Dubai's next frontier: Latin America

Latin America accounts for barely 3 percent of Dubai’s total trade. But governments and businesses on both sides are making it their mission to double and even triple investment flow within five years
Dubai has become a pivotal connector for world trade, yet one corner of the globe barely registers: Latin America. But that is about to change - drastically.
By Courtney Trenwith
Tue 04 Jul 2017 11:21 AM

Dubai has become a pivotal connector for world trade, yet one corner of the globe barely registers: Latin America. But that is about to change - drastically.

The continent’s share of Dubai’s total trade is destined to double from 3 percent to 6 percent within just three years and reach double-digits by 2022, according to an ambitious plan set out by Dubai Chamber of Commerce and Industry.

In April, the organisation, which boasts 201,000 members and business councils from 49 countries, opened its first representative office in the region (São Paulo, Brazil) and announced its second (Buenos Aires, Argentina). The offices are expected to help grow trade exponentially.

“This is the beginning of many activities with this part of the world,” Dubai Chamber president and CEO Hamad Buamim said during a high level delegation to Brazil, Argentina and Paraguay to inaugurate the offices and sow the seeds of growth.

A key instigator of the growing trade with Latin America is food security. The region boasts 28 percent of the world’s arable land and one-third of its freshwater supplies, according to the World Economic Forum, which last year described Latin America as having the potential to become the “breadbasket of the world”.

Despite its vast agricultural resources, Latin America has barely tapped its potential. And with the UAE and the rest of the Gulf importing as much as 90 percent of their food and a growing population that will increase demand, the region is in line to play a key role in fulfilling the Gulf's food security.

Argentina's vice-president, Gabriela Michetti (centre right) told a Dubai Chamber delegation she would help fast-track the opening of an office there.

“Although agriculture is the main driver of economic activity in Paraguay, the country has barely tapped its agricultural potential and stands to benefit significantly from boosting its exports of soybeans, cotton, oilseeds, and sugar which are seeing high global demand,” Buamim says.

“High-potential imports from Argentina, include fruits, dairy products, cereals, meat and seafood, which are all categories that can help meet the needs of a fast-growing population in Dubai, which currently imports 85 percent of its food requirements.”

Brazil is the biggest exporter of halal food in the world but currently only supplies half of the global demand, according to the Federation of Muslims Associations in Brazil (FAMBRAS).

The federation’s president, Mohamed Hussein El Zoghbi, says Dubai’s interest in more Brazilian halal food products has opened up opportunities for Brazilian producers.

“Because Dubai is creating a halal hub, the [Dubai Chamber] office in Brazil will open up opportunities. It’s creating more credibility for Brazil’s halal production, which will expand the market,” El Zoghbi, who was instrumental in helping Dubai Chamber establish its office in São Paulo, said during the recent delegation trip.

Buamim says the success of Brazilian food giant Sadia in Dubai illustrates the potential.

“Especially Mexico and Brazil have a lot to offer; they have the power to move quickly to Dubai and do big business. If we can attract these big anchors we can, in no time, grow trade to double or triple,” he says.

Dubai Chamber CEO Hamad Buamim.

Essa Al Ghurair Investments, one of the largest industrial companies in the UAE, imports more than 2 million tonnes of grain from Latin America, which is distributed via Dubai to countries as far as Morocco and Vietnam. Chairman Essa Al Ghurair says he expects to import 7 million tonnes – worth $2.1bn – in the near future. He also wants 1 million tonnes of soybeans from Paraguay.

He says the increased dialogue between businesses from Dubai and Latin America is already bearing fruit, with his firm in discussions with Brazil’s largest orange juice exporter to potentially use their warehousing space during its off-season to store corn, an additional food that Al Ghurair hopes to export to the Gulf from Paraguay.

“[The warehouses are] empty so we’re creating a win-win with some local knowledge. Maybe next they can trade orange juice and citrus; one business leads to another business,” he says, adding that his company is also assessing whether Brazil’s famous coffee is appropriate for  its new roasting facility in Algeria.

