Comment

Death and deceit for Gazans

by Peter Speetjens
written by Peter Speetjens

Whatever happens in Gaza, blame Hamas! That was the official line of Israel’s well-oiled PR-machine and it was largely swallowed by most Western politicians and mainstream media. Hamas started it, so the argument goes, and if you hit someone, you may expect to be hit back. Hit Israel and expect to be hit back hard.
This is of course a quite simplistic view of things. First of all, Hamas did not start it. As Israeli columnist Uri Averny pointed out, the cease-fire between Hamas and Israel held for months. It was Israel that provoked Hamas by sending an army patrol into Gaza killing three Hamas militants allegedly digging a tunnel. Gaza’s ruling party replied by firing a salvo of Qassam rockets into Israel.
Now, one may argue that shooting homemade rockets into Israel is not the most effective way of promoting one’s cause and that it is time to find another method, but one is on thin ice to claim that Hamas initiated the conflict. In fact, as Averny also pointed out, it was predominantly Israel that did not live up to the conditions of the cease- fire, as it refused to lift the economic blockade that has strangled Gaza since 2007.
Nearly every international aid agency last year sounded the alarm. UNRWA reported last summer that half of Gaza’s population lived on food handouts, while unemployment amounted to 70 percent and that 87 percent of the population lived under the poverty line of $2.40 a day. The World Bank last year warned that the Gaza economy ran the risk of “irreversible collapse.”
Yet these gloomy observations hardly made headlines and they fell on deaf ears among Israel’s diehard supporters — and Hamas’ many enemies — who claim Hamas is to blame for the sorry state of Gaza’s economy. The fact that Israel has failed to implement the Oslo Agreement since 1994, long before Hamas even came to power, does not change things a single bit. That’s just politics, stupid!
The 1994 Paris Protocol on Economic Relations between Israel and the Palestinian Authority stipulates, “there will be free movement of industrial goods, free of any restrictions, including customs and import taxes between the two sides,” and “the Palestinians will have the right to export their industrial produce to external markets without restrictions.”
More importantly, the question of who is responsible for what in the latest wave of death and destruction in Gaza cannot solely be answered by determining who started it. Even if Hamas initiated the Israeli attack by firing rockets, that does not justify disproportional military retaliation. No courtroom in the world allows one to endlessly stretch the required link between cause and effect, as the right to self-defense is limited by the principle of proportionality. Yes, Israel has the right defend itself. No, it cannot respond in any way it wishes.
To put it in simple terms: if you hit someone in the face, the recipient is entitled to hit you back. They, however, are not entitled to bring out a crowbar to break both your knees, bomb the electricity plant in which you work and kill your whole family. On January 18, the day Israel unilaterally announced a cease-fire, Hamas rockets over a period of some three weeks had killed three Israeli civilians and 10 Israeli soldiers were killed. Over the same period, at least 1,300 Palestinians were killed, an estimated one third of whom were children. The immense material damage has since been estimated at nearly $2 billion.
Finally, the role of international media, such as BBC and CNN in the spectacle of death was highly embarrassing. Not allowed into Gaza, their reporters stood quite literally on the Israeli side of things. Their job was essentially to read out Israeli press releases and make sure that any accusation of wrongful conduct from Palestinians or the United Nations was countered by a smooth-talking Israeli press officer who, no matter what happened, blamed Hamas.
Israel bombed not one, but four UNRWA schools filled with refugees? Hamas is known to fire rockets from UN sites. Israel bombs a UNRWA truck killing its driver? Hamas is known to have fired at UN trucks in the past. Israel bombed a mosque filled with people? Hamas is known to hide weapons in mosques.
The Western media proudly claim to be objective, as they show both sides of the story. Yet, giving equal attention to both sides of a conflict that is essentially unequal, means taking sides. The war takes place in Gaza, Palestinian victims outnumber Israeli casualties by at least 100 to one and yet the New York Times publishes an equal number of photos of destruction in Gaza and Israel, therefore producing a false impression of the conflict.
To me, the war and its coverage are best summed up by a fragment starring BBC reporter Bethany Bell. Standing inside Israel, she first told us that some 60 air strikes hit Gaza overnight. We see black smoke behind her. Meanwhile, she continued, 12 Hamas rockets were fired into Israel. One of them hit a kindergarten. The kindergarten, Bell said, was empty.

