Speaking to the Dubai School of Government about economic recovery in the GCC, Ali al Shihabi, Rasmala founder and chairman, said one of the weaknesses in the GCC economy is the lack of human talent in the public and private sectors.

He said: “In the GCC economy, one of the main acute weaknesses is a shortage of human talent. A shortage of management capabilities and that extends from the private to the public sector. People get surprised sometimes when you come into a government ministry, you see this beautiful building and you assume that it is going to be populated with a huge body of talent. But there isn’t that much talent.

“In Rasmala today we are looking for a PhD in economics who has good command of Arabic language and we are searching the whole region and we can’t find one.”

Shihabi said the economic infrastructure of the region in terms of policy making, be it central banks or ministries of finance or economics, “really doesn’t have a huge body of talent compared to any relatively advanced economy”.

He said: “Many people get surprised by the quality of policy making and wonder how some decisions get made and they try to find complicated reasons to explain that. And actually in some cases it is a simple answer, it is that the talent is not there. A smart minister by himself cannot commit miracles, he needs a body of people – think tanks, policy making staff, people to generate ideas, people to collect data. Without that in many cases he is flying blind. In the region we suffer from that lack of talent and we don’t really recognise it.”

Shihabi said a clear indication that the region has not recognised the shortage of talent is the number of new entities opening up in the GCC. He said:  “One of things that has happened in the past three or four years is this obsession with setting up new entities instead of reducing the number of entities and recognising that we have limited human talent. Whether its new companies, new government ministries or departments.

“This acute shortage of human talent is something we face and we suffer from and the solution to it is a long-term solution. In the interim we should recognise it and build our structures accordingly. The depth of talent that you need, you don’t have that.”

He also alluded to lack of transparency and an undeveloped legal infrastructure as two other major weaknesses for the region. He said the underdeveloped legal infrastructure in the Middle East is deterring international banks from setting up in the region.

“Another weakness is the undeveloped legal infrastructure. What that does is increase the risk premium, particularly for the banks. One of the big engines of economic development are banks and yet banks are very reluctant to lend in this region because the legal infrastructure is undeveloped and the chances of quick recovery of your money if you have a dispute are not very high.”

As the global economy sways eastwards, Ryan Harrison finds making an impression in the emerging markets is best done in person.

Capturing the growth in the east won’t be done by remote control. That’s the warning from senior economists based in Dubai, who advise western banks and businesses to get bodies in the emerging markets before they miss the boat.

The switch from developed to emerging-led economic growth over many years has been well documented. Some say the world is in the midst of an economic gravitational shift, some call it a tipping point.

The message is clear: in the post-financial world order, markets such as China and India now sit at the top table.

Leading Gulf-based investors say it’s worth remembering that building relationships and reputations in Asia can only be done in person, face-to-face, not over teleconference.

“Certain emerging markets are less developed in terms of institutional practices and are more dependent on relationships, so you need to be on the ground,” says Ziad Makkawi, founder and CEO of Dubai-based asset manager Algebra Capital.

“On our asset management side, a lot of institutional investors still look for someone with boots on the ground, rather than flying in and out of a region.”

Makkawi says there’s no disputing that GDP growth in emerging markets such as China, India and the Middle East are much stronger than OECD or developed markets. Something especially true after the financial crisis, given that there’s a general consensus that places such as the US and Europe are less likely to have strong growth in the next few years.

“So companies in these markets have to look to where the growth is. In order to cater to the strategy they need to reposition talent and people accordingly. The earlier you do this the better because this trend is taking shape, and you’d rather be early than late to catch it.”

Makkawi believes companies need not become overly obsessed with the emerging market story though given that these markets are exactly that, emerging. “Remember that one per cent growth in the US is equivalent to four per cent growth in China.”

As of this month, however, HSBC has transferred its group chief executive Michael Geoghegan to Hong Kong from London, a decision that when made public back in September didn’t exactly shock markets given the bank’s Hong Kong heritage.

More recently, UK-based hedge fund firm Prana Capital was rumoured to be looking eastwards, with plans to open a office in Singapore where its founder, Peregrine Cust, would eventually relocate.

