ISSUE 14 | february 2013
A practical guide to going global
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EDITOR’S LETTER
Publisher Dominic De Sousa
Mark the date... Writing an editorial is never easy. There is so much one would like to say but it’s difficult to decide from where to begin and what to include.
Group COO Nadeem Hood Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126 EDITORIAL Senior Editor Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133 Contributing Editors Mike Byrne mikeb@cpidubai.com +971 4 440 9105 Tamara Pupic tamara@cpidubai.com +971 4 440 9130 Jenny Kassis jenny@cpidubai.com +971 4 440 9116 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
So I’ll start with talking about the cover of this issue, which highlights the basic foundation of any business- finance. I got the opportunity to cover the Asian Financial Forum in Hong Kong and it was a proud moment since I was the only journalist from the UAE there. The forum was like a breath of fresh air- it gave me the opportunity to find out what is happening in one of the most dynamic region and draw lessons and best practices. The panels focused on different issues such as the internalitionalisation of the RMB, equity markets, and importance of trade for the region. You can read about all this and a lot more in our section on the forum. The other big highlight is of course our Trade and Export Excellence Awards 2013, which will be held on the 25th of February in Dubai. If you haven’t registered for it yet, then please drop me a line. This event is our way of honouring the best in the field of logistics, finance, legal, free zones and business support. It is all these organisations, which make trade possible. So join us that evening to celebrate the spirit of the trading community. We didn’t even realise where January went! It’s been a crazy month with events and press trips. February seems to be no different. I’ll be heading to France to write on France-GCC relations. So watch this space! Also don’t forget to read our Expert column from Raed Safadi from OECD along with our feature on the steel industry and the opportunities it offers. We also bring you my interview with the Governor of Qatar Central Bank, which highlights some interesting details about the country’s stable financial system. We hope, as always, that you’ll enjoy this issue and look forward to seeing you on the 25th! Till then..
Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100 Published by
Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East Registered at IMPZ PO Box 13700, Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409
Talk to us: E-mail: aparna@cpidubai.com
Printed by Printwell Printing Press © Copyright 2013 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
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FEBRUARY 2013
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FEBRUARY 2013
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updates
ISSUE 14
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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 region, 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 December
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EXPERT COLUMN: In his column, Raed Safadi, Deputy Director of the Trade and Agriculture Directorate, OECD, discusses pressing trade issues with us, every month.
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LOGISTICS: Aparna Shivpuri Arya got talking to Mohamed Khalil, VP, Commercial and Marketing, Bahrain Airport Company, to get the details on the work being done by them.
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LEGAL: Sherif Rahman, Al Tamimi &Co, sheds light on doing business in mainland Dubai through an entity registered in one of the free zones in the UAE. Sector Watch:
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CONSTRUCTION: WIWA was started more than five decades ago in a small town near Germany. Today, it’s one of the leaders in supplying pumps to the construction and maritime industry. We spoke to Robert Jansen, Sales Director of the company to get the inside story.
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CONSTRUCTION: In the recent months, the construction sector in the UAE has seen a flurry of activity. We caught up with the management of Smartwill Asia Ltd., Abu Dhabi Branch, which is a subsidiary of Chun Wo Development Holdings Limited to know about their experience of working in the UAE construction market.
trade talk
CONTENTS
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INTERVIEW: A stable financial system is not only a pre-condition but a requisite for an economy’s growth. And it’s the central bank of a country that is given this task. In the case of Qatar, the Qatar Central Bank has been performing this role exceptionally. Aparna Shivpuri Arya spoke to H.E. Abdullah Saud Al-Thani, Governor, QCB, about all this and more.
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INDUSTRY WATCH: Frost & Sullivan highlight the investment opportunities in the steel industry. FINANCE:
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INSURANCE: To ensure that trade takes place smoothly, we have companies like Coface, which provide us with the assurance we need. Aparna Shivpuri Arya met up with Gregory Le Hanand, Regional Manager, Coface Emirates Services, to get a better understanding of their work.
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FINANCIAL SERVICES: BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets. We spoke with its head of sales and relationship management, Dominic Broom, to know his take on the global financial situation and what can traders do to deal with it.
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ASIAN FINANCIAL FORUM: Trade and Export Middle East was the only magazine from the region present at the Asian Financial Forum, which was held in Hong Kong. Our Senior Editor put together some interesting and informative discussions.
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Updates global watch
Be confident but not complacent, business leaders warn With the global economic crisis receding and concerns about Europe and the US subsiding, there is a danger of complacency, global business and civil society leaders warned participants in the closing session of the 43rd World Economic Forum Annual Meeting. “The optimism for recovery is there,” Axel A. Weber, Chairman of the Board of Directors of UBS, Switzerland, declared. A key challenge for business, government and civil society is to restore trust in both public and private sector institutions. The crisis and the austerity measures that governments have introduced to address fiscal deficits have undermined confidence in corporate and political leaders. Implementing reforms and recovery plans fully – without letting politics stall them – is essential. Under the theme Resilient Dynamism, the Annual Meeting 2013 saw much discussion on how leaders can inculcate greater strategic agility – the ability not just to manage risk but to adapt to
it and still retain the capacity for risk taking when doing so might produce meaningful returns. During the Meeting, the World Economic Forum released landmark reports on a range of issues. Enabling Trade: Valuing Growth Opportunities, the result of collaboration among the Forum, the World Bank and Bain & Company, found that reducing supplychain barriers can increase global GDP up to six times more than removing all import tariffs.
Policymakers tinker while business burns 2013 will be about bridging the huge reality gap between improving conditions of the financial system with the still stumbling real economy. That job is far bigger than consensus seems willing to admit, Saxo Bank writes in its financial outlook for Q1 2013. In Europe, Saxo Bank believes this year will be a critical test for Germany’s attitude toward the EU project. The Germans are being forced, step by step, to accept debt mutualisation and this will have a huge impact on not only Germany’s credit rating, but also its export numbers. In Asia, the bank will keep an eye on China and its need to change its business model.
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China’s economic experiment is now one generation old, having been born in 1979. China’s next step is to move through the eye of the needle – evolving from the world’s largest “emerging” economy to a fully developed superpower. In its quarterly outlook, Saxo Bank lists three key changes China will need to make this transition: 1. Increasing competition to reduce corruption; 2. Deeper and more developed domestic capital markets to cater for increased wealth and its storage, and, most importantly; 3. An extension of social welfare programmes, particularly healthcare.
Updates REGIONAL TALK
GCC’s aluminium production capacity to reach 5 million tons by 2014 With global demand for aluminium estimated to increase and reach 70 million metric tons per year by 2020, GCC countries are expected to boost aluminium production capacity by up to 40% to reach 5 million metric tons by 2014, from around 3 million tons in 2012. The GCC region has been a key aluminium producer as it is expected to account for 13% of the world’s total aluminium production by the end of 2013, driven mainly by aggressive investments in the region’s aluminium industry, including construction of new smelters and the expansion of the pipeline network that has further reinforced the region’s position in the global market. Gulf producers tend to take their aluminium production capacity even further to address the strong demand, particularly within the GCC region, leveraging its strategic advantages
including its easy access to low-cost raw materials and proximity to major aluminium markets in Europe, USA and the Far East. As estimated by the Gulf Aluminium Council, around 80% of produced aluminium in the Gulf is exported to different parts of the world, reaffirming the GCC’s vital role to meet local, regional and global demand. In 2011, a number of new aluminium smelters and manufacturing companies were established in the Kingdom of Saudi Arabia and the UAE to drive further growth and establish the Gulf as a major player in the world aluminium industry. On the other hand, the Gulf ’s aluminium investments are seeing significant movement and could hit USD 55 billion by 2022, with USD 22 billion in the UAE, USD 7 billion in Saudi Arabia and Kuwait and USD 5.7 billion in Qatar.
Arab world’s metal exports to Brazil increase 138% The Arab world exported USD 83.72 million worth of metals to Brazil in 2012, representing a 138% increase
compared to USD 35.18 million in the same period in 2011, according to recent figures released by the Arab-Brazilian
Chamber of Commerce. Brazilian metal exports to Arab countries, on the other hand, reached USD 133.90 million with the UAE emerging as Brazil’s top destination with USD 43.19 million worth of imports. The Arab-Brazilian Chamber of Commerce further revealed that the top three Arab exporters
Bahrain’s economic freedom According to the annual Index of Economic Freedom published by The Heritage Foundation and the Wall Street Journal, Bahrain remains the Middle East / North Africa’s (MENA) region’s most economically free country, ranked 1st out of 15 countries. Overall, the Kingdom is ranked 12th out of 177 economies worldwide, and is the only MENA country to rank in the top 20. Bahrain’s economic freedom score of 75.5 showed year-on-year improvement and is well above the world average.
of metals to Brazil in 2012 were Saudi Arabia (USD 37.34 million), Bahrain (USD 30.61 million) and the UAE (USD 4.73 million). Saudi Arabia (USD 35.74 million) and Egypt (USD 15.06 million), on the other hand, joined the UAE as the top Arab importers of Brazilian metals.
USD 133.9 MILLION
Brazil’s metal exports to the UAE
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Community events calendar
Save the date!
We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences in the region and around the world, so you spend less time planning and more time attending. Event
Location
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
Date February 4-6
Second High Level Forum on Global Geospatial Information Management
Qatar National Convention Center
4-6
POWER-GEN Middle East 2013
Qatar National Convention Center
4-6
Water World Middle East 2013
Qatar National Convention Center
5-7
Middle East Rail 2013
Dubai World Trade Centre, Dubai, UAE
5-6
Port Management Strategy Summit 2013
Abu Dhabi
7
Qatar Conference Qatar to the Security of Financial Information
Doha
17 - 19
Middle East Electricity
Dubai World Trade Centre, Dubai, UAE
17 - 19
Middle East Trade Finance Week
Jumeirah Emirates Towers, Dubai
17 - 20
Qatar Projects 2013
Grand Hyatt Hotel, Doha, Qatarents
18 - 20
Machinex Arabia 2013
Jeddah Centre for Forums and Events
19 - 20
Concepts Middle East
Doha
20 - 21
Real Estate Fair Qatar
Doha
22 - 24
Real Estate Fair Bahrain
Manama, Bahrain
25 - 28
Gulfood
Dubai World Trade Centre, Dubai, UAE
Date
Event
Location
March
May May
Conference and Exhibition, Qitcom 2013
Doha
2-5
Seminar - Convert Natural Gas
Doha
6-8
Airport Show 2013
Dubai
4
Gulf Expo-Qatar
Doha
6-9
Energy Qatar
Doha
Makinat Qatar
Doha
5-7
Paperworld Middle East
Dubai
6-9
10 -13
MEOS-Middle East Oil and Gas Show and Conference
Manama
6-9
Project Qatar
Doha
13 - 14
Middle East Geospatial Forum 2013
Doha
6-9
Qatar StoneTech
Doha
17 - 21
Second Turbine Machines Middle East Symposium
Doha
6-9
Heavy Max
Doha
31- 04 Apr.
Saudi Travel and Tourism Market
Riyadh
8-9
Workshop Customer Services
Doha
31- 2 Apr.
World Luxury Expo Doha
Doha
14 - 16
QITCOM Conference And Exhibition
Doha
April
15 - 17
The Hotel Show
Dubai
1-4
Riyadh
26 - 29
Saudi Energy
Riyadh
Doha
27 - 29
Cityscape Qatar
Doha
2-4
Kingdom Airports, Aviation and Logistics Summit Doha Carbon and Energy Forum 2013
1-6
Qatar Career Fair 2013
Doha
June
15 - 16
Business and Investment Forum in Qatar - Berlin (TBC)
Doha
4-6
CHRVI Qatar
Doha
22 - 25
ICC WCF 8th World Chambers Congress
Doha
11 - 13
Automechanika Middle East
Dubai
3-6
GITEX Shopper 2013
Dubai
13 - 14
34th Session of the Ministerial Council for OPEC Fund for International
Doha
16 -17
The Internet Show 2013
Dubai
18 - 23
India Property Show
Dubai
30 - 03 May
Arabian Travel Market 2013
Dubai
18 - 23
India Property Show
Dubai
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ABOUT TOWN
Investing in health The GCC region is one of the fastest growing markets for hospital equipment and services companies, with expenditure on healthcare in the region forecast to continue rising for several years to come. Therefore, it comes as no surprise that the Arab Health Exhibition and Congress gets stronger every year. We bring you a synopsis of this event.
