Gulf Business | October 2011

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ABDALLA SALEM EL-BADRI, SECRETARY GENERAL, OPEC K?< M<K<I8E F@C 9FJJ JG<8BJ :8E;@;CP 89FLK ?FC;@E> K?< B<PJ KF K?< F@C JLGGCP @E 8 NFIC; FE K?< <;>< F= 8 E<N <:FEFD@: :I@J@J%

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REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS

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MATEIN KHALID The falling oil price and buying BP shares.

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DR TOMMY WEIR Company succession planning is vital.

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OLIVER CORNOCK Metro stations are good for business.

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INDUSTRIES Cement firms face closure as UAE projects are culled.

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POLITICS Will Morocco and Jordan join the GCC?

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AVIATION Private jet travel boosted by Arab Spring talks.

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M&AS Regional mergers are on the up.

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FINANCE Islamic scholars get their act together.

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A SHOT IN THE ARM The region’s health and pharmaceutical sectors are set for another massive cash injection.

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PROFILE: MEDICINE MAN TVM Capital MENA CEO on bringing the first private IVF clinic to the region.

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TOP TECH TRENDS AT GITEX Cloud computing and cybercrime on the agenda at this year’s mega-tech event.

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HOW THE RICH GOT RICHER Saudi Arabia’s banks are riding the government spending wave.

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BRAIN GAIN Local business schools get top marks as pupils scramble to update their CVs.

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A CALL FOR ARMS The region’s defence spend is set to explode as GCC security fears grow.

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TRAVEL Unwind in the mountains at Six Senses Hideaway Resort.

CRUISE Reviewed: Rolls Royce Ghost EWB.

STATS Regional mergers, acquisitions and bond issuances.

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GULF BUSINESS PREFERRED HOTELS A selection of the region’s top rooms.

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EVENTS The Gulf’s top business conferences.

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PLACES TO BE Does Dubai’s La Petit Maison live up to its French reputation?

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IN YOUR SHOES Paul Kenny, CEO of Cobone.

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Saudi and UAE to send Egypt loan lifeline

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On the Radar

Egypt expects to reach a loan agreement with Saudi Arabia and the UAE worth several billions of dollars each soon, while another $500 million should come from the Arab Monetary Fund.

According to Egyptian Finance Minister Hazem al-Beblawy, the country is likely to strike a deal on loans before the end of the year. â&#x20AC;&#x153;There are talks about a package coming

from Arab countries, from Saudi Arabia, from the Emirates. We are under discussion, but both of them have presented proposals of a couple of billion dollars each,â&#x20AC;? he said.

Egypt turned down a $3 billion International Monetary Fund loan in June.

Its economy contracted 4.2 per cent in the quarter that ended in March amid the worst political crisis to hit the country in three decades.

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Dubai can expect robust growth ahead thanks to support from buoyant revenues in the trade sector, a government official has said.

Abdul Rahman Saif Al Ghurair, chairman of Dubai Chamber of Commerce and Industry, said: â&#x20AC;&#x153;Dubaiâ&#x20AC;&#x2122;s economy will grow between three and five per cent in 2011.â&#x20AC;?

In an interview with Arabic daily Al Khaleej, he said the emirateâ&#x20AC;&#x2122;s economy will be strongly supported by the trade sector and added that he expects more than six per cent growth next year.*

Bad debt hampers UAE banks The UAE is still suffering the painful side effects of escalating non-performing loans (NPL), with provisions rising 29.8 per cent year-onyear in July, according to data released by the central bank.

Bank provisions for NPLs increased 2.3 per cent month-on-month to Dhs48.4 billion in July 2011, and are up

9.3 per cent for the first seven months of the year. This was despite bank loans edging up by just 2.6 per cent during the last year.

Bank deposits, on the other hand, are up 11.5 per cent year-onyear to Dhs114 trillion although the month of July saw a 1.1 per cent decline in total deposits.

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project focus

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Saudi mega steel mill open in nine months The Saudi unit of ArcelorMittal, the worldâ&#x20AC;&#x2122;s largest steelmaker, expects to start production at its new mill in Jubail in the first half of 2012, according to local media.

The $700-million plant will produce 600,000 metric tonnes of pipes a year for the oil and petrochemical industry, said Mohammed Al-Jabr, ArcelorMittalâ&#x20AC;&#x2122;s managing director in Saudi Arabia. Al-Jabr was formerly the vice president of Saudi Basic Industries Corp.â&#x20AC;&#x2122;s steel unit.

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On the Radar

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Nakheel cleans up its act Nakheel, Dubaiâ&#x20AC;&#x2122;s biggest developer by assets, told creditors it wrote down its real estate by $21 billion after property values in the emirate fell by more than half.

The state-owned company wrote off Dhs301.4 million in the first half of last year, Dhs73.8 billion in 2009 and Dhs4.44 billion in 2008, according to its Islamic bond prospectus obtained by Bloomberg News.

After the write-offs, the companyâ&#x20AC;&#x2122;s share capital dropped to Dhs10.6 billion as of June 2010 from 87.1 billion in 2008.

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Myself. I believe in myself.

Whatever Iâ&#x20AC;&#x2122;m doing now in the world championship is not an opportunity handed to me.

I worked hard to build this opportunity. The idea of Abu Dhabi tourism backing the world championship started with my belief and the support of the Abu Dhabi government.

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I always loved motorsports. I started with carting and then in 2002 I tried out a rally car and decided to master it well and participate in the UAE championship event to see how it felt.

In the first year itself when I won most of the titles it boosted my confidence in attempting outside my terrain. I believe if you put a goal in your head, you can achieve that goal. @j `k Z_Xcc\e^`e^ ]fi pfli k\Xd kf XkkiXZk jgfejfij6

When youâ&#x20AC;&#x2122;re competing in a world championship and have keen drivers and have already secured big sponsors like Abu Dhabi, Ford and Castrol then youâ&#x20AC;&#x2122;re really not looking for more big sponsors and any new sponsor wanting to enter the team will need to bid high. So itâ&#x20AC;&#x2122;s not a problem when it comes to WRC, but when we are doing a regional event that has nothing to do with WRC it can get quite difficult.

ADIA backs Virginâ&#x20AC;&#x2122;s bid for Lloyds bank branches The Abu Dhabi Investment Authority has emerged as one of a group of investors backing Virgin Moneyâ&#x20AC;&#x2122;s bid for the 632 branches put up for sale by Lloyds Banking Group.

The online bank, part of Sir Richard Bransonâ&#x20AC;&#x2122;s Virgin empire, has already expressed an interest in buying state-owned Northern Rock, but with funding now in place to back a larger deal, it is also poised to enter a second round bid for the Lloyds branches.

Abu Dhabiâ&#x20AC;&#x2122;s sovereign wealth fund, which has assets in excess of $600 billion, could be the necessary ingredient to ensure Richard Bransonâ&#x20AC;&#x2122;s company launches a successful tender.

Other new backers include the private equity group Carlyle, General Atlantic and the Universities Superannuation Scheme, all of which will take a minority stake in the online bank if it is successful in acquiring either Northern Rock or the Lloyds branches, or both.

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Yes, perhaps in two to three years it could happen. Thereâ&#x20AC;&#x2122;s a lot of work to be done and if the interest continues to hold good then yes, itâ&#x20AC;&#x2122;s possible. @] pfl _X[ kf b\\g aljk fe\ f] pfli g\ijfeXc ZXij# n_`Z_ nflc[ `k Y\6

The Bugatti.

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Iâ&#x20AC;&#x2122;m really happy with my performance so far; the only think Iâ&#x20AC;&#x2122;d like to see is more Emiratis do what Iâ&#x20AC;&#x2122;ve done.

I always wanted to motivate people in this region to try motorsport and be an inspiration as an ambassador. @EK<IM@<N<; 9P ?@C;8 ;Ă&#x2039;JFLQ8

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COMMENT

K?< =8CC @E 9I<EK :IL;< 8E; 9G Matein Khalid is fund manager in a royal investment office and a writer in finance and geopolitics.

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MAJOR FALL IN CRUDE OIL IS inevitable this autumn. Why? Three reasons. One, the momentum of global economic growth has clearly decelerated since July. German and US GDP growth has been revised sharply downwards. The US economy created zero new jobs in August, a bad omen for gasoline demand in the planet’s leading energy consumer. Chinese GDP has peaked even as South Korean/Taiwan industrial exports begin to soften. A Greek default is the kiss of death for Eurozone growth. The macro storm clouds have now turned oil bearish.

Two, the collapse of the Gaddafi regime means a credible new Libyan government is in place, even though the IEA estimates that it will take at least another year to resume exports, given the war damage to refineries, pipelines and ports. This means that the geopolitical/oil supply risk premium due to Libya will unwind in the next three months.

Three, Saudi Arabia ignored the OPEC quota system and increased its production to its highest ever levels. OPEC output is now 30 million barrels a day, the highest in five years. There is no sign of an imminent U-turn in the kingdom’s oil pricing and production strategy. Saudi Arabia is OPEC’s swing producer and there is no immediate prospect of a Saudi output cut. As both global supply and demand curves shift, Brent could well decline by $25 to the $80–85 range.

Oil futures markets also suggest that traders expect a fall in oil prices, as open interest in out of the money put options has surged on the

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NYMEX West Texas crude contract with a $50 strike price. This means that the smart money expects at least a $30 fall in prices from current levels.

The oil market clearly wants to hedge against a 2008-style black swan event when the failure of Lehman Brothers, global recession and the seizure of the world’s credit market led to an epic meltdown in black gold, with crude oil falling from $147 to below $40 between July and December 2008. While another free fall is unlikely, the spike in the dollar, the high Volatility Index (VIX) and Europe’s bank funding woes is highly oil negative.

Asian economies are nowhere near recession, though GDP growth in India and China has probably peaked in early 2011 as monetary tightening bites.

Moreover, Saudi Arabia announced a $138 billion social welfare spending hike and it needs a budget breakeven price of at least $80 Brent to avert budget deficits and contractor debt crises. This means that Saudi Arabia, Kuwait and UAE will act to cut output to preempt a major fall in oil prices. Saudi Arabia publicly protested speculative bullish spirals in oil prices in April because they hit industrialised economies and increased global recession risk. The kingdom has, in essence, a strategic economic interest in cutting output. Saudi Arabia has offered the oil market a de-facto floor against a ruinous collapse.

The fall in oil prices is bearish for the shares of listed energy producers in London and New York.

Yet a compelling opportunity in BP shares will emerge if they trade in the 300-320 pence range in London. Thanks to the Deepwater Horizon debacle in the Gulf of Mexico and the collapse of CEO Robert Dudley’s Rosneft share swap deal to explore for oil in the Siberian Arctic, BP shares trade at a valuation discount of 30 per cent to its Big Oil peers and offers a dividend yield of 4.6 per cent, more than double the yield on the US Treasury ten year note. BP has a stellar balance sheet, a global exploration, production and downstream franchise and significant growth opportunities in India, Brazil, the Caspian Basin, West Africa and Angola. As oil prices slide, so will BP shares. Yet bottom fishing in Big Oil’s deep value Cinderella could well prove profitable for investors eager to drill for oil on the London stock exchange.

:e_k^] =ngabee Em]'

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COMMENT

N?F @J PFLI E<OK C<8;<I6 Dr Tommy Weir, advisor on fast-growth and emerging market leadership, and author of The CEO Shift

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i

N MY TWENTIES I WAS LIVING IN VIRGINIA, US, when a major ice storm broke. Amid the clean up operation one of my friends taught me a life lesson that I hope to never forget – SPF (single point of failure). Nearly every time it is the SPF that keeps you from reaching your goal.

Following the storm, the guys did the macho thing and gathered our chainsaws, put on our boots and headed to my friend Steve’s house to help him clean up the fallen trees. Right in the midst of what started out to be a productive day of cutting wood, we all learned the lesson of the SPF. One of the chains popped off the saw and while attempting to fix it we realised that no one had the necessary screwdriver. This one oversight kept us from finishing our task.

If you are thinking that it was a stupid oversight to forget a commonsense tool, you are right. Oftentimes the SPF is an obvious oversight.

Now, back to the business environment, what is the SPF (single point of failure) for your business?

If my observation is accurate, for most businesses in the region the SPF lies in succession planning – the act of identifying and developing future leaders for a business. And the most critical role to be planned for is that of the CEO. Does the $13 billion Ralph Lauren Inc. have a ready successor for the 71-year-old founder Ralph? Unfortunately, it does not appear that they are ready for the departure of their and CEO. During the calls for Rupert Murdoch to step down during the News Corp. phone hacking

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scandal it was obvious that succession planning is their SPF as they are left without a designated and ready successor.

I wonder how many of the family empires across the GCC have a successor in place and are prepared for the future? Succession planning is especially tough for founders of companies where they have been the leader, brand representative and patriarch.

When Silicon Valley legend Steve Jobs retired in August, Apple quickly announced that Jobs was to be succeeded by longtime heir apparent Tim Cook.

