Getting rid of red tape seen as key to Saudi reform push

Saad A. Alrashed, founding partner of law firm ZS&R. (Supplied)
Updated 07 February 2019
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Getting rid of red tape seen as key to Saudi reform push

  • Legal expert sees ‘real efforts and measures’ underway in the Kingdom, led by the government
  • Saad A. Alrashed: There’s a push to ‘buy Saudi Arabia’ from international funds

Saad A. Alrashed, the founding partner of law firm ZS&R in association with Hogan Lovells, speaks to Arab News about the investment climate in Saudi Arabia and why 2019 is set to be the year of deal-making.

Q: We are seeing the return of merger-and-acquisition activity in the Gulf, at its highest in a decade. How is this likely to play out in Saudi Arabia, and in which particular sectors — beyond Saudi Aramco’s proposed acquisition of a controlling stake in SABIC — are we likely to see deals being done?
A: Apart from SABIC/Aramco, there are two large ones taking place: NCB and Riyad Bank, and before that SABB and Hollandi, and negotiations are still ongoing.
Banks in Saudi Arabia have among the highest profitability in the world, and local boutique banks are usually good for the economy and end-consumer, therefore it’s difficult to foresee more logical mergers in this sector.

Q: How would you describe international investor sentiment toward the Kingdom currently, and to what extent will Saudi Arabia benefit from improving investment interest in emerging markets?
A: The Saudi economy in 2017 was in slight negative growth (real gross domestic product at -0.7 percent), yet it grew (in 2018 by almost) 2.5 percent and is upgraded to reach about 2.7 percent this year. The G20 can be split into two sections: Advanced and emerging. Both have been downgraded by the IMF as per growth (as seen in 2018 and as estimated for 2019). For example, the US economy grew last year around 2.9 percent (real GDP growth), and is expected to slow down this year. Saudi Arabia is one of the few countries in the G20 that have an upgraded growth forecast for this year and next year (along with Italy, Canada and Russia).
Japan got a downgraded growth forecast along with Australia and South Korea, and even China and India got downgraded forecasts (China’s GDP growth, which was 6.9 percent in 2018, was downgraded from a forecast of 6.6 percent to 6.0 percent for 2019). India’s economy is expected to slow down slightly to 7.3 percent.
As for how the Saudi economy is viewed internationally juxtaposed to all this, there’s a push to ‘buy Saudi Arabia’ from international funds (such as Passive Funds, with little or no active management, which usually seek to emulate their international exposure for emerging markets), also reflected in light of the Kingdom’s inclusion in the MSCI and the FTSE’s Emerging Markets Index.
This was clearly reflected as well in the national Saudi market (Tadawul) from the beginning of last year until today, with leading company stocks soaring, which indicates a general positive view of the whole economy. Of course, this is all in retrospection against 2017.
In terms of investor sentiment, there’s some hesitation that I believe is totally unjustified, since the real local feel and mood of the Saudi populace is a positive one in light of all the changes and new adaptations taken by the leadership.
And generally it’s difficult to ignore Saudi Arabia and its economy, which is the largest in the Middle East and North Africa, with a stable and deep system, a large local population, and massive growth potential and oil reserves.

Q: Which areas of the economy would benefit from further reforms?
A: It’s difficult to say, but a lot of the SMEs (small and medium enterprises) have been impacted by hikes in import labor fees, utility fees and different tax measures. And consumer spending is seen to have slowed down last year. This is of course as a result of Saudization measures and localizing labor.
Reforms benefit the whole economy. There are many sectors that need reform and can benefit from it, and now there are many courageous government initiatives in all directions really. Just last month, we saw around 34 excellent openings in all fields, from infrastructure to mining to logistics. Thankfully, there’s a huge push now by the Ministry of Commerce and Investment to cut down business establishment costs in order to encourage entrepreneurship and help initiate SMEs across the country (right now, according to unofficial figures from the ministry, setting up a new business in Saudi Arabia is more expensive than in Turkey and Dubai, for example).
This will definitely help alleviate the hikes mentioned earlier that affect SMEs and consumer spending. There seem to be real efforts and measures to cut red tape and start-up costs, led by the Saudi government.

