Trade & Export Middle East - December 2012

ISSUE 12 | December 2012

A practical guide to going global

www.tradeandexportme.com

Be prepared H.E. Hamad Buamim, Director General, Dubai Chamber of Commerce and Industry, gives expert advice to exporters.

PLUS

TRADE WITH KENYA

GLOBAL ECONOMIC SANCTIONS

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COMMODITY TRADE

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EDITOR’S LETTER

Publisher Dominic De Sousa Group COO Nadeem Hood

To new beginnings...

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

As 2012 comes to an end, we turn one year old. Yes! December 2012 marks our twelfth issue and what a year it has been!

EDITORIAL Senior Editor Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133 Contributing Editor Mike Byrne mikeb@cpidubai.com +971 4 440 9105 ADVERTISING Sales Manager Sami Sabbah sami@cpidubai.com +971 4 440 9152 PRODUCTION AND DESIGN Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 Head of Design Fahed Sabbagh fahed@cpidubai.com +971 4 440 9107 Designer Froilan A. Cosgafa IV froilan@cpidubai.com +971 4 440 9107 Photographer Jay Colina jay@cpidubai.com +971 4 440 9108 DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100

A year older and definitely wiser- we have had a tough but fulfilling year where we got the opportunity to meet some interesting personalities in the field of tradepioneers who have lead the UAE and the Middle East on a trajectory of growth. We also got to host our first country focus on Brazil and we are proud to say that it was a roaring success with 180 plus people in attendance. We bring you a snapshot of the event on page 40.

We wanted to end the year with a bang and we couldn’t think of anything better than to feature the Director General of Dubai Chamber of Commerce and Industry and to seek his advice for exporters. So don’t forget to read what he has to say on page 20.

As always we bring you sound advice on the latest developments in the world of finance, logistics and legal when it comes to trade. We hope you’ll find the article on paying in local currencies when it comes to exports quite informative and fascinating along with our feature on the impact of global economic sanctions on trade.

We will endeavour to stay true to our mission of supporting and promoting trade in the region, in 2013. We hope you’ll be our guide and partners in this journey.

Wish you all a Merry Christmas and season’s greetings.

See you all next year!

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 2012 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

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

DECEMBEr 2012

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DECEMBER 2012

DECEMBER 2012

updates

ISSUE 12

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NEWS: International news and trends with domestic trading relevance.

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

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ABOUT TOWN: We bring you coverage from the events that took place in the month of November.

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TECHNOLOGY: 3M, a science-based company, produces thousands of imaginative products, from health care and highway safety to office products and abrasives and adhesives. Irfan Malik, VP, Middle East & Africa, 3M, talks to us about their strategy and what the future holds.

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LEGAL: Ibtissem Lassoued, Senior Associate, Special Projects Department, Al Tamimi & Co, highlights the relation between global economic sanctions and the impact it has on business.

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TRADE GURU: Aparna Shivpuri Arya caught up with H.E. Hamad Buamim, Director General, Dubai Chamber of Commerce and Industry, to know more about the Chamber’s agenda and his thoughts on Dubai as a trade hub.

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LOGISTICS: It is important for businesses to fully understand the true value of outsourced supply chain management as an essential tool to achieve a sustainable competitive advantage. Frank Courtney, Chief Executive for EMEA region, Barloworld Logistics, explains to us just that.

trade talk

CONTENTS

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LOGISTICS: Recently there has been a lot of reports and media coverage talking about Africa as the up and coming future for business – the forgotten continent that will drive global economic growth and replenish our depleting raw materials with its untouched natural resources. But is this the case?

Damien Sheehan, Commercial Manager, DHL Express, UAE, tries to answer these questions.

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FINANCE: Paying international suppliers in US dollars is not the only option and, in many cases, may not be the best option. Western Union Business Solutions offers sound advice on how to make payment in your local currency.

34

FINANCE: Ole Hansen, Trading Advisory Team, Saxo Bank, explains to us the most popular ways of tracking commodity performance and also dig deeper into the continued popularity of gold.

38

EXPORT: Dr. Ashraf Mahate, Head, Export Market and Intelligence, Dubai Exports and Vice Chair, Economic Policy Committee, DED, highlights the issues that SMEs need to keep in mind while expanding across borders.

40

TRADE WITH BRAZIL: We bring you the coverage and snapshots from our very successful event on trading and investing in Brazil.

focus

COUNTRY FOCUS: KENYA

46

INTERVIEW: We interviewed Ambassador Mohamed Gello, to get an overview of Kenya’s trade relations with the UAE.

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Bilateral relations: Relations between two countries are not just limited to trade and involve interactions at all levels. We bring you a synopsis of how the bilateral relations between the two countries have evolved.

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CASE STUDY: African Salihiya Cargo and Clearing Company, is a logistics company focused on integrated supply chain by providing chartered air transport of various volumes. We caught up with Mohammed Sheikh Abdirahman, Managing Director of the company to know more about their operations.

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DECEMBER 2012

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Updates global watch

Is New Zealand your new business destination?

New Zealand has been named as the best country for business in the prestigious annual rankings from Forbes. The country climbed to the top of the list from its No. 2 ranking last year, thanks to a transparent and stable business climate that encourages entrepreneurship.

The magazine’s judging panel determined the best countries for business by grading 141 nations on 11 different factors: property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance. Forbes analysts used research and published reports from a range of organizations including the World Bank and the World Economic Forum.

New Zealand is the smallest economy in the Forbes top ten at USD 162 billion GDP, but it ranks first in four of the 11 metrics the analysts examined, including personal freedom and investor

protection, as well as a lack of red tape and corruption. The country beat Denmark into second place, with Hong Kong third and Singapore fourth.

Forbes said that New Zealand’s economy held up better than most during the global financial crisis. The country cut its corporate tax rate from 30% to 28% last year and eliminated certain deductions, making the cut fiscally neutral. Investors have prospered, with the country’s benchmark stock index, the NZX 50, up 24% over the past 12 months.

The Forbes No.1 ranking follows another authoritative report from The World Bank and International Finance Corporation that named New Zealand as the easiest place to start a business out of 185 countries. The Doing Business 2013 report said it takes only one day and one procedure to register a private company in New Zealand.

New Zealand was also rated highest for protecting investors.

Top 500 global companies on a roll!

The Financial Times (FT) recently released its list of the top 500 global companies by market capitalisation as at end-September 2012. The total market capitalisation of the top 500 companies increased 17% from September 2011 to September 2012 to USD 25 trn, equivalent to about 35% of global GDP. The strong performance of the leading global stocks has been supported by rising global market capitalisation during this period, according to QNB Group.

There are six GCC companies in the top 500 global list and their capitalisation rose 3% from September 2011 to September 2012 to USD 191bn. GCC’s leading companies have underperformed the rest of the world over this period as they have been less affected by the alleviation of sovereign debt concern in advanced economies and as their exposure to Eurozone debt, in particular, is lower than the other large corporations. Broadly speaking, the GCC companies have seen steady growth in market capitalisation with little impact from sovereign debt crises.

Meanwhile, many other global companies have recovered sharply after their market capitalisation was driven lower by the sovereign debt crisis.

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december 2012

In terms of sectors, technology hardware and software companies have performed particularly strongly, accounting for USD 2.6trn of market capitalisation in September 2012, up by 27% from a year earlier.

Banks and financial services companies have also performed well as they have been direct beneficiaries of the easing of tensions related to sovereign debt. There were 90 financial companies in the top 500 accounting for USD 4.3trn of market capitalisation in September 2012, up by 18% from a year earlier, broadly in line with growth in the overall top 500. Oil and gas producers accounted for USD 3.1trn of the total index in September 2012, up by 11% from a year earlier. Oil prices have

averaged USD111/barrel over this period, a relatively high level compared with historical averages. This has supported the market capitalisation of energy producers.

Apple remained the largest listed company in the rankings with a market capitalisation of USD 625bn, an increase of 77% from endSeptember 2011. Apple has outperformed the world’s other largest-listed companies whose market capitalisation changed by the following amounts from September 2011 to September 2012. Apple’s out-performance has been boosted by escalating sales volumes and high expectations of future sales, according to QNB Group. Apple sold 27m iPhones in the third quarter of 2012, a 58% year-on-year increase, while iPads were up 26% to 14m.

Banking & Finance

Regional Knowledge Global Reach

Construction & Engineering Commercial Advisory Corporate Governance Corporate Structuring Dispute Resolution

As the largest law firm in the Middle East, Al Tamimi & Company knows more than just the law. We pride ourselves on understanding the business environment in which we operate, ultimately benefiting the clients we work with.

With 10 offices in 6 countries and over 200 specialist lawyers, we have the knowledge, expertise and cultural awareness to ensure that our clients are at the forefront of doing business in the Middle East.

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www.tamimi.com Mergers & Acquisitions Property Special Projects Technology, Media & Telecommunications Transport

Updates REGIONAL TALK

UAE-Italy bilateral ties H.E. Mario Monti, Prime Minister of Italy, called upon UAE and Italian companies to build a strategic partnership by exploring investment opportunities offered by each other’s countries. He asked Italian businesses to establish a strong base here for expansion into the region while urging UAE traders to enhance their cooperation ties with his country’s SMEs who are their natural partners, he said.

Also present were H.E. Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, H.E. Abdul Rahman Saif Al Ghurair, Chairman, and H.E. Hamad Buamim, Director General, Dubai Chamber, and representatives of private sector companies in Dubai.

“The UAE is our most important trading partner among all the Arab countries.

Italian exports to the UAE

Stay in the zone The Department of Economic Development (DED), Government of Dubai, has reiterated that no Free Zone company can conduct business within Dubai unless it has a DED license or chose to open a branch in Dubai in accordance with the conditions stated in Law No. 13 of 2011 on business registration and licensing in the Emirate.

Issued by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, the Law No.13 of 2011 is meant to enable Free Zone companies to open branches in Dubai while maintaining their presence in the Free Zone.

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december 2012

increased 28% in 2011 to a total of 4.7 billion euro and we are likely to do even better in 2012 given the results from the first six months (3.2 billion euro),” said H.E. Mario Monti.

The Italian Prime Minister stated that his country’s specialised manufacturing districts are models of cluster development. Investment in them would help the UAE economy become even more independent from oil and gas, and advance the government objective of achieving a greater focus on a knowledge-based economy, he said.

In his opening address, H.E. Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, stated that this forum is the latest step in efforts by the UAE and Italy to enhance bilateral relations.

Al Mansouri further stressed that over the past decade, non-oil trade between the UAE and Italy has increased by 295%. It has risen from AED 5.5 billion in 2001 to just under AED 21.9 billion in 2011, he added.

“Under no circumstances can a Free Zone company in Dubai operate outside its jurisdiction unless it has a branch licensed by DED. The same applies to companies in any Free Zone in the UAE. Alternatively, such companies may appoint an intermediary to sell their products or services in Dubai but the intermediary should have a DED license,” stated Mohammed Shael Al Saadi, Chief Executive Officer of Business Registration & Licensing (BRL) Sector, DED. “Through Law No.13 of 2011, Dubai has acknowledged the role of Free Zone companies in economic activity in the UAE and the leadership wants to allow such companies to contribute further to overall development. DED’s role is to enable

Al Mansouri also stressed on opportunities for further UAE-Italian partnerships in agriculture, construction, the green economy, fashion, mechanics, and logistics and emphasised on stronger cooperation for economic development of both the countries.

In his welcome address, H.E. Abdul Rahman Saif Al Ghurair, Chairman, Dubai Chamber, stated that this particular forum will help enhance bilateral relations and open up opportunities for business partnerships between the UAE and Italy.

Said Al Ghurair, “As a pillar of Dubai’s economy, trade is a good indicator of economic ties and Dubai’s trade with Italy has increased significantly over the past nine years. In 2002, it valued at AED 4.7 billion, but increased to AED 17.8 billion in 2011 which is an increase of 278% while presently there are 234 Italian partnership companies operating as members of Dubai Chamber.”

businesses that choose Dubai as their base to benefit from a competitive environment and best practices,” Al Saadi added.

A Free Zone company can operate a branch in Dubai as long as it is active within the Free Zone but any termination of the Free Zone activity will reflect in the Dubai license as well.

The Law No. 13 also allows Free Zone companies that have no local partners to open branches in Dubai, provided such branch has a Local Service Agent on board.

A Local Service Agent is a UAE national or UAE company who will sponsor employees for the Dubai branch of a Free Zone company at the Ministry of Labour. The Local Service agent will have no rights of voting or decision-making in the company.

