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1996-2011 4 4 4 4 4 4 PLUS: Bahrain Kuwait Oman Qatar Saudi Arabia UAE

1996-2011 4 4 4 4 4 4 PLUS: Bahrain Kuwait Oman Qatar Saudi Arabia UAE
1996-2011 4 4 4 4 4 4 PLUS: Bahrain Kuwait Oman Qatar Saudi Arabia UAE

1996-2011

1996-2011 4 4 4 4 4 4 PLUS: Bahrain Kuwait Oman Qatar Saudi Arabia UAE BD

4 4 4 4 4 4

PLUS:
PLUS:

1996-2011 4 4 4 4 4 4 PLUS: Bahrain Kuwait Oman Qatar Saudi Arabia UAE BD

Bahrain

Kuwait

Oman

Qatar

Saudi Arabia

UAE

BD

1.0

KD 1.0

RO 1.0

QR 10

10

DHS 10

SR

EVERY ROLE X IS MADE FOR GRE ATNE SS. THE DAY-DATE, INTRODUCED IN 1956 ,

EVERY ROLE X IS MADE FOR GRE ATNE SS. THE DAY-DATE, INTRODUCED

IN 1956, WAS THE FIRST WATCH TO DISPLAY THE DATE, AS WELL AS THE

DAY IN ITS ENTIRE T Y. A POWERFUL E XPRE SSION OF ELEGANCE AND

STYLE, ITS CLASSIC DE SIGN QUICKLY BECAME A FAVOURITE AMONG

WORLD LE ADERS. THE DAY-DATE IS PRE SENTED HERE IN PL ATINUM.

the day-date

DE SIGN QUICKLY BECAME A FAVOURITE AMONG WORLD LE ADERS. THE DAY-DATE IS PRE SENTED HERE

“They were both indeed Breguet watches, wonderfully accurate, wonderfully resistant (…).”

Patrick O’Brian, “Blue at the Mizzen”, 1999

Marine Royale – Automatic Alarm – 5847BR www.breguet.com Breguet Boutiques – Dubai Mall, Dubai (UAE),
Marine Royale – Automatic Alarm – 5847BR
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THE DUBAI MALL, GROUND FLOOR R ALPH L AUREN . COM
THE DUBAI MALL, GROUND FLOOR
R
ALPH L AUREN . COM

1996-2011 UNCOVERED REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS MATEIN KHALID Defensive investment strategies. DR TOMMY

1996-2011 UNCOVERED REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS MATEIN KHALID Defensive investment strategies. DR TOMMY

1996-2011 UNCOVERED
1996-2011
UNCOVERED
1996-2011 UNCOVERED REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS MATEIN KHALID Defensive investment strategies. DR TOMMY

REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS

UNCOVERED REGIONAL NEWS, PEOPLE, NUMBERS AND EVENTS MATEIN KHALID Defensive investment strategies. DR TOMMY

MATEIN KHALID Defensive investment strategies.

DR TOMMY WEIR What’s your leadership brand?

EUGENE A. LUDWIG Balancing act for banks.

SHARIF EL KILANY The Gulf tax revolution.

MOHAMMED QASIM Why don’t we save our money?

act for banks. SHARIF EL KILANY The Gulf tax revolution. MOHAMMED QASIM Why don’t we save

ECONOMY GCC flinches at Euro and US debt crisis. MARKETS Gulf IPO pipeline shrinks again.
ECONOMY GCC flinches at Euro and US debt crisis. MARKETS Gulf IPO pipeline shrinks again.

ECONOMY GCC flinches at Euro and US debt crisis.

MARKETS Gulf IPO pipeline shrinks again.

COMMODITIES The gold price is set for a dizzying ascent.

ENERGY Masdar Capital seeks to invest internationally.

ENERGY Masdar Capital seeks to invest internationally. OIL’S FRAUGHT JOURNEY The Arab Spring and global economic

OIL’S FRAUGHT JOURNEY The Arab Spring and global economic slowdown spell an uncertain fate for crude.

ISLAMIC VERSUS CONVENTIONAL BANKS The sectors fight for customers amid a challenging climate.

THE LONG ROAD FOR ETFS Political uncertainty and low liquidity impede growth of exchange-traded funds.

FAKING IT Rife counterfeit goods are stifling regional creativity and business profits.

POWER STRUGGLE Domestic oil subsidies will harm the region’s economic strength in the long run.

BAHRAIN’S MARITIME AMBITIONS The island’s shipping industry is batting off political turmoil.

the long run. BAHRAIN’S MARITIME AMBITIONS The island’s shipping industry is batting off political turmoil.
the long run. BAHRAIN’S MARITIME AMBITIONS The island’s shipping industry is batting off political turmoil.
the long run. BAHRAIN’S MARITIME AMBITIONS The island’s shipping industry is batting off political turmoil.
TRAVEL Let your hair down on Greek island, Mykonos. CARS Reviewed: Volkswagen Touareg. PLACES TO
TRAVEL Let your hair down on Greek island, Mykonos. CARS Reviewed: Volkswagen Touareg. PLACES TO
TRAVEL Let your hair down on Greek island, Mykonos. CARS Reviewed: Volkswagen Touareg. PLACES TO

TRAVEL Let your hair down on Greek island, Mykonos.

CARS Reviewed: Volkswagen Touareg.

PLACES TO BE Fairmont Al Babr, Abu Dhabi.

Touareg. PLACES TO BE Fairmont Al Babr, Abu Dhabi. STATS Regional mergers, acquisitions and bond issuances.

STATS Regional mergers, acquisitions and bond issuances.

STATS Regional mergers, acquisitions and bond issuances. GULF BUSINESS PREFERRED HOTELS A selection of the

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

EVENTS The Gulf’s top business conferences.

IN YOUR SHOES Christian Porta, CEO of Chivas Brothers.

                   
                   
                   
                   
                   

 

 

 

 

 

 
                   

 

 

 

 

                   
                   
                   

$85.9 bn
$85.9 bn

372.5%

372.5%

12% QAR1.4 bn
12%
QAR1.4 bn

$85.9 bn 372.5% 12% QAR1.4 bn

7.3% 477 OR21 m 23%
7.3%
477
OR21 m
23%

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Saudi building contracts up 156 per cent

Saudi building contracts up 156 per cent Saudi Arabia more than doubled construction contracts in the

Saudi Arabia more than doubled construction contracts in the first half of 2011 as it continued to struggle with soaring housing demand. The kingdom, the largest real estate market in the GCC, awarded SR84.2 billion worth of building mandates in the first six months, up from SR33 billion last year, a 156 per cent rise, according to Jeddah-based bank NCB. Despite vast spending pledges from the government, Saudi lacks adequate housing supply and a developed mortgage market. Demand from the country’s fast-growing population has fuelled property prices in recent years and aggravated inflation. King Abdullah Bin Abdul Aziz vowed recently to spend 30 per cent of the Saudi’s annual economic output (about $130 billion) on mass housing, job creation and other measures.

Doha Cables has been awarded a OR1.8 billion riyal ($494 million) contract by Qatar General

Doha Cables has been awarded a OR1.8 billion riyal ($494 million) contract by Qatar General Electricity & Water Corp (Kahramaa), as the country tries to meet rapidly growing power demand. Doha Cables is to double its production capacity from a current 40,000 tonnes of copper annually to fulfill the contract to supply low and medium voltage power cables. Kahramaa forecasts demand for power in Qatar will almost double to 8 gigawatts by 2013.

Oman finds 75,000 jobs after protests

8 gigawatts by 2013. Oman finds 75,000 jobs after protests Oman has found 75,000 local job

Oman has found 75,000 local job seekers work in the public and private sectors, according to a government minister. Almost 56,000 Omanis have started work and efforts are underway to complete the recruitment of the remaining 19,000, said Minister of Manpower Sheik Abdullah Bin Nasser Al Bakri. More than 32,000 have found placements in the private sector, while the public sector provided work to about 23,000 people. Earlier this year, the Arab Gulf state witnessed demonstrations by Omani nationals demanding more job opportunities.

How to rule the world like

Arab Gulf state witnessed demonstrations by Omani nationals demanding more job opportunities. How to rule the

EVENT focus
EVENT focus

Saudi’s $20bn chemical plant plans unveiled

Saudi Aramco and Dow Chemical have outlined plans to build one of the world’s largest chemicals plants and float the $20 billion joint venture ahead of its planned start-up in 2015. The partners will spend around $12 billion building the plant, located at Jubail on Saudi Arabia’s Persian Gulf coast. It will produce high-margin chemicals and plastics for fast- growing Asian and Middle East markets, with another $8 billion earmarked for third-party investors and contingencies. Andrew Liveris, Dow’s chairman and chief executive, said in an interview that the complex would boost the sales contribution of emerging markets from 28 per cent to the “mid-30s” and continue its diversification from lower-margin commodity products. Dow and Saudi Aramco expect to split annual earnings of $1 billion from sales of $10 billion after their ownership is reduced to around 40 per cent each following a stock market listing in Saudi slated for 2013 or 2014.

a stock market listing in Saudi slated for 2013 or 2014. ++++++++++++++++++++++++ ++++++++++++++++++++++++

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SOAPBOX

SOAPBOX

GCC and the world

SOAPBOX GCC and the world UAE sticks with dollar despite trouble The UAE Central Bank has

SOAPBOX GCC and the world UAE sticks with dollar despite trouble The UAE Central Bank has

UAE sticks with dollar despite trouble

The UAE Central Bank has re-affirmed its commitment to maintain its currency’s peg to the US dollar, despite a backdrop of rising global economic uncertainty that has caused the greenback to fall against other major currencies. “On the issue of the exchange rate policy, the Board of Directors affirmed that the

peg of the dirham to the US dollar is continuing without change,” the central bank said in a statement. The move follows news that Bahrain’s central bank would stick with the dollar peg, despite the US currency’s recent woes and a historic downgrade of US debt by ratings firm Standard & Poor’s.

