16 — 31 October, 2015 businessweekme.com
Algeria…..…..…........DZD 215 Bahrain….......................BHD 1
Egypt……............…......EGP 18 Iraq……...…..…...... IQD 3200
Jordan....….........….......JOD 2 Kuwait….......…......KWD 0.75
Lebanon..............LBP 4000 Libya…........................LYD 3.5
Oman…….................…..OMR 1 Qatar……….................…QR 10
Saudi Arabia.........…SAR 10 Syria............................SYP 200
UAE...…....…..…........…AED 10 Yemen…..................YER 600
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“Nobody knows the
exact number, but probably about 50 per cent of what you’re spending online is being stolen from you.”
3
ILLUSTRATION BY SJC
p46
““It’s s much c easier s to jjust keep O OPEC C alive than to shut a os i do it down””
“What’s happening g around the h IIranian i negotiating i i table? Tea,, coffee,, cake,, t ffruit,, maybe some kebab before coffee” b o another o co
““This s is s probably p b bl the h bigg biggest iinnovation o io si since c the h phone ph first fi came c o out””
p p22
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Co v Tra er il 16 — 31 October, 2015
Opening Remarks Is the UAE ready for an age of innovation?
How cove the r ge mad ts e
8
Global Economics Mongolian herders pay the price for sandstorms in Beijing
10
Market woes and fears of rising rates lead the wealthy to pay down debt
12
Diplomas for sale from Cairo to Kiev
12
There’s still gold in Africa
13
Gender inequality and GDP
14
Companies/Industries Gulf banks are having liquidity problems. Guess which liquid’s to blame
16
Warner Bros. Interactive scores by giving gamers “a chance to play outside the lines”
17
Iran’s iron ore industry needs home help
18
Briefs: Former Arabtec CEO raises capital, Dubai’s ENOC looks to diversify
20
Politics/Policy
4
Ain’t nothing but a family thing for OPEC’s squabbling members
22
The man who helped double Turkey’s economy is back on the ballot
24
Saudi soldiers get a warm welcome in Aden. Will it last?
25
Technology The Lionel Messi of sport coding
28
Baidu wants to sell you services and stuff. Investors will have to wait
30
Germany heeds the call of the industrial Internet
31
Innovation: Fire, the wheel, the printing press—and now the one-minute phone charge
32
Markets/Finance
“T This issue e’s cov cover e is er so on n ou our O ening Rema Ope ema arks rks k pi p ece ce e. It’s It’s s ab about ou h UAE’ be c the UAE’ UA E’s s plans ans s to be becom com om me a world rld i ovat le ea ade de der er iin n in innov ati a tiio on n.”
“Ok. So wha what’s t s th t’ t’s t e angle le e? ?”
““W Welllll,ll,, 2015 is the UA U E’s ‘Y Yea ear of of Innov In ova vatio tion.’ Th The gove g errn rnm men en ntt ha has as lau i ia i tiv i es aiime lau unc ch hed va va arriou ous init initiat ive im me m ed at trans ns sffor orrm orm min ng th the e co ou untrry un y’’s s l bal b l crrea econom omy int nto a glo global ba attiivvve e h hu ub for techno nology an a d re es s ea se arrrc ch.” “Th Tha att’s no no sma mall all task. Thatt co cou ullld d d cades d .”” ta ak ke deca de “Y “Y Ye e eah, but the country has de eveloped a reputation ove er th the las la as st few years as one willin ng to ng to bre br reak new ground–I mean, just st look at Burj Khalifa. And the lo go go ovvernmen en nt’s willing to lea ad by e mple on ex exa o this. In May y itt re re evveal ea ed details of its plan ns to to se en nd a space sp p probe to Ma arrs s in in 2020 and… ”
“Di “D Did you you u say space prob be?””
Thought the nuclear deal cleared the way in Iran? Get ready for more hurdles
34
New York: the next stop for Qatar’s riches
35
El-Sisi’s version of crowdfunding sees the people pay for mega-projects
36
Bid/Ask: Egypt ramps up domestic bond sales; Saudi Aramco to rubber-stamp German JV
37
“Yes, why?”
“This is art desk to editorial: We are go for cover launch in T minus 5, 4, 3, 2, 1…”
Features 16 — 31 October, 2015 businessweekme.com
Bot and Sold Companies are paying millions for online ads no human eyes see
46
It Knows When You’re Awake The world’s greenest office tracks workers’ every move
54
Touch Me Harder Behind the subtle, profound upgrade to the iPhone 6
60
ILLUSTRATIONS BY SJC
Etc. The Muppets come back to TV. This time, they’re online dating
65
The Critic: Anne-Marie Slaughter argues that you can lean in only so far
68
Branding: The rise of the “friendly” logo—for Google, banks, and many, many startups
70
Algeria…..…..…........DZD 215 Bahrain….......................BHD 1
Egypt……............…......EGP 18 Iraq……...…..…...... IQD 3200
Jordan....….........….......JOD 2 Kuwait….......…......KWD 0.75
Lebanon..............LBP 4000 Libya…........................LYD 3.5
Oman…….................…..OMR 1 Qatar……….................…QR 10
Saudi Arabia.........…SAR 10 Syria............................SYP 200
“LIFT LIFT OFF!” OFF! How did I get here? QIIB’s Edward Wong has had an eye-opening experience in the Gulf
72
UAE...…....…..…........…AED 10 Yemen…..................YER 600
There’s more to business events in Abu Dhabi A global centre for commerce and trade, with solid economic stability covering the energy, tourism, healthcare, wholesale and retail trade sectors, as well as many more, Abu Dhabi is also a vibrant business hub, boasting content-driven conferences, trade-speciďŹ c exhibitions, and unique incentive programmes, as well as being a capital city with exceptional connectivity whether by land, sea or air. It meets all the requirements to become your destination of choice.
Index People/Companies 25 How long will Saudi troops be welcome in Aden?
PLP Architecture 59 PricewaterhouseCoopers 31 Prince Alwaleed 37 Qatar International Islamic Bank 72 Qatar Investment Authority 35 Quora 30 Recep Tayyip Erdogan 24 Rio Tinto Group 20 Robin Li 30 Roman Abramovich 32 Ron Amram 48
STU Samsung SanDisk
32 32
16
Qatar National Bank
Abdel-Fattah El-Sisi Abdurabuh Mansur Hadi Accenture Accor Activision Blizzard Adnan Shihab-Eldin Advertise.com Ahmed Benbitour Ajay Banga
6
36 25 8 35 18 23 51 23 20
56 Deloitte
Ajisen Akinwumi Adesina Alain Bejjani Alan Dye Ali Abdullah Saleh Ali al-Naimi Ali Khamenei
31 14 20 61 25 23 35
Alibaba 30 Alstom 34 Amazon.com 20, 31 American Express 36 Andy Wafer 63 Anne-Marie Slaughter 70 Apple 31, 61 Atari 17 Baidu 30 Barclays 35 BHP 20 Bill Prady 66 Bob Kushell 67 Bonnier 48 Boris Media Group 52 Box 30 Carlyle Group 13 Casper 68 Chris Vanderhook 53 Cisco Systems 31 Citic Group 36 Codeforces 28 Craig Federighi 61
DEF Daniel Yomtobian Dentons Dianping.com Didi Kuaidi Disney
51 35 31 31 66
DoubleVerify Dubai Duty Free Dunia Finance Edward Wong Emirates
50 17 20 72 37
Google Gulf Related Hasan Ismaik Hassan Rouhani Hillary Clinton Hitachi Horizon Media IBM Intel
28, 31, 68 37 20 34 70 32 66 31 31
Mohamed Morsi Mohammed Al Kuwari Necip Ozyucel Nicolรกs Maduro Nintendo Nuomi.com Omar Boulos Outbrain OVG Real Estate
36 35 8 22 18 30 8 50 56
JKL
24
Ali Babacan
Emirates REIT 37 Eqtesade Novin Bank 35 Erik Ubels 58 Eulogio del Pino 22 Facebook 28, 68 First Gulf Bank 17 Franklin Templeton 14
GHI General Electric 13, 31 Gennady Korotkevich 28 Giulio Haas 35 Glencore 35
Janet Yellen Jeff Bezos Jennifer Aniston Jim Kiszka Kellogg Khaled Bahah Kingdom Holding Kozy Shack Lanxess
12 20 37 53 13 26 37 52 37
61
MNO
PQR
Majid Al Futtaim Holding 20 Mark Mobius 14 Marlon Chigwende 13 Masaken Capital 20 Mehmet Simsek 24 Microsoft 8, 18 Mohamed Alabbar 37
Palm Hills Developments Paramount Pictures Pentagram Petr Mitrichev Phil Schiller Pirouzan Parvine Pixel Toys
Crowdfunding in Egypt, El-Sisi style
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Getting Off the Ground By Shayan Shakeel
8
The UAE’s space programme shows its government is serious about launching an age of innovation in the country. Getting the wider economy to follow its lead will be the hard part
Last November, in a 500-year-old castle in Fujairah, the UAE cabinet approved legislation designating 2015 the country’s Year of Innovation as part of a National Innovation Strategy. The move, outlining 30 government initiatives in which innovation would be encouraged, aimed at setting the foundation for the creation of a diverse knowledge-based economy and establishing the UAE as a world leader in the field. The pinnacle of the UAE’s ambition in this regard was outlined in May when Vice President and Ruler of Dubai Sheikh Mohammed Bin Rashid Al Maktoum revealed details of the country’s plans to land a space probe on Mars in 2021 to coincide with the 50-year anniversary of the country’s formation. As an assertion of national self-belief and leading by example, there was perhaps no greater statement. The UAE has long been a world leader in making grand plans. Its unbridled ambition has transformed it into the region’s most advanced economy at the forefront in the adoption of the latest in technological innovation. Routinely boasting some of the world’s highest connectivity and mobility penetration rates, the country can also lay claim to technological firsts such as the world’s longest automated mass transit system and, perhaps its greatest achievement to date, Burj Khalifa. Breaking the record for the world’s tallest building by over 300 metres when it opened, the 828-metre structure rewrote the rulebook for building engineering and has served as a model for the design and construction of supertall skyscrapers around the world since. Continuing in this vein, the UAE has been quick to embrace the tech industry’s current buzz concept, the Internet of Things. IoT will be pivotal in connecting machines with systems in “smart” cities–two of which the country plans to develop in the coming years. A dedicated IoT event took place in Dubai earlier this year and the digital transformation and future of cities will be a key theme at the country’s annual tech jamboree, Gitex, this month. “IoT has well and truly arrived in the Middle East,” says Omar Boulos, regional managing director at management consulting and technology services company Accenture MENA. As an example, he highlights the use of Google Glass to improve paramedical services at Dr Sulaiman Al Habib Medical Group’s hospital in Dubai. Meanwhile, other industry proponents of IoT say the technology is set to improve the performance of elevators in some of the UAE’s hundreds of high-rise buildings, while it is already transforming operational processes in the oil industry, the backbone of the country’s economy.
Despite the tech industry’s enthusiasm, there’s evidence to suggest the technology has yet to make any real impact in the UAE. The only hospital in Dubai, for instance, which uses Google Glass–a product that promised much and delivered little– employs one ambulance and one device; ThyssenKrup’s elevator experiment has been trialled in only 50 of its 1.1 million elevators worldwide, and hardly any in the UAE; and a McKinsey Global Institute study analysing 30,000 data points on an oil rig found only 1 per cent of any data generated was being used. IoT illustrates the problem at the heart of the UAE’s ambitions to become a world leader in innovation: it is one of crossing over from adopter to creator. Use cases will first have to be discovered or invented in tech hubs around the world before finding their way into the emirates. Waiting for innovation to trickle down from tech hubs in Europe, America and elsewhere has paid off for the private sector in the region so far, providing large regional profits for companies struggling to grow revenue in their home markets. What it has also done is allow the private sector to drag its feet on contributing to innovation within the region. Research and development centres have been key to helping economies such as the US (Silicon Valley), South Korea (Seoul) and Spain (Barcelona) emerge as world leaders in innovation. But tech companies with operations in the UAE see little incentive to contribute to locally-based R&D on IoT or any other technology. Those that do, like Dell, separated production from development and invested in testing and product customisation. Dell’s own IoT labs, however, remain in the US and Ireland. “Most tech companies sponsor research at a global level to determine general patterns,” says Microsoft’s Necip Ozyucel, cloud and
Lanvin. “They include knowledge creation, domestic patent applications, scientific and technical articles, software spending and high-tech and creative goods exports.” It’s a frustrating marker of activity, but to say innovation activity in the UAE is brain dead would also be an overstatement. The public sector, in particular, is aggressive in pushing the agenda forward. The Dubai government, for instance, has introduced Makani, an address mapping mechanism with far reaching implications for the Smart City initiative; the Roads and Transport Authority is trialling smart parking systems in a number of malls; and Dubai Electricity and Water Authority/ Sharjah Electricity and Water Authority are introducing smart metering systems to monitor power consumption. As part of its National Innovation Strategy, the government also called for the establishment of labs for the private sector and education institutions. The government’s innovation push, which focuses on seven sectors of the economy, has yet to prompt any discernible movement in the private sector. There is research happening, says Fady Kassatly, vice president at management and technology consulting company Booz Allen Hamilton, it’s just that most of it is being carried out by management consultants and marketing research departments, instead of scientists, academics, and researchers. “We live in a region where for various reasons, some inexplicable, people have been
"We live in a region where for various reasons, some inexplicable, people have been taught to be averse to taking risks for fear of failure. What we need to inculcate is that failure doesn’t always mean regression. You can fail forward."
taught to be averse to taking risks for fear of failure,” he says. “What we need to inculcate is that failure doesn’t always mean regression. You can fail forward.” Incentivising innovation, establishing research parks and funding science grants might have the kind of effect that creating free zones did on bringing large organisations to the country, according to Kassatly. The government aims to increase investment in such public private partnerships as it attempts to diversify its economy, but it is starting from a low base. In 2014, public sector investment earmarked for innovation stood at less than 0.9 per cent of annual GDP, based on calculations from government data. That’s approximately a third of what the most research-intensive economies in the world commit—and only half of the UAE’s investment goes to R&D. The National Innovation Strategy directed all public organisations to divert 1 per cent of their budgets towards innovation from 2015 as a first move towards addressing the gap. But, just like the Mars probe, if the UAE is to achieve its aim of becoming a world leader in innovation, that still leaves a very long way to go.
9
PHOTO ILLUSTRATION BY SJC, SHUTTERSTOCK (2)
enterprise business group lead. Global strategy in this regard is dictated on the basis that “mature economies have a wider and more sophisticated consumer base which drives patterns in emerging markets,” he says. This dynamic has caused the UAE’s economy to remain one where innovation imports vastly outweigh innovation creation. A key marker of R&D, for instance, is the number of patents an organisation or country files: According to the US Patent and Trademark Office the UAE filed only 60 patents in 2014, out of 326,039 worldwide. Published in September, the 2015 Global Innovation Index, which ranks 141 countries across 79 factors which contribute to innovation in an economy, ranked the UAE 47th in the world—four places behind Saudi Arabia—and a fall from 36th last year. It is also among the lowest in the world in terms of the efficiency of converting inputs that foster innovation to outputs at 133rd. “It would be fair to say that the primary thrust of businesses in the country, be they large or small corporations, involves the sales and marketing functions,” says Hermann Riedl, managing director and partner at Boston Consulting Group Middle East. The low output numbers exist because of the UAE’s complicated human capital pool which constitutes a large, transient expat population, says Bruno Lanvin, executive director, Global Indices at INSEAD (which publishes the GII with Cornell University). “Most areas in which the UAE can significantly enhance its GII perforce are in its outputs,” says
16 — 31 October, 2015
Creating
a Des
10
B Beijing iji g pressures h herders d to move to the h cities ii s Chaogetu, who like many Mongols has only one name, still lives in the house where he was born, a mud-walled threeroom shack in a small oasis of Inner Mongolia’s Tengger Desert. He cooks over a wood stove and has a one-monthold lamb tethered in his living room to protect it from foxes and eagles. Like his parents, grandparents, and generations before him, the sun-beaten herder sees his fortunes rise and fall with his livestock—5 camels, 12 cows, and about 500 sheep and goats. The small lakes dotting this arid region of China have been drying up as the desert grows ever bigger. The sandstorms that roll across the land every spring before heading to far-off Beijing and Tianjin have become more frequent. Clouds of stinging grit choke the lungs and darken the skies for as many as three days at a time, forcing Chaogetu to stay inside and taking a toll on his livestock. A series of bad storms hit Beijing in the
years leading up to the 2008 Olympics. “People in Beijing saw the dust storms and said this is a problem that cannot stand,” says Christopher Atwood, an associate professor of Central Eurasian studies at Indiana University. Officials in China’s capital blame overgrazing for the desertification and dust storms. Activists and academics say coal mining and large-scale agriculture, plus climate change, are more to blame. Local authorities are levelling fines on ethnic Mongols with large herds, pressuring them to give up their way of life in exchange for subsidised housing in resettlement villages built outside urban centres. Sometime in the next year, Chaogetu may end up moving to Bayanhaote, the nearest city. “It’s not fair,” he says. “The government takes your land and house and always gives you just a little bit of money. I don’t know whether I will be able to live in a city. But I may have no choice.” By
yearend, the central government plans to finish a four-year-long resettlement of 1.2 million herders into the villages. The resettlement policy and the Great Green Wall, began originally in 1978 to plant belts of trees between China’s deserts and big cities, were accelerated. The tree planting and the removal of the herders’ grazing livestock have been credited with slowing the spread of deserts and dust storms; forestry officials say the encroaching desert is contained for now. Others are less sure. “Their approach to dealing with desertification is ‘Oh, let’s plant more trees,’ ” says Hong Jiang, who teaches geography at the University of Hawaii at Manoa. “But that’s problematic, because where you have deserts expanding, those places never have had trees in the first place—trees don’t grow at the edge of deserts. Lots of trees planted early on have died.” In April, Beijing experienced its worst
PHOTOGRAPH BY JAMES WHITLOW DELANO FOR BLOOMBERG BUSINESSWEEK
“ “Trees don’t ’ grow g at the edge g of deserts”
sert
Affluent Americans get thrifty 12
Why it’s not time for investors to get out of Africa 13
Diplomas to the highest bidder 12
Another reason to love women 14
in China 11
Inner Mongolia’s Tengger Desert
sandstorm in 13 years. “The country faces a tough battle against encroaching sands,” the official Xinhua News Agency said in June, reporting that annual direct losses from desertification amounted to 54 billion yuan ($8.7 billion). With resettlement, overgrazed land has a chance to regrow, say forestry officials; the herders have to find work at restaurants, factories, or dairy farms. In one relocation village, just outside Bayanhaote, the one-storey houses, each with a small courtyard, look tidy. Many residents are still unemployed, says one Mongol, who runs the only restaurant. (He declined to give his name, citing sensitivity surrounding ethnic policy.) “How can we enjoy living this way?” he asks, sitting in his empty restaurant. “We Mongols are supposed to live in the grasslands, with our animals.” Decades of migration from elsewhere in China have left Mongols a minority in their own region. They make up only
17 per cent of the population while Han Chinese are 79 per cent. In 2011 a Han coal truck driver hit and killed an ethnic Mongol, sparking regionwide protests. Demonstrations have continued since then, especially over pollution from coal mining and chemical refining. A 2014 study by Peking University professors found that Mongol herders who moved to resettlement villages used at least 50 times more water than they had in their pastoral life. The herders worked as farmers, mainly growing corn and wheat, which need much more water than their flocks did. “In this arid grassland of China, ecological resettlement policy is ecologically and economically unsustainable,” concluded authors Fan Mingming, Li Yanbo, and Li Wenjun. Says Michael Webber, a geographer at the University of Melbourne: “Raising dairy cows is much more water-intensive than sheep that are grazing.” Open-pit coal mining has spurred the
spread of the desert. “In order to dig out the coal, you need to pump out the water,” says Deng Ping, a campaigner for Greenpeace China. In the process, that water becomes polluted. Coal mining “has destroyed huge areas of grassland and destroyed the water system.” In early September some 200 herders gathered before government buildings in Inner Mongolia’s Xilingol prefecture to demand aid to offset losses from drought. When 20 were detained, hundreds of demonstrators demanded their release. Security guards and riot police stopped that protest and others that ensued. “The government isn’t taking our land to protect it. They just want it as property to develop themselves,” says an ethnic Mongol who declined to give his name. “Their policy is all about sacrificing Mongols.” —Dexter Roberts The bottom line Inner Mongolia is under severe stress as new farms and mining suck up water and speed desertification.
Less Leverage Budgets
e r th Share of wealthy households fo that say their finances are better than a year ago because of lower debt
America’s Well-Off Show An Aversion to Debt
Without better investment options, more of the well-off are paying off debt
16%
Some upper-income consumers clean up their balance sheets 8%
“They’re making a very rational consideration”
12
More wealthy Americans say they’re reducing debt than at any time in the past decade. The market volatility that prompted the Fed to delay raising interest rates in September may have persuaded high- earners to be more cautious with their finances, says Richard Curtin, director of the University of Michigan Surveys of Consumers. Affluent Americans may be saying to themselves, “ ‘Given what I expect the returns on stock market investments to be, it would be a better use of my money to pay down debt rather than to put it in the market,’ ” Curtin says. “They’re making a very rational consideration.” The surveys picked up on the new thriftiness of the well-off in the US. About 15 per cent of high-income households, which the survey defines as the top third of all earners, reported that their debt declined in September. People are in the top third of all earners if they have an income of at least $90,000 a year, according to the Michigan survey. Fed policymakers delayed raising the benchmark interest rate at their September meeting amid concerns that the weakening world economy could threaten the US recovery and slow inflation. Fed Chair Janet Yellen said on 24 September that she and others on the Federal Open Market Committee are ready to raise interest rates later this year. For some affluent Americans, the Fed’s decision to hold off on a rate hike was likely a wake-up call, says Curtin. Consumers may have underestimated the risk that international developments cited by the Fed posed to the US, prompting high-earners to look at their finances more critically, he says. In contrast, the bottom two-thirds of American households, as measured by income, reported that their financial situation got worse during the same period that many affluent households were cutting debt.
0 1/2005
9/2015
Consumers who make less than $90,000 a year may not have spare cash to reduce their debt, says Curtin. “They are much more income constrained, and wage rates have not been going up very much,” he says. “A lot of lowerincome folks are still trying to rebalance their financial accounts and don’t have that much discretion about where to put extra money, whereas upper-income people save each and every month.” —Victoria Stilwell The bottom line As the world waits for the Fed to act, cutting personal debt is an attractive alternative to investing in the stock market.
