Shaking up Saudi

The start of the industrialisation programme of Saudi Arabia in 1970 gave the Al Zamil family a p latform on which to build its industrial conglomerate. As chief operating officer Abdulla Al Zamil tells Massoud A. Derhally, they have never looked back.

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By  Massoud A. Derhally Published  April 17, 2005

Shaking up Saudi|~|FORWARD-LOOKING-200.jpg|~|FORWARD-LOOKING: Abdulla Al Zamil wants to push his vision for Saudi Arabian business forward, and see improvements to the kingdom’s infrastructure.|~|ABDULLA Al Zamil doesn’t just represent the fresh blood of the Al Zamil family, one of the six most influential merchant families in the Gulf, but he also epitomises the forward-looking and dynamic way the new generation of Saudis are doing business. Zamil, who is the chief operating officer of Zamil Industrial Investment Company, is a hard worker. He’s also an optimist and has played a formidable role in re-engineering and restructuring how his family does business in the advent of growing competition and the continuously changing business landscape in his country and in the Gulf. Originally from Saudi Arabia, the family moved to Bahrain before returning to the KSA where they have helped build a multi-billion dollar conglomerate. Having just returned from India, perhaps the only other country besides China recording tremendous rates of growth, Zamil is bullish on the prospects of the Saudi economy and how industry specific companies can expand laterally. The playing field today is as much about survival as it is about competition, he says. “The mood now in Saudi Arabia is that the Saudi government and Saudi investors have realised the best place to invest in Saudi Arabia is where the country has a core competence, which is [in] petrochemicals and energy related sectors,” says Zamil. Unlike some in his country, Zamil pulls no punches when it comes to sharing his vision of what the kingdom needs to do to surmount the challenges it faces. Those challenges he says are infrastructure and labour-related, which affect local businesses. A particular thorny issue for Zamil is the subject of labour visas, which has become all the more hard since Ghazi Al Gosaibi took over as the new minister of labour and placed restrictions on jobs open to foreigners. The government’s strategy has been to help curb unemployment by increasing Saudisation. But Zamil says the process has not been clear-cut. “It is becoming harder and harder, and unfortunately the government is indifferent about who is submitting for [work] visas. They keep saying no [to visa requests] and this will put a huge cap on an industry like ours that has an excess of 30% Saudisation,” explains Zamil. “When we ask for foreign visas it will mean that we will be adding another 30% of Saudis because we are in a growth mode. The government has to study each submittal carefully before they refuse a visa. And it’s not only labour visas ... visit visas are [also] a problem. They want people to be engineers or managers. That particular restriction is hampering business,” he adds. Zamil also believes expanding the infrastructure will play an important role in the economic development of the country. “There has been talk about this new railway between the eastern and western provinces. This will take time. The highway system is excellent in Saudi, but we still have issues with the ports. The congestion is quite big … but it goes along with the growth.” Some of this growth has come as part of the kingdom’s strategy to attract foreign investment under the umbrella of the Saudi Arabian General Investment Authority (SAGIA), which has helped cultivate a culture of economic reform, minimised red tape and encouraged a transparent environment that helps to lure investors. Zamil commends the organisation and says the country is heading in the right direction, but he also says the reform process could be faster. For instance, while he acknowledges that women who have traditionally played little or no role outside the home, are being slowly integrated into the Saudi economy, he believes there is room for wider participation. “It’s happening, but very [slowly]. They will play a major role as we progress in the future,” says Zamil, adding, “Look at the growth that has happened in the last couple of years and the expected growth in the next couple of years. I don’t think women have affected the growth of the economy in terms of not participating. But I think they will add value once they become an integral part of the economy. From a wealth standpoint, women are very wealthy in Saudi.” Women can help oil the engine of growth by investing much of their idle cash deposits. The problem though, as Zamil explains, is that there aren’t many readily available investment vehicles today. “There is the stock market, real estate and private businesses. We need more vehicles of investment,” he says. Two elements make Zamil optimistic about the future of his country and of the Gulf. The fact that interest rates will not reach 8% or 10% as they have in the past and that they will remain below 5% makes Zamil upbeat. This is in addition to oil prices