the edge - aug 2010 (issue 13)

1TheEDGE

From ThE EDiTor

Kelly LewisManaging Editor

Well, the past year has been a busy one for TheEDGE. Since its launch in July 2009, TheEDGE has witnessed the continued transforma-tion of Qatars business and investment landscape. The countrys economic position has continued to

evolve at a rapid pace, so much so that the

country now boasts the fastest growing economy in the world.

While there is a bevy of locally-based compa-nies that have continued to thrive in the midst of the economic recession, undoubtedly, coming in as the biggest headline grabber for the past year is the Qatar Investment Authority (QIA).

The QIA has poured money into a number of as-sets. To mention just a few: the recent US$2.8 billion (QR10.2 billion) stake in the Agricultural Bank of China initial public offering; the purchase of a plush development on Londons Oxford Street for GBP270 million (QR1.5 billion); the acquisition of Londons famous Harrods department store and the largest portion of Canary Wharf. Not to forget its hefty stake in the Porsche/Volkswagen deal last summer.

Among other things, the astounding development of the Qatari economy is testimony to the sustained expansion of its gas sector. In fact, Qatar continues to consolidate its position as the largest exporter of liquefied natural gas (LNG). The most recent avail-able statistics place output at 54 million tonnes, up from 38 million tonnes per year just three years ago. Yet, nonstop efforts are being exerted to reach the goal of producing 77 million tonnes a year of LNG by 2012.

The International Monetary Fund (IMF) forecasts the economies of the Gulf Cooperation Council (GCC) to grow by 4.9 percent in 2010 and rise to 5.2 percent in 2011.

The IMF mainly attributes improved economic prospects in GCC economies to the robust growth

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level of the Qatari economy. The Qatari gross do-mestic product is projected to grow by 18.5 percent in 2010 and 14.3 percent in 2011. Undoubtedly, this is an exceptional achievement, reminiscent to performance of few economies like those of China and India.

In the current economic climate rating upgrades may be as rare as hens teeth, but Standard and Poors recent award of a double-A long-term grade to Qatar has continued to drive confidence into its economic standing.

Soaring oil and gas sales will bring more than US$76 billion (QR276) into the finance ministrys coffers this year, and expand the countrys economy by almost a fifth, according to the IMF. This has pro-pelled Qataris to the top of the table of the worlds wealthiest people impressing rating agencies, economists and bankers alike.

As Qatar continues to drive its economic diver-sification plans forward from roads to LNG plants to financial centres there is an estimated US$34 billion (QR12.3 billion) of projects coming online in 2010.

In less than a century Qatar has transformed its economy from subsistence on pearling to the multi-faceted landscape it boasts today.

As TheEDGE transitions into its second year, without sounding clichd, we would like to take the time to thank all our contributors, readers and supporting clients as none of this would have been possible without you, and your continued support.

The past year has been a big year for us at TheEDGE and, rest assured, we are working hard to make sure that we continue to diversify our content and its delivery, and to make the next 12 months even better.

WhoWE ArE

Firefly CommunicationsPO Box 11596, Doha , QatarTel: +974 44340360Fax: +974 44340359www.firefly-me.com

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

TheEDGE is printed monthly 2010 Firefly Communications. All material strictly copyright and all rights reserved. Reproduction in whole or in part, without the prior written permission of Firefly Communications, is strictly forbidden. All content is believed to be factual at the time of publication. Views expressed by contributors are their own derived opinions and not necessarily endorsed by TheEDGE or Firefly Communications. No responsibility or liability is accepted by the editorial staff or the publishers for any loss occasioned to any individual or company, legal or physical, acting or refraining from action as a result of any statement, fact, figure, expression of opinion or belief contained in TheEDGE. The publisher (Firefly Communications) does not officially endorse any advertising or advertorial content for third party products. Photography/image credits and copyright, where not specifically stated, are that of Getty Images and/or iStock Photo.

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Managing editorKelly [email protected]+974 55067574

acting editorMiles [email protected]+974 66080447

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regional SaleS, MarKeting and Pr directorJulia [email protected]+974 66880228

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creative directorRoula Zinati Ayoub

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To help build your success contact us on: T. +974 4434 0360 | F. +974 4434 0359 | [email protected]

As TheEDGE celebrates its first year of publication we would like to thank all of our readers, contributors and advertisers for their continued support.

- Thank you, TheEDGE team

Happy Birthday TheEDGE

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www.theedge-me.com

CONTENTS

CONTribuTOrS A brief introduction to the specialised team of contributors who lend their expertise and insight to TheEDGE.

NEWS iN briEF A snapshot of the latest business developments affecting the business landscape within Qatar and the GCC region.

NEWS iN QuOTES & NuMbErSPowerful statements and important statistics that made an impact.

ON THE EDGEMiles Masterson reports on the quirky names given to South African newborns in honour of the FIFA 2010 World Cup.

ANNiVErSArY SPECiALA behind-the-scenes look at the numbers that shaped TheEDGE in its first year.

buSiNESS iNSiGHTTheEDGE speaks with key professionals from in and around the region to uncover the latest news on the business front.

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iN THE SPOTLiGHTThe big spill, Christine Toner looks at how the BP spill has jeopardised the organisation, and how the disaster squares up to spills of the past. MArKET WATCH Professor Sir David King discusses the impact of the biofuel revolution on the globe.

iNSiDE EDGE Dheeraj Shahdadpuri recommends the regulatory steps that need to be taken now to avoid another global economic crisis.

COVEr STOrYWhat were the top issues and stories that challenged the growing economy of Qatar in the past year? Jamie Stewart looks back.

ECONOMiC bArOMETErKarim Nakhle outlines the FIFA 2010 World Cups true winners...and its surprising losers.

ON THE PuLSE With Iran facing its fourth round of sanctions, what knock-on effects can the rest of the region expect? Edward Jameson investigates.

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GrEEN buSiNESS How much planning is needed in light of adapting to climate change? Sam Pickering reports. ENTrEPrENEurMiles Masterson talks to Mohamed Jaidah and AbdulSalam Abu-Issa about the creation of their media brainchild, Firefly Communications.

SPECiAL FEATurE The first in TheEDGEs two-part series explores the link between genius and autism. By Joseph Glenn Jessome.

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buSiNESS ViEWS rEAL ESTATEEdd Brookes questions the influence and value of credit agencies considering their recent shortcomings and failures.

SPECiAL rEPOrT Oliver Cornock outlines how well positioned Qatar is to become the logistics centre of the region.

brAND bEAT How do brands ensure that they remain relevant as they make the leap into the digital world? Charlotte Stubbs finds out.

bALANCE SHEETWhile joint ventures remain a strong strategy for growth, Doug McPhee outlines the possible pitfalls and important considerations.

LEGAL iNSiGHTCharbel Neaman and Emma Higham examine the acquisition of companies in Qatar.

buSiNESS KNOW-HOWNew managers, take heed. Wassim Karkabi sets out the three steps to providing great value to the organisation, even if you are new to the job.

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www.jaidah.com.qa

Industrial Area St. No: 24P.O.Box: 150, Doha, Qatar

Tel: +974 446 387 77Fax: +974 446 042 86

Email: [email protected]

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EVENTS & CONFErENCESKey industry events, conferences, courses and exhibitions taking place in August.

QATAr PrOjECTSAn update on projects taking shape in Qatar.

TENDErSYour monthly go-to list for the latest business opportunities in Qatar.

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HOW-TO GuiDESimplify corporate network operations with convergence and the cloud. By Ali Ahmar.

TECH TOOLSTheEDGE looks at the latest gadgets hitting the shelves this month.

LiFE & STYLEGet in the Muay Thai ring, and discover the best of Chinese city, Beijing.

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80SPEAK EASYWhat does the financial services industry need to do to build its brands in the Middle East? Stephen Davie makes some suggestions.

bEHiND THE WHEELMiles Masterson reports on the first of a series investigating Qatars excessive road accident statistics.

iNDuSTrY FOCuS Doctor Tommy Weir examines how investing in employee training will affect a companys bottom line.