$363bn
$363bn

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It was expected and people will continue to invest in treasuries whether or not its
It was expected and people will continue to invest in treasuries whether or not its
It was expected and people
will continue to invest in
treasuries whether or not its
rating is AAA, AA or AA+.
Don’t forget that when
Japan lost its AAA years
ago, some market operators
were puzzled too. The US
is the richest economy and
the most indebted one.
What is certain is that other
countries will lose this gold
label within the next two years.
The Gulf is directly affected by hydrocarbon
revenues, where two factors are key: the currency in
which those revenues are generated; and the level
of demand for the Gulf’s oil and gas, most of which
flows to East Asia. The demand side of the equation
remains firm with a strong outlook going forward.
In the near term, oil is likely to remain denominated
in dollars and it is unlikely that the negative equity
market and consumer sentiment reaction to the US
downgrade will cause a permanent decrease in
Asian demand for oil, so the impact of the US
downgrade on Gulf economies will be indirect
and muted at best.
Recent macro data suggest significant slow-down
on both sides of Atlantic, ‘Japanisation’ of Western
economies is the most likely outcome. As for
emerging countries, they’ve been quite immune so
far and we need to have more data in order to get
a firmer direction but recent decrease in recent PMI
figure for India/Brazil is pointing to the same disease
to a much lesser extent.
The Arab spring has led to additional political
uncertainty in the region and will likely fuel a lower
growth rate linked to a drop in tourism amongst
other factors. It is temporary and it will not last
forever. The real concern for bond investors has been
the collapse of Dubai World. This has a memory
effect for the bulk of investors.
World. This has a memory effect for the bulk of investors. Drydocks $2.2bn hits further delays

Drydocks $2.2bn hits further delays

Drydocks World, a unit of Dubai World, said a proposed $2.2 billion loan deal with lenders expected to be completed by the end of April may not be reached this year. “Discussions [with banks] are still ongoing and it has not been completed yet,” said Khamis Juma Buamim, chairman of Drydocks World. “I can’t confirm if we will reach a restructuring agreement this year,” he added, when asked if he was confident an agreement would be struck before the loan comes due in November. Dubai World’s shipbuilding unit is restructuring a $2.2 billion facility taken in October 2008. The loan comprises a $1.7 billion three-year loan and a five-year $500 million loan. The Dubai- based ship and rig builder said earlier this year that it expected to complete the restructuring by April 30 and had agreed on the headline terms with banks.

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The Middlesex MBA student @ the Milan Trip

Knowledge Village The Middlesex MBA student @ the Milan Trip admissions@mdx.ac facebook.com/mdx.ac “The field trip was

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@ the Milan Trip admissions@mdx.ac facebook.com/mdx.ac “The field trip was an extremely enriching experience,

“The field trip was an extremely enriching

experience, especially with the choice of Milan

the fashion capital of the world.

not normally be exposed to this industry under normal circumstances and in keeping in line with the Middlesex University’s tradition of being so distinctively different, this was another resounding success for all concerned. It was perfect academically enriching trip and such a bonus for all of us students”

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COMMENT Matein Khalid is fund manager in a royal investment office and a writer in
COMMENT
Matein Khalid is fund manager in a
royal investment office and a writer
in finance and geopolitics.

i T IS IRONIC THAT THE CURRENT EMERGING

markets trauma emanated from the US and the EU, unlike the Mexican, Russian and Asian currency meltdowns in the 1990s. The $30 fall in Brent crude oil, the spike in volatility and the plunge in stock market indices in unison is a classic index of risk aversion. The August trauma on the MENA stock market indices suggests another bear market. Yet I doubt this scenario will happen. One, the US has entered a soft patch, not a double dip recession while Asian growth is still robust, if decelerating. This means that oil demand will continue to rise, (albeit at a slower pace), not contract. This is totally unlike the case in September 2008, when the failure of Lehman Brothers triggered the worst, synchronised global recession since the Great Depression. Two, Libyan oil exports have now ceased and geopolitical supply shocks will anchor the oil market. Three, the most crucible variable is Saudi oil policy. The Saudis ignored the OPEC quota system at the last Vienna conclave and unilaterally raised production to almost 10 million barrels a day (MBD) in June. Yet the financial mayhem in the Eurozone now means the possibility of an oil glut, a prospect anathema to the kingdom’s planners, whose budget breakeven price rose to $90 after the government’s $130 billion social welfare spending programme. A U-turn in Saudi oil policy will put a floor under the free fall in oil prices, possibly in the $75-85 range. This, in turn, will indicate a cyclical bottom in GCC stock indices and MENA sukuk.

During times of financial stress, high beta bank, property developer, contracting and oil service shares should be sold as they have the highest correlation to global markets and Wall Street risk aversion metrics. Saudi petrochemicals or Qatari LNG companies, for instance, are natural high beta

shares whose values will be gutted by a fall in commodities prices. It is also best to avoid illiquid markets, such as Bahrain and Oman, when the grizzlies rule the roost. Dubai’s DFM index is too heavily weighed to Emaar and the banks, thus vulnerable to global bear runs. This means investors should take advantage of share bargains in defensive, high dividend growth sectors. This means Saudi telecoms and the most innovative, high speed data centric, high growth Saudi telecom is Mobily, the second Saudi mobile phone operator after the incumbent STC. Mobily

is still in growth mode, with 29 per cent annual

increases in net income in its latest earnings report. Saudi Arabia is the largest, most exciting broadband market in the Middle East. As Mobily offers a three Saudi Riyal (SR) per share dividend, I see no reason why its shares cannot trade as high as 58 – 60 SR since its footprint, business model broadband focus and 25 per cent growth should easily command

a higher multiple. Any fall in Mobily share price

to the 40-42 range in case Wall Street contagion deteriorates could make an attractive entry point for GCC investors. GCC and MENA debt/sukuk are not a safe haven during times of high risk aversion and a fall in crude oil prices. Yet deflation risk in the US will force the Federal Reserve to extend its epic monetary easing policy until 2011. Low dollar rates will anchor GCC credit spreads, which will widen as oil prices fall, new issues go into the ice age and fund managers scramble to raise cash. It was extremely prudent for Dubai to compete its corporate restructuring to avoid facing possible rollover risk as debt funding markets in MENA seize up, as in 2009. High budget breakeven oil prices will also make Gulf sukuk yields rise as Brent oil prices fall. It makes no sense to bottom fish for value amid a global financial crisis. It is always darkest before dawn.

prices fall. It makes no sense to bottom fish for value amid a global financial crisis.

COMMENT Dr Tommy Weir, advisor on fast-growth and emerging market leadership, and author of The
COMMENT
Dr Tommy Weir, advisor on
fast-growth and emerging
market leadership, and
author of The CEO Shift

s HOULD A LEADER BE CONCERNED ABOUT

his or her personal brand as a leader? This question often evokes polar opposite responses. Some argue intensely that a leader, especially a CEO, should only be concerned with the corporation’s brand. Others argue that it is imperative that leaders spend time building their own brand – believing that leaders don’t belong to any company for life, and that their main affiliation isn’t to any particular job. Before we continue to explore the answer, let’s agree to a common understanding on what is meant by leadership brand. It is the packaging of the asset that relates to a leader’s personification, creating an indelible impression. Leaders should not be solely defined by their job title or confined by a job description. In 1997, Tom Peters was among the first to argue that leaders should be concerned with and build their personal brand. It is important to highlight that a leader’s brand is not self-promotion; it is the positioning of the leader and his/ her career.

To get an expert insight on personal branding, I turned to Phenomena ME, which specialises in personal and corporate branding. They quickly pointed out that a leader’s brand couldn’t be separated from the leader for the simple reason that a leader is a person. They also added that corporations should leverage the personal brand of their leaders to build the corporate brand. Jeff Immelt of GE, Howard Schultz of Starbucks and Michael Eisner, former CEO of Disney, are company brand ambassadors who also built their own personal brand. That short list is representative of the reality that nearly all of the Fortune 500 leaders are brands in and of themselves. As a business leader you know that the branding of your business is important and the same priority should be true for yourself. So, it appears that it is acceptable for leaders to build their personal brand while they are representing their company’s brand. The problem arises when leaders work to build their personal brand at the expense of, or avoidance of, the corporate brand. So, starting today, realise that you are a brand and that you can benefit by a positioning strategy to advance your own brand. You will need to think like a brand manager and answer this question:

“What is it that you do that makes you different?” This will help you to figure out how to distinguish yourself from all the other very smart people walking around who are similar to you. Maybe we should refer to building a personal brand as managing your reputation – the opinion that others have based upon your identity. A reputation separated from experience is fraud, so a personal brand needs to be built on reality. You no longer live in a time when reputation is constrained by organisational walls. In the decade of social media, as a leader you should take an active role in managing your reputation. Just as with the corporate world, people make buying decisions based upon reputation, as a leader they choose to follow you based upon your brand reputation.

make buying decisions based upon reputation, as a leader they choose to follow you based upon

COMMENT Eugene A. Ludwig, founder and chief executive of Promontory Financial Group
COMMENT
Eugene A. Ludwig,
founder and chief executive of
Promontory Financial Group

r ECENT DIRECTIVES OF TWO CENTRAL BANKS,

in the UAE and Qatar, created ripples in the regional banking sector. Especially noteworthy was the forceful and immediate way they were announced. They were not part of a gradual seeding of regulatory change that is more common for central banks in the region and worldwide. These directives - Qatar’s directive to ban Islamic windows in conventional banks and the UAE’s decision to limit the size and fees of personal loans and to ban unsolicited telemarketing - underscore the changing behaviour of regulators, who are keen to be seen as proactive. This new regulatory posture will prompt regional banks to realign their operations periodically to be consistent with regulators’ expectations. GCC banks in particular have emerged stronger after the crisis, with capital levels that meet or exceed the higher regulatory minimums. They will need to manage carefully as they balance the challenges of meeting customer expectations with their desire to diversify into new geographies, including other regional markets such as Turkey. Any expansion will be best executed if carefully planned with adequate strategic and regulatory due diligence, as evolving regulation can create cause for consolidation in the banking industry. The case for banking consolidation exists in the GCC, though it is not quite as strong as the number of banks per country may suggest. In the UAE for example, 56 banks serve a population of around eight million. That is around 147,500 customers per bank, many of whom are wealthy. The UAE has one of the highest per-capita incomes in the world, leading to super-wealthy customers, and many banks have

just one branch in the country, effectively limiting their reach. Most of the expansion plans of banks, especially foreign banks, are subject to regulatory

directives. Instead of being over-banked, the region

is actually under-banked in many geographic areas,

such as in Saudi Arabia, which has a relatively low

ratio of banks to population and area. Another regulatory imperative is the long-term

strategy to comply with Basel III requirements,

a strong set of mechanisms to mitigate risk in

the banking sector. Basel III aims to improve the banking sector’s ability to absorb shocks arising from financial and economic stress. Financial institutions would be perceived as being safer, their cost of capital would decrease, and they would be able to issue debt at a lower cost. Though the region’s regulatory model has been effective through the crisis, it would be enhanced by Basel III, as it gives teeth to regulation in case of non-compliance. On the other hand, banks could become less profitable and face constraints on their ability to pay dividends, deploy capital, and pursue rapid expansion. Regional banks will need better capital planning and increased profit retention, yet taking these steps may impact credit growth and limit maturity transformations. Disguising long-term loans as medium-term or similar window dressing will not work, as improved disclosure will be a key to improving capital acquisition capabilities. Bank executives would do well to be cautious for now in adopting aggressive programmes aimed at expansion and customer acquisitions. The launch of new services and increasing employee numbers might well be best put on hold or at least slowed until an effective strategy to tackle the new regulations is put in place. Banks that excel in balancing the requirements of external regulation with an internal desire for expansion will be better poised to take advantage of the ‘new normal’. Keeping in mind their own operating environments and the changing posture of regulators, banks need to determine how to arrive at the proper balance.

