DU’S OSMAN SULTAN / ENTREPRENEURSHIP IN THE GULF Vol. 15 Issue 9 January 2011
Bahrain..............BD 1.0 Kuwait............... KD 1.0 Oman................ RO 1.0 Qatar.................. QR 10 Saudi Arabia.......SR 10 UAE.................. DHS 10
TOP 10 PLACES TO WORK IN THE UAE
The region’s first ever workplace survey
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GEORGE CLOONEY’S CHOICE.
CONTENTS Vol. 15
GCC NOW 8 The round-up News, numbers and people from around the region.
Issue 9 January 2011
Top 10 places to work in the UAE
COMMENT 18 Michael Preiss Welcome to the war of the economic worlds 2011.
20 Matein Khalid Qatar’s World Cup will command a frenzy of hungry investors.
22 Tommy Weir Why CEOs must join Facebook, Twitter and LinkedIn.
25 Mishal Kanoo Good leaders should think about what happens when they’re gone.
26 Nasser Saidi
The Great Place to Work Institute, in collaboration with Gulf Business, reveals the UAE’s first ever survey of Top 10 Places to Work. 36 Qatar’s game plan
DIFC chief economist says GCC transparency efforts not enough.
FEATURES
SPORT How Qatar will set itself up for the World Cup.
28 Michael Hasbani Strategies for entrepreneurs to keep the creative spark alive.
38 Private jets take flight AVIATION The MEBA show saw a strong appetite for luxury jets.
54 Show me the money ENTREPRENEURSHIP A look at global start up funding initiatives.
58 Smooth operator
ANALYSIS
PROFILE Telecoms veteran Osman Sultan, CEO of du.
32 Eastern promises
62 Pass the parcel
ECONOMY WEF urged developing countries to respect the earth.
PROFILE DHL’s Hermann Ude reveals his plans to cut costs.
34 Safe as houses?
67 When will water run out?
REAL ESTATE The benefits and risks of Real Estate Investment Trusts.
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36
WATER The world is perilously close to drying up in the next decade. January 2011 gulfbusiness
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70 Editor-in-Chief Obaid Humaid Al Tayer Group Editor and Managing Partner Ian Fairservice Group Senior Editor Gina Johnson Group Editor Catherine Belbin Editor Alicia Buller alicia@motivate.ae Business editor Karen Remo-Listana karenr@motivate.ae Chief Sub-editor Iain Smith iains@motivate.ae Editorial coordinator - business Concessa D’Souza concessa@motivate.ae Senior Designer B Raveendran raveendran@motivate.ae Contributors Ryan Harrison; Martin Morris; Adrian Morley; Robert Bailey. General Manager Production and Circulation S Sasidharan Production Manager C Sudhakar
LIFESTYLE
General Manager Group Sales Anthony Milne anthony@motivate.ae Senior Advertisement Manager Abraham Koshy abraham@motivate.ae Advertisement Manager Ajay Mathews ajay@motivate.ae Deputy Advertisement Manager Melroy Noronha melroy@motivate.ae
70 Travel Dress up for Venice Carnival and join in the festivities.
72 Cars Glenn Freeman discovers that Maserati’s 2010 Quattroporte Sport GT S lives up to its proud history.
73
General Manager – Abu Dhabi Joe Marritt joe@motivate.ae
REGULARS
73 Art Qatar has created the region’s first fully-fledged museum for savouring the great modernists of Arab art.
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30 Letters 40 Executive moves 75 Data monitor 81 Hotels 80 Events
Head Office: PO Box 2331, Dubai, UAE Tel: +971 4 282 4060, Fax: +971 4 282 4436, motivate@motivate.ae Dubai Media City: Office 508, 5th Floor, Building 8, Dubai, UAE, Tel: +971 4 390 3550, Fax: +971 4 390 4845 Abu Dhabi: PO Box 43072, UAE, Tel: +971 2 677 2005, Fax: +971 2 677 0124, motivate-adh@motivate.ae London: Acre House, 11/15 William Road, London NW1 3ER, UK, motivateuk@motivate.ae Editorial syndication details, Tel: + 971 4 2824060 gb@motivate.ae
82 In your shoes Karen Remo-Listana boards a seaplane with dotcom GoNabit’s Sohrab Jahanbani.
6 gulfbusiness
January 2011
Printed by Emirates Printing Press, Dubai
GulfBusiness@wateradditives.com
IN THE NEWS JULIAN ASSANGE Julian Assange, the founder and public face of WikiLeaks, was born in 1971 in the city of Townsville, North Eastern Australia where he was mostly homeschooled. By the time he was 14, he and his mother had reportedly moved 37 times. When Assange turned 16, he began hacking computers under the name “Mendax”. At the age of 20, he broke into the master terminal of Nortel, the Canadian telecom company. Citing Assange’s “intelligent inquisitiveness”, the judge sentenced him only to pay the Australian state a small sum in damages. He studied maths and physics at the University of Melbourne, though he dropped out when he became convinced that defence contractors and militaries were using the department’s works. In 2006, he founded the whistleblower website,
which in its massive leak of US diplomatic cables revealed that several Arab leaders have been pressing for military action against Tehran. In an April 2010 memo, Saudi King Abdullah has repeatedly pressed the United States to attack Iran to halt its nuclear programme, saying the US should “cut off the head of the snake”. Saudi Foreign Minister Prince Saud Al Faisal stresses tougher sanctions over a military response. Abu Dhabi’s Crown Prince Mohammed bin Zayed, as early as 2005, expressed support for military action against Iran. “I believe this guy is going to take us into war,” he said in 2006 of Iranian President Mahmoud Ahmadinejad. “Al Qaeda is not going to get a nuclear bomb; Iran is a matter of time,” he said in 2009.
Julian Assange, the founder and public face of WikiLeaks.
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King Hamad of Bahrain told US General David Petraeus in November 2009: “That programme must be stopped…The danger of letting it go on is
greater than the danger of stopping it.” Kuwait interior minister Jaber Khaled Al Sabah believes “the US will not be able to avoid a military conflict with Iran, if it is serious in its intention to prevent Tehran from achieving a nuclear weapons capability,” according to a February 2010 report. Meanwhile, Dubai’s ruler Sheikh Mohammed bin Rashid Al Maktoum is not in favour of military action, worrying about the “dire” consequences for the region, according to two 2007 memos. WikiLeaks has been involved in the publication of material documenting extrajudicial killings in Kenya, toxic waste dumping on the African coast, Guantanamo Bay procedures, the July 12, 2007 Baghdad airstrike video, and materials involving large banks.
SOAPBOX I would like to see proof that tens of thousands of Canadian jobs are going be lost.
The world is still in the intensive care station. We just rushed Ireland, another patient.
Manouchehr Mottaki, Iranian
Sultan Al Mansouri,
foreign minister sought to reassure Arab neighbours that the Islamic republic poses no threat to the region.
UAE economy minister says the country has “exhausted” six years of negotiations with Canada.
Klaus Schwab, World Economic Forum founder and chairman says the world economy has to prepare for the new dimensions of reality.
Your power in the region is our power and our power is your power.
GCC AND THE WORLD Thanks to strong crude prices allied with a recovery in global markets, combined assets of sovereign wealth funds (SWFs) in Gulf oil exporters increased by nearly $81 billion. According to Washington-
8 gulfbusiness January 2011
based Institite of International Finance, Abu Dhabi Invesment Authority was projected to gain around $30 billion at the end of 2010. The combined assets of Adia, Kuwait Investment Authority and
$809 billion
GCC’s SWFs in 2010
Qatar Investsment Authority are expected to reach $809 billion in 2010, and $894 billion this year, from $728 billion in 2009. The increase follows a sharp fall in 2008 ($630 billion) from $724 billion in 2007.
UNITED ARAB EMIRATES
Axiom Telecom backs out from IPO
gulfpics
Axiom’s IPO would have been UAE’s first in two years.
Dubai-based Axiom Telecom has pulled its planned initial public offering two days before the listing, citing “widespread concerns about market conditions and liquidity”. In what would have been the UAE’s first IPO in two years, the board
withdrew the offer “to protect” current and future shareholders. There were sufficient orders to fully cover the IPO book, primarily subscribed by institutional investors in Europe and the US. Analysts, however, believe Axiom’s business model is not an ideal
market opener. While IPOs globally are fuelled by expansion plans, Axiom plans to use most of the funds to pay debts. In a market dominated by retail investors, it excluded individuals from subscribing. As a retailer, it also does not market any proprietary technology.
SPOTLIGHT
Ex-Shell boss revamps energy policy After joining the Dubai Supreme Council of Energy in May, Nejib Zaafrani has helped expedite the emirate’s long-needed strategy revamp. Since his appointment as the secretary general and CEO, Dubai has decided to meet 40 per cent of its needs from nuclear and clean coal by 2030. It also increased
its water and electricity tariffs by 15 per cent and introduced additional fuel surcharge charges.
Zaafrani previously worked as president at Phoenix International Consultancy, chairman and managing director at Shell Abu Dhabi and business development vice president at SIEP Middle East. He has a Master in Physics from Université Denis Diderot (Paris VII) and enjoys tennis, swimming and reading.
INNUMBERS
30
Dubai’s rank in the list of 32 most expensive cities in the world, according to PriceRunner, a price comparison site.
Dhs1 trn Estimated UAE GDP in 2010, according to economy minister Sultan Al Mansouri.
Emirates stake sale considered
Dubai’s government is considering selling some of its most prized assets, including a stake in Emirates Airline, the director general of the Dubai Ruler’s Court, said. “The possibility of offering a stake in Emirates Airlines to the public is always there and is being studied and considered,” Mohammed Ibrahim Al Shaibani said. However, Dubai is reluctant to sell assets at the current time given the weak market conditions.
ADCB sues Credit Suisse, S&P Abu Dhabi Commercial Bank said it is suing Credit Suisse and credit rating agency Standard & Poor’s, alleging it was misled over a 2007 investment that went sour. The bank alleges that Credit Suisse failed to disclose conflicts of interest and provided misleading information when packaging and selling structured investment vehicles, known as Farmington. It also alleged S&P made inaccurate assessments.
UAE not to join monetary union
The UAE central bank governor Sultan bin Nasser Al Suwaidi said the country does not plan to join the Gulf monetary union at least for the time being. “We don’t think it is the proper time to discuss the UAE going back to the project of the single GCC currency,” he said, adding that pegging the dirham to US dollar is still the best choice for the Gulf oil producing country.
January 2011 gulfbusiness
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SAUDI ARABIA
Saudi succession back on agenda
US schooling scales up
There are 38,000 Saudi students in the United States, higher than the number registered before the 9/11 attack, a senior trade official said. “There was a drop in the intervening years, but I am happy to say that number has gone up,” Francisco J. Sanchez, US undersecretary of commerce for international trade, said.
iStock
The Saudi ruler and senior princes are ageing and ailing.
Speculations have once again surfaced on who will lead the world’s largest oil exporter. The ruler and other senior princes are now ageing and ailing. Although the herniated disc operation of King Abdullah went well, he took the precaution of
charging his half-brother, Crown Prince Sultan, in his absence. But Sultan, who has served as defence minister since 1962, has also spent the past several years trying to recover from a serious illness. His full brothers Nayef, who has run the interior
ministry and Salman, who has governed Riyadh have also recently been ill. Saudi kingship doesn’t automatically transfer from father to eldest son, but has moved down a long line of brothers born to the country’s founder, Abdelaziz Ibn Saud.
PROJECTFOCUS
Saudi focuses on gas-fired projects Saudi Electricity Co. (SEC) has set February 28 as the bid submission deadline for its $1.8 billion Al Qurayyah independent power plant project. The gas-fired plant is planned to have a power generation capacity of 1,800MW to 2,100MW when completed in June 2014. With gas now at the top of Saudi Aramco’s exploration
and development strategy, the kingdom hopes to move several more gas-fired power projects forward, in a process that is much more economically efficient, and environmentally sound, than having to resort to heavy oil feedstock. At the same time SEC needs to meet continued spiralling Saudi power demand growth, forcing it to
lift its generating capacity from about 50,000MW at present to 70,000MW by 2020 at a cost of about $80 billion. Demand is expected to triple to 121,000 MW by 2032. Saudi, which spent SAR50 million on subsidies, may raise electricity tariffs as it seeks to improve energy efficiency.
INNUMBERS
51.8m
17 per cent
Saudi’s mobile subscriptions in 2015, up from 42.5 million in 2010, according to Pyramid Research.
Saudi’s share in the Middle East and Africa’s total power generation by 2014, according to Research and Markets.
10 gulfbusiness January 2011
$1.2 billion for war damage
F
Saudi Arabia received $1.2 billion from the United Nations in compensation for the damage caused by the 1991 Gulf War to the environment in the Eastern Province of the kingdom. Prince Turki Bin Nasser Bin Abdul Aziz, head of the Presidency of Metrology and Environment Protection said the compensation was taken from the Iraqi government. The money will be spent on cleaning the affected areas.
Saudi cuts custom duties
Saudi Arabia is implementing the fifth and last phase of reducing customs duties on imported goods as part of commitments the kingdom made when it joined the World Trade Organisation in 2005. The 7.6 to 20 per cent duties on consumer goods will be slashed to 5.5 to 6.5 per cent, while duties on imported agricultural products will be reduced to 15 per cent from 25 per cent, local media reported.
QATAR
Qatar-linked group buys Miramax
Getty
Solar power will be used for Qatar’s air-cooled modular stadiums.
Qatar to spend $50 billion on World Cup Qatar will spend $50 billion on infrastructure upgrades and $4 billion to build nine stadiums and renovate three others. As per the proposed plan for the 2022 World Cup, no stadium is expected to require more than one hour of commuting time. Solar power will be
used for air-cooled modular stadiums, which would be later dismantled and donated to developing countries. The massive renovation and new construction is likely to boost all sectors in the GCC. Citing a report by UBS, Global Investment
House says South Africa’s preparation for the 2010 World Cup has added between 0.5 per cent and 2.2 per cent to South African GDP. Overall, it had created more than 300,000 jobs since 2006 or a 2.7 per cent contribution to employment figures.
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SPOTLIGHT
Qatar marks milestone in LNG production Qatar last month officially became the world’s largest LNG producer after reaching its most coveted target of producing 77 million tonnes per year. According to Oil & Gas Journal, Qatar’s proven natural gas reserves stood
at about 890 trillion cubic feet (tcf) as of January 1, 2009. Qatar holds almost 15 per cent of the worlds natural gas reserves and is the third largest in the world behind Russia and Iran. The majority of Qatar’s natural gas is located in
the massive offshore North Field, the world’s largest non-associated natural gas field. The North Field is a geologic extension of Iran’s South Pars field, which holds an additional 450 tcf of recoverable natural gas reserves.
INNUMBERS
$90 bn
$129 bn
Qatar’s external debt by the end of 2010, the Saudi American Bank Group, said in a study.
Qatar Investment Authority’s funds this year, according to the Institute of International Finance.
12 gulfbusiness January 2011
Entertainment giant The Walt Disney Company has sold its Miramax Films subsidiary to an investment group including Qatar Holding, the investment arm of Qatar’s sovereign wealth fund. Filmyard Holdings LCC, whose partners als include Thomas J. Barrack Jr., Colony Capital LLC and Ronald Tutor, paid $663 million for the film company. The sale includes the rights to 700 films and non-film assets and the “Miramax” name.
Qtel consortium in Tunisian M&A
A Qatar Telecom consortium has acquired Orascom Telecom Holding’s (OT) 50 per cent stake in Tunisian telecom operator, Tunisiana, in a deal worth $1.2 billion. Tunisia’s Princesse Holding and Qtel’s subsidiary Wataniya Telecom acquired Orascom Telecom’s entire shareholding in Orascom Tunisia Holdings and Carthage Consortium, which own 50 per cent of Tunisiana.
Qatar exchange to boost listings
The Qatar Exchange (QE) aims to boost the number of listed companies to 70 in coming years, Abdul Aziz Al Emadi, director of QE’s listing department, said. “QE has 43 companies listed on our market as of today but we have ambitious growth targets in this area,” he said. He added Qatar plans to increase the types of companies to be listed.
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KUWAIT
Dar’s debt team quits
The coordinating committee representing most of the creditors of Investment Dar Co., part-owner of luxury British carmaker Aston Martin, has resigned amid disagreement over the company’s debt restructuring. The committee’s proposal involved the equitisation of KWD475 million, about half the company’s total debt, for 90 per cent of Dar’s total shareholder equity. Dar said the plan is not aimed at reaching an agreement on debt settlement.
gulfpics
Areva supplies MOX fuel assemblies to Japan’s Tomari Nuclear Power Plant. KIA now controls 4.8 per cent in Areva.
Areva approves Kuwait stake The supervisory board of French nuclear reactor builder Areva approved the capital increase of Euro900 million ($1.2 billion). Euro600 million came from the Kuwait Investment Authority (KIA) while the French state bought the
remaining Euro300 million. The recapitalisation values Areva at Euro11.5 billion, of which KIA will now control 4.8 per cent. KIA will not have a seat on the supervisory board. However, under the deal, a shareholders’ agreement between the French state
and KIA provides for the stability of the latter’s stake for 18 months. The French government holds 93 per cent of Areva and discussions about attracting other investors, including Qatar and Japan’s Mitsubishi, have been underway for some time.
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PROJECTFOCUS
Politics cripple energy investment Kuwait Petroleum Corporation’s (KPC) $90 billion, five-year investment programme is highly ambitious, analysts say. According to IHS, Kuwait is now significantly a more dangerous workplace than in any of its oil-producing neighbours due to decades
of standstill. The deadlock between parliament and government in Kuwait has led to many normal upgrade and expansion projects being cancelled across the sector, leaving Kuwait with crumbling facility integrity levels and inefficiencies. Going forward, any upgrades or expansion is still likely to be slow.
“The five-year plan is an ambitious programme for KPC following years of disappointment. Politics still remains the stumbling block with some signs pointing again to growing governmentparliament acrimony,” IHS Senior Middle East Energy analyst Samuel Ciszuk, said.
INNUMBERS
$250m
20 per cent
The amount KFH paid as an early instalment for the $850 million Murabaha it secured in 2006.
The interest sold by Kuwait Energy Co from its share in Burg El Arab concession to East West Petroleum Corp.
14 gulfbusiness January 2011
Global pays principal
Global Investment House made a principal repayment of $27 million in relation to its bank debt value date December 13, 2010. As per the debt restructuring deal on December 10, 2009, Global is required to settle 10 per cent of its debt with 53 banks ($172.5 million) within the first year. In January 2009, GIH said, it was in default on majority of its financial indebtedness, which totalled about $3 billion.
Kuwait to spend $21bn on power
Kuwait plans to spend KWD6 billion ($21.25 billion) in the next four years on electricity and water projects. Mohamed Boshehri, director of planning and power station projects at Kuwait’s electricity ministry, said the ministry was expanding a power plant in Al Zour and was planning to add 400 MW to the existing 800 MW.
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30 seconds to make sense of… the perfume business.
Esteban Rodés Monegal
gulfpics
President of Idesa Parfums
Alba lists on London, Bahrain
How big is the global perfume market and what is the GCC’s share? It is difficult to provide something more than an approximate answer, as many markets do not provide reliable information, but I would say that the global selective market is worth around $20 billion. The GCC represents between 10 and 15 per cent of that total.
Aluminium Bahrain (Alba), the world’s fourth-largest producer of aluminium by capacity, listed on the London Stock Exchange and Bahrain Stock Exchange. The total value of the company’s global depositary receipt offering in London was $174.7 million, and was made alongside an ordinary share offering on the Bahrain Stock Exchange, raising a total of about $339 million.
Tell us about the growth rate and the drivers behind it. The growth in this region was enormous until 2009. The crisis has affected the consumption to a reasonable level but the entire region has just started to recover. The development of an excellent network of retail chains, in terms of quantity and quality, also impacts positively.
Bahrain’s positive ratings affirmed
Does the GCC’s low tax environment translate to cheaper perfumes? There is certainly some impact on retail prices, but the difference of prices, compared to Europe and America, is rather insignificant.
Standard & Poor’s has affirmed it’s A long-term and A-1 short-term sovereign credit ratings on Bahrain, citing the government’s net financial asset position, renewed development of its hydrocarbon resources, and strong international alliances. “Oil revenues have been budgeted on the basis of an $80 per barrel oil price for both 2011 and 2012, and we estimate the general government deficit at 1.7 per cent and 1.2 per cent of GDP respectively in those two years,” the rating agency said.
Oman won’t sell stakes Oman has no immediate plans to divest stakes in state-owned companies, especially those that operate in essential commodities. “I don’t think the time is right for divesting government stake because the world is still in crisis,” Abdul Malik bin Abdullah Al Hinai, undersecretary for economic affairs at the Ministry of National Economy. “Financial markets across the globe have not yet fully recovered to normal levels and the global economy is still in bad shape.”
INNUMBERS
278,741
Subscribers of the fixed phone service in Oman at the end of September 2010, 7.1 per cent down from 300,139 in 2009.
