Racing season in the Persian Gulf has all but come to an end with the Formula One Grand Prix in Bahrain. Prior to Bahrain there was the annual Dubai World Cup, the richest horse race in the world; the Formula One power boat race in Sharjah; the Red Bull Air Race in Abu Dhabi; the Dubai off-road desert rally; a number of sailing regattas and oh yes, let us not forget the weekly camel races (though they have lost a lot of their pizzazz after child welfare groups forced the Emeratis to replace pre teen Indian and Pakistani boys with robotic jockeys).

The end of racing usually means the end of winter. From now on each day becomes hotter than the previous and the only thing to look forward to is an early exodus before the onslaught of summer.

This year I was fortunate to have covered two of the most prestigious races; the 12th running of the Dubai World Cup followed by Formula One in Bahrain. The last time I covered the Dubai World Cup was in 1996, the first year the race was held, when the American horse Cigar won then a record breaking $4 million. Today the prize has risen to $6 million with the total prize money for all seven races held on that day worth $21.25 million dollars.

There is a right way and a wrong way to host international events that are supposed to attract people from all over the world. Dubai with its vast financial resources never ceases to amaze, especially when it comes to its ability to momentarily morph from a desert kingdom to Kentucky or Ascot and over 12 years the World Cup has just gotten better and more exciting. Unfortunately, the same cannot be said for Bahrain’s Formula One.

Formula One racing is the richest and most powerful sport in the world. It ranks alongside football’s World Cup and the Olympics and according to Russell Hotten, author of “Formula One: the Business of Winning,” some grand prix races are watched by TV audiences of 800 million. And, unlike the World Cup or the Olympics which take place every four years, Grand Prixs are held 11 times a year. Formula One is more than just a race; it is an opportunity for the biggest players in the auto industry to test out hundreds of millions of dollars worth of research and development. I asked one long time Formula one journalist why the likes of Ferrari, McLarens and BMW Sauber are always atop the leader board. “$400 million dollars,” he replied. “Ferrari invests $400 million more than, let’s say, Etihad Aldar for the same car.”

Lacking in glamor

You would think that kind of money would come with a lot of glamour. But from what I saw in Bahrain, the glamour came only in the 90 minutes of racing. When you mention Monte Carlo, Indianapolis, Sao Paulo one not only conjures up visions of motor sports but more importantly the atmosphere that surrounds the sport.  Unfortunately that was all lacking in Bahrain. For the first two days of practice sessions and time trials there was hardly anyone to be seen in the stands. On race day there were more people but the race track was far from full capacity. When the final lap was finished, the stands emptied and everyone went home. The magic that attracts and the magic that makes people linger long after the checkered flag amid the whiff of burnt rubber and the stench of sweat and gasoline was not there.

Part of the problems was obvious. Tickets were expensive and even if you were willing to buy a ticket there was always the problem of getting to the track, a half hour drive from the capital. There was no public transportation, only taxis who were charging anywhere from 20 to 30 Dinars ($50 to $80 dollars) for a one-way trip. 

In a country that has always prided itself for its liberal stand on entertainment and alcohol, why did it suddenly clam up on race day and force the winners to celebrate with an alcohol-free rose-flavored carbonated beverage that came in what appeared to be a Champagne bottle? Why did the authorities revoke visas for single women who they deemed unfit and then prevented other single women from entering to the country. Celebrities? Hmmm. Ok, former tennis legend Boris Becker was present, as was a Porsche-sponsored Miss South Africa but where are all the western expatriates? It doesn’t take a genius to figure out why a bunch of fair skinned westerners didn’t show up at a race track in the middle of a desert just to sit in the sun and watch cars going round in circles without something refreshing in their hands!

Booze brings the people

Dubai, on the other hand knew what it had to do. Sheikh Mohammed Al Maktoum deemed the race venue an international zone and racing lovers partied all day. And guess what? An estimated 50,000 people attended the one-day event, many flying in on chartered planes from far-flung destinations.

But Dubai makes it a point of allowing in those less fortunate than the free-wheeling jet-setters. Since the first race back in 1996, the outer perimeter of the track below the grandstands is reserved for Sudanese, Egyptian, Somali and other laborers who set up small camps on blankets with their families. I compare them to the deck-class passengers on luxury liners of the early 20th century; everyone is going in the same direction it’s just a matter of in what comfort. Bahrain could learn a thing or two from the Emirates on how to run an event.