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P.45 edward jaMeSonSenior Business Journalist Middle East and North Africa region

P.48 SaM PicKeringManaging DirectorBG2 Global SolutionsLondon, United Kingdom

P.42 KariM naKhleSenior Business Strategist Doha, Qatar

P.61 edd brooKeSDirector DTZ , Middle East Operations Doha, Qatar

P.68charlotte StubbSClient Services Creative Action DesignDoha, Qatar

P.64oliver cornocKRegional EditorOxford Business Group Gulf Cooperation Council region

P.76waSSiM KarKabiManaging Partner Stanton Chase InternationalQatar and UAE, and Regional Practice Leader,Industrial, Europe, Middle East and Africa

P.36jaMie StewartInternational Correspondent London, United Kingdom

P.80StePhen davieRegional Director, and Head of Financial Communications Hill and KnowltonMiddle East

P.25chriStine tonerEconomic CorrespondentLondon, United Kingdom

P.32 dheeraj ShahdadPuriAnalystDun and Bradstreet South Asia, Middle East

P.70doug McPhee PartnerKPMG Corporate Finance Secondment to Qatar from London, United Kingdom

P.73charbel neaMan Lawyer Corporate and Commercial Clyde and Co Qatar, Doha

P.73eMMa highaMAssociate Corporate and Commercial Clyde and CoDoha, Qatar

the uSual SuSPectS...

All contributors to TheEDGE are well-regarded leaders in their respective industries. If you are interested in joining the esteemed panel of contributors, please contact the managing editor, Kelly Lewis at [email protected]

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Qatar ShiPS lng to braZilQatar loaded its first shipment of liquefied natural gas (LNG) to Brazil, expanding sales to South America as forecasts show reduced demand in the United States (US), Bloomberg reported.

RasGas sold a cargo of the fuel to Petroleo Brasileiro SA, the company said in an emailed statement. The gas, cooled to a liquid, was loaded on the LNG tanker Express and is bound for either the Pecem LNG terminal in Ceara or Guanabara Bay LNG terminal in Rio de Janeiro, the company said.

The shipment comes two months after RasGas said it loaded a spot cargo to Argentina and seven months after the company said it shipped its first LNG to Chile.

Merger drawS nearAl Khaliji Banks valuation for the planned merger with the International Bank of Qatar may be completed by the end of August, Al Khalijis acting chief executive officer Robin McCall told Bloomberg late last month.

The merger may be completed this year or in 2011, McCall said at a news conference.

FiFth oF gulF Print titleS Shut laSt yearOne fifth of all print publications in the Gulf Cooperation Council (GCC) region have closed since the height of the global financial crisis at the beginning of last year, the National reported.

It said analysts warned that the media industry could be hit by further cuts and declines in advertising revenue. Since the start of 2009, 171 Gulf-based magazines and 11 newspapers have either suspended or discontinued publication, according to figures from the data supplier, MediaSource.

Of the Gulf countries, the National said the United Arab Emirates publishing market had been hit the hardest.

reSearch Panel to Study MideaSt cliMate change An Indian research foundation has announced the launch of a dedicated programme to study the impact of climate change in the

Middle East and the health problems it poses, Khaleej Times reported.

Scientists at the Shantigiri Research Foundation of Kerala have initiated the study on the environmental and health issues faced by the region, which is home to millions of expatriate workers.

it Security SPending growS at FaSt Pace in gccAccording to a recent research report by RNCOS: Global IT Security Market Forecast to 2013, demand for IT security products and services is expected to grow at a robust pace throughout the world in the coming years.

RNCOS said that Gulf countries were one of the fastest IT security solutions spenders in the world, which was due in large to the recent spike in cyber attacks. As per its estimates, RNCOS said spending on IT security software and appliances by Gulf countries would grow at 25 percent from 2010 to 2013 on the back of increasing Internet penetration among households.

Saudi arabia booStS itS Military MaterialThe United States (US) is considering an arms sale package for Saudi Arabia, with a potential value of close to US$30 billion (QR109 billion), according to the director

of the US Defense Security Cooperation Agency, Navy Vice Admiral Jeffrey Wieringa.

The package is said to include 84 new Boeing F-15 jet fighters, 72 UH-60 Black Hawk utility helicopters and the refurbishment of 70 F-15s already in Royal Saudi Air Force service, as well as spare parts, training and support.

norSK hydro eXPectS SigniFicant earningS FroM QataluM, vale aSSetS Norsk Hydro ASA, Europes third-largest aluminium maker, expects a significant contribution to profit and sales next year from higher output at its Qatar plant, and assets it agreed to buy from Vale SA, Bloomberg reported.

With full production of Qatalum next year, that will have a significant effect on the revenues and the bottom line, chief executive officer Svein Richard Brandtzaeg told Bloomberg in an interview.

He added: Also the Vale acquisition, the aluminium in Brazil, will contribute significantly.

On May 2, Hydro agreed to buy Vales mining and refinery assets in Brazil for US$4.9 billion (QR17.8 billion), securing a centurys worth of bauxite and access to the raw materials used in aluminium production to become less reliant on mining companies.

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INTERNATIONAL

auStralia the Qatar oF the PaciFic Australian liquefied natural gas (LNG) projects are poised to benefit from surging demand in Asian markets, making the country the Qatar of the Pacific in the next decade, research firm Sanford C. Bernstein said.

China, India, Thailand and Singapore are set to drive consumption of the fuel, along with nations in the Middle East and South America, and supply is likely to grow slowly, Bloomberg reported Neil Beveridge, a Bernstein analyst in Hong Kong, as saying. Australia will account for about 60 percent of new global LNG production capacity added in the next five years, he said.

eaSyjet increaSeS Fuel hedged For neXt FiScal year EasyJet, Europes second-biggest discount airline, increased the amount of jet fuel hedged for the next fiscal year as it seeks to reduce earnings volatility, Bloomberg reported.

The Luton, England-based company arranged 70 percent of its anticipated fuel needs using forward contracts priced at US$734 (QR2671) a metric tonne for the year ending September 30, 2011, it said in a statement late last month.

EasyJet also said it hedged 80 percent of its jet-fuel requirements for the three months ending September 30, 2010 at US$726 (QR2642) a tonne. EasyJet said it usually hedges between 50 percent and 80 percent of its jet fuel needs one year forward. The companys policy is to hedge 20 percent to 50 percent for the second year forward.

billionaire eyeS india bourSe StaKe Billionaire financier George Soros is in advanced talks to buy a four percent stake in Indias Bombay Stock Exchange (BSE) for US$35 to US$40 million (QR127 to 145 million), sources with direct knowledge revealed late last month.

Soros Fund Management will buy the stake in Asias oldest stock exchange from Dubai Financial, part of sovereign fund

Dubai Holding, the sources, who declined to be named, as they were not authorised to speak to the media, told Reuters.

The Financial Times first reported the news.Dubai Financial has been looking to sell its four percent stake for quite some time now, said one source. The talks with Soros are now in almost final stages and a formal transaction is expected shortly.

aFrica-Me agricultural tie- uP ideal Africas untapped agriculture potential makes it an ideal partner for resource-constrained Middle Eastern countries that seek to improve their food security, a new report from Standard Chartered Bank said.

The African continent is relatively land-abundant, land utilisation rates are low, and contrary to widespread perception has plenty of water.

Given its potential Africa, therefore, appears to be a natural destination for agricultural investment by Middle Eastern countries, but there are valid concerns about whether it can play a significant role in addressing the Middle Easts food security issues, the report added.

internet addreSSeS to run out Soon The world will run out of Internet IP addresses in less than a year due to the explosion in smartphones, experts have warned.

Inaction by Internet providers could lead to broken applications and more expensive Internet connections, according to a report

published in the Gulf Daily News.IP addresses do not refer to website

domain names, but the unique sequence of numbers used to identify each computer, website or other Internet-connected device.

The protocol used by the majority of web users, known as IPv4, provides only about four billion IP addresses. Currently there are only about 232 million IP addresses left, which is enough for about 340 days only.

Qatari diar, uK develoPer Settle row Qatari Diar, the property arm of Qatars sovereign wealth fund, has settled with British developer CPC Group in their dispute over a failed US$1.5 billion (QR5.4 billion) London apartment scheme, the companies said in a statement.

Qatari Diar bowed out of its plans after Prince Charles wrote privately to Qatari Prime Minister Sheikh Hamad bin Jassim Al Thani last year to protest about the Chelsea Barracks projects brutalist contemporary design.

china PlanS to increaSe cotton outPutChinas cotton output, the worlds largest, may rise 3.9 percent to 7.06 million metric tonnes this year on higher yields, the China Cotton Association reported. Yield may increase by 4.8 percent to 91.6 kilograms per metric unit (0.1 hectare), the industry group said in a report on its website, citing its own survey of growers. The crop area fell 0.9 percent from last year to 77.1 million metric units.

