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ISSUE 133 MONTHLY FOCUS: 2017 TRENDS
2017 2017 Trump vs. the world 2017 What’s next for China? 2017 Hyperloop and the lure of speed 2017 How to reboot my business? 2017 The post-demonetisation era 2017 The rise and rise of cybercrime Press Enter to search
NBAD’s partnership made our growth possible in the Middle East. John Fanelli CFO, Hill International
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From the web
Shurooq joins hands with Dubai SME The partnership will see both sides work closely together to foster the entrepreneurial spirit in Dubai and Sharjah. The ultimate goal is to enable SMEs across both emirates to seize new opportunities and drive economic growth. The MoU was signed by His Excellency Marwan bin Jassim al Sarkal, CEO of Shurooq, and His Excellency Abdul Baset Al Janahi, CEO of Dubai SME.
For further information, please visit: http://www.sme.ae.
Unveiling Dubai’s cognitive roadmap IBM and Smart Dubai Office launched a new initiative that will help accelerate the development of cognitive citizen services across Dubai. “Our collaboration with IBM underlines our commitment to foster the IT skills needed leveraging cloud, blockchain technology, analytics, mobility technologies and offer cognitive capabilities for our services which will add value to the day to day lives of Dubai citizens and residents, making every day experiences more safe, seamless, efficient and impactful for all,” said Her Excellency Dr. Aisha Bin Bishr, Director General, Smart Dubai Office.
To read more about please visit: http://www.smartdubai.ae.
UAE Energy Plan 2050 sets sustainability goals The recently launched Energy Plan has been designed to balance the environmental goals of the country as well as fulfill its economic goals. Ioannis Ioannou, Associate Professor of Strategy and Entrepreneurship, London Business School said: “The main goal of the UAE Energy Plan 2050 is for clean energy to account for 44 per cent of total energy production to contribute towards sustainable economic growth for the country in the long run.”
To read more about please visit: https://www.moenr.gov.ae/en/home.aspx.
Editor’s Note
Out with the old, in with the new The start of the New Year is perhaps the best time to reflect on the past and strategize for the future. While 2016 has been a challenging year globally for businesses, the good news is that most companies have taken the roadblocks in their stride. And with industry analysts predicting a mixed outlook for the upcoming year, SMEs will need to ride out the uncertainties and capitalise on the opportunities. The only way of doing this is to continue innovating, upgrading products and services and enhancing productivity. We’ve put together a comprehensive strategic plan on pg. 82. RUSHIKA BHATIA EDITOR
At SME Advisor, we are excited about the surprises that the year ahead holds. We will continue to stay committed to the SME sector – supporting businesses, sharing their stories and giving them a chance to showcase their capabilities. What won’t change is our curiosity for disruptive models, attention to detail and keenness to stay connected with our readers. Finally, it is with great pleasure that I’d like to introduce our new SME Academy training modules for 2017. This year, we’re raising the bar by offering training that gives SMEs tangible, revenue-generating opportunities. For our upcoming edition, we’ve partnered with Expo 2020 and Protiviti to help businesses not just learn more about Expo 2020 Dubai’s commitment to engage and empower SMEs, but actually understand the right tools to tender competitively. To be a part of this powerful session, do check out our official website: http://academy.smeadvisor.com/. Thanks for reading SME Advisor, and Happy New Year!
Contents
The economist’s view 028 VAT and your business 032 All eyes on…China 038 GCC investment banking outlook
Editor’s roundtable 044/ In conversation with Dubai SME
Talking trends 050/ 2017 forecast: cloudy or clear skies?
Infographic of the month
094/
THE QUALITY OF AN IT ORGANISATION’S WORKFORCE IS AN INDICATOR OF ITS ABILITY TO EXECUTE ON THE ENTERPRISE STRATEGY AND TO RESPOND TO CHANGE
056/ Preparing your business for future trends
028/
ALL BUSINESSES SHOULD CONTACT VAT SPECIALISTS TO ASSIST THEM TO UNDERTAKE A VAT IMPACT ASSESSMENT SO THEY CAN FULLY UNDERSTAND THE IMPLICATIONS OF VAT ON THEIR BUSINESS AND THE ESSENTIAL STEPS THAT NEED TO BE TAKEN
Digitally disruptive 058/ The defining solutions of 2017
Business banking 062/ Banking at your convenience
A review of 2016 066/ 2016 in the rear-view mirror
CEO outlook for 2017 072/ Sector-based outlook for 2017
Organisation & structure 076/ UAE Bankruptcy Law: a guide for business directors 082/ Rewiring your business for 2017
Technology for business 088/ Securing the future 094/ Talent development: a top CIO priority
32
How will the new market dynamics shape the growth of the prolific Chinese economy? Find out here!
38
76
Under Article 201 of the Bankruptcy Law, there are a number of offences which may apply to directors and managers of companies. Take a closer look at the finer details.
Ehsun Khan, Managing Director – Corporate Finance, Protiviti, discusses the factors influencing financial markets around the world…
28
Moving into 2017, the implications of VAT come into clearer focus. Experts from Deloittle Middle East provide their analysis. GCC CIOs are being increasingly challenged to ensure they have the right number of staff, with the right skills, in the right roles, at the right time. Explore the solutions...
62 With the advent of technology, most banks are developing a sophisticated range of digital services such as balance inquiry, quick payment, monthly statements, cash flow analysis and much more. See what’s on offer...
94
C O N T E N T C U R ATO R S 026
CONTENT CURATORS
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Presenting this month’s portfolio of industry specialists and thought leaders, who played a critical role in producing the feature content of our magazine and ensuring that we were more topical than ever. KATE BACON INDIRECT TAX MANAGER, DELOITTE MIDDLE EAST
““ EHSUN KHAN MANAGING DIRECTOR – CORPORATE FINANCE, PROTIVITI
SME ADVISOR
VAT (Value Added Tax) is a tax on goods and services which is applied to each and every transaction within a supply chain – it is due to be introduced at a rate of five per cent in the UAE and across the GCC on January 1, 2018.
Unlike banking, where M&A activity is led by consolidation, e-commerce is a sector where acquisitions and private placements will drive the market as companies look to grow inorganically.
C O N T E N T C U R ATO R S 027
““ ANTHONY BUTLER CTO, IBM CLOUD, MEA
Hybrid technologies (or hybrid cloud) are born out of a recognition that enterprises are not just going to move everything to a public cloud. They have existing investments that need to be maintained and, for performance, security or other reasons, some workloads need to continue to run within the data centre.
““ MOHAMMED ABUKHATER REGIONAL DIRECTOR FOR THE MIDDLE EAST AND NORTH AFRICA, FIREEYE
The EMEA experiences of 2016 around financial sector compromises, and continued focus of threat activity against relevant critical systems such as SWIFT, are a sobering reminder of the reach and capability of a determined and motivated cyber adversary.
““ ED GABRYS DUBAI-BASED RESEARCH DIRECTOR, CIO RESEARCH TEAM, GARTNER
CIOs are reporting that the talent gap is the biggest barrier to achieving their objectives, especially for SMEs that need to succeed and scale up quickly.
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VAT AND YOUR BUSINESS IN 2017 Moving into 2017, the implications of VAT come into clearer focus. We reached out to experts from Deloitte Middle East to interpret...
EDITOR’S PICKS 01. Businesses should contact VAT specialists to assist them to undertake a VAT impact assessment so they can fully understand the implications of VAT on their business. 02. It is important that SMEs take a functional approach to VAT implementation – they should focus on what they need to get right and put measures into place to achieve that in the most cost effective and time efficient manner. 03. VAT is charged to customers by businesses, which then collect the VAT paid by the customer and pay that VAT over to the Tax Authority.
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V
AT (Value Added Tax) is a tax on goods and services which is applied to each and every transaction within a supply chain – it is due to be introduced at a rate of five per cent in the UAE and across the GCC on January 1, 2018. The legal framework of the VAT system will be an overarching VAT Treaty agreed between the GCC states, followed by domestic VAT legislation in each individual state interpreting the principles of the Treaty and setting out the manner of its application in the country. Globally, all VAT systems are based on a common set of principles. VAT is charged to customers by businesses, which then collect the VAT paid by the customer and pay that VAT over to the Tax Authority. Businesses within VAT jurisdictions are often referred to as ‘unpaid tax collectors’ as a result. Businesses will also be charged VAT by their suppliers. In the majority of cases, VAT-registered businesses will be entitled to recover the VAT they have paid to suppliers by
offsetting it against the VAT they themselves are due to hand over to the Tax authority. However, individuals and businesses which are not able to register for VAT (which could include many SMEs) will not have an ability to recover the VAT they pay to suppliers. It is these final consumers and non-registered businesses which bear the cost of VAT. It is therefore crucial that SMEs establish whether – 1. They have a requirement (or an ability) to register for VAT, 2. They are likely to be able to recover the VAT on their purchases, and 3. They are able to pass the increased cost on to their customers. The impact of VAT on SMEs It is not known what the VAT registration threshold in the UAE will be definitively, albeit comments made in the press
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T he legal framework of the VAT system will be an overarching VAT Treaty agreed between the GCC states, followed by domestic VAT legislation in each individual state interpreting the principles of the Treaty and setting out the manner of its application in the country.
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by Ministry of Finance, officials suggest it could quite high along with a voluntary registration threshold set at half the compulsory limit. The higher the threshold, the larger the population of SMEs which fall outside the VAT net. This SME population will therefore be required to assess the benefits of voluntary VAT registration versus the cost of absorbing the VAT on their purchases. Given that the GCC Treaty and domestic VAT law is yet to be released, it is unclear whether these registration thresholds will stand or whether there will be a policy change to move the threshold either up or down. In the event that the registration threshold remains as announced, the smallest businesses (i.e. those below the threshold) will not be required to undertake VAT compliance responsibilities (filing returns, issuing invoices, maintaining records etc.). Whether this is a good thing will depend upon a variety of factors such as the business’ typical customer profile (business or private individual), the industry in which the business operates, the capacity of the market to absorb price inflation, the typical categories of purchases made by the business (subject to VAT or not) and so on. However, the lack of VAT compliance obligations does not mean that VAT is not going to have a large impact on small businesses. Those that cannot register for VAT are unlikely to be able to recover VAT on their purchases, meaning that VAT charged by their suppliers will lead to a direct increase in the cost of sales. Companies that are likely to fall below the thresholds should start reviewing the impact irrecoverable VAT could have on their business. Those businesses that have the option to register for VAT need to weigh up the implementation costs of registering versus the additional VAT cost they are likely to suffer on their purchases. For those that exceed the VAT registration threshold and therefore
will be required to register for VAT, the changes which need to be managed across the business will be significant. Implementation is likely to require significant system overhauls, renegotiated contracts, renewed pricing strategies and a widespread staff training programme as a minimum. Even though the intended VAT rate of five per cent is relatively low and we expect the majority of VAT-registered SMEs to be able to recover most, if not all, VAT incurred on purchases, the cost involved in preparing for VAT implementation and ensuring VAT compliance obligations can be met will be significant. Large businesses may appear to be better equipped to deal with these changes in the coming 12 months, but only if they begin taking steps as soon as possible. The accounting software used by larger businesses tends to be more comprehensive, there is likely to be more resources within the business, and they generally have the financial ability to bring in specialist VAT consultants to advise on the VAT implementation process. SMEs, in contrast, may be constrained by a lower budget, fewer internal resources and limited accounting software. They are also likely to be more resource-constrained in terms of both staff availability and the financial ability to engage specialist consultants. It is therefore important that SMEs take a functional approach to VAT implementation – they should focus on what they need to get right and put measures into place to achieve that in the most cost effective and time efficient manner. What to expect in 2017? 2017 will be the year of preparation and dissemination of information about the introduction of VAT. In October 2016, the law creating the Federal Tax Authority was announced by the UAE Government. 2017 will see the Government prepare for the administration of VAT by recruiting staff into the Federal Tax Authority and
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by setting up the infrastructure to allow businesses to submit VAT returns and make VAT payments. We also expect that 2017 will see the publication first of the GCC VAT Treaty (which will give the broad rules of the VAT system applicable across the GCC) followed by the UAE VAT Law. Whilst these publications will give businesses certainty over the VAT rules to apply within the UAE, businesses should take caution and not expect that the law will answer every question they have about VAT and their business. Equally, businesses do not have the time to sit back and relax whilst they wait for the law to be published – the vast majority of VAT rules can be predicted based on the operation of VAT and GST systems across the world. Businesses should begin their preparations for VAT now, taking a ‘best guess’ approach to some of the finer detail for the time being which can then be revisited and confirmed once the domestic VAT laws have been published. How can SMEs prepare for VAT implementation? Early preparation and training is key for all businesses, regardless of size. To
maximise preparedness, SMEs should start considering the impact VAT may have on their business now. Attending seminars, keeping up to date with VAT announcements in the news and on government websites is a good start for understanding how the VAT system is likely to work. SMEs then need to apply their new understanding to the circumstances of their own business to work out how they will be impacted. Broadly, the impacts which need to be considered can be categorised across three key levels:
ϭϭ Organisational/strategic level – what are the overall business impacts? Headline impacts at a Board level – on company structure, market positioning and negotiation with customers and suppliers.