Next year, when Formula One comes back to Bahrain the authorities should put on some public transportation and offer discounted tickets. Most importantly, it should inject a bit of fun. For in 2009, Abu Dhabi will be added to the Formula One circuit. What that means for Bahrain is anyone’s guess given that their contract comes up for renewal shortly thereafter. What Bahrain does not want to happen is to be upstaged by Abu Dhabi, particularly when it was the Bahrainis who had the honor of bringing Formula One to this part of the world in the first place. Then again, isn’t competition what it’s all about?

Norbert Schiller is a photo editor and photographer at large with United Press International (UPI)

In the ever expanding telecommunications industry, rife with new acquisitions, joint ventures and mergers, the recently formed Nokia Siemens Network has ventured into the fray to connect a projected 5 billion people by 2015.

The Nokia Siemens Network (NSN), a 50-50 joint venture (JV) between the two European  telecommunications’ powerhouses that was pending agreement since last June, has a top three global position in the industry, valued at $31.6 billion.

The network was only launched in April this year, delayed due to Nokia’s concerns over bribery investigations at Siemens that had led to the arrest of several former Siemens employees, including Thomas Ganswindt, former head of the German company’s telecommunications equipment division.

Based in Helsinki, Finland, NSN’s chairman for the Middle East and Africa, Dr. Walid Moneimne, said the motivation behind the JV was to consolidate the two companies’ research and development teams, and become the world’s No.1 communications enabler.

The merger of Siemens’ networks business group and Nokia’s carrier-related operations is also aimed at cutting costs to make the companies more effective in the global market. Expecting to slash annual costs by an estimated $2 billion by 2010, most of the savings will come from restructuring and a 10-15 percent reduction in the network’s 60,000-employee work force. Annual sales are projected at $20.2 billion.

Big future looming

“We see the telecommunications market by 2015 at five billion customers either connected by fixed line or broadband—about 70% of the world’s population. Bandwidth will grow a hundred fold, so that gives you an idea of the future—a 50% increase in requirement,” said Moneimne.

The Middle East and Africa (MEA) will be a major focus of NSN’s rollout worldwide, in addition to the rapidly emerging markets of India and China.

With only 300 million people connected out of the MEA’s combined population of 1.3 billion, that figure is expected to double to 600 million by 2010 as penetration rates increase and access to networks expand. “We are talking of a huge opportunity and demand to deploy these networks in the MEA region,” said Moneimne.

The network’s entry into the region is opportune, coming at a time when major regional operators such as MTN, MTC, Etisalat and Qtel are expanding and increasingly operating in new markets. The growth of regional operators, particularly Kuwait’s MTC through its acquisition of pan-African mobile operator CelTel in 2005, gaining access to 14 African markets and investing billions of dollars to bring infrastructure up to scratch, will also be a boon for NSN’s regional strategy.

Region presents challenges to growth

NSN recognizes that the growth of the telecommunications sector in many markets in the MEA, particularly Africa, are being hindered by insufficient infrastructure and low incomes.

“There is a level of income that determines what people can do. Our goal is to work with operators to bring the best technology at the lowest price. On the other side of the spectrum are countries where there is a 100% penetration and handset replacement is high, so we will implement 3G networks and a major technology refresh as content (music, video) becomes more important,” said Moneimne.

In more advanced markets in the region, NSN are carrying out pilot tests on WiMax technology in certain cities, although Moneimne declined to say which ones.

“Our objective is really to see what the market needs, to put fixed and mobile together, 2G, 3G and WiMax solutions. All present a big investment for our customers,” he said.

The internet is also a major driving force for the network.

“When we look at 5 billion connected, the internet is at the center of that as all content is on the internet. Internet companies have a vested interest in this market,” Moneimne said.

However, expanding the network in Africa and the Middle East is not without its challenges,

Moneimne conceded. “Human resources are limited and it is a problem to deploy networks, particularly for issues of a high technicality,” he said. Lebanon was resultantly chosen as a platform for the region due to the high number of qualified and skilled employees and graduates.

Getting around the issue of inadequate electricity supplies in parts of Africa and the Middle East, NSN have been pioneering solar panels for sites, said Moneimne. “There is a lot of variation in how to use technology. Networks are not huge users of electricity, but will cause electricity generation expansion in certain countries,” he added.

But despite certain drawbacks, the relatively virgin markets of the MEA do present major opportunities compared to other markets worldwide.

“Despite the MEA having some of the highest penetration rates, it also has the least penetrated regions in the world and growing the fastest. Most developed countries are now just seeing mobile subscribers exceed fixed line subscribers, but in the MEA it’s already 75 million mobile subscribers,” added Moneimne.

The network has five product business units—Radio Access, Broadband Access, Service Core and Applications, IP/Transport, and Operations Support Systems—for fixed, mobile and converged networks.

