I wrote yesterday about the need for a sensible and coherent approach in the relationship between the Western world and the new sovereign wealth funds, many of which are located in the Gulf. But this is only one way in which the Middle East is doing business with the wider world, and there is a risk that – amid the controversy over SWFs and the protectionist attitude of some Western countries – we might lose sight of the broader picture.
The fact is that both the private sector in the Gulf, as well as the state-backed sector, is quietly getting on with the job of doing business with the rest of the world. When a deal like the $7 billion (Dh25bn) acquisition of a stake in Citigroup by the Abu Dhabi Investment Authority hits the headlines, it takes the limelight away from the many smaller, but equally significant, deals being done every day by Gulf companies.
The corporate financiers call this process "organic growth" – the steady, almost imperceptible process by which companies get bigger through a combination of expanding their existing business and doing deals with local partners in different regions of the world. It contrasts with the "super-deals", like the Citigroup share purchase mentioned above, or the ground-breaking acquisition of P&O by DP World in 2006. But it is just as significant as a motor for the economies of the Gulf, and for Dubai in particular, as the emirate leads the process of diversification away from oil dependency.
There is a common theme behind the global expansion of Gulf companies. Take etisalat, for example. As a state monopoly for many years, etisalat was able to build up a commanding position in its domestic market, and then use this revenue springboard to look overseas for new growth. Strategic deals in Pakistan, Africa, Egypt and Saudi Arabia followed, to make it a company with a significant regional footprint. The next stage has to be further expansion in Asia, and then the trickiest markets of all – Europe and North America.
This is where the steady progress towards global growth encounters the SWF factor, but it need not be a deal-breaker. Dubai Aerospace Enterprise, in particular, has shown it is possible to do small but significant deals in these markets without hitting the SWF barrier, while Emaar has also been able to expand in the US with its acquisition in 2006 of John Laing Homes and in Britain with the deal for Hamptons. Both are good examples of shrewd corporate moves designed to expand the global coverage of the UAE companies involved.
Such deals will have a profound influence on the companies doing the buying. In North America and Europe in particular, the acquiror not only buys physical assets, but also gains access to management know-how and international best practice in the target industry that they could never have acquired if they relied solely on their domestic business.
The P&O deal is a very good example. After the integration of the British-based company into the DP World structure, a whole new system of corporate governance was set up, using British practice as the model, to the extent that DP World now boasts perhaps the most advanced boardroom structure in the Gulf. It was this set-up that enabled it to successfully float on the internationally-oriented DIFX.
Interaction with corporate life in these markets also helps to make UAE companies leaner and fitter. The benefits that derive from their domestic markets – wealthy consumers, cheap labour and comparatively low energy costs – cannot easily be transferred to external markets. Emirates corporates have to learn to operate in a tougher world, which in turn imports international best practice back home. They will also encounter different corporate and consumer cultures.
Standards of customer service are generally regarded as higher in the West, for example, and hiring and recruitment processes more refined than in the Gulf. Middle East companies can learn from this experience, and also open the gateway to top international talent in their domestic markets. It all makes for steady progress towards the "international best practice" criteria advocated by his higness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.
So while the IMF and the Western corporate authorities are obsessed with the issue of sovereign wealth funds, Dubai and other Gulf countries can still profitably continue doing what they do best – business.