Accountant Middle East | June 2014 by CFO Middle East

setting standards in financial auditing & accountancy

Aiming high Ahmed Bin Sulayem and his vision for DMCC

JUNE 2014

TECH TALK

Productivity at your fingertips

HIDDEN ECONOMY The sectors boosted by Ramadan

PUT IT TO WORK

Why asset refinancing makes sense

Chairman Dominic De Sousa Group CEO Nadeem Hood EDITORIAL Group Director of Editorial Paul Godfrey paul.godfrey@cpimediagroup.com +971 4 440 9105

A time to reflect… on your business It is that time of the year again when the mercury rises relentlessly. The auspicious month of Ramadan is also around the corner and businesses are expected to be at a standstill for the next couple of months.

Group Managing Editor Melanie Mingas melanie.mingas@cpimediagroup.com +971 4 440 9152 Associate Editor Zenifer Khaleel zenifer.khaleel@cpimediagroup.com Contributor Shane Phillips ADVERTISING Group Sales Director Carol Owen carol.owen@cpimediagroup.com +971 4 440 9110 Commercial Director Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 440 9138 PRODUCTION & CIRCULATION Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 DESIGN Head of Design Glenn Roxas glenn.roxas@cpimediagroup.com Senior Graphic Designer Froilan A. Cosgafa IV froilan.cosgafa@cpimediagroup.com Photographers Jay Colina Anas Cherur DIGITAL SERVICES Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100 Published by

Ramadan is a very misunderstood period, especially for expatriates and foreign companies in the UAE. They assume a complete shut-down of activity which ultimately causes confusion and hurts business prospects. However, companies across the UAE have devised their own methods to turn this lull season into a very productive one. Some of them engage in staff training and appraisal; while others just turn night into day. But almost all echo the sentiment that workers are rejuvenated after the month long holistic experience. Read more about it in our special feature on Ramadan economics. We are extremely honoured to be featuring an exclusive interview with Mr Ahmed Bin Sulayem, Executive Chairman of the DMCC. Turn the pages to discover how he plans to project Dubai on the global arena, with the record breaking ‘Burj 2020’ tower (which will be the largest commercial tower in the world). Also find out how Dubai is turning into the financial capital of the Middle East with its strategic planning and world class infrastructure. By definition, accounting personnel are not allowed to be vulnerable. But history (and crashing balances) has proven that they are susceptible to bad decisions and erratic judgment, just like ordinary mortals. We provide an insight on behavioural finance and how emotions affect economics.

If you are worried about financial constraints, the Western Union Business Solutions team has given us an in-depth analysis on the movement predictions of three major currencies USD, EUR and GBP, for the month of June.

Shorter working hours and less activity means companies have ample time to reflect on finance models, strategies, R&D, personnel training or anything that was put on hold due to intense business activities. The spiritual fervour in the air is also contagious in boosting the morality, ethics and integrity in your business. This Ramadan let us make the most inspiring commitments - in business and on a personal level.

Zenifer Khaleel Associate Editor, Accountant Middle East

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JUNE 2014

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© Copyright 2014 CPI. All rights reserved. While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

SETTING STANDARDS IN FINANCIAL AUDITING & ACCOUNTANCY

Ahmed Bin Sulayem and his vision for DMCC

Twitter: @AccountancyME TECH TALK

Productivity at your fingertips

HIDDEN ECONOMY The sectors boosted by Ramadan

PUT IT TO WORK

Why asset refinancing makes sense

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Contents JUNE 2014

22 03

Editorâ&#x20AC;&#x2122;s note: A time to reflectâ&#x20AC;Śon your business. Associate Editor Zenifer Khaleel on why the next month can be surprisingly beneficial for your business finances.

Advisory Board: Meet key personalities contributing to the publication and its raft of activities.

News & Views: Top stories this month that grabbed our attention and are shaping the accounting world.

Standards and Practices

Crafting your competencies in accounting. What sets an expert accounting professional apart from a normal accountant with a basic degree? We assess the landscape.

JUNE 2014

Market Outlook

Money matters. The Western Union Business Solutions team gives us their highly researched update on currency movements for the month of June.

Personality & Practice

A Record of Achievement. In an exclusive interview with Shane Philips for Accountant ME, we learn more about the visionary Ahmed Bin Sulayem, Executive Chairman of Dubai Multi Commodities Centre (DMCC).

FINANCE

Asset Re-financing – defining liquidity and value. Associate Editor Zenifer Khaleel reviews this important financing strategy.

Procurement Perfection. We speak to Steven Speter, Managing Director of procurement specialists 36 Strategies, about the benefits of putting the right procurement structure in place.

Behavioural Finance – when emotions influence the numbers. Associate Editor Zenifer Khaleel explains this new science and highlights the emotional factors that can endanger the work of even pre-eminent management accountants.

Business Strategy

Don’t just do it – Plan! Paul Godfrey looks at the basics of putting an effective business plan together – and says ‘don’t go another day without one’!

Accountancy & Finance

Ready to venture? Assistant Editor Rushika Bhatia spoke to Paul Kenny and Arya Bolurfrushan about their new venture capital firm – Emerge Ventures.

The Rise of the RMB in Global Trade. Michael Vrontamitis, Head of Product Management, Transaction Banking, Standard Chartered Bank, explains the importance of the Renminbi and how its rise cannot be ignored.

Risking it all. Here, we explore why risk management is a powerful tool that not only helps build a stronger capacity to withstand risks, but also the ability to positively invite risk as an opportunity for growth and change.

The Future of Finance. Aparna Shivpuri Arya speaks to Dominic Broom, Head of Sales & Relationship Management, EMEA Treasury Services, BNY Mellon.

Legal

UAE Anti-Commercial Fraud Law: Good news and bad. Legal experts from Clyde and Co. investigate.

Economic insights

Dubai – the rising financial capital. The emirate’s role as a key trade hub is well-established, but a subtle transition has taken place, whereby Dubai is earning credentials as a world-class centre of financial services.

Ramadan Economics. Despite the appearance that many aspects of the economy slow down during Ramadan, what is the actual picture when it comes to the financial performance of different sectors?

Tech Talk

Top mobile applications that can supercharge business productivity. 5

EDITORIAL ADVISORY BOARD The Editorial Advisory Board comprises of eminent personalities in the field of Finance and Accountancy. The primary role of the members is to provide direction, guidance and assist in the process of ensuring that Accountant Middle East magazine consistently publishes material that is of high standard, ensuring that it responds to the ever-changing needs of the industry.

JUNE 2014

Ian Gomes

Bassam Hage

KPMG's Head of Advisory and Markets (UAE & Oman)

EY Managing Partner Markets, Middle East and North Africa

Susie Isaacson

Brigadier Saif Mohammed Saif

Head of UAE, Association of Chartered Certified Accountants, (ACCA)

Chairman, UAE Accountants & Auditors Association

Hanady Khalife

Geetu Ahuja

Director, Institute of Management Accountants (IMA), Middle East and Africa

Head of GCC, Chartered Institute of Management Accountants (CIMA) Middle East

Hisham Farouk

Dahman Awadh Dahman

Managing Partner, Grant Thornton UAE

CEO & Managing Partner, RSM Dahman

News & Views

NBAD partners with Celer Technologies The National Bank of Abu Dhabi (NBAD) has partnered with Celer Technologies to develop ‘Global Markets E-Commerce’ applications to offer its clients a range of electronic trading capabilities for foreign exchange (FX) and other global markets products.

ELECTRONIC TRADING dominates nearly 60 per cent of the US$5.3 trillion per day foreign exchange spot market. In emerging markets, the figure is also growing and represents an opportunity for NBAD to be a market leader in electronic distribution in the MENA region. The product range, which is being developed by the London-based Celer in partnership with NBAD’s e-commerce and technology teams, will enhance the bank’s existing electronic platform NBADiTrade and allow international clients greater access to regional products, including FX, money market deposits, fixed income and NBAD research capabilities. “This is a vital step in the evolution of NBAD’s Global Markets E-commerce business as it will lead to a stateof-the-art platform that will enable our customers to access GCC and MENA products through multiple channels, including our own platform NBAD iTrade,” said Andrew Baxter, the Managing Director of Global Markets E-Commerce at NBAD. “NBAD is committed to building the best in class e-commerce products and to upgrade our electronic delivery channels as the market trend towards electronic execution strengthens.” Ben Cuthbert, Chief Executive Officer, Celer, said: “We are extremely excited to be working with such a dynamic and knowledgeable partner as National Bank of Abu Dhabi to assist in creating a portfolio of game changing e-commerce solutions for their growing global markets business. The Celer platform is built on a big data foundation and provides a solid technology platform that delivers extremely flexible front to back architecture.” 8

JUNE 2014

New competency framework Based on extensive global research among employers and other stakeholders, the Chartered Institute of Management Accountants (CIMA) and the American Institute of CPAs (AICPA) have identified a competency framework with 45 areas where employers expect proficiency. THE FRAMEWORK consists of four knowledge areas — technical, business, people and leadership — with competencies defined at four levels: foundational, intermediate, advanced and expert. It was developed through research that included a survey of nearly 3,400 members, students and educators; roundtable discussions in 13 countries; and face-to-face interviews with representatives from 67 organisations, including IBM, Unilever, Microsoft and Shell. The CGMA Competency Framework was created to assist Chartered Global Management Accountants – including CFOs, controllers and treasurers – in identifying the broad skills employers expect from their finance professionals. The framework helps management accountants assess their current competency level and provides insight on steps they can take to expand their skills while meeting their commitment to lifelong learning. It is publicly available to any employer or educator to benchmark their team’s capability, create job profiles or design curriculum. Geetu Ahuja, Head of GCC at CIMA, said: “The CGMA Competency Framework will help in building a strong foundation for businesses in the Middle East. It will not only allow organisations to work with a cohesive, forward-looking approach but will also bring about a great degree of stability in an era of uncertainty, thereby helping business heads to take smarter and sustainable decisions.” Expected capabilities include risk management and internal controls, macroeconomic analysis, communication and negotiation along with strategic understanding

in a global context. Technical financial competencies include financial accounting and reporting, management reporting and analysis, and risk management. The number of competencies and proficiency expected varies by functional area and level of seniority. Charles Tilley FCMA, CGMA, Chief Executive, CIMA, said: “With the role of finance constantly developing it can be hard for employers to know the standard to expect of their management accountants. The CGMA Competency Framework is research-led and informed by those on the front line of business and it will show employers the new knowledge requirements and skills needed for both current and future management accountancy roles. In addition, it will help accountants to become more employable by guiding them through their professional development, as well as helping educators to better prepare students to become well-grounded management accountants.” “Today’s CEOs need a partner at the helm – a co-pilot to help steer clear of obstacles and toward opportunities,” said Barry Melancon, CPA, CGMA, President and CEO of the AICPA. “They are turning to their management accountants to provide this guidance, to pull insight from information and connect it to operations in new ways to position their businesses for long-term, sustainable success. The CGMA Competency Framework ensures management accountants’ skills remain aligned with the demands of an increasingly complex and constantly changing business environment.”

News & Views

Citi JOINS HANDS WITH INJAZ UAE Citi and INJAZ UAE have partnered to benefit over 500 students in Abu Dhabi and Dubai by delivering the Personal Economics Programme – a foundation financial literacy programme offered to middle grade students. CITI HAS been a long-time partner and key supporter of INJAZ across the MENA region since 2005. As part of the bank’s ongoing citizenship efforts, Citi UAE has actively engaged Citi professionals as volunteer mentors, to impact the communities in which they live in. In May, seven Citi volunteers participated in the Personal Economics programme, mentoring students at schools in Abu Dhabi and Dubai. Citi’s support to INJAZ UAE students stems from the company’s understanding of the importance of personal finance in helping prepare youth for future economic decisions. Citi’s Head of Public Affairs and Government Relations, Middle East and North Africa, Karim Seifeddine – a

Citi volunteers and INJAZ UAE team up to teach financial literacy to young UAE students

Board Advisor to INJAZ UAE and one of the seven Citi volunteers delivering the programme - commented on his experience saying, “our entire team is proud to have helped in paving their path towards future success and stability." “As this generation of young Emiratis strives

to reach their goals, the ability to make responsible financial decisions will play a key role in empowering them and in instilling confidence in them,” explained Seifeddine. The Personal Economics programme is designed to give 12

Corporate governance in Bahrain The Pearl Initiative, a not-for-profit organisation working across the Gulf region to influence and improve corporate accountability and transparency, co-hosted a high-level Forum with Bahrain Mumtalakat Holding Company (“Mumtalakat”) – the investment arm of the Kingdom of Bahrain. THE EVENT addressed the need for corporate governance and highlighted the importance of embedding high standards throughout all levels of an organisation. Expert panellists focused on challenging topics such as Bahrain’s current corporate governance and transparency situation. Moderating the session, Fahad Alturki, CEO of ACTO Group and a Pearl Initiative

Board member, said: “Getting corporate governance right is as important as the business model itself. If companies want to succeed in the long-term, build trust and reputation with stakeholders and spur sustainable and competitive economic growth, then best practice governance is the way forward. We are thankful to the Pearl Initiative for assisting us in driving this initiative forward.”

to 15 year old students a hands-on, practical introduction to personal finance at a young age, teaching concepts such as credit and debt, savings and investments, and budgeting. The programme aims to encourage students to appreciate their current and future roles as consumers, employees, employers, investors and borrowers, and their impact on the UAE economy as a whole. “When you have corporate mentors sharing their know-how, it helps making financial planning seem less daunting to young students, as they are able to apply lessons learned from the personal experience of Citi volunteers who work in the world of finance. The volunteers bring a unique f lavour to the classroom atmosphere, and for that, I have no doubt the students will always be grateful,” explained Sulaf Saleh AlZu’bi, CEO of INJAZ UAE.

Mahmood Al-Kooheji, CEO, Mumtalakat, said: “Transparency and good corporate governance are an integral part of Mumtalakat’s DNA, and we believe that we are uniquely positioned within Bahrain and the wider GCC to be able to encourage wide adoption of these essential principles. Adhering to good corporate governance and transparency practices has been shown to drive growth, and by partnering with like-minded organisations, we can ensure that a clear roadmap is drawn for others to follow, and that we create the necessary conditions for our economies and businesses to not only grow, but to thrive.”

News & Views

Saudi British Bank partners with Visa for new initiative The payment solutions provider Visa has partnered with the Saudi British Bank (SABB) to issue Visa Debit Cards to all new and existing SABB customers.

Ihab Ayoub, General Manager, Middle East and North Africa at Visa, and Majed Najm, General Manager, Retail Banking and Wealth Management at SABB, inaugurate the new SABB Visa debit card

UNDER THIS agreement, SABB customers will be able to pay directly, conveniently and securely, for goods and services, with funds from their SABB account at millions of merchants around the world. In addition, the card will include online purchases capability and Card Not Present (CNP) transactions in the near future. Ihab Ayoub, Visa General Manager for Middle East and North Africa, said: “SABB is one of the fastest growing banks and we are proud to partner with them on this debit card agreement, which is a milestone in the technology based banking industry in Saudi Arabia and supports our goal of growing the local economy and enhancing our partners’ customer experience.” Ahmed Gaber, Country Manager – KSA at Visa Inc., said: “We are delighted to partner with SABB to provide the best-inclass benefits to their customers through the Visa Debit cards. Over the years, Visa has worked closely with SABB to meet and exceed customer expectations, and with this agreement, cardholders can now use their debit cards here in Saudi Arabia and around the world across millions of merchants and ATMs.” SABB Visa debit cards will be equipped with EMV chip and pin solutions. The EMV chip and pin technology offers dynamic authentication values for each transaction, thus increasing the security on card usage. In addition, SABB has introduced the ability for Visa Debit cardholders to set their PIN via the phone banking IVR. Majed Najm, General Manager of Retail Banking and Wealth Management at SABB, commented: “Thanks to partners like Visa, who are committed to working closely with us to further develop the electronic payment technology, we are able to grow our product portfolio and provide customers with efficient and convenient choices that enhance their transaction experiences.” Visa and SABB celebrated their new Debit Card agreement at a ceremony held at SABB Head Office and attended by representatives from both parties. 10 JUNE 2014

DED's 120 day licence The Department of Economic Development (DED), in partnership with other government entities, announced the automation of the ‘Memorandum of Association’ process and launched the ‘120 days hassle free licence’ – effective as of May 15, 2014. THIS CAME in line with the Dubai Smart Government initiative and the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, to transform Dubai into the smartest city in the world. The electronic Memorandum of Association for partnership companies enables one of the partners to register online and enter all details of other partners, following which the system will contact each partner with a brief description of the licence. Once all partners confirm their application electronically, the system will ask each of them to use their ‘My ID’ username and password to log in to their respective accounts to approve the Memorandum of Association. The Ejari number should be entered to generate the payment voucher and the licence will appear on the smartphone as soon as the payment is completed. The 120 days hassle-free licence allows an entrepreneur to start his business immediately and complete the rest of the licensing requirements – such as approvals from other government authorities concerned – within the next 120 days. DED issues the licence depending on the risk factors of the intended business activity. Government authorities are entitled to ensure full compliance of the licence holder to the licence criteria on day 121. DED also announced that a comprehensive guidebook on starting business in Dubai will be made available on its website – www.dubaided.gov.ae - and smart application ‘Business in Dubai’. The guidebook makes it easier for investors to start and do business in Dubai by removing ambiguities associated with business registration and licensing or activities permitted under commercial, industrial and professional licences. The directory in printed format will also be available for sale at an affordable price. His Excellency Sami Al Qamzi, Director General of DED, commented: “We thank all related government authorities for the co-operation extended to our smart initiatives. It shows the keenness of government ministries and departments to accomplish the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum.” Al Qamzi added that going smart fits with the DED strategy of supporting businesses to be sustainable and competitive. “We are progressively bringing our service delivery on to a smart platform and have already launched smart applications such as Sallety, which is the first of its kind in the region. Such initiatives also show that the private and public sectors can work together and align their strategies to ensure competitiveness and added value to customers.” Mohammed Shael Al Saadi, Chief Executive Officer of the Business Registration and Licensing sector (BRL) in DED said that investors in Dubai will be able to focus more on their core business activity with the new initiatives being launched.

