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ISSUE 21 | OCTOBER 2013

BUSINESS INTELLIGENCE FOR INTERNATIONAL TRADE

www.tradeandexportme.com

Ecuador The business gateway to south america

PUBLICATION LICENSED BY IMPZ


EDITOR’S LETTER

Publisher Dominic De Sousa Chief Operating Officer Nadeem Hood

Editor’s note…

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

September was a long and busy month for us. I felt that this month is never going to come to an end but as they say all’s well that ends well and the month did end well for us, with a very successful event on the 29 th of September – Connecting with Ecuador. With over 150 participants and a stellar line up of speakers, including the Department of Economic Development, Dubai Trade and Western Union, the event provided some very interesting information about doing business with Ecuador. If you missed the event, do visit our website for all the details or turn to page 26 to get an overview.

EDITORIAL Senior Editor Aparna Shivpuri Arya aparna.arya@cpimediagroup.com +971 4 440 9133 Business Assistant Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 440 9160 ADVERTISING Media Sales Executive Ibrahim Parwaz ibrahim.parwaz@cpimediagroup.com +971 4 440 9135

Besides organising our own event, we were also media partners for the Trade Credit Insurance Summit and also attended an event by DHL and the Russian Business Council. So, like I said, it was a busy and long month.

PRODUCTION AND DESIGN Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 Head of Design Fahed Sabbagh fahed.sabbagh@cpimediagroup.com +971 4 440 9107 Designer Froilan A. Cosgafa IV froilan.cosgafa@cpimediagroup.com +971 4 440 9107 Photographer Jay Colina Abdul Kader Pattambi DIGITAL SERVICES www.tradeandexportme.com

Moving on, we’ll be organising a networking evening on the 13 th of November and another event on trade and investment opportunities in Brazil on the 24th of November. So please don’t forget to check our website regularly for updates. Besides the event, this issue, we also got the opportunity to interview the CEO of Etihad Rail to know more about this ambitious project and how it will facilitate trade in the region. In the legal section, we have got a very interesting feature on the regulations in the gas sector in the UAE. The government has planned massive investment in this sector and we provide some informative insights. As we gear up to prepare for our upcoming events, we hope you’ll continue to enjoy the stories we put together for you. Please do not hesitate to connect with us through e-mail or social media.

Till then,

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

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

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SEPTEMBER 2013

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20 26 OCTOBER 2013

updates

ISSUE 21

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trade talk

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OCTOBER 2013

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News: Regional news and global trends that can impact your trade.

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EVENTS CALENDAR: A snapshot of exhibitions and conferences around the region, which can help you spend less time planning and more time attending.

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EXPERT COLUMN: Janani Sankaran, Senior Consultant, Business & Financial Services Practice, Frost & Sullivan talks about the trade and investment climate in the Kingdom of Saudi Arabia (KSA).

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ABOUT TOWN Trade Credit Insurance: The Trade Credit Insurance Summit was organised from the 23rd-25th of September in Dubai and we bring to you a synopsis of the discussions.

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Trade with Russia: DHL organised an event with the Russian Business Council to highlight the trade and investment relations between the two countries.

LOGISTICS Etihad rail: Etihad Rail is an ambitious project, initiated in 2009 to connect the UAE to the principal industrial hubs in the GCC. Aparna Shivpuri Arya spoke to Dr. Nasser Al Mansoori, CEO, Etihad Rail to get an update on the developments so far. Multi-modal freight: Aparna Shivpuri Arya interviewed Mohammed Jaber, COO of Agility ( Abu Dhabi) PJSC to get his expert opinion on the logistics industry.


trade talk

CONTENTS

trade talk

36 44

Currencies: This month we look at the movements in the USD, the EUR and the GBP to help you trade better.

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TECHNOLOGY: How many of us actually know what M2M is and how evolved technology has become? Manfred Kube, Head of Communication at Gemalto gives us a lowdown on M2M communication

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SECTOR WATCH: Maritime trade is a very important part of Middle Eastern economies and there has been a sharp increase in container traffic in the last few years. To get more details on this, we got talking to Nikhil Chitkara, Senior Research Analyst, Drewery.

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LEGAL: To understand what rules and regulations govern the gas sector in the UAE, Sai Pidatala, Senior Associate, Fichte & Co, takes us through the legal framework.

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EVENT: We, along with, PRO ECUADOR organised an event on the 29th of September to highlight the trade, investment and tourism opportunities. Turn the pages to read all about it.

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INTERVIEW: With its inception in 1979, SAFID has come a long way and has built on its vision and dreams. Aparna Shivpuri Arya spoke to Sheikh Mohammed al Rahbani, Chairman, SAFID to know more about the company.

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INTERNATIONAL TRADE: In the second feature of our two-part series, Michael Gasiorek, an international trade expert, explains in detail the Trade Concentration Index.

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STRATEGY: Dr. Ashraf Mahate, Head, Market Intelligence, DED, tell us, as an entrepreneur, how to deal with a very possible aspect of being in business – rejection.

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Finance Alternative funding: Kamel Alzarka is the force behind the Falcon Group. He spoke to Aparna Shivpuri Arya about his company and the world of finance.

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Updates Regional news

Bahrain and South Korea look at strengthening ties

UAE’s exporters get the support of government agencies The Overseas Trade Offices (OTOs) of Dubai Exports (DE), the export promotion agency of the Department of Economic Development (DED), Government of Dubai, are playing a significant role in enabling UAE-based exporters to establish their presence in strategic foreign markets and in connecting them with buyers as well as export facilitators in those markets. The OTO in Saudi Arabia has helped UAE exporters conclude transactions worth over AED 363 million between 2010 and the first quarter of 2013 while the Mumbai-based trade office in India is looking ahead to even busier days having connected more than 300 potential buyers to exporters in the UAE during the first quarter of 2013. India is the UAE’s largest trading partner with bilateral trade growing from USD 43 billion (AED 157, 939 billion) in 2009 to USD 75 billion in 2012. “Our Overseas Trade Offices have produced significant outcomes in terms of familiarising UAE-based exporters with promising foreign markets and encouraging buyers in these market export competitive products through Dubai,” said Engineer Saed Al Awadi, Chief Executive Officer of Dubai Exports.

USD 17.5

billion

value of KSA’s food and agricultural imports

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OCTOBER 2013

The landmark visit by the South Korean Prime Minister to Bahrain after over three decades signals that both countries are serious in enhancing cooperation at different levels, the South Korean chargé d’affaires in Bahrain has said. The current trade volume between Bahrain and South Korea is USD 1 billion and there are still big avenues for growth with the two countries all set to form a joint commission to boost trade and investment between them and enhance cooperation in the fields of education, technology and culture, the chargé d’affaires told Bahrain News Agency (BNA).

First phase of the new terminal to be completed by December 2013

Emirates SkyCargo will construct its new terminal at Al Maktoum International Airport (AMIA) as revealed by Dubai World Central. The phase one of the terminal is set for completion by December 2013. Upon completion of the first phase, followed by the installation of the cargo handling system and the fitment of the interior by April next year and full completion by mid-September, the terminal will be equipped to handle 700,000 tonnes of cargo and can be further expanded by an additional 300,000 tonnes in the second phase.


Updates Regional news

Dubai’s non-oil trade shows promise

Abu Dhabi and Botswana sign an agreement to boost ICT development In a bid to bolster national performance and global competitiveness, the governments of Abu Dhabi and the Republic of Botswana on September 9th signed a memorandum of understanding (MoU) for information, communications and technology (ICT) knowledge sharing, capacity building and skills transfer. The MoU between the Emirate of Abu Dhabi – and Botswana is a commitment to work together to

develop electronic public services and marks the latest stage in cooperation in the ICT field. The MoU was signed by H.E. Rashed Lahej Al-Mansoori, Director General of Abu Dhabi Systems and Information Centre (ADSIC) – the government entity in charge of the ICT agenda in the Emirate of Abu Dhabi, and Mr. Lewis Malikongwa, Deputy Director General of the Botswana National Strategy Office.

KSA’s food and agriculture sector shows investment opportunities Food and agricultural commodities currently account for around 15% of Saudi imports at USD 17.5 billion, making the Kingdom the largest consumer market in the Gulf. Domestic food consumption is poised to increase by 9.75% and mass grocery retail transactions by 11.7% by the end of this year, so the share

could rise even further. Looking forward, Saudi agricultural imports are expected to grow by as much as 76% by 2016. The Kingdom is investing around USD 12.3 billion in domestic agriculture projects and food security programmes to meet growing local demand.

Dubai’s non-oil trade for the first half of 2013 amounted to AED 679 billion in value, a growth rate of 16% from last year’s AED 584 billion during the same period. Shaikh Hamdan Bin Mohammad Bin Rashid Al Maktoum, Dubai Crown Prince and Chairman of Dubai Executive Council, expressed his satisfaction with the results, which he said further consolidate confidence in Dubai’s adopted economic framework that is characterised by openness to the world.

KSA’s IT market The Saudi IT market, which is the largest in the Middle East totaled USD 1 billion in 2012, and is expected to surpass USD 12.4 billion by 2016, according to International Data Corporation (IDC). IDC, the IT and communication market intelligence, brought together more than 150 of the top IT end users from across the Kingdom for the first day of its prestigious Saudi Arabia CIO Summit 2013, held at the InterContinental Jeddah.

Excellent ratings given to Al Hilal Bank Al Hilal Bank has announced that it has been awarded an A1 rating by Moody’s and an A+ by Fitch, the highest ratings awarded to an Islamic Bank in the UAE. Moody’s extended Al Hilal Bank an A1 rating with a stable outlook, citing the Bank’s robust franchise growth, strength of its asset quality, advanced technology infrastructure and government support as the rationale for the positive rating outcome. Fitch Ratings extended the Bank an A+ rating with a stable outlook. Fitch noted improving profitability, healthy asset quality, robust reserve coverage, satisfactory capitalisation as well as government support as key rating factors.

OCTOBER 2013

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Updates Global Watch

EU- Singapore FTA details finalised

The European Union has finalised the details of its free trade agreement with Singapore. The deal is said to be one for the world’s most comprehensive FTA and is seen as a stepping stone for EU on getting wider opportunities with booming countries in Southeast Asia. Even though the agreement is still subject to approval by Singapore and all 28 EU member states and the EU Parliament, the agreement should take effect by either late 2014 or early 2015. Trade in goods between the two reached over EUR 52 billion in 2012 and mutual investments reached EUR 190 billion. Singapore accounts for about one-third of the EU-ASEAN trade more than 60% of all investment between the two regions and is host to more than 9,000 European companies.

New leadership at the helm of the WTO Ambassador Roberto Azevêdo of Brazil took the helm of the WTO on September 1st 2013 as the sixth Director-General. Director-General Azevêdo was appointed to a four-year term by the General Council on 14th May 2013. The General Council held a special meeting on September 9th 2013 to welcome the new Director-General and listen to his inaugural speech. In announcing this special meeting, the General Council Chair, Ambassador Shahid Bashir, said that at the end of the meeting, he intends “to announce, in co-operation with the new Director-General, the intensification of our work in preparation for Bali, starting with a focus on the shape of MC9, including its outcome document.”

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Move to promote India’s pharma exports IAG Cargo announced increased flights between London Heathrow and Rajiv Gandhi International Airport in Hyderabad, offering the city’s booming pharmaceutical industry additional export capacity to global markets. The number of flights will rise from six to seven

a week, with the new daily service starting on October 27th. The route will also see capacity increased by 50% with the introduction of the larger B777-200, a model which boasts increased cargo capacity of six pallets, up from the current four.

BRICS to commit USD 100 bn to foreign exchange fund The BRICS group of emerging economies will contribute USD 100 billion to a fighting fund to steady currency markets destabilised by an expected pullback of US monetary stimulus, China and Russia said. China, holder of the world’s largest foreign exchange reserves, will contribute the lion’s share of the currency pool. But it will be much smaller than the USD 240 billion originally envisaged and officials said it would not be functional for some time yet.

World investment outlook seems subdued UNCTAD Secretary-General Mukhisa Kituyi warned that the road to global investment recovery remains bumpy, with investors reluctant to expand their businesses in the face of widespread economic fragility and policy uncertainty. According to the UNCTAD World Investment Report, global foreign direct investment (FDI) in 2012 contracted by 18%. Dr. Kituyi spoke before the International Investment Forum (IIF) of the 17th China International Fair for Investment and Trade (CIFIT).


Community events calendar

Save the date!

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

Event

Location

1-3

Private Label Middle East

Dubai World Trade Centre

1-5

Middle East Watch & jewellery Show

Expo Centre Sharjah

1 - 10

Gulf expo-Qatar

Gulf expo-Qatar

1-4

Electrolight Qatar

Doha International Exhibition Centre

7-9

Arabiashop

Dubai World Trade Centre

7-9

Light Middle East

Dubai International Exhibition Centre

7 - 10

Doha International Oil and Gas Exhibition

Doha Exhibition Centre

8 - 10

Kuwait Oil and Gas Show

Kuwait International Fair Ground

8 - 10

Cityscape Global

Dubai International Exhibition Centre

8 - 10

Future Build

Dubai International Exhibition Centre

8 - 10

Future Cities

Dubai International Exhibition Centre

8 - 10

Future Retail

Dubai International Exhibition Centre

20 - 24

GITEX technology Week

Dubai International Exhibition Centre

20 - 24

Infocomm MENA 2013

Dubai World Trade Centre

27 - 29

Abu Dhabi Medical Congress & Expo.

