By Ed Attwood
Why retail magnate Mohammed Jassim Khalid Al Marzouq is investing $2bn in Kuwait’s future
“It’s not about being the biggest or the richest – that’s not what we’re about,” says Mohammed Jassim Khalid Al Marzouq. “My biggest motivation is helping my country achieve its objectives. Everyone who works with me knows that. You need to make a difference, you need to create value towards the community we serve.”
Spend any amount of time with the softly spoken chairman of Tamdeen Group, one of Kuwait’s largest private-sector players, and it is immediately clear that the highly respected Al Marzouq is not interested in fancy headlines or making a quick buck. Until now, the chairman has let his projects – which include some of the country’s most fashionable and distinctive malls – do all the talking.
It has now been just over ten years since Al Marzouq took over as head of Tamdeen, which was the result of a government-sponsored merger of three local companies after the stock market crash in the 1980s. At the time, the young Kuwaiti had already built up a considerable reputation in the retail sector by opening Al Fanar Mall, one of the country’s first integrated shopping centres.
“Back then, people thought we were crazy,” he recalls. “They asked: ‘Why are you doing such a project in Kuwait?’ The Al Ghurair Centre was famous in Dubai, and City Centre was also under construction there, but people were not used to the really large-scale shopping centres. For me, Al Fanar exceeded both of those in terms of standard and size, and it was a very successful project.”
Since Al Marzouq took over in 1996, the company has gone from strength to strength, opening up 360 Mall in 2009 – at the height of the global recession – while it also runs Al Kout, one of the country’s largest mixed-use waterfront developments. The group owns Kuwait National Cinema Company (KNCC), one of the Gulf’s biggest cinema firms, while its entertainment division has created a series of concepts, such as bowling alleys, video game centres and ‘edutainment’ facilities that play a huge part in attracting visitors to its shopping centres.
In addition to retail and entertainment, Tamdeen’s investment arm also holds a stake in Bahrain-based Ahli United Bank, one of the region’s fastest-growing lenders, and on whose board Al Marzouq sits as chairman. And if that were not enough to occupy his mind, Al Marzouq also sits on the board of Kuwait’s Supreme Council for Planning and Development, a body that advises the government. What little free time he has is spent developing and running Kuwait’s national stud (Bait Al Arab) as well as his own stud in Wafra.
So why is the chairman speaking up now? Simply put, he believes that the next five years will be a “golden period” for Kuwait, and he is backing up that bold statement by investing $2bn in a massive expansion of his existing assets.
In the middle to late 20th century, of course, Kuwait was seen as the most progressive and modern state in the Gulf. But a succession of crises, beginning with the Iran-Iraq War in the 1980s, followed by the Souq Al Manakh stock market crash in 1982, the failed assassination attempt on the then-Emir, Sheikh Jaber Al Ahmad Al Sabah, in 1985, and the Iraqi invasion of Kuwait in 1990. Following the country’s liberation, its economy still suffered as a result of its proximity to Saddam Hussein’s Iraq, and served as a staging post for the 2003 Gulf War.
More recently, the most open democracy in the Gulf has been bedevilled by intransigence between the parliament and the government, which has hobbled infrastructure development and created a national budget that is skewed heavily towards subsidies.
Al Marzouq is, however, convinced that Kuwait is finally ready to put the tough years behind it. The biggest catalyst for change, he says, stems from a ruling by the country’s Constitutional Court in 2013 to amend the electoral voting system, making it harder for the parliamentary opposition to prevent the passage of legal reforms and the approval of key projects.
Since that amendment was brought in, a slew of infrastructure contracts have been handed out. In 2014, around $25bn in new contracts were awarded, according to the National Bank of Kuwait (NBK) – more than in the last three years combined. While roughly two thirds of those deals were signed in the oil and gas sector, several key awards were also made in the healthcare, education, utilities and transport sectors. Also in the works is a contract to build a new terminal at Kuwait’s creaking international airport, although that deal was put on hold in November after the lowest bid came in above budget, as well as much-needed roads and transport infrastructure.
“The change in the political situation here in Kuwait and positive cooperation between the government and the parliament have simply given me the confidence that things are changing,” Al Marzouq says. “I believe that a good manager needs three characteristics: credentials, courage and charisma. Look at Marzouq Al Ghanem [Al Marzouq’s cousin and the speaker of the Kuwaiti parliament] – he is well-educated, a good politician and today he is the premier person behind supporting the government and helping them achieve their targets.
“This has helped us be very positive and has led to a major shift in terms of investing and deploying our own resources. Added to this, Kuwait has the best regulatory and legal environment of any country in the region, with all due respect.”
The chairman also points towards a string of regulatory changes that will also help boost the business environment, including amendments to the company incorporation law, new telecoms legislation, and a new authority to help oversee the development of roads and infrastructure. Long-awaited bankruptcy legislation will also hopefully be rolled out soon.
