ISSUE 23 | DECEMBER 2013
BUSINESS INTELLIGENCE FOR INTERNATIONAL TRADE
H.E Sami Al Qamzi, Director General, DED, in an exclusive interview, speaks about his vision for Dubai as a business and trade hub
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Publisher Dominic De Sousa Chief Operating Officer Nadeem Hood
Managing Director Richard Judd firstname.lastname@example.org +971 4 440 9126
It’s that time of the year when everyone gets into the holiday mood and it’s not different here. In fact, the UAE has been in an exceptionally jubilant and celebratory mood after Dubai won the Expo 2020 . Oh yes! The pride and joy that all the residents felt, whether local or expat, was a sight to behold. How many of you saw the Burj Khalifa being lit up blue? It was simply amazing.
EDITORIAL Senior Editor Aparna Shivpuri Arya email@example.com +971 4 440 9133 Business Assistant Adelle Louise Geronimo firstname.lastname@example.org +971 4 440 9160 ADVERTISING Media Sales Executive Vanessa Linney email@example.com +971 4 440 9137 PRODUCTION AND DESIGN Production Manager James P Tharian firstname.lastname@example.org +971 4 440 9146 Database and Circulation Manager Rajeesh M email@example.com +971 4 440 9147 Head of Design Fahed Sabbagh firstname.lastname@example.org +971 4 440 9107 Designer Froilan A. Cosgafa IV email@example.com +971 4 440 9107 Photographer Jay Colina Abdul Kader Pattambi DIGITAL SERVICES www.tradeandexportme.com
Did you know that the world’s first Expo was held in 1857 in London? And over the years it has been a launch pad for the Heinz Ketchup, the Eiffel Tower to name a few. The Dubai Expo 2020 , with the theme of “Connecting minds, creating the future”, will further propel Dubai’s image as the hub of international trade and business. The total investment in infrastructure for Expo 2020 is estimated to be about AED 25 billion. It will generate about 277,000 jobs over the next seven years and is also expected to attract about 25 million visitors. So you can see that exciting times lie ahead for the UAE and particularly Dubai. One can only imagine the impact of the Expo on the economy and the opportunities it will create for businesses. We for sure are super excited! I would also like to take this opportunity to wish you all a Merry Christmas and a blessed holiday season. I look forward to continue our association in 2014. We have just opened our nominations for our Trade Excellence Awards and I hope you will take the time to nominate your organisation. It has been an absolute pleasure knowing you in 2013 and I hope that 2014 will give us a lot more opportunities to work together. Please stay in touch through social media or drop me a line. Until next time…
Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen firstname.lastname@example.org +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.
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18 20 DECEMBER 2013
News: International news and trends with domestic trading relevance.
EVENTS CALENDAR: A listing of the exhibitions and conferences in the region, to help you spend less time planning and more time attending.
EXPERT COLUMN: In this month’s expert column, Dr. Ashraf Mahate, Head, Market Intelligence, DED, tells us it’s time to look at the New Year resolutions for 2014.
ABOUT TOWN: We bring to you the discussions from the seminars organised by Dubai Exports, which highlighted the export opportunities to the USA and Canada.
FINANCE Risk Mitigation: Salah Jaidah, Vice Chairman MENA and CCO Qatar, Deutsche Bank, speaks to us about the importance of risk mitigation.
Currencies: As 2013 comes to an end, the team at Western Union looks at how the major currencies will perform in December.
Takaful: E&Y’s latest report provides insight into the future of the takaful industry.
INTERVIEW Department of Economic Development: Aparna Shivpuri Arya, caught up with H.E Sami Al Qamzi, Director General, DED, to know about his vision for Dubai.
Fiji: Ambassador of Fiji to UAE, H.E Robin Nair, gives us enough reasons to be convinced about investing in Fiji.
EVENT: We organised “Partner with Brazil”, on the 24th of November at the H Hotel in Dubai. With close to 120 people in attendance, the popularity of the event proved the relevance of Brazil as an investment destination.
INTERNATIONAL TRADE: In the second article, of a two part series, Biswajit Nag, Associate Professor, Indian Institute of Foreign Trade, looks into the relations between the GCC and India, China and South Africa.
STRATEGY: Ralph Nitzgen, Senior Executive Officer and General Manager, Commerzbank Dubai Branch, highlights the importance of taking into account political and counterparty risk.
FOCUS INDUSTRY WATCH: Sebastian Breteau, Founder, AsiaInspection, speaks to Trade and Export Middle East about the importance of quality control for a company and how businesses can benefit from the services this company provides. COUNTRY Cyprus: In the first of a two part series, Aparna Shivpuri Arya, shares the discussions she had during her visit to Cyprus and the resilient spirit of the nation. Netherlands: The bilateral trade relations between the Netherlands and the UAE have been growing from strength to strength. We take a look at how to do business with this trading partner.
* The interview with Vincent O’Brien, which was published in our November issue, did not contain the updated estimates of the WTO’s 2013 trade growth forecast, which was recently revised down to 2.5%. An updated version of the article is available on the Trade & Export website at http://www.tradeandexportme. com/2013/11/whats-the-latest-in-trade-finance/. DECEMBER 2013
Updates Regional news
On the 7th cycle of the Mohammed bin Rashid Al Maktoum Business Award held on November 13th, 16 companies were named winners for showing exceptional performance in fostering growth and
innovation and a culture of corporate social responsibility and excellence in the country. H.H Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai presented the award to the winners. The event was organised by the Dubai Chamber of Commerce and Industry under the patronage of HH Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice-President and Prime Minister and Ruler of Dubai. The 16 winners of Mohammed bin
Oman to boost tourism sector Oman Chamber of Commerce and Industry (OCCI), in association with the Federation of GCC Chambers of Commerce (FGCCC), will organise the first Oman Tourism Investment Conference. The event will be held on the 22nd of December at the Al Bustan Hotel in Oman under the patronage of His Highness Sayyid Taimour bin Asa’ad bin Tariq Al Said, assistant secretarygeneral for International Cooperation at the Research Council. According to Khalil bin Abdullah Al Khonji, OCCI Chairman and the Head of Supervisory Committee of the conference, tourism is one of the important sectors of the Sultanate. The country also seeks to increase the tourism sector’s contribution to their GDP. Furthermore he emphasised that Oman is an ideal atmosphere for investment in tourism as there is a number of promising investment opportunities.
Rashid Al Maktoum Business Awards 2013 were: Dubai Carbon Centre of Excellence PJSC, Abu Dhabi Islamic Bank, DP World, Barakat Quality Plus LLC, Drydocks World, Al Mansoori Specialised Engineering (MSE), National Fire Fighting Manufacturing, Unilever Gulf, Intercoil International Co LLC, Procter & Gamble, Palm Utilities LLC, EPPCO Aviation, Pacific Control Systems LLC, Huawei Tech (UAE) FZLLC, Valtrans Transportation Systems and Services LLC, and Eros Group Dubai Chamber awarded DP World with the ‘Most Outstanding Performance’ in 2013 for demonstrating exceptional business performance in addition to its valuable contribution to the economic development of the country.
Robust growth for GCC food retail sector According to a recent report by A T Kearney the food retail sector in the GCC region is expected to reach USD 106 billion in the next five years. And with food spend accounting for 28% of total consumer spend in 2012, the food services industry is under pressure to meet the demand for food products and ingredients, particularly fine, gourmet and niche. In line with this this year’s Speciality Food Festival, has received an excellent response from exhibitors, which is indicative of the strong market potential in the region. The trade-only show provided access to the Middle East’s premium food market and offers prime opportunities for regional suppliers to expand
overseas. The three-day event showcased a diverse selection of fine foods, from special breed meats to luxury chocolates, fresh organic produce and some of the rarest ingredients sought after by chefs in the region. According to Trixie Loh Mirmand, Senior Vice President, Dubai World Trade Centre, organiser of The Speciality Food Festival, the Middle East is one of the most buoyant markets for the foodservices industry in the world. The market is driven primarily by internal demand generated by a rapidly growing local population and robust economy, creating new opportunities for many associated industries, including the high-end food & beverage sector.
Updates Regional news
Bahrain, along with Jordan and the UAE, tops economic freedom
QDB and QNB signs MoU to boost non-oil exports Qatar Development Bank (QDB) and Qatar National Bank (QNB) have signed a memorandum of understanding which indicates that the two banks will work hand in hand in ensuring that more export-led Qatari companies and more foreign importers of Qatari non-oil products receive unique financial solutions and facilitation offered by QDB’s export arm- Tasdeer Under the new agreement, financial services teams of QNB’s branches abroad will highlight the financial facilities that Tasdeer offers to foreign importers, while QDB will commit to offering financial services, facilities, and discounts to foreign importers in partnership with QNB. The two banks will be conducting joint visits to national and international customers of QNB to ensure that they are seamlessly familiar with the services.
Kuwait among top investors in London Earlier this year, Mustafa AlShimali, Kuwait’s Deputy Prime Minister and Finance Minister, announced that the country will ramp up its overseas investments through its sovereign fund Kuwait Investment Authority (KIA). Al-Shimali said that the fund is planning to increase its investments in the UK’s infrastructure sector.
The State of Kuwait is among the top investors in the British capital, London, as it manages investment projects worth no less than GBP 150 billion. British exports to Kuwait had increased by 17% in 2012, following an official visit to Kuwait by British Premier David Cameron in 2011.
According to the annual Economic Freedom of the Arab World report published by the Fraser Institute, an independent Canadian public policy think-tank, Bahrain, Jordan and the United Arab Emirates (UAE) are the most economically free nations in the Arab world. The report highlights the Kingdom’s role as a leading financial hub, and the Kingdom scores particularly highly in the rankings relating to the freedom to trade internationally and in the regulation of labour, credit, and business. The report focuses on economic freedom’s role in increasing prosperity, creating jobs, and reducing poverty. The Economic Freedom of the Arab World (www.freetheworld.com) report compares and ranks Arab nations in five areas of economic freedom: size of government, including expenditures, taxes, and enterprises; commercial and economic law and security of property rights; access to sound money; freedom to trade internationally; and regulation of credit, labour, and business. With a mature, well-established business environment and a trusted and transparent legal and regulatory environment, Bahrain is uniquely positioned as the natural gateway to the GCC market, which is worth over 1.5 trillion dollars. Bahrain is committed to sustaining and strengthening its core business fundamentals: a highly skilled workforce, stable and transparent regulation, an open business environment and sustainable growth.
Updates Global Watch
Russia pursues eGovernment development
A Russia ICT Day Forum organised by the World Bank and the Ministry of Telecom and Mass Communications of the Russian Federation was held recently. The event’s focus is on developing the use of information and communication (ICTs) on all levels of the Russian government. The forum consists of four sessions highlighting the status and growth trajectory of Russia’s ICT infrastructure, information society, eGovernment and IT industry. It was attended by Nikolai Nikiforov, Federal Minsiter of Telecom and Mass Communications of the Russian Federation, federal officials, chief information officers of the government administration and regional chief information officers. E-commerce in Russia increased to USD 12 billion in 2012 and is forecasted to grow threefold by the year 2015. Despite the challenges of its large population and vast geography, Russia’s eGovernment performance is said to be already at the level of the average European Union member state.
USD 12 billion value of e-commerce in Russia as of 2012
China, Norway could team up for Iceland oil exploration Norway is considering the idea of teaming up with China in exploring Iceland for oil according to Icelandic Authorities. Norway has the right to join an exploration license with Chinese oil firm CNOOC to look for oil in the waters between Iceland and Norway’s Jan Mayen, a tiny speck of land in the Arctic. Communications between Beijing and Oslo have been mostly cool since the issue on the 2012 Nobel Peace Prize between the two. According to Gudni Johannesson, DirectorGeneral, Iceland Netional Energy Authority they are expecting an answer from
the Norwegian authorities by the end of November. Norway’s Conservativeled government took office last month and China has signaled that it was up to Norway to repair the relationship, which has damaged business ties and prevented Statoil from exploring for shale gas in China. Iceland awarded its first two licences in January. In June it gave CNOOC and Icelandic firm Eykon Energy a further licence as it seeks boost its fragile economy. At the time of the announcement, it was the first time a Chinese oil firm was licensed to look for oil in the Arctic.
Russia, Austria to begin production of aircrafts in 2016
Russian and Austrian aircraft makers will begin to jointly produce a new light utility aircraft in 2016. Manufacturing will take place in a special economic zone in the region of Ulyanovsk. The agreement was signed earlier this year between the Russian Ural Civil Aviation Works, a subsidiary of state corporation Rostec and Austria’s Diamong Aircraft International during the Le Bourget air show in Paris. An amount of RUB 7 billion or USD 215 million is allocated for the project. The special economic zone where the plant will be constructed is now being built at the Ulyanovsk-Vostochny International Airport. According to Boeing estimates, the number of passengers carried by Russian airlines rose 15.5% to 74 million last year.
Updates Global Watch
US-EU inch closer on trade talks A week of trade talks in Brussels have taken the European Union and the United States a little closer to a deal to liberalise bilateral trade. EU officials say the trade relationship with the US is already the biggest in the world, worth more than EUR 2 billion (£1.7bn) a day.But barriers remain, and removing them could make it even bigger. If it happens, the agreement would be huge, capable of changing the shape of global trade. Trade talks are never quick and easy. They can be fiendishly technical and contentious politically. They are also wide ranging - the great cliche of trade negotiations is: “Nothing is agreed until everything is agreed.” But there is clearly a political will on both sides of the Atlantic to make it work.Both parties to the talks believe there are significant economic gains to be made from reducing trade barriers. A study for the European Commission estimated the
combined gains for Europe and the US at more than EUR 300 billion a year. A whole range of trade barriers are under the microscope in these talks. Much of what they are discussing is regulation. Up to 80% of the gains could come from this area.