“NSN has the size and resources to compete, but we also recognize that true competitiveness goes well beyond scale,” said Moneimne. The network’s competitiveness will draw on both companies’ research and development teams. Last year a R&D team that is now part of the network demonstrated the world’s first Long Term Evolution (LTE) radio access solution, transmitting data at a rate of 10 gigabits per second via an optical access network four times faster than rates achieved in the past.

Moneimne also said that there will be “major developments” in mobile phone handsets within the next two to three years. “Nokia calls them multimedia computers, so 3G networks are a must, but not just for 3G itself but the follow up, High-Speed Downlink Packet Access (HSDPA). The difference is in bandwidth speed: 2G dial up is roughly 100 bits, then the 3G at 384 kb/second and HSDPA 14 megabits a second. So clearly what all this brings is a HSDPA phone and network that will provide better customer experience and more available services,” explained Moneimne.

Although annual sales are projected at over $20 billion, the network announced in April that it only expects “slight” growth this year due to a “narrowing of visibility” and signs of a slowdown in spending by communications service providers in certain regions. As of April, the financial results of the network have been consolidated into Nokia.

Curbing the counterfeiting and smuggling of goods has become such a pressing concern for international businesses that last year 19 companies teamed together to create a Brand Owners’ Protection Group (BPG) in the Middle East to tackle the region’s part in the $500 billion global counterfeit trade.

According to the Dubai Economic Department between 2000 and 2004 the GCC authorities seized fake products worth $50 million, of which $35 million was confiscated in Saudi Arabia alone. In a raid on a warehouse in October last year, the Saudi authorities seized 90 tons of copycat Unilever products, worth $1 million.

Along with Saudi Arabia, the UAE has become a focus point for the BPG as the Emirates’ main port, in Dubai, is a major regional export hub.

“More than 7 million containers pass through Dubai with 20% annual growth according to Dubai Ports, so it is very important for brand owners to be protected,” said Omar Shteiwi, chairman of the BPG and regional intellectual property advisor for Nestlé Middle East in Dubai.

The BPG has been working closely with Dubai Customs, which has established an Intellectual Property Unit (IPU) and been on the offensive, seizing counterfeit goods estimated at $3.9 million between February and June last year. The IPU has the right to seize and destroy goods that are entering or in transit.

By comparison to Dubai’s IPU, set up in December 2005, seizing goods in other countries is not as easy said Shteiwi, despite trade, patent and customs laws in the GCC area.

To improve seizures at the point of entry, the BPG is providing educational workshops to inform customs what to look for in shipments. “Hopefully we will have a kind of engagement with the customs to train inspectors to differentiate between genuine and real products,” he said.

Robert Taylor-Hughes, CEO of Beiersdorf Middle East, said finding the source of the fake goods was the best chance of nipping the problem in the bud, but added that the judiciary system in the UAE lacked appropriate penalties.

“One seizure took place over a 10 month period where we found a ring that had been taking in goods from China. We allowed them to enter the Dubai Free Zone, leave and enter the warehouses of counterfeit traders to trace the distribution network. The downside was the judiciary system. Our legal and investigative costs were about 80,000 euro but when he appeared in court was fined $817. The threat of the deterrent is simply not large enough,” he added.

To try and improve legislation, the BPG has organized a one-day seminar with the UAE Ministry of Economy and Trademark Office to exchange information, come up with recommendations, and involve the enforcement agencies.

Although the UAE still has a way to go in handing out tougher sentences, some countries’ judiciaries are taking the issues more seriously, such as in Saudi Arabia and Iran.

Saudi Arabia carried out 100,831 inspections last year at stores selling foods and fast moving consumer goods (FMCGs) that resulted in the seize of 798 tons and 943,231 small pieces of food unfit for human consumption, according to the Saudi Ministry of Economy and Trade.

Iran has a massive problem with counterfeit goods entering the country, largely from China and Central Asia.

Taylor-Hughes said that last year, the Iranian authorities worked closely with Beiersdorf investigators to seize fake goods. “They not only work quickly but are very severe. Both violators were fined $50,000, the message got out, and (illicit activity) quietened down for a year,” he said.

Cosmetics and toiletries firms such as Beiersdorf have been particularly affected by the counterfeit trade, estimated as high as $210 million in the GCC last year—which could be as much as 10% of the overall Gulf market for cosmetics and toiletries.

In Egypt, the company had to pull its whole line of sun-creams following email complaints from customers that got badly sunburned in Sharm El Sheikh after using counterfeit lotions.

