DinarStandard Editors

Malaysia's Private Sector Faces Uncertainty Amidst Political Changes

Malaysia's governing party's poor performance in the recent General Elections held on March 8, 2008, introduces unchartered waters to the private sector with the national coalition losing 5 key states (instead of the usual one) to the keen opposition, Barisan Rakyat.

Barisan Nasional, the governing party, has been criticised to have continuously bred business interest in many different industries in the economy, including the automotive industry, oil & gas, construction and property sectors.

Petroliam Nasional Berhad (Petronas) is seen to have caused distress amongst Malaysians due to the continuous price-hikes over the past 4 years, twinned with a continuous boosts in profit figures. As a company fully owned by the government, the opposition coalition has stated in their election manifesto that they would request for transparent financial statements relating to Petronas' financial activities to be sucritinised in Parliament. There has been an irksome worry pertaining the transparency of Petronas' expenditure / allocation of funds. Petronas ranks at number 121 under Fortune Global 500.

Other companies have experienced project delays due to the changes in state governments. The construction sector, in particular, relies on government based projects and due to changes in government personnel and glitches in the handing-over of contracts and related documents, some projects have had to be put on hold.

Norma Kassim, a Business Development Manager for a specialist civil construction company, says her company is still "looking forward to their Letter of Approval [of a project] amidst the changes in state governmental fronts." Her company's project is affected by the change in Kedah's state government; with the main contractor belonging to the state's administrative body.

"Economic activity has slowed down for the time being," she adds, relaying the sensitivity of the current political changes. "I hope it will pick up by the end of the month."

Her concerns are justified. The Australian Business reported a market plunge in Bursa Malaysia due to panic selling and stock-dumping, which led to a temporarily closure of the Bourse on March 10. Prices continued to fall when trading resumed. The index closed at a 9.5% drop. To-date, the market remains bearish over concerns of the political adjustments.

Malaysia's 12th General Elections caused a stir in its political realm as nearly half of the votes favoured the coallition opposition party, denying the government their benchmark two-thirds majority for the first time in Malaysian history. In addition to losing 5 key states to the opposition front, Barisan Nasional suffered a 28% drop in Parliamentary seats and displacement of long-term members of the governing cabinet.

--- Views by Staff Writer Maria Zain

World Economic Forum releases report of Islam-West Dialogue

The gathering of world leaders at the World Economic Forum’s annual meeting in Davos routinely generates discussion on business and economic issues.  But in recent times, the forum has taken up social issues as well.  A few years ago, the WEF formed the Council of 100 (C-100) to discuss the relationship between the Western and Muslim Worlds.  This year, the C-100 released its first annual report titled, Islam and the West: Annual Report on the State of Dialogue. 

The report aims at benchmarking the state of the dialogue by focusing on five main areas which are: international politics; citizenship and integration; religion, ethics, and ideology; education and intercultural understanding; economic and social development.  It was authored mainly by John DeGioia, President of Georgetown University in Washington, DC.  It also includes contributions from leading authorities and personalities such as John Esposito, Karen Armstrong, Ingrid Mattson, Mustafa Ceric, Anwar Ibrahim, Rabbi David Rosen, Akbar Ahmed, Mary Robinson, and Lord Carey of Clifton.  Each of the contributors is intimately involved in the policy debates on local and global platforms. 

In the report’s foreword Klaus Schwab, Executive Chairman of the World Economic forum, writes that “the remarkable feeling of proximity between people and nations is the unmistakable reality of our globalized world.”  In his view this proximity allows people to see other cultures more clearly and also see ours more clearly.  This may practically be the case but the real question whether people are willing to see others clearly.  Clearly, the C-100 is trying to facilitate this. 

We strongly urge our readers to download and read this important first work.  The report highlights the many global challenges which humanity faces and tries to highlight the need for unified responses through well organized social collaboration.  Unified responses are certainly in order for global challenges but local challenges need local responses as well.  In effect while gatherings like the WEF and intitiatives such as the C-100 will continue to facilitate dialogue and debate about global issues it is also increasingly necessary for such efforts to recognize and nurture local responses by understanding local contexts and their specific challenges. 

BHP’s Goodyear singles out Muslim World

Charles "Chip" Goodyear, outgoing CEO of BHP Billiton Limited,  the giant diversified resources group recently, singled out the Muslim World as the next big growth area.  In a recent interview with the Herald Sun of Australia Goodyear responded to a question about the “next emerging market” by saying that the Muslim World shares characteristics with other recent growth markets – India and China.  Namely, Goodyear said that the size of these markets and the fact that the youth are underemployed are traits shared with India and China.  Among OIC countries, BHP Billiton currently has operations in Suriname, Indonesia, Iraq, Algeria, and Pakistan.  Goodyear’s comments are important as he is responsible for BHP Billiton’s rise from the doldrums of the late 1990s to its dominant position in the market today. 

