< Previous10 Vol. 21/13, July-August 2020 C OMMENT / By Scott Cairns, Manging Director, Creation Business Consultants set up on their own. This was particularly prevalent in industries such as construction, finance, marketing and technology. Now that redundancies are escalating, there’s even more talent weighing up whether to seek another position or NO ONE IS SAFE FROM THE CURRENT ECONOMIC STORM, with companies large and small braced for a bumpy recovery for the rest of 2020 – and no doubt for much of 2021, too. While SMEs have been particularly hard hit, earlier recessions have start something of their own in the same sector. What that often means is new entities entering the market offering greater price flexibility and more attentive service as they seek to survive and build a customer base. In a time of change, big business should beware of agile start-ups Size isn’t always insulation against the chills of a recession, especially when new technologies and nimble competitors are coming to the fore proved fertile ground for new entities determined to defeat the odds. Even in the less challenging times, we had been noticing an increase in highly qualified professionals leaving the safety net of big firms to C OMMENT arabianbusiness.com 11 Prioritise responsiveness and customer service Action and efficiency mean a lot when evaluating suppliers. Even as a large company, there are ways to streamline the decision- making processes to avoid unnecessary delays caused by red tape and bureaucracy. Operations can be simplified to remain compliant but speed up the execution, for example, giving fewer employees more authority to improve response times. All clients like to feel the love and a possible pitfall for larger entities is their tendency to focus on the biggest fee earners. As a result, smaller clients can feel undervalued and question the level of attention they receive. This is an issue that has been identified among the Big Four in the US and UK. Former executives who have established their own companies challenge their ex-employers, not by targeting the massive audits but by going after Q EMPLOYEE RETENTION IS SUCH A CRITICAL ISSUE. GOOD STAFF ARE A HUGE ASSET – AND ALSO POTENTIALLY DANGEROUS COMPETITORS” capital. A comprehensive employee retention strategy should cover benefits and incentives, professional development and open approach to feedback alongside a clear track to career progression. That said, there will always be people who leave and the best way to protect a company’s interests is with a watertight non-compete agreement so staff can’t set up in a similar industry or work for a competitor. Plus, all processes and materials should also be trademarked to avoid replication. The same applies to collaboration contracts. We know first-hand of an IT firm that partnered with a large software brand to provide support without anything formal in place to stop them striking out and offering clients up to 70 per cent savings coupled with superior service levels. As a result, they’ve secured several high-profile contracts with MNCs in the region and definitely damaged their old partner’s bottom line. u The banking sector has witnessed a number of acquisitions, such as Dubai Islamic Bank’s takeover of Noor Bank their mid-segment of SMEs who appreciate the personal interaction, agility and support. With this in mind, all business segments should be analysed to ensure there is an absolute commitment to customer service and efficiency across all ends of the spectrum. Hiring an external consultant in this area can help to provide perspective and advice on updating accepted protocols. Credibility, continuity and control Larger corporations have spent decades building credibility, and while start- ups might have sufficient expertise to compete, they don’t have the same level of trust associated with their name. In a volatile market, security is a big benefit and it pays to reinforce these messages in communication efforts. Clients need to understand that if a smaller start-up relies on very few staff, then issues like sickness or redundancy will have a huge impact on their service offering. In contrast, big players are more likely to have multiple contingency plans in place. There has been a marked increase in mergers and acquisitions taking place in the region in recent months, and one of the reasons for this activity is that companies recognise the power of agile competitors to make waves. Joining forces is an opportunity to bring them under a more established umbrella, adding more value to clients and effectively controlling the competition. The big players, by contrast, will try to bank on long-standing client loyalty and maybe broader service offerings to retain customers – but that might not be enough in the face of the cost- savings their new competitors are promising, especially in a touch economic climate. For any large corporates reviewing their risk register, then, the threat of emerging businesses looking to challenge their position should be near the top at times like these. Larger corporations can be slower off the mark when it comes to effecting change but it’s time to acknowledge the prospect of disruption from leaner competition and learn to adapt. Preventing the problem Employee retention is such a critical issue here. Good staff are a huge asset – and also potentially dangerous competitors. Even when times are tough, it’s always worth looking for other ways to streamline expenditure instead of losing human THERE IS NEVER A GREAT TIME TO introduce Valued Added Tax (VAT), but Omanis and those living in the Sultanate, long opposed to its implementation, may see it as the lesser of other evils as the country battles