ϭϭ Operational level – how does VAT affect day to day operations? A wide range of business processes across all marketfacing and business support functions will require review and potential modification to become VAT-ready.
ϭϭ Financial level – what is the economic
impact of VAT on the business? Impacts including: overall costs and cash flow caused by inclusion of VAT, availability and cost of appropriate resourcing, cost and business impact of major technology and process changes, impact of VAT on overall finance/tax governance and strategy.
Ideally, all businesses should contact VAT specialists to assist them to undertake a VAT impact assessment so they can fully understand the implications of VAT on their business and the essential steps that need to be taken to have any chance of being ready for the go-live date on January 1, 2018. Regardless of whether you seek advice from a VAT specialist or not however, the key takeaway we would like to reiterate is that VAT is not simply a finance ‘problem’ – it affects the business across the board and pro-active steps need to be taken in order to achieve compliance from Day One. SMEs should start now to assess their readiness for VAT implementation before time runs out. SME ADVISOR
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All eyes on‌
CHINA How will the new market dynamics shape the growth of this prolific economy? Will it move forward in smart, deliberate strides or be slowed down? Michael Spence, Professor of Economics, Stern School of Business, New York University, and Qian Wan, PhD Student in Political Economy, Renmin University, Beijing, provide expert commentary.
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EDITOR’S PICKS 01. Credit to the state sector ends up flowing not into productivity-enhancing investments, but into the housing market (fuelling price bubbles) and industries with excess capacity (fuelling even more overcapacity and enabling companies to avoid much-needed restructuring). 02. Banks are bailing out bankrupt companies, while private firms – especially small and medium-size enterprises – continue to get squeezed.
A
t a time when the United States is poised to turn inward, China’s economic performance is more important globally than ever. Whether China can achieve sustainable growth patterns in the coming years will depend upon a number of key factors. One of the leading external factors shaping China’s prospects will be its relationship with the US under President Donald Trump. Ideally, the two governments would work together to negotiate mutually beneficial trade and investment agreements, with sensitivity to the challenges faced by both sides. But the opposite outcome – the escalation of mutually damaging trade and investment disputes – is also a distinct possibility. Political uncertainty is also on the rise in Europe. While its impact on China would not be as direct as Trump’s actions, it is a source of significant medium-term risks for the entire global economy.
China: growth rate of real gross domestic product (GDP) from 2010 to 2021 12% 10.61%
GDP year-on-year change
10%
9.45%
8%
7.7%
7.7%
7.3%
6.9%
6.49%
6%
6.2%
6%
6%
6%
6%
2018
2019
2020
2021
4%
2%
0%
Source: IMF
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2010
2011
2012
2013
2014
2015
2016
2017
Additional Information: China, IMF, 2010 to 2015
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Beyond the external uncertainties and headwinds, China faces a slew of internal challenges, which may well present even greater risks to its economy.
Within Asia, a key factor shaping China’s economic prospects is progress on Chinese-led regional trade and investment agreements. In particular, investments in regional development via the “one belt, one road” initiative and the Asian Infrastructure Investment Bank may produce expanded trade and growth in Asia (and beyond), though the effects will not be immediate. The fourth major external factor relates to exchange rates. As it stands, the renminbi is facing significant depreciation pressure, caused largely by a surge in capital outflows. Meanwhile, the US dollar is strengthening in anticipation of Trump’s fiscal expansion. China’s performance will depend partly on how these dynamics play out. But, beyond the external uncertainties and headwinds, China faces a slew of internal challenges, which may well present even greater risks to its economy. Those challenges – including weaknesses in the real economy and the private sector,
overcapacity, excessive leverage, and high housing prices – are rooted largely in the financial sector’s mounting problems and the failure of China’s leaders to address them. Consider efforts to promote investment in the real sector. The People’s Bank of China has been providing spurts of liquidity to the market, in the hope of relieving financial constraints on productive private businesses and industries. But the monetary-policy transmission mechanism is broken, and liquidity is not making it to the real economy. Instead, China’s banks continue to allocate credit largely to state-owned enterprises (SOEs) and local-government financing vehicles (LGFVs). Credit to the state sector ends up flowing not into productivity-enhancing investments, but into the housing market (fuelling price bubbles) and industries with excess capacity (fuelling even more overcapacity and enabling companies to
avoid much-needed restructuring). While LGFVs use the low-cost loans to build infrastructure, the social returns of those investments are often low; and, after decades of rapid infrastructure construction, the marginal returns are declining. Meanwhile, local governments’ leverage continues to rise. SOEs may also use the unregulated shadow banking system to re-lend at higher interest rates the cheap money they receive to private businesses, which cannot borrow reliably from the formal banking system. Whereas the interest rate of a one-year loan in the formal banking system is around five per cent, the average one-year interest rate in the Wenzhou shadow banking market (to cite one example) was around 16 per cent in November. This state of affairs is jeopardising the entire economy. Banks are bailing out bankrupt companies, while private firms – especially small and medium-size SME ADVISOR
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China has made great strides in recent years in implementing reforms that boost domestic private consumption.
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enterprises – continue to get squeezed. Given that the private sector is generally significantly more productive than SOEs or LGFVs, generating much higher returns on investment, the absence of hard budget constraints on troubled SOEs clearly must be addressed. Of course, China’s leaders have known this for a while, and have created a reform agenda that seeks to reform the SOEs, while unleashing the private sector’s potential. But it is still a work in progress. Convincing banks to lend to private enterprises, rather than to SOEs and LGFVs, will require substantial structural shifts in China’s economy. For financial institutions, SOEs and LGFVs represent much lower risk than private businesses, regardless of how leveraged or uncompetitive they are. After all, because SOEs and LGFVs are implicitly guaranteed by central or local governments, they are highly unlikely to default. Banks know (or believe) that if an SOE or LGFV faces bankruptcy, the government will step in with favourable policies and
subsidies, tax cuts, and low-cost financing instruments. In some cases, banks have no choice but to lend to failing SOEs; their provincial government may demand that they provide large low-cost loans to a struggling and unproductive firm, particularly if it contributes significantly to local fiscal revenue and employment. Given that private firms enjoy no such official protections and thus play on a field that is nowhere near level, they must be substantially more productive and competitive than the SOEs. And even then, if the SOEs with which they are competing struggle too much, they are vulnerable to policy shifts that increase their disadvantage further. Simply put, the Chinese financial sector’s bias in favour of SOEs is contributing to some of the biggest risks faced by China’s economy. Investors’ recognition of these risks may be one driver of capital outflows, meaning that distortionary incentives in the financial system are also contributing to the downward pressure on the exchange rate. China has made great strides in recent years in implementing reforms that boost domestic private consumption. And, despite the barriers it faces, the country’s private sector has become highly dynamic and innovative. Earlier reforms are now bearing fruit, and this has helped to sustain economic growth. But achieving faster, more resilient growth will require China to eliminate the biases, protections, and implicit guarantees favouring SOEs in the marketplace and in the financial system. Only then can monetary policy achieve its goal: supporting productive investment, innovation, the scaling of private-sector businesses, and real economic growth. This article is published in collaboration with Project Syndicate.
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GCC INVESTMENT BANKING OUTLOOK: 2017 Ehsun Khan, Managing Director – Corporate Finance, Protiviti, discusses the factors influencing financial markets around the world and outlines his expectations for M&A activity in the New Year…
EDITOR’S PICKS 01. Mergers to capture cost synergies will continue in the banking sector and may spread to other industries as well. 02. Schools and hospitals have been popular for some time among financial investors across the GCC. This is because these assets have the twin attraction of being both high growth and defensive. 03. On an absolute basis, the banking sector may account for the highest M&A value in 2017.
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2
017 is set to be a strong year for investment banking volumes and fees, as was the case in 2016. However, in the year gone by deal volumes were driven by economic weakness rather than strength. M&A activity was led by bank mergers, the rationale for which was cost synergies. DCM was boosted by sovereign issuers raising funds to finance fiscal deficits. IPOs and other Equity Capital Market (ECM) products started the year strong (especially in KSA) but tapered off as sentiment weakened. Overall, investment banking fee was 11 per cent higher in the first nine months of 2016 (in comparison with the same period in 2015). In 2017, some of the same trends will manifest. Mergers to capture cost synergies will continue in the banking sector and may spread to other industries as well. DCM volumes will continue to be high as governments look to finance deficits. However, private placements and acquisitions are also expected to pick up. Some of the uncertainty of the past two years is now ending and both buyers and sellers are adjusting to a “new normal”, where oil may range between US$ 4060/barrel (see below). In the absence of uncertainty, valuation estimates will be on a more sure footing and this will allow transactions to get done. Fundamentals were challenging in 2016 and while this is widely understood, it may
be useful to summarise the key issues. The biggest negative for the region has been the steep decline in oil prices. As a result, government spending is down and fiscal deficits have increased. Meanwhile, liquidity is tighter as governments have reduced their deposits with banks and private sector borrowers have been partially crowded out. On balance, 2017 is likely to be a difficult year as well. Here are some key themes to look out for in the coming year: 1. Oil prices Oil prices have rebounded to reach the mid US$ 50s and may move higher after the recent deal between OPEC and non OPEC members to slash production. According to the International Energy Agency (IEA), inventories will decline by as much as 600,000 barrels/day for the first half of 2017 and this will swing the market from surplus to deficit. If oil prices remain at current levels until the end of the year, the average price for the year will be close to US$ 43/barrel. It is likely that the average price for next year will be higher and EIA forecasts an average price of US$ 53/barrel in 2017. 2. Adjustment to the “new normal” Even with oil prices near US$ 60/
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barrel, most regional governments will not balance their books. After two years of relatively low oil prices, the region may finally start to reconcile with the “new normal”. After two years of shock and denial, next year I suspect acceptance will set in along with the realisation that oil prices are not going back to the US$ 100+ level. This realisation may lead to deeper and more structural cost reductions among the governments of the region. 3. T he “valuation gap” between buyers and sellers While institutional investors have a lot of liquidity available to make investments, actual transactions have been few and far between. This is partly because of a valuation gap between buyers and sellers. Sellers have not adjusted prices lower to account for higher risk associated with lower growth. This gap may narrow in the coming year as continued austerity reduces orders and creates problems with receivables. 4. T he interest rate environment With the US Fed having raised rates by 25 bps on December 14, a further rate rise of 50 bps is expected by some during the course of 2017. Since our region is linked to the US$, rates across the GCC will also move higher as will the relative strength of the currencies. Investment banking outlook: by product
ϭϭ Mergers and Acquisitions (M&A)
M&A volumes reached US$ 37 billion in the first nine months of the year, 19 per cent higher than the same period last year. However, activity was driven by mergers in the financial sector whose rationale is cost cutting rather than
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growth. This trend will likely accelerate in 2017. When it comes to private placements, deal volumes are expected to increase. Uncertainty is the biggest dampener when it comes to investment activity. Buyers don’t want to buy when prices may come down further. Similarly, sellers may hold out if they feel there is a chance for better valuations. The last two years have been characterised by uncertainty but the overall trend seems a lot clearer now. That is, moderate oil prices within a stable range and lower government spending across the region. There is a lot of liquidity available and market participants will begin to act on their convictions rather than stay on the sidelines. Key sectors for M&A activity will be: Banking and Financial services;
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onstruction and real C estate investment activity should hold up in the UAE and Qatar on the back of the Expo 2020 in Dubai and the FIFA World Cup 2022 in Doha.
