Special SectionYoung Arab Leaders

Salah A.H. Al-Qahtani- Q&A

by Executive Staff
written by Executive Staff

Salah A. H. al-Qahtani is the executive vice president of Al Qahtani Pipe Coating Terminal and the chairman of the Saudi Arabian chapter of Young Arab Leaders (YAL). Executive magazine recently spoke with him about YAL’s critical role.

E  There’s been a lot of talk today about finding practical solutions to the problems young Arab students face, particularly with specialized education. Is that something affecting you in Saudi Arabia?

Yes, there is a lack of education, for sure. We understand it, but we have to just fix it, we don’t have to talk about it. What we have to do as business people is we have to train our kids. You have to build a team under your company. You build a team, and you educate them.

E  So, in other words, you see filling this gap as a responsibility of the private sector?

No, it’s not the responsibility of the business sector, it’s the responsibility of the government, but the question is, what can we do to boost it? In Saudi Arabia, we are a part of the government and at the same time we are not.

The way I see it, it’s like a wagon and a horse. The government is the wagon, but you need a horse — the business community — to move it.

The wagon, there’s a value in it, but you need the two together. And without the two, the government cannot build infrastructure that the businessman can use.

I’ve worked with a lot of charities, and I like to participate in a lot of government institutions, because the government has helped us to build. Our father and mother taught us to build for tomorrow — to build up young people who can help you in the future.

E  And this, I assume, is where Young Arab Leaders (YAL) comes in. How long has YAL been in Saudi Arabia?

YAL in Saudi Arabia started in 2004. I started two years ago, and I  took the chairmanship eight months ago.

E  What sort of initiatives have you undertaken?

The best that we have done, thanks to God, is we signed a deal with a Saudi economics newspaper. This is a huge deal for us. They can train the students in a number of fields, including even PR work, like how to deal with news. Also every event that they have, anytime they have a speaker, they will bring it to our group, and invite our YAL members. In the last six months, we’ve had an event every six weeks.

Also — this is very good news, everyone is so happy about it — we just did an agreement with Cisco Systems, two weeks ago. The plan is that we get 200 students, all mature boys, class ‘A’, from university, and they get to work with Cisco for between eight and 12 weeks.

E  Like an internship program?

Right. We had a party to celebrate the deal, and the chairman of commerce in the kingdom came.

E  And young people are signing up for this?

Just last week, the board of YAL Saudi — me and my colleagues — we went to all the universities and explained that we have this system; these are the pros of it, these are the cons, and we need students. I brought in seven, one of my colleagues brought in 10, and now we have already signed up 25 students.

E  Sounds like things are taking off in Saudi.

When I started as chairman we had 84 members. Now we have 118.

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Special SectionYoung Arab Leaders

Elwy Taymour- Q&A

by Executive Staff
written by Executive Staff

Executive sat down to talk with Elwy Taymour after a press conference announcing the opening of the YAL Egypt Branch, the appointment of Taymour as its chair, and the formal launch of a program called Learning for Life, which is “designed to help Arab students bridge the gap between universities’ academic output and the marketplace requirements.”

E  So here we are, minute one.

Right. We just started, this is minute one.

E  Egypt seems like a pretty big gap in coverage.

What happened was that Young Arab Leaders realized from the very beginning that Egypt was very important, but for two or three years nothing really happened.

E  Why not?

I think it just didn’t materialize. But the Minister of Investment came in with SODIC [an Egyptian company that has been running a pilot program for the past year], and they tried to push the program and start the chapter. What’s good about Egypt is that the nucleus of the program was started before all this was organized, so there’s a structure that we can build around to hit the ground running.

E  So tell me what’s been happening

We’re doing two main things. We have the Learning for Life program, and the grants associated with it, but then we also have donated money for labs, for actual labs at the universities and that’s going to be an ongoing thing. It’s always going to be there, it’s always going to be serving as place to offer training courses.

E  It seems that students coming out of university without the necessary training for the workforce is a real problem in Egypt.

It’s always been a problem with this region. I think more and more there’s a gap between people coming out of university versus what’s out there waiting for them. Everyone wants to be an engineer and a doctor, and there’s a ton of other things out there that nobody knows how to do. So, I think one of the main things of YAL is that each chapter will try to reduce that gap. By introducing courses, by maybe getting a little bit more of a headway than what the government is doing, in terms of providing these guys with a little more of something to look forward to when they come out.

