China comes to call: Canadian companies are connecting with a new market to ensure growth

Abstract:

Chinese Vice-Premier Zou Jiahua visited Canada to promote business relations between the two nations in Apr 1994. During his visit, Northern Telecom Ltd announced it had secured a $180-million contract with China. Other Canadian businesses are also establishing ties with China.

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One of China’s top political leaders put smiles on the faces of some Canadian business leaders last week as he toured some of Canada’s biggest telecommunications, transportation and power companies. Vice-Premier Zou Jiahua, the senior minister responsible for China’s ambitious program of infrastructure development, visited such projects as the Port of Vancouver and Ontario Hydro’s Darlington nuclear power plant. At Spar Aerospace, Zou (pronounced Joe), a technocrat who was trained as a mechanical engineer in the Soviet Union and then managed a large factory before beginning his political career, took the controls of the Canadarm simulator, the same instrument used to train astronauts. But it was only after a business breakfast meeting in Toronto last Friday that it became clear how soon Zou’s visit would translate into tangible results. After intense negotiations with Chinese officials last week, Northern Telecom Ltd. of Mississauga, Ont., announced a $180-million deal to develop, manufacture and sell telecommunications switches in China. As well, the federal government announced that it would provide another $200 million to finance Chinese purchases of Canadian-made NorTel equipment. Said an obviously elated Jean Monty, NorTel’s president: “This really gives us very deep anchors in the development of the telecommunication infrastructure in China.”

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In Canadian business circles, Northern Telecom’s announcement–the culmination of 22 years of effort by the telecommunications equipment manufacturer–was the highlight of Zou’s visit. For NorTel’s executives, it was a particularly gratifying victory over its arch-competitor, American Telephone & Telegraph Co., which has not yet been named as an official switch supplier to China. Securing such a significant foothold in the burgeoning Chinese market is considered crucial for telecommunications companies, because China’s economic awakening is creating a fast-growing market of 1.2 billion potential customers. For the past decade China’s economy has been growing at an average annual rate of more than 10 per cent. That compares with forecast growth of only 3.4 per cent this year in Canada.

Zou’s Canadian tour follows a similar visit last year by China’s powerful economic czar, Vice-Premier Zhu Rongji, who was the first senior Chinese official to visit Canada since Deng Xiaoping launched China’s economic reforms in 1979. That trip marked a thaw in relations between the two countries following the Tiananmen Square massacre in 1989. The fact that two possible successors to Premier Li Peng have visited Canada in quick succession is an indication of China’s interest in gaining greater access to Canada’s expertise in infrastructure megaprojects. “We know you are very strong in transportation, telecommunications, energy, electricity, mining, agriculture and forestry,” Zou said in a speech to business people in Vancouver last week, “and these are exactly the priority areas for development in my country.”

Still, selling to China requires more than a Mandarin-English dictionary and an aggressive sales force. Typically, a company must agree to transfer technology and capital to China in order to close a major deal. The Northern Telecom deal signed last week, for example, included a major investment program to establish a large-scale research and development centre and manufacturing, sales and service organizations in China for the Canadian company’s flagship switching products, the DMS SuperNode. Switches are the basis of any telephone system. As part of the transaction, Bell-Northern Research, the Ottawa-based research and development arm of Northern Telecom, has also agreed to establish a telecommunications research laboratory in Beijing. At the same time, International Trade Minister Roy MacLaren announced that the federal government will lend China $200 million to finance the purchase of NorTel equipment made in Canada. Monty said that the government financing will provide jobs at NorTel’s Brampton, Ont., plant, which manufactures the digital switching and transmission equipment that China wants to buy.

Although telecommunications is a crucial sector for China–Zou also named Spar Aerospace as another telecommunications company with which China expects to strike a deal–other industries are increasingly important. Power generation now gets top priority on Beijing’s agenda because energy shortages are starting to impede China’s economic expansion. The central government has set a goal of increasing the country’s generating capacity by 12,000 to 15,000 megawatts a year–an amount equal to half of Ontario Hydro’s total annual generating capacity. Indeed, much of Zou’s Canadian visit, which included stops in Montreal, Ottawa, Niagara Falls, Ont., and Quebec, to inspect a James Bay hydro station, was devoted to power utilities.

With an eye to helping China attain its goal, Canadian government officials say that Ottawa will soon announce the start of negotiations for a bilateral nuclear co-operation agreement. When completed, it would permit Canadian nuclear power companies to sell their equipment and expertise to China. Until recently, Canadian nuclear power companies were excluded from the Chinese market because the central government had opted for less-expensive, light-water nuclear technology. Earlier this year, however, China, under pressure to hasten the expansion of its generating capacity, decided to branch out. And it is now examining the merits of the heavy-water nuclear technology in which Canada specializes. Don Lawson, president of AECL CANDU, the reactor division of Atomic Energy of Canada Ltd., based in Mississauga, Ont., met Zou earlier this year in China. “He gave me an hour’s grilling on the comparative advantages of the heavy-water technology,” said Lawson. “He’s a very knowledgeable individual. He knew what questions to ask and he asked a lot of them.” AECL has sold CANDU reactors to Korea. “Because of their needs, Asia has a different view of nuclear power than we do here,” said Lawson, noting that Korea, Japan and Taiwan are all relying on nuclear power.

