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From The Editor

from the editor Though in my future editorials I hope to offer the kind of incisive, detailed insight into the Qatar business environment that my predecessor Kelly Lewis brought to this page, I thought a more personal introduction was necessary to begin with. At the risk of sounding somewhat self-aggrandizing, my name is Miles Masterson, a magazine editor and journalist, with (between bouts of satisfying my penchant for global travel), two decades of involvement in the publishing industry in both the United Kingdom and my native South Africa. It is funny where you end up in life. Two years ago, if anyone had told me I was going to soon become the editor of a business magazine in Qatar, as a thriving and content freelance editor and internationally published journalist based in Cape Town, I would have laughed out loud. Six months and a world economic implosion later, following the subsequent erosion of the publishing industry back home and the demise of more than half the publications I worked for regularly, I began to reconsider my options. As I have relatives and friends working here, Qatar increasingly became a distinct possibility, certainly more attractive than Dubai, where a similar fate of collapse as South Africa had befallen many newspapers and magazines. Following a short, speculative holiday in 2008, where I found Qatar and its people more than amenable, the long, slow search for work here began, culminating rapidly in an editorial position at TheEDGE. And so, through various occurrences – influenced by personal decisions that never predicated this outcome, and especially, by professional decisions made by others over which I had no influence – I feel it is somewhat fitting that my tenure of as editor at this magazine begins with the first issue of a new year, 2011. For me, this is inextricably linked into another massive event, change, happening, epochal shift, call

it what you will, for Qatar. Here, similarly, if two years ago you had told all but the most fervent believers that this small Gulf nation would be hosting the world’s most prestigious sporting event in 2022, they would have also scoffed in disbelief. Little did they know. Mabrouk Qatar! In fact, I must admit feeling quite fortunate to be in such an undeniably special place at the right time. No more so than when Sepp Blatter announced that Qatar would be hosting the 2022 FIFA World Cup. Indeed, the hairs stood up on the back of my neck; to be the newly appointed editor of the country’s leading business magazine right now is both an amazing opportunity and formidable challenge. But I think anyone living and working in Qatar today is incredibly fortunate to be in such a globally ascendant country and economy – that sure, though it has some problems and flaws, like anywhere – is also, in a business sense certainly, the place to be right now, I’m sure you would agree. Naturally, with the successful bid for the World Cup comes a flood of investment and growth potential for the country, and thus you will be reading about much of this subject in TheEDGE in the coming decade. Although our cover story on the business of sport this issue inevitably includes detailed references to 2022 and some of our other features also cover it, where possible we have refrained from allowing this to dominate our entire narrative, preferring rather to report on these in the various affected business sectors as their potential unfolds. As far as the magazine itself goes, like our home country we are constantly evolving and growing. As on the streets and in the board rooms of Doha, in the next few issues you will see some changes occurring here, which I trust you will agree will only make TheEDGE better and a truer reflection of the dynamic and exciting business environment it serves. There are interesting times ahead for all of us, indeed.

Miles Masterson Managing Editor

Do you have something to say? It is not all about us and we realise that often our readers are in the right place at the right time resulting in great stories. Is there a story that you want TheEDGE to cover? Are we delivering our readership with the content it demands? Are there new sections that you would like to see implemented in the magazine? Or do you simply want to make a comment? If so, send your letters to the editor at:

m.masterson@firefly-me.com

TheEDGE

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WHO WE ARE

MANAGING editor Miles Masterson m.masterson@firefly-me.com +974 66080447 COPY EDITOR Megan Masterson megan.masterson@firefly-me.com +974 55348748 REGIONAL SALES DIRECTOR Julia Toon j.toon@firefly-me.com +974 66880228 SENIOR SALES manager Emma Land e.land@firefly-me.com +974 33197446 Sales Executive Giuseppe Ciccarello g.ciccarello@firefly-me.com +974 33842744 Marketing administrator/ DISTRIBUTION and SUBSCRIPTION Azqa Haroon a.haroon@firefly-me.com +974 55692471

About TheEDGE: TheEDGE is an ambitious business magazine targeting professionals operating within Qatar’s multi-sector business landscape. Printed monthly, TheEDGE was launched in July 2009 to fill the market void and to provide the business community with insight into the latest business trends and market developments. TheEDGE is distributed 12 times yearly to a readership base of more than 7500 professionals, providing advertisers with the needed additional reach and frequency to their most important audience. TheEDGE is an authoritative business resource serving both large and small business operators.

Creative director Roula Zinati Ayoub Art AND DESIGN Lara Nakhlé Rena Chehayber Rana Cheikha Charbel Najem Hadeer Omar

Firefly Communications PO Box 11596, Doha , Qatar Tel: +974 44340360 Fax: +974 44340359 www.firefly-me.com

Finaliser Michael Logaring Photographer Herbert Villadelrey Melissa Schober

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TheEDGE is printed monthly © 2011 Firefly Communications. All material strictly copyright and all rights reserved. Reproduction in whole or in part, without the prior written permission of Firefly Communications, is strictly forbidden. All content is believed to be factual at the time of publication. Views expressed by contributors are their own derived opinions and not necessarily endorsed by TheEDGE or Firefly Communications. No responsibility or liability is accepted by the editorial staff or the publishers for any loss occasioned to any individual or company, legal or physical, acting or refraining from action as a result of any statement, fact, figure, expression of opinion or belief contained in TheEDGE. The publisher (Firefly Communications) does not officially endorse any advertising or advertorial content for third party products. Photography/image credits and copyright, where not specifically stated, are that of Getty Images and/or iStock Photo.


CONTENTS

CONTENTS January 2011

www.theedge-me.com

FINANCE & ECONOMICS

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.26. market watch

Matthias Catón outlines the challenges facing the World Economic Forum as it prepares for Davos 2011.

.30. Inside edge

A closer look at the supply and demand factors affecting oil and gas pricing structures by Phil Strange.

.32. special report

Oxford Business Group’s Ed Harris takes a look at the effect of the 2022 World Cup on Qatari banking.

.34. balance sheet

Peter Kohut focuses on the significance of Basel III.

.36. economic barometer

As Ireland’s’s leaders set out stringent measures to bring the country back from economic ruin, questions swirl over which vulnerable eurozone economy will falter next. Karim Nakhle looks back at where the ‘Celtic Tiger’ went wrong and tackles the critical who-next question.

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.61. business interview

Miles Masterson interviews Ali Al Humaidi, managing director of Almaras Consultancy, a company specialising in implementing equitable Qatarisation in local companies.

.66. green business

Sam Pickering reports on the Conference of Parties 16, held recently in Mexico, and finds reason to be optimistic.

FEatures

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.40. in the spotlight

The WikiLeaks revelations look set to reverberate well into 2011 – this time, with the banking sector in its sights. Mark van Dijk investigates the impact of Julian Assange and his infamous website.

.44. cover story

From endorsements and television broadcasting rights, to sponsorships and attendance profits, sport has become so much more than just ‘having fun’. Rachel Morris examines this lucrative sector and outlines where Qatar is set to benefit from it well into the next decade.

.50. on the pulse

While carbon capture and storage may take a while yet to take off, there is an opportunity for Qatar to play an important role today. Edward Jameson finds out more.

.54. special feature

Ten years on from 9/11, how have business and politics shaped the Western world’s response to Islam? Adrian Murphy asks whether the French veil ban, assimilation issues in Germany and Islamophobia will have a knockon effect on the commercial interests of Gulf countries.

.58. business view

Mark Proudley asks what the impact of the 2022 World Cup is likely to be on Qatar’s real estate market.

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.68. how-to guide

Curtis Avery asks, ‘Do you have what it takes to become an entrepreneur?’

.72. legal insight

A guide to joint ventures for foreign companies hoping to conduct business in Qatar.

.75. health and safety

Developing an emergency response plan to address the risk of fire is a must for every business. Mark Kenyon offers advice on fire risk management.

.78. brand beat

Charlotte Stubbs illustrates how companies are utilising coolhunting and trendspotting to grow their brands and build their revenues.

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REGULARS .09. .10. .12. .13. .14. .15. .16. .18. .22. .82. 8

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Contributors Local News International News web watch News in Quotes news in numbers DOHA DIARIES MIDDLE EAST MATTERS Thinker’s Corner BUSINESS INSIGHT


CONTRIBUTORS

The Usual Suspects...

p.3o Phil Strange Chief Financial Officer Dun and Bradstreet South Asia Middle East Doha, Qatar

p.32 Greg Harris Editorial Manager Oxford Business Group Doha, Qatar

P.34 Peter Kohut Director Financial Risk Management KPMG Advisory Manama, Bahrain

p.36 Karim Nakhle Senior Business Strategist Doha, Qatar

p.44 Rachel morris Freelance Journalist Middle East and North Africa Region Doha, Qatar

p.50 Edward Jameson Senior Business Journalist Middle East and North Africa region London, United Kingdom

P.58 Mark Proudley Associate Director DTZ, Middle East Operations Doha, Qatar

p.66 SAM PICKERING Managing Director BG2 Global Solutions London, United Kingdom

p.68 Curtis Avery Entrepreneurial Mentor College of the North Atlantic Doha, Qatar

P.72 Brenda Hill Senior Legal Consultant DLA Piper Doha, Qatar

P.72 Stewart Diana Office Managing Partner DLA Piper Doha, Qatar

p.75 Mark Kenyon Health and Safety Group Leader URS Qatar LLC Doha, Qatar

p.78 CHARLOTTE STUBBS Client Services Creative Action Design Doha, Qatar

All contributors to TheEDGE are wellregarded leaders in their respective industries. If you are interested in joining the esteemed panel of contributors, please contact the editor, Miles Masterson at m.masterson@firefly-me.com

TheEDGE

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NEWS IN BRIEF

LOCAL NEW PLANET NAMED AFTER QATAR A planet can now be considered as added to Qatar’s impressive list of terrestrial acquisitions. According to a report by Qatar News Agency in December, a Qatari astronomer who is leader of the Qatar exoplanet survey and a research director of the Qatar Foundation for Education, Science and Community Development, Dr Khalid Al Subai, was prominent in the discovery of a gas giant. The diameter of Qatar-1b, as it is has been named, is thought to be 20 percent larger than Jupiter itself, to contain around 10 percent more mass and is estimated to have a temperature of 1100 degrees celsius. In 2010, wide angled astronomical cameras, owned by Qatar but situated in New Mexico in the United States, identified a number of potential new planets. These photographs were then analysed by astronomers working together at St Andrews and Leicester universities in the United Kingdom and by Al Subai in Qatar, who along with a team from HarvardSmithsonian, confirmed the existence of Qatar 1-b. QFC COMMERCIAL AND CIVIL COURT INAUGURATED Under the patronage of HH Sheikh Hamad bin Khalifa Al Thani, the Emir of Qatar, the Qatar Financial Centre (QFC) Civil and Commercial Court and Regulatory Tribunal was officially inaugurated in December by Prime Minister HE Sheikh Hamad bin Jassim bin Jaber Al Thani at the new courtroom in QFC Tower 2. Attended by senior ministers of state and Qatari lawyers, proceedings were started by Sir William Blair, Chairman of the Regulatory Tribunal, who explained how the Civil and Commercial Court and the Regulatory Tribunal together form the QFC Judiciary and the legal infrastructure behind the QFC. In addition, a purposebuilt Alternative Dispute Resolution (ADR) Centre forms part of the Court’s structure. The Civil and Commercial Court forms part of Qatar’s court system, with

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judgments are enforceable as such. The presence of the ADR Centre provides parties with an integrated dispute resolution facility open to all, and has systems and procedures in place to ensure that cases will be dealt with efficiently. NEW QATAR EXECUTIVE JET COMPANY LAUNCHED ExecuJet Middle East, a leading global business aviation organisation has announced a partnership with Qatari company Al Faisal Holding to form a new business aviation company in Doha, ExecuJet Qatar. The new company has been established to secure an Air Operating Certificate (AOC) and provide aircraft management and charter solutions to clients in Qatar. The application process for the AOC is already underway and is expected to be in place early in 2011. QATAR WINS 2013 WORLD CHAMBERS CONGRESS BID Apart from winning the bid to host the 2022 Fifa World Cup, Qatar’s Chamber of Commerce and Industry has also won the bid to host the eighth World Chambers Congress, in Doha in 2013. Somewhat of a watchdog for international business best practice and legal arbitration, among other roles, the International Chamber of Commerce was founded in 1919 with an aim to serve world business by promoting trade and investment, open markets for goods and

services, and the free flow of capital. The 2011 event will be held in Mexico City, and 2013 will be the first time the biannual event will take place in the Gulf region. Previous congresses have taken place in Marseille, France; Seoul, South Korea; Quebec City, Canada; Durban, South Africa; Istanbul, Turkey, and Kuala Lampur, Malaysia. NEW ARRIVALS TERMINAL OPENED IN DOHA Doha International Airport opened a new terminal for passengers arriving in Qatar by air in late December, managed by Qatar Airways. “The new Doha Arrivals facility will greatly assist the airline’s expansion plans between now and the opening of New Doha International Airport in 2012,” said Qatar Airways chief executive officer, Akbar Al Baker. From December 19, all passengers whose final destination is Doha will be transported from their aircraft by bus to the arrivals terminal. Free shuttle buses going from the arrivals terminal to the existing departures terminal will be provided for returning passengers who have parked their vehicles at the departures parking zone. Following the opening of the arrivals terminal, work will begin on expanding the departures and transfers terminal to provide larger check-in and transfer areas, as well as additional boarding gates and other amenities. New Doha International Airport, located four kilometres east of the existing airport, is scheduled to open in 2012.


NEWS IN BRIEF

INTERNATIONAL

CUBA’S ECONOMIC SHAKE-UP Cuban president, Raul Castro, has told legislators that the country’s economy would undergo significant change this year, but that it would not become a capitalist nation. Castro began a shake-up of Cuba’s Soviet-style economic model, announcing the elimination of a million state jobs and expanding private businesses. As the government attempts to boost productivity, Cubans are being encouraged to begin their own businesses. The Cuban economy is expected to grow by 3.1 percent this year. THE UNITED STATES SUES BP The United States (US) federal government joined 80 companies in a lawsuit against BP and eight other companies over the Gulf of Mexico oil spill. The government said it would hold the companies fully accountable for the billions spent on cleaning up the worst environmental disaster in US history. BP, its partners in the ruptured well, including Anadarko, and drilling contractor, Transocean, are being accused of failing to take “necessary precautions” to prevent or control of April 20 blowout. Tony West, head of the Justice Department’s civil division, said the suit does not ask for a specific amount of damages “because it’s going to take years” to fully calculate the costs of the spill. MADOFF’S SON COMMITS SUICIDE On the second anniversary of his father’s arrest, Bernard Madoff’s son, Mark, committed suicide in New York City. Mark Madoff and his brother, Andrew, were under investigation but had not faced criminal charges in the Ponzi scheme that led to their father’s imprisonment. Along with their uncle, the sons and five directors of the United Kingdom arm of Madoff’s investment firm, were being sued by the court-appointed trustee recovering assets for Madoff’s victims, investors who lost US$20 billion (QR72 billion) in principal.

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UAE’S RETAIL SPACE GROWS DESPITE RISK United Arab Emirates (UAE) developers and retailers continue adding to shopping mall space, powered by retail hub, Abu Dhabi, but, says Colliers International, risks of oversupply are likely to persist. Dubai shopping mall space is expected to increase by 30 percent by 2013, leading to an oversupply of more than a million square metres, the property consultancy recently warned in a report. Abu Dhabi which holds most of the UAE’s oil, fared better during the crisis. SAUDI ARABIA FORECASTS DEFICIT OF US$10 BILLION The Kingdom of Saudi Arabia (KSA) predicts a 2011 budget deficit of US$10 billion (QR36 billion) as it invests to create jobs and reduce its dependence on oil. Revenue is expected to fall 26 percent to US$144 billion (QR524 billion). The KSA is seeking to reduce an unemployment rate that is 43 percent for Saudis aged between 20 and 24 years. In August 2010, the government announced a US$384 billion (QR1.4 trillion) development plan for education, housing and transportation. Said Jarmo Kotilaine, chief economist at Riyadh-based NCB Capital, “They are able to do this because oil prices have been trending up.”

“THE EURO IS CREDIBLE” The head of the European Central Bank (ECB), Jean-Claude Trichet, recently told European Union (EU) governments to face up to their responsbilities and reduce budget overspending. Speaking after the eurozone leaders agreed to set up a permanent national rescue fund for eurozone members, Trichet insisted the crisis hanging over the eurozone was “not a crisis of the euro”, asserting, “The euro is a credible currency.” The crisis of the last year has pushed EU leaders increasingly towards a fundamental redrawing of the architecture of the EU and eurozone. Trichet warned that the suggestion that some countries under serious debt strains should leave the eurozone is an “absurd hypothesis”. DP WORLD SELLS AUSTRALIA STAKE DP World, the world’s fourth-largest port operator, sold 75 percent of its Australian unit for US$1.5 billion (QR5.4 billion) to Citi Infrastructure Investors and one of its partners to reduce debt. The Dubai government-controlled company’s deal will allow Citi Infrastructure to operate and manage five terminals. DP World Australia had earnings before interest, tax, depreciation and amortization of US$95 million (QR345 million) in 2009.


WEB WATCH

www.Ameinfo.com

TheEdge’s guide to websites in the region and around the world of interest to the Qatar and Middle Eastern business community. www.thenextweb.com/me

What is it? The Next Web is a conference held yearly in Amsterdam (the sixth edition is at the end of April 2011) that brings together companies to discuss the future of the web and mobile. The site was launched in January 2008 as an event spin off. Why should you log on? The Middle East page of this website contains many articles and links that might interest those involved in technology and related business in the region, including developments and investments in the sector.

www.africaneconomicoutlook.org

What is it? Devoted to business in the Middle East, Ameinfo.com contains news from every conceivable sector, from aviation to tourism and hospitality, and features a variety of information and newsletter subscription options. Why should you log on? Ostensibly an independent news resource, this website features a wide range of information, as well as access to articles written by professional journalists, and up-to-date data released by regional businesses.

What is it? africaneconomicoutlook.org is the online component of the annual African Economic Outlook report, and combines the expertise of the African Development Bank and a network of African think tanks and research centres. Why should you log on? Any regional business undertaking or considering undertaking business ventures on the continent might benefit from this abundant online resource, which contains comparable data and analysis of 50 African economies.

www.usqbc.org

www.qfinance.com

What is it? This is online home of the United States (US)-Qatar Business Council, a non-profit, private sector organization devoted to issues of interest to American companies doing or planning to do business in Qatar. Why should you log on? The site provides a forum for discussion of key economic, commercial and other information, as well as options to subscribe online and become a member, which includes a number of benefits to US firms.

What is it? Affiliated to the Qatar Financial Centre Authority (QFCA), this website, according to its ‘about’ page, provides free access worldwide to a “huge depth of financial content, with compelling updates and functionality”. Why should you log on? As its contributors are experts chosen to write for Qfinance. com on the basis of the relevance and length of their experience, this is site is possibly an indispensable resource for local and international businesses. TheEDGE

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NEWS IN QUOTES

“I don’t know if you have been following what has been happening with the Murdoch press, where I have declared war on Mr Murdoch, and I think we are going to win… I have blocked [News Corporation’s takeover bid of British Sky Broadcasting] using the powers that I have got…[Murdoch’s] whole empire is under attack.”

Liberal Democrat business secretary, Vince Cable, is secretly taped by two undercover reporters claiming he had “declared war” on media magnate, Rupert Murdoch. Cable was responsible for the enquiry into News Corporation’s proposed takeover for the remaining 61 percent of British Sky Broadcasting that it does not already own. Cable was due to take the final decision in a quasi-judicial capacity.

“It took us longer than we expected to take the snow from under the aircraft, to clear the stands, and we are really sorry for the disruption that resulted from that.”

British Airports Authority chief executive, Colin Matthews, after the operator faced criticism for its handling of Heathrow airport’s pre-Christmas crisis that stranded thousands of passengers. The Department for Transport told BBC News that the government offered army assistance to help clear the snow at the airport but was told that the help was not needed.

“Qatar is proud to contribute to the search for planets around other stars. The discovery of Qatar-1b is a great achievement – one that further demonstrates Qatar’s commitment to becoming a leader in innovative science and research.”

Doctor Khalid Al Subai, leader of the Qatar exoplanet survey and research director at Qatar Foundation for Education, Science and Community Development, after Qatar, along with scientists from the United Kingdom and United States discovered a new planet orbiting a distant star.

“The likely deterioration in debt affordability over the medium term and ongoing concerns about the economy’s ability to withstand fiscal consolidation…mean its outlook may no longer be consistent with an A1 rating.” Anthony Thomas, Moody’s lead analyst for Portugal, after the ratings agency announced it may cut Portugal’s rating by one or two notches within months, citing weak growth prospects and climbing borrowing costs.

CARTOON CORNER

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“It’s a great coup for the region. That one of the Gulf Cooperation Council countries can actually have the World Cup. And I think it will have an extremely positive effect on tourism and on business generally in this part of the world. We would be delighted to have a hotel project in Doha, and I’m sure, definitely by 2022 we will, but I hope long before then.”

Gerald Lawless, executive chairman of the Jumeirah Group, of the indebted Dubai Holding, says the group plans a hotel project in Qatar.

“We have always said we will go in for an initial public offering (IPO) once we register three consecutive years of profit.” Qatar Airways chief executive officer, Akbar Al Baker, said as Qatar Airways unveiled plans to launch an IPO in early 2012.


NEWS IN NUMBERS

News in Numbers

#150,000,000,000

A group of rising economies is building the showcase projects that were once the pride of the United States (US), western Europe and Japan. Half of the world’s 30 most expensive projects are in China, Brazil, the Middle East, and other parts of the developing world, according to The Associated Press (AP). Three of them are energy pipelines that will link western Europe with Russia and Turkey. Topping the list is China’s South-North Water Diversion Plan, with a US$150 billion (QR546 billion) price tag that dwarfs the US$65 billion (QR236 billion) for all five US projects in the top 30. Developing countries are spending US$384 billion (QR1.4 trillion) on dams, highways, railways, bridges, canals and energy projects. Brazil is building a US$18.4 billion (QR67 billion) high-speed train link from Rio de Janeiro to Sao Paulo and US$11.3 billion (QR41 billion) on a hydroelectric complex on the Madeira River. Yet large projects are not confined to the developing world – second on the AP list is Britain’s plan to spend US$132 billion (QR480 billion) on offshore wind farms, followed by Japan’s US$62 billion (QR225 billion) Daini Tomei Highway.

Pic of the Month

This Month in History First recorded lottery in England.

The first traveller’s cheques, which can be used in 90 European cities, go on sale in London.

The Dutch East India Company is dissolved.

The United States (US) national debt is zero for the only time.

L.A. Thompson patents the rollercoaster.

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1800

1835

1885

The first great Texas oil gusher is discovered at Spindletop.

1901

Abdul-Aziz ibn Saud becomes the King of Hejz and renames it Saudi Arabia.

1926

American president, Richard Nixon, signs a bill lowering the US speed limit to 55 miles per hour to conserve gasoline during an Organization for Petroleum Exporting Countries embargo.

A single market within the European Community is introduced.

If the eyes of the world are literally on Qatar following the 2022 World Cup announcement, so are its satellite cameras. This image of Doha, taken in late 2010, shows the full extent of The Pearl development as well as the New Doha International Airport, and provides an interesting colour perspective on the water depths surrounding the city. (Image courtesy NASA Earth Observatory)

1569

The Financial Times Stock Exchange 100 has its biggest ever one-day points fall, European stocks close with their worst result since 9/11, and Asian stocks drop by as much as 14 percent.