Abu-Dhabi National Exhibition Center

28 - 29

MENA Mining Congress

Dubai World Trade Centre

28 - 30

SPE Intelligent Energy

Dubai International Exhibition Centre

28 - 30

Green Middle East

Expo Centre Sharjah

29 - 31

NAJAH Education Exhibition - Abu Dhabi

Abu-Dhabi National Exhibition Center

30 - 31

Middle East Big Data Summit

Radisson Blue Hotel Kuwait

November

17 - 21

DubaiAirshow

Dubai World Trade Centre

2-4

Food and Hotel Oman

Oman International Exhibition Centre

17 - 19

The Speciality Food Festival

Dubai World Trade Centre

3-5

Inventions and Nanotech MiddleEast

Qatar National Convention Centre

17 - 19

Seafex

Dubai World Trade Centre

2-3

Mubadarat Forum

Jeddah Centre For Forums and Events

17 - 19

World Luxury Expo Doha

St. Regis Hotel Doha

4-7

Saudi Build

Riyadh International Exhibition Centre

18 - 19

Gulf Aviation Training Event

Dubai World Trade Centre

9 - 13

Irf World Meeting & Exhibition

Riyadh Intercontinental Hotel

18 - 23

Kuwait Internationa Property Show

Kuwait International Fair Ground

9 - 13

Middle East International Motor Show

Dubai World Trade Centre

19 - 23

Jewellery Arabia

Bahrain International Exhibition & Convention Centre

10 - 13

Abu Dhabi International Petroleum Exhibition and Conference

Abu Dhabi National Convention Centre

20 - 21

Kuwait Drill Tech Conference and Exhibition

Hilton Kuwait Resort

23 - 25

Medhealth and Wellness

Oman International Exhibition Centre

24 - 26

Itca Abu Dhabi

Abu Dhabi National Convention Centre

24 - 26

SIAL Middle East

Abu Dhabi National Convention Centre

25 - 28

CCFS- Chinese Commodities Fair Sharjah

Expo Centre Sharjah

25 - 28

Gulf Maritime 2013

Expo Centre Sharjah

10 - 21 11 - 13 12 - 14 14 - 15

Real Estate Cruise Airport Exchange Real Estate Fair Qatar

Kuwait City (TBA) Qatar National Convention Centre Doha (TBA)

Mena Forex Show, Managed Funds & Investment Opportunities

Jumeirah Beach Hotel

16 - 17

Real Estate Bahrain

Manama

25 - 27

Saudi Arabia International Oil and Gas Exhibition

Dhahran International Exhibition Centre

16 - 19

GITEX Saudi Arabia

Riyadh International Exhibition Centre

25 - 28

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

Dubai International Convention & Exhibition Centre

16 - 19

Saudi Communications

Riyadh International Exhibition Centre

25 - 28

Facilities Management Expo

Dubai World Trade Centre

18 - 19

Real Estate Fair Saudi Arabia

Dammam

27 - 30

Riyadh Motor Show

Riyadh International Exhibition Centre

OCTOBER 2013

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

October

9


Updates Expert Opinion

The prosperous kingdom Janani Sankaran, Senior Consultant, Business & Financial Services Practice, Frost & Sullivan talks about the trade and investment climate in the Kingdom of Saudi Arabia (KSA).

T

he Kingdom of Saudi Arabia (the KSA) is well known for its oil reserves and accounts for nearly 17% of the world’s proven petroleum reserves. The country’s Gross Domestic Product (GDP) based on purchasing power parity was estimated at USD 921.7 billion in 2012, registering a year on year real GDP growth rate of around 7.0 %. The country is a highly export centric economy with nearly 55% of the GDP constituted by exports of goods and services. Not surprisingly, it is the largest exporter of petroleum (45% of its GDP and accounting for 90% of export earnings) and is a leading participant in the Organisation of the Petroleum Exporting Countries (OPEC). The KSA’s top two export partners are the USA and China, each accounting for nearly 14% of its export basket. It also has one of the highest (top five globally) reserves of foreign exchange and gold, signaling a sufficient buffer to meet any balance of payment issues. It has a strong labour force of nearly 8.2 million with approximately 80% constituting nonnationals. It is among the top three countries globally to have a positive current account balance of nearly USD 150 billion. On the investment side in 2013, consumer staples accounted for over 40 % of Mergers and Acquisitions(M&A) transactions by value closely followed by the financial sector. Gulf Opportunity Fund I, L.P. managed by Investcorp Gulf Investments acquired 38% stake in Al Yusr Industrial Contracting Company WLL 10

OCTOBER 2013

from two members of its controlling family on June 18, 2013 resulting in energy becoming the largest sector in the private placement pie. The KSA also holds the distinction of being the largest recipient of foreign direct investment (FDI) in the Arab world. Some of the key sectors attracting investments in the country include energy, transport and logistics, ICT, healthcare, life sciences, and human capital. In the energy sector, the high oil revenue environment has resulted in an increase in both oil and non-oil development projects. For instance, the Arab Oil and Gas directory is of the opinion that a cumulative of nearly USD 320 billion worth of investments is likely to flow into the energy sector in the years to come. Additionally, an estimated USD 140 billion is likely to be pumped into general economic outlays including economic cities and transport links. The country’s domestic cargo demand is expected to grow at 4-5% Compound Annual Growth Rate (CAGR) until 2020 indicating a significant potential for growth. The Saudi Arabian General Investment Authority (SAGIA) estimates a total of USD 100 billion over the next 10 years in the transportation and logistics sector. The telecommunication sector is also not far behind with the KSA being the largest ICT market in the Middle East. Despite this, the KSA market is still considered to be underdeveloped by global standards and presents enormous potential for growth. The region

is encouraging public-private partnerships that support venture capital funding such as the collaboration between SAGIA and Intel. Health care and life sciences also present attractive investment opportunities by virtue of a rapidly ageing population and low cost local access to feedstock for intermediate chemicals and other inputs into pharmaceuticals and agrochemicals production, respectively. This investment potential is further supported by the country’s policy of allowing 100% foreign ownership in the construction sector while direct investment is permitted both in resident capital companies and through the establishment of branches of non-resident companies. The country also takes pride in having 24 double tax treaties, which facilitate trade and development. In conclusion, Frost & Sullivan opines that, a combination of a favourable investment climate characterised by the ease of doing business, the Government’s proactiveness in attracting investments, and its favourable location in terms of serving as a hub for connecting the east and west, ensure that the country is poised to increasingly attract investments in the future.


Updates ABOUT TOWN

Understanding the finance of trade The Trade Credit Insurance Summit was held in Dubai from the 23rd-25th of September. We bring to you the highlights of the discussions.

T

he Summit highlighted some of the key trends in global trade and finance developments, economic trends and the impact of the Middle Eastern countries. The Summit was opened by Massimo Falcioni, CEO, Euler Hermes, GCC and he remarked that the region has attained significant growth in the last three years. “As an example, the Dubai Chamber of Commerce reports that its members’ exports of AED 145.2 billion in the first half of 2013 represented a +7% increase over the same period last year. Since

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OCTOBER 2013

the beginning of 2013, 7,000 new companies have registered with the Dubai Chamber – confirmation that, despite global uncertainties, a solid and effective vision will attract foreign investment and business,” opined Massimo. According to Ludovic Subran, Euler Hermes chief economist, “GCC countries, having experienced two years of sustained economic growth, are expected to slow to +4.0% in 2013 mainly due to the global demand slowdown (+2.2% in 2013). A global and delayed recovery is expected in 2014 (+3.1%). However, the

overall growth deceleration will increase the momentum of global insolvencies (+8% in 2013; +2% in 2014).” Taking stage to talk about the government’s plans in the coming years, Gayane Afrikian from the DED spoke about the vision of Dubai to be a global leader in multi-modal transportation and stated that the government is working very hard towards achieving this goal. The idea is to “create seamless movement.” She also pointed out that one of the key policy areas of the government is to promote


green logistics and the creation of a virtual and physical freight and logistics corridor and an integrated and unified multi-modal and logistics strategy. It was indeed a very interesting insight into the government’s plans for promoting transport, logistics and trade. Moving on, Coleman Nee from the World Trade Organisation, took stage to talk about the macro-economic outlook post the financial crisis. He started by pointing out that 80% of international trade relies on trade finance of some kind. He then spoke at length about global trade and remarked that the growth of world merchandise trade has only been 1.2% in the first half of 2013. According to him the recent slowdown in trade has been due to the falling import demand in the developed countries. It was interesting to know that the share of Middle East’s imports between 1980 and 2012 has fallen from 5.6% to 4%. However, intra-regional trade in the Middle East has doubled from 10% in 2000 to 20% in 2010. Coleman was remarked that while tariffs have come down and countries are more liberalised, the global financial crisis has lead to increased non-tariff barriers with countries becoming wary.

The second inning Day two’s agenda focuses on raising awareness on trade credit insurance and the role of credit insurance in the international market. The second day kicked-off with the welcome remarks by the summit chairman William Clark, UK Head of Trade Credit Insurance, AIG, and United Kingdom. Talking in detail about trade credit insurance scenario in the region, William stated, “Trade credit insurance is still relatively new to the region although as a product it has been around for nearly a century. It is growing quickly as a product fuelled by companies seeking to protect themselves as they grow and particularly when they consider exporting. Further the tie between financing and trade credit insurance, and particularly trade Financing, has become closer since 2008 and this has helped to raise awareness of the product. Further the economy in the region has been performing better than more established credit insurance markets helping to encourage insurers, banks and

companies look at how to protect and indeed enhance their capability to grow.” Elaborating further on the mistakes that traders make when it comes to trade credit insurance, William added, “The fundamental issue that I see all too frequently is that credit insurance is taken up by companies when they have sustained bad debts and they then look to credit insurance to stop the losses. Most

from the last few years is that risk comes in many different shapes and sizes, has a habit of being unpredictable and no one is immune from its affects. This should lead to the benefits of trade credit insurance being more widely appreciated. William then introduced Mark Cooper, Director- Insurance, Reinsurance and Captives, DIFC, UAE for his keynote address. Cooper

It was interesting to know that the share of Middle East’s imports between 1980 and 2012 has fallen from 5.6% to 4%. However, intra-regional trade in the Middle East has doubled from 10% in 2000 to 20% in 2010.

insurers are wary of this as they are looking for clients that want to work with them to ensure that the business has sound credit management practise. Of course claims are there to be paid but a policy is not there to shore up credit management practice which is stressed. My best advice is always to think ahead and also appreciate that risk can be an opportunity to grow as well as a challenge to contain.” Talking about the future, William was of the opinion that there is little doubt that whilst the global economy is starting to show some positive signs of improvement there a still challenges that present themselves to risk managers. According to him, the lessons

said that he is honoured to be among industry peers and discuss a topic that is core to Dubai’s DNA- trade. In his speech he discussed how Dubai has grown over the years. He pointed out that the flow of goods into the Emirate has increased by 30% to reach AED 1.2 trillion in 2012 and its global trade performance increased by16% in H1 2013 to AED 79 million which has exceeded the projected growth rate of 14%. These figure indicated that Dubai has come a long way and trade has remained as the primary building block of the city’s economic growth, which proves to have remained true to HE Sheikh Mohammed Bin Rashid Al Maktoum’ s vision of making Dubai a global trade hub. However, OCTOBER 2013

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Updates ABOUT TOWN

with great potential comes risk and that is why trade has to be facilitated. Mark also mentioned that investors dubbed Dubai as a ‘thriving metropolis’ in the Middle East and with this, trade credit insurance plays an important role to international trade companies who are using the city as a regional base wherein reinsurance and security is essential to operate efficiently. Furthermore, he said that since its inception in 2004, the DIFC has been one of the major contributor to Dubai’s success story. To date there are about 800 people and 60 insurance related entities working in the USD 1 billion insurance market in DIFC. He finished off with a promise that the DIFC will continue in facilitating the insurance line within the region. Through establishing more capacity, increasing expertise and raising indepth knowledge on the viable markets that are being developed. Following his address was a presentation from Robert Nijhout, Executive Director, ICISA, Netherlands who highlighted the current standing of the trade credit insurance industry and the direction where it’s heading. He began with introducing ICISA which stands for International Credit Insurance & Surety Association it is an organisation that brings together firms that provide trade credit insurance and/or surety bonds. Members play a central role in facilitating trade and economic development. They also endeavour to advise and educate international authorities and organisations on issues related to credit insurance and surety bonds. According to Nijhout, Europe has the most competitive market for trade credit insurance and the best penetrated. Each state member of the EU has 6-11 credit insurers competing for business. In his effort to share more knowledge about the industry he discussed the usual misconceptions that they encounter. First off he explained how credit insurers assess risks. Contrary to what some may believe, if you are exporting or trading outside your country that does not automatically mean that you’ll have high risks. Risks varies in every country of the world, premiums of course depends on how high 14

OCTOBER 2013

William Clark, UK Head of Trade Credit Insurance, AIG, and United Kingdom

the stakes are- the higher the risk, the higher the premium. He also noted that there are even circumstances wherein domestic trade is more expensive. Talking about the MENA region, Nijhout said that there are parts of the region that obviously have issues of high risks. Thus, there’s always a concern that these unhealthy parts of MENA will affect the healthy part of the region. Another subject that he clarified is that trade credit insurance is not a financial guarantee. A financial guarantee is unconditional, usually on-demand, and transferable. On the other hand, a trade credit insurance policy is a conditional product and is always directly related to an underlying trade transaction, which is either the delivery of goods or of services. The second presenter of the day was Fabrice Morel, Executive Director, Berne Union (International Union of Credit Insurance and Investment Insurers), United Kingdom. The topic he highlighted is the role of credit insurance in international trade. He pointed out that their role as credit insurers is to aid exporters in trading safely without having any worries of not being paid by their clients. It helps traders concentrate on the things they do best which is producing and manufacturing products and selling them. Therefore, a credit insurer promises to indemnify the exporter if a buyer fails to pay for the goods or services he has purchased. In return for

accepting to bear this default risk, the credit insurer charges the supplier a premium. According to Morel, during the 2008 global financial crisis the value of world exports were reduced by more than 30%, however the trade credit insurance industry has only experienced a decrease of around 10%. He said that these figures prove that despite the fact that during the crisis credit insurers reduced the limits for traders, they still have maintained a stable support to the world economy. With this being said, he emphasised that credit insurance is a sector which serves as a route to global economic development. Lastly, he cited world issues traders should watch out for- the Eurozone crisis and the Arab spring. Nevertheless, growth in the areas of the Eastern Europe, MENA, Latin America and Southeast Asia is to be anticipated. The presentations were followed by two panel discussions facilitated by William Clark. Representatives from several wellknown banks in the region talked about how financial institutions assess regional trends in trade credit finance and how they identify new financing rates. The panel comprised of Dilip Hiremath, Head- Trade and Supply Chain, Mashreq Bank; Ian Rogers, Regional Head of Business Development GTRF MENA, HSBC Bank Middle East Ltd.; Myriam Ouazzani, VP Structures Trade and Export Finance, Middle East and Africa, Deutsche Bank and Ali Raza Dharamsey, Director- Transaction Services Origination, Middle East and Africa, Royal Bank of Scotland. The second presentation focused on the users or the companies availing trade credit insurance. The discussion revolved on how corporations see the industry, if it is just a mandatory thing or it is something that they are comfortable in having. Panelists were: Arif Choksy, CFO, Dubai Cable Company (Private) Ltd.; Jerzy Szapiro Duque, Controller, IBM Middle East and Africa; Leigh Salkeld, Global Credit Insurance Manager, IBM, UK; and Vineet Gupta, Treasury Manager, OCTAL Petrochemicals, LLC FZC, Oman. Overall the summit has provided a very interesting insight on the trade credit insurance industry and how it is beneficial for traders and how it contributes to the progress of the global economy.


