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Lighthouse - September, 2020.

TENTATIVE SIGNS OF RECOVERY IN THE UAE


IN THE MONTH OF JUNE

For the first time since March 2020, the private sector activity recorded improvements in June. This has been due to ease in restrictions that had been initially imposed due to the COVID-19 pandemic. Though there has been a tentative rise in work orders, a reduced workforce is being done due to the pandemic. According to the latest Purchasing Manager Index (PMI) issued by the research firm-IHS, Markit, “Confidence about the business outlook continued to improve, reaching the highest since March.”

Hopeful signs with June scores

David Owen, an economist with the IHS Markit, has stated, “The latest survey data offered hopeful signs for the Dubai non-oil private sector.”

The IHS Markit numbers show the immediate beneficiaries to be the construction sector, wholesale, and retail sectors for the first time since March as they have shown significant “activity growth.” These sectors have benefitted from the ease of restrictions, while the travel and tourism industry did not show a positive note.

Another significant point that cannot be missed is that though more orders keep coming in, severely hit firm had laid off staff due to the pressure to lower costs. Since March, the drop in employment has been sharp and broadly in line with the average. This led to a record low in April, thereby showing that the business expectations were much weaker than before the onset of the COVID-19 pandemic.

Owen reaffirmed, “Firms direly need a boost to cash flow, as many have been left struggling with low revenues and high-cost burdens in June.”

Comparatively, June’s 50 scores showed significant improvement on May’s 46 reading. A score below 50 signifies an economy and business activity in contraction mode.


COVID-19 RESHAPING THE WORLD OF LOGISTICS


With an increasingly interconnected global economy, the impact of the pandemic is widespread. With the overall decline in economic activity, even large corporates are beginning to feel the heat. The governments’ wide range of containment measures has resulted in the shutdown of manufacturing and labor disruption through enforced isolations, travel bans, and border controls.

The pandemic made organizations rethink ways to reposition the supply chain to be more resilient in future threats and disruption.

The key areas are:

1. Safeguarding employees: Employee’s physical and mental wellbeing is to be taken care of. Exercise best in practice corporate social responsibility (CSR) for employee stability. A backup plan should be in place to help affected staff, including increased automation, remote working arrangements, and other flexible resourcing in response to constraints.

2. Assessing supplier risk: A response team needs to be created to facilitate an open and consistent flow of accurate information between key stakeholders, maintain stakeholder confidence, and also to focus on supply chain assessment and risk management. The response team should be able to use alternative modes of transportation and conduct trade-offs according to the needs, cost, service, and risk scenario analysis. Regularly reviewing contracts with key customers and suppliers helps understand the liability involved in the event of the supply shortage. Maintaining a value chain assessment of other risk factors involved helps to understand the reasons for escalating costs.

3. Managing working capital and business plans: It is important to revise cash flow, working capital management, and inventory to predict demand and supply conditions. Review organization-wide sales and operations planning and integrated business strategies to ensure tactical and strategic business planning gets synchronized amongst all business functions. Businesses with data-rich environments can harness procurement, operations, and research and development (R & D) using advanced simulations to identify optimum performance trade-offs.

4. Micro supply chains: The existing model of supply chains is such that the reduction of costs has led to the creation of large, integrated, global networks that gain profit through outsourcing manufacturing to emerging economies backed by long term contracts. However, the pandemic and the increasing trade tensions are encouraging organizations to question the best operating model. At this point, they need to consider the benefit of shifting their present operating model towards micro supply chains.

5. Collaborative supplier relationship: The pandemic simulated environment can be used as a platform with time and investment to build a foundation of trust and transparency that leads to a collaborative relationship with critical suppliers. A shared vision of goals, motivations, and partnerships develops organizational resilience.


DIVERSIFIED SUPPLY CHAIN-QATAR’S ANSWER DURING THE PANDEMIC


The global supply chain system had already been a victim of the rising tide of economic nationalism and protectionism. The COVID-19 pandemic only added to the stress on the already suffering economy.

