x Abu Dhabi, UAEThursday 18 January 2018

Resurgence at risk from unrest

Unrest in the Middle East is endangering a recovery in the flow of goods in the region, say bankers.

Unrest across the region risks putting the brakes on a resurgence in trade flows after the global financial downturn, bank executives say.

Strengthening demand for goods nd services across the board has helped to propel a recovery in the trade outlook this year.

But turmoil springing up across the region would definitely have an impact on trade, said Shelton Peiris, the head of transaction banking, at Commercial Bank of Qatar.

"These crisis situations are worrying to bankers, especially in the region. We would like to see an end to this as soon as possible because otherwise the benefits of coming out of a major crisis will not be felt," he said at the Middle East Trade & Export Finance Conference in Dubai yesterday.

After dropping dramatically at the end of 2008 and in early 2009, global and regional trade began to regain lost ground at the start of last year.

As an important trading post, the UAE has been at the forefront of the recovery. Non-oil trade rose by 11.5 per cent to Dh605 billion (US$165bn) in the first 10 months of last year compared with the same period in 2009, Sheikha Lubna Al Qasimi, the Minister of Foreign Trade, said at the same event.

The fallout from the crisis on trade had been contained in Egypt, said Kersi Patel, HSBC's head of Mena trade and supply chain. In Bahrain too, the kingdom's troubles had so far not badly hurt export and imports, he said.

If there was any silver lining to the situation, it could be for the UAE, he said on the sidelines of the event.

"The UAE may possibly benefit from its safe haven status and could capitalise further on its position as the third largest re-export hub in the world," Mr Patel said. "International corporates wanting to do business in the region would prefer to go via local traders who understand the market rather than directly with the countries."

Insurers and bankers are scrambling to reassess political risks in the region amid the widening protests. Export Credit Insurance Co of the Emirates has already said it intends to raise premiums for new exporters to some countries by up to 20 per cent.

"The difficulty of what we are seeing at the moment is that its happened very quickly," said Neil Armitage, the assistant vice president of corporate trade sales at Abu Dhabi Commercial Bank. "We have to now look at those risks and the way you can try and protect yourselves."

Prices for commodities may creep up further in affected countries as traders pass on the higher cost of credit insurance to consumers, said Mr Armitage.

Financing trade deals with Egypt, Libya, Yemen and Bahrain and others are expected to become more expensive as uncertainty persists about the outcome of current turmoil.

"You would expect pricing for those countries where there's pressure to move upwards and to a large extent the sellers into those countries will be able to recover by raising the selling price," Mr Armitage said.

Under such a scenario, transport and storage costs would also edge up as rises were passed along the supply chain. Anger at rising food prices added further fuel to already brewing social unrest in Egypt and Tunisia in recent weeks.

Globally, prices of vital commodities such as oil, wheat and cotton have risen sharply in recent months. Several governments in the region have already indicated they will increase subsidies to help appease growing discontent.