The sub-prime mortgage crisis in the United States will cast its long shadow on the UAE as the country is intimately connected to world economies, said Majid Saif Al Ghurair.
The prominent Emirati businessman sat down with Emirates Business to discuss the state of the country’s economy and called on legislators and the business community to face up to the challenge posed by the weakening dollar and global downturns. He also called for the country to rethink its approach to foreign investment, suggesting that more regulations may be necessary.
Looking forward, Al Ghurair predicted the real estate and industrial sectors would continue to show the largest returns.
How would you assess the national economy in 2007?
I think most economic sectors performed very well as indicated by company profits. Also the share market had witnessed a lot of activity during the last three months of 2007, and banks performed well.
The leap we have been witnessing for the past four years is expected to continue this year with the rise in oil prices, flow of investments and the huge projects currently being undertaken.
But this does not mean the country’s markets will not be affected by world events. The UAE is an open market and is positively or negatively affected by world economic circumstances, and the instability recently witnessed by US markets has impacted the country. Also, the drop in the value of the dollar against the euro has had an effect on our exports and imports. So far we are receivers and we have no influence on world economy.
How would you rate your group’s performance in 2007?
It was good in general although some sectors, particularly factories, were affected by the rise in prices of construction materials, which had hit profitability. Shuaa managed to net good profits in general.
Your group is a prominent real estate developer in the country. How do you see the real estate market?
The sector is now witnessing a leap that will last for three to four years. However, the rate of real estate return has generally gone down by five to nine per cent compared to some 13 per cent to 15 per cent in the past.
Why is that?
General rise in prices of raw materials, land and labour, in addition to competition from foreign developers. The UAE market is open and competition is high.
Real estate developers and businessmen are accused of exploiting the market by increasing prices with no reason. What is your opinion?
It is not true. The market is open, and why should businessmen only be accountable rather than the other economic sectors whose work is linked to that of businessmen? Businesses make a series of chains; if one commodity’s price goes up, those of other commodities will increase as well. Prices have gone up and consequently real estate prices have to increase to parallel the rise in prices. You cannot blame one chain of the economy and forget the other chains.
But the price rises do not match the rise in incomes. Why blame the landlord for this? He too is under pressure.
How do you see the property price cap of five per cent?
Housing is a sensitive issue, and the five per cent is meant to protect tenants. But to impose this rate on commercial and office units can affect the market. These units should be left to the market, supply and demand, as well as the developer and owner. The market can reach a balance.
What do you think of real estate projects being built at the moment? And how will they affect the real estate market?
I think it is the time to wait, stop and look back. Wait to study and assess what has been achieved so far. The new projects have added a new element to Dubai. But there are projects that have to be studied to see what they have added to the emirate’s economy. We are for distinguished projects but not for projects that do not add any value to our economy but rather exploit it.
What do you mean by “exploit”?
I call for differentiating between the real developer and the speculative one. The former is the one who contributes and knows what the market needs. Meanwhile, a developer enters the market with the intent to exploit and grab opportunities. I am not against opening the market, but with selectiveness of projects, foreign developers and investors.
Do you generalise, or do you call for regulations for foreign investment and investors?
I do not want to be seen as against foreign investment. I am with foreign investment that has stamina, efficient management and good strategy. But I am against the marginal foreign investor who comes in to exploit and goes away. Therefore, there is a need for new legislation to set the rate of foreign investment in local economy. I am not speaking about real estate only but all sectors, whether real estate, trade or equities.
But isn’t this against the country’s open-door policy?
There should be regulations and restrictions to protect our national achievement and economy. Again, what would a foreign investor who wants to set up a junk factory or a foreign developer who wants to build warehouses or even villas add? Can a national developer not build such projects when we have the expertise and potential for these type of projects?
Restrictions should be imposed on foreign insurance companies that intend to work in the country, such as a large capital requirement. This will push foreign companies to enter into partnership with the local investor, and consequently the country’s economy will benefit.
Does your call to set a check on foreign investment apply to the share market as well?
I call for applying them to all sectors, primarily the share market, given the importance and sensitivity of the market, which needs expertise and qualified staff. Undoubtedly the share market is an open one that is developing, system and legislation wise.
But the question is that when mistakes are made, will the sector be able to face up to the challenge and the crises that would follow? Why not benefit from the expertise that is available in every market. For instance, there are good laws in Abu Dhabi that can be useful.
Why not unify the two markets’ managements?
What is your view on the industrial sector in the country?
There is no country-wide strategy for industry. An ideal strategy would have to take into account the availability of land, energy, market needs and type of industry required. And, on this basis, privileges and facilities should be given. Unfortunately, we do not give the industrial sector the attention we do to trade.
Back to the new projects. Some say these projects are like a bubble that will burst. What do you say?
Without statistics and real figures we all guess. What we miss is the correct information. I think the country can accommodate two million people, but if the population does not increase in proportion to the projects, such ventures will be a bubble.
What are the most important investment channels?
I think real estate and industrial sectors still occupy the first position. The real estate return reaches eight per cent and industry 13 per cent. Also the service sector is growing considerably.
What are your group’s new projects?
We have local and regional expansion plans. There is a project to expand Gulf Extrusion, where three new production lines will be added. The total investment in the expansion will be Dh250 million. We also plan to set up a new plant in Qatar with a total cost of Dh150m. Shuaa will soon launch a new investment portfolio in Saudi Arabia worth Dh1.5 billion. It is a portfolio for management of four and five-star hotels in the country. An agreement has been signed with UAE Rotana to run the hotels.
Majid Saif Al Ghurair
CEO of the Al Ghurair Group and Chairman of Shuaa Capital
Majid Saif Al Ghurair is CEO of the Al Ghurair Group and Chairman of Shuaa Capital. His father set up Al Ghurair Group in Dubai some 30 years ago and it has become one of the largest family-run organisations with diverse holdings, including shopping centres, aluminum and petrochemical plants, and real estate and industrial projects. As the group’s activities grew, the founder handed over leadership responsibilities to the next generation in 1997 and Majid Saif Al Ghurair became CEO after years of work for the group. A graduate of Emirates University in 1989 with a business administration degree, he is also the Managing Director of Reef Mall and a member of the board of some 10 companies and banks.
There should be regulations to protect the local economy