By Shane McGinley
Mohammed Mahfoodh Al Ardhi got his early training as a fighter pilot in the Royal Air Force of Oman and recently was unveiled as the new executive chairman of Bahrain-based investment firm Investcorp
Like most Omanis you’ll meet, Mohammed Mahfoodh Al Ardhi has a calm and relaxed aura about him. So much so, that it’s almost difficult to picture him as a fighter pilot taking down targets, as he did when he joined the Royal Air Force of Oman from the age of 17 and then quickly rose up the ranks to lead the force for nearly a decade.
His father was a civil servant and encouraged him to enter public service at an early age, so instead of sports or travelling he did stints in the Ministry of Oil and Gas and at the court of the Sultan of Oman. His career after the military certainly hasn’t slowed down, serving as chairman of both the National Bank of Oman and real estate investment firm Rimal Investments.
However, he rose to further prominence a few weeks ago when it was announced that he had been appointed executive chairman of Investcorp, the Bahrain-based international investment firm which currently has around $11.5bn of assets under management.
So has be brought any skills in combat as a fighter pilot to his present positions in the boardroom as a business leader? “A lot of people ask me is there any commonality in banking and being in the Air Force. There is a lot actually. In both there is a leadership role to play. In both you have targets to achieve. In both you have competition and in both you have a budget to sort out, a system to make sure is functioning and teams to plan. It works wherever you are,” he claims.
The only time his cool exterior appears to even slightly stress or flicker is when the issue of why Oman has not taken a central role alongside the UAE, Bahrain and Saudi Arabia in the air strikes against ISIL militants in Syria and Iraq is brought up.
“In any alliance there are all kinds of things being done. There is transport to be done and logistics to be supported and storage of supplies. Everyone in the alliance will do what they can and I think that is what is happening,” he says, before shifting away to a problem facing the Gulf which he believes is an even bigger challenge than that posed by ISIL.
“I think Omanis feel ISIL is a threat but I personally think our biggest threat in the region is finding jobs for our youngsters, educating them for the future and diversifying our economies. In 80 years when our oil is finished and not cheap, what will have we achieved for our youth?
“We want a knowledge and manpower-based economy. I think the ISIL phenomenon will come and go but if you are ready with your population and you have trained them and have jobs for them then it is the best… [Youth unemployment] is the biggest concern I think.”
The issue certainly is one to be worried about. One in every four young Arabs is unemployed and the loss in productivity is costing the Arab world up to $50bn annually, according to a study by the Arab Thought Foundation and conducted by PwC. The report showed the region faces a major challenge and needs to provide nearly 80 million new jobs by 2020.
Speaking at the Arabian Business Forum last year, Crescent Petroleum CEO Majid Jafar said joblessness, not a desire for democracy, was the major cause of the Arab Spring protests and had still not been addressed by the regional governments. Recent reports by both the International Monetary Fund and the World Economic Forum found that Arab youth unemployment is among the highest in the world.
Jafar went as far as to call it “a timebomb” which threatens the Middle East’s political stability, and Al Ardhi shares his concerns for the future and what will happen if governments do nothing.
“[For] the GCC as a whole we have not done enough… we have not focused on this issue. We are still very comfortable with taking oil, selling it and spending the money. We are not diversifying. We are trying but without much focus.
“SMEs [small and medium-sized companies] are the backbone of the economy but you need to give them industry to work on. If they all start becoming real estate then we have done nothing. If they all become oil-related services then we have done nothing as if the oil goes down they will all go down with it. So I don’t think we have done enough.”
With the oil prices tumbling, Al Ardhi’s concerns are already coming to fruition. In late November, an advisory body to Oman’s government suggested sweeping spending cuts and tax rises, including a levy on liquefied natural gas exports, to cope with the hit to state revenues from the plunge in oil prices.
Oman has run a small budget surplus this year, but this is based on assuming an average oil price of $80 next year and no additional steps to boost revenue. If the price does not improve, the state news agency said the government is likely to post a deficit of $7.9bn next year.
As a result, sweeping taxation reforms are being considered, expenses are set to be trimmed and revenues will have to be increased. The issue is particularly tricky for Oman as it has smaller oil and gas reserves than its wealthy Gulf neighbours and costs of production are higher.
The sultanate was also one of the few Gulf states hit by Arab Spring protests and the leadership decided to issue sweeping benefits to try and placate the rioting youth. Al Ardhi warns that these potential economic constraints will do little to help address the issue of youth employment and the problems it could cause. “You know from Europe and from wherever… [what happens] if you leave people who are educated with no jobs for a long time,” he warns.
For a long time, there has also been reports of Oman’s wish to reduce its reliance on the expat population, in a bid to increase Omanisation and reduce youth unemployment. Foreigners presently make up about 39 percent of the Omani population of about 3.3 million, but they account for nearly 90 percent of all workers in the private sector, according to figures announced by the Manpower Ministry this year. With remittances sent home by these foreign workers increasing by 12 percent to $9.1bn last year, there is even talk of taxing this money stream in order to boost government coffers.
However, Al Ardhi says there is a need to address this balance as part of the overall goal of combating youth unemployment. “The idea is to ensure that the older businesses and industries do not feel comfortable by getting foreign cheap labour and then not paying their responsibility to Omanise.
“We want the balance. You don’t want to hurt your economy… But you also don’t want these companies to say it’s cheaper for them to do that [hire foreign workers]. It is the balance between bringing skills to go on with the economy but we have a huge responsibility to find jobs for young Omanis and if we don’t do that we will be in trouble in the future.”
