Gulf Business | August 2011

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REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS

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MISHAL KANOO What’s so wrong with retirement?

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MATEIN KHALID Dubai is the next private banking hub.

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DR TOMMY WEIR Treat future leaders like your sons. DIPAK JAIN EMBAs offer global insight for a broader impact.

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JOHN CHAPPELEAR The importance of strategic thinking.

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FINANCE Pulling Dubai Inc. into the black.

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VIATION A Gulf Air battles unrest.

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REAL ESTATE Arabs snap up London properties.

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FINANCE Deutsche Bank gives roadmap for the Gulf.

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RETAIL Local teens splash the cash.

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INSURANCE The Arab Spring boosts liability insurance.

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JOBS Creating Arab opportunities.

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INDUSTRIES Saudi Arabia’s manufacturing drive.

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CUSTODY BATTLE Global banks are gearing up for a fight over asset management in the region.

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EGYPT AND THE GULF The status of the region’s investments in Egypt.

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OME STRETCH H Governments must build millions of Gulf houses in the next decade.

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DIGGING FOR TREASURE The Gulf’s minerals and mining drive. MANAGING RISK Banks shore up tier one capital for Basel III rules.

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STATS Regional mergers, acquisitions and bond issuances.

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TRAVEL Walk Jane Austen’s history in Bath, UK. CRUISE Reviewed: Maserati Quattroporte GTS. PLACES TO BE The Banyan Tree, RAK.

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GULF BUSINESS PREFERRED HOTELS A selection of the region’s top rooms. EVENTS The Gulf’s top business conferences.

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IN YOUR SHOES Piper’s Marina Diaz. Gi`ek\[ Yp <d`iXk\j Gi`ek`e^ Gi\jj# ;lYX`

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On the Radar

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$100bn to salvage MENASA growth – DIFC economist The Middle East, North Africa and South Asia (MENASA) region needs up to $100 billion in infrastructure investment per year to avoid a collapse in economic growth, according to leading economist Nasser Saidi. The Arab Spring highlighted the need for massive investment in infrastructure to achieve more inclusive growth and job creation, said Saidi, who is the chief economist of the Dubai International Financial Centre. In order to stimulate infrastructure development, the private sector needs to play a bigger role in supplying funds across the region, he said. Saidi added: “Well developed infrastructure is a long lasting contributor to a transformation of economies and societies, to the upward shift in productivity and in productivity growth.�

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BlnX`k X^i\\j fe e\n _fd\ ]fi :XeX[`Xe kiffgj Kuwait has become the new home for the Canadian military in the Gulf, just months after a UAE-Canada spat ended in hostility. Canada’s defence minister Peter MacKay said the new ‘transit base’ would support the movement of equipment and vehicles to and from Afghanistan A bust-up over airline landing rights had resulted in the UAE shutting down the Canadian Forces’ Camp Mirage military base.

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Jordan health kick for GCC Medical tourists fleeing protesthit Jordan could boost GCC countries’ healthcare sectors, according to Business Monitor International (BMI). Jordan’s Private Hospital Association reported recently that its members had seen a 25 per cent fall in patient numbers as a direct consequence of regional instability. BMI said more stable states in the GCC could attract jittery Jordanian patients. Jordan’s medical tourism sector, worth about $1billion, has been hit by Islamist-led protests, some of them violent, which have been taking place since the start of the year.

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Saudi-based NCB Capital’s pursuit of discretionary mandates will reduce its share in the Shariah compliant mutual fund market to 30 per cent in 2011, from 37 per cent last year. The drop is being partly attributed to the rising competition in Saudi’s mutual market. It will be NCB Capital’s lowest share of the kingdom’s Islamic funds industry since 2009. “The mutual fund market has expanded a lot and there’s a lot of new players coming in, so the pie is starting to spread out,� the bank’s CEO Jawdat Al-Halabi said. “Plus, we’ve been deliberately converting money market funds into discretionary mandates, so there has been a noticeable shift.� Wealthy investors are increasingly seeking customised funds with individually designed investment guidelines. As a result, firm’s Discretionary Portfolio Management service grew assets under management by 20 per cent in 2010. Meanwhile, in 2010, NCB Capital relocated 30 regional wealth advisors to its main Saudi branches to be closer to its biggest clients.

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GCC chemical spend hits $73bn Oil-producing nations in the Gulf have invested more than $73 billion into chemicals projects as they plan for life after oil, according to a study. Saudi Arabia emerged as the largest chemicals investor, pumping nearly $51.2 billion into developing chemicals plants. It represented 70 per cent of the GCC’s total petrochemicals investments, research by the Doha-based

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Gulf Organisation for Industrial Consulting found. Qatar came second, with investment of $10.5 billion. Meanwhile, chemical investment stood at $4.6 billion in Kuwait, $4.2 billion in Oman, $2 billion in the UAE and $488 million in Bahrain. The plants develop basic chemicals used for pesticides, paint, inks, soaps and cleaning products.

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People behave differently when they are in ‘shopper’ mode than they do when they are going about their normal daily lives as consumers. So as shopper marketers we use insight into their behaviour, to deliver communications that inspire purchase momentum and overcome barriers to purchase.

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Consider the different mindsets between sitting on the sofa whilst watching an advert for a cereal brand versus the reality of standing in the breakfast aisle of your local grocery store and staring at an overwhelming choice of brands. The consumer may have a lot of time for your brand when they are at home and may even consider the purchase but when doing the weekly shop, they often default to information available in-store. N_Xk Xi\ k_\ kffcj k_Xk j_fgg\i dXib\k\ij lj\ kf le[\ijkXe[ j_fgg\ij k_\e6

We will immerse ourselves in anything which helps improve a shopper’s life, whether that is way-finding in-store or from the car park, POS promotions, in-store TV, digital communication, experiential marketing, direct marketing or loyalty programmes. The world of shopping doesn’t start and finish in a shop, so our ideas travel beyond the store and we employ a wide range of media tools and tactics throughout the entire shopping cycle. ?fn [f\j [`^`kXc Zfddle`ZXk`fej Xe[ jfZ`Xc d\[`X gcXp X gXik `e j_fgg\i dXib\k`e^ Xe[ X j_fgg\ij gXk_ kf gliZ_Xj\6

It would seem many companies are seeing presence throughout social media as an awareness generating initiative, which in some way replaces or enhances above-the-line activity. But the potential of social media is not just an increase of brand awareness. Its power lies in its affect on inspiring Purchase Momentum. At a simple level, this could be a recipe guide that can be downloaded as a shopping list on an iPhone, or a price comparison tool. Or more technologically speaking, the next frontier in the Middle East will be QR codes which are already popular in Asia and the West but have not quite reached our shores.

Dubai Holding’s $2bn telco assets up for sale Dubai Holding’s main unit, Dubai Holding Commercial Operations Group (DHCOG), is expected to sell its entire telecom assets over the next three years to refinance future debt maturities and focus on paying contractors, according to J.P. Morgan. The investment bank said DHCOG may sell its $2 billion telecom portfolio by 2015 as it focuses on the repayment of an estimated $2 billion in contractor liabilities. According to a report by Thomson Reuters, the telecom portfolio includes a 19.5 per cent stake in UAE operator du and a 35 per cent stake in Tunisie Telecom. Earlier this month DHCOG said it had repaid the $250 million Swiss franc bond which matured on July 14, thus bringing its total debt from $4.45 billion in 2008 down to $3.6 billion. The company also made Dh2 billion in payments to contractors in 2010 and said it would continue to negotiate with contractors on a oneon-one basis.

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COMMENT

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Mishal Kanoo is deputy chairman, Kanoo Group.

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HAT IS THE PROBLEM WITH PEOPLE IN the Gulf and retirement? It is as if this word was the most diabolical word any owner/manager could come across. The question is – why? As a member of a family business, this concerns me more than that of the head of a corporation simply because successful corporations not only mandate retirement, they mandate succession plans to allow the retirement to go smoothly. Moreover, they also ensure that the person who is retiring is not left out in the wind by securing the balance of his or her financial future. That, I am sorry to say, is not the norm for most family businesses and certainly not for family businesses in the Gulf. In the Gulf, the idea of retirement is tantamount to saying ‘your time is up, thank you and have a good rest of your life’. That is not a bad idea if the retiring person has something to do. Unfortunately, most retirees have dedicated such a long time to their way of life via work

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that they end up with no life after. The idea that someone should retire to enjoy being with his family is an insult to them as this wounds their pride. The best way to help him move on to the next stage in life is to explain that retirement has several phases that a company can indulge in. This can be accomplished through retiring the person from an operational level while still playing an active role on the board. Also, the setting up of foundations helps the person migrate from the business to more familyoriented issues, such as charity. So while still keeping his social prestige, the retiree is allowed to migrate from a stress-filled role to a more enjoyable one. Lastly, and this would be the best solution, is that the retiree understands for himself that he has played his role and it is time for him to move on without causing too much of a fuss. In order to do that, he must realise that even if the company was to collapse under the actions of those who succeed him, that means that either he did not do his job correctly by properly imbedding his ways into their psyche or perhaps he stayed too long to allow the young ones to fail and thus learn from their failure. He must also be gracious enough to honestly commend those who do better than he did and encourage them to do more rather than be disgruntled that others are better than he was. Here is a list of signs to be aware that someone is ready to retire: ■ When he says, “In my day...” or “Back when/in...” ■ When his memory starts to fade and he can’t remember what he said a few minutes ago. ■ When he talks about the mobile as though it was just a portable phone. ■ When he has no idea what the internet is or how to use it. ■ When he believes that longevity equals right. That is to say, he has outlived all the others and, therefore, he has the right to take over. ■ When he calls men over 40 the youth of the company. Retirement is a joy that all people should look forward to. It is the reason we have children. To enjoy the balance of what we have left with the people who love us and we love back. All the money and power that we have earned will not remember us when we die.

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COMMENT

K?< NFIC;ËJ E<N GI@M8K< 98EB@E> ?L96 Matein Khalid is fund manager in a royal investment office and a writer in finance and geopolitics.

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HE PAST THREE YEARS HAVE WITNESSED a strategic transformation in the GCC private banking industry. The political turmoil in Bahrain, Egypt, Tunisia, Syria, Lebanon and Yemen has naturally boosted flight capital from the Arab world to private banking hubs such as Luxembourg, Switzerland and Singapore. However, Dubai has also emerged as the regions’ private banking hub, thanks to the political stability and safe haven status of the UAE, as well as the cosmopolitan ambience and regulatory umbrella of the DIFC. Ironically, banks such as UBS, Citigroup, RBS and BOA Merrill Lynch, which lost tens of billions of dollars investing in financial derivatives and subprime mortgages during the credit bubble, have boosted their regional presence in private banking as a fee income growth opportunity that does not require huge swathes of bank capital or forces shareholders to assume balance sheet risk. The US Dodd Frank bill, which forces banks to scale down their proprietary trading and ownership of hedge funds/private equity firms, has also encouraged Wall Street investment banks Goldman Sachs, Morgan Stanley and J.P. Morgan Chase to boost their global wealth management franchises. It is no coincidence that all the major Swiss private banks – Credit Suisse, UBS, Julius Baer, Pictet, Lombard Odier, Bank Clariden Leu and even the joint venture Bank Sarasin Alpen are all represented in the DIFC’s constellation of global wealth managers. The “cluster effect” in private banking is invaluable for Dubai as an entire ecosystem of specialist bankers and service providers (lawyers, accountants, credit specialists) enables banks to quickly scale up their businesses. The impact on the wider UAE banking system is also visible,

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as regional capital inflows have boosted UAE bank deposits above $300 billion in 2011. In essence, despite the woes of the property markets and anemic net credit growth, the UAE banking system can well increase its deposits at almost double digit rates, a fact that will only boost the UAE’s safe haven status, attract the crème de la crème of international finance to the DIFC and enhance the local banking system’s earnings growth rate. The frequent and at times arbitrary asset freezes imposed by the US and EU will also benefit the long-term growth of wealth management centres in Southeast Asia and the Middle East. The GCC has been a nodal point of global private client liquidity ever since the OPEC petrodollar bonanza in the 1970s. Political risk in countries such as Lebanon, Pakistan, Iran and Egypt have also attracted regional capital flows into the UAE. The Cap Gemini Merrill Lynch 2010 World Wealth Report estimates that 400,000 high net worth investors in the Middle East control no less than $1.7 trillion in assets. The private banking market in the Gulf is a natural El Dorado for both global and GCC banks. The new realities of GCC finance provide an exceptional opportunity for UAE banks to build scalable, world-class private banking and wealth management franchises. It is mission critical to design product platforms and service capabilities that address very specific client segments in the UAE. The ethos of private banking mandates an obsessive focus on the most sophisticated investment advisory process possible, global strategic alliances with specialist wealth managers and the cultivation of long-term client relationships. It is myopic to focus only on product sales and the risk reputation of the brand. The UAE’s role as the regional safe haven offers local banks strategic ballast to build their brand and create innovative platforms. Private banking in the UAE is a gold mine but gold mines do not mine themselves. They have to be nurtured and developed over time in a milieu that often encompasses decades and generations.

