At the centre of the Emirates trading surge
Nicholas Noe talks exclusively to Sheikh Lubna Al Qasimi, Minister for Economy and Planning of the United Arab Emirates (UAE), about economic and political factors in the Gulf region and how the Emirates will position itself in years to come.
In November 2004, Her Excellency Sheikh Lubna Al Qasimi became the first woman in the United Arab Emirates’ history to assume a cabinet position, appointed to manage the UAE’s newly merged (and rapidly expanding) economy and planning portfolio. She came to the position well versed in trade issues, having overseen the information systems department at the Dubai Ports Authority for more than seven years.
That experience, coupled with her own interest in positioning the whole of the Emirates, and not just Dubai, as the premier trade hub between East and West, has proved invaluable, especially as the UAE has readied itself for assuming leadership of the Gulf Cooperation Council (GCC) in the coming year and as several major free trade agreements (FTA) appear as though they may finally in fact close.
Whether or not the long-negotiated European Union deal, or the strictly bilateral US FTA, are among these is, unfortunately for traders, still an open question. But while Qasimi is bullish that both will in fact be activated in 2007, what does seem certain is that under her direction, the UAE and the GCC will continue to greatly expand their mutual relationship with the two Asian giants of China and India.
Indeed, already, the latest official figures indicate that Indian exports to the UAE reached US$8.5bn last year, up from US$3.3bn in 2002. UAE exports to India also grew strongly, from US$956m in 2002 to US$4.3bn last year. Trade between China and the UAE has similarly boomed, reaching US$10 billion in 2005 (US$16bn in trade activity is predicted for 2006), thus making China Dubai’s main trading partner.
Qasimi, who, in one of her first acts as economy minister, inaugurated Dragon Mart, the largest trading hub for Chinese products outside of mainland China, seems to positively relish the challenge of further expansion both east and west, no matter the ‘little’s glitches like the recent DP World controversy with the US, inflationary pressures at home, or regional instability all around. Then again, such confidence is probably what one should expect from the women at the very centre of so much of the Middle East’s recent economic, and entrepreneurial, advances.
GTR: What is the status of the economy in Dubai and the UAE right now and where do you think it is going? The obvious question of sustainability, which you’ve dealt with a lot, immediately comes to mind. Are you on the right track?
Sheikha Lubna Al Qasimi: I think going back and seeing the performance of 2005 and 2006 for our national economy here, I do believe we have a good story to tell. Some of the reasons for this, I think, are that the country itself had the foresight to develop and reinvest a lot of the oil money into the infrastructure.
And in any country, when you have economic development and reform, you need the physical infrastructure and basically the highways, the streets, the logistics the ports, the airlines and the airports. You also need the soft infrastructure which is basically the legislative policies and regulations – and in fact, a lot of the regulations and the laws had been put in place.
The other side of this is not just putting the regulations in place but also the enforcement of the law and the rule of the law which is quite critical to practices that drive efficiency, transparency and the general environment actually for development.
So you have that which the United Arab Emirates, and Dubai in particular, had invested in a long time ago. This is not something that happened yesterday. The key I think is having that kind of environment and also the use of technology from the outset – all of which had driven a strategy of diversification.
If you look into the GDP of UAE as of today, over 60% of GDP here is actually considered non-oil at the moment and especially in the service sector. We’ve developed the service sector quite well. But if you look at Dubai in particular I think oil dependence is less than 60% nowadays.
GTR: Relative to your neighbours, that figure puts you far ahead on the road towards diversification
LQ: Absolutely. This effort is not something particular to us, or the GCC or anyone. But if you ask anyone who is considered an oil economy, it is very easy to be complacent and to think because you’ve got oil, you’re OK. It takes much more effort to focus your economy and your strategy to diversify it.
People say you’ve got that wealth already there so why actually shift. One of the critical points that is very evident in the UAE 2005-06 is the increase in the foreign direct investment (FDI). If you’ve got a lot of liquidity yourself, you don’t need the FDI.
Still, despite the wealth itself, the flow of capital coming here was not bad at all. If, I recall, in 2005 I think it was about US$18bn [in FDI], which is not insignificant for a place like UAE. Usually, you can put your own regulation, infrastructure and transparency for yourself basically to drive your liquidity and diversity. But FDI makes you much more aware and I think alert to stressing the regulations and the transparency. No one will invest in your country if you’re not that transparent and I think that means we have to continue to be quite disciplined about this.
