ISSUE 7 | JUNE 2012
A practical guide to going global
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inside: Event listings Country Focus PERFORMANCE survey Commodity watch REGIONAL TALK GLOBAL watch
THE LOGISTICS OF BUSINESS PLUS
MARKET RESEARCH
SINGAPORE
IN ASSOCIATION WITH
UNDERSTANDING FREE ZONES PUBLICATION LICENSED BY IMPZ
EDITOR’S LETTER
Publisher Dominic De Sousa Group COO Nadeem Hood Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126 EDITORIAL Senior Editor Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133
Winds of change As I take the helm of this magazine, I am very excited! Trade is such a dynamic subject – always changing, always evolving. And this is indeed a season of change, with most of our readers getting ready to leave this heat behind and find some solace in other parts of the world.
Contributing Editors Mike Byrne mikeb@cpidubai.com +971 4 440 9105 ADVERTISING Sales Manager Sami Sabbah sami@cpidubai.com +971 4 440 9152
But we at Trade and Export Middle East are keeping the heat on! By bringing you some interesting stories from and about the Middle East.
PRODUCTION AND DESIGN Operations Director James Rawlins jamesr@cpidubai.com +971 4 440 9108 Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 Design Director Ruth Sheehy ruth@cpidubai.com 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 Cris Mejorada cris@cpidubai.com +971 4 440 9108 DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developers Jerus King Bation Erik Briones Jefferson de Joya
Our cover story is about a very important sector – logistics. We got talking to one of the biggest warehouses in the Middle East – Gulf Warehouse Corporation about their new initiative – the logistics village and how that will redefine how businesses manage their supply chain. With the melting of borders, countries are becoming more and more dependent on trade and the movement of goods. That is why starting now, we will try and have a dedicated feature on logistics to keep our readers engaged and well informed. And talking about trade, how can we not talk about Singapore – The tiny red-dot nation that has transformed the way countries trade? Singapore’s bilateral trade relations with the UAE and the Middle East are on a rise, with KSA and the UAE leading the pack. Please turn the pages to find out if any partnership opportunity awaits you and if so, would you like to set shop in a free zone? We have tried to explain the concept of free zones and why they are such a fertile ground for businesses to grow. In the forthcoming issues we will be talking to different free zones in the region and about the opportunities they offer. We hope you’ll enjoy the read and give us your feedback. In the meanwhile we will continue to burn the midnight oil to make this magazine your go-to-guide for all trade issues.
online@cpidubai.com +971 4 440 9100 Published by
Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East
1013 Centre Road, New Castle County, Wilmington, Delaware, USA
Branch Office PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press LLC © Copyright 2012 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.
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GLOBAL WATCH: International news and trends with domestic trading relevance.
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REGIONAL TALK: A snapshot of the developments and trends in the Middle East region.
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LEGAL: Nick O’Connell, Senior Associate, Technology, Media & Telecommunications, Al Tamimi & Co. gives us an overview of the key aspects from his presentation at the Telecommunications Law and Regulation in the Middle East conference, held in Dubai.
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TAX: Kurian Kuriakose, Managing Partner, Sohila and Kuriakose, gives an overview of the various significant developments introduced by the new income tax law in Qatar.
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LOGISTICS: Logistics providers with solid infrastructure, efficient organisation and processes have survived the turbulent times of the past few years. Aparna Shivpuri Arya gets talking to Rajiv Menon, CEO, Gulf Warehouse, to know more about the powerhouse and what has been the mantra for its success.
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CONTENTS
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FREE ZONES: In pursuing the objective of being competitive, there are a number of trade instruments that countries have developed – the most common of which are Free Trade Zones. Aparna Shivpuri Arya, tries to explore the basic facets of a free zone, to better comprehend what makes these zones “special”.
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FINANCE: We are sure that you know that one of the most important aspects of doing business is – finance. It is no different when it comes to exporting. The National Bank of Fujairah explains the concept of trade finance to us and gives us a an overview of the status in the region.
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MARKET RESEARCH: Before you set up a business, it is most important to know what the market wants and whether you can tailor your product or service to that particular market. Bedaya Centre explains the concept of market research to us and how is it beneficial for a startup or SME.
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TECHNOLOGY: The Internet is now an important source of information at schools, in the home and, most importantly, in the world of business. Dr. Ashraf Mahate, Head of Export Market Intelligence at the Dubai Export Development Corporation, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, explains how you can maximise its benefits for exports.
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FTAS: TASDEER, along with ITC, organised a panel discussion on Arab regional trade, as part of the UNCTAD XIII. We bring you a snapshot of the discussions.
EVENTS CALENDAR: A snapshot of exhibitions and conferences around the world, which can help you spend less time planning and more time attending.
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COUNTRY: The South-east Asian city state, Singapore, is not been defined by its geographical size but by the might of its economic strength Lester Lu, Regional Director, Middle East and Africa Group, International Enterprise, divulges some interesting information about Singapore’s trade relations with the Middle East.
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TRADE SECRETS: Trade and Export Middle East with Tickbox Surveys Middle East is conducting a survey to gauge the language skills required of traders across the region. Do be a part of this.
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COMMODITY WATCH: Your guide to all things commodity.
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Promoting intra-regional trade The League of Arab States (LAS) region could increase trade among its member states by 10% and create two million new jobs by removing obstacles to intraregional trade, according to new research by the International Trade Centre (ITC). The results of the study were presented today in Doha, Qatar at an event co-hosted by ITC and TASDEER, titled “Free Trade Agreements: Necessary but not sufficient” and held within the framework of the Thirteenth United Nations Conference on Trade and Development (UNCTAD XIII). Trade among the LAS members is low when compared to other regions and is being held back by non-tariff measures,
according to the study ‘League of Arab States’ Regional Integration: Opportunities for trade and employment’. Only 11% of the LAS’ total trade takes place among its members, while the European Union members’ trade with each other is 60% of its total trade. As a result of the nontariff measures, the LAS remains largely dependent on trade with the outside world. ITC’s study finds that barriers to trade in goods and services are heterogeneous: they are high in the food sector, low in textiles and clothing, and almost nonexistent for oil. In his keynote speech at the panel discussion, Mr. Pascal Lamy, Director-General of
the World Trade Organisation (WTO), emphasised what he called ‘an urgent need to promote entrepreneurship and business in Arab region’ with the private sector involved in shaping trade policies and governments providing a conducive business environment. “It is also necessary to expand the services sectors in order to create new jobs, particularly for women,” said Ms. Francis. “High unemployment, especially among women and youth, is a significant challenge for the region. Investing in capacity building and skills development for these individuals can have tremendous impact,” she added.
Cover for export insurance suspended in Greece
The world’s biggest tradecredit insurer, Euler Hermes, has suspended cover for exporters shipping to Greece because of the mounting risk of them not being paid in the event the debt-laden nation 6
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is forced out of the euro. “Euler Hermes has decided no longer to cover deliveries to Greece for the foreseeable future,” a Euler Hermes spokesman told Reuters on Wednesday. A Greek exit from the euro
zone would force companies there to revert to the drachma, which would likely fall sharply against the single currency to reflect Greece’s fiscal crisis. That would restrict Greek importers’ ability to pay euro-denominated invoices, potentially inflicting big losses on European suppliers that would be recoverable from their trade credit insurers. Trade insurers have been reviewing their Greek exposure ahead of the country’s June 17th general election, seen as a potential trigger for a euro exit if victory goes to parties that oppose spending cuts
agreed under a European bailout deal. Most European export transactions are uninsured. About 15% of British exporters buy trade credit insurance, compared with about 25% in exportfocused Germany, according to informal estimates from industry sources. Greece imported 45.6 billion euros worth of goods last year, more than double the 20.2 billion it exported, according to International Monetary Fund figures. Germany accounted for 5.1 billion euros of Greece’s imports in 2011, down 14% compared with the previous year, according to BGA figures.
Trade protection a threat to global economy
Pascal Lamy, Director-General, WTO
Trade protectionism over the past several months has risen, posing a growing threat to international trade and the
global economy, according to World Trade Organisation (WTO) Director-General Pascal Lamy. Mr Lamy, speaking at the World Economic Forum on East Asia, said protectionism was a “serious risk, a growing risk”. “If you look at the radar picture over the last six months, protectionist pressures have intensified. But more worryingly, protectionist actions have intensified,” he said. Mr Lamy said protectionism was increasing through the “accumulation of
small measures that do not disappear”, and warned that Asia’s open, trade-dependent economies were particularly exposed to this trend. The WTO estimates global trade growth this year to slow to less than 4% compared with around 5% in 2011. Asian trade growth for 2012 is projected at around 5% compared with over 7% last year. Thai exports, which account for some two-thirds of the economy, are projected to grow 15 % this year. Exports in 2011 were worth USD228.8 billion, an increase of 17.2% from 2010.
Trade Facilitation and LDC Accession discussed at the OECD meeting
With the overall Doha Round talks still at an impasse, approximately 20 trade ministers, meeting on the sidelines of the Organisation for Economic Co-operation and Development’s (OECD) Ministerial Council Meeting, discussed the potential of soon finalising an agreement on trade facilitation and updated guidelines on WTO accession for the poorest countries. However, obstacles in both areas still remain, as some officials acknowledged privately. Other topics addressed at the 23rd May trade ministers’ gathering in Paris included the potential expansion of the Information Technology Agreement (ITA) and the
possibility of a services plurilateral pact. In recent months, an idea that has appeared to gain traction amongst some members is the possibility of concluding an agreement on trade facilitation, which deals with issues, such as customs and border measures. “There was a high level of agreement that this must be a priority, that we must continue to remove the disputed areas in the text and not bind that up in negotiations in other areas, whether they be in agriculture or whether they be in industrial tariffs or the other elements of the Doha agenda, consistent with the [ministerial] decision that we
would break those linkages,” Australian Trade Minister Craig Emerson commented after the meeting. However, emerging economies, such as India and Brazil have repeatedly argued against de-linking trade facilitation from other aspects of the Doha Round, an argument that was again raised at the Paris gathering, sources. Guidelines for LDC accession to the WTO were established in 2002, urging members to exercise restraint in the demands made of LDCs during the accession negotiations. However, least developed countries have long complained that their trading partners routinely ask them to take on
accession commitments beyond what they are capable of, as seen in the cases of the five most recent LDCs to accede. These commitments, they argue, were also well beyond those that were required from LDCs that had previously joined the global trade body. The LDC accession guidelines have been under discussion in the WTO’s LDC Sub-Committee since January. Sources note that the group is hoping to have an outcome ready in time for the next sub-committee meeting in June, which could then be brought to the General Council – the WTO’s highest decision-making body outside of the ministerial conference in late July.
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Bahrain and India strengthen economic cooperation
India and Bahrain announced the signing of a Tax Information Exchange Agreement to promote economic and joint investment between the two countries. According to the International Monetary Fund, total
trade between the two countries currently amounts to USD 1.7 billion a year, with this agreement aimed at boosting that number. The agreement was one of many agreements signed during a two-day state visit by a senior Bahrain delegation lead by His Royal Highness Prince Salman Bin Hamad Al-Khalifa, the Crown Prince of Bahrain and Chairman of the Bahrain Economic Development Board (EDB), including representatives from the EDB, Bahrain Chamber of Commerce & Industry (BCCI) and members of the private sector. The delegation was visiting Mumbai and Delhi to strengthen bilateral relationships between the business communities and to highlight investment opportunities in the Kingdom.