News & Views

DEWA’s risk management event The Enterprise Risk Management Department in Dubai Electricity and Water Authority (DEWA), in partnership with the UK Institute of Risk Management, hosted the ‘Developments in Enterprise Risk Management conference 2014', at Atlantis the Palm – Dubai. THE CONFERENCE was held in the presence of His Excellency Saeed Mohammed Al Tayer, and HE Saeed Mohammed Al Sharid, Member of the Board of Directors of DEWA, Abdulqader Obaid, Chairman of the Internal Audit Association (UAE IAA), Executive Vice Presidents and VicePresidents at DEWA, and Richard Anderson, Chairman of the Institute of Risk Management, and a large number of experts and specialists working in the field of risk management from the public and private sectors. “DEWA organised this conference to support the directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai,

Prestigious honour for Deloitte Deloitte Middle East was recently awarded the Business Continuity Provider of the Year 2014 in an exclusive award ceremony. THE INITIATIVE was powered by Business Continuity Management led by Business Continuity Institute (BCI) – the membership and certifying organisation for business continuity professionals worldwide. Omar Fahoum, Chairman and Chief executive at Deloitte Middle East, said: “Having Deloitte

to achieve the highest standards of excellence in public performance, and improve the competitive capabilities of all government authorities and departments, to promote Dubai’s position as a global hub for trade, finance, and tourism,” said Al Tayer. “The conference aims to review the policies and experiences related to enterprise risk management, as well as identify the best practices in this field. This comes as a result of the developments that have occurred over the last ten years in how international businesses have changed their corporate strategy and enterprise risk management practices to adapt to changes in their internal and external work environments. This has resulted in many changes to corporate strategies and reorganisation of ERM structures worldwide. The conference identified and focused on the best global practices adopted in enterprise risk management and accountability in organisations. This provides the means to achieve our strategic objectives through a proactive

Middle East recognised as providing outstanding business continuity management services is an honour for us, and a real testament to the expertise that our professionals in enterprise risk services in general and business continuity management services in particular are providing to our clients in our region.” Businesses in the Middle East and North Africa region are facing the increasing challenge of managing complex operations across multiple entities as they integrate business partners, suppliers, and even competitors into an extended enterprise, all in an environment subject to security, financial, and market risks. The reliability and continuity of these operations is critical to business survival,

approach to examine and evaluate risks, as well as prioritising and monitoring them across DEWA,” added Al Tayer. “The conference also intends to provide information and balanced recommendations in terms of: The concept of enterprise risk management and its importance within the context of organisations, including the United Nations, evaluating the practices of Enterprise Risk Management, the best global definitions of some concepts of risk management and methods of implementing them and joint collaboration and coordination between DEWA and its strategic partners,” confirmed Al Tayer. “Since its formation two years ago, DEWA’s Enterprise Risk Management department has succeeded in investigating, identifying and studying all the risks across DEWA’s various divisions and the solutions to mitigate them, as well as setting up the necessary plans and strategic objectives. These efforts and endeavours have resulted in our starting work on management of procurement and supply chain management, with the support and recommendations of the Higher Enterprise Risk Management committee,” said Al Tayer.

and to building competitive advantage, so the need for an effective risk reduction and business continuity management (BCM) programme has never been as evident for MENA companies, whose demand for such programmes is on the rise. International certifying bodies are now casting their net to include regional risk and continuity management services which offer support to companies in the MENA region. Fadi Sidani, Enterprise Risk Services leader at Deloitte Middle East, commented: “Business Continuity Management is regarded as part of Risk Management and based on the proprietary Deloitte BCM methodology, which is designed on a modular framework that

allows us to tailor our services to a client’s particular business needs. BCM identifies and provides solutions to an organisation’s exposure to internal and external threats in an ever changing business climate. It covers current state assessments, as well as design and implementation related to Business and Operational Resiliency, Organisational Resiliency, Technology Resiliency and Vendor & Supply Chain Resiliency.” “We have worked with clients across the region to better navigate in today’s world challenges and measure, manage and control risk to enhance the reliability of their systems and processes throughout the enterprise,” added Sidani.

News & Views

Dubai Chamber’s workshop Dubai Chamber of Commerce and Industry, in collaboration with Baker & McKenzie Habib Al Mulla, organised a workshop on how to manage a limited liability company, as part of its efforts to help businesses understand the legal aspects and framework of doing business in the emirate. THE WORKSHOP, which was attended by Dubai Chamber members, lawyers and legal professionals, investors, contract specialists, SME owners, business executives and corporate counsel, shared key insights on avoiding common pitfalls and discussed the practical aspects of managing LLCs as well as the possible impact of new legislation. Jehad Kazim, Director, Legal Services Department, Dubai Chamber, said: “With limited liability companies

being the most common form of company structure in the UAE and with increased competition and market growth, it is important to ensure that companies are managed properly.’’ She further stressed that the workshop helped companies understand how to manage a limited liability company in the face of obstacles and challenges while educating company representatives on what to expect in the future as legislation related to LLCs develops.

During the workshop

The workshop was led by Tom Thraya, Partner; Will Seivewright, Partner; and Carine Souaiby, Counsel, at Baker & McKenzie Habib Al Mulla. Tom Thraya, Partner at Baker & McKenzie Habib Al Mulla, said: “As the market continues to grow in sophistication, it is important that those doing business here have access to advice and up-to-date

Frost and Sullivan hosts seminar Dubai SME and Frost & Sullivan hosted a seminar entitled ‘A 360 degree perspective of industry competitiveness and leadership’. THE SEMINAR highlighted trends such as Technological Connectivity & Convergence, Renewable Energy, and Urbanisation which could affect a firm’s productivity, efficiency, innovation, competitiveness, scalability and gaining access to capital and investors. Key discussion points at the event included: • The Middle East and North Africa (MENA) region is expected to be linked through over 545 million connected devices by 2020, which means six to seven connected devices per household. • MENA firms are warming up to the transformative impact and benefits of Big Data Analytics technology on sectors such as healthcare, IT, logistics, media & entertainment, 12 JUNE 2014

and banking & financial service. • Smart City applications are expected to create huge business opportunities with a global market value of US$ 1.5 trillion in 2020. • Global online retail sales to account for 16.6 per cent of total retail sales by 2020, indicating that one out of every 10 retail transactions will be done online. This increase in online retailing is ushering new logistics business models. • By 2025, four MENA countries – Bahrain Kuwait Lebanon and Qatar – will be more than 90 per cent urban. This has significant implications for the Dubai SME companies. • Mega projects in the region like the Qatar World Cup, GCC Rail and the Expo 2020 will result in opportunities across the board and

information on best practice, practical solutions and future developments. We appreciate the opportunity to work with Dubai Chamber in bringing this information to our business community.’’ Dubai Chamber regularly organises training, seminars and workshops to serve the business community in boosting their trade and contributing to the economic growth of Dubai.

the Services sector is expected to witness the highest impact. It is hence imperative for local SMEs to build effective strategies to capitalise on the various new opportunities. Participants in the workshop were given two diagnostic questionnaires to fill as a means of assessing their understanding and awareness of leveraging trends that will affect the future of their firms. Each SME will be given a feedback report following an analysis of their responses. Abdul Baset Al Janahi, CEO of Dubai SME, said: “We are pleased to partner Frost & Sullivan to organise such a seminar, which gives our top SMEs knowledge of trends that could affect their future growth. Our SMEs need to continually develop their potential, be distinct in their products and services, so they will be ahead of the curve. Knowing these trends now will help them evaluate the actions to take that will make them future-ready.”

News & Views

Arab Knowledge Economy Report 2014 The first ever Arab Knowledge Economy Report 2014 revealed that the number of internet users in the Arab world is expected to reach 197 million by 2017 – a penetration of over 51 per cent from 32 per cent in 2012. THE REPORT is a joint study done by Madar Research & Development and Orient Planet with an aim to research and examine the components and characteristics of the Arab Knowledge Economy and its contribution towards the overall development of the region’s economy. The Arab Knowledge Economy Report 2014 focuses on the strengths and weaknesses of the region’s economy along with the opportunities and risks associated with it. The statistics and other valuable information featured in the Report could act as an essential guide for government planners, economists as well as local, regional and global business communities in the move to acquire, create, disseminate and use knowledge more effectively for greater economic and social development. The Report states that the Arab countries are heading towards knowledge economy by improving their education sector through the adoption of new technologies, investment

Nidal Abou Zaki, Managing Director, Orient Planet, and Abdul Kader Al Kamli, CEO, Madar Research & Development

in the Information and Communications Technology (ICT) infrastructure, building firm research and development programmes, and improvement in the overall business environment. The public-private partnership (PPP) is required to ensure smooth progress in knowledge related indicators and build an entrepreneurial culture that supports innovation. The UAE leads the Middle East with a global ranking of 38 in overall innovation performance while Dubai is the first city in the region

to establish first knowledge clusters, including Dubai Internet City, Dubai Media City and Knowledge Village. The UAE’s transformation to a knowledge-based economy is currently a key priority for the country with several innovations seen across prime economic sectors such as oil & gas, construction, healthcare and hospitality.

Key highlights from the Report include:

GCC GDP and Population Growth The GCC countries comprise

the 12th largest economic region in the world with a recorded Gross Domestic Product (GDP) growth rate of 4.03 per cent in 2013. The GCC also dominates the Arab World with its GDP of US$ 1640.83 billion in 2013. Overall, the Kingdom of Saudi Arabia (KSA) ranks first in the GCC and 19th in the world with US$ 745.30 billion as GDP, followed by the UAE with a GDP of US$ 398.32 billion. Arab Knowledge Economy Index The UAE topped the Knowledge Economy Index (KEI) among Arab countries, while it stood at 42 globally with a score of 6.94, closely followed by Bahrain at 6.9 and Oman at 6.14.

Arab e-Performance Index Madar Research & Development and Orient Planet have created a new Arab e-Performance Index based on six important global indexes, which includes the Global Competitiveness Index, Networked Readiness Index (NRI), ICT Development Index (IDI), Global Innovation Index, Knowledge Economy Index (KEI), and e-Government Development Index. For the Arab e-Performance Index for 2013-2014, Bahrain leads the GCC with an average of 66.55 followed by the UAE at 65.68.

Revision in ‘No room for complacency’ Our feature story called ‘No room for complacency’, in the previous issue (April-May) of Accountant Middle East on page 28, has now been revised. WE MENTIONED in the story, “The first Emirati to obtain the prestigious Associate Chartered Accountant qualification through the ICAEW Emirati Scholarship Scheme programme speaks to Accountant Middle East

about his journey to the top.” This has now been changed to: “One of the first Emiratis to successfully complete the prestigious Associate Chartered Accountant qualification in the UAE, speaks to Accountant Middle East about

his journey to the top.” We sincerely apologise for any inconvenience this might have caused any readers. If you have any further queries, please feel free to get in touch with us. 13

STAndards & Practices

14 JUNE 2014

STAndards & PracticeS

Crafting your competencies in accounting Companies across the globe have realised that when it comes to hiring accounting personnel, there is a substantive gap to fill between qualifications and employability. For an aspiring accountant, there are many skill sets that have to be sharpened to enable him or her to make a mark as the gatekeeper of the company. What sets a competent accounting professional apart from a normal accountant with a basic degree? Zenifer Khaleel assesses the competencies that are required.

raw ing on it s ex tensive global research into employer needs, CIMA has launched its 2015 Professional Qualification syllabus early this year. This innovative syllabus is focused on equipping the finance professionals of the future with the skills to meet the needs of the business. T he C h a r t er e d Glob a l M a n a g ement Accountant (CGMA) is a designation tailored to elevate the profession of management

accountant. It is established by two of the worldâ&#x20AC;&#x2122;s most prestigious accounting bodies; the AICPA and CIMA. CIMAâ&#x20AC;&#x2122;s global research led to the development of a competenc y f ramework and a new assessment process, addressing the skills and competencies employers require from their finance team. The research involved face-toface meetings with leading organisations in the UK, US, South Africa and Malaysia, roundtable

STAndards & Practices

discussions in 13 countries and a global questionnaire to over 3,000 participants. “The CGMA Competency Framework will help in building a strong foundation for businesses in the Middle East. It will not only allow organisations to work with a cohesive, forward-looking approach but will also bring about a great degree of stability in an era of uncertainty, thereby helping business heads to take smarter and sustainable decisions,” says Geetu Ahuja, Head of GCC at CIMA. Core competencies A qualified managerial accountant is required to have a wider range of skills outside the technical competence required by the profession. This has been further augmented by the aftershock

of the global financial recession and the need for improving transparency and accountability of business; while remaining competitive and adopting responsible growth strategies. Apart from core accounting and financial skills, top employers have highlighted business acumen, people skills and leadership skills as the desirable traits in aspiring accountants. This insight has been instrumental in creating a syllabus designed to meet the needs of both students and employers to further enhance the business. The competency framework designed by CIMA includes current key words with their focus on the finance function, including • Risk management • Finance transformation • Big Data and analytics • Sustainability • Integrated reporting • Cost leadership • Tax in decision making • Global awareness • Ethics These were developed based on the factor that the emphasis is shifting from mere technical skills to the production of good accounting information and their competent application into the financial discipline. As with any profession, the core skills have to be underpinned by ethics, integrity and professionalism.

Shane Balzan Head of Syllabus Development at CIMA

The Chartered Global Management Accountant (CGMA) is a designation tailored to elevate the profession of management accountant. It is established by two of the world’s most prestigious accounting bodies; the AICPA and CIMA.

16 JUNE 2014

The syllabus New topic areas relevant to accounting in business, such as managing big data, finance function transformation and sustainability have been included with integrated case studies added at each level of the qualification to consolidate learning and ref lect real-life work situations. Major changes have also been made to the assessment of candidates in line with developments in the use of technolog y in education and industry. Students will benefit from online assessment and exams on demand, which allows them to choose their own pace of progression. “CIMA’s 2015 Professional Qualification Syllabus has been designed to address the increasing complexity, uncertainty and ambiguity in the operating environments of business. The syllabus,

STAndards & PracticeS

and its associated computerised assessments, bridges the skills gaps of newly qualified professionals, meeting the employability needs of both business and people. CIMA set out to enhance the relevance of the syllabus to employers; and ensure the rigour of the examinations differentiates between competent and noncompetent candidates,” says Shane Balzan, Head of Syllabus Development at CIMA. There are three levels in the professional syllabus. It st ar t s at t he ent r y level of accounting for operational purposes and is designed to address the requirements up to the senior managerial level. Additional support is provided by a post qualification in continuing professional development (CPD) for senior executives. Business management, performance analysis and f inanc ia l account ing competenc ies are addressed under the three headings of Enterprise, Performance and Finance – which are considered to be the pillars of the CIMA syllabus. These pillars have been developed to address the competencies which employers expect their management accountants to have. In addition to core technical accounting skills (Financial pillar), they should have good business acumen (Enterprise pillar) and the analytical skills to contribute insights for improving business (Performance pillar). Assessment and evaluation E mployer s a l s o e x p e c t t hei r f i n a nc e professionals to have an in depth understanding of their organisation, it s business model, strategic context, brand value and its position in the competitive market. They are required to be good leaders who can ensure that the accounting information is applied effectively. In short, there should be a smooth transition of t heoret ic a l k nowledge into prac t ic a l application. To enable the exertion of this practical ‘hands on’ approach, CIMA has invested in the development of a new assessment procedure with market leaders Pearson VUE. At each level, participants have to face a 90 minute computerbased objective test on each subject and a three hour integrated case study. The objective tests ensure that the candidate is familiar with the breadth of the subject matter, while the case study gives them the practical learning experience.