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What is the largest source of imported perfumes? Can the Middle East compete on this front? The largest sources are, there is no doubt, France, USA, Italy and Spain. It is difficult today to say whether the Middle East may compete with these sources, as more than 90 per cent of the global brands are linked to international fashion names. However, I have a great respect for Arabic perfumes, which have their own personality and rich smell. I am quite sure Arabic fragrances have a nice piece of the cake in the Middle East. How do fragrances differ from one another? The difference is established by the percentage of concentration of essential oil with the alcohol. A perfume (used to be called extrait) can have a concentration of over 20 per cent, an eau de parfum between 10 and 20 per cent and and eau de toilette, between five and 12 per cent. Such a difference is also reflected in the retail price. What are your tips for wearing perfume? Remain as curious as possible when choosing a new fragrance, and do not hesitate in trying products from lesser known brands.
Photo: Naveed Ahmed
BAHRAINOMAN
COMMENT
WAR OF THE ECONOMIC WORLDS 2011 Welcome to the third economic super cycle, where supercharged growth in the East will trump the West’s ailing economies and floundering Euro. MICHAEL PREISS
18 gulfbusiness January 2011
collapse and credit crunch, the differences between developed markets and the emerging countries look stark, and in 2011 they will increasingly become more obvious. While the situation in the US is expected to improve, the uncertainty in the peripheral euro-area economies is again heightened, and is reflected in Standard Chartered Global Research’s revised forecast for the euro at 1.20. Euro area negatives most probably will be a major focus for FX markets in 2011.
getty image
A
s we begin 2011, the global macro economic environment has stabilised. While the biggest immediate worry in the West is a double-dip, we do not think it will happen. Meanwhile, the balance of economic and financial power continues to shift towards the East. But risks abound, including geopolitical tensions on the Korean peninsula and in the South China Sea, overregulation, another debt crisis in the West, inflation bubbles across Asia and trade protectionism. Although it is vital not to underestimate the risks, it is equally important to recognise the upside potential. That means it is paramount for investors to combine local knowledge with global perspective. This year will be characterised by an uneven recovery in the world economy, leading different authorities to adopt diverging policies. This may raise conflicts and uncertainties, but also bring opportunities. Financial markets increasingly are focusing on the story of a rich world struggling with a weak and jobless recovery and an emerging world, including the rising economic giants China and India, challenged by inflationary pressures and negative real interest rates. We expect interest rates in the West to stay close to record lows in 2011, but in the East there is pressure on interest rates to rise. In 2011, the West will struggle with debt, deflation and deleveraging. The US is past the worst, but it faces a belowtrend recovery bordering on stagnation. Europe, especially the periphery, is the big problem area. Europe is divided between the solid centre of its euro zone and a weak PIIGS (Portugal, Ireland, Italy, Greece and Spain) periphery. The euro is likely to collapse at some stage, if the euro area fails to become a political union. Last year was a challenging year for global financial markets with post sub-prime challenges, a European sovereign debt crisis and recently renewed tensions on the Korean peninsula. It was a year when many economists and market commentators spoke about the possibility of a “double-dip”, the fear that the global economy could fall back into recession and deflationary pressures. However, the world economy has moved into a recovery phase, albeit that the growth momentum is weaker than in past recoveries, especially in the advanced economies. By contrast, growth momentum is strong in the emerging markets. Before the financial crisis, many economies around the world were booming in unison. After the sub-prime
A bank employee carries a bag of euro coins from the headquarters of Greece’s central bank.
UNPRECEDENTED GROWTH Despite the current economic challenges, it important to recognise that the world is in the middle of a super-cycle. This is a period of historically high global growth, lasting a generation or more. There are several fundamental factors driving this, including rising trade, high rates of investment, rapid urbanisation and technological innovation. Supercycles are also characterised by the emergence of economies enjoying rapid growth, such as China, India, Indonesia, the Middle East and several African economies now. The world economy has twice enjoyed super-cycles before. The first, from 1870 to 1913, saw a significant pickup in global growth, with the world growing on average each year by 2.7 per cent, a full one per cent higher than previously seen.
That cycle was led by the emergence of the US and saw increased trade and greater use of technologies from the Industrial Revolution. The second super-cycle, from 1945 to the early 1970s, saw growth averaging five per cent and was characterised by the post-War reconstruction and catch up across large parts of the globe. It saw the emergence both of a large middle class in the West and of exporting nations across Asia, led by Japan. For many investors the thought of a super-cycle may sound strange, given the present problems confronting the world economy. Yet the reality is the world economy is now worth over $62 trillion, about twice the size it was a decade ago, and it has already exceeded its pre-recession peak. Over the last two years, the economic rebound has been driven by quantitative easing in the West and by stronger growth in the emerging markets. Indeed emerging economies, which are one-third of the world economy, currently account for two-thirds of its growth. This trend looks set to continue.
CHINA AND INDIA By 2030, the world economy could grow to $308 trillion. Excluding inflation, that would equate to $129 trillion in today’s prices, and to $143 trillion, keeping prices constant but allowing for some emerging market currency appreciation. The balance of the world economy is set to reverse, with the combined share of the US, the EU and Japan shrinking from 72 per cent in 2000 to 29 per cent in 2030. China will provide 20 per cent of global growth in the next 20 years, the largest chunk, and it will be the world’s largest economy by 2020. By 2030, China will be nearly twice the size of the US, but its income per head will still only be half of the US, leaving room for further catch-up. China will also drive growth in Africa and Latin America as it seeks commodities. India will become the fastest growing major economy in the next 20 years, with growth rates overtaking China by 2012. Not even in the top 10 in 2000, India will overtake Japan as the world’s third-largest economy by 2030. India will have the single largest tertiary-educated population by 2030. These factors underpin our structural bullish view on the Indian rupee and Indian assets. The growing emerging markets’ middle classes will help fuel commodity prices, with energy and food continuing to become more expensive. As purchasing power increases across the emerging world, trade amongst Asian economies and Asia’s trade with the Middle East, Africa and Latin America will increasingly dominate world trade, overtaking trade with the developed world. These ‘South-South’ trade corridors will account for over
a third of global trade within the next 20 years. The Middle East will outstrip the US as Asia’s leading trading partner, while China will see Africa as a more important trading partner than Europe within the next two decades. Indonesia is an economy that has surprised many investors. JCI (Jakarta Composite Index) rose +51 per cent in 2010 making it the world’s fourth best performing equity market. In the super-cycle we expect that Indonesia will continue to be a star performer. The 28th largest economy in 2000, Indonesia may be the world’s 10th largest in 2020 and fifth largest in 2030.
AFRICAN ASCENT For 2011, we expect positive surprises to emerge from Africa. Many of the promising countries that we refer to as the “Seven per cent club” are in Africa. The “Seven per cent club” are countries that are expected to achieve +seven per cent growth on average for several years. The reason why this matters is that growth doubles in a decade. The biggest concentration of overlooked markets that could grow over seven per cent are in Africa. There are, of course, risks to this outlook. Avoiding a hard landing in China is crucial. Avoiding deflation in the US is another necessity. The greatest risk is protectionism. Protectionism and different combinations of fiscal austerity and monetary polices could bring turbulence to currency markets. Escalation of currency intervention in the developed markets as well as the emerging world could be a potential policy mistake. How long the current deflationary environment persists, and how well the exit from quantitative easing is implemented will determine the relative performance of the three principal asset classes: fixed income, precious metals and equities. Longer-term, we expect that large-cap equities with significant sales to emerging markets will be the preferred asset class. The countries that will succeed are those with the cash, the commodities and the creativity. It is still possible for the West, including American and European companies, to do well in this environment, particularly if they are creative. Yet it is the emerging and frontier markets that appear to be the clear winners. We believe the world economy is on an upward path, which is albeit not always a straight line. In the final analysis, and in the words of a Chinese proverb: “Fortune favours the brave and the prepared mind.” Welcome to the third super-cycle. Michael Preiss, chief equities strategist, Standard Chartered bank.
The combined share of the US, the EU and Japan in the global economy will shrink to 29 per cent by 2030.
January 2011 gulfbusiness
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COMMENT
EUPHORIA, SPORT AND EMERGING MARKETS Qatar and Russia’s World Cup event announcements are set to command a frenzy of hungry investors in the coming years. MATEIN KHALID
H
osting the World Cup will be a seminal event for both Qatar and Russia, even though 2018 and 2022 are not exactly imminent. Qatar and Russia are both fabulously rich oil and gas exporters, with high growth economies who will influence international finance in the decade ahead. Several Qatari and Russian shares rose five to eight per cent the moment FIFA announced the success of their respective bids. Is the euphoria justified? I think so. Qatar will accelerate a $50 billion infrastructure spending spree in 2013 just as its LNG industrial constellation finally matures. This means Qatar can continue to deliver 10-12 per cent GDP growth rates in the next five years as long as the world economy does not slip into double digit recession. So Qatar will retain its role as one of the world’s highest growth economies in the next decade. The country has also pledged to build 90,000 hotel rooms, develop a metro/light rail transport network and construct high tech, air conditioned stadiums. The first World Cup in the Arab world necessitates that Qatar spend $50 billion to make it a success. As Brazil and South Africa illustrated, investing in World Cup themes is a winning strategy in the emerging markets. History proves that nothing excites the animal spirits of capitalism (global fund managers!) than the opportunity to invest in a World Cup host nation in the emerging markets. History could rhyme, if not repeat, in Moscow and Doha. Qatar is the smallest state to host the World Cup since Uruguay in 1932. The event will give a permanent boost to its non-oil and gas economy, particularly tourism. Qatar will access the international bond and syndicated loan market to finance its pre-World Cup infrastructure spending, just as it has financed its LNG rollout since the mid 1990s. The natural World Cup beneficiaries are Qatari banking, power and construction shares. I have long been bullish on QNB, the Qatar national champion. This bank will benefit most from the escalation in project
finance, Eurobond/sukuk issuance and syndicated lending that will define Qatar’s pre-World Cup borrowing. The exponential rise in population and power capacity will also benefit QEWC, where the government is the largest shareholder. I fail to understand why investors want to buy Drake and Skull or Arabtec in the UAE as their Qatari contracts are a miniscule proportion of their construction order book and their core challenge is cancelled projects and bad debt receivables in the UAE. Logic, not euphoria, should govern investing, even in the retail, hyper-kinetic exchanges of the Gulf. Russia, the host of the 2014 Winter Olympics and the 2018 World Cup, is the cheapest major emerging market in the world. It is ironic that, despite $90 oil and the Kremlin’s return to the global debt market for the first time since the August 1998 rouble devaluation, Russia trades at a mere seven times 2011 earnings on its bellwether RTS index. At a time when India trades at 20 times and China at 15 times earnings, Russia trades at a Cinderella valuation even though, unlike India’s RBI and China’s Peoples Bank, the Russian central bank is not engaged in monetary tightening. The World Cup will benefit the Russian steel and construction industries, airlines, airport operators, hotels, advertising agencies, TV and broadcast media and, above all, mobile phone companies. Russian infrastructure and consumer shares could well outperform their peers in the emerging markets. The Kremlin could use this opportunity to project the image of a kinder, gentler Russia, another catalyst that could lead to a bull run in Moscow. Gazprom trades at all off four time earnings. MBT has 65 million wireless subscribers across the former Soviet empire. Sberbank controls one half of all Russian banking. It goes without saying that the smart money will rerate Russia in 2011. Matein Khalid, fund manager in a royal investment office and writer in finance and geopolitics.
The World Cup will benefit Russian air lines, airport operators, hotels, advertising agencies, TV and broadcast media and, above all, mobile phone companies.
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COMMENT
WHY CEOS MUST JOIN THE SOCIAL MEDIA CLUB In a world without borders, it’s imperative that leaders use Facebook and Twitter to communicate with customers and keep in the loop. DR. TOMMY WEIR
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e recently moved back to Dubai from our house in Beirut and what an experience it was! Every international move is full of surprises, but this move was complicated by our selection of an international transportation and logistics provider who recently expanded into a non-core area – household moves. They have an outstanding brand reputation in their core business area and we were hopeful that we would have the same experience with our move. Well, you have probably guessed – we did not. I’m not exaggerating when I say, it was the worst experience I have had with any move, or any move that I have heard of. After the deposit was paid, the workers arrived to pack the house – only they were not employees of the company, they were day labourers selected from the street labour pool. So we had painters and construction workers trying to pack our goods – a beggar from the street even came in to accumulate our unwanted items and the supervisor didn’t even know it. Now that you are beginning to sense what our frustration level was, I will not bore you with the rest of the details. Let’s get to the point of CEOs and social media. I tried to call the mover’s customer care centre and wanted to solve a problem related to a letter that was being couriered and they informed me that it was ok, but it wasn’t. I had no option but to take matters into my own hands and I logged onto @tommyweir and tweeted about it. Within minutes of broadcasting my problem to my social network, I got a corporate reply but no resolution. So my next action, and experiment, was to include their famed CEO by name in my tweet. To his credit he jumped right in, solved the problem and recovered a distraught customer. This instance made me stop and think about what the CEO’s role should be in social media. Some CEOs are famous for their usage of social media and are gaining a strong following. For example, former CEO of Microsoft Bill Gates has 1,859,548 followers on Twitter. Dishearteningly, only a couple of the regional powerhouse CEOs have jumped on the social media band wagon and become active, one of which I referenced earlier.
The benefits of using social media for these early adopters (the CEO’s personal usage, not just for the business) include: 1. Being informed about what others are saying and thinking – the insights gained from following the right people are magical. Instead of relying only on structured focus groups to hear from the market, you can listen to them directly and from a distance. Social media is full of sneak peeks into real-life insights. 2. Engaging directly with your customers – It is one thing for a consumer to feel they have a relationship with a brand, but the power is intensified when they feel they are connected to a senior leader in an organisation. Social media changes the structure of relationships that have historically been dependent on proximity. Now, and into the future, relationships will be based upon connections, and as a CEO you can use social media to get into your customers’ world. 3. Building brand ambassadorship – One of the primary actions of any CEO is advocating your brand. Other people are talking about your brand, your marketing department is talking about it and social media allows you to make it personal and talk to a broad audience. Success in social media is about being personal, not just using scripted corporate speak. Allow your followers and fans to see who you are, what you do and how you think. You can still have a private life, but let people see who you are and connect with you through your public profiles. Had the CEO of the logistics and transport company not been active in social media, I would be writing today’s article as an irritated consumer and sharing leadership lessons we can learn from their mistakes. Instead, we are discussing how we can change our connection strategy and lead a broader audience than could have been imagined a few years back. So go engage your customers, get close to them, get into their world. Twitter, Facebook and LinkedIn are calling you.You can find me on Twitter @tommyweir, LinkedIn tommy-weir, or Facebook. Dr Tommy Weir, vice president of leadership solutions at Kenexa and author of The CEO Shift.
Success in social media is about being personal, not just using scripted corporate speak. Allow your followers to see who you are and how you think.
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COMMENT
HOW TO PLAY THE LONG LEADERSHIP GAME Good leaders think about what happens when they’re gone and how to keep the company in good stead for decades to come. MISHAL KANOO
O
ne of the most subjective matters in business today is the issue of leadership. It is subjective because it is vague. Thus one person’s version of a good leader is another’s example of a bad one. However, there are a few factors that one can gauge to try to move the issue from a subjective one to an objective one. Factors such as past company performance under his leadership, personal accomplishments, educational background and the such, while not perfect, can give a certain amount of objectiveness to the issue. One of the best ways of knowing whether a leader was good or bad is the company performance post their departure. Case in point is that of GE. When Jack Welch took over, he revamped the company in a manner that best suited his style of leadership. He had a goal – be in the top three of their line of business or leave it. While many of the divisions of GE were profitable, they did not meet his set criteria. So he forced the company to refocus all its efforts in moving in that direction. The immediate effect was a downturn in profits as certain divisions were gradually spun off. However, as they persevered, focused purely on what they wanted to focus on, they gradually began to dominate the spaces they were in. So far, so good. But like the true leader he was, he surrounded himself with like minded people who would see this strategy going forward and beyond his time. This paid off as GE is now still dominant in the areas that they focused on years after Welch had left. The legacy of a true leader is that his ideals should not end with his era, but prosper beyond it. That can only be achieved when one appoints the right leaders who believe in the strategy set out and have the strength to find like minded people who are not yes-men, but titans who can stand on their own feet. Moreover, great leaders cause people to buy into an idea and not force it upon them. This is why evolution, and not revolutions, last and the people who lead them prosper. In my time, I have seen many leaders who do not have the moral strength to allow strong willed people to be part of their team for fear of a revolt. Nothing could
be better for a company than if the leader starts the ball rolling on actively finding people who are smart, intelligent and have the personal strength to weather the shocks and hits that will come with challenging the current leadership, not for the want of greed or power, but for the need to see their company prosper. Good leaders have the ability to move things. Great ones have that, and the strength to demand that their peers push them to be even greater than what they are by constantly challenging them. Feeble minded leaders, those who will eventually collapse a company, will never take to being challenged. In fact, they will resent it. The reason is they are not sure of themselves and live in fear. Fear that they will lose their perceived power. Fear that they will not be able to control things. Fear that others will discover their true nature – they are cowards. Those who believe in greatness don’t care for these issues as they know deep in themselves that the only thing that can bring them down is themselves. But what do you do when you are faced with leaders who cannot lead? Do you accept them and move along biding your time to take over, or do you try to help them understand the enormity of their task and push them ever so gently to recognise that help is not sign of weakness, but that of strength. We all need help and we all need people to support us at one time or another. Great leaders realise this and use it to their advantage, not in a personal capacity, but looking beyond that in terms of what legacy they will leave behind. The worst situation to be in is when those who are not capable of leading try to take the mantle of leadership but are completely oblivious to the demands of the task. They truly believe that they can lead, not because they have a vision or a drive, but because they have a personal interest vested in taking control. I cannot emphasise enough the malice that will cause a company when such a person becomes the leader. When great leaders take office, you can feel their drive and their ambition. They run marathons, not 100-metre sprints. Mishal Kanoo, deputy chairman, Kanoo Group. mishal@kanoo.ae
Feeble-minded leaders, those who will eventually collapse a firm, will not take to being challenged. They will resent it personally and not think of the company overall.
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COMMENT
GCC TRANSPARENCY EFFORTS NOT ENOUGH Regional regulators must show their teeth and send strong signals that corporate governance improvement is a priority. DR. NASSER SAIDI
A
ddressing transparency issues in the GCC is key to the full development of the region’s capital markets and to restoring investor confidence. Investors, as part of their due diligence, require information about companies’ performance, decisionmakers, business model and risks, and how the company ensures that their rights are being protected. The case for better transparency and disclosure is uncontroversial and widely accepted, particularly with regards to the GCC. However, is the GCC doing enough to address transparency issues? On a regulatory level, corporate governance frameworks for listed companies have been put in place in most GCC countries, except for Kuwait. These corporate governance frameworks call for companies to disclose more information beyond their financials. This higher level of disclosures is a key for existing and potential investors to know more about the company, its key officers, and help ensure the accountability of the company. However, these governance frameworks, and the disclosures companies have to provide to the regulator, are only as good as the ‘teeth’ the regulators have and use to ensure the frameworks are implemented and that the disclosures provided are critically reviewed. The credibility of regulators hinges on their willingness to act independently from outside pressures and vested interests and to enforce rules and regulations with full transparency and timeliness. Recently, some regulators, particularly Saudi’s Capital Market Authority and the Dubai Financial Services Authority, have rightfully showed their resolve to implement governance guidelines and have imposed fines on companies and on individual directors, a necessary reminder that the latter are personally liable and accountable for not effectively overseeing the development and implementation of firm-level corporate governance. But this is not enough. Hawkamah and The National Investor (TNI) developed a ranking methodology for GCC listed companies called Behavioural Assessment Score for Investors and Companies (BASIC) based on publicly available corporate information and focusing on their transparency and disclosures to the market. Over 20082009, we tracked a significant improvement – although
from a very low base – of GCC listed companies’ investor relations and disclosure practices. We have seen cases where companies have gone from disclosing bare summary financials to more encompassing annual reports. Since better disclosure is at the prerogative of companies, this improvement signals changing attitudes of some regional companies towards transparency. While improvements are happening in some companies, the region still has a way to go. Consider some of the eye opening findings from our review of disclosures of over 600 regional companies: Only 10 per cent of GCC listed companies provide information about their board members and executive management, beyond their names on the websites and annual reports Only 22 per cent identify their executive and nonexecutive directors Only four per cent of listed companies hold investor analyst meetings or conference calls 14 per cent of GCC listed companies do not have a corporate website Only 30 per cent of companies provide a summary of their financial performance Clearly our region’s companies need to improve their disclosure practices. In a region where transparency and disclosure practices are measurably below international standards, regulators must send strong signals to the companies they oversee that corporate governance improvement is a priority. An unambiguous policy signal is critical in order to engineer the required shift in corporate behaviour and change in business culture. Adopting and complying with IFRS would be a good starting point. Regulators should take the lead to ensure that the frameworks they have designed are effectively implemented. Companies and their boards need to view disclosure as a fiduciary, and indeed moral and ethical, responsibility to their shareholders. We are moving forward on our disclosure practices, but reform efforts have lacked teeth and progress is too timid. Reform is imperative in order to help restore investor confidence in the aftermath of the international financial crisis. Dr Nasser Saidi, chief economist and head of external relations, Dubai International Financial Centre.