“We removed all goods from the market and are now holo-spotting in Egypt—you need a special eye glass to read the code, and counterfeiters can’t duplicate this new technology so far,” said Taylor-Hughes.

The holo-spot, which costs half a euro per spot, is solely being used in areas where the company has had problems, such as Egypt and in Russia, where Beiersdorf found counterfeit shampoos on sale.

A further issue brand owners face is the lack of statistics and data about the extent of the counterfeit trade in the region. To address this the BPG has commissioned international auditing firm KPMG to carry out an economic study on the counterfeit trade in the UAE that will focus on FMCGs, pharmaceuticals, cosmetics, and automotive spare parts.

“The added value of this study will be a roadmap for us and the government as to whether to adopt new intellectual property laws, improve existing laws, give more authority to customs, and enable brand owners to carry out investigations,” said Shteiwi.

The size of the Saudi market is a strong selling point and local banks will in any case make it a matter of their pride to be present and very visible in KAFD and later on in KAEC financial center. That will widen the Saudi financial scene and elevate its profile but it will not by itself fulfill the vision for the two huge projects. Then again, it must be true for new financial districts what is true for the whole world of finance: without risk, no profit.

Last month’s Investment Opportunities in Yemen conference was the first of its kind to be held in the country. It highlighted some of the striking challenges and opportunities in the Arab world’s poorest and most undeveloped state, which despite myriad difficulties now faces a period of transformation.

Long considered the backward underbelly of Arabia, one of the world’s poorest countries and certainly one with the highest number of weapons per capita, Yemen is stepping up efforts to entice investors into what is virtually a pristine economy.

A daunting host of political, social and economic problems currently lay siege to the country’s development, however, including a frighteningly high population growth, water shortages, weak government control, over-reliance on oil revenues and endemic corruption.

Nevertheless, Yemen’s investment authorities are doing all they can to attract a new influx of foreign capital—especially from the GCC—and reverse the economic misfortunes of recent times.

Getting it together

The Investment Opportunities in Yemen conference, which, after being postponed twice, eventually took place late last month in the capital, Sanaa, was largely designed as a private-sector follow-up to an international donors’ conference held for Yemen in London last November.

That event raised some $4.7 billion in pledges to support Yemen’s development, about half of which came from the GCC, to which Yemen wants—perhaps ambitiously—to accede within the next decade.

This time around, though, the focus of the conference was firmly on private investment. A packed house of some 650 delegates and 70 ministers from across the region gathered for a two-day series of speeches and debates on Yemen’s prospects, whilst a trade exhibition showed off some of the country’s key investment opportunities, mostly in the construction, manufacturing, real estate, tourism and energy sectors.

“Yemen is witnessing a significant transformation marked by a will and determination to create a prosperous future full of welfare and peace,” said President Ali Abdullah Saleh, the strongman who has managed to hold the country together through long decades of civil strife.

“We realize that today’s world is one of economic blocs, a world marked by heated competitiveness and rapid transformation in all economic aspects where there is no room for those who think traditionally,” he told the conference.

But although Yemen may lie in the same geographical zone as some of the world’s richest states, in most other respects it has more in common with Ethiopia than the Emirates—something which might not change too much in the near future.

Towards the edge

Crippling problems face Yemen as it looks to develop and diversify its economy. Amongst the most worrying of these is spiralling population growth, which at a rate of over 3% puts Yemen amongst the fastest-growing nations in the world, and will levy a even greater toll on some resources, especially water, which are already close to breaking point.

This population, whilst large in size, is small in purchasing power. About 45% of Yemenis live under the poverty line, according to the UN, and almost three-quarters reside in rural areas. Unemployment is unofficially over 40%, and a sizable chunk of the average male income (and waking hours) is dedicated to qat, a natural stimulant which is the country’s most lucrative cash crop and which occupies the majority of fertile land.

GDP growth, meanwhile, is barely keeping up with population growth, whilst inflation is equally onerous, reaching a peak of 18.4% in 2006 according to the World Bank.

As part of the aid deals and donor grants negotiated with external benefactors, a halting program of reforms has nevertheless been gathering pace over the past 18 months, although some measures may prove unpalatable to the local population.

“The government finds itself in a difficult position between keeping its promises to donors on one hand, and treading carefully with the local population on the other,” says Dr. Ali al Abdulrazzaq, Senior Economist with the World Bank in Sanaa.

 “They need to be very careful with measures that may have an effect on income levels, such as cutting fuel subsidies or raising taxes,” he told Executive.

And whilst the investment authorities have enacted specific reforms to attract capital, such as introducing a new investment law in 2003, modernizing real estate legislation and opening a “one-stop shop” for interested parties, Yemen is still an opaque place to do business.