It would almost make sense for Al Ardhi to consider going into politics, but he does not have any plans to move into the political arena any time soon. However, he is expanding his horizon, especially with his newly announced position as executive chairman of Investcorp, having previously served as a board member. “I like Investcorp and it is one of the top class institutions in its industry. If you go to New York it has a big office there. I like to help them as much as I can,” he says.
Founded in Bahrain in 1982, two thirds of its hedge fund clients now reside outside the Gulf and it is a truly global player. It has had shares in various high profile companies, such as iconic jewellery maker Tiffany’s & Co, Italian fashion brand Gucci, US-based Peebles Department Stores, golf cart manufacturer Club Car, European yacht maker Riva and Swiss watchmaker Breguet.
While Investcorp has recently been linked to approaches to Italian fashion houses Versace and Roberto Cavalli, Al Ardhi is reluctant to give any insight into what direction he will take as he takes the helm, but admits that he believes the firm is adept at taking advantage of these maturing family businesses.
“Investcorp was built to look at companies, in Europe and the US mainly, who are not doing well and the grandfather built them, the father worked hard and the grandchildren are not excited like the same.
“The grandfather and father wanted to grow the business but these guys want money. So Investcorp buys them and brings money from the GCC, restructures them, properly manages them, raises their value, sells them to those who can grow them further and brings the money to the investors. It is the bridge between GCC money and the US economy and it hasn’t deviated much from that. It will continue to do that wherever there is a private equity deal.”
Al Ardhi’s focus will of course still remain in Oman, especially as he also serves as chairman of the National Bank of Oman. The Omani banking sector did not see the sort of turmoil seen in the UAE and other Gulf states, mainly due to the fact it was more conservative, says Al Ardhi. “I think Omani banks in general, even in the downturn, had very little problems. We did not have the issues the big banks had. We did not have toxic stuff, the banks were capitalised from the beginning and there wasn’t the crazy leveraging that was going on. So the banking system in Oman never got in to the crisis like [what] happened in the west.
Evidence of the more conservative approach is the fact loans and advances stood at $5.76bn at the end of June, 7 percent higher year-on-year, while customer deposits rose 34 percent over the same timeframe to $7.25bn. The bank, the sultanate’s second-largest lender by assets, this summer posted a 25 percent rise in second-quarter net profit to $33m, which Al Ardhi believes will continue, with growth remaining at this level.
The lender is looking to boost its expansion plans with a recent $500m bond, which won’t expire until 2019. “At the moment liquidity is fine but in the National Bank of Oman we want to raise our capital to a position where we can really do more stuff. The fact we are present outside Oman in Egypt and the UAE makes the need for us to be able to do more business.
“Our strategy at the National Bank of Oman is all a growth strategy, so we are doing a few things. We are expanding in the UAE market, we have a branch in Abu Dhabi and we have a branch in Dubai, and we want to grow that business.”
One issue where Oman is different to the UAE is in the bounced cheque issue, which is a criminal offence. While this also applies in Oman, Al Ardhi says it is not enforced in the same black-and-white way as in the UAE, where people can easily end up in jail.
“We went into a period where Oman had a lot of this, where people were unware. If you give someone a cheque if you bounce it, it causes problems. But I think in Oman it has decreased due to awareness and because of the regulations.”
So does he think it is time to decriminalise the bouncing of cheques once and for all? “At the moment it depends on the transaction. Some of it can end up in criminal courts but a lot ends up in the administrative courts. [The Oman system] is a better system as sometimes the circumstances need to be taken into consideration. Taking a guy and immediately putting him into prison can actually make it even worse.”
Al Ardhi also works as the head of Rimal Investment Projects and Sundus Investments and is planning a number of hotel and real estate investment projects across the country, mainly in connection with UAE hotelier Rotana. But one clear example of how different Oman is to Dubai lies in real estate. Oman doesn’t seem to have to prove anything by building the tallest tower, designing the fastest rollercoaster or staging the world’s biggest sporting events.
“It is a different mindset,” Al Ardhi says. “We believe you come to Dubai for the hustle and bustle and it is great. Oman offers you culture and history and topography and people and their history.”
He admits Oman needs to “prepare the country for people to come and see it…. But I don’t think Oman wants to compete with Dubai on shopping or on large buildings or that kind of thing. We want to show Oman as it deserves to be shown. We want you to visit the souks, visit the mountains, caves and talk to the people and see the different climate.”
So what do Omanis really think of Dubai and its flashy excesses? “Omanis love it. They really love Dubai. They see it as something that complements Oman, you come for the shopping and the nightlife and do business and then go to Oman and you see the other things… tradition, history and culture.”
Tradition, history and culture are certainly part of Al Ardhi’s fabric as a person and while his profile is set to skyrocket over the coming months and years through his involvement in Investcorp, from the battlefield to the boardroom, his heart is still firmly in Oman and helping to solve its challenges and ensuring the next generation have jobs, a decent lifestyle and a better future.
Having attended the World Economic Forum on the Middle East in 2007, I remember that one of the main topics was unemployment in the region. Extremely alarming figures were given to make everybody aware of what our children and grandchildren can expect in the near future and to ask all decision makers to take urgent measures.
I have the feeling that no much (at least not enough) has been done since then and hope that Mr. Al Ardhi will be successful in his attempt of making clear that this huge problem needs to be addressed before it will be too late.
Unemployment is not the threat here. Lack of education is. The former is a direct result of the latter.
The reason, the gulf estates have to severely depend on expatriates to run their economies is because there is no focus on education here, all everyone every talks and thinks about is money, making and spending of it, sadly the education system is a also a victim of this approach.
The bigger threat is the uneducated youth, which will grow up and contribute to negatives of the society instead of growth and prosperity of their nation.