ISSUE 27 | APRIL 2014
BUSINESS INTELLIGENCE FOR INTERNATIONAL TRADE
www.tradeandexportme.com
TAKING A LOOK AT
Abu Dhabi's TRADE AGENDA
Dr. Adeeb AlAfeefi,Director, Foreign Trade & Export Support, International Economic Relations Sector, Abu Dhabi Department of Economic Development, gives us the details.
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EDITOR’S LETTER
Editor’s note… Saying goodbye is never easy and as I write this editorial, I look back at the two and a half years gone by, with some fond memories
Chairman Dominic De Sousa CEO Nadeem Hood
From starting as an Assistant Editor on SME Advisor Middle East and moving to being the Senior Editor of Private Sector Qatar and Trade and Export Middle East, these years have taught me a lot.
EDITORIAL Group Director of Editorial Paul Godfrey paul.godfrey@cpimediagroup.com +971 4 440 9105 Senior Editor Aparna Shivpuri Arya aparna.arya@cpimediagroup.com +971 4 440 9133 Business Assistant Adelle Louise Geronimo adelle.geronimo@cpimediagroup.com +971 4 440 9160 ADVERTISING Group Sales Director Carol Owen carol.owen@cpimediagroup.com +971 4 440 9110 Sales Manager Vanessa Linney vanessa.linney@cpimediagroup.com +971 4 440 9137 PRODUCTION AND DESIGN Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 Head of Design Glenn Roxas glenn.roxas@cpimediagroup.com +971 4 440 9130 Designer Froilan A. Cosgafa IV froilan.cosgafa@cpimediagroup.com +971 4 440 9135 Photographer Jay Colina DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen
And just like how sometimes parents, even though they never accept it, have a favourite child, I must confess that this magazine has been special. It’s a labour of love, sweat and tears. When I took over TEME, no one really knew about it, no events had been organised and I remember how I was out every day of the week, for months, meeting banks, law firms, and trade commissioners, to introduce the magazine to them. In February 2013, we organised our first Trade Excellence Awards and it was a proud moment to see all the big names in the trading community present. The feedback was very encouraging and gave me the faith to continue. I then went on to organise country focus events and our second Trade Excellence Awards . In this journey, I have met some wonderful people, who have been very supportive. I have also made some friendships that will go beyond this magazine – and I am richer for it. It has been a humbling and enriching experience. Please consider this editorial as my way of thanking each and every one of you who took the time to meet me, to say an encouraging word when I needed it, to support the magazine and be a part of my journey with this magazine. As I close this issue, I am quite proud of the features we have this month, starting with our cover story on Dr. Adeeb AlAfeefi, who speaks to me about the importance of trade for Abu Dhabi. Abu Dhabi has a lot of initiatives in place to support trade, especially non-oil trade. With trade contributing to 70% of GDP, this sector cannot be ignored. We also talk about the growing importance of the Renminbi in the global trade scenario. The Chinese currency is likely to become the world’s 4th most-used trading currency by 2020. We also take a look at the other Asian giant – Japan, its trade relations with the GCC and the important investment rules for foreign businesses. I hope you will enjoy reading the features and as I leave this magazine, I would like to believe that this is not a goodbye but just a “until we meet again.”
online@cpimediagroup.com +971 4 440 9100 Published by
Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East Registered at IMPZ PO Box 13700, Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press © Copyright 2014 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
Talk to us: E-mail: aparna.arya@cpimediagroup.com
Twitter: @TradeNExportME
Facebook: www.facebook.com/tradeandexportme
LinkedIn group: tradeandexportme
If you’d like to receive a free copy of Trade and Export Middle East every month, e-mail rajeesh.nair@cpimediagroup.com requesting a subscription.
APRIL 2014
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18 26 ISSUE 27
APRIL 2014
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updates 08
News: International news and trends with domestic trading relevance.
15
EVENTS CALENDAR: A listing of the exhibitions and conferences in the region, to help you spend less time planning and more time attending.
about town
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APRIL 2014
16
Oil and Gas: We were the media partner of the 18th Arab Oil & Gas Show and bring you the highlights.
18
Central Asia: Trade and Export Middle East, along with Dubai Exports organised Trade and Invest – Central Asia, on the 10th of March. With close to 200 participants, the event provided a platform to learn how to do business in that region.
24
Canada: We hosted a Canadian beef tasting event, along with Canada Beef Inc. to create awareness about the quality and variety of this Canadian product.
CONTENTS
16
Interview: In an exclusive interview to Aparna Shivpuri Arya, Dr. Adeeb AlAfeefi, Director, Foreign Trade & Export Support, International Economic Relations Sector, Abu Dhabi Department of Economic Development, speaks about taking Abu Dhabi’s trade agenda forward.
30
Logistics: Nour Suliman, CEO, DHL Express Middle East and North Africa, discusses the logistics industry in the region with Aparna Shivpuri Arya.
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Strategy: Dr. Ashraf Mahate, Head, Market Intelligence, Dubai Exports, gives us a lowdown on the importance of strategic exporting.
trade talk
26
34
FINANCE Renminbi: Michael Vrontamitis, Head of Product Management, Transaction Banking, Standard Chartered Bank, explains the importance of the Renminbi and how its rise cannot be ignored.
Latest Developments: Aparna Shivpuri Arya speaks to Dominic Broom, Head of Sales & Relationship Management, EMEA Treasury Services, BNY Mellon, to pick his brain on issues, such as Basel III and its impact on the financial landscape.
40
Sector Watch: Jayant Singh, Associate Director, Healthcare Practice, Middle East, North Africa and South Asia, Frost & Sullivan, elaborates on the verticals in the healthcare sector that offer investment potential.
focus
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COUNTRY FOCUS Bilateral Relations: Japan plays a very important role in linking this region with Asia. Trade and Export Middle East, with the help of Japan External Trade Organisation (JETRO) looks at how the trade relations between Japan and the GCC have grown over the years. Regulations for Foreign Businesses: For successful investment in Japan, it is necessary to understand the Japanese legal system. Akenobu Hayakawa and Manabu Kishimoto Attorney at Law, Nakajima Transactional Law Office give us the details.
APRIL 2014
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ADVISORY BOARD H.E Saed Al Awadi
Dr. Adeeb AlAfeefi
CEO, Dubai Exports, Department of Economic Development, Dubai
Director, Foreign Trade & Export Support International Economic Relations Sector, Department of Economic Development, Abu Dhabi
Khalil Saqer Bin Gharib
Lakshmanan Sankaran
Corporate Communications Director, Dubai Customs
Chairman, Regional Banking Commission (MENA)- ICC Paris
Peter Fort
Moin Anwar
CEO, Ras Al Khaimah Free Trade Zone
Trade & Investment Commissioner (Middle East), New South Wales Government, Australia
For more information, please visit www.tradeandexportme.com 6
APRIL 2014
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Updates Regional news
DP World to build new facility in India Nehru Port in Navi Mumbai. The UAE has already invested over AED 1 billion in India in the previous years, the company already operates 5 container ports in India including facilities in Gujarat, Chennai and Kerala, as well as a train service for cargo. India was the leading destination for Dubai exports in the first 9 months of last year, accounting for 21% of its exports, according to data from the Dubai Media Office.
DP World will be expanding its operations in India, with the aims of boosting the trade relationship of both countries. In March the Dubai ports operator announced the ceremonial laying of the foundation stone by India’s minister
of shipping, GK Vasan, for a USD 200 million container terminal it is developing near Mumbai, in a significant mark of progress for the project. DP World will invest, build and operate the new facility at Jawaharlal
Non-oil private sector to drive growth in Bahrain The non-oil private sector is expected to be the key driver of growth for Bahrain and the GCC region, according to chief economist Dr Jarmo Kotilaine. The economist said that he expects Bahrain’s non-oil sector growth to accelerate over 4% with loan growth supported by continued public spending and infrastructure investments. Also with the oil sector growth expected to remain flat, the headline GDP growth is expected at 3% to 3.5%. Moreover, he highlighted that the combination of slow increase in global demand for oil, higher output from other regions, and increased market penetration by non-Opec
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countries will dampen oil prices and limit gains in market share by the GCC countries in the period ahead. Changes in oil earnings have broader implications for domestic economic activity in the GCC countries. There is an opportunity for the private sector to play a more active role, either directly or through public private partnerships, and although overall the elements are in place for this to deliver sustainable development, there need to be standards and structures that enable this, he said. He also remarked that much still needs to be done to develop economic sectors that are not dependent on oil income.
AED 1 billion total value of UAE’s investments in India
UAE visa exemptions for EU countries The UAE Ministry of Foreign Affairs has announced that citizens of 13 European Union member states, who hold ordinary passports, will be exempted from the need to acquire pre-entry visas to the UAE with effect from 22nd March 2014, in implementation of the decision taken by the UAE Cabinet in this regard. The countries are: Poland, Slovenia, Slovakia, Czech Republic, Lithuania, Hungary, Latvia, Estonia, Malta, Cyprus, Croatia, Romania and Bulgaria. As a result of the above decision, citizens of all 28 countries in the EU will be allowed to enter the UAE without having to previously apply for a visa. The Ministry statement added that all necessary measures have been taken by the Ministry of the Interior to implement the decision at all UAE points of entry. The statement went on to say that these exemptions will enhance political relations between the UAE and European Union, will help to further develop economic ties and bilateral trade and will also help to encourage mutual investment, while promoting tourism both to and from these countries.
Updates Regional news
Massive Middle East airport developments underway Keen on building a strong and sustainable future for their airports, the Middle East countries in general and Arabian Gulf states in particular are pumping in billions of Dollars in the race to building new airports or expanding the existing facilities to meet
the demands of future air travelers and expanding fleets of airlines, especially their national carriers. The airport infrastructure investments and associated challenges will come up under spotlight at the 14th edition of Airport Show, the B2B airport
Dubai, UK strengthen retail sector ties The Dubai Chamber of Commerce and Industry welcomed a high-profile trade mission of over 35 British business representatives from the retail sector, led by Lord Livingston, UK’s Minister of State for Trade and Investment. The delegation’s visit was part of the GREAT Week UAE. They met with H.E Hamad Buamim, President and CEO, Dubai Chamber, and representatives of the Retail Business Group operating
under the umbrella of the Chamber, to discuss increased bilateral relations and twoway trade and investment between Dubai and UK’s retail sector. During the meeting the Dubai Chamber CEO discussed that they have been working to strengthen its ties with UK, especially in the retail sector as retail is important for both the countries’ economy adding that London is ranked first globally for retail representation and is
industry event, from May 11th to 13th, which will also see the staging of the 2nd edition of Global Airport Leaders’ Forum (GALF) and Travel Catering Expo (TCE) on its sidelines. A study by the Centre for Asia Pacific Aviation (CAPA) has revealed that the spending on airport construction projects globally is worth over USD 385 billion. It said the Middle East is also undertaking major investment, notably in the Arabian Gulf airports, as the world-changing operations of its main airlines continue to expand rapidly. International Air Transport Association (IATA) said the Middle East continues to be a great success story in the aviation industry. It noted that “about USD 40 billion are being invested in airport infrastructure in the Arabian Gulf alone by far-sighted” governments. It forecasts that by the year 2017 the total passenger numbers are expected to rise to 3.91 billion. The Middle East region will see the strongest international passenger growth with CAGR of 6.3%.
USD 385 billion value of spending on airport construction projects globally closely followed by Dubai thanks to the constant tourist flow to the Emirate. Retail accounts for 13% of Dubai’s GDP and helps to attract millions of tourists from all across the world. UAE’s retail sales are forecast to grow to AED 151 billion by 2015 – a significant portion of which will originate in Dubai. Dubai is undertaking substantial investment in the
retail sector through new developments, in the run up to Expo 2020 which point to the various and numerous future options for global retailers across Dubai. Dubai Chamber has 2,667 British companies under its membership. The UK is ranked Dubai’s 10th largest non-oil trade partner, with imports and exports valuing around AED 27 billion. APRIL 2014
9
Updates Regional news
KSA allocates 108 billion for healthcare in 2014 The healthcare sector of KSA has witnessed positive growth over the last few years and has attributed this to the strong
support from the Saudi government. The Kingdom has allocated SAR 108 billion in its 2014 budget for the development of its
Kuwait 13th fastest growing FDI source of the US During the 29th Anniversary Gala of the American Business Council-Kuwait outgoing US Ambassador to Kuwait, Matthew Tueller said that Kuwait is the 13th fastest growing source of foreign direct investment for the US, and is the 5th largest US export market in the Arab World. The Commercial relations between the two countries have expanded at a significant pace, with trade volumes growing by more than 167% from USD 5.7 billion in 2009 to USD 15.2 billion in 2013. Over the same period, US exports have grown by 33%, he added. This development has translated into more than 13,000 American jobs, and represents better healthcare, infrastructure, and higher education opportunities for Kuwaitis. In the World Bank’s 2014 Doing Business Report, Kuwait ranked 104 out of 189 countries in terms of ease of doing business; this was last among the Gulf nations and a drop in three places from the 2013 rankings. However, according to Tueller, with some modest economic reforms and ramping up programmes for Kuwaiti entrepreneurs and start ups, Kuwait can play a leading role in attracting more FDI. 10
APRIL 2014
health and social services reflecting an 8% increase in comparison to 2013’s budget. This step is set to further boost the country’s flourishing medical devices market, which was valued at SAR 4.1 billion in 2013 and predicted to reach SAR 6 billion by 2018, accounting for almost 50% of the Middle East’s medical devices industry. The 2nd Saudi Health Exhibition and Conference is set to take place from May 19th to 21st 2014 at the Riyadh International Convention and Exhibition Centre, to throw spotlight on the thriving healthcare sector of the country. The event offers the
largest marketplace for regional and international healthcare stakeholders, dealers and suppliers, and service providers to interact and network with key industry players, healthcare professionals and new buyers. Saudi Health 2014 will concurrently host a set of specialised conferences and workshops that will enable participants to gain knowledge, share experiences and network among their peers. Conference topics include nursing, hospital management, medical laboratory, cardiology, nuclear medicine, and the future of healthcare in KSA.
