State Street banker sees pace of reforms in Arabian Gulf accelerating

Illustration by Luis Grañena
Updated 12 August 2018
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State Street banker sees pace of reforms in Arabian Gulf accelerating

  • Laurina began his career in banking at the Bank of New York’s Brussels and London offices
  • He believes that the pace of economic growth in the region will continue to accelerate

The rapid economic changes taking place in the Arabian Gulf economies require a cadre of top global financial institutions to help see them through, and State Street Corporation fits the bill completely.

The 226-year-old American financial group, ranked among the biggest banking businesses in the world, recently joined the Dubai International Financial Center (DIFC) through its investment banking and asset management unit State Street Global Advisers (SSGA), cementing a presence in the region it has held for 26 years.

Emmanuel Laurina, the 43-year-old Belgian who heads up the Middle East business for State Street, told Arab News that the UAE was a good place to be based to exploit the new economic environment in the region, and especially the business opportunities in Saudi Arabia, undergoing rapid change as a result of the Vision 2030 strategy to diversify away from oil dependency.

“The DIFC is a well-regulated global financial center through which we can accommodate those clients for whom it is most appropriate. SSGA has had a presence in the Middle East since 1992, and opening a DIFC presence is a natural complement to that business.

“We currently serve the needs of all our Middle East and Africa clients from our Dubai and Abu Dhabi offices. Saudi Arabia has always been a key contributor to our business in the region and we look forward to further deepening our presence and business in the Kingdom,” he added.

Laurina began his career in banking at the Bank of New York’s Brussels and London offices, before moving to State Street in 2005, transferring to Dubai eight years later to head up the Middle East and Africa business. 

He believes that the pace of economic growth in the region will continue to accelerate. The bank’s analysts see UAE growth at 2.5 percent this year, up from 0.5 percent in 2017, and have marked in 1.6 percent for Saudi Arabia, a jump from last year’s 0.9 percent, while the region as a whole is looking at 2.6 percent (up from 1.8 percent).

The recent stability in the oil market is the main reason for the forecast improvement in gross domestic product, and SSGA believes the current good run in oil is likely to continue. “Governments and central banks should be able to escape the tough economic decisions they have faced over the past few years,” he said.

That will be especially good for Saudi Arabia as it seeks foreign investment to help fund the economic changes under way in the Kingdom, boosted by recent upgrades to its financial markets to emerging market status.

“SSGA is very positive about the reform agenda in Saudi Arabia and the entire Vision 2030 plan. While the economic environment remains challenging, we feel that the reforms to companies, markets, and investment regulations are wholly positive.

“Of all the countries in the Gulf, Saudi represents one of the best opportunities for investors, and we are ready to support clients not only in equities, as the Tadawul opens up, but also in the debt markets, an important factor in the modernization plans of the Kingdom,” Laurina said.

Those modernization plans include the privatization of large chunks of the Kingdom’s state-dominated economy, including Saudi Aramco, the biggest oil company in the world. The partial sale of some of Aramco’s shares via an initial public offering (IPO) has been delayed, but most financial experts believe some form of sell-off will eventually take place.

“We made the point recently that the non-Aramco privatization plans were equally — if not more — important to the success of the Saudi reform agenda. These include many state assets whose valuation is relatively easy to assess and where there are clear templates for private-sector participation.

“In short, there is some lower-hanging fruit in the area of privatization and we believe this will be forthcoming. Above all, for Saudi Arabia, it is more important to see this program through correctly, rather than urgently, as the reform impetus is more valuable than the actual proceeds,” he said.

On Aramco, other options have recently emerged as an alternative to full-blown privatization, including raising debt in international markets and the multibillion-dollar acquisition of Saudi Arabian Basic Industries Corporation (SABIC). Laurina sees sense in considering these possibilities.

“The potential Aramco IPO is huge, complex, and far from straightforward. We are not surprised, and indeed we applaud, the pause for reflection that appears to be taking place. 

“While the delay of IPO may have disappointed some, it may be a welcome move,” he said.

Illustration by Luis Grañena

Emerging market equity investors have had a short time to adjust their portfolios for the inclusion of Saudi Arabia in the three main indices, Laurina explained. “Aramco’s IPO would likely lead to a larger weight to Saudi Arabia and lead to further turnover to fund that increase. A delay of the IPO to a later date would give investors time to adjust and accommodate the new IPO when this is issued,” he said.

“For an institution of Aramco’s size, any debt fundraising brings complexities: If Aramco was to buy the full stake Public Investment Fund holds in SABIC, for example, and fund it entirely out of debt issuance, it would be one of the biggest debt issuances ever from any corporate, and would catapult Aramco into a top-three spot in the EM debt indices. This alone brings new issues, and so again we would counsel a cautious approach,” he said.

