Tough Talk

He's a member of the 11th richest dynasty in the Gulf and oversees a multibillion-dollar business empire. But, as Diana Milne finds out when she meets Mishal Kanoo, his outlook on the state of the GCC economy is far from rosy.

There are few Arab business leaders that are more publicly outspoken than Mishal Kanoo. And when it comes to his views on the future of the Middle East economy, he pulls no punches. To date Kanoo, deputy chairman of the Kanoo Group with an estimated personal fortune of US$1.7billion, has written articles predicting a stock market crash in the Gulf, the collapse of the region's property market, and the destruction of the economy by family run firms.

So it's no surprise that when I ask Kanoo whether he thinks the tremors of the credit crunch will be felt in the Middle East - his answer is an unequivocal yes. "When you have these kind of events happening in Europe and the US, it would be reprehensible, and unacceptable for anyone to say these things are happening in isolation and it has nothing to do with us," he says. "There is a major credit crunch in this part of the world. Banks are becoming very stringent. They are fearful of what's going to happen and rightly so.

"They are looking at the future and thinking, I'm going to be straddled with a lot of debt and a lot of people who are not going to be able to pay up. "So I need to compensate for that. And rightly so because that's their line of business. You're not going to see the free flowing money that there was in the past."

This, claims Kanoo, will result in a situation where the ambitious projects under construction across the region, could be delayed and global players could be deterred from establishing headquarters in the Gulf. "It's going to slow expansion plans, it's going to slow a lot of additional businesses coming into this part of the world."

Kanoo's pessimism on the state of the Arab economy is ironic given the success his own family firm has enjoyed. The Kanoo Group is one of the largest family owned firms in the Gulf and spans industries ranging from travel, machinery, oil and gas, industrial chemicals and shipping. Kanoo Shipping Agencies is the largest regional shipping agency in the Middle East and supports over 5000 vessels a year across the entire Arabian Peninsular. The success of the business has made the Kanoo family, the 11th richest in the Arab world. But while Kanoo himself may have a reputation for holding radical views on the future of the Gulf economy, he admits his family business has conservative aims. While Kanoo Group continues to expand it does so mostly within the boundaries of its existing markets and its established business divisions. "To be honest we haven't changed," says Kanoo. "What we've done is we've added onto our existing businesses. We have not added any new divisions. "I sincerely doubt we will go into anything outside our area of expertise. But within our areas of expertise there's a lot of new businesses to get into," he says. "Our main thrust is pure industry. The reason why is because it is one of the hardest types of businesses to get up and running but when you have it up and running with the right partner, it is very rewarding - not only financially but also socially.

"When you create something for the community there is a very rewarding aspect to that."

He goes on to say that the company has recently acquired a majority stake in a UAE based landscaping company with an industrial focus - an area the Kanoo Group is keen to branch into. "We've established a majority share in a well established landscaping company here. That is the type of business which we think is going to blossom, pardon the pun," he jokes. "As far as we're concerned our main concern with that would be industrial. The governments of Dubai and Abu Dhabi are concerned with beautifying the cities so this makes sense to us."

International expansion is also part of the Kanoo Group's business strategy, at least within the travel industry, having last year acquired full ownership of 12 American Express Foreign Exchange services, ten in the UK and two in France and 18 American Express consumer travel outlets in the UK. "What we've managed to do so far in travel is to piggy back on our expertise. So far we've expanded into businesses that are part and parcel of our core business. So for example we now have a travel agency in the UK and Egypt," says Kanoo.

Any additional expansion by the company into international markets should be within emerging economies, he goes on to say. "If you have a successful model, yes, you can replicate it.  But it's when you try to replicate the wheel that people lose interest. "Trying to replicate the idea in more stable economic countries does not give you the same fantastic return as you would get from emerging ones. But it does give you security. "The only problem is because these markets are stable you have a lot of competition there versus if you set up in certain parts of Latin America, Asia and Africa, where the competition will because they are regarded more as political hot potatoes."

However while he acknowledges the need for the Kanoo Group to expand its presence in the international markets, Kanoo says the company's main focus will remain on existing Middle East markets. "I would still stick to my regional areas. You play to your strengths," he says. "That's my strength. I wouldn't limit this to the GCC. I would say the region now."

He does acknowledge however, the shortcomings of the Middle East business environment compared to in more developed markets. True to form he has harsh words to say about the regulatory frameworks of Middle Eastern countries, when it comes to setting up or running a business. "Any investor (in the Middle East) has to ask him or herself a few questions. The first is regarding the rules and regulations, i.e. the law, and whether it is stable or flexible. If you are the type of person who wants to the laws to be flexible then this environment would suit you. But if you are coming from a north west European background where people live or die by the law then this would not work for you. It all depends on the type of business environment you are looking for."

He goes on to say that while legislation is in place to support the practice of corporate governance by Middle East businesses, the enforcement of this is patchy - leading to corrupt practices. "We do have best of the breed legislation. But the problem comes with implementing those rules and regulations. That's not something I can say, hand on heart, is being done perfectly by the book. If you talked purely about publicly traded companies, there are issues of governance, of transparency, insider trading and you have them happening all the time. It's like an illness we don't want to address. That said, are the authorities trying to combat it? Yes. Are they putting enough resources into it? I don't know. Only time will tell."

The best efforts at enforcing corporate governance are being made by the Dubai authorities, according to Kanoo, who goes on to say he does not believe efforts have been as successful so far in Saudi Arabia. He says that it is more important, now than ever before for Middle East based companies to meet world standards in corporate governance, given that that many are now joining their international counterparts on the global stage. "Corporate governance and transparency are things that will take a while for people to absorb and get done. The question is at what pace? In this region it's not a question of is it ready. It's a question of we have to be ready. Because when you have to attract international buyers, you no longer have a choice."

The Kanoo Group has recently made steps to improve the quality of its own organisation having applied to be assessed using the Dubai Quality Mark standards in partnership with Dubai Industrial City. Earlier this year the company also announced plans to "re-engineer" its business with a focus on its leisure division and how to run this and its corporate operations more efficiently, admitting it had not fully reached its goals in these areas. Given the rapid growth of the company and the many divisions it now comprises an overall assessment of the way it is run makes sense.

The family run company also appointed an outsider, Julian Knott, as divisional manager of business development and re-engineering, to conduct an overview of the way the business is run. Describing the move, Kanoo says: "Any organisation eventually becomes, to a certain degree, content with itself. "If you look inwards, you will only see what you have seen in the past. But if you have brought eyes in from the outside, in this case Julian, you will see different aspects and from a different angle. This will benefit our customers. And at the end of the day, we live and die by our customers."

Kanoo is prone too to reassessing his own life and where he wants to go next. And while clearly devoted to the family firm he admits he harbours ambitions to pursue personal goals. "There are only two things I wanted to do," he says. "The first is that I wanted to go back to teaching. And the second thing is that I'd like to write a book. I don't know what on yet but I'm hoping to tend towards something more philosophical - to bore the cr** out of people."

Kanoo's controversial views and outspokenness however that he is very unlikely ever to bore anyone.