In addition to the Tax Information Exchange Agreement, a number of commercial and economic cooperation agreements were signed. Bahrain and India have always maintained a strong and stable relationship, with diplomatic relations being established at Ambassadorial level since 1971. Relations are also characterised by continuous and cordial political and cultural exchanges. There are over 200,000 Indian residents in Bahrain. Indian companies with operations in Bahrain include: Tata Consultancy Services, Tech Mahindra, JBF Industries, Canara Bank, ICICI Bank, Bank of Baroda and State Bank of India.
APICORP signs trade finance services agreement Arab Petroleum Investments Corporation (APICORP), the multilateral development bank owned by the member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC), announced the signing of a trade finance services agreement with J.P. Morgan Treasury Services. This enables APICORP to significantly expand its range of trade finance services to energy companies. Commencing June 2012, APICORP will offer a complete range of trade finance products and services to its clients, including letters of credit, collections and 8
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guarantees. The government of Qatar owns a 10% stake in APICORP. “We are pleased to announce another major milestone in APICORP’s bid to diversify business streams and grow the Bank for the benefit of the Arab World’s energy sector,” said Ahmad Bin Hamad Al Nuaimi, Chief Executive and General Manager of APICORP. “This announcement has been preceded by extensive efforts with J.P. Morgan to set up a highly reliable service that can be increased in scale to meet rising demand.” Under the trade finance services agreement, J.P.
Morgan will provide APICORP with trade finance processing support, including internetbased technology, and access to trade finance services from a global network of branches. “The collaboration with J.P. Morgan allows APICORP to expand its geographical reach by extending facilities to Arab energy companies operating in the Arab World as well as in the emerging markets of Latin America, Africa, and Asia,” Al Nuaimi said. “It also has the added benefit of extending services to a wider range of energy companies and projects, including small and medium enterprises.” “These services will be
Ahmad Bin Hamad Al Nuaimi, CEO, APICORP
launched in June this year following the approval of the Central Bank of Bahrain (CBB), which is expected imminently,” Al Nuaimi further added.
DED steps up efforts to enhance the UAE’s top ranking in 'Doing Business Report 2013'
The Business Registration and Licensing (BRL) Division in the Department of Economic Development recently received a high level delegation from the business registration sector in Lebanon headed by the International Finance Corporation (IFC), a member of the World Bank Group. The delegation reviewed the business registration system in Dubai, the electronic memorandum of association initiative, as well as DED’s initiatives intended to facilitate economic activity in Dubai.
The delegation’s visit followed DED’s determined efforts to enhance the UAE’s top rankings in the World Bank’s “Doing Business Report 2013” and promote the country as a globally competitive business hub. An internationally competitive and competent business registration system that offers added value along with convenient and flexible procedures is one of the criteria against which countries are ranked in the report.
“Our efforts have reflected positively on doing businesses in Dubai and attracted significant interest from other Arab and international organisations, including the World Bank and the International Finance Corporation under its umbrella. During our meeting with the Lebanese delegation we also reviewed DED’s future strategies to speed up licensing procedures, fee collection and obtaining initial approvals to start an economic activity, through constructive co-operation with local and federal authorities in the UAE,” said Mohammed Shael Al Saadi. Al Saadi praised the interest shown by IFC in DED’s initiatives and especially in promoting e-services to overcome the challenges that investors and businesses may face in some countries. He also discussed various key aspects, most notably the possibility of DED hosting a number of delegations under the supervision and guidance of IFC during the third quarter of 2012.
Manufacturing tops ‘Business Confidence Index’ for the first quarter of 2012
Businesses across Dubai remain upbeat on growth and revenues with expectations riding high, especially in the manufacturing sector, as reflected in the quarterly business survey conducted by the Department of Economic Development (DED) during the first three months of 2012. According to the survey the composite Business Confidence Index (BCI) for Dubai stood at 120.5 points in Q1 2012, indicating an optimistic outlook for the next quarter. BCI crossing 100 points is
seen as indicative of a positive sentiment within the business community. A majority of businesses in Dubai foresee sales increasing, or remaining steady, and plan to retain their employee count through to the second quarter. The survey also reveals an even brighter outlook among export-related businesses, rising The survey showed manufacturing as the most optimistic sector, with positive outlook extending across all key parameters (sales volume, selling prices, profits and
employees). The service sector is close behind, while trading has a comparatively lower overall outlook. In addition, exporters in Dubai were seen to have a more positive outlook on sales performance, new purchases and profits, compared to non-exporters. Even though expectations are similar on sales volumes among SMEs and their larger counterparts, large businesses are more optimistic about profits for the coming quarter. Large businesses are also relatively more positive on the employment outlook. JUNE 2012
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Dubai Airport Freezone wins "Richard Goodman Award for Strategic Planning"
His Highness Sheikh Ahmed Bin Saeed Al Maktoum, Chairman of Dubai Airport Freezone, welcomed Dr. Mohammed Al Zarooni, Director General of Dubai Airport Freezone, and the strategic management team at the Free Zone. During the meeting, Dr. Zarooni and the team handed over the Richard Goodman Strategic Planning Award to HH Sheikh Ahmed. The award, given by the American Strategic Planning Association, recognises distinction in strategic planning by Dubai Airport
Freezone and honours its competence, innovation and excellence. Dr. Zarooni said, “Winning the Richard Goodman Strategic Planning Award is a result of our concerted efforts to apply worldclass processes and methodologies which encourage creativity and innovation in the implementation of the strategic planning, and reinforcing the need to improve on the tools and process from time to time.” “One of our priorities is to attract more investors and international companies
from various fields and to help expand their business in the Middle East through the Dubai Airport Freezone. We aware of their demands and we work on implementing and developing the same. Strategic planning is considered one of the most important elements that meet the demands of our customers and help them in expanding their business across the Gulf and Middle East,” Dr. Zarooni added. Yousuf Behzad, Executive Director of Human Resources and Strategy, DAFZ said, “The purpose of participating in the top global award was aimed at achieving outstanding standards in the implementation of strategic planning processes, emphasising the excellence of the free zone in enforcing the same and help achieving its objectives. The Strategic Department team at the Dubai Airport Freezone consistently works on achieving the objectives of the institution, which includes the ongoing development of the infrastructure, gaining customer satisfaction, and providing all necessary facilities to create tailored environment for foreign investors to expand their business in the Gulf and around the region.”
QTA to announce new tourism law Qatar is set to issue a new tourism law in June aimed at giving Qatar Tourism Authority (QTA) more teeth to establish infrastructure ahead of the 2022 Football World Cup scheduled to be held in Doha, a top-ranking QTA official told Gulf News. “The law will give us more powers to hold events and give permission to build new 10
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hotels,” said QTA’s Director of Tourism, Abdullah Mallala Al Badr on the sidelines of a recent event in the capital to promote Qatar as a tourism destination within the GCC. He said Qatar Development Bank will finance tourismrelated projects of Qatari and non-Qatari investors. QTA plans to grow Qatar’s
tourism industry by 20% in the next five years. During May, it held road shows in the Eastern Province of Saudi Arabia, namely Al Khobar, besides Riyadh, Kuwait, Muscat, Abu Dhabi and Dubai to endorse Qatar as the ideal destination for Eid Al Fitr and Eid Al Adha. QTA is projecting Qatar as an ideal place for meetings, sports,
culture, leisure and education. “Qatar has everything a high-end traveller needs — stunning hotels, cultural icons and many leisure activities,” Al Badr said. “In 2011, we received 845,000 visitors from the GCC. The first quarter this year, saw tourist arrivals from the GCC jump 22 per cent, year-on-year,” he added.
Updates REGIONAL TALK
Promoting trade ties with South American countries
Dubai Exports, the export promotion agency of the Department of Economic Development – Government of Dubai, is advancing its efforts to boost local exports and trade relations with various organisations and institutions in South America, particularly in the countries of Brazil and Peru.
Following on from its trade missions to high-growth markets in South America in 2010 and 2011, Dubai Exports led a delegation of six UAE companies to Brazil and Peru between May 30th and June 2nd this year. The mission aimed to open new markets for local companies and enable them to explore business
prospects and partnerships in the two fast-growing economies. Both Brazil and Peru enjoy dynamic trade relations with the UAE, with exports from the UAE contributing a major share of the exchange. Between 2010 and 2011, UAE’s total exports to Brazil grew 170.71% to reach AED1.7 billion. Electrical items,
Extending trading hours The Dubai Gold and Commodities Exchange (DGCX) announced an extension of its trading hours. From June 4th, the Exchange will open from 07:00 (UAE time), 1 hour and 30 minutes earlier than its previous opening time. The extended trading time will provide DGCX participants with a 30 minute window before the exchange traded currency derivatives markets open in India. Commodity and currency futures prices are tightly linked to the prices of their underlying instruments, with futures prices highly sensitive to price movements of the underlying. This makes them much more suitable for �momentum trading’ than equities. The 30 minute window between DGCX opening and the Exchange traded currency derivatives market opening in 12
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India will allow participants on the DGCX an opportunity to take positions based on overnight indicators, putting them ahead of the momentum curve. Commenting on the initiative, Gary Anderson, Chief Executive Officer, DGCX, said, “DGCX has a strong track record in contract innovation and the Exchange remains committed to further enhancing trading opportunities in commodity and currency derivatives in the region. The launch of a new product or contract enhancement on DGCX is based on both market conditions and feedback from DGCX Members and market participants. The extension of our trading hours is the result of this interaction and feedback process. “The extended opening hours are predicted to be of greatest interest to participants trading in INR Futures and
machinery parts, plastics and fertilizers form the major share of UAE’s current exports to Brazil. Trade between the UAE and Peru has also grown remarkably in recent years. In 2011, net value of UAE exports to Peru was nearly AED 30 million, a growth of 29.62% from the previous year. “Our highly successful government missions to Argentina, Brazil and Chile over the past two years gave us the privilege of discussing various aspects of closer economic cooperation with South America. Those missions have opened several doors of bilateral investment and trade,” said Engineer Saed Al Awadi, Chief Executive Officer of Dubai Exports.
will enhance DGCX’s leading proposition on this contract. In 2007, DGCX introduced the world’s first INR Futures contract. Over the last two years the growth of the contract has been exceptional, recording an annual volume of 3,184,979 contracts in 2011, a 563% growth from 2010. Its success has been primarily driven by international interest in India’s economy and currency. In addition, India’s rapidly growing trade flows, increased cross border investments and the fluctuation in exchange rates, have created a corresponding requirement to hedge risk. Increasing trade between India and the Middle East is also a key factor behind the contract’s success, benefiting a wide number of participants including traders, speculators, importers, exporters, hedgers and local businesses.
ISSUES LEGAL
Keeping an eye on your information Nick O’Connell, Senior Associate, Technology, Media & Telecommunications, Al Tamimi & Co. gives us an overview of the key aspects from his presentation at the Telecommunications Law and Regulation in the Middle East conference, held in Dubai.
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he topics that he covered were privacy, data protection, spam, consumer protection and cloud computing. The common thread between these topics is the need to balance the benefits of living in the information age with the expectation of privacy. The information age brings with it many benefits (including greater efficiency and convenience with regard to gathering, storing and using data). On 14
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the other hand, expectations with regard to protection from arbitrary interference with privacy are generally considered a well-established social and legal norm, including in this region.
