‘Saudi Arabia is the torch-bearer for the region,’ says Emaar chairman

lllustration by Luis Grañena
Updated 04 April 2018
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‘Saudi Arabia is the torch-bearer for the region,’ says Emaar chairman

  • After masterminding the emirate’s retail and tourism strategies, Mohamed Alabbar founded Emaar Properties.
  • He has recently joined enthusiastically in the digital revolution, launching e-commerce business noon.com in partnership with Saudi Arabia’s Public Investment Fund.
DUBAI: Perhaps more than anybody else outside royal circles in the UAE, Mohamed Alabbar symbolizes the generation of businessmen who built Dubai into the leading commercial and financial hub of the Gulf.
The eldest of the 12 children of a dhow captain, Alabbar was fast-tracked by the ruler of Dubai, Sheikh Mohammed bin Rashid Al-Maktoum, and inspired by the example of another booming city-state, Singapore.
After masterminding the emirate’s retail and tourism strategies, he founded Emaar Properties, one of the best-known brands in the region, which went on to build some of Dubai’s world-famous landmarks, such as Burj Khalifa and Dubai Mall.
He has recently joined enthusiastically in the digital revolution, launching e-commerce business noon.com in partnership with Saudi Arabia’s Public Investment Fund.
In an exclusive interview with Arab News — a conversation that began at last October’s Future Investment Initiative (FII) in Riyadh — Alabbar spoke of his plans for the digital age, the future of Emaar, his opinion of the momentous changes underway in Saudi Arabia — and the crucial advisory role played by his 11-year-old daughter Noor.

We had a brief, but fascinating, conversation at the FII in Riyadh, where you talked enthusiastically about youth and the latent talent of the next generation. Can you tell me more about that?
Smart young people build better societies — and we see that in Saudi Arabia as in the US. I believe that we are at that point in history where our youth dividend will pay off, and the game-changer in this is the power of technology led by our new generation of tech-savvy under-30s, who form about 60 percent of the population in the region and almost 70 percent in the Kingdom.
Personally, my interest in the digital economy was sparked by my children and I learn from them every day. Salama first launched BySymphony.com, an online extension to Symphony, a high-end boutique located in the Dubai Mall; less than six months later, Rashid founded SIVVI.com, a website that sells clothing and accessories from more than 130 high-street brands.
Today, my 11-year-old daughter Noor is also a key part of my informal advisory council that helps me understand the new digital economy and what is trendy on social media and fashion.
The success of these homegrown online enterprises, and several others, prove the significant opportunity for digital entrepreneurship in the region. I see tremendous opportunity for a digital era in the region, by the youth, for the youth in the private sector, and that is why I am putting my money in digital technology.

With the launch of noon.com, your message now seems to be that e-commerce is the future. How far can you go with e-commerce?
The true capital of our city is not oil wealth: The future is to build a sustainable, fully diversified economy. Oil does play a part today and tomorrow, but we must use this resource to build a self-sustaining and bright future for our youth. As leaders in government and business, we owe it to our society to make the vision of our wise leadership come to fruition.
That is why I believe that we must focus on our biggest resource — our young talents — and, through them, the potential of the digital economy. The MENA region, specifically the GCC, has the perfect environment for the next era of growth in the digital economy. While online sales account for just 2 percent of the total retail in the Middle East, the market is fast evolving.
According to a recent report by AT Kearney, online shopping in our region will grow from $5.3 billion to $20 billion by 2020.
But it is important to underline who will decide and control our destiny. In the digital economy of the future, we need to have our own presence, with homegrown enterprises managing what we sell and at what price we sell to our people.
It is no exaggeration that those who own the data control the future. And today, with reports pouring in of harvesting of data by multinational tech and research companies that own and control data, we must invest in building a digital ecosystem in the region that ensures our details are safe and not for sale.
There aren’t many players today in the region and we should not leave the door open for multinationals to come and build monopolies. We need big local players to keep prices under control for the benefit of our customers rather than have a multinational player dictate and set price. That is why noon, the innovative platform led by Saudi Arabia’s Public Investment Fund and supported by the region’s leading investors and retailers, is relevant to our region — and to our people.
We have only scratched the surface of the potential that exists, and in the coming days we will see transformational growth in e-commerce and the wider, digital economy. This is highlighted by the strong response that noon has received in Saudi Arabia and the UAE.

