ISSUE 16 | APRIL 2013
BUSINESS INTELLIGENCE FOR INTERNATIONAL TRADE
www.tradeandexportme.com
Logistics
Country focus
BRIC Economies
Get to know how 3PL can sort out supply chain issues
It’s all about doing business with Canada this month
Read about what’s happening with these trade powerhouses
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EDITOR’S LETTER
Publisher Dominic De Sousa
Exploring unchartered territories... I have just returned from a press trip to one of the most fascinating countries I have ever been to – Malta. The tiny 316 sq.km Mediterranean island packs quite a punch. With a very rich historical legacy and a language that has hints of Arabic and Italian, the country and its people engage you from the day you get there.
Chief Operating Officer 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 Tamara Pupic tamara@cpidubai.com +971 4 440 9130 Jenny Kassis jenny@cpidubai.com +971 4 440 9116 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 Abdul Kader Pattambi DIGITAL SERVICES www.tradeandexportme.com
We’ll be writing some interesting stories on the people we met there in the coming months. Last month, I also got the opportunity to attend the Q-Rail workshop in Doha, which was organised by Qatar Development Bank and Qatar Rail, to highlight the business opportunities in the rail project. The same day, I also dropped by at the World Cargo Symposium and got the chance to speak to the representatives from Boeing and their opinion on the cargo sector in the region. Don’t forget to read about these interesting events in our “About Town” section of the magazine. This month we also take a look at trade and investment opportunities in Canada. Canada, which is home to many famous innovations, such as the BlackBerry, offers extremely attractive investment opportunities and has made it very easy for foreign businesses to set up shop. So do read this section carefully, and if you have any questions, drop the Canadian Trade Commission a line. We have also highlighted some other interesting issues, such as energy trading, and how 3PL is the solution to manage your supply chain efficiently. There are so many changes happening in international trade that it’s difficult to keep pace, but we try our best! So sit back, relax, and enjoy our April issue while we head out to source more interesting bits for you.
Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen
Till then,
online@cpidubai.com +971 4 440 9100 Published by
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Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East
Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press © Copyright 2013 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
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updates
ISSUE 16
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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 March
LOGISTICS: It is important for businesses to fully understand the true value of outsourced supply chain management as an essential tool to achieve a sustainable competitive advantage. Frank Courtney, Chief Executive for EMEA region, Barloworld Logistics, helps us grasp how outsourcing can be cost and time effective. HOW TO: INTERNATIONAL SUPPLY CHAIN: One of the problems facing most small and medium sized firms (SMEs) is the inability to supply to large firms or project even if they have a novel product or are price competitive. Dr. Ashraf Mahate, Head of Market Intelligence, Dubai Exports, tells us how SMEs can sort this issue. ENERGY TRADING: Ray Wizbowski, Vice President Strategic Marketing, Enterprise Security & Identity Access Management at Gemalto explains to us how energy traders can be more secure and productive.
trade talk
CONTENTS
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focus
COUNTRY FOCUS: CANADA
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INTERVIEW: Canada’s trade and investment relation with the GCC countries have been growing from strength to strength. We spoke with H.E Ambassador Arif Lalani, to get his views on these bilateral relations.
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DOING BUSINESS: In what remains a challenging global economic climate, Canada’s economy has outperformed those of most other industrialised countries and remains a top destination for foreign investors. Read about doing business in Canada.
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LEGAL: James McDermott, Managing Partner, Bennett Jones LLP – Abu Dhabi, advises us on Canada’s legal framework for foreign businesses.
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TECHNOLOGY: Sustainable Development Technology Canada (SDTC) was created to help develop the cleantech market in Canada. We bring you the details about their mandate and the work they are doing in the region.
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FINANCE: Honourable Kevin G. Lynch Vice Chairman, Bank of Montreal Financial Group gives us an overview of the financial landscape in Canada.
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FREE ZONE: Seventeen years ago, Dubai Airport Freezone (DAFZA) was established as part of Dubai Government’s strategic plan to move the Emirate towards an investment driven economy. Nasser Al Madani, Assistant Director General, DAFZA, gives out the details about this impressive free zone.
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LEGAL: Capt. Anshuman Singh, Head, Admirality Department, Fichte & Co, take us through the latest developments in maritime law as well as explains to us the growth trajectory of this law.
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INTERNATIONAL TRADE: In 2013, the prospects for trade for the BRIC economies (Brazil, Russia, India and China) will diverge. The widening trade deficit for India in particular is threatening the country’s growth prospects for the year. We bring you a special report from Euromonitor which looks at India’s trade challenges.
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Updates global watch
Africa Global Business Forum 2013 countdown begins The Dubai Chamber of Commerce and Industry hosted a dinner in honour of the visiting COMESA delegation prior to the ‘Africa Global Business Forum 2013 – Dubai’ being held under the patronage of H.H. Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice-President and Prime Minister and Ruler of Dubai, on May 1-2 in Dubai. Welcoming the hosting of the Forum organised in association with Common Market for Eastern and Southern Africa (COMESA) in Dubai, H.E. Al Hashimy said the strategic event will enhance the historic trading ties enjoyed by the UAE and the African countries. She called upon COMESA member countries to support Dubai’s bid to host the World Expo 2020 in the emirate. H.E. Buamim informed that the African region holds key to future economic growth as it offers an immense scope for bilateral trade. The region is home to seven of the ten fastest growing economies in the world with a population of over 1 billion people and a combined GDP of close to USD 2 trillion, he said.
Peru endorsed as host for 14th UNCTAD quadrennial Ministerial conference UNCTAD’s next quadrennial Ministerial conference – the fourteenth since the organisation’s founding in 1964 – will be held in 2016 in Peru. The twenty-seventh special session of the Trade and Development Board (TDB) successfully concluded today with the endorsement of Peru by the TDB as the venue for the fourteenth United Nations Conference on Trade and Development (UNCTAD XIV). The endorsement by the TDB will be forwarded to the United Nations General Assembly, which is expected
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to formally confirm the TDB’s recommendation sometime this year. The last conference, UNCTAD XIII, took place in Doha in April 2012. UNCTAD’s quadrennial conferences, which attract Heads of State and other high-level government officials, are used to set the organisation’s work programme for four-year periods. Also attending the week-long series of meetings are representatives of non-governmental organisations, academic institutions and the private sector.
Qatargas highlights possibilities for LNG in Europe Qatargas’ Chief Operation Officer – Commercial & Shipping, Mr. Alaa Abujbara, addressed the challenges surrounding energy supply in the European markets to an audience at the annual Flame conference held in Amsterdam. The presentation, titled “A Case for LNG in Europe” highlighted the challenges facing Europe as it evaluates its energy choices and determines its future energy needs. The presentation focused on three key issues: first, public opinion surrounding nuclear power, second, environmental impacts facing coal, and third, the cost as well as land usage of renewable energies. From Qatargas’ perspective, Europe needs to take action and address its long term LNG requirements as its volumes are quickly being consumed by emerging market buyers.
Every entrepreneur is unique. Their financial solutions should be as well. At National Bank of Fujairah we support the dreams of diverse business owners like Toufic Kreidieh and his associate, Yasser Beydoun. In 1996 they set up Brands For Less to open up a world of affordable shopping to customers. After five years of our tailored support they own 34 stores across seven countries. Every small business is different – but our commitment to each stays the same.
Updates REGIONAL TALK
Source from China! The China Sourcing Fair is set to facilitate seventh year of successful and productive sourcing platform for global buyers and suppliers at the Dubai World Trade Centre in Dubai from May 28-30, 2013. More than 12000 buyers attended the sixth Annual China Sourcing Fair in 2012.
The largest China-products exhibit in the region will feature emerging suppliers from Greater China. Many of these exporters offer attractive price points and quality products, attracting leading brands in the industry. The show is an opportune sourcing platform for businesses looking to sell to the growing consumer markets in the region. Dubai is also an ideal venue, as the Emirate is a re-export hub where the UAE’s imports from China are re-exported throughout the Gulf, Africa and Europe. China’s exports to the UAE grew 28% year-on-year to USD 24.3 billion in 2011, according to China’s customs data As the global economy still cope with post-recession aftershocks, budget-friendly, attractive gift products, energy-saving home products have emerged as new trends. Source these products at the biggest event of its kind in Dubai to improve your market responsiveness and boost your retail sales profit. The Fair is well timed to address this demand by providing a profitable and
GCC attracting skyrocketing investments in healthcare real estate An influx of investments in healthcare real estate is injecting growth into the MENA region’s health sector, driven mainly by the UAE and KSA. The UAE healthcare market is projected to expand by almost 100% this year alone, becoming a AED 44 billion industry by 2015 – according to the Dubai Chamber of Commerce and Industry. Meanwhile forecasts indicate exponential growth for the GCC region, which will boom into a USD 60 billion health sector over the next decade. In the latest milestone for the UAE’s spiraling healthcare real estate, Dubai is now home to the MENA region’s largest private mega-hospital. This comes after it was successfully designed, built and equipped by IHCC, one of the region’s leading providers of design build turnkey solutions that is specialised in healthcare, education and mixed use projects.
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The landmark project was custombuilt for Emirates Health Care Development Company at a cost of USD 115 million. It has a capacity of 315 beds, with over 100 doctors and 600 other employees serving up to 2,000 patients a day. The project demonstrates the towering levels of investment, putting the UAE firmly on course for its goal of becoming an international capital of medical tourism.
accessible B2B venue for buyers in the region and nearby markets. More than providing buyers with quality suppliers and cost-effective products, the China Sourcing Fair also presented a free conference programme featuring relevant topics on China sourcing for beginner and veteran entrepreneurs. Importers, wholesalers, retailers and buyers are all invited to attend the China Sourcing Fair. The fair will feature, among other goods, sports and events gifts, stationary and paper, general gifts, gifts, trinkets and jewellery boxes, kitchenware, home decor, household products, glassware and pet care products.
16.6% increase in FDI into Dubai during 2012
Dubai FDI, the foreign investment office in the Department of Economic Development (DED), has reported 16.6% increase in foreign direct investment (FDI) facilitated into Dubai during 2012, as a comprehensive range of programmes and activities to highlight the emirate’s growing prominence as a hub of trade and commerce continue to produce substantial outcomes. The companies assisted by Dubai FDI and their partnership programmes in 2011 showed a total investment of AED 3.6 billion in Dubai, while the companies assisted in 2012 showed a flow of AED 4.2 billion in investments into the Emirate, with a total impact of AED 18.3 billion on the Emirate’s economy. This is a 14.3% growth over last year’s economic impact of AED 16 billion.
Community events calendar
Qatargas has delivered its first ever cargo of liquefied natural gas (LNG) to Singapore. The cargo was delivered on board the Q-Max LNG carrier “UMM SLAL” to Singapore LNG Corporation Pte Ltd’s (SLNG) first LNG receiving terminal at Jurong Island. Khalid Bin Khalifa Al-Thani, Qatargas Chief Executive Officer said, “Qatari LNG continues to have a key role to play in helping countries around the world improve the diversity of their energy supplies. We are pleased
with this development which will help to meet the growing demand for energy in Singapore and help us build our relationship with a new customer. The UMM SLAL began her voyage from Ras Laffan Port on 17 March with approximately 200,000 cubic meters of LNG onboard and on March 27, she safely berthed and commenced discharging her cargo at Jurong Island LNG terminal, marking the first delivery of LNG from Qatargas to
Save the date!
Singapore. This delivery will further strengthen the relationship between Qatar
and Singapore as well as between the two companies over the long-term.
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. Date
Event
Location
April 1-4
Kingdom Airports, Aviation and Logistics Summit
Riyadh
2-4
Doha Carbon and Energy Forum 2013
Doha
1-6
Qatar Career Fair 2013
Doha
15 - 16
Business and Investment Forum in Qatar - Berlin (TBC)
Doha
22 - 25
ICC WCF 8th World Chambers Congress
Doha
3-6
GITEX Shopper 2013
Dubai
16 - 17
The Internet Show 2013
Dubai
30 - 02 May
Annual Investment Meeting 2013
Dubai
30 - 03 May
Arabian Travel Market 2013
Dubai
Date
Event
Location
May May
Conference and Exhibition, Qitcom 2013
Doha
15 - 17
The Hotel Show
Dubai
6-8
Airport Show 2013
Dubai
26 - 29
Saudi Energy
Riyadh
6-9
Energy Qatar
Doha
27 - 29
Cityscape Qatar
Doha
6-9
Makinat Qatar
Doha
June
6-9
Project Qatar
Doha
4-6
CHRVI Qatar
Doha
6-9
Qatar StoneTech
Doha
11 - 13
Automechanika Middle East
Dubai
6-9
Heavy Max
Doha
13 - 14
34th Session of the Ministerial Council for OPEC Fund for International
Doha
8-9
Workshop Customer Services
Doha
18 - 23
India Property Show
Dubai
14 - 16
QITCOM Conference And Exhibition
Doha
18 - 23
India Property Show
Dubai
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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
Qatargas delivers first ever cargo of LNG to Singapore
ABOUT TOWN
A strong relationship
Dubai Exports organised the “Exporting Opportunities to Qatar” seminar on 26th March 2013 in Dubai, which was aimed at sharing technical inputs and practical experience among the UAE companies that have been successful exporters to the Qatari market. Trade and Export Middle East participated in this interactive seminar and shares with you their conclusions.
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ubai Exports, the export promotion agency of the Department of Economic Development – Government of Dubai, organised the “Exporting Opportunities to Qatar” seminar on 26th March 2013 at the Ritz Carlton DIFC Hotel in Dubai. The seminar brought together entrepreneurs, representatives of SMEs and large corporations, banks and government institutions, to present and exchange their views and experiences about conditions for exporting to the Qatari market as well as about the main opportunities this market offers. Dr. Ashraf Ali Mahati, Export Market Intelligence Senior Manager, Dubai Exports, opened the seminar by saying, “The Qatar market offers UAE companies a huge potential to extend their exports. Also, the geographical proximity implies that firms, which are not currently 10
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exporting, can learn to do so in this market since it shares the same culture, language, standards, and similar. We hope to see a larger number of firms exporting to the country from the UAE in the next few years.” Mohammed Al Kamali, Director of Export Market Development, Dubai Exports, started his presentation by saying, “A key element of the Dubai Exports strategy is to support the increasing trade between the UAE and Qatar during the next few years, taking advantage of Qatar’s drive to expand cooperation with UAE companies in infrastructure projects.” He further stated that the UAE and Qatar have a long and strong relationship which is evident from the positive trade balance statistics. Namely, the UAE’s export to Qatar in 2011 amounted to USD 5.9 billion, while in 2012 it reached USD 6.8 billion.