Community events calendar

DATE

LOCATION

Offshore Middle East

21st - 23rd

LOCATION Qatar

PROMAT

21st - 24th

USA

Trans Oman

28th - 30th

Oman

The NAFEM Show 2013

1st

USA

Printpack India

5th - 10th

India

Regional Consumer Goods

15th - 17th

Germany

IDEX 2013

17th - 21st

UAE

Australian Oil and Gas Exhibition

20th - 22nd

Australia

February 2013

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

EXHIBITION

DATE DATE

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@cpidubai.com

Save the date!

EXHIBITION

LOCATION

December 2012

March 2013 CeBIT 2013 (IT)

5th - 9th

Germany

World SME Expo

1st - 3rd

Hong Kong

Propak Africa

12th - 15th

South Africa

“China Import & Export Commodities Exhibition“

1st - 4th

Malaysia

Koplas

12th - 16th

Korea

World Green Tourism 2011

5th - 7th

UAE

Transinfra

13th - 15th

Switzerland

Middle East Natural & Organic Products Exp

5th - 7th

UAE

Motortec

13th - 16th

Spain

National Exhibition for Small & Medium Enterprises

5th - 8th

UAE

April 2013

Middle East Logistics Oil and Gas

7th - 10th

UAE

SMM India 2013

1st April

India

International Real Estate & Investment Show

11th - 12th

UAE

Geosynthetics

1st-4th

United States

Airport Suppliers Conference

11th - 12th

UAE

Brasilplast 2013

1st

Brazil

Abu Dhabi International Motor Show

19th - 23rd

UAE

EMAQH 2013

1st-13th

Argentina

Aluminium Dubai 2013

1st

UAE

Tekno Tube Arabia

7th - 10th

UAE

Intermodal South America

2nd-4th

Brazil

Arab Plast

7th - 10th

UAE

Building Material and Equipment

2nd-5th

Russia

Domotex Hannover

12th - 15th

Germany

International ICT Expo

13th-16th

Hong Kong

January 2013

december 2012

9

ABOUT TOWN SEA TRADE

Facing choppy waters

International and regional shipping operators, ports, financiers and other maritime professionals gathered in Dubai for the sixth biennial edition of Seatrade Middle East Maritime (SMEM). We bring you a snapshot of the event.

Held under the patronage of HH Sheikh Mohammad bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai, the three-day exhibition and conference ran from 27-29 November, with more than 7,000 participants from 67 countries in attendance.

“In the two years since our last event, the world maritime industry has had to weather the storm of the continuing impact of the global downturn, compounded with operational challenges including piracy, overcapacity in many market segments, high operating costs and a tightening regulatory environment” said Chris Hayman, Chairman of Seatrade, 10

december 2012

organisers of Seatrade Middle East Maritime 2012.

This year’s conference programme saw the largest gathering to date of the region’s most influential industry heads, who came together to lead an in-depth analysis of where the industry stands today, providing critical insight into topics including the health of the offshore marine sector, the industry’s response to piracy and accountability and the challenges and controversy surrounding ship recycling.

The opening plenary session of Seatrade Middle East Maritime saw the region’s key players describing the challenging environment the industry faces – but offering some powerful solutions to the

audience of industry professionals from 67 different countries.

Jeremy Thompson, Sky News anchor, welcomed the participants and explained that the panel will assess what is happening in the region with regards to the maritime industry and set the tone for the following days of the Seatrade Middle East Maritime 2012. He further provided statistics that 90% of international trade is done through this mode since eight billion tons per year is transported via maritime channels.

In light of the economic crisis, these figures indicate that the maritime industry is a resilient business.

Upon that, Chris Hayman, Chairman, Seatrade, delivered his opening remarks

and started by saying, “Within today’s panel you will hear many different views and, thus, it will be a unique chance to assess the temperature within the industry and determine its opportunities and challenges. This event is part of the inaugural Dubai Maritime Week.

Participants from close to 70 countries make it a truly global event and the largest of its in the Middle East region.”

Speaking about the Middle East region, he further said, “We can notice a shift towards greater volumes being transported between emerging markets.

The Middle East region is geographically very well placed to benefit from that.

Furthermore, the region is characterised with one of the world’s strongest clusters of ship repair companies.”

H.E. Jamal Majid Bin Thaniah, Vice Chairman, DP World & Group CEO, Port & Free Zone World, Dubai, said, “Businesses within the ports and shipping are faced with many challenges. There has been a new stage of globalisation after 2008. We can already see a totally different world shaping after highly volatile situations happening since 2008. Period from 2000 till 2008 was marked with unprecedented growth which was not normal – great influx of cash in the economies, ports started to expand and there also was an overcapacity in shipping. The growth has rapidly started to shift from the West to East creating a great bubble which started to default in 2008. In that period many countries had a double digit growth around 15% to 18% can be considered as boom. After 2008, we have seen one digit growth (2%-3%), but it actually represents recession. This situation cannot be accepted.”

In line with that he added, shipping growth went in two cycles. Peak was reached in 2003 with increased capacity building. This reccurred in 2007.

Because of this, in 2008 the shipping industry ended up with huge over capacity.

Trade growth in the world will continue due to two reasons – low tariffs and increased trade volumes. But, after 2008 many countries and regions started to shrink to protect themselves. Now, the US has recovered very fast, but the EU is still running into a deep recession.

In light of all of that, the growth is again shifting from West to East – China, India and the Arab world. Trade growth will require decision-makers to work hard to create further growth. We need to remove all barriers and return to trade without protectionism. In that manner, we will push up world’s growth rate, added H.E. The Middle East region is today different from the rest of the world since it didn’t see any decline. China

down in QNV 2030 with one of the aims to diversify economy in order to create more sustainable future.

H.E highlighted some of the important projects for Doha – Phase 1 of New Doha Airport will be done this year, while Phase 2 will be completed in 2015. Another project is a large new port near Doha which will be able to handle world’s largest containers. We are also building our railway network and improving road infrastructure to enhance freight movement.

H.E. Shaikh Daij bin Salman Al Khalifa, Chairman, ASRY, Bahrain, said, “Challenges come in groups, especially in the maritime industry – oversupply of vessels, price wars, crisis around the world (especially in the EU). I would say that the list is long. However, shipping will always be an integral part of import and export. We can see major shipping lines used over

Trade growth in the world will continue due to two reasons – low tariffs and increased trade volumes. will continue its one digit growth due to connection to the emerging markets. The ME region will also continue to grow.

H.E. Sheikh Ali bin Jassim bin Mohammad Al-Thani, Chairman and Managing Director, Milaha, Qatar, said, “Significant investments in our region will bring both opportunities and challenges. Since 2008 we have seen dramatic events, especially with political changes in the Middle East region, but the GCC has managed to collectively grow through these challenging times. It was all done through strategic decisions based on our visions, vast resources and committed funding. Regarding my country, wise leadership of H.E. Sheikh Hamad bin Khalifa Al Thani has been laid

developed capacities to explore economies of scale and take advantage of current developments. I assume that in 2013 market will not be fully recovered, but lately there has been an improvement in freight rates which will reach reasonable levels in the near future. To survive, smaller markets players need to support inter regional trade and create alliances among themselves.

All the GCC countries have been expanding and modernising their port capacities to support future growth of their economies. In Bahrain, we haven’t only constructed a new port, but we have also given it to the private sector through privatisation process and retained only small regulatory control.” december 2012

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ABOUT TOWN FOOD LOGISTICS

Food and the logistics of it!

With the GCC’s logistics market valued at USD 27 billion according to a recent report by Booz & Co, global transportation and logistics players regard Dubai, currently the third largest re-exporter of food in the world, as playing a critical role in the future growth of food logistics.

The Food Logistics Forum was held on 20-21 November 2012 at the Dubai World Trade Centre to highlight the challenges and opportunities that the food logistics sector faces.

The conference ran alongside three of the region’s most highly regarded specialist food industry shows SEAFEX, Speciality Food Festival, Sweets and Snacks Middle East.

Trixee Loh, Senior Vice President of 12

december 2012

DWTC, organiser of the Food Logistics Forum commented, “As the organiser of Gulfood, the world’s largest annual trade exhibition for the food and hospitality industry and a number of the region’s most influential niche food trade shows, we understand the significance of logistics in the product supply chain. We also recognise the importance of supporting knowledge exchange for this fast-paced industry.

The Food Logistics Forum showcased the latest trends and innovations in the industry and includes valuable interactive sessions for companies on supply chain regulations and operations, engaging market opportunities and global supply chain leadership strategies.”

The two day forum brought together 150 global and regional logistics business leaders to address industry concerns, participate in interactive workshops and discuss market growth opportunities.

Discussion topics included: bridging the gap between regulators and the industry, habits that make successful managers, reasons why supply chains fail, benchmarking supply chain performance, advice on importing from emerging countries and efficient inventory control management practices.

Talking about the top challenges that food companies face when it comes to warehousing and transport, the panellist identified the following issues: • Amount of time spent on staff training • Ambiguity about the benefits of 3PL • Lack of sophistication and expertise in the logistics industry • Lack of chilled and refrigerating warehouses • Difference in regulation within the GCC countries and within the Emirates in the UAE, which make the import of good difficult • Dubious quality of sub-contracting • Lack of an integrated IT system Besides this, the other sessions also highlighted the factors to keep in mind when importing from emerging economies such as Africa and how to develop a world class cold chain system.

Dubai World Central was the Exclusive Lead Sponsor of the Food Logistics Forum with DP World, GlobeExpress and Mirnah as Silver Sponsors. Also supporting the event were Supporting Partner, Dubai Municipality; Strategic Partner, Chartered Institute of Logistics and Transport (CILT); Knowledge Partner, Euromonitor International; and Freight Forwarding Partner, National Association of Freight Logistics.

VESSEL SCHEDULES FROM MAJOR SHIPPING LINES NOW ON DUBAI TRADE

TRADE TALK Technology

The technology of being innovative 3M, a science-based company, produces thousands of imaginative products - from health care and highway safety to office products, abrasives and adhesives.

Their success begins with their ability to apply technologies - often in combination - to an endless array of real-world customer needs. Irfan Malik, VP, Middle East & Africa, 3M, talks to us about their strategy and what the future holds.

T

alking about the origin of 3M in the Middle East, Irfan goes back into time, “3M was established 30 years ago with a branch office. Since then we have opened multiple entities, including a regional office in Dubai Internet city, a customer innovation centre and a manufacturing unit in Saif Zone in Sharjah. 3M is very well presented across multiple countries in the region and currently has a regional office in Dubai and presence in Saudi Arabia Egypt, Qatar, Kuwait, Lebanon, Algeria, Tunisia and Morocco.”

He further stated, “Our core markets are consumer, healthcare, infrastructure, transportation and safety solutions. We do have products and solutions that are customised for the Middle East market.”

When we asked Irfan about how he perceives the opportunities in the region, he sounded quite optimistic.

“The region offers multiple opportunities for foreign companies. As an emerging region and with the increased spending by Government in building the infrastructure, accelerating investments in key industries, such as healthcare, safety, construction, oil & gas and railways, it opens up doors for many investment opportunities and 3M will continue to leverage on their technology platforms and make investments in these specific industries that are attractive and 14

December 2012

provide a strong platform for accelerating our growth in the region. We can not single out any particular country for growth as multiple countries are opening up doors for investment and our strategy continue to be prioritisation and selective investments in key core markets and countries.

Adding further he stated that they have just announced their expansion programme for Saudi Arabia, including a branch office in Jeddah. Further expansion programme announced this year is the branch office in Qatar, Kenya and Nigeria.

3M invested in a Customer Technical Center in Dubai early in 2011.

So what has been the strategy for this exponential expansion? “Our key strategic indent is growth. As a globally diversified company, we are able to leverage our 46 technology platforms and bring in innovative products and solutions that are needed for the local customers. Our fundamental philosophy for growth remains the same whether we are in the Middle East or else where. The key to success greatly depends on our ability to understand our customers and bring in products and solutions that can address the customer needs. We have been successful in achieving our core objectives and will continue to thrive for more success in the coming years.”

“Another potential emerging opportunity in the region is the evolution of the interactive marketing and social media. The Internet usage has grown over 200% in the last couple of years and we need to leverage these platforms to transform our business and reach the customers. Arabisation in the Middle East is another opportunity for building the brand and communication and we are investing in the same. We have made significant investment in the core areas of brand and communication for 3M and we will continue to focus on this, while we protect the 100+ year old brand of 3M.” Keeping up with its expansion plans, 3M is always open to consider partnerships. “We operate through multiple business models here in the region and having over 40 divisions, 65000+ products, therefore we are continuously looking for market coverage and actively pursue channels partners to take our products and solutions to the market and build long term partnership to effectively serve our customers.”

