Saudi International Petrochemical Company (Sipchem) recently announced the development of a plastics production complex in Jubail, which should ensure the company and the country remain at the forefront of the industry.

Sipchem chairman, Abdulaziz al-Zamil, said that the entire project would cost in excess of $7 billion and encompass 20 international standard individual plants. The planned fully integrated olefins and derivatives plant will have the capability of producing 1.3 million metric tons per annum (mtpa) of ethylene and propylene. In turn, these will be used to manufacture 800,000 mtpa of various polymers. The total production of the complex will amount to three million mtpa in 18 different product categories and should secure Sipchem’s regional primacy in the sector.

Due to begin initial operations in 2011, al-Zamil explained that the plans are in line with the company’s expansion plans and broader vision of further developing the kingdom’s industrial base, particularly in terms of adding value to its rich natural resources. Al-Zamil estimates that the complex will create some 3,500 jobs.

Shifting focus

The development of downstream, value added, industry is a cornerstone of the government’s efforts to diversify the economy away from hydrocarbon reliance. The new complex in Jubail will provide the raw material base for many other products, particularly various types of plastics. At present, the kingdom accounts for roughly 1% of plastic production in the global market and expects to increase its share to at least 15% by 2020.

Sipchem was established in late 1999 and has grown rapidly. Phase-I saw the development of two world scale methanol and butanediol plants that are currently producing at their maximum capacity. Butanediol is widely used in the manufacture of plastics, vinyl fabric coating, floor polishing, pesticides and packaging. Phase-II consists of the development and construction of acetic acid, vinyl acetate monomer, and carbon monoxide plants. It is estimated that these will begin full-scale operations in late 2008 with a total capacity of 1.15 million mtpa. Acetic acid and related chemicals are used in the manufacture of soft drinks bottles, photographic films, glue and textiles.

Last week, at an energy conference in Dammam, the executive president of Sipchem, Ahmad al-Ohali, told the press that in order to raise the necessary capital for Phase-III – the olefins complex – the company plans to create a joint stock company. Sipchem will invest $6.67 billion in the complex and intends to list half the capital on the Tadawul All Share Index (TASI). He explained that 70% of the cost would be raised by debt and 30% through equity. He conceded, though, that “the cost will probably be higher at the time we set our final estimate.”

Al-Ohali said that 50% of the capital would form a new company to own the complex and is likely to be created in the second half of 2007. Sipchem will retain the other half. HSBC has been appointed as financial advisor. The olefins complex will increase Sipchem’s output to five million mtpa, al-Ohali said, adding that revenues could exceed $5.7 billion per annum.

Sipchem announced that it had awarded US firm Worley Parsons the project management contract. The Houston based company will be responsible for the front-end and detailed engineering and will manage the project from their offices in the US and Al-Khobar. In a project of this scale it is likely that there will be ample opportunity for other firms to win contracts.

Worley Parsons estimate the total value of their ‘In Kingdom’ and ‘Out of Kingdom’ contracts to be in the region of $250 million.

While the announcement of the main Phase-III is significant both in terms of the size of the project and the potential impact it could have on broader downstream industry, 2006 saw other major developments for the company. April saw the announcement of the Phase II projects – the acetic acid and vinyl acetate plants, with an investment to the tune of $1.1 billion. However, the most high profile event was the initial public offering (IPO), which took place in September.

Sipchem floated 30% of its capital issuing 45 million shares to the public. Despite the turbulent market conditions, which have seen the TASI drop about 50% from the beginning of the year, the $660 million IPO was oversubscribed by 70%. However, when the stock began trading on November 11, the price per share fell below the IPO price value of $14.7. This shocked local analysts, as it was the first time this had happened to a debuted company and said more about the market than Sipchem itself, which recently posted record third quarter growth of $84.8 million.

The recent decision to open up Qatar’s telecom market doesn’t appear to concern the Emirate’s only telecommunications services provider, quite the reverse in fact, with QTel apparently raising the bar that any potential competitors will have to vault over.