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ϭϭ Loan syndications
Because of lower oil prices and the consequent reduction in government revenues, liquidity conditions in the banking sector will remain tight. We may also see a slight worsening in the non-performing loan situation. As a result, lending by the banking sector will remain conservative and rates may move higher.
Individual sectors – The road ahead
E-commerce; Technology; and Oil and Gas.
ϭϭ Debt Capital Markets (DCM)
DCM issuance reached US$ 43 billion, a huge 75 per cent increase from last year. DCM volumes have been boosted as regional governments have turned to the debt markets to finance fiscal deficits caused by lower oil prices. While oil prices have recovered some ground, this is not enough to balance the budget for most regional governments. DCM volumes will be high next year as well. The main issuers in 2017 will continue to be regional governments.
ϭϭ Equity Capital Markets (ECM)
Meanwhile, equity capital markets (ECM),
which relates to IPOs and rights issuance, have lagged, with issuance reaching only US$ 1.5 billion in the first nine months of the year, down 72 per cent from last year in the same period. The big market to look out for when it comes to IPOs is the KSA market. Recently, equity market sentiment in KSA has improved because: 1) the huge bond issue which has improved liquidity and facilitated receivables payment, particularly from the government sector, and; 2) the higher oil prices. As a result, many of the IPOs which had been put on hold in the second half of 2016 are now being talked about again. Many companies are doing IPO readiness exercises and if the recovery in the market holds up, we may see a spate of issuance in Q1 and Q2 next year.
1. F inance This was the most active sector for M&A activity in 2016, on the back of the US$ 14 billion merger between NBAD and First Gulf Bank and the recently announced US$ 44 billion tie up between three banks in Qatar. In addition, the Abu Dhabi government announced the merger of IPIC and Mubadala, two sovereign wealth funds. These mergers have to do with cost savings through synergies, as opposed to capturing more market share. This trend will continue in 2015 and already the possible mergers between ADIB and Al Hilal and ADCB with UNB have been mooted. On an absolute basis, the banking sector may account for the highest M&A value in 2017. Outside of banking, there may be come roll ups in the money exchange sector as higher capital requirements force weaker players out of the market. 2. E -commerce While the banking sector may account for the highest value of mergers, the e-commerce sector may account for the largest number of individual transactions. E-commerce deals have been small in size, however, this is beginning to change. Careem was very recently able to raise US$ 350 million in funding giving the ride hailing app a valuation of over US$ 1 billion. SME ADVISOR
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ncertainty is the U biggest dampener when it comes to investment activity.
Similarly, another tech Unicorn Souq. com is said to be considering a buyout offer from Amazon for over US$ 1 billion. E-commerce retail sales as a percentage of total retail sales are still relatively low in the Middle East, at about two per cent. However, growth is among the highest in the world (at about 30 per cent), driven by widespread access to internet and some of the highest smartphone penetrations in the world. E-commerce in the region will expand as existing players like the Alabbar Group expand with new retail portals (Noon.com) and traditional bricks and mortar giants like the Al Tayer Group establish an online presence (Ounass). Unlike Banking where M&A activity is led by consolidation, ecommerce is a sector where acquisitions and private placements will drive the market as companies look to grow inorganically. 3. S ocial infrastructure (schools and hospitals) Schools and hospitals have been popular for some time among financial investors across the GCC. This is because these assets have the twin attraction of being both high growth and defensive. Defensive sectors have low correlation
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to economic growth. So, you will not take your daughter out of school even if your personal economy deteriorates. At the same time, schools and hospitals per capita are high growth as supply is relatively low on a per capita basis and demand is rising as populations continue to grow. These attractive dynamics have helped channel private and public sector investment into schools and hospitals. However, many of the larger networks have now been acquired by big groups and there are relatively limited independent operators of scale. Moreover, pricing is now quite rich as demonstrated by the recent acquisition of Al Zahra Hospital by NMC for AED 2.06 billion at a valuation of over 14x earnings. While the sector remains attractive, I don’t see too many transactions taking place as quality assets coming to market will be few and far between and pricing expectations will be high. 4. O il & Gas As mentioned above, oil prices have recovered but remain relatively low. Most observers expect prices to remain capped because US shale production will kick in above US$ 60/barrel. Low oil prices don’t really impact the regional upstream producers as most have low extraction costs, as low as US$ 15/ barrel. Therefore, these companies should remain profitable and viable. However, there may be more distress in the midstream and downstream sectors as well as among service providers. We would expect to see stronger players putting their balance sheets to work to grow inorganically (through acquisitions) in an environment where organic growth is capped. After two years of hoping low oil prices were
temporary, one may also see weaker players lowering valuation expectations. One can also expect to see mergers, like in the financial sector. This is already happening among state-owned upstream companies (like ADNOC) where subsidiaries are being merged into the parent company to reduce admin expenses. 5. R eal Estate Construction and real estate investment activity should hold up in the UAE and Qatar on the back of the Expo 2020 in Dubai and the FIFA World Cup (2022) in Doha. In the rest of the region, new real estate projects may prove more difficult to finance because of lower demand and falling prices. According to CBRE, The region’s hospitality sector has been broadly lower over the past year. RevPAR has fallen by as much as 20 per cent in some locations and this has been driven predominately by a decline in daily room rate. This trend is likely to continue in the short term as supply levels rise and as corporate demand remains muted. Commercial markets have been a little better, with markets such as Dubai seeing sustained growth for good quality assets. However, further challenges are expected in the office sector, particularly in locations such as Doha (Qatar) and the Abu Dhabi (UAE), which have significant development pipelines and weakening demand fundamentals, according to CBRE. Despite the negative impact of the strong dollar, retail has generally outperformed other sectors, and while challenges may be on the horizon for some markets, it is likely to remain one of the better performing sectors over the coming year.
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“WE REMAIN COMMITTED TO FINDING INNOVATIVE FUNDING SOLUTIONS FOR SMEs.” His Excellency Abdul Baset Al Janahi, CEO, Dubai SME, talks policies in 2017 that will boost the SME economy, and highlights fundamental aspects of the prolific Mohammed Bin Rashid Fund for SMEs.
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EDITOR’S PICKS 01. The Mohammed Bin Rashid Establishment for the Small and Medium Enterprise Development was created to help business owners through the hardest parts of their journey, and provide them with the necessary support at every stage. 02. The Mohammed Bin Rashid Fund (MBRF) is a non-profitable authority providing loans and financial guarantees to business ventures owned and managed by Emirati entrepreneurs.
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MBRF actively monitors the supported businesses and the commitment of the benefitted entrepreneurs to ensure their performance by the standards specified.
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What is your strategic vision for the growth of the sector? Supporting up and coming businesses is the primary objective of the Mohammed Bin Rashid Establishment for Small and Medium Enterprise Development. Through its varied initiatives, it looks to provide the necessary support to young citizens in all steps of setting up their business, from planning and financial resources to simplifying the formal procedures and expansion. The Mohammed Bin Rashid Establishment for the Small and Medium Enterprise Development was created to help business owners through the hardest parts of their journey, and provide them with the necessary support at every stage. This has remained a top priority for us and we will continue to do so. One of our main goals is to strengthen the spirit of innovation and leadership across the SME sector. Therefore, we strive to help you translate your ideas and creativity into tangible achievements and successful businesses.
Tell us about the Mohammed Bin Rashid Fund. The Mohammed Bin Rashid Fund (MBRF) is a non-profitable authority providing loans and financial guarantees to business ventures owned and managed by Emirati entrepreneurs. MBRF actively monitors the supported businesses and the commitment of the benefitted entrepreneurs to ensure their performance by the standards specified. In addition, MBRF supports UAE entrepreneurs in all phases of their development, including planning finances, simplifying official procedures and helping establish their businesses from start to finish. The Fund is based on the fixed assets and financial liquidity of up to 600 million. When was the Fund established? What are its objectives? The Fund was established by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime
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also a growing awareness of the support mechanisms available today – right from funding and licensing to mentorship and marketing. This can only mean that the sector will move upward and onward.
Minister of the UAE and Ruler of Dubai, under Law No. (11), in the year 2012. The objectives of the Fund are: 1. The development of investment and entrepreneurship among citizens. 2. To diversify and develop the local and national economy. 3. Encourage young citizens to enter the entrepreneurial sector.
What benefits does the Fund offer to existing and aspiring entrepreneurs? The Fund provides support at every stage of the entrepreneurial cycle. Some of its functions include –
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Supporting up and coming businesses is the primary objective of the Mohammed Bin Rashid Establishment for Small and Medium Enterprise Development.
• Assist in the preparation of
economic feasibility of projects, investment and initiatives submitted by members, and provide technical expertise to the owners in the financial, economic, marketing, administrative and organisational aspects, helping them to complete deliverables.
4. The establishment and ownership of projects that provide jobs for them. 5. Provide financial support to existing projects undertaken by the citizens of the state. 6. Provide technical expertise in various fields to support entrepreneurs. To put it simply, our goal is not just to provide funds, but to prepare a generation of entrepreneurs! How would you describe the state of the SMEs in Dubai – and the UAE in general? The SME sector is continually evolving – I think the current state is that of growth. There are a lot of aspiring entrepreneurs in the market that want to start something new. It is great to witness the younger generation of the country come forward and take interest in the sector. We will continue to encourage them and provide them with adequate support, as required. There is SME ADVISOR
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• Encourage entrepreneurs
to participate in tenders for government institutions – and provide necessary assistance.
• Work on the expansion of
distribution channels for products backed by young people.
What are the most popular sectors among entrepreneurs? The food and beverage sector is quite popular. Others include: education, health and beauty, tourism and public services.
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Vocational training programmes are provided through Dubai Entrepreneurship Academy – the academic arm of the Mohammed Bin Rashid Establishment for Small and Medium Enterprise Development.
• Partner with relevant authorities to market the products of these entrepreneurs.
• Facilitate a healthy exchange of
knowledge and experiences between entrepreneurs.
• Provide direct loans for projects and
provide financial guarantees through partner financial institutions.