Privacy
Generally speaking, the position in most of the GCC countries is that the privacy of an individual is protected under general provisions of laws not specifically
focused on the issue of privacy. By way of example, the UAE Penal Code makes it an offence to publish, through any means, news, pictures or comments pertaining to the secrets of people’s private or familial lives. It also makes it an offence for anyone who is, by reason of profession, craft, circumstance or art, entrusted with a secret, to disclose the secret, or use it for his or her own benefit, or that of another,
unless such disclosure or use is permitted by law or by the consent of the person to whom the secret pertains. The key point that I wish to illustrate by these examples is that these privacy related provisions have not been drafted with the information age in mind. To provide some context, we have recently relied on provisions such as this to advise on a corporate client’s proposed transfer of employee data to an off-shore data storage facility and another client’s proposed use of customer data for purposes other than those for which it was originally gathered. Would a company’s use of personal information (such as employee information or customer information) for fairly mundane business purposes (such as off-shore data storage or targeted marketing campaigns) fall within prohibited uses of secret information under these penal provisions? Other laws restrict the use of personal data in certain circumstances. By way of example, the UAE Medical Liability Law (Federal Law No. 10 of 2008) prohibits a doctor from disclosing the secrets of the patient that the doctor becomes aware of in the course of practice, either if the patient trusted him with the secret or if the doctor became aware of the secret in the course of practice. We recently conducted a review of the situation in other GCC countries and essentially confirmed that privacy is protected in these other countries in much the same way as in the UAE. Laws designed primarily to protect privacy do not typically exist as laws in their own right. Provisions relating to protection of privacy may be found in the context of other laws, including respective penal
ABOUT
Nick O’Connell has worked for Al Tamimi & Company for almost five years, initially in intellectual property, and more recently in technology, media and telecommunications. Nick’s work focuses largely on software and IT services agreements, data privacy and data transfer, e-commerce, m-banking, m-commerce, as well as intellectual property and technology aspects of corporate and commercial matters. Nick’s clients have included companies operating in a range of industries, including financial services, automobile manufacturing, business machinery, digital content, e-commerce, engineering, exhibitions and events, food and beverage, pharmaceuticals, software, and real estate. Al Tamimi & Co, originally established in 1989, is today one of the leading law firms in the Arabian Gulf region. It is one of the largest local, non-affiliated law firm in the United Arab Emirates, with offices in the Emirates of Dubai, Abu Dhabi and Sharjah, Riyadh (KSA) and associate offices in Doha, Baghdad and Riyadh. For more information, visit www.tamimi.com
codes and laws relating to specific matters, such as regulation of conduct of medical practitioners, credit disclosure and unfair business practices.
Data protection
Both the Dubai International Financial Centre and the Qatar Financial Centre have their own data protection specific laws or regulations. These legal provisions are generally consistent with data protection laws from other developed jurisdictions (specifically, the EU Data Protection Directive 95/46/EC and the UK Data Protection Act 1998). They apply to specific types of personal information that can relate to identifiable individuals, and set out obligations requiring that personal data be processed fairly, lawfully, securely and for a specified and legitimate purpose. They also contain
Laws designed primarily to protect privacy do not typically exist as laws in their own right. Provisions relating to protection of privacy may be found in the context of other laws, including respective penal codes and laws relating to specific matters, such as regulation of conduct of medical practitioners, credit disclosure and unfair business practices.
restrictions on data transfer from within the respective Financial Centres to places outside those Financial Centres. The most significant point to note about the respective data protection provisions of these Financial Centres is that they are applicable only to activities within those Financial Centres – or transfers from those Financial Centres to places outside the Financial Centres. In contrast, Oman and Qatar both have laws relating to e-Commerce, which contain provisions relevant to data protection. Oman’s Electronic Transactions Law (Royal Decree 69/2008) and Qatar’s Electronic Commerce and Transactions Law (Law No. 16 of 2010) are both based largely on the UN Model Laws relating to e-commerce and electronic signatures – but the laws as enacted in both countries go beyond these to include specific provisions relating to data protection. Specific data protection regimes appear to be common in respect of telecommunications service providers. By way of example, Qatar’s Telecommunications Law (No. 34 of 2006) requires telecommunications service providers to operate their telecommunications networks and related systems with due regard for the privacy rights of their customers. It also requires telecommunications JUNE 2012
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ISSUES LEGAL
In July 2010, the UAE Telecommunications Regulatory issued a specific policy on unsolicited marketing communications. Under this policy, licensed telecommunications providers in the UAE are required to minimise spam and take all reasonable steps to ensure that spam is not being sent over their networks. service providers to be responsible to protect any customer data in their custody and to refrain from collecting, using, retaining or publishing any customer information unless with the customer’s consent or as permitted by law. Additionally, service providers must ensure that all the information submitted is accurate, complete and valid for use (and correct or remove data upon the customer’s request). Similar provisions (although with varying degree of detail) apply to telecommunications service providers licensed by the telecommunications regulatory authorities in other GCC countries. The UAE’s Telecommunications Regulatory Authority has issued the Privacy of Consumer Information Policy. Oman’s Telecommunications Regulatory Authority has issued Resolution No. 113/2009 issuing Regulations on Protection of the Confidentiality and Privacy of Beneficiary Data. Thus, telecommunications service providers should be aware that special data protection regimes may apply to their activities, even if there may be no data protection laws of general application.
Consumer protection and spam
The next topic ties in with the issue of privacy and data protection in the sense that personal contact details, such as mobile numbers and email addresses, may be disclosed by customers in the context of procuring goods and services, and then used subsequently for electronic marketing purposes. Many people find this type of marketing to be invasive of their privacy, and prefer to receive it only if they have opted-in. In some countries in the region there are general prohibitions on this type of activity. By way of example, the consumer protection 16
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provisions of Qatar’s Electronic Commerce Law restricts the ability of e-commerce service providers (not necessarily telecommunications providers) to be involved in providing unsolicited marketing communications, and requires consumers to be able to opt-out from the receipt of such communications. In July 2010, the UAE Telecommunications Regulatory issued a specific policy on unsolicited marketing communications. Under this policy, licensed telecommunications providers in the UAE are required to minimise spam and take all reasonable steps to ensure that spam is not being sent over their networks. If a licensee (for example a telecommunications provider) fails to take all practical steps to prevent spam with a UAE link (which includes spam originating both inside and outside the UAE) from being sent over the licensee’s network, then the regulator can take action against the licensee. The policy also prohibits licensees from being involved in address harvesting, and it requires them to implement opt-in consent processes for all electronic marketing provided to customers. Additionally, by way of an annex to the policy, the UAE TRA has provided similar restrictions specifically in respect of SMS spam sent via mobile phones.
Cloud computing
The term “cloud computing” describes a broad range of remote access computing services, generally involving situations in which users have access to applications and data storage services on demand and delivered over an external network. This basically involves the use of software and/ or data storage space provided by someone
else – allowing for savings on things such as licensing software or buying data storage hardware. Some of the key privacy and data protection considerations in a cloud computing environment are:
Data security
The cloud user will have its own data security and access management policies. The cloud provider’s policies should, at a minimum, be compliant with the cloud user’s policies.
Data location
It is necessary to consider the impact of the various laws governing privacy and data protection on the collection and transfer of data to the cloud provider, and the movement of that data across different jurisdictions as part of the provision of the cloud service.
Data retention obligations
Different jurisdictions have different commercial record retention obligations. If data storage obligations are outsourced to a cloud provider in a different country, it will be necessary to ensure that, at a minimum, the cloud provider complies with document retention policies applicable to the user of cloud services. Corporate users of cloud services may place responsibility for direct control of critical data and applications in the hands of third parties. If there is an outage or a security breach, the user could be exposed to claims from its own customers (and potential reputation damage) even though the fault was on the part of the cloud provider. Similarly, failure on the part of the cloud provider (for example with regard to compliance in respect of data privacy) could lead to regulatory non-compliance on the part of the cloud user. Cloud users should conduct thorough due diligence of the provider they are considering and in particular focus on the privacy and security levels of the services to be offered.
This article was first carried in our sister publication, SME Advisor Middle east
ISSUES TAX
Paying your dues Awareness of the advantages and shortcomings of a particular tax regime is of crucial importance for any business entity, particularly, for SMEs. Kurian Kuriakose, Managing Partner, Sohila and Kuriakose, gives an overview of the various significant developments introduced by the new income tax law, Qatar.
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mall and medium sized enterprises (SMEs) represent a significant majority in most economies, both developed and developing. Role of SMEs in ensuring equitable wealth distribution and, thus, contributing to the well-being of majority of population is well understood across the world. With the oil and gas production reaching its capacity levels, experts predict that Qatar’s accelerated growth can only come from the non-oil sectors and that too from SMEs. Therefore, providing the right environment for this segment is an important factor in the continued and accelerated development of the country. The tax regime is one of the important factors that determine the economic environment in any country. 18
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The new income tax law, which came into effect in Qatar from 1st of January 2010, has brought several changes, mostly favouring the enterprises, entrepreneurs and potential investors in Qatar.
Tax rate reduction As stated earlier, there are many changes in the new income tax law which favours businesses in Qatar, the most commendable one being reduction in tax rate. The new law replaced the erstwhile method of tax slab system, wherein the tax payer was taxed at progressive rates starting from 10% and going up to 35% of the net profits, by introducing a flat tax rate of 10% on net profits. As evident from the rates, the tax rate has been fixed at the minimum applicable levels compared
to the old tax regime. Further, 10% tax rate is significantly low compared to most jurisdictions in the world where business income is taxed. The lower tax rate will ensure that there will be higher percentage of the profits remaining with the business owners as compared to the earlier tax regime. The flat rate also simplifies the computation of tax. While this being the case, the old law had a basic exemption whereby profits up to QR 100,000 were taxed at 0%, whereas the new law does not provide any such basic exemption limit. Some may point out that the removal of such basic limit is a dampener for small businesses as compared to the old law which exempted this category from paying any tax. Further, the low tax rates need to be taken in context with the “no tax� status in some countries in the region, especially within the Gulf Cooperation Council member states. Old vs. new Yet another significant development in the new law is the introduction of the withholding tax liability for certain type of payments. Under the new law, payments for the services to non-residents which are not in connection with a permanent establishment in Qatar attract withholding tax at 5% or 7% depending on the nature of service. Royalties and technical fees attract 5% withholding tax, whereas interest and payment for other services attract 7% withholding tax. As per the executive regulations, interests paid by a permanent establishment in Qatar to the head office or to an entity related to the head office outside the Qatar are exempted from withholding tax. For a branch, the recharge of head office expenses is exempted from withholding tax. For the companies that do not have a permanent establishment in Qatar, withholding tax will be the final tax. However, they may be able to benefit from the Double Taxation Avoidance Agreement, if it applies to them. It may be noted that the withholding tax is applicable only on payments for services and is not applicable for payment for goods and materials. With the introduction of withholding tax on services, the new law exempts filing of tax returns for non-resident companies providing services in Qatar other than
through a permanent establishment. Under the old law, such companies were required to maintain accounts for their Qatar operations and file returns. Under the new law, the onus has shifted to the recipient of services in Qatar to deduct withholding tax at the time of making payment for services and remit same to the Income Tax Department. The new law prescribes that the withholding tax so deducted shall be remitted to the department before the 16th of the subsequent month failing which penal provisions become applicable. Tax registration and obtaining tax card has been made mandatory under the new law for all entities deriving a taxable income. The application for tax registration is required to be submitted within 30 days from date of commercial registration, start date of activity or day on which income started to derive, whichever is earlier. Taxpayers who fail to apply for tax card within prescribed time limit will be subject to a fine. The introduction of the withholding tax and the tax card has been a great relief for companies, as they are no more required to produce the tax clearance certificate to obtain their final retention released. Under the old provisions, the amount retained by the contractor could be released only upon the production of a tax clearance certificate issued by the department. Under the new provisions, the amount retained may be released upon the production of a valid tax card. This change has helped to ease the cash flows for companies undertaking contracts in the Qatar. The new law continues to apply the principles existing under the old law in respect of filing tax returns. The law prescribes individuals and legal entities practising a taxable activity in Qatar to submit a tax return within four months from the end of the accounting period. The tax payers who satisfy any one of the following criteria need to support the tax returns with financial statements duly certified by a registered auditor: • Capital exceeding QR 100,000.00 • Total taxable income exceeding QR 100,000.00
ABOUT
Kurian Kuriakose is the Managing Partner for Sohila and Kuriakose Chartered Accountants and Chairman of Morison Menon Chartered Accountants LLC, independent members of Morison International, a global accounting, audit and tax association. He has over 24 years of experience in auditing, taxation and Finance. He is a fellow member of ICAI (India) and a Certified Information System Auditor (USA). He holds double bachelor’s degree in Mathematics and Law. He is also an MBA from Bradford University UK. His experience includes senior positions in Emirates Airlines, Air India and Budget Rent A Car. He is a member of the Board of Governors for IIA Qatar, Treasurer of IBPN Qatar and a past Chairman of ICAI Doha Chapter. Kuriakose has been assisting SMEs to setup their business in Qatar as well as supporting them through provision of quality audit, accounting and consultancy services during the last five years he is in Qatar. He can be contacted on kurian@ morisonqatar.com.
