AUSPC2011: Business, Investment and Financial Development

Published: November 3, 2011

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Editor’s Note:

At the 2010 Arab-US Policymakers Conference, organized by the National Council on U.S.-Arab Relations, former U.S. Ambassador to Saudi Arabia Ford Fraker shared his perspective as a long-time veteran of Middle East business, investment and finance, in his assessment of the market in the region, especially Saudi Arabia:

“..if you are a company with international aspirations and you are not looking at the Middle East then you are missing the opportunity of the decade if not the next three decades. Having been involved in finance and investments in the Middle East for over 35 years I have never seen a better time to come do business in the region. The obvious reason is that all the governments are spending lots of money. All the GCC countries are embarking on large development programs and in the case of Saudi Arabia it is massive. A trillion dollars of projects have been announced in Saudi alone. So when you add Qatar, the UAE, Kuwait and Oman as well there have never been more opportunities for foreign companies to win contracts and do business.”

This year Ambassador Fraker, currently Senior Advisor to Kohlberg Kravis Roberts & Co (KKR), returned to update his upbeat assessment of the business climate in the region alongside a panel of professionals who know the market and how to get business done in the Middle East: Michael Markland of Morgan Stanely in Dubai; Joseph LeBaron of Patton Boggs and former Ambassador to Qatar; Danny Sebright, US-UAE Business Council President and Lionel Johnson of the U.S. Chamber of Commerce.

SUSRIS is pleased to add this report from the “Business, Investment and Financial Development Dynamics and Prospects” panel to our collection of 2011 Arab-US Policymakers Conference reports and to share it here with you today. More panel reports will be distributed in coming days. You can find them all on the SUSRIS Special Section at this link. SUSRIS is also pleased to provide, separately, our exclusive interview with Ambassador Fraker who talked in greater detail about US-Saudi relations, business, and more. It can be found at this link, and through the Special Section.

We hope you find these reports help and that you will share them with your friends and colleagues and suggest that they subscribe to the SUSRIS email service at this link.

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Arab-US Policymakers Conference
Washington, DC
October 28, 2011

Business, Investment, and Financial Development Dynamics and Prospects

Chair:
Mr. Michael Markland – Vice President for Private Wealth Management, Morgan Stanley (Dubai)
Speakers:
Ambassador Ford Fraker – Senior Adviser and Chairman for the Middle East and North Africa Group, Kohlberg Kravis Roberts & Co. L.P.; former US Ambassador to Saudi Arabia
Ambassador Joseph LeBaron – Senior Adviser, Patton Boggs, LLP; former US Ambassador to Qatar and Mauritania
Mr. Danny Sebright – President, US-UAE Business Council
Mr. Lionel C. Johnson – Vice President, Middle East and North Africa Affairs, US Chamber of Commerce

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[Dr. John Duke Anthony] Ladies and gentlemen, we will now shift to the marketplace. It has often been said that America has no ideology as such but the closest thing to it would be that the business of America of business.

So increasingly there is this focus on the tightening of the relationships in the realm of material well-being and economic growth in this region’s linkage to global prospects for security, stability, peace and prosperity. And so all of our participants in this session have intense and extensive experiences lasting cumulatively substantially more than a century on issues pertaining to trade, investment, technology, cooperation, financial markets, currencies and the like.

Mr. Michael Markland, Dr. Joseph Moynihan and Dr. John Duke Anthony at the AUSPC2011 Business Panel. (Photo: SUSRIS)

Michael Markland is the chair of this session and we are pleased to have him play this role. He was a superb briefer to a delegation of United States Naval Academy Midshipman to the United Arab Emirates in the past year.

He lives in the region based in Dubai as the senior member of Morgan Stanley’s Profit Wealth Management. And I have been quite impressed with the use of these words to describe individuals who are making out quite well in terms of their pocketbooks and purses. Another phrase we used to use were people of independent means. And a third one that we would use that applies, perhaps to none here, would be of high net worth. But he is involved in private wealth management. It means the same as the other two things there. He has his bachelors from Wabash College, his masters in Business Administration from Fontainebleau in France. Michael Markland.

[Mr. Michael Markland] Thank you, Dr. Anthony. Your excellencies, ladies and gentlemen. Good morning. Welcome to our first session on business investment, financial development dynamics within the Middle East.

I would like to thank you, Dr. Anthony and the board as well as the rest of the council for giving me the opportunity to participate in this important dialogue. I also must add that any comments that I make here today are in my own personal capacity in that the comments and opinions I say are not necessarily those of Morgan Stanley.

My name is Michael Markland. It has been my pleasure to live in the Middle East, in Dubai for over ten years and to be active in the region since 1993. In capacities outside of private wealth management I have been an adviser to families and governments as a confidante for quite some time and it has been a pleasure and an honor to be welcomed into the region.

Morgan Stanley is clearly, obviously very interested in business in the region. We have been active with clients there for over thirty years, and have had a base in Dubai, Riyadh, Doha and Cairo since 2006. And as the leading investment banking and institutional brokerage and wealth management franchise we are clearly bullish on the prospects of working within the Middle East and supporting its continued development and connecting our clients to people, capital and ideas within the region and around the world.

The defining characteristic of this panel is that we are all professional bridge builders in perhaps one of the most direct and pragmatic ways in that we also tend to be very optimistic as a whole about the prospects even though we are very realistic about the challenges that are faced within the region and the shifting environment in a number of different ways.