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The recent World Investment Report 2010 issued by the United Nations Conference on Trade and Development, commended Qatar for attracting foreign direct investment (FDI) flows, which declined in all other countries of the world.The report, under the banner of Investing in Low-Carbon Economy, said that Qatar had achieved high growth rates in 2009, reaching 112 percent higher than countries such as the United Arab Emirates and Turkey, which was due to the robust growth of its liquefied natural gas and real estate sectors.The report referenced the Qatari sovereign wealth fund and its measures in stepping up investment opportunities in Europe, Asia, and the United States. Measures that the report said would attract more FDI flows into the emirate unlike other countries and governmental entities that focused their efforts on their domestic economies.

It is worrisome that all the seizure of fake medicines made in recent past originated from China and were transported by Qatar, Emirate and Lufthansa airlines in clear violation of the National Agency for Food and Drug Administration and Controls (NAFDAC) preshipment of imported goods.The NAFDAC of Nigeria said it may sanction Qatar, Emirate and Lufthansa airlines for transporting fake medicines from China to Nigeria.

We believe that Qatar will be a key part of the global trend, which is seeing a shift in the economic balance of power towards the emerging world, especially the BRICS, but also towards the Middle East and Africa. Shashank Srivastava, acting CEo, Qatar Financial Centre Authority.

It [Boeing 777] is in its first few months of operation. The 777 Freighter is performing as promised by Boeing and as we expectedits meeting operating-economics targets and is well on its way to helping us grow the freight transport piece of our business.Akbar Al Baker, Qatar Airways CEo said following the announced of an order for two additional Boeing 777-200Lrs during the Farnborough international Airshow.

The licensed operators [Qtel and Vodafone] have participated enthusiastically in the dispute resolution process. This is a welcomed sign of growing maturity within the Qatar telecommunications sector and the regulatory framework, generally.Doctor hessa Al Jaber, ictQatar secretary-general said in relation to Qtel and Vodafone Qatars dispute resolution proceedings.

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Pic of the Month

An amphibious vehicle navigates the Nantes to Brest canal near Redon, southwestern France, for the opening of the Amphib 2010 event an international amphibious vehicles gathering in Peillac. About 50 vehicles from 12 countries take part in this event annually (photo courtesy of Damien Meyer/AFP/Getty Images).

News in Numbers

News in Quotes

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would not consider appropriate, at least not in the English-speaking world. It is not surprising to meet people called Patience, Goodwill, Gladwell, Fortune, Blessing, Firstborn, Goodluck, Happiness and maybe Xylophone. Even Surprise itself is not uncommon (and some-what self-explanatory). You might meet a Psychologist or a Portfolio tending your hotel garden, advising you at the bank, or even at the head of a boardroom table.

There are various reasons for the origins of this custom in the various tribes of South Africa, (such as Sotho, Xhosa, Zulu etcetera), but most often these names are direct translations of tribal names and/or reflect the mood and aspirations of the parents at the time of birth. Obviously this has now adapted to include commemorating current events, and let us face it, none come bigger than the FIFA World Cup.

Of course, when looked at from a broader perspective, the custom is no more bizarre than the current trend in Hollywood and pretentious circles in the West, where it is de rigueur to your kid anything but John or Mary. Consider the schoolyard credibility of Pirate Davis (son of rock singer Jonathon); Audio Science (son of actress Shannyn Sassomon); or what about Poppy Honey and Daisy Boo (the unlucky daughters of celebrity chef Jamie Oliver)? Satchel, Scout, Pixie. Moon Unit,, Reign-beau. Pilot Inspektor? All Hollyweird names. Google them. In fact, they make Fifa or Vuvezela or even Red-Card seem downright normal, when you think about it.

* Apparently Fifa, usually quite protective of their brand, have opted not to sue the infant for copyright infringement.

South Africans take their enjoyment of the 2010 World Cup a step too far with their choice of baby names.Miles Masterson reports

Now the final whistle has blown, debate rages on in South Af-rica whether the 2010 Fdration Internationale de Football Association (FIFA) World Cup will eventually prove to be good for the country through increased tourism, invest-ment and self-confidence or whether the huge cost of the event will further cripple an already struggling economy.

Nevertheless, on a far lighter note, one less loaded, but far more curi-ous legacy of the 2010 World Cup will definitely be felt by those affected for at least the next five or six decades: The commemorative naming of children born during the event such as Fifa, a girl reportedly named by one mother who gave birth to her following the opening match at Soccer City in Johannesburg. *

Indeed, many South African hospitals have disclosed that popular first names awarded to bouncing newborns during the tournament have included Kick Off , 2010, Soccer City, Goalkeeper, Offside, Red Card and Half-time. Tickets? Ball? Vuvezela? Yes, all names given to bundles of joy welcomed into the world throughout the month-long competition.

Other classics are Coach, Substitute, Park n Ride and Stadium. Countries, too, were included in the naming frenzy, the most popular being Cameroon, France, Brazil, Denmark and Italy. The clash of Bafana Bafana and Mexico was also commemorated by a couple, who reportedly named their twins after the two teams as she was born during the opening match.

Strange as it may seem, in southern Africa it is actually a custom in many ethnic groups to name children with the type of words that most

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ANNiVErSArYSPECiAL

16 TheEDGE

Number of magazines that are printed each month:8250

Number of hours worked by all involved to produce each issue of TheEDGE: 1070

While there are many things our readers do know about TheEDGE, we have included a few quirky facts that you may not know:

51, 240The average number of words in each issue:

Number of coffees that have been consumed, while putting TheEDGE together in the past year: 8320

Number of interviews that have been conducted in the past year:

324 Number of times the words economic recession were mentioned in TheEDGE in the past year:

1052

Amount of ink in kilos used to produce each print run:40

Number of kilometres travelled by the distribution van to deliver copies each month: 825

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17, 710Metres of paper reel produced for each print run:

Offshore versus onshore wealth management what trends are being witnessed at present and what are the associated risks?

The amount of wealth being managed offshore commonly defined as assets booked in a country where the investor has no legal residence or tax domicile while still increasing, is actually decreasing as a percentage of overall wealth being managed from about seven percent in 2009 to an expected six percent in 2014. There are three general factors driving this decline, two of which are most applicable to the Middle East.

The most obvious cause of this decline comes from the regulators. The United States (US), perhaps most notably, has ramped up its monitoring of offshore wealth and this is true of many European countries as well. As a result, it is becoming more and more difficult to attract and service clients in these countries.

A second factor more applicable to offshore wealth from the Middle East can be described as a loss of confidence from many clients of their international, offshore banks. While researching BCGs 2010 Global Wealth Report we conducted several dozen interviews with wealthy individuals in Qatar and across the Gulf Cooperation Council (GCC). While many of the individuals surveyed still have offshore accounts, some expressed disappointment in their performance. Some described they were offered (and bought) products that their relationship manager didnt fully

understand and only later found out about some hidden catch, which prevented them from selling once performance began to decline, or of some counterparty risk that they didnt understand.

A third factor, which is also quite applicable in the GCC, is that many international and local banks are beginning to launch more complete and sophisticated onshore wealth management offerings, creating a viable alternative to sending more assets offshore.

What developments are being observed within the markets of the GCC are clients and wealth managers increasingly eyeing these markets as new pockets for wealth?

Yes, wealth managers are looking increasingly at the GCC as growing sources of assets to manage. As mentioned earlier, regulatory pressures are making traditional offshore centres, like Switzerland, more difficult to access for US and European clients. Clients from the GCC are now seen as an attractive source to make up for some of these lost assets.

Most traditional European private banks have usually served GCC clients remotely either by having the relationship manager travel to the region on a regular basis to visit clients, or by meeting in Europe often during the summer. We now see that international banks are setting up locally based operations in order to serve their clients more closely often in banking centres such as the Qatar Financial Centre or

the Dubai International Financial Centre. Even if the assets are booked offshore a locally based relationship manager can still serve them.

Are onshore investments in the GCC growing in popularity? What countries in particular are experiencing the greatest advancement in this field?

Yes, onshore investments in the GCC are growing in popularity. As the depth and liquidity of the capital markets continue to increase, this provides more options for GCC residents to invest onshore. In addition, there are a number of Middle East and North Africa (MENA), or GCC equity funds. These funds are being created by international and local institutions in a bid to provide a lower risk way of investing in the region than through individual stock investments. Further, the GCC is beginning to be looked at as an asset class in itself by international fund managers and, therefore, is attracting flows of capital onshore.