Geetu Ahuja Head of GCC at CIMA

A qualified managerial accountant is required to have a wider range of skills outside the technical competence required by the profession. Detailed personal feedback is provided to students based on their performance. The new assessment process will not only test knowledge and understanding but also the application and communication of the students’ prowess.

The CIMA edge Students who complete the CIMA qualification earn t he Char tered Global Management Accountant designation, which highlights the importance of management accounting in today’s economy. The 2015 syllabus is totally research-led and informed by those on the front line of business thereby making it a testimony of best practice for addressing the employability needs of both employers and students. CIMA is the first global accountancy body to pioneer computerised assessments. One of the advantages of computer-based testing is the ability to create new and different question types to test the learning outcomes. Although the syllabus is focused on finance professionals their approach will have great interest for employers, educators and regulators.

MARKET OUTLOOK

Money matters The Western Union Business Solutions team gives us an update on the movements in the three currencies – USD, EUR and GBP – to help you trade better in June 2014.

USD: United States Joe Manimbo, Senior Market Analyst, Washington, D.C.

he greenback has shown some poise recently and should find opportunity to advance further in June. Let’s face it, though, the Dollar has disappointed many who had bet on a breakout year for the greenback. A meaningful Dollar rally has so far failed to take shape, as the economy has been slow to rebound from a harsh winter of frigid temperatures. The resulting slow thaw for the economy hasn’t put much pressure on the Federal Reserve (Fed) to boost borrowing rates, which has held back the Dollar’s potential. Although a stronger Dollar narrative may be a story for the second half of this year, when the economy is expected to regain its footing, don’t dismiss the chance of solid gains over the month of June. A potential driver of Dollar appreciation is seen in the European Central Bank’s (ECB’s) 18 JUNE 2014

June 5 meeting. Markets are anticipating some sort of action by the 18-nation central bank to tackle low inflation. Bold, bazookacaliber action could go some way in toppling the Euro from recent peaks near USD 1.40 against the greenback. For that to happen, though, the ECB would have to exceed already priced-in dovish expectations. A rate cut or even the introduction of negative deposit rates would weigh on the Euro to the benefit of the greenback. But to really dent the Euro, the ECB would likely have to resort to Fed-like quantitative easing (QE) and add to its balance sheet. The bolder the action, the better chance the Euro would have at testing lows for the year around USD 1.3475. On the home front, the Dollar will look for catalysts in the government’s monthly jobs report which comes due the day after the ECB’s June 5 meeting. Another month of 200,000-plus job growth would be constructive for the buck. But the quality of the jobs data will be key, too. In addition to job gains, markets want to see growth in wages that could set the economy up for more

MARKET OUTLOOK

Markets will find another Dollar-influencing event in the Fed’s meeting on June 17–18.

MARKET OUTLOOK

meaningful consumer spending in the months ahead. Keep a watchful eye on unemployment. The jobless rate fell to a September 2008 low of 6.3 per cent in April, but mainly because people left the workforce. Markets will find another Dollar-influencing event in the Fed’s meeting on June 17–18. The Fed is expected to keep scaling back stimulus. Moreover, this gathering will include fresh central bank economic forecasts and a press briefing by Fed Chair Janet Yellen. For the Dollar to get a rise out of the Fed, bankers would have to hint at a possibility of raising interest rates before current forecasts of around the middle of 2015. Economic Indicators

3-month deposit rate (LIBOR): 0.23% (May 22) GDP annual growth rate: 2.30% (Q1) Inflation: 2.0% (April) Unemployment: 6.30% (April) Trade balance: -USD 4.04 billion (March)

EUR ECB policy announcement critical for June outlook

The stage is ready. Traders, investors, analysts, and corporations have heard the warning given by the head of the European Central Bank (ECB) at last month’s policy meeting. High expectations have now been set that the central bank will act within its mandate at the June 5 policy meeting to procure price stability within the Eurozone area. Whether the central bank cuts interest rates further, offers a negative deposit rate, provides another long-term refinancing option (LTRO) or adjusts its asset purchase programme somehow is still yet to be determined. Indeed, given the weak outlook for inflation, the central bank could provide markets with a “shock and awe” strategy by

Bond yields on peripheral Eurozone government debt offer some of the best returns in the world, given inflation expectations.

20 JUNE 2014

combining any or all of these measures. The degree of policy action taken will dictate the Euro’s response at the beginning of the month. There is also the fallout of the European parliamentary elections that could potentially be important to consider. But above all, June might be a time to step back and reflect upon what took the Euro to threeyear highs against the US Dollar in the month of May. After the shock of the ECB decision, election results may be taken into further consideration. If polls turn out to be true in predicting a win by anti-EU parties, then a longer term negative trend might need to be priced into Euro positions. Reflecting about what took the Euro to the highs seen in May might help determine where the Euro ultimately ends later in the month. The Euro had been driven higher by three potential sources and the question is whether these sources have dried up or not: first, EU banks were said to be repatriating funds to shore up balance sheets to pass stress tests (the results of the ECB tests are due out in October); Second, reserve diversification from sovereign funds are said to have supported the Euro; and last, there was an increase in demand by foreigners of debt issued by peripheral Eurozone countries. The diversification process from Asia, the Middle East and South/Central America could easily continue, which will provide the Euro with some degree of support, but the other two factors could prove more challenging to try to predict. The repatriation of funds abroad by EU banks may well be close to completion, but a severe decline in equity markets, which are hovering near record highs at the moment, could present these banks with a balance sheet problem. Should the EU banks need to boost tier-one capital ratios again via sales of foreign assets another wave of Euro purchases could be seen. Bond yields on peripheral Eurozone government debt offer some of the best returns in the world, given inflation expectations. Should these expectations for inflation change then the return on government debt might not be as lucrative. To a certain degree this third pillar of Euro strength may also be determined by the policy action taken by the ECB. If the ECB

MARKET OUTLOOK

can convince markets that it is serious about reaching its inflation target and increases inflation expectations then demand for this debt could slow and limit the Euro’s upside. Of course, this all assumes that the geopolitical climate continues to improve. So after an initial capitulation by the Euro based on the predicted results of the EU election and severe ECB policy action, the Euro could see signs of stabilisation. Stabilisation would come from diversification flows and potentially any increase in repatriation flows that would stem from falling equity markets. GBP

The British Pound remained sound after all but touching USD 1.70 versus the Dollar in May, its best in nearly five years, while it rallied to five and a half year peaks on a trade-weighted basis. Sterling remains a market favourite as steady evidence of a strengthening British economy has many betting on a somewhat early rate hike by the Bank of England. What really drives currencies is the perceived road ahead for central bank policy. That’s been a boon for the Pound as the BOE has forecast a rate rise some time during the first half of 2015. The Euro, on the other hand, has come under recent attack amid

Sterling remains a market favourite as steady evidence of a strengthening British economy has many betting on a somewhat early rate hike by the Bank of England.

retail sectors have gained momentum. But perhaps standing in the way of more meaningful strength for the Pound may be the Pound itself. As some sectors of the economy continue to gain momentum, inflation has moved below the BOE’s two per cent comfort zone. Moreover, a strong Pound can compound weaker inflation growth by depressing the cost of imported goods; the longer inflation undershoots, the less pressure the central bank would feel to raise borrowing rates, a less hawkish view that would leave the Pound vulnerable to a pullback as markets push out forecasts for a rate hike. Over the course of June, Sterling will have to contend with the latest economic developments at home and abroad. And the catalysts from overseas could prove daunting with market eyes on the ECB’s June 5 meeting and the next day’s STERLING employment report. Should the ECB opt for ‘bazooka-caliber’ action, such as negative rates or Fed-like quantitative easing, downside risks for the Pound against the Euro should prove limited. But another month of robust STERLING job growth would open the door to greater downside risks for Sterling against the greenback. A healthier STERLING job market could see the BOE in a footrace against the Fed to boost interest rates.

Economic Indicators 3-month deposit rate (Euribor): 0.319% (May 22) Gross domestic product annual growth rate: 0.90% (Q1) Inflation rate: 0.70% (April) Unemployment rate: 11.8% (March) Trade balance: EUR 17.1 billion (March)

growing expectations for the European Central Bank to deploy bolder stimulus as early as June. With Britain leaning towards tighter stimulus and its Euro rival favoring looser policy, EURGBP weakened in May to 17-month lows. Should one expect more runaway strength in the Pound this month? Maybe. The key will be the UK economy where unemployment is running at a five-year low of 6.8 per cent and leading services and

Economic Indicators 3-month deposit: 0.55% GDP: 0.8% Q1 (q/q) Inflation: 1.8% (April) Unemployment: 6.8% (March) Trade balance: -USD 172.6 (February)

PERSONALITY & PRACTICE

A RECORD OF ACHIEVEMENT The Dubai Multi Commodities Centre (DMCC) has rapidly become established as one of the leading dedicated trade hubs in the GCC, fulfilling the vision of its Executive Chairman, Ahmed Bin Sulayem - as well as having true ‘landmark’ status with its home in Almas Tower, one of the 10 highest buildings in the GCC. In an exclusive interview with Shane Phillips for Accountant ME, we learn more about the vision that is now set on ever-bigger achievements…

JUNE 2014

PERSONALITY & PRACTICE

hen asking Ahmed Bin Sulayem, Executive Chairman of DMCC, about how confident he is he can deliver the world’s largest commercial tower - to be named “Burj 2020” - he says “I’m 100 times more confident about building this tower than I was about building Almas tower. When we started Almas Tower in 2004/2005 no one wanted to finance us. We were a free zone tower and the banks at the time were lukewarm on how DMCC was going to do. Back then we only had 400 members and our revenue model was not proven, whereas today we have 8,000 members. Furthermore, our other businesses have matured, making DMCC a unique global eco-system for commodities. “When we built Almas Tower we created a Sukuk that you could redeem in cash or gold, and we raised US$200 million. That was the second government bond to get an A rating by S&P. So that was a big win and to be fair, it was not easy. A lot of people had doubts that Almas Tower was going to be a success, but the results were quite the opposite. So we have gone through the process a few times already with all the towers we have built and we know how to approach the issues at hand. Now we have a track record, we have a history, we are the fastest growing free zone in the United Arab Emirates and people want to invest in us. That was not the story in 2004.” Breaking records “Today we are not just doing well but we are breaking records. In 2004 to 2005 gold trade through Dubai was about US$10 billion and

Today we are not just doing well but we are breaking records. In 2004 to 2005 gold trade through Dubai was about US$10 billion and today we are looking at over US$70 billion in gold traded.

today we are looking at over US$70 billion in gold traded. We also went from US$5 or US$6 million in diamond trading in 2003 to today, when we are ranked as one of the top three largest diamond traders in the world. Also, in tea trading we were not even on the map, and today, we are the world’s largest re-exporter of tea. So in terms of financing the Burj 2020 we are very confident,” says Ahmed Bin Sulayem. Making history “The Burj 2020 is already attracting a lot of attention with a few big MNCs vying for 20 to 30 f loors at a time. Once we announced that it was going to be the tallest commercial tower in the world, our financing costs went down and everyone’s interest in the project increased. So yes, I am 100 times more confident about this tower than any other tower DMCC has ever made in its history. We have had positive responses from a range of partners, including providers of steel and insurance providers, who are quite willing to underwrite the entire risk given DMCC’s track record. We have only had positive responses from all parties. “We are talking to a company who were primary builders of the Olympic city in London. I like them as they put a real emphasis on health and safety in their projects. They built the entire Olympic City without the loss of one life. I think it is very important to work with ethical operators and to continue to ensure that Dubai is a benchmark for professionalism and ethical business in this region of the world.” The finance imperative As Ahmed embarks on what will not only be a landmark moment for DMCC but a milestone for the emirate of Dubai, one cannot ignore the significance that his financial team will play in the success of Burj 2020. So, what does he look for in his CFO and financial team? “There are two types of CFOs, there is the one who sticks to his job description and then there is the one who goes beyond. We at DMCC look for the professional who will go beyond. I see the CFO as the gatekeeper; if a project does not add up it is him or her who needs to shut it down or 23

PERSONALITY & PRACTICE

There are two types of CFOs, there is the one who sticks to his job description and then there is the one who goes beyond. stop it before it starts. With the size of projects we are doing at DMCC we don’t need a ‘rubber stamp’ CFO.” Ahmed is focused on creating a management team where the members continually challenge each other to raise the bar ever-higher, and in this mix, the CFO especially should be the one asking the toughest questions and pushing the team - ensuring due diligence has been executed to the highest standard. “Attitude is a small thing that makes a big difference,” says Ahmed. “Many people think that it is vision and strategy that help catapult the CFO into a CEO, but that is not enough. They need to have passion, they need a fire in the belly, they need to really love the brand and want to push DMCC to the next level. In my opinion that is where the edge is. If you have that type of fire, that kind of passion then you will do whatever it takes to get the skills you need to make that contribution to the team.” “Those may be strategic skills, maybe they are communication skills, perhaps your ability to create consensus, or maybe it is leadership? W hatever it is, your sk ill set as a CFO is secondary to your attitude and to the spirit of your work.” “When Sheikh Rashid opened Jebel Ali port many of the Emiratis in town hated the port. They did not want the port, in fact my Father, Sultan Bin Sulayem worked there, and he was reporting to the CEO who was running it. He was in shock when his boss would say “Bury this port, it is useless!” Today our port business is one of the jewels in the crown of Dubai. We did not know anything about running ports when we started but today Dubai Ports is ranked in the top five if not top three largest port operators in the world. It is the vision and passion that got us there. This is the same for anyone’s career, it is not how good you are, it’s how good do you want to be and how hard you are willing to work for it.” “So to get back to my point about what makes a good CFO, it is not your skill set. Yes, your skill set has to be there but I can show you a hundred highly qualified CFOs who I would not work with if you paid me, because they don’t believe in the 24

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vision of His Highness Sheikh Mohammed and they are simply not willing to do what it takes to climb this mountain.”

A global race “I would not underestimate the Arab businessman as we are not interested in a national race, we are in a global one. Success has no nationality, just as commodities have no nationality. We service the world and we are focused on competing on the global stage against the biggest multi-nationals and most successful economies of our time. Abu Dhabi have their sights set on much higher and loftier targets, just as Dubai do. No one cares about being the biggest or the best in the UAE, we want to be regionally and globally recognized for our efforts. We want to be the best in the world.” As an expatriate one could not agree with Ahmed more, as Dubai is proven to be a city where the impossible becomes possible. It is rumoured that you can go to almost any country in the world, and travel to any backwater village, and the villagers there may not have a TV or any education, but they will know about Dubai and where it is on the map. How many people can say that about their home town? The question that remains, however: is what is it that makes a person move from ordinary to extraordinary? What are the traits required to become the best in the world? “To be successful I think the most important thing is knowing how to prioritise. Knowing what order to do things in and where to put them. This is one very important skill set. The other is knowing your limitations and not overextending yourself. You have to know what you can deliver. Thirdly, I think you need to be agile and you need to be able to develop new skills and new competencies as the market moves and morphs into new dynamics.” “So in closing, whether you want to be a successful Chief Financial Officer, successful business or successful nation, you firstly need the right attitude, the passion to make you go above and beyond, you need to be focused on what your priorities are - and finally, you need to be agile and able to adapt to the changes the 21st Century is bringing us. I like to say ‘don’t look at how challenging the opportunity is but rather look for the opportunity in the challenge’.” Ahmed Bin Sulayem is focused on delivering the world’s largest commercial tower, set to be completed by 2020. Surely, a fitting tribute to his view that: “it’s not how good you are” that’s important, but rather, “how good do you want to be?” That is the real question.