Because this succession was well planned, analysts do not expect Jobs’ resignation to derail the company’s fabled product-launch roadmap.

In my conversations with founders and other senior executives there is a general concern about the quality and readiness of a future cadre of leaders. Apple is known for its great bench strength of candidates for internal promotion and ready qualifications to lead at higher levels. There are three points to think about when you take on this strategic exercise: (% You must calculate the risk of vacancy and impact of a position on the business. The higher the risk and the impact, the more crucial it is that you have ready successors in place. )% Succession planning is very similar to athletics.

Teams that have great ‘bench strength’ – players who are ready to replace another who gets hurt or tired – usually outperform their competitors. Through succession planning an organisation is ensuring that they have leaders in line for each leadership position. *% Make sure that you have future roles planned for gifted leaders. And make sure they know that you do. Otherwise, your talented employees will not stick around.

Across the region, CEO succession is one of the most neglected and strategic risk mitigation strategies. It is time to erase the SPF called succession planning and confront the challenge.

:e_k^] =ngabee Em]'

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COMMENT

=8JK KI8:B GIFG<IKP GI@:<J Oliver Cornock, regional editor for the GCC, Oxford Business Group

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UBAI’S PROPERTY MARKET IS VALIDATING the adage that the three most important factors in real estate are, indeed, ‘location, location, location’. While much of the market is expected to post modest gains this year before rebounding more strongly in 2012, properties that are close to the emirate’s growing metro network are increasing in popularity and value at a healthy pace.

According to data from property management firm Asteco, rents for residential properties near some of the 29 stations on the Red Line – one of two lines of the Dubai Metro network – have risen by more than 10 per cent since the route opened in September 2009.

Vineet Kumar, the head of business development at Asteco, said easy access to transport connections is a major selling point for clients looking for property and the demand for prime locations will drive up returns. “People like to be near a transportation link,” Kumar told reporters last month. “Since the opening of the metro, properties in close proximity to a station have become a priority for many tenants, who are prepared to pay extra for the privilege.”

Both commercial properties in the city centre, as well as residential units along the Red Line’s 52km route, have seen a boost in demand, and that trend is set to continue now that the 23km Green Line is in operation.

Daniel Norman, the director of sales and marketing at the Crowne Plaza Deira-Dubai, located within two minutes’ walking distance of the

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new line, has already begun encouraging hotel patrons to use the metro. “We’re really very delighted about the metro opening up just down the road,” he said.

Proximity to the new metro line, which is served by 18 stations and runs from Etisalat to the Creek, is a priority for residential tenants, many of who would prefer to reside close to public transport. According to Asteco, a small property within walking distance of the Green Line could command an annual rent of Dh50,000 ($13,600), while a similar unit further away would only see Dh40,000 ($11,000).

Elaine Jones, the chief executive officer at Asteco, said she believes the rail network is in the process of changing the local property market.

“The Dubai Metro has added a whole new market dynamic and as the network is rolled out across the emirate, the rental disparity will become even more pronounced than it is already.”

To some degree, the metro is also dependent on real estate projects for its operational success.

The Al Jadaf and Creek stations will remain closed for the time being because the property developments they are intended to serve have not yet been completed. They will become operational when there is demand for it – possibly in the next year or so.

The popularity of the metro with commuters from residential districts inspired the Roads and Transport Authority (RTA) to declare that it would increase late night and weekend services. Any increase in services will also boost the business opportunities of shopping and recreational centres close to the stations, which, in turn, could raise their rental and sales value.

Although Dubai’s property market cannot depend on expansion spurred solely by the improving transport network, the rising prices along the main metro corridors are set to put the sector on a fast track to wider growth.

:e_k^] =ngabee Em]'

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S INDIVIDUALS THAT hold the key to unlocking an industry that could soon be worth $5 trillion, Islamic finance scholars have traditionally opted for a rather informal approach.

Over the last decade, the potential wealth locked up in Gulf has encouraged international banks to enter Islamic finance in their droves. And when launching Islamic products, these financial institutions have called on

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scholars to authorise their products as Shari’ah compliant.

The handful of well-known scholars that operate in the region have become keenly sought by banks for their Islamic legitimacy.

In the search for a ‘fatwa’ (or seal of approval for an Islamic product) bankers would call around until they found a scholar that would oblige. It was dubbed ‘fatwa shopping’, and scholars built a reputation for running around with briefcases and a cell phone issuing decrees left right and centre.

This is starting to change though according to Islamic finance analysts, who have seen Islamic scholars begin to formalise their operations and often mimic the Western conventional models of doing business.

Ayman Khaleq, an Islamic finance specialist at law firm Vinson & Elkins, said: “They are setting up more on an institutional basis, so they have an office, with junior associates that can help in their absence.

“Banks like to know where a Shari’ah scholar is if he’s not at his desk. Before, you had a hotmail or gmail account and a mobile number, and you just hoped he answered.”

Khaleq said in recent years there had been a groundswell of demand from finance professionals, especially at Islamic banking meetings and conferences in the Gulf, for scholars to change. “Institutional investors are not used to the ‘lone ranger’ approach and need more of the institutional model that they’re familiar

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with in their dealings with law firms and accountants.â&#x20AC;?

Bankers have complained in the past that until the credit crunch the scarcity of Shariâ&#x20AC;&#x2122;ah scholars was the biggest drag on growth of the Islamic finance industry.

But, despite this, the number of scholars qualified to pass judgment on products has remained low.

The Islamic finance industry could reach $5 trillion by 2015, up from $1 trillion currently, according to the latest forecasts by Moodyâ&#x20AC;&#x2122;s Investors Service.

This is three times the size of Chinaâ&#x20AC;&#x2122;s mutual fund asset base.

The fact that there is no formally accepted definition of Islamic finance poses the biggest threat to this growth.

In some cases a product is deemed Shariâ&#x20AC;&#x2122;ah compliant in one market and not in another, which is especially the case with Malaysian products, which are often judged not Shariâ&#x20AC;&#x2122;ah compliant in the more austere Gulf.

This is less of a problem for Islamic banks in the Middle East, which are obliged to have a Shariâ&#x20AC;&#x2122;ah supervisory board to approve or ban transactions, products and services.

They often depend on an even narrower clique of about a dozen or so â&#x20AC;&#x2DC;brand nameâ&#x20AC;&#x2122; scholars who usually chair their Shariâ&#x20AC;&#x2122;ah boards.

Jawdat Al-Halabi, CEO of Jeddahbased NCB Capital, the largest Islamic wealth manager in the Middle East, said the bankâ&#x20AC;&#x2122;s Shariâ&#x20AC;&#x2122;ah board looks into all products that go out and tests them for authenticity on a regular basis. â&#x20AC;&#x153;You do have different interpretations from scholars in different countries, even within Saudi Arabia. But thereâ&#x20AC;&#x2122;s enough commonality in most of the structures and products. â&#x20AC;&#x153;When youâ&#x20AC;&#x2122;re innovating and exploring untested products, thatâ&#x20AC;&#x2122;s when it becomes trickier; there are some scholars that are stricter than others. As a rule, we tend to err on the side of caution and pursue a

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Historically, the risks associated with the shortage of qualified Shariâ&#x20AC;&#x2122;ah scholars in the Islamic financial industry has been a major obstacle.

Currently, financial advisors, Islamic financial institutions and their Shariâ&#x20AC;&#x2122;ah committees are grappling with how to structure Islamic finance to properly integrate with conventional finance. The end result has been the development of a cumbersome and document-heavy structure that in many respects echoes conventional financing.

GCC scholars that are heavily versed in Shariâ&#x20AC;&#x2122;ah law often donâ&#x20AC;&#x2122;t have the financial background needed for modern sophisticated banking products.

Still, Al-Halabi added that there are some scholars that are becoming increasingly globalised and are being used by various institutions, whether its in the GCC, MENA or more internationally.

Itâ&#x20AC;&#x2122;s likely that as Gulf scholars take on a more formal, institutionalised approach

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The appetite for Islamic finance has strengthened given the battering that conventional banking suffered during and after the global crisis.

Financial transactions in Western Europe and North America were left in tatters, while Islamic finance witnessed a refreshing burst of growth. Largely shielded from the economic downturn, although not entirely immune, there is a significant opportunity for the Islamic financial system to provide an attractive alternative to conventional financing.

One Gulf-based banker said: â&#x20AC;&#x153;The financial crisis hit Islamic banking, but not as hard as conventional banking. This spurred interest from clients for Shariâ&#x20AC;&#x2122;ah compliant investment. â&#x20AC;&#x153;Since the start of 2011, clients have looked for value and growth and better returns than theyâ&#x20AC;&#x2122;ve seen in the past.

Whereas they were previously sitting on the sidelines post-crisis, they are now becoming more demanding,â&#x20AC;? he added.

Islamic finance hubs in Asia, including Malaysia and Singapore, have long been wary of the regionâ&#x20AC;&#x2122;s enormous growth potential on the international stage.

Although Malaysia is by far the bigger and more sophisticated market, the Middle East is seen as a sleeping giant.

If local Shariâ&#x20AC;&#x2122;ah scholars continue to upgrade and modernise then the dynamic of the Islamic global marketplace could shift dramatically in the coming years.

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ERGERS AND ACQUISITIONS (M&A) are set to pick up this year due to the narrowing of the price gap between buyers and sellers, pressure on some companies’ capital structure and sovereign wealth funds investing in enterprises to bolster their local economies, analysts and investors said.

Although this year marked the scrapping of the estimated $12 billion sale of a stake in Kuwait mobile operator Zain to UAE’s Etisalat, the M&A landscape has been busy with deals from corporates and sovereign wealth funds.

“At the start of 2011, when the political unrest was in full swing, there was an initial expectation that the levels of M&A activity could decline. We have conversely observed a noticeable uptick in activity, particularly in the intra-regional midmarket space,” said Omar Mehanna, HSBC head of advisory for the Middle East and North Africa. “In certain sectors,

there are strategics that have survived the crisis remarkably well with their capital structures intact. They view this period as an opportune time to diversify and consolidate their position both regionally and internationally.”

M&A deal value in the Middle East and North Africa in the first half of 2011 rose 30 per cent to $21.17 billion from a year earlier period, according to portal Zawya.com. The largest M&A deal was Abu Dhabi-government backed IPIC’s $5 billion acquisition of an incremental equity investment in Spanish oil firm Cepsa taking its stake to 100 percent.

“The first half was a bit surprising.

It will continue with the same trend, keeping an average of 30% growth this year (compared with 2010),” said Youssef Saada, Zawya’s head of financial research.

HSBC currently has a pipeline of mandates for inbound and outbound transactions involving Sovereign Wealth Funds and large family groups, with activity centered in the UAE, Qatar, Saudi Arabia and Kuwait, said Mehanna, declining to give specific figures. He expects increased activity

in the larger mid-market deals in the $100-$300 million range, which are usually led by family businesses and midsized corporates.

“Since late 2008, a number of corporates have effectively been buying time or living in denial regarding the pressures on their capital structures,” said Mehanna.

“They have been requesting temporary debt rollovers from their banks. For many, it has got to a stage now where their strategic capital raising options are becoming more limited, so what’s left is effectively M&A.” HSBC acted as M&A advisor for several recent deals, including Qatar’s Mannai Corp acquisition of a stake in UAE mobile phone retailer Axiom Telecom, the Qatari sovereign wealth fund’s purchase of a stake in German builder Hochtief and the Kuwaiti sovereign wealth fund’s investment in French nuclear group Areva.

The regional unrest and financial woes gripping the US and Europe, as well as capital and debt restructuring of various corporates in the Gulf have pushed prices to a level conducive to deals.

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“A year and a half ago there was a fundamental disconnect between buyers and sellers,’’ said Mehanna. “The vendors’ mindsets were still pre-crisis and it was very difficult to convince them of the fundamental value of their businesses. With the political unrest, the price disconnect between buyers and sellers has narrowed.”

And with the fixed-income market remaining open to select high-rated corporates, the equity markets in the doldrums and bank lending selective, many companies are turning to M&A for capital. One example is Axiom Telecom, which cancelled its IPO last year due to market conditions and opted instead to sell its stake to a firm this year.

HSBC’s views on prices are echoed by UAE contractor Drake & Scull, which has been actively snapping up companies in the Gulf region, with the most recent acquisition this year in Saudi Arabia.

“Valuations in the market have come down tremendously,” said vice-chairman and CEO Khaldoun Tabari. “What we thought were opportunities in 2009-2010,

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today they are better than in 2009, which were also good valuations at the time.

Today there is more pain.”

But the M&A arena remains fraught with problems in terms of regulation and politics within a company and country, which are thwarting potential deals.

Big-ticket cross-border items such as the scrapped Zain-Etisalat tie-up remain sparse and are unlikely to increase, given the current ecosystem.

Louis Besland, partner and vice president at consultancy A.T. Kearney Middle East, said: “I do not expect significant growth in number or value of M&A deals in the short term because of regulations in the region, the lack of visibility and the shareholding structure, which is very much linked to families.

