By Andrew White and Joanne Bladd
All the news and views from the 2nd Arabian Business Economic Forum.
And with that,
David Hadley departs the stage
to a warm reception (cheers included). Andrew Neil is set to conclude the 2nd AB Economic Conference, and he pays tribute to the speakers as well as the delegates. It's been a great day - and thanks for tuning in.
"Dubai attracts young doctors, from South Africa [to get away from] the crime, from the UK because they are sick and tired of the NHS... we also attract a lot of muslim doctors who want to be closer to their culture," says Hadley. "Then then there are those who have made their money, put their name on a lot of journals, and want a less stressful job."
Hadley admits that Dubai Healthcare City - at which EHL is a major player - hasn't lived up to its billing: "It definitely hasn't achieved its goal; there are a hell of a lot of coffee shops and retail outlets. The plan was to attract medical tourism, but I think the strategy should have been to look at healthcare here rather than medical tourism."
It's question time, and Andrew Neil has one (doesn't he always?) - if you're in the UAE and you
don't have any health insurance,
what happens when you get ill?
"If there are serious injuries, we are obliged to treat you. But obviously we are a business; we need to make a profit. We feel
Abu Dhabi went down the correct route
by making insurance mandatory."
Hadley admits that India is "extremely cheap and good"... and Dubai is a long way off from competing against that market, he adds.
"A couple of years ago 40 to 50 percent [of the market] was medically insured; now it's 80 to 90 percent so people are not as willing to take the risk," says Hadley.
According to the EHL chief, business is up 37 percent so far this year - not bad going in a downturn. And in addition, the dip in Dubai's real estate market means that it's proving easier to attract doctors from around the world. Nor does the market look like slowing any time soon - thanks to us unfit fatties of the Gulf, the
is in a rude state.
"We're a long way off from
healthy living in Dubai.
People work very long hours, they only take one leave a year, they are stressed, they work under very high pressure, and people are getting sick," grins Hadley, emphasising that EHL is all about "ethical" healthcare. "People genuinely feel that healthcare in Dubai is poor, and we are spending a lot of time building up trust so people don't feel they have to go home."
"There has been a big drive on costs by all employers and there has been a
new focus on health insurance
," says EHL boss Hadley. "That has squeezed medical insurers. Healthcare costs per capita here are very low; compared to the US, UK, and even South Africa. Employers are pressing more, and medical insurers are now battling with aging customers to provide the same care at a lower cost.
"In the UAE medical insurance is mandatory and we think that is important to provide access," he continues. "One thing that happened in the the downturn is that they invented a thing called swine flu - as soon as people had a snotty nose they would arrive. Definitely that affected us."
So there you have it - the swine flu conspiracy theory. It's like 9/11, Princess Diana and the Moon Landings rolled into one.
Hadley is off and running. "There has been talk of how people are spending less; one thing they spend more on is healthcare," he says, with a slight but definite smile. "As we get older, we get sicker.
Then we have the burden of disease. In this part of the world obesity and diabetes
is a huge population, and there is a high amount of maternity work in the UAE with the young population."
Still, it's not all sunshine and high-fives: "Many hospitals in Dubai have been put on hold or cancelled - Bumrungrad, the Harvard University Hospital, and the Mayo Clinic have all closed," he says. "Many staff have moved to facilities that have survived. But there has been less investment in these projects, and healthcare is an expensive business.
"It costs millions of dirhams to open a business, but
investors see healthcare as recession-proof
and want to enter the business. We like to think the Dubai population is still busy. But what has happened, we think, is that Dubai was in a nucleus and was starting to expand out, but now has contracted back. If you were a healthcare provider in the centre of that nucleus, you didn’t really feel it."
Last, but certainly not least,
David Hadley is the CEO of Emirates Healthcare Limited and Medi-Clinic Middle East.
He’s one of the most prominent healthcare professionals in the Middle East, and he’s at the forefront of the Gulf’s bid to become one of the leading centres of the world for state-of-the-art medical care.
And we'll finish with that age-old debate: is
the GCC suitable for habitation?
"Humans will always develop
but it's a tremendous problem," says Dr W. "People will need to find new ways to deal with agriculture. There is too much meat production in the world, for example. About 25 percent of climate change is caused by agriculture. Flatulant cows produce methane. So we need to look at a change in diet to manage climate change."
And with the image of farting bovines hovering in the delegates' minds, Dr W takes a bow - to warm applause. That was a really good discussion, although the overarching theme seemed to be that we're all going to die thirsty, hungry, and in the dark. A fate fit only for the England football team, methinks.
This is fascinating but a bit of a downer - this Englishman has had about enough of Germans for one week!!
"Abu Dhabi and the UAE wants to
start storing water
– if there were a terror attack on desalination plants here, the cities would run dry within a day," warns Dr W. "The idea that the GCC is the world's gas station couldn't be more wrong. The
power failures in Kuwait
or Sharjah show this."
Nor does the idea of ringfencing foreign farms and eporting food out of poorer regions hold water.
