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Tuesday, January 21, 2020

Developing business in the CIS

by Fergi Varghese

Part of the fleet of Lancer 1300 Taxis outside the Municipality in Tbilisi

Realising that the opening up of the former Soviet Republics represented an enormous business opportunity, Rashid Al Habtoor set up Habtoor Trading Enterprises in 1992 to trade with the new CIS states.

Entering markets in the new CIS countries is not easy for any foreign company wishing to do business there, particularly not in as complex field as the automobile industry. Any company wishing to trade there has first to overcome a lack of modern financial structures and the old centrist thinking of local officials and government bodies.

But one Gulf businessman, Rashid Al Habtoor, has overcome the problems associated with this economic region and has been successful. First entering the market back in 1992 with Habtoor Trading Enterprises, today the Group has specialized in automobiles, and has a presence in four republics, Georgia, Azerbaijan, Uzbekistan and Armenia, with plans to expand into Turkmenistan and Kazakhstan.

According to Mike Otty, managing director of the group, “The entry into the CIS region was primarily based on the fact that this is a new market with extraordinary potential. There is no doubt that the CIS countries already have an extensive vehicle park which is old and comprised largely of Ladas and Volga’s, and these will have to be replaced. The only doubt is how soon this begins to happen.”

For its part, the HTE Group have taken on the Mitsubishi Motors franchise for Azerbaijan and Georgia, and plan to expand the franchise to the other three republicans. The company also represents Hyundai Precision’s 4WD Galloper in the six republics.

One of the key advantages for the group is the fact that they are based in the UAE, currently one of the largest hubs for the distribution of goods to the CIS republics. Another is the tax advantage of using Dubai. “As all the CIS states have tough tax regimes, it is important to retain optimum profit in tax-free Dubai by using an acceptable transfer pricing formula that will still keep the product competitive in the market, and yet comply with tax legislation,” explains Otty.

According to Otty, a major market for the HTE Group will be the oil and gas industry. “A great deal of four wheel drives are required in this industry, especially the diesel variety which are preferred here,” he says.  “These are extraordinarily rich oil and gas areas and the growth of these industries is creating a boomtown in Baku (capital of Azerbaijan), for instance.”

The Group has also diversified into other areas within the transportation industry; these include setting up taxis and bus companies. For instance, the Group took over the former state taxi facility in Baku, modernized it and now manages a 900 strong fleet of cars in the city. A joint venture agreement was signed with the municipality of Tbilisi in Georgia and the Georgian Taxi and Bus Company was launched at the end of January.

The near future potential of the market means that the group are looking at a penetration of over 10%, estimated by studied to be as high as 25,000 vehicles, within the next five years. “We are already in the forefront of this business in Azerbaijan, Georgia and Uzbekistan. This early success can be built on rapidly in existing markets with extra franchises, and in the markets still to be developed.” And as Otty states the potential is there. All that remains is to see when it takes off. 

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