LIBERALISING LABOUR / WORLD FUTURE ENERGY SUMMIT Vol. 15 Issue 10 February 2011
BankMuscat boss talks 2011 Diabetes: the bittersweet truth
Chasing cars:
Gulf auto market update
Tunisia and the end of iron rule
HE’S ELECTRIC GE’s regional CEO Nabil Habayeb on plans, profits and problems
Bahrain..............BD 1.0 Kuwait............... KD 1.0 Oman................ RO 1.0 Qatar.................. QR 10 Saudi Arabia.......SR 10 UAE.................. DHS 10
PAYMENT FRONTIERS: Visa Mobile Payments in the GCC T
he latest innovation in Visa’s 50 years of creating better money In the last half century, technology has changed our world at an unprecedented rate and impacted almost every facet of modern life. Visa has always been at the forefront of payment technology and development. From the creation of the first general purpose credit card 50 years ago in America to the latest mobile payment developments in the GCC, Visa has a long history of creating better money for the end user. Better money means more secure, convenient, universally accepted and rewarding alternatives to cash and cheques. Visa is uniquely positioned to drive the convergence of electronic payments and mobile technology by utilising its scale, brand, products and processing platform to accelerate the growth of this innovative payment segment. From smart cards to contactless and mobile technology, Visa has a track record of being first to market. Today Visa is focused on offering electronic payments that go beyond a traditional payment card to a vast new market of over five billion mobile subscribers globally . Today there are more mobile phones than electronic payment cards globally and mobiles are the one device to which consumers are attached, all the time. As the demand for mobile payment services continues to accelerate in markets around the world, Visa is working with industry partners to bring mobile payment solutions to consumers
in ways that recognise and meet specific regional needs. Visa’s mobile payment strategy is to extend payment by Visa debit or credit to mobile phones and provide cardholders with value added benefits such as the convenience of managing your money without visiting a bank branch or ATM and making simple and fast payments on the go. Building on 50 years of payments industry expertise and translating this knowledge to the mobile market, along with its knowledge of consumer and financial institutions’ needs from around the world, Visa is at the forefront of the mobile payment landscape in the GCC. The recent completion of a mobile payment trial with Visa in Kuwait has brought the reality of this milestone payment method to the GCC. Visa and the National Bank of Kuwait (NBK) partnered with Zain to launch the first EMV compliant NFC mobile payWave trial in the GCC. The pilot took place from April 2010 to January 2011, which enabled approximately 500 NBK Zain Visa credit card holders to make purchases with an NFC enabled Nokia 6212 mobile phones at more than 50 merchants outlets, such as IKEA, Starbucks at Kuwait’s largest mall, The Avenues. In the UAE, Visa has also announced a partnership agreement with Emirates NBD and Etisalat to pilot innovative contactless technology. The pilot programme will allow cardholders to purchase goods and services using their Etisalat mobile phones. The trial,
which is set to take place this year, will involve 250 participants using Mobile Near Field Communication (NFC) technology. For the first time in its history, Visa recently announced the commercial availability of mobile contactless payments enabled by DeviceFidelity In2Pay microSD solution. This was an historic milestone for Visa and its client, as financial institutions can now consider offering their account holders a new technology that enables them to
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transform their existing phones into fully functional mobile payments devices. The announcement followed 18 months of technology development and trials with leading financial institutions to introduce an innovative new ways for customers to make purchases using their mobile phones. U.S. Bank was one of the first major card issuers in the United States to pilot the landmark technology, and plans are currently underway to introduce it to select customers this year.
By continuing to lead the way in payment innovation, Visa payment products will continue to evolve to anticipate changing consumer demand for secure, convenient and rewarding payment methods that compliment today’s fast paced lifestyle.
CONTENTS Vol. 15
Issue 10 February 2011
GCC NOW 10 The round-up News, numbers and people from around the region.
COMMENT 20 Mishal Kanoo Family names must be saved from gratuitous personal gain.
22 Matein Khalid
American dreams GE’s Middle East and Africa President and CEO Nabil Habayeb talks 2011.
HSBC shares could be set to double over two years.
25 Tommy Weir Why good leaders should always allow themselves to be questioned.
26 Ernst & Young How GCC banks can stem the loss of their customers.
28 Lynda Gratton The workplace will transform beyond recognition in 20 years.
31 Michael Preiss Large capital US stocks fare better than emerging marketing equities.
34 Banking on Oman FINANCE Progress and plans at the sultanate’s largest bank, BankMuscat.
LEGAL The region is taking steps to liberalise work laws.
FEATURES
HEALTH How the Gulf plans to tackle the diabetes epidemic.
50 Not out of the woods FINANCE Why GCC banking profits and staffing remain problematic.
40 Remote offices TECH Cloud computing is set to transform regional business.
54 Chasing cars AUTOMOTIVE Special report on the health of the Gulf’s car market.
42 Capital gains ECONOMY Abu Dhabi will be the UAE’s growth driver in 2011.
58 Tunisia in turmoil POLITICS Tunisia’s uprising and possible consequences further afield.
58 Green revolution ENERGY Global leaders address renewable energy fears at WFES.
66 Gulf Business in action
36 Taste of freedom
38 Bittersweet truth
34
ANALYSIS
46
EVENTS The pictures and the gossip from our Great Places to Work event. February 2011 gulfbusiness
7
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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 Chief Sub-editor Iain Smith iains@motivate.ae Editorial Coordinator - business Concessa D’Souza concessa@motivate.ae Senior Designer B Raveendran raveendran@motivate.ae Photographers Farooq Salik; Naveed Ahmed; Victor Besa. Contributors Tracey Scott; Mark Atkinson; Peter Shaw-Smith; Ryan Harrison; Adrian Morbey; Glenn Freeman. General Manager Production and Circulation S Sasidharan Production Manager C Sudhakar 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
LIFESTYLE
REGULARS
70 Travel
32 Letters
Up close and personal with tigers in India’s Bhandavgarh National Park.
73 Art Charles Pocock reviews the Museum of Islamic Art in Doha.
73
44 Executive moves 75 Books
Head Office: PO Box 2331, Dubai, UAE Tel: +971 4 282 4060, Fax: +971 4 282 4436, motivate@motivate.ae
77 Data monitor
Dubai Media City: Office 508, 5th Floor, Building 8, Dubai, UAE, Tel: +971 4 390 3550, Fax: +971 4 390 4845
80 Events 81 Hotels 82 In your shoes Tracey Scott samples Daimler’s new electric smart car with test manager, Juergen Buhmann.
8 gulfbusiness
February 2011
General Manager – Abu Dhabi Joe Marritt joe@motivate.ae
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
Printed by Emirates Printing Press, Dubai
April 1819. François Constantin takes responsibility for the worldwide business expansion of Vacheron Constantin. During a business trip to Italy, this visionary man coined the phrase which would become the company motto in a letter addressed to the manufacture: « …do better if possible, and that is always possible …».
True to this motto and to the spirit that forged its history, Vacheron Constantin still remains committed to pushing the boundaries of watchmaking in order to provide its clients with the highest standards of technology, aesthetics and nish.
Malte Tonneau Moon Phase and Power-reserve Hallmark of Geneva, White gold case, Hand-wound mechanical movement
www.vacheron - constantin.com
Réf. 83080/000G-9408
Boutique
Mall of the Emirates, 1st Floor, Sheikh Zayed Road, Dubai Tel: 04 2221222
IN THE NEWS HILLARY CLINTON US Secretary of State Hillary Clinton has concluded her tour of the GCC region, which included visits to Abu Dhabi’s Masdar City, Oman and Qatar. The wife of former US President Bill Clinton was in the Middle East to encourage democratic and social reforms in the region, and to discuss the potential threat of Iran’s nuclear programme. Born in Chicago in 1947, this former first lady showed political promise from an early age. During her college years, Clinton was active in student politics and was elected senior class president before she graduated in 1969. She then attended Yale Law School, where she met husband Bill – who served as the 42nd US President from 1993 to 2001. Graduating with honours in 1973, Clinton moved to Arkansas in 1974 and married Bill the following
Hillary Clinton, US Secretary of State.
year. From 1979 to 1981 and 1983 to 1992 she held the post of First Lady of Arkansas with husband Bill as governor. In between terms she worked in a number of law firms, focusing on children’s law and
family policy, and actively participated in presidential campaigns. Clinton’s first big move into office was in 2000, when she was the first woman to be elected to the US Senate from New York. She went on
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to win re-election in November 2006. In early 2007, Clinton announced her plans to strive for another first – to be the first female president of the US. However, she was pipped to the post by Barack Obama. But while Clinton’s bid for presidency failed, her campaigning efforts did not go unnoticed. Obama nominated Clinton to become Secretary of State in his 2009 cabinet, and she was officially approved in January 2009. Clinton’s rise to political fame was not easy. Her marriage was the subject of considerable speculation, namely as a result of the Lewinksy scandal in 1998 when her husband admitted to having an extra-marital affair. Since then, however, Clinton has proved herself to be a political powerhouse – in both the East and West.
SOAPBOX The Zayed Future Energy Prize has the potential to do for clean energy what Alfred Nobel did for science and peace.
Mother Earth has paid a terrible price for our energy addiction. We have taken from Earth but not given back.
Olafur Ragnar Grimsson,
HE Asif Ali Zardari, president
President of Iceland, praising Abu Dhabi’s work in renewable energy.
of Pakistan at the World Future Energy Summit in Abu Dhabi.
As a global community, we face the most compelling and complicated challenges that mankind has ever faced. Adnan Amin, IRENA interim director general, discussing climate change at the WFES.
GCC AND THE WORLD The number of visitors to the region is expected to increase by 6.4 per cent this year, the latest report from Euromonitor International has revealed. Inbound tourism flows for the Middle East and Africa is expected to grow 7.2
10 gulfbusiness February 2011
per cent in 2012, 7.7 per cent in 2013 and eight per cent in 2014. The report also found the Middle East was among the few regions to record a strong performance in air transportation sales during the global economic crisis due to strong expansion
$400 million
IATA profit forecast for 2010 for Middle East airlines
led by Emirates Airlines, Etihad Airways and Qatar Airways. However, the outlook for the region will depend on intra-regional travel from countries such as Qatar Kuwait, Saudi Arabia and Bahrain, says the report.
UNITED ARAB EMIRATES
Aldar to receive $5.2bn govt bailout
UAE firms optimistic
Over 50 per cent of firms in the UAE expect growth in profitability this year, the latest report from Grant Thornton has revealed. The report found 74 per cent of companies expect growth in revenue, 56 per cent expect growth in profitability, while 55 per cent expect an increase in employment. The survey, also concluded 78 per cent of companies in the UAE are optimistic about 2011. Ahmed Al Sayegh, Aldar chairman.
The government of Abu Dhabi has revealed a funding framework for real estate developer Aldar Properties, totalling $5.2 billion. The framework includes the sale of $2.96 billion of infrastructure assets on Yas Island, $1.49
billion of residential units and land, and a $760 million convertible bond placement with Mubadala Development Company. The bond issuance is subject to shareholder approval. Aldar will also take an impairment charge of $2.86 billion to reflect a decline
in the value of its assets. Ahmed Al Sayegh, Aldar chairman, says government support will “strengthen our capital structure and provide us with a stable and sustainable platform from which we can continue to deliver value to our shareholders.”
COMPANYFOCUS
Etihad posts strong 2010 results Etihad Airways has reported a 29 per cent increase in revenues for 2010, moving the airline a step closer to breaking even this year. The carrier’s latest set of financial results show revenues last year reached $2.95 billion, compared to $2.28 billion the previous year. The Abu Dhabi airline also reduced expenses by
$320 million, beating its target of $250 million for the year. It also increased staff numbers by 800, and added seven new
INNUMBERS
destinations last year. “In a year in which we dealt with the continuing effects of global recession, erupting volcanoes, riots in Thailand, and severe weather across Europe at one of our busiest times of year, we were still able to deliver an impressive performance,” says James Hogan, Etihad Airways chief executive officer.
2,939,757 hours
$800 million
Total manpower so far on Dubai Pearl.
Expected deficit for the UAE in 2011.
UAE insurance market set to soar Insurance premiums in the UAE will increase eight per cent this year to reach $6.7 billion, a study by the Dubai Chamber of Commerce and Industry has found. Non-life premiums will reach $5.7 billion, compared to $5.2 billion last year, while life premiums will reach $953 million, compared to $898 million in 2009. In 2012, total insurance premiums will reach $7.4 billion, an increase of 11 per cent, while in 2013 and 2014 premiums will increase 10.2 per cent and 11.5 per cent respectively.
Dana to keep Egyptian natural gas concessions Dana Gas is to retain a 100 per cent stake in its natural gas concessions in Egypt’s Nile River delta region after posting strong 2010 results. The Sharjahbased firm said output in Egypt rose to 42,000 barrels of oil equivalent a day, representing a 20 per cent increase. Dana is now planning to drill 14 wells in Egypt this year.
February 2011 gulfbusiness
11
SAUDI ARABIA
Saudi banks post robust Q4 results
Logistics to exceed $20bn
The Saudi British Bank.
Saudi Arabia’s banking sector has reported robust financial results for last year. Banque Saudi Fransi has reported a 119 per cent increase in net income for the fourth quarter last year, beating market forecasts to reach $189 million. For the full-year, the bank posted a
13 per cent increase in net income to reach $746.9 billion. Bank Saudi Hollandi posted a net profit of $59.8 million for the fourth quarter after a loss of $117.1 million during Q4 2009. Arab National Bank saw net income for the fourth
quarter inch up to reach $80 million, from $78.9 million during the same period in 2009. For the full-year, Saudi British Bank recorded a net profit of $502 million, a 7.3 per cent drop. Riyad Bank, however, reported a 16.2 per cent drop in Q4 net profit.
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COMPANYFOCUS
Zain Saudi Q4 loss declines Saudi Mobile Telecommunications Co (Zain Saudi) has reported a 21 per cent drop in net losses during the final quarter last year. The operator saw net losses reduce slightly to reach $139 million, compared to $175 million during the same period the previous year. Total revenue for the three months ending December
31 increased 93 per cent to reach $461 million, while gross profit increased 132 per cent to reach $220 million. Operating losses for the period decreased by 58 per cent to $47 million, while total number of subscribers exceeded eight million. Dr Saad Al Barak, Zain Saudi chief executive officer and managing director, says: “The continuous decrease
Dr Saad Al Barak, CEO and managing director.
of the operational losses demonstrates Zain’s ability and its position at the market.’’
INNUMBERS
3.8 28.4 per cent per cent
General Motor’s Middle East saw sales in the kingdom increase in Q4 last year, compared to Q4 the previous year.
12 gulfbusiness February 2011
Saudi economy grew by 3.8 per cent in 2010.
Saudi Arabia’s logistics market is expected to reach $20.5 billion by 2015, a Frost and Sullivan report has concluded. The report found that the market earned revenues of $13.78 billion last year, and it estimates 26.4 per cent growth overall for the year. The total logistics market in the kingdom includes transportation, warehousing, freight forwarding and valueadded logistics services.
Non-hydro sector optimistic Saudi Arabia’s nonhydrocarbon sector is expecting a surge in demand during the first quarter this year, the National Commercial Bank’s latest business optimism index has revealed. The survey, in conjunction with Dun and Bradstreet, found 45 per cent of non-hydrocarbon firms would invest in business expansion in Q1 as demand levels are expected to “surge”. Meanwhile, optimism in the hydrocarbon sector remains steady.
Abraaj/SAGIA launch platform
Abraaj Capital and the Saudi Arabian General Investment Authority (SAGIA) are to launch a SAR2 billion investment platform in the kingdom. This platform will focus on investing in private equity, SMEs, real estate and public equities. The platform is subject to approvals from all relevant regulators, including the Capital Markets Authority.
QATAR
QIA increases banking stakes
Over half of Qatari SMEs are expecting business levels to increase this year, concluded the latest HSBC small business confidence monitor. The survey found 52 per cent of SMEs are expecting the pace of the general business environment to increase, while a further 53 per cent are planning to increase their capital expenditure this year. Of those polled, 47 per cent are looking to recruit this year.
Keep eye on NPLs, warns CB
F
Reuters
The Qatar Investment Authority (QIA) has increased its stake in a number of Qatari Banks. The sovereign wealth fund has raised its stake in Commercial Bank of Qatar to 16.7 per cent at the price of $21.5 per share. The QIA has also acquired an additional 10 per cent stake in Qatar International Islamic Bank for $254.6 million. Al Ahli Bank of Qatar has also received the last portion of QIA’s subscription to 10 per cent of the bank’s capital, totalling $88.2 million or 5.839.844 shares. A number of Qatari Banks have released results for 2010, with Qatar Islamic Bank posting a slight dip in net income from $363 million in 2009 to $357 last year. Doha Bank saw net income jump to $302 million in 2010, from $267 million the previous year.
Qatari SMES are optimistic
PROJECTFOCUS
QTEL acquires Orascom’s Tunisiana stake Qatar Telecom has acquired Orascom Telecom Holding’s 50 per cent stake in its Tunisian telecom unit Tunisiana, gaining full ownership of the company. The deal, worth $1.2 billion, was masterminded as part of Qtel’s joint
agreement with the Princesse Holding Consortium. Under the joint agreement, Princesse Holding will acquire a 25 per cent stake in the provider, while Wataniya Telecom, a subsidiary 52.5 per cent owned by Qtel
based in Kuwait, will increase its current stake from 50 to 75 per cent. Mohamed Sakher Al Materi, Princesse Holding chairman and the son-inlaw of Tunisian President Zine El Abidiine becomes the new chairman of Tunisiana.