At the end of 2009, London was rife with rumours of investment banks relocating staff abroad to
avoid the UK chancellor’s proposed 50 per cent tax on bonus payments.

Having helped build the country’s economy, expatriates should be allowed to live permanently in the UAE.

It stands to reason that expatriates who have spent years living in the UAE should be granted permanent residency. This view is shared by Emirati businessman Mishal Kanoo, who as deputy chairman of the Kanoo Group oversees one of the country’s biggest family-run businesses.

Speaking to Arabian Business, he said a foreigner who has spent “30-odd years” in the country should be allowed to stay indefinitely without need for a visa.

“I have no issues with residency,” Kanoo added. “As long as people are coming in to add value, why not? I think anyone who is willing to come and invest in my country, why should I say no to the best and the brightest?”

His comments have caused a stir among some Emiratis, who believe such a move would further threaten the local culture and national identity. Considering only 20% of the UAE population is Emirati, their concerns are understandable. Arabic is second to English as the most commonly used language, while the rise in tourism has seen a shift to a more western lifestyle. This is particularly true in Dubai where five-star hotels and huge shopping malls dominate the landscape.

Nevertheless, the economy is built on the back of skilled expatriates that have lived in the UAE. Without them, a country that once relied heavily on oil would have struggled to cultivate other industries, such as construction, property and tourism.

It’s also worth noting that granting residency visas would not further threaten the local culture. Expatriates make up the bulk of the population, regardless of whether they’re allowed to live permanently in the UAE or stay on a work visa. The cultural risk that some locals believe foreigners pose remains in either case, so letting people stay indefinitely doesn’t make a difference.

Taking all this into account, offering residency to people who have spent most of their working lives helping build the country’s foundations isn’t asking too much.

Banking and finance

A deeply tumultuous year for the banking and finance sector as institutions suffer from restricted liquidity and an unprecedented rise in bad loans.

The UAE banking and finance sector experienced its most challenging economic scenario in history this year. Following the collapse of the Lehman Brothers in September 2008, the US financial crisis quickly – and unexpectedly for the UAE  – became a global one.

The subsequent seizure of the cogs of interbank commerce soon led the federal government to realise something was amiss. Local banks were paying increasingly high rates on customer deposits to hold on to them as liquidity simply drained away.

“The slowdown was caused by several areas – mortgages, construction and the withdrawal of international investment,” says Sanjay Uppal, chief financial officer at Emirates National Bank of Dubai. “As an emerging market it was crucial to be able to have access to global investment.”

Speedy federal cash injections went some way to mitigating a countrywide financial standstill. But lending in the UAE from the last quarter of 2008 was markedly down and remained thwarted throughout 2009.

Institutions across the region grappled with a rise in bad loans, with virtually all lenders setting aside provisions to cover the losses. In the first half of this year, publicly listed banks in the region reported more than US$3bn in provisions, far outstripping totals for last year.

Figures from the UAE Central Bank show that banks raised AED56bn in deposits in the first six months of this year. They lent only AED13.3bn during the same period last year.

Personal loans for individuals and businesses fell from a peak of AED226.4bn in December 2008, to AED205.7bn in June 2009, a decline of 9.1 per cent.

However, since January 2009, the difference between loans and deposit base of banks has narrowed significantly, paving the way for a healthier set of books as the UAE steps gingerly into 2010.

“In recent months there has been some let up with movement in Abu Dhabi sovereign wealth funds, National Bank of Dubai and Abu Dhabi Commercial Bank,” says Uppal. “This momentum will continue. In the UAE, we are already out of the woods, but we are feeling the overhang of tightened liquidity and real estate. A lot of sectors have bottomed out, but we are now seeing encouraging re-export and trade data.”

A critical moment for the banking sector emerged in summer this year when the Saad Group and Ahmad Hamad Algosaibi and Brothers (AHAB) implosion reared its ugly head. Lenders were hit hard by defaults from the two Saudi family-owned conglomerates; the firms are estimated to owe tens of billions of dollars to more than 100 banks in the GCC and are locked in a bitter dispute in which AHAB has alleged that Saad Group, defrauded it in an elaborate Ponzi scheme.