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COLUMNIST DOHA DIARY

The PERILS OF PARKING

There will be plenty of opportunity in the future for further comment on the 2022 mega infrastructure projects taking place, so while this month’s subject may seem slightly dull, it is an issue that affects us all and has likely caused you great frustration. This month, Edd Brookes talks about parking – or rather, the lack of it – in Doha.

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n my last visit to City Centre, which admittedly was during the early evening, I worked out that I spent longer looking for a parking space than I did buying groceries from Carrefour and having dinner – and I am not a particularly quick eater. It amazes me that a shopping mall with 2200 parking spaces seems to be constantly full – unless you go at nine o’clock on a Saturday morning! It is not that surprising when you consider this translates into a ratio of one space per 80 square metres of gross leasable retail area. The scary thing about waiting for spaces is that fellow drivers – who normally give way and show plenty of due care outside of shopping malls – turn into complete monsters. We have seen these drivers going the wrong way around mall parking lots, intimidating other drivers and getting into hooting matches over a space. Villaggio, with 3300 spaces (a ratio of one space per 43 square metre of gross leaseable area), fares better, and it is fairly easy to find a space if you do not mind parking in a slot without a sun shade. Landmark, with 1500 spaces, has one of the best ratios at one space per 38 square metres of gross leaseable area – almost as good as Hyatt Plaza which comes in at one space per 30 square metres. Even the ‘grand dame’ of Doha’s shopping centres, The Mall (which is approaching its thirteenth birthday), with 600 spaces has a parking ratio of one space to 36 square metres of gross leaseable area. Six years ago, despite less parking (and admittedly 800,000 less people!), this did not seem such an issue. Certainly, the Ministry of Municipality and Urban Planning is and has for sometime been addressing the parking issue. The ministry has ensured that new office developments provide a minimum of one space per 50 square metres of gross leaseable area, and that retail developments provide one space per 25 square metres. This is definitely good news and will also help the liability of commercial buildings. In addition, a large 2000-space underground car park is being developed in front of the Sheraton at a cost of QR1.22 billion. This

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will eventually form part of the ‘travel interchange’, where you will be able to leave your car in the parking lot and transfer to the overland high-speed rail link. This is impressive in itself, but the best feature of this car park will be the use of technology that will identify vacant spaces – great news! I would like to close my first column with a dedication. Unusual, I know, but this poem is dedicated to anyone who has ever bumped another parked car in a car park and not done the decent thing by leaving contact details for the other driver – as I experienced last month when returning to my dear car only to discover the fender hanging off! “Dear Sir or Dearest Madam, I’m so sorry ‘bout your car... I backed out from my parking spot and must have gone too far; It seems my tow bar’s crashed into your Saab and smashed the light, I hope you get back early, coz you’d best not drive at night. A little crowd is watching me, they heard the crunching sound, And some of them have seen the fluid running on the ground; I must have holed your radiator, man, that’s rotten luck, And my machine is perfect, lucky me, I drive a truck! The European bits are so expensive to replace, How I wish that I’d be here, I’d love to see your face; It’s not that I’m a sadist, it was just an accident, A pity it will cost you heaps, and I won’t spend a cent! I’m running rather late or I’d have cleaned the road for you, I guess you’ll need a fender, and your bonnet’s buckled, too; You’ll probably be angry when you see the mangled mess, And then you’ll see this note, and think I’ve left you my address!“


COLUMNIST MIDDLE EAST MATTERS

Mabrouk

Qatar! What does winning the bid to host the 2022 FIFA World Cup mean for Qatar’s business leaders? Dr Tommy Weir speculates.

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ust after I graduated from university, I was advised, “Be careful what you hope for as you may just get it.” I must admit that at the time, the advice made no sense to me at all. Now the wisdom of these words is clear – there are often unwelcome surprises in the realisation of dreams. Qatar’s leaders have been hoping, praying, dreaming, of the privilege to host the 2022 FIFA World Cup. Now the reality has arrived, and winning the bidding process may just turn out to be the easy part. Let us look at what does this victory means for business leaders in Qatar. Success in big boom leadership requires giving attention to six vital areas: • Action. The next step after celebrating the victory of winning the bid, is for businesses to roll up their sleeves and get to work. Twelve years may seem like a long time, but it will be here before you know it. In the swell of activity, leaders need to determine if the people they are working with (partners, employees, consultants, contractors, and even themselves) are cannibals or contributors. Are they here to take advantage from the situation? Or are they here to make a contribution and an investment into the long-term sustainability of Qatar’s ambitions? In the middle of fast-moving action, it is easy to confuse the two.

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• Financing. What is your financial model for the growth of your business? The lessons learned from Qatar’s neighbours highlight what happens when a sustainable financial model is not in place. Successful leadership in boom times comes from managing the growth trajectory and balancing it with a controlled balance sheet. There are two famous quotes that show up in boom times: “Count your costs before you build” and “Greed is good”. They contradict each other, and unfortunately the wrong one usually ends up as reality. Count your costs and you will have a sustainable proposition. • Corruption. Throughout modern business history, boom times have been associated with corporate and personal corruption. One of the huge risks facing Qatar’s leaders is in balancing the need for speed and rapid growth while mitigating corruption. Careful consideration here will take into account the previously mentioned question that needs to be asked – cannibal or contributor? • Speed. The pressure is on and the timeline for delivery will approach rapidly. Work will have to be completed at a lightningfast pace to meet project deadlines. Speed is the reality that will define leadership in Qatar over the next decade. Yet exercise caution – speed brings the enjoyment of a great ride or the risk of a major crash.

• Quality. A combination of high-speed growth ambitions and first-time projects often lead to quality lapses. Completion schedules and quality will be determinants of how the world measures Qatar’s World Cup success. Over the coming years, there will be a constant pull from redefining project scopes, first generation innovation and pressured timelines. As a leader you will need to excel at managing the ingredients of high-performance – quality, customer, inclusion and development. • Talent. This is perhaps the most challenging of all, as Qatar is already strapped for exceptional talent with the limited size and experience of the local workforce. Local businesses will have to import talent to deliver on schedule. As a leader of a multi-national workforce, you will have to pay close attention to understanding capacity planning, capability identification from first-generation corporate markets, and promotion criteria based on performance history and future potential. Leaders, you have received what you hoped for. Now you will have to redefine your approach as Qatar is under the world’s microscope for the next twelve years. The responsibility is yours to deliver against promises for ambitious innovation, five-star quality and recordsetting speed.


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STANDARD CHARTERED AND LIVERPOOL FC

THE BUSINESS OF SPORT IN THE FINANCIAL WORLD Corporate organisations around the world are demonstrating an increasingly systematic and multi dimensional approach to brand sponsorship. A case study that perfectly describes this would be the Standard Chartered sponsorship of Liverpool Football Club in 2010. An announcement, that displays a well thought out and robust strategy for the Bank and its expected return on this investment. For starters, football is the world’s most popular sport and Liverpool FC is one of the most popular teams in the markets where Standard Chartered has its footprint, namely Asia, the Middle East and Africa. Consider this: • Whilst Liverpool is based in the UK, the global TV audience in the Bank’s key markets of Asia, Africa and the Middle East is huge and English Premier League is popular everywhere (about 5 billion cumulative audience for

EPL with 40% within Standard Chartered’s geography). • EPL broadcast to 211 territories around the world, reaching 694 million homes, with a total cumulative audience of 4.8 billion of which about 40% is in Asia, Africa and the Middle East. (Source: Havas Sports Insight, 2008] • EPL has mass appeal in key Standard Chartered markets that will have a positive impact on the Standard Chartered brand, as well as have commercial benefits for both the partners (source TNS Sport 2008): • China 45% of the population

Standard Chartered announced its brand promise Here for good, in March 2010, a bold statement but one that resonates in the mind of its clients, people and community.

has an interest in the EPL • India 53%. • Korea 64%. • UAE 54%. • 90% of football fans in Asia claim the EPL to be the football competition they follow most closely [Source: Sports Marketing Surveys, 2008] • 98% of people interested in football claim to follow EPL (against 47% for La Liga, Spain and 18% Serie A, Italy). (source: Barclays Football Report) • Liverpool has a huge fan base across the core markets that both partners can leverage off commercially (source Sport & Markt 2008): • 131 million fans across 16 markets: China 58 million, India/ South Africa 6 million each, Thailand 5 million, Malaysia/ Japan 2 million each. • 200+ fan clubs outside the UK. Is it any wonder then that Standard Chartered garnered

millions of dollars in media coverage within the first 24 hours of the official sponsorship announcement in July 2010? However, whilst LFC may be a key component of the Bank’s brand marketing activity, it’s also about doing good. At a time when there is general mistrust for the financial sector, Standard Chartered announced its brand promise Here for good, in March 2010, a bold statement but one that resonates in the mind of its clients, people and community. The Bank has successfully demonstrated its resilience in the face of crisis and as its brand belief declares, putting people before profit; so it is with the tie–up with Liverpool, a club that is an active participant in the community which complements the Bank’s sustainability strategy perfectly as the two work together in many areas of the world.


Sustainability is at the core of doing business for Standard Chartered and Liverpool Football Club has an increasingly international programme of community engagement, as an example the Bank’s partnership with a university in Pune, India, where it has set up a football faculty. This is an excellent opportunity to raise the profile, brand and recognition of Standard Chartered through a partnership with Liverpool Football Club, the most successful team in English club football history, with 40 major honours. And ultimately, when you think about it, football isn’t all that different from banking - since successful teams need to develop talented individuals who can work together to win.

Article by: Haya Mashhood Head of Corporate Affairs Standard Chartered Bank - Qatar

“When you think about it, football isn’t all that different from banking - since successful teams need to develop talented individuals who can work together to win.”


THINKER’S CORNER

MENA’s SME drain

How young Arabs’ desire to emigrate could affect job creation by Julie Ray and Mohamed Younis As the size of the labour force in the Middle East and North Africa (MENA) region continues to expand, the competition for quality jobs will likely only get tougher. On average, around 30 percent of young people across the region have expressed a desire to migrate permanently to another country. Yet sustainable job creation and growth in the region will increasingly depend on cultivating a climate that encourages young, aspiring entrepreneurs to launch enterprises in their countries of origin. Otherwise, young people who want to start small- to medium-sized enterprises (SMEs) will take the ‘fruits’ of creating private sector jobs with them when they emigrate to their desired destinations. Gallup data on 15- to 29-year-olds in 19 Arab League countries in 2010 highlighted in the Silatech Index, indicate that many of these countries are poised to suffer not only a ‘brain drain’ but also a ‘SME drain’. Young Arabs who say they plan to start a business in the next 12 months – aspiring entrepreneurs that account for about 15 percent of the youth population – are significantly more likely than those who are not planning to start a business to say they would like to permanently move to another country if they had the opportunity.

Aspiring Entrepreneurs More Likely to Desire to Emigrate % young Arabs who desire to emigrate Entrepreneurs

This gap is somewhat narrower in middle-income countries. In highincome countries, too few young Arabs desire to emigrate (six percent overall) to make meaningful comparisons between aspiring entrepreneurs and non-entrepreneurs who would like to move permanently. Interestingly, if such young, aspiring entrepreneurs who wish to emigrate act on their desires to leave, much of the region’s entrepreneurial talent would mostly end up staying in the region (clustered in Saudi Arabia or the United Arab Emirates). Within the Top Desired Destinations for Aspiring Entrepreneurs and Non-Entrepreneurs Among Arabs who would like to emigrate to another country permanently Entrepreneurs

Non-Entrepreneurs

Arab League European Union United States and Canada Other countries

42% 32% 17% 9%

38% 39% 18% 5%

Saudi Arabia United States United Arab Emirates France

15% 14% 14% 12%

16% 13% 9% 11%

GALLUP

Non-Entrepreneurs 55%

42% 29%

Arab League

35%

Low-income countries

42% 28%

Middle-income countries

GALLUP

The potential for SME drain is greatest in low-income countries. It is in these countries where the percentage of young potential emigrants is highest, and where the gap between aspiring entrepreneurs and nonentrepreneurs is widest.

European Union, where about one-third of aspiring entrepreneurs say they would like to emigrate, France is the most desired destination. A sizeable percentage of these potential emigrants also say they would like to move to the United States. For the most part, prospective entrepreneurs and non-entrepreneurs desire to emigrate to the same countries, however aspiring entrepreneurs are slightly more likely to wish to resettle within the Arab League in general. Increasing the availability of good jobs and improving economic prospects is key for countries looking to stem the potential exodus of such young people. When those who desire to leave are pressed to name the most important change that would need to occur in their


THINKER’S CORNER

country of origin to change their minds about leaving, young Arabs – particularly young men – are most likely to say “getting a job or a better one” would be the most important factor. “Improvements in the economy” is the second most frequent response. What would change your desire decision to leave? Amoung young Arabs who would like to emigrate to another country Entrepreneurs Non-Entrepreneurs Get a job/better job Improvements to economy Better educational opportunities More freedoms Increased safety Family or relatives would come home Less need for connections to suceed Improvements to political situation

49% 25% 7% 5% 4% 3% 2% 1%

41% 35% 5% 7% 1% 1% 3% 2%

GALLUP

Overall, young aspiring entrepreneurs across the MENA region identify entry barriers as the most challenging hurdles they face in launching an enterprise. Countries will be better equipped to create an atmosphere that nurtures their young people’s entrepreneurial aspirations if they can effectively remove some of the perceived roadblocks to starting a business. Similarly, those who say business start-up loans are relatively easy to obtain (26 percent) are less likely to say they would like to emigrate than those who say such loans are not easy to acquire (34 percent). Furthermore, young Arabs who say business owners can trust that their assets will be safe at all times or will be allowed to make a lot of money are less likely to say they wish to move away permanently. Some argue that young Arabs’ desire to start businesses is rooted in desperation, not innovation. To examine these concerns more fully, Gallup researchers categorised groups of aspiring entrepreneurs into two separate cadres (opportunity-driven versus necessity-driven) to better understand this socioeconomic dynamic. Opportunity-driven entrepreneurs are those who plan to start a business in the next year and say they are living comfortably on their current income. Necessity-driven entrepreneurs also plan to start a business, but are not living comfortably on their present level of income.

The Silatech Index highlights that young, necessity-driven entrepreneurs are more than five times as likely as young opportunitydriven entrepreneurs to express a desire to migrate permanently. Of the former group, 16 percent can be considered potential migrants versus three percent in the latter group. It may be that the necessity-driven group is willing or able to take on greater risk in general because of their relative financial disadvantage. Such financial discrepancies between the two groups may also explain some of the differences in where potential migrants in each group desire to move. The Arab League and the European Union are the top desired regional destinations for each group, but necessity-driven entrepreneurs are slightly more likely to favor moving to destinations within the MENA region (42 percent) than the European Union (31 percent). However, equal numbers of opportunity-driven entrepreneurs would like to move to countries within the MENA region (43 percent) or the European Union (41 percent). Implications Sustainable economic growth that bolsters job creation in the region will increasingly depend on cultivating domestic climates that encourage keeping young, aspiring entrepreneurs and their future businesses within their countries of origin. Gallup surveys of young people across the MENA region highlight the challenges that many countries face as young aspiring entrepreneurs, particularly those in low-income countries, are the ones who most desire to emigrate to other countries. If such a desire is acted on, many countries in the region stand to lose a significant part of their potential for job creation to other nations. While many of these young aspiring entrepreneurs are driven by necessity rather than opportunity, a sizeable component of those driven by opportunity also express a desire to leave the region permanently, which underscores the importance of the availability of good jobs in preventing this loss of entrepreneurial talent. This Silatech Index analysis is conducted by Gallup scientists and researchers pursuant to the Silatech-Gallup partnership. In addition to systematically measuring the perceptions of young people across the MENA region on the challenges related to employment and entrepreneurship, Gallup analysts lead the effort in disseminating the findings of the Silatech Index to regional and global leaders and institutions engaged in addressing the challenges surrounding young people and employment in the region. To download the full report go to http://bit.ly/Silatech_Index2010 TheEDGE

23


Finance & Economics

Death of the Celtic Tiger (P.36) As Ireland’s leaders acquiesce and ask the European Central Bank and International Monetary Fund for a QR400 billion bailout, questions swirl over which vulnerable economy will fall next. Karim Nakhle looks back at where Ireland went wrong, and tackles the who-next question.

ALSO IN THIS SECTION: • Market Watch: Matthias Catón outlines the challenges facing the World Economic Forum as it prepares for Davos 2011 (P.26). • Inside Edge: A closer look at the factors affecting oil and gas pricing structures by Phil Strange (P.30). • Special Report: The effect of the 2022 World Cup on Qatari Banking (P.32). • Balance Sheet: Peter Kohut focuses on the importance of Basel III (P.34). TheEDGE

25


MARKET WATCH

The Road to Davos:

A Look at

2011 Matthias Cat贸n discusses the challenges facing the World Economic Forum as it gears up for Davos at the end of January 2011.


MARKET WATCH

T

he world enters 2011 facing new challenges as well as a significant number of unresolved issues from 2010 and before. At the end of this month, about 2500 leaders from business, politics, academia and society will once again assemble in the scenic mountain village of Davos, Switzerland, to discuss these topics and hopefully move towards solving them. For the World Economic Forum (WEF), the Annual Meeting is about listening to people, identifying new topics and making sure that the items on the agenda match the needs of the world and the interests of the leaders. Although it all started with the Annual Meeting in Davos forty years ago – and the Annual Meeting is still the WEF’s most important event – WEF today is about much more than meetings. It is a platform where highlevel people interact and is a catalyst for ideas. Its motto, “Committed to improving the state of the world”,drives all activities. The challenges ahead The WEF recently asked the members of its Global Agenda Councils, a network of more than 1200 international experts across 72 different topics, what the biggest challenges for 2011 are likely to be. The five most significant challenges identified included global power shifts, population growth, uncertain economic recovery, income inequality and shortage of resources. As well as challenges, these could also be called trends, as they reflect patterns of change in the world that will accompany us into the foreseeable future. Beneath these broad trends are specific issues that will be important items on the political agenda in 2011. Global power shifts will have a geopolitical and an economic component. Rising tensions in Asia, for example, between Japan and China, and between North and South Korea, indicate a shifting focus. Economically, the world still faces a conflict between the United States and China about the supposedly undervalued Chinese currency and the global threat of a relapse to trade protectionism. Population growth is also a long-term trend. The world’s population, currently at almost seven billion, is forecast to peak at around nine billion in 2050. However, the growth rate is falling and underneath the umbrella of population growth, there are very different challenges. Whereas population grows quickly in some regions, others – including Japan and Europe – face ageing and declining populations. China will also face this as a consequence of its one-child policy. This calls for creative solutions in terms of migration and talent mobility but many questions are not addressed, not least because they are hugely unpopular in countries that need increased immigration. Economic recovery is still uncertain and, above all, unequal. Even within the relatively homogeneous Europe, there is an increasing gap between highly competitive countries such as Germany and the Nordic countries, and the south – Greece, Portugal and Spain – which are not only suffering from a debt crisis (in both the public and the private sector), but, more importantly, are seriously uncompetitive and need to undertake painful structural reforms. TheEDGE

27


MARKET WATCH

In the US, the unemployment rate is still close to 10 percent, only slightly below its alltime high. Although the situation in emerging countries looks better, high levels of liquidity mean that a lot of capital flows into these countries, with the associated risk of creating asset bubbles. Income inequality seems to be rising. Here, it is necessary to distinguish between inequalities within and between countries. Huge inequalities within countries can destabilise societies. Traditionally, the most unequal region was Latin America, but by some estimates, China has now reached similar levels. Destabilisation can have wider security implications, but it should be noted that neither Latin America nor China is a source of international terrorism and, therefore, the equation that is sometimes made between the two seems far-fetched. Inequality between countries will stimulate migration and lead to challenges similar to those mentioned above related to population growth. Finally, as China and other emerging countries continue to grow, the demand for natural resources will increase. This will lead to competition with the West over access to these resources, as can be seen in the critical stance of many Western countries on China’s engagement in Africa. For exporters of natural resources – often developing countries – this can be an opportunity, as there are now more potential buyers. However, whether this can be used well depends on local governance structures more than anything else. In the medium-term the question will be how growth can be made less resource-intensive. Shared norms for the new reality This year’s Davos emphasises that the world we are living in is different. Different not just because of the financial crisis that shook the world two years ago and whose consequences can still be felt, but different because the trends outlined above fundamentally change the way we see the world and how we act in it, as individuals, as companies and as nations. To discuss these issues, the sessions are organised into four clusters. The first deals with the new reality and the ways to respond to it. The second is about the economy and more inclusive growth. This cluster also deals with unresolved lessons

28

TheEDGE

from the financial crisis. The third cluster is about the G20 agenda. Although the G20 is no cure-all, it is one of the most important new structures in global cooperation. The WEF would like to stimulate the discussion around the G20 agenda and bring non-governmental actors to the table to support it. Finally, the fourth cluster concerns risk. In today’s interconnected world even local natural disasters can have a global impact. Instabilities from systemic risks, including financial ones, can spread quickly and spin out of control. The WEF seeks to facilitate ways to understand and react to global risks in a more comprehensive, proactive way. To this end, the WEF will launch at the

two years on proposals to reform the systems, institutions and mechanisms of global cooperation to make it easier for the world to solve joint challenges together. Many of the 58 proposals that are part of the initiative address the challenges outlined above. For the World Economic Forum, this marked a milestone in its development towards becoming a true catalyst of ideas, not just at meetings, but continuously throughout the year. Not just governments At the start of 2011 the world faces many challenges. Many of them are left over from 2010, challenges for which solutions could

In emerging countries, growing new middle classes can and should take an interest in the world’s problems and play a vital role in solving them. Annual Meeting its Risk Response Network, a new process to continuously monitor and assess risks that affect the business community and the world. More than just Davos Although the Annual Meeting in Davos is the most visible of WEF activities, 10 different summits were organised by the Forum in 2010 in Europe, Latin America, Africa and Asia. In addition, public-private partnerships bring together the business community with governments and non-profit organisations around issues as diverse as water, education and the fight against corruption. Through the Network of Global Agenda Councils, established in 2008, the Forum has built a strong intellectual resource with more than 1200 experts to harness collaborative insights from the world’s brightest minds, breaking down barriers and silo-thinking. The most visible outcome of this network so far has been its work on the Global Redesign Initiative. The Councils and other Forum communities worked over the past

not be found. That is the bad news. The good news is that the tools are available and there is the possibility of making real progress. Modern technologies make worldwide communication easy. In emerging countries, growing new middle classes can and should take an interest in the world’s problems and play a vital role in solving them. The financial crisis of the past two years has made it clear that neither business nor governments alone can deal with these issues. The public and the private sectors must work together with non-profit organisations to make it happen. The WEF, with its experience and unique ability to bring together these diverse groups, is ideally positioned to facilitate this process.

Matthias Catón is associate director for the Global Redesign Initiative at the World Economic Forum in Geneva. He is writing in a personal capacity and the views expressed here do not necessarily reflect those of the World Economic Forum and its members. He can be reached at matthias.caton@weforum.org or through his website at http://www.caton.de.


INSIDE EDGE

A bright future

for gas? Phil Strange weighs up the prospects of the price of gas in a world where supply exceeds demand and oil continues to dominate.

T

he current depressed price of natural gas relative to the oil price is caused by several factors, one of which is the increasing level of global supply, while demand is not picking up at the same rate. However, in the medium- to long-term the incremental competing supplies to Qatar’s output will benefit Qatar and the whole gas industry. The security and volume of supply will encourage and increase adoption rates, with consumers switching from oil and coal as they gain trust in the larger, continuous, predictably priced supply of gas. Estimates of the size of the world’s resources of natural gas continue to grow as a result of innovations in exploration and extraction techniques. It is estimated that a significant amount of natural gas remains to be discovered. United States (US) natural gas reserves increased by the most in history last year, rising 11 percent, or 28.8 trillion cubic feet (Tcf), in 2009 to total 284 Tcf. This underscores the dramatic impact that new gas pumped from shale rock formations utilising newer extraction technologies is having on world energy supply.