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
Saudi Water and Power Forum
Jeddah Hilton Hotel
Riyadh International Exhibition Centre
Riyadh International Exhibition Centre
Oman International Exhibition Centre
Middle East Natural and Organic Products Expo
Dubai World Trade Centre
Dubai International Jewellery Week
Dubai World Trade Centre
8 - 10
Riyadh International Exhibition Centre
8 - 10
Dhahran International Exhibition Centre
8 - 11
Jeddah Centre for Forums and Events
9 - 11
Gulf Traffic Exhibition
Dubai International Convention and Exhibition Centre
9 - 11
TOC Middle East 2013
Dubai International Convention and Exhibition Centre
9 - 11
Commercial Vehicles Middle East
Dubai International Convention and Exhibition Centre
9 - 11
Multi Modal Middle East
Dubai International Convention and Exhibition Centre
10 - 12
Gulf Defense and Aerospace
DubKuwait International Fairs Ground
11 - 12
First Intellectual Property Rights Forum
Jumeirah Beach hotel, Dubai, UAE
12 - 14
Indian property Show
Dubai International Convention and Exhibition Centre
TRADE TALK Expert opinion
What’s your New Year resolution?
Dr. Ashraf Mahate, Head, Market Intelligence, DED, writes about what new year resolutions should SMEs make.
he New Year is always a time for both personal and professional reflection, thus giving us the opportunity to make changes in our lives. The New Year is a great time for trying to understand what has worked well in the last year and what needs to be changed. It’s just not individuals who need to make New Year resolutions but also companies and in particular SMEs. However, the reality is that most companies’ start 1st January with the best of intentions to change and make a positive difference to their companies but those are soon side tracked. Once the firm has decided that it needs to make some new year resolutions the question arises as to what should they be? Below are some resolutions that SMEs can seek to make based on the common issues that smaller companies face.
In 2014 my firm will: • Become better at planning If a business is going to succeed then it needs to plan effectively. All firms need to ensure that they have sufficient liquidity to meet their day to day costs. Therefore cash becomes the life blood of any business. The common belief among SMEs is that they need to just focus on profits. The reality is if an SME focuses simply on profit at the expense of cash flow planning and management then it has a higher probability of going out of business. All SMEs should prepare a cash flow project (or budget) on a 10
monthly basis. The second part of financial planning is to produce a business budget at the start of each period.
• Increase its sales The simple lesson of increasing sales is to have a more engaged customer base. So the question then becomes how to engage with existing and potential customers. As difficult as it is there are still some companies which still do not have a website. Therefore, if a firm does not have a website it needs to develop one that is useful and relevant to the target audience. For businesses that have a website they should seek to regularly update their website with current information. In the modern electronic world social media is an important tool that companies can use effectively to engage their customers as well as to increase sales. SMEs need to get onto Twitter, Facebook, Linkedin and other social media platforms to talk directly with existing and potential customers. Anecdotal evidence shows that when a firm has a direct line of communication with customers it tends to increase their level of loyalty and allows them to see that the firm personally cares about their customers. • Monitor the accounts receivables Sales are of course important for all firms but so is the ability to collect accounts receivable. It is normal practice for firms to offer credit to its customers however it is important that they are collected on time in a friendly
manner. Therefore, the SME needs to constantly have its eyes on how its customers are making their payments. As such the SME needs to produce regular Dr Ashraf Mahate, Head, Market Intelligence, DED aging schedule of its accounts receivables. It can also look at alternative ways of speeding up its accounts receivables such as allowing customers to pay through their website. Anecdotal evidence shows that when firms provide their customers the facility of paying via the website it tends to reduce the length of accounts receivables and the level of bad debts.
• Monitor the inventory Inventory is important for all firms as the cost of running may mean not only a lost sale but a customer who may not return. At the same time high inventory costs are a huge burden for a firm in terms of working capital tied up, cost of warehousing and of course the threat of goods becoming obsolete. The general rule is that 80% of sales are generated by 20% of the inventory investment. The rest of the inventory tends to be either slow moving or even “dead”. SMEs need to regularly go through their inventory to make it more productive and in the process sell items which have a high risk of becoming obsolete. This may involve the firm biting the bullet through deep mark downs but the positive aspect is that it allows it to generate cash which can be utilized more profitably. At the end of the day New Year resolutions are only as good as the commitment that backs them. Therefore, it’s important for SMEs to make small changes that improves their business and makes them more competitive especially in the global world. The New Year is the perfect time for companies to start making the changes.
TRADE TALK About town
Exploring the North American markets
Also, the USA and Canada along with Mexico are part of the North American Free Trade Agreement (NAFTA) which allows partner country goods to be exported within member countries without import duties. The North America market is highly complex and full of challenges. The region is vast hence necessitating multiple marketing efforts that address differing regional opportunities, languages, cultural differences, and so on. Gaining access to the North American markets requires careful analysis of consumer preferences, existing sales channels, and changes in distribution and marketing practices, all of which are continually evolving. The seminars included an impressive line up of speakers which included H.E. Ross Miller the Consul General for Canada in Dubai and the Northern Regions, Tanya Spencer the Chief of Staff Economic and Political for the USA in Dubai, Iyad Hijjawi and Omar Aldameary from Euromonitor, Carson Wynn and Mac McClelland from Transnational Strategy Group, Jim McDermott from Bennett Jones, Jeff Graham from Borden Ladner Gervais, Alex Pietsch from the State Government of Washington and Talal Kaissi who is the Chief of Staff - Trade & Commercial Office at the UAE Embassy in the USA Dubai Exports also arranged for UAE based firms to receive individual one to Panel Session: Dr Ashraf Mahate, Omar Aldameary, Tanya Spencer, Talal Kaissi and Mac McClelland one consultation at their premises with the speakers. The aim of the he seminar came close on the heels one to one consultations of a trade mission to Canada and the was to allow for SMEs USA which was headed by H.E. Sami al which tend to be resource Qamzi, Director General of the DED (Dubai). constrained to receive The export awareness seminars were an individual advice, help important initiative by Dubai Exports to and assistance to make enhance the knowledge and ability of our their path into the North American markets easier. local firms and make them competitive in The consultants with their global markets. The SME sector in the UAE on the ground knowledge has tremendous potential and capabilities, which can be successfully deployed in foreign were best placed to assist markets with the right kind of knowledge UAE based companies and support assess the competitive Jeff Graham,Carson Wynne, Dr Ashraf Mahate ,H.E. Ross Miller, UAE based exporters have already entered Michael Wooff ,James J. McDermott advantage of their the North American markets however these products or services seminars sought to extend the number and exporters with considerable opportunities not for the North American market along with type of firms doing business with the region. only in terms of their very high per capita GDP, practical advice regarding the import rules The North American markets provide UAE based disposable income but also population base. and regulations.
Dubai Exports, the export promotion agency of the Department of Economic Development (DED) in Dubai, held two seminars, each with over 200 UAEbased companies, to create awareness on the vast potentials in the North American market. We bring you a synopsis of these events.
Eng. Saed Al Awadi, CEO, Dubai Exports
Dr. Ashraf Mahate, Head, Market Intelligence,
One on one consultation at the offices Panel discussion at Export to Canada Dubai Exports
Talal Kaissi - Chief of Staff Trade and Commercial
UAE Embassy in the USA
Tanya Spencer - Chief of Staff, Economic and Political, USA Embassy in Dubai
TRADE TALK Finance
Salah Jaidah, Deutsche Bank Vice Chairman MENA and CCO Qatar, speaks to Aparna Shivpuri Arya about his take on the global economic situation and how can companies mitigate their risks.
As one of the leading banks globally, what is your opinion on the global financial situation?
The world economy and financial markets have significantly improved compared to a year ago. The US now looks like it is off to the races, Europe looks stable, and Asia certainly looks like it has averted many of the pitfalls. The markets have responded accordingly and volatility has declined dramatically. However, low interest rates continue to have an impact on the Bankâ€™s businesses. On the other hand, the regulatory environment has become more challenging around the world, especially in Europe.
How should companies, both large and small, plan their investments across borders, in order to mitigate risk in these unsettling times?
Companies should focus on diversifying their investment portfolios across different assets, regions and markets to lower 14
their market risk. In addition, they should invest in hedging products which provide them with positions that intend to offset potential losses that may be incurred by their business. This can be done via many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-the-counter and derivative products, and futures contracts.
What solutions does Deutsche Bank provide for risk mitigation in cross border trade?
Deutsche Bank is a leading provider of innovative market driven and structured equity investment solutions that help its clients reduce their business and trade risks. We offer a full range of derivatives and hedging products that suit the clientâ€™s risk mitigation needs. The award-winning platform is a dominant force in the equity derivatives arena, pioneering solutions ahead
of the market. Our Global Equity Derivatives team provides multi-product and synthetic risk mitigation solutions to a wide array of institutions, corporates and retail clients – delivering price efficiency and liquidity in markets worldwide.
What is your opinion on the investment scenario in the MENA region? Which countries, according to you, are doing better than others, and why?
The MENA markets continue to impress with their solid performance. The Dubai equity market has advanced by more than 47% year to date, followed by Abu Dhabi at 39% and Kuwait 35%. On a year to date basis, almost all the other markets were up, Oman by 16%, Qatar 14%, Bahrain 13%, Kingdom of Saudi
ABOUT Prior to joining Deutsche Bank AG Mr. Jaidah had been at Qatar Islamic Bank, for over 5 years where he occupied the position of Chief Executive Officer. Earlier from 2004 - 2005, Mr. Jaidah was the General Manager of Doha Bank. From 1987 until 2000, Mr. Jaidah held several senior positions at Commercial Bank in Qatar.The last position being Assistant General Manager Corporate Banking/Chief Lending Officer (1994-2000) with the responsibility of heading corporate, commercial and correspondent banking division. Mr Jaidah completed his BBA in Finance and Marketing from Texas Christian University and also studied Advanced Management Programme at Oxford Business School.
should have a positive impact on the overall economic situation. Local and global partners will invest in campaigns to be familiarised with the games by the public. Football fans and visitors from all over the world will spend
Deutsche Bank is a leading provider of innovative market driven and structured equity investment solutions that help its clients reduce their business and trade risks. We offer a full range of derivatives and hedging products that suit the client’s risk mitigation needs. Arabia 11% and Jordan 3%. All these numbers are both encouraging and promising for the region to be a solid investment ground.
Qatar is looking at diversifying its economy in a big way, plus there is the FIFA World Cup. How do you see the economic and financial landscape changing in Qatar because of this? Any advice for the private sector in this country? There will be strong investments into building the required infrastructure for this event which creates employment. Infrastructure, constructions and the tourism sector will largely benefit from this development. On the other hand, this will create opportunities for local and foreign financial institutions. Both
money during their visits. Though political stability in the region overall is key to attract tourists to visit the games. We believe, the FIFA World Cup is a big opportunity for Qatar to be able to attract more investors and more visitors in the future as well.
Islamic finance is gaining prominence globally as well as in the region – how do you see the future trends? Should the trading community look towards moving to Islamic finance?
If we focus on capital market and investment banking activities, we think the growth potential for Islamic finance is very encouraging given the support the Islamic financing industry is getting from authorities,
issuers and investors. In addition, we see particular growth in the GCC and South East Asia region in sovereign financing, corporate and project finance, trade finance and investment management. Furthermore, Turkey and the North Africa region will start seeing greater acceptance of Islamic banking as an alternative going forward.
Trade is the cornerstone of UAE and the region, how do you see the trends in trade? How will the banking and financial sector do?
As the world continues to face welldocumented economic challenges, the trade forecast suggests grounds for optimism for international businesses. Despite the current regional climate, we predict the overall trend for the trade in the UAE to be positive and full of potential. With regard to the financial sector, the recent announcement for MSCI Index upgrade of the UAE is a great achievement for its financial markets and its authorities. It’s a natural result of the significant investments and hard work achieved to improve financial markets infrastructure and framework along with ticking all the required boxes for an upgrade. The membership in the Emerging Market Index reflects the confidence of international investors and will leverage the regions visibility to represent a USD 400 to 450 million of incremental funds inflows for the country. DECEMBER 2013
TRADE TALK Currencies
GBP Ravi Bharadwaj, Senior Pricing and Market Analyst, Washington, D.C.
