Economicme Issue 2

Issue 2 - 2015 www.economicme.com

HOUSING: The affordable crisis for Gulf societies

M&A: Cross border deals for GCC business

TADAWUL: Transparency.

Then why so quiet?

COMPETITION: Manage the EconomicME GCC equity fund

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ISSUE TWO

ECONOMIC ME ISSUE 2 - 2015

EDITOR'S LETTER DAMIAN REILLY EDITOR damian@economicme.com

WE WANT TO START A CONVERSATION…

Registered in Creative City, UAE www.economicme.com EDITORIAL Damian Reilly Managing Editor +44 (0) 7951 929 629 damian@economicme.com SALES & MARKETING Paul McGrath Managing Director +971 (0) 55 222 6511 paul@economicme.com

FOR MORE INFORMATION AND ANALYSIS GO TO ECONOMICME.COM - THE GULF’S BEST AND NEWEST BUSINESS WEBSITE.

N

which he discusses shale, Iran, ervous times, these, China and some of the othfor Gulf investors. er factors that will shape Oil price foremarkets over the comcasts for 2016 look dising twelve months. Take mal, and that will ineva look - it’s not a crysitably have a knock-on tal ball but it’s the best effect for the region’s we’ve got. economies. So, what If you’re celebrating it, to do? Buy like crazy THE PRICE OF we hope you have a good while stocks are cheap A BARREL OF OIL AT Christmas - consider this and hope that someone THE END OF 2015 second issue of Economsomewhere has a plan to icME our gift to you - it’s got get the party started again at everything anyone could possibly some point in the not too distant want over the festive period: a report on future, or get the hell out of Dodge for a bit - take a long view from the beach, wait for the ease of doing business in the Gulf, breaththe market to make its mind up? Maybe a bit taking insight into the scale of the region’s afof both is the answer - we’ll have a better pic- fordable housing crisis and a travel report on ture of what’s going to happen when Gulf gov- the world’s greatest getaway for anyone on the ernments put their 2016 infrastructure spend- verge of exhaustion - beautiful, understated ing cards on the table. But, in 2016, know that Cornwall. Dive in!

See you in 2016! whatever investment pain you’re experiencing is in a large part due to those pesky shale gas producers in Europe and America, conspiring to keep the oil price low for the foreseeable future. Does that make it feel any better?

Thought not.

This issue we have a fascinating interview with Gulf affairs expert Eckart Woertz in

P.16 ECONOMICME LOOKS ON AS THE UAE UNVEILS A AED2BN INNOVATION FUND.

$35

P.26 THE FUTURE OF THE GCC’S WEALTH AND ASSET MANAGEMENT INDUSTRY.

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ISSUE 2 - 2015 ECONOMIC ME

ISSUE TWO CONTENTS

06 EXCLUSIVE

David Smith

How to solve a problem like the the crisis of affordable homes in the Gulf.

12 EXCLUSIVE

Keeping quiet

Tadawul is the Gulf ’s most exciting investment opportunity...

Shout it from the rooftops!

22

Doing business Is the Gulf making commerce harder than ever?

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ECONOMIC ME ISSUE 2 - 2015

18

COMPETITION

Win $10,000

Take part in our inaugural Fantasy Fund Manager competition and stand a chance of winning $10,000. Share your best stock picks with us over the course of the coming year and show us how easy beating the market really is. What are you waiting for?

32 28 KWR’s Sean Rutter explains why talent loves governance.

40 Big data Crunch those number to understand your customers.

46 Come together Is 2016 the year of the M&A (again)?

What’s coming? Eckart Woertz tells it like it is.

FINANCE

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Issue 2 - 2015 Economic ME

Creating homes workers can afford is not just about keeping citizens happy – the ability of an economy to grow depends on it. But why are Gulf countries struggling to get it done? Affordable Housing Institute founder David Smith explains...

The crisis of affordable housing in the Gulf

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Economic ME Issue 2 - 2015

D

avid Smith, founder and CEO of the Affordable Housing Institute in Boston, is a world expert on the creation of the types of homes all societies need if they are to flourish, but that, left to its own devices, a free market is reluctant to produce.

Able to make sense of and navigate the myriad complex issues that stymie even the wealthiest and most well-meaning governments’ efforts to ensure quality homes are made available affordably, Smith is much in demand all over the world, not just in the Middle East.

In December, 2015, he sat down with EconomicME to explain why the lack of affordable housing is reaching crisis proportions in the Gulf, and how the problem can be solved.

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Issue 2 - 2015 Economic ME

Governments around the region say they desperately need affordable housing; why is it so hard to produce?

You have to deal with the market’s ‘negative externalities’ – high land values, high property costs – and do so to help poor people who usually have little political power, so it’s a bit like Hercules cleaning the Augean Stables in a single day: hard to do, messy, and often thankless.

But you take it on anyway.

Sure, it’s important and needs doing. Like Hercules, once I take on a challenge I complete it. But you should remember that once Hercules finished the job, he went back and slew the person who told him to do it.

So how long has the person who tasked you with solving the crisis of affordable housing in the Middle East got left to live?

I fear they’re likely to die of old age.

Can you frame the crisis of affordable housing in the Gulf countries?

Here’s the most basic fact: housing is urban infrastructure. You cannot have a successful 21st century global city unless a portion of the in- if the government does not tackle the problem vestment that goes into public infrastructure of creating affordable housing, it’ll get created outside of government’s awareness – overgoes into the delivery of affordable housing.

For every manager in a high rise there are crowding, grey market, clandestine use and the like – and big urban socieadministrators, clerks, bookties always pay a price for allowkeepers, drivers, cleaners, cooks ing those problems to fester. and so on. In California, it was We are seeing in the Gulf reestimated that for every one high gion – especially in the UAE – tech job, there needed to be three Funds earmarked an awareness that somehow or to five low tech, traditional midfor creation of other the problem of affordable dle class/blue collar jobs to supaffordable homes in Saudi Arabia housing has to be addressed. port it. And all those people – foundational jobs, I call them – have to live somewhere.

Does the Gulf region present Affordable housing is where an unusual challenge in terms of the foundational jobs go to sleep at night, and creating affordable housing? if you don’t create it for people, they’ll make There are two interesting phenomena. it for themselves – in visible slums or in inIn the Gulf, housing is one hundred pervisible villas that have been cut up inside and cent technological. It’s hot in the desert, and rented by an absentee owner. dry in the desert, and in the desert, without Even setting aside the issues of spatial seg- power you can’t live a modern existence. That regation or the use of property, the fact is that means you cannot have housing unless you

$67bn

have laid down land use infrastructure.

So, you have this basic problem: if you are adding more people to your country - more workers to your economy - you either build up or out. If you build out into the desert, that’s expensive and technological, because you need roads and powerlines, and sanitation and air conditioning.

In the Gulf a hundred years ago, people only lived in a tiny number of places because the rest of the environment was not habitable. Today, to expand the population of a Gulf state, you must first and foremost build in an energy-consuming, technological infrastructure, to support the human beings.

The amount of infrastructure it takes to support human beings often varies, depending on their incomes – rich people tend to use more infrastructure – but some of it doesn’t.

Going up is perfectly feasible – millions of people worldwide live happily in high-rises – but right now it’s culturally unacceptable for

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Economic ME Issue 2 - 2015

older Gulf patriarchs. That is changing with the generations, and it will have to change faster; land cost pressure is making it change.

Second, any given parcel of land in a Gulf city that is available for development by the private sector will have a higher value if developed for something other than affordable housing. The land use economics of hotels, of office blocks, of shopping malls, all of these job-creating uses, produce more gross turnover per square metre than housing does. And if a piece of land’s potential gross turnover is higher, the property will have more value.

Unless government steps in, it is not going to work.

You said earlier you don’t think Gulf families want to live in high-rises. Why is that?

Gulf citizens want to live in villas. And their definition of a villa – what a westerner would call a homestead freehold – is a ground floor entry, freehold plot of land on a relatively

“For every manager in a high rise there needs to be three to five low tech, traditional middle class, blue collar jobs to support i t. A n d a l l those people – f o u n d at i o n a l jobs, I call them – h av e t o l i v e somewhere.”

large plot, surrounded by high walls for privacy – which is cultural – and then containing within it one domicile that will potentially house a multi-generational family – parents, grandparents, the kids and so on.

This phenomenon is consistent with the entire Gulf region. In my childhood in America, everybody wanted the suburban house with a white picket fence. Gulf citizens want the same thing, with a higher privacy wall and more floor space. From the perspective of land use, a homestead villa is incredibly horizontal, it uses a lot of land per square metre of built home. That makes it expensive in infrastructure terms, and also in construction and operation terms. You air-condition a huge cubical volume. The ceilings are very high.

250 square metres and a five-metre ceiling – that’s a lot of cubic metres of air to keep cool.

The land use economics of development of residential housing and of citizens’ residential housing are terrible compared to any other form of real estate development. So, pure real estate developers don’t build it.

As a result, in a ‘normal market equilibrium,’ as the economists conceive it, you have a shortage of citizens’ housing and affordable expatriates’ housing.

exploring

a new world of possibilities

Global Investment Bank Limited (GIBL) is a company limited by shares incorporated in the Dubai Internaaonal Financial Centre (DIFC) and is regulated by the Dubai Financial Services Authority (DFSA).

GIBL only provides services to Professional Clients and Market Counter-Parres as deďŹ ned by the DFSA. d

w w w. g i b l . a e

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Economic ME Issue 2 - 2015

- much of it is owned by individual Saudi princes, for example. And so the development pipeline did not get going. That programme has not delivered the housing it was meant to.

Failure by government to deliver the promised housing can undermine the social contract in any country.

housing is urban infrastructure. you cannot have a successful 21st century global city without state investment in affordable homes

But is the problem really not solvable? Gulf governments have a great deal of empty land to build on, and plenty of cash.