Education
Buying a Diploma Is Easy If You Can Pay Up Around the world, the sale of degrees is hurting economies “We have public servants who cannot manage simple paperwork” Mariam Malak , a 19-year-old from a village in southern Egypt, had nearperfect grades in high school and dreamed of becoming a doctor. But when the results of the nationwide graduation exam were released in July, the honour student was told she had scored zero, failing to answer a single question on all seven tests she took. Malak has another theory: Her test papers were swapped for those of someone who paid a bribe or used connections to get a high score. The government says it analysed the handwriting on the exam papers where she had gotten zeros and concluded she wrote
them. Undeterred, Malak is seeking a court order for an independent handwriting review. “We are fighting this on behalf of all students who have suffered injustice in the Egyptian educational system,” says her lawyer, Ihab Ramzi. “This case is just an example of the rampant corruption inside the Ministry of Education.” The ministry didn’t respond to calls from Bloomberg. Malak is now a heroine to Egyptians fed up with bribery and nepotism. Tens of thousands of people have posted messages of support on Facebook and on an “I Believe Mariam Malak” Twitter feed. Celebrities are offering to pay her tuition at a foreign university. Egypt ranks a belowaverage 94th among 175 nations worldwide in an annual survey by the anticorruption group Transparency International. Some 67 per cent of Egyptians surveyed by the group in 2013 said the education system was corrupt. “Corruption can be found at all levels of education systems” in scores of countries worldwide, Transparency International wrote in its 2013 report, citing everything from bribes to teachers to faked test scores and bogus dissertations. Corrupt schools not only hurt bright students whose families can’t or won’t pay bribes, they also cause widespread economic harm, says Stephen Heyneman, an emeritus professor at Vanderbilt University and former World Bank official who has studied corruption in education. Income inequality is an obvious result, as poorer students are denied a shot at credentials that could help them move up the ladder. Heyneman, who has studied the topic in the former Soviet republics in Central Asia for the past decade, says some multinationals operating in the region give special tests to job candidates to separate legitimate graduates from “those who bought their degrees” from corrupt local
KHALED DESOUKI/AFP/GETTY IMAGES; DATA: UNVIERSITY OF MICHGAN SURVEY OF CONSUMERS
Global Economics
DATA COMPILED BY BLOOMBERG
“We are fighting this on behalf of all students who have suffered injustice in the Egyptian educational system.” —Ihab Ramzi, Mariam Malak’s lawyer
institutions. Candidates who pass the tests get placed in extended apprenticeships to verify their skills. Because such screening is expensive, many companies try to avoid hiring locally and bring in expatriates for key positions, limiting opportunities even for well-qualified graduates. Students who get degrees through bribery or nepotism can likely land a job with a government agency or company in their country. That’s the case in Ukraine, says Ararat Osipian, a US-trained Ukrainian economist who studies educational corruption there. “We have public servants who cannot manage simple paperwork,” he says. Bright but less affluent young people often end up in menial jobs, Osipian says. “It’s a terrible waste of human capital.” Wasteful, and maybe even lifethreatening. The head of Bogomolets National Medical University in Kiev was removed last year after he was accused of accepting bribes to inflate student grades and for handing out medical degrees to the unqualified. The US and European Union nations don’t recognise Ukrainian medical degrees. In 2011 several administrators at the Pirogov Russian National Research Medical University in Moscow were removed after government inspectors discovered that two-thirds of more than 700 slots for full-scholarship students were filled by “ghosts,” who either didn’t exist or hadn’t applied to medical school. The slots, intended to be tuitionfree, were then sold to applicants for up to $14,000. Andrei Kamkin, a physiologist who was named rector after the scandal, told the RIA Novosti news agency last year that he fired professors who took bribes and expelled students who had been allowed to retake exams numerous times until they passed. “We realised the danger of letting ignorant students graduate and become doctors,” he said. Raising educators’ salaries, often seen as a way to reduce bribery, may not help once corruption has taken root, says Izhak Berkovich, an education professor at the Open University of Israel. In a study published in September, Berkovich compared fourth graders’ scores on an international math and science exam in 45 countries. The lowest scores, he found, tended to be in countries that were ranked by Transparency International as relatively corrupt but that also had relatively high per capita spending on education. Injecting
money into a crooked education system, he wrote, is like pouring fuel on a fire: “Institutionalised corruption is likely to spread.” In some countries, including some in Central Asia, Heyneman says, even the best students have trouble pursuing advanced degrees or getting jobs abroad. “Their graduates have a poor reputation,” he says. “Their professionals aren’t trusted.” —Carol Matlack, with Salma El Wardany and Ahmed Feteha The bottom line Corruption in education can weaken a country’s economy, worsen income inequality, and produce unqualified doctors.
Global Economics Currencies of Sub-Saharan Africa Change in value against the US dollar, 31 December, 2014, to 16 September, 2015 Unchanged 11.46%
Somali shilling
9.40%
Gambian dalasi
0 Eritrean nakfa -0.11% Congolese franc -0.23% Djiboutian franc -2.37% Liberian dollar -3.45% Ethiopian birr -6.20% Guinean franc -6.86% Sierra Leonean leone -7.52% Botswanan pula -7.82% Nigerian naira -8.82% Rwandan franc -10.01% Mauritian rupee -12.99% South African rand -14.53% Kenyan shilling -17.27% Malawian kwacha -19.49% Ghanaian cedi
Growth
-20.61% Tanzanian shilling
In Africa, New Winners and Losers
-24.29% Angolan kwanza -24.31% Ugandan shilling -26.19% Mozambican new metical -35.98% Zambian kwacha
Resource-rich countries may suffer, but others benefit from cheap oil “Taking a medium-term view, you ignore Africa at your peril”
Just a year ago, Africa was being touted as the next investment El Dorado. Two decades of record growth, a rapidly urbanising population of 1.1 billion, rising incomes, and vast untapped mineral reserves would produce a sizable middle class, the theory went. General Electric, Marriott International, and other multinationals announced aggressive African plans. Buyout firms Carlyle Group and Helios Investment Partners set up Africa funds. The region attracted $128 billion in foreign direct investment last year, up from $52.6 billion in 2013, according to accounting firm EY. On 16 September, Kellogg announced it had bought a 50 per cent stake in a Nigerian food distributor. Now a slowdown in China, Africa’s largest trading partner, a tumble in commodity prices, and persistent power outages are slowing the region’s growth. A Morgan Stanley index of African stocks has dipped 18 per cent so far this year, 5 percentage points more than a gauge of stocks across 24 frontier markets, while 21 of 24 African currencies tracked by Bloomberg have lost ground against the dollar. “It’s a difficult situation that the continent faces,” says John Mackie, head
of Johannesburg-based Stanlib Asset Management’s African portfolios. China’s stock market bust and the possibility of US interest rate increases have had “a massive impact,” on the region. To Marlon Chigwende, sub-Saharan Africa managing director for Carlyle, the important thing to remember is that this is a continent, not a country. “There are individual forces at work within each of the 55 countries that make up Africa,” he says. “Africa is still set to be one of the fastest-growing regions in the world during 2015, albeit growth is expected to be a bit lower than was anticipated at the start of the year. There will continue to be investment opportunities.” The economies of sub-Saharan Africa will expand 4.4 per cent this year, the International Monetary Fund said in July. That’s 1 percentage point less than predicted a year ago and below the 5.4 per cent average of the last decade. The peak was 7.1 per cent in 2007. The economic health of Nigeria and South Africa, which together account for 55 per cent of the 48 sub-Saharan African nations’ gross domestic product, can shift the overall growth picture. Lower oil prices drove down Nigeria’s growth rate to 2.4 per cent in the second quarter, the slowest pace in at least five years. South Africa’s economy shrank by an annualised 1.3 per cent as power shortages curbed production. “It’s about the weakness of the giants,” says
13
Global Economics
Gender and GDP Parity’s Potential
Qatar
If the world’s women were offered the same economic opportunities as men, $28 trillion would be added to global gross domestic product by 2025, according to the McKinsey Global Institute. The chart at right shows that many economies are barely tapping women’s potential. Below, a regional look at the problem.
Middle East
South Asia
Low gender parity
SubSaharan Africa
By Dorothy Gambrell
Low gender parity*
High gender parity $0 Per person GDP
East and Southeast Asia
Latin America
Europe and Central Asia
$100k
North America and Oceania
Pakistan
14
Saudi Arabia Nations in sub-Saharan Africa, where women account for almost half the labour force, scored relatively high on gender equality in work, but lagged in social and cultural measures
India
Qatar South Korea Mexico China
Israel
Singapore
South Africa
Luxembourg
High gender parity
Philippines
Per person GDP
Norway $10k
$25k
United States
Akinwumi Adesina, president of the African Development Bank. “The countries where Africa exports to, they have slowed down significantly,” he says, referring to China and the European Union. “That affects your own ability to grow.” The commodities rout hit oil producers such as Angola and Ghana, as well as Zambia, the continent’s secondbiggest copper producer. Success stories remain: Democratic Republic of Congo is expected to be Africa’s top performer this year, forecast to grow by 9.2 per cent, followed by Ethiopia, with a projected expansion of 8 per cent, according to the IMF. The DRC is emerging from a decade of civil war. Ethiopia is opening up to foreign investment and improving its railroads and power supply. Most African countries are commodity importers and should benefit from lower oil prices, according to Mark Bohlund, an economist with Bloomberg Intelligence in London. “One of the likely consequences of a drop in commodity prices is to strengthen the shift in growth momentum from Angola and Nigeria towards Ethiopia and Kenya, which are making headway in overcoming some of the infrastructure deficits holding back economic growth,” he says. An estimated 600 million Africans lack access to electricity. The International Energy Agency estimates the continent needs $450 billion in infrastructure investment by 2040 to halve the outages and provide universal access to power in urban areas. While a study by Deloitte found about 95 energy projects worth more than $50 million each being built in Africa last year, most are nowhere near completion. “Africa should’ve been growing at 7 or 8 per cent if it had sorted its power out a decade ago,” says David Cowan, an Africa economist at Citigroup in London. Mark Mobius, the Franklin Templeton Investments money manager who’s been focusing on emerging markets for more than four decades, is optimistic. “The growth scenario is still excellent,” he said in an email. “We do not want to scale back our investments. The problems are here to stay but they pale beside the opportunities.” —Mike Cohen and Rene Vollgraaff The bottom line While Africa’s economic prospects still look promising, investors have to temper their hopes for stellar returns.
$50k global-economics *GENDER PARITY SCORES ARE BASED ON 15 INDICATORS THAT MEASURE EQUALITY IN WORK, SUCH AS LABOUR FORCE PARTICIPATION, AND SOCIAL EQUALITY, INCLUDING POLITICAL REPRESENTATION. DATA: McKINSEY GLOBAL INSTITUTE
AN ICON JUST GOT LARGER
THE NAVITIMER 46 mm
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Gulf banks are seeing liquidity fall as low oil prices hit deposits The slump in crude oil prices is finally It’s a sudden change of circumstance showing an impact on the Gulf’s for an industry marked until recently banking sector. The region’s banks, by intense competition for lending as financial institutions sought to deploy the which battled to extend loans when oil billions of reserves built up during the averaged more than $100 a barrel, are era of high oil prices. Crude has halved seeing surplus cash dry up. Deposits in the past year to less than $50 a barrel, in Saudi Arabian banks fell by about 17 prompting governments to fund spendbillion riyals ($4.53 billion) in July from ing through bond sales June, with that figure rising to "If the governments and use cash accumulatabout $6.6 billion in Qatar. In withdraw liquidity from the domestic ed during the boom. “The the UAE, they fell for a third sucbanking system then cessive month in August, declingovernment is going from interest rates will rise a net saver to a net borrowing by 4.4 billion dirhams ($1.2 er and that obviously has billion) and causing the loans-to- faster than they would in the US." a massive effect on domesdeposits ratio in the country to —Jaap Meijer, tic liquidity,” Jaap Meijer, worsen to 102.3 per cent, from director of equity director of equity research 94.8 per cent a year ago. Loans research at Arqaam Capital at Arqaam Capital, says. “If are growing faster than deposits the governments withdraw in the three countries.
liquidity from the domestic banking system then interest rates will rise faster than they would in the US.” Saudi Arabia’s three-month interbank lending rate, a benchmark for some loans, climbed 12 basis points from this year’s low in March to 0.88875 per cent on 22 September. By the same date, the rate in the UAE had advanced 15 basis points since the beginning of the year to 0.82429 per cent and Qatar’s had risen 14 basis points to 1.20474 per cent. Banks are borrowing in both the bonds and loans market in anticipation of the cash drain. Financial institutions issued 86 per cent of the $19.8 billion of bonds sold from the GCC this year. Qatar National Bank, the Arabian Gulf country’s biggest lender,
PHOTOGRAPH ILLUSTRATION BY LA CHINA M
"The government is going from a net saver to a net borrower”
Priced out abroad, Iran's iron ore looks to home for demand 18 Briefs: Masaken Capital targets more funds 20
Drying Up Deposits at Gulf banks have fallen
$1.2b
Fall in deposits in UAE banks in August from July, declining for the third successive month
$4.53b
Fall in deposits in Saudi Arabian banks in July from June
$6.6b
Less
Fall in deposits in Qatari banks in July from June
with the deal said at the time. Government bond sales in Saudi Arabia should help banks’ earnings as the last debt sale paid interest of between 1.86 per cent to 2.7 per cent for maturities of five to 10 years. Surplus cash earns very little, with one-year Saudi treasury bills yielding 0.684 per cent as of 22 September. “In theory, sovereign bonds will be a major catalyst for expansion” of banks’ net interest margin, Meijer says. “It’s going to be a very welcome gift for a few years.” —Arif Sharif
COURTESY WARNER BROS. INTERACTIVE ENTERTAINMENT
The bottom line Gulf banks are being forced to borrow in both the bonds and loans market as lower deposits affect their liquidity.
raised $3 billion from a syndicated loan in March, while First Gulf Bank, the UAE’s third-biggest bank, secured a $1 billion term facility from a group of foreign banks in September. Saudi Arabia, the world’s biggest oil exporter, has raised 55 billion riyals this year from sales of local currency securities to local banks and institutions as it seeks to bridge a budget deficit. Qatar raised 15 billion riyals ($4.1 billion) in September, while Kuwait also plans to sell dinar-denominated bonds this year. Yet, a year ago, banks’ eagerness to lend allowed companies to bargain for lower interest rates. Dubai Duty Free, one of the world’s biggest airport retailers, cut the price on a $1.75 billion syndicated loan for a second time in August last year, while industrial parks operator Jebel Ali Free Zone lowered the rate it pays on a 2.2 billion dirham loan by 50 per cent, bankers familiar
Video Games
Warner Bros.’ Electronic Toy Growth Is No Game The studio’s interactive unit is outselling big video game rivals “Every game they do is a phenomenal success”
Batman and Gandalf are battling flying monkeys in Oz. Suddenly, Scooby-Doo comes to their rescue, tooling down the Yellow Brick Road in the gull-winged DeLorean from Back to the Future. No, it’s not some gamer hallucination, just the latest from Warner Bros. Interactive Entertainment. Lego Dimensions, which hit stores on 27 September,
lets players put dozens of characters such as Superman, the Ghostbusters, and Wyldstyle, the ninja from The Lego Movie, on a quest to stop an evil mastermind across 14 themed lands. The e characters can use props from th he Time Warner unit’s stable of mov vies, comics, and TV shows as well as lli-censed characters from other parttners. (Warner Bros. Interactive liicenses the Lego name and uses Lego-style character figures in its game.) “It’s all about surprising combinations,” says Jon Burton, on, the game’s designer. “People love cameos.” Familiar Lego Dimensions is the most recent entry in the hotly contested “toys to life characters like Homer category, which combines on-screen Simpson abound gameplay with real-world collectible figures that join the video action after being placed onto a base. The company says it’s the largest investment yet for Warner Bros. Interactive, just as the 11-year-old gaming unit is becoming a major revenue generator for its parent. 17 Warner Bros. Interactive was the top video game publisher in the US in the first half of 2015, says Howard Averill, Time Warner’s chief financial officer. Titles such as Batman: Arkham Knight and Mortal Kombat X helped its game revenue triple, to more than $500 million, in the quarter that ended in June. “Every game they do is a phenomenal success,” says Michael Pachter, a Wedbush Securities analyst. “That’s highly unusual in the industry and highly unusual for media companies.” The track record of movie and TV producers in video games has been dreadful. Viacom lost more than $260 million on Rock Band, a music-based game it sold off in 2010. Walt Disney bled almost $1.7 billion in red ink over seven years at its interactive unit before a downsized version finally turned a profit last year. Even Time Warner’s predecessor, Warner Communications, had its troubles, losing $500 million on gaming pioneer Atari before shedding the business in 1984. The key to Warner Bros. Interactive’s success is that it lets its seven video game studios make independent decisions about which games they make and doesn’t force them to stick to the script of a movie, says David Haddad, the veteran gaming executive who runs the unit. “The best ideas come from
Companies/Industries
The bottom line Warner Bros.’ video game revenue for its last quarter exceeded $500 million, triple that of the previous year.
Mining
Home is Where the Market is for Iran’s Iron A global price war has ore producers looking to the local steel industry “There’s no way we can compete with majors such as BHP and Vale”
Competition in the global iron ore market has become so intense as low-cost supplies surge that Iranian shippers have abandoned efforts to court overseas sales and will seek $20 billion to develop a domestic steel industry that may get a boost from the end of sanctions. Iran planned to more than triple steel capacity to 55 million tonnes in the next 10 years, potentially helping consume 120 million tonnes of domestic ore, Keyvan Jafari Tehrani, head of international affairs at the Iranian Iron Ore Producers and Exporters Association, says. Instead of seeking to sell ore into China, Tehrani’s in Asia’s top economy to promote the idea of made-in-Iran steel and court potential investors. Expanded access for overseas companies into the Iranian market is anticipated following the country’s deal with international powers in July to ease sanctions in exchange for curbs on its nuclear programme. The biggest iron ore miners have boosted low-cost output, seeking to increase sales, cut costs and win market share. The strategy spurred a glut, helping prices sink to the lowest since
Falling Down a Mine The price of iron ore with 62 per cent content delivered to Qingdao has fallen sharply since the beginning of last year
47% 22% Drop in price in 2014
Drop in price in 2015 to 23 September
The development of Iran's steel industry would increase demand for the country's iron ore.
COURTESY WARNER BROS. INTERACTIVE ENTERTAINMENT; AFP
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the creators,” he says. Last year’s Middle-earth: Shadow of Mordor, for example, has an original storyline and a new protagonist, and it’s set in a time between the Hobbit and Lord of the Rings films. “It gives players a chance to play outside the lines that were so established by Tolkien,” says Andy McNamara, editorin-chief of Game Informer magazine. Other movie studios now license their characters to Warner Bros., enabling it to make games such as Lego: Jurassic World, based on this summer’s blockbuster from Comcast’s Universal Studios. It was the top-selling game in the US in July. Disney’s Marvel films have outpunched those based on Warner Bros.’ DC Comics characters at the box office recently. But it’s still licensed its heroes to its rival for games such as Lego Marvel’s Avengers, due in January. Ruling the “toys to life” category could be much harder, however. A $700 million business in the US alone, the niche is a lucrative one for game makers because they get to sell toys in addition to software. Customers spend an average of $131 on the games and figures, according
to researcher NPD Group, twice what the typical game disc costs. Lego Dimensions is entering a crowded field, one ploughed early by Activision Blizzard and its Skylanders franchise, which has sold more than $3 billion in games and toys worldwide since its 2011 debut. In addition to the latest version of that game, Lego Dimensions will compete this Christmas with Nintendo’s Amiibo line and Disney Infinity 3.0, which this year features Star Wars figures for the first time. Warner Bros. is charging $99 for its new game’s starter kit, which includes three figures and the platform that connects them to game systems from Sony, Microsoft, and Nintendo. Disney charges $65; Activision, $75. One reason the game costs more is the Legos, says designer Burton. There are 269 bricks in the initial Dimensions kit, and they’re a critical part of the game. Players who advance to certain levels can reconfigure their Lego model of the Batmobile, for example, to include a ray gun or a blaster that, when placed back on the game platform, unlocks additional powers on the screen. That blurry line between on-screen and off-screen play may be the future of both toys and video games, analysts say. “For years you had movie video game makers trying to copy what was on-screen. That began to work less and less,” says Scott Steinberg, a consultant. “Consumers are more demanding with their experiences.” —Christopher Palmeri
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Companies/Industries at least 2009, and increased pressure on less-efficient rivals like Iran. “There’s no way we can compete with majors By Rahul Odedra such as BHP and Vale,” Tehrani says. Iranian exports to China are forecast to slump to 5 million to 7 million metric tonnes in 2018 compared with 23.5 million tonnes two years ago, according to Tehrani, who added that the drop won’t diminish the worldH ○ ○ Masaken Capital, in which Arabtec Holdwide glut as the biggest mining companies will continue to add supply. ing’s ex-CEO Hasan Ismaik holds a stake and m Ore with 62 per cent content delivchairs, is seeking to raise its capital to 700 million ered to Qingdao lost 22 per cent this year to $55.30 a dry tonne by SepJordanian dinars ($987 million) amid interest from Savings electricity tember, according to Metal Bulleprovider Saudi funds and investors in Jordan and abroad. Masak- Electricity Company tin. The material, which bottomed in one year by at $44.59 in July, retreated 47 per en plans to invest in real estate, healthcare, edu- made switching from copper cent in 2014 as the surplus built and to aluminium in its cation and construction in the UAE, Saudi Arabia, power-transmission demand growth slowed in China, the Egypt and Jordan, Ismaik said in a recent interview. projects. world’s largest consumer. Goldman Sachs Group and HSBC ○ +○ Palm Hills Developments is planning “agHoldings have said there’s a battle gressive” expansion as more Egyptians move outside congested for survival in the seaborne market where only the most efficient miners Cairo and invest savings in real estate rather than the declining are likely to last. Apart from Vale, BHP stock exchange or foreign currency. Chairman Yasseen Man- and Rio Tinto Group, the industry was facing an existential challenge, sour said the luxury real estate developer will sign a contract this Goldman said in April. year for a mixed-use project on 2.1 million square metres of land A shortage of roads and railways has 20 added to miners’ logistics costs in Iran, east of Cairo on a revenue-sharing basis with the government. according to Tehrani. Even shipping is ○ ○ Al Shafar General Contracting has put on hold its plan uncompetitive given small vessel sizes and loading rates that are a fraction of to sell shares in an IPO in Dubai amid weak market conditions, what other countries are capable of according to two people fa- doing, he says. Iran has $29 billion of Dubai’s government-run mining investments attracting the inmiliar with the matter. The Emirates National Oil terest of companies from Europe to Company is expanding into Dubai-based construction Asia, Mehdi Karbasian, deputy minagricultural commodities to diversify its business and of Iran’s Ministry of Industries, company, which is helping ister offset past losses from retail Mines & Trade, told Bloomberg in fuel sales. The new unit will build an island featuring the August. Karbasian also flagged the plan deal mainly in wheat and rice, CEO Saif Al Falasi said in an to increase steel capacity to 55 million world’s tallest Ferris wheel, is interview. ENOC will give the tonnes by 2025. new business about two years The mining industry is looking said to have explored a share to become profitable, he said. forward to the end of sanctions sale before deciding the as the sector will be able to access CEO Wisdom W timing isn’t conducive to a successful offerglobal know-how to upgrade technology that’s 10 to 15 years old, ing. ○K○ Majid Al Futtaim Holding is aiming Tehrani says. “An upgraded mining sector can help Iran reduce reliance to double profits in five years and is weighon oil income” and unlock the nation’s ing an offer to acquire Abu Dhabi consumer mineral wealth, Tehrani says. “We can reduce our reliance on steel imports, finance firm Dunia Finance as part of the plan, “Our ultimate vision is while supplying domestic demand and millions of people * according to CEO Alain Bejjani. ○ ○ Dubai living and working in even be able to export 14 million tonnes of steel a year by 2025.” —Felwen Rong Islamic Bank, the UAE’s biggest Shariah-com- space.”