FINANCE

ASSET RE-FINANCING DEFINING LIQUIDITY AND VALUE

While it may be the case that remortgaging assets runs counter to the entrepreneur’s quest for ownership, releasing dormant value is the wise and obvious step for ensuring strong cashflow and facilitating growth. Associate Editor Zenifer Khaleel reviews this important financing strategy.

T Rajiv Shah, Chief Executive officer of Gulf Investment Consultants

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o put it in a nutshell: investment in assets offers dead value to a company, because the cash flow is generated only from the usage of the assets themselves. Asset Refinance is the act of remortgaging or re-pledging the asset in order to release the equity or the underlying value at the current market rates. This enables the business to inject cash when capital is tied up in assets. It essentially involves refinancing equipment, vehicles, financial investments, real estate, etc. which are either owned by the company outright or are subject to an existing finance arrangement. Asset refinance boosts business cash flow by releasing cash against the value of a company’s exist ing asset s. Ref inancing prov ides a convenient form of cash supply as assets are used to free up the capital a company already owns, which is then repaid over several years. Companies benefit from knowing exactly what payments are to be made, assisting with

budgets and forecasts, as well as retaining the use of the asset throughout. The asset can continue generating profits even before the first payment is due. Unlike an overdraft, a refinancing package will run for the whole term agreed and cannot be called in. This enables the company to plan and manage the cash flow with confidence. Generally, the following categories of assets qualify for refinance: • Property / Real Estate • Plant & Machinery, Equipment • Technology • Shares (listed on stock exchange)

FINANCE

In case of the refinance, the asset is pledged to the lender and the facility can be repaid over an agreed time period with regular payments at an agreed interest cost. The asset is valued by an independent valuation professional and the loan granted ranges from 70 per cent to 90 per cent of the asset value. In such cases, the repayment

Asset refinance boosts business cash flow by releasing cash against the value of a company’s existing assets.

capacity of the borrower is ascertained and the facility will be subject to necessary approvals from the credit department of the lender. Benefits of asset refinance • Boost cash flow of the business • Reduce the cost of existing borrowing • Reduce existing monthly repayment liability by increasing tenure of the facility • Raise capital in order to purchase other assets required in business For the lender, this is a secured term loan. It boosts business cash f low by releasing cash against the value of a company ’s existing 27

FINANCE

Asset re-financing can also be considered to be a relatively quick method of accessing cash in cases of emergency or as a method to fund expansion. assets. You therefore sell an asset to the leasing company for the current value, which then leases it back to you. Additionally, asset refinance also protects the business from asset depreciation. Asset re-financing can also be considered to be a relatively quick method of accessing cash in cases of emergency or as a method to fund expansion. Companies which are planning major strategic changes, like expansion into overseas markets, product R&D and innovation, upscaling payrolls or structured M&A activity, can resort to the ‘quick money’ influx method of refinancing . With refinancing, the business can continue to use the asset without any interruption in operation. Asset refinance payments are treated as a business expense rather than a business debt, so the profit/loss equation is not affected. Financial directors often favour asset refinance to avoid hefty depreciation allowances.

Methods prevalent in the UAE “Asset refinance is a popular method of obtaining Bank finance in the Middle East, specially the UAE. It is being offered by most local banks and is very popular in the real estate market. With increasing market prices and reduced interest rates, this has become a favoured source for obtaining finance by property owners. All major types of asset can be refinanced by the UAE banks,” says Rajiv Shah, Chief Executive Officer of Gulf Investment Consultants. “UAE banks are keen on the cash f lows emanating from the asset which are assigned to the banks to ensure repayment of principal and interest. The amount to be lent by the banks depends on the cash flows from the asset and not so much from the market value of the asset. “For instance, for a real estate property, the cost of property up to AED 1 million will be ignored by banks. Market value of property up to AED 2 million will not be very relevant, but loan amount will be restricted to 70 per cent to 80 per cent. If the property is self-occupied, and used for business, it will be difficult to get a loan against the property. If the property is given on 28

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lease, the loan amount will depend on the rent being generated by the owner from the lease. The rent amount should be enough to cover the principal repayment and interest for a year,” he further adds. A few guidelines The pitfalls of asset refinancing are

• The borrower will pay back more than the original price of the asset. • Asset refinance contracts tend to be rigid, set over a fixed term. • Interest rates are generally fixed • Personal guarantees are often required from the businesses owners or directors to secure the asset refinance. In order to employ the best refinancing strategies, the following steps are to be considered:

Credit control Companies should ensure that their credit balance is minimal before beg inning t he refinancing process. In order to create the best impression in the valuation process and get the optimum deal for their assets; all previous backlog should be cleared. Contact different lenders The difference between interest rates for the best and worst deals can be as much as a full percentage point, but in the long term, it can prove to be detrimental to the costs. Loan costs also can vary substantially. Getting estimates from multiple lenders can give you ammunition to negotiate a better deal.

Relationships can make all the difference Banks may remain cautious about lending, but some show will show a good deal more flexibility to their better customers. Eventually all relationships are built on trust and there’s no doubt you can extract the best deals from long standing and stable relationships. The cash that asset ref inance generates can be reinvested into further asset growth. Important, because having the cash to move fast and decisively is often the determining factor between success and failure. A structured refinance plan can help the company grow, take advantage of a situation or simply help survival without getting banks involved. More importantly, it can keep your existing credit lines free and bring the peace of mind of seeing the dayto-day business running smoothly.

FINANCE

PROCUREMENT PERFECTION The fact is that effective and streamlined procurement is a powerful tool for supercharging business performance - not to mention saving money and time - and itâ&#x20AC;&#x2122;s a discipline that can help you build a firm foundation for your governance and quality controls. Accountant ME spoke to Steven Speter, Managing Director of procurement specialists 36 Strategies, about the benefits of putting the right procurement structure in place. 30

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FINANCE

T Steven Speter, Managing Director, 36 Strategies

he reality is that procurement is likely the second highest operating cost component for any business and using traditional procurement methods, it will cost about AED 275 to raise a single Purchase Order – this equates to AED 16,500 a day for the average SME in the Middle East! A classic example of time and money being wasted. Plus, the speed, cost and effectiveness of the procurement model you’re using will effect – • Your abilit y to secure the key items the business needs to execute its core tasks successfully. • Your business’ profitability and running costs. • Its ability to retain customers and effectively service key project work. Yet most businesses know at least a percentage of these challenges all too well. So what are the alternatives for securing a better-aligned and cost-efficient procurement model? Steven Speter comments that: “Our company - 36 Strategies - was founded with the specific intention of helping businesses optimise their procurement model and then capitalise on the financial rewards that will bring. We work with companies in two (related) ways: either we can effectively become their procurement department, or we can provide a fresh, comprehensive model that makes the procurement path relevant and costeffective. “The services we provide follow internationallyrecognised quality standards and benchmarking: for example, we use the ‘Six Sigma’ methodology and prov ide solut ions using ISO-cer t if ied components. How does it help to have a procurement process that follows a Six Sigma methodology? Because it allows you to understand and put a cost to every single part of the procurement process - simple as t hat . But how many businesses can say categorically that this is what they are leveraging at the moment? 36S practice

You have to review and adjust your procurement policies to support the business, not keep procedures in place just for the sake of them.

what they preach working with their business partners on a ‘pay as you go’ model, so you don’t waste any money if something isn’t helping streamline your operations in the way you might wish. The overall goal of our service is to give you the benefit of a comprehensive overview and understanding of your business. That means you will have all the tools you need to make informed and effective business decisions.”

The reality: Hidden costs and inefficiencies in the procurement pipeline Steven Speter believes that one of the core issues with procurement is that very few managers are actually aware of how complex their own company’s procurement structures are - and how much time and effort they’re currently wasting. “One of the worst aspects of this over-complexity is that it can easily lead to a lack of trust in the supply chain and the belief that, whatever you need, it probably won’t be delivered in time. This then results in people turning to petty cash and maverick spending which leaves the company leaking costs. It’s not uncommon to find petty cash losses, incurred in this way, running to tens of thousands of dirhams, for example. All of which is a response to the fact that many internal processes include unnecessary tie-up of resources, which in themselves not only cost a good deal of money, but also increase lead time and the risk of out-of-stock situations. “Moreover, the macro view here is that one of the key issues when it comes to procurement in the Middle East and GCC is the fact that it can be extremely challenging ensuring that all the operational procedures, guidelines and policies which exist in theory are actually executed. And if those policies do not support the real business needs you only amplify the problem. You have to review and adjust your procurement policies to support the business, not keep procedures in place just for the sake of them. “Tackling that dilemma can make a huge difference to the efficiency - and above all, the effectiveness - with which a company works. For example, if we look at the whole procurement cycle - from when the purchase requisition is first made, right through to when the purchase order is issued to the supplier - we have a track record of reducing cycle time by an average of 38 per cent. We also achieve an average saving of between 10 and 14 per cent on procurement cost 31

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Being able to set up an efficient process from the get-go can be a competitive advantage, not just in terms of cost, but also very much in terms of getting the right products to market at the right speed.

- in many cases, much more. A classic example of this is the benefit that will accrue if we help you source an affordable, good quality supplier and set up a framework agreement with them. This means, for instance, that you won’t have to go through the procurement process again and again each time you’re sourcing the same item. It makes good sense for us to find your business a raft of similarly reliable suppliers and have strong framework agreements with each. As you can see, it pays if you get to know and properly understand your current procurement process.” Bu sin e s s p r o c e s s o p t imiz at ion a nd simplification using cutting edge technology “If we work with you”, says Steve, “to assess and re-model your overall procurement strategy, one of the first things we do is conduct a ‘Procureto-Pay (P2P) Health Check’. This a business optimization model where we quite literally draw a diagram of the complete procurement c ycle, what happens when, and why. The outcome of this is a process map which covers all stakeholders and processes and starts by identifying the need to purchase a product, following the cycle right through until the supplier gets paid. We’ll also use the available operational data to measure how efficient the existing P2P is - this allows us to understand the requirements unique to the company and helps us propose a bespoke, effective procurement solution. “When we show the Optimization model to stakeholders, they are often amazed at how over-complex the whole process is: viewed graphically in this way, it’s much easier to see where work is being replicated and where unnecessary cost is being added. “The P2P Health Check is in fact part of our procurement consulting work, and when we then go on to implement a working framework for you, it will use our advance eProcurement platform. This makes the purchase order process entirely paperless and mobile, significantly 32

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cutting down the lead time. It also gives visibility to procurement spending and efficiency, and removes margins for error. What’s more, you’ll have a powerful tool for tracking supplier performance - which in turn will enable you to have fact-based negotiations with suppliers, ensuring you only pay for the level of service you actually receive. “I should also add t hat t here’s not hing ‘technical’ about how this eProcurement platform looks - it’s extremely user-friendly, multilingual w ith clear pict ures and specif ications for everything that you will need to order. Whilst the system delivers the corporate governance of an ERP system, many customers have said it’s comparable to a consumer website - not what you might expect at all!”

Outsource sourcing and procurement for ultimate convenience Steve continues: “We are the only procurement solutions provider in the Middle East - and as you will have gathered, we want to take procurement in the region to the next level by setting up streamlined processes and executing them as efficiently as possible. For us, that means we utilise cutting-edge, Cloud-based technology to automate and digitize, boosting client capability wherever we can. When many companies first arrive in the GCC, they find that their usual procurement processes are slowed dow n dramatically, because they require local market intelligence - and that’s very labour-intensive to build. Being able to set up an efficient process from the get-go can be a competitive advantage, not just in terms of cost, but also very much in terms of getting the right products to market at the right speed. “This is where our Sourcing Consulting comes into play. We can effectively become your procurement department. We can help you find the right suppliers and products and establish your framework agreement - as well as managing the supplier to ensure on-time delivery. Taking over these tasks means we can make procurement as easy as possible for our business partners. We can work in a way that’s perfectly aligned with your own Governance criteria - and in fact, can help you leverage a higher quality specification if that is one of your goals. This in turn can be a compelling tool for building customer retention and preventing attrition or erosion of your base price list. While it’s true that time is money, so too is quality of performance: and it’s definitely worth maximising the contribution made by something as core as the procurement function.”

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BEHAVIOURAL FINANCE WHEN EMOTIONS INFLUENCE THE NUMBERS

What are the psychological factors that can twist and contort the decision-making skills of hardened numbers experts? The emotional factors that can endanger the work of even pre-eminent management accountants? Zenifer Khaleel explains the new science of Behavioural Finance…

n the sphere of business, financial accountants are considered to be prudent, f lawless and meticulous in the decisions they take.

That’s why they’re conferred the role of ‘wealth maximisers’ within the enterprise. Unfortunately, as human beings, they are susceptible to emotional and psychological inf luences, which can impair, twist and confuse effective decision-making at times. This is where the importance of behavioural finance comes in. It is a relatively new field that seeks to combine behavioural and cognitive psychological theory with conventional economics, to provide explanations for why people make financial decisions which incur losses (or even a whole lot of bad press). Top management believes that most accounting personnel behave in a rational and predictable manner, under any financial situation. However, this assumption doesn’t ref lect how they actually operate in terms of their decisions in the real world.

In their famous book on the subject, reputed US economists Sendhil Mullainathan and Richard Thaler have described the concept of Behavioural Economics as “the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications.” “Financial markets have greater arbitrage opportunities than other markets, so behavioral factors might be thought to be less important here, but we show that even here the limits of arbitrage create anomalies that the psychology of decision making helps explain,” they add further. Factors which lead to detrimental financial decisions Behavioural biases fall into two broad categories, cognitive and emotional, though both yield irrational decisions. As cognitive biases stem from faulty reasoning, better information and advice can often correct them. Conversely, emotional biases originate

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Top management believes that most accounting personnel behave in a rational and predictable manner, under any financial situation. However, this assumption doesn't reflect how they actually operate in terms of their decisions in the real world.

from impulsive feelings or intuition and they are difficult to correct. Pioneers in the field of behavioural finance have identified a few key areas where accountants seem to make their biggest mistakes. The concept of anchoring which draws on the tendency to attach our thoughts to a reference point - even though it may have no logical relevance to the decision at hand. Anchoring is fairly prevalent in situations where concepts are new. For avoiding anchoring, there’s no substitute other than rigorous critical thinking. Successful investors don’t just base their decisions on one or two benchmarks, they evaluate each company from a variety of perspectives in order to derive the truest picture of the investment landscape. Herd behavior is the tendency for individuals to mimic the actions of a larger group. Individually, most people would not necessarily make the same choice. The common rationale is that it’s unlikely that such a large group could be wrong. After all, even if you are convinced that a particular idea or course or action is irrational or incorrect, you might still follow the herd, believing they know something that you don’t. This is especially prevalent in situations in which an individual has very little experience. Overconfident investors/traders tend to believe they are better than others at choosing the best stocks and best times to enter/exit a position. Unfortunately, traders that conduct the most trades tend, on average, to receive significantly lower yields than the rest of the market. Conditioned thinking is when an individual erroneously believes that the onset of a certain random event is less likely to happen following a decision. This line of thinking is incorrect because past events do not change 36 JUNE 2014

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Behavioural models prove to be tractable and useful in explaining anomalies and making surprising predictions However, according to the prospect theory we don’t actually process information in such a rational way. Losses have a bigger impact on emotions than a similar amount of gains. So people tend to react more to losses. Apart from these factors, there are also socio-cultural, communal, sectarian and even religious and political elements that inf luence the decision making process of an economist. Most people are willing to invest in ventures or prospects which they ‘trust’ to be a part of their own identity. The feel good factor of familiarity is a big determinant in their finance judgment.

the probability that certain unpredictable events will occur in the future, under the same set of factors. Often, participants in the stock market predictably overreact to new information, creating a larger-than-appropriate effect on a security’s price. Furthermore, it also appears that this price surge is not a permanent trend - although the price change is usually sudden and sizable, the surge erodes over time. In investing, the confirmation bias suggests that an investor would be more likely to look for information that supports his or her original idea about an investment rather than seek out information that contradicts it. As a result, this bias can often result in faulty decision making because one-sided information tends to skew an investor’s frame of reference, leaving them with an incomplete picture of the situation. Traditional economics believes that the net effect of the gains and losses involved with each choice are combined to present an overall evaluation of whether a choice is desirable.

