Great Banana trade Dispute

In September the world trade organization ruled that EU banana regime import was inconsistent with WTO for certain reasons. Such as EU Tariff allocation , particularly to the ACP ( African, Caribbean , Pacific , ) countries , was contrary to the non discrimination rule ( General Agreement on Tariffs & Trade ) as well EU’s licensing procedures, which involve the purchase of EU and/or ACP bananas in order to obtain rights to import some Latin American (or other third countries’) bananas, were contrary to the MFN (most-favored-nation) rule and the national treatment rule , at last through the impact of this licensing system on the service suppliers of the complaining countries, the licensing procedures were also contrary to the MFN rule and the national treatment rule– General Agreement on Trade in Services.

In January 1999, the EU introduced a new banana import regime but the WTO ruled in April 1999 that this new regime was also incompatible with the EU’s WTO obligations.

In April 2001, the three governments reached an agreement whereby Ecuador and the US would suspend their sanctions so long as the EU changed its banana import regime from the existing tariff-rate quota system to a tariff-only system by 1 January 2006. Under this new tariff-only system, banana imports would not be subject to quotas; there would be a single tariff for all banana imports, except for ACP bananas which would continue to benefit from a preferential tariff arrangement.

Mudaraba in Islamic Finance

What is Mudaraba in Islamic Finance?

Islamic finance is popularly known for offering interest free loan products. This is in accordance to the Shariah law under which the financial system operates. However, there are also other products offered by the financial institutions. One such product is Mudaraba. This is a joint venture agreement between a bank (investor) and a customer (entrepreneur). However, as opposed to where both would contribute capital, Mudaraba involves one party providing the labour and the other providing the capital. The investor is referred to as rabb-ul-mal whiles the one who takes the managerial and work responsibility is known as mudarib. Since the latter did not provide the capital, everything that he purchases is owned by the former. Mudarib can only make an earning if he manages to sell the goods at a profit. As such, he is not entitled to claiming his share if he has not sold the assets. This is even if they increase in value.

How is mudarabah is done in islamic finance:-

In Mudarabah, rabb-ul-mal starts by specifying the business to be run by mudarib. It is only in this business that he will invest his money. This is what is referred to as al-mudarabah al –muqayyadah or restricted mudarabah. In other cases,rabb-ul-mal may see mudarib make the choice of business. As such, he will invest in any business suggested as fit by mudarib. This form of mudarabah is referred to as al-mudarabah al-mutlaqah or unrestrictedmudarabah. Rabbul- mal can also invest his money in a mudarabah which has more than one mudarib. In simpler terms, he can provide capital to mudarib A and mudarib B where the two will utilize it jointly. When it comes to the share of mudaribin the mudarsabah, it will be divided between A and B. The business is thus run by the two as if it were a partnership. In a mudarabah, mudarib whether he is one or they are two, has the authority of doing anything considered normal in the course of doing business. If they wish to do anything extra to this, they have to seek permission from rabb-ul-mal.

Distribution of profit in mudarabah is usually agreed between the parties; Shariahas not prescribed this. However, the amount given to any of the parties is not supposed to be a lump sum. For example, a 40% to 50% is acceptable compared to a 20% to 80%. They can also agree to share the profit equally. Profit distribution can also vary with situations such as the type of goods traded on or the location of the business. Also, mudaribis not supposed to claim any form of a fee for his work above the agreed share on the profit.

Reference:

Usmani, T. (2002). An Introduction to Islamic Finance. Berlin: Springer.

Islamic finance ( Murabahah, Musawama, and Bai Mu ajjal)

  Murabahah   

The Word Murabahah has been derived from the Arabic Word Ribah which means Profit. It can be denoted as sale with Profit. It is a specific kind of a sale where the seller sells and asset to a buyer at a profit. The profit added is agreed upon by the buyer and the seller. It is therefore the obligation of the seller to disclose to the buyer the amount that he/she purchased the asset so that they can agree upon the profit and the price to sell the asset. This can be Proven from the Quran at: “And Allah has permitted trade” [2:275]. .( "وَأَحَلَّ اللَّھُ الْبَیْعَ وَحَرَّمَ الرِّبَ ا" (البقرة: 27

What is Musawamah and how does it differ from Murabahah?

Musawamah is a kind of a sale where the seller does not disclose the cost of the asset that he/she is selling to the buyer. The seller therefore is under no obligation at all to disclose the buying price for the commodity to the buyer during price negotiations. This happens mostly when it is difficult to determine the cost of the product or when the cost is included in a pool of other products. The major distinction between Murabahah and Musawamah is that the seller does not disclose the initial cost of the asset in question.

What is Bai’ Mu’ajjal (sale on deferred payment basis)? 