Mohammed opined that the 10th International Trade Construction, Building, Environmental Technology & Materials Exhibition – Project Qatar, which will be held from 6th to 9th May 2013, will provide a unique platform, for UAE companies, to extend their already successful reach into the construction and building sectors in Qatar. At the beginning of his presentation, David McGee, Global Trade Manager, HSBC Large Corporates, stated that Qatar’s main import partners are USA, China, Japan, Germany and the UAE. On the basis of HSBC’s strong presence in the Qatari market, David further added, “Qatar, KSA and Oman are three regional countries that are powering ahead. In addition to various development projects, Qatar is a huge importer which offers a lot of niche market opportunities for foreign companies.”
David highlighted three streams of opportunities within the Qatari market: • Domestic consumption led The opportunities arise within the regular flow of business in Qatar, and focus on the following products: machinery and transport equipment, manufactured goods, chemicals and related products, food and live animals, pharmaceuticals, beverages and tobacco, and dairy products.
• Investment led The opportunities arise from various infrastructure projects planned in Qatar such as the metro project, Doha International Airport, Doha Port 2016, FIFA World Cup 2022, and projects related to roads, railways and utilities. • Sustainability led The opportunities arise for service provides in line with Qatar’s initiatives to ensure food security as well as initiatives to ensure sustainable and environment-friendly buildings (“Green building” constructions).
The presentation of Omer Ghani, High Performance League, was focused on finding the best solution for the main challenge faced by SMEs looking at exporting – how to enter the market? He presented the High Performance League (HPL), which is the first business accelerator in the world that is focused on SMEs and emerging corporate. HPL is a platform where companies collaborate and compete to catalyse and accelerate their business performance in a foreign market. A team is composed of 11 SMEs with complementary businesses, which collaborate in order to gain the following advantages in the process of entering a foreign market: • To share resources and optimise the costs and capital outlays • To share information and relationships to fast-track growth • To spread the risk among team members • To impress clients with a broader service or product offering • To compete as a team with large enterprises which are always at the forefront of big opportunities
Following up on this, Basel Amaneddine, General Manager, IFP Emirates, presented the opportunities the Project Qatar Exhibition will offer to exporters by saying, “Project Qatar 2013 is a major gateway to the construction market in Qatar and an annual forum that anyone interested in construction materials, techniques and solutions cannot afford to miss. Speaking about legal issues, Ahmed Jaafir, Senior Associate, Al Tamimi & Co. – Qatar Office, pointed out that when doing business in Qatar, a foreign company needs to consider the law. According to the Foreign Investment Law, in order to establish business in Qatar a foreign company will need to partner with a Qatari national, who will own 51% of the company. In certain sectors, such as insurance or transportation, an exception is granted to the GCC nationals allowing them to establish a business without a local partner. In addition, Ahmed highlighted that Art 2. of the Foreign Investment Law envisages that a foreign company may establish a temporary branch if it has been awarded a contract with one of the governmental departments. This possibility exists in the manufacturing, tourism, health, technical consultancy and distribution sectors of the Qatari economy. The branch operations are limited with the completion date of the contract unless the project was extended or if the company was granted a new contract with one of the government entities. Concluding on the topic, Arif Husain AL Marzouqi, Head of Research & Standardisation Managment Office, Acting Head of Inspection & Certification Section, Dubai Municipality, explained to the participants the importance of possessing all relevant conformity assessment certificates before exporting to a new market. In the second part of the seminar, all speakers were part of a panel discussion and answered various questions from the audience. The first question related to the difference between a commercial agent, which is envisaged by the Commercial Agency Law, and a distributor, which is
governed by the Commercial Law. Ahmed Jaafir, Senior Associate, Al Tamimi & Co. – Qatar Office, pointed out that distribution agreements are better solution since the Commercial Agency Law envisaged a lot of limitations. Using the example of Apple and Microsoft, which are the biggest collaborators behind the scene, Omer Ghani, High Performance League, explained, “Collaboration is a strategic entry route that SMEs looking to export can use whereby instead of penetrating a market individually they are working as a team with complementary services and goods.” Following up on this, Mohammed Al Kamali, Director of Export Market Development, Dubai Exports, added that trade missions of the UAE government were more successful when the multisectoral approach was followed. An interesting discussion developed at the very end of the seminar and focused around the question when the beginning of large infrastructure projects in Qatar would start. Mohammed Al Kamali, Director of Export Market Development, Dubai Exports, assured that even if the government in Qatar decides to reschedule 10% of projects, the remaining 90% will be delivered on time. He supported this statement by the fact that all projects planned for the Asian Games 2006 were delivered by the Qatari government on timely basis. Furthermore, Ahmed Jaafir, Senior Associate, Al Tamimi & Co. – Qatar Office, said, “It is more about considering all relevant aspects than delaying the projects. If you look from a legal aspect, you will notice a lot of new regulations and by-laws adopted by the Qatari government. In this manner, the government is trying to ensure that various issues are resolved before the projects kick off.” Concluding on this positive note, Mohammed Al Kamali, Director of Export Market Development, Dubai Exports, stated, “Since 2010 when Qatar won the bid to host FIFA World Cup 2022, it was clear that it will happen, so be ready!” APRIL 2013
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ABOUT TOWN
Up in the air! The World Cargo Symposium was held in Qatar from the 12th-14th March 2013. It provided a platform to discuss the important issues concerning the air cargo industry. We bring to you the highlights from this event as well as our discussion with Boeing.
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he International Air Transport Association (IATA) called on airlines and their partners in the air cargo supply chain to work together to make air cargo more competitive and address the challenges of safety, security and sustainability. Air cargo is vital to the global economy, transporting more than USD 5 trillion worth of goods annually, or more than a third of world trade by value. And for airlines, it accounts for about 12% of industry revenues. But, like the rest of the airline industry, air cargo is a tough business. The last two years have been particularly difficult. Last year saw a 12
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2% decline in both air cargo demand and yields. Speaking at the World Cargo Symposium in Doha, Qatar, Tony Tyler, Director General and CEO, IATA outlined key industry priorities:
Modernise processes: Transitioning to a paperless operating environment is critical to improving air cargo’s competitiveness. IATA is committed to implementing the e-Air Waybill (e-AWB)—targeting 20% implementation by the end of 2013 and 100% by the end of 2015. Secure the supply chain: IATA called on governments to implement mutually-
Bradley Hart, Regional Director, Airline Marketing Analysis - Cargo, Boeing
recognised secure supply chain regimes. The secure freight initiative championed by IATA is an example of a supply chain framework which is being piloted in eight locations worldwide. Ensure that dangerous goods regulations are followed: Safety is the industry’s top priority. Recent concerns over lithium batteries transported as air cargo have reinforced the need for greater education and communication over the rules for shipping these items.
Focus on environmental sustainability: The ability to manage carbon emissions is the license to grow. That is why the air cargo industry is committed to improving fuel efficiency by 1.5% annually to 2020, capping CO2 emissions from 2020 with carbon-neutral growth (CNG2020) and cutting net emissions in half by 2050 compared to 2005. No other global industry has made such commitments. And the strategy to achieve these is agreed and clear—focusing on technology, operations, infrastructure and positive economic measures. The World Cargo Symposium also gave us the opportunity to meet up with the Regional Director, Airline Marketing Analysis - Cargo, Boeing, Bradley Hart. We asked him about the cargo industry in the Middle East, to which he said, “The industry in the Middle East has been growing over 14% in a global market that has been declining. It has been driven by Emirates, Etihad and Qatar and KSA, as they continue to expand their freighter and passenger fleet. They continue to use the Middle East as a transit point to transfer cargo to Asia and Europe.” In the Middle East, there has been a significant demand from KSA, Qatar and the UAE. There is a strong interest in aviation and using aviation to provide economic growth. Boeing is a leader in air freight and over 90% of the freight carried globally is carried on Boeing so it as a strong partnership. Going back in time he said, “The 747 family of airplanes – those are the airplanes that
Air cargo accounts on average for about 12% of industry revenues—much more in some airlines. That’s not far off the 14% that is generated by business class sales.
brought the air cargo industry to the current environment. While everyone knows 747 is a passenger airplane, it was originally designed as a cargo plane.” This was sure news for us. Speaking about the impact of the global financial situation on the air cargo industry, Bradler said, “I don’t think there has been a change in the demand pattern. There is still robust demand for Boeing planes, especially 777 and 747-8 freighter in the market” When we asked him about his opinion on the changes that are coming in the industry, he highlighted the importance of technology in this industry. “We are looking at moving to paperless systems and also ensuring security, which is a challenge. Besides technology, you need to look at how the global economy is impacting air cargo as a whole- with the fuel prices rising. That makes it a challenge for all the carriers. Fuel prices are becoming more and more important as they become a higher percentage of the operating costs. So it’s imperative to consider these factors.”
Elaborating further on the technology bit, he said that moving forward technology will help the industry to grow. They are seeing examples of carriers investing in new technologies to promote their business and help them better connect with customers. Bradley also told us how these events are an important platform to discuss the changes, the challenges and the way forward. “ Events like this give us an opportunity to interact with a number of customers at the same time, which wouldn’t happen normally. It helps us keep a pulse on the industry and the challenges they are facing. There is a lot of the push for fuel-efficient aircrafts and we are doing a good job of providing that,” he pointed out with a smile. Air cargo accounts on average for about 12% of industry revenues – much more in some airlines. That’s not far off the 14% that is generated by business class sales. Improving the competitiveness of air cargo has the potential to impact positively our very thin margin. Therefore there is no doubt that air cargo is an imperative part of international trade and is here to stay! APRIL 2013
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ABOUT TOWN
Building sea links The World Ports & Trade Summit 2013 was held on the 19th and 20th of March in Abu Dhabi for the third consecutive year. The Summit aimed to examine supply chain management systems and discuss port efficiencies along with other important issues. We bring to you the highlights from the Summit.
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lobal ports, key industry players and members of the International Association of Ports & Harbours (IAPH) met in Abu Dhabi to discuss the dynamics of seaborne trade developments. As the nucleus for world economic growth and growing geopolitical influence continues to shift East, the Middle East and specially the Gulf region has to play a very strategic and important role. Dr. Sultan Al Jaber, Chairman of ADPC (Abu Dhabi Ports Company) highlighted the importance of diversification for regional economies and the need to make strategic investments in the Gulf Region during his opening welcome speech at the World Ports & Trade Summit 2013.
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“The development of ports and maritime infrastructure will become increasingly crucial to global trade and enhance the region’s position in the international maritime arena,” Al Jaber said. “Hosting this event in Abu Dhabi, in the United Arab Emirates, highlights the industry’s strategic geographical location - between East and West - and continues the legacy of the UAE’s long-held maritime traditions, both as a trading route and for its local economy.” Al Jaber was also keen to highlight the need to develop advanced infrastructure for ports and maritime related services pointing out that the opening of the Khalifa Port - officially inaugurated in December 2012 as the first semi-automatic port in
the region- is positive proof of Abu Dhabi moving in this direction. Now in its first operational stage, Khalifa Port currently has a working capacity of 2.5 million containers (TEUs) and 12 million tons of general cargo per annum. The opening of Khalifa Port, said Al Jaber, has also contributed to the development and strengthening of commercial and industrial activity in the Khalifa Industrial Zone Abu Dhabi (Kizad), due to the direct and complementary link between the Port and the specially designed industrial and commercial zones adjacent to it. Following Al Jaber, H.E Sultan Bin Saeed Al Mansoori, UAE Minister of the Economy, addressed the delegates further about
improving trade links with the emerging economies, particularly those in the East and made a key reference to the fact that Jebel Ali is still the largest container terminal between Rotterdam in the West and Singapore in the East. “The emerging economies are forecast to account for almost half of global GDP by 2020 and are projected to account for around 45% of the global output by 2025 according to IMF estimates. Ports’ infrastructure must be reinforced with modern logistics, in order to capitalise on the Gulf ’s potential in global trade.” There was also an important contribution from HE Jamal Majid Bin Thaniah, Group CEO, Port & Free Zone World and NonExecutive Vice Chairman, DP World UAE who echoed Al Mansoori’s sentiment about infrastructure development. “Some USD 2.5 trillion worth of development projects are planned or underway across the Middle East region over the next ten years, which, when combined with the shift eastwards in the centre of (economic) gravity, will give the region a competitive edge. We in the region should capitalise on this with continued investment in the port sector to support that growth,” he said. Grant Gilfillan, CEO, Sydney Ports Corporation and First Vice President IAPH, focused on how the Gulf, and wider Middle East, can continue to strengthen its position as a major strategic force on the world stage. The World Ports & Trade Summit Awards were held in the evening and were attended by more than 300 industry professionals, members of the IAPH (International Association of Ports & Harbours) along with guest of honour, HE Dr Rashid Ahmad bin Fahad, Minister of Environment. Presenting the first award of the evening was Dr Sultan Al Jaber, Chairman, ADPC, hosts of the evening. The award was presented to PSA International Pte Ltd for Safety &
Security and received by Mr Mia Hock Goh, Head of Group Process & Assurance. H.E Mohamed Thani Murshed Al Rumaithi, Chairman, Federation of UAE Chambers of Commerce & Industry and Chairman of Abu Dhabi Chamber of Commerce & Industry presented the Port of Barcelona with the award for innovation. Shortlisted nominees for the Environmental award included Sydney Ports, Port of Gothenburg, Port of Rotterdam and Port of Los Angeles, but it was Belgium’s Port of Antwerp that claimed the sought-after accolade, marking its second WPTS award after its CEO, Eddy Bruyninckx, won the WPTS Ports Award in 2012. The final award of the evening was the coveted ‘WPTS Personality of the Year’ and this was presented to Mr L Radhakrishnan, Chairman of India’s Jawaharlal Nehru Port Trust for his ‘outstanding contribution to the industry’. Day 2 of the Summit offered in-depth sessions focusing on operational issues highlighting port technology, security and environmental best practice. It also focused
on the significant port infrastructure development in the Gulf. Jebel Ali port in UAE is set for a capacity expansion to 19 million TEU per annum, and Abu Dhabi’s Khalifa Port Terminal is adding 15 million TEU per year upon completion in 2030. Saudi Arabia has allocated USD 788.4 million to King Abdul Aziz Port and King Fahd Industrial Port and Qatar’s USD 7.1 billion mega-port project, which opens in 2016, will offer eventual capacity of six million TEU per annum by 2028. “Regional governments continue to invest heavily into state-of-the-art port facilities and modern transport infrastructure. This economic strategy is already paying dividends and will continue to do so in the years to come,” said Chris Hayman, Chairman of Seatrade. Held under the patronage of HH General Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces and organised by Seatrade, the World Ports & Trade Summit is held in strategic partnership with the Abu Dhabi Ports Company (ADPC). APRIL 2013
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INDUSTRY WATCH
What are you waiting for? With an aim to motivate entrepreneurs and businesses in Qatar to become a part of the supply chain network supporting Qatar Rail project, Qatar Development Bank and Qatar Rail organised the Qatar Rail Workshop on 12th March, 2013 at Ritz Carlton Hotel, Doha. We highlight the discussions during the workshop..