"I don't think that is possible. Sharing agreements are possible, but these need to be pushed forward. Investment in land was the flavour of the month in 2008. Companies made these pompous announcements, but fast forward two years and they only have a hole in the ground. They are far away from building actual farm developments and overcoming political disagreements."
Tell us about the Gulf's nuclear power ambitions, Dr W
[new photos here]
- any reasons to be cheerful there? Er, no...
"The nuclear power plans of the Gulf are very ambitious, and the long term costs are high; you have to question the economics," he says. "Renewable energies to date aren’t competitive, but we will see more economies of scale. And the costs are all up front.
Take solar energy
- the sun won’t send you a bill.
"With nuclear energy, we are banking on uranium supplies," he continues. "To use it in a power plant you need to enrich it, which is costly. With the current nuclear power technology – just what is available – we will fall off the energy cliff by 2064, in that it will be more costly to enrich the uranium than [run the plant]. People are invested in this nuclear revival, but it has its drawbacks."
as a proxy currency, in a stealth-like fashion," suggests Dr W. "Take a look at the percentage of gold in currency reserves in the US, which is 80 percent. In the Eurozone it's 60 percent. But China, Russia, and Saudia Arabia all have tiny reserves.
"It can't be the whole solution but it must be part of your diversification -
gold is not about making money
but about saving money for a rainy day," he continues. "The Gulf needs to adjust its savings portfolio accordingly. I don't have a crystal ball but it will play an increasing role in the hedging considerations of central banks."
"Everything in the GCC is about bringing below-ground capital above ground; whether invested abroad or domestically," says
the Gloomy Doctor.
So where do you invest petrodollars?
"The US is consuming more than it produces and the oil exporters, the Gulf and Asian states, are financing. It hasn’t been a free lunch for the US and they have financed growth in Asia. But we are seeing the limits – it can’t go on indefinitely. Total US debt has increased tremendously – it went ballistic in the 1990s."
So is the
global financial crisis
caused by greedy bankers? "No. At the heart of the problem is the debt explosion we’ve seen since the 1980s."
and Gulf states are dumping it into their power stations, that comes at an opportunity cost, says Dr W.
When it comes to sustainable energy, Dr W insists he is not talking about the "esoteric hobbies of tree-huggers", but of industrial-size
renewable energy projects.
"There needs to be more energy conservation, and the gas shortage can be overcome by exploration and better recovery rates.
He contends that there is an "infatuation" with
in the Middle East, and is sounding pretty sceptical at this point.
"I have questions, not so much with safety, but with the cost. Nuclear energy has been subsidised for 50 years and that is a long time. An important thing will be uranium supplies, so we need to increase mining. The idea of limitless uranium supplies is a myth - it looks like we are running out of uranium before oil."
now, and the idea that the Gulf is the petrol station of the world.
"It has changed since the 70s, and it is also now one of the petrol station’s best customers," contends Dr W. "About 18 percent of the
energy generated here is consumed here.
There will be a conflict between the exportable excess of oil, because more energy will be needed here. And why? The cities are growing, air conditioning, heavy industries – these are all very electricity-thirsty. Also, much of the water in the Gulf comes from desalinated water which requires a lot of electricity.
"A lot of
electricity is needed
in the region, and we have some of the highest levels in the world and much higher than other emerging markets," he continues. "There is a need for more energy, but a pressing need to consume less. Energy is subsidised in this region and what costs nothing is worth nothing, so this requires a radical rethink."
He says that in 2008, a number of food exporting countries announced restrictions [on foreign investment on farmland]. Despite Gulf states' pockets being lined with petrodollars, they couldn’t enter the candy shop. As a result, they have announced a number of investments in Pakistan, Ethiopia – it can be a win-win situation, but we don’t know yet.
"A lot of media hype called these
but on the ground, little has happened with these investments," Dr W continues. "I think the Gulf states will need to think these investment proposals through, and may change them. They need to think
about contract farming, about developing markets and investments
there, and about storage of food items."
There have been issues with financing some of these projects, Dr W says, adding that there has also been a political backlash. "Qatar has answered these and rethought its investments," he clarifies. "It’s not rocket science – the Gulf states’ population is growing, their means to grow food is decreasing, and on the global stage some countries are restricting imports. It’s a problem waiting to happen."
have a decline in water, and... and there has been an astounding lack of management of resources,"
scolds Dr W.
"Saudi imports about 35 percent of global barley exports/imports.
"Another impact is population growth – fertility rates in the Gulf have declined but they are still relatively high. Iran is a lesson to learn from, it has brought down birth rates from six children to two per woman. The Gulf could learn from this, particularly in places such as Yemen which is a disaster waiting to happen. The Gulf states are food secure as this stage, as they have the money. Yemen doesn’t."
So we're using too much water and having too many kids, by the sounds of it. What to do?
On another note,
Dr W is speaking
so fast it's as though he's going for a record. This is a Porsche of a presentation - slick and quick. Also German.
"The Gulf economies are still very much about oil so all debates are about diversification," says Dr W. "I don’t want to talk about either of these topics – instead, on two long term challenges that are not sufficiently discussed. One is
and the second is domestic energy and the long term value of petrodollars.