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COMMENT

=8K?<I 8E; JFE Dr Tommy Weir, managing director of the Emerging Market Leadership Centre, and author of The CEO Shift

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M FREQUENTLY ASKED “HOW CAN WE GROW FUTURE leaders?” While giving the keynote address at the Middle East Business Leaders Summit I was asked again by a seasoned CEO, “How do you build responsibility into future leaders?” Like most leaders, you may have an opinion on how to grow leaders yet you remain inquisitive about what you could be doing better. So, let’s take a look at this very important topic in a region that is gripped by a youth bulge. The answer to this query lies in the heart of Arab tradition where the father is a paramount figure in the life and development of a son. He is the symbol of authority and central to guidance by being actively involved in the son’s upbringing. You grow leaders in much the same way that a father raises a son by taking an active role to ensure that they are prepared for life. Arab life is crowded with practical leadership development examples – consider the Majlis where the sons sit among adult men and are expected to behave like adults, usually not speaking but sitting quietly at the side listening to the grown-ups conversation. In the Bedouin tradition, children assume adult responsibilities at an early age – tending goats, collecting firewood and doing household chores. Even in the more urban environments, fathers bring their sons to the shop where the boys learn the commercial skills of trade. A modern day example of a father raising a son and a leader raising a leader is found in HH Sheikh Mohammed bin Rashid Al Maktoum preparing his son Sheikh Hamdan to be a leader. Instead of relying exclusively on the formal education of the UK military academy Sandhurst, it is very clear that Sheikh Mohammed created an environment for his son to learn how to lead. Education means more than what takes place in the formal school setting. While the school meets the academic requirements, it is the family that instils the value system, social conscience, and the

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practice of daily life. Sheikh Hamdan confesses that his father is his tutor in life and he continually learns from him and takes his views as a guiding star regarding many strategic issues. So, what can be learned from the practice of raising a son to helping raise leaders in the corporate world? Becoming a leader is more than receiving a promotion and training course. Successful preparation requires exposure, guidance, opportunity and support. <OGFJLI< a commonality among successful leaders is that they were exposed to future challenges and role requirements long before they held the leadership role. Unfortunately this usually comes by happenstance or on rare occasions through a good mentor. People who move up need role models who provide a preview of the future reality. >L@;8E:< This is the active part of growing leaders. While training programmes are good, they will never replace the value that comes from a leader guiding a future leader. Leaders who are serious about growing others ‘roll up their sleeves’ and do the hard part of teaching others to acquire the mindset, skills and behaviour that is fitting of a leader. Doing so not only grows future leaders, it makes existing ones better. FGGFIKLE@KP Like becoming a doctor, leaders only become such when they lead. So the core component is providing future leaders with a chance to lead. Start with a project – not a role. Then, after success, increase the scope of accountability and allow for greater impact. JLGGFIK Please don’t ditch your future leaders when you promote them. You need to continue to be their encouragement, coach and a leader they can learn from as you help them to further improve. This is not the HR department’s job; it is every leader’s privilege and responsibility to cultivate other leaders. Growing a leader, like a father raising a son, is a far better approach than the ‘sink or swim’ or promotion and training course approach. In addition to building skill and instilling the correct behaviour, it psychologically prepares leader for the future while equipping him/her to take advantage of the opportunities of the future.

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Dipak C. Jain is the dean of INSEAD international business school

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OOD IDEAS ARE COMMON, THE saying goes. Rare are the people with the knowledge, network, and discipline to turn those ideas into meaningful action. Business schools refine promising ideas and provide the leadership skills and strategic tools that create material success. In my view, these schools also have the responsibility to advance management in ways that make a significant positive contribution to the world. One way that management institutions deliver on these goals is through education designed for seasoned professionals, those with several years of work experience. Often, these people have some management background, but they may be seeking knowledge that lets them really advance in their careers, or even explore new opportunities in another field. They may desire general management frameworks or specific, domain-based knowledge targeted to a given sector, like healthcare or energy. And they may wish to gain this expertise relatively quickly, while remaining in their jobs where they can put this information to work right away. At INSEAD, we believe that this multinational, multicultural, and multiconnected business world needs leaders with the knowledge and sensitivity to operate anywhere.

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The executive MBA programme is a valuable strategic asset for leaders who face increased global market complexity, uncertainty, and competition. The best EMBA curricula are designed to amplify the potential of those who have already enjoyed some professional success and who now are looking for advanced, up-to-the-minute knowledge and leadership insights to let them excel at an even higher level. What’s more, these programmes give executives the chance to make an immediate difference at their organisations by putting ideas into action right away. While every business school approaches this task differently, I believe that these are some critical elements that make for a robust curriculum: ■ Strong analytical and managerial frameworks delivered by excellent faculty. ■ Vigorous collaboration that builds advanced leadership skills. ■ Global perspectives gained through course content and classroom interaction with diverse, talented peers who come from around the world and across many industries. ■ Opportunities for great personal development. In addition, this education should develop a leader’s ability to anticipate change even when clear forecasts are difficult to make due to market complexity. In fact, this complexity means that no one person, no matter how talented, can see the entire picture or around every corner. That’s why it is crucial for leaders to harness the talents of teams whose members each bring particular expertise to the organisation. The right EMBA programmes teach how to achieve this challenging, yet essential, skill. Other benefits conferred by a top EMBA programme include membership in a global community of practitioners and scholars. This network offers lifelong advantages, through enriching professional relationships and personal friendships. When this network is especially strong, with great geographic, cultural, and professional diversity, the benefits are also greater as doors open easier.

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VERYONE KNOWS STRATEGIC planning is critical to long-term organisational success. But, sadly, not all strategic planning turns out to be successful. A strategic plan is a highly structured, tangible product with specific times for implementation (usually one to five years) and a very worthy objectives. The envisioned product is highly touted and initially creates fanfare within the organisation, but many times the enthusiasm is short lived and very quickly the strategic plan is left sitting on a shelf collecting dust. Even with the best intentions, creating and sustaining positive change is difficult. Traditionally, strategic plans are designed to create organisational change. They require communication and advocacy to bring about the desired results or there is a risk of generating unnecessary fear, eroding trust and slowing productivity. That is why developing an organisation filled with strategic thinkers is so critical. While strategic planning paints the big picture intended to effectively guide an organisation forward, it is strategic thinking that gives the organisation its ability to effectively and consistently implement critical strategic goals. Strategic thinkers are workers, managers and executives who clearly understand the Strategic Plan and are focused on turning its goals into reality. They are empowered and encouraged to identify strengths and weaknesses within the current flow of goods and services. Strategic thinking allows your management team to generate a vibrant and consistent mindset, which spreads throughout the organisation allowing everyone to more deeply understand the way

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the organisation works. Strategic thinking creates a living and breathing Strategic Plan and drive’s good decision-making. J<M<E :FE:<GKJ F= JKI8K<>@: K?@EB@E> (% I am a part of a greater whole. I am only successful when we are all successful. )% We always keep our focus on the guiding principles of our organisational mission, vision and values. *% Everyone is an equal part of the whole. We value and desire input from all members of our community. No one is excluded. +% Each daily action guides us successfully toward our overall strategic plan. ,% We agree to put aside personal issues and conflicts for the successful achievement of our strategic plan. -% I am committed to be an active participant throughout this process. As a strategic thinker I will continually review how my work and behaviour affects my unit and how my unit’s work and behavior affects my organisation as a whole. .% We agree that all feedback and suggestions will be made with a positive focus on the problem and not a negative focus on an individual or unit. Strategic thinking creates a powerful sense of commitment, which in turn delivers a highly positive and productive workforce and a profitable organisation.

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N THAT FATEFUL November weekend, Dubai World broke its $25 billion promise to investors, leaving a black stain on the emirate’s reputation that lingers nearly two years later. After several painful restructurings at government-related entities (GREs), Dubai is in much better shape, but by no means out of the woods. Nervousness has grown over a $26 billion debt pile that matures next year.

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“In light of recent Arab Spring events the UAE has a lot to lose if it allows its strategic GREs to default,” said John Bates, head of fixed income at UK-based asset manager Silk Invest. “There is no doubt that 2012 will be a crucial year for Dubai Inc.” To avoid default, Dubai GREs can refinance, rollover or restructure debt; the chances of full repayment of next year’s money owing is highly unlikely, said Bates. Real estate companies are of particular concern mainly due to weak confidence in the local property market. The ability of the Dubai government and GREs to pay off its debt relies heavily on the performance of the real estate sector. Bates said restructurings and debt extensions are the most likely routes

for most entities. “In many cases, the ambitious plans laid out in the early 2000s have been drastically scaled back. It is interesting to note that in the capital bond markets debt defaults have been extremely rare and limited to the real estate sector. Typically creditors would rather roll over than face default.” In 2012, the Jebel Ali Free Zone Authority (JAFZA), DIFC Investments (DIFCI) and Dubai Holding are the largest Dubai entities facing debt maturities. In total they owe $3.75 billion through a combination of bonds and loans. To meet these obligations, they may need external help from the Dubai Financial Support Fund (DFSF) or be forced to sell assets. So far the DFSF has used $18.5 billion to finance Dubai World and Nakheel’s

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recovery. Last month, Nakheel got the approval of all its bank creditors to restructure its debt, as well as to formally separate as a company from Dubai World. JAFZA has a $2 billion Islamic bond, or Sukuk, maturing in November 2012, but analysts say its chances of repayment have improved thanks to healthier projected cash flows. Ayesha Sabavala, who covers MENA for the Economist Intelligence Unit, said: “JAFZA gets substantial licence and other fees from companies, as well as income from providing various administrative services to companies operating in the free zone. JAFZA should be able to refinance its sukuk.� But others worry that JAFZA lacks any substantial monetisable assets as it does not own land forming part of its facilities. This could pose a problem when attempting to refinance the entire Sukuk internally. Meanwhile, Standard & Poor’s (S&P) rates JAFZA at ‘B’ and DIFCI at ‘B+’ on its $1.25 billion Sukuk due in June 2012, both of which carry negative outlooks. But the ratings agency’s definition of a default is quite strict and includes any exchange offers or restructuring that requires reduced financial terms for investors, such as lower coupons or longer maturities. In this narrow sense the two firms face a good chance of default on their sukuk. Tommy Trask, credit analyst at S&P, said: “For JAFZA and DIFCI, our working assumption is a combination of asset sales, rollover and refinancing of existing debt and if necessary some form of government assistance for DIFCI. Although some form of debt

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such as Emirates Airlines and DP World continue to make money and investor confidence seems to have gradually returned to the market. Taking all these factors into account, Dubai will be able to roll over its debt in 2012 as the risk of default seems to be negligible.� It’s likely that Dubai will use the same Dubai World and Nakheel template for any restructurings in 2012, which is to service the bonds and restructure the loans. Whether GREs will require external assistance to deal with the larger maturities is yet to be seen. It may be some time until Dubai regains the complete trust of its longsuffering investors, but it seems there’s no better place to start than 2012. If next year is the emirate’s opportunity to distance itself from default, then it should grab it with both hands. It could be a decision that proves critical to future prosperity.