This is a type of sales of goods where the bank purchases products on behalf of the buyer. The bank then sells the goods to the buyer at a profit with the option of the buyer to pay for the goods in installments that are agreed upon by the bank. The buyer can also be asked to sign a promissory note but the bill or the note cannot be sold to a third party at a different price from its face value.

Standard Chartered Bank Vs internal problems

Standard Chartered Bank is a public limited company offering banking and financial services in many parts of the world. Some of its products include credit cards, corporate banking, insurance and consumer banking. Others include mortgages, loans, wealth management and private banking. The bank has a heavy presence in Dubai, where it gives out significantly in loans.

The bank earned revenue of $16.06 billion in 2010. In the same year, the bank’s net income stood at $4.23 billion while its operating income was $6.12 billion. A whooping $517 billion make up the bank’s assets. Its total equity as at 2009 amounted to $27.93 billion.

In spite of the bank’s exemplary performance through the years, it has been faced with serious scandals that threatened to dent its credibility. The bank’s failure to hire local talent has been one of its major underbellies. Having all senior management employees as expatriates has impacted negatively on the bank’s performance, especially in the Middle East. This leads to disappointment when local professionals are not hired yet the institution is set in their backyards. This further leads to general discontent among the local communities. As a result, a good number of them would prefer going to institutions with their own people for financial services, rather than negotiate with strangers in their midst.

Research on the internal problem bedeviling Standard Chartered Bank was carried out through interviews and analyzing secondary sources of information. The research identified the head of Human Resource Management who provided valuable information on the hiring trends adopted by the bank. He provided the bank’s nominal role to back up his responses to the interview questions.

To the question as to how often a local professional was hired into the senior ranks in the bank, the responded stated that only one senior personnel had been hired from the locals since the inception of the bank in Dubai. However, most junior employees are Dubai natives. But in most of the senior positions, professionals were usually flown in from Europe or America.

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Major commercial bank in UAE

There are both Major foreign and major local banks in Dubai and the UAE ready to look after your money, or lend you someone else's money. All dirham lead back to the UAE Central Bank which governs and licences financial institutions in the UAE. Retail customers will usually head to one of the commercial banks or Islamic banks. There are two other types of bank categories - merchant or investment banks, and industrial banks. One of these local banks is National Bank Of AbuDhabi:

The National Bank of Abu Dhabi (NBAD), the Number One Bank in the UAE, was incorporated in 1968 and is listed in the Abu Dhabi Securities Exchange (ADX), under stock code NBAD

NBAD has one of the largest networks in the UAE with an expanding network of more than 120 branches and cash offices and 490 ATMs across the country. NBAD’s international network consists of 50 branches and 60 ATMs in 12 countries stretching across four continents from the Far East to North America, giving it the largest global network among all UAE banks.

Since 2009, NBAD has been ranked consecutive year one of the World’s 50 Safest Banks by the prestigious Global Finance magazine, making NBAD the safest bank in the Middle East. NBAD was also named in 2011 the Best Bank in the UAE for the third consecutive year and for the fifth time in a decade by Euromoney. NBAD surpassed the US$1 billion net profits in 2010, becoming the first UAE bank to reach this milestone.

NBAD is rated senior long term/short term A+/A-1 by Standard & Poor's (S&P), Aa3/P1 by Moody’s, AA-/F1+ by Fitch and A+ by Rating and Investment Information Inc (R&I), giving it one of the strongest combined rating of any Middle Eastern financial institution.

A comprehensive financial institution, NBAD offers a range of banking services including retail, investment and Islamic banking services.

NBAD grows strategically toward its Vision to be recognised as the World’s Best Arab Bank.

Marketing Dates in Europe

Dates are fruits that are cultivated in the tropical climate, and are thus common in the Middle East, North Africa, and North America and in small parts of Spain. This article evaluates why, how and what aspects a company in the Middle East would want to use in internationalizing its markets to Europe. Kingdom dates was established in 1998 using 100% U.A.E. capital. It is one of the largest companies in the U.A.E working in the dates’ field. The policy of the company is always to generate new ideas in dates, and engage in the development of the date products, tastes and shapes like almond date, chocolate date, petit four date and honey date with almond. Kingdom dates products’ distribution is all over U.A.E, therefore its clients can find the products in all hypermarkets, in addition to their own specialized shops for dates, plus stands in the big centers, and their distributors in Dubai Duty Free, Abu Dhabi Duty Free, Deira City Center and Mall of Emirates. Kingdom dates has its own factory (Gulf Factory) located in Ras Al Kheima, with a very big factory space, supplied with the latest technologies and machines, which gives perfect new products. The factory fulfills the requirements of the health and cleanliness in all respects, since it is a HASSP registered firm in 2006.