Updates ABOUT TOWN

Partner with Russia DHL in partnership with the Russian Business Council (RBC) hosted an event under their Partners in Trade series. Having started the series more than a year ago with countries such as Saudi Arabia, Afghanistan, United States and Africa, the fifth part of the event focused on the country of Russia. We bring you our coverage of the event.

R

BC members together with DHL senior executives gathered at the Ritz Carlton Hotel, DIFC to discuss the importance of the Russian trade lane to customers in the UAE. Over 25 high profile DHL customers were welcomed by Frank-Uwe Ungerer, Country Manager, DHL Express, UAE who stood as the host of the event. In his welcome note he said that as international specialists, the Partners in Trade event series serves as an opportunity for them to share their experiences and capabilities in the different markets they operate in. This latest event of the series discussed the current status of the Russia-UAE trade relations. It aimed to highlight the industries that are benefiting from this bolstering relationship between these two countries and explained DHL’s role in all this. With over 150 offices (stations, agencies and service points), 250 DHL flights to and from the capital, coverage in 850 Russian cities and, 16

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DHL’s presence in Russia is a key contributing factor to the growth of investment and economic development between the two nations. The first presentation was given by Dr. Igor Egorov, Chairman, Russian Business Council. According to him Russia sees the UAE as a safe haven for investments. It is a country that has a very open-minded government, thus making it more attractive to foreign investors. He also pointed out that Emirati businessmen are already slowly exploring Russia as a destination for investments. In 2012, the trade volume between the UAE and Russia reached USD 2 billion thus, making UAE emerge as the largest trade partner of Russia in the region. To date there are 25,000 Russian citizens residing in the UAE and 2,500 companies doing business in the country. And every year a large number of Russian tourists visit the UAE. Dr. Egorov mentioned there are other fields wherein there’s a huge potential for growth for both countries and surprisingly it’s not the oil sector. According to him Russia is a country

rich with resources among which are precious stones and metals and with UAE booming as a hub for the manufacturing sector both could benefit from each other. The RBC Chairman encouraged the audience to consider not only Russia’s major cities for investments but to also look at all the other areas of the country that have not yet been explored and have a great potential for trade and investments. Following his presentation was Adrian Marley, Managing Director, DHL Express, CIS and South East Europe who shared DHL’s experiences in operating throughout Russia. DHL has been doing business in Russia for almost 30 years and according to him the most important thing that has helped them to reach this far is legal compliance. He described Russia as a “retailer’s paradise”, as everyone in the country is into having the latest goods in fashion and technology. So if you wish to expand your business in Europe, Russia would be an ideal target. However, he has met a lot of people in the past, from big companies who endeavours to take their business to Russia but are hesitant because they believe that they would have a really hard time to do so. These sorts of misconceptions hinder people to see the numerous opportunities there is in the country. According to him, Russia really is firm when it comes to importing goods, but if you follow all legal procedures, comply with all the customs rules and regulations and submit all the necessary paperwork then operating your business in Russia would be a lot easier. On the end note, Russia is a big country and even though the UAE has already achieved to be its largest trade partner there are still a lot more markets and areas that are yet to be explored so there are more opportunities for growth.


TRADE TALK Logistics

Right on track Etihad Rail is an ambitious project, initiated in 2009 to connect the UAE to the principal industrial hubs in the GCC. Aparna Shivpuri Arya spoke to Dr. Nasser Al Mansoori, CEO, Etihad Rail to get an update on the developments so far.

Please give us a brief background about the inception of Etihad Rail and the vision behind it Pursuant to Federal Law No. 2 of 2009, Etihad Rail was formed with a mandate to manage the development, construction and operation of the UAE’s national railway. The development of a national railway is part of the federal government’s UAE Vision 2021, and Abu Dhabi Vision 2030, to diversify the economy by investing in excellent transport infrastructure that capitalises on the UAE’s strategic geographical position. With a railway built to international standards, Etihad Rail will offer cutting-edge benefits - more efficient, safer, and more environmentally sustainable services than alternative transport systems. The mixed traffic rail network will connect the country’s key centres of trade, industry and population and act as a catalyst for economic growth and sustained social development. The network will also form a vital part of the planned GCC rail network.

How did you decide on the locations and connections? Is there a criteria for that?

The Etihad Rail network follows established patterns of freight and passenger movements, and as such, it is no coincidence that the railway route resembles some of the key arteries of the UAE’s federal highway network. Route identification is supported by rigorous traffic forecasting 18

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and careful consultation of target customers, as well as key stakeholders. For example, in the Western Region, the route was determined following close coordination with ADNOC, the UPC, the Western Region Development Council and Municipality, as well as local Bedouins.

How, according to you, will it promote trade in the region?

The UAE has a long and proud tradition as a trading economy, and the railway will strengthen its standing as a logistics hub. The Etihad Rail network ensures that the UAE is wellconnected to trading partners in the region and beyond – Asia, and other markets – through integration with key ports of the Gulf and Arabian Seas, and at border crossings with Saudi Arabia and Oman.

What kind of companies/sectors can benefit from Etihad Rail?

The enhanced connectivity that Etihad Rail will deliver will effectively bring businesses closer together, extend geographic markets, and facilitate more efficient trade. As Etihad Rail is committed to developing tailor-made rail solutions for our customers, these opportunities are not limited to a single sector. Our customer portfolio and target markets are extremely diverse, comprising everything from logistics to


ABOUT His Excellency Dr. Nasser Saif Al-Mansoori was appointed CEO of Etihad Rail in September 2012, after serving on Etihad Rail’s Board of Directors since 2009. Dr. Al-Mansoori brings with him a wealth of experience in the logistics and transportation fields, as he has led and managed several high profile government projects. Prior to being appointed CEO at Etihad Rail, Dr. Al-Mansoori was the Director General of the National Transport Authority from 2007 until August 2012, where he was responsible for implementing policies, laws and regulations to ensure efficiency and safety in maritime and land transportation in the UAE.

waste, agricultural goods, aggregates, sulphur, steel, containerised goods and more.

Do you see a surge in investments because of this project?

The UAE is in a stage of rapid growth across various sectors, and initiatives are being implemented to ensure this trend continues, with the railway being a strategic project that will support and contribute to this growth. Etihad Rail will lower business costs, resulting in increased demand for UAE products and services, increased exports and

the needs of its customers. Our methodology is to customise our offerings with regards to logistics and warehouse facilities, and our team of experts works closely with potential customers to develop a tailor-made rail transport solution for their goods.

What kind of time and cost savings can businesses look forward to with this project?

Etihad Rail will offer time and cost advantage over trucks for many commodities, and the benefits will be enjoyed across all the

As Etihad Rail is committed to developing tailor-made rail solutions for our customers, these opportunities are not limited to a single sector. Our customer portfolio and target markets are extremely diverse, comprising everything from logistics to waste, agricultural goods, aggregates, sulphur, steel, containerised goods and more. accessibility, and attracting additional inward investment. Furthermore, the Etihad Rail project marks the creation of a new industry that will also indirectly create opportunities for small and medium enterprises to cater and support the rail industry, whether in services, facility management, and more.

What kind of logistics and warehouse facilities will be available?

Etihad Rail is committed to developing transport and logistics solutions that meets

Emirates. For example, a single train can transport as much freight as approximately 300 trucks, thereby offering significant efficiencies. This will also benefit businesses who continue to use road through reduced congestion on the highways. Time savings will increase the longer the distance that freight is moved. Taking Jebel Ali port to Riyadh as an example, a container moved by train will take one to two days, compared with perhaps up to seven days by truck (including wait times at the border). OCTOBER 2013

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TRADE TALK Logistics

The frontrunner Agility (Abu Dhabi) PJSC has been at the forefront of providing seamless supply chain management to companies across the globe. Aparna Shivpuri Arya spoke to Mohammed Jaber, who is the COO of the company to get his expert opinion on the logistics industry.

Please tell us a bit about the services that Agility (Abu Dhabi) PJSC provides Agility is an integrated logistics provider that offers tailored logistics solutions and international freight management services, including contract logistics (warehousing and distribution, warehouse and supply chain optimisation consultancy and operations), freight forwarding (sea, air, multimodal and customs clearance services), overland transportation (trucking and rail) and project logistics.

Since you are into multi-modal freight, how do you see the trend in these sectors in terms of supply and demand?

The supply and demand mix of the logistics and transportation sector strongly depends on its verticals (industries), the number and size of projects that are undertaken in the region, especially in the sectors of focus in each region. In the Abu Dhabi market, for example, we strongly rely on key sectors, that the government envisions to develop (oil & gas of course, but also healthcare, defense, education among others) which are in 20

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reality the industries that make the supply and demand evolve in the market. In addition to the verticals aspect, there is also the rate vs. volume aspect. The bigger the volumes, the lower the rates throughout the supply chain. If we look at the Abu Dhabi market, it is currently stable, however, some major projects are planned for execution on the midterm and the demand for logistics services should highly increase. On the supply side, the market is saturated and highly competitive. However, many logistics services companies are implementing growth strategies to cater for the forthcoming increase in demand for logistics and transportation services which is increasing competitiveness even more. The growth in projects should in consequence increase freight volumes which will take the rates down throughout the supply chain including the carriers/ship owners’ rates and the third party logistics services providers.

What, according to you, are the challenges faced by the logistics sector?

There are several challenges that the logistics

sector faces. First of all – the competition at all levels. Not only multinationals share the transportation and logistics market, small transporters/freight forwarders and owner operators also act in this market. The biggest challenge is to promote quality of service in a market that, wrongly, doesn’t seem to give it as much importance as it should. On the operational side, we share our challenges with our customers. We have challenges at port during peak time, such as the availability of specialised transportation equipment, port receiving equipment’s readiness and berth availability and time constraints. In addition, as logistics services providers, we also have our own challenges such as the high cost of investment in the sector, the lack of local manufacturers of specialised equipment (quantity and quality), high standard Quality and Safety requirements (QHSE) especially in the oil & gas sector and regional mobilisation restrictions. On the road, we also need to overcome challenges for our over dimensional cargo transportation requirements. There are limited means of transport for ODC/HL and the supply in the market is limited for this specific requirement.

Do you believe that the logistics sector has been impacted by the global financial crisis? If so, how?

It certainly has, of course! Logistics and transportation are some of the top cost components in projects of several sectors. Our industry has been heavily impacted by the cost cutting initiatives of EPC contractors. The financial crisis has had effect on the volumes of global cargo transactions and in return reduced selling competitiveness of asset based companies and heavy fixed costs, such as Agility (Abu Dhabi) PJSC. Also, as consumption in the retail and consumer goods market has decreased, transactional freight volumes have also decreased. Major infrastructure investment (automated ports, bigger airports and new highways and railroads), that would have helped the logistics and transportation services lower their cost, were postponed or cancelled which resulted in lower efficiency in service provision and consequently higher costs and lower revenues for all. In addition, inflation and cost increase, especially the oil price are some of the


biggest challenges transporters with truck fleets had to overcome.

What logistics tools are available to exporters and importers?

Depending on which section of the regional market the importers and exporters target, the logistics tools and services provision differ. Key regional markets such as Abu Dhabi, Dubai, Qatar or KSA are becoming regional logistics hub, a link between the East and the West for transit and multimodal freight transportation. Such markets provide all sorts of logistics services with world class and innovative logistics tools and infrastructure. Abu Dhabi and Dubai have semi-automated port infrastructure, highly efficient airport facilities, logistics cities for warehousing requirements and more. In addition to the infrastructure provided, soft tools are also available for the ease of the importer and exporters, such as shipment visibility and tracking systems. Other than the hard logistics services provisions, the logistics market in this region has to cater for the transitional aspect of its hubs by providing value added services for the importers products such as product bundling and repackaging and adaptation of products for local markets (“Arabisation”).

What is the trend in the Middle East countries when it comes to logistics?

The trend in the Middle East is to grow the logistics market and position the Middle East as the world’s transitional hub for cargo. This is a clear strategy coming from most regional governments. For this purpose, Abu Dhabi for example have built a semi-automated port facility (Port Khalifa) with world class features and equipment. It is also expanding its airport facility to absorb higher cargo volumes. Soon in Dubai, the Al Maktoum Airport will start its operations with a setup made extremely convenient for cross docking and multi-modal transportation (the Al Maktoum Airport is located at the doorstep of Jebel Ali Port). Major logistics infrastructure improvement and expansion projects are being developed also in other countries of the region including Qatar, KSA and Oman. In line with the regional growth trend of the logistics market, the regional railroad project which is currently being executed is also a proof of this regional will to improve and grow the logistics and transportation sector in the Middle East.

ABOUT For the past 14 years, Mohammad has used his skills to serve the logistics and transportation industry. He joined Agility Abu Dhabi in 2006 as Fleet Manager, only to grow year on year and reach an Executive Management position in 2011 when he was promoted to COO after managing several internal operational departments.

What issues, in your opinion, should traders be aware of when handling logistics and warehouse? Traders have to be aware of different aspects of the market depending on the area they approach. Each market in the region and its supply of logistics and transportation services differs from the other, and sometimes, one market complements another with diversity of solutions. The warehousing overview of Abu Dhabi for example showcases a lack of quality warehousing space supply which, the newly developed Khalifa Industrial Zone should address, however, it still needs a bit of time to be fully operational. Traders have to be aware also of the “Free Zone” status and its advantages (typical of emerging markets). But the most important aspect to understand is that very few logistics players can provide, in our market, quality logistics and end to end supply chain solutions with an ability of custom tailoring solutions.

Heading into the future, what are the major opportunities for Agility (Abu Dhabi) PJSC and where are we likely to see the emphasis?

Agility (Abu Dhabi) PJSC has well defined strategies for its growth. Our market share has strongly grown in the market and we look forward to maintaining our position as local market leaders. We do not approach the general market; we rather approach niche markets where very few suppliers can deliver the service that we can. Our strength is our ability to custom tailor solutions and provide quality logistics services to our customers using our network of 500 offices across more than 100 countries. In the future, we plan to expand our asset base and provide innovative solutions to the market. We have strong partnerships with

several stakeholders in the market and plan to develop these partnerships for the best interest of our customers.

