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ISSUE 6 | APRIL 2012

A practical guide to going global

www.tradeandexportme.com

inside: Event listings Country Focus PERFORMANCE survey Commodity watch Industry insights Policy watch

FLY TO SUCCESS THE MIDDLE EAST AIR CARGO BUSINESS.

PLUS

COUNTERTRADE

THE FRANCHISING BUSINESS

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RAK FREE TRADE ZONE PUBLICATION LICENSED BY IMPZ


EDITOR’S LETTER

Publisher Dominic De Sousa Group COO Nadeem Hood Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126 EDITORIAL Editor Meghna Pant meghna@cpidubai.com +971 4 440 9130 Contributing Editors Mike Byrne mikeb@cpidubai.com +971 4 440 9105

The challenges ahead

Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133

Two of the biggest challenges that exporter’s are facing today are which market to export to and how to ensure that they get paid.

ADVERTISING Commercial Director Chris Stevenson chris@cpidubai.com +971 4 440 9138 Business Development Director Francis Morgan francis@cpidubai.com +971 4 440 9136 Advertising Sales Executive Derrick Best derrick@cpidubai.com +971 4 440 9162 PRODUCTION AND DESIGN Operations Director James Rawlins jamesr@cpidubai.com +971 4 440 9108 Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 Art Director Kamil Roxas kamil@cpidubai.com +971 4 440 9112 Designer Froilan A. Cosgafa IV froilan@cpidubai.com +971 4 440 9107 Photographer Cris Mejorada cris@cpidubai.com +971 4 440 9108 DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developers Jerus King Bation Erik Briones Jefferson de Joya

The American and European markets continue to fumble. Then there is the negative and news that India’s growth may slow, coupled with the fact that the Indian government has raised import duties on various commodities, most importantly gold. India is one of the largest trading partners of the UAE and one of the fastest growing nations in the world today. This news may lead to companies based in the Middle East to look for trading partners in newer countries. Where can this be? With growing bilateral trade and investment relations with the Middle East, Australia looks like a good trading partner, especially in the trade lane of food and beverage. We find out where Australia’s bilateral relations stand with the UAE. We also talk to an Australian trader to find out what specific and critical challenges women in trade face, especially in the MENA region. While the previous edition of Trade and Export Middle East delved into how an exporter can eliminate payment defaults by using export credit insurance, in this issue we examine the method of countertrade. Financing has become more and more of an issue, in a world racked by reduced cost-cutting and increased risk. Therefore, countertrade is increasingly being viewed as the best form of payment. Since nations can now use counter trade without dipping into their foreign exchange reserves, more and more developing nations are tapping into this method, including in Middle Eastern countries. We find out why countertrade is a useful policy for receiving payments while trading in the modern world. As usual, we look forward to your comments and feedback, and will strive to make Trade and Export Middle East your go-to guide for all things exported and imported. We hope you enjoy the read!

online@cpidubai.com +971 4 440 9100 Published by

Meghna Pant, Editor, Trade and Export Middle East

1013 Centre Road, New Castle County, Wilmington, Delaware, USA

Branch Office PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Atlas Printing Press LLC © Copyright 2012 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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updates

ISSUE 6

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GLOBAL WATCH: International news and trends with domestic trading relevance.

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POLICY: Updated standards and regulations from government and industry bodies.

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snapshotS: A quick look at news and trends that will impact traders in this region.

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LOGISTICS: With air cargo traffic increasing across the Middle East, many commercial airlines are launching lucrative cargo services especially designed for traders. Meghna Pant discusses the opportunities and challenges of this business with Ghaith Al Ghaith, the CEO of flydubai.

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FINANCE: Dr Ashraf Mahate, Head of Export Market Intelligence at Dubai Exports, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, examines whether countertrade is a useful policy for receiving payments while trading in today’s modern world.

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INSURANCE: In the final part of the two-part series on Export Credit Insurance, Schuyler D’Souza, Chief Commercial Officer at the Export Credit Insurance Company, explains why a trader must execute this policy, how to go about implementing it, and its feasibility with regard to the current global economic status.


resources trade talk

CONTENTS

LEGAL: Even though there are no specialised laws applicable to franchising activities in most Middle Eastern countries, there are a range of laws, including agency laws and trademark laws, which must be carefully examined and understood. Fiona Robertson from therightslawyers guides us on the legal basics for franchising in the Middle East.

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INTERNATIONAL MARKETING: As more women take lead in business and trade throughout the Middle East, Jaqui Lane of the Arab Australian Chamber of Commerce and Industry, discusses the business protocol that women traders can follow in order to succeed in the region.

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trade Guru: With the onset of a long-lasting global slowdown, Ras Al Khaimah Free Trade Zone is offering companies low-cost alternatives to business setup and expansion, even as they look to do business in the Middle East. Meghna Pant talks to Oussama El Omari, CEO, RAK FTZ, as he divulges what it is that makes the free zone click.

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INDUSTRY: Increasing demand for paper products and stationery from vibrant economies across the Middle East will continue to shape the growth of the industry. Meghna Pant talks to industry experts about the future of this industry and the opportunities it presents for an astute trader.

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TRADE SECRETS: Trade and Export Middle East with Tickbox Surveys Middle East is conducting a survey to gauge the language skills required from traders across the region. Do be a part of this.

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COUNTRY FOCUS: As one of the most developed and largest economies in the world, Australia stands out as a viable business partner for most countries. Meghna Pant finds out where Australia’s bilateral trade relations stand with the UAE and why there is an increased focus by the Australian government to attract Middle East companies.

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COMMODITY WATCH: Your guide to all things commodity.

community

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

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Updates global watch

UAE-Ghana bilateral engagement increases Bilateral engagement between the UAE and Ghana has expanded steadily over the years. The UAE imported USD 353 million worth of goods from Ghana in 2010, while UAE exports to Ghana stood at USD 144 million. Besides, universities and hospitals in Dubai attract a considerable number of people from Ghana every year. During his talks with a high-level Ghanaian delegation to Dubai, Engineer Saed Al Awadi, Chief Executive Officer of Dubai Exports, stressed Dubai’s advantages as a well-connected regional hub. “As a signatory to the Greater Arab Free Trade Agreement (GAFTA), the UAE

offers the best location for Ghanaian businesses to target the wider Gulf region and benefit from the agreement, provided they meet the country of origin rules,” he said. One of the most stable and peaceful countries in Africa, Ghana is on course to emerging into a globally competitive business and investment destination. With infrastructure being expanded and a burgeoning middle class reaping the benefits of ongoing economic reforms, demand for capital goods, as well as consumer products has gone up exponentially in the country. Ghana and its growth targets are estimated to attract phenomenal

investment and export of goods and services into key sectors, especially the construction, mines, transportation, information and communications technology, banking, insurance, education, hospitality, healthcare and food sectors. The consumer goods market in Ghana has been growing at an average of 20% since 2002, chiefly driven by demand for automobile parts, mobile phones, cosmetics, electronics and home appliances. The visiting delegation meanwhile added that Ghana can offer a convenient gateway to the vibrant West African market for Dubai firms.

Boost in UAE-Latvia trade relations

HE Valdis Dombrovskis, Prime Minister of the Republic of Latvia, who headed a Latvian business delegation to Dubai as part of the country’s Gulf tour, said that Latvia is keen to strengthen bilateral ties with the UAE as the two countries’ business cooperation has huge potential and can be converted into joint investment opportunities.

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“Latvia is a gateway to Western Europe, Scandinavian countries or Russia, depending from where you come and which way you want to go. Latvia is also a safe place to do business in,” said the Latvian Prime Minister. He added, “Last year, Latvia ranked 21st in the world according to World Bank’s Doing Business index which measures the openness of business environment. With each year, the UAE is gaining more and more strength and influence in global economy and I believe there are many things our countries can share.” HE Valdis Dombrovskis informed that Latvia’s main exports to UAE are machinery and electronics (66%), food products (14%), vehicles (6%),

woodwork (5%), as well as chemical products and pharmacies (2%). In 2010 the total turnover of trade between Latvia and UAE was EUR 22.2 m (USD 30 million) which is 80% more than in 2009. HE Abdul Rahman Saif Al Ghurair, Chairman, Dubai Chamber, said that in the first five months of 2011, Dubai’s non-oil trade with Latvia valued at AED 43.4 million, as the country ranked 123rd on the list of Dubai’s top trading partners. Presently, there are a few Latvian partnership and ownership companies registered with Dubai Chamber, and there is tremendous scope for more investors to set up businesses in the Emirate. He informed that the exports and re-exports of Dubai Chamber members to Latvia in 2011 has grown by 101.4%, as the value rose to AED 17.8 million compared to AED 8.8 million in 2010.


Updates policy

DED shares business registration practices with Dubai law firms The Business Registration and Licensing (BRL) Division of the Dubai Department of Economic Development (DED) recently organised a workshop on the business registration system for representatives of law firms in Dubai. The initiative was intended to enable law firms to use DED’s data and process BRL services (to establish new companies and renew licenses) for clients via DED’s website: www.dubaided.gov.ae, from their own premises. The initiative will be a significant value addition for business owners and investors as it allows them to complete business

registration fast and at their convenience online. BRL is keen to provide more customer service windows beyond the official working hours of DED.

Dubai Exports promotes SME export financing strategies The Dubai Exports Academy, part of Dubai Exports, the export promotion agency of the Department of Economic Development - Government of Dubai, organised a seminar on ‘Financial strategy for SME exporters’ as a part of its programme of initiatives to enable small and medium enterprises (SMEs) in the UAE to begin and become proficient in exporting. An important aspect of exporting is efficient cash flow and management and export, which were the topics covered in this seminar. “Exporters have several unique features which are appealing to banks and other lenders. They must therefore learn to capitalise on their strengths and explore alternative means of financing themselves. With an increasing number of UAE based firms exploring the African markets as well, export financing and the understanding of its risks are

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critical,” Vishnu Deuskar, Director of Salvus Capital told the seminar. The importance of credit insurance as a vital lifeline for SME exporters competing with larger size companies for market share was also underscored by speakers at the seminar. “Credit insurance is a powerful tool for SME exporters to significantly expand markets. Gaining a sound understanding of the working of credit insurance will result in creating competitive advantage and also help to mitigate the risk of bad debts. It can also be used by SME exporters to lower the cost borrowing,” commented Thomas Alexander, Director–Non Marine & Hull of Nasco ME Insurance Brokers. Highlighting the strength and diversity of the SME sector in Dubai and its contribution to trade and the annual value-add in the emirate, Bassam Azab,

The Business Registration and Licensing Division plays a crucial role in promoting Dubai’s business environment through launching various growth initiatives. It is a key partner of the private and public sector in Dubai and seeks to provide the business community with various online services in line with global best practices. BRL is also focused on providing more tech-driven and value-added services to cope with the growth of businesses and to position DED as the best government department leveraging the latest technologies to offer service efficiencies. Head of Business Development-GCC, Menafactors Limited, told the seminar that the working capital needs of this vital sector should a be a top priority. “Menafactors has a strategic objective of supporting the finance needs of SME traders by providing financial solutions for their short-term working capital needs. We structure our products and services around customer needs and we nurture our clients as their business grows. We are thankful to Dubai Exports Academy for organising this seminar, which will help advance SME understanding of finance and the financing solutions available,” Azab said. The Dubai Export Academy was launched with the aim to enhance the exporting skills of UAE firms to ensure that they become successful in expanding into foreign markets. As the only Centre of Excellence dedicated purely to export related knowledge, it seeks to provide a unique combination of practical on the ground information of foreign markets with generic export related management knowledge.


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Updates snapshots

DIP strengthens logistics services Dubai Investments Park (DIP), the largest integrated business and residential community in the Middle East, wholly owned by Dubai Investments PJSC, completed the construction of the first stage at phase-8 of the park. Work on phase-8 commenced in August 2010 at a total cost of AED 150 million. When completed, this component of DIP is anticipated to emerge as a hub for logistics services and light industries. It will house 16 buildings with 10 warehouse units of 780 sq. meters each. DIP has already entered into leasing agreements with tenants for several of the units.

