Wednesday, March 28, 2007

KIPCO's Sellout

Why is KIPCO selling its assets? First they sold Wataniya Telecom to Qtel then Sadafco. I am not sure what’s the status of Showtime which they were hoping to sell for a while now. What’s next? And what is this all about? There are few theories. The official response from KIPCO is that it is normal disposal of investments for attractive returns and realignment of strategy. But this did not stop the speculation. Some say KIPCO is attempting to divest out of Kuwait in light of increased political pressure and scrutiny because of its close connections (owned by the son of the Emir). Others take the divestment to be a negative outlook on the Kuwaiti market which worries many.

So is a negative outlook justified? According to recent Merrill Lynch report the answer is no. The chart below shows forward P/E ratios and current account balances relative to GDP. Accordingly Kuwait’s stock market is one of the most attractive in the region. This is based on large relative current account surplus (driven by oil revenue) which indicates higher potential economic growth. In addition, valuation is relatively inexpensive based on forward price earnings ratios. So why is KIPCO selling out? That’s anyone’s guess.

Sunday, March 25, 2007

Corporate Governance

I attended a presentation on corporate governance organized by the Investment Companies Union in Kuwait. For those of you involved in a family business or any business for that matter and interested in learning more about corporate governance, there is an excellent resource in the website of Dubai’s Hawkamah, the Institute for Corporate Governance (makhalaw shai dubai!).

As I mentioned earlier a friend was frustrated with his family business. He thought implementing proper governance would diminish the power and control of the family leader and hence there will be opposition to it. But research shows that family businesses have very slim chance of surviving beyond the third generation, and most end up in court! So it’s time to educate the family leader and all members of the importance of proper governance which is the best way to insure continuity into the future.

Thursday, March 22, 2007

Family Business

It's surprising how much similarities exist between our bigger society and the smaller one – which could be work, family or other. A friend tells me about his family business. He is absolutely frustrated. In the bigger society there is a lack of direction, especially as other countries have made strides such as Dubai and Qatar. In the smaller one, my friend tells me, the business lagged while other families made great progress. The bigger society sustains itself not by adding value but exhausting resources under the ground. Just like the smaller one which relies on its existing resources without meaningful contribution.

In the bigger society there is mismanagement, corruption, lack of productivity, lack of qualification, disguised unemployment and the list goes on. The smaller society is no different. I asked my friend why don't they do anything about it by implementing proper corporate governance and institutionalizing the business. He laughed back and said: but that's how the family figurehead keeps control of the business and ensures dependency of all others! How similar!

Monday, March 19, 2007

Munaqaba at the Gate

Airports reflect the image of societies. Kuwait's is no different. The polarization of Kuwait's society is apparent in the airport. As I prepared to leave, my documents were inspected at the immigration counter by a munaqaba (veiled). Isn't this a security concern if she was a passenger with niqab? Is it absolutely necessary to have a munaqaba in this position? Worse still she was on the phone talking about dinner!

Upon arrival back in Kuwait I was welcomed by the extreme opposite. I started wondering if pieces are going to fall off her face or finger nails detach in my passport!

Two extremes in Kuwait Airport paint -literally- a picture of society. Whether behind veil or make up, the true face is disguised.

Friday, March 16, 2007

The Tipping Point

Ever wondered how crocs (pictured above) caught on to be best sellers? Or anything for that matter be it a book, a song or even a hair style (or goatees for guys)? This is what The Tipping Point: How Little Things Can Make a Big Difference by Malcolm Gladwell attempts to answer. According to the author, “ideas and products and messages and behaviors spread just like viruses do.”

Epidemics such as the flue for example depend on the people who transmit them. Certain people have a higher chance of transmitting the virus than others (your barber for example working on the goatee sees a lot of other people). This is called the Law of the Few. Another factor is how strong the virus is (the Stickiness Factor). And finally the Power of Context, which could be the weather or close proximity of people, all leading to higher spread of the virus.

The author applies those three agents of change to analyze various phenomena in the world around us and how to go about reaching a Tipping Point. This is a useful tool to understand local trends such as the rise of political Islam. It is said that this book influenced Tony Blair back in the day when the conservatives were in power. Tony Blair and his liberal labor party managed to reach a Tipping Point. Can we do the same?

Wednesday, March 14, 2007


I heard an interesting story in the final day of the Private Sector Conference organized by Kuwait Chamber of Commerce and Industry. Quoting British historian Alan Rush, historically the ruling family has always been suspicious of the merchants and viewed them as competitors for their power, asserted one speaker. This goes back to the days when the ruling family collected taxes and subsequently the merchants had a wider say over governance of the country.

This historical clash explains the diminished role of the private sector today. Even though oil wealth replaced taxes and hence the reliance on merchants, the suspicion continued. One bright spot in this historical clash was during the era of Sheikh Jabir Al-Ahmed as Minister of Finance. According to the tale there was a struggle within the ruling family at that point to appoint the crown prince. The Emir then Sheikh Abdulla Al Salim wanted to appoint his brother. While Sheikhs Fahad Al-Salim and Abdulla Al-Mubarak competed for that position they were unpopular within the ruling family. The ruling family and the British had Sheikh Jabir Al-Ahmed in mind.

Feeling the threat, Sheikh Jabir Al-Ahmed allied himself with the merchants and that was the golden era of the private sector. Unfortunately this did not last. As the struggle within the ruling family abated, the relationship with the merchants went back to its old suspicion. Unless this changes the private sector will continue to play a marginal role in the economy. No wonder the private sector commands only a third of GDP the lowest in the Gulf, and even compared to a socialist country such as China where it stands at two thirds.