Qatar’s LNG future According to Oil & Gas Journal, Qatar’s proven natural gas reserves stood at approximately 899 Tcf as of January, 2010. Qatar holds almost 15 percent of the total world natural gas reserves and is the third largest reserve in the world behind Russia (1680 Tcf) and Iran (1046 Tcf). The majority of Qatar’s natural gas is located in the massive offshore North Field, the world’s largest non-associated natural gas field. Qatar began 2009 with liquefied natural gas (LNG) production capacity of 31.7 million tons a year and will reach a capacity of 77 million tons per year in 2011. Qatar is already the world’s largest producer of LNG, but the new facilities will further widen the gap over its nearest rival. This will give Qatar a share of between a quarter and a third of projected world LNG export capacity, and is expected to make Qatar the dominant player in world LNG with unrivalled influence over markets. As a result, Qatar’s plans for its new capacity will have a significant effect on prices.


INSIDE EDGE

The years 2008 and 2009, plagued by the financial crisis, witnessed a decline in demand for natural gas, at a time when conventional and unconventional gas supplies were increasing, which led to a sharp downward trend in gas prices. With gas prices falling sharply, there has been speculation that LNG producers might shut capacity until demand and prices improve. However, Qatar has shown no intention of slowing down LNG development. On the contrary, it seems to have striven to limit delays to the construction of the mega-trains. Much of Qatar’s new production is destined for the export markets and revenues in the short term will not be maximised because gas prices are low. Also, the new volumes themselves may have a depressing effect on prices, at least in the short-term. The global glut of natural gas is affecting the upstream investment strategies of even the most ambitious producer and largest exporter of LNG, as Qatar has indicated that it will not pursue any greenfield projects until 2014. The moratorium on new developments based on Qatar’s North Field came into effect in 2005, and will not be lifted before 2014, a move likely to disappoint the country’s neighbours. Gas and oil price trends International energy majors operate both in oil and natural gas exploration and marketing. Project lifetimes are measured in decades and investment levels are measured in hundreds of millions or billions of dollars. An understanding of how price movement in one commodity is expressed in the price of the other could prove useful in predicting price behaviour over the long run, facilitate project planning and profit maximisation, and identify potential hedging strategies.

Gas LH scale $/MMBtu : Oil RH scale $/Barrel Gas and oil price trends

In the recent past, as can be seen from the graph, a disconnect between crude oil and gas prices has been observed. A barrel of oil has roughly six times the energy content of a million British thermal units of natural gas, and if the fuels were perfect substitutes, oil prices would be about six times natural gas prices. In practice, however, the ease of using oil for making gasoline makes oil more valuable. As a result, oil has usually traded between six and 12 times the price of natural gas. This scenario has recently changed, with gas prices having fallen sharply, weighed down by new supply and weak demand. Oil prices,

however, have increased rapidly over the last two years to currently more than US$85 (QR309) per barrel. Historically, gas prices have also displayed more seasonal volatility. This is because the natural gas market is regional and segmented due to the difficulty and costs of overseas transportation, so uses of gas tend to be relatively close to the point of production. As the world market for natural gas is fragmented in different regional markets it is not possible to talk about a world price for natural gas. Crude oil, on the other hand, is a global market having a fairly common price level worldwide. The reason that the ratio of the price of oil to the price of natural gas has changed so dramatically is due to the time lag in fuel switching. Some users can switch from oil to gas overnight, but for others, it takes time. Since the ratio has trended up for the last three years, those who could easily switch probably have already done so. Thus the additional supply of natural gas has not been quickly met with increased demand. Gas, gas, everywhere With burgeoning gas production in the US, a global gas glut has depressed LNG prices and shrunk the market for Qatar’s exports. It is estimated that the US has enough supplies of natural gas to make it self-sufficient. New LNG output in the next five years from Australia and other countries could exacerbate this situation. Since shale is present in abundance, it is possible that there are large reserves of natural gas in other parts of the globe as well. Europe and China are keen to explore their shale reserves since they are large importers of natural gas. The International Energy Agency estimates the global total of unconventional natural gas reserves to be around 921 trillion cubic metres. Such exploration will not impact supply for some time to come, but it does present a cause for concern for those who export to these markets. For example, in February this year, Gazprom, one of the largest extractors of natural gas in the world and the largest Russian company, postponed its Shtokman gas-field project by three years because of the change in market conditions. Some of the gas from that field was to be exported to the US, but that seems a distant possibility now. On the other hand, recent announcements about discoveries in Brazil’s offshore subsalt have generated considerable excitement in the country’s oil and gas sector. Along with their potential to significantly increase oil production in the country, the subsalt areas are estimated to contain sizable natural gas reserves as well and could increase Brazil’s total natural gas reserves by more than 50 percent. The most important implications of global shale gas exploitation and other non-conventional sources of gas, are that development of such resources would provide LNG for use on a global scale, reducing reliance on imports. It appears that the age of plenty for consumers of gas is dawning. However, realising the full promise of shale and other resources is not a certainty, and there are technical and economic challenges. Yet despite the difficulties expected on the path to a plentiful supply of natural gas, such abundant reserves should bring about changes in energy consumption patterns. Ultimately Qatar will benefit from increased global supply and competition, as this exact phenomenon will encourage energy consumers to convert to gas as the planet’s viable alternative. TheEDGE

31


SPECIAL REPORT

Qatar:

Banking goals for 2022 By Greg Harris

Although the 2022 World Cup is more than a decade away, analysts are already predicting increased loan activity and investment management in Qatar’s banking sector as the economy gears up to host football’s showcase event. Following the decision awarding Qatar the tournament on December 2, Moody’s Investors Service issued an advisory note forecasting that, as a result, Qatari banks would enjoy enhanced business opportunities, better development of domestic franchises and increased revenues. “As the country prepares for the World Cup, we expect all Qatari banks to benefit from stronger economic activity and higher credit demand in the next 12 years,” said the report, issued on December 5. “We estimate that accelerated government spending of US$57 billion (QR207.5 billion) over the next decade for infrastructure development projects relating to stadium construction, accommodation and upgrading of existing transportation systems, will create new lending activity for all banks,” wrote Moody’s.

While the ratings agency said Qatar’s larger banks would stand to benefit the most from the heightened financial activity associated with preparing for the event, there will also be opportunities for smaller lenders involving more modest projects, contracting and sub-contracting. It is on the sidelines of World Cup preparations where domestic banks are expected to score big, with the private sector set to invest heavily in hospitality and property projects. While some have raised concerns over whether Qatar will have to dip into the debt market, the state and the banking sector may be able manage the massive demand for financing without it. “As in the past, most of the infrastructure will be financed via the budget revenues, directly coming from the oil and gas sectors,” Luc Marchand, an associate director at credit ratings agency, Standard & Poor’s, said in an interview with Abu Dhabi’s The National on December 5. “Private sector financing [will be] asked to play a bigger role, notably in the hotel industry and real estate.”

Qatar’s banks are in a good position to expand as the economy continues to post strong growth figures, being well capitalised, profitable and only having a low level of nonperforming loans on their books, Qatar Central Bank (QCB) governor, HE Sheikh Abdullah bin Saud Al Thani told Oxford Business Group. The country’s banks have taken a series of steps aimed at strengthening the sector, including boosting liquidity and encouraging lending activity, while even more is being done to reinforce risk management measures, according to Sheikh Abdullah. “A good starting point is, therefore, to have prudential regulations that allow diversification of assets so as to spread risk. Taking these considerations into account, the QCB has instituted a gamut of regulations to diversify risks,” Sheikh Abdullah said. Another step to ensure that banks are not affected by future stresses is fast-tracking the implementation of the Basel III guidelines, which include raising minimum capital levels and strengthening firewalls against risk. On December 6, HE Yousef Hussein Kamal, Qatar’s minister of economy and


SPECIAL REPORT

finance, announced that the Basel III proposals for the banking sector would be in place by 2013, five years ahead of deadline. Given that most Qatari banks are already carrying capital adequacy ratios of around 15 percent, more than twice the level set under Basel III, and with the sector only likely to get stronger in the coming years, it seems as if the core requirement of the guidelines will easily be met. With these fundamentals secured, Qatar’s banks are starting to play a more expansive game, increasing lending. In October there was a 2.2 percent rise in lending month-on-month, with bank loans standing at U$75.3 billion (QR274 billion), up from the US$73 billion (QR265

billion) at the end of September, according to data issued by the Qatar Central Bank in late November. Even without the stimulus of the World Cup, Qatar’s economy has been expanding at a world-beating rate, with growth expected to be 15 percent or more for the year. Now, with the goal of helping to stage an event second only to the Olympic Games on the international sporting calendar, Qatar’s banking sector is looking towards even greater loan activity and investments. Greg Harris is the editorial manager at Oxford Business Group. TheEDGE

33


BALANCE SHEET

Why you should care

about Basel Whether it is expensive watches, contemporary art or financial regulation, the Swiss town of Basel has something to offer everyone, some more pleasant than others. But the global impact on the regulation of the banking sector and potential importance of this town is not to be underestimated. Peter Viktor Kohut takes a closer look.

B

asel is a picturesque town in the north-west region of Switzerland dating back to the Roman Empire and bordering Germany and France. Despite being home to a mere 165,000 inhabitants, the worldwide impact of what happens here at the Rhine bend, is not to be underestimated. If you are into luxury watches or fine jewellery, then you will surely be interested in BaselWorld, the annual watch and jewellery fair. Or you might be an art lover, in which case Art Basel, the world’s biggest contemporary annual art exhibition known

as the “Olympics of the art world”, will tickle your fancy. Both these events feature highly-priced items with a combined value of hundreds of millions of dollars. However, the impact of the topic I want to talk about is not measured in millions or even billions of dollars, but in trillions. Basel is also happens to be home to the Basel Committee on Banking Supervision (BCBS), a committee which comprises central bank representatives from 27 countries, including from the Gulf Cooperation Council and the Kingdom of Saudi Arabia. In the words of the BCBS, its objective is to “enhance understanding

of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable.” The BCBS considered it necessary to react to the financial crisis and develop the third installment of its guidance to regulate financial institutions, which it calls, simply, Basel III.


BALANCE SHEET

Basel III, which is expected to be finalised at the end of this month, consists of a new set of rules for banks drawn up with the intent to prevent a recurrence of the wide ranging, severe problems experienced during the crisis in the financial system. Although the pronouncements of the Basel Committee are legally non-binding, the member states as well as a large number of non-member states have pledged to implement the rules locally.

However, you also would need to grapple with various macro-economic considerations. Basel III introduces a range of capital buffers that would be added on top of the 10.5 percent minimum, in particular, a buffer to counter procyclicality in capital levels and prevent excessive credit growth. Set this buffer too high, and the breaks on economic growth might be too severe. Set it too low and unwanted bubbles might form.

For banks For banks, there will be a direct impact on the quantity and quality of regulatory capital that they are expected to hold against a riskweighted measure of their on- and off-balance sheet assets, increasing from the current minimum of eight percent on a global level, to at least 10.5 percent and potentially much more in the future. In addition, banks will have to deal with a non risk-sensitive leverage ratio which limits the absolute amount of assets that they hold to a multiple of their common equity, likely to be about 33. Since much of the crisis has been caused by liquidity problems, there will also be some tough requirements on their short-term, as well as longer-term, structural liquidity positions. And, if they happen to be one of the more sophisticated banks with advanced trading operations, they might also be faced with new, more complex risk calculations.

For the rest of us The Basel regulation is expected to have wide-reaching effects on the overall financial system on an international, as well as, national level. There will undoubtedly be a shift in the costs or benefits to a range of banking products and, as a result, to the attractiveness of certain banking business models and business lines relative to others. The cost of banking will be, in general, more expensive and it would not be surprising if such increased costs would filter down to consumers. Bank loans, whether commercial or retail, could see an increase which some estimate to be upwards of 50 basis points. Experts, most prominently from the big trade finance houses, Standard Chartered Bank and HSBC, are predicting a massive drying up of the trade finance market with long-term consequences for global trade. Whether such doom and gloom prognosis will materialise remains to be seen, as in this interconnected, complex and dynamic world of finance, nothing is certain or clear-cut. On the plus side banks will, in general, woo retail and small- and medium-enterprise clients, as the deposits from this client segment will receive relatively preferential treatment under the rules. But banks will value your money with them the most if your banking behaviour is such that it fulfills the ‘stable’ deposit criteria. This includes building relationships with your bank on several, varied levels and with different products or using some of your accounts for transactional purposes.

For regulators There are also fundamental issues that regulators for many Islamic banks would have to ponder. For example, the liquidity ratios specify the characteristics of qualifying instruments that can count towards the pool of high quality liquid assets. Included in these allowable instruments are high quality corporate bonds that are expected to form a significant part of the liquidity pool. As Basel III stands right now, this might cause a big challenge for Islamic banks where sukkuks lack the necessary market depth or might not even meet the qualifying criteria.

Corporate deposits, on the other hand, will be somewhat disadvantaged but less so if you have an operational relationship with the institution. If you are in the fortunate position of being able to issue corporate bonds of the highest quality, your financial instrument will be in strong demand and will decrease the cost of funding for you. This is a result of the liquidity ratios in Basel III and the resulting need of banks to build up their liquidity positions. What to do about Basel III Whatever your business, Basel is a force to be reckoned with. Impact on global and local economies in significant ways is a given. At this point in time, however, there still remain many unanswered questions. In order to cope with such uncertainties and to position your organisation optimally to leverage opportunities, a few basic tactics are recommended. Playing through a range of scenarios as part of a strategic scenario-planning exercise with board members and the most senior executives is a good way to identify possible future states and directions, and to position the organisation to confront threats or opportunities. Such long-term strategic planning should take into account the impact of the tightened, or at least reshaped, financial conditions on the entire value chain your organisation may be involved in. BASEL III UPDATE At the time of going to press, the Basel Committe stated that their tougher new bank capital and liquidity rules will have only “a modest impact” on economic output. The committee confirmed that if the Basel III requirements are phased in over a period of eight years, as planned, this would lead to a maximum decline in gross domestic product of 0.22 percent. Basel III will be introduced from 2013 and take effect from 2019.

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IRELAND

& EUROPE's fragile house of cards Just when you thought things could not get worse for the eurozone – they did. Karim Nakhle offers his sharp analysis, tackling head-on the key economic issues of Ireland, and its consequential knock-on effect.

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(Getty/Gallo Images)

ore sad news in from the eurozone hospital: After a sudden worsening in her condition, the Irish Patient, formerly known as the Irish Republic, has been moved into intensive care and put on artificial ventilation. While the hospital spokesmen of the International Monetary Fund (IMF) and European Central Bank (ECB) tried to sound upbeat, they had to absorb the pressure and declare to the patient’s family that there is no prospect of recovery anytime soon. As Greece’s bankruptcy emerged as a major news story in 2010, the Irish Republic, its politicians, and policymakers worked quietly in the background to avoid a bankruptcy of their own. Yet Irish economists knew that the country ceased to exist as an autonomous fiscal entity, and was probably next in line to become a ward of the ECB. When they revealed and argued that the Irish bank guarantee would lead to national insolvency, they never expected the financial collapse to be anywhere near as swift or as deep as has occurred. Nobody could have predicted that the markets would put Irish sovereign debt into the same risk group as the Ukraine and Pakistan, two notches above the junk level of Argentina, Greece and Venezuela.


ECONOMIC BAROMETER

The Celtic Tiger years The term ‘Celtic Tiger’ referred to the country during its boom years, 1995 to 2007. The term was first used in a 1994 Morgan Stanley report, and referred to Ireland’s similarity to the East Asian Tigers – South Korea, Singapore, Hong Kong, and Taiwan – during their periods of rapid growth in the late 1980s and early 1990s. The Celtic Tiger period has also been called ‘The Boom’ or ‘Ireland’s Economic Miracle’ – nowadays, it is more referred to as ‘The Doom’ or ‘Ireland’s Miraculous Bailout’. During its Celtic Tiger time, Ireland experienced a boom transforming it from one of Europe’s poorer countries into one of its wealthiest. The causes of Ireland’s growth are the subject of some debate, but credit has been primarily given to state-driven economic development – social partnership between employers, government and unions, increased participation in the labour force of women, decades of investment in domestic higher education, targeting of foreign direct investment, a low corporation tax rate, an English-speaking workforce, and crucial European Union (EU) membership, which provided transfer payments and export access to the single market. The property bubble bursts The return of the boom in 2004 is claimed to be primarily the result of the large construction sector catching up with the demand caused by the first boom. The construction sector represented nearly 12 percent of gross domestic product (GDP) and a large proportion of employment among young, unskilled men. That same year saw the construction of 80,000 new homes, compared to the United Kingdom’s (UK) 160,000, a nation that has 15 times Ireland’s population. It is estimated that home completions in 2006 may have reached 90,000. This led to an expansion of credit and a surge in the property market that included a property bubble that petered out in 2007. Government finances began to show signs

of trouble in mid-2008. Government deficits increased, many businesses closed, immigrant workers left, and unemployment increased. Irish banks, already over-exposed to the Irish property market, came under severe pressure in September 2008 at the peak of the global financial crisis, and in January 2009, economists predicted that house prices would fall by 80 percent from peak to trough in real terms by 2010 to 2011. Anglo Irish Bank was particularly exposed to the Irish property bubble. A hidden loans controversy in December 2008 led to a further drop in its share price. The Irish Stock Exchange Quotient (ISEQ) index dropped to a 14-year low on September 14 2009, probably triggered by the unexpected resignation of former Anglo Irish Bank director, Anne Heraty, from the board of the Irish Stock Exchange the night before.

estimate that the number may be closer to 120,000 in 2010. At first, most of those leaving were immigrants returning home to Central Europe. But in time, the Irish themselves started leaving the country. September 2010 marked Ireland’s point of no return in the banking crisis. During that month, EUR55 billion (QR264 billion) of bank bonds (held mainly by UK, German, and French banks) matured and were repaid, mostly by borrowing from the ECB. The number of people signing up for unemployment benefits dropped about three percent in October 2010, prompting the government to announce this as a sign of an improving economy. But opposition parties quickly disputed that claim, attributing this change to the increased rate of emigration.

The entire bailout mechanism forged by the EU leaves too many questions unanswered and will keep financial markets jittery. Ireland entered into an economic depression in 2009. The Economic and Social Research Institute predicted an economic contraction of 14 percent by 2010. In the first quarter of 2009, GDP was down 8.5 percent from the same quarter the previous year, and gross national product (GNP) was down 12 percent. Unemployment was up 8.75 percent to 11.4 percent. The economy exited recession in the third quarter of 2009, with GDP growing by 0.3 percent in the quarter, but GNP continued to contract by 1.4 percent. Ireland officially left recession in the first quarter of 2010. According to some sources, approximately 65,000 people left Ireland in 2009, and some

For a country or company, insolvency is the equivalent of death, and is usually swiftly followed by the legal process of bankruptcy, the equivalent of a funeral. Two things have delayed Ireland’s funeral. First, in anticipation of being booted out of bond markets, the government built up a large pile of cash a few months ago, so that it can keep going until the first quarter of 2011 before it runs out of money. Secondly, not wanting another Greek-style mess, the ECB intervened to fund the Irish banks. On the evening of November 21, 2010, Ireland formally requested financial support from the EU’s European Financial Stability Facility (EFSF) and the IMF, a request that TheEDGE

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ECONOMIC BAROMETER

QATAR – A friend in need?

was welcomed by the ECB and EU finance ministers. The request was approved – a EUR85 billion (QR409 billion) rescue deal, of which EUR22.5 billion (QR108 billion) will come from the European Financial Stability Mechanism, EUR22.5 billion (QR108 billion) from the IMF, EUR22.5 billion (QR108 billion) from the EFSF, and bilateral loans from the UK, Denmark and Sweden. The remaining EUR17.5 billion (QR84 billion) will come from a state contribution from the National Pension Reserve Fund (NPRF) and other domestic cash resources. Eurogroup president, Jean-Claude Juncker, said that the deal includes EUR10 billion (QR48 billion) for bank recapitalisation, EUR25 billion (QR120 billion) for banking contingencies, and EUR50 billion (QR240 billion) for financing the budget. The goal of the aid is to return the nation’s economy to sustainable growth, restore the health of its banking system, and to save the euro. The four-year austerity plan achieves savings through welfare cuts worth EUR10 billion (QR48 billion) and higher taxes, expected to bring in EUR5 billion (QR24 billion). Ireland has just unveiled a tough new budget, changing the income tax system, raising taxes on gasoline and diesel fuel, and reducing benefits for parents. Dublin is cutting EUR6 billion (QR28 billion) from its budget as it tries to claw its way out of massive debt.

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Impact on the Eurozone The entire eurozone crisis of 2010 has triggered a wider debate about the wisdom of adopting a single currency, given that the EU’s member states’ economies are so divergent in the cycles they follow and the fact that their fiscal policies are not harmonised. For example, in the 1990s, Germany pushed the ECB to adopt lower interest rates, which may have helped the German economy, but also contributed to a lending and property boom and bust in peripheral EU economies like Greece, Ireland, Portugal and Spain. The Ireland crisis followed a similar pattern to that of the Greek crisis. For weeks, Ireland’s ministers vowed that the country could go it alone and fix its own financial woes without EU aid, hoping that the Irish economy could muddle through until sentiment in financial markets improved. But, as with Greece, investors did not believe them. Just as the Greek bailout failed to stem the euro crisis, the Irish bailout will fail as well. The Irish rescue will probably not end the chaotic instability of the eurozone, nor will investor confidence be restored in its future. Simply put, the entire bailout mechanism forged by the EU leaves too many questions unanswered, and will keep financial markets jittery. There are fears that the Irish economic chaos will spill over into other countries, creating a domino effect of faltering economies. This does not bode well for the fate of the eurozone’s other weak members, especially Portugal and Spain, whose bonds have also been punished recently. Portugal accounts for less than two percent of the eurozone’s total economy, but a potential bailout for Lisbon would add to the pressure on Spain, the EU’s fourth-largest economy, and possibly entail dramatic repercussions for the entire bloc.

An Irish delegation, including officials from Ireland’s Industrial Development Agency, and led by former prime minister, John Bruton, travelled to the Middle East in late 2010 to gauge the interest of Arab investors, including sovereign wealth funds, in buying troubled Irish banks. The delegation visited Saudi Arabia, the United Arab Emirates, Bahrain and Qatar. Bruton, the current head of the International Financial Services Centre in Ireland (which seeks to attract financial companies to move to Ireland) said he is not representing the Irish government in any official capacity, adding: “We are not here to facilitate the sale of any assets or start any negotiations, that is the government’s decision and role, but obviously discussions have taken place about the Irish economy generally. The central bank has clearly said asset sales are being studied.” Groups from two other debt-scarred European nations, Greece and Spain, have already made similar entreaties in the Gulf states. In September, Greece and Qatar signed a preliminary agreement under which Qatar will invest in Greek energy and banking sectors.

Spain’s finance minister has already publicly stated that Spain is not Ireland. This foreshadows the possibility that events with Portugal and Spain could follow the same course we have already seen with Greece and Ireland – a combination of denial, delay and investor doubt that causes a self-fulfilling deterioration in financial markets. The latest nation to be sucked into the crisis is Belgium, after market traders pushed the cost of insuring the country’s debt to record levels. The rising cost of Belgium’s debt is now 100 percent of annual national income, raising concerns that the country could join Portugal, Spain and Italy on the growing list of countries that could be heading for a financial crisis in 2011. Economists are not in a position to predict the unwinding of the EU as of yet. Without a crystal ball, only time will tell what will be the bailouts’ outcome.