14 per cent of GCC listed companies do not have a corporate website and only 30 per cent of companies provide a summary of their financial performance.
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COMMENT
HOW TO KEEP THE CREATIVE SPARK ALIVE Successful entrepreneurs know that innovation is too important to leave to chance and they use tried-and-tested strategies to keep the creative juices flowing. MICHAEL HASBANI
A
round 30 years ago, a young Saudi entrepreneur dreamt of opening a prawn farm about five times the size of Bermuda in the desert. Everybody said it was doomed to fail, everyone except the entrepreneur himself. Only one person had to believe it was possible. Today, that experiment, National Prawn Company, distributes its produce across Europe and is Saudi Arabia’s second biggest export to Japan after oil. One of the biggest integrated prawn farms in the world, its capacity will increase to 43,000 tonnes a year by 2012. For an idea to turn into reality takes a lot more than just hard work. It takes innovation at every stage of growth. Famous stories of entrepreneur innovation follow a similar pattern. An inspired idea, often discovered by accident in a ‘eureka moment’ is rejected out of hand. Only with the support of a determined backer does it finally get to market, where it suddenly takes off. Such stories are interesting and inspiring. But as an account of how innovation generally works, they illustrate the exception rather than the rule. If you want to build a company that has innovation at its core, you can’t just rely on happy accidents and coincidences. We conducted a survey among the world’s leading entrepreneurs. Unsurprisingly, they told us loud and clear that innovation is central to their future business success and their ability to innovate was the one key factor that set them apart from their competitors. In our conversations with these entrepreneurs, five mantras to keep the flames of innovation alive emerged.
3. Good ideas are too valuable to waste: Game-changing ideas are like gold dust: hard to find and easy to lose. Your search for them, and your process for developing them, should be rigorously managed company-wide. Four in 10 entrepreneurs felt they innovated well in ‘hot spots,’ but not across their organisation. 4. Balance blue-sky and bottomline: Fast-growth companies must connect creativity and profit. If you cannot turn your new ideas into products and services that contribute to the bottomline, your journey to market leadership will slow or stop. Innovation, ‘for the sake of it,’ is often essential but the speed at which entrepreneurs will move forward depends on their ability to connect creativity to profit. While most entrepreneurs felt they had the right balance between money-making and creative thinking, many were not sure.
Game-changing ideas are like gold dust: hard to find and easy to lose. Your search for them, and your process for developing them, should be rigorously managed.
1. Don’t leave innovation out of strategy: Innovation is the fuel that will power your fast-growth company to market leadership. Many businesses fail to set strategic priorities for innovation, or do this badly. Make innovation a boardroom issue. 2. Your power to integrate makes you unique — don’t lose it: As your business grows, you need to keep the spirit of creativity alive. Bureaucratic thinking can kill innovation in a blink. It’s the leader’s responsibility to foster a creative culture.
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5. Rethink how the business works, not just what it does: Entrepreneurs are often brilliant at thinking up new products and services. But to stay on a fastgrowth path, you need to apply that same innovative zeal to how you run your business, not just to what it does.
Unfortunately, knowing how important innovation is doesn’t make the process of coming up with new ideas any easier. Entrepreneurs listed a series of innovation ‘roadblocks.’ Chief among them was a lack of time and resources, followed closely by a lack of capital. Half of them said that as their organisation had become bigger and more complex, innovation had become harder. To keep the spirit of innovation alive, they were recruiting creative people, developing alliances with fresh-thinking outsiders, and offering staff dedicated ‘ideas time.’ Efforts to encourage innovation need to become a priority. We cannot and should not rely on ‘eureka’ moments alone. Innovation is too important for that. Michael Hasbani, partner, strategic growth markets, Ernst & Young MENA.
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F
LETTERS LETTER OF THE MONTH SPECIAL REPORT: THE LUXURY INDUSTRY REBOUNDS Vol. 15 Issue 8 December 2010
Mohammad Omran
Riad Kamal
Abdul Aziz Al Ghurair
Samer Majali
James Hogan
Sameer Al Ansari
ETISALAT
ARABTEC
MASHREQBANK
GULF AIR
ETIHAD
SHUAA CAPITAL
Abdulla Al Awar
Dave Lesar
Joseph Anis
Ammar AlKhudairy
Tarek Sultan
DIFCA
HALLIBURTON
GENERAL ELECTRIC
AMWAL ALKHALEEJ
AGILITY
CEO PREDICTIONS The region’s leading business
2011
minds share their hopes, fears and strategies Bahrain..............BD 1.0 Kuwait............... KD 1.0 Oman................ RO 1.0 Qatar.................. QR 10 Saudi Arabia.......SR 10 UAE.................. DHS 10
GB Regional December 2010 copy.indd 1
12/6/10 11:04:02 AM
Why punish good customers? Mishal Kanoo’s suggestion that we can get through the financial crisis by changing our attitudes is quite vague, if not ambitious. But there’s no other way. His analysis is so true. Why did people believe property prices would continue to double and banks continue to lend without strings attached? Thankfully, the UAE has approved the credit bureau and banks are now studying carefully prospective clients before offering a loan or credit card. They are only concentrating on those with good financial records, which includes me. However, these banks are so obnoxious and so pushy that not a day passes without a call from them. Now I wonder, why do good customers have to be punished as well? Mohammad Singh Abu Dhabi, UAE
The green dilemma The Green Report (Gulf Business, December 2010) raises a legitimate concern to all Gulf residents. To what extent have the Gulf
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CEOs must open up As always, your annual CEO cover story was satisfactorily meaty with facts, opinions and forecasts (Gulf Business, December 2010). I do support the common proposition that the worst is over and we’re now on the road to recovery. But perhaps next year, the featured CEOs would be open to talk about the real issues. Or, perhaps Gulf Business can invite an independent panel of analysts and assess the essays of these “leading business minds”. Mr Omran of Etisalat, for example, could shed a light on the bonuses the board received during the recession period? Talking about mobility and connectivity entails a great deal of open markets, which I doubt the UAE now enjoys. Mr Kamal of Arabtec might want to explain a bit on what really transpired on the proposed merger with Aabar Investments and why the markets have been on an upswing days before the announcement of the proposal. Shouldn’t that be confidential? There could be no better man than Mr Al Ghurair of Mashreq Bank, being the largest issuer of credit cards in the UAE, to let readers know the real status of the banking sector. Will there be more defaults? And a long list of questions to ask Mr Al Ansari of Shuaa Capital, then there’s chief of the beleaguered DIC. Thank you. Geneveve Peralta, Dubai, UAE
economies leveraged the input of business schools in ensuring the grassroots movement of sustainability marketing – from the headquarter status for IRENA at Masdar City in the UAE, to the economic cities in Saudi Arabia, the World Trade Centre building in Bahrain and the International Finance Centre in Kuwait and Energy City in Qatar? To what extent are we being waste aware in the region and the UAE? Is the Masdar initiative the sole preserve of engineering minds? What role can business and management academics and practitioners play in fostering the long-term effect of Masdar? These are pertinent questions that we need to solicit answers to. Dr Nnamdi O. Madichie Assistant Professor of Marketing College of Business A
Vodafone’s CEO tribute It was good to see a tribute to the late Grahame Maher of Vodafone. He
deserves to be remembered for his contribution to the telecom industry. He was also recently praised by another business publication and I know his family and friends would be proud of him. Abdul Malik Tamimi Doha, Qatar
Email: Write to the editor, Gulf Business, alicia@motivate.ae and the letter of the month wins an Alessi watch.
ANALYSIS ECONOMY
Eastern promises
The World Economic Forum’s Summit on the Global Agenda 2010.
T
here is nothing that alarms the international community more than the rise of new powers. Step forward China and India. The rise of emerging markets is the biggest trend to impact the global economy, according to a survey of 570 leaders who attended the World Economic Forum (WEF) in Dubai. The global power shift – reflected in the formation of the G20 – will be the top issue over the next 12 to 18 months, experts from the 72 WEF global agenda councils, say. These councils are comprised of leaders from business, academia, civil society and government and are dubbed by Klaus Scwab, WEF founder and executive chairman, as the “intellectual backbone” of the forum.
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One of the main challenges will be making developing economies more responsible and transparent to meet the standards set by developed countries, says Zhan Yunling, director, international studies at the Chinese Academy of Social Sciences. “In the past, global governance was done by the developed countries, through the G8 or G7,” he says. “Now we have the G20. I am not sure if the G20 can meet all of the global concerns, but the fact that the G20 has replaced the G8 means there will be more emphasis on the interests of the developing world.” The emergence of new economies also means the US will no longer be the sole dominant power, hence, the
political balance, or imbalance, is set to change. The survey says inequality and growing income distribution disparity, both in developed and developing countries, is a concern, and this could boil down to bigger conflicts. “There is a big gap between developed and developing countries, which in the future could lead to tensions,” Mari Elka Pangestu, Indonesia’s minister of trade, says. John Lipsky, first deputy managing director of the International Monetary Fund (IMF), says people should not forget that the rapid growth in emerging economies is the only way that poverty will be eliminated and greater equality will be achieved.
Copyright © World Economic Forum/Photo: Norbert Schiller
As economic power shifts from West to East, delegates at the World Economic Forum urged developing countries to respect the earth amid rapid growth.
“The G20 is one important manifestation of this change,” he says, noting that changes in the world economy have also modified the way the G20 serves it purpose. On October 23, 2010, the G20’s Ministers of Finance, governing most of the IMF member quotas, agreed to reform the IMF and shift about six per cent of the voting shares to major developing nations and countries with emerging markets. “Today, the top 10 shareholders in the IMF are the US, Japan, China, Brazil, India, Russia and the four large European economies. There is a commitment that going forward, rebalancing will continue,” Lipsky adds. As developing nations rise, so does the expectation that they will become more environment-friendly, too. While developed nations have been championing the use of subsidies for renewable energy and taxes to cut carbon emissions, most emerging countries continue to see growth, due in part to water and energy subsidies and lack of regulation. “The new growth model should thus focus on the clean and sustainable use of energy,” ?Yunling says. “These economies have different problems from the developed markets and to face the paradigm shift, they need to create models of growth based on clean energy, and this is not easy.” The desire to promote clean energy
John Lipsky, first deputy managing director of the IMF.
solutions, then they will embrace them,” he says. “For industries that continue to generate excess greenhouse gas emissions, such as the concrete industry, it is a matter of tougher regulation or more incentives.” The government, or the state, should initiate the move while the private sector is still hesitant to invest in large-scale clean energy projects, says Phil Gordon, Mayor of Phoenix, Arizona, the fifth most populated city
Being the biggest, fastest and highest will become a thing of the past as cities move towards sustainability models. is there. During an open forum in conjunction with the WEF’s Summit on the Global Agenda, panellists unanimously called for “sustainable urbanisation”. But there is division on how to achieve it and whether there is a strong business case for sustainability. Khaled Awad, Founder of Grenea, UAE, called for incentives for the private sector to adapt new, green technologies. “The public needs businesses to come up with the
in the US and one of the country’s fastest growing urban centres. “We took leadership as 70 per cent of our citizens wanted Phoenix to be a sustainable city with a high quality of life. The government cannot force it,” he says. “We can lay the foundation, build the infrastructure and provide education. If the public wants [sustainability] the market will follow.” In the port city of Tianjin – one of China’s fastest growing cities with
a population of 13 million – urban planners are using a mix of old and new technologies, according to the city’s Vice-Mayor Ren Xuefeng. Half of the city’s budget will be invested in sustainable growth. Some suggest spectacular but energy-hungry designs should be abandoned in favour of energy saving buildings. “Being the biggest, fastest, highest and the richest is a thing of the past,” says Konrad Otto-Zimmermann, Secretary-General of ICLEI – Local Governments for Sustainability, Germany. With the world population set to hit nine billion by 2050, the diversification of energy sources will be vital for meeting increasing energy needs. To this end, cooperation among MENA countries should be a key strategy to ensure that new energy models are viable and sustainable. Currently, 1.4 million people in the MENA region are living in “energy poverty” and that number will only increase if more resources are not funnelled into developing sustainable sources of energy. Research and development must be aimed at all potential sources of energy – including oil and gas, coal, solar, biofuels, wind and nuclear. “Don’t look at water alone, solar alone, coal alone,” says Nejib Zaafrani, secretary general and chief executive officer of the Dubai Supreme Council of Energy. “We have to look at the entire package and learn as we go along. We need integration and collaboration. Some countries in the MENA region are poor in energy, some are rich; some have more education than others. We need to work together to set the vision and strategy.” The three-day World Economic Forum highlighted the fact the world is facing a long list of problems. The forum’s founders admit the world is still in the “intensive care unit”. Brainstorming by the world’s foremost leaders and top policy and decisionmakers may help find viable solutions. But when our planet is resuscitated back to life remains to be seen. January 2011 gulfbusiness
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ANALYSIS REAL ESTATE
Safe as houses? As Dubai Islamic Bank issues the region’s second Real Estate Investment Trust (Reit), KAREN REMO-LISTANA explores the benefits and risks of the nascent investment tool.
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Naveed Ahmed
P
re-2009, buying a property through leverage and flipping it to another for quick returns was common-place. But as the global financial wheels slowed, people stopped buying and investors suddenly learned that frenzied growth was a risky substitute for a wellstrategised business plan – something that real estate investment trusts, or Reits, can offer. Unlike property funds, which also invest in property and property-related assets, Reits are more attractive because the majority of assets under management are income-producing. There are also tighter restrictions on borrowing and listing is mandatory. In DIFC, for example, 80 per cent of income must be distributed each year and borrowing must not exceed 70 per cent of the fund’s NAV. “Because it is listed, a Reit offers more protection and liquidity,” says Lynette Brown, partner, Al Tamimi & Company. “Most of the assets are already income generating and only up to 30 per cent of the fund can be invested in properties under development. So it’s not a speculative investment. “However, they did not take off earlier because there was no need for it,” she adds. “Other investments offer higher returns. Now people are more cautious and they want to spread their risks.” Olivier Laroche, senior manager, A.T. Kearney Middle East, says returns range from five to 10 per cent – a yield preferred by long-term institutional investors, such as pension funds. “In emerging markets, usually private real estate funds come first, targeting institutional investors, and once the market matures the public Reit market grows,” he explains. Despite its attractiveness, there are only two known Reits issued in this region – the Emirates Reit, launched by Dubai Islamic bank and Eiffel Management, set to be listed this year
Jumeirah Lake Towers development, Dubai.
on Nasdaq Dubai; and the Arabian Real Estate Investment Trust (AREIT), established by HSBC & Daman in 2006. Reits are usually associated with tax efficiency and because there is no or limited tax in this region, there was not much incentive to issue one, Andrew Charlesworth, head of capital markets, Jones Lang LaSalle MENA, said. “The GCC markets are still going through a maturing phase so one challenge is getting the consumers to understand the benefits of a Reit as an alternative investment class,” he says. “Reits will definitely be an important dimension to the local markets at some point. The opportunity to indirectly own real estate through a liquid investment vehicle will be an attractive option.” The concept of Reit is so nascent in the region that according to Laroche, only Dubai has a Reit regulation and even this needs more ironing. “Dubai has had the regulation in place since 2006, but the Reit market has been affected by limited sales of distressed assets, as potential buyers and sellers price points don’t match, while complex regional regulatory issues and ownership laws
act as a barrier to active portfolio management,” Laroche says. In addition, Brown says the leveraging ratio of 70 per cent is “very low” compared to gross asset value. Similarly, the rule that Reits can only invest up to only 30 per cent in property under development is “extremely low”. With a swathe of unfinished projects in Dubai, the least it needs is a regulation that constraints funds to help these developments see their completion, analysts agree. And there’s the issue of freehold. Because a Reit is deemed a foreign entity, it cannot own freehold titles in non-designated areas. There is a possibility that once the Reit is listed, it will have similar characteristics as a public joint stock company and Dubai Land Department could agree to offer an exemption. But there are still no formal agreements. A favourable legislation will be helpful but, crucially, the management teams must be able to deliver results and provide the transparency required by international investors. Given the ongoing uncertainty surrounding the property market, this won’t be easy.
IF YOU LOVE STYLE, YOU’LL LOVE...
ANALYSIS WORLD CUP
Qatar’s game plan The tiny Gulf country came up trumps with its winning World Cup bid. RYAN HARRISON takes a look at how Qatar is set to gain from staging the beautiful game in 2022.
36 gulfbusiness January 2011
getty images
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t’s unlikely Qatar will care about Sepp Blatter’s press conference gaffes, the furore over air conditioned stadia or that its national team has never qualified for a World Cup. The fact is, its winning bid has sparked an economic frenzy that will directly benefit the population of just under 1.7 million, as well as the Gulf in general. To kick off it will need to build at a speed like never before. This includes everything from infrastructure – roads, bridges, sewage, distillation-cooling – to hotels and “fan-zones”. Some estimates put the spend at $100 billion, including a $4 billion stadium building programme. This includes the construction of the 86,000-seater Lusail Stadium, which will host the tournament’s opening and final matches. Qatar will build over 80,000 new hotel rooms by 2022, 10,000 to 15,000 of which will be ready by end of 2010. The country could stand to earn $14 billion in immediate revenues, which is modest compared to the long-term economic uplift. To execute the game plan, there’s no doubt Qatar will have to open its doors to the international construction sector, said Laura Warren, legal director in the Middle East Real Estate and Construction Group at law firm Clyde & Co. “To built it, I assume they would need those contractors who are already here working and prequalified for tenders, plus new companies coming into or coming back to the Middle East market. These will include the big international boys as well as regional and local players. “Although there may have to be a revision of Engineering Law and Foreign Investment Law, which currently places restrictions on international outfits setting up onshore,” Warren added. Some of the region’s largest infrastructure companies are based in Dubai, which is also expected to benefit.
To fund this expansion, Warren said Qatar will draw on revenue from the natural gas industry, overseas investments, and its diversification into tourism and financial services. It does not plan to issue bonds to fund the growth though, according to Prime Minister Sheikh Hamad bin Jassim al Thani. Sheikh Hamad told reporters last month: “We don’t need [bonds] because most of our plan will cover 70 to 80 per cent of what we need, which is all the infrastructure; the airport, the port, the roads, the train.” He said all transportation infrastructure for the World Cup will be completed within seven years. “What we need is a few stadiums, but that’s not a big deal if you compare it with all the infrastructure.” The backdrop to this epic growth story is also a regional power struggle between financial centres that’s intensified behind the scenes since the news. Typically, this battle is between Dubai and any other Gulf hub. In the case of Doha and Dubai, the DIFC drastically slashed its operating fees recently at a time when Qatar is looking to aggressively develop its financial sector.
From January next year the DIFC will implement a revised set of operational fees for companies based in the business district – charging Dhs160 a square foot, down from an estimated Dhs400 for the same space previously. According to figures by Bloomberg, some 40 per cent of the DIFC’s office space is currently vacant. Meanwhile, the QFC has also been paring back costs, particularly for asset management and insurance firms, as it attempts to compete with the DIFC’s dominance. With the huge number of infrastructure projects set to kick-start next year as a result of the World Cup win, Qatar is likely to see international investment banks, as well as a gamut of infrastructure service companies, look to get closer to the action. Game on. 2022 VOTING: WORLD CUP BID WINNERS AND LOSERS 1st round: Australia 1 (eliminated); Japan 3; United States 3; South Korea 4; Qatar 11 2nd round: Japan 2 (eliminated); South Korea 5; United States 5; Qatar 10 3rd round: South Korea 5 (eliminated); United States 6; Qatar 11 4th round: United States 8; Qatar 14
ANALYSIS AVIATION
Private jets take flight The Middle East Business Aviation show hosted a slew of new deals and the appetite for luxury travel remains strong, writes PETER SHAW SMITH.
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he Middle East Business Aviation Association (MEBAA) and show organisers F&E Aerospace have again proved the resilience of the Middle East’s business aviation industry with their corporate jet extravaganza in Dubai. The fourth biannual show attracted 6,200 visitors from 77 countries, a 13 per cent increase on the 2008 event. Some 338 exhibitors from 33 countries attended, including original equipment manufacturers (OEMs) and other service providers, as well as representatives of 15 fixed base operations (FBOs), the industry term for airport terminals dedicated to business aviation. An agreement was also signed for the construction of an FBO facility at Dubai World Central in Jebel Ali.