To date, there have been no public expressions of interest by other firms to set up shop in opposition to QTel after Emir Sheikh Hamad bin Khalifa Al-Thani issued new legislation in early November 2006 ending the company’s monopoly status.

According to Hessa al-Jaber, the secretary general of Qatar’s Supreme Council of Information and Communications Technology, opening up the telecommunication sector will serve to drive the Emirate’s economic and social development.

“We can look forward to investment from an array of new industries, brand new jobs across the economy and innovative ways of doing business in the public and private sectors,” he said.

QTel itself has welcomed the liberalization of the domestic telecommunications sector, with Nasser Marafih, the company’s chief executive officer, saying that with Qatar being an important and fast growing market it was appropriate that competition be introduced.

Though QTel will have lost its monopoly status, it will retain the exclusive rights on its existing networks, meaning any newcomer will have to construct the infrastructure necessary to provide services.

Preparing for the worse

While there may not be any potential competitors on the horizon, QTel has been behaving as if it is in a do or die battle with rivals. Over the past few weeks it has been busy unveiling new services, reducing the rates on international calls and announcing an expansion of its already wide scope of operations.

On November 21, 2006, QTel announced that it had acquired a 38.2% stake, valued at $28 million, in AT&T’s business data service Navlink, further strengthening the Qatar firm’s already solid ties with the US telecom giant. The two firms already announced they would co-operate in the establishing of a world-class data center in Doha as part of AT&T’s global network.

 “The deal is a major step forward in our strategy to become a significant player in the region’s Enterprise Data Market and to provide our customers with true world-class solutions,” Marafih told a press conference at the announcement ceremony.

QTel has already started trials of handheld video services, with plans to launch full commercial broadcasting on the new medium next year. During the trial phase of Digital Video Broadcast-Handheld (DVB-H), QTel offered up to 13 channels of sports, entertainment and news as well as coverage of the Asian Games in Doha. Qatar will thus become the first country in the Middle East to have a DVB-H service and one of the first in the world.

On November 21, the company’s chairman, Sheikh Abdullah bin Mohamed bin Saud Al-Thani, said that they were looking to expand into markets other than those in the Arab world.

Saying that there would be some good news very soon, Sheikh Abdullah confirmed that QTel’s strategic plan included investments both within the country and internationally. Citing QTel’s operation in Oman, where it has a stake in the emirate’s second telecom service provider, Nawras Telecom, he said that there were new expansion plans in the offing.

The company’s most immediate challenge was providing smooth communication services for the recent Asian Games, which was opened on December 1. Having ploughed $137 million in new investments ahead of the event, including the provision of terrestrial trunked radio (Tetra) – a professional mobile radio system that linked more than 6,500 officials during the games – QTel considered the event as an international platform on which to promote its wares.

Though the Gulf media has been giving increasing coverage to a possible easing in the region’s real estate market and falling share values of some of the Middle East’s leading property developers, it seems that Qatar isn’t taking a lot of notice.

Almost every week, one of the emirate’s growing number of developers either unveils a new project or announces the completion of a stage of an ongoing real estate scheme. One of the country’s highest profile developments – The Pearl-Qatar – has just seen another of the key elements of $5 billion project put in place, the filling of three marinas built on a series of man made islands off the coast.

When completed in 2009, The Pearl, a project of Qatar’s United Development Company, will offer a range of hotels, recreation facilities and luxury residences for 5000 people as well as adding about 400 hectares to the landmass of the Emirate.

In early December 2006, Abu Dhabi Investment House (ADIH) announced it had already raised half of the $500 million it had targeted as the start up capital for its new $3 billion development, the Qatar Entertainment City to be build to the north of Doha.

Ambitious goals

The new project’s name may be a bit misleading for, in addition to hotels, theme parks and shopping facilities, it will also have extensive residential complexes. The Qatar Entertainment City is just part of a much larger development, known as Lusail City, that will ultimately house 200,000 people, representing a quarter of Qatar’s current population, when finished in 2010.

