Arab Asian Financial Forum urges Arab and Asian financial services community to explore wealth of opportunities

Published October 16th, 2006 - 08:11 GMT

The Middle East, with a population of more than 250 million and enormous wealth, is catching the undivided attention of the many Asian countries such as China, Japan, Malaysia and India. Many Arab countries have signed free trade agreements with China, Japan and India and officials hope that these accords will boost growth both in the Middle East and Asia. The Asian giants, who have recorded the highest GDP growth in the world, are making impressive trade agreements with the GCC countries as the volume of trade is growing each year. The GCC has wide economic and trade relations with China and Japan and the future looks very promising.


The Arab Asian Financial Forum (AAFF) summit held in Singapore during the IMF week discussed many important issues pertaining to Arab world developments in Banking, Finance, Trade, Investment, and, potential synergistic opportunities in Arab Asian regions. The two day summit took place in Meritus Mandarin, Singapore and was attended by leading economists, bankers, and business leaders from Arab and Asian regions.

Asia consumes 23 million barrels per day, which is 30 percent of the worlds demand. The GCC exports two-thirds of its oil output to Asia, which could more than double by 2020. Further, more than half of GCC exports go to Asian countries while a third of GCC imports are from Asia. Together, the GCC-Asia oil and non-oil trade figure is approximately $200 billion. That figure is certain to grow as negotiations for free trade agreements are currently under way with China, India and Japan.

The summit discussed wide ranging issues such as synergistic opportunities in the Arab Asian region towards trade, investment and Finance, Islamic Banking developments in the Arab world, Islamic banking developments in the Asian region, Real estate finance and development, insurance, and economic integration perspectives. Mohammed Fadhel Khallaf, Kuwait ambassador to Singapore welcomed the gathering and dwelled upon the need to have stronger ties for overall prosperity of the entire region. He was optimistic that the discussions addressed many key issues of relevance in the region.

During his speech at AAFF, Adnan Ahmed Yousif, Chief Executive Officer of the Albaraka Banking Group, said that “challenges at the International level arise from the effects and consequences of the globalization and international financial liberalization. Like any other economic sector, Islamic Banks are not exceptions.

“As I see it, globalization is a challenge and a key factor for encouraging institutions to accelerate building their internal capabilities to meet international competition. Unless Islamic Financial Institutions are fully aware of such challenges they would remain confined to their local markets thus posing a threat to the natural growth of our developing industry,” he added.

The use of oil money in the development of the economies of the GCC countries and the increase in Japanese business in the region were discussed between officials. There is an increasing share of GCC trade was with Asia and that businesses in new fields had started to rely on one another. The GCC and Asian official also discussed building supranational ties and relations between non-government organizations, and the need to shift production chains and transfer technology to the GCC countries.

Speaking at the Arab Asian Financial Forum, Bank Negara Malaysia Governor, Dr Zeti Akhtar Aziz, announced that the next AAFF Summit will be held in Malaysia. Later during the day, HE Badr Mashari Al Humaidi, Kuwait’s Minister of Finance delivered a speech and a series of Arab Asian Financial Excellence Awards and Arab Asian Financial Recognition awards.

One example of the booming trade is the press report indicating that the total trade between China and the GCC rose considerably during the first half of 2006, where unofficial statistics estimate that total trade reached $22 billion. Since 2004, China and GCC government officials have been involved in negotiations to set up a free trade agreement. July 2006 saw the closing of the third round of negotiations. Automobiles, communications, electrical appliances, pharmaceutical materials, fashion and foodstuffs account for the most significant products exported to the Middle East region, in which the air shipment sector plays a major role.

Regional economic diversification received a boost when the Gulf Cooperation Council (GCC) and India - which signed a bilateral framework agreement for economic cooperation in August 2004 - announced that final negotiations for a free-trade agreement (FTA) would start, to thrash out niggling issues like rules of origin and differential tariffs.

