Memorandum submitted by the Middle East
Association
The Middle East Association is the UK's premier
organisation for promoting trade and relations with the Middle
East, North Africa, Turkey and Iran. The members of the Association
cover all sectors of industry and commerce including: Banking,
Finance, Law, Consultancy, Manufacturing, Retail, Education and
Training, and are responsible for the vast majority of all UK
investment and trade with the region. Small and Medium Enterprises
are particularly encouraged to join the Association.
Mr Michael Thomas, Director General
Mr Robin Lamb, Director of Trade & Government
Relations (lately HM Ambassador Bahrain, 2003-06; Director Business
Group 6, Trade Partners UK, 1999-2001)
Note: In presenting its written evidence to
the Committee, the Middle East Association wishes to record its
appreciation for the collaboration and invaluable support for
its activities provided by UKTI, British Ambassadors and overseas
staff. The points made in our written evidence are intended as
positive recommendations to strengthen the ability of Government
to deliver the support for trade and investment to which they
are clearly committed. The MEA's proposals in no way detract from
the its regard for the work done by UKTI and British Embassies.
What should be done to sustain and increase Britain's
export strengths? Is there more the Government or UKTI could do
to support exporters, to identify key sectors or to reprioritise
markets?
1. The IMF reported in May 2009 that
the global economic downturn was not significantly affecting Middle
East & North Africa (MENA) countries through direct exposure
to financial stress or toxic assets. But it was having an indirect
effect on oil producers[45]
through a sharp drop in oil prices and the impact on exports of
the contraction in global demand. Together these meant that MENA
oil revenues in 2009 would be less than half what they were
in 2008 (comment: it should be noted that the price of oil
has strengthened appreciably since the IMF report was published).
2. Furthermore, the tightening of international
credit markets and lower investor appetite for risk was depressing
local asset prices and reducing investment. This affected regional
oil importing countries too which were also experiencing reduced
FDI, tourism and remittances. Growth was slowing in both exporting
and importing countries—but with a lag and more moderately
than in advanced economies.
3. But both oil exporters and importers
were benefitting from lower import costs and reduced project management
and factor costs as a result of steep falls in the price of steel
and other commodities and services. Middle Eastern oil importers
(and some exporters, such as Libya) had generally developed relatively
limited links to global financial markets so their financial institutions
and economies escaped the worst ravages of the global financial
crisis.
4. As a result, the IMF projected continued
average economic growth of 2.3% for MENA oil exporters and 3.2%
for oil importers. Many MENA oil exporters were expected to maintain
their spending programmes (thereby contributing an important stimulus
to global demand) and their sovereign wealth funds (SWF), which
had built up substantial assets before the global economic downturn,
were continuing to pursue profitable investment opportunities
abroad in real estate, retail and finance.
5. The IMF predicted that MENA oil exporters
and importers between them would import goods and services in
2009 approaching $1 trillion in value.
6. In 2008, UK visible exports to MENA countries
amounted to £12.7 billion. The size of both the market
and the UK share suggest that even in the downturn, there are
significant opportunities in the Middle East for UK exporters
of goods and services, offering both absolute opportunities and
opportunities to compensate for the contraction of markets in
other parts of the world suffering more directly from the global
economic crisis.
7. UK exporters should be alerted to these
opportunities. The Government should reduce pressures on businesses
which inhibit their ability to pursue those opportunities and
should ensure that information and support is provided efficiently
and in a way that facilitates, rather than adds to the costs of,
market entry.
8. This is an additional reason why the
Government should lighten the regulatory burden on all SMEs, be
they exporters or domestic suppliers.
9. In the information age, much published
information is available on the Internet. The Middle East is a
region which is liberalising its economies and increasing transparency
but individual countries are doing so at variable rates and accurate
commercial information can be hard to come by (as evidenced by
the prices specialist media and political risk analysis companies
can charge). There is therefore an opportunity for Government
& UKTI to reduce costs for SME exporters by complementing
information available on the Internet.
10. UKTI already provides the Overseas Market
Information Service (OMIS) but charges companies who use it. This
does not reduce but increase costs for SME exporters. This can
only discourage potential exporters and reduce the competitiveness
of established exporters, at a time when the credit crunch has
constrained the availability, and increased the costs, of commercial
credit.
11. HM Treasury should recognise there is
at least a temporary market failure and permit UKTI to provide
OMIS services to exporters, particularly SMEs, free of charge
until the banking system is able to provide the credit exporters
need.
12. UKTI imposes targets on staff overseas
for the generation of OMIS reports. These targets are linked to
revenue generation but their effect is often to prevent staff
from getting out of the Embassy to establish networks and acquire
the information OMIS customers need. This threatens to undermine
the quality of OMIS reports and the value UKTI staff can add to
information available on the internet.
13. The removal of charging is likely to
increase the demand for OMIS services. But removing charges and
targets will reduce staff time spent on filling in forms and returns
and allow them to return to their core function and to provide
more proactive and better informed support for UK exporters.
14. UKTI should absolve their staff overseas
of their current OMIS targets.
