Author Archives: Sabah al-Binali

Some listed firms need a sensible talk on governance

April 18, 2017 By in Corporate Governance Tags: 1 Comment

In shocking news, this month Bahrain introduced common law for limited liability partnerships without having to create a free zone.
All the legal protection without artificial costs. What a concept.

Meanwhile, there are some decisions being made in listed companies – firms in which the public are investors – that do not seem to be in line with the best standards of corporate governance.

I will cover three – Shuaa, Arabtec and Drake & Scull – and then discuss what this means to our economy.

For Shuaa, the corporate governance journey started with the announcement last month that it was acquiring two companies from a major shareholder. This created a possible conflict of interest and as a listed company regulated by the Central Bank of the UAE and the SCA, the market regulator, you would expect that as part of the announcement a plan to mitigate any possible conflict of interest would be released so that small shareholders can decide if it is fair. The chief executive of the seller is the chairman of the buyer, Shuaa. Will he and other board members appointed by the major shareholder, Abu Dhabi Financial Group, recuse themselves from voting? How will the deals be priced? Who decided that this was a good deal for Shuaa?

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Entrepreneurs don’t need the state to do their work

April 11, 2017 By in Entrepreneurship, Venture Capital Tags: ,
Entrepreneurs don’t need the state to do their work

Last week I was honoured to participate in the Ministry of Economy’s seventh Annual Investment Meeting, a conference focused on foreign direct investment in growing markets, as well as the associated AIM Startup, held in Dubai. A large part of the conference – the talks and panels, as well as private conversation – revolved around entrepreneurship and venture capital. There were some recurring themes and I would like to share some of my thoughts on them.

An important caveat: the AIM conference was extremely positive and quite rewarding, my article simply seeks to find ways to extend the thinking.

One of the main points raised was what government can do to help entrepreneurs and the venture capital ecosystem in ­general. I find this question strange. To me an entrepreneur, by definition, looks to solve problems. Asking for the government to solve these problems seems incompatible with being an entrepreneur. Indeed, companies built locally and sold to international companies, such as Souq.com to Amazon or Zawya to Reuters, happened in large part because the local entrepreneurs found ways to build the business within the local environment that foreign players don’t understand. Do not misunderstand me, the government can certainly remove obstacles, such as monopolies and security cheques, that stand in the way of entrepreneurship. But to ask them for funding, incubators or other forms of support is to admit that one is not in fact an entrepreneur.

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Fintech's power is in the unbanked and unbankable

April 6, 2017 By in Entrepreneurship Tags: ,

3d rendering of futuristic blue circuit boardIn today’s article ­Kath­arine Budd, the chief executive and co-founder of Now Money, a Dubai-based fintech start-up, joins me in explaining how fintech works.

To understand this new financial services phenomenon, it is best to start at the very beginning. A very good place to start.

Although you might now be able to operate your bank account from a website or mobile app, the systems that sit behind these online user interfaces have barely changed since they were implemented in the 1970s. The international payment transfer system Swift still runs on the telephone systems. This means that no matter how nice the front-end website your account is on, the transactions displayed are still run off legacy systems, which can lead to legacy issues such as delays in processing transactions and potentially losing the transaction in the system altogether.

So why don’t banks just scrap these legacy systems if they are not able to match modern-day systems? Not that simple. To try and keep up with changes in market demand, these systems have been repeatedly improved upon using incremental upgrades, usually by different IT teams, until they now represent a hodgepodge of sub-systems.

Investing in a system upgrade – which would be expensive, have a material risk of failure and need all other banks to adopt for interoperability purposes – doesn’t look so appealing. This disincentive ensures that customer frustrations continue.

Enter a new breed of start-ups that are innovating where banks are stagnating. The start-ups are cooperating with regulators and cybersecurity experts and developing new technology. These organisations have become know as “fintechs” and their purpose can range from offering customers alternative ways to bank, usually through mobile, to using advanced analytics to provide investment recommendations.

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Do US Airlines compete? ADIA becomes active. Does Arabtec make sense?

March 31, 2017 By in Finance Tags: , 2 Comments

When the “no laptop” ban on flights was announced by the US government there was a lot of discussion as to whether there was a commercial driver to that decision. I decided to investigate and with the help of the staff of The National, I was surprised to find that we could not identify any American airlines operating planes out of the UAE, only codeshares with other airlines.
So why was I surprised? Well, as people in the region are well aware, some of the largest American airlines have been complaining about Etihad, Emirates and Qatar and in particular they have accused them of unfair competition. Now, for there to be unfair competition there needs to first be competition. For there to be competition the airlines have to be doing the same thing. The three Gulf airlines focus on super long-haul routes, that is they don’t fly between American cities. I therefore assumed that since the American airlines were accusing the Gulf carriers of unfair competition then they must also be flying the non-stop long haul routes that Etihad, Emirates and Qatar are famous for.