Money talks VII
As we come to the end of 2013, the team at Western Union looks at how the currencies will perform in the month of December. USD: United States Joe Manimbo, Senior Market Analyst, Washington, DC December to yield Fed policy clues, maybe even a taper The Federal Reserve (Fed)—and what the future holds for a low-rate policy—continues to be the chief driver among the world’s major currencies. On good days, the US economy appears resilient and seemingly near the type of shape Fed officials want to see before scaling back stimulus. On these days, the USD tends to appreciate against the Euro, Yen, and other big peers, but on other days, when the US economic glass appears half-empty and confidence ebbs in a near-term taper, the greenback tends to come under renewed pressure. The general feeling in the market is that the Fed may see enough improvement in the economy and grow confident enough in the outlook to roll back stimulus around the first quarter of 2014. When the Fed does start to unwind its USD 85 billion-a-month bond buying programme, US interest rates would stand to creep higher, giving the greenback a more alluring façade. America’s upbeat outlook contrasts with the 16
latest developments in the Eurozone—where inflation is too low and unemployment too high— which keeps pressure on area policymakers to do more to sustain a still-fragile recovery. Among the big events that traders will focus on this month include America’s next jobs report on December 6th, and a Fed policy meeting on December 17th–18th. Investors will also study revised US third quarter growth on December 20th. Further signs of US economic resilience would highlight the divergence with Europe, and have dollar bulls poised for a party heading in to the New Year. Critical data: December 6: November employment report December 12: November retail sales December 17: November consumer price index December 18: Federal Open Market Committee decision December 20: Q3 gross domestic product (GDP) revision Economic Indicators: Three-month Deposit Rate: 0.24% GDP (annualised): 2.8% (Q3) Unemployment: 7.3% (October)
For the first time in years, U.K. Chancellor George Osborne is probably preparing to deliver a much brighter Autumn Budget Statement in December, with the British economy back and firing on almost all cylinders again. Britain’s stronger-than-expected return to growth has been fuelling speculation about rate hikes, powering sterling to ten-month highs against a basket of currencies last month. Therefore, the question traders will be asking this month will be: How far are they are willing to back the British currency heading into 2014? Failure for Sterling to breach key technical barriers that are currently standing in the way of further gains, could mean that a “correction lower” will be the present sitting under the currency tree for the pound this Christmas. The GBP’s rivals from all across the globe faced varying degrees of selling pressure in November, which meant that it was very difficult to short, or sell sterling, even if you were bearish about the currency’s longer-term future. As usual, the Federal Reserve’s (Fed) “taper now or later” debate continued to sway markets but the general consensus was still dovish. Janet Yellen, the expected next Fed chair, appeared to align herself with the view that the US economy was still half asleep following’s October’s government shutdown. The prospect of a later taper weighed on the USD. Gains in Cable were often difficult to sustain though, but investors were more than willing to look at other ways of expressing sterling strength. The Pound hit a ten-month high against the Euro, following the European Central Bank’s decision to slash interest rates again. Meanwhile, the Bank of Japan’s willingness to increase bond-buying has sent sterling soaring to fiveyear highs against the yen. The U.K. currency also broke into multi-year peaks against the Australian and Canadian Dollars. From a technical perspective, a lot of good news is now baked into the British currency, meaning there is plenty of room for disappointment and reversal. From a fundamental perspective, it is very optimistic to expect upcoming U.K. data to keep outperforming expectations. Furthermore, inflation figures on December 17th could uncover
another drop, giving the Bank of England (BoE) plenty of room to stay dovish on rates for longer. However, the fundamentals behind sterling are improving, and U.K. unemployment data on December 18 should support that. Any serious mishaps for the British currency, triggering the likely ‘correction lower’, could come from an unexpected source in December. 2013 has consistently been another year of central bankers pushing and pulling currencies to help drive local exports. A strong currency does allow the BoE to stay on top of inflation. However, should the pound breach those technical upside barriers, Governor Mark Carney, or one of his deputies, may have to respond. The Monetary Policy Committee could give markets a gentle reminder, either directly or indirectly, about the need for a balanced sterling exchange rate. Having said that, December’s US non-farm payrolls figures could do all the rebalancing the BoE may need. Should upcoming US unemployment data produce another positive surprise, the taper story could take on a more hawkish bias. That could impact all markets, globally. The European Central Bank’s December meeting could also be one to watch, with President Mario Draghi still tackling the idea of making another unprecedented move on policy. Critical Data: December 4 – November services purchasing managers’ index survey December 5 – BoE monetary policy decision December 5 – Autumn budget statement December 10 – October Industrial Output December 17 – November Inflation December 18 – October unemployment December 18 – BoE meeting minutes Economic Indicators: BoE Interest Rate: 0.5% Gross Domestic Product: 0.8% Q3 (q/q) Inflation: 2.2% (October) Unemployment: 7.6% (September) Trade Balance: -GBP 9.8 billion (September)
EUR Tiffany Burk, Senior European Market Analyst, Zurich Deflationary risks and more create Euro headwinds First and foremost, December represents the
end of the year—positioning for the end of the year will most certainly influence currency markets to a degree, but assessing the underlying trend and blocking out the year-end noise, will ultimately reveal the Euro’s true direction. There are three fundamental reasons that the Euro should not sustain significantly higher levels (above 1.40) before the end of the year. Then there are two developing headlines that will also help to limit the Euro’s rise. However, that is not to say that the Euro is ready to sustain heavy loss—quite the opposite. Economic data seen recently out of Japan shows a rapid increase in Japanese investors’ willingness to hold European debt, so demand from Asian and most likely the Middle East will continue, but the Euro’s upside could be limited. Optimism that was invigorated after the European economy emerged from recession in the second quarter was quickly met with disappointing in the third quarter. France disappointed yet again with data showing its economy failed to growth. Italy remained in recession for the ninth consecutive quarter. The dismally slow pace of economic recovery prompted the European Central Bank (ECB) to act at its November policy meeting, particularly since the slack in the Euro zone economy was met with and supports weak price developments. The measure for consumer prices fell a full percentage point below the ECB’s target of below, but close to, 2%. With annual price increases of just 0.7%, the threat of slipping into a lost decade of deflation, the likes of which Japan may only just now be emerging from, was enough to prompt the ECB into action with a 25-basis point rate cut to its main refinancing rate. High rates of unemployment, particularly youth unemployment in the southern regions, have politicians and policy makers concerned about the outlook for consumer demand and growth. The rate of Eurozone unemployment continues to stand at record highs, while even Germany’s number of unemployed rose to levels not seen since June 2011. Low growth rates, high levels of unemployment and now disinflationary data will be a major stumbling block for Euro gains in December. But there are other events that need to be taken into consideration. The first is Merkel’s ability to form a government. Her time to build a coalition government will run out at the beginning of the month, but optimism still
persists that negotiations will end successfully with a grand coalition. The more important event risks on the horizon are Germany and the rebalancing of its economy and the ECB’s asset quality review for large European banks. Germany might be a special case given that it is considered to be Europe’s growth engine, but the country may also have to pay a price for its successes. The US Treasury as well as the European Commission has singled out Germany as not doing enough to rebalance its export-lead economy. Investors may become nervous if the US and EC really do plan on eventually taking some form of disciplinary action against Germany, Lastly, the European financial system may still have some pain to endure before analysts can call it healthy. Officials are still arguing the pros and cons of having one authority to resolve failed banks. That could come into focus at the end of the year as traders brace themselves for the outcome of the asset quality review that will be conducted by the ECB at the beginning of next year. In this review, public debt held by banks will not be classified as a risky asset, but the large banks will also have to undergo stress tests and for these test to be credible a few may have to fail. Without a backstop in place, to resolve bad banks, the spread of contagion resurfaces, but now we’ve glimpsed into the second half of the first quarter of next year! Critical Data December 2: November manufacturing purchasing managers’ index (PMI) December 3: October producer price index December 4: November services PMI December 4: Second estimate of Q3 gross domestic product (GDP) December 4: October retail trade December 5: ECB Monetary Policy Committee meeting December 12: October industrial production December 15: First estimate of Q3 GDP December 16: October trade balance December 17: November Harmonized Index of Consumer Prices (final) Economic Indicators Three-Month Deposit Rate: 0.22% GDP (annualised): -0.4% Inflation (annualised): 0.7% Unemployment: 12.2% Trade Balance: EUR 13.1 billion DECEMBER 2013
TRADE TALK FINANCE
Global takaful industry going strong According to EY’s latest report, Global Takaful Insights 2013: Finding growth markets, key markets continue to offer growth prospects with low market penetration rates, but wider opportunities beckon in emerging markets.
he global takaful industry grew 16% in 2012, a noticeable moderation from a 22% CAGR over 2007-2011. Takaful in most markets is still in its infancy, and its potential to replace conventional insurance in leading Islamic finance markets is still largely untapped. The report also finds that in order for the industry to maintain its growth trajectory, there is a need for larger regional players who can provide leadership for building capacity in the industry and to address a number of business risks that the industry executives cite as challenges to the industry as a whole. Presently, Saudi Arabia, the United Arab Emirates (UAE) and Malaysia lead the industry with their relatively well-developed Islamic finance industries, including Sukuk markets, strong customer reach and competitive pricing. The role of authorities in simplifying regulatory frameworks across borders and encouraging consolidation will also be key in propelling the industry’s expansion. Ashar Nazim, Global Islamic Finance Leader at EY commented, “Takaful operators must adopt a clear strategy and capital plan that includes both organic and inorganic growth, and maintain and refine segmentation or exit 18
and acquisition strategies, which can mitigate potential risks.”
Varying markets, varying potential As industry leaders look beyond their borders, a key take-away is that growth and profitability vary significantly by markets and sectors, depending on each market’s maturity, industry and regulatory structure. While it is common to focus on populous Muslim markets, operators should not lose sight of other markets across Europe, Africa and the Asia-Pacific. “Adopting a multi-market approach not only helps manage risk diversification but also offers profitable opportunities in niche segments. Investing in rapid growth markets, which are often made up of young, growing populations, can lead to achieving critical mass very quickly. However, detailed market analysis and planning are required to ensure strategic success,” explained Abid Shakeel, Senior Director of EY’s Global Islamic Banking Center. Growth does not equal profitability While KSA, the UAE and Malaysia hold
the lion’s share of the takaful market, the acquisition of market share has not necessarily translated into profitability in many instances. Financial performance and managing key strategic issues remain challenging for takaful operators in many markets. According to the report, there are three areas of development that need to be addressed in response to the issue of profitability. These include: • Efficiency in operation - most operators have yet to achieve critical business volume despite incurring substantial establishment costs over formative years. • Quality of underwritten business – access to quality customers and potentially lucrative commercial lines are limited due to under-developed broker relationships, operational history and scale. • Solvency and capital requirements – smaller players need to quickly build scale or consider mergers in order to meet these requirements.
Growth potential of rapid growth markets Rapid growth markets are poised to become the new centers of development over the next
The Global Takaful Insights 2013 aims to capture key Islamic insurance industry and regulatory developments across established and emerging markets, and provide insights on the industry’s growth and profitability, including opportunities and challenges. The report further highlights the industry’s needs as it moves towards the next phase of growth. Observations and findings of the report were compiled from surveys of more than 20 senior executives in leading takaful markets, and desktop research collation of 116 insurers across six countries including Saudi Arabia, UAE and Malaysia.
shared Dato’ Rauf Rashid, Country Managing Partner of EY Malaysia.
to those of conventional issuers. Investments must be made on commercial merit rather than for altruistic reasons. Learning from core Islamic finance markets is key to addressing the rising demand in these countries expeditiously.
Ashar Nazim, Global Islamic Finance Leader, EY
10 years. Infrastructure and new regulatory enhancements are presenting opportunities across all markets. For the takaful industry, the large populations of countries such as Indonesia and Turkey offer untapped potential demand. Investors looking to establish new takaful operations in rapid growth markets must be prepared for the long haul and be aware that the nature of returns will not be comparable
Malaysia makes headway in family takaful Malaysia has emerged as the world’s largest family takaful market, securing close to three quarters of its domestic takaful market share. Its proven operating models, young Muslim population and regulatory initiatives such as the Takaful Operating Framework 2012, the Islamic Financial Services Act 2013, and the Risk-based Capital for Takaful (RBCT) have enhanced operational efficiency, ensured healthy and sustainable funding, and promoted uniformity across business practices for operators. “The maturity of established regulations across all areas of Islamic finance in Malaysia, including Sukuk issuance, has made Malaysia one of the top destinations for global institutions seeking to tap into the strong demand for long-term investments. It has also strengthened Malaysia’s position as a regional centre of excellence for the takaful industry,”
Large regional champions necessary to lead industry Presently, there is a dearth of takaful operators who are capable of providing leadership to the growing internationalisation of the industry. Few can truly make the claim to being regional, let alone global. In order for the industry to be successful, a well-established regional or global player must emerge. Any strategy to develop and grow into regional players must reflect the inception and growth of the insurance industry. Continual building of scale in commercial lines, determining which markets require physical presence versus presence in markets where local operators would not have the capacity to underwrite large risks, and the use of actuarial analysis to price such risks, are strategies operators must consider in their move towards becoming regional champions. “For takaful operators looking to expand their regional footprint, achieving a unified approach across all markets will remain a challenge as no two markets are alike. Risk and product specialisation, growth strategies and familiarity with the regulatory framework of each market they choose to penetrate are key elements that require close attention. In the medium term, traditional Muslim markets with established takaful practices will continue to provide favorable conditions. In the long term, however, operators must step out of their comfort zones and explore large rapid growth markets, of which the populous markets will provide them with the best prospects for the future,” concluded Ashar. DECEMBER 2013
TRADE TALK Interview
In a conversation with Aparna Shivpuri Arya, His Excellency, Sami Al Qamzi, Director General, Department of Economic Development (DED), Dubai Government, talks in detail about trade and the work being done by DED.