In some cases, there are conflicting interests between stakeholders. They (shareholders) think their investment is their inheritance that they can and need to keep.”

The thin line between shareholders and management is often blurred and the fact that most large publicly-listed companies have some sort of government connection does not help. Many sectors, such as banking, are ripe for consolidation, but little activity has occurred because it is viewed as a strategic sector.

“There are no real cross-border regulations. It is very much countryspecific, which makes large deals difficult and complicated,” said Besland. “Crosssector regulation is unpredictable and for international companies, it is a bit worrying to deal with the region, when you also have the unrest.

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If you look at the regulations for local employment, it is changing rapidly and this creates uncertainty for international corporations.”

Meanwhile, sovereign wealth funds, who invest heavily abroad, are unlikely to significantly slow down their investments, despite the financial crash in the US and Europe. But their future investments are set to become more selective and geared toward importing technology and knowhow because governments are under increasing pressure to answer to a restive population demanding better jobs and economic prospects. IPIC’s investment this year in CEPSA fits well with Abu Dhabi’s efforts to expand its refining capacity, while Qatar’s investment in Hochtief will prove handy as the Gulf state embarks on a building spree for its World Cup in 2022 and other mega projects.

“I can see an increase in international investments (from sovereign wealth funds), particularly where, not only the value proposition is compelling, but also the strategic angle can yield tangible benefits back into the local economy,” said Mehanna. “In the past, the strategic angle was there, but it was not as prominent.”

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S GRANDIOSE CONSTRUCTION projects are scaled back, looming overcapacity is biting the UAE cement industry. The country’s production has slumped in the past two years, and industry players believe that that volumes will more than halve in 2011 from a peak of 20.8 million tonnes (mt) in 2008.

With as much as 43 per cent capacity owned by unlisted companies this year,

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the UAE will feel excessive pain as these owners are unable to share losses with outside equity holders. Industry insiders say that a collapse in capacity utilisation to around 26 per cent will take place in 2012, a figure that fell to 37 per cent in 2010. Plant shutdowns are inevitable.

In contrast, the prospects of Saudi Arabia’s cement industry are solid with a construction boom contributing to brisk activity in the sector, a new report from Kuwait’s Global Investment House (GIH) said. Saudi plants account for half of GCC production capacity and the effects of the global financial crisis on its cement industry are likely to be muted. The outlook for Kuwait and Qatar is neutral.

Excluding Saudi Arabia, GCC countries continue to witness an erosion in profits: “The UAE saw a decline of 56.1 per cent year on year in 1H2011, while Oman has seen a decline in profitability by 53.3 per cent year-on-year in the same period,” said GIH, adding that UAE excess capacity was also adversely impacting the Omani cement sector, with UAE-produced cement being dumped in the sultanate.

“Cement prices in the GCC averaged around $66 per tonne in 1H2011, compared to $68.60 per tonne enjoyed in 1H2010,” said the report. High prices of around $85 per tonne in Kuwait and $75 per tonne in Oman in early 2010 have now moderated to $80 and $65 respectively. Elsewhere, prices averaged

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between $60-70 in Saudi Arabia and Qatar, although UAE prices are now testing the $50 floor.

L8< At a cement industry conference in Dubai in late 2008, the signs were there but the industry was reluctant to face them: the sector was headed for disastrous levels of overcapacity.

An official from a UAE-based company said he was determined to be optimistic, but the passage of time has shown otherwise. His verdict today: “Everybody [in the UAE] is losing money now. I just heard that [only one company is] on course to break even [in 2011]. The rest are losing money.”

It is difficult not to feel some sympathy.

As the real estate boom gathered momentum in the years to 2008, cement producers were left struggling to meet a deluge of demand. Cement plant buildout usually takes at least two years, so decisions to go ahead with expansions or greenfields are coloured by the current operating environment. As a result, in 2008, UAE capacity grew 24.7 per cent, Saudi 32.7 per cent and the GCC as a whole 26.1 per cent. Herein lies the root of the UAE’s trouble.

With the overall projects market having

“The biggest construction sites in Saudi Arabia are now the biggest in the world,” said a regional construction services supplier. “This situation will continue for [at least] the next two years.”

FD8E 8E; H8K8I The outlook for cement in Qatar is bright, with several major projects, including roads, rail and construction having received a boost by Qatar’s winning World Cup 2022 host bid. Qatar and Oman have much smaller cement capacities than their two larger GCC partners, at 6.2 million tonnes per annum (mtpa) each. However, Qatar National Cement has announced it will add 930,000 tonnes of capacity soon, to bring it to 5.36 mtpa.

fallen from around $900 billion in mid2009 to around $800 billion a year and a half later, according to MEED, the pain in the UAE cement sector is set to continue.

J8L;@ 8I89@8 The kingdom’s bloc of eight listed cement companies is extremely long in the tooth – the first was set up as early as the 1950s – and for decades saw negligible levels of debt and unfeasibly high levels of profitability.

Three years ago, analysts were expecting a major rollout of new construction and this is ongoing. In March this year, global real estate consultants Jones Lang Lasalle reported that the kingdom would need “900 new houses per day completed over the next five years,” or a total of 1.65 million homes.

Several big-ticket projects will also bolster the Saudi industry.

The consultancy identifies major elements of government infrastructure investments totalling SR133 billion: six airport projects; two port projects; and 23 railway projects. The central region, focussed on Riyadh, is forging ahead, with established player Yamama, and recent entrants, Najran, Madina and Riyadh Cement Companies accounting for the bulk of volume growth, GIH said.

È<M<IP9F;P R@E K?< L8<T @J CFJ@E> DFE<P EFN% @ ALJK ?<8I; K?8K RFECP FE< :FDG8EP @JT FE :FLIJ< KF 9I<8B <M<E R@E )'((T% K?< I<JK 8I< CFJ@E> DFE<P%É Oman has witnessed the halving of sector profits owing to a 37 per cent increase in costs and a “huge increase in financial charges,” GIH said. Raysut Cement’s revenues grew by 20.7 per cent while Oman Cement’s saw a drop of 13.9 per cent. Pioneer Cement’s entry into the market has increased sales volume. :FEKI8JK@E> =FIKLE<J Accounting for around 80 per cent of GCC sales, the contrasting fortunes of Saudi Arabia and the UAE will continue to be the focus of investor sentiment.

Certainly, many regional players are looking to the kingdom’s vibrancy to offset the UAE slowdown. “We are at the same level or higher [in terms of operations] than 2009 because of Saudi Arabia,” says Peter Vogel, general manager, Doka Gulf FZE. “[In the UAE alone], we are half where we were [then].”

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ILL THE SIX GCC countries become seven, or even eight? Meetings at foreign minister level held in Jeddah last month brought closer the possibility of Jordanian – and Moroccan – membership of the GCC over the next decade, but a time-scale for formal accession has not yet been clarified.

The GCC has announced that it will set up specialised committees to look at the question of Jordan and Morocco’s membership, while the council has unveiled a five-year economic development assistance programme for the two monarchies and Jordanian Foreign Minister Nasser Joudeh confirmed that Jordan’s formal membership request was submitted on 10 September.

“Jordan requested to join and the GCC initially accepted, based on the last summit in Saudi Arabia in May,” said Riad Kahwaji, security expert and CEO of Inegma (the Institute for Near East & Gulf Military Analysis). “No one had any idea about admitting new countries, while the two countries that were interested in joining the

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According to a report published in the Kuwait Times in August, there is far from unanimous opinion for Jordan’s bid to join the GCC. “The attitude of GCC states’ governments towards Jordan’s application to join the Gulf bloc seems to vary from country to country, with some, such as Saudi Arabia and Bahrain, welcoming the move, and others like Kuwait and Qatar expressing reservations on the idea,” the paper said. “Oman and the UAE, meanwhile, have wholly rejected the idea of Jordan’s becoming a member, although they were initially supportive of it.”

Jordan applied to join the GCC in the eighties and again in 1996, while Morocco’s enthusiasm for membership is said to be tempered by distance and the desire to stand on its own two feet. Both countries would welcome the economic benefits of joining but the advantages to existing GCC members are less clear, despite the clear potential benefits of fellow Middle Eastern and Arab monarchies broadening the base of the organisation.

Kahwaji says the original news about Jordan’s bid to join the GCC was a complete surprise to some of the [GCC] states. “What is understood so far is that this was a Saudi initiative to include the Jordanians, and to invite Morocco to join. In principle, this was not a comprehensive effort; it was more or less unilateral [by the Saudis] and pulled the rest on board in support. Nevertheless we have seen the GCC leadership feel compelled to join in inviting the Jordanians, while many officials in their circles remain hesitant, suspicious, and even disapprove of the idea.”

“It is not clear why the GCC invitation was made. Jordan had made the request years ago and it was ignored for a while.

The Arab Spring did help but no one is sure why,” says Jordan-based journalist and commentator, Daoud Kuttab. “Some say that GCC countries wanted the use of Jordan’s security and intelligence service.

Others say it was a way of creating a royal club of monarchies.”

It is too early to say what kind of membership Jordan will be offered if its bid is successful. “Jordan is more interested in the… economic opportunities and not so much in full or partial membership,” says Kuttab. “Jordan’s interests are economic, while the GCC’s are political and security-related.”

The apparent lack of homogeneity between Jordan and the GCC has led to concern in Amman. “[Accession to the GCC] is a big worry for many liberals. It has even become the butt of jokes questioning when Jordanians will have to wear the dishdash and hijab,” Kuttab said.

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HILE THE COMMERCIAL aviation market nosedived during the Arab Spring this year, regional private jet usage soared. In times of crisis, the need for urgent high-level talks and diplomatic relations increases, as does the need for convenient, safe transportation.

“This year, the regional private jet market will grow by around seven to eight per cent, having experienced negative growth of 10 to 11 per cent in 2010,” said Shane O’Hare, CEO of Abu Dhabi-based Royal Jet. “The private jet market is maturing, and we are getting to the places airlines don’t fly to.”

The added regional flying activity as heads of state frantically flew between states to stymie this year’s Arab Spring

crisis directly bolstered the bank balances of private jet companies.

“Global crises can stimulate the need for more travel because of the need for more delegations and summits. Last year there were also an unprecedented number of summits and meetings, both at a global level and regional level, directly caused by the economic crisis, and that’s good for our business. This is where our business is quite unique,” said O’Hare.

The dwindling corporate market has tempered the growth of the private jet industry, as jittery businesses made travel cutbacks to protect their bottom lines in an uncertain economic climate. Semigovernment-owned Royal Jet services a mix of corporate, government and presidential sectors.

“Corporate travel represents about 20 per cent of our business. It accounts for around 50 per cent in the US, 30 per cent in Europe and 20 per cent here,” said O’Hare. “It’s up and down, so our growth this year has been balanced out by different factors.”

In a nod to the growing demand for chartered services, the private jet firm recently launched its Premium Connect service for UAE airline Etihad’s VIP customers, allowing customers to switch directly from a commercial flight to a private jet and fly to the destination of their choice.

“The old adage that time is money has become increasingly important. Premium Connect offers a seamless global network and can connect customers from Abu Dhabi to anywhere in the world,” said O’Hare. “The private jet industry is maturing very quickly and the consumer is increasingly understanding the value of private jet travel, security and check-in times. People want to travel when they want to travel.”

Royal Jet is also counting on its thriving medical tourism business as a growth pillar. The firm currently has 11 aircraft, seven of which can be utilised for medical services. Royal Jet provides an on-board medical service, which can be compared to a flying hospital, and Europe, Asia, Bangkok in Thailand and Washington in the US are currently the most popular destinations for health trips.

From 2008 onwards, Royal Jet identified a five-year expansion strategy that is aimed at creating solutions to address the Middle East’s business aviation growth in conjunction with Abu Dhabi’s wider 2030 vision to boost traffic and tourism to the emirate.

“Royal Jet works closely with Etihad and Abu Dhabi corporations and it’s a collective effort to drive traffic to Abu Dhabi. It’s driven from the top,” said O’Hare.

The Abu Dhabi Tourism Authority released its report on the industry’s first-half year performance at the end of July, showing that the emirate’s hotels hosted more than one million guests during the first six months of the year, an increase of 11 per cent over the same period in 2010.

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MFCLD< OPEC’s Secretary General knows a crisis when he sees one. And, despite a recent downward revision of global oil demand, Abdalla Salem el-Badri is not a man to panic.

“What I’m seeing is not a crisis in the oil market, it’s a slight slowdown.”

While OPEC recently trimmed back 150,000 barrels a day in oil demand for the rest of the year to reflect 2011 growth of 1.1 million barrels a day, growth in 2012 is expected to be 1.3 million barrels a day. However, El-Badri admits that the US stimulus packages are floundering.

“You cannot reduce unemployment by hedging and speculating on commodities.” He urges that something

must be done to increase employment in North America.

“I hope these negative signs will not continue through the remainder of the year and throughout 2012. We hope solutions can be found.”