The increase in food trade requires a significant investment in logistics and transport, both within Latin America and between the region and Dubai. Dubai-based container port operator DP World is the largest Gulf player in Latin America, with $4bn invested in five countries, according to the Economist Intelligence Unit. However, it lacks direct services between Latin America and the Gulf.

Domestic logistics is also lacking throughout the continent. But Buamim says Brazil in particular is working to increase its connections to sea ports.

“They want to improve their logistics and we could be a part of that,” he says.

Infrastructure in general is a significant area of investment potential for the UAE. The majority of Latin American countries (including Brazil and Argentina) fall into the bottom third of the World Economic Forum’s Global Competitiveness Index 2015-16 ranking of overall infrastructure.

Mayor of São Paulo João Doria (centre) has called on Dubai businesses to invest in his city.

Improving infrastructure will also boost the economy, boosting trade. Rating agency Standard & Poor’s estimates that infrastructure spending of 1 percent of gross domestic product would increase the size of the economy by 2.5 percent in Brazil, 1.8 percent in Argentina and 1.3 percent in Mexico after three years.

If Emirati firms can get a slice of that infrastructure investment, they are also in a good position to consume some of the subsequent trade benefits.

Brazil alone requires $900bn worth of infrastructure investment, according to the Federation of Industries of the State of São Paulo. The city is undergoing its biggest ever privatisation programme and during a recent delegation, Mayor João Doria implored GCC businesses to be involved.

Meanwhile, Argentina is implementing a major $3bn infrastructure programme, with initial projects including upgrading airports, ports, freight rail lines and roads.

Buamim, who expects the new Dubai Chamber office in Buenos Aires to help double the volume of Dubai-Argentina trade “in the coming years”, says infrastructure could be a key plank of the increased investment.

“A lot of potential in this sector still needs to be explored, and we are confident that Dubai and the UAE can offer the right level of expertise and investment to fill these market gaps,” he says.

Much of the new opportunity in Latin America is thanks to blooming economies, many of which are recovering from years, sometimes decades, of mismanagement.

Argentina officially exited recession during the third quarter of 2016. Despite the economy shrinking by 2.3 percent for the full year, growth has been recorded for the past three quarters on the back of reforms implemented by President Mauricio Macri.

Dubai Chamber began a globalisation strategy three years ago and now has offices in eight cities.

Paraguay’s economy has been flourishing since centre-right President Horacio Cartes took office in 2013. It grew 6.6 percent year-on-year in the first quarter of 2017, after expanding 4 percent for 2016, according to the central bank. It also ranks among the best in the region in terms of taxes and starting a business.

But the biggest economy in the region – Brazil - is experiencing its worst recession in history, with GDP contracting 3.6 percent last year, on top a 3.8 percent drop in 2015, according to statistics agency IBGE. Investment plummeted 10.2 percent in 2016.

Brazil's central bank has attempted to arrest the downturn by slashing interest rates, which have fallen more than 4 percentage points since October but remain in double-digits. Erupting corruption allegations against President Michel Temer since May have further dampened economists’ optimism.

Buamim admits the Chamber’s office in São Paulo was “the most complicated office we have ever opened”, referring to seven other representative offices worldwide. But he says the current economic low creates opportunity.

“We always believe it’s good to start in a country at a bad time, so we get more attention."

He says increased protectionism in some developed countries is also facilitating faster growth for trade between emerging markets.

“[Latin American companies] are focusing a lot in big markets such as the US. [But] with everything happening in that part of the world with protectionism and nationalism, we hope that we can open new markets for them ... [to] the Middle East, South Asia and Africa,  through Dubai. That, hopefully, will increase trade.”

The dull economic situation also has ensured a particularly warm welcome from the Latin American countries, all the way up to their presidents.

High level delegates from Panama have visited Dubai to learn from its growth experience.

Paraguayan President Horacio Cartes personally greeted the Dubai Chamber delegation in April and used the occasion to announce that his country would open its first international representative office in the UAE this year in an effort to boost investment between the two countries.

He told the delegates he would ensure Paraguay provided every resource needed to support the expansion of Emirati business and investment into the country, enticing them with figures that show Paraguay is one of the most stable economies in the region.

