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ISSUE 22 | NOVEMBER 2013

BUSINESS INTELLIGENCE FOR INTERNATIONAL TRADE

Demystifying

Takaful It’s all about mutual cooperation

PUBLICATION LICENSED BY IMPZ

www.tradeandexportme.com


EDITOR’S LETTER

Publisher Dominic De Sousa Chief Operating Officer Nadeem Hood

Editor’s note…

Managing Director Richard Judd richard.judd@cpimediagroup.com +971 4 440 9126

It is almost the end of 2013 – didn’t the year just fly by? It sure did for me – like they say, time flies when you are having fun. Or maybe when you are busy getting stressed and losing your mind!

EDITORIAL Senior Editor Aparna Shivpuri Arya aparna.arya@cpimediagroup.com +971 4 440 9133

Well for me, it has been a bit of both – October was fun because I got to be on the panel of the 3rd Global Free Trade & Special Economic Zones Summit, here in Dubai. It was pure joy to listen familiar terms such as WTO, regional trade agreements, Doha Round and more. Don’t forget to read my blog about it on our Website.

Business Assistant Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 440 9160 ADVERTISING Media Sales Executive Ibrahim Parwaz ibrahim.parwaz@cpimediagroup.com +971 4 440 9135 PRODUCTION AND DESIGN Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 Head of Design Fahed Sabbagh fahed.sabbagh@cpimediagroup.com +971 4 440 9107 Designer Froilan A. Cosgafa IV froilan.cosgafa@cpimediagroup.com +971 4 440 9107

However, November promises to be a busy busy month as we have two events lined up – first, is the networking evening, called – The Exchange, which is going to be held on the 13 th of November. If you are in town, please do drop by. It will be good to catch up. Second, we have our country focus event on the 24th of November at the H Hotel. The focus will be on Brazil and the trade and investment opportunities it offers. Hence it has been a bit manic here, getting the logistics of all this in place. But, this hasn’t stopped us from our commitment to you about getting interesting stories every month. So the November issue focuses on trade finance and tries to demystify Takaful. We also feature a write up on the BRICS economies and their relation with the GCC countries. Along with this, I also interviewed the CEO of the Arab Brazilian Chamber of Commerce and the Trade Commissioner of New Zealand. Once again, I hope to see many of you in November and the coming months.

Photographer Jay Colina Abdul Kader Pattambi DIGITAL SERVICES www.tradeandexportme.com

Till then…

Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpimediagroup.com +971 4 440 9100 Published by

Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East Registered at IMPZ PO Box 13700, Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press © Copyright 2013 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

Talk to us: E-mail: aparna.arya@cpimediagroup.com

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If you’d like to receive a free copy of Trade and Export Middle East every month, e-mail rajeesh.nair@cpimediagroup.com requesting a subscription.

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20 36 NOVEMBER 2013

updates

ISSUE 22

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trade talk

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NOVEMBER 2013

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News: International news and trends with domestic trading relevance.

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EVENTS CALENDAR: A listing of the exhibitions and conferences in the region, to help you spend less time planning and more time attending.

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EXPERT COLUMN: In this month’s expert column, Camille Accad, Research Analyst, Asiya Investments discusses South Korea’s relationship with its largest exporter – the GCC

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ABOUT TOWN: The 3rd Global Free Trade and Special Economic Zones Summit was held here, in Dubai, from the 21st- 23rd of October. We bring to you some snapshots of the event.

FINANCE TAKAFUL: Parvaiz Siddiq, CEO, Noor Takaful, takes us through the steps of explaining Takaful and then highlighting how to deal with the challenges.

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TRADE FINANCE: We got talking to Vincent O’ Brien, veteran trade finance practitioner and chairman of the ICC Market Intelligence Group on the latest developments in the field of trade finance.

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SUPPLY CHAIN AND FINANCE: Paul Taylor, EMEA sales head for global transaction services at Bank of America Merrill Lynch, speaks to us about the role that trade finance is playing in today’s marketplace.


trade talk

CONTENTS

trade talk

48 40

TRADE TRENDS: Dubai Trade, the one-stop-shop for trade in this Emirate gives us an update on how Dubai has been doing in the third quarter of 2013.

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CURRENCIES: Western Union Business Solutions offers you its prediction on currency movement in the month of November.

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STRATEGY: Dr. Ashraf Mahate, Head, Market Intelligence, DED, talks to us about the importance of understanding consumer behaviour and patterns.

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48

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LOGISTICS TECHNOLOGY: Mustapha Kawam, Managing Director-Gulf States of Globe Express Services, talks to Aparna Shivpuri Arya about the latest trends in the logistics industry and the importance of technology.

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INDUSTRIAL ZONE: Dubai Industrial City provides manufacturers the opportunity to sell in the local market, along with the ease of providing all the facilities. Aparna Shivpuri Arya spoke to Abdulla Belhoul, MD of Dubai Industrial City (DI), to get to know all the details.

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INTERVIEW: Aamal’ s growth is a proof of the development that Qatar’s private sector has been witnessing. In a conversation with Sheikh Mohamed Bin Faisal Al Thani, Vice Chairman of the company, Aparna Shivpuri Arya got to know the strategy behind this growth.

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LEGAL: Ibtissam Lassoued,Partner, Financial Crime Department, Al Tamimi & Co, gives us the lowdown on Kuwait’s position on the issues of money laundering and terrorism financing transactions.

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INTERNATIONAL TRADE BRICS ECONOMIES: In a two part series, Biswajit Nag, Associate Professor, Indian Institute of Foreign trade, looks at the trade relationship between this region and the BRIC economiesBrazil, China, Russia and India and South Africa.

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COUNTRY FOCUS BRAZIL: In a conversation with Michel Alaby, General Secretary and CEO of the Arab Brazilian Chamber of Commerce, Aparna Shivpuri Arya understands the future of the Arab region and Brazil equation. NEW ZEALAND: Steve Jones, New Zealand Trade Commissioner to the Middle East, talks to Aparna Shivpuri Arya about the growing relations between New Zealand and the Middle East.

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Updates Regional news

GCC fertilizer production capacity to rise 47% by 2018

Etihad Rail inks deal with JBC Etihad Rail has signed an MoU with JBC EXPRESS FREIGHT LLC (JBC). The MoU will pave the way for a long-term partnership in facilitating the delivery containers and other cargo throughout the UAE and across the GCC region via Etihad Rail’s connection to the wider GCC railway network. Integrating JBS’s transport options will enhance the company’s supply chain capabilities, providing a better service for regional and global customers. H.E. Dr. Nasser Al Mansoori, CEO of Etihad Rail said that Etihad Rail is an integral part of UAE Vision 2021 – strengthening the UAE’s position as a logistics hub in the region and beyond. The MoU with JBC is in line with Etihad Rail’s strategy to build relationships with key industry players as part of its commitment towards the economic growth and development of the UAE. Mr. PK Ayyappan, Managing Director, JBC stated that the MoU with Etihad Rail would allow them appropriately allocate our needs for other modes of transport in the long-run and take the company to the next level.

USD 10 billion value of GCC fertilizer industry projects in the pipeline

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As estimated by the Gulf Petrochemicals and Chemicals Association (GPCA) the fertilizer industry in the GCC will increase by 47% to 46.4 million tonnes in 2018. The increase in production in due to the USD 10 billion worth of projects in the pipeline. The region’s fertilizer capacity is expected to grow at an average of 10% over the next five years. In comparison, the global fertilizer demand will grow just 1.8% every year by 2017.

Dubai launches 13-MW solar power plant Dubai has officially launched the AED 120 million 13-megawatt photovoltaic power plant located at Seih Al Dahal. The opening of the facility marks the first phase of the Mohammed bin Rashid Al Maktoum Solar Park, a vast complex with an output capacity of 1,000 megawatts by 2030. Developed by First Solar, the plant will generate approximately 24 million kilowatt hours (kWh) of electricity per year. According to First Solar the electricity generated by the plant is expected to displace around 15,000 metric tonnes of CO2 annually, equivalent to removing about 2,000 cars from the road every year. Dubai Supreme Council of Energy, Vice Chairman, Saeed Mohammed Al Tayer said that the facility signifies an important step in the implementation of Dubai’s Integrated Energy Strategy for 2030.

UK-Jordan Tech Hub launched in Amman The UK-Jordan Tech Hub was officially launched during a reception in Amman hosted by King Abdullah of Jordan. A trade delegation from Bristol and Bath, London, Glasgow and Northern Ireland were present at the event. The project is supported by both public and private sector bodies from all four areas, which will all work together with UKTI in Jordan. The multi-centre tech hub is established to be able to help drive economic growth through a technology and innovation partnership between both countries.


Updates Regional news

Saudi construction sector poised for growth

The government of the Kingdom of Saudi Arabia recently announced that they have allocated SAR 487.5 billion for the development of housing, infrastructure and

transport in the Kingdom, the construction sector is set to see a surge driven by increasing private and public investments. The government has earmarked a total of SAR 247.5 billion for housing development and SAR 61.875 billion for transport expansion while an estimated SR 7.5 billion has been allocated to road projects under construction. Moreover, the General Authority of the Civil Aviation of Saudi Arabia has set aside a fund of SAR 2497.5 million for construction of 34 airports across the Kingdom in the next five years and a budget of SAR 101.25 billion has been approved for the rail projects that are either underway or at the bidding phase.

Dubai business leaders’ outlook for Q4-2013 at 82% The Business Leaders’ Survey for Q4-2013 conducted by the Dubai Chamber of Commerce and Industry shows that 82%, of business leaders expected improvements. The figure is said to be the highest in the Chamber’s history since starting the survey. 2% expected the opposite and the other 16% sees conditions will remain the same. The positive results indicated that the boost in the business environment’s expectation and confidence of its leaders is because of Dubai’s bid to the Expo 2020 which has received a very strong support from the private sector and Dubai companies.

Qatar’s tourism sector to create 127,000 jobs by 2030 Tourism sector in Qatar is expected to contribute 8% to the country’s GDP by the year 2030 according to the Qatar Tourism Authority. The tourism sector is also projected to contribute to creating about 127,000 jobs by 2030, which represents 5.3% of total employment in the country by 2030 — a huge leap from 19,900 jobs in 2012 which was only 1.8% of the total employment. Details of the ‘Qatar Tourism Sector Strategy 2030’ will be disclosed either in November or December.

SAR 487.5 billion value allocated for housing, infrastructure & transport development in KSA

IMF: GCC to expand 4.4% by 2014 According to the International Monetary Fund, the GCC economies will expand by 4.4% in 2014. During a meeting with the finance ministers of the member states in Riyadh, Nemat Shafik, IMF Deputy Managing Director discussed that the aggregate economic growth in 2013 for the Gulf Cooperation Council will be at 3.7%. She also mentioned that with oil and gas receipts representing the bulk of their revenues, GCC has continued to be one of the best performing economies, the growth is 3.7% in 2013 (and) 4.4% by 2014, after an exceptional growth of 6.4% in the last two years.

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Updates Global Watch

China-EU ink USD 270mn investment deal

China and the European Union has signed investment and trade deals worth USD 270 million during an investment fair in Chengdu. Three investment projects totaling USD 190 million includes funding for a Sino-French sewage treatment project, a Sichuan Mianyang Haosheng BMW engine project, and increased investment in Shell Oil Company gas stations. Another three trade projects worth a total of USD 80 million were also signed. Earlier this month, China’s Central Bank, the People’s Bank of China signed a three-year currency swap agreement worth 350 billion yuan (USD 57 billion) with the European Central Bank. Trade between Europe and China has doubled since 2003 and is worth more than EUR 1 billion (USD 1.37 billion) a day. Earlier in October, governments of the EU member states has agreed to start talks with China to remove restrictions on foreign investment and set clearer rules on doing business after months of trade disputes over Chinese solar panels and EU wine. According to EU negotiations are expected to begin at a summit in Beijing on the 21st of November and they aim to seal the investment agreement in the following two-and-a-half years. 8

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Slowed business activities in Eurozone The pace of business activities in the Eurozone has slowed after a 27-month high in September, suggesting that the economy is recovering only slowly from recession, a survey showed. According to the latest Composite Purchasing Manager’s Index (PMI) compiled by Markit Economics fell to 51.5 points in October from 52.2 in September. However,

a reading above 50 still implies expansion, and activity has now grown for four months in a row. The Eurozone’s jobs market remained weak, with employment fell for the 22nd month in a row, with the rate of job losses picking up from September. However, there were signs that growth was becoming more balanced in the Eurozone despite the slowdown.

Emerging Asia warned of household debt risks Based on a report issued by credit insurer Coface, emerging economies in Asia such as Malaysia, South Korea, Thailand and Singapore are warned of risks of household debts. Coface suggests that the boom in consumption in emerging Asia reflects the economic development of the region is linked to easier access to bank credit. Hence, excessive household debt in some countries could adversely affect economic activity in the medium term. In 2012 the ratio of household debt to disposable income reached 194% in Malaysia, 166% in South Korea, 134% in Singapore and 112% in Thailand, the results are higher as compared with household debt service higher than in the US in 2008 and in Spain in 2012. Coface warns excessive debt caused by too dynamic credit could make Asian countries more vulnerable in the medium term with volatile external financing and therefore capital outflows.

EUR 1 billion value of trade between China and the EU per day


Updates Global Watch

India to be top importer of infrastructure goods by 2020

Based on a study by HSBC, by the year 2020 India would have surpassed the United States as the top importer of infrastructure goods. As India increase their investments in building its civil infrastructure the demands for materials such as metals, minerals, buildings and transport equipment also rise. The study also indicated that India will hold this position till 2030 due to the major civil infrastructure projects that the Asian nation has in line. The Indian government has estimated that the country needs USD 1 trillion in funding to build roads, power plants, ports and airports by March 2017. Also, in August it has fast-tracked approval for a number of infrastructure projects worth USD 28 billion.

