Nike's CSR, Shuaa's acquisitions, and the Fed's impact on our economy.

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.

Continue reading

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

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.

Continue reading

A whirlwind tour of Gulf corporate governance …

Corporate governance improves with the inclusion of women on company boards, as reported by the International Finance Corporation. So what happens to corporate governance when a woman is appointed to head a stock exchange? We will soon find out, as Saudi Arabia has just appointed Sarah Al Suhaimi to head its stock exchange. Ms Al Suhaimi comes well prepared for this job as the chief executive of NCB Capital, the investment banking and asset management arm of the largest bank in Saudi Arabia and the second largest bank in the Middle East. A few days later Samba, the fourth largest Saudi bank, appointed Rania Nashar as its first female chief executive. I look forward to what I expect to be a positive impact because of this gender diversity.

Continue reading

Venture capital as a substitute for oil in driving economic growth

Venture capital is critical to the future success of not only the UAE but also the GCC. To understand this we first need to understand the historic formula for our success – oil leads to financial capital, which leads to real estate development, which creates social and business communities that attract people. Repeat.

Even if oil prices had not collapsed, sooner or later the size of the economy would reach a level at which oil alone could not deliver growth. We have not reached a point of reckoning because oil prices halved, that only accelerated the inevitable.

The conventional argument is that SMEs are the engine for growth in any economy. Some might argue that the global conglomerates coupled with global trade are the engines for growth. Whatever idea you subscribe to, in the end one has to accept that whether you believe SMEs drive economic growth or whether it is large companies, the first step is starting that company. Put simply, without start-ups an economy cannot normally achieve sustainable growth.

Continue reading

Venture Capital Lessons from India, Lebanon and Ireland

In a recent article I pointed out the failure points in the UAE’s venture capital ecosystem, in particular the lack of support for entrepreneurs and start-ups. In this article I’d like to review some of the initiatives other countries have launched that could be useful in upgrading our ecosystem.

Given the recent visit to India of Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, let us start with that government’s efforts, and in particular the Startup India initiative. This initiative is comprehensive, starting with a streamlined registration process. Importantly, it has a streamlined bankruptcy process that seems to be fair – no extra-judicial imprisonment if an entrepreneur cannot financially meet a liability. There are also tax breaks for the company as well as investors in the company.

Continue reading

Oil, Opec, Economic Reform and Venture Capital

Last week the Minister of Energy for the UAE was reported in an article as saying that it is too soon to extend the oil supply deal, and then shortly afterwards there was a report that Saudi Arabia’s minister of energy had said the deal could be extended after the first six months. I am known to be pessimistic about Opec cooperation, but given the close relationship enjoyed by Saudi and the Emirates, I thought about the perceived discord in communication and was led to an intriguing idea.

As described in an article in The National on Monday, Norway is facing challenges in diversifying away from oil. If Norway, with its more developed economy, is facing challenges then clearly diversification for a less developed oil-exporting country must be even more challenging. This would lead to the idea that differing challenges faced by each country could lead to different strategies and signalling of these strategies with regards to oil production.

Continue reading

Kick-start the UAE’s venture capital ecosystem to boost the economy

So why, if everyone is telling us that the oil price is going up, are rental taxes, sorry fees, being applied? Don’t get me wrong, fiscal reform is necessary, but if oil is going back up, let us give the common man a breather. Here’s an idea – let’s start with taxing everyone who has a monopoly agency. You know, the rich.

Speaking of announcements, I would like to introduce a new statistic, similar in importance to GDP, CPI (inflation), the unemployment rate, etc. I call this statistic the Reality Based Ratio. It is the ratio of the number of projects announced to the number of projects completed. Of course this needs to be adjusted for size of project and time needed to complete, but you get the idea. The higher the ratio, the lower the reality basis of the economy. People need to stop applauding projects announced and start applauding projects completed. Well, they don’t need to, they just should if they want any sort of economy in the future.

Continue reading

A challenge we can meet

A vision for what the coming year will bring should include scenarios and actionable ideas. My vision will focus on what might affect the UAE and the wider GCC the most. These are forward-looking statements that can be wrong.

The factor that affects our economy the most is the price of oil and our level of production. The change in our level of production is unlikely to be material, even if one considers the agreed Opec cut decisions of late November. The question is the price of oil.

The main influence in 2017 on the price of oil is unlikely to be demand, which anyway will probably soften if America turns inward, but supply. In late November Opec and non-Opec countries agreed to oil production cuts that are unprecedented in breadth, depth and cooperation. It is that last bit that is the problem. If Russia breaks from the agreement, a likely scenario signalled by Rosneft and its chief executive, Igor Sechin, or if Saudi-Iran tensions flare up and cause a rift then we will see oil drop to between US$30 and $45. Shale oil will never allow the oil price to go over $65, probably lower. That means that our economic contraction will at best slow down in terms of the effect from oil.

Our economy will continue to show cracks in its ability to function without massive government spending.

Continue reading

Saudi Vision 2030 must tap rich parts of the private economy

Using Saudi Vision 2030 as an example, in a previous article I pointed out that economic reform is difficult to get perfectly right on your first try, but I also pointed out that complaining about it without trying to provide solutions is usually an ineffective strategy for providing feedback to the decision makers. Especially since Thursday, when the Saudi government unveiled its budget in a manner providing a large increase in transparency and comprehensibility. The state continues to improve its part in achieving Vision 2030.

The Arab Spring, Brexit and the probable demise of EU 1.0, and Donald Trump’s plans are a product of the mismanagement of economic reform. This is not an article about politics and I take no sides here. This is an article about economic reform and how it has the power to change history. The idea here is to provide different ways of looking at economic reform to create tools that might be useful to all stakeholders.

Continue reading

Enacting Economic Reform

In and around the region we are seeing lots of economic and economy-related reform, be it Egypt’s floating of its exchange rate, the UAE’s reduction and removal of certain subsidies as well as enacting laws or India’s currency-note move aimed at stamping out the black market. But by far the most intriguing, transparent and far reaching is Saudi’s Vision 2030, which I will address in this first part of my series on economic reform.

Turning around an economy is far more complex and challenging than turning around a company but there are lessons one can learn and apply. In discussing the merger of FGB and NBAD I talked about the primary importance of culture and in a separate article I discussed a more intelligent way of downsizing.

The common thread in these two articles is that the employees of a company and the culture that they create are of critical importance to the success of any restructuring, the business equivalent of economic reform.

There are some key differences that are important to highlight though.

Continue reading