Briefs
Ex-Arabtec CEO Seeks Capital
pliant lender, is exploring an entry into India as it seeks to benefit from the funding needs of one of the world’s fastest-growing economies.
— Amazon.com CEO Jeff Bezos announcing a plan for his aerospace company, Blue Origin, to launch rockets from Florida
The bottom line Iran’s iron ore producers need investment in the country’s mining industry to be able to compete with global players.
companies-and-industries
FILMAGIC/GETTY IMAGES; ILLUSTRATION BY SJC
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OPEC’s Family Feud Members squabble with one another, but no one wants to leave When Venezuelan Oil Minister Juan Pablo Pérez Alfonso resigned in 1963, he blasted the Organization of Petroleum Exporting Countries, at the time torn by internal rivalries, for failing to produce any benefits for his country. Half a century later, OPEC is still split and Venezuela is again unhappy, this time at the unwillingness of the organisation’s top producer, Saudi Arabia, to rescue oil prices from a six-year low
that’s dragging the battered Venezuelan economy into an even deeper crisis. On 10 September, Venezuela’s oil minister, Eulogio del Pino, tweeted appeals for OPEC and non-OPEC countries “to have a discussion on fair prices, minimum prices to ensure sustainability” and to “overcome our differences of opinion.” Venezuelan President Nicolás Maduro said on 16 September that he was making prog-
ress on organising a summit of petroleum exporting countries to have that discussion. OPEC member Algeria is backing the Venezuela-proposed conference—as well as Maduro’s desire for a higher price. Venezuelan officials didn’t respond to requests for comment. Maduro’s plans won’t pan out unless Saudi Arabia stops flooding the market. There’s no sign it’ll retreat from that strategy, which is helping it preserve
PHOTO ILLUSTRATION BY 731; PHOTOS: ALAMY (4)
“It’s much easier to just keep OPEC alive than to shut it down”
As elections approach, Turkey’s AK Party says, “Yes, we Babacan” 24 Victory in Aden reveals the divisions at the heart of Yemen 25
and even gain market share. “OPEC is of no use today,” says former Algerian Prime Minister Ahmed Benbitour. “The war now is about market share, not price, and Algeria is getting no benefit from this organisation.” OPEC declined to comment for this story. Venezuela’s and Algeria’s complaints raise the question of why some members stay in OPEC if the Saudis call the shots and ignore pleas for higher prices. Neither Venezuela nor Algeria has made moves to quit. Not only is the group intact, but former member Indonesia is returning, boosting membership to 13 nations. Disgruntled members “don’t leave because they still believe there could be something in the future where the group does make a decision” to boost prices and cut production, says Jamie Webster, an oil analyst at researcher IHS. “It’s much easier to just keep OPEC alive than to shut it down, and with it a key communication channel” among governments whose financial health depends largely on oil income. Of the 1.7 trillion barrels that remain to be extracted worldwide, 1.2 trillion, or 70 per cent, are controlled by OPEC’s current members. Venezuela and Saudi Arabia hold 18 per cent and 16 per cent, respectively, and Iran and Iraq 9 per cent each, according to oil major BP. These four nations, with Kuwait, are OPEC’s founding members. “Just look at the outlook for oil in the next 10, 20, 30 years. It is expected that OPEC countries will actually have to come up with most of the growth in supply to meet the demand,” says former OPEC Secretary General Adnan Shihab-Eldin of Kuwait. “If OPEC didn’t exist, it would be needed in the future much more than in the present or the past” to coordinate production and keep the world supplied. Pricing has often been a bone of contention, with Algeria, Iran, Iraq, Libya, and Venezuela pushing for higher prices, a hawkish stand compared with Saudi Arabia and its neighbours Kuwait, Qatar, and the United Arab Emirates. “Venezuela’s position within OPEC is to pursue a strategy of low production and high prices, since they can’t attract investments” to boost output, says Carlos Rossi, president of Caracas-based con-
sulting firm EnergyNomics. Gulf Arabs on restoring the productivity of their are more inclined to accept a lower biggest field. Russia says it doesn’t price to keep consumers hooked on have the ability of some Arabian Gulf cheap fuel and thus extend the Age of producers to quickly raise or lower Oil. Saudi Arabia in particular is more output because of the harsh winters likely to accept a lower price that preand complex geology at its Siberiserves global growth and gives it inan oil fields. “You cannot regulate fluence far in excess of its actual “OPEC is like a productivity of Russian economy. Says Ed Morse, Citiwells simply by turning a family where the group Global Markets managfaucet,” Sergei Klubkov, exchildren quarrel ing director: “Saudi Arabia’s ploration and production but can’t do without each other. analyst at Moscow-based economy is the size of Illinois’s.” They know they Yet the nation sits at the same Vygon Consulting, said in are better off table as China, Europe, Japan, an e-mail. talking” —Karin and the US thanks to its role as The International Energy Kneissl, author, the major producer. Agency says Saudi Arabia “Energy Poker” Instead of lowering output to is winning the fight for prop up prices, as suggested by market share, driving highAlgeria and Venezuela, Saudi Oil Miner-cost producers—for example, some ister Ali al-Naimi lobbied his OPEC US shale companies—out of business. counterparts in November 2014 not to Non-OPEC supply is expected to fall yield market share to competing supin 2016 by the most in more than two pliers, including US producers of shale decades as producers shut wells that oil. Crude sank and trades at about can’t operate profitably with oil below $50 a barrel, half its level a year ago. $50 a barrel. Production outside OPEC “What OPEC wanted to do is have a will fall by 500,000 barrels a day, to fresh look at the structural changes 57.7 million, in 2016, the agency said on that have taken place in the oil market 11 September. with the advent of US shale and other That’s no solace for those in OPEC producers, who at a very high price who are hard-pressed for cash. Fresh supply is likely to hit the market from were able to bring in fresh supplies Iran next year, when the oil export that far exceed what demand called ban is lifted as a result of the July for,” says Shihab-Eldin. agreement with the US and the other Algeria’s and Venezuela’s attempts Western powers restricting its nuclear to recruit non-OPEC producers in an programme. Oil prices could drop to effort to increase prices have been rejected by Russia and Mexico, two as low as $20 a barrel, Goldman Sachs of the largest exporters outside the said on 11 September. group. The Mexicans say their focus is Saudi Arabia’s production of
Saudi Arabia Trounces Venezuela Change since 31 August, 2013
$114.01
Oil prices begin to slide as the impact of increased production from non-OPEC countries is felt
As prices drop, Saudi Arabia increases production to gain market share 10%
Price of crude oil
0
Saudi Arabian crude oil production
-10% Venezuelan crude oil production 8/2013
The fall accelerates as OPEC refuses to curb production to relieve the glut
$54.15 8/2015 DATA: COMPILED BY BLOOMBERG
23
Politics/Policy about 10.5 million barrels a day is its highest ever, and the kingdom still Elections has spare capacity of more than a million barrels. Other OPEC members are pumping less oil as projects to bring fresh crude to the market were derailed or delayed by political or social unrest. Venezuela is producing Ali Babacan is included as a 2.5 million barrels a day, vs. a peak of candidate for November’s elections 3.7 million in 1970. Algeria and Nigeria are in similar straits. “The obvious assumption is that he Those three nations, plus Iraq and is there to play some role” Libya, are the OPEC members most vulnerable to political turmoil as cheap How much can one man mean to an economy? Investors in Turkish equioil hammers their currencies and ties value Ali Babacan at more than 1 weakens their ability to sustain social per cent of the nation’s stock market, subsidies. Venezuela “appears poised if moves on 18 September are anyfor a near-term crisis” amid protests thing to go by. That’s how much the alland shortages of basic goods as December’s parliamentary elections get share index jumped in the last hour closer, analysts Christopher Louney of trading on that day after the former and Helima Croft of the Royal Bank treasury minister was a surprise inclusion in a list of ruling AK Party candiof Canada said in an August report on dates for November’s repeat election. OPEC’s “fragile five.” Nomura strategist Tim Ash “OPEC is like a family where “Babacan in has another measure of the children quarrel but can’t do particular was his value: half a percentwithout each other,” says Karin essential to the successful age point in treasury borKneissl, a Vienna-based universidisinflation and ty lecturer on energy politics and rowing costs. “To my mind, recovery after author of Energy Poker. “They Babacan was Mr. 50 bps,” 2001. Babacan know they are better off talking Ash wrote a month earlier, was implementing to each other to preserve the when it seemed that term the will of the common, long-term interest; even party. Now to a limits and internal politics those who left long to return if certain extent he’d might keep Babacan, who be flying in the they can.” didn’t stand in June’s inconIndonesia voluntarily suspend- face of it.” —Paul clusive poll, from a role in ed its OPEC membership in 2009 McNamara, any future administration. portfolio manager as its production declined to the In an economy whose at GAM UK. point that it had to import oil. central bank comes under Indonesia still pumps oil for its regular pressure from politicians to keep interest rates low, domestic market. It will return officially on 4 December as the first member Babacan is known for defending the inthat isn’t a net oil exporter. As OPEC’s stitution’s independence. The news that only member in East Asia, Indonehe will run for election on 1 November sia could help strengthen the group’s also helped put an end to eight straight ties in the region, where oil demand is strongest, said Indonesian Energy If anyone can, Babacan Minister Sudirman Said in June. As The AK Party hopes that Babacan’s return can help both oil consumer and producer, win it an overall majority it will help OPEC bridge the divide between the two groups, he said. “I don’t see OPEC falling apart,” says Fayyad Al-Nima, Iraq’s deputy oil minister for extraction. And Venezuela’s reason for sticking with the Parliament seats 276 group? Says Carl Larry, head of oil and won by AK Party in 7 seats needed June election gas for market researcher Frost & Sullito govern alone van: “It’s either stay with OPEC and tag along or leave OPEC and be by yourself.” —Maher Chmaytelli
24
258
The bottom line Saudi Arabia manages to impose its will on other members of OPEC, thanks to its ability to flood the market.
18
Additional seats needed to win overall majority
weeks of declines for the lira. The reactions suggest Ash isn’t alone when he says the 48-year-old’s stewardship of the economy “has gone a long way to reducing credit risk, borrowing costs, and helping to secure and keep investment grade status for Turkey.” Yet while the markets, rattled by domestic political turmoil and a surge in fighting with Kurdish separatists, were cheered by the return of Babacan— and veteran Finance Minister Mehmet Simsek, who was also re-selected as an AKP candidate last month—it’s far from certain they will get the chance to repeat past successes. Their party must convince Turks to restore the parliamentary majority it lost in June for the first time in more than a decade. Even if that’s achieved, schisms over the country’s economic direction may stymie reforms that Babacan and Simsek have argued Turkey’s spluttering economy sorely needs. “Babacan in particular was essential to the successful disinflation and recovery after 2001,” says Paul McNamara, portfolio manager at GAM UK, referring to the date of the economic crisis that first swept the AK Party to power. Back then, “Babacan was implementing the will of the party,” he says. “Now to a certain extent he’d be flying in the face of it.” While Babacan is credited with spearheading a reform drive that helped the economy more than double in size during the AKP’s first five years in office, his influence on policy making has diminished in recent years with the ascendancy of unelected advisers loyal to President Recep Tayyip Erdogan. They have argued that kick-starting the
AFP
Turkey’s AK Party Brings Back Its Economy Guru
Politics/Policy
Babacan was influential in Turkey’s economic policy during Erdogan’s administration
economy—which is expected to expand less than 3 per cent this year, matching last year’s growth—necessitates reworking reforms presided over by Babacan. While he drove growth by implementing an IMF plan that deregulated Turkish industries, Erdogan’s advisers have argued against privatisation, and against foreign ownership at Turkish banks. Earlier this year, the former economy chief clashed with journaliststurned-policy makers Cemil Ertem and Yigit Bulut, who have vociferously attacked the central bank for undermining economic growth by keeping interest rates high. In the months leading up to the June election, Babacan repeatedly asked politicians to respect central bank independence, and called for the government to press on with reforms to the judiciary and education. He sat next to Ahmet Davutoglu when the prime minister announced a package of policy changes in January of this year that were designed, among other things, to increase female participation in the economy. But their efforts were rebuffed by Erdogan, who said the timing wasn’t right. Erdogan, who has made it his mission to transform the ceremonial office of president into the nation’s power centre, strengthened his control over the party he founded during the AKP’s 12 September convention. At that meeting, Babacan and former Merrill Lynch economist Simsek, who’s been finance minister since 2009, were left out of the AKP’s 50-member top decision-making body. Berat Albayrak, the president’s son-in-law, and Economy Minister Nihat Zeybekci, both known
for championing the low interest rates that would support domestic industrialists and construction firms, appear set to play a bigger part in AKP economic policy. At the first meeting for the AKP’s new election candidates on 19 September, Deputy Prime Minister Yalcin Akdogan acknowledged disputes over those the AKP fielded at the last vote. “There was a lot of debate about the June candidate list,” he said. “Our central command got the message and we’re now ready to leave those criticisms behind us and get elected.” If they pull it off—or if they succeed where they failed this summer and broker a coalition—Babacan is likely to return to the administration, as the first name on the ballot in his Ankara district. “The obvious assumption is that he is there to play some role,” says Paul Fage, senior emerging markets strategist at Toronto Dominion Securities in London. “How big and influential that role is is harder to assess.” While Babacan and Simsek command a high degree of credibility in the markets, “if Erdogan ends up calling the shots it is hard to see them having too much influence,” he says. —Isobel Finkel and Onur Ant The bottom line Ali Babacan is likely to take a role in government if the AK Party wins power in the upcoming 1 November election.
Foreign Policy
A Welcome in Aden Masks Conflicting Goals Many in the south of the country don’t support the coalition’s aims “I want the south to be separate from the north”
As Saudi soldiers drive armoured vehicles around Aden—the port in southern Yemen they helped recapture from rebels—young men clap and children flash the V-for-victory sign. “The coalition came here to help us,” says Omar Abdullah Saleh, a Yemeni militia fighter, as he patrols among collapsed buildings and bullet-riddled walls. “We are happy with their presence.” There are reasons for the Saudis to wonder how long the warm welcome will last—especially if they recall that US
troops in Iraq were also greeted as liberators, at first. Local allies have their own agenda; public expectations of a swift return to normal life will be tough to meet; and in much of Yemen the rebels still hold sway and enjoy grassroots support. All that means the Saudi engagement in Yemen may still be in its early stages, poised to inflict a growing humanitarian cost in a region that’s already seen a mass exodus of Syrian refugees. There are also economic risks for Saudi Arabia, the world’s biggest crude exporter, which is having to dig deep into its savings after the oil slump. The Saudi-led coalition suffered its worst losses so far when at least 52 soldiers from the United Arab Emirates, a key member, were killed in a missile attack in Yemen’s Marib province in September. “Casualties will mount as the ground presence increases,” says Jesse Ferris, author of “Nasser’s Gamble,” a study of the failed Egyptian intervention in Yemen’s civil war in the 1960s. “It is very difficult to win a counterinsurgency in mountainous terrain against a hostile and fractious population.” The capture of Aden in July marked the first real victory for the coalition, achieved after a four-month bombing campaign and a largely unacknowledged deployment of ground troops. It enabled Yemen’s Saudi-backed President Abdurabuh Mansur Hadi, driven into exile by the rebels early this year, to return to his country for the first time in months. From his new base in Aden, he’s promising to recapture the rest of Yemen from the Houthis, too—including the capital, Sana’a, still held by the Shiite rebels and their allies, supporters of former President Ali Abdullah Saleh. But even in Aden, where the Saudi intervention is popular, there’s limited support for Hadi and many people would prefer to break away. “I want the south to be separate from the north,” says Ehab Khamis, a 49-year-old militia fighter with a machine gun slung over his shoulder. Khamis lost his son in the battle for Aden. “The northerners aren’t good people, none of them,” he says. That sentiment is widespread in Aden, the capital of a separate state of South Yemen before unification with the north in 1990. Children sing patriotic songs about the south. Southern flags fly on most government buildings, and they’re painted on walls around the city. Only on a lighthouse built by the British in colonial times, next to the bombed-
25
Politics/Policy
Yemeni Prime Minister Khaled Bahah visits the Saudi-led coalition’s base in Aden
26
Abdullah bin Suhayan says outside the base. “We are here to support the legitimate government of Yemen.” Yemen’s Prime Minister Khaled Bahah told reporters in Aden that “the social fabric in general has been damaged” and repairing it will need international help. The Saudis and their allies say that the Houthis must disarm and pull back from territory they seized, including Sana’a, before UN peace talks can resume. Graffiti all over Aden shows how hard reconciliation will be. “Death to the Houthis” is a common slogan, while others describe the city as a “cemetery” for Shiites. Meanwhile in rebel-held areas further north, the growing civilian death toll from Saudi bombing has undermined support for any compromise. Yemen’s “intensely local and tribal” politics will make life tougher for the Saudis the deeper they get involved, says Ferris, the historian of an earlier civil war. “You really don’t know who is with you and who is against you, and for how long.” The bottom line Yemen’s divisions mean the Saudi-led coalition will find it difficult to win full support for its backing of a Hadi government.
politics-and-policy
AFP
mosque and called for people to defend out presidential palace, could the nathe city,” he says. “Every street was detional flag be seen fluttering. fended by its residents. Now, we need There’s also a sectarian divide that electricity, salaries, health care and overlaps the regional one. Saudi Arabia better basic services.” says the Houthis, Shiites from north When Hadi visited Aden this month, Yemen, are puppets of Iran and must he was guarded by coalition forces at be defeated to stop the Islamic Rethe al-Qasr Hotel. Its exterior looks like public from gaining a foothold in the Arabian Peninsula, though Western dip- one of Dubai’s five-star hotels, and also lomats have questioned the recalls the Green Zone set up “You really don’t level of Iranian involvement. in Baghdad by the US army. Coknow who is with alition troops and armoured The Saudi-led coalition said you and who is vehicles stand guard outside on 30 September it seized an against you, and Iranian boat carrying anti-tank for how long.” — the al-Qasr, and there are large sandbags by the front gate. The weapons and missile launchers Jesse Ferris, author of “Nasser’s interior is out of step with the to Yemen. Gamble,” a study of rest of the battered city. Gold The Saudis and their local the failed Egyptian chandeliers hang in the lobby, allies shared the goal of freeing intervention in Aden, “but now the agendas Yemen’s civil war in and Filipinos flown in from Abu Dhabi staff the cafeteria. are different,” says Majed althe 1960s The Gulf states began their Mathhaji, an independent Yemen campaign as an air war, analyst based in Sana’a. As but now their footprint is all over for the north, “even with their military Aden. Apache and transport helicopmight, it will be difficult for the coaliters are parked outside the airport’s tion and Hadi to make any progress in main terminal, with tanks and Humvees areas where they are not welcomed.” behind them. In the city’s northwest, Some southerners blame Hadi personSaudi Arabia and the United Arab Emirally for fleeing to a Saudi exile when the ates operate a large base with barracks, Houthis arrived in Aden. Mohammed storage facilities and lines of military veal-Sadi, a neurologist who helped orgahicles. “We have no intentions but to nise the resistance, says he holds that help the Yemeni people,” Staff Colonel against the president. “We went to the
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16 — 31 October, 2015
E H T I S S E M
28
F O G N I D CO
For its stars, sport programming means school and job offers “We’ve never seen anyone like him”
The grand finale of Facebook’s Hacker Cup, held at the company’s Menlo Park (California) headquarters, doesn’t exactly look like the Super Bowl. At four rows of wheeled white desks in a drab, all-purpose event room, about 25 young men—yes, all men—hook up their laptops to big flatscreen monitors and put a notepad and pencil to one side. None of them appear to spend much time at the gym, but all are fierce competitors in the niche world of sport programming. The Facebook event, like most such contests, consists of a series of logic puzzles that must be solved using the most efficient, fastest-running code. National and international sport-programming competitions have been around since the late 1970s, typically organised by universities and international nonprofits like Unesco. Silicon Valley has begun using them as a farm system only in the past few years. Google and Facebook, which began hosting its annual Hacker Cup in 2011, fly in computer-science-minded youngsters from Russia, Eastern Europe, and Asia to face off against locals and one another for cash prizes, enjoy some free sushi, and meet with Valley recruiters. Hiring from the young coders’ ranks is becoming popular because it pays off, says Vladimir Novakovski, vice president for engineering at investment-software maker Addepar. “Every time I have hired someone who is good at these contests, they have crushed the job,” says Novakovski, a former sport programmer who still follows the competitions closely. “They tend to be fast, accurate, and into getting things done.” In the sport of coding, there’s one clear superstar. At 21, Gennady Korotkevich is ranked No. 1 on both Topcoder and Codeforces, the two leading websites that organise their own competitions online. In second grade, Korotkevich took second place at a major competition in his home country of Belarus, scoring high enough to gain entry to a top technical university without taking traditional entrance exams. At 11, he placed 26th at the International Olympiad in Informatics (IOI), the sport’s most prestigious high school-level event. He went on to set a record by winning the competition three times.
Baidu gets into food and laundry delivery 30
The industrial revolution meets the Internet 31 Innovation: A phone battery that charges in 60 seconds 32
Cup Hacks
Contenders at Facebookâ&#x20AC;&#x2122;s Hacker Cup get ďŹ ve puzzles like this to solve in three hours Hereâ&#x20AC;&#x2122;s how the judging works
â&#x2018; Problem
â&#x2018;Ą Code
Mr. Fox is going on a trip to Scotland to witness its many beautiful lochs! Heâ&#x20AC;&#x2122;s heard that skimboarding is a fun pastime, somewhat similar to surďŹ ng, and heâ&#x20AC;&#x2122;d like to give it a try while heâ&#x20AC;&#x2122;s there.