Omar Al Mesmar, General Manager, Dubai Investments Park, said: “Tenants from sectors spanning the manufacturing, processing, assembly and distribution value chain have registered their interest in this aspect of the park. These include companies that manufacture light processing goods, such as perfumes, plastics, soaps, furniture, marble and packaging material. We are confident that with the support of our business partners we will successfully achieve our vision of growing this phase as a destination for logistics services and light industries.” The second stage of phase-8, expected to be completed in July 2013, will add a

further 1.4 million sq. feet to the existing light industrial zone. When complete, phase-8 will host its dedicated electricity and water network, a sewage system and district cooling facilities on a total built-up area of 2.8 million sq. feet. Dubai Investments Park is one of the largest business and residential communities in the Middle East. As of January 2012, the park hosts 1,060 tenants and 1,469 sub-tenants on a total leased area of 1,700 hectares. Strategically located within minutes from the Jebel Ali International Airport, DIP is a self-contained city offering state-of-the-art facilities and world-class infrastructure.

Exports touch AED 3 billion in 2011 The total value of exports out of Dubai realised through Dubai Exports, the export promotion agency of the Department of Economic Development, crossed AED 3 billion in 2011, as exporters in Dubai continued to penetrate new markets and diversify their product range. The export sector performance in 2011 marks a significant achievement for Dubai Exports and its strategy of enhancing the export capabilities of local companies. Of the 42 export transactions facilitated by Dubai Exports during the year, 35% were new deals while 50% of the deals were won by new exporters. Also, companies based in Dubai were the beneficiaries of 93% of the deals concluded last year.

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The largest share of exports – 61% transacted through Dubai Exports went to the Gulf Co-operation Council (GCC) countries, while Africa accounted for 35%, an increase from their share in 2010. The remaining four per cent was distributed among countries in Asia, Europe and rest of the world. Food products, electronics and petrochemicals were the leading exports from Dubai, together constituting 95% of the net exports. The GCC market took in 82% of the food products exported, indicating strong and continued prospects for this sector in the region. Europe (8%) and Africa (5%) were the next major export destinations with the remaining share going to Asia and other parts of the world.

Africa accounted for the lion’s share of electronics exports from Dubai in 2011, receiving more than 87%. Meanwhile, Europe remained the main export market for plastics from the emirate with a share of 89%, while 92% of the construction exports went to GCC countries. Australia led in services export transactions through Dubai Exports with a 65% share and Saudi Arabia absorbed the remainder. The thrust areas of Dubai Exports strategy for 2012 are developing the export environment in the emirate, identifying key sectors, and enabling exporters to access targeted markets with the assistance of foreign trade missions in the UAE and Dubai Exports offices in India, Saudi Arabia and Egypt, as well as through strengthening international relations.


Updates snapshots

Emirates receives fourth Boeing 777 freighter DAE Capital, the aircraft leasing division of Dubai Aerospace Enterprise (DAE) delivered to Emirates Sky Cargo the fourth Boeing 777 freighter under a long-term lease. “The arrival of this Boeing 777F is a valuable addition to our freighter fleet – now comprising four Boeing 777Fs and four Boeing 747Fs - and will enable us to facilitate even more international trade between points on our expanding route network, further consolidating Dubai’s position as a global trade hub,” said HH Sheikh Ahmed bin Saeed Al Maktoum, Chairman and Chief Executive, Emirates Airline and Group. “We took delivery of our first Boeing 777F in early 2009 and are very satisfied with its performance. It is the most technologically advanced freighter in operation; it’s reliable, has excellent long-

range capabilities and – having provided us increased flexibility to offer customers creative solutions to the most challenging cargo, such as heavy and oversized shipments – it has helped strengthen Emirates SkyCargo’s position as an industry leader in the global cargo market,” added HH Sheikh Ahmed bin Saeed Al Maktoum.

MEC brings fuel efficiency to Sudan Magnetic Emission Control AS (MEC AS), a leading Norwegian company that develops groundbreaking emissions reduction technology, has inked a contract making Sytech Projects Co. LTD its national dealer in Sudan. With growing concerns about the continued increase in carbon emissions worldwide and with Sudan producing 12.95 million metric tons in 2009, there is a need for technology that reduces carbon emissions and save money by burning fuel more efficiently. Elaborating on the partnership, Bjorn Skjervold, CEO of Magnetic Emission Control AS (MEC AS) said: “It is important for MEC to establish an entity in the Gulf Cooperation Council (GCC) region and then expand to several African countries that are struggling with increasing oil prices. Plans are also underway to expand to India, Jordan, Pakistan and the Far East.”

The partnership will see Systech work in close cooperation with MEC AS to develop the market in Sudan with a strategic network of sub-dealers. MEC AS, on its part, will offer Systech training about the mechanics, providing sufficient competencies to succeed in the region. As part of its setup strategy, MEC AS

is of the opinion that the target for the initial year would be around 2,500–3,000 vehicles fitted with the technology. “Our target will initially be owners of fleets of trucks and busses, among others. The mining and shipping industries are also important targets in Sudan,” concluded Skjervold. Currently, MEC AS has more than 20,000 customers in Europe and the United States, many of whom reported fuel savings of more than 12% per year. Company executives expect to sell over 20,000 MEC products in 2012 with a growing market in Europe and the United States. However, MEC AS officials believe that the biggest opportunity for increased fuel efficiency and reduced carbon emissions is with combustion engine manufacturers who can now incorporate the technology into their manufacturing process.

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Updates snapshots

Brazilian Trade Mission signs USD 81 million contracts with Middle East

The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) has announced that the “Brazilian Trade Mission to Middle East 2012” which concluded recently in Riyadh, Doha and Dubai, recorded USD 81.3 million in deals. These either closed during the event or will be consummated within the next 12 months, and involve Brazilian companies and their

counterparts in the UAE, Saudi Arabia, Oman, Bahrain, Qatar, Kuwait, Jordan and Lebanon. The UAE in particular made significant gains, with the signing of key business deals that will see USD 29.8 million worth of Brazilian exports to the UAE over the next 12 months. The business meetings in Riyadh and Doha meanwhile generated business worth USD 16.5 million for the Brazilian companies. In total the trade mission featured 503 matchmaking meetings involving 232 buyers from the Middle East and Levant regions. Apex-Brasil also revealed that it has signed Memoranda of Understanding (MoU) with JAFZA, Dubai Media City, Dubai Export Development Corporation, and Dubai Foreign Direct Investment. The MoU with JAFZA aims to facilitate and enhance the presence of Brazilian companies in the UAE by establishing their offices and production

houses in JAFZA. Apex-Brasil, itself, established its offices at JAFZA back in 2009. The partnership with Dubai Media City will enable Brazilian companies to establish an office in Dubai at low costs, helping create an incubator for Brazilian companies from the services sector. Apex-Brasil and Dubai Export Development Corporation, on the other hand, have agreed to exchange information and improve cooperation in the field of export. The MoU with Dubai Foreign Direct Investment will enhance mutual collaboration and seeks to jointly promote events that benefit both countries. Organized by Apex-Brasil, the trade mission gathered Brazilian companies from the food, beverages and agribusiness; machinery and equipment; and house and civil construction industries to engage in business roundtables with potential local buyers from the UAE and across the GCC.

John Crane sets up new manufacturing facility in MENA John Crane, a global company that provides products and services for the world’s process and industrial markets, has expanded and upgraded its Middle East and Africa headquarters with a new service and manufacturing facility in Dubai. The new 2,000 sq m facility is the result of a major programme of investment and development. The company’s original building in Dubai’s Jebel Ali Free Zone (JAFZA) covered some 2,000 sq m, and a brand new 2,000 sq m service and manufacturing facility has now been built adjacent to this. The new premises –

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which have been awarded a Leadership in Energy and Environmental Design (LEED) green building certification - house many impressive facilities, including one of the world’s largest stateof-the-art gas seal test rigs. The rig, used to conduct dynamic testing of gas seals, features a customer viewing suite, an online witness testing and reporting facility, plus full inspection services. Full diagnostic, inspection and refurbishment facilities for both wet seals and metal bellows are available at the plant, which also houses a new Central Parts Warehouse. This gives Gulf region

customers easy and local access to a far more comprehensive inventory of John Crane spares than previously, as well as rapid connections to the company’s extensive global spares network. John Crane’s financial, commercial, regional marketing and training teams will continue to operate from the expanded facility, which will also house regional applications and field service engineering support teams for the Middle East and North Africa, a regional projects team, plus regional turbo-machinery and asset management teams that cover the Middle East and Africa.


RESOURCES Logistics

Fly to success With air cargo traffic increasing across the Middle East, many commercial airlines are launching lucrative cargo services especially designed for traders. Meghna Pant discusses the opportunities and challenges of this business with Ghaith Al Ghaith, the CEO of flydubai.

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ir cargo traffic into and out of the Middle East is currently at a strong position and is expected to grow in the coming years. The Middle East has historically served as a crossroad for Africa, Asia, and Europe and this role has continued with Dubai being one of the largest re-export hubs in the world. According to Boeing, World Air Cargo Forecast 2010-2011, Dubai handles approximately 70% of the air cargo traffic for the Middle East with many goods between Africa and Asia, and between Europe and Asia

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passing through this region. As a result, companies can take advantage of the already excellent cargo facilities that exist in Dubai, and have an advantageous start to operations. The low-cost airline flydubai is one such company. It launched its air cargo division, flydubai Cargo, in January 2012 to support the airline’s goal of making transportation of goods and people across the region via Dubai simple, accessible and affordable. Since launching in June 2009, flydubai has started a number of initiatives in the

Middle East aviation sector, and cargo is no different. Although it is unusual for a low cost carrier to enter the cargo business, the company rationalised that this was a logical next step to grow its business, increase its service offerings, and support the United Arab Emirates’ (UAE) growth as a business hub. flydubai expects to carry 1,500 tonnes of cargo each month on its Boeing 737-800 NG aircraft, which is equal to 15 Boeing 777 freighters. With this in mind, and with 60% of all shipments expected to be transit cargo, the company has signed interline agreements with other airlines when moving items outside its network. “With regards to flydubai Cargo, we are very pleased with the performance so far. We are only two months into operation so it is very early to give figures but we have already seen a number of commodities in demand, including fruit and vegetables, automobile parts and mobile phone accessories. We have also received a number of requests since the service


ABOUT

went live with Karachi, Khartoum and Colombo among the top performing stations,” said Ghaith Al Ghaith, CEO of flydubai. flydubai Cargo provides all service information on flydubai.com with customers able to go directly to distributors in the markets. Since flydubai Cargo offers direct services to a variety of destinations – not previously served from Dubai – operations are able to flourish in a number of markets. In addition, the frequency of cargo operations has provided a distinct advantage for customers. Since flydubai has several flights a day to destinations such as Doha and Kuwait, plus 55 flights a week to Saudi Arabia, customers are offered greater choice and timely delivery of shipments. Cargo, including perishable items, textiles, electronics, couriered items, mail, pharmaceuticals and general cargo, can originate from any point on the flydubai network or beyond. The company currently transports goods to all of its commercial passenger network destinations, as well as Kolkata, Chennai and Bangalore in India, and Lahore, Islamabad and Peshawar in Pakistan. Through this division flydubai has opened up a number of cargo routes not previously served by direct flights to and from Dubai. Moreover, its cargo operations allow flydubai to assist social and economic development in each market they serve, by facilitating trade between Dubai and the relevant destinations. “We have launched commercial passenger flights to four new destinations already this year, and as a result, we will also be able to offer cargo services to an increasing number of destinations,” added Al Ghaith. In addition, flydubai has also signed some interline cargo agreements and is considering more in the future, to help flydubai Cargo expand even further and serve a greater number of markets

Ghaith Al Ghaith is the Chief Executive Officer of Dubai’s first low cost airline, flydubai. He is responsible for the strategic direction of the airline and works closely with its Chairman, His Highness Sheikh Ahmed Bin Saeed Al Maktoum. Al Ghaith has a long track record in the airline industry and was recently named Aviation CEO of the Year at the 2009 CEO Middle East Awards. Al Ghaith was previously with the Emirates Group, where he held the position of Executive Vice-President Commercial Operations Worldwide, Emirates airline, from August 1995 until March 2008. Prior to this position he was Senior General Manager Commercial Operations Middle East, Africa & CIS from October 1994. Al Ghaith, a UAE national, was born in 1963 and holds a Bachelor of Science degree in Business Administration from the University of Arizona, USA. flydubai began operations on June 1 2009, introducing low-cost travel to the Middle East. The airline has one of the best On-Time Performances in the industry (85%), a fleet of 22 Boeing 737-800 NG aircraft, and Revenue Per Kilometre (RPKMs) increasing 88% in the year to January 2012 compared to same period in 2011. flydubai has an operational network of more than 45 destinations, spanning GCC, Middle East, North Africa, Indian Sub-Continent, Asia and Central and Eastern Europe. In 2011, flydubai launched 18 new routes, substantially expanding its presence in Central and Eastern Europe with flights to Kiev, Kharkiv and Donetsk in Ukraine; Ufa and Kazan in Russia; the Georgian capital Tbilisi and Belgrade in Serbia. Since January 2012, flydubai has already launched operations to Baghdad and Najaf in Iraq; Taif in Saudi Arabia and Bishkek in Kyrgyz Republic, with many more launches scheduled for the months ahead.

going ahead. The company is also targeting long-haul carriers to offer services to an even wider network of markets and customers. Since flydubai Cargo is a B2B (business to business) division, traders are its main target. Therefore, flydubai Cargo customers are predominantly importers and exporters looking to transport goods in and out of Dubai, with the option to continue

transportation to further global destinations. Also, as flydubai has sales staff based in Dubai, plus distributors in the markets, the company can tailor its services to individual needs. flydubai offers a wide range of cargo services, including perishable items, textiles, electronics, couriered items, mail, pharmaceuticals and general cargo. However, in particular demand is auto parts travelling from

As we have sales staff based in Dubai, plus distributors in the markets, we can tailor our services to individual needs. flydubai Cargo customers are predominantly importers and exporters looking to transport goods in and out of Dubai with the option to continue transportation to further global destinations.