When it comes to onshore wealth management, banks in many of the GCC countries are advancing in sophistication. Bahrain has been considered a banking centre for the region since the 1970s. More recently, banks in Saudi Arabia, Kuwait, and the United Arab Emirates have been building up their wealth management offerings. Qatari banks are slightly behind, which is mainly due to the comparatively small population and relative recent growth in the countrys wealth.

The percentage of assets under management (AUM) owned by the established wealthy (households with more than five million in wealth) was found to be highest in the Middle East and Africa (MEA) where they account for one third of all wealth. Why are the figures more concentrated and much higher for the MEA region as compared to Europe and Japan where these households account for only 14 and eight percent of AUM, respectively?

The fact that the percentage of assets under management owned by the established wealthy is highest in the MEA is a reflection

An eye for wealthWhile the teeth of the global economic crisis have started to retract and clients regain their appetite for risk, the economic ripples have not yet fully subsided. In its Global Wealth Report 2010 Regaining Lost Ground: Resurgent Markets and New Opportunities the Boston Consulting Group (BCG) warns that wealth managers need to play the game smarter and with extra vigilance. Kelly Lewis speaks one-on-one to BCGs partner and managing director, Douglas Beal about the reports findings.

Finance

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of the regions relative income and wealth disproportion. Income and wealth disparities often tend to be greater in rapidly developing countries, as well as those cultures with a strong entrepreneurial culture. Both these factors apply to the Middle East, Asia-Pacific and Latin America are other regions where the wealthy hold a high percentage of assets under management.

Europe and Japan have relatively slower growth, higher tax and more mature economies, which tend to be aligned with lower disparities in income and wealth.

Three of the six densest millionaire populations were found to be in the Middle East Kuwait, Qatar and the United Arab Emirates. What does this rise in density present for the region?

This presents an opportunity. This density of millionaires, which is also reflected in places like Hong Kong and Singapore, presents tremendous prospects for wealth managers, as they will be able to manage a relatively large amount of wealth by working with fewer clients.

In particular, this presents a break for local banks to grow in sophistication in their wealth management offerings along with their clients. There are several key success factors that local banks should follow in order to serve these clients. First, they should focus on what they do best. Wealthy individuals will always maintain relationships with several banks both onshore and offshore and so local banks should determine their more appropriate place in the portfolio of a clients needs. Second, they should create a client centric organisation and value proposition, and train their staff to deliver it. Third, identify the specific needs of certain groups such as women and entrepreneurs, and learn how to serve them in a special way. This is where local banks that understand their customers better will have a real chance over international banks.

What is the outlook for Qatar and the GCC in terms of increasing its share of global wealth?

It should continue. As gross domestic product (GDP) in the region is growing at high single digits or even double digits in the case of Qatar the stock of wealth in the

region will continue to grow along with it. We estimate that between 2009 and 2014, assets under management from the GCC will grow at eight percent annually, compared to less than six percent for the world as a whole.

What trends are being witnessed in the way Middle East clients position their assets as compared to clients in Europe, Asia-Pacific or North America?

The entrepreneurial spirit and rapid growth of the GCC countries is reflected in many characteristics of how clients in the GCC manage their wealth, which differs from many other parts of the world. It is also important to distinguish between the citizens of the GCC countries versus the expatriate population.

First I will focus on the citizens of the GCC. The most notable characteristic is the very high percentage of assets that are held in real estate many Gulf Arabs have most of their wealth tied up in real estate. This has an impact on the wealth management business model of local banks, which often include real estate financing into their value proposition.

Second, personal wealth and business wealth tend to be tied very closely together. Often when a client has a relationship with a bank they see it as a single relationship both for personal and business needs. Banks need to take this into account when designing their business model.

Third is the importance of the family business. Many GCC families build businesses, real estate and so on, over the course of multiple generations. As a result, extended families often have complicated matrices of shareholdings across the individuals within the families. Many families now are looking to corporatise their

family wealth to make it more transparent, liquid, and easy to trade.

Expatriates in the Gulf tend to manage their wealth in very different ways most tend to export a large majority of their liquid wealth back to their home countries as they expect to move back there someday.

Do Middle East clients take more or less risk with their wealth on average?

Its hard to say if they take more or less risk lets just say they take different risks, risks that they are more comfortable with. As mentioned earlier, many clients in other parts of the world would consider tying up the majority of ones wealth in real estate as risky. However, in the context of the growth of the GCC region and the culture, real estate could actually be less risky than more international investment strategies that might be less familiar to a local client.

Are regulatory pressures less intense in the Middle East, therefore, making it more attractive for clients to invest in the region?

Actually, sound regulations usually result in regions being more attractive to invest in, not less attractive. Good regulations help ensure consumer protection, liquidity of equity markets and good corporate governance, all which are factors that investors use when considering where to invest.

In general, the regulatory environments in most Middle East countries are still under development. Many countries need to continue developing their environments to ensure truly independent and world-class regulators, enforce minimum free-float requirements on stock exchanges, refine existing foreign ownership

the entrepreneurial spirit and rapid growth of the gcc countries is reflected in many characteristics of how clients in the gcc manage their wealth, which differs from many other parts of the world.

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laws (which restrict capital inflow from overseas), and adjust other environmental factors.

How is the wealth management sector positioned in Qatar as compared to the broader GCC market?

Qatars banks are beginning to look at wealth management as an attractive way of diversifying their earnings and make more fee revenues, however compared to international banks and even other GCC banks they are still in the nascent stage, with some limited exceptions.

What measures could be taken to transform risk management in the GCC in light of the economic downturn?

Risk management played a decisive role in how wealth managers fared during the economic downturn. Many lost significant amounts of money for both their clients and themselves owing, in part, to a lack of adequate safeguards. Most importantly, they lost their clients trust often because they failed to tell their clients about potential counterparty risks that were then realised.

Many advisors also failed to conduct proper know-your-client profiling, or pushed products that were an obvious mismatch with the clients risk profile.

In addition, some transactions were executed without the clients explicit consent, and some advisors neglected to review portfolio performance with their clients, even as losses mounted.

Many of these problems stemmed, at least in some part, from risk management systems that were overwhelmed and struggled to keep up with the proliferation of new financial instruments and markets.

Going forward, wealth managers will need to make improvements ranging from the thematic to the operational. At a high level, the risk

function needs to be imbued with values such as integrity, independence and critical judgement values the banks leadership must live. At a more practical level, the risk management function in close collaboration with the business needs to design processes for managing the risks throughout the business. There are many, but I will highlight three:

First, when sourcing products, wealth managers should not rely solely on rating agencies when assessing third party products they should conduct their own independent due diligence.

Second, relationship managers, as first line of defence, should be highly trained to understand their clients risk profiles as well as the range of products they have to offer, to avoid mismatch.

Third, relationship manager incentives can play a big role. Longer-term wealth appreciation of clients, instead of short-term profits to the bank, can better align the relationship managers goals to that of their clients.

The report finds that the crisis intensified the flow of assets into perceived safe havens (largely cash or money management products). However, the report states this to be only a temporary move. What trends do you expect to see in asset positioning in the coming 12 months?

Already we see the share of wealth held in equities increasing from about 25 percent in 2008, to around 30 percent in 2009. However, this is still lower than the 36 percent witnessed in 2007. As investors continue to regain confidence, we expect the percentage of wealth held in safe havens to continue to decline. However, investing in products they didnt understand has burnt many investors and we expect these products to maintain a lower profile at least among individual investors going forward.

What is the current percentage of wealth that women control in the GCC and what influence do they have in where money is invested?

We estimate that women control 22 percent of wealth in the GCC, which is only slightly lower than the global average of 27 percent. Based on interviews with wealth managers and many high net worth women in the GCC, we find that most women have a very high degree even full influence over where the money is invested. That is why it is very important for wealth managers in the GCC to understand their women clients and their potential unique needs.

As women are increasingly climbing the corporate ladder and obtaining larger salaries in the Middle East is the percentage of wealth held by women increasing?

Yes, like in all parts of the world, the percentage of wealth held by women seems to be increasing. This is driven by many factors, including their increasing role in business and the overall trend towards greater gender equality in many regions.