So in no way do we seek to diminish the real and substantial challenges that are facing the region and that is especially true for investors and businessmen who by and large look to mitigate risk at every turn. The Middle East, whether in the Levant, in the Maghreb or in the Gulf, is definitely not for the faint of heart or thin skinned. Yet what draws me and many of the people in the room and many of the business colleagues that I associate with, is that there are very few regions in the world where the possibilities are so wide with the volatility of the situation is so deep in the spectrum of possibility. The Arab world is clearly in a unique space in a unique time.

So today I have the honor and privilege of sharing the stage with some of the top practitioners in business, finance and commerce in the region, men operating at the core of our topic, and I am sure you are all eager to hear their perspectives.

It is my pleasure to introduce, as our first panelist, Ambassador Ford Fraker. Ambassador Fraker served as the Ambassador to the Kingdom of Saudi Arabia between 2007 and 2009, spanning both the Bush and the Obama administrations. He has more than 30 year experience in finance and banking in the Middle East. Ambassador Fraker currently serves as the Senior Advisor for KKR and the chairmen for the Middle East and North Africa for KKR. He is also senior advisor to Trinity Group Limited and is a member of the Middle East Advisory Board for the Royal Bank of Scotland.

Our second panelist is Ambassador Joseph LeBaron. Ambassador LeBaron served as the US Ambassador to the State of Qatar between 2008- 2011 and was the Ambassador to the Islamic Republic of Mauritania between 2003 and 2006. He also served in a number of political advisory appointments with the US military and the special operations command at MacDill Air Force Base in Florida. His early assignments in the diplomatic corps included the Deputy Chief of Mission in Bahrain as well as well as the Counsel General in Dubai.

Our third panelist is Danny Sebright who is the President of the US-UAE Business Council and he is a leading advocate for the commercial relationships and expanding business opportunities between the two countries. Since 2002 Mr. Sebright held the position of Vice President at the Cohen Group, an international strategic consultancy led by former Secretary of Defense William Cohen. Previously Mr. Sebright served in a number of capacities for the US Department of Defense and the Defense Intelligence Agency where he was awarded many numerous distinctions.

Lionel Johnson is our final panelist. And thank you again Mr. Johnson for joining our panel on short notice. Mr. Johnson is Vice President of Middle East Affairs at the US Chamber of Commerce. His career spans more than 28 years during which he has become a leader in international business, public policy and economic development. As senior Vice President of Public Affairs at Fleishman Hillard, Mr Johnson advised Fortune 500 corporate clients, trade associations and foreign governments. He has also held the position of Vice President and Director of International Government affairs at Citigroup.

Given the time constraints and changes in the program today and the richness of the topic and the extensive experience of the panel we have asked to panel to limit their initial comments to five to eight minutes then we will open up Q and A.

Gentlemen, again thank you for your time. And Ambassador Fraker if I could turn the floor to you so you can share with us that against the current policy backdrop and political environment how do you define the business and investment opportunity in the Middle East? Thank you.

Ambassador Ford Fraker and Ambassador Joseph LeBaron at the AUSPC2011 Business Panel. (Photo: SUSRIS)

[Ambassador Ford Fraker] Thank you Michael, good morning everyone. I would like to thank John Duke Anthony and the Council for inviting me back once again. It’s great to be here, and congratulations again on your anniversary. It’s a great event.

You know, I’m delighted actually to be standing here, having listened to all the comments yesterday, standing here not wearing a diplomatic or a foreign policy hat. The news in the Gulf area in particular on the commercial side is good news, and I think yesterday might have been the “Bad News Bears” and we will be the “Good News Bears” today.

When I began as a banker in the region I had the pleasure of experiencing, certainly in Saudi Arabia, the first boom in the late 70s and the early 80s, which we described then as the infrastructure boom. It was when a lot of the roads airports and buildings in the Kingdom and throughout the Gulf got built.

You had the beginning of the real development certainly in Riyadh with the move from Jeddah to Riyadh for many embassies, the diplomatic community and many of the businesses. And then when I returned as Ambassador in ’07, I was able to participate from that perspective in what we called the “second big boom” in Saudi Arabia.

One of the messages I used to deliver on a regular basis to U.S. businesses was that if you were an international business with aspirations for growth internationally and you weren’t looking at the market in the Gulf then you were missing the opportunity of the decade if not the next three decades. In my many years of experience of doing business in the region, it was always the case that if people actually got on airplanes and came out to the region you would leave more positive than when you arrived. So half the battle was just getting people to come out and see what the opportunities were. And we think that that remains the case very much today.

Many of you have seen the announcements about the extensive development programs that have been announced in Saudi Arabia, and in the Gulf and elsewhere. These are huge programs, and huge opportunities for business people. So over thirty years the message has not changed and it is to buy your airplane ticket and come out to the region and see the opportunities.

Just to offer up two numbers, the first is about a trillion and half dollars worth of programs just in the kingdom alone. In 2008 we undertook an exercise within the embassy to add up what all the programs were that had been announced for Saudi Arabia, and at that point we reached a trillion dollars. That’s a trillion dollars worth of programs that were to be undertaken over the next ten years.

This is a massive undertaking. Since the Arab Spring and the more recent announcement of development programs, not just in Saudi Arabia but in Kuwait and the UAE, that number has grown enormously. So that is the size of the opportunity in the region. So again the message is the same: come out, if there are any business people here, I’m not sure there are, I won’t ask for hands, but I hope you are listening to that message.

In terms of how KKR is responding to this opportunity we’ve become the first global private equity firm to be licensed by the Capital Markets Authority in Saudi Arabia to undertake our business there. We are very proud of that fact, and it shows the firms commitment to what we believe is an enormous opportunity, and our approach is three-fold.

Number one. We have money to invest. So we are looking for good investment opportunities. We are looking to development strong partnerships and relationships., and provide development and growth capital to good companies in the region.