// Fox Lochs // Problem and solution by Jacob Plachta
Mr. Fox would like to get a running start and then launch himself across the water at some location, skimboarding across the pools in a straight line until he hits a point with no water. In other words, his skimboarding debut will consist of a line segment contained within the union of the poolsâ&#x20AC;&#x2122; rectangles (inclusive of borders). Whatâ&#x20AC;&#x2122;s the maximum length this line segment can have?
#deÂżne L' long double #deÂżne P5 pair<int int> #deÂżne #deÂżne #deÂżne #deÂżne #deÂżne #deÂżne #deÂżne #deÂżne #deÂżne
Fox i n Ior i ; i<n; i
Fox i n Ior i ; i< n; i
0ax a b a max a b
6] s int s si]e
$ll s s begin s end
pb pushBbacN mp maNeBpair x Âżrst y second
Each problem tends to require a fresh twist on a well-known programming concept
template<typename 7> 7 6Tr 7 x ^ return x x ; ` const L' (P6
e ;
bool 5ead int x
^ char c r n ; x ; Ior ;;
^ c getchar ; iI c< r
return ; iI c Âś Âś r
n ; else iI c> Âś Âś c< Âś Âś
x x c Âś Âś r ; else iI r
breaN; ` iI n
x x; return ; ` vector<P5> P;
The competitor compiles the program to show his work and also submits a written explanation of the mechanics of his program and how he arrived at the solution. Once both are submitted, the judges review the written explanation, run the program to make sure it works, and factor in how quickly the competitor arrived at the answer and how efficiently the program runs.
void ,nter int x int x int y int < int < int ;
^ iI ;< x __ ;> x
return; iI y< < __ y> <
return; P pb mp ; y
; ` L' 'ist L' x L' y
^ return sTrt 6Tr x 6Tr y
;
Running
`
int main
^ int 7 t; int N; int i M N c; L' ans s x y; pair<L' L'> p; vector<L'> cur; vector<pair<L' bool> > (; int ; > @ < > @ ; > @ < > @; 5ead 7 ; Fox t 7
^ P clear ; //input 5ead N ; Fox i N
^ 5ead ; >i@ 5ead < >i@ 5ead ; >i@ 5ead < >i@ ; iI ; >i@>; >i@
sZap ; >i@ ; >i@ ; iI < >i@>< >i@
sZap < >i@ < >i@ ; P pb mp ; >i@ < >i@
; P pb mp ; >i@ < >i@
; P pb mp ; >i@ < >i@
; P pb mp ; >i@ < >i@
; ` //Âżnd all intersection points Fox i N
Fox M N
iI i M
^ ,nter ; >i@ ; >i@ < >i@ < >M@ < >M@ ; >M@ ; ,nter ; >i@ ; >i@ < >i@ < >M@ < >M@ ; >M@ ; ,nter ; >i@ ; >i@ < >i@ < >M@ < >M@ ; >M@ ; ,nter ; >i@ ; >i@ < >i@ < >M@ < >M@ ; >M@ ; ` //consider all lines through Ney points ans ; Fox i 6] P
Fox M i
^ ( clear ; //vertical line? iI P>i@ x P>M@ x
^ Fox N N
iI ; >N@< P>i@ x P>i@ x< ; >N@
^ ( pb mp < >N@
; ( pb mp < >N@
; ` ` else ^ s L' P>M@ y P>i@ y / P>M@ x P>i@ x ; p mp e P>i@ y s P>i@ x e
; Fox N N
^ cur clear ; y p y s ; >N@ p x ; iI y>< >N@ (P6 y<< >N@ (P6
cur pb 'ist ; >N@ p x y p y
; y p y s ; >N@ p x ; iI y>< >N@ (P6 y<< >N@ (P6
cur pb 'ist ; >N@ p x y p y
; x s p x < >N@ p y /s; iI x>; >N@ (P6 x<; >N@ (P6
cur pb 'ist x p x < >N@ p y
; x s p x < >N@ p y /s; iI x>; >N@ (P6 x<; >N@ (P6
cur pb 'ist x p x < >N@ p y
; sort $ll cur
; iI 6] cur >
^ ( pb mp cur> @
; ( pb mp cur>6] cur @
; ` ` ` //line sZeep to Âżnd ranges covered by rectangles Fox N 6] (
iI (>N@ y
(>N@ x (P6; else (>N@ x (P6; sort $ll (
; c ; Fox N 6] (
iI (>N@ y
^ c ; iI c
s (>N@ x; ` else ^ c ; iI c
0ax ans (>N@ x s ; ` ` printI ³&ase # d LI?n´ t ans ; ` return ; `
â&#x20AC;&#x153;Probably the only person making a living at sport programming is Gennady, because he wins so many of the competitions,â&#x20AC;? says Novakovski. â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve never seen anyone like him.â&#x20AC;? The grand prize at the Facebook event is $10,000; between these kinds of in-person events and the online contests he dominates, Korotkevich probably wins upwards of $250,000 a year, Novakovski says. Korotkevich isnâ&#x20AC;&#x2122;t talkative. At the Hacker Cup in March, he replies to a request for an interview with the words, â&#x20AC;&#x153;We will see,â&#x20AC;? and doesnâ&#x20AC;&#x2122;t respond to messages sent through friends. Sitting calmly at his laptop with a cup of water,
The rectangular poolsâ&#x20AC;&#x2122; coordinates This code computes the go here intersection points of all possible pairs of rectangular pools This bit assesses This computes the lengths of the two (at most) the lines passing points of each line through each that intersect each pair of rectangle rectangle, proving corners and/or they deďŹ ne a intersection points segment of the line inside the â&#x20AC;&#x153;rectangle unionâ&#x20AC;? Here, the program identiďŹ es the line segments that pass through all the pools at once; the largest must represent the longest line segment within the rectangle union
he looks a bit like a coding assassin in black shoes, black pants, and black hoodie, waiting rapt for the Facebook organisers to begin the proceedings. Finally, one of the organisers grabs a microphone. Flanked by cheesy posters with screaming block-letter slogans like â&#x20AC;&#x153;FOCUSâ&#x20AC;? and â&#x20AC;&#x153;BE BOLD,â&#x20AC;? he runs through the rules. Five puzzles, which can be done in any order. Three hours. Keep the programming as efficient as possible. The cleanest, most accurate code in the fastest time takes first place. â&#x20AC;&#x153;May the best coder win!â&#x20AC;? The puzzles sound simpleâ&#x20AC;&#x201D;things like finding the shortest route between San Francisco and Los Angeles or the
CASE #1: 5.830952 CASE #2: 5.000000 CASE #3: 15.000000 CASE #4: 129424.576294 CASE #5: 650595.679101 CASE #6: 8.750000 CASE #7: 406740.250958 CASE #8: 375892.303625 CASE #9: 172942.536512 CASE #10: 131482.402853 CASE #11: 5.000000 CASE #12: 214887.140352 CASE #13: 1439133.979724 CASE #14: 4.242641 CASE #15: 200551.423396 CASE #16: 223308.221962 CASE #17: 261653.376275 CASE #18: 4.242641 CASE #19: 884005.747931 CASE #20: 8.485281
29 The judges check the programâ&#x20AC;&#x2122;s output
The best path is from (1, 8) to (9, 0). (4, 8)
This is a visual of what the ďŹ nished code should be able to work out
(8, 5)
(9, 3) (0, 2)(1, 2)
(6, 0)
best way to tile a floor in a particular patternâ&#x20AC;&#x201D;but tend to require a fresh twist on a well-known algorithm or mathematical structure. Elite sport coders must figure out the underlying logic quickly and trust their abilities. â&#x20AC;&#x153;You have to convince yourself pretty early on that what you are doing will work,â&#x20AC;? says Wesley May, a software engineer at Facebook who helps run the Hacker Cup. Sport programming isnâ&#x20AC;&#x2122;t exactly riveting to watch. Huge chunks of time tick by without the contestants seeming to move at all. Korotkevich is an exception. As he considers problems, his feet twitch up and down at a rate of several beats per
COURTESY OCULUS
He soon ďŹ nds himself on a ďŹ&#x201A;at beach by the side of a loch. The beach can be represented by an inďŹ nite 2D plane, with N axisaligned rectangular pools of shallow water on it. The Nth pool has a pair of opposite corners at coordinates (x1, y1) and (x2, y2). All of the pools can arbitrarily overlap with one another, the result being that thereâ&#x20AC;&#x2122;s shallow water everywhere within the union of the poolsâ&#x20AC;&#x2122; rectangles (including right on its edges) and no water anywhere else. (Mr. Fox isnâ&#x20AC;&#x2122;t brave enough to venture into the loch itself yet!)
#include <algorithm> #include <cmath> #include <cstdio> #include <vector> using namespace std;
â&#x2018;˘ Results
Technology
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second. He grabs his pencil and twirls it round and round over the back of his hand. He goes for the cup of water. He rubs his chin. Ten minutes in, he begins to type. With feet still kicking around, his hands beat down on the keyboard with the speed of a court stenographer bingeing on meth. He blinks about once every seven seconds. Shortly before the 20-minute mark, the Belarusian appears to fall behind his longtime rival, Russian native Petr Mitrichev, when Mitrichev submits his first answer. Korotkevich turns in his first answer five minutes later. It’s tough to say who’s winning while the clock’s running, because although speed is one part of the equation, the judges haven’t reviewed the answers yet. Korotkevich seems immune to the intensity of the situation. After 45 minutes of coding, he saunters to the bathroom. The dude is good enough to take time out to pee. For most of the contest, Mitrichev, who works for Google in Switzerland, looks to be in the lead. The scoreboard at the front of the room shows that he’s submitting answers faster than anyone else, although no one knows if the answers are correct. Then, with five minutes to go, Korotkevich surges to first place, as the first person to solve four problems. After the Facebook staff processes the results, Korotkevich is indeed named the winner. While his peers applaud, he allows himself a small smile, then takes off his hoodie and lifts the Hacker Cup, shaped like an upraised black fist, into the air. An hour or so later, Facebook packs all the contestants into buses and takes them on a food tour of San Francisco. Korotkevich could get a high-paying job at just about any company in Silicon Valley. But he isn’t ready to become a professional software engineer. This fall, he’s back at Saint Petersburg State University of Information Technologies, Mechanics, and Optics in Russia, preparing for a possible career in science. Among hard-core puzzle solvers, competitions such as Facebook’s Hacker Cup or Google’s annual Code Jam are considered relatively minor affairs, a nice all-expenses-paid vacation. (Korotkevich has won the last two Code Jams, too, in Seattle and Los Angeles.) Both companies hold their qualifying rounds online, which, at least for now, is where most of the action is. Hundreds of thousands of programmers compete on sites such as
Codeforces, started in 2010 by a sportcoding coach at Saratov State University in Russia, and Topcoder, launched in 2000 by a veteran of US IT consultancy Tallan. While Codeforces doesn’t award contestants prize money, Topcoder, now a subsidiary of IT consultant Appirio, has paid out almost $72 million in contests that can last for hours or weeks. Topcoder problems usually have realworld applications, and when companies buy code from its library, anyone who helped solve the problem gets a cut. Americans dominated sport coding in its early days, but in recent decades the US has lost that edge. From 1977 to 1997, American teams won the preeminent college competition, known as ICPC, 17 times. Participants included Zappos Chief Executive Officer Tony Hsieh and Google’s first hire, Craig Silverstein. Since 1997, the US hasn’t won once; Russian and Chinese teams have taken control. Part of the US teams’ troubles may be that sport coding isn’t the same academic golden ticket for them that it is in other countries, according to brothers Neal and Scott Wu. “If you do well in these competitions in China or Russia, you don’t even have to apply to college,” says Scott. “Here, there are kids who do well who are still getting turned down from Harvard.” The Wu brothers grew up in Baton Rouge, Louisiana, the sons of chemical engineers who moved to the US from Shanghai in the 1980s. After taking a computer science class in ninth grade, Neal quickly became the US sport-coding champion. In high school, he lost to Korotkevich twice, in 2009 and 2010, during the Belarusian’s unprecedented seven-year tenure at IOI. With Korotkevich safely in college, Scott, who took up sport programming after watching his brother’s success, won IOI last year. For the Wu siblings, sport coding has been a means to professional programming. Novakovski, the Addepar engineering chief, has hired both brothers: Scott to work with his team while deferring his acceptance to Harvard for a year; Neal when Novakovski was at community Q&A website Quora. Neal now works for file-sharing cloud company Box. “The main thing is having a curiosity and a willingness to wade into unknown waters,” he says. “When I started, I didn’t even know how to write a program to do anything and was just as clueless as everyone
else about how computers work. A lot of opportunities opened up because of these contests.” —Ashlee Vance The bottom line Many sport programmers are landing jobs and prizes. The world’s preeminent player hasn’t committed to going pro.
E-Commerce
China’s Google Tries to Move Offline
Baidu is spending billions to compete with Alibaba and Tencent “We need to be patient and give our US investors some time”
Baidu runs China’s primary search engine, but with the PC search business maturing and the economy slowing, Chairman Robin Li has been looking to diversify. In the past two years, he’s pushed Baidu deeper into the kinds of e-commerce businesses dominated by China’s other two big Internet companies, Alibaba and Tencent. During that time, Baidu’s invested almost $1 billion in more than a dozen websites and apps specialising in everything from food delivery to laundry pickup, from booking a doctor’s appointment to reserving a slot at a karaoke club. The goal is “transforming the company from connecting people with information to connecting people with services,” says Li, who’s committing $3.1 billion more over the next three years to just one of Baidu’s investments, Groupon look-alike Nuomi.com. For now, Li can afford such investments because Baidu controls almost a third of China’s $24.2 billion online ad market. Analyst IResearch estimates that China’s search-related ad spending will rise 41 per cent this year, compared with a global increase of 14 per cent. Baidu has managed to reorient its search business toward smartphones and tablets, which account for most of its ad revenue. But as it commits more money to e-commerce expansion efforts, its profit margins have fallen by half since 2012, to 28 per cent in its most recent quarter.
Technology So while Baidu is tapping its $12 billion in cash to widen its e-commerce footprint, it’s also trying to attract bigname partners. The company paid an undisclosed amount for a minority stake in Uber in December, and fast-food chain Ajisen announced in July that it’s investing $60 million in Baidu’s takeout service, which launched last year and has about 8 per cent of China’s market. Borrowing from Amazon.com’s strategy, Li is also expanding Baidu’s entertainment offerings. Its video service, IQiyi, signed a deal with Paramount Pictures in July for local streaming rights to 800 of the studio’s titles, including the Transformers and Terminator series. Li says he doesn’t expect all his investments to pay off in the short term. Even with the safe-looking stake in Uber, he says, “profit in this area is not something we’re looking for.” He’s betting on Uber to dislodge China’s ride-hailing market leader, Didi Kuaidi, which is backed by both Alibaba and Tencent and doesn’t rely on Baidu’s mapping software. In an 8 September speech at Baidu’s annual conference in Beijing, Uber Chief Executive Officer Travis Kalanick said he plans to expand Uber’s Chinese presence from 20 cities to about 120 in the next year. At the conference, Li unveiled Duer, a Siri-like service that takes voice commands a step further, leading users from movie information to ticket purchasing, or from restaurant recommendations to table bookings. Shortly before the conference, the company entered the student loan business, and in barely a month it has issued about $15.7 million worth of loans averaging $3,140 apiece, according to Ya-Qin Zhang, Baidu’s president of new business. He says Baidu aims for 30 per cent of the $1.6 billion market. Alibaba and Tencent are pursuing their own diversification plans. Tencent has bought stakes in No. 2 online retailer JD.com and Yelp-esque review site Dianping.com. Alibaba is branching into local services and in August paid $4.4 billion for one-fifth of Sunning, China’s leading electronics and appliance retailer. Alibaba intends “to develop a broad spectrum of consumer offerings, such as location-based services, offlin ne com-merce, and entterrtainment,” the e company said in an e-mail. Tenccent didn’t respond d to requests forr comment.
Baidu has a ways to go before its new ventures pay for themselves. Investment bank Jefferies estimates that Baidu’s profit will fall more than 12 per cent this year, to about $1.8 billion, while the company spends $2.5 billion on its e-commerce-centric expansion. Baidu’s Nasdaq-listed shares have dropped 28 per cent in the past six months, and Li says he may consider delisting from the US in favour of his home market. But, he says, “We need to be patient and give our US investors some time. I hope they will be able to appreciate us more.” —Bruce Einhorn and Tim Culpan The bottom line Baidu is spending an estimated $2.5 billion on e-commerce projects this year as its profits dwindle.
Manufacturing
Can the Mittelstand Fend Off US Software Giants? Germany’s plan to jump-start Weblinked factories faces competition A US-led rival “is already getting together to do joint experiments”
For your job to be taken seriously in Germany, goes the joke, it should start with an “e-” and end in “-ngineering.” Yet German officials fret that for all their country’s hardware know-how, the economy is at risk in a world where software is king and factories are increasingly linked by the Internet. Worse, an effort to give German companies an edge in building the factories of the future is under threat from a similar initiative sponsored by US tech companies. “There’s great concern that a Google or an Apple might master the manufacturing world,” says Heinz-Jürgen Prokop, head of development at Trumpf, a family-owned maker of metalworking machinery that’s participating in a programme called Industrie 4.0. “It’s important that we try to do it ourselves while we still have the opportunity.” Industrie 4.0’s alliance of companies, accademics, and political leaders l unched by the German governwas lau wo years ago. The idea was to ment tw age the small enterprises at the encoura heart of the economy—what Germans ll the he Mittelstand—to embrace new call h logies. Then last year, AT&T, technol i Systems, General Electric, Cisco S
Intel, and IBM set up a similar initiative called the Industrial Internet Consortium, or IIC. Both groups aim “There’s great to make it easier for concern that a Google or an Apple machines in factomight master the ries throughout commanufacturing panies’ supply chains world.” to communicate with —Heinz- Jürgen one another. The goal: Prokop, Trumpf to reduce downtime development head by anticipating when a factory will have spare capacity or need replacement parts, for example. Built-in sensors will collect all manner of data to better allocate resources, helping manufacturers cut energy use by as much as 20 per cent and labour costs by 25 per cent, according to consultant McKinsey. At stake is the health of German manufacturing, which employs 15 million people, about a third of the workforce. By 2020, Industrie 4.0-related projects will account for half of capital investment by German manufacturers, or some $45 billion, according to PricewaterhouseCoopers. Globally, investment in the industrial Internet will top $500 billion a year in 2020, up from $20 billion in 2012, researcher Wikibon estimates. To avoid falling behind, the “Mittelstand must maintain contact with the customer and not lose out” to software companies that might end up with valuable market data, says Volker Treier, deputy head of the German Chambers of Commerce & Industry. Germany was slower than Britain to capitalise on the 18th century industrial revolution, when mechanised production was driven by steam. In what the Germans call the second industrial revolution, around the turn of the 20th century, assembly lines powered by electricity became the norm, and Germany was a trailblazer, led by companies such as Siemens. A third phase began midcentury with computerregulated production, and the name Industrie 4.0 refers to what Germany sees as the next wave—machines talking to one another.
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$500b Projected global investment in the industrial Internet in 2020, up from $20 billion in 2012
Innovation Minute Phone Charge Form and function
Innovator Doron Myersdorf
StoreDot says its smartphone batteries can fully recharge in 60 seconds, compared with an hour and a half for the average device.
Age 52 Co-founder of three-yearold startup StoreDot, in Herzeliya, Israel
1.
Chemistry Proprietary amino acids, used in place of some of a typical battery’s lithium components, allow for safer, quicker charging, StoreDot says.
Origin In 2012, Myersdorf, formerly of chipmaker SanDisk, and two Tel Aviv University professors stumbled upon the battery compounds while experimenting with flash memory.
Endurance StoreDot says its batteries stay in top condition for about 2,000 charges, four times the typical number.
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Funding Myersdorf has raised $66 million from investors including Samsung’s venture capital arm and Russian billionaire Roman Abramovich. Price StoreDot is trying to sell the batteries to phone makers. It says they’ll cost 30 per cent more than today’s models and add as much as $100 to a phone’s retail price.
2.
:60
100% charge
50% energy Results The minute-charge battery stores about half the energy current batteries do, Myersdorf says. A version that charges in five minutes has capacity equal to standard batteries.
Next Steps Myersdorf says the phone batteries will go into mass production in 2017. He’s also working on an electric car battery he says will be able to store a 150-mile drive’s worth of charge in five minutes. It takes 30 minutes on a Tesla Supercharger for a Model S to get a similar charge. Veteran Israeli startup founder Zack Weisfeld says the risk-averse auto industry is a tough sell, “but transportation is changing rapidly and there are very big opportunities.” —Yaacov Benmeleh
The Germans have some advantages as that market takes off. Unlike in computing, with its standardised suite of keyboards and USB connectors, there are no dominant standards in industrial equipment. That gives the hardware makers of today—even small fry like Trumpf—an edge over giants like Google or Apple. To seize that opportunity, Trumpf last year quadrupled its coding staff, to about 25. “We recognised that we needed far greater IT expertise,” Prokop says. “We needed to be able to analyse data.” For all of Germany’s concern about maintaining its edge in the new industrial economy, Industrie 4.0 acts primarily as a cheerleader and offers little in the way of financial help. Politicians and labour representatives have a strong hand in setting the group’s agenda, which focuses mostly on sponsoring research at top universities. The US-dominated IIC, by contrast, coordinates trials of new technologies. It says it has launched 11 experiments, such as a system to track handheld tools to ensure they’re used effectively and a 100-gigabit-per-second network to connect machinery. Although the group hasn’t tallied total investment, GE alone says it’s spent $1 billion on industrial Internet projects in the past four years. IIC, which has grown to 200 members, including Japan’s Hitachi and even Germany’s SAP and Siemens, then shares its results. “The big difference is that Industrie 4.0 is driven by the government and is unmistakably part of industrial policy,” says Krzysztof Bledowski, director of economic studies at the Manufacturers Alliance for Productivity & Innovation in Arlington, Virginia. The IIC “is already getting together to do joint experiments.” While the IIC appears to be out in front, Germany’s approach could lead to greater progress down the line as the adoption of greater connectivity in manufacturing could take decades, says Rainer Glatz, who leads Industrie 4.0 projects at the VDMA German machine makers’ association. “In the US they want to make lots of small steps as quickly as possible,” Glatz says. “In Germany, the effort is far more theoretical: Find the model first and then move toward implementation.” —Alex Webb The bottom line A German programme to bolster its manufacturers is at risk of being eclipsed by a similar US-led initiative.
technology
COURTESY STOREDOT (3); ILLUSTRATION BY 731 (1)
Technology
SPECIAL ADVERTISING SECTION
SAUDI TELECOM COMPANY WITH THE ECONOMIC AND BUSINESS ENVIRONMENT RAPIDLY CHANGING, STC SEES OPPORTUNITIES FOR GROWTH AND PROGRESSION
“STC is a market leader not only in terms of market share but also in the manner it conducts business, develops and implements policies, procedures and governance.” Dr. Khaled Biyari, CEO
How has the introduction of mobile virtual network operators affected telcos and their outlook for growth and profitability in Saudi Arabia? Does being a mass market service provider still make business sense? The introduction of MVNOs has obviously increased competition for certain baseline services in the market; however, it would be wrong to see the introduction of MVNOs as counterproductive to existing MNOs in the market. MVNOs need not be solely viewed as competition but also as clients; large scale operators such as STC often have excess network capacity, especially during non-peak periods. With a bulk buyer such as an MVNO, the opportunity certainly brings in economies of scale.
