Impact of the uprisings
News reports on the ‘Arab Spring’ were focused on the political and social revolutions shaking the foundations of some of the largest Arab countries. Transformational changes across the region were covered from a human standpoint – as regimes toppled, crowds chanted and chaos took over the streets. However, most news cameras failed to pan left or right and shed some light on the businesses that were affected as a result of these uprisings.
Hundreds, if not thousands of businesses throughout the Middle East were impacted, directly and indirectly, as a result of the transformative changes taking place. Companies found themselves, for the first time, without a contingency plan.
As a result, immediate, short- and long-term changes are being anticipated. The World Economic Forum Global Competitiveness Report for 2011-2012 highlighted that due to the turbulence that has impacted the Middle East and North Africa region over the past few years there will be a great impact on national competitiveness. The forecast is that these repercussions will worsen the competitiveness gap between the Gulf Cooperation Council economies and the rest of the region. Deloitte experts from across the Middle East were asked to share their first-hand experience in dealing with the unforeseen. This is what they had to say.
Omar Fahoum, chairman and chief executive of Deloitte Middle East
Q. As the chairman and chief executive of Deloitte Middle East, overseeing over 15 countries must be a great challenge in itself, even in peaceful times. However, many companies have had to formulate contingency plans on the spot to ensure business continuity. What is your take on this?
A. I don’t view that we at Deloitte have had to make “contingency” plans as such as that implies a dilution of presence or even exit from the market, which certainly does not apply to us. We have been present in the region for over 85 years and are an integral part of the countries and economies we reside in. Nevertheless, the events in various countries in the region over the last 18 months have been transformative in many ways. In some cases, they were somewhat disruptive though I would say that in retrospect, not for very long periods. The primary consideration for us during that period was (and remains) the safety of our people. Fortunately, we have not had any incident. We ensure their safety and have designated responsible leaders for each group within a practice or country.
The other main consideration for Deloitte is minimizing any disruption to our client service. Naturally, this is not always within our control as clients have differing plans and arrangements that impact our service delivery capabilities. Again, and overwhelmingly, we have not had serious delays or disruptions. In many cases, our people worked from home and thanks to communications and technology, we were able to deliver on our commitments. I don’t mean to make this sound easy as it certainly is not and the credit really goes to our people who have demonstrated tremendous commitment and loyalty and a sense of purpose through trying times.
Q. What about companies that do not have a regional scope or who have not been here for as long as Deloitte Middle East has? On a market by market basis, what measures have you taken as a result of the changes impacting the region and the countries in which you operate? Based on your assessment, what can you share with readers on how the firm reacted during these times?
A. I would say the biggest business challenge we face is not dealing with change but rather, dealing with “uncertainty.” No matter what analyses are in place, markets and people act differently from one place to another. In our case, it was assuming an “anticipatory” posture to try and see what impact the events were likely to have on our business. These measures included continuous contact with clients and regulators and recalibrating our plans accordingly. In some cases, it was the extent, timing and pace of regulatory and legal changes affecting the business environment that proved to be beyond anyone’s ability to predict or anticipate. Markets do not necessarily react or behave as we expect and I recall that in one market, at the height of street disturbances, tensions and demonstrations, we had our best month not only in revenues but surprisingly, in cash collections.
In short, our approach has been to engage our clients at all times, anticipate the impact of events on their business and ours and put measures in place to address new challenges that were inevitably coming our way.
Rob O’Hanlon, ME Audit leader, Deloitte Middle East
Q. You have represented Deloitte in South Sudan, Libya and Yemen, which are some of the countries most impacted by turmoil and instability in the past couple of years. What has your experience taught you about dealing with crisis situations? What measures did you have to take to ensure people safety and business continuity, before, during and after the uprisings?
A. In 1987 I went to join the Deloitte office in Namibia, a country that was drawing an end to a prolonged civil war. For a 22-year old professional, that environment, in the company of many experienced Deloitte colleagues, provided a wonderful learning opportunity for how to operate in challenging circumstances. Those basic lessons learned then remain at the heart of my philosophy today and can be summarized as follows:
- Communities in all environments, no matter how challenging, are looking to be treated with respect – provided we remember that rule and abide by it we will be accepted by them.
- We at Deloitte have skills that are often not available in troubled economies. We should never underestimate the value we are able to add. The value is magnified when clients can see us actively operating on the ground and sharing the hardships with them and not advising from afar.
- Our young people are incredibly resourceful. If we give them guidance and freedom to innovate, a crisis situation can quickly turn into an opportunity.
In Yemen we experienced incredibly turbulent times during 2011. With the majority of our team being Yemeni, we were able to place significant reliance on their guidance as to when to slow our business down and when to speed it up, when our expatriate staff should be present and when they shouldn’t and when we should be moving around Sana’a and when we shouldn’t. This knowledge, combined with strong and clear leadership from our local partner, Dr. Hajar, and our Director of Audit, Imran Farooq, meant everyone was clear on what was expected of them and who they should turn to for support when times were particularly troubling.