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atar Rail Workshop presented the analytical study of opportunities for the private-sector related funding programmes, which will play an essential role in this vital new rail project running to nearly USD 40 billion. H.E. Hamad Bin Ahmed Al-Kuwari, Deputy Chairman, Qatar Chamber of Commerce, opened the event with a speech in which he stated that the overall development strategy adopted by the country aims to put Qatar at the same level with all other developed countries in the world. This requires developing the infrastructure and setting up new projects. In line with that, he invited the private sector to take advantage of the project and contribute by providing useful information and other 16
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kind of support to the implementation of these infrastructural projects. In his address, Mansoor Bin Ibrahim AlMahmoud, CEO, Qatar Development Bank, expressed his contentment regarding this collaboration between Qatar Rail and QDB. He pointed out that Qatar will invest USD 40 billion in the opportunities associated with the Qatar Railway projects, which are offered to the private sector in the coming years, and explained, “USD 20 billion is dedicated to the implementation phase while the other USD 20 billion is planned for the operational phase. We hope that national companies will take advantage of these amounts.” In addition, he stated that QDB will provide two types of services to motivate the private sector to consider engagement
within these projects. QDB will provide financing solutions and consultative services along with the necessary information the private sector needs to develop these projects further. Qatar Rail will manage, operate, and maintain the local railway network and the relevant administrative and industrial corporate, in addition to coordinating with regional and global railways. Eng. Saad Al Muhannadi, CEO, Qatar Rail, explained that the policy of Qatar Rail is to conduct workshops in order to introduce the projects to Qatari and foreign investors before granting any big projects through bids, and added, “This policy is successful and there are Qatari companies in most of the ventures qualified for civil works”, he added.
After the opening remarks, Abdulaziz AlKhalifa, Executive Director, Strategy & Business Development, QDB, gave a presentation on the high level impact of the Qatar Rail project, and said, “In 2011, QDB did an analytical study to determine the impact of hosting FIFA World Cup 2022 in the economic terms, and the role that the private sector could play. One of the outcomes of this study was to choose Qatar Rail project as a main motivator for the private sector and encourage it to play its role in the national economy. From this point, came the partnership between QDB and Qatar Rail company.” Abdulaziz AlKhalifa highlighted that Qatar Rail project is the biggest nonhydrocarbon project in the country, and will be considered as a fundamental pillar of Qatar’s development and economic
project provides an important platform for Qatar to diversify its economy and promote the private sector development process.” He also stated that 104 jobs opportunities were selected out of 182. These opportunities are connected to the railway network, but not limited to it and Qatari entrepreneurs and business owners can invest in these projects and acquire it. The other opportunities have been eliminated due to their low economic revenues or short time period for completion. Elaborating further, he said that the opportunities represent potential revenue that may reach more than USD 40 billion over the next 20 years. The opportunities are divided to many sectors including railway infrastructure sector, transport and rail cars, services, maintenance, and similar.
diversification, by stating, ”This project will last for two decades. It is an opportunity for us to encourage the private sector to play a greater role and grab these opportunities. The GCC countries will take a similar step as the one Qatar is taking now, in order to create a new railway network or to expand it. There is an opportunity to develop this sector in Qatar and serve the neighbouring countries as well. In QDB, we are very keen on diversifying the economy. In this term, this is a good opportunity for us, since Qatar Rail
Furthermore, 60% of the revenues connected to these opportunities is related to activities allied to the industries and services. In addition to that, this project will provide of a yearly increase of 0.3% to Qatar’s GDP while the annual contribution of the private sector to GDP will increase by 0.7% of GDP. He continued by pointing out the best 40 opportunities which are equivalent to about USD 20 billion. He also presented the feasibility studies that QDB has prepared for these projects.
Highlighting the importance of this project further, Saad Al Muhannadi, CEO, Qatar Rail, made a presentation on procurement strategy. He explained that Qatar Rail is in charge of three projects – the integrated Qatar Railway project including the metro, long-distance trains and cargo trains. The second is the automatic carrier in the West Bay while the third is the light transportation train in Lusail. Moreover, he talked about the strategy used in the procurement process and stated that in two months tenders will be opened for the underground and above ground projects. He also briefly presented the long-distance train and freight train project, which consists of seven stations linking Qatar with all the GCC countries. It extends over 400 kilometers and the first project will be implemented by 150 km long linkage between Saudi Arabia and port of Umm Said in Qatar. The first part of the workshop was followed by presentations on existing and new business opportunities by the international consultancy firm Mckinsey & Co. The experts explained that the top 30 business opportunities account for almost half of the opportunities represented within the rail network development project. Their session discussed the main opportunities for manufactures of cables, construction of bridges and elevators structures, manufacture of protecting walls and other potential opportunities. It also illustrated the potential revenue for each of the opportunities starting from the initial sales to Qatar Rail up to the project’s conclusion in 2032. Some of these opportunities will generate figures more than USD 1 billion, such as provision of frameworks for stations at USD 1.2 billion, the supply of liquid concrete at USD1.1 billion, project management services at USD 3.6 billion, the provision of elevated structures at USD 3.3 billion or the supply of steel bars and billets at USD 2.1 billion. The workshop succeeded in presenting the opportunities within the Qatar Rail project. It also educated Qatari companies and entrepreneurs about how to envision their investment initiatives and participation in this project. APRIL 2013
17
TRADE TALK Logistics
Stay in the competition It is important for businesses to fully understand the true value of outsourced supply chain management as an essential tool to achieve a sustainable competitive advantage. Frank Courtney, Chief Executive for EMEA region, Barloworld Logistics, helps us grasp how outsourcing can be cost and time effective.
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ven if we consider that many business enterprises now operate in what is essentially a global market, wherein effective logistics strategies play a crucial role in business success, supply chain management in general remains a vague concept to many companies. In the Middle East, although our own experience tells us that there is a growing appreciation of strategic supply chain management, a large portion of the market is yet to take full advantage of the benefits of outsourced logistics solutions. In fact, analysts predict a relatively modest compound annual growth rate (CAGR) for the Middle East’s contract logistics market of around 7% between 2011 and 2015. Nonetheless, although the growth forecast is far from ideal, it actually represents an enormous growth potential considering the size of the region’s untapped market. 18
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Supply chain management is the complex aggregation of various professional disciplines, from facility location and information management to order management and even waste disposal (cradle to grave). In this regard, the large-scale logistics operations associated with medium and large companies means that logistics can deliver substantial cost savings, particularly when supply chain management operations are outsourced to qualified professionals. The outsourcing model is especially promising in the Middle East, a region boasting globally renowned commercial hubs, such as Dubai and yet contending with a lack of supply chain outsourcing. So what can Middle Eastern companies expect to gain by outsourcing their supply chain management activities? First and foremost, they will be able to unload tasks that are not part of their core businesses, allowing
companies to focus more on strategic functions and ultimately growing their business. A true 3PL provider typically specialises in integrated operations, warehousing and transportation that can be tailored to specific customer needs based on factors such as market conditions and delivery requirements. Moreover, the outsourced solution goes beyond logistics to include valueadded services related to the production or procurement of goods. All supply chain activities are dependent and affected by the other logistics activities within the supply chain; the quantity you ship affects the size of the truck required, which in turn affects your warehouse, the number of shipments you need to make, the size of the racks in the warehouse and so on. These activities therefore have to be viewed holistically, and the true value comes from the integration of these services to extract the synergies that exist.
Typically for any medium and large company the resources needed to undertake various logistics functions such as tracking orders, shipping, inventory and returns, and other supply chain tasks can be very time-consuming and expensive. This is where outsourcing becomes a gamechanging tool by offering integrated logistics solutions that are more cost-effective and are managed by experienced supply chain management professionals. Moreover, outsourcing supply chain management functions enables companies to expand internationally and operate on a larger scale. The setup also reduces risks for businesses starting operations in a foreign country as the provider is more familiar with local conditions. Companies can also tap a proven logistics infrastructure that balances expertise, experience and facilities. Outsourcing logistics operations to a 3PL provider has the potential to become a significant source of competitive advantage as it frees the company to focus on their core competencies, whilst the 3PL provider can focus on service delivery. It boosts the bottom line for both the retailer and manufacturer through accurate, wellmanaged inventory and supply chain solutions, ensuring the right product, in the right place, in the right quantity and at the right time. It also reduces the need for vast areas to hold inventory. The recorded efficiencies made possible by outsourcing have made it a very attractive business proposition. Recent studies in fact show that companies that reengineer their supply chain and its management on average reduce their total supply chain cost by up to 20%. What more can be said for a strategy that allows businesses to pass on logistics tasks to experienced professionals so that they can focus more on growth? With the United Arab Emirates emerging as the acknowledged premier logistics hub of the Middle East, businesses operating in the country stand to gain much from the adoption of outsourced supply chain management solutions. Revenues from the country’s logistics market are expected to hit USD 9.4 billion in the next two years. The large domestic industries with diverse
ABOUT Frank Courtney, Chief Executive for EMEA region, Barloworld Logistics joined the company 16 years ago. He has a BTech and has been in this industry for 27 years and has worked in countries such as Spain, the Middle East, and the Far East apart from working in multiple regions within South Africa.
business interests differentiate it from other logistics markets in the region. Due to the large amount of freight movement in and out of the UAE, it is considered a fertile seedbed for logistics service providers, especially those engaged in freight forwarding and shipping services. This is due to the fact that domestic manufacturing industries typically undertake only trading operations, resulting in a logistics sector that leans more towards freight forwarding. There are many challenges that offer a strong case for 3PL partnerships in the UAE. Firstly, less than 10 per cent of end-users say that they use a technology solution to facilitate logistics. Third-party providers are also mostly contracted for freight forwarding, international transportation, and domestic distribution services. Only 30 to 40% of end-users outsource warehousing, and less than 10% outsource value-added logistics functions such as packaging, labeling, and quality checks. Moreover, the global recession has influenced enterprises to reevaluate their logistics strategies. Many appreciate that outsourced logistics solutions allow them to optimise their cost structure and concentrate on their competencies, however very few allow their 3PL partner to assist in aligning their supply chain strategy with their business strategy. One important consideration for those planning to outsource their logistics functions is to partner with the right provider; that is one that shares the same values and goals. It is critical for both parties to fully discuss and understand the nature of their relationship and their respective responsibilities and
commitments before they decide to sign a deal. There are a few providers, such as Barloworld Logistics, that offer the full breadth of competencies needed to analyse, design, implement and manage any element in the supply chain or to integrate them and manage the supply chain itself. Due to its acquisition of leading companies in Europe, the Far East and Middle East over the past couple of years, Barloworld Logistics has strategically positioned itself on the EastWest global trade flow, allowing it to better understand the unique needs of the Arab markets. A supply chain should be fully aligned with a company’s business goals, which is something that an outsourcing provider can help to achieve. By teaming up with a logistics firm with proven expertise and market-leading skills in supply chain solutions, companies can boost their efficiency and effectiveness by better aligning their value chain networks to their business strategies. Lee Kuan Yew, the prominent Singaporean statesman who transformed his country from an underdeveloped colonial outpost to an ‘Asian Tiger’ economy, once said that ‘If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.’ For Middle Eastern countries such as the UAE where outsourced supply chain management is poised to gain more traction in the coming years, now is the ideal time to assess current market conditions, predict future trends, and overhaul their business models accordingly with a sound and transformative logistics outsourcing option on hand. APRIL 2013
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TRADE TALK HOW TO
Connect the links
One problem that most small and medium sized firms (SMEs) face is the inability to supply to large firms or project even if they have a novel product or are price competitive. In most cases large projects and firms have extensive pre-qualification procedures which in many cases disadvantage SMEs. Dr. Ashraf Mahate, Head of Market Intelligence, Dubai Exports, tells us how SMEs can sort this issue.
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ven if SMEs have the technical competence they may fail to get a contract due to their financial position or the lack of a well known brand. Therefore, the SME itself needs to change its mindset and to be successful it needs to develop a long term strategy. The strategy needs to be in line with the firms’ market segment and ability. The later is important because it allows the firm to identify how it needs to change in order to obtain the required set of capabilities such as international standards and certifications. One strategy that SMEs can adopt to work with large firms or projects and in the process export to global markets is to become a sub-contractor. In the modern business environment large companies are under the same increasing pressure as small firms to reduce costs to maintain their competitiveness. This is more so the case where companies are exporting their products or services to foreign markets and competing with low cost countries. As a result many large firms have decided to focus their activities on a core range and to outsource
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other non essential tasks. Generally when one refers to outsourcing of activities it usually implies back office or call centre related tasks. However, in recent years, the trend to outsource activities with the corresponding cost savings has lead firms to re-evaluate the services that can be provided by a third party company. Various studies have shown that cost savings tend to be pretty clear especially where labour is concerned because no longer is the firm concerned with the individuals’ salary, and overhead costs. The question is how can a SME become a sub-contractor? The easy answer to this is to be part of the Sub-Contracting and Partnership Exchange (SPX) which was developed by the United Nations Industrial Development Organisation (UNIDO) over 20 years ago to boost local production and match specialised subcontractors with large companies to help promote their international presence. Essentially SPX is a global information portal that seeks to bring together suppliers and buyers of any manufactured good or service. The rationale is that there is a pool of firms
who wish to sub-contract a particular activity but are not aware of which firm is able to carry it out. More importantly, even if they are aware of firms they would like a larger choice as well as the ability to source from certain countries to meet particular regulations. At the same time there are firms with skills which are not aware of the buyers. The information portal allows buyers to be connected with sellers for short-term contracts on the basis of ‘requests for quotations’. The platform is also supplemented with actual face to face matchmaking sessions between buyers and sellers in various countries. In addition to the information portal SPX has also developed a number of services which seek to enhance the capabilities of the sub-contractors. In particular sub-contractors receive an extensive benchmarking assessment so that they can become aware of their own competitive position and in doing so can seek to fill and gaps in their weaknesses. The value proposition of the SPX programme to suppliers can be summed up in the following:
• Is a modern and efficient way to organise industrial production • Facilitates industrial matchmaking • Introduces division of work in the production systems • Enhances subcontracting specialisation • Increases exports by introducing UAE subcontracting products worldwide • Enhances import substitution If SMEs wish to become sub-contractors to large companies or projects they need to bear the following points in order to become successful: 1. Significant cost savings For a firm to really consider outsourcing any activity it has to offer substantial cost savings in the region of 20% or more. Any cost savings below this level do not necessarily make it worthwhile for firms to outsource their activities. Therefore, the cost savings need to be worthwhile for firms to make the change.