Corruption is considered to be endemic and the entrenched tribal power in most parts of the country mean that it is often more valuable to have the backing of the local tribal power than that of the central government. 

Energy levels

Underlying all these issues is a fundamental over-reliance on oil, which constitutes 71% of government revenues and is already suffering from waning production as reserves dwindle.

Yemen presently pumps some 350,000 barrels of oil per day (bpd), and whilst the majority of the country’s exploration blocks have not yet been probed, analysts believe they are unlikely to wield any earth-shattering finds. Nevertheless, the Ministry of Oil and Minerals is about to launch a new bid round for interested parties, which include a number of big international names.

Yemen’s gas reserves have perhaps more to offer, with the country’s largest-ever single investment, the Yemen LNG project, currently under construction. A consortium made up of the Yemeni government, Total, Hunt Oil and two Korean companies is investing a total of $3.7 billion in the plant, which is set to come onstream in early 2009.

It will extract gas from an exploration block in the centre of the country, transport it by pipeline to a state-of-the-art plant on the Gulf of Aden and then convert it to LNG before shipping it on to clients.

“The plant will produce around 7 million tons of LNG per year, or about 180,000 barrels of oil equivalent [BOE]” said Joel Fourt, Chairman of the Yemen LNG Company. “In answer to the question: is it possible to build a world-class, world-scale project in Yemen, the answer is yes,” he told delegates at the conference.

The real question that many are asking, though, is how Yemen can diversify its economy away from this over-dependence on hydrocarbon revenues: LNG alone is not a long-term solution.

Milking the land of honey

One possible answer is tourism, a sector which the authorities seem particularly—and justifiably—eager to promote. Yemen’s rich cultural heritage, its old towns, unspoiled beaches, mountains and islands, theoretically put the country head and shoulders above regional tourist hotspots like the UAE in terms of natural attractions. 

Yet a consistently bad image, a lack of infrastructure and expertise, poor air connections and a meagre promotional budget mean that Yemen is light years behind its northern neighbors in terms of drawing in holidaymakers.

Speaking to Executive, Yemen’s Minister of Tourism, Nabil al-Faqeeh, says that the first priority is simply to build more infrastructure.

“In Yemen we have a lack of rooms, a lack of hotels, a lack of restaurants. We need to attract as many investors as possible for these kinds of projects,” he says.

“In 2006 we only had 382,000 tourists. We want to increase this by 20% in 2007 and we’re changing our strategy to try and attract more Arab tourists, especially from the GCC, where traditionally we have concentrated heavily on the European market.”

But finding the money for these projects is problematic. The state lacks the kind of disposable oil revenues which nearby countries like the UAE have been able to pour back into promoting tourism and real estate, whilst the local banking system in Yemen is too underdeveloped and illiquid to support start-up needs for new investors.

“Financing is the biggest problem for new tourist projects”, Alwan Saeed al-Shibani, Chairman of the Sanaa-based Universal Group, told the conference. “Our commercial banks don’t give out loans, and that needs to change. We have Gulf investors who want to start projects but they’re being held back by this.”

Yemen may also have to shrug off its image as a minor hotbed of kidnapping. Small groups of tourists travelling in rural Yemen, usually Europeans, are periodically spirited away by local tribes who treat their “prisoners” like guests whilst making modest demands on the government, such as building roads, hospitals or schools in their villages.

Island life

According to Al-Faqeeh, the government has no particular geographical priorities for tourist development, but one special area of opportunity is Yemen’s roughly 190 islands. Some have already caught the attention of regional powerhouses such as Orascom and the Mikati group, both of whom are reportedly finalizing agreements to develop islands in the Red Sea.

Yemen’s largest and best-known island is Soqotra, which lies in the Arabian Sea south-east of Aden and boasts a unique ecosystem which has evolved independently of the mainland. Potentially a tourist magnet, visitor numbers have been gradually on the up since an airport opened on the island several years ago, although the ministry are at pains to point out that no major developments will be allowed here: instead, they want to attract a classier breed of eco-tourists.

But although Soqotra looks as if it may thankfully be preserved from mass tourism, the mainland is already gearing up for some large-scale tourist and residential developments spearheaded by courageous investors.

The biggest and most ambitious of these is the Jenan Aden project, which will cover 14 km2 of pristine mountainside and beaches just outside of Aden. Phased over 10 years, the development is being led by a Saudi-Yemeni joint venture, Bin Farid and Baghlaf, and when complete will contain 4,000 residential units, four hotels, two marinas, a school and a university.

