New markets: the agricultural turn taken by the United Arab Emirates
The plunge of oil prices and slowdown of China's growth have carried repercussions to the Persian Gulf states requiring them to diversify their economies. Arising against this backdrop is a new United Arab Emirates strategy aimed at such sectors as tourism, services and especially the management of trade in the agri-industrial sector
The annual GTR Mena Trade Finance Week 2016 organized by the specialized Global Trade Review was held in Dubai over the week beginning February 15th for an examination of the region’s trading prospects and trade finance instruments able to support cross border trade and investments. Among those taking part in the conference 80% of them were business leaders and government and financial institutions arriving from Asia, the Middle East and Africa to confirm the importance of the event for updating the economic prospects of an area evaluated essentially from a non-European point of view.
The dominant issue in meetings and presentations was the drop in raw materials prices, and especially oil. The duration of the declines is difficult to foresee but they are carrying an obvious impact on the economic growth of the Persian Gulf states. The Dubai Economic Council, the local authority’s consultation agency, estimates that 2016 growth will remain low. In the opinions put forward by many of the business leaders present was one of worry about the trend of the Chinese economy with growth down to 6.8%, the lowest level of the past 25 years, rather than about the relative price of oil.
The most credible estimate on this issue points to a drop of 75% to 90% in the fiscal income based on crude for the Gulf states with the UAE counting as an exception due to the Emirates’ smaller dependence on oil income. There was a fairly unanimous estimate of a 15% decline in spending on priority public projects planned for 2016. At the same time, the major investment banks took the view that megaprojects will be increasingly set aside to back modular initiatives capable of more easily attracting the financial resources needed from private investors.
Effects and perspective
In substance, the Gulf states are betting on two main strategies: speeding up the diversification of their local economies and strengthening the role of the Emirates as a strategic south-south trade hub. Essential for this phase of the trend is pushing for the diversifing the economies, an issue which has been around for years but short on significant results, except for Dubai. Tourism, the sector of greatest interest for this diversification, is basically limited to the UAE, Oman and the Saudi religious sites. The leading role for playing this economic card, not exclusively linked to oil, is held by the EAU which for years has been a key player in east-west trade and is now preparing to extend the reach to Africa-Asia trade flows based on India and China, spoken of by specialized observers as south-south trade. Following the development of free zones, a number of European enterprises have set up assistance, post-sales and warehouses installations to better service Asian clients and now is the time for strengthening these facilities. By way of example is the opening little more than a week ago of Concourse D at the Dubai International DXB airport and another at the Al Maktoum International airport, which handled 403,000 flights and takeoffs and 78 million passengers in 2015, with expectations of a record 89 million passengers in 2016. Again in February, direct Dubai-Panama flights were inaugurated for a route of 13,821 km, 17 km longer than the previous Sydney-Dallas long-distance champion.
The UAE also intends to became a center of reference for international non-oil commodities trade. The Dubai Multi Commodities Center (DMCC), located in the Jumeirah Lakes Towers, was named Free Zone of the Year in 2015. Aside from this international recognition, what is clear is that the goal is to create in the Gulf a contract and trade center for important commodities, now mainly gold, aluminum raw materials and precious stones with agricultural commodities beginning to make an appearance, mainly tea. These projects will certainly not be physically distanced and disempowered. What was made clear during the Mena Trade Finance Week was the will of promoters to always associate their initiatives with the liquidity needed and highly evolved digital and regulatory platforms. The objective of strengthening the competitive stance is pursued by work in a sector which is often reluctant to take on innovations and inclined toward the opaque, customs. Fortunately, the Federal Customs Authority (FCA) is strongly committed to work to attract foreign business people, as was confirmed by FCA International Relations Director Suoud Salem Al Agroobi. These relations efforts involve two fundamental measures, the creation of a single window service to avoid the need for enterprises to deal with various public agencies, which could intervene in customs procedures, and especially a twelve-country agreement for faciliting trade in the region.
In the present slackening of growth, the EAU is clearly ahead of others in diversifying the economy. An esample of this is comparison with Saudi Arabia. The EAU accounted for 1% of world trade in the two-year period 2012-2013 while the Saudi Arabia share was 3.5%. The situation changed radically over the two years just past. The EAU showing rose to between 1.5% and 2.5% and Saudi Arabia declined to about the same average quota. Of course oil prices had an impact on these percentages but it is also evident that the EAU is taking on a role in international trade which depends less on oil and is more stable over time.
An opportunity for the Italian agricultural sector
Over the three days of the forum’s work the agri-food sector was cited frequently from various points of view. On one side, many noted increasing shortages of food products continuously lacking in China and Africa was named as a possible source for meeting China’s demand thanks to the continent’s wealth of land not yet under crops. Gulf infrastructure could provide a crossing for these relatioins. As regards the prices of agricultural raw materials, there are expectations that these will fall further. There are calculations acccording to which the leading agricultural products have an impact of 25% on oil prices and 30% on transport. Another sensitive issue for the sector in the Persian Gulf is the expectation that Iran will return fully to the international trade scene. And it is no mystery that this country will bet heavily on its own agricultural production which, given timely processing, could make it the main supplier for neighboring markets, beginning with Iraq, Afghanistan, the Gulf states and Ethiopia.
And there is the internal problem of the Emirates’ strong committment to increasing domestic production of local basic food products and innovation capabilites in the farming sector, even on a scale limited by environmental conditions. This means that it was not by chance that the Global Forum for Innovations in Agriculture held in Abu Dhabi February 16th to 18th, 2016, took part in 254 exhibitors staged by 85 countries attended by 23 ministerial delegations and more than 4,500 visitors. Among recent production initiatives, pointed out was one proposed by Abu Dhabi’s Food Control Authority which led to the installation in the Khalifa Industrial Zone of a rice processing plant with a capacity of 100,000 tons per year. This new direction of strategy for agri-food trade in products and goods could be the key for Italian exporters. Carving out a slice of stable trade in the Gulf, and especially in the Emirates, could allow these manufacturers to intersect with the south-south flow where many business people run the risk of being left out. Instead of direct relocation in the African and Asian markets, expensive and not without high risk, a platform in the Emirates would guarantee logistics infrastructure and advanced services with well known specifications for adequate support for Italian enterprises.
