Entrepreneur ME 08.2019

August 2019 / ENTREPRENEUR.COM / 61

THE NEW NORMAL | INVESTING IN THE UAE AND KSA

Ziad Awad is the CEO of Awad Capital, an independent Dubai-based, DFSA-regulated financial services firm specializing in mergers and

acquisitions (M&A), corporate finance and capital markets advisory. Ziad has 24 years of investment banking experience, and has advised

on around US$100 billion of M&A and half a trillion of capital markets transactions,. Prior to founding Awad Capital in 2013, Awad held a

number of senior positions with Bank of America and Merrill Lynch in Dubai, and with Goldman Sachs in Dubai, London and Paris. His career

spans M&A, with specializations in technology, education, healthcare, logistics, industrials, energy and power, as well as the debt capital

markets and trading businesses. awadcapital.com

SAUDI ARABIA’S VISION 2030 IS A SERIES

OF REFORMS DESIGNED TO DIVERSIFY

THE COUNTRY’S ECONOMY, REDUCING ITS

OVERALL RELIANCE ON OIL. THE PLANS ARE

BASED ON THREE PILLARS, ACKNOWLEDGING

SAUDI ARABIA’S ROLE AT THE HEART OF THE

ISLAMIC WORLD, ITS ABILITY TO BECOME A

GLOBAL INVESTMENT POWER HOUSE, AND

FINALLY, POSITIONING ITSELF AS A GLOBAL HUB

CONNECTING AFRICA, ASIA, AND EUROPE.

IN DUBAI, THE LEVEL OF COMPETITION FOR

CONSUMER’S ATTENTION HAS REACHED

LEVELS SIMILAR TO THOSE OF DEVELOPED

MARKETS. IN PARALLEL, WE HAVE SEEN THE

MASSIVE DISRUPTION OF E-COMMERCE, AS

WELL AS A SLOWDOWN OR RETRENCHMENT

IN EXPAT IMMIGRATION.

A Hada, Ta'if, Saudi Arabia

UAE and KSA bankruptcy laws
Both countries have introduced upgraded
bankruptcy laws. By introducing such
legislation, they hope to encourage entre-
preneurship, and protect investors by pro-
viding a more robust legal framework for
businesses. The law was first implement-
ed in the UAE in a case in 2018, enabling a
company to restructure its debt, and then
reassume business operations.

Expo 2020 Dubai
While we cannot tell for sure if no more
bad news will come our way in the future,
one piece of good news is about to become
a reality in Dubai. Having been a catch-
word for more than five years, Expo 2020
will be a reality from October 20, 2020 to
April 10, 2021, bringing 25 million visitors

to the UAE, with an estimated $23.4 bil-

lion to be added to the UAE’s GDP. Beyond

the numbers, Expo 2020 will be a big

boost to both consumers’ and investors’

confidence in the region. It will also have a

permanent impact on the global position-

ing of Dubai as a tourism and events des-

tination, further fueling the growth of the

tourism, hospitality, transport, and food

and beverage segments of the economy for

many years to come. Indeed, the legacy

of Expo will be long lasting, and we will

see Dubai hosting even more high-profile

global events, including even potentially

the Olympics.

I am confident that domestic factors are

now lined up for an upturn. Actually, the

sheer unanimous pessimism I encounter

in the local business community is in it-

self a sign that we are hitting the bottom.

However, one thing can still dip us back

into negative territory, and that would be

an international recession, which could be

for example driven by an escalation of the

trade wars, or another US-driven credit

crisis, this time originating in student

loans or credit cards.

CONCLUSION

A NEW NORMAL IN THE GCC

The main sectors this article focuses on

are the consumer-facing sectors such as

retail, healthcare, education, and food

and beverage. These are the sectors which

used to be cherished by investors, and

about which I warned in my 2015 article.

However, a word of caution: we do not

expect to revisit the growth levels seen in

the years preceding this recent slowdown.

Our markets -and my focus is mostly on

UAE and KSA- have significantly ma-

tured over the last 10 years. Particularly

in Dubai, the level of competition for

consumer’s attention has reached levels

similar to those of developed markets. In

parallel, we have seen the massive disrup-

tion of e-commerce, as well as a slowdown

or retrenchment in expat immigration.

The consequence of this new normal is

that, while growth will resume, it will be

at lower levels.

So, expect low to mid-single digits,

where previously double digits were the

norm. Also expect lower margins, more in

line with international peers. KSA prob-

ably has more growth and margin still un-

der its belt given the scale of the economy

and the abundance of opportunities, but

this new normal will also catch up in the

Kingdom.

The implication for operators and inves-

tors is as follows: to survive and thrive,

consumer-facing businesses need to be

managed much more professionally and

tightly than they were in the past. And

in order to be consistently profitable at

razor-thin margins, scale will be key,

leaving little room for small and marginal

operators. The winner in this will hope-

fully be the consumer, who will be able

to enjoy better products and services at

lower prices.