• Create a database of entrepreneurs
that receive support from the Fund, and the types of support provided to them.
• Assist in the selection of appropriate business type and licensing.
• Provide vocational training
programmes through our academic arm – Dubai Entrepreneurship Academy.
• Embrace projects through Hamdan Innovation Incubator.
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Looking back to 2016, what were some of the biggest challenges that SMEs faced? The biggest obstacle continues to be bank financing – only 3.2% of SMEs have access to bank loans. Do you provide training and assistance on the administrative side of running a business? Yes, we are providing vocational training programmes through Dubai Entrepreneurship Academy – the academic arm of the Mohammed Bin Rashid Establishment for Small and Medium Enterprise Development. Along with entrepreneurial flair, it is critical to learn the fundamentals of running a business in order to be successful. What is on the horizon for 2017? We will continue to look for innovative funding solutions for SMEs and alleviate their challenges as much as we can. We are committed to the promotion and development of SMEs in line with the larger vision for the country. Our focus is also towards building know-how in areas such as automation, smart solutions, robotics and cloud computing. Finally, we want to encourage projects that help save energy and reduce carbon emissions as well as those that specialise in the field of space exploration.
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2017 FORECAST:
CLOUDY OR CLEAR SKIES?
SME ADVISOR
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Anthony Butler, CTO, IBM Cloud, MEA, shares compelling insights into the fast-growing cloud services business, and explains why the hybrid cloud is integral to business innovation.
EDITOR’S PICKS 01. The Watson trend pinpoints patterns and trends to reveal why people are choosing certain products or brands. 02. The Watson trend pinpoints patterns and trends to reveal why people are choosing certain products or brands. 03. It is estimated that more than 44 per cent of enterprises worldwide are now relying on cloud computing to launch new business models.
In what ways is cloud computing changing from a purely cost-based model to a driver of business innovation?
Cloud began as a means of optimising cost. For example, replacing CAPEX with OPEX; benefiting from the elasticity of the cloud; driving server consolidation; and reducing labour by leveraging the economies of scale provided by the cloud. However, IBM’s view is that cloud, whilst delivering bottom line optimisation, can increasingly become a significant source of revenue growth and competitive advantage. Firstly, cloud reduces the marginal cost of innovation: companies can experiment, try new ideas, and get them to market quickly and without major commitment of time, resources or capital. They can get feedback in real time and, through use of DevOps, accelerate the speed at which they deliver new features and functionality to their customers. Secondly, cloud isn’t just about hosting some apps in a multi-tenant virtualised
environment; it’s increasingly about getting access to new services and capabilities. For example, we make our cognitive computing capabilities available in the cloud such that anyone can access them without needing to make the vast investment in compute power that would otherwise be required to run such workloads. This opens up tremendous opportunities for innovation because customers are no longer constrained by what they have in their data centre or what they have the budget to procure. Third, cloud is also about global reach and scale. The smallest start-up in the smallest village in the smallest country not only has access to the same computing power as a Fortune 500 company but, through the global reach of the cloud, can now host their app in any market.
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2
3
How does the cloud services segment fall into IBM’s overall strategy?
ANTHONY BUTLER CTO, IBM CLOUD, MEA
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Cloud is important to our clients, with 44 per cent of enterprises worldwide now relying on cloud in order to launch new business models.(1) It is also important to IBM both as a set of offerings to these clients but also as the platform that we ourselves are using to deliver the rest of the IBM business; whether analytics, cognitive, internet of things or security. IBM is now a cloud platform and cognitive solutions company; a succinct definition that demonstrates the fact that cloud is now fundamental to our company strategy and direction moving forward. This is also reflected in our business results.
What are hybrid technologies and why are they important?
Hybrid technologies (or hybrid cloud) are born out of a recognition that enterprises are not just going to move everything to a public cloud. They have existing investments that need to be maintained and, for performance, security or other reasons, some workloads need to continue to run within the data centre. A hybrid cloud represents this reality: offering clients the ability to run some workloads in a private cloud and some in a public cloud. We have developed a set of technologies to secure connect with IBM and third party public cloud services such that clients can unlock the value in their data centres by extending these capabilities into the cloud securely. We are now seeing many organisations in the Middle East adopting this architecture. They are keeping their Systems of Record, such as ERP or CRM systems, securely in their data centre; but then connecting these systems with applications that are built to run in the cloud, such as mobile platforms. These hybrid applications are gaining momentum across industries as businesses realise that cloud doesn’t mean compromise; and hybrid can help them reduce IT costs, move faster, innovate, whilst, at the same time, not compromising on security or regulatory constraints. Currently, around 70 per cent of our cloud business is comprised of hybrid cloud technology. (3)
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Cloud isn’t just about hosting some apps in a multitenant virtualised environment; it’s increasingly about getting access to new services and capabilities.
Cognitive is what we would characterise as the third era of computing: the latest continuation of an evolution that began with tabulating machines then programmable machines and now machines that can see, speak, hear, and reason much like a human. For example, we recently developed an application called Watson Trend that could analyse unstructured data sourced from across the internet to uncover new consumer trends or patterns around brand or product choices: a kind of early warning system for trends and fads. Cognitive solutions or capabilities are delivered from the cloud so the two are linked very closely. On the one hand, this makes sense since to train an algorithm to see or read, it can require significant computing power and storage. Since we believe cognition is something that all companies – large and small – can benefit from, by hosting this in the cloud, we democratise access by mitigating the need to procure the necessary compute or storage to do this kind of work. Developers can just focus on what offers differentiated value – the code and the data – and leverage the cognitive services that we make available, in our Cloud, as APIs.
Cloud is particularly useful to SMEs for a number of reasons. Firstly, by reducing IT costs significantly and removing capital, it unlocks financial resources that can applied to things that actually deliver differentiating value to a business as opposed to hardware and data centres. Secondly, it gives SMEs access to the same computing power as their larger competitors thus evening the playing field. Thirdly, it facilitates innovation. Take for example UAE-based start-up Wrappup, which is using IBM Watson for tools that will transform how you have your next meeting. Their app increases meeting productivity by tagging smart voice notes to create minutes, from hours of conversation. Talk about building a competitive advantage, regardless of your size.
Can you tell us about the role cognitive solutions plays within IBM’s cloud business?
4
In what way are cloud technologies particularly useful to SMEs?
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Cognitive is what we would characterise as the third era of computing: the latest continuation of an evolution that began with tabulating machines then programmable machines and now machines that can see, speak, hear, and reason much like a human.
How does your cloud offering set itself apart from competitors?
Whilst it has broadened with the advent of our cloud, our traditional customer base is enterprise: we understand what these clients want and need. We realise that they don’t want to discard all the existing investments they have made in IT systems to move to the Cloud; and we also appreciate that not every workload can or should run in the cloud. Yet, at the same time, these customers want the benefits that come with the cloud computing model. Hence, our focus is on hybrid cloud: offering choice with consistency where clients can choose to host some workloads and data in our public cloud, some in the private cloud, and with secure integration and orchestration between both worlds. This is in contrast with most of our competitors who have typically either focused on private cloud or public cloud. A further differentiator is our embrace of open standards. Our platforms are open, whether it is our embrace of Cloud Foundry, Docker, Open Stack or, more recently, our contribution of 40,000 lines of blockchain code to the Hyperledger Project in Linux Foundation.
We understand that clients don’t want to be locked in to a “dead end” cloud and, just as we are constantly introducing new services into our cloud, we have designed it so that customers can easily move to other clouds and whatever investments they make are maintained. This is through open standards. At the same time, of course, we want our cloud to be so good that customers don’t want to leave. For us, cloud isn’t just about a virtualised environment or an alternative to running some servers in a data centre: it’s an enabler of digital innovation and, increasingly, the mechanism by which our clients will consume “IBM as a service”. We are opening new data centres on a regular basis, adding services to our cloud, and bringing the breadth and depth of IBM’s products and services to the platform such as cognitive, analytics, blockchain, video and more. By doing so, clients are getting much more than just some virtualised infrastructure and we this rich catalogue of cloud-based capabilities as being a key differentiator for us.
Reference: 1, 2, 3, 4: http://www.eweek.com/cloud/ibm-sees2015-growth-in-cloud-security-and-systems.html
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I nfographic of the month 056
PREPARING YOUR BUSINESS FOR THE FUTURE
GLOBAL GROWTH IN 2017 3.4% GLOBAL ECONOMIC GROWTH WILL RISE TO 3.4% IN THE UPCOMING YEAR.
4.5% IMF HAS PREDICTED 4.5% GROWTH IN EMERGING MARKETS AND DEVELOPING ECONOMIES.
1.9% MEANWHILE, IMF FORECASTS 1.9% GROWTH FOR ADVANCED ECONOMIES.
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US 2-3% (ESTIMATED) China 6.2% (ESTIMATED) Europe 1.5% (ESTIMATED)
I nfographic of the month 057
TECHNOLOGY PREDICTIONS 500,000
MORE THAN 500,000 INTERNETOF-THINGS DEVICES WILL BE COMPROMISED.
300 Million
OVER 300 MILLION SMARTPHONES WILL HAVE ON-BOARD NEURAL NETWORK MACHINE-LEARNING CAPABILITIES.
200+
200+ MOBILE NETWORKS ARE PREDICTED TO INCLUDE ELEMENTS OF 5G NETWORK ARCHITECTURE.
5.1 Million
AN ESTIMATED 5.1 MILLION WHITE COLLAR JOBS WILL BE LOST DUE TO AUTOMATION.
Industry outlook Healthcare AI SYSTEMS WILL BE EQUIPPED
TO UNDERTAKE CRITICAL HEALTH MANAGEMENT FUNCTIONS AND ANSWER PATIENT QUERIES BY 2025.
Manufacturing IN THE US, ONLY 2 IN 5
MANUFACTURING WORKERS ARE DIRECTLY ENGAGED IN PRODUCTION OWING TO RAPID AUTOMATION.
Education
THE INDUSTRY WILL CONTINUE TO SEE THE DEVELOPMENT OF A ‘GLOBAL EDTECH MARKET’, WHICH IS CURRENTLY VALUED AT US$2.34 BILLION.
Retail
E-commerce
THE MENA MARKET IS PREDICTED TO GROW TO US$ 7.5 BILLION BY 2020.
Trade
TECHNOLOGY ADVANCES ALSO THREATEN TO TAKE OVER RETAIL JOBS AS BRITISH RETAILERS PREDICT ONE-THIRD OF THESE WILL DISAPPEAR BY 2025 IN THE UK.
ACCORDING TO WTO ESTIMATES, TRADE VOLUMES WILL GROW BETWEEN 1.8-3.1% IN 2017.
22%
13%
CEO OUTLOOK 76%
OF CEOs IN THE UAE HAVE THE BELIEF THAT THEIR BUSINESS WILL UNDERGO SIGNIFICANT CHANGE OVER THE NEXT THREE YEARS.
IN 2017 UAE CEOS WILL NEED TO PUT CUSTOMERS FIRST, WITH 22% AGREEING THAT IT’S A TOP STRATEGIC PRIORITY.
Sources: Forrester, Deloitte, KPMG, EY, Goldman Sachs, IMF, Euromonitor, AT Kearney, WTO.
DEVELOPING NEW PRODUCTS IS ANOTHER MAJOR AREA OF FOCUS MOVING FORWARD, AS SHARED BY 13% OF UAE CEOS. SME ADVISOR
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The defining
ICT SOLUTIONS of 2017 for SMBs Connectivity, Customisation, Costeffective: these three Cs form the core of Etisalat’s SMB offerings. At the start of the New Year, we reached out to our Strategic SMB Partner, Etisalat to find out how their latest solutions are reshaping the region’s telecoms and ICT industry.