E  Do you have any specific plans, now that you’re in charge?

To continue the initiatives that have already started, that’s one. Second, I really would like to start working in places other than Cairo, so the focus is also going to be, for me, like Alexandria, and some of the poorer places in upper Egypt. That’s a priority for us and to also encourage more people to dedicate some of their own time to participating in the programs.

E  You mean adults, or kids?

Whichever. Whether they’re people who decide to join the chapter, or people who are older and would like to volunteer some of their time.

E  Big plans, it sounds like.

Well, I think these programs are quite important, but I also think that what Egypt suffers from is a lot of little problems. I think fundamentally there are things that need to change in the country, but to begin with, there are smaller things. If you were to assume the quality of education is currently at 20 percent of its potential, for it to jump to 60 percent or 70 percent I think you need very small things to change. Getting kids exposure to the arts and things like that, I think, is something much more important that we can focus on that will create a much bigger impact. I think the most important thing right now are the small things that we can change.

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Special SectionYoung Arab Leaders

The first step in progress

by Executive Staff
written by Executive Staff

Dr. Omar bin Sulaiman, the chairman of Young Arab Leaders (YAL), didn’t have to pay very close attention at YAL’s annual forum in Beirut last month to pick up on the high levels of youth frustration — although it’s probably a good thing he did.

“How do you start?” a young woman, a YAL member from Egypt, asked from the audience. She was standing with a microphone in a large ballroom at the Habtoor Grand Hotel during a morning discussion on how to create more opportunities for youth. And she was expressing a recurring sentiment.

“Young people do not have enough expertise to write a correct business plan,” she said. “We end up with young people saying, ‘No one will give me a job if I don’t have the right connections.’ Meanwhile, the public sector says you need more education. The private sector says the public sector has to change first. Your parents say go find a job.”

Like so many others in the ballroom, she was feeling exasperated. For one thing, the financial crisis had severely limited job opportunities. But she had also found that gaps in higher learning left recent graduates just a little shy of what hiring companies expect from them.

This is precisely the role Sulaiman envisions YAL playing. YAL has big ideas and lofty goals — their four pioneering initiatives are education, entrepreneurship, dialogue and leadership — but Sulaiman is a practical man, and he believes in practical solutions.

He was sitting in the front row and wasn’t supposed to be part of the discussion — he’d already given some introductory remarks earlier in the day — but now he rose to respond to this young woman.

“Who here is ready to train someone on the spot?” he said, turning to face the crowd. Half the adults in the room raised their hands. “That’s 400 hands! We could start right here, with ourselves!”

It was a start

Later, during a break in the forum, Sulaiman told Executive, “frustration is a part of life… We all go through it. You know, your house, your friends, sometimes something frustrates you. It’s fine, it’s a part of life. As long as you move on from that.”

Over the past year, YAL has faced its own frustrations and challenges — the economic crisis being at the top of the list — and it has steadily worked to make itself more streamlined and structured. They moved away from the non-profit model. They elected their first CEO, Assem Kabesh. They opened a new branch in Egypt. And, as Sulaiman pointed out, they increased their reach to more that 4,000 “beneficiaries” — nearly half of them in the past four months alone.

“You want a culture of debate, but eventually you want to move on,” he told Executive. “You don’t want to debate it forever. Kill the issue, hammer the issue, but move on. That’s what I was trying to bridge. Stop saying, ‘Why aren’t you doing something about it?’ We need to say, ‘I’ll do something about it.’”

At lunchtime — over Lebanese cuisine at the hotel’s spacious pool bar — several students said they agreed with this sentiment. They wanted more solutions, and fewer debates, especially political ones.

“If we had gotten into politics this morning,” a young Lebanese YAL member said, “we never would have gotten out of the room.”

In the afternoon, Sulaiman’s practical problem-solving was put to a test. The YAL forum-goers divided up into smaller breakout sessions, with experts discussing each of YAL’s main initiatives.

At the session on entrepreneurship, Rami Makhzoumi, the moderator (also President and CEO of Future Pipe Industries,) took a cue from Sulaiman and used the opportunity to ask the members of the panel, all corporate executives, if they would be willing to pledge to consider the applications of any young men and women who went through a YAL training course. They all said “yes.”

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Executive Insights

Engaging employees for the company’s success

by Tommy Weir
written by Tommy Weir

In the midst of the financial crisis, most organizations are looking for a proven way to improve their financial performance.