The scenario sent shock waves across the region, contributing to the tipping point of addressing transparency issues within the finance industry locally. Since then, the phrase “corporate governance” has been on every self-respecting organisation’s remit.

“No matter how good the outlook, we should always check that our rear view mirrors are clean. 2009 has brought a new perspective to risk management – there’s more of a focus on regulation and the focus of the company’s corporate governance,” Uppal explains.

“Companies with a conservative appetite and some kind of self-governance for risk seem to be those that have fared best. It has also led to more of a focus on transparency. Organisations are now more readily sharing information as they know this increases confidence, particularly internationally.”

Uppal says that, overall, the banking and finance sector in the UAE has held up well amid credit pressures, with some banks still turning profits and growing on last year, but the chief financial officer of the country’s largest bank remains circumspect for 2010.

“There’s still reason to feel nervous. We’ve not seen a lift in the global core fundamentals, such as the job markets and only a small uplift in production. The sustainability of gains still look weak,” he says. “Growth has been negative or flat, apart from China. But, ultimately, we have still got the wealth to use within our own country; government spending stimulates the market and this is positive.”

Technology

While government spending buoyed IT investment this year, the economic downturn also led private firms to rethink their technology solutions

2009 was a year of parallel fortunes for the UAE’s IT sector. While reduced budgets caused some companies to postpone larger IT investments, the recession also led firms to rethink their IT solutions to protect their bottom lines.

As Malek Al Malek, executive director of Dubai Internet City (DIC), told Commerce in September this year, the ICT sector offered solutions for some of the problems the recession has presented, including credit control and lead management.  “People did not appreciate technology in the good times, but when you enter cost-saving mode you start looking at alternatives,” he said.

Construction companies, in particular, have felt the fierce effects of the downturn. ERP (Enterprise Resource Planning) technology has proved invaluable in integrating and managing multiple projects at lower costs, and tying them into areas of the business such as corporate finance and supply chain management.

For private companies there has also been an accelerated shift into managed services, where a firm either fully or partially outsources their IT department. According to IDC, IT services spending in the UAE will grow at an annual average rate of 23.9 per cent over the next five years to reach US$2.3bn by 2012.

“The recession has created necessary awareness and forced firms to come up with new innovative solutions to reduce IT costs such as Software As A Service (SAAS) and managed services.

Some companies have had no option but to do this so they can reduce manpower. You can’t just shut down the IT department, however bad the recession is,” says Nischal Khorama, programme manager of ICT practice South Asia and Middle East, at business analysis firm Frost & Sullivan.

For the public sector it has been a different story. Around 30 per cent of the UAE’s IT spend comes from the government, which has continued to push ahead with its initiatives during the recession.
“The government is continuing to spend on IT in this region, while other global regions have halted their IT projects,” Malek added.

The Network Readiness Index (NRI) of the Global Information Technology Report 2008 to 2009 – just published by the World Economic Forum and Insead – confirms that the UAE has spearheaded the region’s strong technology performance with its ranking within the top three, from a list of 134 global economies, in the category “importance of ICT to government vision of the future”.

Meanwhile it placed fifth in “government prioritisation of ICT,” 11th in “government procurement of advanced technology products” and 32nd in the “e-Government Readiness Index”.

“Regionally we have become more important as a global IT spender during the recession. In Europe and the US, spending on ICT has reduced dramatically. Before, the region used to account for around five per cent of the globe’s IT spend, today it’s a lot more. The ratio is shifting” said DIC’s Al Malek.

“Most of the components for the country’s e-readiness framework have already been developed, so we are not going to stop now. In terms of IT penetration we are already very high. When we talk about e-readiness, when we talk about the legal framework, society development and society’s readiness to accept IT; these are the real drivers for our country’s technology journey and spend,” he added.

“While some government IT projects have been delayed for the moment, the world economies are showing signs of a revival, so IT, being so interlinked with the health of all sectors, should also see a revival,” Khorama added.

