TBY talks to the CEOs of two development institutions on free zones, the entrepreneurial spirit, and encouraging exports.
How important is the role that free zones play in contributing to Dubai’s exports?
SAED AL AWADI Free zones in Dubai play an extremely important role in the contribution of investment, trade, and especially exports through Dubai. In the year 2011, total free zone exports were valued at nearly AED172 billion, with an average increase of 24% annually over the last three years. The share of free zone exports and re-exports over Dubai’s total exports have consistently averaged around 40% over the last three years since 2009. A difference in the profile between Dubai’s direct exports and free zone exports, however, shows that from Dubai the major total exports are gold, jewelry, and precious metals, and for the free zones the top exports, including re-exports, are of machinery, and electronic equipment.
How do your foster homegrown talent and encourage young entrepreneurs?
ABDUL BASET AL JANAHI Dubai’s story began with SMEs, and it continues on the same path. There is a young population, and I believe that because the city is growing with more sophisticated systems, processes, and support mechanisms, the sector is also set to grow. Previously, it was a “one-size-fits-all” situation in terms of the environment, laws, and regulations, but today these categories have been separated. What is good for a large company may not necessarily work for a small company. To mitigate this issue, we work with the federal and local government to help realign the environment and make it friendlier to SMEs. For the completion of the economic cycle, we help start-ups launch their operations, encourage and network SMEs, and then channel them to the government as they expand. For instance, if they are ready to begin exporting, then this is where the government comes in. Dubai FDI seeks to attract specific foreign investments or request that smaller companies join larger partners.
What are the current export levels like with Dubai’s key trading partners?
SA In 2011 our total exports were approximately AED431 billion. In 2010, out of total exports, approximately AED355 billion, nearly 40% of direct exports, were to India and 20% to Switzerland, followed closely by Saudi Arabia, Pakistan, Iran, and Iraq, while top re-export partners were India (36%), Iran (17%), Iraq (5%), and Afghanistan. Let us not forget that we are exporting extremely high value gold and jewelry items to India and Switzerland, which accounts for the high percentages. Overall, due to regional proximities and traditional business relationships, we do not see a major shift in our top exporting countries. However, as mentioned earlier, with our thrust toward encouraging companies to export to new markets like Europe, Africa, and the CIS, we hope to see an increase in the share of exports to these countries in the near future.
Is there an active entrepreneurial spirit in the local young population?
ABJ The new generation is very enthusiastic. We see many of them, but other young professionals make it on their own. When they need us, they come. We have supported more than 11,000 Emiratis start companies, and we are still in contact with many of them. We help them get access to government contracts, and we have attained close to AED1.2 billion worth of government contracts for them.
Which markets are you seeing particular growth in with regard to demand for Dubai’s products? What products are fuelling this demand?
SA Apart, from our traditional markets of the Middle East and the Indian subcontinent, we are seeing potential for good growth in the African and CIS countries for our products. We are fortunate that many among the basket of products from Dubai, are in demand or potentially high growth items in the varied markets as mentioned above. For example, in Tunisia, Congo, Tanzania, South Africa, and most African countries, machinery, electronic, and electrical equipment as well as articles of plastics are in demand. In Azerbaijan, Kazakhstan, and other CIS countries, apart from the above products, there is fair demand for glass products and base metals. Let us not forget our traditional markets of surrounding countries in the Middle East and Indian sub continent region, where we have a wide range and high volume of processed food and beverages being exported.
How do you help start-ups access financing options?
ABJ For start-ups, we finance through a network of banks. For existing businesses, we also work with the banking sector. We come up with initiatives and programs to encourage the banking sector to closely examine how to create a better financing scheme for SMEs. We work to bridge the gap between SMEs and the banking sector. Dubai SME evaluates the activity in the field case by case, and this is one of the factors that helps make banks more aware of the service sector. Today, the service sector is under-supported due to collateral issues. However, we are showing the banks that they are missing an opportunity through providing examples of successful partnerships and the potential of financing these smaller companies.
Dubai was hit significantly by the global recession. What lessons were learned from the crisis in this region? To what extent would you say the market is showing signs of recovery?
SA The UAE works closely with many countries both regionally and globally. We are fortunate to have close business ties with the West as well as the East. When the global recession hit, the UAE was one of the last countries to feel the impact due to certain solid fundamentals. During the boom years, having consolidated our traditional sectors of trade and tourism, we naturally sought to diversify into other areas given the interest of global investors. We are proud of our achievements in the real estate sector and nowhere in the world will you be able to see architectural wonders built within such a short period of time as in the UAE. Having said that and with the impact of the recession, along with global market sentiment, since investors decided to be conservative suddenly, we too had to scale back the pace of our diversification, especially into real estate. We used this period between 2008 and now to further strengthen our position as the trade and tourist hub of the Middle East, while also reviewing and restructuring areas for possible improvement in other sectors. We still dream, but also act on our dreams to achieve what few countries have been able to. Market recovery in as much as trade is concerned is evident in the trade figures of Dubai since 2009. In the last three years, our imports rose from AED471 billion to AED658 billion and our total exports increased from AED282 billion to nearly AED431 billion. Year-on-year growth of imports touched 18%, while average year-on-year growth of total exports was nearly 23%. Under the current global economic scenario, we are encouraged by this but we will work harder—the sky is our limit. We are especially appreciative of Dubai’s businesses and exporters who continue to show faith in Dubai and the UAE and continue to grow with us.
How did the global liquidity crisis impact the SME market?
ABJ SMEs comprise a very unique sector, especially in Dubai. Through our study, we have discovered that SMEs complain about financing, but the majority of them do not need it in this tax-free environment. Most of their profits are either re-injected into the company or channeled to other SMEs in difficult times. We have seen an increase in SMEs and barely noticeable closures. Although new buildings are no longer being built, SMEs have continued their operations because they are flexible and agile. Access to finance is a bit difficult globally, but there are ways. I believe that we have seen important improvements in the market over the past two years. I did not see huge closures, even during the crisis. There is huge interest because of the stability and infrastructure of Dubai. For any business, whether a franchise or a newcomer to the region, we usually emphasize the benefits of starting in Dubai because a strategy that works here can be replicated in the wider region. This is the place to start or launch your product and expose your brand. Dubai SME sees many businesses starting here and we have witnessed their increasing excitement. The excellent infrastructure is beyond compare in the region.
What is your outlook for 2012?
SA The outlook for 2012 is still bright, notwithstanding economic troubles in much of the Western world, which we are confident will be addressed suitably. Our traditional strengths lie in our trade and relations with our neighboring countries, especially the Greater Arab Free Trade Area, which was formed following the adoption of the Agreement to Facilitate and Develop Trade Among Arab Countries. We are looking to significantly increase our efforts to build and enhance our trade relations with these countries. Also, we are encouraging SMEs, many of which produce only for local consumption, to now export regionally with the support of our various export development and promotion initiatives and programs.
ABJ I believe that the new “Green Economy” initiative launched by His Highness is part of the future. This is an opportunity for new businesses, and I expect entrepreneurs to seize this opportunity to acquire or start companies that utilize sustainable energy and the green economy.
© The Business Year