Petro Dollars Being Invested in Education - Finally!

HSBC, in a recent report, estimated that $1.5 trillion in oil revenues were earned by Persian Gulf governments between 2002 and 2006 ( Kuwait , Qatar , Oman , Saudi Arabia , Bahrain and the U.A.E.)  Moreover, Samba Financial Group ( Saudi Arabia's second largest bank), estimates that these Gulf States “may earn $1 trillion a year till 2027.”  To give it some perspective, the combined population of the GCC countries is estimated at only 37 million of which 34.5% are non-GCC nationals or expatriates. This is no doubt a huge cash windfall for the GCC governments, but is this being invested wisely?

Unlike the passive petrodollar investments from previous oil booms (protect capital with some appreciation), this round is starting to show signs of investments that will have longer lasting impact.  I am not talking about the real-estate/ tourism boom (ala Dubai ), or the surge in recent global acquisition activity (eg. SABIC's $11 billion purchase of GE's Plastics division), which by the way in their own right are positive steps, I am instead referring to the ultimate source of owning your own destinies - education. 

So in addition to building the biggest tourist attractions in the world, shouldn't investments be made to build the best schools, the most prestigious universities, state of the art scientific and social research centers, think-tanks, etc.?  After all, these investments will lay the ground for the goose that will lay a trillion golden eggs of knowledge and global competitiveness capabilities and perhaps deliver it in an exemplary way unique to the region's identity.

The biggest story, which is the first promising sign in this direction, is that the Prime Minister of the UAE, Sheikh Mohammed bin Rashid al-Maktoum recently launched a $10-billion fund to promote education in the Arab world.  The fund will provide grants to students, researchers, academics and experts to write, research and help translate books into Arabic. Sheikh Mohammed said he is investing money in education and “the development of knowledge” in the region to eliminate illiteracy and to create an educated generation.

Another significant initiative is the launch in Fall 2009 of a graduate university in Saudi Arabia, The King Abdullah University of Science and Technology (KAUST), which will have a $10 billion endowment–the sixth largest in the world.   The initiative is also launching a $100-million-a-year global research partnership program to fund work by scientists who agree to become affiliated with the new university.

Other initiatives include a $500 million allocation for research in universities in Saudi Arabia which is 20 times the allocations received in past years.  Even private investments are making their way into educational initiatives.  Abraaj Capital (one of the region’s prominent Private Equity players) has acquired an undisclosed but 'significant' stake in Dubai-based Global Education Management Systems (GEMS), which owns and manages a number of primary and secondary schools across the Middle East .

These are indeed steps in the right direction and the region’s leadership should be congratulated on this renewed focus on education.  However, much is still needed to be done at the grass root level as well as implementing with quality the planned education investments.  McKinsey recently wrote an analysis on 'Improving Education in the Gulf' that should serve as a guide for some next steps and areas of focus.

3rd World Islamic Economic Forum - Innovation & Global Partnership

Building upon its successful event last year in Islamabad , The WIEF hosted its 3rd Forum in Kuala Lumpur 27-29th of May 2007 aimed at boosting cooperation among business professionals engaged in Muslim world economies.  The Forum provided a mix of inspirational and practical advise to business leaders for lifting their capabilities and making a positive impact to the socia-economic state of Muslims globally.

Setting the inspirational tone for the Forum were Indonesian President Susilo Bambang Yudhoyono, Kuwaiti Prime Minister Sheikh Nasser Al-Mohamad Al-Ahmad Al-Sabah, Malaysian Prime Minister Dato Seri Abdullah Ahmad Badawi of Malaysia, and Mr. Musa Hitam, Chairman of the World Islamic Economic Forum Foundation.   

Prime Minister Badawai asked Muslims to take ownership of their destinies by focussing on eduation and innovation and engaging with the global community.  "We must break the shackles of rigidity and dogma that currently envelopes Islam and the Muslims. We must go beyond rituals and ceremonies in Islam.  As Muslims, we believe that God looks after us, that we can be the best of people. But we must earn the right to be best. We must re-discover our ability and passion for knowledge and innovation. The Muslim faith has a rich tradition of innovation and enterprise and we must reclaim that legacy," he said.

Most working sessions involved practical steps on Leadership Strategies, Innovation, and Industry Opportunities (telecom, energy & water, infrastructure, travel & toursim, retail & consumer, Islamic finance) by a panel of experts. 

