Fortune in the tube

Executive chats with the billion-dollar mind behind Future Pipe Industries

 

Most manufacturers of widely used products vie for the attention of the masses, doing everything they can to promote their products and identities into the center of public awareness. Some other businesses fly under the public radar, whether by desire or because their products just don’t engender affection. For some of these manufacturers and the entrepreneurs running them, their media exposure is as low as their business growth is high. 

One such company is Future Pipe Industries, built and run by Lebanese businessman Fouad Makhzoumi. The company grew from a $100-million-a-year business around the turn of the century into a billion-dollar conglomerate with global reach in the course of the past 10 years.

“We represent 16 percent of the world market for fiberglass pipes and are the largest manufacturer; the world market for these pipes is $117 billion annually,” says Makhzoumi.

Future Pipe Industries (FPI) is the centerpiece of Future Group, a family holding that also includes an investment arm, ventures in real estate, engineering and business development as well as an organization dedicated to philanthropy. While the group is headquartered in Dubai and the philanthropic Makhzoumi Foundation is focused on Lebanon, FPI has operating manufacturing plants in seven countries, which distribute their goods across the globe.

In terms of economic contribution, FPI accounts for about 80 percent of Future Group’s activities. The corporate story entails several narratives of the self-made Arab man: A family-rooted individual, who had the fortune of seeing an opportunity and the flexibility to respond to it, plus the passion and power to capitalize on the initial fortune and expand it over decades. 

Fortune’s seeds of chance

As he recalls his entry into pipe making in conversation with Executive, Makhzoumi says he was a hot-headed 20-something who decided to drop the pursuit of a PhD at the Massachusetts Institute of Technology in 1974 when his doctoral advisor insinuated that his Lebanese homeland might no longer be around as a country by the time the young man received the degree. 

The young Arab took his Masters degree in chemical engineering and in 1975 moved to Saudi Arabia, where a chance encounter at a future inlaw’s house led to a job offer by Amiantit, a pipe making company that was at the time linked to the Swiss cement dynasty, the Schmidheiny family, and is still a major Saudi manufacturer today. To Makhzoumi’s question as to why he, a chemical engineer, should be interested in such things as asbestos cement pipes, the answer was “Try it for a month”.

Jump forward through about seven years of laboring for the Amiantit Company and Makhzoumi put together an investment offer to acquire the non-Saudi pipe making ventures in the region from Schmidheiny Group. “With Stefan Schmidheiny not too keen to stay in the business after his father’s death, I was able to obtain a syndicated loan and buy all the business in the Middle East outside Saudi Arabia, except for Lebanon, which in 1984 was very difficult to access.” FPI was born, the manufacturing process was altered to use fiberglass instead of the perilous asbestos and the company grew into a Middle Eastern fiberglass pipe manufacturer of note.

 

Playing back to Lebanon

The story could settle here into a routine tale of industrial growth in the 90s, were it not for some interesting decisions and Makhzoumi’s knack of seeing economic pictures in wider terms, a geostrategic gene that he may have in common with other billionaires with Lebanese DNA. In one interesting decision, Makhzoumi moved back to Lebanon in 1992 and in 1993 established one of his FPI plants in Akkar, the country’s deprived northern region. “Akkar was an ideal place,” he says. “Lebanon’s majority of export business is construction materials and food, which require road transportation. In the north, you are very close to the Syrian border which means you can export your products.”

Although he built the plant near the [dormant] regional airport, then touted loudly as investment project by the government’s IDAL agency, he never got a power line from the electricity grid or even a landline phone until he closed the plant 17 years later, Makhzoumi says. 

The plant’s 2010 shuttering was not because of missing national demand for pipes — public water infrastructure projects could have taken around two years worth of output, according to the entrepreneur — nor the deficient physical infrastructure, although he laments, “If you look at Lebanon anywhere north of Tripoli, it is like Somalia. There is nothing being done there.” 

What he says made the plant economically unfeasible was that Lebanese politicians made every effort to put obstacles in the company’s way, such as blocking the sale of pipes made by FPI in Akkar to national infrastructure projects. The exercise deeply expanded Makhzoumi’s knowledge of the Lebanese political approach to industrial needs. “By default, if you disagree with a [Lebanese] politician, he will give instructions to the government to fight local industry,” he claims. 

Instead of waiting any longer for answers from Lebanese political players, Future Group pulled the plug on the Akkar plant and is currently expanding in Spain, buying factories in the country seen widely as being one of Europe’s embattled economies. Makhzoumi’s rationale for the anti-cyclical step is that he anticipates a new trend for 2013 that will bring new opportunities. “For me, market collapse is an opportunity. I don’t look at it as a disaster as long as you have managed your core business in such a way that you can sustain and bridge the cycles,” he says. 

Under the public radar

Neither he nor FPI are very visible in international or regional media. Even though the company was valued at $1.6 billion when it was preparing for an initial public offering on Nasdaq Dubai in 2008, and his personal net worth must be assumed to be considerably above that mark today, Makhzoumi has never appeared in the Forbes’ list of billionaires. In international media, he was dragged into British headlines in connection with a scandal over a former United Kingdom minister, Jonathan Aitken, but vigorously rebutted the allegations that he himself was implicated in any wrong conduct. 

