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Interview with Dubai TV (Arabic) on emerging markets & the currency crisis, Sep 2018

Author:  admin

Published on:   2018-09-20 10:22:59

Dr. Nasser Saidi discusses emerging markets and the fall of their currencies in the Money Map show aired on Dubai TV. The interview (in Arabic), which aired mid-September 2018, can be viewed here.    View all Articles!

Comments on the "Amazon effect" in The National, 5 Sep 2018

Author:  admin

Published on:   2018-09-07 12:10:09

Dr. Nasser Saidi’s comments appeared in The National's article titled “Will the 'Amazon effect' take hold in the Middle East?”, on September 5, 2018. The full article is copied below (comments highlighted) and can be accessed here.  

Will the 'Amazon effect' take hold in the Middle East?

With the rise of e-commerce keeping a lid on prices and inflation in the US, consumers may benefit in this region too  
More frequent price changes for consumer goods in the United States along with increasing consistency in pricing due to the rapid growth of online retailers may be affecting inflation, a recent academic paper found. But is the so-called "Amazon effect" also impacting the Middle East? “Not yet,” says Nasser Saidi, the former chief economist of Dubai International Financial Centre. “Even the effect in the United States is a relatively recent phenomenon because of the scale of e-commerce and big companies like Amazon and eBay going into the retail sector.” The US academic paper on the topic was written by Alberto Cavallo, an associate professor at Harvard Business School, who analysed how multi-channel retailers - those with brick-and-mortar and online outlets, such as Walmart - have reacted to the rise of Amazon. It found the Amazon effect was not only keeping prices low due to the higher volume of e-commerce platforms, but that traditional retailers had become more nimble on price, changing them more frequently and offering more consistency for the same items across different locations. The study went one step further, indicating that Amazon’s ability to keep a lid on prices was also contributing to the low levels of US inflation seen in recent years. Analysts say it will take time for a similar trend to happen in this region, mainly because pricing in this part of the world is handled very differently. “The Amazon effect won’t happen here for some time because there needs to be a whole piece of work done here on pricing in general,” says Louise Conroy, general manager, e-commerce and digital, at Sun and Sand Sports, a UAE medium-to-large sports and lifestyle e-tailer. “The reason retail has suffered here is because it has not fallen in line with European, UK or US prices,” Ms Conroy says brands have a different mark-up per region with UAE consumers charged more because market research has indicated that shoppers are more affluent. “That illusion has now been shattered by the growth of e-commerce in this region because people can now see what others are paying for the same product in other markets. And with the freedom to ship across borders, consumers are starting to buy from overseas, so it was affecting local businesses.”   A June poll from global payments company Visa found that more than two thirds of UAE shoppers are now comfortable making purchases and paying bills online, with card payments the top method for online purchases. However, many consumers are turning to overseas shopping sites, taking advantage of services such as Aramex’s Shop & Ship where users are given a postal address overseas to ship items, cutting the cost of delivery. “Many global retailers now offer a direct delivery service to the UAE, with excellent courier service and low prices, opening the international retail space yet further to UAE customers,” says Camilla Hassan, the founder and managing director of the premium baby and kids store Five Little Ducks. Ms Hassan, who spent 10 years working for e-commerce and retail for brands such as and Dubizzle before setting up her own entity, says local retailers must factor this in when setting prices. “There are still retailers whose prices remain typically high on international brands – assuming local customers will choose convenience and speed of getting their products over a lower price, but this is short-sighted,” she says. While many UAE customers still do not trust the e-ecommerce experience, so swallow the higher price, says Ms Hassan, those open to online shopping are securing better deals. “Many customers who travel frequently also stock up abroad. In previous years, customers may have begrudgingly accepted the price differential and paid it; now, with all the online options, they are becoming more choosy." According to a report by Fitch Solutions Macro Research, a unit of Fitch Group, the Middle East’s e-commerce sector is growing at the fastest pace globally with online sales expected to double to $48.8 billion by 2021. The study, released last month, also found that the sector will expand further thanks to a rise in grocery spending – a new segment of growth for regional e-commerce players. The UAE is set to be one of the leaders, with e-commerce spending in the country increasing 170 per cent to $27.1bn in 2022, from $9.7bn in 2017. But that does not necessarily translate into lower