If one wants to participate in the enormous growth in infrastructure and civic amenities in the country, one should heed calls for compliance to tax law as an essential sacrifice and duty of every resident. • Headquarters situated outside Qatar The new law makes it mandatory for entities undertaking an activity that is tax exempted, to file tax returns within the prescribed time limits. The tax returns must be supported with financial statements duly certified by a registered auditor. With the introduction of the new law, it has been mandated that even fully Qatari owned entities satisfying the following criteria must file tax returns: • Capital of QR 2 million or more • Annual turnover of QR 10 million or more Double Taxation Avoidance Agreement (DTAA) The new law prescribes for Double Taxation Avoidance Agreements (DTAA) with other countries to save the businesses with cross-border operations from being taxed twice in respect of those operations (being that in the state of source and in the state of residence). Qatar has entered into a number of tax treaties already and is actively expanding its network of tax treaties to make it
easier for the international investors to enter into various ventures in Qatar. While the individual DTAA will prescribe the modalities for claiming tax credit, a common procedure is to file a tax return paying the due tax in Qatar and availing credit for the tax so paid in the home country of the entity. While some may argue that any kind of taxation will impede business activity, an underlying principle of taxation is public participation in building the country and its infrastructure. If one wants to participate in the enormous growth in infrastructure and civic amenities in the country, one should heed calls for compliance to tax law as an essential sacrifice and duty of every resident. The overall impression of the new income tax law is that it has made positive changes making it easier for tax compliance, which in turn has spurred growth of business, generally, and SMEs, specifically.
This article was first published in our sister publication, Private Sector Qatar
JUNE 2012
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ISSUES LOGISTICS
Building a future Logistics providers with solid infrastructure, efficient organisation and processes have survived the turbulent times of the past few years. Aparna Shivpuri Arya gets talking to Rajiv Menon, CEO, Gulf Warehouse Corporation to know more about this logistics powerhouse and what has been the mantra for its success.
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alking about the flagship venture of the company – the logistics village, Rajiv Menon is quick to point out that GWC’s positioning within the industry has dramatically improved through its entry into the logistics infrastructure business with its LVQ Village, making the company the principal participant in both the retail and the wholesale end of the logistics business. Phase two of the QR 200 million logistics village is 75 % complete and consists of an additional of 62,000 sqm of warehousing space. Rajiv adds, “The LVQ makes the idea of any business setting up its own logistics centre obsolete. This business model has helped GWC garner a significant market share in Qatar.” The reason behind building a logistics hub of this proportion is to provide the nation with a state 20
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of the art logistic facility and to support industries with logistics need and space. The grand vision behind LVQ is to provide regional logistics players and large corporate houses something they never had until now: a platform that is tailormade for their special needs, supported by ready-made services and infrastructure to help them become operational instantly. As a result, the LVQ has been planned to be highly configurable to suit the needs of clients from a variety of industries Elaborating on the next steps of building the logistics hub, Rajiv says that they plan to expand to other regions. “We have already commenced operation in Jeddah, Saudi Arabia and Abu Dhabi, UAE. We expect to be extending our footprint and brand across continents in the next few years, providing new logistics solutions to our customers.” “Our contract logistics services primarily relate to value-added warehousing and the subsequent distribution of goods and materials in order to meet clients’ inventory needs and production or distribution schedules. Our services include receiving, deconsolidation and de-containerisation, sorting, consolidation, assembly, cargo loading and unloading, kitting, price tagging, assembly of freight and protective packaging, storage and distribution,” Rajiv is quick to point out. GWC also functions as an independent, singularly accountable, non-asset based integrator of a client’s logistics, transportation, supply and demand chains. As a management service provider, GWC is free to use 2PLs and/or 3PLs to supply service to its customers.
In addition to the development of The LVQ, the Company’s project team also had the task to take forward two other expansion projects within the Company– Mesaieed and Ras Laffan. The open yard in Ras Laffan is under construction and due to be completed by August 2012. It aims to fill the gap of providing a good facility to store and support the oil and gas customers in Ras Laffan. During FY2011, GWC additionally acquired 10,300 square meters of open yard spaces in Ras Laffan for the future expansion for storing of hazardous materials. The company is currently developing this facility and expects to complete it by the end of FY2012. Currently it has a global network of freight forwarding in a total of 125 countries. When we asked Rajiv what kind of growth momentum does he expect in the freight forwarding segment, he said that GWC is proposing an integrated supply chain management model to customers to reduce their burden. “Through our supply chain planning and optimisation services delivered under our 3PL umbrella, GWC’s freight forwarding division assists our clients in designing and implementing solutions that improve the predictability and reduce the overall costs of their supply chains.” Talking about the future, GWC will be working on Phase 4 of the LVQ to increase warehousing capacity due to the high demand and the nature of LVQ as a center for supply chain solution. And with the FIFA World Cup just a decade away, it will also be supporting the government with logistics needs.
In addition to the development of The LVQ, the Company’s project team also had the task to take forward two other expansion projects within the company – Mesaieed and Ras Laffan. The open yard in Ras Laffan is under construction and due to be completed by August 2012. It aims to fill the gap of providing a good facility to store and support the oil and gas customers in Ras Laffan.
Rajiv Menon, CEO, Gulf Warehouse Corporation
With the IMF anticipating Qatar’s growth to be more than 12% in 2012, Rajiv points out that their financial are solid and they have established branches in KSA and the UAE and will be considering further expansion this year. He, of course highlights that the government of Qatar has also played a very important role in promoting business. “The Government has implemented single-window system in the port to ease congestion and expedite clearance of cargo. This new and extensive electronic system is being developed to cut down current sea customs clearance procedures by as much as 95%.” And with the mammoth infrastructure spending outlined by Qatar, there will be an increase in freight movement across ocean, air and road which will require logistics hub like the GWC to operate the supply chain in a manner to ensure material for construction arrivers on the specified time. Talking to Rajiv and going through the extensive material on GWC, we are left with no doubt that GWC has one of the largest and modern warehousing spaces in Qatar. The Logistics Village has provided a leading edge to the infrastructure and we hope that GWC will continue its good work in promoting Qatar and the region in the field of logistics and trade. GWC’s strategy for regional expansion is more than just a plan – it’s a roadmap to the future! JUNE 2012
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ISSUES Free zones
Understanding free zones The globalisation of trade and foreign investment over the past decade, as expressed in the World Trade Organisation (WTO), has significantly exposed economies to competitive pressures of the global economy. In pursuing this objective, there are a variety of trade instruments that countries in recent years have developed – the most common of which are Free Trade Zones. Aparna Shivpuri Arya, tries to explore the basic facets of a free zone, to better comprehend what makes these zones “special.”
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lthough the general concept of a free zone is uniform in nature, one encounters different types of free zones in different countries. They vary according to national characteristics and the goals set for them by national governments. Free zones are trade-facilitating enclaves and are 22
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set up in order to attract Foreign Direct Investment (FDI). They are geographical regions that have economic laws that are different from a country’s typical economic laws. They are, most often, focused on exports and allow export-oriented businesses and services to work in duty-free
enclaves with distinct trade operations, duties and tariffs. The Shannon Free Zone is the world’s oldest EPZ, established in 1958, in Ireland. The zone offered investors secure access to European markets, attractive tax benefits, and subsidised rent and facilities. Specialised training
ISSUES Free zones
Types of zones The first “modern zone” was established in Ireland in 1959. Since then, a variety of different zone setups have evolved that are subsumed under the SEZ concept, namely: Free trade zones (FTZs; also known as commercial free zones) are fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, trans-shipment, and re-export operations. Export processing zones are industrial estates aimed primarily at foreign markets. Hybrid EPZs are typically sub-divided into a general zone open to all industries and a separate EPZ area reserved for export-oriented, EPZ-registered enterprises. Enterprise zones are intended to revitalise distressed urban or rural areas through the provision of tax incentives and financial grants. Freeports typically encompass much larger areas. They accommodate all types of activities, including tourism and retail sales, permit on-site residence, and provide a broader set of incentives and benefits. Single factory EPZ schemes provide incentives to individual enterprises regardless of location; factories do not have to locate within a designated zone to receive incentives and privileges.
and manpower development facilities were integrated into zone design from inception, as a result, export manufacturing activities accelerated. The rapid proliferation and economic impacts of these free zones – especially export processing zones – have been documented in numerous studies. By some estimates, there are approximately 3,000 zones in 135 countries today, accounting for over 68 million direct jobs and over USD 500 billion of direct trade-related value added within zones . In the Middle East, we usually find the hybrid EPZ and the commercial free zone. The former supports export manufacturing and caters to both domestic and export market. The commercial free zone is typically located near ports of entry and supports trade. (see Box 1) Benefit of free zones But what is it about free zones that attract businesses? They simplify trade barriers such as tariffs and non-tariff barriers for organisations, which in turn boosts trade by reducing or eliminating fees associated with importing or exporting goods and raw materials. 24
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Other benefits include exemption from corporate tax for a set number of years, depending on the jurisdiction, no personal income tax, no import or export duties, no restriction on currency and easy labour recruitment. Some of the economic benefits from zone development to the host country are: • Direct employment creation and income generation • Export growth and export diversification • Foreign exchange earnings • Foreign direct investment • Government revenues In another apparent consequence of the early successes, the governments of UAE (especially Dubai) have gone further than other economies in the MENA region in using the zone approach as a tool for
targeted strategies. The Jebel Ali free zone – established in 1985 – is an industrial area surrounding a port that allows the companies located there to take advantage of free zone business benefits. The zone is home to business centres, ready-touse offices, warehouses, factories and infrastructure-ready plots. Free zones attract a diverse range of business enterprises and serve as transit points for myriad products, including mobile phones, oil, minerals, dataprocessing devices, magnetic and optical readers, gold, diamonds and vehicles. In the Gulf countries, one of the main regulatory incentives in free zones is the exemption from limits on foreign ownership that apply to companies elsewhere in the host economy. Examples of countries following this strategy
But what is it about free zones that attract businesses? They simplify trade barriers such as tariffs and non-tariff barriers for organisations, which in turn boosts trade by reducing or eliminating fees associated with importing or exporting goods and raw materials.