environments and the changing posture of regulators, banks need to determine how to arrive at the

COMMENT Sherif El Kilany, MENA tax leader, Ernst & Young
COMMENT
Sherif El Kilany, MENA
tax leader, Ernst & Young

t HE TAX LANDSCAPE OF THE MIDDLE EAST

is changing dramatically, both for local and foreign companies. Many countries in the region are adopting new transfer pricing principles and withholding tax regimes. The member states of the Gulf Cooperation Council (GCC) have decided to introduce value added tax (VAT) in their countries in the near future, a true indirect tax revolution. The number of tax treaties of Middle Eastern states with countries in the rest of the world is rapidly increasing. Countries such as Iraq, Kuwait, Oman and Qatar have slashed corporate tax rates, while significant reductions also took place in Egypt and Saudi Arabia. At the same time, in many countries the tax base has been broadened, exemptions have been curtailed and tax deductible expenses narrowed. With the modernisation of their tax regimes, Middle East governments are trying to make their countries more attractive to foreign investors. Foreign direct investment (FDI) is seen by many authorities as a cornerstone of development, hence the recent relaxation of restrictions on FDI in the Middle East. The desire for diversification is also present in the realm of taxes. Many governments whose revenues are heavily dependent on the energy sector want to increase the relative importance of more ‘normal’ tax revenues, including indirect taxes, such as VAT. By and large, the modernisation of tax measures should be welcomed, as they bring tax laws and regulations more in line with mainstream international practices. For example, the OECD-favoured ‘arm’s length principle’ for transfer pricing is now enshrined in

legislation in Egypt, Oman, Qatar and Saudi Arabia and recognised in practice by other countries in the region. That said, the positive effect of the often radical fiscal changes will depend to a very large extent on the way governments and companies prepare and execute their implementation. First of all, it is clear that the introduction of many new laws and rules constitutes a significant challenge for national fiscal authorities. It is encouraging to see that various tax agencies in the region are taking up the challenge by modernising themselves. They are contracting experienced staff, training existing personnel, increasing ‘e-communication’ with taxpayers and basing the selection of audit targets on a risk-based analysis. Tax agencies could also standardise and simplify their procedures and clarify the way they intend to implement the new rules. For taxpayers, especially multinational companies, it is of paramount importance that they know how tax authorities will interpret new treaties, laws or regulations. Companies doing business in the Middle East should also adapt to the new tax realities. In general, the tax changes are positive for multinational enterprises as they will allow for better alignment of their tax accounting in the Middle East with their tax accounting in the rest of the world. At the same time, it is clear that companies must make a significant effort to maximise the benefits and minimise the risks of the profound changes. Companies should ensure their documentation in support of transfer pricing decisions is robust, as this is likely to be an area of focus as tax authorities increase their reviews of company accounts, decisions and documentation. Even with the best intentions on both sides, conflicting interpretations and viewpoints are inevitable in a situation of rapid and profound changes. Companies should, therefore, prepare and adapt now.

are inevitable in a situation of rapid and profound changes. Companies should, therefore, prepare and adapt

COMMENT Mohammed Qasim Al Ali, CEO, National Bonds Corporation.
COMMENT
Mohammed Qasim Al Ali, CEO,
National Bonds Corporation.

l AST YEAR, AS PART OF OUR COMMITMENT

a savings culture in the region, we launched the groundbreaking National Bonds Savings Index. The study was a first-of-its kind in the UAE, and provided an insight into the savings habits of UAE residents. The results showed a worrying lack of interest in savings or understanding of their importance. We recently announced the results of the second wave, the 2011 National Bonds Savings Index, which revealed that nine out of 10 UAE residents are not confident in their current savings, and almost half of the population saved much less than they had planned to last year. Furthermore, 71 per cent of respondents said that they do not save regularly. Around one tenth of those surveyed declared not made any attempts to save at all. Of the latter, three quarters blamed rising expenses, liabilities and loans for their inability to save. The Index amalgamates responses in three key areas (respondent’s perception of their savings potential, the savings environment around them, and their own financial stability in the near future) into base values that can be used as a frame of reference to measure changes

in savings sentiments. The 2011 National Bonds Savings Index indicates an increase in ‘savings potential’, and a decrease across all other components among UAE residents compared to 2010, with UAE Nationals and Western Expats experiencing a drop in their savings sentiments. Of the different nationality groups, Asian expats and Arab expats showed an increase in their savings sentiments over the past year. Of those who do save, 64 per cent admitted that the amount is usually less than a fifth of their income, while among UAE nationals and Arab ex-pats specifically, 40 per cent claim to save less than a tenth of their income. Overall the trends show that Westerners and Asians save bigger amounts than other segments of the society. Worryingly, respondents declared that they are spending more money than last year on everyday expenditures such as groceries, transportation, household items and utilities. Different emirates showed different patterns: Sharjah residents claim they are spending more money on necessities such as groceries, household items and children’s education, while Abu Dhabi residents blame increased expenditure on transportation, rents, eating out and buying luxury items. Overall, we have seen that while there is a willingness to save, there is a lack of understanding of how to save. These results are worrying for our economy, and as a result, National Bonds has pledged to launch a nationwide financial education roadshow aiming at educating the community on how to manage their spending and plan their savings. The road show should begin in the fourth quarter of this year. This is not just about consumer attitude change. The change in thinking needs to begin with the corporations that employ people up to the banks and financial institutions that advise them. We will look forward to everyone’s support in our drive.

up to the banks and financial institutions that advise them. We will look forward to everyone’s

T HE L AT E ST DEBT crisis in the West has led to the
T HE L AT E ST DEBT crisis in the West has led to the

T HE L AT E ST DEBT crisis in the West has led to the painful realisation that

the Gulf must re-open the investigation into the controversial dollar peg and its dependency on oil. GCC governments had hoped the case file on the two biggest economic taboos had been closed. But in light of the US dollar downgrade in early August, regional central banks have faced renewed pressure to drop their dollar pegs.

Plus there are fresh concerns that the peg restricts the Gulf’s ability to fight inflation by forcing it to shadow US monetary policy. With the US Federal Reserve cutting rates to ward off a recession, regional policymakers may find it difficult to control inflation with the cost of borrowing at historic lows. Gulf central bankers faced a similar set of problems during the 2008 recession. Plus, with another serious slowdown looming, there are fears that a repeat drop in global energy demand could cut the oil income for crude producers in the region.

DOLLAR DEJA VU In 2008, former Fed Chairman Alan

Greenspan said the Gulf’s near-record inflation rates could be eased significantly by dropping the dollar peg. Rampant real estate prices and subsequently soaring housing and rental costs had led to untenable levels of inflation in the run up to the financial crisis. Today, inflation is much lower, partly due to the massive oversupply in residential and commercial property, but there are signs that problems could spring back, with Saudi Arabia facing the biggest threat, according to analysts. Saudi residential property prices rose 60 per cent during the first half of the year, and with the vast investment pledges by various governments and handouts, inflation could escalate quickly, a report

by CB Richard Ellis said recently. US President Barack Obama has made it clear that US interest rates will remain low until 2013, given the fragile nature of the economy. As a result, Saudi faces “short term pressure” on inflation, according to Mohamad Hawa, head of Mena equity strategy and financials research at Credit Suisse Investment Banking. Although he added: “Medium- to long-term, the construction of 500,000 new homes as announced by the King should ease this pressure, as delivery will start in a few years.” Dollar weakness can potentially stoke GCC inflation by also pushing up costs of importing goods to the region. But central bank chiefs in the region have in recent weeks spoken in favour of retaining the peg. “We are pegged to the dollar and will keep it. We don’t see the dollar collapse,” Mohamed Al Tamimi, the deputy executive director of the UAE Central Bank Treasury Department, was quoted as saying in a report by Reuters. Meanwhile, policymakers in Riyadh have argued that floating the Saudi riyal would not be appropriate for an economy that relies on oil exports.

EURO CONTAGION Outside the fiscal woes in the US, there are growing concerns about the extent of the threat posed by Eurozone debt problems. Given that GCC states are intimately connected to Europe, there is expected to be short-term economic and market turbulence. GCC stocks have remained depressed, partly over fears of a contagion from Europe as finance chiefs spent August attempting to stop Italy becoming the next victim of the sovereign debt troubles. Long term though, economists are

warning that a widespread debt disaster could jeopardise trade and investment between the GCC and the Eurozone. GCC-based sovereign wealth funds and private investors, which are net exporters of capital to countries like the UK and Germany, face the risk of sustaining substantial losses across their portfolios. Latest figures show the 17-nation bloc grew by just 0.2 per cent on a quarterly basis with analysts expressing concern over sluggish GDP growth in Germany, which had been driving Europe’s economic recovery. The silver lining in all this for Gulf states could be that amid the economic turmoil government around the world will likely ditch their search for alternative sources of energy, leaving the door open for strong future oil demand. Shrikanth S, Frost & Sullivan’s industry analyst for banking and financial services, said Europe may witness a “marginal decline in demand for energy” due to the uncertainty in the region. “If the financial troubles of Europe spread, the continuation of the concessions given to the renewable energy will be debated

and might also be withdrawn. That could be a positive for the Gulf States.”