But nuclear energy is only one of several types of power being explored by China. Currently, the biggest single power generation project now under way there is the massive–and highly controversial–Three Gorges project on the Yangtze River in central China. Three Gorges, which will be the largest hydroelectric dam in the world when it is completed sometime within the next 20 years, has been compared with damming the Grand Canyon in the United States. About 1.2-million people who live in the valley that will be flooded are now being relocated. Site preparation on the 18,000-megawatt project has begun, partially as a result of a feasibility study funded by the Canadian government and carried out by three Canadian engineering firms in the mid-1980s. But because of the environmental and financial problems of the project–which the Chinese government estimates will cost about $45 billion–the World Bank has not provided vital financial assistance for it. As a result, although several Canadian companies, including firms such as SNC-Lavalin in Montreal and several provincial power utilities, remain interested in Three Gorges, they are not currently involved in the project. However as construction advances into more sophisticated stages of development they may try for contracts.

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In the meantime, Canada’s provincial utilities are contemplating smaller power ventures across China. Jack Li, spokesman for Ontario Hydro International, says that it is reviewing proposals for several projects in the 50 to 300 megawatt size range. “We’ve been talking to a lot of people in various provinces in China,” said Li. “But financing is still the major challenge–getting foreign exchange out and getting paid quickly.” Furthermore, Li noted that Ontario Hydro is having trouble finding projects that provide a return high enough to offset the risks that it perceives in the country. “The real risk in China is the internal stability, the growing gap between the rich and poor provinces,” said Li. “The risk is high, and if you put up that kind of money, you have to be 1,000-per-cent sure.”

While business representatives used Zou’s visit as a chance to pursue profitable opportunities, they weren’t the only ones who took advantage of his presence. The Canadian staff of Ming Pao Daily News, a Chinese-language newspaper connected to a Hong Kong-based chain, joined its parent last week in protesting the imprisonment of one of the group’s Hong Kong reporters, Xi Yang, for “spying and stealing state secrets.” Ming Pao staff in Canada delivered petitions to Chinese consulates here calling for Xi’s case to be reviewed. Xi had been tried in secret and sentenced to 12 years in jail–while his government source was sentenced to life–for printing a story about an upcoming bank rate change in China, a reporting initiative that would have been applauded in Canada. Business connections aside, clearly the differences between the two countries are still vast.

>>> View more: Ron Brown’s V.I.P. junkets

Ron Brown’s V.I.P. junkets

Abstract:

The Republican-controlled Congress is threatening to eliminate the Commerce Dept at a time when it has been more active than ever before, helping to obtain huge international contracts for US businesses. However, there are indications that Sec Ron Brown has favored Democratic contributors.

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The cries of outrage coming from the White House over Republican threats to eliminate the Commerce Department have at least as much to do with self-interest as with fealty to the corporate cause. Through the department’s efforts to promote exports, the Clintonites argue, American businesses landed foreign deals worth $47 billion last year. But a little cross-referencing of the companies thus helped and of campaign contribution records and internal Democratic Party fundraising memorandums shows that for both corporations and the Administration, to give is truly to receive.

Early last year, for example, Saudi Arabia was looking to expand its commercial air fleet and examined proposals from U.S. and European aircraft makers. After being furiously lobbied by President Clinton and Secretary Ron Brown, the Saudis placed a $3.6 billion order with Boeing. Within six months of closing the deal, the company had laden Democratic National Committee (D.N.C.) coffers with $65,000, four times more than it had donated during the previous three years.

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At about the same time, Administration pressure won Raytheon a $1.4 billion deal with Brazil for building a satellite surveillance system in the Amazon. In the 1992-94 election cycle, Raytheon donated $175,110 to Democratic candidates.

Export promotion–precisely what the Republicans have singled out for cutting–is at the heart of Brown’s strategy at Commerce, and indeed of Clinton’s strategy in foreign policy. When it comes to drumming up commerce for U.S. corporations, this Administration has outstripped its two wildly pro-business Republican predecessors. In Brown’s “war room,” bureaucrats monitor bidding on dozens of global deals, gathering intelligence (with help from the C.I.A.) and coordinating financing from government sources to give U.S. firms an inside track. More directly, Brown leads select groups of executives on commercial trips abroad. Last year corporations fought to accompany the Commerce Secretary to Brazil, Argentina, Chile, China, Hong Kong, South Africa, Russia, India and the Middle East. Some 300 C.E.O.s applied for seats on the trip to Russia alone; only twenty-nine were chosen.