It turns out that the Americans don’t in actual fact fly these routes. So the accusations are dishonest as presented. Why are the American airlines engaging in this subterfuge?
One thought that occurs is that they don’t have any airplanes cap­able of super long-haul flights. These airlines are so old that their fleets have short ranges, while the newer airlines bought Boeing 777 ER and Airbus A380 super long range airplanes.

If this analysis is correct then basically the American airlines failed to plan for technological advancements, saddled themselves with an obsolete fleet and are now trying to legislate their customers into using their inferior products and services. The UAE’s Telecommunications Regulatory Authority must be relieved that they are not the only ones using this tactic, as in their banning of Skype.
As an aside I am unhappy that American Airlines is the name of an airline as it means I’ve been wrestling with my autocorrect to type “American airlines”.
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Nike's CSR, Shuaa's acquisitions, and the Fed's impact on our economy.

March 21, 2017 By in Corporate Governance, Economy, Finance Tags: ,

I am once again in New York. The energy of this city is phenomenal. No show, no PR, just execution. One interesting experience is the discussion that people are having with me regarding Nike’s What will they say about you? campaign, which shows a video montage of Muslim women in hijab playing sport. The effect on Americans that I have met with is clear: Nike, a global American merchandising group, has unequivocally stated that wearing a hijab is neither a bad thing nor does it imply that women are inferior. Talk about corporate social responsibility (CSR)!

The genius of Nike is that their CSR is not limited to charitable work, important as such contributions are. Nike used their global brand to reverse an unfortunate wave of prejudice. While mayors in France are banning the hijab, Nike is celebrating the hijab in the most powerful way possible. Nike’s genius is thinking out of the box and blending CSR with commercial acumen that led to the announcement of a Nike hijab. You don’t have to be a brand expert to understand the power of a Muslim hijab emblazoned with one of the most powerful western commercial symbols on earth, a symbol not of consumption and excess but one of strength and power. There are, as usual, people offended on all sides. But that doesn’t change the effect, it just proves Nike’s strength of character in doing the right thing.

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Book Review: Manufacturing Consent

March 17, 2017 By in Finance, Book Review

Manufacturing Consent: The Political Economy of the Mass MediaManufacturing Consent: The Political Economy of the Mass Media by Noam Chomsky

My rating: 1 of 5 stars

Authors manufacture their own consent.

This is not a book on media, it is a book pushing the political agenda of the authors and is guilty of the very crime it purports to uncover.

I could not finish this book, but thought that I would write a review on what I read as I feel that the authors and the description were deceptive in terms of the book which falsely led to my wasting time trying to read it.

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Trust but verify: a deeper dive into the UAE’s latest business news

March 14, 2017 By in Oil, Finance, Corporate Governance, Economy Tags: , , , 1 Comment

Etisalat’s preliminary 2016 financial statements are available at the Abu Dhabi Securities Exchange. Earnings per share for 2016 operations? Dh0.97. Proposed dividends per share? Dh0.80. This gives a payout ratio of 82 per cent. Rationally, your payout ratio is high when you do not believe that there are any opportunities to invest in and so return cash generated to the shareholders.

Etisalat’s dividend policy would suggest that it does not see growth opportunities and therefore expects to simply be a yield play. This refers to business operations and not market price movements. Whether Etisalat is being rational in expecting the economy to stagnate, or worse, and is therefore taking a defensive cash position, or on the other hand is in denial and simply continuing to pay a historical dividend even though the payout ratio is high will be revealed by its stated strategy that it presents at the shareholders’ meeting.

If the strategy is defensive, closing certain operations or at least remaining steady, then the stated strategy will be consistent with the dividend strategy. If, on the other hand, Etisalat presents a transformation strategy or even an expansionary strategy, then this will be inconsistent with its dividend policy.

The suspense is unbearable.

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On governance and denial, from the UAE to Wall Street

March 7, 2017 By in Corporate Governance, Economy Tags: 3 Comments

Last week Arabtec announced a recovery plan, as detailed in a stock market filing. There was no report on how corporate governance would be enhanced for a company that had a loss of Dh2.3 billion in 2015 and Dh3.4 billion in 2016. It is my humble opinion that if things keep going wrong and neither the shareholders nor the board seem to change then changing executive management every couple of years isn’t a strategy, it is random action.

More fascinating was that on the same web page of The National was an article on how Expo 2020 would improve the job market this year. It would seem to me that the sector that would benefit the most from Expo 2020 is construction. And yet Arabtec is saying it will stabilise in 2017, prepare in 2018 and grow only in 2019 – which is really too late to be getting construction orders for the massive project that is Expo 2020.

So the recovery plans – one for a company, one for the economy – seem inconsistent with each other.

Denial isn’t just a river in Egypt folks.
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