In South Sudan we face very different challenges in the world’s newest country. There, Alfred Strolla and Brad Holliday are building a practice at a rate that is outpacing the development of the country itself. While the positive mood of this new country is extremely supportive, the team deals with unusual issues every day from malaria scares to electricity shortages. Having the right infrastructure in place along with Alfred’s long-standing relationships with leaders in the country has proved indispensable to enabling our people to focus on their clients and in this regard this firm is seen as a role model to many fledgling businesses. It is no wonder that despite the extremely limited infrastructure of the country (e.g. the tar roads remain rare!) the engagement index of our staff in the Juba office was amongst the highest in the recent Middle East Firm People Survey – these people thrive on a unique challenge.
In Libya we face a whole new set of challenges as we explore a market where Deloitte has never had a presence. However, already we are finding that our brand is known and respected. If we remain faithful to the values that the brand represents it is clear that the people of Libya will embrace us and provide the support we need as we aim to recruit, train and develop young Libyans in the years ahead. We will proceed with a mix of caution and genuine excitement as we learn how to present ourselves in this new market that offers us so much opportunity to make a real difference in the rebirth of a proud nation.
In all of these areas, the safety of our people is paramount and it is critical that we follow the best available guidance in this respect. Having a ME Firm Security Officer and resources he can draw on is extremely important to me personally. However, on top of those structures, we have to overlay a good dose of common sense and be ready to step back rather than take unnecessary risks. Our people are the heart of our business, if we look after them and place reliance on their integrity and ingenuity we and the challenged communities we serve can all achieve our goals regardless of the constant changes that life presents us with.
Roger Nasr, Deloitte Bahrain office managing partner
Q. Although the full results of the Arab Spring will take years to manifest, immediate repercussions have already been felt. In your viewpoint, how was Bahrain’s financial capital status impacted in the Middle East as a result of the Arab Spring?
A. Unsurprisingly, the Arab Spring in general, and the unrest that erupted in March and April 2011 in Bahrain in particular, have threatened Bahrain’s ambitions to maintain its position as the leading regional financial center since the 1970s. The current turmoil has given an edge to other new competing hubs in the Gulf in their bid to lure international financial institutions to their shores. Furthermore, Bahrain's financial sector, which accounts for about a quarter of the country’s Gross Domestic Product, has been only slowly picking up from the global financial crisis and a regional property crash as well as the crisis faced by two regional conglomerates which affected, directly and indirectly, a large number of banks in Bahrain and the Middle East.
The impact of the crisis was mainly manifested by:
- The three international rating agencies downgrading the short- and long-term rating of Bahraini banks in 2011 and reaffirming this rating in 2012.
- The relocation of some international banks that used to have their regional headquarters in Bahrain – although in some cases this decision had been made prior to the unrest and for operational reasons only.
- The banking activity has been negatively impacted by the drop in growth in GDP to 2.2% in 2011. The economy suffered an estimated loss of USD1.5-2bn as a result of the unrest. Businesses mainly in the trade and hospitality sector suffered from the effect of a decreasing number of tourists and the cancellation of certain major events such as the Formula 1 race in 2011.
- A severe stagnation and drop in the real estate market which impacted the rental and property market and put on hold many private projects under construction. The banking sector, and specifically Islamic banks, being highly exposed to this sector, were hit hard, which affected their results due to the need for more provisions against the troubled debts and the investment portfolio.
However, the Bahrain Financial sector showed strong resilience to the crisis and started picking up from the second half of 2012, among the main reasons are the improvement of some economic indicators with GDP growing by 2.4% in the first half of 2012 as well as the accelerated and expanding government spending and projects in different sectors but specifically in affordable or subsidized housing and infrastructure (roads, bridges….). This is mainly fueled by the increasing oil and gas production capacity and prices, a sector which still represents more than 70% of government revenues. On top of that, the first tangible step regarding Bahrain receiving the promised USD10bn GCC grant over 10 years to finance housing and infrastructure projects was the signature of an agreement on 3 September 2012 stipulating that Kuwait provide its share of USD2.5bn; these funds will play an increasingly important role in driving economic growth. In particular, GCC money will help fund projects without straining public finances. In addition, GCC private investments will hopefully follow and will provide further material support to the economy. Worth noting are some of the inherent strengths of the Bahraini financial sector, which is reflected in Bahrain attracting again new international and regional financial institutions on the grounds of the main comparative advantages including a well-regulated, tax–free environment, the size and geographical location as a gate to the big Saudi market, the cheaper operating environment and the availability of skilled local talent and the continuous efforts of the Central Bank of Bahrain – which managed to reposition Bahrain as an Islamic finance and insurance hub and home to the main Islamic Finance Institutions – as well as being a key market for the funds industry.
The above factors, along with the efforts to ease and solve the political conflict, will help Bahrain’s diversified economy and well-established financial sector to pick up quickly and resume its uptrend.
