Economy

UAE to push for signing of EU-Gulf free trade deal

The United Arab Emirates plans to push for the signing of a free trade agreement between the European Union and Gulf states when it assumes the presidency of the Gulf Cooperation Council (GCC) in December, the country's Foreign Ministry announced in April. The UAE's foreign ministry announced that the small Gulf state will make the completion of over two decades of negotiations between the EU and Gulf states a key objective when it takes over leadership of the GCC later this year. The presidency of the GCC rotates each year between its six member states: Kuwait, Qatar, Bahrain, Oman, Saudi Arabia and the United Arab Emirates. The UAE will take over from Kuwait in December. According to statistics from the EU, US$86 billion in goods was exported from the EU to Gulf states last year, with US$40 billion exported from the Gulf states to Europe. Talks between the European Union and the GCC first started back in 1990 following the signing of an EU-GCC cooperation agreement, but have broken down and been suspended on several occasions. During the latest round of talks in April 2009, points of contention included EU concerns over human rights issues in the Gulf states and the level of tax to be imposed on goods exported from Gulf states to Europe. David Butter, regional director for the Middle East & North Africa with the Economist Intelligence Unit, argued the global economic recession has influenced the importance of a free trade agreement for EU and Gulf economies.

Oman: Turkey ties

Oman's growing strategic importance as a regional trading hub was reinforced this month during the first official visit to the Sultanate of Abdullah Gül, the president of the Republic of Turkey. Gül's visit, which saw the signing of a number of agreements between the two countries, coincided with the announcement of a strategic alliance between The Zubair Corporation, one of Oman's largest business houses, and Turkish group Tefirom. The alliance, which will involve the development of a portfolio of business opportunities, could eventually reach a value of US$500 million. Speaking on the second day of his visit at the Turkish-Oman Business Forum, Gül described Oman as ""perfect"" for the re-export industry. ""Your ports are accessible to Pakistan, India, Africa and Iran, and also goods can be sold from here,"" he told delegates, adding he was hopeful of a sharp increase in bilateral trade between the two nations. The agreements signed included reductions in tariffs and Customs duties covering a wide range of goods, as well as criteria determining the origin and type of goods subject to favorable import and export terms. Both countries also agreed to cooperate in regards to organized crime in aviation and shipping. Turkey, led by the pro-business AK Party, has become increasingly active in international trade in recent years, in particular seeking out new markets in Africa and the Middle East to add to its significant European trade. In developing this new policy, the republic has often looked towards the Gulf for its primary partners - relations with Qatar, for example, are particularly significant vis-à-vis the Levant, with the two often engaged in joint projects in Syria. It may be that Turkey wishes to extend that successful model to Oman, where major infrastructure upgrading at locations such as the port of Sohar provide, as President Gül noted, significant re-export opportunities not only for the rest of the Gulf Cooperation Council (GCC), but perhaps more importantly Pakistan, India and Africa. Vitally, Oman falls to the east of the Strait of Hormuz, placing it outside any potential blockade by or upon Iran. (Source: OBG)

Emerging markets reshaping economic order, says report

Western businesses, once the unquestioned leaders in global capitalism, are finding their position increasingly challenged by their rivals in emerging markets, according to a recent report. Adrian Wooldridge, managing editor of The Economist, examines in a special report in the April 17 issue the role of emerging markets in spurring new business models and innovation for the benefit of the whole economic pyramid in both the East and the West. Emerging markets apply untraditional strategies used to integrate the world’s poor into the international economy, have a keen ability to drive innovation in unconventional ways across a range of sectors and are blessed with abundant untapped brainpower, says the report. As a result, this confluence of factors is reshaping the current global economic order. Although not mentioned in Wooldridge’s piece, Egypt has also been following this trend, albeit not quite at the same pace as emerging markets such as China and India. With a solid growth rate of 5 per cent, Egypt still lags behind China and India’s impressive growth, which is often twice as much. With around 18 million people, or roughly 25 per cent of the population, and in need of further economic development, much of Egypt’s population cannot be defined as an emerging market, but rather a category below which is termed a ‘survival market.’ But given the size of this market, it is a non-negligible prospect to be seized upon. Indeed, companies in the West and even more so those in emerging markets are starting to comprehend the potential that the lower end of the economic pyramid represents in terms of consumers and wealth generation.

Group sees US exports to Arab countries rebounding

US exports to Arab countries in the Middle East and North Africa are forecast to grow almost 20 per cent this year to a record US$75 billion, fueled by big infrastructure projects and resurgent consumer demand, according to a new private sector report. "The Middle East could play a very helpful role in helping the Obama administration double U.S. exports by 2015," said David Hamod, president of the National U.S.-Arab Chamber of Commerce, which compiled the estimate. Altogether, Arab countries are expected to import US$800 billion worth of goods and services this year, a 12 per cent increase over 2009 "so we're still kind of ahead of the curve if U.S. exports grow by 20 per cent," Hamod said. US exports of goods and services to the Middle East and North Africa fell about 9 per cent in 2009 along with the overall slump in global demand. President Barack Obama has set a goal of doubling overall exports over the next five years to help drive U.S. economic recovery and create 2 million American jobs. The National U.S.-Arab Chamber of Commerce report estimated some 740,000 direct and indirect U.S. jobs would be supported this year by exports to the Middle East and North Africa.