INNUMBERS
711,000 68 million The number of mobile customers Vodafone Qatar has secured to date.
14 gulfbusiness February 2011
The number of customers Qtel has around the world.
Qatar’s banks must keep “a close watch” on the level of non-performing loans in 2011 as credit growth in the banking sector picks up, Qatar’s central bank governor Sheikh Abdullah Al Thani has warned. While Al Thani says lenders would remain “profitable” and “well capitalised” this year, he said banks need to keep a close watch on the developments in credit quality during the phase of higher credit growth. Latest figures show total loans extended by Qatari banks stood at $75.1 billion at the end of November, up 16 per cent from January.
Maersk Awards vessell contract
Maersk Oil Qatar has awarded Topaz Energy and Marine a five-year vessel contract worth $48 million. The offshore support vessel Topaz Shaheen will serve as a standby support vessel in Qatar’s Al Shaheen Field. The vessel is currently undergoing an upgrade, and will be deployed later this month.
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KUWAIT
Kuwaiti M&As strong
iStock
Kuwait accounted for nearly half of all M&A activity in the Middle East last year, the Thomson Reuters 2010 Middle East Investment Banking Analysis has revealed. Middle Eastern M&A activity reached $31 billion last year, with Kuwait accounting for 46 per cent of annual activity. Telecommunications was the most targeted industry in the region, with Etisalat’s planned 46 per cent acquisition of Zain Group for $12 billion making the top targeted deal.
Kuwait govt posts budget surplus Kuwait posted a preliminary budget surplus of $25.1 billion in the first nine months of the fiscal year despite a sharp rise in spending, owing to high oil prices, Official figures show actual spending up until the
end of December reached $28.9 billion, less than half of the projected $58.3 billion for the year. Still, spending this fiscal year was 42.3 per cent higher than the previous year when spending reached $20.3 billion. Revenues in the nine
months hit $54 billion, up 55.6 per cent on budget figures for the whole year, and 17 per cent higher than the actual income of $46.1 billion in the first nine months of the last fiscal year. Kuwait’s fiscal year starts April 1 and ends March 31.
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PROJECTFOCUS
National carrier to privatised by March The privatisation of state-owned Kuwait Airways is in the final stages, according to the carrier’s chairman. Speaking to Kuwaiti press, Hamad Al Falah said the airline will be privatised by the end of March, over two years since Kuwait’s parliament approved privatisation plans. Under
the plan, the government will sell 40 per cent of the flag carrier to Kuwaiti citizens
and 35 per cent to foreign or local investors. Twenty per cent will be reserved for state-run institutions and the remaining five per cent will be distributed for free to employees. In August, the national carrier appointed Citigroup, Ernst & Young and aviation services firm Seabury to handle the privatisation.
INNUMBERS
Dhs93,1000 10 per cent The average remuneration for a head of legal in Kuwait.
16 gulfbusiness February 2011
Number of in-house lawyers who would work in Kuwait (Legal Salary Survey 2011).
Kuwait real estate up 48%
The value of real estate transactions in Kuwait increased 48 per cent last year, data from the Kuwait Ministry of Justice has found. Transaction value for the year reached $7.3 billion, up 47.8 per cent on the previous year. The increase was driven by 73.7 per cent year-onyear increase in value of residential transactions, totalling $3.9 billion. The strongest year-on-year growth in total transactions occurred in Q2, with activity up 134.2 per cent.
Zain gets Etisalat extension Etisalat has extended its deadline for its proposal to buy a majority stake in Kuwait’s Zain after it failed to complete due diligence on the acquisition. At the time of going to press, a statement from Etisalat said Zain had until the end of January to reach a deal.
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BAHRAINOMAN
30
seconds to make sense of… art in the Middle East.
Antonia Carver
Fair director of Art Dubai
Atif A Abdulmalik, Arcapita CEO.
Arcapita completes asset sale Bahrain’s Arcapita Bank has completed the sale of a portfolio of 29 senior living communities in the US for $630 million. The portfolio, has been acquired by a joint venture between Sunrise Senior Living Inc and CNL Lifestyle Properties. As part of the deal, returns to investors will exceed the projections made at the outset of the investment seven years ago. Atif A Abdulmalik, Arcapita chief executive officer, says the sale represents a very “successful outcome for investors”.
DSI secures Omani contract
How big is the art movement in the Middle East? There have been important, localised contemporary art scenes in cities such as Beirut, Cairo and Tehran for many decades, but over the past 10 years, the international art world has turned its attention to the region. As such, these local art scenes became consolidated, grouped under the term “Middle Eastern art” for the first time. How important are art fairs in highlighting talent in the region? Fairs are primarily about the buying and selling of art. At Art Dubai, we aim to bring a diverse selection of galleries and match-make them with collectors, curators and other art world professionals from the region and beyond. In 2011, we have the biggest fair yet – we’re welcoming 82 galleries from 34 countries.
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Drake and Scull International has been awarded a $43.6 million government contract in Oman, marking its first contract this year. DSI will be responsible for the mechanical, electrical and plumbing works on the project, including the design, supply, installation, testing and commissioning. Going forward, Khaldoun Tabari, DSI chief executive officer, says the firm is now planning to venture into Iraq, India and North Africa and will consider entering the oil and gas sectors.
Was the art industry impacted by the financial crisis – collecting and auctioning? Globally, the art industry was affected, but the market proved remarkably resilient, and nowhere more so than in Dubai. Auctions reflected a dip in the market in 2009, but perhaps this correction was needed: it slowed down growth to a more manageable level and avoided a bubble forming.
Omani rents decline
When compared to the West can GCC art compete on the world stage? We have two different things here – firstly, the significance of Dubai as an art centre, showcasing Emirati national artists alongside artists from the Middle East and the rest of the world. Secondly, artists based in the GCC are garnering more international attention year on year – it’s part of an international learning curve vis-à-vis the region – but they also seek more recognition and appreciation at home.
Property consultancy firm Cluttons says rental values in Oman will continue to decline this year. In its latest property market report for the sultanate, Cluttons says rents will reduce and vacancies will increase as supply starts to “significantly” outstrip demand. In the commercial sector, the report said 500,000 square metres of new office space will come onto the market by 2013 putting downward pressure on rents.
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6.1 per cent
Oman’s real GDP growth for the tourism sector is to increase this year.
18 gulfbusiness February 2011
How can investors make the most of art and its opportunity in the region? By supporting the local galleries year-round. There is a huge opportunity here: art and culture are in the end the “glue” that makes a society what it is (or can be), and in the Gulf, we’re lucky to be witnessing a moment of growth that’s of significance globally – and it’s right here, on our doorstep.
COMMENT
SAVE THE POWER OF THE FAMILY NAME Regional trust in family companies must be restored by ousting relatives and outsiders who use the brand for personal gain. MISHAL KANOO
I
t is incredible to think of how many people believe that they are entitled to things just because of their name. They truly believe that because they are born into a certain family, they are deserving of privileges afforded to them over others. This corruption of the mind can have serious ramifications, not only for the person concerned, but also for the people around them, who will feel the pain when things go wrong. As a member of a family business myself, I truly understand the value that people put in the good name and reputation that a name carries. It is what opens doors and hearts. This comes after years, if not generations, of trust and belief that the person who carries the name is an ambassador of his family’s values. This is something that is not easily attained, so families train their children on how to carry themselves and how to promote the values that their family aspires to reach. Nothing could be more devastating to a family name than a rogue member who decides that he wants his own selfish way over the best interests of the family. Greed, instant wealth and fame blind that person to the history and reputation that his family has bequeathed him as an inheritance. There are too many cases of this to go into, but the one incident that sticks in the mind is that of a well-respected Gulf family. Without going into too many details, I just want to emphasise what can happen when even an interlocutor not from the same family enters the picture. The name of this family is perhaps one of the best known names in the Arabian Peninsula. A family business built over generations without a serious blemish. Noted for certain generous characteristics, this family and its business prospered and was a beacon for other family businesses in the region. Then, as what happens when the name is misused, it turned sour due to the avarice of one man using the name of the family that accepted him into the fold. The business ramifications of misusing a family name can have such long-term consequences that no one can predict with certainty what they might be. The case in mention caused a seismic shift within the banking sector of the region. In the past, banks used to practice something
called “name lending” where the lender loans out money to the borrower on his financial strength and social standing with no other collateral. Previously, a shake of the hand was enough to secure the business. Then, as the environment became more sophisticated, borrowing against one’s name was also acceptable. This was because people valued their reputation above all else. Now, with the trend being more about how much money one can attain in a lifetime, this system has become redundant. Trust, the backbone of any business, is lost, and the only thing that matters is legal proof. Thus, instead of family members trying to maintain the name that they proudly hold, they use it to maximise their personal gain irrespective of who pays the price. Truly a sad thought, but it’s a reality. A family name is such a sacred factor in the growth and prosperity of society as a whole. This can be seen best when you understand that accountants, who understand numbers, value the name or trust and give it an accounting entry called “goodwill”. If accountants, who are empirically minded, are willing to absorb a non-empirical concept, it must mean that it has worth. Moreover, when you see some of the valuations of goodwill, you will understand the value it holds within the business world. We trust that our families will be there for us. We trust that our businesses will bring stability and that that stability will bring us growth. We trust that the names we rely on will be the names that our children will believe in as they grow up. This doesn’t just apply to families and family businesses, but to all businesses at large. The names we grew up with such as Toyota, Ford and Sony are names we trust when we buy their products. That is why names are important and why they must be safeguarded. This is why when reprehensible people abuse the names that we trust they must be stopped and punished. They throw the scales off kilter and that imbalance needs to be redressed or serious consequences of that inaction will resonate, not just within the immediate entity, but within society as a whole. When people lose faith, the road back to trust is a long one. Mishal Kanoo, deputy chairman, Kanoo Group. mishal@kanoo.ae
When reprehensible people abuse reputable family company names, they must be stopped and punished. They stain the legacy of trust.
20 gulfbusiness February 2011
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COMMENT
CAN HSBC SHARES DOUBLE IN TWO YEARS? Asian growth rates and a reduction in loan impairments will see a juggernaut rise in the British-headquartered bank’s profits. MATEIN KHALID
H
SBC has played a seminal role in the evolution of the UAE’s banking and capital markets even in the Trucial States era when Britannia ruled the waves (and the air waves) East of Suez. The British Bank of the Middle East was the Gulf’s local global bank generations before the term morphed into an advertising cliché. So it was no coincidence that the property crash, consumer finance meltdown and capital markets woes in the Gulf hit HSBC Holdings, Britain’s largest bank, particularly hard, with a spike in GCC bad loans and provisioning since the onset of the regional post-Lehman credit ice age. It is ironic that former chairman Sir John Bond’s penchant for trophy deals (Samuel Montagu, James Capel, Midland Bank, CCF Paris and Republic Geneva) culminated in the disastrous $14 billion acquisition of Household International, the US subprime lender that saddled HSBC with $20 billion losses and the only profit warning since imperial Japan’s conquest of Hong Kong and Shanghai in World War Two. HSBC shares have done a Rip Van Winkle in the past year, trading in a listless 600-690 pence range on the London Stock Exchange. Record low interest rates were not exactly nirvana for HSBC since the global banking colossus’s loan deposit ratio is only 80 per cent and excess capital generates rock bottom yields. This is the reason the group’s return on shareholder equity has remained in an unexciting nine to ten per cent range, far below Standard Chartered, let alone the collosal growth banks of China and India. The GCC has also been a drag on HSBC, with at least $200 billion in regional loans and sukuk in restructuring mode and the interbank exposure to zombie banks and corporates alive only because of the alchemy that creative accounting provides. Conventional wisdom argues that HSBC shares are dead money in 2011. Wrong. The financial markets have totally misread the strategic shifts that will transform the balance sheet, franchise value and corporate DNA of HSBC. While revenue growth and operating margins are not exactly stellar, impairment charges will dramatically shrink in 2011, leading to a succession of earnings upgrades. HSBC will exceed 2007 peak earnings ($19 billion), possibly before Christmas 2011. This means the restoration of the dividend
is a no brainer, particularly as Asia profit growth and PFS/ CIB loan growth goose the bottom line of the group even as credit costs decline. The new CEO, Stuart Gulliver, is a legend in global foreign exchange and a former trainee in BBME’s Bur Dubai bastion on the Creek. Gulliver, while an Oxford boxing blue, is not in the Hooray Henry upper-crust twit muddle through style of past HSBC chairmen Gulliver will finally make HSBC a force in global investment banking, another failed legacy of Sir John Bond. Jolly boating weather. HSBC trades at just below nine times earnings and 1.2 times book value, even though the Panglossian best of all possible worlds assumes no hard landing in China, double dip/mortgage fiasco in the US and Club Med sovereign default in Europe. No other international money centre bank in the world can match HSBC’s balance sheet, emerging markets footprint, Tier One capital, treasury capabilities and liquidity metrics. HSBC Holdings is on the brink of an epic valuation rerating, even though reengineering the world’s global local bank will be glacial, not revolutionary. Timing is everything in love, war and bank investing. The sweet spot to make money in HSBC is when the markets devalue its growth prospects at the precise moment when its Asian loan growth juggernaut and management risk appetite begins to accelerate, as will happen in 2011. True, a third of HSBC’s loan book is in the sceptred isle where Chancellor Osborne has enacted the most savage public spending cuts since the Thatcher era in the 1980’s but the bank’s retail franchise means it is a net lender in the interbank market and primarily a corporate bank. HSBC will report 2010 results on February 28 and I believe the shares will rise strongly as the gnomes of the City (and Sheikh Zayed Road) focus on the dividend abracadabra. It will not surprise me to see a 70 pence div in 2013. So logic dictates that HSBC trades at 1300-1600 cents in eighteen months. On June 2012, the Queen’s at Ascot, the Tories (plus Nick Clegg!) are in power, all’s well in the global banking village and HSBC shares have doubled. Matein Khalid, fund manager in a royal investment office and writer in finance and geopolitics.
Conventional wisdom argues that HSBC shares are dead money but markets have misread the strategic shifts that will transform the bank’s balance sheet, value and corporate DNA.
22 gulfbusiness February 2011
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COMMENT
GREAT LEADERS MUST ALLOW QUESTIONS Productive team leaders are those who are brave enough to listen to honest feedback and questions from their followers. DR. TOMMY WEIR
A
few weeks back, Kuwait’s prime minister agreed to be questioned by parliament about possible violations of the country’s constitution and public freedom. Should the parliament be allowed to question the country’s leader? When opposition protests against a leader and vows to question him/her, it is often met with the response of “how dare you question a leader”. But it raises a practical business concern – is there a time when it is acceptable for followers to question their boss? Let’s explore the practice by considering two key questions. Should followers be allowed to question their leader? Obviously there is a mixed response to this question. Those from the command and control leadership camp typically disagree with giving followers the latitude to question the leader. Why? They feel that they may lose control if the opinions are allowed to raise their views and ask questions. Additionally, they argue that being interrogated makes the leader look weak and may undermine their control. Are they right that leaders should not be questioned? On the other side of the argument, there are those who practice a collaborative form of leading and believe in empowering their followers, even allowing them to question the leader. These leaders are followercentric and encourage the practice of humility in leadership. They believe it is instrumental to spend time listening and encourage followers to challenge and question. So, which is right – should followers be allowed to question their leader? The style of leadership needs to be aligned to the environment and the needs of the moment. For sure, during wartime we do not want the soldiers questioning their leaders. For that matter, it is discouraged in the midst of high regulatory settings or when safety and lives are at risk – I really don’t want pilots questioning the air traffic tower, do you? But since most of us do not lead in those rare environments, we should not only allow for questioning, we should encourage it as it makes us and our organisations stronger. I encourage leaders to allow others to question their strategies and tactics because if they cannot defend their actions, perhaps they need to
consider an alternative approach. Strong leaders have the confidence to allow their followers to probe sensibly. What should a leader do when questioned? Even though, under the constitution, each member of Kuwait’s parliament has the right to question government ministers, in the past this has been discouraged. But, this time Sheikh Nasser Al Mohammad Al Sabah told parliament, “We are ready” to face the questions. Simply stated, leaders should follow Sheikh Nasser’s example and allow for questions. The vital leadership practice is not about allowing questions, it is in how the leader responds to the questions and what happens afterwards. When the questions do come, leaders need not take up a defensive stance. Unfortunately, there is something about questions that pushes even the strongest into a combative position. When questions come, do the wise thing and hear what is being asked and try to discern why the follower is asking and what they hope to gain. The tried and true leadership formula when being questioned consists of: listening, reflecting, responding and reacting. When an inquiry (or even an acquisition) comes, start by listening to what is being asked and communicated. Put on pause the natural tendency to create an answer; rather just listen. This is one time it is OK for leaders to take their time, but don’t neglect to give a response. Once you have understood the query and intention of it, respond with an appropriate answer. After the response, and hopefully on-going dialogue, take action (positive action, remember the point from above about retribution). Many times the questions that employees ask are to clarify their understanding or improve the actions. Yet it seems that leaders naturally put the idea of questioning in the negative category, assuming that the followers are questioning them personally. In other words, they regard the question as an attack. How will you or your business get better if your followers are not allowed to question your motive, actions, plans or behaviours? Dr Tommy Weir, vice president of leadership solutions at Kenexa and author of The CEO Shift.
Leaders must allow others to question their tactics. If they cannot defend their actions, they need to consider an alternative approach.