Details of those trips have been obscure because Commerce has been stingy about providing information. That will soon change, since in mid-May the courts forced Commerce to turn over to Judicial Watch 30,000 pages of documents concerning which companies were picked, which were left behind and what the basis for decision was. But from what I have been able to piece together from published reports and from various internal documents (including some now ordered for release), it is already clear that the relationship of donations to access is like that of spring rain to garden blooms. Melissa Moss, head of the Commerce Department’s Office of Business Liaison, decides who accompanies Brown. She has said firms “are chosen on merit and real business consideration.” But, like her boss, she is also intimately familiar with party money matters. Prior to joining the Administration, Moss was a top fundraiser for the D.N.C. under Brown, and before that, for the Democratic Leadership Council, which Clinton helped found and once chaired.

The group she assembled for Brown’s September 1994 trip to Beijing is revealing. Embarking three months after Clinton extended most-favored-nation trade status to China, Brown’s entourage included:

[sections] Lodwrick Cook of Atlantic Richfield, which gave $201,500 to the Democrats between 1992 and 1994. Cook is also close to Clinton, who last June presented the Arco chief with a birthday cake during a White House lunch for executives.

[sections] Edwin Lupberger of Entergy, who closed an $800 million deal to build a power plant in China. Lupberger is a personal friend of Clinton, and in the last election cycle Entergy donated $60,000 to Democratic candidates.

[sections] Bernard Schwartz of the Loral Corporation, who negotiated deals that will net his telecommunications company $1 billion over the next decade. Three months before the trip Schwartz donated $100,000 to the D.N.C.

[sections] Raymond Smith of Bell Atlantic, which has given nearly $200,000 to the Democrats since 1991. According to Democratic fundraising memos I obtained, Smith is also a party “trustee’ ” meaning he has personally helped raise $100,000 or more’

[sections] Leslie McGraw of Fluor, which came through with $108,450 for Democratic candidates in the last election. McGraw, like several of the executives who have been picked to accompany Brown, is also a donor and board member of the Democratic Leadership Council.

All told, at least twelve of the twenty-five firms whose officials made the trip to China are major donors or fundraisers for the President’s party. Those companies gave almost $2 million to Democratic candidates during the last election cycle. “I only believe in coincidences occasionally,” says Chuck Lewis, head of the Center for Public Integrity. “Here you see consistent patterns.”

It’s the same with Brown’s other trips. Traveling with the Commerce Secretary to South Africa were Donald Anderson, an adviser to the president of Time Warner, which donated $508,333 to the Democrats between 1992 and 1994, and Ronald Burkle, C.E.O. of the Yucaipa Group and a “managing trustee” of the D.N.C. The title designates him as having helped the party raise $200,000 or more.

Even some of the smaller businesses that have had access to Brown’s expeditions have paid their dues in advance. Robin Brooks, director of the Brooks Sausage Company out of Kenosha, Wisconsin, got to go to South Africa. In 1992 she organized a fundraiser for Clinton, and, in the last election cycle, her firm gave $23,000 to the Democrats.

The currency of influence is not limited to cash. For instance, the chances that a US. firm seeking business in Russia will receive official support seem to grow in direct proportion to that company’s links to Democratic power broker Robert Strauss. A senior partner at the law firm Akin, Gump, Strauss, Hauer & Feld–where his colleagues include Vernon Jordan, President Clinton’s friend and golfing partner–Strauss served as U.S. Ambassador to Russia from 1991 to 1992. Two years ago he set up the U.S.-Russia Business Council, which has received government funds to promote commerce between the two countries.

At least eight of the twenty-nine companies that were invited to go to Russia are linked to Strauss and his firm. AT&T, Westinghouse, Dresser Industries (a Dallas-based oil equipment company) and Enron (a Houston-based natural gas conglomerate) are all Akin, Gump clients. Litton Industries and General Electric have representatives on the board of the U.S.-Russia Business Council. Rockwell International and Bristol-Myers Squibb are former clients of Strauss.

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Several of those companies are also major contributors to the Democrats. AT&T alone gave the party’s candidates $765,763 over the past two years. Among high-donor companies represented on the Russia trip were Occidental Petroleum ($152,549 over the same period) and US West ($147,667).

US West signed a telecommunications agreement while in Russia that will be backed by a $125 million loan guarantee from the US. government’s Overseas Private Investment Corporation. OPIC is headed by Ruth Harkin, wife of Senator Tom Harkin and, prior to joining the Administration, a top corporate lawyer at Akin, Gump.

