2007: What the future holds

A new year has dawned, optimism is sky high and your resolution to take the company to the next level in 2007 is firmly in place. To assist you in your twelve-month mission to corner the market, CEO Middle East looks into the crystal ball to find out what the future holds for you and your business
2007: What the future holds
By Richard Dcruze
Mon 01 Jan 2007 12:00 AM

“I’m optimistic that there will be a more liberal approach from the governments in the air political situation where they will have more open skies and allow more people to fly,” Adel Ali, CEO of Air Arabia."

As executives across the region take their businesses into a new calendar year, an exciting twelve months lie in wait. With markets becoming more and more competitive, transparency and regulatory issues slowly being addressed and previously closed economies opening up to more foreign investment, 2007 looks set to be another milestone in the region’s rapid development. Last year, the Middle East bore witness to a period of unprecedented growth. In the aviation sector, passenger traffic among Middle Eastern airlines increased by 14.4% in the first ten months of the year. We saw more and more people embracing technology, with the number of internet users in the region surpassing the 19 million mark (according to Internet World Statistics). With the launch of a plethora of multi-million dollar projects across the region including Dubai’s US $27bn Bawadi project, the construction and real estate sector continued to boom. In fact, according to the Futurebrand Real Estate Study 2006, US$150 bn is now being spent on developing projects within the GCC. The region’s logistics set-up continued to expand its reach, with the foundations being laid for free zones such as Dubai Logistics City, Prince Abdul Aziz Bin Mousaed Economic City and the expansion of Jebel Ali Free Zone.

In the consumer and services industries we also witnessed monopolies being threatened and competition being encouraged as more multinational players headed to the region. For businesses in the region to eclipse the remarkable achievements of last year in 2007 however, there are a number of issues that need to be addressed. With a skills shortage in the oil and gas, construction and logistics industries, government investment in the development of young talent could play a key role this year. With private sector companies looking to compete on a level playing field with government entities, issues of corruption and transparency will need to be tackled, as Obaid Humaid Al Tayer, chairman of the Dubai Chamber of Commerce said recently:

“I don’t see any governments in the Arab world following international accounting standards – these standards should be imposed on governments as well as the private sector.”

Of course the list of other potential challenges to Middle Eastern businesses in 2007 is endless – rising fuel prices, political instability and the nationalisation drive could all play a significant role this year.

To get an in depth look into what the future holds for the region’s major sectors, we selected a team of executive experts, crossed their hands with silver and asked them to play fortune teller. Here’s what the soothsayers had to say:

Telecoms

Last year we saw a number of major operators widening their reach across the region instead of remaining as single-country entities. According to Faisal Al Bannai, CEO of Axiom Telecom, this is a trend that will continue in 2007. “This year we will see the emergence of regional operators. We’ve already seen the UAE’s Etisalat going to Saudi and Egypt and Kuwait’s MTC going to Bahrain and Africa,” he says. As the region’s telecoms market becomes more competative over the next 12 months, Al Bannai also expects to see a number of high-profile mergers and acquisitions. “If the region’s big operators are to start competing on a global level, there needs to be some consolidation and people will have to start buying each other.”

In terms of technology, one of the biggest sellers in this year’s mobile revolution could be a pocket-sized GPS system that allows you to map where you are and even gives you directions to your favourite restaurant or mall.

Aviation

“I’m optimistic that 2007 will see a more liberal approach from governments in terms of the air-political situation where there will be more open skies allowing more people to fly,” says Adel Ali, CEO of Air Arabia.

“I don’t think it will completely open up but I think this year will be another step in the right direction,” he adds.The budget airline chief also believes 2007 will see Middle Eastern airlines experiencing double-digit growth and making a better return on investments than last year. Of course, with fuel outlays making up around 30% of an airline’s expenditure, the fortunes of the region’s aviation operators this year are heavily dependant on the price of crude oil. Samer Majali, CEO of Royal Jordanian Airlines, optimistically predicts fuel prices to “continue to stabilise at the US$60 mark”, while Ali cites instable fuel prices as the main challenge for airlines in the region this year. In the ongoing battle of the business bed, expect to see executive travel facilities get even more opulent among the region’s airlines in 2007.

Real Estate

While Dubai is expected to experience some “quantitative correction on a few projects,” this year will see the “awakening of the sleeping giant of Abu Dhabi,” according to Harry Kentaria, managing director of Aspire Real Estate. Kentaria also makes a “conservative” estimate that there will be a 20% hike in land prices across the region in the coming year alongside an upward shift in labour and ancillary costs.

The main challenge for property developers in 2007 will be dealing with the highly speculative nature of the Middle East market. “Developers will continue to fight for payment collection from speculators that are not prepared to invest in projects in the long-term,” says Kantaria.

For Middle Eastern property investors, this year should be another period full of opportunities to make high returns from real estate ventures. “I think we have only scratched the tip of the iceberg here in terms of real estate. This year we will see international investors who so far were just testing the market, come back in full swing and can expect handsome returns on their investments,” adds Kentaria.

Naji Alia, managing director of , executive director of Saudi-owned developer Tebyan tips the beach-front sector in the UAE’s emerging emirates such as Ras Al-Khaimah as a prime real estate investment opportunity in 2007.

