You Can Learn to Invest From Bitcoin’s Mistakes Mature sectors will usually beat shiny tech investments

Bitcoin has recovered a bit this past week, but has still lost over 40 per cent of its value in the past two months. This isn’t going to be an “I told you so” column; it is simply heart breaking watching so many people who invested in the cryptocurrency for fear of missing out, only to lose so much of their savings. What I’d like to do instead is to try to use this shock to look at how to build investment programmes that are more robust. Continue reading

Breaking down FAB’s full-year numbers for a post-merger picture Loan book reduction, interest expense increase

First Abu Dhabi Bank (FAB), the lender created last year from the coming together of National Bank of Abu Dhabi and First Gulf Bank, released its first set of post-merger annual results on Monday. In this week’s column, I’ll be looking at the bank’s pro-forma statements from both last year and 2016, analysing how well the new institution has been doing thus far.

In 2017, FAB’s loans and advances – the bank’s largest asset component – decreased by about Dh4 billion compared with 2016; this is puzzling, as the usual logic of a merger is to grow your main business line, rather than see it shrink. To be fair, in percentage terms it’s a decrease of just 1 per cent.

The bank’s cash pile increased 12 per cent to Dh138bn from Dh123bn over the period, representing about 21 per cent of the bank’s balance sheet. Since cash yields next to nothing, to have such a large repository is unexpected. Continue reading

Personal Productivity Systems Monetizing what you learn about investing and business

For the past three years I have been working with family groups on transitioning their investments and businesses into today’s economic reality via innovative transformative strategies. Basically, I used my experience, detailed in the over 250 articles on this blog and in The National. One of the major obstacles that I faced was executives who did not have a personal productivity system. Even when I managed to help them develop their transformative strategies, and even though these executives understood the concepts and the project plans, they still found challenges in executing the plans. I decided to put all of what I learned together as I think people might find it useful. It doesn’t fit with the vision and mission of this blog, so I launched Personal Productivity Systems as a separate site. I hope that you find it useful.

Good acquisitions, an unfit brand, and Abu Dhabi’s rising international reputation A number of key business events from the past week are worthy of further comment 

While this column has traditionally focused on one key business event or topic that has caught my eye from the past week, there are often several events of note that are worth commenting on at greater length.

The past week is a case in point, with key lessons to be learnt about what makes a good acquisition, how calculations about what’s best for the bottom line can have disastrous consequences for your brand, and the rising attraction of Abu Dhabi and Abu Dhabi-based entities for international investors.

On Monday, the UAE’s NMC Health deployed $207 million to acquire majority stakes in two healthcare firms, UAE-based cosmetic surgery company CosmeSurge, and Saudi-based Al Salam Medical Group. The acquisitions were eye-catching for four main reasons. Continue reading

Predictions for UAE Business

My economic, business and financial predictions for 2018 and beyond. These are forward looking statements that should not be relied on to make decisions.

  1. The US Federal Reserve will continue to raise interest rates. The Fed already signaled it will tighten monetary policy, which is what raising interest rates does, due to the expansionary fiscal stimulus of the US President and Congress in reducing taxes. This prediction is of high probability given the Fed’s announcements late last year. The effect of tightening on the UAE will make a challenging economic environment even more challenging as US tightening is imported into the UAE’s economy via the dollar – dirham currency peg. Companies with large net interest bearing liabilities, such as bank debt, will especially feel the pressure.
  2. The real estate sector will transition in a big way to off balance sheet financing and will grow tremendously. Traditionally real estate is backed by debt or a mortgage to generate the necessary yields. The increased interest payment burden will make this difficult if not prohibitive. The result will be the use of funds for real estate managers. One such structure is a REIT and the number and size of these REITS has increased dramatically. This growth will be driven by two main drivers. The first driver is a hunger for yield, for investments that pay a regular amount of cash such as rent. The second driver is the need for asset managers to keep the yield spread relative to deposits constant. As interest rates increase the yields on lower risk, bank deposits increase and interest payments by leveraged managers also increase. The latter point is true of investment managers in any asset class. Continue reading

Effectiveness beats Efficiency in Strategy Firms need new revenues not just cost cuts 

Efficiency slowed profit deterioration

Effectiveness will replace efficiency as the main strategic goal of UAE companies in 2018. At least, it will for the successful companies. 2017 was the year of efficiency, as companies learnt to do what they used to do with less. Less money, less time, fewer people. Efficiency cut costs and slowed down profit deterioration. As important a step as that was, it was a stepping stone to the important strategic goal of effectiveness. In simple terms, efficiency is getting things done whereas effectiveness is getting the right things done. After all, there’s no point finding cheaper ways to reach a goal if it is the wrong goal.