38 gulfbusiness January 2011
Ali Al Naqbi, the founding chairman of the Middle East Business Aviation Association, said the show was growing in popularity. “Everybody came to do business,” he said. Some 53 aircraft were on show at the static display “around 50 per cent of these were wide-body aircraft,” he added. “There were a lot of orders and a lot of discussions, agreements and memorandums of understanding were signed. We are in the Middle East and the nature of business [here] is that a good deal of privacy and confidentiality takes place. From a market point of view, several operators don’t want to show others that they have money [to spend].” However, two European operators were less reticent. Among major orders announced at the show, Bombardier
said that Switzerland-based Comlux The Aviation Group, already a major customer with 12 of its aircraft, had signed up for two Global Business 7000 business jets worth $130 million, while Germany’s Air Flug had placed firm orders for five mid-size Learjet 85s and two Challenger 605 jets, worth a total of $155 million.[1] These are exciting times for the Middle East bizjet industry. The regional fleet increased from 140 business aircraft in 2004 to 335 by the end of last year, representing fleet growth of 19 per cent, according to industry data. “The Middle East is expected to be a significant contributor to the expansion of business aviation in the emerging markets. Between 2010 and 2019, the Middle East will receive 450
business jet deliveries. The 2009 fleet of 335 business jets will grow to 730 aircraft by 2019 representing CAGR of approximately eight per cent,” said Bombardier’s Industry Forecast. In addition to Canada’s Bombardier, the business aviation sector’s main manufacturers are France’s Dassault, the US’ Cessna, Gulfstream and Hawker Beechcraft, Brazil’s Embraer, and Boeing (US) and Airbus (France). Although not a like-for-like comparison due to the variation in aircraft model types and size, Cessna appears to be currently delivering the largest number of units. Boeing and Airbus also devote niche units to cater to the VIP market. At the end of 2009, JetNet estimates put global fleet size at 17,200 aircraft, including 3,773 heavy, 4,426 medium and 9,000 small jets. A total of 706, 750 and 939 jets are expected to be delivered each year between 2010 and 2012. Industry forecasts put the total number of business jets coming to market between 2010-19 at 10,500. Not surprisingly, there is a close correlation between the geographical distribution of billionaires by region, and the expected number of business jet deliveries over the next decade. While the Middle East accounts for six per cent of the world’s richest people, it is expected to make up only 4.3 per cent of aircraft dispatched to customers.
Bombardier Cessna Dassault Embraer Gulfstream Hawker Beechcraft Total
AIRCRAFT DELIVERIES (UNITS) 2009-10E 2009A 2010E 173 158 289 150 77 80 115 136 94 107 98 75 846 706
Total % 21.3% 28.3% 10.1% 16.2% 13.0% 11.1% 100.0%
Source: JP Morgan, Business Jet Monthly, November 2010. A=actual, E=estimate
North America Europe China Russia & CIS Asia & Oceania Middle East India Latin America Africa Total
BUSINESS JET MARKET INDICATORS IN 2010 Global Billionaires Deliveries 2010-19 427 42.2% 4,400 41.9% 183 18.1% 2,500 23.8% 107 10.6% 600 5.7% 72 7.1% 650 6.2% 72 7.1% 500 4.8% 61 6.0% 450 4.3% 49 4.8% 325 3.1% 36 3.6% 775 7.4% 4 0.4% 300 2.9% 1,011 100.0% 10,500 100.0%
Sources: Forbes.com, February 2010; Bombardier Forecast Model, 2010
less of a factor among regional elites, the likelihood is that private and business aviation will remain buoyant. “Saudi owners are taking advantage of the recession to renew old fleets,” says Mohammed Al Zeer, Chairman of Saudi Arabia’s MAZ Consultants. “Private jet prices are down around 20 per cent. The market, in my opinion, is back to normal.
Private jet prices are down around 20 per cent. Everybody wants to win clients. This is just like the good old days. While less exhibitor space was taken up this year, there is quiet optimism that the Middle East business aviation market will move ahead. After all, typical business jet customers are seldom low net worth individuals. Differing views prevail about the cyclicality of the industry. Some argue that high-end corporate travel is the first to be sacrificed as companies seek to cut costs. On the other hand, because accountability is
Total 331 439 157 251 201 173 1,552
Everybody wants to win clients. This is just like the good old days.” “The impact [of the recession] has been much more severe on small manufacturers than on our end of the product line,” says Capt Stephen Taylor, President of Boeing Business Jets, who says his unit accounts for around two per cent of Boeing’s overall order book and that aerospace has had a much better recession than many other industries. “We have not seen the same
impact in terms of cyclicality.” He sees the Saudi market as a key player as well as the Gulf community in general. “These are important clientele.” Todd Taylor, Dispatcher, Flight Operations at Gulfstream, is optimistic that the next 12 months are going to see an improvement on the past two years. “We have seen a shift in sales from 60 per cent US, 40 per cent international to 35 per cent US, 65 per cent international.” The Savannah, Georgiabased company sells a range of aircraft seating six to 18 persons costing from $15-$65 million. The smallest is the G150 and the largest is the G650. Middle East and Chinese business is still strong, while Russian orders have fallen off of late, he says. He concedes that dollar weakness could be a factor behind the shift to international sales. As optimism throughout the industry grows, Dubai aviation events are sure to remain at the forefront of OEM and service provider marketing strategies. Their next opportunity will come at the Dubai Air Show at Dubai Expo in 2011, while the next MEBA event will be in December 2012. January 2011 gulfbusiness
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EXECUTIVE MOVES
Dubai-based Rasmala Investment Bank has appointed Anwar Abusbaitan (left) and David Woods as co-chief executive officers, replacing Tamer Bazzari who resigned from the CEO post in November. Abusbaitan joined Rasmala in 2004 where he most recently was the head of placements. Prior to Rasmala, he held senior positions in Merrill Lynch Bahrain, Jordan and San Francisco offices. Woods joined Rasmala in 2009 as chief operating officer, a role he continues to perform in addition to Co-CEO. He previously served as chief operating officer of ABN-AMRO (Middle East), CEO of ABN-AMRO Securities (USA) and CEO of Alfred Berg Securities.
National Bank of Abu Dhabi appointed Vasgen Edwards as the head of international corporate banking. He joined NBAD from Lloyds Banking Group, where he was the managing director and head of corporate asset finance. Edwards also worked for GE Capital where he headed a specialist credit team. He has a BA in European History and Swedish language.
SAS Scandinavian Airlines appointed Stefan Eiche as general manager for the UAE. Eiche, who has been with SAS for 11 years, has spent the last eight years as country sales manager in his home country of Germany. Eiche held various management positions in the travel industry.
Avaya appointed Mohammed Areff as managing director for the Gulf region, replacing Roger El Tawil, who has joined his family’s businesses. Areff joined Avaya after 12 years with NCR Corporation where he held several leadership roles in sales, operations and services in the Gulf, Middle East and Africa.
40 gulfbusiness January 2011
Sheikh Ahmed bin Saeed Al Maktoum has been appointed chairman of Dubai World, replacing Ahmed bin Sulayem. Sheikh Ahmed, who served as head of the Supreme Fiscal Committee, spearheaded the Dubai World debtrestructuring programme. Mohammed Ibrahim Al Shaibani, director general of the ruler’s court, Ahmad Humaid Al Tayer, governor of Dubai International Financial Centre, Abdulrahman Al Saleh, director general of the Department of Finance, and Hamad Buamim, director general of the Dubai Chamber of Commerce & Industry, were among those named to the new board.
Peter Riddoch was named CEO of Khoie Properties while Frank T. Khoie fills the role of executive chairman of Khoie Group. Riddoch was previously CEO of Damac Properties and most recently was CEO of Egyptian real estate Amer Group. “Now that La Hoya Bay is in such capable hands, I will have the time needed to grow Khoie Group and to assist with the wider infrastructure challenges which Al Marjan Island faces,” Khoie said.
Capital IQ, the data and analytics unit of Standard & Poor’s, appointed Ted Vivian as head of client development for Europe, Middle East and Africa. Vivian will be managing global sales operations in London, Paris, Milan, Frankfurt and Dubai. He joined Capital IQ from Thomson Reuters, where he was global head of commercial operations.
Rashid Abdulla was appointed chief executive of Batelco Bahrain. Abdulla, who has been in the telecom business for 30 years and is currently the managing director of Qualitynet, Batelco Group’s Kuwait Operation, will assume the new role at the end of this month. He joined Batelco in 1986 as engineering manager.
WORDS BY ALICIA BULLER, PHOTOS BY FAROOQ SALIK
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years
10places
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work
Welcome to the first ever Top 10 Great Places to Work in the UAE
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ot only did I feel proud to mingle with this month’s winning cover stars, I was abuzz with the sheer list of firsts being born before our very eyes. Here, in less than a week, we’d lured some of the UAE’s brightest and best minds to Gulf Business towers for a same place, same time photo shoot. What’s more, they were all punctual and gracious – even under the hot camera lights. For anyone acquainted with organising a media shoot, particularly on these sandy shores, it was not only a coup, it was a near miracle of the corporate kind. It struck me viscerally that these weren’t your average CEOs, these were the proud bosses of companies that focus on people. And as you read on through the Gulf Business Great Places to Work report, you’ll see that a focus on ‘assets with shoes’ stems from a vision that permeates an organisation and everything it touches. Bosses that run great places to work also know that success is born, without exception, from attracting the best people. More than most, they have an intrinsic understanding that the cream-of-the-crop have choices. When the best brains make decisions on career moves, it involves more than simple remuneration. Superior employees are compelled by firms that exude excellence, longevity and, most importantly, reputation. What greater validation than this national list. And so the cycle goes: talented people, growth, sustainability, talented people... Great Places to Work is a global institution that has so far published similar data in 39 countries, including the famous Fortune magazine Top 100 Places to Work list in the US. The fact that regional leader, Michael Burchell, and his team have entered the region now is not insignificant. The UAE is on the cusp of change. As the recession resides, the memories of the boom times are still fresh in the
national psyche, and so is the knowledge that short-term gain and ‘low hanging fruit’ mantras left many companies on their proverbial knees. The UAE boasts a uniquely diverse and talented workforce, made up of around 80 per cent expat labour, but as the world becomes increasingly globalised, the days of fly-by-night, quick-buck tenures will weaken the competitiveness of the nation. The message is clear, sustainability is the only option; and sustainability arises from the brains that you attract and retain in your company. Nothing else will do. According to the UN, the Arab working world lags far behind the West in productivity terms and the gap is growing. Workers from the Gulf have the potential to create more wealth, but are constrained by a lack of investment in training, equipment and technology. The UN is also making strong calls for the abolishment of the Gulf-wide sponsorship system. The new UAE law which limits the power of bosses to ban employees going to rival companies will go some way to promote employee freedom. Today, it is empowerment of your employees that will spur growth, not enslavement. The companies that made the Top Ten Great Places to Work in the UAE list understand that a happy, empowered team drives growth. But they also understand that it’s much easier to talk about it than to do it. That’s why they’ve made it their core impetus to push forward initiatives that explicitly foster transparency, communication, engagement, trust and respect. I, for one, am proud to recognise this list as a springboard for the future. How do we become a country that excels in the global marketplace? We do it together.
Alicia Buller, Editor Gulf Business
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work
People matter For the first time in the region, GULF BUSINESS unveils the Top Ten Places to Work, highlighting the crucial relationship between people and profits.
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s the UAE business mindset shifts to thinking about the longterm, focusing on people is paramount. But whoever said that ‘people are your greatest asset’ was wrong; it’s actually the ‘right’ people that are your greatest asset. And in order to attract the best people, it’s important to have a great place to work. That’s why Gulf Business has tied up with the world’s most popular employment survey to find out what’s really going on in the UAE’s companies and publish the country’s first annual ranking of the nation’s best employers. The survey assessed the level of trust between three key relationships within the local work place – employees and their managers, employees and their jobs, and between employees and other employees.
The Institute publishes similar lists in 39 international markets, including the Fortune “100 Best” in the US and top company lists in the Financial Times in the UK and Nikkei Business in Japan. This makes it the largest workplace evaluation tool globally, surveying around 1.5 million employees every year. Companies that regularly feature on the Great Place to Work lists in other markets include Google, Coca Cola, Novartis, IBM, Cisco, Telefonica and Microsoft (the software giant has made it to the UAE list too). Following the slowdown in the UAE labour market, when one in 16 professionals lost their jobs in 2009, measuring the extent to which employee loyalty and engagement has been maintained is key, says Dr. Michael Burchell, partner and director of the UAE Great Place to Work Institute. “Now is the right time to bring the list to the UAE labour market. In the boom-times, there was a lot of job hopping in the UAE,” Burchell adds. “As finance and commerce rebounds,
ABOUT THE LIST
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ny UAE company with 50 or more employees was eligible to participate in the fee-based program. Any company that appears on the list is selected primarily on the basis of their employees’ responses to the Great Place to Work Trust Index, a proprietary employee survey developed by the Great Place to Work Institute. In addition, the firm evaluates materials submitted by the company, including the company’s
46 gulfbusiness January 2011
response to the Great Place to Work Culture Audit. In accordance with Great Place to Work practices, the research firm may not reveal details of companies that did not make this list, including whether or not a company has participated for selection on the list. Companies interested in applying for the January, 2012 list may apply from February 1 at www.greatplacetowork.ae/ best/nomform.php.
you have to think ‘how do I create loyalty so that doesn’t happen again in future?’ Pay does not equal employee engagement; this comes from interesting work.” While Burchell notes that while multi-national companies topped the list, the local companies were also extremely strong in a global context. “We found that the multinationals came top of the list because they have more resources globally. But just because you’re a multinational, it doesn’t mean you’re perfect,” he says. “The local companies were very creative without having the resources of the multinationals. All the companies that made the list worked hard to meet their employees needs, including regarding religion and culture. They also had extensive communications between the management and the ewmployees. But there is still a need for senior management to invest in staff and talk to their staff more.” Burchell says while the companies that made it to the list are solid, there’s room for improvement across UAE companies overall. The country may be made up largely of ex-pats on relatively shorter-term tenures but that’s no reason to neglect your people policies. “There are employees that you want for longer than a year. There is a need for top talent to be retained for at least between three and five years,” he adds. David Robert, partner and director at Great Places to Work UAE, agrees that there needs to be more of a focus on grass-roots strategy and people policy.
“There seems to be a lot of emphasis on superficial tenets in the UAE, but a good exterior is not sustainable if you don’t have good people,” he says. “In the UAE, the focus has been on short-term gains. However, the companies that made the list are head and shoulders above their peers, their HR practices are integrated and robust. They are good quality workplaces in every way.” The UAE is a young, maturing and dynamic market and is at a critical stage in its development, which is why it’s a pivotal time to be publishing the Top Ten Places to Work survey. “The main thing is that the UAE wants to be the best; to do this, they need the right leaders, the right products and great places to work,” says Burchell. “If you want to get ahead in a global economy, you absolutely have to think about how people drive your business.” ■
ABOUT THE GREAT PLACE TO WORK INSTITUTE UAE
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he Great Place to Work Institute is a global research and management consultancy that recognises the best workplaces in 39 countries worldwide and provides business and advisory services. The Institute was founded in 1991 to provide a simple, research-driven methodology that could be widely used to understand and assess organisations. A proprietary employee survey and assessment of HR policies form the foundation of the Institute’s research and consulting services and has been used by companies from all over the world to create strong workplace cultures based on trusting relationships. Following increased demand from the GCC countries for its workplace evaluation services, Great Place to Work Institute expanded to the UAE in March 2010. By 2012 Great Place to Work Institute plans to publish ‘Top Companies to Work For’ lists in each of the GCC countries.
UAE PEOPLE CHALLENGES: WHAT THE EXPERTS SAY Hazel Jackson, CEO, Biz-Ability business consulting firm
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ne of the biggest people challenges for UAE companies is dealing with the vast cultural diversity that exists here. Having 204 different nationalities means dealing with different approaches to and understanding of HR policies, workplace culture and leadership. Effective people management is also impacted by weak leadership behaviour in a number of companies. This can be attributed to the rapid growth of the economy that forced companies to source talent from within the organisation to meet urgent business demands. While this meant more opportunities for young individuals, companies have made some compromise on the skills set and experience of their people in leadership positions. Companies should begin by analysing their HR policies and procedures to discover loopholes and see how they
can revise them to promote better employee welfare. It is only recently that the HR function has started to be taken seriously by companies in the UAE. While there is a lot of awareness about better workforce management, the HR industry in the UAE is still developing. Grey areas will definitely exist during this transitional phase.
Philip Anderson, professor of entrepreneurship, INSEAD, Abu Dhabi
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he top challenge usually is attracting talented Emiratis. Most firms want to emiratise their work forces, so competition for high-quality local talent is quite fierce. Consequently, retaining Emiratis is also an issue, particularly since many are not primarily motivated by money, due to the wealth of the country. Firms must find other ways to attract and retain them, through interesting work and professional growth opportunities. The next greatest employee challenge is managing a diverse workforce. The UAE has attracted people from many different geographies, which provides opportunities for value-creation but is not simple to manage. The most common complaints we hear are about lack of consistent direction and micro-management. Both spring from the tendency in the region for organisations to run in a very top-down way. Top-down
management has its strengths, but it can lead to delays, especially when senior leaders juggle many commitments, and to a stop-and-go pattern of change. Because senior leaders are expected to know all the details of the operations they supervise, they tend to use a lot of reports and approvals compared to companies in the West.
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Microsoft
work
“Never underestimate anyone’s role”
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icrosoft is no stranger to the Great Places to Work award, having already scooped the top place in last year’s Europe list and a regular spot in Fortune magazine’s US rankings. The company’s chairman, Bill Gates, got it right – he invested in his people. And it shows. “We are focused on growing the company and enabling people to reach their potential – inside and outside the office. Taking care of people is one of the top priorities; everyone contributes to the company strategy regardless of their position,” says Samer Abu Latif, the company’s regional general manager. Microsoft’s key focus is the development of its employees through the distribution of transparent information, a clear career development plan and work/life balance. “We do not underestimate employee roles. We all have a passion for technology and, no matter where we are positioned, everyone has a role. We all feel part of a group. We show this in the way we communicate and we make the company strategy transparent. Development of people is central and we foster that spirit.” The Microsoft career experience begins with a unique ‘on-boarding road map’, where a new employee is shadowed by a member of the company who has been there for a number of years. The firm also conducts a lengthy hiring process, getting to know potential employees indepth and always includes a potential peer member in the interview panel. “It’s such a large company that we go beyond the usual orientation,” says Latif Communication itself is the most salient aspect of Microsoft’s people policy. The firm conducts an extensive annual
poll that collects suggestions and feedback from all its employees and a staff member is nominated to make the final recommendations to the general manager. ”One of the results of this survey was a mandate not to bombard each other with emails over the weekend. We sent out a communication that said ‘does that email you’re sending really need to be sent now or can it wait?’,” Latif says. “We wanted to assure our staff that it’s not an expectation to read an email at the weekend.” In addition, Microsoft has its own ‘taskforce’, which is given a remit of coming up with recommendations on how to improve employee work/life balance. This bottom-up strategy is cultivated with the aim of fostering trust MICROSOFT
Sector: Technology Founded: 1975 UAE employees: 290 M/F ratio: 244/46 Paid leave: 23 days Annual job applications: 6394 Annual training hours: 53
and team spirit within the company. Latif also cites recogition programmes as a motivator. “We have founded a Circle of Excellence for global recognition of our employees and we also conduct local awards, where our people nominate our people. This creates a sense of solidarity and teamwork,” he says. Finally, the Gulf office offers a community citizenship programme, so that employees feel that they are not only commercially-orientated, but that they are also making a difference to the wider world. “It’s important that employees feel that they are part of something bigger. Our commitment to CSR shows people they are working for a company that is aware. That’s crucial,” concludes Latif, the first winner of the UAE’s first-ever Great Places to Work list.
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amdi Osman knows the FedEx people policy better than most, not just because he’s the regional senior vice president but because he’s lived it. Over 30 years ago, Osman embarked on a make-orbreak trip to the US, where he spent six months washing FedEx lorries. Two years later, he was a manager. And thanks to FedEx’s ‘peopleservice-profit’ mantra, he hasn’t looked back since. “It is the differentiator that made FedEx a world-class company. We hire the best and look after them, which makes employees conscientious and motivated. Dedicated employees give the highest quality, most professional service. Our business is about passion, we have no tangible products. Our service relies totally on our people. Our assets wear shoes,” he says. “We have to make sure of the consistency of the purple promise; we are renowned for our purple people. We make our customer experience an outstanding one. Leadership starts from the bottom.” FedEx consistently outperforms in global independent employee satisfaction surveys because of its palpable commitment to its ‘purple people’. The firm is now the most successful express delivery company in the world with billion dollar global revenues.