Q: Given the prevailing sentiment in markets, are we likely to see many initial public offerings (IPOs) this year, and in what sectors?
A: I believe there are around six offerings this year in the stock market, which is a healthy number. This can be addressed further by financial experts.


BMW picks insider Zipse as CEO to catch up with rivals

Oliver Zipse
Updated 19 July 2019
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BMW picks insider Zipse as CEO to catch up with rivals

  • German giant has lost ground to Mercedes-Benz and Tesla as tech steps up

FRANKFURT: BMW has named Oliver Zipse as its new CEO, continuing the German carmaker’s tradition of promoting production chiefs to the top job even as the auto industry expands into new areas such as technology and services.
Hailing Zipse’s “decisive” leadership style, BMW hopes the 55-year-old can help it win back its edge in electric cars and the premium market  from rival Mercedes-Benz.
But some analysts questioned whether Zipse was the right choice with new fields such as software and services like car-sharing becoming increasingly important.
“What is intriguing is the cultural bias to appoint the head of production. It works sometimes but ... being good at building cars is not a defining edge the way it was 20 years ago,” said Jefferies analyst Philippe Houchois.
Current CEO Harald Krueger, and former chiefs Norbert Reithofer, Bernd Pischetsrieder and Joachim Milberg were all former production heads.
Zipse joined BMW as a trainee in 1991 and served as head of brand and product strategies and boss of BMW’s Oxford plant in England before joining the board.
He will become chief executive on Aug. 16, taking over from Krueger who said he would not be available for a second term.
“With Oliver Zipse, a decisive strategic and analytical leader will assume the Chair of the Board of Management of BMW. He will provide fresh momentum in shaping  the future,” said Reithofer.
Zipse helped expand BMW’s efficient production network in Hungary, China and the US, in a move that delivered industry-leading profit margins.
Under Krueger, BMW was overtaken in 2016 by Mercedes-Benz as the best-selling luxury car brand.
It also had an early lead over US  rival Tesla in electric cars, but scaled back ambitions after its i3 model failed to sell large numbers.
Reithofer initially championed Krueger’s low-key consensus-seeking leadership, but pressured him to roll out electric vehicles more aggressively, forcing Krueger to skip the Paris Motor Show in 2016 to reevaluate BMW’s electric strategy.
Krueger’s reluctance to push low-margin electric vehicles led to an exodus of talented electric vehicle experts, including Christian Senger, now Volkswagen’s (VW) board member responsible for software, and Audi’s Markus Duesmann, who is seen as a future CEO of the company.
Both were poached by VW CEO Herbert Diess, a former BMW board member responsible for research who was himself passed over for BMW’s top job in 2015.
VW has since pushed a radical 80 billion euro ($90 billion) electric car mass production strategy, and a sweeping alliance with Ford.

Other skills
“A CEO needs to have an idea for how mobility will evolve in the future. This goes far beyond optimising an existing business,” said Carsten Breitfeld, chief executive of China-based ICONIQ motors, and former BMW engineer. “He needs to build teams, attract talent, and promote a culture oriented along consumer electronics and internet dynamics.”
German manufacturers have dominated the high-performance market for decades, but analysts warn shifts towards sophisticated technology and software is opening the door to new challengers.
“Tesla has a lead of three to four years in areas like software and electronics. There is a risk that the Germans can’t catch up,” UBS analyst Patrick Hummel said.
Germany’s Auto Motor und Sport car magazine, normally quick to champion German manufacturers, this week ran a cover questioning BMW’s future.
“Production expertise is important, but if you want to avoid ending up being a hardware provider for Google or Apple, you need to have the ability to move up the food chain into data and software,” a former BMW board member said.