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Investing, not borrowing.

IT IS NOT ONLY Saudi Arabia that has embarked on a foreign investment and joint venture drive. In many respects other GCC states (particularly the UAE) have a lead on the kingdom. In recent weeks, trade delegations from Abu Dhabi, Oman and Qatar have visited a number of European Community capitals and in early December Bahrain was due to hold an industrial products exhibition and investment conference in London.

At the end of October, over 400 officials and businessmen from the GCC states and the EC held an industrial conference in Doha, Qatar to discuss prospects for increasing trade and investment. Qatar's minister of industry and energy, Abdullah bin Hamad al Attiyah, declared that "the conference was convened against the backdrop of fundamental world changes and a deep shift in some economic systems which will have a major impact on the future of the world. These include the economic reforms in eastern Europe and the emergence of world economic blocs. Here lies the significance of topics under discussion, such as the obstacles to trade exchange, encouraging joint investments and the transfer of technology." In 1991 bilateral trade between the GCC/EC totalled $34bn with the trade balance heavily in favour of Brussels.

Even the Arab League has joined in the call for all member Arab states to undertake reforms to attract investment for development, saying that Arab economies have been burdened by too much borrowing. According to Yusuf Nimattalah, assistant secretary-general for economic affairs at the League, some $37bn in Arab private capital is invested abroad. The aim of the League is to persuade Arabs to repatriate their capital for investment in the region.

Perhaps the seriousness of Gulf states in trying to attract foreign investment is reflected in the call made by the GCC assistant secretary-general, Abdullah al Quwaiz, for the state-run oil sectors in the GCC to be opened up to private investment. Only in this way could they expand sufficiently to meet expected world demand for oil and oil-products. Al Quwaiz believes that Gulf states, burdened with persistent budget and current account deficits, do not have enough funds for projects to boost oil and gas production and refining capacity.

Private sector firms have been kept out of the oil sector in the GCC states because governments regard it nervously as a strategic sector. Saudi Arabia, Kuwait and the UAE are still reluctant to allow foreign participation in upstream operations, although Saudi Arabia is encouraging investments in downstream petrochemicals. One estimates says that $70bn of investments in the next decade will be needed by Gulf producers to develop and expand the oil and gas sectors.

Technology transfer is a major reason for promoting joint ventures with the West, Japan and the East Asian states of South Korea and Taiwan. Following in the footsteps of Saudi Arabia with its Al Yamamah Economic Offset Programme, both Kuwait and the UAE have announced similar, albeit much less ambitious, programmes. Foreign companies which expect to win major contracts in Kuwait and the UAE will have to invest in high technology and other projects, either in the Gulf country or in third countries as long as they bring in a return to both joint venture partners.

The UAE Offset Programme, launched in 1990, applies only in respect of defence contracts with the federal armed forces and is regarded "as a valuable investment for the country's economic development." But the GCC assertion that "both will benefit - we will get technology and they will get markets" has failed to impress especially the Americans and the Europeans.

The first UAE defence procurement contract requiring an offset investment was a $250m deal awarded in June 1991 to McDonnell Douglas to supply 20 Apache attack helicopters to the UAE armed forces. No proposals for offset investment have been announced, although according to Clifford Chance, the British legal firm which is extensively involved with offset investment in the Gulf, British Aerospace and Thomson-CSF are reported to be well advanced on a variety of potential offset investments in anticipation of further defence contracts. Here, of course, the Kuwait war has been a major boost, since all the GCC states have announced major defence expenditure increases which will continue well into the next century.

However, the two major stumbling blocs, according to American businessmen, are the lack of incentives and the absence of copyright laws to protect intellectual property and patents. It is not clear, for instance, whether a 100% foreign-owned business can be set up in the GCC and enjoy all the advantages of both home companies and joint ventures with foreign partners.

The UAE has now drafted a federal trademark law which should be promulgated by the end of this year and will supercede the existing Ras al Khalmah trademark law. This should make the Americans and Europeans happier, although the law is vague regarding intellectual property protection which would be a pre-requisite for greater technology transfer. Washington has been putting pressure on the UAE for intellectual property and patent protection legislation. It has even gone as far as threatening punitive action against Dubai particularly since the emirate is a major transit entry point, and a manufacturing and reexport base for an increasing amount of counterfeit products ranging from textiles to cassette tapes and computer software.

Gulf states, says Abdullah el Mohairby, president of the Abu Dhabi Chamber of Commerce and Industry, are pursuing policies of economic diversification. The private sector is now increasing its role in contributing to the GDP of the respective countries. The UAE is seeking joint ventures with foreign partners for export-oriented products to neighbouring Kuwait and Iran, which are both pursuing a policy of reconstruction following wars with Iraq, and the region as a whole.

Agriculture and fisheries seen by Gulf states as "important and indispensable pillars to economic and industrial development", are developing into major sectors in the GCC states, he claims. A number of countries in the region have embarked on new projects and investment in the sectors which offer exciting opportunities for local and foreign companies.

The Abu Dhabi Municipality, for instance, has recently announced 28 new agricultural projects, and set aside a further 85,000 hectares of land to be developed for agricultural purposes. The Arab Authority for Agriculture Investment and Development is investing $11m in the sector in the UAE, while Saudi Arabia is aiming to become self-sufficient in food production and has invested heavily in farming projects.

Oman has also embarked on an extensive agribusiness and fishing development programme costing up to $1bn over the next decade.

Qatar is also considered a potentially good market for joint ventures, especially now that natural gas is starting to come on stream from the giant North Field. However the emirate has a major cash flow problem, although Qatari officials see this as merely temporary. The uncertainty over the proposed aluminium smelter at Umm Said near Doha has left potential Western partners such as Clivia House of Britain and Pechiney of France frustrated. The delay has not only been about funds but also about a guaranteed supply of gas at the right price as energy feedstock for the smelter and the allied water plant. However, officials such as Sheikh Hamad al Thani, president of the Qatar-Chamber of Commerce and Industry, stated in London recently that several big projects are likely to be implemented over the next few years, which will have joint venture and technology transfer opportunities.
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Title Annotation:Business & Finance; foreign investment
Publication:The Middle East
Date:Dec 1, 1992
Previous Article:Gulf economies: give us room to trade.
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