EZW and Dubai Customs launch “matajircom”
Economic Zones World (EZW) and Dubai Customs have announced the launch of the world’s first purpose built smart retail hub named “matajircom”. The initiative, capitalising on the phenomenal growth of e-Commerce, seeks to transcend markets from local to national and national to
international levels. The project is part of EZW’s vision to be the global hub of the upcoming e-economy and Dubai Customs’ focus on becoming the world’s leading facilitator of international trade. Through this inclusive initiative, EZW, in collaboration with Dubai Customs, puts in place an eco-system that brings all players in “e” domain to partner and collaborate with each other in a synergetic and rewarding experience enabling a customer initiate online trade with utmost precision. The e-commerce hub will be located in TechnoPark.
Updates GLOBAL WATCH
IAG Cargo supports booming Indian pharma industry IAG Cargo has announced improvements to its services operating between London Heathrow and the important Indian trade hubs of Hyderabad and Chennai. For the first time, both routes will be serviced by the Boeing 787; one of the most advanced commercial airlines in operation today. Flights on the new craft will commence on 31st March in Hyderabad and from October in Chennai. IAG Cargo has introduced the B787 to help support the booming Indian pharma industry, expected to reach
USD 27 billion in sales by 2016. The aircraft has been optimised for bellyhold with air conditioning in the forward hold, making it ideal for shipping temperature-sensitive pharmaceutical products and will offer an increase in capacity following on from the B767, which it replaces on the Hyderabad route. The announcement follows an increase in flight frequencies to Hyderabad from 6 per week to daily in October 2013, which made IAG Cargo the only European
China sets target growth for 2014 China has set its economic growth target for 2014 at 7.5%, as it looks to continue its efforts to stabilise the economy. The country also set its inflation goal at 3.5%, aimed at keeping prices in check. After years of blistering growth rates, China has seen its rate of expansion slide after a slowdown domestically and in key markets. In 2013, the country grew at a pace of 7.7%, about the same as in 2012. Recent manufacturing data has also indicated a slowdown in activity in the world’s second largest economy. The latest targets were announced by Premier Li Keqiang in his first appearance at China’s annual parliamentary session, the National People’s Congress (NPC).
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operator to offer daily flights on this route. Combined with the greater capacity of the B787, this increase in frequency has led to a 250% increase in capacity on the London-Hyderabad route since this time in 2013.
Technology goods to drive global trade growth According to the latest HSBC Global Connections report, high-tech products will account to more than 25% of the world’s traded good by 2030, higher than the 22% in 2013. In Britain it is expected that technology export goods will drive their trade growth in 15 years, as the United Kingdom supports a more educated workforce. However, HSBC has warned that Britain needs to raise levels of research and development (R&D) investment and improve engagement between educators and businesses if it is to maintain its competitiveness in these
IAG Cargo has also announced that from October 2014 businesses in Chennai will also be able to benefit from the greater flexibility offered by daily flights, as it increases its service from the 6 weekly flights on offer.
sectors. The latest figures show the UK invests 1.77% of GDP in R&D, a figure that has remained broadly constant over the past 20 years, compared to 2.77% in the US, 2.84% in Germany and 2.25% in France. Meanwhile, HSBC also forecasts that by 2030, China would account for more than half the global trade in high-tech goods. China, is home to the world’s thirdbiggest Smart Phone manufacturer, Huawei Technologies, and the biggest PC maker, Lenovo Group and is already ramping up spending on research and development. The HSBC report showed China accounted for 36.5% of high-tech goods exports in 2013, followed by Hong Kong at 13%. The WTO has forecast global goods trade growth of 4.5% in 2014, below the average rate of 5.4% recorded from 1982 to 2012.
Updates GLOBAL WATCH
Business investments in UK rises Investments in UK saw an increase during the last quarter of 2013 as the GDP rose 0.7% in the last three months of the year. The country’s GDP grew 1.8% in 2013, slightly slower and lower than the earlier estimated rate of 1.9% by the Office for National Statistics (ONS). It comes as business investment saw a 2.4% uptick compared with the previous quarter, and surged 8.5% compared with the fourth quarter of 2012. Other factors helping growth in the final quarter of 2013 included a 0.4%
economy has continued into 2014. Britain’s trade position improved in the fourth quarter with the trade deficit narrowing to GBP 6.6 billion from GBP 8.2 billion in the third quarter after exports rose 0.4% but imports fell 0.9%. Over 2013 as a whole export growth of 0.8% outpaced a 0.4% growth in imports. On the output side of the economy, industrial production was revised down to 0.5% growth in Q4 2013. It was dragged lower by the manufacturing sector, where output rose by 0.7%
rise in household spending and a similar contribution from net trade, as the balance between imports and exports improved. Recent business surveys have suggested that the recent upturn in the UK
and not by 0.9% as originally estimated – and by mining and quarrying output which shrank by 1.9%. However there was better news from the construction sector, with fourth-quarter output revised up to show growth of 0.2%, rather than the 0.3% fall in December 2013’s estimate. The services sector, which accounts for more than three-quarters of Britain’s economy, was confirmed at 0.8% growth. However industries that suffered were agriculture, forestry and fishing, where output fell by 0.1%, revised down from a previously estimated 0.5% increase.
Doing Business with Ecuador Key Ecuadorian Products
Ecuadorian roses, considered the best in the world due to their incomparable quality, beauty, and unique characteristics: thick long stems, big buds and vivid colors. Its size and lenghty life in the vase after being cut it’s what makes Ecuadorian roses unique. Ecuador grows roses, gerbera daisies, aster, hypericum, carnations and is the largest exporter of gypsophilas.
Ecuadorian banana, a delicious and nutritious fruit is rich in potassium, calcium, magnesium, phosphorous, iron and vitamins A, B, C and E. Kinds of banana: cavendish, baby banana and red banana. All the banana plantations have international quality standard certifications such as GLOBALGAP, Organic Production Certification and Fair Trade. Largest exporter in the world (25% of the world’s banana supply)
Worldwide, Ecuador ranks third as flower supplier; and first in flower variety Ecuadorian chocolate is among the finest World’s chocolates. It is the heritage of years of close proximity to the traditional cocoa growing of Ecuadorian coastal populations. Part of the success of Ecuadorian chocolates can be rooted in the country’s richness in intermediate products such as nibs, cooca liquor, cocoa cake, butter or powder, all of which contribute to the World’s senses’ surrender to Ecuadorian Chocolate - be it in dark chocolate form, milk chocolate or chocolate with fruit bits.
Ecuadorian broccoli is considerably exposed to the sun light, granting the product a rich green color and a compcat structure - both ensuring an extraordinary green clean cut. There are various ways to export broccoli: fresh, refriterated, frozen, IQF, which can be produced in a traditional and organic way. There are two kinds of broccoli: italian (Brassica Oleracea Italica) which is the most common, and Brassica Oleracea, very similar to cauliflower. This product is available throughout the entire calendar year Ecuadorian hearts of palm are mainly exported in cans, either whole or sliced. There are two varieties of this product: heart of palm thorns (80%) and without thorns (20%). The characteristics of the Ecuadorian soil (high humidity and precipitation, light and moderate temperature) favor the best production of heart of palm. Ecuador ranks number one in the world’s list of heart palm suppliers.
We process around 45.000Mt of cocoa per year
UPCOMING EVENTS… In United Arab Emirates:
• Seminar on Ecuadorian Products and Networking Event, May 2014
In Ecuador:
• “The Business Matchmaking” 14th and 15th May 2014, For more information, please visit www. macrorruedaecuador.ec
* Ecuadorian products obtain most of the international certifications.
For further information and to meet Ecuadorian Companies, please contact us:
Dubai (UAE) Office
Website: www.proecuador.gob.ec E-mail: dubai@proecuador.gob.ec
Unit No 504, 5th Floor Nouf Tower, Port Saeed, Deira P.O BOX: 214957
Tel: +971 4 251 7774 Twitter: @proecuador_uae
Updates GLOBAL WATCH
OECD: Global growth remains sluggish Global growth is likely to remain sluggish as a slowdown in the developing world undercuts gains in Europe and the United States. According to the Organisation for Economic Cooperation and Development (OECD), one-off factors like the harsh winter weather in North America and the US government shutdown mean “growth for the major advanced economies in the first half of 2014 will be somewhat slower than in the second half of 2013.” The underlying trend for those economies, however, continues to be of strengthening growth. Meanwhile, emerging
economies, which now account for over half the world economy, “are experiencing a marked loss of momentum,” the OECD said. If that continues, it is likely to mean that global growth remains only moderate in the near term.” In its World Economic Outlook, the organisation forecasts global growth of 3.6% this 2014, from an estimated 2.7% in 2013. It says the recovery in the United States “is relatively well established,” contrary to what it sees happening in the EU and Japan, where the OECD called for further monetary stimulus. It estimated growth in the United States would slow to
Indian PM pushes for BIMSTEC free trade deal During a meeting of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) held in Napyidaw, Myanmar, India Prime Minister Manmohan Singh called for fast-tracking a free trade pact among the BIMSTEC members and increasing economic cooperation. BIMSTEC is a fairly young regional institution and is comprised of India, Bangladesh, Sri Lanka, Thailand, Myanmar, Bhutan and Nepal. The summit issued a joint declaration on trade, which expressed an intention to “expedite work for conclusion of the Agreement on Trade in Goods by the end of 2014, and to continue its efforts for early finalisation of the Agreement on Services and Investments.”
1st
position of UAE in the HSBC Trade Confidence Index
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1.7% in the first quarter from the previous 3 months on an annualised basis, down from 2.4% in the fourth quarter when exceptionally bad weather weighed on activity. Japanese growth would surge 4.8% in the first quarter from the previous quarter as consumers brought forward purchases ahead of a sales tax increase on April 1st. Turning to Europe, the OECD saw Germany’s quarteron-quarter annualised growth rate reaching 3.7% in the first quarter before slowing to 2.5%. France, the Eurozone’s second biggest economy after Germany, was seen
growing only 0.7% in the first 3 months of the year, rising to 1% in the second quarter. Outside the Eurozone, the British economy was seen growing 3.3% in both the first and second quarters. Turning to emerging market economies, the OECD said some were seeing a marked loss of momentum as capital outflows exposed vulnerabilities in some countries. It noted that Brazil, India, South Africa and Turkey among others have been forced to raise interest rates to keep capital outflows in check. Meanwhile, weak balance sheets in China raised the risk of a sharp slowdown there, the OECD said.
Improving global shipping management Orange Business Services has joined a European Union-sponsored initiative to play a key role in the development of new business intelligence and IT standards that are set to improve management tools used by the shipping industry. A key goal is to help shipping companies take complex decisions on the basis of valid, up-to-date information across all ship management lifecycle processes. As part of the EIS (“Exzellenzinitiative Schiffsmanagement”) initiative, Orange Business Services will be the sole provider for ship-to-shore, vessel-based and land-based communication infrastructure. Orange will implement a cloudbased satellite solution on several vessels run by COLUMBIA Ship
Management, one of the four largest ship managers worldwide. The project will also strengthen the city of Hamburg’s competency in specialised maritime IT systems. The solution provided by Orange comprises the communication hardware of the vessels, the onshore data center as well as the design and development of traffic optimisation tools. The integration of satellite communications with Business VPN, a fully managed IP-based VPN service, with private access to cloud services will enable COLUMBIA Ship Management to benefit from a high-performance, secure solution without relying on the Internet.
Community events calendar
Save the date!