Desirable behaviour Behavioural economics generally begins with assumptions rooted in psychological regularity and questions the outcome of those assumptions. An alternative approach is to work backward, regarding a psychological regularity as a conclusion that must be proved, before we fully understand and accept it. Critics have pointed out that behavioural economics is not a unified theory, but instead a collection of tools or ideas based on observation of basic human tendencies. Standard economic models do not derive much predictive power from the single tool of utility-maximisation. Precision comes from breaking down the utility into smaller bits and analyzing each and every segment with a clear analytical mind. The underlying question here is whether the implicit psychology in economics is ultimately good or bad. Behavioural economics is not meant to be a separate approach from main stream economics, in the long run. It should be more like a school of thought or a style of modelling, which will gradually replace simplified models based on stricter rationality. Behavioural models prove to be tractable and useful in explaining anomalies and making surprising predictions. Then, strict rationality assumptions, now considered indispensable in economics, are treated as useful special cases which help to illustrate points grounded in well-established theory. 37

BUSINESS STRATEGY

DON’T JUST DO IT - PLAN! A business plan isn’t just the document you produce to attract investors and banks. Life for any entrepreneur can be a roller-coaster of changing risks, sudden challenges and unexpected cash shortfalls - and that’s why it’s so vital to have a good, solid business plan as the blueprint of where your business is going, how it’s going to get there, and why. Paul Godfrey looks at the basics of putting an effective business plan together - and says ‘don’t go another day without one’!

“Starting a business is like going on a journey; you better make sure you have good roadmap to get you to your destination.” Peter Drucker

ould you start a journey without knowing the best route to get to your destination? Imagine if that journey involved spending lots of money along the way, making investments and keeping thousands of people happy - of course, you’d want a very good and accurate map indeed. So it is with your business: you need a roadmap that can highlight the dangers and risks, show you where to turn (and where not to!) and highlight the best landmarks along the way. It’s especially important for a business, because in order to be successful, you’ll need to set goals, focus your efforts and often set aside time to influence the key stakeholders who are going to buy in to your ideas and aspirations. In its simplest form, a business plan is quite literally a roadmap for your business. One that outlines goals and details how you plan to achieve 38

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those goals. Your business plan may also describe your team and why they are the right people to achieve your business goals.

Making a start The great entrepreneur Steve Jobs was famous for jotting down business ideas on the back of napkins in cafes. If you’ve done the same, you’re already familiar with the essentials of creating a business plan. At its heart, a business plan is just a plan for how your business is going to work, and how you’re going to make it succeed. It can be as long or as short as you feel it needs to be in order to capture the essentials of where you’re taking the business. Typically, a business plan is longer than a list on a napkin - although it is possible (and sometimes ideal) to write the entire business plan on one page. Remember, it is not something that is ‘once and done’ and carved in stone. It’s a working blueprint that can evolve as the scale and complexity of the business evolves. Unfortunately, many people think of business plans only for starting a new business or applying for business loans. But business plans are also vital for running a business, whether or not it needs new loans or new investments. Existing businesses should have business plans that they maintain and update as market conditions change and as new opportunities arise.

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Every business has long-term and short-term goals, sales targets, and expense budgets - a business plan encompasses all of those things, and is as useful to a start-up trying to raise funds as it is to a 10-year-old business that’s looking to grow. Who needs a business plan? If you’re starting a business that will be the source of your income, then the answer is ‘you do’. The business plan can tell you when you’ll have the money to pay yourself a salary (and pay your staff too!); when you’ll face your biggest cash shortfalls and when you’ll need to look for better office accommodation. As the old saying says, if you’re serious about business, you need to take planning seriously.

Starting a business This is the most classic use of a business plan - and that’s because it helps you deal with uncertainty. It also helps your potential investors deal with uncertainty, too, showing them that you’ve thought through the challenges and have real, comprehensive answers. So the business plan will include aspects such as the sales projection, the expense budget, key milestones and the most challenging tasks. Remember, the bottom line with a start-up is that you don’t actually know precisely how much

money you’ll need - and the business plan lets you build in a comfort margin. So you’ll need to set out projected sales, costs, expenses, and timing of payments. The business plan will also need to focus on explaining what the new company is going to do, how it is going to accomplish its goals, and most importantly - why the founder (you!) is the right person to do the job. A start-up business plan also details the amount of money needed to get the business off the ground, and through the initial growth phases that will lead to profitability. Mature businesses Existing businesses use business plans to – • Manage and steer the business • Address changes in their markets • Take advantage of new opportunities. • Reinforce strategy • Establish metrics • Manage responsibilities and goals, track results, and manage and plan resources • Understand, predict and identify cash flow. For existing businesses, a business plan means competitive advantage, with better, faster growth and more opportunity for innovation. It can be a powerful tool that identifies problems and allows re-tracking before the business goes fatally offcourse. 39

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In its simplest form, a business plan is quite literally a roadmap for your business. One that outlines goals and details how you plan to achieve those goals. What’s the right kind of plan for you? Considering that business plans serve many different purposes, it’s no surprise that they come in many different forms. Before you even start writing your business plan, you need to think about who the audience is and what the goals of your plan are. While there are common components that are found in almost every business plan, such as sales forecasts and marketing strategy, business plan formats can be very different depending on the audience and the type of business. Another factor is that while some business plans have to be honed visually to near-perfection, others don’t merit too much investment in how they look. Plans that never leave the office and are used exclusively for internal strategic planning and management might use more casual language and might not have much visual polish. At the other end of the spectrum, a plan that is destined for the desk of a top venture capitalist will have a high degree of polish and will focus on the fast-growth aspects of the business and the experienced team that is going to deliver those agreeable results... Three typical types of business plan might include -

One-page business plan A one-page business plan is exactly what it sounds like: a quick summary of your business delivered on a single page. The business is described in very concise language that is direct and to-the-point. A one-page business plan can serve two purposes. First, it can be a great tool to introduce the business to outsiders, such as potential investors. Since investors have very little time to read detailed business plans, a simple one-page plan is often a better approach to get that first meeting. Later in the process, a more detailed plan will be needed, but the one-page plan is great for awakening interest and making a start. This simple plan format is also great for earlystage companies that want to sketch out their idea in broad strokes. In reality, you can think of the one-page business plan as an expanded 40

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version of jotting your idea down on a napkin. Keeping the business idea on one page makes it easy to see the entire concept at a glance and quickly refine concepts as new ideas come up.

The core business plan The core business plan is what’s going to happen. It dispenses with the formalities that are needed when presenting a plan externally and focuses almost exclusively on business strategy, milestones, metrics, budgets, and forecasts. Core business plans omit details about company history and management teams since everyone in the company almost certainly knows this information. Internal business plans are management tools used to guide the growth of both start-ups and existing businesses. They help business owners think through strategic decisions and measure progress towards goals.

External business plan External business plans are formal business plan documents, designed to be read by outsiders to provide information about a business. The most common use is to convince investors to fund a business, and the second most common is to support a loan application. Occasionally this type of business plan is also used to recruit or train or absorb key employees. A formal business plan document is an extension of the real business plan. It’s mostly a snapshot of the real plan as it existed at a certain time. But while the real plan is short on polish and formality, a formal business plan document should be very well-presented, with more attention to detail in the language and format. In addition, an external plan details how potential funds are going to be used. Investors and risk partners will want to understand how their funds will be used and what the expected return on their investment is. Finally, external plans put a strong emphasis on the team that is building the company. Investors invest in people rather than ideas, so it’s critical to include biographies of key team members and how their background and experience is going to help grow the company. What to include in your business plan A formal business plan will need to include:

Executive Summary Just like the old adage that you never get a second chance to make a first impression, the executive summary is your business’s calling card. It needs

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to be succinct and hit the key highlights of the plan. Many potential investors will never make it beyond the executive summary, so it needs to be compelling and intriguing. The executive summary should provide a quick overview of the problem your business solves, your solution to the problem, the business’s target market, key financial highlights, and a summary of who does what on the management team. While it’s difficult to convey everything you might want to convey in the executive summary, keeping it short is critical. If you hook your reader, they’ll find more detail in the body of the plan as they continue reading. You could even consider using your one-page business plan as your executive summary. Company Overview For external plans, the company overview is a brief summary of the company’s legal structure, ownership, history, and location. It’s common to include a mission statement in the company overview, but that’s certainly not a critical component of all business plans. The company overview is often omitted from internal plans.

Products and Services The products and services chapter of your business plan delves into the core of what you are trying to achieve. In this section, you will detail the problem you are solving, how you are solving it, the competitive landscape, and your business’s competitive edge. Depending on the t ype of company you are starting, this section may also detail the technologies you are using, intellectual property that you own, and other key factors about the products that you are building now and plan on building in the future. Target Market As critical as it is that your company is solving a real-world problem that people or other businesses have, it’s equally important to detail who you are selling to. Understanding your target market is key to building marketing campaigns and sales processes that work. And, beyond marketing, your target market will define how your company grows.

Marketing and Sales Plan The marketing and sales plan details the strategies that you will use to reach your target market. This portion of your business plan provides an overview of how you will position your company in the market, how you will price

The great entrepreneur Steve Jobs was famous for jotting down business ideas on the back of napkins in cafes. If you’ve done the same, you’re already familiar with the essentials of creating a business plan. your products and services, how you will promote your offerings, and any sales processes you need to have in place.

Milestones and Metrics A business plan is nothing without solid implementation. The milestones and metrics chapter of your business plan lays out concrete tasks that you plan to accomplish, complete with due dates and the names of the people to be held responsible. This chapter should also detail the key metrics that you plan to use to track the growth of your business. This could include the number of sales leads generated, the number of page views to your web site, or any other critical metric that helps determine the health of your business. Financial Plan The financial plan is a critical component of nearly all business plans. Running a successful business means paying close attention to how much money you are bringing in, and how much money you are spending. A good financial plan goes a long way to help determine when to hire new employees or buy a new piece of equipment. If you are a start-up and/or are seeking funding, a solid financial plan helps you determine how much capital your business needs to get started or to grow, so you know how much money to ask for from the bank or from investors. A typical financial plan includes: • Sales Forecast • Personnel Plan • Profit & Loss Statement • Cash Flow Statement • Balance Sheet

One last point: remember to use your business plan and not to let it go to waste. Review your ‘real-time’ progress against the plan’s goals at least once every week. Any business plan is only as good as the way it is used - use it well and it can be the key springboard to the success and results you want. 41

Accountancy & finance

READY TO VENTURE? They are young, dynamic, full of ideas, and mean business. They’ve left no stone unturned in taking their respective businesses to new heights – but rest assured they won’t stop at that! Assistant Editor Rushika Bhatia spoke to these two iconic role models – Paul Kenny and Arya Bolurfrushan – and asked them about their new exciting ‘ventures’…

Paul Kenny and Arya Bolurfrushan of Emerge Ventures

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hen Paul Kenny, founder and CEO of the famous e-commerce website Cobone.com, and Arya Bolurfrushan, CEO of Bolurfrushan International Group and an angel investor, recently launched a new venture capital firm – Emerge Ventures, they attracted a lot of attention. Emerge Ventures is focused on high-impact early stage investments in Middle Eastern technology companies – with a preference to infrastructural e-commerce. In a candid chat with Accountant ME, the dynamic duo explain further… How did Emerge Ventures come about? Tell us about your vision for the company. Kenny replies, “After the launch and success of my company Cobone.com, I found myself interacting with a lot of aspiring entrepreneurs t h a t wer e lo ok i n g f or a d v ic e ; c on s t a n t l y engaging with them and helping them overcome challenges within their businesses. For instance, many people would approach me for advice on setting up their payment gateway, or marketing their product, and so on. At the sa me t ime, A r ya wou ld get a lot enquir ies about his interest in financing and investing various projects. So, we asked ourselves, why not combine forces and create a platform to provide capital – financial and intellectual – to start-ups in the region? As a result, Emerge Ventures was born. “It wa s a nat ura l t ransit ion a s we found ourselves building connec t ions w it hin t he s t a r t-up c om mu n i t y ; a l s o e n t r e p r e n e u r s and investors from outside the region would approach us as they looked to gain access to the Middle East. Simultaneously, we were also making a lot of investments in the region; we had about 25 investment s bet ween the t wo of us.”

Emerge Ventures, they attracted a lot of attention. Emerge Ventures is focused on highimpact early stage investments in Middle Eastern technology companies – with a preference to infrastructural e-commerce.

B o l u r f r u s h a n a d d s , “ We s a w m a s s i v e g row t h pot ent ia l in t he MENA t echnolog y infrastructure space, with the UAE in particular investing heavily to develop innovation and technological readiness. As economies in our part of the world mature and move higher up the value chain towards the highest calling of man – innovation – we wanted to be a vehicle bringing the smartest global capital to serve as a catalyst in this transformation.” Across what regions are you looking to make investments? Kenny says, “ We hope to make investment s across the globe – with no specific focus to any particular region. We have currently invested with two businesses based out of the UAE and one t hat ’s San-Francisco based. So, we are actively looking at different regions.”

Yo u r c o m p a n y h a s a s p e c i f i c f o c u s o n infrastructural e-commerce start-ups. What attracted you to this sector? “In 2010, when I was working on Cobone.com, there were no Internet companies, there weren’t many people you could approach for guidance and support. The challenges that we faced were immense; for instance, we struggled with hiring. At that time, people would say, “why should we work for an Internet company?” So, the reason we set up Emerge Ventures is to help technology start-ups. We see the significant opportunity not just that B2B or B2C plays but in terms of technology that helps builds companies of the future. For example, the Impact Hub is a launch pad for hundreds of new companies over the coming years and we want to be part of this,” says Kenny. He adds, “And, what we have learnt is that the technology market across some countries is either more developed or less developed. Te c h n o l o g y i s v e r y d i v e r s e , i t c o u l d b e biotechnology, logistics, robotics, and so on. So our interest will be technology but it will diversify across the different verticals within technology. “In the initial stages of Emerge Ventures, we knew our focus was technology but when we got into the space of investing, we realised there are significant opportunities across multiple ver t ic a ls . It ’s a lso wor t h adding here t hat Impact Hub is a great example of an investment that we’ve made that isn’t a technology start43

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up. So we are looking at a very diverse portfolio but every investment that we make will have an element of technology.”

Is there also a specific business model that you have developed a bias towards in your several years as an experienced entrepreneur, angel investor and industry-expert? Kenny replies, “It depends on the stage at which the cit y or country in question currently is. So what I say today may change tomorrow. I personally feel that having a B2B model gives you a better chance than running with a B2C model. I have personally experienced this with Cobone.com. The reason is because the market is extremely fragmented, there aren’t sufficient support technologies that allow you to scale up quickly. For instance, payments is a big issue in this region, marketing is another major issue. If you t ake the example of Dubai, there are millions of people using different technologies, there is no one way to reach all the people of Dubai other than a billboard on Sheikh Zayed Road costing millions. But, as an SME, I simply can’t afford that. So, it’s a complex B2C market but there are a lot of opportunities in the B2B space.” W hat are some key factors that you look for in a start-up before investing? Is there a selection procedure in place or do you prefer referrals? “ T he t hree inves t ment dea ls we’ve had so far were all deals that we sought after. We’ve found that informal conversations are often a good way to come across start-ups that we are interested in. Many times, they might not even approach us for funding; we might just happen to see that they have a great business idea that we want to support. Building a longterm relationship with the businesses we want to work with is also very important to us. For this to happen, the interaction needs a good amount of time like a few months – it ’s not something that typically happens over one or two meetings,” explains Kenny. “Cur rent ly, we have about 10 -15 pit ches coming to us per week which are not just local but regional and international. In terms of their sectors, they are quite diverse.”

What kind of influence do venture capitalists have in a start-up’s overall decision making process? Kenny says, “Arya and I have made about 25 inves t ment s so f a r, a nd ma ny of t hese a re 44 JUNE 2014

One of the main advantages of having an experienced investor on board is the structure it creates for the entrepreneur. This structure helps the entrepreneur be accountable to themselves in measuring progress. passive – we don’t even speak to them. When you are an angel investor, you are not really taking a seat on the Board or anything along those lines. “I like to have an open relationship with the entrepreneur and say, “if you want be to me around, I’m more than willing to help”. And, it’s just understanding what your role is in the business – are you an advisor, or on the board? W here do you actually have power? I would personally try and invest in companies that are looking to get some added value and, that I can help with. But, I wouldn’t necessarily interfere, if they have their strategy, they should stand by it. Our investment is always the people, not the business.” Bolurf rushan adds, “One of t he main advantages of having an experienced investor on board is t he st ruc t ure it creates for t he e n t r e p r e n e u r. T h i s s t r u c t u r e h e l p s t h e entrepreneur be accountable to themselves in measuring progress.”

