Government tariffs can provide a spark for manufacturing



There are not many among us who would advocate more taxation, especially in this country.
One could fairly safely presume, in fact, that the majority of people working and living in the UAE are quite glad there is less taxation here than just about anywhere else on Earth.
Many are here precisely because of that. No taxation of income means more money in the bank. It is a good thing.
Well, not always.
Don't worry, I have not lost my senses. I am not about to donate a percentage of my salary to either the British or the American revenue services - both of which I have paid handsomely in the past.
But I learnt something this week that changed my view on taxes and tariffs in the region. I was surprised to learn from one of the biggest manufacturing companies in the world that an absence of certain tariffs can be a much greater barrier to prosperity than you would ever imagine.
In this case, one very close to home for Abu Dhabi, it appeared that low or non-existent import tariffs could hinder the UAE's plan to diversify the economy beyond a reliance on oil and gas, particularly in favour of manufacturing.
I was invited to a lunch with General Motors, the American car maker.
The occasion was to introduce the company's new global head of Chevrolet, a British veteran of the motor industry called Alan Batey.
Mr Batey was very proud of the marque's success in the Middle East, particularly in the UAE, where sales have grown at an impressive lick for the past few years.
He revealed that Chevrolet sales were up between 9 and 10 per cent in the UAE for the year to date, with sales in July alone expected to notch up a 35 per cent increase compared with the same month last year. The early Ramadan accounted for the huge increase in July, but it was an impressive increase nonetheless.
With such an obvious appetite for the company's cars and in particular its big 4x4 pick-up trucks in the UAE, I wondered why GM does not manufacture here and instead chooses to import all vehicles sold in the UAE.
Indeed, here in Abu Dhabi we have the prime location for such a behemoth of global manufacturing to set up at Kizad.
A state-of-the-art manufacturing plant could employ hundreds of Emiratis in highly skilled engineering jobs, similar to those provided by Strata, the Mubadala company in Al Ain that makes complex aircraft body parts for Boeing.You would think that the UAE Government would provide lucrative incentives for any such company wanting to set up what would undoubtedly be a US$1 billion facility here.
Indeed, Mr Batey and GM's Middle East chief John Stadwick both confirmed such incentives have been offered but that there was no prospect of building such a plant here in the short or medium term.
There were several factors that led to this conclusion, not least the absence of an existing skilled workforce and a difficulty supplying components. But low import tariffs for cars, 5 per cent in the UAE, was by far the most important factor, according to Mr Batey.
A look at Egypt, where GM has a factory and a healthy share of the car market, helps to explain his theory.
The import tariff on cars in Egypt is more than 20 per cent, which means an imported foreign car can never be sold as cheaply as one made in Egypt.
This is a deliberate government policy designed to promote a skilled local labour force.
So it makes sense for GM to spend the $1bn or so it costs to open a new factory as it will be rewarded with the sale of many affordable cars.
But in the UAE there is no such barrier to import, which is good for GM but not so good for the Government if it would like GM and others to set up shop here and employ nationals in the future.
Saudi Arabia does it with import tariffs on such diverse products as matches and nails, which are manufactured at plants across the kingdom.
I am reminded of a French phrase I learnt while doing my chores in our village in Provence as a child: Couper le bois ca chauffe deux fois. Cutting wood warms you twice - once when you chop it up outside in the chilly morning air and once again when you burn it in the hearth at night.
In the same way, taxes and tariffs raise money for immediate government expenditure and simultaneously provide incentive to perform a certain activity.
Even better than that, once a levy is established it can be raised, lowered or eliminated altogether at a point in the future to further regulate the business environment or to further encourage or discourage the same activity.
So, far from putting the freeze on business as is commonly touted, taxes and tariffs can warm a government several times over.
 
jdoran@thenational.ae

From Europe to the Middle East, economic success brings wealth - and lifestyle diseases

A rise in obesity figures and the need for more public spending is a familiar trend in the developing world as western lifestyles are adopted.

One in five deaths around the world is now caused by bad diet, with obesity the fastest growing global risk. A high body mass index is also the top cause of metabolic diseases relating to death and disability in Kuwait,  Qatar and Oman – and second on the list in Bahrain.

In Britain, heart disease, lung cancer and Alzheimer’s remain among the leading causes of death, and people there are spending more time suffering from health problems.

The UK is expected to spend $421.4 billion on healthcare by 2040, up from $239.3 billion in 2014.

And development assistance for health is talking about the financial aid given to governments to support social, environmental development of developing countries.

 

Director: Laxman Utekar

Cast: Vicky Kaushal, Akshaye Khanna, Diana Penty, Vineet Kumar Singh, Rashmika Mandanna

Rating: 1/5

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Guide to intelligent investing
Investing success often hinges on discipline and perspective. As markets fluctuate, remember these guiding principles:
  • Stay invested: Time in the market, not timing the market, is critical to long-term gains.
  • Rational thinking: Breathe and avoid emotional decision-making; let logic and planning guide your actions.
  • Strategic patience: Understand why you’re investing and allow time for your strategies to unfold.
 
 
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Director: Kangana Ranaut

Stars: Kangana Ranaut, Anupam Kher, Shreyas Talpade, Milind Soman, Mahima Chaudhry 

Rating: 2/5

Biog

Mr Kandhari is legally authorised to conduct marriages in the gurdwara

He has officiated weddings of Sikhs and people of different faiths from Malaysia, Sri Lanka, Russia, the US and Canada

Father of two sons, grandfather of six

Plays golf once a week

Enjoys trying new holiday destinations with his wife and family

Walks for an hour every morning

Completed a Bachelor of Commerce degree in Loyola College, Chennai, India

2019 is a milestone because he completes 50 years in business

 

Earth under attack: Cosmic impacts throughout history

4.5 billion years ago: Mars-sized object smashes into the newly-formed Earth, creating debris that coalesces to form the Moon

- 66 million years ago: 10km-wide asteroid crashes into the Gulf of Mexico, wiping out over 70 per cent of living species – including the dinosaurs.

50,000 years ago: 50m-wide iron meteor crashes in Arizona with the violence of 10 megatonne hydrogen bomb, creating the famous 1.2km-wide Barringer Crater

1490: Meteor storm over Shansi Province, north-east China when large stones “fell like rain”, reportedly leading to thousands of deaths.  

1908: 100-metre meteor from the Taurid Complex explodes near the Tunguska river in Siberia with the force of 1,000 Hiroshima-type bombs, devastating 2,000 square kilometres of forest.

1998: Comet Shoemaker-Levy 9 breaks apart and crashes into Jupiter in series of impacts that would have annihilated life on Earth.

-2013: 10,000-tonne meteor burns up over the southern Urals region of Russia, releasing a pressure blast and flash that left over 1600 people injured.

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The five pillars of Islam

1. Fasting

2. Prayer

3. Hajj

4. Shahada

5. Zakat 

How to apply for a drone permit
  • Individuals must register on UAE Drone app or website using their UAE Pass
  • Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
  • Upload the training certificate from a centre accredited by the GCAA
  • Submit their request
What are the regulations?
  • Fly it within visual line of sight
  • Never over populated areas
  • Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
  • Users must avoid flying over restricted areas listed on the UAE Drone app
  • Only fly the drone during the day, and never at night
  • Should have a live feed of the drone flight
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”