against the dual impacts of the COVID19 pandemic and the crippling effects of the slump in international oil prices. Widely considered to be among the Gulf’s most vulnerable economies, Oman, which is the biggest Arab oil exporter outside OPEC, faces one of the widest fiscal deficits across the region in 2020, with the International Monetary Fund (IMF) estimating it crude price assumptions for 2020 and 2021 to an average of $35 per barrel and $45 respectively. Since the start of the year, Oman’s Ministry of Finance has issued several circulars and various directives to government units to curtail spending – in April, the MoF announced a cut of OMR500 million ($1.3bn) in the state budget. Oman also cut the salaries of new government employees. From October 1, the country is to introduce a tax on sweetened drinks, following up on the 100 percent tax implemented on tobacco, alcohol, pork meat and energy drinks in will reach around 16 percent of GDP. The country’s sovereign rating was cut for a second time this year at the end of June by Moody’s Investors Service, which forecast a lower crude price environment will likely slash the Gulf nation’s oil revenue. The agency downgraded the rating a notch lower to Ba3 – three levels into its non-investment grade scale, and changed its outlook to negative, according to a statement on July 21. In March, Moody’s put Oman on review for the downgrade, saying the country’s low fiscal strength will likely place pressure on its finances. Moody’s has also revised its Brent The introduction of VAT in early 2021 could provide a timely boost as the Sultanate battles the growing impacts of COVID19 and low oil prices By Gavin Gibbon An increasingly taxing issue for Oman’s struggling economy 12 Vol. 21/13, July-August 2020 THE BIG S T ORY / OMANJune last year, which was expected to generate about OR100m ($260m) annually, according to Saleh bin Said Masan, head of the economic and financial committee at the Shura Council. An excise tax was also introduced at the same time. However, while this move will boost the country’s coffers, it is the imminent implementation of VAT that is expected to have the greatest impact – the IMF estimated the generation of new revenue between 1.5 and three percent of non-oil GDP, from the introduction of VAT. Steve Kitching, tax partner at Grant Thornton, told Arabian Business: “Oman’s decision to implement VAT had been long outstanding due to the general public’s shun on the matter. Nevertheless, and as a response to the severe financial and economic repercussions of the recent pandemic outbreak, this has become an important and urgent move by the state as they look for various financial measures to generate more fiscal revenue for the public welfare and to achieve economic equilibrium. “To that effect, this can arguably be the best time to implement this measure as the public is more understanding and welcoming of post-COVID corrective actions.” GCC implementation Oman – together with five other Gulf states – agreed to introduce VAT back in 2018, although it later delayed its implementation to 2019. That was delayed further to 2021 amid sluggish economic performance over the past 12 months. According to Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, the introduction of a five percent levy could generate about OMR300m ($780m), a touch over one percent of projected GDP. “With recent shocks amplifying pre-existing fiscal strains and a low oil price environment weighing heavily on the fiscal revenue outlook, adjustment measures have become even more urgent,” he told Arabian Business. “This should offset some of the pressure on the deficit, which will nonetheless remain wide at over 12 percent of GDP.” Oman would become the fourth country in the GCC to implement VAT, behind the UAE, Bahrain and Saudi Arabia. The latter has increased the VAT charge from five percent to 15 percent in order to tackle its own fight against COVID19 and depressed international oil prices. Bridging the Gulf Historically, about 80 percent of Oman’s revenue has been generated by the exports of oil and its derivatives. Economic diversification and developing non-oil based revenue streams in order to reduce reliance on hydrocarbons has been on Oman’s agenda for the past period. Measures such as the Tanfeedh programme and Oman Vision 2040 have already been rolled out to promote non-oil based sectors such as fisheries and aquaculture, transport and logistics, manufacturing, mining and tourism. In the UAE, VAT collections were far higher than forecast in the first year of implementation, reaching AED27 billion ($7.4bn) compared to the government’s original projection of AED12bn ($3.3bn), according to government data. Jeanine Daou, PwC Middle East’s indirect tax leader, told Arabian Business: “Neighbouring GCC countries publicised first year VAT revenues that were significantly ahead of budgeted estimates. While the introduction of VAT in Oman could have an initial inflationary effect on the economy, the curve generally tends to flatten after the first year of implementation as observed in other countries, including the GCC countries that have already implemented VAT.” $7.4bn The amount of revenue the impostition of VAT generated for the UAE government in its fi rst year. “Value-added tax has become an important and urgent move by the state” arabianbusiness.com 13 OMAN / THE BIG S T ORYTHE UAE ECONOMY IS, IN MANY WAYS, built on family businesses. It’s not just the achievements of pioneer entrepreneurs that have helped shape the local economy, it’s the success with which those lessons have been passed on to subsequent generations, taking successful companies in one area and broadening their reach