Number two. We have about 63 portfolios companies that the firm has already invested in. Some of them do business in the Middle East but should do more. Others don’t do business but would like to. And the rest of the group have never heard about the Middle East so we have an education process to do with them. But concentrating on the first two groups we put programs together to bring these companies to the region to introduce them to local groups who they can partner with, joint venture with, create distribution arrangements with etcetera. So we think that’s a terrific opportunity.

And then lastly, for the last 50 years the region has been a net exporter of capital. We’re a large private equity group. We are a veracious user of capital so we are always raising money in the region. So we find when we sit in front of people one of those three themes usually resonates, often its more than just one. So we’re very bullish on the region. I think most of my colleagues here will echo those sentiments and its always nice to come to these meetings with good news. Thank you very much.

[Markland] Thank you very much for your comments Ambassador Fraker. Ambassador LeBaron.

[Ambassador Joseph LeBaron] Building on what Michael Markland said about his organization, the views I am about to express are not the views of Patton Boggs. I have to warn you that they may not be my views in an hour or so. Depends on what people say.

It reminds me of a story of what Zbigniew Brzezinski was asked by an interviewer, if he wrote fiction. This is when he was National Security Advisor. He said, “It depends on how you view my academic work.” Now that we set the bar, let me say when I last spoke to the National Council in April it was quite literally the spring of the Arab awakening. I talked then about the different immediate responses to the Arab spring that I had seen by policy community of the executive branch of government, by the defense community, by the business community and by NGOs, the civil society.

The language differed among these different communities but the focus that was common, the focus that I detected, was on risk, but expressed in different ways. Safety of employees by business firms, safety of assets, capital repatriation. The military talked about force protection. The US government was concerned about the safety of its diplomats and so on. I want to extend in my eight minutes today the comments today that I made then about risk.

One indirect measure of risk in the business world is that of Foreign Direct Investment, the rate of Foreign Direct Investment. And the flow of Foreign Direct Investment from the United States and elsewhere in the world into the Arab world after the Arab spring is declining.

The expectation is the decline of about 17% in this calendar year. Now economists are divided about the role that FDI plays in economic growth, but the rate of economic growth is also declining as the projected growth in that. In October 2010 the IMF had projected an expected growth rate for the region in 2011 of 5.1%. It’s now 4 %, and 3.6% expected in 2012.

So why is FDI and growth rates, why are these important? And why am I even mentioning them? I am because if there is one thing that the Arab spring has taught us it is this, that the MENA region and instability in the MENA region is as much about economics as it is politics.

One can argue in fact that in Tunis and in Cairo, in Egypt and Tunisia the underlying issues were economic — high prices coupled with high unemployment, up to 30% in some cases. That suggests to me that political reform in and of itself is not a solution to the issues the challenges before the MENA region. That what will solve these problems involves economic policy, economic growth, better governance. If we are to solve these problems, meet the challenges, take advantage of the opportunities provided and since this is a policymakers conference let me focus on policy.

What is to be done by policymakers, both here in the US and in the MENA region? I have some suggestions.

For the first group, take immediate stronger action to help the private sector, corporations deal with the political risk that has led to the decline in foreign direct investment inflows. Now how do you do that? You step up the activities of the Ex-Im Bank that assists US companies large and small in the financing export of US goods and services to the international market. And OPIC which is focused on investors, the Overseas Private Investment Corporation is the development finance institution of the United States and it provides these kinds of financial guarantees, political risk insurance that we need more of in order to help offset the sense of increased risk in the region.

There is also the World Bank, and the multilateral investment group agency there that insures against political risk as well — expropriation, war, terrorism, civil disturbances. These kinds of insurance premiums against political risk are increasingly important in the aftermath of the Arab spring.

I have a related suggestion for the policymakers in the MENA region, principally in the GCC states. And the risk is not great in most of the GCC states. Yet the risk of, the political risk that the US business community has about risk in the region is not differentiated so that what I have detected is that the risk associated with North Africa is the same degree of political risk associated with the GCC states or the Levant. There is very little differentiation made.

So the GCC states should create a political risk insurance program that they could sell to private companies that would offset this sense of risk in the region for companies that wish to engage. I think the cost of the program would be low because the sense of risk is so high by US business that you could have a fairly high premium that would be pocketed because the payout on those claims would not be very great.

Finally, US and GCC policymakers, together, should engage in new partnerships to fund and administer assistance programs to countries such as Egypt and Tunisia.

We need to get away from the old model in which the US government approached the GCC states as donors. It’s long ago been eclipsed by the reality and that they should become partners. And there is a huge difference between approaching these states as donors writing checks, and approaching them as partners.

There is a new program that the US government started in cooperation with the business community in the United States. It’s called Partners for a New Beginning. It could be a start for this kind of collaboration of partners involving the GCC states and the United States, the private and the public sector joining together, building on President Obama’s speech in Cairo in June of 2009. Focused on creating economic opportunity, jobs, focusing on the forces that brought us in a very real way the Arab spring in a sense to which they were at least economic.

Qatar should be such a partner. They already have a very active program through the Qatar Foundation focused on creating job opportunities for Arab youth. There are pilot project underway in Morocco and in Yemen. And this I would submit to you is a very important focus collectively of policy makers both in the MENA region, principally the GCC states and the United States. I’ll leave it at that point. I think the future is bright but the business community willing to take the risk mitigated by the kinds of actions that I propose. Thank you very much.

[Markland] Thank you Ambassador LeBaron. Danny Sebright, President of the US-UAE Business Council.