February 2011 gulfbusiness
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COMMENT
THE PROBLEM WITH GCC BANKS As 25 per cent of customers say they will switch banks this year, companies must recognise that poor service and performance will haemorrhage clients. SALMAAN JAFFERY
Y
our bank solicits you for their ‘special and exclusive’ credit card. Two weeks later, nobody knows its status. The call centre rep says it’s at the branch while the branch rep – in between mobile phone conversations – claims the approved card is being sent from ‘operations.’ Welcome to customer service in the GCC. Attention banks! If you don’t provide customers with a quality experience, your assets, liabilities and profits could walk out the door. Actually the process may already have begun. According to our survey of over 4,000 GCC retail banking customers, 25 per cent plan on switching their bank soon. Another 10 per cent had switched recently, citing dissatisfaction with their overall banking experience. It turns out that customer experience is driven by the operational excellence of each and every transaction. While trust was a ‘must-have,’ with nearly 71 per cent of respondents citing it as ‘highly important’ to their personal relationship with their primary bank, 70 per cent said transaction speed was crucial and 66 per cent tagged service quality. Given the high proportion of people looking to switch, it’s little surprise that the single most important reason why people switched was a specific service failing (45 per cent), followed by transaction speed (24 per cent), and service quality (23 per cent). Here are some suggestions on how to improve customer experience:
create product bundles, increasing the benefits of purchasing more from one bank. Spot the signs Predicting service catastrophes is difficult, but understanding their impact and tracking them can help. For example, a late salary deposit or failed bill pay transaction is a significant service failing impacting multiple facets of a customer’s life. If such an event occurs, contact that customer to fix the problem, apologise and offer a compensatory reward for the inconvenience. Get to such customers before they switch. Reward loyalty Length of relationship matters, but not as much as was previously thought. Pursue lengthy relationships, but distinguish them by some measure of quality. Using a value measure such as customer profit is helpful. Similarly, reward loyalty. Utilising relevant loyalty programmes is just the start. Customers want to feel rewarded, so think beyond points redemption schemes.
The single most important reason why people switched was a specific service failing (45 per cent), followed by transaction speed (24 per cent), and service quality (23 per cent.)
Reduce effort and share of clock Recognise that customers value their time, so help them reduce their joining, transacting or service times. Review all existing processes in the customer life-cycle to identify problems. Are there input errors on forms due to poor training? Is credit approval too slow? Reducing share of clock can increase share of wallet. Track loyalty early Begin customer relationships with multiple products rather than the traditional simple checking. Cross-selling effectiveness increases with rigorous segmentation, ideally focusing on behaviors and attitudes rather than demographics alone. This customer data can be used to
26 gulfbusiness February 2011
Build a customer centric organisation Establish internal processes around a defined target customer experience, derived from careful customer segmentation and needs analyses. Audit your bank’s knowledge of its customer. Measure your current delivery capability against customer needs, fixing what’s not working. Generate buzz around the brand Assuming you’re serving your customers well, reinforce their positive perceptions. With the absence of any major regional brands, there’s an opportunity to focus and build your brand. Use emerging media like social networking to shape your brand image – become known for something. Customers have more choices and are acting on them. So capturing the right customers and serving them exceptionally well will be an important source of profitable growth for banks. Salmaan Jaffery, MENA financial services retail banking leader, Ernst & Young.
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COMMENT
WORKPLACES WILL TRANSFORM IN 20 YEARS Our research consortium of over 200 global executives looked at tomorrow’s workplace. You will need to manage in new ways — and sooner than you think. LYNDA GRATTON
W
hatever your age, one of the most crucial questions you face is how the future of work will develop. If you are now aged 30, you can expect to work for the next 40 years. If you are 50, you can expect to be actively employed for another 20 years. If you have young children, they could be working until 2070. Many of the ways of working that we have taken for granted for 20 years are disappearing. And what’s coming in its place is much less knowable.
FIVE FORCES One of the first tasks of the research was to identify the external forces that will fundamentally change the way that work will be done by 2025. We determined that five forces will be crucial. The first is technological developments. By 2025, an increasing amount of work will be performed by robots and self-created content will join the digitalisation of books to create an unprecedented amount of information in the world knowledge net. We can expect that billions of cognitive assistants will be collecting information, monitoring people’s behaviour and taking actions from their preferences. The second is rapid globalisation – and this combination of technology and globalisation will also have a profound impact on the way we work in the future. The economies of next-wave locations such as Egypt, Nigeria and Turkey will be increasingly important. The third force is demographics. By 2025 most of the baby boomers will have left the workforce. There is a strong possibility that many of the healthy children born in 2010 will live more than 100 years, as will some of those currently in their 20s. This will fundamentally bring into question our current assumptions about retirement, about the employment of the over-65s and about the provision of pensions. The fourth force is changes in society and family structures. We expect more women to work outside the home, so the majority of households will have two working members. It seems likely that an increasing number of younger men will have decided to spend more time with their family and
to take a more active part in caring for their children. More people will work as freelancers and ‘neo-nomads’, expecting increasing autonomy and freedom. Finally, the carbon footprints of individuals and companies will be scrutinised and forced to reduce. This could result in a rapid escalation of the cost of moving goods across the globe and a rapid reduction of commuting and work-related travel. This will be a significant driver to virtual working and home-based working and we expect that it will increasingly be the norm to work much of the time from home or in small community hubs.
WORKING IT OUT How will these five forces affect the way we work in 2025, and what does this mean for the choices and actions we should be taking now? I see three broad shifts in the way we think about working and careers. First, the means by which employees create value will shift from having generalist ability, to developing specialist skills and mastery. Next, one of the paradoxes of the future will be that to succeed, you will need to stand out from the crowd, while at the same time be part of the crowd or, at least, the wise crowd. So, you will need to both stand out with your mastery and skills and simultaneously become part of a collection of other masters who together create value. And finally, you, your friends and children will need to think very hard about what sort of working life you want. Simply opting for a high standard of living is not going to do it. Why? Because in the future, quality of experiences will trump quantity of consumption every time and words like ‘happiness’ and ‘regeneration’ will become the touchstone of future working lives. It’s clear that the breakdown of automated work, the rise of home-based working and the increase in the possibility of choice together provide the foundation for a shift in focus away from quantity consumed as the only measure of success. Lynda Gratton, professor of management practice at London Business School and author of The Shift: The Future of Work.
In 20 years, most households will have two working members. People will work as freelancers and ‘neonomads’, expecting increasing autonomy and freedom.
28 gulfbusiness February 2011
COMMENT
US STOCKS OVERTAKE EMERGING MARKETS As China and India face concerns over rising inflation and interest rate normalisation, big cap US stocks are set to reap the benefits in the first half of 2011. MICHAEL PREISS
M
ost money in 2010 was made by investing in emerging markets. In 2011, however, the best stock market opportunities globally exist in US large cap stocks. Since the beginning of the year, US equities have outperformed many emerging markets and we expect this trend to continue for at least the first half of 2011, and potentially even beyond that. The emerging economy stock markets outperformed the US significantly in the 18 months since March 2009. Now, however, we are entering a period in which mature economies like the US and Europe will outperform emerging markets for the foreseeable future. While 2010 was the year of the “Tale of Two Worlds”, a sluggish West and a buoyant East, 2011 will be different. This year, it is the West that is shortterm outperforming as inflation and interest rate normalisation concerns overhang many emerging markets, in particular India and China. Growth in emerging markets is slowing down and growth in the United States is improving. This has major implications for your wealth and portfolio strategy. The emerging markets are facing “headwinds” due to rising inflations concerns, while the US equities market is supported by “tailwinds”. Most investors, however, do not seem to be positioned for this. Historically, when US stocks assumed global stock market leadership, emerging markets tended to underperform. Most emerging markets are experiencing significant upticks in inflation and it is being countered by Central Bank tightening of monetary policy. Higher rates are now beginning to put pressure on Asian stock market valuations that rose significantly due to US quantitative easing. The US equity market is currently trading around 13 times next year’s earning and in the middle of its historic range. The S&P 500 is still -16 per cent below its all- timehigh in early 2000 in nominal terms. After adjusting for price inflation, it is down about -35 per cent. Now American equities, especially US large caps with a high proportion of sales to emerging markets, offer the best relative value today. Emerging markets are suffering from the law of unintended consequences.Over-zealous money
printing by Ben Bernanke led to inflation and asset bubbles in emerging markets. Domestically in the US, however, this unprecedented money printing diverted the so-called “double-dip” or another recession. In America you don’t have any tightening bias yet, so what happens is that you get the full benefit of upside to global economic growth. Standard Charted Global Research recently upgraded its full year 2011 GPD forecast for the United States to +2.9 per cent from previously +1.9 per cent. This is happening at the same time as we lower our forecasts for Asian GDP growth in 2011. The net impact is that in the first half of 2011, US large cap stocks offer the best value in equities globally. One of the other key reasons why we favour US large cap stocks in the first half of this year is due to our friends in China and their new strategic initiatives. The Chinese leadership, partly due to pressure from Washington, has decided to partly re-balance their economy, not only by letting the Chinese yuan appreciate, but also by reducing the trade surplus by becoming a major buyer of US goods. China has realised that its record $2.68 trillion of reserves is a domestic problem that sparks inflation. Similar to the Japanese in the late 1990s, China is beginning to recycle excess reserves into US assets. Last month in the White House, US President Barack Obama and Chinese Premier Hu Jinttao signed a historic $45 billion trade agreement that is expected to rebalance the world economy. After a fractious few months that brought differences over currency manipulation, arms-build up and other issues to the fore, the Chinese and American presidents were at pains to stress the benefits of the relationship between the world’s two most important economies. China’s need to rebalance its economy away from predominately export-driven growth to domestic consumption-led growth is now giving an extra boost to the US large cap rally. Investors should increasingly consider “overweight” US equities. Michael Preiss, chief equities strategist, Standard Chartered bank.
China has realised that its record $2.68 trillion of reserves is a domestic problem that sparks inflation.
February 2011 gulfbusiness
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F
LETTERS LETTER OF THE MONTH 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 GB Regional January 2011.indd 1
12/30/10 2:38:48 PM
Show me the talent Your entrepreneurship feature entitled Show me the money (Gulf Business, January 2011) needs an addendum ‘show me the creative spark or talent’. I say this in recognition of the editorial where it was pointed out that ‘today, it is empowerment of your employees that will spur growth, not enslavement’. Don’t forget that employees can be paid not to think – and this is enslavement. To buttress this point, the editor pointed out that ‘the UAE is on the cusp of change’ where success and, dare I add, creativity and achievement ‘involves more than simple remuneration. The cycle begins and ends with talent’. Let’s take a moment to reflect upon the point raised by Karen Remo-Listana (also in Gulf Business, January 2011) that ‘in the UAE alone, as many as 230,000 enterprises fall under the SME category with a revenue pool of over $1.2 billion and still growing at 25 per cent’. Now that is astronomical, as well
32 gulfbusiness February 2011
Encouraging transparency How refreshing to see companies based in the UAE open their doors for the Great Places to Work survey. Too often firms in this region are criticised for their lack of transparency and cooperation when it comes to assisting internal surveys of any kind. Having your systems and processes scrutinised is enough to make any firm clam up – as we have all seen post-financial crisis. It appears the end result was diversified, reflective and unbiased. Having read the 10 statements from the winning firms, a common theme ran throughout – employee engagement, communication and empowerment. Engaging, communicating and empowering your staff equals success. And, as pointed out in the article, if you want to get ahead in a global economy, you have to think about how people drive your business. Of course, firms who did not make the list were not revealed – “in accordance with Great Places to Work practices”. One could argue that revealing the names could encourage more firms to improve upon their current employee/employer frameworks. However, let’s hope more firms go under the spotlight next year. Doing so could take this survey GCC-wide and encourage greater transparency for the benefit of all. Akmal Mohammed, Dubai
as ironic, considering that the government is still in a work-inprogress drive as to what constitutes SMEs in the UAE. Has this been finalised as yet? Perhaps this is the time to heed the warning of at least two out of the five mantras from Michael Hasbani in a follow-up commentary: notably that bureaucratic thinking can kill innovation in a blink, just as much as failing to strike the right balance between money-making and creative thinking. So while you show us the money, you must also think about nurturing SMBs and talent. Dr Nnamdi Madichie, assistant professor of marketing,University of Sharjah.
Social networking I agree with Dr Tommy Weir’s point about social media in his January column. People at the top should communicate better with their market. Using websites such as Twitter and Facebook could give potential customers, advertisers and business
partners an insight into the goingson behind corporate doors. It also adds an element of transparency to any business transaction. However, I can’t help but think that many CEOs will offload their tweeting and status updates onto their PA. Amira Khalil, Abu Dhabi
Email: Write to the editor, Gulf Business, alicia@motivate.ae and the letter of the month wins an Alessi watch.
ANALYSIS FINANCE
Banking on Oman Limited exposure to Western markets meant Oman survived the financial storm. KAREN-REMO LISTANA speaks progress and plans with the sultanate’s largest bank – BankMuscat.
U
nlike many economies around the world, Oman came out of the financial crisis relatively unscathed. Real GDP growth last year is to outpace expectations, with an estimated growth of around five per cent compared to a predicted four per cent, while this year GDP is expected to grow by a further 4.7 per cent. Overall growth for the year is to reach 21 per cent due to strong banking performance and healthy growth in the telecommunications sector. Similarly, the latest National Bonds GCC Savings Index concluded financial stability in Oman is the highest in the region, with the sultanate scoring highly on savings environment and savings potential. Furthermore, Moody’s ratings agency has given Oman a stable outlook, claiming its introverted approach to business meant local banks faced little exposure to western markets during the slowdown. However, despite these positive developments, high concentration in the local market leaves Omani banks vulnerable to the performance of the hydrocarbon sector. And while direct government intervention was not needed during the financial crisis, the Central Bank of Oman provided a $2 billion liquid facility in 2008 to provide banks with foreign-currency funds. Sheikh Abdul Malik bin Abdullah Al Khalili, BankMuscat chairman, says the downturn impacted Oman far less than its neighbouring countries for two reasons. “First,
BankMuscat, new headquarters.
Oman was very conservative since the beginning so we are less exposed to the rest of the world and second the rules and regulations come from the Central Bank. “The lesson to be learned is that we should be very careful. The regulations were loose in other parts of the world. I don’t know if it happened intentionally or if it happened by
itself, but this was expected – people have been talking about the crash but no one has been doing anything.” Currently, BankMuscat is Oman’s largest bank by market value with a total asset base of more than $13 billion. The biggest contributor to the bank’s revenue is retail at 41 per cent and commercial and investment banking 59 per cent when combined.
OMAN IN NUMBERS
1 million $77.92bn Oman’s Salalah Airport is aiming for one million passengers by 2013.
34 gulfbusiness February 2011
Oman plans to spend OMR30 billion, or $77.92 billion, in its new fiveyear economic plan to 2015.
10.7%
Oman’s 2011 budget includes a 10.7 per cent spending increase over 2010.
It has 42 per cent market share and a capital adequacy ratio of 14 per cent – the ratio of a bank’s capital to its risk-weighted credit exposure. And while Fitch Ratings’ latest update on the bank said liquidity is considered tight given its high loan/deposit ratio, BankMuscat is adequately capitalised. In its latest set of financial result BankMuscat reported a net profit of $264 million (OMR101.7mn) for 2010, 38 per cent up on the previous year. And while Abdul Razak Ali Issa, BankMuscat chief executive officer, describes Oman as a highly penetrated market where margins are tightly squeezed, Khalili says the bank will have grown five to six per cent by the year-end. Issa says to sustain growth, innovation is the key and “we need to improve the service level, which will differentiate us.” But he adds: “From 42 per cent, it will be difficult to increase our market share. Two more banks are expected to come into the market. And those banks will get market share from existing banks. Our focus is not on increasing our market share but on improving our services. We will be focusing on maintaining our positions.” Since its establishment in 1982, BankMuscat has grown off the back of some major mergers and acquisitions, including Al Bank Al Ahli Al Omani in 1993, Commercial Bank of Oman in 1999 and the National Bank of Oman in 2004. And while Issa does not expect much consolidation in the sultanate going forward, he adds: “In
Sheikh Abdul Malik bin Abdullah Al Khalili, BankMuscat chairman.
Abdul Razak Ali Issa, BankMuscat chief executive officer.
the GCC, yes. It may be forthcoming but I don’t know when. Eventually it has to happen, but in Oman I don’t see a need for consolidation in the near future. The banks are doing well. Each bank is getting a fair share.” For BankMuscat, which is 24.8 per cent owned by the government of Oman and 15 per cent by Dubai Financial Group, Al Khalili has big ideas. Over the next three years, he says: “We are looking at keeping our market share in Oman and we’re looking outside Oman – the GCC, India and Pakistan. This all depends on opportunities. Frankly we are not looking at other areas that are not part of the region.”
Issa, says expansion is “one way of increasing our revenues”. He adds: “We will go selectively into overseas markets. We expect to open a rep office in Singapore sometime next year.” To support regional expansion plans, Al Khalili says the bank is not looking for funding “for the time being“, but adds: “We’ll keep our doors open. We may raise finance or we may raise from shareholders, this might be cheaper for us. As far as debt is concerned we’re waiting for the right moment. There are a lot of project finances in the pipeline.“ Government spending also makes for a prosperous 2011 in Oman. The total public expenditure for fiscal year 2011 is an estimated $21 billion (OMR8.13 billion) compared to $18.6 billion (OMR7.18 billion) for fiscal year 2010, up 13 per cent. “Our economy is driven by government spending,” says Issa. “Many projects are in the pipeline, which we’ll see the execution of during 2011. The government’s five-year development plan is being executed. Spending is continuing and new projects will come on stream but margins will be under pressure.” But for now, he says the worst is over, “at least in Oman”.