Makhzoumi has a bone to pick with local media in Lebanon, accusing them of not covering his philanthropy and the work of the Makhzoumi Foundation, because these media are affiliated with political camps that dislike him. His rare mentions in media notwithstanding, Makhzoumi appears as a skilled manipulator and someone who communicates with a keen sense of effect. When he lambasts what he sees as the failings of the Lebanese political class, he does not seem prone to thoughtless outbreaks of criticism, but rather as someone who uses candor with a great sense of impact and otherwise always says the right things with natural conviction, such as explaining his drive for business success with his passion. “You should enjoy what you are doing. If you enjoy what you are doing you can be innovative all of the time. If you think it is a job, you get bored.” 

One suspects that it is easy to be bored with pipe making. Pipes and pipe systems are an ancient technology that has been upgraded tremendously through modern engineering and manufacturing processes. They come in a surprising variety of metal, cement and plastic pipes for an extensive range of uses from the kitchen to intercontinental transport. Various lobby groups and industry associations promote the advantages of the respective materials and numerous companies claim to be world leaders in producing basic types and sub-categories. 

Pipes and geopolitics

Makhzoumi sees pipes with different eyes and listening to him, the humble pipe takes on strategy dimensions in regional and global security-economic contexts. In the Far East, for example, he says specialty pipes in marine applications will be needed for enabling the navies of Korea and Japan to build vessels that can counterbalance the expansionary naval presence of China. Developing a joint venture with Korea’s SK Chemicals, Future Group will play a part in delivering pipes for use in naval vessels.

A broad geostrategic aspect of piping is the transport and distribution of vital materials, control of which Makhzoumi sees as today being more important than their production. Oil and gas pipelines that traverse the Middle East or link Asian producers to Europe are well-known for their strategic importance, but China also provides a hot current example. 

According to Chinese state television reports, the country last month started construction of its third pipeline in an extensive internal gas transportation network. China’s latest West-East pipeline construction project is projected to cost $19.9 billion and cover a distance of 7,300 kilometers, the state media said, adding that the first two pipelines of the West-East network were realized between 2002 and this year with an investment of $46 billion. 

Pipelines of intercontinental length already are tools of geopolitics and will assume increasing importance in the competition of nations for economic leadership. No wonder then that the FPI founder regards business leadership as inseparable from engaging in politics. “You cannot be a global player by trying to be only a businessman,” he says. “I play regional power and politics to try to understand the trends that are arising and this is how you position your business in order to be part of the change.” 

The pipe maker also sets his sights on countries where he anticipates broad-based infrastructure development needs to meet high population pressure and social development demand. Indonesia, for example, will need to start spending on amenities for its citizens and invest in infrastructure such as pipe-based utilities. “We believe Indonesia is moving. It is becoming one of the largest Muslim countries. They have to start spending in order to avoid falling into the Arab Spring,” Makhzoumi says. 

And there will be no end to piping needs. Global demand will burgeon because higher population densities and scarcer resources will mandate development of pipelines. For every person born on earth, two meters of pipe are needed, he cites. 

The Syria-Russia puzzle through pipes

Even the puzzle of why Russia is not joining the rush to change the regime in Syria can, from the geopolitical entrepreneur’s perspective, be understood by examining the angle of gas transportation. Russian self-interest is to keep control over the price of gas deliveries to Europe via the pipelines that allowed it to develop this crucial revenue stream after the end of the Cold War and the breakup of the Soviet empire. If gas from exploitation of newly discovered finds in the Eastern Mediterranean were to be delivered to Europe at reduced prices, when compared with Russia’s, it would break Russia’s back, Makhzoumi reasons. “That is why Russia invested billions of dollars over the past seven, eight years in Cyprus, against which they have the right to set up their LNG (Liquefied Natural Gas) plant,” he says. “If they control it, they will make sure that this gas will not be delivered to Europe at a lower price than what they are delivering. To be able to do that, you need the LNG plant and you need the military base, which is what Syria has.” 

Makhzoumi’s socio-political power base in Lebanon includes his philanthropic foundation and a political party, both of which he says are wholly self-funded and do not expose him to the levers of influence and the strings that other political players are pulled by. He claims he is a player in Lebanese politics “because this is my country and I am not happy about the way that our people are living”, and when asked if he wants to be prime minister, answers “Yes, why not.” 

Looking East

In the meanwhile, he is positioning FPI for greater global reach. The company, according to Makhzoumi, today has a built-in production capacity of some $4.5 billion, of which the Middle East represents about 60 percent. Besides developing the group’s engineering and procurement capacities, entering Spain as springboard for dealing with Latin America, investing in the marine pipe venture in South Korea and a deep-well equipment venture in Indonesia, the Future Group is also building a $100 million facility in Myanmar. Three to five years from today, the IPO that was first planned for 2008 will likely be on the books again, with a valuation of the company that Makhzoumi expects to be between $4 billion and $5 billion. As to the location of the primary listing, he says, “my feeling is Singapore because the market is moving this way.”   

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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