The likelihood is that you are as well, and there is a proven way you can do it. Kenexa Research Institute (KRI) studies conclude that there is a relationship between employee engagement and an organization’s financial performance.

In the graph below we see that organizations with high employee engagement scores have two times the annual net income of those firms with low employee engagement scores. This data points to the fact that there is a direct linkage and correlation between engaging your employees and an improvement in your financial performance.

Global employee engagement & annual income

Source: Kenexa Research Institute (2009)

You may be wondering, “What is employee engagement?” According to Jack Wiley at KRI, employee engagement is “The extent to which employees are motivated to contribute to organizational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals.”

Simply stated, employee engagement = employee pride + employee satisfaction + employee advocacy + employee retention. In other words, engaged employees are proud and extremely satisfied with where they work. They’re so satisfied they tell people about it and recommend their company as a good place to work. Engaged employees rarely think about looking for a new job with another company.

Some organizational leaders are skeptical about assertions that employees can be this satisfied. If you fall in this category as a leader, you need to reflect on the research analyzing employee engagement and understand the conclusive evidence supporting this research.

The way that employee engagement relates to an organization’s financial performance is that it drives an employee’s performance in terms of conscientiousness, organizational commitment and productivity. Additionally, higher employee engagement reduces absenteeism and employee turnover. These combined factors give us the most important result of employee engagement: an improvement in an organizations’ service quality and customer satisfaction.

Since it’s most probable that your organization wants to improve its customer service and financial performance, let’s contemplate the most relevant question: “What can an organization do to improve employee engagement?”

According to Wiley, to increase employees engagement, organizations need the following. 

  • Leaders who inspire confidence in the future because employees want to know what the future is and how their work relates to it.
  • Managers who recognize employees and emphasize quality and improvement as priorities.
  • To provide employees with exciting work and the opportunity to improve their skills. Employees who enjoy their work and are encouraged (and given the opportunity) to get better, contribute the most to organizational success.
  • Most importantly, organizations must demonstrate a genuine responsibility to their employees and communities.

So, how do you think your company is doing on employee engagement? Let’s take a look in the Gulf Cooperation Council and see what employee engagement scores indicate.

Employee engagement in the BRIC countries (Brazil, Russia, India and China) and GCC

0 = employees are not engaged at all

80 = employees are highly engaged
Source: Kenexa Research Institute (2009)

On average, organizations in the GCC are in line with global averages when it comes to employee engagement. But they are way behind India, which has a highly engaged workforce,which is one of the reasons why Indian organizations perform well and grow. If organizations in the region want to be global leaders, there is tremendous room for improvement in employee engagement.

One of the peculiarities about the GCC is the dual workforce: homegrown (nationals) and imported (expatriate) talent. Do you think there is a difference between the engagement of nationals and ex-pats?

Employee engagement in the GCC — comparing  ex-pats to nationals

0 = employees are not engaged at all
100 = employees are completely engaged
Source: Kenexa Research Institute (2009)

The results across the GCC are scattered as to who is the most engaged: homegrown or imported. But on  the whole, organizations in the GCC and all over the world have an incredible opportunity to improve their financial performance by driving employee engagement.

In conclusion, is your workforce motivated to contribute to organizational success, and willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals? It is important for every organization to understand its specific employee engagement score and implement a plan to improve it and, in turn, to improve the organization’s financial performance.

Tommy Weir serves as managing director of the EM Leadership Center

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Editorial

Orphans and the ghosts of martyrs past

by Yasser Akkaoui
written by Yasser Akkaoui

This month’s Lebanese elections will be dominated by orphans and the ghosts of martyrs past. On the March 14 ticket no less than five children — Saad Hariri, Walid Jumblatt, Nayla Tueni, Michel Moawad and Nadim Gemayel  — of slain politicians are all, in one way or another, forced to follow in a tragic tradition that has become the hallmark of Lebanese politics. Meanwhile, the opposition March 8 bloc has its own martyrs whose blood has helped make the soil of Lebanon so sacrosanct.

Yes indeed, we Lebanese do like honoring our dead, but the living must not be forgotten. It is of the utmost importance that our politicians, while recalling past sacrifice, do not lose sight of future obligations. Lebanon is a country dominated by its business community — its bankers, its financiers, its hoteliers, its restaurant owners, its retailers, its property developers, its traders and its small business owners.

