Beckoned to the road to somewhere big

The roadshow on a potential UAE-India partnership conducted by Dubai International Finance Centre (DIFC) in Mumbai late last month seemed timely, to say the very least.

With the menu options for global investment re-adjustment apparently altering further in the aftermath of the abiding financial crisis, it must be worth here giving a flavour of that heady concoction.

If the world economy as a whole is on the up, then there has to be an informed expectation that India, already primed for rapid development, having been hobbled for decades past by policy constraints, will feature prominently in that resurgence. And the UAE, especially Dubai in current circumstances, is bound to be on the lookout for leverage out of the financial quicksand induced by global meltdown.

For one thing, can anyone seriously doubt that the global economic geography, as DIFC Governor and UAE Central Bank Deputy Governor Dr Omar Bin Sulaiman put it, is shifting east? That's been well documented as well as being intuitively convincing.

He called it "a most important inflection point in history", and it's difficult not to agree, with a wall of doubt most noticeably now surrounding the US dollar, and its symbolic representation of the West's secular economic decline.

For the shorter-term outlook, he noted pertinently the IMF's comparative GDP forecasts for 2010: India 6.4 per cent, the GCC 5.2 per cent, the world 3.1 per cent — all those figures well in excess of those for the leading developed economies.

Regarding the longer term, Dr Bin Sulaiman observed the IMF's estimation that by 2013 the GDP of emerging and developing countries will exceed 50 per cent of global GDP, and will overtake that of the advanced countries for the first time since the 19th century. The context, then, is impressive enough.

Asia was already well established as a byword for dynamic export-based performance, albeit dependent on the West's persistent, substantially and self-deludingly borrowing-based consumerism, and linked literally to the United States in respect of determined currency pegging.

Now, as that self-centred mercantilism has to be reconsidered in view of the limits of debt-driven consumption, and the dollar's hegemony equally must be in doubt, so China, the Pacific Rim and increasingly India must look at their own potential growth prospect based on domestic demand. As underdeveloped societies, it is not as if there's no internal rationale.

While any potential partner with trade and investment potential would want to be seriously involved in that regional outlook and strategic re-orientation, the UAE surely would have India filling its sights much more than most.

There's a certain symbiosis involved, both already and indefinitely for the future.

With Indian expats forming more than 40 per cent of the UAE population, many at skilled levels, and the relatively undaunting physical separation between such historic commercial centres as Dubai and Mumbai, the promise of a seriously upgraded, healthy and prosperous connection would seem obvious. At $44 billion (Dh161.6 billion), annual UAE-India bilateral trade is already what some would call ‘non-negligible'. Remarkably, recorded and unrecorded remittances from the UAE to India could amount to as much of 7 per cent of India's GDP.

That's as is it now. But the prize from mutual cooperation could be so much greater. Not to labour the public-relations jargon too far, there would seem to be a commonality of interests and purpose. Chart 1's (left) depiction of parallel per capita income growth is an easy portrayal of that notion, even if the relative scale of existing wealth is disproportionate!

Indeed, at its most basic level, India needs the money, the Gulf has it to invest, and Dubai, notably in the forum and facility of the DIFC, can genuinely be a preferred gateway. Dubai, after all, showed for many years that it can benefit massively from the injection of regional liquidity into its own, oil-limited domain. While that story has been interrupted by events, the underlying premise, of pursuing other channels of diversified, opportunistic, momentum-oriented strategy, remains. Where better now to apply that reasoning than just across the water, with the neighbouring, newly-motivated, powerhouse proposition that is India?

Not to put too fine a point on it, Dr Omar Bin Suleiman mentioned the $18.3 trillion which the DIFC Authority's economics unit has deduced to be the present value of the oil and gas reserves of the six GCC states. Such a colossal sum, even only in small part, will need to find places to go. Putting it mildly and diplomatically, India, on the other hand, is a "large and rapidly-growing nation that would benefit from foreign direct investment and other capital infusions".

It is perhaps an idea which has lain dormant too long. That granted, keynote speaker Kamal Nath, Indian Minister for Road Transport and Highways, in an impassioned address, spoke as to the sense of urgency from India's perspective. In a country of pronounced winners and losers from the reforming, revivalist economic agenda so far undertaken, there is so much to do to not only generate but spread the wealth.

Infrastructural development is the embodiment of that commitment, notably in road-building across this vast, somewhat disconnected nation. Other mainstream projects appear in rail, transport, logistics (air, cargo and ports), and renewable energy, but also, down the real and metaphorical roads to somewhere, beyond into services, and the socially-constructive paths of education and health care.

A five-year outlay (2008-12) of almost $500 billion is envisaged in infrastructure alone, perceptibly the cornerstone commitment. Chart 2 (below) has the detail.

In fact, in a recent research report Goldman Sachs analyst Tushar Puddar put the figure of required infrastructure financing at $1.7 trillion over the next decade, "considerably higher than previous estimates". Even if the same document suggested that India itself could provide most of the necessary financing by way of a structurally rising savings rate, that's a big enough number for anyone to take notice, and it would do the UAE no harm to claim a stake in making and sampling that pie.

DIFC appears to want to do just that on Dubai's behalf. Chief economist Dr Nasser Saidi spoke of the centre's ability now to function as a catalyst for India's access to global markets. Thus it would be a two-way flow, upon improved understanding of respective investment channels. Since only 1 or 2 per cent of India's FDI (measured at $4.5 billion in 2008) currently comes from the UAE, there's plenty of mileage yet.

Attending the conference as a panelist, Suresh Kumar, CEO, Emirates NBD Capital, nominated certain synergistic factors promoting finance and development in both India and the GCC.

Speaking later to Financial Review, he confirmed, "There is a pool of infrastructure-building equipment in the GCC which is easily transportable, given the proximity. Then there is experience: a skilled and semi-skilled workforce, management skills, technical skills, supervisory skills for project completion in a timely manner. These are all quite useful in the context, because often in India there is a challenge in terms of pace of implementation. [The prospect is there for] the contractors, for engineers, having very successfully built world-class infrastructure here, and given also a large pool of equity and capital."

Bin Sulaiman and Saidi laid out the financial vision between them. Besides the mainstream funding of infrastructural works, Indian assets could serve GCC investors' appetite for alternative and private equity exposures. Indian multinationals could utilise DIFC as the conduit not only into Western markets, but, sticking to the theme of new frontiers, into broader Middle East and North Africa (Mena), particularly Africa. Indian-run SMEs could contribute significantly, with technological and professional expertise, to the Middle East's manufacturing sectors.

Nasdaq Dubai CEO Jeff Singer extolled the complementary virtues of the exchange's offering to Indian investors, from its over-the-counter trading platform to its "neat" and user-friendly gold-share product.

Whatever might be lost in translation — presumably not much between countries so readily conversant in English — officialdom seems to agree about the juicy pickings that might be hanging from this hitherto relatively neglected tree; hence the eager dialogue.

"The world's fastest-growing free-market economy… India would be the leading destination of UAE investment in the next five years," Valayar Ravi, Minister of Overseas Indian Affairs, predicted unerringly for the conference. "The time to build is now."

Picking, building, or just plain finance and investment. Leaving metaphor aside, there's not much doubt about the opportunity that is presenting itself.