What is your advice to businesses wanting to expand into the UAE especially those businesses that are looking to import and set up a distribution model?

From an LSP perspective, I would like to advice any business penetrating this market to be aware of its specificities, of its culture and of its infrastructure before entering it. Understand that the countries have expansion strategies in specific sectors, and these are the ones where governments allocate most expansion budgets and companies need to target the end users of these sectors specifically.

For a business looking to work with a global integrated logistics provider, what key questions should they be asking so they can make an informed decision?

The most important point is its ability to custom tailor solutions. The logistics services provider should have a combination of well-built global presence through a strong network (in order to facilitate transactions and operations globally) and a strong local presence with a solid asset base (in terms of vehicle fleet and warehousing facilities) alongside a solid understanding of local cultures and an ability to get results on the ground. The fact that a company uses its own assets (vehicles and warehouses) ensures quality of service delivery and operational excellence. Strong relationships with authorities and terminal operators and shipping lines to ensure timely delivery of cargo and avoid congestions and delays are a must. OCTOBER 2013

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TRADE TALK Legal

Understanding gas sector regulation in the UAE The gas sector is one of the most important sector for UAE’s economy and the government has been focusing on developing this sector through investments. To understand what rules and regulations govern this sector, Sai Pidatala, Senior Associate, Fichte & Co. takes us through the legal framework. 22

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The demand According to the United Arab Emirates Investment Map (“UAEIM”), a government initiative including joint cooperation from various Federal Ministries and designed to promote investment in multiple sectors of the country’s economy, the UAE now boasts the world’s fifth largest proven reserves of natural gas. Recently, the UAE Energy Minister Suhail Al Mazrouei has communicated that the country plans to invest approximately USD 25 billion on gas development projects in the next five years to explore new gas fields and increase gas output. In fact, the UAEIM has declared that the “UAE government is pressing ahead with plans to expand oil and gas production capacity, but has extended the time frame for oil development while lending higher priority to gas projects.” Gerald Butt, the former Editor of the Middle East Economic Survey and the author of the “Oil and Gas in the UAE” chapter of United Arab Emirates: A New Perspective, has cited gas production as the UAE’s “fuel for the future,” acknowledging Abu Dhabi as being blessed with the UAE’s vast majority of gas reserves. Spearheaded by state-controlled entities like the Abu Dhabi Gas Liquefaction Company Limited (“ADGAS”), Abu Dhabi has arguably been the pioneer of gas production and investment in the UAE, having entered into a series of long-term contracts with international private companies and quasiprivate utilities providers as far back as the early seventies. Notwithstanding Abu Dhabi’s large amounts of gas reserves, Dubai has also surfaced as a major player in the gas production equation, qualifying mainly as a source of demand for gas – driven primarily in part by Dubai’s rapidly expanding industrial sector. As Butt notes, Dubai’s long roster of gas consumers includes such heavyweights as the Dubai Electricity and Water Authority, several petrochemical and fertilizer plants located in the Jebel Ali industrial free zone and even the Dubai Aluminium Company, one of the world’s largest smelters. According to the UAE chapter of the eighth edition of the International Comparative

Legal Guide to: Oil and Gas Regulation 2013, gas “production increased during 2011, notwithstanding the global economic crisis.” The UAE produced approximately 52 billion cubic meters of marketed natural gas in 2011, “representing 1.6% of global marketed natural gas production for that year (a 2% increase in volume as compared with 2010). Based on current production levels, the UAE’s natural gas reserves will reportedly last between 80 and 100 years.”

The legal framework With gas production and distribution increasingly relied upon by the UAE government as a solid source of revenue generation, it is critical to understand the legal framework which prescribes and regulates the industry, specifically with an eye to market entry and foreign investment. There is no single set of laws or regulations which directly regulate gas exploration, extraction and distribution activity in the

in a carefully worded concession agreement or a set of concession agreements. These concessions flow from the government of an individual Emirate and usually inure to the benefit of state-controlled companies. The investment participation of international companies or syndicates are always limited to minority ownership interests in these statecontrolled companies or in newly incorporated, state-controlled holding companies or special purpose vehicles (typically characterised as a project-specific concession company) created specifically for the purpose of joint venturing with international investors. A common example is ADGAS, whose shareholders include the Abu Dhabi National Oil Company (“ADNOC”) with a 70% shareholding, Mitsui & Company Limited with a 15% shareholding, British Petroleum with a 10% shareholding, and Total, with a 5% shareholding. Concession rights can typically be transferred only with the governmental approval of the respective Emirate or as otherwise stipulated

$25 billion

value of investment by the UAE government in the gas sector in the next five years UAE. Rather, this activity is governed by a set of overarching UAE Federal laws which allow for specific gas exploration and investment permissions to be granted by way of what are referred to as “concessions,” which are typically stipulated as a matter of contract. Pursuant to the UAE Constitution, natural resources are deemed to be the public property of each Emirate and thus automatically fall within the domain of public assets at the disposal of the Ruler of each Emirate. As such, each respective Emirate in the UAE retains its sole discretion over the exploration, extraction and management of its own natural resources, including but not limited to oil and natural gas. The approval to explore, develop and extract gas from the ground is commonly enshrined

in the concession agreement itself. The UAE has no explicit laws governing the cross-border sales or shipments of gas, though such sales are subject to standard Emirate-level customs regulations. Operating distribution channels for the shipment of gas falls squarely within the domain of each respective Emirate. As such, specific guidance regarding the limits of such operations flow from the rights granted by the respective Emirate. This guidance can typically encompass the construction of pipelines and other attendant infrastructures. In Abu Dhabi, the Supreme Petroleum Council, established in 1988, is the ultimate regulator of Abu Dhabi’s oil and natural gas policy. The relevant legal framework in Abu Dhabi consists of “the Abu Dhabi Gas OCTOBER 2013

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TRADE TALK Legal

Ownership Law (Abu Dhabi Law No. 4 of 1976), the Abu Dhabi Petroleum Resources Conservation Law (Abu Dhabi Law No. 8 of 1978), the Abu Dhabi Petroleum Ports Law (Abu Dhabi Law No. 12 of 1973, as amended) and the Abu Dhabi Tax Decree of 1965 (as amended).” The Abu Dhabi Gas Ownership Law declares that all natural gas discovered and exploited in Abu Dhabi is strictly the property of Abu Dhabi and the government thus retains all rights over its extraction, refinement and distribution. In Abu Dhabi, ADNOC and its subsidiaries have effectively managed all gas operations and projects at all critical stages of production. Since the UAE’s inception, a consortium of ADNOC-owned or otherwise controlled companies have been afforded the sole privilege of exploiting all the gas actually and potentially to be discovered within Abu Dhabi and to be the legal and commercial beneficiary

ABOUT Sai received his Juris Doctorate from Vanderbilt University and his B.A. from Cornell University, both in the U.S. He is licensed to practice law in New York and Washington D.C. Sai has worked as an attorney at large and mid-sized law firms in New York, Washington D.C., and Dubai. He was formerly a founding partner of a law firm based in Washington D.C. where he advised on corporate, regulatory, technology and commercial transactions affecting domestic and international clients.

supply energy and rationalising the use of energy and ensuring environmental sustainability. Part of the Dubai Supreme Council of Energy’s mandate includes the ability employ incentive structures and impose tariffs in an effort to facilitate costefficiency in the market. In addition to the memorialisation of a joint venture through a concession agreement, engaging in gas extraction and

For a foreign investor to engage in gas exploration and production, it must typically enter into a joint venture or take an interest in a state-controlled entity, like ADGAS for example, which receives a concession from the government of a respective Emirate. of all gas industry-related contracts to which the Government of Abu Dhabi is a party. As such, ADNOC reports directly to the Supreme Petroleum Council. In Dubai, gas exploitation and extraction activity is regulated similarly as in Abu Dhabi. That is to say, through individually negotiated concession agreements entered into with the Government of Dubai. The Dubai Supreme Council of Energy, established in 2009, is responsible for providing crude oil and natural gas at an accessible cost, ensuring the supply of energy to the entire Emirate of Dubai, overseeing the effective planning of the energy sector, organising the rights and duties of energy-related service providers in enhancing efficiency and quality of the services provided to 24

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distribution activity in the UAE may also require various other Federal and Emiratelevel regulatory approvals including approvals from the UAE’s Federal Ministry of Energy and the UAE Federal Ministry of Environment and Water. The UAE Federal Ministry of Environment and Water is concerned about the compliance with the UAE’s Federal Law on the Protection and Development of the Environment (Federal Law No. 24 of 1999), among other potentially relevant laws and regulations which mandate the need for environmental impact assessment and prohibit the discharging of pollutants. In every case, there may also be various local, Emiratelevel environmental regulations or decrees that would also need to be complied with.

Foreign investment Regarding international investment in the gas industry, there are no major legislative or regulatory barriers to entry in the UAE. Generally speaking, the UAE Commercial Companies Law (Federal Law No. 8 of 1984, as amended) requires that all commercial companies incorporated under the law must have their majority stake owned by UAE nationals or UAE wholly-owned entities. This mainstay requirement, however, does not apply to companies operating in certain fields that are carved out of the law’s ambit, including companies engaged in certain gas production-related activities.

Conclusion In summary, each Emirate in the UAE oversees and regulates the extraction, production and distribution of gas within its borders. For a foreign investor to engage in gas exploration and production, it must typically enter into a joint venture or take an interest in a state-controlled entity, like ADGAS for example, which receives a concession from the government of a respective Emirate. Concession terms may be varied in complexity and detail and often are reflective of the breadth and scope of the project at hand. Gas exploration and production is also regulated by various Federal and Emiratewide laws and rules mainly governing environmental impact, health concerns and public safety. As such, it is in the best interest of foreign investors and ancillary service providers seeking to enter the gas development market to be aware of and to comply with the regulatory framework associated with the gas sector in the UAE.


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TRADE TALK event

Connecting with Ecuador Connecting with Ecuador, was organised on the 29th of September by PRO ECUADOR and Trade and Export Middle East magazine, to highlight the trade, investment and tourism opportunities in Ecuador. We bring you exclusive coverage of the event. 26

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T

he event, which saw more than 150 participants, began with the national anthem of both the countries. With an impressive line-up of speakers, the event highlighted all aspect of doing business, right from which sectors to invest in, how to set up a business and what financial options are available. Attendees were presented with proven strategies on how to invest in and trade with Ecuador. The forum, lead by His Excellency Kabalan Abisaab, Ecuadorian Ambassador to Qatar and the UAE, His Excellency Sami Al Qamzi, Director General, Department of Economic Development (DED); and Engineer Mahmood Al Bastaki, CEO, Dubai Trade received an overwhelming response from both the public and private sector. H.E Kabalan Abisaab, Ambassador of Ecuador to the UAE and Qatar welcomed everyone to the event on behalf of Ecuador and highlighted the importance of the UAE for their country and the sectors which offer investment opportunities. He also pointed out that Ecuador is an extremely stable country economically as well as politically, a fact that was reiterated by the other speakers as well. “Currently, trade between Ecuador and Dubai does not exceed AED 52 million but the sharp rise witnessed in bilateral trade since 2010 points to a dynamic future. Dubai’s exports and re-exports account for around 80% of its total trade with Ecuador. Exports from Dubai to Ecuador have grown 60% during the past three years while imports grew threefold. Aiming at a target proportionate to Ecuador’s share in the total GDP of Latin America can lift bilateral trade between Dubai and Ecuador by at least 50% over the current volumes,” His Excellency Sami Al Qamzi said in his keynote address. H.E also pointed out that in recent years Dubai has especially moved closer to Latin America, East Africa, Europe and Central Asia while also building on its existing ties in the Middle East, North Africa and South Asia. According to him, Dubai’s trade with Latin America accounts for only 1.5% of the

Emirate’s total foreign trade now but there exists vast potential for stronger bilateral engagement. Taking the stage to talk about Dubai’s trade relations with Ecuador, Eng. Mahmood Al Bastaki, CEO, Dubai Trade, tackled the issue of the bottlenecks that UAE companies face in trading with Ecuador attributing it mostly to distance and lack of direct connections. “’Connecting with Ecuador’ event is an excellent platform to exchange business opportunities and forge stronger ties between the trading communities in Ecuador, Dubai, and the surrounding GCC region,” said Mahmood. “Dubai is an ideal base for Ecuadorian businesses to access GCC, MENA and Indian subcontinent markets due to its extensive infrastructure and diversified economy which opens the doors to significant investment opportunities,” he further added. He also pointed out that the UAE, and particularly Dubai, always welcome Ecuadorian companies to enter its market, via a multitude of sectors such as: trade, logistics, construction and real estate, tourism, and financial services. The establishment of PRO ECUADOR would help local companies to expand in Ecuador and

Hussam Hassan, Head, PROECUADOR - UAE

vice versa. He said that Dubai Trade FZE is glad to be part of today’s function. His presentation was followed by Hussam Hassan, who heads PRO ECUADOR in the UAE, talking about his organisation and the growing trade relations between the two countries. Hussam added, “The response we received through the forum particularly from the government reflects the growing need for both countries to further improve and strengthen not only trade relations and strategic partnership but also our bilateral frameworks.” After the coffee break, the line-up of presentations highlighted the various aspects of doing business with Ecuador. Prrasad Katta, Regional Director, MENA and Africa, Western Union discussed ways on how WUBS could stand as a viable medium in making trading with Ecuador a lot easier. According to Prrasad, as most businesses start off as SMEs, they now offer a business solution that would make transacting internationally a lot more convenient for SMEs, thus helping with its growth. He further added, “SMEs are major drivers of business and employment in the UAE. Western Union (WU) Business Solutions offers dedicated foreign exchange and payment services to SMEs, such as Online FX, enabling them to make fast and reliable cross-border payments in more than 135 currencies. WU Business Solutions is pleased to be associated with this event by introducing its services that would make trading with Ecuador more attractive.” Online FX helps simplify and streamline international payment processes and help traders save more time and money. Since this business solution caters to more than 135 currencies, companies who are dealing with cross-border payments to countries like Ecuador will find it more convenient to do so. Moving on to the legal side of things, Maria Rubert a partner in the Dubai office of M/ Advocates of Law in her presentation highlighted the corporate structures in OCTOBER 2013

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TRADE TALK event

HE Sami Al Qamzi, Director General, Department of Economic Development (DED)

Ecuador and the regular procedures in trading and investing in the country. She talked about Ecuador’s openness when it comes to foreign investors, who are trying to set establish presence in the country. “The government freely allows businesses of any civil, commercial and

The economy is also seen as stable with unemployment rate only at 4% and only 22% income corporate tax which is very low as compared to other Latin American countries. Aside from convenience, security is also an important factor that UAE businesses consider in trading with other countries such as Ecuador, which is why Schuyler D’souza, Country Manager, Credit Insurance at Orient PJSC and, GCC Head of Atradius talked about trade credit insurance. Trade credit insurance ensures not only the safety of your exported goods, it can also improve your sales, and enable you to sell more goods/services, while mitigating the risk of non-payment from your buyers. It also assists you in entering new markets or starting relationships with new customers. As for the country’s tourism industry, Samir Hamadeh the General Manager of Alpha Tours gave the audience an idea on why Ecuador is one of the best tourist destination in South America. Over 1,000,000 tourists have visited Ecuador already. Tourists around the globe visits Ecuador because of the wonderful

The economy is also seen as stable with unemployment rate only at 4% and only 22% income corporate tax which is very low as compared to other Latin American countries. industrial nature to open up and run a company in Ecuador without requiring an involvement from a local shareholder. Professional organisations such as law firms could also be 100% foreign owned,” she remarked. Aside from these, Maria also mentioned several points on why we should invest in Ecuador. Since the currency used in the country is the US Dollar, transactions can be a lot easier. The second one is its strategic location, as Ecuador is located right in the middle of North and South America which makes the Americas more accessible for trade. 28

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forests and beaches in the country. Since one-third of Ecuador is comprised of the Amazonian rain forest, visitors are also attracted by it. Hamadeh also emphasised that Ecuador is one of the most culturally diversified country in the world and this appeals to tourists as well. As all of these presentations talked about the ease and benefits that trading and investing in Ecuador brings, the final presentation featured the success of Barakat Quality Plus in doing business with the South American country.