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RESOURCES Logistics

Dubai to countries in the former CIS (Commonwealth of Independent States), handicrafts from Kathmandu, and fruit and vegetables from across the GCC. Dubai is the hub for all of flydubai operations, including its cargo division. The geographical location of the city means that air is the only feasible way for the majority of cargo to reach its destination in the optimum timeframe. Acting as a cargo hub, means that the city has excellent infrastructure and facilities, which goes hand-in-hand with Dubai International Airport’s

time needed to find the best possible team and distributors to deliver a company’s business vision. Al Ghaith admits to the challenges that his own business has faced, “flydubai Cargo is still in its infancy so we are still a relatively small operation compared to other cargo companies around the world. However, the conception of our cargo division has allowed us to make cargo routes which have not been served by direct flights to and from Dubai previously, providing a unique service to some destinations. So far we

Setting up any new business division takes time and dedication. Research and market studies around target markets must be conducted to ensure that the best and most relevant service can be offered to our customers. This comes in tandem with putting the right procedures in place while taking the time needed to find the best possible team and distributors to deliver a company’s business vision. considerable cargo handling experience. Al Ghaith says that having the cargo operation based within the Dubai Airport Freezone also leads to a number of advantages, especially since other companies based there bring shipments directly to flydubai, thus streamlining the process. Setting up any new business division takes time and dedication, admits Al Ghaith. For other airlines thinking of entering the cargo business, certain steps are necessary. Research and market studies around target markets must be conducted to ensure that the best and most relevant service are offered to customers. This comes in tandem with putting the right procedures in place, while taking the

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are pleased with the progression of the division and are confident flydubai Cargo will contribute to flydubai’s continued growth throughout 2012.” flydubai Cargo also has a good on-time record and transporting cargo is no different. Like with most airline companies, flight safety is their number one priority and they take every step to protect this. The company, for instance, has put a number of security processes and procedures in place to protect the safety of passengers and crew, as well as the ground handlers moving cargo. These include not carrying dangerous goods and following all standard operating procedures outlined by the General Civil Aviation Authority (GCAA). Al Ghaith tells us that when flydubai began operations in June

2009, the world as a whole was facing challenging economic times. But despite those conditions, the airline went from strength to strength with expansion to more than 45 destinations and 22 aircrafts in a relatively short space of time. Behind the scenes, the airline’s success has been built on its USD 20-million maintenance and engineering investment programme, progressive innovations, such as the revolutionary ‘Fiber-To-The-Screen®’ (‘FTTS®’) In-Flight Entertainment system from Lumexis, and a commitment to training. flydubai Cargo is another example of this investment. Not only is it unusual for a low cost carrier to have a cargo division, it is also rare for an airline as young as flydubai. But such initiatives, Al Ghaith believes, have set flydubai apart, helped the company establish itself in low cost aviation, while also supported Dubai’s position as a logistics hub. In 33 months flydubai has built an operational network of more than 45 destinations, spanning the Gulf Cooperation Council (GCC), Middle East, North Africa, Indian Subcontinent, Asia and Central and Eastern Europe and has one of the best On-Time Performances in the industry at 85%. In 2011 alone, the airline launched 18 new routes, which substantially expanded its presence in Central and Eastern Europe with flights to Kiev, Kharkiv and Donetsk in Ukraine; Ufa and Kazan in Russia; the Georgian capital Tbilisi plus Belgrade in Serbia. Since January this year, flydubai has launched operations to Baghdad and Najaf in Iraq; Taif in Saudi Arabia and Bishkek in Kyrgyz Republic, with many more launches scheduled for the months ahead. Since its inception, flydubai’s fleet has grown to 22 Boeing 737-800 NG aircraft, and revenue per kilometre (RPKMs) increased 88% in January over the previous 12 months.


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RESOURCES Finance

Cashless Exporting Dr Ashraf Mahate, Head of Export Market Intelligence at Dubai Exports, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, examines whether countertrade is a useful policy for receiving payments while trading in today’s modern world.

T

he search for new exporting opportunities are not only limited to the logistics and legal aspects but, more importantly, include the question as to how an exporter gets paid. Where financing is an issue exporters are increasingly finding that countertrade is the best form of payment. Essentially, countertrade is a practice whereby a supplier agrees to receive goods or services in full or partial payment rather than with money. The simplest and oldest form of countertrade is barter which is a direct exchange of goods and services of an equivalent value. Traditionally, countertrade was limited to developing nations which typically had

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rather limited foreign exchange reserves but large reserves of natural resources. Through counter trade these nations could meet their requirements without using their foreign exchange reserves. Today countertrade is practiced by a whole host of countries seeking to support their local industries, create employment opportunities, reduce any trade imbalances or exploit their competitive advantages by promoting a tradable commodity. In most cases countertrade agreements tend to be confidential, making reliable statistics difficult to obtain. Nevertheless various estimates show that it is a rapidly increasing form of trade finance

with more than 100 countries regularly using it. Studies show that the volume of countertrade varies from 15% to 30% of global trade. In some regions, such as Asia and Eastern Europe, estimates show that countertrade is as high as 50% of the total trade value. This rise in countertrade has been greatly assisted by information technology and most notably the internet, which has allowed firms to match needs with availability. In the past firms had the option to avoid countertrade due to the difficulty in identifying a counter party. In other words, the success of a countertrade rests on the fact that, as the economist Paul Samuelson noted: “a hungry tailor happens to find an undraped farmer, who has both food and a desire for a pair of pants, otherwise neither can make a trade.� Historically, countertrade was an inefficient system of trade finance because


ABOUT

the initial seller also had to look for parties expecting an exchange of a commodity or service. For large companies, such as General Electric (GE), it was less of a problem because they had specialised trading departments that facilitated the identification of counter parties. However, for the typical exporter countertrade was rather difficult. Now, with the advent of the internet, this process has changed to an extent where even small and medium enterprises (SMEs) can participate in countertrade using widely accessible platforms such as Ali Baba. These platforms allow even the smallest of exporters to post products that are then made available to potential customers all over the world. Anecdotal evidence shows that some exporters have been able to improve their collections cycle as a result of countertrade. Cash payments are typically dependent on a number of firm-related factors, such as liquidity and seniority of accounts payables. However, with countertrade, the buyer simply exchanges a commodity over which he has ownership in return for one that he acquires. Therefore, payments are not related to the liquidity position of the buyer. More importantly, in countries where transfers are difficult or subject to restrictions, countertrade avoids the official payment mechanisms. Another important factor that is persuading more firms, particularly SMEs, to be actively engaged in countertrade is a more difficult business environment. When firms are transacting in stable business environments or have few trade hurdles, traditional payment mechanisms and trade finance tools are sufficient. However, when firms are transacting with buyers located in countries with difficult economic and commercial conditions then sellers need to be innovative in the manner in which they do business. The interesting aspect of dealing with buyers in countries with

Dr. Ashraf Mahate is the Head of Export Market Intelligence at Dubai Exports, which is an agency of the Dubai Economic Department. Dr. Mahate is also the Vice Chair of the Economic Policy Committee with the Dubai Economic Department. He has written a number of journal articles and book chapters, as well as edited books in the areas of economics, finance and banking. He has also presented papers at major international conferences. Dr. Mahate has provided extensive consultancy services to various organisations in the areas of banking, economics and finance. He has been a director of a number of companies including a venture capital company and a private equity fund. Dr. Mahate received his doctorate from Cass City University Business School in London (UK) which was ranked by the Financial Times newspaper as the 12th best university in the world for finance. 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. For more information on Dubai Exports, please visit: www.dedc.gov.ae.

difficult economic and business conditions is that there is usually a strong demand for goods and services. However, more often than not the strong demand is not necessarily matched by the immediate ability to pay with cash. Therefore, countertrade offers buyers an immediate ability to finance imports without the use of cash. Of course it does require the exporter to be innovative in that it needs to identify what the buyer has readily available as a form of payment and to seek out potential counter parties. With such benefits available the natural question that arises is how exporters can utilise countertrade. The first step is to understand the different types of countertrade which are:

Barter – This is the oldest and simplest form of countertrade that involves a single agreement to cover the exchange of one set of goods or services for another. This type of agreement tends to be very short-term in nature and may involve a single transaction. Buyback – This is where an exporter

supplies a capital plant or equipment and agrees to be paid in the future in the form

of output from the importer’s factory. These agreements by their very nature are long-term and largely used in mining and heavy industrial product sectors.

Switch Trading – This is where a third

party, usually a countertrade broker or agent, purchases the exporter’s credit for the sale of goods and sells them to another party who needs the good or service. The countertrade broker or agent charges a fee for its services in identifying a buyer.

Tolling – In many respects this is similar to contract manufacturing, except that the importer provides many of the inputs. A typical example of tolling tends to be where the importer supplies raw material and hires capacity to allow the exporter’s factory to turn them into finished goods. The final output is then re-purchased by the importer or sold to a third party for payment. The exporter is then paid by the third party buyer or through a share of the final products.

Counter purchase – This is where the exporter sells a good or service to the importer but simultaneously agrees to purchase another specified products or

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RESOURCES Finance

The positive aspect of dealing with buyers in countries with difficult economic and business conditions is that there is usually a strong demand for goods and services. However, more often than not, the strong demand is not necessarily matched by the immediate ability to pay with cash. Therefore, countertrade offers buyers an immediate ability to finance imports without the use of cash.

services from the importer. In some cases the counter purchase can involve either a third or fourth party who buy the product or service from the importer or exporter in return for cash.

Offset – This form is most often used in government related contracts typically in military related sales. The first type of offset is simply to use components or sub-assemblies from the importing country. In some cases the importing country may also require the exporter to establish a local production facility. The second type is for the exporter to enter into a long-term arrangement to develop a unrelated industry or enterprise in the importing country as part of a wider import substitution policy. The second step is for an exporter to develop a strategy for the effective use of countertrade. There are four main types of strategies that are commonly used and tend to be:

Not at all group – This strategy is to shy away from countertrade but assist importers with arrangements or even to identify a buyer for their commodity. This particular group chooses not to take on the risk of selling the importer’s commodity and values payment in cash either directly from the importer or the third party buyer.

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The ad hoc user – This group of

exporters view countertrade as a necessary evil in limited situations. This group of exporters will participate in the use of countertrade only if it is truly required to make a sale and in the process.

To gain a competitive advantage firm – In this case the

exporter has realised that in certain countries (or even with certain clients) the use of countertrade is essential in order to gain a competitive advantage. These firms will be widespread users of countertrade but only with targeted countries (or product areas). In the process these firms gain considerable knowledge and expertise in the products that they receive, and in exchange establish networks in order to facilitate its sale and obtain cash.