"Food security is very important – how we get it, how we store it, and whether we need to switch to more sustainable forms of agriculture. It’s a very challenging topic," he continues.
"So what has oil to do with food security? 25 percent of the price of bread you buy in the supermarket is oil and gas based; the food miles it used to get it there, the mineral fertilizer used to grow it. And the environment and climate change. That will heavily impact food productivity; the impact will be particularly pronounced in the MENA region and the countries where the Gulf states have announced they will invest."
Dr Woertz has the look of a practised speechmaker - he's left the podium behind and has a presentation all queued up. The man's wielding his Powerpoint clicker like it's a weapon, and using a red light pointer to highlight parts of a complex graph depicting barley imports to the GCC. This man doesn't mess around, and he's ploughing into
land grab investments
- more on that later.
has been a visiting fellow at Princeton University and has extensive experience in banking and finance. He has held senior positions at a number of German banks, including the country’s oldest, Delbrück and Co, in addition to posts at several UAE-based financial services companies.
His research interests include the political economy of the Middle East, financial markets and energy issues. He’s also a dab hand at predictions: in February 2005 Dr Woertz published ‘The Role of Gold in the Unified GCC Currency’, in which he predicted a long-term bull market in gold. And then, in his 2006 GRC publication ‘GCC Stock Markets at Risk’, he warned about an impending stock market crash in the Gulf. What happened next, eh?
And when AB last interviewed
back in November, he warned of a
“nasty surprise” for the global economy in 2010.
Any chance he’s lightened up a little since then? Let’s find out…
Guten Tag und Willkommen zurück zu der Arabian Business Konferenz, mit dem Namen ‘Leben mit Legenden’!
Why am I writing in German? As a mark of respect to the side that smashed England in the World Cup last night? Nope. It’s because our next speaker hails from the Bundesrepublik Deutschland.
Dr Eckart Woertz is head of the economic department at the Gulf Research Centre,
one of the region’s leading think tanks.
We've just updated our
photo gallery from the Forum
to include all the action from this morning.
Andrew Neil: "Could we get the Ruler of Dubai to pass a law stating that any property owned by an
must be immediately repossessed? Because they need to suffer."
Nicholas Maclean: "I think the property should be given to a German. Immediately. As punishment."
More laughter, and with that in mind, it’s time for lunch. The Armani Hotel has put on a fine spread and as the delegates begin to drift towards the dining room, there’s no way I’m going to be left at the back of the queue. Join us later (from about 2pm) for what should be a cracking afternoon of discussion and debate. And in the meantime, why don’t you have a browse
through our photo gallery
to put a few faces to names? Triffic…
It's Q&A time again... Andrew Neil asks why there haven't yet been more
repossessions in Dubai.
"Banks do not want to end up with a mass of property as they can’t sell it," says Maclean, and
fires straight back - "I believe the term is sub-prime?". That gets a good laugh.
So why doesn’t strata law, or split ownership of buildings work? "We’ve tried to corral owners in a number of buildings to work collectively to free up space for corporate tenants," says Maclean. "In the best project we’ve been involved with, 60 percent of owners were not interested in talking to their neighbour owners to let their building. It’s the result of inexperienced and absent investors."
"REITS are very interesting, normally used for tax advantages. That doesn’t apply here, but the idea of creating a collective form of investment is important here, to drive investment from retail investors. As Jeff [Singer] said, the lack of retail investment is a weakness here. The DIFC is important for all forms of investment so we already have a mechanism that would allow a REIT in a form of a collection vehicle to work here."
Maclean says that there isn't as much distressed stock "as you would expect", and he believes that this is another weakness.
Moreover, there are defaults on the horizon.
"Not all investors have bitten the dust; it depends when they entered the marketplace, and those who entered before 2007 are probably still sitting on a profit."
"The governments here... we keep hearing about mortgage laws coming into Saudi, but we’ve been hearing this for five years. We need a catalyst for
here. It has dried up, and that is a common complaint. The selection process is tough and it’s not enough to sustain growth in the market. Those working in the real estate sector like me
find it hard to get a mortgage,
because the view from banks is that we are likely to lose our jobs and are a bad bet."
Maclean predicts that
population growth in the UAE
will be "good", and that the country has "one of the highest levels of immigration in the world", adding: "You can see where future demand will come from, even though it has reduced. We need to change the structure of society here so more people are prepared to put roots down here and spend into the society," he suggests.
And what of the reform of residency regulations for freehold owners?
says that visa regulations "stop people enjoying their accommodation, even if they are visa holders. This is a barrier to investment capital and we need to take all these barriers down to create an investor class within the country. A holiday home market, where people spend a few months a year, will not be significant enough to drive the market."
It's not getting
any brighter for Dubai,
either, he reckons: "My firm’s view is that, on the commercial sector, we think the level of vacancy [in Dubai] is around 30 to 35 percent. The market is fragmented into two parts. Buildings that are well located with single ownership are full.
"Those with strata occupancy are almost all vacant.
The 2010 pipeline
is almost 90 percent strata, so we have a problem. The government has passed laws recently to address this, but it needs to go further. The residential market follows the commercial market; the holiday homes markets is small here. It needs people to come and work."