Along with the Entertainment City, there will also be Energy City, a $2.6 billion project that its developers hope to see serve as a residential and business hub for those in the energy sector.

Launched on December 5, the second stage of the scheme encompasses the residential arm of the project. ADIH chairman, Esam Janahi, said that Qatar was fast emerging as an investment hub in the region and that the development was tapping into the inherent growth potential of the country and the region.

“Qatar’s booming economy had prompted the development of Energy City and the speeding up of the residential component of the project,”said Bob Moore, Energy City’s CEO.

Finding suitable, high-quality and affordable accommodation for staff is one of the major obstacles for international companies moving into an economy developing as rapidly and successfully as that of Qatar, explained Moore.

Scoring big

Qatar’s property boom is being driven at different levels, with the demand for tourism, residential, office and retail accommodation all contributing. With official projections tipping a 150% rise in tourist arrivals, spawning a 300% increase in hotel room numbers, within the next four years, along with a potential addition of 500,000 to the country’s population by 2012 – mainly additional workers to keep the economy’s wheels turning – all forms of property are going to be at a premium.

However, there has been a downside to the property boom, with rents driven up as demand outstrips supply and adds fuel to Qatar’s inflation rate. This has hit at the residential, professional and retail markets, negating the government’s efforts to rein in rental increases by mandating a ceiling of 15% annually. Many landlords have circumvented the legislation by only agreeing to one-year leases, freeing them to hike rents to meet market conditions when the contracts expire.

Rents soar out of bounds

Another factor that has sent rents spiralling has been Qatar’s staging of the Asian Games, which brought a scramble for retail space that was made even more hectic by the demolition of parts of some shopping districts to make way for sporting facilities or as ongoing redevelopment projects.

Rents in some established central retail areas of Doha have risen 300% in two years, while those in newly constructed shopping complexes are even more expensive. However, while there may be an easing of demand, and subsequently of the increase in rental rates, there is little indication that retailers will see a fall in tariffs.

While it might be tight for those renting in the Qatar property market, the good times seem set to continue for both developers and investors. Many of the country’s premier residential projects have already been sold out, even before the foundations have been laid, the properties having been bought off the plan.

Last month, as a part of  Oman’s overall e-government strategy, the Ministry of Health (MoH) announced the latest set of services that will be offered online. The plan outlined the development of three digital tools to better extend the ministry’s services.

According to a statement by the MoH, the first to be launched will be an e-Referral Engine, which was successfully tested in a pilot program in August. The program will replace paper-based referrals between institutions. It will be gradually deployed to tertiary hospitals and then extended to other hospitals and health centers this year.

The engine will cover both request and appointment bookings and will also provide a notification system via SMS. Dr. Ali Moosa, the minister of health, said this will resolve all the drawbacks of the existing system. “Referral feedback … will be mandatory … thus it will ensure proper continuity of care,” he added.

Following the MoH strategy

The Directorate General of Information Technology (DG-IT) at the MoH is spearheading these efforts. Another project under construction is an e-Notification Engine that will cover birth and death notices as well as registering diseases.

The MoH also announced plans to develop Tele-Education and Tele-Medicine. Tele-Education will cater to continuous medical education for MoH staff throughout the country and Tele-Medicine will allow physicians to receive expert consultation on cases being treated from anywhere in the Sultanate.

To ensure coordination of such e-initiatives, the ITA was founded in 2006. The body has an independent status yet remains affiliated with the ministry of national economy. It replaced the Information Technology Technical Secretariat (ITTS), the government body previously responsible for digital activities.

The ITA is responsible for implementing national IT infrastructure projects and supervising all projects related to Digital Oman Strategy implementation while providing professional leadership to the various other e-governance initiatives in the Sultanate, according to a release by the body.

Salem al-Ruzaiqi, CEO of the ITA, confirmed that the three pillars of the ITA were infrastructure, to drive citizen awareness and training, and to help the government in bringing services online.