NUMBER OF EMPLOYEES Microsoft 290 FedEx 440 Pepsi Co 200 Marriott 520
TOTAL: 9205
Merck Serono 247 The One 363 Bayt.com 213 Shuaa Capital 205 Zayed University 727 Dulsco 6000
Osman says the most important factors for motivating his staff are empowerment, communication and feedback. FedEx operates an open door policy that the company “lives and dies by.” Another tenet of the delivery firm’s ‘people-service-profit’ strategy is a healthy work/life balance. “We don’t want our people to work to death, we want to make sure they have no stress. So there’s no surprises at any moment. When you’re working as a happy team you succeed, everyone knows a sinking ship doesn’t win.” The firm’s focus on diversity is also a key market differentiator and a primary reason FedEx made it so high on the Great Places to Work list. In short, a comprehensive diversity FEDEX
Sector: Logistics Founded: 1971 UAE employees: 440 M/F ratio: 292/61 Paid leave: 24 days Annual job applications: 5000 Annual training hours: 99
policy ensures you’re not only connecting with the community and the social fabric of the country in which you’re based, your company is also able to mine a rich well of differing talents and insights. “In FedEx, there’s no differentiation made based on where you come from, as long as you can communicate,” Osman says. “When I became a manager, my English was quite broken, but I passed with the panel because six out of seven people said I had passion and they saw my potential. They taught me and let me make some mistakes. We recruit around 70 per cent of our managers from within. It shows you believe in your staff.”
FedEx
“Our assets wear shoes”
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“Act like a family”
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uw Gilbert, communications manager for the PepsiCo Middle East, Africa and Asia (MEAA), says: “It all starts with empowerment. Empowered employees are motivated and energised.” Established in Dubai in 1976, PepsiCo MEAA runs the Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade brands. The company’s ambitious mission statement ‘to deliver sustained growth through empowered people acting with responsibility and building trust’ is what helped to push PepsiCo up this year’s list. The firm has introduced ‘Saad’s Blog’, which is written by the CEO and informs the staff of anything from business results to CSR programmes (of which PepsiCo has many). But what’s
most interesting about the F&B organisation is its work/life balance policy. Employees must always include one out-of-work activity in their annual KPI objectives and they are benchmarked on them, just as they would be a work objective. Gilbert says his own work/life balance KPI is ‘making sure he personally drives his daughter to school every day’. Gilbert adds that PepsiCo ‘feels like a family’, which he says can be a powerful motivational factor. PEPSICO
Sector: F&B Founded: 1976 UAE employees: 184 M/F ratio: 99/85 Paid leave: 22 days Annual job applications: 237 Annual training hours: 10
“We put employees before guests”
I
nternational hotel group Marriott is still run by US family owner Bill Marriott, who believes that if the firm respects and cares for its employees, in turn, they’ll respect and care for their guests. The company even goes as far as saying that it puts employees before guests. “It’s just sound business sense,” says Robert Dodds,VP of HR for Middle East and Africa. “A better performing employee creates a better satisfied guest who will come back.” Aside from living the culture from Bill Marriott ‘down to every waiter and waitress’, Dodds is a strong believer in communication. The hotel
chain runs daily team briefings and runs quarterly town hall meetings. “Every employee can ask questions, anything they like. Managers share the business results and direction and seek their feedback,” he says. “We have a programme of guaranteeing fair treatment where any employee can, and does, write to ask the regional office, or even Bill Marriott, to review a perceived hardship.”
ANNUAL JOB APPLICATIONS 15000 12000 6000
PepsiCo
Merck Serona
Dulsco
0
FedEx
3000 Marriott
Sector: Hospitality UAE employees: 520 M/F ratio: 797/168 Paid leave: 25 days Annual job applications: 6000 Annual training hours: 40
9000
Microsoft
MARRIOTT
SHUAA Capital
Marriott
Pepsi Co
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lobal pharmaceuticals firm Merck Serono set up its Dubai office in 2006, but has been doing business in the region for over 50 years. The company places a heavy focus on ‘growing’ its people through learning. “Our environment, where learning and experiencing on the job are encouraged, leads to innovation in developing new health solutions for our customers. Brand recognition and loyalty is developed and ensures the MERCK SERONO
Sector: Pharmaceuticals Founded: 2006 UAE employees: 247 M/F ratio: 173/74 Paid leave: 30 days Annual job applications: 851 Annual training hours: 100
sustainability of our organisation,” says Karim Smaira, the firm’s Intercontinental vice president. Merck Serono Middle East was the winner of the 2009 Merck Best Pharma Award for Work Environment for the development of the ‘Empower’ initiative – an innovative home-grown training programme, with topics ranging from ‘selling skills’ to ‘emotional intelligence’ and ‘dealing with difficult people’. “We focus on employee engagement rather than motivation. Achieving objectives is a given. Surpassing these objectives is what employees should get out of bed for.”
H
ome furniture pioneer The One, is the highest ranking local company in the list. Selfappointed chief emotional officer (CEO) Thomas Lundgren says it’s all about feelings. “It’s the combined energy of the staff that charges the stores each day,” he says. “In every person there is a dream – if you take care of the team, they take care of you.” Lundgren, who founded 14 stores
COMPANY ORIGIN Locally founded
International
across the Gulf, runs some of the region’s most comprehensive socially responsible investment programmes, from hiring challenged young adults to global community initiatives. “You have to give people a chance, I don’t want a system based on KPIs, they are already paid to meet those. I want empathy, I want someone with a big heart.” Lundgren, who has half of his employees as Facebook friends, likens employees to dogs and children because of their high sociabilty and longing for recognition. “People are the only species more sociable than dogs. We want to be proud of where we work, so we can show it off to our peers. It’s simple, if you’re proud of where you work, you do a good job.” THE ONE
Sector: Retail Founded: 1996 UAE employees: 363 M/F ratio: 279/84 Paid leave: 30 days Annual job applications: Not given Annual training hours: Not given
The One
“In every person, there is a dream”
Merck Serono
“Engagement gets you out of bed”
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“People must feel what they do matters”
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fter a difficult couple of years and management changes, local investment firm Shuaa Capital’s new people strategy has paid off. The firm’s CEO, Sameer Al Ansari, was appointed 18 months ago and has put a firm focus on employee engagement and training. “I introduced the ‘One Shuaa’ initiative across the organisation. We have five divisions but only one Shuaa; the idea is that we win together or lose together,” he says. “We now have a strong team culture; if we’d entered for this award a year ago, we wouldn’t have won it.” Shuaa Capital places focus on transparent employee communication as an engagement tool. Regular town hall meetings are held, monthly newsletters are sent and Ansari
now delivers a quarterly video CEO update because it’s important that “everybody knows what’s going on”. “It’s all part of one circle; if you create engagement, it creates results, which creates growth, which creates retention and then engagement,” Ansari says. “If you engage people then they feel empowered and motivated. People have to feel that what they do matters. Recognition is not always about cash rewards.”
SHUAA CAPITAL
Sector: Finance Founded: 1979 UAE employees: 205 M/F ratio: 143/72 Paid leave: 22 days Annual job applications: 12, 456 Annual training hours: 14
“Be part of something bigger than you”
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iddle East recruitment website Bayt.com is the only dotcom to make the list. What impressed the researchers about this company was the organisational belief that employees perform best when they are ‘part of something bigger than them’. “The measure of our success is the degree to which people’s lives are positively touched through their interaction with us. This applies to all our stakeholders,” says Rabea Ataya, CEO of Bayt.com. “We feel that people will only ‘respect and admire’ us if we help them lead better lives. This starts with
our own team. If they are well trained, compensated and motivated, they themselves will admire and respect the organisation they are part of and are more likely to ensure that the world around them does the same.” Bayt.com also cites the sense of forming meaningful relationships and a perceived sense of destiny and progress as critical employee motivation factors.
HOURS OF TRAINING 100 80 60 40
PepsiCo
SHUAA Capital
Dulsco
Zayed University
0
Marriott
20 Microsoft
Sector: Technology Founded: 2000 UAE employees: 213 M/F ratio: 116/107 Paid leave: 22 days Annual job applications: Not given Annual training hours: Not given
FedEx
BAYT.COM
Merck Serona
Bayt.com
Shuaa Capital
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urrently serving around 3,000 students, the Emirati college is the only governmentorganisation to make the list. What sets the university’s working culture apart is the school’s namesake Sheikh Zayed bin Sultan Al Nahyan, the country’s first president. The late leader’s passion for learning permeates the organisation’s mission statement to become the leading university in the region. “Everything we do at Zayed University revolves
ZAYED UNIVERSITY
Sector: Education Founded: 1998 UAE employees: 727 M/F ratio: 356/371 Paid leave: 40 days for senior staff Annual job applications: Not given Annual training hours: 40
around our mission. This creates a sense of community and governs everything we do. It is a huge goal,” says Daniel Johnson, provost, Zayed University. “It’s not just about policies and procedures, it’s something that’s innately understood – and that flows from the vision of the Sheikh Nahyan. We feel like we have a higher purpose which improves employee motivation.” He says the university places emphasis on respect and diversity as workplace values, which is reflected in the organisation’s retention rates, international employees and female staff count. (The university’s vice president Dr. Sulaiman Al Jassim is pictured, right.)
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ith 6,000 employees, local firm Dulsco is the largest company on our list and is also the longest-established in the UAE. The company’s core business is HR solutions and waste management solutions, which goes some way to explain Dulsco’s adeptness at managing its own people. “Our people strategy has been guided by honesty and transparency,
THE GENDER SPLIT
Dulsco
Zayed University
SHUAA Capital
THE One
DULSCO
Bayt.com
Merck Serono
Marriott
PepsiCo
FedEx
Male Female
Microsoft
6000 5000 4000 3000 2000 1000 0
courtesy, effective two-way communication between management and employees, emphasis on individual initiative and team work,” insists the firm’s chairman Abdul Aziz Mohammad Khan. He says that companies that have failed in the UAE made the mistake of focusing on the economic activity of producing goods and services at the exclusion of people. “They forget that an organisation’s true nature is humans who need to live and continue for many generations, even with a commercial objective.” Dulsco believes that autonomy and a good working environment are just as important for employee motivation as money.
Sector: HR & Industry Founded: 1935 UAE employees: 6000 M/F ratio: 5414/163 Paid leave: 30 days Annual job applications: 1200 Annual training hours: 20
Dulsco
“People trump economics”
Zayed University
“We have a higher purpose”
FEATURES ENTREPRENEURSHIP
Hundreds of entrepreneurs pitch their business plans to possible investors and business partners at the Intel Capital CEO summit.
Show me the money looks into the precarious world of start-up funding and the role they play in shaping the future global business landscape.
KAREN REMO-LISTANA
S
itting quietly in a spacious hotel lobby, in Huntington Beach, California, Marco Gomes – wearing thick black specs, jeans and sneakers – seems to be out of place in a 500-plus gathering of highlevel techno geeks. But the Brazilian is not your ordinary boy next door. At 24, he has founded boo-box, the first technology-based player in Brazil
54 gulfbusiness January 2011
to address advertising on social media. Every month boo-box displays 600 million ads with product offers and advertising campaigns in over 13,000 websites for 31 million people in Brazil. Like Bill Gates of Microsoft and Mark Zuckerberg of Facebook, Gomes dropped out of university to pursue this project when he was 22, and through the pro-bono help of friends and family was able to finish the prototype. His project eventually got the attention from Monashees Capital,
a venture capital firm which placed a seed capital of $300,000. Last year, Intel Capital also invested in it. “My parents did not like it at first,” Gomes tells Gulf Business in a veranda overlooking Huntington’s surfing district. “I had to go to Sao Paulo to be noticed by venture capitalists. I used to pay bills using my credit cards. I can still hardly believe where I am now.” But not everyone is as lucky as Gomes. Omar Onsi had to incur “awful
losses” in previous businesses and sell commercial and personal assets before finally setting up Splendor Telecom in Lebanon, which finally broke-even last year. “Entrepreneurs are born,” he says. “You need to have lots of persistence and you should not be afraid to fail.” Rabih Nassar, founder of Lebanon’s Element Company, has faced three bankruptcies. “It takes years to grow a company and now that there’s downturn, it’s more difficult to win clients and obtain funding,” he says. UAE’s Pulse Technologies, which builds automation systems for property and hotel developers, has been hit by the construction and real estate slowdown in Dubai and learned that obtaining funds from the banks is simply impossible. “It is not the role of banks to lend to start-ups as they are looking for
successful business models and track records,” says co-founder Jimmy Grewal. “For start-ups, you are usually funded by family, friends, angel investors and venture capitalists.” So the fact that these companies have received financial injection from Intel Capital – the venture capital arm of the world’s largest chipmaker – is a dream come true. To date, Intel Capital has invested $247 million in 98 companies, 35 per
Arvind Sodhani, president of Intel Capital and Intel executive president. Citing robust performance by Google, Apple, Microsoft, IBM and Oracle, he said technology has been the driving force of the world’s economy. “Innovation thrives all over the world and we want to foster that. Innovative minds do not stop inventing just because there is a recession,” Sodhani added. Currently, Intel Capital has eight portfolio companies – four from the
Marco Gomes, founder of boo-box.
Amjad Tadros, founder of ShooFee TV.
cent of which are outside the US. This is just under the 102 deals worth $327 million it made last year. However, exits made last year jumped from 15 to 29, where 12 are IPOs and 17 are acquisitions. From 1991 to 2010, the company has invested $9.7 billion in 1100 companies in 48 countries, of which 450 have been exited. The company has the capability to swoosh cash in an instant, but is nonetheless selective. The $50 million Middle East and Turkey fund, for example, was set up four years ago but only began to invest in 2009. The fund is still not yet fully invested and no exits are imminent. “What we are looking for in the Middle East region are companies that will help adopt applications and serve the needs of consumers and enterprises specific to that region,”says
UAE (Conservus International, Pulse Technologies, NeuString, and Vertex Animation Studio) and two each from Jordan (Jeeran and ShooFeeTV) and Lebanon (Nymgo and Berytech Tech Pole). But there are thousands of other small businesses looking for partners like Intel. In the UAE alone, as many as 230,000 enterprises in the UAE fall under the SME category and together they constitute a revenue pool of over $1.2 billion, which is growing annually by 25 per cent. Over 90 per cent of the businesses in the GCC are SMEs and according to Regus who surveyed 5,000 entrepreneurs in 78 countries, the SME sector will be the main source of employment growth. Two fifth of entrepreneurs (40 per cent net) surveyed said they intend to increase headcount in the next six months. January 2011 gulfbusiness
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FEATURES ENTREPRENEURSHIP
However, a recent report by the Union of Arab Banks and the World Bank showed that Middle East-based SMEs currently receive a mere eight per cent of regional bank lending, and GCC-based SMEs receive just two per cent of all bank lending. To ease up lending for this sector, the UAE is set to finalise its SME law in the second half of this year. The credit bureau is also expected to relax banks’ stringent lending policy. But more needs to be done, especially in equity financing, Ahmad M. Al Sari, executive partner at Riyadh-based Malaz Capital, says. “While loan-based financing is essential to the survival of SMEs, it does not actively promote innovation and entrepreneurship nor accelerate economic diversification and job creation,” Al Sari explains. Because the party providing the capital is a partner, his posture is naturally different. He needs to ensure the viability of the enterprise before committing his money. “Once convinced, he will offer any relevant knowledge, connection, resources and, of course, the capital. He will ensure the establishment of a viable governance process without impeding the ability of the entrepreneur to manage the business effectively,” Al Sari adds. Although there is a dearth of equity financing for SMEs, there are signs that the region is beginning to ponder the idea. In November, more than 1,000 entrepreneurs, business leaders, finance providers and creative professionals from across the Middle East, North Africa and South Asia region gathered in Dubai for a “Celebration of Entrepreneurship”. During the two-day event, entrepreneurs shared their hopes and frustrations in opening or operating a small business in the region. “It took me three months to register
Flip Video founder Jonathan Kaplan speaking to Dubai Women’s College students.
a business in what could have been done in three days in Singapore,” a food business entrepreneur says. “The regulation is also out-dated. My friend’s business is nowhere in the list of the categories so it took ages for the registration to be finished.” This is despite the fact that 11 out of 18 economies in MENA implemented 22 business regulation reforms, according to the IFC’s Doing Business 2011 report. In addition to interactive workshops and networking – which include investment pitches – the event featured the launch of Riyada Enterprise Development, a $500 million investment platform exclusively dedicated to supporting SMEs across the region. The last few months also saw academias jumping into the entrepreneur bandwagon. Jonathan Kaplan, senior vice president and general manager of Cisco Consumer Products and the person behind the Flip Video camcorders, treated Dubai Women’s College students with anecdotes of his entrepreneurial journey.
Abdulrahman Al Suwaidi, an Emirati who proposed the Autopix concept where credit card-size brochures will be placed in a network of taxis to promote UAE services to tourists and residents won the Manchester Innovation Award for Emiratis 2010. Aspiring fashion entrepreneur and American University of Sharjah graduate Yahya Stapic will finally open his retail concept in April after winning Al Tamimi Investments’ The Big Start student entrepreneur competition last year. The ideas of this region’s students have also reached San Francisco, the world’s centre of innovation and technology development, which has also become a major cluster of social entrepreneurship. Three out of the 28 participating teams in the 2009 Intel + UC Berkeley technology Entrepreneurship Challenge, came from this region – Saudi Arabia, Egypt and Lebanon. The enthusiasm is certainly building. But in the real world, it must be understood that a handful of entrepreneurs are not yet making profits despite years of operations. “Our main aim is to grow a company and not to be profitable immediately,” says Amjad Tadros, founder of ShooFee TV. “We can aim to break even right away, why not? But that defeats the purpose of growing first the company to make it financially sustainable.” It goes without saying that betting on start-ups has never been easy. Under normal circumstances, a third of SMEs do not make it in the business world. But there are many notable ones who have succeeded. Intel Capital has make successful investments in WebMD in the US, Canada’s Research in Motion and Sweden’s MySQL. All it takes is a little bit of risk taking. And who knows? The existing Apple and BlackBerry hype may soon be replaced by Middle East’s very own olive or dates technology. ■
January 2011 gulfbusiness
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PROFILE TELECOMS
58 gulfbusiness January 2011
PROFILE TELECOMS
Smooth operator Telecoms veteran Osman Sultan, CEO of du, talks to KAREN REMO-LISTANA about taking on Etisalat and growing profits.