Kuwait: Going private

On April 15 Kuwait's parliament approved the first draft of a privatization bill that could lead to the sale of a substantial proportion of state-held assets to the private sector. For a country in which the public sector accounts for over 70 per cent of GDP, such a move could dramatically alter the composition of the domestic economy. The bill, first proposed 18 year ago, will see the establishment of a higher privatization council tasked with overseeing and regulating the sale of public assets and companies. The council will be headed by the prime minister and comprise of five ministers and three non-government-appointed members. Up to 20 per cent of the shares of each sold-off entity will remain in the hands of the government, which - according to supporters of the bill - will ensure that it can still maintain an influence to protect the interests of the company's employees as well as the end-users of the services provided. An additional 40 per cent of the shares will be sold to Kuwaiti citizens in the initial public offering; approximately 5 per cent will be distributed to existing Kuwaiti employees of the concerned entity; and 35 per cent will be auctioned off to local or foreign investors approved by the council. The law also includes a stipulation that all Kuwaiti staff employed by the entity will have the option of remaining in their positions at existing salaries for a five-year period. Upstream oil and gas production and health and education services are excluded from the bill, but could all still be subject to privatization via separate legislation. (Source: OBG)

UAE eyeing Latin American investments

The United Arab Emirates wants to expand its business ties with Spain in order to invest in Latin America, the country's finance minister said in an interview published in April. The oil-rich Gulf state wants to create joint UAE-Spanish companies in the finance, infrastructure and energy sectors "to take advantage of the great investment opportunities" in Latin America, Sultan bin Saeed Al Mansouri told reporters. "Spain is the biggest investor in the world in this region and we are looking for partners to invest there," he said. Several Spanish multinationals are present in Latin America, such as telecoms giant Telefonica and Banco Santander, the eurozone's largest bank. The minister was in Madrid for a meeting of a Spain-UAE economic forum. The UAE was the biggest foreign investor in Spain last year, according to the Spanish government.

Confidence high among GCC business leaders

Gulf leaders are more positive about their business prospects than they were a year ago. According to the latest HSBC Gulf Business Confidence Index, business confidence has risen across almost all Gulf countries in the first quarter of 2010. While Saudi business community is most optimistic, Bahrain witnessed a slight dip in confidence. Compared to the first quarter 2009, the overall Business Confidence Index has risen by over 20 points. The last calendar year has seen a marked trend upwards of business people expecting growth in both revenue and profit. The region has also witnessed some positive movement in expectations of hiring. About 39 per cent corporate leaders expect to recruit employees in this quarter compared to 37 per cent in the final quarter of 2009. The survey also revealed that while 44 per cent expect growth to be driven by increased customer numbers, 22 per cent believe that revenue from existing customers will improve future prospects.

Mideast banks’ loan loss provisions 'will remain high'

Loan loss provisions by banks in the Middle East are expected to “remain high” in 2010, according to research by management consultancy firm The Boston Consulting Group. “It will remain high but hopefully it will not go up further,” Dr Reinhold Leichtfuss, senior partner and managing director of the Boston Consulting Group’s Dubai office, said in relation to loan loss provisions that banks in the region are likely to will have to incur this year. The BCG’s 3rd Banking Index found that banks in the Middle East had seen loan loss provision rise significantly last year, with an average increase in provisions of over 300 per cent. The index said that UAE banks were hit the hardest and accounted for 40 per cent of the region’s total provisions.

RLPC-Mubadala signs US$2.5bn loan-bankers

Abu Dhabi government-owned Mubadala Development Company has signed a self-arranged US$2.5 billion, three-year club loan that will refinance existing debt, banking sources close to the deal said. The loan was provided by 21 banks, each committing US$200 million and raising US$4.2 billion in total before they were scaled back, the sources added. The deal carries a base margin of 75 basis points (bps) over LIBOR and includes a commitment fee of 35 per cent of the margin for undrawn funds. The revolving credit also includes usage fees that will boost pricing by 20 bps if more than 33.3 per cent of the loan is drawn and 40 bps for more than 66.6 per cent -- but the deal is priced closer to European loans than any recent Gulf deals. . Mudabala's pricing matched the 75 bps margin agreed on Q1 deals for A- rated European corporate borrowers such Austrian OMV, German Henkel and Dutch Philips, but as an AA higher-rated company Mubadala continues to pay a slight premium. Mubadala offers comfort to lenders with its 100 per cent government ownership, although there is no explicit state guarantee on the new deal, a banker said previously.

Basra approves free trade-zone with Iran

Basra’s Investment Commission granted a permission to start a free trade-zone area with Iran. “The project was proposed by a local firm,” a source from the commission said. He said that the firm would invest US$16.2 million in the project over a period of 25 years. The oil-rich city of Basra lies 590 kilometers south of Baghdad.

Egypt, Syria eye boosting economic cooperation

Egypt and Syria agreed in April on signing a number of MoUs to beef up economic and trade relations between the two countries during the first half of 2010. At the end of the meetings of the Egyptian-Syrian technical committee in Alexandria, the two sides reiterated keenness of the political leadership in both countries to foster bilateral economic and trade cooperation in various domains. They also asserted their firm commitment to the terms of the Greater Arab Free Trade Area Agreement (GAFTA), which contributes to efforts towards establishing the Arab Common Market. GAFTA was declared within the Economic and Social Council of the Arab League as an executive program to activate the Trade Facilitation and Development Agreement, which had been put in force since January 1st, 1998. It reached full trade liberalization of goods in January 2005 through the full exemption of customs duties and charges having equivalent effect between all GAFTA members except Sudan and Yemen. The committee meetings reached possible solutions to many problems facing the flow of trade between Egypt and Syria.

Isfahan, Iraqi Kurdistan to boost trade exchange

President of Kurdistan Region's Chamber of Commerce Jalil Khayat and his counterpart in the central Iranian province of Isfahan Mahmoud Eslamian signed an agreement on boosting trade exchange. Khayat said in the meeting in Isfahan in late April that expansion of Iraqi Kurdistan's trade cooperation with the Iranian province of Isfahan would pave the way for further commercial exchange with Iran. He said the Kurdistan Region welcomes Iranian investment in the region, which would help economic growth.