He added that all the head offices of the ministries would be linked by the end of 2007 and subsequent infrastructure would be extended to the remaining government bodies throughout the Sultanate by the end of the decade.

Meanwhile, the ITA will coordinate portals to deliver the various government services online. The portals are integration platforms, which will group different government services into a single interface.

Al-Ruzaiqi said that phase I of the portals will be launched in the first quarter of 2007. The education portal will be the first, linking a number of ministries and serving both schools and universities.

The One Stop Shop (OSS) portal will be important for the business community. The portal will deliver all the services of the OSS online, currently located at the Ministry of Commerce and Industry (MoCI). The OSS regroups six ministries and is expected to improve efficiency for entrepreneurs in their dealings with different governmental institutions.

Another important component of the ITA’s activities is the training of government employees in IT certifications. A pilot program will cover 400 employees this year and the goal is to have all government employees trained by the end of the decade, representing 106,000 people.

Meanwhile, in 2009, the educational system will produce the first batch of students from the new ‘basic education’ which includes computer courses from grade one. All schools in the sultanate are already equipped with computer labs. They will also be used as training centers for adults in the evening.

Amid unprecedented levels of public investment in industry and infrastructure, the Omani banking sector is undergoing strong growth for the second consecutive year.

In November 2006, in an important step towards the establishment of Oman’s newest bank, the Capital Market Authority (CMA), the Sultanate’s capital market regulator, approved the release of a $51.95 million initial public offering (IPO) for Bank Sohar.

Bank Sohar, scheduled to begin operations early next year, will be the sixth locally incorporated bank in the Sultanate. There are currently 14 commercial banks, five local and nine branches of foreign banks.

Going public

The IPO – the first on the MSM since the release of Oman Telecommunication in June 2005 – opened on December 9 and runs until January 7. Bank Sohar will release 40 million shares at $1.37 on the Muscat Securities Market (MSM). This offering represents 40% – the minimum a company needs to list on the MSM – of the total paid up capital of $129.87 million, which will launch Sohar Bank early next year.

The latest figures from the Central Bank of Oman (CBO) show an expansion of all major variables in commercial banks. At the end of September, the combined balance sheet of commercial banks showed that total assets reached $17.4 billion, a 27.8% increase on the same period last year.

The growth of the sector is not unique to Oman, but is a regional phenomenon on the back of record high oil prices in 2006.

In August 2006, Standard & Poor’s ratings services issued a report focusing on banking sector growth in the Gulf Cooperation Council (GCC) region. The report concluded that the sector would see continued growth led by the sector displaying solid financials, capitalization, and liquidity well into the foreseeable future.

The CBO, the sector’s regulator, has placed special attention to high standards of governance and transparency. After several months of preparation, Basel II – a set of capital adequacy requirements – will be launched this month, according to Hamoud bin Sangour al-Zadjali, the executive president of the CBO.

High hopes on Basel II

Earlier this month, a workshop was held on Basel II implementation organized by the CBO and the US Department of Treasury. On that occasion, Zadjali told local press that Basel II implementation was challenging and would demand additional human, financial and technical resources.

Basel II will strengthen the financial stability and transparency of the sector. Zadjali described the program’s scope as having three mutually reinforcing pillars: minimum capital requirement, supervisory review and market discipline.

Meanwhile, at the end of 2006, Moody’s rating service announced some latest upgrades for the sultanate’s banks. Moody’s upgraded four of the largest banks ratings from BAA1 to A3 for long-term foreign currency deposit.

This followed Moody’s recent upgrade of Oman’s foreign and local currency country ceiling from BAA1 to A3. Moody’s attributed the upgrade to the strong likelihood of support from the authorities, should the need arise, combined with the improved capacity of the government to provide such support, as a result of the significant improvements in Oman’s economic fundamentals over the past several years.

The UAE government has been defending the investor friendly business environment that is stimulating the construction industry in the country.

Addressing the government’s regulations within the construction sector, Ali bin Abdullah al-Kaabi, the minister of labor, said that that the labor cost in the country, including accommodation costs, fees and salaries, does not exceed 14% of the total amount of money allocated for any project.