“There’s definitely an element of being pre-emptive in the market,” says Chris Orrell, Chief Operating Officer of the project. “But there’s also a belief that this is Yemen’s time. It is an exceptionally beautiful country with a great deal of potential.”

Most developers planning projects in the country say they are targeting a relatively small crust of high-income locals, but more importantly the Yemeni expatriate population, which is largest in Saudi Arabia, other Gulf states and also the UK.

Rise or fall?

No-one would argue that huge amounts need to be done in order to improve Yemen’s business climate, particularly, according to investors, in terms of the real estate registry and the commercial court system. But it seems that the government, at least, has realized the urgency of the need to diversify away from oil.

“I think many of the changes enacted over the past 18 months will really begin to bear fruit in 2008,” says the World Bank’s al-Abdulrazzaq. “The government is pushing for reforms, which is encouraging.”

Yemen is clearly only at the start of a long road to attract foreign capital, and it will need to create a positive track record that can earn the trust of investors, particularly those from outside of the GCC.

It is uncertain whether sufficient time remains to tackle critical issues like population growth and declining resources before it is too late, but there is enough excess cash available in the region, enough vested interest in keeping Yemen stable, and enough latent potential in the country itself to suggest that this could be the start of Yemen’s entry into the modern age.

Battling local tribesmen, Sanaa claims Iranian-backed militants wish to establish a Shia-run imamate

Yemenis are no strangers to unrest, having fought their way through a string of civil wars in the past half-century, but a longstanding dispute in the northern Sa’ada region of the country is now erupting into something approaching full-on warfare.

The conflict is the latest in a series of skirmishes between government forces and followers of the al-Houthi clan, who are based in the isolated mountains close to the Saudi border around the town of Sa’ada.

The sides have already crossed swords in two previous clashes, in 2004 and 2005, and the latest fracas has intensified rapidly since the start of 2007 to claim hundreds of lives on both sides.

Confusion surrounds the root cause of the fighting, which now appears to have spun completely out of control. The government claims that the Houthis, bankrolled by Iran and radicalized by the situation in Iraq, are attempting to establish a Shia-ruled Imamate in northern Yemen.

Others argue that the conflict has little to do with Sunni-Shia divides and is more related to the weakness of government power outside the main cities.

“It’s more a case of the government stepping on the toes of the local tribes and trying to extend its control in certain parts of the country,” said one western diplomat in Sanaa. “The system of power in Yemen means that these areas are largely autonomous, and they don’t like any outside interference—even from their own government.”

Beset by heavy losses and little progress, the army is pouring vast resources into Sa’ada. The local press reports that warplanes, tanks, artillery and thousands of soldiers are being dispatched northwards, although the region has been completely sealed off and it remains difficult to establish the reality on the ground.

“Even we can’t really understand what’s going on up there,” one civil servant in Sanaa told Executive. “Yemenis have never been religious extremists—both Sunnis and Shias in this country have traditionally been very moderate in their outlook.”

Whatever the case, the fighting has again shown up the fragility of a state in which allegiances are first and foremost tribal, not national, and in which the army is far from being the only significant military power.

In what is being dubbed “the New Silk Road,” trade and political ties between China and the Arab Gulf are growing stronger as both regions take an increasingly prominent role on the financial world stage. Politics is playing its part, with Saudi Arabia’s newly appointed King Abdullah opting for Beijing over Washington for his first trip overseas last year, and Chinese President Hu Jintao repaying the visit with trips to Riyadh and Dubai.

Bilateral trade between the United Arab Emirates and China is soaring as Emirati companies look eastward for investment opportunities to diversify away from oil, while Beijing secures energy sources and new export markets to keep its burgeoning economy afloat.

Strictly business

“Arabs see China purely as business, at least for the moment,” said Glen Osmond, managing partner for Middle East Strategy Advisors, a leading strategy consultant and investment advisory firm in the GCC.

“The Chinese don’t have problems such as political baggage or externalities like protecting the region, and are not here for consumers—the GCC is not a major consumer of Chinese goods compared to the EU or US—but for raw materials,” he added.

China has been quietly taking advantage of its negligible political history in the Middle East and Africa over the last five years, investing billions of dollars in infrastructure projects, signing energy deals, and attracting Gulf money, estimated as high as $20 billion in the past year from the GCC countries alone.

Although Saudi Arabia, the Middle East’s largest economy, has attracted the lion’s share of Chinese investment to the region and been more active in entering the Chinese market, the UAE is slowly catching up.