Amb Ford Fraker, Amb Joseph LeBaron, Mr. Danny Sebright and Mr. Lionel Johnson on the AUSPC2011 Business panel. (Photo: SUSRIS)

[Mr. Danny Sebright] Good morning, ladies and gentlemen. I know this as was stated this was a policymakers forum, but given the list of companies that are up there on the banner I think I‘ll talk a little bit to the business folks in the room and how government can help them if I can.

It’s an honor to be here today and I am grateful to the National Council on US-Arab Relations and Dr. Anthony, in particular, for extending the invitation to join the panel. Thank you.

I have worked in the public sector and the private sector in the Middle East and in my years of experience I have gained a fair understanding of the commercial dynamics in the region. I just returned this week from the World Economic Forum in Oman and I hope to discuss with you a few pressing regional business related issues that are also facing the region broadly, not just specifically to the UAE.

First let me reiterate that the population in the Middle East is a relatively young population. We have all heard the discussion about the demographic challenges that the region faces. They are real and they are with us.

According to the International Monetary Fund, around sixty percent of the region’s population is under 30 today. I had very close friend in Oman quote me that in Saudi Arabia today 80% of the women are under the age of 24 and don’t have a job. This is a huge demographic time bomb across the region that we all face.

This dynamic presents an opportunity for US and foreign firms, to provide leadership, education, training, and occupational development for the region’s future leaders. Additionally regional unemployment is the highest in the world in this region with the latest projection hovering around 25%. Firms looking to invest and grow in the region who are eager to hire and train local human capital will benefit from the supportive governments there, looking to decrease local unemployment and build sustainable workforces for the future in a number of business verticals.

One such country in the region is actively reforming its business climate and presenting an attractive business case for foreign investment and partnership is, of course, the United Arab Emirates. In an effort to build a sustainable and diversified economy the leadership of the country has developed the UAE Vision 2021 economic development plan and the Abu Dhabi economic plan 2030. I raise these two plans because they are actually representative of things going on in other countries in the region just with different titles, and I want to talk about that just for a second.

These plans in the UAE outline for the economic diversification of the Emirates, key sectors that are priorities in their development, and there are seven: commercial aerospace and defense, energy including renewables, civilian nuclear and oil and gas, infrastructure development and green build, tourism and culture, education, media and healthcare.

These are the seven pillars of development that the UAE has focused on and I would argue that they are very similar as I said in Saudi and Qatar and Kuwait and other countries in the Gulf. Each of these sectors presents and opportunity for American commercial partnership and investment over the next few decades, as commerce assumes a bigger role in the overall US-UAE relationship and the relationship of other countries in the region.

From my perspective at the business council let me offer you a few common mistakes made by American companies looking to invest and to do business in the region today. A fundamental mistake that many American companies make is not taking the time to connect with their potential business partners and build relationships necessary to sustain long-term business. Some US and European companies are tagged with only wanting the quick transaction in the region believing they can arrive on Tuesday, sign the deal on Wednesday and leave the same evening. These days are long gone, ladies and gentlemen. As most of you know business is done differently in the region than it is in the States, or in Europe or in Asia. Plain and simple the Emirates, Saudi Arabia, Qatar, Kuwait — others in the region — regard personal trust and friendship as a key component of the commercial and financial process.

Another common mistake made by American firms is to paint all Middle Eastern countries with the same brush, and without taking the time to understand the cultural and political differences between the countries, or even within the countries, the differences that may exist in different regions. Illustrating a respect and understanding of the local structure and regional dynamics can prove beneficial to American firms as they decide how to organize the regional business model.

I would like to conclude with another insight or two that I gained at the WEF meetings this weekend regarding inter-Arab investment. Given the financial conditions in the world and the United States, the UAE and other Middle Eastern countries have narrowed their foreign investment focus more recently to primarily the Middle East and North Africa, the broader region from Morocco to Malaysia.

As the countries in the region turn their focus increasingly inward it is in the interest of the US and other Western governments to reform foreign trade regulations and encourage the cultivation of Foreign Direct Investment and partnership with these countries. Ambassador LeBaron offered some excellent suggestions and I took note of all of them.

Many of the countries will spend billions of dollars not only in their own countries in the years ahead but also on the development of their neighbors, and this is a very, very important new development. US companies should be well positioned to be partners in this development not only as it were in the UAE or Saudi but in North Africa with the US or Saudi or Qatar.

I want to make one last note about the strong support that we get and that I think others in the room get from their US missions in the region, from the US ambassador all the way down to the US Foreign Commercial Service. This is really, really important to US companies and those of you that don’t take advantage of what the embassies, both local, our embassies in the local countries and the foreign embassies in the US, if you don’t take advantage of those services and make sure that those officials know what you are trying to pursue and get their advice and get their insights you are missing a very valuable piece of your business process.

Thank you very much.

[Markland] Thank you, Danny. Mr. Johnson

[Mr. Lionel Johnson] Thank you again for inviting me to join you. It is a pleasure to be with you this morning. Thanks to the National Council for including the US Chamber among your program participants. We are delighted to be a sponsor as well.

As the last speaker on the panel I do not want to not run the risk of repeating some of the points that some of my colleagues have made, all excellent points about the importance of the business community, the private sector, US engagement in this very important and dynamic region.

I will say and it’s an obvious point that US businesses have been involved and engaged in the Middle East and North Africa for decades. It is now however a region that is dramatically transforming and the opportunities that are now appearing are those that we never expected just several months ago when I assumed this job.