Not everything is rosy, however. Al Marzouq points out that the government budget has soared from $13bn (KD4bn) in 2000 to more than $77bn (KD23bn) over the last 15 years. That huge increase in spending – mostly on wages and subsidies – has led the International Monetary Fund (IMF) to warn that the country may well post a deficit by 2017, a position that has worsened following the recent drop in the oil price.
“It’s a crazy increase, and took place during a period of instability,” Al Marzouq says. “Now this is one of the major issues we have.”
That package of subsidies means that Kuwaiti citizens are entitled to free housing, free education and healthcare, as well as cheap utilities and fuel and a generous retirement programme. Those subsidies alone amount to roughly a quarter of government spending.
Piled on top of that is the government’s commitment to find a job for every local national, which means that the vast majority of the Kuwaiti workforce is now working at lucrative roles in the public sector.
Last week, in a bid to relieve the pressure on its finances, the government announced that it had asked the IMF to help with a potential new plan to introduce corporate taxes in the country. Al Marzouq says the government may even go a step further, by bringing in income tax, in what would be a first for the Gulf.
“There will be laws applied to relieve the government of this burden, and they are coming,” he says. “I believe taxation will come in the future, and I believe it will be an income tax.
“Having said that, the government has also created massive wealth. They now have in the range of $600bn held outside the country, and that is not a small amount. You need to remember that we still have a small population, and that Kuwait has so far depended simply on government spending. We have not taken advantage of the private sector yet.”
“I personally think that the pressure is a really good thing; it is a reason for the government to rethink and make changes, and they have a reason and an excuse to do that in front of the public. So I see it as a positive, rather than a negative thing.”
If the private sector is going to make headway, though, it will need more entrepreneurs like Al Marzouq to convince Kuwaitis to leave their highly paid jobs with the government. While the public sector is aiming to employ 10,000 new jobs this year, the chairman predicts that as much as 38,000 new jobs will need to be created in 2016, as Kuwait struggles to pull an increasingly youthful population into the workforce. Tamdeen’s malls already play host to some of the country’s most exciting young entrepreneurs, such as Basil Alsalem, whose B+F restaurant in 360 Mall welcomed Dubai’s crown prince, Sheikh Hamdan Bin Mohammed Al Maktoum, for an impromptu lunch in late February.
“The biggest employer in the US is the retail business, which represents 12.5 percent of the workforce,” says Al Marzouq. “In Europe, 8 percent of the workforce is in retail, so why can’t Kuwait take advantage of that? We need to think creatively, to think differently, and become a hub to complement Dubai or Doha.”
Employment is just one of the side-effects of Tamdeen Group’s $2bn investment plan over the next five years, which will see the company design and build a total of nine – mainly retail – projects.
The plans are nothing if not ambitious. The group’s five current properties – which include 360 Mall and Al Kout Mall generated KD162m ($540m) of retail sales in 2014, and the target is to roughly quadruple that figure by 2020. Among the projects Tamdeen will be working on are a huge expansion of 360 Mall itself, which will also incorporate the new home of the Kuwait Tennis Federation and a 4,000-seat tennis stadium. The hope is that the site could play host to ATP-ranked tournaments in the future, similar to those already taking place in Dubai and Doha.
More expansion is taking place at the seaside Al Kout Mall, based just to the south of Kuwait City in Fahaheel. A further 72,000 square metres of leasable area is being added to one of the country’s most scenic shopping centres, which already boast two piers jutting out into the sea, traditional meat and fish markets and ‘dancing’ fountains. The 160,000 square metre Mall of Kuwait, which was originally conceived about a decade ago, will be built in Sabahiya, along with three other community shopping centres.
In two projects, however, Tamdeen is also making its first move into residential property. Tamdeen Square, a mixed-use project featuring a mall, commercial space, a mosque and a hotel, will also include high-rise furnished apartments that will overlook the beach at Messilah. While Kuwaitis have historically been drawn to living in standalone villas, Al Marzouq is betting on the fact that skyrocketing house prices, a huge waiting list for government-issued houses and their distance from the city centre means that many will prefer the convenience of apartment life.
“In 1996, when I started with Tamdeen, the price of a small house around here was about KD105 a square metre,” the chairman says. “When I came up with the concept of Tamdeen Square, the price had gone up to around KD600-700 – and now you are talking KD1,200 a square metre. So this means that if you want to buy a small house of 375 square metres, it will cost you $2m.
“I anticipate that in the longer term, with the government applying taxation, tariffs and so on, the cost of running a house will no longer be the same. In addition, the younger generation are having smaller families. This is why apartments are something that people will be forced to use.
“The problem is that before, there were no quality developers and no quality apartments. People have been doing it on a very commercial basis, on a very small scale, with not much quality.”