"We automatically are providing affordable housing in some of the blocks – the landlords might not realize it yet, but they will," suggest Maclean with a wry smile. That gets a chuckle, and a few weary sighs...
So is there a de facto moratorium on new residential builds? "No, there are still niches in the marketplace that can be addressed," insists Maclean. "The difficulty for developers who started their schemes in 2008 and are experimenting with locations – they will find it difficult."
Looking forward, what will drive occupancy? "Buildings that are well-located, well built, well-maintained and above all well-marketed – that is what we need. Some buildings are hopelessly badly marketed – if they were given to a professional marketing firm, someone could get occupiers. That is key to making profit in this marketplace, as developers cannot produce demand. They have to chase it."
From an investor's perspective, Maclean emphasises
transparency, security, stability and liquidity.
"From an end-users perspective, you have to be timely – you can miss the opportunity. They are being too bullish at the moment – they believe they have an infinite amount of options; they don’t. From a government perspective, it must capture all available investment about to flow around the world. It captures about 12 percent, but the rest of the world exceeded 50 percent.
"That’s an opportunity, and we can do that by legislating for sustainability. RERA is very important. The goverment must regulate demand and supply, as we have to do something to look beyond the city state in which we build this stock. The
GCC states must complement not compete
with one another across the board."
Here's the quote of the day so far, from
Nicholas Maclean, MD of CB Richard Ellis:
"Dubai is the Baslidon of the GCC, the dormitory town that people will use to live in, while they work elsewhere." Ouch - I'm sure that's not what it says on the brochure...
So what lessons have been learned from the
real estate crash?
Maclean's pretty scathing, and he retitles the question: "It should be 'what should have been learned', because some people have ignored the lessons.
"The market here is cyclical and demand-led. All its ancillary aspects are becoming homogenous. The person putting HSBC staff into accommodation in Hong Kong is the same one doing it here – we are not longer competing regionally, we are competing internationally. So the easier we make it, the better. There is only so
much stock we can absorb
– we can continue to build, but without end-users a large proportion will remain vacant. Developers will also know that pricing is completely out of their hands. They can’t control the pricing of their own stock, so the tests that go in before real estate is developed, must be far more robust."
Maclean continues: "A key factor in the weakness of the markets here is a
lack of liquidity,
and this is leading to a lack of transactions that is hindering developers. Strata law and off-plan developments have been largely discredited, and we have a lack of effective buyers in the market – the sentiment of some is quite bullish, but they cannot complete their transactions because of a lack of credit. Buyer and seller expectations are also out of balance.
"Some buildings here are flawed and will never sell well or never let. The health of real estate is depending on the underlying health of the economy and the residences. If there are not the fundamental end users to take up stock, they will
real estate is trending upwards.
Institutions and Sovereign Wealth Funds are bolstering their investments from around 5 percent to 55 percent – that is a massive amount of property. We have an objective here to get more of that capital into the region as it is bypassing us now.
"Commercially, real estate is being driven by foreign companies. We act for about half of the Fortune 500 companies around the world. More than 90 percent in the region have their regional HQs in Dubai – it is still seen as the portal into the region. In my view, there is no competition. The primary competition will be Abu Dhabi, but not for three or four years – which gives us an opportunity to absorb supply."
Maclean tells us that
he's a Dubai fan,
and that he's bullish on the future of the property market in the emirate. "The primary function of real estate is a facilitator as an engine of growth for the economy.
If you look at real estate in London or New York or DIFC here, they are dependent on their cities. The
would not have been possible without Dubai drawing in people to live here, work here.
"I’m an admirer of the UAE, but I’m not blind to what we need to do over the next five to six years to ensure the property market can support other components," he adds.
Last Legend before lunch, and this should be a good one.
is the MD of
property consultancy CB Richard Ellis
12.18pm AW: A final word from Superman/Jeff Singer, on the
that took place earlier in the year:
"I have a new owner, DFM. One of the things we’ve done in the consolidation and why it has taken till now to get to the goal line is it has to be very clear there is a difference between Nasdaq Dubai and DFM – we have different regulators, we have differences that need to be reconciled.
"It took a while to work through – I will continue on as CEO of Nasdaq,
I’ll have an independent operating board,
as will DFM. The biggest change will be that Nasdaq Dubai is adopting a model that has been very successful for DFM in attracting retail investment.
"We also have preserved a way for institutional investors to come in – but, there will be changes. We’ve produced most things critical for the institutional investors, but we needed to create a way for local retail investors to come in and that meant consolidation."
Nasdaq Dubai CEO done and dusted,
and he gets a great reception as he flies offstage. Probably off to save the world, one investor at a time.
The questions from the floor are flying in now, and Singer's coming across well.
So would short selling have made the
worse? Might it have hit the markets worse?
"It’s hard to go worse than 70 percent [down],"
Singer says with a smile.
That gets a laugh (although investors might not see the funny side). The reason why London, NY and Nasdaq called a halt was because they were naked shorts. When the markets are going down, you don’t want to take the liquidity out of the market – which is why those three stock exchanges backtracked. It’s not shorting, it’s naked short-selling."