It’s the best policy – This group of firms has made a strong commitment to countertrade and makes extensive use of it as a marketing strategy. Their aggressive use of countertrade implies that they are prepared to accept a whole host of commodities and services in return for making a profitable sale. This group of firms views countertrade as an opportunity to make money through trading, while also selling their own products.

Although understanding the different types of countertrade and developing an appropriate strategy is important, the exporter needs to understand that it is not free of problems. The typical issues with it tend to be in identifying a counterparty. Even when a counterparty or, in some cases, a number of counterparties have been identified, each need to agree on things such as the quantity, specifications of the product and delivery date. As a result countertrade agreements tend to take much longer to negotiate than standard cash based transactions. In addition, there are associated staff costs and administrative requirements. Countertrade also has a higher potential for trade disputes because more often than not firms try to dispose of low-quality products or those that are difficult to sell. Therefore, countertrade invariably requires firms to insert a product quality clause to verify the quality of the products, incurring additional costs and, of course, time. Anecdotal evidence shows that some SMEs accept their customer’s products in exchange for cash with a view to selling them. However, this has meant that their customer is now in competition with them as both are selling the same good to the market. The best form of countertrade is where the SME has an internal use for the product or a buyer is not available to the original supplier. Some SMEs have used barter agents to distance themselves from the actual process of finding the counterparty. The typical manner in which this is done is to employ the services of barter agents. However, barter agents tend to charge a high fee, thus reducing the profitability of the sale. The real lesson for exporters is that countertrade allows them to capture new and lucrative markets, but this should be done in a careful and strategic manner in order to reap the huge potential that it offers.


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RESOURCES INSURANCE

Give credit when it’s due In the final part of the two-part series on Export Credit Insurance, Schuyler D’Souza, Chief Commercial Officer at the Export Credit Insurance Company, explains why a trader must execute this policy, how to go about implementing it, and its feasibility with regard to the current global economic status. WHY EXPORT CREDIT INSURANCE?

It is very difficult for a company to predict which client will default on payment and when. In fact, around 50% of all payment defaults arise from debtors with whom stable and long-term trade relationships have been established, and since on average, between 40% and 45% of a company’s assets comprise of trade debts, the cost to a business of non-payment can be considerable. For example, if a company’s profit margin is 5% and one of its customers defaults on a debt of USD 50,000, the company will have to produce additional sales of USD 1,000,000 to make up for the lost profits. More importantly, non-payment weakens the exporter and lowers his investment capacity. An export credit insurance policy helps in the management of the sales ledger and provides compensation in the event of non-payment. More specifically, companies that purchase an export credit insurance policy can: • Compete more effectively and focus on their core business; • Be able to better manage political or commercial risks; • Safeguard their balance sheet and increase their profitability; • Significantly enhance their ability to obtain funding from banks; • Look to target new markets.

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Advantages of Export Credit Insurance Reduces Financial Risk

Improves Cash Flow

Protection against trade credit risk losses

Claims payment

Releases bad debt provisions

Maximises debt collection

Hedges against financial catastrophe

Better access to finance

Supports Credit Management

Credit check and control Creates discipline and control

Improves Sales

Encourages most attractive terms Improves financial health

Offers a second opinion

STEPS TO INSURE EXPORT CREDIT Before agreeing to provide credit and prior to shipping goods, an exporter should act as if he were uninsured. Thus, the exporter’s sales team should conduct thorough customer due diligence and try as far as possible to gain access to the customers’ financials, both current and for the past two years. Careful attention at this stage should be paid to the customers own ageing position which will give the exporter an idea of how long the customer takes to get paid. The case should then be referred to the exporter’s credit team, who will accordingly apply to the export credit insurer for the required credit limit.

Fewer bad debts

Check on potential prospects

The export credit insurer then conducts its own investigation regarding the buyer and approves or refuses the credit limit based on the outcome of the credit risk analysis it has conducted. In doing so, the exporter credit insurer acts as the second pair of eyes, thus ensuring that a fair credit limit is awarded to the exporter’s customer based on the latter’s credit worthiness. Prior to shipping goods to an overseas buyer, the exporter needs to reasonably ensure that the transaction will not result in unpaid invoices and the costly business of chasing that money. Of course, the best way of being paid for an export sale is to receive the money before sending the


ABOUT

goods overseas. While this works fine for a small exporter with one-off sales, it puts an exporter at a clear disadvantage in the international market place. Where the exporter has a product in high demand and can dictate terms, he may be able to insist on being paid up-front. Smaller exporters are unfortunately unlikely to share the same clout. They will find that many overseas buyers will refrain from making payment prior to the shipment of goods because they may not know the exporter or because they don’t want to use their funds until the last possible moment. Besides, the exporter will quite likely be competing for sales against the buyer’s local or other overseas suppliers who might offer better credit terms. An exporter has several issues to resolve, including finding out if the buyer is genuine, whether the buyer will eventually pay, when the buyer will pay, and if they can take the risk to start producing the goods. This is where export credit insurance comes into play. Instead of relying on promises from the buyer to the exporter to trust the former, the exporter gets an export credit insurer to assess the commercial and political risks associated with the proposed sales transaction which in turn helps the exporter by: • Reassuring him that the buyer is genuine; • Knowing the credit rating of the buyer; • Transferring buyer risk to the export credit insurer; • Knowing for certain that in case of payment default, compensation can be obtained from the export credit insurer, even if all other debt recovery efforts fail; • Facilitating sale of trade receivables to a third party, viz. a bank or trade financier, leading to stronger financial

Schuyler D’Souza is the Chief Commercial Officer at the Export Credit Insurance Company of the Emirates (ECIE). He is a founding member of Dubai Government’s export credit agency that he joined in 2008 to start, manage and develop operations. ECIE provides trade credit risk solutions to the business community of the UAE. Schuyler’s extensive industry background includes several years of strategic marketing and business development. Prior to this, Schuyler was the Country Sales Manager of Atradius Trade Credit Insurance, where he successfully built and managed the world’s leading trade credit insurer’s business in the UAE. In the past, he has also held key positions with Emirates NBD, Firmenich and Bayer. Schuyler is an MBA in Marketing and Sales from the Narsee Monjee Institute of Management Studies in Mumbai, and a Post Graduate in General Management from the prestigious Berufsakademie in Germany. He is a Certified International Credit Professional and a member of the Association of Finance, Credit & International Business Professionals.

statements and taking such trade receivables off the balance sheet. Export credit insurance facilitates the financing of trade receivables and in doing so accelerates the flow of cash into the business by shortening the exporter’s cash cycle and facilitating sales growth. The exporter ultimately needs to work closely with its export credit insurer in order to tailor and agree on the most appropriate export credit insurance policy structure.

FILING CLAIM, RECEIVING INDEMNIFICATION

When confronted with a risk of nonpayment under the credit insurance policy, the policyholder (insured exporter) can receive indemnification by following the steps outlined below.

Step 1: When suspecting a likely loss or if the payment is 30 days overdue without reason, policyholders must inform the insurer about the problem and minimise loss at an early stage. The longer the time period of non-payment, the greater the likelihood of default and therefore it is important that the exporter notifies the insurer when the following situations occur: • Policyholder does not receive payment within 30 days after due date; • Policyholder receives information on or from the buyer which implies that the payment could be delayed or remain unpaid. The insurer will reassess the buyer’s status and update information by referring to its own sources or other reliable resources, such as credit information agencies, bankers and

Where an exporter has a product in high demand and can dictate the terms, he may be able to insist on being paid upfront. Smaller exporters are unfortunately unlikely to share the same clout. They will find that many overseas buyers refrain from making payment prior to the shipment of goods because they may not know the exporter or may not want to use their funds until the last possible moment.

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RESOURCES INSURANCE

debt collection agencies. In addition, the insurer will advise policyholders of measures to avoid and minimise the probable loss. In the meanwhile, the insurer will closely monitor the importer or buyer’s country risk status in order to assess and adopt an appropriate manner in which to collect the payment in case of eventual default by the importer or buyer.

An exporter has several issues to resolve, including finding out if the buyer is genuine, whether the buyer will eventually pay, when the buyer will pay, and whether they can take the risk to start producing the goods. This is where export credit insurance comes into play.

certain, the policyholder must fill and submit the required claim, assignment of debt forms and related contractual documents, such as purchase orders, sales contracts, correspondent letters between policyholders and buyers, evidence of delivery of goods and sales invoices. The insurer will then check the information and evidence provided by the policyholder, and if the loss is under policy coverage and the policyholder has adhered to policy terms and conditions, the insurer will indemnify the policyholder within the specified time line stated in the latter’s credit insurance policy.

It is, however, important to note that these conditions, steps or information required could vary marginally from insurer to insurer. Hence, it is advisable for the exporter to discuss, understand and obtain professional advice from the insurer regarding the conditions, documentation and procedural requirements that are required to be adopted and followed by the insured exporter.

Step 2: If it is determined that loss is

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COST OF INSURING TRADE RECEIVABLES

The premiums for credit insurance tend to be calculated as a percentage of the exporter’s sales, and will invariably

vary depending on various factors such as the nature of goods or service, the export markets, the spread of buyers, the exporter’s loss history and the credit quality of the insurable buyers. The majority of businesses will find credit insurance to be highly cost-effective, even before taking into account the many additional benefits in the areas of sales development, credit risk management and bank financing.

PRIMARY ELEMENTS OF COST OF INSURANCE Premium: is a percentage on the

estimated insurable turnover that is paid


When suspecting a likely loss or if the payment is 30 days overdue without reason, policyholders must inform the insurer about the problem and minimise loss at an early stage. The longer the time period of non-payment, the greater the likelihood of default. by the policyholder to the insurer. Such rates depend on the overall risk profile of the transactions which are assessed by the insurer taking into consideration the extent of country risk, business sector risk, business environment in the buyer’s country and the buyer’s credibility.

Credit check fees: are payable per

buyer per insurance year, as applicable in the exporter’s credit insurance policy.

GLOBAL TRADE IMPLICATIONS

Forecasting economic conditions is always an exercise loaded with uncertainty. Country dynamics are diverse, regions display vast heterogeneity, and various indicators often send conflicting signals. We are currently experiencing a severe period of stress in financial markets, with levels of volatility last seen in 2008, and unclear implications for real conditions going forward. Taking a broad view, there is general market consensus that anticipated improvement in real economic activity is expected to manifest itself in a broadly stabilising environment for credit, as the number of insolvencies is still high, but gradually decreasing. And, forward-looking credit metrics, such as corporate bond spreads and expected default frequencies have also remained rather stable. Secondly, it is anticipated that there will be sustained improvement in real economic

activity that would support continued robust momentum in world trade. This view partially takes its roots from the strong performance across emerging markets, which compensates for the slow progress in advanced economies and offers new opportunities. But the downside risks attached to such a scenario are unusually high. The projected path rests on fragile assumptions and the degree of uncertainty has increased significantly. The debt crisis in Europe has intensified and this poses significant risks to future economic performance in the Eurozone, with a direct impact on firms through financing and credit conditions, and potential global repercussions. The strength of the real economy is hampered by the still weak financial sector conditions across advanced markets and structural vulnerabilities in the rapidly expanding countries. In such an uncertain global environment, even minor disruptions may cause large adjustments and force trade to plunge. The BRIC (Brazil, Russia, India and China) economies, on the other hand, are showing relatively high rates of growth at present. But the global economy is facing enormous challenges in terms of adjustment and these growth prospects are conditional on the assumption that this transition process goes smoothly. The expansion since the second half of 2009 has coincided with rising prices of food and commodities

and the end result of this process has been rising inflation. High inflation puts pressure on the political structures as it drives the cost of living higher for poor population segments, paving the way for social discontent. Monetary policy has responded to these developments, although it has differed in size and effect across the BRIC countries: while Brazil is characterised by a relatively high interest environment, real interest rate is relatively low in other countries. The macroeconomic stability and political risk situation of the BRIC countries have nevertheless improved considerably since 2005, as reflected in their sovereign ratings. All are now regarded as investment grade quality by the major rating agencies, with China on par with Japan. But rapidly changing country conditions have been shown to create instability in the past, raising the risk of abrupt adjustments which could be manifested in severe output losses or currency devaluations. Even countries with seemingly strong fundamentals, as reflected in their international credit standings, may be subject to rapid transition under adverse circumstances. For that reason, there are a number of underlying vulnerabilities in BRIC countries that should not be neglected. Firstly, governance and developed regulation are key determinants of economic performance. Flaws in these structures may pass unnoticed in good times, but will bite if conditions become unfavourable. Regulation and supervision is lagging behind the expansion in economic activity, making generally opaque systems and corruption a major issue. Secondly, perceived signs of overheating should be taken seriously as they will eventually need to be corrected. Again, the situation differs for each country: while Brazil and India are running structural current account deficits, the opposite is true for Russia and China.