He also pointed out that these labor fees were among the lowest in the world and defended the record of the government on granting licenses for foreign laborers to contracting companies. He asserted that the UAE had only rejected 10% of the 700,000 applications by companies to bring foreign laborers to the country. Al Kaabi also suggested that these rejections were largely because the companies had failed to provide accommodation for the laborers they sought to bring to the country.

A balanced approach

The government is, thus, keen to illustrate that it is seeking to strike the right balance between protecting the rights of laborers and providing an attractive operational environment for contractors and the construction industry in the country. However, many contractors are concerned that legislative changes and general labor costs are having a punitive effect on their business. Changes to the labor law that provide for greater ease of movement between companies for laborers are causing anxiety for many contractors who feel that their initial investment in bringing workers to the country is not protected. Contractors importing laborers pay in the region of $1,906 per laborer and have no security in retaining that laborer. However, there are currently discussions between the government and the contractor’s association on establishing a compensatory structure for such situations.

Contractors also have concerns over the price of housing workers, an issue that is affecting all housing units, particularly in Abu Dhabi.

Nevertheless, despite such concerns the sector seems to be in a healthy state. A recent report concluded that the UAE has the largest construction industry among Gulf Cooperation Council (GCC) countries. The UAE is the biggest spender on construction in the region accounting for $294 billion worth of projects, which is more than Oman, Bahrain and Qatar combined. This compares with $201 billion worth of projects in Saudi Arabia and $211 billion in Kuwait. The construction sector in the UAE has grown at an average rate of 11% a year over the past decade, according to some analysts.

Promising growth

In Abu Dhabi, the growth of the construction industry is reflected in the announcement last week that the capital will be home to a building materials city. The $1.09 billion zone is being developed by the local company, Manazel, and is expected to be completed by the beginning of 2010. The zone, which will be located five minutes from Abu Dhabi International Airport and 15 minutes from the city centre, is being touted as a hub for building materials contractors and manufacturers from the region.

According to Mohamed Mehanna al-Qubaisi, the chairman of Manazel developers, over 80% of the project is already booked out and he expects the remaining space to be filled by the end of the year. Only Emiratis will be allowed to own land in the zone with foreigners being allowed to take land on a long-term lease. The city will comprise 17 commercial towers, 32 residential towers, and an impressive 100,000 square metre shopping centre, used to house building materials showrooms. The area will also include a hotel.

Elaborating on the rationale behind the development al-Qubaisi said that the project includes the first building materials stock exchange in the Middle East to make the city a hub for attracting manufacturers, importers and suppliers.

Abu Dhabi is continuing its policy of diversifying revenue streams by building up a substantial portfolio of overseas investments. The International Petroleum Investment Company (IPIC) and the Abu Dhabi National Energy Company (TAQA) are announcing a raft of investments.

According to some local sources, IPIC is set to invest up to $5 billion in a greenfield oil refinery in Pakistan, in a free zone area near Karachi. The proposed refinery is designed to process up to 300,000 barrels per day (bpd). IPIC already has interests in Pakistan with a number of investments including a 40% joint stake in the Pak-Arab Refinery Company with OMV Aktiengesellschaft (OMV) of Austria. Pak-Arab Refinery Company operates a refinery in Multan processing up to 100,000 bpd.

IPIC’s also maintains a 20% share of OMV, the Austrian oil and gas group. This stake is estimated to be worth almost $500 million. IPIC, which was established in 1984 is a 100% government owned company, with an estimated $8 billion investment portfolio including energy related companies in Austria, Spain, South Korea, Egypt, Denmark and Pakistan.

It seems likely that the company will launch an IPO when market conditions become more favorable. Earlier in 2006, Mohammed al-Khaily, the managing director of IPIC, told local reporters that it was part of the companies strategy to off-load between $544.53 million and $816.83 million through an initial public offering (IPO), however, market conditions were not conducive to this. He went on to say that the IPO, would have also offered investors good returns. “Now we have to wait for the market to improve and then the board will take a decision,” he said.

