The south-south super highway

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With the formation of new trade connections between Asia and the southern hemisphere, Dubai has a central role to play as a trade gateway between Africa, the east and the west.

In the last decade global trade flow has experienced a marked shift eastwards. This trend is predicted to accelerate in the coming years, driven by growing links between south-south regions – South America, Africa, The Middle East and Asia.

Dubbed the ‘The New Silk Road’ by HSBC, the south-south share of total world exports has doubled over the last 20 years to account for one-third of the total. By 2050, south-south markets will account for 73 per cent of global trade, predicts HSBC.

Trade within, to and from the Middle East and North Africa is expected to rise 131 per cent by 2026, compared with a global average of 86 per cent. This growth is driven by commodities and traded goods, particularly with Dubai and the wider UAE playing an increasingly key role as a global melting pot serving the $4.7 trillion south-south trade network.

According to Dubai International Financial Centre (DIFC), broad based spending is being pumped into sectors such as technology, infrastructure, education, renewable energy, and other areas of significant interest to banks.

Nearly 2.5 trillion worth of construction contracts are planned or underway in the GCC. Across the wider MENA region, this figure rises to $4 trillion.

A report from DIFC states, “the enormous wealth being created across the Middle East, Africa and South Asia (MEASA) is providing significant opportunities for the full range of banking services. Greater integration into both global trade and the international financial architecture is driving greater cross-border trade and investment activity, mergers and acquisitions and restructuring by state-owned enterprises, corporations and private entities.”

According to ‘New Routes From The Middle East’, a global survey from the Economist Intelligence Unit (EIU) in 2013, while executives from all regions expect the Middle East to feature more strongly in their global business plans over the next five years, it is among Latin American firms, followed by those from Asia-Pacific and North America, where this trend is most pronounced.

EIU commented: “The UAE is the most favoured destination in the Middle East. For most survey respondents, expansion plans centre on the wealthy Gulf states, probably reflecting the beneficial impact of high oil prices on the economic outlook for these countries.

“The Gulf states are also favoured because of the perception that political risk is lower than in other countries in the region. The UAE is by far the most popular investment and trading location, cited by 63 per cent of respondents overall.”

Many of the financial institutions coming into Dubai are leveraging the UAE’s unique location on the south-south corridor. These new trade routes are no longer funded by the US and other western banks but increasingly by the Indian, Asian and Chinese banks that are located in the DIFC. Significantly, four of China’s largest banks have now have branches in the centre.

Essa Kazim, the government-owned DIFC’s governor, told the Financial Times in an interview in October that more Chinese companies are looking to join China’s four largest banks based in DIFC to use the centre as a launch pad for operations in the oil-rich Gulf and resource-rich Africa.

“As momentum in global business shifts towards greater intra-emerging market (or south-south) trade and investment, the MENA economies are well positioned to benefit,” the EIU report added, “But how far and fast the MENA region integrates into these new economic relationships will depend on how it is viewed by executives from other emerging markets, and how such perspectives may differ from those of their peers in the developed world.”

Hyperconnected

According to Gerard Gallagher, MENA Advisory Managing Partner, EY (Ernst & Young), all of the GCC countries are set to benefit from their location on the east-west trade route. He said the growing connectedness of the GCC countries creates considerable opportunities for transport infrastructure, aviation and logistics across the region, adding that Dubai, in particular, has much to gain.

“In the UAE, one of the prime opportunities is the growing logistics nexus between Jebel Ali Port and Dubai World Central airport. The UAE needs to continue the positive country branding it has embarked upon in recent years, such as its active participation in and hosting of international events such as the Formula One and World Expo, which has cemented its branding as a cosmopolitan global city.

“This public engagement with the world is a natural step as the UAE gains in global stature and the image boost brings enormous benefits in terms of increased trade, investment and tourism. Fine-tuning this global positioning in a society which is still relatively conservative will be a challenge that governments and businesses in the UAE will need to be continually aware of.”

Gallagher added: “The Gulf region has been outward looking for millennia, connected to Asia and the Mediterranean world by trade routes, and attracting Muslim pilgrims from around the world. The oil age launched a new era of internationalisation.

“Now, the Gulf states mirror the emergence of the globalised economy — their workforces are known for international diversity, their strategic location translates into new trade and investment partners, and their importance as global investors is growing.”

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