The health of the global economy is always uppermost on the minds of OPEC members. Oil producers require healthy demand from the world market and any slowdown will have a direct impact. The September OPEC Monthly Oil Market Report estimates the world economy will grow by 3.6 per cent in 2011 and 3.9 per cent next year. The downward revision on the figures is only a small percentage, but the slowdown in industrial activity in the developed world is >LC= 9LJ@E<JJ & +,

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evident and remains a major concern in the short-term. El-Badri watches the industry and the markets on a daily basis and he concedes, “there is a slowdown in economic growth and a decrease in oil demand and this will affect the balance of supply and demand.”

NFF@E> :?@E8 Demand for oil from China and Asian countries have been key driving forces in the market in recent years. Chinese GDP growth remains robust at nine per cent, despite Chinese government intervention to curb inflation. As El-Badri oversees an aggressive investment plan by OPEC members, he seeks to know China more intimately. “The country will become the

world’s biggest energy player and while there are good relations between individual OPEC countries and the Chinese, OPEC as an organisation is anxious to improve the dialogue with China.”

OPEC has succeeded in building strong relations with the EU and the IEA, despite its recent release of reserve stocks seen as unnecessary by some OPEC members and many in the market.

There’s still a distance with China since their last meeting in 2007 and El-Badri says he needs “to talk to the Chinese and exchange data and information.”

As OPEC looks to increase production in the future, El-Badri says his members want to feel confident there will be demand for the additional oil. Without

this assurance, “investment will be just shooting in the dark and new supply will never go to the market.”

OPEC also wants to see stronger ties with the BRICS; Brazil, Russia, India, China and South Africa. “It’s good for us both to help forecast our numbers and forecast exactly how much oil we should produce. If they are confident there are no negative signs then we will produce what they want, but we really don’t know now.”

Despite an uncertain future for the world economy and global oil demand, there remains considerable investment in the energy sector. OPEC members have sealed a robust investment plan, committing to a quarter of the world’s energy investment needs, according to OPEC’s World Oil Outlook 2010.

K?< I@>?K GI@:< A healthy sum of $312 billion has been allocated for expansion of OPEC member oil projects in the coming years up to 2015. Price fluctuations will always be a concern, but El-Badri makes it clear that OPEC has no price target in place with OPEC decisions determined by “a reasonable price where we can invest and where it does not adversely effect world growth.”

Industry analysts and many ministers have hinted at a price around $85 a barrel to please all parties and recent aggressive social spending programmes in producing countries in the Middle East would tend to support this figure. El-Badri says that all member countries are still going ahead with planned investment in the oil industry, particularly in Iraq. “All the countries have contributed this amount

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to increase oil supply by 21 million additional barrels by 2015. We care about bringing additional supply to the market.â&#x20AC;?

Investment in Libya is currently at a standstill, but the Secretary General hopes this will restart in the near future.

According to the IEAâ&#x20AC;&#x2122;s World Energy Outlook 2010, Middle East countries will collectively invest around $37 billion per annum from 2010 until 2035. Much of this investment will be in the upstream sector, such as the upcoming $20 billion Aramco/Dow Chemical petrochemical Sadara plant in Saudi Arabia. The IEA has studied the countries in the Middle East that can add the incremental barrels and agrees the bulk will come from Iraq, but also from Saudi Arabia, Kuwait and the UAE. El-Badri says â&#x20AC;&#x153;member countries realise they are also consuming more, so they are all looking to find additional oil or gas to satisfy domestic demand as well.â&#x20AC;?

OPEC may have revised oil demand downwards slightly for this year and next but El-Badri says the long-term energy demand is what member countries are planning for. â&#x20AC;&#x153;In 1960, energy demand was around 55 million barrels of oil equivalent, in 2011 it is 235 million barrels. Looking ahead to 2035, the world needs 355 million barrels of oil equivalent to satisfy demand.â&#x20AC;?

>I<<E K?I<8KJ Fossil fuel will remain essential and El-Badri adds that â&#x20AC;&#x153;oil and coal will go neck to neck.â&#x20AC;? The rise of alternative energy is inevitable but, with a projected 50 per cent rise in global energy demand to 2035, El-Badri says â&#x20AC;&#x153;there is room for all kinds as every country is looking for more energy and demand will accommodate all types of energy.â&#x20AC;?

But surely the growth of alternative energy is gaining strength and will be a threat to the oil business? Not so, he says. He adds that some sources of alternative energy present dilemmas like using land for food or fuel and the nuclear issue remains uncertain since the catastrophe in Japan. â&#x20AC;&#x153;They are growing from a really low base and we encourage all sources of energy and we see growth in the energy mix as demand rises.â&#x20AC;?

FG<: =8CC$FLK Medium to long-term demand may be secured, but in the shorter term, the market would like to see OPEC

demonstrating a more unified front in decision making. The lack of agreement at the June meeting this year may have appeared negative but El-Badri insists that OPEC members have lived through tougher times than a disagreement over supply and demand figures. He says we need to remember the context under which the meeting took place. â&#x20AC;&#x153;The outside environment was not so friendly; there were many negative signs like the state of the US economy, the European debt crisis, and fears of a slowdown in China. Added to that, we had one country out of production and six new ministers at the meeting.â&#x20AC;?

El-Badri presented his report to the June meeting indicating fears of a shortage of 1.5 million barrels in the third and fourth quarter of this year. â&#x20AC;&#x153;Some countries agreed with my report, some countries did not, but this is hardly a crisis.â&#x20AC;? He reminds us that â&#x20AC;&#x153;OPEC has faced a lot of difficulty in the past, real difficulties where some countries invaded each other and fought each other but we have been able to overcome these difficulties.â&#x20AC;? He says a real test of unity came in 2008 when the oil price dropped from $147 to $30 a barrel. â&#x20AC;&#x153;OPEC took a decision and spoke with one

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voice then to reduce production, and we did it successfully.” This current slowdown in oil demand should not be viewed as a crisis, he says, especially when the market has more pressing issues at hand, such as job creation and re-instatement of consumer confidence.

K?< C@9P8E GIF9C<D The Secretary General is relieved and encouraged to see Libyan oil coming back to the market. “Restoring oil production in Libya is an emergency, it must happen without delay and any obstacles.” The past few months has been a time of personal and professional concern for the Libyan-born oil official who has watched the demise of his country and its oil industry with fear and sadness. “I spent all my life working in Libya – from clerk to chairman of the National Oil Company.

I know all of the oil fields by heart.” It was also a time of immense personal distress as members of his family were left behind in the country. Months later, the future looks brighter. His family is safe and well, the war is coming to a close and the outlook for the oil industry is hopeful.

El-Badri is optimistic about the future of energy in Libya, and says restoring oil production is vital. “This is the only

source of income they have.” The priority he says is to “restore their production and restore their exports because it’s important the Libyan people have an income, medicine, food and other things needed to get back to normal as it was or even better.” He says the country now needs the full cooperation and investment of the international oil companies. He urges them to waste no time. “I encourage them to come back immediately and without delay as they are part of the game, they must be there from day one and take the initiative.”

Libyan oil expertise is first-class and he is confident that the expat workers

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and management will also return in their droves once the security and political environment is more settled. “Security must be 100 per cent and financial help must be given.” He said the oil industry has the leadership and the expertise to succeed. “I have great confidence in the chairman of the National Oil Corporation, Dr. Nuri Berruien. The country has some of the best oil experts and the National Transitional Council must support them, this is a top priority.” He says he expects Libya to be producing up to a million barrels a day in six months and he expects oil production to be back to prewar levels of 1.6 million barrels a day within 15 months.

El-Badri also suggests that current oil prices have a built-in political unrest riskpremium of $16 – $20 a barrel. If Libya can return to normal soon, this premium should shrink, although continuing turmoil in the region means it is unlikely to disappear altogether.

The oil price has hovered above $100 most of this year with Brent Crude becoming the benchmark of choice. The relative strength of the oil price, given the weakness of the global economy, has surprised the market as well as the Secretary General, but many analysts say it underlies longer-term tightness in the market. El-Badri is not worried about members over-producing at a time like this, the market has not been flooded, but he expects OPEC members to reduce excess production when Libya comes back on track. “As long as other member countries have a different oil from the very sweet Libyan oil, then this cutback will automatically happen. Libya has a strong customer base in Italy, France, Spain and Austria; the market will take care of this shift.”

JC@:B GC8EJ OPEC celebrated its 50th anniversary last year and “this economic organisation is still relevant and vital to the world economy,” says El-Badri. Now in his second term as Secretary General, he looks forward to the remaining year and a half

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despite the challenges. The organisation combines the production efforts of 12 member countries, eight of which are in the Middle East. In this very uncertain world, the future for OPEC will be more of the same, ensuring the stabilisation of oil markets. No new member countries are being considered “we are not out knocking on doors and no-one is knocking on our door right now.”

El-Badri does not rule out future expansion but says “we have no immediate intention to grow, if any countries are interested, they are welcome to talk to us, but they must qualify and

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year and longer-term reports such as OPEC’s Annual World Oil Outlook and the IEA’s World Energy Outlook are due out before the end of the year. The International Energy Forum’s Joint Oil Data Initiative’s investment guide will be published sometime in 2012. This collective information will help guide costly investment decisions in a world of economic uncertainty. The need for solid energy data has never been so urgent; clearer data and more transparent facts and figures can only make OPEC Secretary General El-Badri’s job a less difficult one in the coming 18 months. >LC= 9LJ@E<JJ & ,*

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he regionâ&#x20AC;&#x2122;s healthcare sector is entering a golden age as nationals and expatriates become more demanding about their health needs and pharmaceutical firms grow their bases in the region. MENA region spending on healthcare is now likely to hit $125 billion in 2015, up from $65.6 billon in 2009, according to Al Masah Capital research.

As the GCCâ&#x20AC;&#x2122;s standard of living continues to benefit from high oil prices, it is clear that attainment of â&#x20AC;&#x153;Westernâ&#x20AC;? style standards of healthcare today do not match progress in other lifestyle areas. The US allocates four times as much in GDP spending to healthcare as the GCC, while per capita health spending is dwarfed by American spending levels that are eight times as high. Taking MENA as a whole, per

capita health spending is less than a twentieth of that in the US. There are three US hospital beds for every two in the GCC and only one physician in the region for every two in the US. Speaking to reporters last month, Amitava Ghosal, partner at Al Masah Capital Management, said investing in healthcare was bound to increase. â&#x20AC;&#x153;On the demand side, high population growth rates, at two per cent for the last 10 years, exceeded global rates of 1.3 per cent. Life expectancy was also up, with lower mortality thanks to new medical techniques. There were also more older people in the region's growing population.â&#x20AC;? â&#x20AC;&#x153;Awareness about healthcare facilities has increased among locals, who are demanding higher quality services. And healthcare insurance is also undergoing massive change. We lag behind. Some 200,000 new beds are needed in the region,â&#x20AC;? he said.

The belated decision by Dubaiâ&#x20AC;&#x2122;s Ruler, Sheikh Mohammed, in May to appoint his wife, Princess Haya, to take over the reins at Dubai Healthcare City as Chairwoman of the DHC Authority, is another sign of the reassessment of health priorities. In tacitly endorsing a refocusing of the Cityâ&#x20AC;&#x2122;s strategy away from real estate and back onto turning Dubai into a healthcare tourism hub, there seems to be recognition at the highest political level that excellence in healthcare cannot be compromised.

@EM<JKFI FGGFIKLE@KP Nimble private equity companies committed to fast venture creation have capitalised on the opportunity.

According to Al Masah, almost $900 million was invested by regional houses in 13 healthcare ventures in the region between 2005 and 2010. The UAEâ&#x20AC;&#x2122;s openness saw it win six of the projects and just over half of the total investments, while Saudi Arabia, with its booming economy and Egypt, with

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a population approaching 80 million people, the rest.

Gulf Healthcare International (GHI), set up in Dubai Healthcare City in 2009 as a joint venture by Kuwaiti private equity players Global Capital Management and the Varkey Group, which was later bought out by JP Morgan, owns a total of 19 business units with interests in diagnostic laboratories, polyclinics and occupational health clinics. â&#x20AC;&#x153;The UK has a ratio of 23 per cent obesity and seven per cent diabetes.

In most of the Middle East, obesity is

above 50 per cent while diabetes is at 23 per cent,â&#x20AC;? says Mark Adams, GHIâ&#x20AC;&#x2122;s CEO. â&#x20AC;&#x153;In Saudi Arabia, 50 per cent of those over age of 40 exhibit full-blown diabetes. These diseases involve huge costs to the healthcare system, involving cancer, heart disease, strokes and limb amputation if not treated.â&#x20AC;?

Abraaj Capitalâ&#x20AC;&#x2122;s healthcare portfolio invested in a number of transactions, mainly in 2008. Through its funds, it bought a 90 per cent stake in Egyptian medical business Al Borg Laboratories. It has also invested in Acibadem Healthcare

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Group, a Turkish hospital chain, and in Tadawi Group, the largest wholesale pharmaceutical chain in Saudi Arabia.

Through its funds, Abraaj Capital maintains a 50 per cent stake in Acibadem and a 49 per cent stake in Tadawi.