T
he news that its rival’s revenues have been smarting since du started its operations did not come as a surprise to Osman Sultan. It is, after all, an unavoidable consequence of the country’s decision to accept another player in the telecommunications market after 20 years of monopoly. The bleeding is not expected to stop as Sultan, the man behind the UAE’s second telco, is hellbent on continuing to acquire new mobile phone subscribers until du achieves parity with other players over the next two years. By the end of August 2010, du had more than four million active subscribers and an estimated 37 per cent market share of active mobile subscribers, a number which it aimed to boost to 40 per cent by end of 2011. “I actually won’t be doing my job if we don’t have parity with other players,” Sultan tells Gulf Business. “We have the talent and we now have the full infrastructure, but we are realistic people so this will happen in the coming two to three years.” Sultan possesses a refreshing no non-sense outlook. In an interview with Gulf Business in 2006, he vowed to reach 35 per cent market share after
three years of operations, a target he’s pleased to say was achieved. “I’ll tell you our brief history,” he says. “Du was registered on January 1, 2006, got its license on December 12, 2006 and started mobile service on February 11, 2007. After exactly three years, in February 2010, we were close to 34 to 35 per cent and by August we had 37 per cent of the market share.” This growth was achieved while the world stumbled into a deep recession beginning in the second half of 2008. Telecommunication experts agree that it is during turbulent times that the telecom sector becomes more robust because crises make communication a staple commodity. However, Sultan does not like to find glory in just growing subscribers within a saturated market. Instead, he wants to focus on growing du’s Ebitda and net profit against a shrinking space. “In the first half of 2010, we grew our top line by 30 per cent. I would guess that 2010 compared to 2009 will be less than this, but we will still see very good double-digit growth,” he says. Despite a mobile penetration of more than 200 per cent in the UAE, du continues to register double-digit growth. The upbeat trend in the first half continued in the third quarter, with du posting revenue growth of 31
Osman Sultan Chief Executive Officer, du Sultan joined du in January 2006 after spending eight years at the Egyptian Company for Mobile Services (MobiNil), a company he helped set up and develop in 1998, to become the first Mobile Telephony Operator in Egypt. He joined the France Telecom Group in 1983 and for the next 11 years worked in management positions. In 1995, he was appointed president of a US-based subsidiary Questel Orbit Inc.
per cent year-on-year while Ebitda for the period rose 76 per cent. “It’s not a secret that the growth will be slowing down because of the levels of penetration. As you know, the UAE is now the most penetrated country in the world in terms of use of mobile services. But top line growth will continue in double-digits, that’s for sure,” he says. Sultan’s well-calculated strategy is a reason why Etisalat saw a reduction in revenues and also why it warned investors that stiff competition could cause the group to lose customers, fail to attract new customers or incur increased costs to maintain its customer base. In a bond prospectus, Etisalat said its mobile average revenue per user (ARPU) has been in steady decline over the past three years, from Dhs176 for the year ended December 31, 2007, to Dhs118 for the nine months ended September 30, 2010. This is still eight per cent higher than du’s Dhs109 ARPU, however, du’s own has threaded up five per cent from Dhs104 a year ago. The squeeze in ARPU has been brought on by the competition, which according to the Telecommunication Regulatory Authority (TRA) has successfully pushed down UAE fixed telephony international calling prices by up to 70 per cent; mobile subscription charges by 65 per cent; and national calling price by 50 per cent. TRA data also showed that mobile roaming prices have dropped by up to 70 per cent for certain destinations with substantial reductions in broadband packages. January 2011 gulfbusiness
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PROFILE TELECOMS
In addition, more than 2,000 special packages have been registered with the TRA over the past three years as operators attempt to win customers by bringing down prices and offering more attractive deals. According to Arab Advisors Group, however, the UAE still has the fourth most expensive ADSL rates in 19 Arab countries. Customers are also not convinced that real competition is in evidence, judging by the shareholders of the two telcos. Both Etisalat and du are largely government-owned with the former owned 60 per cent by the government while du is owned 39.5 by the UAE Federal Government, 19.75 per cent by Mubadala Development Company, 19.5 per cent by Emirates Communications & Technology Company LLC and the remaining stake by public shareholders. In the fixed line service, both operators have their own exclusive territory. In other words, customers don’t have a choice of service provider. Sultan says du’s market share in the fixed telephony is “not significant” because of the current set-up. The company has foothold in Tecom, CURRENT CAPITALIZATION (MILLIONS OF USD) Currency Share Price as of Dec-07-2010 Shares Out. Market Capitalization - Cash & Short Term Investments + Total Debt + Pref. Equity + Total Minority Interest = Total Enterprise Value (TEV) Book Value of Common Equity + Pref. Equity + Total Minority Interest + Total Debt = Total Capital
USD $0.8 4,571.4 3,671.7 679.3 1,020.4 4,012.8 1,137.3 1,020.4 2,157.7
Media City and Internet City but lacks presence in other parts of the emirate. “For fixed line, we just offer service in one area exclusively,” he explains. “So we can’t talk today of a duopoly. What we have are two monopolies, but, of course there are heavy discussions in order to share infrastructure and open the competition truly in the UAE. That is the case in broadband, too.” Last year, the TRA said unbundling the local loop or sharing of the infrastructure was already under discussion between the two operators, with an aim to finalise all technical
processes by the end of December 2009. Under the process called local loop unbundling, the regulatory authority forces the incumbent to separate bundles of subscriber lines from the incumbent network, and leases the subscriber lines to new entrants or service providers at low cost, so that the latter avoids building a new network from scratch at high cost. But as of today, no final agreement has been reached and Sultan blames technical challenges for the delay. “On fixed service, it will be a slower ramp up,” he says. “I was a little bit optimistic saying that in 2010 we will
du’s active mobile subscribers year-on-year: Q3 2008 Q3 2009 Q3 2010
60 gulfbusiness January 2011
2.1 million 3.1 million 4.1 million
see some kind of progressive commercial availability. In 2011, we will see some positive news hopefully.â€? Although fixed line services are suffering on account of increased shift of customer base to the more convenient mobile voice services, Sultan believes the segment, together with mobile services, will push its top line higher. Today, mobile operations comprise three-quarters of du’s revenues. Meanwhile, geographical expansion is off the drawing board. “I don’t think going outside the UAE will get us any value,â€? he says. “We don’t have the financial capabilities, the playground is very crowded, we have Etisalat, STC, Qtel, Zain, Orascom.â€? Whatever capital the company has, was used to strengthen its infrastructure. In October, the company entered into a $255 million financing agreement with The Export-Import Bank to repay short-term debt and roll out third generation telco technologies. While in September, it entered into a $207 million financing agreement with KfW IPEX-Bank GmbH, facilitated by Nokia Siemens Networks. In June, it completed a follow-on equity offering in the amount of Dhs1 billion. Sultan says at the moment, the company has already raised significant funding and is not looking at additional funds in the near-term. “There are no plans today. We will look at different options and why we need to raise these financials in due course,â€? he says. In terms of capital expenditure, du may not be able to reach the Dhs2.2 billion levels it had earlier earmarked for 2010. “If you gain some efficiency in some spending, you spend less,â€? he says. “We will do what’s right for du to sustain its growth and it doesn’t matter if we spend 10 per cent more or 10 per cent less than the 6,000 Not Liability Total Liability initial guidance.â€? 5,000 Common Equity Market Capitalization Acknowledging 4,000 its limited 3,000 financial muscle, the company 2,000 continues to 1,000 explore various 0 revenue streams. Market Cap TEV Total Capital Last year, it launched Anayou, a product of the du Media Lab, which has now been spun off as a separate company. It features entertainment, gaming and sports content in Arabic, English and French. “We cannot compete outside our borders but I believe that there is this digital space,â€? Sultan says. “We launched the portal called Anayou, from ana which means me in Arabic, which has the ambition over time to become a major portal destination for the whole Arab world.â€? He admits commercial value “will take time‌ but this is where the future is heading so we should be in this space.â€? Hearing it from the instinct of a telco veteran, he must be right. â–
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PROFILE DHL
62 gulfbusiness January 2011
PROFILE DHL
Pass the parcel Hermann Ude, CEO of DHL Global Forwarding and Freight, tells ALICIA BULLER about his ambitious plan to reduce logistics costs for emerging markets by 30 per cent.
A
s the world continues on its inexorable path towards true globalisation, trade-linked firms will feel the immediate benefits. But some countries are set to gain more than others, according to DHL’s CEO of Global Forwarding and Freight Hermann Ude. For emerging markets to reap maximum economic growth, the logistics veteran says leaders must decrease administrative blockages and upgrade infrastructure – starting now. “Over the past 30 years, world trade as a percentage of GDP has
increased from a third to over 50 per cent, making international trade the most important driver of economic growth and rising living standards. However, inefficient logistics in many economies are still a road block to trade growth,” he says. “As a result, paperwork can be the single most time-consuming element in the life of a shipment, with days lost and costs increasing as products spend more time in the warehouse than on the move.” Speaking as DHL’s new research report Enabling Trade and Higher Standard of Living is unveiled, Ude is steeled by the certainty of the fresh facts. The statistics show that BRIC countries require twice as
Hermann Ude is CEO of DHL Global Freight Forwarding and Freight Member of the Board of Management of Deutsche Post AG. Ude joined the firm in 1998 as director of corporate organisation. When he’s not masterminding worldwide deliveries, he can be found in his garden listening to classical music.
many documents to be completed in order for a shipment to be exported, compared to the firm’s Asia Pacific headquarters in Singapore and many OECD countries. BRIC countries also carry out ten times more physical inspections than best-in-class countries and are prone to insufficient port capacity and poor roads which push transport costs up. With emerging economies growing two or three times faster than developed countries, by gently cajoling the BRICS and other developing markets to streamline their logistics, DHL is also bolstering its own company strategy for 2015 which focuses on ‘unlocking organic growth’. After all, better logistics means better trade, better GDPs and better profits for all. Ude says that emerging economies can reduce logistics costs by 30 per cent and transit times by 65 per cent by 2020 if best practices are applied. Six per cent of the savings will come from improved infrastructure, while improved transit times means 20 – 40 per cent more trade could be generated. January 2011 gulfbusiness
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PROFILE DHL
The CEO is particularly excited by projections for growth in the Asia region. DHL research points to three trade triangles centred on Asia which is expected to contribute nearly 20 per cent of global trade by 2015, reaching a full 40 per cent share by 2028. The logistics giant has outlined the IntraAsia (IA) triangle and the Middle EastAfrica-Asia (MEAA) triangles as being compelling engines of global growth. The MEAA triangle is set to comprise 14 per cent of global trade by 2028 and will emanate from China’s trade with South Africa, Saudi Arabia and the UAE. This will be driven by China’s imports of raw materials and exports of textiles, machinery and metal products. India’s contribution to growth within this triangle is also sizeable with similar raw material imports. “The big growth is Asia, this is where the middle class is growing and it is based on exports. If you look at the focus that China puts on Africa, where they want to get control of access to natural resources, it makes sense. On the one side, China wants to build the infrastructure of Africa in a big way; telecoms, for example. There are also a lot of export flows into Africa and a lot of that also goes to the Middle East. Dubai has a major role as a hub,” Ude tells Gulf Business. “On the other hand, the Middle East is a growing place for consumption. The construction and energy sector is driving some of the region’s growth.
DHL headquarters.
It’s sometimes easier to move something from China to South Africa than it is to move something across the Middle East. However, it is largely Asia, which has little resources, that is making the lanes to Africa and Latin America grow so fast.” DHL, part of German company Deutsche Post DHL, is well positioned to home in on the astonishing growth in trade levels in the coming decades. With a
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presence in 220 countries worldwide and around 300,000 employees, DHL raked in around $61 billion in revenue in 2009 and hopes to continue with this year’s double digit growth in all its divisions. Ude predicts that a sizeable chunk of ensuing profits will be generated in the Middle East.
International Trade as % of World GDP 55 50 45 40 35 30 0 1985
1990
1995
2000
2005
2010E
Source: World Bank
“The region is very important to us; we have a presence in most countries but in some countries we still operate with agents, we have an agenda to make sure we have a complete presence wherever we work. When Iraq comes back we will get in there and the same for other markets,” he says. “It is a focus market; we will engage more in the oil and energy sector; we will also engage significantly more in the intraregional trade linking Turkey and the Middle East with Europe. We will also have a high density trucking network in the region, this is one of the things we are working on.” According to the CEO, Dubai will be pivotal to the Middle East’s success as a trading hub and is the region’s model example of efficient logistics, minimal lead times and red tape.
of cargo moves from Asia to Africa and then if you move to Dubai you can consolidate it to Europe. A lot of cargo moves from Asia to Europe, Europe into Africa,” he says. Ude adds that for a country to streamline and optimise its trade operations, there must be a synergy between the government and logistics organisations. To this end, Dubai holds up logistics as one of its key value propositions and this has directly led to its success as the main hub of the region. “They have an aligned country agenda, at the forefront of their proposition is ‘how do we make it easier for companies to work with our country?” Unfortunately, the CEO says that elsewhere in the Middle East network there can be problems with
The Middle East-Africa-Asia triangle will comprise 14 per cent of global trade by 2028 and will be driven by China. “Along with the fact that Dubai is in the middle of the ‘Y’ between Asia, Europe and Africa, which gives it the opportunity to be a very large trade hub for key regions, the emirate has had a regime for many years now to be extremely administrative light, to have a mindset to facilitate trade and that has created this enormous connectivity with cargo and vessels and aircraft coming to Dubai. A lot On average, BRIC countries require twice as many documents to be completed in order for a shipment to be imported or exported 15 Export Documents
12
Import Documents
9 6 3 0
Brazil
Russia
India
China Singapore Source: World Bank
queues and costly, time-draining administrative procedures. “By the Saudi Arabia causeway, let’s say you want to get newspaper in big rolls, from one side of KSA to the other, the time it takes and the effort it takes is consuming. Some of the countries need to work on the lightness of their administration. It’s sometimes easier to move something from China to South Africa than it can be to move something from one side of the Middle East to the other,” he says. “For competitive logistics and infrastructure, the key thing is connectivity. How do you create connectivity? You have to be cheap, competitive and admin-light. You have to be reliable and stable. And once you have connectivity, the second most important thing is again connectivity – if I cannot move my cargo worldwide, I am not interested. If you employ paper pushers who work with many other government administrations, it is a major inhibitor.”
DHL UAE in 2009
t Over 2.5 million shipments handled t More than 75, 200 tonnes handled t 1,800 employees t More than 165 vehicles t 33 locations t 105 daily commercial flights t More than 170, 000 metres of warehouse space.
Ude evens goes so far as to blame India lagging behind China in part on logistics and says most trade with India globally is managed via Dubai and Singapore because of the country’s crushing administrative procedures. “India is one of the most difficult places to trade, it is a big problem. The infrastructure is mixed and is not good, there are some serious issues. If you want to move cargo at every border crossing you have a customs procedure. The little degree of alignment between the bureaucracies is holding India back against China. This is already stunting its economy, India would grow much faster otherwise.” And this is why DHL is pushing its emerging markets efficiency agenda; without the right infrastructure, administrative efficiency and security procedures, countries with vast reserves of educated and entrepreneurial people creating exceptional products are in danger of literally slowing their global trajectory – and that of logistics companies. A country can have all the brains, minerals and oil in the world, but if your partners can’t reach you, they’ll reach out to your nearest competitor. In a period when the world’s emerging countries are vying for the lion’s share of global growth and international trade accounts for over half of the world’s total GDP, efficient connections are no longer simply important, they are now do-or-die. ■ January 2011 gulfbusiness
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FEATURES WATER
When will water run out? The world is perilously close to drying up in the next decade and Gulf water policy needs urgent prioritisation, writes RYAN HARRISON.
I
t may not feel like it, but the worst water crisis in the Middle East is here. And itâ&#x20AC;&#x2122;s here to stay, according to most environmental experts. So much so that when things get bad in the coming decades, it will be enough to make the recent downturn look like a mere economic blip. Freshwater supplies are approaching a critical point in much
66 gulfbusiness January 2011
of the region and in the Arab world in general, already one of the driest regions on the planet, countries will tip into severe water scarcity as early as 2015, according to a recent report by the Arab Forum for Environment and Development (AFED). By then, people living in the region will have to survive on less than 500 cubic metres of water a year each, or below a tenth of the world average
of more than 6,000 cubic metres per capita. Supply per capita has plunged to only a quarter of its 1960 level. William Rees, the University of British Columbia economist who developed the notion of the ecofootprint, offers a grim vision of climate change where the world is dangerously warmer and drier. â&#x20AC;&#x153;Imagine a four celsius degree warmer world, which some say is increasingly
FEATURES WATER
likely by the end of the century. It’s a place where the entire Middle East – as well as India, China, much of Africa and South America – are projected to become uninhabitable deserts.
“Should this unfold, the only upside is that the region would be ideal for solar collector arrays if civilization survives the displacement and migration of hundreds of millions of people and the resultant geopolitical chaos,” he says. Although Rees admits that such a doomsday scenario is based on a climate system that is complex, increasingly hard to predict and riddled with extreme weather events, such as the record heatwave in western Russia and the historic floods in Pakistan this summer. However, he added, at the very least: “The probability of increasing, or even permanent, drought in at least parts of the Middle East is on the table as part of the generalized human forcing of global climate change.” In the coming decades, rapid population growth will further stress water resources in the region. According to UN projections, the Arab world, which has a current population of 360 million, will multiply to nearly 600 million by 2050. This has led governments in the Gulf to pump billions of dollars into improving and expanding water networks. For instance, Saudi Arabia has increasingly reached out to the private sector to manage water projects to conserve resources and ensure consistent supplies as population growth spurs demand. National Water Co, Saudi’s state owned utility, recently announced it will put projects costing $800 million
FRESHWATER MELTDOWN
G
lobally, discussion of climate change has focused on rising temperatures, which in and of themselves aren’t a threat and have some positives (such as lowering winter heat demand). As UCLA geographer Laurence Smith shows in his important new book The World in 2050, nearly all our globe’s surface freshwater is in glaciers and snowpack. Warming is causing “more of the world’s water to leave the mountains to run to the sea,” warns Smith, and “no amount of engineering” can reverse this loss in the short-term.
into operation next year. It comes as Riyadh-based investment bank NCB Capital said the kingdom needs $33.3 billion in investments in desalination and water recycling plants. The country gets about 100 millimetres (four inches) of rain a year, and most of that evaporates due to temperatures that can reach 50 degrees Celsius (122 degrees Fahrenheit) in the summer. Like other Gulf states, the Saudi government is also studying raising tariffs on consumption to better conserve water. The government revised electricity rates in July. The AFED report said: “Without fundamental changes in policies and practices, the situation [in the Arab world] will get worse, with drastic social, political and economic ramifications.”
ACUTE GULF SHORTAGES WITHIN 15 YEARS
T
he Arab world has five per cent of the world’s population, but only one per cent of its renewable fresh water. Agriculture consumes 85 per cent of Arab water use, compared with a world average of 70 per cent. Irrigation efficiency is only 30 per cent, against a world average of 45 per cent. Groundwater is over-exploited, leading to significant declines in water tables, pollution of aquifers
and seawater intrusion in coastal areas. According to delegates at last month’s World Economic Forum summit in Dubai, the Middle East will face acute water supply pressures in the next 15 years, with consumption in the region projected to increase by 50 per cent. Meanwhile, the region’s population is projected to grow by 4.5 per cent this year. In November, Rashid Ahmed bin Fahad, the UAE’s Minister of Environment
and Water, told members of the Federal National Council: “Water is … considered the primary challenge in the UAE.” Agriculture was one area in which water use needed “a fundamental rethinking”, he said. Rapid urbanisation, industrialisation, energy production and agricultural activity in the region have led to water overuse and intense competition among countries for available water resources.
January 2011 gulfbusiness
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FEATURES WATER Global Distribution of Water Scarcity (2000)
Source: GWI (Courtesy of BWA Additives)
Agriculture consumes 85 per cent of Arab water use, compared with a global average of around 70 per cent. Agriculture consumes 85 per cent of Arab water use, compared with a world average of 70 per cent. Irrigation efficiency is only 30 per cent, against a world average of 45 per cent. Groundwater is over-exploited, leading to significant declines in water tables, pollution of aquifers and seawater intrusion in coastal areas, AFED said. More than 43 per cent of wastewater is discharged raw, while only 20 per cent is reused. Meanwhile, the Arab world has five per cent of the world’s population but only one per cent of its renewable fresh water, so several Gulf states rely heavily on desalinated sea water, accounting for more than half the world’s desalination capacity.
Therefore, the desalination industry is expected to grow 15 – 20 per cent per year for the projectable future, said Paul Turgeon, president at BWA Water Additives, a water treatment specialist. He said there is an increasing demand for potable water (or drinking water) globally, and in the Middle East this demand is high and growing fast. “There are two methods of desalination. First, there is thermal, which is fossil-fuel intensive and is favoured by the Middle Eastern countries. Then there is the reverseosmosis technique which is popular in Australia, China and the US. “Growth in industries, agriculture and population is fuelling the global demand for potable water. There is
GOVERNMENTS NEED TO TALK
A
damning report from the Arab Forum for Environment and Development recently heaped pressure on Gulf states to act to handle the water crisis. It said the challenge could be solved by effective government and better management. But, as the final conclusion of the report summed up: “The root of the Arab water crisis is a set of political and management
68 gulfbusiness January 2011
shortcomings: water institutions are fragmented, water legal systems are deficient, public water budgets are constrained, water policies are divorced from sound science, water investments are poorly targeted, funding and regulations for pollution control are insufficient, controls over proper aquifer use are lacking, and water prices are artificially low.”
demand in countries where there is no access to potable water; and there is also demand in countries that have growing populations and limited potable water resources,” said Turgeon. BWA creates and dispenses chemicals that help with the desalination process – including descaling, cleaning and corrosion inhibiting technology. He added: “We work closely with manufacturers in the desalination process. The demand for reverse osmosis is growing. The demand for thermal is growing, even though the costs are high, it is desirable in the Middle East region because of access to fossil fuels.” Concerns about the general state of water in the region were heightened last month, when experts cited by CNN said Yemen could be the first nation to completely run out of water in a few years, a prospect that does not bode well for its young population of 24 million that is expected to double in 20 years. In Sana’a, which could be the world’s first capital city to go dry, the population is growing at a rate of seven per cent per year as people flee from the parched outer reaches of the country. So while the threat of scarcity may not be as rapid or intense as the recent financial upheaval, the looming crisis is slowly but surely sneaking up on the Middle East. Governments should remain on high alert in their efforts to limit any damage from the coming decades’ water torture. ■
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F
LIFESTYLE TRAVEL
Veiled in Venice The 18th century spirit of the Venice Carnival comes to life when you don your own mask and costume, writes Adrian Mourby.