Enron, which closed a deal, backed by the US. Export-Import Bank, to develop European markets for Russian gas, has been one of the biggest beneficiaries of the Administration’s export policy. During the past two years the Ex-Im Bank has supported Enron’s agreements with Turkey, India, the Philippines and China–deals worth nearly $4 billion. Kenneth Brody, head of the Ex-Im Bank, is a close friend of Treasury Secretary Robert Rubin, having worked with Rubin at Goldman, Sachs. Enron is listed on Rubin’s 1993 financial disclosure statement as one of forty-four companies with which Rubin had “significant contact” during his years at the investment firm. (Brody, by the way, is said to be a leading candidate to take over at Commerce if Brown, under investigation for everything from slumlording to collecting $400,000 for his “share” in a company in which he had invested nothing, is forced to resign.

Like Boeing, many companies have larded the Democrats after being helped by the Administration on the export front. Westinghouse executives have traveled with Brown to South America, Russia and China, where the company racked up $430 million in sales. It also received Ex-Im backing for a $300 million plan to complete and upgrade the Temelin nuclear power plant in the Czech Republic. (When that deal was originally hatched in 1993, Warren Hollinshead, Westinghouse’s chief financial officer, chaired the Ex-Im Bank’s nonvoting private advisory committee.) Westinghouse has traditionally favored the G.O.P. for political contributions, but during the last election cycle the company gave $149,350 to the Democrats, compared with $78,825 to the Republicans.

Given these kinds of disparities, it’s no wonder some Republicans are now talking about shutting down Ron Brown’s export-boosting operation. It would be surprising if they moved very far on that front, though, since their bread is buttered on the same side as Brown’s. As James Treybig, who negotiated a $100 million joint venture agreement for Tandem Computers while in China with the Commerce Secretary, told The Wall Street Journal, “Whether you’re a Democrat or a Republican, you really have to respect this guy for what he’s done for Corporate America.”

Ken Silverstein is co-editor, with Alexander Cockburn, of the bimonthly Washington-based newsletter “CounterPunch.”

>>> Click here: THE SPIRIT OF THE LAND

THE SPIRIT OF THE LAND

Abstract:

Oil wealth has helped United Arab Emirates to grow into a thriving economic center since the country was founded in 1971. Several free trade zones encourage commerce, and an official stock exchange will open in 1998.

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Tradition and Transformation in the UAE

The Spirit of the Land was written by Brian Moynahan, the former EuropeanEditor of The Sunday Times and Richard Morgan, a freelance journalist specialising in Middle East affairs. Photographs by Romano Cagnoni and Patricia Franceschetti.

The United Arab Emirates is a land of contrasts. Both fast moving and modern, yet a country still steeped in the culture and customs which have sustained its people for generations. A state which vigorously promotes industrialization, but just as fiercely protects its environment, and where soaring skyscrapers sit next to ancient forts and cooling wind towers, which have softened the harshness of the desert heat for centuries. While the new office blocks are emblems of the UAE’s rapid progress, the latter signal that this will not be at the expense of traditional values.

Drive along the broad, six-lane highways and in the distance you can just pick out the once-used sand tracks and pathways of the camel herds and spice traders, part of a much older commercial heritage. In the heart of the desert’s shimmering sands lie rolling pastures, which thanks to intensive irrigation. are almost as lush and green as those of America’s Midwest. A plentiful supply of first-class hotels, good beaches, shaded city parks and duty-free shopping has given rise to another unlikely contrast – an oil state with a flourishing tourist trade.

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Building such a country, where the traditions of the past coexist in such harmony with the aspirations of the future, may seem a complex task, requiring at least a century of gradual development. In fact it has been achieved in less than three decades. The UAE, a Federation comprising the seven emirates of Abu Dhabi, Dubai. Sharjah, Ras al Khaimah, Umm al Qaiwain, Ajman and Fujairah, was founded in 1971.

Few countries have grown so quickly. Oil wealth has undoubtedly been the foundation. The UAE has the world’s third-largest proven oil reserves and fifth-largest gas reserves, of which 90% are in Abu Dhabi. State-owned Abu Dhabi National Oil Company (ADNOC) has launched a major $2.5bn investment program aimed at substantially increasing its natural gas capacity. This will help to meet increased local demand from Dubai and the other, smaller emirates.

Diversification has been encouraged too; by a free trade policy, favourable terms for foreign investors and sustained government support. The non-oil sector now accounts for two thirds of GDP, with petrochemicals, construction, distribution and manufacturing at the forefront. Expanding into petrochemicals is a natural step for an oil producer. The latest development: a new $1bn, joint venture polyethylene project. set up by ADNOC in partnership with Danish-based Borealis. Another noteworthy move: the $500m expansion program completed by the Dubai Aluminium Company last year.

Today the UAE is a thriving center. The main supplier of goods to the UAE is the US – which overtook Japan last year – with a close to 10% share of the country’s total imports. The Emirates’ top export market, however, is still Japan, which has a 37% market share. Much of the trading activities are centered on the Emirates’ many free trade zones. The biggest is the Dubai-based Jebel Ali Free Zone. Once a wasteland of scrub and sea, it is now home to 1,200 companies, attracted by generous tax breaks, proximity to major markets and an excellent labour force. Dubai is the tenth largest container port worldwide, busier than New York or Tokyo.