Infact it was this diversification of products that helped 3M deal with the global financial crisis. “Global crisis has impacted every company in the world and we are not an exception. However, with the diversified products, focus on bringing in new innovative solutions, localisation,

ABOUT

Irfan Malik is Vice President, Middle East and Africa for 3M Gulf. In his current capacity, he is responsible for managing 3M’s vast operations across the region, which encompasses United Arab Emirates, Kingdom of Saudi Arabia, Lebanon, Kuwait, Morocco, Egypt, Algeria, Pakistan and Tunisia.

Irfan has been associated with 3M since 1993 as he started his career with the organisation as a supply chain manager.

Irfan holds a Bachelor of Commerce degree from University of Punjab, Pakistan. He has also been accredited as a Chartered Cost and Management Accountant from Chartered Institute of Management Accountants (CIMA).

investment in high growth priorities, and local capability, we were able to meet our commitments to the corporation.”

Talking about doing business in the region, Irfan was quick to point out that his advice would be to understand the local cultures, follow the mega trends shaping the economies of the region to transform the company to a great success. There are lots of learning in the Middle East and at the same time, the region is complex and with many challenges to manage. Stating further, he said “Many countries in the region are offering opportunities for investment, whether in UAE, Saudi Arabia, Qatar and Oman. There are multiple challenges to manage, whether it is in the regulatory, environmental, managing the complexity of the region or human capital challenges.”

So as a technology and innovation powerhouse, how does 3M see technology playing a role in healthcare, security and the other sectors? “Innovation—the

art and science of applying creativity to develop practical and novel solutions— has been our hallmark for more than a century. It’s more than a way of developing products. Innovation is part of our DNA. We recognised early that doing business in new, smarter ways would not only create a more viable company—it could also enable us to meet our social responsibilities and reduce our impact on the environment, two objectives integral to ethical business conduct. Sustainability is a natural extension of our values.”

“Today, we’re building on more than 70 years of practices that support economic, social, and environmental sustainability.

Our vision is simple: we want to help meet the needs of society today while respecting the ability of future generations to meet their needs.”

Irfan also said that technology evolution is transforming many industries and businesses and you need to be part of the same. For instance 3M has developed Bio-metric solutions for improving the security and meeting the emerging needs of the industry. In the healthcare arena, 3M has introduced a new range of patient warming solutions in addition to the

Talking about doing business in the region, Irfan was quick to point out that his advice would be to understand the local cultures, follow the mega trends shaping the economies of the region to transform the company to a great success.

most advanced silicone tape solutions in the Skin and Wound area. New product introduction is the life line for us in 3M and as a business rule, we make sure that +30% of our business comes from products that are introduced in the last 5 years. 3M spent over USD 1.5 billion in R&D on a year and continuously brings in new innovative products and solutions that meet and exceed the needs of our valued end users. Customer inspired innovation is the core of their strategy for the R&D and time and effort is spent in understanding the pain points of their customers and that help us to introduce more innovative solutions in the market in multiple segments.

Countries in the region are also increasing the focus on the regulatory needs, especially in the healthcare and consumer industries and it is moving in the right direction and this would help in improving the standards in the industry.

3M has been known for its entrepreneurial drive and innovation.

Any tips? To this, Irfan highlighted, “Our focus in the region have been to elevate the planning process, understand the landscape of the country/region, manage the complexities, deeper insights into your customers and their needs, know your competition and build local capability by managing the cultural diversity that is required to be successful in this region.”

With these pearls of wisdom, we hope SMEs and organisations involved in technology will be able to draw some lessons from this technology powerhouse.

DECEMBER 2012

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TRADE TALK Legal

Don’t ignore global economic sanctions Ibtissem Lassoued, Senior Associate, Special Projects Department, Al Tamimi & Co., highlights the relation between global economic sanctions and the impact it has on business.

T

he effort against both the increasing threat of terrorism and the development and proliferation of weapons of mass destruction, has consistently involved the implementation and imposition of economic sanctions against offending nations. Following action by the United Nations Security Council, the European Union Commission and the United States Government against Iran in particular, recurrent questions include: As an entity located in the United Arab Emirates (UAE), can Company “X” deal with any Iranian entities?

If an Iranian Company is subject to the UN/EU/US sanctions, can Company “X” still work with the Iranian Company as a UAE registered company? What economic and/or penal repercussions could this have on Company “X” or its staff, if any?

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December 2012

Should Company “X” conduct enhanced due diligence to determine if transactions contain a “Government of Iran” element or interest?

In case an Iranian Company is subject to UN/EU/US sanctions, can/should Company “X” (easily) cut ties and halt business with the Iranian Company or does it face the possibility of being blacklisted or isolated from the global financial system?

It is crucial that a lawyer is aware of any transactions where his/her client, or client’s business partner, is located in a sanctioned country, has business dealings with a sanctioned country, gained its funds from a sanctioned country or is owned or controlled by a sanctioned entity or individual. The reason why it is so crucial for such a determination to take place is

that the number of economic sanctions and the potential consequences for the client continue to increase, whether at the business or personal level. One only has to witness the recent significant financial penalties upon major global banks as reported in official press releases (e.g. Standard Chartered Bank) and the potential penalties upon other financial institutions that have transgressed the economic sanctions against trade dealings with Iran.

In order to properly appreciate the significance of global economic sanctions, one must understand their primary objectives and implications.

Given the complexity of this topic, this article is not an exhaustive analysis of all the existing economic sanctions. It mainly addresses the Iran sanctions in light of the UAE/Iran trade ties and geographical

proximity and it is not intended to constitute legal advice and should not be relied upon as such.

Global economic sanctions An economic sanction can be defined as “any action taken by one country or a group of countries acting collectively in order to harm the economy of another country or group of countries, with the objective being to engender economic or political change.” Often used as an instrument of foreign policy, it can be applied for various reasons including the punishment of the other country or as an incentive for change (political,

ABOUT

Ibtissem Lassoued is a Senior Associate in the Special Projects Department having practised in France after she graduated with a DEA in Tax Law from the French Sorbonne University, as well as a Masters Degree in Commercial Law. Ibtissem joined Al Tamimi & Company in September 2007 from the French company Vivendi (Paris, France) within the legal department.

She can be contacted at i.lassoued@tamimi.com.

policy or otherwise) in the target country. There are two general types of sanctions that are exercised: unilateral sanctions (imposed by a single country

Countries & International Entities Exercising Economic Sanctions

against another) or bilateral sanctions (sanctions imposed by a group of countries acting either individually or collectively against another). Economic Sanctions can affect all industries and there are several ways in which a sanction is exercised through laws and regulations of imposing states including: Trade restrictions (embargoes) that prevent a country and its citizens from engaging in economic activity with the sanctioned country.

Blocking or freezing of assets and restrictions on movement of people or capital.

Imposition of taxes on goods imported from the sanctioned country.

Restrictions placed on goods imported into a country from a sanctioned country.

Quotas on the quantity of goods that can be exported to or imported from a sanctioned country.

Sanctions Imposed Against Iran to Curtail Nuclear Armament Development I. Scope of the Sanctions: The sanctions cover mainly (a) the blocking of persons involved in terrorism, proliferation of mass destruction weapons and (b) Iran’s energy sector and financial transactions with Iran.

Sanctionable Activities and Restrictions: • EU Sanctions EU Council Regulation No 267/2012 DECEMBER 2012

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TRADE TALK Legal

- - -

implements additional restrictive measures against Iran, and repeals Regulation No 961/2010. It follows the UN Security Council Resolution 1929.

The restrictions are mainly as follows: Freezing of funds and economic resources of specific Iranian persons and entities; Restrictions on transfers of funds to and from an Iranian person, entity or body; Prohibitions on trade with Iran’s Oil and

institution, to carry out either of the facilitating activities described above; or - Facilitating a significant transaction or transactions or providing significant financial services for the IRGC or any of its agents or affiliates whose property and interests in property are blocked pursuant to the International Emergency Economic Powers Act (IEEPA), or a financial institution whose property and interests in property

The extra-jurisdictional approach by the US involves the unilateral imposition of an obligation on foreign entities to comply with its laws. Penalties vary from “caution” letters to transaction-based civil penalties, to criminal prosecution that could result in millions of dollars worth of fines or up to 20 years imprisonment (sentences vary based on the programme).

Precious Metals industries; - Restrictions on Iran’s access to the EU’s bonds markets; and, - Restrictions on Iran’s access to the EU’s insurance and reinsurance markets.

• US sanctions As described in the Iranian Financial Sanctions Regulations (IFSR) , the sanctionable activities of a foreign financial institution are: - Facilitating the efforts of the Government of Iran (GOI) to acquire or develop Weapons of Mass Destruction (WMD) or delivery systems for WMD or to provide support for terrorist organizations or acts of international terrorism; - Facilitating the activities of a person subject to financial sanctions pursuant to United Nations Security Council Resolutions 1737, 1747, 1803, or 1929, or any other Security Council resolution that imposes sanctions with respect to Iran; - Engaging in money laundering, or facilitating efforts by the Central Bank of Iran or any other Iranian financial 18

December 2012

are blocked pursuant to IEEPA in connection with Iran’s proliferation of WMD, Iran’s proliferation of delivery systems for WMD, or Iran’s support for international terrorism.

II. Consequences of breach UN sanctions: To enforce sanctions, the UN requests that countries implement Resolution measures and establish authorized persons to ensure adherence to these sanctions within their respective territories. Since the UN is effectively a forum wherein other countries convene, it is assumed that a vote by members of the Security Council – or in wider sittings of the UN – could be used to impose sanctions on Member States who have violated the Iranian embargos.

EU sanctions: Each member country will enact its own statutes to give effect to EU criminal stipulations. Violations of EU legislation shall be punished either by fine or imprisonment. If the Member State is

at fault, they will be required to pay the EU Commission a fine. For example, in the UK, the current maximum penalties for breaching the embargo on financing or importing crude oil or petroleum originating from Iran are imprisonment (for up to three months for summary offences and two years upon indictment) and/or a monetary fine (up to £5,000 on summary conviction and unlimited in the event of indictment).

US sanctions: The extra-jurisdictional approach by the US involves the unilateral imposition of an obligation on foreign entities to comply with its laws. Penalties vary from “caution” letters to transaction-based civil penalties, to criminal prosecution that could result in millions of dollars worth of fines or up to 20 years imprisonment (sentences vary based on the program). The penalty will be less severe if there was a voluntary self-disclosure (e.g. a bank disclosing that through negligent or reckless conduct, it had breached the sanctions) rather than an egregious and willful breach of sanctions.

1. Recent developments and the practical implications Disconnection of all Iranian banks from the international network Society for Worldwide Interbank Financial Telecommunication (SWIFT) On 17 March 2012, SWIFT - the worldwide financial messaging network to facilitate the interbank transfer of funds - disconnected all Iranian banks from its international network that had been identified as institutions in breach of current EU sanctions. This has been described as having the analogous effect of prohibiting access to waterways.

This occurred following an agreement between all 27 Member States of the EU Council, and the Council’s subsequent ruling.

It is worth noting that SWIFT has never before expelled an institution in its 39 year history. There is a clear and present possibility that countries found to be noncompliant with EU, US and UN measures against Iran, could be compelled to ‘fall

in line’ and become more cooperative with the sanctions via payment network sanctions.

There is a reasonable likelihood that Iran will successfully establish and implement its own SWIFT-type transfer systems so as not to get locked out of the international monetary system in the future. Cutting the network to Iran could force alternate networks to appear, similar to the “Barter Network”, as there is no other alternative currency to use. It is actually worth noting that on 26 May 2012, the Governor of the Central Bank of Iran Mr. Mahmoud Bahmani announced that it had created such a system. This proves that there may be indeed state-initiated avenues through which the various sanctions imposed on Iran can be made less effective if there are subscribers to these types of methods.

• The Financial Action Task Force (FATF) In October 2012, FATF (an intergovernmental body to promote policies to combat money laundering and terrorist financing) reaffirmed its call on members and urged them and “all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with Iran, including Iranian companies and financial institutions” and “to protect against correspondent relationships being used to bypass or evade countermeasures and risk mitigation practices and to take into account ML/FT risks when considering requests by Iranian financial institutions to open branches and subsidiaries in their jurisdiction”.

Simultaneously, the FATF urged Iran to immediately and meaningfully address its AML/CFT deficiencies, in particular by criminalizing terrorist financing and effectively implementing suspicious transaction reporting (STR) requirements, failing which the FATF will ask its members to strengthen countermeasures in February 2013.