2. Flexibility / Scalability Firms looking to offer outsource or sub contracting services need to ensure they have the flexibility to upscale or downscale their commitment depending on the needs of their clients. This implies that the SME needs to have additional resources which can be called upon at short notice.
3. Focus on core activities A number of outsourcing companies have adopted the strategy of specializing in certain activities rather than being multifocused. In this respect the firm can be assured of the level of experience and competence. The SME needs to ensure that it has the appropriate expertise with the experience.
4. Technology The real success of any sub-contractor is its technology as it needs to provide a seamless and quality service. More importantly, the SME may wish to have web-conferencing facilities, encrypted web enabled software, disaster recovery systems and more. Although they are readily available the real problem is that they get outdated at a fast pace and require regular investment. Also, high end technology
ABOUT Dr. Mahate received his doctorate from Cass City University Business School in London (UK). He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He can be reached at ashraf.mahate@dedc.gov.ae..
requires suitably qualified individuals who can maintain the system.
5. 24 X 7 Operations The key to a successful sub-contracting is for it to provide 24/7 service. This is more so the case where exporting is concerned as what may be considered a weekend may be a normal working day in another part of the world. SMEs seeking to sub contract into foreign markets have a number of different ways of doing in addition to the SPX platform which include the following: Commissioned Agents: They act as brokers, who link an exporter’s product with a foreign buyer. Usually, the agent does not fulfill the orders, but passes them to the exporter for acceptance. Export Management Companies (EMC’s): EMC’s act as an exporter’s off-site export department, representing the exporter’s product to potential foreign buyers. The EMC searches for business on behalf of the export firm and takes care of all aspects of the export transaction. Hiring an EMC is often a viable option for smaller exporters who lack the time and expertise to break into foreign markets on their own. An EMC provides a range of services from negotiating export contracts to providing after-sales services. Usually, the EMC’s operate on a commission basis, but some take title to the products they sell and make a profit on the mark-up. Export trading companies (ETCs): ETCs perform many of the functions of EMCs. However, they tend to be demand-driven and transaction-oriented, acting as an agent between the buyer and seller. Most ETC’s will take title to your goods for export and will pay your company directly. This arrangement
practically eliminates the risks associated with exporting. However, the exporter needs to make sure that appropriate checks are made regarding the ETC. More often than not ETC can be a good source of export opportunity. Export merchants: Export merchants will purchase and then re-package products for export, assuming all risks and selling the product to their own customers. This export intermediary option should be considered carefully; as your business runs the risk of losing control over your product’s pricing and marketing in foreign markets. Although sub contracting is a highly profitable method of entering and becoming successful in exporting it does have a few disadvantages. Most important of these advantages is that the final customer is very rarely aware of the sub contractor and as such the identity tends to be hidden. This implies that the sub contractor is not able to build up its own image and brand in foreign markets but is reliant on the main firm. Secondly, the long term success of the sub contractor is reliant on the main firm. This implies that if for whatever reason the main firm suffers a decline in sales then this effect is passed onto the sub contractor. Almost all sub contractor agreements have a non-solicitation clause which implies that it cannot sell directly to the end customer. In some cases the agreements also have a non-competitive clause which may limit the extent to which they can work with other firms. For the long run export success a SME needs to evaluate all forms of foreign market entry and sub contracting is one such method. It may be not be suitable for all firms but for others it may be just the catalyst they need to grow their business. APRIL 2013
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TRADE TALK HOW TO
Power trading
Ray Wizbowski, Vice President Strategic Marketing, Enterprise Security & Identity Access Management at Gemalto explains to us how energy traders can be more secure and productive.
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espite ever-increasing diversity within economies across the region, the oil and gas industries clearly represent the backbone of Middle Eastern business life. More than half the world’s oil requirements are met from the region. And, in addition to those directly involved in extraction, processing and transportation, there are a wide array of associated service sectors that support the smooth and efficient running of these operations. One of the most significant is energy trading. Right across the Middle East, a vast number of high value transactions
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must be successfully negotiated on a daily basis, with specialist trading companies taking responsibility for bringing together buyers and sellers from right around the world. Given such a key role, it is no surprise to find the energy trading sector facing an exceptional array of business-critical challenges. Of course, the trading floor has always represented a truly hectic environment. ‘Time is money’ may be a well-worn adage, but for energy traders, it certainly rings true. From the first minute of the working day till close of business, every second
really does count; the difference between making and missing an energy trade can have huge implications. As a result, anything that extends the productive time available to those working in high pressure trading roles can deliver significant bottomline benefits. However, speed is certainly not the only issue at stake here. Few industries are as politically sensitive or vulnerable to malicious attack as the energy sector. These threats come in many forms, but include ever-more sophisticated attempts to hack and disable the IT systems of companies involved in the industry. Ensuring the security and integrity of business data and operations is clearly a wide ranging task, but one of the cornerstones is the need to ensure that only authorised traders have access to the IT systems which are the tools of their trade. For energy trading companies, traceability, accountability and protection of client data are now at the very top of the commercial agenda. In terms of both security and time management, a quick glance at the typical energy trader’s workstation highlights a common problem: anything up to eight individual computers per person is very much the norm. And to meet the aforementioned security criteria, each one requires a separate log-in procedure. Whether it involves a username/password combination or certificate (smartcard)based solution, it’s a time-consuming process that every single trader in the business must negotiate, every single day. Multiplied across an entire energy trading operation, it quickly adds up to a significant loss of the most valuable asset within the business: traders’ time. Furthermore, the problems do not end with the initial login at the start of the day. If a trader needs to leave his or her desk – even for a couple of minutes – they must go through an equally time-consuming log-out process, or risk leaving themselves exposed to the dangers of unauthorised trading at their workstations. The challenge is clear. Energy traders need a secure yet simple means of logging
ABOUT Ray Wizbowski is VP of strategic marketing for Gemalto’s security business unit. Prior to Gemalto, Ray was the vice president of marketing and general manager of ForeScout technologies – a leading pioneer of network access control technology. Prior to ForeScout, Ray held senior business development and marketing positions at MetiLinx, Positio Investor and Public Relations and Action Foundation
in and out of all terminals at once, but without having to make significant changes to the log-in methodology that underpins their operations. Reflecting the desire of many trading businesses to maintain their existing security protocols, two versions of Protiva Trade Connect have been developed. One works with an infrastructure based on a username and password log-in, whilst the second extends the benefits of a single log-in to certificate identity credentials. From the trader’s perspective, the solution could not be more straightforward. At the start of the working day, they login on the base terminal using the existing authentication process. Other machines in the designated cluster or multi-terminal workstation (often known as satellites) are configured to use the authentication from the base. In the case of a certificatebased log-in, the trader simply inserts the smartcard into the base terminal, and enters the PIN or password just once. Either way, the trader can access all of his or her satellites immediately, and get straight down to the real business of the day. Further productivity gains are realised when a trader has to step away from their workstation. A single log-out process (eg simply removing the smartcard from its base terminal) engages a secure, semitransparent screen lock across all of the relevant terminals. The holder does not need to log out of the trading session itself and all screens remain active and visible. However, no actions can be carried out until the trader returns to the workstation and completes the single log-in process. The time savings are clear, yet they are
combined with a level of convenience that means a trader need never be tempted to leave a workstation unguarded. For IT managers charged with deploying new software solutions in trading applications, key requirements are flexibility, scalability and ease of implementation. With Protiva Trade Connect, each workstation is managed by a configuration file, so there is no server requirement. Combined with the fact that existing authentication credentials are leveraged, cost of ownership is kept to a minimum. At the same time, the flexibility of the architecture allows for migration to more advanced methods, as and when required. Introduced in 2012, the appeal of this new approach to log-in securely to multiple PC terminals with a single action is reflected in early support from some key players in the trading sector. For example, within the financial industry, one of the leading financial institutions in France is using it within its corporate investment banking branch to help meet the company’s goal of strong authentication for all its 22,000 employees, including around 4,000 traders. Given that each of these traders has a workspace consisting of multiple systems, the inefficiency of separate logins was clear. Furthermore, with serious data breaches within the financial sector regularly grabbing the headlines, the bank realised that single authentication with just a username and password was insufficient to protect valuable financial information. The company also wanted to leverage its existing investment in smartcards used for physical access. APRIL 2013
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TRADE TALK HOW TO
In terms of both security and time management, a quick glance at the typical energy trader’s workstation highlights a common problem: anything up to eight individual computers per person is very much the norm. And to meet the aforementioned security criteria, each one requires a separate log-in procedure. Another issue for the French bank involved the way it licensed services or subscriptions. Trading applications are unique in that each user is assigned several terminals. In order to avoid multiple, userbased service charges, the company wanted to be able to prove to information service providers that their environment consisted of many single users with multiple PCs, rather than the typical one user-per-PC configuration. To address all these concerns, the financial institution opted for Protiva Trade Connect. In this case, Gemalto’s IDClassic smartcards were also chosen as the single credential for employees. This allows for both OTP (One Time Password) and certificate-based authentication; users only have to carry one credential whether in the office or connecting remotely. In practice, this means a trader simply inserts his or her identity badge into their primary workstation; they are then prompted to enter their PIN. On entering the correct 24
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PIN, the user is logged immediately on to both the primary and all secondary PCs. With the convenience of the IDClassic card, users can also access the network remotely using a OTP generated by the card to connect to the VPN. Technology on board the card automatically generates and inputs the OTP, eliminating the need for manual entry by the user. Given the popularity of employees working on their own mobile devices, such as smart phones and tablets (better known as Bring Your Own Device (BYOD), the French bank also allows for secure remote access using the IDBridge smartcard reader. This ultra-thin device is only a bit bigger than the smartcard itself, and can easily be carried in a wallet. The user inserts their card into the reader, which displays the OTP, making connecting to the network possible, even without their laptops. With many things, adding convenience means increasing risk. On the face of it, moving from a one-at-a-time log-in process
to a single log-in for all would seem to follow this rule. But this case study with one of the leading bank showed that adding the smartcard functionality did just the opposite. This is because the IDClassic smartcard incorporates a second factor of authentication. Traders now need their smartcard (something they have) and a PIN (something they know) to access corporate networks, creating a stronger authentication solution. To date, the bank has issued 18,000 cards and the target is to have 22,000 users who are required to use the smart card exclusively – with no option to log-in with a username and password. In addition, the financial institution was able to leverage its existing identity solution, and there are plans to expand the functionality of the cards to include encryption and digital signature. The bank’s traders are satisfied with the easier, more efficient solution, and because it combines both the physical and logical access in one credential, the company has also been able to use other existing equipment, such as door readers. This experience serves to illustrate the benefits of this new approach to log-in for a typical energy trading workplace where a single user must simultaneously access several PCs. Furthermore, current trends only look set to emphasise these advantages. The global economic volatility of recent years has certainly increased the pressure on traders in a wide range of business sectors. For the energy industry in particular, political uncertainties right across the Middle East and beyond mean that watertight security and accountability have never been more important. However, they cannot be achieved at the expense of productivity or the level of service provided to clients. Given such a daunting set of challenges, no opportunity to enhance both security and operational efficiency can be overlooked. There may be any number of ways to make every second count, but cutting the time spent on secure log-in - without compromising safety - must be one of the best deals currently on offer to the energy trading community.
Bennett Jones in the Middle East Commitment to Serve
Bennett Jones is the only Canadian-based firm to have established a legal practice in the United Arab Emirates and Qatar. We have assembled a team of GCC-resident senior advisors with 100 years of experience on the ground in the Gulf.
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Our lawyers understand Middle East business practices and cultures, and provide pragmatic and effective advice. We provide advice on issues of U.K., U.S., and Canadian law, as well as the laws of the UAE and Qatar.
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TRADE TALK Free zone
ARE YOU HERE?
Seventeen years ago, Dubai Airport Freezone (DAFZA) was established as part of Dubai Government’s strategic plan to move the Emirate towards an investment driven economy. Today, it accommodates over 1,600 international companies in various activities and industries. Nasser Al Madani, Assistant Director General, DAFZA, gives out the details about this impressive free zone.
D
AFZA has recorded staggering trade growth, in trade volume throughout 2012 with an increase of AED 69 billion, a 73% increase on 2011. Sales revenue also witnessed growth of 26% compared to 2011. As a result, DAFZA was ranked number one globally, by the Foreign Direct Investment magazine’s (fDi) Global Free Zones and Awards 2012/2013, for their strategy servicing investors and partners and their approach to facilitating trade in the region. fDi Magazine award rankings are based on several criteria such as outstanding performance, growth and expansion plans in the presence of high growth industries. 26
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“Such awards are significant achievements for DAFZA. We have worked to create a unique business community in the UAE, and one of the biggest contributing factors to our success as the world’s leading free zone was the high-level of infrastructure in place,” said Nasser Al Madani, Assistant Director General at DAFZA. “We are located next door to one of the world’s busiest airports, Dubai International Airport, giving tenants access to 24-hour logistics and customs procedures and an international gateway on their doorstep.”
Financial results 2012 The outstanding increase in 2012 sales
revenue highlights Dubai’s ability to provide ongoing investment opportunities to all foreign investors and the free zone’s role in providing an internationally standardised facility to support and drive its tenants’ businesses forward in the region. Tenants have been an integral focus in DAFZA’s mission and vision since its foundation. The free zone has worked hard to ensure that the facilities, infrastructure and services available to tenants meet international standards, and provide a productive environment from which companies can grow their business. As a result, DAFZA managed to issue 201 licenses to a variety of international organizations, planning to operate their business from the free zone.
There has been a notable increase of 37% in the number of construction and engineering companies, while the number of tenants in the jewellery industry increased by a staggering 140%. The percentage of sales of storage spaces for light industrial units grew by 20% in 2012 compared to 2011. “DAFZA is the ideal location for any organisation to grow their business as there are a variety of services on site that cater to business needs across the board, including immigration, medical services, banking,” said Al Madani, “ We have strived to provide access to as many logistical and operational requirements as possible.”
