Mitsubishi upbeat on KSA growth as reforms gather pace

The Mitsubishi financial group, which has its headquarters in Tokyo, expects Saudi privatization plans to accelerate this year. (AFP)
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Updated 13 January 2020

Mitsubishi upbeat on KSA growth as reforms gather pace

  • MUFG analyst believes the Kingdom will continue to be regional outperformer in 2020

DUBAI: Japanese financiers are taking a cautiously optimistic view of the Middle East, despite recent geopolitical stresses, and believe Saudi Arabia, in particular, is set for a year of financial and economic outperformance, with a revived privatization plan as the centerpiece.
Mitsubishi UFG Financial Group (MUFG), one of the country’s biggest investment institutions and a major player on the international financial scene, recently told investors: “Saudi Arabia was the regional outperformer in the Middle East and North Africa in 2019, and we believe this trend will follow in 2020.” 
According to Ehsan Khoman, head of MENA research and strategist for MUFG: “Investors have moved on from recent ‘black swan’ events and are taking increasing comfort with the lengths and vigour that the authorities are demonstrating in enhancing the operating environment, enticing foreign investment and implementing structural reforms in accordance with Vision 2030 targets.”
MUFG, which opened a Riyadh office just over a year ago and has close links with Morgan Stanley, one of the Kingdom’s top financial advisers, gave a vote of confidence to Saudi economic policymakers, on the eve of the visit to the Middle East by Japan’s prime minister Shinzo Abe.
“The Kingdom’s ample wealth buffers have offered policymakers options, allowing the authorities to retain an expansionary stance throughout 2019,” Khoman said.
“The 2020 budget strikes a more conservative tone, which is in line with the approach wherein the state slowly withdraws and allows the private sector to lead.
“The central cornerstone of the transformation strategy is to structurally change the operating model to make investment, not government spending, the engine of growth.
“The emphasis on diversifying state funding to ensure the private sector is not crowded out, in conjunction with robust corporate confidence readings (which continue to break records), are consistent with this objective.”
Last year the Kingdom was a record achiever in the World Bank’s annual “Ease of Doing Business” ratings, jumping a record 30 places as the pace of reform accelerated under the Vision 2030 strategy to diversify the economy away from oil dependency.
MUFG believes this will continue. “The momentum from the leadership centered on a KPI performance-based achievement approach is undoubtedly serious, and critical structural reforms are creating the necessary platforms for corporates to evaluate strategic risk-reward opportunities,” Khoman said.
Analysts expect that the historic initial public offering of Saudi Aramco last year will kick-start the privatization program under the Vision 2030 strategy.
The Kingdom’s ministry of economics has ear-marked around 162 businesses currently owned by the government for privatization either by IPO, sale to domestic and foreign trade buyers, and public-private partnership, but that program was delayed while the Aramco share sale was being organized. 
MUFG expects its will gather new momentum this year. “Privatization, particularly in an volatile oil price environment, is intended to enhance the operations of state-owned enterprises, as well as the efficiency and overall management of the business, and improve the quality of services,” Khoman said.
“Privatization initiatives are an integral part of regional government’s strategies for achieving economic development, structurally adjusting the economy away from not only the reliance on hydrocarbons, but also realigning it away from volatile oil and gas prices.
“As such, governments in the region have devised wide-ranging reform plans, with privatization central to such initiatives.”
In conclusion, Khoman said: “We at Mitsubishi believe that the Kingdom as well as the rest of the region will accelerate privatization plans this year, which is in line with the economic transformation strategy wherein the state slowly withdraws and allows the private sector to lead.”


INTERVIEW: Humanity is not handling coronavirus pandemic very well, says health care investment chief Helmut Schuehsler

Updated 14 min 24 sec ago

INTERVIEW: Humanity is not handling coronavirus pandemic very well, says health care investment chief Helmut Schuehsler

  • Head of TVM Capital on the challenges and opportunities, successes and failures, of the COVID-19 crisis

Helmut Schuehsler has had what you might call a pretty challenging time of late — and it is by no means over.

He runs the health-care investment firm TVM Capital Healthcare from Dubai, at a time when the reputation of the medical business is being called into question due to the scandal over NMC Healthcare. The UAE’s biggest provider has gone bust with more than $4 billion in unaccounted debt.

Schuehsler operates in the private equity investment sphere, which itself is facing bigger issues than ever before, especially in health care and more so in Dubai, after the 2018 collapse of Abraaj Group, once the private equity flagship in emerging markets.

And there is the small issue of the most significant health challenge humanity has faced in over a century — the coronavirus pandemic, which has changed the economic fundamentals of the medical industry beyond recognition in the space of a few months.

“Things are coming apart,” Schuehsler told Arab News on a Zoom call from his house on the Palm, Jumeirah, where he has been self-isolating for the past three months, apart from a couple of visits to the doctor.

He was referring to the global medical infrastructure and specifically to the problems with the World Health Organization (WHO), rather than the TVM business, for which he still sees big opportunities in South East Asia and the Middle East, especially Saudi Arabia.

As a professional investor with more than 30 years’ experience in health care, he holds firm views on the way the international community has responded to the pandemic crisis.

“Humanity is not handling this very well. We should have had a strengthening of the WHO. It is irrational to destroy international cooperation in the face of an international challenge. We’re doing things in a very myopic way,” he said.

