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Curtains Up on Investment.

Summary: Investment floodgates for GCC firms have been flung wide open after Coca-Cola and Carlyle Group entered the ring, but are family businesses ready to accept it?

As family businesses are the building blocks of GCC econoumies, it is a given that foreign investors and global compaunies are looking to invest and work in partunerships with the regional firms to expand their growth horizons.The globalization was a bit late to reach family-owned businesses in the Gulf region from the investment perspecutive, but it seems now that it is in full swing. Foreign investors are more than eager to park their money or buy stakes in Arab family businesses.

In December last year, Coca-Cola bought a stake in Aujan Industries, while Carlyle Group tied up with Alamar Food.

Looking at the first deal, Aujan Industries, one of the largest independent beverage companies in the Middle East, and the Coca-Cola Company signed an agreeument for the US firm to acquire half of the equity in Aujan's existing beverage busiuness. The $980 million transaction will provide Saudi Arabia-based Aujan Indusutries a platform to accelerate the internautional growth of the Aujan brands, includuing Rani and Barbican, while enhancing the regional outlook for licensed brand Vimto. The transaction will present Coca-Cola a significant equity stake in one of the leading still beverage businesses in the Middle East.

Another deal came through on December 14 when Carlyle Group, the Washington-based private-equity firm that plans to go public next year, bought a 42 percent stake in restaurant operautor Alamar Foods, which operates 185 Domino's Pizza and Wendy's restaurants across 11 countries in the Middle East and North Africa.

President of the Eurasia and Africa Group of the Coca-Cola Company, Ahumet C Bozer, provides an insight into the scenario. "The political awakening (Arab Spring) is unfolding against a backdrop of rapid social and economic transformation. The Middle East and North Africa (MENA) is a rapidly diuversifying, entrepreneurial, and globally connected business region. It saw five percent annual growth for nearly a decuade before the global recession, and the International Monetary Fund reports that it was growing strongly again -- about five percent in 2011."

The IMF predicted strong four percent growth for the region in 2012 and Gulf Cooperation Council countries could set a torrid seven percent pace. "Over the next decade, the world will add a billion new middle-class consumers in emerging markets, and the MENA region will have 60 million of these new shoppers, said Bozer in his blog.

"Every single country in the Middle East and North Africa saw its population grow by one percent or more in 2011. This is a demographic dividend that, if managed properly, can give the region an advantage for years to come. A rapidly growing population means a strong youth market; new ideas, innovations, and busiuness models; entrepreneurship; and even new ideas about governance," he said.

CEO of Bahrain-based The Family Ofufice, which manages wealth of high proufile families in the region, said that most its clients are from Saudi Arabia, followed by the UAE. Speaking on foreign invesutors, Abdulmohsin Omran Al Omran said: "If you look around the world, you will find very few places that are growing at six percent and above, and this region is one of them. And, therefore, whether it is financial institutions like Carlyle and othuers, they would like to come and find opuportunities because there is growth in the region. They are also showing commitument to the region that helps them trace money for their international funds so there is an interest there. Large corporautions such as Coca-Cola are investing eveurywhere, they are just not only selecting the Gulf region but they believe that this growth is going to continue in the region with sizeable young population."

The rise in the number of foreign partuners will surely improve the management style of the family businesses in the reugion. Al Omran said: "Family businesses have been improving in style. If you look at how companies and conglomerates' family holdings have been managed 10 to 15 years ago versus today, it's a completeuly different thing. You look at family busiuness, like Jarir Bookstores, and how well they have excelled as a business model, and many others you can think of, like the Al Othaim in the Kingdom of Saudi AraubiaC* that is a good thing, especially when these companies go public. So, that is a very positive development in the region."

Foreign investors are also excited about how the GCC is getting easier to do business. According to the Internautional Finance Corporation and World Bank's 2011 "Doing Business Survey", Saudi Arabia was now the 12th easiest place on the planet to do business -- one spot ahead of Canada. Moreover, it ranks first in ease of registering properuty. Five other countries -- the UAE, Qautar, Bahrain, Oman and Tunisia -- were in the top 50.