T here’s a lot of bu zz about ‘ innovat ion’. What does this mean to you, and to Emerge Ventures? Is something that you look for when making an investment? Bolu r f r u sha n says, “A s Emer g i ng ma rket s develop, they tend to move up the value chain towards creation and innovation. We would like to help f uel this evolution by believing in aspiring entrepreneurs and providing the resources to help them realise their vision. We invest in people, not companies.” Emerge Ventures has made it s first three investments as part of MENA Fund I. Tell us a little about them. What made them attractive investments? Bolurf rushan says, “ We’ve invested in ‘The Impac t Hub’, a collaborat ive incubator and co-work ing space in Sou k a l Ba ha r Duba i; Lumba, a silicon valley based mobile gaming c omp a ny f o c u se d on t he A r abic-s p e a k i n g world; a nd E lev i sion, a new d ig it a l med ia network that broadcasts news, information and

Accountancy & finance

The dynamic duo of Emerge Ventures

advertisements from screens inside the lifts of premier towers in the UAE.” Kenny explains, “What I like about the Impact Hub, for instance, is the location – it’s set in the heart of Downtown Dubai which is a strategic and popular location. It’s quite different from other similar hubs in Dubai because it offers a unique educational and learning experience.”

Do you usually have an exit strategy planned out when making investments? K e n n y e x p l a i n s , “ Yo u c a n t h i n k a b o u t a potential exit strategy but I’m aware of the fact that this region takes a bit more time. I don’t want to force an exit strategy on any company.” What is next for Emerge Ventures? Kenny ex plains, “Our long-ter m focus is to partner with people who are looking to build great things. We want to be a part of some of the leading companies of the future. The Impact Hub is a great example – it’s a platform where hundreds of new businesses will be built and we want to a part of this exciting stor y. We are definitely not looking for entrepreneurs or businesses with a short-term strategy or those that are in the industry for quick-wins. “We want Emerge Ventures to be seen as a premier destination for smart capital – because we aren’t just giving you financial support, but a lot of sound advice as well. “Something that we are looking to do in the

near future is to host a ‘Dragon’s Den’ type of an event where entrepreneurs have a couple of minutes to make their pitches, and the winner gets rewarded.”

Do you think being an entrepreneur is perceived as being ‘glamorous’ in this region? Kenny responds, “I think being an entrepreneur here is surely not glamorous, it’s actually quite hard. You need to put in a lot of effort in building your business and effectively managing all the risks associated with it. You can’t pursue a full time job while running a small business on the side – you have to dedicate all your resources in terms of both time and money to be a true entrepreneur. I’ve come across a lot of such entrepreneurs – particularly in this region – and highly respect them.”

Do you have any advice for aspiring entrepreneurs in the region? “I think it’s the perfect time to start a company here, just remember to have a long-term focus. A lso, a s an ent repreneur, you w ill have to face a million roadblocks but it’s imperative to have the ‘never say no’ at titude and f ind a w a y t o a c h ie ve you r g o a l s . I n t e r m s of raising capital for your business, it’s critical to be persistent – don’t give up easily. Getting finance is definitely going to be a hustle, but, if you continue to interact with the right people, you will surely get there,” concludes Kenny. 45

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THE RISE OF THE RMB IN GLOBAL TRADE Michael Vrontamitis, Head of Product Management, Transaction Banking, Standard Chartered Bank, explains the importance of the Renminbi and how its rise cannot be ignored.

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n the meteoric rise of the Renminbi (RMB) as a global currency, if 2012 was the year of the ‘Why’, then 2013 was the year of the ‘How’, as global corporates embraced the Chinese currency in earnest. This year, in 2014, we see the spotlight cast particularly on local Chinese corporates which – surprisingly perhaps to some – are lagging behind their international counterparts when it comes to sw itching to RMB for trade and payments. With the RMB entering the Top 10 of global pay ment c ur renc ies for t he f ir s t t ime la s t year, offshore multinationals no longer need per sua sion t o include it in t heir ba sket of c u r r enc ie s . F u r t her, i n Novemb er, S W I F T announced t hat t he Renminbi over took t he Euro to become the second-most widely used currency in trade finance. R MB-denominated t rade f inance is on an u n m i s t a k able up t r end , a nd one not t o b e ig nored . We ex pec t R MB t r ade set t lement volumes to double to 28 per cent of China’s total trade by 2020 from 14 per cent in Q22013. We ex pec t t he R MB’s share of global pay ment s to reach t hree per cent by t hen, boosting its ranking to 4th. Mov ing t he Chinese cur renc y around t he world is now nearly as easy as moving the USD or the Euro.

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A s , one by one , r e g u l a t or y r e s t r ic t ion s have been lif ted, and offshore liquidit y has deepened, mov ing t he Chinese cur renc y around t he world is now nearly as eas y as mov ing t he USD or t he Euro. Today, Chinabased companies can manage their liquidit y and working capit al on a regional or global basis, and multinationals can include Chinabased accounts in their global solutions. In its latest move to open up capital f lows w it h t he rest of t he world, t he Chinese government has said companies based in the country can send dividends and loans to their offshore units without lengthy approvals. This makes Chinese corporate debt more attractive, a s it a s s u r e s i nve s t or s t h at f u nd s c a n b e transferred quickly to bond-issuing offshore entities that run into financial difficulty. The g radual liberalisat ion of foreig n exchange in China, result ing in g reater volatility in the onshore Renminbi has added to the argument for China-based corporates

Today, China-based companies can manage their liquidity and working capital on a regional or global basis, and multinationals can include China-based accounts in their global solutions.

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FOR REGIONAL DIRECTOR MEASA

Shane Phillips Consultants is currently searching for a Regional Director MEASA for the Institute of Chartered Accountants England and Wales (ICAEW). As one of the world’s most coveted qualifications our preferred candidate will be an ICAEW qualified chartered accountant and will share our excitement for the institution. The Regional Director MEASA will be the spearhead of the ICAEW’s expansion across the Middle East, Africa and South Asia. As such we are looking for seasoned candidates who have the pedigree and gravitas to create influence and consensus with Sheikhs, Royalty, Ministries, Government Heads, CEOs, Board members and senior stakeholders. If you would like to be part of the next milestone of the ICAEW’s history in the emerging markets, please contact us for a face to face meeting at shane@shanephillips.net or call me directly at +971 50 940 7537.

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Growth in Renminbi as an international trading currency has been rapid so far, with redenomination set to reach 15 per cent of China’s trade by 2015. This will be driven by business fundamentals, as corporates switch to Renminbi in order to gain more control of their foreign exchange risk, save on cost and build their competitive advantage. to switch from the USD to Renminbi invoicing, in order t o reduce t heir foreig n excha nge exposure in China. A number of mult inat ionals have already made the move to Renminbi invoicing w ith China, shif t ing t heir foreign exchange exposure from onshore to offshore. A mindset change among local companies in China is the crucial next step. Grow t h in Renminbi a s a n inter nat iona l trading currency has been rapid so far, with redenominat ion set to reach 15 per cent of China’s trade by 2015. This will be driven by business fundamentals, as corporates switch to Renminbi in order to gain more control of their foreign exchange risk, save on cost and build their competitive advantage. However, a mind set cha nge a mong loc a l companies in China is t he cr ucial nex t s tep if t he Renminbi is going to reach t he redenomination rate of 30 per cent of China’s trade that many predict by 2020 – a doubling of today’s level. Raising awareness among these companies about the benefits of switching to Renminbi invoicing will be the big focus point for 2014. C h i ne s e c or p or a t e s ne e d t o e x a m i ne t he underlying input cost of their entire supply chain and ask t hemselves whet her set t ling exclusively in USD remains the most efficient option. For a growing number, the answer is likely to be ‘No’. T he pr oje c t e d r i s e i n on shor e s a le s , a s Chinese domestic consumption grows, should be a factor in these considerations, and will likely help persuade more Chinese companies to make the move into Renminbi. With trade between China and the rest of Asia growing, and de-regulation continuing, the argument will build further for settling more trade in Renminbi as opposed to the USD. 50 JUNE 2014

Michael Vrontamitis heads up Product Management East, Transaction Banking at Standard Chartered, covering our suite of Cash Management, Trade Finance, Securities Services and Clearing solutions for Wholesale Banking clients in Asia. Michael is also the chairperson of SWIFT Offshore CNY Best Practice Working Group – Cash & Trade Group. He joined Standard Chartered in 1995 and has worked in Hong Kong, London and Singapore across a number of businesses.

The Renminbi is likely to become the world’s fourth most used trading currency by 2020 but this won’t happen automatically. Sooner or later, local Chinese cor porates will have to adapt their treasury management processes to make the most of the new reality. At the pract ical level, sw itching to set t ling i n Ren m i nbi shou ld pose no d i f f ic u lt y for t he se c ompa n ie s , a s a f u l l complement of global bank ing ser v ices now exist s to help bu s i ne s s e s m a n a ge t he R en m i nbi a s t hey would any other currency. W hat remains is a shif t in thinking , away from the USD-denominated overseas trading that mainland Chinese corporates have been accustomed to since the early 1990s, and this is likely to take time. There is a role for both bank s and Chinese reg ulators in educat ing t hese corporates, and encouraging t hem to consider the potential benefits of switching to Renminbi. We believe the Renminbi is likely to become the world’s fourth most used trading currency by 2020 – behind the US USD, the Euro and t he Br it ish pound – but t his won’t happen automatically. To reach its full potential as a global trading currenc y, t he Renminbi w ill need to pass a series of tipping points. Fur t her out , focus is likely to shif t to t he set t lement of commodit ies t rading – p a r t ic u l a r l y oi l t r ad i n g – bu t t h i s ye a r at tent ion needs to be f ir mly on Chinese mainland corporates. Their ac t ions w ill be crucial in propelling the RMB into its next big phase of internationalisation.

The true success of a business is partnership www.nbad.com NBAD Commercial Banking At NBAD, we recognise that businesses value true partnerships and not just off-the-shelf products. Which is why, we have created specialised relationship teams that understand your business and the environment you operate in, offering you financial solutions that meet your unique needs, whether local, regional or international. With our regional expertise and global reach across the dynamic Westâ&#x20AC;&#x201C;East trade corridor, you can count on us to partner you to the next level of success. Contact your NBAD Commercial Banking team on: Toll Free 800 2211 E-mail: CommBankingsme@nbad.com Subject to bank approval. Terms & conditions apply.

Accountancy & finance

RISKING IT ALL

Risk management is a powerful tool that not only helps build a stronger capacity to withstand risks, but also the ability to positively invite risk as an opportunity for growth and change.

nyone that’s been a part of a senior-level finance meeting has surely been involved in one, or more, of the following key strategic decision making processes: • Hiring a senior executive for a leadership position within the organisation • Launching a new product line to diversify the company’s current portfolio • Looking at expansion opportunities within new global markets • C o n s i d e r i n g f r e s h i n v e s t m e n t f r o m a potential high-profile investor • Evaluating the credit-worthiness of a longterm client

A nd , one p ower f u l t o ol t h a t c a n help t he company ma ke a ca lc ulated and t ac t ica l de c i s ion , i n a l l t he a b ove s i t u a t ion s , i s a det ailed r isk management process. Failure to carefully assess the financial, operational, strategic, and compliance risks in all the cases mentioned here can lead to huge losses, or in a worst case scenario, a complete shutdown of your business! A 2012 Deloit te Global R isk Management Survey stated that 62 per cent of institutions reported having an Enterprise Risk Management (ERM) programme, up from 52 per cent in 2010 – a clear indication of the fact that

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risk management has become an indispensable weapon in the armoury of any business. And, statistics further reveal that such action on the part of business owners is warranted as 45 per cent of financial professionals report that their organisations are exposed to more uncertainty about earnings today than three years ago, according to a 2014 Association for Financial Professionals (AFP) Risk Survey. That’s not all. The same survey also reports t hat 35 per cent of f inanc ia l professiona ls indicate it is more dif f icult to forecast risk currently than it was three years ago while 46 per cent anticipate that forecasting risk will be more difficult three years from now than it is today.

The art of risk management First things first. How does a business define risk? Fadi Sidani, Partner in Charge – Middle E a s t , Ent er pr i se R i sk Ser v ices at Deloit t e explains, “Risk, from a business perspective, is a ny event , ac t ion, or lack of ac t ion t hat may result in an organisation not achieving it s st rateg ic objec t ives. R isk is closely a ssoc iat ed w it h s t rat eg y. T here is of t en a negative connotation when speaking of risk; it’s obviously bad if it impacts your business adversely but if tackled in the right manner, it could result in a reward too.”

Accountancy & finance

• Better preparedness and business continuity • Higher operational efficiency • Effective use of company resources • Improved and informed decision making • Boost in cashf low • Increased investor confidence

What is risk management? It’s the function that helps you reduce the likelihood of these business risks affecting your business. Simply put , it ’s ba se d on t he s i mple fou nd at ion s of “ P r event ion i s bet t er t ha n c u r e.” It ’s a discipline applicable to any scale of business. “R isk management, in it s ideal sit uat ion, anticipates risk s that would result in preventing the organisation from achieving its strategic objectives,” explains Sidani. “Risk management doesn’t have to be this complex procedure. Sometimes it’s as simple as having a discussion within the senior management team about the strategy in place, the risks associated with it, accepting these risks and deciding ways to tackle them. It’s of ten just implementing pragmatic, simple and practical measures. Of course, if you are a larger company, you need to have a more detailed, systematic approach.” As for the benefits of risk management, these are numerous –

Risk management for your business The first step really is understanding what k ind of risk management plan is prac t ical, af fordable and suit able for your business. Sidani explains, “R isk management doesn’t have any ‘one size f it s all’ approach. There are def initely common best prac t ices t hat have emerged over time relating to risk management . Our approach, here at Deloit t e, i s ‘ f it for pu r pose’; w h at w ill work in t he organisat ion, a n d h e l p i t i d e n t i f y, m e a s u r e and mitigate business risks to a level that they can tolerate. We m a y appr o a c h t wo bu s i ne s s e s in t he sa me indu s t r y but we may have one solution for the first and a different solution for the other. Additionally, it’s important to keep in mind that the inputs of the CEOs, the culture of the company and the characteristics of each business may vary. As a result, posing a solution that i s complet ely mecha n ic a l w i l l not

Accountancy & finance

work. It requires a lot of human interaction, input and vision. “A t D e l o i t t e , w e d o h a v e a s t a n d a r d met hodolog y in place but a ll our solut ions are customised to each business – sometimes d r i v e n b y s t r a t e g y i n d u s t r y, c o r p o r a t e governance and st ruc t ure, technolog y, risk appetite and so on.”

Risk management in five steps We asked world-renowned risk expert, Audrey Weir, Chief Risk Officer with AIG MEA Limited, about the key practical steps to tackling risk. She explains, “One of the advantages of risk management is that while the risks themselves m ay b e d i ver s e a nd c omple x , t he pr o c e s s of t ack ling t hem can be cr yst allized into a relatively simple five step process. This can best be described as Assessing the key things that might cause an issue to, disr upt , and/or ma ke your business fail. Focus on identifying the top five to ten items (t hese are your key ident if ied downside risks). You do not need a huge list of risks, simply a representative one for your business. Consider both internal and external causes of risk. For example: • Economic downturn • Outsourced invoicing with receivables being collected (and held by a third party • Reliance on one key person for your business to be successful • Large values of stock held in one location (theft/fire/obsolescence risk).

Your internal staff and management team are better placed than any third party to identify t he r isk s wh ich spec i f ic a l ly apply t o you r bu si ness . T h i r d pa r t ies c a n however help by br ing ing c ross-sec tor ex per ience, deep industry knowledge, or by challenging the team to think more broadly. For your top five to ten, record whether t he i ss ue ident i f ie d i n St ep One cou ld possibly happen or might be likely to happen (likelihood). In addition, consider what the impacts would be (financial, business collapse, reputational damage, loss of licence, other). These are the possible impacts. Overall this is your risk assessment. For some of your top five to ten you might decide to accept these risks (they are unlikely or have a minimal impact). For others in your top five to ten you might determine that they a r e l i kely, or wou ld have a n u naccept able

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Your internal staff and management team are better placed than any third party to identify the risks which specifically apply to your business. impact. For these risks, continue to Step Three. D e t er m i ne w h a t you c a n i n f luenc e or change. Can you reduce the likelihood, or the impact, or both? Before embarking on action, factor in the cost against the benefit. Spending USD 50,000 to manage a risk that might have a maximum consequence of USD 5,000 and no reputational damage can never be considered to be good business sense. This will provide you with a risk management action plan. Make sure that you take action in a timely manner. Address actions proactively, before that risk has become a reality. A f t er r ev iew of w h at c a n b e m a n a ge d and makes good business sense to action, consider whether there are still risks that the business could not recover from, or might have difficulty in recovering from. Can you transfer some of the risk, even if only t he f inancial consequences to anot her party? Insurance is one such arrangement, and involves pooling funds from many to pay for the losses that some may incur. These are your risk transfer options. Remember however that the risk transfer will not be without cost. If you opt to devote time to understanding your business risks, discuss these in your management team. Evolve your top five to ten as you define or change your strategy; as you consider expanding into different markets or countries; if you are considering an IPO; as you become aware of external factors that impact your business changing. The investment that you may make in risk management does not need to be extensive to be effective. It does however need to be a living, evolving approach.”

