Exporting to theMiddle East

August 2016

SME Information Series

The Middle East holds significant opportunity for Australian exporters but is often seen to be shrouded in a degree of mystery when it comes to doing business there, partly due to its distinct cultural differences to Australia.

Breaking down the perception barriers to doing business in the Middle East, while understanding where potential risks may lie, will give Australian exporters the confidence to capitalise on the many opportunities available in the region.

The information contained in this edition of our SME Information Series should help you answer the following questions:

9 What is the economic and political environment for doing business in the Middle East?

9 What are Australia’s key markets in the Middle East?

9 What opportunities are there for my business in the Middle East?

9 What do I need to be aware of when entering the Middle East? Are there risks to doing business there?

9 How should I go about entering the Middle East?

Exporting to theMiddle East

August 2016

SME Information Series

What is the economic and political environment for doing business in the Middle East?

Find out more:Find more detailed information about the economic and political environment in the Middle East here: http://www.efic.gov.au/education-and-tools/country-profiles/middle-east/

Political climate▪ The Middle East covers a diverse group of countries that each have unique

political situations.

▪ A number of countries have experienced civil and political unrest in recent years, posing a possible threat to Australian businesses operating in affected countries.

▪ Any exporter considering entering a country affected by turmoil should conduct extensive research to understand the risks before entering the market.

Export relationship▪ The Middle East is strategically located between Europe and Asia, meaning it is well-

placed to act as a trading hub for Australian companies operating there.

▪ Australia has a strong relationship with a number of markets in the Middle East, with United Arab Emirates and Saudi Arabia our strongest export partners in the region.

Economic climate▪ Economic growth in countries within the region has been mixed in recent years.

▪ Generally, growth has slowed, with civil and political turmoil, and depressed commodity prices, weighing on growth rates across the region.

▪ With oil dominating the region’s economy, a prolonged slump in the oil sector could continue to place pressure on the region’s growth.

The Middle East is a geographic region that comprises Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestinian Territories, Qatar, Saudi Arabia, Syria, United Arab Emirates and Yemen.

Parts of the region have been hit by political instability in recent years, but continued economic growth and rapid population growth present some strong export opportunities for Australian SMEs.

SME Information Series | Exporting to the Middle East | August 2016

Export overview

The Middle East is a diverse region, but Australian exports are heavily concentrated in the oil exporting Gulf Cooperation Council (GCC) economies.The UAE and Saudi Arabia constituted almost 60% of Australia’s exports to the region in 2015.

Despite the increasingly challenging economic outlook, the GCC remains a lucrative food export market.90% of the Gulf’s food demands are met with imports. The Economist Intelligence Unit expects GCC food imports to reach US$53b by 2020.

New markets are arising – notably Iran.The historic accord to lift selected sanctions on Iran reconnected the US$390b Iranian economy to the world. The country benefits from a large middle class consumer base, a highly skilled labour force, strong domestic industrial base and relatively diversified economy.

SME Information Series | Exporting to the Middle East | August 2016

Key markets: United Arab Emirates

▪ The UAE is Australia’s 15th largest trading partner and largest export destination in the Middle East.

▪ The UAE is a major hub for Australian firms looking to do business in the Middle East and North Africa.

▪ Australian merchandise exports to the UAE were worth A$3.3b in 2014-2015, mainly cars, meat, oil seeds, wheat and legumes.

▪ Service exports to the UAE were worth A$633m in 2014-2015, with many Australian companies in the service sector using Dubai as a regional base.

▪ The oil and gas industry also presents opportunities for Australian firms to participate in large projects.

▪ Education is an area of potential growth, with some Australian institutions establishing campuses in the region.

▪ Tourism from the UAE also offers significant growth potential, given the relatively well-off population and partnership between Qantas and Emirates.

▪ The UAE’s business climate is ranked 31 out of 189 economies on the World Bank’s ease of doing business gauge and outperforms the regional average on most metrics, except for contract enforceability.

▪ The country scores in the top half on most of the World Bank’s governance gauges.

15thRanked

largest export market for Australian businesses

40%Oil represents

of government revenues

$4.0bin Australian exports 2014-2015

9.6mtotal population of the UAE

“ United Arab Emirates was identified as a top ten market for future export growth by Australian businesses.” Australian International Business Survey 2016

SME Information Series | Exporting to the Middle East | August 2016

▪ Saudi Arabia is Australia’s 29th largest export market and second largest export destination in the Middle East behind the UAE.

▪ Saudi Arabia has become a high-income country in the last decade, with GDP per capita forecast to reach US$25,000 by 2019.

▪ Australian merchandise exports to Saudi were worth US$2.1b in 2014-15 and includes passenger cars, meat and dairy.

▪ Australia is Saudi Arabia’s 8th largest source of agricultural imports, as the country’s expanding middle-class start to demand higher quality proteins and grains.

▪ Service exports to Saudi Arabia were worth A$345m in 2014-2015, driven mainly by education.