TAQA paves the way

However, one energy investment company that has already launched an IPO is TAQA. In the summer of 2005, the Abu Dhabi National Energy Company made an IPO of $163.37 million making public a 26% stake in the company. The government, in the form of the Abu Dhabi Water and Electricity Authority (ADWEA), owns a 74% share in the company.

In 2006, TAQA raised its capital in a bid to make several investments in Asia and Europe. Speaking to local press at the annual Abu Dhabi International Petroleum Exhibition and Conference (ADIPEC), the CEO of TAQA, Peter Barker-Homek, said the company recently raised $3.5 billion on the back of a very successful bond issuance, which provides a strong basis to continue the development of business on a global basis.

It would appear that TAQA is building up a substantial international investment portfolio. The company already has more than $8.7 billion of assets in power, water and energy plants worldwide. Referring to the bond offering, Barker-Homek said: “With hundreds of billions of dollars needed over the next decade to fully develop the world’s energy infrastructure, TAQA sees enormous demand for its offering.” The company is also seeking other ways of raising capital to support its investment program. According to Barker-Homek, the company is looking to raise a total of $9.5 billion through a potential combination of banks, Islamic bonds (sukuks) and euro medium term note (EMTN). Barker-Homek said that at least $1.6 billion will be used for refinancing existing subsidiaries and the rest will go towards further acquisitions.

The company, which also has a 1% stake in the Russian oil and gas giant Rosneft and a majority share in all the power and water plants in Abu Dhabi, is in the process of making several other overseas investments. Last week, the company announced an investment in the Indian energy market.

International appeal

TAQA is entering a joint venture with India’s Infrastructure Leasing and Financial Services (IL & FS) to provide up to $1 billion of investment for power projects in the country. This would add up to 7,000 Mega Watts (MW) of power to India’s electricity output where demand outstrips supply by up to 10%. The power plants will be built over the next three to five years as part of India’s plan to invest $283 billion by 2012 to add 100,000 MW of power.

TAQA has also recently announced the acquisition of BP’s Dutch gas exploration and production assets for $694 million. This includes the onshore and offshore facilities of the company including the Piek Gas installation at Alkmaar. The net production of operations was 1.8 million cubic meters a day in 2005. This acquisition is seen as the first strategic move into the European market by TAQA. Barker-Homek said that it plans to invest substantially in its Dutch assets to triple their value and number of employees over a two to four year period. He concluded: “We will look at opportunities that BP brings as well as other potential acquisitions across Europe and the Middle East.”

December 20 saw start of the Gulf’s leading retail event, the Dubai Shopping Festival (DSF), which will run until February 2. Retailing is now clearly part of Dubai’s overall strategy to promote tourism. The DSF, which was created in 1996 by the government, has been developed into a comprehensive tourist product, with state carrier Emirates offering packages for foreign shoppers. (This year, as part of its entertainment program, the DSF will also include performances by Cirque du Soleil.)

The other main shopping festival is the Dubai Summer Surprises. This year, more emphasis was put on the summer festival given that the 2006 edition of the DSF was cancelled following the death of Sheikh Maktoum bin Rashid Al-Maktoum. The festival drew 1.51million visitors, primarily from Gulf Cooperation Council (GCC) countries.

These two festivals allow retailers to make roughly 50% of their turnover. Dubai expects 15 million tourists a year by 2010, which will further boost the emirate’s retail industry, as foreign shoppers account for 65% of retail business. It is estimated that total spending could reach some $7.6 billion, in comparison to Saudi Arabia ($6 billion), Bahrain and Qatar (both with $1.4 billion).

The mall phenomenon continues

Aware of the retail industry’s potential, Emaar Properties and Nakheel, two government real estate companies, took the lead in setting up new retail outlets while the private sector, led by family-owned enterprises such as the Majid al Futtaim (MAF) and Al Ghurair groups, successfully brought the concepts of shopping malls to the region.