Chinese group to invest in UK airport project Chinese construction company Beijing Construction Engineering Group has signed a deal to invest in the development of “Airport City” to be built around Manchester Airport. The Chinese company will be part of a group who’ll invest GBP 800 million (USD 1.3 billion) to develop the business district around Britain’s third busiest airport that will boost business activities in the area. The project is said to be one of the largest construction projects in the country since the 2012 London Olympics.

ICC names new Digital Economy Vice-Chair The International Chamber of Commerce Commission on the Digital Economy has named their new ViceChair as Kaisa Olkkonen, Nokia Corporation’s Vice President of Government Relations, responsible

for policy and regulatory work globally. The ICC Commission on the Digital Economy develops policy positions for the Internet and ICTs on behalf of users, providers and operators of information technology.

US trade deficit widened in August US trade deficit widened slightly in August as exports slipped, suggesting trade will probably not be much of a boost to growth in the third quarter. The Commerce Department stated that the trade gap nudged up 0.4% to USD 38.8 billion. July’s shortfall on the trade balance was revised to USD 38.6 billion from the previously reported USD 39.15 billion. Economists polled by Reuters had expected the trade deficit to edge up to USD 39.5 billion in August. Exports of goods and services dipped 0.1% to USD 189.2 billion in August. However, exports of automobiles and parts hit a record high. While imports were flat overall, the amount of goods imported from China was the highest since November 2012. The weak import growth is consistent with sluggish domestic demand.

Australia keen to finalise FTA deal with China Australian Prime Minister Tony Abbott said he is intent on finalising a free trade agreement with China within the next 12 months, and is prepared to accept a watered-down deal in order to quickly cement an arrangement that has been negotiated since 2005. Negotiations have been delayed by Beijing’s concerns over opening markets to Australian food, while Australia wants China to do more to protect intellectual property. After a meeting with President Xi Jinping, Abbott accepted an invitation to visit China and announced that he intends to bring along numerous business leaders and premiers to further bilateral ties.

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Community events calendar

Save the date!

We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences in the region, so you spend less time planning and more time attending.

Date

Event

Location

2-4

Food and Hotel Oman

Oman International Exhibition Centre

3-5

Inventions and Nanotech MiddleEast

Qatar National Convention Centre

2-3

Mubadarat Forum

Jeddah Centre For Forums and Events

4-7

Saudi Build

Riyadh International Exhibition Centre

9 - 13

Irf World Meeting & Exhibition

Riyadh Intercontinental Hotel

9 - 13

Middle East International Motor Show

Dubai World Trade Centre

10 - 13

Abu Dhabi International Petroleum Exhibition and Conference

Abu Dhabi National Convention Centre

10 - 21

Real Estate Cruise

Kuwait City (TBA)

11 - 13

Airport Exchange

Qatar National Convention Centre

12 - 14

Real Estate Fair Qatar

Doha (TBA)

14 - 15

Mena Forex Show, Managed Funds & Investment Opportunities

Jumeirah Beach Hotel

16 - 17

Real Estate Bahrain

Manama

16 - 19

GITEX Saudi Arabia

Riyadh International Exhibition Centre

16 - 19

Saudi Communications

Riyadh International Exhibition Centre

18 - 19

Real Estate Fair Saudi Arabia

Dammam

17 - 21

DubaiAirshow

Dubai World Trade Centre

17 - 19

The Speciality Food Festival

Dubai World Trade Centre

17 - 19

Seafex

Dubai World Trade Centre

17 - 19

World Luxury Expo Doha

St. Regis Hotel Doha

18 - 19

Gulf Aviation Training Event

Dubai World Trade Centre

18 - 23

Kuwait Internationa Property Show

Kuwait International Fair Ground

19 - 23

Jewellery Arabia

Bahrain International Exhibition & Convention Centre

20 - 21

Kuwait Drill Tech Conference and Exhibition

Hilton Kuwait Resort

23 - 25

Medhealth and Wellness

Oman International Exhibition Centre

24 - 26

Itca Abu Dhabi

Abu Dhabi National Convention Centre

24 - 26

SIAL Middle East

Abu Dhabi National Convention Centre

25 - 28

CCFS- Chinese Commodities Fair Sharjah

Expo Centre Sharjah

25 - 28

Gulf Maritime 2013

Expo Centre Sharjah

25 - 27

Saudi Arabia International Oil and Gas Exhibition

Dhahran International Exhibition Centre

25 - 28

Big 5 - Big 5 PMV - Middle East Concrete - FM

Dubai International Convention & Exhibition Centre

25 - 28

Facilities Management Expo

Dubai World Trade Centre

27 - 30

Riyadh Motor Show

Riyadh International Exhibition Centre

10

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Get in touch! Would you like to list your event here? Or better still, list your detailed event profile? If yes, then please contact: aparna.arya@cpimediagroup.com

November


Updates Expert Opinion

GCC –South Korea relations Camille Accad, Research Analyst, Asiya Investments discusses South Korea’s relationship with its largest exporter- the GCC

The energy market is rapidly changing. The US is still the largest importer of oil, but not for much longer. While its net oil imports are quickly falling, those of China, the world’s second largest oil consumer, are quickly rising. According to the Energy Information Administration (EIA), China is expected to be the world’s largest net oil importer before year-end. But China is not the only country heading that direction: India and newly industrialised economies like South Korea and Taiwan are quickly catching up. Just under half of the world’s top ten net oil importers come from emerging Asia. South Korea is the 6th largest net oil importer. Korea’s energy consumption levels have increased over time and, given that its production capacity is relatively low and rigid, its energy imports have been rising. Nearly half of Korea’s energy use is in the form of petroleum, making the GCC (Gulf Cooperation Council) has become South Korea’s main source of imports for over a year now, exporting over USD 98 billion worth of goods in the 12 months prior to July 2013 – or 20% of South Korea’s total imports, its highest share since the 1979 oil crisis. Among the GCC countries, Saudi Arabia is the largest exporter to South Korea and fifth at the global level. Saudi shipped USD 37.5 billion worth of goods in the 12 months to July 2013, followed by Qatar with USD 26 billion, Kuwait with USD 18.4 billion and the UAE with USD 16.2 billion. Kuwait became South Korea’s third largest exporter from the GCC in 2011. According to Korea National Oil Corporation (KANO), Kuwait exported to South Korea 518,000 barrels per day in July, about a fifth of its July oil production and also fifth of South Korea’s 12

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total oil imports. In terms of value, Kuwait’s July exports to South Korea increased the most, by 45.1% year on year (YoY), followed closely by UAE at 44.8% YoY. Saudi Arabia’s exports to South Korea only grew 1.2% YoY while Qatar’s declined by 16.1% YoY. Looking at aggregated numbers for the last year, exports to South Korea are generally decelerating due to the global trend of deceleration.

What are the economic and financial implications?

South Korea is growing below its potential level, because its industrial and consumer sectors are suffering due to the country’s large exposure to the US, EU and Japan (the G3). It is through this channel that the GCC’s trade sector can be most affected, rather than through direct links to developed economies. The same applies to China, Taiwan and other countries in the region. The GCC exports nearly twice as much to emerging Asia than it does to the G3. Less developed Asian economies, such as Vietnam and Cambodia, are also increasing their demand for the Gulf’s energy products, as they develop their industrial sectors, while the G3 is reducing its imports from the GCC, as their industries stall and as they become more energy self-sufficient.

Nonetheless, Asian demand for GCC’s energy products will remain robust as the regional industrial expansion continues in spite of the weak economic background. South Korea is an important economic partner to the Gulf, a certain level of competition exists among GCC countries to increase their share of exports. Currently Saudi Arabia leads exports more than the rest of the Gulf to South Korea. However, the GCC should adopt a strategy of diversification. About a third of South Korea’s energy consumption comes from coal (being the world’s largest producer, China is the main supplier) and another third comes from nuclear and natural gas. South Korea is the world’s second largest importer of liquefied natural gas, and its demand is rising fast, benefiting Qatar. The UAE is already diversifying away from energy into trade, finance and tourism. Kuwait needs to diversify its energy exports to profit from Korean demand. Kuwait has a large quantity of proved natural gas reserves, the 18th biggest in the world, but produces very little. The economic center of the world is shifting East, and the Gulf’s oil producers should get prepared to cater for Asian needs if they want to get a piece of that pie.

South Korea’s top five sources of imports


Updates ABOUT TOWN

Taking a look at economic integration The 3rd Global Free Trade & Special Economic Zones Summit was held in Dubai from the 21st-23rd of October. Aparna Shivpuri Arya was one of the panellist and brings to you the details.

who pointed out that in 1986 there were 17 free zones compared to around 3,000 in 2012. He further added that SEZs contributed USD 0.5 trillion to global trade in 2012. Dr. Kituyi, however cautioned the audience to not take the success of a free zone for granted. He gave the example of Bangladesh and China where there have been mixed reviews about the success of SEZs. According to him, five issues are extremely important for the success of an SEZ: • Location • Focus on industries in which the country has a competitive advantage • Strategies to support manpower and innovation of skills • Backward and forward linkages • Logistics

Participants at the Summit

B

usiness leaders and decision makers from all around the world met in Dubai to discuss economic harmonisation and integration through free trade and special economic zones. The gathering facilitated access and networking directly with international governments, trade, investment and industrial leaders and decision makers. Discussions included attracting strategic investors, developing inward investment and FDI, evolving industry clusters to promote economic diversification, one-stop-shop, and industrial trade finance to enhance international investment – the role of banks, industrial development finance institutions, multilateral and international banking and finance. The Summit started with Andrew Keable, 14

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Group Managing Partner & Founder, of the organising group, KW, welcoming all the speakers and the participants. The floor was then passed to the Chairperson for the day, Mauricio Zuazua from A.T Kearney. Mauricio in his speech highlighted a clear shift in the pattern of trade and urged on the importance of looking at the role of SEZs and global trade in the face of the recent volatility. He remarked that SEZs are a catalyst for growth and diversification of trade and provide capital for growth. His message was reiterated by H.E Juma Al Kait, Undersecretary, Foreign Trade Affairs, Ministry of Economy who spoke about UAE’s foray with free zones and how that has helped build the economy. The keynote speech was given by Dr. Mukhisa Kituyi, Secretary General, UNCTAD,

He highlighted the importance of remembering that SEZs cannot be standalone enclaves but must have linkages with the national economy to succeed. His presentation was followed by a presentation by Dr. Abdulrazak Faris Al Faris, Chief Economist, Economic Policy and Research Centre, Dubai Economic Council, who traced the growth of trade in the Emirate and the many achievements along the way. The first session of the day covered the overall theme of the Summit –promoting economic harmonisation and integration through free trade and special economic zones. The moderator, Raed Al Safadi, Deputy Director, Trade and Agriculture Directorate, OECD, introduced the panelist and opened the discussion by giving a brief overview of the global trade scenario and the upcoming WTO Ministerial in Bali in December.


Updates ABOUT TOWN

Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle, at the panel discussion

He then gave the floor to Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East magazine, who further added to this theme and spoke about how the recovery in global trade has mainly been due to the developing countries and there has been a marked increase in south-south and intra-regional trade. With the stalemate at the WTO for more than a decade it would be interesting to see what happens in December, especially with India pushing for a peace clause for its food security bill. Aparna also pointed out the importance of SEZs, especially in the global supply chain system, where intermediate goods have gained a lot of prominence in trade. According to her, SEZs provide an enabling environment for businesses and leads to employment, transfer of technology, growth of ancillary units, and foreign exchange. Moving on, H.E Juma Al Kait gave an overview of the work being done by the government to promote free zones in the country and the development of industry specific free zones. Continuing on this issue, Dr. Kamel O. Mahadin, Chief Commissioner of ASEZA, pointed out that free trade and special economic zones, one might argue, are all about incentives, tax exemptions, duty-free status, streamlined procedures, ports, airports and much more. While this might indeed be a matter of fact, the fierce competition we face today globally and the constant need for creative 16

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financing options for strategic infrastructure projects for counties such as Jordan make it also about entrepreneurship, partnership, and innovation. Mahadin also referred to the memorandum of understandings (MoU) ASEZA signed recently to increase cooperation with counties such as Turkey and China. On the second day, we attended a session on – Establishing and running a “one-stop-shop” – best practices in tenant after care, development and retention. The moderator of the session, Chuck Heath, Senior Consultant, AKC Consulting, UAE, started the session by reading out a quote from famour Indian leader, Mahatma Gandhi – “A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so.” With this he summed up the importance of looking after customers. He pointed out that it is imperative to listen to customers, always stay available, make customers feel important and that the one-stop-shop is the biggest asset for customer retention. However, Dr. Douglas van den Berghe, CEO and President EMEA, Investment Consulting Associates, put a different angle to it by talking

about it from an investor’s perspective. He remarked that from an investor’s perspective there is little clarity on why SEZs set up onestop-shops. Is it because something is missing? Also investors seem to be confused about the role of a one-stop-shop. Is it only to facilitate initial investment or will it support the entire corporate life span of the company? Nabil Itani, Chairman, Investment Development Authority of Lebanon, added that a very strong political support is needed for running a onestop-shop. The last speaker of the session, Marwan Abdulaziz, Executive Director, Dubai Biotechnology & Research Park, highlighted that the approach TECOM has taken is to develop industry lead clusters and pointed out that setting up a onestop-shop is not enough and you have to relate on how does it add to the economy. He further added that one-stop- shop is very crucial and support companies by hand holding them in a new country. The Summit also included the role of ports and airports as gateways for international trade and strengthening global trade and investment links. A post-summit tour on October 24th showcased the leading industrial, port and trade destinations in Dubai and the integrated approach to trade facilitation and capabilities that are jointly available through Dubai Trade, Dubai Customs and DP World.


