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The Jebel Ali Free Zone Authority in Dubai will retain its preeminence in 2007, but free zones are also ramping up in the other emirates of Abu Dhabi, Ajman, Fujairah, Ras Al-Khaima, Sharjah, and Umm Al Quwain.

The Emirates’ role as a regional financial and trading hub is well established, and the UAE is making great strides in positioning itself as an East/West hub for passengers. Dubai welcomed some 30 million air travelers in 2006, and the emirate is planning to attract more than 200 million passengers annually by 2015. The push by Emirates Airline to become the world’s top long-haul passenger and cargo carrier has created a strong demand for aircraft.

The battle between Boeing and Airbus is playing out in the UAE like nowhere else in the world, and Emirates will become the world’s largest 777 operator when all orders from the U.S. are fulfilled. Down the road in Abu Dhabi, Etihad Airways has established itself as one of the world’s fastest growing airlines – with 70 international destinations expected by 2010 – and has won the World’s Leading New Airline of the Year Award for three straight years.

The UAE is America’s largest export market in the Arab world, but there is no Free Trade Agreement (FTA) between the two nations. A Trade and Investment Framework Agreement (TIFA) with the United States was signed in April 2004, and negotiations over an FTA are moving forward slowly but surely.

Saudi Arabia

Saudi Arabia’s infrastructure is among the best in the region, but the Kingdom has historically experienced little of the explosive residential, commercial, and retail growth enjoyed by some of its neighbors. That all changed in 2006.

With the launch of the King Abdullah Economic City (KAEC) – the single largest private sector investment in Saudi Arabia – at $26.6 billion, the Kingdom has created a new paradigm for undertaking mixed-use megaprojects. At one level, it is a model of how intra-Arab cooperation can attract significant expertise and foreign direct investment. KAEC is a joint venture between UAE-based Emaar Properties, the world’s largest real estate company in terms of market capitalization, and the Saudi Arabian General Investment Authority (SAGIA) – which has flourished under the leadership of Governor Amr Al-Dabbagh.

At another level, the sheer scale of this project is likely to transform the way Saudi business leaders look at development and infrastructure opportunities in the Kingdom. It encourages entrepreneurs to “think big” and opens the door for the private sector to play a much more prominent role in spearheading such projects in 2007 and beyond. KAEC is expected to occupy 55 million square meters of greenfield land and a shoreline more than 20 miles long, creating up to 500,000 new jobs.

Remarkably, KAEC will be one of five new economic cities around the country. $77 billion is budgeted through 2012 to finish these massive projects, which are accelerating imports of industrial engines, construction materials, and steelmaking equipment.

Economic cities aside, Saudi Arabia is not about to relinquish its role as the world’s most important energy nation anytime soon. Between 2004 and 2009, the Kingdom is expected to spend more than $17 billion to achieve increased upstream capacity, and Saudi officials recently announced that by the year 2011, petroleum production capacity would be increased to 13.5 million bbl/d – an increase of 1.5 million barrels.

Saudi Arabia – 2007 Forecast Top Ten Manufactured U.S. Imports ($ Billion)

(SOURCE: IRmep)

On the downstream side, Saudi Arabia’s production of 50 million tons of petrochemicals per year is on track to reach 120 million tons by the year 2015, creating strong demand for industrial goods, machinery, and engineering & construction services.

Saudi Arabia has redoubled its commitment to security and defense in recent years, which bodes well for such U.S. firms as Lockheed Martin, General Electric, Boeing, Raytheon, Honeywell, L-3, General Dynamics, Northrop Grumman, DynCorp, and others. The Saudi National Guard is being overhauled, and American companies are looking at prospects for major contracts around tank and helicopter upgrades, border security initiatives, weapons systems, and aircraft. Multi-year fulfillment commitments, filed with the U.S. Defense Security Cooperation Agency, signal an upswing in the U.S. share of total Saudi imports of big ticket defense items in coming years.