• Major Global Banks under investigation Major Global Banks are currently being investigated by US regulators over

Abstaining from dealing with blacklisted entities, ensuring that self-regulation is diligent and thorough, and actively ensuring the validity of a client or transaction in line with applicable trade sanction laws will best enable a lawyer’s client to comply with these far-reaching economic sanctions.

allegations of illicit dollar transactions / money laundering with Iran, exposing non-US banks to sanctions by the US after the “u-turn exemption” was rendered illegal by the US Treasury in November 2008. In particular, said investigations are based on the use of the “wire stripping” technique by which global banks managed to ensure the anonymity of Iranian US Dollar clearing activities by stripping information from the SWIFT system and hence (i) removing references to Iranian entities and (ii) consequently not triggering investigations before clearing the US Dollar transactions via the bank’s branches located in the US (since sanctioned countries, individuals or entities’ names would not appear and hence could not be identified).

Standard Chartered Bank was fined $340million by the New York State Department of Financial Services and continues to engage with the US Justice Department and OFAC. Royal Bank of Scotland is under investigation by US and UK authorities, while HSBC announced on 5 November 2012 that it expects to pay $1.5bn in fines to US regulators.

• US Foreign subsidiaries: Iran Sanctions Accountability and Human Rights Act of 2012 Since May 2012, there are no more loopholes in relation to the liability of US Parent Companies for Violations of Sanctions by Foreign Subsidiaries: in Section 218 of the Iran Sanctions Accountability and Human Rights Act of 2012, US Parent companies are held liable for dealings with Iran by their foreign subsidiaries, which means there will be no more exemptions for the latter even

when non US persons would have facilitated the subsidiaries activities with Iran.

In circumstances where US companies have subsidiaries located abroad and dealing with Iran, the US Parent companies would need to separate from those subsidiaries to avoid any liability.

• US Department of State: State Department Sanctions Information and Guidance / Public Notice 8086 dated 13 November 2012 The US State Department has recently published on its Federal Register, Guidance in relation with economic sanctions and in particular (I) guidance on Iran sanctions and (II) guidance on the provision of “sensitive technology” to Iran .

The US Department of State 2. The Ultimate Defense: Preventive Action In light of the above, it appears that international companies need to be compliant with several jurisdictions at the same time and the ultimate defense in protecting yourself from the possibility of infringing any of the highlighted sanctions is preventive action. Abstaining from dealing with blacklisted entities, ensuring that self-regulation is diligent and thorough, and actively ensuring the validity of a client or transaction in line with applicable trade sanction laws will best enable a lawyer’s client to comply with these far-reaching economic sanctions. Keeping abreast of legislative changes from the UN, EU and US that affect Iran and other sanctioned countries will allow for more time to effect the changes necessary to align your client’s operations with the law.

DECEMBER 2012

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TRADE TALK Interview

The trade hub of the region - Dubai With the mission to promote Dubai has an international business hub, Dubai Chamber of Commerce and Industry has been at the forefront of promoting international trade relations and FDI. Aparna Shivpuri Arya caught up with H.E. Hamad Buamim, Director General, Dubai Chamber of Commerce and Industry, to know more about the Chamber’s agenda and his thoughts on Dubai as a trade hub.

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December 2012

H

ow important do you think trade is to the UAE and Dubai in particular?

Trade is vital for the UAE and Dubai in particular. It is one of the pillars of Dubai’s economy and a key driver behind economic growth. Last year our members’ exports and re-exports surpassed all previous records, reaching AED 246 billion, which is 14.5% higher than 2010 and 8.8% higher than the previous trade peak in 2008. Already this year we are seeing strong growth. During the first half, our members’ exports and re-exports valued AED 136.2 billion, compared to AED 120.3 billion during the same period in 2011. At the same time, our membership has risen to over 135,000, which is a good indication of the strength of investor confidence in Dubai.

What is Dubai Chambers’ vision for trade?

Dubai is one of the world’s largest trade hubs. Certainly, in the Middle East, Dubai is the major export and re-export centre supplying the region with a variety of goods and products. We would like to cement this status and that of Dubai as the world’s favoured trade hub. To achieve this, Dubai Chamber is working with the relevant government authorities to enhance customs procedures and to make doing business in the emirate easy.

How does Dubai Chamber encourage cross border trade?

We work closely with our fellow chambers of commerce in the UAE and GCC in order to facilitate trade. For example, we are helping other countries in the GCC adopt the ATA Carnet document. This is a globally recognised document that permits the duty-free and tax-free temporary import of goods for up to one year. The UAE is the first country in the region to implement this important trade document and Dubai Chamber was central to this. Last year,

we began helping Qatar Chamber with their adoption of the system and officials from both organisations met at Dubai Chamber head office to discuss the requirements. Then last month we met with a delegation led by the Council of Saudi Chambers during which we also discussed the ATA Carnet with them.

We will continue to give our support to our Qatari and Saudi partners as well as other organisations across the GCC with projects such as this and others.

For local businesses looking to expand overseas, what support do you provide?

This objective forms a major part of Dubai Chamber’s new focus and in this respect there have been several major developments. The main one is that we

countries. In the first half of 2012, Dubai Chamber participated in 32 events around the world, in 24 cities in 19 countries, including the USA, Canada, Libya, Ethiopia, France, Tanzania, the UK, Belgium, Oman, Azerbaijan, Georgia, Greece, India, Italy, Qatar, Saudi Arabia, Singapore and Vietnam, during which we sought to promote Dubai and its competitive business community. We also took outbound delegations to the Consumer Electronics Show 2012 in Las Vegas, Surat in India, Addis Ababa in Ethiopia and Baku in Azerbaijan. This will remain one of our top priorities over the next year.

We are taking forward our Country Focus Briefing initiative, which was launched in 2010, and will be focusing on new countries to enhance trade

The three main markets we have identified are India, Africa and Latin America. Dubai historically has strong ties with India and parts of Africa and we are working hard to build stronger links with countries, particularly in eastern Africa by sending overseas delegations.

have opened our first ever International Representative Office in Baku, Azerbaijan in November. This office will act as a gateway to business opportunities in Central Asia and the Caucasus and assist our members to establish new venture in this part of the world. We are also in the process of opening another office in Addis Ababa, Ethiopia and have plans to target the Kurdistan region in Iraq. In total we plan to open 20 such offices in key destinations around the world during the next three to five years.

At the same time we regularly organise different initiatives to help our members invest overseas, including taking business missions to prospective

ties and encourage new business partnerships and joint ventures. We are also examining closely the emerging markets of Latin America, Eastern Europe and the African continent to bring them closer to Dubai businesses.

Which countries and products have potential for trade with Dubai in the coming years?

The three main markets we have identified are India, Africa and Latin America. Dubai historically has strong ties with India and parts of Africa and we are working hard to build stronger links with countries, particularly in eastern Africa by sending overseas delegations.

DECEMBER 2012

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TRADE TALK Interview

Our earlier trade mission to Ethiopia and the subsequent announcement about our satellite office In Addis Ababa has helped strengthen our ties with this country and we have begun to explore opportunities in trade, agriculture, manufacturing and tourism sectors.

Likewise, the office in Baku, gives us a base to explore opportunities in Central Asia and the Caucasus, particularly Azerbaijan, Kazakhstan and Georgia.

We have signed an agreement with the Georgia Chamber of Commerce to foster friendship and understanding between our business communities and promote cooperation in trade, investment, technology, services and other industrial business sectors.

Meanwhile, Latin America, is witnessing incredibly strong growth and we think our members could benefit from some of the opportunities being created in that part of the world.

Carnet. The UAE is the first country in the GCC to implement this system and we are encouraging our partners across the region to also adopt it. In Dubai there are about 200 trade shows a year and so the UAE’s adoption of the ATA Carnet system will make importing products and goods for display a lot simpler and cheaper, which will be a major boost for companies working in this sector. We think it will also help attract more exhibitors to Dubai, which was one reason behind our motivation to take up the system.

What measures is Dubai taking to ensure that it is the preferred destination for trade and remains ahead of competition?

Dubai is constantly working to enhance its reputation as a business friendly destination abroad and Dubai Chamber plays an important role in this.

Make sure you understand the market you are entering.

It is important to do your homework first so you understand the legal requirements and any challenges that exist. Preparation is the key. Talk to the right people and make contacts on the ground because they will understand the market and be able to give you advice and guidance

Last year we hosted the Country Focus Briefing – Brazil, which was extremely well received and we will continue to work with our partners in this part of the world to highlight potential opportunities to our members.

How do you see the services sector- hospitality, tourism, medical tourism, banking and so forth contributing to trade in the near future?

We expect the exhibitions and trade show industry to boost trade in the future through increased use of the ATA 22

December 2012

Recently, the UAE improved its position in the World Bank’s Doing Business rankings by three places, which is testament to the efforts of UAE governments and official organisations to make the country a leading international centre for business. This comes on the back of an increase of two places last year which was brought about by increased cooperation and collaboration between different authorities and across emirates.

At the same time the UAE Government is constantly restructuring and reforming the legal and regulatory environment so that the country continues to be

a magnet for international business.

New laws, and amendments to existing laws, will provide a new perspective to doing business in the UAE. These include laws on competition, foreign investment, arbitration, intellectual property, companies, industries and SMEs. For example, a draft of the UAE bankruptcy law should be ready by the end of this year, which will enable listed and family-owned businesses in the UAE to be rescued rather than having to go through lengthy liquidation or bankruptcy proceedings should they fall into financial difficulty. This will have the effect of easing restructurings with greater provision for out of court negotiations and in turn will help attract more overseas investments.

Dubai Chamber puts much emphasis on policy advocacy and during the first half of this year we reviewed 19 federal and local laws and ministerial decisions. These concerned laws and draft laws on foreign investments, financial restructuring and bankruptcy, Ministry of Labour decisions pertaining to wage protection, work permits and classification of establishments as well as law amendments to the Criminalisation of Money Laundering – Law No: 4/2002 and Cabinet Decision Pertaining to Local Products’ Priority in Government Purchases, 2012.

What advice would you give to exporters from the UAE looking to expand overseas?

Make sure you understand the market you are entering. It is important to do your homework first so you understand the legal requirements and any challenges that exist. Preparation is the key. Talk to the right people and make contacts on the ground because they will understand the market and be able to give you advice and guidance. Here in the emirates, Dubai Chamber can offer its members advice and guidance about expanding overseas as well as a range of services which are set to increase as we expand our presence overseas.

TRADE TALK Logistics

(cradle to grave). In this regard, the largescale logistics operations associated with medium and large companies means that logistics can deliver substantial cost savings, particularly when supply chain management operations are outsourced to qualified professionals. The outsourcing model is especially promising in the Middle East, a region boasting globally renowned commercial hubs such as Dubai and yet contending with a lack of supply chain outsourcing.

Maintain the competitive edge It is important for businesses to fully understand the true value of outsourced supply chain management as an essential tool to achieve a sustainable competitive advantage. Frank Courtney, Chief Executive for EMEA region, Barloworld Logistics, explains to us just that.

E

ven if we consider that many business enterprises now operate in what is essentially a global market, wherein effective logistics strategies play a crucial role in business success, supply chain management in general remains a vague concept to many companies.

In the Middle East, although our own experience tells us that there is a growing appreciation of strategic supply chain management, a large portion of the market is yet to take full advantage of the benefits of outsourced logistics solutions.

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December 2012

In fact, analysts predict a relatively modest compound annual growth rate (CAGR) for the Middle East’s contract logistics market of around 7% between 2011 and 2015.

Nonetheless, although the growth forecast is far from ideal, it actually represents an enormous growth potential considering the size of the region’s untapped market.

Supply chain management is the complex aggregation of various professional disciplines, from facility location and information management to order management and even waste disposal

Why outsource?

So what can Middle Eastern companies expect to gain by outsourcing their supply chain management activities? First and foremost, they will be able to unload tasks that are not part of their core businesses, allowing companies to focus more on strategic functions and ultimately growing their business. A true 3PL provider typically specialises in integrated operations, warehousing and transportation that can be tailored to specific customer needs based on factors such as market conditions and delivery requirements.

Moreover, the outsourced solution goes beyond logistics to include value-added services related to the production or procurement of goods. All supply chain activities are dependent and affected by the other logistics activities within the supply chain; the quantity you ship affects the size of the truck required, which in turn affects your warehouse, the number of shipments you need to make, the size of the racks in the warehouse and so on. These activities therefore have to be viewed holistically, and the true value comes from the integration of these services to extract the synergies that exist.