IN THE SPOTLIGHT

WikiLeaks: moral guardian or morally misguided? As the diplomatic world reels in the wake of the latest WikiLeaks revelations, global markets have to be wondering: Who will the whistleblowers strike next? Mark van Dijk takes a closer look.

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amera flashes popped and clicked as journalists crowded into the cramped room at the Geneva Press Club. Here, seated behind a makeshift table and flanked by stony-faced lawyers and advisors, the Australian with the boyish looks and the neat business suit spoke, slowly and clearly. At the conclusion of the media conference, Julian Assange walked out of the building, casually slipped on a pair of aviator sunglasses, and drove away – not to be seen in public for another two weeks. WikiLeaks, the online whistleblower’s website of which Assange has become the public spokesperson, had just brought to light the first of 251,287 United States (US) State Department cables. Although barely a thousand were published, the vast majority were vetted, redacted and published by one of five respected European newspapers: Britain’s Times and Guardian, France’s Le Monde, Spain’s El País, and Germany’s Der Spiegel. Although WikiLeaks was launched in 2006, it only appeared on the public radar in 2010 – first in July, when it leaked a batch of classified Pentagon documents concerning the war in Afghanistan; then in October, with


IN THE SPOTLIGHT

400,000 documents relating to the war in Iraq; and finally, around that media conference in November, those diplomatic cables. At his next public appearance, at England’s City of Westminster Magistrate’s Court in early December, Assange cast a far less confident figure. Gone was his shock of long, white-blonde locks. Instead, the 39-year-old Australian wore close-cropped hair and a few days’ growth of stubble. His role as the public face of the WikiLeaks Foundation were clearly weighing heavily on him. It was a role Assange did not always want. “I originally tried hard for the organisation to have no face, because I wanted egos to play no part in our activities,” he told the Guardian before handing himself in to British authorities. “In the end, someone must be responsible to the public and only a leadership that is willing to be publicly courageous can genuinely suggest that sources take risks for the greater good. In that process, I have become the lightning rod”. And while Assange was taken into police custody, the WikiLeaks website was taken offline. Under mounting political pressure, Amazon.com abruptly stopped hosting WikiLeaks on its servers, saying – lamely – that the site had broken its terms and conditions. Visa, MasterCard and PayPal followed suit, barring users from making donations to WikiLeaks. This sparked an immediate – and angry – string of retaliatory attacks. A loosely affiliated group of hackers (or ‘hacktivists’) working under the collective name ‘Anonymous’ claimed “payback” by crashing the websites of Amazon, MasterCard, Visa, PayPal and the Swedish government. And while this cyberwar raged, political pressure mounted. Writing on her Facebook page, former US Vice-Presidential candidate Sarah Palin branded Assange “an antiAmerican operative with blood on his hands”. “His past posting of classified documents revealed the identity of more than 100 Afghan sources to the Taliban,” she wrote. “Why was he not pursued with the same urgency we pursue Al Qaeda and Taliban leaders?” While Palin’s outburst was an obvious political play (she admits still has eyes on

the American presidency), her parallels between WikiLeaks and al-Qaeda had more than a ring of truth to them...but not, perhaps, in the way she intended. Both organisations are looselystructured networks of highly-motivated operatives – and both would continue to exist with or without their figurehead leaders. ‘Anonymous’ is much the same: “Anonymous doesn’t exist,” spokesman Gregg Housh told America’s Christian Science Monitor. “If someone says they are Anonymous, they are. That means there is no centralised group. As a very ethereal, kind of amorphous, fluid thing, it exists. But in reality there is no one ‘Anonymous’ that you can be a part of.” Even with Assange under arrest, WikiLeaks continued to function – hopping from one temporary server to the next. While hoping to cut off the head and the body dies, the governments and forces opposed to WikiLeaks found it was more like the Lernaean Hydra of Greek mythology: cut off one head, and another nine grow back in its place. Diplomatic gossip? By its very nature, WikiLeaks cannot be a one-man show. The site is run by hundreds of volunteers and was founded by Chinese dissidents, journalists, mathematicians and startup company technologists, from the US, Taiwan, Europe, Australia and South Africa. To kill WikiLeaks (or even copycat sites like OpenLeaks), you would have to fight a smoke monster with no tangible form, no set location and no fixed identity. It would be impossible. Yet a cursory glance at November’s batch of leaked US diplomatic cables quickly shows why so many international governments would love for that to happen. The secrets revealed range from amusing to embarrassing to potentially damaging. One cable paints the comical scene of French president, Nicolas Sarkozy chasing his son’s escaped pet rabbit around the room during a meeting with the US ambassador. Others quote various US diplomats describing Afghan president, Hamid Karzai, as “an extremely weak man who did not listen to facts”, Italian prime minister, Silvio Berlusconi, as “feckless, vain and ineffective”, and former Australian prime minister, Kevin Rudd, as a “mistake-prone control freak”.

WikiLeaks’ Julian Assange leaves London’s High Court in December, 2010, after being granted bail. The court rejected an appeal against him being released even under stringent conditions. Assange was arrested on behalf of the Swedish authorities over allegations he sexually assaulted two women in Sweden. (Getty/Gallo Images)

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IN THE SPOTLIGHT

US secretary of state, Hillary Clinton, called the WikiLeaks controversy an attack not just on the US, but the international community. According to the site, Clinton ordered US diplomats, the Central Intelligence Agency and the Federal Bureau of Investigation to spy on top United Nations officials. (Getty/Gallo Images)

Yet others reveal King Abdullah of the Kingdom of Saudi Arabia urging the US to attack Iran, and King Hamad of Bahrain asking US diplomats to terminate Iran’s nuclear programme “by whatever means necessary”. At worst, these cables could serve to deepen tensions in global hotspots like North Korea and Iran. At best, they could cause some awkward encounters in the hallways of the United Nations (UN) building (where, incidentally, US secretary of state, Hillary Clinton, ordered diplomats to collect DNA samples, fingerprints and credit card details of key UN officials). The impact on the Gulf, and on Qatar in particular, has – so far – been negligible. One leaked cable has US ambassador to Qatar, Joseph LeBaron, suggesting to Washington that Al Jazeera could be used “as a bargaining tool to repair relationships with other countries, particularly those soured by Al

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Jazeera’s broadcasts, including the United States”, while in another, he alleges that the Doha-based news channel “has proved itself a useful tool for the station’s political masters”. Another leaked cable has Meir Dagan, chief of the Israeli spy agency, Mossad, telling US counter-terrorism officials that he believes Qatar poses “a real problem” to USIsraeli interests in the region. Interesting? Maybe. Scandalous? Hardly. The only effect these revelations seem likely to have on Qatari politics is polite silences during future meetings between US representatives and their Qatari counterparts. The same holds true for the rest of the Gulf. As former Saudi intelligence chief, Prince Turki Al Faisal said in the aftermath of the November leaks, “These are leaks, not official statements. They don’t affect decision making or policymaking or strategic thinking in the area.”

“It is only when everything is revealed that we can see the whole picture,” added Bahrain’s foreign minister, Sheikh Khaled bin Ahmed Al Khalifa. “Is there an impact on national security of citizens? No, never. Is there going to be an impact on policies? I don’t see much of an impact on policies.” The focus, then, remains on politics, policies and diplomacy. But while global markets enjoy a relative calm, a potentially cataclysmic economic storm is brewing as WikiLeaks turns its sights on its next target: the already-unstable global banking industry. WikiLeaks vs the banking sector In late 2009 – a full year before WikiLeaks opened that Pandora’s box of US diplomatic cables – Assange dropped an early bombshell at the Hack In The Box security conference in Kuala Lumpur, Malaysia.


“At the moment we are sitting on five gigabytes [roughly 600,000 pages of information] from Bank of America, one of the executive’s hard drives,” he said. WikiLeaks’ only problem with those files was deciding how best to present them. “We could just dump it all into one giant Zip file,” mused Assange, “but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it.” A year later, amid the controversy surrounding ‘Cablegate’ and his own subsequent arrest, Assange hinted at the contents of the Bank of America files during an interview with US business magazine, Forbes. “You could call it the ecosystem of corruption,” he said. “There will be some flagrant violations, unethical practices that will be revealed. The data dump will lay bare the finance firm’s secrets on the web for every customer, every competitor, every regulator to examine and pass judgment on.” Bank of America responded with skepticism: “More than a year ago WikiLeaks claimed to have the computer hard drive of a Bank of America executive. Aside from the claims themselves we have no evidence that supports this assertion.” The bank may as well have poked a sleeping dragon with a toothpick. In early December, with rumours circulating that WikiLeaks were preparing to release the files, Bank of America’s share price plummeted 3.18 percent in a single morning. And it is about to get much, much worse. Forbes went on to claim that WikiLeaks is also in possession of unpublished documents from several other financial firms. Assange, in a display of understatement that will bring little comfort to the world’s hang-wringing bankers, told Forbes that the anticipated “megaleak” of financial industry secrets “could take down a bank or two”. And on Assange’s arrest, his British lawyer Mark Stephens claimed that WikiLeaks was holding further secret material (which he called a “thermo-nuclear device”), which would be released if the organisation ever needed to protect itself. He added, ominously, that: “We are on cable 301. There are 250,000 secret cables.”

“At the moment we are sitting on [roughly 600,000 pages of information] from Bank of America, one of the executive’s hard drives.” – Julian Assange Moral guardian? Unlike its virtual army of ‘hacktivist’ supporters, WikiLeaks is not – at least, if you believe the people behind organisation – interested in random acts of anarchy. It is, instead, a self-styled and self-proclaimed global moral watchdog. “WikiLeaks means it’s easier to run a good business and harder to run a bad business, and all CEOs should be encouraged by this,” Assange told Forbes. “Let’s say you want to run a good company. It’s nice to have an ethical workplace...It just means that it’s easier for honest CEOs to run an honest business, if the dishonest businesses are more affected negatively by leaks than honest businesses. That’s the whole idea. In the struggle between open and honest companies and dishonest and closed companies, we’re creating a tremendous reputational tax on the unethical companies.” “I grew up in a Queensland country town where people spoke their minds bluntly,” Assange later wrote in an article for The Australian newspaper. “They distrusted big government as something that could be corrupted if not watched carefully. These things have stayed with me. WikiLeaks was created around these core values. The idea, conceived in Australia, was to use internet technologies in new ways to report the truth.” WikiLeaks’ intentions, then, appear to be inherently good even if the consequences

of its collective actions are damaging to governments, businesses and economies. Its mission statement declares: “WikiLeaks is a non-profit media organisation dedicated to bringing important news and information to the public. We provide an innovative, secure and anonymous way for independent sources around the world to leak information to our journalists. We publish material of ethical, political and historical significance while keeping the identity of our sources anonymous, thus providing a universal way for the revealing of suppressed and censored injustices.” Look past the posturing: WikiLeaks may sound like moral guardians, but Assange, especially, is now looking increasingly like a man with a hidden agenda. And look past the attacks. The criminal charges against Assange (filed in Sweden against an Australian and pressed in Great Britain under threats of extradition to the US) are an obvious attempt to silence WikiLeaks. The secret to understanding the real story behind the WikiLeaks drama lies in asking the right question. And the question is not: What has WikiLeaks revealed? Rather, it is: What else might they still reveal? Because what we have seen so far is really just the beginning. And depending on where your interests lie, WikiLeaks is either sitting on a goldmine or on a potentially fatal timebomb. TheEDGE

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COVER STORY

Game On

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COVER STORY

Electronics brands and retailers experience massive surges in television sales during FIFA World Cups, proving the value of television broadcast rights for the largest sporting event in the world.

Sport is not just about competition and having fun anymore. These days it involves serious money. Billions of dollars are invested every year into sports marketing, sponsorship, television rights and player development and the associated industries churn out huge profits. Qatar, with the announcement of the 2022 World Cup hosting rights, is now finding itself poised to develop a stake in the global business of sport. Rachel Morris examines this fast-growing sector and how Qatar is set to benefit from it well into the next decade. When His Highness Sheikh Hamad bin Khalifah al Thani, Emir of Qatar, held the World Cup trophy on the stage in Switzerland last month, agents, managers, company executives and others heard the clear ka-ching of cash registers ringing and the click of calculator keys across the globe. It is well established that not many outside of Qatar, besides a few in the know, rated the chances of their 2022 bid. The country’s success is as much a victory for public relations, with a marketing budget of allegedly US$160 million (QR 583 million), as it is for

the vision of a Middle Eastern tournament. But, within hours, not only did everyone know where Qatar was (if not how to pronounce it), but also how resourceful it was. Indeed, Sepp Blatter’s announcement that Qatar would play host to the biggest sporting event in the world, signalled that Qatar is now open for business…the business of sport that is. Sport branding, franchising, sponsorship, marketing and endorsements and events have become a huge global industry, creating their own ‘ecosystem’ and a self-sustaining business cycle, and nowhere will this become

Spanish football club Barcelona FC, also known as Barca, is one of the most recognisable sporting brands in the world, and recently broke its 111-year embargo on kit advertising logos for the Qatar Foundation. (Getty/Gallo Images)

more apparent than in Qatar and the Middle East in the lead up to 2022. Companies across the Gulf Cooperation Council (GCC) and the world are rushing to cash in on Qatar’s newfound celebrity status. You only have to consider the US$200 million (QR 583 million) deal struck in December between the Qatar Foundation (QF) and Barcelona in late 2010. The Spanish multiple champions ended their 111-year selfimposed ban on commercial shirt advertising (they have been carrying the humanitarian organisation UNICEF’s logo on their jerseys free of charge since 2006), when they signed a five-year deal with QF for shirt sponsorship. And there will surely be more to come in the coming years. TheEDGE

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COVER STORY

The annual American National Football League Super Bowl attracts millions of dollars in advertising and, at US$420 million (QR1.5 billion), is the most valuable sporting event in the world (source: Forbes). (Getty/Gallo Images)

BIG BUSINESS Sport has evidently become a global business in the past few decades, but in fact it has always been so. International sporting events for genteel cricket and tennis date back to the 19th century, and the commercial exploitation of sport is even older than that. At the ancient Olympics local merchants and traders often supported favoured local athletes competing in the games in Athens with money and other benefits. In the 1930s, French tennis legend Rene Lacoste made a mint from his universally loved ‘crocodile’ logo t-shirts. In the 70s Bjorn Borg endorsed FILA sports gear and arguably helped grow the brand globally while at the same time earning a fortune for himself and the company. Event-wise, in the 1980s an Australian billionaire businessman set up a rival cricket league to the traditional five-day game, and the institution of one-day cricket, with its colourful outfits and flamboyant personalities earning big bucks, was born. The 1990s and beyond saw the explosion of sporting millionaire superstars – basketballers, footballers, golfers, tennis players and others – endorsing products from razors and sodas, to sports cars and even real estate

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developments, such as David Beckham’s association with Dubai’s Palm island. “Sport is a business driven by the same business rationale as any other corporate activity,” Seamus O’Brien, founder and chairman of World Sport Group, a sports marketing and event management company (that notably owns the rights to the Indian Twenty20 cricket one-day competitions) said in the Financial Times newspaper. However, commercialisation is nothing new in sport. What is new are the levels thereof and its spread to potential-laden emerging markets such as China and now, Qatar. Case in point, Beijing’s Olympics were spectacularly successful not just on the field for China, but also in the entrée of many international brands into one of the last remaining large-scale world markets. China spent close to US$40 billion (QR145 billion) to make the Beijing Olympics an event without parallel. In addition, it spent billions building city and tourist infrastructure and a significant amount on public relations. In a report on the effects of the 2008 Olympics in Beijing, The Economist reported many global companies saw the event as a prime opportunity. “Coca-Cola’s highly

successful marketing push during the Olympics also included elements that might have been viewed more cynically elsewhere. The world’s largest beverage company hosted a national contest for folk artists to decorate giant Coke bottles in ways that reflected their local culture, for example. But Coke also assembled a ‘dream team’ of China’s star athletes — Yao Ming, Liu Xiang and Guo Jing Jing —to take part in its promotions,” The Economist said in a 2009 report. Numerous studies confirm that football is the number one sport in the Middle East and that the region has massive untapped football development potential. Qatar 2022 will deliver a commercially successful FIFA World Cup and act as the catalyst to help drive the growth of football across the Middle East and beyond. A report commissioned by the Qatar 2022 bid team, researched by consultants Grant Thornton, estimates that hosting the World Cup in Qatar will increase football related revenues across the GCC by a whopping US$14 billion (QR51 billion). That is an increase of 52 percent over the next 12 years alone. ON THE BOX The modern sports business model is largely based on the idea that people are willing to pay to watch the best in the world compete. Television expands that potential audience globally, from tens of thousands inside the stadium to billions outside. For broadcasters this means more subscribers and advertising revenue. For sponsors, it means exposure. For businesses, it means turnover. And for the athlete it means huge earnings. In fact, without television, sport would not be the big business it is today. According to a Grant Thornton report commissioned for 2022, the most profitable opportunities for income generation will come from broadcast rights. The report says given the central location of Qatar between east and west and proximity to the northern hemisphere’s lucrative television time zones, the potential match day peak audience will be 3.2 billion viewers. As a result, football pay TV rights across the region are expected to rise by 30 percent to a conservative estimate of US$550 million (QR2 billion) by 2022.


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Indeed, television rights everywhere are a boon for hosting nations and cities, as well as associated organisations and companies. The 2010 Champions Cup rights in the United Kingdom are worth EUR179 million (QR857 million) alone. In the United States, each year top brands pay millions of dollars to have 30-second advertisements screened during football’s Super Bowl, and organisations such as the International Olympic Committee (IOC) have become increasingly dependent on income derived from American television. The rights to the Beijing Olympics garnered more than US$2.5 billion (QR9 billion). STAR POWER Television also makes and breaks sports stars. Football and motorsport are the two most obvious contenders for the titles of ‘Kings of Sport’ with sponsorship, marketing and endorsements generating billions of dollars. The endorsement industry has also allowed others to make small fortunes, from event management companies and advertising agencies, to sponsorship specialists and agents and managers. Sportsmen and women can also become their own superstar brands, known only by their first or last names – Beckham, Kaka, McEnroe, Venus, Tiger – or internationally recognisable team monikers by such as ‘Barca’ (Barcelona, football), the ‘All Blacks’ (New Zealand, rugby) or the ‘Knicks’ (New York Knickerbockers, basketball). People and teams need to be managed. Indeed, their agents and managers are in a sense the driving force of the business, bringing together the talent, the money and the exposure into a perfectly marketable blend. THE FAN BASE Television attendance aside, the most devoted fans are the ones who attend matches. Venue turnstiles are another key aspect to the business of sports, many through expensive season tickets. It is also the fans who drive many associated aspects in cycle of sports business, from ticket sales through to whopping merchandising sales. Rugby union also scores high on the list of money-spinners. With the rugby union

World Cup due to be played in 2011 in New Zealand, the financially beleaguered island nation is expecting a ball-related boom. It is expected to pump more than NZD$500 million (QR1.3 billion) into the economy and attract more than 60,000 visitors. Internationally, smart brands and sports organisations have targeted fans as an essential part of the marketing and money puzzle. For example, long-time sponsor of

As a ‘brand’ David Beckham, otherwise known just as ‘Becks’, is one of the most famous – and richest – sportsmen of the modern sports business era, and with endorsement earnings of $US44 million (QR160 million), was the fifth highest earning international athlete in 2010.

Megastore: As one of the most popular football teams on earth, Manchester United’s product merchandising arm, based at their hometown’s megastore, turns over considerable profit for the team in red. As a team brand, the New Zealand rugby union team, the All Blacks, pictured here performing their formidable trademark ‘haka’, are arguably the most well known in their sport. New Zealand hosts the 2011 Rugby World Cup and stands to turn over more than NZD$500 million (QR1.3 billion) from the event. (All images Getty/Gallo Images)

US mobile brand T-Mobile has increased market share due to their association with the NBA, which has included an innovative marketing campaign aimed at 15- to 30-year-olds on Facebook.

the US NBA basketball league, T-Mobile, has aggressively targeted male fans aged 15 to 30 years through social media campaigns. Fans also drive merchandise sales, which top more than US$4 billion (QR14 billion) worldwide in revenue yearly. Manchester United and Liverpool, for example, sell more official replica football shirts, for Nike and Adidas respectively, than any other teams in the English Premier League and are amongst the highest sellers in the world. The Middle East has struggled with this aspect for some time with the exception of football. Until recently, the big-ticket events in Doha attracted small crowds and TheEDGE

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Apart from being known as a sport where businessmen both relax and tie up megadeals on the links, golf events such as the Ryder Cup are among of the most watched on television, validating the sport’s multimillion sponsorships and huge fan base. (Getty/Gallo Images)

branded goods were not widely available, but with better marketing and acceptance, this is inexorably changing. EYES ON THE PRIZE However, when it comes to endorsements and sponsorships, not all are created equal and as the world enters the post-recession phase, companies and are being more prudent with their sponsorship dollars and expecting more bang for their buck. In the past, the selection of sports sponsorship by companies was a fairly random process, but with the growth of these sporting superbrands, with which companies love to be associated, this now far more scientific. “Gone were the days when an owner of a company sponsors a club because he loves watching them,” said Roy Roedger, chief executive officer (CEO) of Canada-based SDI Marketing, a leading firm specialising in the field. Speaking at the Aspire4Sport conference and exhibition held in Doha in November 2010. Roedger explained a strategic approach is crucial, and must involve research on what the sponsor is looking for, on the part of the athlete or club and determining their objectives and desired association.

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Golf, for example, is one of the most lucrative sports in the world with huge prize money, celebrity players and even its own TV channel. Arguably, no sport is as intertwined with business as golf. The four majors and the Ryder Cup are among the most watched on the planet. Television revenues for the main US Tour in 2009 are budgeted to reach nearly US$300 million (QR1.1 billion), and sponsorship from a slew of companies in the banking, automotive, information technology and financial services sectors are slated to contribute US$90 million (QR328 million), making up the bulk of the Tour’s total direct revenues of $465 million (QR1.7 billion). Meanwhile, across the Middle East, golf development is taking off with 20 courses planned in Dubai; and Abu Dhabi and Qatar have tournaments on the European Tour. QATAR’S 2022 LEGACY The Barcelona FC deal is not the first time Qatar has been involved in the world of sport sponsorship. The country sponsors the prestigious Prix de l’Arc de Triomphe horse race in Paris, and this has been extended to 2022. Established as one of the great institutions of the sporting and

cultural calendar, the Qatar Prix de l’Arc de Triomphe is an annual event, welcoming 70,000 spectators to Longchamp during the first weekend of every October. The challenge for Qatar and companies associated with the World Cup 2022, is to turn this newfound global sporting interest into real and tangible benefits – both financially and branding-wise. Corporate hospitality and sports specialist, René Proske, who also attended the Aspire4Sport conference, said the issue for the country will be about the legacy of the event. “Winning a bid for a major international sports event,” he said, “should not just be about building great venues. The challenge is to make sure that a successful bid is a catalyst for lasting momentum of real change. “Middle Eastern states are using sport as one of many ways to diversify from oil…but they have to consider how to use their vast economic resources.” What does Qatar 2022 mean for the region and for the fledgling sporting business industry in Doha? What can it learn from other host nations? South Africa’s experience is still uncertain. Hosting the World Cup 2010 definitely brought financial benefits to the country, from investment to tourism. A report by UBS Investment Research in


COVER STORY

Qatar’s successful sponsorship of the The Qatar Prix Du Cadran at the prestigious Prix de l’Arc de Triomphe horse race in Paris, which attracts more than 70,000 spectators, has been extended to 2022. Pictured here is 2010 winner, Frenchman Gerald Mosse, on ‘Gentoo’.

