re-export trend happening across so many technologies, it is clear that the UAE is a major trading hub, and therefore able to absorb high shipments of so many technologies. However, as vendors try to address the reasons for these movements, the volumes of re-exported products will continue to decline.

Nabila Popal is the research manager for Middle East and Africa with IDC’s systems and infrastructure solutions group for handsets and displays