OMAN TITLE Economic factors Valuation attraction Earnings growth potential Investor sentiment Geographical developments Market liquidity Source: Kuwait Financial Centre
WEIGHT 20% 20% 25% 10% 10% 15%
RANKING positive positive positive neutral positive neutral
February 2011 gulfbusiness
35
ANALYSIS LAW
A taste of freedom As the UAE scraps its no-objection letter for skilled employees moving jobs, MARK ATKINSON examines the labour liberalisation movement in the region.
T
he no objection letter (NOC) has perhaps been the most poignant legacy in the labour law – and in the opinion of many, the one in most urgent need of reform. In a recent decision by the UAE government, employees with a minimum high school certificate qualification will be able to move jobs without a NOC from their current employer. Unskilled and semi-skilled workers are still subject to the NOC rule. This new law is one in a series of initiatives towards labour reform. A number of new work permit categories have been introduced, including temporary permits for those on short-term contacts, permits for part time workers and those on their spouse’s sponsorship. Regarding this latest law, if an employee has served the full length of contract without breach, they will, in theory, not be liable to a ban. Labour contracts themselves have been reduced from three to two years. However, Samir Kantaria, partner and head of employment, Al Tamimi & Company, a UAE law firm, says the Ministry of Labour (MOL) is likely to come up with a new resolution in the next few weeks, detailing exact circumstances. “Certainly there were inconsistencies in the previous law,” says Kantaria. “Certain categories could avoid a ban by paying Dhs5,000, plus if an employee complained to the MOL, the ban could be lifted anyway. Being employed in a free zone has been another way of avoiding a labour ban. Hence with the new law, a lot will depend on the conditions the MOL imposes.” The new law has led to an outcry from many employers, concerned that they are disadvantaged against their labour force. There is, however, the counterargument that, apart from leaving employees at the mercy of
36 gulfbusiness February 2011
Samir Kantaria, partner and head of employment, Al Tamimi & Company.
Mike Hynes, managing partner, Kershaw Leonard.
unscrupulous employers, restricting labour movement is a sure-fire way to stranglehold the spread of knowledge. “This new law has to be good for the economy,” says Mike Hynes, managing partner at UAE recruitment firm Kershaw Leonard. “If people are in a job because they’re scared to move, they can’t be motivated. Sooner or later there has to be equality across the labour force – wage parity across different nationalities for example.
centralised entity. Yet, so far, Bahrain has been the only GCC country to have moved to what it describes as its ‘freedom of transfer’ law. Enacted in August 2009, expatriate workers in Bahrain can move freely without incurring a ban. The difference is that there are no exceptions – unskilled workers are also included. Neither do employees need to see out their existing contracts, although they are required to inform their employers
Sooner or later there has to be equality across the labour force – wage parity across different nationalities, for example. “Let’s not underestimate that lifting the NOC law is a substantial step in the right direction. The next thing that needs to be addressed is centralising sponsorship through government – not through companies.” The UAE is not alone in its labour reform efforts. Kuwait has called for an end to the sponsorship system. Saudi Arabia is also said to be considering moving sponsorship from the hands of employers to one
in writing within an agreed period of notice. According to Bahrain’s Labour Market Regulatory Authority, the initiative has been successful. In only two per cent of cases, he alleges, have employers objected to a transfer. Certainly Bahrain appears to have propelled a momentum for change that now seems unstoppable. It remains to be seen how things will develop in the UAE.
ANALYSIS HEALTH
The bittersweet truth Diabetes affects over 25 million people in the region and only rapid action will help stem the rising death toll, writes ALICIA BULLER.
38 gulfbusiness February 2011
iStock
T
here’s nothing sweet about the region’s taste for fast food and even faster cars. Diabetes claims one life somewhere in the world every eight seconds. Currently there are 26.6 million people in the MENA region impacted by the disease and that number is set to double by 2030. In the UAE alone, an estimated one in four residents is paying the price for a sedentary lifestyle and unbalanced diet. “From a financial, societal and humanistic perspective, diabetes is the most severe public health problem we have ever faced globally,” Lars Rebien Sørensen, CEO and president of Novo Nordisk, tells Gulf Business. “500,000 people have diabetes in the UAE and the medical cost is $500 million, this figure is set to double in the next 20 years.” In the US, around 52 per cent of the population will have diabetes by 2020, but the Middle East’s problem is more acute because rapid lifestyle changes have surfaced in just one generation. “There’s access to, and an appetite for, certain kinds of lifestyles and cuisines that weren’t here 30 years ago. It’s more pressing because there is a broader and younger population in the region,” says Simon Leary, Middle East health industries leader at PwC. “You have the double whammy of the fact it happened overnight, plus you have a situation where the support is going to need to be there for longer.” Sørensen adds: “It’s conceivable that many people in this region have lived a very hard life originally and quickly seen changes in lifestyle based on the West. There are also genetic differences and the climate discourages outdoor exercise.” Ahead of the UN Summit on noncommunicable diseases this year, the UAE government patronised the MENA Diabetes Leadership Forum in Dubai, gathering over 700 experts to shore up momentum to tackle the illness.
Number of people with diabetes in MENA – up by 94 per cent in the next 20 years 19.2 million
26.6 million
51.7 million
2003
2010
2030
The GCC currently earmarks around 10 per cent of its annual budget for diabetes treatment and this figure is only set to mushroom as the epidemic widens. Saudi Arabia is thought to be the most pressing diabetes timebomb, with the deadly combined factors of a high youth population and juggernaut economic growth. “One third of all Riyadh hospital admissions are diabetes related. The disease will thwart the economy because it affects work and productivity,” says Tawfiq bin Ahmed Khoja, director general of the executive board of the Health Ministers Council for the GCC. “We must concentrate on educating adolescents and pre and postpregnancy women, as they are the caregivers for the whole family.” Experts agree that the solution for diabetes is the education of patients and consumers on the dangers of a sedentary lifestyle, stronger primary PROJECTED DEATHS (1000S) FROM DIABETES, BY AGE AND SEX, 2008 AND 2030 16 14 Male 12 Female 10 8 6 4 2
Source: International Diabetes Federation
0
30-44 45-59 60-69 2008
30-44 45-59 60-69 2030
Simon Stevens, UnitedHealthcare.
Lars Sørensen, Novo Nordisk.
care, strong government backing, community-based initiatives and health insurance incentives to change lifestyle. UAE firm Modern Pharmaceutical Company (MPC) for one, is taking the community approach by launching a widespread not-for-profit ‘Decide’ initiative this month, which aims to support the diabetic community with a free portal-based information and advice service supported by an education pack. Simon Stevens, executive VP of US-based UnitedHealth Group, says: “We need to build on the programmes that are working and solutions need to be country-specific. We need to make sure that people have the right timelines on the horizon. This will not be a flash in the pan or something that will produce an instant impact. We’re
trying to have an impact five or 10 years down the line.” “Policy makers in the region are looking at strengthening primary care and there is a concerted effort underway to improve the responsiveness of those services to the population, improve the trust which patients have in them and ensure that they are providing highquality care. We also need to change the incentives for doctors and hospitals. They don’t have many incentives for quality,” he adds. But Novo Nordisk’s Sørensen says it could take up to 50 years to resolve the situation. The Dutch company, which supplies over half of the world’s diabetes products, is stepping up its Gulf activities by expanding collaborations with ministries of health and advancing clinical trials. The firm has also just launched Victoza, a revolutionary one-step daily insulin treatment that also promotes weight-loss, in the UAE, Bahrain. Kuwait and Qatar. The next two decades will be crucial in deciding the economic and societal fate of the Middle East. Aggressive government and private sector strategies must be employed to ensure diabetes is not the largest blight on the region’s prosperity.
Number of people with IGT in MENA – up by 77 per cent in the next 20 years 18.7 million
24.4 million
43.1 million
2003
2010
2030
February 2011 gulfbusiness
39
ANALYSIS TECHNOLOGY
Cloud on the horizon As competition for cloud computing solutions intensifies, TRACEY SCOTT explores the remote way of managing business in the region.
40 gulfbusiness February 2011
getty images
W
hile cynics argue that cloud computing is simply a misleading marketing ploy for already-existing products, most experts insist it is the next logical stage in the internet’s evolution. Virtual evolution or fad, more firms are committing large sums of money to cloud services. Market heavyweight Google has announced plans to expand its Enterprise division and Google Apps services in the region, targeting potential clouding partnerships in Qatar, Saudi Arabia the UAE and Oman. Microsoft, too, has ambitious plans for its Windows Azure platform, which offers cloud applications for PC, web or phone. “Almost everyday you will read of some new cloud service, often they are services that are pre-existing but they have moved some way towards cloudenabled,” says Kevin White, Ovum research, advisory and consulting director for MENA. Cloud computing is an internet-based, on-demand solution. It enables firms to manage their IT systems virtually using whatever device they choose, from any location at any time. White says for businesses, both large and small, capital expenditure is substantially reduced, deployment is a matter of months as opposed to years and service levels are dramatically improved. “That speed to market and service is very attractive. Up to now, and in many senses still, most businesses will operate their own IT infrastructure which they buy usually as capital expenditure. Cloud computing actually delivers a lot of the IT services remotely. Instead of buying, owning and managing that equipment your service provider actually owns, runs and manages it.” Currently, cloud computing is offered in different forms – public, private and hybrid. Firms wanting
Google is beefing up cloud computing services in the region.
more control could opt for a private option, giving them control over things like physical location, data management, and regulatory compliance. Users can pay-as-theygo or pay a flat subscription rate depending on the service they require. Alex Filocca, Citrix Systems Middle East regional marketing manager, says there are a number of key criteria that a business must consider when choosing a cloud model. “Organisations need to ensure they can easily access
cloud computing structures have been proven to be more secure than traditional models for IT systems. All data, applications and management functions are secured safely in the datacenter, omitting the need for any critical information to be held on individual users’ computers, mobile devices or in disparate offices.” Going forward, White says early adoption is happening now, but it will be three to five years before cloud computing becomes commonplace
Early adoption is happening now, but it will be three to five years before cloud computing becomes commonplace in the region. services in the cloud, manage data effectively and be assured of reliable disaster recovery services.” Unlike software and hardware, upgrades and maintenance is a responsibility of the selected service provider, along with IT assets and security. And while Filocca says users can securely access their business needs from their chosen device, security on cloud services remains an issue. But Filocca adds: “In practice,
in the region. “It is not as developed in its deployment as other regions. There are differences here in terms of the infrastructure and some of the regulators in the Middle East do not allow certain traffic across IP networks or borders.” So as more clouding solutions emerge, companies should immerse themselves in this wave of virtualisation. Those with their head in the clouds could be left behind.
© Abu Dhabi Tourism Authority
ANALYSIS ABU DHABI
Capital gains Abu Dhabi will continue to act as the nerve centre for sustainable growth in the UAE in 2011, writes TRACEY SCOTT.
A
s the UAE reeled from the global financial crisis in 2010, GDP was stilted, resulting in reduced growth of about 2.4 per cent last year, up slightly on 1.3 per cent in 2009 but down from 7.4 per cent in 2008 and 8.8 per cent in 2007. Overall, the UAE was believed to be the worst performing economy in the GCC last year, and the International Monetary Fund says it will be the worst performer this year. It predicts real GDP growth at 10.7 per cent in Qatar, 4.7 per cent in Oman, 4.5 per cent in Saudi Arabia and Bahrain, 4.4 per cent in Kuwait and 3.2 per cent in the UAE.
42 gulfbusiness February 2011
The UAE Ministry of Economy’s estimate is slightly higher at 3.5 per cent, with inflation expected to bump up to between 2.5 per cent to 2.8 per cent. And while its estimate is not as high as growth rates witnessed over the past few years, it is a step in the right direction for the emirates. Similarly, the latest report from Kuwait Financial Centre says 2011 is expected to be a better year across the UAE due to lower provisions and stronger economic recovery, with corporate earnings to return to growth at 24 per cent after declining by an estimated six per cent in 2010. While it believes the debt issues in the UAE will continue to be a drag on economic
growth, it concluded its outlook for Abu Dhabi this year as positive, compared to neutral for neighbouring emirate Dubai. But despite Abu Dhabi being the more economically robust emirate, it says the capital will be watched closely in terms of its support of Dubai, which has over $42 billion in debt obligations due in 2011/2012 and an additional $55 billion beyond that. Economics aside, diversification remains top of Abu Dhabi’s agenda this year as it pushes ahead with its plan to raise GDP contribution by non-oil sectors to 50 per cent by 2015 and 64 per cent by 2030 – part of its Economic Vision 2030. The Department of Economic Development’s (DED) latest report details exactly what the capital is doing to diversify the economy into other sectors going forward. According to the report, in 2011 Abu Dhabi is aiming to increase direct investment growth by nine per cent, and each year thereafter, and raise FDI to 23 per cent of GDP by 2030.
Next year the construction of the first nuclear power station is scheduled to commence, with a capacity of 1,400 megawatts for each station. The first station is expected to begin supplying electricity to the national grid in 2017, while the four plants are scheduled for completion in 2020. Also next year, GDP per capita for the non-oil sector is expected to reach about $30,000 to $35,000, and while the DED expects productivity per employee to decrease to $86,000 in 2012 from $96,000 in 2008, the distribution ratio of employment among highly skilled and low-skilled workers will be 58:42 by 2012, from 40:60 in 2005. Abu Dhabi’s Tourism Development and Investment Company (TDIC) says 2011 will be the “biggest year for delivery in TDIC’s history”. Lee Tabler, TDIC chief executive officer, tells Gulf Business that the investment firm is evolving from a predominantly development-based organisation to one that will operate a significant number of assets. “On the hospitality front, TDIC is to deliver six hotels in 2011, adding more than 1,600 hotel rooms and residences to the emirate. Beyond our hospitality offering, we will also deliver the first phase of our residential projects on Saadiyat Island in 2011 – the Saadiyat Beach villas will be completed by the end of the year and the Saadiyat Beach
HE Mubarak Al Muhairi, ADTA.
Lee Tabler, CEO,TDIC.
Authority (ADTA) has bold plans for the next 12 months. It is targeting 1.9 million hotel guests, staying in around 22,000 hotel rooms and contributing 11.1 per cent to the emirate’s overall non-oil GDP by year-end. Such a target is 15 per cent up on last year’s guest target, with an increase of over 5,000 hotel rooms and a 0.4 per cent increase in overall non-oil GDP contribution. HE Mubarak Al Muhairi, ADTA director general, says that Abu Dhabi hopes to shift its current businessdominated hotel guest profile to a more balanced business and leisure tourism split in 2011. “We are confident we can achieve
footprint, diversifying to complement our traditional Euro-centric markets with emerging source markets.” In a bid to raise Abu Dhabi’s profile further, ADTA aims to participate in 18 international trade fairs during 2011 with first-time participation in Russia, Korea and the US. “These new shows have been selected to emphasis our push into the Russian and American markets and to leverage and support the new Etihad service from Seoul to Abu Dhabi International,” says Muhairi. ADTA also plans to make a number of advancements in its green hotels programme – aimed at reducing energy, water and waste in Abu Dhabi’s hotels. The Green Hotel Guidelines are expected to be absorbed into ADTA’s hotel classification system by the second quarter this year, after which all new hotels will receive a green rating alongside their star ranking. This year will also see the introduction of a classification system for restaurants in the capital’s hotels and attractions as well as classification for desert camps, “both of these moves will add to the destination’s overall credibility,” says Muhairi. So while many firms spend much of the year repairing their balance sheets and image, it’s safe to say that Abu Dhabi will continue to drive economic diversification in this part of the world.
TDIC is to deliver six hotels in 2011, adding more than 1,600 hotel rooms and residences to the capital emirate. apartments will follow closely after.” TDIC will also deliver the Monte Carlo Beach Club on Saadiyat Island this year, marking the first Monte Carlo Beach Club outside Monaco. Work on the island’s Cultural District is “progressing on schedule”, says Tabler, with Louvre Abu Dhabi to become operational in 2013 and Zayed National Museum and Guggenheim Abu Dhabi shortly after. Similarly, the Abu Dhabi Tourism
this because our leisure proposition has, and will, continue to grow. More intense focus on the leisure segment is in line with our strategy of increasing overall length of stay. We have taken a major leap forward on the leisure scene.” Muhairi also hopes to reap the benefits of entry into other territories, with the opening of ADTA offices in Russia, Saudi Arabia and the US. “We are looking for a wider geographic
February 2011 gulfbusiness
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EXECUTIVE MOVES
Dubai Islamic Bank has appointed Ahmed Fathy Al-Gebali as its new chief financial officer. Al-Gebali joins DIB from Kuwait’s Boubyan Bank, where he was chief financial officer. Previous roles include senior positions at Global Investment House, Gulf Investment House, Kuwait Financial Center and International Financial Advisors. Abdulla Al Hamli, Dubai Islamic Bank chief executive officer, says: “At a time when Dubai Islamic Bank is focused on consolidating its position as the leading Islamic bank in the United Arab Emirates, Al-Gebali will make a sustained contribution to our ongoing growth.”
44 gulfbusiness February 2011
The Union of Arab Securities Authorities (UASA) has appointed UAE candidate Salah Al-Helyan as its new secretary general. Al-Helyan succeeds HE Abdullah Al-Turifi, Emirates Securities and Commodities Authority chief executive officer, who served as secretary general for four years. Previously, Al-Helyan has served as deputy chairman of UAE Insurance Authority and as director general of Gulf Insurance Consulting. He has also served as an insurance and aviation expert at the Dubai Courts and the Ministry of Justice.
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COVER STORY GE
American dreams Nabil Habayeb, GE CEO and president MEA, plans to spend on Saudi Arabia and Iraq as the firm posts robust results. PETER SHAW-SMITH and ALICIA BULLER speak to the regional face of the world’s second largest company.