OIL DEMAND Yet, a collapse in global energy demand and a low oil price can never be positive for the Gulf. Most worryingly, financial analysts are heavily downgrading economic growth for the US, the world’s largest oil consumer. Deutsche Bank revised its forecasts for US 2011Q4 GDP growth from 4.3 per cent to three per cent. Meanwhile, Barclays Capital reduced its demand forecast for oil for both 2011 and 2012. Oil cartel Opec and the International Energy Agency have also trimmed their estimates. In general, there is concensus that given the general outlook of the macro-economy, the state of oil demand does not seem particularly healthy. But some believe that oil prices would have to fall dramatically to threaten the budgets of GCC oil exporters. Credit Suisse’s Mohamad Hawa said prices have to drop up to 30 per cent before governments “fear the risk of lower public spending”. Either way, the current uncertainty may be forcing Gulf governments to do some soul searching, particularly over their dependence on oil. It hits to the heart of the diversification efforts in the last decade, which some say need to be accelerated. That oil is traded in dollars will be a compelling reason to keep the peg to the greenback. Compared to 2008, GCC states are in better shape, with healthier budgets thanks to a year of high oil prices, plus banks with stronger, more liquid balance sheets. But it’s yet to be seen how much more gloomy economic news the region can expect out of Europe and US later this year.

But it’s yet to be seen how much more gloomy economic news the region can expect

I N 2005, A gold rush of initial public offerings (IPOs) was in the works.

I N 2005, A gold rush of initial public offerings (IPOs) was in the works.

Abu Dhabi-based Aabar Petroleum Investments Co’s 55 per cent flotation of shares was 800 times oversubscribed, while about half of Saudi Arabia’s population applied for shares in Bank Al Bilad that same year. A year later, Qatari Islamic lender Masraf al-Rayan booked a sports stadium

to receive IPO applications, but the venue was unable to contain the subscribers who queued outside the facility, creating traffic jams and prompting intervention from police to contain the crowds. Six years on, the IPO landscape is sparse. IPOs in the Middle East in the second quarter of this year raised $487 million, compared with $590.6 million in a year-earlier period, according to Ernst & Young. Offerings in the first quarter of this year fell 95 per cent to a five-year low of $21.7 million, the firm said. The outlook for the region’s IPO market is dim, given the low liquidity and valuations, regional political unrest, and the global stock market turmoil spurred by the US credit

downgrade and the snowballing sovereign debt crisis in Europe. In Saudi Arabia, United Wire Factories Co closed its IPO in August, preceded by Saudi Integrated Telecommunications Co’s offering in May, while in the UAE, property developer Eshraq Properties, and two insurance firms Insurance House and National Takaful Co sold shares. However, several IPOS have since been cancelled or postponed. “In the next two years, IPOs will be at the same low level of 2009/2010,” said Imad Ghandour, executive director at investment firm Gulf Capital and a co-founder of the non-profit MENA Private Equity Association. “IPOs require confidence in the political

environment and the financial markets, which are down with what is happening in the US and Europe.” Saudi Arabia, which hosts the region’s largest and most liquid stock exchange, is expected to provide IPO opportunities, with companies such as Hail Cement Co set to sell shares this month. Offerings have been announced in Oman and the three mobile operators in Iraq are expected to go public. The other large regional IPO market in Egypt has faltered with the onset of political upheaval in January, and the mayhem gripping Syria also put a cap on IPOs that increased in 2010 after the equity market was launched in 2009. Most of the offerings this year have been relatively small and the market is still waiting for a big IPO such as the much- anticipated share sale of Qatar Airways. Even regional companies that sought to list abroad this year before the global stock meltdown in August scrapped plans due to the regional unrest. Topaz Energy and Marine, the oil services unit of Oman’s Renaissance Services pulled the plug on its $500 million London listing and privately held Kuwait Energy Co. (KEC) also deferred plans for a London offering. “We are seeing an increasing trend in local companies seeking international listings to be able to access international capital,” Steve Drake, head of PwC Capital Markets Middle East said in an April report. “The deferral of both Topaz and KEC are clear evidence of the difficulties regional companies are facing in attracting international capital.”

Companies looking for better valuations have in the past listed in international markets such as Dubai-based port operator DP World, but the jury is still out on whether such moves add value. “Our companies are so small in terms of market cap compared to the large international companies in the international markets, they will not show in the price screens,” said Mohammed Yasin, chief investment officer of financial services company CAPM Investment. “Their true value and real investor interest will be based on their value in their local market.” Analysts blame the mismatch between the price the sellers want and the buyers are willing to pay for the lackluster IPO activity, which is pushing small and medium sized enterprises (SMEs) to turn to private sales for capital. To assist SMEs in accessing the financial markets, the UAE and Qatar have announced plans to introduce a secondary market for small-cap listings, where requirements are less stringent, however, analysts are not convinced these initiatives will achieve results given the need to change company laws and listing regulations. “I don’t think these announcements will materialise or reach their ultimate objectives,” said Ghandour. “Even if you go to a small company exchange like (London Stock Exchange’s) AIM, liquidity is a problem.” Regulators in the Gulf impose listing requirements that are discouraging investors from subscribing to IPOs and more companies from going public.

subscribing to IPOs and more companies from going public. Foreign investors are banned from partaking in

Foreign investors are banned from partaking in IPOs in most exchanges and the fact the Gulf countries have yet to join the MSCI Emerging Market Index dampens international interest in public offerings. In the UAE, companies have to list 55 per cent of their shares, unless they plan to join NASDAQ Dubai, which has a minimum of 25 per cent float size. Gulf companies going public also struggle between selling shares at par value or through a book building process. Gulf regulators have long propounded the par value approach, setting a fixed price to shares to spread the wealth to citizens and protect retail investors, who are the majority. “The best solution is to have a mix and match of both methods, by splitting the offer into ‘proportionate allocation’ which is suitable for retail investors at par, and have ‘book-building process’ allocation suitable for institutional investors which will be at least at par or more if there is real extra demand,” said Yasin. “This way you give institutional investors the quantity they are looking for and protect the retail investors at the same time.”

you give institutional investors the quantity they are looking for and protect the retail investors at

B Y LATE AUGUST the price of gold had climbed to a record $1890 an

B Y LATE AUGUST the price of gold had climbed to a record $1890 an ounce

as the Euro and US debt crises spurred demand for bullion. Now in its eleventh year of a bull market, experts expect the gold price to rise to $2050 by the end of year, upwards to a high of $5000 within

18 months. Local brokers have been inundated

with trade in 2011, with some institutions claiming business has spiked as much as

25 per cent in the last six months.

According to Sajith Kumar, director and CEO at DMCC’s JRG International Brokerage, the gold price will continue its sideways-upward trend for another two years. “There has been increased demand for exchange-traded funds (ETFs) and gold coins are doing very well. We expect the gold price to increase to $2050 by year end as demand rises. There is increased retail sales and demand from China and India, as well as from global institutions and treasuries. Clients are staying away from equities and bonds,” he said.

Dubai Multi Commodities Centre (DMCC) chairman Ahmed Bin Sulayem has said he plans to move the organisation’s Shariah-compliant gold ETFs from NASDAQ Dubai’s stock exchange to its flagship bourse, the Dubai Gold and Commodities Exchange, before year-end with the aim of increasing trade volumes. Since the beginning of the year, gold has climbed by more than 30 per cent. If Germany decides to bail out struggling EU countries – including Greece, Ireland,

Spain and Italy – and back ‘Euro bonds’, this will spike inflation and thus ramp up the gold price. Equally, if Germany decides to not to back the bonds, the affected Euro economies will weaken further – sparking market panic and another flight to bullion. This autumn, gold will be a win-win scenario and its bubble is unlikely to burst for some time yet. “You have a money printer at the US Fed and the Euro zone is now joining in by buying Spanish and Italian bonds. Gold is

at the start of an exponential rise. Inflation

is coming, watch out. All the bailouts

and money printing will have inevitable, unintended consequences,” said Peter

Cooper, founder of the Arabian Money investment newsletter. “A surprise slump

in the gold price could come if there was

a big crash in financial markets, like the autumn of 2008. That would be because

of a mass panic that led to the liquidation of all assets, including gold, but it would bounce back quickly.” Cooper added that is it always “psychologically hard” to buy gold at

a new all-time high but this sentiment

has led to “so many missed buying opportunities over recent years that we all ought to have learnt our lesson by now.” Gary Dugan, chief investment officer at Emirates NBD, the UAE’s largest bank, has similarly high projections for the gold price. “On pure fundamentals we believe that individuals and central banks hold less gold than they desire and that they will be ongoing buyers for many months to come. The main driver of a spike in the price would probably be further problems in the Euro zone,” he said. The CIO also believes that a new recession has not necessarily been averted, which could yet spike the gold price. “The chance of a recession in the US or Europe is as high as 30 per cent. We believe that many investors do not have enough gold in their portfolios. Our advice would be for most investors to hold seven to eight per cent of their wealth in gold. Gold is for today.”

Our advice would be for most investors to hold seven to eight per cent of their

M ASDAR CAPITAL, THE venture capital arm of Abu Dhabi government-owned green energy firm Masdar,

M ASDAR CAPITAL, THE venture capital arm of Abu Dhabi

government-owned green energy firm Masdar, is bullish about snapping up stakes in renewables and clean tech energy companies in order to fully invest a $290 million fund by 2014, but this region is providing few opportunities.

Masdar, which has about $540 million of assets under management, is keen on investing in companies in North America, Europe and Asia as part of Abu Dhabi’s plan to position itself as hub for green energy. Masdar, a unit of Abu Dhabi government investment firm Mubadala, was set up in 2006 with a mandate to develop and invest in the renewables and clean-tech energy sector in a bid to meet Abu Dhabi’s target to generate seven per cent of its power from clean energy by 2020. This plan includes the building of Masdar City, a residential and commercial complex designed to be zero-emissions and zero-waste upon completion.