prices for consumers on the shop floor because of the way retail has been set up in this region, says Mark Pilkington, an advisory board member for Smart Stores Expo, group chief executive of U-Mark and the author of Retail Therapy: Why the Retail Industry Is Broken - and What Can Be Done to Fix It due out in January. Mr Pilkington says the historical supply chain that has existed since the industrial revolution had factories selling to brands, brands selling to retailers, then retailers selling through shops to customers. “At each stage of the supply chain the company would mark up the product so that the product that ends up stores had a price of 7 to 8 times the factory cost,” he says. “In the [Arabian] Gulf, that is even more extreme because an additional step was added in - the cost of franchising - meaning products cost about 30 per cent more in the Gulf than they do in London and New York.” While companies such as Amazon in the US miss out the retail portion of the supply chain, which is how they undercut brick and mortar shops, this places downward pressure on all retailers as they attempt to compete – with some firms going bankrupt in their drive to keep up. "Then you have the big boys like Walmart and Target fighting back by reducing their prices putting further pressure on suppliers and that’s why inflation has been lower in the US because there is that price pressure,” says Mr Pilkington. Despite internet penetration in the region sitting at 64.5 per cent, as of March this year, higher than the global average of 54.5 per cent, according to Statista, Mr Pilkington says e-commerce as a percentage of retail is still not as high in the Middle East as it is in the US and Britain. “It’s much smaller in the gulf but growing extremely fast, so it’s only a matter of time before it puts the same pressure on as it’s done in the US,” he says. “The difficulty for the regional retailers that have their franchise pricing is that products will come into the region via Amazon and Alibaba dramatically cheaper. Therefore, the current price level will become unsustainable, putting downward pressure on prices over the next three to five years.” There have been some big changes in e-commerce in the UAE and wider region recently. Emaar Properties chairman Mohamed Alabbar set the ball rolling in November 2016 with the unveiling of Noon, a $1bn e-commerce venture for the UAE and Saudi Arabia. It went live last year but has yet to raise its profile amid fierce competition. In March last year, Amazon acquired, the region's largest e-commerce venture, for $580 million, with many customers expecting a wider array of products and lower prices. While Souq has retained its name to date, Ms Conroy says it is in a transition phase with Amazon planning to have all of its systems integrated within the next 18 months, “They are starting to sell products from Amazon US on the Souq portal but until they are fully integrated they will still trade as Souq,” she says. “Once Amazon fully enters the market – it will have a rippling effect in general because it means you’ve moved from the status of an emerging market to a more established market.” However, some regional economies may be better insulated against the force of Amazon. While the Gulf economies rely more on the franchise model, Mr Pilkington says others such as Egypt have a thriving local production scene and local brands in place. “Certainly in Egypt the international brands have very low market share because the Egyptian spending power is lower and people just can’t afford international brands,” he says, adding that local stores offer better pricing. He cites another big market, Morocco, where in a previous role as chief executive of the retail group Kamal Osman Jamjoon, the company went in with its ladies underwear brand Nayomi. “There were only 12 international lingerie stores in the whole of Morocco for 40 million people so you had to reckon that 95 per cent of the market were buying Moroccan brands,” he says. This focus on local brands in those countries is something Mr Pilkington believes the Gulf economies will also have to adopt to stay competitive. “The big retail groups, the families, will realise that they are overpaying for product from the franchises and will have to start doing their own thing,” he adds. Ms Conroy says it is also the responsibility of premium retail brands to adjust their global pricing strategy. “Brands will have to realise they will not be able to achieve the margins in this market they have done through traditional retail because now people have had a lot more exposure to online and are able to do price comparisons market to market.” While for now the Amazon effect is yet to show its true colours in this region, Mr Saidi says he would welcome it. “It would mean greater transparency and introduce much more competition across the retail space,” he says. “In particular, it would be very good for Abu Dhabi and Dubai because they are big tourist destinations.” While the hotel industry has global price aggregators that allow customers to shop around to find the best deal, Mr Saidi says the same needs to happen on the retail side in the UAE. “Tourists do international comparisons … so, you have to be careful that the UAE remains competitive from that point of view.”View all Articles!