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HE BAHRAIN POLITICAL turmoil has been a major setback, not only for its people, but also for its national carrier, Gulf Air. New boss Samer Majali was brought on board almost two years ago to turn around the island’s ailing state airline. The ex-Royal Jordanian CEO had been streaming Gulf Air’s operations with some success, but unrest on the island has brought yet more challenges. “The drop in passengers was considerable – we saw a 25 to 30 per cent drop. A lot of this was driven by the travel bans, not just in Bahrain, but also the region,” says Majali. “We lost some traffic because we didn’t have the F1. We

also suspended certain elements of our network at the same time as well.” The CEO says that the unrest has been painful but it will not permanently distract from his plan to turn around the airline within three years. “2011 was the second year of the strategy plan and we are trying to get back on track as much as we can. It’s all an issue of perception – obviously, the media has portrayed a worse view of what has happened in Bahrain and the region. The faster we can improve the image of Bahrain and the region to the rest of the world, the faster we can recover. And that’s basically it,” he says. “In the past people used to avoid bad spots for longer periods but, now, because there’s no particular region on earth without issues, people are becoming a bit more blasé. They forget more quickly and return again after the event.” Majali is at home with adversity having taken on his role at Gulf Air when the carrier was rumoured to be

losing $1 million a day. He claims the first year of the turnaround plan was very successful and told Gulf Business last year that he had carved out savings for the airline through streamlining staff, marketing and planes. “The second year started off on the right foot, in the terms of the first month – then the events, not only in Bahrain, but also in the region, happened, so we’ve been simply concerned with continuing our operations as much as we can,” he says. “Gulf Air did not stop a single flight because of the events or lack of resources and we are very proud to be able to continue to connect Bahrain to the rest of the world throughout the entire period. Passengers are coming back in good numbers, and we hope we can recover very soon from the traffic we lost in February, March and April.” This year the company has pushed ahead with ambitious expansion plans, launching nine routes, including Nairobi, Kabul, Copenhagen, Geneva and Milan. “It is part of our strategy to increase our dominance in the region itself and connect up key markets beyond the region with Bahrain. Milan is a good destination for us as it’s recognised as one of the business centres of Europe – at heart of industrial northern Italy and central Europe. In conjunction, we opened Geneva at the same time to give Bahrain direct access to Switzerland for finance and tourism,” adds Majali. “We got out of routes that were not doing anything for us. We invested heavily in primary and secondary routes within a three-hour radius of Bahrain. Our job is to become the regional network of choice, so that people can travel from anywhere within the Middle East and through Bahrain to anywhere else.”

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HE NUMBER OF cash-rich Middle Easterners buying into London’s glitziest postcodes has gone through the roof this year. Whether it’s a divestment away from the regional unrest or simply to secure a summer vacation spot, the UK capital has increasingly become a home away from home for wealthy Gulf Arabs. London’s top agents are now working round the clock to find trophy assets that meet the long list of demands of GCC house hunters. Most report

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that affluent investors swoop in and snap up a property without a second thought for a mortgage. And this year, good-looking areas such as Belgravia, Knightsbridge, Mayfair and Chelsea have seen a spike in demand. Nicholas Ayre, a buying agent at London-based property search firm, Home Fusion, said: “Some buyers will use their houses a few months a year when its really too hot to be in the Middle East and others may spend longer periods of time in the UK. Some buy for their children to have a place to live in while they are at university in the UK. In all cases the properties need to be what we call ‘lock up and leave’, so good security while they are unoccupied.”

Ayre recently arranged the purchase for a Middle Eastern client of a $11 million property in Knightsbridge. He said in an unfamiliar climate, they are always vigilant to guarantee a good deal. “In the initial meeting I will discuss with the client the three golden variables in search: location, budget and size of apartment or house. Very often I will work with the client to agree an initial search area based on budget and where they like to socialise in London. “Once I have collated a short list of suitable properties I will contact the client to agree a time that we can jointly view the properties. If the client is not in the country I may work with their

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economic and legal framework that allows for solid growth in house prices. Andrew Phillips, regional sales director at London-based Hamptons International, said: “The reality is that Middle East investors were the first international UK investors in the 1970s and have continued to view prime central London residential investment as a good long term investment opportunity.� He said Hamptons has witnessed a rise in investment from GCC homebuyers in the last six months, mainly due to the political unrest. “Oil prices can swing at any time of the year, but it’s the political unrest that has encouraged the greater recent Middle Eastern residential investment impetus,� Phillips added. Real estate consultants Knight Frank said in June that prices have risen 34 per cent since their recent post-credit crunch low in March 2009 and prices were now at a record high, two per cent higher than their previous peak in March 2008. Prime London property rose 0.9 per cent in June, contributing to annual growth of 8.3 per cent. Meanwhile, Knight Frank revised its forecast for prime central London price growth from three per cent to nine per cent this year. It seems that without a dip in sight, prime property in London’s swanky districts will continue to catch the eye of the upwardly mobile in the Middle East for the foreseeable future.

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EUTSCHE BANK HAS a long history in the Middle East. With a first transaction for the Istanbul-Baghdad railway in 1888, the company claims deep regional roots. In 2005, it made a decision to increase its presence from representative to operational status in the region and 200 people are now working locally on its behalf. With offices in Dubai, Abu Dhabi, Riyadh, Doha and representative offices in Cairo and Manama, the European giant is now firmly established across the region. Qatar and Bahrain’s efforts to become dominant regional financial hubs have failed. Bahrain is prey to unrest from its discontented and disenfranchised Shia majority, while Qatar has decided to focus on asset management and insurance after failing to gain traction on a scale to match Dubai’s. “Dubai is now a regional hub where we have 160 people working. We now

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trade on MENA markets out of the region. Deutsche Bank has been actively engaged in markets throughout the Arab Spring, despite the volatility in February and March,� says Salman Al Khalifa, the firm’s head of MENA markets. Deutsche Bank started out selling international products into the region, then originating and selling local products and has more recently been active in intraregional business, especially stocks. “We’d like to grow and take things forward,� he says of the company’s regional derivatives and e-commerce commitment. Noteworthy is Deutsche Bank’s expansion of its trading operations in both Dubai and Riyadh, including the setting up of a corporate treasury coverage team. The Arab Spring has seen a big drop in volumes across the board, says Al Khalifa. Citing Egyptian forex as an example, Deutsche Bank has seen a more than 50 per cent drop in activity: it used to trade around $300 – 500 million in treasury bills and forex; more recently, this sum has fallen $100 – 200 million. Equities are similarly off trading and index highs. Deutsche Bank is active in nine MENA equity markets, particularly Saudi Arabia

and the UAE, covering 60 stocks in its research, in the region’s main sectors of oil and gas, financials, and others. “We continue to be optimistic on equity markets. Trading conditions will be tough. There is tightness in the market. Our optimism is driven by significant government spending plans, and GCC infrastructure [projects] over the next five to 10 years. High oil prices continue on a global basis and this will drive government surpluses and the ability to spend, along with corporate earnings,� says Al Khalifa. Further, the slump in regional IPOs has become the single most symptomatic factor of the decline in equities. Since 2007, bond issuance has been nearly triple that of equity offerings, at $141 billion. Bond issuance peaked when the financial crisis bit hardest, in 2009, at $44 billion. First half 2011 issuance has been five times that of IPOs, at $10 billion and could end up being a much greater multiple. Historically, the region has been extremely reliant on bank debt to fund government-related activity, entailing frequent refinancing. This is changing. Given the right market conditions, Al Khalifa believes that bond issuance this year will match 2010, with some $30 billion more to come before year’s end. Certainly the current low interest rate environment is conducive. “In 2010, the last quarter saw more issuance than the first three put together.� Given the right window, he believes this will be driven by market conditions and global investor appetite. “Is there a backlog? Yes there is. Will it [be cleared] under the right conditions? Yes.� The delay of a decision on whether to upgrade the UAE and Qatar’s equity markets from frontier to emerging within the MSCI family is further evidence that international investors will continue to treat the region gingerly until the full implications of the Arab Spring are clear. However, with most of the political action in North Africa and the Levant, it’s a safe bet that the GCC economies will bounce back from the financial crisis with their reputations enhanced.

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ARENTS IN THE Gulf are raising a generation of recession-proof teenagers who are capable of sustaining astonishing levels of spending through any crisis, experts say. Teens in the UAE and Saudi Arabia are among the most resilient at the malls, with the 2008 recession and most recent political instability hardly leaving a scratch on their credit cards. The extent of consumption habits was laid bare by a global study from market researchers AMRB and TRU. It found an extraordinary pattern of spending among Emirati teens, who focus on gadgets, cosmetics and mobile phones. The research will be music to the ears of popular consumer brands in the region that now leave teens almost helpless against their seductive ad campaigns. Deepali Bamane, project director at AMRB, said 75 per cent of Saudis

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between 12 and 19-years-old even plan to spend more next year, despite uncertainty about the rumbling unrest across the Middle East. They made this brash admission in a series of face-to-face interviews. “The Saudi teen spends around $56 in a week, while the UAE teens are the second highest spenders in the world and spend $103 in a week…Spending was higher only among Norwegian teens with $134,” said Bamane. Constant advertising of big brands and a predisposition among Gulf teens towards international names has accelerated sales, she said. The impact of the global downturn was “hardly visible” on the UAE teen population, partly because of the federal government’s support for Emiratis. “The downturn would have impacted

the expats in the country much more severely, but in our exercise, we are referring only to local Emirati teens – hence, the impact of the downturn is hardly visible.” Egyptian teens, also covered in the study, spend one fourth ($32 per month) that of a global teen ($120), and were in fact the most conservative spenders in the Middle East. Egyptians and Saudis had the highest future spending expectations though, according to the findings, indicating that the recent recession had “at least had a stronger psychological impact on Emirati teens, which is perhaps due to the UAE economy being much more interlinked with global business patterns.” Critically though, youngsters are learning their lavish ways from their parents, said Sana Toukan, research manager for the Middle East at Euromonitor International. “The rising mall-culture where both adults and teens spend a large proportion of their time in the mall both to shop and escape the extreme temperatures in the Gulf region is pushing teens to be even more excessive in their spending. Although the UAE is a less conservative country compared to Saudi, there are some restrictions on the local population which explains why youngsters adopt excessive shopping habits in an attempt to fill their time.” Toukan added that big spending was a result of high disposable income and the status associated with brands, a notion well-established in the Gulf and the UAE in particular. “The more expensive the brand or gadget the higher up a youngster is up the social scale.” Euromonitor International predicts that teen spending in the UAE and the GCC as a whole will remain high independent of the regional unrest.

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HE ARAB SPRING threw a spanner in the works for Takaful insurers who were counting on growth in key markets, such as Egypt, to help recover from the recession. However, government spending in the Gulf, new regulations and an increased insurance awareness are set to fuel insurance growth levels. Governments across all six Gulf states have increased their budget spending and social handouts in answer to demands for economic reforms, while regulatory authorities in countries such as Saudi Arabia have introduced compulsory medical insurance. In the UAE, the initial public offering of Islamic insurer Wataniya earlier this year was oversubscribed at least six times, pointing to investor interest in this segment at a time when IPOs have dried up. Oman, the only Gulf state without an Islamic bank, authorised the creation of Islamic financial companies in a bid for a slice of the growing $1 trillion Islamic finance industry.

