Monday, May 12, 2008

Tsunami To Hit Gulf Economies?

Sheikh Mohamed Bin Issa Al Jaber has created one of the world’s biggest hotel empires. But the Saudi tycoon isn’t keen on doing business in the Middle East.

Sheikh Mohamed Bin Issa Al Jaber is not one to mince his words. He talks about being “scared” of the future of Gulf economies, fearing a “tsunami” of inflation, and “10 years of decline” for the property market in the region.

And when he speaks, most people tend to listen: the sheikh’s massive MBI Group spans a hotel empire, food company, oil and gas division and now even an airline, which have helped bring in revenues of US$2bn and profits of US$267m from his hotels division alone in 2007.
BENEFACTOR: Dar Al-Hekmah College in Jeddah is one of the institutions that Sheikh Al Jaber supports.

BENEFACTOR: Dar Al-Hekmah College in Jeddah is one of the institutions that Sheikh Al Jaber supports.

It has contributed to a US$6bn personal fortune, making him one of the world’s 200 richest individuals, and Number 11 in the Arabian Business list of richest Arabs.

But unlike most of his Arab colleagues on the list, he is outspoken in his assessment of what he calls the “hype” that surrounds the Gulf-wide real estate-fuelled economic boom that is transforming city skylines from Dubai to Doha.

“Hype” is a word he uses a lot during our two-hour conversation at his luxury offices, minutes away from the Place de la Concorde in central Paris.

It is what concerns Al Jaber most these days. Although his presence in Europe has made him a regular guest at state functions, Al Jaber is noticeable by his absence in the Middle East.

He recalls last being in Dubai “some years back” and apart from AJWA Group and a few real estate projects, has few operations in the Gulf. Four of his 10 offices are in Europe. And it is obvious why.

“There is too much hype going on. I am very scared about the market in the Middle East. Three years ago I was giving warnings of the hype of the stock market and people had to find the truth for themselves.

When it came it was difficult. And still the market is facing risk. But now the other problem is the real estate market. People are in denial because of their own self interest.

“It makes people sometimes make the wrong judgments. They don’t want to think of any corrections that might happen,” he says.

Al Jaber is quick to point to the mega projects across the Middle East, and one by one takes me through them: their cost, their current value, and the likely demand for them.

Throw into the mix inflation of over 10% in many Gulf states, and by Al Jaber’s calculations, very dark days lie ahead for regional economies.

“If we think that the inflation we are experiencing today is the maximum, then we need to think again because we are going to experience a tsunami in the next 12 months. The problem is the lack of transparency and people always want to see things in the best way. People don’t want to predict this. But they should think about the worst case in order to enable them to plan better,” he says.

Just who are the “people” he is talking about? “Governments of course and business people. Greed is fuelling the market — greed on the business side. All these people had had a shock three years ago [in the markets] but they are still living in denial,” Al Jaber says.

Recent history suggests he is wrong. In most Gulf capitals, property prices continue to rise and people still queue up in the early hours of the morning whenever big developers in Dubai announce new units for sale.

“Yes, but there is an end coming to the rise in property prices. They are now trying to stop increases in rent. At the same time they want to keep the growth they have. The two cannot work against each other. If the growth they are predicting comes, then inflation will grow in parallel. You cannot put a ceiling on prices.

“The problem they are facing is inflation and it is greater than what people can cope with,” he says.
So just how bad does Al Jaber predict things will get? Pretty bad.

“Either people will leave the cities — in which case the entire demand will crash. Or the price of developments has to be corrected. In 12 months from now, maybe before — and I hope this will not happen — but if the correction begins it will lead to 10 bad years,” he says.

“We are in grey areas. Yes there are huge opportunities. There are countries with huge populations, but the way things are going, this is going to hurt everybody. The hype has crossed the whole region.”

The chic Sheikh

MBI International also owns a hotel empire including the Tremoille Hotel in Paris.

There is no doubt Al Jaber is convinced of his own theories. I ask him if he would allow his own son to buy property in the region. He replies with a sharp “no!”. What about the Gulf stock markets? “No! No!”

“People came to the stock market under the impression that they can make quick profits and that is the mentality. But at the same time some companies just started selling the market big news which never actually materialised.

“There is a serious lack of transparency and accountability. The only solution for the region is to apply taxation. If you do not have a taxation law you cannot have accountability. That would correct the books,” he says.

If Al Jaber is predicting a doomsday scenario, then rather smartly, he is making sure he is nowhere nearby if and when it happens, as he stresses he has no plans to extend his empire in the Middle East.

“I need to do business where I can sue the government. That is my basic principle. Maybe in the past I would have but now I have grown to different principles,” he says.

Al Jaber started his empire by acquiring four hotels in France in 1988, and quickly extended his collection to 36 in France and 75 worldwide.

In addition to his hospitality activities, Al Jaber runs the AJWA Group for Food Industries based in Saudi Arabia and Egypt, a real estate company called Jadawel International and a rice milling company in Egypt. It is clear that Al Jaber has his fingers in a lot of pies.

He spends 80% of his time in Europe overseeing his group — based out of a lush Parisian mansion, and he is looking for further expansion in the US and Europe.

“You could say things are going well right now,” he says with a hint of a smile.

“I am self-made. I have been doing this job for exactly 30 years. I move slowly. I don’t move without a reason, there has to be synergy. At MBI, we are not a short-term investor and we prefer the mature markets rather than hype,” he says.

“This is all the result of careful planning,” he says, adding: “It’s been steady growth in the last few years. Some of our investments are maturing and revenues and profits have increased. The other side is faster growth on assets.

“It was always planned that we would only enter the market when the opportunities were there. In 2005/6 we did not make much in acquisitions then in late 2007 we took the opportunities in the real estate side.”

Most recently MBI International has taken a controlling stake in Austrian Airlines. “I have to understand every part of the business.

“I learn the business first. I studied Austrian Airlines carefully and I saw there are opportunities that will come after I take it, and ways that I can grow it in Eastern Europe and Middle East,” he says.

The whole MBI International Group “is likely” to list in Europe next year or early 2010, Al Jaber says, with pre-listing activities such as convertible bonds being issued likely to get underway this year.

These days however, it is far more than just business Al Jaber is involved in. Al Jaber is well-known for his philanthropy in the Middle East.

He has funded scholarship programmes at some of the world’s best-known educational institutions and has also been a supporter of Arab-Israeli reconciliation, including through the Olive Tree Educational Trust at London University.

“I have a strong belief that nobody can be forced into peace unless they reconcile their problems.

“No power on earth can force people to do that,” he says, adding: “People have to sit, talk, understand and respect each other and that’s what they have been doing for five years.”

So does he believe that there will be peace in his lifetime? “I don’t know how long I will live,” he deadpans without elaborating further.

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