46 gulfbusiness February 2011
earnings growth, “ expected to “continue in 2011 and 2012,” he said. Revenue rose one per cent to $41.4 billion in the fourth quarter, exceeding analysts’ estimated revenue of $38.9 billion. For the year, revenue was $150.2 billion, compared with $156.8 billion in 2009. Increased infrastructure orders and GE Energy-related bookings are thought to have bolstered the firm’s profits by 51 per cent in Q4 2010, following poor performance the previous year from its capital division. “We have made it clear that GE Capital is going to be a lot smaller than in the past; part of the restructuring is that GE Capital will be reduced and we will be increasing the industrial side through organic growth and other acquisitions. Growing the industrial side is where the regional growth is,” Habayeb says. “Even though we had lots
revenues, but looking forward into 2011, the GE MEA boss believes this figure will grow exponentially. “We’re very bullish about growth in this part of the world. We were bullish in 2002 and 2003 when the price of oil was in 30s and 40s and today that price has more than doubled that. The basic foundation driving growth at that time continues to be there,” he says. Currently, more than 50 per cent of the total revenue for GE comes from outside the US. The CEO adds that GE views the world in three categories – technology-rich countries like the US, Western Europe and Korea; peoplerich countries like China and India; and resource-rich countries such as the Middle East, Russia and Brazil. “The growth for us is in the peoplerich and resource-rich countries, so the Middle East is a major contributor. People are still investing in developing
Our relationship is not opportunistic, it is for the long-term. We will grow at a faster rate than the regional GDPs, that’s our aim. of customers investing in our infrastructure, 2009 was a tough year. This is because there is a lag between the time we take the order and recognise the revenues.” The region currently contributes around four per cent to the firm’s
their resources and exporting it to other parts of the world, which is being used to redeploy infrastructure investments here, including power, water, transportation and socioeconomics. This region has a young and growing population – they all
Naveed Ahmed
G
E has become a byword for recognisability, and it is little surprise the company claims to be the world’s fourth most valuable brand after Coca Cola, IBM and Microsoft. Globally, the US firm is focused on transportation, power, water, energy and healthcare and the Gulf is increasingly acting as a powerhouse for new development and investments in all these areas. Having generated around 40 per cent of electricity in the region, purified some 800 million litres of water and transported 56.3 million people with GE engines in 2009, the company is undeniably making its presence felt in the Middle East. “[GE’s] relationship [with the region] did not happen overnight. It is founded on trust, respect and common interests. There are sound financial commitments from both sides,” says Nabil Habayeb, CEO and president of GE Middle East and Africa. GE announced surprisingly robust global figures for 2010. Net income for the year was $11.6 billion, compared with $11 billion in 2009. “GE exits 2010 with significant momentum,” chief executive Jeffrey Immelt said in a statement. The company “ended 2010 with three consecutive quarters of strong
February 2011 gulfbusiness
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COVER STORY GE
GE generator stator, Dubai.
need healthcare and education. When you look at GE’s portfolio [we can match it]. We will grow at a faster rate than the GDP here, that’s our aim,” adds Habayeb. GE currently boasts billions of dollars worth of projects across the region spanning its entire remit of ‘company to country’ strategies, where the US firm steps in to build and support a country’s development. “We will continue to leverage growth opportunities across all key markets, but we cannot ignore the size of Saudi Arabia or the reconstruction of Iraq,” the CEO says.
major areas of GE expertise and cooperation. The firm first started servicing gas turbines in the region in Bahrain in 1973. Middle East Engineering Ltd Saudi Arabia, a joint venture of GE and Ali A Tamimi & Sons Company, is currently developing a gas turbine service centre in Damman to the tune of $75 million, while GE’s Abu Dhabi-based Gulf Turbine Services facility was
combined cycle technology, to enable crude to be burned in gas turbines. KSA took delivery of its first gas turbine in 1940 and GE has had a joint venture presence there since 1975. Saudi Arabia has unequivocally been a key growth country for the company, and today KSA burns around 10 per cent of its oil domestically to generate electricity. The Saudi Arabian General Investment Authority’s drive to set
GE once exhibited all the brashness of US capitalism with “I have a product; how can I sell it?”. But the emphasis has changed.
ENERGY A fast growing demand for power and water, led by an increasing population and infrastructure development, is the principle challenge for the region – and one which suits GE’s strengths. Turbine technology is one of the
48 gulfbusiness February 2011
set up in 2001 to provide spares and servicing for the power generation, oil and gas industries. GE and King Fahd University of Petroleum and Minerals in Dhahran are currently conducting research on integrated gasification
up economic cities creates significant research and development and manufacturing opportunities for GE. What’s more, a further 30 gas turbines are to be delivered for the kingdom’s power network.
Further afield, in 2005 GE announced it had won an order from Qatar Petroleum involving turbines to set up five LNG gas trains capable of producing 40 million tonnes a year of LNG product, a significant industry capacity advance. “This region is setting the standard for a lot of the new technology being applied in the world,” says Habayeb. “Our relationship is not opportunistic: it is long-term.”
FINANCE GE has assiduously courted a relationship with Mubadala Development Company, Abu Dhabi’s diversification catalyst. Mubadala has responded in kind, and both have pledged billions of dollars in equal GE IN NUMBERS
304,000 global employees 2,000
employees based in 17 ground facilities in eight countries in the region GE’s CAGR (compound accumulated growth rate) from 2005 to 2009
23 per cent $200 million GE investment in Middle East localisation initiatives over the past 24 months
2,000
number of GE jet engines power airlines in the Middle East
70 per cent
of hospitals in the region are equipped with GE Healthcare products and solutions
1,000
biomedical engineers were trained by GE Healthcare in the past four years
measure. Two initiatives in finance and aviation bear witness to the potential for cooperation. In the financial field, GE Capital and Mubadala are to contribute $4 billion equity each over three years to the joint venture known as Mubalada GE Capital, which announced in December that it had raised an additional $2 billion in funds which it would use to provide commercial lending, leasing and equity finance to help young regional companies grow. Habayeb said the company would have an important role in the “creation and incubation of new business.” He added that “we’re possibly launching another, sometime in 2011, and the size is to be confirmed.” With a main focus in the region, Mubadala GE Capital will also target selected opportunities in global markets, in power and water, oil and gas, healthcare, manufacturing transportation and infrastructure. The company, licensed 12 months ago by the UAE Central Bank, will utilise GE Finance’s global know-how to drive new growth in the region. Business aviation is likely to be another growth area. Ronald Herman, the company’s CEO, claims the leasing market is underpenetrated. “Less than one per cent of all new corporate lending is leasing,” he says. Habayeb began his career at GE three decades ago, for a power plant in Baghdad. Today, some 56 gas turbines are to be delivered to Iraq as it seeks to revamp its ailing infrastructure. GE has already signed a $3 billion power generation deal with the Ministry of Electricity and contracts of about $200 million to supply power generation services for two independent power projects in the Kurdistan region of Northern Iraq. These projects will help support the region’s current and future power needs and the country’s overall efforts to develop its energy infrastructure. “Our partnership with Iraq dates back to the 1950s. Since 2004, all our businesses have operated in the country. In 2011, we foresee an active role in driving the key growth sectors through
public private partnerships, as well as achieving tangible progress on all our existing contracts,” says Habayeb. Other initiatives include several power and water purification plants and units across the region, while a graduate management programme has been set up in Bahrain to encourage nationals and Saudis to work for the company. Gas reinjection into depleted oil wells in the GCC has also proved fertile ground. In 2008, GE Oil & Gas won a contract worth over $250 million to supply centrifugal compressors for gas injection at the Kauther, Saih Nihayda and Yibal gas fields in Oman. In seeking to replicate its global strategy in the region, GE has seen its Middle East headcount grow to 2,000, with 17 facilities, and its revenues from $1.0 billion in 2002 to $6.4 billion in 2009. A total of two employees – one of them Habayeb – in the UAE in 1984 has now grown to 700. “The match is great,” says Habayeb. “There aren’t too many companies that have the breadth we can bring.” Two of his biggest challenges in the region will be managing the timelines correctly and, more arduously, finding and nurturing skilled local employees. “The nice thing about this part of the world is there’s a commitment to vision and there’s a say and do factor, they say what they are going to do. But the crisis shifted the timelines and delayed some of the plans, such as privatisation,” Habayeb says. “Because of the scarcity of talent, sometimes you are competing with the government for the same skill set. We have training programmes and corporate leadership programmes in place to try to get these people.” Times are changing. As Habayeb puts it, GE’s emphasis, where once it demonstrated all that was brash about American capitalism with a calling card of “I have a product; how can I sell it?” has changed over the years to now assert “I have a market; how can I help it?”. Just as important is the man himself: as a Lebanese, he is a son of the region. Perhaps that’s the secret behind his winning formula. ■ February 2011 gulfbusiness
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FEATURES BANKING
Not out of the woods yet
H
istory will write that the Gulf financial services industry turned a corner in 2010 after haemorrhaging staff and battling rotten results in the early post-crisis years. Whereas international and local banks, regional asset managers and sovereign wealth funds previously
50 gulfbusiness February 2011
getty images
The worst of the financial crisis may be receding for the big players, but the Gulfâ&#x20AC;&#x2122;s banking industry still faces a long crawl ahead, writes RYAN HARRISON.
wielded the axe, they have spent the last 12 months devising austerity measures, including freezing cost bases and headcounts. As they have attempted to work off the excesses of the past, banks have reined in recruitment budgets and curbed bonuses. The worst of the financial crisis may be slowly disappearing in the rear-view mirror for some of the bigger players, but the industry is not out of the woods yet.
MUTED RECRUITMENT ACTIVITY The biggest problem for financial institutions in the region has been the continued impairment charges and debt provisions related to soured loans. Exposure to Dubai World and the real estate crash has also hit profitability and therefore hiring has been thin on the ground. Banks provisions for loan losses were particularly pronounced in the UAE â&#x20AC;&#x201C; rising from $6.8 billion at the
end of 2008 to $12.8 billion at the end of March 2010 – a trend that continued and peaked in Q4. Most recently, Emirates NBD said its 2010 third-quarter profit tumbled 60 per cent after a spike in bad debt and a provision for its exposure to the Dubai conglomerate. The lender booked nearly $816.7 million in impairment allowances in the first nine months of 2010. For local firms that resisted drastic cost-cutting measures in Q1 2010, it was only a matter of time before they had to face the music. In November, Mashreq laid off 50 in its small and medium-sized lending business, just weeks after Noor Islamic Bank shed 30 staff. Some banks held recruitment on a tight lease in the last 12 months, while others increased their reliance on a temporary or contract-based workforce to lower costs.
than others. Also sometimes you’re not as fastidious when selecting them.” She added that banks in the region have been forced to become more realistic after being humbled by the recession. “It’s hit home that these are austere times and there’s not enough fat in financial institutions for things like huge bonuses. “Companies like Standard Chartered, HSBC, Lloyds and ourselves are feeling the pinch for different reasons and that thinking is permeating the Gulf market. There’s a collective view that as separate as the Middle East may be, the business is still connected to the mother ship,” said Johnstone.
PUNY PAYOUTS Bonuses were flat in 2010 and payouts this year look grim as cash-flow remains a challenge and banks face greater regulatory pressure to tame wild compensation packages.
Mashreqbank laid off 50 people in 2010.
Janet Johnstone, managing director at BNY Mellon, said: “We have had a lot of temporary staff and interns because of the financial crisis. The willingness at the bank to take in new people has not been good. And a lot of people are happy to work on a contract basis or intern and below market rate because of their situation. “It does inject a different culture into the company: temporary workers come in fits and starts, some are better
In particular, Middle East M&A activity had a tumultuous year, which meant recruitment and bonuses remained muted. Banks therefore struggled to see the value of significant investment in people with such a small fee pot on offer. In Q1 2010, deal-making amounted to nearly $4 billion, according to data from mergermarket, but only reached just over $7 billion by the end of the third quarter.
To September, the fees paid to investment banks for M&A, and the debt and equity markets in the Middle East totalled $397 million, according to Thomson Reuters. While this figure is up on 2009, it’s still down on 2007-08, and the muted appetite to recruit in these areas is reflective of this. The more pessimistic recruiters were expecting bankers to be paid nothing last year, while Robert Half’s 2011 salary survey suggest bonuses could amount to just 25 per cent of base pay. But there is a crumb of comfort in the latest Deloitte survey of Middle East chief financial officers, which found the majority are positive on M&A activity in 2011. The poll found 61 per cent expect M&A to increase in the next 12 months, although this majority has shrunk since last year, when it sat at 71 per cent. The hope is that more deals means more opportunities to generate investment banking fees. Punitive bonus rules coming into play from the European Union – partly as a result of a taxpayer backlash – are likely to extend to the Middle East operations of international investment banks, say experts. For instance, banks in Bahrain will soon have to comply with remuneration recommendations laid out by the Basel Committee on Banking Supervision (BCBS). In a consultation document, the Central Bank of Bahrain said that it is in the process of reviewing the documents published by the BCBS and “intends to incorporate these international standards as part of its regulatory framework”. These will be applied to licensed banks in Bahrain, which means that both regional and international organisations will come under the new principles set out in the BCBS consultative document published in October. In general though, most prospective employers are specifying an everincreasing and demanding skill-set from new recruits and a tougher set of bonus criteria. February 2011 gulfbusiness
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Noor Islamic Bank made 30 staff redundant in 2010.
One head of HR at an international bank said: “Bonuses have been increasingly paid on sales and revenue, so real or tangible targets rather than softer criteria. “Also, we’re asking more and more that staff double-hat across the region. We’re moving from a bigger percentage of discretionary bonuses to more formulaic calculations.” To get around the curb on bumper bonuses, some international players in the region have raised base salaries by as much as 20 per cent in 2010, even at the junior end. This trend is likely to accelerate in the coming years with the EU crackdown.
UAE POWER SHIFT The dramatic change in economic power in the UAE in recent years has been echoed through the banking and finance industry. In particular, banks in Abu Dhabi have embarked on a widespread hiring spree from Dubai banks in 2010. And sources say this will continue at some pace. As Abu Dhabi’s clout in the UAE grew exponentially last year, one HR executive at the Commercial Bank of Dubai said Abu Dhabi Islamic Bank was its “single largest poacher”. Meanwhile, as part of a wider buyout of Dubai’s financial assets, there was speculation that Abu Dhabi held talks to purchase the Dubai International Financial Center and a 20 per cent stake in the London Stock Exchange, something Dubai officials have refuted.
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It also promises to be a thrilling year for Saudi Arabia and the Islamic finance industry, if 2010 is anything to go by. Islamic banking cemented itself as the safer, more stable option to Western banking models and Saudi quickly grew as the next big thing in Shariah banking. For an example of just how significant Saudi has become, consider the fact that in September Barclays announced it would recruit around 30 executives and junior recruits as it kick-started its operation in the kingdom. Benoit de Vitry, managing director at Barclays Capital, described the market as “massive”.
There will be no shortage of banks battling for the spoils of Qatar spending spree. The Financial Times initially put the figure at $20 billion, but a report by Meed Insight in collaboration with the Qatar Financial Centre Authority suggests that $100 billion will be spent on infrastructure projects over the next few years. Recruiters said as part of the trickle down effect, local banks will benefit and be inspired to put their teams on the ground, while the international banks – which largely have their MENA project finance and advisory teams based in either London or Paris – will increase their headcount more
Banks in Abu Dhabi embarked on a hiring spree from Dubai banks in 2010 and this will continue. The UK bank plans to offer investment banking and wealth management services in the kingdom. It also plans to hire Saudi nationals through its new graduate scheme – a strategy being adopted by a number of international investment banks in the kingdom, including JP Morgan and Deutsche Bank.
QATAR SHAKES THINGS UP Qatar’s recent World Cup bid win will undoubtedly herald a major spurt in activity in the country, but more widely it has intensified competition between Gulf financial centres.
broadly as the infrastructure sector gets busier in Qatar and the GCC. For Gulf financial services generally, the renaissance all had hoped for is still some way off, even after a year of battening down the hatches. Events like Qatar’s winning bid to host the 2022 World Cup and a positive M&A outlook provide some solid foundations on which to recapture the buoyant growth of the past. Banks will therefore continue to take a cautiously optimistic approach well into the new year as they look to distance themselves from past mistakes and avoid making new ones. ■
FEATURES AUTOMOTIVE
Chasing cars As the Middle East’s economy shows tentative signs of recovery in 2011, MARK ATKINSON reports on a smoother road ahead for the region’s car dealers.
H
istory will write that the Gulf financial services industry turned a corner in 2010 after haemorrhaging staff and battling rotten results in the early post-crisis years. The scenario is a familiar one – the pre-2008 boom years, when GCC car dealerships struggled to keep pace with the demand of consumers lining up to buy the latest model – often before it was on the market, armed with fat pay cheques and easy finance. Then came the deluge. At the beginning of 2009, car sales were down by as much as 40 per cent, leaving some dealerships in a scenario they could never have anticipated. For the first time they needed to entice buyers into showrooms. “A lot of incentives are being provided in the market like free insurance, free registration, extended service agreements and deferred interest payment on loans,” says V.G. Ramakrishnan, senior director, automotive & transportation practice, Middle East, North Africa & South Asia, Frost & Sullivan. “These incentives have increased over the last two years compared to 2008.” The fortunes of the automotive industry looked brighter in 2010, although, according to Ramakrishnan, this is partly due to dealership promotions to clear stocks and the launch of new vehicle models. Nevertheless, Audi has posted
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growth of 12.9 per cent, with the UAE as its biggest market, followed by Saudi Arabia and Kuwait. Likewise, BMW has reported 18 per cent regional growth and General Motors 26.2 per cent. Neither have consumers lost their taste for the exotic. Rolls Royce claims to have doubled its Middle East sales in 2010. With a price tag of $300,000 upwards per car, not everyone, it seems, has been gripped by recession. Overall growth figures in the region are more modest, but healthy all the same, with the two biggest markets – Saudi Arabia and the UAE, up 15 and eight per cent respectively. After the shockwaves of recent years, Business Monitor International describes 2010 as a year of “stabilisation” for the industry. Certainly, figures are still well below the heady days of 2008.