Speaking at the opening of the digital roundtable “Qatar at the Crossroads of the World” organized by The Business Year (TBY), H E Ahmad Al Sayed, Minister of State and Chairman of QFZA stated, “Qatar and the Qatar Free Zones Authority (QFZA) had a head start in dealing with the coronavirus crisis due to the country’s experience, and has greatly benefited from its diversified supply chain.”

He further added, “Cost-efficiency can no longer be the only guiding principle of the supply chain. And the world must now ensure that supply chains deliver value for money and have resilience built-in that they are resistant to their future disruption, so the global economy can keep moving.”

The need to accept the added complications by building resilience in the supply chain and maintaining the customers’ operational efficiency is the need for the hour.

The roundtable also featured many experts like the international trade leaders from the United Nations on Trade and Development and World Economic Forum and representatives from the Pharmaceutical, Food, and Beverages, and Logistics sector.

Al Sayed also emphasized that Qatar and QFZA had already diversified the supply chain to ensure the world and Qatar remain connected. For this, they have a tried and tested system that proved its worth during the pandemic. He pointed out the various opportunities available at QFZA included new infrastructures with tailor-made solutions, support for the Qatar 2020 Legacy Project, and the opportunity to partner with top Qatari companies like Qatar Airways and Qatar Petroleum.

As the pandemic leads to disruption and shift in the existing business models, it is ideal for increasing reliance on technology and innovation. This would only help accelerate Qatar’s diversification efforts, said Lim Meng Hui, CEO of QFZA.

Hence the Free Zones are now focusing on creating partnerships with non-oil sector companies. He further added, “We continue to study this development, and we hope to develop new policies and strategies. Post COVID-19, emerging technologies, and advanced industries sectors are expected to grow even more. We have already identified these as strategic areas for QFZA, and we will continue to identify innovative companies in these areas, such as IoT, electric vehicles, and more”.

Hui added that the QFZA plans to expand to new areas such as logistics, e-commerce, regional distribution, and small-scale production in certain value chains.

Ayse Valentin, CEO of TBY, who was present during the webinar, stressed the role of Free zones in attracting direct foreign investment to develop a balanced, diversified economy.

She also stated that global trade is currently facing a harsh period due to the COVID-19 pandemic and rising protectionism by the governments.


7 KEY AREAS TO BOOST INDIA’S EASE OF DOING BUSINESS RANKINGS BY THE CII


The exorbitant logistics cost has always been the bane while doing business. Confederation of Indian Industry (CII), the industry body has highlighted this as a deterrent in India’s mission to be a self-reliant nation.

Mr. Chandrjit Banerjee, Director General, CII said, “While many policies have been announced for a facilitative investment climate, effective translation into ground-level outcomes will help investor perceptions and further boost confidence. We believe that taking the ease of doing business route can unlock huge potential when the world is seeking new investment opportunities”.

The premier industry body also stated, “India’s high logistics costs impact its competitiveness. This will require medium-term action such as increasing the share of railways and waterways in transport, improving first mile and last-mile connectivity and reducing port dwell time. Cross subsidization of freight should be rationalized.”

More outcome-oriented action on Ease of Doing Business (EODB) is the route to India’s mission of self-reliance and should be the way forward. Sustaining this reform momentum can drive in new investments, including overseas investment.

If strong measures are taken up in the following seven areas, it can pave the way for the reduction of cost and time, making the Indian industry competitive.

1. Single Window System
Effective implementation of an online Single Window system is needed for strengthening EODB.

2. Regular Monitoring
Single interface, regular monitoring by the Chief Secretary of a state, and time-bound approvals are to be implemented in all states.

3. Compliance
Compliances for labor regulations need to be speeded up at lower costs for which a quick and low-cost trade facilitation mechanism should be in force. For example, the states can follow the example of Uttar Pradesh by exempting the industry from specific labor laws for three years.