How important do you think trade is to the UAE in general and Dubai in particular? The UAE in general and Dubai in particular has a very open economy in which foreign trade is a major driver of growth, as shown in a high trade to GDP ratio estimated for the year 2012 at nearly 90% for the UAE, and 160%/250 % for Dubai depending on whether re-exports are netted out of total trade or not. In absolute terms, for Dubai alone, total external trade, the sum of imports and exports of goods, exceeded USD 240 billion in 2012. While oil still dominates total UAE exports and is the main foreign exchange earner for the UAE as a whole, significant progress has been made in diversification. Trade is vital for Dubai as it affects all economic activities through intermediate inputs, capital and consumer goods and services. As Dubai, and even the UAE, has a relatively small local market, local firms cannot benefit from economies of scale and compete internationally unless they target international markets.
effects on trade expansion and diversification. Still, we should remember that Dubai’s highquality logistics and transport infrastructure and efficient trade-related administration are the main underlying factors of its successful outward orientation.
How does DED encourage foreign investment in Dubai?
Attracting foreign direct investment is an important objective within its broad mandate to foster Dubai’s economic development. DED has committed resources and established a foreign investment office called Dubai FDI, which has the responsibility to attract and assist potential foreign investors in all phases of setting up in Dubai, from getting preliminary information, exploring activities
and opportunities and understanding the legal framework and business regulations, to the concrete steps involved in launching
Throughout these various activities, DED emphasises that Dubai offers much more than a tax-free regime, which is available elsewhere. It offers the advantage of a regional and international hub and a world-class infrastructure and integrated logistics that is very much recognised as of high value to business in general.
For global businesses looking for investment opportunities in Dubai, what services are provided to make it easy for them?
As previously stated DED is well equipped and stands ready to accompany global businesses throughout the process of launching and operating their activities in Dubai, assists them in speeding up procedures, including the registration phase and helps them overcome any regulatory obstacle they may face. One-to-one guidance is offered to global
What is DED’s vision for trade?
In absolute terms, for Dubai alone, total external trade, the sum of imports and exports of goods, exceeded USD 240 billion in 2012.
Fully aware of this vital role that trade plays in Dubai’s economy, DED has been keen to help domestic companies integrate themselves in the international economy and enhance their competitiveness. The underlying vision is to expand trade and diversify it geographically and product-wise. There is indeed a large potential for companies to intensify trade with new promising markets, such as African markets or markets of the wider region. Dubai Exports, which is one DED’s agencies, assists domestic firms with valuable information about existing and new foreign markets, helps them participate, as members of official delegations, in international exhibitions and meetings with decision makers and businesses. In addition, DED assists exporters with export guarantee schemes. Findings from surveys among local firms show that these varied actions have positive
business in mainland Dubai. DED co-ordinates with other government departments, such as Dubai Municipality and the Land Department and the Ministry of Labour, and facilitates meeting the required registration and regulatory procedures both at DED itself and at other departments. DED is very attentive to all the investor inquiries and requests for information coming from, its wide database and expertise enabling it to provide relevant sectoral, macroeconomic and legal details. In line with its mandate and strategy, Dubai FDI hosts international events and foreign business delegations that are interested in investing in Dubai. It also visits countries on a regular basis, to inform companies about the business environment and investment opportunities in Dubai.
businesses through direct contact in Dubai and, in some cases, by Dubai FDI offices located abroad. In addition to facilitating communication with other government departments, DED provides information and helps global investors link up with domestic companies that could supply them competitively with intermediate inputs or services. Its thorough knowledge of regional markets and networks enables investors to benefit from wide export opportunities and expand while operating in Dubai.
For local businesses, looking to expand overseas, what support do you provide?
DED takes part in official delegations, federal and local, to visit foreign countries that DECEMBER 2013
TRADE TALK Interview
offer companies opportunities to expand abroad. In some cases, it has initiated such visits in which internationally competitive domestic companies may participate. In addition, DED has access to information gathered by economic representatives of the UAE federal government on investment and export opportunities and challenges, and on conducting business in the countries where they are located. Such information is also shared with interested local companies.
Which countries and products have potential for trade with Dubai in the coming years?
There are important traditional trade partners such as India, some European countries and neighbouring countries. For some of them, particularly India, the outlook for trade will very much depend on growth prospects and changes that it may bring to its economic policies, its trade policy in particular. Growth of GCC economies and imports
that major international players are counting on Dubai to be the hub to serve this expanding market. Dubai has a comparative advantage in a wide variety of services: logistics, transportation of goods and passengers, finance and increasingly tourism. As exports of goods have been so far highly concentrated in a few products, the challenge in the future will be how to strengthen and diversify the manufacturing base in order to meet local demand and seize export opportunities in emerging markets and other fast growing markets in Africa and the region.
How do you see the services sectorhospitality, tourism, medical tourism, banking and so forth - contributing to trade in the near future?
Services dominate Dubaiâ€™s economy, from trade and logistics to finance and tourism. Together, they account for more than 60% of the total GDP. Dubai has invested
One advice to those companies that wish to be more present internationally is to aim for integration in the value chain by linking up with important buyers in the chain and developing a strong capacity to respond to their quality and cost requirements. is expected to be relatively high in the next few years, which would lead to greater opportunities for trade in goods and services with Dubai, tourism being an increasingly important component of this trade. In addition, many Sub-Saharan African countries, some of which are well-endowed in natural resources, have grown rapidly in recent years and seen their demand for foreign capital and consumer goods rise very fast. Given still lagging logistics and domestic production capacity for goods and services in high demand, imports of these countries are expected to grow at high rates well into the future. Dubai is well positioned to seize these new opportunities and increase its export and re-exports to these countries. There are signs that this is already happening and 22
heavily in hospitality, health and education infrastructure as well as in expanding and diversifying both its hard and soft financial infrastructure of which the Dubai International Financial Centre (DIFC) is the most visible illustration. These services have been growing in the most recent years since the 2008-2009 crisis, albeit at variable pace. Tourism has recently displayed a stellar performance, its value-add increasing by more than 17% in real terms in the year 2012. Our forecast is that the growth of exports of services will overall accelerate in the next few years, although this growth may still be moderate for some service activities as compared to others such as tourism, trade and finance.
What measures is Dubai taking to ensure that it is the preferred destination for trade and remains ahead of competition? Dubai is keen on constantly updating its physical and soft infrastructure in order to maintain its international competitiveness, being fully aware that international competition is getting more intense and the number of ambitious international players has been steadily increasing. Dubaiâ€™s leadership has been very much forward looking, fostering the development of infrastructure with the view to meeting the present and future needs of an expanding and a very open economy. A new airport has been built, Al Maktoum International Airport, as part of the aerotropolis called Dubai World Central. It is already handling cargo freight and has just opened to passenger flights. It is expected to have the largest passenger capacity in the world when completed, hosting approximately 160 million passengers per year. Dubai also has a hotel capacity that ranks it among the ten best endowed cities worldwide, with very high occupancy rates. This capacity will increase as more hotels are built. Dubai will thus enhance its attractiveness to international visitors and ensure that it meets rapidly expanding and diversifying demand, quantitatively and qualitatively as well.
What advice would you give to exporters from the UAE looking to expand overseas?
Dubai is today an important player to reckon with internationally as a service exporter. When it comes to manufactured products with a significant local content, it still has a way to go, with the exception of a very limited number of products. One advice to those companies that wish to be more present internationally is to aim for integration in the value chain by linking up with important buyers in the chain and developing a strong capacity to respond to their quality and cost requirements. Another advice is to look out for new markets, emerging and otherwise, that are fast growing even if they are still relatively small or lacking well established modern business practices.
© 2013 EYGM Limited. All Rights Reserved. ED None
IT’S MORE THAN THE NUMBERS. EY’s Reporting magazine addresses the reporting and governance issues that international businesses face as they explain their performance story. Companies are striving for growth, assessing new risks and working to maintain the confidence of stakeholders through their reporting. To read more, visit www.ey.com/ reportingmagazine.
TRADE TALK Interview
Simply Fiji! Ambassador Robin Nair, speaks to us about why Fiji should be on every investor’s radar.
everaging on a free market economy and good governance, Fiji has embarked on a new era of business-friendliness. Strategically located in the heart of the South Pacific, Fiji offers a cost-competitive location for investors intending to set up offshore operations for the manufacture of advanced technological products for regional and international markets. Fiji has today become an export-driven economy spurred by high technology, knowledge-based and capital-intensive industries. There are numerous opportunities in the traditional economic sectors as well as in rapidly emerging sectors like ICT and integrated resort development. Fiji has a proven track record in attracting investors from all over the world, many of whom have re-invested in multiple projects in Fiji. 24
Being a market-oriented economy and supported by pro-business Government policies, Fiji offers investors a dynamic and vibrant business environment through the efficient regulatory environment, a highly skilled and multi-lingual workforce and a culture of innovation. Fiji boasts of an unspoiled environment of pristine beauty and is a nature lover’s delight. Located at the crossroads of the Pacific, Fiji is the exotic melting pot of cultures of Fijian, Indian, Chinese, South Sea Islanders and European settlers. Over the years, Fiji has secured its place as a truly advantageous, safe and businessfriendly location of unparalleled quality for ALL investors. The country is poised for further growth as it is the major business hub in the Pacific Region.
Good reasons to invest in Fiji • Truly a regional and global hub. Fiji is the centre of trading in the South Pacific for the South Pacific-Asia region. Fiji is not only the centre of trade, but also the hub for global communications and transportation (shipping and air travel) routes for the Pacific. • Offers a package of trade and investment including duty concessions, investment allowance, tax exemption and tax free regions. • Is supported by a government which welcomes and supports local and foreign investment, within the objective of growing the various sectors of Fiji’s economy by providing tax and other incentives to boost investments. • State of the art telecommunication infrastructure that provides links through fibre optic cable connections to the rest of the world. • A well-developed infrastructure, including electricity, water supply and internal communications. • Availability of factory land and buildings at reasonable rates. • Good health and medical facilities including a modern private hospital and medical centres. • Fast registration of foreign investment projects.
ABOUT “Fiji My Second Home” The programme is open to citizens of all countries recognised by Fiji. You can send a mail at email@example.com for more details.
provided there is no shift of tax revenue to other countries. This is applicable to building of new hotel including renovations or refurbishments or extensions of existing hotel and International Retiree Facilities.
Ambassador Robin Nair
KEY INVESTMENT SECTORS • Agriculture • Tourism • Fishing & Forestry • Audio Visual • ICT • Mineral & Groundwater • Manufacturing and many more!
Investment opportunities Corporate tax rate lowered from 28% to 20%. Fiji and UAE have a Double Taxation Agreement.
Fiji now offers one of the lowest corporate tax rates in the region at 17% for foreign companies that establish or relocate their headquarters in Fiji. A listed company on the South Pacific Stock Exchange (SPSE) will be subject to a low corporate tax rate of 18.5% provided the company has 40% local shareholding structure. Export income deduction of 40% to promote growth in the export sector in 2013.
Employment Taxation Scheme, which allows 150% tax deduction, will be extended to 2014.
Hotel industry incentives Investment allowance (in addition to or depreciation) of 55% of total capital expenditure is allowable as a deduction
Audio visual incentives 150% deduction for capital expenditure on an F1 audio-visual production. 125% deduction for capital expenditure on an F2 audio-visual production.
Agriculture incentives The income of any new activity in commercial agricultural farming and agroprocessing approved and established from 1st January 2010 to 31st December 2014 shall be exempt from tax for 10 consecutive fiscal years with a capital investment of USD 2 million or more. Tax free regions Tax free regions (North) Who will qualify? Available to newly incorporated entity engaged in a new trade, business or manufacture and established in the following areas: Vanua Levu - included Taveuni, Rabi, Kioa, and other northern islands.
Rotuma, Kadavu, Levuka, Lomaiviti and Lau.
Investing in the Tax Free Regions will qualify for a tax holiday of five consecutive fiscal years if the capital investment is USD 250,000 to USD 1 million, seven consecutive fiscal years if the capital investment is USD 1 million to USD 2 million and 13 consecutive fiscal years if the level of investment is above USD 2 million. TAX FREE REGION (Eastern Viti Levu or from Korovou to Tavua) • Applicable to the agricultural sector and other sectors
• Applicable to newly incorporated entity • Minimum investment of USD 1million • Tax holiday of 13 years • Tax holiday of 20 years if investing in the dairy industry • Import duty exemption on the importation of raw materials, machinery and equipment (including parts and materials) purchased for the establishment of the business for 12 months from the date of approval. Tax and duty exemption are also available should you wish to set up your operations in one of these tax free areas.
