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Wednesday, December 7, 2016, 23:50

UAE offers HK critical trade opportunities along B&R

By Dmitriy Frolovskiy

Dmitriy Frolovskiy writes that the United Arab Emirates with its great oil reserves and transition to a knowledge-based economy offers Hong Kong great scope to do business in the region.

Last month, Financial Secretary John Tsang Chun-wah led a trade delegation to Dubai to foster closer trade and economic relations with the United Arab Emirates (UAE).

UAE offers HK critical trade opportunities along B&RDespite facing a budget deficit and over-reliance on oil prices, the UAE envisions long-term development goals that offer potential for Hong Kong businesses. The country is at a crossroads involving a gradual transition from a petro-economy to a knowledge-based economic model. Its ambitious diversification program offers great opportunities to overseas partners such as Hong Kong with its own proven track record of economic success.

Hong Kong stands to gain by capitalizing on its ties with the UAE, which is already its largest trading partner in the Middle East and the 13th worldwide. Non-oil exports surged to $15.9 billion-plus last year, almost three times the amount for 2011.

According to HKSAR data the UAE’s current share of the total trade equals only 1 percent. Instead of being discouraged, businesses on both sides should be more proactive by seeking to unearth potential across a spectrum of spheres.

Striving for diversification, the UAE is seeking a “big brother” willing to share its expertise for boosting the nation’s transformation.

Speaking at the Belt and Road Summit in May, Minister of Economy Sultan bin Saeed Al Mansouri stressed the UAE’s strategic goals for launching industries and innovations. On top of this, the Arab nation has much to do to improve its business appeal; in particular the legislation lags behind while entrepreneurial culture remains unexplored.

This is where Hong Kong’s expertise in entrepreneurship and event management could serve as a platform for solidifying reciprocal connections via knowledge transfer.

The UAE is currently focusing on a transition to an oil-free economy with the private sector and small- and medium-sized enterprises (SMEs) serving as catalysts for long-term growth. Hong Kong’s rich entrepreneurial culture and competitiveness could play a big role with inter-governmental agreements pioneering cooperation in the area and businesses following the pattern.

Hong Kong’s experience in the management of large-scale international exhibits and events would prove to be invaluable in the preparation for Dubai Expo 2020 which is aimed at boosting the UAE’s global prestige and competitiveness. Hong Kong’s Trade Development Council could contribute some of its ample event management expertise, thereby encouraging the participation of Hong Kong businesses across the Gulf Cooperation Council (GCC) states and opening doors to other Arab nations.

Located at the crossroads of major trade routes, the UAE plays a critical role as a re-export gateway bridging the Belt and Road Initiative to the Greater Middle East and Africa. Ties with the UAE will be rewarded with entree to other regional countries with more than 2 billion consumers.

The country is a primary re-export hub with 60 percent of all China’s goods to the region passing through its ports. Throughout the “fat years” of oil wealth the government invested extensively in transit infrastructure and now can boast modern airports, ports and road networks, as well as the upcoming trans-GCC railway. These high-tech facilities should incentivize Hong Kong’s trade expansion in the region.

Discovering new trade horizons in the UAE would have a rejuvenating impact on Hong Kong’s economy via augmenting investments and uncovering a reverse knowledge transfer.

In 2015 alone, the UAE invested $7.3 billion in overseas commercial real estate. This followed an earlier decision to broaden its diversification efforts by expanding a number of assets of sovereign wealth funds (SWFs) across developed Asian markets.

The results are already tangible for the SAR’s economy. According to CBRE, a real estate advisory company, Hong Kong is the fourth most popular destination for real estate investments for SWFs from the GCC, with more than $2.38 billion being invested last year alone.

Hong Kong should consider accruing more information about Islamic finance and potentially challenge Malaysia’s position in the area. In the past, Hong Kong tried but did not succeed in entering the world of Islamic finance: In 2014 and 2015 the SAR issued its first sukuk (Islamic bonds) but fell short of its targets in reaching out to investors worldwide.

The Hong Kong government is reported again to be thinking about issuing another sukuk, while Sharia-compliant firm Mawarid Finance and Fullgoal Asset Management are planning to launch an Islamic fund later this year. Therefore, the UAE’s financial expertise could play a pivotal role in helping those efforts to succeed.

Meanwhile, Hong Kong’s future sukuk issuance might be denominated in renminbi. The UAE is already the most active nation in the Middle East that uses renminbi for direct payments to Hong Kong and the Chinese mainland. According to Reuters, more than 70 percent of payments by value in the previous year were in yuan. Thanks to Beijing’s support, Hong Kong is destined to play a major role in the internationalization of renminbi.

Unlike the rest of the region that faces turbulence, the UAE remains a safe country due to its political stability and openness to change. As Belt and Road erases horizons, Hong Kong can spearhead the initiative. Discovering new destinations is critical for expanding trade, and Hong Kong cannot afford to miss this golden opportunity.

The author is an independent consultant with experience in Asian and Middle Eastern markets. He also writes for leading publications worldwide about international trade development and diplomacy.

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