R. Seetharaman, Dy CEO, Doha Bank delivering the key note address on ‘Synergistic opportunities in Arab Asian region – Finance, Trade and Investment’ explained the significant events and trends around us which are shaping the global economic alignment and cooperation climate. Events such as rising energy prices and energy security concerns, difficulties in arriving at consensus on Doha agenda, Middle East conflict severely impacting the economy of Lebanon – all are creating new dimensions and economic challenges.

 

He said that “every bloc wants to access other markets while giving as little away as possible.  Removing bottlenecks of Global trade and enabling all countries to participate in global economy is the biggest challenge for economic leaders.  Globalisation, deregulation, consumerism and technology has made the world borderless and highly competitive.  In this competitive environment, Asian countries and blocks – GCC, ASEAN, India, China, Japan all have done extremely well.”

Talking about Asian resurgence R. Seetharaman explained, “Asian region of 53 countries, including a part of arab region and GCC consists of 60% of world population and 30% of area, and has three of the four largest economies of the world.  It has become a strong base for manufacturing sector and services sector.  It is leading the world in terms of Human capital. The ASEAN block, consisting of 10 countries, has 10% of world population.  It has shown remarkable resilience in coming out economic and financial crisis and is emerging as one of the most competitive economic regions.”

India has embarked on an economic diplomacy mission with negotiations on an FTA with the members of the Association of Southeast Asian Nations, affirming commitment for a South Asian Free Trade Area and stretching it to the GCC. On the anvil are FTAs with South Korea and Israel, economic engagement with the Bay of Bengal Initiative for multi-sectoral Technical and Economic Cooperation countries, a proposed Comprehensive Economic Cooperation Program Agreement with Mauritius and a unilateral tariff preference scheme for the least-developed African countries.

With India’s economy forecast to expand about 7 percent during the current fiscal year, India’s proposal for an "Asian Community" implies creating an arc of advantage to rival the EU. While FTAs appear to reduce the efficacy of the World Trade Organization (WTO), they may actually help remove impediments to movement of goods and services and make the WTO more beneficial.

In addition, Japan reported total imports from UAE from January to April 2006 amounting to AED 38 billion, representing a growth of 65 percent over the corresponding value for the same period in 2005. Imports of mineral fuels accounted for much of this growth.

Japan's imports from UAE had been primarily mineral products, consisting mainly of petroleum oil. From a share of 98.5 percent to the total imports in January to April 2005, the share of the product group increased to 99 percent in 2006. Thus, despite the 25 percent growth in imports of base metals and products thereof, the share of the product group declined from 1.1 percent to 0.9 percent. Imports of the other product groups actually registered declines.

Japan's exports to UAE, on the other hand, remained well below the value of imports, reaching AED 7 billion for the first 4 months of 2006, leading to a 72 percent increase in trade deficit for Japan. Trade deficit of the period was placed at AED 31 billion, from AED 18 billion for the same period in the previous year. Vehicles continued to be the main exports of Japan to the UAE. Figure 1 shows that vehicles, aircrafts and transport equipment and parts accounted for nearly half (47 percent) of the total, for an export value of AED 3.4 billion, which was more than a billion higher than the corresponding value a year earlier.

Machinery, electrical and electronic products constituted the second largest group in terms of contribution to total exports, with export value of AD 2 billion, or 26 percent of the total. These were mainly machineries used in construction and electronic products. Japan is the biggest supplier of video telephones, cameras and other video-audio equipment in the UAE. The group posted a growth of 28 percent over the same 4-month period a year earlier.

Largest export growth of 110 percent was recorded for base metals and articles thereof, with export value increasing from AED 318 million to AED 668 million. Largest contributors to the group were construction materials of iron and steel. Other groups that posted increases were plastics and rubber products, from AED 382 million to 508 million.; textiles and articles of textiles, from AED 132 million to AED 171 million; and stone, cement, ceramics and glass products, from AED 67 million to AED 86 million.


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