Posts Tagged Gulf
Cheeseburger Pizzas, Designer French Fries and a Post-war Cinnabon: Fast Food’s Booming Middle East Market
According to a survey by MasterCard, Gulf consumers were the top three spenders on restaurants — UAE diners spent an average of US$229 per month, Qataris averaged US$211 per month, and Kuwaitis spent US$196 per month. The same survey found that 88% of respondents said they dined in shopping mall food courts.
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Like the thousands of expats who find their way to this glitzy sheikhdom, Sim Whatley and J.C. Butler came to Dubai several years ago seeking jobs. But what they found instead was the opportunity to create an online classified website for the region, Dubizzle.com. Starting as a website for Dubai bargain hunters, Dubizzle now covers almost the entire Middle East. The pair tell Arabic Knowledge@Wharton that a constant process of refining ideas and business strategy helps the site evolve, while keeping Dubizzle’s classified ads free for the non-professional seller maintains its popularity.
“Classified websites in general are mostly about concepts,” Whatley says. “Even if you have the best website in the world, if you don’t have any ads to sell in our website or you do not have any financial benefit from our website, you will feel no point going to it. I think [success in this market] is a great mixture of carrying the most selection in these markets as well spending lot of time, lot of money in development.”
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Booz & Company’s Joe Saddi: The Arab Spring Toppled Governments, but High Unemployment Remains the Region’s Biggest Concern
Now a year beyond the first flush of the Arab Spring movements throughout Northern Africa and other parts of the Middle East, the difficulties of economic uplift in the area are becoming apparent. In a way, the sudden successes of the uprisings, particularly in Tunisia, Egypt and Libya, mask the real long-term difficulties of laying the foundations for sustained economic viability for the region.
Joe Saddi, the chairman of Booz & Company, has long done business in the region and spoke about both the Arab Spring’s upsides and downsides at the first Wharton Middle East North Africa (MENA) business conference recently.
“I hear often the phrase, ‘The Arabs never miss an opportunity to miss an opportunity’,” said Saddi. “But now that the opportunity to have an economic success is there, we can no longer afford to do that.”
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Tunnock’s is considered a treat favored by British grandmothers, but half of the company’s total annual exports are shipped to the Middle East. The company’s annual sales amount to approximately £34 million (US$52.2 million), of which 10% represents market share in the Middle East.
“Just like Italian culture has been romanticized in the U.S., people in the Middle East may see British food as a sign of being cultured or worldly,” says Jonah Berger, Wharton professor of marketing at the University of Pennsylvania.
The Middle East has proven to be a lucrative market for the snack industry. Euromonitor International, a strategy research firm in consumer markets, reported the industry grew 10% last year in Saudi Arabia, and forecasted sweet biscuit sales this year worth US$437.5 million. In the United Arab Emirates (UAE), the biscuit industry, including sweet and savory snacks, Euromonitor predicts 7.6% growth this year, valued at US$133.1 million.
Interestingly enough, Euromonitor notes economic declines in the Middle East actually help snack sales in the Middle East, showing increases in snack sales since the global financial crisis bgean. Sounds like somebody’s been indulging in a bit of comfort eating.
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Bala Balachandran, the J. L. Kellogg Distinguished Professor of accounting and information management at the Kellogg School of Management at Northwestern University, wonders how the commercial development of shale gas will forever alter Gulf economies.
“Oil reserves here are good for only 40 more years,” Balachandran tells Arabic Knowledge@Wharton. “Shale gas reserves are something like 500 years. So if that becomes economically viable, the barrel of crude oil is going to go down to $US15 dollars in three years. Then what happens to the economy here? Is there an alternative strategic plan? This is something they have to think about.”
Balachandran acknowledges that Arab Gulf countries are still flush with cash, and are investing into alternative energy technology. But technology isn’t enough by itself, he notes, nor does being wealthy help innovation.
“When you’re affluent, you are not motivated to change,” he says. “When your survival is threatened, you’ll come forward.”
Read the full story here: http://bit.ly/zN2Clw
Stock markets in the Middle East have taken a financial beating because of Arab Spring protests this year. Since crowds flooded Cairo’s Tahrir Square, Egypt’s EGX 30 Index has lost almost 45% of its value; Saudi Arabia’s Tadawul All-Share Index has lost nearly 10%, while the Dubai Financial Market General Index has fell nearly 20%.
Arab exchanges were already weak because of the effects of the 2008 financial crisis, which exposed issues with sovereign debt in the Arab Gulf. Only two IPOs this year were listed in the exchanges of the Gulf Cooperation Council countries (Saudi Arabia, the United Arab Emirates, Qatar, Bahrain, Kuwait and Oman). Both were in Saudi Arabia, and generated US$219m, according to PwC Capital Markets Middle East.
But adding further injury, a much anticipated bid to upgrade the United Arab Emirates and Qatar to ‘Emerging Markets’ status by index compiler MSCI was thwarted again this past week. Currently both countries are part of MSCI’s Frontier Markets index; analysts say an upgrade would’ve channeled up to US$70 billion into Gulf markets.
