Source: Gulf News 2013
The UAE economy is expected to grow 4 to 5 per cent economic this year, more than double the global economic growth rate, said Ronald Herman, CEO of Mubadala GE Capital (MGEC), a public joint stock company specialised in commercial financing solutions to a full range of commercial customers from Small and Medium enterprises (SMEs) to large corporations in all core industry segments.
In an interview with Gulf News, Herman said that he is optimistic about the UAE economy as it had shown resilience and rebounded from the 2008-2009 financial hardships. “A 4-5 per cent economic growth can be easily achieved in the UAE. I think it could be possible even higher. The UAE is going to have a good year because it has a safe and secure economy, tax rates are low. It is business friendly with very good governance and security, as well as excellent transportation and infrastructure.
Gulf News: What is your outlook for the global economy in 2013?
A: My view is that the world should grow. Not all regions of the world will be the same. The US seems to start growing. It has just put some property issues behind it. Europe will probably have the slowest growth of all as they work through their debt issues. I am very optimistic for the GCC states. The UAE has shown quite resilience and has rebounded from the economic crisis that happened in 2008-2009. The other GCC states all enjoy some positive elements for economic growth in terms of population, good governance, and legal frameworks which are quite solid. Besides the governments have surpluses and these are being invested in infrastructure such as hospitals and other social sectors. I am quite optimistic about the UAE and about the other GCC states. It is always impossible to make economic predictions. Economies are cycles of expansion and contraction. And right now we are generally in expansionary cycle.
Q. How will the 4-5 per cent economic growth affect financial markets of the UAE?
A. Sure, that to me seems reasonable to put into perspective — probably twice the economic growth globally. The UAE is going to grow faster than the rest of the world. That makes sense to me. That rate of growth will require companies to grow, companies that will need to increase investment in machines, equipment and factories. So there will be great demand for loans from banks. That is a demand we are trying to meet. Our business at MGEC is to provide finance to businesses. We are into commercial finance and we don’t do consumer finance. Our focus, therefore, is to understand businesses, understand what makes them grow, understand what makes them good businesses and then we provide them with loans and leases to expand their businesses to help them grow their profits so they can grow their revenues and employment. What we actually do is very vital for the economy and for the society.
Q. Which types of business you extend loans to?
A. Businesses in pretty much all sectors. We focus on sectors like: power and water, transportation and logistics, manufacturing, oil and gas, aerospace, telecommunications, healthcare, educational, industrial and food and beverage. Our primary focus is to provide lending and leasing solutions to private sector companies as well as making strategic equity investments in power and water assets across the Middle East, Turkey and Africa (META) region.
We provided financing to oil and gas service companies, to clinics in Dubai, to hospital in Al Ain to purchase MRI machines …. In other words, we finance companies that play a strategic role in the UAE society and economy.
Q. What is the minimum and maximum amounts of lending and financing?
A. There is a practical (lower) limit of Dh2 million. We had provided financing of close to Dh200 million, the largest financing. So we do provide a wide range of financing in the UAE.
Q. How do you view the Abu Dhabi Stock Exchange and as well as the new regulations for brokerage and dealership?
A. The new headquarters of the Abu Dhabi Financial Market will be in Al Sowwah Island and we were the first to move here to this place which was developed by our parent company Mubadala. To look at this island, many law and business firms are moving to Sowwah Island and the major business are now headquartered on the island. With regard to the stock exchange, Al Sowwah Island will be a very dynamic centre for business and financial transactions. It will be a business district. I think the Sowwah Square is going to be a big success.
Q. The effects of the Arab Spring were positive and negative for some countries, but it was beneficial for the UAE?
A. The UAE is safe, secure and peaceful place. It is a great place for a tourist to visit but it is also a great place for businesses to have their headquarters. And so I think the UAE through the Arab Spring has benefited through the influx of both capital and people.
Q. How do you view UAE laws pertaining to investments and businesses?
A. In terms of UAE laws, we found that the UAE laws in the courts to be really good and very well developed. When we compare the UAE to other countries, it compares very favourably so we found this a good regime for business. The UAE has much lower taxes than Europe, the USA and other parts of the world. This allows businesses to keep more of their profits in the country and invest more to grow further. Therefore, we like the business environment in the UAE and we like the laws in the court’s system.
Q. How do you view the UAE Central Bank Laws pertaining to banks, financial institutions and the would-be mortgage law?
A. The Central Bank is a big help to us. We meet a couple of times a year with the governor. He has been very supportive of our efforts. When you step back and look at the UAE with 52 banks in the country with no single bank failure since the global financial crisis, this is a big accomplishment. The same cannot be said for other countries in other parts of the world which witnessed bank failures. So, the UAE Central Bank has navigated this quite well. I am not really an expert of real estate financing. This is not one of our focus areas. We are less focused on providing real estate financing.
Q. How do you view your role with Abu Dhabi Government’s Vision 2030 based on diversifying its economic resources and on reducing dependence on oil and gas?
A. I think we are providing a very positive impact in the UAE economy. We are financing SMEs in the middle market companies. We have set up a separate business unit to focus on SMEs and middle market finance. The team has achieved a great success. We financed last year 33 different companies. We provided financing in total Dh370 million for SMEs all over the UAE in various sectors.
In terms of my view for the UAE, oil and gas will always be an important part of the UAE economy. It is the history. It is the heritage and the driver of the economy. It will provide financial resources that encourage the government to diversify the economy. We have seen some extremely positive changes on the number of visitors and tourism is a huge driver of the UAE economy in the future.
Q. How do you view MGEC five years from now?
A. Our strategy is to focus on businesses. And currently we have a very good business within the UAE. We also like to expand beyond the UAE and we are focusing on Turkey and Saudi Arabia because these countries have the biggest two economies in the META region and are fiscally capable of fuelling their economies. So we’d like to strengthen our position in the UAE and to broaden into other bigger countries where opportunities are big. Our top priority is the UAE while Turkey and Saudi Arabia are our second priority.
Q. What sectors will you focus on in Saudi Arabia and Turkey?
A. We will offer similar financial products as in the UAE: loans and leases to SMEs and middle market companies and will provide them with funds so that they can expand their factories, purchase new equipment, purchase new vehicles, purchase new healthcare equipment, amongst others. We look at the health of the company as we do secured financing. We have a small office now in Turkey and I hope to start operations before end of 2013 in both Turkey and Saudi Arabia.
Q. What is MGEC’s financial performance?
A. We have been profitable for the last three years. In the first year, we incurred some small losses for a startup. The first year was 2009, but during the next three years (2010-2012) we have been profitable. In 2012, we actually doubled our profits.