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RESOURCES LEGAL

Lock, Stock and Contractual Barrels Even though there are no specialised laws applicable to franchising activities in most Middle Eastern countries, there are a range of laws, including agency laws and trademark laws, which must be carefully examined and understood. Fiona Robertson from therightslawyers guides us on the legal basics for franchising in the Middle East. 26

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ABOUT

T

he franchising model is a successful business model that is thriving in the Middle East, particularly in the United Arab Emirates (UAE). In fact, according to a study released in 2011, Dubai ranked second only to London on a list of the maximum number of global retail brands present in a city. However, in this region, specific franchising laws are basic, so it is vital to be well informed and to seek legal advice before embarking on any franchise venture and signing your name to a contract. Understanding the market’s peculiarity within the agreement is also a pre-requisite to commencing and maintaining a successful franchise.

What is a franchise?

According to the International Franchise Association, a franchise is a “continuing relationship in which a franchisor provides a licensed privilege to do business, plus assistance in organising, training, merchandising and management in return for a consideration from the franchisee.” The main categories within a franchise are: • Business format franchises – This is a type of franchise where the franchisor provides the franchisee with a licence to sell goods or provide services, which are identified with the franchisor’s trade mark. These include allowing the franchisee to use a detailed business format, operating system, marketing plan, accounting system, stock control and training among other things.

Fiona Robertson is a lawyer with expertise in the media and creative industries, where she has worked since 1993. In 2008, she joined therightslawyers, the Middle East’s first and only boutique law firm focussing on media, entertainment, intellectual property and technology. Fiona has extensive experience in the creative, entertainment and media fields. She gives advise on sports broadcast, output deals, distribution and marketing for all media platforms, format licensing, promotions and sales, preproduction for news and magazines, internet set ups and content issues, rights clearance for ancillary platforms, as well as commercial matters, such as employment, trademark protection, software development, brand management, trade practices, consumer issues and regulatory compliance. Fiona has written for several regional publications on varied topics and gives talks to conferences and private companies on a regular basis. Fiona has graduated from Adelaide University in Australia. therightslawyers is the first and only boutique law firm in the Middle East, focussing on intellectual property, media, technology and entertainment. It operates as a full service law firm, providing comprehensive legal services in a vast number of areas including character merchandising, licensing, anti-counterfeiting, agency and distribution arrangements, franchising, terms of trading. The firm also covers commercial contracts, such as the identification, protection, clearance and enforcement of intellectual property rights including trade mark and copyright prosecution and maintenance, worldwide trade mark and patent filing and enforcement, and local enforcement and anti-counterfeiting work.

• Product franchising or distribution – This is where a distributor sells products or provides services on behalf of the owner of a well-known brand. • Licence to manufacture – In this category, a global brand owner will provide a licence for the franchisee to manufacture branded products for sale in a particular territory.

The Laws

In most Middle Eastern countries there are no specialised laws for franchising. There are however a range of laws that are

Under some GCC countries’ laws a franchise arrangement may sometimes be considered an agency agreement. This means that there are specific legal implications in these counties that may make it difficult for a franchisor to remove an appointed franchisee. It is important to consider this before you sign a contract.

applicable to franchising activities in the region and these primarily include agency laws and trademark laws. These should be carefully examined to determine how they will affect a particular transaction, even if the term or concept of franchising is not contained in the legislation and even if it is not understood as a legal concept in your country of operation. For example, a franchise arrangement may sometimes be considered to be an agency agreement under some Gulf Cooperation Council (GCC) countries’ laws. This means that there are specific legal implications in these counties that may make it difficult for a franchisor to remove an appointed franchisee and it is important to consider this legally before you sign a contract. There is no simple way around this – you do need to see an experienced lawyer to determine your contractual position before you sign anything. In many countries an agency agreement must be registered at the Commercial Agencies register at the Ministry of Commerce and Industry to be enforceable. This has created a lot of difficulties in the

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RESOURCES LEGAL

past for foreign companies in terminating agreements where the local agent (which can include a distributor or franchisee) were not performing under the agreement, as the laws provide substantial protection to commercial agents, especially in the context of termination. Saudi Arabia is one of the rare countries in the region that has a franchise law. This has increased the franchising activity in the country as franchises offer greater flexibility than commercial agency agreements and do not require the resources of a branch office or joint venture. In a territory like this, it pays to ensure that your agreement complies with the franchise laws before you sign.

The Franchising Contract

Although there is a general consensus as to some of the key provisions that normally go into a franchise agreement (such as term, fee, territory, exclusivity, termination), some countries may provide strict parameters within which the parties may organise their commercial terms. In addition, some businesses have specific contractual terms that apply particularly to the type of business they are seeking to establish. Below are some of the key commercial issues that should be considered in a franchise agreement: • When does the term start and how long does it last? Importantly, can it be renewed? • What is the territory that is to be granted and is it an exclusive appointment? If not, what protection do you have from similar businesses being set up? For example, an exclusive geographical zone around the outlets is worth considering. • How many outlets can be operated and is there a timeline for undertaking expansion to the maximum number of outlets? • What is the type of management assistance that will be provided (including training)? How is it paid for? There will often be a large amount

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Protection of the franchisor’s trademark and other intellectual property is always of paramount importance. In addition to drafting appropriate clauses regulating the use of the brand by the franchisee, trademark registration is highly recommended in the Middle East, since trademark laws in most countries do not provide for unregistered user rights and give priority to the party that files the trade mark first.

• •

of assistance that is to be provided to new franchises, including a few weeks of training. What restrictions are there on selling the franchise to a third party? Which law will govern the contractual arrangement? Do the parties have to go to court or is there a dispute resolution mechanism which tries to prompt discussion and arbitration? It is vitally important to think about these matters carefully. How can the contract be terminated by either party? When the contract is terminated, what happens then? Some issues to consider would include the return of stock, payment for the stock and compensation for goodwill built up during the operation of the franchise. How are you going to choose the site location? Location is often the key to business operations and an experienced franchisor should be able to provide sophisticated techniques for finding the appropriate location. Sourcing products is another important consideration. Who can the franchisee purchase branded goods from? Is the price set and how are retail prices established?

Intellectual Property Rights

Protection of the franchisor’s trademark and other intellectual property is

always of paramount importance. In addition to drafting appropriate clauses regulating the use of the brand by the franchisee, trademark registration is highly recommended in the Middle East, since trademark laws in most countries do not provide for unregistered user rights and give priority to the party that files the trade mark first. Trademarks are generally registered in the name of the franchisor. It is recommended that trade mark registration be sought in the country where the franchise is being granted in advance of entering that market. For the franchisor, this gives peace of mind that a franchisee cannot then register the trade mark in its own name, which will cause problems if the franchise is terminated at some point. There are various legal and commercial issues that should be addressed during the course of negotiation of a franchise agreement for the benefit of both parties. Don’t leave yourself open to doubt and sleepless nights by signing the first thing that gets put on the table. Your first business decision in the licensing of a franchise should be to get at least a short session with an experienced lawyer to ensure that all parties, and particularly you, understand your obligations under the agreement that will operate in your business.


RESOURCES International Marketing

Women in Exporting As more women take lead in business and trade throughout the Middle East, Jaqui Lane of the Arab Australian Chamber of Commerce and Industry, discusses the business protocol that women traders can follow in order to succeed in the region.

I

t is generally thought that competitively-priced products with unique selling properties that are successful in their home country experience few, if any, barriers in foreign markets. However, the reality is very different and success at home does not mean that firms will not experience obstacles in foreign markets. The typical obstacles that keep firms face in foreign markets can range from tariffs and taxes, which impose a price that is a disadvantage compared to domestic prices, to opaque non-tariff barriers. Various attempts have been made to remove such trade impediments through the World Trade Organisation (WTO). Unfortunately, the most recent series of negotiations, namely the Doha Round, which began in 2001, have made little progress in removing these barriers. As a result a number of countries have sought to establish free trade agreements (FTAs) as a mechanism towards a better trade environment. In this scenario, more and more women are taking the lead in boardrooms, business and exporting throughout the world. Whether they are Directors, CEOs, business owners of small and medium enterprises (SME), or leading the export department of large businesses,

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ABOUT

women are increasingly part of the international trading environment. The primary challenge many women face is a lack of access to capital that can fund and grow their business. Considering that women in the Middle East and North Africa (MENA) region control 22% of the wealth, which is around USD 500 billion, lack of capital may seem slightly incongruous. Yet, this is a pressing challenge that businesswoman face, especially those in export orientated businesses. Across the MENA and in Australia, this specific issue is being addressed through a range of government and private enterprise activities. In the UAE, for instance, Sara Mohamed and Fatima Al Jabar formed the Al Bashayer Investment Company in 2006 that specifically caters to women. Standard & Chartered recently opened a “Women in Business” website to assist aspiring UAE women (www.standardchartered.com/ sme-banking/resourcecentre/ar/). The UAE government also runs training and assistance programs, as does the Australian government, that include the Women in Global Business program, export finance through Export Finance and Insurance Corporation (EFIC) and the EMDG scheme. That said, there is still room for growth, especially between Australia and the GCC countries. In Australia, only one-third of businesses are operated by women and 9% of SMEs are owned by women. In the GCC these numbers are harder to identify, with female business ownership standing at approximately 14%, and ranging from 4-5% in some countries to 18% in the UAE.

Jaqui Lane is the founder of Global Stories, a specialist publishing and storytelling company and corporate publisher for over 20 years. Jaqui has written a range of books on Australia and its major trading partners, including Saudi Arabia, UAE, Indonesia, China and Japan, and more recently a book to celebrate the 100th anniversary of International Women’s Day titled, “The Power of 100: One hundred women who have shaped Australia.” Lane is the author of a book on Australian entrepreneurship, “Champions of Enterprise: Entrepreneurship in Australia from 1788-1991”. She is also a member of the NSW Committee, the Arab Australian Chamber of Commerce and Industry, a Convenor at the Australian Arab Businesswomen’s Network, and Chairman of the Footpath Library, a not-for-profit organisation that provides books at no cost to the homeless and needy people across Australia. The Australian Arab Chamber of Commerce and Industry is a leading organisation in Australia and a member of the General Union of Arab Chamber of Commerce & Industry (GUACCIA). It has strong links with the federal Australian government and all state governments. The 2nd annual Australian Arab Chamber of Commerce and Industry Forum and Expo will be held in Sydney on June 5-6, 2012, where women exporters will be able to participate in the “Women in Business” session and join the Australian Arab Businesswomen’s Network that will be formally launched at this event. For more information , please visit: www.austarab.com.au.

A specific and critical challenge for women trading in the MENA region is knowledge about local social culture, specifically the role and expectations around women. It’s important to recognise from the outset that there is considerable diversity among the countries of the MENA region with regard to how women are treated. Therefore, it’s vital for any woman thinking about exporting to these countries to understand the specific business and cultural environments in each of the MENA countries. What is acceptable in one country, shaking hands for instance, will not be acceptable in another. Women must become aware that in some countries they will not be able to represent their company and may even need to find a local agent or male colleague to do the job. In others countries, women may be able to attend business meetings with a male colleague or agent, whereas in a small group of nations

A specific and critical challenge for women trading in the MENA region is knowledge about local social culture, specifically the role and expectations around women.

business practices are openly ‘western’ in their form and structure. Once this background research is done, a woman must become aware of the standard business practices of each country and be prepared to be patient and open-minded. I recall that on my first visit to the Middle East I had a lot of trepidation since I’d arrived lined up with only a small number of appointments (in retrospect this was a major achievement). Meetings are arranged “on the spot” and almost exclusively on the mobile phone. Working out who you are meeting is the next challenge; it might be the person you planned to see or it might not. You could be meeting one person or sitting in a reception room with 20 other people. As a woman, you will probably be the only female in the room, unless you are meeting one. You should plan to have a male colleague with you, or an interpreter, but you need to make sure that as the “boss” you walk in first. When meeting with government representatives, be aware that no matter how much preparation you have done prior to your visit, the time, date and duration of the meeting may vary from your arrangements. In some countries this requires some masterful logistics management, in others it’s easier.