The latest boost is Abu Dhabi’s plan to spend $3bn on building its own free trade zone, spread over 3,500 hectares on Sadiyat Island. Plans for the new zone include building a new seaport and airport, commodity exchanges and huge storage facilities. It will be connected to Abu Dhabi city by a four-mile bridge. It is planned for the Sadiyat project to have an international share issue shortly, on both the unofficial UAE stock market and in Luxembourg.

Last year there were a flurry of new issues and flotations from existing companies on the unofficial market, many of which were heavily over subscribed. The market capitalization reached $24.5bn last year – up $9bn compared to 1996 – and businessmen and bankers are eagerly awaiting the opening of the UAE’s official stock exchange, which is expected to take place later this year. Among policy makers and businessmen there is a strong commitment to efficiency. Abu Dhabi’s recently announced plans for the wholesale privatization of its power and water utilities, is an attempt to upgrade its operations and attract international participation and expertise.

The signs of the prosperity generated by the UAE’s economic policies are obvious – a car for every six people, a telephone for every three and the highest density of mobile phones in the Middle East, spacious housing and nearuniversal air conditioning. UAE citizens enjoy a wide variety of benefits from a cradle-to-grave welfare state. Healthcare services are among the best in the world. Life expectancy has risen sharply, from 53 at the time the Federation was formed, to 74 today. The UAE has been one of the first countries in the world to reduce infant mortality to less than 70 infants per 1,000.

Education is a treasured resource. All children now have school places. Youth illiteracy has disappeared and special classes have slashed adult illiteracy from 95% in the past to 15%. Abu Dhabi’s second biggest urban center, Al-Am, seat of the UAE University, is a thriving campus city, with some 15,000 students. A source of pride is its excellent medical training as is the fact that two thirds of its graduates are women.

The determination to tap all its human resources is paying dividends in administration as well as teaching and medicine. A quarter of all decisionmakers in government are women. The less intellectual are not forgotten. Eleven vocational training centers will soon be encouraging children and adults to use their free time to hone practical skills, such as car maintenance and carpentry. Money has been spent to help less fortunate nations too. The UAE has provided well over $5bn in overseas aid to more than 40 countries and has created a special humanitarian fund for overseas assistance.

In going about their daily lives citizens in the UAE have the benefit of an excellent infrastructure. Massive highways crisscross the country. There are six international airports. The two main airports, in Abu Dhabi and Dubai, are currently undergoing big expansion programs at a combined cost of close to $900m. In telecommunications the UAE is very advanced. The federal telecommunications company, Etisalat, is the largest shareholder in the AlThurayya Satellite Telecommunications Company, a joint venture with regional and international telecoms companies. US firm Hughes Space & TelecommunicationsInternational has been awarded a $1bn contract to provide the company’s first satellite system.

Despite the hectic pace of development the environment has not been forgotten. The emphasis on conservation has its roots in the Bedouin tradition of living in balance with wildlife and respecting nature. The landscape and its flora and fauna are described by environmentalists as world-class.

Sheikh Zayed bin Sultan Al Nahyan, the UAE’s president and the ruler of Abu Dhabi, realised as a young man that shooting was no more than “an outright attack on animals,” so destructive types of hunting are outlawed. Only falconry is encouraged, as it represents the intimacy between man and the wild that Sheikh Zayed respects.

He has transformed the barren island of Sir Bani Yas into one of the leading wildlife reserves in the Middle East, where rare Arabian oryx and sand gazelles breed undisturbed. Hundreds of species of birds winter in the UAE and residents include the rare crab plover and the desert eagle owl. Government-hacked environmentalists study their breeding practices and habitat while the Arabian Leopard Trust is charged with ensuring the future of this magnificent cat. In recognition of his commitment in the field of conservation, Sheikh Zayed has received many awards, including most recently the Gold Panda Award, which was given to him last year by the World Wide Fund for Nature.

Another of Sheikh Zayed’s most cherished polices has been the greening of the desert. Over 150 million trees have been planted. Ambitious irrigation projects have seen the apparent contradiction of desert farms become a reality. Some 20,000 farms have created a thriving export trade in dates, strawberries, tomatoes, roses and avocados. Fresh milk production, particularly from around Al-Am, almost meets the country’s entire needs. It is known as the Emirates’ garden city, such is the lush vegetation and greenery which flourish along its broad boulevards.

Archaeologists are pushing knowledge of early civilization back for six millennia and more. The fort at Al-Am has been carefully preserved as a museum, one of several across the country whose vivid tableaux of desert life and pearl diving remind the young of the hardy and self-reliant disciplines that moulded their past.