Kingdom dates has a plan to venture in the lucrative European markets of France, U.K, Germany, Italy and the larger EU family. These countries account for 85 percent of total EU imports of dates in volume. Europe, and in particular the European Union (EU), is a key market for date exporters. The EU imports of dates represent only 10% of world imports in volume and they account for some 30% in value. This is a reflection that EU import prices for dates are comparatively much higher than the world average. The accessibility of most of these markets, especially in France and the U.K, is easy in that they have near zero obstacles to trade. The EU does offer a vast market for date products as the population size is big and the trade impediments in the block are little. Politically the vast EU block is highly stable and economically the region is enormous in terms of economic activity. The topography of Europe in general does favor some of the competitors (Tunisia and Algeria) in Middle East. However, the advent of technology in air travel does level the market field. The competitors from North Africa and North America do have some advantage in their production of Deglet nour dates and Medjool dates respectively that have a favorable recipient in the EU market. Kingdom dates specializes in production and processing of the common dates that are very popular with the U.K and German market segment. Though they fetch low prices, they have the highest moving rate in terms of sales. Through differentiation of the dates and value addition of the date’s products, Kingdom dates can be able to effectively venture in the EU trade block for profitable business.

Kingdom dates may use two market entry strategies in venturing the EU trade block. Exportation is one of the ways that Kingdom dates may use in its quest to have a share in the target market. Through this method, Kingdom dates has to find reliable agents that will in turn source for favorable buyers of its dates and related products. This may be time consuming and risky, as the agent does not bear any risk while holding the goods hence may prove too expensive for Kingdom dates. The best option and less risky strategy but effective is through having joint ventures. These are arrangements between two or more investors where they share ownership and control over property rights and operation. Joint venture is an all-embracing form of participation than either exporting or licensing. Kingdom dates can use this strategy in association with the hypermarkets and super markets in the EU block. This has its own advantages that well out way the disadvantages as well as the use of exportation method. They include sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process, joint financial strength since the other associates will come in as investors and it may act the best option to be source supply of a third market segment.

Despite the challenges that may come with joint ventures as in not having 100% control of management and different views on expected benefits, careful mapping in advance of how and what to achieve will help to overcome this challenges.

 

Impact of Economic recession on UAE

Impact of Economic recession on UAE

As Bloomberg notes:

Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG.

As the CBC notes, things went South quickly in Dubai: Hundreds of billions of dollars worth of building projects were delayed or cancelled. Thousands of jobs disappeared. Dubai, playground of the über-extravagant, suddenly found itself facing the very real possibility that its biggest state-owned company, Dubai World, could go into bankruptcy. It warned it was having trouble making debt payments on $59 billion US — money borrowed to pay for all the excess.

Global Impact

The CBC also notes that Dubai World has holdings worldwide:

Dubai World is Dubai’s main holding and investment enterprise, but its holdings range far beyond the Persian Gulf area … Another Dubai World holding — DP World — operates Centerm, a container terminal in Vancouver’s inner harbour. DP World acquired the terminal when it bought the marine terminal assets of P&O Ports in 2006, and plans to spend $140 million to expand it. That purchase also gave it ownership of many key U.S. ports — something that raised national security concerns in the U.S. Some American legislators didn’t like the idea that U.S. ports would be controlled by Middle Eastern state-owned enterprises. DP World subsequently sold its U.S. port assets.

In Britain, another Dubai World subsidiary, Leisurecorp, bought the Turnberry Resort in Scotland in 2008 — home to the 2009 British Open — for more than 50 million pounds.

In the U.S., Dubai World’s investment arm, Istithmar World, bought the luxury retailer Barneys New York in 2007 for almost $1 billion US. There were reports earlier this year it was trying to unload the retailer as the luxury market unwound and Istithmar racked up big losses from the global financial meltdown, but Dubai World’s chair denied it.

In addition, Bloomberg notes that India might be effected by Dubai’s economic problems: About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005…

The biggest creditors of the United Arab Emirates, of which Dubai is a part:

Creditors Of United Arab Emirates (By Origin via Credit Suisse citing Bank for International Settlements):

UnitedKingdom:$50.2billion
France:$11.3billion
Germany:$10.6billion
UnitedStates:$10.6billion
Japan:$9.0billion
Switzerland:$4.6billion
Netherlands: $ 4.5 billion

Creditors Of United Arab Emirates (By Entity via Credit Suisse, citing Emirates Bank Association):

 HSBCBankMiddleEastLimited:$17.0billion
StandardCharteredBank:$7.8billion
BarlaysBankPlc:$3.6billion
ABN-Amro(RBS):$2.1billion
ArabBankPlc:$2.1billion
Citibank:$1.9billion
BankofBaroda:$1.8billion
BankSaderatIran:$1.7billion
BNPParabas:$1.7billion
Lloyds: $ 1.6 billion