HE Kabalan Abisaab, Ambassador of Ecuador Qatar

On behalf of the company, Managing Director, Michael Wunsch told the tale of their success. According to him, when PRO ECUADOR invited them to visit the country, he did not know what to expect from a country this far away. But he was pleasantly surprised, for they were received with a very warm and friendly welcome. Also, he was impressed with how organised PRO ECUADOR was with their trade missions and how keen farmers and producers are with exporting. He also commented the quality of products that Ecuador produces, especially their major exports – fruits and shrimps. Pineapple is one of the primary products that Barakat Quality Plus import from Ecuador. As of the moment they import two to three containers of pineapple daily. Michael also mentioned several things that could still be improved so as to enhance the growth of the country’s economy— such as having better connections through airlines, cargo and shipping and if possible establish a direct link to the Middle East. As the event ended, traders and industry representatives got to know some very interesting information about trading with Ecuador, which only helped us prove that Ecuador truly is the ‘hidden gem’ of South America.


GLOBAL TRADE DEVELOPMENT LEADERS MEET IN DUBAI 21 - 24 OCTOBER MULTI LATERALS | GOVERNMENTS | IPA’S | FDI | INVESTMENT | TRADE FINANCE | HALAL MANUFACTURERS | PORTS & AIRPORTS | SUPPLY CHAIN | LOGISTICS - INDUSTRIAL LOCATIONS & SPECIAL ECONOMIC ZONES CONFIRMED SPEAKER FACULTY

KEYNOTE ADRESSES

DR ABDULRAZAK FARIS AL FARIS Chief Economist of Economic Policy and Research Center, Dubai Economic Council, UAE

ABDULLA BIN DAMITHAN, Director, DP World, UAE

CHUCK HEATH, Senior Consultant, AKC Consulting, UAE

DR ABDULLAH AL-HAYYAN, Member, The Higher Council for Planning and Development and Advisor to the Minister, Ministry of Trade and Industry, KUWAIT

DANKA MILOJKOVIC, President, Serbian Chamber of Commerce and Industry Clusters Council

DR ADELHELM MERU, Director General, Export Processing Zones Authority (EPZA), TANZANIA ADIL ALZAROONI, Senior Vice President, Global Sales, Economic Zones World (JAFZA), UAE

HALUK DAĞ Secretary General, Standards and Metrology Institute for Islamic Countries (SMIIC) OIC

H.E. JUMA AL KAIT Assistant Undersecretary, Foreign Trade Affairs, Ministry of Economy, UAE

MUKHISA KITUYI Secretary-General, United Nations Conference on Trade and Development (UNCTAD)

AHMAD HAMMAD, Head of Trade Policy Division, Ministry of Industry and Trade, JORDAN AHMED ELSHAL, Director, Regulatory & Government Affairs for Middle East & South East Asia, Danone Nutricia, UAE DR. ANAS KHALIFA, Head of Cosmetic, Perfumery & Personal Care Product, Disinfectant & Detergent, Dubai Municipality, UAE BILL BURNS, Partner, Mercator International BILGE ISIKLAR, Chairperson, Technical Committee for Halal Cosmetics, OIC’s Standards and Metrology Institute for Islamic Countries (SMIIC), Director of Chemical Sector, Turkish Standards Institution (TSE) TURKEY CHRIS OKWUDILI NDIBE, Executive Secretary, Africa Free Zone Association (AFZA)

FARAH AL ZAROONI, Chairperson, Technical Committee for Halal Food, OIC’s Standards and Metrology Institute for Islamic Countries (SMIIC), Secretariat, Technical Committee for Halal Cosmetics, SMIIC, Director of Standards Department, Emirates Authority for Standardization & Metrology (ESMA), UAE FATIMA ZOHRA SINDIBAD, Head of Business Development, RAK Investment Authority, UAE FRANK WEILACK, Regional Head of Global Trade Solutions, MEA, BNP PARIBAS HAMID BADAWI, Deputy Chief Executive Officer, Al Islami Foods, UAE HANS-GEORG DUEKER, Manager - Strategic Accounts Central Europe, Coordinator Sales Affair for Halal, Flavor & Nutrition EAME, Symrise, GERMANY DR. HASSAN BAYRAKDAR, Head of Scientific & Regulatory Affairs Middle East, Africa, Turkey & India, MARS, UAE HENDRO HARIJOGI POEDJONO, Director of Public Affairs & Regulatory Affairs, Africa, Middle East & Asia, Friesland Campina, SINGAPORE JAGAT SHAH, Founder & Chief Mentor, Cluster Pulse and Chairman, India China Economic & Cultural Council, GUJARAT

JAMIE FERGUSON, Regional Manager, Middle East & North Africa, Meat & Livestock Australia (MLA), AUSTRALIA H.E. PROF DR.KAMEL O. MAHADIN, Chief Commissioner, Aqaba Special Economic Zone Authority (ASEZA), JORDAN ENG. MAHMOOD AL BASTAKI, Chief Executive Officer, Dubai Trade, UAE PROF EM. MARCEL DE MEIRLEIR, Chief Executive Officer, Business Location International (BLI), BELGIUM ADJUNCT PROFESSOR DR. MARCO TIEMAN, Chief Executive Officer, LBB International, MALAYSIA MARWAN ABDUL AZIZ, Executive Director, Dubai Biotechnology & Research Park, UAE MOULANA M.S NAVLAKHI, Theological Director, South African National Halaal Authority (SANHA), SOUTH AFRICA NABIL ITANI, Chairman-General Manager, Investment Development Authority of Lebanon (IDAL) NASSER AL MADANI, Assistant Director-General, Dubai Airport Freezone (DAFZA), UAE NORBERT KAHMANN, Global Halal Coordinator, Quality & Regulatory, Symrise, GERMANY NOR HISHAM MOHD YUSOF, Head of Corporate Development & Finance, Iskandar Regional Development Authority, Malaysia PAUL BOOTS, Director, Tradeflow, Dubai Multi Commodities Centre (DMCC), UAE

PETER-MICHAEL SCHUSTER, General Manager, RAK Investment Authority, UAE DR RAED SAFADI, Deputy Director, Trade and Agriculture Directorate, Organisation for Economic Cooperation and Development (OECD) DR. RICHARD MUTULE KILONZO, Vice President - Middle East & Africa, SEZ International Corp, USA SANJEET SINGH, Director, Department of Commerce, Ministry of Commerce and Industry, INDIA DR SANOUSSI BILAL, Head of Economic Governance, Trade & Regional Integration Programmes, European Centre for Development Policy Management (ECDPM), BELGIUM SAXEN VANCOLLER, Chief Executive Officer, Dube TradePort, SOUTH AFRICA SHEHZAD SHARJEEL, Regional Head Trade & Supply Chain, Middle East & North Africa, Trade & Supply Chain Department, International Finance Corporation (IFC) SONAM KAPADIA, Executive Director, Head of Global Trade Middle East & Africa, J.P. Morgan H.E. TAYEB AL RAIS, Secretary General, Awqaf and Minors Affairs Foundation (AMAF), UAE DR. TONY WIGG, Consul-Agriculture, Middle East, Australian Department of Agriculture, Fisheries and Forestry (DAFF), AUSTRALIA VISHAL TIKKU, Area Director, Mondelez International, UAE

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ENGR. SAED AL AWADI CEO, Chief Executive Officer, Dubai Export Development Corporation, UAE

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R N For Enquiries & Registration ISTE REG KW GROUP SDN BHD (Malaysia) w. Unit B-6-10, Block B, Phileo Damansara 1, Jalan 16/11, 46350 Petaling Jaya, Selangor, MALAYSIA. k w g b a lt r a lo • Tel: +603 76626888 • Fax:+603 76626889 • Email: anne.williams@kwg.com.sg • Web: www.kwglobaltrade.com


TRADE TALK SNAPSHOTS

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TRADE TALK event

What’s PRO ECUADOR?

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cuador, is a democratic republic nation in South America (GDP per Capita-PPP of USD 5,425 -2012 est.) with a population of over 15.644 million (Nov. 2012) spread over an area of 256,360 thousand square kilometers. PRO ECUADOR UAE is Ecuador’s national trade, tourism and investment promotion agency in the United Arab Emirates. It operates under the umbrella of the Ecuadorian Ministry of Foreign Affairs, with the objective of enhancing the competitiveness of Ecuador as a preferred trading and investment partner. Established as a commercial office since 2012, PRO ECUADOR facilitates sourcing of superior products from Ecuador that cater to importer/ re-exporter and buyer needs, facilitate direct and institutional investments into Ecuador and help potential tourists visit and experience the sensations and flavours of this country at the centre of the world. PRO ECUADOR has seven national offices responsible for seeing the needs of the territory and maintain constant contact with producers and exporters and more than 32 global overseas Trade Offices, focusing on research, trading and international business development bridging the Ecuador economy with the Globe. The PRO ECUADOR Office in the UAE will be assisting the Ecuadorian exporters to explore the UAE market, moreover using Dubai, UAE as the business hub for MENASA Region (Middle East North Africa and South Asia), apart from promoting investment and tourism into Ecuador. 32

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• New investments in infrastructure and logistics. • Modern Telecommunications services with a Fiber optic Network.

Our mandate: Export Promotion Some of Ecuador’s most successful products include Cocoa and Chocolate; Fishing and aquaculture products; Automotive products; Handcrafts; Mangoes; Coffee; Wood; Bananas and Flowers. PRO ECUADOR can be contacted for accessing market intelligence or assist in any enquiry to source from Ecuador. We have specialised coordinators in all product sectors and can help in • Market information on Ecuador and its products • Contacts with Ecuadorian Suppliers and B2B meetings • Trade missions and Exhibitions to Ecuador

SPECIFIC SERVICES PROVIDED BY PROECUADOR – UAE 1. Developing trade promotion strategies in coordination with PROECUADOR HQ and UAE Stakeholders 2. Generating trade opportunities by working closely with UAE Companies 3. Bringing Ecuadorian Companies to participate in UAE major Trade Exhibitions and arranging B2B meetings with UAE Businesses. 4. Hosting UAE Companies to be part of ECUADORIAN major events (AEBE, MACRORRUEDAS & AROMAS DE CAFÉ� ), organized by PROECUADOR 5. Facilitating business meetings and visiting Ecuadorian Companies /delegations in the UAE with local businesses and partners 6. Provision of a Business Centres facilities for Ecuadoria companies to work closely with UAE counterparts in a professional environment. 7. Partnering with UAE Government and SemiGovernment bodies to organize official missions, events 8. Working with domestic Airlines and ports authorities to enhance connectivity with Ecuador

There are countless reasons to invest in Ecuador. Here are the most notable: • Strategic Geographic Location • Vibrant Economy • Country safe, transparent and stable • Great Human Talent

Selected international partners include: • Dubai Exports (DE) • Dubai FDI • The Centre for the Promotion of Imports in developing countries • The World Trade Organization (WTO)

Investment promotion We work to turn your investment project a reality, offering, from your first inquiry, all the free technical support you need, such as: • Information opportunities for land investment • Coordinating schedules to visit public and private institutions • Guidance on the implementation process of the project • Management of confidential information

Tourism Promotion Ecuador is the place where life has expressed its majesty through a variety of colors, sounds, smells and tastes. This small country is located in northwestern South America and is crossed by the equator. It is divided into four regions: Galapagos, Coast, Andes and Amazon. Shape of the 17 most diverse countries in the world. We will help you get to the place where you really love life.


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TRADE TALK INTERVIEW

The power of people! With its inception in 1979, SAFID has come a long way and has built on its vision and dreams. Aparna Shivpuri Arya spoke to Sheikh Mohammed al Rahbani, Chairman, SAFID to know more about the company.

Please give us a brief background about SAFID’s inception and vision

Our vision is to play a major role in the development of public and private projects across the region, having a major impact on the health and wellness of everyone living and working within the built environment. SAFID is a company that believes in people as much as its products. By people we mean our employees, end users, and current and potential customers. At the end of the day, without people, what do we have? We have cities made up of empty homes, offices, apartments, factories, and towers. It was with this people–driven attitude that we created SAFID. We started out as a 60 person company in 1979 with a production area of 2250m2 and the ability to produce a single type of air duct. From the start, my father and I saw a bigger picture and shared a vision. We wanted to create a profound legacy for the cities we all live in, and that drove us to be the producer of world class products that improve the quality of life. We have built a solid business foundation on customer needs and demands, investing in the right people, choosing the most suitable growth markets, expanding at the right time in the right way, and investing in the best technology available. At SAFID we are supporting the

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region’s aspirations for a private-sector driven economy through creating strategic and lasting partnerships, which have continued to provide great opportunity for growth. We have a strong product base. We have invested in competitive advantage, and we have the culture of “SAFID delivers”. We demonstrate every day that, through innovation and energy efficiency, we can meet societal needs profitably with minimal harm to the environment. We believe in being a responsible corporate citizen. At SAFID we like to work together. We see the future as interesting, exciting and filled with opportunity. The Middle Eastern landscape has and will continue to change. So too will SAFID. We see ourselves as being a major part of the mega–projects taking place across the region. Competition and growth propels us forward. We are a leader in the HVAC sector with the ambition to capitalise on international markets in the near future.