Looking at the glass as half full… Accountant ME has been a strong advocate for the implementation of a comprehensive risk management plan within a business – of ten encouraging companies to follow basic risk management procedures to ensure that their organisation is safeguarded against any sudden, unexpected catastrophes. So when Deloitte’s recent Exploring strategic risks survey revealed that a staggering 49 per cent believe that their

Accountancy & finance

risk management programme is inadequate, we decided to investigate further. We asked Fadi Sidani at Deloit te to comment on t his alarming st at ist ic, “Deloit te is a pioneer in risk management services and, as part of these ser v ices, we reg ularly carr y out sur veys in various sectors across the globe. This survey – in particular – is focused mainly on enterprise risk management, how businesses manage their business risks overall and what they perceive to be major risks. “The survey reported that 49 per cent of EMEA companies describe t heir risk management programmes as inadequate. The way I would look at it is as “the glass half full”, so 51 per cent look at their programmes as being adequate! And, I think this is a significant improvement f rom t he prev ious years – which can be contributed to the very fact that the concept of corporate governance has been continually evolving, growing and maturing all across the globe, specifically within the Middle East region. Taking the example of all the companies we work with across the world, we have seen a greater push towards best prac t ices and corporate governance. Corporate governance demands the implementation of superior risk management policies, better financial reporting, as well as improved compliance, and as a result of this, risk management has received a huge boost. Today corporate governance is the driver of good risk management. “When we look at the 49 per cent statistic, it’s important to note that these companies are saying they have a risk management programme – at least it’s there, which is a fantastic sign. However, t he rea son, according t o me, for citing their risk management programme as inadequate is because there is a learning process involved that the leadership of any firm has to go through. There is a requirement to have a more structured approach while dealing with risk management.” Lessons for 2014 As your business prepares itself for Q2 and sets in place a sound risk management plan,

With rapid advancement in technology, companies need to consider the potential threat of cybercrime and continue to take serious measures to tackle it.

it’s crucial to understand the latest trends in the world of risk. Here, we highlight key risk hotspots that your company needs to consider in 2014: Compliance and discipline – Compliance has always been at the heart of risk management and 2014 is no different. Businesses need to continue focusing on compliance related issues, and t his ex tends to t he implement at ion of sound corporate governance strategies, better financial reporting, and mandatory policies for internal audit. This is important not only from a risk perspective, but also helps in areas such as quality control, strong safety measures and so on – ultimately boosting your company ’s bottom line. Premises risk – Still statistically the greatest risk of all, especially in the GCC region. When was the last time you conducted a risk audit of warehousing, heav y plant and machinery, or storage areas for LPG and other f lammable m at er i a l s? A r r a n ge a w a l k-t h r ou g h aud it immediately: lives are at stake – and it may be yours! C yber r i sk – W it h r apid adv a nc ement i n technolog y, companies need to consider the potential threat of cybercrime and continue to take serious measures to tackle it. Sidani adds, “ Technolog y has been a g reat dr iver for risk management by enabling access to data and net works – allowing businesses to use this information to analyse risks bet ter and make informed decisions. But, it has its shor tcomings; t here’s an inc reased r isk of losing confidential information which can harm your business.” Reputation risk – This is another area of risk that has emerged over time with the increased use of social media. Unfortunately, businesses still haven’t recognised the level of damage this can cause. For instance, bandit messaging on your company’s Twitter or Facebook page can pose a major threat to the reputation of your brand. Human Capital and Innovation – Deloit te’s Explor ing st rategic r isk s sur vey ident if ied human capital and innovation as two of the main strategic assets businesses will need to invest in over the next three years. With new trends such as big data, BYOD and mobility changing the way businesses operate, it’s vital for businesses to continue reinventing themselves and adopting innovative ideas. S o, w i l l 2014 be t he ye a r you r bu s i ne s s implements a strong risk management plan, or would you rather risk it all? 55

Accountancy & finance

THE FUTURE OF FINANCE The world of finance is a dynamic place with new developments every now and then. How do these developments, such as Basel III, impact trade? Aparna Shivpuri Arya speaks to Dominic Broom, Head of Sales & Relationship Management, EMEA Treasury Services, BNY Mellon, to pick his brain on this issue and more.

Aparna Shivpuri Arya is a Senior Correspondent for Accountant ME Magazine. In the following feature, this expert economist offers a detailed analysis.

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Accountancy & finance

he MENA region has been dealing with political inst abilit y for quite some time. This situation has also impacted the economic situation in these countries. Talking about this, Dominic said, “The MENA region is one of the least integrated in the world – it accounts for 1.8 per cent of the world’s non-oil trade, according to a recent World Bank report 2 . This is significantly lower than the region’s share of the world population which is 5.5% and its share of the world’s gross domestic product which is 3.9 per cent 3.” However, according to him there are positive trends emerging such as the Aid for Trade Initiative for Arab States which was launched last year. This initiative which is backed by the UN, the Islamic Development Bank Group and the League of Arab States - seeks to build and operate trade-related physical infrastructure and trade corridors in the region4. “ We a re seeing ev idence of more companies in the Middle East expanding across the region and beyond. McKinsey predicts that, by 2020, bilateral trade flows between the Middle East and China could reach between USD 350 billion and USD 500 billion, with the Gulf States accounting for the lion’s share 5 . The banking sector is responding to (and benefitting from) this growth. Just over a year ago the Commercial Bank of Dubai launched a banking platform for Chinese companies in the region, which includes Renminbi accounts, Chinese language documentation and Chinese-speaking relationship managers 6 . We are also seeing a growing number of subsidiaries

Dominic Broom is Head of Sales & Relationship Management, Treasury Services EMEA. He took on this role in August 2011 and is responsible for the company’s Cash Management, Liquidity Management, FX, Trade Finance and Credit solutions in the EMEA region. Dominic began his career with Chase Manhattan Bank, on their MBA training programme, in 1994, after which he held various associate positions in the Client Management and Global Trade & Advisory teams, in both London and New York. Dominic moved to Warburg Dillon Read in London in 1997. After a period working for GE Capital’s European Equipment Finance division, Dominic moved to ABN AMRO in Amsterdam in 2003, as Director of Trade Sales Benelux, before returning to London in 2005 as Corporate Director. Dominic holds an Honours Law Degree, from the University of London and a diploma in Advanced French from the University Catholique in Lyon, France.

of UAE banks throughout the Middle East and Africa, and some banks – such as National Bank of Abu Dhabi – have a global network of branches in Asia, Europe and the United States, where they offer a range of payments solutions and treasury services7,” he remarked. Dominic also pointed out that the political instability has mainly had an impact on trade in Syria and Libya8 . In the case of Libya this is largely due to the disruption in oil production and exports. However, trade in other countries in the Arab Spring such as Egypt has been less affected – countries still need to trade food and energy supplies regardless of the political and economic climate9. The total import and export figures for goods and services in countries such as Jordan and Lebanon have also remained strong, despite declining growth figures10. The Internat ional Monet ar y Fund (IMF) expects the Middle East, North Africa, Afghanistan and Pakistan to grow

faster this year (3.3 per cent) compared to 2013 (2.4 per cent) and it expects growth to accelerate to 4.8 per cent in 201511. This economic growth is likely to translate into stronger trade growth. In this scenario, how do regulations, such as Basel III impact countries and organisat ions? Dominic elaborated on this and said, “The new liquidit y obligations driven by Basel III will have a significant impact on the way banks and other financial institutions do business. In response to these obligations, they may need to make changes to their account structures, intraday liquidity flows and how they manage their overdraft limits.” He pointed out that the challenge for companies is to shif t the focus from reducing and controlling the flow of cash into and out of numerous bank accounts, to managing intraday liquidity positions; reducing reliance on intraday credit lines; and achieving intraday transparency with real-time cash position monitoring.

Accountancy & finance

This is particularly relevant for the financial services industry which is facing more stringent intraday liquidity management requirements. One way these requirements can be achieved is by gaining a better understanding of their payment behaviour through analysing historic data. It’s all about having the right cash, in the right place, at the right time. Moving on to another financial development, I wanted to know about open account trading and it’s impact on trade. To this Dominic remarked, “Despite the increasing global popularit y of open account trading, document-based forms of settlement (such as the letter of credit, or LC) remain the preferred method of payment for many banks and corporations in the Middle East. The LC gives companies control over their trade process and reassurance that their credit is supported. The need, particularly for banks, to mitigate risk has been heightened by the global financial crisis and recent political unrest in the region.” He f ur t her added, “However, in line w it h global trends, a growing number of corporates are embracing open account trade in part for its efficiency (in terms of cost and time), transparency and f lexibility. In response to this, banks are investing in advanced electronic capabilities to meet their growing multi-currency needs. One example of where we are seeing more corporates using open account is the Jebel Ali Free Zone in Dubai.” It’s difficult to determine what impact corporates moving from LC to open account trading will have on trade flows. It involves companies changing their method, not their volume, of payments. Other factors such as economic growth and the liberalisation of trade policies will have more of an impact on trade flows. As we came to the end of our conversation, I wanted his opinion on the global trade scenario and what does 2014 hold for countries. Dominic quoted his chief economist, “Despite recent concerns about financial risks in China and stresses in some other emerging countries, we continue to expect stronger global economic growth in 2014, with global real GDP growth likely to accelerate by one-half to three-quarters of one per cent above the sluggish pace near three per cent 2012 and 2013. The outlook for the U.S. economy is one of the keys to the global economic outlook. We believe that there was a transition in mid-2013 from four years of about two per cent growth to a new cyclical trend of three or more years of about three per cent growth12.” Dominic concluded by stating that while it’s difficult to make a direct comparison between estimates of economic growth and estimates in the growth of trade volumes, there is a positive 58 JUNE 2014

The International Monetary Fund (IMF) expects the Middle East, North Africa, Afghanistan and Pakistan to grow faster this year (3.3 per cent) compared to 2013 (2.4 per cent) and it expects growth to accelerate to 4.8 per cent in 20151. This economic growth is likely to translate into stronger trade growth. correlation. When the global economy picks up, trade figures tend to rise faster than gross domestic product figures. The World Trade Organisation for example estimates the volume of the trade in goods will grow by between 4.0 per cent and 4.5 per cent in 2014, compared to less than 2.5 per cent in 201313 . This definitely gives all of us a reason to be hopeful and look forward to the growth of trade and investment globally and in the region. *The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury, investment advice, or any other business or legal advice, and it should not be relied upon as such.

http://www.imf.org/external/pubs/ft/weo/2014/update/01/

https://openknowledge.worldbank.org/bitstream/

http://www.itfc-idb.org/content/itfc-announces-%E2%80%9Caid-

http://www.china.org.cn/opinion/2014-01/07/

http://english.mubasher.info/DFM/news/2214684/Commercial-

index.htm handle/10986/12220/NonAsciiFileName0.pdf?sequence=1 handle/10986/12220/NonAsciiFileName0.pdf?sequence=1 trade-aft%E2%80%9D-arab-states-initiative content_31113240_2.htm Bank-of-Dubai-CBD-launches-comprehensive-Chinese-bankingservices 7

http://www.nbad.com/en/Pages/nbad-global.aspx

http://unctadstat.unctad.org/TableViewer/tableView.aspx & ht tp://unctadstat .unctad.org/TableViewer/tableView. aspx?ReportId=25116

http://www.imf.org/external/pubs/ft/weo/2014/update/01/index.

http://www.bnymellon.com/foresight/pdf/update.pdf

htm

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Legal

UAE ANTICOMMERCIAL FRAUD LAW:

GOOD NEWS AND BAD As a new law aimed at combating counterfeit goods and other forms of commercial fraud passes through the UAE’s Federal National Council (FNC), it is arousing a good deal of interest - as indeed its high-profile subject matter would suggest. Rob Deans, Partner, Clyde & Co, and Harriet Balloch, Senior Associate, Clyde & Co, review the progress so far…

he draft Anti-Commercial Fraud Law was first introduced in early 2013 and, although it contains a number of positive new measures, there are a number of provisions which have given rise to cause for concern. The passage of the draft Law through the FNC (which is an elected form of Parliamentary advisory body) is a key stage in the legislative process and it brings the draft Law one step closerto being enacted. Some positive news for brand owners There is currently limited information as to the extent to which the draft Anti-Commercial Fraud Law has been amended during its passage through the FNC. However, it appears that the draft Law, as approved by the FNC, is likely to include the

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following positive provisions for brand owners: • The establishment of a single body with the role of combating trade in counterfeit goods across all emirates in the UAE. Under the current regime, brand owners must deal with counterfeit goods by working through independent authorities in each of the country’s seven emirates. This requires brand owners to deal with multiple authorities in cases where infringing goods are being sold in more than one emirate. A structure which enables brand owners to deal with a single cross-emirate enforcement body is likely to be much more efficient and effective than the current structure. • Increased penalties for dealing in counterfeit goods. The draft Anti- Commercial Fraud Law includes a significant increase in the penalties

LEGAL

Legal

which may be imposed on those dealing in counterfeit goods. In certain limited cases, such as dealing in pharmaceutical and food products, a fine of up to AED 1 million (approximately USD 270,000) may be imposed together with a two year imprisonment sentence. However, as indicated below, concerns do remain as to the level of penalties which may be imposed in the majority of infringement cases. • The cost of the destruction of counterfeit goods being paid by the importer of counterfeit goods. This is positive news for brand owners, in cases where the importer can be identified. • An obligation on infringers to disclose to the authorities all information and documents relating to their dealings in counterfeit goods. The inclusion of this obligation in the draft Anti-Commercial Fraud Law may encourage the authorities not only to seize stocks of counterfeit goods, but also to obtain copies of information as to the source of the goods and the scale of the infringing activity. • A prohibition on the possession of counterfeit goods. This provision should be a useful tool where counterfeit goods are held by traders, but where there is no clear evidence of an intention to sell. However, it remains to be seen whether this provision would also be used to seize counterfeit goods held by private individuals. • Confirmation that the draft Law applies to infringers operating within the UAE’s free zones. Such a provision would appear unnecessary given that UAE laws already apply automatically to the entirety of the country’s jurisdiction including its free zones (with the exception of the DIFC free zone). However, the enforcement of intellectual property rights within the UAE’s many free zones can prove problematic. Accordingly, many brand owners will welcome the clarity that this provision brings. Areas of concern However, there are also areas of concern for brand owners arising from an early draft of the AntiCommercial Fraud Law which may not have been addressed by the FNC.

These include: • Legitimising the practice of re-exporting counterfeit goods, rather than seizing and destroying them. The single biggest concern for brand owners with the draft Anti-Commercial Fraud Law is a provision which empowers the authorities to require importers to return 62 JUNE 2014

There will be an obligation on infringers to disclose to the authorities all information and documents relating to their dealings in counterfeit goods. counterfeit goods to their country of origin. This provision appears to have been untouched as the draft Law passed through the FNC, and it remains a major concern for brand owners, in that counterfeit goods may be re-exported from the UAE and then find their way back onto the market in the UAE or elsewhere. There are also further concerns with this provision in that if it is interpreted by the UAE Courts as a general right to allow counterfeit goods to be re-exported then this would appear to conflict with the UAE’s obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) which restricts the re-exportation of counterfeit goods in an unaltered state, other than in exceptional circumstances. • The extent to which the draft Anti- Commercial Fraud Law covers lookalike goods, in addition to those bearing a trade mark which is identical to a registered mark. An early draft of the Law restricted many of its key provisions to the unauthorised use of identical trade marks, but not goods bearing confusingly similar marks and other forms of lookalikes. It is unclear at this stage the extent to which the draft Law may have been amended to extend its scope to lookalikes. • Low penalties for dealing in counterfeit goods. Although in some limited cases a penalty of a USD 270,000 fine plus two years imprisonment may be imposed, in many cases involving counterfeit goods, the maximum punishment appears to be limited to a maximum of a tenth of this amount, USD 27,000 plus one year imprisonment, regardless of the quantities of counterfeit goods involved. This was the position in an early draft of the Anti- Commercial Fraud Law, and it remains to be seen whether this provision has been amended to allow for penalties with a higher deterrent value to be imposed. • Allowing seized counterfeit goods to be released unless a court order has been issued within 30 days confirming the seizure. This provision, which was included in an early draft of the Anti-Commercial Fraud Law, could potentially

LEGAL

The draft Anti-Commercial Fraud Law includes a significant increase in the penalties which may be imposed on those dealing in counterfeit goods.

require brand owners to make expensive applications to Court in cases which previously would have been handled quickly and efficiently through an administrative action. The extent to which this provision may have been amended during the draft Lawâ&#x20AC;&#x2122;s passage through the FNC is currently unclear.