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TRADE TALK Finance

Demystifying Takaful Even though Takaful is an important aspect of trade and finance, the operators in this field have been facing some challenges. Parvaiz Siddiq, CEO, Noor Takaful, explains the concept to us and also highlights how to deal with the challenges.

T

he potential of takaful and the challenges faced by operators in the sector continue to dominate industry debates. Sustaining the growth of takaful, product innovation, regulations, structures and shariah compliance of products and operators are the other key topics that constantly come under the scanner. It is however, time to start identifying avenues that help demystify the meaning and full potential of takaful. As part of this effort, comprehending the challenges would be a prudent first step.

So what’s the obstacle? Not all challenges facing the evolution of takaful as a powerful financial tool can be dismissed as major roadblocks. For instance, the lack of trained manpower in takaful is considered one of the most evident challenges. I must point out that the most basic role in takaful - data entry - is not so different from conventional insurance that it requires extensive retraining of data entry operators. This also stands true for claims assessors 18

NOVEMBER 2013

and adjusters who evaluate or adjust the loss according to the terms of the policy. The only job category where this challenge is actually apparent is at the senior management level that is tasked with developing an organisation that reflects the spirit of takaful. The conversation would next have to progress to Shariah specialists and scholars. Yes, there is a paucity of such experts, but this is true for the entire Islamic financial services industry. In my view, the shortage of Shariah specialists and scholars barely has any significant impact on the development of the takaful industry. It may create a temporary glitch such as delay in the approval of a product or lack of thorough product analysis – nothing more. I say this because innovation is never hampered, nor is the opportunity for growth lost. It is indeed disheartening that in our attempt to compete vociferously with the conventional insurance sector, we have forgotten the fundamental components of our business - the spirit of takaful, which is mutual cooperation and joint guarantee, and

differentiation from conventional insurance. Although a large number of people use Islamic financial products, the difference in our offerings from conventional products is not apparent to our audiences. Over the years, takaful operators, vying to attract customers from the conventional industry, have aligned themselves so close to conventional products that the distinction has faded out. This is a scenario that needs to be reversed; takaful needs to step away from being branded a replica or shadow operative within the conventional-dominated marketplace. The customer experience, whether takaful or conventional is identical across every step of the journey: from the purchase of the policy to administration of the benefits or handling of the claims. If customers cannot perceive the difference between takaful and conventional insurance, then takaful operators have failed in creating the differentiation or ‘niche’ that is fundamental for successfully leveraging the business opportunity. The differentiation cannot come only from compliance to Shariah. This is not the end


but only a means to the end. Products must demonstrate visual and explicit differentiation, failing which the role of Shariah compliance is relegated to assuring the customer that the product meets certain criteria. This is the same as complying with any quality standard or governance framework. Takaful operators can create a sustainable differentiation strategy through focusing on mutual cooperation and joint guarantee, which will allow them to stand out in the face of conventional insurance. The product offering and customer experience should incorporate visible expressions of mutuality and joint guarantee rather than the implicit assumption that is common today. This approach brings mutual cooperation and joint guarantee to center stage. All our decisions should be based on incorporating these features into our products and services if we are to target a specific informed audience.

ABOUT Parvaiz Siddiq is a CEO of Noor Takaful. He has a vast experience of 28 years in insurance industry. He has worked in leadership roles within the insurance industry in UAE, Saudi Arabia and Pakistan. Before joining Noor Takaful, he was the General Manager of SALAMA- Islamic Arab Insurance Company, the largest Takaful and Re-Takaful Group in the world. He is an MBA, a Fellow of Chartered Insurance Institute UK and an Associate Fellow of Institute of Islamic Banking and Insurance UK.

must work with Islamic financial institutions and rating agencies to find a solution to this problem. We must also not forget that corporate clients look for value for money. As an outcome, such customers constantly compare the cost of takaful with that of conventional insurance. Unfortunately, in doing so, takaful usually has a cost disadvantage that arises from

Takaful operators can create a sustainable differentiation strategy through focusing on mutual cooperation and joint guarantee, which will allow them to stand out in the face of conventional insurance. The customer must experience the collective effort when buying the policy, making a claim or utilising any other service. Consequently, we need to build other advantages to effectively compete with conventional insurers in every dimension of the business including reinsurance and product pricing for delivering an integrated financial services solution. Takaful operators find it difficult to compete on the large value risks, even if these risks are covered by Islamic financial institutions. This is not because of a shortfall in re-insurance capacity in the market. Shariah scholars allow re-insurance with conventional re-insurers should the situation so warrant. However, Islamic finance institutions ought to mandate their corporate clients to insure only with takaful operators. Insuring sukuk underlying assets with conventional insurers to maintain the credit rating of the sukuk is also a loophole that needs to be closed. For this, the industry

the structure of the takaful financial model and becomes visible if the operator is new in the market. Another aspect that should be factored in is the need to obtain re-insurance on facultative basis, which invariably lead to a higher risk rate and lower commission. Therefore, takaful operators will remain at a disadvantage unless re-takaful operators come together and assist the operator in the market. It is important that we consistently assess the challenges that we face and develop strategies to address those that we believe are significant. It is also essential that collectively we rediscover the importance of leveraging tools that are available within the conventional insurance industry, whilst distinguishing takaful meaningfully from conventional insurance. Currently, the market appears to have bottomed out and it is yet to be seen if takaful can manage to make the most of the upturn or whether conventional insurance will

take away a big chunk of the pie. Arriving as they have right at the start of the economic crisis, takaful managers have had to endure a rigorous workout just to stay afloat. None of the new takaful operators have failed, which is testament to the resilience of these new players – and some may indeed be better positioned to make the most of a positive change in trading environment.

Time to innovate? Introducing innovation will also be a worthwhile means towards this end. After all, innovation requires fresh ideas and managers who are freed from the shackles of survival management and are keen to adopt and drive innovative strategies. History has consistently proven that man’s greatest innovations have been born out of adversity – we are possibly on the verge of witnessing something special in this sector. In fact, green shoots are indeed starting to appear. For instance, at Noor Takaful we have rolled out two first-mover innovations so far in 2013 – offering retail customers the opportunity to pay in up to 12 installments at no extra cost and, more recently, a unique bundled product for the domestic aid sector. Noor Takaful has also launched cost-effective insurance products that can be purchased for employees in the unskilled services sector, and domestic help. Such product offerings are significant as they position Noor as a champion for the less-privileged sections of the society, even while reaffirming its capacity as an effective all-rounder. The ball has been set to roll; how far and efficiently the takaful sector responds to the emerging dynamics is something that only time will tell. NOVEMBER 2013

19


TRADE TALK Finance

What’s the latest in trade finance? National Bank of Fujairah organised a series of workshops this year, aimed at apprising clients of the latest developments in international trade. The sessions were conducted by senior management from NBF and Vincent O’Brien, veteran trade finance practitioner and chairman of the ICC Market Intelligence Group. We got talking to him to know his expert opinion on the world of trade finance. Do you see significant changes in the pattern of global trade? Do you think developing countries are playing an important role? There has been a visible shift in trade patterns across the world and this has been much more prominent than many industry experts have estimated. The recovery in international trade since the financial crisis in 2008 has primarily been driven by developing countries. Exports from these countries surpassed pre-crisis levels in mid-2010, and this steady momentum has continued with exports increasing by approximately 8% in 2012. However, the story is very different for developed countries, which only returned to pre-crisis levels during the first half of 2012. This is naturally driven by the fact that these advanced economies are in an ongoing struggle with debt crises, increasing unemployment, austere fiscal policies and growing social instability. The most interesting trend that has emerged out of this changing environment is that developing countries are increasingly looking to trade amongst themselves rather 20

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than relying on trade with developed countries. A recent World Bank report highlighted that South-South trade accounted for more than half of all the exports from developing countries since 2010, which was the first time that trade amongst developing economies surpassed trade with countries from the developed world. The impact of this can be seen in the Middle East where inter-regional trade is gaining importance and the UAE becoming a logistical hub for trade within the region and for emerging markets around the world.

With the Doha Round at a stalemate and the ICC coming out with a World Trade Agenda, what do you think the discussions in Bali will be about? Do you think we can get a multilateral trade agreement?

The forthcoming World Trade Organisation ministerial conference in Bali has, what some consider, a limited agenda. However, with the appointment of Roberto AzevĂŞdo of Brazil as the new WTO head, I believe that we can

expect the process to be re-energised from the stalemate in 2008. I believe there will be a strong focus on trade facilitation at the meeting in December, and the importance of concentrating our efforts on this subject should not be underestimated. All stakeholders in world trade have an interest in strengthening trade facilitation measures at this critically challenging moment in the global environment. This is essential to improving the dialogue between various stakeholders, which will be a key step in generating momentum for more substantive measures that may currently appear intransigent. The ICC also has a very important role to play in this regard as the organisation reflects the needs of the international business community, which is now critically dependent on a resurgence in world trade. Their World Trade Agenda is reflective of a multilateral trade framework and will offer practical inputs for the development of trade policy. Furthermore, trade facilitation has been one of the primary goals of the ICC since it was founded over 90 years ago, with the primary aim of enhancing the trade environment for


the business community. It is widely believed that economic development through trade is one of the key drivers of peace, stability and the alleviation of poverty. As a result, this goal must remain clearly centered on the radar of all stakeholders.

What are the latest developments in the field of trade finance?

Trade finance has now become an area of significant concern in financial markets globally. The work of the ICC Banking Commission has highlighted its critical role in keeping supply chains around the world open. In terms of specific new developments, last month at a global meeting in Lisbon, the ICC Banking Commission approved the new rules for the Bank Payment Obligation (BPO). This will facilitate secure open account trade and add transparency to supply chain finance through the application of data driven solutions. The ICC Banking Commission also approved the new International Standard Banking Practice (ISBP) that is anticipated to improve the flow of trade finance and reduce the occurrence of discrepant documentation under letters of credit.

Can you explain to us the different trade finance products and which one should be used when?

Banks offer a variety of trade finance products that can help businesses’ export and import requirements. Under imports services, banks offer avalisation services, shipping guarantees, letters of credit, import collections and trust receipt financing. For businesses looking to export goods, they should consider export letters of credit advising and confirmations, export collections, pre-shipment financing and export documents discounting.

For exporters in the Middle East, what practical advice would you give when it comes to trade finance?

In my opinion, it is only since the financial crisis that corporations in the Middle East have realised the importance of maintaining longterm relationships with banks, as credit has become tight and default risks have increased. Before the crisis, businesses in the region were

ABOUT Vincent O’Brien is an expert on international trade finance and also has significant knowledge of trade practices and customs. He has worked on assignments in this field around the world, including, Ireland, England, Turkey, Singapore, Hong Kong and India, among others. He was a member of the International Chamber of Commerce expert working group, which drafted the ‘eUCP’ – the supplement for presentation of electronic documents under documentary credits Vincent has also provided assistance and training services under the Trade Facilitation Programme of the IFC (World Bank).

inundated with financing options; however this has changed considerably over the past few years. Since the crisis, businesses have realised that they must maintain and build relationships with banks that they wish to work with for the long haul. The NBF Trade Finance workshops are a good example of strong bank-customer partnerships. The bank’s initiative to make customers aware of the best practical approaches to using traditional trade finance products, in addition to growing the use of export credit insurance and factoring services, depicts the benefits of building a long-term relationship with a financial institution.

How has the crisis in Europe and the US impacted international trade and finance?

The availability of trade finance has been noticeably affected by the crisis in the Western economies, particularly the deleveraging by European banks and the issues with USD liquidity. Additionally, the trade finance market will continue to be more volatile and unpredictable than pre-crisis levels. This is another reason why partnerships with banks that have trade finance as a core part of their business is of great importance moving forward.

What are the legalities or international standards of trade finance that exporters, especially SMEs need to be aware of?

For SMEs, it is impossible to be aware of all the legal implications of conducting international trade. However, there are a few key international trade facilitation rules and

standards that are of paramount importance to SME exporters:

• Since letters of credit are widely used in the region, a solid foundation knowledge of the ICC’s UCP 600 is very important • The security of the letter of credit payment facility hinges on compliant documents, so the new ISBP is also critical area of which customers need to be aware

What is your outlook for the rest of 2013 for international trade finance?

The outlook for international trade finance this year is not encouraging as the IMF recently reduced their forecast. This also follows the WTO’s revision of their global trade growth for 2013, from 4.5% to 3.3%. Without a doubt this is a challenging environment, and during this period exporters will need banking partners that will support them through the difficult times. Nonetheless, it is a positive indicator that the interest in trade finance is now at an all time high, as witnessed by the packed halls we had at the NBF workshops in Dubai, Fujairah and Abu Dhabi. Although I am relatively optimistic for traders with the right banking relationship, we can certainly expect a challenging year ahead. The ICC Banking Commission is expanding their reach into emerging markets and the first ICC Regional Banking Commission in the World has been established for the MENA region. The ICC RBC MENA is an initiative in partnership with the Dubai Chamber of Commerce and Industry, which is another organisation that sees trade facilitation as an objective of paramount importance. NOVEMBER 2013

21


TRADE TALK Finance

Taking a second look Paul Taylor, EMEA Sales Head for Global Transaction Services at the Bank of America Merrill Lynch, speaks to us about the role that trade finance is playing in today’s marketplace and consider the benefits of taking a fresh look at this important area.