Since 2001, trade has grown by 30% per annum and the UAE is now China’s top export market in Western Asia and North Africa, according to Global Sources, with exports reaching $14.2 billion in 2006, up from $8.7 billion in 2005. Trade is likely to double by 2010 if targets projected by the Chinese government prove correct. Based on past trade growth, surging 45.5% in 2004 alone, this figure doesn’t seem to be overly optimistic.

“The UAE is a trading centre for the Middle East, so I think this year, or next, trade will grow at high speed,” said Han Xi, Vice Commercial Consul at the Consulate General of China in Dubai.

Dubai’s rulers are certainly aware of the potential.  “We want to be number one, and not second. If we join forces together (China and the UAE), we will be number one,” the UAE’s Vice President and Prime Minister Sheikh Mohammed Bin Rashid Al Makhtoum said at a recent press conference.

But Dubai’s ruler is also aware that China is not the only game in town. Trade between the UAE and Malaysia soared 20.7% last year to $3.4 billion while UAE-India trade not far behind China at an estimated $11 billion in 2006. India has emerged as Dubai’s largest export destination ahead of Pakistan, Iran and Kuwait, Indian investment in the UAE has doubled in the past four years and trade is expected to surge to $20 billion by 2010.

Indeed, in a seeming about face on the growing UAE-China relationship, Sheikh Mohammed also called for raising India-UAE bilateral trade to the ‘number one’ spot in the region.

But Sheikh Mohammed’s statement is perhaps more about pragmatism, realizing the UAE’s need to have its fingers in many pies. As Osmond pointed out, “the more buyers the better. It’s a souk mentality, and they have a huge machine and it needs to be fed.”

India certainly has a more established connection with the UAE, bolstered by approximately 1.4 million expatriate Indians working in the Emirates versus an estimated 50,000 Chinese expatriates.

India however lacks the political and military position of China on the world stage (China is widely seen as a potential counterbalance to the US that Middle Eastern states are keen to develop), and is not a manufacturing powerhouse on par with China. Indeed, in terms of trade with Dubai the statistics speak for themselves: 36.6% of textile imports, 40.7% of furniture, toys and sports products, and 48% of all footwear, headgear, umbrellas and flowers came from China in 2005. And according to the Dubai’s Department of Ports and Customs, 17% of all of Dubai’s imports came from China in 2005, making China Dubai’s top supplier of imported goods.

“Dubai is the third largest re-export market in the world, after Hong Kong and Singapore—that is a very impressive statement,” said Bill Janeri, the Middle East general manager of Global Sources, a Hong Kong-based publisher and trade show organizer.

Enter the Dragon

There are now more than 1,000 Chinese companies operating in the UAE, according to Standard Chartered, and that figure is expected to grow as investment floods in.

“China’s first export markets have traditionally been the US or Europe, but everyone wants to sell to these established markets,” said Janeri. “So over the years Chinese companies have either sold to there or been creative and looked for new markets when demand is equally strong—markets where they can be the number 1, 2, 3 player in their segment. Dubai has shown that it is a good location where these companies can ‘plant their flag,’ win new customers, and build market share where demand is strong.”

Global Sources will hold its first trade fair in the region, the China Source Fair, in Dubai in June—with over 500 exhibitor booths, it will be the largest ever exhibition of Chinese products in the Emirate, according to the Dubai Trade Center.

Although only $200 million was invested by private Chinese companies in the UAE in 2005, that figure surged to $800 million last year and UAE financial institutions are scrambling to procure a slice of the growing trade between the UAE and China.

Standard Chartered have recently rolled out a UAE-China ‘trade corridor’ to cater to small and medium-sized enterprises (SME’s) in the UAE and China.

“We felt this need as China kept the heat turned up on its Gulf marketing blitz to overtake such industrial giants as the US and Japan to become the top exporter to the UAE since 2004,” said Sandeep Bose, Regional Head of SME Banking at Standard Chartered in Dubai. “This is expected to continue as the most populous nation on earth is stepping up its export offensive, aided by the fact that its products are more competitive than the products of most other industrial nations.”

But the investment deals and joint ventures the Chinese government is most interested in are Abu Dhabi’s gas, petrochemicals, and aluminum nuggets.

 “I wouldn’t be surprised if China makes strategic investments in the region to develop the relationship in all the energy rich countries… Britain has been in the UAE for how long? China wants a piece of that,” said Osmond. 

Non-energy imports from the UAE are steadily growing however, up from $2 billion in 2005 to $2.8 billion last year. Investment in China’s booming economy, the fourth largest in the world, is also increasing, spurred on by high liquidity in the UAE and Gulf markets.

“Because oil prices are high there is more interest by UAE businessmen in worthwhile markets, and China has the economic and social elements for attracting such business,” said Han.