February 2010 estimated that preparation for the World Cup – which started four years ago – has added between 0.5 percent and 2.2 percent to South Africa’s gross domestic product (GDP) and overall had created more than 300,000 jobs since 2006 – a 2.7 percent contribution to employment figures. UBS research also indicated that the three previous World Cup hosting-countries (France, Japan/South Korea and Germany) saw their GDP grow by 1.8 percent on average during the year of the tournament – although determining how much of the growth was associated with the tournament itself has been difficult to ascertain. The interesting World Cups from a business perspective will be Brazil in 2014 and Russia in 2018 – both emerging nations and both with fervent sport-loving populations. Rich in oil and gas, Qatar doesn’t need sporting-based revenue to shore up its economy, but it does need to establish legitimacy and faith its ability to deliver a world-class tournament. AN INVESTMENT IN THE FUTURE The Grant Thomas study for Qatar 2022 revealed some interesting future development options for Qatar, the region and beyond. A FIFA World Cup in Qatar will help increase

football match attendances across the region in 2022 by 13.4 percent – an additional 4.2 million spectators (this excludes World Cup attendance). If the region reaches penetration levels similar to more mature markets, 140 million additional football players across all levels will emerge. Qatar’s hosting of the beautiful game’s tournament could see 1.1 billion people on the Indian subcontinent – just short flight from Doha – playing the sport by 2022. Hassan Al Thawadi, CEO of Qatar 2022, said in November that the report “helps to quantify the significant commercial and football development opportunities for FIFA and football…this report adds to our belief that a FIFA World Cup in the Middle East in 2022 would not only make history but also open up a significant and exciting new football frontier for FIFA and its partners”. Whatever way you look at it, from now to 2022, it is certainly Game On.

Despite a loss of form in 2010 due personal problems over marital infidelities, that resulted in a loss of lucrative sponsorship deals from major brands, Tiger Woods remains the highest paid global athlete of 2010 with US$90 million (QR328 million) in earnings and endorsements. (Getty/Gallo Images)

MOST VALUABLE SPORTING EVENT BRANDS IN 2010

US$ 420 million (QR 1.5 billion): Super Bowl Brand (American Football) US$ 230 million (QR 838 million): Olympic Games (Summer) Brand US$ 120 million (QR 437 million): FIFA World Cup Brand US$ 110 million (QR 401 million): UEFA European Football Championship Brand US$ 106 million (QR 386 million): Major League Baseball World Series Brand (US) US$ 100 million (QR 384 million): Daytona 500 Brand (US) US$ 93 million (QR 339 million): Olympic Games (Winter) Brand US$ 90 million (QR 328 million): NCAA Men’s Final Four Brand (US, basketball) US$ 75 million (QR 273 million): Major League Baseball All-Star Week Brand (US) US$ 67 million (QR 244 million): Kentucky Derby Brand (US, horse racing) Source: Forbes

THE HIGHEST EARNING ATHLETES

He may have had a bad personal year and lost a number of major endorsements due to his extramarital affairs, but Tiger Woods still rakes it in. In 2010 he earned more than US$90 million (QR328 million). The Forbes list of The World’s 50 Top-Earning Athletes puts boxer Floyd Mayweather at number two with earnings of US$65 million (QR237 million). Basketball player Kobe Bryant comes in at number three with US$48 million (QR175 million), while the $US46 million (QR168 million) that golfer Phil Mickelson earned puts him at number four, and soccer superstar David Beckham rounds out the top five with $US44 million (QR160 million). Athletes top up their base pay with huge sponsorship deals. Portuguese footballer Cristiano Ronaldo earns US$32 million (QR117 million) from Nike over four years, while British Formula One ace Lewis Hamilton’s deal with McLaren Mercedes banks him US$138 million (QR503 million) over five seasons.

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Is there a role for Qatar?

The energy industry gathered in Dubai last year for the region’s first carbon capture and storage conference. But is there a role for Qatar today within a sector that may not take off locally for many years? As Edward Jameson finds out, there most certainly is. And the timing could not be better.


ON THE PULSE

T

he war against global warming has, over the past decade, become one of the defining issues of this generation. Whether you choose to believe in anthropological (man-made) global warming or not is beside the point. In countries across the world – in particular those in the West – the fight to cut carbon emissions while maintaining economic growth has become one of the defining factors in policy formation. Believe in it or not, anthropological global warming, to all intents and purposes, exists, and looks to be here to stay. The drive to cut carbon emissions is a factor in the policy decisions taken by Middle East governments, evident in the adoption of green building standards in Qatar and the United Arab Emirates for example, although the push does not permeate through governmental agendas in the region to the same degree as it does in the West. In fact, some believe it has already gone too far. Global investment banking group, Matrix, published a research note on the clean technology sector last month, which referred to “excessive concern about global warming that was prevalent in 2005 to 2007 and a muchneeded move towards greater reality in energy policy circles” that it said had taken place since.

Yet Qataris should still sit up and take notice of developments within one area of global warming mitigation policy in particular: carbon capture and storage (CCS). The obstacles to CARBON CAPTURE AND STORAGE At the end of November 2010, the first CCS Middle East and North Africa (MENA) World Conference was held in Dubai. Initially, it may appear unlikely that the region would aim to assume a ‘hands-on’ role in an industry that is unlikely to be a direct feature of the domestic economy for a number of years – and there is a good reason for this. It is not possible to economically justify the creation, virtually from scratch, of a CCS industry in a developing country, the reason being that carbon pricing mechanisms – for example, the European Union’s (EU) emissions trading scheme – are not in place. Therefore emission reduction practices are not financially incentivised, and fuel consumption is rarely taxed. There exists a stark environmental incentive to adopt CCS technology in the Middle East, which falls within the climate change mitigation field.

Europe is home to Schwarze Pumpe, the world’s first CCS-equipped power plant. (Getty/Gallo Images)

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Global demand for gas, both for heating and power generation, is the lifeblood of the Qatari economy. It is the fuel that fires the government’s long-term economic diversification ambitions, and is the financial safety-net that supports every man, woman and child living on the peninsula. The need for government policy the world over to comply with the science behind global warming has seen a marked shift from coal- to gas-fired power generation, because gas is a considerably less carbon intensive fuel. Good news for Qatari exports so far. But, should CCS-equipped coal-fired power generation become a commercially viable option, the world’s major gas exporting states can expect a dramatic fall in gas demand. Coal is by far the most widespread and evenly distributed fossil fuel in the world. If the black stuff can be burnt without 90 percent of the carbon stored within being released into the atmosphere, there is nothing to prevent coal displacing gas as the power generation sector’s ‘fuel of choice’. The only option for gas exporting states is to ensure that their fuel can compete on an even playing field, and that means adapting CCS technology to fit to gas-fired power plants alongside coal-fired ones.

United Kingdom energy secretary, Chris Huhne, is hoping that a gas-fired CCS-equipped power plant will be built in the country. (Getty/Gallo Images)

“CCS is not yet a household term, but it is a technology that must be adopted all around the world to stand any chance of containing climate change,” explains Jeff Chapman, an advisor to the United Kingdom (UK) government on CCS and chief executive of the CCS Association. “In practice, CCS captures up to 90 percent of the carbon produced in electricity generation.” Yet from a strictly economic point of view, the creation of a CCS sector on an industrial scale is unlikely to become a factor in the regional economies of the Middle East until such time as a carbon pricing mechanism is introduced, something that is years away from being adopted, if ever. Export boon So why should the successful implementation of a technology that is unlikely to spawn an industry in the Middle East be so important to Qatar? The successful adoption of CCS technology at a commercial scale would be a boon for Qatar’s hydrocarbon export industry. And Doha should be focusing, in particular, on CCS equipped gas-fired power plants.

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Embracing gas The prospects for gas are looking good, albeit it at what is an early stage. The UK’s fledgling CCS sector is among the most advanced in the world, and energy secretary Chris Huhne recently committed the government to the development of gas-fired CCS alongside coal. “The government is reasserting its mission to lead the world on CCS, by opening our funding process to what could be one of the first ever commercial-scale CCS projects on a gas-fired plant in the world,” Huhne says. “We won’t be able to take the carbon out of all gas plants overnight, but we hope to support the process by investment in new technology now,” he continues. “In the long run carbon capture will help provide us with a secure and affordable energy system and we want to encourage companies with projects on both gas and coal-fired power stations to come forward.” The Asian market, including Japan, South Korea and China, is another vital stream of income for Qatar. Although less attentive to emission reduction policy drivers than the West, China has, in recent years, stepped up its efforts, driven by the increasing necessity to compete in what is on the way to becoming a globalised low-carbon economy. Reflecting the seriousness with which Beijing is approaching the industry, China is working in tandem with the EU on the awkwardlytitled Coach (Cooperation action within China-EU) programme. The scheme is a technology sharing platform, and aims to further the development of CCS across the EU and China, with research being carried out on both coal and gas. Europe is already home to Schwarze Pumpe, the world’s first CCS-equipped power plant.


ON THE PULSE

China is taking steps to clean up its act through development of CCS.

What is CCS? Carbon capture and storage – or, to give it its proper title, carbon capture and sequestration – is the advanced technological process of removing carbon from large point sources, and transporting it to suitable geological storage facilities, where it is kept long-term, denying it access to the wider atmosphere. CCS is a three-step process. 1. Capture: Power plants will use the post-combustion capture technique, where carbon is captured from flue gasses. The technology is in wide use, although on a smaller scale than will be required by gas-fired power plants. 2. Transport: Once captured, carbon will generally be transported via pipeline. Many countries have existing pipeline networks that previously transported natural gas, or carbon for enhanced oil recovery purposes, that could be adapted for CCS. Also, ships similar to existing liquefied natural gas tankers are viable options for crossborder transportation. 3. Storage: The tricky part, as it is still somewhat untested in technological terms. Obvious potential geological formations for long-term storage of carbon include depleted gas fields, which also tend to come with ready-made access to nearby pipeline networks, previously used to transport the nowdepleted gas.

Coal dominates the power generation mix in China at present, although a shift is underway. According to the US-based Energy Information Administration (EIA): “Covering the period 2011-2015, China anticipates the country increasing the share of natural gas and other cleaner technologies in the country’s energy mix and closing several smaller coal-fired plants that were less efficient and heavy polluters.” Should China develop the means to produce carbon-free electricity from gas-burning power plants, the smart money says that Japan and South Korea could follow suit. Provided that Asian research is applied to gas alongside coal, this vital revenue stream for Qatar should remain open for some time to come. Now is the time So what could Qatar do to benefit economically from CCS, in light of the fact that a regional industry is far from reality? The key lies in research funding. Education and research is one of the key facets of Qatar’s economic diversification programme, led by the Qatar Foundation’s Science and Technology Park. Indeed, the developmental path is set out in black and white in Qatar’s National Vision 2030, which says: “We are creating the infrastructure and systems to foster research and collaboration with global partners in four primary areas of benefit to Qatar: energy, environment, healthcare, information technology and telecommunications”. A small portion of Qatar’s sovereign wealth, correctly targeted, could do wonders for research institutions and specific projects the world over, particularly in countries that are tightening their purse strings. Far from going to waste, the cash could help to safeguard the financial certainty of the peninsula’s vital economic lifeline – its liquefied natural gas export industry. Such a scheme would also provide the nation with access to technology sharing platforms, positioning Qatar for a possible longterm future if a carbon pricing mechanism does ever become reality in the Middle East. The CCS train is far from leaving the station, but now is Qatar’s opportunity to climb aboard. TheEDGE

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Islamophobia

In the 10 years since the 9/11 attacks, politics and business have shaped the reaction of the Western world to Islam. From veil bans in France to assimilation issues in Germany, Adrian Murphy investigates whether antiIslam sentiment is indeed growing in the West, and how it affects the commercial interests of Gulf countries. (Getty/Gallo Images)


SPECIAL FEATURE

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t will be a decade this year since the September 11 (9/11) terrorist attacks ripped through the heart of the United States (US). The coordinated suicide attacks by Al Qaeda members killed more than 3000 people, as hijacked planes crashed into the Twin Towers of New York’s World Trade Center, the Pentagon in Virginia, and a field in rural Pennsylvania. Although top Muslim organisations in the US condemned the attacks, made monetary donations, launched blood drives and provided medical assistance, food and shelter for victims, there were nevertheless numerous incidents of harassment and hate crimes reported in the US against Muslims following the 9/11 attacks. The resulting US-led “War on Terror”, including the invasion of Afghanistan and Iraq, the enactment of the controversial USA Patriot Act, and further attacks, such as the suicide bombings on London’s public transport system on July 7, 2005, culminated in a growing anti-Islam sentiment in the West. In 2006, this sentiment was felt by United Arab Emirates-based holding company, DP World (DPW), which saw its bid to manage six major US ports blocked by Congress, with American political figures saying they did not want their ports to be under foreign control. They argued that the takeover would compromise US security, even though the contracts were already owned by British firm, Peninsular and Oriental Steam Navigation Company (P&O). “9/11 made life difficult for Arab businesses looking to operate in the US,” says Patrick Forbes, partner in Qatari consultancy firm, Forbes Associates. “The case of DP World’s attempted take over of P&O assets in the US was seen to be a security issue and the deal was seriously delayed by Congress. But things have changed since then and we are living in a more open world. “In addition to greater understanding of terrorist organisations and more effective national security

systems, we are seeing a much greater appetite for foreign investments, as the major acquisitions made in recent years by the Qatar Investment Authority (QIA) and other regional sovereign wealth funds show.” From 2005 to 2007, sovereign wealth funds in Dubai bought more than US$7 billion (QR25 billion) worth of properties and assets in the US and United Kingdom (UK), and Gulf sovereign wealth funds were seen as a much-needed injection into Western economies. The QIA followed suit in 2010 with its US$2.4 billion (QR8.7 billion) highprofile acquisition of flagship London department store, Harrods. “I think that the Qatari government has invested very wisely over the past couple of years, and in business circles, these investments have formed a picture of a shrewd and successful leadership,” says Forbes. “In the UK, the acquisitions of landmark properties such as Harrods and the US embassy [building] has raised the country’s profile considerably, and the response in the UK media shows that there is a lot of interest in Qatar at the moment. “Ideally this interest will lead more people to visit the country, which will begin the process of understanding and interaction.” Yet, 2010 was not without its controversy. In September, the French senate approved a law banning veils that cover the face, including the burqa, and in New York, during the 9/11 anniversary, angry protestors marched against Park 51, a 13-storey Muslim community centre proposed several blocks away from Ground Zero. James Zogby, president of the Arab American Institute in Washington DC, which has worked for the past three decades to foster good relations with Arabs, says, “We have been trying to shift the impact of the Park 51 debates and focus the attention of the media towards the people it affects, such as the

schoolchildren and the very fabric of society.” The protests, he believes were “purely political with the Republicans looking for a wedge issue to create a division between the parties. “Islamophobia in 2010 is getting the same reaction the gay marches did in 2004.” In Europe, strong anti-immigrant opinions have grown in the wake of high unemployment and economic woes. Even though the German economy is growing faster than that of its rivals, 55 percent of German respondents in a recent poll said they believe that Muslims are a burden on the economy, a sentiment that German chancellor, Angela Merkel, underlined when she announced that multiculturalism in her country had “utterly failed”. LIFE AFTER 9/11 Between 2001 and 2005, the relationship between Gulf states and the US seemed to stagnate, as the latter effectively locked its borders to the Middle East with the introduction of the USA Patriot Act, which increased surveillance and targeted travellers with Muslim names or features. The result was that thousands of Gulf students were denied access to US universities and colleges, new Gulf businesses looked away from the US and vacations there effectively ceased. The number of students from Saudi Arabia studying in the US plunged dramatically from 12,000 after the 9/11 attacks, only returning back to this figure in 2010. “At the time,” says Zogby, “I was speaking in Riyadh and the questions people were asking were about the visa issue. They were afraid to travel and face the humiliating checks. “The first big result of 9/11 was the Dubai Ports deal as it was a significant blow. This should have been successful for many reasons, not least the safety records and standards of border control. “In Saudi they were saying, ‘Well if this can happen to Dubai, what hope do we have?’ They then saw

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A Muslim woman wearing a headscarf walks past a Turkish grocery store in the immigrant-heavy district of Kreuzberg in Berlin, Germany. German politicians are debating govenment policies to encourage the integration of immigrants into German society, a debate that was most recently sparked by a controversial book by German Social Democrat, Thilo Sarrazin, in which he accuses Muslims of being more reluctant to integrate than other immigrant groups. (Getty/Gallo Images)

the BRIC (Brazil, Russia, India and China) countries as an alternative to the US, with entrepreneurs and emerging companies especially asking, ‘Why go to America and have all the headaches? Why not do business in China and not be subjected to Islamophobia?’” John Sfakianakis, chief economist for Banque Saudi Fransi, and former United National Development Program worker, says that this had a direct effect on the way businesses viewed America. “I would say 9/11 had a very different impact for the region than the current debate that’s happening in France. “9/11 was different because it meant people could not travel to US and opted not to go for some time after. Businessmen decided not to invest in the US, but they continued to do so in Europe and the Gulf. The anti-Islamic sentiments after 9/11 did not reflect well in Gulf society and it was a catalyst that changed people’s views, especially the private sector. “They were asking, ‘Is it safe to invest in the US?’ So there was a significant mindshift.” But, as Sfakianakis confirms, even the uproar caused by the controversial

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cartoons published by Danish newspaper, Jyllands-Posten, passed. “After the cartoons were published…there was a campaign for a period of time where goods from Denmark – such as butter – were taken off the shelves. But today, Danish goods are well marketed and bought in the Middle East, and people visit France regardless of the veil issues. “People have a tendency to forgive and forget and the majority have cooler heads, and their views end up prevailing so business and trade are maintained as is the case today.” Zogby confirms. “I think the effects of 9/11 are marginal, as the major US trade with the Arab world is with oil and aviation equipment. There was antiArab sentiment but businesses are so dependent on fossil fuels there was no significant impact.” Writer and academic David Roberts, who hosts the popular blog, thegulfblog. com, says, “Qatar has emerged mostly unscathed from any 9/11 knock-on effects. “In the case of the DP World deal, every politician wanted to be heard and the popular tune to take was, ‘We shouldn’t sell especially to Arabs next door to

Saudi’. But I think it was a bit of an outlier and in my opinion, not the norm. “On a more political level, it is also important to note that when John Kerry was in Doha a year or two ago, he pointedly said that Qatar cannot be friends with the US on Monday and send money to Hamas/Hezbollah on Tuesday.” However, Roberts also notes that as of November 2010, Qatar had the lowest rejection rate of visa applications for the US (3.2 percent) out of all the GCC countries with the United Arab Emirates the highest (9.7 percent). “Away from the hype and salacious stories, the fact is that Qataris are one of the few cash-rich investors at the moment who are constantly looking to expand their portfolio if the right opportunity presents itself…they simply cannot be ignored.” And ignored they will not be with the announcement in December that Qatar will be the host nation for the 2022 FIFA World Cup, the world’s largest sporting event. The implications of this – not just for Qatar but the whole region – will be massive on social, cultural, political and economic levels. And it will be just the tip of the iceberg.


SPECIAL FEATURE

People march in the American Muslim Day parade in New York City. The annual parade celebrates the presence and contributions of Muslims in the city and surrounding areas, and attracts hundreds of participants. (Getty/Gallo Images)

James Zogby, the head of the Arab American Institute, a Washington D.C.-based organisation which serves as a political and policy research arm of the Arab-American community. Zogby, who is US-born and of Lebanese descent, co-founded the Institute during the President Ronald Reagan administration in 1980, and is considered one of the leading voices of the ArabAmerican community. (Getty/Gallo Images)

IMPACTING UNDERSTANDING: THE DOHA DEBATES The Doha Debates was set up in 2004 and is televised eight times a year by BBC World News to foster dialogue about issues around the world from a Middle Eastern perspective. Says Patrick Forbes, partner at Forbes Associates, “The Doha Debates have done a huge amount over the past six years to help understanding of the Middle East among international audiences. Instead of listening to talking head elites speaking in two-minute clichés, people around the world have been able to hear directly from young Arabs and others who participate in the audience each month. “One of the biggest achievements, in my opinion, has been dispelling the myth that there is no diversity in the region and that you can talk of an ‘Arab street’. The Debates have provided the region with a platform to show off its intellectual, cultural, political and individual colours and have provided fantastic television in doing so.” ART FOR PROGRESS Emirati Sultan Saood Al Qassemi, founder of the Barjeel Art Foundation, which promotes Arab artists in the region and internationally, says cultural exchanges are the best way to progress and confront Islamophobia. “I have just spent three days in Bahrain at a security conference, listening to prime ministers and foreign ministers from the Middle East, and I can tell you the Gulf is a very confident region,” he says. “We feel that the time has come for us to contribute on a global scale. “For the past three to four decades, we have been building our infrastructure. We used to be consumers of culture – now we are among the creators and exporters, even on the civil level.” He continues, “We are exhibiting in New York, Paris and recently in the British Museum in partnership with Dubai Holding. Art humanises the individual rather than a statistic of terrorist attacks. Visual art, literature, and especially critical art emanating from the Middle East criticising labour practices, or economic practices from governments, is a force for change.”

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BUSINESS VIEW REAL ESTATE

While the 2022 World Cup tournament will only last for approximately one month, as the second largest sporting event in the world, it is bound to have a major impact on Qatar over a much longer term, both before and after the event. Mark Proudley investigates the potential impact and trends that the country can expect might develop in the real estate market as a result of Qatar’s successful World Cup bid.