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he Middle East will face an unprecedented surge in demand for healthcare products and services in the next few years. Socio-economic development, characterised by increasing income and access to modern amenities and services, has lead to changes in the population’s nutritional and lifestyle habits, increasing the prevalence of lifestyle-related medical conditions. The substantial growth in healthcare provision in the Middle East has gone hand in hand with the growing success of the Arab Health. The event has become the regional barometer for advances in the healthcare sector. That is the reason that the number of companies have increased from 2,200 in 2008 to 3,500 in 2013. This year, The Arab Health 2013 was held from 28-31 January at the Dubai International 10
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Convention and Exhibition Centre. His Highness Sheikh Hamdan bin Rashid Al Maktoum, the Deputy Ruler of Dubai and the Minister of Finance and Industry of the United Arab Emirates, inaugurated the Arab Health Exhibition and Congress 2013 on 28th January 2013. Major delegations present at the 38th edition of the Arab Health Exhibition and Congress came from China with 428 participating companies (40% increase from 2012), India with over 111 companies (5% increase from last year) and the United Arab Emirates, with more than 200 companies exhibiting (10% increase). Large representations also came from France, Italy, South Korea and Taiwan with upwards of 100 companies each. Running in parallel with the exhibition, the Arab Health Congress addressed the
following key topics – big data, robotic surgery, and complementary medicine. For the first time, the congress hosted a dedicated diabetes conference. During the four days, views on the status of the world’s healthcare sector were exchanged within 19 healthcare conferences and discussions. Arab Health 2013 reinforced the Emirate’s plan to establish itself as a hub for medical tourism with several healthcare providers announcing expansion projects, The UAE’s medical tourism market, estimated at USD 1.6 billion in 2012, is set to grow by 7% in 2013, according to Euromonitor. This goes to show that this sector will only get stronger with time and will offer numeours opportunities for investment and partnerships.
ABOUT TOWN
Recognising excellence In this interconnected world, everything has become virtual. So why should trade stay behind? To honour the companies that have pioneered the use of technology to make trade faster and simpler, Dubai Trade hosted the 5th E-Service Excellence Awards on the 28th of January. We bring you the details.
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he 5 th E-Service Excellence Award was held under the patronage of His Highness Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, during which top performers in electronic services adoption were honored by Dubai Trade, the premier cross-border trade facilitator under Dubai World. The gala ceremony recognising the achievements of the most active online performers throughout the year was held at the Grand Hyatt Dubai and was attended by His Excellency Abdullah Al Saleh, Undersecretary of the Ministry of Foreign Trade. The prestigious event was also attended by His Excellency Sultan Ahmed bin Sulayem, Chairman of DP World; His Excellency Jamal Majid bin Thaniah, Chairman of Dubai Trade; and Eng. Mahmood Al Bastaki, CEO of Dubai Trade, and key dignitaries from the government and private sector, top management and decision makers from manufacturing and trading companies, supply chain service providers, bankers and financiers, and senior executives from Dubai World and its business units. 12
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This year’s prestigious ESEA award witnessed an increase in the number of nominees. The award was given to companies in nine categories in recognition of their high performance in adopting the E-Services provided through Dubai Trade portal. In his speech at the event, H.E Sultan Ahmed Bin Sulayem, Chairman of DP World, commented, “Dubai Trade has consistently demonstrated its proactivity. It has taken on the task of enhancing the Emirate’s position as one of the world’s most popular business hubs and
as a leading trade and logistics facilitator. Dubai Trade receives the full support of DP World in increasing the adoption of E-Services and digital transformation in trade and logistics as this falls directly in line with the UAE’s ambitious goals and efforts in enhancing global competitiveness in facilitating regional and international trade.” In congratulating the winners, H.E Jamal Majid bin Thaniah, Chairman of Dubai Trade, praised the relationship between the trade and logistics community and Dubai Trade. He added, “Year after year, Dubai Trade has succeeded in strengthening its position with the trade and logistics sector that is reaping the direct benefits of adopting Dubai Trade’s E-Services. This occasion also provides a good opportunity to pay tribute to the vital role played by Dubai Trade in supporting trade growth in Dubai.” For his part, Eng. Mahmood Bastaki, CEO of Dubai Trade, revealed new records realised by the portal, with the number of registered users hitting 72,000, an increase of over 26% from 57,000 at the end of 2011. He continued, “As we witness this growing demand, we congratulate the ESEA winners on their efforts in adopting our E-Services. Competition was fierce this year, and this is but a reflection of our winners’ enthusiasm and commitment, and their desire to remain well-informed and benefit from the digital evolution in cross-border trading.” This event was a great success and provided a communication platform between experts from the government and the private sector as well as the youth.
The winners of the 5th ESEA Award are: Clearing Agent Of The Year 2012: Importer of The Year 2012: Exporter of The Year 2012: Haulier of The Year 2012: Free Zone Company of The Year 2012: Shipping Agent – Containerized Cargo of The Year 2012: Shipping Agent – General Cargo of The Year 2012: Freight Forwarder of The Year 2012: Re-Exporter of The year 2012:
Al Areesh Cargo Clearing & G.L.T T. Choithram & Sons L.L.C. Borouge Pte Ltd Arty Transport Co L.L.C Agility Global Logistics FZE OOCL (UAE) LLC Gulf Agency Company (Dubai) LLC Wilhelmsen Ships Service (Barwil Dubai L.L.C) Eros Electricals
TRADE TALK Expert Column
Trading In the 21st Century-Policy Imperatives in the Arab Region In his column, Raed Safadi, Deputy Director of the Trade and Agriculture Directorate, OECD, discusses pressing trade issues with us, every month.
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he developmental challenges facing countries in the Arab region are multiple and complex. Chief amongst them is the need to create close to 100 million new jobs by 2020, a doubling of the current level of employment. It is no exaggeration to state that the Arab region’s economic future will be determined by the outcomes in its labour markets. Indeed, every country in the region suffers from high unemployment, which mostly affects the young, the educated, and women. Building vibrant labour markets in the region requires a fundamental reassessment of the role of the state in each economy. The over-riding objectives are to move the economies away from public sector-dominated towards private sector-driven, from closed to more open, and from oil dominated and volatile economies to 14
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a more stable and diversified economies. The premise of this short note is that embracing an open, transparent trade and investment regime will contribute to breaking the shackles that have undermined the growth and development potential in the region. International trade and investment are widely recognised to be essential contributors to growth, development and, ultimately, economic well-being. A growing body of literature highlights the role of economic openness in promoting higher levels of economic growth, productivity, income generation and job creation. More open markets enable economies to focus more productively on what they do best and to reap the benefits of specialisation. Openness fuels competition by not only offering new opportunities for sales (i.e. exports), but also by making available to
producers the widest range of inputs at the highest quality and lowest prices (i.e. imports). Consumers, both individuals and businesses, enjoy better prices and increased choice, while competitive firms gain reliable access to needed inputs and larger markets. Empirical research shows that exporting firms are generally more productive than non-exporting firms, and typically rank among countries’ most prosperous businesses. Higher productivity is also associated with higher wages and more prosperous communities. In countries for which data are available workers in firms and sectors with high export-intensity earn a substantial wage premium and show above-average labour productivity. By implication, communities with large numbers of export-reliant firms are more likely to enjoy growing tax bases.
Imports play an important role in achieving better economic performance by making available “world class” inputs and capital goods, but also by providing incentives for firms to innovate by adopting knowledge, ideas, know-how and best practices from abroad. Openness allows all countries to absorb technologies developed elsewhere, and to grow, at a faster rate than countries that are less open. A more open domestic market is far from being a handicap; it is a source of competitive strength. The stakes of more efficient services in the Arab region are particularly high for a number of reasons. Services reforms can create more investment opportunities for the domestic private sector, and help attract more non-debt creating foreign financing such as FDI and portfolio investment. Inefficient services, provided mostly by the public sector, and the high cost of key backbone services, such as transport, are important factors that raise the cost of exports from the region, while also impeding trade expansion across the region. Poor and high-cost infrastructure services such as transport, telecommunications, storage and distribution reduce the competitiveness of Arab firms. Public monopolies in ports and port services, combined with poor infrastructure for loading and storing goods, results in high costs for traders. Overall, monopoly shipping and domestic policies favouring national carriers result in low quality, low frequency, and high cost services. Similar observations can be made for air transportation, telecommunications and utilities. Policies restricting trade in land transport services impose high costs on intra-Arab trade. Examples include
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ABOUT Raed Safadi is the Deputy Director of the Trade and Agriculture Directorate of the OECD. Prior to assuming his current position in 2009, he was the Chief Economist for the Government of Dubai. Dr. Raed specialises in the empirical and policy analysis of international trade. Dr. Raed has previously worked for the World Bank and as a consultant for numerous governments, regional development banks and UN agencies.
denial of visas for professional drivers of certain nationalities, arbitrary changes in documentary requirements, surcharges and discriminatory taxes, and prohibitions on obtaining cargo in the country of destination to take back to the country of origin. In addition to its benefits for trade, opening up of services markets to competition can offset the costs of adjustment stemming
import-competing private manufacturing. Because services often cannot be traded, increasing access to service markets is likely to entail the entry of foreign competitors through FDI. This will not only lead to the introduction of new technologies, but also entail the hiring of domestic labor. Reforming services activities is no easy task as the policies that impact them are
The stakes of more efficient services in the Arab region are particularly high for a number of reasons. Services reforms can create more investment opportunities for the domestic private sector, and help attract more non-debt creating foreign financing such as FDI and portfolio investment. from merchandise trade liberalisation. Procompetitive reforms that facilitate entry by new firms can generate large employment opportunities for skilled and unskilled workers who are employed by government in low-productivity jobs or in threatened
million
approximate jobs that need to created in the Arab region by 2020
complex “behind the border” measures that are neither visible nor easily amenable to measurement and analysis, unlike traditional border measures, like tariffs. In addition, they require detailed knowledge of the industry involved. As a result, little is known about the different policies across services sectors, countries, and time: which policies constrain trade and which facilitate it, and what are best regulatory practices? It is thus imperative that countries in the region begin in earnest to examine in details the regulatory framework governing the provision of services within their countries and beyond. International support, including through the OECD and other international organisations. FEBRUARY 2013
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TRADE TALK Logistics
Gateway to the
Northern Gulf Bahrain Airport Company (BAC) was established in 2008, to manage and operate Bahrain International Airport. BAC assumed its responsibility for the airport in March 2010. Aparna Shivpuri Arya got talking to Mohamed Khalil, VP, Commercial and Marketing, Bahrain Airport Company, to get the details on the work being done by them.
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M
ohamed started the conversation by talking about BAC’s role. “BAC’s core objectives are to elevate the role of Bahrain International Airport (BIA) as a contributor to the economy and further enhance the airport’s status, infrastructure and facilities for the benefit of all stakeholders and users of the airport. BAC operates as a commercial entity with a commitment to transparency and to build on the airport’s status as a major international airport in the region through world-class infrastructure, facilities and services.” BAC is governed by the rules and regulations of Civil Aviation Affairs (CAA) Bahrain whose mission is to ensure excellence in regulatory safety systems
to the Northern Gulf. The airport is a major hub for both Gulf Air and Bahrain Air operating hundreds of flights weekly. 39 other international airlines including British Airways, Cathay Pacific, KLM and Lufthansa operate out of BIA.” Mohamed also stated that BIA caters for nine cargo/airfreight carriers which represent 15% of total air traffic movement in Bahrain. In addition to being the one of the fastest growing cargo hub in the region with a number of international carriers, the airport is also the Middle East Regional Distribution Centre. BIA is also a designated “super-hub” for DHL’s worldwide network whose services include significant operations to
One of our major steps was to provide a cargo terminal with 24 hours operations with full facilities operated by Bahrain Airport Services. and to provide high quality aviation services in an environmentally responsible manner. CAA is a part of the Ministry of Transportation and in addition to its responsibilities for all regulatory matters concerning air transport activities within Bahrain (covering operating permits, permissions for over flight and landing, schedule clearance, carriage of dangerous goods, airworthiness and flight operations) also has responsibility for ensuring compliance with international air safety and security standards, regulations and recommendations issued by the International Civil Aviation Organisation and by the International Air Transport Association. CAA is also responsible for licensing airlines, travel and cargo agents to permit the marketing and sale of air transport products and services He then spoke about the airport and the role it plays in promoting trade. “Bahrain International Airport (BIA) is a key airport in the MENA region, providing a gateway
support the reconstruction of Afghanistan and Iraq. The airport is a major regional hub for distribution by air and surface including trans-causeway trucking services to Saudi Arabia, Kuwait and the United Arab Emirates. This accounts for over three million tons of cargo that crosses the causeway annually. The Bahrain Logistics Zone and Bahrain International Investment Park also lie within close proximity to the Airport.
