The alliance with Yunnan State Farms Group (YSFG), which accounts for 90 per cent of all Chinese coffee production, is one of multiple new trade strategies of DMCC, explains Gautam Sashittal, CEO of the multi-commodities centre
DMCC is in the process of shifting its strategy to the East, with a major focus on China. Tell us more about that strategy and the reasons behind it
Since the launch of the Belt and Road initiative, there has been a deepening of relationships between China and the UAE – economically and politically. Our trade figures were approximately US$70bn in 2015. China is currently our top trading partner, and will remain so for the foreseeable future. Given our standing as the largest and fastest growing free zone in the UAE, coupled with the number of Chinese companies we have registered as members and the growing interest in our services and products, it is a natural collaboration, and one that we are keen to strengthen further. We have taken tentative steps this year, agreeing some major new cooperation arrangements in terms of building out trading routes (Zhongwei Ningxia Municipal People’s Government) and commodities (coffee, gold and trade finance) and we will look to build on this momentum in 2017.
What activities does the DMCC currently share with China, and what future endeavours are you able to talk about?
Presently, there are over 150 Chinese companies and 500 citizens working in DMCC. Businesses include Hisense, Sinopec, China Harbour Engineering Company, Mega Capital, China State Construction Engineering Corporation and Power China
As part of Dubai Week in China, DMCC signed an agreement with Mega Capital for the export of what could bring up to 130,000 tonnes of coffee beans from Yunnan State Farms Group (YSFG) to Dubai. Yunnan Province accounts for roughly 90 per cent of all Chinese coffee production, which is produced by the YSFG. This is part of a multi-year strategy by YSFG. Through their partnership with Mega Capital and DMCC, they hope to allocate the majority of their production for export through Dubai in the years to come. YSFG will use this agreement to drive and increase their overall production volume as well. DMCC plans to set up a Coffee Centre (similar to the Dubai Tea Centre), which is part of this agreement, to help manage the exports.
Furthermore, we have just announced that our derivatives exchange, Dubai Gold and Commodities Exchange, has obtained a licence from the Shanghai Gold Exchange (SGE) to list Shanghai Gold Futures on its exchange. This is the first yuan-denominated gold future product to be offered outside of China and it will use the Shanghai Gold Benchmark Price as its pricing mechanism. We have also just announced that Agricultural Bank of China (ABC) has become the first market maker for the Shanghai Gold Futures contract listed on the Dubai Gold and Commodities Exchange.
So, 2016 has firmly set the DMCC on a path to increase trade and prosperity between our two countries in 2017 and beyond.
The 2016 G20 summit focused heavily on what it deemed the ‘New Industrial Revolution’. How would you define this term, and what do you think it will mean for global change?
The new industrial revolution defines the next wave of economic development. In this case, it is about technology – how will it transform our production output, transform our business models and transform our lives? It is similar to the Fourth Industrial Revolution that was the principle discussion theme at WEF. The line between the physical and digital worlds have been blurred. Data, AI, cloud and other technological advances will lead this revolution. Our recent thought leadership report, Future of Trade, outlined just how important digitalisation of trade is to global GDP. The CEBR research commissioned for the Report suggest that full digitalisation of trade and commerce would lead to as many as 350 million companies exporting goods and services for the first time. In turn we could see the cost of exporting decline by as much as 85 per cent with the combined results of all this added economic activity giving the global economy a US$29tn boost.
China was the biggest importer and exporter worldwide in 2014 (Source: DMCC’s ‘Future of Trade’ report). However, there has been a slowdown in economic growth, which some attribute to China’s changing focus (whereby it is building out infrastructure/influence in emerging markets). What does that mean for China and the world?
If we look at the commodity sector, which suffered the most in 2015, it has since experienced a major rebound. Other sectors such as property has also seen an upturn in fortunes. In the preceding years, a Chinese slowdown would have had a detrimental effect on the global economy. However, on this occasion, the slowdown has been concurrent with an unprecedented drop in oil prices. This has had a much deeper impact on national economies.
Infrastructure investment in many emerging markets is notorious for its risk. How do you think the Belt and Road project will combat investor nervousness?
We have experienced the Belt and Road effect first hand over the last 12 months. We have signed agreements and MOUs with public and private enterprises in China – Zhongwei Ningxia Municipal People’s Government and China Silver Group. The former will see us explore new collaborations, directives and initiatives to drive bilateral trade between DMCC and Zhongwei. The latter is the first step in establishing a central registry for commodity ownership and financing that will encourage cross-border efficiencies and in turn, trading. And, we have just announced many more partnerships here at Dubai Week in China.
China has a clear strategy, a clear mandate and a clear set of goals regarding its Belt and Road strategy. Official figures from the Chinese government say there are 900 deals underway, worth US$890bn. To date, the majority of the projects are funded by the Chinese government through policy banks set up specifically for Belt and Road projects. However, over the last year, a new Silk Road Fund has been set up and the Chinese government approved the Asian Infrastructure Investment Bank. It seeded the new bank with an initial US$100bn in funds. These financial structures will allow it to be ever more transparent, adding a layer of corporate governance and ensuring host countries and investors are kept abreast.
How does the Middle East, and the UAE in particular, view the initiative? And which sectors in particular do you think the UAE and China might collaborate in?
Speaking on behalf of DMCC, we view Belt and Road positively. Maritime trade efficiency is key to grow the flow of global trade. The ports in Dubai (Jebel Ali) and Abu Dhabi (Khalifa Port) are two of the largest and technological advanced ports in the world. It will be able to handle the increase in anticipated trade that will emerge from China’s Belt and Road strategy. The country is well positioned to facilitate and service all trade from Asia through to Africa and vice-versa for example. Furthermore, in January of this year (2016), the Chinese president Xi Jinping pledged US$55bn in investments and loans, as well as establishing a common investment fund worth US$20bn for the UAE and Qatar.
In what ways can digitisation positively affect and amplify the Belt and Road initiative?
There are three key findings our Future of Trade report makes claims too. This relates to what the future of trade will look like, and can be largely be discussed and amplified in the context of Belt and Road. Firstly, the adoption of digital strategies will signal a profound shift in the future of trade. CEBR research commissioned for the Report suggest that full digitalisation of trade and commerce would lead to as many as 350 million companies exporting goods and services for the first time. In turn, we could see the cost of exporting decline by as much as 85 per cent with the combined results of all this added economic activity giving the global economy a US$29tn boost.
Secondly, there is increasingly swift evolution towards greater system efficiency. Peripheral channels such as education, finance, automation, and regulation are vastly improving the efficiency and transparency within the supply chain, and the rise in new technologies and global connectivity is rebalancing trade routes.
Thirdly, the most significant influence on global trade will be the emerging economies in the East. The US, Europe and Russia will see their leadership roles decrease as China, India and the Middle East emerge.