Global Takaful contributions could reach $25 billion by 2015 if they continue to grow by 31 per cent annually, according to Ernst & Young. Saudi Arabia, Malaysia and the UAE are the top Takaful markets and the family Takaful segment remains unpenetrated in the MENA region. But the political turmoil has already left its mark on the Takaful industry, with international insurance companies taking a step back. “While there are pressures on those players to find new markets and grow, there is a concern about the volatility in the Middle East,” said Peter Hodgins, a partner at law firm Clyde & Co. “We had inquiries from companies that were looking to relocate their central hub from Bahrain to Dubai and Qatar.” The region’s Takaful and conventional insurance industry overall suffers from low penetration rates due to the cultural suspicion towards the product and lack of education. But Takaful stands to gain more customers due to its ethical aspects: prohibition of investments in un-Islamic activities such as gambling and its interest-free form. Regulators in the Gulf are also trying to limit the number of Takaful licences and encourage consolidation to bolster the industry.

“In Saudi Arabia, it is becoming quite clear that the Saudi Arabian Monetary Agency is encouraging new entrants to the market to consider acquisitions rather than apply for new licenses,” said Hodgins. The lack of harmonisation of insurance laws from country to country - and in the case of the UAE from emirate to emirate - regarding medical insurance is an obstacle to consolidation and the expansion into new markets. Another problem facing Takaful companies is the added cost of having a Sharia board. Rising competition, shortage of expertise, and sociopolitical uncertainty were named as the top three risks plaguing Takaful companies in a survey conducted by Ernst & Young. “The shortage of a qualified talent pool is the number one hurdle that operators have to plan for,” said Ashar Nazim, MENA head of Islamic financial services, Ernst & Young. “This expertise is scarce and comes at a premium and there is a lack of sustained initiative to enlarge this pool in future.” The lack of a developed regional Sukuk market and the dearth of longterm Islamic bonds is another issue. Takaful companies, like conventional insurers, need to rely less on income from investments and focus more on underwriting profits, whereby they generate income when contributions from policyholders exceed claims. The Arab revolution wave may help in this regard because an increase in claims could lead to a growth in contributions, while the financial crisis and the subsequent high-level debt defaults have highlighted the need for liability insurance, said Hodgins. “In the short-term, the Arab Spring is creating a lot of liability and that is not necessarily a bad thing for insurance companies, because if there is a volume of claims, premiums will rise,” said Hodgins. “Arguably, in the medium to long-term, the Arab Spring maybe very beneficial to the extent it results in regime change that may create investment opportunities for insurance and Takaful companies.’’

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IDESPREAD YOUTH unemployment in the MENA region has been one of the key catalysts of uprisings across the Arab world this year. In April, global business consultancy McKinsey released a report that said the Arab world’s future prosperity “depends” on its youth. Citing figures indicating that more than a quarter of the MENA region’s youth are unemployed, McKinsey stated: “So far, the region’s governments haven’t focused sufficiently on a vital component of the employment picture: how to ensure that the region’s young people have the right skills for the jobs being created. “There is wide recognition that if nothing is done, unemployment levels are likely to rise further as a result of a

demographic bubble: about one-third of the population is below age 15. As a result, millions of young people will enter the region’s workforce over the next 10 years.” Improving qualifications and skills among nationals is a must to address the unemployment issue and bring locals into the private sector – despite the fact that widespread statistics indicate the vast majority of GCC nationals (particularly in the UAE and KSA) prefer government jobs. In March, the chairman of the Young Arab Leaders UAE Chapter, Sultan Sooud Al Qassemi, quoted research indicating 61 per cent of Emirati youth in the UAE prefer to work in the government sector as being disastrous, because pumping that many new government jobs into the country simply isn’t feasible. According to Anil Khurana, Dubai director of business consulting firm PRTM, approximately half of youth unemployment in the KSA is “structural unemployment” – meaning that there are simply “not enough jobs, independent

of capabilities or education. This exists around the world, including the US, but the number is higher in Saudi Arabia.” Khurana adds: “The KSA needs to create three to four million jobs in the next 10 years, of which 60 per cent will need to be in the private sector. This means 25 per cent more jobs than today, and this can only happen if there is dramatic job creation in a job-intensive segment such as manufacturing – international benchmarks suggest that every manufacturing job typically results in almost as many indirect jobs.” According to McKinsey: “Demand for private-sector involvement is substantial, but supply is limited. Vocational education and training, private universities, and work-readiness programmes are the major categories of private investment opportunities, but several critical enablers of private participation are missing, such as rigorous standards to ensure students are taught the right skills.” Rabea Ataya, CEO of MENA careers and jobs website, Bayt.com says: “Rising unemployment in the GCC today is set against a background of a still lethargic global economy and similar rising unemployment trends elsewhere across the MENA region.” “The questions are: how prepared and flexible is this talent pool for the requirements and rigours of the current workplace? How quickly are regional institutions willing and able to accommodate this talent pool, to invest in their training, growth and development, and to implement policies to properly engage and retain them?”

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SA’S SPENDING SPREE was directly ignited by the spreading regional unrest after the fall of Hosni Mobarak’s age-old regime in February. The Saudi King announced billions of dollars of spending addressing areas of social and economic need that had been largely neglected or avoided until the spending was announced. This includes stimulating the private sector through incentives, investing billions into infrastructure, and addressing widespread housing shortages and unemployment among nationals – 25 per cent among youth between the ages of 18 and 30 – through various initiatives such as the announcement of half a million new homes to be built and. Companies have also been cornered into hiring Saudis as part of a heavily monitored Saudisation programme. PRTM provides clients in KSA with strategic advice for promoting industrial

development in the region, as regional governments increasingly work to promote private sector investment in growth sectors. Anil Khurana, lead director of PRTM, Middle East, says change in the KSA right now is “driven by the economic demands of the country, the need for employment. There is the realisation that if they don’t do it now it’s a major issue – economic development perspective. “The second is the realisation that oil will run out over the next few decades. In addition, growing demand and opportunities also mean the private sector sees industrial manufacturing opportunities as profitable, adds Khurana. Khurana and PRTM’s principal associate partner Masood Hassan have identified six key trends seen over the past 18 months in KSA: the generation of wealth through developing manufacturing capability; an upfront level of investment in the innovation process and research and development; a value-chain approach; more women in manufacturing; private partnerships; and being ‘green’ and focusing on sustainability. Masood explains “Historically manufacturing was seen as a second-rate

activity, but has increased in importance as the oil and gas sector, which accounts for the bulk of the Kingdom’s industrial sector, is heavily technology intensive compared to the small and medium-sized manufacturing enterprises that are more manpower reliant.” Some examples of economic focus sectors include automotive, new energy (solar, biofuels), medical devices, and pharmaceutical. Acknowledging that innovation and research and development are key pillars of a knowledge economy is what’s driving investment in this area. Khurana and Masood explain the idea behind building a complete value chain in an industry is to create a collection of suppliers and service providers. This is one way that has led to an increase in public and private partnerships. There has been a two to 11 per cent in increase in Saudi women in the manufacturing sector over the past five years, says Masood. One way companies are leveraging women into their companies is by creating separate facilities for men and women, separate entry and exit gates, and bussing the women into work. In buildings where men and women both work, they are separated by a wall. “In past five years this has become more common,” says Masood. This can also be identified as a substantive effort in the Kingdom’s Saudisation programme. Masood explains: “The whole idea of Saudisation is the transfer of technologies, capabilities and skills, so that the Saudis can stand on their own feet.” Finally, an increased environmental awareness is being realised by companies who see being green as a way to be competitive beyond simply reducing costs in the traditional sense by reducing overheads and materials costs. Being green and sustainability both offer cost advantages. “There is recognition that Saudi companies can be globally competitive,” says Masood, which is combined with what he describes as, “an emerging mindset among the younger generation – which is more educated and exposed to global practices – that new and innovative ideas need to be tried and implemented.”

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nan Fakhreddin is tense. His wide eyes are the mark of a man who has been handed one of the UAE’s most difficult challenges: turning around the fortunes of Damas International, the Middle East’s largest and most beleaguered jeweller by equal measure. When the CEO joined the firm from The World Gold Council 16 months ago, Damas was mired in the biggest scandal to hit a UAE-listed company to date. The firm’s three Abdullah brothers were convicted by the Dubai Financial Standards Authority (DFSA) of withdrawing some $167 million in ‘unauthorised transactions’ from the century-old family company having effectively used public funds as a personal bank account, for everything from petrol receipts to real estate purchases. The DFSA ordered the brothers to pay suspended fines totalling Dhs11 million, asked Damas to dissolve its board, and banned the Abdullahs from residing on any board for up to 10 years. “I’ll be very honest with you, it’s been difficult. The amount of work in the first

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few months was unbelievable,� says Fakhreddin, speaking from the firm’s new and gleaming headquarters in Dubai’s Jumeirah Lake Towers – a symbolic world away from the historic but dusty confines of the family’s former office in Deira’s Gold Souk. “There was a vacuum of power before the new board was put in place and, yes, we were firefighting.� There were many fires: the firm’s plummeting share price, which, at 10 cents, is still 90 per cent less than the IPO price; international luxury jewellery brands were fleeing Damas representation; and the company owed $872 million to around 25 banks, including French behemoths BNP Paribas and Credit Agricole. One of Fakhreddin’s biggest achievements to date is clawing in a six-month profit for the first half of last year. Damas reported a net profit of Dhs4.24 million ($1.15 million), a major turnaround from the same period in 2009, when the retailer posted a loss of Dhs713.3 million ($194.21 million). The CEO has also successfully brokered a deal with the firm’s sea of lenders to pay back its debt over a six-year period.

“We’ve recently paid back Dhs200 million as a scheduled repayment under the financial restructuring,� says Fakhreddin. “The banks approved our business model and they have full confidence in our ability to repay the excess debt. There’s no haircut, they are getting 100 per cent on the dollar, and they get full interest. They are getting all of that from the proceeds of our operations, we are not liquidating our assets and we are not adjusting the structure of the company to repay the banks.� Then there’s the reclaiming of the debt owed to Damas and the banks by the brothers, which has been signed as a cascade repayment. The Abdullahs’

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assets, which lie largely in real estate, will be divested to pay back the debt over three years. “The brothers owe Dhs640 million to us. The point of the repayment period is that, if you look at the whole portfolio that the brothers have, the fire-selling of these assets is not realistic and will not serve the purpose of anyone,” the CEO says. “We decided we will sell these assets in a gradual manner so that we recover the full market value without having to minimise the prices and the proceeds will be distributed to all lenders in a cascade manner. We have sold a few assets and, on average, we are getting around 20 – 30 per cent more than the valuations at the peak of the crisis.” The painstakingness of the agreements, both with the banks and the brothers, is not to be underestimated. The negotiations were complex because of criss-crossing of guarantees, varying ownership structures and a mix of secured and unsecured debt arrangements. “Most of the family-owned businesses globally… they are not famous for their corporate governance or documentation,” says Fakhreddin. “We inherited a situation where a lot of our money was in the hands of overseas partnerships and JVCs. There were even retail partners and JVCs in the UAE without the proper documentation.” After their dramatic acquittal, Damas controversially brought back the founding brothers as ‘senior advisors’ to the company – leading to media cries that the DFSA had ‘no teeth’. But Fakhreddin defends the decision. “Bringing the brothers back was the only method we had for recovery. We had to create a proper plan and pursue this money using the help of the previous directors – this is their biggest input to the company now.” Aside from recovery, the CEO’s biggest challenge has been keeping up morale in the company and hiring new talent with the aim of getting back to the company’s core proposition: selling quality jewellery. “It was a big task to turn the culture

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his core markets because it’s the “perception of the upward price direction” that spurs sales, particularly in KSA and the Asian markets. Damas, which now has more than 300 stores in 11 countries, has launched more than 100 new product designs in the last year, along with more than 59 company promotions. In a bid to streamline its operations, the CEO has acquired full ownership of Damas in Kuwait and Saudi Arabia, two of the firm’s core markets, and sluiced off smaller operations and joint ventures in the UAE and internationally. For now, Fakhreddin’s steely focus is fixed on cleaning up and maximising GCC operations. “Damas was in 14 overseas markets when I took over and the first thing we did was develop a country evaluation strategy. There are markets where the industry is thriving but, unfortunately, the business conduct is designed in a way where corporate governance compliance is not possible,” says Fakhreddin. “Saudi Arabia is the fourth >LC= 9LJ@E<JJ & +.