Information Technology Communications (ICT) incentives Income tax exemption is available to ICT investors under the following criteria: • Business employs 50 employees • 50% of its total services exported • Duty free importation of computer parts & accessories, plant, equipment & fittings, as specialised furniture for initial establishment & during its ongoing operations to approved ICT/BOP Business operators. Manufacturing incentives • 100% of the amount of investment as a deduction for investing in food processing as well as forestry • Five year tax holiday is available to a taxpayer undertaking a new activity in renewable energy projects and power cogeneration • Duty free importation of renewable energy goods Mining & Groundwater incentives • Loss carry forward of four years • Duty free on importation of capital plant and equipment for two years from the date of approval. This does not include hand tools for general purposes • 20% corporate income tax rate • 20% accelerated depreciation allowance DECEMBER 2013
TRADE TALK EVENT
PARTNER BRAZIL WITH
TRADE AND INVESTMENT OPPORTUNITIES
he South American country Brazil is the 7th largest country in the world and a member of the rapidly developing bloc of countries called BRICS. With this status a lot of investors are looking to tapping into this country. To shed some light on the different opportunities that Brazil offers, Trade and Export Middle East magazine on November 24th, organised a seminar titled Partner with Brazil - Trade and Investment Opportunities, which was supported by the Arab Brazilian Chamber of Commerce. The event kicked off with a welcome speech by Mr. Marcelo Sallum, President, Arab Brazilian Chamber of Commerce. In his speech, he emphasised the significance of the role of ABCC in bringing Arab countries closer to Brazil and their mission to increase the economic relationship of both parties Talking about the United Arab Emirates, Mr. Sallum said that the country is a substantial hub for the Middle East, Africa and Asia. He highlighted on the fast pace improvement of the economic relations between Brazil and the UAE, the latter now being the third largest importer of Brazilian produce among the Arab region. 26
He also underlined that the operations of Emirates and Etihad Airways has opened new perspectives for the trade and tourism industries in Brazil. At the end of his speech, he invited everyone in the audience to use the seminar as a tool to discover new opportunities in Brazil and identify the challenges that need to be faced. Following up on that, Mohd Ali Rashed Lootah, Deputy CEO, Dubai Export Development Corporation delivered his keynote address. According to him, the UAE and Brazil has a very close and cooperative trade relationship. In line with this, Dubai Exports has been working with ABCC to further increase the level of trade and investments between Dubai and Brazil. Mr. Lootah also ellaborated on Dubaiâ€™s vision to extend more market opportunities in the Emirate to countries with strong economies such as Brazil. He also mentioned that Dubai exports enadeavors to open the door for investors not only in the UAE but also to other countries in the region, with Dubai of course as the hub for operations.
With all these said, why Brazil? This was presented and explained to us by Dr. Michel Alaby, CEO, Arab Brazilian Chamber of Commerce. In his presentation Dr. Alaby highlighted some economic advantages of investing in Brazil. Among which were Brazil being the largest producer of regional aircraft and the fourth largest producer of commercial aircraft. They are also the largest producer of natural foods such as coffee, oranges, guarana (fruit) and sugar cane. They are also the 2nd largest exporter of soy complex (grain, meal and oil); iron ore and organic food. Major contributors to Brazilâ€™s GDP are the services sector which contributes 68% to its GDP, followed by industry sector at 27% and agriculture at 5%. In 2012, the trade flow between Brazil and the region touched USD 26 billion, an increase of 3.26% from the previous year. The South American country imported USD 11.10 billion worth of goods from the Arab countries, while export comprised USD 14.83 billion. The figures for first half of this year indicate the export of
(L-R) Mohd. Rashed Ali Lootah, DEDC, Dr. Ashraf Mahate, Dubai Exports, Dr. Michel Alaby, ABCC, Marcelo Sallum, ABCC.
goods from Brazil to Middle East crossed USD 6.56 billion. There was a surge of 117.68% in the volume of iron and steel products, inorganic chemicals and rare earth materials from USD 19.71 million in 2012 to USD 42.9 million in 2013. Talking about investment opportunities, Dr. Alaby stressed that as they are hosting the FIFA World Cup 2014 and the Summer Olympics in 2016 there are a lot of opportunities in the infrastructure and transportation, telecommunications and construction sectors. For the 2014 FIFA World Cup, it is expected that it will drive more than USD 80 billion into the Brazilian economy and the 2016 Summer Olympics is forecasted to boost their economy by USD 51 billion. Speaking of investments, Anand Nagaraj, Head Middle East Head of Product and Marketing, Citi Commercial Bank briefed the audience with the current investment climate in Brazil. He presented several aspects that investors could expect in the South American country such as it is the 7th strongest economy in the world in terms of GDP and the 1st in Latin America which was valued at USD 2.2 trillion in 2012. It also has a very stable economy which makes it an ideal destination for trade and investments.
An important factor of trade is logistics, and with this Nasir Shaban Mousa A. Sajwani Senior Business Development Manager, Etihad Cargo provided the audience information on how they could be of assistance to companies which are inclined to trade and do business in Brazil. He was then followed by Sidney Alves Costa, Representative for the Middle East, ApexBrasil who discussed how their organisation assist Brazilian businesses open up operations in the Middle East region and vice versa. Talking about the hot topic of the World Cup and Summer Olympics, Sidney reiterated the investment prospects there are for the infrastructure sector. He also mentioned that there is a growing interest for Brazilian expertise from the region, particularly in Qatar regarding the implementation of infrastructure projects for the World Cup. Sidney said that Brazil is really privileged to be hosting the World Cup and the Olympics. As, according to him, events like these provides a great platform in raising awareness on the various business, trade and investment opportunities that awaits in their country. All throughout the seminar it was made clear that there is a strong demand for investments in infrastructure in Brazil. With
infrastructure comes the construction sector, in this light Ziad Hage, Executive DirectorBusiness Development, Odebrecht presented the opportunities in the construction sector in Brazil. In his presentation he mentioned that Brazil needs USD 1 trillion in infrastructure investments. Currently there is BRL 334 billion worth of projects in the pipeline for roads, transportation, ports and airports. In setting up businesses we cannot eradicate going through legal procedures, and so Cecilia Bicca Paetzelt, Legal Counsel , M/Advocates of Law (Dubai) gave the audience an idea of what processes we should expect in doing business in Brazil. According to her, in setting up new companies foreign individuals and entities are allowed to be shareholders without restriction and no mandatory Brazilian partner is required. But to do so, one must be a resident of Brazil and a minimum investment of BRL 150, 000 is needed to become a resident. If one is a shareholder in a company and not a resident of Brazil, they should appoint a local legal representative to act on the membersâ€™ behalf (voting rights, corporate documents) and provide a special power of attorney for this. Foreign individuals are also allowed to acquire property without restrictions in Brazil, however limitations apply in acquiring rural land. As Ceciliaâ€™s presentation went, it was evident that it is quite simple to set up a business in Brazil. According to her the only challenge that investors could face are cultural, social and geographical as well as the language, as English is not widely spoken in the country. The event ended on a high note, with the audience been given a clear vision of how they could invest and benefit from the promising economy of Brazil. Also present in the seminar were Rubens Hannun, Vice President of the Arab Foreign Trade Chamber, Daniel Hannun and Sylvio Abdalla Jr., Directors of the Entity, and Federal Deputy Angelo Agnolin (PDT-TO), Chairman of the Committee for Economic Development, Industry and Commerce Chamber of Deputies and a Federal Congressman. DECEMBER 2013
TRADE TALK EVENT
3 1. Sidney Alves Costa, Representative for the Middle East, Apex-Brasil
2. Ziad Hage, Executive Director-Business Development, Odebrecht
3. Cecilia Bicca Paetzelt, Legal Counsel , M/Advocates of Law (Dubai)
4. Participants networking at the event
5. One lucky winner gets the official FIFA World Cup T-shirt
Source: Aurea Santos/ANBA
6. Anand Nagaraj, Middle East Head of Product and Marketing, Citi Commercial Bank
7. Marcello Sallum, President, ABCC
8. Nasir Shabhan Mousa A. Sajwani, Senior Business Development Manager, Eithad Cargo
9. Mohd. Rashed Ali Lootah, Deputy CEO, DEDC, giving the keynote address
10. Participants at the event
10 DECEMBER 2013
TRADE TALK International trade
Middle East and the BRICS:
Analysis of export and investment potential
In the second article of a two part series, Biswajit Nag, Associate Professor, Indian Institute of Foreign Trade, takes a look at the relationship between the GCC countries and India, China and South Africa.
CC and India The bilateral trade between India and GCC is on a very strong footing as India brings in about 1/5th of its total imports from GCC countries. Though unsurprisingly, the major constituent of this trade is petroleum and related products. But at the same time, India imports a sizeable amount of precious stones and metals (Gold, diamonds, jewellery, silver and more.), chemicals (both organic and inorganic), aluminium , copper, plastics, lead and zinc articles, printed books, newspapers, raw hides, skins, leather etc. from the GCC nations. However, India-GCC FTA is yet to be finalised and countries are gearing up for third round negotiation. In February 2013, during his visit to Dubai, Anand Sharma, Minister 30
of Commerce and Industries, Government of India urged for more FDI in India from UAE especially in infrastructure sector such as power and utilities, roads and highways, ports, aviation, telecommunications and urban infrastructure. He also assured that, â€œIndia is committed to strengthening and expanding cooperation with UAE in other sectors such as construction, downstream products in the petroleum and natural gas sector, agriculture and food processing, science & technology, renewable energy, IT, education, training, health and financial servicesâ€?. The two economies complement each other as GCC has capability and experience in energy, infrastructure, real estate and telecom sectors while India is strong in manufacturing,
IT & financial services, education and more. In a bid to diversify, GCC has come up in a big way as a re-export hub and India can make investments here utilising the investment friendly environment and excellent infrastructure facilities available in GCC. The Middle East is fast developing its expertise in number of commodities and for India it has high potentiality in organic chemicals (P-xylene, styrene), polymers of ethylene, various types of fertilisers, automatic data processing machines, optical radar, electro-medical and telephone appliances, and more. The close ties between India and GCC go beyond trade with over six million Indians residing in GCC, mostly in KSA and UAE. Indians form the single largest foreign community in each of the six GCC countries.
Nearly one-third of the population of Bahrain, Qatar and UAE consists of Indians. Lately, India and Abu Dhabi signed an agreement to increase the number of weekly seats to 50,000 from the current 13,300. Also, Etihad has announced a purchase of 24% stake in Indian Airlines Jet Airways. Similar requests for purchase of stake in Indian airlines from Dubai and Qatar are on-hold till November 2013. These developments point to some exciting opportunities in this sector for GCC.
GCC and China China is the one of biggest trading partners of the GCC. China’s increasing glut for oil has driven trade to newer heights. The strong domestic demand from the rising middle class in China has been the driving factor for the import of electronics and oil. Imports of China from GCC are heavily skewed towards oil imports which comprise about 85% of its total imports from GCC. China has been negotiating an FTA with GCC since 2004 and it is in the concluding stages as of 2013. Energy investments hold a lot of promise for both the countries. Kuwaiti and Saudi national oil companies are already investing in refineries in China, while China’s Sinopec is involved in gas exploration in KSA. Tourism is another avenue which the GCC must capitalise on when it comes to China with its three big airlines – Emirates, Etihad and Qatar Airways expanding their routes in Asia. Commodities that hold great potential for export to China apart from oil are precious metals like diamonds and platinum, aluminium scrap and unwrought, Motor vehicle parts and accessories. GCC’s contribution in precious metals import of China is miniscule, less than 1%. Aluminium scrap export is negligible while unwrought aluminium export has improved but still has a long way to go to be called significant. Aluminium imports of China stood at USD 9,591,672 in 2012 while GCC’s contribution was only USD 298,300. When it comes to motor parts and accessories, China imports primarily from South East Asia and to break this stronghold GCC needs to focus on very specific parts and accessories.
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 firstname.lastname@example.org
GCC and South Africa As far as the bilateral trade between South Africa and GCC is concerned, it is very less compared to other bigger BRIC countries like India and China. The South African imports of goods from GCC form a little over 1% of the total value of goods exported from the GCC countries. Except for oil which forms 22% of South Africa’s total imports from the world, only three commodities form more than 3% of South African imports. There exists an uncanny similarity in the export opportunities for GCC to South Africa in machinery, boilers, electrical & electronic equipment, plastics and articles thereof, optical, photo, technical, medical apparatus and so on. However, a few items are unique to South Africa such as the automobiles especially with the reciprocating piston engine displacement between 1500 cc to 3000 cc and pharmaceutical products namely the medicament mixtures. However, GCC will face tough competition in these products from the Western World, India and China.
Conclusion GCC is slowly but steadily moving towards non-oil export. It is also focusing on reinvesting of profit made from oil export towards infrastructure and other sectors in BRICS. GCC must aggressively look into new products especially, chemical, metal and electrical products in B2B sector. So far, it has significant presence in India and China. However, its non-oil export to Brazil, Russia and South Africa is far less than optimal. Investing in the export oriented sectors could be a good strategy for private sectors from GCC in BRICS. In this context, FDI from the GCC can follow M&A route or even green field investment in special economic and industrial zones located in these countries. Also it is important to note though the GCC has initiated FTA talks with these countries, none of the agreement is finalised so far. To get a better market access of non-oil products the GCC must seal the agreements at the earliest.
