Author Archives: Sabah al-Binali

NBAD and FGB's Merger Challenge: Work Culture

July 12, 2016 By in Leadership Tags: , , , 1 Comment

In my last article I talked about the two main paths that the merger of FGB and National Bank of Abu Dhabi could take. The first is simply extending the current business of each by using the path of acquisition rather than organic growth. The second is to trigger a radical redesign of the business model. I concluded that it made strategic sense for FGB and NBAD to take the second path. In this article I touch on how that can happen.

FGB and NBAD are banks and banks, in the end, are predominantly about service. The product part is simple. Money: you can deposit it with them and you can borrow it from them.

The price part, interest rates, is also simple. It has nothing to do with the cost of manufacture as banks don’t manufacture money and besides it is mostly electronic. No, price is driven by the human resources running the banks as well as market supply and demand of money. Since this is driven by people, we can conclude that banks are in the services business.

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Austerity doesn't work, we need an expansionary budget

July 5, 2016 By in Economy Tags: 1 Comment

Brexit drove me to review the European Union and see if there are lessons to be learnt, especially in light of the economic challenges some of the member states have faced. The conclusion I have come to is that it is frighteningly easy to make well-meaning mistakes that can destroy an economy.

It is instructive to compare the United States and the European Union and see what light it sheds on how the UAE might make decisions about its economy. A full analysis would require a book; I will focus on a few directional ideas that might inspire.

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Amid the Brexit hysteria: keep calm and cash in

June 28, 2016 By in Economy Tags: , 1 Comment

Britain’s referendum result on exiting the EU has been met with a flurry of responses from politicians and financial markets. The almost uniform negativity of the responses would, by itself, alarm the average global citizen. But I smell a rat.

I have a simple maxim that has served me well in life – when you want to know who won and who lost, listen for the most negative response. They are the losers.

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Company grief: when a company falls in the economy, does it make a sound?

June 21, 2016 By in Corporate Turnaround Tags: , ,

There is a well-known model on the stages of human grief called the Kubler-Ross model. I believe it can be the basis for a form of company grief, a grief that we are seeing in a growing number of companies during these difficult times. In this article I describe the seven stages of company grief – ignorance, shock, denial, anger, bargaining, depression and acceptance.

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Trade is critical to diversifying the economy away from oil

May 31, 2016 By in Economy Tags: , ,

The recent contraction in the economy, poor performance of SMEs and large layoffs in the UAE has made clear that the oft cited statistic that two-thirds of the UAE’s economy is non-oil related is incorrect. At least it is indirectly related to the price of oil. So how can the private sector further diversify away from oil? The answer is exports.

The economy of the UAE can never be independent of oil if it remains insular. With around one million nationals the size of the UAE’s economy, even with its ability to attract expats, will always be dwarfed by oil income in the near and medium future.

If this is the case then growing true non-oil GDP requires a re-think. One path to growth that is relatively independent of the domestic markets is exports. Export demand is dependent on the economies of international markets most of which will have low correlation to our markets.

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Consumer power requires unity

May 24, 2016 By in Finance Tags: ,

The editors at The National give me constant feedback on how my articles are received. A recent article of mine using game theory as a lens into the persistent over supply of banks in the UAE was widely read, garnering many hits on the online article. The National’s editors informed me that the interest was due to the consumer driven view of the article. In a follow-up article I proposed how shareholders could improve the sector via the inclusion of activist asset managers. Today I would like to touch upon how consumers, be they customers in the financial services sector or other sectors, might be able to drive improvements in products and services sold to them.

Sometimes one has to find a completely new solution. Other times one can look at analogies. In this case the solution actually exists in another market. It not only exists, it is extremely powerful. Consumers, if you have never heard of it please let me introduce you to the most powerful consumer protection product on earth – Consumer Reports, a magazine that tests, reviews and compares products and services offered in the American market.

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Activist investing would be a boon to the UAE

May 17, 2016 By in Asset Management Tags: ,

In my previous article I suggested, using scenes from the film A Beautiful Mind, that game the­ory could explain why more than 50 banks exist in an economy too small to commercially need such business. The idea is bas­ically that banks choose to be mediocre because competition would harm them to the benefit of customers.