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EDITOR’S PICKS 01. Business in a Box offers unparalleled managed support services, enhanced security and 24x7 live integrated support. 02. Etisalat’s Business in a Box is the onestop ICT solution that offers SMBs a customised package, aimed at lowering operating costs and putting business productivity on the fast track.
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s digital solutions and technology have become more prominent, the need for customised, well-rounded products has become more evident. Access to sound ICT solutions can impact every aspect of your business – from back-end capabilities and customerfacing developments to internal employee enhancements and social collaboration tools. Ensuring that your company has the right tools for connectivity can boost savings and create process improvements. It can also give you the potential to gain a serious competitive advantage in an otherwise crowded marketplace. Ticking the right boxes With a myriad of options available today, how can a business decide what’s best? When looking for the right ICT solutions for your business, here are top three areas to consider – ϭϭ Am I working with the right partner? ϭϭ Is the solution cost-effective?
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ϭϭ Can you customise the solution as your
business scales? As the region’s ICT solutions provider, Etisalat ticks all these boxes. Over the years, Etisalat has strengthened its commitment towards the Small and Medium Business (SMB) sector by continuing to provide innovative solutions that help growing businesses, enhance visibility, operate efficiently and achieve profitability. And, 2017 is no different. The increasingly challenging and competitive markets demand more connectivity options and Etisalat is improving its product offering to cater to this need. Let’s take a closer look at the emerging technologies and solutions that are not only creating added-value for SMBs, but are also enabling new levels of efficiency. Technology meets innovation – with Business in a Box Etisalat’s Business in a Box is the one-stop ICT solution that offers SMBs a customised package, aimed at lowering operating costs and putting business productivity on the fast
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Connectivity, Customisation, Costeffective: these three Cs form the core of Etisalat’s SMB offer.
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track. From high-speed broadband Internet to advanced IP telephony and more; it is the ideal tailor-made solution that provides businesses with a secure and scalable connectivity package and promises to run the business efficiently. That’s not all. Businesses can also take advantage of its around-the-clock ProCare Support for any technical issues they may face on devices such as laptops, desktops, mobiles or tablets. Customers can also opt for onsite support and professional IT services on a bespoke basis. This solution comes in one consolidated bill, simplifying the management process and making it as convenient as ever. Advantages for SMBs ϭϭ Pay-as-you-grow – Provides SMBs with the flexibility to add more services as they scale and grow. ϭϭ Easy instalments – Gives the freedom to pay in easy instalments as the business requires.
ϭϭ Superior customer experience – IP
Telephony interface enables the creation of a personalised auto-attendant service; adding more value to the overall customer experience. ϭϭ Value for money – Change your capital expenditure (CAPEX) to an operating expense (OPEX). ϭϭ Convenience – One consolidated bill is provided for all services. Rebooting your systems – with Business Devices at Zero Upfront As part of the Business in a Box offering, a wide variety of devices for SMBs are available at zero upfront cost. This initiative has been created to help businesses boost their productivity further. These business-grade devices are aimed to increase efficiency for day-to-day business operations, while being cost-effective and easy on the pocket! All devices come with flexible payment options. Simply, select a one-time payment or monthly payment option plan.
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Etisalat provides onsite and professional IT support services, around the clock.
Moreover, businesses can choose their devices from an extended range of categories below – ϭϭ Communication devices: smartphone, conference phone, video conferencing, etc. ϭϭ Computing devices: desktop, laptop, mini PC, tablet, convertible PC, servers, etc. ϭϭ Network and storage devices: network switch, firewall, access point, network storage, micro data centre, etc. ϭϭ Office equipment: printer, projector, paper shredder, etc. ϭϭ Security: firewall, security access control, surveillance system, etc. Advantages for SMBs • Pay-as-you-grow: flexible payment options to suit every budget. Choose from a one-time payment or 12/18/24/36-month instalment plans. • Optimise performance: businessgrade devices provide superior and reliable performance that keeps you ahead, always. • Free delivery: all devices and equipment are delivered right to your doorstep, all across the UAE. • Professional setup: includes on-site installation for selected business devices. • Business non-stop: fully covered under manufacturer warranty. Designed to ease the set-up and growth challenges of SMBs, Business in a Box is the ideal framework that helps your business unlock value, reduce costs and improve service. SME ADVISOR
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Banking at your convenience Experts from National Bank of Abu Dhabi (NBAD) bring a critical eye to the vital issue of how to utilise banking technology to streamline operations, lower costs and increase efficiency.
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very SME has three fundamental goals: lower costs, improve productivity and be prepared for evolving market trends. And to achieve these objectives, it needs simplified products and solutions with quick turnaround times. It is this very need that is currently fuelling the rapid digitisation of the banking sector. With the advent of technology, most banks are developing a sophisticated range of digital services such as balance inquiry, quick payment, monthly statements, cash flow analysis and much more. Corporate internet banking is no longer a luxury; it has become a necessity as businesses require quicker responses and shorter processing times. The benefits of corporate internet banking include –
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1. Better reporting and visibility: E-banking platforms give better visibility of cash positions on a dayto-day basis. They make real time monitoring of cash flow easier by allowing payment/collections online. Banks are also facilitating multi-bank reporting that enables a company’s CFO to have a consolidated snapshot of the cash position across all banks. Various type of payments offered via e-banking enable SMEs to have proof of payment at their fingertips, which can be shared with their vendors, suppliers and other stakeholders at any point of time. Also, customised reporting capabilities offered by banks are critical in helping SMEs improve their processes.
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EDITOR’S PICKS 01. With the advent of technology, most banks are developing a sophisticated range of digital services such as balance inquiry, quick payment, monthly statements, cash flow analysis and much more. 02. Banks support various payroll services such as salary payment, pension payment and payroll card management. 03. While banks do their part by providing state-of-the-art security protocols, it is important for customers and users to be fully informed of the potential risks.
2. Easier and faster payments: Real-time utility payments supported by banks make administrative tasks easier. There is also the option to automate payments to multiple parties and initiate recurring payments with one click. Leading banks such as NBAD also allow users to create beneficiary advices to accompany payments to assist suppliers and beneficiaries with their reconciliation requirements. 3. Cost-effectiveness: Depending on the industry segment they operate in, SMEs can also look at utilising bank resources available via the e-channel facility to run business activities such as account reconciliation, cash flow analysis, beneficiary advice, etc. rather than spending time and money to create their own infrastructure. 4. Improved payroll mechanisms: SMEs can utilise the internet banking facility to manage their payroll services. Banks support various payroll services such as salary payment, pension payment and payroll card management. This helps HR to meet regulatory requirement on their salary/pension payments with minimal cost. In addition, the overall efficiency of the HR department improves significantly as all other type of payments such as staff expenses, allowances are managed online. Working in partnership with your bank NBAD, in particular, provides an internet banking channel called iBANKING for its corporate clients. Whether companies are looking to monitor their funds or cheque status, view remittance advice and statements for reconciliation purposes, or simply initiate payments, iBANKING is an easy to use platform that makes banking quicker, simpler and smarter. While the platform offers all the features mentioned in the section above, it also has other notable features including –
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Account/transaction inquiries
ϭϭ View and download real-time
ϭϭ ϭϭ ϭϭ
ϭϭ ϭϭ ϭϭ ϭϭ ϭϭ
transaction information, account activities and corporate card details in several formats including CSV, Excel and PDF Multi-bank reporting feature allows you to view and download other bank account details Download your bank statements through the eStatement feature Consolidated balance feature aggregates your account balances (including other bank accounts) in your preferred currency Track deposits and loan maturity online Access SWIFT advice Ability to generate real time MT940 reports Set up alerts and notifications, as required Integrated Information Reporting
Payments/transfers Book transfer (within NBAD) Domestic fund transfer International fund transfer Credit card and utility bill payments Payroll services • Salary (Non-WPS) payments • Wages Protection System (WPS) payments • Ratibi salary payments ϭϭ Payroll cards management (Ratibi) ϭϭ Standing instructions ϭϭ Beneficiary management ϭϭ Beneficiary advice by e-mail and SMS
ϭϭ ϭϭ ϭϭ ϭϭ ϭϭ
Other features
ϭϭ Cheque book request ϭϭ Secure messaging system ϭϭ Ability to personalise information In order to understand the offering provided by your bank and to decide the services required for your business needs, it is recommended to have a thorough look
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Customised reporting capabilities offered by banks are critical in helping SMEs improve their processes.
at the fact sheet and demo offered by the bank via its website or other channels. Overcoming the challenges While corporate internet banking offers significant advantages to companies, it also has its fair share of downfalls. Security has been a major concern worldwide, with the rapid rise of cyberattacks and ransomware. Most business owners cite lack of proper security measures as their biggest fear when
transacting online. Banks and technology providers, however, are continuously improving their security measures to prevent unauthorised access and other fraudulent attacks. Multifactor authentications such as hard token, OTP (One time Password) token, finger print etc. are in offering within most internet banking facilities. In addition, payment authentication workflows, control over daily transaction limit and notification services further strengthen trust and reliability in using internet banking services. NBAD, for instance, has undertaken serious measures to ensure the protection of customer data. Some of the security features it implements are –
ϭϭ Two factor authentication using ϭϭ ϭϭ ϭϭ ϭϭ
password and RSA Secure Token 128-bit SSL encryption PCI DDS compliance Role-based security implementation Password security policies
ϭϭ Certified electronic banking ϭϭ Workflow management and audit trails While banks do their part by providing state-of-the-art security protocols, it is important for customers and users to be fully informed of the potential risks. By increasing your knowledge of basic preventive measures, you can play a pivotal role in safeguarding personal data. Speak to your financial institution to find out how you can stay involved. A growth opportunity There is a clear need for internet banking solutions that will help SMEs improve their cash cycles and boost business growth. Over the next few years, banks will continue to focus their energies on reducing the gap between what customers want and what they can deliver. And such constant promotion of online technologies can mean only one thing for your business: unlimited growth. SME ADVISOR
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2016 IN THE REAR-VIEW MIRROR
The highs, lows and everything in between. Presenting key highlights of last year – in pictures.
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January: Taiwan elects its first female president – Tsai Ing-wen.
February: Oil prices take a hit as they fall below US$ 27 per barrel as increased global production creates a surplus.
March: Dubai announced that an AED 35 fee as airport tax will apply to all passengers travelling through its International Airport.
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April: The Queen of England Her Majesty Queen Elizabeth II celebrated her 90th birthday.
May: The world’s first 3D printed office building is unveiled in Dubai. The 250 square metre space was built in line with the city’s commitment to promote 3D printing and become a world leader in futuristic technology. LA-based firm Hyperloop One successfully concluded the test of its new transportation technology in Las Vegas.
June: The Brexit vote sent shock waves around the globe as British voters made the decision to leave the European Union. This would soon become one of the biggest stories of the modern political world.
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July: The Theranos scandal takes centre stage as regulators revoke the company’s blood-testing license. The prolific startup, once valued at US$ 9 billion, becomes one of the most controversial cases of the business world. David Cameron steps down as Prime Minister; shortly after Theresa May becomes the new British Prime Minister.
August: With over 11,000 participating athletes from all around the world, the 2016 Summer Olympics takes place in Rio de Janeiro, Brazil.
September: The Bank of England introduced new plastic notes in England, Wales.
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October: Samsung Galaxy Note7 devices are banned on aircrafts, checked-in or carry-on baggage owing to safety concerns.