NEW REVENUE ROUTES There have arguably been positive aspects that have emerged from the downturn. While some brands have always offered extended warranties, for example, some were compelled to do so triggered by the downturn. Nasser Watar, chairman of GapCorp , believes the recession has raised the bar for ‘downstream’ after sales services. “Extended warranties keep customers coming
back to the workshop and strengthen customer retention in terms of repeat purchases,” he says. One negative aspect of the downturn that could leave a longer-term impact, however, was the many dealerships landed with excessive inventory. This, in turn, led to a scenario of distressed sales and discounted prices – an industry killer in terms of profit margins, which can sometimes take years to correct. It has also been a time of inconsistency and confusion. “It’s been a little unclear what some brands are doing – this week discounted prices, next week free insurance and so on.” says Jeff Mannering, managing director, Audi Middle East. “This is still happening to some extent, because once you begin with discounting it’s difficult to stop. A case in point is the US, which a few years ago was a discount market. The brands that have come out of the downturn the best are those that have stuck to their strategy.” Another potential challenge for the industry is consumer finance. As Watar remarks: “Banks are still exercising caution. They now evaluate the combined income of the household, whereas previously it was only the individual.” In many ways, adds Mannering, tighter credit controls are not a bad
A lot of incentives are being provided in the market like free insurance, registration and extended service agreements.
Victor Besa
House of Cars showroom, Dubai.
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Jeff Mannering, managing director, Audi Middle East says brands that focused on their core strategy were best placed to survive the recession.
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FEATURES AUTOMOTIVE
VG Ramakrishnan, Frost & Sullivan.
John Stadwick, GM Middle East.
thing. The process, however, needs to be streamlined: “The conditions for getting a car loan are more stringent, but I think they need to be. That said, it is still a difficult and long process. In Western markets, you can get approval within 24 hours. Here, it can take one to two weeks.”
for lower-priced vehicles. “The SUV segment has witnessed the steepest decline (during 2010) at 24.2 per cent,” he maintains. “The best performing sectors are by far passenger (saloon) cars, which cost customers less to purchase and maintain.” John Stadwick, president and MD, GM Middle East, feels the shift towards more economical vehicles is part of a larger trend – not just a result of the downturn. “Traditionally in the Middle East, the most significant vehicle segment was the full-size SUV,”
OPEN FOR DEBATE Which segments are the strongest appears to differ between brands. According to Watar, as a result of the downturn, consumers have opted
Country share of Middle East automotive market 2010 Saudi Arabia remains the Middle East’s biggest automotive market by a considerable margin, with the UAE at number two. Iraq claims the third biggest slice of the pie. Yeman 1% Jordan 1% Bahrrain 2% Lebanon 3% Qatar 5%
Saudi Arabia 42%
Syria 6% Oman 7% Kuwait 7% Iraq 11% UAE 15% Source: General Motors Middle East
he reports. “In the last 10 years, sales growth of (this category) has remained significant at 92 per cent. However, sales of mid-size SUVs have increased by 227 per cent over the same period. Another significant trend over the past decade has been a considerable shift from large sedans to smaller, more compact vehicles. Sales of large sedans have remained steady with growth of only two per cent in the past 10 years, whereas sales of mid-size, compact and small cars have grown by 72, 175 and 200 per cent respectively.” Mannering also believes that the market for leasing and used cars remains bright: “The demand for leasing certainly grew in 2009 – not so much in the premium (luxury) sector, but definitely in the mass markets. I think the leasing market in the GCC will grow over the next few years. Companies are looking for ways to minimise their capital outlay and leasing is a way to do that. “Used car volumes have also risen. Since 2009, people are more watchful in what they’re spending. Used cars are also a good way to increase customer loyalty and the most efficient way of selling new cars through the cycle of brand engagement – particularly if customers know that the used car service the dealership provides is reliable and trustworthy.” As for the future, “The Middle East is viewed as a key market that provides fantastic growth potential for General Motors,” offers Stadwick. “Our conservative estimates forecast that the Middle East market will grow from 1.08 million vehicles a year in 2009 to 1.8 million by 2020 – almost 70 per cent growth.” Watar adds: “The automotive market in Saudi Arabia is expected to continue its steady growth, while the Gulf markets are expected to show a recovery. We are expecting 2011 figures to be more similar to 2008.” Mannering forecasts more modest growth: “I think growth in the GCC will continue. Not to the extent of 2006 and 2007, but I think that’s a positive. It needs to be sustainable, otherwise you’ll always have booms and busts.” ■ February 2011 gulfbusiness
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FEATURES TUNISIA
Tunisia in turmoil As the country’s regime falters, PETER SHAW SMITH looks at how the situation may affect neighbouring autocracies and what history may regard as a revolution in the Middle East.
I
t was probably the TV pictures of demonstrators shaking hands and slapping the backs of soldiers and riot police that helped Tunisia’s erstwhile president, Zein al-Abidine Ben Ali, realise that the game was up. In 29 short days, a dictator, 23 years in power, had fallen. Now, discontent sweeps through the Middle East with possible longterm consequences that have yet to be resolved. Although the regimes of Egypt, Saudi Arabia, Jordan and Syria are variously even more sclerotic than his, today their leaders look over their shoulders uneasily at
provincial town of Sidibouzid 200km south of Tunis on December 17, few would have guessed that this would lead to the downfall of one of North Africa’s most entrenched dictators and light the touch paper for what history may ultimately regard as revolution in the Middle East. The New York Times duly tracked down the police official whose condescension that Friday morning would rile Bouazizi into selfimmolation and ignite “The Jasmine Revolution” that has engulfed the tiny but important North African country. Faida Hamdy, 45, was reported as having “had a ‘strong personality’ and an unblemished record.”
The regimes of Egypt and Saudi Arabia may look over their shoulders uneasily at the prospect of Facebook-fomented upheaval. the prospect of Facebook-fomented upheaval. By January 23, copycat protests had reportedly spread to Yemen’s capital Sana’a. When Mohamed Bouazizi, 26, set himself alight with paint thinner in the
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Hamdy’s behaviour cannot mask the fundamental decency of Tunisians, many of them highly educated, and with aspirations to match. The hospitality on Tunis’ central Avenue Bourghiba is enchanting. A friendly
welcome awaits, whether for visitors to the Carthage Film Festival, the Arab World’s premier movie showcase, or to the villas, restaurants, swimming pools and beaches of Sidi Bou Said, La Marsa and Gammarth, which served for a decade as the home of the Palestine Liberation Organisation. Tunisia’s “Club Med” destinations
getty images
of Monastir and Hammamet have become hugely popular with tourists from Europe. Even the cuisine is great. “Towards the next century,” proclaimed wooden posters in 1996, Ben Ali’s arm outstretched. “Regime” was not exactly the right word for his rule. Analysts would cite Tunisia’s economy as the second
most developed after South Africa’s on the continent. Tunisia’s Foreign Investment Promotion Agency moved to attract outside business with offices in Paris, Brussels, Milan, Cologne, London and Chicago. The IMF estimated real GDP growth for Tunisia of 3.8 per cent in 2010 and predicted 4.8 per cent growth for 2011. Its
September 2010 survey said Tunisia had weathered the financial crisis well, but unemployment persisted. “Over the past two decades, the North African nation has undertaken wideranging structural reforms aimed at enhancing its business environment and improving the competitiveness of its economy,” it said. February 2011 gulfbusiness
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There were rumblings of discontent – indeed, fully 10 per cent of the country’s work force was said to participate in the nation’s allpervading police state. And Tunisians would admit that they liked to enjoy themselves a little too much for the state of the economy. German architects would mutter about the quality of finishing in residential
Tunisian clashes.
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buildings. But every Tunisian who was not implicated in the regime seemed to have a personal issue with their leader that amounted to contempt. In 2005, when the World Information Summit came to Tunis, the site was sealed off from access to the Tunisian man in the street. Ben Ali toured the exhibition surrounded by his entourage in full view of the
floor, his perma-grin broad as ever: Tunisia was something in the world. He attempted to keep the economy in tune with the West and enjoyed warm relations with France, a nation now embarrassed by its slavish adhesion to the regime’s script – and failure to act. Indeed, such was the face Tunisia presented to the outside, Ben Ali long seemed ready to hand over the reins of power at a time of his own choosing. But then came the world’s first Wiki-lution; American embassy communiqués are credited with rendering official what Tunisians already suspected. Ben Ali’s methods were nothing if not thorough. Visitors to the country observed his face on the front page of the newspapers every day, save for the odd exception of his wife’s. The police state was ever present, but strove to present an acceptable face to outsiders. Tunisians complained in hushed tones that he was “arrogant and uneducated,” and foreign journalists would be lectured by his diplomats when they returned home for the slightest criticism of
getty images
Interim Tunisian president, Fouad Mebazaa.
the government or its leader. But ultimately it is clear that it was the conduct of the Trabelsi clan which put Ben Ali’s chances of survival beyond saving. In a withering hint at hatred for her greed and venality, the president’s wife was known as Leila Ben Ali Trabelsi, and rumoured to harbour ambitions of her own regarding the presidency. Her nephew, Imed Trabelsi, gained a reputation for mob tactics and extortion. He was stabbed to death at Tunis Airport as he tried to make good his escape on January 14. As he contemplates his future in Saudi Arabia’s green and pleasant city of Abha, where press access to him is barred, few will mourn Ben Ali’s passing. Even Saudis have joined in the chorus denouncing him: “You are not welcome in my hometown, Jeddah,” was the comment on Facebook from a young Saudi when the news broke on January 15 that Ben Ali had been taken in by his country’s leadership.
Ousted president, Zein al-Abidine Ben Ali.
The Tunisian people are determined to make a clean break with the past. A new wave of protests broke out in late January demanding the removal
of all politicians tied to the old RCD [Constitutional Democratic Rally (Rassemblement Constitutionnel Démocratique)], as efforts to form a government tainted with relics from the old regime collapsed. Now the talk is of elections to which access will be free to all parties and individuals. Although he preaches democracy and moderation, the spectre of Islamism awaits with the likely return of Rachid Ghannouchi, head of Hizb Al-Nahda (Renaissance Party). Ghannouchi, 69, says a new generation will take up the challenge of running his party. It would be interesting to know what was going on in Ben Ali’s mind the day he visited the almost completely bandaged Bouazizi in hospital on January 5. Demonstrators were quick to circulate images of Ben Ali in full ceremonial regalia with the young man’s head superimposed. The martyred Bouazizi is today known by a new name: M. le President. ■
THE STATE OF REGIONAL AUTOCRACIES “[T]his cannot adequately be described as a bread-and-butter revolution. Ben Ali’s rule fell not on high unemployment levels, but on perceptions of extreme levels of corruption, anger over the growing arrogance and dominance of the president and his extended family, as well as on lack of freedoms and decades of political repression. These are all elements shared by many regional states. Already, opposition groups in the region are making references to Tunisia as the example to follow,” wrote IHS Global Insight’s Gala Riani on Jan. 17. EGYPT Egypt’s president Hosni Mubarak may be credited with providing 30 years’ stability to North Africa’s largest country by population, but critics of the regime say its sole raison d’etre is selfpreservation, to the detriment of real and vital social and economic progress.
Should the regime start to totter, the army will step in. JORDAN The popularity of King Abdullah in Jordan makes sweeping revolution unlikely. Corruption does exist and youth unemployment is a scourge. Jordanian Prime Minister Samir Al Rifai was forced to deny on January 23 that payments and subsidies in several sectors, including petroleum products and foodstuffs, had anything to do with the Tunisian crisis. Unrest has boiled over on occasion in hotspots like Amman and Ma’an. But the durability of the Hashemite dynasty does not appear to be on the line. SAUDI ARABIA Saudi Arabia is a more complex case, since the strength of the oil economy there allows the House of Saud to co-opt dissent with petrodollars. King Abdullah’s advent as sovereign in 2005
has quelled popular dissatisfaction with the royal family, due to his reputation for self-restraint and willingness to curb the excesses of minor royals. Syria, like Egypt, has acted to delay the impact of price hikes on daily commodities, but the minority status of the Alawi Al-Assad dynasty could put it at long-term risk. LIBYA Libya is a wild card which depends on the whim of its leader, Muammar Al Gadhafi. He has expressed a dim view of events in neighbouring Tunisia, and is likely to be difficult to unseat while still in his late prime. The complexity and pervasiveness of Tripoli’s oil exploration and recovery complex, and the alliances with international oil companies that sustain it, means that Libyan unrest stands to drive the country backwards at the expense of the few economic gains it has made.
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Talking about a revolution
getty images
This year’s World Future Energy Summit spurred fierce debate on the switch to green energy. TRACEY SCOTT reports from the floor.
From left: UN Secretary General Ban Ki-moon, Bangladesh’s Prime Minister Sheikha Hasina Wajed, Crown Prince Guillaume of Luxembourg, Pakistan President Asif Ali Zardari, Crown Prince of Abu Dhabi Sheikh Mohammed bin Zayed al-Nahayan, Iceland President Olafur Radnar Grimsson and Sweden’s Crown Princess Victoria.
S
ome of the world’s most powerful leaders gathered in Abu Dhabi last month to discuss ways to mitigate climate change and enhance the renewable and clean energy sectors. Ban Ki-Moon, UN secretary general, used the four-day event as a platform to encourage “a global clean energy revolution”. He said global energy consumption is set to rise by 40 per cent over the next 20 years, with developing countries accounting for majority of that usage. Therefore, “Our challenge is transformation. We need a global clean energy revolution. A revolution that makes energy available and
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affordable to all. This is essential for minimising climate risk, reducing poverty and improving the global economic health.” In similar vein, Adnan Amin, IRENA interim director general, called for the world to “embark on an ambitious and transformative path
in our energy systems and embark on an ambitious and transformative path to sustainability.” IRENA, the intergovernmental environment agency based in Abu Dhabi, forecasts that solar energy will account for 11 per cent of global electricity generation by 2050, while
The MENA region has the potential to offer 45 per cent of the world’s total renewable energy generation. to sustainability”. He added: “We cannot afford to wait for top-down political processes to finally generate enough will and purpose to come to a binding global agreement. We must act now to address the root causes
the MENA region has the potential to offer 45 per cent of the world’s total renewable energy generation. However, around 1.6 billion people in developing countries still lack access to electricity, while three
billion rely on traditional biomass fuels for cooking. To address the issue of scarcity, Sultan Al Jaber, Masdar chief executive officer, insisted change cannot be driven by one country alone, instead “solutions will be found across borders and built between nations”. He said: “They will be stimulated by collaboration and founded on public private partnerships.” Similarly, Nikoloz Gilauri, prime minister of Georgia, said the energy challenges facing the world today are too overwhelming to be resolved individually. “We are stronger acting together,” he concluded. “Such an approach will reduce vulnerability and build confidence of energy partners. I believe that our joint effort and commitment to improve the energies of the future will bare fruits in the years to come.” Mohammed Al Noori, The Environmental Centre for Arab Towns director, says companies and governments should collaborate on their experience and knowledge and put “humanity before dollars”. He says putting profit first “is not a sustainable model for the world”. He adds: “The higher authorities should be the pioneers in this area. But no government can do it alone. You need collaboration to make renewable energy work. PPP is a must, we need the private sector who come with experience. We should be innovative and come up with ideas.” Innovation was also highlighted as a key issue in combating climate change, energy shortage and fossil fuel dependency. HE Asif Ali Zardari, president of Pakistan, said: “Innovation will not always succeed but that must not discourage us from searching for alternatives. Our job is not to dwell on the things that did not work in the past but to find things that do work for the future. Solar energy, wave and wind power, bio diesel, fertiliser from weeds, and algae and oil seeds grown in sea water are the key to freeing the world from fossil fuel dependency.”
GLOBAL PERSPECTIVE ICELAND Olafur Ragnar Grimsson, President of Iceland
“Iceland a country which within a single generation, has moved from an energy economy based 80 per cent on imported oil and coal to producing 100 per cent of our electricity and 100 per of our space heating from clean sustainable energy, demonstrating that it can indeed be down.” European countries.”
PORTUGAL HE Jose Socrates Carvalho Pinto de Sousa, Prime Minister of Portugal
“In 2010, 52 per cent of the total electricity consumed in Portugal was produced from renewable and indigenous sources. The Portugal goal for 2020 is to produce 60 per cent of all electricity, and 31 per cent of primary energy from renewable sources. In 2020 my country expects to have 10 per cent of all cars in Portugal to be electric.”
GEORGIA Nikoloz Gilauri, Prime Minister of Georgia
“We have substantial untapped potential of renewable energy generation, of which just 18 per cent has been utilized so far. As of today green energy comprises up to 90 per cent of our electricity consumption. With the ongoing development of additional infrastructure, we will be able to export renewable energy to Iraq, Syria and Eastern European countries.”
BANGLADESH HE Sheikha Hasina, Prime Minister of Bangladesh
“Already four million homes have been installed with solar power systems. Our aim is to be finally free of greenhouse gases (GHG) in the near future. I know it will take time. We all have to work together.”