From the mega-wealthy, who shape the Beirut skyline, to the shopkeepers on every street corner, business, more than politics, is what courses through Lebanese veins. Any future government, whatever its stripe, must provide to the electorate a robust economic blue print, a model to drag the country from its slough of despondency. Now is the time to deliver on the promises.

The good news is that regionally the markets are picking up, clawing back one third of the losses sustained since the meltdown. It is the first sign that the critically-ill patient is on the mend. More money will be pumped into the region, but this time it will be allocated prudently into those companies that have demonstrated they suitably restructured and shed the fat of corporate excess.

But this new financial nutrition will take time to filter into the region’s bloodstream, and in the meantime, new regulations must be adopted to ensure this new investment is safeguarded. Meanwhile, the price of oil is creeping upwards and this bodes well for regional economies.

For the moment, let’s hope the dead can breathe life into the living.

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A poor cull in Egypt

by Riad Al-Khouri
written by Riad Al-Khouri

Egypt has seen scores of human cases of bird flu, the largest number in any country outside Asia, since the first known appearance of the H5N1 virus in humans more than four years ago. Bird flu deaths in Egypt are now at 22 and climbing, and as if that weren’t enough the threat of the swine flu virus (H1N1) is also hanging over the country.
The livelihoods of pig breeders, and of those who raise chickens in home gardens to help feed a family or generate extra income, have been threatened by government culls of swine and fowl to combat the two forms of influenza. Most bird flu victims are those who look after chickens, typically poorer people in the countryside. Though raising pigs is not a big deal in Egypt, rearing poultry at home is important for the incomes of a significant number of people in rural areas; recent government measures to stamp out bird flu have forced families to stop keeping chickens. Though losses to bird owners may be outweighed by a lowered risk of flu, the pig cull designed to prevent the H1N1 virus from taking hold is controversially not seen as useful — and evaded by some. No cases of swine flu have been reported by the Egyptian authorities, but up to 300,000 pigs are to be slaughtered.
Needless to say, all of this is hitting the poor more than the affluent. Regarding the situation of the latter — far from infected birds or dead pigs — the glitzy developments springing up in parts of Cairo and in seaside resorts such as Sharm el-Sheikh, are mainly benefiting the country’s businesspeople and better-heeled urbanites. For the rest of the country, especially the population of rural areas or slums, the standard of living is stagnant. One fifth of Egyptians survive on less than $1 per day. Poverty, food insecurity and malnutrition remain significant. For example, in Upper Egypt alone, 36 percent of the population (close to 11 million people) consume less than the recommended minimum caloric intake, presumably including some who are eating less chicken or pork than before.
The state response has been to continue subsidizing basic necessities with an even stronger social safety net. As household expenditure on food rose by almost 50 percent in the first six months of 2008 due to inflation, the government fought back with sharply higher budgetary allocations to the social safety net, extending subsidy ration cards to a further 10 million people (hence reaching around 60 million Egyptians). The subsidy system, which covers a large portion of basic living costs — food, energy, water, housing, medical expenses etc. — contributes to a sizeable budget deficit, roughly 8 percent of gross domestic product, and is ultimately non-sustainable.A large proportion of imported food is channeled into the vast subsidy scheme of the government, which covers about half of the total Egyptian consumption of sugar, flour and rice, and three-quarters of the vegetable oil, as well as much of the meat consumed in the country.
Of course all this is now cheaper thanks to lower commodity prices. For example, from March 2007 to March 2008, the price of wheat on the international market increased by 48 percent; in the 12 months since, however, it dropped by almost the same percentage. The price falls also dampened inflationary pressure: in 2008 the government’s economic policy was mainly focused on reducing inflation, reaching a year-on-year peak of 24 percent in August 2008. Yet, prices have steadily decreased in the past few months: inflation fell to less than 12 percent at the end of March and is projected to drop to 10 percent in June, although it will remain above the government’s target rate of 6 to 8 percent.
However, inflation is not yet under control. The sharp retrenchment in international commodity prices, which had begun in the second half of 2008, has not been fully reflected in domestic price levels due to lack of competition. The government still has to beware of increasing liquidity to the point where domestic demand starts to overheat. While inflation still looms, the authorities have to tread a fine line between providing liquidity to maintain sagging growth on the one hand, and over-heating the economy on the other.
Dampened inflation and a stronger social safety net have brought limited respite to Egypt’s poor (including some of those whose pigs and chickens have been killed). Few of the less affluent in the slums and countryside have benefited from the Egyptian mid-decade boom; now, with economic expansion waning, policies such as a strengthened social safety net create a feel-good factor. In the long-term, however, the task of getting Egypt out of its slump and on the path to equitable growth that will underpin social stability may be a lot more complicated. 