November: Indian Prime Minister Narendra Modi’s announcement to demonetise INR 500 and 1000 currency notes dominates headlines across the world. The decision sees mixed reactions, many citizens are seen queueing outside banks to exchange their old banknotes. In an election that stumped the world, Donald Trump beats Hillary Clinton and goes on to become the 45th President of the United States.
December: Tech giant Apple is sued by Nokia on the accusation that the iPhone maker has violated 32 technology patents.
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SECTOR-BASED OUTLOOK FOR The team at SME Advisor scanned the horizon for key developments across five prolific sectors, and here’s a detailed breakdown of everything you need to consider.
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Manufacturing
Retail
Overview: As one of the most traditional sectors, Manufacturing will go from strength to strength in the New Year. Manufacturers will have to invest in hiring and retaining talent as part of their agenda. When interviewing new candidates, their technologysavviness should be a key deciding factor. Focusing on diversity in expertise when hiring will ultimately drive growth in the long-term.
Overview: The retail sector in 2017 is poised to undergo an interesting transformation with the advancement of technology. Consumers are now more aware than ever before; retailers will no longer compete on the basis of cost, but rather on the basis of the shopping experience they are able to provide
Opportunities: ϭϭ IoT will unleash new possibilities in terms of production and technological capabilities. This will improve efficiency, accuracy and productivity. ϭϭ Going green will be on the top of every manufacturer’s agenda as sustainable practices take centre stage. ϭϭ The recovery of oil prices will positively impact the sector and help it achieve a steady pace of growth. Challenges: ϭϭ Labour shortage will continue to be a primary roadblock across major industrial units. ϭϭ Rising costs will hamper growth and reduce profitability. ϭϭ Brexit and other political uncertainties have impacted the growth of this sector and experts suggest that it will take some time before it fully recovers.
Expert opinion: “Industrial manufacturers must become more active players in the technology ecosystem, seeking expertise outside the industry in order to develop equipment connectivity, data analysis, and software development that are beyond their current abilities. For example, recognising that it cannot grow the ecosystem alone, at least one major industrial company has aligned with a wide range of technology firms to create a dedicated cloud-based platform that can run industrial workplaces.” – 2017 Industrial Manufacturing Trends by Strategy&
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Opportunities: ϭϭ Retailers that invest in improving their in-store experiences will hugely benefit as customers demand more interactive service. ϭϭ Product quality and transparency will be two prerequisites for every business operating in the retail space. ϭϭ As customers switch to mobile payments, retailers will need to ensure they have the right mechanisms in place to enable this. According to estimates by TechCrunch, 70 per cent of mobile users in the US will make a mobile payment in 2017. That’s not all. Mobile payments are expected to reach a total value of US$ 60 billion in 2017.
Challenges: ϭϭ Retailers with physical stores will find themselves competing with their online counterparts, as consumers opt for the convenience of e-shopping. ϭϭ As customers get accustomed to the old tactics of personalisation, retailers will need to up their game by finding innovative ways to keep their loyal customer base satisfied. Personalised e-mails or surprise birthday vouchers will no longer suffice; companies will have to find new ways to engage customers. ϭϭ The cost of managing physical stores will escalate forcing retailers to reconsider their business models. Expert opinion: “In 2017, we can expect retailers worldwide to push their omnichannel strategies further than ever before in the pursuit of truly seamless shopping experiences. Retailers use Instagram to sell goods, and they’re increasingly taking advantage of apps like Snapchat to give customers behind-the-scenes looks at their operations and to build loyal followings.” – www.vendhq.com
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Technology
Construction
Overview: The need to do business faster, better and more efficiently is driving the technology sector. Companies, of all sizes, are looking for new and enhanced technologies that will give them a competitive edge in a crowded market. Two of the most promising areas, attracting significant investments, are nanotechnology and space travel systems.
Overview: Dodge Data and Analytics predicts that the sector will enjoy a five per cent growth in value in 2017, which is good news for those operating within this space. Meanwhile, all eyes are Donald Trump as he looks to put his proposed infrastructure plan into effect. This is expected to create new employment opportunities in the US, and it remains to be seen how it will impact the rest of the world.
Opportunities: ϭϭ Virtual reality and Artificial intelligence technologies have tremendous potential and will dominate headlines in 2017 as well. The challenge will lie with companies to capitalise on these technologies and integrate them within their existing working models. Challenges: ϭϭ One of the biggest challenges that the sector faces is cybersecurity. There has been a lot of emphasis on this over the last few years, and so will be the case in 2017 as well. Financial institutions are prime targets and are at risk. Companies offering online services will need to strengthen security measures and educate their users. ϭϭ The ‘fake news’ controversy sparked by Facebook garnered a lot of attention recently. In fact, prominent tech leaders voiced their concerns on the subject. With enormous amounts of information being shared online, companies will need to find a way to combat sharing of bandit messaging. Expert opinion: ϭϭ “Over one million cyberattacks are estimated to take place every day, and the number of cyber vulnerabilities being discovered continues to rise dramatically. Attacks are routinely made against national governments, personal devices, banks, and corporations. Unsurprisingly in such an environment, global executives surveyed in our 2016 Views from the C-Suite pointed to rising cybersecurity risks as their top overall challenge in the business operating environment.” – AT Kearney’s Year-Ahead Predictions 2017s from the C-Suite pointed to rising cybersecurity risks as their top overall challenge in the business operating environment.” – AT Kearney’s Year-Ahead Predictions 2017
Opportunities: ϭϭ Public-Private Partnerships will continue to play a major role in the development of sector. ϭϭ Rising awareness around the safety of workers will push more construction firms to intensify their onsite safety procedures. Employee wellbeing would be taken more seriously as firms will face greater scrutiny than ever before. Challenges: ϭϭ In order to stay afloat and profitable, businesses will shift their focus from sustainable construction to creating quality projects that boost the bottom line. ϭϭ Rising labour and material costs will see the overall cost of construction skyrocketing.
Expert opinion: “Offsite construction, also called modular or prefab, isn’t new to the industry. However, experts predict the building method will grow in 2017 as quality, time and labor concerns make alternatives to traditional construction methods more attractive.” – www.constructiondive.com
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UAE BANKRUPTCY LAW: A GUIDE FOR BUSINESS DIRECTORS The prospect of the new Bankruptcy law has given existing and aspiring entrepreneurs fresh expectations. Experts from Clyde & Co. explain the nuances of the upcoming legislation...
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he new UAE Bankruptcy Law (Federal Law No. 9 of 2016) has put a spotlight on the treatment of companies in financial difficulties in the United Arab Emirates. It comes into force on 29 December 2016. We set out a summary of the key points in the Law. The Bankruptcy Law brings more clarity to the processes available for companies whose financial condition is deteriorating. But what legal obligations does it impose on the directors and managers of these companies? Good news - failure to file for bankruptcy is no longer criminalised Under the provisions in Volume 5 of the Commercial Code (Federal Law No. 18 of 1993), which contains the current UAE law on bankruptcy of commercial businesses, it is an offence for a company to fail to petition for bankruptcy within 30 days of the date of suspension of payment of its debts (known as “bankruptcy by default”). Potentially, criminal proceedings may be taken against the directors of a failing company for a
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failure to take steps to apply for bankruptcy on behalf of the company they manage. Under the Bankruptcy Law, whilst a company must petition to start a bankruptcy process after 30 business days from it either being unable to pay its debts when they fall due, or being balance sheet insolvent (by the company’s debts being greater than its assets), there is no longer a specific offence for failure to file within this timeframe. In addition, the Bankruptcy Law has clarified that it is the responsibility of the company’s shareholders to decide whether to commence a preventive composition or a bankruptcy process, by way of extraordinary resolution. This is good news for directors and managers of companies in financial difficulties. The threat of criminal sanctions for bankruptcy by default was open to abuse by creditors seeking the best settlement of their outstanding debts. Directors also faced a difficult choice: filing for formal bankruptcy may
not always be in the best interests of the company when the financial position may be recoverable, weighed against the protection of their personal interests and strict compliance with the law. Trading through financial difficulties – the risks The Bankruptcy Law provides a court sponsored process to allow a company in financial difficulties (before reaching either cash flow or balance sheet insolvency) to reach a binding agreement with its creditors, as an alternative to filing for bankruptcy. This is called a preventive composition. As with the removal of the offence of bankruptcy by default, this is a positive move to encourage companies and their directors to deal with declining financial performance as early as possible. However, there is a relatively short window for the debtor company to apply for a preventive composition: up to 30 business days from the date on which it ceases to pay its debts (or
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EDITOR’S PICKS 01. The Bankruptcy Law also incentivises a prompt response to financial difficulties. 02. The Bankruptcy Law provides a court sponsored process to allow a company in financial difficulties (before reaching either cash flow or balance sheet insolvency) to reach a binding agreement with its creditors, as an alternative to filing for bankruptcy.
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less, if it is subject to regulation by a particular competent body). If a company has lost the opportunity to file for a preventive composition, directors should be aware of potential risks in managing the business through its financial downturn, particularly if it is placed into bankruptcy subsequently. Specific offences on a winding-up Under Article 201 of the Bankruptcy Law, there are a number of offences which may apply to directors and managers of companies which are later wound up by court order. ϭϭ Preferences – if the directors approve the repayment of one creditor to the detriment of others, or give special privileges to one or more particular creditors, this will constitute an offence if the preference was granted after the company ceased to pay its debts when they fell due. The offence will be committed even if the purpose is to pursue a preventive composition, or a financial restructuring. Therefore, directors must be cautious in paying off some but not all creditors, and in accelerating all or part of the company’s debts in order to obtain agreement from key creditors to a repayment scheme, particularly once payments in the ordinary course of business have been missed. ϭϭ Sales at undervalue – it is unlawful for a director to sell, in bad faith, any of the company’s assets at undervalue. Therefore, the directors of a company in financial difficulties should take care to ensure that they obtain market value for any asset disposal, particularly if the purpose of the sale is to delay the company entering either a preventive composition or bankruptcy, or seek an
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It is unlawful for a director to sell, in bad faith, any of the company’s assets at undervalue.
end to such a process. It may be wise to obtain a professional valuation of any such assets. ϭϭ Non-core, speculative business – there is a risk under the Bankruptcy Law that a director may be found liable for corporate activities undertaken by the company which were not core to the licensed business activities, particularly where such activities (even in hindsight) were speculative in nature and significant enough to have contributed to the company’s financial difficulties. A director may be held liable at any time for poor management decisions (see the section below on the Commercial Companies Law), but the risk is heightened when the company is under financial stress. For any of these offences, the Bankruptcy Law prescribes a penalty of imprisonment of up to two years for board directors and managers. In addition, it is clear from the Law that liability also rests with other individuals who play a role in the corporate decision making, even if they are not registered as the general manager on the trade licence, or as members of the board of directors. This extension of liability may affect people who undertake the management of a particular part of the
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company’s business, to whom such responsibility is delegated by the board or general manager. Any of these actions may also lead to personal financial liability for the directors – see in column. The offences outlined above are not the only relevant crimes. It is important to bear in mind that activities which are designed to deliberately conceal a company’s financial position (such as fraudulent record keeping, or falsified accounting) or which dishonestly benefit certain parties over others (such as distributions of assets or profits in breach of the law) may also constitute criminal acts. Liabilities arising out of bounced cheques Under the Penal Code, criminal liability attaches to a person who writes a cheque in favour of a third party without sufficient funds to honour the payment, as well as for withdrawing funds resulting in a cheque being dishonoured. In the context of a company, this liability generally attaches to the individual writing the cheques on behalf of the corporate entity. However, the offence may be remedied by payment of the debt at any time, including after the criminal court has passed its judgment.