US companies now operating in regions of transition, countries in transition have an opportunity to support the process of reform and with more transparent and accountable governance that will hopefully follow we can enable these countries these new governments and the societies to experience what I believe is important in terms of long term more broad based economic growth, to enable more members of these societies to benefit from these transitions and also to benefit from globalization more than they ever have before.

For the private sector I think we have essentially three great challenges in operating in this new environment.

First, is to think differently about this region. We need to retool our organizations and our companies to take full advantage of new and unprecedented opportunities for investment in the region, and while ensuring at the same time that our investments and our business activities actually support meaningful job creation and support the process of reform as well as those who are pushing for reform.

We can pursue business opportunities in this region while not appearing to be opportunistic. We need to be partners for development with these new governments that are coming to office for the long term. And the winning companies will be the ones that can see the region and a generation of young educated people as partners in creating a new environment for private sector led growth and creating desperately needed 21st century jobs across the region.

Second, I think that US companies need to develop a regional perspective, and as Danny just said, given the fragmented nature of the region we have often dealt with these countries in a bilateral sense. I think we now need to take stock of what we have learned from the “Arab Awakening” and that there is probably less importance today of borders and boundaries and given the revolution of telecommunications that have actually helped to fuel some of these transitions. I think that we need to recognize the importance of technology in connecting and bringing people together in this dramatically new period.

US companies, therefore, have to look more holistically at the mechanics of international commerce including things like supply chains, raw materials, manufacturing and innovations. These new tools can bring down even further the barriers that have kept apart the societies of the region, and that what are hopefully our policies and our business engagement can do is to create more interaction, more intra regional trade and investment and commercial activity that will be beneficial not only for the region but for our companies as we operate as multinational companies throughout the region.

At the US Chamber of Commerce we too are retooling our organization and our programs to deal with these new opportunities and to address many of the cross cutting policy concerns and actually be responsive to the degree that we can to what governments themselves are telling us are their priorities. And here I say be partners for development and in this regard in December 12th and 13th we are working with governments of Egypt, Tunisia and Libya to begin to focus on the element of development that they have all told us is the most important for them in the near term, job creation. And by looking at their tourism industries we are going to put together a project that will have an inaugural conference on the 12th and 13th of December, but a 12 month program working in partnership with each one of these governments to support the process of advancing their tourism industries for the purpose of development.

Third, the events of the past week in Libya have demonstrated that the transformations that are under way are not yet over, and that the transition may be in transition for some time. And while some companies have rushed into the region to pursue opportunities others have been more cautious, assessing risk, assessing just what the possibilities might be. But with companies that we have in our membership, I am sure that our colleagues here working with that have a pioneering spirit, they will be those who will be partners with these new governments and these private sectors for development and economic growth. And with that pioneering spirit that American companies have always had I think that there is a large possibility for success across the region, not just in individual markets. And that is our great challenge that we are pursuing problematically at the Chamber in partnership with the National Council and other organizations here and I think that is ultimately going to solidify the role of the private sector across the region as the engine of long-term, sustainable and broad based economic growth for the region’s peoples.

Thank you.

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[Anthony] Now at the Q&A session we have many questions that have been forwarded but we are going to have the honor of Dr. Joseph Moynihan a genuine business person, in addition to being the Chairman of the National Council’s Board of Directors ask those questions.

[Dr. Joseph Moynihan] Thank you, Dr Anthony. Thank you to the wonderful panel for their insights and comments, which helps us to further, understand the more recent dynamics of the business environment in the Gulf and elsewhere. Let me begin by inviting Michael to ask a question or two of his panel members.

[Markland] Thank you very much Dr. Moynihan. Very quickly I’d open this up to the panel. We have talked a lot about risk. How are you advising companies specifically on risk mitigation particularly in this environment?

[Fraker] I think the point that was made earlier that one size does not fit all in the Middle East. Every country is different, different cultures, different backgrounds, and different histories. So it really depends on where you are focused. That’s the best advice you can begin with with the companies. And the other comment I would make is developing the personal relationships that this part of the world is all about, personal relationships. They want to know you as an individual, they want to know you and trust you. They believe the partnership approach to doing business is the only way that works. So spending the time and effort is probably the best possible way of mitigating the risks.

[LeBaron] I think I have already answered the question from my perspective. I really do think there are government programs that can be taken advantage of. Those programs should be expanded, new ones, and that’s in the United States.

Elsewhere there are European equivalents in the GCC states, I think they really should, and we are in discussions with them now, about creating this insurance instrument that would help offset the sense of risk. Its undifferentiated within the business community in my experience. They need to take a more sophisticated look at the varying degrees of risk that exists across the region, but until they do these instruments are important. Thank you.

[Sebright] I think I’m in a great position to say a word or two about how the United Arab Emirates is actually an island of stability and security with what’s going on in the region right now, today. Obviously there is fear of confrontation with Iran and problems there in the region and in the future. But I think what we saw in the “Arab Awakening,” when we saw capital flee other countries in the region because of what was going on. W e saw it fleeing to Dubai and Abu Dhabi and setting up shop there.

The Dubai Chamber of Commerce quoted me statistics in April of an uptick of some 30 – 40% of new company registrations from the year before. Most of it was coming in from the region, from companies leaving Egypt, leaving other places and coming to the region to set up shop and do business.

I think capital is very attentive to risk and assesses it very well and I like being able to talk about why the UAE is such a tolerant progressive place to do business today.

[Moynihan] Well thanks again. Let me initiate a dialogue about energy and particularly investment in development of new energy sources for which states in the Gulf are a world leader.

We note that in the Emirates there’s not only the breaking ground of nuclear power activity but there is also substantial new investment to exploit the natural gas resources within the country, and largely to use both natural gas and nuclear energy as ways of powering the home front allowing the export of additional crude which would otherwise need to be refined and employed there.