Doria is so enthusiastic about the potential relationship between São Paulo – the largest city in the Americas and the largest financial centre in the southern hemisphere - and Dubai he has declared he wants trade between Brazil and Dubai to expand ten-fold - by next year.

“Let’s do it fast and do what we have to do,” Doria told the recent delegation. “Please use our infrastructure, our people, our management to reach this goal and to increase business relations between the UAE and Brazil, especially Dubai, Abu Dhabi and São Paulo.”

But there are other challenges impacting business, particularly for foreigners. They include high exchange rate fluctuations, high tax rates and complicated regulation, corruption, difficulty accessing finance, high inflation and beaucracy in countries such as Brazil where there are 26 states with individual regulations.

But Buamim argues the economic fundamentals in countries such as Brazil and Argentina remain strong and there are improvements being made.

“We believe during the downturn there are a lot of reforms that will be put in place that can open up … opportunities for our businesses from the Gulf,” he says.

Trade between Paraguay and Dubai was worth only $28m in 2016, highlighting enormous potential.

The presence of the new Dubai Chamber offices also are intended to help Emirati businesses understand and mitigate many of the concerns. Chamber chairman Majid Al Ghurair says the offices will have an “enormous” benefit not only for UAE businesses expanding into Latin America but also investment in the other direction. Knowledge is the key ingredient, he says.

“I don’t think there’s an issue about the interest [of investing in Latin America], it’s the familiarity with the system over here … [understanding] regulation, monetary policies, how you can export your funds…,” the CEO of Al Ghurair Group says. “It’s very important to understand the system. It’s not lack of opportunities, it's understanding the market.

“Sometimes, also, you’re looking for a partner because every market, yes you can work on your own, but sometimes it’s good if you can have the right partner who can protect your interests in the region because they know better than you.”

The Chamber also will work to increase awareness across the region of the attractiveness of doing business in Dubai.

“Often we live in one part of the world and we think everything is easy but it’s not known to other people so we have to make them aware of what the strengths are in being based in Dubai,” Al Ghurair says.

High level delegations from Latin America to Dubai in the past two years has already shown the region’s keen interest to deepen relations with the UAE.

Dubai Chamber chairman Majid Al Ghurair.

“From the vice-president of Argentina to the president of Paraguay, the past president of Uruguay, [leaders of] Panama, Costa Rica - this assures us there is huge potential and gives us the confidence that this is the right move we’re doing because the interest is on both sides,” Al Ghurair says.

Many of the high level representatives also are expected to attend the second Global Business Forum on Latin America, to be held in Dubai next year. Hundreds of business leaders and even government representatives are expected to attend to discuss business opportunities between the Middle East and Latin America.

Now with the Chamber’s offices in Brazil and Argentina, the opportunities that emerge are far more likely to evolve into real business.

Connectivity is key

When Dubai’s first business delegation travelled to Latin America in 1997 they discovered great commercial potential, but there was a glaring problem: no direct flights.

Hisham Abdulla Al Shirawi, who was part of the delegation, says members lobbied for years for Emirates to launch services to the far away continent. It took a decade, but after the carrier eventually started a service between Brazil’s São Paulo and Dubai in 2007, Al Shirawi says UAE-Latin America trade almost instantly trebled.

“This direct flight made a very big difference for us,” says the director of Economic Zones World.

In 2012, Emirates added a connecting daily flight to Rio de Janeiro and Buenos Aires. It now operates 21 services per week.

Hisham Abdulla Al Shirawi.

Nearly 112,000 people travelled on the services in 2016 and the routes’ successes led the airline to upgrade both services, including elevating the São Paulo service to the A380 superjumbo. It is not only Middle Eastern customers who utilise the services, with businesspeople from China and other parts of Asia also travelling with Emirates.

Emirates also announced a codeshare and frequent flyer programme partnership with South American carrier GOL Linhas Aéreas Inteligentes in October last year.

The connectivity has undoubtedly fuelled trade and tourism between Latin America and the Middle East.

In March, officials from the UAE and Brazil signed agreements on air transport services and visa waivers to further facilitate travel between the countries.

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