HVAC product that is built to meet the unique needs of each client. Specifically, our products include – air distribution systems, air devices and terminals as well as a host of accessories to ensure the seamless integration of our products into the wider build project. With a presence in Saudi Arabia, Kuwait, Qatar and the UAE we are well placed to offer our products to a number of industries and project types.

Sheikh Mohammed al Rahbani, Chairman, SAFID

SAFID is a success story. We are investing in our people as well as our technology. We have learnt from the lessons of the past to focus on being one step ahead of the future.

SAFID has been involved in a number of projects and has grown very quickly – what has been your strategy for growth and marketing?

Our strategy for growth is pretty straightforward. We are not complacent about the fact that we have a 35 year track record, and as such have developed an in house R&D department – the only one of its kind in the region – to provide ongoing analytics and product innovation. Ownership of our supply chain and with strong reach across our key markets, means that we are competitive and do not have to buy in products from outside the GCC. Our reputation, is built on being able to deliver the best in class products on time, with the clients knowing that they are benefitting from global expertise. Furthermore, the fact that our products are accredited to international standards such as, UL, AHRI, SMACNA, SRL, EUROVENT, means we are able to market SAFID products to all audiences and projects, no matter the size.

What products do you provide and to which industries?

We offer our clients, whether architects, construction firms or general contractors, a full indoor air solution as well as a bespoke

SAFID recently did a project in Qatar – how was the experience? As a foreign business, were there any challenges to doing business there?

Without wishing to sound complacent, our 35 year track record, and our ability to control our supply chain, means that we are able to meet any of the challenges that we face.

a part of the ongoing regeneration within our towns and cities. To this end I see construction and the related supporting industries as having a major impact in the ongoing growth of the Saudi economy.

What advice would you give to foreign businesses looking at doing business in KSA- any dos and don’ts?

For any business looking to expand into Saudi Arabia, I would advise that the key to success is understanding and patience. Trust is something that cannot be bought overnight, it has to be earned over time as you win the next project on the back of the previous one. In a market that has many different dynamics at work at the same time, as well as being spread over a significant territory, understanding the particular nuances and

For any business looking to expand into Saudi Arabia, I would advise that the key to success is understanding and patience. Trust is something that cannot be bought overnight, it has to be earned over time as you win the next project on the back of the previous one. As a leader in the private sector, how do you see the economy of KSA in the coming years? Which sectors will offer business and investment opportunities? I can’t speak for the economy as a whole, but Saudi, like many of its neighbours, is focusing on building a long lasting and sustainable economy. Sustainable both in terms of employment opportunities for the next generation, as well as building a genuinely private sector led and commercially driven economy. To the first point I am proud to have a significant number of Saudi nationals in our workforce as this not only tells me that we are part of the employment solution, but also that we support many, many families in the Kingdom. Additionally, as a major private sector operator, SAFID is contributing to both new projects across the Kingdom as well as being

viewpoints in each region is vitally important. For those who might be considering expanding into Saudi Arabia from outside the Middle East, it is important to know that this is not like Dubai, or any of the other states in the Gulf. Each is different, with its own identity and aspirations, so a dedicated strategy for the market is essential.

What are your expansion plans? Are you looking at other countries in the region?

Despite our story beginning in KSA, we are very much a regionally focused organisation, but with ambitions to expand further into markets where we already have a presence as well as into new international markets. We continually evaluate our expansion opportunities, and would look to any market where there is a genuine business case for it. OCTOBER 2013

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TRADE TALK International trade

Focusing on UAE’s trade patterns

In the second feature of our two-part series, Michael Gasiorek, an international trade specialist, explains in detail the Trade Concentration Index and how it can be used to explain the trade patterns of the UAE. 36

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his Trade Concentration Index (TCI) is a very useful index which ranges between 0 and 1. The closer the index gets to 1 the more concentrated is the export structure. At the limit, if the indicator were equal to 1, this would mean that there is only one industry in the sector. If the indicator were equal to 0.5, than this would mean that taking into account the distribution of all the sectors exporting the structure is equivalent to two equal sized industries. The figure below gives the concentration index for each of the technological intensity categories, from 1999-2010. Several things are interesting here. The first is that for all the categories it appears that the UAE’s exports are quite concentrated. The TCI suggests that the number of equivalent sized export

Figure 1 industries for low technology products is just over four, and for the High, MediumHigh and Medium-low categories the number of export industries is equal to six, nine and 12 respectively. Secondly, if we compare the beginning of the period with the end, there is a clear decline in the index

ABOUT Michael Gasiorek is a specialist in international trade whose interests lie in both empirical and theoretical research. Michael Gasiorek has published widely in both books and journals, such as the European Economic Review, World Economy, Economic Policy, Journal of Common Market Studies, Applied Economics and the European Economy. He is also a member of the FEMISE (Forum Euro-Mediterranéen des Instituts Economique) Steering Committee. Together with colleagues from the University of Sussex he has developed the TradeSift software designed to make the analysis of trade and trade policy much easier (www.tradesift.com).

for low technology products and for high technology products (though note the spike in concentration for high technology in the early 2000s). This suggests that in these categories the UAE’s exports have become

more diversified. There is little change in the degree of diversification for mediumlow technology products, and a modest increase in the concentration of trade for medium-high technology products. Given the relatively high concentration of the UAE’s exports, the table indicates the three most important export products within each of the technological intensity categories. If we compare this to where we identified the top 10 products exported by the UAE we see that the first three of these each fall into different technology intensity categories: gold is “medium-low”, jewellery is “low”, and motor vehicles are in the “medium-high” category; and that each of these products appear in the table even when the ranking is done by technological intensity. The following table then identifies which are the three products/sectors within each of the technological intensity categories

The exporters could also identify who are the key importers or where the demand is growing for these products in order to establish whether there are unexploited market access opportunities elsewhere.

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TRADE TALK International trade

which have seen the biggest increase in exports. The aim of this is to see if there are any emerging growing export products within each of the categories. What is interesting here is that there is only one category (8905 – Special purpose ships) 38

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which figures both as one of the top three products in 2010, and also as a product within the medium-low technological intensity category which experienced a rapid increase in exports. The lack of overlap between the two tables suggests

that the sorts of products identified in the second of these tables might be evidence of emerging sectors/products in the UAE’s export profile. One way of considering whether these might be emerging sectors for the UAE is to examine the relative competitiveness of these sectors in world markets. In order to do this we again use the indicator of Revealed Comparative Advantage (RCA) for the UAE for these products. The data suggests that none of these products had a revealed comparative advantage in world markets in 2005. However, by 2010 their competitiveness had improved in all cases; and five of these products have positively revealed comparative advantage in world markets (2306, 2940, 7611, 8517, 8905). So while the current share of many of these products may be small, there is some evidence that these may constitute emerging products/exports for the UAE. From the point of view of policy makers this raises important questions as to what is driving these changes. Are these being driven by any changes in policy, or changes in any incentives being offered to exporters? Are these being driven by the deeper integration of Dubai exporters in supply chains? To what extent do these flows represent changes in manufacturing activity in Dubai, or do they represent changes in re-export flows and if so from where and why? From the point of view of exporters this also raises key issues. To which markets are these emerging flows being directed and why? Is this because of changes in policy or abroad, is this because of changes in trade finance opportunities, and do those markets present other opportunities for allied products? The exporters could also identify who are the key importers or where the demand is growing for these products in order to establish whether there are unexploited market access opportunities elsewhere. Understanding more clearly what is driving these changes can rapidly lead to an appreciation of future opportunities.


TRADE TALK strategy

Don’t be in denial

Dr. Ashraf Mahate, Head, Market Intelligence, DED, tell us, as an entrepreneur, how to deal with a very possible aspect of being in business – rejection.

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here is no single business which can be assured of a sale at every opportunity and even the very best performing sales person will receive rejections from time to time. Many of the large businesses and successful people grew out of rejections. For instance Colonel Harland Sanders who established the Kentucky Fried Chicken chain of restaurants received over a thousand rejections before he finally got a “yes”. Similarly, Sylvester Stallone was turned down by hundreds of agents when he was a struggling actor in New York until one of them finally said “yes”. A wise entrepreneur deals with rejection in a positive and constructive manner so as to learn from the experience and not to view it as a setback. It is important for an entrepreneur to realize 40

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that a rejection of their product or service is not personal. The reality is that the customer is simply saying “no” to the product or service or the deal that is being offered. Once the entrepreneur has realised that a business rejection is not personal he can seek to control the situation in a positive manner. The most rationale approach is for the entrepreneur to read the potential sale and attempt to foresee a business rejection so as to take aversive action. Through being able to read the sale process the entrepreneur can attempt to change the outcome of the potential sale. In most cases, and this comes only through experience, the entrepreneur can change the direction of a sale and overcome, most if not, all the

sticking points. There are usually only a few sticking points in potential sales, the most important being price that is being charged. Even if the product or service being offered is not the most expensive in the industry the entrepreneur needs to justify the cost. One way to do this is to breakdown the total cost into smaller and understandable amounts so that the potential client can see why a particular price is being charged. In the process the entrepreneur can emphasize on the unique value of the product or service. The second sticking point tends to be the fact that even though the potential buyer is attracted to the product or service being offered they cannot justify making changing or fear that it will lead to errors. To reassure


the potential client the entrepreneur can overcome this sticking point through demonstrating past examples of change from prior customer and how they have benefitted from the product or service. The general aim of this is to remove the aspect of fear and to become more confident about changing. Linked to fear is also the element of lack of trust that the potential customer has in the entrepreneur. To a certain extent testimonials go a long way to dealing with increasing trust but at the end of the day it’s something that takes time to build? The best manner to build trust is to be honest and give confidence to the potential client through being able to deliver a quality product or service. Less common but nevertheless stills prevalent is the fact that companies award sales contracts to associated firms be they through ownership or family connection. This is somewhat of a difficult sticking point to overcome and the entrepreneur has two options first to compare the product or service to that of the associated company. Alternatively the entrepreneur can seek to prove themselves by gaining an entry through an off-shoot project that can come about as a result of the main sale to the associated firm. Sometimes the timing tends to be a problem and this can be a sticking point whereby the potential customer wishes to wait a while. The problem with this is that if the potential customer wishes to wait now they will most likely wish to wait in six months or a year’s time. In order to overcome this sticking point the entrepreneur should list all of the benefits of the product or service and demonstrate the value of making the change now. In many respects the entrepreneur needs to make the decision to purchase its product or service a “no-brainer”. Even the best preparation does not guarantee against business rejection and no matter what the entrepreneur does it will not change the customer’s mind. Under such a situation the entrepreneur needs to be rational and seek to understand why the rejection took place. In doing so, the entrepreneur will be able to deepen their understanding of how similar potential customers may react in the future. In this

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

sense the rejection becomes an opportunity for the entrepreneur to do better. It is important to remember that sales are a process of continuous improvement whereby one is regularly competing with other firms that are changing their product mix. As a result a rejection allows the entrepreneur to reassess not only the sale pitch but also the product or service against those of leading competitors. A wise entrepreneur will also track the ratio of rejections to see the trends whereby a reduction over time implies an improvement and the company is on the right track. Of course an increase in the ratio of rejections is a loud alarm bell for the entrepreneur to seriously reassess its product mix. A rejection is also an opportunity to learn from the potential customer and to understand why they said “no”. Here the aim in not to change the opinion of the potential customer although in some cases that may happen, but to learn as to what is required in the market place. It is important that the entrepreneur is not defensive regarding their sales pitch or product/service but instead obtains honest and reliable feedback. The process should be more about the entrepreneur listening and asking questions rather than justifying their position. If a number of potential customers that have rejected the product or service are saying the same thing then the entrepreneur has serious problems that need to be solved. If just a couple or so potential customers are saying the same thing then the product mix can be tweaked. The important thing here,

is to remember that the entrepreneur should keep on offering the same product mix over and over and expecting different results. The entrepreneur will need to regularly fine-tune the approach if not the product or service in order to reduce the ratio of rejections. A rejection today does not necessarily mean that the potential customer will never be a client in the future. A “no” does not always mean no all it means is that it is a “no” for now. Therefore, the entrepreneur needs to keep the door open and build relationships with potential customers that have rejected the product or the service. In other words the entrepreneur needs to continue the dialogue without being a nuisance. The most common methods of keeping the dialogue is to produce an electronic newsletter letter or email directed at all the potential customers that have rejected the product or service. The aim of this exercise is to regularly inform potential customers and to show them that there are companies that have purchased the product or service and in the process benefitted from this. Over time this will increase the level of trust and show that the entrepreneur has the ability deliver the product or service. An entrepreneur needs to appreciate the fact that dealing with rejection is an integral part of any business no matter how great or cheap a product or service. Learning to deal with a rejection in a gracefully yet positive manner is the most effective way to build a business and do better in the future. It is important to remember that a rejection does not make the entrepreneur a failure failing to learn from it can do just that. OCTOBER 2013

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TRADE TALK Finance

The Alternative Financer Kamel Alzarka is the force behind Falcon Group. He spoke to Aparna Shivpuri Arya about his company and the world of finance.

K

amel started the discussion by taking us back into time, “When I founded Falcon Group in 1996, it was primarily focused on trade finance, especially for emerging market corporates. However, the global financial crisis threw up opportunities for us to expand our business and our service offering. While banks struggled to provide funding to corporates, Falcon Group thrived – fine-tuning its expertise and growing its client base. And as we proved the value of our solutions, corporates started to recognise the benefits of a more diversified funding portfolio.” Moving on he added that now, Falcon Group provides funding solutions to many types of corporates – not just those seeking trade finance – and it has spread beyond the emerging markets, operating in the UK, Europe and 42

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North America, as well as across the Middle East, Asia and Latin America. What’s more, they are increasingly collaborating with global banks, combining our flexibility, speed, and ability to structure bespoke funding solutions with the larger balance sheets they have at their disposal. “Looking forward, our goals focus around further growth and development – working to expand both our client base and global reach. Last year was a record for us, as we almost doubled our profits – an achievement that is not only indicative of the growing appetite for alternative financiers, but also of the particular success of Falcon’s solutions. With a rise in gross revenue from approx. USD 1.1 billion to around USD 1.7 billion from 2011-2012, I am confident that our target USD 5 billion gross revenue is in sight,” he remarked.