In Saudi Arabia we find the largest investment in wind and solar and other energy projects in the world, and I am wondering if the Saudis have found ways to transmit that energy and store that energy that others have not, and what there investment vehicles might be.

Even though the Emirates talks about the tyranny of distance with respect to the export of natural gas, we note that Qatar has solved that problem well and is now the global leader in LNG exports and indeed is able to demonstrate safe and effective delivery of LNG to markets throughout the world.

So if I could, realizing this is not specifically an energy panel, but this has a lot to do with investment. This has a lot to do with the interests of the region. This has a lot to do with the employment of their youth and the attractiveness of foreign direct investment. So if I could ask the panel to comment on that please.

[Fraker] Why don’t I begin again, just from the perspective of Saudi Arabia. Saudi Arabia is the 800-pound gorilla in the room in terms of energy; a quarter of the worlds proven oil reserves is sitting in the sand of Saudi Arabia — 26 billion barrels.

Those facts are relatively well known. You mentioned that there had been substantial investment in developing solar energy and those efforts are very large but in early days. So I think there is still a lot of questions to be answered in terms of how they are going to build that out. The other comment I would make is that one of the things we did when I was ambassador, when President Bush came out on his second visit we signed three nuclear cooperation agreements with the kingdom. And as a banker it wasn’t tough for me to make the argument from a commercial standpoint that burning $147 a barrel oil every day to produce desalination water wasn’t a very economic way of going about it and that perhaps a nuclear solution would make a lot more sense. So that’s also happening in the Kingdom.

[LeBaron] When I think of alternative energy sources and I think of the irradiation levels that exist from the Gulf all the way to Mauritania and northwest Africa, those irradiation levels are the highest in the world and it suggests that solar more than any other form of renewable energy, of alternative energy, is that which is a natural for the MENA region. But it is in its early days and the investment costs are high.

But when you consider Qatar, which I know best, has the largest carbon footprint per capita in the world and the second largest ecological footprint per capita in the world, the need for different forms of energy to drive production and to produce a quality of life is high.

Qatar is also linking alternative energy, specifically solar energy to food security using solar energy to power desalinization, which in turn would be used in agriculture. I don’t think the technology is there to make that a cost effective approach but the technology is evolving and Qatar’s thinking is well ahead in developing this technology with not only food security for itself but to export that technology elsewhere in the MENA region and in fact around the world in the global dry land alliance.

So the future is exciting but it is early. Those are my views when I think of where the region should go. It really comes down to the characteristics of nature in that part of the region, which suggests a focus on, solar. Thank you.

[Sebright] Just to make a quick comment and I think and the trend has been identified by someone previously but I think it is really important to note that this region which is sitting on all this crude and natural gas has collectively come to the understanding that for the future they need to be leaders in renewable energy and they need to invest in nuclear and other fuels and other way s of generating electricity. I think that the fact that the UAE has become the home of IRENA, the International Renewable Energy Agency, the first UN agency to be headquartered in the region is key.

Masdar, a critical leader in renewable energy, building Masdar City. The ambassador mentioned that Saudi is the leader in solar and wind, I believe it may be in its own country but Masdar and the UAE are investing in solar and wind in China, in the US, in Germany, in Spain, in best class technologies to push them forward and take them to the next level. So there is a huge, huge investment in this space not only by the UAE but all the countries in the region that have the money to invest. I think it is very visionary on their part to understand that this is where they have to go to be ahead of the curve as the world looks at these problems.

[Johnson] I’ll just add just briefly that the issue of renewable energy has been at the fore of our discussions with a number of the countries that have experienced the transitions, particularly having hosted seven delegations from Tunisia this year since February.

At the top of their agenda has been the issue of renewable energy so I think that its encouraging to see that the leaders of that transition including the Prime Minister who was here just a couple of week ago, is really inviting the US private sector to play a major role in that investment. And I would say the same would be true of Morocco.

[Moynihan] If I may turn to defense industries for a moment. Its pretty well established by Saudi speakers and others that the Saudis intend a sixty to eighty billion dollar investment primarily in US defense articles over the next five to eight years. This is an enormous sum. The Emirates has been traditionally one of the best customers of the US defense industry both through government channels throughout FMS programs and indeed through direct commercial channels as well.

Qatar not so much in this area because Qatar has a different strategy provided to them by the Rand Corporation, which we can talk about another time. But in the case of the Saudis and of the Emirates, to be sure, indeed in the case of many other countries, the offset programs associated with those defense expenditures will be controversial, and I would guess even more controversial given employment issues in the United States and employment issues in the region.

The United States Congress has periodically objected to offset agreements in the region suggesting that this is in fact the net export of American jobs to ensure that technology transfer occurs and certain components of the relative defense articles are indeed produced within the region.

Yet because of unemployment concerns and indeed nationalization programs of industries in the region we anticipate in the defense industries that there will not be waivers from the offset commitments traditionally associated with them. I wonder about the tension. Will this in fact drive the region or their defense modernization to other regions of the world less sensitive to homegrown employment issues? I wonder if our panelists could comment on that.

[Fraker] Why don’t I start in Saudi Arabia. I guess I would make the point to any senator or congressman that might be sitting here that when Boeing wins a fifty or sixty billion dollar contract this has to be good for jobs in the United States. And I think that is true throughout the industry. So this notion that we are exporting jobs is not one that I subscribe to.