MSCI has twice previously put off a decision about upgrading the status of both countries. It said it would look at the issue again in June, but noting that concerns remain about foreign ownership limits, market liquidity, securities lending, and limitations on short-selling.
It is expected that the UAE won’t be ready for another review in June, but it continues to push for reform on its exchanges. Last July, the Dubai exchange consolidated with Nasdaq Dubai, the region’s first exchange open to investors and issuers of any nationality. Investors hope for a merger now of Dubai’s exchange and that of Abu Dhabi, the UAE’s capital. Earlier this month, Standard & Poor’s announced it would launch an index comprised of the Arab world’s 40 blue chip companies, in a bid to open the market more to exchange-traded funds.
The World Bank is bearish on immediate prospects for the Middle East and North Africa (MENA) region, particularly hardest-hit Egypt, Tunisia and Libya. “Foreign direct investment flows [to the region] fell by 7% in 2010 and by another 16% in 2011,” notes a new report on world investment and political risk.
“Despite recent announcements of investment intentions in North Africa by other countries in MENA, short-term prospects are not promising. With Europe under economic strain and uncertainties surrounding the political environment of Egypt, Libya, and Tunisia, FDI into North Africa is likely to slump for longer and rebound more slowly than the rest of the MENA region.”
The report also notes that though some investors pulling out of the region or placing plans on hold, recovery should begin in 2013. “Despite the recent turmoil, the longer-term outlook for the region remains promising and companies do not view the present unrest as posing a long-term barrier to doing business in that region.”
Considering the effect the Arab Spring has had on protests around the globe, the World Bank report adds that as an offshoot, “the recent events in the MENA region have accentuated the risks of political violence and non-honoring of sovereign financial obligations — not only in that region, but also more broadly.”
Like most Gulf nations, the United Arab Emirates (UAE) has little agricultural resources, forcing it to import the majority of its food supply. The oil-rich country brings in roughly 80% of its supply; Dubai, its most famous Emirate, imported over 4 million tons of food in the first half of this year alone.
Its neighbors are similarly active buyers in the food market. In September, Iran became the biggest buyer of Brazilian beef for the first time in its history. Such dependence is projected to only rise with time. According to the World Bank, the Arab region’s need for food imports is expected to increase by almost 64% over the next 20 years.
As a result, these Gulf economies and the region as a whole have found themselves particularly vulnerable to rapid global food price increases. The United Nations reported in September that its world food price index climbed 19% from last year, a rise from 194 to 231 index points.
It has translated into higher costs at the grocery store across the region. In the UAE, a survey by Gulf research group YouGov Siraj of over 1,500 residents found that over a quarter of respondents had been paying more for meat and fresh vegetables in the past six months. A summer survey by Middle East job site Bayt.com reported that after housing, over 40% of respondents said their biggest monthly expense was grocery bills.
Even in Qatar, which the International Monetary Fund recently named the world’s richest country in terms of per capita wealth, there is local concern about the price of food going up – prompted partially by the Qatari government’s recent announcement that it would hike salaries for nationals working in the government sector by 60%.
The World Bank study notes the Middle East and North Africa consume 30% of the world’s wheat. Any rise in the cost of bread, cereal and rice falls hardest on the largely South Asian expatriates in the region’s laborer class, wherein a worker’s monthly wages often do not exceed US$200 a month.
In response, Gulf governments have taken two different actions. Some are applying economic controls, mandating grocery stores in their countries to freeze prices of certain foodstuffs. In the UAE, hundreds of goods are price fixed until the end of the year. A number of international food companies have questioned the measure, including Unilever and Kraft.
Additionally, some Gulf nations are buying foreign land for food production. The UAE, Saudi Arabia and Qatar have made investments or have purchased freehold farms across the world. According to a study by Washington, D.C.-based International Food Policy Research Institute, the UAE is behind only China and South Korea as one of the top purchasers of global farmland.
There is added incentive for Middle Eastern governments to ensure that food prices remain at a low cost. A number of academic reports suggest that rapid food price increases in the region had a role to play in the popular discontent that led to the Arab Spring — unrest that Gulf countries such as Saudi Arabia have allocated billions in social spending to prevent from happening within their own borders.
As Muslims around the world begin observing the month of Ramadan, non-Muslim visitors and expatriates in Gulf countries are being asked to take heed of Islamic customs to avoid problems with local authorities.
Although abstinence from food, drink, smoking and intimate relations during the day are required of observant Muslims during Ramadan, non-Muslims are also expected to follow the same rules while in public in Gulf countries.
In Dubai, the glitzy sheikhdom of the United Arab Emirates (UAE), one language school is offering a free “Ramadan etiquette” course to non-Muslim expatriates, while a number of local newspapers havepublished etiquette guides, and do’s and don’ts lists. Some Western embassies have also released advisories on proper public behavior.
Though offered in the vein of broadening cultural understanding, these advisories also serve as guidelines for self-preservation. Breaking these rules in some Muslim countries, notes an advisory on Ramadan from the British Foreign Office, could result in arrest. Just this past month, a British expatriate was fined $US800 by the Dubai Court of Misdemeanors for insulting Ramadan on her Facebook page.
