A learning curve

Qais Al Khalili, Chairman of Al Khalili Group, believes the current downturn will prove to be a blessing in disguise for economy as it will enable the corporates as well as the government to adapt and think proactively.  Muhammed Nafie reports

 

qais-al-khaliliOil prices are moving up in the wake of OPEC cuts. How is it goingt to reflect on Oman’s economy in 2017?

The oil price fall has both positive and negative impact on the economy. When you talk about negative impacts, there is a cash flow problem; some businesses are having a tough time; government projects will be affected; cash crunch will affect some private sector companies as well. Therefore, people are anxious about what is going to happen next year. Is it going to be the same? Is it going to be better? Or is it going to be worse? I don’t think it is going to be worse. The OPEC’s decision to cut the oil production which has positively reflected on oil prices is definitely a good sign.

But when you look at the positive impacts, you have to look back at what we gained from the various crises in the past. For example, in 1997, oil prices dipped to as low as $9; the real estate market suffered, projects came to a standstill, government spending stopped. But we came out of it, resilient and buoyant, with a lot of confidence. Some businesses were filtered out. The crisis purged the economy off a lot of businesses that should not have existed. The markets were cleansed of operators who used to harm customers, clients, and their competitors as well.

That was indeed a blessing in disguise in many respects. When I joined in 1996, we were doing only building materials business; but after the crisis in 1997, we diversified our portfolio. We opened new businesses and got new exposure. In 1996, we had only 30 employees, four cars and 15 trucks, but that has now grown to 750 plus cars and equipment; and our turnover went up from close to $5mn then to over $10mn a month now. In 2008, also everybody got panicked, but we came out of it unscathed.

What will be the positive impacts of the current downturn?

That filtering might happen this time as well. New business will come up, and those who could not adapt or are not proactive enough will suffer. There will be severe competition.

When oil price came down almost two years ago, I thought we will bear the brunt of it in three to six months. But the government has somehow been able to keep the momentum going by continuing its infrastructure spending. By the time we started feeling a bit of cash crunch, the crisis is getting over. It is like getting cured by the time you feel the actual syndromes of the disease. Unlike 1997, when the crisis was felt immediately, this one did not affect us seriously.

However this made a lot of companies and government control their expenses. It’s a positive development. A lot of companies are reconsidering the way they do businesses, cutting unnecessary expenses substantially, even by 30 to 40 per cent. This is healthy for the economy in the long run. You can avoid those expenses without which you can exist. I think crisis will help us purge the market, cut expenditure and brace ourselves for the future. But you have to be proactive; otherwise you cannot survive in business. It is a learning curve that we all need to go through.

Is Al Khalili Group looking to foray into new areas in 2017?

We are already well-diversified, with presence in building materials, hardware, electrical, logistics, construction, technology etc. We are looking to open more outlets in building materials in different areas of Oman. Instead of saying that the business is failing and cash crunch is there, we are opening more branches, exploring more outdoor sales opportunities. We want to be bold and aggressive to take that initiative; you don’t reach anywhere if you sit down for fear of risk.

Tourism and real estate development are the two potential areas we are looking to explore further. In real estate, there is a huge potential if you are doing it in the right way. Ten years ago, I would not have been this much excited about real estate development, but today despite severe competition and oil price fall, government is trying to make things more convenient for the private sector and that is giving us an encouragement. Government initiatives like Tanfeedh and Sharaka are encouraging business communities in Oman to think positive and go ahead with optimism.

In tourism sector also government is encouraging private sectors to develop new projects. Our geographical location is one of the best in the world, with gorgeous mountains, long and pristine coastlines, deserts and wadis.

Can you elaborate on your future plans?

I have delegated a lot of businesses. This is not what I want to do in the long run. We have learnt a lot of things. Family businesses do not last beyond three generations. I mean the risk is high after three generations. So you should start giving it up slowly and create the system that you trust, rather than holding it tight by you from all corners. And that way businesses can grow faster.

Are you looking for an IPO in the future?

We have three different options. We we can go for a merger with a local group having similar business interests; and we have identified a few prospective players. We can gain a lot from their experiences and they can gain from our experiences as well. The size will double or triple, but we can cut the costs by merging the departments. We have already identified a few and started with one of them by buying a stake of their business, to give it a try.

If you start a business on your own or inherit it from your father and grow it up, you have a psychological attachment to it that might override your logic sometimes. And if someone comes and says let us take it to the next level or make it better, you cannot do it the way you used to do it. You have to adapt and we are ready to do that. That is the real test.

Or we can go for a partnership with an international group who currently doesn’t have a presence in Oman. Another option is IPO. I would love to shake hands with someone sharing our mindset and on the same wavelength, with a lot of energy to explore and see the bigger picture.

 


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