Peter Speetjens is a Beirut-based journalist

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Comment

Terror.com

by Mohanad Hage Ali
written by Mohanad Hage Ali

Last November, senior military leaders in the United States took the unusual measure of briefing the president on “a severe and widespread electronic attack on Defense Department computers.” According to a Los Angeles Times’ report, the attack, which was believed to be originating from Russia, targeted combat zone computers and the US central command overseeing operations in Iraq and Afghanistan. Nevertheless, the security services’ primary concern was whether its non-state enemies could acquire the capability to conduct cyber attacks against Western targets.
More than two years earlier, US authorities warned there was a threat, posted on a website affiliated with Al Qaeda, to attack the stock market and banking services online. The threat was apparently issued as revenge for the detentions in Guantanamo Bay. The US Homeland Security Department called it an “aspirational threat”.
The magnitude and consequences of such attacks are best comprehended when the Internet economy’s size is taken into consideration. Internet dealings and transactions today are a vital part of Western economies. According to a University of Texas at Austin study, the Internet economy “supported an additional 650,000 jobs in 1999 as revenues soared to $523.9 billion” in the US alone. The same study, conducted just under a decade ago, noted that even then the Internet economy “directly support[ed] 2.48 million workers, more than the insurance, communications and public utilities industries and twice as many as the airline, chemical and allied products, legal, and real estate industries.” This growth has prompted the Organization for Economic Co-operation and Development (OECD) to ask in a 2008 report, “has the economy become an Internet economy?” The OECD also stated, “increasingly, the largest productivity gains for businesses come from using online networks in some form.”
The online economy is growing to the extent that hacking a single company’s website for a day costs millions of dollars. For instance, BBC news reported in 2004, “three- quarters of UK companies have been hit by security breaches in their computer systems over the past year, costing billions to industry.” It was noted in the same report that “the average computer incident costs large companies $165,000 a time.”
The US warning against Al Qaeda cyber attacks in 2006 held some credibility as the Internet played an increasingly significant role in its operations. The new threat cyberspace poses was also shown when U.K. based extremists used the Internet to recruit other members, including teenagers. Through password protected web forums and chat rooms, they indoctrinated and prepared those recruits to launch suicide operations. Even the explosives used were home prepared according to “recipes” widely distributed on Al Qaeda web forums.
The militants’ success in exploiting the Internet was most apparent in last year’s failed Exeter bombing. Nicky Reilly, a 22-year-old of Irish background, entered the Giraffe restaurant’s toilet in Exeter to assemble his bomb before detonating himself. A slight mistake in his “internet bomb recipe” prompted an early explosion inside the lavatory, which left him with facial injuries. According to the police investigation, militants situated on the Pakistan-Afghanistan border area “groomed” Reilly through online chat rooms to become a suicide bomber. Sitting on his computer for long hours everyday, he watched more than 2,000 Al Qaeda videos, researched possible targets and then downloaded a bomb recipe.
In that same year, the trial of Aabid Hussein Khan’s Bradford terrorist cell exposed the Internet’s extended or unconventional use. This cell, which was plotting to attack the Queen and members of the royal family, not only compiled detailed information about different targets from the Internet, thus lessening the need to physically survey the area, the cell members also allegedly sought recruitment and training from the World Wide Web.
This British online terror saga started right after the Afghanistan and Iraq invasions, with the case of a young Moroccan immigrant named Younis Tsouli — whose online alias was Irhabi 007 — who dazzled the Western intelligence agencies for years before his capture in a tiny West London flat. For two years, Western intelligence services chased the 22 year-old Internet hacker, trying to uncover his real identity. Irhabi 007’s Internet activities involved propaganda, distributing training manuals, instigating others to commit acts of violence, hacking websites and distributing a hacking manual online. He was dubbed “the master” of online attacks, hacking, programming, and digital media design.
According to some reports, Irhabi 007 was making “explosive new use of the Internet,” specifically through websites and password protected forums that “cater for would be Jihadists.” Tsouli disseminated training manuals and propaganda material online, and then began helping radicalized youth to perpetrate attacks.
So far, Internet staged and planned attacks have failed to achieve their goals, but will 2009 be the year cyber terrorism makes its mark?

Mohanad Hage Ali is political editor at al-Hayat newspaper

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Society

IWC – Gianfranco D‘Attis (Q&A)

by Executive Staff
written by Executive Staff

IWC brand manager, Gianfranco D’Attis and famed IWC watch designer Kurt Klaus recently made a stop at Cadrans in downtown Beirut to promote their new Vintage line in commemoration of the International Watch Co.’s 140th anniversary. The Swiss company has a long history in the Middle East. Executive Magazine sat down with D’Attis to discuss customers, sales and strategy.

E What is IWC’s best selling model in the Middle East market?
We have a number of watches in our portfolio. The basic watch range includes the Aquatimer, the Ingenieur, the Pilots and the Portofino. That is the basic entry price, from $3,000 to $10,000. Then we have the manufacture pieces, made with precious materials. These are basically the Da Vinci line, the Portuguese and some complications. The best selling line overall in the Middle East, with about 50 percent of commercial turnover, is the Portuguese. The second best selling line, with 25 percent of the market, is the Pilot. Together they make about 75 percent of the turnover, not only in the Middle East, in fact, but worldwide. These are icon products. These are products that are differentiating themselves from the competition, because they are unique.

E How long has IWC had a presence in the Middle East?
IWC has been in the Middle East for over 30 years. Cadrans has already been working with us for 30 years. Richemont bought IWC seven years ago. Then we started integrating their platforms five years ago. So for the last five years we have been aggressive, expanding in the Middle East, increasing brand awareness, investing in marketing, and investing in boutiques and sales staff. The brand has really been developing quite fast in the last three to five years and it is performing extremely well. We have a team of six people in Dubai and we are constantly expanding. Now we are trying to penetrate the Indian market, which is a very strategic market for IWC in the future. As mature markets will be under pressure over the next two years, we believe that emerging markets will be absorbing the pressure and that they will deliver profits. This will help the brand to balance turnover and performance.