Land aggregation is harder than you think.

Many of the Gulf city-states exist where they do because there is oil underneath, and the biggest value of that land is not building atop it but pumping from underneath it.

To get land you can build upon is therefore not straightforward. The land on which you might wish to situate the expanding city is oilfield land, and so you have to get it back from an oil company. That’s something you might not expect.

The second problem is that, assuming you have the land and the money to deliver the building, you either have to do it directly with government, which experience shows is a slow delivery mode, or you have to do it via public-private partnership (PPP), which come in many flavours, but all of them require government to do something which is different from classical procurement.

No one will send a government housing in the post. It has to be installed on-site.

So money alone will not sort the problem out?

The late King Abdullah of Saudi Arabia announced a 500,000 home production programme, and he endowed it with $67bn or so, but he ran into problems accessing land

What financial incentives can governments offer to address the problem effectively?

On the supply side, if you think the problem is too few homes, you can give resources to developers and say produce more houses. The problem is that if you pump resources into development, land prices go up.

On the demand side, if you think that the market would produce homes but people can’t afford them, you give money to people and say, go build or buy your own house.

Essentially, governments need a balanced strategy where they intervene as little as possible, in a targeted and smart way.

So do you think Gulf governments are doing enough? Are they sufficiently focussed?

I absolutely believe governments in the Gulf are serious about addressing the problem of affordable housing creation. It remains a topic where I perceive an urgency on the part of government to make things happen.

At the same time, because it is seen by many who are not expert in the field as a problem of delivery – of procurement – and is not understood with respect to blockages and value chain. Because it is seen in this way, Gulf citizens may think government is not doing enough because it is blind to the hidden obstacles in its own system.

If you could tell Gulf rulers one thing about housing, what would it be?

Societies get annoyed if people don’t have enough homes. In Gulf society, if a man can’t get his own home, he may be blocked from marrying. Nobody wants that to happen.

Housing is as important a driver of a healthy economy and society as anything you could possibly do.

FINANCE

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ISSUE 2 - 2015 ECONOMIC ME

WHY SO QUIET?

Saudi Arabia’s decision to open its Tadawul stock exchange to the world presents international investors with an opportunity to be a part of the Arabian Gulf region’s most exciting growth story.

So why isn’t Tadawul shouting about it?

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ECONOMIC ME ISSUE 2 - 2015

I

f the Tadawul stock exchange itself is anything to go by, Saudi Arabia’s inclusion on the MSCI Energing Markets Index might not be quite the formality many had hoped.

A prerequisite for MSCI inclusion is financial transparency, but trying to get information – even the simplest information – from the team behind Tadawul is far from straightforward.

When Tadawul was opened to foreigners in June, 2015, we heard much about how the move heralded a new era of openness in the kingdom. No longer, it was said, would listed businesses seem dauntingly opaque to outsiders.

Instead, international governance best practice – transparency included – would be the order of the day.

But, if the example set by the Tadawul team is any gauge of progress, there is still much to be done.

Approached for the purposes of this article, Tadawul’s communications team declined to answer even the simplest questions about the total value of stocks listed on the exchange, or the reasons for letting foreigners enter the market, or even the importance the kingdom places on adopting a strong governance culture.

The reticence was, and is, surprising, because for international investors, there is potentially so much to like about G-20 member Saudi Arabia’s stock market, and its more than 160 listed companies.

Now more than ever, Tadawul has the opportunity to attract investors from all corners of the world, many of them not familiar with the oil-rich kingdom’s recent economic growth story, nor the emphasis it places on di-

versification away from reliance on the hydrocarbon sector.

Now, surely, is the time to be shouting from the rooftops how petrochemical stocks account for only eighteen percent of those listed on Tadawul, or about Saudi’s commitment to investing heavily to ensure infrastructure keeps pace with a booming population.

That Tadawul chooses not to respond when it has the opportunity to advertise through the media what it offers is mystifying. Why not tell whoever will listen that stocks from fifteen industries, a far greater range than can be found

“SAUDI ARABIA I S I N W H AT ERNST & YOUNG REFERS TO AS A “DEMOGRAPHIC WINDOW OF OPPORTUNITY” – A THIRTY YEAR PERIOD DURING W H I C H T H E R AT I O O F E M P L O Y M E N TAGE CITIZENS TO DEPENDENTS (YOUNG OR OLD) IS OPTIMAL.”

on any other Gulf bourse, are available?

For old perceptions to be challenged and for international investors to see Saudi Arabia as a dynamic and transparent place in which to put very large amounts of money into stocks, it is imperative Tadawul communicates - even if doing so means engaging with journalists.

Silence - although no doubt the easier option - is a missed opportunity.

BUILDING A CULTURE Today, Tadawul is in flux.

In November, just over two years into the job, CEO Adel Al Ghamdi was replaced in the top job by Khalid Abdullah Al Hussan.

Before leaving, Al Ghamdi, in a rare public interview, said Saudi’s move to open its stock exchange to foreigners wasn’t about tapping new sources of capital, or achieving MSCI inclusion, so much as it was about bringing about change.

It was time, he said, the kingdom’s business community embraced the highest standards of international corporate governance best practice and transparency.

He said: “The reason [for allowing foreign investors to buy Saudi stocks] is not really about raising further funds for Saudi Arabia, we already have a lot of liquidity. It is qualitative influences that we are looking for, that we hope will develop our capital markets.”

Al Ghamdi added he hoped foreign investors would play an active role in shaping the outlook and culture of the kingdom’s companies, bringing them rapidly up to speed with international business norms.

He described his ideal Saudi stock buyers as: “long-term value investors who take an active role in shaping the direction of the companies they invest in.

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ECONOMIC ME ISSUE 2 - 2015

by some 1.6 percent a year to 2020, one of the fastest national growth rates in the world.

The challenge for government, then, is to ensure the opportunity afforded by the demographic window is maximised and captured by ensuring all working age citizens have jobs and homes, and that the necessary infrastructure is in place for them to thrive.

“IT IS Q U A L I TAT I V E INFLUENCES T H AT WE ARE LOOKING FOR, T H AT W E HOPE WILL DEVELOP OUR C A P I TA L MARKETS.”

“These activist shareholders are basically there to allow us to better align with global best practices and hopefully that will accelerate our convergence to higher standards of corporate governance, investor relations, issuer disclosures and, hopefully, broaden and make more sophisticated our research coverage of listed companies.”

It will be interesting, if and when he speaks publicly, to see if new CEO Al Hussan shares the same ideals.

INVESTMENT CLIMATE Certainly, these are economically exciting times for Saudi Arabia, and for those invested in its future.

Since King Salman – widely seen as a reformer - took the throne in January, 2015, he has pledged some $2.5trn to infrastructure development over the coming decade, earmarking funds in particular for the construction of new roads, hospitals, schools, airports and a metro system in Riyadh.

Significant investment is also expected into renewables technology, with a focus on realising the opportunities solar technology presents to a country so abundantly blessed with undeveloped space and year-round sunshine.

Saudi Arabia is in what Ernst & Young refers to as a one-off “demographic window of opportunity” – a period lasting some thirty years during which the ratio of employment-age citizens to dependents (young or old) is optimal for rapid and transformative economic growth.

Saudi Arabia’s population of thirty million people (median age 29) is expected to grow

LOW OIL PRICES – CRISIS OR OPPORTUNITY? Today, the investment community talks of low oil prices and what they will mean for Gulf stocks, particualrly in Saudi.

While opinion is split on the direction in which the oil price will move over the coming years, it is worth noting cheap oil in Saudi can be seen as an opportunity for smart investors.

The kingdom, for example, is a major producer of aluminium for export to manufacturing centres in India and other nearby countries. Low oil prices make aluminium production cheap, lowering prices and boosting sales (and profits) significantly.

Sachin Mohindra, portfolio manager at the Abu Dhabi Investment Company, said: “I still think there will be foreign interest in Saudi Arabian stocks despite the oil price drop, but it will be selective.”

SITTING PRETTY Saudi Arabia has worked hard in recent years to make itself as attractive as possible to the global financial community, promoting itself as an easy place in which to set up and to operate a business.

The opening of the Tadawul exchange to foreigners was a logical next step in this drive to attract direct foreign investment. For clever investors, the potential rewards of owning Saudi stocks are high, especially for those prepared to enter the market ahead of MSCI Index inclusion, should it happen.

Saudi Arabia is keen that the financial community understands it has much to offer beyond oil.

It’s a message that, increasingly - despite Tadawul’s reluctance to talk about it - is being received.

FINANCE

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ISSUE 2 - 2015 ECONOMIC ME

CREATING THE KNOWLEDGE

EconomicME looks on as the UAE unveils a AED2bn innovation fund. Can it really be possible to keep investing big in knowledge when energy prices are falling?

T

rue to the vision of the ruler, the United Arab Emirates is continuing to push boundaries and leads the way in terms of economic diversification amongst GCC states, but is there more to the recent Innovation Week forum than mere rhetoric? The country’s track record of multibillion dirham investments into innovation projects would suggest yes.

In December 2014, President His Highness Sheikh Khalifa bin Zayed Al Nahyan declared 2015 as the ‘Year of Innovation’. November 2015 also saw the UAE do what it does best, which is to engage, market to and

motivate a country.

With seemingly every government department mobilised, events throughout the emirates during November have spoken about new initiatives that focus on building a knowledge-based economy and making the UAE one of the most innovative societies in the world by 2021.

One event in particular drew our attention; ‘Financing Innovation and Innovative Financing’, which was hosted by the Ministry of Finance with attendance from HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and

Ruler of Dubai and HE Obaid Humaid Al Tayer, Minister of State for Financial Affairs.