Dubai’s mammoth construction companies Emaar and Dubai Holdings, both responsible for tens of billions of dollars in real estate projects throughout the MENA region, have also opened offices in Shanghai. DP World, the world’s fourth largest port operator, also has a corporate division in the North-Eastern Chinese city of Tsingtao.

“I think this is the beginning of Dubai real estate coming to China,” said Han.

But it is not just real estate that is attracting Arab businessmen.

“I went to a trade show in Yiwu recently and part of the town is all Middle Eastern restaurants and businesses,” recalled Janeri. “It doesn’t surprise me that other markets are looking to invest in China. There is gaping wide demand for certain products—in fact, everything you can imagine,” he added.

Interest in China is certainly growing, with the consulate in Dubai China’s busiest worldwide. 

“Everyday we receive more than 300 visa applications—you can see more people want to go to China,” said Han.

An increase in airline flights is also indicative of the growing links, with China Southern Airlines opening an additional route between Dubai and Guangzhou at the end of last month.

Lost in Translation

Dealing with Chinese companies is not always easy—a common complaint voiced by businessmen ever since China opened its doors to the outside world in the 1980s, citing cultural differences and transparency in business practice.

“You hear stories of Chinese signing deals with companies and then reneging on the deal, saying it didn’t comply with their legal definitions or simply disappearing,” said a source at a real estate firm.

“There have also been cases of the Emirati authorities closing down construction sites as in the heat the Chinese workers strip down to their underwear and only wear hardhats, which is against UAE law—they have to cover up,” he added.

Han acknowledged that the consulate had received complaints, largely about wording and English terminology, but said the language issue and business transparency were being addressed.

“Both languages are difficult to learn, so it’s not a deep relationship but a growing one between the Arabs and the Chinese,” said Han.

The relationship is in fact an ancient one that is being gradually rejuvenated.

According to historical texts, some 1,400 years ago there were an estimated 10,000 Arab and Persian traders in Guangzhou (Canton) plying the waters between China and the Middle East. Evidence of the ancient link is also present at Dubai’s Ibn Battuta Mall, where one section is devoted to the famous Tangerine’s travels in the 14th century to China—the exterior a partial replica of the Forbidden City and the interior painted red and offset with traditional Chinese woodwork.

The dark side of the relationship

But it is the Chinese Ministry of Commerce-supported Dragon Mart in Dubai that is the Emirates’ real China Town.

The China connection is not only bolstering official trade ties. As has been the case for most rapidly growing markets, organized crime is on the rise in Dubai. Russian and Indian money launderers are considered the main perpetrators in the financial line, taking advantage of Dubai’s construction boom and real estate speculation to launder money without paying out large commissions to “clean” the cash. But in terms of counterfeit goods, China is the bad guy.

One source likened China to a “massive Xerox machine,” ready to copy any product a buyer might want. China is indeed the No. 1 manufacturer of counterfeit goods, which are estimated at $500 billion worldwide.

Dubai has become the conduit for that illicit trade in the Middle East, with Dubai ports handling some seven million containers a year. Although most of the illicit trade transactions are between Chinese suppliers and Middle Eastern buyers, Dragon Mart, a mall and business center established three years ago, has become the hub for Chinese organized crime, according to a source in the real estate sector.

Earlier this year an undercover Dubai cop was sent to the Dragon Mart to investigate organized crime links at some of the center’s businesses. Told to call in on the hour, every hour, the cop suddenly disappeared. The Dubai police made a raid on the Dragon Mart and after kicking down a few doors, found the policeman dead in a freezer.

Such gruesome incidents are not the only illicit activity connected with China.

According to the real estate source, construction companies linked to the People’s Liberation Army—China’s largest business owner—were exporting convicts to work on sites in the UAE to cut overheads.

The issue has reportedly become so acute that the UAE government has recently banned Chinese construction workers. “It has become too much of a headache for both contractors and the government to regulate,” said the source.

China denies it is involved in such activity, however.

“It’s not true. China is now free, so if a construction company wants to go elsewhere, workers must have passports and visas,” said Han.

China is also reportedly trying to curb counterfeits. “China has a special department to regulate products, especially for exporting products as too many people want to do forgeries and sell low quality products to our friends—this is not good for business,” he added.

Even if this developing friendship will bring with it certain negativities, both economies are experiencing double-digit growth so bolstering such a relationship can only be prudent business for all concerned parties.

But as Han points out, the increasingly strong trade ties require political and economic stability in the Middle East for the relationship to warm any further.

“I think growth all depends on the regional situation, particularly over Iran. If Dubai keeps silent, like the present situation, China will pay more attention.”