IT

With businesses and governments trying to keep up with the pace of technological advancements, expect to see a huge surge in the demand for IT solutions and services in 2007. As governments increasingly using IT to enhance service levels for their citizens, e-governance is likely to widen its reach this year, particularly in North Africa and Saudi Arabia. According to Hari Padmanabhan, deputy managing director of global IT group 3i Infotech, the region’s financial bodies also look set to increase their IT spend in the next twelve months. “In order to understand customers better, the banking and distribution sectors will see a rise in demand for IT software for customer-facing applications. Insurance majors are also looking to invest in a broader spectrum of solutions. While Padmanabhan insists 2007 will be another important year in the ongoing development of the region’s IT infrastructure, he believes the big challenge for the IT manufacturers will be to tackle the impending regional skills shortage.

“Although demand is far higher than supply, there is an important need to create a skilled local talent pool through world class education and by recruiting experienced technologists,” he says.

Retail

According to Dave Battiston, CEO of the region’s largest customer loyalty program, Airmiles, 2007 will see the rise of databases and direct marketing among retailers in the region. “Companies increasingly want to know about their customers, how they can retain them, how they can lift and shift purchases and how they can acquire new customers - this is where databases and coalitions will play their part,” he says.

Although online sales in the region make up a relatively small proportion of the region’s retail activity, they look likely to surge in 2007 thanks to the development of independent credit bureaus. “Online retail transactions aren’t going so well at the moment, but with developments like the new independent banking authority in Dubai, we will see more trust coming into the market,” he says. “The credit bureaus will make sure there’s no delinquency and you won’t have people trying to rip off the system, so online payments should boom and there’ll be a surge in internet shopping,” he adds. Battiston also believes Saudi Arabia will be the biggest growth market this year, with its government finally focusing on attracting more foreign investment. “Saudi Arabia will definitely become more accessible to multinational retailers. The retail concepts there are amazing and now, with the development of investment authorities, it’s easy for foreign businesses to set up there.”

Battiston also predicts the region’s mall space to increase in 2007, and hints that “two reputable local companies” will be launching their own brands this year.

Banking and finance

Automobiles With more and more people heading to the region to join the growing number of international businesses setting up here, the demand for cars in the Middle East has never been greater.

And so 2007 is set up to be another record year for car manufacturers, rental companies and showrooms across the region. “We might be surprised by the growth of smaller markets and politically troubled markets which are on the road to recovery,” says Guenther Seemann, managing director of BMW Middle East. “Generally, the region will continue to develop, more people will move into the Middle East and operate from the key growing markets such as the UAE and Qatar.” All of which spells good news for the motor industry. Of course the fate of the automobile sector in 2007 is at the mercy of the greater economic factors, as Seemann explains: “The fact that oil prices are linked to the US dollar is a big factor (for us) as it influences the price of raw materials, finished products and the overall cost of living,” he says.

With environmental issues slowly finding their way on to boardroom agendas expect to see more manufacturers developing hydrogen-powered vehicles in 2007.

Oil and gas

“This is the fifth time that the world is said to be running out of oil,” says Daniel Yergin, chairman of US-based consultancy, Cambridge Energy Research Associates. “Each time, technology and the opening of new frontier areas has banished the spectre of decline,” he adds. And this looks likely to be the trend in 2007, as the region’s major oil and gas companies invest huge proportions of their revenue in new technology to exploit previously untapped sources such as the ‘sour’ gas reserves in Abu Dhabi. Following the opening of a 10,000-barrel a day oil refinery in Najaf, Iraq in late 2006, this year could see a resurgence in the troubled nation’s oil industry, with a number of international players looking to exploit reserves. Japan’s Ministry of Trade and Industry (MITI) has already pumped US$17.5m into the upgrade of a refinery in Basra, with MITI’s director of oil and gas, Shin Hosaka, saying: “We don’t want to miss a boat that leads to vast oil reserves in Iraq.” This year should see the creation of a 1.9 million barrel-a-day superpower as the proposed merger between Norweigian companies Statoil and Norsk Hydro is finalised. This could lead to Middle Eastern mergers as players look to compete on a global scale.

Automobiles

With more and more people heading to the region to join the growing number of international businesses setting up here, the demand for cars in the Middle East has never been greater. And so 2007 is set up to be another record year for car manufacturers, rental companies and showrooms across the region. “We might be surprised by the growth of smaller markets and politically troubled markets which are on the road to recovery,” says Guenther Seemann, managing director of BMW Middle East. “Generally, the region will continue to develop, more people will move into the Middle East and operate from the key growing markets such as the UAE and Qatar.” All of which spells good news for the motor industry. Of course the fate of the automobile sector in 2007 is at the mercy of the greater economic factors, as Seemann explains: “The fact that oil prices are linked to the US dollar is a big factor (for us) as it influences the price of raw materials, finished products and the overall cost of living,” he says. With environmental issues slowly finding their way on to boardroom agendas expect to see more manufacturers developing hydrogen-powered vehicles in 2007.

Investment

This year there will be a huge surge in foreign direct investment flows in the region according to Emmanuel Drujon, managing director of investment group, Signature. Drujon tips the region’s media sector as a good investment arena for 2007, describing it as a “fascinating sector that is starting a large phase of much needed consolidation and integration”. Drujon also champions investments into infrastructure that will “answer the requirements of the developing local population”.

Hospitality

Having handled 13,000 cruise passenger movements in 2005, Dubai is likely to be at the centre of a boom in the cruise ship industry. In fact, the emirate is projected to handle 85,000 cruise ship passengers in 2007. The impending launch of budget hotels in the UAE could spark huge growth in the 3-star sector, while the MICE (meetings, incentives, conferences and events) sector is also likely to experience significant growth this year.

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