M
y wife came rushing in. “Come on! Come on! There are people in costume.” We had spent a rather damp Saturday morning shopping in Venice and returned to have lunch on our hotel’s terrace with its view over the Grand Canal. So far Venice had seemed very much its usual splendid self, apart from a stage that had been set up Piazza San Marco. Now, however, people were appearing on the streets in carnival costume and Kate was keen to join in. My own outfit was pretty straight forward, an 18th-century gentleman’s frock coat and knee breeches, worn with a tricorn hat and a large white “bauta” mask. Kate’s was more complex. As her dress required panniers that effectively tripled the width of her hips, she had to learn to step sideways into the lift. We’d been to the world-famous Carnevale before, but only as spectators. It was finding that our local fancy dress shop in Oxford did a very good line in period costume that gave us the idea to take part. This way we didn’t have to pay Venetian hire-prices to be part of the fun. As soon as we emerged like Mr & Mrs Casanova out for a stroll, we attracted a lot of attention. As we crossed the San Moise bridge people stared and photographed us. One woman came alongside to take our picture, but we kept on moving so she gave up. We felt we’d let her down. I noticed other costumed revellers paused whenever a photographer drew near so we did the same. Noblesse oblige. Passing Caffé Florian, one tourist thanked us for posing and Kate replied “You’re welcome”. The poor man looked quite disappointed. I think he imagined we were real Venetians. Thereafter we just inclined our heads silently, yet graciously, whenever people got out their cameras. At the Hotel Danieli we’d bought tickets for hot chocolate and music in the hotel’s glorious Byzantine lobby. We found a sofa wide enough for Kate and talked to other guests, who included a nurse from New York who had come dressed as a courtesan, some Japanese Don Giovannis and a middle-aged Londoner who was dressed as the Doge of Venice. Later we walked to the Luna Baglioni which, like many hotels during Carnevale, was hosting a dinner and a performance. We were treated to an Italian parody of il Trovatore, while in the lobby acrobats on stilts ushered guests up to the Marco Polo Ballroom, which is famous for its stunning floor to ceiling frescoes by students of Giambattista Tiepolo. Looking around this salon lit entirely by candlelight, it was so easy to believe we were back in the 18th century – until everyone got out their cameras! ■
70 gulfbusiness January 2011
Checklist TAKING FLIGHT The Sunday morning Flight of the Angel from the top of the Campanile signals the start of Carnevale. Last year, Bianca Brandolini d’Adda was lowered slowly down into Piazza San Marco while the Hallelujah chorus played. The piazza was full of tourists and masked revellers watched a parade of medieval dignitaries. GRAND BALL The Serenissima Grand Ball at Palazzo Pesaro Papavafa is one of the many glamorous evening events that mix live music with good food and wine from the Veneto. All palazzos stand on canals, so guests arrive by water taxi or gondola. Tickets can be purchased through Liaisons Abroad (www. liaisonsabroad.com). THE DANIELI Venice’s oldest hotel always hosts an event to welcome costumed revellers on the first Saturday of Carnevale. Tickets cost 40 euros pp. In the past the hotel has been home to the composers Richard Wagner and Claude Debussy and the writers George Sand and Charles Dickens.
MEET THE REVELLERS Adrian Mourby and Kate Tadman-Mourby in their 18th century finest photographed on St Mark’s Basin. Antonia Sautter, creator of the annual Doge’s Ball, hires out costumes from her studio at Frezzeria, San Marco 1286 (www.iballodeldoge.com). Most people chose to dress in 18th century attire, but there are costumes to suit every taste. The Carnival of Venice runs from February 26 to March 8. For information on local hotels and event schedules, visit www.carnivalofvenice.com
January 2011 gulfbusiness
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F
LIFESTYLE CARS
Beautiful beast of Bologna Synonymous with Italian passion and design, Maserati is one of the world’s legendary auto brands, Glenn Freeman discovers that the 2010 Quattroporte Sport GT S lives up to its proud history.
B
earing the iconic trident logo – a nod to municipal pride, as the official symbol of Maserati’s birthplace Bologna – the Maserati marque has long been an object of desire for automotive enthusiasts of every ilk, including this author. Maserati’s Quattroporte (literally, ‘four door’) was first introduced in 1963, meaning the now Fiat-owned company has had almost half a century to perfect it, and the constant process of refinement shows. From the interior decked out with suede leather, with swathes of composite glass-fibre adding plenty of sporty accents, to the racing-inspired seats imprinted with that famous logo, the 2010 Quattroporte Sport GT S oozes quality and style. However, the real star of the show is the engine, a 4.7ltr V8 producing more than 430hp. More specifically, it is the pairing of this powerplant with the twinsystem exhaust that sets this vehicle apart, particularly when sport mode is
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January 2011
switched on. In fact, upon discovering the small, console-mounted button that activates this, I rarely switched it off. This was for the simple fact that its sonorous rumble sounds so superb. This magical button amplifies the Quattroporte Sport GT S’s glorious sound by opening the pneumatic valves within the exhaust. In normal mode, these remain closed, but at the flick of a switch, the exhaust is turned into a modern, high-tech version of the old straightthrough system. You need to hear it to understand how good it is, especially the automatic throttle-blip on downshifting.
This also meant I waited two days before trying out the stereo, which is, incidentally, a fantastic nine-speaker Bose-equipped unit. For the most part I left this switched off though, preferring the engine’s soundtrack while gunning the throttle and accelerating up through the gears of the excellent MC Auto Shift transmission. The steering-column mounted paddles and the on-thefloor manual options also add greater driver input. The 2010 Quattroporte Sport GT S’s ride is as inspiring as its engine, with a sporty passive damping system delivering taut, firm suspension. This latest Quattroporte suspension has also been lowered and firmed-up further, with spring stiffness 30 per cent and 10 per cent stiffer at the front and rear, respectively. Priced at $163,100, engineering of this calibre doesn’t come cheap, but, if you have the spare cash, it is money well spent. ■
ART
Mathaf: Arab Museum of Modern Art Visionary Qataris have created the region’s first fully-fledged museum for savouring the great modernists of Arab art, writes Charles Pocock.
I
t is not often that I am swept away by another person’s dream. However, this is the case with Mathaf: Arab Museum of Modern Art. The museum was the dream of HE Sheikh Hassan bin Mohammed bin Ali Al Thani, vice chairperson of the Qatar Museums Board of Trustees and the Founder of Mathaf. For two decades, he collected the finest in modern Arab art, developing an incredible artist residence programme over 10 years ago with Dia Al Azzawi, Ismail Fattah Al Turk, and many others. The foundations for Mathaf were set in place by HE Sheikh Hassan in the right way and for the right reasons. What is truly staggering is that what does not seem possible to achieve politically has been achieved culturally: a unity in the Arab World. Here the best in modern Arabic culture from Morocco to Oman, from Syria to Sudan, has been brought together in the same space. Mathaf is a true celebration of modern Arab art, presenting great works with supporting bilingual exhibition catalogues, providing not just an academic reference but an inspiring collection for all to see. Bringing the collection of HE Sheikh Hassan to Mathaf was supported by HE Sheikha Al Mayassa bint Hamad bin Khalifa Al Thani, chairperson of The Qatar Museums Authority (QMA). It’s now possible to view great modernists of Arab art together. And the public is no longer dependent on auction prices to justify great works, as a number of the artists presented at Mathaf have either not been at auction, or failed to deliver high prices. The museum opened with the inaugural show curated by Dr. Nada Shabout, Wassan Al-Khudhairi and Deena Chalabi, titled Sajjil: A Century of Modern Art and includes more than 260 paintings,
Untitled, Ibrahim el-Salahi.
sculptures and works on paper from Mathaf’s extensive collection. Two sites have been inaugurated for Mathaf. Mathaf itself, held in the Education City, where the museum is held and opened on the December 30, 2010. The second is the temporary exhibition space next to the Museum of Islamic Art, where the exhibitions Interventions, curated by Dr Nada Shabout, and Told/Untold/ Retold, curated by Sam Bardaouil and Till Fellrath are located. What is clear from the exhibitions on display is that the work presented is representative of the Arab world, especially in Interventions. Here, a wonderfully broad spectrum of major modern Arab artists are presented: Hassan Sharif of the UAE, Ibrahim Salahi of Sudan, Ahmed Nawar of Egypt, Farid Belkahia of Morocco and Dia Al Azzawi from Iraq.
In Told/Untold/Retold, displayed in the same building, 23 commissioned works are displayed. The aim of the curators is to present a unique story where the boundaries of the past, present and future are blurred. It presents the works of Ghada Amer, Steve Sabella, Jeffar Khaldi, Youssef Nabil and many others. This grouping has not been presented before in such a way, and the outcome is superb. The Four Seasons in Doha is perfectly placed between the two locations and it’s also a great place from which to explore the rest of the city. The hotel meets the whims of not only the art connoisseur but also that of the business traveller, with an impressive collection of work by Ali Hassan throughout the residence. Charles Pocock, managing partner, Meem Gallery and Fellow of The Royal Asiatic Society. ■ January 2011 gulfbusiness
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Data monitor Compiled by Karen Remo-Listana
76
78 78 79
TOP DEALS Mergers & acquisitions Public equity offerings Public debt offerings Private placements GCC current account & fiscal balance GCC ECONOMIC INDICATORS Commodity price forecasts Market overview GDP & CPI inflation IN FOCUS Petrochem: Industry urged to double sales Aviation: Abu Dhabi eyes global competition POLICY WATCH Financial issues facing the GCC
January 2011 gulfbusiness
75
TOP M&A TRANSACTIONS Deal Value ($m)
Bidder
Target
Deal Description
1200
Qatar Telecom (QTel) Q.S.C.
Orascom Telecom Tunisie SA A consortium led by Qatar Telecom (QTel) Q.S.C., the listed Qatar-based company engaged in providing telecommunications services, has agreed to acquire a 50 per cent stake in Orascom Telecom Tunisie SA (Tunisiana), the Tunisia-based telecom group, from Orascom Telecom Holding S.A.E, the listed Egypt-based telecom carrier, and a subsidiary of Weather Investments SpA, the Italy-based holding company of worldwide telecom assets, for a cash consideration of $1.2 billion. Qatar Telecom is expected to fund the acquisition through a combination of cash, debt and using its revolving-credit facility. The consortium consists of Qatar Telecom’s 52.5 per cent-owned subsidiary National Mobile Telecommunications Company KSC (Wataniya) and Princesse Groupe Holding. Wataniya already owns 50 per cent stake in Tunisiana.
532
Qatar Holding LLC
Hochtief AG
Qatar Holding LLC has agreed to acquire a 9.1 per cent stake in Hochtief AG, the listed Germany-based construction and facility management services company. Qatar Holding LLC is an investment arm of Qatar Investment Authority, the Qatari sovereign wealth fund. Terms: 6,999,999 shares of Hochtief AG to be issued at an offer price of EUR57.114 per share. The implied equity value of the transaction is about EUR399.798 million. The offer provides a discount of five per cent based on Hochtief AG closing share price on December 3, 2010 of EUR60.12 one day prior to the announcement. The offer provides a discount of 7.6 per cent based on Hochtief AG closing share price on November 5, 2010 of EUR 61.82 one month prior to the announcement.
132
Oman Oil Company S.A.O.C
Zhejiang Zhongyou Hua Dian Energy Co. Ltd
Oman Oil company S.A.O.C, has agreed to acquire 45 per cent stake in Zhejiang Zhongyou Hua Dian Energy Co. Ltd, the China-based company engaged in liquefied petroleum gas import business and sale of petrochemical products, from China Gas Holdings Limited, the Listed Hong Kong-based company engaged in the investment, construction and management of city gas pipeline infrastructure, for a cash consideration of $131.5 million. Post acquisition, China Gas Holdings will hold 55 per cent stake in Zhejiang Zhongyou.
112
Expo Swiss Holdings Gmbh
Petroleum Coke Industries Company K.S.C.
Expo Swiss Holdings Gmbh, the Switzerland-based investment firm having interest in petrochemical companies, has agreed to acquire a 40.82 per cent stake of Petroleum Coke Industries Company K.S.C., from Al Mal Investment Company KSC, the listed Kuwait-based company engaged in wide range of investment and financial services, for a consideration of KWD31.348 million ($112.3 million). Al Mal will sell 61,228,510 shares of Petroleum Coke at KWD0.512 per share to Expo Swiss. Al Mal will book a profit of KWD20.54 million ($73.58 million). In 2009, Al Mal purchased an 11.5 per cent stake in Petroleum Coke from Rain Commodities Ltd, the listed India-based company engaged in the manufacture and sale of cement, for $15 million.
9
Saudi Paper Manufacturing Company
Al Juzoor Factory
Saudi Paper Manufacturing Company , the listed Saudi Arabia-based company engaged in manufacturing, recycling and distribution of tissues and paper products, has agreed to acquire a 85 per cent stake in Al Juzoor tissue paper factory, the Kuwait-based tissue paper manufacturer, for a consideration of SAR35 million ($9.3 million).The consideration will be financed from Saudi Paper Manufacturing’s own resources. The acquisition is part of the Saudi Paper Manufacturing’s expansion strategy. Al Juzoor Factory has been operating in Kuwait for 10 years. The acquisition will enable Saudi Paper Manufacturing to enhance its production capacity.
Notes: Deals are based on the geography of target, bidder or vendor being in the Middle East, for the period between November 19, 2010 and December 15, 2010. Based on announced deals, including lapsed and withdrawn bids. Where deal value is not disclosed, the deal has been entered based on turnover of target exceeding $10 million. Activities excluded from the table include property transactions and restructurings where the ultimate shareholders’ interests are not changed. Source: Mergermarket
12,000 10,000
MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YTD 2010 VALUE Number of deals
14,000
Value ($m)
MIDDLE EAST QUARTERLY M&A ACTIVITY FROM 2005 TO DECEMBER 15, 2010
Value Volume
50 40
8,000
30
6,000
20
4,000
10
2,000 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2005
2006
2007
2008
2009
0
2010
MIDDLE EAST ANNUAL M&A ACTIVITY FROM 2004 TO DECEMBER 15, 2010 Value Volume
25,000
Value ($m)
20,000
10,000
0
2004
2005
2006
2007
2008
2009
2010
Defence 1.1%
Financial Services 24.8%
150
Transport 2.2%
0
Construction 3%
Real Estate 7.4%
Industrials and Chemicals 12%
Agriculture 0.7%
Defence 2.2%
Industrials and Chemicals 17%
Leisure 3.7% TMT 20% Energy/Mining/ Utilities 8.1%
Consumer 8.1%
Business Services 5.9%
Mergermarket tracks all M&A deals of more than $5 million where the target, bidder or parent is a Middle Eastern company.
76 gulfbusiness January 2011
Real Estate 25.1% Agriculture 0.2%
Energy/ Mining/ Utilities 3.1% Consumer Business 2.7% Services 1.6%
200
50
5,000
Construction 5.5%
MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YTD 2010 VOLUME
100
15,000
Pharma/Medical/ Biotech 3.2%
TMT 9.1%
Pharma/Medical/ Biotech 6.7%
Number of deals
30,000
Transport 7.4% Leisure 4.3%
Financial Services 14.8%
TOP PUBLIC EQUITY OFFERINGS Value ($m, Historical rate)
Target/Issuer
Transaction Status
Transaction comments
372.24
Aluminium Bahrain (LSE:ALBH)
Closed
The offering period commenced on October 24, 2010 and closed on November 4, 2010. Each Global Depositary Receipt represented five ordinary shares. On offer were 35,500,000 shares at BHD3.31. The shares offered as a part of this offering have been listed on the Bahrain Stock Exchange and on the London Stock Exchange in the form of Global Depositary Receipts. J.P. Morgan Securities Ltd acted as the underwriter for the issue of global depositary receipts and Gulf International Bank B.S.C managed the domestic share issue. The underwriters were expected to receive a total of $6.5 million as total fees and commissions.The retail tranche of the offering was underwritten by the domestic underwriters.
332.35
Axiom Telecom LLC
Withdrawn
Offered 289 million shares, with price range between 80 cents to $1.15, which will value the offerings up to $332 million. About 32.2 per cent ($105 million) will go to the company while 67.8 per cent ($222 million) will go to shareholders. SilkRoute Group was acting as the financial advisor, while Citibank, Deutsce Bank and Shuaa Capital were the co-lead underwriters. On Nov 6, Axiom cancelled IPO and Nasdaq Dubai listing.
4.8
Polarcus Limited (OB:PLCS)
Closed
Follow on offering.Polarcus Limited offered 5.7 million new shares with preferred allocation to eligible shareholders as of October 13, 2010. The subscription period was from November 25, 2010 to December 9, 2010. Payment and delivery of shares will take place on or about December 15, 2010. As of December 9, 2010, the offering was oversubscribed.
Transaction: IPO or Follow-on Equity Offering; Geographic locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, or UAE; All transactions announced date (Including Bids and Letters of Intent): [11/21/201012/15/2010]; Source: Capital IQ.
TOP PUBLIC DEBT OFFERINGS Value ($m, Historical rate)
Target/Issuer
Transaction Status
Transaction comments
280.47
The Commercial Bank of Qatar Q.S.C. (DSM:CBQK)
Closed
The corporate bonds, with three per cent coupon rate, were issued in CHF and will mature on December 7, 2015. The bonds, which will be used for general corporate purposes and working Capital, was rated A1 by Moody's and A- by S&P.
Transaction: Fixed income; Geographic locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia or UAE; All transactions announced date (Including Bids and Letters of Intent): [11/21/2010-12/15/2010]; Source: Capital IQ.
TOP PRIVATE PLACEMENTS Value ($m, Historical rate)
Target/Issuer
Buyers/Investors
Transaction Status
Transaction comments
31.86
Sahaab Leasing Company
Jazeera Airways Company K.S.C. (KWSE:JAZEERA)
Closed
Kuwait-based Sahaab Leasing Company announced that it has received KWD9 million in funding from Jazeera Airways Company K.S.C. on December 12, 2010. It will use the proceeds to take advantage of new market opportunities. On December 12, 2010, Sahaab Leasing Company closed the transaction.
Transaction Types: Private placement; Geographic Locations: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia or UAE; All transactions announced date: [10/21/2010-11/20/2010]; Source: Capital IQ.
GCC CURRENT ACCOUNT & FISCAL BALANCE FORECASTS Baharain
Qatar 2010
2011
2012
2013
2010
2011
2012
2013
Policy rate (%)*
0.5
0.5
0.5
0.5
Policy rate (%)*
1.0
1.0
1.0
1.0
Current account balance (% GDP)
5
10
12
13
Current account balance (% GDP)
16.0
22.0
20.0
20.0
Fiscal balance (% GDP)
-0.3
-0.4
-0.2
-0.0
Fiscal balance (% GDP)
10
8
7
7
2010
2011
2012
2013
2010
2011
2012
2013
Policy rate (%)*
2.5
2.5
2.5
3.0
Policy rate (%)*
0.25
0.25
0.25
0.25
Current account balance (% GDP)
26
27
28
27
Current account balance (% GDP)
6.5
7.0
7.0
8.0
Fiscal balance (% GDP)
20
22
21
20
Fiscal balance (% GDP)
2.0
6.5
7.5
7.5
2010
2011
2012
2013
2010
2011
2012
2013
Policy rate (%)*
2.0
2.0
2.0
2.0
Policy rate (%)*
1.0
1.0
1.0
1.0
Current account balance (% GDP)
6.5
7.0
7.5
8.0
Current account balance (% GDP)
5.5
6.0
7.0
7.0
Fiscal balance (% GDP)
0.5
0.6
1.0
0.8
Fiscal balance (% GDP)
-2.5
4.0
4.5
4.5
Kuwait
Saudi Arabia
Oman
UAE
Source: Standard Chartered Research; *end-period
January 2011 gulfbusiness
77
PETROCHEMICALS
COMMODITY PRICE FORECAST 4Q10F
2010F
1Q11F
2Q11F
3Q11F
4Q11F
2011F
WRI Crude Oil ($/bbl)
80.00
78.29
81.00
82.00
86.00
91.00
85.00
Brent Crude Oil ($/bbl)
80.00
78.44
81.00
82.00
86.00
91.00
85.00
USGC no.2 HO crack spread ($/bbl)
10.09
9.51
10.55
7.30
8.50
12.75
9.80
USGC RBOB Gasoline crack spread ($/bbl)
7.64
9.54
7.00
13.00
10.20
7.00
9.30
USGC 1% Residual crack spread ($/bbl)
-8.30
-6.94
-6.90
-9.90
10.00
-8.00
8.70
NWE 0.2% Gasoil crack spread ($/bbl)
10.41
9.82
11.40
7.60
8.80
13.40
10.30
NWE Prem Gasoline crack spread ($/bbl)
1.45
5.02
5.70
9.70
7.70
6.90
7.50
NWE 1% Residual crack spread ($/bbl)
-4.90
-5.11
-6.00
-5.65
-5.60
-4.8
-5.50
US Natural Gas ($/MMBtu)
4.80
4.59
4.90
4.60
5.00
5.50
5.00
Thermal coal, Pacific spot ($/t)
105
91
105
110
110
110
107
Aluminium ($/t)
2,475
2,228
2,600
2,700
2,600
2,500
2,600
Copper ($/t)
8,600
7,557
10,000
12,000
11,000
12,000
11,250
Nickel ($/t)
24,750
22,177
26,000
28,000
25,000
24,000
25,750
Zinc ($/t)
2,550
2,242
2,700
2,800
2,600
2,800
2,725
Lead ($/t)
2,550
2,209
2,800
2,700
2,900
2,700
2,775
Gold ($/oz)
1,400
1,233
1,400
1,450
1,350
1,500
1,425
Silver ($/oz)
25.50
19.91
27.5
30.00
28.00
32.50
29.50
Platinum ($/oz)
1,780
1,631
1,800
2,100
2,000
2,100
2,000
Palladium ($/oz)
670
524
700
850
750
800
775
Iron ore, spot fines CIF ($/t)
110
136
120
150
130
120
130
Although global economy shrunk by 4.6 per cent, the Gulf’s petrochemical sector expansion continued with production surging 3.7 per cent last year. According to Sheikha Lubna Bint Khalid Al Qasimi, UAE’s Minister of Foreign Trade, production went up across the Middle East last year with Saudi Arabia posting an increase of 6.3 per cent, UAE (Abu Dhabi) 4.4 per cent, Kuwait 4.2 per cent and Qatar 7.4 per cent. “Even in the tough economic environment, where capital infusion has increasingly been challenging, the ability of GCC producers to fund their expansion projects has not been an issue,” she told the GPCA Forum in Dubai. The Gulf is estimated to have produced more than four million ethylene capacity and by 2015, the region will see nine new crackers and downstream plants come on stream – five in Saudi, two in Iran and one each in UAE and Qatar. Sheikha Lubna said the global ethylene share of the Gulf petrochemical producers is expected to reach 16 per cent by end of 2010 and reach 20 per cent by 2014. The region is also set to supply 40 per cent of incremental Asian demand for polyolefin. AVIATION
Source: BofA Merrill Lynch Global Commodity Research
Abu Dhabi eyes competition with global manufacturers
GCC ECONOMIC FORECASTS GDP growth, %
CPI Inflation %
Saudi Arabia
4.3
0.6
3.2
4.0
9.9
5.1
5.7
5.5
United Arab Emirates
5.1
-1.4
1.2
2.3
12.3
1.6
1.0
2.8
Kuwait
6.4
-2.2
2.5
3.1
10.5
4.0
3.0
4.0
Qatar
15.8
9.0
11.3
11.2
15.0
-4.9
-2.9
2.5
Oman
12.3
3.8
4.6
4.5
12.6
3.5
4.0
4.1
Bahrain
6.1
3.1
2.4
2.8
3.5
2.8
3.5
3.0
Source: BofA Merrill Lynch
MIDDLE EAST MARKET OVERVIEW Returns Value
MTD*
YTD*
TADAWUL (Saudi Arabia)
6,332.43
-0.34%
3.33%
KSE (Kuwait)
6,902.00
-2.29%
-1.50%
BSE (Bahrain)
1,438.87
-1.61%
-1.35%
MSM 30 (Oman)
6.603.48
0.77%
3.55%
DFM (Dubai, UAE)
1,670.29
-5.34%
-7.98%
ADX (Abu Dhabi, UAE)
2,728.75
-3.10%
-0.54%
Source: Rasmala, Bloomberg, * All returns are latest available end of day of November 30, 2010
78 gulfbusiness January 2011
Industry urged to more than double sales to $200 billion
Abu Dhabi, through its investment arm, Mubadala, is taking aircraft manufacturing to a higher level and is aiming at competing neck-to-neck with leading global aviation hubs Seattle and Toulouse. Strata, a Mubadala subsidiary based in Al Ain, Abu Dhabi’s second largest city, had already delivered its first assembled products to FACC in Austria and over the next 18 months will be the sole source of wing parts and empennages (tail) for aircraft manufacturers such as Boeing and Airbus. “We are trying to be a global player,” Homaid Al Shemmari, executive director, business development, aerospace unit at Mubadala and chairman of Strata, said. “Aerospace is a boutique but global industry. When people think of aviation, they will think of Seattle, Toulouse and Al Ain.” Mubadala has earmarked $500 million investment in this 60,000 sqm development. Phase one, which consists of 21,600 sqm of
POLICY WATCH
But more needs to be done. Khalid Al Falih, president and CEO of Saudi Aramco said despite being home to more than one-third of the world’s oil and nearly a quarter of natural gas reserves, the Gulf has a market share of only $40 billion, or one per cent of the total petrochemicals market. Over the next 10 years, Al Falih urged the industry to increase the region’s revenues by 150 per cent per cent from $80 billion to $200 billion, increase the workforce by tenfold and raise development spend from half per cent of a company’s revenues to five per cent. “Without a doubt, we enjoy significant energy advantages,” he said. “But is the Gulf pulling its weight when it comes to the wider petrochemical and chemical industry? The answer is unfortunately no. The region has a lot of catching up to do.”