Typically for any medium and large company the resources needed to undertake various logistics functions such as tracking orders, shipping, inventory and returns, and other supply chain tasks can be very time-consuming and expensive. This is where outsourcing becomes a gamechanging tool by offering integrated logistics solutions that are more cost-effective and are managed by experienced supply chain management professionals. Moreover,

outsourcing supply chain management functions enables companies to expand internationally and operate on a larger scale. The setup also reduces risks for businesses starting operations in a foreign country as the provider is more familiar with local conditions. Companies can also tap a proven logistics infrastructure that balances expertise, experience and facilities.

Outsourcing logistics operations to a 3PL provider has the potential to become a significant source of competitive advantage as it frees the company to focus on their core competencies, whilst the 3PL provider can focus on service delivery. It boosts the bottom line for both the retailer and manufacturer through accurate, wellmanaged inventory and supply chain solutions, ensuring the right product, in the right place, in the right quantity and at the right time. It also reduces the need for vast areas to hold inventory. The recorded efficiencies made possible by outsourcing have made it a very attractive business proposition. Recent studies in fact show that companies that reengineer their supply chain and its management on average reduce their total supply chain cost by up to 20%.

What more can be said for a strategy that allows businesses to pass on logistics tasks to experienced professionals so that they can focus more on growth?

With the United Arab Emirates emerging as the acknowledged premier logistics hub of the Middle East, businesses operating in the country stand to gain much from the adoption of outsourced supply chain management solutions. Revenues from the country’s logistics market are expected to hit USD 9.4 billion in the next two years.

The large domestic industries with diverse business interests differentiate it from other logistics markets in the region. Due to the large amount of freight movement in and out of the UAE, it is considered a fertile seedbed for logistics service providers, especially those engaged in freight forwarding and shipping services. This is due to the fact that domestic manufacturing industries typically undertake only trading operations, resulting in a logistics sector that leans more towards freight forwarding.

ABOUT

For the last 27 years Frank has been part of the supply chain industry. He has steered the wheel in almost all departments ranging from transport, inventory optimisation, dedicated transport management, demand planning, SOP planning, warehousing and distribution and now freight forwarding. Frank has worked in different geographies such as Spain, the Middle East, and the Far East.

There are many challenges that offer a strong case for 3PL partnerships in the UAE. Firstly, less than 10% of end-users say that they use a technology solution to facilitate logistics. Third-party providers are also mostly contracted for freight forwarding, international transportation, and domestic distribution services. Only 30 to 40% of end-users outsource warehousing, and less than 10% outsource value-added logistics functions such as packaging, labeling, and quality checks. Moreover, the global recession has influenced enterprises to re-evaluate their logistics strategies. Many

providers, that offer the full breadth of competencies needed to analyse, design, implement and manage any element in the supply chain or to integrate them and manage the supply chain itself.

A supply chain should be fully aligned with a company’s business goals, which is something that an outsourcing provider can help to achieve. By teaming up with a logistics firm with proven expertise and marketleading skills in supply chain solutions, companies can boost their efficiency and effectiveness by better aligning their value chain networks to their business strategies.

Outsourcing logistics operations to a 3PL provider has the potential to become a significant source of competitive advantage as it frees the company to focus on their core competencies, whilst the 3PL provider can focus on service delivery. appreciate that outsourced logistics solutions allow them to optimise their cost structure and concentrate on their competencies, however very few allow their 3PL partner to assist in aligning their supply chain strategy with their business strategy.

One important consideration for those planning to outsource their logistics functions is to partner with the right provider; that is one that shares the same values and goals. It is critical for both parties to fully discuss and understand the nature of their relationship and their respective responsibilities and commitments before they decide to sign a deal. There are a few

Lee Kuan Yew, the prominent Singaporean statesman who transformed his country from an underdeveloped colonial outpost to an ‘Asian Tiger’ economy, once said that ‘If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.’ For Middle Eastern countries, such as the UAE, where outsourced supply chain management is poised to gain more traction in the coming years, now is the ideal time to assess current market conditions, predict future trends, and overhaul their business models accordingly with a sound and transformative logistics outsourcing option on hand.

DECEMBER 2012

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TRADE TALK Logistics

Africa:

the forgotten continent

Recently there has been a lot of reports and media coverage talking about Africa as the up and coming future of business – the forgotten continent that will drive global economic growth and replenish our depleting raw materials with its untouched natural resources. But is this the case? Is this rapid growth happening as quickly and as easily as it might seem? Damien Sheehan, Commercial Manager, DHL Express, UAE, tries to answer these questions.

I

n general I would say yes. With more than one billion people living in the African continent there are enormous opportunities and potential business ventures with several countries. For example, last year trade between the UAE and South Africa reached a staggering USD 2 billion and, based on our shipping 26

December 2012

figures at DHL, this trading partnership is growing year on year, especially within the oil and gas sector.

But is this whole picture? Indeed, there are a lot of hurdles that need to be overcome in order to get the sleeping African giant on its legs and up and running.

Take Nigeria for example. With its massive oil reserves, cheap labor, huge population of over 160 million people and rapidly emerging wealthy class, it has been consistently rated as one of the most promising emerging markets.

All of this signals a lot of potential to expand and diversify its pool of trade

TRADE TALK Logistics

with the UAE (which, based on data from 2009 was at around USD 570million), but security problems have hindered its progress.

Even though shipment numbers to and from Nigeria remain strong, persistent security concerns are clouding its future and making businessmen question whether the rewards outweigh the risks of doing business there. As the international specialists, we have seen first hand how much more can be achieved by emerging nations if they are investor friendly, and by this I mean providing a secure and stable environment to business, as well as a willing and open approach to facilitating trade. The situation in Nigeria is encouraging but there is much room for improvement before it is able to reach its full potential as a global trading partner.

By comparison, there are several African nations that are already flourishing, such as Angola, which has experienced a lot of growth after having deployed several business friendly initiatives to attract investors over the past five years. But even here, there are challenges that still need to be met, specifically around customs where constant and sudden changes in clearance process and procedures are making facilitating trade for investors and large companies an ongoing battle.

What was easily being shipped to Angola one day could change overnight and the next be held back in customs for days, due to an extra document being requested to clear the shipment. This definitely does not help in expanding trade relations with other countries.

And even though we are witnessing continued growth in volumes between the continent and the UAE, we are still faced with the challenges brought about by the lack of infrastructure that is the norm in the majority of African countries.

Investment in this area will make a whole world of difference by improving connectivity with the rest of the world.

More airports need to be built, as 28

December 2012

ABOUT

Damien Sheehan is the Country Commercial Manager for DHL Express in the UAE, the market leader in the international express industry. Based in Dubai, Damien is responsible for all DHL Express Commercial related activities within the UAE. Damien’s career with DHL spans more than 10 years.

He joined the company in Australia in 2000 within the sales group and then spent time in various countries globally including the Philippines, Singapore, USA and Bahrain before arriving in the UAE in 2009. Prior to joining DHL, Damien spent six years in Australia with NYK Line focused on their liner shipping business.

well as implementing a programme of investment to renovate existing ones.

Most importantly, the road network needs to be developed – especially because 60% of the African population does not reside in cities. Enabling access to such a huge population would provide a massive boost for any business to generate millions in revenue, but reaching those people under current circumstance proves to be a challenge.

This is another prime example of how

thus making bilateral trade easy and a motivation for companies looking to benefit from the vast resources that Africa has.

Emerging African countries should also try to learn from other countries that have become global trading success stories. A good example of this is the UAE, which has successfully positioned itself as one of the major trading hubs not only in the Middle East region, but also on the global level.

Investment in this area will make a whole world of difference by improving connectivity with the rest of the world. More airports need to be built, as well as implementing a programme of investment to renovate existing ones. Most importantly, the road network needs to be developed – especially because 60% of the African population does not reside in cities.

Africa can progress and enhance its connectivity to the world, attracting more businesses and investments.

There are many other concepts that can also be introduced to improve trade relations between Africa and the rest of the world, such as adopting the general ‘deminimus rule’, which means introducing a maximum value for shipments that do not require customs clearance, anything less than this assigned value would be easily cleared through customs. This would increase the flow of goods and documents,

This was achieved not only through extensive investment in building the country’s world-class infrastructure, but also through an effective two- way channel between government and the private sector. This has resulted in the introduction of business-friendly processes and regulations, such as having 24-hour customs clearance facilities, overcoming the bureaucratic red tape in setting up businesses and issuing licenses as well as introducing free zones that have helped small and medium sized businesses to thrive.

TRADE TALK FINANCE

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December 2012

The not-so-mighty Dollar Paying international suppliers in US dollars is not the only option and, in many cases, may not be the best option. Western Union Business Solutions offers sound advice on how to make payment in your local currency

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he dollar is certainly the ‘world’s currency’ in the sense that the dollar is accepted globally and more trade is transacted in dollars than any other single currency. Commodities, like grains, oil and metals are priced in US dollars even when traded as far away as Australia and India. And the US dollar really is the currency against which all other currencies are priced. That being said, although the dollar may be the world’s ‘base currency’, so to speak, it may not always be the best choice when paying suppliers outside the U.S. It might make sense to pay international suppliers in their own local currency as opposed to dollars. Although paying suppliers in foreign currencies might conjure up notions of having to open and maintain foreign bank accounts and being subject to the whims of the foreign exchange markets, paying suppliers in their local currency can be simple and cost effective.

Leading international banks and international payment providers offer sophisticated electronic solutions, making international local currency payments as easy as US dollar payments.

The dollar is a foreign currency to international suppliers When a UAE importer pays a supplier in India, China or Mexico, for instance, in US dollars it is highly unlikely that the supplier actually holds a US dollar account. In most cases, the beneficiary of the payment will hold a local currency account (INR in India, RMB in China and MXN in Mexico) and the dollars will be converted into the local

currency before being deposited to the recipient’s account.

Sending dollars is easy for the UAE importer since the Dirham is pegged to the dollar; but receiving dollars poses certain risks or costs to the foreign supplier and they will price these risks and costs into their product. By offering to pay in the local currency instead of Dollars, the UAE importer will relieve the supplier of the risks and costs of receiving dollars and should be able to negotiate a better product price as a result. A discount of 2-10% would be within the realm of expectations given the benefits to the supplier of receiving payment in their local currency.

What costs might a foreign supplier face on receiving a dollar payment? When dollars are received by the supplier’s bank, they are converted into the local currency at a rate prescribed by the foreign bank, and the beneficiary will have little, if any, influence over this rate. The beneficiary account holder is a captive market for the foreign bank and the bank will likely leverage the fact that they are holding the dollars and the beneficiary has no opportunity to shop the exchange rate.

Currency exchange premiums up to 10% over interbank spot rates are not uncommon in some parts of the world.

On top of non-competitive exchange rates, receiving banks also apply transaction fees for receiving and processing foreign currency (dollar) payments. Delays may also be incurred as many banks will only apply the converted funds after their own dollar account has been credited. So, the costs and delays to a foreign recipient of dollars can be substantial, and present an opportunity for the UAE importer to negotiate better pricing by helping to alleviate these costs.

It is really just a matter of minimising the involvement of the foreign bank in the transaction. Less money in the hands of the foreign bank means more money to be shared between the supplier and the importer. Not only is a supplier subject to the costs associated with having dollars received and converted by their bank, but the supplier is also assuming considerable foreign exchange risk by invoicing in and receiving dollars. As we all know, the dollar has weakened considerably against most currencies over the past seven years

By offering to pay in the local currency instead of Dollars, the UAE importer will relieve the supplier of the risks and costs of receiving dollars and should be able to negotiate a better product price as a result. A discount of 2-10% would be within the realm of expectations given the benefits to the supplier of receiving payment in their local currency.

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and this dollar devaluation has resulted in foreign exchange losses to companies exporting to the U.S and other parts of the worlds that deal with USD. Exporters in developed countries have the ability to hedge their US dollar receivables in the forward foreign exchange markets to some extent, but in developing markets like Mexico and South Africa, for instance, the forward currency markets are not established and many companies are not able to hedge their dollar receivables.

Their only option for offsetting the risks posed by the falling dollar is to increase their prices and this, of course, is absorbed by the customer: the importer.

The local side of international payments So far so good for the supplier, right? The importer is going to pay the supplier in their local currency and eliminate foreign exchange risks and costs to the supplier and, hopefully, negotiate pricing discounts in turn. The obvious question now though is: Isn’t the importer now stuck with

ABOUT

Western Union Business Solutions is a division of The Western Union Company, a NYSE-traded, Fortune 500 Company with strong and stable investment grade ratings.

We are a global leader in foreign exchange and a trusted payments provider to clients that operate in international markets. With a robust financial network spanning more than 200 countries and access to over 140 currencies, we empower clients with simple and reliable cross-border payment solutions.