How do the requirements of wealth management differ between male and female clients, and, do these requirements fluctuate between regions?

This is a great question. Many wealth managers do not currently meet the needs and expectations of many of their female clients. In fact, more than half the women in a recent BCG survey feel that wealth managers could do a better job of meeting the needs of female clients.

Even wealth managers that recognise the opportunity to target women often underestimate the complexity of reaching female clients. Their overtures, which include pre-packaged products and targeted marking, sometimes lack special treatment. Many of the women we surveyed, however, told us they do not want special attention, much less any kind of women labelled product, pitch, or promotion that comes across as superficial or patronising.

Wealth managers need a more nuanced approach that is grounded in a simple truth: most female clients want to be treated the same way as any client. Most importantly, they want to be understood, rather than prejudged or stereotyped.

as investors continue to regain confidence, we expect the percentage of wealth held in safe havens to continue to decline.

BUSINESS INSIGHT

20 TheEDGE

Making headlinesFor the first time, in June, news wire Thomson Reuters launched its Arabic News Service, combining news and business information from their financial terminals in Arabic. In addition, this new service coincided with the creation of a post within the organisation of managing editor, Middle East and Africa (MENA), filled by Caroline Drees. Drees is a seasoned journalist and editor fluent in Arabic, who has spent 16 years working at Reuters and most of her life in the MENA region. Miles Masterson spoke to Drees to find out more about what motivated the creation of the service, as well as the current media environment in the region.

While other agencies and news services already offer such information in the regional language, Reuters initiative coincided with the implementation of its MENA expansion plans, which, thanks to its extensive network, will boost the availability of news and financial information available in Arabic in Gulf Cooperation Countries (GCC) and beyond.

Enter Drees, who has been Reuters bureau chief in Cairo, and while on secondment to Reuters Foundation project in 2006-07 helped to set up the first independent news agency in Iraq, Aswat Al Iraq. Prior to her recent promotion, she spent the past 18 months in Reuters Dubai office as editor Middle East. Based in Cairo from where Reuters has been operating for 165 years and the word is, in fact, local slang for a know it all with a large team of editors and journalists, Drees will now oversee all of the news service operations in the region.

Though media in the MENA region has been identified as a growth area, Reuters expansion comes against a backdrop of a global media decline. At least in the context of newspapers for example, which have formed a large part of the traditional income for news wires. However, Drees says Reuters ambitions make sense considering that their client base is diverse and includes tax, medical and financial institutions, the latter of whom mostly subscribe to a special

Reuters terminal installed in their premises. Predominantly our financial clients have a desktop machine, she says, on which they can get [news], real-time data, analytics, graphics, and all kinds of other exciting tools that are useful for the financial sector.

Arabic-speaking Reuters clients will now be able to consume information in their mother tongue, including expanded coverage from 22 MENA stock exchanges and 2000 banks connected to the Reuters trading system.

However, though this kind of service has been available for some time in various languages, as with many of these, Arabic speakers might still read shorter news or stock market data items in English.

They might like reading a longer feature or an analysis in Arabic, adds Drees. Everybody

is differentbut having that choice is very attractive for subscribers.

Reuters has also spread its news and data gathering network extensively in the region, appointing a new Arabic service chief, Munir El Boweti, and a new position of business editor, held by Nadia El Gowely.

We have added native Arabic speakers and fluent Arabic speakers throughout the Middle East and the north of Africa, says Drees, to continue to expand our footprint and enhance our coverage across the financial news, and multimedia coverage, [and] everything from commodities to energy news, to treasury, equities, economic news, and various specific sectors like real estate, transportation, telecoms.

Of course, the MENA area is also of great interest to the wider business community. Global investors are looking beyond countries or regions once regarded as financial safe havens, as Drees calls them, particularly to Africa, which she feels has seen many recent developments outside its traditional commodity and energy sectors.

Rapidly developing economies are very much in the forefront of news, qualifies Drees. The other thing we know is that our clients are interested in the tie ups between the Middle East countries and Africa, and other emerging markets such as China and India. Or changes in dynamics between emerging markets such as the Middle East and BRIC (Brazil, Russia, India and China) countries, and the G-7 or the European Union (EU), or other industrialised

Media

Arabic-speaking clients will be able to consume information in their mother tongue, including coverage from 22 MENA stock exchanges and 2000 banks connected to the Reuters trading system.

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countries, which have been hit hard by the global economic downturn.

Drees is also bullish about the state of the media in the Middle East.

Weve seen a real surge in the number of Arabic language television channels available, radio stations and newspapers across the Arab world reporting on the Arab world, she says, so I find people in the Arab world as a whole extremely well informed. Growing demand for news about the region in Arabic, explains Drees, is the most important aspect of the new service. [Through] the continued of growth of appetite for news and the continued professionalisation here in the MENA region, adds Drees, our services will be continued to be needed in my opinion, and why we believe the expansion of the Arabic service will be met with a lot of interest.

Moreover, Drees adds this interest will not just be with Reuters current clients, but with financial clients, even more so when Insider, Reuters on-demand video financial news platform, part of its Thomson Reuters New Era, New Tools Innovation Programme, is also translated into Arabic in the near future.

Launched worldwide in 2010, Insider goes beyond the regular stream of consciousness news and, describes Drees, is far more versatile. Users can, for example, search for exactly what they are looking for at the exact point in any news clip as well as the transcript and email or sms it to an associate or colleague. It is a much more interactive tool than traditional television, she enthuses.

Discussing these new platforms and digital media in general, Drees says she feels people in the Middle East are as tech-savvy as anywhere, thanks to the large youth population in particular, and that Reuters is adapting and adding to its service to accommodate this shift.

While she feels the recent rise of citizen journalism is relevant and certainly not a threat to traditional media, Drees opines the latter will still be relevant for a long time to come.

Citizen journalism is quite exciting I think, she explains. It allows people to voice their opinions and to get out there with issues they feel need to be addressed. But, at the same time, I feel our clients still need the services of organisations such as Reuters, which for 160

years has been providing very well respected, balanced, fair and reliable news. But the story formats have certainly changed over the years. We still have the traditional news stories, but we also have journalists blogging, we provide graphics, we have live news feeds, such as from the FIFA World Cup in South Africa, if you cant watch the game, you can watch a live news feed with journalists at the game putting up commentary, putting up pictures of the game; its quite like watching the game. I was stunned how exciting it was, so we do use our own network in many different ways.

We have reporters on television, sometimes on Insider, sometimes on Reuters Video News, she adds. There is a big focus on telling news in different ways...consumers are changing, they are younger, they are quicker, they are wanting news and information in different ways, and Reuters is making sure that while other employers are laying off hundreds if not thousands of people, or in some cases are having to shut down, we are making the changes that are needed.

Thompson Reuters chief executive Tom Glocer, Drees goes on to tell, often uses a story to highlight how the industry has changed: in 1865 it took the news of the death of Abraham Lincoln 10 days to reach Europe. Now in the age of Twitter it would take less than 10 seconds. The kind of information required, Drees adds, is also morphing constantly, thanks in main to the global economic downturn.

As mentioned, the Reuters Arabic News Service will also increase the volume of news stories circulating in the MENA region. Of course, arguably apart from not only increasing coverage within the area it should also increase coverage emanating into the wider world.

As part of this expansion, explains Drees, there will be more news stories from the Middle East and Africa available to our clients globally, out of dozens of journalists writing about the Middle East and Africa, covering all asset classes, including political and financial news, so there is certainly a greater number and a greater depth and breadth available through our Middle East and Africa growth plan.

Thanks to the volatile global economic climate, people, Drees points out, are very interested in things that will affect their future, and this is no different in the region.

Issues like the regulatory environment, the future of the banking industry where is that going to go? she says. Issues such as investment, investment flows, economic growth. For example, here in the Middle East, most places are still booking economic growth and will continue to grow quite substantially this year, including Qatar.

In fact, while most Gulf countries, closes Drees, are seeing their gross domestic product (GDP) grow in low single digits, Qatars GDP set to be in the mid-teens for 2010 will keep expanding well ahead of the rest of this important zone, and, she says, the country presents exciting business opportunities.

People across the globe are interested in reading about Qatar, Drees explains. Qatar is a regional player, no question, and I think this is one of the many reasons we are interested in increasing our coverage out of Qatar we have a full time correspondent now in Qatar and in addition we travel into Qatar with our correspondents regularly for specific events.