“The long-term situation for GCC healthcare is simple: the outlook is very strong as everything in the region is coming from a very low base,” says

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Ahmed Badreldin, senior partner at the firm. ”For example, the average number of diagnostic tests done per person per year totals to around 15-20 in Western Europe.

In Egypt, the figure is 3.5 tests per person, 5-6 in Jordan and the same in the GCC.” The Al Masah report says that diagnostic centres, offering a range of services from X-rays, MRI and pathology, and high-street pharmacy chains are attractive to private equity players. With lower overheads than hospitals and clinics, which are still the major preserve of government health authorities in the region, the potential for expanding revenues is good. “Diagnostics business offers attractive profit margins,” it said.

Meanwhile, the historical development of the healthcare sector via government vehicles and free service to local nationals has meant that the private sector has traditionally been underrepresented in the sector. Al Masah research puts the government share of total spending in healthcare in the MENA

region at 64 per cent. Clearly, as costs rise, GCC governments want to allocate a part of the infrastructure spending to the private sector to free up valuable spending for other targets.

Ghosal says several initiatives are taking place at government level to bridge the gap between public sector provision and private sector entry.

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Paradoxically, the Arab Spring has seen government expenditure levels rise significantly. â&#x20AC;&#x153;The private sector is now being welcomed by the government to invest in a big way. Public-private partnerships are increasing in popularity.

As a private equity player, we feel there are immense opportunities to come in,â&#x20AC;? he says.

D<;@:@E< =FI K?< D8JJ<J â&#x20AC;&#x153;The GCC countries are likely to experience a sharp increase in healthcare needs in coming years, primarily led by a growing and ageing population and a rise in chronic non-communicable â&#x20AC;&#x2DC;lifestyleâ&#x20AC;&#x2122; diseases,â&#x20AC;? a research report published by Alpen Capital in December said. â&#x20AC;&#x153;This, coupled with favourable government policies, would drive growth in the pharmaceuticals sector in the region.â&#x20AC;?

GlaxoSmithKline, which had the largest pharmaceuticals market share in the UAE in the last 12 months, has seen 17 per cent growth in its Middle East markets, which include the GCC, Jordan, Iraq,

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Syria and Lebanon in the past five years, according to marketing manager, Ghandi Gharaibeh. â&#x20AC;&#x153;[Regional] development is taking place very quickly,â&#x20AC;? says Gharaibeh. â&#x20AC;&#x153;Authorities and private providers are improving, and there are now centres in Dubai, Ajman, Qatar and Bahrain. Itâ&#x20AC;&#x2122;s evolving. Screening for cancer could be better in the

region. Epilepsy treatment needs to improve. Infrastructure is good but equality of care needs attention, so you tend to find varying quality in training of medical staff and treatment guidelines.â&#x20AC;?

The local industry is starting to see growth in pharmaceutical companies in Abu Dhabi, RAK and Dubai. There are six big companies

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in Saudi Arabia and GlaxoSmithKline expects all of them to grow. Oman boasts two companies and products there are cheaper, with innovative new remedies. Overall, Gharaibeh expects higher prices, more volume and higher-cost care. â&#x20AC;&#x153;It looks to us as if people in the region are going to get older, to settle longer,â&#x20AC;? he says. â&#x20AC;&#x153;We have already started to see people retire to Dubai.

They are using products for hypertension, asthma, cholesterol, and obesity. The number of children is rising, and more kids need care and preventative vaccines. The average child needs 30 shots of vaccine in his first three years.â&#x20AC;?

One frequently cited statistic is the around $15 billion leaving the region as patients travel to the US, Europe, India and the Far East to receive treatment. As a flagship player in Dubai Healthcare City, Adams wants to see the city turn into a centre for inbound healthcare tourism. And although the vexed issue of health insurance is complicated by the disparity of incomes in the UAE, â&#x20AC;&#x153;It is highly unlikely that you will end up with a national health service that is trying to provide the same [level of service] to everyone,â&#x20AC;? he says. â&#x20AC;&#x153;Healthcare always inflates: itâ&#x20AC;&#x2122;s like property,â&#x20AC;? says Gharaibeh. â&#x20AC;&#x153;There are always things people want to treat, they wish to live longer, and get more secure. As time goes on the list of products they require will only grow.â&#x20AC;?

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ome people would have called Helmut SchĂźhsler crazy for setting up a private equity firm in Dubai in 2009. But whatâ&#x20AC;&#x2122;s more surprising is that the doctor succeeded in closing his MENA Healthcare fund at $30 million less than a year later. â&#x20AC;&#x153;It wasnâ&#x20AC;&#x2122;t intentional that we launched in a recession. Weâ&#x20AC;&#x2122;d been looking at the region since 2006 and we were ready,â&#x20AC;? says the chairman and CEO of TVM Capital MENA, Dubai.

After a near death in the private equity markets in the recession, almost $180 billion of private equity was invested globally last year, up 62 per cent from 2009 but still down 55 per cent on the peak in 2007, according to research firm TheCityUK. Activity in the industry looks set to build on this recovery this year and top $200 billion in 2011.

SchĂźhsler, unlike nearly every other economist or CEO at the moment, says heâ&#x20AC;&#x2122;s not worried about the double dip. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s extremely trendy to worry at the moment, so I should probably say Iâ&#x20AC;&#x2122;m -+ & F:KF9<I )'((

worried. The markets have become a bit detached from reality. Extremely successful companies have gone down by 30 per cent on their share price, on sentiment alone. But I donâ&#x20AC;&#x2122;t worry because healthcare is a pretty safe place to be in a recession, especially in an environment where you have mostly governments paying and where there is a constant inflow of capital through the oil revenues.â&#x20AC;?

And itâ&#x20AC;&#x2122;s not just talk. The CEO is so confident in the local markets that he has reopened the TVM Capital MENA Healthcare fund until the end of the year and is on the lookout for a $40 million top-up.

The fund is focused on capitalising on the privatisation and growth of the healthcare market in the MENA region and India and the original investors included GE Healthcare, the International Finance Corporation and Olayan Financing Company.

New investors subscribing to the fund will gain access to a pipeline of â&#x20AC;&#x153;proprietary investment opportunitiesâ&#x20AC;? as well as the original value created in the first two transactions the fund closed in 2010.

The firmâ&#x20AC;&#x2122;s first healthcare investment was the ProVita International Medical Center, a long-term medical care

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facility in Abu Dhabi, which reached profitability four months after admitting its first patients. The second investment, Bourn Hall International, witnessed a soft opening of its first IVF clinic in Kochi, India, in April 2011 and will open its Dubai branch next year.

SchĂźhsler says: â&#x20AC;&#x153;In 2008 we were fund raising and we were about to close the fund at $70 million but because of the recession we lost all the commitments and had to restart the process. Our interest is to only have a small group of investors, with strong connections to the region, which can help us to build our business. We are looking for another three or four investors at $10 million or so. That gives us all the money to do what we need to do, which is build six or seven companies.â&#x20AC;?

TVM Capital MENA is an international offshoot of German firm TVM Capital, with offices in Germany and the US, which has raised $1.2 billion in the healthcare, IT and life sciences sectors to date. The local TVM Capital branch operates under a Dubai International Financial Centre license and is the Ă&#x2C6;@e )''/ n\ n\i\ ]le[ iX`j`e^ first international private Xe[ n\ n\i\ XYflk kf Zcfj\ equity house with a focus on healthcare in the region. k_\ ]le[ Xk .' d`cc`fe Ylk â&#x20AC;&#x153;We wanted to pick one Y\ZXlj\ f] k_\ i\Z\jj`fe n\ area for expansion and we cfjk Xcc k_\ Zfdd`kd\ekj Xe[ were gravitating towards _X[ kf i\jkXik k_\ gifZ\jj% N\ India and the Middle East.

In 2007, everyone was Xi\ cffb`e^ ]fi Xefk_\i k_i\\ fi running to China and India, ]fli `em\jkfij Xk (' d`cc`fe fi there was tremendous jf% K_Xk ^`m\j lj Xcc k_\ dfe\p kf opportunities in healthcare [f n_Xk n\ e\\[ kf [f# n_`Z_ `j infrastructure, but those countries had so much cash Yl`c[ j`o fi j\m\e ZfdgXe`\j%Ă&#x2030; flowing into them, especially from the US,â&#x20AC;? says SchĂźhsler. â&#x20AC;&#x153;There was tremendous turnover in India and China

and it became extremely competitive between the indigenous private equity groups and those from the US. I just didnâ&#x20AC;&#x2122;t feel that it was the right time for us. I felt that the Arab world was a good bet. We were the first movers at that time and that felt good.â&#x20AC;?

Indeed, the regionâ&#x20AC;&#x2122;s healthcare sector is set to witness a $125 billion cash injection over the next five years as GCC governments work to update their respective medical sectors in line with growing, ageing, and increasingly healthconscious local populations. SchĂźhsler sees his opportunity in investing in small, specialist clinics that â&#x20AC;&#x153;do things hospitals canâ&#x20AC;&#x2122;t do.â&#x20AC;?

A key TVM specialism will be its IVF capabilities. While some public and private hospitals across the region already offer fertility services, Bourn Hall International is the first-mover on specialised clinics and SchĂźhsler expects the Dubai branch will open by Q1 next year. â&#x20AC;&#x153;We believe that there is a consistently growing demand for IVF services. There is better education; people donâ&#x20AC;&#x2122;t marry as young as they used to and many of them cannot conceive naturally anymore. This is for local and Arab expats.â&#x20AC;?

SchĂźhsler hopes that Dubai will serve as an IVF hub for affluent clients who want to fly in from across the region to try for children. â&#x20AC;&#x153;This is a completely privately paid service. While in Dubai IVF is not paid as part of insurance, in Qatar the IVF service is governmentfunded for locals. The Qataris can go through the cycle as many times as they want and the government will pay.â&#x20AC;?

TVM Capital is also looking to invest in pharmaceutical supply deals, as well as hospital supplies, hospital services, blood testing and genetics clinics, as part of its healthcare fund. â&#x20AC;&#x153;We want to take care of patients >LC= 9LJ@E<JJ & -.

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who need to be taken out of hospitals and treated in the home. There’s autistic children or people who can’t breathe, for example. How do we take care of them? We only want to fill gaps. These opportunities emerge when you talk to the regulators, patients and hospital managers,” Schühsler says.

“We’re looking at three-to-five years investment plans, possibly in existing companies. Generally our strategy is to invest in existing companies where we can help to create growth. We are not a buy-out firm, we look at smaller companies that want to grow to two or three times their original size.”

He believes that the region is still underserviced by private equity firms, particularly specialised ones. The doctor says that the Gulf must review its openness to foreign investment and pay attention to its corporate governance regulations to encourage more private equity players into the fray. “Healthcare is a local business that involves assets

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ÈK_\i\ `j ^ifn`e^ [\dXe[ ]fi @M= j\im`Z\j% K_\i\ `j Y\kk\i \[lZXk`fe# g\fgc\ [feËk dXiip Xj pfle^ Xj k_\p lj\[ kf jf dXep f] k_\d ZXeefk ZfeZ\`m\ eXkliXccp Xepdfi\% K_`j j\im`Z\ `j ]fi Yfk_ cfZXcj Xe[ 8iXY \ogXkj%É on the ground so I need regulation that I can depend on. If I invest in a clinic in Abu Dhabi, I can’t move that clinic somewhere else…” he says. “Saudi Arabia is a very affluent and attractive market but, as we all know, it’s not easy to do business there. We have started to look into the country as we are very close and there is certainly an openness in the Ministry of Health to consider private business.”

Ultimately, all the Arab countries are currently trying to find their own ways to navigate their respective medical conundrums. The region is unanimously agreed that the MENA healthcare

system must be dramatically upgraded in the coming years. Right now, local governments may own the majority of health assets and services, but the widelypublicised impending health time-bomb will necessitate the employment of private operators to cope with the demand.

“We are in the right place for what we do. We want to achieve up to 30 per cent per annum net for investors.

We have achieved these returns in our innovation business in Europe, which is far more risky than what we do here,” says Schühsler.

“In healthcare you can make those returns easily if you know what you’re doing. It’s all in the execution – you have to have good managers, build good relationships, and provide good healthcare to patients. You can’t just look at profits.

That’s a big challenge in healthcare because in other industries you can optimise everything to drive down costs.

There’s a feedback loop in healthcare and it’s a very immediate one.”

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erhaps the most pervasive tech trend at Gitex 2011 will be the impact of the regional unrest on the information and communications technology (ICT) sector.

Like most industries in the Middle East, ICT has not emerged unscathed from the uprisings.

The biggest threat has been the sustained guerilla attacks on governments and organisations in the region from hackers with political agendas.

Chatter among businesses and visitors at Gitex in October is, therefore, likely to centre on cyber crime and what the ICT experts can do to up their game.

Trixee Loh, senior vice president of Dubai World Trade Centre, which organises the event, said: “One of the issues to come out of the Arab Spring was activism, and politically motivated cyber crime attacks.