Our distinguished service portfolio and deep industry expertise, enables clients to operate across borders and currencies in fast, reliable and convenient ways. Through our account-to-account payment platform, international payment tools, currency risk management solutions, competitive rates and financial service partnerships, we help clients improve cash flow, manage currency risk and seize global market opportunities.

charged by the foreign bank). And, with advances in technology, paying a supplier in INR, RMB or MXN is just as easy as paying in dollars. U.S. International banks offer international payments in many currencies, as do independent payment solution specialists. The leading providers offer sophisticated electronic multiple payment platforms that make it easy to upload payment instructions for various currencies and payment methods (wire, check, draft, etc) seamlessly via interfaces to accounts payable systems.

Paying international suppliers in their local currency does not have to be an onerous undertaking, and doing so puts the importer in a position of price negotiating strength. You are saving the supplier from considerable exchange rate risk and cost and should negotiate accordingly.

having to manage the foreign exchange costs and risks? The short answer is yes, but it is important to realise that the initiator of a foreign currency payment has a lot more leeway and flexibility to manage the associated costs and risks than does a recipient.

For one, the payer is able to shop his or her foreign payment business to various providers and negotiate competitive exchange rates and transaction fees (remember: the recipient of a dollar payment has to accept the rate and fees 32

December 2012

The payments provider quotes the cost of processing the batch of payments in dollars based on pre-negotiated foreign exchange margins and transaction fees. The payor approves the foreign currency payments and settles in dollars with the solutions provider. Foreign currency payments made simple and easy. Leading international payment providers not only offer sophisticated and user friendly software, but they also maintain extensive correspondent bank relationships enabling them to process

foreign payments accurately and swiftly.

They minimize reliance on intermediary banks by operating local currency accounts in-country.

Taking charge of foreign exchange risk presents opportunity Paying international suppliers in their local currency does not have to be an onerous undertaking, and doing so puts the importer in a position of price negotiating strength. You are saving the supplier from considerable exchange rate risk and cost and should negotiate accordingly.

At the very least, when contracting with a foreign supplier have your invoice quoted in both dollars and the local currency and then check with a competitive foreign currency payments provider to see if it isn’t more cost effective to pay in the foreign currency.

As the saying goes, it doesn’t hurt to ask.

Paying international suppliers in US dollars is not the only option.

International local currency payments offer cost minimising and risk management opportunities.

Drawbacks to paying in dollars: • Dollars are converted into local currency at the bank prescribed rate • Receiving banks apply correspondent and other transaction fees • Delays in funds being credited cause additional costs to the supplier

Currency exchange premiums of up to 10% are not uncommon in some parts of the world.

TRADE TALK FINANCE

All that glitters!

Investors in commodities have experienced another difficult year in 2012 as performance in the three main sectors - metals, energy and agriculture - has varied greatly. Ole Hansen, Trading Advisory Team, Saxo Bank, explains to us the most popular ways of tracking commodity performance and also digs deeper into the continued popularity of gold.

Two major indices The two major indices, as mentioned above - the S&P GSCI index and the DJUBSCI index - have become the industrystandard benchmarks for investors in commodities. These two indices have a large investor following with billions of dollars having been invested either directly into the funds or through exchange traded funds, which track their performance. Furthermore, the performances of many local commodity fund offerings often try to resemble their performance by tracking one of the two commodity funds.

T

aking a look at the sector performance of two of the world’s most followed commodity indices - the Dow Jones UBS CI index and the S&P GSCI index – reveals that overall return so far this year is just around zero. This is a weak performance if we compare with the 12% return on the S&P Index or the 22% return on the MSCI UAE (USD) index during the same time.

What is a commodity index?

Before moving on let us just have a look at what a commodity index actually is and how it works. A commodity index either invests in or tracks the 34

December 2012

performance of a group of commodities based on predefined rules. It is often the performance of these indices that is referred to in the media or when comparing commodity performance with other markets, such as stocks and bonds.

Large investors often prefer a diversified approach, especially to commodities, given the high level of volatility that invariably goes with investing in individual commodities. Commodity index funds help investors to properly benchmark the performance and return of their investments and due to the increased popularity of commodities these funds have grown in recent years.

Different structure and strategy The S&P GSCI, established in 1991, is an index calculated primarily on a world production weighted basis and comprises 24 physical commodities that are the subject of active, liquid futures markets.

The weight of each commodity in this index is determined by the average quantity of production and is designed to reflect the relative significance of each of the included commodities in the world economy. Due to this structure the S&P GSCI is very heavily exposed towards the energy sector with 70.5% of the index currently invested in products ranging from crude oil to natural gas.

The DJ-UBSCI, established in 1998, has a more diversified approach. This index comprises 20 physical commodities, all represented by an active futures market.

No single commodity can comprise less than 2% or more than 15% of the index

and no group or sector can represent more than 33% of the index. The weightings for each commodity included are calculated in accordance with rules designed to ensure that the relative proportion of each of the underlying individual commodities reflects its global economic significance and market liquidity.

Different composition different performance The different structure of the two indices helps to explain their different performances, as seen above. The energy sector, for example, has had the greatest impact on the performance of the GSCI index. Investors looking for passively managed exposure should therefore be aware of these differences as one would either go for a primary exposure to energy through the S&P GSCI or the more broad based approach being offered by the DJ UBS index.

Precious metals’ ascent continues Gold, now in its twelfth year of positive performance, with the price on average having risen by 17% annually, has begun to show strength again following almost one year of sideways trading. Having held critical support levels during Q2 it has now regained some traction not least

ABOUT

Ole Sloth Hansen is a specialist in all traded Futures, with over 20 years’ experience both on the buy and sell side. He joined Saxo Bank in 2008 and is today part of the Trading Advisory Team servicing high-net-worth clients with focus on a diversified range of products from fixed income to commodities.

Before joining Saxo Bank, Ole worked for 15 years in London, most recently for a multi-asset Futures and Forex hedge fund, where he was in charge of the trade execution team.

helped by investors in Exchange Traded Products (ETP) which during the recent period of weakness apparently never doubted the longer term prospect for the yellow metal. While large leverage investors such as hedge funds, which often prefer to gain exposure through futures, sharply reduced their long exposure during the first half of 2012 ETP investors continued to increase their exposure, and it has now reached a point where the amount of gold held by ETP providers is only exceeded by the central bank reserves of the United States, Germany and the IMF. The support for gold is due to a combination of several factors. One is the current lack of alternatives provided in government bond yields from key secure government bond markets, such as Germany and the US. Currently these countries’ bond yields are really low or

Gold holdings in Futures and ETFs

Source: Bloomberg L.P. and Saxo Bank Strategy & Research

even negative on very short maturities.

Combined with inflation, which could rise in the coming months, this leaves the real rate of return from holding secure government bonds negative, thereby removing the opportunity cost of holding non-dividend or coupon paying assets such as precious metals.

Another key support for precious metals is the on-going financial crisis now into its fourth year which has triggered an enormous amount of stimulus from central banks around the world. The recent prospect for additional stimulus being provided by China, USA and Europe has helped precious metals higher as many fear that the ultra-loose monetary policies in recent years carry the risk of degradation or debasement of the US dollar and other fiat money. If people lose faith in the value of money they could instead begin to demand tangible assets in exchange for goods. In such a situation gold would be the most obvious alternative to money, just like it used to be in previous centuries.

So what is gold?

Gold is first and foremost a store of value which has preserved family wealth throughout generations, through periods of high inflation, depression, strong growth and war. This is because of its qualities. Gold is diverse, finite with limited availability (both above and below ground), storable and not prone to decay and it cannot be destroyed. It is estimated that the total amount of gold ever extracted from the ground will fit into a 21 metre cube. Gold is not DECEMBER 2012

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a currency in the sense that it acts as a medium of exchange between individuals in a normal market economy. It is however exchangeable for fiat money and can then be used as money. In addition, we have also witnessed several global clearing houses accepting gold as collateral for margin cover which by some has been seen as a step towards the remonetisation of the metal.

Where is demand coming from?

Up until 2010, central banks were for several decades net sellers of gold. This changed primarily due to the emergence of economies with rapidly rising currency reserves, like China, Russia and India, which wanted to diversify their bulging currency reserves, by moving them away from government bonds and as a hedge against the potential for a weaker US dollar. China, which has the world’s largest currency reserves, still only holds a little more than 1,000 tonnes of gold compared with 8,000 tonnes in the US. Furthermore, demand from global central banks is estimated to rise by 8% in 2012 to 493 tonnes, according to the most recent Gold survey from Thomson Reuters GFMS. Official sector demand has helped to fill the gap left by reduced physical demand in the form of jewellery, coins and bars from the world’s two largest buyers, China and especially India.

These two countries have disappointed so far in 2012 on the back of slowing growth. India’s economy has further been impacted by a limited monsoon, which impacts the wealth of farmers among others, and a weak Rupee which has seen the price of gold in local currency trade at the highest level on record, some 5% above the 2011 peak.

What are the downside risks to gold?

The major risk to gold will come from a change in perception of the path of future global interest rates as rising rates will increase the opportunity cost of 36

December 2012

Source: Bloomberg L.P. and Saxo Bank Strategy & Research

Paying international suppliers in their local currency does not have to be an onerous undertaking, and doing so puts the importer in a position of price negotiating strength. You are saving the supplier from considerable exchange rate risk and cost and should negotiate accordingly.

holding gold (as mentioned previously).

At the moment, the US Federal Reserve has signalled low interest rates until at least 2014, so that threat is still limited.

Another round of extreme risk adversity (which we have witnessed a couple of times in recent years) will hurt gold, despite its credentials as being a safe haven, as the need to realise cash will outweigh all other considerations. Most of the drivers in recent years are all well known to the market and the risk is that the gold investment space ends up being too crowded unless a new trigger is found to carry it forward.

Conclusion: USD 2,000 within reach During August and September gold regained some of the momentum that was lost for almost one year and a strong rally follow. The failure to breach 1800 for a third time triggered some long

liquidation, not least assisted by a slight change in the macro economic outlook with improved US data creating some headwind together with hedge funds who had amassed an unsustainable large position in a relative short period of time.

Once we get into a situation of supporting fundamentals combined with momentum gold will experience a period of dramatic gains as new investors are willing to become involved where others exit. Such a scenario looks likely for the remainder of 2012 and into 2013 with gold expected to be carried forward, once USD 1800 is breached, towards new highs before eventually setting its sight on the physiological level of USD 2,000 per ounce before potentially reaching a technical target of USD 2,075 during 2013. The supporting line in the sand is at the price of USD 1,525 per ounce, below which long liquidation could escalate and become a major correction point.

TRADE TALK Export

Think global Starting a new business venture is complicated enough without the entrepreneurs thinking about their international strategy. Dr. Ashraf Mahate, Head, Export Market and Intelligence, Dubai Exports and Vice Chair, Economic Policy Committee, DED, highlights the issues that SMEs need to keep in mind while expanding across borders.

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y and large the initial focus of SMEs is to cater to the needs of the domestic market in the belief that they have to reach a sufficiently large size before reaching out to global markets.

In reality firms which plan for global markets tend to be more successful than those that do not.

Take for example Logitech, which was established in 1982 with offices in Switzerland as well as in California and manufacturing facilities in Taiwan and Ireland. Seven years later when according to empirical studies 60% of startups fail Logitech with its global aspirations had a turnover of USD 140 million.

Targeting global markets early in the life of a firm helps it pursue not only a larger potential market size but also gives it a better chance of survival. The ease of electronic commerce and improvements in logistics have greatly assisted the process of international trade especially for resource constrained SMEs. Technology has allowed even the smallest of firms to obtain a global presence through an imaginative website, cheap or even free telephone calls as well as a whole host of mobile applications and internet portals. At the same time logistics 38

December 2012

has improved considerably making even the most landlocked region accessible through an ever increasing network of air connectivity. All these improvements have allowed the costs of international business to fall while increasing the accessibility.

From the viewpoint of SMEs it has allowed them to compete with larger firms on a better footing.

Despite the vast improvements in technology and logistics many SMEs tend to ignore global markets due to various reasons, such the false belief that international trade is for large companies, lack of experience or knowledge and most importantly lack of resources. In most cases these are psychological barriers to international trade rather than actual ones. In fact, if SMEs really want to grow their business and capitalise on the strengths of different country requires a SME to be global. The latter point of harnessing country strengths is especially important as it allows the SME to procure the best resources at the lowest prices and thus develop a competitive advantage over its rivals.

In terms of targeting customers the production of goods in key overseas

markets also allows the company to obtain the relevant certificate of origin. This is a key document when exporting as it allows companies to benefit from preferential tariff rates. For example, if a product has 40% value added carried out in any of the 21 Greater Arab Free Trade countries than it can be exported to member nations without any import duty. This implies that substantial price differences can be achieved through adding local content.