At the end of 2006, Dubai boasted 36 malls, and this figure is expected to reach 50 in the next two years with major mall projects underway, such as the giant Mall of Arabia as part of the Dubailand theme park project, which is expected to be four times bigger than the Mall of the Emirates. Overall Gross Lettable Area (GLA) or retail space for Dubai’s malls should reach 2.51 million square meters by 2010, which represents 30% of the total retail space in the GCC.

Neil Tunbridge, head of retail services at GRMC Advisory Services, believes there is still room for growth, especially for the mid-income market.

As the retail industry matures, the market is getting more competitive, and customers are becoming more selective as they realize that 90% of the malls offer similar entertainment concepts. Promoters now have to be more creative in their advertising and marketing campaigns and some malls are already offering novelty attractions, such as MAF Mall of the Emirates with its famous ski slope and Nakheel’s Ibn Battuta mall with its six themed malls within a mall.

In tandem with the development of the industry, the government has decided to ease existing regulations concerning the establishment of subsidiaries, in line with the WTO requirements. Currently, major international players such as Ikea and Mercedes are represented by a limited number of family-owned conglomerates as they cannot set up fully owned subsidiaries. The relaxing of the laws will give foreign companies greater flexibility, enabling them to review their contracts after the first year. As a result, more cooperation is expected between foreign companies and family-owned groups.

Another positive step towards transparency was the passing of a new consumer law in August 2006, which will protect consumers by requiring prices to be clearly indicated. The law also created a new department, the Consumer Protection Department, which was set up to receive consumer complaints and keep an eye on price hikes.

The Gulf Information Technology Exhibition 2006 – or GITEX as it is commonly known – drew in 1,347 exhibitors from 76 countries, while the inaugural GULFCOMMS, which ran concurrently, featured some of the world’s largest telecommunications firms, such as Nokia, Orange, Thuraya and local firm Etisalat.

Development of the ICT sector has become one of the main pillars of Dubai’s economic development strategy, as the government seeks to establish a successful knowledge-based economy.

Taking a front seat

In order to stimulate the ICT sector, the government initiated several projects to pave the way for the private sector. The first step was to establish infrastructure, such as the Dubai Internet City (DIC) in 2000.

Aside from the sophisticated telecommunications infrastructure, particularly advanced in a region still lagging behind in terms of ICT, a 100% exemption from personal and corporate tax, 100% ownership of business and no currency restrictions nor customs duty were some of the other measures taken to support the free zone.

The latest figures released by the DIC indicate that more than 850 companies have taken root in the free zone, up from an initial 100 in 2000. Some major firms such as Microsoft, IBM, Oracle, Samsung and Sony Ericsson have already set up regional offices within the DIC.

Currently, a $1.3 billion extension project is underway, and should be completed by the end of this year. Furthermore, the DIC is about to set up smart cities, specifically high-tech IT parks, in both Kochi, in the Indian state of Kerala, and in Malta.

The second step entailed the launch of some motivating initiatives. These include the implementation of the Dubai e-Government program, the end of mobile operator Etisalat’s monopoly and the gradual approval of Voice over Internet Protocol (VoIP), among others.

The launch of the e-Government program, one of the first of its kind in the Arab world, has not only improved the efficiency of government services, but also enhanced transparency for businesses. The target to have 90% of services online by 2007 is likely to be met. As a result, the e-Government Readiness Report 2005, published by UN Online Public Network and Finance (UNPAN), improved the ranking of the UAE to 42, up from 60 in 2004. Dubai greatly contributed to this successful ranking.

Free at last

Undoubtedly, the end of Etisalat’s monopoly was hailed as an important step towards greater liberalization of the telecom sector. New licensed operator Emirates Integrated Telecommunication Company should announce its commercial launch date at the end of November. To offer lower costs than its rival Etisalat, du has announced it will charge calls on per-second basis. In addition to the competition between the two operators, this will also generate incentives on both sides with which to woo new clients, given that Dubai’s population is growing steadily.