He uses the term “titration” to describe the policy response of lockdown followed by reopening and, sometimes, reimposition of curfews and travel bans. Titration is a chemical process in which two compounds are mixed together in varying quantities until they neutralize each other.

“It is a case of titrating openness against social distancing. In the beginning, it was all about not overwhelming the capacity of intensive care units to ensure people had access to beds. Now, we are managing better. The public and private sector have made room for that. The first phase of the response — providing critical health care and devices — is coming together,” Schuehsler said.

“Now you’ll see a gradual reopening and closing, again and again. The danger of an exponential growth in infection rates does not go away. If people stop social distancing and we have demonstrations and concerts with thousands of people, it will go exponential tomorrow,” he explained.

He sees some cause for optimism in the work of the pharmaceutical industry — in which TVM has been a big investor over decades — to first develop effective therapeutics and, finally, a vaccine.


BIO

BORN: Vienna, 1959

EDUCATION: PhD in social and economic sciences, business administration, Vienna University of Economic and Business

CAREER

  • Investment manager, Horizonte Venture Management, Vienna
  • Managing partner, TVM Capital, Munich, Germany

  • Chairman and CEO, TVM Capital Healthcare, Dubai


“I think that by the end of this year there will be between two and five drugs that will gain emergency approvals for marketing in Western Europe. That does not mean they will be available worldwide, but availability will be just around the corner, depending on manufacturing times and how long it takes to set up distribution systems. These will prevent people from becoming so sick that they have to go to hospital,” he said.

On the possibility of a vaccine, Schuehsler believes there could be something available by the end of next year. He does not like talk of a “silver bullet” to take out the virus, however, partly due to the long development and processes of testing and approval necessary for vaccines, and partly because of a growing sentiment worldwide against vaccines.

“It’s only a silver bullet if people are actually using it, and we all know there is a growing resistance movement against vaccines, which is unfounded and which endangers people, especially children. If we want to see our children dying again from polio or measles or chicken pox, we should stop vaccinating them,” he said.

The overall response by regional authorities in UAE and Saudi Arabia has been “OK,” he said, especially considering the distraction caused by the volatility in global oil markets.

“The confluence of those two elements — oil and the virus — has caused a difficult situation for governments. They have to spend a tremendous amount in terms of getting their pandemic response up and running,” he said.

Schuehsler was a pioneer of the biotech investment business in Germany, with a network of investors in Europe and the US, before looking at the growing health-care market in the Middle East in 2009.

Now, TVM is also expanding in South East Asia, a region Schuehsler sees as having great potential in the post-pandemic world.

The pandemic will change the way he does business. In the UAE, with its sizeable expatriate populations, some medical services will change as people leave; others have already gone through a period of contraction during the most intense phase of the COVID-19 crisis.

Fertility treatment, for example, via the Bourn Hall clinic in Dubai, saw a sharp decline in business in April, Schuehsler said, though that has recovered “a bit” last month.

About four years ago, he began to look at Saudi Arabia, the biggest health market in the Middle East. The growth there has been patient and deliberate.

“Saudi Arabia is a much larger market, with different economics and setups, but we consider it to be a very attractive area. The country is the focus point of the Middle East.

“You need to believe certain things when it comes to Saudi Arabia. For example, that the Vision 2030, the opening up and diversification of the economy, will still happen even despite the COVID-19 and oil crises. You have to believe that they will stay the course and that things have been simply delayed and not indefinitely postponed. But we are making that assumption,” he added.

TVM does not invest in hospital chains, but rather in more specialist medical businesses: Long-term acute care, home care and disease management, ventilated care, fertility and reproductive treatment, and the manufacture of medical devices via an Egyptian subsidiary.

Schuehsler has expanded from the UAE to the Kingdom via the Manzil Healthcare Services brand in Riyadh and the Cambridge Medical business in Dhahran. The medical devices business recently signed a partnership deal with the well-known Olayan Group to expand distribution in the Kingdom.

He believes there are still opportunities to invest despite the crisis but warns that the investment outlook has changed.

“Deal making is less clear to me. For an investor, this is not a particularly great time because none of us can predict the future. If you look at a company that has lost half its business and you think you can do great deal, then maybe,” he said.

Timing of investment decisions takes on critical importance, he added.

There is also potential in introducing investors from the US and Germany to Saudi partners. 

“There are a lot of German companies that have good connections in Saudi Arabia, and Saudis appreciate German technology and products. There have been many contacts made with the Saudi government and health-care industry. We can help investors from Germany because we have excellent relationships in the Kingdom,” he said.

During his career, Schuehsler has raised more than $1 billion in committed capital from global investors, overseen 120 investments in the health industry, and been involved in more than 80 major transactions over the years, including the lucrative sale of his ProVita International business to NMC in 2015.

He understands the concerns of investors, employees and patients in the health business and how to avoid the pitfalls that have bedeviled health care and private equity recently in the Middle East.

“TVM has all the transparency and governance you could want. We run our business in the Middle East in the exactly same way we would have run it if we’d been in Boston or Munich,” he said.

“I think people look at private equity and health care with suspicion because so many bad things have happened. We get caught in this, but we are the most internationally minded player in the way we build partnerships, the way we compensate people, the way we run our board meetings in portfolio companies.

“That’s what I’m trying to put in place: Openness, transparency and compliance in the markets we invest in. That’s our contribution to broader society,” he added.