Bahrain The kingdom is increasingly basing its budget on a higher oil price, leaving it vulnerable to oil-price shocks. The government forecasts deficits of BHD373 million in 2011 and BHD440 million in 2012. It commonly issues bonds to cover its deficits, and the deficits should be manageable.
Kuwait The central bank cut its benchmark policy rate from three per cent to 2.5 per cent in February 2010. The central bank is not expected to hike again until 2013. Kuwait’s success in achieving sustainable growth will be determined by its ability to revamp laws to better suit its needs. A long-awaited privatisation law was passed in May 2010, and the government announced plans in November to privatise the postal service within two years. However, there are signs that reform will be gradual.
REGIONAL PROFITABILITY & NET PROFIT MARGIN 2,500
25
Net Profit (US$mn) – LHSQoQ Net Profit Margin – RHS
2,000
5
The government is budgeting a fiscal deficit of $2.1 billion for 2010 and expects a similar shortfall in 2011. While Oman is following through on its 2010 expenditure plans, having spent close to 63 per cent of the budget in the first eight months of the year, the budget was based on conservative oil prices. A fiscal surplus is therefore likely for 2010. Oman’s 2011 budget includes a 10.7 per cent spending increase over the 2010 budgeted amount, with infrastructure and development projects being key focus areas. The 2011 budget is based on an oil price of about $55 per barrel.
0
Qatar
20
1,500
15
1,000
10
500 0
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
Oman
Source: Company Reports & Global Research
floor space, is set to reach its full capacity of one million man-hours by 2012 while phase two will begin in early 2012, providing an additional 21,600 sqft of facilities, doubling the current space. Ross Bradley, CEO of Strata, said the plant will hit profitability within five years and targets $1 billion sales by 2020. “This will make us the top three supplier by 2020. We will also aim to be on the top upper quartile in terms of profitability,” Bradley said. Total staffing is expected to reach 300 by end of this year, including 52 UAE nationals at its training school. By 2015, over 1000 people are estimated to be employed. In addition to Strata, Mubadala has six other aerospace assets where it plans to invest a couple of billion dollars over the next few years. El Shemmari said capital markets will fund 30-60 per cent of these projects. Mubadala’s other aerospace assets include Abu Dhabi Aircraft Technologies, which services over 100 customers including Etihad; SR Technics, an independent maintenance, repair and overhaul (MRO) company based in Zurich; Piaggio Aero SpA, a firm specialising in the production of a 9+2 seater executive aircraft where it has 31.5 per cent stake; Sanad, which leases aircraft components and spare engines; Ammroc, a military MRO support to armed forces in the UAE and the Samena region; and Horizon International Flight Academy.
The budget for FY12 (begins April 1, 2011) is yet to be released, but the finance minister said it would at least match the $32.4 billion FY11 budget, which saw a 25 per cent increase in spending. The finance minister said 40 per cent of budget spending until FY17 would be allocated to infrastructure investment. Given the weaker pace of infrastructure spending and higher energy prices, a fiscal surplus of $2.6 billion for FY11 is expected. Qatar will need to increase infrastructure spending in 2011 and beyond in order to support growth and reduce its excessive dependence on hydrocarbons.
Saudi Arabia The kingdom’s 2011 fiscal spending is slated to be almost five per cent higher than the previous year’s fiscal budget ($125.3 billion), with infrastructure-related expenditures ($70 billion) increasing about 15 per cent from 2010. Given the US dollar peg of the Saudi riyal, domestic monetary policy is likely to continue to mirror US policy. However, there is a possibility that Saudi Arabia might move to tighten rates before the US does in 2013 after H2 2011, once inflationary dynamics have built enough momentum to warrant such a move.
UAE The UAE has approved a three-year federal budget for 2011-13. The budget foresees federal spending of Dhs122 billion over the period, with an allocation of Dhs41billion for 2011, six per cent lower than the 2010 budget. The UAE federal budget accounts for only a part of total government spending; the individual emirates have their own budgets that are much larger. While Abu Dhabi’s 2010 budget reduced expenditure by $12 billion to $56 billion, spending is likely to reach the $65-70 billion range in 2011 as the sovereign pushes ahead with infrastructure development. Dubai, whose budget reached $9.6 billion in 2010, is expected to cut its budget by at least 15 per cent as the emirate scales back infrastructure spending allocations. (Source: Standard Chartered Research)
January 2011 gulfbusiness
79
EXHIBITIONS & CONFERENCES UNITED ARAB EMIRATES Abu Dhabi January 17-19 17-19 25-27 23-26 Dubai January 08-11 17-19 23-26 24-27 30-31 31-03 Feb Sharjah January 17-20
Environment 2011 World Future Energy Summit 2011 Recruitment Show - Tawdheef 2011 Middle East Road Safety Summit 2011
Abu Dhabi National Exhibition Centre Abu Dhabi National Exhibition Centre Abu Dhabi National Exhibition Centre Radisson Blu Hotel, Abu Dhabi
www.adnec.ae www.adnec.ae www.adnec.ae www.roadsafetyme.com
Arabplast 2011 Intersec Trade fair and conference 2011 HR Technology MENA 2011 6th Annual Healthcare Insurance Forum Branding Financial Services HBMeU Annual Congress
Dubai Int’l Convention and Exhibition Centre Dubai Int’l Convention and Exhibition Centre Movenpick Hotel Jumeirah Beach Dubai Dubai Int’l Convention and Exhibition Centre Hyatt Regency Dubai Atlantis, The Palm Dubai
www.arabplast.info www.intersecexpo.com www.hrtechmena.com www.iirme.com www.marcusevans.com www.congress.hbmeu.ac.ae
Steelfab 2011
Expo Centre Sharjah
www.steelfabme.com
12-14
Health & Wellness Bahrain Expo 2011
Bahrain Int’l Exhibition & Convention Centre
www.healthexpobh.com
27-07 Feb
Arabic & International Products Exhibition
Kuwait International Exhibition Centre
www.kif.net
30-02 Feb
Oman Construction Summit
Grand Hyatt, Muscat
www.omanconstructionsummit.com
Interior Design and Construction Saudi Arabia Bulk Liquid Storage Operations & Safety Treasury and Cash Management
Riyadh Marriott Hotel Doha Millennium Hotel, Qatar Millennium Hotel, Doha, Qatar
www.interiorconstructionsaudi.com www.marcusevans.com www.marcusevans.com
BAHRAIN January
KUWAIT January
OMAN January
SAUDI ARABIA January
15-18 23-24 25-26
HBMeU Annual Congress U
nder the patronage of H.H. Sheikh Hamdan Bin Mohammed Bin Rashid Al Maktoum, Crown Prince of Dubai and University President, Hamdan Bin Mohammed e-University (HBMeU), a leader in the field of e-Learning and quality management in the Arab World, has announced that it will hold the Annual Congress 2011 from January 31 to February 3, 2011. The Annual Congress 2011 will provide an international platform for three important conferences: the 5th Quality Conference in the Middle East – TQM and Excellence: A Framework for Managing Governance and Corporate Social Responsibility; the 4th Conference on e-Learning Excellence in the Middle East – In Search of New Paradigms for Reengineering Education; and the 3rd e-Health Conference in the Middle East – Excellence in Healthcare: From Global Perspectives to Local Opportunities.
80 gulfbusiness January 2011
Organised under the theme “Being at the Leading Edge – How to Give Quest for Excellence a New Meaning”, the Annual Congress 2011 will feature an international gathering of thinkers, researchers, experts, gurus and practitioners who will present novel ideas, demonstrate how original research is supported by evidence-based arguments, share new concepts and illustrate best practice applications in various sectors of the economy. HBMeU has revealed that it has invited scholars, researchers and intellectuals in the Middle East
and from other parts of the world to submit various research works concerning quality, eLearning and e-Health.
Hotel Collection Gulf Business Hotel Collection members offer guests complimentary copies of the GCC’s premier business magazine Gulf Business. United Arab Emirates AL RAHA BEACH HOTEL
Abu Dhabi Al Raha Beach Hotel, created to provide the very best of traditional Arabian hospitality. This unique jewel of luxury and tranquility, offering magnificent services, awaits you for an unforgettable visit to Abu Dhabi. Tel 00971 2 50 80 555 Fax 00971 2 50 80 429
PARK ROTANA ABU DHABI
Khalifa Park area, Abu Dhabi Conveniently located adjacent to Khalifa Park, the property offers 318 luxurious rooms and suites, 6 world class dining venues, 6 meeting rooms and spacious ballroom with day light access and outdoor terrace. Tel 00971 2 6573333 Fax 00971 2 6573000 park.hotel@rotana.com
JUMEIRAH EMIRATES TOWERS
LAYIA OAK HOTEL & SUITES
Al-Barsha, Dubai Offering 161 furnished units ranging from 81 sqm to 160 sqm, 3 dining venues, 3 multi-purpose meeting rooms, recreation facilities & a majestic landscaped area around the temperature-controlled pool. Tel 00 971 4 437 78 88 Fax 00 971 4 437 79 99 welcome.oak@layia.net
KEMPINSKI HOTEL MALL OF THE EMIRATES
MEDIA ROTANA DUBAI
THE FAIRMONT DUBAI
Al Barsha South-TECOM Located in the heart of Dubai’s new business hub and opposite Dubai Media City and Internet City the Media Rotana Dubai has 460 rooms, suites and deluxe hotel apartments, 5 award winning dining venues and 15 meeting rooms. Tel: 00971 4 4350000 Fax: 00971 4 4350011 media.dubai@rotana.com
Sheikh Zayed Road, Dubai This 394-room hotel boasts 10 dining and entertainment venues a superb spa and unrivalled meeting facilities. Tel 00971 4 3325555 Fax 00971 4 3324555 dubai.reservations@fairmont.com
EMIRATES GRAND HOTEL
LAYIA PLAZA HOTEL DUBAI
Our Location
Sheikh Zayed Road, Dubai Jumeirah Emirates Towers is a sleek architectural masterpiece of steel and glass. It redefines the business hotel category, seamlessly combining form with function, high technology with unparalleled luxury and elegance with efficiency. Tel 00971 4 3300000 www.Jumeriah.com
PULLMAN DUBAI MALL OF THE EMIRATES
Mall of the Emirates, Dubai Discover a new attitude hotel directly linked to the region’s ultimate shopping destination amidst Dubai’s sophisticated metropolis. Elegant 481 guestrooms complemented with chic dining experiences awaits both leisure and business guests. Tel 00971 4 702 8000 Fax 00971 4 702 8001 H7337@accor.com
Qatar INTERCONTINENTAL DOHA
Doha Situated in the West Bay area, yet located near the city. With its various dining options, 24 suites, 234 rooms, private beach and state-of-the-art gymnasium, it is an idyllic setting for business and leisure. Tel 00974 4844444 Fax 00974 4839555
GulfBusinessHotels.com
Sheikh Zayed Road, Dubai The truly unique and exciting five stars hotel features 393 rooms, suites and chalets together with Mall of the Emirates shopping centre and Ski Dubai’s alpine themed indoor snow resort. Tel 00971 4 3410000 reservations.malloftheemirates@ kempinski.com www.kempinski.com/dubai
Sheikh Zayed Road, Dubai Located in the centre of Dubai’s business district and just five minutes away from DIFC, Jumeirah Beach, Burj Khalifa and Dubai Mall, this 500-room hotel offers you a convenient access the must see and must go places in the emirates. Tel 00971 4 323 0000 Fax 00971 4 323 0003 reservation@emiratesgrandhotel.com
Al Qusais, Dubai Conveniently located nearby Dubai International Airport Terminal 2. Offers exceptional levels of comfort with 232 rooms & suites, three dining options, temperature-controlled swimming pool and state-of-the-art fitness center. Tel 00971 4 233 44 44 Fax 00971 4 233 44 45 welcome.plaza@layia.net
SHANGRI-LA
ACACIA HOTEL
MÖVENPICK HOTEL DOHA
Ras al Khaimah The Acacia Hotel is a superbly designed four star hotel complete with Al Nakhla restaurant, the stylish Flamingo bar, the vibrant Club Acacia, a pristine pool serving as a backdrop to varied and exciting Theme Nights, the luxurious O-Zone Spa, and high-energy Oxygen Gym. Tel 00971 7 2434421 Fax 00971 7 2434429
Doha Located on the Corniche Road, opposite the Museum of Islamic Art, the hotel offers 154 rooms and suites, a business centre and meeting rooms. Recreation facilities are also available. Tel 00974 4291111 Fax 00974 4291100 www.moevenpick-doha.com
JEDDAH HILTON
HOLIDAY INN RIYADH, IZDIHAR
SOFITEL AL HAMRA JEDDAH
Jeddah Located a 10-minute drive from the Jeddah International Airport. Offers over 414 rooms including 46 suites. 10th and 11th floors are Executive floors addressing all the needs of a modernday businessman. Tel 00966 2 659 0000 Fax 00966 2 658 2489
Riyadh The first 5 star Holiday Inn hotel in the Kingdom, with 289 new and trendy accommodations, huge lobby with W-Fi access, outdoor pools, sauna, Jacuzzi and health club. Also has state-of-the-art meeting rooms, 24-hour business center with professional secretarial support. Tel 00966 1 4505054 Fax 00966 1 4505056
Jeddah The hotel situated in the heart of the business centre offers 211 rooms, 17 suites and 25 apartments. 5 meeting rooms and 2 reception rooms to accommodate up to 350 people. Tel 00966 2 6602000 Fax 00966 2 6604145
Qatar
Sheikh Zayed Road, Dubai Offers 301 luxuriously appointed guest rooms and suites, nine restaurants and bars, health club and spa, tennis and squash courts and outdoor swimming. Tel 00971 4 3438888 Fax 00971 4 3438886 sldb@shangri-la.com
Saudi Arabia
Membership information: nayeem@motivate.ae, Tel: 00971 4 2052290
IN YOUR SHOES
Reach for the skies KAREN REMO-LISTANA boards a seaplane with digital man of the moment Sohrab
Jahanbani from GoNabit, the group discount web site.
I
t’s a sunny morning, the clouds are clear and the temperature is 24 degrees – it’s probably the best time to experience my first seaplane tour of Dubai. I’m with Sohrab Jahanbani, the chief operating officer and co-founder of bargain voucher website GoNabit. He’s also set to experience the aerial view of Dubai for the first time. Except the flight is delayed by 40 minutes. That delay gives me an opportunity to learn more about the man behind the website that offers online discounts for leisure activities, as long as enough people sign up to the deal within a limited time-frame. Jahanbani, who arrived in Dubai last year, first tested his business skills at the age of 18. “It was a food business in the UK,” he recalls. “It was tough, but I learned a lot from it. From 14 years old, I was studying and working at the weekends in a restaurant, so food was my expertise at that time. Whatever I made from it helped me set-up a software company, which I later on sold to my first client.” After working with a small team to launch Bulldog Communications, the UK’s first alternative LLU broadband provider, in 2002, he founded NYT Ltd, where he launched the UK’s first weekly mobile-only magazine and the first thirdparty 3G site on the 3 network. After acquiring Touchsoft in 2004, he oversaw the in-house development and successful launch of a mobile-enablement technology platform, which was sold at the end of 2006. He then oversaw the commercial function at Kulacom where he looked after the development and launch of the world’s first end-to-end wireless Wi-Max network in Jordan. The financial crisis brought him to Dubai in February last year. In March, he was introduced to Dan Stuart, previously the chief possibility officer at Bayt.com and now the founder and CEO of GoNabit, and in May the website was launched.
82 gulfbusiness January 2011
Today, it has more than 75,000 subscribers in the UAE, Beirut, Oman and Kuwait. The concept is simple – the website features deals at up to 90 per cent discount off things to see, eat and do locally, you purchase the deal but you only get charged – and get the deal – if enough people buy and the “deal is on”, then you get your Nabit voucher the next business day after the deal closes. “Demand for e-commerce in this region is already here, there is just no supply of services. There were lots of questions when we started this concept, but you just have to stick to your guns,” Jahanbani says. We finally boarded the Cessna Caravan nine-seater aircraft by 11.30am, and five minutes later experienced the thrill of taking off on water. “This is like a dream come true. And this is what we do, we make other’s dreams come true,” Jahanbani says, while he cheerfully and enthusiastically takes pictures. And why not, the view is breathtaking. After nearly a decade of reporting and criticising Dubai’s economic hypes and blunders, I could not help but admire its developments from the iconic Burj Al Arab, Burj Khalifa, Palm Jumeirah and the palace-like Atlantis to the beautifullycrafted landscapes of Emirates Hills, Jebel Ali Port, Dubai Marina, Deira and Bur Dubai. There were, of course, the sights of empty plots in the World Islands (except for a sole island that’s replete with all the greeneries and pool amenities, said to be owned by Sheikh Mohammed), Palm Deira and a chunk of properties still under construction – a sign that full recovery is yet to be seen. Time flies so fast that I haven’t even noticed we’re back at the port by 12.15pm. The price for that package was Dhs1,200 and GoNabit sold 81 of those vouchers at 50 per cent off for Dhs600. It was not my dream, but I must admit, it was an unspoken wish that suddenly came true.
I’ll create opportunities, that’s my business plan
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