On Singer's third point, who would be responsible for reclassifying the market, as he proposes, from
'frontier' to 'emerging'?
"It’s like peeling back a curtain – they have they models and classification process, which is somewhat public. The UAE is pretty close [to become classified as an emerging market] but those things are significant. [These things include] a segregation of assets, the way brokers and custodians interact in the market, its clearing and settlement cycle – it’s a two-day cycle. All the stock markets in the Middle East are classified as frontier. We’re lobbying at Nasdaq to be seen as an emerging market."
So what of the region's
is there anything on the horizon, or will Gulf bourses be mothballing for the rest of 2010?
"For IPO pipelines, the financial sector has been the most popular since 2008. If you look to 2010 and 2011, there is a mix in the pipeline; it’s everything. Around the region, there are a number of firms planning to come out – but the way you go public in the Middle East is that you set a valuation, you go to the ministry of finance and that becomes your
price. If the markets are below par, if you go public now, you could be priced below asset so why would you go out? You need sentiment to improve to at least get book value for your company, let alone market value."
"Volumes on local exchanges are at an all-time low because the institutional investors pulled out and stayed out," explains Singer. "The retail investors are sidelined as well – they’re waiting for the institutionals to come back, and they’re waiting for the markets to pick up. It’s a waiting game because there is no way to hedge."
Now we're on to increasing liquidity in the capital markets in Dubai – why aren’t firms in Silicon Valley, say those who can’t list in NY or London, listing here?
"First, there are a lot of high-quality companies looking to exit here. They’re waiting on the markets to improve. The high-quality companies in Silicon Valley and the like, the reason they go to other markets... to be honest, if they’re not going to go public on London or New York, they should go to Hong Kong not the Middle East."
Really? An intriguing suggestion, especially from the
CEO of a Middle East bourse...
"The reason they aren’t [going to come to the Middle East] is because institutional liquidity follows retail, not the other way round. You have to have retail first – and those are the people who know and understand the stock. They way they invest is because they think the product is cool.
"It’s just, say, the iPad is really cool. Then there are the people in Silicon Valley who know the people who work for Apple and they hear a little here or there, and they trade on that. These day traders build up the volume, and the institutional investors need that. The
Middle Eastern firms who listed in London;
they don’t trade at all because no one knows them. You need a strong retail base to build an institutional base."
"The common conception is that short-selling is a 'bad thing' - hence various markets around the world banning it at key points during the global economic meltdown. So why would we want it here?
"There is a cultural resistance to short-selling here," insists Singer. "The London Stock Exchange was correct in banning it, as was the NYSE, but that was naked short selling, not covered short-selling and you can pound the stock down.
"Here, you can ensure that every short is covered because while the stock lending and borrowing agreements are bilateral in the West, here they can be multilateral by making it part of the exchange. The regulator could have access to the stock lending and borrowing facility part of the regulatory regime, so you can monitor it.
"In the West, they were outside the regulatory regime. Here, it goes counter to
that you can sell something you don’t own – but there are ways you can do it in Sharia, if you can cover the short selling or you share some of the profit from covered short selling."
So that's a resounding 'yes' to short selling, but a stern 'no' to naked short selling. You've been told.
Don't want to cut in Jeff but the
first batch of photos from the Forum
are now live.
Here's a bit of positivity: "Silicon Valley did a lot of things that people thought were crazy – but what you got at the end was the undisputed technology capital of the world. Dubai had a little bit of craziness but it could be the undisputed business capital of the Middle East."
That's fightin' talk from the
boss. So why aren't Middle East markets recovering? "If I were to look at the
and the capital markets regime, I believe there need to be some fundamental changes to allow the retail investor to interact with the institutional investor and to safely exit the market.
"You have to give them a way to come and stay – if they have to leave at the first sign of danger, you will always go through what I would say high-beta cycles. When everyone is going up we go way up; when they go down we go way down. That takes a long time to recover from."
Singer's on a roll now... "Then finally, the third thing that would help values and volumes would be if the MSCI would reclassify this market from a
'frontier market' to an 'emerging market'.
There are billions of dollars in funds around the world that have a mandate to invest in developing markets.
"Being in a frontier market, these dollars never find their way here. If it were reclassified, these funds would need to find companies and invest in this part of the world. These changes are closer than we think, and need to be pushed along.
"If I were to wave my magic wand to improve the capital market structure, we need a Middle East shortselling regime, we need a good mix of retail and institutional investors, and we need regulatory changes that would allow the MSCI to reclassify the UAE as a emerging market," Singer summises. Are you listening, regulators?
"Number two, the thing you need to have is a mix of institutional and retail investors. Most companies in the Middle East look like they’re companies that have private placements on a public market – they have 30 or 40 investors but they went public anyway. Then a number of others -
Drake & Scull,
for example - went public to a broad market and they trade well.
"The countries need to ease on the foreign ownership limits – the institutions get nervous when they approach foreign ownership limits [49 percent in the UAE]. They could also look at a clearing, settlment and custody regimes that international investors can easily work with, with enough similarities to that in the US and UK."