We were invited to hear from HE Younis Haji Al Khoori, Undersecretary of MoF, Dr. Martin Herrenknecht, an award-winning entrepreneur and Founder and Chairman of the Board of Directors of Herrenknecht, Yann Ballet, Head of Project and Structured Finance at Airbus Group, Dr. Andreas Klasen, Professor of Law and Economics at the University of Offenburg and Mr. Craig Moore, Founder and CEO of Beehive about the future of financial innovation.

This was however all preamble for the

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ECONOMIC ME ISSUE 2 - 2015

“NOVEMBER 2015 SAW THE UAE DO W H AT I T D O E S B E S T: E N G A G E A N D M O T I VAT E . "

main event, the launch of the ‘Sheikh Mo- cluding commercial banks, investment funds, hammed bin Rashid Al Maktoum Fund to Fi- family businesses and other funding entities. nance Innovation’ worth AED2bn. The fund The fund’s pilot phase will be launched is designed to provide financing solutions for during the first half of 2016 with the particinnovators across various sectors within the ipation of individuals and companies from UAE, and support them in transforming ide- various sectors. This will be followed by the as and suggestions into innovation projects. official launch of the fund’s operations in the The fund is a federal govsecond half of 2016. ernment initiative represented HE Obaid Humaid Al Tayby the Ministry of Finance and er said: “We are confident that has been established to enhance the fund will achieve its goal funding opportunities in areto facilitate access to financas of innovation, by providing ing solutions for innovators, at to foster a reasonable funding to entreprea reasonable cost. This fund is knowledge economy neurial innovators and guaranconsidered one of the most im-

AED 300BN

teeing access to the commercial loans required to finance their projects.

It will also contribute to creating a supportive environment for innovation through the collaboration of various financial institutions and funding entities within the UAE, in-

portant financing tools in the region. It is expected to play a significant role in driving growth and economic development within the UAE, and in strengthening the country’s position on both a regional and global level.”

This comes during a week of major financ-

ing announcements made in the UAE. The president of the UAE, Sheikh Khalifa, has announced details of a plan worth more than AED300bn to foster a knowledge economy and innovation, and prepare the UAE for life after oil.

The Emirates Science, Technology and Innovation Higher Policy will include 100 initiatives with major investments in education, health, energy, transport, space and water.

Sheikh Khalifa recently said: “The UAE is working towards establishing a solid future for coming generations away from the fluctuation of energy prices and markets. The UAE has set its course for a post-oil world through investing in the development of our people in the fields of science and advanced technology.”

The funds will mostly go towards research and development, and tripling the number of people working in the knowledge economy by 2021.

Much investment will be focused on developing alternative energy, with AED128bn allocated for investments in clean energy projects and another AED72bn towards renewables.

Of the rest, AED40bn will go to aviation research, AED20bn to the nascent space industry, AED31bn to enhancing research across science, and AED12bn to establish innovation incubators and academic research centres.

The UAE is determined to steer itself away from dependence on energy exports and create a prosperous future. Time will tell if that can be managed against a low growth economic backdrop while coping with the burden of low energy prices, but again and again the country has achieved what many had claimed was impossible.

STOCK

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ISSUE 2 - 2015 ECONOMIC ME

FANTASY FUND MANAGER

CALL YOURSELF AN EXPERT?

Pit your wits against the best in the business… our readers.

Think you can catch a falling knife, or call a summit?

Let’s see. Maybe it’s not as easy as it looks.

H

as there ever been a more important equity fund launched in the region?

We asked and you responded. On the 1st November 2015 EconomicME officially launched the EconomicME GCC Equity Fund. The aim was simple; could our readers earn their keep? Could they pick the market?

We received stock nominations from more than 300 readers after announcing our fantasy fund manager competition with its US$10,000 return on investment for the winner (not bad when all you needed to invest was five minutes to email us).

Now more than ever there is cause for concern in the region as governments adjust to the new normal for oil prices and the obvious impact on expenditure. Business leaders around the GCC have also been wary of what the future holds with the majority of recent surveys showing a drop in forecasted revenues over the next 12 months.

So, with this in mind, are we crazy?

We will find out in twelve months but for now we will proceed as planned by investing in the first 10 companies nominated by our readers:

1.

The National Shipping Co of Saudi Arabia

2.

Emirates Telecommunication Corp.

3.

Gulf Navigation Holding

4.

Qatar Gas Transport Co.

5.

Itmaar Bank

6.

Investors Holding Group Company

7.

Bank Muscat

8.

Emaar Malls Group PJSC

9.

Saudi Basic Industries Corp

10. Ezdan Holding Group

There were some surprises for us in your nominations, not least the fact that three of our ten come from the real estate sector. It is however good to see a geographic spread of companies and a decent mix of industry sectors. Our guess is the transport stocks will do best out of these...

TO RECAP, THE RULES: Our fund will be split into ten separate investments of a notional $1m. Each issue, we will notionally buy and notionally sell our entire portfolio, meaning that over the course of the next six issues we need 60 stock picks from you, our readers.

After a full year of managing the EcomonicME GCC Equity Fund (domiciled in our offices in Dubai and under no financial regulation whatsoever, completely immune to governance or best practice) we will rank our stock pickers based on the percentage increase in the value of the stock they have selected whilst held by the fund. Don’t forget, our entire portfolio will be bought and sold every issue/two months.

It really is that simple.

Now, not to let you all off too lightly, we will be comparing your performance against key benchmarks; oil, gold, GBP, EURO, locally managed real estate, bond and equity funds, Dubai real estate prices, GCC market indexes and international stock market indices.

Every issue we will provide a snapshot of your latest stock picks, performance analysis of the EconomicME GCC Equity Fund and how well our benchmark comparisons are performing.

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ECONOMIC ME ISSUE 2 - 2015

COMPARISON INVESTMENTS

If you disagree with this issue’s stock oracles and believe you have the answer that our fund needs, then now is the time to nominate for our next issue.

To ensure everyone is on a level playing field, the stock pickers will be selected on a first come, first served basis… so to become one of our first ten stock pickers/fund managers/equity investors/market oracles all you need to do is email editorial@economicme. com with the following: • • • • • •

Your name Contact number Job title Location Nominated company name A brief explanation as to why you are recommending this stock

Obviously, any company you nominate must be listed on any of the markets in the GCC and should we have already received the same company nomination from another stock picker for the period, the second nomination would be ignored as we have to invest in 10 different stocks every issue.

The only other rule is you must be a resident of the GCC to participate.

Remember, this is a fantasy fund! We are not offering investment advice and we haven’t actually invested $10m into the GCC stock markets. The only real thing about EconomicME’s fantasy fund is the $10,000 prize for our top performer.

What are you waiting for, hotshot?

Commodities

November 2nd 2015

Brent Crude:

48.39

Gold:

1,089.80

Currencies

November 2nd 2015

EUR/USD:

1.07

GBP/USD:

1.5

Funds

October 31st 2015

Markaz Real Estate (Real Estate)

1.523

Wafra Bond (Bonds)

1.698

Arqaam Capital Value Fund Limited A (Equities)

129

Real Estate (Dubizzle Estimates)

Dubizzle Estimates November 1st 2015 AED

3 Bedroom Villa, Springs, Dubai, UAE

3,000,000

3 Bedroom Apartment, Palm Jumeirah, Shoreline, See View, Dubai, UAE

3,475,000

GCC Stock Market Index

1st November 2015

Tadawul All Share Index:

7,045.77

Abu Dhabi Securities Exchange General Index:

4,298.72

Dubai Financial Market General Index:

3,430.93

Qatar Exchange Index

11,586.00

Bahrain All Share Index:

1,251.27

Kuwait Stock Exchange Index:

5,779.74

Muscat Securities MSM 30 Index:

5,948.14

International Stock Market Index

November 2nd 2015

FTSE 100

6,353.83

Dow Jones Industrial Average

17,910.33

S&P 500

2,099.22

DAX

10,988.03

CAC 40

4,984.15

Shanghai Stock Exchange Composite Index

3,590.03

Nikkei 225

19,265.60

20

ISSUE 2 - 2015 ECONOMIC ME

1

2

Company Name

The National Shipping Co of Saudi Arabia

Emirates Telecommunication Corp.

Ticker

BAHRI

ETISALAT

Sector

Transportation

Telecom

1st November 2015

42.7200

15.3000

Market

Saudi Stock Exchange (Tadawul)

Abu Dhabi Securities Exchange (ADX)

2014 Net Profit

142,281

2,420,915

2015 9 Months Net Profit

333,650

1,541,151

2014 9 Months Net Profit

109,417

1,698,901

Variance USD

224,233

-157,750

Variance %

205%

-9%

Chairman

Mr Abdulrahman Mohammed Al Mofadhi

HE Eissa Mohammed Ghanem Al Suwaidi

CEO/Managing Director

Mr Saleh Bin Naser Al Jasser

Mr Ahmad Abdulkarim Mohamed Julfar

Website

www.bahri.sa

www.etisalat.ae

6

7

Company Name

Saudi Basic Industries Corp

Ezdan Holding Group

Ticker

SABIC

ERES

Sector

Petrochemicals

Real Estate

1st November 2015

82.2300

19.4400

Market

Saudi Stock Exchange (Tadawul)

Qatar Exchange (QE)

2014 Net Profit

6,222,578

373,624

2015 9 Months Net Profit

4,189,053

335,564

2014 9 Months Net Profit

5,085,842

278,776

Variance USD

-896,789

56,788

Variance %

-18%

20%

Chairman

HHPrince Saud Bin Abdullah Bin Thenayan Al Saud

HHSheikh Khalid Bin Mohammed Bin Ali Al-Thani

CEO/Managing Director

Mr Mohammed Bin Abdullah Al Benyan

Mr Ali Bin Mohammed Ali Suleiman Al Obaidli

Website

www.sabic.com

www.ezdanholding.qa

Latest Financial Results in USD ‘000

Latest Financial Results in USD ‘000

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ECONOMIC ME ISSUE 2 - 2015

3

4

5

Gulf Navigation Holding

Qatar Gas Transport Co.