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completely different to the expansion model that was followed in the past. We were directly in markets that we didn’t have too much experience in and we spilled our resources outside the UAE. We will not allow that to happen again. By the end of 2011 or early 2012, we will be piloting the franchising model overseas. The pilot will be

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largest jewellery market in the world. We have started already on improving our penetration, profitability and compliance there… and I can tell you that we have succeeded on all three counts.” In the next 12 to 18 months, KSA and Kuwait are both pitted to contribute larger shares to company revenue than they do currently. In the short-term, the CEO will also be focusing on sales in the UAE, which currently account for around 78 per cent of the firm’s business. Previous plans to open 100 stores in India have been waylaid for the time being, but the company will widen its focus to India, Turkey and Egypt within a three to five year timeframe. “I am hoping to achieve a solid brand that is recognised internationally with presence in many countries on a franchising basis – the future of Damas lies in the franchising model. This is

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Mediterranean-based and the outcome will help us decide on the next moves.” Fakhreddin says. While Damas is unequivocally moving in a more positive direction under the new CEO’s shrewd stewardship, the company remains under the watchful eye of the DFSA. Having been ordered to dispense of its board last year, Damas now runs the most active set of corporate governance initiatives on the bourse. The firm now has the chairman, the CEO, six independent non-executive directors, and one non-executive director on the board – a marked change from the nepotistic post-IPO days of 2008. “Damas completed its turnaround in terms of corporate governance and this was a big priority. We need to admit that this was the cause behind most of the issues that we’ve faced in the last two years. Corporate governance was not only an issue for our relationship with the market, or the media, or even the regulators, it was a survival issue,” Fakhreddin says. “We had to change the culture within the company from a family-one to a listed-one. We reviewed every procedure to ensure that corporate governance is always being obeyed, whether it’s a small deal or a $1 billion deal. What happened two years ago… it would be impossible for it to happen again. We deserve a second chance. I think we’ve secured that.” “It’s very difficult to speculate on when and if the brothers will come back and what form Damas will have then. But Damas has crossed a bridge when it comes to being a family company, we have gone beyond that.” The CEO’s next big test is the Damas full-year 2010 results, which were pending release as Gulf Business went to press. But there’s a trace of a smile – and some respite in his wired posture – when the CEO says he can’t talk about the new figures just yet. In the world of Fakhreddin, it’s not a matter of whether he will succeed in reversing the fortunes of Damas – but when.

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ndustry heavyweights say the battle to service regional bank assets is likely to be bloody as Saudi Arabia rolls out a public spending spree and other GCC states are potentially upgraded to emerging status in December. Many banks saw declines in their custody business in the first of half of 2011 amid unrest in the Middle East. News of the market expansion has spread quickly and the likes of Northern Trust, Bank of New York

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Mellon (BNY Mellon) and Standard Chartered are all scaling-up their operations. They will also be keen to smash the dominance of HSBC, which has controlled the Middle East market for over a decade and last year reported it held around $40 billion of local assets. HSBC is the only Western custodian bank to have a foothold, and personnel, in each of the main GCC markets. Most rivals tend to export servicing of Middle Eastern client assets to offshore centres outside the region. “As public spending picks up, so will trade finance and import and export between countries in the region,” said Tarek Elrefai, senior executive office in Dubai and head of global client management at BNY Mellon. “This will likely have a positive knock-on effect for bond issuance and global deposit receipts, which allow foreign investors to invest and be publicly traded in the Gulf. In other words, each part of our business will be in demand.” BNY Mellon is the world’s largest custodian and has five bases in the Middle East - Dubai and Abu Dhabi in the UAE, Beirut, Cairo and Istanbul. For

the moment all client assets it safeguards and services are held with local subcustodians in the region and processed in BNY Mellon’s global centres. Elrefai said to meet the upcoming spike in demand the bank is planning to buy out a local custodian, although this is unlikely to be completed until 2012. “We see good opportunities in the Gulf region in line with our business model, and are looking at perfect timing, prices and resources to move forward. We expect the local custody market and debt market to develop and we hope to have the capabilities to serve these two markets as they develop domestically,” he said. In May, Standard Chartered launched a new service based in Dubai, to offer its Middle Eastern clients a portal to access global markets. This followed JP Morgan’s decision a month before to open a regional hub in Qatar to offer a range of banking services including custody. Meanwhile, HSBC, which declined to comment for this article, announced that its Saudi Arabian wholesale and investment banking unit, HSBC Saudi Arabia, would merge with SABB Securities,

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but it may we may target around six in the ETF space. Part of the higher demand for ETFs has been the increasing sophistication of investors in the Middle East and the influx of CIOs and CFOs from Europe and the US.� Northern Trust has four staff in Abu Dhabi and 15 on our ‘virtual team’, which provides support and extra expertise through regular visits to the region. Slater said head count in the Middle East is

likely to increase by the end of this year to meet demand. “The best way to treat a client is to be close to them, which means new branches.� Although the region is working to bring its participants’ operations in line with global practices, Middle Eastern investors have been viewed as a lucrative market by custodians due to the high concentration of sovereign wealth funds that invest both in home and global markets. In particular, Saudi Arabia’s public spending drive, which started in February with the announcement of a package worth around $36 billion, is being seen by many as a major windfall for custodians. With fears of instability growing in the region, and with an eye on the unraveling unrest in neighbouring Bahrain, Saudi’s King Abdullah subsequently pledged a extra programme of $130 billion in spending. Meanwhile, Gulf states are waiting for a decision over their entry to the MSCI

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World Emerging Markets Index later this year, which could reinvigorate local stock markets and boost foreign fund flow. An upgrade would definitely lift the profile of the markets and improve visibility, boosting benchmarked foreign inflows, analysts say. Mike Cowley, head product and client management for Mena at Deutsche Bank, said: “The MSCI decision in December could have a major knock-on effect for us and custodians in general. It will mean emerging market traders will have to start tracking the local indices, so you will likely have more accounts and funds opened. Overall, volumes and liquidity rises, so everyone wins, from brokers through to custodians. Deutsche Bank, which launched its custody business in the UAE in late 2008 with Deutsche Securities and Services, has seen volumes across the region drop in the wake of the Arab Spring movement. As a result, head count at its Abu Dhabi, Dubai, Saudi and Qatar offices, remains in “neutral mode� this year, said Cowley. The firm currently employs seven client service and more than 10 operational staff dedicated to custody in the region. “Saudi Arabia is the key to developing your custody business in the region over time. Hiring the right people and establishing the right set up will be vital

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As global custodian banks build up critical mass either through valued-added services or local acquisitions in the Middle East, the competition for business will only intensify from here on out. Most participants in the market agree that after six months of unrest, what is needed is a prolonged period of political stability, which would re-ignite investment and accelerate the contest for custody even further. >LC= 9LJ@E<JJ & ,*

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he costs of the turmoil that overthrew Hosni Mubarak have still to be counted in economic as well as political terms. Outwardly Cairo is as busy as ever. But with hotels lucky if they can fill a third of their rooms, unfinished housing projects and newly built apartment blocks lying empty, arguments that things are back to normal are unconvincing. Even if there is a smooth transition of power to a civil administration, after elections for a new parliament and president are held in autumn, huge uncertainties will remain. Street protests over the release of police said to have killed demonstrators in January illustrates that public anger remains a kinetic force in Egyptian society. Whoever takes over in the country faces a grim reality. Egypt’s poverty rate is approaching 70 per cent. Remittances, another

vital source of foreign exchange, are also falling due to returning Egyptian workers from Libya. Osama Saleh, chairman of Egypt’s General Authority for Investment (GAFI), expects foreign direct investments to fall more than 40 per cent in 2011. Before the ousting of former president Mubarak, FDI was expected to total $7 billion. Analysts say this could now be reduced to $3.5 billion and even this level may be very optimistic and depends on drawing in substantial Gulf money as well as support from the major industrial countries.

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At the G8 summit in June an ambitious assistance programme was laid out for Egypt with conventional wisdom stating the country is too large and important to allow it to become a failed state. However, Egypt is joining a number of other countries, including economies in Europe, on a global roulette wheel waiting to be backed with hard cash. As a result the interim government is working hard to drum up support, especially in the region. The London Financial Times estimates that the overall regional investment figure in Egypt over the last decade stands at nearly $130 billion with the Gulf states accounting for 50 per cent. More conservative estimates put the figure at about half this amount and accounting for around 16 per cent. Whatever the reality the GCC seems increasingly likely to underpin the Egyptian economy. Finance Minister Samir Radwan recently declared that Egypt has dropped plans to seek previously agreed IMF and World Bank loans

and would cover the greater part of its deficit from “local sources” as well as packages from Gulf Arab states such as Saudi Arabia and Qatar which he said had already gifted Egypt $500 million. According to the head of the Egyptian stock exchange, Mohammed Abdel Salam Arab, investment in Egyptian stocks now make up 40-45 per cent of the total compared to 30-35 per cent before the overthrow of the Mubarak regime. Overall Kuwaiti investments in Egypt reportedly accounts for around $15 billion. National Bank of Kuwait has about eight per cent of its assets exposed to Egypt. As well as a focus on real estate and hotels a large number of Saudi investors are involved in Egyptian food and agriculture, including the Savola Group and Almarai which has almost half the Egyptian dairy market while Kingdom Holding is seeking to develop agricultural land in the Nile Valley. Contractor Saudi Binladen Group is also active in Egyptian projects. Al-Zamil Industrial Company derives

7.6 per cent of its sales from its Egyptian unit in 6 October City. There are nearly 500 UAE companies with investments totalling some $10 billion in Egypt. Among these the largest is Emaar, the largest foreign direct investor in Egyptian real estate with projects valued at $5.8 billion. Morgan Stanley estimates that Egypt accounts for about one fifth of revenue at Emaar and about 12 per cent of its property assets. Emaar Misr for Development is developing five projects including Uptown Cairo, the Marassi, the Mivida and Cairo Gate in addition to the Sheikh Khalifa bin Zayed housing development project. Etisalat has about one third of Egypt’s mobile telephony market, while Sharjah-based Dana Gas is the country’s sixth ranked natural gas producer in Egypt. Bahrain has interests in Al Baraka Banking Group, which has $2.3 billion in Egyptian assets, and Qatar through Barwa Real Estate Company which is investing a reported $1 billion to >LC= 9LJ@E<JJ & ,,

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develop 8.3 million square metres of the New Cairo project. However, the legal moves against Mubarak and all deemed to be associated with his family’s business interests have indicated that the old ways of conducting transactions are over. The former president and his sons are the subject of probes into how they accumulated their personal wealth. Billions of dollars are said to have been acquired through “co-operative partnerships” with both domestic and foreign companies. Hundreds of businessmen are reportedly on a government watch list awaiting inquiries and possible legal action. Many are thought to have departed to bolt holes in London and

elsewhere to avoid arrest and also extract as much of their wealth as they can from the country. The larger fear though is that foreign investors will also get cold feet. Egypt has annulled some contracts that granted plots of land on which to build commercial and residential projects based on the assertion that land was granted to companies directly without any bidding process or offer to the public resulting in a sale below value. Housing minister Fathi Abdelaziz el-Baradei said in May that the government will uphold a court ruling to annul a sale of state land to developer Palm Hills. This followed a court ruling the previous month that the sale was illegal. Some commentators have observed that the calling to account has been rushed and tinged with revenge and joy at the downfall of previously powerful figures deemed to be associated with the previous regime rather than due process being carried out. Gulf investors including heavyweights such as Saudi billionaire Prince