For Al Jaber, competition drives innovation. He believes increased competition will lead the development of tomorrow’s most reliable, affordable clean energy sources. “To realistically meet the 2050 target of limiting global temperature rise to 2 degrees Celsius we must recognise and accept that today’s renewable energy
technologies alone will face difficulty in solving the climate challenge. Therefore energy must come from a mix of sources. Sources that are clean, energy efficient and cost effective. To ensure the emergence of the most commercially viable scalable and efficient technology we must create competition. Not across the energy mix but instead within February 2011 gulfbusiness
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Masdar City opened last month.
technology share. This approach will accelerate technological and economic improvements of renewable and low carbon energy sources.” Speaking at the summit, HRH Crown Princess Victoria of Sweden, said new products, new services, and new entrepreneurs are needed if developed countries are to meet the long-term objectives set out by IRENA and during the UN Climate Change Conference in Cancun (UNFCCC) in December. In Cancun, a balanced package of decisions were announced that support enhanced action on climate change in the developing world, and set all governments more firmly on the path towards a low-emissions future. Princess Victoria added: “Here all parts of society have important roles to play – government, business, academia, civil social organisations
and individuals. Improved conditions for entrepreneurs in the energy and environmental technology business, especially SMEs, contribute to new and interesting innovations. The human capital is the most valuable tool for knowledge-based and innovation-driven development. But, innovation is not the only answer. Being aware of what is at stake, we all must take an individual responsibility to adopt a way of living to cope with climate change.” It was also agreed in Cancun that developed countries must encourage the rapid launch of new institutions and funds to show the world that a new era of international cooperation on climate change is an established fact. Caio Koch-Weser, vice chairman Deutsche Bank Group UK and member of the UN’s High Level
Advisory Group on Climate Finance, said following the submission of the group’s latest report in Cancun there is now increased clarity on how to achieve the “challenging but feasible goal” of mobilising $100 billion annually by 2020 for climate change mitigation and adaptation in the developing world. Koch-Weser said work is being done to establish a green climate fund to manage a significant portion of the annual flows leading up to 2020, and a 40person transitional committee will be appointed to develop the fund. A number of other public/private funds were discussed, including the CP3 fund that is being developed by the Asian Development Bank, a $300 million pool from the US for private equity investment in developing countries, and the German Government’s global
CLIMATE CHANGE IN THE MIDDLE EAST AND NORTH AFRICA
100 million
20-40 per cent
Up to 100 million people could be under water stress by 2050, suffering from the worst water scarcity in the world.
Agricultural output could decrease 20-40 per cent by 2080 with decreased rainfall.
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1.0 metre A 1.0 m rise in sea level as a result of climate change would affect 11.5 million people in MENA.
Sultan Al Jaber, Masdar CEO.
Mohammed Al Noori, ECAT director.
partnership fund, managed by Deutsche Bank. Furthermore, the World Bank is aiming to deploy $100 million of technical assistance
for the development of domestic carbon markets in many developing countries, prominently China and Brazil.
To support developing countries in their quest for clean energy resources, Abu Dhabi has pledged $350 million for renewable energy projects, as well as support for small island states. Luxembourg, meanwhile, contributed 1 per cent of GDP in 2009 in development aid. However, HRH crown prince Guillaume of Luxembourg, said the total resources to alleviate poverty are impressive but not sufficient. â&#x20AC;&#x153;They need to be targeted. One of the focus areas of the future needs to be working with partner countries on the development and implementation of infrastructure and technologies adapted to local conditions in order to bring affordable electricity to rural communities. â&#x20AC;&#x153;The energy of the future needs to be affordable, clean and universally available. To provide it is not only our responsibility to our fellow men, but also to the generations to come. â&#x20AC;&#x153; â&#x2013;
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10/24/10 3:01:58â&#x20AC; â&#x20AC;ŹP65 M February 2011 gulfbusiness
ROUND-UP GULF BUSINESS EVENTS
Gulf Business Great Places to Work Awards Some of the UAE’s leading companies gathered in Dubai to celebrate the inaugural GULF BUSINESS Great Places to Work Awards.
F
or the first time in the region, Gulf Business and research institute Great Places to Work (GPTW) teamed up to unveil the top places to work in the UAE in 2010. To celebrate this milestone achievement, over 70 delegates attended a glittering awards ceremony held at Dubai’s Fairmont Hotel. Some of the biggest names in technology, express transportation, retail and hospitality were treated to an evening of networking, illusions and East meets West cuisine at the hotel’s Imperial Suite. Attendees enjoyed keynote speeches from Thomas Lundgren, THE One CEO (chief emotional officer) and Samer Abu Latif, regional general manager of winning company, Microsoft. Lundgren focused on the importance of emotions when driving
66 gulfbusiness February 2011
The Great Places to Work awards.
a company, while this year’s winner paid heed to encouraging employee development and fostering trust. Speaking at the event, David Robert, Great Places to Work Institute partner and director, said the companies that made the list are head and shoulders above their peers. Having had their management policies and practices evaluated, and their employees’ opinions assessed, it was agreed that each of the 10 firms was a deserved winner. Recognised for their credibility, fairness, camaraderie, pride and respect, this year’s top 10 have truly excelled in the marketplace. And as Dr Michael Burchell, Great Places to Work Institute partner and director, concluded, to get ahead in a global economy you simply have to invest in your people. Companies interested in applying for next year’s awards can visit www.greatplacetowork.ae/best/ nomform.php Who knows, next year it could be your firm gracing the stage. ■
Microsoft’s Samer Abu Latif delivering his winner’s speech.
This year’s top 10 companies.
FedEx’s Hamdi Osman and his team, who were named the second best place to work in the UAE.
Dr Michael Burchell from Great Places to Work talks about his partnership with GB.
Alicia Buller, Gulf Business editor, delivers her opening speech.
THE One CEO Thomas Lundgren speaks about why his business is based on feelings, not furniture.
PepsiCo communications manager Huw Gilbert with his Trust Wheel Award.
Merck Serono Intercontinental vice president Karim Smaira clutching his award.
February 2011 gulfbusiness
67
ROUND-UP GULF BUSINESS EVENTS
FedEx’s Hamdi Osman and THE One’s Thomas Lundgren talking express transportation and furniture.
Shuaa Capital’s team came seventh in the 2010 list: from left, Dana Chehayeb, Sameer Al Ansari, Mila Tutor and Michelle Clements.
Bayt.com CEO Rabea Ataya and Marriott’s Robert Dodds.
Zayed University’s Dr Daniel Milo Johnson, Deborah Macadam and Uzma Shaheen. The university was awarded ninth-place.
The team from THE One, with Gulf Business editor Alicia Buller and Great Places to Work partner David Robert.
68 gulfbusiness February 2011
F
LIFESTYLE TRAVEL
Eye on the tiger Adrian Mourby gets up close and personal with tigers in India’s Bhandavgarh National Park.
T
he elephants came lumbering towards us at speed. One of the mahouts had spotted a tiger shortly after dawn and now these drivers were lining up to take us on elephant-back to view it. I was the only European. Bhandavgarh National Park is very popular with wealthy Indian tourists. Six of us clambered up from the back of our 4x4 onto the howdah, an arrangement of seats on the back of an elephant, and the great creature swung smoothly away. Although elephants seem to move slowly, they cover large distances surprisingly quickly. With my legs hanging precariously from the howdah, I noticed the deep depressions the elephant’s feet made in this marshy land. Bandhavgarh Park lies below a ruined fort and used to be the hunting ground of maharajahs. Now it’s home to about 70 tigers. Ours wasn’t far away. The mahout guided with his feet; an expert kick above the elephant’s left temple turned us left and then suddenly we saw the tiger – or rather, a paw extending from underneath a bush. It was shaped like a cat’s paw but huge, and a striking orange in colour. As we drew closer I could see more: now two paws, now two long legs and suddenly, as the elephant was brought to a halt, such a face. It was like looking into the painted face of a Hindu god. Large, drowsy, sated, our tiger posed there like a sphinx. Everyone who could angle round started taking photos. The experience of being only three metres away from a tiger is unforgettable, especially when looking down a telephoto lens. The first thing is the face paint. It’s difficult to believe that a tiger has not spent hours in front of the mirror to create that display. The second is the sheer size of these creatures. Lions are disappointing, smaller than you expect – just big cats with outsize hair. But tigers are massive. And their eyes! Cool yellow orbs that regard you with little interest. Eyes that have never known fear. I took as many pictures as I could before our mahout reversed us so that the passengers on the other side of the howdah could get a good view. The elephant and the tiger paid little attention to each other. We were the excited, vulnerable species. Our tiger was a three-year-old male, the mahout told us. By the remains it was clear this four-legged god had fed well on a chital deer in the early hours of the morning. We had disturbed his rest. Now he just got up and padded away on his enormous paws with extraordinary grace in search of peace and quiet elsewhere. In a few paces, he was gone. ■
70 gulfbusiness February 2011
Checklist
iStock
MONKEY BUSINESS Macaque monkeys are found all over Bhandavgarh National Park and often raid tourist lodges. Macaques keep close to the chital deer, throwing fruit down from trees for them. This symbiotic relationship works to the macaqueâ&#x20AC;&#x2122;s advantage. Chital behaviour gives early warning of the approach of predators like tigers and leopards. CHUCKLING CHITALS There are over 7,000 chitals in Bhandavgarh, distinguished by their white spots. This is the most common species of deer in Indian forests. They live in herds of up to 50 strong and avoid direct sunlight. When walking they emit a curious highpitched chuckle which is audible across the park.
ELEPHANTS Indian elephants can be as tall as 3.5-metres and carry out a number of traditional transport roles. Females have to be kept out of earshot of their offspring during the working day as they will respond instantly to a cry, ploughing directly through any humans in their way.
ROLLER BIRDS The Indian Roller gets its name from the midflight acrobatics that males perform during the mating season. Its blue throat identifies it with the Hindu deity, Shiva. Though a familiar resident of Bandhavgarh Park and throughout the state of Madhya Pradesh, the roller is the symbol of nearby Andhra Pradesh.
February 2011 gulfbusiness
71
ART
Doha’s museum puts Islamic art in spotlight The Museum of Islamic Art in Qatar is a treat for the senses offering an education on the region’s rich art heritage, writes Charles Pocock.
T
he Museum of Islamic Art (MIA) in Doha is not only a contemporary architectural wonder created by I.M.Pei, but an institution full of world-class treasures from the Islamic world. The building leaves you speechless with wonder. The museum first opened in the autumn of 2008 and confirmed Doha as a regional and international centre for culture and education, led by the vision of HH Sheikh Hamad bin Khalifa Al Thani, Emir of the State of Qatar. With the support of publications and symposium programmes, the building and, above all, the collection held within it, has brought positive international attention to Islamic art and, by proxy, Islam. The museum has acquired a collection of Islamic art over the past two decades that is on a par with the great international museums, be it the Louvre, The British Museum, The Metropolitan or The Museum of Islamic Art in Berlin. While European museums are seen as a by-product of the European powers and the colonies they governed, The Metroplitan in New York is comparable to The MIA in Doha because both collections are made up of acquisitions, whether from the 19th, 20th or 21st centuries. Qatar has been a major force in the re-auction market over the past 15 years, acquiring the finest pieces, from the greatest Qurans, Mamluk glassware and metalware, Safavid textiles, Arab-Siculo ivories,, manuscripts and Mughal jewels. The building’s dark-grey porphyry stone and Brazilian lacewood gallery interiors could not be more fitting for a museum, contrasting beautifully with the light stonework of the exterior facade. The viewing galleries are laid out
on the first and second floors, with the ground floor holding a temporary exhibition space, a well-stocked museum shop and a café. The galleries are broken into themes
and dates, which surprisingly works very well. On the first floor the themes covered are calligraphy, science, the figure and patterns. The second floor presents a historical journey through Islam, with some of the finest Islamic artefacts in the world on display. The collection is awe-inspiring and has been built from scratch, through passion and a deep and complete understanding of education; the overarching need for learning, not just in the region, but internationally, in relation to Islam and its rich world of art. With Doha being central to the GCC and a plethora of airlines flying into Qatar, there is simply no excuse not to visit the MIA to brush up on your knowledge of one of the world’s critical art regions. Charles Pocock, managing partner, Meem Gallery and Fellow of The Royal Asiatic Society. ■ February 2011 gulfbusiness
73
M A I N G I G S FEB 16 – 17 – 18
Under the Patronage Of Dubai Events And Promotions Establishment
ChillOut Productions Presents The 9th Annual
TRAIN JANUARY 20 TO FEBRUARY 18, 2011 OVER 50 HOURS OF SPECTACULAR L I V E E N T E R T A I N M E N T
LIFEHOUSE
Main
Jazz world
gigs
SUB EVENT
SUB EVENT
JAN 20-28, 2011 "THE WALK@JBR"
FREE ADMISSION
MACY GRAY
FEB 8-15, 2011 "DUBAI MEDIA CITY"
FREE ADMISSION
MAIN EVENT
FEB 16-18, 2011 "DUBAI MEDIA CITY"
FOR ONLINE REGISTRATION
TICKETED ADMISSION
In Partnership With
Live At Dubai Media City The Home Of The Jazz Festival
ALISON MOYET
Tickets info Free admission for selected online registrations only to all performances of the du Jazz Garden. For walk-in guests tickets sold at the gate at AED 150 including 2 beverages. Tickets for all performances on Feb 16, 17 & 18 will be available starting January 10th, 2011
Physical Tickets
JOOLS HOLLAND
Available at
Online Tickets
JOSHUA RADIN
www.dubaijazzfest.com or call 04 3911196
For more info visit
ESSENTIALS BOOKS
Shifting business landscapes Gulf Business looks at two very different books that examine the changing corporate landscape, from boards of directors to shifting global economies. The Fish Rots From The Head Bob Garratt
A
s the financial crisis subsides the after effects of poor corporate governance and board leadership are still being felt. As many companies around the world have proved, an organisation’s success or failure depends on the performance of its board. The Fish Rots from the Head explains why it is time for directors to broaden their mindset and enhance their capabilities if they are to tackle the corporate issues of today. Author Bob Garratt analyses the crucial role directors play in institutions worldwide, and integrates the roles and responsibilities they should take. The book includes a management programme for enthusiastic board members who want to improve their position and work on the board. It looks at policy and strategy, management and accountability, and considers broadening the scope of corporate governance. The term ‘director’ is questioned, contracts are discussed and different types of directors are clarified. The relationship between policy formulation and foresight, and the organisation’s culture and climate is put under the microscope. Across the book’s 293-pages, Garratt attempts to reaffirm the role of a director, and prepare those who are about to embark on a role in this area,
be it executive director, non-executive director, representative director or director of a firm’s subsidiary. All those who read this book could help shape the directors of the future.
and China – and re-examines the claims made and prospects for major emerging economies post-crises. The former UBS senior economic adviser also addresses political and economic weaknesses in such markets, and highlights the need for reform in both areas in China, India and other emerging nations. Magnus explains why emerging markets will remain aloof from heady success as predicted, despite China showing double-digit growth for five consecutive years. And while there is no question that the last 20-30 years have witnessed an exhilarating, if sometimes erratic, transformation of emerging markets, the book analyses why China and others may shape but won’t, ultimately, shake the world. A must read for potential investors.
Uprising George Magnus
A
s investors pile their money into emerging markets, George Magnus gets behind the hype and finds out if the 21st century really belongs to China and India. In his latest book, Uprising: Will Emerging Markets Shape or Shake the World Economy, Magnus attempts to show that the frenzy surrounding emerging markets may not be all that it seems. He examines whether the financial downturn acted as a lightning rod to accelerate the rise of the BRIC economies – Brazil, Russia, India
February 2011 gulfbusiness
75
Better thinking. Together.
True diversification begins with a difference of opinions. With so many industry-leading thinkers at our affiliates, there’s no shortage of opinions on any investment issue. We make the most of them, bringing together experts from firms like Loomis, Sayles & Company, Aurora Investment Management, AlphaSimplex Group and Gateway Investment Advisers. Their ideas frequently drive the markets, and we value their different perspectives and insights. Out of their exchange of viewpoints come new investment strategies for our clients. It’s a process we call Better thinking. Together. And you’ll experience it when we work with you.
X Call us at +971 4 365 8066 or visit ga.natixis.com to see how our intellectual capital can sharpen your thinking.
This communication is provided in and from the Dubai International Financial Center (DIFC) by Natixis Global Associates Middle East. It is only available to persons who have sufficient financial experience and understanding to participate in financial markets within the DIFC, and qualify as Professional Clients as defined by the Dubai Financial Services Authority (DFSA). This communication should not be delivered to or relied on by any other type of person. Natixis Global Associates Middle East is the trade name for Natixis Global Associates Middle East, a branch of Natixis Global Associates UK Limited, which is duly licensed and regulated by the DFSA. Registered office: PO Box 118257, 5th Floor, Building 8, Gate Village, DIFC, Dubai, United Arab Emirates. Natixis Global Associates Middle East is a business development unit of Natixis Global Associates, the global distribution organization of Natixis Global Asset Management, the holding company of a diverse line-up of specialized investment management and distribution entities worldwide, including the investment managers referenced herein. The investment management subsidiaries of Natixis Global Asset Management mentioned in this communication conduct any investment management activities only in and from the countries in which they are licensed or authorized. This communication is for information only and does not constitute an offer of financial services, nor a recommendation or offer to purchase or sell shares in any financial instrument. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. ADINT169-1010
Data monitor Compiled by Tracey Scott
78 79
TOP DEALS Mergers & acquisitions ANNUAL ROUND-UP Middle East and Africa take overs
February 2011 gulfbusiness
77
TOP M&A TRANSACTIONS Deal Value ($m)
Bidder
Target
Deal Description
2831
ATIC International Investment Company LLC
GlobalFoundries Inc.