Bank Muscat

GULFNAV

QGTS

BKMB

Transportation

Transportation

Financial

0.5000

24.6500

0.5340

Dubai Financial Market (DFM)

Qatar Exchange (QE)

Muscat Securities Market (MSM)

2,730

245,424

163,227

4,269

207,651

136,234

1,814

190,068

126,740

2,455

17,583

9,494

135%

9%

7%

Mr Hazza Baker M Al Qahtani

HE Dr Mohammed Bin Saleh Abdullah Al Sada

Sheikh Khalid Bin Mustahil Bin Ahmad Al Mashani

Mr Parag Jain

Mr Abdullah Fadhalah Al Sulaiti

Mr Abdulrazzak Ali Issa

www.gulfnav.com

www.nakilat.com.qa

www.bankmuscat.com

8

9

10

Itmaar Bank

Investors Holding Group Company

Emaar Malls Group PJSC

ITHMR

INVESTORS

EMAARMALLS

Banks

Real Estate

Real Estate

0.1550

29.5000

3.1000

Bahrain Bourse (BHB)

Kuwait Stock Exchange (KSE)

Dubai Financial Market (DFM)

-15,012

-12,651

367,709

5,657

-518

230,075

-112

-16,317

168,030

5,769

15,799

62,045

-5151%

-97%

37%

HHPrince Amr Mohammed Al Faisal Al Saud

Mr Fahed Ali Darwish Al Shamali

HE Mohammed Ali Rashed Alabbar

Mr Ahmed Abdulrahim Mohammed Abdullah

Sheikh Ahmad Dawod Salman Al Sabah

Mr Nasser Abdulrahman Rafi

www.ithmaarbank.com

www.ig.com.kw

www.emaar.com

FEATURE

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HAS DOING BUSINESS IN THE GCC BECOME TOO DIFFICULT?

GCC countries have been vocal in recent years regarding efforts to grease the wheels of commerce, but has anything actually improved?

EconomicME looks at the data

W

6.

7.

8.

9.

10.

The report measures aspects of regulation affecting ten areas of a typical business: 1. Starting a business 2. Dealing with construction permits 3. Getting electricity 4. Registering property 5. Getting credit

EconomicME decided to have a look at the rankings for 2016, 2015, 2009 (being the year the financial crisis was at its height), and 2006. Unfortunately, there wasn’t much to celebrate.

The United Arab Emirates topped the GCC for 2016 for ease of doing business, ranked 31st globally, with Kuwait at the bottom for the region, ranked 101st out of 189 countries.

However what was most noticeable to us was a drop in the rankings for every single GCC country compared to 2015, with Saudi Arabia plummeting from 49th to 82nd.

In fact, the average ranking of the GCC countries in The World Banks Doing Business annual reports have been steadily declining since 2009 from an average ranking in 2009 of 37 to a current average ranking of 69.

The United Arab Emirates is the only coun-

ith the slide in oil price, an increase in population and the need for economic diversification, it is natural to assume governments in the GCC strive constantly to reduce obstacles for business in the region and to make it easier to do business. But is this the case?

Recently, we have heard much in the media and elsewhere about what is happening in the GCC to encourage SMEs and entrepreneurship, alongside initiatives to enhance finance options for large corporates. But are these efforts anything more than lip-service?

Doing Business 2016 is the thirteenth in a series of World Bank annual reports investigating the regulations that enhance business activity and those that constrain it.

Protecting minority investors Paying taxes Trading across borders Enforcing contracts Resolving insolvency

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ECONOMIC ME ISSUE 2 - 2015

120 100 80 60 40 20 0

GCC Doing Business Rankings 2006 - 2016 1

20

40

60

80

100

L

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ISSUE 2 - 2015 ECONOMIC ME

The World Bank summary of GCC regulatory activity to improve doing business this year

UAE

OMAN

QATAR

SAUDI ARABIA

KUWAIT

The United Arab Emirates made dealing with construction permits easier by streamlining the process for obtaining the civil defense approval.

The United Arab Emirates strengthened minority investor protections by barring a subsidiary from acquiring shares in its parent company.

Oman reduced the time for border compliance for both exporting and importing by transferring cargo operations from Sultan Qaboos Port to Sohar Port.

Oman improved the regulation of outages by beginning to record data for the annual system average interruption duration index (SAIDI) and system average interruption frequency index (SAIFI).

Qatar reduced the time for border compliance for importing by reducing the number of days of free storage at the port and thus the time required for port handling.

Saudi Arabia made property transfers faster by introducing a new computerized system at the land registry.

Kuwait made starting a business easier by reducing the minimum capital requirement.

Nothing was featured in the summary for Bahrain

BAHRAIN

The United Arab Emirates made enforcing contracts easier by implementing electronic service of process, by introducing a new case management office within the competent court.

The United Arab Emirates made getting electricity easier by reducing the time needed to provide a connection cost estimate.

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ECONOMIC ME ISSUE 2 - 2015

THE UNITED ARAB EMIRATES TOPPED THE GCC FOR 2016 FOR EASE OF DOING BUSINESS, RANKED 31ST GLOBALLY, WITH KUWAIT AT THE BOTTOM FOR THE REGION, RANKED 101ST OUT OF 189 COUNTRIES.

try in the region to buck the regional declining trend, rising from 46th in 2009 to 31st today, although there was a drop of nine places from 2015.

The figures don’t necessarily mean that it is more difficult to do business in the Gulf than it was immediately after the 2009 financial crisis. What they do mean, however, is that other countries have managed to improve their regulatory environment for business at a pace that far exceeds that of the GCC. In a global economy it is not enough for countries to benchmark themselves against their previous performance. Today, all countries compete for trade and, eventually, all GCC governments will be competing on a global platform for corporate tax revenues.

If the region’s economies are to overcome the challenges that lie ahead then it is critical that GCC countries can continue to attract big businesses, make it easy to start a business, ensure access to utilities in all geographies, ensure small medium and large businesses have access to finance, that trade talks with other countries are facilitated and that a strong legal framework exists for companies that are thriving and those that are failing to operate within.

31 UAE RANKING AS GLOBAL BUSINESS DESTINATION

“ T H E AV E R A G E RANKING OF GCC COUNTRIES H A S S T E A D I LY DECLINED SINCE 2009 FROM 37 T O 6 9 . T H E O N LY COUNTRY TO H AV E B U C K E D THE TREND IS THE UAE, WHICH HAS RISEN FROM 46TH IN 2009 TO 31ST T O D AY. "

EXPERT

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ISSUE 2 - 2015 ECONOMIC ME

THE FUTURE OF THE GCC’S WEALTH AND ASSET MANAGEMENT INDUSTRY

BY GEORGE TRIPLOW, MENA WEALTH & ASSET MANAGEMENT LEADER, ERNST & YOUNG

The wealth and asset management industry is poised to enter a challenging stage in its evolution in the Gulf Cooperation Council (GCC) region. Substantial market volatility in China and continual pressure to start raising US interest rates from their current low levels are affecting sentiment. Market uncertainty is exacerbated by deflationary pressure in the Eurozone and the threat of recession in many emerging market countries. In the GCC, these concerns are overshadowed by the current decline in oil prices, which im-

pacts the economies at all levels.

The shape of the wealth and asset management sector in the GCC is unique. The last two decades have confirmed the region’s position as a financial center, as well as a trading hub connecting East and West and developed and emerging markets. The financial services sector has contributed to the impressive growth rates in the countries across the region and has been a fundamental cornerstone in their development.

The recent opening of the Saudi Arabian stock market to foreign investors, the inclusion of the UAE and Qatar in the Morgan Stanley Capital International (MSCI) Emerging Markets Index, and the launch of numerous financial free zones, have not only reinforced this trend but will specifically drive growth in the entire wealth and asset management sector, including pensions and support services.

It is clear that there are significant growth opportunities in the GCC wealth and asset management sector, but it is less clear who will benefit from the expanding business.

Many of the factors shaping and driving the expansion of the industry are specific to the region; as a result, its development seldom follows global trends. The decade-long oil

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“WITH OIL PRICES LOWER, AND THE INDUSTRY GROWING IN SIZE AND SOPHISTIC AT I O N , W E A LT H AND ASSET MANAGEMENT IS CHANGING IN THE GCC.”

boom has created enormous sovereign wealth funds and a vast pool of wealth for individuals and family offices. In comparison, mutual funds — the most publicly visible part of the asset management industry — are small, private equity is largely invested outside the region and public pension funds are only just coming of age.

With oil prices lower, however, and the industry growing in size and sophistication, wealth and asset management is changing in the GCC. Margins are being squeezed in some areas and opportunities are opening up in others. While the era of “briefcase banking” is well and truly over, competition is heating up among banks, asset managers and asset service providers with a local presence.

Many factors are influencing and shaping the industry: • The emergence of digital as a disrupting influence • Increased client demand for world-class services delivered locally • An intensifying regulatory environment • A more difficult fiscal environment This time of change is opening up significant new opportunities in every field for players that understand the drivers of growth. The

competitive environment is, however, changing too. Many new institutions are entering the market, and the winners will be those offering the advantages of product choice and a full array of services, along with local presence and knowledge. The macro picture is undecided for emerging markets — there will be pockets of rapid growth, but other areas will suffer.

One thing is certain, emerging markets have led the way in the growth of asset and wealth management over recent years, and this is set to continue.