ISSUES Free zones
include Bahrain, Kuwait and the United Arab Emirates. In addition, these and several other MENA countries that maintain restrictive practices toward foreign land ownership either wave these restrictions inside the zones or offer land on long-term renewable leases. Labour market regulation is eased in some zones, for instance through easier access to hiring expatriates (Jordan and Kuwait) They are particularly attractive locations for business startups, entrepreneurs and small and medium-sized enterprises, which are becoming increasingly important in the development of regional economies and job and wealth creation in coming years Individual free zones have their own specific requirements, but the general steps involved in establishing a business in a zone include applying for the pertinent license, assembling the proper legal documentation and establishing utility accounts.
One indicator of the success of free zones is the number of companies whose sole business is procuring the proper licensing and documents for individual or companies opening their doors in the areas. The UAE in the last decade has witnessed a quantum increase in industrial development and one of the most significant and remarkable achievements are the success of free zones. Free trade zones are established under a special Decree passed by the Ruler of the Emirate in which the Free Zone is created. To date the free zones have been successful in attracting a large number of foreign companies and foreign direct investment. The share of these zones in non-oil exports has increased considerably along with the net exports from them. The incentives offered by various free zones of the UAE are generally similar and include:
Basic policy framework for free zones Concept of extra-territoriality outside domestic customs territory: eligible for national certificates of origin and to participate in national trade agreements and arrangements. Eligibility for benefits: No minimum export requirement for manufacturers and services. No limitation on foreign and local ownership Private zone development: Clearly defined in legislation; specific zone designation criteria and competition from government-run zones on a level playing field. Sales to the domestic market liberalised: Provided on a blanket basis rather than case by case and treated as import into domestic market. It is subject to payment of import duties and taxes. Purchases from domestic market: Treated as exports from domestic market and enterprises are eligible for indirect exporter benefits. Labour policies: Full consistency with International labour organisation
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Martin Preston / Shutterstock.com
In the Gulf countries, one of the main regulatory incentives in free zones is the exemption from limits on foreign ownership that apply to companies elsewhere in the host economy. Examples of countries following this strategy include Bahrain, Kuwait and the United Arab Emirates.
• • • • • •
100% foreign ownership Full repatriation of capital and profits 100% tax exemption Extended leases Quick approval procedures Abundant and inexpensive energy
Although free zones do not appear in the WTO agreements, some of their provisions affect the zone incentive regime. In particular, the Agreement on Subsidies and Countervailing Measures (SCM) poses potential compliance problems for zones. Prohibited subsidies are those conditional on export, or the use of national rather than imported inputs. Actionable subsidies, by contrast, may give rise to consultations if they injure another WTO member’s domestic industry, nullify tariff concessions, or seriously prejudice another WTO member’s interests. These subsidies are, however, permitted under the WTO, and are actionable only in that the affected parties have legal recourse under the WTO dispute resolution mechanism. Doing business in free zones, in the Gulf or other areas of the world, gives businesses large and small access to some of the world’s most prominent infrastructure and tourism hotspots. And with the allure of no tax, and in some areas complete ownership, free-zone operations can be very rewarding. In the forthcoming issues, we will look at some of the free zones in the region and what makes them a success.
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ISSUES FINANCE
Show me the money! We are sure that you know that one of the most important aspects of doing business is – finance. It is no different when it comes to exporting. The National Bank of Fujairah explains the concept of trade finance to us and gives us an overview of the status in the region.
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ut simply, trade finance is the process upon which cash is exchanged for goods and services. Since 90% of global trade is transacted through some form of credit, trade finance instruments play a significant role in mitigating market risk and the uncertainty of working with offshore clients so as to ensure that both buyers and sellers receive what are due to them under mutually-agreed terms and conditions. Generally, trade finance transactions comprise a combination of four elements:
1) payment facilitation 2) risk mitigation, 3) generating working capital through financing and 4) the provision of payment or shipment status updates. Banks traditionally provide a range of financial tools and payment methods. This includes letters of credit (LCs), import bills for collection, import financing, shipping guarantees, LC confirmation, checking and negotiation of documents, pre and post-shipment export financing, export credit insurance, invoice financing and receivables purchases.
However, recent ICC surveys have shown that although global trade volumes were dropping by as much as 12% in 2009, they have recovered much faster than expected. This is due to a shift from using traditional LCs to Standby LCs and Open Account purchases.
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Generally, banks offer trade financing to a company based on its past performance and balance sheet. In the case of SMEs, cash collateral is generally obtained. An SME needs to take into consideration three steps while requesting for financing: Pre-application – the company needs to have a thorough internal assessment of its financial needs and decide on the right financing instruments and identify the lenders or service providers to provide them Application - the company needs to prepare the proposal for negotiation with the bank Repayment - likewise, the company needs to work out how to manage its cash flow so as to repay the borrowed funds
1 2 3
When it comes to payment, banks provide different options, such as : Letters of Credit(LC) are a bank’s promise
ABOUT
Incorporated in 1982, National Bank of Fujairah PSC (NBF) is a full services corporate bank with strong wholesale banking and trade finance expertise. Leveraging its deep banking experience and market insight within Fujairah and the UAE, NBF is well-positioned to build lasting relationships with its clients and help them achieve their business goals. NBF’s key shareholders include the Government of Fujairah, the Government of Dubai and business pioneer and community leader H.E. Sir Easa Saleh Al Gurg, KCVO, CBE. It is listed on the Abu Dhabi Securities Exchange under the symbol “NBF” and has a branch network of 14 across the UAE.
or undertaking to pay an exporter, on behalf of the importer, provided the exporter presents the required documents and complies with the terms and conditions stated in the LC. It is one of the most secured instruments available for traders. Another common method used in trade finance is Cash-in-Advance. In this method the buyer simply pre-pays the seller prior to shipment of goods. Banks provide import financing to cover the working capital requirements of the buyer. Open Account Financing is where the buyer is given a designated credit period after the shipment to pay for the goods i.e. in this case the goods are shipped and delivered before payment is due, usually between 30 to 90 days. Banks provide Import Loan Financing under such payment terms. Banks also offer Documentary Collection services between an importer and exporter to help settle the payment. In this case, the exporter entrusts the collection of a payment against shipping documents to the remitting bank (exporter’s bank), which sends instructions for payment to a collecting bank (importer’s bank), along with the appropriate documents. Funds are then received from the importer and remitted to the exporter through the banks involved. While the exporter obtains financing for his exports from his bank until realisation, the importer gets working capital (Trust Receipt Financing) to settle his dues for the goods received. Banks also issue Standby Letters of Credits and Payment Guarantees to secure payment for the suppliers and ensure that importers have quick and direct access to ordered goods. In the event of a default by the buyer, the bank will honour the seller’s (beneficiary’s)
payment claim against copies of shipping documents called for under the Standby LCs or Payment Guarantees. However, trade finance has been affected by the recent financial crisis and ensuing liquidity crunch have had negative spill over effects on global trade flows, the most obvious of which is a reduction in the demand and movement of goods across markets. SMEs, having to compete with bigger companies for fewer credit lines at higher costs, are especially hard hit. By some accounts, this situation is compounded in the emerging markets, which have witnessed a bigger retreat of financiers. Decreasing demand, contraction in global inventory and production and a dearth of financing have all created downward pressure on the trade business. Open economies are naturally more susceptible and Asia, in particular China, suffered a fall in exports that took almost six months longer than other regions to recover. However, recent ICC surveys have shown that although global trade volumes were dropping by as much as 12% in 2009, they
have recovered much faster than expected. This is due to a shift from using traditional LCs to Standby LCs and Open Account purchases. Trade finance in the Middle East was put back on its path in 2009 after the global crisis. Banks have started to ease liquidity lines and this has provided impetus to companies and their trade activities. Likewise, governments have rolled out initiatives to promote and incentivise trade and SME financing and this has provided fresh stimulus to the markets. National Bank of Fujairah (NBF) for instance has fielded its trade team to events like last year’s ICC UAE Trade Finance Conference and the Export Fair organised by the Department of Economic Development, Abu Dhabi. There is no reason to be not optimistic for SMEs in the UAE. On the one hand, small business has started to focus on controlling costs and managing working capital better, which has allowed them to face the future with greater confidence. Banks in the UAE are also playing their part by offering increased access to trade financing instruments such as Letters of Credit, Trust Receipt, Supply Chain Financing and Factoring to SMEs.
Participants at National Bank of Fujairah’s Trade Finance Workshop
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ISSUES HOW TO
Know your neighbourhood Before you set up a business, it is most important to know what the market wants and whether you can tailor your product or service to that particular market. Bedaya Centre explains the concept of market research to us and how is it beneficial for a startup or SME.
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ow does one define market research? There are many ideas out there, but how do you distinguish the good ones from the not so good? A good idea is one that you will be able to turn into a viable business and usually has to tick the three boxes: • Is there a need for it in the market? • Is it technically feasible? • Is it commercially feasible? If you said yes to all three, then you are on to something good. The process you use to answer the questions above is your market research. Therefore, market research is used to discover what people need. This process involves gathering and analysing data about a specific product or service as well as the current environment where it will be deployed.
The first steps Every entrepreneur believes their idea will be money- generating, and successful. You would not be an entrepreneur if you didn’t have this passion and conviction. However, this leads many entrepreneurs to go straight into execution phase only to realise that after spending all their time, energy and capital, the business just didn’t work. By conducting market research you gain understanding about your potential customers, the environment and economy you are working in as well as your 30
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competitors thus allowing you to position your business more effectively and increasing your chance of success. When conducting market research you are effectively taking the first steps in discovering whether your business idea is economically viable. This process of discovery is done through a series of quantitative (how, when, what) and qualitative (why and how) questions on the four most important focus areas. Know your product: The product is effectively the “Idea” that made you want to start your business, because you believed you had something the rest of us wanted. It’s the service you provide, the item that you sell or a combination of both. At this stage, your product is still in the design phase and before you spend your capital on development you should be able to answer the following: • How does it work? • What value does it add? • What customer needs does it address? • How much will it cost? • How long does it take to build and deploy?
Know your customer: This essentially answers the questions “Is there a market for your product?” and “who would your target market be?” It’s easier to sell when you know
who to sell to. Therefore, before launching your product you should go through an exercise of identifying the following: • What is your customer base, based on demographics, income and so forth? • Where are they located? • When do they buy? • Why do they buy? • How can you reach them? • What are their buying habits? This will enable you to position your product better by specifically targeting a segment of the market that needs or wants your product. You will also have enough knowledge about the type of customers you have and will then be able to create marketing campaigns that specifically target them. Know your competitor: One of the most important steps in market research is to know your competitors and what are they offering. Very few businesses start as unique or market leaders. However, for the rest there are at least a few competitors already in the market with similar offerings. The main questions to answer are: • Who are your competitors? • How many competitors do you have? • What are their Unique Selling Points (USPs)? • What is their pricing model?
ISSUES HOW TO • What additional services do they provide? • Why would their customers come to you?
Know your environment: Surveying the market before deployment and launch helps entrepreneurs by providing them with valuable data on the current landscape which can then be used by decision makers when designing their product and services in order to meet the demands and needs of their customers. By addressing the following you will be better positioned to have a successful business: • How stable is the economy in your area? • What is the current rate that SMEs are growing by?