Riad Al Khouri is a senior associate consultant at the William Davidson Institute of the University of Michigan

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The outdoors’ beauty and scars

by Norbert Schiller
written by Norbert Schiller

For hundreds of years, travelers have criss-crossed Lebanon’s mountains and valleys in search of ancient mysteries and hidden treasures, or just to marvel at their majestic splendor. From Alexander Kinglake and Lady Hester in the mid-19th century, to H. V. Morton and Colin Thubron a century later, the mountains of Lebanon have held an allure for many intrepid travelers.
It was Thubron’s book, The Hills of Adonis, that first led me to discover the Lebanese mountains. His four-month journey, which began just prior to the 1967 Arab-Israeli war, is no typical travel journal. Rather, he weaves an intricate story which looks at the terrain, the people, the myths and legends that once dominated this land. His ultimate mission was to discover the cult of Adonis.
The first time I read Thubron’s book I wanted to retrace his exact footsteps and see for myself the country he describes. Unfortunately, I read Adonis 30 years too late and much of the landscape he depicted had already been altered beyond recognition, a casualty of 15 years of civil war and the Israeli occupation of the south. However, that did not stop me from pursuing my quest to explore the country. Fearful of walking over an unsuspecting mine field or stumbling onto a restricted military area, I joined Libantrek, a local hiking group founded by one of Lebanon’s ecotourism pioneers, Michel Moufarrij. Moufarrij showed me a side of Lebanon I thought did not exist anymore and he introduced me to the Lebanon Mountain Trail (LMT), the first long distance trekking trail in the Arab world.
The LMT is more than just a long distance path; it is a journey through the heart and soul of Lebanon. Beginning in Al Qbaiyat in the north, the trail makes its way through the interior of the country until it reaches Marjaayoun in the south. The total length of Lebanon is only 225 kilometers, but the trail is almost twice as long, climbing its way over mountains and descending into deep valleys. The trail, conceived by a group of non-partisan Lebanese, provides a rare view of the heartland rarely visited by outsiders. This group, which includes Moufarrij, broke down sectarian barriers and called themselves environmentalists. Now, their sole purpose is to develop ecotourism in economically depressed rural areas of Lebanon. Lebanese and foreign tourists who walk the trail are encouraged to use local guides and stay in local rest houses and designated family homes, as well as buy and eat local products along the way. As the villagers view the LMT as a source of income, they are expected to look after the trail and protect the natural environment in their area.
In April, I was invited to be part of a six-person team which was to be the first to walk the entire 440 kilometer trail. On April 2, the group set out on what can best be described as a journey of a lifetime. For the entire month we traversed the length of Lebanon, eating and sleeping in local homes and guest houses. As a way to promote the trail the LMT Association, the organization behind the trail, encouraged others who wanted to enjoy part of the experience to join us during weekends and holidays. Overall, the journey was a magical experience for all those involved. We walked through parts of the country that we didn’t imagine existed in Lebanon.
There was also a downside to this experience. It was impossible for us to overlook the garbage dumps, illegal rock and sand quarries and ugly unfinished cement structures that dotted the breathtaking landscape, leaving irreversible scars. No matter how hard we tried to ignore these eyesores, it was difficult because of the extent of the damage.
Lebanon is a tiny country that has so much to offer for the outdoor enthusiast. The old cliché that Lebanon is a country where you can ski in the morning and swim in the afternoon still holds true today as it did a generation ago. However, Lebanon’s size may one day prove to be its demise. Since it is so small, the harm done to the environment has a far greater impact and thus a longer lasting effect. It is imperative now for the Lebanese government to take the lead and implement laws to protect the environment. In order to do so, authorities will need to establish and train special teams in charge of environmental protection. Of course, public awareness campaigns should be launched to educate the public. However, as long as no punitive action is taken, these campaigns will land on deaf ears.
Since independence in 1943, Lebanon, its people and the land have been through a great deal of turmoil and suffering. It is one thing to have stopped the fighting, but it is a whole other issue to repair the damage. On the human level, there are still raw scars that need healing, but there are some efforts to avoid provoking new ones. On the environmental front, however, it is as if the civil war has never stopped.