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RESOURCES International Marketing

A related challenge for women in exporting is securing the right level of meeting. In some countries it may take 2-3 meetings with different levels of management to get to the primary decision maker. Wendy Simpson, Chairman of Wengeo International, who has over 25 years experience in exporting around the world, has noted that she “had to make sure that meetings were properly set up, so people knew that I was the company chairman and had to be properly matched with whom I met, in order to reflect my status.” Based on my own experience, I have learnt that it is vital to establish a strong relationship with a respected business leader through good networking and business events prior to visiting the country you wish to export to. Once “in country” this person will make their relationships open to you, provided you have established a strong basis of trust and respect. In this way you may well be invited to their home and the homes of businesspeople you meet on your first and subsequent visits. This is an added bonus for women in that we get to meet the wives and family. In Australia business protocols are much more transactional and there is less focus on developing an in-depth personal relationship early on in a commercial arrangement. It would be unusual for business people in Australia to invite you to their home, and more likely that you will be invited to meet them over a business lunch or dinner. When in doubt, accepting a lunch invitation is the best option. Language barriers do not present a specific issue to women, but if an interpreter is required it’s ideal to select a man, as this may assist a businesswoman with managing any social or cultural issues. Being away from the business and home can be challenging, especially as most women have family commitments to balance. With a wide range of airlines servicing multiple routes, the challenges of international travel have lessened to a degree, but it still requires at least a five-six day commitment at the minimum. As one

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It is vital to establish a strong relationship with a respected business leader through good networking and business events prior to visiting the country you wish to export to.

woman exporter noted, “Motherhood and children are some of the hardest aspects of the exporting process due to the impact it has not only on your company but also on your family.” It’s vital, therefore that any plans women have for moving into exporting involve how they are going to manage absences from their family and business. With multiple visits required to establish and service any export market it’s critical not to underestimate the pressures this places on everyone involved. A specific issue for women in exporting is to build knowledge and networks. Getting a thorough understanding of the legal, financial and export documentation requirements and regulations is an enormous task and vital to a successful export venture. There are many government organisations across countries that assist companies with this process, and in some cases provide financial support and agent identification. Historically men have had stronger and more developed formal and informal networking opportunities, the lifeblood of business, as it is through these networks that relationships and opportunities are built. Increasingly though, more women have access to a wide range of networks that can facilitate and assist women who want to export. In a brief review of networks across the MENA and Australia, we have identified over 50 businesswomen networks, chambers and organisations that are specifically designed to assist women in establishing and growing businesses, as well as exploring exporting opportunities. From my own experience as a member of an international business women’s group (Women Chiefs of Enterprises International) for 22 years,

I have first-hand experience of the support that women can offer each other across international boundaries. These networks are even more critical and important when dealing with the MENA-Australia relationship and can provide an enormous head start for business development, market research, customer acquisition, and business partnership opportunities. The Chambers of Commerce are a vital first port of call for advice, assistance and international networks, as are the various state and federal government agencies and national trade and export departments in a particular country. Some countries, such as Australia, have a specific women’s exporting program titled “Women in Global Business”, while the UAE has several business women groups, including the Dubai Businesswomen’s Council and the Abu Dhabi Businesswomen’s Council. Also present are the Egyptian Businesswomen’s Association, the Qatar International Businesswomen Forum, the Jordan Forum for Business and Professional Women, and the Gulf Businesswomen’s Committee (under the umbrella of the Federation of GCC Chamber of Commerce and Industry). In addition, there are a number of women’s business groups that can provide critical open and friendly links across countries. These include, but are by no means limited to, the Women Chiefs of Enterprises International, the International Alliance of Women and the Arab International Women’s Forum. So, if you’re thinking of growing your business by exporting from the Middle East there are a wide range of businesswomen groups and government agencies that can assist and support you.


trade talk Trade Guru

Trade for cheap The onset of a long-lasting global slowdown has led to companies from around the world to cut costs and increase business performance. Ras Al Khaimah Free Trade Zone caught up with this trend by offering companies low-cost alternatives to business setup and expansion, even as they look to do business in the Middle East. Meghna Pant talks to Oussama El Omari, CEO, RAK FTZ, as he divulges what it is that makes the free zone click.

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Tell us about the RAK FTZ and the role it performs. How many companies do you currently have? The Ras Al Khaimah (RAK) Free Trade Zone (FTZ) was established in 2000 with a vision to achieve global brand recognition as a premium free trade zone and investment hub, where customers find optimal business solutions to their needs. RAK FTZ offers many aspiring entrepreneurs and business owners the ideal platform to enter the Middle East market. The process of establishing a company at the free zone involves selecting a combination of business license, legal entity and facility. Over the last decade, we have remained committed to extending the best and most


ABOUT

The Ras Al Khaimah Free Trade Zone Authority (RAK FTZ) was formed by an Emiri decree on 1 May 2000 – the result of an initiative on the part of His Highness Sheikh Faisal Bin Saqr Al Qasimi, Chairman of the Ras Al Khaimah Finance Department, to set up the emirate’s first free trade zone. It established itself across Ras Al Khaimah at various specialised sites with the aim to provide an environment that would suit the needs of different investors and industries. Currently, RAK FTZ has four fully operational “parks” – the Business Park, Industrial Park, Technology Park and Academy Zone – with plans to develop additional industry-specific sites in the future. RAK FTZ also has business and promotion centres in Dubai and Abu Dhabi, to cater to the needs of existing and potential clients based in those cities, and international liaison offices (in Germany, Turkey, India and the United States), to support its international marketing activities and provide certain customer services. With transparent and investment friendly laws and regulations, lack of restrictions on profit and capital repatriation, a strategic location not far from Dubai’s business and financial centres, proximity to international airports and seaports and considerably lower costs of living in RAK compared to Dubai and Abu Dhabi, RAK FTZ has been successful in attracting investors and entrepreneurs looking for cost-effective, hassle-free and secure options for setting up a business in the UAE.

affordable solutions for business needs across sectors. This success has been achieved through innovative business models. We have been able to consolidate our importance locally and internationally and today, we boast of over 5,000 active companies as our members across various fields and economic activities. We perform the following roles: In the economy: RAK FTZ is a major contributor to the GDP growth of the Emirate. In 2011, we achieved phenomenal growth with the registration of 2033 new companies. This was a 17% increase over the 1,740 company registrations in 2010.

In the community: As a leading

corporate player in the Emirate of Ras Al Khaimah, RAK FTZ recognises that the role of a major organisation within the community in which it operates extends beyond economic contribution, and we are committed to delivering corporate social responsibility objectives across a number of key activities. RAK FTZ demonstrates its ongoing commitment by promoting, supporting, organising and participating in activities that nurture community spirit, promote a balanced lifestyle and help preserve the emirate’s cultural and natural heritage.

In the workforce: RAK FTZ’s UAE

National Empowerment Programme has been specifically designed to attract, recruit and develop the next generation of talented UAE nationals and provide a unique opportunity to experience the free zone’s professional working environment and business community. Through our CSR mandate we are on the lookout for talented and ambitious UAE nationals who have long-term career potential, and passion, that will make them the future leaders of tomorrow. Successful applicants are enrolled in one of three specialist training programmes. We have the Graduate Programme, Work Placement Programme and Summer Job Opportunities. We also develop our Emirati employees by sending them to training courses, both

local and international, and support them to pursue higher education. Currently, we have 55 Emiratis out of 238 staff, which represents 23% of our workforce. In addition we have over 50% Emiratis in the management level in RAK FTZ. At the moment, our hiring focuses on UAE Nationals to reach our goal of increasing our Emiratis workforce by 15%.

What role does the RAK FTZ play for foreign companies that want to setup base in the UAE?

Over the last decade, RAK FTZ has remained committed to extending the best and the most affordable solutions for business needs across sectors from around the globe. As we move ahead, the RAK Free Trade Zone plans to strengthen its position as a business hub geared by helping small-and-medium

RAK FTZ offers a quick and cost effective entry into the UAE and Middle East. Additionally, with the minimum amount of paperwork, investors can have their company established and running within a few days time. It is also the first and only free zone to set up offices and promotion centres in the UAE (Dubai and Abu Dhabi) and internationally (India, Turkey, Germany and USA).

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trade talk Trade Guru

enterprises (SMEs) connect to emerging market economies. The RAK Free Trade Zone’s philosophy centres on attracting and maximising the growth of value-added, know-how based, technologically advanced, innovative businesses in RAK. We are eyeing closer partnerships with US-based companies. That we have over 5,000 active companies from 100+ countries reinforces the fact that our business model works. We also have international promotions and liaison offices in India, Turkey, Germany and USA, that assist our clients abroad to promote RAK FTZ to foreign investors.

The slowdown did not really have a big impact on free zones such as RAK FTZ that are more focused on SMEs. This keep the fact that they have smaller operational costs and the potential to grow made it easier for them to weather the downturn.

How does RAK FTZ distinguish itself from other free zones and attract new companies? The RAK FTZ is one of the most cost effective incorporations available in the UAE. Additionally, with the minimum amount of paperwork, investors can have their company established and running within a few days time. RAK FTZ is worth a close look for a majority of start-ups or newcomers to the region as it offers a quick and cost effective of entry into the UAE and Middle East. RAK FTZ aims to become one of the largest, most effective and most environmental-friendly free zone in the Gulf region. RAK FTZ is also the first and only free zone to set up offices and promotion centres in the UAE (Dubai and Abu Dhabi) and internationally (India, Turkey, Germany and USA).

What sectors have you seen the most interest from?

RAK FTZ focuses on SMEs, which is reflected in the industries that constitute a majority of our clients, like services, commercial, trading, information technology and consultancy.

What countries have you seen the most interest from?

We have investors from 138 countries. The most interest is from countries in India

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(43%), the UK (14%), Egypt (9%), Pakistan (7%), followed by the US and Germany (6%). Aside from the top 10, the rest of the countries represent 2% and below.

How did the global recession impact your business and what strategy did you develop to soften the impact? Some free zones in the region have been affected by the global downturn, especially those which have big industrial companies within their zone. With trade being low because of the downturn, some of these companies had to scale down production for their export or import requirements. On the other hand, the downturn did not really have a big impact on free zones such as RAK FTZ, which are more focused on SMEs. With our business model of affordable cost and

reach, and our promotion centres and business centres, RAK FTZ helped small and medium businesses grow even during the downturn. The fact that they also have smaller operational costs and the potential to grow made it easier for them to weather the downturn. With RAK FTZ’s nurturing environment, the number of companies that joined the free zone did not slow down even during the downturn.

How did RAK FTZ perform in 2011 and what are your expectations for 2012?

RAK FTZ posted an impressive performance at the end of 2011: • More than 17% increase in 2011 compared to the same period in 2010; • 2,033 registrations in 2011, which exceeded our total annual registration of 1,740 in 2010;


• Our renewals were also up by 16% compared to last year, with a total number of 3,776 in 2011 compared to 3,271 in 2010. These renewal numbers give us reassurance that we are doing a good job, as we are not only registering new companies but also retaining our clients. The exceptional growth in new registrations and renewals amidst the challenging economic climate reflects investor confidence in our business model and re-emphasises the world-class standards, facilities and services on offer at RAK FTZ. The fact that this achievement came amidst a volatile business atmosphere is even more commendable. We have a business model that works, and that is the reason we are growing. Hence, our plan is to continue to improve our system and services. We are on the lookout for new trends in the market, in order to adapt and implement new initiatives that will benefit our existing clients and attract new investors. In addition, Ras Al Khaimah, where RAK FTZ is located, has development plans in the future that would enhance the RAK airport, port, as well as infrastructure like roads, telecommunications, health, education and renewable energy. These initiatives will further attract investors to the emirate. Our outlook for RAK FTZ in 2012 remains positive. We look forward to seeing growth in company registrations and renewals. We will continue our programmes to achieve our goals and, most importantly, to contribute to the GDP of Ras Al Khaimah. We are also focusing on research and studies on how to better improve processes, as well as sharing best practices with other free zones around the globe. In 2012, we will also enhance our current focus on corporate social responsibility programmes. As one of the leading organisations in Ras Al Khaimah, we firmly believe that we have a great responsibility to the community that goes beyond our economic contributions.

