Fighting back

By Rebecca Goozee, Deputy Editor

As one of the Middle East's largest suppliers of plant machinery, the Kanoo Group has been a big beneficiary of the region's recent construction boom. Even now, in the face of the global credit crisis, Mishal Kanoo – Deputy Chairman of the multibillion-dollar business – is confidently forging ahead with plans for strategic growth. Can he continue his success story?

“Some property development projects will be frozen or stretched out, although infrastructure projects such as power or desalination plants must go through because the region needs and is expecting both”
-Mishal Kanoo

As one of the most publicly outspoken Arab business leaders in the region, Mishal Kanoo’s views on the impact of the global credit crunch on the Middle East are well-known. With predictions of a stock market crash in the Gulf and the collapse of the region’s property market, you would be forgiven for thinking that Kanoo has a rather pessimistic outlook on the economy. “I’ve been criticised for my negative point of view,” says Kanoo, “but I’m simply looking at all the factors. As far as finance is concerned, when you’ve seen the biggest insurance company in the world be bailed out by the US government and the fourth largest investment bank, Lehman Brothers, go under, how can you be surprised to see this affect business all over the world?”

Kanoo’s realistic, if gloomy, outlook on the future economy of the region is surprising considering that his own firm has enjoyed over a century of success. The Kanoo Group is one of the largest family-owned firms in the Gulf and spans industries ranging from machinery, oil, gas and industrial chemicals to shipping and travel. Established in Bahrain in 1890 by Haki Yusuf Bin Ahmed Kanoo, the company grew from its early trading and shipping concerns to become one of the most diversified and highly regarded businesses in the Middle East region, and is now a multibillion-dollar company.

While he admits that the firm has fared well extremely well over its 119-year history, Kanoo, mastermind of the group’s operational division, is keen to point out that with international companies falling faster than ever before, now is a worrying time for each and every business – regardless of their size or the length of time that they have been around. He cites other international companies that are teetering on the brink of collapse, including Costain, a large British construction company that has been operating for over 100 years, as a warning. “There are situations in Europe and the US with companies closing down and going bankrupt, and we’ve had a few in the Middle East – the same thing is undoubtedly happening here. It would be unacceptable and reprehensible for anyone to say that those things are happening in isolation and it has nothing to do with us, that we will not be affected.”

For one thing, capital is not as readily available as it has been in recent years. “You’re not going to get the free flowing money that was in the past,” he continues. “Just try getting a loan and you’ll see that banks are becoming very stringent and fearful of what’s going to happen in the future, and while that is right – that’s their line of business, after all – there will undoubtedly be a huge impact on economic activity everywhere.”

Slow down
And it’s not just about future business either. Kanoo points out the affect that the financial crisis has already had on the economy, highlighting a significant slowdown on expansion plans and on international business entering the region. As one of the Middle East’s biggest suppliers of plant machinery, the group has benefited from the region’s recent construction boom. So, as the global credit crunch continues, how does Kanoo expect the region’s infrastructure sector to react?

“I think some property development projects will be frozen or stretched out, although infrastructure projects such as power or desalination plants must go through no matter what happens because the region needs and is expecting both. I would say depending on what kinds of units a company provides, certain types of project will be in demand while others will have to wait out the next few months and see if demand starts to pick up again,” he says.  

Indeed, repercussions from the burst in the real estate bubble since the fourth quarter of 2008 have put the brakes on the region’s infrastructure boom as investors become more cautious. The financial strain has meant that projects, particularly in Dubai, are either being put on hold, such as the Dubai racecourse project, the Trump International Hotel and Tower, and the Universe; or being cancelled, such as Bahrain’s US$1 billion Salam resort and the Falcon City of Wonders project within the Dubailand development. A recent report claims that US$75 billion worth of construction projects in the UAE alone have been suspended or cancelled, with most being high-end residential and commercial projects. However, despite the growing number of delays and cancellations there are pockets of activity, including the Concourse Three award and tenders for Nakheel’s Tall Tower, together with other tenders for projects by Meraas and the Dubai International Financial Centre. It suggests that a number of projects will go ahead despite the downturn.  

While Kanoo believes that there is undoubtedly a credit crisis in the Middle East, he explains that before making any decisions to cut back or switch outlook, the Kanoo Group works hard to understand the factors that influence the market. “If the market factors demonstrate that there is a huge decline, then obviously we would have to cut back on things that would not sell,” he explains. “But if the market, for some strange reason, ends up being robust and actually continues to grow then it would be mad to curtail what’s really benefiting you.”      

Expansion
To that end, the Kanoo Group is forging ahead with steady regional growth despite fears created by the global credit crisis. Kanoo Machinery, for example, is strengthening its presence in the UAE by building two new purpose-built office, warehouse and product support facilities in Dubai’s Jebel Ali Free Zone and Mussaffah, Abu Dhabi. This follows the recent opening of new branches in Sharjah and Ras Al Khaimah, catering to the growing activity in the northern emirates.

“For us, expansion is not an issue,” says Kanoo. “We look at the long-term outlook versus the short-term. We identify the companies that we can best partner with in strategic outlook and make sure the partnership is a good fit for both parties. In other words, while we acknowledge that there are short-term difficulties, we are confident that, inshallah, the long-term outlook is better, so we look toward that.”

The Kanoo Group spans many business lines, and while Kanoo is certain that the company will not be diversifying any further, he does acknowledge that the firm operates in many areas of expertise and that perhaps the group could expand further along the lines of existing businesses rather than setting up whole new entities. “What we’ve managed to do so far is to piggyback off our expertise, so we’ve expanded into areas that are part and parcel of our core business,” he says.