The how Market research can be done in a number of different ways. The most popular way to start is through extensive Internet research. The internet offers you valuable information on your competitors, their value proposition and current market conditions. Other methods include customer surveys, mystery shopping, working with focus groups, and actual testing of prototypes in the market Although there are a number of companies who specialise in market research they can be very costly and can take a huge cut out of your budget. Its best to do as much research using your own resources, this not only saves you money but also helps you in gaining handson knowledge regarding the market, your customers and your competitors. When conducting your own research you should focus on both indirect and direct research. Direct research covers all the information that is already available in the market and ranges from company or product specific to country specific. You can obtain this information through government reports, business surveys, your competitor’s business financial reports, industry magazines and
ABOUT
The Bedaya Center is a partnership between Silatech and Qatar Development Bank. With the tag line “for entrepreneurship and career development” it has a prime focus to encourage young Arabs set up their own businesses and look to the many opportunities presented by the World Cup 2022.
information provided by municipalities and government agencies. Indirect market research requires more in-depth analysis and research work. This is where you discover your customers’ buying habits and their appetite for your product by observing them, conducting surveys, talking to focus groups and testing your prototype. You will usually need a team of people who can help you with this part of the research. As you will be collecting a lot of data and you need to analyse the numbers properly in order to help you predict your business success. As mentioned conducting your own market research can save you money but at some point you might need to rely on experts and consultants to work on a certain section of your research or to provide feedback on what you have already completed. Most entrepreneurs will start their market research using online services. Unfortunately many of the current services offer information on European/American industries and demographics. However, Qatar Development Bank has recently deployed their SME Toolkit which provides sector-specific information for the Qatari market covering different industries such as tourism, health and education. The toolkit also provides a list of resources per sector including market studies and impact reports as well as information on legal requirements and registration for companies in Qatar. The tool is a very valuable resource for entrepreneurs who want to setup companies in Qatar as it offers specific
The product is effectively the “Idea” that made you want to start your business, because you believed you had something the rest of us wanted. It’s the service you provide, the item that you sell or a combination of both. 32
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country information. The tool can be accessed online through QDB’s company website. In addition to the toolkit, there are a number of good sites that offer comprehensive business information that can be used for market research and will provide you with in-depth information on current market conditions and your competitors. There are also a number of free and paid sites that help prepare your surveys and analyse your results. The most popular being http://www.surveymonkey.com that offers readymade survey templates as well as the option of sending your surveys to a specific targeted audience. Your survey results will offer you information on your customers and your product. Finally, never underestimate the power of social media when conducting market research. This is an excellent medium for reaching out to large group of people at the same time. You can use this as a testing ground for your product, assess your customers’ needs and build on their feedback. It’s also been proven that through social media, customers feel they have an influence on the business and become part of the initial design of the product. This overall feeling of involvement is an excellent start to having a relationship with potential customers. The when Market research in an ongoing process, you use it to assess the viability of your business before starting and you use it constantly once your business is up and running. Since buying habits and trends are not static, the constant change of people’s needs and the increasing use of innovation and technology means your product and services have to change to meet future demands. Make market research your mantra to ensure continuous business success at all stages of your business. This article was first carried in our sister publication, Private Sector Qatar
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TRADE TALK Trade
Net profit The Internet is now an important source of information at schools, in the home and, most importantly, in the world of business. Dr. Ashraf Mahate, Head of Export Market Intelligence at the Dubai Export Development Corporation, and Vice Chair of the Economic Policy Committee, Dubai Economic Department, explains how you can maximise its benefits for exports.
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n a short space of time, the Internet has changed the manner in which we live and work. It has been a communication tool like no other and has allowed the world to be truly international or global. The lack of boundaries or restrictions in its use has meant that it is open to everyone and, as such, it is truly an example of mass media. With a relatively small investment, the Internet is available to anyone regardless of their size or location. Therefore, it is no surprise that its usage and content have grown tremendously over the last fifteen years. Studies show that in 1994 there were only 4.8 million Websites. Most
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of these were located in the USA and were, of course, in English. Today there are over 50 million Websites in a whole host of languages and now even with non-English website names. With the advance of technology, the number of Internet users has increased from 16 million or 0.5% of the global population in 1995 to the current level of 1,661 million or 25% of the world population. Current forecasts indicate that the growth in usage is expected to continue to increase for the foreseeable future. For SMEs these trends bring new opportunities especially as the business-to-business (B2B) trade in goods on the Internet is expected
to double annually. At the turn of this millennium, online B2B sales were USD 43 billion, which only three years later were USD 1.3 trillion and currently run into tens of trillions. Similarly, businessto-consumer (B2C) Internet sales were just USD 8 billion in 2000 and today are in excess of USD 1 trillion. B2B commerce represents an important avenue for SMEs to capitalise on overseas opportunities. At the same time, the Net allows SMEs to compensate for their inherent weaknesses in exporting, such as market research and overseas promotion. It allows SMEs, with their limited financial and human capital, to support export marketing activities in a number of ways which include: • Communication The Internet allows SMEs to continually communicate with their suppliers and customers regardless of their location.
• Networking A whole host of personal and business networking Websites has meant that SMEs can build a large circle of potential suppliers, customers and even investors. In fact, some businesses have used social networking sites to effectively promote their products to customers throughout the globe for a fraction of the cost of placing an advertisement in a newspaper.
• Market research The traditional difficulty faced by SMEs was that they lacked an overseas presence and the use of external consultants proved to be either expensive or of little use. However, the Internet opens a whole new avenue for them to obtain considerable information so as to conduct tailor-made market research studies in house.
• Improve sales volume Online B2B sales are a clear reflection of the manner in which firms can increase their sales through this channel. The Net makes the product or the service accessible to new customers who would ordinarily not have purchased from the company.
ABOUT
Dr. Ashraf Mahate is the Head of Export Market Intelligence at Dubai Exports, which is an agency of the Dubai Economic Department. Dr. Mahate is also the Vice Chair of the Economic Policy Committee with the Dubai Economic Department. He has written a number of journal articles and book chapters, as well as edited books in the areas of economics, finance and banking. He has also presented papers at major international conferences. Dr. Mahate has provided extensive consultancy services to various organisations in the areas of banking, economics and finance. He has been a director of a number of companies including a venture capital company and a private equity fund. Dr. Mahate received his doctorate from Cass City University Business School in London (UK) which was ranked by the Financial Times newspaper as the 12th best university in the world for finance. He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He can be reached at ashraf.mahate@dedc.gov.ae. For more information on Dubai Exports, please visit: www.dedc.gov.ae.
• Image enhancement A traditional disadvantage of SMEs was that due to their financial constraints, the same tools were not available to them as those used by larger firms. However, the Internet has changed this and allows smaller businesses to conveniently and effectively display their portfolio of goods and services to potential buyers. In doing so, they are able to enhance and develop their image to not only domestic but also international buyers.
• Cost reduction There is substantial evidence to show that SMEs can use the Internet to reduce their operating costs through obtaining supplies at a lower price. Also, it allows them to use alternative and lower cost distribution channels.
• Competitive advantage Recent examples have shown that the Net is a valuable tool for firms seeking to differentiate
themselves from their competitors. Through readily available tools, one can easily and effectively create product and service attributes which are difficult to imitate.
Reality check Although, the Internet can be a valuable tool for SMEs, it is important to note that real competitive advantage cannot be created by simply obtaining a presence through a Website. The skilful use of technology tends to enhance a firm’s competitive advantage but it cannot create it in its own right. In the case of exporting, firms can’t become exporters overnight just because they have a site and an Internet connection. The Net merely allows firms to reach a wider pool of potential customers across the globe. Taking these reality checks into consideration a firm then has to answer the following questions: • Is the company’s business model suitable for globalisation?
Some businesses have used social networking sites to effectively promote their products to customers throughout the globe for a fraction of the cost of placing an advertisement in a newspaper. JUNE 2012
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TRADE TALK Trade
There is substantial evidence to show that SMEs can use the Internet to reduce their operating costs through obtaining supplies at a lower price. Also, it allows them to use alternative and lower cost distribution channels. • Will all services and goods be offered over the Internet or will the SME use a phased approach whereby the easiest ones are made available first? • Which countries should the company target first through marketing activities that promote the Website in those countries? • Should the SME work with third-party partners in the target countries or build its own resources? • What internal changes need to be carried out so that the company can effectively meet the needs of its overseas customers? Next steps By answering these questions the SME will understand whether their Internet presence is purely for domestic customers or if it will service the needs of overseas markets. If the business feels that it is ready for exporting via the Net then it needs to develop an appropriate strategy so that real returns can be obtained from the deployment of technology. This strategy should seek to look at how the firm can reduce its overheads through greater use of technology, reduce transaction costs both with customers and suppliers so that the Internet offers real financial gains, offer more efficient pricing for consumers so that the firm becomes more competitive, and facilitate easy information access so as to reach a wider but more targeted pool of potential customers. Once the online strategy has been developed the SME needs to appreciate that it will open its doors to customers from across the globe. A business needs to bear in mind that its Website is now its window to the world and can be viewed by anyone. As such, the site is the firm’s public relations and marketing tool, hence its design 36
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and functionality needs to be carefully determined, while keeping in mind that the Internet is global.
Trust, confidence and cultural sensitivity Some companies have dealt with this problem by developing language specific Websites so that the corporate message meets the cultural norms while reinforcing the aspect of trust, commitment and export performance in a manner that is readily understood. Studies show that not understanding cultural differences leads to communication difficulties or even miscommunication and hence foreign customers form a negative view of the firm as far as trust and commitment are concerned. It has long been known that culture is vital to the manner in which an individual gathers, uses, and analyses information. In essence it forms the basis of what an individual considers to be right or wrong. A common example of this is that maintaining eye contact is a positive aspect in Western culture because it shows interest while in many Asian cultures it is disrespectful and aggressive. Therefore SMEs, while seeking to showcase their wares in the global market, should be aware of not offending their potential customers. So what can a business do to build trust and confidence among potential overseas customers? This question can only be answered if the business knows its customers. The first step towards understanding the customers is to map them. This allows one to build customer profiles, knowledge and better understand their needs, marketing channels, level of support and incentives required before a purchase is made. The mapping exercise will also allow the SME to create groups with similar needs so that a
more customised and perhaps personalised approach can be adopted for different types of customers. The second step is to build a Website that has value-added information with a high level of functionality and interactivity. With over 50 million Websites, potential customers are really spoilt for choice; therefore the site should seek to differentiate itself. Also, a site rich in information implies that customers are more likely to recommend it to friends and family who in turn over time could become customers. Just because a Website has a high level of functionality and interactivity does not mean it needs to be complicated. In fact, the most popular and well-used websites tend to be those which are easy to navigate and quick to download. The best way to do this is to view the site from the perspective of the customer – that is, make it customer-driven. Evidence shows that customers negatively view Websites that have old and outdated content. Therefore, it is important that the firm regularly updates the content so that it is relevant. This also means that products or services that are no longer available are removed from the site or, if they are out of stock, this is made known to potential customers. SMEs need not spend vast sums of money to keep their content updated and a cheap and convenient solution is to have a Content Management System. Of course, a good Website with current content is of little use if it is not supported with a marketing and promotion strategy. SMEs can use a whole host of low-cost ways to market and promote their sites to overseas customers. Typical examples include using search engine optimisation, directory listings, barter arrangements including reciprocal links, inclusion in industry or trade body Websites, and so on. Finally, a successful site needs to integrate both the offline and online activities so that there is seamless connection between the two. While seeking to enhance its Internet presence, a business should not lose sight of the fact that it needs to ensure the quality of its product or service.