TRADE TALK strategy
Laying the foundation for success With a booming consumer market and significant infrastructure needs over the next few decades, the opportunities to trade with the Middle East are endless. Yet they continue to be underestimated. What should not be underestimated, however, is the need to safeguard against counterparty risk, country risk and political risk in the region says Ralph Nitzgen, Senior Executive Officer and General Manager, Commerzbank Dubai Branch.
iven Dubai’s integral position as a trade hub for the Middle East, it was no surprise that the 2008 financial crisis in the UAE had such widereaching implications for companies across the whole Gulf – with the region’s construction and financial services industries feeling the contraction more than most. Yet those scars have all but healed, and the region has bounced back. Indeed, WTO statistics highlight that while the value of UAE trade (both imports and exports) dropped significantly from a high of USD 416 billion in 2008 to USD 335 billion a year later, it has since recovered. Last year the UAE was involved in USD 520 billion of global trade, well above the 2008 base. The trend is the same across the board. Take Qatar, for instance; despite a similar dip in 2009, the value of trade has increased by almost USD 70 billion 2008-2012, to a total value of USD 165 billon. And, despite some reports to the contrary, the Arab Spring has failed to halt this resurgence. Indeed, on the flipside, some 32
countries regarded as “safe havens”, such as the UAE and KSA, have in fact experienced increased trade as a result of corporate relocation from elsewhere. In terms of trading partners, China, Japan and South Korea are now well established as the key export markets, although it of course varies country-by-country (USA is KSA’s third biggest export partner and the UAE has close ties with India, for instance). Unsurprisingly, these exports are still heavily centred on oil. The opportunities for corporates looking to trade with the region on the import side are far more diverse. However, with the consumer goods and infrastructure industries appealing in particular. Yet the after-effects of the 2008 crisis highlighted not only the need to base trade on documentary letters of credit in order to mitigate the payment risk, but also the importance of having a local banking presence that understands the subtle nuances that can make or break the success of trading contracts. In my experience, the best way to tap into
this local knowledge – and grasp the endless opportunities while still mitigating the risks – is through a tried-and-trusted banking network: correspondent banking.
Import opportunities As the Eurozone crisis rumbles on, many consumer goods companies based in Western Europe are seeking expansion into the emerging markets to counteract dwindling demand at home. And the Middle East may now be one of the brightest prospects globally. Certainly, a quick look at the Dubai Mall – the world’s largest shopping mall – is testament to the opportunities. But with GDP per capita high across much of the region, governments focusing on boosting non-oil sectors, and a young consumer market emerging, the opportunities do not start and end with the UAE. For instance, the Middle East’s luxury goods market is set to grow by 15% this year – an area where western companies can leverage off their long-established reputation for quality.
As an example, the “Made in Germany” tag is still seen as a stamp of quality in the automobile market, with Germany becoming the fourth biggest exporter to UAE after India (cars account for a large part of this, along with machinery). Elsewhere, construction is also finally picking up after grinding to a halt in 2008. The Middle East needs USD 4.3 trillion to build infrastructure to accelerate economic growth in the next 15 years, with Qatar in particular offering a raft of trading opportunities as it ramps up investment ahead of the 2022 FIFA World Cup. Certainly, reports indicate that as much as USD 100 billion is expected to be allocated to infrastructure projects in the country, including many high-profile schemes such as the Doha Bay crossing, the Doha Metro system, and a major new airport development. Of course, recent history suggests that many of these large infrastructure projects in the region will be awarded to Asian – and mainly Chinese – contractors who have a significant cost advantage in terms of labour and raw materials. As a result, they can therefore price projects below a level deemed profitable for contractors based in Europe or the US. But there are other avenues through which western companies can gain a slice of the action. Construction of smaller, more specialised, infrastructure projects, such as power substations or fertiliser plants is one area. The other is as sub-providers of related highend products, which are necessary to the success of many infrastructure projects and rely on western expertise or experience. Undoubtedly, this is especially pertinent in the Middle East where innovation in the construction industry is being pushed to its limits. Take the construction of Dubai’s Burj Khalifa, the world’s tallest building, which required concrete to be pumped to heights higher than had been previously attempted. In this case, construction was only possible with the specialised concrete pumps and expertise provided by Putzmeister Holding, a German concrete-pump maker. Overcoming the barrier to success: local presence and LCs However, trading in the region is not without its barriers. In this respect, two key issues
ABOUT Ralph Nitzgen is Senior Executive Officer and General Manager, Commerzbank, Dubai. He joined the bank in 1989 and, after working as a representative for Commerzbank in Germany, moved to the Middle East in 1996, where he became chief representative for the GCC countries and Yemen. Nitzgen is also a member of the board and treasurer of the German-Emirati Joint Council for Industry & Trade (AHK), Abu Dhabi, and is a member of the board of the German-Arab Chamber of Commerce, Berlin.
spring to mind: culture and payment risk.
a) Cultural barriers Making a success of the trading opportunities requires an in-depth knowledge of local trading cultures, laws and nuances. And also of the Middle Eastern psyche. For instance, when it comes to trade, Middle Eastern companies tend to buy into the idea of reciprocation, or bilateral trade, something that doesn’t play into Western corporates’ hands. Indeed, most European countries exporting to the Middle East will have little bilateral trade to fall back on. As such, when up against exporters from China or India – countries which import hundreds of thousands of oil barrels per day from the Middle East – they are at a disadvantage. Elsewhere, many western companies are also put off by laws that state that any businesses operating in the Middle East need to have a local partner that owns at least 51% of the operations. For an outsider, navigating such issues alone is almost impossible – which brings the knowledge of global and local banks to the fore. Understanding the country-level social, political and economic nuances of the Middle East requires experience of the region and the ability to monitor their developments as closely. Only local banks, and global ones that have a sustained track-record in the Middle East, have the deep insight – garnered by talking and liaising with the local political players, local businessmen and local opinion leaders – to understand the opportunities, as well as the threats. b) Financing and payment risk Of course, the trading environment can change in a heartbeat, ruining trading contracts and
bringing into question payment obligations. Many companies that were operating on an open account basis found this out the hard way back in 2008, facing up to the realisation that 20-30% was being wiped off the price of their contracts by Middle Eastern corporates unable – or in some cases unwilling – to pay. As such, I would always advocate the use of documentary letters of credit (LCs), which shift the payment risk of a company’s export contract from their overseas buyer to their buyer’s bank. Hence, removes counterparty risk, country risk and political risk from the equation. The answer to managing the cultural and payment risks of operating in the Middle East may best be served by a tried-and trusted banking network, known as, correspondent banking. Correspondent banking is a payment relationship between two banks (in this case, one global and one local) that enables their corporate clients to trade with each other while dealing with the credit of delivery risks such trades throw up. So while the banks know each other well, they also know their clients and the political, economic and social environment intimately. Yet, such a banking chain is only as strong as its weakest link. With banks in the Gulf remaining strong and showing well-capitalised balance sheets, the onus is very much on their global partner to show its long-term commitment to the relationship therefore. Indeed, many banks responded to the crisis in the Eurozone by calling in loans, reducing credit and retrenching to core markets. Commerzbank is not one of those banks, and has built a relationship in the Gulf over the last 30 years that remained strong throughout 2008, with not one credit line removed. And, given that trading contracts can only be built on strong foundations, it is clear that this commitment is vital if corporates are to seize the opportunities available. DECEMBER 2013
TRADE TALK Industry Watch
It’s all about quality
Sebastian Breteau, Founder, AsiaInspection, speaks to Trade and Export Middle East about the importance of quality control for a company and how businesses can benefit from the services this company provides. Please give us a brief background about your company and services you offer? AsiaInspection is a quality control service provider in the Middle East, Asia and Africa, founded on a unique concept – To provide clients with a cost-effective, rapid-response service anywhere in the Middle East, Africa and Asia within 48 hours and all managed online. Our services cover inspections, audits, and laboratory testing for electronics, textiles, furniture, food and all consumer goods everything in-between. We have 450+ inspectors, all trained a minimum of 100 hours per year, with an international management team. Our goal is to ensure our clients are compliant with international quality standards.
Why is quality control inspection important for a company?
Quality control ensures that the product being manufactured and delivered meets the buyer’s specifications as well as consumer safety standards for the destination market. 34
By performing an onsite inspection, an importer can significantly decrease the risk of receiving defective products that cannot be sold, or, even worse, harm consumers. Defects that could be harmful to consumers can be caught in the factory and dealt with before shipment, mitigating product loss, expensive lawsuits and unnecessary injury or loss of life.
You provide the service online- please explain to us how does this work?
Simply put, consumers order online, and AsiaInspection guarantees to be at any factory in the Middle East, Asia or Africa within 48 hours. We have invested heavily in developing an industry-leading IT service infrastructure. This makes it easy for clients to quickly and easily place orders and access reports online. Clients don’t always know the tests they need to perform on their products; AsiaInspection has made it easy with hundreds of off-the-shelf customisable product-specific checklists. Clients simply need to choose their product, quickly tailor it to their needs, and
an AsiaInspection inspector will follow their custom protocol in the factory. Customers can use their real-time dashboards to benchmark and identify their high performing suppliers and learn which areas need to improve.
What made you want to expand to the Middle East? Which countries are you looking at?
When AsiaInspection was founded, it was mostly importers representing brands and retailers from Europe and North America. Due to the growth in the Middle East, over the past few years we see an increasing number of requests coming from Middle Eastern importers to help secure their imports. Furthermore, China’s stake in the Middle East and Africa is growing – they are buying more oil
ABOUT A French national, Sebastien Breteau is a serial entrepreneur who has worked across Europe and Asia. In 2002, Sebastien Breteau founded AsiaInspection, a quality control service provider specialized in consumer goods for western SMEs producing in China. In 2011, he forged a joint venture between AsiaInspection and Silliker, a Mérieux NutriScience company, to perform food inspections in Asia.
local market. Setting up a business in KSA is more complex than Hong Kong or the United States. It’s important to have someone to navigate the local laws and regulations that govern the various regions in the Middle East. And even more importantly, we needed people
The average inspection cost per piece varies greatly by industry, product type and quality standards, but to give a rough idea, a garment manufacturer could expect a cost per inspection of around USD 0.10 per piece. and selling more goods in the region than any other country. We are seeing growth throughout the entire Middle East and as a result we are not prioritising one country over another.
What will be your marketing strategy for this region?
What is most important in a manufacturing and quality control partner is to understand the clients’ requirements. Because of this, AsiaInspection has invested in opening an office in Saudi Arabia and employing a local team that understands the local market and local consumer safety standards. Since hiring local specialists, the business has organically grown, primarily from satisfied clients and word of mouth advertising.
Did you face any challenges in setting up a business here?
What was most important was having someone on the ground who understood the
that could help to understand the destination countries import regulations and consumer safety standards on behalf of our clients. This is what builds trust.
For SMEs looking at quality inspection, are these services affordable?
AsiaInspection services are affordable, and more importantly, make sense for businesses of all sizes. An SME can use AsiaInspection and have complete visibility and control over the price of their quality control for an inclusive price of USD 299 . If you compare the costs of an inspection to the cost of a shipment full of defective products, it really is a no brainer. The average inspection cost per piece varies greatly by industry, product type and quality standards, but to give a rough idea, a garment manufacturer could expect a cost per inspection of around USD 0.10 per piece.
We regularly hear shocking stories from our clients. For example, one of our clients (before they started using our services) ordered a shipment of chemicals and sent a 30% deposit. Once the factory shipped the container the client sent the 70% balance without performing a Container Loading Check. When he received the barrels of “chemicals” they turned out to be full of sea water. He lost the money for the product and shipping. This is an extreme example, but we hear and see this, literally, on a daily basis.
What has been your experience in other Asian countries?
Despite the concern surrounding China’s slowing economy, particularly an appreciating Yuan and rising wages, China continues to turn out impressive growth, both in total number and percentage growth. Chinese exports in April were up again an impressive 14.7% (Bloomberg) and now 33% of the World’s goods are manufactured in China. AsiaInspection inspection figures mirror this growth: performed inspections in China for April 2013 were 26% higher than April of 2012. Though the numbers are much smaller, AsiaInspection is seeing higher growth in percentage in Vietnam and Thailand, for Q1 of this year both compared with one year ago, both were up +33%, and Bangladesh up +15.6%. Though Bangladesh is a wild card following the Savar building collapse; importers will either pull out or significantly increase their supplier oversight. With the attractive labour price in Bangladesh when compared with other countries, it will most likely be the latter, an increase in inspections and oversight of suppliers. DECEMBER 2013
Country focus Cyprus
A few months ago, I had the wonderful opportunity of visiting Cyprus, courtesy of the Cyprus Trade Centre, Dubai. In the first feature of a two part series, I bring to you my discussions with the Employers and Industrialists Federation, Institute of Certified Public Accountants and Ministry of Energy, Commerce, Industry & Tourism.
met Kyriacos Angelides, Business Association Coordinator at OEB on my first day in Cyprus. We began our discussion by Kyriacos giving me a background about the organisation. “Cyprus Employers and Industrialists Federation (OEB) was established in 1960. It is a federation for the business community here in Cyprus. We have approximately 5000 members, which include small and medium sized companies from all sectors of the economy. We try to help the business community and enterprises here by organising seminars and informing them about the changes in the regulations and also try to solve their problems. And I strongly believe that we have all the necessary advantage to succeed at that.” Talking further about the scenario in the private sector, Kyriacos pointed out that there is no denying that investor confidence has been shaken. A sentiment that was echoed by all the other people I met. However, it has not stopped foreign investors from coming to the country. In fact at the time we were doing this interview, the President of Cyprus was in the Middle East to promote trade relations with the Middle Eastern countries.
When I asked him about the changes that the government has made to deal with this delicate situation, Kyriacos was quick to point out that there are a number of institutions, such as the CIPA, which are working towards changing the mind-set of people. “We can truly say that Cyprus is at the crossroads of three continents and now that natural gas has been found in the Southern area of the island, I’m quite sure that in the next four to five years more companies will come here especially those companies who are in competition for the plots for oil and gas,” Kyriacos remarked. Besides oil and gas, Kyriacos highlighted that renewable energy also offers myriad opportunities. “I would say, besides oil and gas we have the renewables [energy]. I also see a huge prospect in —pharmaceuticals, we have companies which are exporting and they are doing very well. And there’s also a potential for the food and beverage industry. And also let’s not neglect and forget our tourism and shipping sector,” said Kyriacos. Cyprus is the third largest country in the shipping industry. “It’s an area that we have invested in a lot.