Monday, March 12, 2007

The Bottleneck

It was interesting observing the blame game in the Second Private Sector Conference organized by Kuwait Chamber of Commerce and Industry under the title Economic Reform: Repeated Talk and Delayed Decision (الإصلاح الإقتصادي: كلام مكرر وقرار مؤجل).

There was a lot of pointing fingers: the government, the parliament, the private sector, the Chamber, even individuals unwilling to engage in productive work and preferring government jobs. One interesting observation was made by Mohammad Al-Shaya of the retail Al-Shaya Group. He observed that 55% of his company's staff in Saudi are nationals, 65% in Bahrain but the number is much less in Kuwait. He also observed that the number of female nationals working for his company in Saudi exceeds that in Kuwait. This is due to Kuwaitis' preference for desk jobs in the government or certain sectors such as banking and investment that carry prestige.

It was so good to see Dr. Ahmed Al-Rubai speak again after his absence. He slammed the government for wrongfully dealing with the private sector, especially that some of those private sector companies are gaining international prominence.

There is no doubt that economic reform is a shared responsibility between all parties concerned whether it is government, parliament, private sector and even individuals. However, as the saying goes, the bottleneck is always at the top of the bottle!

Saturday, March 10, 2007

Seeing the Light

I made fun of one Member of Parliament’s (MP) call to implement Sharia law in Kuwait. The reason I quipped the call is the apparent transformation of the MP. But don’t people have the right to transform themselves? So he saw the light what’s wrong with that?

I must say the whole thing took me by surprise and I reacted the way I did. What if he saw a different light and reached personal enlightenment through kabbalah; would it be justified to call for the implementation of kabbalah?! I am happy for the MP and congratulate him on his sincere, I hope, personal growth. However he should keep his new convictions to himself and not deprive others of the same journey he took.

Wednesday, March 07, 2007

Joke of the Day!

Sorry could not help it! Dimitri transforms himself!

دميثير يطالب بتطبيق أحكام الشريعة الإسلامية

كتب محمد الخالدي:
طالب النائب خلف دميثير بـ «تعديل المادة الثانية من الدستور، لتكون الشريعة الإسلامية المصدر الرئيسي للتشريع في الكويت».
وقال دميثير في تصريح صحافي امس ان «اقتراحا كهذا ليس محصورا بالكتلة الإسلامية فقط، بل ان مجلس الامة معني بكامله بهذه القضية».
وزاد: «أتمنى تعديل المادة الثانية من الدستور لقناعتي التامة بأن المستقبل سيكون مخيفا للاوضاع الاجتماعية ولن يتم انقاذ هذا المجتمع إلا بتطبيق الشريعة الإسلامية بشكل صحيح»، مشددا على ضرورة «انقاذ شبابنا وأبناء وبنات هذا الوطن من هذه الهجمة التغريبية».

تاريخ النشر:الوطن الاربعاء 7/3/2007

Tuesday, March 06, 2007

Project Kuwait

When you ask an economist how is the wife, the response would be: compared to what? Or so goes the joke. This was the opening line of Prof. Paul Stevens of the Centre for Energy, Petroleum and Mineral Law and Policy –phew long name! - at the University of Dundee in Scotland speaking at Kuwait Economic Society. The subject matter was the price of oil and in his view the current price is high compared to historical levels –not the highest but still high- and will continue to be so for the near to medium future.

The prediction is for the price to be at the $50-60 level for the next 5 years or even longer. One reason for this is the insufficient investment in the oil sector to increase capacity. Remember Project Kuwait? (Development of Kuwait’s north oil fields) This project has gone nowhere due to political scrambling. This will have negative long term implications as the world will intensify its search for alternative energy with the aid of technology and move away from high geopolitical risk areas where oil reserves are concentrated. It would be worthwhile to remember that the Stone Age did not end for lack of stone.

Sunday, March 04, 2007

Poor Minority!

KIPCO Group and their clients/affiliates got a sizable bounty from selling their controlling interest in Wataniya Telecom to Qatar’s Qtel: 48% premium above market price on date of agreement to be exact. But some missed out on the party. That is the minority shareholder: the other 49%.

If you happen to be one of the minority shareholders –i.e. no relation with KIPCO- and got over the initial excitement of the transaction only to see your share plunge in the aftermath you would probably think it is not fair. Apparently KIPCO invited its clients and affiliates to tag along on the deal and share in the prize. Some regulations and shareholders' agreements in other countries make this a law. The minority shareholder has a tag along rights when an offer is made to acquire majority share. Had this been the case Qtel would have been obliged to invite all shareholders to the offer and split the control premium. You and I definitely would have been better of. But just like in politics, markets don't always respect minority rights.

Saturday, March 03, 2007

Stealing Flags

I joined the reportedly one third Kuwaitis traveling away from the National Day festivities, but I kept thinking how I can be more patriotic. It seems the emphasis this time around is on being a good citizen with the Kuwait Tistahil campaign and all.

As my plane took off I started flipping the newspaper to kill time. I came across a report that I am not sure whether it’s funny or sad. According to an official from Kuwait Municipality in charge of the National Day festivities, there were 800 flags stolen from street poles and other public venues! (Al-Qabas newspaper 22/2/2007) Can you think for a second what was going on in the mind of such person: to steel in order to show your love for your country! But if you think for another second you will realize that there are a lot more than 800 such ‘patriotic’ citizens. Kuwait tistahil.. better.