“It is worth mentioning that although other GCC markets have adopted the free zone concept, in Bahrain it is more accurate to see the entire country as a “free zone”. This is because a foreign investor can retain 100% ownership, benefit from the region’s lowest tax rates as well as freedom to repatriate capital, profits and dividends, meaning that the whole of Bahrain operates like a free zone in the traditional sense,” he highlighted proudly. The Bahrain Logistics Zone was set up to be a multi-modal customsfree logistics park, benefiting from the Kingdom of Bahrain’s progressive business environment and legal framework with a mission to leverage KBSP and enhance the volume of export and re-export cargo throughput. When I asked him about what is their modus operandi, Mohamed was quick to point out, “As you would expect, our key partners are organisations that can support the smooth and efficient running of an international passenger and cargo transport hub. From the logistics perspective we are supported by companies, such as DHL which operates from Bahrain International Airport as well as Bapco, Air BP and Caltex which are concerned with the supply of fuel to aircraft. Of course our partners include the Kingdom’s two airlines, Gulf Air and Bahrain Air, and to ensure that passengers benefit from a full service experience, Bahrain Duty Free operates within the departure and arrival
300,000 Tonnes of cargo in 2011
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TRADE TALK Logistics
sections of the airport. As a key driver for the domestic economy, BAC can count the Bahrain Economic Development Board as one of our key partners.” “We focus on the Middle East and especially the GCC region as it is a crucial market to global commerce. We believe that Bahrain offers the best platform from which to reach this market, which is worth well over a billion dollars,” he further added. BIA has a long and proud history in the region and today it is building on this proud heritage by facilitating passenger and cargo operators offering a modern, user friendly and convenient destination with excellent road and sea links to the region. The Kingdom’s MICE facilities are unique, with a range of cost-effective conference and award-winning exhibition facilities on offer, simple visa application systems, a range of cultural and entertainment facilities and the best telecommunications services in the region – all features that strongly differentiate them from others. Talking about the importance of connectivity in this era of globalisation, Mohamed said, “Most of the world airlines understand the need of connectivity into the Middle East. I think this is a critical market and a hub. I think Bahrain offers a fantastic opportunity for them as we give value and can make things happen very quickly.” 18
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For foreign companies looking to set up operations in Bahrain, the opportunities are clear. Bahrain provides a safe environment, both for business through its strong and consistent regulatory framework, and for expatriates looking to move here, Bahrain is highly accessible and offers a good standard of living. The Kingdom also has a strong talent pool of locally trained and educated Bahraini nationals who can provide the cornerstone of any company’s workforce. So how have they managed to maintain an edge over their competitors in the region? “With the continuous demand and increase of air traffic it was crucial to follow the development of this industry worldwide to both sustain our customers and attract new potential ones. One of our major steps was to provide a cargo terminal with 24 hours operations with full facilities operated by Bahrain Airport Services.”
zone, valuables storage, very large/heavy cargo handling and x-ray inspection equipment. While it all seems like a walk in the park, we are sure there have been challenges. “For us watching the industry for the past ten years or so we are relieved with the statistics that we gathered through the past period as they resemble the healthy relationship between the cargo industry and the Kingdom, which highlights a continues growth.” “BIA received a steady increase in the past ten years to transform our total cargo transport from 150,000 T in 2000 to more than 300,000T in 2011. A key challenge for BAC is to identify opportunities to increase capacity so as to ensure that all of our airlines and operators are able to house their offices within the airport cargo complex. A planned redevelopment of the airport is currently being moved forward
A very unique service that we provide is the warehousing which facilitates for around 280,000T mainly from live stocks and perishables among many hardware movements within the GCC area.
“A very unique service that we provide is the warehousing which facilitates for around 280,000T mainly from live stocks and perishables among many hardware movements within the GCC area,” remarked Mohamed. With this increasing demand, the BIA future plan is to raise the cargo warehouse capacity to twice the current at this point and providing many extra services like ICT infrastructure support for assuring capability’s for the coming ten years at least. Some of their main facilities and services include: air-conditioned storage, cargo terminal, dangerous goods handling, express courier center, health officials, livestock handling, mechanical handling, mortuary, refrigerated storage, transit
by the government as part of the broader strategy to invest in the Kingdom’s core infrastructure, “added Mohamed. It is worth noting that the Kingdom’s economy grew approximately 2% last year, despite the global economic and regional challenges, and is forecast to expand at around 4% in 2012. Bahrain’s commitment to liberal economic policies designed to increase growth was reflected earlier this year as it was ranked among the world’s top 20 most economically free nations and the most free in MENA by the annual Index of Economic Freedom, published by The Heritage Foundation and Wall Street Journal. BAC has all the reasons to be optimistic about the future and definitely seems the place to invest.
TRADE TALK Legal
Do you have the right license? There has been some confusion since the issuance of the Law No. 13 of 2011 which was issued by His Highness Sheikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai to regulate the economic activities for licenses to be issued by the DED. Sherif Rahman, Al Tamimi & Co, aims to shed light on doing business in mainland Dubai through an entity registered in one of the free zones in the UAE.
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n Dubai, all economic activities conducted outside the free zone areas are regulated by the Dubai Department of Economic Development (DED). The DED is the responsible government body for issuing all licenses for corporate entities or individuals who desire to carry out business in the mainland of Dubai, the territory in Dubai that falls outside the Dubai free zones. In an effort to facilitate doing business in Dubai, DED has been updating its rules and regulations to act as a one window service center for all licenses in the mainland which will ultimately facilitate the licensing procedures for investors. In fact, the DED provides remarkable and fast services compared to most of the free zones, even those which have a very well organised and friendly environment, without being excessively restrictive. In 2011 a new law has been issued to clear the way for entities (a free zone 20
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company or a free zone establishment) operating in free zones to open branches in Dubai. Some, inaccurately, thought that the Law no. 13 of 2011 permitted free zone entities to do its business outside the free zone without the need to obtain appropriate license from the DED. This is not entirely true as we will explain below.
Opening a branch with the DED through a free zone entity Most of the free zones in Dubai, if not all, do not permit a company registered with such free zone to do business outside the free zone in the mainland of Dubai unless such company obtains appropriate license from the local authority i.e. the DED. Moreover, according to the Law no. 13 of 2011 the DED is the only responsible authority for issuing licenses outside the free zones. The said law states that
no one is permitted to conduct economic activities in Dubai outside the free zones except through a corporate entity licensed by the DED. Anyone who violates the provisions of this law can be fined up to AED 100,000. The common legal forms for free zone entities to conduct business in Dubai are civil work company or a limited liability company or branch. The civil work company can be established to carry on professional activities and it can be owned 100% by non-UAE individuals or foreign corporate bodies including entities registered in the free zones provided that the activities of the corporate bodies matches with the activities of the civil work company. A UAE local service agent will need to be appointed in the civil work company. In the case of a limited liability company a UAE national (or a company owned 100% by UAE nationals) must legally hold at least 51% of that limited liability company. While in the case of a branch, the branch will be wholly owned by the free zone entity and it will have the same trade name as of its parent. Again a UAE local service agent will need to be appointed, however, the branch will be exempted by the Ministry of Economy from appointing a local service agent if the free zone entity is owned 51% or more by UAE nationals. The local service agent does not have any civil responsibility or financial obligations related to the business of the branch. The local service agent’s obligation is to ensure the branch is able to continue its business in Dubai but he shall not have any legal interest in the management, business, profits or assets of the branch. Activities that can be conducted by a free zone entity’s branch Although the Law No. 13 of 2011 is silent in terms of the activities that can be conducted by a branch in Dubai, in practice there are some limitations in this respect. The branch will also need to register itself with the Ministry of
ABOUT Since joining Al Tamimi, Sherif has been involved in many sophisticated corporate structuring and restructuring deals in the United Arab Emirates and the region. He has also advised extensively on optimal structures for doing business in the region. Before joining Al Tamimi, Sherif worked with local UAE law firm and gained diverse experience in corporate, litigation, property and employment matters and other related agreements and contracts. Sherif has the right of audience in Egypt and represented many clients before different types of courts in Egypt before arriving to the UAE. Sherif can be contacted at s.rahman@tamimi.com
Economy and the Ministry of Economy has certain restrictions with regard to the activities that can be conducted in the UAE main land by a branch of a free zone company. For example, the Ministry
favour of the branch’s general manager. 3. Copy of the passport for the general manager and the local service agent or copy of the license in case the local service agent is a corporate body.
Moreover, according to the Law no. 13 of 2011 the DED is the only responsible authority for issuing licenses outside the free zones. The said law states that no one is permitted to conduct economic activities in Dubai outside the free zones except through a corporate entity licensed by the DED. Anyone who violates the provisions of this law can be fined up to AED 100,000. of Economy will not allow a branch of a free zone company to conduct the activity of trading, commercial agencies, labor supply services or restaurants. For the purposes of registering a branch office of a free zone company both DED and the Ministry of Economy are involved. While the requirements of the DED for registering a branch seems to be less problematic. The requirements of the Ministry of Economy to register a branch from a free zone entity include the following: 1. Initial approval certificate and trade name certificate as issued by the DED. 2. Copy of the corporate documents of the free zone entity including duly notarised resolution calling for opening the branch and power of attorney in
4. Local service agent agreement duly notarised at the notary public. 5. Payment of AED 15,000 as the Ministry of Economy fees. 6. Bank guarantee of AED 50,000 in favour of the Ministry of Economy.
Conclusion To conclude, although the Law No. 13 clears the way for setting up branch office of free zone companies in the UAE mainland, there continue to be restrictions in context of the activities that such branches can conduct in the UAE, for example, activities such as trading, commercial agencies, labour supply services and restaurants cannot be conducted by branch office (in the UAE mainland) of a free zone company. FEBRUARY 2013
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TRADE TALK SECTOR WATCH
Because it works! WIWA – Wilhelm Wagner GMBH was started by its founder in 1951, in the family home in Lahnau which is about 70 km from Frankfurt. However, the company has travelled afar and now has presence in all major business hubs. Aparna Shivpuri Arya caught up with Robert Jansen, who is the Sales Director of the group, to know about the product and their Middle East operations.
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hat started out as a means to supplement family income in 1946, soon became a company producing lubrication units with great success. The idea to develop a “high pressure” unit for pumping grease for trucks resulted in units that became very popular. Soon Wilhelm Wagner was being asked whether these units could be used to pump coatings and other liquid products. This resulted in the now renowned Airless 2000 series. Giving more details about the interesting history, Robert said, “With the founding family’s philosophy of providing high quality, robust and reliable units and its 22
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commitment to upgrading technology to suit the demands of clients and material manufacturers alike, WIWA has managed in a span of 65 years to become a leading manufacturer of a wide range of products and is today a name which is known world wide for German quality and engineering.” He further added, “Under the guidance and leadership of the founder’s daughter Mrs. H. Wagner, WIWA has seen consistent growth and has become a company whose clients see it as a industry innovator capable of providing creative and flexible solutions to cater to demands of a worldwide market.”
Products In the early years the single feed units with their robust designs were used in a large scale in the marine industry and saw a great demand not only in Europe but also from all over the world stretching from North America to Japan. The high quality spoke for itself and resulted in a steady increase in business. In due course of time the traditional pre-mixed products began to be replaced by two component materials, to cater to the environment and greater demand for higher end products. According to Robert, WIWA was very quick to react and started producing two component pumps to cater to this need. The management and engineers at WIWA soon realised that by working closely with the manufacturers they were able to design twin feed units with much success. This same philosophy has resulted in a wide range of equipment that caters not only to the marine but also wood, chemical and oil and gas industries. In close cooperation with leading material manufacturers WIWA undertook the further development and optimisation of its highly established powerful plural component application system. The Duomix 333 PFP is capable of spraying products from all leading PFP manufacturers and has now been used on numerous PFP projects successfully worldwide. The PU-460 series caters to the increasing demands of the polyurea market. With this applicators have the choice of mixing ratios from 1:1 to 1:10 thereby allowing them to apply in-situ almost any mixture type foam or polyurethane/polyurea elastomers.