For us and our clients, news about Qatar is always of interest and we look forward to continuing focus on that.

There is a big focus on telling news in different ways...consumers are changing, they are younger, they are quicker, they are wanting news and information in different ways.

Playing to win

With Qatars ambition for the 2022 World Cup, there is a shift in focus to the state of the nations health. What is Aspetar doing to improve some of the health-related issues in Qatar?

Aspetar is a leading specialised orthopaedic and sports medicine hospital with a strong focus on research. To that end, we are collecting a lot of data from the athletes we manage. Although this information has been gathered from athletes, it has wider application, particularly with reference to sports science, and can be used to help improve the health of the general public.

With this data we can better inform people, for example, how they should work out, how to eat healthier and improve their sleeping habits. We can also advise people on how to handle

In a bid to bring a fully-fledged orthopaedic and sports medicine hospital to the Gulf region, Aspetar was founded in 2007. Servicing the needs of professional athletes, both locally and from afield, the hospital boasts state-of-the-art facilities and is staffed by some of the worlds leading sports medicine practitioners and researchers. To find out more about Aspetars operations, Kelly Lewis spoke with former National Basketball Association professional and Aspetars senior male physical coach, Barry White.

stress in the workplace, as well as talk about vitamin D issues and other areas of health, which are specific to this region.

It is important for Aspetar to continue to gather this type of information and do the research. This will enable us to identify any potential health risks or trends, which we can then communicate to the public and advise accordingly on the necessary steps required.

In terms of the amount of athletic clients you are actually working with, what is the breakdown between national, local expatriate and foreign athletes? Are you seeing an influx of international teams and individuals coming to Aspetar?

Firstly, we receive both international athletes as well as many local athletes. In my area alone we have had close to 35,000 or 40,000 visits from athletes in just the past three years, so we are very busy.

Secondly, it is really important for Aspetar and for Qatar broadly, that we plant the seed for the nation to become more athletic. This does not just apply to athletic performance, it also pertains to educating younger generations; teaching people how to eat better, how to work without stress, how to improve sleep quality and how to generally live their lives better.

Every country goes through the same process and I am happy to see that Qatar is moving forward with this by bringing international sporting events to Qatar. Aspetar is taking a leadership role in response to these opportunities and in doing so, is helping create greater momentum.

I understand that Aspetar is currently undertaking studies into the use of sport psychology in the corporate world, as well as the importance of health and nutrition in the workplace. Can you discuss this?

Definitely. I come from a background working with many corporations in the Western world and at Aspetar we know that with todays lifestyle, peoples stress levels

Health

aspetar is a leading specialised orthopaedic and sports medicine hospital with a strong focus on research. to that end, we are collecting a lot of data from the athletes we manage. although this information has been gathered from athletes, it has wider application...

are higher people are sleeping worse, their cardiovascular health is poorer, and so on. We want to help provide solutions to people that struggle with these situations.

With the country witnessing such remarkable growth, we are going to see a rise in the number of corporations being established here and, therefore, an increase in the number of corporate employees. Despite the fact that we are a sports medicine hospital, we also look at broad health problems throughout the country.

We know that corporations are going to present greater health problems. Therefore, we canadapt solutions from what we are learning at the hospital to help companies with problems that you might find within a corporate environment.

BUSiNESS iNSiGhT

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What are some of the links between sport psychology and business strategy?

No matter what the scenario, if the component of stress is removed, people will communicate their ideas more effectively.

I think people can be more valuable supervisors and better managers when obstacles to effective communication are removed.

Sport psychology and the processes we apply to manage the health of athletes has direct application both to companies that are going to be working in Qatar, as well as to those which are already here.

In considering the sprouting of sports and training hubs in the region, can you discuss the need for more sports medicine care and the growing demand on the industry?

If we look at todays lifestyle, the typical athlete is not just the professional one. We have athletes who are managers, supervisors, or just regular employees in a corporation.

When you wake up in the morning, you have to count on your body to get you through the day. I think it is important that the hospital educates people on how to take care of themselves, how to get their lives in the best possible shape and be active I think that is one of the roles that will be demanded of us the most.

Being in Doha, what does Aspetar offer the local market and the wider region?

Aspetar is unique in what it offers. We have already received accreditation from the FIFA-Medical Assessment and Research Centre, making us a FIFA Medical Centre of Excellence. We are a young organisation that is constantly evolving. Currently, we are learning new techniques, which include solutions both for athletic and non-athletic problems.

If one were to walk around the hospital theyd see a lot of equipment that is used nowhere else but at Aspetar. Aspetars strength is that it does not look to the past, but to the future.

The nature of health problems is going to change; they are going to either get worse or improve. We are looking into these trends today and preparing for these health situations in advance for tomorrow.

Is Aspetar finding itself as a source of medical tourism?

Aspetar has a huge demand, which is driven by athletes that come from different countries. When I first joined Aspetar, it was relatively unknown. However, we now have a lot of players coming from Algeria, Greece, England, Italy and other countries. These athletes come to Aspetar because our reputation is starting to grow outside of Qatar. People are beginning to know and understand what we do, and how we work. There is a constant demand to be excellent and this drives the professionals working in the hospital today.

While Aspetar is an established brand in Qatar, there remains a general lack of awareness of what Aspetar offers to the average person on the street, as well as to the athletic population. What are the different approaches that Aspetar takes?

Our primary focus will always be on athletes, but the information we are gathering from our athletic clients can be applied to the general public, although that takes time.

We need to communicate our role as educators. Our role is also to provide life examples and show that we can give people results. I think these are the things that will convince people in the country to improve their lifestyle. If you are looking to improve, if you are looking to get better, we have the

resources, we have the knowledge and we have the skills to give you the best advice possible.

With regard to your athlete care, obviously Aspetar has many athletes from abroad, but specifically in terms of Qatari or Gulf nationals, are they more prone to certain types of injuries? Are you gathering these types of findings from your research?

I come from a sporting environment where you are pretty much educated on how to avoid any type of injury. Therefore, I always like to come back to teach this because you have to continually go into clubs, into communities, into schools, to tell people exactly what they need to do.

We commonly see cases of high blood pressure, stress or obesity problems.

Even in the Western world, we know that every Monday there are 1500 people that die from heart attacks. This is stress related to returning to work. However, we are in an environment where a lot of these concerns are new, but this is a growing country and we also know that through technology, through communication, you can catch these problems early on.

Can you tell me more about the technology that has been employed at Aspetar?

We have a state-of-the-art machine called Ultra-G and Aspetar is the first hospital to use one of these in the Middle East. In fact we found it when we were in Los Angeles and visiting the LA Lakers. We were investigating how to get athletes back after an anterior cruciate ligament injury operation, and doctors recommended this machine because it removes gravity and you are running on air, which removes any pressure. So we do research around the world and pick the best to ensure that we continually improving.

What is the relationship between sports leaders becoming leaders in business?

The transition of a sports leader into a successful business leader should be commonplace once you belong to a team, you learn how your body works, understand how to communicate, and know how to run and work with people, its a normal progression to become a leader. This process can help athletes look towards their future in terms of what they can do after they have peaked within their sporting careers.

aspetar is unique in what it offers. we have already received accreditation from the FiFa-Medical assessment and research centre, making us a FiFa Medical centre of excellence.

iN ThESPoTLiGhT

The biG SpillAs talk of bankruptcy and hostile takeovers surround BP, and beleaguered chief executive, Tony Hayward, steps down, Christine Toner looks at how the Gulf of Mexico spill squares up against oil disasters of the past.

Ps catastrophic oil spill may have been capped, but far-reaching consequences of the disaster will be felt by the company and the oil and gas industry throughout the world for years to come.

The environment has been devastated and those whose livelihoods depend upon the Deepwater Horizon offshore drilling rig have been brought to their knees.

Inevitably, the disaster has battered share prices. BPs share price has dropped by around 50 percent since the spill occurred on April 20, rising only when the market anticipated the announcement of BP Oil chief executive, Tony Haywards departure. To date, the spill has wiped around GBP50 billion (QR277 billion) off BPs market value, and whispers of a takeover are now being openly discussed.

It also caused an ongoing dispute between United States (US) President Barack Obama and Hayward. Hayward, finding himself a dead man walking, has been assigned to a new position in Russia, which he will fill after stepping down from BP in October.