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n recent history, the hosts of previous World Cup tournaments have been announced six years prior to the date of the actual event. FIFA’s decision to announce the hosts for 2018 and 2022 on the same evening has allowed Qatar an additional six years’ preparation time. It is therefore unlikely that the fundamentals of the real estate market – supply and demand – will be affected in Qatar in the short-term. However, while these fundamentals may remain unaltered. that does not mean that rentals and prices will not start to increase. In the short period since the announcement, there has been a tangible increase in optimism and business confidence. These sentiments were reflected on the Qatar Exchange, which rose to its highest level for two years on the first day of trading following the announcement. It is conceivable that landlords and real estate investors will take an equally bullish approach, holding out for higher rentals and prices, driving the market upwards based on speculation, otherwise known as the “announcement effect”. International experience suggests that the market might subside again in the short-term after an overreaction to the initial announcement, particularly when the 12-year time scale is fully considered. PROPERTY EXPANSION Over the medium- to long-term, a significant expansion in the real estate market across Qatar can be expected. There will be increased spending on infrastructure and investment in projects to


BUSINESS VIEW REAL ESTATE

facilitate the hosting of the tournament. That coupled with the unprecedented global media coverage for the region, will attract businesses and people to Qatar, driving population growth. In October 2010, prior to Qatar being announced as hosts of the World Cup, Qatar Statistics Authority (QSA) stated that it is estimated the population in Qatar would reach 2.5 million by 2020, which equates to a population increase of approximately four percent per annum over the next ten years. While no official estimations have been announced there are suggestions that population figures in Qatar could now reach four million people by 2020, equating to an increase of approximately nine percent per annum. Significant population growth will generate demand for real estate across all sectors. In conjunction with growing demand, the successful bid will act as a catalyst for further development. A number of projects that had slowed or been put on hold are expected to recommence in response to the anticipated escalation in demand and to take advantage of new infrastructure planned such as the metro rail system. As an example, Lusail is a large mixeduse master planned city to the North of Doha that, upon completion, will accommodate an estimated residential population in excess of 200,000 people. While work had commenced at Lusail, previous construction milestones had slipped. The stadium proposed as the venue for the opening ceremony and World Cup final will be situated in Lusail. It is anticipated that this will generate the incentive required to focus on the development of Lusail and bring completion of the project as a whole forward. Another development that will probably adopt a revised strategy following the announcement is Urjuan at Al Khor, which will also benefit from new transport links and a stadium planned for the World Cup. TheEDGE

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BUSINESS VIEW REAL ESTATE

VALUE SPECULATION It is difficult to accurately attribute the impact of a major sporting event on real estate values/rentals in the host country or city. Numerous studies have been carried out that cite a range of figures. Real estate prices in Paris are thought to have escalated by as much as 55 percent over a one-year period before and after the 1998 World Cup, with apartments close to some of the stadia recording price increases in excess of 100 percent over the same period. The three Olympic host cities of Athens, Sydney and Atlanta all outperformed their national markets in the five years leading up to the games. In Sydney the differential was 11 percent, in Athens nine percent, and in Atlanta six percent. The impact in Barcelona was even greater as prices increased by 131 percent compared with an 83 percent increase witnessed nationally, a differential of 48 percent. In the five years leading up to the 2002 Commonwealth Games, house prices in central Manchester rose by 102 percent, compared with an 83 percent increase across the rest of the UK. It could be argued that the impact on pricing/rents in Qatar will be even greater due to its relatively small population and landmass when compared with the countries listed above. Barcelona’s population alone is comparable to the whole of Qatar in terms of size at 1.6 million people. Whether rental/price increases are a positive effect depends which side of the fence you are sitting on. The increases will be welcomed by real estate investors and developers, but less so by occupiers and tenants. Commercial occupiers could find rising rentals detrimental to their business if they

It is conceivable that landlords and real estate investors will take a bullish approach, holding out for higher rentals and prices, driving the market upwards based on speculation, otherwise known as the “announcement effect”. are not benefitting from increased economic activity generated by the tournament. LONG-TERM BENEFITS The World Cup should have a greater legacy in Qatar than just increased prices in respect of real estate. It will facilitate the development of several features, such as new event or leisure facilities, better infrastructure and increased international exposure. These benefits could lead to geographical shifts in the location of prime real estate to new developments such as Lusail, which will profit from master planned environments and incorporate public transport facilities. More international exposure will attract greater levels of foreign investment in real estate and result in further evolution of the market and demand for greater transparency. Not all aspects of hosting the World Cup will be positive and issues to address will include rising construction costs, investment in facilities with limited use after the World Cup tournament, ongoing construction works and possible congestion as infrastructure projects are upgraded.

It is difficult to accurately attribute the impact of a major sporting event on real estate values/rentals in the host country or city, [but] it could be argued that the impact on pricing/rents in Qatar will be even greater due to its relatively small population and landmass. 60

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The largest challenge will follow the conclusion of the tournament, ensuring that facilities and accommodation developed are sustainable in the long-term. Qatar has already started to address this issue with proposals such as stadia that can be dismantled and gifted to developing countries to be reconstructed. There have been suggestions that cruise liners will be docked in the ports to accommodate visitors during the tournament (a similar tactic was employed during the 2006 Asian Games). These innovative solutions, whilst helpful, will have limited impact on the bigger picture. Qatar will need to use the World Cup as a platform and opportunity to boost its international profile and diversify the economy even further. These will be the foundations of becoming an internationally recognised business destination and attracting companies to Qatar that will create long-term employment opportunities, and therefore uses for real estate assets constructed in the lead up to the World Cup, post-2022. While undoubtedly the main economic driver in the recent years has been the oil and gas industry, the Asian Games hosted in Doha in 2006 acted as a catalyst to economic diversification. It led to a surge in real estate development, population growth and rentals/ prices. Many people who had been attracted to Qatar, initially through some form of involvement in the organisation or facilitating of the Games, chose to seek employment and stay on in Doha. World Cup 2022 has the potential to recreate that effect but on a larger scale. If all this happens as expected, Qatar’s built form will move positively towards becoming a more mature and sustainable urban entity.


BUSINESS INTERVIEW

COUNTING ON

HUMAN RESOURCES

Founded by Qatari national and managing director, Ali Al Humaidi, Almaras Consultancy is primarily aimed at developing the human resources in Qatari companies, and specialises in implementing equitable Qatarisation. But Almaras also provides many different services and Ali Humaidi himself is a wellspring of knowledge and enlightenment in his field, as Miles Masterson found out.


BUSINESS INTERVIEW

Entrepreneur Profile Name: Ali Al Humaidi Qualifications: Diploma in Communications Engineering Company: Almaras Management Consultancy, Doha, Qatar Sector: Human Resources and Management Consulting Position: Managing Director and Human Resources Consultant Staff: Three permanent staff in Qatar, two international associates (New Zealand and United Kingdom) Phone: +974 55550250 Email: almaras@almaras.com Website: www.almaras.com

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lmaras Consultancy’s premium clients have included ictQatar, Aspire Zone and Gulf Drilling International, among others. However, apart from human resources (HR) consulting, the company also facilitates international standard assessment programmes, career guidance for students, graduates, parents and working adults, and provides a variety of HR-based best practices in strategic planning and recruitment services for both companies and individuals. In fact, if it could be summed up, advancing Qatar’s human potential is what drives Al Humaidi and through him, his company. Almaras is also a demonstrative reflection of the passion Al Humaidi feels for his homeland and the way he has structured the company to empower Qataris in the workplace. Through his vocation and traditional attire, the warm and amiable Al Humaidi is obviously a proud and involved Qatari, but he also carries with him, to a small but noticeable degree, the air of a distinguished British gentleman. This is no doubt influenced by his years spent in the United Kingdom (UK) as a diplomat in the Qatari embassy, and is an impression reinforced by his refined manner of speaking English and his sleek Jaguar automobile.

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Indeed, Al Humaidi tells TheEDGE how he enjoyed his time in the UK immensely, learned a lot, made many friends and formed important business relationships there. Yet Al Humaidi’s devotion to Qatar and the realisation of what he felt could contribute to the development of the local business environment, he says, is what led him back home to start Almaras. Before his temporary change of career trajectory led to his stint in the UK (precipitated by his tenure as national director of a United Nations telecom training project), Al Humaidi spent most of his working life at Qtel as a human resources leader. Instead of approaching retirement age looking forward slowing down, he explains, Al Humaidi chose not to waste his knowledge but to instead reinvest it in Qatar and the promise of its populace. “It was a decision between working, returning and closing the chapter or setting up a consultancy company,” Al Humaidi says of his venture, which opened for business in 2005. “I decided to set up Almaras, where I can use my experience. But it was also a recognition for the need for an organisation that can be sensitive to the needs of the country from the inside.” At the time, furthers Al Humaidi, Qatar was growing and


BUSINESS INTERVIEW

“As soon as you say Qatarisation is about replacing somebody, you create animosity within the organisation. You split the organisation in two, the privileged ones who are looked after by the Qataris, and the expatriates.”

changing rapidly. Though there were international HR companies here, and many have come to the country since, he explains how he sought to form a locally based organisation with a focus on effective Qatarisation, and to his knowledge was the first to do so. “There was a strong desire in me [to] create something that is sensitive to Qatari needs,” he says, “that focused on the market from a Qatari perspective; and that is why ours is really a Qatari-centric kind of management consultancy.” contemporary qatarisation Though Qatarisation is undisputedly necessary, in some circles the concept might be considered a contentious policy, similar to the detractions aimed at affirmative action in the United States or black economic empowerment in South Africa, for example. If abused, these practices can be unfair in that they potentially promote or reward individuals in companies or government who are not qualified or deserving – purely based on their ethnicity or nationality – at the expense of those of a different origin who may actually be more skilled or efficient.

The resulting lower level of productivity and professionalism, arguably, damages the economy and also ostensibly creates an atmosphere of hostility and mistrust between locals and other nationals and expatriates. Al Humaidi does not censor his words when appraising the practice from that perspective. “Qatarisation is not a new thing,” he says. “[But] it has failed because the concentration was on the placement and that is the weakest point. As soon as you say Qatarisation is about replacing somebody, you create animosity within the organisation. You split the organisation in two, the privileged ones who are looked after by the Qataris, and the expatriates.” The latter, explains Al Humaidi, become alienated and resentful, because they feel that although they might be doing their job well, their employment is not secure. Moreover, some expatriate workers, he adds, though they might be more proficient in some cases, are not necessarily the best positioned to communicate and transfer their knowledge to the local workforce. “Qatarisation in the way it has been applied has an inherent, inbuilt weakness,” continues Al Humaidi, underlining his opinion that the custom of merely trying to fill number quotas of nationals in jobs – many of them menial – within an organisation is also not a correct strategy. “I think in a country like Qatar with a small population, with an expanding economy with demand for manpower, we need to go for strategic Qatarisation,” Al Humaidi emphasises. “Qatarisation where it matters. Qatarisation in the decision-making areas. Qatarisation in the information-sensitive areas. Qatarisation that will sustain continuity…so we do not waste the very small human resources we have.” This kind of meaningful, well thought out implementation of Qatarisation is an important consideration for Almaras (with the resultant positive effect it has on attracting and retaining high calibre and content expatriate workers, a positive by-product). Moreover, Al Humaidi says, having international experience and standards – including his associates who have lived and worked in Qatar, but are now based in the UK and New Zealand – and his intimate knowledge of the local market, are what places Almaras in such a prime position to apply these ideas. effective implementation So what is Al Humaidi’s own vision for how this can all be accomplished? Foremost for Almaras is building confidence in the Qatari workforce among managers and in the population, which affects both those moving up the corporate ladder as well as independent entrepreneurs. TheEDGE

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WHAT IS…HUMAN RESOURCES? “Human resources,” defines www.worldbank.org, “can be viewed as consisting of raw labour – determined mostly by the number of people in a country’s labour force – combined with human capital.” This is an age where the global business community – particularly human resource (HR) managers in countries with small or declining populations or low standards of education – is slowly waking up to the concept that one the greatest recipes for success for any business is in attracting and retaining quality staff. Thus HR is coming to the fore as an intrinsic component of any modern business strategy. For Doha-based human resources and management consultant Ali Al Humaidi, MD of Almaras Consultancy, HR and management consultancy and training is more than just the above definition. For Al Humaidi, HR is all about establishing a relationship with and defining what a company needs, assisting them in recruiting the appropriate quality talent through various internationally recognised psychological assessments and other processes and building capacity. It is also about enabling the organisation and individuals within it to attain their aspirations and objectives. “It is our job to facilitate that,” explains Al Humaidi. “After discussions and dialogue to see where and to verify where they want [the company] to go, where they want to be, what they want to do. We take that, we draw a road map and establish and deliver these objectives.” Through Almaras, Al Humaidi himself – at least when he first started consulting – has felt what amounted to a lack of faith in the abilities of locals to do a good job, despite his career history. “If I walked into an office and there was a Western-looking person who was also a management consultant, they would have a 50 percent advantage over me,” he says. “[The client] would say to me, you are from the region, how can you be a consultant?” Changing this mindset, explains Al Humaidi, took dedication, as well as building up of an impressive portfolio of clients. “Others can say they have worked with this name and that name. I did not have this record behind me,” he says, adding the only way to vanquish this impediment was by remaining positive and through hard work. “I did not know how to overcome that except by being persistent and hoping that as I picked up contracts, I would gain credibility.” International companies, Al Humaidi says, are usually looking for a management consultancy with a Qatari accent, but are often unsure whether these know all the international norms and the work ethics of global organisations, and it takes time to establish that confidence. Local companies and company directors, on the other hand, already know what Almaras does about Qatar. “They want to make sure that you do really know HR best practice and that you are not just speaking the language, but you are actually able to demonstrate it,” explains Al Humaidi. Fortunately over the last half-decade Almaras has racked up an impressive list of clients and developed a solid reputation in the competitive local business community, one that is comparatively

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small and where repeat business is thus vital. Accordingly, fostering relationships after Almaras’ services are no longer required is another key element of Al Humaidi’s modus operandi, which also allows Almaras to the measure the effect of its work. “It does give us the opportunity to monitor the result, but at the same time it says something about the relationships that we have started,” he furthers. “People must have seen that we were really genuinely interested in them as individuals or as an organisation and the value of that helps the relationship to continue afterwards.”

“It would be wrong to Qatarise all the jobs 100 percent. We need that interaction, translation, updated knowledge and window of opportunity to look at new ways of doing things. Name a country in the world that does not have expatriates working in it. There is not one.” In terms of instilling his concept of Qatarisation in the workforce, one that ostensibly flows from the abovementioned confidence in one’s self and from one’s clients, Al Humaidi then turns to how this should be implemented in the knowledge-based society the country is striving to become. He feels that often the know-how of qualified and experienced Qatari professionals, such as engineers, teachers and doctors, is often lost when they are promoted to management positions. “We have enough people to have managers and workers,” Al Humaidi explains. “So we need to encourage people to maintain enthusiasm for the profession that they are in…the social pressure and the lack of encouragement to stay within a profession like teaching [means] they move from their technical field to managerial field, and we lose that knowledge.” Confidence and support, continues Al Humaidi, are also important for career workers and entrepreneurs, whether they are young start-ups or older people considering leaving the comfort and shelter of permanent


BUSINESS INTERVIEW

For Almaras’ Ali Al Humaidi, HR is all about establishing a relationship with and defining what a company needs, assisting them in recruiting the appropriate quality talent, building capacity and enabling the organisation and individuals within it to attain their aspirations and objectives. employment. “With that level of security they seldom leave and take the risk,” says Al Humaidi of the latter, adding that though he funded his business with his own savings, not all entrepreneurs have that advantage, stressing the importance of mentoring support, financial guidance, and education on how to compile an effective business plan and follow through on it. He is positive about the steps currently being taken in the country to this effect to create local companies that will set an example and contribute to a small to medium enterprise (SME) culture here, which will in turn help Qatar’s economy to grow. On the thorny issue of expatriates working in Qatar, a practice that some of the most extremely opinionated feel should be phased out altogether, Al Humaidi weighs in objectively. “It would be wrong to Qatarise all the jobs 100 percent. We need that interaction, translation, updated knowledge and window of opportunity to look at new ways of doing things,” he says. “Name a country in the world that does not have expatriates working in it. There is not one.” What does need to happen rather, says Al Humaidi, is the fostering of more knowledge for expatriate workers. They need to be better prepared for living in Qatar, to learn about its culture and be encouraged to learn Arabic, which also needs to be made more accessible. In fact, ongoing communication and learning between locals and foreign nationals is something Al Humaidi feels that all Qatar companies, be they local or international, should take more responsibility for. He explains how his feeling is that not enough being done here, and as most expatriates rarely go beyond their own small network and rarely mingle with other nationalities or have Qatari friends, this can further foster cultural ignorance and create further mistrust. “I do not think it is good for the Qataris and I do not think it is good for the expatriates,” Al Humaidi opines. Al Humaidi therefore advocates building platforms whereby expatriates can work together in more of a spirit of cooperation with Qataris, and project this unity back into the international business community. “I think that is a good way forward,” he says. “It also provides security for Qatar; when all of the countries are involved in their investments here, they will look at Qatar as Qataris themselves do, because [they have] more of a vested interest here.” Almaras’ future On the future of his own company, Al Humaidi, who through Almaras is currently associate director of HR at Sidra Medical and Research Center, is bullish. “We are just at the beginning. Five years is not really

a long time,” he says. “I am glad that from the start we were looking at the broader picture, and now we are focusing on something that is more tangible, much more relevant and that we have found our niche.” Through Almaras Consultancy’s assessment centre, its focus on strategic Qatarisation and the identification of training needs that contribute to the success of HR in Qatar, Al Humaidi feels his company is only now just hitting its stride. “All we have done in the last five years was searching and researching, now we have a sense of direction, more focused on where we want to be five years from now and what we want to be doing every year. Qatar’s national vision [also] helped us to see a translation and an interpretation that echoes some of the thinking we have. “We definitely are going to be more and more focusing on Qatar with that extra sensitivity, with that extra local knowledge, and we will be using that to its best effect. We would like to see ourselves as a reference point, with all the activities that we have experienced and that we do and the information that we will gather, we will be able to offer advice that hopefully will contribute to the workplace and the setting up of educational programmes and training schemes. “As a home grown company we are better positioned than other recruiting agencies. They also offer Qatarisation,” says Al Humaidi, “but I feel we can offer more insight.”

IT’S ALL IN THE LOGO Nowhere are Ali Al Humaidi’s character and his passion for his life’s work more clear than Almaras’ name and logo. “When I sat down first time to think about what I want to do,” he explains, “I needed to think of a word that actually reflects that [but] that word did not come easily. So I took the first name of every member of my family – ‘A’ for Ali, etcetera. The second thing I did was put those names into a meaningful word, and Almaras means…a challenging opponent. Then I drew the logo and the box, which you could take as thinking out of the box, or you could take it as overcoming a challenge. The colour orange represents a desert and the harsh terrain, the challenging terrain. Then there is the maroon colour that is the Qatari flag, that is representation of Qatar, and it is breaking through or overcoming the challenge, and hopefully becoming a star.”

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GREEN BUSINESS

Heading in the

right direction


GREEN BUSINESS

Sam Pickering reports back on the Conference of Parties 16, held in Mexico, and sees reason to be optimistic about the future.

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he Cancun Climate Change Summit Conference of Parties (COP) 16 has come to a close for another year. What began with a sense of déjà vu and pessimism as to whether a global agreement could be found, has finished with a deal to curb global climate change, locks in 80 percent of global carbon emitters to reductions and includes a fund to help developing countries. The final day saw countries endorse amended texts drawn up by the hosts of COP 16 Mexico, the basis of which was an agreement that deeper carbon emissions cuts are needed, albeit no actual mechanism for achieving these were not established. This may not be the all-encompassing deal that many wanted, but it sets the stage on which an overarching agreement can be built, and is, without doubt, a significant step, going far beyond the hopes of this conference. The text is by no means perfect and there remains the question of whether any of the measures, including the emissions cuts, will be legally binding. During a conference where little could be agreed on, as the final day arrived, there was a real feeling of failure. Yet diplomats – particularly from the United States (US), China and Japan – worked tirelessly to agree on the wording and put their signatures to it. Patricia Espinosa, the Mexican foreign secretary, has been a key component in keeping this process alive, from initially keeping expectations low, to driving through negotiations when all hope seemed lost.

Bolivia was the only country not to agree with the text, explaining that it did not go far enough and amounted to “genocide and ecocide”. These protests were eventually swept aside and the agreement was read through to huge applause in the early hours of the morning. So what is the basis of the agreement? The deal sets up the Green Climate Fund, which is intended to raise and disburse US$100 billion (QR364 billion) a year by 2020 to protect poor nations against climate impacts and assist them with low carbon development. The fund will initially use the World Bank as a trustee, a requirement that the US, European Union and Japan have insisted on. This is coupled with a new body that will be balanced between developed and developing countries. The deal falls short of legally binding countries to ensuring that global temperatures do not rise above two degrees celsius by the end of this century, but does mean that we are one step closer to getting to this point in South Africa later next year. Finally, it seems, the global community, in particular developing countries such as China and India, recognise that climate change must be curbed for the sake of our existence on the planet. Significantly it also provides poorer countries, who will feel the brunt of temperature rises, a mechanism to find funding to adapt. Most significantly, it illustrates that the appetite for a legally binding deal is in sight. Hopefully, with the awareness of this, the feeling of apathy will begin to dissipate over the coming months, and a more proactive approach to reducing carbon emissions will be adopted in the way that countries, business and individuals live their lives. TheEDGE

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HOW-TO GUIDE

Do you have

What does it take to be an entrepreneur? Find out if you are ready for the big leap of starting your own business, with Curtis Avery’s guide to the skills and knowledge that every successful entrepreneur needs.


HOW-TO GUIDE

what it takes?

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o you have what it takes to be successful? Can one acquire the necessary knowledge, skills and abilities to become a successful entrepreneur, and if so, how? How do you know if you are ready? Entrepreneurism is growing in Qatar and the region and this is not limited to just school leavers or young people. People of all ages, many of whom have been in permanent employment for a long time, are increasingly warming to the idea of starting their own businesses. According to a study by the United States (US) Small Business Association, only twothirds of all small business start-ups in the US survive the first two years, and less than half make it to four years. Preparing yourself for entrepreneurship can help ensure that your business beats these odds. Some budding entrepreneurs feel ready to take the plunge in adolescence, while others accumulate higher education degrees and years of practical experience before feeling ready to go it on their own. Arlin Friesen, entrepreneurial mentor at the College of the North Atlantic Qatar, started his first business, a windshield repair franchise in Canada, when he was only 18 years old. “I always admired the entrepreneurs in my small town, many of them drove nice cars, had beautiful homes, travelled the world and were in charge of their own future,” says Friesen. “In high school, I worked at a gas station frequented by many of the local business owners, and I got to know many of them quite well. I soon realised that they were not much different than me. Most of them started their business with no more than a dream, and I soon realised that if they could succeed in business, so could I.”

On the other hand, Mohamad Takriti, co-founder of iHorizons, a local software development company, formulated his business model over a 10-year period while studying information technology (IT) engineering up to the doctoral level, and then gaining practical experience in the IT industry. “I spent many years studying and thinking about technology and how it applies to business,” says Takriti. “I considered many different business models involving both hardware and software. I eventually settled on software development for business applications, as I really enjoyed it and it gave me a chance to use my creative abilities.” Do a personal assessment One way to find out if you are ready to be an entrepreneur is to take a personal inventory of your skills, aptitudes, passions, interests and personality traits. There are numerous personal and entrepreneurial assessment tools that can be found online. They can be very useful in giving a basic assessment, but may provide varying degrees of reliability and validity. Working directly with a company that can customise the assessment instruments and help you interpret your results may prove more accurate and useful. Almaras Management Consultancy, a Qatar-based company owned by Ali Al Humaidi, provides this kind of personalised service in both English and Arabic. The firm offers assessments on personality profiles, aptitudes, values, motives and interests, as well as occupational preferences. Choose the right business and do it for the right reasons Understanding your passions and interests, and recognising areas of personal strength and weakness will give you a basis from which to

assess your entrepreneurship readiness, and help you identify the types of businesses that might be appropriate for you. You are much more likely to be successful if the business is closely aligned with your personal goals, passions, values, personality, skills and interests. Starting the business because all your friends or family members are doing it, or because you want to be your own boss, are not the right reasons for starting a business. “If you are starting the business just for the money or to prove you are smart, you are starting the business for the wrong reasons,” says Takriti. “You should have a strong belief in the business model and the passion and drive to make it succeed through good and bad times”. Ali Al Humaidi encourages, “Have a vision. This is important because it is motivates you. Have a realistic expectations, do your research, and test your commitment to that vision. Do not do it for [your ego or] financial reasons – these should never be the only or biggest motivators. It is about doing something you enjoy and you will enjoy success.” Develop needed skills Starting and running a business requires a wide array of hard and soft skills, as well as technical knowledge and skills specifically related to the unique aspects of the business. Required skills common to running all businesses include: • management of people and finances • selling and networking • time and stress management • use of computers and technology • the ability to create a vision for the company and develop strategies and plans for realising it. If you have done a personal assessment of your skills and knowledge, you will know what TheEDGE

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areas you can capitalise on and which areas you need to develop. The question is how do you develop the areas that need improvement? You can acquire needed knowledge and skills through both training and experience. Business-related academic and vocational programmes, as well as shorter continuing education courses, can all help you prepare for entrepreneurship. In most communities, including Qatar, there are courses available in starting and running small businesses offered by universities, colleges, small business incubators, government agencies and special interest groups. If your business is IT, science or engineering

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related, you may need to get training in these technical fields. If you start a franchise outlet or represent a manufacturer, you may be able to get the applicable training from the franchisor or manufacturing company. Gaining practical experience before starting the business can substantially reduce the risk of business failure. You can acquire many of the necessary business skills through job experience, working with volunteer organisations or by practicing self management skills such as time and stress management in your personal and work life. If you can find work or are able to volunteer in the industry your business

will be in, you can gain valuable technical knowledge and skills, as well as an understanding of the key industry success factors. You can also make contacts and develop important relationships that will help you in your business. Although it is imperative that all aspects of the business are taken care of, it is not imperative that you are strong in every facet of the business. You can combine forces with partners, staff members and external service providers who have complementary skills to ensure your new business runs smoothly.