Kanoo is keen to highlight the focus that the group has on the industrial side of the business. “One of the main reasons we focus on the industrial side of things is that it is one of the hardest types of businesses to get up and running,” he explains. “When it’s up and running with the right partner it is very rewarding, not only financially but socially – when you help create something that you can pinpoint and say that we’ve helped to do this for the company, there is a fantastically rewarding aspect to it.”

And in that vein the Kanoo Group has acquired a 50 percent majority share in the Dubai-based golf course and landscaping product and service supplier Hydroturf. Hydroturf represents a number of landscape-related brands including Toro Irrigation and Turfcare equipment, and it also has an in-house landscape contracting business, and nurseries in the UAE and Saudi Arabia. The company has worked on numerous projects including the Emirates Palace Hotel and Abu Dhabi Golf Club, and Dubai Municipality and Arabian Ranches in elsewhere in the UAE.

Kanoo believes the company will provide a good fit with the group’s portfolio. “We think that industrial landscaping is going to blossom, pardon the pun,” laughs Kanoo. “The governments of Dubai and Abu Dhabi, for example, are focusing on beautifying the city, and therefore this move makes sense to us.”

Infrastructure drivers
Indeed, despite the slowdown, it seems that the plant, machinery and vehicles industry may be poised for unprecedented success over the next few years – more good news for Kanoo. The recent boom has seen the cost of materials increase dramatically, with cement soaring by 50 percent and steel surging up to 70 percent. In addition, 250,000 illegal labourers left the country in 2007 to take advantage of a government amnesty programme, leaving the construction industry facing labour shortages throughout 2008. As a result, contractors are looking for more efficient practices and approaches to the building process – particularly given the fact that the construction sector is now cooling off and more projects are being postponed or cancelled. Achieving maximum returns in a slowing economy is now paramount, which means more contractors are revisiting their machinery and technology choices in order to ensure operations are as efficient as possible.

“This is a normal reaction to what’s happening,” explains Kanoo, playing down the potential significance for the group’s machinery business. “The days of excess are over, and companies are simply assessing what’s in their best interest.”

And as the industry begins to evolve and looks towards becoming more efficient, the Kanoo Group recently took steps to improve the quality of its own work, having applied to be assessed for the use of the Dubai Quality Mark standards in partnership with Dubai Industrial City. The Dubai Quality Mark specifies the requirements for implementing the integrated management system framework. The model is based on international quality, health safety and environment management standards and applicable manufacturing best practices. “The Dubai Quality Mark will push us to go further, which will benefit our customers,” says Kanoo.

As the company and its many divisions grow, Kanoo feels it becomes increasingly important to be able to assess operations correctly to ensure the firm continues to grow well and in the right way. In 2008, Julian Knott was appointed as Divisional Manager of Development and Re-Engineering, to conduct an overview of the way business was run. “An organisation becomes content with itself to a certain degree,” explains Kanoo. “But if you bring eyes in from outside, in this case Julian, who have seen it from a different aspect, they can have a better assessment as to whether we are moving in the right direction. This will benefit our customers, and at the end of the day, we live and die by our customers.”

Challenges

Kanoo foresees the biggest infrastructure challenges facing the machinery and construction industry revolving around finance and liquidity. “If banks don’t supply the cash through financing or lending, both short and long-term, then the industry cannot provide equipment needed for the projects. Most banks are wary about lending money to companies who will default and this is stopping them from properly assessing the opportunities that the banks will have to make money. The credit crunch is slowly beginning to ease as banks start to realise that they are in the business of lending and must start lending to credible companies. As this thought sinks in, they will lend to companies with good track records and that will ease the situation further. As for the Kanoo Group, we are fortunate to have great banks that have worked with us. It takes years to build up a reputation and just seconds to destroy it.”

Secondly, Kanoo believes that the continuing problems around recruiting and retaining staff is a huge problem that will remain so as long as people are willing to pay ridiculous wages. “If people are willing to pay silly money then you will see people bounce from one job to another. In order to retain people you need a couple of things; one, you have to be fair and just with them; and two, you have to be open with them. However, being fair and just is a two-way street, and if they are not fair and just with you, you don’t really want them working with you.

“If I want to be fair and just with my employees, I want to give them a fair salary and a good livelihood for them and their families. I also want to make sure that they have an environment where they are treated fairly and properly, and it’s not, as in some cases I have seen, where one nationality wins out over the others.”

Kanoo Machinery

Since its inception over 40 years ago, Kanoo Machinery has grown to become one of the foremost materials handling equipment distributors in the Gulf, offering a cross-border seamless service. Kanoo Machinery provides its services to all sectors of the industry, offering a wide range of equipment and consumables from the world’s leading manufacturers of welding, grinding, materials handling and maintenance products. In addition, Kanoo Machinery offers a full after-sales service through a network of workshops, parts and mobile service facilities throughout the Gulf and Arabian Peninsula.

Dubai Industrial City

Dubai Industrial City (DI), a member of Tatweer, was set up on 560 million square feet of land, with the aim of catalysing the growth and expansion of the industrial sector in Dubai, particularly in the high value-added manufacturing and production in the light and medium industry sector.

DI features six dedicated manufacturing sectors for machinery and mechanical equipment, transport equipment and parts, base metal, chemicals, food and beverage, and mineral products.

Considered the emirate’s first dedicated and comprehensive industrial destination designed as a custom-built one-stop shop for industries on a work, live, play model, DI provides one of the region’s finest business environments as it offers world class facilities for industries and related sectors, such as logistics, assembly and warehousing, vocational training and staff accommodation.