Setting up a business Tenants can also effectively set up their operations at DAFZA within two weeks, provided all paper work is submitted accordingly. There are fully functional office spaces that companies can move into and begin work from the minute they have the key. Telecommunications and internet services are installed, furniture and décor is in place and licenses and visas can be processed. In addition to the location and services DAFZA offers, the infrastructure in place at the free zone has added significant value to tenants’ day-to-day business activities. With ease of access in and out of the free zone, and to some of Dubai’s main business hubs, the free zone constantly works to ensure that its clients are not bogged down by issues that may take away from their business activities, being stuck in traffic, or having to deal with an AC problem. Everything is taken care of by the DAFZA team. Strategic plan DAFZA provides organisations operating out of the free zone security by developing a strategic plan for the future, which is revised every three years, while simultaneously meeting each tenant’s needs. Currently in its third year of the strategy, DAFZA has placed a strong focus globally and has consistently strived to integrate into its key markets. The free zone has become a popular hub for
ABOUT Nasser Al Madani is the Assistant Director General at Dubai Airport Freezone (DAFZA), a position he has held since November 2007. Al Madani has more than 20 years of experience in free zones and ports, with previous positions including Head of Human Resources at DP World for over a decade, where he was responsible for the introduction of many initiatives as well as working through merger and acquisitions. Prior to this role, Al Madani headed up the administration of Jebel Ali Free Zone for many years. Educated in the UK, Al Madani brings a wealth of HR expertise to the Free zone, as well as extensive experience in the promotion and operations of free zones. Al Madani is a graduate member of the Chartered Institute of Personnel and Development and holds a PMD qualification from Harvard Business School.
international companies looking to set up a Middle East head quarter, with many wellknown brands already having invested in the free zone. As part of its strategic plan, DAFZA aims to continue to add value to the UAE economy by providing integrated business solutions, capitalising on the opportunities offered by this region, and the ever increasing interest from both Eastern and Western markets. “Competition is always going to be a challenging factor in our business; there are a number of free zone facilities established and opening both locally and regionally,” remarked Al Madani. “But competition is healthy. It ensures we are constantly assessing our performance and benchmarking our services and facilities to maintain best practice. We have not seen it affect our business negatively at all. We are all working for Dubai and complement each other well,” he highlighted. Expansion plans DAFZA spends a significant amount of time speaking with tenants and investing in the relationship in order to understand their evolving business requirements. “When DAFZA was first established, it stood at two central buildings and one warehouse facility. In just 16 years, we have grown to 12 buildings and expansion is on-going: we now have a new 32,000sqm facility, 7W, opened recently,” explained Al Madani, “As we expand, we are committed to including facilities and services that are
important to our tenants, whether it be for car parking, visa procedures, catering or specific office facilities. It is imperative that we provide facilities and infrastructure that is representative of international standards, and in keeping with the speed and quality of business that our foreign clients are used to.” “Additionally, we will be adding a multistorey car park with a capacity for 850 cars, catering to our tenants’ needs. The project is planned to exceed more than AED 300 million, for a total building area of 70,000 sqm. Phase one is expected to be completed in 2015,” concluded Al Madani. Despite its growth and expansion, DAFZA has worked hard to ensure that its development doesn’t come at the cost of the environment. In compliance with Dubai’s vision to be a role model to the world in energy security and efficiency, DAFZA has successfully obtained an international standard for energy management (ISO 50001:2009). DAFZA treats sustainable energy very seriously, and is very keen to adopt the best international practices. Saving energy is one of DAFZA’s strategic objectives, and it has adopted the latest technologies and equipment to help reduce energy consumption in all its facilities. Two years ago, DAFZA successfully implemented the green building technology initiative and it constantly encourages its tenants to implement standards for environment protection by assigning a reward for the best company in preserving the environment. APRIL 2013
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TRADE TALK Legal
As the
ship sailed
Capt. Anshuman Singh, Head, Admirality Department, Fichte & Co, take us through the latest developments in maritime law as well as explains to us the growth trajectory of this law.
I
n the 1600s, when Oliver Cromwell was Lord Protector of England, it was the Dutch, and not the British, who were masters of the financial universe. Fifty years later the City of London had overtaken Amsterdam and the ‘Hollanders’. The merchants of Lloyd’s coffee-house had been underwriting marine insurance for Britain’s international trade since the 1680s, but soon even the richly-laden Spanish treasure fleets were insured in London. The world came to the City for insurance. London is still the epicenter of much of the world’s marine insurance business, in an era when more goods than ever reach us by sea. A notable fact is throughout the development of marine insurance, policymakers tried to balance commercial, public and long-term interests in their own legislation. 28
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While there is a great step in maritime sector in the traditional maritime countries and especially the common wealth countries which have had a more standardised change within their Laws and adopting of regulations, the changes in the UAE and also other GCC countries have also been dominant with the nations recognising the potential of shipping and the importance of regulations and rules that dominate world trade and shipping in general. Particularly in the UAE, the maritime sector has seen a marked development and the contributory factors towards this could be the effective presence of various regulatory and competent bodies for the administration of maritime affairs within the regimes. For the legislation to be effective, it needs to be in a position to address the local conditions as well as to meet the international
ABOUT Capt. Anshuman Singh joined Fichte & Co in 2012 and heads the Admiralty Department and supports the Maritime Team with invaluable knowledge. He has diverse Claims handling experience having been working with a P&I Correspondent in the UAE for nearly 5 years. He is a Master Mariner with extensive experience in practicalities of shipboard operations, and before moving on-shore he has sailed on all kind of Dry vessels including specialized vessels like self unloaders.
Maritime law is a complete legal system, just as the civil law and the common law are complete legal systems. Maritime law incidentally is much older than the common law and probably contemporaneous with the advent of the civil law. That maritime law is a complete legal system and this can be readily seen from its component parts. For centuries maritime law has had its own law of contract - of sale (of ships), of service (towage), of lease (chartering), of carriage (carriage of goods by sea), of insurance (marine insurance, being the precursor of insurance ashore), of agency (ship chandlers), of hire (of masters and seamen), of compensation for sickness and personal injury (maintenance and cure) and risk distribution (general average), and so forth. It is and has been a national
For the legislation to be effective, it needs to be in a position to address the local conditions as well as to meet the international standards. standards. The institutional framework of the maritime administration has to provide the mandate to effectively oversee all the operators of the maritime sector on the one hand. On the other hand it should afford the International Maritime Organization (IMO) the means to enforce the international standards in that particular member state.
and an international law (probably the first private international law). It also has had its own public law and public international law. Regarding the importance of maritime sector for the socio-economic development of any maritime nation, obviously the government of a particular nation in
administering the maritime affairs has got one among the crucial tasks in developing such a country. Bearing in mind that shipping and maritime activities in general are international issues, and in order to fulfill the responsibilities as a flag state and a port state effectively and in an efficient manner the Government of the flag state should pass a comprehensive legislation for the control and regulation of shipping with respect to the registration of ships, the employment and certification of seafarers and the safety of shipping. Also such legislation should provide for the establishment of a competent maritime administration and prescribing its objects and functions. The government should also consider accession to and implementation of relevant International Instruments for the improvement of maritime safety and prevention of pollution. The most important Conventions for such purpose are the following: (a) The International Convention for the safety of Life at Sea (SOLAS) 1974. (b) The International Convention for the Prevention of Pollution from Ships 1973, as modified by the Protocol of 1978 relating thereto (MARPOL 73, 78). (c) The International Convention on Load Lines (LL) 1966; and (d) The International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) 1978. APRIL 2013
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TRADE TALK Legal
The object of a maritime administration within the framework of a country’s overall maritime activities is to provide the Government with the machinery which would enable it to satisfactorily and efficiently undertake those functions which are embodied within the country’s Merchant Shipping Legislation (i.e. National Maritime Laws). These functions would include the implementation of the
has acquired more autonomy and controlled by a Board of Directors who set the administration’s policies and procedures. Such an administration could be self-supporting or supported by the Government but not limited by the public service conditions. In that mode it is believed that decision-making process is more facilitated. A notable development in the UAE, in compliance and in recognition
The object of a maritime administration within the framework of a country’s overall maritime activities is to provide the Government with the machinery which would enable it to satisfactorily and efficiently undertake those functions which are embodied within the country’s Merchant Shipping Legislation (i.e. National Maritime Laws). requirements of International Maritime Conventions, and National Rules and Regulations. For that meaning, a maritime administration can be more described as the national body, which is responsible for and dedicated to ensuring the safety of ships, the protection of life and property at sea and the marine environment, and compliance with applicable national laws and regulations. It directly derives its authority from the national maritime legislation and the minister concerned and it usually conducts its activities in accordance with the duly granted authority. Structurally, a national maritime administration can be formed in different options depending on the consideration of the country’s political systems, traditional practices or otherwise where it fits best in the Government structure. For instance it could be a project or division within a ministry, a department of a ministry, statutory authority or an executive Agency. The most common mode used in many countries, which also has got particular interest in this work, is of the statutory authority, in which an administration 30
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of the requirement of authorities and administrative governance to regulate the shipping sector and have a control over its vast coastline is the increased effectiveness of the National Transport Authority ( NTA), Department Of Transport ( DOT) and Dubai Maritime City Authority (DMCA). The above administrative and regulatory bodies have varied roles and responsibilities to play as related to its general duty in controlling shipping and other maritime activities. Among the most important ones are the following; (i) Registration of Ships and Seafarers (ii) Certification of seafarers (iii) Ships Surveys and Inspections (iv) Casualty Investigations (v) Co-operation (vi) International Activities
The maritime law in the UAE is based on modern international ‘law and maritime principles set out in International Conventions. It is also very similar to the maritime laws of the other Arabian Gulf Cooperation Council (“GCC”) States (other than
Saudi Arabia). In addition there are several relevant Ministerial Decrees or local laws regulating registration of vessels, crewing, classification of vessels, restrictions with regards to activities undertaken by foreign flag vessels and other activities in port according to the relevant Port Ordinances applicable in the individual Emirates. To be a forerunner and a recognised maritime state, UAE in particular has been more receptive in applying an international approach to maritime contracts and recognising the possibilities of Arbitration and the states limits where jurisdiction is concerned. For example the UAE court will recognise and uphold the incorporation of a charter party/foreign arbitration clause into a bill of lading even where the details of the charter party in the bill of lading are left blank. The UAE ratified the The New York Convention on Recognition and Enforcement of Foreign Arbitral Award (“NYC”) on 19 November 2006 without any reservation. The effectiveness of domestic legislation and procedures in recognising and enforcing the principles is evident from the local courts ratifying a final arbitration award with its seat in London. Another marked development has been the establishment of the DIFC Courts. The DIFC Courts are an independent common law judiciary based in the Dubai International Financial Centre (DIFC) with jurisdiction governing civil and commercial disputes which also include Maritime disputes. The DIFC Courts operate in English and apply the highest international standards of legal procedure, ensuring the certainty and efficiency expected by global institutions. A ‘Memorandum of Guidance’ (MoG) has been signed in London on 23 January 2013 between the Dubai’s International Centre (DIFC) Courts — the leading English language commercial court in the Middle East — and the Commercial Court of England and Wales, the world’s leading Commercial Court which again confirms the nations commitment towards establishing itself amongst the leading Maritime Nations of the world.
TRADE TALK International trade
What’s unique about India’s trade challenges? In 2013, the prospects for trade for the BRIC economies (Brazil, Russia, India and China) will diverge. The widening trade deficit for India in particular, the only BRIC member in which imports outstrip exports, is threatening the country’s growth prospects for the year. We bring you a special report from Euromonitor which looks at India’s trade challenges.
T
he BRIC economies have been at the forefront of emerging market growth for the past decade. However, weaker export demand from the developed world since 2012 is impacting the trade balances of each BRIC country.
Key points • India’s trade deficit widened in 2012 to 10.3% of GDP, as high oil prices further increased the cost of the country’s imports, while export growth slowed, leading the imbalance to worsen. This is compared to 2.9% surplus in China, 9.9% surplus in Russia and a 0.9% surplus in Brazil in 2012. 32
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• Both Russia and Brazil’s exports are buoyed significantly by primary resources, such as oil and gas. Without these resources, both of these economies would suffer from trade deficits in 2013; • Global trade remained subdued between 2011 and 2012, with growth of just 1.8% in USD terms. However, a slight pick-up in trade in 2013 is expected to support a rebound in exports from the BRIC economies, leading to a 12.0% increase in USD terms in the year. • On the other hand, global foreign direct investment (FDI) flows have suffered considerably in the wake of the financial
crisis in 2007-2008. In 2011 (last date available), FDI intensity in the BRIC economies had fallen to 2.0%, from a peak of 3.0% in 2008. In terms of real FDI inflows, total inflows to the BRICs were 14.3% lower in 2011 than they were in 2008. This trend is expected to have worsened in 2012, with investor sentiment still down in 2013.
India’s trade gap widens further in 2013 India has not posted an annual trade surplus since at least 1977 (earliest data available). However, over the majority of the period
studied, the trade deficit has been offset by capital accumulation in India from FDI inflows into the country. Since 2006, a rapid acceleration in imports has led to a much larger trade deficit, while the financial crisis of 2007-2008 has meant FDI flows have tightened across the world. The trade deficit is, therefore, a growing burden for India, as capital is diverted from India’s economy to fund rising import costs. Euromonitor International expects India’s trade deficit to widen to 12.3% in 2013, making it the second largest deficit, in absolute terms of the 66 economies forecasted.
• India’s trade deficit has remained thanks in large part to two factors. First of all the country is highly dependent on imports of energy to maintain the country’s energy consumption. For example, the country imports 75.2% of the crude oil that it consumes, as a result, in 2012, imports of mineral fuels accounted for 33.9% of the country’s import bill. The rising costs of fossil fuels after 2010, as well as the low levels of energy efficiency have exacerbated India’s trade deficit issues; • Secondly, the economy’s external sector remains comparatively small in comparison with the other BRIC economies. The Indian economy has maintained growth through rising domestic spending and a burgeoning services sector, which in 2012 made up 53.4% of the economy. As a result, India’s exports made up just 15.7% of the country’s GDP in 2012, compared to 25.3% in China and 27.2% in Russia, Brazil is the exception with exports making up just 10.8% of GDP in the year; • As long as the trade deficit is well funded, through high levels of foreign direct investment, and capital inflows that offset import costs, the trade deficit does not necessarily damage growth in an economy. However, in 2013 this “unfunded trade deficit” is a major issue for India’s external sector. The current account deficit, which includes inflows of
Trade Balance of BRIC Economies: 2012
Real Output Growth per Sector in the BRIC Economies: 2007-2012
Source: Euromonitor International from national statistics Note: (1) Primary sector includes GVA from Agriculture, Hunting, Forestry and Fishing, Mining and Quarrying. (2) Secondary sector includes GVA from Manufacturing and Construction. (3) Tertiary Sector includes GVA from Electricity, Gas and Water Supply, Transport, Communications, Trade, Hotels and Restaurants, Financial Intermediation, Real Estate, Renting and Business Activities, from Education, Health, Social Services, Public and Undefined Sector, Activities of Households
FDI into the economy, widened in 2012 to 4.4%, representing a net drain on the economy. This is currently being funded by foreign currency borrowing; however, the increased borrowing increases India’s vulnerability to external shocks from international finance, making India more
susceptible to international downturns; • Although there are challenges for India’s external sector in 2013, the economy has seen very high trade growth, the fastest of the BRIC economies. Between 2007 and 2012, exports increased by 103.6% in USD terms, while imports increased by 123.2%. APRIL 2013
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TRADE TALK International trade
Growth will continue in 2013, with 15.2% increase in exports and a 22.2% increase in imports. The rapid growth is a result of a burgeoning middle class and the development of export industries in the country. The long term prospects for India remain bright as a result, as the growing population and continued economic development offer considerable opportunities for investment. However, the trade deficit will continue to drag on economic growth until investor confidence in India returns.
