Advancing in the Middle East

Middle East countries are very far from being able to be named as Poland's major trade partners. Yet, Polish exporters would lose a lot if they neglected to establish solid trade ties with these fast-growing regions By Alicja Ciszewska To many, the Middle East may seem to be the very center of the world’s largest wars, inhabited by either wealthy sheikhs or rather poor societies. However, this region is recognized as one of the most promising for European companies, since it has been recording soaring GDP for a few decades. “Although a major part of the Arab world has plunged into massive turmoil, we have to keep in mind that it is a very diverse region and one can find big markets there which operate without any interference. Properly prepared and directed expansion could bring Polish companies real business success,” Przemysław Polaczek, managing partner at Grant Thornton pointed out. Over the last five years, Saudi Arabia’s economy has risen by 5.3 percent year-on-year on average, Qatar’s GDP increased by 9.6 percent, while the United Arab Emirates (UAE) recorded a 4 percent growth. At that time, the euro zone grew by just 0.6 percent (IMF), hence, it took Saudi Arabia seven months to make up the numbers which it took the euro zone five years to achieve. Despite some declines, forecasts continue to be promising. HSBC estimated that the UAE’s GDP will slow to 3.1 percent in 2015, Saudi Arabia’s to 3.6 percent and Qatar’s to 5.6 percent. Meanwhile, the euro zone economy will rise by only 1.3 percent. One percent that matters Last year, Poland recorded a trade surplus with almost all the region’s economies. The total turnover reached nearly €9 billion, and exports alone amounted to €5 billion (see: table). Overall, an increase in exports with Middle Eastern countries stood at some 10 percent on a yearly basis. Poland exports grains to Saudi Arabia, Iran purchased sound receivers, Jordan acquired aerial vehicles, mainly from PZL Mielec. Qatar was a buyer of mechanical and electronic devices, Kuwait - food and agricultural products. Lebanon and Syria imported foodstuff, such as sugar, bread, chocolate products, among others. What’s interesting, almost half of the products sold to the UAE market were mobile phones. Despite the fact that the exports to Middle Eastern countries account for only one percent (0.5 percent to Turkey alone), those markets have potential to become quite profitable for Polish companies. Experts claim that Polish food, energy, apparel, furniture, construction and cosmetics sectors have, and will, benefit the most from the trade exchange. In particular, Saudi Arabia, Qatar and the UAE, where the emerging middle class is in need of consumer goods. Polish fashion retailer, LPP opened around 200 stores in Poland and abroad in 2015, expanding its number to some 3,200. As the Ukrainian crisis had an impact on the firm last year, LPP will expand its business mainly in the EU and the Middle East, i.e. Egypt, Saudi Arabia, Kuwait, Qatar and the UAE. Wójcik, a producer of children’s clothing is also considering entering the Middle East. Moreover, the Polish cosmetic sector, which is currently the sixth largest in Europe has been conquering the region too. Polish-made cosmetics are recognized as high quality products at reasonable prices. Inglot Global Cosmetic is planning to open 100 stores in the United Arab Emirates by 2020. Opening stores in the UAE is a part of the company’s broader strategy of launching 220 units in the countries of the Persian Gulf Cooperation Council. As for now, Inglot has 19 stores in the UAE. The region accounts for 8 percent of the firm’s total sales revenue. Delia Cosmetics proudly admitted that in comparison to 2012, it doubled its sales in the Middle East last year. Eveline owns 120 outlets in Dubai alone. Laboratorium Kosmetyczne Dr Irena Eris is finalizing agreements with distributors in Bahrain, Kuwait and Qatar. Polish companies admit that the Middle East is difficult to enter, but it’s worth the effort. “We think that the market is really challenging, but it creates opportunities to establish long-term trade relations,” Ewa Sabaj, Export Manager at Blux Cosmetics told Bankier.com web portal. Arab countries are one of the directions that Polish shipyards have moved in. As many as 100 Polish boat and yacht manufacturers sell nearly their entire production output (99 percent) abroad and in Europe. The Far East, as well as the Middle East, are their major markets according to the Polish Chamber of Marine Industry and Water Sports. An interesting detail is that Poland is the world’s second largest small motor yacht producer and the sector has been chosen by the Polish government as a beneficiary of financial aid provided from EU funds. Polish technology has also entered the Middle East. The mobile payment system provider mPay signed a seven-year deal with Bahrain-based eTime IT Solutions this year. It was the firm’s first international contract. In line with the deal, customers from such countries as the Kingdom of Bahrain, Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Oman will be able to use mPay’s application to pay for bus and parking tickets. Firstly, the app will be delivered to the Bahrain market, within a year after eTime IT Solutions obtains the necessary permits. Experts stress that the Middle East region is a great construction site nowadays, where high quality materials, services and professionals are necessary. “Arab countries are characteristic for many investment projects, which are not only offices, but hotels and housing schemes, there are entire cities being built from scratch,” Antoni Mieleniczuk, the president of Polish-Saudi Economic Chamber told Puls Bzinesu daily. Saudi Arabia alone will earmark $550 billion for infrastructural investments in years 2012-2015. Krzysztof Woźniak, head of the international banking department at HSBC Polska argued that local authorities invest in “great infrastructural projects,” with the support of foreign entities, and this is an opportunity for Polish contractors or consultants specializing in the creation and management of engineering ventures. Unfortunately, some claim that Polish construction firms could be too weak to enter the Middle