Knowing that the expert he is, we had to ask him to explain us what “alternative financing” is all about. “Alternative financing is, simply, corporate financing solutions that do not come directly from a bank. Mostly, it is financing that comes from non-bank financial institutions, which are often more flexible and quicker to act. Of course, they have smaller balance sheets than global banks, but they also have the resources and expertise to create sophisticated bespoke structures. Crucially, alternative financiers are freer than global banks from stringent regulatory proposals – enhancing their flexibility,” Kamel explained. He further added, “On the whole, therefore, alternative financing is sophisticated financing tailored exactly to the companies’ needs. Over the past year, there have been more and more calls to regulate the alternative financing


industry. This is a move we welcome at Falcon. Indeed, FalCap Ltd. – the wholly owned Falcon Group subsidiary at Falcon’s Dubai headquarters – is regulated by the DFSA.” We then moved on to his take on the financial situation in the US and the EU and its impact on global trade. He was quick to point out that the situation has left a dent on global trade, given that much of this funding comes from global banks. “The financial situation in the US and the EU has weakened banks’ ability to lend. And for those bailed-out by the taxpayer, there is added pressure to favour domestic markets. Yet this means corporates in the emerging markets, where global trade is flourishing – led by countries such as China and India – have observed even tighter constraints on bank lending than those in the US or EU. What’s more, the impact of regulatory proposals is such that banks are prioritising core business, meaning trade is often overlooked,” he added. According to him, it does not look like banks are going to regain their former strength or freedom any time soon, and confidence in their security has taken a huge hit. Given this, global trade needs to diversify its funding sources to ensure it is able to access sufficient and sophisticated funding. So has the financial crisis weakened the position of banks and let other players in? “Prior to the financial crisis, global banks were undoubtedly the largest player in the financial sector. Yet now – given liquidity constraints, restrictions on lending, and declining faith in their security – the power of global banks is waning. Instead, the power in the financial landscape is balancing out between global banks, regional banks and also alternative financiers,” replied Kamel. He also added that having learned from the global financial crisis, corporates are now aware that investing all their faith in a volatile banking industry is unwise. Yet they still require funding for their business sustainability and growth, and this desire has caused corporates to pay more attention to other players in the financial landscape – predominantly regional banks and alternative financiers. And this change

ABOUT Kamel Alzarka is the chairman and founder of Falcon Group. At 22, Alzarka completed his term at business school in Paris and established Falcon whilst still based in the city. He soon moved to London and Dubai, exploring less traditional forms of trade finance for a broad range of corproates. Today, the company has a book of just under USD 1.7 billion, and is certainly a major player in the field.

has had a positive impact on businesses. The financial landscape now offers corporates many different funding options – often sophisticated and tailored to their needs. The conversation then moved to the Basel III regulations and its impact on trade finance. Kamel was of the opinion that the global financial crisis exposed the need for tighter regulation, but perhaps the regulators have now gone too far. Kamel explained this further and said, “The Basel III requirement for banks to keep more capital on their balance sheets means there is less capital available to

on lending than on investment, they have seen things pick-up on the investment side – whether in real estate, or private equity. This, according to him, is a good sign for them as it encourages broader activity, and ultimately, further growth of our business. Talking about the way forward, he said that cross border transactions and international expansion are the way forward. And this is especially true in regions with turbulent economic environments – such as Europe – where most growth will perhaps originate from international demand. He also pointed

He also added that having learned from the global financial crisis, corporates are now aware that investing all their faith in a volatile banking industry is unwise. Yet they still require funding for their business sustainability and growth, and this desire has caused corporates to pay more attention to other players in the financial landscape – predominantly regional banks and alternative financiers. lend to corporates. The impact of Basel III on trade finance is particularly severe. Indeed, trade finance instruments are overly penalised under Basel III and although these proposals have been relaxed in Europe – but, notably, not globally – banks still have less incentive to finance trade, instead choosing to focus on less expensive business.” Inching closer home, we asked for his opinion about the investment scenario in the GCC countries and he said on an optimistic note that even though they are more focused

out that Falcon has been playing its part in promoting investments. “Falcon Group is always trying to develop new solutions and find new ways to help our clients reach their goals. For instance, we have been championing the idea of trying to squeeze dormant liquidity out of the trade cycle.” Interesting concept and I guess to know more about this, we’ll have to meet Kamel again. But to conclude, it was a very informative conversation, which made finance actually look simple for once. OCTOBER 2013

43


TRADE TALK Currencies

Money talks V In this month’s issue, Western Union Business Solutions looks at the movements in the EUR, the USD and the GBP to help you trade better in the coming month.

With America’s job market playing a vital role for Fed policy, investors have October 4th circled on the calendar. That’s when the US will issue its next big snapshot of the labor market. Job growth has slowed over the past three months. Dollar bulls would throw a party if US hiring bounced back at a faster pace in September. Those bearish on the greenback, on the other hand, would pounce on another tepid jobs report, which would depict the bar set a bit higher for the Fed to taper stimulus at bankers’ next meeting on October 29th-30th. The Dollar certainly has its work cut out for it to stage a meaningful rebound from recent lows. But downside risk for the Dollar could be stemmed should investors need a safer place to hide to ride out worries about the potential for political stand-off in Washington leading to a government closure, and the country’s first ever debt default.

Critical Events October 4: September nonfarm payrolls/ unemployment October 11: September Retail Sales October 18: Fed releases September 17-18 FOMC minutes October 30: Q3 GDP preliminary October 30: FOMC announcement

USD Behind the wheel for the Dollar in October will be America’s big jobs report. The greenback in September fell a few rungs out of favor after the Federal Reserve wrong footed many by staying the course with a plan to spend billions each month to depress borrowing rates and spur a healthier economy. For the better part of the summer, investors had bet that the Fed might start to unwind stimulus at its September meeting. That notion helped propel American interest rates higher which dragged the dollar along for the ride. But the Fed proved most market expectations wrong and decided against slowing support to the economy out of worry 44

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about higher borrowing rates, which could strangle the recovery, and fiscal headwinds in Washington over looming decisions on the budget and increasing the debt limit. The Fed’s pass on a so-called policy “taper” at its previous meeting sent both US interest rates and the dollar sharply lower, with the greenback plunging to multi-month lows against the Euro, Sterling and growth peers from Australia and Canada. The Fed’s continued commitment to super-easy policies served as a near-term game-changer for the greenback. But many investors remain bullish on the dollar over the long run on the view that Fed plans to slow stimulus are merely delayed, and not entirely off the table.

Economic Indicators 3-month Deposit: 0.25% GDP: 2.5% ann. Q2 Inflation: 1.5% (August) Unemployment: 7.3% (July) Trade Balance: -715.6 bln (July)

GBP Sterling landed on October’s doorstep as one of the currency market’s prized possessions. Britain’s Pound has played the part of a pack leader among many major currencies, soaring to multi-month highs against the greenback and other chief rivals. Leading the Pound higher has been growing optimism in the nation’s economic recovery which has seemingly revealed a crack in the Bank of England’s template to hold down interest rates over coming years. The rebound in Britain’s recovery has been broad based with notable improvements in


manufacturing and services activity, and a 7.7% jobless rate that has fallen toward bankers’ key 7% threshold to consider a rate hike. Meanwhile, a somewhat hazy outlook for policy at America’s Central Bank has compounded the Pound’s winning streak. The Federal Reserve last month dealt a momentary setback to the greenback after it decided against slowing support to the US economy out of worry about its underlying health. The Fed’s pro-growth bond purchases have effectively watered-down the value of the Dollar by anchoring interest rates. But as resiliently as the UK economy has fared in recent weeks, risks to its revival lurk near the surface. Although the numbers suggest that Britain is recovering at a steady clip, the rebound is still in its infancy, when downside risks to growth are elevated. In the coming weeks, the Pound would be vulnerable to a corrective decline if the economy failed to sustain recent momentum. A bumpy recovery wouldn’t come as a surprise to BOE officials, but it would likely unnerve players who have grown bullish on the Pound, and possibly prompt some to pull a few profits off the table. Watch for US budget negotiations between the White House and congressional Republicans to throw up another risk hurdle for sterling. US lawmakers are tasked this month with addressing a couple of big fiscal issues. Capitol Hill has to put a budget in place that keeps the government running, while it also must raise the debt limit. Failure to achieve either objective would risk destabilising global financial markets, which would wield the potential to send investors fleeing riskier bets, like Sterling, in search of safer ground. Critical Events October 10: BOE Policy Decision October 15: Sep Inflation October 16: Unemployment October 23: BOE Releases Meeting Minutes October 25: Q3 GDP Preliminary Economic Indicators 3-month Deposit: 0.50% GDP: 0.7% (q/q) Q2 Inflation: 2.7% (August) Unemployment: 7.7% (July) Trade Balance: -170.2 (July)

EURO Now that Merkel’s back…. The story that investors will want to follow in October is not necessarily in Europe, but that doesn’t mean investors will look away completely. Now that Angela Merkel has won her German election, investors will want to be seeing a few policy decisions move forward, assuming Merkel is able to form a government with either the SPD or Greens. Markets have been on hold for months in the run up to the German election. Decisions concerning the Eurozone’ s banking union, a German constitutional Court ruling on the ECB’s OMT, a third bailout for Greece and a plan for Portugal have been side-lined until the outcome of September’s election was known. The sort of progress that needs to be made with the banking union is not expected to happen anytime soon, but investors could become disenchanted if politicians don’t keep heading in the right direction. The banking union was created with the expectation to break the loop of bad banks pulling down fiscally weak government, but Merkel continues to deny any plan to create a mutual fund that would help wind down bad banks, thus nearly negating any real benefit to the programme. Indeed, not only do deposit guarantees and a mutual fund look far off at this point, but also the latest reports suggest that a new ‘resolution’ agency may only control 130 banking institutes instead of the full 6,000 in the Eurozone, which continues to dilute the union’s authority. In June the Constitutional court in Germany said it would offer its decision on the ECB’s outright monetary transaction (OMT) policy sometime this fall. Thousands of Germans filed complaints suggesting the newly created yet never used facility violates the ECB’s mandate. One policy maker at the ECB has already said that the ECB is not bound by the Court’s ruling. Political tensions could develop after the ruling which could help to limit the euro’s upside. The so-called troika were in Greece as the German elections were taking place. A third and potentially a fourth bailout are likely already priced into currency markets; nevertheless, daily headlines may not help sentiment, particularly when Portugal gets dragged into the press. Borrowing costs for the

Portuguese government have risen above 7%, which is a level that is seen as unsustainable over a longer period of time. In other developments, the world will most likely learn whether or not Italian politics will free itself from former PM Berlusconi in October. Should he be kicked out of parliament, his party could retaliate by pulling out of the fragile government coalition. Markets have been aware of this story and like the Greek threat it has already been taken into consideration. What could stir Euro trade this month is economic data suggesting more stimuli is needed by the ECB. There have already been reports that the ECB could offer another LTRO or cut interest rates. This sort of policy action would have a negative impact on currency movements and the first policy meeting will be held on October 2nd. Potential political developments during the month of October in the Eurozone have likely been priced into markets, but are not likely to be necessarily Euro-positive. In the meantime, soft economic data may sway ECB policy makers to take additional policy measures, which would be meaningful to investors. Weak economic data that increases the chances of another LTRO or rate cut will continue to limit the euro’s ability to reach higher levels. Upcoming critical events October 01: EUR September Manufacturing PMI October 01: EUR August Unemployment October 02: EUR August PPI October 02: EUR ECB Monetary Policy Committee meeting October 03: EUR September Services PMI October 03: EUR August Retail Trade October 14: EUR August Industrial Production October 16: EUR August Trade Balance October 16: EUR September Final HICP October 30: EUR October Business Climate Index EUR Economic Indicators 3-Month Deposit Rate: 0.22% GDP (annual rate): -0.5% Inflation (annual rate): 1.3% Unemployment: 12.1% Trade Balance: EUR +18.2 billion OCTOBER 2013

45


TRADE TALK Technology

How are you communicating?

How many of us actually know what M2M is and how evolved technology has become? Manfred Kube, Head of Communication at Gemalto gives us a lowdown on M2M communication. Making objects intelligent In the “Internet of things”, Machine-toMachine (M2M) communication makes objects intelligent by enabling them to share data securely over mobile networks – wherever they are and in whatever environment they are operating. The technology comes on board to simplify and improve the way we live and work for the better, turning objects into manageable assets and making devices an integral part of the enterprise. There are thousands of existing applications and the potential is astounding. M2M plays a key role in automotive telematics, smart energy, remote healthcare, object tracking-and-tracing, and many more. Businesses around the world are discovering the power of M2M to save money and generate new sources of income. Governments are turning to it to reduce expenditure, increase efficiency and meet carbon emission targets. And the aging or remotely living population wishing to live an independent and healthy lifestyle is driving growth in mobile healthcare applications. When the technology enables machines to communicate with each other, it opens the door to an array of use cases to which only the sky is the limit. What drives the demand? High energy prices, the increasing need for security and growing competition are factors that drive the demand for efficient solutions to 46

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problems sky-high in the logistics industry – both inside an organisation and with respect to distribution traffic. Used together with GPS, today’s wireless Machine to Machine (M2M) technology makes it possible to track down and trace vehicles, goods shipments, employees, and mobile resources. It therefore supports logistics companies that need to constantly monitor the flow of goods they transport. The supply chain gains transparency as a result, along with the entire range of business processes involved in an operation. Concurrently, field proven M2M telematics solutions are being applied in new and inventive ways to pave the way to success. When employed in road networks, wireless technology can for instance make road signs communicate data and give drivers real-time updates on road conditions. The technology opens the door to intelligent telematics services that aim to improve drivers’ safety, provides them with traffic information so that routes can be altered to shorten time and reduce fuel consumption and associated CO2 emissions. M2M-powered fleet management solutions can also help fleet managers optimise routes to cut down on miles driven and fuel consumed. The exact location of goods and even stolen vehicles can be pinpointed and reconstructed by means of GPS and radio cell location. Data can be exchanged between the control center and the tracking object in real time over the

GSM network. Details about the condition an object is in can be transmitted to headquarters, such as the current temperature of goods in transit, any damage they have suffered, or the speed at which they are traveling. In the event of an accident, alerts are transmitted automatically for help to be quickly provided. On a large construction site, when managing heavy machines, M2M technology gives fleet managers in time updates on the whereabouts of their vehicles and equipment. Current vehicle data is automatically transmitted to the fleet management system of the fleet operator. A wireless M2M enabled fleet management solution alerts supervisors in advance. When fuel is low at a machine, the site supervisor can for instance order a fuel delivery service in time to the current machine location. Thanks to the technology, supervisors can easily detect that two vehicles are only used 35% of the time, would be better utilised at another site, and take appropriate measures. To reduce equipment theft, alert messages can be sent when a machine leaves a construction site, allowing supervisors to confirm the vehicle is authorised to change locations. Maintenance becomes much easier as well as a message can be sent when the air filter of a machine is blocked and prevent the machine from running at optimum performance. Another piece of equipment can send an alert when maximum load is


exceeded, possibly causing damage to the vehicle or a dangerous environment for other workers. The site supervisor can respond virtually immediately ordering equipment to be serviced or replaced to fulfill the job task. Other M2M initiatives intend for instance to bring rapid assistance to motorists involved in a collision. It is currently the case in Europe with the eCall project, which could also get momentum in Middle East. eCall, is a groundbreaking initiative intended to bring rapid and automatic assistance to motorists involved in incidents anywhere in the European Union (EU). eCall’s success hinges on two key elements: an upgraded European wide interoperable Public Safety Answering Point (PSAP) infrastructure, and installed or embedded Machine-to-Machine (M2M) communication devices in all vehicles.