F

or hundreds of years merchants and consumers have been discussing how to best finance their trade in a way that is mutually beneficial for all involved parties. In many ways, these same discussions take place today, at corporations in the Gulf and around the world. There are however several differences between today’s marketplace and that of yesteryear. Not only have trade finance instruments evolved, but the modern-day global trade and economic market is very different to that of our fore-fathers. And the conversations that companies have about trade finance are gradually changing too. 22

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Today, it is increasingly recognised that if viewed as part of the overall cash management toolkit, trade finance can play an important role in improving a company’s working capital position and ultimately support that company with its growth and development agenda. Trade finance and its role in stabilising the supply chain The recent financial crisis was a truly global one, impacting countries around the world and companies of varying size and in different sectors. In this environment, trade finance and particularly supply chain finance has been a valuable tool that has helped to

stabilise the supply chain and bring value to those participants within it. Looking first at suppliers, effective supply chain finance has been a success. Those that are concerned about the ability and willingness of buyers to pay for their goods and services, or the timeliness of their payments, could work with an intermediary to achieve more certainty and get more ready access to cash by discounting their invoices. Such financing allowed suppliers to improve their working capital positions, and have cash on their books that they could use to meet their business objectives. Compared to their trading partners, it has


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TRADE TALK Finance

also lowered their exposure to counterparty risk. At a time when some businesses have been struggling to survive, the ability to reduce this particular risk has been a very real benefit. The advantages aren’t all on the supplier side however. When buyers have access to trade finance, it gives them the ability to negotiate on payment terms and achieve a better outcome than they might do with standard invoice terms. It can also free up their working capital, enabling cash to be put to use in a more productive way whilst improving the robustness of their supply chain. Advantages also accrue to the third party in the transaction, the intermediary, which supports its client at the time of a key transaction by facilitating the financing. Regardless of whether that client is on the buyer or seller side, they can form a closer and deeper relationship, at the same time as supporting that client’s treasury position and helping to take counterparty risk out of the system by standing in the middle of the transaction. Supporting the global growth agenda Banks that have the balance sheet and the appetite to support commerce can play a truly valuable role in joining the dots between buyers and sellers at the same time as fostering global trade. The macroeconomic situation is undoubtedly still choppy, but markets are beginning to shift away from a purely defensive position and companies are responding by putting growth back on their agendas. Trade finance is becoming increasingly popular with chief financial officers (CFOs) and treasurers because it can enable them to pursue a growth strategy in a way that mitigates risk. In order to grow, businesses may need to make significant acquisitions in the first instance. This could be new premises, technology or operational machinery in order to expand production, extend their reach or bid for new contracts. Access to trade finance on beneficial terms 24

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ABOUT Paul Taylor is regional sales head, Global Transaction Services, for Europe, the Middle East and Africa (EMEA) at Bank of America Merrill Lynch. Taylor is also head of FI Sales across cash management, working capital management and treasury services for the region. Taylor joined Bank of America Merrill Lynch in January 2010 from VocaLink. Prior to this, he was a strategy consultant at Deloitte where he worked in the financial services practice.

can reduce a range of risks associated with making such investments, from transactionto counterparty- and even liquidity risk. And where businesses are given the ability to pursue growth, many benefits can accrue to the wider market and local economy ranging from increased productivity to greater employment opportunities.

Taking a broader look It’s common and indeed natural for businesses to start considering trade finance when they are involved in a specific and significant transaction. For many, this will be a trigger to reassess the market since their last transaction; look at what instruments are on offer and consider which banks would be suitable partners. It is however possible to take an entirely different perspective. Instead of seeing trade finance as part of a one-off transaction and separate from other cash and payment processes, to rather consider the benefits of integrating trade finance into the broader discussion that takes place around optimal cash management and the management of working capital. Trade finance, and specifically supply chain finance, ultimately allows CFOs and treasurers to optimise their balance sheet with short term capital support. It is one of the strategic tools at their disposal that can help meet the demands being placed on treasury in today’s environment. For instance, the dominant drive over the past five years has been to enhance cash visibility and to move closer to real-time information about where cash is held, across

borders. Other key objectives have been to improve access to cash so that it’s available when and where it is needed, and to reduce costs as a whole, improving efficiency in order to contribute positively to the bottom line. The effective use of trade finance is one factor that can help corporates aiming to achieve these goals. For this to happen, conversations about trade finance should be incorporated into high-level discussions on working capital, and trade finance should be considered as a tool that sits alongside account and liquidity structures, and FX optimisation.

Using trade finance to get more out of your capital One of the most important questions CFOs, treasurers and their boards are asking today is – how do I get more out of my capital? Corporates are increasingly realising that one of the answers to this question is through trade finance. It has persisted throughout the ages, and trade finance instruments are constantly evolving to meet the needs of modern-day merchants and consumers to suit current market conditions. One of the key changes taking place today is how trade finance is discussed. Not only is it recognised that supply chain finance can catalyse greater trade and increased commerce by reducing risk for all parties, corporates also understand how it can also contribute to the business’s overall goals by improving working capital management. Trade finance is evolving, and it’s time that the conversations taking place around evolves too.


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TRADE TALK Logistics

Be tech- savvy

Mustapha Kawam, Managing Director-Gulf States, Globe Express Services, talks to Aparna Shivpuri Arya about the latest trends in the logistics industry and the importance of technology.

As a pioneer in the field of logistics, what is your opinion on the logistics industry in the Middle East? What have been the trends in the past few years?

Research shows that the logistics industry in the Middle East is expected to sustain a 6.9% compound annual growth rate (CAGR) from 2011 to 2015. This illustrates the promising future awaiting the logistics sector and the numerous opportunities available for the transport and logistics companies in the region. The GCC countries have contributed extensively to the growth of this sector over the past few years. Moreover, huge investments into infrastructure development are taking place in order to position the GCC and the Middle East region as a centre for transcontinental trade and achieve significant economic growth in the years to come.

According to you, what are the challenges that the logistics industry faces in this region?

One of the challenges that we face in the logistics sector has to do with the changing needs and beliefs of our serviced markets. Clients want to wait less and yet receive more. Failing to adjust to market trends and consumer preferences is a perfect recipe for failure in our line of business where the customer is king. Another challenge is that the successful execution of the supply chain and logistics services relies on the proper coordination of several parties, from the consignee to the freight 26

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forwarder. Our industry needs to constantly strengthen ties between all the actors involved, thus fostering productive partnerships between clients and logistics providers on one hand, and freight forwarders and carriers on the other. However, this is easier said than done in this fast-paced industry of ours.

What are the common mistakes or oversights traders make when dealing with logistics? Are there any dos and don’ts they need to be aware of?

Some traders tend to have tight schedules for their shipments and cargo movement. This might lead to choosing logistics services solutions of a higher cost than necessary. This underscores

the importance of planning ahead of time. In addition, traders need to share the terms and conditions that have been agreed upon between themselves and their customers. Direct and transparent communication with the logistics providers will guarantee less confusion between the two parties and better services from our side. We would rather call these miscalculation or miscommunication rather than mistakes.

How important is cargo insurance for goods? Is it recommended for everyone, independent of the size of the consignment?

Cargo insurance is recommended at all times, disregarding particular details of the services


ABOUT Mustapha Kawam, Globe Express Services’ Managing Director for the Gulf States, originally joined the company as a sales representative in 1995 and has since played key roles in GES’ sustained growth.Kawam holds a Bachelor of Science degree in Business Marketing from the Lebanese American University and an Executive MBA from the University of Sharjah.

provides outstanding visibility, flexibility and customisation potential, while our highly trained personnel share a commitment to providing the ultimate customer service.

Can you please explain in detail the value-added services that you provide?

provided. It will help us eliminate the risk that might exist no matter how insignificant it is.

What kind of business solutions do you provide?

Globe Express Services offers a robust, wellrounded suite of logistics services to companies doing business in Asia, Europe, the Middle East, North America, Latin America and around the world. Since 1974, we have enabled our clients’ supply chain success through ocean & air freight forwarding, overland transport, Customs brokerage & compliance consulting, cargo consolidation, warehousing & distribution, specialty cargo handling, and project logistics. Our state-of-the-art technology platform

Out-of-gauge services are a core offering of the company’s project logistics and management portfolio. Through its Logistics and Compliance Consulting division, the company offers expertise in creative warehouse design, distribution, supply chain execution and material handling solutions for leading retail, wholesale, and consumer product manufacturing companies. Our consultancy service also covers selection and implementation of supply chain execution software, including comprehensive systems for warehouse management, asset management, transportation management, yard management and labour management.

How important do you think technology is to the logistics industry? Has it made the business of logistics more time and cost effective?

Absolutely, technology plays a vital role

in providing logistics solutions that are more efficient and cost-effective. It is a pre-requisite to improve the supply chain coordination and to facilitate the communication between the different parties and actors involved. At Globe Express, we count optimum use of cutting-edge technologies among our core competencies, because there will always be better ways of doing things. Given today’s highly competitive markets, customers will lean towards companies that can think out of the box and deliver tailored solutions.

What are your future plans and how do you see the trends in the global logistics industry in the coming years?

Recently we have opened seven new branches in the US and China, and we are constantly on the lookout for growth opportunities. Our plans for the future include more expansion. We always make sure to stay up to date with the latest technologies that will help us provide world-class services to our customers. This is mandatory to maintain and improve our ranking among the world’s top 100 logistics providers.

One of the challenges that we face in the logistics sector has to do with the changing needs and beliefs of our serviced markets. Clients want to wait less and yet receive more. Failing to adjust to market trends and consumer preferences is a perfect recipe for failure in our line of business where the customer is king.

NOVEMBER 2013

27


TRADE TALK Logistics

The “complete solution” for doing business Dubai Industrial City is a non-free zone entity in the UAE, which provides manufacturers the opportunity to sell in the local market, along with the ease of providing all the facilities. Aparna Shivpuri Arya spoke to Abdulla Belhoul, MD of Dubai Industrial City (DI), to get to know all the details.

paying an export tariff according to the applied free trade agreement. Moreover, as an onshore development, all local laws apply to us, where we work closely with local authorities like DEWA, Civil Defense, RTA, and so on. We’re in direct contact with them and provide each other with constant feedback. For example, DEWA constructed four electricity substations across the city, RTA in the last couple of years provided us with direct access from Sheikh Mohammad Bin Zayed Road directly, while Civil Defense and the Dubai Municipality (DM) continue to support us in occupational health, safety, and construction requirements. Their support is crucial for us and our investors, facilitating license issuance in a hassle free way. All this make DI an attractive industrial and logistic hub for local and regional companies and we look forward to more achievements and expansions in the region.

What is the “complete real estate solution” that DI offers? What all does it involve?

Please give us some background about the setup of DI - its purpose and mission. DI is the largest industrial estate project in Dubai and is spread across 55 square kilometres (560 million square feet) of land. The UAE has developed specialised areas for the industrial sector, so that industrial business can benefit from the integrated environment that includes all the important requirements such as the advanced infrastructure, the premium location close to the sea ports and airports, in addition to all energy requirements, advanced communications and logistics, as well as the easy processing for operating and licensing. We are one of these specialised areas that have been well built in the UAE to meet the 28

NOVEMBER 2013

requirements of the industry sector, and we are fully committed to Dubai Vision 2021 directing the diversification of Dubai’s economy. In other words, Dubai Industrial City serves as a catalyst for the growth and expansion of the industrial sector in the UAE - especially in light to medium manufacturing sectors with specific emphasis on machinery and mechanical equipment, transport equipment and parts, base metal, chemicals, food and beverage and mineral products.

How is DI different from a free zone?

Being a non- free zone, we provide investors who manufacture to export the opportunity to export their products as a local product, allowing them to reduce the cost of exports by 5% by not

Under the wise leadership of the UAE, DI was established to provide investors with various top quality industrial real-estate solutions to meet their diverse needs. It offers a high quality range of supporting services and facilities including state-of-the-art offices, industrial and commercial lands, logistics zones and labour villages. The City is divided into six industrial zones offering distinct and various sectors of specialisation. Each of these zones is located in large land areas to ensure adequate working environments while offering our investors ample freedom and independence within an integrated contextual approach that unifies the six zones of the City

For a company looking to set up base in Dubai, what reasons would you give for choosing DI?

DI enjoys a lot of advantages that makes it very unique and attractive to investors. To start with, we are strategically located adjacent to the new Al Maktoum International Airport (Dubai World Central) and is 28 km away from Jebel Ali Free Zone. Moreover, the City provides direct connection to Emirates Road, Dubai Bypass Road providing easy and convenient access to global transportation points via road, air


and sea, providing a cost effective and efficient business environment. We also provide a number of industry supporting products and facilities including 7 million square feet of warehousing and 3 million square feet of open storage lands, labour villages, commercial lands, office space as well as a one stop shop for the issue of required licenses and permits. 57% of the 200 million square feet of industrial land in DI is covered with infrastructure facilities including water, electricity, sewerage, irrigation, and telecommunication systems. The City has ample electricity resources that would meet the energy requirements of the city for the next 5 to 7 years.

DI investments have surpassed AED 4 billion since 2004. Please tell us a bit about your strategy?

Dubai Industrial City investors invested over AED 4 billion in the city to build their factories and their industrial units. Dubai Industrial City has also invested AED 2 billion so far in infrastructure development including energy, water, roads, drainage and irrigation systems, and telecommunication services. Our objective is to develop manufacturing as a key engine of economic growth locally and regionally; and to create a compelling, cost-competitive environment for manufacturing companies. (It does this by providing a platform for the growth and expansion for all its business partners, especially in the light to medium manufacturing sectors). One of our long term goals as well is to provide vocational training opportunities for university students, through internships and initiatives. We have attracted 212 new companies during 2012 marking an increase of 82% in the number of new companies that opted to use the various industrial real estate services and facilities on offer by the leading industrial destination in Dubai, as companies in DI grew from 259 to 471 during the 12 months period, and we believe that achieving high growth rates in 2012 emphasises that Dubai Industrial City continues to be an attractive industrial and logistics hub for local and regional companies. Among the sectors we have seen enormous growth are the food and beverage, where DI is considered a true example of the development that is currently being witnessed in the food market in the UAE.

a synergy of operation as factories within the zones tend to interact. These zones are: • Food and beverage • Base metal • Minerals • Chemicals • Transport equipment and parts • Machinery and mechanical equipment

Abdulla Belhoul, MD of Dubai Industrial City (DI)

We have also witnessed a growing demand for industrial land, as a growing number of industrial investors such as Othman Mohamed Sharif, Al Barakh Dates Factory, and Interpro Wood Industries have leased more than 5 million square feet of industrial land in 2012, marking an increase of 14% in industrial companies in DI compared to 2011. Warehouse occupancy rate has also increased to reach 82% of a total of 7 million square feet of storage facilities available in the city, in addition to a 95% occupancy rates recorded in the city’s 3 million square feet of open storage lands. A large number of local and regional companies chose DI as a preferred destination for their storage and logistical facilities, including Juma Al Majid Group, Home Centre, Al Gurg Unilever and Al Futtaim Logistics, which have occupied a combined area of more than 940,000 square feet of warehouses in the city.