Do you think malls are in terminal decline? Will there be a time when you, and the customers, give up on them and go exclusively online?
Malls are here to stay in our region. The brick and mortar business will co-exist with the fast-growing e-commerce sector.
The fact is that, even as e-commerce is growing at an annual rate of 30 percent, the region’s traditional retail sector is not slowing down. Across the GCC, organized retail gross leasable are is set to grow over 8.4 percent to reach over 18.6 million square meters with an average occupancy of 80 percent by 2021.
But malls must be digital-ready to address the shifting trends and preferences of modern customers. They must not only be built to world-class standards but also maintained well, with the right size and right mix of merchandise that evolves with the market trends. Malls must also take the next leap in innovation and technology, which must be integrated in their operations.
That is what we have always
focused on at the Dubai Mall, which has welcomed 80 million visitors annually for the past four consecutive years.
The traditional rules of retail are irrelevant in today’s marketplace — evolve or perish is the reality as America’s high street stores and malls shrink in their presence. At its peak, there were about 5,000 malls in the US, with developers building an average 60 malls a year in the 1980s. Today, there are just over 1,100, and experts believe 400 of those are expected to close in the next few years. Malls are reinventing themselves — they are evolving as destination malls that attract family visitors — for shopping and leisure.
The key to a successful malls operation is to have a clear omni-channel strategy, and that is part of the digital transformation of Emaar’s shopping malls. We continue to invest in destination malls. For example, we are planning one of the largest retail precincts in Dubai Creek Harbor, and a high-end retail district in Dubai Hills Estate — Dubai Hills Mall. We also recently expanded the Dubai Mall’s Fashion Avenue to add more than 150 luxury brands. Highlighting our omni-channel retail strategy, Namshi, which Emaar Malls acquired last year recorded sales of 306 million dirhams ($83 million), an increase of 57 percent over 2016.

Have you outgrown Emaar and Dubai? What is the ‘next big thing’ for Dubai?
Dubai is my home; this is where I belong, and Emaar is a company I founded with my personal savings about 20 years ago — much like the young people of the region, daring to make their dreams come true. My biggest lesson from Sheikh Mohammed bin Rashid Al-Maktoum, UAE vice president and prime minister and ruler of Dubai, is that you never stop; you do not resort to inaction.
For Dubai and Emaar, we have a long way to go: As His Highness says often, we have achieved only 10 percent of our potential. The UAE and Saudi Arabia are young nations, our development is only 50 years old compared with the European cities that have over 500 years of development on their side. We have a long way to go, and we have only started. For Emaar in Dubai, we have several ambitious mega-developments –— the 6 square kilometer Dubai Creek Harbor with the $1 billion Dubai Creek Tower at its heart; the 11 million square meter Dubai Hills Estate, a green city within the city with a championship golf course and the Dubai Hills Mall; the 7 square kilometer Emaar South in Dubai South, home of Expo 2020 and next-to-the-future aviation and logistics hub of the city; and Emaar Beachfront, a private island development that offers 1.5 kilometers of private beach for residents.

How has Emaar performed in 2017 and how does 2018 look?
Last year, Emaar had record sales of 18.03 billion dirhams ($4.91 billion), an increase of 25 percent over 2016 sales of 14.4 billion dirhams. In fact, driven by the positive market sentiment, we had also listed 20 percent of our shares in Emaar Development, our crowning jewel, which raised over 4.8 billion dirhams; the listing was the largest on Dubai Financial Market since 2014 and the third largest in its history. Emaar Development had a sales backlog of around 41 billion dirhams at the end of last year, and we plan to deliver more than 24,000 residential units over the coming years. We are in a firm position for ambitious developments with a land bank of more than 190 million square meters, and we see such positive traction in other markets, particularly Saudi Arabia, where the Vision 2030 announced by Crown Prince Mohammed bin Salman is transforming the economy through projects such as Neom. Another market that I feel very positive about is Egypt. The policies of the government have strengthened our region’s third-largest economy and
I see even greater progress.

Are any more spinoffs or IPOs of Emaar units planned?
Our goal has always been to have stand-alone profit centers for our businesses. We have successfully listed Emaar Malls and Emaar Development and will continue to look for new opportunities.

Can you tell me more about the recently announced partnership with Aldar of Abu Dhabi?
This joint venture is a strong testament to the spirit of partnerships that have established the UAE as a global hub for business and leisure. The world-class destinations that we develop will add to the civic pride of the nation. We are drawing on our proven competencies in delivering high-quality master-planned communities. This partnership sends a powerful message that the UAE is at the forefront in shaping global real estate trends. The joint venture will develop two projects initially — one in Dubai, the Emaar Beachfront, and the other in Abu Dhabi in Saadiyat Island, named Saadiyat Grove.

