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Fri 18 Jan 2019 02:01 AM

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Protectionism: protecting businesses or stifling growth?

Debate has raged in the UAE and around the world over whether protectionist policies can help protect local players or prevent economies from reaching their full potential

Protectionism: protecting businesses or stifling growth?

Around the world – and partly because of US President Donald Trump – economic headlines have been dominated by the debate over protectionism and what role governments should play in shielding a nation’s domestic industries from foreign competition by taxing imports. In the UAE and across the Gulf, this has prompted a question: can local players make their mark without a protectionist environment?

Among those who have come out in favour of protectionism in the UAE – at least in a particular sector – is Mohamed Alabbar, the chairman of Emaar Properties and founder of Noon.com, who in September last year called for legislation that enforces 51 percent local ownership of all e-commerce related businesses.

Speaking to the Arabic-language Al Khaleej newspaper, Alabbar said that the UAE should look east to China, for an example. “China has taken many measures to ensure that its economy is protected from foreign interference,” he said, further highlighting the government’s regulations that ensure majority Chinese ownership of e-commerce websites, thus forcing many foreign firms to set up local information centres.

Calling foreign companies a “danger” to the local economy, Alabbar called for Emiratis to be legally guaranteed 51 percent possession of e-commerce and logistics companies, as well as the same share of e-commerce financial transactions and payment systems. Additionally, he called for global firms to be legally mandated to set up designated centres within the country to keep sensitive data in the UAE’s hands and under its control.

What’s the government say?

Although focused on the e-commerce sector, Alabbar’s comments stand in stark contrast to that of high-level government officials in the UAE, who have expressed a commitment to economic liberalisation, which they say, in turn, will help attract investment and opportunities to the emirates at a time in which it is striving to cement its role as a global business hub.

“We do not believe protectionism is good for growth in any economy,” said Abdullah Al Saleh, the undersecretary for foreign affairs at the UAE Ministry of Economy. “An open economy is the best policy for attracting investments, so increasing and creating competitiveness, and it’s better for future development plans.”

Even stronger words against protectionism have come from Hamad Buamim, president and CEO of Dubai Chamber of Commerce and Industry (DCCI). While acknowledging that many countries – most notably the United States, which in 2018 announced tariffs on $50-$60bn worth of imports from China – have imposed tariffs, Buamim argues that such moves are “temporary” solutions to economic woes.

“I know [that] whoever is calling for these measures – they just want it temporarily so we can build-up our own capabilities,” he said in a recent interview with Arabian Business. “I’d rather that we keep it as a playing field and we try to allow the big players. If you are a global city, you have to play with global rules. I don’t see protectionism in Dubai. I don’t think the leadership of Dubai will buy it, frankly speaking. It’s not what we stand for,” he said.

Moreover, Buamim said that the emirate of Dubai could benefit from the entry of large international companies, who, once established in the UAE, could potentially create significant numbers of employment opportunities for UAE nationals and local residents.

“Dubai can benefit from these big players,” he said.

“From one side it drives us to compete, but from the other side as well. For example, Amazon will not ship their goods from wherever they are in the world. They need a place to distribute. I’m aware Amazon is building huge investments in Dubai. They will be recruiting tens of thousands of people,” Buamim added.

A global issue

Whether or not protectionism is adopted through formal policies in the UAE or elsewhere, the country may likely still feel the effects of similar measures being taken place elsewhere around the world. In a cautious December memo, for example, the European Central Bank said that it expects the global economy will slow down as mounting protectionism has the adverse effect of curbing growth amid uncertainties about trade relations in the future.

Similarly, much of the world’s trade will likely face the consequences of protectionism in the United States, which EU Ambassador to the World Trade Organisation Marc Vanheukelen recently said was causing “a deep crisis” in the world’s multilateral trading system and causing limitations on the US procurement market through Trump’s “Buy American” legislation.