E What are the strongest markets for IWC in this region?
The strongest market is obviously the UAE. We have our largest regional distribution there with two boutiques and about five points of sale. The second strongest market is Turkey, because we also manage Turkey from Dubai. Then immediately after Turkey, you have Lebanon, because the Lebanese like IWC. They like it because it is also a strong brand in Europe, because it is understated, it’s chic, it is more or less what the Lebanese are looking for in a watch.

E How many points of sale do you have in Lebanon?
Right now we have two points of sale. We are working with two partners, Cadrans and Atamian. We are also planning to open a boutique sometime in the next 12 months. When Solidere opens its new addition, we will be present there.

E Does IWC keep the number of its points of sale low in order to maintain brand image?
We are actually reducing the number of points of sale and upgrading existing ones to boutiques. We really want to have a selective distribution network. For instance, five years ago we had 1,200 points of sale around the world and we are reducing that to about 800. The strategy is really to make it exclusive, selective and to upgrade the existing network to boutiques.

E Do you foresee a time when IWC watches will only be available in IWC boutiques?
That would be the ideal scenario. But obviously we need strong partners on our side in these special times. IWC is not a retail brand, IWC is a wholesale brand. That is why we need to find the right balance. Retail is for image, wholesale is to find a new customer that may not necessarily want to come down to a boutique. He likely has a special connection to our partner and we may not be able to reach him.

E What was IWC’s profit for 2008?
We do not publish profits or sales numbers. This is strictly forbidden by the group.

E Is IWC a publically traded company?
Richemont is publically traded. IWC is just one brand within this holding company Richemont. They hold brands like Cartier, Montblanc, Vacheron, IWC and Panerai.

E What percentage of totals sales does the Middle East represent for IWC?
We have aggressively developed the share of turnover in the Middle East. We started from nearly zero percent five years ago and today it is between five and 10 percent. When IWC got its start in the region 30 years ago, it had a small but important turnover. We had very personal relations in the Middle East with certain big families. In Oman, we were producing special quantities for the Sultan; in Dubai we were doing something for the sheikh. IWC was a very niche brand for special families in special quantities. So it was an important market, but the turnover was not very significant.

E What do you see as some of the biggest challenges that IWC will face in the near future in light of the ongoing global financial crisis?
Luxury in general will suffer because people are scared for the future. They don’t know when the economy will turn around. We feel that products in the price range of $7,000 to $20,000 will not be greatly affected and products below $5,000 will be much more affected. So this middle segment will be suffering, but the high-end should remain strong.

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Executive Insights

Talent recruitment for the human capital agenda

by Rabih Abouchakra, Bahjat el-Darwiche & Soon Rabb
written by Rabih Abouchakra, Bahjat el-Darwiche & Soon Rabb

In today’s economic environment it is easy to focus on a company’s financials and ignore what has for the past two decades been an increasingly challenging priority — talent acquisition. Given the number of companies reducing workforce numbers by the thousands or going out of business, it might even seem that human capital is in oversupply. While the immediate recruitment requirements of many companies may be more easily met these days, human capital issues still account for some of the greatest challenges businesses face. Recent Booz & Company research and experience with multinational clients highlight key challenges faced by human capital leaders.

  • Escalating competitive pressures. These include the demand for new skills and capabilities, ever-higher standards for productivity and a less-benign regulatory environment that increases the need for employee education.
  • Labor market changes. These include an aging workforce, a lack of qualified workers in key industries and professions, and Generation Y workers’ expectations for employment relationships.
  • The changing nature of work. These shifts include greater emphasis on knowledge work, the extinction of the apprenticeship model, a lack of linear career paths and increased demand for immediate results.
  • Competition in a “flatter” world. This is shown in globalization, industry consolidation, collaboration across organizational and geographic boundaries and the need for rapid knowledge capture, dissemination and protection.