HOW-TO GUIDE

Prepare yourself financially Building up your own savings is a critical step in preparation for starting a new business. Depending on the size of the business, you may be able to start it with your own money. Financing for start-up businesses can be difficult to find as lenders usually like to see a track record of sales and preferably profits before lending. Establishing sales and profits with your own money reduces the risk for lenders and increases the chance of obtaining a loan at a lower rate to grow the business in the future. However, warns Takriti, “Do not risk all of your capital on the first attempt, as it may take a couple of tries to get the business model right. Many entrepreneurs do not succeed the first time, but successful ones learn from their mistakes and adapt accordingly.” Along with a promising idea and a good business plan, having some of your own capital to invest will greatly increase your chances of obtaining financing from the beginning. Lenders and investors are more comfortable financing a business where the owner/manager has some capital at risk and therefore something to lose. They will be more assured that the owner/manager will work hard and use financial resources prudently. A good way to start saving money is by creating and sticking to a personal budget that will force you to save money. Maintaining a personal budget will also help you to become more disciplined in financial management, preparing you to manage the finances of the business. Develop a support network Few entrepreneurs can do it all on their own. Even if you develop the required skills, knowledge and finances, to start your business, you will inevitably need the support of others to succeed.

It is important to gain the support of your family before starting the business. Starting a business affects the lives of your family, and it is important to ensure that they will be taken care of both financially and emotionally whether the business succeeds or fails. The business may also no doubt take more of your time than your current job. Your spouse and children need to be prepared for this. They may also need to be prepared to have less money for vacations and other luxury items until the business begins to make reasonable profits. It is best to involve the family from the conception of the business idea and be realistic about what life might look like for them, both good and bad. Yet, reminds Takriti, “family comes first” – try to remember that. Finding a good mentor or mentors and developing personal and professional relationships with people in your field is also highly recommended. Unlike in regular employment situations, entrepreneurs do not have bosses or senior colleagues to mentor them. A mentor can act as a sounding board to test new ideas and challenge existing modes of operation, and help an entrepreneur get through the tough times by providing encouragement and perspective. A mentor can be anyone whose guidance you value and trust. Develop relationships with others in your field Whether networking through formal or informal channels, meeting and developing relationships with those in your field, especially other entrepreneurs, is always a good idea. Though it might seem like some of these individuals or entities are competitors, developing strong ties with them may lead

Understanding your passions and interests, and recognising areas of personal strength and weakness, will give you a basis to assess your entrepreneurship readiness and help you identify the types of businesses that might be appropriate for you. to information on how to solve similar challenges or problems, or may even lead to contracts should they pass on work they are unwilling or unable to do. Join any formal associations in your industry, and if there is no such association, consider starting your own. Informal socialising and networking with those in similar fields to your own is obviously an excellent way to foster connections and potentially grow your business. All your efforts in preparing yourself cannot guarantee the success of the business. However, they can significantly reduce risk of failure. And remember, the job of preparing yourself does not stop after you start the business. Successful entrepreneurs continue to develop their knowledge and skills throughout their entrepreneurial career. This article is the first in a series by the College of the North Atlantic Qatar, where Curtis Avery is an entrepreneurial mentor. TheEDGE

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LEGAL INSIGHT

Stewart Diana and Brenda Hill outline the joint venture options available to foreign companies hoping to look into business opportunities in Qatar.

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LEGAL INSIGHT

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atar has increasingly become a preferred destination for foreign capital and technology in the Gulf region, as its economy has continued to expand. The oil and gas industry that is the anchor for the Qatar economy has now been joined by the healthcare and education, hospitality and leisure, and airline industries. The 2022 World Cup to Qatar will accelerate this process. As foreign companies continue to enter Qatar to explore growing business opportunities, there will be increased interest in the different arrangements they can make to form joint ventures with Qatari-owned companies. An international joint venture, generally speaking, is an undertaking between two or more entities (in the case of Qatar, one nonQatari) to achieve an agreed business objective through a collaborative business arrangement and to share profits and losses. There can be contractual joint ventures, in which the entities jointly contribute to an undertaking and share profits and losses but do not form a new legal entity, and equity joint ventures, in which a new legal entity is formed. A contractual joint venture in Qatar would be feasible where the foreign entity is not doing business in Qatar, such as where it is licensing technology or is otherwise involved from offshore. The equity joint venture, however, is of greater relevance in Qatar because a foreign company doing business in Qatar will generally need to engage a Qatari partner and form a new legal entity in order to comply with Qatar law.

Law Combating Trade Concealment No. 5 of 2004 (‘Trade Concealment Law’) set out the primary foreign investment restrictions imposed on foreigners wishing to conduct business in Qatar. Limited Liability Company The general rule for operating a business and incorporating a LLC in Qatar is that any company registered in Qatar must be at least 51 percent Qatari-owned (this requirement is contained in the Foreign Investment Law). There is a small one percent dispensation for nationals of Gulf Cooperation Council (GCC) states, in that a GCC national can own up to a 50 percent share in the company. In the past, some foreign investors and their Qatari partners circumvented this requirement in practice by submitting to

of the capital, unless the company’s articles of association stipulates a greater majority. In addition, to protect the minority foreign owner who often holds the technical and managerial know-how, trademark rights and equipment necessary for the operations of the company, it is normal to draft and negotiate management agreements, technical assistance agreements, licence and trademark agreements, equipment hire agreements and powers of attorney between the LLC and the minority foreign owner. These intercompany agreements, in addition to requiring a super majority shareholders’ vote for major company events, protect the interests of the minority foreign shareholder. In addition, the articles of association filed with the Ministry of Business and Trade can specify the minority shareholder as the manager of the company. That said, the Trade Concealment Law does, however, pose a constant challenge to the minority foreign shareholder – especially where the foreign shareholder has provided the capital for the Qatari partner’s 51 percent share by way of a loan – as to what agreements could be signed to properly protect the foreign shareholders’ interests.

What happens to any intellectual property rights in the event of a transfer of shares must be negotiated and stated clearly.

International equity joint ventures in Qatar The Commercial Companies Law No. (5) of 2002 (‘Companies Law’) provides the legal framework for establishing corporate joint venture entities in Qatar. The Companies Law provides for various different vehicles, although only a limited number of these are available to foreign businesses wishing to set up in Qatar. The most common forms of vehicle used by foreign entities in joint venture arrangements are the Limited Liability Company (LLC) and the so-called Article 68 Company. The Foreign Investment Law No. (13) of 2000 (‘Foreign Investment Law’) and the

the Ministry of Business and Trade, articles of association that reflected a 51 percent ownership interest by the Qatari, but at the same time entering into side agreements that limited the Qatari partner’s actual ownership interest. These side agreements were common practice and upheld by the courts in Qatar. However, in July 2004, the government issued the Trade Concealment Law, which imposed stiff penalties on foreign entities operating in Qatar outside of the laws (in particular the Foreign Investment Law) and any Qatari assisting the foreigner in this kind of practice. The Companies Law provides protection for minority foreign shareholders by requiring that certain changes to the company – such as increasing the share capital, amending the company’s articles of association or dissolving the company – be approved by a vote of the shares representing three quarters

Article 68 Company This type of corporate option is available to foreign investors in limited circumstances. Article 68 companies are joint venture arrangements, which are owned partly by the government or a public authority in partnership with foreign investors. The main advantage of an Article 68 company is that the Companies Law only applies to the extent that it does not conflict with the memorandum and articles, joint venture agreement and other contracts of establishment. The shareholders are therefore able to draft the memorandum and articles or joint venture agreement in a way that reduces the restrictions contained in the Companies Law. Also, due to a 2008 amendment in the law (Law No. (2) of 2008 amending some of the provisions of the Companies Law), with the approval of the Council of Ministers, the foreign entities’ share ownership in the Article 68 company can be more than 49 percent. TheEDGE

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LEGAL INSIGHT

Intellectual property and management Control of intellectual property and dayto-day management of an international joint venture are often critical considerations for a foreign joint venture partner. What happens to any technology and other intellectual property rights in the event of a transfer of shares, or upon early termination or dissolution of the joint venture must be negotiated and stated clearly. For example, the foreign joint venture partner may require that if it is no longer a member of the joint venture, its trademarks may no longer be used, or that it is free to use its intellectual property in the territory of the joint venture in competition with the local partner. With regard to management issues, it should initially be decided whether there will be a board appointed to undertake the executive role, or if the company will be managed by an appointee of the foreign (minority) shareholder, as is often the case in Qatar. It is not essential for the management rights and responsibilities to correspond with equity ownership. There will be several matters that the foreign shareholders will regard as so crucial to protect the value of investments that they will be reserved for unanimous shareholder approval, rather than majority board approval or general manager approval. Other aspects of Qatar law affecting international joint ventures In addition to the laws and other considerations for structuring a joint venture, a foreign joint venture partner must consider a number of other factors, including: • Taxation. The Qatar Tax Law (21) of 2009 imposes a tax on income derived from activities undertaken in Qatar, • Labour Law. Aside from a few limited exceptions, companies operating in Qatar are subject to the Law No. (14) of 2004 (‘Labour Law’). The Labour Law provides that a non-Qatari worker may not be employed without approval of

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the Department of Labour and without obtaining a work permit to work in Qatar. Every foreigner wishing to reside in Qatar must obtain a residence permit from the Immigration, Passports and Nationality Department. Any foreigner wishing to enter and reside in Qatar to work must have a sponsor. Law No. (4) of 2009 regulating the entry, exit, and stay of foreigners provides that the freedom of movement of non-Qataris with residence permits would still be restricted through mandatory exit permits. However, this law makes it illegal for sponsors and employers to retain employees’ passports and travel documents once their residence permits have been issued, • Customs Law. Customs in Qatar is regulated by the Qatar Customs Law No. (40) of 2002, the Amendment to the Customs Tariff Rate and the Annulment of Certain Custom’s Exemptions, Law No. (41) of 2002 and the Ministers Council Decree No. (21) of 2004 Customs Law Executive Regulations (‘Customs Law’). The Customs Law implements the Common Customs Law for the Gulf Cooperating Council (GCC) states. All members of the GCC apply the Common Customs Tariff and commercial policy toward third party country goods, which includes free circulation of goods within the GCC. Home country legal considerations The foreign company entering into a joint venture in Qatar must, of course, confirm that it is in compliance with its country’s competition and anti-corruption laws, and also that it has structured the joint venture in the most advantageous way with respect to taxes. Doing business in Qatar without joint ventures There are certain business arrangements in Qatar in which a foreign company may not be required to have a Qatari joint venture partner.

• A foreign company, may, with approval from the Ministry of Business and Trade, establish a branch office in Qatar to invest money for economic development purposes, or to facilitate the performance of public services or if the company is engaged in certain sectors. These preferred sectors include tourism, development of natural resources, information technology, education and health. This exception is narrowly applied and there is no stipulated timeframe for obtaining the necessary approval from any relevant Ministry, • The Ministry of Business and Trade may grant a licence to operate in Qatar to a foreign company that is a party to a contract with the state or a state agency. The foreign company becomes fully licensed and registered in Qatar. However, the licence and registration are based on the contract and therefore are limited to the duration of the contract and the works to be performed under the contact, • Equipment supply agreements, distribution agreements, licensing agreements and similar arrangements are, of course, important ways for conducting business in Qatar and other foreign countries. Although they may be part of a joint venture where profits and losses are shared, they are often not considered joint ventures. In the international joint venture area, as in other areas of law, Qatar is encouraging foreign companies to do business in Qatar. As Qatar proceeds with the development of facilities necessary for it to host the 2022 World Cup, there will be an even greater increase of commerce with the international community and need for joint venture and other business arrangements of all types. Note: This article should be used for information purposes only. It is not legal advice and should not be relied upon as such. If any reader requires legal advice, this should be obtained from an experienced lawyer, who can provide advice which is tailored to the relevant facts and circumstances. For any information in respect of legal issues, please contact Stewart Diana (stewart.diana@dlapiper.com) or Brenda Hill (brenda.hill@dlapiper.com).


HEALTH AND SAFETY

Fire and Fire Safety in Qatar

Fire is the one emergency situation that is common to all businesses. All companies developing an emergency response plan as part of their Occupational Health and Safety (OHS) management system, must address its risk. Mark Kenyon explores the risks associated with fire and offers some advice on fire risk management.


HEALTH AND SAFETY

WHY FIRE? Fire is one of the greatest threats to any business. It can start almost anywhere and can destroy everything in its path. The effects of a fire can be devastating in terms of lives lost, injuries, and damage to property. However, the truth is that most fires are preventable, and can be avoided by those responsible for commercial and other public buildings, and households, by adopting fire safe behaviours and procedures. There have been a series of high profile fires reported in Qatar in recent years. Notable examples include the Al Nasr twin towers in November 2005 and in April 2006, and more recently Souq Al Deera in October 2009. In the latter incident, authorities blamed the souq and shopowners for overlooking safety requirements. The souq, it was claimed, was overcrowded and lacked safety measures. Thankfully the swift evacuation of shopkeepers helped in containing the fire and no serious injuries occurred. WHAT IS THE RISK? The civil defence statistics available on the Ministry of the Interior website and reproduced below indicate that there were 291 fires recorded in Qatar in the first five months of 2010, with five deaths (four of these after vehicles caught fire following collision). Of all the incidents, the majority – at 149 – occurred within accommodation, such as residential homes. There were 54 vehicle fires, 24 fires at commercial premises and souqs, and 21 fires at industrial establishments and factories, during this period. Of the five months, April saw the largest number of fire incidents, with 83 cases recorded, while the figures for the other months in descending order were March (79), February (65), January (43), and May (21). Electricity fires continue to be the top known cause of fires in Qatar and thus the most high-risk category, with 28 such cases reported in the period. However the causes of the vast majority of fires (some 250 of 291 incidents) were not determined. While the information available is limited (and based on the statistics alone, the risk of fire seems low), it would indicate that businesses should ensure that their electrical installations and products are installed and maintained to the highest safety standards. Further proactive steps in fire prevention include: Become familiar with your workplace fire and safety systems You should be knowledgeable of the fire precautions in your building, including their location and how they should be used. Your building should have some or all of the following fire precautions: • Manual call points (MCP) or break glasses • Fire extinguishers • Smoke alarms • Fire exit doors and stairwells • Fire alarm(s) • Sprinkler systems • Fire door

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Smoke alarms Though already on the just-mentioned list, smoke alarms are essential. Smoke is quickly suffocating, often killing people long before the flames of a fire reach them. In addition, while smoke alarms do not stop fires, they do give early warning if a fire does occur. A 10-year smoke alarm with built-in lithium battery is highly recommended as it saves concern about annual battery replacement. When buying a smoke alarm, ensure that it conforms to a known standard, for example the British Standard 5446 Part 1, and has the British kite-mark logo. It is recommended that at least one smoke alarm be fitted on each level of a building. Ensure that the alarm is working and tested regularly. This should be done once a week. Most alarms are tested by pushing a test button for a few seconds until the alarm sounds. When the batteries are running out, the alarm will bleep at intervals. Make sure the correct type of battery (normally alkaline) is used as a replacement. Except in the case of 10-year smoke alarms, smoke alarms also need cleaning by gently vacuuming the inside to remove dust from the sensors. If the device does not open, vacuum through the holes. Have a fire emergency plan A well thought out plan that takes into consideration the unique features of each building and its occupants is essential. This plan should be in writing, and easily available to all employees. This includes those who work weekends and off-shifts. The plan should be kept current through periodic updating and regularly tested with fire drills. Smoking materials According to the National Fire Prevention Association, cigarettes are the number cause of fire deaths in the United States and Canada, killing about 1000 people per year. Most of such fires start when ash or cigarette butts fall into couches and chairs. If you smoke, be careful around upholstered furniture and be sure cigarettes are completely extinguished before you toss them into the wastebin (and of course, never smoke in bed at home). In work areas where smoking is allowed, use large, non-tip ashtrays and make sure everything in them is extinguished and cold before they are emptied. Be sure that no one leaves smouldering cigarettes on furniture or in a wastebin. FIRE IS… THREE BASIC CHARACTERISTICS OF FIRE: • Fire is FAST. In less than two minutes, a fire can become life threatening. In five minutes, entire premises can be engulfed in flames. • Fire is DARK. Smoke from fire is dense and toxic and fire produces gases that can cause you to become disorientated and drowsy. Asphyxiation is the leading cause of fire deaths, far exceeding burns. • Fire is HOT. Heat is often more dangerous than the flames. Inhaling the superhot air can sear your lungs.


HEALTH AND SAFETY

Fire is one of the greatest threats to any business. It can start almost anywhere and can destroy everything in its path. You cannot afford to become complacent. The effects of a fire can be devastating in terms of lives lost, injuries, and damage to property. Fire extinguishers, hose reels, etcetera Fire prevention is a basic requirement in Qatar’s Labour Law No.(14) of 2004 and Subject 45-48 of the Resolution of the Ministry of Civil Service and Housing Affairs No.(20) of 2005. In order to protect ourselves, it is important to understand the basic characteristics of fire. Many of us take fire equipment for granted and assume that it is a part of the building installed during construction and that the building owner or landlord will maintain it. While this may be true in some cases, do not be complacent, and check with your landlord or building owners. Fire extinguishers should be visible and offer clear instructions for use. Checks should be made to ensure all extinguishers have been maintained and are in working order – in other words, that they are fully charged with tamper seals intact. Regular monthly inspections should be planned and included in your emergency evacuation strategy. Employers should also ensure that a sufficient number of their employees have been trained in fire prevention (this includes the use of extinguishers) and firefighting procedures. IGNORANCE KILLS Fire safety is everyone’s responsibility, but is all too often left to chance or just simply ignored. Do you know the emergency exit route in your workplace? How would you get out of your office, apartment or villa in the event of a fire? How many of us check the emergency exit routes when staying in a hotel? More importantly, have you advised your staff, or at home, your children and loved ones how to get out of the building in a fire, or indeed where to go and what to do if a fire occurs? If you answered no to any of the above questions, you need to revisit your fire safety management before it is too late.

Note: The guidelines set out in this article are merely to raise awareness and offer basic advice on fire and fire safety. TheEDGE

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BRAND BEAT

Trendspotting By Charlotte Stubbs

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rom both a business and personal perspective, keeping your finger on the pulse of what is hot and what is not is an important and growing development in our day-to-day lives. In our increasingly fast-paced culture, with our access to global communications, keeping up-to-date with the latest and greatest is a vital part of being relevant and successful. Trendspotting is a modern phenomenon that is growing in popularity and is a concept that is being embraced by organisations around the world. Creative Action Design breaks ‘trendspotting’ down into two broad areas, both different but equally valid: 1. Coolhunting This is following the pulse of what is hot and what is not. These are usually smaller, often product-based insights into the ‘latest’ gadgets, styles, entertainment and technologies. This collection of ‘short-life products’ are brought into mainstream consciousness, but are quickly replaced by newer, more innovative offerings. Once the preserve of the traditionally new product developers such as Sony, Nintendo and Philips, coolhunting’s recent emergence has blossomed with the global access of the internet, with any individual sharing their ‘latest’ via a website or their blog. A ‘coolhunter’ is a key market influencer, one that is able to motivate change to what society defines as ‘mainstream’. Deirdre Maloney, in the recent documentary Influencers: How Trends and Creativity Become Contagious, interprets a coolhunter to be “a person

who can take an idea, a brand, a concept that is not in the mainstream’s consciousness and can bring it to mainstream’s consciousness”. Coolhunting blogs or websites such as JoshSpear.com have the ability to showcase a massively wide variety of what is happening across the world on a daily basis. 2. Trendhunting The second broad area is trendhunting which can be defined as taking a step back to understand the larger developments and changing directions of a movement, technology or of consumer attitude. Where coolhunting operates in smaller snapshots, trendhunting looks at understanding the bigger picture, the ‘cultural comment’ versus the ‘cultural understanding’. Companies such as GDR and PSFK are, by and large, research-led and often cover longer periods of time. Examples of these can be seen in the changing communication habits and the changing attitudes to traditional advertising campaigns in light of new ‘under-the-radar’ or guerilla campaigns. Facebook is a rising modern trend that organisations must embrace in order to remain relevant to a changing society and the changing customer. Jeep, for example, recently launched their latest car only through Facebook and shunned traditional media – customers could ‘like’ it on Facebook and by doing so, entered a competition to win a car.


BRAND BEAT

Many advertising campaigns in 2010 have used social networking streams, in particular Facebook, to drive a viral message home to prospective customers and to support their more traditional advertising methods. Jonah Peretti, co-founder of BuzzFeed and The Huffington Post says, “In the future, agencies will need to behave more like public relations firms, creating war rooms that tweak ad[vertising] creative based on live feedback from blogs, Twitter, and Facebook.” It is important to see that these two approaches are both complementary, and must be used by organisations in Qatar and the Gulf Cooperation Council region to understand snapshots and trends, both adding greater value, insight and understanding of tomorrow’s consumer, client or customer. Why is trendspotting so important? What is the value, and importance of trendspotting to your business? We would argue that it is incredibly important to any organisation in three distinctive areas: 1. The Market Trendspotting allows a company to keep up-to-date with the changing needs and requirements of their specific target audience. By keeping up-to-date with changing attitudes and habits, a company can be proactive in meeting these demands. As markets shrink, become more volatile and faster moving, it is more important now than ever before to keep a finger on the pulse of shifting movements or changing attitudes, no matter your industry. In his article, The Trendspotting Trend, Richard Watson writes, “Companies such as Wal-Mart, Campbell’s Soup, Lego, Marks and Spencer, Virgin, and ICI all use trend forecasting as part of their innovation processes and as a way to anticipate what their customers will want in the future. “The world is changing at a rate unsurpassed by any other time in history. Companies need to be flexible to adapt to the macroenvironmental environment (political, technological, economic and socio-economic factors).” Josh Spear, founding partner of the digital strategy firm, Undercurrent, states, “The relationship between people and the digital world is rapidly transforming culture in ways we can’t even imagine yet – allowing us the chance to influence or adapt to changes in human behaviour in real time”. 2. The Opportunity By following cultural, product or service trends, a company that has its finger on the pulse can create new offerings to target new and previously untapped markets. There is the opportunity to generate a new industry and be the sole provider/distributor in that area, which can lead to huge commercial success. By attempting to identify and predict the future needs of the market, companies can start to develop strategies that cater for what their customers will want rather than only what they currently want. Providing an understanding of the market is

essential for being competitive in business whilst also forecasting the needs, desires and expectations of the customer. 3. The Competition Being aware of what is happening in the market helps businesses to react quickly and effectively to threats from their competition. By keeping their ‘ear to the ground’, BMW was able to quickly respond to an advertising board from Audi in California, which featured a new Audi car and the line, “Your move, BMW”, by countering with their own larger billboard next to it stating, “Checkmate”. Keeping an eye on the competition worked in BMW’s favour as it allowed them to reposition themselves quickly and ensure their brand came out on top. Trendhunting and coolhunting are growing in popularity and are concepts and ideas that need to be embraced by organisations within Qatar and the region. While both are not new tools, what is new is the recent emergence and widespread adoption of trendspotting by organisations in a diverse range of industries both new and old. Organisations need to think about who their customer is today, who they will grow into tomorrow, and how their preferences and behaviours may change in the coming months and years. A successful brand is one that appreciates that the current situation will not always stay the same, and takes steps to ensure that it will continue to meet the needs of its customers. Now is the time to embrace the latest technology, read cutting-edge blogs, find out what your target audience thinks, feels and desires, and ensure that your plans for 2011 and beyond embrace the trendspotting culture that embodies the modern age. TRENDS FOR 2011 So, what are the next big trends and developments to be aware of?’ What does 2011 have in store? The one trend that Creative Action Design believes will be big across all industries in both Qatar and the region is ‘the experience’. Whatever your business, customers want more than only a product or a service. Customers are craving an experience to engage with and to be inspired by. To create an effective experience of a brand, an organisation needs to communicate with customers at every ‘touchpoint’ where the brand comes into contact with customers. Long gone are the days when a company produces a one-off logo that they expect people to desire and be part of. Gone also are the days when a static logo or trademark sufficed. Today, organisations need to have real brand values to adhere to, a brand tone of voice and a visual language for people to engage with. There needs to be a real depth and an emotional story behind a brand that people can relate to. One current example is now that Qatar has won the bid to host the World Cup in 2022, the nation feels part of the bid’s brand story. This means consumers are likely to engage and support the 2022 World Cup in the run-up to the event, and so will enjoy the experience around the event and the brands that associate with it.