A delegate brief prepared by PricewaterhouseCoopers(PwC) presented detailed analysis on each of these topics.  On the topic of "Building tomorrow's innovative company", the Brief highlights with some examples how innovation extends beyond Product innovation only and includes looking into Process innovation as well as Business Model innovation.  It also references a PwC Innovation Survey which points out that, "Top innovators generate over 75% of revenue from products not in existince five years earlier,"

The Brief also looked at the current state of competitiveness in Muslim majority countries referencing the World Economic Forum's  Global Competitiveness Index 2006, in which only Indonesia, Malaysia, Turkey and UAE had above average scores on innovation.  However, it also points to recent regional/ global success stories from the DS100 - Top 100 Companies of the Muslim World list. 

The Forum had over 900 participants from 65 plus countries providing ample networking oportunities.  The official outcome of the Forum was catured in its declaration which included endorsing a program to make affordable computers available to disadvantaged Muslims, to establish scholarships and internships for Muslim youth, and to support leadership training programs and collaborative university research.   The event also hosted a Young Leaders and Businesswomen Forum.

Is Turkey ’s Competitiveness Challenged by the Religious/ Secular Divide?

Turkey is an in interesting spot.  On the one hand its high-tech competitiveness is showcased by success stories such as major regional brands in white goods (refrigerators, washing machines, ovens and dishwashers) and televisions brands. 

The flagship brands include BEKO (a brand of the KOC family of businesses) which ranks among Europe's largest white goods manufacturers and Vestel (a brand of the Zorlu Group) which ranks as Europe’s largest and the world’s third-largest TV maker.   

On the other hand, the fact that Turkey’s products have not yet truly broken into global markets at the level of the world’s leading brands (minus a few exceptions), makes me wonder what role the religious/ secular divide might be playing to affect its competitive capabilities?  The recent political turmoil whereby a million people marched in support of secularism and against the elected government’s ruling party (AK) (considered to be practicing Muslims) brought to global attention the deep rooted sentiments. 

The question is - how is this divide affecting the corporate environment?  How can teams work collaboratively to produce the most innovative, world class solutions when there are such sentiments?  The two major TUrkish business organizations TUSIAD and MUSIAD are already known to differ along these lines.  So, if a company decides to forgo a secular or religious Turkish employee against their merit, it would be unfortunate for the success of that company.

Ideally this should not be an issue and perhaps it’s not in most cases, but given the strong reaction witnessed of late, it is certainly something Turkish companies will have to address.

How Gulf Companies Can Build Global Businesses

The McKinsey Quarterly recently commented on ‘How Gulf companies can build global businesses.’  This frank assessment references companies based in the Gulf Cooperation Council (GCC) states who are using the petrodollar windfall to expand strategically into global markets.  The piece also states that expanding globally for such companies will require the development of distinctive capabilities and skills.

Some of the referenced investments include DP World $7.1 billion acquisition of the British port and ferry operator P&O in 2006;  Saudi Basic Industries (Sabic) $2 billion acquisition of the petrochemical division of the Dutch chemicals and pharma group DSM in 2002; Dubai Aerospace Enterprise (DAE) paying $1.3 billion for the Swiss company SR Technics, the leading independent supplier of aircraft maintenance, repair, and overhaul services; and, Kuwaiti logistics group Agility (formerly PWC Logistics) buying companies in Singapore and the United States as part of a drive to become one of the world’s top logistics groups.

The commentary however points out that in order for such investments to bear fruit for GCC players, the advantages that drove margins at home—high-income customer pools, cheap labor, protected markets, and low energy costs—won’t be transferred to external markets, and they will need to become more efficient abroad to be profitable/competitive there.

Some of the areas of focus suggested include:

• A strong customer service ethos
• Integration skills - especially important when the acquirer is buying a company to gain its capabilities
• Finding and retaining managerial talent
• A change in corporate culture
• Working within the governance structures of other business environments, which may be quite different from the GCC norm

From our point of view, in addition to the above points, the positive momentum of these strategic global investments now needs to be directed to building a business culture that focuses on ‘customer needs’ in all aspects of business operations - from market research, innovation, branding, product development, design, to communication.   As global business leaders will attest, building a global business requires major investment in knowing and serving the global customer. 

In addition, just as the traders of Arabia did in earlier days, these GCC global business leaders would not only gain from global trade but also have the opportunity to contribute to global business thinking around corporate scandals, environmental concerns, and social responsibility by sharing the business ethics and value system of Islamic culture.

