What does UAE tiff mean for Canadian entrepreneurs?

News item: United Arab Emirates blocks overflight of Canadian Defence Minister

When did we go to war with my friends in the United Arab Emirates?

According to most local media outlets, multi-year landing right negotiations between Canada and UAE have collapsed. This development led to the eviction of the Canadian military from a qseudo-secret military base in UAE, called Camp Mirage. After three unsuccessful years of lobbying to increase flights between Dubai and Toronto, the UAE decided that the time for some Henry Kissinger linkage was at hand. The warnings had come, and they appeared to follow through.

When I met with the UAE Ambassador to Canada in 2008 (see prior post “Gulf Trip: the Genesis” Dec 1-08), the first thing he wanted to talk about what how hard it was to get seats on the successful direct Toronto-Dubai Emirates flights. He’d been trying to secure additional landing rights at the GTAA, but was getting no where with Transport Canada. Could I help?

The positions went something like this:

UAE: trade between our two nations will grow with increased commercial airline traffic

Air Canada: you want more Toronto-Dubai and Montreal-Abu Dhabi flights so that you can take the passengers on to Bombay, and undercut our (and the Lufthansa codeshare) Toronto-Frankfurt-Bombay flights

Canadian Officals: we need to protect Air Canada’s long haul connector business; if you want to take business people to UAE, and get them all off the plane when they land, you can have as many flights a week as you’d like. But not if you take those same passengers on to India, Italy, etc.

Two years have passed since my UAE trip (see prior posts beginning with “Gulf Trip: Day One/Two” Dec 2-08), and it seems as though the two governments have reached a serious impasse. The Canadian government has maintained its stand that, it appears, comes out in support of Air Canada’s financial health. According to media reports, the Central Canada-Europe flights aren’t very financially attractive for Air Canada if they don’t serve as feeder flights beyond Heathrow and Frankfurt.

Irony alert: Canadian diplomats will use anti-competitive regulatory tools to defend the financial independence of Air Canada and the Star Alliance, but we are free-marketers when it comes to the outright ownership of Potash, Alcan, Inco, Dofasco, West Coast Energy, Molson, Falconbridge, etc., etc. (see prior post “Where is China’s oil patch packman strategy headed?” May 13-10). Our protectors were even indifferent to Petro-Canada’s ownership status, despite there being an Act of Parliament that required it to fly solo.

It’s all soooooo confusing.

For the 1,400+ different Canadian businesses currently selling in the UAE right now, what does this diplomatic war mean for them?

When Canada and the USA disagree about softwood lumber, milk, or Iraq, no one else in the economy seems to notice…or care. The trading relationship between our two countries is so ingrained, and so longstanding, that these frequent diplomatic spats seem to have no impact on how Canadian businesspeople are welcomed south of the 49th parallel.

One has to wonder if that’ll be the case in the UAE; if their leadership is so angry that they’ll make a senior cabinet minister fly around their airspace. Russia wouldn’t have done that to Minister Peter MacKay, and NATO’s got nuclear missiles pointed their way. Is this just another day at the office for the diplomatic circles? A tempest in a teapot? Sadly not.

Did it really drive UAE to lobby against our election to the UN Security Council, as I’ve read in the DTM?

As diplomatic disputes go, it definitely feels different, and more serious — and it can only be explained in simple terms: we just don’t know each other as well as we should. Not that this is a new topic in this space (see prior post “Canada’s blind MENA eye” Nov 6-09), mind you, but it has played out in spades if the media has the story right.

Given the relative newness of our commercial relationship with the UAE, and the interwoven relationship between the political and business masters of Abu Dhabi and Dubai, it seems natural to have some concern about the longterm fallout. I mean, how senior would the official have to be to block Minister MacKay from the airspace — if that story is true? An overflight ban in not a call being made by someone in a control tower.

What does this mean for the private equity and venture capital funds who might be looking for LPs or co-investment partners in the Gulf Region? Has the Canadian government’s diplomatic support for Air Canada made it suddenly impolitic in the UAE to do business right now with Canadian funds, such as Onex, OMERS Worldwide, CPPIB, or Wellington Financial?

The ~US$625B Abu Dhabi Investment Authority (ADIA) is one of the largest and most desirable Sovereign Wealth Fund partners in the world, let’s not forget.

In my experience, the Emirati are a warm, intelligent and saavy people. Extremely welcoming. They appear to be tough diplomats, too.

One can sympathize with the anger that Ottawa felt when DND’s UAE military base, which supports our anti-Taliban Afgan mission after all, wound up as a chip in a landing rights discussion. But it’s not as though the French or the Americans don’t link trade or diplomatic topics from time to time.

But here we are, with more than 1,400 Canadian firms and Universities doing business in the UAE; firms such as AECOM, BNS, La Senza, RBC, RIM, Second Cup, SNC Lavalin, and the University of New Brunswick. Those that already have offices there, and we prospective partners, need a clear signal that all will be well before too long.

Somebody go first. Please.

MRM
(disclosure – this blog, as always, reflects a personal opinion and in no way represents the views of the TPA, its Board/Staff or the federal government)