What is your view on the responsibility of private companies driving the economy?
MR. SULTAN: After the financial crisis, world economic thinking has changed. In the past, the responsibility was fully placed on the private sector. However, I think governments have to share this responsibility.
Tighter regulation of the private sector is required to make corporations accountable and responsible. CEOs that are mostly driven by higher incomes can’t be expected to lead the development of the private sector. CEOs wanting to fatten up their bonuses and fill their pockets without consideration to the interests of the shareholders or the economy of the country have a very destructive impact on the private sector. We cannot leave it open; limits and boundaries have to be set for the operating environment.
The time has come to fundamentally re-think and change the model that drives business environment. There has to be a balance between driving for a liberated economic environment that enables development and placing adequate controls. There should be some restrictions to control the behaviour of executive officers of corporations. Executive bonus programs should achieve a controlled balance, whereby corporate and stockholders’ long term interests are not sacrificed to maximize executive bonuses.
This is what we strived for when we rewrote the business law here in Kuwait. For example, our Parliament introduced several good changes to the law and we were able to establish a comprehensive and integrated set of restrictions. Unfortunately, the Ministry of Commerce and Industry was selective in adopting these restrictions. There has to be limits and a ceiling for bonuses and incentives to maintain the long term interests of the stockholders.
For the new business law, I had included articles that gave the general assembly approval rights over executive bonuses; the pay-out system and limits should be approved. They should be controlled by the general assembly, not just by management. The shareholders should have their say on the bonus system. But unfortunately, the Minister of Commerce and Industry and his team, at the time, removed these articles that I worked hard to include in the new business legislation.
Five years ago, the world suffered an unprecedented financial crisis, putting most financial institutions into a very delicate situation. After a time of adjustment, only some investment firms, due to their adaptability, have survived. You are now taking control of this institution. How do you see Al Imtiaz moving forward in such a complicated time and improving its financials?
MR. MARAFI: I believe many companies are still in the process of adjusting to the effects of the international financial crisis. With respect to Al Imtiaz, we are very positive on the future of the company and it has been able to survive the financial crisis, largely due to its strong asset base. However, it is not without its own issues and problems. Like many companies operating in the Kuwaiti financial sector, we continue to face issues of liquidity. We are re-examining our cash cycle, consolidating assets and developing alternative revenue sources. We will continue to support our operating entities, which will be critical in transitioning Al Imtiaz to the next phase of growth.
What do you consider the strengths and areas of expertise of this company?
MR. MARAFI: We have to differentiate between two main things: first, our strength is in our asset base. We have a very strong and diversified portfolio of assets. Many of them are operating assets; these will be reorganized in order to benefit from the expected growth in Kuwait and the GCC region, which in turn should reflect positively on us.
The other part of your question regarding our areas of expertise; we are an investment company that had transitioned its business into a holding structure during the financial crisis. Today we are redeveloping the identity of Al Imtiaz and assessing the best strategy moving forward. We believe that we should maintain our position and key strength as an investment company, providing financial services to a market that is underdeveloped in this area, particularly after the financial crisis. The Islamic financing sector is promising in many respects with several high potential opportunities.
Today, it is not enough to say that we are Sharia-compliant. It is not enough to say we are an Islamic company. We need to prove to investors and to our shareholders that we are placing true Islamic values at the core of our operations and approach. We must hold ourselves to a higher ethical standard, coupled with an elevated degree of transparency. This has to be in parallel with the idea of putting in place proper structures for compliance, processes to enable full transparency to shareholders and potential investors; developing an acceptable system for corporate governance. This would be expected from any investment company, however there is an additional burden being an Islamic company. We strive to meet and exceed the expectations of our shareholders, and the expectations of potential investors to provide a real and viable Islamic alternative to the conventional investment approach.
You just mentioned some practices that are completely placed here in the company. You are applying a new strategy for 2014, what are the goals of this strategy?
MR. SULTAN: We will restructure to re-align the cash in-flow into the parent company Al Imtiaz and focus on achieving growth in the operating income.
MR. MARAFI: Our main objective in 2014 is to replenish liquidity into the company and restructure our sources of revenue. We plan to re-establish our financial services activities to clients, support our subsidiary companies by giving them the necessary tools to become strong operating entities within their own sectors – whether it’s real estate, petroleum, construction, financial services etc.
We plan to make significant improvements to enhance the decision making process; this includes adopting a flatter and more efficient organizational structure and modernizing our financial reporting system. We will utilize our current professional staff, as well as add to the talent pool people that have the skill sets to deliver the company’s vision and strategic objectives.
Following on your comments about Al-Imtiaz transitioning into a holding structure, I said that this company has investments within the GCC. What is the reach? Where are your investments or subsidiaries present nowadays?
MR. MARAFI: We are semi-diversified geographically. In the GCC, we have investments in Qatar, Oman, the UAE and Saudi Arabia, across the group. We also have investments in the MENA region mainly in Egypt and Jordan. Additionally, we have investments internationally in UK based entities.
This needs to be aligned with our strategy moving forward. We plan to match high-growth regions, sectors and areas with our strengths and expertise in these sectors. Our approach will be highly focused and selective. Our goal is to add value to our shareholders and grow our business.
From a regional perspective, we have seen NATO forces pulling out of Iraq and Afghanistan. We see a lot of shifts here in the region. How do you see this US-Middle East relation evolving?
MR. SULTAN: I think it is not a matter of Afghanistan. In think the economic pressure on the United States is what is forcing them to pull out. If you go back in history, we’ve seen that Great Britain controlled so many territories but the economic limitations ultimately forced them to pull back. If we compare the US with China, for example, the Chinese save approximately 50% of their income. In the US, consumers borrow over their income. There is a structural problem in spending behaviour that will eventually force the US to shrink its activity and fall back.
The credit crunch of 2007 accelerated the ascent of China towards the position of the largest economy in the world. If you have economic leadership, political leadership will follow. Now you can see China expanding their wealth into Africa, with that comes influence and power. So in the long term, the power structure will change. The Chinese are pragmatic, hardworking people. They are driving development and at the same time maintaining centralized control over their country. So far, they have succeeded. Over time the US will have to reconsider its position as the world power order tends towards change. Signs of these changes are already noticeable today.