HSBC index rates UAE as top for imports, exports

Even as business sentiment improves globally, the United Arab Emirates has secured its reputation as one of the leading trading hubs worldwide, with trade confidence in the country being the highest in the world, said a survey.

According to the HSBC Trade Confidence Index for H1 2010, business sentiment globally showed an overall positive outlook with an average global reading of 116 points. This compares favourably with the 110 points in the last survey that was carried out in August/September 2009. The rating was on a scale of zero to 200, with 100 as a neutral reading. Emerging markets are more optimistic, scoring an average of 122 points over the 106 points of developed markets.

Once again, in the first place overall, UAE's attractiveness as an import and export centre has been recognised by the local trading community and the country's importers and exporters expect to benefit from government trade regulations, said the survey.

Commenting on the findings, Sheikha Lubna bint Khalid Al Qasimi, Minister of Foreign Trade, said the largest percentage of businessmen confident about growth was in the UAE, which is a strong confirmation that the country continues to be in the frontline of its commercial activities and ability to attract growth opportunities at the international level.

"These results provide a strong indicator that the UAE has begun a new phase in its development process after smoothly surpassing the effects of the global financial crisis and that it doesn't waste an opportunity to develop and improve its economic regulations and strengthen its commercial, competitive and investment climate," she said.

Confidence defies debt issue

Encouraged by the UAE government's trade regulations and business environment, the UAE scored 134 points (the last survey score was 118 points), the highest score from all countries surveyed, followed by India at 133 points (last survey score was 117 points) and Vietnam at 132 points (last survey score was 110 points).

Improved sentiment was also seen in Hong Kong at 111 points (102 in the last survey), though it remained flat in Singapore at 111 points (110 in the last survey) – the other two key global re-export centres covered in the survey along with the UAE.

The HSBC Trade Confidence Index covers a total of more than 5,100 importers and exporters in 17 countries, including key economies in the Asia-Pacific region, the UAE and Saudi Arabia in the Middle East, Brazil, Mexico, the UK and the US.

Simon Cooper, CEO of HSBC Middle East and North Africa, said: "The latest HSBC Trade Confidence Index is showing growing confidence in the state of global and regional trade, indicating that exporters and importers might be seeing the start of an economic recovery. The HSBC Index joins the growing list of indicators pointing towards a pick-up in economic activity.

"Across the region, trade has remained the life-blood of the economy, and this is especially true of the UAE. In the past decade, the Middle East has seen trade with Asia growing 40 per cent faster than trade with Europe or with the US."

Strong confidence among traders regarding the UAE was a result in part due to their optimistic outlook on the growth of trade business over the next six months. In the UAE, 56 per cent (last survey score was 46 per cent) of traders now anticipate an increase in trade business over the next six months, and a further 31 per cent expect it to at least remain at current levels. Far more traders in the UAE now expect the global economy to do better (77 per cent) as compared with the last survey (47 per cent).

This is encouraging, given the fact that the survey was carried out after the Dubai World debt standstill was announced at the end of November 2009 and before the announcement of the debt settlement plan by the Dubai Government at the end of March.

Citing reasons for the increased confidence, Kersi Patel, Regional Head of Trade and Supply, HSBC Middle East, told Emirates Business: "The challenges faced by Dubai over the past months have, in a way, benefited trade business, as traders, business organisations, government bodies etc have all put their focus back on the basics, where Dubai has a unique position in the region – as the trade gateway to the region.

"The investments made by the government over the past several years to build on the locational advantage by investing in trade-related infrastructure, and the assurance that this investment will not be slowed down even in the current environment has given businesses confidence.

"Also, lower property prices meant that businesses are that much more easier to set up and run in the UAE. Plus, with oil prices improving steadily over the last year, consumption capacity across the region has held up well, and with the job market in the UAE showing sings of improvement, this is expected to go up further."

"Apart from this," said Patel, "the other reasons for the increased confidence are that trade is the life-blood of the UAE's economy, as seen from the trade turnover to Gross Domestic Product (GDP) ratio of more than 130 per cent in 2009, which is among the highest in the world. Trade- and logistics-related businesses generated more than 35 per cent of the UAE's non-oil GDP in 2008.

"As I pointed out earlier, the UAE enjoys a fantastic locational advantage, because over half of the global population, which is young and getting increasingly prosperous, is within five hours' flying distance from this country. Also, most countries in the region are dependent on imports for daily needs, and with oil prices on the upswing again, the purchasing power and willingness to spend is expected to go up," he added.