TheEDGE

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BUSINESS INSIGHT

Waterfront Development

Lusail City’s luxury marina construction Michael Horrigan is the chief executive officer (CEO) of Dubai-based Mourjan Marinas IGY, which has been contracted to design, construct and operate all marinas in Doha’s Lusail City development, the first of which is set to become operational soon. Miles Masterson spoke to Horrigan about the unique features of the Lusail Marina and the intricacies of and opportunities in the region’s waterfront development industry. Mourjan Marinas is the Middle East, North Africa and Asia division of Island Global Yachting IGY? We come out of the Caribbean [and] the United States market originally. The company was originally established there and was the biggest owner, developer and operator of marinas in the Americas. The distinction being that it is a known developer and operator. There are a lot of people in our market sector who are either operators or they’re pontoon manufacturers or they’re boat brokers. In our particular case, and even now in the Mourjan iteration of our company, we have a high percentage of ownership – not always, but it tends to predominate – whereas most of the people in our sector don’t have any ownership. They’re just operators. When you say ownership, what are you referring to? Sometimes we’re 100 percent pure equity, as in Lusail. It’s a build-operate-transfer (BOT) arrangement. We are 100 percent funding all of the Lusail marinas in exchange for a 25-year operating concession on each of the marinas in Lusail; we design it, we fund it, we build it and we operate it, [then] we either renew the concession with Lusail, or we pass it back to them. All of the countries we operate in protect their coastal waters; you never own it outright. You have a concession for a period of time [so] it’s more of an equity participation. We range between 100 percent equity participation, down to 50 percent.

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Below 50 percent, we tend to take on a consultancy role, where the other party has the full equity. How did the Lusail contract come about? The pure procurement process was a competitive bid called by Lusail…and I understand quite a number of companies demonstrated an expression of interest. Based on capabilities and industry profile, Lusail narrowed it down to a bid list, which I think was four…Based on capability, commercial terms, the quality of product, and the alignment of the product with Lusail’s general standard, they reviewed the list, and then made a decision and Mourjan was selected on that basis. What are the returns like in this sector? Marinas return a better internal rate of return (IRR) than a lot of people believe. It does vary project to project, but it’s not unusual for us to be yielding between 16 and 20 percent IRR on our investments [over 25 years]. Now the reason it’s such a broad investment, in some marinas you have more infrastructure costs, you have to do breakwaters or wave attentuators. Others, some of those infrastructure issues aren’t required…sometimes you have concrete pontoons, sometimes you have aluminium pontoons. The Lusail marina we’re building is a very high quality international benchmark marina, so it’s at the upper end of the construction cost estimate. But we’re targeting elements in that marina that not only don’t you

see in the Middle East, but are a first anywhere in the world. We have lounge areas out within the marina, we have landscaping in the pontoons, and we have ablutions for the boat owners, so it’s a very high quality marina. Where does the revenue come from? The revenue comes from leasing boat berths, return on utility demand, the hospitality services (because we provide a lot of services to the boat owners at the marina), the fuel sales, and we do a lot of events management that we get good returns out of. So there are a lot of revenue streams that come together. How large is the final development going to be? Lusail in its totality will ultimately be about 1500 to 1600 berths. Within Lusail proper, there will be probably five to six individual marinas, and those will probably be developed over the next 10 years. And as each one is developed, a new 25-year concession kicks in for each individual marina; we will progressively develop other marinas as Lusail grows. Are there any aspects of Lusail that will be leased out to business owners? The initial marina is going to very much be a showcase marina [but] ultimately we will have downtown business-type marinas near the main office towers in the commercial district. We will have a small mega-yacht marina… there’s going to be different types of facilities… some will have clubhouses, some will have boat


BUSINESS INSIGHT

owner amenities. Some will be larger, some will be smaller, depending on the size and style of the marina; some will have more food and beverage and more retail than others. It’s quite a significant range. And specifically with this one, we will start construction of the clubhouse in 2011. It will probably take about 18 to 24 months to build. The marina will be operating with other boat owner amenities during that time…[but] we haven’t made any commitments to anyone just yet, because the clubhouse hasn’t come online. Were there any specialist contractors involved in the construction? Mourjan is structured as a multi-skilled organisation; we have architects, engineers and town planners within our teams. The main reason for that is not so much the marina itself, as the way the marina interacts with the upland development, the master developer who is doing roads and parking and utility infrastructure. We have those sorts of skill sets in-house so that we can participate with that knowledge. We also have development managers in-house, so when it comes to designing and building a marina, our internal designers will design the marina, then we’ll go to a competitive bid…we’ll go to pontoon manufacturers and constructors who are capable of building the type of system we want. Structure Marine for example is the contractor on this particular marina. They will then come in and build and install the pontoons and connect to the utilities. Are there any nuances in how you would conduct your business here in Middle East as opposed to elsewhere? I have a philosophy [that] you always need to have a team of consultants who really understand the sector in which you’re designing. So whereas you might look for international skills and viewpoints…one of my criteria in establishing the pre-qualification list to participate is certainly expertise and experience of the local industry. And it’s even more profound here in the Middle East because when you consider the difference in the way in which a marina clubhouse in Florida might operate to one in Italy, to one here in Doha, if you don’t understand the local user-group – and this is a facility for the Qataris – you can’t transport your image of a clubhouse from Venice to here. It’s

“Marinas return a better internal rate of return (IRR) than a lot of people believe. It does vary project to project, but it’s not unusual for us to be yielding between 16 and 20 percent IRR on our investments over 25 years.” critical and we don’t want to have to educate the consultants on what they need to do. In terms of the site, can you explain the motivation for the use of environmentally friendly materials such as the non-corrosive aluminium? We’re a maritime, water-based business [and] every industry works very hard to protect their prime resource. Our prime resource is the ocean and the waterways in which we operate; the marine life, marine vegetation. And people who come into marinas are looking for pristine environments, so one of the first things we do [is] a baseline study [and] we put a huge amount of effort into protecting the marine life and keeping the waters clear and clean. And what about the re-instigation of the mangrove swamps? In the Lusail project we’ve ratcheted it up a notch, where we’ve gone for much broader pontoons. You’ll find other developments in the area, both here in Doha and elsewhere in the region, their main concourses may be three metres wide; ours are six. The reason is the main concourse, which distributes people to all of the berths, has electric car traffic to take the boat owners and their materials to the boat… we’ve increased the pontoon to make sure you have a dual traffic system where people can safely walk, but the centre of the pontoons is designed for the mangroves, and seating areas. So because there’s a big move in many of the Middle Eastern places – and certainly here in Doha – to reinstate the mangroves that are being lost progressively, what we’re doing is we’re introducing landscaping down the centre of these wide pontoons. How did the economic downturn affect Middle East marina development?

There was a bit of a craziness, an uncontrolled era up until 2008, where everyone was wanting to do marina waterfront developments…[but] the projects that are proceeding now are doing so because all of the owners – whether it’s us as a owner or our partners – are going through the business plans and the market analysis in far more detail. They want to know that, if we give the green light to go ahead, are those returns reliable? Is that marina going to be full of boats? How does that affect luxury yacht and boat industry here? A lot of people hang back [on buying a boat] until they know they’ve got a quality berth. People look at what they get for their money these days…a lot of the large boat owners look for privacy in their berthing. How close is the general public with their ice creams? And are towers overlooking it? All that sort of thing. Privacy is very important to Middle Eastern big boat owners as opposed to those in the Mediterranean. So that’s one of the differentiators. Finally, how important do you believe marinas are for coastal economies? In hard commercial terms…people are looking for an all-encompassing – we call it an ‘integrated marina lifestyle’ – development; they’re looking to be able to live somewhere that is clean and pleasant and safe, but they equally want to be able to walk down and use the waterfront promenade. They want to be able to use their boat and they potentially want to be able to get to work in a good quality, safe environment, and it’s been shown time and again that commercial values in development properties such as hotels and apartments where people can have integrated lifestyle of recreation, residential and work - are reciprocally higher in waterfront developments. TheEDGE

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BUSINESS INSIGHT

Middle East Aviation

Regional competition and cooperation in the aviation sector The final months of 2010 saw increased global media focus on the aviation sector, with two of the largest regional aviation summits held in Doha in October and Dubai in November. Miles Masterson spoke to Nicholas Watson, an aviation expert from Naseba, an events company involved in industry summits and exhibitions in the region – including the Avex Expo and Trade Show in Egypt and the Doha Aviation Summit – regarding the current state of the sector. What is the competition like between the region’s three main air travel hubs and airlines, Qatar Airways, Etihad and Emirates, each based in the three main airports of Doha, Abu Dhabi and Dubai, and the ongoing debate whether the growth and investment in these facilities and fleets, so proximal to one another, is sustainable in the long-term? I think there is a lot of competition between the three of them, but I think they all have a great location, which is pretty much in the middle of the world. You have got a huge population of wealthier individuals growing in Asia. You have got a lot of people who have more disposable income, travelling more in the world…they have got to get from point A to point C via point B, being the Middle East…and unless you are taking a domestic airline like Chinese Airways or Air India, your only other choice is to take hub strategy, which is fly via the Middle East on Qatar Airways, Emirates or Etihad…I think this region is close to each other [though]. It is a big region, but it is very closely packed and I think they are a little more cooperative than the European market…because they all have financial capital to back them up.

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So these trios of airlines and hubs are only going to grow? They all have brand new aircraft. They all have great service and there are a lot of people willing to fly them…so you need all three. Now the questions it comes down to are: which one is going to have the smartest dynamic route strategy; which one is going into emerging markets, like Africa? Again you have got a huge population there with the likes of Libya and Nigeria growing in natural wealth…so there is only going to be more traffic. Apart from the transition in market demand from East to West, domestic and regional investment, particularly with reference to Qatar, is also increasing their business potential? Qatar itself and New Doha definitely will be all about people coming to the country for whatever reason that might be, like export or business reasons… there [are] economic strategies in investing in countries to build their infrastructure for their airports and aviation, so the bottom line is that as long as these countries keep investing in their market, I am sure their

airlines will continue to grow. Yes, there is competition, but there is a lot of opportunity still available here and there is no saturation yet. In Europe it is completely saturated, that is a market that is going to suffer and that is one of the reasons why they are being protective about allowing the Middle East airlines to impede on their airlines. On that topic, as the big three Middle East airlines and hubs emerge as global players, it is interesting to note that their airport taxes are far lower than Europe? You have charges to land on an airport, that is how airports make their revenue. They make money through non-aeronautical avenues as well, but the bottom line is that they have to make money. Now depending on where the airport is located, you have different charges, you have different government taxes, and you have different requirements. Of course, it affects [the airlines], because when they land they pay charges, and the charges in Heathrow…when you look at the ticket, it is expensive: it is GBP180 (QR 1000) in the United Kingdom


BUSINESS INSIGHT

(UK) and AED180 (QR178) on a ticket on Emirates, [and] the reason they can charge less is because they have less costs. Why is this? They do not have to pay as many taxes. They do pay certain taxes but not as much as in Europe, so the business is a lot cheaper and they can charge less. So that makes it more attractive to the airline landing. Would you call this a competitive edge? It depends on the nation you are working in, but in Dubai you will know that the government owns the airport and owns the airline. They know they want to grow the airline to this size, so therefore they invest in the airport, whereas in the UK, you want to be the biggest airline in the world, but you cannot make Heathrow grow any more. Also, they have more costs; therefore they have to charge the costs to the clients. In the Middle East, they do not have this as much and therefore they can take all the extra money and the extra profit they have and re-invest back into it the business. Is that unfair? Yes, it is unfair if you are an European airline and not a Middle Eastern airline, but it is tough… Europe has existed for hundreds of years and have all the legal and business restrictions [yet] they are suffering now, because they have not adapted to the market. The one question that pops into mind is: is there any opportunity for outside airlines to compete in the region or do you think that is something that is a long way off? Right now there are no open skies, but if everything keeps going the way it is going, one day there will be. Attracting and retaining good staff is another issue in the global aviation sector at the moment? Everywhere there is skill shortage. There are less people moving into the aviation sector than 30 years ago. 30 years ago in the United Arab Emirates (UAE) you had lots of hostesses… but now you with the advent of computers and IT…everyone wants to be

a programmer or a computer whizz kid, so the now there are limitations on hostesses, pilots, ground crew. Everywhere needs massive promotional excitement…and I think the whole of the aviation sector will have to work together to communicate that to young people. What can they do to achieve this? Money and knowledge. Investing, making it exciting to work in the aviation sector, providing great training, which Qatar is doing a lot of, building training facilities for aviation, right now they have 30 or 40 percent women in the training school [as well as] engineers. The Qatar Foundation is also supporting all of that. Also

so if they do it, then it will become too expensive to ship and then it will get delayed, so the world will not move. But we have not seen that many cargo planes blow up. Do you think technology can solve the problem for both passenger and cargo flight security? It does work and there is mitigation on it, but the bottom line [is] that technology can only help so far. [But] as we discussed, it is economically not viable for cargo, so what is stopping it is intelligence and that is where this communication between all the airlines, all the airports, all the civil aviation for these security forces need to work closely together.

“Qatar itself and New Doha definitely will be all about people coming to the country for business reasons…so the bottom line is that as long as these countries keep investing in their market, I am sure their airlines will continue to grow.” investing in quality staff, but at the same time paying better wages; the Middle East does a good job of this, but in the United States, they are struggling to keep pilots because they are paid a pittance, and that is why there are issues about people falling asleep on the job, they are tired because they are working second jobs. I think that is America’s problem, and I think it also exists in other locations too. What about security, this is another ongoing debate thrust back into the limelight by the parcel bombs that came out of Yemen in late 2010. The industry as a whole is obviously very aware of the issue, but what are the primary steps being taken in the region to address this? I [am] aware that there are a few nations right now talking to each other about what is going to happen. But It is impossible to screen every piece of cargo, or rather, economically unviable,

Finally, what is your viewpoint on the recent problems relating to Qantas’ Airbus A380 and Boeing’s delays in delivering its 787 Dreamliners to Qatar Airways for example? Do you think these stories combined with growing fears about security will negatively affect the industry? Delaying of deliveries is simply that, it’s a delay and will have some small impact, but I do not think it warrants anyone to worry about the future of aviation growth. Aviation technology has become far more superior over the years and the fact that a technical issue like the one you mention still enabled the aircraft to fly is testament to the safety measures that aircraft/engine manufacturers put in place. I do not think it will have an impact on the travel industry and it will continue to grow, as emerging markets like the Middle East continue to grow their routes and traffic. TheEDGE

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Electronic Devices

Qatar emerging as Gulf notebook market leader Raj Varma is business head of Notebooks, IT Division in Samsung’s Gulf operation and recently visited Qatar to launch the brand’s latest range of notebooks and notepads. With experience in companies across the region, Varma is well placed to comment on the state of this sector and revealed to Miles Masterson that the phenomenal growth in Qatar’s economy has made the country one of the prime markets for electronic devices in the region. What is the difference between a netbook and notebook, otherwise known as a laptop? If you look at it in layman’s terms, netbook is primarily for data access, whereas a notebook is for data processing. A netbook also has a limited size in terms of memory and limited functionality; it lacks for example an optical drive and it lacks multitask processing power. When you say data access, that means going onto the Internet? Fundamentally, browsing the Internet, emails, chatting. The netbook is targeted primarily at the student community, something low cost and affordable. But it has become very popular as a secondary device, in the [Gulf] region, where it takes up about 25 percent of the market, much higher than the developed markets, like Europe. Primarily these are the mobility factor – because it is very portable and small – and price. What is the percentage in the developed markets and who are the netbooks the most popular with among that 25 percent here? In the developed markets it is about 17 or 18 percent. Interestingly, though it is targeted at students, a recent global survey we conducted showed that students do not use netbooks. It is used a lot as a secondary device by people who are travelling, and aged people who use it as a device to communicate with their families.

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What are the practical applications of netbooks and notebooks for businesses? If you look at the applications of notebooks versus netbooks, you can take myself as an example. I use a notebook at the office, where my applications are many, including the basic ones such as email and Internet Explorer. I do a lot of downloading of files and creating of presentations, these obviously require a lot of processing power. But if I am travelling, such as coming to Qatar for a press conference, then the presentation is already done, I can transfer this to my netbook, come here and plug it into a projector, while I can still access my emails. It is interesting though that the notebooks are slowly taking over from the bulky traditional desktop computer, which is becoming obsolete, as the processing power is now pretty much the same? Desktop computers are a declining category in this region, but they are still strong in the lower emerging markets, such as Africa and so on. Price erosion is a factor there, in terms of desktop usage. Notebooks were quite expensive at one time, but now the price has come down it is far more affordable and is far more of a commodity now than a luxury. How much research goes into developing these products, both in terms of design, the practical application of these products

and their efficiency, as well as how they are released into the market? In terms of the notebook category, what differentiates Samsung from other brands, which not many people know, is that almost 75 percent of the components that go into the product are made by us. So for example, we are the world leaders in LCD panels; then we have the hard disks and the optical drives, which are made by Samsung; the battery is made by us, and the rapid access memory, which we are also the world leaders in, is also made by us. So we have separate research and development strengths on each of these components, they are talking to each other whole time and we are putting this all together and manufacturing this all in our own factories. This is also very important, because I can probably say that we are the only brand where all the products are 100 percent made by us and not outsourced. Is this unique in the industry? It is definitely. And it gives us an advantage in terms of cost efficiency [and] quality – because the entire process is monitored and scrutinised by us – in terms of the overall packaging to the consumer and that we can be the first ones to offer new technology. We don’t have to rely on suppliers, except for Intel for the processors and Microsoft for the software, so that gives us an edge.


BUSINESS INSIGHT

What about design? When it comes to notebooks, we have seven of these design centres all over the world, who actually try to cater for the local markets, so there is heavy investment in that. And as far as marketing is concerned…there is also heavy investment in that and it is a focus category. Are your products that are designed for, or made available in various regions, very different? Yes, our products are very different. The line we are handling in Qatar is very different to the line we have in Europe, the US or Korea, for example. Our products cater to the local requirements and that helps us communicate with the customer far better.

in terms of each segment, and we have some unique software that communicates between all our devices. This would include our mobile phones, televisions and computers, which can be connected with very simple software, and these are the kinds of things that we can offer to the consumer in terms of integration. This helps you market your products together? Exactly. So for example if I want to view the contents of my mobile phone, I can play it back on my television…everything talks to one another, so we have a synergy and this is a strength that we want to capitalise on.

“Qatar is becoming a very interesting and strategic market. There is a lot of interest in the entry level, price sensitive products, which drive the volume, but there is also a lot of interest in the higher end, premium products.” This sector of the IT market, notebooks, notepads – and you could include advanced mobile phones and also tablets in that – is growing fast and it is a very competitive market right now, including in the Middle East. Why do you think this is and how do companies gain an edge in this sector? For notebooks, I would say unlike the other categories like television or the mobile phones, where there are only four main brands, the number of brands operating in this space is large, about 12. So it is all about innovation, to be frank. If you are to survive in this information technology business…because the specs are very similar, the challenge is to innovate, in terms of design and technology, and in terms of what additional value you can offer the customer. If you look at our new line up, we are giving a wider offering now and segmenting the users, in terms of stylish and trendy, in terms of performance and in terms of entry level, etcetera. So we are diversifying our products

We touched on the products and marketing in the Middle East. What it is the sector like here, especially Qatar, what kinds of devices are popular here and are you seeing a lot of growth? In terms of the market size, from Samsung Gulf’s point of view, we handle only five countries: United Arab Emirates (UAE), Bahrain, Qatar, Oman and Kuwait. Previously until 2008 our biggest market was Kuwait, until 2009 – you can call it the growth of Qatar or the decline of Kuwait – but they became almost the same. In 2011 we expect Qatar to overtake Kuwait. So the growth has been phenomenal in this country in the last two years. In terms of sales, we are looking at almost 200,000 units annually, notebook and netbook put together. This year it was about 190,000 and next year we are looking at 220,000. We launched the notebooks only in 2009, so Qatar is becoming a very interesting and strategic market for

us. Within one and a half years were in the top three and in fact in Q2 this year, we were number one in notebooks and overtook all the players. So for us, we see Qatar as a very important opportunity, we are investing a lot of money here because our challenge right now is to get the lion’s share of the Arab community. Samsung as a brand is very popular in Europe… but the local community still need to be informed. So we are investing a lot in marketing. What is the reason for that rapid growth? Obviously the business environment here is exploding. Or is it private purchases driving sales? No, like you pointed out, the business environment is really key. A lot of multinationals are focusing on Qatar and a lot of businesses are coming into Qatar. The gross domestic product is very strong and also local spending has gone up, unlike Kuwait for example, where in 2008 when the recession hit, they were the most affected after the UAE, and we could see that in our sales and the consumer behaviour. But we didn’t find that impact in Qatar and, of course, now after the World Cup announcement, there is a very positive energy in the country and that will add further to the growth of Qatar. What are the kinds of products you are finding popular here? There is a lot of interest in the entry level, price sensitive products, which drive the volume, but there is also a lot of interest in the higher end, premium products. So a lot of our focus is on that and our investment will be on that line. I think the consumers here are ready for it; they are willing to pay a higher price for a quality product. How do you see the market in the next few years? The growth will definitely continue, not only in Qatar but in the Middle East as a region. We are an emerging market, so the focus for all the vendors and brands will be on the Middle East, because this is where they are getting the revenues as well as profits. We definitely see a consistent and stable growth, at least for the next five or six years. TheEDGE

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SUBSCRIPTION FORM 2011 TheEDGE is Qatar’s dedicated monthly business magazine.

TheEDGE incorporates a mix of industry news and analysis, in depth features, special interviews with key business decision makers, economic insight and market activity reports, and tips for how you can improve your day-to-day business operations. TheEDGE will not be available on the news stands, but will be delivered straight to the door of the targeted business community. To ensure you keep up-to-date, with what is happening in Qatar’s business landscape, fill in the subscription form (below) to receive TheEDGE on a monthly basis. Subscription is FREE (in Qatar). Forms are to be addressed to the Subscriptions Department at: TheEDGE Subscriptions Department Firefly Communications 11th Floor, Jaidah Tower PO Box 11596 Doha, Qatar

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The Edge - Jan 2011 (Issue 18)  

The Edge is a business magazine targeting ambitious professionals operating within Qatar’s multi-sector business landscape. The Edge is read...

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