DUBAI, 10 December 2003 — Established family businesses in the Middle East which generate billions of dollars in revenues realize their practices must change if they are to survive in an increasingly competitive environment. The private sector, increasingly the alternative to oil dependence in the Gulf, is the key to unlocking the region’s potential say analysts and industry insiders. “About 95 percent of businesses in the Middle East are family run,” Amin Nasser, a partner of PriceWaterhouse Coopers, said at a two-day Middle East Economic Digest (MEED) Family Business Conference in Dubai. He also said that although these businesses are extremely profitable and well run, “only six percent survive to the third generation and fewer than two percent survive in Saudi Arabia.”
“With the World Trade Organization (WTO) coming, businesses need to be larger with a lot of capital, and one way of getting capital is to have a listed company where raising capital is easier than raising it through family members,” says Maneesh Ajmani, a corporate finance analyst at KPMG.
For Saudi Arabia, arguably the largest and most important market in the Middle East, things are changing. “We are structuring ourselves to go with the tide of the WTO. We have seen some companies go public,” said Khaled Olayan, chairman of Olayan Group, a leading diversified Saudi enterprise of 50 companies. But Olayan also added that each family business has its own governing structure and conditions, and while some companies in Saudi Arabia would like to go public or semi-public, others are reluctant. He also pointed out that the protection of a future generation should be in the “structure” of the company and not determined by whether a company is publicly listed or privately held. Should Saudi companies decide to go public, the country could see the liquidity of its stock market swell.
“If the top 10 family-run businesses in Saudi Arabia became publicly listed companies, it would pump $50 billion into the Saudi stock market,” said Basil Al-Ghalayani of the Jeddah-based BMG financial advisory group. “The way for family businesses to look forward is to go public, be listed and think seriously about consolidation and mergers in order to face international competition and accession to the WTO,” he added.
But unlike Saudi Arabia and Kuwait, stock markets in the remaining Arab countries offer little to entice or increase investor appetite.
The fact that family-run businesses will require additional capital in a post-WTO world is a given, says Ramzi Abdel Jaber, chief executive of MENAFN, an online financial services company and a strategy consultant. “The changing business environment requires an important yet intangible and often neglected asset,” says Abdel Jaber.
That asset is a “world-class management team able to compete on a level playing field with global players and having the experience in operating under more competitive dynamics, divesting from non-core assets, consolidating market positions around core businesses and seeking external capital or going to market.”