The feedback was tremendous, and I would like to expand on some of the points made. The first is the concern that I might antagonise people in the banking system. I believe that transparency and open dialogue fosters a healthy commercial environment and that most people will listen if your intent is positive. The few people who have a closed mind might react negatively to new or open ideas. One just needs to accept that this exists and hope that the greater good outweighs any personal backlash.

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Mediocrity as a strategic goal for UAE banks?

May 10, 2016 By in Strategy Tags: , 2 Comments

For some time, and as mentioned in previous articles of mine, I have wondered how there could be over 50 banks in the UAE, around half of which are full operating banks, given a population of circa 8 million, over half of whom are blue collar workers not in need of banking services. Basic economic theory would suggest that competition would lead to mergers or banks withdrawing from the market until the supply of banking services dropped to a level commensurate with the level of demand for banking services.

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Keep a close eye on strategy – what’s yours?

May 3, 2016 By in Strategy Tags:

What is strategy? In particular, what is strategy as it applies to the GCC?

At the simplest level there are four types of strategy. First is do the same thing; second is build on what you, or others, have been doing; third is do something new; and, fourth, covered in a previous article of mine, is adapt to market threats and opportunities.

In my experience the most prevalent approach in the GCC is to do the same thing. Sometimes there are superficial changes that are meant to masquerade as strategy building on current business, but in the end it is simply doing the same thing. A bank expanding into retail or Islamic banking from a corporate banking base, a real estate developer building units targeted at middle-income buyers as opposed to high net-worth individuals or hospitality moving from five-star hotels to four and three-star hotels are such examples.

A true extension strategy of building on something that already exists is Apple and the iPhone. The core demand for the iPhone came not from new technology but from packaging various services into a single unit. Mobile phones and MP3 players already existed and were in widespread use. Less known, but nevertheless well developed, were personal digital assistants, such as those developed by Palm. Frankly, the I-mate series of smartphones operated in ways similar to the iPhone. Apple simply improved on these technologies and backed the iPhone with the iTunes service.

A good way to understand whether the extension strategy you apply is a true strategy or simply something superficial is to look at your market penetration or your pricing power. A personal example comes from the strategy that we deployed for Zawya, the business media company in which I was a private equity investor and chairman.

We kept a close eye with each product that we deployed, whether it was a new database, analytical tool or news. If we captured market share we poured more resources into it, but if we didn’t get any market traction we cut the product. By 2008, Zawya had more Middle East screens than Reuters and Bloomberg combined, according to our surveys.

In terms of pricing power, the best example was after the global financial crash of 2008. As you would expect, Zawya’s main clients were in the financial services sector and therefore it would make sense that we would lose revenue. However, as we were delivering far more value per dollar spent relative to our competitors, our subscription base was not only resilient, but we actually increased our prices in January 2009 and increased our revenues tremendously. Our product was relatively price inelastic.

Extension strategies are plentiful in the GCC. But a strategy of doing something new seems to be rare if not completely elusive. We do not seem to be able to launch a Facebook, Twitter or Uber other than as a copy of something launched elsewhere. Don’t get me wrong, we don’t just take an idea, we improve upon it – I love Careem’s ability to book a car in advance and to prepay cash, both features not included in Uber in the UAE last year, when I was extensively using the two services. But we are not developing new core concepts.

We have seen governments in the region push for more innovation. I feel the issue is a lack of a deep venture capital source of funds, which is critical to developing innovative companies. For the UAE, this stems from three main sources. The first is the reticence of entrepreneurs to sell equity in their start-ups early on. The second is restricted options for expatriates in owning 100 per cent of their company, at least if the company is allowed to do business in the UAE. The third is that when an entrepreneur or start-up is funded and the investment does well, then the venture investors do not exit. Ever. As a result, investors willing to finance new ventures do not recycle their money.

The solution could well be a change of the company regulations. Anyone investing in private equity should be familiar with the concept of a limited partnership, whereby one party, the general partner, has near complete control of the business and the limited partners simply participate in the economics.

Bloomberg LP, the global media giant, has such a structure. The “LP” stands for “limited partnership”. A second change is clear: allow 100 per cent foreign ownership outside the free zones. Saudi Arabia allows it for most sectors, why can’t we?

The focus on strategy, so far, in the region seems to have been focused on competence in developing strategy. The reality may well be legal and cultural structural constraints in the market.

This article was originally published in The National.