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Dubai: glittering underworld.

Dubai is one of Asia's major trading centres for the gold trade. Magda Abu Fadil reports on its brilliant prospects and the criminal aspects of a largely unregulated business.

The fluctuations of the gold market may unnerve many investors. After sinking to a seven-year low at the beginning of the year, it has surprised many speculators with a display of rude health in the summer. Whatever its fortunes on the markets, however, gold remains the king of metal commodities in the Middle East, smugglers abound and regulation of its trade is a distant prospect.

Despite efforts in the Gulf Arab states to try to legislate specifications for gold and silver, officials admit that market manipulation, speculation and illegal trading require a gargantuan effort and an army of law-enforcement personnel to regulate trading.

A case in point is the involvement of the Memon brothers of India, suspected of involvement in the March bomb explosions in Bombay which killed about 300 people and injured 1,250. Indian authorities said the two men had fled to Dubai, where more than 150,000 Indians live, a day after the blast. Diplomats in the region were surprised that the UAE police had not arrested Yakub and Ismail Memon. But the UAE has no extradition treaty with India.

The Memon brothers have been described as notorious smugglers who apparently hatched the plot to avenge the large-scale deaths of Muslims a few months ago in Hindu-Muslim rioting, which also affected their flourishing meat trade. Indians in Dubai speculate that the authorities may have repatriated the Memons or ordered them to leave in order to end the fuss about the case discreetly. Diplomats commenting on India's efforts to lay its hands on the brothers note however that they seemed curiously unconcerned about another prime suspect - the Bombay underworld chieftain, Dawood Ibrahim, who has resided in Dubai for about 10 years.

Indian businessmen who know Ibrahim say he has a big office in a Dubai high rise building and has sponsored residence permits for hundreds of compatriates working in the UAE. He has been described as a billionaire in his thirties whose wealth was amassed primarily from illegal gold and currency trading.

"He denies illegal activities, but his business is widely believed to cover gold and currency," says one Indian businessman. "He smuggles large quantities of gold from Dubai to Bombay, mostly by sea. Dubai has got nothing against him because there are no restrictions on exporting gold." According to this businessmen, Ibrahim is well known and influential in both Bombay and the UAE and is often visited by politicians and other noted Indian figures.

According to official figures released in the UAE, Dubai's imports of gold jewellery surged by nearly 39% in the first nine months of 1992 due mainly to a sharp increase in exports to India. Imports stood at 22.3 tons, worth $268m dollars, compared with 16 tons worth $192m in the first nine months of 1991, said a report by the Dubai Chamber of Commerce and Industry. Dealers said the rise was the result of an increase in exports to India after it eased restrictions on gold imports last year as part of its economic reforms. "India has remained the biggest gold importer from Dubai in both jewellery and bullion," one dealer said. "Demand has further increased there following the government decision to facilitate the import of gold."

Dubai has emerged as the largest gold market in the Gulf region, handling more than 9% of the world gold trade and nearly two-thirds of the business in the Middle East. Not to be outdone, Bahrain is setting up its own watchdog organisation for gold trading.

According to Bahrain's Akhbar al Khaleej, the Ministry of Trade and Agriculture has undertaken a project to expand the operations of its Gold Commission. The commission in turn is reviewing proposals by officials and trades on how to regulate gold trading and eliminate obstacles hampering the business.

Al Ayyam cited the director of the gold and jewellery department at Bahrain's Chamber of Commerce, Mohammed Abdullah al Manai, as saying that the Finance Ministry was eliminating the 10% tax currently imposed on imported natural pearls - Bahrain being a producer of pearls - to benefit the gold trade and increase the metal's imports.

If regional regulations are implemented, experts say, specifications would require that 24-carat gold be fully pure while purity in 22 carat must be 916.6 per thousand. In 21 carat, it is set at 875 and in 18 carat at 750. Gold and other gem pieces would also have to be stamped in both English and Arabic, showing their grade, date of stamping and the name of the dealer.

Fourteen carat gold (popular in the United States) is widely viewed in the Arab countries as junk and dismissed with contempt. "Anything less than 18 carats is totally unacceptable," sniffed one dealer. Further afield, Turkey is coming into its own in gold trading and has decided to set up a gold "bourse" in Istanbul and end the government's monopoly on the importation of bullion.

Turkish officials told reporters they hope to turn their country into a regional gold trading centre. One senior cabinet officer says banks licensed to import will be permitted to purchase gold from international dealers. To date, Turkey's Central Bank has maintained control on gold imports, which currently stand at about 130 tons a year.

Earlier this year, Turkish officials said the gold exchange could act as a magnet for business in the Middle East, the Caucasus, Central Asia and the Balkans. Turkish economists believe the exchange will draw gold reserves and absorb them into the economy and that a unit for gold ore purification may also be established in Istanbul.

The Geneva-based World Gold Council (WGC) sees a gold boom on the horizon, triggered by a drop in prices and expansion of the re-export markets. According to its Middle East director, Andre Bisang, the price drop will lead to a sharp rise in demand, most notably in the Middle East, Southeast Asia, India and Latin America, which consume 55% of world purchases.

"During the last two years, the gold jewellery market needed more gold than the West could produce and it's possible that 1992's demand could exceed the world's current gold production," he said. "This means all gold used for electronics, dentistry, gold coins and other decorative and industrial purposes will have to come from other resources like gold reserves and scrap gold," he added.
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Title Annotation:Business & Finance; Dubai as one of Asia's major trading centers for the gold trade
Author:Fadil, Magda Abu
Publication:The Middle East
Date:Jul 1, 1993
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