“We see a trend where investment opportunities are getting stronger, there are better management teams and better use of capital,” said Alex O’Cinneide of Masdar Capital. Masdar Capital, which has fully deployed its first $250 million fund launched in 2006 in partnership with Credit Suisse, has only made two investments in its second fund, which was closed at $290 million in partnership with Deutsche Bank and could be fully invested by 2014: California-based glass processing firm eCullet ($38 million) and Chinese wind energy firm, UPC Renewables ($25 million). It expects to

invest around 35 per cent of the fund each in North America and Europe, with the rest going to other regions. “The countries which have some of the most interesting products and technologies are still Western Europe and North America, but one of the biggest markets to avail of is China,” said O’Cinneide. “I can see products and services being developed in Europe and North America and used in operation in China. I also see a trend where a lot of the products and services that are being developed move out to Asia to be actually scaled up into manufacturing and commercialisation.” China came in first place in clean energy investment in 2010, followed by Germany and the US, according to a report by non-profit organisation The Pew Charitable Trusts, released in March this year. China, the world’s leading producer of wind turbines and solar modules, surpassed the US as the country with the most installed clean energy capacity in 2009.

with the most installed clean energy capacity in 2009. Globally, clean energy investments increased 30 per

Globally, clean energy investments increased 30 per cent to a record of $243 billion in 2010 from a year earlier, while venture capital and private equity investments in the sector in G-20 countries increased 26 per cent to $8.1 billion in 2010 from a year earlier, the report showed. Governments worldwide are earmarking more funds for the sector as part of economic recovery and stimulus packages created to combat the recession. The Fukushima nuclear disaster in Japan is an added catalyst to the industry as countries such as Germany start switching off their nuclear plants and look for other sources of power. In the UAE, the economic ministry has forecast that private sector investment opportunities in the alternative and sustainable energy industry will reach $100 billion by 2020. Currently, Masdar Capital’s portfolio includes only one UAE company, Abu Dhabi based solar developer Enviromena Power Systems, in which Masdar owns a significant stake, said O’Cinneide. “We receive proposals from companies based in the region, but the volume of those proposals is much less than we get in North America,” said O’Cinneide. “We imagine going forward that the overwhelming majority of our investments

will still be internationally focused. We have a very developed venture capital and private equity market in North America and Europe with a history of funding technological companies for the next level of development.” Greater government funding in renewables would help Masdar and its partners scout for more investment opportunities in the region. Regionally, more investors are shifting toward venture capital and funds with a specific focus on industries such as energy and power, which are considered resilient non-cyclical sectors with room for growth, the non-profit MENA Private Equity Association said in its 2010 report. Private equity and venture capital funds raised in the Middle East and North Africa rose 18 per cent to $1.3 billion in 2010 from a year earlier, but is still shy of the $6.5 billion record reached in 2008, the association said. The lackluster fund-raising environment prompted Masdar Capital to close its second fund at $290 million, below the initial ticket size announcement of around $500 million. “We decided to close the fund and focus on investing that rather than spend time on fund raising,” said O’Cinneide.

“We decided to close the fund and focus on investing that rather than spend time on

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Its clients.

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PRIVATE BANKING UNCOVERED
PRIVATE
BANKING
UNCOVERED

EDITOR’s letter
EDITOR’s letter

i T’S OFFICIAL: PRIVATE BANKERS HAVE

flooded the region. This year, as an editor, I have received 1,000 per cent more calls on this sector than at any other stage in my career. As the US and Euro debt crisis deepens, the notion that the Middle East and Asia offers growth and richer harbours is only intensifying. When the US Dodd-Frank bill clamped down on Wall Street banks and leveraged debt instruments, financial big-hitters from UBS to JP Morgan and Merill Lynch set their sights on building global wealth management franchises. With these firms still smarting from the sting of billion dollar losses associated with financial derivatives and sub- prime mortgages, fee-generating business represented a more robust way to salve the balance sheets. Naturally, the most coveted prize for a private banker is the Ultra High Net Worth individual (UHNW). This is banking terminology for ‘richer than most’. The region is home to 400,000 of these uber- clients; and this formidable figure is growing by the day. The Boston Consulting Group reported that this group of millionaires controlled a total $2 trillion assets in the region in 2010. It is even more significant that this figure will rise to $6.7 trillion by 2015. Consistently high oil prices and above average economic growth have bestowed the Gulf populace with some of the largest personal nest

eggs in the world. So, while the major global and Swiss banks pencilled in the UAE and the Middle East as part of their emerging markets expansion strategy as far back as the 1990s, the race is now on to woo the wealthy and clinch a slice of their expanding investment portfolios. The turbulent ecomonic climate also means the region’s mega- rich are in need of more sophisticated investment advice than ever before. One drawback for wealth managers amid the current global economic crisis is the dampened client confidence in financial instruments and the renewed desire for investing in low risk commodities and Western real estate. But the opportunities in the local wealth market far outweigh the challenges. It is Dubai that has the potential to reap the most benefits from the combination of the Arab Spring and the US and Euro turmoil. The emirate is currently capitalising on its status as a ‘safe haven’ and is consequently enjoying additional capital inflows as spooked regional investors shift their cash. Dubai must seize this moment to uphold its cosmopolitan International Financial Centre hub, build on its wealth management talent pool and develop its overall banking infrastructure with the aim of being a globally recognised private banking capital – the Gulf equivalent of Switzerland or Singapore. That time is now. In this month's private banking special report, Gulf Business speaks to the some of the region's top wealth managers about the challenges and opportunities that lay ahead.

top wealth managers about the challenges and opportunities that lay ahead. Alicia Buller, Editor, Gulf Business

Alicia Buller, Editor, Gulf Business

Emirates NBD has been perhaps the best placed of the Gulf-based banking groups to benefit

Emirates NBD has been perhaps the best placed of the Gulf-based banking groups to benefit from the recent political turmoil. Dubai’s top bank has witnessed a renewed optimism around the emirate as a safe bet amid the uncertainty. Over the last nine months, rich investors have turned to the GCC’s biggest bank to protect their cash. Emirates NBD’s private banking business has helped drive the group’s positive first half results, which saw profits rise 43 per cent year-on-year to Dhs2.2 billion. The UAE's biggest lender by assets reported a net income of Dhs744 million in the second quarter of the year, up 85 per cent compared to Dhs403 million in the same period last year. Gary Dugan, chief investment officer

for private banking, said his clients were “pleasantly surprised” that Dubai profited from the geo-political problems in the Middle East. “In general, there’s been more trading, a rise in airline passengers and a marked turnaround in the hotel sector, all of which has helped us.” Deposits at the bank have remained buoyant as wealth investors seek security over riskier assets. Overall in the UAE, deposits held by banks increased seven per cent to $306 billion during the first five months of the year, surpassing the increase for the whole of the previous year, according to data from the central bank. Dugan said he had struggled to convince private banking clients to diversify their holdings though. “The appetite for real estate or private equity has waned. We’ve spent the last year trying to rebuild confidence in our client base and tempt them to go for something slightly riskier.” High yield bonds and corporate bonds have become the mainstay for investors, although the bank has seen a pick up in appetite for commodities and local equities in the second quarter of the year. There has also been growing demand so far this year for gold certificates, a product the bank launched in late 2010. “There’s been a consistent backing of gold, especially gold certificates and the delivery of gold. It’s given us a chance to take greater market share,” said Dugan. “Most clients we find are underrepresented by gold in their portfolios; they have on average about one to two per cent, but we recommend seven to eight per cent of their total worth.” Gold prices have remained high against the backdrop

of instability in the Eurozone and US economies. It seems that persuading wealthy clients to look beyond gold to more exotic and high-yielding investments is the private bank’s toughest challenge. “Our typical client is mostly conservative, with assets in cash or near cash, with an average of about $2 million to $3 million to invest. But we’re almost back to levels of confidence seen around the time of the financial crisis, with major concern over global events being reflected in clients’ risk appetite,” said Dugan. The Emirates NBD Group has had to tackle demons from the past, in particular its exposure to major corporate restructuring in Dubai and the real estate sector. Indeed, Business Monitor International has said that the UAE’s banking sector is set to underperform its regional peers over the next 18 months as concerns about a weak real estate market and Dubai’s debt overhang will continue to weigh. Meanwhile, the latest results also show that impairment charges were high at Dhs2.35 billion compared to Dhs1.74 billion in the first half of 2010. Dugan’s private banking function will be critical to convert the groundswell of confidence currently supporting Dubai’s hopes into sustainable revenues that can be registered at a group level.

In a business that maximises wealth, Swiss-owned Bank Sarasin-Alpen has been called on to play the role of wealth protector in the last six months as clients shy away from risk. The bank, which is one of various units in the region owned by Bank Sarasin based in Basel, started Gulf operations in 2005 with the launch of its Dubai office. It has since spread to Doha, Muscat, Manama and most recently Abu Dhabi. GCC clients are now more cautious about taking bets with their money after suffering heavy losses from the financial crisis. There has been also been “heightened risk aversion” so far in 2011 in response to the Japanese tsunami, conflict in North Africa and a US and European debt crisis, said Rohit Walia, executive vice chairman & CEO, Bank Sarasin-Alpen Group, Middle East and India. “From a client’s perspective, they are now more aware of the risks associated with the investments and have wealth preservation at the back of their minds even when they evaluate opportunities for wealth creation. Before the crisis they were more interested in building their wealth but now they also want us to keep their wealth safe and secure.” As the battle for Gulf wealth heated up in recent years, Bank Sarasin-Alpen’s approach has been to deploy experienced boots on the ground to its GCC offices. Most recently, it hired ex-EFG private banker Neil Ashford as a managing director and head of its Abu Dhabi office. Part of the difficulty in building private banking businesses in the region is that simply having a physical presence doesn't guarantee success. But, hiring bankers that have a ‘little black book’ with access to the right people does. Much of the wealth is centralised in family offices, and having a strong and trusted relationship with these firms is key to success. In that sense, Ashford was one of a rare breed, having more than 30 years of banking

experience spanning across private, corporate and trust intermediary banking. Analysts say that if private banks manage to get a foothold with these family offices, it gives them an

opportunity to leverage their relationship to sell more sophisticated products and services to key players in the region. “The fact that we are present in most of the GCC countries ensures that we are available to meet our clients when they want to see us and move away from the concept of suitcase banking,” said Walia. Bank Sarasin-Alpen has not been alone in this strategy. In April, Deutsche Bank unveiled Serene El Masri as its head of private wealth management for the Mena region, joining from BNP Paribas. Mark Winzenried joined Lloyds TSB Private Banking from Arab Bank while Abu Dhabi Islamic Bank named Stuart Crocker as head of private banking from HSBC. In May, UBS hired Albert Momdjian, previously head of investment banking for MENA at Credit Agricole, for

a senior wealth management position. Walia added: “With the increasing

number of banks appearing in the region, there is definitely a danger of oversaturation. There are over 50 banks in the UAE. In addition, the Dubai International Financial Centre has a host of other banks and financial institutions.” Meanwhile, despite housing three of the densest millionaire populations in 2010

– Qatar, Kuwait and the UAE, the Middle East has become safe-obsessed. Less risky investments such as fixed income have, therefore, grown in popularity.