So it may be one of the issues that will be discussed and may come to the attention of many different governments.”

The numbers involved with cyber security are far from negligible. It costs the UAE economy $600 million a year, according to internet security firm Norton. Meanwhile, globally this figure stands at $400 billion.

As part of a number of online security events, Gitex is hosting the Middle East and India Cyberlympics, a simulated hacking competition.

:CFL; :FD<J F= 8>< In 2010, although cloud technology provided a lot of promise at Gitex, there was little in terms of substance.With the novelty and idealism of the concept gone, delegates will now be demanding practical business solutions.

“Last year cloud was more mist than cloud,” said George DeBono, general manager for the Middle East and Africa at software maker Red Hat. “This year, it’s starting to take a lot more form in terms of deliverables for businesses.”

Gitex Cloud Confex, which is the largest cloud show in the Middle East, features two days of intense conferencing and a five day exhibition.

Loh added: “This year is all about practicality, so we’re talking about things like governance and security, the type of cloud that’s right for which type of business, and which is more efficient.”

+> Æ K?< E<OK ><E<I8K@FE Seen as the next big thing in telecoms, 4G technology promises to solve 3G’s capacity issues and meet the soaring demand for data services in the Gulf.

Long-term evolution services like 4G are predicted to grow by 54 per cent in Saudi Arabia and by 84 per cent in the UAE, with both countries' demand driven by a tech-savvy, youthful population, a report by consultants Frost & Sullivan said.

“With the current 3G networks proving incapable of handling the growth in mobile data traffic, mobile operators in Saudi Arabia and the UAE are expected to migrate to 4G technologies soon," the report added.

In particular, Gitex will be exploring how to use 4G in business, the risks and rewards and how to monetise technology.

;@>@K8C D8IB<K@E> Middle East businesses are still light-years behind the Western world when it comes to successfully marketing online. There are positive signs emerging though.

Recent studies by marketing strategists Econsultancy show that companies in MENA are on average spending 22 per cent of their marketing budget on digital platforms, but more than half (58 per cent) are increasing their digital budgets in 2011.

There will be a greater emphasis on the subject at the new GITEX Digital Media & Marketing feature, which aims to whip local firms’ online campaigns into shape.

“The event presents a host of digital opportunities to an emerging market where the expansion of fibre optics, high-speed internet and broadband penetration has opened a brand new digital marketing world more accessible to Middle East marketeers than ever before,” said Loh.

DF9@C< 8GGJ One of the more tangible trends for consumers, mobile apps will play a big part in Gitex this year.

The popularity of this technology has skyrocketed, with mobile apps now making up more than five per cent of the overall marketing budgets of Gulf-based companies across consumer industries.

Underpinning this growth is the UAE economy, which now has a 232 per cent mobile phone penetration rate, according to the World Economic Forum’s latest Global Information Technology report.

ÈK_\ \m\ek gi\j\ekj X _fjk f] [`^`kXc fggfikle`k`\j kf Xe \d\i^`e^ dXib\k n_\i\ k_\ \ogXej`fe f] ÔYi\ fgk`Zj# _`^_$jg\\[ `ek\ie\k Xe[ YifX[YXe[ g\e\kiXk`fe _Xj fg\e\[ X YiXe[ e\n [`^`kXc dXib\k`e^ nfic[ dfi\ XZZ\jj`Yc\ kf D`[[c\ <Xjk dXib\k\\ij k_Xe \m\i Y\]fi\%É Gitex Mobile, Apps & Content World, which launched at last year’s event, returns in 2011 to meet demand.

On the agenda will be whether the Arab world can expand more quickly and what can be done to bridge the gap between English and Arabic content on mobile apps.

>I<<E :FDGLK@E> How to go green and save the planet is still top of the list of priorities for tech firms.

Ever since Japanese electronics giant Panasonic laid down the gauntlet to go green at last year’s Gitex, companies have been scrambling to boost their environmental credentials.

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week of every month. Tech firms typically achieve greener results by producing energy-saving products with increased efficiency and less waste.

Steve Bailey, regional operations director at data storage and protection specialists CommVault, said thereâ&#x20AC;&#x2122;s still a long way to go for the Middle East in the global battle to go green. â&#x20AC;&#x153;In Western Europe green tech is important because from a government point of view, when organisations upgrade their systems and data centres, there will be a green element that allows local governments to apply for grants. â&#x20AC;&#x153;But in the Middle East youâ&#x20AC;&#x2122;re not seeing it at all. Weâ&#x20AC;&#x2122;ve spoken to a few vendors who have said itâ&#x20AC;&#x2122;s a â&#x20AC;&#x2DC;nice to haveâ&#x20AC;&#x2122; but not a necessity,â&#x20AC;? added Bailey.

N<9 8;;I<JJ <OGCFJ@FE In recent years there were fears that the world would run out of web addresses as a result of the massive rise in the use of the internet.

The internet was built on something called version 4 of the Internet Protocol (IPv4), which has an upper limit of about four billion addresses. Every device you use, be it a computer or a smartphone, has its own Internet Protocol, or IP, address.

Today, internet giants such as Google, Yahoo, Microsoft and Facebook are upgrading their systems and switching from IPv4 to IPv6 operating systems to create more room for web addresses.

Companies and individual users will also need to make the switch but that will not be for some years.

Sakhnini from Brocade said that for service providers in the Middle East it is a pressing issue, especially given the anticipated rapid growth in the net. â&#x20AC;&#x153;This transition will have to be smooth, as most operators will still operate both stacks for some time to come.â&#x20AC;?

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Gitex will be again turning its hand to card technology, focusing on the

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evolution of smart cards including financial services, mobile phone sim cards, road toll systems, national ID cards and biometrics.

According to Frost & Sullivan, the MENA smart cards market is expected to reach $328.5 million by 2014, growing at a compound annual growth rate of 10.8 per cent.

The firmâ&#x20AC;&#x2122;s latest report said: â&#x20AC;&#x153;Booming economies and strong demand for digital security is making the shift in demand for smart cards. It is projected that the global smart card market will post double digit growth (around 12 per cent) during 2011-2013.â&#x20AC;?

M@IKL8C@J8K@FE Companies and individuals turning to virtualisation to manage their workload is nothing new, but the breakneck speed of growth in the Middle East around the technology is unprecedented.

In its broadest sense virtualisation can refer to the creation of a virtual (rather than actual) version of something, whether itâ&#x20AC;&#x2122;s a hardware platform, operating system or storage device.

How business can utilise this trend will be the central focus of the Cloud Computing Confex at Gitex.

Yarob Sakhnini, systems engineering manager for CEMA at Brocade

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Communications, which supplies networking equipment and storage facilities, said: â&#x20AC;&#x153;As we see more applications residing on servers because of virtualisation, bottlenecks on the storage side will have to be eliminated, so higher speed and more secure FiberChannel Fabrics will have to be built.â&#x20AC;?

N<9 KI8EJ8:K@FEJ Despite some reluctance in recent years to embrace online transactions such as shopping, activity in the Middle East has gained ground. The overriding theme continues to be safety and security on the internet. At Gitex this year, the organiser has announced that one of the keynote speakers leading the debate at the Global Leaders Summit on 9 October will be Rod Beckstrom, president and CEO of the Internet Corporation for Assigned Names and Numbers (Icann).

Icann is the world body that governs billions of transactions done every day on the internet.

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mid the global financial crisis, the strength of the Saudi economy has surprised many international companies based in the Gulf. The kingdom continues to offer investors a lifeline as markets elsewhere in the GCC exhibit signs of malaise. In contrast to the rest of the blighted globe, Saudi Arabia has escaped recession in the past two years, and its nationals are happy to recount stories of success over conference lunches that offer tantalising glimpses of the secretive land.

For a country that is largely desert, its foundations are not built on sand, but on the strength of its banking system.

Recent history points to a counter cyclicality evidenced by the Saudi

economy. From 2003 onwards, the stock market grew eight-fold before crashing spectacularly in 2006. In 2008, some $400 billion of government spending was announced for infrastructure, industry, oil and gas and the new economic cities. The Saudi leadership was shaken by the potency of the Arab Spring, but King Abdullah was quick to announce further $93 billion of state spending in March to offset adverse effects. But it is the crucial role played by Saudi Arabia’s central bank, the Saudi Arabian Monetary Authority (SAMA) that has proved the key to the stability of the nation’s banking.

“In a nutshell, the Saudi banking sector is very healthy,” says Jamal Alkishi, chief country officer, Deutsche Bank

Saudi Arabia. “Capital levels and capital adequacy ratios are strong and liquidity in the system is at a historical level in terms of deposits. Demand for corporate loans has come down somewhat, which meant that loan-to-deposit ratios have been brought down to what are broadly vspeaking relatively low levels compared to our neighbours in the region.”

Thomas Kummert of Banque Saudi Fransi concurs. “The average tier one capital with around 14 per cent is much higher than the in future required Basel II minimum of eight per cent, so even any future dictated increases will not create any stress test problems for Saudi banks.”

In contrast to the UAE, the Saudi Arabian banking system has

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1 Natixis, CoreData Research Survey, June 2011, responded to, “The most important thing for my investments is to stay stable in volatile times.”

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, Office 603 - Level 6, Currency House Tower 2, 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.

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demonstrated a high degree of selfsufficiency throughout its 1,500-strong branch network in the kingdom over the years, and 87 per cent of the sectorâ&#x20AC;&#x2122;s 36,000 employees are Saudi nationals. According to data provided by the German-Saudi Liaison Office for Economic Affairs, 95 per cent of retail lending in the kingdom is Shariacompliant and 40 per cent of deposits are non-interest bearing. Credit availability in the kingdom is at comfortable levels.

In terms of credit outstanding, some $6 billion is real estate loans, $11 billion car loans, $36 billion other loans and $2.4 billion on credit card loans. â&#x20AC;&#x153;In terms of innate conservatism versus active regulation of the banking sector, I think the Saudi success is a combination of both. These banks are tightly run by boards, typically populated by Saudi business people, who are conservative in nature,â&#x20AC;? says Alkishi. â&#x20AC;&#x153;SAMA has done a superb job of keeping tabs on concentration levels in respect of borrowers and industries and has applied meaningful scrutiny to exposures to offshore entities. Saudi Arabia is unique in this regard in terms of SAMA being very involved as a regulator and overseer of the banking system.

Lending to a foreign entity has to be run past SAMA. Saudi banks also have a very conservative approach to lending that is perhaps cultural.â&#x20AC;?

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Standard & Poor’s analyst, Nicolas Hardy, says the profitability of Saudi banks stems from a unique combination of factors. “They operate in a supportive operating environment because of high oil prices and the backing of a cashrich sovereign. They also benefit from a protected franchise with high barriers to entry and a limited number of players: there are 12 commercial banks, with widely varying market positions. Saudi banks also benefit from structural advantages regarding costs. Their cost of funding is low due to the high portion of stable, unremunerated deposits.”

Total banking sector assets grew at a CAGR of 13.3 per cent between 2005 and 2010, and totalled $401 billion in April. The unlisted National

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Commercial Bank has the highest market share overall of 20.5 per cent of total sector assets. Among the top five banks in the kingdom, Banque Saudi Fransi saw highest net income growth of 13.5 per cent year on year in 2010. “Distinguishing factors of Saudi Arabia’s robust banking system include a conservative loan to deposit limit of 85 per cent, NPL coverage of more than 100 per cent, net interest margin (2006-10) at 3.5 per cent or above, capital adequacy (Tier 1) ratio above 11 per cent, and equity-to-assets ratio at around 15 per cent," said a recent report by Global Investment House.

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already today unique and does not exist in any European country,” says Saudi Fransi’s Kummert. “It is envisaged to add an all-encompassing invoice payment system for all companies in Saudi Arabia, whereby all invoices will be posted online and paid accordingly. This will be a first and globally unique solution for payments and settlements."

That is not to say that the kingdom has been completely unaffected by the global environment. A research note published by brokerage Jadwa Investment in April said that in the 24 months to the end of 2010, non-performing loans of listed banks jumped by SR10.2 billion (a rise of 132 per cent), after being relatively stable over the previous five years.

“This surge in loan defaults was set off by the global financial crisis and exacerbated by defaults by two

large local private sector companies and a broader rise in corporate failures owing to tough economic conditions,” said Jadwa.

Moody’s added that pressure on operating conditions remained elevated because of a low interest-rate environment exerting pressure on the banks’ profitability through reduced margins and lower business growth.

“Indications already point to a pick-up in loans to the private sector, with a healthy pipeline of projects expected over the next 18 months, which – coupled with the banks’ growing emphasis on retail banking – is conducive to stronger private sector growth. That said, growth will likely remain below the levels seen before the financial crisis,” the ratings agency says.

And, despite the press furore, the government’s failure to move ahead and approve a mortgage law has not held the real estate market back. “I have given up trying to guess when the mortgage law will be promulgated.

There have been many rumours,” says Alkishi. “I don’t think it’s productive to engage in speculation. I think people interested in the market, and practitioners in the market, have established mortgage finance companies and are lending anyway.