The other point I would make in terms of the concerns we have about how difficult, lengthy and complicated our foreign military sales process is, all of that is true, and the trade off for our partners is the quality of US equipment, but perhaps more important, the fact that, and this point was made yesterday, that you are really entering into a long term relationship with the United States in these programs. Because its not just the hardware that’s being sold. It’s all the follow on services. It’s the maintenance. It’s the parts. And this ties our countries together very closely for a long time. And I think we still have a pretty good argument to make on that front.

[Sebright] I have spent a lot of time on the offsets issue throughout my career, not only in the Middle East but India and other places. I guess what I would comment on about what’s happening today in the Gulf on offsets, not in Egypt, but in the Gulf, is realization that the offsets program is a way to bring foreign companies into the process, on the ground, for a long time, not again a quick sale of a THAAD or a Patriot or an F-16 and then you go home and that’s the last time you see the contractor.

They want, in the UAE for example, one key goal of the offsets program is to set up industries that tap into new markets in the region and around the region and around the world, that give the US partner who is part of that new JV or that new venture access to new markets and access to even more sales of their equipment in the future, whether it’s a pistol, or widget, or some composite part for an airplane. The offsets policies in the region are increasingly more sophisticated and more nuanced on what they are trying to achieve. It is about building bigger and better business for the future.

[Fraker] Maybe I can add just one comment, something that I have observed over the years. That is that at the end of the day often many of our customers conclude that it’s the United States companies that have the technical capability and the depth of management and people to actually come on the ground and get the jobs done long term. Time and time again I think that has proven itself compared to some of the offerings that other countries make.

[Moynihan] I’m aware that in the board rooms of defense companies and no doubt other companies, the departure of military presence from Iraq in the next 60 days essentially with no military presence, at least no appreciable military presence thereafter creates concern and a sense of risk associated with contractual relationships.

Transparency and the transactions associated with contractual relationships for large systems has always been a factor in the Arab world. I’ll suggest that many in American business feel that the secretiveness with which some Arab countries prefer to pursue commercial and defense relationships is inimical to our long-term interests. My own company has declined to pursue business opportunities in parts of the Arab world specifically because of that concern.

That brings up the whole issue of contract law, reliable settlement of disputes, the issues of where in fact disputes are settled and how they are settled and how those legal processes stand in line with competing legal processes in other countries. Certainly that is not a new issue. It’s been ongoing in the Arab world for decades. Have we, indeed, produced the necessary progress where we could call the processes in the Arab world transparent and fully in accord with international norms?

[Fraker] My comment to that is we are getting there. A lot of progress has been made. It’s still a case-by-case basis, depending on what country you are dealing with. Some countries are further ahead in terms of putting the legal and the regulatory markers in place that are necessary for this greater transparency.

But we are living in a world that is becoming increasingly transparent, we are living in a world where information is more readily available so we are moving in the right track.

[LeBaron] It’s a complex operating commercial environment and you have got
to take it on a country by country basis. Some places are easier to do business and more of it’s online. The contractual process is more obvious and transparent so I think all of us on the panel would say we’re getting there. More needs to be done. It is certainly better than it was when I first came to the region. But I think the take away is that if you approach the region, enter the market with advise, do feasibility studies, actually take advantage of the resources available to you through the US Government Foreign Commercial Service offices you can get quite a lot of transparency into the process through that way.

[Sebright] The only comment I was going to make is that there are a lot of metrics out there for how the region is improving, how specific countries in the region are improving. And I note the World Bank report on the ease of doing business, and some of these other reports. A number of countries in the region every single year seem to notch up and improve on the list. So it is very important. It’s a trend. It’s a process and it is continuing.

[Johnson] I would agree with the analysis that we are moving in the right direction on these issues and since the questioner raised Iraq, let me say that the government of Iraq recognizes the importance of an enabling environment for private sector development, that is more transparent, that is better administered, that is very regulated.

t is a very complicated governing and decision making process there as you all know but I think that the current government is making strides and are recognizing the importance of US investment in business in that country and working very closely with us across the board to try to move some of these decisions to conclusion sooner rather than later. As our relationship with that country transforms later this year to one of more traditional diplomatic, commercial, economic relationship. So I think we are moving in the right direction.

[Moynihan] Please join me in expressing our appreciation to this outstanding panel.

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Mr. Michael Markland

Mr. Markland is a senior member of Morgan Stanley’s Private Wealth Management team based in Dubai, the United Arab Emirates. Mr. Markland has over eighteen years of experience working with families and institutions in the Middle East. Prior to joining Morgan Stanley, Mr. Markland worked with other leading financial institutions, founded an international financial and management consultancy based in Dubai and the U.S. and ran international and government marketing for a technology firm that he helped list on NASDAQ in 2000.

Prior to business school, Mr. Markland was a consultant for Booz, Allen & Hamilton in the International Financial Institutions and Foreign Governments Practice based in Washington, D.C. with extensive assignments in the Middle East, Africa, South America and Central Europe. He received an MBA from INSEAD in Fontainebleau, France, and has a Bachelor’s Degree with honors in International Political Economy from Wabash College.

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Ambassador Ford M. Fraker

Ambassador Fraker served as U.S. Ambassador to the Kingdom of Saudi Arabia from April 2007 to April 2009, spanning both the George W. Bush and Barack H. Obama administrations.

Ambassador Fraker has more than 30 years of experience in banking, finance and investment in the Middle East. He began his career with Chemical Bankwhere he worked from 1972 to 1979 in New York, Lebanon, the UAE and Bahrain, finishing as Vice President and Regional Manager for the bank’s Bahrain office. In 1979, he joined Saudi International Bank where he spent 12 years in roles that included managing the General Banking, Credit and Client Development Units and serving on the bank’s Managing Committee.