While these challenges are common across companies, industries and even countries, knowing how to respond to them has been and will be a source of competitive advantage. These challenges are as critical as ever in Middle Eastern and North African (MENA) countries. The global financial crisis offers organizations in the region the chance to build their talent pool. In a region of unprecedented growth that is experiencing talent shortages, it is crucial to invest in recruitment, nurture leaders, and redesign workforce practices to build capability and competitive advantage. Effective recruitment starts with a forward-looking vision and long- term plan for talent acquisition. For the past decade, finding enough of the right people has been a challenge. A key lesson for human resources is to develop “employee insight” by using employee segmentation. Employee segmentation is the basis for modern human resources and customized career alternatives for a diversified workforce. In the MENA, the primary effort has been to recruit and build capacity. Now, with its variety of talent segments (e.g. skilled expatriates, local workforce, interim employees), using employee segmentation may be an opportunity for companies here to build capacity and capability. Understanding employee segmentation is one strategy. Understanding and effectively using one’s brand is a complementary strategy. Employer brands that attract talent often articulate a clear, shared purpose above the profit motive. Few MENA companies take full advantage of employer branding, but those that do will reap the benefits of attracting and retaining the best people. Forecasting talent needs is essential. Organizations must be prepared to act whenever exceptional people appear — even in economic hard times.
One German industrial company, ThyssenKrupp AG, established a special hiring fund in its technologies business. The budget is dedicated to building the talent pool in that specific business and it is separate from the traditional hiring budget. The imperative is to find the talent, hire them and then decide how to deploy them in the business. In highly competitive talent markets such as the MENA region, strategies that focus on leadership, learning and adaptability will be critical to the human capital agenda, while successful leaders obtain higher levels of employee engagement and retention. The best training and learning programs are closely integrated with the business, driving change, innovation and value. While the learning function should resemble a sophisticated, efficient and cost-effective adult education enterprise with measured outcomes and ROI, the individual also takes an active role in learning. This linkage between individual learning and organizational goals is critical, as individuals begin to ask themselves what they need to learn to have an impact on the bottom line rather than being told by managers and trainers.
Human resource’s capabilities, competencies and focus must be tightly aligned with the company’s business priorities. A business savvy HR function will realize that people are competitive assets and will design a compelling strategy to realize that asset’s value. This strategy habituates high performance in the people who work in every function, region and business unit of the company. Saudi Telecom’s human resources strategy, like its operational strategy, is designed around the needs of customers. Using a shared-services model in which human resources is a strategic partner with the business units, human resources professionals think in terms of providing services. Either they are able to develop the right training for customers inside the company or the business units are allowed to obtain the training they need from outside vendors. Human capital development remains at the forefront of MENA’s development agenda. While the region has not been immune to the financial crisis, MENA organizations may still be able to use the crisis to move from more tactical recruitment efforts to developing and implementing a human capital agenda that builds and develops much needed workforce capability.

Rabih Abouchakra is a partner and Bahjat El-Darwiche and Soon Rabb are principals at Booz & Company

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Executive Insights

Ziad Ferzly

by Ziad Ferzly
written by Ziad Ferzly

The Middle East region, especially the Gulf, has experienced a great boom over the last few years. With rising oil prices and ambitious projects, many thought this would continue ad infinitum. However, the global economy has gone into a recession and the Middle East is not immune. The financial market crashes around the world and region have been followed by economic downturns that are having a severe impact on companies everywhere. As people come to grips with this shock to the system, they must adapt to new realities. This recession is real and must be dealt with decisively. Managers need to admit that there is a problem. It is important to avoid getting sucked into collective self-deception, whereby company stakeholders put on blinders and convince themselves that they are immune to the decline and can ride out the storm without consequence. Companies need to be as proactive as possible because the longer they wait, the more difficult it will be to recover.