Trumpian Trade Wars threaten the GCC, Article in The National, 26 July 2018

Author:  admin

Published on:   2018-07-27 09:47:22

The article titled “Trumpian Trade Wars threaten the GCC” appeared in The National’s print edition on 26th July, 2018 and is posted below. Click here to access the original article.

Trumpian Trade Wars threaten the GCC

We are witnessing the demise of multilateralism and rule-based international cooperation   The protectionist stance of the current US administration has been evident since US President Donald Trump took office: the ongoing re-negotiation of the North American Free Trade Agreement (Nafta), non-participation in the Trans-Pacific Partnership (TPP), and the tariff hikes – which began with solar panels and washing machines (in January) to the latest threat of potential additional tariffs on $500 billion worth of Chinese exports. The nationalism-protectionism of "America First" is coupled with an isolationist view of regional and international agreements on trade, investment, climate, human rights and even defence agreements (Nato). We are witnessing the demise of multilateralism and rule-based international cooperation built since the Second World War. We have entered the phase of Trumpian Trade Wars, from the imposition of steep tariffs on steel and aluminium in early March this year, to the latest (July 6) announcement of a 25 per cent tariff on about $34bn worth of Chinese goods. China, the EU and others have announced retaliatory tariffs, which does not bode well for global trade. The Financial Times estimates that, should countries retaliate, the value of trade covered by the measures and countermeasures resulting from Mr Trump’s trade policies could reach more than $1 trillion (some 6 per cent of world trade), which would derail global growth and recovery in the EU. The escalating economic tension between the US and Europe, after China has already rattled global stock markets, could lead to a financial crisis given the headwinds of monetary policy tightening and geopolitical turmoil. Why is the US running large trade deficits? The main answer is that the US has a low level of savings compared to the level of investment. The personal savings rate in the US is running around 3.2 per cent compared to the thrifty Chinese rate of about 35 per cent. The US is spending more than the income it generates, running both a fiscal and a current account deficit, attracting capital inflows and borrowing to finance these deficits. The deficits look set to increase given the US fiscal stimulus package and tax cuts passed in 2017, which encourage consumption and imports at a time when the US economy is overheating. Tariffs on solar panels, steel and aluminium or cars will raise the cost to US businesses and consumers and disrupt global supply chains. A 25 per cent tariff on all cars and parts would raise US consumer prices by $1,400 to $7,000 for high-end vehicles. For the proposed auto tariffs, nearly 98 per cent of the targeted car and truck imports by value would hit key US allies: the European Union, Canada, Japan, Mexico, and South Korea. Trumpian Trade Wars are not only beggar-thy-neighbour policies, they are beggar-thy-allies. Cars and phones are prime examples of highly globally integrated industries. Many of the goods that the US imports (such as electrical and electronics) are US designed but manufactured in China, Mexico and other countries with an advantage of lower costs, but relatively low value added in global value chains. The profits, however, are made by US businesses like Apple, Amazon and others. Economists look at "trade value added", but unscrupulous politicians broadcast headline grabbing total trade numbers. Although the highlighted US-China trade deficit was at $375bn last year, the US runs trade deficits with 102 nations (not just China) and has run deficits since 1975, averaging $535bn per annum since 2000. The trade deficit on goods was $810bn in 2017 but substantially less at $566bn on goods and services: the US is a major exporter of services and tends to run a large services surplus. The notion that imposing tariffs on Chinese imports would erase US trade deficits is flawed, absent macroeconomic developments and policies that would change the saving-investment gap. On the other hand, trade retaliation might be costly for export-led China and tit-for-tat tariff hikes between the two largest economies of the world would result in slowing global trade, severe disruption of global supply chains, lower investment, derail economic growth and result in a sharp correction of financial markets. The announcement of a widening of the scope of tariffs signals that US strategy is shifting away from the protection of local industries (solar, steel) based on "national security" to one based on intellectual property and the acquisition of new tech. The wider, more strategic objective is an attempt to prevent China’s declared ambitions of moving up the activity and trade complexity ladder, with higher value tech goods and services, the “Made in China 2025” horizon. China is inching closer to developing an edge in AI, blockchain, Big Data, FinTech, life sciences (Crispr) and related technologies. Indeed, the EU might join the US to rein in the emergence of China as a tech frontrunner. With the US imposing tariffs on a variety of goods, trade will be diverted to other countries. Already, China is buying soya beans from Brazil, shifting from the US. China will shift and develop new markets for its exports, reorienting its trade towards the EU, Asia, and the Middle East, leading to lower prices of affected commodities (which could lead to potential retaliation by the EU and Japan). China has other options: it could retaliate through non-tariff barriers to trade rather than imposition of tariffs; raise informal barriers to US investment in China; diminish the flow of investment in US Treasuries; as well as allow a depreciation of the yuan (justified by lower export and overall growth as a result of US tariffs). We could be entering a phase of currency wars. The bottom line is that growing US trade protectionism will lead to a shift in global trade patterns and international alliances away from the US and the creation of new trade blocs. Already, the EU and Japan have signed a major trade agreement eliminating most tariffs, covering a market of some 600 million people and a third of the global economy. China is likely to seek a similar free trade and investment agreement with the EU (which is already China’s most important trade partner) and seek strategic partnerships with Germany and other European countries. It will likely also want to join the Trans Pacific Partnership. China will likely accelerate implementation of its Belt & Road initiative leading to a deeper integration of B&R countries into its economy and its global value chains, opening new markets. China will also accelerate and increase its investments in robotics, AI, Blockchain, Big Data, FinTech, and high tech to bring forward its ambitious “Made in China 2025” strategy. The Chinese dragon will not be contained. What does all this mean for the GCC? The GCC exported $9.4bn of aluminium in 2017, (of which the UAE provided $5.6bn worth, representing 10.1 per cent of world exports) and is the largest exporter to the US after Canada and Russia. Already adversely affected by aluminium tariffs, the region would be additionally hurt by a decline in world trade and world growth which would lower oil prices, and particularly if China were hard-hit. The GCC’s total trade with China was close to $110bn last year, with the largest export from the region being crude oil, and accounts for more than two thirds of China’s trade with the Middle East. Given growing US protectionism, the time is right for the GCC to reorient their international trade agreements and pivot towards Asia, including the long delayed Free Trade Agreement with China.  View all Articles!

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