GTR: And where have you attempted to drive the investment?
LQ: So far I think what we have seen is a lot of emphases in three sectors: tourism, the financial sector as well as real estate. What we need to do for the future is actually increase the base of focus further.
UAE has some industries where I do believe there are opportunities for expanding and creating a wider base for the industrial sector. More and more we’ve had special economic zones being developed, for example in Abu Dhabi and Dubai and that is basically to encourage more from industry. We can do a lot more than that however. We’ve already seen utilisation of the zones for services: you have the technology parks, in the hospitality sector, with the airlines. So I think UAE has actually done well.
You know, the UAE population is about 4mn persons. Our tourist number last year was about 8mn visitors. The more interesting part and striking part is we’ve had 30mn transit passengers going through the airport. Now you may think this is basically someone coming for a short period of time, but duty free is actually a huge business for the retail sector, because we have a huge duty free zone.
So that in itself expands the retailing business for UAE’s merchants and businessman. That’s also an area where you have a got a good purchasing power inside the country and also for the transit passengers.
GTR: I am surprised you didn’t mention the trading sector as such as one of the three areas of focus along with the industrial sector. The Emirates has vigorously tried to position itself as a trade hub for the region and indeed the world, correct?
LQ: Yes, certainly. First of all, you have to think in terms of the time zone. The Gulf and the Middle East is between the east and west. Market access and positioning yourself geographically flows from transportation, whether it’s passengers or goods.
If you look in terms of traffic, of flow, UAE has got a great, very sophisticated logistics hub, mainly centred on Jebel Ali port and combined with the free zones that is basically our distribution hub. But on the other side of it too, if you look at the passenger transits, you will see that UAE has actually positioned itself quite well in Dubai and Abu Dhabi where a lot of the airlines use us as a transit hub for passengers.
When you have that, you have got a flow of people and a flow of goods. UAE has not only created a good trans-shipment hub where things come to the port here and then get re-exported. The re-export region when you look at it for any good shipments coming here is pretty much catering to 1bn people, whether it’s the lower Gulf or all the way to North Africa.
But at the same time, there is a good formula that many people don’t know about and that we call the sea-air cargo. You’ve got a shipment coming in through ships but the goods are actually exported on the airlines reaching different places.
So one is your geographical positioning and being two and a half hours away from India and Pakistan, China is eight hours, and then with all the European countries and Africa. An interesting logistical development that took place last year is actually the flowers logistics sector. Dubai has actually created a logistical hub for flowers in terms of shipment. So the flowers will come in from the Far East and Africa as well and then re-export it to Europe and other places. That’s actually doing quite well.
I was asked: why would you have a flower logistics if you don’t even grow flowers. And I said it’s not about growing flowers it’s about logistics. But remember this place had the merchandising and the entrepreneurial spirit from the old days. The UAE has always been on a trade route between East Africa and India. So it’s not something new, it’s not something that we just developed. It’s something I think inherent to the thinking and the mindset of the people here in the UAE.
GTR: But in Kuwait for example and also in Oman, not to mention other GCC countries similar arguments are put forward. As you know, the port development activity in these countries and in the other countries is incredible. There’s a lot of new capacity coming online, so the question is how will Dubai and the UAE in general keep its competitive edge in the coming years with all this add-on activity right around you in these traditional trade routes?
LQ: Well, I had worked for Dubai Ports for seven years. I was in charge of technology development. One of the key areas for Dubai Ports is basically taking the lead since the early 1990s in the development of technology as the backbone. That’s an advantage that you have basically for your connectivity.
But the other advantage I do believe that the ports we have possess, is that they’ve always positioned themselves as a global player. It has never been envisaged in the way of: I am better than my neighbour. The ports have always positioned themselves in relation to Singapore, Hamburg, etc.
DP World, in particular, has access to over 30 ports worldwide, which means they have a network of ports where they can call to. That’s the higher thinking basically. They’ve always played as a global player in the transportation industry. It is very similar to Emirates Airlines. If you look at Emirates Airlines for example and now Etihad, they’ve always positioned themselves globally in terms of their access and their network. It’s not about I’m the best in my region, this has never been in the culture of the transportation industry in the UAE from the early 1990s. That’s where the differentiation is, I think.