We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences in the region, so you spend less time planning and more time attending. Date
Event
Location
01-02
World Tobacco Middle East
Dubai World Trade Centre
01-03
Occupational Safety and Health Middle East
Abu Dhabi National Exhibition Centre
07-10
Plastivision Arabia
Sharjah Expo Centre
07-10
FABEX SAUDI ARABIA
Riyadh International Exhibition Centre
07-10
METAL & STEEL SAUDI ARABIA
Riyadh International Exhibition Centre
07-11
COMEX
Oman International Exhibition Centre
08-09
Gov Tech Middle East
Abu Dhabi National Exhibition Centre
08-10
Dubai International Wood & Wood Machinery Show
Dubai International Convention & Exhibition Centre
08-10
Annual Investment Meeting
Dubai International Convention & Exhibition Centre
08-10
International Property Show-Dubai
Dubai International Convention & Exhibition Centre
08-10
Dubai Entertainment Amusement & Leisure show
Dubai World Trade Centre
08-10
AIM Congress
Dubai International Convention & Exhibition Centre
09-10
Middle East Air Cargo and Logistics Exhibition & Conference
Abu Dhabi National Exhibition Centre
13-16
SBIE - SAUDI BUILDING & INTERIORS EXHIBITION
Jeddah International Exhibition & Convention Centre
14-16
Water Energy Technology & Environment Exhibition
Dubai International Convention & Exhibition Centre
15-17
Middle East Event Show
Dubai International Convention & Exhibition Centre
22-24
Cityscape Abu Dhabi
Abu Dhabi International Exhibition Centre
22-24
Careers UAE
Dubai World Trade Centre
22-24
Gulf Floor Expo
Abu Dhabi National Exhibition Centre
22-24
JOBEX Muscat
Oman International Exhibition Centre
03-05
Cityscape Jeddah
Jeddah International Exhibition & Convetion Centre
05-08
Arabian Travel Market
Dubai International Convention & Exhibition Centre
11
SAUDI FOOD, HOTEL & HOSPITALITY ARABIA
Jeddah International Exhibition & Convetion Centre
11-13
Airport Show Dubai
Dubai International Convention & Exhibition Centre
11-13
Travel Catering Expo
Dubai International Convention & Exhibition Centre
12-15
Project Qatar
Qatar National Convention Centre
12-15
Qatar Stone Tech
Qatar National Convention Centre
13-14
The Mobile Show Dubai
Dubai International Convention & Exhibition Centre
13-14
M-Enterprises
Dubai International Convention & Exhibition Centre
13-14
M-Commerce
Dubai International Convention & Exhibition Centre
13-14
M-Health
Dubai International Convention & Exhibition Centre
13-14
Cards & Payments Middle East
Dubai International Convention & Exhibition Centre
13-14
Retail Show Middle East
Dubai International Convention & Exhibition Centre
13-14
Future Bank Middle East
Dubai International Convention & Exhibition Centre
13-14
Ecommerce Show Middle East
Dubai International Convention & Exhibition Centre
13-14
Water, Electricity & Power Generation Exhibition
Dhahran International Exhibition Centre
14
PCI Dubai
Al Murooj Rotana Hotel, Dubai UAE
15-16
Going Global Live UK
London, United Kingdom
Get in touch! Would you like to list your event here? Or better still, list your detailed event profile? If yes, then please contact: aparna.arya@cpimediagroup.com
April
May
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15
About town OIL AND GAS
A well-oiled region
The 18th edition of the Arab Oil and Gas Show took place at the Dubai International Convention and Exhibition Centre from 17th to 19th March. We bring you the highlights.
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his biennial event was aimed at promoting trade and business alliances, facilitate meetings and signing of contracts. The show also served as a strategic platform for international oil and gas experts and industry leaders to network and gain insights on the different trends in the energy sector. It also paved way for exporters to meet potential clients in the region. The exhibition showcased products and equipment ranging from cables, chemical solutions, safety equipment, filtering
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system, machinery to data software. It also featured companies from various energy sector related industries such as oil & gas production, research & education, petrochemicals, engineering and design, onshore and offshore drilling, refineries, traders, alternative energy and more. In the Middle East, 56% of the world’s oil reserves and 26% of natural gas deposits can be found. A recent report by the Arab Petroleum Investment Corporation (APICORP) states that from 2012 to 2016 it is expected that the MENA region
would require up USD 252 billion worth of investments on the energy sector. With this being said, the region opens a lot of business opportunities for investors who wants to penetrate this sector in the Arab market. “I think this show is a very important event for the region, this is a great platform for helping us get in touch with the big players in the energy sector in this region. And we are anticipating on meeting representatives from companies in here in Dubai, Abu Dhabi and Oman, and we are interested in doing business with companies not only in the oil and gas sector per se but also to the industries related in this sector,” said Ralph Rösberg, Managing Partner, Rösberg Engineering. Commenting on their participation at the event, Mr. Masoud Ahmadzadeh, Engineer and R&D Director, Jey Oil Refining Company said that, “Through this exhibition we aim to promote all the products and services in the oil and gas sector as well as road and construction. We have had talks with some potential investors from China, India and Iran about doing business with them and possibly some trade partnerships as well. Hopefully in the coming years, the show would be bigger and we’d be able to reach out to more companies.” When asked about their plans after the exhibition, Mr. Masoud said that “We will contact those companies that have shown interest in our products, and have continuous communication with them on possible business negotiations.” A two-day conference on ‘Managing Sustainable Energy’ was also held on the sidelines of the exhibition. The conference was conducted by the UAE Society of Engineers and wherein they held several technical presentations and seminars on current issues that the energy sector is facing, these discussions were delivered by regional leaders and experts. Some of the conference topics that were addressed included ‘Why System Engineering is important for Oil & Gas,’ ‘Energy Management,’ and ‘Risk Management’. In addition, the Arab Oil and Gas show also had a Training and Recruitment platform, which is a human resources forum that is dedicated to the oil and gas industry. It highlighted the increasing need for training, professional development, skill building and employment in the energy sector. The event also put focus on prevailing issues such as the growing reliance on hydrocarbons and the shift towards green economy and sustainability. And with the increasing demand for energy worldwide, the Arab Oil and Gas Show really was as an ideal platform in addressing the energy sector’s investments needs in the MENA region. APRIL 2014
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About town CENTRAL ASIA
Understanding Central Asia Trade and Invest: Central Asia, the first in a series of events focusing on a particular region, was held on the 10th of March at the Oberoi Hotel. The event was organised by Dubai Exports and Trade and Export Middle East and highlighted, as the name suggests, the investment opportunities in the 5 Central Asian countries and how to set up business there. 18
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n March 10th, trade and business leaders who aspire to tap the investments opportunities in the Central Asian region gathered at the Oberoi Hotel, Dubai for Trade and Invest – Central Asia. The event was the first in the series of monthly events that focus on business opportunities in a particular region. It was organised by Trade and Export Middle East in partnership with Dubai Exports, the export arm of Dubai’s Department of Economic Development. The first event brought together government leaders and experts on the Central Asian region which comprised of Kazakhstan, Kyrgyz Republic, Turkmenistan, Tajikistan and Uzbekistan. It aimed at informing traders and exporters on the numerous business prospects that exists in this fast-emerging region. Hydrocarbons, construction, agriculture and Islamic finance being the key drivers in the cooperation between Central Asia and the GCC. Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East opened the conference, and welcomed all the
speakers and participants. She then gave the floor to Dr. Ashraf Mahate, Head, Market Intelligence, Dubai Exports who emceed the conference. Dr. Mahate, through a short video presentation, gave the audience an overview of the achievements and the work that Dubai Exports does in promoting and facilitating trade in the global scene. After which, he introduced Eng. Saed Al Awadi, CEO, Dubai Exports who gave the keynote speech. According to the Eng. Al Awadi, forums like this serve as the best platform in encouraging local companies, which are interested in penetrating new markets. He further added that one important role of Dubai Exports is to spearhead the export drive of Dubai through an innovative portfolio of services to meet the growing demands and challenges in the business community. Another important focus of their activities is reinforcing the capabilities of the local firms to be competitive in the global market. At the same time they also seek to connect local firms to potential markets overseas. Talking about the Central Asia region, Eng. Al Awadi said that all of the countries
FOREIGN DIRECT INVESTMENT INFLOWS (USD MN) - CURRENT PRICES FIXED 2013 EXCHANGE RATES
Source: Euromonitor International
in this region showed an impressive growth over the past decade. Kazakhstan’s exports and imports increased 8 fold over the 10-year period, while imports in Kyrgyzstan grew by two and a half fold. During the same period, imports more than doubled in Tajikistan, Turkmenistan’s imports grew 4 times and in Uzbekistan imports increased by more than 3 times. Eng. Al Awadi emphasised that firms in the UAE can have major presence in Central Asia which offers huge opportunities in varied sectors from oil and gas to food processing and packaging. Reiterating that the region has a healthy appetite in importing goods and are willing to invest more for quality. As he ended his speech, he called on all the participants to capitalise on the opportunities that are available in Central Asia.
Business environment Dr. Mahate then introduced Zouhair Cherrad, Regional Consultant, Euromonitor International for his presentation on the current state of Central Asia’s business environment. During his presentation, Zouhair mentioned that the Turkmen economy relies heavily on oil and gas production, which makes it vulnerable to fluctuations in global commodity prices. In Kyrgyzstan, the economy weakened in 2008 and 2009 and further deteriorated during the political crisis in 2010. But in 2011 it began to recover with support from agriculture and construction. In 2013 the minimum growth in Central Asia was more than 5%, which indicates a good performance. Talking about its relationship with the Middle East region and in UAE in particular, Zouhair mentioned that 2.6% of all imports to Central Asia is from Middle East. Kazakhstan and Turkmenistan imports from Middle East increased at 13.2% and 32% respectively. He also stated that the UAE is still the largest exporter to Kazakhstan. Kazakhstan attracted significant foreign direct investment (FDI) thanks to the country’s strong economic performance and improved business environment as can be seen in the table here. APRIL 2014
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About town CENTRAL ASIA
Following Zouhair’s presentation Prasad Abraham, CEO, Al Hilal Bank–Kazakhstan, presented the audience with an overview of the financial landscape in the Central Asian region, specifically in Kazakhstan. Prasad highlighted the various sectors that contribute to the GDP growth of Kazakhstan, among which is the oil and gas sector which is the largest contributor to the country’s GDP. This contributes 25% to economy and at present a lot of oil reserves are still untapped. Moreover, he emphasised that by the year 2020 they expect that oil production in Kazakhstan will equal UAE’s production today. Another sector that he mentioned was metals and mining which is the 2nd largest contributor to Kazakhstan’s economy, adding 21% to its GDP at USD 41 billion. It is followed by the retail sector which contributes 15% to the GDP at USD 34.8 billion. As he ended his presentation Prasad pointed out that because of the UAE’s relationship with the country, investors from the Emirates have access to more incentives. Kazakhstan also offers favourable tax concessions, free trade zones and more. Panel discussions After two very informative presentations, the floor was opened for the panel discussions. The first session focused on the investment climate in the Central Asian countries. Among the panel members were H.E Kairat Lama Sharif, Ambassador, Embassy of the Republic of Kazakshtan, H.E. Kubanychbek Omuraliev, Consul General, Consulate General of the Kyrgyz Republic, Mr. Mokhir Shagazatov, Counselor on Trade and Investments, Embassy of Uzbekistan, and Zouhair Cherrad, Consulting Research, Euromonitor International. Mr. Shagazatov informed the audience that having a partnership with the UAE is in line with the economic strategy of Uzbekistan, and currently companies from the Emirates are very active in their country. He also added that among the advantages in investing in Uzbekistan is its geographical location, richness in natural resources, well-educated labour force and low-cost of doing business. The country’s population of 30 million is also an indicator that the demand in consumer goods is really high. 20
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For Kyrgyzstan, H.E Kubanychbek Omuraliev pointed out that though their neighbouring countries are rich in oil and gas, the Kyrgyz Republic and Tajikistan accounts for 82% of the water resources in the region, which presents a lot of opportunities for the sectors concerned. They were also ranked 14th in terms of “Ease of Starting a Business” by World Bank’s Ease of Doing Business. In line with this H.E Omuraliev added that they will soon be establishing a one-stop-shop that will enable potential investors to set up their business in Kyrgyzstan in a span of 3 hours to 3 days. Talking about the barriers that companies may face in doing business, such as the turmoil in neighbouring countries, and language
When asked about the logistical hurdles for exporters in the region, Liana mentioned that there are a number of natural and manmade barriers present. Transporting goods may be difficult as the region is surrounded by deserts and mountain ranges, and sometimes there can be the political unrest in the neighbouring countries. To be able to get through these hurdles, finding a supply chain partner who has experience and is knowledgeable of the intricacies in trading in the region is a must. Anthony Mahon, discussed the different export duties that traders must know about while operating in Central Asia. He stated that this region is very focused when it comes to organisation and structure, so it’s imperative
For Kyrgyzstan, H.E Kubanychbek Omuraliev pointed out that though their neighbouring countries are rich in oil and gas, the Kyrgyz Republic and Tajikistan accounts for 82% of the water resources in the region, which presents a lot of opportunities for the sectors concerned.
barriers, H.E Kairat Lama Sharif underscored that Kazakhstan has managed to maintain their economic progress and has not let political crisis in the nearby countries affect their country’s development. In terms of the language barrier he mentioned that currently there are a lot of Kazakh students studying abroad and they are encouraging them to start a career in Kazakhstan so as to help lift any language barriers that foreign investors encounter in the country. The second panel on doing business in Central Asia comprised of Liana Coyne, Director, Coyne Airways, Prasad Abraham, CEO - Kazakhstan, Al Hilal Bank, Anthony Mahon, Director, Tax & Legal, Deloitte, Caspian Region and Zouhair Cherrad from Euromonitor International, and discussed the way and ease of doing business in this region. Liana Coyne talked about the logistics side of doing business in Central Asia. According to her to be able to be successful in trading in the region, one must find the right local partner to help in expanding business there.
that one knows all the requirements and documentations needed in operating a business there. Understanding the regulations here is as crucial as it is in all other markets and one must also keep in mind that the rules and regulations, and requirements in one country may not be the same as those in the other countries. Talking about SMEs in the region, Prasad Abraham said that in Kazakhstan specifically, various incentives are being given to SMEs. There are programmes that the government implements wherein they assign the SME to a particular sector of economy and afterwards helps them establish their business in a specific area which has high demand. Furthermore, he emphasised that in most countries in the Central Asia region, they recognise that SMEs are the real drivers of the economy. A networking lunch followed the conference giving all the participants a chance to connect with all the government leaders and experts from the Central Asia region, and other trade industry peers.