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TRADE TALK Trade
FTAs: Promoting regional trade TASDEER, along with ITC, organised a panel discussion on Arab regional trade, as part of the UNCTAD XIII. We bring you a snapshot of the discussions.
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he panel discussion was attended by 150 plus participants and included Qatari exporters, QDB officials and various dignitaries attending the UNCTAD XIII. The discussion was moderated by HE Hisham Badr, Ambassador, Permanent Mission of the Arab Republic of Egypt in the UN. The panelists for the discussion were: • Mr. Hassan Khalifa Al Mansoori, Executive Director of TASDEER • Mr. Pascal Lamy, Director-General, WTO • Mr. Jean-Marie Paugam, Deputy Executive Director, ITC • Ms. Elham Aranki, General Manager, Bloom, Jordan 38
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• Mr. Mohamed Saad Berrada, CEO, Michoc, Morocco • Mr. Joseph Nkole, National Coordinator, Cotton Association of Zambia • Ms. Patricia Francis, Executive Director, ITC
Representatives from key export-oriented companies and related services, such as cables, iron steel and pipes, fibreglass products and so forth, were present for the discussion. The discussion focused on trade impediments, including non tariff barriers, within the Arab region which have prevented the FTA to provide the required stimulus to promote the regional trade till now.
The proliferation of trade agreements around the world has changed the pattern of world trade flows and has brought mixed results in terms of trade integration, with meaningful integration in only some areas of the world, in particular in Asia and Latin America. Empirical evidence shows that regional integration can have substantial direct and indirect employment-creation effects on the economy In the case of the Arab countries trade integration has not gone very far, despite deep cuts in tariffs. This is largely due to trade impediments including non-tariff barriers that represent major obstacles for exploiting the opportunities offered by the trade agreements existing in the Arab region. It is essential that urgent measures are taken to remove trade impediments affecting regional trade. This will help unleash the entrepreneurship potential of the youth and create jobs for an increasing number of highly skilled young people. The event addressed the following issues: • Do FTAs implicitly result in increased regional trade integration? • What are the main reasons for weak regional trade integration in the Arab region – seen from a business perspective – and what lessons can one draw from this?
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TRADE TALK Trade
Intra regional trade shares around the world
ABOUT
TASDEER is aimed at providing financial supportive solutions to back Qatari exporting firms, SMEs and startups for overtaking their financial obligations, to cater for their export- finance demand, and to guarantee their receivables against foreign buyers’ insolvency and/or political risks might occur in the importing countries. Providing trade information and market intelligence is an important part of any export development agency. As such, TASDEER provides trade information tools such as Trade Map and Market Access Map in coordination with the International Trade Centre and UNCTAD. For more information, please contact TASDEER@qdb.qa.
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• What could be the economic impact of an improvement of the regional business environment particularly on welfare and jobs in particular for women and youth? • How can ITC’s work in the Arab region provide some examples of creating jobs for women and youth through regional integration? The removal of intra-regional trade obstacles could increase trade by 10% and create two million new jobs in member countries of the League of Arab States (LAS), according to new research by the International Trade Centre (ITC). The region has one of the lowest levels of intra-regional trade in the world despite preferential market access and significant cultural homogeneity. Trade potential exists but is as yet untapped. In recent years the LAS has made efforts to largely remove bilateral tariffs. Compared to other regions, however, trade among the LAS members has remained low. For example, while more than 60% of the European Union’s (EU’s) total trade is with one of its member
states, only 11% of LAS members’ trade takes place inside its region. Overall, it has been found that despite the tariff privileges that LAS countries enjoy in each other’s markets, regional integration has been declining since the mid-1990s. Other (non-tariff) obstacles are in place, which prevent LAS members from taking full advantage of the preferential tariffs. ITC has found that reducing non-tariff obstacles to trade will result in lower prices of imported goods from LAS countries in other LAS countries. This will increase the purchasing power of consumers, resulting in a rise of welfare of at least 2% in 2025.
Key findings and recommendations LAS countries enjoy preferential access to the LAS market. Based on the LAS’ import structure during 2006-2010, a weighted average of 0.4% tariff duty was applied among LAS members. By contrast, non-LAS members faced tariffs in LAS markets in the range of 5% to 6%. In spite of ongoing efforts to cut tariffs and to sign and implement preferential agreements, regional trade integration among the member states of the Arab League is moderate compared to other common markets, such as the EU and the Association of Southeast Asian Nations (ASEAN). The share of total trade which takes place inside
The removal of intra-regional trade obstacles could increase trade by 10% and create two million new jobs in member countries of the League of Arab States (LAS), according to new research by the International Trade Centre (ITC).
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the LAS represents only a fraction of the trade conducted with the member states of the Organisation of Economic Co-operation and Development (OECD) or with other developing countries. The modest evidence of regional integration among LAS trading partners hints at factors other than conventional tariffs that seem to hinder the free exchange of goods across LAS markets. Trade agreements providing preferential market access do not insulate against problems related to non-tariff measures. A future reduction of these barriers could increase total trade by 10% and create over two million additional jobs, including 80,000 skilled jobs. Barriers to trade in goods and services are heterogeneous; they are quite high in the food sector, rather low in textiles and clothing, and almost zero for oil. A further integration of LAS trade focusing on NTMs would mostly create new opportunities in sectors such as food or metals and machinery. Given that currently most intra-regional LAS trade is in unskilled manufacturing, in order to maximise benefits to member states, targeted national development programmes favouring skill-intensive value-added sectors, and sectors where women and youth have a high participation like clothing and services, are recommended. Simulations show that a reduction of nontariff barriers to trade within LAS members would favour the sectors with already significant trade. As a consequence, these sectors would become more profitable and attract more investment. The event was widely covered by the press and TASDEER has been greatly appreciated for promoting this discussion on a very relevant regional issue.
Focus Country
Look East The South-east Asian city state – Singapore, is not defined by its geographical size but by the might of its economic strength. Lester Lu, Regional Director, Middle East and Africa Group, International Enterprise, divulges some interesting information about Singapore’s trade relations with the Middle East.
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he UAE was Singapore’s 14th largest trading partner in 2011 with total trade amounting to AED 59.1 billion. Trade between Singapore and the UAE has also been positive – growing at a compound annual growth rate (CAGR) of 17.6% between 2004 and 2011. In January 2012, bilateral trade was recorded at AED 6.4 billion up from AED 3.5 billion in January 2011. The top imports from the UAE into Singapore include crude and refined oil, aluminium, polymers of ethylene and non-monetary gold. On the other 42
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side, the top exports from Singapore into UAE include jewellery, aircraft and associated material, telecommunications equipment and automatic data processing equipment. Top re-exports from Singapore into UAE include aircraft and associated material, telecommunications equipment, jewellery and automatic dataprocessing equipment. To promote bilateral economic relations in the GCC markets, International Enterprise (IE) Singapore has two overseas centres in the UAE; one in Dubai and one in Abu Dhabi. It engages
the region strategically by identifying areas of collaboration between Singapore and UAE companies. As the trade and lifestyle hub of the UAE, Dubai is seen as the trade gateway for Singapore businesses, especially food services players and manufacturers. With the Middle East opening up to South East Asian cuisine, coupled with Dubai’s higher percentage of expatriates, Dubai is a choice location for Singapore food players to start their engagement of the Middle East. Singapore has been actively doing so through trade missions, business matching
ABOUT
meetings and most recently, Gulfood 2012. It has been a regular exhibitor at Gulfood, with 40 companies exhibiting a record 20 new products this year. IE Singapore’s focus sectors for Abu Dhabi are water and waste management, and semiconductors. These are areas aligned to Abu Dhabi’s focus. Abu Dhabi has been warned against the depletion of its water reserves within 50 years. With the Emirate’s rapidly growing population, Abu Dhabi needs to urgently tackle its water shortage issue. Some Singapore companies have already pioneered water projects within the GCC markets. As the Abu Dhabi government works on rectifying the issue, Singapore companies can continue to share their expertise and experience in water and wastewater management. Separately, the focus on delivering advanced technology services is an important step in the diversification of Abu Dhabi’s economy. With plans now underway for the development of a chipmaking plant close to Masdar City, there
Lester Lu was appointed Centre Director of International Enterprise (IE) Singapore’s overseas centre in Dubai with effect from 1 October 2011. As the government agency driving Singapore’s external economy, IE Singapore spearheads the overseas growth of Singapore-based enterprises and promotes international trade. The agency also has a global network in more than 35 locations, with presence in many emerging markets. In his current appointment, Mr Lu is responsible for assisting Singaporean companies uncover and secure business opportunities in Dubai, UAE’s northern Emirates, Oman and Iran. Prior to this, Mr Lu served as Divisional Director for the Middle East & Africa Group. In this role, he was responsible for promoting trade between Singapore and Middle Eastern and African countries including Dubai, Abu Dhabi, Doha, Riyadh, Jeddah and Johannesburg Mr Lu holds degrees in Chemical Engineering and Commerce from the University of Sydney, Australia, and is Six Sigma black belt certified.
is potential for collaboration between the two countries in semiconductors.
The next steps
International Enterprise (IE) Singapore, as the agency promoting the overseas growth of Singapore enterprises and international trade, is constantly looking out for partnership opportunities where Singapore companies can contribute. Singapore and the UAE signed an Investment Guarantee Agreement (IGA) in June 2011. This provides a good foundation to encourage greater
investment flows. Trading offices, especially in the transport and logistics industry will enjoy assets protection, giving them peace of mind while doing business in the UAE. In terms of trade, both sides are working to ensure that exchanges between Singapore and the Middle East, especially GCC countries, will grow further once the GCC-Singapore Free Trade Agreement (GSFTA) enters into force. The GSFTA is a milestone agreement in strengthening ties between the GCC countries and Singapore, particularly because it is the first FTA JUNE 2012
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Focus Country
The UAE was Singapore’s 14th largest trading partner in 2011 with total trade amounting to AED 59.1 billion. Trade between Singapore and the UAE has also been positive, growing at a compound annual growth rate (CAGR) of 17.6% between 2004 and 2011. In January 2012, bilateral trade was recorded at AED 6.4 billion up from AED3.5 billion in January 2011. signed by the GCC and the second FTA that Singapore has signed in the Middle East. Qatar and the Kingdom of Saudi Arabia are two other regions that IE Singapore actively engages, and there will be specific areas that we hope to collaborate in.
Qatar
The Qatar National Vision 2030 and current National Development Plan, 2011 – 2016 are new drivers to realise its vision of a knowledge-based economy. The Government will earmark a spectrum of services, including downstream industries, transport, sports and tourism for public investments. In the first quarter of 2011, Qatar announced plans to roll out over 200 projects in sectors including infrastructure, healthcare, environmental services, education and more. These are areas that Singapore companies can contribute to as we are strong in services.