Norbert schiller is a Dubai-based photo-journalist and writer

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Society

IWC – Georges Kern (Q&A)

by Executive Staff
written by Executive Staff

Georges Kern, 37, has been chief executive officer of the International Watch Company (IWC) since January 2002. He has worked in the watch industry since 1992, when he was responsible for TAG Heuer’s global distribution network. Kern recently sat down with Executive for a one-on-one interview to offer up a CEO’s view of how IWC and the watch industry are weathering the current global recession.

E Are Swiss watch manufacturers and the IWC focusing more on the Middle East and the Levant region? What’s your strategy?
The Middle East is a strong buying region for all brands and luxury goods, specifically the Gulf region. Dubai has been booming for years, they have a slowdown now, but the fundamentals are there and the region will continue to grow. Concerning the Levant, let’s face it, it’s Lebanon. In Lebanon you have a much more developed luxury culture than any other country [in the region] and the education towards luxury goods is much more developed. What we try to do is to develop local markets. We don’t need your purchases in only Paris, London or Dubai. We want to have business at a local level because it creates a much more sustainable business model. This is why everybody is coming to Lebanon and is looking for opportunities to do a drive.
The second question is always: ‘Yes, but Lebanon is smaller than France or whatever.’ That is not the point. The point is that we are a global brand; we are not a local brand. The customer in Lebanon is the same as in Paris, New York or Tokyo. He has a certain level of income, a certain level of knowledge and he is part of a certain club. He wants to see the brand with the same quality worldwide, in Avenue Montange as well as in Solidere. That is why we have to offer the same service, the same boutiques and the same environment because otherwise it’s not a real successful global brand.

E How has the financial crisis affected IWC and the luxury watch industry as a whole?
I think we have to be realistic and pragmatic. We cannot hide. I don’t think any brand in the world can hide from this crisis. The question is: How badly are you affected? I like the quote by Warren Buffet who said ‘when the tide goes down you see who was swimming naked.’ This really depends on how resilient you are in terms of your prices and what you offer in terms of real value, because consumers today don’t want ‘show value.’ The days when bankers who made a good bonus walked into a store and bought a watch for $50,000 are over. That customer base is done. Today it’s really back to the roots and you need preparation. The easy money is gone. You need to really build on your values, your history, your roots and have the confidence of the consumer. Thank God we have [that confidence] because of everything we have done over the last 140 years.

E Have you turned your focus away from the luxury watch sector as a result of recession? Are there plans to market more mid-range products?
You might see this in the exports; that some segments and cross segments have been hit harder than others. I think that in any price segment you can be successful or you can have major problems. The point is how strong your brand is, not which price segment you are [in]. You can be successful in any segment. The question really is how good your products are, how good your image is, how solid your values are and then you are fine. I can give you examples of total flops in any price segment and I can give you examples of very good brands in any price segment. We stick to where we are. There might be some technical adaptation but nothing fundamental.

E So there is no paradigm shift in your strategy to focus less on high-end segments?
I mean this would be a drama because then it would mean that our strategy was really wrong. But we had our bathing suits on.

E Swiss watch exports dropped 26 percent this year from last year, according to the Swiss Watch Federation. Are you experiencing a similar decline in exports?
As I said, you cannot hide. You cannot seriously say that such a crisis is not affecting you. The two fundamental questions are, in such a situation, what is your business model, and number two: how strong is your brand. Your business model, in terms of your cost structure to ensure strong profitability and cash flow, how ‘verticalized’ you are in terms of production and how many boutiques you have. What is your cost basis? That is the first question. The second question is how strong is your brand? I think we have those aspects under control.

E Watches and luxury goods in the Americas have been hit hard. Is this why you are focusing on other regions like the Middle East?
Of course we are looking for opportunities. Fundamentally, I think the United States will get out of the crisis. I think it’s a very reactive region. Most probably Europe will suffer longer than the US. In such a situation you optimize everywhere and we know that we have a lot of potential in the Middle East, including Lebanon. You have the [Lebanese] elections that will see 100,000 people travelling to Lebanon to vote, all paid for by political parties. Well, thank you very much. Go to our stores and buy some watches before flying back.