Is the telecom sector expected to grow or contract with the macroeconomic situation that has emerged this year–the pressure on oil prices, the opening of Tadawul to foreign investments, etc.? The ICT sector is in a unique position given that as an enabler it enjoys the best potential for growth compared to other sectors, thus helping diversify the country’s non-oil revenues. Though we may still yet see some impact of a macroeconomic situation on the sector, we expect it to be short-term rather than a permanent or long-term one, especially that the government is envisioning the implementation of smart cities, digital economy, egovernment and increased adoption of technology by businesses.
With Saudi Arabia’s stock market opening up to direct foreign investment this year, what has been the effect on the country’s publicly-traded companies? The Saudi market is ready for the world because most Saudi businesses are at par with international standards, which translates into corporate governance, especially for large scale organizations. STC is a market leader not only in terms of market share but also in the manner it conducts business, develops and implements policies, procedures and governance. STC proudly implements a strong, transparent and international, standard-based corporate governance structure.
16 — 31 October, 2015
Investing in Iran? You Better Like Tea, Cake and Bureaucracy
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Companies lining up to enter the market face a variety of obstacles When Mahdi Yazdizadeh’s company tries to import new products, employees sometimes find themselves running from one Tehran office to the next, having to answer a stream of questions to get the needed approvals. “The customs department doesn’t have advance guidelines so they just pass you from person X to person Y because they haven’t dealt with such things before,” says Yazdizadeh, director of corporate business development at Shekofa Manesh, a leading group in retail, such as garments, and franchisee in Iran. “You have to almost educate them.” His words are a warning for companies such as France’s Alstom, Germany’s RWE and others that have expressed interest in investing in Iran once economic sanctions are removed following a historic nuclear accord. Isolated from the global economy for the past decade and with a population of 80 million, Iran is a fertile ground for business. But international inves-
tors will have to cope with obstacles including government control of as much as 70 per cent of the economy, a judicial system deemed unfavourable to foreigners, a dual exchange rate and a culture in which tough negotiations often go hand-in-hand with doing business. “There are multiple state actors in Iran,” says Michel Makinsky, managing director of Ageromys International, a consulting firm in Paris that advises companies planning to work in Iran. “Add to this the Iranian culture of having to negotiate your way through, and this makes for a very complex market.” Since signing the nuclear deal on 14 July, Iran has hosted at least 15 trade delegations, including from Germany, Japan, France and Poland, to lay the groundwork for trade accords after sanctions are removed from the oil-rich economy. The removal of sanctions is expected as early as the first quarter of 2016. Iranian President Hassan
Rouhani, who’s seeking to deliver on his electoral promise to rekindle political ties with Western countries, says he welcomes the participation of foreign companies, to inject capital and technology. The principal channel: joint ventures with local companies. The idea is to ensure that Iranian jobs are created and also to make Iranian companies more competitive, says Mohsen Jalalpour, chairman of Iran’s Chamber of Commerce and Industries, in an interview in his Tehran office. “Our advice to European countries is that if you want to have a sustainable presence in Iran, look at accompanying and investing alongside companies in the private sector,” he says, in a downtown office a stone’s throw from Iran’s oil ministry and some of the country’s biggest banks. The area is also home to the sprawling complex of buildings that once housed the US Embassy. The lifting of sanctions will eventually release as much as $30 billion of Iran’s
PHOTOGRAPH ILLUSTRATION BY SJC; SHUTTERSTOCK (2)
“I don’t expect an explosion in foreign investment”
Egypt turns to crowdfunding to fill its empty pockets 36 Bid/Ask: Cairo plans to step up its bond sales 37
foreign currency held abroad and allow it to ramp up oil exports. With oil prices down more than 50 per cent in the past year, that still won’t be enough for Iran to meet its investment needs or reach its target of sustained 8 per cent economic growth over the next five years, says Saeed Laylaz, an Iranian economist whose views are close to those of Rouhani’s government. “I don’t expect an explosion in foreign investment,” he says. “It will be gradual and in leading sectors like oil, gas and petrochemicals where Iranians and Westerners already have experience working together.” Oil accounts for about 16.7 percent of economic output. Even in those areas, government participation in the private sector may pose difficulties. A privatisation programme last decade saw dozens of previously government-owned companies floated on the Tehran Stock Exchange, including banks and petrochemical firms. Yet many of their majority shareholders are large state pension funds or conglomerates owned by state-run foundations or the Iranian Revolutionary Guards Corps. About $46.4 billion of shares in government-owned companies have been sold off by various means, including through flotations on the stock exchange, since 2001, the Iran Privatisation Organisation (IPO) said in August. Almost 30 per cent, more than $12 billion, of it has been transferred to the private sector in the past two years. “As long as a policy is not adopted that nurtures the private sector to % the level that it seizes the whole of the economy, Iran Iran’s target for will not witness annual economic the level of degrowth over the next velopment that it five years needs,” Mohammad Sadr Hasheminejad, chairman of Iran’s Eqtesade Novin Bank and the Stratus Holding Group, one of the country’s first privately owned conglomerates, says in his office in an affluent neighbourhood of Tehran. Iran’s economic “sickness won’t be treated.” Economist Laylaz pointed to another obstacle: a dual exchange rate—one an-
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nounced by the Central Bank of Iran and another used on open markets— that complicates operating in the country for foreign businesses. “As an investor you should be able at any time to change your dollars in the open market but the government doesn’t consider it legitimate,” Laylaz says. “Only if the exchange rate is unified can foreign investment officially be brought inside.” For some investors the political risk of working in Iran still poses serious questions, particularly when it comes to guarantees on their capital. The current nuclear deal contains a “snapback” mechanism that would reinstate sanctions if Iran is seen to have not kept to its terms. “If that begins, make sure your contracts have some provisions in there,” Charles Hollis, a former diplomat and managing director of FTI Consulting, said on 24 September to a conference on investing in Iran. Iranian officials have told visiting trade delegations that government regulations are designed to keep foreign investments safe using the central bank as a main guarantor. But questions remain over legal jurisdictions and how future disputes between a foreign commercial entity and the Iranian government can be resolved. Pirouzan Parvine, a partner in the global law firm Dentons who was involved in advising France’s Accor in building hotels in Iran, says a key is to negotiate with regard to Iranian customs. “What’s happening around the Iranian negotiating table? Tea, coffee, cake, fruit, maybe some kebab before another coffee,” he told the Geneva conference, with hundreds of European companies attending. “On the Iranian side, we have to explain how business is done through intermediaries.” Iranian Supreme Leader Ayatollah Ali Khamenei, who has the final say on all affairs of the state, has called for boosting domestic production, along with increased competitiveness and efficiency. While that offers Rouhani political cover to forge more liberal economic policies, it also seeks to ease the concerns of conservatives who oppose widespread foreign ownership. “There are a lot of opportunities in Iran,” Giulio Haas, Swiss Ambassador to Iran, speaking at the conference at the Kempins-
ki Hotel on Lake Geneva. “You will have to go after them cautiously. But Iran is a country that wants to develop. This is not a basket of gangsters, it is a BRIC in the making.” The bottom line Foreign companies planning to invest in Iran may find it difficult to adjust to the country’s way of doing business.
Sovereign Wealth Funds
Qatar Wants a Slice of America’s Pie A ic ’s Pi
Qatar Investment Authority to invest $35 billion in US from New York The fund is targeting “new and existing investment partners”
As it seeks to diversify its assets, Qatar is planning to invest $35 billion in the US over the next five years. The Qatar Investment Authority, which helps manage the country’s energy-generated wealth, opened an office in New York to “better access new and existing investment partners,” the sovereign fund said in a statement on 28 September. It will target various sectors of the US economy and help create American jobs, Qatar’s ambassador to Washington, DC, Mohammed Al Kuwari, said in Twitter postings, without giving more details on potential investments. The Doha-based fund, which controls more than $250 billion, has deployed the nation’s riches on assets ranging from British bank Barclays to Total and commodities trader Glencore, with most of its investments so far confined to Europe. It led a group of investors that agreed in January to buy London’s Canary Wharf financial district in a deal that valued owner Songbird Estates at about £2.6 billion ($3.94 billion). Some of those bets have unravelled
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in recent weeks. Glencore plunged as much as 31 per cent on 28 September, extending a rout that at one point had wiped more than $14 billion off its value last month amid investor concern the company isn’t cutting its debt load quick enough. The QIA is also the biggest holder of VW’s preferred shares and the third-largest owner of its ordinary stock. The value of its holding in the automaker may have declined by about 3.8 billion euros ($4.3 billion) in the wake of the ongoing controversy about rigged emissions testing. Last year, QIA said it planned to set up a $10 billion investment venture with China’s Citic Group to diversify from retail and property b assets in Europe. The fund also said it planned to invest as much as $20 billion in Estimated holdings of Qatar Investment Asia in the next Authority five years. “With world economies, markets and currencies often moving in different cycles and rhythms, the importance of a globally diversified investment portfolio is central to QIA,” according to the statement. In a rare US deal last year, the fund, along with other investors, agreed to buy American Express’s businesstravel division for $900 million. The fund “remains committed to its investments in Europe, Asia and the Middle East,” it said in its statement. The fund is also pressing ahead with investments overseas while some nations in the Arabian Peninsula seek to liquidate assets to shore up their finances amid declining crude prices. Saudi Arabia may have withdrawn as much as $70 billion from global asset managers as OPEC’s largest oil producer seeks to plug its budget deficit, according to financial services market intelligence company Insight Discovery. Qatar doesn’t reveal the size of its assets, but the London-based Sovereign Wealth Fund Institute estimates its holdings at $256 billion, making it the ninth largest in the world. Norway has the largest sovereign wealth fund, according to the institute. — Vivian Nereim and Stefania Bianchi
$256
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The bottom line Qatar is spreading its wealth around the world as it seeks to diversify its economy away from oil and gas.
Crowdfunding
El Sisi Asks Egyptians for Some Spare Change The government plans to revive the economy with mega-projects “Some people use the money from under their mattresses”
When an ancient Egyptian statue was put up for sale by a British museum, the government in Cairo called for its rescue on behalf of the nation— without offering to put up the cash itself. Instead, the minister for antiquities urged Egyptians to dip into their pockets and buy it. He was only following his boss’s example: such appeals have become a policy trademark under President Abdel-Fattah El-Sisi. The exgeneral raised more than $8 billion to expand the Suez Canal by selling investment certificates to the public, and may be tempted to repeat the formula. El-Sisi is touting a series of socalled megaprojects to revive Egypt’s economy, from widening the Suez Canal to reclaiming swathes of desert and building a new capital east of Cairo. But who will pay for them? Egypt has one of the region’s biggest budget deficits, capping its ability to sell more bonds. And the Gulf nations that backed El-Sisi through the turmoil of recent years may be looking to scale back aid, as the oil slump hits their own finances. “Funding will be a problem,” says Edward Co hl h d off Middl oughlan, head Middle E East and North Af Africa analysis at BMI Researrch, a unit off Fitch Group p. “Egypt’s dire fiscal p position does not allow fo or much more e debt—eithe er d domestic or international.” l That’s why hy the preside ent is turning to the th public—eve en though ave erage income is only o ly about $3,00 00 a year in an econom h has h s my that faltered am omid political turm l moil. The budget deficit fi t soared abo ove 10 per cent off output after the up pris--
The Northampton Sekhemka statue sold for $27 million
ing of 2011 and stayed there, debt is nearing 100 per cent of gross domestic product, and the central bank had to deplete reserves to prop up the pound. There have been signs of recovery lately. Growth edged above 4 per cent in the last fiscal year for the first time since 2011, according to the International Monetary Fund, and economists surveyed by Bloomberg have been getting more optimistic about 2016. To maintain the momentum, the government will have to keep spending, says Hany Genena, chief economist at Cairo investment bank Pharos Holding. It’s state-led projects like the Suez overhaul, along with new roads and power plants, that are driving the rebound, he says—and that makes it fragile. “It’s worrying that in the coming six months or year, we’re relying on a single entity, the government, whose capacity is limited given the availability of financing,” Genena says. Arabian Gulf monarchs have kept Egypt afloat under El-Sisi, whose dislike of political Islam they share. Saudi Arabia and its neighbours have contributed more than $30 billion in aid and investments since mid-2013, when Egypt’s Islamist leader Mohamed Morsi was ousted by the army after mass protests. But their revenues have also plunged in the past year as crude prices dropped by half. That “should definitely feed through into less money available for investments in Egypt,” says Anthony Simond, who helps manage $13 billion of emerging-market debt at Aberdeen Asset Management in London. “If oil prices stay below $60-70 for the next l off years then h E ve to couple Egypt may h hav s arge seek other major investors ffor its la i f infrastructure needs.” E f gan El-Sisi’s crowdfunding drive beg s f ffi in June shortly after he took office on2014. He set up a ffund to collect co t b h Masr”” or tributions, naming it “Tahya d primarily l tarrLong Live Egypt, and g l h Egyptians. Leadin d ng geting wealthier by example, El-Sisi pledged halff off his hl 42,000 pound d ($5,364) salary monthly ear along with halff off his assets. “I swe dn’t t God, iff I had $100 billion I would to th k twice, I’d d give it to Egypt,” t ink ld local l l bu busiEl-Sisi told El n nessmen during du a meeting i in i June, accord ding to El Wattan n newspaper. A year after f its founf d h h, dation, thoug
PHOTOGRAPH ILLUSTRATION BY SJC (AFP)
Markets/Finance
PHOTOGRAPH ILLUSTRATION BY SJC
Markets/Finance the fund has only amassed 6.75 billion pounds, less than 1 per cent of total state spending, according to El Watan. Presidency spokesman Alaa Youssef did not answer phone calls or a text message seeking comment on the issue. The biggest success for El-Sisi’s crowdfunding was when he offered something in return. Egyptians snapped up 64 billion pounds ($8.2 billion) of special investment certificates, issued to fund the Suez expansion, in less than a week. They pay a 12 per cent annual interest rate, and aren’t traded on secondary markets. Only Egyptian individuals and institutions were allowed to subscribe. The government may resort to issuing more certificates to fund the planned new capital city, Al Mal newspaper reported last month. UAE real estate tycoon Mohamed Alabbar, who signed an initial accord to be the project’s main developer, is no longer slated to play that role, according to officials. Such instruments “are an alternative source of liquidity that doesn’t necessarily come from the banking sector,” says Razan Nasser, senior Middle East and North Africa economist at HSBC Holdings in Dubai. “Some people use the money from under their mattresses.” There are other advantages for the government. Borrowing through that channel doesn’t show up on the official budget, so it avoids making already bad metrics look worse, says Coughlan. Also, “the debt raised is less susceptible to rising global interest rates and investor sentiment towards Egypt,” Coughlan says. “There’s an element of patriotism when it comes to some emerging markets, so it’s often cheaper to raise debt that way.” He predicts more such sales. By contrast, the effort to raise cash for the Pharaonic statue—an image of the scribe Sekhemka, carved from garnet about 4,500 years ago—was a flop. The Northampton Museum has sold it to an anonymous private collector instead. “There was little hope of saving the statue to begin with,” says Moushira Moussa, a spokeswoman for the Egyptian Antiquities Ministry. “Now it is lost forever.” — Ahmed Feteha and Tarek El-Tablawy The bottom line El-Sisi’s brand of crowdfunding to finance Egyptian projects is yielding limited returns.
markets-and-finance
Bid/Ask
By Rahul Odedra
$36b Egypt is ramping up domestic bond sales to a record this quarter as borrowing costs slide, threatening to widen one of the Middle East’s highest budget deficits. The government plans to sell 281.5 billion Egyptian pounds ($36 billion) of treasury bills and bonds in the last three months of 2015, about a third more than the same period last year, according to data posted on the Finance Ministry’s website this month. Egypt has 202 billion pounds of local debt maturing this quarter, according to data compiled by Bloomberg. The average yield on 12-month treasury notes has fallen 59 basis points so far this year.
$3.1b $1b $1b $626m $545m $425m $20m
Aramco invests in a chemical business. Saudi Arabian Oil said it would pump money into the synthetic-rubber division of Germany’s Lanxess, forming a joint venture. Saudi billionaire buys more Twitter. Prince Alwaleed and his investment company Kingdom Holding have increased their combined stake to more than 5 per cent. Turkcell plans 10-year bond debut. Turkey’s biggest mobile operator may be the first corporate issuer to seek funding from the international bond market in more than a year. Gulf Related takes loan to bring Macy’s. The JV between Abu Dhabi’s Gulf Capital and New York-based Related Companies is constructing a mall in the UAE capital. First residential real estate investment trust for Dubai. Emirates REIT expects to start operating the trust by early 2016 and will buy entire buildings in Dubai and Abu Dhabi. Qatar Investment Authority to sell Vinci stake. The sovereign wealth fund is selling a 1.1 per cent stake in the construction company, but will still retain 3.9 per cent. Emirates spends big to find new Friends. The Dubaibased airline has launched its ad campaign featuring actress Jennifer Aniston, with TV spots in the US and UAE.
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Focus On
INVESTMENT BANKING by Dominic Dudley
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Watching and waiting for the IPO pickup S2
Sovereign bonds make a comeback S4
Not much M and not much A in the M&A market S6
Focus On INVESTMENT BANKING
READY AND WAITING A backlog is forming for regional companies wanting to list on stock markets. They just need a bit of market stability
I
Omar Iqtidar
markets for the Middle East at Deutsche Bank. “It takes six months to prepare for an IPO so you have to prepare and be ready, but many feel they can’t justify starting the process when things don’t look great now,” he says. Once conditions improve, there could be a flurry of IPO activity across the region. There are around 90 companies planning to list shares sometime between now and 2018, according to EY. They include 29 companies in MENA IPO PIPELINE (2015-18)
Source: EY
Morocco
Iraq
Tunisia
Bahrain
Qatar
Kuwait
Egypt
Oman
Saudi Arabia
UAE
TOTAL: 90
the UAE, 17 in Saudi Arabia, 13 in Egypt and 12 in Oman. “If you get a little bit of market stability and the window of opportunity for potential candidates opens then you’ll see companies reemerging in 2016,” says Mayur Pau, IPO leader for the MENA region at consultancy firm EY. Among these flotations, the public sector is expected to contribute a significant portion. At a time when government fiscal positions are under strain, the ability to raise more money from selling assets is tempting, as would the potential to inject more private sector efficiency into underperforming state-owned companies. “Some private companies are coming to the market but I wouldn’t be surprised if more state companies come to the market as well,” says Fahad Al-Turki, chief economist at Jadwa Investment, a Saudi investment bank. There have been a few recent examples such as Saudi Ground Services Company, which had been part of the Saudia airline and listed on the Tadawul in June. More could come forward next year. “We may see more privatisations in the region as the it moves towards greater deregulation in the new environment,” says Iqtidar. “A lot of them may be driven through local exchanges. The UAE and Saudi can clearly offer a significant pipeline of deals. I would expect that we will start to see a pipeline emerge early next year and the privatisations will start happening late next year.”
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head of Middle East investment banking, Citi
No. companies planning to list
S2
WE ARE GOING THROUGH A TIME WHEN THINGSS AARE CHANGING: THERE IS NEAR-TERM VOLATILITY. HOPEFULLY, THERE SHOULD BE STABILITTY IN THE MEDIUM TERM.”
Lebanon
t has been a difficult year for the region’s stock exchanges. In early October, the S&P AFE 40 index, which consists of 40 of the largest securities in the MENA region, was down 25 per cent compared to the same time last year. In the third quarter of this year most of the big exchanges around the region lost ground, in line with global market trends. The Saudi market was down 18.5 per cent, while Dubai's was down 12.1 per cent. Such bearish conditions aren't ideal for companies wanting to launch initial public offerings, or indeed their investment banking advisers. There were 11 IPOs across the MENA region in the first half of the year, but none in the third quarter; few if any are expected to list before the end of the year. “IPOs need some level of stability and a somewhat positive trajectory,” says Omar Iqtidar, head of Middle East investment banking at Citi. “I don’t think there is that level of investor confidence in emerging market valuations in general. We are going through a time when things are changing: there is near-term volatility. Hopefully, there should be stability in the medium term.” With market conditions dictating the pace of business at investment banks, some are having to adapt. While the market is moribund it seems likely that some banks will be shedding unwanted staff and putting new hiring decisions on hold. “All these investment banks that hired people, principally in Dubai and Abu Dhabi, will be less inclined to hire more,” says John Sfakianakis, Riyadh-based Middle East director of investment manager Ashmore Group. “A lot of the positions are held by expats, so they will be cutting down on those jobs.” For others it’s a matter of trying to keep busy by preparing clients for when the markets finally improve. With uncertainty as to when that rebound might happen, getting some clients to commit to the process is proving difficult. “There are plenty of people with IPOs they want to do, but the transactions are being pushed back until they feel sentiment is better,” says Chris Laing, head of equity capital
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Focus On INVESTMENT BANKING
BONDS OF CONVENIENCE Low oil revenues are prompting Gulf governments to issue more bonds, but the revenues for investment banks remain limited
cross the Gulf, as governments look to find ways of balancing their budgets at a time of low oil prices, sovereign bond issues are on the increase. The Saudi government issued bonds in July for the first time since 2007. Since then Oman has followed suit and Bahrain is expected to follow suit in the near future. Qatar, meanwhile, has been issuing bonds for some time now and continues to find them easy to sell: A 5 billion Qatari rial ($4.1 billion) bond issue in September was four times oversubscribed, according to Samba. “We are definitely seeing a trend of sovereigns issuing bonds in order to offset their lower reserves as a consequence of the oil prices,” says Alberto Palombi, head of the Middle East & North Africa region at UBS. There are some advantages beyond simply raising money. Bond issues can help to foster a local debt capital market, which is a positive development in terms of the maturity of the financial system. It represents a useful opportunity for investment banks too, although not necessarily a particularly lucrative one. Profits on such deals can be limited, which is one reason that some big international banks are not heavily involved. “For investment banks, debt capital market transactions typically don’t generate significant fees, relative to some of the other products that we offer,” says Aasim Qureshi, managing director of QNB Capital, the investment banking arm of Qatar National Bank. “It is important to us in terms of maintaining a relationship with issuers and with the international investment community, but from a feegenerating perspective the margins and levels of fees are very low.” Still, the increase in issuances is providing fresh business. With most Gulf governments enjoying low debt levels, there is also little problem in attracting investors. Saudi Arabia had gross government debts of just 1.6 per cent of GDP last year, according to the IMF, while the equivalent figures for Oman and Kuwait were around 5 and 7 per cent respectively. For the
A
COURTESY SUBJECT
S4
UAE it was 12 per cent. The figures for Bahrain and Qatar are higher, at 44 and 32 per cent respectively, but still at comfortable levels. London-based Capital Economics says that Riyadh could issue debt equal to around 16 per cent of GDP domestically without generating much adverse economic impact. Oman also looks to be in a comfortable position, according to the ratings agencies. “Even factoring in the reduced government revenues and higher government debt over the next one to three years, Oman's debt metrics will still compare favourably with [other A-rated countries],” says Steffen Dyck, a senior analyst at Moody’s. In any case, the chances are that far more issues will follow in the coming quarters if oil prices remain at or below $70 a barrel as many observers expect. Qureshi suggests that government-related entities may also start to issue their own bonds, particularly in places such as Dubai and Qatar where massive infrastructure build-outs are underway in preparation for Expo 2020 and the 2022 FIFA World Cup. “We will see more debt,” says Paul Gamble, a senior director at Fitch Ratings. “There’s very strong demand for Saudi debt among local banks and local banks are pretty liquid so we don’t see any crowding out. In terms of Oman we are less certain of their financing policy but they have started increasing debt.” The liquidity in the system means that there
should be few problems in absorbing what is due to come to the market in the near term. However, some warn that if there is a significant rise in sovereign debt issuance, then a wider range of buyers will need to be targeted. “It is easy for Saudi banks to finance the bond issues that are coming to the market at the moment. They are capable of financing both government and private sector needs, so there is no ‘crowding out’ effect from the government bond programme. But if the government raises more than say 300 billion Saudi riyals ($80 billion) it will be more difficult. Then they may need to open the programme out to more domestic investment banks, insurance companies and family offices,” says Fahad Al-Turki, chief economist at Riyadh-based Jadwa Investment. But while sovereign issues are increasing, other areas of the bond market are struggling. S&P says that the drop in oil and gas prices triggered a 58 per cent reduction in corporate and infrastructure bond and sukuk issuances over the 12 months to the end of August, compared with the preceding 12 months. And even some issues that are launched do not succeed. For example, in September Abu Dhabi Commercial Bank cancelled its bond issue. “Who would have thought they would pull the transaction, but they pulled it because the market is tight,” says one investment banker in the region. “Hopefully the current market is not a long-term scenario.”