Next steps: Finalisation and enactment of the draft Law AntiCommercial Fraud Law has to be signed into law by the UAE President His Highness Sheikh Khalifa Bin Zayed Al Nahyan and published in the UAE Official Gazette. Before this, the draft Law should pass back to Ministerial level where further amendments may be introduced. â&#x20AC;˘ Accordingly, although current reports indicate that the draft Law will come into force within the next six months, it is possible that this if further changes are made to the draft Law. This has been the case draft Companies Law, which passed which has not yet been enacted.

Further information If you would like further information please contact:

Rob Deans, Partner E: rob.deans@clydeco.com Harriet Balloch, Senior Associate E: harriet.balloch@clydeco.com Clyde & Co LLP PO Box 7001 Level 15, Rolex Tower Sheikh Zayed Road Dubai, United Arab Emirates T: +971 4 384 4000 F: +971 4 384 4004

Clyde & Co accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary.

ECONOMIC INSIGHTS

Dubai the rising

financial capital The emirate’s role as a key trade hub is wellestablished, but a subtle transition has taken place, whereby Dubai is earning credentials as a world-class centre of financial services. What are the factors influencing this seachange - and which are now putting ‘clear blue water’ beyond Dubai and the traditional financial centres of the GCC? Associate Editor Zenifer Khaleel investigates… 64 JUNE 2014

ince the turn of the century, Dubai has been rising steadily as the undisputed entrepreneurial capital of the Middle East. Due to its integrated infrastructure and openness to business, it attracts investors, world-class advisors and, of course, entrepreneurs. Recently, it has opened the flood gates to investment companies and the banking sector, as it attempts to become the key financial capital of the Middle East. Many global financial institutions are rushing to open regional offices here and a number of the major names are already present. Unlike other sectors such as oil or construction, the development of a financial centre is an evolutionary process of strategically building sophisticated human and institutional infrastructure to foster economic growth. It requires the careful management of both the demand and supply of financial services. Participation of domestic and international entities must be encouraged while aggressively improving the financial ecosystem in parallel to carefully monitoring and controlling systemic risk. “Dubai has made t he t ransit ion f rom a metropolis to a teeming megalopolis, and very smoothly at that. This ease of transition has

ECONOMIC INSIGHTS

been facilitated by an unstinting focus on the basic fundamentals of successful commerce and entrepreneurial development,” says Siddharth Balachandran, Managing Director of the BUMGA Group, based in Dubai. “The Dubai government has understood, (with great clarity if I may add) that for holistic success, it is imperative that the financial service sector be promoted and supported unhindered. Though the development index of any city is generally dominated by improvements in the capital goods, construction and the manufacturing sectors, the glue that binds all these pivotal sectors together is the financial services sector. Dubai has realised this very early and hence established entities like the DIFC, DMCC etc. Naturally, with the importance of the financial services sector, it is even more important for this sector to be manned by the right personnel, in terms of mindset, ideals, talent and qualification. I believe that the next decade is going to be a glowing testament to this ‘fundamentals first’ approach very rightfully adopted by Dubai,” he adds.

Rise of the banking sector The British Bank of the Middle East was the first bank to be established in Dubai in 1946. Since then,

there has been a burgeoning of leading international and local banks in the emirate. According to the 2015 Dubai Strategic Plan, financial services are one of the sectors that qualified to be part of the future growth plan of the emirate. The development of the financial services industry has gone hand in hand with the evolution of Dubai as a trading hub for the region. IIF, the Washington based global association of financial institutions, recently stated the soundness indicators of the UAE banking system have further improved this year with strong improvement in capitalisation levels, increase in profitability and further easing of liquidity situation. The renewed interest in establishing Dubai as a financial hub can be attributed to these strong macroeconomic fundamentals. Dubai’s role has progressed immensely, with the governments timely financial and institutional reforms, including the rehabilitation of bank balance sheets, restructuring of the non-banking financial sector, tangible improvements in corporate governance and transparency, and strengthening of federal fiscal and monetary institutions. DIFC Established in 2004, the Dubai International Finance

ECONOMIC INSIGHTS

Since the turn of the century, Dubai has been rising steadily as the undisputed entrepreneurial capital of the Middle East. Due to its integrated infrastructure and openness to business, it attracts investors, world-class advisors and, of course, entrepreneurs. Center (DIFC) is a sophisticated enterprise that provides the full range of financial services which evolve to meet, anticipate, and create demand through its financial innovation. T he DIFC has met iculously risen to t he challenge of placing Dubai to the pinnacle of financial steadiness, by creating an integrated network of banks, securities firms, financial inter mediar ies, clear ing houses, brokers, institutional investors, insurance companies, and mutual funds. DIFC incentives include zero taxes on income and profit, 100 per cent foreign ownership, and no restrictions on foreign exchange and profit repatriation. Secondary benefits include specialised supporting infrastructure and services. It has its own set of civil and commercial laws that are independent from the rest of Dubai and are consistent with English Common law. DIFC also houses its own courts within the premises, facilitating the speedy issuance of licenses and completion of legal proceedings. The DIFCâ&#x20AC;&#x2122;s unique infrastructure, internationally recog nised leg islat ive and reg ulator y framework, and dynamic business environment have positioned the centre to become a selfsufficient financial enterprise.

Services and infrastructure Dubaiâ&#x20AC;&#x2122;s polic y of invest ing heav ily in it s transport, telecommunications, energ y and industrial infrastruct ure has signif icantly enhanced its attractiveness in the international bu s i ne s s s c ene . T he em i r at e h a s s e ven industrial areas, one Business Park and three highly successful specialised free zones. Its transportation network consists of two worldclass seaports, a major international airport and cargo village and the closely connected Dubai metro. All these assets deliver efficiency, flexibility, reliability and cost-efficiency. Complementing its world class infrastructure is a sophisticated service sector that features leading regional and international freight forwarders, shipping 66 JUNE 2014

Siddharth Balachandran, Managing Director of the BUMGA Group

companies, insurers, international hotels, banks and financial service firms and many more.

Islamic finance In a bid to strengthen its inherent Islamic roots, the Dubai government has already undertaken plans to position the city as an Islamic financial hub as well. It is also working to develop international standards of practice for Islamic commerce and industry and will establish a centre for Sharia'h compliant quality standards similar to the International Organisation for Standardisation. The government is actively promoting Islamic bank ing and insurance, Islamic f inanc ia l pr oduc t s a nd ot her a r e a s i nclud i ng t he arbitration of Islamic contracts and the setting of quality standards for halal food. Islamic finance, based on principles such as bans on interest and on pure monetar y speculation, has grown rapidly around the world over the last several years, although it remains much smaller than conventional finance. Islamic banks now command a roughly 25 per cent share of the banking market in the six countries of the Gulf Cooperation Council, (according to an estimate by Ernst & Young). Visionary leadership, strategic foresight and expedited action in areas of progress, have given Dubai a remarkable edge to achieve its goals of becoming the financial capital of the Middle East. With steady and meticulous planning, the city can also plan a position for itself in the global platform. The factors in its advantage are multinational clientele, excellent infrastructure and geographical position. Add to this lenient government laws and a general ease of business transactions, and the city is a just a few strides away from achieving its goals.

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ECONOMIC INSIGHTS

RAMADAN ECONOMICS HOW DIFFERENT BUSINESSES ADAPT TO THE HOLY MONTH

Despite the appearance that many aspects of the economy slow down during Ramadan, what is the actual picture when it comes to the financial performance of different sectors? The reality is a little more complex than even the most seasoned financial pundit might imagine - and we asked Associate Editor Zenifer Khaleel to investigateâ&#x20AC;Ś

68 JUNE 2014

ECONOMIC INSIGHTS

he onset of Ramadan brings a complete turnaround of economic activities in the country, affecting different sectors in different ways. Symbolically, it is the time of the year to reflect over your lifestyle and abstain from materialistic pleasures. Financials of the past year are reviewed and ‘cleansed’ by giving the obligatory ‘Zakat’ (charity). Officially, the country is in ‘stand by’ mode. Office timings are shortened, official phone calls unanswered, tourists stay away and major deals are put on hold. But despite the impression created of lower economic activity, the reality is rather more complex. While many businesses experience a severe meltdown, some areas such as spending on food and other consumables show a significant increase in activity. In effect, the character of the economies changes, with a rise in consumer spending helping to make up for the fall in other areas.

The Ramadan effect on different sectors Ramadan has changed from a religious ritual to a festive season marked by a strong sense of materialism and significantly higher consumer spending. The holy month has a pervasive effect on the spending habits of Muslims. Stock markets across the Gulf region show returns of up to nine times higher in predominantly Muslim countries. Traders use simple market timing strategy to encash on the goodwill of the season. Ramadan promotes heightened social awareness. As a fundamental shared experience, it brings about a sense of solidarit y among Muslims, enhances their satisfaction with life and encourages optimistic beliefs. This optimism affects investor sentiment and decisions leading to the price run-ups. Shortened working hours may spell doom for some sectors. But for CLEANCO, the premier cleaning service company in the region, it is business as usual. Their work ing hours for

ECONOMIC INSIGHTS

Ramadan are from 9am-3pm. However, being in the service industry, some projects are operational round the clock. “Overall business is affected during the holy month due to the reduced working hours and on this occasion, the fact that it takes place during the hottest month of the year", says Samer Hani, General Manager of Business Development & Operations at Cleanco, "The working hours are reduced to 6, and we have to complete our whole operations during these hours. Normally, the overall business decreases by 20-30 per cent. But we consider Ramadan the time when we prepare the annual budget, and rev ise our business strategy accordingly.” “Personally my productivity during the holy month doesn’t decrease as Ramadan is the best month to work and control my food and health. The positive side of the less working hours is that it gives more time to our staff to enjoy the holy month, be with the family and to pray in the evening time. So after Ramadan they are back with rejuvenated spirits (even if they are not Muslims).” Farah World LLC is a freight forwarding and logistic company based in Dubai. In their five years of establishment, they have witnessed an increase in export, mainly of foodstuff and clothes, predominantly to Muslim populated countries. “This increases our revenue considerably,” says Fairuz Basheer, Business Development Director of Farah World. “However, the main issue we face during Ramadan is with the labour force who works outdoors. With longer hours of fasting plus the heat, it becomes quite a task to manage outside jobs. The sea freight container loading becomes quite tedious. We shift the pending work to night hours for which we are required to pay overtime.” “Another issue is the lag in communication. Since most of our suppliers work shorter hours, response time increases. This in turn affects our service to end customers. Being in a world network many countries are yet to understand the shorter working schedule and sensitivity of Ramadan in the Gulf. We have to constantly remind t hem of the same to avoid unhappy clients.” “Despite these challenges, we hope to make this our most operationally efficient Ramadan with the experience garnered during the years,” she adds The booming sectors Though some sectors experience a slowdown you will find that, because of the social habits during 70 JUNE 2014

the month of Ramadan, spending on food is in fact higher than in the normal months. Although during the daytime things can get a little slow, in the evenings, particularly in the malls, there is a lot of activity. The food and catering industry is one which undergoes a drastic change in Ramadan. Essentially night and day activities are interchanged during the month. The lull that is prevalent in the daytime is more than compensated by frenetic activity during the evening. Sugata Bakshi, Brand Operations Manager at the SFC Groups, states that productivity levels of workers show remarkable increase during the renewed rush hour at night as they have ample rest during the afternoons. “Most of our outlets are open till 2:30am. Though we lose our corporate lunch clients, we are amply compensated by iftar clients and other diners. Delivery & take away improves by 15 per cent. We focus on staff training during this period, to make up for the long day time.” Cloth retailers, jewellers, electronics shops, mall operators and online stores, have all been reaping significant profits during Ramadan. The scorching heat outside makes people resort to the air-conditioned convenience of malls, which are open till the wee hours of the morning. To add to the spending pressure, there are promotions, sales and offers which last throughout the month. The sales are high on gifting items across all categories especially perfumes, cosmetics, delicatessen and confectionary. The sales of Arabic sweets and dates are noteworthy during Ramadan when compared to rest of the year. This rise in consumer spending can create its own problems, however, in particular leading to an increase in inf lationary pressures. This happens both during Ramadan itself and in the months leading up to it, as households build up t heir stock s of food and ot her supplies. According to last year’s online YouGov Ramadan Survey, (which surveyed 1520 Muslims living in t he MENA reg ion), 80 per cent of online respondents in the UAE prefer to break their fast at home, with another seven per cent preferring to eat at a family member’s home. For many families, this translates to a sharp increase in their weekly grocery budget. T he UA E g over n ment h a s r e s p onde d t o unwarranted price increases with a mix of formal price caps and informal pressure on retailers to dissuade them from raising prices too much. Last year the government reached an agreement with more than 20 outlets to discount the prices of over 200 commodities by 30 per cent.

Samer Hani, General Manager of Business Development & Operations at Cleanco

Fairuz Basheer, Business Development Director of Farah World

Sugata Bakshi, Brand Operations Manager at the SFC Group

TECH TALK

Multiply your business productivity with these trendy mobile applications Rushika Bhatia's view

Mobibus A ‘Do-It-Yourself ’ mobile app maker which offers a great solution to businesses looking to create an effective mobile application. The app’s userfriendly platform, with dual English and Arabic interface, allows companies to create a customised mobile app to suit their business or personal needs in just four easy steps – Registration, Design, Manage, and Preview & Publish.

Available for: iOS and Android Cost: Free

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TECH TALK

Evernote

Available for: Mobile devices such as iPad, iPhone, iPod Touch, Android, Windows Phone and Blackberry Cost: Free

This is a fantastic app for business owners operating companies in any industry sector. Evernote is a onestop-solution for all your business needs – it allows you to take notes, save images and record audio notes. More importantly, it makes all your data accessible across any device you use creating a seamless experience. It also enables sharing information with other users including partners, managers and employees. Additionally, for frequent travellers, it saves travel plans, maps and other documents. If your business requires you to be constantly on-the-go, Evernote is the perfect app to stay connected with your staff – and business – 24/7!

Wally To begin with, the app lets you record all your expenses in a systematic way – enter the amount spent, location, time and the category of expense (food, clothes, transport, and so on). Another notable feature is that the user can scan and save images of receipts. The app can identify the amount, date, venue and category automatically, saving you valuable time! Wally supports multiple global currencies so that even if you are on a business trip or family vacation, you can keep track of your daily expenses. The application offers a weekly, monthly and yearly breakdown of the expenses – divided categorically – in the form of an easy pictorial representation that’s a lot easier to read and understand than a complicated Excel sheet or an unending pile of bank statements. An added plus is that using the app, you can access your expenses anywhere and at any time.

Available for: iPhone Cost: Free

TECH TALK

Plume for Twitter No matter how busy you are, the reality is that the digital world is constantly ‘active’. This means that you need to continually manage your social media presence from any part of the world. This is especially true for those business owners that manage their company’s social media activities by themselves. Plume for Twitter is a fantastic app that lets you create a completely customisable Twitter experience. One feature that stands out is the app’s ability to support multiple Twitter accounts – this means you can easily switch back and forth between your business and personal account! Plume’s user-friendly and highly interactive interface makes it an absolute must-have!

Available for: Android Cost: Free

Business in Dubai by Department of Economic Development (DED) This popular app – powered by the Department of Economic Development in Dubai – is suitable particularly for Dubai-based users. The app is a great way to access all DED information at your fingertips including branch details, contact information, general services and so on. The app offers a range of business registration and licensing services for business owners and investors. Some of its notable features include trade name reservation, renewal of trade names, initial approval of licences, renewal of licences, enquiries on fines, and company lookup.

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Available for: iOS Cost: Free