into entirely new fields through vision, imagination and plenty of hard work. Such is the case with the Sajan family. Having moved to the UAE from Mumbai via Kuwait, Anis and Azhar Sajan is building a business empire in very much his own way – although he is happy to draw on the many lessons of his father, mentor and business advisor, Anis Sajan older brother Rizwan founded a highly successful building materials and home solutions company, which paved the way – literally, you could say – for the Danube real estate empire, whose developments are now found throughout Dubai. Now, Anis’s son Azhar has inherited the entrepreneurial spirit and is forging his own path, heading luxury sanitaryware showroom Casa Milano. In an interview with Arabian Business, Azhar explains why the family lessons will stand him in good stead. What was it like growing up around successful businesspeople? Did entrepreneurship always interest and fascinate you? Being surrounded by successful people made me want to prove my worth to them, definitely. My uncle, my father and my cousin had made it big, carving out a niche for themselves. People always looked at me and wondered what I was going to do, whether I would make it big, too. Stepping in their shoes was not easy, but I always had their guidance. From father to son 14 Vol. 21/13, July-August 2020 SPE CIAL PR OMO TION / CA S A MILANOSo, yes, I have always had an interest in entrepreneurship. Even in high- school, I participated in bake sales or any event that involved trading. Earning money by adding value to someone’s life was something I always enjoyed. While growing up, I did not have much interest in the creative fields or science fields and business is what I have always wanted to do! When was the fi rst time your father asked your advice on a business decision? Did he take it? When digital marketing started growing and I found out about it, I encouraged my father to take it up for the Milano brand. He listened and went for it. Another instance was when I urged him to take up his passion for cricket digitally. That is when “mrcricketuae” was born. Now, he does interviews with various cricketers, is in touch with various international players and owns cricket teams in the UAE. What were the key lessons or philosophies from your father’s business success that struck a particular chord with you? In terms of key lessons or philosophies, my father has always given me two valuable pieces of advice that I always hold close to my heart. First, “The captain is only as good as his team.” If I am able to motivate my team to achieve their potential and give their best, only then will I be successful. It is never a one-man show. Second, “To always have passion for what you do.” My father has a passion for cricket, he loves it so much and will stay up till 3am to watch a match. He also has another passion for business – he is always ready to work. One quote he stands by is that “if you do not like what you do, you will never be successful. If you like what you do, you will be good at it, and you will enjoy every day.” You are known for luxury homeware brand Casa Milano. What did you think you could offer the market with your own enterprise? Casa Milano is the UAE’s premier luxury sanitaryware retailer. Our place in the market is to provide unique products that are not available anywhere else in the country. Most of my brands are from Italy but we also carry products from other countries in Europe like Spain, Germany, Portugal and Turkey. With certain brands, we have the provision to provide customisation as well. For instance, we have a brand called Corian, which can be customised to create any product – table, sink or bathtub. It is from the US and comes with a 10-year warranty. Additionally, all of our products are manufactured in their original countries and brought here. We also make our mark through customer service. Even if we do not sell anything, the customer should walk out of the showroom thinking that he was very well treated here. I have taken a lot of feedback from my sales team and have met a lot of walk-in customers, and the responses I have received about the products and showroom have been generally positive. What is the future for the brand? Are there any other avenues or sectors you want to pursue? Currently, I have only one store to work with, so I want to plant my feet here and see where this takes us. I am looking forward to expanding the business to other GCC countries and even Europe in the future. My strategy is to interact with a lot of interior designers and architects, as well as focus on professionals who would like to build their own houses from scratch. Casa Milano’s priority is to understand its customer’s needs. We help them create a design, and the kind of products that are required for that design, whatever the space. Overall, my vision is to place Casa Milano in each household that aspires to have luxury living. Was it important to seek advice from your father on this, or did you want to make your own mistakes? Yes, it is definitely important for me to seek advice from my father! He has been in the business for 25 years, knows the ins and outs of the market thoroughly and will be able to guide me well. Obviously, I also want to make my own decisions. There will definitely be mistakes, but if one does not make mistakes, one cannot learn. q IT IS OKAY TO MAKE MISTAKES, YOU CAN ONLY LEARN FROM THEM TO BECOME THE BEST VERSION OF YOURSELF” arabianbusiness.com 15 CA S A MILANO / SPE CIAL PR OMO TION “The most important thing is that you have to groom your children well. Their upbringing should be nice and one must always make their kids live a normal life, even when one is a successful