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1. Panel discussion on doing business in Central Asia 2. Eng. Saed Al Awadi, CEO, Dubai Exports, being interviewed
3. Dr. Ashraf Mahate, Head, Market Intelligence, Dubai Exports, moderating the sessions
4. Attendees at the event 5. Lunch at the event
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About town CENTRAL ASIA
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8 6. Zouhair Cherrad, Research Consultant, Eurmonitor International
7. Participants at the event
8. Prasad Abraham, CEO - Kazakhstan, Al Hilal Bank 9. Anthony Mahon, Director, Legal and Tax, Deloitte, explains the rules and regulations
10. Questions from the audience
11. Panel discussion on investment climate in Central Asia
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10
About town CANADA
The Canadian beef advantage Canada Beef Inc. and Trade and Export Middle East magazine organised a Canadian beef tasting session on the sidelines of Gulfood 2014. Robert Serapiglia, Director, Emerging Market Development and Innovation, Canada Beef Inc. shares the details of the event.
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n February 25th, during Gulfood 2014, the positive attributes of the Canadian Beef Advantage were presented to a highly qualified group of procurement decision makers, at the Ritz Carlton, combined with a networking tasting reception, during peak show hours. The Honourable Ross Miller, Consul General for Canada in the UAE, was present to welcome participants to the event, endorse the premium quality of Canadian beef and veal and to introduce Canada Beef Inc. to event participants. Canada Beef Inc. is an independent national organisation representing the research, marketing and promotion of the Canadian cattle, beef and veal industry worldwide. Its efforts to maximise demand for Canadian beef and optimise the value of Canadian beef products is funded by cattle producers and the National Beef Check-Off, which in turn makes it possible to access beef industry market development funds provided by the Government of Canada and the Government of Alberta. Record turnout was enjoyed this year based on past efforts at Gulfood events in driving awareness for Canadian beef and veal products to the UAE. Prime grade Canadian beef was showcased featuring the tenderloin, rib eye and striploin with the addition of an oven roasted, butterflied 4 bone chuck short rib as an alternative merchandising option. With representatives from major hotels in the UAE, such as the Jumeirah Beach Hotel, JW Marriott Marquis and the Millennium Hotel, the event was a major success. 24
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Representatives from the Canadian beef and veal industries were present to discuss potential trade opportunities and provide direct input with respect to Canadian beef and veal production. Carving stations for the rib eye and striploin were available for cooked product sampling and merchandising options were showcased using the tenderloin, featuring premium starter options in the form of beef Carpaccio, sushi rolls, mini-sliders, and gourmet hors d’oeuvres. The Canadian Beef Advantage is a science based systems approach to tell the Canadian story which may be used to niche market Canadian beef and veal products in the premium market sectors when competing against beef and veal from other countries of origin. Creating trade sustainability through country branding of quality attributes is key to success in maintaining and growing market share and profitability.
As an overview the Canadian Beef Advantage is defined as: • Canada being a place where the air, water, and land are all in balance, with an abundance of wide open spaces and fresh clean water perfect for raising cattle. • Canada’s cool climate means the selection of cattle breeds isn’t limited to cattle which tolerate high heat conditions (which can result in potentially reduced carcass quality). • Canada is one of the largest grain producers in the world. High quality feed grains contribute to well-marbled, flavorful and tender meat with firm, white-coloured fat, highly desirable traits recognised by customers in over 100 countries around the world.
• Canada’s cattle producers are committed to sustainability of the land for future generations and to the humane treatment of animals, with demonstrated global leadership in animal health. • Canada’s exacting standards ensure consistently high quality, safe and wholesome beef.
The Canadian Beef Advantage is further defined by the following unique attributes: • Food safety is the most important priority with systems for beef production on farm and at the processing level which are based on the internationally recognised HACCP model. • Canada’s A, AA, AAA and Prime grades are your assurance of the highest quality beef. Grading of beef carcasses is performed in accordance with strict national standards for attributes such as meat and fat color, carcass muscling, texture (firmness), maturity and fat coverage. • Grain-finished beef from superior cattle genetics provide an outstanding eating experience.
The bottom line is that using Canadian beef and veal will improve your profitability through increased consistency, yield and performance. Business development programmes are available from Canada Beef Inc. to help you market and maximise the value of Canadian beef and veal.
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TRADE TALK Interview
Trade –
Abu Dhabi’s engine of growth Dr. Adeeb AlAfeefi, Director, Foreign Trade & Export Support, International Economic Relations Sector, Abu Dhabi Department of Economic Development, speaks to Aparna Shivpuri Arya, in an exclusive interview, about the importance of trade for the capital of UAE.
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conomic diversification is an important pillar of the Economic Vision 2030, for Abu Dhabi. One of the drivers for achieving this diversification is trade. Given Abu Dhabi’s strategic location and excellent logistics infrastructure, trade is a major part of the GDP. So what does the future hold for this Emirate when it comes to promoting trade and investment? Dr. Adeeb gives us the answers in this exclusive interview.
Can you please give us an overview of the trade sector in Abu Dhabi, considering it contributes close to 70% to the GDP? Not surprisingly, oil dominates the Emirate of Abu Dhabi’s exports. This accounts for the extremely high percentage of GDP generated from trade. If 2012 crude oil exports are removed, trade, imports, exports, and re-exports combined, drops to 16.4% of GDP. If only non-oil exports and re-exports 26
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is calculated as a percentage of GDP, the figure is 3.3%. More so, if we only look at the non-oil exports, the figure is 1.7%. We know that these figures are low; the question is by how much. The figures do not include goods produced in the Emirate of Abu Dhabi but exported through ports in other Emirates. It also does not include export of services, such as engineering consulting, financial services, education, or media. We are working with the Statistical Centre-Abu Dhabi (SCAD) to improve our knowledge and in the future to provide better trade figures for the Emirate considering these factors. How is the business climate in Abu Dhabi? It’s good and getting stronger. The leadership has established a path that is achieving results. The Policy Agenda and the Abu Dhabi Economic Vision 2030 has provided direction and a goal for economic development within the Emirate. This is backed by investment in human capital, the development of
the Emirate’s infrastructure, and accelerating entry into the identified long-term strategic growth sectors. I n c r e a s i n g t h e c o m p e t i t ive n e s s through education, providing world-class infrastructure, and establishing the anchor business in the strategic growth sectors is having two outcomes as intended. First, it is attracting investors from within the UAE and from around the world. Second, it is providing Emiratis and others the confidence to begin businesses in the Emirate and grow them. In a recent Foreign Trade & Export Support Programme, 10 of the 38 enrolled were Emirati owners or senior management. These efforts are supported by a variety of government policies and entities that make Abu Dhabi’s business environment increasingly dynamic and globally competitive. Within the Abu Dhabi Department of Economic Development (ADDED), these are facilitating divisions such as Export Support, Investment Services team, the Competitiveness Office-Abu Dhabi (COAD), and Industrial Development Bureau (IDB) to support implementation of the Industrial Strategy. Others entities included the Quality & Conformity Council (QCC) and the Khalifa Fund to support entrepreneurs. The latest effort is the development of the Emirate’s innovation ecosystem, with input from education, innovation policy, as well as economic and enterprise development agencies. I think you will agree with me, that the business climate is good, and only getting better.
What is the role of the Foreign Trade and Export division? The role of the division is summarised in two primary areas. First, we provide input on trade issues for the Emirate along with our peer organisations in other Emirates and the federal ministries. Second, we help Abu Dhabi companies to grow and become more profitable through exporting. The division focuses most of its resources on the second area. It is our perspective that the owners and management of the companies know what
is best for their company. It is the division’s role to provide support, allowing the owners and management to make the best decisions for their companies. The better we can perform our job, the more likely it is that companies will be successful exporters, and this will contribute to the Emirate reaching its Economic Vision 2030 objectives. Abu Dhabi and the UAE will experience a diversification of the economy as companies identify and deliver new products and services to customers outside the UAE. These products and services will be value-added, knowledge-driven economic sectors and product categories. Additionally, employment opportunities will be created as companies grow in these new sectors. This in turn will diversify the economy and reduce the dependency on hydrocarbon exports to grow the economy. Which countries are the main trading partners of Abu Dhabi (both for exports and imports)? Between January 2012 and October 2013, based upon trade data of goods entering the UAE through ports of entry in the Emirate of Abu Dhabi, the largest trading partner (imports + non-oil exports + re-exports) is KSA, followed by the United States, Germany, Japan, and South Korea. Our largest trade surpluses are with Bahrain, Kuwait, Qatar, Singapore and Turkmenistan. Our greatest deficits are with the United States, Japan, South Korea, Germany, and Italy. The United States is the largest importer to the Emirate. The other leading countries importing into Abu Dhabi are KSA, Japan, South Korea, and Germany. These 5 countries accounted for 47% of imports for the period. During the same period the five leading non-oil export markets, through the Emirate’s ports of entry and excluding re-exports, were KSA, China, Singapore, India, and Oman. These 5 markets account for 74% of nonoil exports. The leading re-export markets for Abu Dhabi were Bahrain, KSA, Qatar, Kuwait, and Turkmenistan. Collectively, the 5 markets accounted for 73% of re-exports.
Can you please give us a break down of which commodities are traded the most? We can look at the period January 2012 to October 2013 for non-oil exports, excluding reexports, in two ways. First in absolute terms, it should not be surprising that plastics and products made of plastic is the leading export category. This is followed by products made of copper, such as cable and wiring, steel and iron,steel and iron products, architectural and construction related products, and fifth, machinery. Another perspective is the Q1-Q3 2013 growth rate compared to 2012. 10 categories have had 100% or higher growth. The highest growth of 800% is for tools, implements, cutlery and other goods made of metal. This is followed by salt, plastering materials, lime and cement products (700%); aircraft, spacecraft and parts (217%); products made of iron or steel (169%); rubber and products made of rubber (150%); pharmaceutical products (125%); clothing (117%); ceramics (100%); pearls, precious metals and stones and goods made of them (100%); and industrial textiles (100%). Only products made of iron and steel can be found in both lists. This demonstrates that the industrial base is diversifying in Abu Dhabi and that firms are looking beyond the UAE for market opportunities. You are working towards promoting the non-oil sectors. Which of these sectors offer investment opportunities? Between 2014 and 2030, a range of sectors are identified for growth in the Emirate of Abu Dhabi, offering investors opportunity. These include aviation, aerospace, defense, pharmaceuticals, biotech, life sciences, sustainable technologies, healthcare equipment and services, media, as well as education. Through the end of 2017, the sectors expected to experience the strongest real term growth include manufacturing, transportation and logistics, tourism, financial services, business/professional services, and healthcare. Through a number of government investment, Abu Dhabi has demonstrated its commitment to manufacturing. Depending on how one defines manufacturing, this list APRIL 2014
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includes EMAL and Emirates Steel in metals, Strata in aviation, Caracal and Tuwazan Dynamics in defense, Arkan in construction materials, and Agthia and Al Foah in food & beverage. Now it is up to the Emirati and foreign investors to build upon it and expand the sector. This approach is applied in the other sectors as well. Abu Dhabi has invested significantly in transportation and logistics infrastructure such as roads and highways, expansion of Abu Dhabi International Airport, construction of the Etihad Rail system that will connect to Oman and KSA, Khalifa Port, and the various industrial/investment zones. Abu Dhabi is positioned to be a hub for logistics and transportation companies and the business that they support. The Tourism Development Investment Corporation (TDIC) made significant investment in the tourism sector that created opportunities for the private sector. As Abu Dhabi increases its foot print for both leisure and business travelers attending conferences and exhibitions, provides opportunities for those in the tourism and associated industries. As business and retail customers in Abu Dhabi, the UAE, and the region become more sophisticated, opportunities present themselves in financial services. This includes the sub-sectors of insurance and capital lending. Related to this are opportunities in business/ professional services. Abu Dhabi companies will need support to help assist, foster and manage growth and business activities. Healthcare and education are not only investment opportunities but also social and development priorities for Abu Dhabi government. With investment in institutions such as the Cleveland Clinic-Abu Dhabi and New York University-Abu Dhabi, private companies are identifying unmet gaps in both sectors. What are you doing to support exporters of non-oil sectors? As I mentioned earlier, one of our roles is to support the development of companies to export. We are delivering this through four programme/service areas, which we refer to as the “4Ts”. The first “T” is Export Tatweer (Capabilities). 28
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These are programmes and services that help develop the export skill sets, knowledge, and capabilities of management and staff of companies, including Abu Dhabi Tasdeer. Abu Dhabi Tasdeer is a programme designed for senior level policy and decision makers in a company that currently exports or wants to export. It is a strategic perspective programme. We also do 1 day topic specific workshops, such as logistics, export risk management, finance for exporting, and intellectual property. Second is Export Tawjeeh (Intelligence), which provides companies access to data, information, and intelligence contributing to export decision-making. Third, is Export Tarweej (Connections); which is a programme that provide client companies the opportunity to interact with
development companies typically want to go to markets similar to their home market. Another factor is opportunity. Abu Dhabi is fortunate currently these tend to overlap. There are many opportunities in the GCC and the wider MENA region, which culturally and linguistically are very similar to Abu Dhabi. Additionally, East Africa provides opportunities too, coupled with historical ties between the two regions. Simultaneously, we will continue to keep an eye on the European as well as East and South Asian markets. How can a company get a trade license in Abu Dhabi? What options are available? The Abu Dhabi Business Centre, located at the Abu Dhabi Department of Economic Development’s (ADDED) main branch is the
Through the end of 2017, the sectors expected to experience the strongest real term growth include manufacturing, transportation and logistics, tourism, financial services, business/professional services, and healthcare. buyers from outside the UAE. Most of our programmes in this service area include attendance at trade shows or participation in trade/sales missions. The final “T” is Export Tas’heel (Advocacy) and leads us back to our other role provide of providing input on trade issues for the Emirate working with our peer organisations in other Emirates and the federal ministries. This service area is where we work with other Abu Dhabi government department and agencies, our peer organisations, and the federal ministries to lower or eliminate barriers to trade development.