During the boom, most companies grew, even if they were not professionally managed. Many investors made money whether they evaluated investments properly or not. As the saying goes, a rising tide lifts all ships. Yet things have changed. The wave has crashed. The ensuing flush of the system will help ensure that the stronger, better prepared players are the true survivors. Prudent companies are the ones who take this time to properly restructure their operations. Companies should follow these restructuring guidelines:
• Stabilize the situation — A company that is experiencing significant difficulties should first stabilize the situation. In extreme cases, the goal is to survive long enough to go through the restructuring process in a proper and timely fashion. Generating cash and cutting expenses are of paramount importance. The company should identify major problems and attack them quickly. It should address the root of the problem, not the symptoms.
• Appoint a restructuring team — This is the team that should lead the company out of trouble. With a combination of key internal managers and select outside restructuring advisors, this core group will be responsible for executing the entire restructuring program that will be put in place.
• Gather data — It is important to base plans on real life data collected internally from the relevant groups. Data should be gathered on production, sales, pricing, costs, customers, etc. The company must have a full understanding of the situation. Data will ensure that decisions are grounded in reality, not conjecture.
• Change leadership — Often, there needs to be a change in the top management of the company. Some managers can stay, while others must go. Strong and effective leadership should be established. The company cannot afford to have weak or incompetent management, especially in difficult times.
• Assess capabilities — The restructuring team will assess the company’s capabilities, strengths, and weaknesses. The team will then generate ideas on the options available. There needs to be a match between the capabilities of the company and the options chosen.
• Recalibrate strategy — How does the company create value? What changes need to be implemented? Where is the company headed? The restructuring team should clarify objectives and adjust strategies in a deliberate manner to focus operations and the organization on common goals.
• Develop a realistic plan — After assessment and strategic recalibration, the team should devise a playbook or turnaround plan for the company to follow. The goals should be realistic and achievable given the current state of the company and market conditions.
• Renew organization — The new vision and strategy for the company may require a new organizational structure for better execution. People need to be empowered and, at the same time, held accountable for their actions and decisions. Their rewards should be properly aligned with the company’s long-term performance.
• Improve processes — There are core processes to the business that need to be improved. Other processes might be outsourced. Whether improvement happens in terms of time, cost, or quality, addressing the different facets of the operation will produce a better run organization. This requires a thorough analysis of various processes and matching new processes to the capabilities of the employees in the new organizational structure.
• Conduct financial restructuring — The restructuring plan will inherently have a major financial component in place. Whether this relates to creditors, investors, employees, or suppliers, the financial plan that is put in place needs to go hand in hand with the strategic plan that the team has put in place. Proper financial management is critical to the success of this effort.
• Manage stakeholders — There is a wide variety of stakeholders for companies: from shareholders and employees to suppliers and customers. As the company goes through its restructuring process, it needs to effectively communicate with various stakeholders to make sure that they are aware of what is happening and, when possible, participate in helping the process succeed.
• Measure and show progress — The way to gauge progress is by measuring the results of decisions and actions taken. Whether the parameters chosen are financial, operational, customer-oriented, or otherwise, measuring performance is essential to tracking the restructuring effort. Data should be gathered throughout the process. Showing progress will excite stakeholders and will give the restructuring team the validation it needs to continue with the current plan.
Conglomerates and investment firms should consider a restructuring — as described above — of the parent, holding, or management company first, and then of the portfolio, i.e. the individual companies or investments. The restructuring team needs to:
• Decide on an overall strategy — The team should ask itself: What businesses or industries do we want to be in? Why these industries? What makes us qualified to hold and potentially manage all these companies? What is the right mix of company holdings that serves our overall strategy and goals?
• Review current holdings — The following questions should be asked: Does the current portfolio of companies and investments make sense in light of the prevailing conditions? Do the companies fit within our overall strategy? Are we too heavily skewed in one direction and do we need to make adjustments to our portfolio? Do we want to keep all the companies as they are today or do we want to entertain the idea of corporate transactions such as mergers, acquisitions, or divestitures?
• Set a strategy for each company — For each of the companies in the portfolio that the restructuring team decides to keep, they should put together a targeted strategy depending on internal data gathering, industry statistics, and market conditions. The team should follow the restructuring guidelines highlighted above.
Studies have shown that companies that went through successful restructuring efforts had a few characteristics in common:
• They were low cost producers, and had very efficient operations.
• The management teams led by example. They did what they asked their employees to do.
• They focused on the internal operations of the company addressing issues such as quality, productivity, and differentiation.
• They had an internally consistent strategic plan.
• They had a change in top management, used outside restructuring advisors, or both.
There are many companies that should have gone through a restructuring program over the last few years, but did not realize the need given their apparent success in the market. Now is a good time to act for those companies, and also for others that are experiencing difficulties because of the economic downturn. Many will not make it through this year. Companies need to ensure that they are strong enough, focused enough, and prepared to weather the storm. Those that restructure now will be well positioned to capitalize on opportunities ahead of their competitors as the economy improves. It is time to restructure.

Ziad Ferzly is managing director at Cedarwood Advisors, which provides strategic, financial, and investment management services to companies, investment firms, institutions, and governments around the globe.

 

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Executive Insights

Rethinking private equity – part I

by Imad Ghandour
written by Imad Ghandour

The sharp reversal of economic fortunes in the Gulf has sent all private equity (PE) houses back to the drawing board to redesign their investment strategy. Some are optimistic the Gulf will bounce back quickly, while conservative investors predict this recession will be deep and long and are waiting for the recession tornado to vanish so they can pick up from the carnage good companies at attractive valuations. The bulk of PE houses, however, are focusing on a selected number of defensive sectors to invest in, with the consensus being that education, healthcare, and fast moving consumer goods and related industries will survive the downturn.
Starting with education, this article is the first of a three-part series — which will also run in March and April issues of Executive — covering the dynamics of investing in each of these defensive sectors:

Back to school
Education is one of the largest global industries, yet one of the most fragmented. It is estimated that the global market size for education services is $2.5 trillion and it is ranked amongst the top three industries depending on how you count. Yet, it is one of the least represented sectors amongst listed companies. The largest education company by market cap is Apollo in the US, with a market cap of only around $7-10 billion. Just a handful of companies have revenues exceeding the billion-dollar mark.
Yet education takes a significant chunk of household and government expenditures. In Saudi Arabia, the education and vocational training budget comes second after defense, with more than a quarter of the budget allocated to it. In most societies, household spending on education is only exceeded by accommodation expenses. Furthermore, governments are offering subsidies to investors, and many are privatizing their educational system. This means an even larger pie for private sector operators.
The education sector is divided into several subsectors. The largest and the most fragmented is K-12, or primary and secondary education. Adult education and vocational training come second. Other notable sub-sectors are early childhood education (pre-school) and testing (e.g. GMAT, SAT, TOEFEL, etc).

Cash is king
From an investment point of view, education has very interesting characteristics. It has stable and predictable cash flows: students pay upfront for the service, and once a student enters a school or a university, he is likely to stay there until graduation. In the GCC, population growth and rising incomes imply continued growth in demand, and most likely shortage of supply.
Parents (clients) have limited price influence on tuition and thus tuitions increases are ahead of inflation and margins remain healthy and stable. In the GCC, for example, it is very common to have net margins of 25-35 percent.
The main challenges for institutions are the upfront investment in real estate and recruiting good teachers. Schools and universities, in particular, need a significant investment in purpose-built facilities, and investors have to balance the economics of being close to the urban demand centers and the escalating cost of land as you get closer to such centers. The other challenge is recruiting quality teachers in the wake of a shrinking global population of teachers but a growing population of students. Symptoms of teacher shortage are already evident, resulting in escalating costs.
Given the attractive investment characteristics of education and limited number of investment opportunities, listed educational institutions usually trade in the 20-30 times their earnings. This creates a significant arbitrage opportunity for investors who build new schools and eventually sell them at high valuations.
PE houses are not flocking to education for one main reason: opportunities are scarce. Yet the most creative PE players were able to enter the sector early, and will probably cash out handsomely, even in turbulent times!