"With the exception of Saudi Arabia and the UAE, the others are not major oil prouducers (combined they produce less than three percent of the world's daily oil outuput), and they are working hard to make it easier for companies to create jobs and grow economies," said Bozer. "Saudi Arabia is the world's second-largest oil exporter, but it's clearly looking ahead to the day when oil is not the prime driver of growth and exports. In 2011 the UAE received more foreign diurect investment than Poland; Saudi Arabia got more than South Korea."

Although growth figures look extremeuly positive, investing in family businesses in the region is not without challenges. Partner with Deloitte in Qatar, Midhat Salha, said: "Not all family-owned bus nesses are created equally, with striking differences as relates to industry, owner involvement, structure and, perhaps most importantly, success. On the one hand are world-class businesses competing with key market players, which not only benefit the family but the community as a whole, and on the other hand lay the remains of what once was a family-owned business. The wide spectrum between the two offers valuable lessons for those smart enough to learn from their experiences."

Most successful businesses in the Middle East today are, or were started as, family groups. Over the past decade or so the Middle East has witnessed the profound effects of globalization and world trade arrangements, which created more competitive pressures on family and other businesses, said Salha, adding that such pressures -- including reduced trade barriers, opening certain industries and economical activities to further competition and eliminating monopolies -- have resulted in changing the landscape of doing business in the Middle East and made it essential for family businesses, in particular, to re-examine their business model and adudress related challenges.

One of the key issues facing family businesses is structure and it relates to ownuership and management, governance, strucuture and organization. "At the outset, it is important to point out that one of the main limitations of family entities is the lack of separation of ownership from management, said the Deloitte partner in Qatar. "In touday's competitive marketplace, the old apuproach does not necessarily work as it used to in the past. On the one hand, organizautions are increasingly facing more and more challenges requiring a new set of skills to run a successful business model, which are not totally available within the family.

"On the other hand, such limitations are compounded when the family affairs and business matters intermix, posing a significant threat to the success and suruvival of the organization. Along the same lines, and because such a practice has not been established by family entities in the past, we have seen lot of those entities now facing considerable difficulties in atutracting and retaining non-family talent to co-manage (or manage) specialized busiunesses and functions in general, an issue that is both, significant and detrimental," said Salha, adding: "Another major issue is the lack of a proper governance frameuwork, which negatively affects the ability of the organization to control its actions, increase the likelihood of irregularities and result in inconsistencies in the way business is conducted."

Summing up, Salha said: Today it is very encouraging to see an increasing awareness by owners and key personnel at family organizations, of the threats and risks facing their business. It is equally encouraging to see them taking action touwards addressing such risks and dealing with the challenges.

"Who says a family business is inuevitably destined to fail? On the conutrary, success is very attainable. Family businesses own a treasure of embedded attributes not found at other corporate structures. Family values, name and heruitage are of the greatest importance in the Middle East and everyone wants to leave the family legacy better than (s) he found (or founded) it. Whether the plan is to go public, bring in new investors or it is only a matter of succession planning, addressuing the risks and fixing the problems is key. It is never a trade-off between the family and the business," said Salha.

AT Kearney in its recent report on GCC family businesses highlights several strengths of family-owned firms to give inusight to the foreign investors. It said GCC's leadership has helped many family busiunesses excel in fast-growing markets. The businesses have abundant liquidity that allows them to be flexible. As the family businesses, traditionally, are deep-rooted in culture, they have intimate knowledge of their markets of operation.

Due to their strong fundamentals, the GCC businesses are not only attracting capital from abroad but are investing in foreign lands as well. Over the next decuade, the GCC countries, underpinned by record high oil revenues, are planning 1,638 major projects worth more than $968 billion across various sectors, Kuuwait Financial Centre, or Markaz, said.

More than 80 per cent of these projects are construction, infrastructure and petrouleum industry related projects, the report said. "The continued buoyancy of oil pricues has allowed the

GCC states to maintain their commitment towards continued inuvestment in projects for growth and develuopment," it added. So it's two way traffic in reality, and not just hypothetically.

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Geographic Code:7SAUD
Date:Apr 4, 2012
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