ABOUT Robert Jansen is the Sales Director of the WIWA Group. He has been involved, most of his life, in the coating industry and has experience in a wide range of applications worldwide. He has been with WIWA for more than a decade. For more information, please contact middleeast@wiwa.com
They also have a wide range of equipment that can deal with transfer, extrusion and injection. Talking about their foray into the Middle East, Robert gave us his reasons for setting up shop here. “We have always seen the Middle East as an important market given the huge industries present in the region. The idea of setting up our own facility here comes from our philosophy of being close to our clients and being able to support them in a timely and efficient manner. The facility in Jebel Ali will act not only as a warehouse to stock our equipment and spare parts, but also for training, demonstration, service and maintenance and rentals. We plan to have a spray booth where our partners and clients can come and try out our products and also use it as a means to test and introduce their new products. We will have trained staff that will be present locally to assist with all our client needs and this will serve as a hub for the nearby markets of India and even South east Asia.”
Challenges in the region But as we all know, setting up a business in any region, brings with it, its own sets of challenges. “With all of the manufacturing done in Germany, one challenge we have always faced in this region is delivery time. Projects are always coming up on short notice,” opined Robert. However, with this facility they hope to eliminate
this issue and be prepared to serve the market in the quickest possible way. He also pointed out that by having regular training sessions for the technical staff of their clients they aim to equip them with all the necessary skills which would allow them to use their equipment in the most productive way possible with minimum down time. This would help them to achieve
capacity and reduce reliance on imports, we see huge prospects in the oil and gas sector. The older production facilities are coming up for maintenance and there is a strong push to switch to higher end products, for instance the traditional cementitious based PFP coatings are being replace by intumescent epoxies. We foresee a major growth in the PFP business in the coming years.”
The idea of setting up our own facility here comes from our philosophy of being close to our clients and being able to support them in a timely and efficient manner. The facility in Jebel Ali will act not only as a warehouse to stock our equipment and spare parts, but also for training, demonstration, service and maintenance and rentals.
success in their projects, and ensure that they have repeat customers! New materials are constantly being developed and tested given the demands of the industry, location and health safety and environmental requirements. At WIWA they believe in being at the forefront of technology and by working closely with manufacturers and clients they are constantly innovating and taking our products to the next level. “We don’t believe in resting on past laurels and strive to stay ahead of the game,” Robert reminds us.
PLANS FOR the Middle East So what does the future hold for WIWA Middle East? To this Robert said, “With all the countries in the region pushing to increase
He pointed out that the marine industry – both ship repair and ship new building is also seeing a revival and they are very keen to be a part of this, given their wide range of tried and tested products in this sector. “India is also very interesting for us as there is major investment in the infrastructure projects and also an increasing awareness of international products and standards,” concluded Robert. Well on that note of optimism, our discussion came to an end. It was obvious to us that the WIWA Group has been farsighted from the very beginning and is reaping the benefits by being miles ahead of the competition. With their continued efforts, we see no reason why they won’t always, as Robert said, stay ahead of the game. FEBRUARY 2013
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TRADE TALK SECTOR WATCH
Block by block
In the recent months, the construction sector in the UAE has seen a flurry of activity. We spoke to the management of Smartwill Asia Ltd. - Abu Dhabi Branch, which is a Subsidiary of Chun Wo Development Holdings Limited to know about their experience of working in the UAE construction market.
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hun Wo Development Holdings Ltd. modestly began in 1968 as a sole proprietorship which confined its business to small scale construction works in Hong Kong. Over the past 44 years, the group has successfully evolved into a publicly listed corporation with diversified business segments covering construction projects of various complexities and sizes, real estate development, property management, security and professional services. While their history dates back 44 years, they are young, forward-looking and energetic. They are one of the top five construction firms in Hong Kong, and operate in 11 major regions, such as Hong Kong, Mainland China, Macau, Taiwan, Thailand, Vietnam and the United Arab Emirates, and more. 24
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Smartwill Asia Limited is an Abu Dhabibased property development firm which is a wholly-owned subsidiary of Chun Wo Development Holdings Limited. It has been operating its Abu Dhabi branch since 2008. As a property developer which looks for sustainable development, Smartwill is continuously identifying any possible business opportunity in local area. Currently, they are overseeing their first development at Reem Diamond, the flagship sea-view residential project on Al Reem Island. Their first development project, Reem Diamond, is a 10-storey low-rise residential development in Al Reem Island, built by Smartwill Asia Limited. Located on the beachfront directly overlooking the water, and adjacent to the prestigious Gate District
in Shams Abu Dhabi, Reem Diamond is in the heart of a vibrant urban community, with world class amenities nearby: exquisite shopping malls, mega cinemas, restaurants with international cuisine, 5-star hotels and lush community parks. Travelling to and from Reem Diamond is also convenient. It takes about five minutes to Abu Dhabi downtown and about 30 minutes to Abu Dhabi International Airport. According to the development plans of Shams Abu Dhabi, in future the area will be an ideal place for leisure and entertainment – museums, theatres, restaurants, malls, and so on. The tentative completion date of Reem Diamond is mid-2013. We asked the management, what according to them, were the challenges that foreign
companies such as theirs face in the UAE. To this they said that construction inherently is a very challenging industry. It is a peopleoriented industry and teamwork plays an important role. For a foreign company looking to set up business in the UAE, the main challenges are related to team-forming and two problems that can immediately emerge are: (i) shortage of skilled labour, and (ii) getting the right subcontractors. First of all, labour in the UAE is not inherently “low quality” regarding their construction skills; but it is observed that, at least, there is insufficient trainings for most of them to enhance their skill level in respect of their work. On their local project, intensive supervision on quality of workmanship is often required. Secondly, getting the right subcontractors is undoubtedly crucial to achieve the success; however, maybe owing to the difference in culture and working habit, quite a few local subcontractors are always overpromising (in sense of either schedule or quality, or both) on their deliverables, which eventually require various ad hoc remedial actions for ensuring the progress be still on track. Finally, besides such challenges, sourcing the building materials can also be problematic because both quality and availability of various kinds of building materials offered from the local material suppliers can be limited. It is common for project team to source and deliver the materials from overseas, but it may be particularly risky on scheduling of the project. Notwithstanding these challenges, the sector does offer a lot of opportunities, even though there was a slowdown post 2008. Throughout the years, the UAE Government has gradually implemented various new policies which have effects to encourage and safeguard the growth of local real estate market. In addition, the current recovery of Dubai’s real estate market will eventually benefit Abu Dhabi and other Emirates. These are the indicators showing that opportunities do re-appear in both local construction and property market. Meanwhile, unlike the pre-crisis situation, nowadays the market is buyers and tenants driven. Their property investment strategies tend to be more prudent and rational
instead of emotional, in the sense that they study and analyse in detail the features of their targeted properties before decisionmaking. Their decision factors include the locations of properties, quality of materials and workmanship, future cost of property management services, and more. Undoubtedly, their knowledge on the quality products is also gradually increased. Therefore, properties with high quality of building materials and workmanship which make them distinguishable from others will be the key to success of the project. For example, both Dubai Marina in Dubai and Al Bandar in
creditability), and to deal with the submission processes through the Government offices and/or local authorities. Second, ever-changing environment is the notorious feature of emerging market. Hence, getting to understand and to keep updating the market “norm”, as well as all the procedures and requirements will definitely reduce the risk of mistakes and conflicts during project execution. Such mistakes and conflicts will generally call for re-submission procedures, which are timing-consuming in nature and may even lead to substantial failure of the project.
Therefore, properties with high quality of building materials and workmanship which make them distinguishable from others will be the key to success of the project. For example, both Dubai Marina in Dubai and Al Bandar in Abu Dhabi demonstrate that quality products are always more popular and, hence, result the prices and rents of the properties be more sustainable
Abu Dhabi demonstrate that quality products are always more popular and, hence, result the prices and rents of the properties be more sustainable. Demand of high quality properties always exists in UAE, and the trend of quality product is not only the opportunity but also the way of survival in the local construction and property market. Being one of the emerging markets, UAE (particularly for both Dubai and Abu Dhabi) is a very challenging place for new business establishment. For a newcomer to the local construction market, it is very important to build up a local team with good network; and get to know the “norm” and all the procedures and requirements. According to them, first a local team with good network will ensure useful information be properly collected for prompt decisionmaking. Good network particularly plays an essential role for the business success. For example, it helps to assess the reputation of potential clients (say, their liquidity and
In conclusion, SMEs and companies have to be working very hard to learn, to ask and to strive if they are looking at entering the construction market in the UAE. Talking about their own expansion plans, the management said that Smartwill aims to make a key and impressive contribution to the local urban development. Their local longterm plan is driven by one of their Group’s missions, which is to improve people’s quality of life through city and infrastructural development. We intend to contribute the local society through implementation of high quality living standards and build quality. At this moment, the Group does not have any solid long-term plan at the regional level because they feel it is more desirable to develop their business through a stepby-step approach. They are currently keen to build their reputation in Abu Dhabi through the construction of our projects, with the aim to progressively expand their good name across the GCC through other development projects. FEBRUARY 2013
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TRADE TALK INTERVIEW
Keeping a close watch
Stable financial system is not only a precondition, but also a vehicle of any country’s economic development. In the last few years, Qatar Central Bank (QCB) has been mobilising various measures to ensure financial stability of Qatar’s economic growth. At the beginning of 2013, Aparna Shivpuri Arya shares with you optimistic thoughts and plans of H.E. Abdullah Saud Al-Thani, Governor, Qatar Central Bank (QCB), based on QCB’s outstanding performance in safeguarding and strengthening Qatar’s financial sector. 26
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EXCELLENCE AWARDS 2013 25th February 2013 | Habtoor Grand Hotel, Dubai
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TRADE TALK INTERVIEW
Please tell us more about QCB’s mission and core purposes? Qatar Central Bank (QCB) was established as the monetary authority in the State of Qatar by Emiri Decree No. 15 issued on 5th August 1993 which provided the mechanism for ensuring the stability of banking institutions while developing the banking sector in Qatar. The objectives of QCB are – • Stability of the QR exchange rate and its free convertibility to other currencies • Stability of domestic price levels • Financial stability • Other macroeconomic objectives not in conflict with the above objectives
Given the objectives, the core functions of QCB are to – • Manage and conduct operations related to exchange rate policy • Conduct, implement and evaluate monetary policy • Exercise the privilege of the issuance, and circulation of domestic currency, and adopt and take necessary security measures to prevent counterfeiting • Supervise and control the activities of financial institutions • Conduct domestic public debt operations • Contribute to policies of financial stability • Act as a bank for all banks operating under license from QCB in the State of Qatar • Manage QCB’s reserves • Organise and manage bank clearing operations and payments system • Conduct studies and researches on economic developments • Provide advice to the government on financial and economic issues, and • Promote the banking sector and foster efficiency and development of financial markets.
Please tell us more about QCB’s policies and instructions pertaining to the financial sector?
Taking into consideration the state of the economy and evolving domestic and international developments, QCB has been re-assessing its policies and practices so as to safeguard and strengthen the financial sector. 28
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During the heydays of the crisis, for example, it had provided equity support to banks in a phased manner, along with asset purchases. Subsequently, guidelines were issued to phase out the Islamic branches of conventional branches with a view to preventing co-mingling of assets and limiting potential contagion. As issues of consumer credit and real estate gained traction thereafter, guidelines were issued to banks taking on board the extant best practices. More recently, we have issued guidelines on raising the risk reserve for banks in a phased manner from its present levels. In
affecting their investment books. Thereafter, the government purchased the real estate portfolios that domestic banks wished to sell. All through this period, the government continued to infuse equity in domestic banks as per its pre-announced intention. The overall support to the banking sector, including equity injections and purchase of real estate and investment portfolios, has been of the order to QR 32 billion. As financial markets globally dried up, the Central Bank opened an emergency liquidity window during that period to provide confidence to market players.