Imad Ghandour is head of Statistics and Information Committee, Gulf Venture Capital Association and board member, Maarif Education and Training Holding Co, Saudi Arabia

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Executive Insights

Why Arabs lose the communication war

by Dima Itani & Ramsay G. Najjar
written by Dima Itani & Ramsay G. Najjar

How do we decide who wins a war? Do we wait for the white flag to be raised to declare a winner? Do we count the number of casualties? Do we count the number of survivors? Truth be told, in modern wars, the real winner is the side that wins the “communication war.”

Regardless of the toll a war takes on its victims, what remains in the minds of people once the fighting stops are the headlines. Who can forget the headlines about the massacres of men, women, children and elderly in Nazi concentration camps during World War II? The Jewish people have engaged over the years in massive and structured communication efforts, using powerful messages and impactful channels to portray themselves as the victims of atrocious acts and to remind the world of the horrible ordeal they experienced.
In large part thanks to this communication strategy, Israel today is a forceful and successful “brand” whose image is that of a nation pursuing stability and safety for its discriminated and persecuted people and is thus immunized against the negative publicity stemming from its military attacks. Just like the Jews’ situation during World War II, today Palestinians are facing massacres of their men, women, children and elderly. Unlike Israel and the West, however, who have always treated communication as an imperative and a top priority, the Arab world has yet to recognize the primordial importance of communication, especially in an era of globalization and the eradication of all boundaries.
To see how our region has fared in communicating its message throughout the Gaza conflict, we need to look no further than the TV screens, radios and newspaper front pages throughout the region: the messages that we see, hear and read all use the language, values and sensational rhetoric that appeal solely to the Arab audience. This “preaching to the converted” does little to reach out and change perceptions on the other side of the world. In the case of Arabs, there has been little or no effort made to understand Western audiences and identify what triggers their emotions and stirs their passions, to communicate with them and make a difference in how they see things.
This must change in order to get the message across when targeting communication to other cultures. The Arab world’s communication should use the audience’s language and idioms effectively, touch upon their values and use a discourse that resonates with them. In other words, rather than showing the same tragic images over and over again, and continuously referring to the innocent blood spilt, it would be far more powerful to draw a simple parallel between the children of Gaza and the children of the West, highlighting that while children in the US and Europe were preparing cookies and milk for Santa and waiting for their gifts, children in Gaza were trembling in fear and waiting only to see if they will live to see the next day.
Communicating effectively across cultures requires identifying a painful event in the audience’s history — one that they can relate to on a deeper level — and comparing it to the situation and difficulties faced by their counterparts in the present. Highlighting the likeness to a tragedy that the audience knows and understands goes a long way in creating a sense of responsibility for the current situation and a need to put an end to it for the sake of future generations. What is sad is that in the case of Israel’s communication, they have capitalized on past tragedies in such an influential way that it has given them a retroactive license to slay and shed the blood of innocent people and still be viewed as the victims.
However, even the most creative communication strategy that builds upon all these powerful messages cannot have an impact without the right channels to send its messages through. Although it can be said that the Arab world’s communication is leveraging new media channels along the lines of Facebook, YouTube and blogs, as citizens from around the region continue to upload photos, comments and video of their perspective on the Gaza conflict, even these channels are Western inventions that are merely being copied in the Arab world rather than being pioneered in the region. If the Arab World wants to get in on the communication game, it must work to create and innovate new channels that can grab audiences’ attention rather than trying to go through overused channels only to be drowned out by the endless numbers of other YouTube clips, Facebook groups and blog entries. Until then, the Arab world will continue to be in the backseat when it comes to communication, aggravating this region’s fears that it will never be seen from a just or human perspective.
Even if our part of the world succeeds in consolidating its messages, tailoring these to Western audiences and sending them out through the most impactful and innovative channels, we will still face another major obstacle: layers upon layers of negative prejudice accumulated over years of poor communication. But these prejudices only highlight the imperative need for effective communication strategies and immediate action in order to start tearing these misconceptions down.
Many may argue that regardless of the message, Arabs will never have the leverage or resources to carry out communication efforts that can match the impact of those carried out by the enemy. A strong narrative and story, however, spoken in the audience’s language and using themes that appeal to their deepest emotions can have just as much power as extensive, well-orchestrated, and costly campaigns.
Of course, we cannot ignore the fact that deeply ingrained perceptions seem to persist no matter how civilized or open-minded cultures get, as the side long-envisioned as the victim will always be a victim and the side seen for years as the murderer will always be the murderer. The only way to break this vicious cycle is through compelling communication that opens the door for another perspective.