Given the variety of sights and sounds which the UAE has to offer it is little surprise that tourism is growing fast. For tourists the country’s natural beauty – the long landscapes of stony blue mountains, deep red dunes and clear, turquoise seas – and the eye-catching sights of urban life; the glittering gold souks and exquisite floral displays of the cities’ gardens, is a heady combination. Also, tourists need have no fear of staying out late; the street crime which plagues other big international capitals is virtually non-existent in the Emirates.

Dubai has been the focus of much of the UAE’s tourist development. During the 1990s the number of hotel rooms increased by over 20% per annum. The latest hotel to open is the 600-room Jumeirah Beach Hotel, the first phase of the Chicago Beach development. Later this year a 321-metre-high offshore hotel, the tallest structure in the Middle East, will be added. Dubai has also given the go-ahead to the Gulf’s largest leisure development, the $500m Magic World theme park. In the Emirate of Abu Dhabi, Al-Am in particular is attracting more visitors. Several multimillion dollar projects are planned for the recently named “oasis city of the new millennium”, an extensive upgrade for Al-Ain zoo, an 18-hole championship golf course and some smart new shopping malls.

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Sport is another the world in power boat Dubai holds an annual in Tennis Open Championship and Golf Desert Classic, which attract players from around the world. camel racing horse racing is Dubai and world-class horse-breeding establishments. Dubai-trained horses have won Europe’s Derby and France’s I’Arc de Triomphe. The main showpiece event is the annual $4m Dubai World Cup, won in two of the last three years by American horses – Cigar in 1996 and Silver Charm this year.

In reaching for the future the UAE has not sacrificed its past. Great oil wells and refineries, modern highways and bustling international airports are all evidence of the country’s commitment to progress. Yet this is still a land of desert and dhow, of flowing robes and hennaed hands, of scented spices and splashes of intricate jewelry. It remains Arabia, a place where those who think only in terms of oil tankers and air conditioners will, as the great British explorer Sir Wilfrid Thesiger remarked, “never know the spirit of the land, nor the greatness of the Arabs.”

>>> Click here: A GIANT OF A PROBLEM

A GIANT OF A PROBLEM

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With Royal Oak Mines Inc. bankrupt and in the hands of its receiver, attention shifted from the firm’s finances to the 236,000 tonnes of poisonous arsenic powder stored in its Giant gold mine near Yellowknife. The fear is that the arsenic could dissolve in groundwater and contaminate Great Slave Lake, the region’s main source of water. Cleaning up the arsenic — a byproduct of an outdated process to refine gold — could cost $250 million, and local politicians and environmentalists are warning that taxpayers could get stuck with the tab. Jane Stewart, federal minister of Indian affairs and northern development, said Ottawa may play a limited role in a long-term solution, but cautioned that her department “is not in the mining business.”

Already, water is leaking into some of the mine’s arsenic-filled chambers, though it is currently being pumped to the surface and treated. As it stands, the receiver, PricewaterhouseCoopers Inc., plans to sell off Royal Oak’s holdings. Creditors who take control of the mine’s assets would assume environmental responsibility, but they can also petition the courts to avoid that burden. Peggy Witte, Royal Oak’s former chairwoman, told reporters she is confident “a way will be found to deal with [the arsenic].”

MORE MONEY AT HOME

The financial state of Canadian households is improving, with the growth of after-tax income outpacing inflation for the first time this decade, the Bank of Nova Scotia reports. A study by the bank says net income should rise almost 4.5 per cent faster than inflation between 1998 and 2000. As well, household wealth — defined as the value of assets less liabilities — rose at an annual rate of almost four per cent during the 1990s, says chief economist Warren Jestin, co- author of the study. The improvements are partly due to the million jobs created in the past three years and the increasing value of stocks, mutual funds, life insurance and pension funds. While the gains were favourable, real disposable income in 2001 is still predicted to remain nearly two per cent below its 1989 peak. “What we’ve done essentially through the early 1990s is dig a big hole for ourselves and only recently have we begun to fill that hole in,” Jestin says.

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FINANCIAL OUTLOOK

The Nasdaq composite index, with its predominantly technology-based stocks, took a roller-coaster ride, suffering its second-biggest drop ever before staging a dramatic rebound. On April 19, the index plunged almost 139 points, or 5.6 per cent. The sell-off was partly due to investor uneasiness spawned by several technology firms that released reports warning of poor first-quarter profits. Two days later, however, Nasdaq posted its biggest single-day gain in 10 weeks in the wake of good profit news by wireless communications firm Qualcomm.

But Mississauga, Ont.-based Bid.com International Inc., which recently was listed on the Toronto Stock Exchange 300 composite index and debuted on the Nasdaq last week, did less well. After hitting a high of $32.35 last month — up from 56 cents in October — stock in the online auction house has suffered repeated losses. These include a 50-per-cent drop on April 21 to close the TSE’s trading day at $13.90. As a result, the Toronto Dominion’s discount broker, Green Line Investor Services, downgraded the stock, announcing that clients would no longer be allowed to invest in Bid.com on margin — a practice in which the brokerage supplies investors with credit to buy the stock on the premise that it will climb.