“We already have a very promising market in the kingdom, and are moving ahead without the mortgage legislation. There are several companies in operation, sanctioned by SAMA and licensed by the Ministry of Commerce, writing mortgages for citizens and expats in the country,” he says. “In the very short term, as the government launches more and more projects and companies invest in infrastructure, equipment, plants and capacity to cope with economic activity, I am not worried about the health of Saudi banking sector. If I had to bet on a banking market in the Gulf, in terms of health, long-term viability and sustainability, it would be the Saudi market.”

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rom a liver transplant surgeon to an NGO director, the diverse roll call of UAE-based individuals signing up to MBA courses has sky-rocketed as individuals seek to improve their skills.

The London Business School, Hult Business School, Cass Business School, Manchester Business School and INSEAD have all witnessed an increase in enrollment this year as the financial crisis prompts professionals to develop their businesses, and spruce up their CVs in order to win big-ticket jobs.

The UAE’s MBA market is also contending with a developing education story in Qatar, where gasfuelled growth and a government spending spree have wooed big names to set up base. But the UAE’s financial hub status, developed infrastructure and vibrant population are set to keep professionals flocking to the UAE in order to attain an MBA while also soaking up the lifestyle.

Hult began with 100 students in its first year of operation in Dubai in 2008 and the school now boasts 300 post-graduates, which is close to its maximum. INSEAD’s Abu Dhabi campus, the school’s third campus, is looking at 30 participants this year, versus 26 the year before. Manchester has nearly 250 students now, compared with about 60 five years ago.

Demand for MBAs is rising due to a surge in inflows of professionals from the surrounding region jetting into Dubai to attend classes. The

boom in markets all the way from India to the Eastern bloc is fuelling a new stream of students.

“Our activity in Abu Dhabi is not something exclusively for the local market, but it is a regional platform for INSEAD. The campus in Abu Dhabi gives us access to the GCC, the wider Middle East, parts of the subcontinent, and parts of Africa,” says Javier Gimeno, INSEAD’s dean of the executive MBA programme.

“We expect the GCC to continue to do well.

It will be interesting to see what happens with Egypt and Libya, which could be a developing market, but India is probably the fastest growing educational market at the moment.”

The London Business School’s mix of students is currently split 50/50 between UAE residents and students from abroad. In 2007, nearly 70 per cent of the class was UAE-based.

“Now we have students travelling each month from Russia, Uzbekistan, Iran, India, Senegal, Egypt, Jordan and even people from London,” says Denise Johnsen, London Business School’s senior recruitment and admissions manager in Dubai “The reason they come here is because they want to establish a network in the GCC.” The growth in demand for MBAs is also linked to the global trend of individuals from outside the finance industry finding value in acquiring an MBA to get ahead in their respective fields.

“At the moment there is a more balanced intake

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ÈEfn n\ _Xm\ jkl[\ekj kiXm\cc`e^ \XZ_ dfek_ ]ifd Iljj`X# LqY\b`jkXe# @iXe# @e[`X# J\e\^Xc# <^pgk# Afi[Xe Xe[ \m\e g\fgc\ ]ifd Cfe[fe% K_\ i\Xjfe k_\p Zfd\ _\i\ `j Y\ZXlj\ k_\p nXek kf \jkXYc`j_ X e\knfib `e k_\ >::%ËË across the world,” says Nigel Banister, Manchester’s chief global officer. “There is no doubt that MBAs have always been regarded as pre-requisite for senior positions in the financial sector, but many other sectors that were not embracing them before do so now.”

The palette of MBAs offered in the UAE ranges from regular university degrees to specialised and executive MBAs, which are geared toward a varied calibre of individuals, with different financial means and needs. Executive MBAs target individuals in the higher echelons of companies or businessmen keen to learn leadership skills needed in times of boom and crisis.

Some schools prefer to offer just general MBAs, while others have specialisations, such as Cass, which offers four areas that include Islamic finance.

Students who seek MBAs look for different qualities in their programmes.

Many are interested in programmes that offer opportunity to take some courses on other campuses to gain

a different learning experience from their classmates. For Emirati students, the choice of school is also linked to accreditation. Dubai government’s Knowledge and Human Development Authority (KHDA) accredits the business schools and universities in the emirate’s free zones, but accreditation at federal UAE level has a different set of criteria.

These variations could create problems for Emirati employees working for the Abu Dhabi government, but studying for an MBA at a Dubai school.

“We place emphasis on global accreditation and we work with KHDA, which has a global perspective,” says Nick van der Walt, Hult’s executive director and dean in Dubai.

“We certainly understand that the federal ministry has a different set of standards that apply to different types of universities.”

Opening an overseas branch can be risky and costly to a school, with its biggest asset being its quality of education, which can be easily impacted

if professors and resources are stretched.

That’s why many of the top schools limit classes to a select group in order to distinguish themselves from the fray.

“We want to mix nationalities so that people can learn from each other and we want to mix industries. We will not allow too many people from one country or one nationality or industry to dominate,” says Hult’s van der Walt.

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schools are expensive. Today, many MBA seekers no longer enjoy company or government sponsorship.

“At the beginning, there was more government employees because training budgets were healty. In 2007, between 65 to 70 per cent of students were sponsored by companies or other entities,” says Ehsan Razavizadeh, Cass’ regional director. “When the financial crisis started, we saw a big decline in sponsorships, which have now gone down to 10 per cent.”

The Middle East region as a whole is not as supportive to its workforce as multinationals in the West, which tend to invest more in their employees and encourage them to attain MBAs when the money is flowing.

“It is certainly an issue, particularly in the region, because companies within the Middle East don’t see investment in talent development as a priority. Because labour mobility is so high, maybe companies are afraid of not retaining people,” says INSEAD’s Gimeno. “But if they support them, this is a way to retain their best talent in the company. For local Emiratis, Saudis, Bahrainis or Kuwaitis there is more company support.”

The tightening of purse strings in the region and across the globe drove schools to beef up their scholarship programmes

and work with banks to help MBA seekers finance their degrees. INSEAD for example, offers a scholarship funded by the school’s alumni for social entrepreneurship.

“Each university has its own ways of handling the financing,” says Hult’s Van der Walt. “We monitor those who are employed immediately after finishing their education to ensure our graduates are highly competitive and sought after in the job market.”

The financial crisis has altered the mix of students seeking an MBA education.

A greater number of entrepreneurs are attaining degrees to gain skills to set up

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or grow their businesses rather than the pre-crisis trend of professionals from areas such as construction and finance.

“Since 2008, there has been a 40 per cent increase in the number of applications and enquires from entrepreneurs,” says Cass’ Razavizadeh.

“During the crisis, people realised it was a good time to set up their own businesses and an MBA can help with achieving their goals.”

The rise in the number of entrepreneurs seeking MBAs is partly due to mass layoffs from financial institutions, which left many employees jobless.

“Many of big global names that we know like Google started in financial downturns, and, not surprisingly, if investment banks are not taking as many people then ambitious people will seek alternative ways to satisfy their ambitions,” says Manchester’s Banister. “It is almost entrepreneurship by necessity.”

The diversity aspect of classes is a major attraction for applicants, who look at MBAs as opportunities to build contacts and learn from their peers how business is conducted in one industry versus another.

“One of our students was a very successful manager at Ernst and Young, but he quit the corporate world to set up a charity and he is now opening up his own schools in India,” says London’s Johnsen.“We also had a liver transplant surgeon who wanted to do an MBA because he didn’t know how to run a hospital.”

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he GCC continues to be one of the world’s leading military spenders with a combined outlay of $68.3 billion (approximately 14.7 per cent of GDP) on defence in 2010 with Saudi Arabia and the UAE leading the way.

This is equivalent to nearly 10 per cent of the world’s largest defence spender the United States, which totalled $698 billion, and more than 50 per cent of second place China, which invested $114 billion on its defence in 2010 according to figures from the Stockholm International Peace Research Institute (Sipri).

According to Forecast International, the GCC’s defence expenditure will climb to $73.4 billion by the end of 2011 and continue to grow to $82.5 billion by 2015. The largest increase in defence and security expenditure in the region last year was by Saudi Arabia, which spent $45.2 billion, an increase of 3.9 per cent compared to 2009 according to Sipri.

“Saudi Arabia has maintained an increasing trend in the period 20062010. Military spending increased by 21 per cent in real terms during that period,” says Carina Solmirano, a researcher on the Military Expenditure Project at Sipri. “The UAE was the second largest GCC spender in 2010 with $16 billion and has increased its military spending by 50 per cent during 2006-2010.”

Located along the Arabian Gulf, with the Strait of Hormuz in the north east corner, the GCC countries lie south of Iran, Iraq and Kuwait and between them they ship at least 13 tankers, carrying 15.5 million barrels of oil, through the narrow inlet every day, which constitutes 35 per cent of the world’s seaborne shipments.

Saudi Arabia holds 18 per cent of the world’s known oil reserves, Iran nine per cent, Iraq eight per cent, and Kuwait and the UAE both seven per cent, making peace in the region vital

to the global supply of crude oil.

This means there is still plenty of tension in the Gulf stretching back to the Iraqi invasion of Kuwait in 1990, which saw Saudi and UAE forces in action against Saddam Hussein’s army and the US military launching operations from GCC soil.

More recently in 2008, the commander of Iran’s Revolutionary Guard threatened to seal the Strait of Hormuz if Iran was attacked by the US or Israel. This sent alarm bells ringing across the GCC, which sees itself in the firing line if any conflict would arise, especially in the UAE which has an long-standing dispute with Iran over what it calls ‘the occupation’ of the Greater and Lesser Tunb islands in the Arabian Gulf.

“Iran is a strategic concern, and GCC states want to ensure they do not offer Iran the opportunity to be more aggressive in its regional activities,” says Sabahat Khan, senior analyst at the Institute of Near East and Gulf Military Analysis (Inegma).

“Defence spending is important to send a message to Iran that the GCC militaries are there and give the perception that GCC militaries are operationally active around the region. Border control issues have become a top priority for GCC states – the Saudis signed a big contract a few years ago with EADS, and the UAE and Qatar are two other countries that will be willing to continue investing in state of the art systems here.”

As defence budgets are cut in the western world the GCC states will remain very lucrative markets for US and European defence firms, but recently economic and societal factors have played a part in the realignment of some plans.

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economic slowdown could depress these prices more and affect GCC income from oil exports and consequently impact defence spending. The Arab Spring would also have affected calculations on government expenditure in general, with large social welfare programmes being announced [especially in Oman where defence spending has dropped].”

Bahrain, Saudi Arabia and Oman have all pledged to increase social spending on houses and education in the coming years, which may have an effect on defence spending.

But with estimates from the Dubai International Finance Centre that if oil prices were to average $100 a barrel, then the value of GCC energy reserves

would be $37 trillion, meaning many GCC countries will be able to continue their defence expenditure and increase capabilities for indigenous military and aerospace engineering.

Since arms production capabilities in the region are limited, almost all procurements of major weapons have traditionally been imports. However, this is gradually changing with UAE companies such as the Abu Dhabi Ship Building Company – which is building six corvettes for the UAE navy at an estimated $820 million – and Mubadala Aerospace and Thuraya, that provide integrated satellite communications, leading the way to broaden the country’s defence and technology sector. In

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2007 the UAE-made Caracal pistol was unveiled as the official side arm for the UAE armed forces and Zayed Military City in Abu Dhabi is home to the Burkan Munitions Factory. At the 10th International Defence Exhibition and Conference (Idex) in Abu Dhabi in February this year, Dhs14.5 billion in deals were recorded, which included those from UAE companies.

In the past three years European and US companies have not only sold defence and security equipment to the GCC but are also forging partnerships and joint ventures. “Our studies in 2010 show there was £6 billion spent on UK defence exports and we achieved 22 per cent of the global defence market and new security exports passed £2 billion for the first time,” says Adam Thomas, senior spokesperson on defence and security for UK Trade and Investment.

The Gulf is the UK’s largest market with BAE Systems, the Ministry of Defence’s main contractor, Rolls Royce and Boeing Defence UK all being manufacturers that rely heavily on the GCC’s defence spending.

“The Gulf is a particularly important area for the UK and is traditionally [over the past five years] responsible for 50 per cent of UK’s defence exports. We aim to make this £5 billion in the future,” says Thomas.

Last month the UK held its bi-annual Defence and Security Equipment international (DSEi), the world’s largest defence exhibition, attracting more than 1,300 exhibitors, and Emiraje Systems signed a deal, initially worth Dh17-22.5 million with German firm Cassidian to provide it with its Ectocryp data protection devices. “Our theme at DSEi was partnerships,” says Thomas. “We are extremely impressed with Idex and the Dubai Air Show, and see them as two prominent global defence exhibitions that we need to be at.”