Dima Itani & Ramsay G. Najjar, S2C

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Society

A disagreeable diagnosis

by Josh Wood
written by Josh Wood

During the United Arab Emirate’s economic boom, Abu Dhabi and Dubai sought to bring the best of everything to their country — including healthcare.  With open checkbooks, both the government and private investors sought to make the UAE a regional medical hub. While the development of the healthcare sector has left it with a strong infrastructure, problems continue to confront the industry; the same deep pockets which allowed the country to develop world-class medical centers also resulted in lifestyles that sent the obesity rate (and its associated diseases) skyrocketing, and while the global financial crisis which devastated some of the UAE’s economic sectors was not quite as severe to healthcare, the industry has felt a bit of a pinch.

The UAE’s state news agency reported in December that the budget for state spending on healthcare was set for over $750 million, but the individual governments of each emirate — most notably Abu Dhabi and Dubai — supplemented this budget with additional funds. Today, according to the government, there are 40 hospitals, 115 primary care centers and thousands of private medical clinics in the UAE.

According to the World Health Organization’s (WHO) 2010 World Health Statistics report, there has been a definite trend toward private healthcare in the UAE. Private expenditure as a percentage of total spending on healthcare rose from 23.4 percent to 29.5 percent between the surveyed period of 2000 to 2007. Per capita expenditure on healthcare (taking purchasing power parity into account) stood at $982 in 2007 according to the report, while government spending per capita was $693. This represented 8.9 percent of total spending by the Emirati government, according to the WHO.

Fatally fat

While UAE citizens have a relatively high life expectancy of over 78 years, disease is taking its toll on the general population. Today, cardiovascular disease is the single largest killer in the country, accounting for more than 25 percent of the total deaths of Emirati citizens, according to statistics released by the government in 2010. Some non-governmental estimates place the ratio as high as 40 percent. It is also estimated that one in four Emiratis has diabetes. A December 2010 report released by UnitedHealth Group says that this number could rise to more than one third of the UAE’s national and expatriate population by 2020 if changes are not made and could cost over $8.5 billion.

Such diseases can be attributed to inactive lifestyles coupled with bad eating habits. Obesity — which is a contributing factor to both diabetes and cardiovascular disease — has been on the rise across the UAE, currently edging toward 70 percent of the national population.

The UAE’s Ministry of Health has begun efforts to educate the general population about the dangers of these diseases and has invited international health experts to conferences to discuss the problems. In 2006 the Abu Dhabi investment firm Mubadala Development brought the Imperial College London Diabetes Center to the UAE to further attempt to contain the disease. With such high rates of cardiovascular disease, diabetes and obesity, more money and efforts will be needed to put the lives of UAE citizens and residents on a healthy track.

Economic ailments

In recent years, the UAE was successful in attracting prominent foreign medical centers, such as the Cleveland Clinic, Johns Hopkins and the Minneapolis-based Mayo Clinic. But the aggressive expansion of the sector was not immune from the overall hit the country was dealt by the economic crisis.

In January 2010, the Mayo Clinic — part of Dubai’s $5.3 billion Dubai Healthcare City project — closed up shop. With strains on capital coming in to private healthcare initiatives and population growth lower than it had been, projects such as the Mayo Clinic’s Dubai outpost seemed to no longer be feasible.

Despite still having many brand name medical centers in their home country, many Emiratis still prefer heading abroad for specialized treatment. A December report by the Indian news agency PTI said that patients from the UAE spend $2 billion annually seeking medical care abroad — an amount that could benefit the UAE’s economy if such patients could be swayed to undergo treatment at home.

While medical treatment in the UAE is largely cheaper than it is in, say, North America or Europe, by regional standards it is still quite expensive as lower medical bills are a short flight away in countries like Jordan, Egypt and Lebanon, which deter patients from seeking treatment locally. Given the proliferation of top-notch medical treatment centers in the UAE and its central geographic location, the country could also further promote itself as a medical tourism destination and turn a better profit.

Road to recovery

Despite some cutbacks — such as the closure of the Mayo Clinic — UK Trade & Investment anticipates the UAE’s healthcare industry to boom in the coming years and rise to a total value of $15 billion by 2015.  In December 2010, the Dubai Healthcare Authority announced plans to implement $1 billion worth of healthcare projects over the coming year.

But healthcare spending across the rest of the GCC region remains high and it could be difficult for the UAE to compete with some of its neighbors that were not as adversely affected by the global financial crisis and continue to have excess money to spend.

Saudi Arabia alone anticipates completing 100 new hospitals by 2015, and there are currently $10 billion worth of healthcare projects either planned or underway across the region, as of late 2010. In a 2010 report, Alphen Capital estimated that the Gulf countries will require more than 25,000 additional hospital beds by 2020 to keep up with growing demands and populations.

For the healthcare sector to expand as much as was planned during the height of the UAE’s economic boom, the expatriate population of the country will need to continue to rise — a factor contingent on the yet to be fully reclaimed economic stability and success of the country. With healthcare infrastructure already largely developed, the question now remains as to whether the sector will be able to maintain or push past the status quo.