It is not easy to document the challenges in a few lines or a few sentences. Admittedly, in a sense we were lucky that Qatar was one of the few countries that were relatively less affected by the global crisis. However, the contagion emanating from the after-effects of the crisis are often far more severe. most cases, these guidelines are issued after consultations with the regulated entities. As a move towards greater transparency, these circulars are presently available on QCB’s Website.
How has QCB maintained financial and banking stability in Qatar during the recent crisis? What were the challenges?
There is no gain saying that it is a fact that QCB has been playing a pro-active, as opposed to reactive, role in ensuring monetary and financial stability in the country. The responses undertaken have been structured in a fashion that enabled the authorities to support the banking sector and its main stay of financial intermediation in a sequenced manner. Thus, equity injections were undertaken early in the process to provide cushion to banks to withstand shocks and continue lending. Subsequently, the authorities purchased the investment portfolios of domestic banks to contain stock market volatilities, since sharp and sudden movements in stock markets were
It is not easy to document the challenges in a few lines or a few sentences. Admittedly, in a sense we were lucky that Qatar was one of the few countries that were relatively less affected by the global crisis. However, the contagion emanating from the after-effects of the crisis are often far more severe. In this context, the authorities undertook detailed assessments of the problems confronting the financial sector and the ways of addressing them. After having done that, it embarked on a plan of supporting the financial sector. In fact, the challenges are never-ending, so to speak. The ongoing Eurozone crisis is also posing challenges for the funding and liquidity profile of banks and we are keeping a close watch on the evolving developments to respond appropriately, as and when the need arises.
Please elaborate on the banking sector in Qatar and QCB’s supervisory activities in this regard.
You would appreciate that there are several aspects of QCB’s regulatory and
supervisory functions. There are 17 banks, both conventional and Islamic, in Qatar which operate under the license from QCB. In its supervisory capacity, QCB oversees the activities of these banks and non-bank financial institutions (excluding insurance companies) with a view to minimising banking and financial risk in Qatar’s financial sector. QCB conducts regular inspections of commercial banks and reviews reports and other mandatory data submitted by commercial banks, including monthly capital adequacy compliance reports. In order to ensure better regulation and risk management in the domestic Islamic and conventional banking sector, QCB issued instructions to conventional banks in 2011 to wind up their Islamic banking operations by the end of the year. Furthermore, QCB has implemented regulations regarding non-performing loans, large exposures, country risk, money market and foreign exchange accounts, credit ratios, fixed assets for banks’ use, reserve requirements and banks’ investments. QCB also imposes certain exposure limits and credit controls on commercial banks. Moreover, QCB has initiated single factor stress testing of the portfolios of commercial banks in Qatar covering the four broad areas of liquidity risk, credit risk, interest rate risk and equity market risk.
How is QCB supporting the achievements of QNV 2030 goals? As part of the move towards QNV 2030, QCB is playing a significant role in achieving the stated objectives. Three major areas where it has been particularly pro-active are strengthening regulation and supervision, developing financial markets and macroprudential surveillance. Consistent with these areas, QCB has created several new departments for closer and continuous monitoring of risks and vulnerabilities, floated new instruments to deepen financial markets and overseeing the implementation of a new law aimed at regulatory unification. Several other initiatives in each of these areas are also in the offing. Taken together, these
developments are expected to nurture and support the development of a solid and vibrant financial sector in line with the future economic developments of the country.
How can QCB contribute to the development of SMEs and the entrepreneurial spirit in Qatar?
As you will realise, although hydrocarbons remain the mainstay of our economy, over time, there has been a gradual shift in the composition of GDP towards the nonhydrocarbon sector. The recently self-imposed moratorium on new hydrocarbon projects has accelerated the need for developing the
growth-oriented policy is to maintain and enhance the international competitiveness of the country’s exports. With this view, the Central Bank either tries to directly or indirectly influence the flow of credit available to export oriented sectors at concessional rates and/or manages its exchange rate. In this regard, Qatar’s National Development Strategy (NDS) 2011-2016 has envisaged a participatory role for QCB for sustainable economic prosperity. Under this, QCB will play an enabling role for economic management under the overall supervision of the Ministry of Economy & Finance. In order to strengthen export promotion, Qatar Development Bank has launched
The recently self-imposed moratorium on new hydrocarbon projects has accelerated the need for developing the non-hydrocarbon sector. It is in this context that nurturing the SME segment assumes relevance. Evidence suggests that SMEs can act as a powerful engine of growth and employment. non-hydrocarbon sector. It is in this context that nurturing the SME segment assumes relevance. Evidence suggests that SMEs can act as a powerful engine of growth and employment. Taking these considerations on board, the policymakers are developing the right set of policies, infrastructure, and institutional setup to promote this segment. Already, there is talk of listing the SMEs on the exchange with less stringent requirements. Banks are also taking an interest in advancing credit to small business. Concurrently, Qatar Development Bank has also been active in providing capital and other relevant support to startup companies. I am sure that these actions will foster the development of entrepreneurial spirit in the country.
How can QCB contribute to enhancement of export opportunities for Qatari companies? The ultimate objective of any export-led
the Qatar Export Developmental Agency, TASDEER, in 2011 with the objectives of – • Developing and promoting exports from Qatar in international markets • Providing export credit guarantees and financial products and solutions to mitigate the risks faced by local exporters
Under TASDEER, QDB provides financial solutions, credit insurance and advisory services for exporters. In addition, QDB also provides support for developing their business and export capabilities through export development and promotion services. The export promotion and development services include developing export strategy by identifying products, targeting markets and providing trade information about foreign markets. TASDEER also supports participants in international and regional trade fairs. All Qatari exporters are eligible for TASDEER support, regardless of the size of their exports, the sector they represent and their turnover. FEBRUARY 2013
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TRADE TALK INTERVIEW
Please elaborate on the importance of exchange rate and absence of currency fluctuations in the success of Qatar’s exports. How it is secured in Qatar? From its inception in 1993, QCB has targeted the exchange rate as a nominal anchor for its monetary policy. The formal framework for the exchange rate policy is a fixed parity between the Qatari riyal (QR) and the United States Dollar (USD) pegged at QR 3.64 per dollar. The decision to keep exchange rate pegged to the US Dollar is based on key considerations which encompass the economic realities of the country, state of development of financial markets and several other factors. As a relatively small, open economy and exporter of a globally-traded commodity, Qatar is a prime example for which a fixed exchange rate regime is most appropriate. The key advantage in maintaining the dollar-peg is that it provides a credible anchor for monetary policy as almost all of Qatar’s export contracts and invoicing are done in the USD. Thus, a stable exchange rate renders stability to our foreign export earnings, the main component of government revenue. Moreover, for most of the period in which the peg has been maintained, the Qatari economy has benefitted from the stable economic environment in the US. Finally, as you would agree, fixed exchange rates are much easier to monitor in the absence of exchange rate risk. Therefore, we continue to reiterate our faith in the pegged exchange rate regime after carefully weighing the benefits against the costs. 30
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Please tell us more about the services sector in Qatar and how has QCB achieved and maintained stability of services prices? What were the challenges? Based on the latest available information from Qatar Statistics Authority (QSA), nominal GDP growth originating from government, social and household services recorded higher growth in 2011 than in the previous year. The significantly higher growth in government services is reflective of the salary increase for Qatari government employees, implemented with effect from 1st September 2011. Regarding stability of services prices, we do not have a sector-specific approach towards inflation but closely monitor the overall inflation at the retail level as represented by the CPI.
Please tell us more about QCB’s achievements and future strategic plans.
You would appreciate that QCB, in consultation with the government, took a series of measures during 2009 and 2010 which helped the Qatari economy in escaping from the pitfalls of the global financial crisis. Moreover, a series of measures taken during 2011 made the financial system more resilient. Proactive liquidity management by QCB, through changes in policy rates and introduction of new instruments viz., Treasury Bills, have resulted in a general softening of interest rates and provided a boost to credit flow towards the productive sectors of the economy.
Regarding stability of services prices, we do not have a sector-specific approach towards inflation but closely monitor the overall inflation at the retail level as represented by the CPI. In March 2011, QCB announced the inauguration of “Qatar Credit Bureau” whose role will be to provide the banks, corporate and financial institutions with information that can assist them in providing credit while reducing their risk. The bureau will provide credit rating to gauge the creditworthiness of a client which will help to support the sustainable growth of credit and will cover both the retail and the corporate sector. It will also provide QCB and the banking sector with analytical data to support the implementation of advanced techniques in risk management. The bureau’s future vision is to progressively develop into an economic information center, which draws upon the analytical insights of all the fundamental economic sectors so as to facilitate better management of the economy. In addition, QCB is in the process of setting up a Risk Management Department and a Central Depository as custodian of securities.
* This article was first carried in our sister publication Private Sector Qatar
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Dubai, UAE Jumeirah Emirates Towers February 17-19, 2013
● Martin Kohlhase, Vice-President, Senior Analyst,
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As one of the longest-running and most established fixtures on the MENA calendar, the event has built an unrivalled reputation for bringing senior business leaders together to discuss the most prominent issues impacting on the local trade landscape. The event will incorporate the 10th Annual Middle East Trade & Export Finance Conference, Trade Finance Networking Reception, Risk-Decision Making Workshop, The Cool Connection Supply Chain Simulation, GTR MENA roundtable and Official ICC Regional Banking Commission MENA Launch.
● Sudhakar Tomar, Managing Director, Hakan Agro ● Suresh Vaidhyanathan, Group CFO,
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TRADE TALK Industry Watch
STRONG AS STEEL Huge infrastructure spending in the Middle East and the GCC countries in particular is driving strong demand for steel and fuelling investment in steel projects. The Metals & Minerals Practice, Frost & Sullivan, brings you an analysis of the steel industry and trade in the MENA region, which is one of the key potential growth sectors in the MENA region.
1. MARKET OVERVIEW • The two major steel production hubs in the MENA have historically been Iran and Egypt, but there has been shift in the industry with the GCC countries emerging as the leading steel producers. • Crude steel production in the MENA has increased from 15 million metric tonnes (MT) in 2000 to the range of 28 million MT by 2010-11 at a Compound Annual Growth Rate (CAGR) of approximately 5.2%. • Crude steel production in the Middle East has doubled from 10 million MT in 2000 32
FEBRUARY 2013
to 20 million MT in 2011, at a CAGR of 6%. • The major raw material source for steel production in the region has been gasbased Direct Reduced Iron (DRI) due to availability of competitive natural gas in the region. DRI production in MENA accounts for about one-third of the global production. • Steel demand is driven by robust construction and infrastructure developments in the region, particularly in the GCC. Middle East steel demand was 27.3 million MT in 2010. • The region is the net importer of iron and steel products, particularly, the GCC
countries driven by their construction and infrastructure development sectors.
2. GCC’s TRADE The GCC’s trade of major inputs and products of iron and steel industry are analysed as: • Ferrous Scrap Ferrous Scrap is one of the main iron feedstock for the steel Industry, particularly for electric steelmaking that is prevailing in the MENA. Availability of Ferrous Scrap in plenty makes the region a net exporter.
MENA Annual Crude Steel Production (‘000 MT)
Bahrain has set up Ferro Alloys manufacturing in their respective countries. The exports of Ferro Alloys from the region are encouraging Saudi Arabia’s exports reached a level of approximately 35,000 MT and Bahrain’s approximately 25,000 MT in 2010.
• Semi-Finished Steel Products The GCC countries specifically Saudi Arabia and the UAE are importing semi-finished steel products such as ingots, billets and blooms for their re-rolling industry. The imports’ trend is much related to the fluctuations in demand by the real estate and construction sectors in the region.
Source: www.worldsteel.org According to Frost & Sullivan, United Arab Emirates (UAE) is the main hub of ferrous scrap trade in the region. Historically, Saudi Arabia was also the leading exporter; however, the Government had imposed a ban on ferrous scrap exports to support the iron and steel industry in the Kingdom. The availability of ferrous scrap in the region, supported with availability of electrical energy at very competitive tariffs, offers potential for further growth in EAF and induction furnace (IF) based iron and steel industry in the region.
• Iron Ore Iron Ore (Lumps, Concentrates, and Pellets) is the main iron feedstock for the gas-based DRI-EAF route steel industry that is predominant in the MENA. Saudi Arabia and Qatar have been the leading importers of iron ores for their DRI-EAF steel plants. Oman and the UAE are the new additions in the iron ore importers’ list, due to their recent entry into the iron and steel industry of the region. Bahrain has been importing iron ores for its iron oxide pelletising plant and has played a key role in supplying iron oxide pellets required by the DRI-EAF steel industry in the region as well as exports to other countries. Oman has now joined Bahrain to supply and export iron
oxide pellets with establishing of iron ore pelletizing plant at Sohar.