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al-Waleed bin Talal and the UAE’s Futtaim Group, which is involved in the Cairo Festival City project, have been hit. Others drawn in include Damac and the Egyptian-Kuwaiti Company for Investment and Development concerning transactions in the Red Sea governorate and land purchases in Ayyat respectively. On May 10, an Egyptian court sentenced Damac’s chairman Hussain Sajwani, a UAE citizen, to a prison sentence in his absence and fined him over a transaction in 2006 approved by the then Tourism Minister Mohammed Garranah. Sajwani maintains that the deal was fully approved by Egyptian officials at the time of purchase. As a result Prime Minister Essam Sharaf has had to tour the Gulf in an attempt to reassure Gulf businessmen and companies that their investments in Egypt are safe. Damac Properties is going to arbitration at the Washington-based International Centre for the Settlement of Investment Disputes (ICSID) over the $40.5 million of fines imposed for allegedly acquiring property at below market price. The company says it expects the case “to cast an international spotlight on the political vendettas currently being pursued by Egypt’s new regime at the behest of the Egyptian public.” It adds “this ICSID case may subject

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Egypt to international liability far greater that what it apparently hopes to recover by its ongoing legal actions against investors who conducted business with Mubarak’s ministers. It will also raise serious questions among foreign investors about the safety of investing in Egypt.” Other controversial cases include the selling of the Omar Effendi chain to the Saudi Anwal company owned by Saudi investor Jameel al-Qanbit. This deal was one of those annulled by the Egyptian Administrative Court. Government officials are clearly perplexed by Gulf reaction. As a result, an Investment Contracts Settlement Committee, chaired by the acting Prime Minister, Essam Sharaf, has been established to study each contract that is challenged and resolve disputes, which if left to fester could accelerate a flight of foreign capital and investors from Egypt. However, there does seem a desire to move forward. Last month, Prince Al-Waleed bin Talal said an agreement had been signed with the Egyptian government to resolve a dispute over Toskka land, which was allocated to Kingdom Agricultural Development Holding. Under the agreement the Saudi multi-billionaire will reclaim 25,000 feddans (10,500

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È=`eXeZ\ D`e`jk\i JXd`i IX[nXe [\ZcXi\[ k_Xk <^pgk _Xj [ifgg\[ gcXej kf j\\b @D= Xe[ Nfic[ 9Xeb cfXej Xe[ nflc[ Zfm\i `kj [\ÔZ`k ]ifd ÈcfZXc jfliZ\jÉ Xe[ gXZbX^\j ]ifd >lc] 8iXY jkXk\j jlZ_ Xj JXl[` 8iXY`X Xe[ HXkXi%É hectares) with 75,000 feddans handed back to the state. Faisal Ibrahim al-Aqil, a director of Construction Products Holding Company, which is an affiliate of Saudi Binladen Group, has declared that the company is confident things will go back to normal. His company is seeking to develop an industrial zone over 1.5 million square metres in Cairo. Investment firm Abdul Muhsin Al Hokair Holding, which invests in shopping malls, said it intends to stick

to its investment plans in Egypt. “Our strategy and work is continuing. We have great confidence in the Egyptian market.” Some are voicing optimism that now is the moment to invest. Wael Tawil CEO of Abu Dhabi-based Baniyas Investment and Development Company is quoted as saying “we do feel Egypt will be a strong magnet for investment across the board.” The Kuwait Investment Authority, the country’s state sovereign fund, has indicated it will establish a company capitalised at $1 billion to invest in Egypt’s stock market. Sheikh Saleh Kamel, the head of Saudi Arabia’s Chambers of Commerce and Industry has indicated that a group of Saudi businessmen plan to set up an investment development bank in Egypt capitalised at $16.9 billion. Qatar’s ambassador to Egypt, Saleh Abu Al Enein, says he expects projects when implemented will exceed $10 billion since “It is necessary to give support to Egypt as it grapples with the burdens it inherited from the previous regime.” The Emir state has pledged to invest in a range of sectors including tourism, housing, oil, transport, agriculture, education and health. Essentially the foreign risk takers in Egypt, whether from the region or elsewhere, are basing their commitment on a new administration being able to keep a lid on a highly volatile political culture. Massive and costly social reforms will be required to succeed. The question is how the bills are going to be met in a country whose population of 84.4 million is expected to increase to 129.5 million by 2050. The country has not ground to a halt as some pessimists predicted but Gulf support will be vital to prevent that outcome. While the stakes are high the rewards for investors could be substantial. If Egypt takes the right paths toward prosperity and can maintain four per cent annual growth HSBC has predicted that by 2050 its market will be the largest in the region and the world’s 19th largest economy. >LC= 9LJ@E<JJ & ,.

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The region’s population is expected to increase from 40.6 million in 2010 to 45.6 million by 2015. And there’s little doubt that population growth over the coming years will ensure ongoing demand – and pressure – for housing across market segments in the region. In the GCC there remains a disconnect between supply and demand – be it oversupply or undersupply. How individual states cope with these disconnects will hinge upon a number of factors, including land prices, the level of political will to liberalise domestic home loans markets and how best to manage the behaviour of lenders. The largely stagnant UAE home loans market recently received a boost when United Arab Bank (UAB) cut its mortgage rate to 4.99 per cent (for both UAE nationals and expats), while HSBC Bank Middle East reduced interest rates on 25-year loans by 76 basis points to 5.49 per cent and relaxed its LTV

(loan to value ratio) and minimum monthly salary requirement criteria. However, Tom Smith, executive vice president, head of retail banking at United Arab Bank, says: “The last few months have seen a significant change in the (UAE’s) mortgage landscape. Though current market interest rates are considered low, mortgage customers are still paying a high rate on mortgages taken out in the past.” Importantly, UAB’s target segment is characterised by “customers with higher income levels who present a lower repayment risk, which justifies this attractive rate.” “Prices seem to be holding steady and in some select developments have even increased marginally. This will raise interest levels across the retail landscape and will enhance the recovery of the home loans market in future,” he adds. James Pearson, head of assets and liabilities, UAE Personal Financial Services, at HSBC Bank Middle East, picks up this point, arguing the recent changes to the bank’s lending criteria reflect an

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is a domestic housing supply shortage, due to population growth and an influx of expatriate workers. Mindful of this, the government aims to boost home ownership to 80 per cent by 2024 through a combination of increasing the supply of affordable housing and expanding financing options for its citizens. While a $400 billion government infrastructure spending plan is being implemented, in part to address the

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improvement in market conditions. '�There is a gradual increase in demand for mortgage lending in the UAE as the economy is heading towards recovery with its growth predicted to reach 3.3 per cent this year, compared to 3.2 per cent in 2010, according to the International Monetary Fund,� he says. “We believe that the market position is better and more normalised and obviously stability in the property market will drive growth as customers’ confidence increases. House price growth, of even two to three per cent, will support normality of the market and help restore sustainable demand.� Despite this upbeat tone, research firm Business Monitor International says the UAE’s banking sector is set to underperform its regional peers over the next 18 months with a weaker real estate market continuing to have a negative impact. Against this backdrop, property consultants Jones Lang LaSalle estimate that 54,000 homes will come onto the market in Dubai from 2011 to 2015. Or about 15 per cent to 20 per cent of the existing supply. At the opposite end of the spectrum, a robust Saudi Arabian economy belies the fact that the kingdom still has an undeveloped home loans market. Longer term, KSA will likely offer rich pickings for lenders if the long-awaited mortgage law reform comes to pass over the next few months. An estimated 70 per cent of Saudis don’t own their own homes and there

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above problems, Banque Saudi Fransi noted in a March report that private and public developers need to build around 275,000 units a year through 2015, just to meet the country's demands for about 1.65 million new homes. John Harris co-head, Saudi Arabia, for Jones Lang La Salle, cautions that implementation of the new mortgage law framework will not necessarily be a silver bullet – at least in the short term. “We expect the impact of the mortgage legislation will be gradual. Based on our experience of similar legislation in other countries, investors will take some time to watch the courts to see if enforcement rights are supported. “The banking sector is prudently regulated by SAMA so we don’t expect the banks will unleash a flood of capital towards home lending. Nonetheless over time the legislation will enable secondary markets and so increase the amount and lower the cost of home finance available to middle class households,� says Harris. He adds that mortgage laws will not necessarily solve affordability problems in the kingdom. Indeed, socioeconomic challenges surrounding wage levels, skills and labour participation rates may exacerbate the problem. He further notes: “The need for the typical Saudi household to accommodate a relatively large number of people also means the physical size of housing needs to be bigger and, hence, more costly.� Economically, Harris says that with growing cities, negative real

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interest rates and no property taxation, Saudi investors prefer land to investment in developed assets. “This keeps land values high and as a result it is almost impossible to build affordable housing unless the land is secured on concessionary terms,” he says. In Kuwait, meanwhile, recent legislation allowing women to secure housing loans of up to KD70,000 has generated a surge in demand for condominium apartments, according to local real estate agency Coldwell Banker Kuwait. The report notes that developers there have started purchasing tracts of land in order to construct large condominium complexes to feed into what is seen as a potentially lucrative new market sector. Yet, the mortgage market in Kuwait isn’t fully developed yet, given Islamic lenders are allowed to offer home financing packages while conventional lenders are not.

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In addition, housing affordability remains out of the reach of many Kuwaitis – even after factoring in a government lending scheme offering first-time buyers loans of KD70,000; and with many nationals applying for 15-year personal loans of an additional KD70,000. Elsewhere in the Gulf the Bahrain, the government has already announced plans to build 50,000 housing units over the next five years to meet a gap in social housing that has had families waiting for more than a decade for homes in some cases. Yet with an estimated waiting list

of 46,000 and expectations of this list expanding by three or four thousand a year over the period, full resolution of the problem is likely to prove unattainable. Moreover, while the maximum mortgage available under government subsidised housing loan regulations has recently been increased to BD60,000 from BD40,000 and loan terms extended to 30 years from 25, there are few developments that can be constructed to meet these requirements, given land values have been beefed up by rampant speculation in the run-up to the global credit crisis in 2008. Recent developments in the GCC give some grounds for optimism – at least in terms of legislators and other power centres being prepared to discuss conditions operating in their respective housing sectors. Yet it is still too early to tell whether regional political will is strong enough to mobilise thought into action. >LC= 9LJ@E<JJ & -(

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While the era of cheap hydrocarbons is long over, the same seems true for solid minerals as prices reach record levels. Demand is driving the world’s mining companies to intensify exploration in virtually every part of the globe, including Arabia, where bankable opportunities are fast emerging. On the back of the gold boom, the state-owned Saudi Arabian Mining Company (Maaden) recently announced a doubling of second quarter year on year profits. The state-owned company, formed in 1997, already operates five mines and is contemplating developing several more in the kingdom. Australian company Centamin is about to reap the reward for its risk-taking by investing in Egypt’s first industrial-scale gold mining venture with the company seemingly unaffected by the country’s political turmoil and due to ratchet up production to reach 290,000 ounces-a-year. -) & 8L>LJK )'((

Maaden and other prospectors in the kingdom are not focusing their efforts just on the lure of precious metals. Within the next decade Saudi Arabia is likely to be a major mining country, with bauxite, phosphates and iron as well as gold, copper, zinc, nickel deposits and other ores being exploited in large-scale enterprises. Maaden’s $16 billion investment strategy backed by the Public Investment Fund and Saudi Industrial Development Fund is designed to play a major role in the diversification of Saudi Arabia’s hydrocarbon’s based economy. The core of the kingdom’s wealth lies in the vast belt of mineral rock contained in the Arabian Shield that extends from the Red Sea border with Egypt and Sudan to central Saudi Arabia. While the mountain range and valleys have a rich history of gold mining going back 3,000 years with more than 1,000 recorded ancient mine sites, it is only in