As promised, this is pretty candid stuff from
. He's not pulling any punches or claiming that all is well in Gulf markets - he's telling it like it is and using his speech as a platform for a wake-up call. What do Gulf markets need to succeed? Short-sellling, it seems, is the Big One.
"The first thing that needs to change is that you can only make money in a bull market here – if it moves to bear, institutional investors can’t short the market. Instead of hedging their positions then, institutions run for the hills. The most clear example was July and August 2008 – they just exited. It was unbelievable. The first sign of problems was the Morgan Stanley report on property values in the Middle East, which predicted a 5 to 10 percent decline. There began a widespread pullout.
"If you look at when other markets tanked around the world, institutional investors changed their strategies or new types enetered. Either way they stayed to provide liquidity. Here, there has to be a way for investors to make money in a bear market – and that means short selling.
does allow it, we have a
, but overall there needs to be a regime to be able to short this market."
Singer turns to IPO activity in the region and globally. "Let’s look at
IPOs in context
. In 2008 the Middle East was spectacular. It was a very strong time, but then Lehman went bankrupt and the world crashed. The sign outside stock markets all around the world was ‘closed for business’. Then in the beginning of 2010 it started to pick up. In the US, the pipeline there is as strong as it has ever been.
"Sentiment is fair to partly cloudy, we will see a healthy recovery. If you look at Hong Kong and India, it’s looking pretty bullish too. In the Middle East, a year ago it was very bad, but now I’m looking at
the IPO activity
as ‘at least we have a pipeline’.
"That's better than it’s looked in a long time. The common refrain from companies here in terms of when they will come out, is when markets improve. Lots of firms want to raise cash in the equity markets, but
they’re waiting for the right timing
. So when will that be? What will move the markets forward? There are a lot of ways to answer that –and in many ways I'm not qualified to."
Singer continues: "If you look at India, the subcontinent, the best word to describe it is 'growth'. India and Hong Kong were trading well in early 2008; compared to two years ago, it’s up over 100 percent from its peak. It’s clearly a bullish sentiment in India, Hong Kong and that region. The values are going in the right direction. Investors are saying the US is tough, let’s look at Asia."
He adds: "There are
19 exchanges in the Middle East
, and let’s look at those that trade; in Dubai and Abu Dhabi, it’s negative. The values are not improving and the volumes aren’t getting better either. The numbers aren’t great."
Man of Steel
is telling us a few things about the capital markets in the Middle East: "I'm not sure I would describe the fall from value in 2008 as 'spectacular'. It’s one of those things you almost have to live in to appreciate it. I’m on my two-year anniversary so I experienced one week of the Dubai miracle – it was a lot like Silicon Valley in the late 90s. It's thrown everything you know about business out of the window.
"From 2008 to now, the Middle East is different to the rest of the world. If you look at what’s gone on in the US and London since Q1 2008, I’d look at how those markets are recovering. If you look at the NYSE, the
London Stock Exchange
, if you look at the values, they're in a state of recovery. Values are down, but in a better place than 2009.
"The raw trading that occurs tells you the sentiment. At the beginning of 2008,
the value was low but the volumes were strong
. In 2009 it became a real bear market. In 2010 we are seeing trading values improve. A good word to describe what is happenin in the US and UK is 'recovery'."
which lends him an immediate air of authority. I also think he looks a bit like Clark Kent, but without the glasses. So we've got Superman on stage?! Nice! 'Supes tells us he's going to be steering clear of talking us to death with data, apparently. He also promises to be "candid" and keep away from "too much exchange jargon" (thank goodness)... No powerpoint presentation either - bonus.
There's coffee and networking going on all around me now - a whole host of television networks are buttonholing our Legends, and there's a lovely selection of snacks, no doubt each individually
hand-picked by Giorgio Armani
The next man to the podium is
Jeff Singer, the CEO of NASDAQ Dubai
. Established as the
Dubai International Financial Exchange (DIFX)
in September 2005, the bourse lists equities, equity derivatives, structured products, Islamic bonds, and conventional bonds. And the American will no doubt be looking to Ghana support for the exchange as he nears his three-year anniversary as CEO! Singer will take the stage in five minutes or so.
All those waiting for our photos from the Forum, please be patient. We're having a few technical problems but they should be available soon.
The atmosphere has calmed down now; it's all very civilised. And breathe. So what lessons have been learned?
"Nothing comes easy – whatever you want to do you have to go after it. The opportunities we’ve had in Dubai, in the UAE, we captured the as they presented themselves. We have no regrets about how we grew. What saved us and is still saving us is ‘look after your money’. Save for a rainy day. Without that we would have been in trouble.
"Good things never last so you have to
think of the downturn during your good days. We always had that at the back of our minds
. We were sensible in our approach – we never competed with our clients. We never entered the property market as such… we never competed in that sector. We knew we were contractors; that ‘s what we did best, so we stuck to that.
"We didn’t expect the downturn to come so quickly – we expected it to come gradually and slowly rather than falling of a cliff."
One down, and that means four to go. Right now it’s coffee break time and my fingers are on fire. Not easy, these live blogs...
More on the Aabar deal. "We are still talking to Aabar. We declared that.