IT IS EASY FOR SAUDI BANKS TO FINANCE THE BOND ISSUES THAT ARE COMING TO THE MARKETT AT THE MOMENT. THEY ARE CAPABLE OF FINANCING BOTH GOVERNMENT AND PRIVATE SECTOR NEEDS, S, SO THERE IS NO ‘CROWDING OUT’ EFFECT FROM THE GOVERNMENT BOND PROGRAMME.” Fahad Al-Turki, chief economist, Jadwa Investment
Focus On INVESTMENT BANKING
EMERGING ACQUISITIONS M&A activity is limited but some are hopeful for a return to form next year n early October the UAE healthcare group Al Noor Hospitals confirmed that it was in talks to merge with South Africa’s Mediclinic International. On the same day it emerged that Saudi Aramco had hired Deutsche Bank to work on a possible multi-billion dollar acquisition of assets owned by China National Petroleum Corp (CNPC). Such deals might suggest that the M&A market in the region is in good health, but that’s far from the case. Some firms continue to make investments where there is a good fit for their strategic plans, but overall the of news in early October demonstrated, some market is very weak across the region and the deals are getting done. Among the major deals advisory fee pickings for investment banks announced this year have been a $5 billion bid have been relatively meagre. “When it comes by two Qatar companies, Hamad bin Suhaim to the M&A market, there isn’t much M and Enterprises and Qatra for Investment & Dethere isn’t much A,” says John Sfakianakis, velopment, for 49 per cent of Chinese firm Riyadh-based Middle East director for the Sandong Dongming Petrochemicals. In the Ashmore Group. “There are a few deals here UAE, the Emirates National Oil Company bid and there but not enough to justify a presence $2.8 billion for 46 per cent of Dragon Oil, while of a large operation on the ground.” Saudi Arabia’s Public Investment Fund has also As with other parts of the investment bid $1.1 billion for 38 per cent of South Korean banking landscape, it is a combination of low construction firm Posco Engineering. oil prices, subdued sentiment within the region Others that are currently in progress include and volatility in emerging markets more genthe ongoing sale of the Kuwait Food Company erally that is blamed for the lack of activity. It’s (Americana). Qatar National Bank has also been an environment in which many potential actors linked to a possible purchase of Finansbank in prefer to stand on the sidelines and wait. That’s Turkey, which is being sold by National Bank of particularly been the case in Qatar, says Aasim Greece. The market for such large, cross-border Qureshi, managing director of QNB Capital. deals tends to be dominated by the big interna“There has been some consolidation within the tional investment banks, such as Citi, Barclays, country and there has been talk of corporate reJP Morgan and HSBC. According to Thomson structuring and divesting of non-core assets. Reuters, the highest ranked bank for M&A deals Government-backed comfrom within the region MENA M&A DEALS Source: Thomson Reuters panies are looking to sell is Egypt’s EFG Hermes, Value ($b) some non-core businesswhich is ranked in 18th es or tender more projects place on the basis of its Year on year change : 129.7% on a competitive basis to deal flow so far this year. allow the private sector to If oil prices stay low participate. It’s predomiand sovereign wealth nantly state-owned compafunds start to come under nies like Qatar Petroleum pressure to exit some of talking about it. Large their investments to help private companies are ease the fiscal pressure on watching the space.” their governments, there Even so, as the flurry may be more M&A deals
I
Aasim Qureshi, managing director, QNB Capital in the pipeline. “Before the summer there was an expectation that some SWFs would consider monetising some of their big stakes in listed entities,” says Alberto Palombi, head of the Middle East & North Africa at UBS. “The correction in the markets in August put a lot of those situations on hold, but if the markets recover then we expect to see more monetisations and that is definitely a very interesting area of activity for investment banks to tap into.” Appetite for such moves at the moment remains limited. If the M&A arena is to heat up what is needed more than anything is market stability, whether or not that means high or low oil prices. “We hope to see stable oil prices. I don’t think it will make much of a difference at which level they stabilise,” says Ahmed El Guindy, head of investment banking at EFG Hermes. “Once the level of volatility is reduced, once the impact of the potential slowdown in emerging markets is much clearer than it is today, then investors will find it easier to make decisions and to execute their strategic plans. We hope that will happen by the beginning of next year. We would like to see the minimum level of volatility.” In the meantime, there is at least still some advisory work for investment banks to be getting on with, to prepare their clients for a time when the market is in better shape. “From a capital markets and corporate finance perspective, we are preparing various feasibility models, financing options and capital raising strategies—things we would classify as strategic financial advisory,” says Qureshi. “Over the past few months that has become one of the mainstays of our work.”
COURTESY SUBJECT
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
S6
GOVERNMENT-BACKED COMPANIES ARE LOOKING TO SELL SOME NON-CORE BUSINESSES OR TENDER MORE PROJECTS ON A COMPETITIVE BASIS TO ALLOW W THE PRIVATE SECTOR TO PARTICIPATE. LARGE PRIVATTE COMPANIES ARE WATCHING THE SPACE.”
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Mu ch Audience By Ben Elgin, Michael Riley, David Kocieniewski, and Joshua Brustein
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Marketers thought the Web would allow perfectly targeted ads. Hasnâ&#x20AC;&#x2122;t worked out that way
46
How O f Your Is
Ron Amram has been in the brand marketing business for about 20 years. In the 2000s he was media director for Sprint’s prepaid cellular group, mainly figuring out where the carrier should spend its ad dollars—print, outdoor, digital, or broadcast. TV was always at the top of the pyramid. A TV campaign was like “the Air Force,” Amram says. “You wanted to get your message out, you did carpet bombing.” But TV wasn’t cheap, nor did it solve “that age-old question: Half of my marketing is working, half of it is not, and I don’t know which half.” About 10 years ago, not long after Google went public and Yahoo! was still worth upward of $50 billion, attitudes shifted. Digital search and display ads had the potential to reach TV-size audiences at a fraction of the price. “People thought it was going to change everything,” Amram says. The euphoria escalated again around 2010 with the arrival of programmatic advertising, a typically banal industry term for what is, essentially, automation. The ideal programmatic transaction works like this: A user clicks on a website and suddenly her Internet address and browsing history are packaged and whisked off to an auction site, where software, on behalf of advertisers, scrutinises her profile (or an anonymised version of it) and determines whether to bid to place an ad next to that article. Ford Motor could pay to put its ads on websites for car buffs, or, with the help of
48
cookies track car buffs wherever they may be online. Ford might want to target males age 25-40 for pickup-truck ads, or, better yet, anybody in that age group who’s even read about pickups in the past six months. That’s a stunningly attractive proposition to advertisers: surgical strikes on a carpet bombing scale. Ominous for privacy advocates, sure, but nirvana for agencies, publishers, and advertisers. At long last, they’d know where every last dollar went and whether it did its job. Amram is at Heineken USA now, where the annual ad budget is in the $150 million range. In 2013 the company replaced its old stubby bottles with a fashionably longnecked version that supposedly keeps the beer cold longer. “We had a healthy investment in TV, local media, and digital,” he says. “We thought digital would come close and compete with television in terms of effectiveness.” Late that year he and a half-dozen or so colleagues gathered in a New York conference room for a presentation on the performance of the online ads. They were stunned. Digital’s return on investment was around 2 to 1, a $2 increase in revenue for every $1 of ad spending, compared with at least 6 to 1 for TV. The most startling finding: Only 20 per cent of the campaign’s “ad impressions”—ads that appear on a computer or smartphone screen—were even seen by actual people. “The room basically stopped,” Amram recalls. The team was concerned about their jobs; someone asked, “Can
they do that? Is it legal?” But mostly it was disbelief and outrage. “It was like we’d been throwing our money to the mob,” Amram says. “As an advertiser we were paying for eyeballs and thought that we were buying views. But in the digital world, you’re just paying for the ad to be served, and there’s no guarantee who will see it, or whether a human will see it at all.” Increasingly, digital ad viewers aren’t human. A study done last year in conjunction with the Association of National Advertisers embedded billions of digital ads with code designed to determine who or what was seeing them. Eleven per cent of display ads and almost a quarter of video ads were “viewed” by software, not people. According to the ANA study, which was conducted by the security firm White Ops and is titled The Bot Baseline: Fraud In Digital Advertising, fake traffic will cost advertisers $6.3 billion this year. One ad tracked in the study was a video spot for Chrysler that ran last year on Saveur.tv, a site based on the food and travel lifestyle magazine. Only 2 per cent of the ad views registered as human, according to a person who was briefed on data provided to the study’s participants. Chrysler, which doesn’t dispute the data, ceased buying ads on the site once it became aware of the “fraudulent activity,” says Eileen Wunderlich, the automaker’s spokeswoman. White Ops, which left out the names of the advertiser and website in its published study, declined to comment. Executives at Bonnier, the publishing company behind Saveur. tv, say they screen every impression and that the White Ops study looked at 5,700 ads, a very small number. They also say there are multiple methods for detecting nonhuman traffic, and that there’s no single standard used by the industry. “We weren’t aware of any problem or complaint. If it had been brought to our attention we would have fixed it,” says Perri Dorset, a Bonnier spokeswoman. Fake traffic has become a commodity. There’s malware for generating it and brokers who sell it. Some companies pay for it intentionally, some accidentally, and some prefer not to ask where their traffic comes from. It’s given rise to an industry of countermeasures, which inspire countercountermeasures. “It’s like a game of whack-a-mole,” says Fernando Arriola, vice president for media and integration at ConAgra Foods. Consumers, meanwhile, to the extent they pay attention to targeted ads at all, hate them: The top paid iPhone app on Apple’s App Store is an ad blocker. “I can think of nothing that has done more harm to the Internet than ad tech,” says Bob Hoffman, a veteran ad executive, industry critic, and author of the blog the Ad Contrarian. “It interferes with everything we try to do on the Web. It has cheapened and debased advertising and spawned criminal empires.” Most ridiculous of all, he adds, is that advertisers are further away than ever from solving the old which-partof-my-budget-is-working problem. “Nobody knows the exact number,” Hoffman says, “but probably about 50 per cent of what you’re spending online is being stolen from you.” Bonnier is a 211-year-old Swedish media conglomerate. Like a lot of traditional publishing companies, it has struggled in its transition to the Internet era. Generating digital revenue to offset declines in the print business is paramount, and video ads are particularly lucrative. Last year the company began to build videocentric sites for
So You’d Like to Get Some Traffic You’re launching a website. Problem: Advertisers won’t talk to you because your site has no audience. Solution: Buy an audience! How? Depends on what you’re willing to spend
Start here
TRAFFIC BROKER CONTENT DISCOVERY
There are lots of companies who offer traffic for sale. They’ll send your site thousands or millions of visitors for as little as 1/10 of a penny each.
Networks like Outbrain and Taboola distribute clickbait-y headlines, trivia, and listicles on thousands of sites, often labelled “from around the Web.” For example, “Having Any 1 of These 7 Credit Cards Means You Have Excellent Credit.”
SEARCH
This would be Google. A great way to get real human eyeballs to your site, but also very expensive.
When you sign up for a content discovery site, you can help choose the types of sites you want to be featured on and the type of user you’d like to attract.
10¢
The most expensive phrase for a Google advertiser is “San Antonio car wreck attorney.”
per click
If you go this route, beware: Traffic brokers often provide scant details about where their visitors come from. Brokers might use pop-up windows to get you your clicks. Shadier ones might get you fake “visitors” instead. That means bots.
0.1¢–0.2¢ per viewer
Pop-up Ads
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$670
Major publishers of some of the bestknown websites
per click
Average that advertisers spend on Google searches for more general subjects such as autos, education, travel, and finance.
$1–$4 per click
Botnet
Niche websites like blogs or sites with reviews or listings
Bare-bones sites with scant, stale content
A botnet is a network of commandeered computers, each directed to visit sites, scroll around, and click on ads, just like a human would. By one estimate, more than half of all purchased visitors come from botnets.
YOUR AUDIENCE
Human
Non-human
Saveur and several of its other titles, including Outdoor Life, Working Mother, and Popular Science. About half of Saveur.tv’s home page is taken up by a player that automatically plays videos with simple kitchen tips. In early September, the spots (How to Stir a Cocktail, Step One: “Hold the spoon between pointer and middle finger …”), were preceded by ads from Snapple and Mrs. Meyer’s household cleaning products. The challenge for Bonnier was building an audience. That can be done organically—by coming up with lots of content, promoting it until people start watching, persuading advertisers to buy in. Or there’s a modern shortcut: Buy traffic. Which doesn’t necessarily mean fake it. Publishers often pay to redirect human users from somewhere else on the Internet to their own sites, and companies such as Taboola and Outbrain specialise in managing this kind of traffic. Website A hires Taboola, which pays Website B to put “content from around the Web” boxes at the bottom of its pages. Viewers, enticed by headlines like “37 Things You Didn’t Know About Scarlett Johansson,” click on a box and are redirected to Website A. But redirects are also expensive. In practice, only 2 per cent of people on a site click on these boxes, and Website A has to compensate Website B handsomely for giving up precious visitors. Less ethical methods are cheaper. Pop-ups—those tiny browser windows that you ignore, click to close,
or never see—are one way to inflate visitor numbers. As soon as that window appears on your computer, you’re counted as someone who’s seen the ads. An even more cost-effective technique—and as a rule of thumb, fake is always cheaper—is an ad bot, malware that surreptitiously takes over someone else’s computer and creates a virtual browser. This virtual browser, invisible to the computer’s owner, visits websites, scrolls through pages, and clicks links. No one is viewing the pages, of course; it’s just the malware. But unless the bot is detected, it’s counted as a view by traffic-measuring services. A botnet, with thousands of hijacked computers working in concert, can create a massive “audience” very quickly. All a budding media mogul—whether a website operator or a traffic supplier—has to do to make money is arbitrage: Buy low, sell high. The art is making the fake traffic look real, often by sprucing up websites with just enough content to make them appear authentic. Programmatic ad-buying systems don’t necessarily differentiate between real users and bots, or between websites with fresh, original work, and Potemkin sites camouflaged with stock photos and cut-and-paste articles. Bonnier wasn’t that audacious. But even its own executives say the content on the video sites was unlikely to create and sustain much of an audience on its own.