Effectiveness leads to profit growth

Effectiveness looks at where new revenue, and profit, are going to come from as, opposed to efficiency’s focus on costs. There is nothing wrong with working to achieve efficiency first, as it gives the company time to understand the new external environment. But there comes a time when cutting costs no longer works. In the end, sustainable profit growth is driven by increases in revenue, not decreases in cost. So how do companies become effective? What does it even mean? It means evolving, even transforming if necessary, so as to adapt to the new realities of the economy.

Executives might ask what can they do to generate revenues in a challenging economy? A simple example, just to make a point, is this: take advantage of all the efficiency initiatives. Cost cutting means downsizing, so moving companies will thrive. But what else can happen? Property management companies might provide a discounted rent during the time a client is unemployed. Continue reading

Cash Conversion Cycle Red Flags Changing economic realities mean businesses can quickly face alarming cash shortages

In my work helping companies transform themselves to take better advantage of economic opportunities and to manage risks more efficiently, working capital risks are frequently overlooked even though they are at the front line of risks faced by companies of all sizes.

The cash conversion cycle, an important liquidity measure that usually forms the core of a company’s working capital, is of particular importance . The cash conversion cycle is a measure of how long it takes for a dollar that is spent on the development of a product or service (which is subsequently sold on to a client) to be converted back into cash in the form of revenues. Mismanaged it can destroy a company’s finances. Continue reading

US Fed rate rise signal to re-examine the dirham’s peg to the dollar?

The UAE’s fiscal and monetary policy needs are in direct opposition to those of the USA. The problem, however, is that since the UAE dirham is pegged to the US dollar, American monetary policy is in effect being imported into the UAE, to the detriment of our economy.

As a reminder, a country’s fiscal policy has to do with government expenditure – which stimulates the economy – and taxes, which rein in the economy. The US government looks like it has come to the conclusion that tax cuts would spur their economy. The US Federal Reserve, which just increased interest rates for the third time this year, has signalled that it would need to counter the expansionary fiscal policy of the US government by increasing interest rates. The Fed’s reasoning is that the US economy is doing well, but because of this any fiscal stimulus will therefore lead to inflation. Hence their conclusion that they will need to aggressively increase interest rates to keep prices in check.
Continue reading

EU's tax blacklist of UAE questionable It is not clear if the UAE is violating something it agreed to or if the EU is trying to unilaterally enforce rules on the UAE

Earlier this year an ambassador from an EU country asked me if I invested in the EU. I informed him that I didn’t.

When he asked me why, I pointed out that the EU had treated two of their members, Greece and Britain, abhorrently, and had tried to punish both countries in ways that made no sense to me. I explained that if the EU could treat its own members in such a way then how could I trust the EU not to treat me similarly?

It seems like my analysis was prescient as last week the EU included the UAE in a so called blacklist of tax havens. As an investor and a businessman, let me explain how the EU mishandled this and what the impact might be.

In terms of handling the situation the EU was reported as only saying that the UAE was not participating in some information agreements. Interestingly, the EU never mentions whether the UAE is a signatory to these agreements. So it is not clear if the UAE is violating something it agreed to or if the EU is trying to unilaterally enforce rules on the UAE. This needs to be cleared up. It is ironic, if not hypocritical, for the EU to publicly accuse the UAE of opacity but for the EU not to similarly provide transparency to these public accusations. Publicly announcing that the UAE is on a so called blacklist and then sending a private letter to the UAE Government is, quite simply, unethical. It either all stays private or it all becomes public. Continue reading

Security cheques in the UAE on course for extinction

Nothing in this article is to be construed as legal advice. This is an economic analysis of what I see as being possible rational decisions.

What are security cheques?

Let me first explain: a post-dated cheque has traditionally been used in the UAE as a last ditch guarantee in the event that a bank or other party cannot be paid by the person signing the cheque, often in the case of a loan or service rendered or goods supplied, ahead of an expectation of receiving payment in the future at some point. This is because a criminal case could be filed against that person in the event that the cheque is presented and then returned if there are insufficient funds in the account related to it. The ultimate penalty for this in the past was jail, providing a lot of leverage to the party trying to recoup their funds. There are various laws surrounding how a bounced cheque is handled by the legal system but the spirit of the law seems clear to me and that is to stop people from behaving in a fraudulent manner. However, various parties, including banks, company suppliers and vendors as well as individuals such as landlords have used the letter of the law to apply anti-fraud rules to economically distressed companies and persons.

Why do I say this? Well, think of it this way: If the intent of the law was to, for example, jail people who cannot pay back a loan then there would be a law that specifically states that. However, in the absence of a security cheque that bounces, a person who fails to pay back a debt does not necessarily face the same fate as a person who has bounced a cheque and certainly the path to the final legal judgement is much more balanced. This reasoning clearly points to the fact that the law was not meant to punish those in financial distress. It is the spirit of the law that has been twisted and put to use for purposes not intended. I am not a mind reader, but the logic certainly points to these conclusions. Continue reading