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Hopes pinned on Gulf trade deal

The Press, Christchurch

Hopes pinned on Gulf trade deal

25 January 2010

Closer trade ties with the Middle East will culminate this April with the signing of a free trade agreement. AMANDA MORRALL finds out why the exporter’s road to Mecca is pointing in that direction.

To businessman Norm Morgan’s way of thinking, Kiwi exporters need only to ask themselves one question: "Where’s the money?" Unfold a map, follow the dollars and the answer is as clear as a convoy of camels in the desert.

"At this point in time, the Gulf states have the money because they have the petro-dollars at the end of the day," says the director of Tradex, an Auckland-based outfit that aids business abroad. Current woes in Dubai aside - something Morgan dismisses as a passing technical adjustment - wealth in the cradle of civilisation is far from wilting.

By 2014, sovereign wealth funds in the Middle East (accumulated pools of money set aside by governments for investment) are forecast to reach $9 trillion. The American government, by comparison, carries an equivalent amount in debt.

In recognition of the region’s growing economic strength and significance, New Zealand exporters are extending their reach.

Over the past four years, trade with the region has grown at a rate of 20 per cent annually. In the year to June 2009, exports to the Gulf Co- operation Council totalled NZ$1.3 billion, a 218 per cent increase since 2000.

The trading group that makes up the GCC - Bahrain, Oman, Kuwait, Saudi Arabia, United Arab Emirates and Qatar - now ranks as New Zealand’s seventh largest trading partner with bilateral trade valued at $3.85 billion.

With the signing of the free trade agreement with the GCC slated for April this year, the numbers are expected to go up.

Matt Crawford, with the Ministry of Foreign Affairs, says exporters already doing business there will be further advantaged with the removal of tariffs, currently around 5 per cent. New exporters will have the added benefit of reduced regulatory barriers, leveraged by closer governmental and business ties.

The GCC’s tariffs are generally low by international standards but competition for the affluent middle class in the Middle East market is intensifying.

Australia, the European Union, Indian, China, Japan, and Korea are among other countries trying to broker free trade agreements with the GCC.

New Zealand is one of a handful of Western countries (the others are all Scandinavian) to conclude in principal an agreement, giving it a head start above would-be competitors.

Crawford, head of the ministry’s trade policy liaison unit, says New Zealand has the good fortune of coming into the market with goods and services that are in strong demand. Dairy, sheep meat, building supplies and technology, and education are at the top of the list.
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"There’s a ripe market that is ready and willing to pay for that produce." One might expect someone like Morgan, who has helped New Zealand and Australian companies forge closer ties in the Middle East for 20 years now, to celebrate.

But the tradeshow organiser expresses annoyance that the Government has waited till now to capitalise on New Zealand’s good standing in the Gulf.

"It should have been done ages ago," he says. "We are way behind in terms of New Zealanders making use of the relationships that we could be having with the Gulf states."

Two members of the GCC, the UAE and Saudi Arabia, are among the world’s top 30 importers as ranked by the World Trade Organisation.

New Zealand’s reputation, its manner of doing business and export offerings have, for years, given the far- flung nation an advantage over international competitors, Morgan maintains.

And yet he blames successive governments in New Zealand for ignoring the Middle East in favour of the Asia-Pacific. In his opinion, that strategy has proven flawed because it exposes New Zealand to a "double whammy" of economic misfortune during recessionary periods.

If business opportunity in the Gulf has been wasted, many, including Michael Vukcevic, a business development specialist with Ernst&Young, are keen to make up for lost time.

Vukcevic, also chairman of the New Zealand Middle East Business Council, believes the free trade agreement will signal exporters here and abroad that it’s time to get down to business: "It will help businesses to get over there, build a relationship and show commitment to the region.

"Once they’ve made that investment, they’ll start to see the return." Through his work at Ernst&Young, Vukcevic says he observed with interest rising trade volumes and business between New Zealand and the Gulf states that make up the GCC. And yet he was surprised at the lack of any formal business alliance or association to facilitate commercial exchange.

Unwittingly, he ended up chairman of the Middle East Business Council after pitching the idea to some of his clients with operations in the Gulf.

"One of the things that came up quite frequently was that there was no means for them to touch base and network with other New Zealanders who are there or interested in the region.

"We thought it was odd because there were so many businesses up there." Since the council was legally constituted, Vukcevic says he’s been inundated with inquiries from parties on both side of the trade route.

He says an upcoming trade mission to the Middle East, timed to coincide with the signing of the free trade agreement, could be instrumental in building closer ties.

The business council is recruiting North and South Island businesses to take part in the mission, headed by Trade Minister Tim Groser.

Like Morgan, Vukcevic emphasises the importance of face-to- face contact and personal relationships as a precursor to doing business in the Middle East.

"One of the stumbling blocks for New Zealand business, is you need to invest time in developing relationships, building a presence and a brand. You can’t expect to go to a tradeshow once, and walk away with a $10 million contract.

"If you invest, you’ll get a return, and from our perspective, we’re very keen to encourage more Middle East visits from tourists and from a business perspective - they obviously have a lot of capital to invest."

Given the lucrative market and the mystique of the Middle East, it is curious the area has, until recently, remained on the margins for Kiwi exporters.

Morgan blames the mainstream media.

"We basically go on what the media feeds us and they’re supposed to be full of terrorists jumping out of every letter box, basically. The reality is you are safer in that region, with the exception of Iraq, than anywhere else in the world."

Whatever the reason, exporters who hesitate could live to regret it, says Christchurch’s Robyn Galloway.

Two decades ago Galloway set up a wholesale travel business specialising in Middle East holidays.

She says her experience has been anything but negative, both personally and from a business perspective.

"Even back then, there was great warmth shown to New Zealanders," she says, crediting the nation’s neutrality for its popularity.

"I think there is an understanding in the Gulf that New Zealand has a different political stance than a lot of other westerns nations and that’s been very much acknowledged and recognised," says Galloway.

She reckons the free trade agreement will bring further goodwill.

"It’ll take the whole relationship to a new level. It’ll be taken very seriously."

Morgan is more circumspect. He says in the absence of greater resources, trade offices, diplomatic representation and networking strategies, the agreement could be worthless.

"People on the ground and intelligence is what is needed up there. It is a relationship market, which means you make friends before you do business."