gulf business | august 2011

8/6/2019 Gulf Business | August 2011

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1996-2011

Bahrain..............BD1.0

Kuwait...............KD1.0

Oman................

RO1.0

Qatar..................QR10

SaudiArabia.......SR10

UAE..................DHS10

PLUS:


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REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS

MISHAL KANOO

Whats so wrong with retirement?

MATEIN KHALID

Dubai is the next private banking hub.

DR TOMMY WEIRTreat future leaders like your sons.

DIPAK JAIN

EMBAs offer global insight for a broader impact.

JOHN CHAPPELEAR

The importance of strategic thinking.

FINANCE

Pulling Dubai Inc. into the black.

AVIATION

Gulf Air battles unrest.

REAL ESTATE

Arabs snap up London properties.

FINANCE

Deutsche Bank gives roadmap for the Gulf.

RETAIL

Local teens splash the cash.

INSURANCE

The Arab Spring boosts liability insurance.

JOBS

Creating Arab opportunities.

INDUSTRIES

Saudi Arabias manufacturing drive.

1 9 9 6 - 2 0 1 1


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CUSTODY BATTLE

Global banks are gearing up for a fight over asset

management in the region.

EGYPT AND THE GULF

The status of the regions investments in Egypt.

HOME STRETCH

Governments must build millions of Gulf houses in the

next decade.

DIGGING FOR TREASURE

The Gulfs minerals and mining drive.

MANAGING RISK

Banks shore up tier one capital for Basel III rules.

STATS

Regional mergers, acquisitions and bond issuances.

TRAVEL

Walk Jane Austens history in Bath, UK.

CRUISEReviewed: Maserati Quattroporte GTS.

PLACES TO BE

The Banyan Tree, RAK.

GULF BUSINESS PREFERRED HOTELS

A selection of the regions top rooms.

EVENTS

The Gulfs top business conferences.

IN YOUR SHOESPipers Marina Diaz.


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-10.6%

100

BD836m

QR122.3m


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SR165.4m OMR26.1m

AED5

-15%


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How to rule

the world like...

Medical tourists fleeing protest-

hit Jordan could boost GCC

countries healthcare sectors,

according to Business Monitor

International (BMI). Jordans

Private Hospital Association

reported recently that its

members had seen a 25 percent fall in patient numbers

as a direct consequence of

regional instability. BMI said

more stable states in the GCC

could attract jittery Jordanian

patients. Jordans 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.

Jordan health kick for GCC

Kuwait has become the new home for the Canadian

military in the Gulf, just months after a UAE-Canada

spat ended in hostility. Canadas 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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NCB Capital Islamic fund market share dropsSaudi-based NCB Capitals 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 Saudis mutual market. It will be NCB

Capitals lowest share of the kingdoms

Islamic funds industry since 2009.

The mutual fund market has expanded a

lot and theres a lot of new players coming

in, so the pie is starting to spread out, the

banks CEO Jawdat Al-Halabi said. Plus,weve 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, firms

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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On the Radar

project focus


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GCC and the world

150%

Oil-producing nations in theGulf 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 GCCs total

petrochemicals investments,

research by the Doha-based

Gulf Organisation for IndustrialConsulting 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.

GCC chemical spend hits $73bn

SOAPBOX


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COMPANY focus

Dubai Holdings 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 a19.5 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 one-

on-one basis.

Dubai Holdings $2bn telcoassets up for sale

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.

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.

We will immerse ourselves in anything which helpsimprove a shoppers 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 doesnt 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.

It would seem many companies are seeing presencethroughout 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.


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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 badidea if the retiring person has something to do. Unfortunately, most

retirees have dedicated such a long time to their way of life via work

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 family-

oriented 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 meansthat 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 cant

remember what he said a few minutes ago.

When he talks about the mobile as though it was justa 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.

COMMENT

Mishal Kanoo is deputy chairman,Kanoo Group.


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COMMENT

Matein Khalidis fund manager in aroyal investment office and a writer

in finance and geopolitics.

tHE PAST THREE YEARS HAVE WITNESSEDa strategic transformation in the GCC private banking industry. Thepolitical turmoil in Bahrain, Egypt, Tunisia, Syria, Lebanon and Yemenhas naturally boosted flight capital from the Arab world to privatebanking 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 andBOA 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 DIFCs 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,

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 UAEs

safe haven status, attract the crme de la crme

of international finance to the DIFC and enhance

the local banking systems 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 2010World 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 themost 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 UAEs 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

i 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,

lets 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 activelyinvolved in the sons 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 Maktoumpreparing 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

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.