Prince Al-Waleed on reform, investment, and the future of Islam

This month, the McKinsey Quarterly features a lengthy interview with Prince Al-Waleed bin Talal of Saudi Arabia, one of the most successful international investors today. Prince Al-Waleed represents the best of the new breed of global businessmen who integrate their investment prowess with their vision for society as a whole. Prince Al-Waleed in particular stands out because he exerts a global impact from within the Muslim World. Prince Al-Waleed’s holdings in such global and regional corporations such as Savola Group, LBC, Four Seasons Hotels, Citigroup, News Corp., - and the list goes on – make him a man whose opinions are taken seriously from the trading floor, to the board room and the hallowed halls of government around the world. Awarded the Humanitarian Contribution to Islam award by the International Islamic Finance Forum, Prince Al-Waleed has donated over $100 million to various academic and civic causes ranging from the Islamic Studies program at Harvard University to supporting the Islamic wing of the Louvre in Paris – all to bridge the gap between Islam and the West.

Commenting on the interplay between different forces affecting global capital flows after 9/11 he says, “…politics is mirrored in economics and finance”. But interestingly rather than reflect this by avoiding investment in the US like many other investors from the Middle East, Prince Al-Waleed says that after 9/11 his investments in the US grew “strategically”. We look forward to seeing the Prince’s investments bear fruit – not only in the business world but also in the world of ideas.

Space bound Anousheh Ansari Inspires Women in the Muslim World

  Iranian-born Anousheh Ansari, who grew up dreaming of the wonders of outerspace, is today 220 miles above us on the International Space Station, in a breath-taking 11-day space journey.  As the first female private space explorer, she has become a shining example of dreaming big and achieving it, and a source of inspiration for many Women in the Muslim world and beyond.

As a teenager in 1984, Mrs. Ansari came to the USA from Iran and later established herself as a serial entrepreneur--starting a telecommunications software firm (Telecom Technologies Inc.) with her husband, that was later sold for $500 million. 

The achievements of this amazing woman are at a time when their is a growing sense of confidence and empowerment among the women in the Muslim world.  Recently, a Pakistani woman, Ms. Namira Salim was reported to have been selected by US firm Virgin Galactic for its first commercial space flight in 2008.

Also a recent Gallup World Poll showed that a majority in all but one of eight predominantly Islamic countries agreed that women should be allowed to hold leadership positions.  The results ranged from 54 percent support in Egypt to 78 percent in Iran to 91 percent in Lebanon. Only in Saudi Arabia was there less than majority backing (40 percent). The findings point up the fact that women have been elected to top posts in Turkey, Pakistan, Indonesia, and Bangladesh.

These achievements are equally visible on the business front as well.  Among the Forbes 100 Most Powerful Women and the Fortune Top 50 Most Influential Women Business Leaders, 12 are citizens of Muslim majority countries.  These business leaders include Guler Sabanci, Chairman, Sabanci Holding (Turkey), Nahed Taher, Founder and Chief Executive, Gulf One Investment Bank (Saudi Arabia ), Maha Al-Ghunaim, Founder, Vice Chairman and Managing Director, Global Investment House  (Kuwait), and Lubna Olayan, Chief Executive, Olayan Financing  (Saudi Arabia.)

Imagine, Inspire, Be the change is the slogan of Mrs. Ansari's mission.  She certainly has done that and seemingly many more are following suit.

Raging Turkish Capitalism & Muslim Values in Spotlight

Two major US media outlets (the New York Times & PBS) recently profiled a fast booming Turkish economic region with its unique blend of religious adherence, entrepreneurial spirit, hard work and regional/global success. 

Focusing on the Central Anatolian province of Kayseri with a population of 1 million, the profiles point to this region as 'Evidence that Islam and Capitalism Can Coexist.' 

The NYT piece had a great quote from Ahmet Herdem, the mayor of Hacilar, a town of 20,000 people in central Anatolia, who said, "In European countries, workers take a 15-minute smoking break; here we take a 15-minute prayer break."  This adherence to faith coupled with strong work ethics and an entrepreneurial spirit has led the region to produce some of the best-known Turkish companies (17 of the Top 500 Turkish companies of 2005 are from this region.)  These include global players such as Orta Anadolu (a large denim producer), Boydak Holding (a giant conglomerate with the largest Turkish cable factory), and Istikbal (one of the largest furniture manufacturers in Turkey with a global presence).

To put this environment in context, European sociologists have compared this to the 'Protestant Ethics' practices of Christian business communities of the past, and more recently labeled these entrepreneurs 'Islamic Calvinists.'

Ofcourse, such an environment should be of no suprise to Muslims.  Trading and business has  always been an integral part of the Muslim identity, with the Prophet (PBUH) and many of his companions themselves being successful traders.  The faith encouraged trade and profit, albeit in a just manner.  People from other Muslim communities can certainly learn from this successful manifestation today by the entrepreneurs of Kayseri who are competing globally while applying their faith as a means of strength in this day and age of modernity.

Btw, we had previously profiled MUSIAD, a Turkish business association, most of whose members are part of these Central Turkish business communities.