E There have been signs that a global economic recovery could be approaching, especially in this region. Have these signs translated into increased activity?
I don’t have a crystal ball but indeed we should all hope and pray that the financial system will be consolidated by the end of the year. You have to consider the real economy. The real economy is coming [back] one year or two years later [than the financial economy]. We are just starting to see the real economy in the US and Europe be affected. Unemployment rates in the States in April were announced at 8.9 percent. It’s a historical high and the impact is being felt now. If everything falls back into place we can hope that the real economy will be affected [positively] by, say next year. I explained the financial crisis to my 12-year old son by saying ‘finance in a body is like a heart and the money is the blood. If the heart doesn’t beat there is no money flow and the body is dying.’ If you cut off a hand like General Motors, you will still survive but if the financial system does not work, it’s over.

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Executive Insights

The need for renewable energy in an oil-rich region

by Tarek El Sayed
written by Tarek El Sayed

Since 2000, many political and business leaders have shifted their focus from lowering energy costs to diversifying their energy supply, in part through the introduction of renewable energy. This change was triggered by concerns over security of supply, fuel cost volatility, climate change and fast-growing demand from emerging countries. Gulf Cooperation Council (GCC) countries were able to defer this discussion by several years, thanks to their domestic oil and gas resources, but have recently undertaken a number of initiatives to introduce new energy sources.

In the process, they have generated some skepticism: Why should a region that contains almost half of the world’s remaining oil and gas reserves adopt renewable energy? 
Actually, in many respects, the case for renewable energy is stronger in the GCC than in many other places in the world. Cost is one driver in developing the rationale for renewables. Some technologies, such as wind, already reaching grid parity, and others, such as solar, are projected to become cost competitive with power generation from conventional fuels in the coming years. But beyond renewables’ overall cost competitiveness, the GCC region in particular is uniquely suited to some types of renewable energy: the region has very high levels of solar irradiance, coupled with limited cloud cover; these factors place the GCC among the top regions in the world in terms of technological potential for solar power generation.
Renewables will also become increasingly necessary as a complement to fossil fuels in the region, despite some critics’ alarm over renewables’ competition with the oil and gas industry. Even under the most optimistic forecasts for renewables, fossil fuels will remain the dominant source of global energy for the foreseeable future. In addition, according to the Organization of Petroleum Exporting Countries (OPEC) World Oil Outlook 2008, OPEC’s share of world oil supply is expected to grow from 42 percent in 2006 to 52 percent by 2030. The burden of this

The Masdar Initiative
    The Abu Dhabi Future Energy Company (ADFEC) launched the Masdar Initiative in April 2006 to establish an entirely new economic sector dedicated to alternative and sustainable energy. There are five key components to this entity:
 

  • The property development unit is responsible for developing Masdar City, the first zero-emissions city in the world.
  • The utilities and asset-management unit is building a portfolio of operating assets and strategic investments in renewable energy.
  • The industries unit will invest in production assets and develop Masdar’s high-tech solar cluster.
  • The carbon management unit is developing a portfolio of clean development mechanism projects and a carbon capture and storage network in Abu Dhabi.
  • The Masdar Institute is a graduate level scientific and engineering institution focused on education and research in renewable energy and sustainable technology.