“The region is continually keen to enhance its indigenous defence capabilities and there are very highly qualified engineers. Our strategy is to create joint

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development in Ammrocâ&#x20AC;&#x2122;s evolution and we are delighted to partner with another global leader in the aerospace industry,â&#x20AC;? said Homaid Al Shemmari, chairman of Ammroc. Linking this new expertise to Ammrocâ&#x20AC;&#x2122;s developing capability in the rotary-wing segment allows it to become a leading global provider of military aviation maintenance, repair and overhaul (MRO) services to the UAE Armed Forces and other military operators both globally and regionally.â&#x20AC;?

In August 2010, 12 UAE aviators became the second batch of Emirati military to be trained for operations in Afghanistan by the US. Earlier this year, Gulf countries where called into action with the UAE and Qatar participating in the Nato-led no-fly zone over Libya in March, to protect civilians from attack by Colonel Gaddafiâ&#x20AC;&#x2122;s loyalist forces, and in the same month the UAE and Saudi sent forces to Bahrain, at the invitation of King Hamad ibn Isa Al Khalifa, as part of the GCCâ&#x20AC;&#x2122;s Peninsula Shield. Some GCC politicians and analysts believe that Iran was covertly behind the unrest in the country, something that Iran has categorically denied.

According to unofficial reports the budget for the Iranian armed forces in 2010 increased by 20 per cent to $9 billion and the Revolutionary Guard Corps was

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boosted by a $5.8 billion arms spend, causing more worried glances from GCC leaders. â&#x20AC;&#x153;However, Sipri has been unable to verify these figures or compare them with previous data from other sources, therefore the most important country for which data was missing in 2010 was Iran,â&#x20AC;? says Solmirano.

Regardless, the Gulf remains at the forefront of global defence manufacturersâ&#x20AC;&#x2122; minds, and with the continuing threat from Iran and an oil industry to protect it is clear the GCC will remain a major source of income and employment for the military industry beyond 2015.

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ventures and industrial partnerships.â&#x20AC;?

BAE Systems announced in August last year it intends to establish a military aircraft assembling plant in Saudi Arabia.

The potential for deepening ties has also been realised by the US and in January Lockheed Martin acquired an equity stake in Mubadalaâ&#x20AC;&#x2122;s Advanced Military Maintenance, Repair and Overhaul Center (Ammroc). â&#x20AC;&#x153;This is an exciting

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DATA CRUNCH TOP DEALS AND GCC ECONOMIC INDICATORS

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SANA TOUKAN Research manager, Euromonitor

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HIS HEALTH RESORT lies about 1.5 hours away from Dubai, tucked away on the tip of Northern Musandam Peninsula in Oman. After a hair-raising, vertiginous drive up the dusty Hajjar mountains, you’ll be blown away by the beauty that awaits you on the other side (for an even more hair-raising experience, Six Senses also offers the option to paraglide into the resort – which gives a whole new meaning to the term ‘arrive in style’.)

Atop the mountains, the resort – and the tiny fishing village Six Senses is adjacent to – present themselves in full kaleidoscopic view; a picture postcard of wooden villas framed

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by an unfeasibly blue coastline. At the reception, it already feels like you’re a long, long way from the hustle and bustle of the UAE. The friendly staff are dressed in floaty linen and offer up fresh juices and Buddha-like smiles while you recline on the rustic sofas and take in the ethereal surroundings.

Our dedicated butler invites us to take a bicycle through the resort’s sandy grounds to our villa. Six Senses is built to be sustainable, which means the surroundings resonate with earthy brown hues, and it doesn’t take long to feel relaxed, peaceful, and ready to cast away your Dubai diva for a few days.

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This resort effortlessly combines luxury and sustainability. Six Senses resembles a traditional Omani village in many ways, with narrow passages between the individual villas and palm shaded, sandy roads and almost no cars.

Each of the villas is furnished to reflect Omani culture and features its own private infinity pool as well as a private deck and sun-house; you can relax here for most of the day, sunbathe, and enjoy room service from the resort’s extensive, five-star menu. Inside the villa you’ll find a range of luxurious mod-cons, including wireless, music and video on demand, iPod docking station, private wine cellar and outdoor rain-shower.

The resort really is self-contained and, with the range of activities on offer, you could easily stay at this resort for a week. As expected, it’s on the expensive side, but there’s a long list of things to do, including

most non-motorised watersports, mountain trekking, paragliding, diving and yacht chartering. There’s also a children’s club for kids between four and 12-years-old with activities in the mornings and early evenings.

There’s a range of eateries on offer too, in the form of restaurants, lounges and bars. Dining on the Sand offers Arabian and pan-Asian fare in barbecue form when the weather is good; Sense on the Edge offers a dining experience that’s perched atop the mountains (so you can enjoy the same breath-taking view as on arrival) and Vinotheque is a wine cellar room offering intimate meals by candlelight and wine-tasting courses.

Six Senses stands alone with its dramatic, unique setting and consistently friendly five-star service.

There’s nothing that the staff won’t do to make sure you leave this resort more 'Zen' than when you arrived.

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T WASN’T A typical Wednesday evening, I admit. Normally, my pyjamaed frame is crashed out on the sofa, slice of pizza in one hand, TV remote in the other. On this particular Wednesday, however, my hands were employed elsewhere. One was zipping up my lady’s slinky LBD, while the other was wrestling with my cufflinks. Both occurring as we waited for our chauffeur-driven Rolls-Royce Ghost Extended Wheelbase (EWB) to take us for dinner at Splendido restaurant at Dubai’s The Ritz-Carlton Hotel. See, I told you it was different.

Why aren’t all Wednesdays like this?

Seeing the car parked on the pavement outside my tiny villa, I was affected by a touch of the preening peacocks. Shooting one’s cuffs – à la Duke of Edinburgh – as the driver held open the door for my partner, I could see a neighbour checking us out and I shamelessly milked it for all it was worth. It makes neighbours stare, drivers gawp and passengers point. That’s the Rolls-Royce effect. Having visited RollsRoyce’s assembly facility at Goodwood in the UK (it’s too space-age and ordered to be called a factory), I am fully conversant with how much painstaking detail and effort goes into the construction of each hand-built model. Sat in the back seat, enjoying the extra 170mm of legroom afforded by the eponymous extended wheelbase, each facet of the tour came back to me. The leather workshop with its laser-cutting technology and old-school

craftsmanship, the mind-bogglingly involved process to produce the wood panelling, the spotless floors, the air of humming, quiet efficiency. Each car is a result of countless man hours. And boy, is it worth it. A finished Rolls-Royce is superlative in every sense.

After a sumptuous dinner, the driver drove us home and left me the keys to experience the car for myself the next morning. Sat on the pavement in front of my common two-bedroom villa, the black and silver Ghost EWB was more than a little incongruous. It has a theatricality more suited to the swankiest houses or finest hotels. To have such a car parked outside says that you are part of a tiny percentile of the world’s population.

A lot has been written about the silence of the ride, however, as I set off, a loud whooshing noise dominated the cabin. ‘Ha’, I thought to myself, perhaps the much-vaunted ride is not so silent after all. How could a 6.6-litre, twin turbo V12 be quiet? And then I realised that the noise was in fact, the rush of the air-conditioning, and once I’d turned it off, silence descended. I could wax lyrical about the luxury, finish, equipment, ride and quality – incredible though they all are – but that has been explained a million times before. Instead,

I will leave you with an observation that sums up the Rolls-Royce experience perfectly – the air coming through the AC vents was noisier than the engine capable of providing 563 horsepower.

A real ghost whisperer.

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Defining 40 years of extraordinary development in the UAE, Ramesh Shukla creates a masterpiece of historical photography

Available at all leading retail outlets in the Gulf and at

PO Box 43072 PO Box 2331

Abu Dhabi UAE Dubai UAE

Tel +971 2 677 2005 Fax +971 2 677 0124 Tel +971 4 282 4060 Fax +971 4 282 7898

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HIS FRENCH RESTAURANT has its roots in Nice, where the owner serves a glittering set of regulars, including President Nicholas Sarkozy. And even though the bistro's latest offshoot lies in the heart of Dubai International Financial Centre, it’s still possible to feel that you, too, are somewhere along the Riviera.

Starched-white tablecloth settings sit neatly with the high cream walls decorated with modern art. The dining room is drenched in light. The staff are reassuringly French, goodlooking, and delighted with themselves.

The restaurant is bustling; ‘bustling’ is a seldom-used adjective for Dubai restaurants – local restaurants are often busy but never bustling. This place heaves with atmosphere and a sense of occasion.

The extensive menu covers all the French classics and, with great difficulty choosing, we plump for the Green Beans with Foie Gras, along with the Burrata dish, for starters.

The skilfully presented, colourful food is delivered quickly (even though the waiter tells us the food will be delivered ‘when it’s ready’).

The beans are fresh and crunchy, the foie (

grass is silky smooth, and the mozzarella is the best this journalist has tasted – anywhere. In fact, the Burrata et Tomates is the restaurant’s house dish and consists of just cheese, tomatoes and fresh basil leaves drizzled with olive oil but, like the rest of the dishes, the simplicity works.

After a discussion with the well-versed waiter, who recommends a selection of dishes with flair, we choose the roast baby chicken with lemon, along with the sea bream. In a special touch, the fish is wheeled out steaming and whole for inspection before it is filleted; we’re not sure why, but this kind of frivolous showmanship is endearing in itself. The chicken is succulent, simple and fresh, and my date assures me that the bream topped with olive oil and herbs is bursting with flavour.

In La Petit Maison, you’re able to drown in your senses – the bold sights, sounds and flavours. The spirited staff take pride in their jobs and their food, and it shows. This is not another Dubai hotel restaurant with its standard opulence. It’s the real deal. Bon appetit. lpmdubai.ae )

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OR THREE DECADES Gitex Technology Week has served as a magnet for the leading names in the IT sector and showcased zeitgeist tech products to reflect regional and global trends.

This year is no exception, as the world’s most influential technology businesses line up at the show to share their wares with Middle East buyers.

Under the 2011 theme of “Redefine the Future”, Gitex will address a wide range of IT issues, from social networking to cloud computing to 4G, with themed seminars and presentations. A major theme at this year’s event will be cyber-crime, following widespread computer hacking amid the Arab Spring.

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F YOU WERE to conjure up an image of the proverbial dot-com founder – you’d dream up Paul Kenny. The nattily-dressed 26-year-old Irishman might be young, but he thinks big. “I’m going to build the largest e-commerce site in the Middle East,” he says. Kenny launched Cobone, the regional group-discount website, just over a year ago amid a scrum of competition.

Incumbent site GoNabit had already cornered some of the latent market with a four-month head start on Kenny.

“They were the first-mover but within six weeks we were number one,” he says, peering out over a barely-furnished office.

Cobone, part of the locally-founded Jaber Internet Group which sold Maktoob.com in 2009, recently moved buildings to free up space for more employees. “Revenues have grown 30 per cent a month since we started.”

The CEO claims he now owns 67 per cent of the market, with US-firm Groupon commanding a 22 per cent share, GoNabit six per cent, and the rest with smaller firms. “People don’t realise that it takes a lot of resources to set up a group-buying site. The initial set up is resource heavy – you need to fill the finance, marketing and IT departments. A few of the smaller sites will disappear in time.”

Certainly, Cobone introduced a wide range of payment options, which has proved key in a developing market still wary of buying goods over the internet. Kenny’s site allows customers to purchase goods with credit cards, pre-paid cards and, crucially, cash-on-delivery.

“Local culture was holding e-commerce back. People perceived that the internet was not safe, although everyone paid their DEWA and Etisalat bill through the web,” he says. “Group discount sites are a gentle way to introduce the population to e-commerce. They already know the outlets we are displaying, they can even call them up and check, so it’s real.”

Group-buying sites have become household names globally, offering discounts on anything from nail spas to personal training sessions and restaurant meals. With the Middle East market is still nascent, Kenny plans to soak up some of the growth. Local firms make a profit by mass-discounting their products but the

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main selling point for companies is the extra exposure the site can offer. A rock-bottom deal on a nail spa, for example, may lure clients away from their usual salon to try another beauty spot on the other side of town.

“Companies are realising that offline marketing is more expensive than online marketing. On day one, Cobone was a difficult sell – not now. Businesses have realised the value of it. You take that marketing budget and you flip it and you actually get cash back for it,” he says.

As local in-boxes begin to clutter up with deals on products and services, the range of offers has become bewilderingly wide, with Cobone even offering a discount for a RAK free-zone company licence recently. Will this sort of nondescript discounting eventually cheapen the value of products and lead to apathy?

“The daily deal model is still very immature as a whole as it has been in operation for just over two years. From our experience we have found that diversification is key and offers more choices and increases the audience size,” says Kenny. “For example, we had a billboard at the Dubai Media One hotel which was extremely successful selling almost 40 units, a $28,000 Nissan Pathfinder that sold four units, and the UAE trade licence sold two units.

Diversifying the model is the key to success.”

Kenny can often be seen working until 3am. And when he’s not working on the site, he’s encouraging other employees in his company to take the plunge and become entrepreneurs in their own right – launching new divisions within Cobone.

“I act as a venture capitalist and they present their business plans to me. I’m going to prove that you can do anything no matter who you are.”

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