The global investor view of the Gulf region wavers between enthusiasm for the economic opportunities presented by reform and privatization, and concern about the effects on investment prospects from geopolitical tensions, such as the current stand-off with Qatar and the increasing possibility that confrontation between Iran and the US will lead to trade dislocation in the region. 

Laurina is alert to the risks, but sanguine on the overall investment climate. “Having been in the region for 26 years, through two Gulf wars and the Arab Spring, SSGA is acutely aware of the geopolitical drivers and risks in this region. 

“But we remain positive on the investment prospects in the Gulf: Emerging market status is going to be a major driver of equity investment; Saudi reform, China’s Belt and Road initiative, and a stable oil price should combine to maintain our upbeat outlook on the region, in spite of regional tensions,” he said.

The Middle East, of course, is an increasingly important part of the international financial and economic system, and is subject to the swings and roundabouts of global forces. Some experts have forecast challenging times ahead, as the US economy tries to maintain the impressive growth of recent years amid the threat of all-out trade war with the second biggest global economy, China, as well as strains within European economies. 

“We predict that global economic performance is likely to become less uniform in the next few years. It is expected that the US will outperform if meaningful trade sanctions are imposed on China, the European Union, Japan and Mexico. Also, a ‘No Deal Brexit’ is likely to have a negative impact on the EU,” he said. 

On the US investment scene, some analysts have wondered whether soaring stock market indices — the “Trump boom” — will eventually have to give way.

“The US economy is increasingly driven by investment and technology-related growth, and this should drive productivity improvement. This, in turn, will help make the Trump boom sustainable,” Laurina said.

What does this mean for the economic prospects of the Arabian Gulf, still dominated by energy revenues? 

“The global oil trade should be relatively unaffected by trade wars. However, oil exporters may see some fallout in demand if there is economic slowdown in trade-impacted countries and regions. It is also worth noting that the US is no longer a significant source of demand — it has scaled back on oil imports over the years, for example — and currently generates a surplus in its balance of trade and services with Saudi Arabia,”
he added.

SSGA’s 12-strong team in the Middle East — now based in Dubai but with a branch office also in Abu Dhabi — looks set to grow as the asset management business expands. “The Middle East and Africa market is extremely dynamic and demanding, and we believe that only those firms that are nimble and agile enough will be successful in the long run,” Laurina said.

 


Ahmed Al-Habtoor: Portrait of a driven auto executive

Updated 19 May 2019
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Ahmed Al-Habtoor: Portrait of a driven auto executive

  • There is no country on this planet where you will see Bentleys, McLarens and Bugattis as much as in the UAE.

DUBAI: Over the course of a morning in his office in Deira, Dubai’s traditional business district, Ahmed Al-Habtoor talked eloquently and expertly about the motor business in the UAE and the Arabian Gulf, about customers’ likes and dislikes, about the tough times the industry has faced recently, about his best-selling models, and about the importance of the sector within the UAE economy.
Then, he dropped a small bombshell. He is always chauffeurdriven, and seldom gets behind the wheel of any of the luxury vehicles he trades daily. “I don’t care about driving cars, I care about selling them,” he revealed.
From the youthful chief executive officer of Al Habtoor Motors, who could have his pick of Bugattis, Bentleys, McLarens and other “fast boys toys,” that was quite a revelation.
“I don’t like driving, I like to be on my phone checking emails and messages. I don’t have the patience to look for parking, and anybody who can afford to have a driver should do so,” he added.
So Al-Habtoor is, in more senses than one, a driven executive. The motor division is a key part of the Al Habtoor conglomerate, started by his father, the group chairman Khalaf, in the 1970s as an engineering business but which has expanded through real estate, hotels and hospitality, to education and entertainment.
Motors has been an integral pillar of the Habtoor portfolio since it was set up in 1983 to handle the Mitsubishi franchise in the UAE. “We have strict corporate governance, law, a constitution in the company. The rules are set and we are here to implement the directions of the chairman. We have our own ideas, we try to be creative, but it is a well-established, solid company with very strong roots,” he said.
here is still a large number of workers — whom he called “partners” — who can date their employment back to the very beginning of the Mitsubishi franchise.
He admits to two alternative frustrations in his job, depending on the economic climate.
“When the market is active and business is fantastic, I get frustrated at the pressure of delivering to my clients. I’m just busy, trying to meet the expectation of delivering the right product at the right time,” he explained. “The other frustration is when the market is challenging and low, I’m busy trying to be busy, trying to find business. It’s all about being busy.”
For the past few years, the “challenging” market has been to the fore, as he candidly admitted. The fall in the oil price in 2014-15 began to affect the economies of the energy exporters of the Arabian Gulf toward the end of the following year, and the motor sector was seriously hit. Sales volumes declined sharply — compounded by government spending cuts and some policy decisions.
“I think in 2017 the volume was acceptable. In 2018, it dropped when the government implemented VAT. I don’t think VAT was the wrong decision, but it had a negative effect. It was implemented when the market was in a weak situation. If the market was booming, it would have been much easier for us,” he said.
Al Habtoor Motors’ longevity gives its CEO a perspective on the forces that shape the industry. “It’s a cycle. There is always a cycle every 6-8 years. When oil prices started to fall it had an effect. In our region, government spending is the key to moving the economy. Not only in Dubai, but the whole of the UAE.”
He estimated that the motor industry was the second biggest sector in the UAE’s non-oil economy, behind real estate, but saw no real linkage in the simultaneous downturns in property and motor sales.
The other factor that affected car sales — especially in the high volume and fleet car business — was the increasing reluctance of banks in the UAE to continue previous levels of finance to small and medium enterprises (SMEs) during the worst of the downturn.