In 1991, Ambassador Fraker founded Fraker & Co., a consultancy firm specialized in the Middle East. In 1993, he joined MeesPierson Investment Finance (UK) Limited, where he served as Managing Director for placement of U.S. and European investment products with European and Middle Eastern institutional and private investors. In 1996, he co-founded and later served as Managing Director and Chairman of Trinity Group Limited, a private investment banking firm, and served as a consultant for Intercontinental Real Estate Corporation.

Ambassador Fraker currently serves as Senior Advisor to Kohlberg Kravis Roberts & Co (KKR) and as Chairman, KKR Middle East and North Africa; Senior Advisor to Trinity Group Limited; and is a member of the Middle East Advisory Board of the Royal Bank of Scotland (RBS). He is also a member of the Board of Trustees of the International College in Beirut and the International Advisory Board of the Perkins School for the Blind in Watertown, MA.

Ambassador Fraker graduated cum laude with a Bachelor’s Degree from Harvard College.

For more information: www.kkr.com

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Ambassador Joseph LeBaron

Amb. LeBaron served as U.S. Ambassador to the State of Qatar (2008-2011) and to the Islamic Republic of Mauritania (2003-2006). Between his ambassadorial appointments, he was Political Advisor to the Commander of U.S. Special Operations Command at MacDill Air Force Base in Florida. His earlier assignments in the diplomatic corps included Deputy Chief of Mission in Manama, Bahrain and Consul General in Dubai, UAE.

Amb. LeBaron joined the U.S. Foreign Service in 1980, serving first as Vice Consul at the U.S. Embassy in Qatar. His later diplomatic postings included Amman, Ankara, Istanbul and Washington. In 1989 he was seconded to the U.S. Senate to serve on the national security and foreign affairs staff of Majority Leader George J. Mitchell. From 1998-2003, Amb. LeBaron served in the Bureau of Intelligence and Research at the Department of State in several positions, including Senior Deputy Assistant Secretary.

Before joining the Foreign Service, Amb. LeBaron studied Arabic and Middle Eastern Affairs at the American University of Beirut and was a doctoral research fellow at the University of Khartoum. He is an alumnus of MIT’s Seminar XXI on International Relations and a graduate of the Senior Executive Program on Intelligence Policy at Harvard University’s Kennedy School of Government. Amb. LeBaron is a Vietnam veteran and served in the U.S. Air Force from 1970-1974.

Amb. LeBaron is currently a senior advisor at Patton Boggs active in the practice area of international business with an emphasis on the Middle East, especially the Arabian Gulf. He maintains offices in Washington and Doha. Amb. LeBaron advises both U.S. and non-U.S. clients to identify business and investment opportunities within the United States and assists with market entry and strategic planning for Middle Eastern and North African business activities.

Amb. LeBaron obtained his Ph.D. in Near Eastern Studies at Princeton University. Formerly a part time member of the graduate faculty of the Elliott School for International Affairs at George Washington University in Washington, D.C. Amb. LeBaron speaks Arabic and Turkish.

For more information: www.pattonboggs.com

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Mr. Danny E. Sebright

Mr. Sebright was appointed in June 2008 to the position of President of the U.S.-U.A.E. Business Council, the leading advocate for building commercial relationships and expanding business opportunities between the two countries.

Since 2002, Mr. Sebright held the position of Vice President at the Cohen Group, an international strategic consulting firm led by former Secretary of Defense William S. Cohen. Mr. Sebright was responsible for new business development activities, client management and building the firm’s Middle East and India practice groups. Mr. Sebright continues to be affiliated with The Cohen Group as a Counselor.

Previously, Mr. Sebright served as the U.S. Defense Department’s Director of the Policy Executive Secretariat for the global war on terrorism from 2001-2002, leading a team responsible for tracking U.S. and coalition actions related to the war on terrorism. During this time, he also participated in oversight of Operation Enduring Freedom in Afghanistan and Operation Noble Eagle, the defense of the U.S. homeland. In this capacity, he was awarded the Department of Defense Exceptional Civilian Service Award for his service to his country.

Mr. Sebright also served in the Office of the Under Secretary for Policy in the Department of Defense from 1995-2001, representing Department of Defense positions with other executive branch policy offices. He conducted bilateral negotiations with foreign officials, including providing the Defense Department policy perspective on the Middle East Peace Process, regional arms sales and counter-proliferation initiatives. Mr. Sebright cultivated extensive contacts with defense industry officials to coordinate and implement U.S. foreign military sales to Israel and many other countries in the Middle East. Mr. Sebright received the Paul H. Nitze Award for Excellence in International Security Policy for his work on the Middle East Peace Process.

Mr. Sebright began his career in government in 1985 with the Defense Intelligence Agency, living and working extensively overseas in numerous countries in the Middle East, India, Asia, and Africa. Mr. Sebright is the recipient of various DIA and CIA exceptional service awards for his accomplishments.

Mr. Sebright was sponsored by the Defense Department to attend the John F. Kennedy School of Government at Harvard University, where he completed a year-long Mid-Career Master’s Degree in Public Administration in June of 2001. He earned a Bachelor’s Degree in International Affairs from the George Washington University in 1984 and completed the coursework for a Masters in National Security Policy in 1988. Mr. Sebright speaks conversational French and basic German, Russian, Chinese and Hebrew.

Mr. Sebright resides in Washington, DC where he is active in local community, arts, and church organizations. He is a member of the Dean’s Alumni Leadership Council at the Harvard Kennedy School of Government, of the Luther Place Memorial Church, and the Board of Directors of the Washington Ballet.

For more information: www.usuaebusiness.org

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