LINES OF POWER

In one of the largest mergers ever, Deutsche Telekom Ag and Telecom Italia SpA agreed to a $122-billion union. The deal between the German and Italian powerhouses creates the second-largest telecommunications company in the world, with more than 100 million customers in Europe, Latin America and Asia. The new firm intends to expand into the United States.

OUT OF THE WOODS?

MacMillan Bloedel Ltd., British Columbia’s largest forest company, announced a first-quarter profit of $33 million, about double what it made by the same time last year. Some analysts said the profit surge suggests the province’s struggling forestry industry, which lost $1 billion last year, is set for a turnaround. Tom Stephens, MacMillan Bloedel’s president, vowed to turn his firm into a “kick-ass company.”

FUEL FOR THOUGHT

DaimlerChrysler, Ford Motor Co., the state of California and Burnaby, B.C.- based Ballard Power Systems Inc. revealed plans to test as many as 50 cars and 20 buses powered by futuristic fuel-cell technology on California roads. Two prototypes were unveiled: a compact Mercedes-Benz car and a Ford sedan about the size of a Taurus. The cars rely on hydrogen and oxygen to produce electricity without releasing any toxic emissions.

THE RETURN OF INFLATION

The inflation rate rose to one per cent in March, Statistics Canada reported. Some economists said the increase could be the start of an upward trend in the cost of living. The increase in inflation from 0.7 per cent in February also makes it likely that the Bank of Canada will delay further cuts to its trendsetting interest rate. The cost of living rose because of higher prices for clothing, gasoline and heating fuel and travel.

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BAY WATCH

Marc Chouinard, who helped make the BiWay Stores Ltd. discount chain the star unit of Dylex Ltd., has been hired to head The Bay, the struggling department store division of the Hudson’s Bay Co. Industry watchers welcomed the change. In 1998, sales at The Bay’s stores fell two per cent over the previous year and earnings were down 59 per cent over the same period.

>>> View more: THE CALL OF THE COMPETITOR: A takeover helps reshape the long-distance market

THE CALL OF THE COMPETITOR: A takeover helps reshape the long-distance market

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Juri Koor is a turnaround guy. Give him an ailing company and the Estonian-born industrial engineer who came to Canada with his family when he was 12, will either fix it, sell it or close it down. So when he became president of Call-Net Enterprises Inc., a small, relatively unknown telecommunications company in 1991, he expected it would take maybe nine months to put things in order and move on. There was little doubt that the company was in trouble. Formed in 1986 to compete against Canada’s entrenched regional monopolies, Toronto-based Call-Net was on the verge of bankruptcy when Koor took charge. “We had days when we didn’t have money for Xerox paper and the coffee guy wouldn’t bring coffee–it was all COD.”

It has been some turnaround. Koor, 57, is still there, one of the best-paid executives in Canada, with a 1997 compensation package worth $12 million. And little Call-Net Enterprises, the parent company of Sprint Canada, has just begun absorbing another long-distance company, Fonorola Inc. of Montreal. That hard-fought, $1.8-billion deal makes the combined company the main challenger to the old-line phone companies grouped together under the Stentor alliance, such as Bell Canada, Alberta’s Telus Corp. and B.C. Tel.

By many measures, Sprint now has the scale it takes to compete and become the full-service telecommunications company that Koor wants it to be. Combined revenues last year were $1.3 billion. Estimates from the Yankee Group in Canada, a Brockville, Ont., telecommunications consultancy, put Sprint and Fonorola’s share of the long-distance voice market this year at about 20 per cent. That is well ahead of AT&T Canada Long Distance Services, and bigger even than any of the Stentor companies except for Bell. Sprint’s strength was serving residential customers and smaller business while Fonorola targeted large companies. Fonorola is building a North American network of high-capacity fibre-optic cable that will allow Sprint to replace leased lines with its own and give it access to the biggest U.S. markets. “It makes Call-Net a more well-rounded company,” says Toronto telecommunications analyst Michael Sone, president of NBI/Michael Sone Associates.

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Koor’s task now is to manage the integration, overcome the bad blood occasioned by a hostile takeover, all the while continuing to do battle with the giants. The first step came immediately, as 31 of Fonorola’s senior managers were replaced by Sprint executives. “I am a big believer in getting this stuff over early,” says Koor. Gone is Fonorola president Jan Peeters, who Koor says could have stayed if he had wanted. There was no place for him in the new company, says Yankee Group managing director Iain Grant. “Peeters was building a boutique. Koor is building a locomotive.”