Is Saudi Arabia the ultimate challenge? In Riyadh, you spoke enthusiastically about the Kingdom and Vision 2030. Have you taken any of those ideas further?
If you must shape the future, we must shape it for our youth, to meet their aspirations. That is what Crown Prince Mohammed bin Salman is doing here in the Kingdom for Saudi Arabia and the region. The pillars of Saudi Vision 2030, the National Transformation Plan, are rooted in the power of digital and youth. I commend this brave plan. The Public Investment Fund is a key driver in this and is a catalyst for growth in the Kingdom. And I am honored to be working with the Public Investment Fund on noon, the e-commerce platform that we launched in the UAE and Saudi Arabia, as well as Americana, the region’s leader in the food industry, which has a presence in 22 countries, employs more than 66,000 people, owns more than 1,800 restaurants throughout the Middle East, and recorded over $3 billion revenue in 2016.

Will you get involved in Neom or the other big projects such as the Red Sea Resort?
We are open to new opportunities in the Kingdom, including mega-developments such as Neom as well as the Red Sea Resort. We have the competencies in developing and delivering mega-projects, as we have proved in the UAE, Saudi Arabia, Egypt, Jordan, Morocco, India and Pakistan.

What is the prognosis for King Abdullah Economic City in which Emaar is heavily involved?
King Abdullah Economic City is already a thriving residential and leisure neighborhood. It complements the goals of Vision 2030, with its focus on creating domestic value, and catalizing the business and leisure sectors. As a leisure hub by the Red Sea, King Abdullah Economic City can energise the diversification goals of the Kingdom.

The Crown Prince of Saudi Arabia has spoken about the need to follow ‘the Dubai model.’ Do you think this is feasible in KSA?
Vision 2030 is a powerful development strategy and you can already see its positive effects across all sectors of the economy. It is a great honor for the UAE’s leadership that the crown prince has commended the “Dubai model.” Saudi Arabia will chart its own unique course. The Kingdom has inherent strengths of having a sizeable domestic market, a youthful population, a smart and energetic government and an ambitious private sector, which will work in tandem to build a strong nation. Saudi Arabia is the largest economy in the region and a G20 member, and the Kingdom is a torch-bearer for our region to be seen as a positive force and a global citizen of the 21st century.

As a regular attendee at the World Economic Forum in Davos, what are your thoughts on the global business outlook? Do you think we are living in populist times? Is this a danger to business?
We live in an age of political populism and protectionism — a “fractured world,” as the WEF so aptly described in their annual meeting this year in January. But I believe that it is important for all nations to function as an open economy as the UAE does. We are a model for global collaboration. We serve as the gateway for Europe and the US to Asia and Africa and be at the center of the South-South trade. The backbone for all of this will be digital technology — it will drive our logistics, our banks and our retail centers.


Permian shale output closes gap with Saudi Arabia as rig count doubles, confirming US’ powerhouse status

Updated 21 March 2019
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Permian shale output closes gap with Saudi Arabia as rig count doubles, confirming US’ powerhouse status

  • Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject”
  • The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region

NEW MEXICO: In New Mexico’s Chihuahuan Desert, Exxon Mobil Corp. is building a massive shale oil project that its executives boast will allow it to ride out the industry’s notorious boom-and-bust cycles.
Workers at its Remuda lease near Carlsbad — part of a staff of 5,000 spread across New Mexico and Texas — are drilling wells, operating fleets of hydraulic pumps and digging trenches for pipelines.
The sprawling site reflects the massive commitment to the Permian Basin by oil majors, who have spent an estimated $10 billion buying acreage in the top US shale field since the beginning of 2017, according to research firm Drillinginfo Inc.
The rising investment also reflects a recognition that Exxon, Chevron, Royal Dutch Shell and BP Plc largely missed out on the first phase of the Permian shale bonanza, while more nimble independent producers, who pioneered shale drilling technology, leased Permian acreage on the cheap.
Now that the field has made the US the world’s top oil producer, Exxon and other majors are moving aggressively to dominate the Permian and use the oil to feed their sprawling pipeline, trading, logistics, refining and chemicals businesses. The majors have 75 drilling rigs here this month, up from 31 in 2017, according to Drillinginfo. Exxon operates 48 of those rigs and plans to add seven more this year.
The majors’ expansion comes as smaller independent producers, who profit only from selling the oil, are slowing exploration, and cutting staff and budgets amid investor pressure to control spending and boost returns.
Exxon CEO Darren Woods said on March 6 that Exxon would change “the way that game is played” in shale. Its size and businesses could allow Exxon to earn double-digit percentage returns in the Permian Basin even if oil prices — now above $58 per barrel — crashed to below $35, added Senior Vice President Neil Chapman.
Exxon’s 1.6 million acres in the Permian means it can approach the field as a “megaproject,” said Staale Gjervik, head of shale subsidiary XTO Resources, whose headquarters was recently relocated to share space with its logistics and refining businesses. The firm also recently outlined plans to nearly double the capacity of a Gulf Coast refinery to process shale oil.
“It sets us up to take a longer-term view,” Gjervik said.
The majors’ Permian investments position the field to compete with Saudi Arabia as the world’s top oil-producing region and solidifies the US as a powerhouse in global oil markets, said Daniel Yergin, an oil historian and vice chairman of consultancy IHS Markit.
“A decade ago, capital investment was leaving the US,” he said. “Now it’s coming home in a very big way.”
The Permian is expected to generate 5.4 million barrels per day (bpd) by 2023 — more than any single member of the Organization of the Petroleum Exporting Countries (OPEC) other than Saudi Arabia, according to IHS Markit. Production this month, at about 4 million bpd, will about double that of two years ago.
Exxon, Chevron, Shell and BP now hold about 4.5 million acres in the Permian Basin, according to Drillinginfo. Chevron and Exxon are poised to become the biggest producers in the field, leapfrogging independent producers such as Pioneer Natural Resources.
Pioneer recently dropped a pledge to hit 1 million bpd by 2026 amid pressure from investors to boost returns. It shifted its emphasis to generating cash flow and replaced its CEO after posting a fourth-quarter profit that missed Wall Street earnings targets by 36 cents a share.