Under the Bankruptcy Law, criminal proceedings for such an offence will be suspended if the cheque was written in the period before the company enters a preventive composition or a court ordered financial restructuring. After the terms of the repayment scheme have been approved by the court and creditors, the debt which is the subject of the cheque may be settled under those terms, and the consequent criminal offence remedied. However, it is important to note that the potential criminal liability has not been removed entirely by the Bankruptcy Law: if the company’s financial situation deteriorates to the extent that the company is wound up in a bankruptcy process, criminal proceedings may not be suspended. In other words, the directors of companies in the most severe financial trouble remain at risk of penal sanctions for dishonoured cheques. In practice, directors may find it difficult to assess, when writing cheques early on in a company’s decline, the likelihood of a winding up being ordered by the court in the future. So, although the new Law is helpful and incentivises directors to pursue a preventive composition, cash flow management and careful record keeping of post-dated cheques is still recommended.
Personal financial liability for directors In 2015, the UAE introduced the new Commercial Companies Law (Law No. 2 of 2015). Directors and managers of UAE incorporated companies should read this and the new Bankruptcy Law together to have a full understanding of the risks of personal liability for financial loss suffered by the companies which they manage, or by third parties such as shareholders and creditors. Examples of some of the relevant provisions are as follows:
• General Directors’ duties - The
Commercial Companies Law sets out express duties owed by individuals authorised to manage a company to that company. These duties include a requirement to exercise a standard of care and diligence in performing a managerial role that a “prudent person” in a similar position would exercise. This is an objective test against which to measure a director’s conduct and quality of decision making. A director of a company in financial difficulties may find that their decisions in the period leading up to a preventive composition or bankruptcy process are scrutinised closely against this standard.
• LLC manager liability - A manager
of a Limited Liability Company may held liable to the company, its partners and other third parties (which may include creditors) for a number of acts, including “gross error”. A “gross error” may be constituted by a failure to meet the standard of care required of such a manager under the objective
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Strengthening corporate governance was one of the stated aims of the new Commercial Companies Law and it is clear that the new Bankruptcy Law progresses that further.
test outlined above. In addition, it may be easier for a creditor to pinpoint decisions taken by a manager, with the benefit of hindsight, which led to loss later on, if the company is ultimately subject to one of the processes in the Bankruptcy Law.
• Low recoveries – under the
Bankruptcy Law (as was the case under the Commercial Code), in a winding-up, if the company’s assets are insufficient to cover at least 20 per cent of its liabilities, the directors may be required to pay a contribution to all or part of the company’s debts, by court order.
• Liability for certain management
acts after a winding-up order – at any time within two years of the commencement of a bankruptcy process, the directors or manager may be held liable for the debts
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of the company if they have undertaken certain actions in the management of the company, if the company is wound-up later on. These actions include sales of assets at an undervalue, entering into new commitments at less than market value or which are unaffordable in the context of the company’s resources, and creating preferences in favour of certain creditors. However, if the directors are able to prove that the acts were taken with a view to minimising the loss incurred by the company and its creditors, they will not be held liable. Furthermore, any director who objected to the acts, or was not involved in any of the relevant actions, will also not be held liable for them. Fully documenting decision making at a board level is therefore likely to be helpful, including the board’s considerations and reasoning for the resolutions passed. Plan ahead As the UAE ushers in new business laws for its modern economy, accountability for corporate actions appears to be high on the government agenda. Strengthening corporate governance was one of the stated aims of the new Commercial Companies Law and it is clear that the new Bankruptcy Law progresses that further. The Bankruptcy Law also incentivises a prompt response to financial difficulties. So, directors and managers of UAE companies in the current economic climate are well advised to plan ahead their response to any financial decline and seek professional advice early - not only to take advantage of new options under the legislation, but to also ensure that they understand their own risks.
Minimising liability for directors and managers:
• • • • • • • • •
• •
Good corporate governance Regular board meetings Full minutes of decision making Seek early consultation with the owners/LLC partners Market valuation of assets to be sold Diligent financial record keeping Documentation of all post-dated cheques and guarantees Caution over paying some creditors over others once financial difficulties encountered Assessment of any new terms agreed in the ordinary course, to ensure not onerous in the financial context of the company D&O insurance to assist with financial liability (although not usually criminal fines) Seeking professional help earlier, rather than later, to advise on options
Clyde & Co accepts no liability for loss occasioned to any person acting or refraining from acting as a result of material contained in this article. The content of this article does not constitute legal advice and should not be relied upon as such. Advice should be taken about your specific circumstances.
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REWIRING YOUR BUSINESS FOR 2017 A round-up of top strategies for a fresh business outlook in the New Year.
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EDITOR’S PICKS 01. Transformation can come in the form of expansion into a new market, integration of an improved ICT system or revamping your work culture. 02. It’s a simple equation: investing in human capital raises the productivity of your business. 03. Streamline your processes to expand your production capacity; this will help you improve efficiency and increase revenue.
1. Accept change: Clearly define the changes that need to be made to your business strategy and to your company. Transformation has been a buzzword in 2016, but it means more than just technology. It can come in the form of expansion into a new market, integration of an improved ICT system or revamping your work culture. 2. Stay focused, stay simple: Reassess the product offering of your business and ask yourself - “how can I simplify it for my customer?” Find ways to make it more accessible and affordable. Find the right balance between spreading your company resources too thin and managing a wide range of offerings. Consider enhancing your existing range of products and services first, before pursuing new offerings. By improving and differentiating your products from others in the market, you can expand your customer base.
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Cater to your local clients, but have a global business mindset.
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3. Increase your exposure: Whether it is social media or other digital platforms, there are several ways to build market value. Encourage your team to get hands on with these technologies and use them to strengthen customer interactions. Cloud computing, for instance, is another fantastic tool that can provide your business greater access to markets, enhance capabilities and improve agility. Making use of these technologies can boost your interactions and collaboration globally, ultimately giving you a competitive edge. 4. Be ambitious: Cater to your local clients, but have a global business mindset. Get curious about potential clients and international markets. Research the capacity of your competitors at a global level - and create a working template.
5. Stay ahead of the technology curve: There has been a lot of emphasis on technology over the last decade - and with good reason. Emerging technologies can help your business not only gain a competitive edge, but also develop unique relationships with markets and customers. Moreover, these technologies can also bridge the gap between idea and execution, and convert genius innovations into market-ready enterprises with much ease.
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In order to grow your business, look for opportunities beyond your local market.
6. Get aware of the support systems: There are many schemes and support services available for SMEs that address business problems and offer sound solutions. Speak to government agencies and get involved within a group in your local community. The skills training platforms they provide can alleviate critical issues such as insufficient
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With fresh uncertainties and evolving market dynamics, it is imperative for you to continually re-examine your business.
knowledge of cash-flow systems, technology and sustainable growth. 7. Re-assess your business model: With fresh uncertainties and evolving market dynamics, it is imperative for you to continually re-examine your business. Do you need to find a new mechanism to attract customers? Or, is there a better way to utilise the capabilities of your workforce? See what works and what doesn’t. Consider ways to revamp your current business model. 8. Boost your production capacity: Streamline your processes to expand your production capacity; this will help you improve efficiency and increase revenue. From government agencies to external consultants, there are several ways to conduct a thorough review of your operations and processes.
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9. Expand into overseas markets: In order to grow your business, look for opportunities beyond your local market. Get educated about international standards, which is imperative to do trade in foreign markets. Staying compliant with these standards boosts the credibility of your brand which will help you compete overseas. 10. Invest in talent: There’s no doubt that talent is your company’s top-most asset. It’s a simple equation: investing in human capital raises the productivity of your business. Introduce education and training initiatives to improve the knowledge, skills and technical know-how of your workforce.
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SECURING THE FUTURE Mohammed Abukhater, Regional Director for the Middle East and North Africa, FireEye, discusses cyberattacks, threats to businesses and the way moving forward…
EDITOR’S PICKS 01. The region continues to be a hotbed of conflict and geopolitical complexities. 02. Moving into 2017, we expect there will be more actuarial data on the cost of breaches and the security products and technologies that are likely to be effective. 03. Organisations should protect users from themselves by ensuring macros are disabled by default, and training staff to never enable them unless they are required to operate on a known-good document.
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It has been said that “the future is uncertain,” but in the cyber security industry we know that certain types of attacks and crime will continue unabated. For more than a decade now, FireEye has been making predictions about the year ahead. While some of those predictions have come to fruition others such as ransomware, talent shortages and nation-state threats continue to be named as problems to expect when looking forward. Here’s a snapshot of what to expect in 2017 – 1. R ise in politically motivated attacks: The region continues to be a hotbed of conflict and geopolitical complexities. As such, we expect to see an increased number of politically motivated cyber operations, typically surrounding global or regional conflicts. With cyberspace reflective of real-world developments and another front for carrying out operations, it’s only a matter of time before governments and organisations get caught in the crossfire. 2. T he threat of financial cybercrimes: 2016 saw a notable incident in the form of a much-publicised hack against a major bank in Qatar. Furthermore, FireEye researchers detected hackers
probing the defences of various banks in the region, during the first week of May. The attacks appeared to use unique and deceptive scripts, with multiple emails containing macro-enabled Excel (XLS) files being sent to employees working in the Middle East banking sector – files capable of gathering information on the user’s system, including user and administration passwords, and software running on the bank’s computers. The EMEA experiences of 2016 around financial sector compromises, and continued focus of threat activity against relevant critical systems such as SWIFT, are a sobering reminder of the reach and capability of a determined and motivated cyber adversary. We will continue to see sophisticated financially motivated espionage actor groups focusing on these and other critical systems in 2017. Additionally, we will see credit and debit card fraud, illicit bank transfers, and ATM fraud. 3. T he skills gap will continue to be a concern: One other big concern for the EMEA region in 2017 is the talent shortage. This forces governments, private enterprises and security vendors to draw from the same talent pool,
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Organisations seeking to simplify everything in 2017 will set their sights on integration. SME ADVISOR
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often with governments “losing out” as they cannot offer the same types of benefits as the private enterprises. This is troubling because digitalisation is increasing in EMEA, with more communications, handling of sensitive information and storing of that data happening on the Internet rather than through filling out paper forms. If the public sector cannot find the right talent to protect that information and defend against other threats, governments will end up losing control of digitalised data. While one solution is to consider driving education in EMEA towards cyber security, another is for organisations to invest in automation. 4. A n organisational drive towards simplification and automation: Our discussions with CSOs and other security leaders throughout 2016 have a common theme: simplification. The past few years have seen organisations spending high dollar amounts on security technologies and other SME ADVISOR
infrastructure that either do not work well together, or require a great deal of effort and personnel to follow and address the myriad alerts. Organisations seeking to simplify everything in 2017 will set their sights on integration. A single pane of glass for all security needs will drastically improve the organisation’s security posture and show companies the true value of all the products they have acquired – something we refer to as security orchestration. Automation will likely enter the mainstream as we move into 2017. As the talent shortfall continues, the cyber security industry will see more and more innovation in the form of automation, which will help organisations react to attacks with minimal human intervention. Automation enables organisations to more efficiently address critical needs, which is particularly useful for enterprises that are struggling to keep pace with an escalating threat landscape and constant advances in
cyberattacks. We also expect automation to help address the problem of the talent shortage, a problem that will likely begin to get worse as more and more “things” become connected. 5. T he Internet of Things presents new opportunities for attackers: According to IDC, Internet of Things (IoT) spending in the Middle East is expected to reach US$ 3.2 billion in 2019. In general, the proliferation of cyberphysical systems and IoT will present new opportunities for adversaries to abuse their connectivity and cause disruption at scale for a bigger payoff. The combination of tools such as ransomware with more formalised illicit software-as-a-service franchised business models will become a more attractive and lucrative option for criminals with the proper skillsets and motivations. They will also help to lower the barrier to entry for criminals eager to reduce upfront costs and avoid pricey infrastructure setup. The growth in IoT
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devices provides a newly available slew of poorly protected or monitored devices that can be co-opted for malicious purposes. These range from enslaving IoT devices to launch distributed denialof-service (DDoS) attacks or serve as command and control hop points, to enabling network credential theft or remote access Trojan (RAT) malware distribution. 6. T he threat to critical infrastructure and ICS: On the heels of our Overload: Critical Lessons from 15 Years of ICS Vulnerabilities report, FireEye expects that threat actors will continue to focus on these critical systems in 2017. Most nations are heavily reliant on industrial control systems (ICS) for fundamental government services, utilities and commercial systems, yet our research in this report, and on the front lines of incident response and Red Team operations, highlight that these systems are usually poorly protected and often not patched. Perhaps most shocking is that security patches were not yet available for more than 30 per cent of identified vulnerabilities. Additional risks exist for countries that rely heavily on the resource and industry sector, as ICS also plays a critical role in large commercial field and mining operations. The lack of awareness of many industrial control system assets by relevant security personnel is worrying. These factors, coupled with the observed demand for vulnerable ICS systems by threat actors, will likely culminate in extortive and disruptive industrial system incidents across many countries and many ICS-reliant sectors in 2017, especially resource and heavy industry. 7. T he ransomware and macro malware menace will persist: Ransomware and information-stealing malware will continue to be a menace to enterprises
in the EMEA region in 2017. Ransomware activity continues to increase, likely due to low overhead and a high return on investment. While we expect ransomware attacks to continue in 2017, law enforcement has already made a dent in some groups by shutting down ransomware infrastructure and going after criminals. Law enforcement will continue to focus on this next year and for as long as it’s a problem. As organisations become more aware of the threat, they are taking action by creating and testing backups. They are also testing their security tools and controls to better prevent and detect ransomware. Another threat to watch out for is the rise in prevalence of macro-based malware. This in particular will keep switching to unexpected formats as an evasion technique. As mentioned before, we observed a major operation against banks in the Middle East, with the attackers using macro-based malware to compromise bank employees.