Interest in Tamdeen Square is such that despite the fact that the project hasn’t even been officially announced yet, around 30 apartments have already been sold to owners via hearsay. Elsewhere in Kuwait, adjacent to the southern border with Saudi Arabia, the company is building more residential space as part of its $700m Al Khiran megaproject. Located at the heart of the maze of manmade lagoons that make up Sabah Al Ahmed Sea City, the resort-style development will feature a 75,000 square metre high-end outlet mall located next to a large circular park and a marina for 900 boats. Also included are two high-rise residential towers and a five-star hotel with an international spa.
Some may question why Tamdeen is investing such a significant sum in a project that is about an hour’s drive south of the capital.
But Sabah Al Ahmed Sea City is projected to have a population of around 200,000, and also stands to benefit from the presence of the thousands of well-heeled Kuwaitis who have second homes – or chalets – located along the country’s southern coast.
In addition, just over 300,000 Saudis passed through the nearby border crossing into Kuwait during the last three-day Eid break, and the hope is that Khiran can play an important role in convincing retail-loving Saudis living in cities like Jubail, Dammam and Khobar to travel north instead of to other established shopping hubs in Bahrain and Dubai.
When asked whether there is enough demand for all this new retail space, Al Marzouq says he is convinced that Kuwait can fulfil a crucial role as a hub for “conservative tourism” in the Gulf, attracting those who prefer to spend their holidays in more traditional surroundings, rather than racier cities like Dubai.
“To start with, Kuwait is hugely underserved – per capita, we have the lowest amount of retail space in the Gulf,” he says. “We are also a small country, and surrounded by communities like Iraq, Iran and Saudi Arabia. Dubai is in the lead, in terms of providing good quality tourism, but Kuwait has a certain spirit.
“The social aspect of it is very important; if you go to any of the shopping centres, you will see thousands of locals. There is a different energy, a different social life and this is good ammunition to attract GCC nationals.”
However, the one project that Tamdeen won’t be overseeing is the Madinat Al Hareer (City of Silk) megaproject, a giant $132bn new city, complete with a 1km-tall tower. Al Marzouq says the project is still going ahead, although it is now being run by the government. But in terms of diversifying further into other sectors and other geographies, Al Marzouq says he prefers to stick to the areas he is comfortable with.
“I don’t do endless things I don’t understand,” he smiles. “I don’t know everything, and I don’t want to be like those businessmen you read about every day in the newspaper, jumping from here to there – I can’t do that.”
The chairman is clearly happiest investing in his home country. Even the prospect of expanding Kuwait National Cinema Company, which raked in an impressive KD8.8m ($29m) in profits in the last financial year, holds no interest.
While the group is working with hotel brands as part of its new projects, Al Marzouq says that he won’t develop his own hospitality brand as it would need to be alcohol-free. There is, however, some scope for expanding the outlet mall concept in some of the Gulf countries – though not in others.
“While many of these retail companies may look like private-sector companies, in the end they are government-based,” he says. “You can’t compete with these companies. If I went to Dubai, I couldn’t compete with all the benefits they receive from their governments.
“But the outlet mall project is important – it’s an opportunity to explore the business outside Kuwait because the perception of outlet malls in the Gulf is not the same as the US or Europe – people here still perceive it as leftover goods.
“In reality, outlet malls are really trending upwards elswhere, while the normal shopping centre is at a standstill or even declining.
“So I feel that this is a business we’d truly like to grow; after Kuwait we have an opportunity in Bahrain, and we feel Saudi Arabia is our third market.”
Further down the line, Al Marzouq has no intention of following either his cousin or his father, who served as Kuwait’s education and trade and industry ministers in the 1970s and 1980s, into politics, joking that it is “an ugly business for ugly people”. Instead, he plans to continue using Tamdeen as a tool to help develop his home country.
“I believe that the projects that are coming up will be of great value to the whole landscape of Kuwait,” he says.
“My father is a businessman of the old school. He always said to me: ‘if you want to diversify your investments, go outside the Arab world. If you want to invest in the Arab world, invest only in Kuwait’. Kuwait is on the rise now, and I’m hugely optimistic.”
It is not often I say this but Mr Al Marzouq sounds a very nice sincere gentleman and of the "old school" .We need many more businessmen of his ilk.
I Have know Mr. Marzouq for the longest time and from a very prominent family, But still has no air or coms of himself.
He's a good business man and a visionary..
Robert, he is a very sincere gentleman and old Scholl as you would put it..
To men its all the upbringing to which he has had the best..
We do need many more business men like him.. And wish him all the best with his new ventures. Knowing him, He will make a good change..
as much as I agree with both remarks, i believe that the business structure that we see in kuwait is still consumer centric, and does not present an way to move to the new Knowledge based economy. Building Malls, and shopping centers may be needed in the event of its absence, but this is not what drive nations and economies today, and definitely does not progress nations.