Changing the sails

Michael Tomalin is group chief executive of National Bank of Abu Dhabi. He spoke with China Economic Review about the bank’s plans for the Greater China market, and what Abu Dhabi holds for Chinese investors.
 
Q: How has Chinese investment in the UAE changed in recent years?
 
A: I think there’s been a tectonic shift. A decade ago most businessmen coming here were looking west, at the US or UK. Many had an emotional bond – they went to school there, or they live there. But now the tide is flowing in a different direction. We see Chinese business coming here for the purpose of understanding the Gulf area better.
 
Q: What is the Chinese financial presence?
 
A: Well, the most notable Chinese presence has been Industrial and Commercial Bank of China (ICBC; 601398.SH, 1398.HK), which opened a wholesale branch in Abu Dhabi. We view ICBC as a partner in the region. ICBC is not as well-connected as we are in the Arab world, and the reverse is true in China. We are large and substantial enough to be credible, and we have a solid credit rating and technical skills. So we feel that we’re the perfect size.
 
Q: How is the UAE’s domestic economy faring?
 
A: The UAE’s domestic economy is about US$250 billion, and Abu Dhabi accounts for about 60% of that figure. In fact, Abu Dhabi’s GDP alone should be US$250 billion by 2015. At an average of about 9% annual growth, the UAE has grown six-fold in the past decade – so we’re talking about China-like growth rates here. This year’s growth in Abu Dhabi should be around 4%, and in Dubai somewhat lower. For the UAE overall it will be around 2.5%.
 
Q: Has Chinese investment in the region weathered the recent economic storm?
 
A: I don’t think it’s had much impact on Chinese interest in UAE investments. My impression is that they take a very long view, and see the opportunities beyond the current bump. The fundamentals are certainly there. No taxes on anything – there are some exceptions, but by and large for the average company and average person there are just no taxes. We’re 14 hours from anywhere on earth. It’s a great place to do business.
 
Q: Describe the UAE’s financial regulatory structure.
 
A: The most distinguishing feature of the UAE’s financial system is Islamic finance, which does not charge interest and represents about 20% of business in the UAE. Every Islamic bank has a sharia committee that judges compliance. We are not a sharia bank per se, but we do offer sharia-compliant solutions through an Islamic bank subsidiary. But there are other regulatory issues. For example, we have two stock exchanges, and are currently trying to unify them. Commercial and securities regulations still need to be modernized.
 
Q: Why are you focusing on expanding into Hong Kong?
 
A: We’re emphasizing Hong Kong specifically because we see China as our primary opportunity. China is now the UAE’s largest trading partner, and about 30,000 Chinese currently reside in the UAE. There are many infrastructure projects in the Gulf region that Chinese businesses are interested in pursuing – including a railway connecting the UAE to Europe, as well as nuclear energy and civil engineering contracts. These are large projects, and the UAE’s banking sector is often unable to service them alone. So many firms go to the capital markets for financing, which attracts many Chinese investors.
 
Q: Describe what you see as the future of the China-UAE relationship.
 
A: We’re certainly not going to compete. The UAE has five or six million people, compared with China’s 1.4 billion. But the UAE serves a defined role for Chinese investment abroad. I think China will see the UAE and Abu Dhabi as the natural staging point for business expansion into Africa and the Middle East, like Singapore is to Southeast Asia or Miami is to Latin America. It’s easy to access and enjoyable to stay. I see a growing partnership between China and the UAE in that respect.