We will probably reach an agreement
when we find an a strategy that is workable for both parties," says Kamal, with an air of finality.
Andrew Neil moves the debate on, as Kamal's clearly a bit irked by the line of questioning from the floor. Boo! That was just getting fun (in a testy kind of way).
How do you see
the construction sector in Dubai
in the future? "A lot of the property that you see here is completed, is second, third homes for international and regional investors. They bought these as holiday homes, second homes and they will not sell. A lot of the new property – and that will be around 40,000 units this year - will take time to be absorbed.
"We will head back to the basics of
supply and demand. I feel Dubai will need four to five years before it can absorb
[new supply]. Dubai is still a destination – you ask young people in the Arab world where they want to work, and they will say ‘Dubai’ immediately. That will continue to be the case.
"We need the government to find its way, to resolve its financial commitments, and I’m not going to speculate on that. Better people are qualified to do that. The commercial property market is the same – there is plenty of new space."
So he's blaming it on the press? "Too much speculation in the press was not related to the facts of the situation," says Kamal.
It's getting heated and Kamal's voice is raised now - he's angry with the press and he's not taking too kindly to the tone of some of the questions from the floor, either.
Someone's just accused him of keeping information from the press, of not being transparent on what was going on, and therefore leading to the speculation. He's firing back - "it was two companies announcing their intention to form a partnership"; why shouldn't Arabtec and Aabar be allowed to conduct their busienss without discussing it with everyone else?"
Here we go: what happened with the
Aabar deal, and who broke it off
? "Aabar is owned largely up IPIC, which is government owned. I think to say it without saying too much, the bottom line of what went on, the owners of Aabar had a review of the intial agreement and they decided the best deal they would have with Arabtec.
"The press was speculating this was government interference in Dubai companies. The deal started because it was a strategic deal for Aabar to get a stake in a good construction company, which was Arabtec. They are embarking on a string of construction projects for them and they wanted a construction arm to work with. For us it was a good link to Abu Dhabi government, that would have opened the doors for us to large inftrastructure projects. We wanted a replacement for our [dubai] resources, right next door.
and wanted to set up something in a different structure. We are still talking and probably will find a formula that will achieve the intention of the oritignal deal. It’s not over yet, but we had to declare that the first deal was cancelled."
Asked if other regions catching up with Dubai, Kamal answers: "
Dubai is a long way ahead
of everybody, Abu Dhabi is catching up quickly, as is Doha, and Oman is a bit slower. It’s very small, but it has tremendous facilities. They are embarking on major projects outside of the capital to develop the country."
Kamal on government-backed projects: "Dubai started like this, so are other Gulf states now."
Someone asks if the answer for region’s growth is all economies pursuing same path as Dubai or opening markets up for competition and better regulation?
"I see regulations changing a lot, in places like
. Ten years ago, it was very time consuming to register a company to operate there. Today, they have established SAGIA... [and] I believe you can register a branch office in Saudi within a week from completing your paperwork. That’s an example. I think countries are on the path of development, of better regulations to help those they need to come into the country to build the projects they need. In Doha we don’t see much change in regulations – but it’s also not to difficult to operate there, either through a partner or through an office there. In other parts of the MENA region, the rules aren’t too bad. We’re building a hotel in Syria and we registered there a year ago. That only took a month."
doing pretty well here - he's getting some pretty testing questions but is prepared and very smooth. That's why he's a Legend, I guess...
"Dubai will always remain the hub," he insists. "People might be migrating for work, but their families, the children are still here."
Does Dubai have a rival? "Doha would like to think so, but I don’t think it’s a question of rivalry. It’s good for
Dubai to see Abu Dhabi come up
, though – it’s two centres attracting people to the area."
10.32am AW: Someone is asking the multimillion dollar question on the restructuring of Nakheel.
Will the developer deliver the cash it owes Arabtec
"At 8.45 this morning, driving here, I knew I would be asked this question. I called the CEO of
and I said: 'Marwan, I know I will be asked this, what should I tell them as I haven’t seen the colour of your money yet as promised.' He said the money will be coming this week or next week, so that should answer your question. That’s all I can say.
"I hope they will deliver because that would be good for the market in Dubai and Dubai as a whole, in terms of confidence rebuilding. I shouldn’t doubt they will deliver. The 60 percent we were told in the meeting with the new chairman of Nakheel, will be coming in the next three months.
"Nakheel is waiting to have 95 percent of creditors approve the restructuring arrangement that was announced - I think they have reached 60 percent."
The questions continue. In reply, Kamal says there is a lot more competition for jobs. "We are
squeezing our costs
to try and keep our margins down.
Our margins in 2009 and 2010
are still relatively comparable to those in 2008, the reason for this is not because the same margins are priced in, it is because of the efficiency we are operating with now. We are conscious of where our cash is going, which is positive on our bottom line."
Are you a global construction firm now? "We have no choice. With our size and experience, we have confidence we can operate in these areas.
Dubai has been so good to us – and to many others. We’ve been able to build experience that we can now export today, to neighbouring countries.