• Pig Iron Pig Iron is another iron feedstock for the foundry, ductile iron pipes and steel industries in the MENA. The trend is towards increasing the imports of pig iron in the region.
• Ferro Alloys Ferro Alloys are used as additives in the foundry, ductile iron pipes and steel industries in the region. The major
• Flat Steel Products The GCC is importing flat steel products such as Hot-Rolled (HR) coils/sheets, ColdRolled (CR) coils/sheets and colour-coated/ cladded/galvanised coils/sheets for host of uses and applications. The major ones being steel pipes manufacturing, steel panels manufacturing, steel fabrication for structures, equipment, pre-engineered buildings, porta-cabins, and more. Saudi Arabia and the UAE are the main importers of the same. Saudi Arabia manufactures flat steel products (HR/CR/Galvanised/Colour Coated) to meet the local and regional demand as well as for exports. The UAE has installed coil services and CR/Galvanised flat products manufacturing. The availability of flat steel
27.3 MILLION
tonnes
Middle East’s steel demand in 2010. importers for the same are Qatar, Saudi Arabia and the UA. Considering a good demand for Ferro Alloys in the region, Saudi Arabia followed by
products has been the nuclei for value-added downstream industries development in the region such as manufacturing of preengineered fabricated steel structures, steel FEBRUARY 2013
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TRADE TALK Industry Watch
pipes, insulated panel boards, coils services, cold rolling and galvanising complexes. • Long Steel Products (Angles, Section) In the GCC, Saudi Arabia and the UAE have been the main importers of significant quantities of long steel products such as angles, shapes, sections for construction, real estate and infrastructure developments. • Steel Structures (Rods, Angles, Plates) Similarly, the GCC has also been importing considerable quantities of steel structures such as rods, angles, plates for construction, real estate and infrastructure developments. Again, Saudi Arabia and UAE are the main importers for this. • Alloy and Stainless Steel Products The trade of alloy, stainless steel and special steels products is small in the GCC
ABOUT Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, they have been developing growth strategies for the global 1000, emerging businesses, the public sector and the investment community. For feedback/enquiries contact: deepshrii@frost.com/tanuc@frost.com
as compared to the above carbon and mild steel products. However, the recent trend indicates the increasing trade of these products due to growth in various industrial sectors in the region. • Rails and Rail Products of Iron and Steel A surge in imports of rail and rail products have been noted in the recent past (2008 – 2011), particularly in Saudi Arabia, due to embarkation on development of railway
GCC Iron and Steel (HS Code 72) Trade (Imports-Exports) Balance (USD Million)
GCC Articles of Iron or Steel (HS Code 73) Trade (Imports-Exports) Balance (USD Million)
Source: http://www.trademap.org
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FEBRUARY 2013
network in the country. The imports were in the range of 100,000 MT per annum on an average. • Tubes and Pipes of Cast Iron The GCC has been importing substantial quantities of tubes and pipes of cast iron (particularly ductile iron) required mainly for water sector. The region has manufacturing facilities for ductile iron pipes to meet the local demand as well as for exports. • Seamless Tubes and Pipes The GCC has been importing large quantities of seamless steel tubes and pipes, required for oil and gas, and other industrial sectors such as power, water, chemicals, petrochemicals. Considering good demand for these products in the region, Saudi Arabia has seamless steel tubes manufacturing facilities.
• Steel Pipes, Tubes and Hollow Sections Similar to seamless tubes and pipes, the GCC has been importing large quantities of steel pipes (large diameter welded pipes), tubes and hollow sections, required for oil and gas, and other industrial sectors such as power, water, chemicals, petrochemicals and infrastructure, and so forth. The GCC has installed steel pipes manufacturing facilities, particularly in Saudi Arabia, Oman, Kuwait and the UAE, in order to meet the local and regional demand as well as for exports (which has reached to a level of approximately over 100,000 MT per annum). • Tube or Pipe Fittings The GCC has been importing large quantities of tube or pipe fittings (for example, flanges) of iron or steel for oil and gas, and
other industrial sectors such as power, water, chemicals, petrochemicals and infrastructure.
Middle East Steel Demand Forecast, 2020
• Indirect Imports of Iron and Steel Besides the above direct imports of iron and steel products, the GCC has been importing large quantities (values) of products that are related to iron and steel, for example, valves, pumps, engines, motors, turbines, boilers, machinery, and automobiles, etc. The governments of the GCC countries are promoting localisation of these products in their respective countries, and the local manufacturing of these products is expected to require large scale development of basic industries such as iron and steel making, foundry, forging, machining and fabrication.
3. MARKET OUTLOOK/ CONCLUSION According to Frost & Sullivan, the long-term outlook for the steel industry in GCC, is very promising due to ambitious economic development plans (supported by their fiscal surpluses) by the governments. The vision pursued by them is to become industrialised nations, to diversify the sources of their income away from the oil economy. To this end, governments are promoting industrialisation programmes in their respective countries aimed at becoming selfreliant to the extent possible to reduce imports
Source: Frost & Sullivan Internal Research
is promoting automotive, industrial appliances and white goods, metals and minerals processing, plastics and packaging clusters. Saudi Aramco is promoting a Local Manufacturing Development Programme. Oman and Qatar are also implementing similar programmes for development of steel cluster in their respective countries. The mega trends in the GCC are being witnessed in various sectors, the major
70 MILLION tonnes forecasted demand by 2020 for steel demand dependence, and generation of employment and entrepreneurial opportunities for local nationals (the younger generation accounts for the majority in local populations). For example, Saudi Arabia’s National Industrial Clusters Development Programme (NICDP)
ones are: automotive, railway, economic and industrial cities, petrochemicals, real estate which would drive the steel industry’s growth, as various projects announced/ underway in these sectors are expected to be completed by 2020.
Frost & Sullivan forecasts good growth in the steel sector in the Middle East, steel demand reaching a new height of 70 million MT by 2020 assuming CAGR at 10%.
• Global opportunities GCC provides a cost-effective platform for international companies in steel business and its value chain to expand their operations to new geographical locations such as GCC countries. Some of the key benefits offered to investors include: • The GCC’s cost leadership in energy prices • Local availability of scrap at competitive prices. • Potential growing markets. • Government incentives to foreign investors in the manufacturing sector. • Large scale industrial cities and parks • Concessional debt financing /Government soft loans • Excellent logistics facilities with a strategic location along main shipping routes that connect Europe and North America to Asia • Various fiscal benefits *You can read the full report online on our website www.tradeandexportme.com FEBRUARY 2013
35
TRADE TALK Insurance
The safety net An increase in cross border trade is a result of globalisation and melting borders. But this globalisation has also brought with it increased risks and uncertainties. To ensure that trade takes place smoothly, we have companies like Coface, which provide us with the assurance we need. Aparna Shivpuri Arya met up with Gregory Le Henand, Chief Commercial Officer, Coface Emirates Services, to get a better understanding of their work.
C
oface Emirates Services, established in September 2005 in the DIFC financial hub of Dubai, is Coface’s regional headquarters for the Middle East. Gregory started by giving us a background about Coface and the services it offers. “Coface, a French based corporation was created in 1946. It currently has 4,600 employees in 66 countries. It guarantees over USD 450 billion of customer debt in over 100 countries, and detains a database of over 60 million companies around the world, with constant updates on payment and seller experience, financials, country risk and more.” Gregory further added that Coface is actively working in developing markets, especially BRIC, Africa and Asia. Through its seven geographical platforms, Coface offers, companies around the globe, insurance solutions to protect them against the risk of financial defaults of their clients, both on the domestic market and to export. The mission of Coface Emirates is to support Emirati and regional companies’ 36
FEBRUARY 2013
development in the Middle East region and beyond by reducing the risk arising from extending credit to domestic and international customers. Coface Emirates currently offers solutions in three business lines: credit insurance-related services, debt collection, and company information. So what exactly are the different kinds of risks that businesses can face when it comes to trade? According to Gregory, all companies rely on credit sales to grow their business. “In this aspect, beyond the risk of dispute or fraud that arises from any trade transaction, the credit risk remains the most significant risk faced by companies willing to expand, especially SMEs. The account receivables represent on average 40% of a company’s assets. This means that any deterioration in the financial strength of a company’s customers leads to a deterioration of the company’s most valuable asset, accounts receivables. Consequently, this asset deterioration will affect its ability to borrow, to develop and sometimes to survive- more than 1 out of 4 insolvency is related to non payment of a customer debt,” added Gregory.
Gregory then told us what a company can do to mitigate these risks. “The most efficient and comprehensive instrument available to trading companies to mitigate these risks is Trade Credit Insurance (TCI). It consists of transferring the credit risk to an insurance company through a complete trade receivables management solution, “remarked Gregory. Trade credit insurance typically covers against non payments due to customer insolvency, protracted default, payment delays and political risks for export sales. For one time transactions with large corporates, products such as Credit Default Swaps (CDS) are also available through banks. Giving us the details about TCI, Gregory explained that TCI has been used for over ten years by UAE based branches of foreign groups, to cover their export sales. Over the last decade, the UAE economic development strategy has been to play a leading role not only in oil related activities, but also in trade and manufacturing ones. The demand for trade solution has grown accordingly. Therefore, Coface aimed at making the TCI product also available for domestic
market, to support trade growth of the region, in and out the region. Does the credit insurance depend on the size and activity of the company? “Indeed, the pricing of the insurance contract is made in accordance to the sector of activity of the company, the country risk and the profile of its portfolio of customers. To achieve this, Coface relies on the expertise of its 350 underwriters and its track record of companies’ payment behaviour. Each quarter, Coface also publishes its assessments of country risk for 157 countries, publicly available on our Website,” Gregory pointed out. The company size also matters: to structure the insurance policy, they need to look at more specific information such as the loss and payment experience of the company, its annual credit turnover and sales evolution. Moving on to another trade finance topic, we picked his brain on factoring and how is it different from traditional banking products. Gregory was quick to oblige – “Factoring is the purchase by a factor, usually a bank in the UAE, of his client’s customer’s receivables (invoices), in exchange for providing as immediate financing to his client a percentage of the invoice value. In comparison with invoice discounting, which is for one time use and subject to the bank holding securities, factoring is a continuous financing line, available to the client as long as invoice are generated and growing with the sales activity. Factoring financing can also be offered on a without recourse basis and at a lowest interest spread if it’s backed by credit insurance.” However, without strong assets or securities, it remains challenging for Emirati SME’s to obtain financing from local banks, which have to deal with devaluated assets carried over from the real estate bubble, the ongoing financial crisis and the higher capital requirements of the Basel 3 regulations. “Coface Emirates developed several partnerships with local banks through the GCC, including industry leaders Emirates NBD, Commercial Bank of Dubai, Mashreq Bank. These major lenders of the UAE economy partner with Coface to offer financing solution to companies whose receivables are backed by credit insurance coverage,” said Gregory to ease our concerns.
ABOUT Gregory holds a Master Degree from Bordeaux Management School, France. After a year MBA participation at Ateneo University, in Manila, Philippines, he started his career in the US in 2005, where he joined Coface North American operations as a commercial underwriter for International accounts. In 2009, he evolved into a sales team management position as Global and Key Accounts Manager, developing the portfolio of large Local and International clients. In May 2011, he joined Coface Middle East Operations as Chief Commercial Officer.