Which markets offer the most potential for trade for Abu Dhabi? What markets are you exploring at present? We are considering several factors as we assess the markets that should be the focus for Export Support Export Tarweej activities. Although a number of Abu Dhabi companies export to more than 60 or 100 markets, most have little or no export experience. Early stage export
place to begin. The Business Centre issues commercial licenses for the Emirate of Abu Dhabi. Companies that require an industrial license can visit the Abu Dhabi Industrial Development Bureau (IDB). IDB has an office adjacent to the Business Centre.
What does 2014 hold for Abu Dhabi’s export development? In 2014, we plan to expand our programme and service offering as much as possible. In our Export Tatweer area this includes delivering webinars to increase flexibility for attendees. The new Export Tarweej programmes we are seeking to introduce are “In-ward Buyer” programmes. This is where the buyer comes to Abu Dhabi to visit potential suppliers on their site. It is Export Tawjeeh where the greatest change is expected. Before Q4 2014, we intend to open our Export Intelligence Library. This will be a location for Export Support clients to come and conduct research. We also plan to conduct market countries and/or product seminars.
TRADE TALK Logistics
Get the basics right Trade, put simply, is mainly about moving goods from one place to another. Therefore, the importance of a good logistics partner cannot be undermined. Nour Suliman, CEO, DHL Express Middle East and North Africa, speaks to us about the logistics industry in the region.
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o begin with, how do you see the logistics sector in the Middle East? These are undoubtedly exciting times for the region’s logistics industry and I am optimistic about the future growth and development of the industry. When the market is doing well there is an increased demand for our services, whether it is inbound or outbound. As a result there are many opportunities for growth within the sector. For example, sustainability and innovation towards alternative energy sources and environmentally friendly assets such as planes, vans and trucks are a global emerging trend and is something DHL is focusing on. Our suppliers, businesses and customers want speedy geographical coverage where they can traverse the Middle East and subcontinent quickly and efficiently if need be, as well as further afield. Therefore versatility in product and service offering in addition to network power is a vitally important element for the emerging logistics horizon. That’s why we continue to invest in and expand our infrastructure, ensuring DHL’s extensive network and unique connectivity strength. According to you what are the challenges being faced in this region, when it comes to logistics and warehousing? Governments across the region recognise the important role that the logistics industry plays in powering their economies and are generally keen to facilitate inbound and outbound trade as they will only benefit from more effective services. Despite this, some of the challenges 30
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that logistics firms face in the Middle East are the sudden changes to customs clearance processes and procedures. The continued facilitation of local governments is vital to helping the logistics industry develop within the region, along with sustained investment in the infrastructure. Modernising customs procedures as well as further automation and simplifying of data exchange will also help to facilitate quick and efficient international trade. That said, there are still a lot of things that can be done to help the local logistics industry progress, such as the development of a sophisticated address system with street names which is currently in progress. How do you see Expo 2020 impacting trade and as a consequence the logistics sector? The exciting Expo 2020 win will further boost Dubai’s strong economic recovery and help reaffirm the UAE as a leading logistics hub between the East and West. Alongside the economic benefits, an increase in global and regional trade will additionally fuel the growth and development of the logistics sector. With over 25 million visitors expected to attend the Expo, it is vital that the UAE has the right logistics partners in place to deliver a world-class event that is reflective of the Emirates growing international stature. As a leading logistics company, according to you how has technology helped this sector? It is important to be at the forefront of technology
and where possible always be one step ahead. To give examples from DHL - the introduction of our Medical Express and Same Day solutions which offer customers with extremely sensitive shipments temperature controlled packaging as well exceptional international deliveries that can be done on the same day. We are also very keen on developing our solutions in a green and environmentally responsible way that is why we were the first company to sign an MoU with Etihad Rail which would help eliminate some of our trucks on the road as well as recently introducing and currently testing two CNG vans in the UAE.
How do you see companies such as yours contributing to this dynamic and fast paced world of international trade? Overall we are very optimistic and positive about the prospects for trade in the region. As one of the leading logistics provider in the Middle East we continually invest in the region in order to provide first class services for all our customers. This includes the AED 100 million investment for the logistics facility and new country office at Meydan.
Copyright: Erasmus Wolff
our customers. They depend on us and that is the number one priority in our business. Every single person in our organisation knows and understands this policy, and every single one of us goes the extra mile in making sure that we succeed in delivering that service.
ABOUT Nour Suliman is the CEO of DHL Express Middle East and North Africa. Having joined DHL Express more than 30 years ago, Nour was previously the Country Manager for DHL Express Saudi Arabia since 2007. Nour, who holds a Bachelor of Business Administration degree from Cairo University, is the current President of the Egyptian Club in Bahrain and also a member of the British Institute of Management and American Business Association in Egypt.
To give examples from DHL - the introduction of our Medical Express and Same Day solutions which offer customers with extremely sensitive shipments temperature controlled packaging as well exceptional international deliveries that can be done on the same day. In addition, the significant expansions and investments being made in aviation across the region such as DWC-Al Maktoum International Airport project will in turn lead to more facilities, improved technology, increased flights and clearance capabilities. What is the percentage share of the Middle Eastern countries in DHL’s operations? Are there any countries that show more promise than others? DHL’s relationship with the MENA region dates back more than 30 years when DHL was able to identify the prosperous potential for the region and hence in the early 70’s we became the first express logistics company to operate and have a physical presence here. Since then,
the region has experienced vigorous and continuous business growth whereby exports have increased considerably over the past two decades, partly as a result of growing economic openness and because of higher oil production and exports.
Some Middle Eastern countries have been going through a tough time. How has that affected your operations? Any advice to businesses from there? We have never stopped our service. We are still operating in Syria and we were operating in Libya throughout the crisis as well in Yemen and Egypt. We have to continue, if we interrupt our service or halt for any reason we in turn affect not just our business but the business of
What are DHL’s plans for the Middle East? I am confident that logistics will continue to play a fundamental role in the world and in particular the Middle East regardless of how it develops in the future. One example for this forward thinking is the recent Deutsche Post DHL study that was conducted in 2012 – “Delivering Tomorrow: Logistics 2050”. The results were based on the expectations and projections of 42 experts with a wide range of professional backgrounds. The central finding of the study is a comprehensive collection of 5 credible visions of the future that outline how different the world could appear in 2050 in terms of the degree of globalisation, the extent of economic and social development, predominant technology standards and environmental conditions. With regards to DHL in the Middle East we strive to be ahead of the game and this can be seen with our continuous investment in the region and developing our capabilities, for example this month we partnered with Etihad Cargo by providing cargo capacity on DHL’s new 5 times a week service to and from Abu Dhabi, which will result in enhanced transit times, including earlier deliveries from the United States (US) to customers in Abu Dhabi and later pickups for shipments across the Globe. APRIL 2014
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TRADE TALK How to
How to put an export strategy together? Exporting offers a company numerous benefits and opportunities in a global marketplace. The massive restructuring of political boundaries, and the opening of new consumer markets has created unprecedented opportunities for businesses to export. Dr. Ashraf Mahate, Head, Market Intelligence, Dubai Exports, gives us a lowdown on the importance of strategic exporting.
T
here has never been a more opportune time for UAE firms to capitalise on the market shifts and to export. However, exporting needs to be a strategic exercise and not an ad hoc attempt to find overseas buyers. Therefore, it’s very important for a firm to have a welldefined set of goals or objectives that are realistic, to take into account the existing situation of the market, the exporter’s position in the market and competition. The objectives should neither be too ambitious nor too modest. The objectives should not be modified constantly if they are not achieved but additional efforts should be intensified or resources should be redirected effectively to attain the objectives. Once the export goals and objectives have been formulated the exporter needs to understand the export process, namely the feasibility analysis, planning foreign market entry, and implementation. The stages are outlined below: Stage #1: Export feasibility study • Analyse domestic performance • Assess the firm’s capacities • Consider the demographics, social, political, and economic factors of target markets • Confer with international trade experts (e.g. in the fields of marketing, finance, legal, and logistics) • Select target markets 32
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Stage #2: Planning foreign market entry • Conduct market research into the industry sector • Evaluate market research • Decide how the product will be marketed • Comply with target country licensing, standards and certification requirements • Apply for the necessary patent, trademark, and copyright protection • Identify taxes, tariffs, duties, quotas, or other non-tariff trade barriers • Establish pricing strategy • Seek financing Stage #3: Implementation • Determine methods of distribution • Implement marketing plan • Choose sales representatives, or sales methods. • Negotiate sales contract • Produce finished product • Obtain insurance cover • Complete the required paperwork • Package and label the product • Ship the product
The next step Subsequently a firm needs to select the ‘correct’ foreign market for its goods or services. Selecting the correct market can lead to immediate success while an incorrect market cannot only lead to substantial losses but also long term damage to the company’s operations. Therefore, appropriate foreign market
selection is an important challenge for the exporter and cannot be left simply to subjective decision making. In order to select the correct foreign market, an exporter needs to go beyond personal preferences and intuition. The process of market selection requires the exporter to undergo 3 essential steps namely data collection, whereby the most recent information on potential export markets is obtained. Second, the exporter needs to make appropriate comparisons between the different markets. Third, an exporter needs to appreciate that he cannot enter every single market at the same time and needs to prioritise markets based on current resources and market potential. One of the keys to export success is pricing and a common mistake that firms tend to make is that they convert their domestic price into the foreign currency. It is important to remember that foreign products compete with domestically produced goods and therefore price is an important consideration. This is more so the case where consumers are price sensitive. Even though consumers may be willing to pay a premium for quality products, it may not be as large as the home country. Therefore, the importance of accurate export pricing cannot be over-emphasised as any error in this area can lead to either losing foreign orders or the possibility of making losses. Moreover, export pricing can be an important tool for promoting sales and competing in the international arena. The important factors
that determine the foreign price of a good or service are cost, demand and competition. In the case of cost, one needs to ensure that all costs including those incurred in the foreign country are incorporated in the final price. At the same time the exporter needs to be aware that his product or service is competing with other products and services from all over the world. Therefore, the price has to be realistic while ensuring that the exporter receives an adequate return for conducting business in a foreign location. There is no fixed simple formula for successful export pricing. It differs from exporter to exporter depending upon the good or service in question and the level of customer loyalty that it can attract. Firms seeking to export their products or services into foreign markets have a number of different types of agents and distributors. The typical examples are: Commissioned Agents: They act as brokers, who link an exporter’s product with a foreign buyer. Usually, the agent does not fulfill the orders, but passes them to the exporter for acceptance. These agents can sometimes assist with export logistics such as packing, shipping and export documentation. Export Management Companies (EMCs): EMCs act as an exporter’s off-site export department, representing the exporter’s product to potential foreign buyers. The EMC searches for business on behalf of the export firm and takes care of all aspects of the export transaction. Hiring an EMC is often a viable option for smaller exporters who lack the time and expertise to break into foreign markets on their own. An EMC provides a range of services from negotiating export contracts to providing after-sales services. Usually, the EMC’s operate on a commission basis, but some take title to the products they sell and make a profit on the mark-up. Export Trading Companies (ETCs): ETCs perform many of the functions of EMC’s. However, they tend to be demand-driven and transactionoriented, acting as an agent between the buyer and seller. Most ETC’s will take title to your goods for export and will pay your company directly. This arrangement practically eliminates the risks associated with exporting. However, the exporter needs to make sure that appropriate checks are made regarding the ETC. More often than not ETC can be a good source of export opportunity.
ABOUT Dr. Mahate received his doctorate from Cass City University Business School in London (UK). He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He can be reached at ashraf.mahate@dedc.gov.ae.
