The administration of Sharjah, one of the UAE’s seven emirates, continued to implement its long-term economic plan in 2014, with major progress points including the government’s first international sale of sukuk, the sharia-compliant equivalent of bonds, and a partial opening of the real estate sector to foreigners. Efforts are ongoing to enhance infrastructure, deploy public-sector involvement in the economy in order to facilitate private-sector investment, and support new activity in an already diverse economy.
The Sharjah Investment and Development Authority (Shurooq) in 2012 completed a study that found the most potential for outside investment and economic growth via tourism, health care, transportation and logistics and environmental industries.
Sharjah’s GDP grew 8.3% in 2013, rising to Dh79.3bn ($20.11bn) from Dh73.2bn ($19.9bn) in 2012, accounting for 5.4% of the UAE economy as a whole, according to the UAE National Bureau of Statistics. Four economic sectors accounted for more than 10% of the economy in 2013, led by real estate and business services at 20%. Manufacturing contributed 16.1%; mining quarrying and energy accounted for 13.3%; and wholesale and retail trade 11.8%. Due to Sharjah’s role as a major re-exporter, its main imports — pearls, metals, gems and jewellery, transport vehicles, machinery and electronics and base metals — are largely the same as its main exports, according to the Department of Seaports and Customs.
On The Market
Sharjah’s first sukuk sale, which took place in September 2014, raised $750m. The sukuk mature in 10 years, and offer a profit rate of 3.764%. The sale attracted $7.85bn in orders from 250 investors, in line with the current trend in the region of large demand for new issuances. Sharjah’s aims in the sale were to generate long-term funding from a greater diversity of investors, and to provide a benchmark sukuk that can serve as a comparison point for potential corporate issuers. Moody’s and Standard & Poor’s both consider Sharjah to be an investment-grade jurisdiction, with long-term ratings at A3 and A, respectively. Moody’s cited a strong fiscal position and low debt and deficit levels as strengths, with weaknesses including a narrow revenue base and limited hydrocarbons reserves.
The real estate sector bears close watching in 2015, thanks to a further opening for foreigners and the ripple effects from Dubai. Residential rental rates shot up 18% in the first half of 2014, according to global real estate consultancy Cluttons, mirroring increases in Dubai. Average rent in the emirate is now Dh72,000 ($19,598) per year, surging 53% since 2012, Steve Morgan, Cluttons Middle East CEO, told local media in November 2014. In recent real estate cycles, Sharjah has seen greater demand when prices soar in Dubai followed by a drop in demand when prices fall there, but the correlation is increasingly fading. Prices stayed high in both markets simultaneously in early 2014, indicating increased resilience in Sharjah, and Cluttons reported a waiting list for some Sharjah addresses as of mid-2014.
While freehold ownership is open to Arabs, but not other foreigners, a recent change allows leasehold sales to any foreigners for terms of 100 years in designated developments, according to a law passed by the government of the emirate in 2014. While Sharjah has long thrived as an alternative to Dubai, particularly given the lower-cost options it presents, both emirates are seeking to avoid speculative purchases that could push prices up and risk creating bubbles. To this end, Dubai in 2014 boosted transaction fees; in Sharjah, limiting the buyer pool to those with residence visas may also help. To be sure, however, Sharjah’s change is not an opening of any floodgates. Only some select properties will be open to foreigners, and only in areas outside the city centre. This could mean the development of new focal points in the emirate.
One of the first developments that will be open to purchase by foreigners will be Tilal City, a 25m-sq-ft planned community with an expected capacity of 65,000 residents. The development will be located on the main artery, Emirates Road, 10 km from Sharjah International Airport.
“The success of Tilal City is likely to determine whether a number of similar schemes are brought forward in Sharjah,” said Faisal Durrani of Cluttons, which in late November was retained to manage marketing and sales. In his comments to local media Durani also said that Cluttons studies have found significant demand for residences in planned communities close to the airport. “The current shortage of these types of communities is causing a real demand from families residing in Sharjah, but also from families who want to relocate from Dubai in search of affordability,” he said.
Prices are rising in Sharjah’s office market as well, as demand for Grade-A office space continues to climb. From June 2013 to June 2014 prices advanced 30% in the Al Soor district and 18.2% in Al Majaz, to Dh60 ($16.33) and Dh65 ($17.69), respectively, per sq feet, according to Cluttons.
Demand was highest from small and medium-sized companies wanting office space in the 1000- to 1500-sq-feet range. Occupancy rates rose after drops in previous years, although existing supply could crimp growth in pricing. “This drop in rental rates has been recorded in schemes where landlords, who were previously reluctant to lower rents, are now being forced to reassess their options due to prolonged void periods,” Morgan said.
Industry in Sharjah is clustered in 19 industrial areas east of the urban core of the emirate, and in two economic free zones: Hamriyah Free Zone and the Sharjah Airport International Free Zone. New industrial areas in development include Emirates International City, Sharjah Investment Centre and a technology, research and development park established by the American University of Sharjah and Mubadala Development. As in the rest of the UAE, foreign firms are allowed to be wholly owned within free zones or operate in the local economy with a local partner. The zones are a tax-free environment and offer a familiar mix of services and incentives. Hamriyah had 5544 companies in 2013, and the Sharjah Airport International Free Zone had 6165. The latter is part of a sea-to-air transportation corridor, through which transfers of goods from ship to plane can be made within six to eight hours, according to Shurooq. Typically these are waterborne goods from Pacific Asian countries sent on to final markets in the US or Europe via air cargo.
New Roads Forward
Sharjah’s government is spending Dh400m ($108.88m) to build a road running from Sharjah City to Khorfakkan Port, one of the emirate’s three deep-water ports, located on the eastern coast. There is currently no direct route between these areas. The road will include the UAE’s longest rock tunnel, through the Hajjar Mountains, and promises to make transport between the port and major cities easier.
Sharjah International Airport (SIA), meanwhile, is in a second phase of expansion, with a new terminal and runway being added to accommodate higher passenger numbers. Passenger movements in 2013 reached 8.5m in 2013, up from 7.52m in 2012, according to data from the government.
Sharjah-based Air Arabia, the first low-cost airline in the region, carried a total of 6.1m passengers in 2013, up from 5.3m in 2012. The airport has traditionally been an important spot for cargo in the region; however the opening of Al Maktoum airport in Dubai in 2013 coincided with a large drop in cargo traffic for SIA, with tonnes processed dropping from 419,076 in 2012 to 295,402 in 2013.
Resources & Tourism
The mining, quarrying and energy sector’s 13.3% contribution to GDP in 2013 came primarily through energy production. Exploration is ongoing, with new efforts under way onshore by Crescent Petroleum, which was established in Sharjah in 1971, and by Russia’s Rosneft.
In wholesale and retail trade, the fourth-largest contributor by sector, the government has pushed specific projects of strategic importance, including a new market for meat, fish and produce based on the traditional souk concept.
Shurooq, which is responsible for attracting foreign direct investment, is pursuing growth strategies for environmentally friendly enterprises in various sectors, including tourism. There is significant overlap between the two: the environment sector, currently valued at Dh780m ($212.3m), is expected to expand to Dh1bn ($272.2m) by 2016, driven in part by ecotourism projects. A leading government effort by the Sharjah-owned corporation Bee’ah, which implements environmentally sustainable waste management projects, seeks to achieve a recycling rate of 100% by 2015 in Sharjah City. Meeting the goal would make it the first-zero-waste city in the Middle East. In 2014 Bee’ah introduced light-bulb recycling machines and a facility for recycling auto parts.
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