Kingdom of Saudi Arabia
Traditionally, the most attractive investment sectors for Singapore companies in KSA are oil and gas services and infrastructure services. Singapore currently sees opportunities in other sectors like food and beverage (F&B), and urban infrastructure for public housing. Housing is one of the focuses in the KSA’s five year Development Plan (2010 - 2014). Singapore can share our experience in urban infrastructure, including housing. Singapore’s land scarcity issue has driven us to design their land use carefully to meet both short term and long term needs, and balance between land for industrial and commercial development and 44
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land for residential, recreational and social needs. Singapore companies are well-placed to play the role of master planner or solutions integrator. Many have accumulated experience in urban infrastructure and townships, incorporating residential and commercial developments with educational and recreational facilities, transportation, and telecommunications. The GCC is currently Singapore’s 9th largest market globally for food exports, with the KSA accounting for close to 40% of these food exports to the GCC. Home to 28 million people, the Kingdom is potentially the largest consumer market in the Middle East. Combined with Singapore food players’ growing interest in the halal food market and the Kingdom’s growing demand for quality and authentic Southeast Asian cuisine, IE Singapore sees a lot of room for collaboration in the Kingdom. Singapore’s food players bring with them products and services of the highest standards in quality, health and safety. The UAE is Singapore’s second largest trading partner in the ME, after the Kingdom of Saudi Arabia. In 2011, Singapore’s trade with the Kingdom was SGD 23.3 billion. Trade with the stable GCC countries like the UAE, Qatar and the Kingdom of Saudi Arabia has not been affected by the unrest in the region. Singapore has only witnessed a drop in trade with countries directly affected by the unrest. Trade with the stable GCC countries, which are Singapore’s main trading partners, has continued to grow. While it could as a function of price due to rising oil
prices, the region’s growth potential, and continued strong foreign investments to diversify its economy beyond oil, should not be overlooked. Despite the Arab Spring, doing business in the areas not affected by the uprisings still remains positive. Many businesses from the region have shifted their operations to the more stable GCC countries like UAE. This increase in activity has led to high growth in the consumer and tourism sectors, making it an ideal time to export to the Middle East. Half of the world’s known oil reserves are known to be collectively controlled by the GCC. Naturally, refined and crude oil are Singapore’s top traded products with the gulf. This trend will continue as Singapore also has a large oil and petrochemical industry.
Trade facilitation
In order to deal ensure trade security and to facilitate trade, Singapore has leveraged its strategic location and excellent connectivity to become a global trade hub. Equipped with capabilities in logistics and services, traders from all over the world use Singapore as a springboard to reach the dynamic markets of an emerging Asia. Keeping up with these demands, the Singapore Customs has also continuously improved its services and transformed itself to support the needs of the local trading community. One of Singapore Customs’ close business partner is CrimsonLogic; a Singapore provider of end-to-end eGovernment solutions in trade facilitation, judiciary, tax, healthcare, citizen-centric and IT security domains. Singapore Customs has been administering the TradeNet system created by CrimsonLogic, which is the world’s first national single window for trade declaration. This has facilitated trade and documentation processes, making them easy and seamless. Its success has led to many G-G collaborations on the international level, including the GCC.
Focus Country
The GCC is currently Singapore’s 9th largest market globally for food exports, with the KSA accounting for close to 40% of these food exports to the GCC. Home to 28 million people, the Kingdom is potentially the largest consumer market in the Middle East. CrimsonLogic was appointed to create a similar single window system for the Government of Qatar in 2008. Its trade facilitation solution automates and streamlines the customs administration process in Qatar, providing an efficient, effective and collaborative platform through the elimination of duplicated processes and standardisation of operations. CrimisonLogic also worked on the SaudiEDI system, commissioned by the Public Investment Fund (PIF), under the Saudi Arabia Ministry of Finance in 2005. The system automates and streamlines the trade documentation processes for the trading community in Saudi Arabia. This system has forged a common electronic platform for businesses to 46
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operate in, resulting in a transparent and collaborative community. This has improved the efficiency of trade cycles with significant savings in time, money and resources for governments and businesses. As a result, the SaudiEDI was awarded second place in the category “Improving transparency, accountability and responsiveness in the Public Service” at the annual United Nations Public Service Awards (UNPSA) in 2010.
Why Singapore?
Singapore enjoys strategic location as Asia’s trade hub with a sound climate for businesses and investors. For the fifth year running, Singapore has been ranked first in World Bank’s Ease of Doing Business Index. Singapore also
has one of the most established and modern shipping, transport and logistics infrastructure systems in Asia. Its geographical location also grants Middle East businesses the access into Asia, including emerging markets with great potential for growth like, China and India. Exchanges between Singapore and the UAE will grow further once the GCC-Singapore Free Trade Agreement (GSFTA) enters into force. The GSFTA is a milestone agreement in strengthening ties between the GCC countries and Singapore. Under the agreement, all GCC imports from Singapore will enjoy 100% tariff-free access when the agreement comes into effect. This means that GCC importers will stand to enjoy up to AED 293 million in annual tariff savings. We also want to see bilateral relations grow beyond trade into more strategic business partnerships. We encourage all GCC companies to make use of Singapore’s strengths as a major trade, transportation and financial hub to access business opportunities in the Asia-Pacific region.
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OCTOBER 2011
39
Focus commodity watch
Commodity prices snapshot During the month of May the main news and events that affected the commodity market, came from Europe and has adversely affected the Euro currency and thus dragged along with it the oil, gold and silver prices as follows; The European Central Bank has announced a temporary halt in lending to several Greek banks. Moreover Moody Rating Agency has downgraded the rating of some Spanish banks. Besides, the uncertainty is rising in Greece regarding the election that will be held in June 17th. On the other hand, the growth rate in the Q1-2012 of Germany’s GDP, happens to be higher than expected, which contributed towards a few positive news items coming from Europe. The EUR depreciated against the USD throughout the month of May; furthermore, other currencies such as the AUD and CAD also depreciated against the USD by 1.8% and 2.2%, respectively. This fall in the Euro/USD and AUD/USD may have been among the factors to pull down gold and silver during all the month of May.
NATURAL GAS Natural gas market, unlike other commodities, has witnessed a recent upward trend, the rise is said to be a recovery to the decline in the U.S natural gas productions. The natural gas future changed direction, after a sharp rise in prices during the past couple of weeks, and dropped at month end by 12% to USD 2.4 from 2.7 a week earlier.
BRENT The oil price kick started the month at its highest levels 119.6, shortly after commodity adobted a downward trend all along the month, to reach one month low on May 29 at 107.5 a decrease by 11%.
48
JUNE 2012
Data provided by Zawya
Focus commodity watch
GOLD Gold price maintained a downward trend in May, however the third week posed some relief amongst investors, were price rose by 3% to finish the week at 1,594 USD/ t. oz.; this may have been the effect prior to the Federal Open Market Committee meeting which is expected to issue another Quantitative Easing Programme. The latter may have been among the factors to drag down energy prices while pulling up gold and silver prices during third week of May.
Silver Silver, even more than gold, tumbled on a weekly scale by 5.13%, prices headed towards a worst performance in 2012. The news that affected the direction of silver prices includes the projection of a stagnant GDP for the EU market, US Federal Survey* and the recent FOMC meeting. The high uncertainty in the markets with respect to the European Union and Greece is likely to negatively affect silver price.
Data provided by Zawya
JUNE 2012
49
Community events calendar
Save the date!
We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences around the world, so you spend less time planning and more time attending.
EXHIBITION
DATE
LOCATION
Gulf a la Carte 2011 EXHIBITION
21st - 23rd DATE
Abu Dhabi LOCATION
SIAL Middle East 2011
21st - 23rd
Abu Dhabi
FM Expo + Big 5 Show
21st - 24th
Dubai
Milipol
26th
Qatar
Middle East Manufacturing Exhibition 2011
28th - 30th
Abu Dhabi
SIM - Signage, Imaging & Media Show 2011
28th - 30th
Abu Dhabi
Airport Exchange 2011
29th - 30th
Abu Dhabi
Global Water and Beverage Technology Congress
29th - 1st Dec
Dubai
World SME Expo
1st - 3rd
Hong Kong
EXHIBITION
DATE
LOCATION
“China Import & Export Commodities Exhibition“
1st - 4th
Malaysia
The Franchise and Business Opportunities Expo
2nd - 3rd
USA
World Green Tourism 2011
5th - 7th
Abu Dhabi
World Gas Conference & Exhibition
4th - 8th
Malaysia
Middle East Natural & Organic Products Exp
5th - 7th
Dubai
5th - 8th
Abu Dhabi
June 2012
COMPUTEX Taipei
5th - 9th
Taiwan
National Exhibition for Small & Medium Enterprises
AIBTM 2012
19th - 21st
USA
International Real Estate & Investment Show
7th - 10th
Abu Dhabi
Airport Suppliers Conference
11th - 12th
Dubai
Qatar
Abu Dhabi International Motor Show
19th - 23rd
Abu Dhabi
Dubai
July 2012 Doha Trade Fair
1st
CIS Travel Market
27th - 28th
Russia
January 2013
Ramadan & Eid 2012
29th - 19th Aug
Abu Dhabi
Tekno Tube Arabia
7th - 10th
Arab Plast
7th - 10th
Dubai
Domotex Hannover
12th - 15th
Germany
Offshore Middle East
21st - 23rd
Qatar
August 2012 ACBW 2012
2nd - 4th
Australia
September 2012 Furniture Manufacturing & Supply China
11th - 12th
China
PROMAT
21st - 24th
USA
50th Bangkok Gems & Jewelery Fair
14th - 18th
Thailand
Trans Oman
28th - 30th
Oman
Thailand International Logistics Fair
19th - 22nd
Thailand
February 2013
Private Label Middle East Dubai 2011
23rd - 25th
Dubai
The NAFEM Show 2013
1st
USA
Paper Arabia
23rd - 25th
Dubai
Printpack India
5th - 10th
India
Regional Consumer Goods
15th - 17th
Germany
India
IDEX 2013
17th - 21st
Abu Dhabi
20th - 22nd
Australia
October 2012 India Chem
4th - 6th
Foodtech Packtech
9th - 11th
New Zealand
Australian Oil and Gas Exhibition
Analytica China
16th - 18th
China
March 2013 CeBIT 2013 (IT)
5th - 9th
Germany
Abu Dhabi
Propak Africa
12th - 15th
South Africa
12th - 16th
Korea
November 2012 2011 UFI Congress
1st
AutoRomania
1st
Romania
Koplas
Oil & Gas Ukraine
1st - 3rd
Ukraine
Transinfra
13th - 15th
Switzerland
Abu Dhabi International Petroleum Exhibition
5th - 8th
Abu Dhabi
Motortec
13th - 16th
Spain
World Hospital Congress
8th - 10th
Dubai
April 2013
Dubai International Jewellery Week Exhibition
10th - 13th
Dubai
SMM India 2013
1st April
India
Dubai International Motor Show
10th - 14th
Dubai
Geosynthetics
1st-4th
United States
Dubai Air Show
13th - 17th
Dubai
Brasilplast 2013
1st
Brazil
International Tourism Exhibition (ITE)
14th - 16th
Abu Dhabi
EMAQH 2013
1st-13th
Argentina
18th - 20th
Abu Dhabi
Aluminium Dubai 2013
1st
UAE
2011 World Robot Olympiad UAE
18th - 20th
Abu Dhabi
Intermodal South America
2nd-4th
Brazil
The Middle East HR Summit And Expo 2011
20th - 24th
Dubai
Building Material and Equipment
2nd-5th
Russia
HR Best Practices in Oil, Gas and Petrochemicals
21st - 22nd
Kuwait
International ICT Expo
13th-16th
Hong Kong
Roadex/Railex 2011
50
JUNE 2012
Get in touch! Would you like to list your event here? Or better still, list your detailed event profile? If yes, then please contact: meghna@cpidubai.com
December 2012