businessman. If they are humble, they will not get carried away and appreciate the hard work put in by their parents in setting up their business. So, give kids their space but keep a track of what they are doing so that they don’t lose their way. “The most satisfying thing for every parent is when they see their son grow up into a mature man. Mashallah, I’m proud to see my son Mohammed Azhar Sajan stand shoulder to shoulder with me and how he confi dently takes on challenges that life throws at him with a smile.” Proud parent Anis Sajan on encouraging the next generation of entrepreneurs in the UAE FEATURE / RED SEA SEEING RED SAUDI’S BOLD TOURISM VISION The Red Sea Development Company is on a mission to welcome the world to an unspoilt stretch of the Kingdom’s unique coastline – sooner than you might think. By Bernd Debusmann Jr/ RED SEAFEATURE / RED SEA 18 Vol. 21/13, July-August 2020 A veteran of the industry, he’s the former managing director of London’s Canary Wharf business district, as well as the Baha Mar Development company, which developed a 1,000-acre resort complex on the island of New Providence in the Bahamas. A project of this scale in Saudi Arabia – a kingdom that not long ago was unthinkable as a tourist destination for non-religious visitors – represented a completely different and, in many ways, unprecedented challenge. In an interview with Arabian Business, Pagano says that a project of this scale in a largely untouched tourist market was something that he simply couldn’t turn down. “I met a lot of the people that were working on the project. A lot of young Saudis. I was so 28,000 square kilometres – an area roughly equivalent to the size of Belgium. At the helm of it all is John Pagano, the CEO of The Red Sea Development u John Pagano, CEO of The Red Sea Development company (TRSDC) u One of the proposed luxury residences on the Ummahat Al Shaykh islands magine sitting at a luxury hotel, on a stretch of pristine, seemingly untouched virgin coastline. With little to do but relax, you’re faced with the enviable options of spending the afternoon scuba diving, visiting a local village in the hunt for some traditional cuisine and culture, or exploring nearby undeveloped islands to observe the more than 1,200 Red Sea species of fish – an astonishing 10 percent of which cannot be found in any other body of water. This vision of paradise, however, is not what one might expect. It’s not Mexico’s Riviera Maya, nor Zanzibar, the Seychelles or Bali – it’s Saudi Arabia, newly opened to the world. Announced in July 2017, Saudi Arabia’s The Red Sea Project is the only one of the Kingdom’s landmark “giga”- projects to focus solely on its nascent tourism sector. The plan is nothing if not ambitious, though: by the time it’s complete in 2030, it will deliver up to 8,000 hotel room keys across 22 islands and six inland sites in a project of approximately I Company (TRSDC), which is wholly owned by the Public Investment Fund. Pagano is no stranger to what he describes as “transformational” projects: arabianbusiness.com 19 / RED SEA u The Red Sea Project will eventually include its own international airport The project expects to create 35,000 direct jobs – many of which will be slated for Saudi nationals. Another 35,000 jobs are expected to be created and maintained in supporting industries. TRSDC has also partnered with a number of NGOs and the Kingdom’s Ministry of Human Resources and Social Development and Ministry of Education to help prepare nearby communities to take part in the project. As part of this outreach programme, 12,000 applicants were narrowed down to 120 young people who received scholarships to study hospitality management at the University of Prince Mugrin in Madinah. Job creation taken by their optimism, their enthusiasm and their looking forward to what the country was going to do,” Pagano explains with a smile. “I didn’t need to do another large- scale project, but because of the combination of all those things, it was just one of those opportunities I felt I had to participate in.” Full steam ahead At the moment, however, much of Saudi Arabia’s attention has been on battling the ongoing COVID19 pandemic and its impact. Over the past several months, the pandemic has not been kind on Saudi Arabia, bringing international flights to a stop and forcing authorities to massively scale down this year’s Hajj and Umrah pilgrimages. The global pandemic, however, has not had a significant impact on The Red Sea Project’s progress. “It had a limited effect, with some delays, most related to restrictions on travel and the free movement of materials,” Pagano explains. “I’m pleased that as we come out of the other end of [the pandemic] we were able to mitigate a large part of that… we got concessions [from the government] that allowed us to keep this site operating.” In fact, tourists may be hitting the beaches of the Kingdom’s Red Sea coast as soon as two years from now. The first phase of the project will eventually grow to include 16 hotels, totalling 3,000 hotel keys across five islands and two inland locations. “The next real milestone is welcoming our first guests at the end of 2022. That’s what’s on the horizon. We’re working towards opening the resort, although not the full 16 hotels,” Pagano tells us. “We’re probably going to open five by the end of 2022, and then the balance will open in 2023. But we’re committed to opening and welcoming our first guests.” To honour this commitment, the first phase of The Red Sea Project has been busy preparing all the necessary infrastructure, which will eventually grow to include an airport, entertainment facilities and a “town” capable of housing and providing Next >