One of the key issues facing SMEs is the lack of finance, however empirical evidence shows that global startups are able to raise funds outside the country of the head office. Also, with facilities in other countries these companies are able to take advantage of the various government incentives and subsidies that are available for inward investment. From a risk viewpoint academic studies have shown that investors in different countries do not have the same view of business ventures and hence price risk accordingly.

In other words some countries have a more favourable attitude towards startups/SMEs or particular sectors.

It’s not always the price of finance that is important but also the level to which

conditions are imposed by the lenders. In some countries lenders take a longer term view and tend to be more patient with SMEs. Also, there is a significant difference in the time that it takes lenders to make a financing decision. In some countries it’s possible for lenders to decide within a day while in other countries it can take several months. SMEs have been able to exploit these differences in preferences to obtain funding not only to startup but also expand their business from overseas financiers at lower rates than that available in their home country.

The growth of the Internet and media such as television, films and so forth has gone a long way to creating a more similar global consumer market. As such it is much easier to cater to global tastes and preferences than was previously the case.

In most cases the global consumers can be catered without the additional expense of a physical overseas presence. SMEs can use agents, distributors, export marketing companies or even a franchising model in order to service their overseas clients depending on their particular preference.

All of these can be easy found in trade directories, Internet portals or through participating in hundreds of exhibitions that take place in almost all major cities and trade missions organised by the trade promotion agency of the country. As explained in earlier articles in this magazine each of these different routes to internationalisation has its own advantages and disadvantages which the SME needs to consider.

Although, it is important to plan global the SME has to be realistic in that it does not guarantee success. What is known is that there are certain factors that greatly assist a SME in its path to becoming a global enterprise.

What SMEs need to know It is important to have a global vision ideally from inception or very early on in the life of a SME. Unlike, most vision statements the SME needs to effectively communicate this to all the staff so that they all think globally.

An effective vision statement constantly reminds the staff and owner the direction

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. For more information on Dubai Exports, please visit: www.dedc.gov.ae.

that the company should be taking and where it is supposed to be heading.

Most entrepreneurs do not tend to have international experience of cross-border business transactions. Of course without such experience conduct small problems can quickly become large disasters. In order to avoid this shortcoming entrepreneurs can of course carry out a certified course through the various professional bodies such as the UK Institute of Import and Export. These courses provide a good understanding of key aspects such as letters of credit, the risks of exchange rates, contractual conflicts etc. In addition or instead of this the entrepreneur can talk to their local trade promotion agency such as Dubai Exports in the UAE which has various publications to help firms enter the global market. Trade promotion agencies also conduct short one day courses dealing with key aspects of exporting as well as having staff that can help firms through the initial steps of exporting. In some cases the entrepreneur can utilize the services of an export mentor.

Anecdotal evidence from entrepreneurs suggests that it is important to have business relationships. It is very difficult for any startup to survive without trusted a supportive network of business associates who may be customers, suppliers, facilitators such as logistics etc. An effective business network is able to identify opportunities, provide business advice, helps in negotiations and may even lend their name and reputation to a particular business proposal. Business networks allow resource constrained firms to obtain

a global presence that adds value to their firm. In today’s technology advanced world it is relatively easy for SMEs to build an international network through the use of social media tools as well as internet portals.

Although, the internet has been important in assisting SMES become global it has also meant that firms need to think more carefully about making their products or services unique. A quick search on the internet is able to identify a potential customer companies from around the world that sell the same or similar product. In some cases specialist websites are also able to provide potential consumers with a comparison of the products. Therefore, or a SME needs to have some clear advantage that is more than simply a lower price if it is to be able to compete globally. At the same time the SME needs to be aware that its own success may lead to imitations. Therefore, the SME needs to maintain its distinctiveness.

The lessons from successful SME clearly show that if firms are not exporting then they have to rethink their strategy so as to survive or grow in an ever borderless and highly interconnected world. SMEs are not immune to globalisation and there are a whole host of opportunities available that can be capitalised upon that cannot be ignored. In the end if the SME does not become international then it is only a matter of time before international firms come to the domestic market. When SMEs do become international they need to constantly reassess their products or services so as to stay relevant and globally competitive.

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FOCUS Event

It’s all about Brazil!

Trade and Export Middle East organised a country focus on Brazil, on the 6th of November to highlight the trade and investment opportunities in Brazil. The event was attended by prominent industry and government representatives. We bring you the highlights from this event.

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he event, which was held on the morning of 6th November at the H Hotel, had an impressive line up of speakers. These included: • Eng. Saed Al Awadi, Chief Executive Officer, Dubai Exports • Ambassador Joao de Mendonca Lima, Ambassador of Brazil • Michel Alaby, CEO, Arab Brazilian Chamber of Commerce • David McGee, Global Trade Manager Large Corporations, HSBC, UAE • Carlos Machado, Representative of 40

December 2012

Banco do Brasil S.A. - MENA, Turkey and India • Robert Siegel, Vice President Cargo Commercial Operations Europe & Americas, Emirates SkyCargo • Sidney Alves Costa, Representative for the Middle East, Apex-Brasil • Adil Al Zarooni, SVP Global Sales, EWZ Aparna Shivpuri Arya, Senior Editor of the magazine welcomed everybody on behalf of CPI and gave a brief introduction about the event and the

relevance of Brazil for the UAE and the Middle East.

H.E Saed Al Awadi then took the stage to welcome the speakers and participants on behalf of Dubai Exports.

Dubai Exports has always supported SMEs as well as large corporations that have been keen on entering foreign markets. “The principle aim of our partnership is to foster trade between us and our partner countries.”

Elaborating further, he said, “The UAE and Brazil have had a close relationship.

BRAZILIAN EXPORTS TO THE GCC

BRAZILIAN IMPORTS FROM UAE

We have been working with Apex Brasil in Dubai and ABCC to increase the level of trade and investment between both the countries. For the last three years we have conducted highly successful trade missions to Brazil which have lead to positive outcomes. We have been able to increase awareness about Brazil and the opportunities it offers. At the same time, we have helped Brazilian companies which are keen on gaining foothold in this region.”

Following up on that, H.E, the Ambassador of Brazil gave the opening remarks. He was appreciative of the magazine’s efforts to organise a forum on Brazil and was pleasantly surprised to see a turnout of close to 180 participants. He gave an overview of our main theme - Why Brazil? and encouraged the participants to explore investment opportunities in Brazil.

“Brazil cannot be compared to China and India as it is already a matured economy. Brazil needs to improve its infrastructure, and that is a priority for the government. The government is also trying to bring down interest rates and in fact they are the lowest right now in the past twenty years.

Brazil and Latin America are just as big markets as China and India and a market that needs Middle Eastern companies to come there and do business,” he concluded.

Talking further about this, Michel Alaby from ABCC made his presentation where he highlighted the important sectors, the bilateral trade relations, the good exported and imported.

He also highlighted the investment opportunities in the following sectors: • Agriculture and food • Healthcare services • Fashion industry • Shopping malls • Hotels • Banking • Infrastructure • Telecommunications

And with the World Cup in 2014, there are numerous other opportunities to explore.

“Brazilian Government stated that the

partners and the general unease within the global economy.

“Brazil has been a consumer-driven economy and is now trying to attract investment. The history of Brazil- is one of extreme extreme macroeconomic instability, chronic hyper-inflation and stunted growth off the back of the countries high external borrowing requirements. However that is a thing of the past.”

David highlighted that Brazil has a very strong commodity base, in terms of its exports and when the commodity markets improved, it lead to an improvement in Brazil’s terms of trade, now a net exporter (commodity driven), and accumulation in international reserves along with an improved resilience to fluctuations of the world economy.

The resulting emergence and significant growth of Brazil’s ‘Middle Class’ took place (now 100 million strong); with increased employment

David highlighted that Brazil has a very strong commodity base, in terms of its exports and when the commodity markets improved, it lead to an improvement in Brazil’s terms of trade, now a net exporter (commodity driven), and accumulation in international reserves along with an improved resilience to fluctuations of the world economy. forecast for the next 20 years is to receive USD 1 trillion in FDI through concessions and public tenders,” opined Michel.

To give an external viewpoint, we had David McGee from HSBC, who talked about the investment climate in Brazil. With the global uncertainities and high levels of unemployment, what does it mean for Brazil, the world’s fifth largest economy?

According to David, Brazil is not immune to it. Its economic activity has waned as a result of, policy tightening by advanced economies in response to capacity constraints, weaker demand from advance economies/leading trade

across the board and the expansion in the availability of consumer credit.

Exports remain strong despite Brazil’s economy now predominantly a services economy (services account for 60% of GDP). However, we forecast a 2.8% decrease in export growth YoY for 2012 and a corresponding increase of 4.4% in Import growth for the same period.

This decrease is on the back of weaker demand from the main trading corridors of China, USA, Argentina and Germany.

Commodities still account for the largest share of exports (Iron Ore, Soy and Soft Commodities); however its DECEMBER 2012

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industrial sector is diverse. It is one of the largest aircraft exporters in the world and has a very high concentration of the world’s automobile manufacturers.

However, according to David the transition to an investment lead path to stimulate productivity growth, must now take place.

This has been realised, but the biggest challenge is how to execute this transition.

Brazil is not suffering from austerity measures and inflation remains stable in the short term. Nevertheless it is not completely immune – there is waning business confidence and there is clear erosion in the competitiveness of the manufacturing sector. Costs are on the rise, with wages in particular rising faster than productivity. The threat of increased regulation and the well known onerous and convoluted tax system adds to this challenge.

That said, the stance is very clearly one of pro investment. Brazil benefits from a strong political structure with

JAFZA’S TRADE WITH BRAZIL

There are various streams of investment opportunity in Brazil today, but two main themes prevail: First, Brazil needs to quickly bring deficient core infrastructure up to date.

Secondly, the expansion of urban infrastructure in light of the FIFA World Cup 2014 and the Summer Olympic and Paralympic Games in 2016 is important.

China still remains Brazil biggest trading partner followed by the US.

Brazil benefits from a strong political structure with very few ethnic or social tensions and maintains friendly relations with its neighbors. Its Federal government is strong and active.

very few ethnic or social tensions and maintains friendly relations with its neighbours. Its Federal government is strong and active.

“It holds no pre-conceived views and is welcoming of all to enter and do business,” stated David.

Its policies and concessions to date are pro- investment, with significant reductions in areas related to its desires for efficiency gains, namely infrastructure, energy and any other sectors in which investment would, ultimately lead to an improvement in efficiency and expertise, thus driving down costs and improving its comparative competitiveness.

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On the commodity side, the discovery of huge offshore oil fields provides yet further investment opportunity for those involved in the Energy sector.

Reduction of tax on Energy has also been announced.

The discussion then moved on to Carlos Machado, who spoke about the initiatives that Brazil offers to foreign investors. To invest in Brazil, one key is to focus on segment that are connected to the real economy, like iron ore, steel, telecommunication. Second, you have to have the support of a source of fund that is available to foreign investors.

We all agree that logistics is an important part of trade. And to talk

about that we had Robert Siegel from Emirates SkyCargo, who spoke about the importance of Brazil as a trade route.

Emirates operate a Boeing 777-200F thrice weekly freighter service to Brazil.

Brazil imported 86,00 tonnes from Africa in 2011/2012 and about 7,000 tonnes from the Middle East. The cargo usually has goods from fashion, automotive, fresh fruits and so forth.

Moving on, we had Sidney Alves Costa from Apex-Brasil talking to us about Brazil as an investment destination.

“We are the largest economy of Latin America and we have seen an increase of FDI in recent years and there has been an increased interaction between Brazil and this region.” GCC is a priority area and Dubai is a logistics and financial hub for this region.

Apex Brasil has been present here since 2007 and has been working hard on promoting investment opportunities in brazil.

The last presentation of the event was made by Adil Al Zarooni from EZW, who spoke about JAFZA’s relations with Brazil. Brazil is the 18th largest country in terms of contribution to JAFZA. JAFZA contributes 21% of Dubai’s GDP. The event concluded with Arab Brazilian Chamber of Commerce presenting a memento to all the speakers, followed by lunch. The event received very good feedback and was an apt platform for various stakeholders to interact and gather information about trade with Brazil.

FOCUS SNAPSHOTS

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FOCUS SNAPSHOTS

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December 2012

country

FOCUS KENYA

KENYA

BILATERAL TRADE

INVESTMENT OPPORTUNITIES

LOGISTICS

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FOCUS Interview

The road to Kenya With the aim of improving bilateral trade relations, both, the UAE and Kenya have been actively pursuing trade and investment opportunities. We got the opportunity to talk to H. E Mohamed Gello, Ambassador of Kenya to the UAE, to know more about the history, present and future of trade relations between these two countries.