East, additionally, the leading firms have Spanish (Budimex and Mostostal Warszawa) and Austrian (Strabag) owners who will not let them be present in the market in which they have been operating for years, Maciej Stańczuk, the president of Polish-Saudi Arabian Business Council told Dziennik Gazeta Prawna in 2012. Bread basket for the Middle East Due to the unfavorable climate conditions, Arab countries face an undeniable lack of food. For instance, Saudi Arabia imports some 90 percent of its fresh and processed food, Iran buys around 85 percent. Poland’s food and foodstuff exports will be valued at €25 billion in 2015, according to estimates from the Ministry of Agriculture. Domestic producers have been selling food products to the Middle East, as it was mentioned above, and experts claim this sector is one of the most promising in the mutual trade exchange. Nevertheless, Polish exporters have to deal with strong competition from the likes of German and French firms. What’s worth noting is that Polish food processing technology is also desirable in Arab countries, in addition, Polish companies may successfully establish joint ventures in the sector, the Saudi Arabian embassy to Poland pointed out. Sławomir Majman, the former president of the Polish Information and Foreign Investment Agency (PAIiIZ), recognizes the Polish food sector’s achievements in the United Arab Emirates and believes that Poland should pursue exporting food there. The Ministry of Economy also identified Oman as one of the biggest potential importers of Polish food and food technology, but such countries as Jordan, Lebanon and Kuwait have not been mentioned. Go Iran? Former Minister of the Economy, Janusz Piechociński said that the landmark nuclear deal with Iran creates a great opportunity for Polish farmers, since the Persian country imports 85 percent of its food products and, what has to be noted, Polish food exports to Iran have grown threefold since 2011. The minister claimed the improvement of relations with “a big market that has money,” is a good sign for the Polish economy. Poland may offer Iran such foodstuff as fruit, juices, honey and grains as well as car parts, medical equipment, furniture and building materials. “The normalization of relations with Iran is a great opportunity to sell several thousand railway carriages, several thousand trams, subway cars, very large amounts of food. This is a huge opportunity to export Polish poultry and beef, a great opportunity for many technologies,” Piechociński stressed. A few weeks later, Piechociński went on a trade mission to Iran where he signed an agreement of economic cooperation with the country. The document is to enhance intergovernmental cooperation as well as the trade exchange between the two economies. Piechociński stressed that “the Polish government knows the specification of Iranian crude oil and it can be processed at Polish refineries. “Under the agreement, a joint committee will be established whose main tasks will be to analyze the current economic cooperation of the two countries and suggest recommendations for the governments. The former economy minister suggested that Poland, precisely PAIiIZ, should introduce the Go Iran program. Majman shared his optimism saying that it is high time to bring it into being. Although Go Arctic has recently been launched, there has been no official announcement for the implementation of the Iranian project, even PAIiIZ staff are wary of giving any details regarding the idea suggested by Piechociński. Let’s hope it did not die when the minister left office. The Minister of Development, Mateusz Morawiecki, who replaced Piechociński, called for deepening cooperation with ASEAN countries. So far he has not mentioned anything about advancements in Iran. Moreover, following the mission, the Polish-Iranian Business Council was established. The council was formed during a conference on “How to export to Iran,” held in Warsaw. The Chairman of the Council, Jacek Sosnowski, stressed that “trade relations between Poland and Iran must be enhanced, so Polish companies are not left behind by their competitors from other European countries.” Acting on their own [caption id="attachment_98601" align="alignleft" width="300"] Image: shutterstock[/caption] Meanwhile, Poland’s largest refiner, PKN Orlen has become interested in investments in the Iranian oil sector in the event that economic sanctions imposed on the country are lifted, according to the Shana press agency, which cited Jarosław Zacharski, G&G Manager at Orlen. This was not the first time the media has speculated about the Polish company getting involved in the Iranian market. In late April, Reuters said that PKN Orlen had bought a 122,000 metric ton shipment of Iran’s gas condensates for its Mazeikai complex, however, the news was denied. What is more, Iranian media reported that Polish state-controlled gas and oil giant PGNiG is keen on carrying out investment projects in Iran after the possible lifting of sanctions that had earlier been imposed on the country. “Years ago, the Polish firm participated in the Lavan gas project and now it is ready to come back to the developing Iranian market,” PGNiG representative to the Middle East, Bogusław Sozański told Mehr agency, adding that the company is likely to open its office in Tehran. Abbas Sha’ri-Moqaddam, the Iranian deputy petroleum minister informed that talks with the Polish party have already begun and they are regarding cooperation in petrochemical projects. “The main subject of the talks with the European firm is a purchase of equipment and the newest technology for the petrochemical industry,” he said. However, he did not mention the name of the “European firm.” Hunting for new chances “As for now, we are making our presence felt in the UAE and Saudi Arabia but there are lots of countries in the Middle East with which we can cooperate closer,” Radosław Jarema, the CEO at Akcenta, CEE leading non-banking financial institution argued. Furthermore, regarding the above, Polish companies have also started advancing in Iran. In his and other experts’ opinions, Jordan, Qatar, Bahrain, Kuwait and Iran (if the market opens), could, and should, be of interest to Polish exporters in the near future.