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The good news is that increased focus on secure operating systems and applications means consumers only have to perform basic security hygiene to remain reasonably protected.
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Enterprises will continue to be under attack in what seems to be an asymmetric battle.
Other formats not widely exploited, such as PPTM files created in Microsoft PowerPoint, could be the next focus for threat actors. We expect attackers to continue making their malware more stealthy and effective – a necessity given the success in security technology and vendor security controls. Organisations should be enforcing security awareness programs that aim to reduce the social engineering attack vector. Organisations should also focus some of their monitoring efforts on looking for anomalous user account activity. Finally, organisations should protect users from themselves by ensuring macros are disabled by default, and training staff to never enable them unless they are required to operate on a known-good document. The battle ahead Consumers must remain vigilant. The good news is that increased focus on secure operating systems and applications means consumers only have to perform basic security hygiene to remain reasonably protected. Other basic steps consumers can take to stay ahead of threats include enabling two-factor authentication on all of their systems and accounts, using password managers to protect their systems and accounts, and automatically backing up data in the event that they are affected by ransomware or their data becomes compromised by a threat actor. Enterprises on the other hand will continue to be under attack in what seems to be an asymmetric battle. According to IDC, 80 per cent of regional firms lack the tools to detect and assess threats, while 42 per cent say that cybersecurity solutions are not enough to manage cyber risks. One way to be prepared is to hold incident response table top exercises to simulate typical intrusion scenarios, thus exposing participants – such as executives, legal
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personnel and other staff – to incident response processes and concepts. One sobering thought is that the threat activity we expect to hear about in 2017 may be taking place right now, with adversaries already inside many of the systems and networks necessary to be in for them to achieve their mission. We know that most cyber threat actors operate within environments for many months before they are discovered, and in some instances for longer than a year. Therefore, most of the events that will make headlines in 2017 – and the many that won’t – are already underway. Finally, it is important to keep in mind that many organisations are still responding to cyberattacks from 2016. Moving into 2017, we expect there will be more actuarial data on the cost of breaches and the security products and technologies that are likely to be effective. This increased focus on numbers in 2016 will prove useful to the community at large. With this information, organisations will be able to make more informed decisions on what to protect, and how to protect it.
US$ 3.2 billion The amount of Internet of Things (IoT) spending in the Middle East in 2019.
80% of regional firms lack the tools to detect and assess threats.
42% say that cybersecurity solutions are not enough to manage cyber risks.
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TALENT DEVELOPMENT: A TOP PRIORITY FOR CIOs IN 2017 Ed Gabrys is the Dubai-based Research Director on the CIO Research Team at Gartner, which has interviewed hundreds of GCC CIOs for its 2016 CIO Agenda Survey. In the following article, he entails why talent pipeline, jobs for GCC nationals and career development programmes are vital for success in a digital economy…
S EDITOR’S PICKS 01. Gartner’s most recent GCC CIO Agenda shows the three key technology investment priorities have been in deploying business intelligence and data analytics, infrastructure and data centre, and cloud. 02. CIOs are leading digital transformation across organisations large and small, especially in managing delivery, talent and effective leadership. 03. With mega-events such as the World Expo 2020 and 2022 FIFA World Cup Qatar only about five years away, CIOs of GCC SMEs face increasing urgency to succeed, and talent development should be their key priority in 2017.
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MEs are the lifeblood of the GCC’s economy – comprising at least 80 per cent of the region’s organisations, driving technological innovation and absorbing the millennial workforce. But with the rapid rise in nationwide digital transformation, SMEs need to close the talent gap to succeed within this thriving digital economy. The GCC is ideally-positioned to be a global leader in digital transformation and innovation – across nationwide digital transformation plans such as Saudi Vision 2030 and UAE Vision 2021, Smart Cities, and mega-events from World Expo 2020 in Dubai to the 2022 FIFA World Cup Qatar. CIOs are leading digital transformation across organisations large and small, especially in managing delivery, talent and effective leadership. Over the past year, Gartner’s most recent GCC CIO Agenda shows the three key technology investment priorities have been in deploying business intelligence and data analytics, infrastructure and data centre, and cloud.
In the next five years, the Internet of Things era and digital ecosystem participation will intensify. Globally, CIOs expect digital revenues to grow from 16 per cent to 37 per cent. Gartner’s technology predictions show that the Internet of Things could save consumers and businesses US$ 1 trillion per year by 2022 in maintenance, services and consumables. Emerging innovations across sensors, maker machines, augmented humans, robotics, thinking machines and industry-specific applications are seeing increasing interest and take-up in the region. Talent gap increases in Internet of Things era But these new technologies can only see limited success without having the right talent in place to make sense of the data and deliver business insights. CIOs are reporting that the talent gap is the biggest barrier to achieving their objectives, especially for SMEs that need to succeed and scale up quickly.
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In our global survey of CIOs, more than one in five – 23 per cent – find that skills and resources is the top barrier to success. The biggest talent gaps are around information – data analytics, information security, and business knowledge and acumen, according to Gartner’s global survey. GCC CIOs are faced with many regionally unique talent management concerns, especially in building new technology, leadership and IT workforce capabilities. However, these grand aspirations are tempered by cost optimisation and reduction efforts driven by a continued slump in crude oil prices and a general global economic downturn. The resulting need to attract, develop and retain a skilled workforce is proving to be challenging for CIOs and IT leaders throughout the GCC. SMEs across the GCC face three broad challenges: how to plan for the profile of IT talent that meets business needs, how
to recruit top IT talent to build a highperforming IT organisation, and how to develop and retain an IT workforce to continually drive competitive advantage. Building effective talent pipeline is key for long-term success GCC CIOs are being increasingly challenged to ensure they have the right number of staff, with the right skills, in the right roles, at the right time. This is especially true for SMEs, which do not have the resources of multi-national enterprises that can bring in staff from global offices, and have more robust talent recruitment programmes. Increasing and rapidly changing digitalisation is making it more difficult to find individuals with the right skills and experience. The availability of qualified talent is being further restricted by nationalisation programmes and an
increasing desire to attract expatriate talent that has regional work experience. The imbalance in the growing number of demands for high-quality talent and the limited number of qualified candidates are giving those candidates more choices when looking for a job, and they are expecting more from prospective employers. The key to effective workforce planning is to build a talent pipeline that can effectively adapt to and support the changing direction of the business and its needs. However, most GCC CIO plans consist of little more than annual head count reviews and proposals for immediate and near-term staffing needs. This short-term approach to planning limits the ability to maintain a sustainable talent pipeline, and to meet the needs of IT, enterprise and national interests. A strategic workforce planning process provides a longer-term view and has significant benefits including a talent
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SMEs need to develop a comprehensive strategic workforce planning process, conduct a skills inventory, and create a framework to evaluate and prioritise investments in any technology asset portfolio.
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US$ 1 trillion/year The amount Internet of Things could save consumers and businesses by 2022 in maintenance, services and consumables.
23% CIOs find that skills and resources is the top barrier to success.
pipeline, increased IT credibility, improved productivity, morale, and retention of key staff, and the ability to develop and maintain a balance in skills, experience and national quotas. SMEs need to develop a comprehensive strategic workforce planning process, conduct a skills inventory, and create a framework to evaluate and prioritise investments in any technology asset portfolio. Job creation for nationals comes into focus GCC CIOs need to develop a targeted talent sourcing strategy to fulfil enterprise needs, and to meet regional government and regulatory demands. These external factors can dramatically influence the technology labour market, leading to a shortage of supply in skilled talent and an inability to meet hiring demands. Recognising that many of the workers in the GCC are expatriates, job creation for nationals remains a priority. And partnerships between the public, private,
and academic sectors continues to emphasize the importance for driving development of highly-skilled GCC nationals. This increasing demand for national workers — in combination with government restrictions for the expatriate market such as employment quotas, hiring and visa restrictions, employment bans and job category reservations — is amplifying the battle for talent in both public and privatesector enterprises. Throughout the GCC, competition for the most attractive talent often results in frustrating and lengthy bidding wars over titles and salary packages. Career development drives talent retention The quality of an IT organisation’s workforce is an indicator of its ability to execute on the enterprise strategy and to respond to change. The battle to attract talent extends to, and has an equal impact on, retention. The number one retention vehicle for IT professionals is career development. While SMEs may be hard-pressed to have formal SME ADVISOR
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career development programmes such as internships in place, it will become increasingly vital to attract and retain talent. A formal career development programme also helps manage the ongoing mismatch in supply and demand and resulting competition for your best talent. Gartner analysts’ conversations with GCC-based organisations that have had success in attracting and retaining talent find that they rely on formal career development programmes with defined career paths, have proper funding levels for training and development, and develop managers to effectively coach and mentor. With mega-events such as the World Expo 2020 and 2022 FIFA World Cup Qatar only about five years away, CIOs of GCC SMEs face increasing urgency to succeed, and talent development should be their key priority in 2017. SME ADVISOR
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GCC CIOs are being increasingly challenged to ensure they have the right number of staff, with the right skills, in the right roles, at the right time.
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