Trade credit insurance typically covers against non payments due to customer insolvency, protracted default, payment delays and political risks for export sales. For one time transactions with large corporates, products such as Credit Default Swaps (CDS) are also available through banks. After some heavy discussion on finance topics, we asked him his opinion on the trade scenario in the Middle East. He was quite optimistic and said that the volume of UAE export trade is bound to grow significantly in the years to come, as the UAE based businesses grow in size and competitiveness. This is valid not only for export within GCC, but also to Africa and Asia. In this light, and given the young age of credit insurance product in the GCC, Coface is projecting the volume of credit insured trade to double within the next five years. While the nature of the risk will remain within the customer performance and the sector, they expect to see significant progress in governance from the insured companies: credit management standards have considerably improved over the last three years, especially after the 2009 financial crisis and the recent political events that lead to export customer defaults in some Middle Eastern countries. “If we look at the Middle East as the whole, the Arab spring and the international community sanctions on Syria or Iran have accelerated the redistribution of the
regional trade dynamics in a way that is favourable to TCI. The UAE, our leading market, has been the first beneficiary of these events, by capturing more trade activity thanks to its political stability, fiscal advantage and multi cultural environment. On the back of this momentum, Coface recorded double digit sales growth with existing customers.” So what’s the road ahead for Coface in the region? “We are planning on opening an office to accelerate our development in Saudi Arabia, the second largest market for TCI in the GCC region and its leading economy. Not only would we cover the export sales of the Oil related industries, but also offer Shari’ah compliant solutions to local companies. Significant investments are made in infrastructure, manufacturing, healthcare, and we want to capture some of this growth. Also, while you can find more reluctance from Saudi companies to share financial information, they become more open to it within a long term partnership.” This brought us to the end of a very interesting discussion and helped us understand some important trade finance tools and the work that Coface is doing to support global trade. FEBRUARY 2013
37
TRADE TALK Finance
Face the
challenge BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets. We caught up with its Head of Sales and Relationship Management, Dominic Broom, to know his take on the global financial situation and what can traders do to deal with it.
Please give us a brief background about BNY Mellon – the services it offers internationally and in this region. We operate in 36 countries and serve more than 100 markets worldwide. BNY Mellon has been conducting business in the Middle East and Africa for more than 100 years, and we have remained focused on helping our partners grow their business through some challenging market conditions. We established our first office in the region in Beirut in 1963, and have since expanded our regional footprint with further branches in the UAE, Egypt, Lebanon, Turkey and South Africa. 38
FEBRUARY 2013
All of the services we provide throughout the Middle East are designed to add value to large institutional investors who mandate us to manage their money and provide a full range of custody and reporting products. Issuers of debt and equity in the international capital markets look to us to provide depositary and trustee services, while local commercial banks leverage our payment and trade services to support the international trade and remittance needs of their customer-base. Looking at our standing at global level, BNY Mellon has USD 27.9 trillion in assets under custody and administration and
USD 1.4 trillion in assets under management, services USD 11.6 trillion in outstanding debt and processes global payments averaging USD 1.4 trillion per day.
What is your opinion on the impact of the global financial crisis on this region? Are there any tools for mitigating the risks?
The Eurozone crisis has been – and is set to remain – cause for concern for the Gulf’s oil exporters. A deepening of this crisis could lead to further economic slowdown and ultimately decrease the region’s oil purchasing power. A further worry in this
respect is the recent warning issued by the International Monetary Fund urging the Gulf countries to beware of budgets falling into deficit over the next five years. Of course, this has done little to appease growing regional concerns over the volatility of oil prices. Looking further afield, anticipated economic developments in the United States – notably a potential devaluation in the USD – also stand to (adversely) affect the region’s economy. For example, many Gulf countries have their currencies pegged to the US dollar, meaning that any changes could have a significant impact on local currency values. For this reason the socalled US “fiscal cliff” – the combined effects of a number of laws that, if unchanged, could result in simultaneous tax increases and spending cuts – is at the forefront of Gulf market concerns, and the region – alongside the rest of world – awaits the wider market’s reaction in 2013.
ABOUT Dominic Broom was appointed as Head of Sales and Relationship Management for BNY Mellon Treasury Services, Europe, Middle East and Africa (“EMEA”) in August 2011. Dominic Broom joined BNY Mellon Treasury Services as Head of Market Development EMEA in September 2006. Broom began his career on Chase Manhattan Bank’s graduate training programme, and prior to BNY Mellon held international positions at UBS Warburg Dillon Read, Standard Chartered and ABN AMRO. He holds an Honours Law Degree from the University of London and a diploma in Advanced French from the Universite Catholique in Lyon, France
Keeping this promising momentum going will depend in part the ability of the region’s banks and businesses to effectively mitigate risk; something that the Middle East – a historically conservative region has long understood. With respect to trade, the letter of credit (LC) remains revered for its
The biggest risk for any region, country or business is failing to prepare for a potential shift of global economic power. The ongoing rise of China has the potential to change the game – positively – for the Middle East.
Despite current and looming concerns, however, the region’s economy is recovering at a slow and steady rate. Indeed, 2012 GDP growth for the UAE – for the first time since the onset of the financial crisis – will be around 4%, and on target to top the AED 1 trillion (USD 272.25 billion) levels. Looking at specific markets throughout the region, Dubai in particular has been – and is set to remain – in an advantageous position, as it continues to be considered a safe haven amid the region’s ongoing political turmoil. The Dubai Financial Market has had a two year high in trading volumes and recent reports suggest that other branches of the economy, such as the construction industry, are starting to improve. In addition, trade, transport and logistics are back on track – with shopping malls, hotels, airports and the harbour showing high or full occupancy.
risk-mitigating properties, and LC usage is higher in the Gulf than in any other global region. Hedging tools are also vital, and are meriting greater focus as companies become increasingly aware of the importance of mitigating currency risk. The advent of Sharia-compliant hedging products is also a key development with respect to managing transaction risk, particularly as Islamic finance becomes more prevalent throughout the Gulf.
How has the Eurozone crisis impacted international trade and investment?
The sovereign debt crisis in the Eurozone, compounded by country-specific issues – such as Spain’s unemployment crisis and the civil unrest in Greece – have depleted global confidence in Europe’s economy. A major consequence of the troubles in the Eurozone
– and indeed the US fiscal cliff – is the shift of focus from West to East. China is emerging as a global powerhouse and stands a chance of becoming the world’s largest economy – thereby completely changing international trade and investment as we know it. All markets have to find a way to manage this shift in focus, and the Middle East can do this by re-evaluating its relationship with Asia as a whole, and then taking steps to find the best way forward with respect to trade and investment with the Asia’s leading economies, chiefly China and India.
Besides the Middle East, Asia has also been going strong. Do you see any synergies between the Middle East and Asia when it comes to trade and investment? How can Middle East businesses take advantage of Asian powerhouses like China and India? The biggest risk for any region, country or business is failing to prepare for a potential shift of global economic power. The ongoing rise of China has the potential to change the game – positively – for the Middle East. This is especially true when it is considered that trade between the UAE and China has grown by 10% per annum – a fivefold increase – in the past decade, and is set to continue growing. Oil ties between the Middle East and China are already strong, with China and Saudi Arabia benefitting from the Sinopec and Saudi Aramco alliance. Talks of their trade agreements extending beyond oil to FEBRUARY 2013
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TRADE TALK Finance
encompass other goods and services are a good sign, and support the statement by the UAE’s foreign trade minister, Sheikha Lubna Al Qasimi, that trade between the Gulf and China is expected to hit USD 300 billion by 2014. Of course, it is impossible to discuss the growing importance of China as a global trade player without considering its currency: the renminbi (RMB). The RMB
speed and transaction efficiency that modern cross-border trade demands. Such solutions, in bringing together speed and security, can allow businesses to flourish without compromising safety and security. In recognition of their importance, BNY Mellon has continually invested in such solutions, and we work closely with our local partner banks to deliver them to the market.
$27.9 trillion
assets under custody and administration by BNY Mellon
is currently the 14th most traded currency globally but its significance is expected to grow, especially across the Asia-Pacific region. In the UAE we are already seeing a (slow) move towards trading in the RMB, and Dubai may benefit from its increasing importance by opening an RMB currency centre capable of trading through all timezones. BNY Mellon plans to begin clearing in renminbi in the foreseeable future and, and as the regions capital markets mature, we are likely to see an uptick in RMB cash settlement.
What innovative cash management solutions and strategic treasury management options would you recommend to businesses in these unstable times? In line with the increase in trade flows between the Middle East and Asia, we are seeing a growing demand for working capital solutions that combine the risk-mitigating properties of traditional instruments, such as LCs – with the increased processing 40
FEBRUARY 2013
Businesses must also look for solutions that bridge geographical and market/ regulatory-imposed divides. With this in mind, our focus is and will remain as we look to 2013 on facilitating buyer-seller communication. Although acting as an intermediary in this way has always been the bank’s role, fulfilling it today requires a balance of sophisticated, flexible technological architecture and local market expertise. Strategic partnerships between local banks and global providers can combine the traditional, relationship aspects of trade with the latest developments in technology — and can therefore be the key to keeping trade flowing in what is becoming a complex and fragmented world.
What is multi-currency clearing? How is it relevant to businesses and how and why should they use it? In an increasingly globalised world subject to ever-shifting trade flows, multicurrency payment capabilities are vital
– although the inherent inefficiencies and complexities can prove costly. Middle Eastern companies can avoid the need to maintain (and reconcile) multiple accounts, and thereby lower their costbase, by migrating from the use of separate currency accounts to multi-currency funds. The consolidation of multiple payment streams into a single account ensures improved transaction data management as well the ease and efficiency of having just one body through which to navigate regulatory requirements.
What is your advice to businesses in the UAE and the region, keeping in view the Arab Spring and other uncertainties? Are there any dos and don’ts you would recommend?
My advice is to take a broader view of risk. “Know-your-customer” (KYC), important though it is, is just one aspect. Companies must think of the risks associated with the transaction cycle in its entirety – and one of the dangers in this respect is key supplier failure. It only takes one weak link to break a chain, and businesses must ensure they can remain operational should the worst happen. Closely linked to supply chain security is payments security – payments being the fuel of all supply chains. This goes beyond the security of the payments process, to include the security of cash inflows – how likely are buyers to pay (linking back to KYC) and, equally importantly, pay on time? Managing cash inflows is always a challenge, but with optimal cash management being crucial to survival – particularly for SMEs who are more likely than their global counterparts to incur difficulties securing affordable funding – it is a challenge that must be addressed. Last, but by no means least, companies must ensure they spend adequate time and resources in researching new market opportunities. While retaining existing business is important, neglecting the new could prove a fatal mistake – especially as trade increasingly shifts from west to east and purchasing power shifts accordingly.
TRADE TALK:
Asian financial forum FEBRUARY 2013
41
TRADE TALK ASIAN FINANCIAL FORUM:
Changing the
financial landscape
Nearly 2,400 business and government leaders from 39 countries and regions took part in the Asian Financial Forum, which was held from 14th -15th January at the Hong Kong Convention and Exhibition Centre. Aparna Shivpuri Arya brings you a snapshot of the interesting discussions. 42
FEBRUARY 2013
U
nder the theme “Asia: Shaping the Next Global Landscape, the sixth edition of the forum highlighted Asia’s fast-expanding role in the global economy. The two-day financial summit tackled such key issues as China opportunities, the future of the Eurozone and the world’s food and agriculture sector. On 14th January, Hong Kong SAR Government Chief Executive CY Leung and
Hong Kong Trade Development Council (HKTDC) Chairman Jack So spoke at the opening forum.