4. Digital Reforms
Digital reforms like virtual court proceedings, e-filing, and work from home could help speed up the court deliberations and the challenges faced while enforcing contracts due to insufficient commercial courts and infrastructure.

5. Inspections
Computerized risk-based inspections, synchronized joint inspections, and differentiated inspection requirements for low-risk industries reduce the inspection burden on companies.

6. Exemptions
The CII has also suggested that the MSME sector be exempted from approvals and inspections for three years under state laws while following all rules.

7. Self-Certification
For those MSMEs with a good track record, a self-certification route can help for renewals and approvals.

The latest World Bank report reveals that India’s ranking has significantly improved from 142nd to 63rd. This leap of 79 positions is due to the series of reforms across various areas introduced by the Central and State


PEAK PERFORMANCE – QATARI PORTS MARK 100% INCREASE IN CARGO


The COVID-19 outbreak has not affected the strong performance of the maritime sector. Qatari Ports exhibited excellent all-round performance in the first quarter, showing a 100 percent increase in cargo handling this year.

Compared to last year, the ports – Hamad Port, Ruwais Port, and Doha Port registered a 102 percent increase in general cargo handling during the first six months. The first six months witnessed 1,509 ships being docked at Hamad Port, Doha Port, and Ruwais Port, marking it the busiest period in Qatar’s maritime sector. During the first six months this year, the ports took in 727,716 tonnes of general cargo, while in 2019, the figures stood at 360,644 tonnes.

According to the official twitter account of Mwani Qatar, 32,799 vehicle units and 305,504 livestock were handled during this period. During the first half of the year 2019, the port received 673,399 containers. This indicates a 2 percent increase this year. This year the ports handled 110,398 tonnes of building materials in the first quarter, which stood at 37 percent growth compared to 2019.

The measures taken by the port authorities, along with the Ministry of Public Health were way ahead as the pandemic started in China. This is one reason why the maritime sector has significantly managed to remain safe in these turbulent times. These measures covered the installation of thermal cameras and container sanitization, necessitating the submission of COVID-19 disclosures and IMO accredited medical declaration by ship agents and educating the workforce on necessary means to limit the spread of the virus. the workforce on compulsory means to limit the spread of the virus.


CORONA VIRUS: INVOCATION OF FORCE MAJEURE CLAUSE


TO AVOID LIABILITY FOR NON PERFORMANCE OF OBLIGATIONS UNDER THE CONTRACT

The outbreak of Corona Virus in China, for the last few months, has affected the lives of numerous people which also resulted in the loss of their life, that the World Health Organisation (WHO), on January 2020, declared that the outbreak of this Corona Virus constituted a “Public Health Emergency of International Concern.” The term “Public Health Emergency of International Concern” (otherwise termed as PHEIC) is defined under the International Health Regulations, 2005 as an “extraordinary event which is determined, as provided in these regulations – (1) to constitute a public health risk to other States through the International spread of disease; (2) to potentially require a coordinated international response.

As the said virus continues to spread across China and under the PHEIC declaration by WHO, many International Companies, including the governments, have started to impose business/travel restrictions on their citizens to travel until the current situation stabilizes. Many Governments have also announced the suspension of new visas to those who hold PRC Passports and have also banned entry to those citizens who have visited China in the last couple of weeks. These restrictions have put all the business entities both in China as well as other Countries in a problematic state since China is the second largest economic power and this unexpected outbreak of Corona Virus and its consequences have largely restricted the Individuals to stay at home to avoid spreading of the virus

that has directly / indirectly affected the performance of obligations by the Companies who are bound by various contracts with National /International entities. As the outbreak of the Corona Virus continues, it is likely that the trading business to and from China will continue to be affected, not only because the unavailability of the International / Domestic transport facilities but also because the factory workers have been asked to stay at home to avoid the widespread of the virus. Many companies who had been engaged in business with the Chinese Companies are forced to stop production because they struggle to obtain the required raw materials from China.