Each of the BRICs has its own issues to deal with Although on the face of it, the other BRIC economies are not in the same situation as India, the slowdown in FDI into each country has been a significant drag on the growth prospects for the BRIC economies. This has acted to lay bare internal imbalances and structural issues, which are forcing reform in each economy in 2013. There are various structural differences in each of the BRIC economies that lead to different phenomenon in terms of trade, in India; there is a risk of unfunded import costs. However, in Brazil, Russia and China, risks remain. • Russia’s economic performance was buoyed in 2012 thanks to the rising price of oil, given the country is one of the largest oil exporters in the world. However, oil accounts for the majority of the country’s export; mineral fuels accounted for 59.7% of exports in 2012. This heavy dependence on oil makes the country vulnerable to global shocks, the impact of falling oil prices on output in 2009 is just one example of the problem. The crash in oil prices, where the price of Europe Brent Crude fell to USD 40.0 per barrel in December 2008, from a high of USD 132.7 in July 2008 led to a real GDP decline of 7.8% in 2009 in Russia. A comparative period of growth after 2009 was in line with rising oil prices once again, meaning the country’s growth remains dependent on historically volatile global oil prices; • Brazil’s external sector is similarly dependent on export of primary goods to 34
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ABOUT Euromonitor International has established a strong presence in the Middle East over the past 5 years. Our robust research methodology, supported by 800 researchers and in-country analysts across 80 countries has distinguished us as the world leader in strategy research for consumer markets. For more information, please contact kim.perks@euromonitor.com
maintain a trade surplus. However, Brazil’s economy is similar to the Indian economy given the driver of growth in the country is from services, rather than the country’s primary or secondary sector. The drive of domestic demand has led to increasing imports of manufactured goods, in direct competition with Brazil’s manufacturing sector. Between 2007 and 2012, in real terms the country’s manufacturing industry has contracted by 10.3% as a result. This trend is expected to continue, representing a long term issue for the country; • Finally, China is an economy that has historically driven growth through the export of its goods to the developed economies, in particular, to the USA. The dependence the country has on exports for growth has meant the downturn in trade in 2012 had a significant impact on the external sector of China’s economy. This has resulted in a weakening of the country’s growth prospects and forced, perhaps prematurely, a transition in the country’s growth strategy towards fostering domestic demand. Though a natural progression, 2013 will be a difficult year for the country, as the transition to consumption is hampered by weakness in its external sector and lower levels of FDI into the country. Prospects Owing to the relatively high levels of exports to the developed economies, the BRICs suffered from slower real GDP growth in 2012 than in 2011. This has forced a response from the BRIC economies, either
by further opening their economies to trade and investment, in the hope of gaining a larger share of global flows, or refocusing growth on domestic led demand to drive their own economies. • In 2012, India has taken the former option, opening up its retailing sector to foreign investment in the hope of reclaiming FDI inflows that have slowed considerably since 2010. Though this has the potential to increase inflows into the country, the diminished pool of willing investors and the higher risk prospect of India’s economy, given the slow growth in the country has the potential to put investors off. As a result, Euromonitor International does not expect any large increase in investment flows into the country in 2013, leading to an increasingly costly import bill; • India’s government is looking to exports to remedy the country’s growing trade gap in 2013; however, the poor performance in the eurozone, a major trading partner to India is dimming the country’s trade prospects in the year. Moody’s, along with the other credit ratings agencies are threatening to lower the country’s sovereign rating in 2013 as the trade gap opens the country to volatility in the international markets. This is a central risk to the country, as India’s sovereign credit rating is Baa3, the lowest investment grade possible. A downgrade will put the government bond rating into the junk category, forcing an outflow of capital as investors are forced to reduce their exposures to junk rated government bonds.
Country
focus
CANADA
CANADA
BILATERAL TRADE
FINANCE
Interview
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COUNTRY FOCUS Interview
Know your partners
Canada’s trade and investment relations with the GCC countries has been growing from strength to strength. We spoke with H.E Ambassador Arif Lalani to get his views on this bilateral relations.
Please give us a brief background on the trade relations between the GCC and Canada, particularly the UAE. The UAE is one of our most important commercial relationships in the region. Activity in trade, investment, innovation and education is robust and growing. The UAE is the top export destination for Canadian goods and technology in the MENA region, and within Canada’s top twenty export markets globally. Our UAE commercial and investment team of 12 operates out of the Embassy in Abu Dhabi and the Consulate General in Dubai. Two-way merchandise trade between Canada and the UAE reached USD 1.66 billion in 2012. Some 40,000 Canadians live and/or work in the UAE: more Canadians live and work here than in any other country in the MENA region. Canada’s two-way merchandise trade with GCC countries for 2012 was USD 6.78 billion. Priority sectors in the region where we see the most opportunity for Canadian exporters 36
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include the service industries, oil & gas equipment and services, health industries, infrastructure/green-build and agriculture, food and beverages.
How has the trade relation evolved over the decades? For over 40 years, Canadians have been a part of the UAE story. Many Emirati health care personnel have been trained in Canada. Some schools in the UAE are modelled on a Canadian curriculum. In addition, the higher colleges in the UAE were developed on the basis of a Canadian/Ontario model. Canadian universities and colleges are making their presence known in the UAE through partnerships with UAE institutions, and through the growing number of alumni in this country who have graduated from Canadian schools. We have helped Emiratis develop their health and education sectors, and build their infrastructure. A Canadian nurse named Gertrude Dyck arrived in Al Ain in the early
1960s and worked at the Oasis Hospital there. Her work in the area of maternal and neonatal health served to bring the incidence of newborn infant and maternal mortality down. Hundreds of Emirati births were facilitated by her efforts. Her dedication and kindness earned her the name “Doctora Latifa”. I was thrilled to be part of the ceremony in February which marked the 100,000 birth at Oasis Hospital in Al Ain! Also in the 1960s, a Canadian company called Cansult built the Maqta Bridge linking Abu Dhabi to the mainland. They also built Abu Dhabi’s very first international airport. And we mint your Dirhams! Today we are building a strategic relationship across the foreign, security, commercial, and development sectors that we hope will allow Canada to be a part of the UAEs future. For example, Canada’s BlackBerry chose Dubai as one of only six cities worldwide for its BlackBerry10 launch! Canadian companies have been actively involved in several projects in the region with the two most notable being Rio Tinto-ALCAN and SNC-Lavalin. SNCLavalin have undertaken several projects in the aluminum industry including for DUBAL in Dubai. They are also actively involved in the EMAL project having successfully completed the first phase of the smelter. When completed, Canadians will have contributed to the largest single-site aluminum smelter in the world! Most important to me, we will have played a valuable role in the UAEs economic diversification strategy. We can do much more! We believe the UAE is a model of what I call “enlightened accelerated development”. And I want to encourage Canadians to continue to be a part of the story. I know Canadians here care deeply about the UAE. There are two Canadian Business Councils in the UAE: one serving Abu Dhabi and the other serving Dubai and the Northern Emirates. Both have large memberships and generous sponsors
and play an influential role in promoting two-way trade and investment between our countries.
What are the main products exported and imported between the two countries? Trade activities and investments are diversified across many sectors, including aerospace, ICT, health industries, education, defence & security, service industries and capital projects, oil and gas, and environmental industries. Canada’s merchandise exports to the UAE include aircraft (Bombardier) and aircraft simulators (CAE), telecommunications equipment (BlackBerry) and a variety of
more a benchmark for many international best practices. No major Canadian banks failed during the financial crisis of 2008-2009. The World Economic Forum has for five years in a row ranked Canada’s banking sector first worldwide for financial strength and safety. Canada led all G-7 countries in economic growth over the past decade (2002-2012). We have a strong economy with low tax rates, unparalleled access to the North American market and strong and stable dollar. KPMG places Canada as the most tax competitive country in the G-7 (our corporate taxes are 13% lower than the U.S.). Our team of federal, provincial and municipal
$6.7 billion
Canada’s two way merchandise trade with GCC countries agri-food products and commodities. On the services side, education and financial services, as well as construction and architecture, are key areas of expertise for Canada in the UAE market. Canada is the number one supplier of foodstuff in the UAE (wheat, canola, valueadded food products) and these products can be found in Spinneys and Lulu across the UAE. UAE exports to Canada include oil, chemicals, iron and steel products, and minerals and precious stones. We see continued interest in Canadian technology and services in all the areas of priority importance for the diversification of the UAE economy. Canada is well represented in several fields, from aerospace to financial services and from agriculture to manufacturing.
For GCC companies, keen on investing in Canada- what advice would you like to give them and which sectors and areas would you highlight?
I believe Canada offers one of the best returns on investment anywhere in the world. The Canadian financial sector is among the World’s most well-regulated and is more and
partners is ready to assist foreign investors with their business ventures in Canada. We provide advice with respect to site selection, financing and setting up a business anywhere in Canada.
Are there any issues that foreign companies need to be aware of when they decide to set shop in Canada?
We make it our business to attract businesses to Canada. The main issues that foreign investors should be aware of are the competitive and open nature of our business environment. This why Canada was the second largest recipient of global FDI inflows per capita in the G-20 from 2007-2011. These are broad indicators of our success so here are some specific factors that any company might consider about investing in Canada: Canada’s workforce is the most highly educated among countries of the OECD, with half of its working-age population having a tertiary level of education. We are linguistically diverse, with 1 in 5 Canadians speaking one of over 200 languages in addition to either of Canada’s official languages of English and French.
How many Canadian companies are in the UAE/Middle East? Over 150 Canadian companies have chosen the UAE as their base of operations for the wider MENA region because of this country’s welldeveloped infrastructure, business-friendly environment and extensive regional linkage, including MENA, South Asian countries, Central Asia and sub-Saharan Africa. We ensure Canadians are aware that the UAE is a regional hub with excellent logistical links to South Asia, Africa and the wider MENA region, as there is huge potential for many more Canada-UAE business partnerships.
What kind of investments is Canada making in the UAE?
The Government of Canada does not report on foreign direct investment abroad but we do assist Canadian clients to establish their operations abroad. Canadian direct investment in the UAE is diversified across many sectors, including banking (RBC, BMO and Scotiabank), infrastructure (SNC Lavalin) and transportation (Bombardier).
How do you see the bilateral economic relation evolving in the coming years? Any agreements being signed?
Canada and the UAE have recently signed Memorandums of Understanding (MOU) with respect to SME incubator models. For example, Sustainable Development Technology Canada (SDTC) signed an MOU with the UAE Ministry of the Economy to share best practices on Canada’s P3 model for the clean tech sector, the due diligence process for investing in technology start-ups, as well as investment opportunities in SDTC funds and eventual commercialisation activities. An MOU was also signed between the MaRS Discovery District and the Ministry of the Economy to explore the MaRS technology incubator model. Canada also concluded a nuclear cooperation agreement in September 2012 with the UAE Ministry of Foreign Affairs. We are actively exploring new institutional partnerships in technology innovation and SME creation which will lead to even greater levels of bilateral cooperation, trade and investment. There is huge scope for Canadians to share our experience with Emirati partners across many sectors. APRIL 2013
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COUNTRY FOCUS Doing business
Invest in Canada - Innovative, Creative and Stable Canada remains one of the most welcoming places in the world for international business and foreign direct investment. In what remains a challenging global economic climate, Canada’s economy has outperformed those of most other industrialised countries and remains a top destination for foreign investment.
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he World Economic Forum has rated Canada’s banking system as the world’s soundest. Forbes magazine has ranked Canada as the best place in the world for businesses to grow and create jobs, due in part to their low-tax environment, which includes the lowest overall tax on new business investment in the G-7. These are but some of the factors contributing to an innovative, stable and predictable, and cost efficient and profitable environment, attractive to international investment. 38
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Canada not only presents a stable and predictable investment climate that generates creative and innovative solutions, but also provides access to international markets. Canada, as a member of the World Trade Organisation and signatory to both bilateral and multilateral free trade agreements, reduces barriers to trade and as well enables tariff free access to qualifying goods and services. The North American Free Trade Agreement (NAFTA), to which Canada is a
signatory, has in the last 10 years, eliminated barriers to trade as well as provided duty free access, to a market of 463 million consumers with combined GDP of USD 18.7 trillion (2012 estimates). The unparalleled access to a thriving domestic economy and international markets positions Canada as a prime destination for international investment. Additional features of Canada’s investment environment include government assistance at both federal and provincial levels. Government
led initiatives such as the Scientific Research and Experimental Development Tax Credit (SR&ED) and the recently launched Venture Capital Action Plan provide candidates with much need funding to continue research and development activities and commercialisation activities. This is but one example of how Canadian governments work to compliment the efforts of industry and commerce in a collaborative manner. The collaboration extends well beyond public/private partnerships to include partnerships with governments and research and educational institutions, both foreign and domestic. The strategic partnerships have seen their partners pool resources and cut costs, gain unparalleled access to essential resources and facilitate the transfer of knowledge and technology. The partnerships have also witnessed the development of centres of excellence, pioneering the development of cutting edge technologies many of which have been deployed in the UAE today. Following, are highlights of some of Canadian investment opportunities with key strengths illustrated.
Aerospace Canada’s aerospace producers have earned an outstanding worldwide reputation for quality, value, performance and reliability, with exports accounting for 80% of the industry’s annual revenues. More than 400 aerospace manufacturing and services companies across Canada generated an estimated USD 21 billion in revenues in 2010. Aircraft and aircraft parts design and manufacturing is the largest sub-sector, accounting for 53% of the industry’s revenue. Canada’s key strengths in aerospace • Research and development: With a combined R&D and capital investment of more than USD 2 billion in the aerospace industry, Canada is at the forefront of aircraft technology development and applications. • Export competitiveness: Canadian government through the Export Development Corporation (EDC) provides support ranging from inbound investment to export market financing of aircraft sales, logistics and market access. • Duty-free manufacturing tariff regime: Canada is the first G-20 country to offer a tariff-free zone for industrial manufacturers, a major initiative that will see tariffs on all manufacturing inputs reduced to zero by 2015. Renewable energy Like the UAE, the development of clean technologies is a priority for all levels of government in Canada; at the federal, provincial, territorial and regional levels.