Country focus Cyprus
We have attracted foreign investments,” Kyriacos smiled. Talking about the future, Kyriacos was very optimistic and said, “If we manage to attract foreign investments, we’ll be back on track by 2015. And that’s why our President is in Kuwait, trying to attract foreign investors to come here and explore the business environment.” On this optimistic note, I said goodbye to Kyriacos and headed to meet Kyriakos Iordanou, Director, ICPA.
The guardian The ICPA acts as an organisational entity for the professional accountants. It supports and promotes their professional interests and protects their reputation. It supervises and controls its members and promotes their professional ethics via the code of conduct that it has established. ICPAC’s main aim is to train, instruct and inform its members on issues that are necessary for the exercise of their professional activities. Giving some more details about their role, Kyriakos said, “In addition we are the supervisory authority under two laws- one is for Money Laundering activities and the other is for the provision of Administrative Services. Today, our role is to regulate and
Kyriacos Angelides, Business Association Coordinator at OEB
that is imposed on the interests on deposits which has increased to 30%, this is called the Special Defence Levy and is only applicable to residents.” However, for foreign investors only the corporate tax is applicable and according to him, international investors don’t only look at the tax rate but the whole system behind it and the stability of the system and the other benefits that they could get for coming here. And 12.5% doesn’t make much of a difference.
have been taken. One other thing that they have been trying to work with the government on, is the area that covers the double tax treaties with other countries. While there is an established network, ICPA is lobbying to accelerate the processes with other countries outside the EU. “The focus now has shifted from Europe to the South in the Middle East area, towards India and Central Africa. We’ve got some agreements with Egypt, Libya, South Africa but the focus now is on Central Africa, Middle East and the Far East. Like with China there is already an established cooperation and with India negotiations started two to three years ago,” opined Kyriakos. Talking about the future, Kyriakos had a slightly different take. “Definitely 2015 is going to be a tough year and 2014 will continue
The focus now has shifted from Europe to the South in the Middle East area, towards India and Central Africa. monitor the accounting profession and the services that they provide. I would say that we are one of the good partners of the government for various activities like taxation, travel tax treaties, cooperation with Ministry of Commerce and Industry and more.” When I asked him if there has been any changes in the tax regulations, post the crisis, Kyriakos remarked, “Yes, there have been amendments in the tax law however the changes were not that significant. The three most significant things that had happened are: one was the increase of the VAT from 17% to 18%, next was the increase of the corporate tax rate from 10% to 12.5% and the other which is only applicable to locals on the tax 38
Elaborating on the role that the ICPA has played in suggesting changes to the government, Kyriakos stated that, “This is one of the things that we do on an ongoing basis. We consider Cyprus can still offer more or less the same benefits and the same products that it offered prior to March. The only serious change is that we cannot operate as a centre for banking as we used to. But in order to attract new business we can offer to assist international business to Cyprus and operate here.” He further added that they are pleased to see that some of their proposals have been accepted by the government and some new bills have been passed and some measures
Kyriakos Iordanou, Generral Manager – The Institute of Certified Public Accountants of Cyprus
on where 2013 left off. The international market remains a good source of income for the country but I don’t know whether this income now would be sufficient, since we have lost revenues from the banks.” “I would say that from 2015 onwards things would start to catch up. We also should have in mind other factors as well that may help with the recovery of the economy like exploration of the gas reserves that would provide some more movement in the market and also if some infrastructure work starts then a lot of markets would start moving again.”
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Country focus Cyprus
Kyriakos also added that by that time a lot of negotiations or agreements will be finalised with other countries. He also pointed out that there is some interest from the Gulf countries and that they could be very good partners in generating growth for the sectors of the economy that have suffered greatly. Another thing is that hopefully by that time there will be a rationalisation of the banking sector. This brought us to the end of a very engaging and insightful discussion and I found the work being done by ICPA extremely interesting and focused.
The promising sector For my last interview of the day, I headed to meet Constantinos Xichilos, Acting Director of Energy, Ministry of Energy, Commerce, Industry and Tourism. I was quite looking forward to this interview since I had read quite a bit about the oil and gas sector in Cyprus and their focus on renewable energy. Mr. Xichilos began our discussion by putting forth some interesting facts. “Cyprus, imports almost all of its primary energy. We have a small percentage of renewables in the energy mix of Cyprus, which is around 8% at the moment. We have a target of going up to 13% by 2020 in accordance to our European Union obligations. And the rest we have been importing primary in the form of oil and oil products. So energy imports, corresponds to something in the order of 7.5% of the GDP of Cyprus. With the discovery of hydrocarbons in the exclusive Economic Zone of Cyprus 40
in 2011, there is a new dimension in the energy matrix of Cyprus. There is a very good likelihood that in the next few years let’s say by 2020 Cyprus will become an exporter of energy.” Elaborating on the recent developments, Mr. Xichilos said, “The companies that have been operating in Block 12 under the very first license that has been awarded in 2008, have been very successful on their very first well. They discovered quite a big gas reserve which according to the latest estimates is of the order of 5 trillion cubic feet, which is adequate to cover the electricity needs of Cyprus for the next 200 years.” He also highlighted that the flagship strategy of the Republic of Cyprus is to eventually have a major onshore LNG plant that would be operated in Vasilikos here in Cyprus. The site has been cleared, it’s planned and
Constantinos Xichilos, Acting Director of Energy, Ministry of Energy, Commerce, Industry and Tourism
ready to accommodate such an investment. Although, there is a possibility that it could be delayed until there are additional discoveries, they are committed to. “All indications point that within the next year we will be having additional discoveries. We have been lucky and very successful so far. Everybody tells us that we shouldn’t be that optimistic that we are going to have a 100% success, on every well. The first licensees have set a very high standard for the rest, but with the advancements of technology, the likelihood of
discovering oil and natural gas is high.” Talking about other sources of energy, Mr. Xichilos remarked, “According to the latest bidding procedure the cheapest option we have today in Cyprus for generating electricity is from the photovoltaic technology. As a matter of fact, right now the barrier we have for more producing photovoltaic electricity in Cyprus is the capacity of the grid to support this technology.” So energy sector offers foreign investors an opportunity to invest? To this Mr. Xichilos replied, “, foreign companies are welcome to come and set up operations in Cyprus. Of course we are attracting a lot of oil companies that are involved in the exploration at this stage. But we can see that Cyprus is also attracting already some service companies. There is a supply chain of suppoting services and materials in the oil industry. And Cyprus offers this opportunity not only in companies that want to operate in Cyprus but also in the rest of the region as well. Cyprus is a European Union country, a democratic country governed by the rule of law, it provides a predictable framework for enterprises to do business in. It has a very good tax regime, corporate tax rates are amongst the lowest in the European Union. So we believe that Cyprus will be attracting investments to the oil and gas sector which will be growing faster than the rest of the economy.” There is no denying that there are major opportunities from the construction of the infrastructure for the exports of natural gas. There will also be opportunities for everything that is involved around that sector;be it in the services in the construction industry, materials or personnel, equipment or machineries. Also and there are opportunities in marketing the final products. After talking to Mr. Xichilos I was left in no doubt that the energy sector will offer foreign investors a plethora of opportunities in the coming years and it’s just a matter of who goes in first and get the advantage. At the end of my first day of interviews I was pretty amazed at the spirit of rising up that was evident everywhere I went. The second part of my trip will be covered in our February issue where I get to speak to CIPA, the Chamber of Commerce and other organisations.
Country focus Interview
Τrade with the Netherlands
Αparna Shivpuri Arya got talking to Robert de Leeuw, Consul General, Kingdom of the Netherlands in Dubai, to get his opinion on the bilateral relation between the UAE and the Netherlands.
Please give us a brief background on the trade relations between the UAE and the Netherlands.
The relationship between the Netherlands and the UAE is excellent. With roots established in the 1970s, we have been present throughout the formative years of the UAE. The Dutch being known as a trading nation, it’s not surprising that activity with the UAE has always been characterised by this occupation. The UAE is the Netherlands’ number one GCC export partner.
How have the trade relations evolved over the decades and what are the main products traded?
Along with the trade relations both countries are also pushing to strengthen their diplomatic ties as well. Government-to-government contacts have been growing in recent years. It’s a mature relationship between partners. The UAE mainly imports machinery, chemicals, and agro food from the Netherlands and the UAE on its part exports mineral fuels, manufactures of various range and chemicals to the Netherlands.
For GCC companies keen on investing in the Netherlands, what advice would you like to give them and which sectors and areas would you highlight? Set up an introductory meeting with the Netherlands Foreign Investment Agency in Dubai, to discuss opportunities and prepare a visit to the Netherlands. The NFIA, a department at the Consulate General can help with preparations and suggest meetings and useful contacts. The Netherlands is a trading hub for all sectors, but particularly the petrochemical, oil and gas and logistics sectors are interesting for GCC companies. 42
Robert de Leeuw, Consul General, Kingdom of the Netherlands in Dubai
Are there any issues that foreign companies need to be aware of when they decide to set shop in the Netherlands? The Netherlands is one of the easiest countries in Europe to do business, with a very friendly business climate, but the legal and tax systems are different than in the GCC, so it is a good idea to prepare thoroughly with the free-of-charge information of the NFIA.
How many Dutch nationals live in the UAE and what are the kind of companies from the Netherlands in the UAE?
Currently an estimated 5000 Dutch nationals live in the UAE who have moved to the UAE mainly to explore business opportunities. The Dutch are known for their high human capital and their natural trading sense that has brought them all over the world. The entrepreneurial nature of the Dutch indeed matches the UAE environment in that sense. It’s difficult to speak of key Dutch industries in the UAE, knowing that Dutch industries are covering
such a broad spectrum of activity. Within this wide variety of industries, we are known to fulfil niche specialisations and technology. In the UAE, we are known for water and waste management, renewable energy, dredging, financial services, hospitality services, agriculture and oil & gas. Van Oord dredging company, for instance, was recently awarded the Jumana Island project just off Jumeirah beach in Dubai, reconfirming our excellence in this field. Those are however not exclusive fields for Dutch operations in the UAE. In April 2013 Shell won a large tender to develop Bab Sour Gas, the second sour gas project in Abu Dhabi. Another example of a larger presence in the UAE is Vopak Fujairah, with its leading storage and handling services for petroleum products. Our famous multinationals, such as Shell, Unilever, Boskalis, Friesland Campina, ABN AMRO, ING, Akzo Nobel and Philips just to mention a few are represented in the UAE and even have established their regional head office in this country. In addition to that, one can see Dutch presence in engineering consulting, construction, the legal field, finance, hospitality, and design.
How do you see the bilateral economic relation evolving in the coming years?
I foresee that the coming years will bring an increasing number of opportunities for Dutch companies. During the visit of Minister Kamp this November, our Minister of Economic Affairs, interesting discussions have been held and bilateral cooperation will be further developed based on MoUs and agreements that are signed with the Ministry of Energy, ADNOC and others. With the Netherlands being a major hub in Europe, and Dubai being the same in the Middle East, there will be a lot of synergies in the coming years.
Country focus Doing business
Why invest in
The Netherlands Foreign Investment Agency, gives us more than enough reasons to convince us about investing in Holland.
he Netherlands provides a strategic location to serve markets within Europe, the Middle East and Africa. The central geographical position of the Netherlands, combined with accessibility and excellent infrastructure, are only some of the reasons why numerous European, American and Asian companies have established their facilities in the Netherlands. â€˘ A competitive fiscal climate The Dutch tax system has a number of features 44
that may be very beneficial in international tax planning. These include a corporate income tax rate of 20% on the first EUR 200,000 and 25% for taxable profits exceeding EUR 200,000. In addition, the Dutch ruling practice provides clarity and certainty in advance on future tax positions. Furthermore, in respect of R&D, companies can benefit from the innovation box resulting in an effective corporate tax rate of only 5%, an R&D allowance (WBSO) taking the form of wage tax and social security contribution deductions, as well as a tax
deduction facility for R&D costs (RDA). Dutch tax law also provides the participation exemption, which states that all benefits related to a qualifying shareholding are exempt from Dutch corporate income tax, as well as the fiscal unity regime, designed to freely offset profits and losses among group members. There are also advantages in debt and loss structuring, and a wide tax treaty network, resulting in reduction of withholding taxes on dividends, interests and royalties.
Netherlands Foreign Investment Agency (NFIA) The NFIA (Netherlands Foreign Investment Agency) is an operational unit of the Ministry of Economic Affairs. The NFIA helps and advises foreign companies on the establishment, rolling out and/or expansion of their international activities in the Netherlands. Visit our regional NFIA website for the latest news on business and investment opportunities in the Netherlands (all NFIA website addresses can be found on www.nfia.nl).
for both cargo and passenger transport. The Netherlands is also classified as one of the most ‘wired’ countries in the world; a dynamic force in electronic commerce, communications and outsourcing. More than a decade of investment in high-speed internet, cable and digital communication systems, as well as the rapid adoption of state-of-the-art computer and cell phone technology, has created an ideal base for companies seeking to take advantage of modern technology.
most multilingual in the world, enabling them to successfully operate in companies across any industry, serving customers throughout the continent. What’s more, Dutch law offers employers a range of contract possibilities to flexibly procure employees.