What logistics facility do you provide?

DI enjoys a total size of available warehousing/logistics facilities that are spread at 7 million square feet of warehouses, retail showrooms with backside storage, as well as open storage yards are available. The City has functional utilities, energy and land to accommodate all investor requirements.

We believe there are different zones in DI. Please tell us a bit about it

The six industrial zones in DI offer investors

We invest in various products, facilities and services across the City, including the following: • Warehouses & logistic zones • Open storage yards • Retail showrooms with storage • Office buildings • Industrial land • Commercial land • Labour villages

In your opinion, how do you see trade and foreign investment in the Emirate, in the coming years?

We all know that the UAE has advanced features that make it the most important destination for industrial business in the Middle East. Dubai is the leading logistic hub in the region and it commands excellent infrastructure facilities and a large and extended road network. In addition, Dubai’s air and sea ports play a pivotal role in boosting the industrial sector activity in Dubai and across the UAE We see the outlook as positive and manufacturing and logistics market in the region is on the upswing. We are very optimistic about this year [2013] as Dubai Industrial City continues to be an attractive industrial and logistic hub for local and regional companies. The contribution of the industrial sector to the UAE’s GDP reached 19% last year, and this number is expected to increase in 2013, with a significant increase in the volume of industrial investment, from AED 72.635 billion in 2007 to AED 114.052 billion in 2011, an increase of 57%. We expect more growth in F&B sector, particularly in Halal food, as well as in the chemicals, base metals and machinery, equipment and parts zones. Another element that will form the shape of Dubai’s growth dramatically is Expo 2020, as it will be a major boost for all the sectors, which will significantly be reflected on the industrial sector. NOVEMBER 2013

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TRADE TALK interview

Promoting growth through diversity Aamal’s growth is a proof of the development that Qatar’s private sector has been witnessing. In a conversation with Sheikh Mohamed Bin Faisal Al Thani, Vice Chairman of the company, Aparna Shivpuri Arya got to know the strategy behind this growth. Please give us a brief background about your vision for setting up this company.

Aamal Company was established in 2001, following a re-organisation of Al Faisal Company. The creation of Aamal Company reflected my father’s vision and keenness to preserve what he had built over the last five decades. Aamal became a listed company at the end of 2007, and since then Aamal has achieved unprecedented growth, operating in four main sectors – industrial manufacturing, trading and distribution, property and managed services. My father believed in the benefits of transforming the family business into a public shareholding company because it promotes continuity of the business, provides access to capital for future growth and helps to raise the profile and perception of the business to reassure customers, clients and employees about the business’s quality. A listing also creates a mechanism to transfer share ownership and value the business. Aamal Company has benefitted from all of 30

NOVEMBER 2013

this and, as the company has grown in both headcount and revenues, so has the number of our shareholders.

As you mentioned, Aamal has diversified into a number of sectors – what has been your strategy for this diversification?

We believe in diversity as it minimises risk, increases profitability and offers stability. Aamal is widely diversified with operations across 22 business units, some of which have been operating in Qatar for more than 40 years, achieving strong market leading positions. Aamal’s corporate strategy is to create longterm shareholder value through the continued profitable operation and expansion of its diversified business platform. The company seeks to take advantage of the growth opportunities created by the Qatar National Vision 2030 and to leverage its position as a leading participant in various key economic sectors by focusing on three pillars for sustained, profitable growth:

• Increased emphasis on industrial manufacturing and related high growth sectors to capitalise on significant demand arising from wider industrialisation of the Qatari economy • Continued growth, diversification and innovation across other businesses to enhance market position and optimise performance, and • Application of clear and disciplined operational and financial principles underpinning our strategic growth initiatives.

As an industry leader, how do you see the economy in the coming years?

Aamal is successfully positioned as a predominantly industrial company. It is well placed to capture the opportunities that are being afforded by the rapidly developing Qatari economy. The economy’s growth is being driven by a significant infrastructural and industrial development programme as part of the Qatar National Vision 2030 that seeks to diversify the country away from its substantial, long-term hydrocarbon reserves into alternative and


sustainable avenues of growth. To illustrate the size of this programme, Qatar is expected to spend upwards of USD 150 billion on infrastructure alone in the next five years. Furthermore, Qatar has attractive demographics, with its rapidly expanding population stimulating further economic growth.

and faithful professionals, and support them. Working together, companies can develop and commercialise great ideas to the benefit of each other but more importantly to the benefit of our customers, consumers and society. Developing education and research is central to our company and my father’s personal philosophy.

Aamal has been very active in the medical equipment and pharmaceutical sector - how do you see the investment opportunities in this field, for SMEs and large corporations. Are there any niche areas that SMEs can tap into?

With rapid population growth and changing lifestyles, the Supreme Council of Health (SCH), Qatar’s highest health authority, launched the country’s first comprehensive health reform, supported by all-encompassing socio-economic development. This built on the country’s longterm development strategy, the Qatar National Vision 2030. Accordingly I believe there are good opportunities in this domain for SMEs and large corporations to offer high quality products and medical services assisting SCH achieve its goals. As a market leader, earlier this year Aamal signed an agreement to create a joint venture with Vivantes International Medicine, the biggest hospital group in Germany, to build an outpatient medical centre in Doha. This agreement is another step towards expanding our operations and attracting foreign investment to Qatar. Aamal has a leading position in the medical sector and this will definitely enhance our position.

With development pressing ahead in the coming decade (partly because of the 2022 FIFA World Cup), how do you see the economic landscape changing in Qatar?

Sheikh Mohamed Bin Faisal Al Thani, Vice Chairman, Aamal

healthcare consulting and management services and is involved in numerous largescale projects all over the world. In Germany, it has nine hospitals including nursing schools, education centres and the biggest academy for health care management.

As one of the business leaders of the country, if you had to give some pointers to SMEs, what would be your advice to them?

Qatar’s economy is flourishing more than ever, offering many business opportunities. My father

Over the last few years the economic development of Qatar has been remarkable. The country has become one of the world’s fastest growing and most successful economies as markets continue to diversify and the country’s infrastructure continues to develop. The vision of H.H. The Emir, to develop Qatar into one of the region’s leading economic powers, remains at the heart of our business. Aamal is as determined as ever to play a major role in the realisation of this vision and to be a major beneficiary of the State of Qatar’s success.

Lastly, what are your future local and international expansion plans?

We are continually looking at potential opportunities in order to consolidate and build upon our existing market leadership positions. First mover advantage is very important to Aamal and is part of our DNA. However, we

Can you tell us a bit more about the joint venture with Vivantes and how that will support the Qatari healthcare sector?

We believe in diversity as it minimises risk, increases profitability and offers stability. Aamal is widely diversified with operations across 22 business units, some of which have been operating in Qatar for more than 40 years, achieving strong market leading positions.

For Aamal, this is a very significant joint venture. This centre will allow us to contribute to Qatar’s policy of providing high quality, strong health services in our country. The outpatient centre, which will be managed by Vivantes, will offer a clinic with leading doctors in different fields, a diagnosis centre using the most up to date telemedicine technology and visiting professors from Germany to consult with patients in Qatar. Vivantes is Germany’s largest state-owned healthcare group. It offers international

always stresses the importance of having a clear vision, an ambitious dream, honesty, patience and consistency, which he always says are more important and crucial than capital for a successful business. Large companies were not built with big capital; they were created with big minds. You cannot always expect 100% success in businesses. There will always be obstacles and hurdles. Taking care of the people’s wellbeing is equally important. You must hire honest

would never compromise on the application of strict investment criteria when appraising potential new business opportunities in a bid to be first in the market. Aamal has a geographical focus, at present, on Qatar with intentions to expand further in the region and beyond. *This article was first published in our sister publication, Private Sector Qatar.

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TRADE TALK Legal

Kuwait: A new stance on financial crime Two major sources of concern for governments and financial institutions worldwide are money laundering and terrorism financing transactions. In order to curb the instances and effects of such transactions, the international financial community has made significant efforts to introduce policies aimed at setting certain criteria and recommendations. Ibtissam Lassoued, Partner, Financial Crime Department, Al Tamimi & Co, gives us the lowdown on Kuwait’s position on this issue.

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hese policies aim to reduce the damaging effects money laundering and terrorism financing have on a global, local, economic, social and political level.

New governing principles and standards Although not a widespread problem in Kuwait, the Government has taken steps to address the aforementioned issues by passing Law No. 106 of 2013 Regarding the Combating of Money Laundering and Financing of Terrorism (’New Law’). The New Law supersedes the previous Law No. 35 of 2002 (’Old Law’) and establishes new and improved governing principles and standards to protect local financial institutions from being used to launder money and finance terrorism. There were numerous issues with the Old Law, which were highlighted by the Middle East & North Africa Financial Action Task Force (MENAFATF) in their 2011 Mutual Evaluation of the 2002 Kuwaiti Anti Money Laundering Law. The most pressing issue for the MENAFATF and the international community was that the Old Law failed to criminalise terrorist financing. Further, there were no measures in place that enabled the identification and freezing of terrorist assets. This was of great concern, especially when taking into consideration the plans of the Kuwaiti Government 32

NOVEMBER 2013


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TRADE TALK Legal

to create an international financial centre, along with the expected growth in their domestic economy as global economic recovery boosts the demand for oil. Adhering to the advice given by MENAFATF, terrorist financing has been criminalised under Article 3 of the New Law, which states: A person who can be said to have committed a terrorist financing crime is any person that has directly or indirectly, willingly and illicitly, collected funds with the intention to use these funds for committing a terrorist act. Measures were also put in place that enable the freezing of terrorist assets, implemented under Article 22 of the New Law. Article 22 gives power to the public prosecutor or his authorised public lawyers to freeze or confiscate funds or instruments, if sufficient evidence exists to suggest that they were obtained or used with regards money laundering or terrorism financing. Additionally, The Central Bank of Kuwait has supplemented the New Law by issuing circulars and instructions to local financial institutions, instructing them on measures that should be taken to ensure that customer due diligence practices are adhered to, in order to give the new law the best possible chance of succeeding. Due diligence was something that MENAFATF put great emphasis on in their analysis of the Old Law, as this was not provided for. Customer due diligence measures, if implemented correctly, act as a valuable whistle-blowing mechanism by which the relevant authorities are notified by the banks of transactions or persons they deem suspicious. The new due diligence measures are provided for under Article 5 of the New Law and detail the specific due diligence measures that should be undertaken by all banks and financial institutions in Kuwait. Emphasis is placed on making sure that banks have suitable safeguards in place to ensure no accounts are opened for the purpose of terrorist financing or money laundering and that staff are trained to identify suspicious behaviour and transactions. The Kuwaiti Government also implemented a fully independent Financial Intelligence Unit (‘FIU’). The creation of the FIU was 34

NOVEMBER 2013

ABOUT Ibtissam Lassoued is a Partner in the Financial Crime Department having practiced in the French Group Vivendi (Paris) after she graduated with a DEA in Tax Law and a Master Degree in Commercial Law from Sorbonne University. Ibtissam advises a variety of clientele on a spectrum of white collar crime matters, such as complex corporate fraud, tracing and freezing of assets, money laundering and investigations which have spanned across the globe. She represents high profile clients on sensitive matters that evolved into worldwide cross-border jurisdiction matters. She also advises clients on matters relating to international economic sanctions.

sanctioned under Article 16 of the New Law. The FIU will serve as the main investigative body and, as stipulated under Article 16, will be responsible for receiving, applying for, analysing and transferring information related to what is suspected of being the proceeds of money laundering or monies used to finance terrorism, either in part or in whole. The introduction of the FIU demonstrates the Kuwaiti Government’s level of commitment to combating both terrorist financing and money laundering and sends a strong message to the criminal and terrorist organizations that prey on the relatively new and inexperienced banking systems in the Middle East. With new laws come new sanctions and penalties, something the New Law has covered quite thoroughly. Article 28 refers to the punishment for a breach of Article 2 and provides for a prison sentence not exceeding ten years and a financial penalty not exceeding the funds laundered in breach of Article 2. The punishment for breach of Article 3 (financing of terrorism) is not dissimilar and is provided for by Article 29. Article 29 states that any person found guilty of financing terrorism shall be subject to a prison sentence not exceeding 15 years and a fine of no less than the funds subject to the crime and no more than double their value. Both these penalties mark a stricter stance on money laundering and the financing of terrorism for Kuwait, something which the Kuwait Government recognised was an issue that needed to be addressed.

