Family empires dominate UAE business

By Michael Georgy

DUBAI (Reuter): When the al-Futtaim brothers set up a small shop on Dubai's creek in the 1930s, their dreams soared as far as the wooden dhows that plied the oceans with pearls, textiles and timber.

Decades later, within sight of the creek, stands City Center, one of the Middle East's largest shopping malls with everything from modern European furniture to a supermarket so huge that staff dash about on roller skates.

Majid, a second generation al-Futtaim, built the multi-million dollar complex last year with his own money. It now attracts shoppers throughout the oil-rich Gulf.

He and his brother Abdullah control the Al-Futtaim Group, a diversified business with some 30 ventures ranging from a tower scaffolding firm, electronics, computer software products, watches to construction and cars. They employ more than 4,500 people from some 20 countries.

The group provides a glimpse into the powerful family-owned enterprises that have evolved from small trading houses into multi-million dollar conglomerates that dominate the economy of the United Arab Emirates.

Others include Al Ghurair Group, Al Habtoor Group and Juma al- Majid. Their interests spread from lifts for the tower blocks rising from the desert to luxurious Rolls-Royce limousines.

As the families amass ever-bigger fortunes, the key question is whether they will open their doors to foreign investment or float their shares -- developments that economists say are needed for the country's oil-driven economy to diversify.

"When you are used to making your own decisions, it is difficult to open up to public scrutiny, to make the transition. We don't intend to have foreign investment at this time," said a senior Al-Futtaim Group official.

"In any country, foreign investment is needed for two reasons -- to make the economy more active or when you are in need of money. And this country is not short of money," he said.

Al-Futtaim's joint ventures with foreign firms were limited to deals that brought technology and know-how to the UAE.

On the surface Dubai, which prides itself on a booming free- market economy, seems like a foreign investor's dream.

Unlike neighboring emirate Abu Dhabi, Dubai is not blessed with vast oil wealth, forcing its sheikhs, traders and business families to hustle over the years to build a thriving trade and re-export center in a region buoyed by petrodollars.

Cranes dominate the skyline and building sites mushroom. Towering office blocks buzz with deals. Jebel Ali free-zone, with its attractive investment guidelines, has lured hundreds of international companies hoping to cash in on a robust economy.

Dubai is confident that tourism revenue will match its oil income by the year 2000.

And the highest oil prices in five years have pumped extra petrodollars into the economies of Dubai and the six other states in the United Arab Emirates, an OPEC heavyweight.

But aside from Jebel Ali the country's economy offers few investment opportunities. Foreign investors must agree to a 49 percent share of any venture.

Even wealthy UAE nationals who have channeled billions of dollars abroad seem eager for an investment vehicle at home. When Al-Khazna Insurance was launched recently, investors subscribed more than seven times for the 2.09 million shares on offer.

The latest primary issue on the informal stock exchange, which exceeded two billion dirhams ($544 million) in the last year, was heavily oversubscribed, underscoring high liquidity.

The unofficial stock market, limited to trading over the telephone, is expected to be formalized by 1998 but bankers say it will not grow without opening its doors to foreign money.

It would also flourish and absorb abundant private liquidity if family enterprises floated their shares. But bankers and economists say that is unlikely.

"They will not be willing to give up control of their companies," said a Western commercial attache.

"What's in it for these families?" asked a banker. "They don't need the extra cash and if they had it where would they invest it?"

The Al-Futtaim Group, one of the Gulf's biggest family enterprises, has re-invested some of its earnings in the UAE economy. But it has also put its money to work abroad.

It has invested in four assembly plants in Pakistan that make Fiat tractors and has engaged in other deals.

But many wonder whether foreign investors will ever be able to grab a stake in the vast family enterprises.

"They (family enterprises) are fortunate. At this time, they don't need the foreign capital," said the banker. "And they have access to cheap sources of funds from the banking system.