M2M – delivering next generation healthcare to remote communities In the healthcare sector, the machineto-machine wireless technology can also significantly improve healthcare practices around the world and provide unique “out-ofthe-box” experience to patients. It is no surprise that healthcare professionals are turning to the technology as there are great challenges faced by national healthcare systems in terms of prevention and efficient provisioning of medical care to remote populations and growing incidence of chronic diseases. The delivery of healthcare through mobile technologies (mHealth) can provide an answer. Remote wireless health monitoring will play a vital role in the development of new healthcare strategies aimed at improving access to and continuity of healthcare - while controlling costs at the same time. A key technology to facilitate wireless health monitoring is cellular based Machineto-Machine (M2M) communication. With the patient’s prior consent, M2M solutions enable mobile health devices to remotely monitor, connect and communicate the patient’s health status to a medical specialist over the air. Thanks to this technology, patients can benefit from specialised services in a timely fashion, wherever they are, especially in remote areas. Complementing face-to-face visits,

ABOUT Manfred Kube is Head of M2M Segment Marketing and Director Business Development mHealth at Gemalto M2M and based in Munich, Germany. His role includes the assessment of market trends, analysis of eco systems and future business models, and support in the development of strategic business directions. Manfred has studied electrical engineering at the Technical University Munich and the University of Melbourne and did an MSc programme at the Institute for IT in Healthcare in Konstanz.

M2M technology establishes an additional communication channel between clinicians and patients, removing geographic barriers and enhancing the quality of service delivery.

The future is NOW Sound futuristic? Not so, all this technology exists today and is being integrated in many places around the world. The three main challenges to wide scale adoption and a seamlessly-connected intelligent transportation system are interoperability, security and infrastructure development. Legislation on a global scale and in many different ways further drives the adoption of M2M. Government agencies and global industry coalitions around the world are working together to define industry standards for open-ended technology platforms that can connect our world in unprecedented ways. M2M is becoming all-pervasive and the European eCall initiative and Russia’s ERAGLONASS projects are good examples of successful programmes that are promoting transportation safety and efficiency by enabling cellular communication across international borders and different wireless networks. Meeting the machine to machine challenge Today’s telematics and healthcare sector is booming with exciting new technologies. The list of innovative M2M use cases is as long as it is diverse, but they all share the need for reliable, secure wireless communications. Extended temperature ranges for all components are a mission-critical prerequisite in industrial environments to ensure reliable machine to machine communications even in the scorching heat of a desert. Vehicles

travel hundreds of thousands of kilometers and operate almost every day without rest in the Middle Eastern heat. All communications modules and components for telematics solutions must be specially designed and carefully selected to guarantee a device lifetime that can withstand the rigors of the road. Traditionally, due to limited choices, industrial and automotive grade telematics systems were all equipped with the same consumer grade SIM cards used for the mobile phones in our pockets. Cell phones are designed for only a few years of operation with normal day-to-day handling expected from consumers. And we all know what happens when a cell phone is accidently dropped or exposed to moisture or heat extremes – SIM access failure! Until recently, the consumer SIM card was a weak link in otherwise ruggedised industrial or telematics devices that are designed for long-term deployments. With a combined experience in mobile and machine communications, we, at Gemalto, understood the challenge and introduced dedicated Machine Identification Modules, or MIMs to overcome the durability limitations of consumer SIM cards in industrial and telematics M2M solutions, building our customer’s trust to excel in this rapidly developing domain and connecting and managing machines with confidence. MIM cards are currently being used by mobile operators Mobily in Saudi and Du in the UAE, who are taking the lead as key players in this field. The Machine Identification Modules are integrated in all major M2M initiatives by those operators for a variety of end-markets, from oil and gas, retail, healthcare, utilities, to power management, as well as the transportation sector and will contribute to vast operational improvements in the region’s industrial sectors. OCTOBER 2013

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TRADE TALK sector watch

Have you tried this route? Μaritime trade is a very important part of Middle East’s economies and there has been a sharp increase in container traffic in the last few years or so. To get more details on this, we got talking to Nikhil Chitkara, Senior Research Analyst, Drewery. Please give us an overview about the shipping industry in the Middle East. The Middle-East as a region is primarily driven by export of petrochemical products and containerised import including several commodities ranging from perishable food products to automobiles to industrial equipment and consumer goods encompassing a wide spectrum. Growth in population, infrastructure/ construction investments, increased consumer spending and rapid containerisation has led to a sharp growth in container traffic over the past decade or more. This has shaped the container shipping industry in the region. Today, the Arabian Gulf ports dominate Middle East container market accounting for close to 65% of the total traffic. Gulf of Aden and 48

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Arabian Sea ports handles another 25% of the volume with the remainder being handled by key Red Sea ports such as Jeddah and Hodeida. Within the Arabian Gulf, ports in UAE alone account for close 60% of total container throughput in the region. Oman has the second highest throughput in the Middle East region, primarily driven by trans-shipment volumes at Salalah in the Arabian Sea. Overall container traffic in the Arabian Gulf region has grown from 8.7 million TEU in 2001 to near 25 million in 2012, a 12 year CAGR of 13%, which is much higher than the global average. Several ports such as Jebel Ali and Khor Fakkan are reliant on transhipment traffic alone, which in part explains the higher multiplier with which container traffic is growing in the region in relation to the GDP.

Which countries in the Middle East region are doing better than others? Ports in the UAE account for over 60% of the regional throughput in the Arabian Gulf Market, followed by Oman 14% and KSA (6%). Iran accounted for close to 12% of the regions throughput in 2011 but the share has since shrunk considerably as a result of trade sanctions. However (Refer Chart 1), if we consider the past ten year period the market share of each of these countries within the Arabian Gulf has not changed much. Speaking purely in terms of container trade, there is little doubt that the UAE has come a long way and set a model for others to follow. The re-export market in UAE is one of its kind, catering to a wide range of commodities not just to markets within the GCC region but also


Chart 1

Share of Container traffic in Arabian Gulf

Source: Drewry Maritime Advisors

Chart 2

Middle East - Traffic Outlook

What kind of demand and supply will the container sector see in this region?

Source: Drewry Maritime Research, Container Forecaster

to markets further away in Africa. The food processing and the auto industry based in UAE are examples of the same. A strong focus towards development of export industries by providing allied SEZ infrastructure has not only generated production capacity but also helped address the problems of imbalance in container trade – which is an important factor for cost of shipping in containers. Apart from the UAE, trade growth has been rapid over the past decade and the focus similarly is shifting towards an export industry led growth. Qatar for instance has been leading in export of petrochemical products. The FIFA World Cup to be hosted in Qatar in 2022 is expected to generate demand for construction material and other products from the Asian markets. Doha port is looking to expand its capacity to cater to this increased demand. Growth in Iraq too has been impressive in recent months. KSA and Oman remain important consumption centres but are increasingly

challenge of a growing population is the need to provide employment. While in GCC countries states have expanded government spending to provide jobs, elsewhere in the region unemployment is high and remains a potential source of political turmoil. Also, while government spending and oil revenue may drive growth in the short run, in the long run improving productivity should be the priority across the region. The global slowdown has created a challenge for economies world over; it has severely dampened the construction boom in the region. Economic stability and growth in the face of a rising population will be key growth factors for the Middle East as a whole. There are ambitious projects such as industrial zones in Abu Dhabi. New ports are being constructed in Oman, Kuwait, Doha and work is on an ambitious land bridge project which is underway in KSA. The success of these projects stems on investor confidence and pace of economic growth not only in the Middle East but beyond as well.

focusing on industrial growth to supplement oil revenues. At the same time some countries have taken a setback in recent years, such as Egypt and Syria. Kuwait too has been lagging its peers in terms of growth in container traffic.

What according to you are the challenges faced by the maritime sector in the Middle East?

Although the pace of economic expansion in the Middle East is expected to slow from the robust rate experienced over the last two years, growth continues to outpace that of the world economy as a whole thanks to the booming public sector spending and resilient oil prices. Growth across the GCC in 2012 averaged 6.0%, but is expected to slow to 4.8% in 2013. The first quarter was particularly below expectations. The population of the region is growing at an unprecedented rate, and is projected to double between 1990 and 2030. While this provides an opportunity, offering a larger market place to attract investments, the big

Based on Drewry projections, container traffic in the Middle East is expected to achieve a CAGR of over 6% between 2012 and 2017 (Refer Chart 2); this is higher than the global average. Trade within Asia will be the key driver. Growth in Middle East is dependent on oil prices being sustained, as this would be key for regional economic and industrial growth coupled with investment in infrastructure development. The development in container trade is also linked with how other markets perform. North and East Africa for instance are important markets for trade with the Middle East and are also regions which are expected to experience a fast pace of growth over the coming decade. In terms of supply there are two aspects – cellular fleet and port capacity. Currently the Shipping (Liner) industry is going through a phase of fleet expansion by ordering larger vessels which bring down unit costs. However, this has caused overcapacity which is further exacerbated by lacklustre performance on key east-west routes. As larger ships are cascaded to trades covering the Middle East we see OCTOBER 2013

49


TRADE TALK sector watch

sufficient capacity deployment and a sharp rise in average vessel sizes in the coming years. As for port capacity, based on confirmed expansion plans Drewry’s assessment is that overall capacity in the region is likely to increase to 69 million TEU by 2017, representing a CAGR of 5% between 2011-2017.

ABOUT Nikhil Chitkara, Senior Research Analyst, joined Drewry in June 2010. He coordinates research for Drewry’s Container Freight Rate Insight (www.drewrycfri.co.uk), in addition to other container shipping research products. Nikhil is also an experienced consultant supporting a wide range of assignments throughout South Asia. Prior to joining Drewry Nikhil spent two years with Chile based shipping line CSAV as part of their trade team with responsibility for pricing on certain key routes. He started his career with Denmark’s Maersk Line.

What are the macro-economic indicators that a trader should be looking at when it comes to the container and freight sector?

Trade patterns are changing away and share of traditional markets in the west has decreased notably. It is becoming increasingly important to identify new markets and opportunities for sourcing as well as exports. In terms of shipping costs, there has been high uncertainty attached to freight rates, especially in the spot market and this is likely to continue (Refer chart 3). Freight rates are largely based on market factors such as supply and demand – which traders need to follow up in their shipping costs as well as long term sourcing strategy.

Any advice you would like to give to traders when it comes to logistics?

Container freight rates have been highly volatile for the first half of the year and the trend is likely to continue. Contract terms for long term validity may not seem attractive if the spot market falls. Conversely, it is risky to have a high exposure in the spot market, since rates may shoot up without much warning even if the underlying fundamentals do not always support it. Index linked contracts are becoming increasingly popular on some of the busier east-west trade routes and are a good way to hedge freight cost volatility without being out of the spot market.

Dubai is fast consolidating its position as a leading cargo hub. In the first quarter of 2013 air cargo tonnage at Dubai was up near 13% year-on-year, while leading airports world over gained negligibly. However, sea-air shipment volumes in Dubai have been very low in recent months. Poor seaair volumes could be a result of low airfreight rates, not necessarily low demand as shippers look to increase sea-air shipments when pure air freight rates are very high. However, long term prospects are good and key hubs like Dubai continue to benefit from growing trade between Africa and the rest of the world.

For exporters and importers in the Middle East, what are the most cost and time effective trade routes?

A move away from traditional markets in the west – Europe and the US to increased trade with the Far East has been timely and the trend is expected to continue.

Chart 3

Central China (Shanghai) to U.A.E (Jebel Ali) Spot freight rate Benchmarks 40ft dry

What is the latest trend on air vs. sea freight in terms of supply/demand and rates?

Globally the air freight sector has been witnessing low volume growth and subdued freight rates but pricing on the ocean freight rates has weakened even more, at least on key east-west routes. 50

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Shipping costs and transit times are unusually high on these routes. More so for routes covering the US, where there are only a handful of liner services which could be used and costs are subsequently high. At the same time Intra-Asia trades has been amongst the fastest growing trade and has gained the dominant position in recent years. Two way container traffic on Middle East trades covering Far East Asia and South Asia grew at a CAGR of over 9% in the last six years representing a volume of 12 million TEU. Many shipping lines on this trade today provide direct coverage to ports in the Upper Gulf region like Bahrain, Kuwait, Doha, Bandar Abbas to name a few. This brings down transit time and costs notably. Strong trade links with Africa is another strong area for Middle East as a region. The African continent is expected to experience sharp trade growth and this should translate into greater business opportunities in the Middle East.

Source: Drewry Maritime Reserch, Container Freight Rate Insight


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Trade and Export Middle East | October 2013  

Trade and Export Middle East | October 2013

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