The RAK FTZ focuses on SMEs. What initiatives have you taken to promote SMEs? It makes great economic sense for us to focus on SMEs, especially those looking to do business in emerging markets. Flourishing SMEs encourage private ownership, which in turn, provides employment opportunities to the local population. Because of our focus on small and medium businesses, RAK FTZ has partnered with several local banks that have programmes to assist SMEs, including HSBC, National Bank of Abu Dhabi, Emirates NBD, and Bank of Baroda. These banks have their own solutions that are geared for small and medium size businesses to help them start their companies faster and minimal procedures. Other solutions that we offer SMEs are the following: • Our Mazeed Service Desk helps clients – especially those new in the market – to start their business operations with minwimum hassle. From finding out where to get insurance policy for employees, to printing business cards, setting up a website, buying furniture, finding a house, RAK FTZ assists clients through the entire process; • One of the most notable features that make RAK FTZ the hub for SMEs is the ease of registration. Additionally, we are set apart by our environment and value-added services, which are specifically designed to meet the needs of SMEs focused on operating in emerging markets. • Our slogan ‘Home of Business’ says it all. When a client chooses RAK FTZ, we help them every step of the way. We offer them services that make them feel like they are in their own house; • We offer flexi facilities with low start-up costs that are geared towards SMEs; • We offer SMEs networking opportunities and B2B meetings with other RAK FTZ clients that can help them with their business.

RAK FTZ offers the following advantages to businesses: • Value-added services: RAK FTZ offers a wide range of extra services that cater to the unique needs of its clients, including IT, marketing, creative, procurement, human resources and more. These are designed to assist clients with the many different steps involved in setting up and running a successful business. • Customised Packages: Whether you need a business license in order to distribute your products, offer consultancy services or look for an office, warehouse or land for industrial activities,RAK FTZ offers solutions to match client requirements. • Award-Winning Service: RAK FTZ’s accomplishments have been recognised by a number of wellrespected international business organisations, such as the World Free Zone Convention for ‘Best Website Award’, the Middle East Logistics Awards for ‘Best Emerging Free Zone’ for three consecutive years, and the Supply Chain and Transport Awards for ‘Industrial Area of the Year’. • International Reach: RAK FTZ is the first and only free zone with international promotion centres in India, Germany, Turkey and US that provide marketing, sales, client support and administrative services. • Ranked one of the top five Middle East free zones of the future: fDi Magazine ranked RAK FTZ fourth in the best “Middle East Free Zone of the Future” category, and third for the “Best Economic Potential” in the 2011-2012 ranking of 115 free zones in the region. • Reputed clients and partners: RAK FTZ is home to large and successful organisations, as well as many local and international small businesses. Some of the well-known companies include Cisco, DHL, Dole, HSBC, Knauf, Emirates NBD, Hyundai, Cumi Middle East FZE - Murrugappa Group, Kotak Commodities – Kotak Mahindra Ltd, and Thrifty.

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Focus Industry

Paper Kingdom Increasing demand for paper products and stationery from vibrant economies across the Middle East will continue to shape the growth of the industry. Meghna Pant talks to industry experts about the future of this industry and the opportunities it presents for an astute trader.

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ith the global market for stationery products estimated to be worth USD 155.4 billion, and for office products and services to be worth USD 221.6 billion by 2015, manufacturers and suppliers around the world are eyeing lucrative markets, like the Middle East, with increasing interest. The fast-growing economies of the Middle East are expected to prove increasingly attractive to manufacturers and suppliers of office supplies as they grow in stature as business and finance centres. In fact, according to the Indonesian Pulp and Paper Association in the Middle East, the Middle East market for paper is expected to continue to grow in the near future, with recent figures indicating that the region would need 28 million tons of paper to fulfill its needs by 2020. It’s therefore no surprise that the Middle East is attracting a range of industry professionals including wholesalers, distributors, hypermarkets, supermarkets, stationery shops, paper and office suppliers

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gift shops, publishers, printers, bookshops, children’s shops, schools and universities. Even prominent global players, like paper and pulp major, Double A, are increasing their presence in this market. Thirawit Leetavorn, Senior Executive Vice-President, Double A, is confident that the paper and stationery market in the Middle East is robust and healthy. He admits that though the economic stage for the industry here is where Asia was five to ten years ago, the growth model is different, with an emphasis on brand building rather than pure consumption. Double A entered the regional market six years ago at a time when there were no established consumer brands for paper. Yet, the company was able to tap into a consumer need for a trusted brand that represented quality and delivered a consistent brand message. Once this relationship was established the company moved forward, expanding from Dubai to Qatar, Oman, Bahrain, Kuwait, Syria, Egypt and Yemen. In all markets, Leetavorn

reveals, the company received a positive consumer reception to its brand. Despite hiccups, such as the Arab Spring, that put a dent on sales, the company did not pull out of any market. In turn for its loyalty the company has seen business recover. The Middle East is a unique market as there are no local paper producers in the region that actually grow trees, convert them to pulp and make paper. The market therefore comprises mainly of foreign importers. Therefore, a company stands to benefit from an already recognisable brand name to build its brand recognition and leverage its brand equity. How difficult is it though for a foreign company to enter this market? According to Leetavorn it is not. A market entry strategy is fairly straightforward here due to transparent regulations. Leetavorn reveals his own company entry strategy, saying that Double A did not focus as much on research as they did on recruiting high caliber employees. With a resourceful


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Focus Industry

Increasing demand for sustainable paper has led to a flood of innovative ideas on the parts of manufacturers to diminish their environmental impact and reduce their carbon footprints.

employee base, the company was able to build and execute an effective business plan for the region. “Next to global presence is market growth and we are looking to grow region by region. Our goal in the next one or two years is to become the dominant player to the markets that are strategic to us, like the Middle East,” said Leetavorn. There are many other international companies that are also eyeing this lucrative market. For instance, Guangdong Hualong Stationery, one of the biggest Chinese paper companies, with more than 1000 employees, is looking for new customers in new markets. Peggy Xu who works as an International Marketing Manager for this company says that she finds the most potential for growth in markets such as Egypt, UAE and Iran. As it is difficult to find customers without local support, such companies typically tend to take part in exhibitions, such as Paperworld Middle East, that present global exhibitors vital access to a spectrum of international paper products and office supplies. Xu hopes to find distributors and customers at such

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an event, and, as she knows from prior experience, she expects that her company will generate USD 100,000 in business, as it did in 2011. Even smaller companies from large markets like China come to such exhibitions with the aim to find distributors, as well as gain insights into the Middle Eastern market. Vicky of Bianyo Painting Materials works with a small Chinese company that employs just 20 people. Her company hopes to get five times on their return on investment with the business they generate. Even companies that have local distributors, such as Archies from India, attend such exhibitions to promote their products in the Middle Eastern market. European firms like Staufen that produce a range of products for schools and offices, and have four paper production factories in Germany, come to Paperworld to tap into clients whom they don’t have access to in their home country, like those from Iran and Africa. Though the outlook is buoyant at the present time, industry trends indicate that there is an increasing shift towards ‘greener’ and more sustainable products thanks to growing awareness of environmental issues and the damage caused by unhindered commercial paper consumption. Increasing demand for sustainable paper has led to a flood of innovative ideas on the parts of manufacturers to diminish their environmental impact and reduce their carbon footprints. Paper from managed forests, enhancing the amount of recycled content in paper products and stationery, use of ecologically friendly fuel to process these products are all among the growing transformations within the paper industry. This trend is further emphasised by governments around the region setting

new environmentally-friendly regulations to reduce their carbon footprints. Traditionally the Middle East region has been known for its high consumption levels, but there is a noticeable change in consumer patterns with greater emphasis on being environmentally responsible. Both corporates and individuals in the region are opting for ‘green’ products as a matter of choice. The need for security and the increasing incorporation of information technology in organising office workflow and functions is also impacting the global market. This is occurring along with an increasing demand from the emerging economies. These trends will shape the future market for paper and office supplies in the imminent future, and should be tapped into as opportunities for any trader looking for growth avenues.


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OCTOBER 2011

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Focus Country

The Aussie Factor As one of the most developed and largest economies in the world, Australia stands out as a viable business partner for most countries. Meghna Pant finds out where Australia’s bilateral trade relations stand with the UAE and why there is an increased focus by the Australian government to attract Middle East companies.

W

ith growing bilateral trade and investment relations between Australia and the Middle East, a recent visit by the high profile Australia Gulf Council (AGC) to the United Arab Emirates (UAE), Oman and Qatar has helped further cement these ties. The delegation conducted a number of meetings with senior ministers and officials including HE Sultan bin Saeed Al Mansoori, Minister for National Economy, UAE. The delegation also hosted a summit at the University of Wollongong, Dubai, and met with officials from Etihad Airways. The AGC Business Mission engaged directly with

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corporate and government leaders in the Gulf States. Sectors represented on the mission included construction and engineering, education, financial services, transport, telecommunications, horse racing, tourism and agriculture. The AGC comprises 25 leading Australian corporate partners and works closely with Department of Foreign Affairs and Trade (DFAT) and Austrade in building the Australia Gulf State relationship. When asked why the delegation visited now, Michael Yabsley, Chief Executive of Australia Gulf Council, said that the timing of the mission does not revolve


ABOUT

Mark Vaile is a global leader and renowned diplomat. He was Deputy Prime Minister of Australia (2005-2007) and Minister for Trade (1999-2006). Mark’s service to Australia began in Local Government as a member of the Greater Taree City Council, including three years as Deputy Mayor. Mark’s impressive political career whilst in government has seen him hold several ministerial positions; Transport and Regional Development, Agriculture, Fisheries and Forestry, Trade, and he was the unopposed leader elect of Australia’s National Party (2005 -2007) and ultimately the Deputy PM of Australia. Mark’s expansion of global markets for Australia and its trade partners, combined with his exceptional leadership, and deep respect from both his peers and his constituents, all contributed to him attaining the role of Deputy Prime Minister of Australia. In the pivotal role of Minister for Trade, Mark negotiated many of Australia’s most heralded key Trade Agreements: the Singapore-Australia Agreement, which increased market access for Australian exporters of services as widespread as education, telecommunications, professional and environmental industries; the Australia - United States Free Trade Agreement, which included free and open access to the U.S. for Australian exporters of almost all manufactured goods and services, with substantially improved access for Australia’s agricultural sector; concluded the Australia – Thailand Free Trade Agreement; and the initiation of Free Trade Agreements between Australia - China and Australia - Malaysia, both of which serve to open up trade and create substantial economic benefits for all countries concerned.