"We have to enter local markets as joint ventures. It’s the easiest way to enter the market – it opens the doors for you. Because these partners are up to their ears, they need us and our experience, and our resources and labour force. And it gets us over the regulations and eases your entry."
that local firms "have work coming out of their ears and they don’t have the resources to manage". He continues: "The big contractors, the major players in Saudi, like us we were very greedy and tried to get as much work as we could, to maintain a solid backlog. I think they are still doing the same thing and taking more work than they can cope with. They need us. And we care about our bottom line."
The Q&A begins with Riad Kamal: First question - So how bad was the
slowdown in the UAE
? "It wasn't too bad. There was a momentum and a lot of that momentum continued throughout the downturn, so projects that were underway carried on. That momentum existed in 2009 and still exists in 2010. What was affected was the backlog that construction companies rely on."
Kamal continues... "Abu Dhabi and the other MENA countries offer new opportunities. Look at Qatar and Saudi Arabia, as a result of pent-up demand before the credit crisis. The
construction industry has weathered the economic storm
, everywhere apart from Dubai. Companies should now identify sourceds of future growth – that may be infrastructure or government growth.
"Companies must position themselves to capitalize on these. A lot of large contractors are going to consortiums, but that stil means busienss for local suppliers. they will need us to commence work."
Some interesting stuff here. He says private developers in Dubai are
likely to steer clear while it restructures its finances
– but he adds that the government is likely to continue to spend.
"Look at the airline services, the infrastructure, the ease of doing business here in Dubai – we have confidence in its ability for the future. People know about the debt of Dubai, but not how the debt was generated. We need to market it more aggressively to capture more investors and residents."
Kamal says his
company is currently chasing projects
in Saudi, Syria, Lebanon, Egypt, Angola and Azerbaijan.
"When we land projects - and
we are landing projects
- not only are they out of our comfort zone of the UAE and Qatar, there is a change in the type of projects we target. Instead of buildings we are looking at infrastructure, oil and gas, and railways - low risk projects," he tells the Forum.
is up. He’s the CEO of
and the founder and executive chairman of Arabtec Construction, the Gulf’s biggest construction and engineering company. He tells the audience how two years ago he was signing a multimllion dollar deal with Emaar and Nakheel. Nobody batted an eyelid - it was business as usual.
A lot has changed since then
"The truth is that the Middle East remains one of the most attractive markets in the world, with $2.7tn set to be spent over the next five to seven years. Five years ago diversification was a dirty word - our board argued for diversifying out of Dubai, and I fought against it. Today we are fortunate because we are not too far from healthy markets, nor too foreign to healthy markets."
Just about to get things underway here but word reaches me that Arabian Business editor Damian Reilly has been stopped by security, and asked to leave his vuvuzela at the door. There’s always one that has to ruin it for the rest of us...
9.55am AW: Hopefully our panel of experts will be able to give us their own insights and a clearer picture on the regional and global economies. And if they don’t, they will have to answer to one man: our compere, the
incomparable Andrew Neil
As erudite as he is incisive, Neil is a renowned newspaper editor, publisher, and broadcaster who has fronted both The Daily Politics show on BBC Two, and This Week on BBC One since January 2003. His varied career has included stints as a political advisor, as UK editor of The Economist, editor of The Sunday Times, executive chairman of Sky Television, executive editor of Fox Television News in the US, and he is today one of the most respected (and feared) television anchormen in Britain.
Oh, and did I mention that Neil is also chief executive of The Spectator and chairman of ITP Group, publisher of Arabian Business? FACT. Also, being Scottish, there’s no chance that Neil’s preparations will have been distracted by the World Cup…
So why are we here? Today’s event is the second Arabian Business Economic Forum, subtitled ‘Learning from Legends’. What’s in store for us and the Gulf economies over the coming months? And what can we do to ensure we’re in the best position to move forward in 2011?
Signs coming out of the
G20 summit in Toronto
are worrying, with the US warning of a double dip recession. In Europe, three words sum up the economic plan: cut, cut, cut.
Over here in the Middle East, meanwhile, the official picture is a little rosier. Earlier this month the
Arab Monetary Fund
chief said growth in Arab economies will accelerate to at least four percent on average this year on higher oil prices, while the impact of the euro zone debt crisis will be small if any.
And just last Friday, the
Ruler of Dubai dismissed concerns
over the UAE and described its economy as “fine”.
9.45am Andrew White (AW): You thought England v Germany was edge of the seat stuff? That’s an early-morning stroll in an empty park compared to the frisson generated by an AB conference. We’re here at the Armani Hotel at Burj Khalifa – and it’s an appropriate setting for what promises to be a star-studded event.
Our line-up reads like a team sheet of top-drawer talent – think Brazil, circa 1970, or England last night. Joining us later to speak in front of a confirmed audience of more than 250 business leaders will be Riad Kamal, the founder of
CEO of NASDAQ Dubai
, property guru
, Gulf Research Centre wunderkind
Dr Eckart Woertz
. And the day will be compered by
, broadcaster, editor, publisher and chairman of ITP Publishing, the publisher of Arabian Business.
The first speaker, Riad Kamal, will be taking the stage at about 10am so check back for updates.