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Editorial

As the sky falls, the real stars will shine

by Yasser Akkaoui
written by Yasser Akkaoui

The Chinese may be calling it the Year of the Ox but in the Middle East — not to mention everywhere in the developed world — it will be the Year of the Real Man, a period in which the new austerity will have no time for fads. Straight talking, in-it-for-the-long-haul, is in; short term, fast buck is well and truly out. 

We are already seeing the wheat being threshed from the chaff; the men separated from the boys. Call it what you will. Quite simply, those who did not plan for the future, who did not factor-in a potential crisis, are paying the price. Those who did and who can endure, who can stick by their staff, their team and their suppliers will strengthen their market share when the economic sun will shine again. The market will respect their resilience in the buffeting winds of the global meltdown.

There have been the inevitable casualties. The rumor mill has been buzzing with speculation as to the number of job losses in the Gulf, especially among the legions of Lebanese expats. There has been an element of “we told you so” and “it wasn’t going to last forever.” But envy aside, what those Lebanese who didn’t indulge the Gulf’s fortunes are failing to grasp is that the experience gained by these people — waiters to CEOs — can be deployed to excellent effect both at home and abroad.

The Lebanese Central Bank should be applauded for issuing a circular to the local banks urging them to make funds available, should returning businessmen wish to plow the experienced gained in the Gulf back into the local economy.

Meanwhile, as the GCC licks its wounds and consolidates, it is surely the time for those pioneering Lebanese, as they have done for over a century, to seek out new opportunities in new, mouth-watering markets such as Libya, Iraq, Sudan and Algeria. These are markets rich in potential and high in risk. In other words: perfect for the hardworking Lebanese who from Brazil to Mali to Jeddah to Dubai have cornered the market in going where others will not. The Gulf will recover and it will prosper but it cannot expect the Lebanese entrepreneur to sit still.

Real men turn loss into investment and disaster into opportunity.

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Real Estate

Wan Mohamad Hasni Wan Suleiman

by Nada Nohra
written by Nada Nohra

Executive sat with Hasni to discuss the repercussions of the Dubai debt crisis on the emirate’s real estate market.

E  When Dubai World made the debt standstill announcement, what was the immediate effect on the market?

Concern about Dubai has been there for the last year or so…[but]  this came as a surprise to a lot of people due to the big impact on global financial markets: for example, the share prices in the Far East dropped a good percentage. The news became worse than the reality and that created a negative image of the Dubai market. Questions were raised by potential investors and people who dealt in the real estate market or were planning to participate in the Dubai market. They are more cautious now; they want to see how this is going to turn out.

E  Will Abu Dhabi’s bailout of Dubai restore confidence in the real estate market?

I’m not sure if the word “bailout” is correct, let’s call it assistance by Abu Dhabi, because the structure of how they are going to deal with it has not yet been revealed. We know Abu Dhabi has committed $10 billion, and Nakheel will use some of the money to pay its sukuk [an Islamic bond], suppliers and creditors. Nakheel is only part of the story, the overall picture still requires a lot of clarification.

E  How much does the lack of transparency in the UAE market affect investors’ perception?

Transparency is an issue. I believe that the bodies want to be transparent but the complexity of the matter doesn’t make it easy for them to be forthcoming. More important is the way they managed the issue, they suddenly made the announcement and on the next day made another announcement. That lack of clarification of the process was the issue. Transparency is not an easy word because how transparent [do] you want to be? That is not something that can be easily done. But the clarification of the process is [easy], and allows people to know what’s next. They could have managed it better — debt resolution is not something new. Take for example General Motors’ bankruptcy: they went through a process, and they told people about the process. Not declaring your steps will make people unsure. It is better if they clarify their steps, the market will be able to anticipate much better.

E  Are Nakheel property prices likely to be hit further?

Here I would like to differentiate between sector specific and developer  specific markets. For the sector specific (residential, hotels, etc.), overall, the demand and supply have been clear, so the there was not much impact: whether Nakheel [stalled payments] or not. But when we talk about developer specific, the problem becomes more serious. When the market adjustment happened some of the projects did not adjust as much as others; some of the big developers’ prices remained steady. They went down, but not much. In some locations, such as Dubai Marina, they dropped, [but] not as far as people say. With regard to Nakheel and their problems, the prices of their properties are, of course, going to have more of a downward impact.

E  Will people be scared that funding will not being available in the future?

The Dubai World debt is huge and will constrain the availability [of credit]. Banks will make provisions to adjust for the restructuring and so on, which will also impact their capital or profitability. This will also constrain banks from being able to lend their money to the real estate sector, even if it is unrelated to Nakheel.

E  Will the fact that Abu Dhabi is financially stronger than Dubai put its real estate market in a better position?

Abu Dhabi and Dubai are two separate real estate markets. It is all about market demand. The overall demand for real estate in the UAE has been on a downward trend so, regardless of whether Abu Dhabi is stronger financially or not, demand has fallen quite a lot; even Abu Dhabi has scaled down projects it had in the pipeline. Abu Dhabi is making sure the Dubai market doesn’t drop, which will, in turn, support the overall market of the UAE.

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