hovering above US$35 a barrel. “These will be the major issues in the future and make this region competitive — and I’m very bullish about the area as a whole because of oil prices,” he explains. Oil will continue to play an important role in the Saudi economy and in the development of the kingdom, but Zamil believes the service sector is the way forward. The service sector represents less than 30% of total GDP in Saudi, whereas in developed countries it is over 80%. “I don’t think we will be replacing oil with manufacturing, but rather the service sector, especially with religious tourism and so on. That will have a huge impact on replacing oil as a source of income.” In terms of attracting foreign investment, Zamil believes is not hard cash that is needed in the country but technology. Making his point, he cites a recent report that said the total amount of cash available in Saudi banks is 450 billion riyal (US$120 billion). “The issue at hand is not attracting foreign money, but foreign technology. I think this is easier, especially in the petrochemical sector [where] you find a lot of foreign companies that are [coming] to Saudi to invest.” Zamil also believes his country stands to gain more once it joins the World Trade Organisation (WTO), something that has been long overdue. He also believes the agreement between the GCC and the European Union (EU) will open more markets to the Gulf States. Unlike some businessmen in the Gulf, Zamil isn’t apprehensive about what is to come once these initiatives take form. This is because he and his family had the vision and foresight to expand abroad and integrate themselves beforehand into what he likes to call the global village. Zamil’s umbrella stretches from Saudi Arabia to the Gulf, the Levant, to North Africa, Europe and the Far East. “In the mid-1990s we created critical mass in the Gulf region. We thought we have technology; we have strength that we can apply elsewhere. We saw two promising markets — Vietnam and Egypt. When we went to Vietnam it was before they joined ASEAN and we knew that once it joined the organisation it would boom and that’s exactly what happened. They joined three years ago and we have seen tremendous growth,” explains Zamil. Going to Europe was out of a technology requirement. “We wanted to acquire technology so Europe was the right place. In the past companies here would license the technology, but they would never own it. Personally, I am against buying licensing, I am against buying the right to use a technology without owning it. That’s how we started in the beginning in the mid-1970s and we paid royalty. The idea now is to own the technology, develop it further and create another geographic location for us,” Zamil points out. Looking forward, Zamil believes the present surge in the construction sectors across the Gulf, will give the region mileage for some time to come. “In the next couple of years, we will see what we saw in the 1970s, in terms of an economic boom, but this time it’s much more structured. I think the construction and petrochemical boom is one that will take us [forward] for a very long time to come.” A proponent of a free market economy and no tariffs, Zamil also believes that business families, which dominate much of the business scene in the Gulf, will have to adapt to changing times or suffer the consequences. Most of the businesses that were started in the 1960s and 1970s are faced with the issue of succession as a new generation of family members takes over. “That’s a huge challenge,” says Zamil, “That by itself creates divisions within families and will probably destabilise some of the wealth. But a lot of companies have taken some major steps like we have done in the past like making a company public and trying to institute a much stronger role of corporate governance and succession planning,” he adds. Zamil took several of its companies public and investor appetite has been more than positive, albeit these are very liquid times for markets in the region. “When we floated Sahara Petrochemical a few months ago, it was oversubscribed by 130 times. We asked for 300 million riyal (US$80 million) and we got 39 billion riyal (US$10.4 billion). That’s 130 times over-subscription,” says Zamil. Succession aside, another problem is that family businesses tend to look within and do not consider the global arena as part of their dynamics, according to Zamil. With the changing environment, the WTO and globalisation, family businesses need to be run in a more professional manner, but this is not usually the case, according to Zamil. He contends that hiring professional managers plays a major role in the continuity of family businesses. “Bringing in outsiders added a lot of value in terms of decision-making. We have four board members that are not Al Zamil and they add new insight to the way the business is run. “When we hire people, honestly academic qualifications aren’t at the top,” Zamil explains. “We look for the ACE factor; attitude, character and enthusiasm — that’s what we look for in individuals. Everything else can be taught. The work ethics have changed in Saudi.” ||**||

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