So they turned to several different traffic brokers—or audience networks, to use the industry euphemism. Sean Holzman, Bonnier’s chief digital revenue officer, described the practice as normal for big-time publishers, especially those rolling out new products, because advertisers won’t bother with sites that don’t already have an audience. “It was a test, a way to prime the pump and see if we could build these sites at this price point,” he says. “You usually have to keep buying some traffic, because the audience you’re getting isn’t as sticky.” It’s also common for publishers not to tell their advertisers when they’re buying traffic, and in most cases, Bonnier didn’t. When advertisers asked, says spokeswoman Dorset, the company was open about its buying traffic. Holzman says there was no intent to deceive anyone. The company hired security firms, he adds, including DoubleVerify, to vet the sites for bots and was assured they were buying real human visitors. But he says they weren’t paying top dollar for their traffic. Among audience networks, he says, “there are some you might call Toyotas, others we’d consider Mercedes. We were priced at the Toyota level.” The traffic market is unregulated, and sellers range from unimpeachable to adequate to downright sleazy; price is part of the market’s code. The cheap stuff is very easy to find. On LinkedIn there’s a forum called “Buying & Selling TRAFFIC,” where 1,000 “visitors” can be had for $1. Legit traffic is a lot more expensive. Taboola, for example, charges publishers from 20¢ to 90¢ per visitor for video content, targeted to a US audience on desktops only. A publisher like Bonnier can sell a video ad for 1¢ to 1.2¢ per view in a programmatic auction, which is how the company sold most ads on its video sites. If Bonnier had gone with Taboola, it might be losing 19¢ per view or more. Soon after it started buying traffic, Bonnier’s numbers began to jump. In the summer of 2014, several of the video sites had almost zero visitors, according to ComScore. By December, Saveur.tv had 6 million monthly visitors and WorkingMotherTV.com, 4 million, according to site data provided by Bonnier. In May traffic surged again: 9 million for Saveur.tv; 5 million for WorkingMotherTV. com. The numbers didn’t pass muster with at least one big ad exchange: SiteScout, which aggregates and lists ad space for sale from more than 68,000 websites, says it blocks several of these new Bonnier sites for “excessive nonhuman traffic.” Bonnier says it doesn’t work directly with SiteScout and was unaware its video properties had been blocked. (Bloomberg.com, which like Bloomberg Businessweek is owned by Bloomberg LP, reported 24.2 million unique visitors in the US in August, according to ComScore. The site purchases between 1 per cent and 2 per cent of its traffic from Taboola and Outbrain. “In the past, we have engaged with a few other vendors,” says global head of digital Paul Maya, “but we weren’t confident in the quality of the audience, despite assurances from the vendor, and cancelled those deals.”) Bonnier declined to reveal its traffic suppliers, but an analysis by SimilarWeb, a traffic-analysis firm, shows
most of it arrived from a handful of identical-looking sites with names like Omnaling.com and Connect5364.com, each describing itself as “an advertising network technology domain.” Essentially the domains work like fire hoses, pumping traffic anywhere on the Internet. They’re registered anonymously but have shared computer addresses with other sites, including one called Daniel-Yomtobian.com. Daniel Yomtobian is the chief executive officer of a traffic supplier in Sherman Oaks, California, called Advertise. com. When reached by phone, Yomtobian is gregarious and friendly. He describes Advertise.com as an ad network that sells more than 300 million page visits each month to companies that want to boost their traffic. Among his customers is Bonnier, which, he says, mainly purchased his cheapest-possible traffic, including “tab-unders.” Say you’re watching a movie on Netflix. A tab-under opens up another window beneath the one playing the movie. You may never see that new window, which displays an Advertise.com customer’s website, but Advertise.com’s customer still generates another page view. Repeat a few thousand times, and you build traffic numbers. “I’ve found Advertise.com selling every type of worthless traffic I am able to detect,” says Benjamin Edelman, a Harvard Business School professor who researches the digital economy. “And doing so persistently, for months and indeed, years.” Yomtobian allows that tab-unders are “low-quality traffic” and that Bonnier complained about that. But he says his firm checks the traffic of its supplying partners for bots and sends only real humans to the Bonnier websites. “We would never deliver traffic that we don’t think is real,” he says. Yomtobian also disputes Edelman’s claims that Advertise.com’s traffic is worthless. After all, people sometimes do see tab-unders and click on them. “There is a huge distinction,” he says, “between worthless traffic and low-quality traffic.” You’ve probably never visited MyTopFace.com. It’s a cosmetics advice site that sells ad slots for anywhere from 73¢ to $10 per 1,000 views, with video ads fetching far more money than display ads, according to SiteScout. As of early September, the top story on MyTopFace, an article with an accompanying video called “Smokey Eye Makeup—Kim Kardashian Look,” was at least 5 months old. Stale content seems like the worst way to attract readers, but if the readers are bots, it doesn’t matter. So MyTopFace could have made as much as $9 per visitor, assuming it kept costs close to zero and was able to acquire traffic at a rate of $1 per 1,000. MyTopFace ran ads from companies and brands such as American Express and Hebrew National hot dogs. After more than a dozen e-mails and phone calls, the operator of MyTopFace agreed to meet with Bloomberg Businessweek. He’s 28, lives in Brooklyn, and introduces himself as Boris Boris (although a number of his network’s sites are registered under other names). On a warm September afternoon, he shows up at a trendy Flatbush Avenue cafe with his wife and their 1-month-old son in tow. He’s wearing a pair of brown, tortoiseshell glasses and sports a goatee with a waxed, handlebar mustache. Boris says he was born in eastern Ukraine and made it to the US when a Russian-owned business in New York heard about his Internet marketing skills through the émigré grapevine and got him a temporary visa. After a few months of fine-tuning, he helped a Brooklyn meat
From top: MyTopFace.com, TreasureFromTrash.com, GrandparentsAreLove.com
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RealMovieTrailers.com (top), and a widely repurposed headshot
processor’s website vault to the top of Google searches. “They were happy, and I knew I could stay,” Boris says. “And I knew that I could find success in the USA, too.” But Boris saw that the real opportunities in Web advertising lay elsewhere. In less than five years, he’s built a minipublishing empire, Boris Media Group, largely through the acquisition of cheap—and, often, fake—traffic. Along with MyTopFace, his portfolio includes several low-maintenance properties, such as MaryBoo.com, which offers health and beauty tips to pregnant women. Boris’s LinkedIn profile says his sites combine to reach more than 10 million viewers daily, which would get him in four days what the Los Angeles Times gets in a month. Boris’s traffic number is difficult to verify—he declined to provide a full list of his websites. But for much of the summer, MyTopFace offered from 30,000 to 100,000 ad impressions for sale each day, according to SiteScout. During the interview, he freely admits he buys many of the visitors to his websites. He spends about $50,000 per year buying high-quality traffic for MyTopFace from Facebook (nothing nefarious there—you create an account for your business and then pay Facebook to advertise in people’s news feeds). And then he spends another $50,000 or so on cheap traffic whose origins he isn’t as sure about. Facebook traffic is real people, and costs about 100 times more per visitor than the mysterious cheap traffic. Bloomberg Businessweek asked two traffic-frauddetection firms to assess recent traffic to MyTopFace; they agreed on the condition that their names not be used. One found that 94 per cent of 30,000 visitors were bots; the other put the bot traffic at 74 per cent. Boris didn’t dispute the findings or appear at all concerned. “If I can buy some traffic and it gets accepted, why not?” he says. And if advertisers don’t like it, he adds, “they should go buy somewhere else. They want to pay only a little and get a lot of traffic and results. If they want all human traffic, they should go direct to the publisher and pay more.” In a later e-mail, he explains his business differently. “Our network doesn’t buy traffic, we buy advertising that brings us traffic,” Boris writes. His operation uses antibot filters, he adds, and any advertiser that does find bot traffic can refuse to pay for it. In any case, fraud would be impossible, he says. One prominent source of Boris’s advertising revenue is Myspace. The once-dominant social network’s new owner, the ad-tech firm Viant, relaunched it in 2013 with a focus on video. It has invested in Myspace exclusives, as well as custom-made video players that other sites can embed, much like YouTube’s. When visitors went to MyTopFace.com last summer, a Myspace player would pop up in the bottom right-hand corner of the screen. First, an ad would show, followed by the editorial content—a 15-second video of a guy driving a car at night. The guy-driving-at-night video, called Hitboy, was one of several put together by a Myspace employee to serve as placeholders, according to Viant. They appear whenever Myspace blocks a site from showing its actual video content. That might happen, say, if the site violates Myspace’s terms or conditions or if Myspace loses the rights to show a video that had been featured. But the placeholders are still preceded by ads. Kozy Shack pudding, Chevrolet, Unilever, and various Procter & Gamble brands such as Tampax and Always have all paid for the privilege. Boris says the cheques he cashed came through an affiliate programme where Viant splits
ad revenue with publishers who showed its players. Viant’s executives say they have an affiliate programme, but they’ve never heard of Boris or MyTopFace.com. They declined to name a single company that participates in the programme. Boris says he put the Myspace players on his sites after being contacted by a middleman, whom he won’t name. “My balls will be cut off,” he says. Chris Vanderhook, Viant’s chief operating officer, says the company has technology that checks for nonhuman traffic. “If a website has 80 or 90 per cent bot traffic, then yes, we will try to remove this site from any ad rotation,” he says. Yet Boris’s MyTopFace, which, again, according to the estimates provided to Bloomberg Businessweek, had between 74 per cent and 94 per cent nonhuman traffic, hasn’t been cut off. Vanderhook says that must mean Viant’s software sees some value to it. If a website has a Myspace player showing ads, he says, “we deemed that it was still quality enough to auction off.” Myspace’s placeholder videos appeared on about 100 websites in August, according to Telemetry, a frauddetection firm. If anything, some of the sites are even more creative than MyTopFace. Take RealMovieTrailers.com. The site lists a nonexistent address in New York as its headquarters. The phone number doesn’t work. Image searches of its designers’ headshots reveal they’re stock photos, reused hundreds of times around the Internet. The photo of one designer, Roland Henry, also shows up on a Moroccan travel site as an ecstatic customer named Mohammed Hijazi. Another, Henry Gardner, is on an erectile-dysfunction-treatment page, where he’s an unnamed customer declaring it’s “the absolute best.” The identity of RealMovieTrailers’ actual operators isn’t clear; the site’s address is registered anonymously, and no one responded to an e-mail sent to an address listed on the site. In September, after Bloomberg Businessweek asked Viant about its content, Myspace players began showing nonplaceholder videos. But if the counters embedded in the players are accurate, those placeholders are some of the most watched clips in Internet history. Hitboy has amassed 690 million views. Even bigger is Surfing, which looks like someone butt-dialled a video: five seconds of black screen with some muffled background noise. According to the Myspace counter, Surfing has been viewed 1.5 billion times. That would make it bigger than any YouTube video in history—with the exception of Gangnam Style. Programmatic advertising has become such a tangle of data firms, marketing firms, strategy firms, and ad tech companies that it can be hard even for the biggest brands to keep track of it all. Three years ago executives at Kellogg started to notice that spots for Cheez-It, Pop-Tarts, and Special K were running on sketchy websites, hidden in pop-under windows, or compressed into screens as tiny as a single pixel. Others were displayed on sites where much of the “audience” was bots. “It turns out I’m buying from this guy down the street who opens up his coat and says, ‘Hey, you want to buy some ads?’ ” says Jim Kiszka, the food company’s senior manager for digital strategy. The situation became more infuriating when Kellogg tried to get a simple breakdown: How much was each part of the labyrinthine digital-ad process costing? Answers
were impossible to come by. Kellogg asked for itemised bills from the various ad agencies and data companies it hired, but they all refused. “It wasn’t a smoking gun,” Kiszka says. “It was more like a detective story where you had to piece together the evidence. And it was clear that in a system with that little transparency, there was bound to be problems.” In response, Kellogg’s in-house ad department assumed control of its contracts with publishers and ad platforms such as Google and Yahoo, removing the agencies from the process. Kellogg started using software that alerted it when ads ran on suspect sites and refused to do business with any sites that wouldn’t allow thirdparty validators to screen for bad traffic. Kiszka says the company has seen a 50 per cent to 75 per cent drop in bot traffic and a significant jump in its return on investment in advertising for Raisin Bran and Corn Flakes. Ad fraud may eventually turn into a manageable nuisance like shoplifting, something that companies learn to control without ever eradicating. Advertisers generally see lower levels of fraudulent traffic by dealing directly with publishers rather than using programmatic exchanges. Of course, that also means missing out on the scale that automation provides. Sites such as Facebook, with its billion-plus users, are relatively bot-free, if expensive, places to run an ad. Earlier this year, Facebook said advertisers would have to pay only when their ads are actually
seen by humans. There’s also the possibility that the multitudes of smaller ad tech players will get serious about sanitising their traffic. Walter Knapp, CEO of Sovrn Holdings, a programmatic exchange, says he was as alarmed as anyone at the rise of ad fraud. He decided it was a matter of survival. “There are 2,000 ad tech companies, and there is maybe room for 20,” he says. “I looked around and said, ‘This is bull.’ ” About 18 months ago, he set to figuring out how much of his inventory—ad spaces for sale—was fake. The answer mortified him: “Two-thirds was either fraud or suspicious,” he says. He decided to remove all of it. “That’s $30 million in revenue, which is not insignificant.” Sovrn’s business eventually returned to, and then surpassed, where it was with the bad inventory. Knapp says his company had a scary few months, though, and he keeps part of a molar on his desk as a memento. “I was clenching it so hard, I cracked it in half,” he says. He dismisses the idea that it’s hard to tell genuine traffic from fake. “The whole thing about throwing your hands in the air and saying, ‘I don’t know, maybe it’s real, maybe it’s not real,’ ” he says. “You can absolutely find out.” He sees it the way Supreme Court Justice Potter Stewart saw
The Most Intelligent Building in the World Requests Your Presence in Room 3
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LET’S MEET HERE
The fourth-floor atrium balcony at the Edge serves as workspace, cafe, meeting room, and bar for employees at consulting firm Deloitte’s Amsterdam headquarters. It’s a buffer of serenity from the bustling highway, railway, and shipyards that make up the view.
Inside the Connected Future of Architecture
By Tom Randall Photographs By Raimond Wouda
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It knows where you live. It knows what you drive. It knows who you’re meeting with today and how much sugar you’ll take in your coffee. At least it will after the next software update. This is the Edge, and it’s quite possibly the smartest office space ever constructed. A day at the Edge starts with a smartphone app developed with the building’s main tenant, Deloitte. From the minute you wake up, you’re connected. The app checks your schedule, recognises your car when you arrive, and directs you to a parking spot. Then it finds you a desk. Because at the Edge, you don’t have a fixed desk. No one does. Workspaces are based on your schedule: sitting desk, standing desk, work booth, meeting room, balcony seat, or a “concentration room.” Wherever you go, the app knows your preferences for light and temperature and tweaks the environment accordingly. The building of the future necessitated invention. Its superefficient LED panels, made by Philips for the Edge, require such a trickle of electricity they can be powered using the same cables that carry data for the Internet. Next come 28,000 sensors to create a “digital ceiling” that wires the building like synapses on a brain. The Edge isn’t just smart, it’s also the greenest building in the world, according to British rating agency BREEAM, which gave it the highest sustainability score ever awarded. The Dutch have a phrase for all of this: het nieuwe werken, roughly, the new way of working. It’s about using information technology to shape both the way we work and the spaces where we do it. It’s about resource efficiency in the traditional sense—the solar panels create more electricity than the building uses—but it’s also about the best use of humans. “We think we can be the Uber of buildings,” says Coen van Oostrom, chief executive officer of OVG Real Estate, the building’s developer. “We connect them, we make them more efficient, and in the end we will actually need fewer buildings in the world.” SETTINGS
Smartedge App The smartphone is your passport to the Edge. Use it to find your colleagues, adjust the heating, or manage your gym routine. You can even order up a dinner recipe, and a bag of fresh ingredients to make it will await you when the workday is over.
Exteriors The southern wall (above) is a checkerboard of solar panels and windows. Thick load-bearing concrete helps regulate heat, and deeply recessed windows reduce the need for shades despite direct exposure to the sun. The north-facing wall (top left) is almost entirely glass. The building’s signature angled cutout floods the atrium and workspaces with daylight and provides a sound buffer from the adjacent highway and train tracks.
New Way of Working Because workers at the Edge don’t have assigned desks, lockers serve as home base for the day. Find a locker with a green light, flash your badge, and it’s yours. Employees are discouraged from keeping a single locker for days or weeks, because part of the het nieuwe werken philosophy is to break people away from their fixed locations and rigid ways of thinking.
Car and Bike Parking
SMART LOCKERS
CHARGING STATIONS
Garage entry is automated. A camera snaps a photo of your licence plate, matches it with your employment record, and raises the gate. Even the garage uses sensor-equipped LED lights, which brighten as you approach and dim as you leave. Free chargers for electric vehicles aren’t surprising—in Amsterdam, even the airport taxis are Teslas.
Fitness
Workspaces
HUMAN POWER
The on-site gym encourages employees to break for a midday workout. Flash your phone at the check-in station and the gym’s app automatically tracks your progress. Some of the exercise stations here will actually harness the energy of your workout, sending hard-earned watts back to the grid—as if you didn’t already feel like a hamster in a wheel.
About 2,500 Deloitte workers share 1,000 desks. The concept is called hot desking, and it’s supposed to encourage new relationships, chance interactions, and, just as important, efficient use of space. Some tiny rooms at the Edge contain a lounge chair and a lamp (no desk)—perfect for a phone call. There are also coffee lounges and game rooms. Massive flatscreens around every corner can be synced wirelessly with any phone or laptop. HOT DESKS
SOLAR
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Bathrooms This little robot comes out at night to patrol the grounds. If an alarm goes off, the cameraequipped automaton can identify the culprit or let security know it was a false alarm. It cruises around automatically like a Roomba or can be commandeered by remote control. Erik Ubels, chief information officer for Deloitte in the Netherlands, says he noticed similar robots in shipyards, tracked down the manufacturer, and asked if they could be modified for office security.
The Edge watches you in the bathroom, too. This little box dispenses a spool of cloth for hand drying. Unlike a typical hand dryer, though, this one is connected to the Internet. It lets the cleaning staff know when a busy bathroom is probably ready for a cleanup. (Throughout the building, data on individuals aren’t shared with bosses.)
CLEANING DATA
ROBO COP
Motion sensors built into light panels track movement throughout the building. The data let the people and robots responsible for cleaning focus their efforts on the areas that have been used most heavily that day. The building itself requires little maintenance (so far). The biggest task is keeping the tower of glass clean, inside and out.
CLEANING ROBOT
Smart Cleaning
Temperature Sensors in the LED light panels show detailed temperature and humidity readings across a floor (below). A Deloitte survey found that while fewer than a quarter of employees actively use the app’s thermostat features, three-quarters say they love it. Maybe that’s because precision controls eliminate the problem of natural hot and cold spots. A coming upgrade will boost efficiency further by grouping desks by temperature preference.
RAINWATER
Water Supply A massive concrete tub in the back of the parking garage gathers the rainwater used to flush the building’s toilets and water the gardens. It’s a loud room on a rainy day. The water comes from collection systems on the roof and outdoor balcony.
BUTTERFLY WING BALCONIES
NOT JUST A TOWEL
Security
Atrium This is the gravitational centre of the Edge’s solar system. Mesh panels between each floor let stale office air spill into the atrium, where it’s vented through the roof. Slight heat variations and air currents make it feel like the outdoors. Even on a stormy day, it remains opalescent with natural light and angles of glass. The slanted roof ensures every workspace is near a window. “A quarter of this building is not allocated desk space, it’s a place to meet,” says Ron Bakker, architect of the Edge at London-based PLP Architecture.
Birds, bats, bees, and bugs. These are the building’s neighbours on the north-facing terrace. OVG worked with Amsterdam officials to establish a bug corridor through the city: a path of vegetation that supports beneficial insects. Birdhouses and bat boxes are tucked discreetly into the landscaping. These pockmarked towers support various species of solitary bees, which buzz about the flowers on the public terrace.
Data Analytics Deloitte is collecting reams of data on how the Edge and its employees interact. Central dashboards track everything from energy use to when the coffee machines need to be refilled. On days when fewer employees are expected, an entire section might be shut down for the day, cutting the costs of heating, cooling, lighting, and cleaning. Deloitte’s general philosophy with the Edge was that anything with a return on investment of less than 10 years is worth a try. OVG said it was willing to spend more for some elements of its showcase project.
APICULTURE
Ecological Corridor
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Touch me harder Touch me harder Touch me harder Touch me harder Touch me harder Touch me harder Touch me harder Touch me harder Touch meharder Touch meharder harder Touch meharder harder Touch meharder harder The grinding work behind a single iPhone feature
By Josh Tyrangiel
pple has made many things over the years, but its process has remained essentially the same: Find something ugly and complicated and make it prettier and easier. Prettiness, in brushed aluminium, is more or less a permanent state. Ease, however, is constantly evolving, which is why a few days before the geek hootenanny known as Apple’s September Event, Jony Ive’s focus isn’t on a new version of Apple TV or an iPad the size of a doggy door, but on a feature. It’s called 3D Touch, and it makes using an iPhone even easier. “Ultimately, this is our focus,” says Ive, squeezing a new iPhone 6S. “This is what galvanises our efforts right across the company.” And 3D Touch, he adds with emphasis, “is something we’ve been working on for a long time—multi, multi, multi years.” The Apple design studio, like Stonehenge, is more mystical in the imagination than in real life. It’s open plan, with thirtysomethings of indiscriminate nationality, and very discriminate grooming, working quietly in front of desktop iMacs. There are long wooden break tables near a small kitchen with a gleaming espresso machine that appears more worshipped than used. The floors are concrete. The music is indie, the lighting crisp. The wall-length bookcase has the meticulously unarranged look of every design bookstore you’ve ever lost an hour in. The only hint that this is Apple’s magic room is a curtain. Behind it, says Ive, is the industrial design studio, where there are explorations in progress, milling machines, and a few remarkable futuristic things that he cannot, alas, remark upon. 3D Touch came to life back there. Several years ago the designers and engineers realised that phones contained so many functions— messaging, maps, apps, links, photos, songs—that people were wasting a lot of time retreating to the home button to bounce between them. This is the ne plus ultra of First World problems, but Apple exists, unapologetically, to eradicate even the tiniest bit of friction between its products and its users.
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FROM TOP: REBECCA NADEN/PA/AP PHOTO; KIMBERLY WHITE/GETTY IMAGES
“‘Inevitable’ is the word we use a lot,” says Alan Dye, Apple’s vice president of user interface design. “We want the way you use our products to feel inevitable.” inevitable In the near decade since its birth, the iPhone has shed the baby fat of its first edition and grown into a sleek adolescent (with a big brother, the 14-centimetre Plus version, introduced in 2014). With the notable exceptions of Siri and Apple Maps, so many features have been added so seamlessly that a meaningful critique is almost impossible. It’s like reviewing infinity. But the appreciation of excellence fades when your customers are conditioned to expect it. Refinement doesn’t get a standing O. “The bar for functionality is higher with every generation,” says Phil Schiller, Apple’s senior vice president of worldwide marketing. “You can’t just say, ‘Here it is. It does the same thing 5 per cent better than last year.’ Nobody cares.” From the iPhone’s rounded edges to its imperturbable Genius Bar employees, Apple would like its customers to think of it as an effortless company, where transcendent technology emerges like freshly baked bread from an oven. It’s just as much an illusion
as Disney’s happiest place on earth. “Engineeringwise, the hardware to build a display that does what [3D Touch] does is unbelievably hard,” says Schiller. “And we’re going to waste a whole year of engineering—really, two—at a tremendous amount of cost and investment in manufacturing if it doesn’t do something that [people] are going to use. If it’s just a demo feature and a month later nobody is really using it, this is a huge waste of engineering talent.” Schiller believes that 3D Touch is a breakthrough, but the designers aren’t so sheltered that they’re oblivious to his point. “I mean, it’s remarkable that within a corporation that has to deal with so many absolutes … so many metrics …” Ive says, trailing off.
d to “You know, it’s so very hard ard measure [what designers do]. We can be working on something for a long time and still not know quite how it’s going to work out.”
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pple design projects have no formal start and no predetermined finish. Months of wrong turns and scenic routes are common, and there are countless schemes going on simultaneously. Which is why no one really remembers when the group rallied around adding 3D to the iPhone, only that they kept asking: What if, instead of swiping through apps or routing all of your browsing through the Grand Central station of the home screen, you could press the glass in one function and reveal a shortcut to another? And what if the phone understood this desire based entirely on changes in the pressure you applied? Everyone knows Apple is a design-first company, but the degree to which this is true has, if anything, been underappreciated. The relationship between the designers and the nondesign executives is a little like the relationship between American Pharoah and his trainer. One side is nominally in charge, but it’s conspicuously in service to the other. Craig Federighi, Apple’s senior vice president of software engineering, says that at most software companies the designers decide what they want and the engineers respond with what’s easy to build. “Every single feature becomes this unholy compromise,” says Federighi, who began his career at Apple and spent a decade at Ariba, a maker of financial management software, before returning in 2009. “With [3D Touch] it was only at the moment where we finally got a design experience that’s like, ‘Yes! This is what we want!’ that we [asked] how hard it’s going to be to make.” The answer: really hard. But not as hard as it would be for a competitor. Apple has such unprecedented resources (roughly $200 billion in cash on hand) that it’s been able to collect many of the world’s top specialists, across a variety of fields, and stash them for a rainy day. A former executive not authorised to speak for this story suggested that Apple’s $3 billion acquisition of Beats last year had nothing to do with headphones; it was about buying Beats Chief Executive Officer Jimmy Iovine’s savant-like knowledge of the music business. “If you need to solve a particular problem, usually the best person in the world already works here,” says Dye. Still, working backward from a design idea to create
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a real-world, fail-safe, supply chain-able product for hundreds of millions of people can’t be done with resources alone. Apple isn’t in the habit of explaining how it makes things work, because the people at Samsung can read, and hold a patent on a simila ar n, technology. But in lieu of the usual polite deflection Federighi picked up an iPhone 6S and explained one of 3D Touch’s simpler challenges:
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“It starts with the idea that, t on a device this thin, you want to detect force. I mean, you think you want to detect force, but really what you’re trying to do is s e n s e i n t e n tt .. You’re trying to read minds. And yet you have a user who might be using his thumb, his finger, might be emotional at the moment, might be walking, might be laying on the couch. These things don’t affect i n t e n t , but they do affect what a sensor [inside the phone] sees. So there are a huge number of technical hurdles. We have to do sensor fusion with accelerometers to cancel out gravity—but when you turn [the device] a different way, we have to subtract out gravity. … Your thumb can read differently to the touch sensor than your finger would. That difference is important to understanding how to interpret the force force. And so we’re fusing both what the force sensor is giving us with what the touch sensor is giving us about the nature of your interaction. So down at even just the lowest level of hardware and algorithms—I mean, this is just one basic thing. And if you don’t get it right, none of it works.” works. For a technology company, there’s a surprising amount of pencil-and-paper sketching as people begin their work. Designers are spared a lot of meetings and obligations (“We love our bubble,” says Dye), but they mix so intensely with materials specialists and engineers that they’ve essentially become one amorphous, cross-functional team. Turnover is unheard of, and new staff is brought in only after a courtship that makes selecting a spouse look careless by comparison. “One joke with the design team,” says Dye, “is that we don’t hire people until we’ve been on family vacations together.” When the group lands on something promising— and “something” is the right word, because they’re
often working with ideas that don’t have terms to express them yet—they program it into a rough prototype. Software prototypes (usually just printouts of proposed interactivity) go on a magnetised wall. Hardware prototypes are often comically bigger than an actual device and are set on a table for everyone to gather around and critique. The core members have g been together for so long that feedback “is often sort b of preverbal,” says Ive of the exchanges of grunts and nods. At the same time, “we’re not characterised by being reticent with our opinions.” Dye, who had lead design roles at Kate Spade and Ogilvy & Mather before coming to Apple in 2006, says that most of the designers feel constant low-level anxiety.
“I’m scared to death that at some
point I’m going to get found out. You know, Tim [Cook] is going to realise the truth about about me, which .” is I’m terrible.” terrible le.” le terrib ble.” terri terrib The only thing that keeps the anxiety from turning to guilt is performance. “If you look at all the interactions we engineered into this phone, none of them ended up where we started,” says Federighi. Working with Corning, Apple created pliable iPhone cover glass. Swipe it, and the phone works the way it always has. But press it, and 96 sensors embedded in the backlight of the retina display measure microscopic changes in the distance between themselves and the glass. Those measurements then get combined with signals from the touch sensor to make the motion of your finger sync with the image on screen. Some of this technology was first revealed in the Apple Watch, which has a feature called Force Touch. But 3D Touch is to Force Touch as ocean swimming is to a foot bath. Screen size makes a difference, but the software on the iPhone 6S has a liquid ease. Apply a tiny bit of pressure anywhere you want to explore something—a restaurant link inside a text, an 11 a.m. meeting invite buried in an e-mail—and a peek at the restaurant’s Web page or a window into your calendar hovers expectantly in the middle of the screen while everything else blurs into temporary opacity. Press a little harder, and what you’ve been peeking at pops fully into frame. Release your finger, and you’re right back where you started. Presto chango, no home button required.