Regardless of Call-Net’s new strength, it never pays to underestimate a competitor as powerful as Bell, the dominant player and the local phone provider in Ontario and Quebec. Bell Canada’s quarterly revenues of $2.6 billion were double the annual revenues of Sprint and Fonorola combined, and Bell rings up almost as much profit every day as Call-Net records over a quarter. “Anybody who thinks that competing with Bell Canada is going to be easy should think again,” says analyst Ian Angus of Angus TeleManagement Group in Ajax, Ont. Koor himself has no illusions. As he prepares for a two-week travelling road show to raise money to finance the takeover, he muses that Bell’s treasurer could probably raise the same money with a couple of phone calls–and pay cheaper interest rates as well.

Bell and the other Stentor companies have been steadily losing market share to the upstarts, and this year, according to Yankee Group estimates, will hold about 65 per cent of the long-distance phone market, compared with 75 per cent only two years ago. But lately, Bell and its Stentor cousins have been showing a better understanding of the competitive threat from which the government had sheltered them until deregulation of the industry began in 1992. Grant says Bell’s recent move to flat-rate, 10-cents-a-minute calls was aimed squarely at Sprint and its televised pitch from Candice Bergen to get “the most for the least.” The new rates hurt Bell as well because the company is cutting its own revenues. But, Grant adds, “it also constrains Call-Net and puts some definite limits on how much it could be expected to grow its revenues.”

The Canadian Radio-television and Telecommunications Commission allowed full-scale competition in the long-distance market almost a decade after the industry had been deregulated in the United States. Since then, not only has the Stentor alliance of phone companies across the country lost market dominance, but prices have fallen dramatically. A 1997 study by KPMG, commissioned by Call-Net, notes that the actual price of an average long-distance call dropped from 21.5 cents in 1995 to an estimated 17 cents in 1998. Without competition, the study says, the 17-cent call would have cost 48 cents.

Sprint’s next challenge, and the coming battleground in the telecommunications industry, is the market for local phone service, expected to open up next year. Koor says his strategy will be to get into the top 25 markets in the first three years, installing switches to access the existing local lines of the phone companies, building Call-Net’s own network only as it builds its customer base. “We get the customer first and then invest the capital,” he says. So important is the local market, with revenues estimated by the Yankee Group at about $7.5 billion, that nothing would stop Sprint from getting into it. If he had thought the takeover would have diverted corporate attention from the local prize, adds Koor, he would not have pursued Fonorola.

The takeover is only the latest piece in the deconstruction and reconstruction of Canada’s telecommunications industry, an upheaval sparked both by deregulation and by the rise of the Internet and data transfer. The phone system was built to handle the sound of people talking. Increasingly, however, the digital hum of bits and bytes is taking over. Bell Canada estimates that by 2000, data will account for 80 per cent of phone-line traffic. Copper lines are being replaced by laser light and fibre optics. Technologies spawned by the Internet are replacing old-style telephone switches. The takeover last month by Northern Telecom Ltd., owned by Bell Canada parent BCE Inc., of Bay Networks in the United States, a leader in Internet technologies, is just one more example of the corporate response to the changes. So, too, was the revelation this spring that Telus Corp. was in merger talks with AT&T Long Distance Services.

The deal fell through, but the very thought of a Stentor partner making common cause with the competition was the most evident sign yet that the Stentor alliance, in its current form, is likely to be one of the casualties of the phone revolution. Bell has since announced that it is forming a new, national company to service business customers across the country, a role that Stentor has played up to now. “The writing is on the wall for Stentor,” Angus believes.

As Koor prepares to take his company into the coming battles against the giants, in an industry where changes come as fast as decisions can be made to meet them, he recalls the dark days of Call-Net, back when he decided that the company needed three things it did not have–a recognizable brand, market knowledge and access to technology. That was when he convinced Sprint Corp. to license its name and take a 25-per-cent equity investment in the company. Sprint’s U.S.-based executives arrived in Toronto by private jet. “Their Challengers were worth more than our company,” says Koor. Those days clearly are long behind him.

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STENTOR’S DECLINE:

Shares and estimated (*) shares of the market for long-distance voice calls:

1996 1997 1998* 1999*

Stentor 75.4% 68.8% 64.9% 62.7%

Sprint Canada 10.2 12.8 14.9 15.6

Fonorola 2.5 3.7 3.9 4

AT&T 8.6 11 12 12.8

ACC 2.2 2.4 2.6 2.7

TelEnterprises Ltd.

Other 1.1 1.5 1.9 2.2

A TOUGH NEW COMPETITOR:

Estimated 1998 shares of the market for long-distance voice calls:

BELL CANADA 37.1%

SPRINT- FONOROLA 18.8%

AT&T 12%

OTHER STENTOR 10.8%

BC TEL 9.7%

TELUS 7.3%

ACC 2.6%

OTHER NON STENTOR

1.9%

Source: Yankee Group in Canada

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