It is relevant to note that one of the biggest barriers to combating money laundering and the financing of terrorism in the Middle East are Hawaladars or ‘Hawala’ agents. These agents provide a no-questions-asked cross border cash courier service. Whilst the UAE have implemented a system of registration, whereby they require all Hawala agents to register themselves with the relevant authority in order to better regulate the service, Kuwait has gone one step further by including restrictive provisions covering such issues in the New Law. For example, as per Article 20 of the New Law, any person wishing to leave the State of Kuwait with currency or other negotiable financial instruments, whether they are in their possession for themselves or on behalf of another, is required to disclose to the Kuwaiti Customs Authority the value of these currencies or negotiable financial instruments. The FIU may also review this information whenever required. A positive step Under the New Law there have been implemented a number of key, important provisions that were worryingly absent from the law it superseded. As the law is still new, an evaluation of its effectiveness cannot yet be given. However, it is important to note that the recommendations made by MENAFATF have been acknowledged and taken on board by the Kuwaiti Government and thus included in the New Law. We will continue to monitor the application of the New Law and to report any related developments.


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TRADE TALK International trade

Middle East and the BRICS:

Analysis of Export and Investment Potential In a two part series, Biswajit Nag, Associate Professor, Indian Institute of Foreign trade, looks at the trade relationship between this region and the BRICS economies- Brazil, China, Russia and India and South Africa.

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ntroduction The Middle East including Saudi Arabia accounts for 53% of the world’s oil reserves. Economic growth of the region is dependant mostly on oil export. Increasing demand for oil from the BRICS (Brazil, Russia, India, China and South Africa) and other emerging economies may see oil demand increase by up to 50% by 2030 with a corresponding rise in prices. This has already given huge benefits to the Middle East. On the basis of known reserves, it is estimated that oil will run out by about 2050. As oil revenues decline, the region will need to explore new directions to sustain their growth and development process. Can BRICS being growth centre with huge market continue to be the source of growth for the Middle East? The mutual dependence of BRICS and the Middle East will be the key to the answer. Today’s energy demand of BRICS (except Russia as it is also oil exporting economy) is largely satisfied by the Middle East and tomorrow they being matured markets can pull huge investment in different sectors and the Middle East must take the advantage of that. The growth of the GCC countries has been phenomenal in last few decades. Due to large dependence of the world on Middle East for its energy requirements the economies of these nations have flourished. According to the IMF report for 36

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ABOUT Biswajit Nag is an Associate Professor at the Indian Institute of Foreign Trade (IIFT), New Delhi. Involved in empirical economic research for more than 15 years he also has teaching experience in India, Tanzania and Germany and served as a resource person for UNCTAD India’s capacity development programme on quantitative issues in international trade research. Earlier, he was associated with the Poverty and Development Division of UN-ESCAP, Bangkok. Dr. Nag has completed number of projects for Government of India, International Agencies including Multilateral bodies. He can be contacted at biswajit@iift.ac.in

the year 2012, Qatar recorded the highest per capita income in the world (USD 102,211). But, with the emergence of new economic powers which are ever hungry for these limited energy reserves to pander to their teaming millions oil reserves in the world is fast getting exhausted. In the event of such a rapid exhaustion of its chief natural resource, these economies will be left toothless and this very foresight gives rise to the ever increasing cry for diversification and reducing dependence on oil. What stands to gain from the rapid growth in BRICS is the increasing trade between these two blocs of nations. What makes it even more exciting is the strategic central location of gulf nations which can make it a hub of international trade much on the lines of Singapore, beyond oil and allied products. Also, the traditional cultural ties between GCC and other countries such as with India stand to gain from this trade. The objective of this article is to delve into the trade statistics between these two blocs of nations and come out with a list of products and services that would help GCC to diversify its export portfolio and reduce its dependence on oil trade for foreign exchange. This will also explore the investment opportunity these countries have in BRICS. The analysis is based on three pronged criteria: products, in which imports of BRICS are rising fast; export from GCC is also rising and currently GCC

has not captured BRICS market with large exports.

GCC and Brazil Brazil has enjoyed a historical trade relationship with the GCC that has only grown over the years to become one of the most important trade relationships for both parties. GCC’s goods export to Brazil in particular has grown by many folds in recent time with Oil exports leading the way. GCC and Brazil have been engaged in negotiations for a free trade agreement for some time now along with the MERCOSUR countries and the mutual keenness to bring about a swift finalisation can’t be understated. Talking exclusively of goods-trade, GCC’s exports to Brazil still have a long way to go before it can match its exports to either India or China. Although the growth has been phenomenal in oil exports, it is important that GCC focuses on other commodities to bring about a formidable trade relationship. In any case, Brazil has a much stronger relationship with Nigeria when it comes to oil trade with 20% of Brazil’s total oil imports coming from Nigeria. Thus, GCC can’t afford to focus on oil trade if it wants to reap benefits from the Brazil growth story. Brazil as a nation is on the brink of a massive transformation in terms of infrastructure development is concerned. In the next three years Brazil will be hosting two of the NOVEMBER 2013

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TRADE TALK International trade

biggest sporting events on the planet, the Soccer World Cup in 2014 and the Olympics in 2016. The investment in housing and infrastructure development projects will be on an unprecedented scale and this presents a big opportunity for GCC to not only invest in Brazil but also increase exports in key commodities like machinery and equipment. It has been noted for some time tourism industry from GCC has been performing quite well. They may also make an attempt to get a pie in thriving tourism industry of Brazil especially in hotel sector. Several chemical and petrochemical products also

6.6% while GCC’s exports of Polypropylene to Brazil comprising a meagre 0.2% of its total exports of the commodity to the world. Brazil’s imports of the commodity are also fractured between lots of countries with no clear cut leader unlike the other two commodities. Apart from these, high export potentiality is also observed in case of plastics, several metal products, and more. This bodes well for GCC to capture this market and it definitely has the production capability to achieve this. The challenge for GCC when it comes to trade with Brazil is the large geographic distance.

3000

number of Russian companies in the UAE as of 2012. have distinct advantage in Brazilian market. Menthol, Polyethylene and Polypropylene imports are significant. Brazil imports about USD 248 million worth of methanol. However, while GCC exports USD 2.75 billion worth of methanol to the world, astonishingly, its contribution to Brazil is non-existent. This points out to a huge untapped opportunity. A major reason is that Brazil imports methanol from Chile and Venezuela which are closer geographically. When it comes to polyethylene, GCC’s export to Brazil was worth USD 88,136 for the year 2012, which was about 7.8% of Brazil’s total import of the commodity. An opportunity was seen here as well for increasing exports. Brazil imports polyethylene primarily from the United States (approximately 33%) and Argentina. Although to displace these countries will be difficult for the GCC but it can still eat into both these shares considerably if it focuses on the commodity. Polypropylene, though belonging to a similar industry, follows a different trend with GCC’s contribution to Brazil’s imports being around 38

NOVEMBER 2013

The logistics cost makes trade of certain commodities infeasible. Another challenge is the protectionist policies adopted by Brazil and the MERCOSUR bloc boosting the regional trade. The FTA negotiations have hit multiple stumbling blocks and a clear policy yet to materialise. However, in terms of investment optimistic picture is visible. Investment from Gulf moves directly and also indirectly through other locations such as London. One of the biggest deals announced in recent times was the USD 2 billion acquisition of a stake in Brazil’s EBX group by Abu Dhabi state investment fund Mubadala in 2012. In 2009, Dubai’s DP World also announced a partnership with Brazilian construction firm Odebrecht to buy a majority stake in Embraport, the largest Brazilian private multi-modal port terminal. Brazil is also currently eyeing the GCC and the UAE for investments and partners in very specific sectors including energy, semi-conductors, logistics and infrastructure. However, Brazil requires to refine its taxation system and develop a structure for investment protection to attract more FDI in general.

GCC and the Russian Federation The trade relations between GCC and the Russian Federation have been significant and the Russia-GCC Business Forum in 2012 anticipated for a huge opportunity in coming future. However, in comparison to the other BRICS nations the goods-trade is yet to pick up in a big way. UAE has become the hub for every nation to enter and establish relations with Africa and South East Asia and Russian investments in the region have increased over the years with 3000 registered Russian companies in the UAE as on 2012. Russia too has eased taxation regime on UAE and Qatari firms for more investment. There has been an increase in bilateral trade traffic in precious stones and metals, base metals, vehicles, aircrafts, transport equipment, machinery and electronics equipment. But the volume of the trade is very small when compared with the bilateral trade between GCC and China or India. Investments and Joint Ventures between firms from both countries have been rising with an expectation of high return. Prominent recent deals between the UAE and Russia include the USD 630 million Rosneft-Crescent gas venture in Sharjah, port company Gulftainer’s USD 500 million fund with Russian partners, and a USD 275 million deal to co-develop and operate Russia’s Baltic port of Ust-Luga. It is estimated that Russian investors have also poured over USD 600 million into UAE real estate. The export to Russia has increased in recent times in products like heavy machinery like bulldozers, excavators and electronics like cell phones, textile and glass products. Russia needs GCC investment for its infrastructural projects being undertaken at a huge scale driven by the Winter Olympics in 2014 being organised at Sochi and the Football World Cup in 2018. The future export of machinery, capital goods, electronics and electrical appliances at B2B level has significant opportunity in Russian market. In the second part of the article, next month we will look at the GCC’s relationship with India, China and South Africa.


TRADE TALK International trade

Riding the wave of trade Dubai Trade, the one-stopshop for trade in this Emirate, gives us an update on how Dubai has been doing in the third quarter of 2013.

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ccording to Eng. Mahmood Al Bastaki, CEO, Dubai Trade, demand for the electronic services offered by Dubai Trade, the leading facilitator of trade across borders, has considerably surged in the past 8 months. More than 12,500 new trading and logistics companies joined the Dubai Trade Portal since January 2013, raising the total number of companies registered for e-Services to around 81,900 by end of Q3/2013. The number of transactions carried out over the Dubai Trade Portal grew by 11% during only the third quarter of 2013 when compared with the same period of last year. 40

NOVEMBER 2013

The one-stop-shop portal facilitates cargo movement into and out of the country round the clock and enjoys over 91% adoption of its core services. The facilitation of trade across borders over the past eight months through these services and many others, such as real-time online vessel schedule, brought Dubai Trade international recognition from the World Bank and World Economic Forum, for contributing to the UAE’s global rankings in the Doing Business Report 2013 and the Global Competitiveness Survey, which placed the UAE first in the MENA region and fifth worldwide in the “Trading across Borders” Category.

Dubai Trade takes a holistic view of the entire gamut of operations, using technology and systems to streamline imports, exports and re-exports into and out of Dubai.

What’s on offer? The Portal (www.dubaitrade.ae) offers 750 online services serving different sectors and communities. The portal services are on a continuing growth curve and currently include services for traders, shipping lines and agents, clearing and forwarding agents, hauliers, and free zone licensees, that include marine services, manifest and cargo handling services, cargo and haulage


services, invoicing and payment services and free zone services.

Dubai Trade value added services: “One of our upcoming initiatives is ‘Rosoom Wallet’ or e-wallet which is has been created to facilitate real time management of money within a safe & secure environment. Rosoom Wallet allows the user to pay online for a list of e-Services, provided by a number of partners. Users can top-up their accounts from major banks and have complete control and visibility on all payments done by their company,” Mr. Bastaki pointed out. Another innovative service to be launched shortly is TradeShield for online cargo insurance. This service enables customers to apply and obtain standard cargo insurance policies online. It has been created to further streamline trade processes, converting manual procedures to faster more convenient electronic transactions, thus, creating a true one-stop-shop for all shipping related services. Furthermore, Dubai Trade also offers “Vessel Sailing Schedule” online search service that chronicles and monitors the movements of commercial vessels from Jebel Ali port in Dubai to more than 700 seaports worldwide. Here, users get information on vessel updates; sailing schedules of multiple shipping lines and searches can also be filtered based on dates, transit times, ports and preferred shipping lines. Dubai Trade has been offering for the past two years, the “Certified Trade Logistics Professional - CTLP” course offering a comprehensive and progressive vocational training programme that covers end-to-end process of import and export in the UAE and the region. This hands-on educational programme accredited by the Knowledge & Human Development Authority (KHDA) and endorsed by the Chartered Institute of Logistics & Transport (CILT) provides professionals in-depth understanding of the full business concepts and procedures related to all stakeholders involved in the

trade supply chain. In August 2013, Dubai Trade introduced level three of this very indispensable course. The programme covers all key information needed for cross-border trading and logistics to maximise business efficiency and create professionals who are knowledgeable and skilled in trade policies and regulations locally and internationally. According to Mr. Bastaki, their technology team is also working on a corporate mobile strategy to put in place usability standards aimed at creating an intuitive easy-to-use interface and a seamless user experience through a wide variety of mobile devices. The initiative is in line with the announcement made in May 2013 by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, to move the government services towards ‘’Smart Government.’’ Customers will enjoy a better user experience and a more interactive way to engage and transact with Dubai Trade. The strategy and framework is jointly developed by Dubai Trade, Dubai Customs, DP World and Jafza. Dubai Trade accolades Dubai Trade has received several accolades for its achievements in the past nine months including the “Editor’s Choice Award” at the Trade and Export Excellence Award Ceremony, and the selection of Dubai Trade CEO Mahmood Al Bastaki as winner of “Accomplished Leaders” at the Feigenbaum Leadership Excellence Award 2013. Al Bastaki was also selected to the high-profile judging panel of the Dubai regional final of the 4th Annual Hult Prize held earlier this year. In addition, Dubai Trade won the Supply Chain and Transport Awards 2013 (SCATA) in the category “Training & Education Provider of the Year” for its distinctive CTLP programme. ESEA In turn, Dubai Trade recognised top performers among its clients for their support to it e-Services in its annual “E-Services Excellence Award” (ESEA). It was first initiated by Dubai