Canada is an active centre for research and innovation in renewable energy technologies. Support for innovation in wind and solar energy includes: • Preliminary gross domestic expenditure on R&D in 2011 in Canada is USD 30 billion, one of the highest levels in the world. • Canmet ENERGY, part of the federal department Natural Resources Canada, provides technical expertise and financial support to renewable energy technologies, and works with industry, universities and research groups to support innovation in wind, solar and thermal energy. Canada’s key strengths in renewable energy • Natural Resources: Vast coastlines and huge land mass provide Canada with strong wind resources. • Large domestic market: Canada is the sixth largest consumer of electricity in the world providing a huge market for renewable energy. • Research & development capabilities: Partnerships between industry, government, universities and research institutes such as Canmet ENERGY and testing facilities such as WEICan and TechnoCentre É� olien create an excellent environment for R&D and innovation in renewable energy. Wireless communications Information and Communications Technologies (ICT) is one of the four priorities of the Canadian government’s science and technology strategy: there is a national digital economy strategy supporting this initiative. This strategy aims to help the ICT sector create new products and services, accelerate the adoption of digital technologies, and improve cyber-security practices. The Canadian telecom services market for 2012 was valued at USD 43.5 billion, with wireless data being the fastest growing segment. Canada’s strengths in Next Generation Networks (NGN), M2M, and cloud computing applications are encouraging many international companies to invest in Canada. APRIL 2013
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Recent policy measures removed foreign investment restrictions for telecommunications operators with less than a 10% share of the Canadian market. This, combined with caps applied to the next spectrum auction, later this year, will enable new entrants to compete to bring the latest 4G LTE mobile networks to Canadians. Canada’s key strengths in wireless communications More than 300 wireless and telecommunications companies in Canada spend over USD 6.2 billion annually on R&D. Canada’s deep expertise in wireless covers many areas.
Skills and research ICT accounts for one third of all Canadian private sector R&D. The Government of Canada encourages R&D through generous Scientific Research and Experimental Development tax incentive programmes. Five, of the 10 Canadian companies that spend more than USD 200 million on R&D, are operational in the wireless sector. In 2011-12, Blackberry (Research In Motion) remained Canada’s top corporate R&D spender, devoting nearly USD 1.6 billion to research. This research has focused on new product development such as the BB10. Canada’s ICT workforce is highly educated – 84% of all workers have university or college training and 71% hold a post-secondary graduate degree. In 2011, Canada’s ICT sector employed an estimated 556,000 people. Medical devices Canada’s highly diversified medical device manufacturing and development industry encompasses more than 1,000 firms employing some 26,000 people. The industry consists primarily of small- and medium-sized enterprises that generated a combined total of around USD 2.6 billion in export revenues in 2009. Demographic trends, developments in science and engineering, and health-care delivery changes are expected to contribute to the industry’s growth in the years ahead. The industry’s many innovative firms specialse in cardiovascular devices, medical imaging, in vitro diagnostics, dental implants 40
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international trade and intellectual property, while provincial governments handle legal matters related to health and education, among other issues. Canada’s legal system is rooted in British common law, while the province of Québec operates under a system of civil law for private legal matters.
and materials, and assistive devices for home health care. Canada is also a world leader in the field of in vitro diagnostics. For example, Halifax-based MedMira developed a flow-through rapid diagnostic HIV test, the only such product to earn regulatory approval in Canada, the United States, China, and the European Union.
Canada’s key strengths in medical devices Competitive remuneration costs: The salary costs of R&D executives in Canadian cities are competitive compared to, for example, cities in the United States and in Europe. A large pool of experienced, highly trained R&D researchers. With its high number of experienced, highly trained R&D researchers, Canada offers many advantages to companies looking to launch or expand their R&D facilities. With close to 35,000 researchers in Montréal alone, and another 40,000 in Toronto and Vancouver combined, Canada’s three largest cities are ideal investment locations. World-class scientific research centres: Canada is home to many internationally recognised universities and leading-edge scientific research institutions, staffed with world-class scientists and researchers. In addition, the federal government provides strong support to research and development across the country through such internationally recognised institutions, as the International Development Research Centre, the National Research Council Canada, and the Canadian Institutes of Health Research. A no-nonsense legal framework: The federal government deals with legal issues of national scope, including those related to
Financial services Finance and insurance accounted for 7% of national output in 2011, and the Canadian financial services sector represented a GDP of USD 264 billion. The size and growth of the Canadian financial services sector is supported by Canada’s AAA credit rating and stable banking system
Canada’s key strengths in financial service Strongest banking system in the worldThe Canadian banking system was ranked the soundest in the world by the World Economic Forum in 2011. Moody’s Investment Service ranks Canada’s banking sector first worldwide for financial strength and safety. No major Canadian banks failed during the financial crisis of 2008-2009 and four of the world’s top ten strongest banks are Canadian: CIBC (third), TorontoDominion Bank (fourth), National Bank of Canada (fifth) and Royal Bank of Canada (sixth). Size of the financial sector: The Toronto Stock Exchange (TMXGroup) is the largest in North America and second largest worldwide by number of companies listed. It is the third largest in North America and eighth largest worldwide by market capitalisation. Quality of the regulatory environment: The Canadian financial sector is among the worlds most well-regulated and offers many examples of best practices.
Skills and research The financial services industry is one of the largest sectors for employment in Canada, with a workforce of nearly 700,000. The Canadian government has recently realigned its temporary foreign worker programme, streamlining the process for employers with immediate labour needs in high-skill occupations such as financial services.
On the other hand, in order to promote Canadian exports, there is the Export Development Canada (EDC) which is Canada’s official export credit agency (ECA). They support and develop Canada’s export trade and international business efforts through the provision of (1) Financing and insurance solutions for Canadian exporters and investors; (2) Financing solutions for buyers of Canadian goods & services and (3) Matchmaking and market intelligence. EDC carried out USD 102.8 billion in international and domestic transactions on behalf of Canadian companies during 2011, a rise of 21.0% from 2010. For every USD 1
in income earned in Canada during 2011, 5.2 cents is attributable to EDC’s support for trade and investment. The employment associated with the business EDC facilitated in 2011 is estimated at 707,287 person-years, about 4.1% of total national employment. Through their international footprint of 16 representative offices, EDC can help Canadian exporters and investors to build relationships with leading foreign companies and Canadian and foreign banks active in these markets. EDC’s Abu Dhabi representation was officially opened in December 2007 and covers the MiddleEast region. EDC’s business strategy in the
Middle-East is centered on four main sectors: Extractive (Oil & Gas, Mining and Metal (Aluminum)); Infrastructure & Environment (Power & Water, Infrastructure, Clean Tech.), ICT (Telecom and eHealth) & Light Manufacturing (Medical Devices). Overall, EDC’s objective is to leverage Canadian and International strategic business relationships to increase the overall Canadian footprint by profiling opportunities and procurement needs of the market and connecting decision makers to relevant and interested Canadian suppliers through close collaboration with all local stakeholders.
Some quick statistics on Canada’s economic fundamentals:
• Canada is the best country for business according to Forbes Magazine’s November 2012 study. • The Economist Intelligence Unit (EIU) says Canada is the best country among the G-7 to do business over the next five years (20132017). • Canada is the easiest place to start a business in the G-7, according to the World Bank. • Canada was the second largest recipient of global FDI inflows per capita in the G-20 from 2007-2011. • Canada has the lowest net debt-to-GDP ratio in the G-7, according to the International Monetary Fund (IMF). • Canada led all G-7 countries in economic growth over the past decade (2002-2011). • Canada has posted the fastest employment growth in the G-7 over the last two years, fully recouping more than all of the output and more than all of the jobs lost during the recent global financial downturn. • Overall business costs in Canada are the second lowest in the G-7 and 5.0% lower than the U.S., according to KPMG’s Competitive Alternatives Report. • Canada›s combined federal-provincial general corporate income tax rate of 26.1% in 2012 is below the level of most other G 7 countries, and about 13 percentage points lower than the U.S. • Canada leads the G-7 in R&D spending as a share of GDP in higher education. • Canada›s workforce is one of the most highly educated among the countries of the Organization for Economic Co-operation and Development (OECD), with half of its working-age population having a tertiary level education. • Canada’s status as a NAFTA member and its world-class infrastructure makes it an investment platform to tap into the lucrative North American market of nearly 461 million consumers. • Commercial real estate has long been a vehicle of choice for investment into the Canadian markets.
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anada is home to many impressive innovations that—while perhaps not as familiar as Bombardier’s CRJ Series of regional jets, canola oil or BlackBerry smart phones—generate a wealth of opportunities for international investors across a variety of sectors. Canada’s world-leading mining companies, for instance, have developed advanced, higher-resolution imaging technology to optimise exploration programmes. Canadian research into the potential health benefits of canola, probiotics and oat fibre enables food manufacturers to boost the health properties and international sales potential of processed foods. Finally, Canadian nanotechnology research enables the development of high-performance wood products that meet the demands of world construction markets. These are but some of Canada’s creative and innovative solutions that have demonstrated commercial success in both domestic and international markets and have presented the investment community with sound investment opportunities to compliment a multitude of investment portfolios.
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COUNTRY FOCUS Legal
Understand the legalities Canada is a prosperous society, with a highly educated workforce, substantial natural resources, modern infrastructure, well-functioning public organisations, and sound financial institutions. The country’s high standard of living and quality of life is sustained through a diversified and open economy. James McDermott, Managing Partner, Bennett Jones LLP – Abu Dhabi, advises us on Canada’s legal framework for foreign businesses.
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n a World Bank review of G-7 countries, Canada received the top score in seven out of eleven sector groups for the least amount of FDI regulation. Canada’s economy has expanded faster than any other G-7 county in the past decade and it is the only G-7 country to have recovered all jobs lost in the recent global recession. FDI trade stock in Canada (i.e inbound investment) is CAD 550 billion, which, as Inward stock of Foreign Direct Investment (as a percentage of GDPI)
G-7
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a percentage of GDP, is much higher than the average for G-7 countries. Yet despite such high levels of inbound investment, the FDI stock from Canada (i.e., outbound investment) is even greater at CAD 600 billion. This means that Canada is a net foreign investor of CAD 50 billion. The Canadian government has enacted favourable corporate, securities and commercial laws, as well as foreign investment rules that support investing in Canada. Investment Canada and National Security Review Only a small sub-set of investments in Canadian companies requires any form of notification or review by the Canadian government under the Investment Canada Act regime. For example, only where an investment by a public investor or a state owned enterprise is over CAD 330 million would an application and review be required. In the 28 year history of the Investment Canada Act regime, only two applications have ever been rejected. One was from the United States and the other from Australia.
Both transactions had unique political circumstances that are unlikely to be repeated. The Canadian government recently approved two large foreign investments by state owned enterprises (SOEs). First, the acquisition by Chinese National Offshore Oil Corporation (CNOOC) of Nexen Inc., a Canadian based oil and gas company for CAD 15.1 billion was approved. On the same day, the acquisition by Petronas of Progress Energy Resources Corp., another Canadian based oil and gas company for CAD 5.2 billion was approved. Both are large investments into the Canadian oil and gas market. For approval of these large transactions, the Minister of Industry must determine that the investment will bring a net benefit to Canada. Each relevant province of Canada is to be consulted during the review process, but the ultimate decision is left to the federal government. To determine if there is a net benefit to Canada, the Canadian government will examine the corporate governance and reporting structure of the investor. This includes the investor’s commitment to Canadian standards of transparency, disclosure, presences of independent members of the board of directors and independent audit committees, as well as equitable treatment of shareholders. The government will also ensure that the investor adheres to Canadian laws and practices such as free market principles. The impact on Canada’s employment, production and capital levels will also be assessed. Finally, the government will ensure that the investment is made primarily for commercial reasons. This final element is especially important for SOE investors. The federal government will also consider if the investment could be injurious to national security. This question is considered for investments of any size. However, no investment has ever been rejected under this review process.
Canada’s International Treaties Canada’s favourable investment framework includes a network of international
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COUNTRY FOCUS Legal
treaties that support both investments into Canada and Canadian companies investing abroad. This international network is composed of treaties that help avoid double taxation, reduce trade barriers, and protect investments inside and outside Canada.
Double Tax Treaties Canada has treaties for the avoidance of double taxation with Egypt, Kuwait, Oman, Turkey and the UAE. These treaties protect nationals and their companies while investing in Canada. This treaty limits the tax on what otherwise would be due for a business earning money in Canada.
Trade Treaties Canada is a party to nine free-trade agreements with trading bodies such as Jordan, the European Free Trade Association and the United States. Canada also is a member of the World Trade Organization (WTO). Canada is currently negotiating free-trade agreements with Morocco, the European Union and India. These trade treaties will give Canadian business access to some of the world’s largest markets. Investment Treaties Canada is a party to more than twenty treaties that protect the investments of foreign companies in Canada. Notable, Canada has recently concluded negotiations for a new
ABOUT James McDermott is the Managing Partner of Bennett Jones LLP – Abu Dhabi. James advises prominent international businesses on their commercial operations and investments in Canada and the Middle East. Bennett Jones LLP is one of Canada’s premier business law firms. It has a 90 year history and is unparalleled in the field of energy, natural resources and project development. This combined with exceptional experience in complex cross-border and international transactions, the firm is well equipped to advise foreign businesses and investors with Canadian ventures and connect Canadian businesses and investors with opportunities in the Middle East.
treaty with China. In the Middle East, Canada currently has investment treaties with Egypt, Jordan, and Lebanon. It has also concluded negotiations for investment treaties with Bahrain and Kuwait.
Doing business in Canada Financing a Foreign Business Operating in Canada As of 2010, there were roughly ten times the number of mining financings on the TSX and TSX Venture as there were on all other global stock exchanges combined. In 2011, the World Economic Forum rated Canada’s banking system the world’s soundest for the fourth year in a row. Of the world’s fifty safest banks, seven are Canadian. Of North America’s ten safest banks, six are Canadian. Canada’s capital markets are cutting edge and its banks are stable.
Value of mining equity financings (CAD billions)
There are numerous financing options available for businesses in Canada. Broadly, the categories of financing are debt, equity and government assistance programs. Industry Focus Oil and Gas Canada has the second-largest proven oil reserves in the world after Saudi Arabia. This makes Canada a true leader in global resources with numerous oil and gas project development and investment opportunities. There are more than 100 individual projects valued at USD 1 billion or more in the oil and gas, mining and primary metals sectors to be developed between 2013 and 2020. Renewable energy and infrastructure Canada is the second largest producer of hydroelectricity in the world. The Canadian government is very supportive of renewable energy projects. There are a number of government grants, above-market power purchase rates, low-cost loans, rebates on projects and tax incentives. Technology In 2009, Canada exported more than CAD 26 billion worth of information and communication technology (ICT). In that same year, the Canadian ICT industry generated CAD 154 billion in revenue. Leading developers like Blackberry, Google, Microsoft Game Studios and Warner Bros. Interactive Entertainment have all decided to base business operations in Canada. The highly educated population and several regional clusters of technology industry participants make Canada very attractive for technology companies.