Kamel Saleh, Deloitte Egypt office managing partner
Q. As the Deloitte Egypt managing partner – the country with the largest population in the Middle East – business was surely greatly impacted. The uprisings were not just about transformational regime changes that the people were calling for, but for greater economic and social issues. What impact will these transformational changes have on the Egyptian economy in your opinion? What can the public and private sector do to move forward?
A. The fundamentals of the Egyptian economy are still sound and intact, despite the economic impact of the revolution and the turmoil that was experienced over the past twenty months.
We predict that the economy is on its way back to achieve reasonable growth rates of up to five percent fairly soon. Egypt, with a population of 85 million, has sizable local demand for its own production. The country is still very competitive in terms of its exports and labor costs and energy costs. In addition, Egypt will still be able to attract tourists once stability returns.
I believe that the new government will have to work on three main areas.
First they must rebuild investor confidence in terms of the stability of the economic, legal and political environment.
Second they need to act fast in addressing the biggest problem in Egypt’s economy, namely, unemployment.
Third, the new government needs to carefully manage society’s expectations post-revolution. Some people are expecting unrealistically quick improvements in the economic situation and the biggest danger is promising things that cannot be delivered.
Moving forward, the Egyptian people would not be in favor of further privatizations in the short-term and they would not accept any close relations between the business community and politicians. That is something that has been severely criticized in the past.
Tariq Ajmal, partner in charge of Technology Services at Deloitte Middle East
Q. In your viewpoint, is the IT infrastructure of businesses in the Arab region ready to be exposed to risk? Do you believe companies are ready and secure from an IT perspective? In general, do you see companies across the Middle East as having sufficient disaster recovery, business continuity and crisis management planning, to respond to the Arab Spring uprisings? What tips can you share with us for companies to guard their IT infrastructure from unexpected events?
A. Organizations in the Arab World, and certainly many across the globe, are exposed to various IT risks and none more serious than the cyber security risk. This was evidenced recently by successful cyber attacks in the region, which left some key organizations with their systems down and loss of data. If this can happen to mature organizations, then we can say that the majority of organizations are certainly not ready nor secured.
Unfortunately, most organizations treat security as a technical discipline. They ignore the overall security management, which is a set of continuous and integrated security processes to monitor, assess and improve the security posture of an organization. For the most part Senior Management also does not understand the security challenges and therefore provides limited support to information security functions.
One important thing that has come out as result of recent attacks is that finally cyber security has grabbed the attention of senior management. We are seeing heightened interest from the Boards, CEOs and Risk Management functions in understanding their organizational capabilities and whether they can either prevent, or at least respond, to such attacks. So hopefully, now and going forward, security will be treated as a business issue rather than just an IT issue.
As for business continuity and disaster recovery (DR), we have seen increased focus and investment in the last couple of years as evidenced from many big organizations taking a more formal approach to implementing end-to-end business continuity and disaster recovery programs and many hiring dedicated Business Communication Managers. Though, still most organizations have a long way to go to reach a stage beyond having just a documented plan mainly focusing on IT to looking at business continuity as a holistic approach incorporating people, facilities, equipment and suppliers’ recovery as well as crisis management plans that are regularly tested.
In the face of cyber attacks, business continuity and disaster recovery has already taken an immediate interest with many organizations revisiting both their crisis management plans and IT DR capabilities. This is a good starting point to ensure that even if organizations are not able to prevent cyber attacks, they are at least able to respond to such events and recover their systems quickly, thus minimizing the impact on business. Most mature organizations do have reasonable IT DR capability in the form of backups and hot/cold sites focusing on key business applications and file servers. However, in most instances end user data is not included in IT DR planning and backup is left to end users. This can expose organizations significantly as a lot of key information resides in PCs. Hence as a quick step organizations should look at this aspect and plan with users to either store all critical information on network drives, or implement automated PC backup solutions to enable speedy recovery if any of the PCs are hit by data loss.
Information Security is not one size fits all hence it is important that organizations perform a risk assessment. Only when they have fully understood their assets, the risks that threaten them and how these fit into the overall threat landscape can they determine the level of menace they need to defend against and where they draw the line to focus on limiting the impact of a successful attack. Once risk assessment has been done then, using the results, organizations should plan for governance structures to both, enhance and maintain, its preventative and detective security capabilities. This would include:
- Continuous investment in controls that protect their digital assets.
- Leveraging the threat intelligence that is available to understand the internal and external threats to the organization.
- Developing the ability to rapidly respond to an incident in order to limit any adverse impact on the organization.
by Omar Fahoum, chairman and chief executive of Deloitte Middle East,
Rob O’Hanlon, ME Audit leader, Deloitte Middle East,
Roger Nasr, Deloitte Bahrain office managing partner,
Kamel Saleh, Deloitte Egypt office managing partner, and
Tariq Ajmal, partner in charge of Technology Services at Deloitte Middle East