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the last few years of soaring mineral prices that investors have become interested. In the late 1970s and early 1980s France’s Bureau de Recherches Geologiques et Minieres (BRGM) identified some 6,000 prospects and mineral occurrences though a vast range of exploitable minerals has been identified in many other areas of the kingdom. Substantial prospects have also been identified on the Gulf side of Arabia. In Oman more than 350 quarrying and mining operations both metallic and non-metallic are currently under way or being developed. According to Oman’s Minister of

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Commerce and Industry, Maqbool bin Ali Sultan, aggressive exploration work in particular for copper is underway. The sultanate already has a refinery fed originally from a now depleted mine near Sohar, which has since been dependent on imported concentrates. Oman also has considerable and largely untapped resources of chromite, dolomite, zinc, limestone, marble, gypsum, silicon, cobalt, iron as well as copper and gold. Steel-grade limestone is already being exported from South Oman to India. Indian cement companies are also looking at developing gypsum deposits with the possibility of a quarry being established in the Thumrait area. The government-sponsored Takamul Investment Company has plans for a Minerals City to serve as a hub for a number of minerals-based downstream processing projects. These include a $450 million salt/soda ash venture with

India’s Tata group and a $40 million silicon carbide processing facility in partnership with India’s SNAM Abrasives. Brazil’s Vale International, which is building an iron-ore pelletizing plant at Sohar, is also examining mineral exploration opportunities in Oman. Adoption of investor friendly mining legislation in both Oman and Saudi Arabia allows 100 per cent foreign ownership, which has acted as a strong stimulus to foreign companies. As a result mining is likely to become an increasingly mainstream activity. Even with state-backing, mining ventures are not for the faint hearted. >LC= 9LJ@E<JJ & -*

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Investment calculations have to be finely judged against political risk and price projections for mined output when it is ultimately marketed because bringing a mine venture on stream can take years, sometimes decades. Nevertheless there has not been a shortage of risk taking ventures. Al Masane Al Khobra Company is due to start production in Saudi Arabia of 700,000 tonnes-a-year of zinc, gold, copper and silver from a mine in Najran province located 640 kilometres southeast of Jeddah. Ore will be taken by road 414 kilometres to Gizan on the Red Sea for shipment initially to smelters and refineries in Europe and the Far East. Eventually the zinc will be processed at facilities to be developed in Yanbu.

The private sector mining venture has been under consideration for more than a decade. Recent financing from the Amman-based Arab Mining Company, whose shareholders include the governments of Saudi Arabia, Kuwait, Iraq and the UAE, has allowed the project to progress. The UK’s London Mining after upgrading a bank feasibility study for its Wadi Sawawin project in north-west Saudi Arabia is hopeful that its $1.9 billion mine venture in partnership with the Saudi National Mining Company will soon get the green light. The project envisages mining and primary crushing of ore at the mine site for production of five million tonnes-a-year of direct reduction iron pellets for use in steel plants with ore trucked to a beneficiation

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and pelletising plant on the coast close to a proposed deep-water port and related power and desalination facilities. Australia’s Perth-based Alara Resources formed a joint venture with Saudi Arabia’s United Arabian Mining Company (Manajem) last October to draw up a bankable feasibility study for zinc and copper projects at Khnaiguiyah and Mutiyah. Alara is also exploring for copper and gold at three locations in Oman. The project, located about 180 kilometres west of Riyadh, is one of the most advanced base metals project in Saudi Arabia. A feasibility study undertaken by Manajem targets a production of 55,000 tonnes of zinc a year over a 10-year period using open pit mining methods. Maaden is looking to exploit magnesite deposits at Zarghat, 700 kilometres northeast of Jeddah. The raw material will be processed at a calcining and fusion plant to be built on the Red Sea to produce 20,000 tonnes-a-year of electro-fused

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power and combined desalination plant are under construction. The US’ Alcoa has a 25.1 per cent stake in the venture. The fully-integrated aluminium complex is due to be completed by 2013 when operations at the smelter and rolling mill will commence at first using imported materials. The refinery, as well as the mine, is scheduled to become operational in 2014. A planned 1.8 million tonnes-a-year of alumina will be processed to produce

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magnesia, which is used to line furnaces. The company has already begun initial production of caustic calcined magnesia at its processing plant in Al Madinah Al Munawarah using magnesite mined at Al Ghazala in the Hail region. Khalid Al Mudafer Maaden’s president and CEO believes the project demonstrates how the mining industry can bring sustainable employment and investment in regional development, as well as new industries to the kingdom’s economy. However, it is two massive mining and processing projects in northern Saudi Arabia and on the Gulf coast that will define the kingdom’s growing credentials as a global force in the extraction and marketing of industrial raw materials. Maaden Phosphate Company (MPC), a joint venture with Saudi Arabian Basic Industries Company, is exploiting a world-class phosphate deposit at Al Jalamid in northern Saudi Arabia which is already being used to manufacture

diammonium phosphate (DAP) at processing facilities at Ras Al Khair on the Arabian Gulf coast. Production started in June at the new plant complex. Commercial production is expected to be reached within the next three months and at full capacity MPC will produce three million tonnes-a-year of granular DAP as well as 400,000 tonnes of excess ammonia and 200,000 tonnes of sulphuric acid. In three years time another huge mining venture will come on stream at Az Zabirah near the town of Qiba, 180 kilometres north of Buraidah. Production of four million tonnes-a-year of bauxite over 30 years is envisaged from the mine now under development. The bauxite will be transported by train from the north to Ras Al Zour situated 90 kilometres north of Jubail, where an alumina refinery, aluminium smelter, rolling mill and related infrastructure including a 2,400 MW

740,000 tonnes of aluminium. The rolling mill, with an initial capacity of 250,000 – 460,000 tonnes, will concentrate on production of sheet metal for the manufacture of cans and other products. Completion of a new 1,392 kilometres railway has been a pivotal factor in both the phosphate and bauxite projects. The track is one of the kingdom’s most spectacular and largely understated achievements. A four wagon train began a trial run carrying 200 tonnes of phosphate concentrate from the Al Jalamid to Ras Az Zour port in May. But by next year trains pulling 155 wagons will transport loads of 15,000 tonnes. Saudi Arabia’s long-term commitment to develop its mining industry is being emulated by others in the region, notably Morocco, Jordan and Iraq which are also seeking to develop valuable phosphate and other mineral reserves now too valuable for the region to ignore. >LC= 9LJ@E<JJ & -,

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8

s banks continue mopping up their collective messes, following the near implosion of the global financial system in 2008, what has become clear is that the days of easy profit pickings from investment banking operations are a thing of the past. Regulators have largely seen to that through the implementation of Basel III – the new global regulatory standard governing bank capital adequacy and liquidity, agreed to by central bankers and regulators in September 2010.

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Banks face challenges on a number of fronts – not least having to diversify their revenue streams as they look to ramp up their retail operations, as well as improving customer trust by further engaging with them. All of this is set against a backdrop of managing risk on a day-to-day basis and complying with the more onerous regulatory requirements of Basel III. Despite this, independent technology analysts Ovum believe that banks are up to the task and is forecasting global retail banking technology spending to increase

24 per cent to $132 billion, five years from now. In the Middle East, spending is forecast to rise at a compound annual growth rate (CAGR) of 5.6 per cent from 2011 to 2015. In comparison, spending in the US is set to grow 2.5 per cent annually and in the UK/Ireland, by just 0.7 per cent. If Basel III is serving as the necessary wake-up call for the industry – even if many commentators still believe the regime to be too soft – it also brings into sharp relief the fact that reliance on the

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wholesale money markets for funding requirements needs to be reduced, assuming the possibility of credit markets going back into a deep freeze. One obvious way of reducing this dependence is to generate additional business on the customer deposits side of the equation, as well as rolling out internet and mobile phone banking offerings. Ironically, many of the banks that failed to earmark major investment for retail branch networks and, to a lesser extent, IT systems, are in some ways better placed, given they can harness technological improvements allowing them to more easily integrate internet and mobile phone banking services into their operations, as opposed to those banks saddled with ageing IT systems. Moreover, in emerging markets such as India, where banks have less branch network reach than in the West, internet and mobile banking services are more practical. In a study of 20 financial institutions around the world offering mobile banking services, carried out by TowerGroup, one unidentified

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Middle East Bank achieved a 300 per cent on investment after allowing its two million mobile banking customers to pay utility bills through their mobile devices. As Jaroslaw Knapik, senior analyst at Ovum puts it: “There is a strong focus on online platforms and their extension onto mobile devices and tablets, given their ability to service clients at a lower cost. “In addition, technologies that allow ‘smarter’ selling and servicing, such as customer analytics and channel integration are expected to remain hot spot areas in the near future,” he notes. >LC= 9LJ@E<JJ & -.

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According to Knapik ever increasing regulatory requirements will also drive investment into technologies that reduce costs, such as data management, business intelligence and analytics. Global spending on various middle-office components, such as risk management, anti-fraud, compliance or performance management will increase too. In the GCC though, improving personal contact with customers is an issue banks will also need to address. The argument that a satisfied customer is more likely to

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to a younger more tech savvy customer base. “This is a way to gain share and be noticed in a market that is already crowded,” says Jaffery. In its January 2011 study, Ernst & Young found that 71 per cent of respondents viewed trust as highly important to their personal relationship with their primary bank. Seventy per cent, on the other hand, mentioned transaction speed, while 66 per cent

stay loyal to a bank, as well as more likely to recommend that bank to others and be more open to more product cross selling, is, on the face of it, a persuasive one. As Salmaan Jaffery, MENA retail banking sector leader, Ernst & Young, argues: “On the retail side, customers are demanding and expecting more. They are younger and have less time and patience for poor service.” One consequence of this is that a number of new banks in the region will differentiate their services by appealing

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focused on service quality. Unsurprisingly, the vast majority of respondents (92 per cent) cited the ATM as their most used channel, although a sizeable 57 per cent said they used mobile phone banking of some description – a response rate nearly four times higher than that in Europe. Ominously, nearly 43 per cent of customers indicated moderate to high level of effort in their last banking transaction. To exacerbate matters Jaffery notes that margins were already coming under pressure prior to Basel III and that margin squeeze is an ongoing threat not just in the investment banking arena, but also on the retail side, due to increased competition and the trend of leading banks to become stronger and more efficient. While the headline impact of Basel III may appear less obvious on GCC banks, given their tendency to be better capitalised than their Western counterparts, capital and liquidity management will still need to be improved with banks needing to

determine whether existing business models take sufficient account of market uncertainties going forward. Already, returns – post-credit crisis – are being driven down as banks maintain more capital on their books. Jaffery notes: “Banks will need a greater proportion of liquid assets in their balance sheets and will need more stable funding. The effect of all of these items (i.e. capital increases, more liquid assets and more stable funding) is a reduction in return on equity (ROE).� He adds that having a strong customer agenda can increase ROE by improving operational performance, as less money is spent acquiring and on-boarding customers. It can also improve the credit quality of a portfolio thereby mitigating losses and write-downs as well as help profitability. Hence, it can help offset some of the ROE drain resulting from capital requirements and charges “Banks are facing pressure on returns, so costs are being constantly managed.

Banks will therefore continue to find ways to increase and improve self-service through various channels.� In the end people will always require basic banking services. Given that the retail segment globally has traditionally been less volatile than the corporate banking or the investment banking segments, universal retail banks have managed to weather the economic crisis in revenue terms better than highly diversified banks. ‘Basic to basics’ may be the best approach for banks to pursue, but only on the basis that fickle customers can be sufficiently engaged. In the case of mobile banking it means fully understanding a customer’s expectations of mobility, such as the need to have a common experience across mobile phone and laptop. Old habits die hard, and while many banks in the Middle East have invariably focused on the needs of their corporate clients, Basel III will likely force them into breaking that mould by focusing on their retail customers instead. >LC= 9LJ@E<JJ & -0

DATA CRUNCH

TOP DEALS AND GCC ECONOMIC INDICATORS

TOP DEALS GULF BUSINESS DEAL VALUE ($M)

BIDDER

TARGET

DEAL DESCRIPTION

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HE CEILING OF our hotel room is decorated with white plaster flowers and bows. It’s exquisite, like a Wedgewood vase. Suite four was once a reception room for whichever wealthy 18th-century family had rented this house in the Royal Crescent. In Jane Austen’s day, it was traditional for families to come to Bath in October and stay for the winter season right through to May. Jane would not have been able to live here, however. In her day, No. 16 Royal Crescent was the holiday home of the Duke of York and then the Prince Regent. I won’t be able to stay long here myself. This is now the site of the most expensive hotel in Bath and modern royalty, comedian John Cleese, lives next door.