In addition, the Telecommunications Regulatory Authority (TRA) has just approved the use of VoIP technology, albeit for local calls within the UAE only. International calls using VoIP provider Skype remain prohibited, not for security reasons, but for financial reasons, as charges on calls represent an important source of revenue for telecom operators.

In December’s Arab Strategy Forum 2006 in Dubai, there was much discussion around the improving ties between the UAE and the Asian giants. While this may not be a new phenomenon, two-way ties have recently flourished between China and India, and the Gulf Cooperation Council (GCC) countries.

In a context where both India and China are seeking energy security, the GCC is playing an instrumental role in supplying both countries with crude oil and LNG (Liquefied Natural Gas). China and India also offer significant investment opportunities for UAE-based companies. Similarly, a great number of Chinese and Indian firms have taken root in Dubai. China and India have become the UAE’s main trading partners, with China recently overtaking India for the top position.

At the recent India-Arab World CEO summit, Kamal Nath, India’s minister for commerce and industry, announced that India and the GCC were in the process of establishing a Free Trade Area by 2007. In the meantime, the GCC is also in the final stage of talks to sign a similar agreement with China, also announced for next year.

The latest official figures indicate that bilateral trade between India and the UAE has grown steadily in recent years. Indian exports to the UAE reached $8.5 billion last year, up from $3.3 billion in 2002. UAE exports to India also grew strongly, from $956 million in 2002 to $4.3 billion last year.

Likewise, trade between China and the UAE has also boomed and reached $10 billion in 2005. In particular, China is Dubai’s main trading partner, with trade valued at $8.5 billion. In addition, it is estimated that bilateral trade between China and the UAE, for the whole of 2006, will reach $15 billion.

While the UAE primarily exports mineral products, mainly oil, and aluminium, it imports machinery, electrical and electronic goods from China, as well as textile products. These two sub-categories of imports account for around 60% of total imports.

Taking root in the UAE

Currently, some 1,000 Chinese firms are registered in the UAE and this figure is poised to increase over the next few years. But perhaps the most distinctive and symbolic feature of this Chinese presence in Dubai is leading property developer Nakheel’s Dragon Mart, the largest trading hub for Chinese products outside Mainland China. Inaugurated in 2004 by Sheikha Lubilliona al-Qasimi, UAE minister for economy and planning, the mart is jointly promoted by Nakheel and Chinamex Middle East Investment and Trade Promotion Centre and currently serves as a centre for activity in the Middle East for Chinese businesses.

Meanwhile, according to UAE official figures there are 6,000 Indian firms operating in Dubai, 10% of which are located in the Jebel Ali Free Zone and whose activities range from steel to IT. This figure is set to increase over the next few years. A visit in April this year by three high level delegations from the Indian States of Delhi, Punjab and West Bengal to the Jebel Ali Free Zone proved extremely valuable, as the delegates were able to fully appreciate the high quality of the environment for Indian companies to invest.

Reaping the benefits

Conversely, China and India have also benefited from the economic boom in the GCC, as these countries have started to invest massively in the two fast-growing economies. This can be attributed to the great number of investment opportunities offered in an array of sectors, from real estate and construction to manufacturing and IT.

While UAE-based investments in India have soared, Nath recently added that India was targeting investments from the Gulf to reach $2 billion over the next three years. UAE-based companies such as Emaar have already completed some major infrastructure projects such as the Convention Centre and the Golf Resort in Hyderabad. In addition, DP World is already operating six ports in India.

Similarly, China is getting a lot of attention from GCC investors. DP World already operates seven ports in China. Sultan bin Sulayem, Chairman of Dubai World, recently mentioned that Nakheel was considering developing high-end real estate projects in China due to strong demand. In addition, GCC investors have also shown interest in private equity investment in China. As a case in point, Jade Alternative Investment Advisors, an investment consultancy, has recently announced it intends to raise a $150 million fund to invest in private equity funds operating in China. Jade primarily serves Middle Eastern institutional and corporate investors.