Eng. Mahmood Al Bastaki, CEO, Dubai Trade

Trade in 2008. The ESEA features a new theme every year awarding the highest performers in different categories targeting the entire trading community. The “E-Services Excellence Award” continues to grow every promising new and innovative award categories in “Appreciating E-Transformation in Trade and Logistics”. Dubai stands at the cross roads of the trade routes bridging East and West as a major trading hub. To continue the easy facilitations of trade in an efficient, highly streamlined, trustworthy, professional and business-savvy manner is the goal of Dubai Trade. This is turn instils confidence in customers who would like to do business in Dubai. Dubai has excellent infrastructure, wise and pro-business oriented policies, a cando attitude and overall business conditions conducive to conducting and setting up new businesses. Dubai Trade is and will certainly be instrumental in ensuring that systems and processes are set in place without a hitch thereby facilitating trade and commerce in a competent and proficient manner. As His Highness Sheikh Rashid Bin Saeed Al Maktoum, (God bless his soul) the Founding Father of new Dubai said, “What is good for the merchant is good for Dubai”. Trade is what defines and moves Dubai and we are here to ensure its smooth facilitation. NOVEMBER 2013

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TRADE TALK Currencies

Money talks VI The team at Western Union Business Solutions (WUBS) brings you the movement in three currencies – the USD, the EUR, and the GBP, for the month of November. EUR Last month’s focus was on the US, gave European politicians some time out of the spotlight. Investors were prepared for a lengthy negotiation process in Germany to build a coalition government after Angela Merkel’s re-election. The process continues, but has so far not hampered sentiment for the Eurozone. Furthermore, Italy’s government survived an attempt by Silvio Berlusconi to break it down via a confidence vote. Berlusconi’s fate has yet to be decided, but whether he is kicked out of the Senate or not appears insignificant when positioned next to the possibility of a US government shutdown or default. As a result, European politicians will get an extended break as political battles in Washington DC steal the limelight. With neutral sentiment exhibited towards European politicians and their government’s ability to make needed structural reforms, attention could potentially swing towards 42

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economic data and in general, currency flows as investors head into the end of the year. As November approached, the EUR touched 2-year highs against the USD, 4-year highs against the Japanese yen and 2-month highs against sterling. First consider the economic data: growth in the Eurozone has been substantially slower than growth in the US. Nevertheless, unlike the bounciness seen recently in American data, Eurozone figures appear in some cases smoother and more gradual in their advance and could therefore reflect a more sustainable pace of growth, albeit slow. The rate of unemployment in the Eurozone appears to have capped out at 12.1% and came in at 12% over the last two months. Purchasing Managers’ Index (PMI) surveys that follow growth in the manufacturing and service sectors have maintained levels just above 50 over the past several months. Levels just above 50 are representative of slow economic recovery. At the very least, economic data is not likely to be seen as a major hindrance to the EUR.

The last quarter of every year since the financial crisis, has diligently seen some period of EURweakness. Sometimes those losses come at the beginning of the quarter and at other times more towards the end. So far, October has been a month of EUR gains, which begs the question: will losses come in November or in December? Squaring positions built up throughout the year in various markets has been blamed for this phenomenon and this year could shape up to be explosive. One market that could be squared is the corporate bond market. European corporate issuance has increased as a share of the global market from 3% to 27% in recent years. Estimates suggest the global market is worth USD 1.7 trillion. European equity markets have risen with France’s CAC index touching 5-year highs and Germany’s Xetra DAX index touching record highs. In bond markets, German debt now yields less that US debt. Even outright EUR long positions built up recently seem ripe for a bout of profit taking. With this in mind some degree of EURweakness should be expected headed into the end of the year. So, what next? Failure to achieve structural reforms and a functioning banking union will continue to be the “Sword of Damocles” for the Euro. For now though, investors appear willing to give politicians more time as well as wait for the stress test results that will be conducted on the top European banks by the European Central Bank (ECB) next year. Banks that need capital and need to deleverage further could end up being supportive of the EUR, but that story is for another day. Stay tuned, as there will certainly be turbulence in the months ahead. Critical Data: November 4: October manufacturing PMI November 5: September producer price index November 6: October services PMI November 6: September retail trade November 7: ECB Monetary Policy Committee meeting November 13: September industrial production November 15: Q3 gross domestic product 1st estimate November 18: September trade balance November 28: November business climate index November 29: October unemployment; November 29: Flash Harmonised Index of Consumer Prices


GBP: United Kingdom Ravi Bharadwaj, Senior Pricing and Market Analyst, Washington, D.C. The majority of Sterling trade over the past few months has been driven by expectations and views, but with third quarter UK economic growth figures now on the table and priced in, investors will probably let the data do the talking in November. At the beginning of October, the GBP soared to January peaks against the USD and a currency basket, and reached its highest in eight months versus the EUR. Investors were turning shorts into longs and piling in. Investors were optimistic that Britain’s economic recovery was gathering momentum more quickly than anticipated and would force the Bank of England (BoE) to rethink its dovish forward rate guidance. However, that exuberance fizzled as October wore on, and sterling fell after Britain’s closely-watched Purchasing Managers’ Index (PMI) surveys for the September month missed forecasts just slightly, followed by UK industrial data for August that uncovered a more worrying decline in output. The data raised a few eyebrows, but was enough to trigger profittaking on the pound’s rapid advance since August. At the same time though, attention was turning to the US. Washington’s latest fiscal fight dominated last month, with the budget battle turning desperate and causing a 16-day government shutdown— resulting in the US almost tripping over its October 17th debt ceiling deadline. Still, while disaster for fixed-income and global financial markets was averted, many analysts fear that damage has been done to the US economy. The dynamic has changed in currency markets despite Washington coming back online. The short-term can kicking debt deal will see the Democrats and Republicans debate again ahead of another deadline in January, but while uncertainty about fiscal policy remains abound, certainty about monetary policy was quickly put into play. Sterling fell against the EUR and a handful of other currencies at the riskier end of the scale as newswires replaced the Federal Reserve’s (Fed) taper story with headlines of “looser-for-longer.” The USD may remain under pressure and could have longer to fall if estimates of a Fed taper move out further into 2014. This may be

good news for Cable but bad news for sterling in other crosses—Euro/Sterling in particular. Eurozone banks have brought forward the sale season, extending opening hours as they make preparations for the European Central Bank’s highly-anticipated asset quality review. Although this is ramping up the EUR’s value, the single currency is far from risk-free. For the Sterling to stay on the right side of traders, upcoming economic numbers may have to cushion the view that Britain’s economic recovery is now a sustainable one. For sterling to test new highs, the BoE may have to concur with that and have another month of improving UK employment data to hand in its quarterly Inflation Report on November 13th. However, should Governor Mark Carney still recommit the BoE to holding rates down for years to come, the sterling trade may become a frustrating one for the market. Critical Data: November 2: October services PMI survey November 6: September industrial output November 7: BoE Monetary Policy Committee decision November 12: October consumer price inflation November 13: September unemployment figures November 14: October retail sales November 13: BoE Inflation Report

USD: United States Joe Manimbo, Senior Market Analyst, Washington, DC

At Thanksgiving dinner this year, USD bears could be quite a grateful bunch. America’s greenback has been on a weekslong slide that may have further room to run over coming months. Denting the dollar has been a U-turn in market expectations for the Federal Reserve to wind down stimulus. Over the summer, it appeared all but certain that the Federal Reserve (Fed) would slow, or taper, stimulus before 2014, as the economy seemed to be on an improving path. That hopeful notion helped power the Dollar higher, making summertime vacations to Europe relatively more affordable. However, the case for the Fed to unwind stimulus this year has since suffered a substantial setback, making a taper unlikely even before

chairman Ben Bernanke steps aside in January. The turn for the worse the USD has taken lately stems from sluggish growth in America’s key job market, a sector of the world’s biggest economy with outsized influence over the outlook for Fed policy. Investors thought September hiring would be faster and “as good as it gets” for a while, since it was the month before the American government shut down for the first 16 days of October, putting hundreds of thousands of workers on furlough. However, instead of seeing stronger hiring, payrolls slowed in September, and the outlook for coming months augurs more tepid hiring. Consequently, markets have pushed out bets on when the Fed might taper stimulus to sometime well into next year. That’s several months later than prior forecasts, renewing downward pressure on US yields and pressuring the USD. Another negative lurks for the USD, in the form of expectations for another US budget battle to take place after the holidays. The deal that reopened the US government in midOctober is only set to last until mid-January, and America’s debt ceiling is only high enough to allow the Treasury department to borrow until early February. Another round of political gridlock in Washington next year suggests no imminent end to the drag on the economy from fiscal uncertainty. Dysfunction in Washington also stands to depress confidence among American consumers and businesses, and hold back growth during the fourth quarter. Consequently, the Fed may well decide to hold off on curbing stimulus until after an impending leadership change, with incoming chairwoman Janet Yellen expected to take the Fed reins in February. However, for now, steady stewardship of the Fed’s easy policies should keep a burdensome weight on the USD – limiting its upside scope for the foreseeable future. Critical Data: November 1: November US October ISM November 7: November US Q3 gross domestic product advance estimate November 8: November/October non-farm payrolls / unemployment November 20: November/October existing home sales November 20: November/October Federal Open Market Committee meeting minutes NOVEMBER 2013

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TRADE TALK Strategy

Who’s loyal to you?

What strategies should you use to attract more customers? Do you need to observe the behaviour of the consumers to find a pattern? Dr. Ashraf Mahate, Head, Market Intelligence, DED, gives us a clue into all this.

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arge numbers of people pass through airports every day throughout the world. This raises two issues first the business opportunity for airlines to service travelers and second the possibility of potential targets for terrorism and other forms of crime. The difficulty for law enforcers is that airports have a very high concentration of people located in a relatively small space. Airports try and implement a security programme that seeks to identify the potential terrorists and criminals while ensuring the travelers have a safe and secure journey. Since 9/11 airport security has advanced greatly with modern scanning machines which are capable of detecting not only explosives but also dangerous liquids. However, the process of placing the handheld luggage and shoes onto the scanning machine is perhaps the last and most visible aspect of airport security. Long before passengers walk through the body imaging machines airport security has already carried out an extensive series of checks on the possible terrorists. These days not only are passenger profiling carried out to assess the possible security threat posed by each traveler but also behaviourial aspects are observed. These small and sometimes unimportant signs can be important in informing us about the intention of a particular person. In airport security passenger profiling and behaviour detection has been extremely successful in limiting the impact of not only terrorist but also 44

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criminal behaviour. More recently, businesses have been using customer profiling as a means of increasing their sales and meeting the needs of their clients.

What matters? The rationale is very simple in that businesses need to know who their customers are so that they can make appropriate decisions. Customer profiling allows firms to breakdown their clients into easily manageable groups all sharing similar profiles or ‘personas’ that are relevant in their decision to purchase from your company. How does this differ from the standard approach? Most goods or services are developed through the opinions of influential customers identified through surveys, sample group meetings, and are rarely the end users or customer. This tends to result in products or services being developed that do not meet the customer needs or partially fit its requirements. When this happens the company is open to competition and the fact that customers may walk towards competitors that are better able to produce goods or services that meet their needs. Most SMEs do not profile their customers because they incorrectly believe that it is not sensible to narrow their customers but sell to as many people as possible or possibly do not know who their clients are. In the case of the former the opposite is true and a SME with constrained resources needs focus its message to the targeted audience that currently values

the good of service or could be a potential customer. In doing so, the SME will be able to wasted times and resources seeking to convert the unconvertible. In the case of the latter the SME can employ a number of very simple and cheap techniques in order to find out are their customers. Common methods used to find out about customers are to ask them to complete a few questions regarding their profile. In the case of end customers the common questions tend to be: the customers’ gender, age, marital status and occupation while for business customers it tends to be their size and kind of business they are involved in. The SME can also ask its customers what they buy, from whom, when, how much and why? I also it’s very important to know what customers think of the firm as well as its closest rival. It’s not always easy to obtain this information but many SMEs have been innovative in obtaining answers to these questions either through feedback forms that offer an immediate gift or discount to competitions. Simply saying that the most common customer type is a man between the age of 24-30 with an average annual income of USD 50, 000, which is of little use to the SME


ABOUT Dr. Mahate received his doctorate from Cass City University Business School in London (UK). He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He can be reached at ashraf.mahate@dedc.gov.ae.

because it does not tell you enough about the client. We need to build a picture of the customer types so as to understand who they are and why they use the services of the firm. More importantly, what triggers greater expenditure as well as what is likely to lead them to use the services of a competitors. First we need to know the demographic profile of the customers from lots of different viewpoints and not just gender, age and income groups. Some of the demographic factors that SMEs can consider include: interests, lifestyles, purchasing behavior, attitudes and more. In the case of firms the SME can use firmographics which really describes firm characteristics such as the number of employees, revenue or sales growth rate and spending on key aspects such as IT, training, equipment and so on. Importance of data Raw data is of course important but it is limited and the SME really needs to obtain a deep understanding on the psychological and behavioral aspects of the customer. One way of doing this is to develop a broad description of the ideal customer. The focus here is not on the demographic or even the firmographic data but

high level views on what is important to them in doing business with the SME. For instance, a particular customer type is concerned about receiving outstanding and personalised after sales support while a second type of customer demands a product that improves his performance as a manger and the ability to enhance the productivity of his sales staff in reaching their targets. Although, both these types of customers benefit from the product their motives of purchase are very different. Therefore, putting them together without understanding their particular requirements would mean that the SME will not be able to cater to their individual needs. Words are great but it is also important to create a better visual picture of the ideal customer through creating a magazine cover. The idea here is to identify the magazine and newspapers that the target customers read and to understand the messages that they receive. In doing so the SME needs to cut out the pictures of people that most represent the target customers and identify the headlines, words, statistics that speak to their emotional triggers. This exercise will allow the SME to develop a pattern words and emotions that represent the customer.

