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Challenges and opportunities in exporting to the Middle East

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The Middle East's growth outlook makes it an enticing region for exporters.  

Though much of the region's dynamism has typically been associated with the expansion of the oil and gas sector in countries such as the United Arab Emirates, Saudi Arabia, Qatar and Kuwait, there is strong push in many countries in the region to secure a future beyond hydrocarbons and to raise living standards.  

Such ambitions are driving investments in downstream industries, such as petrochemicals, transport facilities and social infrastructure - airports, port facilities, trains and hospitals, for example. 
 
Export opportunities abound 
Dubai's economy is bouncing back after its own financial crisis within the global financial crisis when it had to undertake a radical debt restructuring.  

Dubai is continuing to capitalise on its superior infrastructure and a strategic location between Asia and Europe - Dubai international airport is the world's fourth-busiest international passenger and freight airport, handling over 50 million passengers a year and the government will continue to invest in the airport's expansion.   

In Qatar, hosting of the World Cup in 2022 is reportedly behind a plan to spend $120bn on infrastructure development.  

And Saudi Arabia, the world's largest oil producer, is keen to boost living standards - the ninth national development plan (2010-2014) allocates $385 billion to fund projects that will increase development in infrastructure, medical services, educational capacity, and residential housing.    

However, the region's appeal as an export destination isn't just centred on big ticket infrastructure spending.

Many countries in the region are seeing the emergence of 'middle class' consumers, which is encouraging more diversified consumption choices - including a desire for higher quality, more customised, goods and services.   
 
Challenges of doing business  
Though the Middle East is an appealing market, prospective exporters will need to do their homework before they rush to clinch a contract.  

It is difficult to generalise about the business environment in the Middle East as it varies from country to country.    

The commercial environment in the United Arab Emirates, one of the region's more established export destinations, is generally regarded as favourable.

This is reflected in its top quartile ranking for 'ease of doing business' in the World Bank's Doing Business gauge.   

However, the UAE's rankings in other areas of the Doing Business gauge are less impressive - in particular, the UAE ranks in the second bottom quartile of countries for "protecting investors" and "enforcing contracts".   

This means that commercial dispute resolution procedures can be protracted. In addition, the US Commercial Service observes that a common problem experienced by foreign firms is long delays in receiving payment for work completed.  

The United Arab Emirates does measure up well in the World Bank's suite of governance indicators on "controlling corruption", "rule of law" and "regulatory quality" - the UAE is in the first or second quartile of countries, in fact.  
 
Financial barriers facing exporters  
For any businesses exporting to the Middle East, an important consideration is how to finance a deal.

The commercial finance market will consider factors such as your company's track record in delivering a product, quality of management systems, balance sheet strength and cash flow management before deciding whether to lend funds. 

However, sometimes commercial banks are unable to provide finance for various reasons, such as transactional or country risk or a long payment cycle and associated financing terms.

This is where export finance can help.  

As Australia's export credit agency, Export Finance and Insurance Corporation (EFIC) assists Australian businesses to win and finance export, offshore investment and onshore export-related opportunities in those situations where their bank is unable to provide all the support they need.  
 
The high Australian dollar  
The high Australian dollar, which has appreciated around 20% against the US dollar since 2006, can have an impact on the competitiveness of Australian exports in international markets including the Middle East where several of its currencies are linked to US dollar.

The UAE dirham is one example, meaning that as the Australian dollar strengthens against the greenback, it also strengthens against the dirham. 

In this environment, exporters may need to re-evaluate their business strategies, perhaps by taking advantage of the higher Australian dollar to import key inputs into Australian manufactured goods.   

Australian exporters may also consider establishing complementary operations offshore, such as manufacturing, distribution or sales support.  
 
Establishing a local presence 
Countries in the Middle East have different legal and regulatory standards to those that apply in Australia.

Some important areas to focus on include labour regulations and practices, tax provisions, import restrictions and banking.  

The Middle East represents an important export market for Australian businesses, particularly some of the stronger economies which have emerged from the global financial crisis in reasonable shape.  

There are many issues to consider when assessing the value of exporting or investing, including the business, financial and operational risks involved.

Being aware of, and prepared to adapt to, a new environment is paramount to successfully operating in the Middle East.  

* Robert Dravers is Director, SME & Mid Market, EFIC.

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