“It was not a very wise decision to withdraw support from SMEs. The economy depends on large companies, but at the end of the day, consumption comes out of the (medium) and small businesses. Uncertainty and insecurity in the market made a lot of people stay away from buying,” he said.
Al-Habtoor estimated that car sales volumes in the fleet business were down by 50 percent from the highs of 2015, as they were across the whole of the volume motor business. “Last year was very challenging, but thankfully we managed all the challenges,” he said, on the back of an upturn in business measured across the whole of last year.
He has reason to be more optimistic in the current year. “There has been stimulus to the economy, Expo 2020, and the confidence in the market improved. The changes to visa arrangements, the reduction of license fees — all these are having an effect,” he said.
On the “Expo effect” — the expected boost to the UAE economy from the huge business fair planned for next autumn — he was cautiously positive. “We’ve seen that coming through already. Now it is nominal, but we are seeing green shoots. It is not a big effect yet but it is happening, and the more we go toward October next year the more benefit will come,” Al-Habtoor said, adding that he was confident of getting back to 2015 levels eventually.
That is good news for the Mitsubishi, Fuso, Jac and Chery marks that are Habtoor’s staple. But the group also has an impressive stable of luxury cars, with the dealerships for Bentley, the McLaren sports brand, and the super-car Bugatti, in the UAE
The UAE’s reputation for glamorous, extravagant cars — even down to the Dubai police fleet — is a global phenomenon, and Al-Habtoor does not think it will change any time soon, even in challenging economic circumstances.
“A lot of people want beautiful cars and the best. It always was like that, it still is now and it will be in the future. The UAE and Dubai is always about the best. It’s in the culture of the city. There is no country on this planet where you will see Bentleys, McLarens and Bugattis as much as in the UAE,” he said.
The economics are different in the luxury brands, which were not as badly hit by the oil-related slump as the volume business. “The luxury end was affected by the downturn, but it’s more resilient, it’s OK,” he said.
“In the first four months of this year, we’re the number one dealer in the world for Bentley, and have consistently been among the biggest Bentley dealers in the world, if not the biggest. When luxury goods are moving, not just cars, but jewelry and other things, I feel that the economy will come back soon,” he said.
Bentley sales have been given a boost by the introduction at the end of last year of a new Continental GT, and by the continued appeal of the Bentayga, the company’s first move into the SUV market, which has huge appeal for motorists in the region. Deliberately priced at below 1 million dirhams ($272,250), the luxury SUV aims to take on other upmarket four-wheel-drive vehicles.
He seemed especially pleased with the performance of the McLaren range within his portfolio, vying with other more famous brands in the lucrative but very competitive sports car segment — another best seller in the region.
At the top end, McLaren competes with the best in the sports car market, and its BP23 model sells at more than 10 million dirhams. “There are only 116 vehicles around the world and we have six of them. In that ultimate series sector, McLaren is dominating,” Al-Habtoor said.
Then there is Bugatti, the French super-sports car whose Chiron model is one of the most expensive seen on the UAE’s roads, selling at around 12 million dirhams. Last year, the company sold 12 of them, Al-Habtoor said, but any ideas that McLaren is competing with, and cannibalizing sales, of Bugatti were dismissed.
“That’s like comparing a normal plane with a UFO. I once drove a Bugatti on a track at over 200km and it was as if I was having a picnic in the garden — you don’t even feel it,” he said.
Occasional high-speed track driving, apparently, is one of the few occasions he likes to give the chauffeur a day off.