However, it is not just Obama who gunned for the chief executive. Shareholders have become fearful of their investment since the announcement by BP that it must suspend dividend payments in order to ease political relations. Understandably shareholders are concerned this move marks the first time in 18 years

Fishermen contracted to assist collect oil use a boom to contain the oil spill in Barataria Bay, Louisiana.

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that the company has been in the red. Reports claim investors have agreed to the suspension of dividends in order to soften relations with Obama, but have demanded that the company does not bow down to any more orders and seek reassurance from the US.

There have been suggestions that the suspended dividend could be given back to investors once the clean up has been carried out. Of course, first and foremost, BP must also pay compensation to those whose livelihoods have essentially been ruined by the disaster the total claims could be an unfeasibly high sum.

Adding to BPs problems, the firm is also facing the issue of insurance. The oil giant must insure its debt. However, given the recent crisis, the cost of doing so has gone through the roof. Figures show that early last month default swaps were over 470 basis points. In monetary terms this means it would cost GBP47 (QR260) insuring GBP1000 (QR5528) bonds. Before the disaster this figure stood at just GBP5 (QR28). A hike of GBP42 (QR232) is hardly small change.

To make matters worse, reports claim the cost of cleaning up the spill could be around US$3 billion (QR10.9 billion) over three months.

For the first time in its history the phrase bankruptcy has been bandied about in relation to the company.

OIL SPILLS AS FAR AS THE EYE CAN SEEThe Gulf of Mexico disaster has to date resulted

in one million barrels of oil spewing across the surrounding areas. It is the second time in recent years that the area has been hit.

While the BP spill has attracted the spotlight of the global media and sent shockwaves through the political

world, as well as the business sector, this is not the worst disaster of its kind. Back in 1979, the Ixtoc spill resulted in three million barrels leaking into the Gulf.

In 1909, an oil spill occurred in Kern County, California, widely acknowledged to be one of the worst spills in history. An exploration well named Lake View Gusher accidentally punctured an oil reservoir causing the oil to spill over into the surrounding areas, destroying the environment, and leaking around 11 million barrels. Eventually, some 12 months later, it caved in.

On the local front, the Middle East is no stranger to oil spills either. The Gulf War spill off the coast of Kuwait is considered by many to be the worst disaster of its kind.

The disaster occurred on January 23, 1991, when the Iraqi government deliberately released more than 400 million gallons of crude oil into the Persian Gulf from tankers 16 kilometres off the coast of Kuwait in an attempt to ward off the American Navy.

The disaster severely damaged the surrounding areas, most notably in Kuwait. Wildlife habitats were destroyed, which had drastic effects on the environment.

The spill affected an estimated area of 160 by 64 kilometres and in some parts the spillage was around 12 centimetres thick.

Some years later, in a study sponsored by the United Nations Education, Scientific and Cultural Organization, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates and the US claimed the long-term damage from the Gulf War spill was relatively small. It was maintained that the majority of the oil had evaporated in the Persian Gulfs warm waters.

However, a number of years after the study was released its findings were disputed by experts, who claimed that in the disasters aftermath the environment was still suffering from the effects and indeed, it would continue to do so for some years to come.

Early this year, geochemist Doctor Jacqueline Michel, told a radio station that the

Adam Koch protests against BP on July 6, 2010 in Chicago, Illinois. Shares of BP have climbed over 10 percent from their low after losing about half their value following the start of the April 20 oil spill in the Gulf of Mexico.

Workers clean tarballs from a beach in Waveland, Mississippi. According to reports, scientists are concerned that oil is leaking from the BP well cap and could possibly make the sea bed unstable, causing the well to collapse.

TheEDGE 27

impact of the spill was still very significant. There was no shoreline cleanup, essentially,

over the 800 kilometres that the oil affected in Saudi Arabia, she said. And so when we went back in to do quantitative surveys in 2002 and 2003, there was a million cubic metres of oil sediment that remained 12 years after the spillthe oil penetrated much more deeply into the intertidal sediment than normal because sediments there have a lot of crab burrows, and the oil penetrated deep, sometimes 30, 40 centimetres, you know a couple of feet, into the mud of these tidal flats. Theres no way to get it out now. So it has had long term impact.

One reason for the poor attempt at a clean up is the fact the ongoing war made it difficult to access the leak and plug it. With the conflict continuing, the leak was left to worsen and ultimately caused more damage than it should have.

The war and the fact that the spill was deliberate affected the amount of money eventually spent on the clean up. Estimates claim this should have cost around US$550 million (QR2 billion). As it was, however, only a small amount of money was allocated for the clean up operation. In fact, to this day, the exact figure spent remains unknown.

LESSONS LEARNEDBP could have looked to another Middle East oil

spill for ideas on how to stop the leak and rectify the situation. The spill in question was in fact a secret for many years and many believe this is largely because of the swift action taken to clean it up.

In 1993, an accident at the Saudi Aramco rig in the Middle East led to nearly 800 million gallons of oil spilling into the Persian Gulf. The spill was kept under wraps and the company deployed empty supertankers to remove the oil from the waters.

Shareholders, local residents and politicians will be looking back at previous disasters in an attempt to find some guidance going forward. Gulf Times recently reported that Barry Samria, an operations manager for Celerant in Qatar, said that organisations are reviewing their processes and systems to avoid incidents similar to that of the BP disaster.

It inevitably has to affect the way organisations work, in the same way that the Texas City [industrial explosion of 2005] had an immediate effect on how companies execute shutdowns, Samria said. We have already spoken to organisations that are assessing their current management processes and how they work with their contractors.

As Obama, the Gulf of Mexico and shareholders alike wait with baited breath to see how the BP disaster will play out, and while BP struggles to keep a hold on the situation, all would do well to revert back to the Gulf War incident and others like it in an attempt to learn from the past in order to help protect the future.

(Then) BP chief executive Tony Hayward testifies before the Oversight and Investigations Subcommittee during a hearing on The Role Of BP In The Deepwater Horizon Explosion And Oil Spill in Washington in June. BP agreed to place funds into an escrow account managed by a third party to pay out claims resulting from the oil spill and also said it will not pay out additional dividends to shareholders for the remainder of the year.

Plaquemines Parish Coastal Zone Management Director P. J. Hahn holds up an oil-stained Sandwich Tern in Long Bay, west of Port Sulpher, Louisiana. The bird was reported and delivered to the Louisiana Department of Wildlife and Fisheries for rehabilitation. The BP oil spill has been called one of the largest environmental disasters in American history.

Workers place absorbent material on to the beach as oil residue washes ashore from the Deepwater Horizon oil spill in the Gulf of Mexico in Orange Beach, Alabama. Millions of gallons of oil have spilled into the Gulf since the April 20 explosion on the drilling platform.

iN ThESPoTLiGhT

mArKET WATCh

THE biOFuEL rEVOLuTiON

Professor Sir David King discusses the findings from the World Economic Forums The Future of Industrial Biorefineries report.

mArKET WATCh

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T he world is facing many seri-ous challenges. A fast-growing human population and the conse-quent growing demand for food, energy and water are the most

serious. In addition, anthropogenic climatic change is a severe threat to mankind and re-quires that we significantly reduce our current greenhouse gas (GHG) emissions to avoid detrimental consequences for the globe. Only the use of new technologies will allow us to bridge the gap between economic growth and environmental sustainability in the long run.

Over the course of many multistakeholder discussions driven by the Chemicals Industry Community at the World Economic Forum (WEF) in 2008 and 2009, industrial biorefin-eries were identified as one potential solution that may help mitigate the threat of climate change and the seemingly boundless demand for energy, fuels, chemicals and materials.

Biorefineries are facilities that convert biomass biological materials from living or recently living organisms into fuels, energy, chemicals and materials (and feed).

To date, the industry is still in a nascent state, with most second-generation biore-finery plants (using cellulosic material) only expected to be ready for large-scale commercial production in a few years. The landscape of active players is rather scattered and fragmented, with many relatively small technology players. However, there are an ever-increasing number of large players start-ing to invest.

Two of the main industry drivers, in ad-dition to energy security and environmental concerns, are mandates and policies. Fuel regulations, such as the Low-carbon Fuel Standard introduced in California in 2007, are examples of potential industry drivers. The standard requires fuel providers to reduce GHG emissions of the fuel they sell, to achieve a 10 percent reduction in the carbon intensity of transport fuels by 2020. Additionally, the Renewable Fuel Standard introduced in the United States (US) in the same year, sets an emissions threshold that includes direct and indirect emissions from land use changes.