▪ ‘Vision 2030’ is Saudi Arabia’s plan to reduce the dependence on oil and increase the role of the private sector, which will see increased spending on infrastructure and housing.

▪ Saudi Arabia’s solid population growth, projected at 1.5 per cent p.a. over the next decade, will present further opportunities for Australia’s dairy, animal feed, beef and sheep industries.

▪ Large scale infrastructure developments and an increasing push into precious and base metal mining could offer opportunities for Australian contractors and engineering firms.

▪ Saudi Arabia ranks 82 out of 189 economies on the World Bank’s ease of doing business gauge, which is better than the regional average.

▪ Saudi Arabia scores in the top half on most of the World Bank’s governance gauges, though performs poorly when it comes to ‘voice and accountability’.

Key markets: Saudi Arabia

8thAustralia is

largest source of agricultural imports

45%Oil makes up

of economy and 80% of government revenues

29thlargest trading partner for Australia

$2.5bin Australian exports 2014-2015

“ I chose Saudi Arabia as my first destination on purpose. Once you achieve Saudi FDA product registration, that registration is acknowledged by other countries in the region.”

David Mumford, Sales and Marketing Director, RBK Nutraceuticals

SME Information Series | Exporting to the Middle East | August 2016

The Middle East’s ongoing need for high quality Australian products and services means the region offers excellent export opportunities for Australian businesses in:

What opportunities are there for my business in the Middle East?

“ The Middle East actually needs what Australia does really well. Australian SMEs are very active in the food and agricultural space. And we’re absolutely world class in terms of mining, oil and gas services, and quite strong in healthcare and education services.”

AndrewHunter,ManagingDirectorandCEO,Efic

Find out more:Find more detailed information about the opportunities available in different countries in the Middle East here: http://www.austrade.gov.au/Australian/Export/Export-markets/Countries

Food and Agriculture:Given the strong demand for Australia’s high quality produce

Vegetables Wheat Dairy

Mining and infrastructure:Due to the region’s diversification away from oil

Mining Construction Technology Engineering Alumina

Services:As the region looks to upskill and diversify its workforce away from oil

Education Healthcare Tourism

Lamb Beef

SME Information Series | Exporting to the Middle East | August 2016

The Middle East has some distinct differences to doing business compared to Australia. Understanding how these differences could impact your business and where any risks may lie is crucial before entering any markets in the region.

What do I need to be aware of when entering the Middle East? Are there risks to doing business there?

“ You need to think long term. Do not try to close a speculative or average deal for the sake of gaining revenue. Business, socialising, getting to know people are all intertwined in the Middle East. You may need to do multiple trips before you even start talking about a potential business deal.”

Adam Malouf, Senior Manager, Business Performance and Development, Arab Bank Australia

Cultural considerations▪ It is crucial to be aware of cross-cultural differences when doing business in the

Middle East to avoid making a mistake that could damage a potential partnership.

▪ For example, the culture of the Middle East tends to be much more flexible and relaxed when it comes to time and schedules than Western culture.

▪ Pushing for a meeting at a specific time may not be well received, and negotiations are often likely to take a lot longer than we are used to in Western business culture.

1Local law▪ A significant proportion of laws in the region are based on Islamic principles.

▪ For example, freedom of expression is notably limited compared to other cultures.

▪ Local laws can have an impact on how businesses and business people need to operate, and so it is crucial for any SME operating in the Middle East to be fully aware of the legal environment in which they are operating.

2Political pressures▪ A number of countries have experienced political instability in recent years.

▪ Political turmoil affects economic conditions that attract business and investment, and also has the potential to affect business operations.

▪ For example, a trade embargo could affect delivery of goods; civil war or political violence could affect the safety of staff and partners; and political instability could result in defaults on payments, confiscation of assets and blockages in transfer of earnings.

3Financial factors▪ Understanding the financial implications of selling your product or service into a new

market is important, so that you avoid being caught out with an unexpected cost.

▪ For example, product listing fees apply in many markets in the region.

▪ For SMEs exporting to the Middle East, financial support is available from a number of sources and your banker can advise you on where to start for export finance.

4

SME Information Series | Exporting to the Middle East | August 2016

There are a range of steps that Australian SMEs looking to export to the Middle East can take to help make their transition as easy as possible. Some of these include:

How should I go about entering the Middle East?

“ Establishing relationships is very important. Persistence is key – repeat visits and getting to know people beyond the business sphere. In terms of communications when you’re not in the region, email is a very unreliable form of communication. Instead, pick up the phone, text, use other apps. Email is a last resort.”

Pablo Kang, Former Australian Ambassador to the UAE and Qatar

Do your research▪ Any cultural barriers can be overcome by conducting careful and comprehensive

research prior to entering the market.

▪ Read widely, talk to peers who have already entered the market and engage professional advisers that have experience operating in the market.

▪ The Export Council of Australia can help SMEs develop their international business skills through understanding the culture and business practices of different countries in the Middle East.