28 FEATURE

Issue 2 - 2015 Economic ME

No one wants to work for an organisation that doesn’t practice good governance Corporate governance excellence not only bolsters the bottom line, it also ensures an organisation has a higher chance of attracting the very best talent in the industry.

KWR’s Managing Director, Sean Rutter explains

T

oday in the region we hear frequently of the benefits to business of embracing corporate governance best practice. Increasingly, we understand the strictures of international-standard governance, such as transparency, accountability and responsibility, are not merely cosmetic in value, but are instead likely to markedly improve commercial performance and to attract and protect long term investors.

However, an aspect of corporate governance excellence that is often overlooked is the potential it unlocks for an organisation to attract highly talented staff, particularly to senior roles.

In my experience as a head-hunter specialising in Chief Officers and other senior appointments, again and again I see highly effective and superb leaders shying away from

wonderfully remunerated positions with well-known regional organisations over concerns about standards of governance.

Similarly, I am approached with considerable frequency by senior executives working for organisations in the region with lower levels of governance, looking for a way to exit.

There are various reasons why talented people do not want to work for organisations that do not practice higher levels of governance. Chief amongst them is the realisation that higher levels of governance usually translates to a meritocratic environment, strong employee engagement, accountability and strong productivity, while the opposite holds true for organisations that practice lower levels of governance.

People who work in well governed organisations feel they have input into the direction

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Issue 2 - 2015 Economic ME

“As gulf economies continue to embrace c o r p o r at e governance best practice they will find they are able to at t r a c t t h e very best ta l e n t. ”

of the business and therefore feel engaged.

Likewise, they feel their career prospects depend upon the quality of their input and output and not on who they know, to whom they are related, or on their nationality.

Generally, executives who work for organisations that have ensured good corporate governance is second-nature at all levels will enjoy more responsibility, will feel corporate decision making processes are clearly defined (and, crucially, subject to accountability), and they will feel their working environment is characterised by transparency.

As a result, talented executives at well governed organisations will typically stay where they are for long periods, and when they are approached by head-hunters will require a very attractive proposition to turn their heads. Usually, they will be earning a highly competitive salary, and so money alone (even tax-free) will not be a strong enough motivation to cause them to leave. These people are looking for career progression and are smart

enough to spot a career dead-end when they see one.

Why would these people, usually in the prime of their working life, want to move to an organisation that isn’t properly governed?

I have never heard anyone say: “I want to work for an organisation that doesn’t practice accountability, transparency or disclosure.”

If money is the only tool an organisation has to lure senior staff, then in my experience that organisation is most likely to attract mercenaries, eventually more interested in playing the politics of self-preservation than in effecting professional excellence, and I see examples of this throughout the region.

Often, at these types of organisations senior executives will remain in position for a very long time.

However, they are often professionally unsatisfied and always eager to consider an opportunity elsewhere, but their association with an organisation that practices lower levels of governance can sometimes be a blot on their CV, preventing them from being taken seriously by the type of companies for which they would most like to work.

Certainly, these executives will have to take a significant cut in pay to leave for a new job in their home countries, something they will often be very reluctant to do. The result is stasis, both personal and professional.

The corporate world is a small one – talented people know the reputations of the organisations in their industry, and, even if they don’t, they are never more than two degrees of separation from someone who does. Strong corporate governance practice is a compelling proposition for potential employees, and one that causes the best candidates to take serious interest when they are approached.

As Gulf economies continue to modernise and embrace corporate governance best practice to attract foreign investment, I believe they will rapidly discover the quality of executive they are able to attract to their top organisations will also markedly improve.

The rewards of good corporate governance are as various as the downsides are few.

Introducing EconomicME.com

WEBSITE

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Economic ME Issue 2 - 2015

Your number one site for Middle East business news

"EconomicME.com gives you the latest headlines and takes you direct to the source of the news."

We’re proud to announce the launch of EconomicME.com – the Middle East’s best source of online business news.

Like its print counterpart, EconomicME. com is designed specifically to address the needs of investors, business leaders and financiers. Where EconomicME aims to bring you features and commentary from the leading minds shaping regional economies, EconomicME. com is a news platform and will help our readers prepare for business on a minute-by-minute basis.

We will aggregate the most important of the region’s market-moving news and present it to you in an easy to use format.

Clear and simple to use, easy to navigate and updated in real time, EconomicME.com gives you the latest headlines and takes you direct to the source of the news providing unparalleled coverage without bias from hundreds of sources.

You will also be able to access and share the excellent content featured in our magazine from our team of contributors on all devices giving you a chance to catch up on our in depth

features and analysis anytime.

This new service will undoubtedly give users a full perspective on the days’ events without having to search through hundreds of news providers, saving you time to get on with the real work of building a better business and securing financial objectives.

You don’t even need to visit EconomicME. com. Simply subscribe to our newsletter and we will deliver regular updates direct to your email giving you instant access to critical content.

Our commitment to newsletter subscribers means all you receive will be news. You will not receive a promotional email from a third party or become part of a marketing database. We understand our readers want information and that is what they come to us for. Therefore this is what we will give you.

We welcome feedback and suggestions and will happily add news providers suggested by our readers. If you’d like to get in touch with us you can do so by emailing editorial@economicme.com or by visiting the contact us page on EconomicME.com Visit the site and see for yourself.

ECONOMY

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ECONOMIC ME ISSUE 2 - 2015

Gulf affairs world expert Dr Eckart Woertz talks low oil prices, the prospect of taxation and GCC food security. Are the petrodollars soon to stop flowing?

D

r Eckart Woertz is a world-renowned expert on Gulf affairs. Formerly head of Dubai-based thinktank the Gulf Research Centre’s economics division and subsequently a visiting lecturer on GCC food security at Princeton University, he is experienced in advising governments and commercial organisations on the issues that keep Gulf leaders awake at night.

Now senior researcher at the prestigious Barcelona Centre for International Affairs, Woertz understands the unique challenges Gulf states face as they seek not only to develop their economies and remain gloabally competitive, but also to meet the needs of rapidly growing populations.

As we approach the end of the year, Dr Woertz agreed to talk to EconomicME about the Gulf issues of the day, namely, the difficulties governments will face should oil prices continue to head south and the prospect of leaders in the region choosing to raise state revenues through taxation.

As ever, when Dr Woertz speaks, the conversation was illuminating…

What’s your view on the direction of the oil price over the coming months?

I am not as pessimistic as others, but maybe I am wrong. There are some people saying that with the slowing economy in China, with the summer driving season over, OPEC continuously pumping and shale producers showing some resilience - how much is debatable

- the prices might even go down to $30 or below. Then you have the Goldman Sachs guys saying that the most likely long-term price is $50. I would guess between $60 and $80. That’s roughly in line with the IEA, which thinks we might see some producers in North America pushed out of the market, and with continuous demand growth, we may see a shortage in three to five years, causing the price to go up.

IS THE PARTY OVER? Do you think fracking has the capability to suppress the price of oil, long-term?

Fracking has started a kind of price war, to push them [frackers] out of the market. The Saudis don’t want a repeat of their experience of the eighties. Saudi Arabia cut back, cut back, cut back to stabilise prices, but other OPEC producers didn’t. They maintained their production and were happy about gaining market share, as were Norway and other

non-OPEC producers. Saudi Arabia does not want that to happen again.

But there are many other big question marks, apart from the shale oil issue. For example, what is going to happen with Iran, will they return to oil markets? What is happening to Iraq? If that comes all together with additional supplies, plus shale oil producers are not pushed out of the market as decisively as some OPEC strategists might have hoped, then that would make the Goldman Sachs scenario [a reality]. I expect more of a middle of the road scenario. But that is just one scenario.

How big a problem would the lower price be for Gulf economies?

If it is the Goldman Sachs scenario, it would be huge. Fifteen years at $50 would be a huge problem. Three years at $50 and then towards $60 to $80 would be still a considerable challenge. Because even at $80, that is not enough to cover ongoing expenditure, in the case of Saudi Arabia. There are big issues – they will need to think about raising finance in new ways, for example issuing bonds and so on.

And they have a lot of leverage in that sense because their public debt to GDP ratios are very low. They have used the oil boom of the last decade to repay debt. But the longer oil prices are low, the longer you do not break even in your government budget and the longer you do not cover your expenditure, you will need to issue debt or to think about raising taxes.

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ISSUE 2 - 2015 ECONOMIC ME

" B E C A U S E E V E N AT $ 8 0 , T H AT I S NOT ENOUGH TO COVER ONGOING EXPENDITURE, IN THE CASE OF SAUDI ARABIA. THERE ARE BIG ISSUES"

Over three to five years, low cost producers will be pushed out of the market and deepsea projects will also not come on-stream, or they will be curtailed. But after a while supply and demand will balance at slightly higher levels than now. But shale producers – they are like little valves – they can come back into production when prices are higher, and they will. We might see the emergence of American shale producers as flexible providers of spare capacity, exiting the market and coming back, depending on prices.

Do you think Gulf governments are very concerned?

It is certainly an issue. If they follow the example of the eighties and nineties it would mean cutting back capital expenditure while trying to maintain salaries and welfare transfers for political reasons. If, for example, you are a contractor and you have a huge contract, you might expect sluggish payment morale going ahead.

And to raise money, do you think we will see more taxation in the Gulf? Like VAT, for example…

VAT is very basic and non-progressive, it’s paid by rich and poor alike, at a fixed rate.

It is relatively easy to implement – it is not like a capital income tax where you need to really sniff around and get a lot of information. VAT is relatively easy and not very invasive. On the other hand, it is not very just, but that is philosophical. It hits the Filipino maid, but how do you want to reach the rich guys?

But is VAT only the tip of the iceberg?

How potentially damaging to the region’s attractiveness as a financial centre would, say, income taxation be?