• An international business environment The Netherlands, is an obvious choice to locate a pan-European operation - whether it’s a European headquarters, a shared services centre, a customer care centre, a distribution and logistics operation, or an R&D facility. The country’s pro-business environment creates a gateway to Europe that helps international companies succeed throughout the continent. An international outlook and openness to foreign investment is firmly ingrained in the Dutch culture, and this has yielded a wealth of world-class business partners who know how to deal with global business challenges in today’s economy.
Your chemical portal to Europe The chemical industry in the Netherlands, a priority sector of the Dutch government, is strongly focused on sustainability. The chemical industry has therefore agreed on a long-term strategy aimed at increasing productivity, doubling both turnover as well as CO2 reductions and reducing the environmental footprint. Goal is to be known as the Green Chemistry Country and to be ranked among the top three producers of high-tech materials worldwide by 2050. The competitiveness of the Dutch chemical industry lies in its internal and inter-company integration. Chemical companies purchase from – and supply to – one another. They work together on innovation and production, and take advantage of regional clustering. As a whole, the clusters are more competitive than the individual companies put together.
• A conducive innovation environment Holland’s open innovation approach and well organised public-private partnerships offer a favourable environment for companies looking for business acceleration. Together with a mind-set of creativity, collaboration and reliability - and a top scientific sector Holland is able to guarantee the most important drivers in ‘innovation location’ choices for foreign investors.
Courtesy of Amsterdam Toerisme & Congres Bureau (ATCB)
Finally, there is the 30% ruling, which is a tax-free reimbursement of 30% of the employee’s salary, provided that the employee has been recruited or assigned from abroad and has specific expertise scarce in the Dutch labour market.
• A superior logistics and technology infrastructure The Port of Rotterdam is Europe’s largest and most important seaport, while Schiphol Airport is ranked as Europe’s best airport
• A solid workforce The Netherlands features one of the most highly educated, flexible and motivated workforces in Europe. Dutch professionals are also among the
• An attractive quality of life The Netherlands is proud to have a high standard of living, whilst maintaining an affordable life for its residents. The costs of living, housing, education and cultural activities are lower than in most WesternEuropean countries. Furthermore, all sorts of cultural and leisure activities are open to both Dutch citizens and visitors alike. Whether it’s spending a leisurely afternoon on the beach, enjoying culinary delights or going to one of the cities’ acclaimed theatres or opera houses, the new expatriate is soon made to feel that the Netherlands is a most welcoming and entertaining country.
Country focus Doing business
issues certificates for gas-flow calibrations at Bergum, Westerbork and the recently opened location EuroLoop, Rotterdam. NMi certificates and test reports are accepted worldwide.
Courtesy of Courtesy of Dow
Because of its integrated nature, Holland now hosts 19 of the world’s top 25 leading chemical companies, as well as a number of world-class R&D institutes for fundamental and applied research.
Sustainable Energy The Netherlands has embraced a courageous vision: by 2050, the country will have a sustainable, reliable and affordable energy system. As part of this, the Dutch aim to cut CO2 emissions by half, and to generate some 40% of our electricity from sustainable sources such as wind at sea and biomass by that time. The Dutch have leading expertise in offshore wind energy, co-combustion of biomass in coal-fired power plants, methods to pre-treat biomass, the use of landfill gas, and the use of heat pumps combined with heat and cold storage. An electric car uses an electric motor for propulsion instead of the common internal combustion engine, which runs on gasoline. These battery-powered cars cause significantly less pollution. They have been developed in answer to growing climate change, rising gasoline prices and environmental awareness. Oil & Gas The Netherlands has established itself as a pivotal player in the European gas market. The country is not only a major natural gas producer and the source of advanced gas 46
Courtesy of NL Agency
technology, it is also Europe’s leading gas broker. Fifty years of experience in organising public-private partnerships to manage the gas business turned the country into a European gas hub. The Dutch have unmatched capacity to cope with seasonal fluctuations in gas demand, providing North Western Europe with much needed flexibility. In addition, the Netherlands is establishing itself as a leader in green gas.
Large-scale distribution system for natural gas Billions of cubic metres pass annually through modern large-scale systems for the production, transport, and distribution of natural gas. Measurement results are the basis for costs and revenues. An incorrect measurement by one tenth of a percentage can make a difference of millions of Euros annually. Accuracy of results requires traceability to international standards. NMi, the Dutch independent metrology institute,
The Netherlands is a key logistics hub connecting global markets The Netherlands plays a key role in our globalised economy, by connecting producers and consumers worldwide. Our success is based on an alignment of cutting-edge infrastructure and world-class service providers, and our coastal location at the heart of Europe. Exemplary for our position are the Port of Rotterdam, Europe’s largest port by far and the world’s fourth-largest, and Amsterdam Airport Schiphol, a major European cargo and passenger hub. Both are supported by world class logistics service providers and an extensive network of road, rail, waterways and pipelines. This powerful combination has allowed us to become the Gateway to Europe, accounting for significant parts of European road and water transport. The Netherlands also makes extensive use of IT to deliver optimised supply chain solutions, for example in time critical areas like food and flowers. In addition, the country is making pioneering efforts in environmentally sustainable logistics and silent logistics. Amsterdam Airport Schiphol was Europe’s fourth largest airport in passenger numbers and third in cargo volumes in 2011, welcoming 51 million passengers and processing more than 1.5 million tonnes of cargo. A total of 103 airlines offer direct flights from Schiphol to 313 destinations all over the globe. It is also one of the two European home bases of Air France-KLM and the SkyTeam alliance. Schiphol is also renowned for its outstanding baggage handling system. Furthermore, the airport has won more than 176 national and international awards since 1980. Schiphol is home to a museum which is the first of its kind in the world and features exhibits that include paintings by old masters such as Vincent van Gogh and Rembrandt. It’s also the first airport in the world with a library and a park.
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Country focus Legal
The Netherlands re-invented
For decades, the Netherlands has gained international fame as a favourable location for holding and financing activities. Jan Bart Schober, Partnerâ€“Tax, Head of Dubai office and Marieke Vreeburg, Senior Associate, Corporate Law, Loyens & Loeff, talk about the regulations and the potential that R&D activities offer.
etherlandâ€™s participation exemption, which provides for a full exemption on qualifying dividend income and capital gains, the abolition of the thin-capitalisation rules as per 1st January 2013, its strong and flexible legal framework, its extensive network of bilateral investment treaties and double tax treaties, as well as its central geographical position has attracted business from all over the globe to set up shop in the Netherlands. What is perhaps less known, is the fact that the government of the Netherlands has put substantial effort into further stimulating the Dutch knowledge-
based economy. In addition to some favorable regimes that have been in existence for a long time, over the past years the Dutch government introduced a number of additional incentives that add to the attractiveness of the Netherlands for innovative business activities. The key incentives are summarised below.
Innovation box The so-called innovation box is a facility granted to companies carrying out R&D activities. Pursuant to this regime, the corporate income tax liability on qualifying
ABOUT Jan Bart Schober is a member of the International Tax practice group. He advises multinational companies, financial institutions and funds on cross-border transactions into, or through, the Netherlands and Luxembourg. Jan Bart has extensive experience in structuring investments in E&P assets by oil and gas companies, as well as on acquisitions, joint ventures and corporate restructurings in the energy industry. Furthermore, he has a strong focus on financing transactions, such as securitisations and repackagings. Before heading the Dubai office, he worked in the Amsterdam and London offices of Loyens & Loeff.He can be contacted at email@example.com
up to 15%. The RDD is connected to a rebate that applies to the amount of wage tax due in respect of certain R&D-related wages. This wage tax rebate is discussed hereafter.
income derived from certain intangible assets that are created or further developed by R&D is substantially reduced. In fact, the effective corporate income tax liability on qualifying income may be as low as 5%, instead of the ordinary tax rate of 25% (20% for the first EUR 200,000 of taxable profits). Tax losses resulting
R&D deduction In addition to the innovation box regime, the Dutch government introduced the so-called R&D deduction (“RDD”). The RDD is a facility to promote certain costs and investments that are attributable to R&D activities. This incentive comes on top of the other incentives that apply
Highly-skilled migrants inter alia are employees (not self-employed persons) whose income lies above a certain level and is in line with the prevailing market. For 2013, this minimum income is EUR 52,010 for those over the age of 30. For those under the age of 30, it is EUR 38,141. from qualifying innovation box assets/activities may however be offset against tax profits of the nine coming years against the statutory Dutch corporate income tax rate of 20%-25%.
to R&D activities. For 2014, the additional deduction has been set at 60% of the total amount of qualifying expenses. This may result in a net corporate income tax saving of
Wage tax rebate Companies that carry out qualifying R&D activities may be entitled to a rebate on wage tax payable in respect of wages related to the relevant R&D activities. This facility is generally referred to as the “WBSO”. Wage tax has to be withheld from the employee’s salary and remitted by the employer to the tax authorities. The employee can credit the wage tax withheld against his personal income tax liability. Under the WBSO, the employer’s obligation to remit the wage tax due is reduced, but the employee remains entitled to credit the full amount of wage tax. In this way, the company’s cost of labour relating to R&D activities is effectively reduced. For 2014, the rebate of wage tax may amount to 35% on the first EUR 250,000 of qualifying wages, and to 14% for qualifying wages in excess of EUR 250,000. Start-up entrepreneurs can deduct no less than 50% from the wage costs in the first bracket. Self-employed entrepreneurs who spend at least 500 hours of their time on qualifying R&D activities in a calendar year DECEMBER 2013
Country focus Legal
can benefit from a fixed rebate from their personal income tax basis of EUR 12,310. 2013 self-employed entrepreneurs with employees can come into consideration for both the deduction of wage tax paid on the employees’ wages and the rebate from their personal income tax. For the year 2014, the maximum amount of the rebate per company amounts to EUR 14 million. Highly-skilled migrants In order to attract foreign talented professionals with the skills required to carry out the innovative business activities, the Netherlands allows an expeditious and simple procedure for obtaining work and residence permits for so-called highly-skilled migrants. Highly-skilled migrants inter alia are employees (not self-employed persons) whose income lies above a certain level and is in line with the prevailing market. For 2013, this minimum income is EUR 52,010 for those
ABOUT Marieke Vreeburg is a member of the Corporate practice group of Loyens & Loeff. She specialises in corporate law, including mergers and acquisitions, joint ventures, and corporate restructurings. Before joining the Dubai office, she practiced corporate law at a Dutch law firm in Rotterdam and London. She can be contacted at firstname.lastname@example.org
30% Ruling Living abroad may attract some additional expenses. In order to compensate employees for this possible burden, the Dutch government introduced the so-called 30%-ruling. Under this regime, qualifying employees are entitled to receive 30% of their taxable employment income as a fixed, tax free allowance for extraterritorial expenses. As a result, only 70% of the employment income
Furthermore, if the 30% ruling applies, any income derived by the employee from work carried out, or wealth held, outside the Netherlands, is not taxable in the Netherlands (irrespective of such income being remitted to the Netherlands or not). over the age of 30. For those under the age of 30, it is EUR 38,141. The 2014 amounts have not been determined yet. Foreign nationals from outside the territory of the EU and EEA member states (including Switzerland), who wish to reside in the Netherlands for longer than three months need a residence permit. Highly-skilled migrants receive a five-year residence permit if they have an employment contract for an unlimited period of time. If they have an employment contract for a limited period of time, the residence permit is granted for such period, with a maximum of five years. A residence permit is also granted to married partners of a highly-skilled migrant (or to a non-married registered partner of at least 21 years, if they can prove a durable and exclusive relationship). 50
is subject to Dutch income tax. In addition, the employee remains entitled to receive a tax free allowance from his employer to cover school fees for the employee’s children attending international primary or secondary schools. Furthermore, if the 30% ruling applies, any income derived by the employee from work carried out, or wealth held, outside the Netherlands, is not taxable in the Netherlands (irrespective of such income being remitted to the Netherlands or not). The 30%-ruling is generally valid for a maximum period of eight years. Flex BV Innovative businesses may require innovative legal frameworks. Last year, the Netherlands introduced an important
simplification and flexibility to the rules governing private limited liability companies. The new rules allow for more flexibility in respect of, inter alia, voting rights, decision making, profit distribution, transfer of shares, capital requirements and appointment/dismissal of managing and supervisory directors, in an effort to meet the needs of the present-day national and international practice. In summary, it could be said that the new regime is based on guidelines rather than mandatory rules, that it give parties more freedom to act, and that it aims to reduce administrative burdens. The new regime is generally referred to as the “Flex BV” regime. Hospitality is key The Dutch government realises that economic stability and favourable tax and legal regimes and incentives are not sufficient to make a business flourish. The Netherlands realises that hospitality of, and accessibility to, authorities are key to offering foreign innovative businesses a fertile place for growth. In order to create a successful international business environment, the Dutch government literally goes out of its way to welcome foreign investors. The Netherlands Foreign Investment Agency (NFIA), an operational unit of the Dutch Ministry of Economic Affairs, is present in many countries outside the Netherlands (including the Middle-East) to guide companies in setting up activities in the Netherlands. Together with the favourable tax regimes, the open and business-oriented approach of the authorities render the Netherlands the location of choice for R&D activities.
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Trade and Export Middle East | December 2013