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COUNTRY FOCUS technology
Bridging the technological gap Sustainable Development Technology Canada (SDTC) was created to help develop the cleantech market in Canada. SDTC has been working actively in the UAE. We bring you the details about their mandate and the work they are doing in the region.
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t one point of time, Canada had a lot of innovation capacity and there were many good ideas brewing in R&D, but very few were making it out of the lab into the marketplace. The market, of course, is where impact happens: when technologies get picked up by industries and put to use, they change market dynamics, grow businesses, create jobs, and generate revenue. SDTC’s principle objective is to bridge funding gaps—to get technologies into real-world demonstrations with potential customers, attract downstream investment, and become commercially ready. SDTC realises this goal by managing two funds on behalf of the Government of Canada SD Tech Fund and NextGen Biofuels Fund. SD Tech Fund, USD 590 million, helps 46
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demonstrate in real-world conditions prerevenue technologies that deliver both economic and environmental benefits. SDTC has funded over 240 companies since its inception, and by leveraging contributions from other partners—including early stage private investors—the total value of their portfolio is more than USD 2 billion. The USD 500 million NextGen Biofuels Fund, is focused on supporting the capitalintensive construction of large-scale, firstof-their-kind demonstration facilities for producing next-generation renewable fuels.
Meeting the challenges Canada’s cleantech market has matured considerably thanks in part to SDTC’s role in bringing technology innovators and investors together. According to a recent
report by Analytica Advisors, annual Canadian cleantech revenues could reach USD 25 billion by 2020. The fact remains that cleantech is very ‘leading edge’. The technologies being developed are true innovations – they’re not the kinds of things the market has necessarily seen before, or that have been put to use on a mass scale. For investors, this represents risk and consequently a lack of funding. A recent survey of SD Tech Fund applicants showed 65% of the applicants applied for funding because no other sources of funding were available at seed stage of development. What was described was a “dearth of capital” that has created “a severe shortage of funds for the seed stage.” SDTC has built a process to de-risk clean technology so the investment community
will put money into these technologies early on—money that’s needed to carry them to market—is one of the challenges addressed. Funded technologies are evaluated not only in terms of their technical merits but also their market potential. The business case has to be strong. In addition, SDTC does not fund companies, but consortia, and those consortia must include organizations that fit the ultimate customer profile for the technology in question. As the products go through the development and demonstration phase, SDTC provides additional assistance by building a market for the technologies and actively engages the investment community to ensure they too are part of the package as well. Success rates are high: roughly a third of the funding for the projects in the portfolio comes from SDTC. The rest—the majority— comes from other sources, increasingly private sector sources. How to measure success? SDTC’s success is a direct function of the success realised by the funded companies and projects. Benchmarks for successes include assisting companies attract outside investment, demonstrate capabilities, increase production and bring technology to market. 33 clean technologies have been guided to market, and the supported companies have raised almost CDN 4 billion in privatesector capital so far. The 33 commercial projects are projected to generate CDN 5 billion in revenues by 2015. SDTC-supported companies generate as much as 90% of their revenues from exports more than non SDTC companies, another benchmark of success. One of SDTC’s longer-terms goals is to achieve “20 by 2020”: to see 20 funded companies generate more than CDN 100 million each in annual revenue by 2020. As a publicly-funded agency, SDTC has a responsibility to generate other kinds of returns as well on the taxpayer dollars administered. An independent study in 2011 found SDTC delivers a nine-times return on the public funds it receives in terms of social, economic and health benefits. ENGAGING WITH the UAE SDTC portfolio companies have always had
international ambitions which include the UAE. Since the announcement of Masdar City, the high level business mission led by His Excellency Sultan Bin Saeed Al Mansoori, the Minister of Economy, through to the recent signing of a collaborative Memorandum of Understanding for Innovation with the Minister, SDTC has been actively promoting partnerships in innovation. Some of these collaborations are highlighted here. Agrisoma BioSciences, an SDTC partner has developed an innovative non-food biofuel feedstock, “Agrisoma Resonance TM” as a scalable and sustainable aviation solution. The effective suitability was confirmed in October 2012, when the National Research Council of Canada Falcon 20 jet flew the world’s first 100% dropin biofuel flight, using Resonance based aviation biofuel with advanced biofuel technologies. Agrisoma with its global supply chain partners is seeking to integrate its supply production base with an Emirati partner, which has processing and refining capacity to produce Resonance based dropin aviation biofuel for the UAE and as well for exports. Resonance feedstock also produces a valuable high-protein meal by-product for animal feed enhancing the economic return to partners. Agrisoma seeks to work with an UAE partner to demonstrate leadership in the future of sustainable biofuel. Electrovaya Inc, an SDTC partner, is a global leader in designing solutions to meet energy requirements. Because of a lack of efficient energy storage capabilities, Solar farms can lose up to 60% of their energy output. Electrovaya has developed the lithium ion batteries produced in Canada can store and release electrical energy at greater than 92% efficiency. This is the highest known energy storage efficiency. Electrovaya is also the world’s sole producer of lithium ion batteries that does not use toxic chemicals – this ultimately means lower cost. On a recent visit to the UAE, Electrovaya representatives met with local energy authorities who explained the UAE’s solar industry faces similar challenges. Following the visit, Electrovaya is examining a number of options with a view to joining with an
Emirati partner to establish a local presence which will lead to enhanced systems technologies to meet requirements in the UAE, including Ras al Khaima, Sharjah, Abu Dhabi and Dubai. In addition to persuing commercial opportunities, Electrovaya is also actively looking at getting involved with tertiary institutions. Terragon Environmental Technologies Inc. is a Canadian engineering company that is developing and commercialising practical, inexpensive and environmentally safe small-scale appliances that use waste to generate valuable resources, such as energy, water and bio-char. The company’s vision is to enable a “zero waste discharge habitat” with technologies that have the potential to fundamentally change the current understanding of “waste” and completely eliminate waste pick-up and waste transfer. The Micro Auto Gasification System (MAGS) is able to generate up to 1,700 kWh of energy daily by treating up to one tonne of solid waste or waste oils. MAGS is ideally suited for small habitats of up to 500 persons, such as ships, rigs, military bases, hotels, resorts, hospitals, work camps, small isolated communities and enterprises. The Wastewater Electrochemical Treatment Technology (WETT) is a small-scale technology that can be used to generate reusable water and reduce overall fresh water requirements. Terragon has successfully demonstrated its technologies with The Canadian Navy, The US Marines, Maersk, and Fairmont Hotels. Through its partner, Terragon Gulf, a system has been installed at Saudi Aramco’s Abqaiq, Dalma Gulf Drilling site in Saudi Arabia. In addition, a containerized version called “MAGS-in-a-Box” will be delivered to the Ras al-Khaimah shipyard in Dubai, UAE in early 2013. Terragon is working closely with SDTC to offer a fully integrated solution to sustainable “off-grid” living, and to address the needs of small communities in terms of energy, water, and waste management. The company is also pursuing key partnerships around the world, including the Middle East and Gulf region, to assist with its commercialisation activities for all of market sectors. APRIL 2013
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Advantage Canada Structural trends are reshaping economies and expectations around the world. Honourable Kevin G. Lynch, Vice Chairman, Bank of Montreal gives us an overview of the financial landscape in Canada.
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tructural trends including the aging population, the rapid growth of emerging economies, and the digital universe are reshaping the world. In this changing world, the drivers of success are also shifting. Today, it takes a global economic perspective, and the ability to serve markets beyond one’s traditional boundaries. It takes an ability to attract, welcome and retain global talent. It takes a capacity for continual innovation and sustained productivity growth in every business sector. It takes sound economic and policy fundamentals that build confidence, resilience and flexibility. And, it takes stable and trusted institutions and the rule of law to attract international investment. Canada withstood the financial crisis better than most other countries, and has continued to outpace the other G7 countries in the recovery. The Canadian banking system
Figure 1
did not require any government financial support during the global financial crisis, and the World Economic Forum has ranked it the soundest in the world for the last five consecutive years. Canada’s fiscal situation is by far the best among the G7 countries, and this fiscal stability strengthened resiliency and reduced uncertainty as other countries were going through periodic fiscal cliff-hangers. In a world that increasingly needs natural resources and energy, Canada is fortunate to have both. And Canada has long relied on immigration, and today has one of the world’s most multicultural and diverse populations. Looking to the future, Canada faces this changing global landscape of new opportunities and shifting challenges with clear strengths. Canadians understand the importance of rapidly and effectively adapting to the changing world. We welcome foreign direct investment and international business relationships and partnerships. Canadian banks are reaching out to new markets in the Middle East, Asia and Latin Figure 2
Source: IMF WEO Update, January 2013
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America. Our universities are home to students and researchers from every corner of the world. Over the last decade, through recession and recovery, Canadian growth significantly outperformed other G7 countries (Figure 1). We are one of the few G7 countries to have recovered all output and employment losses suffered during the global recession, and our unemployment rate today of roughly 7% is well below the United States, something we have not seen for decades. In a world where the advanced economies are expected by the IMF to continue to be challenged by low and slow growth, Canada and the US should lead G7 growth prospects over the next several years (Figure 2). Government debt matters, as the recent European and American fiscal problems have so publicly demonstrated. In this important regard, total government net debt (as a percent of GDP) in Canada in 2012 is projected by the International Monetary Fund to be 38% of GDP. This is less than half that of the US and well below all other G7 countries. This relative fiscal strength is expected to remain; the IMF expects that by 2016 our net debt as a share of economy will be roughly 40% of the US, and well below the Euro zone, Japan and the UK. Stable and predictable inflation is important to investors, just as it is to consumers. Canada has kept inflation within a target range of 1-3% (2% mid-point inflation target) for more than a decade. Indeed, Canada led the G7 in implementing an inflation rate target regime in 1991 and such a policy has now been adopted by over two dozen central banks around the world.
COUNTRY FOCUS FiNANCE Lower taxes, particularly on capital and companies, improve competitiveness, drive growth and support job creation. They also support investment in Canada by both Canadians and non-Canadians alike, and attract foreign investment. There is a distinct Canadian advantage for corporate taxes: the corporate statutory income tax rate (combined federalprovincial/state) is now nine percentage points lower than the U.S (Figure 3). Canada is a large producer of commodities that are needed by the world—forestry, agriculture, minerals and energy products. In a competitive global economy, Canada’s workforce is well educated, multi-lingual and multi-cultural, representing a true advantage. Canada ranks first among OECD countries in the proportion of adults with post-secondary education (over 45%). Canada’s public education system is strong: on standardized reading, scientific and mathematical literacy scales, Canada ranks third, second and fifth, respectively among OECD countries, and well ahead of the US. As the global financial crisis so aptly demonstrated, solid financial systems matter dearly to economies. For the fifth consecutive year, the World Economic Forum has ranked Canada as having the soundest financial system in the world. And, safety and soundness pays off; today, five of the major Canadian banks are among the top ten financial institutions in North America based on market capitalisation and asset size (Figure 4). In times of uncertainty, institutional strength and rule of law is important for foreign investment because they instil confidence in a country’s long-term sustainable performance. The World Economic Forum ranks the quality of Canada’s institutions the highest of the G7. Finally, if talent is part of the new wealth of nations, an important factor for attracting and retaining global talent is the community environment that a country can offer. In the recent Economist survey, three Canadian cities are among the world’s top five most liveable cities. As we face a global future that will be profoundly changing, Canada has much to attract global business and international investors. Advantage Canada offers a stable and resilient economy, one that is welcoming to the world and brimming with opportunity. 50
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ABOUT The Honourable Kevin G. Lynch, P.C., O.C., PH.D, LL.D is Vice Chair of Bank of Montreal. Dr. Lynch is a distinguished former public servant with 33 years of service with the Government of Canada. Most recently, Dr. Lynch was the Clerk of the Privy Council, Secretary to the Cabinet and Head of the Public Service of Canada. Dr. Lynch is the Chair of the Board of Governors of the University of Waterloo and serves on several other boards. Dr. Lynch was made a Member of the Queen’s Privy Council for Canada in 2009, and an Officer of the Order of Canada in 2011. He has been awarded the Distinguished Alumni Award from McMaster University and the Queen’s Golden Jubilee Medal. Figure 3
Statutory Corporate Tax Rates in Canada and the US, 1992-2014
Source: Source: Canada (Combined Federal and Ontario Statutory income tax rate for General Corporation)- BMO Taxation Group; US- Haver Analytics, IRS
Figure 4
Source: Bloomberg, February, 2013
Three Trade Great client experiences are what helped us be named Canada’s top trade finance bank for three years in a row.* From Alberta to Abu Dhabi, we have the expertise to help you navigate global markets. Joseph E. Georgie General Manager Bank of Montreal Regional Representative Office – Abu Dhabi +971 2 659 4276
* BMO Capital Markets, the investment and corporate banking arm of BMO Financial Group, voted Best Trade Bank in Canada – Trade Finance Magazine 2010-2012 ® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
THE ALL-NEW NISSAN NV350 URVAN THE RIGHT MOVE FOR A WINNING BUSINESS. Take your business to the next level with the Nissan NV350 Urvan, a new generation commercial van featuring smart storage space and cabin comfort at low running cost. Not to mention a distinctive styling that brings professional confidence and pride.
Nissan. Innovation that excites.
NV350 NV350 URVAN URVAN Enhanced cargo space Enhanced cargo Versatility to suit space your business Versatility to suit your Cabinbusiness comfort
Best-in-class fuel economy
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• Saudi Arabia: Alhamrani United Co., Jeddah, Tel: +966 2 6696690 • Dubai & Northern Emirates: Arabian Automobiles, Tel: +971 4 2952222 • Abu Dhabi & Al Ain: Al Masaood Automobiles, Tel: +971 2 6811118 • Kuwait: Abdulmohsen Abdulaziz Al Babtain Co., Tel: +965 1804888 • Oman: Suhail Bahwan Automobiles, Tel: +968 24560111 • Qatar: Saleh Alhamad Almana Co., Tel: +974 4 4283333 • Bahrain: Y.K. Almoayyed & Sons BSC(C), Tel: +973 1 7732732 • Lebanon: Rasamny – Younis Motor Co. S.A.L. – RYMCO, Beirut, Tel:+9611 273333 • Jordan: Bustami & Saheb Trading Co.L.T.D., Amman, Tel: +962 6 5532456