growth will be concentrated on a handful of suppliers, who will be responsible for providing significant additional capacity every year.
If the oil and gas currently used to generate electricity can be partially replaced by renewable sources, then new volumes of fossil fuels become available for export (or more profitable downstream applications, such as petrochemicals). By supplementing — rather than replacing — oil and gas, renewable energy could help maintain the GCC’s position as a major energy exporter for the world if the technology is developed early and competitively.
There are a host of other benefits to be realized if the GCC is an early adopter of renewable energy. For instance, its use would help the region manage its rapidly rising pollution levels and associated costs. Countries in the region have some of the highest per-capita carbon footprints in the world. In 2007, Qatar emitted — on a per capita basis — three times more CO2 than the US.
Renewable energy would not only improve the region’s own environment, but create opportunities for revenue. Under the Kyoto Protocol, developing countries can realize financial benefits from reducing their CO2 emissions and selling carbon credits to developed countries that need these credits to fulfill their emission reduction obligations.
Renewable energy also offers advantages that directly address the specific energy needs of the GCC. For instance, countries could use certain renewable technologies, such as solar photovoltaic and small-scale wind power, to provide energy to sparsely populated areas. Because such technologies function in distributed mode, they can replace expensive fuel-fired generators and eliminate the need for governments to make costly investments in extending grid infrastructure.
To take another example, about two-thirds of the electricity consumption in the GCC is used for cooling purposes; the use of solar energy for cooling could offer significant opportunities to address the large excess capacity required to meet electricity demand driven by cooling loads. This energy could be either converted into electricity to be used in traditional cooling systems, or used in direct thermal cooling applications, potentially offering higher conversion efficiencies and cheaper means of storage.
Finally, a local renewables sector and a substantial global presence in this industry would foster the development of a sustainable knowledge-based economy and create employment opportunities. The creation of such a sector would leverage the wealth generated by hydrocarbons and use it to diversify GCC economies and reduce their dependence on oil.
But in developing renewable energy, GCC countries will face many challenges. First, these countries will have to master a wider array of complex, cutting-edge technologies. They will have to develop their workforce to harness the capabilities required by investors. They should also create a regulatory framework that will attract investors and developers with the technological know-how, capital and project-development expertise to build the sector.
In the short term, GCC countries need to build the requisite financial systems to support the sector. Implementing technology specific feed-in tariffs is widely considered to be the most effective way to do so, especially when they are accompanied by efficient planning and registration procedures. Under the terms of these tariffs, utility companies are required to support the development of new technologies by purchasing electricity from renewable generators at a fixed price defined by public authorities. However, tariffs are not the only option; other regulatory models and incentive schemes include capital expenditure subsidies, grants for research and develoment, mandatory grid connection, tax incentives and renewable energy portfolio standards. Each country should review all of its options before selecting a model that meets its unique needs.
Competitive positions in the renewables sector are not yet set, and there is substantial opportunity for first movers to become global leaders by adopting the requisite policies and launching bold initiatives. Countries that move quickly, such as the United Arab Emirates, with its unique Masdar Initiative and its bid to host the International Renewable Energy Agency headquarters, could build a sizable and sustainable competitive advantage.

Tarek El Sayed is a senior associate and Walid Fayad a principal at Booz & Company

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Executive Insights

Private equity at the gates of public markets

by Imad Ghandour
written by Imad Ghandour

Private equity investment in a public company is always a headline-capturing affair. The epic tale Barbarians at the Gate — The Fall of RJR Nabisco, chronicles how Kohlberg Krabis and Roberts, a large American private equity house, took over RJR Nabisco for almost $26 billion in 1987. The book has memorialized the thrill and excitement surrounding such an affair.

There has usually been a clear distinction between private and public equity investments. The style, objective, structure and active involvement are distinctive between these two classes of investment. But in many instances, the “barbarians” like to cross over and hunt for deals in public markets. The appeal is clear: public companies are prized targets by the way they naturally graduate to become public, and most shareholders of public companies are more or less willing sellers at the share price plus some premium.
Private equity investments in public markets come in two main flavors. The more opportunistic flavor is PIPEs, or Private Investments in Public Equities. A PIPE is basically a privately held company owned by a group of investors that purchases a substantial and influential equity stake in a public company, but keeps the target company listed.
On the other hand, the “take-private” flavor has become a well established strategy in the past few years, and is by definition the complete takeover and delisting of a target company. A private equity fund offers shareholders in the target company a price (usually above the listed price) and, if the fund’s offer is accepted by the vast majority, the fund will squeeze out (subject to the availability of such rules) the remaining dissenting shareholders and take over 100 percent of the company. Ambitious mega buyout funds have repeatedly adopted this strategy in the past three years.
Private equity financiers in the region have been inspired, and have successfully tried to hunt for deals in regional public market. Aramex is the best known example. It was taken private in 2002 from NASDAQ, and then taken public again in 2005 on the Dubai Stock Exchange, resulting in 197 percent gross capital gains for the investors. Egypt seems to be a fertile ground for such an investment strategy, as we can see from the table below, mainly because of its deep public markets, its semi-developed takeover laws and its laissez-faire regulators. The Gulf Cooperation Council, on the other hand, has not witnessed substantial take-private activity, as both the laws and the regulators deter such activities.
With valuations of regional markets rock bottom, the coffers of private equity funds full and the number of private deals limited, funds are figuring out how to take advantage of this once-in-a-lifetime opportunity. The arbitrage potential is crystal clear, and willing (or distressed) sellers are available.
There are private hints and public announcements that private equity funds are actively working on public deals. They better hurry. Markets have risen by 20 to 40 percent since they hit bottom in March, and valuations have increased by 20 to 50 percent over the past few months.

Imad Ghandour is the executive director at Gulf Capital

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