Saudi Arabian business must think global to remain competitive in the new century, argues Khalid Abdullah Al Zamil
Last year was a very good year for Zamil Steel. What were the prime factors driving that growth?
There were several factors, perhaps foremost among them the solid growth of the Saudi economy. This growth took place across nearly all sectors of the kingdom's economy. This had an impact on the group's profits for the steel, glass and air-conditioning units, and especially for our steel business. Second, our businesses in Egypt and Vietnam started to see growth, and we had that overseas contribution. Third, as planned in our expansion strategy, we have seen demand grow as we have expanded our production capacity while also improving efficiency. Our marketing strategy, opening offices worldwide, has also generated results.
To what extent is your company's success driven by the price of oil? And how can you avoid being caught in oil-price cycles?
That's a very good question. Of course, the economic growth we see is directly reflected by the increasing price of oil. That does influence volumes in the region, no doubt about it. What we've been trying to do, though, is to expand both regionally and internationally, so that we are less affected by the price of oil. That's one reason why we are now looking at Southeast Asia, why we are in Vietnam, why we are expanding in Egypt to avoid getting caught in the oil-price cycle. This way, we have options when the price of oil falls.
To what extent is construction activity in the Gulf, and in Dubai in particular, and China leading to steel shortages? Is this really happening, and will it slow down construction projects in the region?
You have to separate Dubai, for instance, from everything else. In Dubai, the growth there affects the rebar steel the reinforcement used in concrete construction and there's no problem with that. But the growth of the region is being met by steel-production expansion in the Gulf. I think there's a good supply-demand balance in the Gulf. On the Chinese side, that's a much bigger issue. Chinese growth includes not just construction but also automobile manufacturing. I was just in China last week, and I can tell you that auto production is booming there. So in China we see demand on all the different types of steel. That is a totally different issue from what we see in the Gulf. And, to be honest with you, we're getting mixed messages from China about this. Will China become a net exporter of steel, leading to a global price drop? Or, as I tend to believe, will China remain a net importer, meaning that supply and demand will remain tight? More worryingly, I think, is the issue of raw materials (including minerals and mining): can supply keep pace with demand? Global prices have been rising at 60-70 percent, and that's a major cause for concern. From our point of view, the immediate concern is to be shrewd about how we buy and sell. We buy raw materials, then sell them as complete systems. If we buy at the right price and then sell at the right price, we'll make money. But if buy high and sell low, then we have a serious problem. It's a very delicate balance.
How will Saudi Arabia's accession to the World Trade Organization impact your business?
The Saudi economy has been a true market economy for years; we've never had high custom duties. Even when the government was trying to encourage the growth of local industry, custom duties were just 12 percent, which is next to nothing. So we've always had to compete with international companies and imported products, which gave us a competitive advantage. This made us improve management and manufacturing processes because we were not protected in the way that some other national industries were protected. At the time, Saudi businesses complained a great deal about the lack of protection, but it's proved to have been the right strategy on the part of the government. So, sure, accession to the WTO will put some new pressure on Saudi industry, but we will be able to rise to the challenge. On the services side, however, I do think that we'll see more pressure because of the international competition and the issue of market access and so local services companies will have to rise to the international level. Otherwise, they won't be able to withstand the competition.
Steel has proved an extremely contentious issue. The United States, for example, has ignored WTO rules and put up barriers to steel imports. Do you feel that the West, which set the rules for global trade, is respecting the rules of the game?
That's a very good question. I think that the WTO was established for the benefit of all humanity, for everyone in the world. This was the original vision for the WTO. And I do believe that if the rules were applied fairly, then we would see a better world. Unfortunately, though, we see today that the main players in the WTO are the ones that are not playing by the rules. Look at the protectionist policies of Europe, the United States and even China. This is happening every day, and is extremely worrisome for developing countries like Saudi Arabia trying to access the WTO. So, no, I don't think the game is being played fairly. And the result is that the objectives of the WTO raising living standards everywhere are not being achieved. I wish that there was more self-criticism within the big economies, that they realized that they need to set an example for the rest of the world by respecting WTO rules. Until that happens, I have to be pessimistic about the future. And I'm not just talking about the steel industry look at agriculture, for example. Think about it this way: we're told that to join the WTO club we will have to pay a price. Fine, if it's a fair price, applied to everyone. But those who join later shouldn't have to pay a higher price. We're trying to develop our economy, and we're in effect being penalized for that.
Zamil is one of the few Saudi family-owned companies that has gone public. Why did the group take the decision to do that?
Let's be clear, first, that the entire Zamil Group did not go public. We went public with three of our businesses: steel, air conditioning and glass. The idea was to go with our strength in these areas to be able to do more mergers and more buyouts and attract international companies and investors. We were also able to sell some shares to enter new sectors, such as petrochemicals. We sold shares to have the cash to enter the petrochemical sector; we did that both through establishing a joint-stock company and by entering into alliances with international petrochemical firms to produce a company that went public right away. The rest of the Zamil Group, which is a closed stock company, will remain for the family. This is a generational issue: going from an asset-owned firm to a stock-owned firm. This way, if some member of the family wants to exit, they can sell the shares to the rest of the family. That ensures continuity within the company. The reasons for going public, then, include the desire to ensure continuity within the group and the need to generate cash for new investments, which will lead to growth and job creation in the kingdom.
Why are so many family-owned businesses reluctant to go public, even partially?
After having experienced all the challenges we faced publishing results every quarter, for example I see how much pressure going public creates. You have to be able to withstand this pressure. It's not an easy thing to do. So a lot of Saudi family businesses are, fairly enough, reluctant to face that pressure. But I do think that once the new company law is passed by the Majlis Al-Shura, then everything will be a bit more clear for Saudi businesses. That law will encourage them to go public.
As an international company, why not list on an international exchange? Why not list in New York or London?
Hold on. Let's not get too excited about this. [Laughs.] We'll take this one step at a time. We are a conservative, family-owned business. But, yes, this could come. It will take some time, but perhaps at some point in the future.
© Arabies Trends 2005