Cultural differences One important issue that affects a firm’s performance in global markets is cultural differences between countries. More formally, culture is defined as a comprehensive system of behaviour patterns that tend to be learnt as opposed to being inherited. These behaviour patterns differentiate members of a particular society to another. The behaviour patterns can include a range of aspects such as customs, religion, language, material artifacts to those of a psychological nature like attitudes and feelings. Due to the integrated nature of culture it is not always easy to under all its various aspects. Of course, one would not expect a business owner or manager to be a master of all the culture across the globe. Nevertheless, it is important to be aware of the key aspects of culture of a country that a company has selected to target as a potential export market. However, globalisation and increased level of tourism have opened once closed countries thereby making people more aware of different cultures. At the same time the internet, and media have tended to reduce cultural differences. Even though cultural differences have been reduced they nevertheless exist and as a general rule exporters should respect the culture and traditions of the country with which they wish to do business with. The golden rule of business etiquette is to be open-minded, nonjudgmental, and flexible. Packaging Packaging plays a very important role in the customer buying process and therefore the design and art is imperative. It is essential that for packaging to be successful both the technology and the design work well
so as to adequately deal with the transport, warehousing, logistics, sale, and end use. At the same time one needs to bear in mind that packaging is also regulated because it comes into close contact with the final product.
Innovation Any SME that wants to grow and expand into global markets needs to be innovative so as to develop the next generation of products or services, processes, promotional methods and prices that entice an ever growing consumer base. The key to any innovation has to be through creating a culture that fosters and rewards creativity. This culture often requires a fundamental change in the risk attitude of the company and thereby allowing a certain level of risk-taking mentality. As such the business should not totally gamble its future but should allow a culture of risk-taking without the fear of failure or reprisal. A creative culture does not exist in a vacuum and requires creative staff. The firm needs to invest in upgrading the skills and knowledge of its staff so that they are able to reassess their products, processes, prices and promotion towards developing creative and innovative solutions. The firm needs to foster collaboration so that different people with differing viewpoints and experiences tackle a common problem as a team. Through collaboration the firm will arrive at more creative and innovative solution to problems and challenges. After all, innovation is a dynamic process where different thinking through a situation or problem needs to be explored so as to arrive at the best solution. For the long term success of a firm it needs to be very clear as to what it seeks to achieve from exporting and how it plans to do carry this out. APRIL 2014
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TRADE TALK Finance
The rise of the RMB in global trade I
Michael Vrontamitis, Head of Product Management, Transaction Banking, Standard Chartered Bank, explains the importance of the Renminbi and how its rise cannot be ignored.
n the meteoric rise of the Renminbi (RMB) as a global currency, if 2012 was the year of the ‘Why’, then 2013 was the year of the ‘How’, as global corporates embraced the Chinese currency in earnest. This year, in 2014, we see the spotlight cast particularly on local Chinese corporates which, surprisingly perhaps to some, are lagging behind their international counterparts when it comes to switching to Renminbi for trade and payments. With the Renminbi entering the Top 10 of global payment currencies for the first time last year, offshore multinationals no longer need persuasion to include it in their basket of currencies. Further, in November, SWIFT announced that the Renminbi overtook the Euro to become the second-most widely used currency in trade finance. 34
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Renminbi-denominated trade finance is on an unmistakable uptrend, and one not to be ignored. We expect RMB trade settlement volumes to double to 28% of China’s total trade by 2020 from 14% in Q2-2013. We expect the RMB’s share of global payments to reach 3% by then, boosting its ranking to 4th. Moving the Chinese currency around the world is now nearly as easy as moving the USD or the Euro. As, one by one, regulatory restrictions have been lifted, and offshore liquidity has deepened, moving the Chinese currency around the world is now nearly as easy as moving the USD or the Euro. Today, Chinabased companies can manage their liquidity and working capital on a regional or global basis, and multinationals can include Chinabased accounts in their global solutions.
In its latest move to open up capital flows with the rest of the world, the Chinese government has said companies based in the country can send dividends and loans to their offshore units without lengthy approvals. This makes Chinese corporate debt more attractive, as it assures investors that funds can be transferred quickly to bond-issuing offshore entities that run into financial difficulty. The gradual liberalisation of foreign exchange in China, resulting in greater volatility in the onshore Renminbi has added to the argument for China-based corporates to switch from the USD to Renminbi invoicing, in order to reduce their foreign exchange exposure in China. A number of multinationals have already made the move to Renminbi invoicing with China, shifting their foreign exchange exposure from onshore to offshore.
A mindset change among local companies in China is the crucial next step. Growth in Renminbi as an international trading currency has been rapid so far, with redenomination set to reach 15% of China’s trade by 2015. This will be driven by business fundamentals, as corporates switch to Renminbi in order to gain more control of their foreign exchange risk, save on cost and build their competitive advantage. However, a mindset change among local companies in China is the crucial next step if the Renminbi is going to reach the redenomination rate of 30% of China’s trade that many predict by 2020 – a doubling of today’s level. Raising awareness among these companies about the benefits of switching to Renminbi invoicing will be the big focus point for 2014. Chinese corporates need to examine the underlying input cost of their entire supply chain and ask themselves whether settling exclusively in USD remains the most efficient option. For a growing number, the answer is likely to be ‘No’. The projected rise in onshore sales, as Chinese domestic consumption grows, should be a factor in these considerations, and will likely help persuade more Chinese companies to make the move into Renminbi. With trade between China and the rest of Asia growing, and de-regulation continuing, the argument
ABOUT Michael Vrontamitis heads up Product Management East, Transaction Banking at Standard Chartered, covering our suite of Cash Management, Trade Finance, Securities Services and Clearing solutions for Wholesale Banking clients in Asia. Michael is also the chairperson of SWIFT Offshore CNY Best Practice Working Group – Cash & Trade Group. He joined Standard Chartered in 1995 and has worked in Hong Kong, London and Singapore across a number of businesses.
Growth in Renminbi as an international trading currency has been rapid so far, with redenomination set to reach 15% of China’s trade by 2015. This will be driven by business fundamentals, as corporates switch to Renminbi in order to gain more control of their foreign exchange risk, save on cost and build their competitive advantage. will build further for settling more trade in Renminbi as opposed to the USD. The Renminbi is likely to become the world’s fourth most used trading currency by 2020 but this won’t happen automatically. Sooner or later, local Chinese corporates will have to adapt their treasury management processes to make the most of the new reality. At the practical level, switching to settling in Renminbi should pose no difficulty for
these companies, as a full complement of global banking services now exists to help businesses manage the Renminbi as they would any other currency. What remains is a shift in thinking, away from the USD-denominated overseas trading that mainland Chinese corporates have been accustomed to since the early 1990s, and this is likely to take time. There is a role for both banks and Chinese regulators in educating these corporates, and encouraging them to consider the potential benefits of switching to Renminbi. We believe the Renminbi is likely to become the world’s fourth most used trading currency by 2020 – behind the USD, the Euro and the British Pound – but this won’t happen automatically. To reach its full potential as a global trading currency, the Renminbi will need to pass a series of tipping points. Further out, focus is likely to shift to the settlement of commodities trading, particularly oil trading, but this year attention needs to be firmly on Chinese mainland corporates. Their actions will be crucial in propelling the Renminbi into its next big phase of internationalisation. APRIL 2014
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TRADE TALK Finance
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A bright financial future? The world of finance is a dynamic place with new developments every now and then. How do these developments, such as Basel III, impact trade? Aparna Shivpuri Arya speaks to Dominic Broom, Head of Sales & Relationship Management, EMEA Treasury Services, BNY Mellon, to pick his brain on this issue and more.
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he MENA region has been dealing with political instability for quite some time. This situation has also impacted the economic situation in these countries. Talking about this, Dominic said, “The MENA region is one of the least integrated in the world – it accounts for 1.8% of the world’s non-oil trade, according to a recent World Bank report1. This is significantly lower than the region’s share of the world population which is 5.5% and its share of the world’s gross domestic product which is 3.9%2.” However, according to him there are positive trends emerging such as the Aid for Trade Initiative for Arab States which was launched last year. This initiative - which is backed by the UN, the Islamic Development Bank Group and the League of Arab States - seeks to build and operate trade-related physical infrastructure and trade corridors in the region3.
“We are seeing evidence of more companies in the Middle East expanding across the region and beyond. McKinsey predicts that, by 2020, bilateral trade flows between the Middle East and China could reach between USD 350 billion and USD 500 billion, with the Gulf states accounting for the lion’s share4. The banking sector is responding to (and benefitting from) this growth. Just over a year ago the Commercial Bank of Dubai launched a banking platform for Chinese companies in the region, which includes Renminbi accounts, Chinese language documentation and Chinesespeaking relationship managers5. We are also seeing a growing number of subsidiaries of UAE banks throughout the Middle East and Africa, and some banks – such as National Bank of Abu Dhabi – have a global network of branches in Asia, Europe and the United States, where they offer a range of payments solutions and treasury services6,” he remarked.
Dominic also pointed out that the political instability has mainly had an impact on trade in Syria and Libya7. In the case of Libya this is largely due to the disruption in oil production and exports. However, trade in other countries in the Arab Spring such as Egypt has been less affected as countries still need to trade food and energy supplies regardless of the political and economic climate8. The total import and export figures for goods and services in countries such as Jordan and Lebanon have also remained strong, despite declining growth figures9. The International Monetary Fund (IMF) expects the Middle East, North Africa, Afghanistan and Pakistan to grow faster this year (3.3%) compared to 2013 (2.4%) and it expects growth to accelerate to 4.8% in 201510. This economic growth is likely to translate into stronger trade growth. In this scenario, how do regulations, such as Basel III impact countries and organisations?
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TRADE TALK Finance
Dominic elaborated on this and said, “The new liquidity obligations driven by Basel III will have a significant impact on the way banks and other financial institutions do business. In response to these obligations, they may need to make changes to their account structures, intraday liquidity flows and how they manage their overdraft limits.” He pointed out that the challenge for companies is to shift the focus from reducing and controlling the flow of cash into and out of numerous bank accounts, to managing intraday liquidity positions; reducing reliance on intraday credit lines; and achieving intraday transparency with real-time cash position monitoring. This is particularly relevant for the financial services industry which is facing more stringent intraday liquidity management requirements. One way these requirements can be achieved is by gaining a better understanding of their payment behaviour through analysing historic data. It’s all about having the right cash, in the right place, at the right time. M ov i ng on to a n o ther financial development, I wanted to know about open account trading and it’s impact on trade. To this Dominic remarked, “Despite the increasing global popularity of open account trading, document-based forms of settlement (such as the letter of credit, or LC) remain the preferred method of payment for many banks and corporations in the Middle East. The LC gives companies control over their trade process and reassurance that their credit is supported. The need, particularly for banks, to mitigate risk has been heightened by the global financial crisis and recent political unrest in the region.” He further added, “However, in line with global trends, a growing number of corporates are embracing open account trade in part for its efficiency (in terms of cost and time), transparency and flexibility. In response to this, banks are investing in advanced electronic capabilities to meet their growing multicurrency needs. One example of where we are seeing more corporates using open account is the Jebel Ali Free Zone in Dubai.” It’s difficult to determine what impact corporates moving from LC to open account 38
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ABOUT Dominic Broom is Head of Sales & Relationship Management, Treasury Services EMEA. He took on this role in August 2011 and is responsible for the company’s Cash Management, Liquidity Management, FX, Trade Finance and Credit solutions in the EMEA region. Dominic began his career with Chase Manhattan Bank, on their MBA training programme, in 1994, after which he held various associate positions in the Client Management and Global Trade & Advisory teams, in both London and New York. Dominic moved to Warburg Dillon Read in London in 1997. After a period working for GE Capital’s European Equipment Finance division, Dominic moved to ABN AMRO in Amsterdam in 2003, as Director of Trade Sales Benelux, before returning to London in 2005 as Corporate Director. Dominic holds an Honours Law Degree, from the University of London and a diploma in Advanced French from the University Catholique in Lyon, France.
trading will have on trade flows. It involves companies changing their method, not their volume of payments. Other factors such as economic growth and the liberalisation of trade policies will have more of an impact on trade flows. As we came to the end of our conversation, I wanted his opinion on the global trade scenario and what does 2014 hold for countries. Dominic quoted his chief economist, “Despite recent concerns about financial risks in China and stresses in some other emerging countries, we continue to expect stronger global economic growth in 2014, with global real GDP growth likely to accelerate by one-half to three-quarters of 1% above the sluggish pace near 3% 2012 and 2013. The outlook for the US economy is one of the keys to the global economic outlook. We believe that there was a transition in mid-2013 from 4 years of about 2% growth to a new cyclical trend of 3 or more years of about 3% growth11.” Dominic concluded by stating that while It’s difficult to make a direct comparison between estimates of economic growth and estimates in the growth of trade volumes, there is a positive correlation. When the global economy picks up, trade figures tend to rise faster than gross domestic product figures. The World Trade Organisation for example estimates the volume of the trade in goods will grow by between 4.0% to 4.5% in 2014, compared to less than 2.5% in 201312.
This definitely gives all of us a reason to be hopeful and look forward to the growth of trade and investment globally and in the region.
*The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury, investment advice, or any other business or legal advice, and it should not be relied upon as such.