China Connection In his address, the Chief Executive promised that his government would “do everything it can to unlock the vast opportunities in the mainland of China, not just for local businesses but also for businesses from
outside Hong Kong.” He added that he would launch a Financial Services Development Council immediately following his 16th January Policy Address, “to enhance, elevate and champion the competitive position of Hong Kong as an international financial centre and promote the development of our financial services industry, making the best use of the many opportunities provided by the mainland of China.” FEBRUARY 2013
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Mr So noted that, over the two days of the forum, “more than 90 prominent speakers from all over the world, including finance ministers and CEOs of top multinational corporations, will offer their expertise and insight – on Hong Kong, on the Chinese mainland, on Asia in general and the world beyond. All in an effort to understand the challenges, and take advantage of the opportunities, this New Year will bring.” The forum opened with a plenary session – “Asia: Shaping the Next Global Landscape.” The session featured speakers Guo Shuqing, Chairman of the China Securities Regulatory Commission, Wayne Swan, Deputy Prime Minister and Treasurer of Australia, and Charles L Evans, President and CEO of the Federal Reserve Bank of Chicago. He further added that Asia is the facilitator of growth and talked about how 44
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Hong Kong is the home to 4000 regional headquarters and it is also expanding its relations with the rest of the world while building its relationship with mainland China. Mainland China featured prominently in AFF discussions over the next two days. Along with a panel discussion on China opportunities, the forum offered workshops on China’s agenda for reforming its financial system, trends and opportunities in the global use of the Renminbi, and the China-ASEAN business partnership. Spotlight on Food Beyond China, the forum also focused on Asia in general and the world beyond with a panel discussion on global investment opportunities and food and agriculture. Workshops ranged from Asian financial integration to a spotlight on Myanmar
investment and a look at private wealth management. The first plenary session of the day focused on the role that Asia can play in shaping the next global landscape. This session had Dr. Guo Shuqing, Chairman, China Securities and Regulatory Commission, Wayne Swan, Deputy Prime Minister and Treasurer, Commonwealth of Australia and Dr. Charles Evans, President and CEO, Federal Reserve Bank of Chicago as the speakers. They highlighted the situation in their respective economies and how they have been tackling the effects of the global financial crisis. Wayne Swan, Deputy Prime Minister and Treasurer of the Australian Commonwealth, stressed that Australia must increase its ties to Asia. “We know the importance of Asia as a force in global growth,” he said. “Our ministers are
TRADE TALK ASIAN FINANCIAL FORUM
frequent visitors to this region. Things start here. The economic math is simple. This major economic force sits within just 10,000 kilometres of our shores.” The elephant in the room is the American economy. As the speakers pointed out, it remains one of the most important drivers of world growth. Nevertheless, Charles L Evans, President and CEO of the Federal Reserve Bank of Chicago, noted that, “As an American coming to Hong Kong to speak, the one message I want to get across is this: no matter how we get our fiscal problems solved, the US consumer is no longer going to be the engine of world growth.” In the wake of the global financial crisis, many believe that the world needs to revamp the financial system to better serve the real economy and restore investors’ confidence in the financial markets. The session on policy dialogued examined the status and the impact of international and national efforts to reinvigorate growth, ensure credit availability, particularly longterm financing, to support real economic activities, strengthen the regulatory framework and enhance the authorities’ responsiveness to systemic risks. Asked whether advanced economies should slow down the pace of fiscal consolidation in the short term to reduce this drag on growth and employment, 46
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The elephant in the room is the American economy. As the speakers pointed out, it remains one of the most important drivers of world growth.
participants were almost evenly split. They were also almost equally divided on whether the advanced economies would be successful in introducing such structural forms to restore competitiveness. “The audience generally has a not-so-optimistic view about the future prospects because of drag from the fiscal side, if nothing else,” said Panel Chair Norman TL Chan, Chief Executive of the Hong Kong Monetary Authority, summarising the views of the forum. “On the other hand, we have divided views on whether or not the shortterm pain is too much, that some governments may consider making some adjustments but without giving up this mission to gain fiscal discipline. It all depends on the commitment and capacity of the governments to push through the reforms,” he said. Mr Chan was echoing the view of Luc Frieden, Luxembourg’s Minister of Finance, who
said implementing structural reforms required strong political leadership. Mr Frieden said it was “greed and speed” that had led to the global credit crisis. To prevent a recurrence, “We have to redefine finance, and we have to redefine the role of government, and the two have to go hand in hand,” he said. “Financial services have to go hand in hand with the real economy.” “We can’t apply a one-size-fitsall policy,” said Bahk Jaewan, Korea’s Minister of Strategy and Finance. “Nevertheless, we should find common solutions. To prepare for a monsoon, we should never stop checking for leaks and damage, and we should fix them in a timely manner.” The keynote luncheon was given by none other than Prof. Lawrence Summers, who served as Treasury Secretary under United States President Bill Clinton and Director of the National Economic Council under President Barack Obama. In his opinion, the Chinese currency is no longer significantly undervalued. “What happens in China over the next few years is going to be absolutely essential,” said Professor Summers, who is the Charles W Eliot University Professor at Harvard University’s Kennedy School of Government. “Over the last 20 years, China has gone from having about 50%
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of its GDP being a form of consumption, which by global standards is a remarkably low number, to having about a third of its GDP in consumption, which by global standards is a staggeringly low number without any precedent in peace time. That’s not a sustainable trend as a growth model.
Caution Advised Asked whether economic figures coming out of China and Asia might be viewed as reasons for optimism, Professor Summers said they should be treated with caution in the global context. “The question is,
unprecedented changes,” said Carlson Tong, Chairman of the Hong Kong’s Securities and Futures Commission and the Panel Chair of a discussion on regulatory reform at the Asian Financial Forum 2013. “I will admit that, at best, the times are challenging for regulators,” he said. Markets have not only become more complicated, they have become more global, featuring dark pools in which trillions of dollars in securities are traded outside the regulatory system, the panellists said. Derivatives have become outrageously complicated. So-called “shadow banking” – by non-banking
Markets have not only become more complicated, they have become more global, featuring dark pools in which trillions of dollars in securities are traded outside the regulatory system, the panellists said. ‘Who has the strategy that doesn’t depend on export-led growth and increased competiveness?” “The US strategy, rightly, I think, in that we have run chronic trade deficits, is heavily about exportled growth. President Obama has spoken of doubling exports over five years. The European strategy is about export-led growth.”
Dialogue with regulators This session covered the critical issue of financial reform. What are the major challenges for the regulators to bolster regulatory oversight and restore confidence in the financial system? What else should we do to enhance the resilience of the global financial system? When the global financial crisis struck, regulators had to contend with vast pools of funds travelling across the world – and beyond their ability to follow them. It nearly brought down the entire financial edifice. “In the lead-up to the crisis, the global landscape underwent almost 48
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financial institutions – is playing an everlarger role. “Many depositors and investors increasingly believe that the system has let them down,” said Saeb Eigner, Chairman of the Dubai Financial Services Authority. “There is a natural desire to see the rules tightened. This anger has been rekindled by the revelation of money laundering by major banks.” “In shaping the global landscape, the key aim is economic growth,” said Greg Medcraft, Chairman of the Australian Securities and Investments Commission. “Access to capital is crucial. The regulatory framework is critical to that.” He cited three critical challenges: structural change in markets in which the security perimeter is continuing to expand; the danger of financial innovation outpacing regulation; and ensuring that as markets globalise, “we minimise the regulatory regime, avoid duplication and seek to harmonise regulation across borders.
Panel Discussion on global investment opportunities Are the BRICS markets losing their lustre? What are the prospects for emerging Southeast Asian economies? Which countries and industries hold the most promise for investors in 2013? This session looked at these questions as well as the global ambitions of Asian enterprises, and the latest trends in capital flows both globally and within Asia. China remains an attractive destination for investors, according to a poll of participants at the Asian Financial Forum on 14 January. Asked which region or country they thought offered the best returns, audience members at the “Panel Discussion on Global Investment Opportunities” voted 48.9% for China, 30.2% for Southeast Asia, 10% for the United States, 7.6% for India and a meagre 3.3% for Western Europe. Panel Chair Victor Fung, Chairman of the Fung Global Institute and Group Chairman of the Fung Group, compared this year’s poll results with those of AFF 2012. He noted that audience support for the US had dropped, while Southeast Asia’s had risen. Support for China and India were about the same. Betting on Asia Paul Manduca, Chairman of Prudential plc, said his company was “very bullish” about the insurance and savings sector. “We’re making a heavy bet on Asia,” he said, adding, “Anyone who writes off the US is making a mistake.” On Day 2, the breakfast panel started with a discussion on Asia’s greying population and how to finance that. Asia as a region has been experiencing rapid growth over the last decade and economists predict the need for trillions of dollars to finance continued expansion. At the same time, Asia is witnessing rapidly aging societies and is still evolving in their social protection systems. Can the two challenges of funding growth and
funding retirement be met? How does the financial system have to evolve to meet both of these needs? Levin Zhu, President & CEO, China International Capital Corporation Ltd, said he’s worried that funding for China’s future pension needs is inadequate. “How do you project the need for people’s old age?” he asked. “You need some kind of actuary-based planning or estimate for old-aged needs. You probably need a mandatory system of saving for old age, and you need to use the capital markets as a means of investing savings for old age. So it’s really system engineering. You need to have a grand plan and a grand mandate.” There was also a workshop on the internationalisation of the RMB. Chinese authorities have been liberalising the use of RMB for cross-border transactions since 2009. To date, there has been notable progress, with some 9% of China’s trade with the rest of the world being settled in RMB. Against this background, Hong Kong is expanding its role as the premier offshore RMB business centre, providing a comprehensive, one-stop platform for conducting a full range of RMB transactions, from trade settlement, financing to wealth management. This workshop reviewed the latest trends in the Hong Kong offshore RMB market and the business opportunities available for corporates and financial institutions. Hong Kong handled more than two trillion Yuan in Renminbi tradesettlement transactions last year, and is expanding its role as the premier offshore Renminbi business centre, according to an AFF workshop. Alexa Lam, Deputy CEO and Executive Director, Policy, China and Investment Products at the Securities and Futures Commission, said Hong Kong’s role in delivering a wide range of Renminbi financial instruments and products has been essential to the RMB’s progress. Hong Kong’s contributions, according to the HKMA, range from currency futures, equity securities, and hedging and risk management instruments to insurance FEBRUARY 2013
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12% of total Asian funds being raised in Hong Kong schemes and investment funds for both onshore and offshore markets. “In the last two years, Renminbi investment products have developed very rapidly,” Mrs Lam said. “Today, I believe it’s true to say that we have pretty much the complete range.” She added, however, that while the selection was wide, it was still quite shallow. “We have depended on China to open avenues. The challenge,” she added, “is to create our own ecosystem.” The keynote luncheon on the second day was delivered by Zhu Min, Deputy Director General, IMF. With seemingly few bright spots in the global economy, Zhu Min, Deputy Managing Director of the International Monetary Fund (IMF), was in an optimistic mood when he delivered his keynote luncheon speech at the Asian Financial Forum (AFF) on 15th January. Focusing on globalisation as a key thrust of his speech, Dr Zhu stressed the expanding interconnection between Asia and the rest of the world. “Forget about the geographic map; it is the business, economic and trade ties where interconnectedness is happening.” He added, however, that Asia is still developing in the financial markets. “Compared with Europe and the US, for example, Asia’s bond markets are still relatively small.” At the same time, he said Europe’s debt crisis and almost-zero growth were prime concerns for Asian manufacturers and exporters. “We must not forget that a combined Europe is an extremely important market for Asian businesses.” One solution suggested by Dr Zhu is for Europe to adjust its policy mix to provide 50
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stronger support for growth. “This could create some scope for further easing of monetary policy,” he said. After the two days Asian Financial Forum, we attended the Asian Private Equity Forum held on the 16 th of January.
Asia Private Equity Forum The forum was opened by The Honourable John C. TSANG, GBM, JP, Financial Secretary, The Government of the Hong Kong SAR, who highlighted the importance of Hong Kong as a hub for Private Equity. He said “ Hong Kong accounts for a substantial share of Private Equity with close to 370 firms in the city and with 12% of the total Asian funds
Talking about Greater China, the panellist said that there is a “hangover” effect in China because of 2.500 companies that need to go public. The group stood divided on whether this financial crisis was cyclical or structural. However, they did agree that people had put too much hope on growth and that to do well it is important to pick the right industry since there are a lot of industries with excess demand. Moving on to the other Asian giant, India, the panellist was again divided on the regulatory environment in India when it came to private equity. While some said that the government has taken a big initiative to improve the situation, the impact of which will be seen in the next 12-18 months, others were a bit sceptical about it. According to Mintoo Bhandari, Managing Partner, AION Capital Partners, AGM India Advisors Pvt. Ltd, most of the success in India has been inspite of the government and not because of the government, unlike China. In India, the buyer market is not developed and the country has a lot of rocket-fuel capital which isn’t good.
Talking about Greater China, the panellist said that there is a “hangover” effect in China because of 2.500 companies that need to go public. The group stood divided on whether this financial crisis was cyclical or structural. being raised in Hong Kong in 2012” He also stated that in the medium term (2-3 years) it is okay to be optimistic since venture capitalists are investing in SMEs which will grow in the coming years. There will also be an improvement in the regulatory environment. During the discussions, it was also highlighted that there will be divested exit options with less reliance on IPO as an exit strategy and an emergence of third and fourth markets.
Therefore in dealing with India, you have to factor in issues that are “unique” to India. The industry is still young and we haven’t witnessed a full private equity cycle yet. As I mentioned in my blogs, covering these forums was an eye-opening and very informative experience. It was fascinating to know what is happening in another part of the world and the developments taking place in the financial sector. I hope these discussions will prove useful to the finance industry in the Middle East.
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