I don’t see income tax coming, but I am not a tax expert. Perhaps they could do some corporate taxes. VAT is a start, a relatively easy start, but you will not reach the big money with VAT. What about raising money by decreasing government subsidies? For example, do you think electricity is too cheap in the Gulf?

I think it makes eminent sense to cut subsidies on energy and food. It is sensitive but it has to be done. Interestingly, in Kuwait they are cutting subsidies, but they have cut it on diesel, not on gasoline. In the UAE, it was the other way around. Cutting subsidies on diesel hurts business and it has a lot of knock-on effects, for example food became more expensive, even though they kept the food subsidies for the time being, but there is also the distribution cost within the food network.

Electricity in the region is often also produced with diesel or fuel oil, so costs for the cooling chains of the food distribution system are affected, too. But in the UAE, they went after the private consumer and did not touch the businesses. Energy subsidies are the largest share of the subsidy costs. I think they are more likely to be reduced than food subsidies. Poor people spend a relatively high proportion of their income on food, so they benefit disproportionately more from food subsidies. While energy subsidies are also self-targeting, they disproportionately benefit the upper classes, because they have a larger share of appliances, cars and so on.

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Is there not a danger that increasing the cost of living in Gulf countries will make them less attractive as destinations in which to work?

I am not sure, to be honest. VAT is not too invasive – you pay eighteen percent more for groceries, or 21, or whatever… I think income tax would reduce the attractiveness. But VAT and subsidies cuts are an inconvenience. Income tax would be more of a deterrent.

In the past we have spoken about Gulf food security. What is your current view of Gulf food security?

The region is food secure. If Gulf countries have a problem it has to do with too many calories and obesity. To be food secure, you do not need to be food self-sufficient. The UK is not food self sufficient, neither are Italy or Singapore, for example. The Gulf countries, even with low oil prices, are in a relatively comfortable position regarding sourcing food and remaining food secure.

Perhaps that explains why we don’t seem to hear so often as we used to do about the UAE, for example, buying up large parts of Africa or Pakistan to harvest food?

None of these projects that were announced have gotten off the ground, or they are operating way below their capacity and do not provide any meaningful additions to the region’s food imports, which come mainly from north America, Argentina, Australia and Brazil, France and Europe and so on.

" I THINK IT MAKES EMINENT SENSE TO CUT SUBSIDIES ON ENERGY AND FOOD. IT IS SENSITIVE BUT IT HAS TO BE DONE. I N T E R E S T I N G LY, IN KUWAIT THEY ARE CUTTING SUBSIDIES, BUT T H E Y H AV E C U T I T ON DIESEL, NOT ON GASOLINE."

FEATURE

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OMAN: DIVERSIFYING AGAINST THE CLOCK

With its oil running out and high unemployment, Oman needs economic diversification quickly, primarily to create jobs. But is the private sector the answer?

When Oman unveiled a plan this year to build a large petrochemical complex alongside a $6 billion refinery in the southern coastal town of Duqm, officials hailed the project as a step towards diversifying income and creating jobs.

Promoting new industries and expanding downstream oil operations such as petrochemicals have been a cornerstone of the Gulf Arab state’s aim to cut its $73 billion economy’s reliance on crude oil exports and create jobs to combat unemployment, which the IMF puts at over 24 percent.

The government of Sultan Qaboos bin Said, Oman’s ruler for 42 years, earmarked Duqm as the next industrial growth city with investments of up to $15 billion planned in new petrochemical and infrastructure projects at the port over the next 10 years.

Among other projects, Oman hopes to

boost growth and employment with a 1,000 km (625 mile), $13 billion railway. It is also investing heavily in airport and port operations in the southern city of Salalah near the border with Yemen.

It is all part of a plan to give the private sector a bigger role in the economy as oil production, which accounts for 77 percent of government revenues and half of economic output in non-OPEC Oman, looks to be nearing a peak.

Oman has faced sporadic street protests over a lack of work and perceived corruption since early 2011 and faces political uncertainty as Sultan Qaboos, 72, has not revealed his successor, a cause for concern when much of the Arab world is in turmoil.

Adding pressure on the economy, and employment, is a drop in natural gas production after a decade-long boom. That has created

ECONOMIC ME ISSUE 2 - 2015

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a shortage of gas supply in the country that Oman quickly needs to correct, with much depending on whether British oil company BP will go ahead with a costly gas project in the country.

“Gas and energy remain significant constraints on growth going forward, although there are promising signs that new fields may be coming on line in the near future,” said Farouk Soussa, Citigroup’s chief economist for the region.

He estimated that energy shortages could reduce economic growth by 2-3 percent a year over the next decade based on a similar experience in other countries.

After nearly doubling in 2001-2010 and feeding economic expansion, gas output in Oman fell 2.2 percent to 26.5 billion cubic metres (bcm) in 2011, the first annual drop in a decade, BP’s world energy review from June shows.

Gas consumption in Oman meanwhile soared by 180 percent to 619 billion cubic feet pendent on the BP project over the next few (17.5 bcm) in the decade to 2010, according years,” said Robin Mills, head of Manaar Ento the U.S. Energy Information Administraergy Consulting in Dubai. “It will at least tion (EIA), due to fast economic growth which meet the country’s needs and the gas situaaveraged 5.8 percent annually in tion will improve a bit, but still 2001-2011. the gas situation will be quite As a result, Oman has insuffitight,” he said. cient fuel to meet power demand BP hopes to make a final inin summer when air conditionvestment decision on whether ing use soars as temperatures the project is commercially viaContribution of frequently top 40 degrees celsius. ble towards the end of 2015, its gas to Oman GDP The government is pinning Chief Executive, Bob Dudley, its hopes on a $15 billion tight said last month. Analysts say the gas project being developed by project is the key question mark BP, which could unlock some over Oman’s development over 100 trillion cubic feet (2.8 trillion cubic methe next decade. tres) of reserves. The project will be costly “Without the (BP) gas, Oman is likely to however as tight gas is more difficult to extract need further imports,” said Hakim Darbouche, than gas from conventional fields because it is research fellow for a natural gas programme at trapped in rocks and tightly compacted sand the Oxford Institute for Energy Studies. and requires new technologies to flush it out.

The fall in gas production is hurting govThe government has demanded that if the ernment revenues as liquefied natural gas project goes ahead the gas produced should be plants are now running at roughly three quarsold in Oman. It is in protracted talks with BP ters capacity. over how much it would pay the UK company The government depends on gas for 10 perfor the gas. cent of budget receipts and the Internation“The gas situation ... is really critically deal Monetary Fund forecast in October that

10%

Oman’s finances could slip into the red as soon as 2015, posting a budget deficit of 1.1 percent of gross domestic product with the gap deepening to 6.3 percent of GDP in 2017. The government has posted surpluses every year since 1998 with the exception of a deficit in 2009.

A BP report estimates that Oman’s oil reserves will run out in 17 years’ time if it does not step up production from current levels, which would be costly. The country’s challenging geology means gas is partly locked in rocks. It is used along with other methods to extract more oil from old fields - a process known as enhanced recovery.

“We don’t feel that Oman is likely to increase its current (oil) production,” said a regional energy expert, who declined to be named. “Presently crude production has plateaued and we see gradual declines from 2014 onwards. They’ve already come close to maximizing what they are doing with enhanced oil recovery.”

The rising cost of oil production is affecting crude output, Oil and Gas Minister Mohammad bin Hamad al-Rumhy said in April.

“Oil is not a lake that we can tap when we wish. On the contrary, there are a number of

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technical challenges that deter many international companies from investing,” he said.

That pressures Oman, whose non-oil GDP surged 7.9 percent a year on average in 20012011, to diversify further into less energy and more labour intensive sectors such as tourism, and promote private sector jobs among its 2 million nationals.

“The citizens have to understand that the private sector is the real source of employment in the long run,” Sultan Qaboos said in an annual speech to his advisory councils last month.

“Hence they should not hesitate to join the private sector and must not desert their jobs therein,” he said.

To appease protesters as the Arab Spring uprisings took hold in other parts of the Middle East, the government created 44,000 new public sector jobs in 2011.

But Omanis like other Gulf nationals have not been keen to join the private sector, accounting for just 12 percent of 1.4 million private sector employees in September, government data shows, because the pay is lower and working hours are much longer than in government jobs.

“THE GOVERNMENT IS PINNING ITS HOPES ON A $15 BILLION TIGHT GAS PROJECT BEING DEVELOPED BY B P, W H I C H C O U L D UNLOCK SOME 100 TRILLION CUBIC FEET OF RESERVES."

Nearly 157,000 new private sector jobs were filled by foreigners in January-September, a 14 percent jump from end-2011, while 1,500 Omanis left private sector jobs over the same period.

Oman has been pushing hard to promote tourism, counting on its diverse landscape and rich traditions, but analysts say that may not be enough as the focus is on five-star resorts that generate far less jobs and economic benefits than mass tourism.

The number of guests at four and fivestar hotels jumped 21 percent in January-August from a year earlier to 400,200, according to government data. A Reuters poll forecasts Oman’s economy will grow 4.7 percent this year, down from an IMF estimate of 5.4 percent in 2011.

“Diversification is ongoing, but has not really addressed the labour market issues that exist in Oman,” said Soussa at Citigroup.

“Reducing unemployment is crucial to safeguarding political stability going forward in Oman, particularly as uncertainty over the succession process is probably greater than in any other GCC (Gulf Cooperation Council) country,” he said.

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CRUNCHING THE DATA GCC companies are learning to embrace data for the improved yields doing so can generate, but what more can they do?

EconomicME talked to SAP’s Jonathan Charley to find out.

N

o business will succeed if it doesn’t understand its customers. Today, as technology and innovation advances at a pace never before seen, this maxim holds more true than ever. But are GCC companies able to keep up?