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6 7
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https://openknowledge.worldbank.org/bitstream/ handle/10986/12220/NonAsciiFileName0.pdf?sequence=1 https://openknowledge.worldbank.org/bitstream/ handle/10986/12220/NonAsciiFileName0.pdf?sequence=1 http://www.itfc-idb.org/content/itfc-announces%E2%80%9Caid-trade-aft%E2%80%9D-arab-statesinitiative http://www.china.org.cn/opinion/2014-01/07/ content_31113240_2.htm http://english.mubasher.info/DFM/news/2214684/ Commercial-Bank-of-Dubai-CBD-launches-comprehensiveChinese-banking-services http://www.nbad.com/en/Pages/nbad-global.aspx http://unctadstat.unctad.org/TableViewer/tableView.aspx & http://unctadstat.unctad.org/TableViewer/tableView. aspx?ReportId=25116 http://unctadstat.unctad.org/TableViewer/tableView.aspx & http://unctadstat.unctad.org/TableViewer/tableView. aspx?ReportId=25116
http://unctadstat.unctad.org/TableViewer/tableView.aspx & http://unctadstat.unctad.org/TableViewer/tableView. aspx?ReportId=25116 10 http://www.imf.org/external/pubs/ft/weo/2014/ update/01/index.htm 11 http://www.bnymellon.com/foresight/pdf/update.pdf 12 http://www.wto.org/english/news_e/spra_e/spra8_e.htm 9
TRADE TALK sector watch
Investing in healthcare
Jayant Singh, Associate Director, Healthcare Practice, Middle East, North Africa and South Asia, Frost & Sullivan, elaborates on the verticals in the healthcare sector that offer investment potential. 40
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T
he GCC Healthcare Market In 2011, the total expenditure on healthcare in the Gulf Co-operation Council (GCC) countries was in the range of USD 44 billion to USD 45 billion and it is projected to grow at approximately 15-16% until 2017-18. The major determinants/ drivers for growth are the population, life expectancy, and the huge amount of investments in healthcare infrastructure creation, funded by both the government and the private sector. The healthcare market in the GCC is likely to triple by 2018 and is likely to reach around USD 133 billion. However, the growth will vary from country to country. For example, Kuwait is likely to grow at a much higher pace than the others. However, the Kingdom of Saudi Arabia (KSA) will maintain its lead position as the biggest healthcare market in the GCC. Healthcare infrastructure in the GCC Hospitals Healthcare infrastructure in the GCC is almost on par with the developed world in terms of quality. However, in terms of indicators like beds per thousand population
ABOUT Jayant Singh is Associate Director, Healthcare Practice, Middle East, North Africa and South Asia, Frost & Sullivan. Jayant has over 15 years of experience in the healthcare sphere with specific focus in areas like medical technologies, pharmaceuticals and healthcare delivery systems
and clinics per thousand population, the region lags behind the western world. KSA is the biggest contributor to the total bed strength, followed by the United Arab Emirates (UAE). However, in terms of beds to population ratio, Qatar takes the lead followed by KSA.
Physicians One of the biggest bottlenecks of the GCC healthcare market is the availability of qualified physicians.To fulfill this requirement , the region is heavily dependent upon either the western world or countries like India. The total physician strength in the region was estimated to be around 85,000 in 2013
Exhibit 1: Health Expenditure Forecast, GCC, 2010-2018
Exhibit 2: Total Hospital Beds and Projections, GCC, 2010-2018
Source: Frost & Sullivan Analysis
Exhibit 3: Percent of Hospitals by Country
and is expected to increase by another 6,000-7,000 by the end of 2018. Countries like the KSA are in the process of strengthening their medical education system to achieve the twin objectives of fulfilling future requirement of physicians and gradually, reduce its dependence on imported clinical talent.
Investment Potential in the Healthcare Sector in the GCC The GCC countries have been attracting a lot of investment, both of domestic and foreign origin. The healthcare market is no exception to this phenomenon and is witnessing significant investments that can be primarily categorised as the following: • Investment driven by respective governments in the areas of improving healthcare delivery services is giving a boost to local manufacturing of pharmaceutical and medical technology products. This is further complemented by private investment of domestic origin in similar areas. APRIL 2014
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TRADE TALK sector watch
• Foreign direct investment, primarily in the areas of healthcare delivery and establishing local offices, and joint ventures in the areas of pharmaceutical and medical technologies. The primary objective of investing in the pharmaceutical and medical technology segments is to increase reach and market access.
A report prepared by EU GCC Invest throws up some interesting facts in terms of the plans of various European companies for the GCC countries. A significant number of companies interviewed in this report either have a production facility in the GCC or have plans to do the same. In a similar fashion, companies were asked about their plans related to investments in production facilities in the GCC. A shade lesser than half of the companies were either actively considering to invest or are in advanced stage of planning for the same. Investments within the healthcare sector in the GCC are primarily tilted towards the healthcare delivery services. However, the pharmaceutical segment is also attracting a lot of investments, either as stand-alone facilities or through multinational companies enhancing their presence with a joint venture or licensing arrangements. Investment potential in pharmaceutical sector in the GCC T h e G CC P h a r m a c e u t i c a l M a rke t : Salient Features • T h e G CC p h a r m a c e u t i c a l m a rke t represents an aggregate of the 6 GCC countries, namely KSA, UAE, Oman, Bahrain, Qatar, and Kuwait. • With an annual growth rate of 5% from the year before, the GCC pharmaceutical market was worth USD 5.57 billion in 2010. The market is expected to grow at a Compound Annual Growth Rate (CAGR) of 6.7% from 2010 to 2020 to reach USD 10.72 billion in 2020. 42
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Have you invested in a production facility in GCC?
40.70%
59.30%
Yes No
Source: EU GCC Invest Report 2013
Are you planning to invest in a production facility in short to medium term?
3% 27.30% 15.20%
54.50%
No Currently Assessing Yes No
Source: EU GCC Invest Report 2013
• The KSA pharmaceutical market is one of the largest in the Middle East. It represented 51% of the GCC pharmaceutical market with a size of USD 2.80 billion in 2010. The UAE pharmaceutical market had a size of USD 1.90 billion in 2010 and is the second largest in the GCC. • The GCC pharmaceutical market largely depends on imports. Currently, imports account for 80% of the total pharmaceutical market. The GCC pharmaceutical market is primarily import-driven and comprises mainly branded and patented products, with penetration of generic products being abysmally low. This, in turn, is creating cost pressures on the healthcare
system. This phenomenon has created a fertile ground for local manufacturing of pharmaceutical products.
Local Manufacturing of Pharmaceutical Products The local manufacturing accounts for almost 12-13% of the total domestic consumption of pharmaceutical products within the GCC countries. This is expected to increase further due to: • Increasing cost pressure on the health system on account of costly branded medicines. • Drive by governments of respective countries to give an impetus to local manufacturing in order to achieve the twin goals of self-sufficiency and reduction in costs.
9%
38%
Procurement cost
Cycle time
4
weeks
Implementation
Contract Spend (February 2014) DM Phase 1 AED 68,000 Princess Tower AED 67,000 Central Stores AED 69,000 DT Master Community AED 74,000
Back
Order Approval 800000009
1007CC - Greens Common
Arabian Ranches AED 68,000
Order Summary
0k
5k
Ordered By
Committed
Under Review
Item Details
Rob Lawson
March Date 65k 70k 10k 15k 20k 25k 30k 35k 40k 45k 50k 55k 60k 75k15, 2013 Amount AED 11,659.53 AED
2:47 PM
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Exhibit 4: Current and Required Physicians, GCC, 2010-2018
Source: Frost & Sullivan Analysis
Exhibit 5: Key Domestic Manufacturers in the GCC SPIMACO
Saudi Arabia
Jamjoom Pharma
Saudi Arabia
Al Jazeera Pharmaceuticals Industries
Saudi Arabia
Tabuk Pharmaceuticals
Saudi Arabia
Saudi Arabian Japanese Pharmaceutical (SAJA)
Saudi Arabia
Julphar
United Arab Emirates
Kuwait Saudi Pharmaceutical Industries Company
Kuwait
Nour Al Yasmin Pharmaceutical Co.
Kuwait
Qatar Pharma
Qatar
Oman Pharmaceutical Products Company
Oman
National Pharmaceutical Industries Company
Oman
Challenges Despite a strong market and high growth, there are challenges abound in terms of local manufacturing, which range from lack of skilled manpower to lack of source of raw materials.
Source: Frost & Sullivan Analysis
Exhibit 6: Foreign Tie-ups of Pharmaceutical companies within the GCC
• •
Foreign Partner
GCC Partner
Activity
GlaxoSmithKline, UK
Saudi Import Company
Shareholding company for supply medicine
Astella and Daiichi-Sakyo, Japan
Tamer Group, Jeddah
Produce generics and licensed products
Cipla, India
Cipladwa Medical, Services Co., KSA
Supply medicine of SR1 billion to the Saudi National Guard
Intas Biopharmaceuticals (IBPL), India
GCC Countries
Plan to supply pharmaceutical products to GCC
Beximco Pharmaceuticals, Bangladesh
GCC Countries
Approved to sell medicine in GCC
Major pharmaceutical players such as GSK, Abbot, Novartis, Astra Zeneca, Johnson & Johnson, and Pfizer have opened offices in GCC looking for opportunities. KSA, Qatar, Kuwait, Bahrain, and UAE free zones allow 100 percent ownership in this sector.
Source: Frost & Sullivan Analysis
• Local production can also cater to the nearby markets of North Africa and other Middle East countries.
The above table depicts that the KSA has taken a lead in terms of local manufacturing and the progressive policies of the country are aiding it further. In the next 5-7 years, the KSA is likely to emerge as the hub for local manufacturing of 44
APRIL 2014
Sensing opportunity in the pharmaceutical segment, many multinational companies have enhanced their presence in the region through joint ventures. T h i s t re n d i s ex p e c te d to ga i n momentum, as multinational companies would want to have a share of the opportunity arising due to the local manufacturing possibilities. However, the role of the foreign partner is more prominent in areas of technology transfer and providing the necessary skill sets to ramp up manufacturing operations.
pharmaceutical products that will not only cater to domestic markets but also serve the needs of the export markets in the vicinity. However, the products manufactured within these regions are restricted to small, simple molecules. The companies have a long way to go up the value chain in terms of having capabilities in the large complex molecules and the biotechnology products segment.
The major challenges for local manufacturing can be listed as: • Lack of qualified manpower • 100% dependence on import of the source of raw material • Capital-intensive nature of the industry and longer payback periods • A perceived positive bias towards products imported from the developed world
Conclusion A strong local market within the GCC countries, along with the possibility of exports to nearby countries, makes the pharmaceutical segment an attractive investment opportunity. However, the segment is in an evolving stage and in the short to mid-term will face challenges like ability to attract qualified manpower, tying up for technology, and sourcing of raw materials. This is not a unique phenomenon and is very common when the industry is at the bottom of the learning curve. However, progressive policies of the respective governments coupled with flow of funds are likely to surmount these challenges and it can be safely concluded that local manufacturing in the pharmaceutical segments is going to be an attractive investment opportunity.
JAPAN
JAPAN
BILATERAL TRADE
legal regulations
APRIL 2014
45
Country focus BILATERAL TRADE
Japan - GCC relations With its rapidly growing economy, Asia is becoming increasingly powerful in the world economy. Japan, plays an important role as a “bridge nation” connecting Asia and the world, contribute to Asia’s growth. We, along with Japan External Trade Organisation (JETRO) take a look at the bilateral trade relations between the GCC and Japan.
J
apan, as we all know, is a huge market with one of the world’s largest economies. In addition, sectors with large growth potential exist in Japan, including health and tourism markets. Therefore it’s not surprising that trade between Japan and the GCC countries has only grown from strength to strength.
Bilateral trade The value of two-way trade between Japan and the GCC countries grew 12.3% in 2012 to USD 182.13 billion, compared to USD 162.23billion in 2011. Japan’s exports to the GCC countries grew 27.1% to USD 24.94 billion in 2012 from USD 19.63 billion in the previous year, and imports 10.2% to USD 157.18 billion from USD 142.60 billion. The high growth in Japan’s exports to the GCC countries was mainly attributed to the reconstruction and rehabilitation of vehicle and vehicle parts production facilities in the earthquake and tsunami hit areas of North-East Japan, and partly to the gradual strengthening of GCC economies that were earlier weakened by the bad effects of the global financial crisis of 2008. KSA remained as Japan’s top supplier of crude oils in 2012, with a value of USD 50.3 billion, and a share of 32.9% of the total crude oil imports of Japan from over the world. The UAE followed at the 2nd position with a value of USD 33.4 billion, and a share of 21.9%. The GCC countries jointly supplied 75.7% of Japan’s total crude oil requirements in 2012, cementing the GCC block’s position as Japan’s crucial partner in her energy security. Other major 46
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suppliers of crude oils to Japan were Qatar, Kuwait, Iran, Russia, Indonesia and Oman. KSA was Japan’s largest trading partner among the GCC countries and the top supplier of crude oils to Japan. Japan – KSA trade increased 10.4% to USD 62.99 billion in
USD 44 billion compared to the previous year. Motor vehicles have been Japan’s dominant export commodity to the UAE, covering more than 50% of the total exports. Other major exports are general and electrical machinery, IT and communication equipment, iron and
Japan- GCC total trade – by country (value in million USD)
Country
2008
2009
2010
2011
2012
G. Rate %
Share %
KSA
58,740.1
34,582.8
42,374.0
57,078.9
62,990.3
10.36
34.59
UAE
57,645.9
29,205.1
36,617.9
50,334.6
52,941.0
5.2
29.07
Qatar
28,453.5
17,552.6
22,842.7
31,177.9
37,358.0
19.82
20.51
Kuwait
17,335.6
10,233.2
11,707.7
14,496.6
17,100.3
17.96
9.39
Oman
9,513.2
5,671.4
7,623.4
7,951.6
10,456.3
31.50
5.74
Bahrain Total
1,360.3
961.5
1,257.5
1,195.9
1,282.7
7.26
0.70
173,048.6
98,206.6
122,423.2
162,235.5
182,128.6
12.26
100.00
Source: Japan Customs, compiled by World Trade Atlas. (Discrepancies, if any, in the growth rate are due to rounding).