Michael Yabsley is the Chief Executive of the Australia Gulf Council (AGC) which represents the commercial and investment interests between Australia and Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates – the six states that comprise the Gulf Co-operation Council. He founded Government Relations Australia Advisory Pty Ltd —a national, bipartisan corporate advisory firm—in 1992, where he remained a Director until 2011. GRA is majority owned by Clemenger BBDO. Michael owns and operates CorPol Pty Ltd—a Sydney based strategic advisory firm. Michael’s 35 year career has included senior positions in parliamentary and organisational politics. He was a member of NSW Parliament from 1984-1994 and held the Portfolios of Minister for Corrective Services and Minister for State Development and Tourism. He was Treasurer of the Liberal Party in NSW for 5 years and Federal Treasurer of the Liberal Party from 2008-2010.

around an economic cycle or an event, but aims to promote trade and investment opportunities between the two nations by building enduring personal connections. The UAE is an attractive Middle Eastern commercial market for Australia, with exports to the UAE reaching AUD 2.2 billion. Major Australian exports last year included passenger motor vehicles, meat (excluding beef), wheat and barley, with total exports yielding 11.3% year on year growth. Imports from the UAE

The Australia Gulf Council brings together private sector, government, diplomatic, community and political leaders from across the spectrum to facilitate trade, investment and cultural exchange between the Gulf Cooperation Council (GCC) countries and Australia. The AGC has a strategic programme focussed on commercial outcomes and the peak level networks that surround it from both the Gulf States and Australia. The relationship has assisted in building a friendly and successful trade relationship with the Gulf States, highlighted by their recent announcement that Etihad Airways has become the AGC 2012 Principal Corporate Partner.

to Australia grew by 36.5%, to the value of AUD 3.1 billion, with major Australian imports in the petrochemical industry. Australia’s total merchandise trade with the Gulf States, including imports and exports was AUD 8.7 billion in 2010,

up from AUD 2.3 billion in 1985. This is despite the fact that in Oman these figures have declined due to a decrease in motor vehicle exports from Australia. Australia also serves as an attractive trade partner for the Middle East. The

APRIL 2012

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Focus Country

There is increased participation by trading counterparts to secure long-term food supply chain from Australia to GCC, as export of food and beverages has become more of a focal point due to rising food security concerns. As more Australian companies enter the GCC, bringing with them a wealth of experience and know-how, there is also a lot of attention being paid to service and infrastructure development via airports, trains and ports.

country has been posting a strong trade performance over the last few years, even recording consecutive monthly trade surpluses over the last two years, barring a small trade deficit in February due to the Queensland floods – a performance that is unprecedented since 1972-73. This is despite a stronger Australian dollar and uncertain global economic conditions. A major thrust for this surplus has been pegged to Australia’s Asian trading partners, which continue to increase demand for the country’s goods and services, with exports to Japan and China continuing to grow. Services and rural agricultural exports, which together contribute over USD 7 billion to the Australian economy, are rising. One of its main exports in iron ore continues to strengthen. Volumes of iron ore shipments were up offsetting lower prices, with export values remaining stable. The AGC Business Mission to the Gulf region was led by Honourable Mark Vaile (Deputy Prime Minister of Australia 2005-2007, Minister for Trade 19992006). While talking to Trade and Export Middle East, he said that he expected UAE-Australia trade relations to be very strong over the coming years, in line with the strong foundation that has been set

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with former bilateral ties. He stressed that although most trade is based across broad sectors, with a focus on communication and transportation, export of food and beverages has become more of a focal point due to rising food security concerns. This focus has also led to increased participation by trading counterparts to secure long-term food supply chain from Australia to GCC. As more Australian companies enter the GCC, bringing with them a wealth of experience and know-how, there is also a lot of attention being paid to service and infrastructure development via airports, trains and ports. Michael Yabsley reiterated Vaile’s point, while clarifying that food shortage is a relative term, so while there is no evidence of hunger in the Gulf States, there are issues of continuity and consistency of fresh produce supply. He said that due to the wealthy nature of Gulf nations, the governments want to meet consumer demand by offering high quality and a wide range of food. “Opportunities exist in a range of industries for further growth, collaboration and development, including fertilisers and plastic materials. While traditionally, agriculture, building and construction, as well as motor vehicle were the focus sectors, now we expect enhanced trade

in other sectors. One is health and education due to the strong demand here. Since the Gulf relies on foreign service providers for medicine, there is ample scope there as well.” Apparently, it is also relatively easy for a Middle-Eastern company to set up operation in Australia or to conduct bilateral trade relations with them. The colony follows an open economic system and is currently hungry for capital. The Australian government is therefore encouraging foreign investments above the economic threshold of around AUD 250 million. Investments, especially a sovereign investment, requires approval by the Foreign Investment Review Board that is made up of qualified individuals appointed by the federal government. Yabsley though clarifies that this is more of a formality, and investing countries can expect cooperation, unless a controversial investment is involved. The mission aims to take the message of ‘Brand Australia’ to markets that offer potential for expansion. In that context, the Gulf States are front and centre. Australia and the Gulf States also share common values and interests which facilitate two-way flow of capital, the mission’s leaders believe. “From our varying political and commercial backgrounds we know that enduring commercial outcomes occur where relationships are nurtured. That means having a presence not only through DFAT and Austrade, but at a commercial level as well. The AGC Business Mission puts this idea into practice in a most effective way. The Gulf States through the GCC are one of the great commercial engine rooms of the world,” Yabsley said. He also confirmed that during and immediately after the Business Mission, the AGC would focus on developing the Council’s Corporate Partner Program in the Gulf States to ensure the organisation reflects the strength of the relationship from both


Focus Country

If one were to judge which countries Australia sees the most potential in, it would seem from the visit of Australian companies to the Middle East, that Qatar, Oman and UAE are a primary focal point. Many other delegations also visited Saudi Arabia and Kuwait. ends. “Our strategic plan has been to build the AGC in Australia. Those foundations have been laid and it is now timely to show our corporate, government and non-government counterparts in the Gulf States how focused we are on growing the relationship.” “The AGC looks forward to welcoming Corporate Partners from the Gulf States. That process is off to a strong start with Etihad recently becoming the AGC’s Principal Corporate Partner. The success and standards of Etihad as the world’s leading airline is symbolic of the quality of opportunities in the Gulf States. There is a real commitment to being number

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one – something that is admired by both government and private sector in Australia.” If one were to judge which countries Australia sees the most potential in, it would seem from the visit of Australian companies to the Middle East, that Qatar, Oman and UAE are a primary focal point. Many other delegations also visited Saudi Arabia and Kuwait. Vaile also expressed positivity with the launch of the Free Trade Agreement (FTA) between GCC and Australia, with the support of Her Excellency Sheikha Lubna Bint Khalid Al Qasimi, UAE Minister for Foreign Trade. He is keen to see that this FTA be

concluded positively. Yabsley also hopes to see the FTA conclude, though he is not sure when this could be. Vaile has no clear forecast of what to anticipate for 2012, due to global uncertainties and the Euro crisis, but expects bilateral trade to trend the growth chart over the previous decade. With Australia clocking in USD 4 billion exports to the UAE and USD 8.7 billion to the GCC, trade already seems to be on the right track. Vaile even predicts that though the Euro crisis may cause challenges, it will not have a negative impact. Yabsley confirms this sentiment as he predicts that the problems in Europe almost have a silver lining, as it makes countries such as Australia and GCC look for more reliable trading partners. For most Australian companies, the UAE is a regional hub for the Middle East, Africa and Asia, and Vaile anticipates that as the long standing and growing relationship broadens and deepens, there will be more investments and more of a variety of investments.


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Focus commodity watch

Commodity prices snapshot Reem Aboul Hosn, Senior Financial Analyst at Zawya tells us how key commodities performed over the month of February 2012.

NATURAL GAS Natural gas prices zigzagged over the month of February, before changing direction towards month end and rising slightly. The extraction of natural gas from storage is picking up as compared to extraction in February 2011.

BRENT

Brent Crude futures slipped below USD 125 on 25th February after peaking on 24th February. Prices eased after Saudi media reports denied news of a pipeline fire.

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APRIL 2012

Data provided by Zawya


Focus commodity watch

GOLD Gold rose sharply during most of the month, especially in the last week, where it gained 3.6% to reach a one-month high of USD 1789.7. The news of the European Union approving the bailout package for Greece brought back confidence in the financial markets.

Silver Silver posted a sharper increase than gold during the last week of the month, rising to USD 37.21 from USD 33.5, a 10% increase from previous week. This increase was also attributed to the Greek bailout package news that led to the appreciation of the Euro against the Dollar.

Data provided by Zawya

APRIL 2012

49


Community events calendar

EXHIBITION

DATE

LOCATION

2011 UFI Congress

1st

Abu Dhabi

AutoRomania

1st

Romania

Oil & Gas Ukraine

1st - 3rd

Ukraine

Abu Dhabi International Petroleum Exhibition

5th - 8th

Abu Dhabi

EXHIBITION World Hospital Congress

DATE 8th - 10th

LOCATION Dubai

Dubai International Jewellery Week Exhibition

10th - 13th

Dubai

Dubai International Motor Show

10th - 14th

Dubai

Dubai Air Show

13th - 17th

Dubai

International Tourism Exhibition (ITE)

14th - 16th

Abu Dhabi

Roadex/Railex 2011

18th - 20th

Abu Dhabi

2011 World Robot Olympiad UAE

18th - 20th

Abu Dhabi

The Middle East HR Summit And Expo 2011

20th - 24th

Dubai

HR Best Practices in Oil, Gas and Petrochemicals

21st - 22nd

Kuwait

Gulf a la Carte 2011

21st - 23rd

Abu Dhabi

SIAL Middle East 2011

21st - 23rd

Abu Dhabi

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 around the world, so you spend less time planning and more time attending.

EXHIBITION

DATE

LOCATION

April 2012 Motexha

1st - 3rd

Dubai

FM Expo + Big 5 Show

21st - 24th

Dubai

The World Ports & Trade Summit

2nd - 4th

Abu Dhabi

Milipol

26th

Qatar

The Internet Show Middle East

17th - 18th

Dubai

Middle East Manufacturing Exhibition 2011

28th - 30th

Abu Dhabi

Thailand Auto Parts and Accessories

26th - 29th

Thailand

SIM - Signage, Imaging & Media Show 2011

28th - 30th

Abu Dhabi

Arabian Travel Market

30th - 3rd May

Dubai

Airport Exchange 2011

29th - 30th

Abu Dhabi

Project Qatar

30th - 3rd May

Qatar

Global Water and Beverage Technology Congress

29th - 1st Dec

Dubai

Multimodal

1st - 3rd

England

World SME Expo

1st - 3rd

Hong Kong

Arab Market 2012

1st - 12th

Abu Dhabi

“China Import & Export Commodities Exhibition“

1st - 4th

Malaysia

Cards and Payments Middle East 2012

15th - 16th

Abu Dhabi

World Green Tourism 2011

5th - 7th

Abu Dhabi

The Hotel Show 2012

15th - 17th

Dubai

Middle East Natural & Organic Products Exp

5th - 7th

Dubai

Made IN Korea (MIK) UAE 2012

21st - 23rd

Abu Dhabi

National Exhibition for Small & Medium Enterprises

5th - 8th

Abu Dhabi

Dubai Airport Expo

22nd - 24th

Dubai

International Real Estate & Investment Show

7th - 10th

Abu Dhabi

Airport Suppliers Conference

11th - 12th

Dubai

19th - 23rd

Abu Dhabi

December 2012

May 2012

June 2012 The Franchise and Business Opportunities Expo

2nd - 3rd

USA

Abu Dhabi International Motor Show

World Gas Conference & Exhibition

4th - 8th

Malaysia

January 2013

COMPUTEX Taipei

5th - 9th

Taiwan

Tekno Tube Arabia

7th - 10th

Dubai

AIBTM 2012

19th - 21st

USA

Arab Plast

7th - 10th

Dubai

Domotex Hannover

12th - 15th

Germany

Doha Trade Fair

1st

Qatar

Offshore Middle East

21st - 23rd

Qatar

CIS Travel Market

27th - 28th

Russia

PROMAT

21st - 24th

USA

Ramadan & Eid 2012

29th - 19th Aug

Abu Dhabi

Trans Oman

28th - 30th

Oman

2nd - 4th

Australia

The NAFEM Show 2013

1st

USA

Printpack India

5th - 10th

India

July 2012

February 2013

August 2012 ACBW 2012 September 2012 Furniture Manufacturing & Supply China

11th - 12th

China

Regional Consumer Goods

15th - 17th

Germany

50th Bangkok Gems & Jewelery Fair

14th - 18th

Thailand

IDEX 2013

17th - 21st

Abu Dhabi

Thailand International Logistics Fair

19th - 22nd

Thailand

Australian Oil and Gas Exhibition

20th - 22nd

Australia

Private Label Middle East Dubai 2011

23rd - 25th

Dubai

March 2013

Paper Arabia

23rd - 25th

Dubai

CeBIT 2013 (IT)

5th - 9th

Germany

Propak Africa

12th - 15th

South Africa

India Chem

4th - 6th

India

Koplas

12th - 16th

Korea

Foodtech Packtech

9th - 11th

New Zealand

Transinfra

13th - 15th

Switzerland

Analytica China

16th - 18th

China

Motortec

13th - 16th

Spain

October 2012

50

APRIL 2012

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

November 2012


Trade and Export Middle East  

Trade and Export Middle East is a monthly magazine in English, published by CPI in association with Dubai Exports, and is aimed at traders,...

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