“We have taken advantage of this for clients, especially in high Indian interest rates by bringing Indian debt issues to them.” There is some optimism that the pick up in investment and tourism in the GCC’s so-called ‘safe havens’ like Dubai could produce results in the medium term. “Although this [investment] has not yet translated into better equity markets I believe it will do so in the not too distant future,” added Walia.

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Private banking is a notoriously male- dominated profession, but rich female investors have become one of the key drivers for wealth management services in the Middle East, according to Merrill Lynch Wealth Management. This unit of Bank of America has been operating an office in Dubai since the 1970s, and has witnessed serious demographic changes taking hold in the region. One of the most recent shifts is that women are stepping up and demanding investment solutions from private banks, said Tamer Rashad, head of Middle East at Merrill Lynch Wealth Management. Historically, women have been overlooked or undervalued as private banking clients, despite controlling 22 per cent (or $500 billion) of the wealth in the region, according to the Boston

Consulting Group. After falling sharply in 2008, women’s wealth grew by nearly 15 per cent in the Middle East in 2009 and Boston Consulting projects that the amount of wealth controlled globally by women will grow at an average annual rate of eight per cent through until 2014. Rashad said there had been an “increased interest” from women in the region for Merrill Lynch’s products. He said high GDP and savings had also boosted demand in the industry, adding:

“Clients are seeking more sophisticated solutions around wealth management, investment returns and transferring wealth to the next generation.” Merrill Lynch Wealth Management first opened a Middle East office in Beirut, Lebanon, 49 years ago and now operates in offices in Bahrain and Riyadh, as well as Geneva, London and Monte Carlo. It has an office in the Dubai International Financial Centre and one outside the business park. In September 2008, Bank of America announced its intentions to purchase Merrill Lynch & Co., in an all-stock deal worth approximately $50 billion. Merrill Lynch was at the time within days of collapse, and the acquisition effectively saved Merrill from bankruptcy. Merrill Lynch is now the largest and most profitable wealth manager in the world, according to Scorpio Partnership's Annual Private Banking Benchmark for 2010. In recent months, Rashad has overseen a hiring spree intended to strengthen the bank’s position in the Middle East. Most recently, Leila Alameddine joined as market manager for Levant, Shereen Ghobrial as regional sales manager, Utku Balik as business strategy and initiatives execution manager, and Ahmed Barakat as UAE market manager.

Tamer Rashad relocated to Dubai from New York in 2010, prior to which he was head of global relationship capital intelligence and a member of the office of the president & chief operating officer at Merrill Lynch. Contrary to sentiment in other private banks currently operating in the Gulf, Rashad said there had actually been an increase in risk appetite: “More equity, less cash and lower investment in local real estate from clients.” He added: “Changes taking place in the Middle East provide a dynamic opportunity for the region. We are witnessing a rapidly growing interest from clients to expand the breadth of their portfolios and increase exposure to international investments.” Heavy investment in in-house research facilities over the last decade has given Merrill Lynch an edge over its competitors to better understand the demands of markets like the Middle East. The bank has grown its research component and now publishes one of the most recognised research documents on private banking activity, the Merrill Lynch Global Wealth Management and Capgemini survey. According to the latest survey in June, at the end of 2010 the number of HNWIs grew in Saudi Arabia and Bahrain but declined marginally in the UAE. “The past few years have seen great fluctuations in HNWI’s wealth and population,” said Rashad “In 2010, we saw growth rates slow down from the higher double-digit levels of 2009 when many markets were quickly returning from significant crisis-related losses.”

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Although wealthy GCC investors remain strong backers of local economies, Geneva-based Lombard Odier has witnessed a spike in money being sent overseas. The Swiss private bank, which services ultra high net worth clients out of a representative office in Dubai, manages $167 billion in global assets. Increasingly, local investors are shifting their wealth outside the Gulf region and requesting sophisticated funds to preserve their families’ net worth, said Arnaud Leclercq, head of new markets at the firm. “A number of wealthy individuals, in particular Emiratis and Saudis who have been typically invested only locally are deciding to reallocate a portion of their wealth outside of the Arab World,” he said. In the past, Saudis have held 90 per

cent of their wealth locally, but Leclercq said there had been a marked shift recently, and this figure is now closer to 70 per cent. GCC investors have looked to diversify their investments and spread risk following prolonged turbulence in local markets. “We have also seen an increased level of interest from the very large and wealthy families in setting up family funds outside of the region, in the shape of a reserve fund, very similar to how a sovereign wealth fund functions. “Investors have also become increasingly savvy, and they now are looking for banks that can provide diversified booking centres outside of the Gulf, in places such as Geneva and Singapore,” said Leclercq. Lombard Odier has been a dominant player in private banking since it was established in 1796. Much of this brand capital has contributed to its growth in the Middle East. The firm has had ties to the region since the 1970s but only opened a representative office in Dubai in 2007. It has, however, been criticised for taking a less aggressive stance than some of its competitors, such as Credit Suisse and Julius Baer, in targeting the region’s wealthy individuals. Less than 10 per cent of its managed assets come from the Middle East – a proportion the bank is trying to raise to 20 per cent in the next four years. Out of its office in Dubai, it is planning to continue expansion into what it calls ‘new markets’, which include the rest of the Middle East, Central

Asia, Russia and Turkey. To underline the commitment to this planned growth, Leclercq said he himself will be relocating from Geneva to Dubai by the end of 2011. “We have already begun to select a number of senior bankers and specialists to cover these areas, so there are clear plans to expand not only in the local market, but also to establish Dubai as one of our three global hubs: Switzerland, Singapore and now Dubai,” he said. There has been a flood of private bankers to the region in recent years, raising concerns that the market could quickly become over-saturated. But Leclercq is defiant: “Lombard Odier works in the UHNW segment… We are one of the world’s largest private banks involved in this specific segment. Indeed, there are not many banks – if any – that are as involved on the local level as much as we are.” He did issue one word of caution in the short-term: “Over the period of the last 18 months, we certainly have noticed that a number of clients have decided to reallocate their resources to areas other than wealth management – in the sense of private banking. For example, they are opting to reinvest in real estate in the West, buy gold or simply holding cash – all rather than have their assets managed.”

  Falcon Private Bank may be small and nimble, but it is owned by Abu

 

Falcon Private Bank may be small and nimble, but it is owned by Abu Dhabi’s mighty Aabar Investments, a fact that has allowed it to punch above its weight in the Middle East. Managing $13.5 billion in assets, the Zurich-based wealth manager is dwarfed by a lot of its Swiss competitors. But the presence of Aabar, which bought the firm in late 2008, provided instant credibility and reassurance for potential Gulf clients. This is a reality not lost on Falcon CEO Eduardo Leemann, who said: “Without Aabar it’s very difficult to expand into the region. Our owners are extremely well-known and respected.” Aabar is regularly called upon to identify the “good guys and bad guys” in the Middle East, he said. “This high level local knowledge means that it’s almost like operating in Falcon’s home market. It’s like having our Zurich clients just round the corner.” But the relationship comes at a price for Falcon, which must seek authorisation from Aabar on major decisions, typically large credit facilities above $25 million or certain high-risk investments. A large capital deployment, such as the acquisition of another bank or buying a new IT system, would also require Aabar’s sign-off. Leemann added that the arrangement

doesn’t extend to the Abu Dhabi company sharing its GCC private banking contacts. Still, Falcon expects its assets under management to nearly double to $25 billion in five years as it taps the growing wealth in Gulf and Asian markets. The bank, formerly known as AIG Private Bank, was bought from the crippled US insurance giant AIG by Aabar in 2008 for 288 million Swiss francs (Dhs1.2 billion). Falcon seeks to target individuals with a minimum wealth of $5 million. In the UAE, it currently manages $600 million of assets, but Leemann said by the end of 2011 this could hit $1 billion. It opened a branch in Abu Dhabi in April, joining its existing branches in Dubai, Hong Kong, Singapore and Geneva. Falcon has also applied for an investment advisory licence with the UAE Central Bank that is currently under processing. “Middle East investors go with Falcon because they like to have local investments booked somewhere else, for instance Singapore or Zurich,” said Leemann. “For them it’s about political diversity and the diversification of risk. They like Arab National Bank and First Gulf, but they also like us.” He said there was a danger of the Gulf getting overcrowded, especially with rivals Julius Baer, UBS, JP Morgan and

Bank Sarasin expanding their operations, but he added that the region was “still very attractive”. Leeman admits that Falcon, like other banks in Switzerland, have suffered recently because of currency fluctuations between the Swiss franc, Euro and US dollar. “The bad news for banks like us with a big portion of costs being booked in Swiss francs, is you lose out on the currency situation. The revenues are in Euro and USD, but the currency has changed against the Swiss franc of late, so margins have been weakened. Then add this to a dull market environment and it makes people very risk-averse.” But he said that unlike its larger competitors, Falcon has the benefit of agility and can deploy capital to essential markets like the Middle East. “Compared to the bigger players in private banking, we can act much more quickly on the ground in the region. Most of the big hitting banks will see the MENA region as just another region, where internal capital allocations are competing with, for example, regions like Africa and Asia. “When it comes to investment allocation, MENA has to fit into this huge global network, which means their money or appetite may not necessarily be there. We don’t have this problem,” he said.

attract and retain people is fundamental to our long-term success.” Daher adds that it’s easier to recruit in Dubai than the rest of the Gulf as the emirate offers a practical hub for bankers with easy flight connections, quality schools, housing and medical infrastructure. Credit Suisse is taking action globally to reduce its cost base, but these cuts

will not necessarily make their way to the Middle East as Daher builds up his

make their way to the Middle East as Daher builds up his Credit Suisse held $865

Credit Suisse held $865 billion in global private banking assets in 2010, up 11.56 per cent on the previous year, according to the Scorpio Partnership Private Banking benchmark study. However, the Swiss financial services company, like many global banks, has experienced challenging times in 2011. The firm is axing 2,000 jobs after revenues slumped in the face of the European debt crisis, with net income falling by 52 per cent to SFr768m ($973.4 million) for the second quarter of this year. The steady fall in the value of the US dollar against the Swiss franc has also hurt the Zurich-based bank. Having set up its presence in the region more than 40 years ago, Credit Suisse has long known the potential of Middle East investors and is well placed to benefit from the growing wealth of local UHNWs. Bruno Daher, co-CEO and head of private banking for the region, has his sights set on increasing the

Middle East’s share of the pie. “Private banking has been very active in the region for

a very long time;

the difference now

is

that in light of

team. “We are taking action to adjust

current challenges in

our cost base and are seeking cost

mature markets there

efficiencies across the bank in order

is renewed wealth

to ensure attractive returns,” he says. “We continue to be proactive about monitoring the size of our business relative to client opportunities and market conditions. This involves realigning resources to growth areas.”