 

Meanwhile, Shell is considering a multibillion-dollar deal to buy independent producer Endeavor Energy Resources, according to people familiar with the talks. Shell declined to comment and Endeavor did not respond to a request.
Chevron said it would produce 900,000 bpd by 2023, while Exxon forecast pumping 1 million barrels per day by about 2024. That would give the two companies one-third of Permian production within five years.
At first, the rise of the Permian was driven largely by nimble explorers that pioneered new technology for hydraulic fracturing, or fracking, and horizontal drilling to unlock oil from shale rock, slashing production costs. The advances by smaller companies initially left the majors behind. Now, those technologies are easily copied and widely available from service firms.
Surging Permian production has overwhelmed pipelines and forced producers to sell crude at a deep discount, sapping cash and profits of independents who, unlike the majors, don’t own their own pipeline networks.
Even as the majors have ramped up operations, the total number of drilling rigs at work in the Permian has dropped to 464, from 493 in November, as independent producers have slowed production, according to oilfield services provider Baker Hughes.
Shell, by contrast, plans to keep expanding even if prices fall further, said Amir Gerges, Shell’s Permian general manager.
“We have a bit more resilience” than the independents,” he said.
In west Texas, the firm drills four to six wells at a time next to one another, a process called cube development that targets multiple layers of shale as deep as 8,000 feet.
Cube development is expensive and can take months, making it an option only for the majors and the largest independent producers. Shell has used the tactic to double production in two years, to 145,000 bpd.
The largest oil firms can also take advantage of their volume-buying power even if service companies raise prices for supplies or drilling and fracking crews, said Andrew Dittmar, a Drillinginfo analyst.
“It’s like buying at Costco versus a neighborhood market,” he said.
The majors’ rush into the market means smaller companies are going to struggle to compete for service contracts and pay higher prices, said Roy Martin, analyst with energy consultancy Wood Mackenzie.
“When you’re sitting across the negotiating table from the majors, the chips are stacked on their side,” he said.
The revival of interest in the Permian marks a reversal from the late 1990s, when production had been falling for two decades.
“All the majors and all the companies with names you’ve heard left with their employees,” said Karr Ingham, an oil and gas economist. “Conventional wisdom was this place was going to dry up.”
Chevron was the only major that stayed in the Permian. It holds 2.3 million acres and owns most of its mineral rights, too, but until recently left drilling to others.
But this month, CEO Mike Wirth called the Permian its best bet for delivering profits “north of 30 percent at low oil prices.”
“There is nothing we can invest in that delivers higher rates of return,” Wirth said this month at its annual investor meeting in New York.
Matt Gallagher, CEO of Parsley Energy Inc, calls the majors’ investments “the best form of flattery” for independents operating here.
Parsley holds 192,000 Permian acres — most of which was snatched up on the cheap during oil busts — and sees its smaller size as an advantage in shale.
“We’re not finished yet,” Gallagher said. “We can move very quickly.”
The majors have greater infrastructure, but independents continue to innovate and design better wells, said Allen Gilmer, a co-founder of Drillinginfo.
“Nothing is a bigger motivator than, ‘Am I going to be alive tomorrow?’” Gilmer said.
“Hunger and fear is something that every independent oil-and-gas person knows — and that something no major oil-and-gas person has ever felt in their career.”

FACTOID

5.4 million

The Permian Basin is expected to generate 5.4 million barrels of oil per day by 2023, more than any single OPEC member other than Saudi Arabia.