Of course, this is the exact opposite of how things work in the physical world. When you press a real object it’s obscured, and it’s the things surrounding it that come into sharper focus. The designers concede they were far down a rabbit hole until they
remembered, as Federighi says, that while the hardware was measuring force, the software needed to measure intent. To make what is counterintuitive feel normal, each on-screen “peek” and “pop” is accompanied by a 10-millisecond or 15-millisecond haptic tap, little vibrations that say “good job” to your fingers when an action is complete. (The precise timing of those taps is a cosmology all its own.) For the years of effort, 3D Touch will be judged a success only when its existence fades completely into a user’s subconscious. It takes about four minutes. Apple is feeling confident enough that it’s integrated 3D Touch into everything on the iPhone 6S and 6S Plus—the phone, the weather app, iTunes, messaging, and the Web. Facebook and Instagram incorporated it into their iOS apps shortly after the phones arrived in stores on 25 September (at the same price as last year’s models), and a slew of other developers are waiting for a chance to open up the software. “This is probably the biggest innovation since the phone first came out,” says Andy Wafer, CEO of Pixel Toys, which created the acclaimed zombie shooter game Gunfinger. Because the screen senses force, and responds with taps, we may be on the verge of great leaps forward in the destruction of virtual flesh.
“Of course, everything is shooting things,” says CEO Tim Cook with a w r y smile during a brief stop in the design studio. pple starts planning its keynote events four months in advance, and as September approaches Phil Schiller is sweating over just how long this one might go. “We’re trying hard to keep it under two hours,” he says. “I think we’re going to be over.” This, too, can be pinned on the designers. “We’ve never released a feature to make a date,” says Ive. They also don’t hold features back. Things are ready when they’re ready, and this season is swollen with new ideas. Sure enough, by the time OneRepublic finished singing, the show had clocked in at 2 hours and 20 minutes. Aside from 3D Touch, there’s a new Apple TV ($149 for a 32GB version) that app-ifies video, has a remote for gameplay, and gets close to a universal search function that finally brings order to the chaos of streaming services and broadcast options. There’s also a 32.8-centimetre iPad Pro (starting at $799, and available in November) with a sleek stylus called Apple Pencil ($99). More stage time was devoted to new Apple Watch bands, iPhone camera upgrades, iPhone hardware upgrades, enhanced iPhone video and video editing, the A9 microchip (70 per cent faster than its predecessor), and the introduction of Live Photo, which is neither picture nor video but something in between, like a living memory. Each presentation was discretely impressive and cumulatively exhausting. “The biggest worry for me is, are we getting too locked in a formula?” asks Schiller. He recalls the 2002 Worldwide Developers Conference, at which Steve Jobs delivered a eulogy for Mac OS9, complete with cheesy organ music, a smoke machine, and a casket rising through the middle of the stage. “We haven’t done anything quite that outlandish in a long time. It may be part of being a bigger company, not this small
FROM TOP: JUSTIN SULLIVAN/GETTY IMAGES; DAVID PAUL MORRIS/BLOOMBERG; COURTESY APPLE
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upstart. We feel a little uncomfortable being too strange and getting too far away from ourselves.” When Ive’s promotion to chief design officer was announced in May and his deputies were given more day-to-day authority, the cottage industry of Apple gossip sites surmised this was the beginning of a slow fade. Ive was said to be too impatient for a company of massively integrated product lines. There’s no evidence this is true, and the relationship between Ive and Cook is close and mutually admiring. But Ive is vigilant in guarding against the creative dangers of Apple’s enormity. “There’s a tax that comes with interoperability and what can be seen as complexity, which is it can actually be an impediment to innovation.” He regularly asks himself, “Are we developing stuff to make things easy for ourselves, or are we developing products to move this forward? I have no interest, and I don’t think anybody here has interest, in just designing something that will fit into a family and behave itself.” Ive is proud of 3D Touch because it improves the experience of owning an iPhone, but he’s also proud of what it says about Apple. He can’t think of another company that would have put so many resources into such a seemingly subtle, yet potentially profound, change.
“Why would we spend this many years working on 3D Touch when you can do some of these things with a button? Well it’s, it’s just such a fluid connection with your content,” says Ive, a little d r e a m i l y .. “And not everything is binary, is it?” Apple’s faith in design helped make it the first company to reach a market cap of more than $750 billion. It also means that every few years it has to bet its future on the instincts of a few people with strong opinions about how things should work. Ive would rather be sentenced to life with a flip phone than subject his designs to focus groups, so when the company makes a change like 3D Touch, its business plan, basically, is to trust that he and his team are right. For all that’s changed at Apple, that faith is what links it most strongly to its roots. In January 2007, when the first iPhone was announced but not yet on shelves, Jobs escorted the device on a voyage through America’s media outlets. In the middle of a drab conference room on a high floor of a New York City office tower, he placed the device into the hands of journalists who would, presumably, write that it was as world-changing as he claimed. Jobs dropped the phone to prove that the glass wouldn’t shatter. He activated the speaker to demonstrate call clarity. It seems obvious now, but the minimalist Jobs had even pared away the physical keyboard, and that had to be sold, too. He asked a volunteer to tap on the virtual keyboard that had replaced it on screen. He was in full seduction mode, and about to reach his crescend— “It doesn’t work.” Jobs paused and tilted his head, not unkindly, in the direction of the disturbance. “I keep getting typos,” the volunteer said. “The keyboard’s too small for my thumbs.” Jobs smiled and replied: “Your thumbs will learn.”
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PHOTOGRAPH BY JULIAN BERMAN FOR BLOOMBERG BUSINESSWEEK; PREVIOUS PAGE, BEAKER: FILM STILLS/ALAMY
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Entertainment
t’s a few weeks before the new sitcom The Muppets airrs on ABC, and Bill Prady, its co-creator and executiv ve producer, is on the set, watching Gonzo rehearse his lines. The show is a behind-the-scenes look at the hi Muppets’ private life as they produce a late-night talk M show, much in the same style as 30 Rock. In today’s sh sscene, Gonzo’s computer crashes. When the IT guy, Chip—a new Muppet—goes to fix it, he discovers that C Gonzo has been catfishing women by posing online G as the actor Liam Hemsworth. a “Even I know that won’t work, and my entire life consists of two dates with a cashier from Walgreens,” Chip says. Prady frowns. “That’s an unnecessary jab at women who work at Walgreens,” he says. Prady, 55, has a large head, close-cropped hair, and a wide, thin mouth that makes him look a bit like one of the Muppets he’s filming— specifically Chip, who was modelled after Prady. They reshoot the scene. Dave Goelz, who’s been voicing Gonzo since 1976 and is manning both puppets, tries another joke for Chip: “My entire love life consists of going to the prom with my mother.” “Sister!” Prady suggests. Goelz tries it. Then aunt. Then grandmother. Sometimes Chip stares at Gonzo with his mouth open and eyes closed. Then Goelz gives him an overbite. He makes Chip snort when he laughs. He keeps trying things, and the scene takes an hour to film. It ends up being largely improvised, which is the way Goelz usually works. In the end, Chip’s dating experience is reduced to “an inappropriately long handshake with a Jehovah’s Witness.” Prady finally laughs. The Muppets debut on 22 September marked the first time in two decades that Jim Henson’s famous characters—Kermit, Fozzie Bear, Miss Piggy—starred in their own prime-time TV show. It’s been more than 30 years since they did so successfully. Their most famous outing, a comedy-variety act called The Muppet Show, went off the air in 1981. ABC tried to revive the concept with Muppets Tonight in 1996, but it lasted less than one season. Getting these characters back on TV has been Prady’s white whale. He’s been pushing Walt Disney, which owns the characters, to make a sitcom for years. “The Muppets have long been an afterthought [for Disney],” says James Marsh, a senior research analyst at Piper Jaffray Investment Research, who covers Disney. “They’ve owned the Muppets for a decade, and only now are they trying to monetise that.” Kermit the Frog may be iconic, but at a company that also owns Pixar, Star Wars, and Marvel, he’ll never be a top priority. Prady’s Muppet obsession dates to 1983, when Henson gave him his first writing job: lines for Rowlf the Dog to read at a US Postal Service event. He was just starting to write for shows such as Fraggle Rock when his mentor died in 1990. Prady left the company a year later but still tears up when he talks about Henson. He even
owns a DVD of his funeral—complete with Muppet eulogy—that he’s never been able to watch. “I’ve had great teachers in my career, but my first, best teacher in all of this was Jim Henson,” he says. So, if anything, he wants to ensure his new show has the same feel as Henson’s work. Prady is using the same puppeteers and the same puppets, and he’s modelled Kermit’s office on the show after Henson’s. “If this only lasts one season, I will be incredibly grateful,” he says. “I will have done what I’ve always wanted to do.” Fortunately, The Muppets has the potential to be the rare network show that, despite television’s fractured state, manages to draw a solid, mainstream audience. “ABC’s good at family programming—Modern Family, Black-ish, even Roseanne a long time ago,” says Brad Adgate, research director at Horizon Media. “The audience for The Muppets is exactly that audience.” The network was also the only one last year to add 18- to 49-year-old viewers, primarily through its classic halfhour sitcoms. The Muppets may expand it even more. The network’s first ad for the show has been viewed 1.2 million times on YouTube. USA Today and People are reporting on Kermit and Miss Piggy, who have split up, as if they’re an actual celebrity couple. Disney is already planning a live Muppet performance for one of its theme parks. New merchandise will likely follow. But getting the Muppets back on TV hasn’t been easy, despite it being their native medium. Henson first created them in the 1950s. They appeared on commercials and latenight variety shows, which drew adult audiences. The characters kept up with the times; by the 1970s, they were making sexual innuendos and contemplating their own mortality on The Muppet Show. Since Henson’s death, the Muppets have been passed around like foster children. They were almost bought by Disney in 1992, then sold to a German broadcasting company instead for $680 million in 2000. Henson’s heirs bought them back for a tenth of that, then sold them to Disney in 2004 for $75 million. For almost a decade, Disney considered the Muppets to be a line of children’s characters—Prady blames Henson’s Sesame Street characters and the 1984 cartoon series Muppet Babies. “The guy who was in charge of Baby Einstein had the Muppets added to his bailiwick,” Prady says. “That tells you what Disney thought of them.” That mindset has been Prady’s biggest roadblock. The first time he pitched a reboot, in 2006, he made a 10-minute mockumentary about the puppets’ private life. They drank. They dated each other. Disney hated it. “I was literally told to destroy every copy I have,” he says. Instead, Prady focused on The Big Bang Theory, which he co-created.
DISNEY’S “OWNED THE MUPPETS FOR A DECADE , AND ONLY NOW ARE THEY TRYING TO MONETISE THAT”
Etc.
It was the second-most popular show on television last year, behind only Sunday Night Football. Then, earlier this decade, “there was a decision to relaunch the Muppets as an adult franchise in a big way,” says Debbie McClellan, vice president of the Muppets Studio at Disney. “But through film first.” Her studio released 2011’s The Muppets, a musical starring Jason Segel and Amy Adams, which pulled in $165 million worldwide. Even then, the characters were considered child-friendly. When Disney released the more mature Muppets Most Wanted in 2014, critics didn’t know what to make of it. “Grown-up jokes … make you wonder about the movie’s target audience,” one critic noted in the New York Times. The second movie didn’t do as well, making $80 million, but it altered Disney’s perception of the brand. Last year the
company added the Muppets to its new media division, which told Prady it might be interested in his old idea if he repitched it. Soon after, the company took the concept to Netflix, before ABC—also owned by Disney— stepped in. The network bought the show immediately after a meeting last March. Prady assumed ABC would follow the standard production calendar, meaning he’d produce a pilot for 2016’s fall TV season. Instead, the network—which declined to make executives available for an interview— wanted a complete Muppet sitcom ready to go in six months. Prady hired a showrunner, Bob Kushell, who worked on Anger Management, a Charlie Sheen sitcom. Together they developed the Muppets’ grown-up world. “They’re in their 30s and 40s and have the kind of concerns that people that age have: rent, work, and love,” Prady says. Randall Einhorn, a director on Parks & Recreation and The Office, was hired to give the show the right reality-show feel. The new Muppets have edgier versions of their old personas: Gonzo is still an outcast, the Swedish Chef still loves meatballs, and Kermit is still the lovable straight man, even as he’s shacking up with a bedroomeyed look-alike of his ex. (“What can I say? I’m attracted to pigs,” he jokes in the pilot.) But the show airs at 8 p.m., so most jokes come with the kid gloves. “I don’t know if an 8-year-old will relate to a story of a stand-up comedian who gets in trouble because he’s using details from his personal life and his girlfriend in his act,” Prady says. “But if the stand-up comedian is a bear, maybe.” Every prop, down to Kermit’s coffee mug, must be specially designed, which makes the show costly to produce. “That’s one of the problems we always had—you’re essentially making a visual effects show in every shot,” says Alex Rockwell, former head of creative affairs for the Jim Henson Co. who now works there as a freelance producer. The budget for PRADY each episode runs to several million dollars. WITH HIS Prady and Kushell won’t provide a number, STARS but they say it’s about twice that of a regular sitcom. The Muppets takes six days to film an episode instead of the usual five. Miss Piggy has a tendency to karate-chop herself to death; her head, made of hard plastic, has to be replaced every 10 hours. For one episode, when Fozzie drives on a Los Angeles freeway, the set designers had to rig a small car and actually drive him in it. Everything on the show is done by hand just as it was under Henson. “This is much more complicated than anything on The Office,” Einhorn says. The show is funny in that benign sitcom way, and there’s something endearing about seeing the Muppets reunite again. But Prady and his crew don’t seem too concerned about it being a hit. Instead, they talk a lot about what Henson would have made of it. “Those of us who worked with Jim are forever loyal to him,” says Goelz, the voice of Gonzo. He’s 69 and signed a sevenyear contract. “We’re very protective of these characters.”
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Branding
Etc.
An angled letter gives it a touch of playfulness
The squat letters here are one type of humanist sans-serif font
Circular letters—or letter centres—add calming symmetry
WHEN DID LOGOS GET SO The modern company just wants to be liked By Caroline Winter
G
oogle updated its logo last month. You’ve surely seen it by now, but let’s take a closer look: It retains the primary colours and playfully tilted “e” but introduces a new typeface. Called Product Sans, the update disposes of serifs, those flicks on the ends of letters, and uses fatter strokes reminiscent of kinder garten lesson books. The spaces within the two “g”s and two “o”s are near-perfect circles. “We think we’ve taken the best of Google (simple, uncluttered, colourful, friendly) and recast it not just for the Google of today, but for the Google of the future,” brand executives wrote in a launch announcement. Google also stumbled into a trend. “A lot of companies have used what we call humanist sans-serif fonts in the past two years or so,” says Hamish Smyth, associate partner at the design firm Pentagram. A new go-to style, he says, is round and squat rather than angular or elongated. Startups such as Oscar, a health
Primary colours are youthful and approachable; plain black can seem stuck-up
insurer, and Casper, a mattress e-tailer, use similar circular lettering. In July, Facebook introduced a roomier look. And Pentagram recently helped 92-yearold Amalgamated Bank revamp its image with a curvy, all-lowercase nameplate. No study has been done on whether friendlier logos improve business—or even whether letters can be “friendly” in the first place—but fonts have been shown to influence perception. The new style suggests an effort to appear more accessible. Companies are more and more integrated into our everyday life, trolling for Facebook “likes” and putting ads on Instagram. “You can tweet at Coca-Cola, and somebody will get back to you,” Smyth says. Coke even went the extra step by giving its cans human names. “They try and keep it accessible rather than being Prada,” which, incidentally, is a good example of an unfriendly logo. It’s all black and caps—exclusive!—with type that has serifs and a sharp, daggerlike foot protruding from the “R.”
Like most early tech companies, Google started out with logos that were messes of drop shadows and 3D shading. Those versions were also friendly but in a dorky way. “Some people say it was kind of like training wheels to help people accept digital interface,” Smyth says. Since then the company has made minor adjustments every few years. Its most recent iteration before the update was flat with elegant lines. “It felt very mannered, almost calligraphic,” says Jeremy Mickel, owner of Los Angeles-based type foundry MCKL. “They keep simplifying, reducing the colours.” This allows for more fluid adoption across devices and apps. As with most rebrands, the new logo triggered plenty of online kvetching: “Google took something we trusted and filed off its dignity,” argued Sarah Larson of the New Yorker. And tech companies run the risk of making the entire Internet look like a Crayola ad. “I think we could end up seeing a lot more logos done in a way that feels completely unoriginal,” Mickel says. Friendliness, after all, goes only so far.
CASPER: PHOTOGRAPH BY EVAN ORTIZ FOR BLOOMBERG BUSINESSWEEK
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Sans-serif is generally considered to look more relaxed compared with writerly serif options
LEAN BACK
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T
Anne-Marie Slaughter offers an alternative to Sheryl Sandberg’s solutions for work-life balance By Sheelah Kolhatkar
he struggle many women who want to have children go through while trying to keep their careers on track fuels a robust industry of books, paid speeches, and symposiums. College-educated women, the frustrated consumers of these products, lurch from guru to guru, wondering why each new best-seller or TED Talk changes little. The most recent contributor is Anne-Marie Slaughter, whose book Unfinished Business may upend Sheryl Sandberg’s Lean In as the reigning work-life balance manual. By building on arguments Sandberg made before her, and diverging from them considerably, Slaughter, chief executive officer of the think tank New America and a former dean at Princeton, offers a realistic assessment of the persistent gender inequality that ails our late capitalist economy. After years of being told they can do anything they want while men still behave as if it’s the 1950s, women are ready to hear the truth: Nothing is going to change for professional women in the realm of work, life, and family demands until men get on board.
To achieve this, Slaughter writes, the question of how to manage a career and a family, long cast as a “women’s issue,” should be reframed as a “caring issue.” Everyone, male or female, parent or not, may at some point have caretaking obligations for another person. The assumption that there isn’t likely to be a “wife” at home to deal with it, Slaughter says, should be built into the system. If it were, you would have fewer promising women (and men) dropping out of the workforce after having children. And then you might see more female Fortune 500 CEOs, surgeons, and law firm partners. Sandberg, chief operating officer of Facebook and the closest thing the contemporary women’s movement has to a patron saint, has been a force for good. Through her star power, she pushed an important issue onto the front pages. But she largely talks about women’s own behaviour. She emphasises the importance of self-confidence and of choosing a partner who can balance the load. She suggests that women can move things along by being more ambitious and making dozens of small changes. It’s
a bit like saying climate change can be solved, or even influenced, by people swapping their lightbulbs. As long as men are still making most of the policy and management decisions, then universal maternity leave and affordable child care will remain remote fantasies. In Unfinished Business, Slaughter addresses these shortcomings straightaway. “Sheryl Sandberg and I agree on many things,” she writes in the first chapter. “Sandberg focuses on how young women can climb into the C-suite in a traditional male world of corporate hierarchies. I see that system itself as antiquated.” She goes on, “When law firms and corporations haemorrhage talented women who reject lockstep career paths and question promotion systems that elevate quantity of hours worked over the quality of the work itself, the problem is not with the women.” After Princeton, Slaughter was hired by Hillary Clinton to be the first female director of policy planning at the US Department of State. She famously quit that job when she realised her children needed her at home. This book grew out of a sensational story she wrote for the Atlantic, “Why Women Still Can’t Have It All.” Those who were “having it all,” she argued, were either “superhuman, rich or self-employed.” Unfinished Business is an attempt to dispel the myths she sees driving the “superwoman” trope. As for accomplishing those revolutionary shifts, she glosses over how Unfinished difficult it’s going Business: Women to be. It will take a Men Work Family wholesale rethink($28, Random House) ing of culture, p o l i c y, a n d t h e workplace. At times throughout the book, Slaughter’s academia-inflected optimism can feel misplaced. But she does offer one piece of concrete advice: Vote more women into office. If her former boss becomes president, we’ll have an opportunity to see for sure whether Slaughter’s theory is correct.
ISTOCK (2); BOOK PHOTOGRAPH BY EVAN ORTIZ
The Critic
E c Etc.
Etc.
How Did I Get Here?
EDWARD T.S. WONG Chief financial officer, Qatar International Islamic Bank
“My dad was working in an insurance company and my mum was a schoolteacher in a government school.”
“I revived the school magazine. I was the chief editor.”
Taylor’s College, Malaysia, class of 1986
“I ended up going into accounting, which is what my dad did.”
Monash University, Melbourne, class of 1989
“It was a very good experience because it built a lot of character. When you’re doing sales you have to learn to be hard-nosed sometimes to be successful.”
Work Experience
“This is where knowing English very well was useful. Having the language ability was a real asset, in the sense of being able to write reports well and present well.”
1990-1992 Insurance sales, Colonial Mutual, Melbourne
1992-1995 Audit senior, KPMG, Melbourne
“My wife is from Singapore, and her family was in Singapore.”
1995-1997 Audit senior, KPMG, Singapore
1997-1998 Regional finance manager, ABN Amro Bank, Singapore
1998-2006 Director, head of financeAsia Bayerische Hypo-und Vereinsbank, Singapore
“The growth was there [in the Middle East] at the time. In Singapore it would have just been more of the same.”
“The he ban bank wass one of my clients when I was at KPMG P Singapore. When their regional financial controller left, the general manager approached me to take on the position.”
2006-2008 Group Head of Finance, Ahli United Bank Bahrain
2008-2010 Deputy CFO, Gulf Bank KSC, Kuwait
“The Global Financial Crisis hit shortly after I joined them. It impacted Gulf Bank greatly.”
2010-2011
With his daughter in Qatar, 2013
Financial advisor to the CEO, Qatar International Islamic Bank, Qatar
2011Present
“It’s been an eye-opening experience. I’ve learned one thing about the Gulf: although they are all part of the GCC, the cultures in Bahrain, Kuwait, Qatar, are so distinct as to make them very unique.”
Chief financial officer, Qatar International Islamic Bank, Qatar
“I’ve helped senior management achieve QIIB’s inaugural ratings with Fitch and Moody’s, maintained that and helped them manage the first sukuk issuance.”
Life Lessons
1. “Be humble.” 2. “Be patient.” 3. “Never give up.”
COURTESY: SUBJECT(4); SHUTTERSTOCK
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Bukit Bintang Boys’ Secondary School, Petaling Jaya, Selangor, Malaysia, class of 1985
“It was my first time living abroad and my first time living on my own.”
The Taylor’s College magazine, 1985-86
Editing the school magazine, Taylor’s College
Education