Daher believes the way to combat the extreme levels of uncertainty from markets

is to stay close your customers because,

in today’s climate, clients are becoming increasingly jittery and, in some cases, more knowledgeable, with increasingly sophisticated financial requirements. “To maintain strong relationships, you need to be able to partner clients with

experienced advisors who can help them to achieve their aspirations. The markets are complex. Clearly, we are facing

a challenging economic and market

environment and I believe that it’s going to be a difficult year all round.”

creation in China, India, MENA and emerging markets in general. In all these locations, wealth management will thrive,” he says. “Credit Suisse has always considered MENA to be among its priority markets. UHNW is a fast-growing segment, accounting for about one third of our assets under management in our wealth management business globally.” Daher says that private banking is not just about products, which have now become commodities, but wealth management is about relationships, premium advice and client management. Integrated offerings and cross-pollination between investment banking, asset management and private banking arms also offer the client more value in today’s headwinds. Credit Suisse is currently taking measures to forge stronger relations between all of three of its arms in the region. But, along with the tools, you also need the talent, says Daher: “The MENA region now has more talent than ever before, making it a highly active, successful market. We have hired and trained people over the years which helps to grow the talent pool. An ability to

Saudi Arabia is leading a dramatic rise in demand for Islamic private banking despite the

Saudi Arabia is leading a dramatic rise in demand for Islamic private banking despite the regional turmoil, according to the Middle East’s largest wealth manager NCB Capital. The Riyadh-based bank, which manages $14.9 billion in assets, dominates regional Islamic finance due to Saudi’s abundance of super-rich Shari’ah investors. Demand from wealthy Muslims in the country has soared since the recession, according to Jawdat al-Halabi, CEO of NCB Capital, but surprisingly has remained strong even through the tumultuous first half of the year. “The financial crisis hit Islamic

banking, but not as hard as conventional banking. This spurred interest from clients for Shari’ah compliant investment. Since the start of 2011, clients have looked for value and growth and better returns than they’ve seen in the past. Whereas they were previously sitting on the sidelines post-crisis, they are now becoming more demanding,” said al-Halabi. The firm offers conventional banking services, but 95 per cent of its asset management business is in Islamic products. High net worth individuals in Saudi have been eagerly awaiting the government’s public spending package, which is likely to stimulate widespread economic activity. The kingdom has over $92 billion in Shari’ah financial assets and

is the largest Islamic banking

player in the world in terms of fund volume. Global Shari’ah compliant assets are estimated to have crossed $1 trillion in 2010, growing at

a sustainable 15-30

per cent per annum. Al-Halabi is confident that despite fresh competition from international private

banks that have moved into Saudi, NCB Capital will continue to strengthen. “International wealth management players have small offices in Saudi and don’t put people on the ground. They use it as a window to collect money and Dubai as a hub through which to invest. This limits their local Saudi knowledge. There’s always been a high number of players in Saudi. The 11 domestic banks have always been into wealth management. Although the

volume of participants is quite big, the size of the market can sustain that.” He added that some international institutions in the past have operated as “suitcase bankers” in Saudi and have done so without a licence, which some say is illegal. “Because of recent regulations, which tightened the rules around registration, more bankers are formalising their presence and becoming regulated businesses. So the competition hasn’t changed

much, it’s just become more visible.” As demand for Shari’ah investment spikes, NCB Capital is set to roll out a 12-month campaign of Islamic funds. Al-Halabi is planning to launch four funds over the coming year that will invest in Saudi real estate, equities and small – to medium-sized businesses (SMEs). The proposed SME fund will be structured as an Islamic private equity product, targeting wealthy family offices. The bank is also in the final stages of a tie-up with an international asset manager to expand its global equity offering. “The bulk of our clients invest nationally and regionally,” said Al-Halabi. “Most of the Saudi investors that want international exposure separate their onshore and international investment and so do it with

international banks. On the domestic side, Saudi domiciled banks are better than international players because of their on-the-ground presence, closeness to the clients and accessibility to the market,” he added. NCB Capital’s strength in Islamic fund management is typified by its AlAhli Saudi Riyal Trade Fund. With assets under management at a record SAR16.5 Billion ($4.4 billion) and more than 17,000 clients as of December 2010, it is the largest Shariah-compliant fund in the world. More broadly, the firm has grown its assets under management by 23.46 per cent since January 2010, adding SAR6.8 billion which represents 95 per cent of the total market's growth last year and today it has a 36 per cent share of Saudi mutual funds.

Given the bank’s influence in the Saudi market, its ambitious expansion is likely to unsettle rival private banks that attempt to increase their presence in the Kingdom.

its ambitious expansion is likely to unsettle rival private banks that attempt to increase their presence

its ambitious expansion is likely to unsettle rival private banks that attempt to increase their presence
o sooner had warnings surfaced about the price of oil reaching unsafe levels this summer
o sooner had warnings surfaced about the price of oil reaching unsafe levels this summer

o sooner had warnings surfaced about the price of oil reaching unsafe levels this summer than the global economy started panicking about crude hitting the lows seen in 2008. The volte-face, sparked by a downgrade of US debt and a string of gloomy economic forecasts, has left Gulf governments drawing parallels with the fallout from the credit crisis, which severely damaged their petro-dollar income. In 2008, oil plummeted from a high of $147 a barrel to $36, fuelling the worst recession in history. Analysts are asking whether an oil-induced double- dip recession is now on the cards. Key energy exporters Saudi Arabia and the UAE need oil prices above $85 a barrel to meet their spending obligations, according to the latest estimates. These concerns seem a far cry from fears

expressed in the first half of 2011 about a fresh oil price spike and its effect on the world’s financial health. Few would disagree that the S&P downgrade of US debt to AA-plus in August was a game-changer for GCC oil exporting nations. The Organisation of the Petroleum Exporting Countries (Opec) and the International Energy Agency (IEA) have since trimmed crude demand for 2011, while also decreasing next year's growth prediction. Given this, if the past is any guide to the future, analysts say sustained high oil prices for the remainder of the year will trigger a serious slowdown in the fragile global economy. This scenario emerged in 2008, but also twice before, first in the oil shock of 1973/74 after the Arab-Israeli conflict choked oil flows; and again during the

1979 Iranian revolution and subsequent Iran-Iraq war. Worryingly, in each of these cases the cost of oil relative to global economic output has hit current levels.

With a slump seemingly around the corner, Gulf states will be looking at factors that could support prices. In the first instance they are not expected to allow prices to plummet, so they may reduce oil output sooner than they did after the financial crisis in 2008. This could, of course, send world economic growth into freefall, shattering their main income and any hopes of breaking even on their budgets and paying for the planned infrastructure spend. The loss of production due to the Arab Spring chaos this year and demand from emerging economies like China are two

powerful narratives that could provide a floor for prices. Robeco, a Dutch asset management firm, said recently that China’s unquenchable thirst for natural resources and demand from developing markets continues to outpace new sources of supply, leading to escalating oil prices. A natural resources fund manager with the firm, Peter Csoregh, said that tensions were likely to erupt as China vies with the West for natural resources to support its growth rate as the government tries to stave off social unrest. “Can China double from here, can they triple from here? Sure they can. Is there enough oil or copper in the world to allow them to do that? No,” he told Reuters. All the risk factors that could spur the oil price again are lurking in the

that could spur the oil price again are lurking in the background, say analysts. Disruption to

background, say analysts. Disruption to production in volatile areas including Libya, Iraq, Nigeria and Syria pose perhaps the most immediate threat to supply. And if the so-called ‘killer of production’, US arch enemy Venezuelan President Hugo Chavez, regains his health in the long-term this will likely provide further support for high oil. Simon Wardell, an oil analyst at the economic forecasting firm IHS Global Insight, said: “The biggest concern is the things you can’t predict, and we’ve already seen that this year with developments in the Middle East. Unforeseen events

you can’t predict, and we’ve already seen that this year with developments in the Middle East.

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like these could have a huge impact. Meanwhile, academics at Stanford University in the US that study the causes of previous price rises, in July singled out speculation among oil traders as a big factor. In a paper entitled “Investor Flows and the 2008 Boom/Bust in Oil Prices”, Professor Kenneth Singleton – a highly respected econometrician – mounted a wide- ranging assault on the belief among policymakers that speculation does not affect commodity prices. Singleton argued that in their attempt to outplay competitors, traders stoke the market and push prices higher. His conclusions undermine the long-held view that future prices are determined solely by economic fundamentals. Charles Maxwell, a senior energy analyst at brokerage firm Weeden & Co,

said speculators like hedge funds should only be blamed to a point. “After oil reached $147 a number of institutions examined the role of speculators in the rise and came to the conclusion that it was players like hedge funds driving it to its highest point. But the facts don’t bear that out. We now know all about the contracts hedge funds were involved with; and the physical holding of oil from $120 upwards was diminishing all the time. So hedge funds were not responsible. In general, speculators got hurt last time so they are unlikely to be as carefree this time round.”

