Uncovering the truth

Iliyas Campbell outlines the misunderstood risks in an often misunderstood region.

The Middle East of an often misunderstood part of the world in terms of culture, politics and religion. Likewise, the business environment is similarly misunderstood by organisations outside the region and misrepresented by reporting that often falls short in the depth of research. Many look at the region as a hive of activity that is unpredictable, difficult to understand, and high risk due to the reporting of conflicts and regional business concerns that we see today.

Adding to this, there has also had the recent spate of press targeting Dubai's debt concerns, and various fraud and corruption cases in the region drawing some significantly negative reporting and adverse speculation on the future of the region's main business centres. The reality of the region is somewhat different. Granted, there are conflicts and a number of flash-points to consider, and economies have slowed from the pace set over the previous decade but the grim picture being portrayed in much of the media is not closely aligned with the reality of business and actual risk in the region.

Are these therefore a true indication of increased risk to businesses in the region or to an investor looking at future opportunities? What does it all mean for business leaders and risk managers?

Often one of the most difficult things for an organisation is identifying the risks that are relevant to their business. Flooded with a plethora of information, statistics, numerous vendors, distributors, clients and stakeholders, risk managers can become swamped with data that becomes increasingly difficult to rationalise. Many of the risk will be obvious, financial models and regulation may determine risk tolerances, and many risks will have been long-term. These known risks do however threaten to obscure newer, less obvious risks.  These could be an internal part of the business process that has becomes institutionalised or part of the organisation's operating culture, or an external risk from new venture, partners or vendors or geopolitical changes. For organisations outside of the region and at a distance from the day-to-day realities, this can be a daunting challenge particularly when considering the often skewed reporting on the region.

Much has been said of the rising cases of corruption in MENA - debt concerns in Kuwait, Saudi Arabia, Dubai, and the crash of real estate markets. Numerous high-profile business names have been mentioned in this apparent increase but, what the statistics often used in the media and presented many analysts don't often taken into account is that previous years have not seen the same focus on anti-corruption. It goes without saying, therefore, that any anti-corruption effort will see a significant increase in the number of cases reported compared to previous years.

Although there has been an increase in cross-function risk assessments, with finance, operations, administration, IT and management all taking a responsible role in the process, it is still common for risk assessments to fail on some points. Common failures include the cross-pollination of information between business units, which may lead to an increased level of overall exposure to a particular risk item. 

Other areas include a lack of alignment with the business model and objectives. This may not directly influence the assessment of risk in all cases but can have an effect on management acceptance of the risk assessment and their buy-in to any subsequent mitigating strategies, which could result in detrimental effects on the business. It is into this labyrinth of processes and functions that perceptions fuelled by exaggerated reporting are led.  Considering the most recent reporting in issues such as the debt restructuring in Dubai, corruption linked to real estate, debt at prominent Saudi conglomerates and Kuwaiti investment houses, it isn't surprising that optimism has waned in the region, particularly from the outside. Heavily leveraged businesses may be restructuring, corruption cases may be increasing, but business and investment goes on as usual.

Iliyas Campbell is the founder of Diligence Management Consultants. Iliyas has worked within the MENA region for 14 years and has been an instrumental part of the development and management of risk and crisis management programs for numerous multi-national and regional organisations across many industries.