EconomicME sat down with Jonathan Charley, EMEA head of financial services for research and enterprise software company SAP to find out how the region’s companies can improve their analytics work and adapt to advances in technology and data gathering.

As the GCC enters an economic slowdown how will the poor understanding within the financial sector of data analytics in the region impact retail banking performance?

I think regardless of whether the local econ-

omies slow down, it is now increasingly important that the boards have deep insight into how their business are running and what their customers are demanding. Traditionally that information is not good quality and increasingly rather than looking at historical reporting, boards should be looking at predictive analytics to see where they should be going. As the economy tightens up, it’s even more critical that you understand what your restrictions are. Getting the insights that will determine where your business is going to be are always important, but even more so when times are tight.

It is likely that a shift from lending to savings and investments will be a part of retail banking strategies in the region. Do banks know their clients well enough to achieve this?

Saving is one thing and is a way of getting low cost capital and is relatively uncomplicated.

Being able to offer investments however requires a lot more insight into customers, not only insight, but real time insight. Particularly when you are looking at the mass affluent market where you really want clients to selfserve, then it is essential that you can provide

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MORE DATA HAS BEEN CREATED IN THE PAST TWO YEARS THAN THE ENTIRE HISTORY OF THE HUMAN RACE

“TRYING TO PRESCRIBE FOR MILLENNIALS WITHOUT TA L K I N G T O MILLENNIALS IS A SURE F I R E W AY TO GET IT WRONG.”

the insights required to avoid all the sorts of miss-selling issues that the more mature markets have witnessed.

In terms of what they need to gear up to, it is effectively designing to the segment of one, which is possible now with the newer, big data capabilities providing real time and predictive analytics. This is undoubtedly where the focus needs to be if you are to move to the investments side rather than the lending side.

The trend is moving towards the personal financial management. Encouraging clients to understand how much they are spending on holidays, utilities, education, housing to enable effective financial planning. By adopting the right digital strategy, banks can implement a personal financial management strategy and ultimately be a beneficiary of their customers’ change in behaviour by understanding trends and developing products that suit these circumstances.

In your opinion, where in the world is the leading adoption of digital technology in banking taking place, and what can the GCC do to catch up?

On the branch side, it is very much evident

BY 2020 1.7 MEGABYTES OF NEW INFORMATION WILL BE CREATED EVERY SECOND

that a digital transformation is underway and that now what a customer is encouraged to do is focused on self-service. The agenda is undoubtedly to refit branches to enable this and ultimately reach a point where customers no longer feel the need to enter the branch to transact with their bank.

On a broader note this region compared to other countries has invested in more of a package-based software solution, as opposed to large UK and US banks that have large internal development teams. This has lead them to buy off-the-shelf technology that allows the quick adoption of best practice, but those systems are now aging. Changing the core systems of a bank is akin to a triple heart bypass operation, and we have seen failures here in the GCC. So we see more companies looking to modernise around their existing backbone.

Some of the pillars of technology such as data, analytics, branch experience, can be adapted relatively smoothly without altering the legacy procedures such as opening accounts and making deposits. This kind of integration of technology makes for an agile organisation.

But, ultimately, in answer to your ques-

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IN 2015 OVER 1.4 BILLION SMARTPHONES WILL BE SHIPPED BY 2020 WE WILL HAVE OVER

6.1 BILLION SMARTPHONE USERS

tion, talking this week with banks in the region it is clear that at the very most senior levels innovation is a priority. One of our clients has just returned from visiting our operations in Silicon Valley and is now enquiring how to adopt some of the innovations they have seen within their own organisation. So, in terms of engagement, the evidence I’ve seen is that banks are very engaged in identifying how to become a digital bank.

The big advantage banks have in the region is their ability, unlike more mature markets with massive internal infrastructure, to outsource. So the opportunity to enhance delivery by using third parties that are experts at delivery is certainly greater here.

What do you believe is the next consumer trend that, if not adopted by the banking sector, would see a bank lose clients?

I think one of the core trends which is particularly relevant to this region is remittances.

There are far more non-bank players coming into this arena, so with a lot of expats there is a lot of money flowing back to home countries. I think consumers are far more open to doing remittances via a bank and we are

seeing that in the UK where TransferWise is eating into banks’ market share by offering a cost-competitive alternative to traditional banking platforms.

So I think the banks need to look again at the remittance sector, which is a valuable part of the business, but possibly more importantly it is a key way to gain customer loyalty.

Within any large company who really needs to take ownership of data and for what purpose?

Data analytics and insights needs to be owned at the board level. It cannot be stuck in IT, who possibly don’t have the full understanding of what the business is meant to be.

Equally, there is a real danger where pockets of analytics sit fragmented across an organisation that it is impossible to get a full customer view.

Really it needs to be centralised and we are now seeing companies appoint a Chief Data Officer, but you must be aware of the DNA of this role. A CDO needs to be able to understand data but, more importantly, they need to understand the business to be able to make the demands of what it is they are looking for.

“ D ATA A N A LY T I C S AND INSIGHTS NEEDS TO BE O W N E D AT THE BOARD LEVEL.”

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73% OF ORGANISATIONS HAVE ALREADY INVESTED OR PLAN TO INVEST IN BIG DATA BY 2016 BY 2020 A THIRD OF ALL DATA WILL PASS THROUGH THE CLOUD

“SHOULD THE NONEXECUTIVES H AV E O U T S I D E EXPERIENCE? A B S O L U T E LY. SHOULD THEY BRING IN PEOPLE WITH ENTREPRENEURIAL EXPERIENCE TO CHALLENGE T H E S TAT U S QUO? YES.”

Does a lack of age and gender diversity at senior management levels in the GCC pose a risk to the pace of technological that concern stakeholders?

I think there are dangers of bringing non-banking people into executive roles, for example the PPI scandal in the UK was driven by a view that the banks needed a retailing mentality, and PPI is effectively extended warranty lifted from the retail sector and placed into banking, with no real recognition that it is a completely different product and was about risk. Banks there are still paying the cost of this lack of understanding.

Should the non-executives have outside experience? Absolutely. Should they bring in people from the likes of Google and Amazon and more entrepreneurial organisations to challenge the banks? I absolutely think that is the case.

Conversations with banks in the GCC that I’m having suggest that at the most senior levels there is a real enthusiasm for the adoption of technology but it is now a case of where they get insights from. Trying to prescribe for millennials without talking to millennials is a surefire way to get it wrong.

How do boards understand data, and do they question strategies adopted by management based on data enough?

The board should have analytics around a bal-

ance scorecard, which would get them to be able to challenge the executive management around the whole scorecard. They would have their own scorecard versus the executive committee giving them independent insight into how the organisation is performing.

There is a significant role for non-executives from outside the industry to really challenge the executives around that.

How do other industries compare with the banking sector in their adoption of data collection and analytics?

Globally I believe it’s fair to say the FMCG sector is far quicker than most to adapt to change. Tesco in the UK was probably one of the first organisations to realise the importance of data and how analytics and insights can benefit a business operating on such wafer thin margins. Banks have traditionally operated on a fatter margin and therefore haven’t had that pressure, up till now, to change.

So, for me, manufacturing and retailers have been leading this change.

What is SAP’s ambition in the GCC through 2016.

We will continue to change perceptions of SAP from the traditional enterprise resource planning arena to a company that really understands core banking and how to transform organisations for a new digital era.

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FEATURE

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ECONOMIC ME ISSUE 2 - 2015

47

M&A is back in fashion, but what are the factors that keep the decision makers up at night this time around? It’s not a simple job, deciding where to put all that money. EconomicME takes a look at what’s in and what’s out.

COME TOGETHER

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“ALMOST HALF OF C O M PA N I E S A R O U N D THE WORLD ARE N O W L O O K I N G AT MAKING POTENTIAL ACQUISITIONS BEYOND THEIR TRADITIONAL INDUSTRY BOUNDARIES."

In 2015 we have seen continued volatility in commodities and currencies, intense swings in equity markets and decelerating growth in several key emerging economies.

Despite these challenges, companies remain confident about dealmaking in the current macroeconomic environment.

According to EYs’ Global Capital Confidence Barometer, almost half of companies around the world are now looking at acquisitions beyond their traditional industry boundaries, meaning that cross-border and cross-sector deals will likely play a significant part of the merger and acquisition story over the coming months.

In these times of modest economic growth, it is more important than ever to understand executive management has a fundamental responsibility to effectively allocate capital and to find the right balance between long-range planning and short-term imperatives.

Those surveyed by EY were asked how they would be allocating capital. The reults were illuminating. (See opposite) Research consistently shows that those companies with the most active capital allocation processes will outperform and ultimately achieve higher returns than those with more passive or infrequent allocation approaches. In the new-normal environment of tempered global growth, continual reas-

ALLOCATION OF CAPITAL

15% 27% 28% 30%

30% Improve balance sheet by reducing debt

28% Organic growth (investing in products, talent retention, research and development) 27% Inorganic growth (acquisitions, alliances and JVs) 15% Returning cash to shareholders

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sessment of where to deploy and recycle capital is how companies sustain their growth trajectory and maximize value.

However there are continued challenges for the 27 percent of capital allocated to inorganic growth. Of the recent deals completed, there are notable issues contributing to deals not meeting expectations: • Strategic value overestimated/purchase price multiple too high • Sales volume declines/loss of customers • Failure to achieve synergies • Product/sales price and margin deterioration • Poor operating costs assumptions • Poor execution of integration Executives need to proceed judiciously as they look to M&A for growth. M&A targets need much more thorough due diligence, including new levels of cyber risk scrutiny. And any executive must be prepared to walk away from transactions that do not meet their strategic goals.

Locally, within the GCC, M&A activity is seen as robust. Ample liquidity is leading GCC-based corporates to look at fast growth markets in the wider MENA region where population growth is rapid.