Get your paperwork in order▪ The Australia Arab Chamber of Commerce and Industry (AACCI) is the peak

national association for trade and investment between Australia and the Arab League countries.

▪ AACCI certifies all export documentation for Australian exporters, which is a prerequisite for exporting to the Middle East.

▪ AACCI also holds networking events and organises trade missions for Australian SMEs.

Build relationships▪ A strong personal relationship is key to doing business successfully in the Middle East.

▪ This requires committing significant time and resources to investing in building relationships – at a minimum this will involve conducting a number of visits to get to know potential customers, partners and suppliers before entering into a formal relationship.

▪ For Australian SMEs that choose to service their Middle East market remotely, it is important to have a good relationship with distributors so you understand where your money is going.

Enlist professional help▪ Austrade, the Australian Government’s trade and investment agency, can assist

SMEs with introductions and navigating the business environment in the Middle East.

▪ Austrade has strong relationships with Government and business, linking Australian companies with key decision makers across the region.

▪ Experienced staff are also available to provide strong in-market support to firms operating in the region.

SME Information Series | Exporting to the Middle East | August 2016

An Australian success story in the Middle East

Miles MorganProject success

Perth-based SME Miles Morgan Australia was established in 1997 and provides research, policy and consultancy services, predominately to government organisations.

A key area of Miles Morgan’s focus is on providing career development and transition support, vocational education and training, and occupation and career profiling services.

Miles Morgan has undertaken many projects in Australia that have helped advance Australia’s career development frameworks and quality standards.

In Saudi Arabia, foreign nationals make up a significant proportion of the workforce.

Recognising that this isn’t sustainable in the longer term, the Saudi Ministry of Labor and the Human Resources Development Fund (HRDF) initiated a project to encourage Saudi nationals into more diversified career pathways.

After an international search, Miles Morgan won a contract to design the policy framework, national quality standards and a governance model for the new career education and development ecosystem.

Under the contract, Miles Morgan was required to provide a bank guarantee to back performance under the contract, which had to be issued by a Saudi bank.

To facilitate that outcome, Miles Morgan’s bank relied on our Performance Bond to issue a guarantee to the Saudi bank, which in turn issued the bank guarantee to HRDF.

Given the small size of the bond required and the challenging nature of the export market involved, we were pleased to have been able to support this important international public policy project.

Miles Morgan is now pursuing other export opportunities within Saudi Arabia and elsewhere in the Gulf.

“ The support we’ve received from Efic and Austrade has been exceptional. Cashflow is critical when you’re a small business like ours so the bond assistance has been invaluable.”

Barbara Macnish, CEO, Miles Morgan Australia

SME Information Series | Exporting to the Middle East | August 2016

Export Council of Australia (ECA)The ECA has a history of supporting Australian international business. For the past 60 years it has encouraged, educated and assisted Australian companies to take on the world. The ECA focuses on the development of Australia’s resources through promotion of Australian industry in international markets.

www.export.org.au

EficEfic is a specialist financier that delivers simple and creative solutions for Australian small to medium export businesses to enable them to win business, grow internationally and achieve export success. Efic works directly with businesses and their banks to provide support to Australian-based companies that are exporting, are involved in a global supply chain or want to build their business overseas.

www.efic.gov.au

Resources

AustradeAustrade’s role is to advance Australia’s international trade and education, investment, and tourism interests by providing information, advice and services to Australian businesses, education institutions, tourism operators, governments and citizens.

www.austrade.gov.au

Australia Arab Chamber of Commerce and Industry (AACCI)AACCI’s mission is to assist Australian companies exporting to or expanding into MENA markets and Arab companies looking to invest in Australia. AACCI specialises in providing members with commercial intelligence, business matching and networking opportunities.

www.austarab.com.au

SME Information Series | Exporting to the Middle East | August 2016

For more information, contact Efic on1800 093 724 orvisit www.efic.gov.au

The Middle East is often viewed with some trepidation by the Australian business community, with the language and distinct culture often creating uncertainty among Australian exporters. Recent political and civil unrest has only added to this concern.

However, the region is growing and offers huge potential for Australian exporters, as we look to expand and diversify our export markets away from Asia.

Like any other export market, learning the potential risks and knowing where to go to for help is crucial, as it can ensure more Australian exporters are able to take

advantage of the growth opportunities in this exciting region.

If you would like further information or to have a discussion about funding solutions for your export or export-related business, please call 1800 093 724 or send us an

enquiry via our website and we will come back to you soon.

The information in this document is published for general information only and does not comprise advice or a recommendation of any kind. A person or entity should seek their own independent legal and financial advice. While Efic endeavours to ensure this information

is accurate and current at the time of publication, Efic makes no representation or warranty as to its reliability, accuracy or completeness. To the maximum extent permitted by law, Efic will not be liable to you or any other person for any loss or damage suffered or incurred by

any person arising from any act, or failure to act, on the basis of any information or opinions contained in this document.