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.

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.

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.

Please dont ditch your future leaderswhen 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 departments job; it is every leaders

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.

Dr Tommy Weir, managingdirector of the Emerging

Market Leadership Centre,and author ofThe CEO Shift


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COMMENT

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 isthrough 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.

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. Whats 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

leaders 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. Thats why itis 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.

Dipak C. Jain is the deanof INSEAD international

business school


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COMMENT

e VERYONE KNOWS STRATEGICplanning is critical to long-term organisational success. But,sadly, not all strategic planning turns out to be successful. A strategicplan is a highly structured, tangible product with specific times forimplementation (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 positivechange 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 goodsand 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

the organisation works. Strategic thinking creates

a living and breathing Strategic Plan and drives

good decision-making.

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, visionand 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 participantthroughout this process. As a strategic thinker I

will continually review how my work and behaviour

affects my unit and how my units 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.

John Chappelear, an internationallyrecognised expert on leadership and

author ofThe Daily Six


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ON THAT FATEFUL Novemberweekend, Dubai World brokeits $25 billion promise to investors,

leaving a black stain on the emirates

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.

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 canrefinance, rollover or restructure debt; the

chances of full repayment of next years

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 wouldrather 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 Nakheels


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THE 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 yearsago to turn around the islands ailing

state airline. The ex-Royal Jordanian

CEO had been streaming Gulf Airs

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 didnt 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. Its

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 improvethe image of Bahrain and the region to

the rest of the world, the faster we can

recover. And thats basically it, he says.

In the past people used to avoid bad

spots for longer periods but, now, because

theres no particular region on earth

without issues, people are becoming a

bit more blas. 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

weve 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 wecan 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 its recognised as

one of the business centres of Europe

at heart of industrial northern Italyand 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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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 discusswith 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

THE NUMBER OFcash-rich Middle

Easterners buying into Londons

glitziest postcodes has gone through the

roof this year. Whether its 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.

Londons 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

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 atLondon-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.


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local representative or send them photos

and videos of the properties I think are of

interest and then get their feedback.

Home Fusion handles the sale of

houses starting at $4,800 per square foot(psf), with the current London ceiling on

cost per square foot held by number one

Hyde Park, the upmarket complex of flats

in Knightsbridge that launched earlier

this year at, $9,600 psf. This compares to

the typical price of property on Dubais

Palm Jumeriah, which comes in at $176

psf, while in the worlds tallest building,

Burj Khalifa, it averages $630 psf.

Buyers dont want to overpay for a

property, but in many cases if they want

to be in a particular area then they may

have to pay a premium as the number

of properties for sale in some London

locations is very small, said Ayre.

Research by IP Global found that

Middle East buyers now make up 20

per cent of all purchases in Londons

most desirable destinations, a figure

thats been steadily rising over the

past 12 months. Of all UAE real estate

investment, 60 per cent has been inLondon, with the remaining 40 per cent

in Asia Pacific.

In its report, the property investment

company said as well as having the

requisite prestige factor, London also

offers an attractive environment in

which to de-risk during the current

period of turbulence in some areas of

the Middle East.

Fundamentally though, analysts

say London benefits from a sound

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 GCChomebuyers in the last six months, mainly

due to the political unrest.

Oil prices can swing at any time

of the year, but its 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 peakin 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 Londons swanky

districts will continue to catch the eye

of the upwardly mobile in the Middle

East for the foreseeable future.


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DEUTSCHE 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 inCairo and Manama, the European giant is

now firmly established across the region.

Qatar and Bahrains 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 Dubais.

Dubai is now a regional hub where

we have 160 people working. We now

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 andMarch, says Salman Al Khalifa, the firms

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 intra-

regional business, especially stocks. Wed

like to grow and take things forward, he

says of the companys regional derivatives

and e-commerce commitment. Noteworthy

is Deutsche Banks expansion of its trading

operations in both Dubai and Riyadh,

including the setting up of a corporatetreasury 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 regions 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 years 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 Qatars 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, its a safe

bet that the GCC economies will bounce

back from the financial crisis with their

reputations enhanced.


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PARENTS IN THE Gulf are raisinga generation of recession-proofteenagers 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 theircredit 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

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 theirparents, 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 shoppinghabits 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.

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 weekSpending 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

governments support for Emiratis.