Regardless of these legislation-based

regional differences in the status quo of indus-trial commercialisation, generally the markets for bio-based products are expected to grow very strongly globally over the next few years due to four underlying, irreversible trends. First, the economics of fossil-based products are deteriorating since conventional crude oil resources are getting scarce. Second, the need for national energy security and geopolitical security is growing. Third, public pressure for environmental sustainability is increasing due to an increasing environmental aware-ness. Last, but not least, rapid demographic growth will drive demand supported by rising economic aspirations of developing countries.

These fundamental trends triggered a vast interest in bio-based products and placed them high on the strategic agenda of most players in a variety of industries. In agricul-ture, for example, new economic opportuni-ties will emerge from the rising demand for biomass. In the chemicals industry, bio-based innovative products outside the conventional petroleum-based product family trees will confer an advantage to players, who manage to find the right molecules and insert them into existing, or new value chains.

In the automotive and aviation industries, corporations are looking at biofuels as an im-portant means to reduce the GHG emissions of their fleets to comply with regional or national regulations, while utilities are making high in-vestments in the expansion of their renewable power generation assets, with biomass coming third after solar and wind investments.

Despite the great relevance of bio-based products for many industries, experts still see numerous technical, strategic and commercial challenges that need to be overcome before any large-scale commercialisation of the industry can succeed.

Most importantly, biorefineries will have to employ the best possible technologies (for fermentation, gasification and chemical conversion, and also for pre-treatment and storage) to ensure that bio-based products break even. This will require the concerted action of many non-traditional partners such as grain processors, chemical companies, and technology players to cover all aspects of

the complex biomass value chain, from feed-stock production to end-user distribution.

Another significant challenge is to estab-lish the necessary infrastructure (supply chain and distribution infrastructure) and raise the high capital costs required. The latter are typi-cally beyond the financial reach of individual private companies, and may therefore require public funding.

In the US, a recent report from Sandia showed that the US could produce 90 billion gallons of biofuels to replace oil (total use today is around 110 billion gallons). With improvements in mileage, this means that the US could run solely on biofuel in 2030 to 2050. The limitation is not the supply of biomass, but rather a complete infrastructure built around oil, expected low oil prices at least between now and 2020 and a lack of political decisions.

To overcome these challenges, various stakeholders need to play different roles in the industrialisation process of biorefinery systems. Governments interested in support-ing biorefineries for reasons of environmental protection and energy security should make significant investments in research and devel-opment (R&D), supply chain and distribution infrastructure as well as conversion capacity, while carefully regulating the implementa-tion process to ensure food security and avoid land-use change.

Companies highly exposed to fossil feedstock and fuels will need to develop petroleum-replacement strategies to manage their risk, and explore the new business op-portunities created by innovative conversion technologies and novel molecular outputs. Retail and business consumers need to be better educated about the benefits of bio-based products, both from an environmental sustain-ability and business opportunity perspective.

Finally, non-government organisations (NGOs) and public authorities must be in-volved from an early stage to ensure develop-ment of the industry in a manner compatible with the highest environmental and social standards. Without the latter, broad public acceptance and the adoption of bio-based products will be hard to accomplish.

TheEDGE30

united StateSIn the US, the biofuels industry has under-

gone significant expansion in recent years. The focus has been on achieving increasing effi-ciencies of first-generation biofuels production, which invariably means reductions in the use of energy and other resources. The majority of facilities in the US run at an efficiency rate of some 60 percent, with improvements derived, as in all processes, through knowledge and experience over time.

Furthermore, the US has in many instances been at the forefront of developing sustain-ability standards for biofuels. The active role played by the US Department of Energy has made the country a leading player in the emerging biofuel industry. This has been achieved by a large number of public technol-ogy grants, not just to domestic companies, but also to investors worldwide.

The US government has also committed to high targets for the replacement of fossil transportation fuels 36 billion gallons of biofuels by 2022 in the following proportions: 15 billion corn-based, 16 billion from cel-lulosic ethanol and five billion from advanced processes (in 2008, US biofuel and ethanol production amounted to nine billion gallons). There are, however, no subsidies for other bio-based products so far.

braZilIn Brazil, the promotion of the sugar cane

industry has led to the highest penetration worldwide of flex-fuel vehicles (FFVs) that can run on any mixture of bioethanol with gasoline. However, while domestically a tremendous success, the export of ethanol or sugar is still very limited due to tariffs imposed on these products by other regions, for exam-ple, the US and the European Union (EU).

The highly developed sugar cane and ethanol industry is now attracting additional investments in bio-based plastics, for example via the conversion of bioethanol into ethylene and subsequent processing to materials such as high density polyethylene and polyvinyl

choride. Second-generation technologies mak-ing optimal use of the biomass generated in sugarcane farming (conversion of the bagasse into ethanol instead of burning it) are also see-ing strong growth, despite the wide availability of sugar cane. With Braskem about to start a new biorefinery, and more in the pipeline, the industry is expected to gather pace in Brazil and globally.

Brazil has also instigated a policy of ag-ricultural zoning for sugar cane, which will block the expansion of sugar cane production on native vegetation. There are also moves to mechanise the harvesting of all sugar cane by the middle of this decade.

The Brazilian bioenergy industry is working within the framework of a voluntary agreement with the Government of the State of So Paulo home to the vast majority of sugar cane production in Brazil to achieve this goal. To date, some 55 percent of sugar cane is now harvested mechanically and a separate programme to retrain workers into other positions is also underway.

euroPean unionIn contrast to the leading positions of the

US and Brazil, the EUs ambitious goals for the establishment of renewable energies and transportation fuels have so far been met only to a moderate extent, and have not effectively positioned the EU in a leading role globally, despite public policy incentives, direct invest-ments and research grants. This is because, on an industrial level, fewer biorefineries are be-ing established in the EU than in the US. This is partly due to the fragmented nature of the EUs R&D efforts and insufficient funding and resources for large demonstration plants.

As a result, a large portion of the knowl-edge on biorefinery technologies generated by European universities, research institutes and industry players is currently being shifted overseas because of the lack of development projects in Europe.

By 2020, the EU expects 20 percent of its power to come from renewables, part of which

will have to be delivered by power derived from biomass. Additionally, 10 percent of all transportation fuels should come from renew-able sources, which will require a substantial increase in penetration of biofuels.

aSiaThe situation is similar in Asia. Despite

declarations of ambitious biofuel plans and repeated support for biofuels by many Asian governments (for example, India), actual achievements have been modest so far. Incon-sistent implementation of biofuel policies also makes it impossible to forecast whether the biofuel targets announced will be achieved.

China, however, is an exception. It appears intent on injecting large sums into biorefinery projects due to the importance assigned to bi-omass-derived energy production in its latest five-year plan. With regard to bioethanol, for example, China has licensed five fuel ethanol plants (mostly state refineries) for operation, all of them based on starch crops. Chinas fuel ethanol production was consequently forecast to rise to 1.70 million metric tonnes (MMT) in 2009, an increase of eight percent compared to 2008.

That said, food security concerns have re-cently led the Government of China to restrict ethanol production from grain processing and to turn to supporting non-grain-based fuel ethanol production instead.

While limited feedstock supplies and com-petition with land use for grain production may still be an issue, several lignocellulosic biofuel plants are being developed, for example, by China National Cereals, Oils and Foodstuffs Corporation (COFCO). Indeed COFCO, Sinopec and Novozymes recently announced plans to construct the largest cellulosic biofuel demonstration facility in China by 2011.

Chinese biodiesel production plants, on the other hand, are small scale and often use waste cooking oil instead of dedicated oil crops, operating only a few months of the year due to the lack of sufficient feedstock supply. There-fore, while overall 2008 biodiesel production

Current Status of Industrialisation

mArKET WATCh

capacity in China (four plants, mostly private ownership) was estimated at three MMT, actual biodiesel production in 2008 was only 250,000 MT due to a feedstock deficiency.

Compared to China, Indias national biofu-els policy is still under debate. However, drafts of future blending targets have already been drawn up that aim for five percent penetration of biofuels in India by 2012, 10 percent by 2017 and 20 percent long-term (2017 plus).

aFricaAfrica has recently come into focus as a

potential production hub for biorefineries, particularly biofuel production. This is mainly due to the strong raw materials position that many African countries could have, provided four main challenges are addressed. One is their

the edge - aug 2010 (issue 13)

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