The age of the internet The internet is an amazing tool to understand the target customer. A simple technique is to find out about customers from their web searches or the manner in which they navigate through the SME’s website. Understanding how they navigate through the company’s website allows the SME to understand what is important to them. A large number of firms tend to use Google Analytics which is an extremely powerful. It’s not only about getting on the SME’s website that is important but also the journey that they have taken to get there is equally informative. For instance what search terms were used? The search terms allow the SME to understand the different ways that they view the good or service and how they use it. Also, the SME needs to understand whether it was a direct search that brought them to the website or did they come through another intermediary. In the case of the latter it’s important to understand what terms were used to search for the intermediary and what triggered to visit the SME’s website. There is nothing like information on customers and establishing a customer profiling system within your firm will allow you to understand what the triggers that generate your current business and will be important drivers for future growth. The secret to any successful selling is to understanding your customers which can only be done through knowing about them. The more you know about them the more you can encourage them to spend with you while increasing their loyalty. And as any company knows the best advert for a firm is loyal customers who go on to spread the message. NOVEMBER 2013

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Country focus ABCC

Building

relationships An exchange of ideas, people and products leads to innovation and progress. In conversation with Michel Alaby, General Secretary and CEO of the Arab Brazilian Chamber of Commerce (ABCC), Aparna Shivpuri Arya understands the future of the Arab region and Brazil equation.

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lease give us some details about Brazil and Middle East trade relations. Bilateral trade has been increasing exponentially this year, what are your comments on that?

Bilateral exchange between Brazil and Arab countries has witnessed a healthy growth in the past five years, except when global trade also decreased because of the international financial crisis. Brazilian exports to Arab countries in the last five years have been more than USD 9 billion annually. On the other hand, imports are more than USD 6 billion annually. Last year recorded the second highest export amount from Brazil to the region (USD 14.83 billion), which is slightly less than in 2011 (USD 15.13 billion). Brazilian imports from the Arab countries set a new record last year with of USD 11.09 billion.

What are the products and services both the countries trade in?

Historically, bilateral trade between Brazil and the Arab countries shows that food products have always been the top export from Brazil to this region, while mineral fuel and oil are largely exported to Brazil from the Arab world. Food products include meat, sugar, cereals and coffee Other products, include ores, slag, ash, machinery and aircraft parts, mainly by Brazilian aircraft company, Embraer. 46

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development of strong relations between Brazil and the Arab world. Our aim is to consolidate and expand partnerships, generate opportunities and mainly bring the people of Brazil and the Arab world together, acting as facilitators for the flow of information between the two groups. ABCC is the only recognised representative in Brazil for the commercial interests of the League of Arab States. This organisation congregates 22 independent countries that have Arabic as their official language. The organisation offers, services that are fundamental for business, through highly qualified professionals. We are aware of the importance of these services to enter new markets and to stimulate the economy, as well as to highlight cultural and social similarities between the nations. One of these services is to certify export documents to the Arab countries, which gives securities and guarantees to Brazilian exporters and Arab importers that all import procedures have been fulfilled, which will allow both parties to transact with each other over a long period of time. This is improving trade relations.

If you were to get to talk to Middle East companies, how would you encourage them to invest in Brazil? What reasons would you give them for doing business with Brazil?

Michel Alaby, General Secretary and CEO of Arab Brazilian Chamber of Commerce

Around 80% of Brazilian imports from the region are minerals, fuel, oils and related products, followed by fertilizers, salt, sulfur, plastics, earth and stone, among others.

What is the role of the ABCC in promoting bilateral relations?

For the last 60 years, the Arab-Brazilian Chamber of Commerce has been striving to boost economic, cultural and tourist relations between Arabs and Brazilians and subsequently play an active role in the

Foreign investors have been welcome to invest in the Brazilian stock market since 1991 and the Brazilian Congress approved constitutional amendments in 1995 to eliminate the distinction between foreign and national capital. New rules have considerably liberalised foreign investment in equities, which essentially put foreign investors on an equal status with Brazilian investors, and came into effect as of March 31st 2000. The 4131 law was approved in 1962 and all subsequent modifications only increased the flexibility for foreign investment in Brazil. Foreign capital registered with the Central Bank of Brazil may be sent back to the investors’ home country at any time, without prior authorisation, and there are no restrictions on distribution of profits and its subsequent remittance abroad.


Moreover, Brazil allows 100% guarantee of remittances of dividends from investments in cash. Some aspects may explain the increase of Foreign Direct Investment (FDI). Among other issues, those that have a direct impact on the foreign investors’ opinions on the economic opportunities in Brazil include: i) Foreign Capital registered at the Brazilian Central Bank may be withdrawn at any time with no mandatory permission needed; ii) Foreign investors are free from paying income tax in public bond investments (Provisory Measure no. 281); iii) There are no restrictions on the distribution of profits and their subsequent remittance out of the country; iv) 100% guarantee in investments cash dividends remittances; after income tax over the profits.

What challenges do Brazilian companies face in doing business in the Middle East?

Brazilian companies in the food sector, for instance, are now well aware about specific requirements such as the Halal certificates. It is also safe to say that other products require the same international standards. Sometimes, depending on the products, logistics due to distance between the two regions can be an issue. However, we have several maritime transport companies offering shipping lines to facilitate the smooth transport of goods.

What legal, financial and business support services does the government offer foreign investors?

The Brazilian law facilitates entry to various types of enterprises. The most frequent are the Corporations (S.A.) and Limited Liability Companies (LLC.) in the establishment of subsidiaries and joint ventures. This is because, in both cases, participants have limited responsibilities. The law provides legal status to these companies as entities that are separate from its participants. The Brazilian law also has provisions for other forms of corporations, such as consortia or special types of partnership that do not have legal status.

In this case, the parties have individual rights and obligations for the common benefit of the group. These contractual structures are usually adopted to meet specific purposes or for non-corporate businesses. Another type of company included in the Brazilian law comprises General Partnerships (partnerships), which imply unlimited liability of the partners. These companies are now uncommon, as certain tax benefits from which they historically benefited have been extended to other types of companies. The foreign companies can open a subsidiary without a Brazilian partner; they only need a lawyer with power of attorney to represent them. Some economic activities, such as public health, postal and telegraph services, nuclear power, domestic flights, sanitation, and aerospace industries, cannot involve

• Foreigners are free to acquire rural properties as an inheritance • Foreigners can buy land for a maximum of 50 agricultural modules. All purchases of land between 3 and 50 modules are subject to prior approval from the National Institute for Colonisation and Agrarian Reform (INCRA); • The purchase of more than one property with more than three agricultural modules is subject to approval from INCRA. The purchase of properties with more than 20 rural modules is subject to the approval of a plan of land use.

Which sectors hold the most promise for Middle Eastern businesses?

Brazilian Government promotes the following sectors to attract foreign investment: energy, real state, hotels and resorts, infrastructure

Brazilian exports to Arab countries in the last five years have been more than USD 9 billion annually. companies with foreign capital. In financial institutions and insurance companies, only a minority stake is allowed. There are also restrictions on foreign participation in activities subject to national security control and in ownership of rural properties and businesses in border areas. Individuals and foreign entities, registered in the Individual (CPF) or Corporate Taxpayers Registry (CNPJ), have the right to acquire properties in Brazil under the same conditions of national individuals and authorities, with the exception of places deemed incompatible with national security. The Brazilian law also authorises that foreigners with permanent residence in Brazil, foreign companies allowed to operate in Brazil and Brazilian companies controlled by foreigners can acquire rural properties under certain conditions and limitations. Foreign entities without authorisation to operate in Brazil and foreigners without permanent residence in the country can only acquire rural properties under the following circumstances:

(highways, ports and airports) science and technology, agriculture/livestock, among others.

Are there any bilateral trade or investment agreements, MoUs between both the countries?

There have been no direct trade agreements between Brazil and the Arab countries. However, together with the participating countries of MERCOSUR, four Arab countries are contemplating an agreement: The MERCOSUR (Argentina, Brazil, Uruguay, Paraguay and Venezuela) is also negotiating with Morocco, Jordan and Gulf Cooperation Council. MERCOSUR/Egypt: On 7th July 2004, the Framework Agreement between MERCOSUR and the Arab Republic of Egypt was signed, with the aim of strengthening relations between the Contracting Parties to promote the expansion of trade and establish conditions and mechanisms to negotiate a Free Trade Agreement. NOVEMBER 2013

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Country focus NEW ZEALAND

Destination

New Zealand Trade relations between the GCC and New Zealand have been going from strength to strength. Steve Jones, New Zealand Trade Commissioner to the Middle East, talks to Aparna Shivpuri Arya about this in detail and how can companies from this region set shop in his country.

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lease give us a brief background on the trade relations between the GCC and New Zealand. Which countries in the GCC are your biggest trading partners?

New Zealand views the Gulf region as an important trading partner and political ally. In 2011 New Zealand exported USD 1.196 billion worth of goods to the Gulf. This increased to 1.242 billion in 2012. New Zealand’s top exports include dairy, eggs, honey, meat and wood. New Zealand is interested in building relationships with the Gulf region in the areas of agribusiness, construction, health technology and education services. In late January NZ’s Minister for Foreign Affairs, Minister McCully, visited the UAE to further strengthen the political and trading relationship. NZ is particularly focussed on partnering with the UAE in the areas of geothermal energy, governmentto-government partnerships, food security, environmental management, trade and investment. Following this, In March he visited Saudi Arabia to discuss regional food security.

How has the trade relation evolved over the decades?

The GCC region has grown to be one of New Zealand’s major trading partners. Whilst the dairy and red meat categories continue dominate our

merchandise export statistics, there has been rapid growth and diversification in the technology and services sectors, particularly health technology and education services.

We believe that food products make up the largest portion of exports to the GCC. What has been your strategy for this? How have you evolved your halal industry to cater to the needs of this region?

With the Gulf region’s growing, youthful population, and rising food costs, New Zealand is keen to forge even stronger links with the Gulf to help ensure its future food security. In the year ended December 2012, New Zealand’s exports to Saudi Arabia totalled USD 556 million. This is an increase over the previous 12-month period, which saw exports valued at USD 545 million. New Zealand’s top exports to the GCC are milk powder, lamb, beef, butter and cheese. We are renowned for its exceptionally efficient and environmentally-friendly methods of food production. We are close to concluding a memorandum of understanding with the Gulf Co-operation Council (GCC). A key focus of this agreement will be on food security co-operation. We are the only western food producer to require its products to receive government certification as totally halal-compliant, alongside the usual health and hygiene checks.

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Country focus NEW ZEALAND

Besides food products, what are the other industries that you are promoting for trade and investment? Probably the best known consumer brands are Anchor (dairy), Comvita (Manuka Honey) and Zespri (kiwi fruit). In the retail category consumers might be familiar with Burger Fuel (gourmet burgers) and Pumpkin Patch (children’s wear). In the B2B space NZ companies are active in the construction technology sector (Pultron, Framecad), health IT (Orion Health) and marine engineering (Hamilton Jet). Recent high profile entrants include risk management, compliance and investigations software company Wynyard Group.

For GCC companies, keen on investing in New Zealand, what advice would you like to give them and which sectors and areas would you highlight?

New Zealand has an open economy that works on free market principles. We don’t offer specific incentives to attract inward investment however we are open for business and we have specific visa categories to encourage investors to move to New Zealand. New Zealand’s business migration categories are designed to contribute to economic growth, attracting ‘smart’ capital and business expertise to New Zealand, and enabling experienced business people to buy or establish businesses in New Zealand. There are opportunities in many fields, in both traditional business sectors and in new areas. Just some of the areas where New Zealand is doing exceptionally well include information and communications technology, tourism, film and special effects production, biotechnology, agricultural research, and wood-based technology.

Are there any issues that foreign companies need to be aware of when they decide to set shop in New Zealand?

New Zealand ranks first in the world for ease of doing business, according to the World Bank Doing Business Report 2013. Starting a 50

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Steve Jones, New Zealand Trade Commissioner to the Middle East

strategic alliances and develop commercial relationships internationally. Through our global network of 45 offices, we connect New Zealand businesses with the world, sharing opportunities, knowledge, experience and networks. We help investors identify New Zealandbased opportunities and gain access to government and private sector contacts. We connect international buyers and investors to industries in which New Zealand has a long-term sustainable advantage and to businesses with high-growth potential, in particular value-added food and beverages and knowledge-intensive manufacturing and services such as marine, aviation, health, IT; and to businesses with high-growth potential. NZTE focuses on international

New Zealand ranks first in the world for ease of doing business, according to the World Bank Doing Business Report 2013. Starting a business in New Zealand takes just one day, while registering a property takes just two. business in New Zealand takes just one day, while registering a property takes just two. New District Court rules have been introduced to make the process for enforcing contracts user friendly. New Zealand also has a business-friendly taxation system that supports capital development, research and development and international investment. We also has a wide range of visa categories in place catering for investors, entrepreneurs and business managers.

What kind of investments is New Zealand making in the GCC?

A small number of New Zealand companies in the food and construction sectors are setting up factories in the GCC.

Can you tell us a bit about the profile of New Zealand trade Enterprise?

NZTE is New Zealand’s international business development agency. Our role is to help New Zealand businesses to build

opportunities that match New Zealand’s business capability and provide significant, sustained economic benefit to New Zealand.

How do you see the bilateral economic relation evolving in the coming years? There have been some talks about the GCC-New Zealand agreement. How has that been moving?

New Zealand’s farmers and scientists are blazing a trail in terms of producing food with lower inputs of labour, fuel and feedstock - but with higher returns and much reduced impacts on our natural ecosystems. New Zealand is looking to share its research and expertise in this field by partnering with Gulf States, to help ensure the future food security and sustainability of friendly nations in the region. We are close to concluding a memorandum of understanding with the Gulf Co-operation Council (GCC). A key focus of this agreement will be on food security cooperation.


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Trade and Export Middle East | November 2013  

Trade and Export Middle East | November 2013