2012, mainly due to a major increase in Japan’s motor vehicle exports to KSA, and partly due to an increase in the price and volume of Japan’s crude oil imports from KSA. Apart from oil supplies, closer relations in terms of Japanese expertise, investment and joint projects, by KSA, should be pursued in the following areas — clean energy technology, water resource development, civilian nuclear technology and solar technology UAE Japan’s trade with the UAE has been healthy in recent years barring short period of global financial crisis and the Great East Japan Earthquake and the Tsunami. Trade is now catching up and reaching the record set in 2008. Japan’s exports in 2012 grew by 18.7% to USD 8.9 billion and imports by 2.6% to
steel products and materials, rubber, plastic and textile products. Crude oils dominate Japan’s imports from the UAE, while import of petroleum gases gains strength. Japan imports around 25% of her total fuel oil needs from the UAE. Aluminium, along with precious metals and diamonds have been some of the other prominent commodities of Japan’s imports from the UAE, while small quantities of metal scraps, seafood and textile products are also been imported.
DTAA Japan and the UAE signed the Convention between Japan and the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income in Dubai. This Convention is the first tax convention concluded between
Japan and the UAE, based on the recognition of an increasingly close economic relationship between the two countries. This Convention is to clarify the taxation in respect of investment and economic activities carried on in the partner country with a view to enhance further mutual investment and economic exchanges between the two countries. QATAR Qatar is the largest supplier of petroleum gases to Japan and its trade with the country surged 19.82% to USD 37.4 billion in 2012
ABOUT JETRO operates one-stop business support centers called ‘Invest Japan Business Support Centers (IBSCs) in major business areas in Japan, and these centers offer foreign businesses everything they need to begin investing or doing business in Japan.
& Gas Exploration Corporation, it seems that the focus has now shifted to areas other than oil & gas, especially after the achievement of historic 77 million tonnes’ production capacity of LNG in December 2010.
Major products of trade between Japan and the GCC countries (value in USD million)
Japan’s Exports
2012
2013
Share(2013)
Motor Vehicles
14,660.70
13,600.50
60.7
General Machinery
3,388.40
2,778.60
12.4
Iron/Steel Products
1,435.30
1,199.00
5.4
Rubber (Mostly Tires)
1,175.10
1,067.50
4.8
Electrical Machinery
1,177.00
971.50
4.3
Iron and Steel
919.80
705.20
3.2
Mineral Fuels
155,578.70
147,201.00
98.9
Crude oils (included in the mineral fuels)
115,804.60
111,494.20
75.7
Petroleum gases (included in mineral fuels)
31,976.00
29,659.90
20.2
Light oils (included in mineral fuels)
7,816.20
6,046.80
4.1
Japan’s Imports
Oman Japan’s trade with the Sultanate of Oman grew 31.5%, to USD 10.5 billion in 2012, the highest growth in Japan’s trade with any other GCC country. This steep rise in the two-way trade was attributed mainly to an increase in the volume of crude oil imports from Oman, and partly to increases in Japan’s exports of motor vehicles and iron and steel materials to that country.
Bahrain The value of Japan’s trade with Bahrain increased 7.26% to USD 1.3 billion in 2012, in spite of a decline in Japan’s import of mineral fuels from that country. The increase in trade was fuelled by increased export of motor vehicles, which more than doubled in 2012, compared to the previous year. The main exports of the Kingdom of Bahrain to Japan are: building columns and bars, powder, sheets, strips and rolls of aluminium, products of fiberglass for transportation equipment, lobster, scrap, iron and steel, copper scrap, clothing. While the main Bahraini imports from Japan are: cars, trucks, cranes, spare parts, parts of electrical circuits, electronic devices, external drives, vinyl chloride and cement. In February 2014, The Bahrain Economic Development Board (EDB) signed a Memorandum of Cooperation (MOC) with Japan Cooperation Centre for the Middle East (JCCME) to promote bilateral trade and investment between the two countries. It is evident from the data that trade has increased drastically over the last 2 years. The data also shows the sectors that offer trade and investment opportunities for Middle East businesses. Politically also, there have been some high-level delegations to the GCC, including Prime Minister Shinzo Abe’s visit to the region last year. This only goes to show how important the GCC countries are for Japan. Infact in 2015, Japan and the Kingdom of KSA will celebrate 60 years of diplomatic relations.
Kuwait The value of Japan’s 450.00 493.10 Organic chemicals trade with Kuwait 150.00 141.60 0.1 Plastics increased 17.96% to USD 17.1 billion in Source: Japan Customs, compiled by World Trade Atlas. (Discrepancies, if any, in the growth rate are due to rounding). 2012, compared to USD 14.5 billion in 2011. from USD 31.2 billion in the previous year. On Japan - Kuwait trade was dominated by the other hand, UAE is Japan’s largest export Japan’s import of hydrocarbons from Kuwait, market among the GCC countries. There are 32 which covered 89% of the total trade. Japanese companies in Qatar and two-thirds of them are related to energy including trading Japan’s trade with the UAE (value in USD billion) companies, shipping companies and plant Category 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 engineering companies. Although there are new projects in the oil & gas sector in which Export 2.5 2.6 2.9 3.6 4.6 4.9 6 8.1 10.8 6.5 7.3 Japanese companies are involved such as the Imports 14.9 12.9 11.6 14.3 18.3 25.3 31.6 32.3 46.4 22.7 29.3 Total Trade 17.4 15.5 14.5 17.9 22.9 30.2 37.6 40.4 57.2 29.2 36.6 Barzan project by JGC and the exploration Source: World Trade Atlas, compiled by Japan customs project for Block A, offshore by JX Nippon Oil Aluminium
667.70
756.90
0.5 0.3
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2011
2012
7.5
8.9
42.9
44.0
50.4
52.9
47
Country focus LEGAL
The four pillars of investment Before you invest in Japan, it is necessary to have an understanding of the Japanese legal system. Akenobu Hayakawa and Manabu Kishimoto Attorney at Law, Nakajima Transactional Law Office introduce four particularly key points – Types of Operation, Visas, Tax, and Human Resource Management, to keep in mind.
48
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T
ypes of operation There are three main types of operational structures that can be established for an investment in Japan: a. Representative Office b. Branch Office c. Subsidiary Company. • Establishing a representative office Establishing a representative office consists of locating an employee of your company in Japan as the “representative” of your company. In principle, a representative office can be established freely, without the need for any notifications or registrations; provided that, if your company is a bank, insurance company, or securities company, a prior notification to the Financial Services Agency of Japan is required. The representative office cannot engage in continuous transactions in the name of your company (Companies Act, Article 818). Therefore, the representative has to make a bank account, office lease contract and other arrangements in the name of the representative. The representative office can undertake, in your company’s name, the purchase of goods other than pursuant to continuous transactions, market research, advertisement, and so forth. • Establishing a branch office A foreign company can determine a representative to be registered and “Register as a Foreign Company”. Once registration is complete, your company can undertake continuous transactions in Japan in the name of the branch. Your home country company directly bears the obligations of the branch office incurred in Japan. Additionally, at least one registered representative of the branch needs to have an address and reside in Japan.
• Establishing a corporation (subsidiary) A foreign company can finance and establish a company in Japan. The most common type of company in Japan is a “joint stock company”. Once a subsidiary company is established in Japan, continuous transactions can be undertaken in the name of the subsidiary. The subsidiary will bear all obligations incurred in undertaking transactions, and the obligations will not be attributed to the parent company. In order to set up a subsidiary company, you have to prepare articles of incorporation, pay capital funds into a designated bank account, determine directors (including representative directors), and undertake the registration procedures. At l e a s t o n e o f t h e re g i s t e re d representative directors of the subsidiary needs to have an address and reside in Japan. After setting up a stock company, a shareholder meeting should be held annually, and it is necessary to keep accounting books, and prepare financial statements and business reports. • Which type of operation is suitable? For an investment in Japan, the above Representative Office
three types can be considered. In fact, it is common for an investor to first establish a representative office and research the market, and then set up a branch office or subsidiary. Visa / Resident Status When a foreign company sets up operations in Japan and employees remain in Japan for a long period, the employees need to receive a long-term stay visa. The employee should make an application for a visa at a Japanese diplomatic mission abroad. Receiving a “Certificate of Eligibility” from the Immigration Bureau in Japan in advance will make the process go more smoothly. Steps for receiving a visa • Application for Certificate of Eligibility to Immigration Bureau in Japan • Normally, this is done by an agent in Japan. • Issue of Certificate of Eligibility by Immigration Bureau in Japan • Usually it is received by the agent and sent to the employee in his/her home country. • Application for Visa at Japanese diplomatic mission abroad. Branch Office
Corporation (Subsidiary)
Registration
Not needed (*A bank, insurance company, or securities company, is required to make a prior notification to the Financial Services Agency of Japan.)
Registration is needed
Registration is needed
Continuous transactions
Not possible
Possible
Possible
Obligations
Borne by Company in home country
Borne by Company in home country
Borne by subsidiary in Japan
Representative
Office representative (unregistered)
At least one registered representative needs to have an address and reside in Japan
At least one registered representative director needs to have an address and reside in Japan
APRIL 2014
49
Country focus LEGAL
• The employee does in his/her home country. • Issue of Visa by Japanese diplomatic mission abroad. Tax • Corporate income taxes Corporate income tax and corporate inhabitant tax, are imposed on the income generated by the activities of the corporation. A foreign company will be taxed on income generated in Japan if it has a certain fixed place of business, like a branch, and more in Japan. If a company is established in Japan, the company is taxed on all of its income, regardless of whether the income is generated in Japan or not. In the case where total income is more than JPY 8 million, the tax rate is 38.37% in total of corporate income tax, corporate inhabitant tax, and so forth. The company should file a tax return within
ABOUT
Akenobu Hayakawa is an attorney at law and joined Nakajima Transactional Law Office in 2005, becoming a partner in May 2010. Manabu Kishimoto is an attorney at law, and joined Nakajima Transactional Law Office in 2012. Nakajima Transactional Law Office was established in 1983, offering comprehensive corporate legal advice on areas such as, Litigation, Entity Affiliations, Consumer matters, General Corporate Legal Affairs, Shareholder Meetings, Compliance, CSR, Anti-trust Law, Securities Transactions, Risk Management, General Company Publication and Public Relations, Intellectual Property (IP), Employee/Labour matters.
but the rate will be raised to 8% from April 2014, and to 10% from October 2015. • Transfer pricing taxation In the case where a company is established in Japan, it is possible that the price at which the parent company in the home country sells goods to the subsidiary in Japan would
A foreign company will be taxed on income generated in Japan if it has a certain fixed place of business, like a branch, and more in Japan. 2 months after the end of its business year. Additionally, a company with a business year longer than 6 months should file an interim tax return after 6 months from the beginning of its business year.
• Consumption tax Consumption tax is imposed on a transfer or rental/lease of assets, the provision of services as a business, in Japan by an enterprise for consideration, and release of cargo from a bonded zone. Consumption tax must be paid by the buyer to the seller when goods or services are purchased. The amount of consumption tax received from the customer must be declared. When the declaration is made, the amount of consumption tax paid as a buyer to sellers can be deducted from the amount paid, so that dual taxation is avoided. The rate of consumption tax is 5% as of January 2014, 50
APRIL 2014
be set higher than usual in order to transfer profits to the parent company and reduce the income of the Subsidiary. However, you should be aware that this could result in additional tax being imposed on the Japanese subsidiary by the tax authority. It is necessary to be prepared to justify at any time to the tax authority the appropriateness of the transfer pricing used. Human resource management It is essential to employ local when a business is established in Japan. We introduce below some areas that can become problems.
• Recruitment The Equal Employment Opportunity Act provides that equal opportunities for all persons, regardless of sex, must be provided in the recruitment and employment of workers. Therefore, recruitment
advertisements stating “only male” or “female limited” cannot be utilised.
Labour contract In order to employ workers in Japan, a labour contract should be entered into with the worker. In the labour contract, the following should be incorporated: • the term of the employment (or state an indefinite term) • workplace, content of duties • work hours, days off, vacation • wages • matters relating to resignation and dismissal • Working hours In principle, work hours cannot exceed 40 hours a week, or 8 hours a day (excluding breaks). However, it is possible to have workers undertake work for up to a maximum of 360 hours more than the statutory working hours by entering into an agreement (a “36 agreement”) with a labor union which consists of a majority of the employees or an employee who represents a majority of the employees.
• Dismissal In order to dismiss an employee, there are restrictions, such as the necessity for there to be objectively reasonable grounds for the dismissal, and that the dismissal is deemed to be appropriate in the light of socially acceptable practices. To conclude, these four points are key to doing business in Japan and should be kept in mind while making an investment.
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