The Middle East faces a more explosive set of challenges in 2011 than it did three years ago, with the potential for revolutions to spread throughout the

with the potential for revolutions to spread throughout the region and a greater dependence on economies

region and a greater dependence on economies around the world as a result of increased globalisation. “Geopolitics is much worse this time round,” said Richard Swann, managing editor for Europe, Africa and Middle East at energy analyst firm Platts, who added that organisations like Opec and IEA are diminishing forces in the future price of oil. In June, the IEA announced it would release 60 million barrels of oil from its member governments’ reserves, apparently in response to “ongoing disruption of oil supplies from Libya”. But any attempt to reduce prices in the medium- or long-term failed, as the price of Brent crude fell $5 on the announcement but rallied since. Today, following August’s economic developments, Opec faces the exact

fell $5 on the announcement but rallied since. Today, following August’s economic developments, Opec faces the

opposite dilemma of keeping prices buoyant. It can cut output to boost prices, but reports

opposite dilemma of keeping prices buoyant. It can cut output to boost prices, but reports

opposite dilemma of keeping prices buoyant. It can cut output to boost prices, but reports last month suggested that the cartel was not planning to get together before the next scheduled meeting in December. Opec, provider of about 40 per cent of the world’s crude, set its biggest-ever supply cuts in late 2008 amid a collapse in global demand. The decision capped production at 24.845 million barrels a day for all members except Iraq, which is exempt from the quota system. Members

except Iraq, which is exempt from the quota system. Members have largely exceeded quotas in 2011

have largely exceeded quotas in 2011 as they sought to take advantage of higher

global crude prices earlier this year and to make up for the lack of Libyan crude due to the civil war in the country. Abhay Bhargava, an energy and power systems specialist at Frost & Sullivan International, said Gulf governments that are looking to support higher oil prices for budgetary purposes could be playing

a dangerous game as elevated prices

could suffocate foreign investment into the Gulf from oil consuming nations. “Gulf countries are dependent on other

economies around the world, as much as they like to think they’re not. If you get

a price at $147 then Gulf governments

will have a lot more money to spend and build up their economies. But at this price it’s not sustainable and is rather impractical. Other consuming nations will suffer and the GCC will eventually be on the receiving end,” said Bhargava. Unforeseen issues that could push oil prices higher, such as a new wave of unrest in the Middle East and a repetition of an event like BP’s oil spill last year in the Gulf of Mexico, are by their very nature hard to forecast. Yet, expected weak economic growth in the coming years has led many to believe that the current global conditions seem unlikely to support any immediate flare- ups in crude. Amid this uncertainty, governments in the Gulf will be treading carefully from now on.

any immediate flare- ups in crude. Amid this uncertainty, governments in the Gulf will be treading
any immediate flare- ups in crude. Amid this uncertainty, governments in the Gulf will be treading

SPONSORED FEATURE STRATEGIC TALENT MANAGEMENT AND TRANSFORMATION IN CORPORATE CULTURE – THE NEW FRONTIER OF

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STRATEGIC TALENT MANAGEMENT AND TRANSFORMATION IN CORPORATE CULTURE –

THE NEW FRONTIER OF GLOBAL COMPETITIVE ADVANTAGE.

– THE NEW FRONTIER OF GLOBAL COMPETITIVE ADVANTAGE. In July 2008, Drake and Scull International (DSI)

In July 2008, Drake and Scull International (DSI) raised Dh1.2 billion by offering 55 per

cent of the company’s shares to the public in an IPO that was 101 times oversubscribed pulling Dh132 billion in subscription. The shares were priced at Dh1 each plus an offering cost of Dh0.02 per share. The process of oating a private family-owned business into public needs more than just going to the capital market and raising funds

It is also about ensuring a smooth

transition to corporate culture and the

implementation of a strategic talent management approach. It requires

a change in mindset, habits, culture

- corporate culture, which luckily is

picking up in the UAE and the region.

It also requires fundamental change

in attitude among corporate leaders In the case of DSI, it was virtual re-engineering of the company, its systems, and processes and re-aligning the human resources in line with the requirements. In many ways, it was a sea change. Cultural Transformation begins with understanding the Cultural Capital of your organization - the

connection between “who you are” and “what you stand for” as an organization. Purposeful culture change does not happen without awareness, partnership, and commitment. The bedrock of the corporate culture transformation

is your employee’s alignment with

the company’s vision, mission and values. The success story of Drake and Scull International is attributed to the ability of the management to preserve the heritage of the company that dates back to more than 150 years. Over countless generations our employees have acquired a treasure trove of knowledge and experience and stood the test of time by adapting

and experience and stood the test of time by adapting Zeina Tabari, Chief Corporate Affairs Officer,

Zeina Tabari, Chief Corporate Affairs Officer, Drake & Scull International

to the changing world and challenging market dynamics. Our vision is to become an international company that promotes operational excellence and we recognize that our people are the catalyst for that change. Strategic Talent Management is a critical element of any organization’s quest to maximize possibility. Employees are after all, any organization’s most valuable asset and you want to be sure that you are getting the greatest return on your investment. Implementation of succession planning program is vital for your corporate culture transformation especially when evaluating the talent currently employed in your organization, understanding what each team member’s strengths and weaknesses are, and developing a training and development program to prepare high potential team members to assume greater responsibility and

provide leadership direction within your organization. To cope with our horizontal and vertical expansion and to increase our competitive advantage our talent managers are on constant quest of building and measuring our diverse workforce to ensure that they can execute across various functions, business units and geographies. It is empirical to understand that organizations don’t transform – People do. The virtues of success in an ever changing and globalized world is acknowledging that successful corporate transformation and talent management are the new frontier of global competitive advantage, because they de ne the inherent long-term capability of an organization to build and sustain high performance, attract and retain talented people, and build

resilience and adaptive capacity.

to build and sustain high performance, attract and retain talented people, and build resilience and adaptive

ISLAMIC

ISLAMIC CONVENTIONAL BANKING

CONVENTIONAL BANKING

he last two years have been challenging for Islamic and conventional banks alike, with the

he last two years have been challenging for Islamic and conventional banks alike, with the negative impact of the regional and global financial crisis affecting performance. In the early period following the financial crisis,

Gulf Islamic financial institutions initially performed better than their conventional rivals. However, over the last two years, Islamic bank performance has closely mapped conventional banks. In fact, the GCC’s Islamic banking sector return in 2010 was the same as the return for conventional banks in the GCC at 1.61 per cent. But, although profitability has been similar, Gulf Islamic banks have continued to grow at a faster rate than conventional banks. Islamic banks have maintained their expansion by continuing to launch new products and services, and customers are still migrating from traditional banks to Sharia’h-compliant institutions, although not at the rate seen some years ago. The inflow of new Islamic financial entities entering markets has, not surprisingly, slowed since the global credit crunch and this has also reduced the overall growth in assets. As a result, the organic growth has been quite impressive. Before the crisis, Islamic bank profitability returns were significantly superior to those of conventional banks. Prior to 2008, the Islamic banking sector in the GCC generated overall returns around 50 per cent higher, with return on assets 3.6 per cent against conventional banks 2.4 per cent. This is due in part to the relatively immaturity of the market but as the market has matured, the gap has narrowed significantly with overall margins now similar between both Islamic banks and their conventional rivals.

Competition has increased within the Islamic sector and from conventional banks introducing more Islamic products and services through dedicated windows. To boost their market position, Islamic banks need to identify and target the most valuable customer segments with differentiated and higher-quality offerings. On the whole, and as with conventional institutions in the Gulf, Islamic banks that focus on retail banking have generally performed better than those that target only corporate banking. To be successful, Islamic banks require economies of scale in order to drive down cost-income ratios. Cross- border expansion, including mergers and acquisitions, is one option for increasing scale. However, often differences in the structure of products across countries add to the challenges of cross-border expansion.

RETURN ON ASSETS GCC (%)
RETURN ON ASSETS GCC (%)

The most successful Islamic banks are developing products that address customer needs, such as Islamic credit cards and mortgages. Customers increasingly expect products to perform as well as those from conventional banks and will not accept added complexity as an excuse for higher costs or lower performance. To mitigate additional complexity, Islamic banks pay greater attention to cost containment, fast processing times, and low error rates. Islamic banks need to manage these core areas and understand customer needs in order to compete against conventional banks. A number of Islamic banks established over the past five years have encountered tough conditions. Growth and returns have so far not matched original expectations due to the extreme market conditions since 2008. These banks include UAE’s Al Hilal Bank and government-backed Dubai’s Noor Islamic Bank. Despite the challenging market, the smaller Islamic banks, aided by their start-up capital position, have done reasonably well, but in niche markets and with niche products. Institutions initially spoke of regional and even global ambitions but this has been postponed in the current economic climate. Other banks are now building their operational base for further growth. Dubai Islamic Bank (DIB), the largest Islamic bank in the UAE, has focused on

diversification and growth, including the expansion of its branch network and growth in its overall customer base.

Growth has been achieved through offering a comprehensive suite of products and services that meet the needs of its institutional and consumer clientele. DIB now operates across the UAE through an expanding network of 68 branches serving over 1.2 million customers. The bank’s retail business accounts for 50 per cent of all revenues. Last year, DIB also increased its stake in Tamweel, the UAE-based Islamic home finance provider, to approximately 58 per cent. DIB also launched Emirates REIT, Dubai’s first real estate investment trust. The bank also expanded its offerings in consumer banking, launching Al Islami Salam

Finance, a Sharia’h-compliant product that offers liquidity through personal financing, and introduced a range of Takaful products. DIB is currently embarking on a growth phase, believing that opportunities will be created over the next few years, and will continue to focus on the opening of strategically located branches while also increasing its total customer base. Some Gulf Islamic financial institutions continue to look internationally for opportunities. The Birmingham UK-based loss-making Islamic Bank of Britain was recently taken over by its main investor Qatar International Islamic Bank (QIIB) in a deal valuing it at £25.5 million. The Gulf’s largest Islamic bank, Al Rajhi Banking Corporation of Saudi Arabia, is expanding into Kuwait and Jordan. It already has a sizeable banking operation in Malaysia. Kuwait Finance House also

ASSET GROWTH GCC (%)
ASSET GROWTH GCC (%)

has a growing international presence with important banking activities in Turkey, Malaysia and Bahrain. The global potential of the Islamic banking market is estimated at $4,000 billion while the current market is estimated at only $700 billion. With such potential remaining, it’s clear why governments and investors are still very optimistic about the long-term prospects. Governments, particularly in regions which were not significantly affected by the credit crunch and are still enjoying good rates of economic growth, such as Asia, are encouraging more Islamic banks to start up. Improving economic growth, new Islamic banking products, higher infrastructure spending and continued diversification from oil economies will

growth, new Islamic banking products, higher infrastructure spending and continued diversification from oil economies will