In fear of failure to perform contractual obligations that might make them accountable towards the other Party to the Contract, many Companies in and outside China have already commenced looking into the possibility to invoke the Force Majeure Clause in their Contracts / Agreements.

Most of the business contracts include the Force Majeure Clause so that the Parties can either suspend, limit or even terminate their performance of obligations imposed on them under the Contract if any Force Majeure events like any natural Disaster, War, Strike, Act of God occurs unexpectedly, which lawfully excuses their non-performance and/or delay in performance of their obligation under the Contract. However, this Clause is often included with insufficient thought being given as to whether they are appropriate for the Contract or not.

Usually, to invoke the Force Majeure Clause, the Party to the Contract must consider:
a. The performance obligation of the Party invoking the Force Majeure Clause under the Contract;
b. The impact of the Force Majeure Event on their ability to perform the obligations;
c. Whether there are any steps the Parties can take to mitigate or minimize the impact of the Force Majeure event on their obligations, including considering alternative methods performing their obligations under the Contract;
d. Whether the Force Majeure event falls within the scope of the Force Majeure clause of the Contract and whether it can and should be invoked and;
e. If so, what are the requirements, in particular the notice requirement that must be complied with.

In short, the Force Majeure Clause should hold all the Parties safe from any liability for Non-performance, following the Force Majeure Event. Further, the Party invoking the Force Majeure Clause in its Contract must be able to convince that there are no alternative means for performing its obligations or that the Party has taken all reasonable steps to avoid the Clause’s operation. As such whether the Force Majeure Clause in the Contract includes the outbreak of Corona virus and the hindrances due to its outbreak shall depend on the wording of the Clause, steps were taken by the Party who wish to invoke the force majeure Clause to avoid the maximum hindrances, and whether the outbreak constitutes a foreseeable incident.

Many criticizers have suggested that if the parties have entered into a contract with a Force Majeure Clause after the SARS outbreak, it may have been foreseeable that a similar virus could occur again. Then the parties may not be entitled to any relief.

Also, a problem arises when a Contract does not mention a Force Majeure Clause. It is also to be noted that the English Common Law does not imply the Principle of Force Majeure, unless it is specifically mentioned in the Contract itself. However, even where there is no Force Majeure Clause in the Contract, it does not mean that there are no grounds to excuse the performance. The parties whose Contracts do not explicitly contain a Force Majeure Clause, but is governed by the English Law, may opt to invoke the Doctrine of Frustration, which means that if a contract becomes impossible to perform through no fault of either Party, the Contract may be automatically terminated. However, the conditions to prove the existence of Doctrine of Frustration is severe than that included in the Principle of Force Majeure and these conditions shall include –
a. The terms and Condition of the Contract;
b. The factual background to the Contract;
c. The Parties’ knowledge and expectation about the risk when entering into the Contract;
d. The Parties’ calculations as to the ability to perform the Contract in the circumstances which are said to have frustrated the Contract.

In addition to the above-mentioned points of differentiation, the Principle of Force Majeure allows the Parties to suspend the performance of the obligation instead of the complete termination; the Doctrine of Frustration permanently put an end to the obligations between the Parties except for those obligations that had been earned before such termination.

In any case, whether the Party’s obligation under a Contract is hindered due to the widespread of Corona Virus or for any other unforeseen reason, the Party invoking the Force Majeure Clause shall rely on such facts which would help them to prove that they have been prevented or hindered from performing the Contract as a result of such unforeseen Force Majeure Event. In other words, there must be a causal connection between the Force Majeure event and the inability to perform the obligation under the Contract. Further, the companies may, in the future, also opt to include the term “Epidemic” and “Pandemic” in the Force Majeure Clause.

Furthermore, since the World Health Organisation has also declared this outbreak of Corona Virus as the “Public Health Emergency,” the Courts shall also take into consideration WHO’s declaration while deciding on any case against any Company that has invoked the Force Majeure Clause in this scenario.


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