15. In oil producing and exporting countries,
in particular, where natural resources are owned by the state
and revenue accrues to the central government, the role of the
government remains central to even a diversified economy and governments
continue to be a major customer for goods and services as well
as the source of significant contracts. To varying degrees, major
Middle Eastern government purchasing decisions will in part be
influenced by bilateral political relationships and the funding
arrangements of partner governments (as when the US Government
gifts defence equipment to foreign governments).
16. Middle East society, and therefore government
and business, is one where the family, personal relationships
and individual decision makers matter more than institutions.
Moreover, status is important in the Arab world where decision
making is concentrated in the most senior government and business
hands: there is little delegation. Senior Arab visitors can be
dismayed by being received by a junior Minister or executive,
both on their own account and because of the way this will be
seen in their home countries—let alone their instinctive
assumption that the junior person meeting them will not have full
decision-making authority.
17. Foreign governments and businesses therefore
need to devote time and resources to identifying and cultivating
the right contacts in Arab governments and businesses to support
their exporters.
18. This is recognised by the UK's competitors
in their use of Presidential, Ministerial and senior politicians'
time and the deployment of concerted lobbying efforts (eg US Government
and Congressional visits and visits by senior government figures
with established personal connections to Arab decision makers).
Visiting Heads of State also receive high level and flattering
public attention in Washington, Paris and other capitals.
19. In London, British Ambassadors can find
it difficult to obtain the time of the Prime Minister to receive
the Head of State of their host country, even once a year. Similar
difficulties are often encountered in securing a Secretary of
State's time to receive a senior Ministerial visitor. This perceived
neglect or slight can affect business for UK exporters in markets
where government and private sector buyers will take note of,
if not a direct lead from, government attitudes to a foreign country.
20. 10 Downing Street should allow
the presumption that an Arab Head of State visiting London even
privately would be received by the Prime Minister once a year.
A government representative at Ministerial level should call on
a visiting Arab Head of State at his place of residence in London.
Ministers should make themselves available for a meeting with
the equivalent Arab Minister when the latter visits London. These
courtesies are particularly important during the current economic
difficulties but beneficial at all times.
21. Overseas visits by the Prime Minister
and Cabinet Ministers are particularly effective: Arab governments
frequently complain of British neglect and contrast it with the
attentions of competitor governments. While pressing for as many
senior Ministerial visits as can be managed to Arab countries,
the MEA recognises the real constraints on senior Ministers' time.
Attention paid to visitors in London has less impact but mitigates
the sense of neglect while taking less time than an overseas visit.
Periodic telephone calls are also an effective adjunct in the
intervals between face-to-face meetings. Letters lack the personal
touch and emails are rarely read.
22. The Middle East Association staged a
high profile conference on the financial services sector relationship
between the City and the Gulf on 25 June. The conference
was delivered on behalf of the City Corporation and was partly
intended to support the City's action to promote the City's services
to the Gulf market. The Rt Hon The Lord Mayor of the City of London
delivered a keynote speech and the event was sponsored by the
Qatari Government's financial services as well as HSBC and Europe
Arab Bank. The conference is the fourth annual event in a series
and has been in preparation for over six months. The Government
declined to provide a Ministerial speaker for the occasion and
the Minister of Trade instead addressed a simultaneous conference
organised by the "World Union of Arab Banks", a Lebanese-based
organisation with the global reach of US baseball's "World
Series".
23. The Government have also declined to
provide a Ministerial speaker for an MEA conference on infrastructure
in Egypt (sponsored by Invensys Rail & Skanska) and a third
conference on Libya (sponsored by the law firm Trowers & Hamlins
and the Europe Arab Bank).
24. The British Government should apply
the priorities it assigns to overseas markets also to the events
Ministers will support when there is a conflict of dates between
events addressing priority and other markets. The Government should
also decide in these circumstances whether it should support a
UK export-focussed event supported by significant UK firms seeking
to win business in overseas markets or a foreign body using London
as a venue with questionable UK export benefits arising. This
decision should have been clear when the City Corporation's support
for the MEA's City & GCC conference showed the financial service
sector's own assessment of relative merits.
25. These and other examples point up a
growing weakness of coordination between and within Government
Departments. In addition to Ministerial time being allocated in
a way inconsistent with the authorities' own priorities, the ability
and even the intent of relevant Departments to coordinate UK export
support activity towards individual markets is increasingly wanting.
When the MEA, for example, is organising a trade mission to a
particular market in a specific period, the mission's prospects
and commercial viability are undermined when another organisation
proposes a similar action in the same market and timeframe. This
is competition. But when the MEA's plan is known to a Department
and another division of the same Department subsequently initiates
or supports a competitive project, the Government directly undermines
the export activity of the MEA and the UK firms who are members
of the MEA mission.
26. Government Departments should coordinate
export support activity within and between themselves to ensure
that they do not compete and so undermine private sector efforts.
They should seek to ensure differentiation in the focus, location
or timeframe of UK export activity they support.
17 July 2009
45 Oil exporters in MENA region account for 65% of
global oil reserves and 45% of natural gas reserves. They play
a leading role in the international trade in hydrocarbons. Back
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