Pro-business government stance

According to Patel, one major reason for the increase in confidence is the fact that the country's government follows pro-business policies. The UAE Government has made investments over the years to provide a secure and comfortable lifestyle and attract businesspersons from around the world to set up a base in the country.

As a result, faith in the government is high. Sixty-eight per cent of traders in the UAE expect to benefit from the government's trade regulations in the next six months – substantially higher than other re-export hubs covered in the survey – Hong Kong (nine per cent) and Singapore (18 per cent) and the global average of 26 per cent.

Patel said: "According to the World Bank, the UAE has the best policies governing international trade of any country in the Mena (Middle East and North Africa) region.

"There is trust that the UAE Government will continue to be pro-business, with no taxes and free remittances as various government initiatives in 2009 were aimed at reducing the cost of setting up and doing business in the UAE.

"Also, traders have focused their efforts on growing business rather than on financial engineering to generate profits, leaving financing and security of trade receivables to the banks. And the banks in the UAE have risen to the challenge of keeping credit flowing for trade businesses. In fact, in the past six to nine months, the government, chambers of commerce, banks and corporate firms have gone back to basics, and have increased their focus on trade business."

The HSBC Trade Confidence Index found a range of signs in support of a positive trade outlook in the UAE. For example, 61 per cent of respondents expect their need for trade finance to increase, a substantial increase from the second wave (37 per cent). Also, credit offered by suppliers is becoming an important source of funding, which is a reflection of secured trade products' popularity in the region.

According to the survey, 55 per cent of respondents expect improved access to trade finance; and an additional 40 per cent of respondents expect their ability to access trade finance to remain at current levels.

Also, 77 per cent of the respondents expect the global economy to grow and another 17 per cent expect the economy to maintain the current level. However, 21 per cent of traders expect the risk of buyers defaulting on payments to increase and a further 69 per cent expect it to remain at the same level.

Greater focus on risk management by doing less business with particular buyers is the preferred strategy. However, that may lead to loss of some business in the short term. Sixty-nine per cent of traders in the UAE are of the view that movement in exchange rates will have a positive impact, which is substantially higher than the last wave (27 per cent). A stronger dollar is seen to have a beneficial impact on UAE traders.

Benefiting from infrastructure investments

Globally, the majority of traders in Latin America (64 per cent), Greater China (63 per cent) and India (61 per cent) also expect an increase in trade volumes in the next six months. Over half of the traders (56 per cent), including those in the UK, the US, Canada and Germany, are bullish about their outlook on trade volumes.

Lawrence Webb, HSBC's Global Head for Trade and Supply Chain, said: "Trade is playing a key role in the global economic recovery. The strengthening of confidence from these global respondents over the past year, despite slow economic progress in the West and the recent crisis in the Middle East, is proof of the significance of trade.

"Trade momentum is clearly shifting to the emerging markets, where the rebound in trade, fuelled by intra-regional activity, continues to boost global economic recovery. However, developed economies such as the US, which are capitalising on the opportunities in emerging markets, are also set to benefit."

UAE companies express greater confidence for growth in trade within the domestic Middle East markets, with Greater China and Asia seen as emerging growth areas. Globally, respondents showed that intra-regional trade will continue to underpin trade activity.

Traders in the UAE, like those in most parts of the world, secure most of their trade finance needs from the banking sector. Lack of product demand, fluctuating foreign exchanges and buyers defaulting on payments are seen as barriers to growth, but it is access to credit that is the biggest concern worldwide and also in the UAE.

Patel said: "With credit/deposit ratio for the banking industry still above 100 per cent, this challenge is expected to be around for some more time. However, this situation is not uniform across all banks. HSBC, in particular, has been open for business, especially the trade business. The bank has increased trade-funded advances in the UAE by over 20 per cent from end 2009 levels, and has the capacity and willingness to do more.

"The survey shows that banks continue to play a strong role in global trade recovery, especially in developing economies, where the financial systems remain relatively robust," he added.

Simon Vaughan Johnson, Regional Head of Commercial Banking, HSBC Middle East, concluded: "Dubai remains the principal trade hub in the Mena region, and recent World Bank studies indicate that the UAE has the most comprehensive logistics infrastructure in the region. The UAE Government has made substantial investments to build on the country's geographical advantage by investing in trade-related infrastructure and, no doubt, these proactive initiatives have supported the latest survey results."

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