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15 July 2024

Global credit crisis – I'm lovin' it


By Ryan Harrison

As incessant talk of a looming recession turns to a deafening roar, the question that can be heard over the panic is: Who are the winners of a financial meltdown?

From lost-cost fast-food joints to the cheap entertainment of the cinema, there is still growth to be found in a shrinking market.

DIY materials firms, for example, also traditionally do well, as more people ditch the hired help to get their hands dirty and save money.

Sectors such as healthcare and education remain buoyant through recessionary times as they offer services people cannot do without.

Technology firms say they can ride out the global slump because the services they offer – such as network security – are critical. And administrators, such as PricewaterhouseCoopers and Deloitte, will be kept busy as they step into failing businesses to share out the spoils.

But the "humble" fast-food chains are expected to be among the recession's biggest winners, as consumers turn away from eating out at expensive restaurants.

Indeed, McDonald's has just posted continued solid growth in the region, while ice cream firm Baskin Robbins and Dunkin' Donuts have laid out ambitious expansion plans for the UAE.

"Our model remains recession-resistant," McDonald's Chief Executive Jim Skinner said after announcing the company's 2008 results this week. "Today's conditions play to our strengths."

While unfavourable foreign exchange rates led McDonald's to a 23 per cent drop in fourth-quarter income, same-store sales worldwide were up 7.2 per cent. Earnings for 2008 for the year were up 80 per cent to $4.31 billion (Dh15.81bn). In 2008, sales at Dunkin' Donuts jumped by 22 per cent. It plans to open 12 more outlets and boost its workforce in the Emirates, while Baskin Robbins has reportedly set its sights on 15 extra stores.

Meanwhile, the healthcare sector will be kept busy due to a chronic undersupply of hospitals, beds and doctors. Dubai-based private equity firm Abraaj Capital, which operates three health facilities in Saudi Arabia, Turkey and Egypt, will see its healthcare division well-placed as the Gulf grapples with effects of the global financial crisis. Although declining to comment specifically on its investments, an Abraaj spokesman said there was potential for growth given the universal need for healthcare irrespective of the economic cycle.

He said: "Local governments are also looking to involve the private sector more in healthcare. The demand for healthcare could go on forever." There are also others that have spotted a gap in the market, such as German firm Manager Forces, which specialises in crisis management. The company, which launches in the UAE on Monday, offers freelance specialist managers to fix a company's financial problems. Executives can be installed for contracts from one month to 12-month periods. It is a business model that thrives on the back of economic turmoil, and a market downturn in the Gulf recently speeded-up plans to enter the region, said Nadeem Ahmad, Senior Vice-President for Business Development.

"Whenever there's a crisis situation in the world, the rate of contract employees substantially increases as opposed to permanent employees. Companies want to take on staff for a shorter period of time because they don't know what the future may bring," he said. "This is exactly the reason we're now in the UAE, as we see a lot of potential for this market here."

In 2008, Manager Forces' global business jumped by 22.7 per cent from the previous year, as the financial crisis took hold. The firm is targeting banks, oil and gas firms and logistics companies in the UAE and expects to have up to 40 clients on its books by the end of the year.

The use of interim managers in Europe has been growing since the 1970s, but between 2005 and 2008, the number of contracts issued for experts has shot up by 137 per cent, according to Ahmad. Joining Manager Forces in its expectations for robust demand are IT security firms, who work on the assumption companies still want to protect themselves despite of, or maybe because of, an economic downturn.

The biggest demand will come from the Gulf telecoms organisations looking to secure their systems, said Ayman Al Awadhi, Chief Operations Officer at Kurt Information Security. "Telecoms firms are still investing in security because they provide technology and information, so if they're not secure then it will hurt their services and revenues. We expect the strongest demand for our services from this sector as their IT security budgets will be the least affected by a downturn," he said.

Kurt Information Security is a security consultant for etisalat and also provides advice on guarding against fraud, a threat that transcends any economic climate.

Margaret Adam, Research Manager for IT Services in the Middle East, Turkey and Africa at IDC, said although the IT industry generally will take a hit, demand for data security will remain strong.

"Organisations will still invest in security as this is an area that will get renewed focus in the current climate," she said. "Networking in terms of security will increase, but basic network skill demand may decrease as companies cut down on expansion plans.

"Professionals with crossover skills in Telecommunications and IT services are likely to be highly sought as some level of convergence is occurring between the two," Adam added.

Premchand Kurup, CEO at Paramount, a security infrastructure firm, added: "Last year when we launched our foray into the identity and access management space with an appliance-based solution, the market was slow to accept. The economic melt- down is a game- changer.

"The biggest security threat today is laid-off employees and the absence of a clearly defined exit process. Concerns rise over data theft by terminated employees," he added. In the entertainment sector, cinema is expected to ride out the economic turmoil. The CEO of megascreen producer Imax said he was confident the movie business will remain "fairly recession-proof" and that his company would benefit this year from the release of the new Star Trek film and the latest Harry Potter epic.

Richard Gelfond said Imax – which has a seven-storey screen at Ibn Battuta Mall in Dubai – plans to release as many 10 films in Imax theatres this year — up from seven last year.

"It's an unbelievable year for us," Gelfond said on the sidelines of last week's World Economic Forum.

Gelfond said he did not see the crisis eating into profits, which he said were still benefiting from Imax's shift five years ago from film to a digital medium.

Elsewhere, cinemas in the United States enjoyed their first billion-dollar January since records began, as taking rose 19 per cent to $1.03bn.

Jonathan De Mello, Director of Retail Consultancy at Experian, said: "Discount supermarkets are doing well. In a time of economic downturn, people tend to focus on cheaper, convenience items such as bread and milk and away from discretionary goods such as luxury items and clothes.

"Fast-food companies are doing well. Previously people were trading up and opting for healthier, better quality and more expensive menus. They now have less time to sit for lunch at restaurants and are opting for something quick and cheap.

"Retailers that are doing well, are the ones that are offering reasonable fashion lines on a budget."

Dress for success

Raja Daswani, founder of global luxury suit firm Raja Fashions, said it was possible to dress yourself out of a recession.

He said: "The right suit gives you supreme confidence in meetings and can have a knock-on effect for the outlook of your business, which is especially important in times of recession. If you want to make a statement, then the clothes maketh the man. Dressing for success has never been more important as it is now."

Raja Fashions is a Hong Kong-based tailor that makes more than 50,000 suits a year. Daswani and his teams spend 180 days a year on the road, travelling from hotel to five-star hotel and seeing thousands of men in the United States and Britain. The firm claims it can offer a $6,000 (Dh2,200) Saville Row-quality suit about $800 and deliver it to clients in a third of the time.