ATIC International Investment Company LLC has acquired a 16 per cent stake in semiconductor provider GlobalFoundries Inc, through capital increase. ATIC International Investment Company is an affiliate of Advanced Technology Investment company, a UAE-based investment company formed by the Abu Dhabi Government which already has a 70 per cent stake in the firm. Terms: ATIC International acquired the 16 per cent stake in GlobalFoundries Inc by subscribing to 2,808,981 newly issued Class A preferred shares at a price of $1008 per share, valuing the deal at $2.83 billion. As consideration, ATIC will transfer 100 per cent interest in GlobalFoundries Singapore Pte Ltd to GlobalFoundries Inc as over time it intends to acquir the entre stake in the company. On completion, the stake would be revised to 86 per cent in favor of ATIC and 14 per cent to AMD.
539
Abraaj Capital Holdings Limited
Network International LLC
Abraaj Capital, the UAE-based private equity group, through Abraaj Financial Technologies Holdings Limited, has agreed to acquire a 49 per cent stake in payment processing firm Network International LLC from Emirates NBD PJSC for a consideration of $539 million. The deal value is including potential earn out adjustments if Network International LLC reaches certain profitability targets. The investment will be made through Abraaj Buyout Fund IV. The agreement aims to enhance Network International’s growth and accelerate the geographic expansion of the company’s market-leading payments processing platform. The transaction, which remains subject to regulatory approvals, is expected to close in the first quarter of 2011.
500
Mubadala Development Company PJSC
The Carlyle Group, LLC
Mubadala Development Company PJSC, the UAE-based investment company wholly-owned by the Abu Dhabi Government, has agreed to acquire an undisclosed stake in The Carlyle Group, LLC, the US private equity firm, for a consideration of $500 million. The transaction is in line with Mubadala Development Company’s goal of increasing its stake in The Carlyle Group, in which it acquired a 7.5 per cent stake for $1.35 billion back in 2007. Mubadala Development Company PJSC will receive from Carlyle a combination of convertible subordinated notes and additional equity for its investment.
15
Renaissance Services SAOG
Al Wasita Emirates for Services and Catering LLC
Oman-based Renaissance Services SAOG has acquired Al Wasita Emirates for Services and Catering LLC for a consideration of $15.25 million. This acquisition will provide significant opportunities to Renaissance’s Contract Services Group in the UAE market. Renaissance had recently announced the formation of a joint venture in Abu Dhabi within the umbrella of its Contract Services Group under the name Renaissance Facilities Management Services LLC. The acquisition of Al Wasita will help in accelerating the growth plans of this joint venture.
-
North Africa Holding Company
Egyptian International Medical Centre Company
North Africa Holding Company, the Kuwait-based principal investment firm, has acquired a majority stake in Egyptian International Medical Centre Company. The acquisition will help North Africa Holding Company in its expansion plans and will help EIMC to expand its market share in the pharmaceutical distribution sector in Egypt. North Africa Holding’s involvement and commitment to EIMC and EUP will provide them with the knowledge and expertise to help them explore new markets and broaden their customer base.
Notes: Deals are based on the geography of target, bidder or vendor being in the Middle East, for the period between December 16, 2010 and January 16, 2011. 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 $10 million. Activities excluded from the table include property transactions and restructurings where the ultimate shareholders’ interests are not changed. Source: Mergermarket
12,000 10,000
Value Volume
8,000
MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YE 2010 – VALUE Number of deals
14,000
Value ($m)
MIDDLE EAST QUARTERLY M&A ACTIVITY FROM 2005 TO JANUARY 16, 2011
6,000
40 30 20
4,000
10
2,000 0
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2006
2007
2008
2009
0
2010 2011
MIDDLE EAST ANNUAL M&A ACTIVITY FROM 2004 TO JANUARY 16, 2011 Value Volume
25,000
Value ($m)
20,000
10,000
0
2004 2005 2006 2007 2008 2009 2010 2011
Business Services 1.5%
Real Estate 23.9%
Financial Services 23.3%
Industrials and Chemicals 11.4%
Defence 1%
150
Transport 2.1%
0
Construction 4.1%
Agriculture 0.2%
Real Estate Agriculture 6.9% 0.7%
Defence 2.1% Industrials and Chemicals 16.6%
Leisure 4.8% TMT 21.4% Energy/Mining/ Utilities 7.6%
Consumer 7.6%
Business Services 5.5%
Mergermarket tracks all M&A deals of more than $5 million where the target, bidder or parent is a Middle Eastern company.
78 gulfbusiness February 2011
Transport Pharma/Medical/ 7% Biotech 3% Construction 6.2%
200
50
5,000
Leisure 4.3%
MIDDLE EAST ACTIVITY BY INDUSTRY SECTOR YE 2010 – VOLUME
100
15,000
TMT 12.7%
Consumer 2.6%
Pharma/Medical/ Biotech 6.9%
Number of deals
30,000
Energy/Mining/ Utilities 2.9%
Financial Services 13.8%
Middle East & Africa M&A Overview
Sector
MIDDLE EAST & AFRICA M&A ACTIVITY – QUARTERLY 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0
Value ($bn) Volume
Volume of Deals
36 34 32 30 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0
Qtr 1 03 Qtr 2 03 Qtr 3 03 Qtr 4 03 Qtr 1 04 Qtr 2 04 Qtr 3 04 Qtr 4 04 Qtr 1 05 Qtr 2 05 Qtr 3 05 Qtr 4 05 Qtr 1 06 Qtr 2 06 Qtr 3 06 Qtr 4 06 Qtr 1 07 Qtr 2 07 Qtr 3 07 Qtr 4 07 Qtr 1 08 Qtr 2 08 Qtr 3 08 Qtr 4 08 Qtr 1 09 Qtr 2 09 Qtr 3 09 Qtr 4 09 Qtr 1 10 Qtr 2 10 Qtr 3 10 Qtr 4 10
Value of Deals ($bn)
M&A in Africa and the Middle East saw 299 deals worth of $49.9 billion in 2010, up 53.2 per cent by value and 5.3 per cent by deal count – the highest annual deal value since 2007. The telco sector accounted for the largest percentage of deal value in the region in 2010, with 27.9 per cent of the market share. Industrials & Chemicals and Energy, Mining & Utilities were the two most active industries, both recording 43 deals each. Bharti Airtel’s $10.7 billion bid for Zain Africa was the largest deal of the year putting Morgan Stanley, advisers to the bidder, at the top of the financial adviser ratings for 2010. The firm jumped two places from the year end 2009 advising on ten deals worth a total of $21.8 billion. 2010
2009
Change
Value ($bn)
Mrk share
Deal count
Value ($bn)
Mrk share
Deal count
Value ($bn)
Telecommunications
13.8
27.9%
11
15.1
46.9%
19
-9.0%
Deal count -8
Financial Services
7.0
14.1
42
0.1
0.4
3
5,057.8%
39
Energy, Mining & Utilities
6.6
13.3%
43
5.3
16.3%
51
25.1%
-6
Real Estate
4.3
8.7%
14
1.8
5.6%
13
138.8%
1
Consumer
3.9
8.0%
29
0.9
2.8%
22
339.0%
7
Business Services
3.6
7.3%
25
0.7
2.2%
29
422.3%
-4
Leisure
3.3
6.70%
11
0.2
0.6%
7
1,712.6%
4
Industrials & Chemicals
2.4
4.90%
43
0.9
2.8%
30
170.5%
13
Technology
1.6
3.2%
33
1.6
5.0%
32
-3.7%
1
Construction
1.0
2.1%
16
0.8
2.3%
13
38.6%
3
Transport
1.0
2.0%
6
0.3
0.8%
6
267.7%
0
Pharma, Medical & Biotech
0.6
1.2%
15
2.2
7.0%
28
-73.3%
-13
Agriculture
0.2
0.4%
5
0.3
0.9%
7
-40.3%
-2
Defence
0.1
0.3%
4
1.6
5.0%
17
-91.8%
-13
Media
0.0
0.1%
2
0.5
1.4%
7
-90.3%
-5
Total
49.4
299
32.2
284
53.2%
15
OVERVIEW Activity Table of Middle East & Africa M&A for Year End 2010 Announced Date
Bidder Company
Bidder Financial Advisor
30-Mar-10
Bharti Airtel Limited
15-Jul-10
Target Company
Target/Seller Financial Advisor
Seller Company
“Deal Value (US$m)”
Barclays Capital; Global Investment Zain Africa BV House; HSBC Bank; Morgan Stanley; Standard Chartered; State Bank of India
Advising Seller: BNP Paribas; UBS Investment Bank
Mobile Telecommunication Company KSC
10,700
Nippon Telegrph and Telephone Corporation
Morgan Stanley; Rand Merchant Bank
Dimension Data Holdings Plc
JPMorgan Cazenove; Nomura Holdings
18-Feb-10
Gold Reef Resorts Limited
Deutsche Bank; Grant Thorton Corporate Finance
Tsogo Sun Holdings Pty Ltd
Investec
28-Mar-10
China Petroleum & Chemical Corporation
Goldman Sachs; ING; UBS Investment Bank
Sonangol Sinopec International Limited (55% stake)
31-Mar-10
Metropolitan Life Limited
Fidelis Partners
Momentum Group Limited
Advising Seller: Rand Merchant Bank
29-Nov-10
Wal-Mart Stores Inc
JPMorgan; Rothschild
Massmart Holdings Limited (51% Stake)
Deutsche Bank; Goldman Sachs; Morgan Stanley
2,083
14-Oct-10
Mellisron Ltd; and Ofer Investment
British Israel Investment Ltd (70.65% Stake)
Leo Noe; Pujo Zabludowicz
1,998
10-May-10
Hindustan Zinc Limited
Lazard
22-Nov-10
25-Mar-10
2,822 Hosken Consolidated Investments 2,721 Limited; and SABMiller Plc Sinopec Overseas Oil & Gas Limited
2,457
FirstRand Limited
2,408
Anglo American Zinc
Advising seller: Goldman Sachs; Rand Merchant Bank; UBS Investment Bank
Qatar Telecom QSC
Orascom Telecom Tunisie SA (50% Stake)
Advising seller: Deutsche Orascom Telecom Holding SAE Bank; Lazar; Morgan Stanley; UBS Investment Bank
Redefine Income Fund Limited
Hyprop Investments Limited (66.70% stake)
Anglo American Plc
1,338
1,200
942 Source: Mergermarket
February 2011 gulfbusiness
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EXHIBITIONS & CONFERENCES
IDEX 2011 ADNEC, February 20-24,2011 Attention from the world’s defence and homeland security industry will be on Abu Dhabi as it stages its 10th anniversary edition of the International Defence Exhibition and Conference (IDEX). The event is the largest defence event in the MENA region and over 900 exhibitors are set to stage live demonstrations of the latest products, vehicles and technology. In a nod to the increasing importance of security technology in the region, the event has registered a 12 per cent increase in exhibition space this year, boosted by interest from Ukraine, South Africa and China.
UNITED ARAB EMIRATES Abu Dhabi February 02-05 15-16 20-24 20-24 28-03 Mar Dubai February 01-02 05-10 06-07 07-13 08-10 08-10 13-16 15 20-21 20-22 23-24 23-25 27-28 27-02 Mar 27-03 Mar Sharjah February 23-25
The Bride Show Abu Dhabi Middle East Urban Integrated Transportation IDEX 2011 International Defence Exhibitions NAVDEX 2011 Middle East Rail 2011
Abu Dhabi National Exhibition Centre Sheraton Abu Dhabi, Abu Dhabi Abu Dhabi National Exhibition Centre Abu Dhabi National Exhibition Centre, Marina Beach Rotana, Abu Dhabi
iirme.com marcusevans.com idexuae.ae navdex.ae terrapinn.com
MRO Middle East 2011 9th Annual GCC Occupational Health and Safety Conference 2nd Annual Middle East Public Private Partnership Dubai Desert Classic Middle East Electricity 2011 CABSAT Middle East Middle East & North Africa Shared Services & Outsourcing Summit UAE Successful eServices Conference Company Secretary Forum Middle East Exclusive Competitive Trade Marketing Conference National Career Exhibition Aircraft Interiors Middle East 2011 Gulfood Exhibition 2011 Corporate Communications Conference 2011
DICC, Dubai JBR Movenpick Hotel, Dubai Sheraton Hotel, Dubai Dubai Emirates Golf Club Dubai Int’l Convention & Exhibition Centre Dubai Int’l Convention & Exhibition Centre Movenpick Hotel Jumeirah Beach, Dubai Burj Al Arab Hotel, Dubai Hyatt Regency, Dubai Dubai Int’l Convention & Exhibition Centre Hyatt Regency, Dubai Expo Centre Sharjah DICC, Dubai Dubai Int’l Convention & Exhibition Centre Movenpick Hotel Jumeirah Beach, Dubai
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National Career Exhibition 2011
Expo Centre, Sharjah
expo-centre.ae
01-03
Food and Hospitality Expo 2011
Bahrain International Exhibition Centre
foodexpbh.com
27-28
Total Plant Maintenance, Reliability and Safety
The Ritz Carlton, Doha
marcusevans.com
Saudi Urban Transport Conference 2011 Plastic Packaging Saudi Arabia
JW Marriott, Riyadh JW Marriott, Riyadh
iqpc.com iqpc.com
BAHRAIN February
QATAR February
SAUDI ARABIA February
19-22 20-23
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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
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
FRASER SUITES DUBAI
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
Sheikh Zayed Road, Dubai Rising high above the fringe of Media City on Sheikh Zayed Road, Fraser Suites Dubai enjoys panoramic views with superb 1, 2 & 3 bedroom apartments, lifestyle facilities, relaxed dining in Aqua Café and the exclusive Awazen Spa. Tel 00971 4 4401400 Fax 00971 4 4401401 reservations.dubai@frasershospitality.com
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
Qatar
Saudi Arabia
MÖVENPICK HOTEL DOHA
INTERCONTINENTAL DOHA
JEDDAH HILTON
HOLIDAY INN RIYADH, IZDIHAR
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
Doha Superbly located in the prestigious West Bay area and within easy reach of the city centre. With its various dining options, 257 guest rooms and suites, private beach and a 24-hour state-ofthe-art gymnasium, it is an idyllic setting for business and leisure. Tel 00974 44844444 Fax 00974 44839555
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
GulfBusinessHotels.com
Membership information: nayeem@motivate.ae, Tel: 00971 4 2052290
IN YOUR SHOES
Power tripping TRACEY SCOTT test drives the new electric smart car on Abu Dhabi’s roads, under
the watchful eye of test manager Juergen Buhmann.
I
t looks and feels small and parks in tight spaces, just like its petrol-driven counterpart. But Daimler’s smart Fortwo electric car has one groundbreaking difference – it generates no emissions. The new electric model, which started rolling off the production line in 2009 on a trial basis, has no local exhaust gas emissions and makes little noise. And while the smart brand is said to have the lowest fuel consumption rate in the market with its petrol version, the electric edition takes environmentally-friendly to a new level. “The smart Fortwo electric drive is the perfect concept for emission free driving in the city,” says Juergen Buhmann, testing manger for electric vehicles at Mercedes-Benz, a division of Daimler. “If you drive for example 30 to 40 kilometres a day for example to your office and back, this vehicle is the perfect solution. Silent, clean and fun to drive.” The concept of electric cars is not new. However, carmakers this year are upping the ante in this area. So as a closet eco-warrior – who drives a petrol-loving Toyota, albeit wracked with guilt – I jumped at the chance to test drive the new smart model at this year’s Future World Energy Summit in Abu Dhabi. A test drive, I assumed, would be a few laps round the car park. Instead I was allocated a 10-minute slot to drive around Abu Dhabi. So with my oversized bag carefully stowed in the micro boot, I was good to go. A slight flick of the wrist to the right kicked the car into action. Slipping into ‘driving test’ mode, I adjusted my mirrors, checked my blind spot and accelerated away, aware that I was being watched by Buhmann and his team. Unlike a combustion engine, the electric motor made no noise. In fact, when moving, its only noise was a low droning sound – resembling what I presume a spaceship in cruise control would sound like. Once out of the car park – and with a Daimler representative in tow – I was able to fully test the speed, control and functions of the car. I soon discovered this nippy little number accelerates from 0-60km/p in 6.5
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seconds and boasts a maximum speed of 100km/h – a suitable speed for the city, but not Abu Dhabi’s Khaleej Al Arabi highway, as I found out on my test drive. Smart cars are not the car of choice in the Middle East with its desert roads and multi-lane motorways so pulling out in front of a speeding taxi was asking for trouble. With my foot firmly to the floor and chin perched on top of the steering wheel, the taxi raced past me and almost blew the $12,000 car off the road.
With my 10-minute slot drawing to a close, I had one last job to do – drop the car at its charging station. To recharge the car, the owner must plug it in overnight at any 220-volt socket – whether at home or using one of the many charging docks planned worldwide. A fully charged battery is sufficient for 135 kilometres of driving. And for drivers concerned about the battery overheating, a computer management system constantly monitors voltage, electricity and temperature. If one of these parameters reaches a specified limit, the electronics reduce the power output. So while experts estimate one in 10 cars globally will run on battery power alone by 2020, we can expect petrol motors to continue ruling the roads for now. “We already produce 1,500 units of this vehicle and deliver them to customers in more than 15 countries on a leasing basis. Starting 2012, the smart fortwo will be mass-produced and on sale around the world,” says Buhmann.
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