Even Dubai, considered the most Westernized city in the Arab world, said it would police the behavior of non-Muslims living there. For a first infraction, an expatriate would receive a warning if caught by police. Subsequent infractions, according to Dubai police, could result in arrest and a fine of up to US$550.
Dubai’s chief of police, Lieutenant General Dahi Khalfan Tamim, told Arabian Business, “We train our officers how to deal with different nationalities and to respect non-Muslims who may inadvertently offend Muslims during Ramadan by eating, drinking or smoking in public places during the day…. They are to deal with it in a courteous way so that [non-Muslims] would refrain from doing it again.”
International companies have learned it is good business to adhere to Ramadan. A number of brands offer Islamic-themed advertisements and Ramadan messages to customers throughout the Gulf. In addition, it is now common practice for companies to hold corporate “iftaars” (the meal Muslims take at sunset to break their fasts) as a means of socializing and deal-making.
Doing business globally often requires companies to conform to different cultural and governmental systems, but many of those challenges are ultimately outweighed by the benefits of operating within those nations, Wharton management professor Michael Useem told Arabic Knowledge@Wharton for a 2010 story about clashes between BlackBerry maker Research in Motion and governments in the Middle East over demands to monitor the company’s e-mail service. “It’s a little bit like operating in cities like Bangalore, where the power goes [out] for three hours a day,” Useem noted. “It’s a royal pain in the backside, but you still create your operation there. It’s one more challenge there of doing business.”
For long-time expatriates in the Gulf, the strict rules related to Ramadan come as little surprise. Though the oil-rich Gulf countries, with the exception of Saudi Arabia, tend to be the most hospitable to Western expatriates in the region, there has been an increased demand in recent years from the native Arab populace to protect cultural norms.
Partly fueled by locals feeling inundated by expatriates — foreigners make up nearly 90% of Dubai’s population, for instance — there have been a number of recent cases where Western expatriates have run afoul of local customs and laws, and have been jailed and deported.
In 2008, two British expatriates became infamous for being caught having drunken sex on the beach in Dubai, and were jailed and deported. Another Briton was jailed in Dubai for two months last November, and then deported, for giving the finger to an airport worker. And in 2007, a famous British DJ was sentenced to four years in prison after he was found to have 2.16 grams of cannabis in his possession. Due to these and other high-profile cases, the British Embassy said in 2009 that Britons were more likely to be arrested in the UAE than anywhere else in the world.
Intent on cementing itself as an international flight hub, Dubai continues to invest in its airline infrastructure and brand new airplanes. The sheikhdom will invest US$5.98 billion to expand Dubai and the new Al Maktoum international airports by 2020, officials say. Meanwhile, the Dubai government-owned Emirates airline plans to spend roughly US$10 billion a year to expand its fleet over three years, including 18 cargo planes.
Demonstrating the increasing clout of Gulf airlines in the aviation industry, Airbus this week agreed to redesign its A350-1000 jet, after its Arab customers asked for changes that would allow the plane to fly further and carry more.
The government entity, Dubai Airports, recently forecast that international passenger traffic to Dubai would grow an average of 7.2% percent over the next decade, with passenger traffic reaching almost 100 million by 2020, and cargo volumes above 4 million tons.
Paul Griffiths, Dubai Airports CEO, told an audience in Bangkok recently that in less than a decade, aviation would account for 32% of the sheikhdom’s GDP—roughly US$45.4 billion. But in the same speech, Griffiths acknowledged that Dubai’s current airspace “is not currently configured to support this growth.”
Regional competitors will pose another threat to Dubai’s plans for aviation domination. Doha-based Qatar Airways is expecting to receive 200 jets worth US$35 billion, and is making a play for regional cargo business, converting 15 passenger jets to freighters and taking 33% ownership of Europe’s biggest freight carrier, Cargolux Airlines International SA. There is even competition from within the United Arab Emirates, as Dubai’s buttoned-down neighbor, Abu Dhabi, is undertaking major expansion plans for its international airport, and promotes its own airline, Etihad, which has ordered US$50 billion worth of jetliners.
Michael Wisbrun, managing director of SkyTeam Cargo, which includes the freight arm of Air France-KLM Group, told Arabian Business that such ambitious plans were of concern. “It will be tough. There’s no reason to have a hub in Qatar or the United Arab Emirates, and adding capacity with supply and demand as they are won’t help the equilibrium.”
There is need to question the sustainability of such growth, according to Wharton professors. Speaking with Arabic Knowledge@Wharton about the Gulf airlines’ push to become a global hub for air travel, Wharton management professor Peter Cappelli had noted that “only [a few] airlines in the world make money, and the industry as a whole loses billions every year. Fundamentally, the nature of the industry is the problem: The marginal cost of filling an extra seat is almost nothing, so whenever the carriers have excess capacity, they have fare wars, and they all bleed to death. The only time any of them make any money is in the brief period in which demand is growing faster than capacity. Is there any reason to think that the carriers in the Middle East have somehow cracked this problem by spending more on new planes?”