Frost & Sullivan’s Khorama predicts there will also be increased collaboration between the telecoms and IT sectors and an increase in end-to-end solutions from hardware to software. “This approach grows innovation and delivers new solutions in the long run, solutions that are going to be sustainable,” he said.

Overall, the UAE’s diversified economy is inextricably supported by the IT sector; this, combined with strong government spending and targets for an internet penetration of 60 per cent by 2030 promise an upward curve for the IT sector long-term.

Abu Dhabi Corporate Governance Centre director general, Khalid Deeb, tells Alicia Buller about his plans to clean up the emirate and invite trust from foreign investors.

Amid the decadent cream upholstery of the ADCCI, Khalid Deeb cuts a smart, modest figure. His immaculate beard and blemish-free suit befit the kind of man who has carved a long and successful career in tidying up businesses. And, as director general of the newly-formed Abu Dhabi Corporate Governance Centre (ADCGC), Deeb has his biggest clean-up job on his hands yet.

“There’s not just some way to go with establishing corporate governance in Abu Dhabi, there’s a lot of way to go,” he says. “Good businesses have proper systems, control and transparency; everyone knows their roles and accountability.”

He’s right, this sentiment does seem a world away from the current business environment; not just in Abu Dhabi, but around the world. But as the global economy continues its painful rebound from the domino effects of unregulated US banking activity, the stark light of the recession means the days of hidden transactions are numbered. Deeb is here to steer in new foundations for the local economy.

As head of audits at the ADCCI previously, Deeb was instrumental in pushing for the new ADCGC, which was officially inaugurated in January this year and tasked with raising awareness of corporate governance in Abu Dhabi and further afield.

But while the ADCGC may be new, the country’s concerns about corporate governance are not. As far back as 2007, the government issued guidelines, allowing three years for the public sector companies to implement them. The Emirates Securities & Commodities Authority (ESCA) is monitoring the process, which is expected to be completed by April next year.

The murmurings of corporate regulation in Abu Dhabi noticeably gained momentum this year, as big local players start to address their transparency issues in a bid to play on the world stage and lure international investment.

In 2009, government investment arm, Mubadala, set up a corporate governance research arm and laid its annual reports open to the public for the first time, while Abu Dhabi National Bank has announced it will release details of bankers’ salaries.

One of Deeb’s main tasks is to create genuine awareness of why corporate governance is so important for individual companies, as well as the overall Abu Dhabi economy.

“A lot of people don’t understand what the term really means,” he says. “Corporate governance is a new term and when people hear the words, even the word “audit”, it sounds scary because it’s a fear of the unknown..

But once you learn more about it; it’s not new, it’s been there all along: guidelines and laws to make companies more systematic.”

Deeb adds that corporate governance is concerned with clarifying and streamlining the company: creating relevant committees at board level, putting processes in place for ushering in transparency and proper reporting of results and performance.

Not only does this mean the business is more efficient, but local and international financiers will feel more confident investing in Abu Dhabi companies.

“It’s a good time to sit back and look at your company; before, firms were busy making money, but now a lot of companies are looking at corporate governance and restructuring. Now companies will be reviewing their strategies with a more cautious angle, and in this quiet time, it’s time to clean up.”

Corporate governance, he explains, is not a mere legal or administrative add-on, it’s a culture and a concept that should pervade everything the business does. “The first seminar we did in October was a success, we had a good turnout, but we found that the top-level figures tend to leave corporate governance to their legal teams or staff lower down in the organisation.

“For corporate governance to work, the initiatives must be driven from the top and everyone must be involved. It’s as if ,when they get to the top, people feel they don’t have to learn anymore, but everyone needs to keep learning,” Deeb says.

“If you don’t have a proper audit system, then you don’t know exactly what is going on in your business. Is your department working properly? Are you achieving your goals?

“That’s why we have so many tools in place, such as the monitoring of key performance indicators. If you don’t have audits and reports, then you can’t see what’s really going on. “It’s like you are driving with a dirty wing mirror, or a car from the 1960s without a proper dashboard.”