The downturn would have impacted


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THE 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 SaudiArabia 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 remainsunpenetrated 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 regions 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 quiteclear 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 long-term 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 liabilityinsurance, 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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Unanimously the best bank in Lebanon.

www.banqueaudi.com


41/84

WIDESPREAD 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 theArab worlds future prosperity depends

on its youth. Citing figures indicating that

more than a quarter of the MENA regions

youth are unemployed, McKinsey stated:

So far, the regions governments havent

focused sufficiently on a vital component

of the employment picture: how to ensure

that the regions 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-thirdof the population is below age 15. As a

result, millions of young people will

enter the regions 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 SooudAl 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 isnt 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 forprivate-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 lethargicglobal 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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KSAS SPENDING SPREE was directly

ignited by the spreading regional

unrest after the fall of Hosni Mobaraks

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 ofPRTM, 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 dont do it now its 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 PRTMs principal associatepartner 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 Kingdoms industrial

sector, is heavily technology intensivecompared 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 whats 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 morecommon, says Masood.

This can also be identified as a

substantive effort in the Kingdoms

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 byreducing 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

UAEs most difficult challenges:

turning around the fortunes

of Damas International, the

Middle Easts 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 firms 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.

Ill be very honest with you, its been

difficult. The amount of work in the first

few months was unbelievable, says

Fakhreddin, speaking from the firms new

and gleaming headquarters in Dubais

Jumeirah Lake Towers a symbolic world

away from the historic but dusty confines

of the familys former office in Deiras

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 firms

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 Fakhreddins 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 firms sea of lenders to pay

back its debt over a six-year period.

Weve 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. Theres 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 theres 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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around. There was a time when we were

losing talent on a daily basis because

there was a sinking ship mentality,

he says. We want to get back to core

business. We need to maximise sales

year-on-year so that we have more

money to pay back to the banks.

The CEO adds that the soaring

gold price, which has just pipped

the unprecedented $1,600-an-ounce

mark, is unlikely to affect sales in

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 theonly 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 CEOs biggest

challenge has been keeping up morale in

the company and hiring new talent with

the aim of getting back to the companys

core proposition: selling quality jewellery.

It was a big task to turn the culture

his core markets because its 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 firms core markets,

and sluiced off smaller operations

and joint ventures in the UAE and

internationally. For now, Fakhreddinssteely 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


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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 firms 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

completely different to the expansion

model that was followed in the past.

We were directly in markets that we

didnt 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

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 CEOs 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 weve 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 its 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 weve

secured that.

Its 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, wehave gone beyond that.

The CEOs next big test is the Damas

full-year 2010 results, which were

pending release as Gulf Business went

to press. But theres a trace of a smile

and some respite in his wired posture

when the CEO says he cant talk about

the new figures just yet. In the world of

Fakhreddin, its not a matter of whether

he will succeed in reversing the fortunes

of Damas but when.


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50/84

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

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 clientmanagement 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 worlds 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 sub-

custodians in the region and processed

in BNY Mellons 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 offerits Middle Eastern clients a portal to

access global markets. This followed

JP Morgans 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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a wholly-owned brokerage and custody

business unit of The Saudi British Bank.

State Street has had a presence in the

Middle East through its Dubai office for 18

years and last March it opened a second in

Qatar. From these bases it targets markets

around the GCC and North Africa with itscustody and global asset-servicing products.

Like many global custodians, State Street

uses a sub-custodian to access local

markets. This reflects the global practice of

employing local custodians in all but three

markets where it has a presence.

Northern Trust bought Bank of Ireland

Securities Services (BOISS) in June for

$82 million, a move that the Chicago-

based bank hopes will expand its custody

client list in the Middle East. BOISS, the


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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 Springmovement. 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

to success there. This is not to

say that Saudi will happen in 2012

or 2013, but were building the relevant

systems and resources for when it

does, said Cowley.

In the event of a spike in activity over

the coming 12 months, Deutsche will

parachute in staff from various offices

around the world for up to six months

to meet demand, added Cowley.

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.


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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 luckyif 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. Egypts

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 Egypts

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 LondonFinancial Times

estimates that the overall regional

investment figure in Egypt over the last

decade stands at nearly $130 billionwith 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 housingdevelopment project.

Etisalat has about one third of

Egypts mobile telephony market,

while Sharjah-based Dana Gas is the

countrys 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


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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 familys 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 sai

gulf business | august 2011

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