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Bath has always had a special cachet, long before they started filming Jane Austen’s novels here. The city we know today was built by John Wood the Elder, who wanted to create Italian piazzas and neo-classical streetscapes in a new streamlined city that would rival London for sophistication and affluence. He and his son succeeded in putting Bath on the map. Writers like Samuel Johnson, military heroes like Lord Nelson and politicians such as William Pitt the Younger flocked here. Not to mention royalty. Bath in the late 18th and early 19th century was Britain’s alternative capital city. I learn this from Thomas Powe who greets my wife and I

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outside the hotel’s marble lobby. Thomas is a guide to the city who goes one step further by dressing in 18th-century costume and carrying a silver-knobbed walking stick. The three of us step out along the wide pavement built so that two couples, the ladies in full skirts, could pass and admire each other. Thomas shows us a yellow door in the otherwise white-doored crescent, which Jane Austen mentions in one of her novels, and Royal Victoria Park in front of the crescent where so many British movies have been filmed. This park, with its bandstands and bowling greens, was just fields in Jane’s time but it has featured in adaptations of two of her novels, Persuasion and Northanger Abbey, as well as Vanity Fair, Joseph Andrews and The Duchess. The traditional Gilbert Scott telephone box on the edge of the park has been permanently painted grey because it’s been in the background of so many shots. From here Thomas takes us down the Gravel Walk to a Georgian garden that has been reconstructed recently to show us the relative simplicity and formality of Jane’s time. “You see the beds of lavender that line the path?” he tells my wife. “That’s so that as the ladies brushed by

their skirts would pick up the scent of lavender.” We emerge on Gay Street where Jane herself lived at No. 25 as did one of my favourite fictional characters, Admiral Croft in Persuasion. It’s a beautiful day as we descend to Queen Square. Georgian Bath, the Bath of Jane Austen, is built on steeply sloping hills above the old Roman and medieval city. John Wood levelled some of these slopes to create the Royal Crescent and his supreme achievement, the Circus, a Palladian circle of houses, completed in 1768. Its like had never been seen before in Britain. In Queen Square, Thomas shows us Wood’s own house, which looks like a Renaissance palace occupying the whole north side of the square. Jane lived opposite at No. 13. “That was when she first visited Bath in 1799,” says Thomas. “No plaque,” I point out. Thomas sighs. “So many buildings in Bath are associated with Jane. You’d have to cover the city!” The Royal Crescent Hotel can be booked through Relais & Châteaux (00800 2000 0002; www.relaischateaux. com). Rooms from £345 per night (price includes breakfast)

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F MASERATI’S QUATTROPORTE GTS Awards Edition and I had been introduced 20 years ago, as I was beginning my motoring life, we probably wouldn’t have got on. Purely through my own immaturity, you understand. My gauche, inexperienced self of 19 wouldn’t have understood what a magnificent achievement the Quattroporte really is. I would have just seen four doors and walked away, muttering about ‘proper’ sports cars. Luckily, my current 39-year old self appreciates its air of low-key elegance. It is simply delightful to look at – an almost subliminal beauty. It is not an obvious car, and that’s one of its many attractions. Understatement and muted sophistication instead of brashness, spoilers and go-faster stripes. The Awards Edition I tested is the newest iteration of the 4.7-litre Quattroporte GTS, and was built to celebrate the 56 awards the car has gleaned since it first launched six years ago. Sat in the bright sunlight, it looks like it means business. The glorious Quarzo fuso (pearlescent grey, imbued

with a golden hue – very champagneesque) paintwork, black Trident alloys, triple side vents and huge air-gulping grille at the front provide the visual excitement. The four seats, comfortable leather and Alcantara interior provide the physical comfort. And that’s the essence of why I love this car. It is two cars in one. The reason is largely down to the presence of the ‘Sport’ button on the dashboard. If you wish to commute to the office quickly and comfortably, without adrenaline pumping through the veins, de-select ‘Sport’ and drive in automatic. If you wish to get in touch with your inner 10-year-old and overtake a line of dawdlers to the Quattraporte’s Formula 1

soundtrack, give the button a quick press and select manual. The difference is incredible. The twin-exhausts sound like nothing else when you’re blipping up and down the six-speed ZF gearbox with the paddle selectors, an aural symphony of burbles, roars and growls that never, ever gets old. No matter how many tunnels you drive through. At times, it’s easy to forget about the two additional back seats. From the driver’s position, it sits low on the road and handles like other Italian twoseaters. You can treat it like a car half its size when you’re navigating the city’s treacherous highways as there’s bags of power and grip to get you out of any tough spots. If I had to choose one criticism at gunpoint – that’s how much I loved it – it would be that the siren song of the exhaust is too bewitching and that if I did have the money to buy one, my driving licence would not be long for this world. It doesn’t like legal speed limits and tries at every occasion to seduce you into one more upwards gearchange. The sight of Neptune’s trident on the steering wheel brings out the devil in me. It is one of those rare cars that come along once in a while that it never failed to raise a smile when I drove it. Not one of those smug, self-satisfied ones I normally have when I’m pretending to be a millionaire playboy for this column, but one that was totally unselfconscious and genuine. The overall feel of the Quattroporte GTS is difficult to articulate. It’s just right. Looks right, sounds right and drives right. A truly worthy addition to Maserati’s much-loved stable.

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S THE SOARING Gulf temperature takes its toll, don’t despair; you can still chill out at the luxurious Banyan Tree Al Wadi – a new addition to the Arabian Desert. A 45-minute drive from Dubai International Airport and a 20-minute drive from Ras Al Khaimah city centre, the resort has not only become a popular destination for quiet weekend getaways but has developed as an attractive place to do business and entertain friends in style. Set within a wildlife-rich nature reserve stretching over 100 hectares and enclosed in a protected enclave of the evergreen ghaf tree, the desert resort is made for taking in the classic views of the golden sand dunes and desert greenery. The Arabesque-inspired villas styled in a mix of the traditional and modern each house their own secluded pool. At Banyan Tree, the choices are tough: you can relax lying in the sun on the pool-deck or get pampered at the resort’s (

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sprawling 3,960-square-metre Asian-inspired hydrotherapy spa. The resort also provides outdoor activities to enjoy with family and friends. From the comfort of your villa you’ll discover that the natural landscape is hearing with wildlife. Guides can take you to spots where you can view exquisite birds such as the Indian roller, blue-cheeked bee-eater and the Arabian babbler that are easy to spot in the area. For the more energetic, the resort can arrange to sail you in a traditional dhow to their brand new Beach Club comprising of 32 chic beachfront-villas. The club offers a wide range of water sport facilities ranging from sailing, wind surfing and jet skiing. Golf enthusiasts and corporate guests will be pleased to find that the18-hole championship Al Hamra Golf Club is just a stone’s throw from the club. banyantree.com *

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HE EVENT HAS become a major attraction with large corporate houses looking to boost their sales during this time of the year. Supported by a heavy marketing campaign, the fair attracts visitors from far and wide flocking to the capital to experience UAE’s largest multiproduct consumer fair. The event features an impressive presence of international leading retailers showcasing a variety of products from their country. The stalls display a wide-range of products such as household goods, electronics, furniture, garments, footwear, gift items and jewellery from China, Turkey, Italy, Indian, Pakistan, Singapore, and Malaysia besides the UAE. The exhibition is open from 20:00 to 3:00. The entry fee is Dhs 10 for adults.

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ARINA DIAZ AND her husband often found themselves in places where there was nothing exciting to drink. Especially at non-licensed joints or shisha cafes. “Wouldn’t it be great if there was a drink that could relax us that was nonalcoholic? So we hit on the idea of a drink that relaxed the mind but not the body; a drink that could be part of a social ritual but could also be consumed by Muslims,” says Diaz, who is co-founder of Piper drinks, along with her husband, Jeremy, and three other partners. Jeremy hails from New Zealand, where the product was trialled and developed over the last three years. The co-founder says there has been a movement away from alcohol in many countries across the world, including Australia and New Zealand, where consumption of beer has dropped every year for the last four years. “We are learning more about our target market – originally we thought it would be Arabs and ex-pats in unlicensed venues

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looking to recreate the socialising factor that you have in licensed bars and restaurants. As it turns out there is a lot more to it than that – there is a whole sea-change away from alcohol and any high vice products,” says Diaz. “We found a lot of people want to spend time with friends but they don’t want to drink soft drinks as it’s just sugar and water and a lot of negative health issues. We are also targeting the ‘righteous consumer’, people who want to go and meet friends but don’t want to drink a beer doing it because they’ve just spent an hour in the gym. So locally you have people that aren’t drinking for religious reasons, health reasons and the fact that people are working longer hours than ever before and don’t want alcohol to affect their performance.” Piper’s ingredients are just fruit and water, with no sweeteners or artificial flavours and preservatives. The active ingredient is lemon balm, supported by passion flower. Lemon balm is a slightly relaxant herb, but it has more of a mood booster effect than a tranquilising result. The founders wanted to formulate a beverage that emulates the social glue and camaraderie that is normally associated with the one glass of wine after work effect – the ‘aaaah’ moment. “It’s basically putting people in a good mood and getting rid of their worries and their cares. We wanted to replicate the natural high of a holiday. You could drink two or three, and you would just feel good,” says Diaz. “Hundreds of years ago, lemon balm was widely used in wine, in water and in candles to relax your mind. It was so successful that it fell out of favour over being too widely used… and we’ve decided to bring it back.” Piper has already been given a soft launch, with the slicklooking silver and purple cans now available in UAE bars, restaurants and cafes – including the Armani hotel. The Diazs have trucked in 50,000 cans from New Zealand for the big launch that will come just after the Ramadan period. The drink, which tastes like fresh carbonated Ribena on ice, will cost around Dhs6 in local supermarkets. Piper also aims to target petrol stations and convenience stores in the UAE, before moving onto the GCC and wider Europe. “To a degree, Piper lowers inhibitions but without intoxicating you. Crucially, it affects the mind but not the body’s motor system. There’s a lot of cynicism about these drinks, but it has a proven scientific effect. We are not a multinational looking to manipulate people through advertising. We’re the real deal,” says Diaz.

With AF-S DX VR 18-55mm f/3.5-5.6G

ABU DHABI: Abu Dhabi Mall - Tel: 02 6451115, Central Souq –Digital 02-6278617, Dalma Mall –Digital 02-5503061, Khalidiya - Tel: 02 6312100, Marina Mall - Tel: 02 6817817, AL AIN: Al Ain Mall - Tel: 03 7515551, DUBAI: Bur Juman Centre - Tel: 04 3523641, Deira City Centre - Tel: 04 2943070, Dubai Festival City - Tel: 04 2329391, Dubai Outlet Mall Tel: 04 4264922, Dubai Mall - Tel: 04 3398915, Dubai Mall - Tel: 04 3398614, Dubai Marina Mall - Tel: 04 4342540, Ibn Battuta Mall - Tel: 04 3685353, Maktoum Street Tel: 04 2213700, Mall of the Emirates - Tel: 04 3414555, Mirdiff City Centre - Tel: 04 2843055, Image Arts - Garhoud - Tel: 04 2868010, SHARJAH: Mega Mall - Tel: 06 5746341 Email: photography@grandstores.ae

www.grandstoresuae.com

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