But remember, transportation in itself is part of a bigger formula. You will have different parts that you also need to evolve and develop. Logistics in itself means the storage, the warehousing, the industries that create this, what you actually produce in the country, the network of trans-shipment. So it’s not just about placing a port. It’s a bigger formula and in the UAE, this is how it is looked at. Either way, I do believe that it’s healthy to have competitors in the region because it means that you don’t have complacency and you always think about improving yourself.
GTR: We have seen a number of reports concerning upcoming trade deals between the UAE and India and China in the last few weeks. Could you talk us through those two specific countries, in terms of what to expect in 2007.
LQ: First of all, I think that when it comes to being the main driver for free trade, open markets and globalisation – and you know the UAE has been a member for over ten years in the WTO – that really the UAE has been the main driver. The UAE is part of the Gulf Cooperation Council (GCC). In that aspect all the free trade agreements are signed as a multilateral economic bloc – with the exception of the US agreement, where Bahrain and Oman have signed agreements and the UAE is in the process of negotiating one.
As it stands now, the GCC has between eight and nine free trade agreements under discussion. This includes China, Pakistan, Turkey, India, Japan, Australia and Singapore, including a few others – Korea has recently expressed a lot of interest as another example. These agreements typically look at goods and services, as well as the movements of people. I will tell you that the GCC has actually finished the negotiations on the goods side with China and is in the process of negotiating the services side now.
GTR: Did the DP World controversy with the US push the emphasis in the UAE more towards the east?
LQ: We had been negotiating with the Americans on a free trade agreement when the controversy took place. People thought it had actually affected the free trade agreement negotiations. In reality it did not. I was one of the first people who got on a plane and went to the US, to be seen publicly dialoguing with the USTR office, at that time Ambassador Portman, I met with the State Department – all to restate that this kind of a relationship is above these little glitches that happen in a particular area like DP World.
I should say, the UAE in its negotiations had taken a different path than other countries in the Middle East who signed an agreement with the US. Our services sector is quite developed which has given us a competitive advantage. We have a very diversified economy which actually meant that we have been dialoguing longer than the norm.
The other side of it, that people I think don’t see: we are the only country in negotiations where we have a two level government, an emirate level and a federation, which is the same as the US. You have partial sovereignty over decision-making at each level and the US is very similar. I would think people should compare out negotiations with the Americans as being similar to Singapore and not to other Gulf states. After all, the nature of the economy of the UAE is more similar to Singapore in terms of diversification, the smallness of the area, the development of services, technology etc.
GTR: You have been a part, through the GCC, in negotiating a much-delayed trade agreement with the European Union. Is the GCC framework really working for the UAE when it comes to trade, especially in regards to getting a deal done with the EU. Is it time for the UAE to go it on its own?
LQ: I believe that when you look at the slowness of the EU-GCC trade agreement, you have to remember you have a multilateral [framework] of two economic blocs and the EU is quite heavy. The contribution of new countries coming on board with the EU has meant that the EU has had to accommodate to new demands from these countries.
Definitely, with the UAE taking the leadership this year of the GCC, we have been instructed by the President and the ministry of foreign affairs to invest more commitment to the EU deal. I have had one to one dialogue directly with a number of EU ministers. Peter Mandelson has put a lot of effort into declaring an agreement with the GCC. So I am very optimistic about this year.
GTR: Is 2007 going to be the year to close with the EU and with China and India?
LQ: Yes, absolutely. The largest European states come up as number one or two in terms of trading partners across the GCC. China and India, especially with the UAE, have a very powerful role in regional development too, all of which mean that 2007 is going to be an especially busy year, not only concluding these agreements but also because you have to activate these agreements. That will take a lot of energy.
GTR: How does the UAE view the current, and indeed longstanding, instability in the region – as a threat near to home or somewhat differently?
LQ: The political environment is certainly a concern, especially in regards to trade development and expansion. These are the two areas that really concern us. The political stability of the region affects us because the UAE is an integral part of the Middle East, so, for example, what happened in Lebanon hurt us especially because we put a lot of investment into Lebanon. It was very hard, to see a complete breakdown of the economy built over 10 years and destroyed in just six days. It was very hard and very painful.