Emirates NBD recently published its Macro Strategy Report and highlighted years of high oil prices have helped GCC countries to build up considerable reserves which currently stand at a conservatively estimated USD 1.8 trillion through central bank and sovereign wealth fund holdings.

Corporate balance sheets across many sectors remain largely unleveraged. This presents an opportunity for GCC-based capital-intensive sectors such as banking, telecommunications and energy to deploy capital and capture a foothold in emerging markets such as Africa, Asia and the wider MENA region to reduce dependence on domestic markets.

Deals here do face headwinds as confidence levels have been hurt by falling oil prices in 2015 meaning that shareholders are likely to scrutinise deals more closely.

MENA Although the wider MENA region does offer a natural footprint for companies in the GCC regional political challenges are most likely to dampen shareholder appetite for some opportunities until these economies transition into stability.

There has been strong appetite for investment in Egypt, post a number of key reforms taken over the last few years.

However recent security events highlight how both stability and confidence are intertwined. But with 40% of the region’s population at below 25 years of age creating a healthy and growing consumer base and ever more emphasis on job creation will undoubtedly present opportunities for GCC companies to take advantage of.

“A GROWING TRADE AND INVESTMENT LINK BETWEEN THE GCC AND A F R I C A H A S R E S U LT E D I N R I S I N G I N V E S T M E N T. TRADE BETWEEN THE TWO REGIONS HAS GROWN FROM ALMOST US$7 BILLION IN 2004 TO US$35 BILLION IN 2014."

AFRICA A growing trade and investment link between the GCC and Africa has resulted in rising investment. Trade between the two regions has grown from almost US$ 7 billion in 2004 to US$ 35 billion in 2014, a fivefold increase.

With GCC states accounting for more than 9% of total foreign direct investment to Africa in 2014. This alongside a noticeable increase in private equity investors in Africa suggests that Africa is likely to provide a key focus for regional M&A activity across sectors.

TELECOMMUNICATIONS Less than four years ago international revenues accounted for about 25% of total GCC telecoms operators’ revenue. Four GCC operators (Zain, Qtel, Batelco, Etisalat) with a large international footprint these now derive close to 60% of their revenues from their international operations.

This is well above an industry average of about 40%. Attractive acquisition targets are very limited and key regional players in the market are adopting a selective approach to identifying quality targets that demonstrate strong growth potential. However some operators have decided to remain domestically focused as is the case of Saudi Arabia’s Saudi Telecom.

Identifying new attractive markets, especially “greenfield” opportunities has been a focus for GCC operators. Egypt, Morocco, Pakistan, Indonesia, Iraq, and Jordan represent some of the key countries where GCC operators have been acquiring key stakes. We expect to see this trend continue over the comimg months and years.

ENERGY Despite the slump in energy prices, M&A’s in the oil and gas industry are hitting record levels: almost US$320 billion over the three quarters of 2015. The key driver for consolidation in the industry globally is cost and value synergies, and creating economies of scale with larger operators able to manage downturns better than smaller ones.

Energy firms in the GCC backed by strong

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W s

“EXECUTIVES NEED TO PROCEED JUDICIOUSLY AS THEY LOOK TO M&A FOR GROWTH. M&A TARGETS NEED MUCH MORE THOROUGH DUE DILIGENCE, INCLUDING NEW LEVELS OF CYBER RISK SCRUTINY.”

balance sheets and a willingness to expand and create value are keen on identifying selective opportunities that meet their strategic and long term objectives, be they building links with emerging markets, investing in new energy market opportunities, or adding value to their business.

FINANCIAL SERVICES The banking sector of the GCC has emerged stronger from the challenges of 2009, underpinned by strong government support and a very robust pipeline of government backed projects that have increased demand for financing solutions. Furthermore banks across the region have undertaken significant steps since the crisis to monitor risk, create adequate provisions, and re-price products to better deal with changing market dynamics. Banks are also taking a more proactive approach to their credit portfolios’ and are aligning their credit appetite to sectors and client segments that are core to the economies they operate in.

Banking penetration in the region, a key measure of the potential for future growth in the region is low. In terms of loans in particular GCC countries have almost half the penetration of developed countries such as Germany and the United Kingdom.

This shows that there is ample room for

the growth of credit in the region. One way banks are working on increasing that penetration is through diversifying their product suites, and tapping new client segments, especially the SME sector. However the appetite towards SME has not succeeded in meeting its potential. This needs to change especially as economies transform and governments focus on powering growth through the private sector via diversification.

The GCC banking sector has seen a number of key deals in the M&A space this year.

They range from acquisition in the wider region to domestic consolidation.

The most recent deal was Al-Ahli Bank of Kuwait’s acquisition of 98.5% of Piraeus Bank Egypt on November 10th 2015. In Oman, Bank Sohar and Bank Dhofar have recently appointed advisors for a proposed merger, having signed a non-binding MOU in July 2015 on that proposed merger.

In April the Commercial Bank of Dubai acquired an AED 3 billion corporate loan portfolio from Royal Bank of Scotland’s (RBS) UAE business. Dubai Islamic Bank is planning to start operations of a new bank in Kenya by the end of this year, the new bank Dubai Islamic Bank Kenya being a “greenfield” operation, with a 70% holding by DIB and 30% by local shareholders.

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LIFESTYLE

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CORNISH SPLENDOUR

Had enough? Change your scene and revitalise your mind. Head to Cornwall and remind yourself what is important in life.

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St Michael’s Mount

St Ives

W

here better for a change of scenery from the Gulf ’s sandscape than England’s Cornwall? This wonderfully picturesque county is where Londoners go to when they think another hour in the Big Smoke will break them. It’s where English lovers sneak off to for long weekends by the sea. It’s where well-to-do British families go for old fashioned holidays, without the hassle or expense of air travel and jabs. It’s not so much a secret destination as an old favourite. But for Gulf residents looking to get away from it all, it could hardly be bettered.

Cornwall is truly beautiful – its coastline famously rugged and bracing, its countryside fantastically verdant and untameable. A week or more here will do more to restore a tired soul than any number of expensive, five star spa treatments or massages. Cornwall’s air is so mineral fresh you can can taste its goodness. Visit Cornwall, walk its pathways and return to the Gulf glowing and refreshed, ready for the year ahead.

But where to visit? The beauty of Cornwall is there is so much to see – you don’t need to seek out tourist attractions… instead rent

a remote cottage and a car and plan your excursions day by day – park the car and walk in any direction you please, stopping for lunch in a rustic pub. Why not?

But, if you need some pointers, you could do worse than to try the following: St Ives The extraordinary intensity and clarity of light at St Ives lends the place a film set quality. Its legacy as a 20th-century art colony of world importance thrives at the Tate Gallery, Barbara Hepworth’s home and sculpture garden, and Bernard Leach’s pottery. For some of the best work by today’s painters and potters visit the Millennium, Belgrave and Wills Lane galleries.

St Michael’s Mount Reached on foot at low tide across a causeway, this former medieval monastery, now home to the St Aubyn family, has been sensitively restored and de-cluttered to show life on the Mount in the 17th century. The chapel has sublime stained glass. The seaward gardens are a peaceful refuge on a busy summer’s day.

Open February half-term; guided tours 11am2pm on Tues and Fri until March 30.

54 The Eden Project The world’s largest rainforest in captivity; there’s even a waterfall inside one of the giant Biomes, and these domes are architectural wonders in themselves. The crowds can be tiresome on a dull summer’s day so visit in sunshine and enjoy all the outside exhibits. There are rock concerts in summer and ice-skating in winter. Open all year.

ISSUE 2 - 2015 ECONOMIC ME

The Eden Project

Trebah Garden A valley garden full of sub-tropical plants and trees that tumbles down to the Helford River, where there’s a small beach for picnics and swimming. A good garden for a family visit as it includes an inventive adventure playground and special children’s trails. Open all year.

Porthleven This deep double harbour is a lovely place for an evening stroll and there’s plenty of space on the pebble beach. There are craft shops and galleries galore, three pubs (try the Atlantic Inn for a sunset drink) and a clutch of good restaurants, including Kota, The Square, Amelie’s, Sea Drift family-friendly Kota Kai and newcomer Rick Stein Porthleven.

Cotehele Hidden away on the banks of the River Tamar, this Tudor house remains in a time-warp.

Worth visiting alone for its truss-roofed Great Hall and collection of embroidered fabrics and Flemish tapestries in superb condition.

Paradise Park A family-run park that started as a conservation and breeding centre for parrots and macaws. Now there are otters, red pandas and penguins. Don’t miss the impressive flying displays with eagles and owls. Open all year.

Rocky Valley A half-mile east of Tintagel, this is a gorge in miniature: a slip of a stream tumbling over tinkling waterfalls between tussocky rocks and ledges full of wild flowers. Look out for the intriguing rock carvings in the Bronze Age labyrinth.

Lizard Point

Lost Gardens of Heligan Lost Gardens of Heligan Tim Smit’s first project in Cornwall (before Eden) remains a magical place. It covers 200 acres, so it’s possible to find peace here even in high summer. Beyond the flamboyant Himalayan spring garden are superb restored Edwardian fruit, flower and vegetable gardens. Deeper into the valley there are shady bowers and pools where dragon and damselflies dance. Open all year.

Lizard Point The National Trust, having failed to secure

Land’s End, redeemed itself by grabbing The Lizard, Britain’s most southerly point. There are two good, old-fashioned cafés, a serpentine marble workshop and flying displays by rare choughs.

Polperro A real picture-postcard treasure between Fowey and Looe. Locals have sorted the traffic issue by making all visitors use a parkand-ride. Like Port Isaac, it has a fishermen’s choir, which sings most Wednesday evenings in summer.

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