K

enya and UAE have enjoyed significant trade relations over the years. Last year bilateral trade amounted to USD 2.5 billion. Kenya’s exports have increased significantly over the last three years almost doubling from USD 120 million in 2009 to USD 220 million in 2010.

“Kenya’s exports to UAE include tea, meat products, fruits, nuts, fish, coffee and vegetables, while UAE exports to Kenya include petroleum oil, automated data machines, textiles, furniture, motor vehicle spares, electronics and processed 46

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foodstuff among others,” according to Ambassador Gello.

Talking about how the trade relations have evolved over the years, he added, “In the past, trade relations mainly favoured UAE with little growth in Kenya’s exports to UAE. However, UAE has now emerged as one of the leading export market for Kenya and this trend is likely continue over the foreseeable future. This is because Kenya has comparative advantage in agricultural products for which it intends to position itself as a reliable source market. In this

context, Kenya has and will continue to participate in major food exhibitions such as the Gulf Food Exhibition in Dubai and SIAL Exhibition in Abu Dhabi to showcase its products to UAE and other regional markets in GCC.” When we asked him what advice he would give to UAE investors interested in Kenya, he was quick to point out, “My advice to investors in UAE is that Africa has emerged as one of the fastest growing regions in the world despite the weaker global economic environment. Kenya’s economy is projected

to grow by 5.6% in 2013 up from 5.1% in 2012. Kenya’s stock market is one of the best performing, globally driven by strong institutional demand. The Government continues to encourage the exploration of oil and gas and there is optimism that the recent finding of oil will be commercially viable for extraction.”

“With a population of 40 million people and a member of the East Africa Community and the Common Market of the Eastern and Southern Africa (COMESA) comprising of 21 countries with a combined population of 400 million people, Kenya offers a unique location for UAE investors to penetrate this important emerging market which according to recent reports, may enjoy renewed economic growth fueled by new oil and gas findings in the Eastern Africa region,” he added.

According to the Ambassador, for investors interested in Kenya, there are opportunities in oil and gas exploration and extraction, mineral mining, opportunities in food and agribusiness especially in irrigation, water harvesting and storage and food processing. There are also opportunities in infrastructure development, both national and regional projects including the planned road, rail, oil pipeline and new port that will link Kenya to Ethiopia and South Sudan billed to be the largest investment ever in Africa. Opportunities exist in the ICT and energy infrastructure development with special emphasis on the proposed development of an ultra-modern ICT city on the outskirts of the city of Nairobi.

Other areas that require investment include property development and in the tourism sector.

Talking about Kenya’s presence in the UAE, he opined that there are about 200 Kenya companies in UAE dealing mainly in logistics, printing and trading. “Kenyan companies are keen on exploring opportunities in UAE and the GCC region generally. They have been participating and attending almost important exhibitions in UAE with the aim of expanding their markets.”

There are incentives and benefits that are extended to foreign investors in Kenya and they include:

H.E Mohamed Gello, Ambassador of Kenya to the UAE

Investment Incentives • 100 to 150% investment allowance • Capital goods are zero rated • Duty exemption and VAT waiver for

Investment Guarantees • Foreign Investment Protection Act • Kenya Constitution guarantees against expropriation of private property except for purposes of public use or security • Removal of exchange controls guarantees investors repatriation of capital, profits and interests.

• Member of the Multi-lateral Investment Guarantee Agency (MIGA), an affiliate of the World Bank that insures foreign investments against non-commercial risks • Kenya is a member of the International Centre for Settlement of Investment Disputes (ICSID) which arbitrates cases between foreign investors and host governments • The country is also a member of the Africa Trade Insurance Agency (ATIA) which insures investors against political risks When we asked him what, in his opinion, is the future of Kenya-UAE bilateral relations, he was extremely optimistic. “It is

There are also opportunities in infrastructure development, both national and regionally oriented projects including the planned road, rail, oil pipeline and new port that will link Kenya to Ethiopia and South Sudan billed to be the largest investment ever in Africa.

machinery and equipment • EPZ programme • 10 year tax holiday • Exempt from withholding tax and stamp duty

Tax Structure • Corporate tax is 30% (resident), 37% (nonresident) • Income Tax graduated upto 30% of income • VAT is 16% standard rate • Withholding tax 10% (non-resident) 5% (resident) • Duty ranges from 0– 25%.

instructive that Kenya-UAE relations have enjoyed very strong commercial ties to the extent that UAE has emerged as the leading trading partner of Kenya. We expect this trend to continue in the future and indeed expand as both countries consolidate their positions as regional trade, investment and aviation hubs. The two countries have signed several agreements to bolster bilateral relations; the last one on Avoidance of Double Taxation was signed in November, 2011.”

On that note of optimism, we hope that the coming years will witness growing trade relations between the two nations.

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FOCUS Bilateral relations

Magical

Kenya!

Following up on H.E Ambassador Mohamed Gello’s interview, we bring you a synopsis of how Kenya has engaged the UAE and what opportunities await UAE businesses.

Political and Diplomatic Relations Kenya opened a Diplomatic Mission at the Ambassadorial level in Abu Dhabi in 1982 while the UAE Embassy in Nairobi opened this year. United Arab Emirates is among Kenya’s top five major trading partners with both countries encouraging intermittent interaction between the respective Chambers of Commerce, stakeholder meetings and participation in exhibitions.

The first Kenya UAE Joint Commission for Cooperation was held in Nairobi, Kenya in 48

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2010 for broadening and strengthening bilateral ties which was given impetus by the recently signed bilateral agreement on avoidance of double taxation. The Consulate of Kenya further encourages regular diplomatic consultations on Consular matters, trade and investment, tourism development and joint measures in the fight against piracy in the Indian ocean and humanitarian assistance.

The opening of the Consulate General of Kenya in Dubai in October 2010 was a milestone in cementing these relations

as evidenced when the Kenyan President accompanied by five Cabinet Ministers and the acting Consul General visited and inaugurated the Consulate on 21 st November, 2011 In his endeavor to extend government services closer to Kenyans who mostly reside in Dubai, Sharjah and neighboring Emirates as well as support to the Embassy.

High level visits As a means to consolidating and expanding good relations between

the two countries, Kenya encourages the exchange of high level visits as evidenced by state level visits by Retired President Danial Arap Moi who visited the UAE in 1980 while the late Sheikh Zayed Bin Sultan Al Nahyan, former President of the UAE visited Kenya in 1984. H.E. Mwai Kibaki, President of Kenya paid an official visit in November, 2011, and both Ministers for Foreign Affairs visited Kenya and UAE respectively in 2009 to strengthen bilateral cooperation.

This is in addition to H.R.H. Princess Haya Bint Al Hussein, First Lady of Dubai, making a one-day visit to Kenya in 2010 and several symposia and stakeholder meetings taking place either way.

Trade and development Kenya remains an attractive investment destination for UAE while the UAE hosts

The Kenya Tourism Board in conjunction with the Consulate organised a one day road show focusing on Kenya as a preferred tourist destination and promotion of UAE as a target market and hitherto encouraged players in the industry to build new business relationships. Ten professionals from the UAE market were selected for a familiarisation tour in Kenya The Consulate has initiated the registration of a Kenyan Business Council in the UAE to harness the potential in export and re-export business flourishing between the two countries and enhance interaction with the various Chambers of Commerce.

In commemoration of the Kenyan National day on 12 th December, 2012, the Consulate is further planning to host a Kenyan food and cuisine day on the 13 th, and a Diaspora day coinciding with the launch of KEWA on the 14 th of December, 2012.

Kenya’s export commodities to UAE include tea, fruits, nuts, fish, coffee and vegetables while UAE exports to Kenya include petroleum, oils, automated data machines and magnetic or optical readers.

an estimated 40,000 Kenyan population living and working mostly in the professional sector, hotel, security and logistics.

Kenya’s foreign policy seeks to deepen cooperation with the UAE in the expansion of markets, foreign direct investment, development assistance, humanitarian assistance, renewable energy (support to IRENA) and strengthen joint commission of cooperation Kenya’s export commodities to UAE include tea, fruits, nuts, fish, coffee and vegetables while UAE exports to Kenya include petroleum, oils, automated data machines and magnetic or optical readers.

Diaspora The government of Kenya has integrated diaspora remittances in its economic planning in cognizance that these remittances hit 6.4 billion Kenya shillings in 2009 with Kenyans in UAE contributing substantially. It is against this backdrop that the consulate has brought together Kenyan businesspeople, professionals and entrepreneurs to establish the Kenyan Business Council whose request for registration has been submitted to the relevant authorities to; (a) Disseminate information to the Diaspora on investment opportunities in Kenya (b) Build investor confidence in the

Kenyan market and other emerging frontiers in Africa (c) Address challenges facing Kenyan Diaspora while securing investment back home (d) Create inter linkages with the Chambers of Commerce in UAE (e) Address challenges faced by new Kenyan investors in the UAE and Middle East markets (f ) Level the playing field by developing a one stop information sharing centre for those interested in investing in either country

LABOUR RELATIONS The Consulate takes cognizance that the UAE has endeavored to protect the rights of foreign workers through elaborate federal labour laws and bilateral work agreements, an important element since the number of Kenyans working in UAE has been growing steadily and if the trend continues, we will likely be a major force in the UAE employment market. Towards this end, we encourage finalisation of the ongoing negotiations on a labour and immigration protocol which both sides have agreed to in principal.

Development and humanitarian assistance The Consulate with assistance from Sharjah Charity organised a fundraising to assist people who were facing food shortages due to the ravages of drought in the northern part of the country.

UAE government has equally supported humanitarian and development projects in Kenya through the Abu Dhabi Fund for Economic Development (ADFED), the UAE Red Crescent Society and the Sheikh Zayed Bin Sultan Al Nahyan Charitable Foundation. The Sheikh Zayed Bin Sultan Al-Nahyan Charitable and Humanitarian Foundation Constructed the Sheikh Zayed Children’s Orphanage and Sheikh Khalifa Secondary School both in Mombasa.

The foundation has also financed the drilling of boreholes in different parts of Northern Kenya.

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FOCUS CASE STUDY

A committed partner African Salihiya Cargo and Clearing Company is a logistics company with an integrated supply chain providing chartered air transport of various volumes, to have a sustainable competitive advantage. We caught up with Mohammed Sheikh Abdirahman, Managing Director of the company to know more about their operations.

Mohammed Sheikh Abdirahman, Managing Director, African Salihiya Cargo and Clearing Company

A

frican Salihiya Cargo & Clearing (ASCC) is an Air & Sea and Road Freight forwarding company based in U.A.E. ASCC was founded in 1993 in the U.A.E but has since spread across the globe in leading economies such as China, India, Turkey, Malaysia and many more.

The company provides multi-modal freightair, sea and land.

“We approach the market by offering our dedicated services to our clients, mainly in East Africa, serving them from Dubai International Airport by delivering practical solutions to the various destinations, “said Mohammad.

The company also offers a fully integrated door-to-door service in East Africa through the Eldoret International Airport in Kenya.

The company with its operation base at the Eldoret Airport commenced services from the United Arab Emirates in early 2000.

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Abdirahman explained that the traders collectively get their merchandise, which is packed and labelled individually and the consignment is later loaded onto the chartered aircrafts.

“Our vision is to expand further in the African Continent, and not only concentrate on the East African market. The UAE is a vibrant market for African traders, as this is a transit hub for cargo coming from Europe, the Far East and other countries worldwide.

Our aim is to maintain and surpass the client’s satisfaction with the highest integrity and service commitment,” said Abdirahman.

He said that the traders prefer to send their cargo through African Salihiya, because the company has a proven record of providing value added services, ensuring the clients‘consignment reaches its destination safely.

Asked about competition in the market, Abdirahman admits the competition is stiff, especially in Dubai as there are a number of companies that provide such services but maintained that African Salihiya is outstanding due to its commitment to efficiently serve their clients.

“Our rates from Dubai to Eldoret are very competitive and this route is also busy in air traffic. We have at least two flights on a weekly basis, although the number can increase during the peak season,” said Abdirahman.

He disclosed that the company’s main operational base is London, with agent offices in Turkey, Hong Kong, Bangkok and Nairobi, besides Eldoret and Dubai. “So you can see our network is well connected with the London offices serving Europe, while the others serve the Far East, Middle East and African regions. We have been in business for long and this is one reason, why we have an established clientele,” he added.