As visions of Middle East governments are realised, shifting to economies that can survive beyond oil, procurement is helping to facilitate the change using creativity, innovation and shared values. And it is creating jobs.
Captain America, Charles Dance and Ichigo Kurosaki are not often found together in a recreation hall beside the Red Sea, but in February the Marvel hero, actor and sword-wielding teenager from Japanese anime Bleach convened in Jeddah for Saudi Comic Con. They were attending Saudi Arabia’s inaugural staging of the entertainment convention, which was started in the US 47 years ago by a group of geeks who got together to exchange comics. Since then it has grown to massive global appeal, including for the tens of thousands of Saudis who until then had to travel abroad to attend such events.
This year, Saudi firm Time Entertainment took a piece of the action on home soil, supported by the government. And hosting the three-day event is seen as a clear indication of change in a country characterised by religious conservatism. “Saudi Arabia is opening now,” said one woman at the show.
Providing more entertainment is one goal of Saudi Arabia’s Vision 2030 plan, developed by the power behind the throne, deputy crown prince Mohammed bin Salman. He is leading the charge to stimulate and support his country’s population – more than half of which is under 25, and lose its dependence on oil.
And while the kingdom is considered to be the least diversified of the Gulf Cooperation Council countries, it is well ahead of many of the other nations in the Middle East and North Africa region. The World Economic Forum’s (WEF) Global Competitiveness Report 2016-2017 puts Saudi Arabia at 29th, with Yemen in last place at 138.
The pace of change in Saudi was of course accelerated by the crash in oil prices, a commodity that delivers most of its income. Its oil reserves are the second largest in the world, after Venezuela, and it is the globe’s leading oil exporter and second largest producer.
Fortunately, the government has been encouraging private sector growth for many years to lessen its dependence on hydrocarbons and increase employment opportunities.
It has also been permitting more private sector and foreign investor participation. For example, a year ago the deputy crown prince surprised the global energy industry by announcing plans to float government-owned Saudi ARAMCO. Preparations are now underway for the initial public offering of the world’s largest crude exporter. There is also huge potential in airport and railway development, education and healthcare, petrochemicals, mining, ICT and retail.
To attract foreign investors, however, there needs to be more transparency and openness to international codes of conduct. So far, despite political changes in the Arab region in 2010, anti-corruption group Transparency International believes that “the majority have failed to build democratic systems allowing for greater transparency and accountability”.
But steps are being made, and the fact that the Interior Ministry released information in March about a government official who was arrested after accepting a SR1 million bribe is seen by some to be a significant shift.
Professionalisation of procurement
The supply chains will be expected to support Saudi’s transformation over the next 15 years, says Samer ALMadhoun, managing partner at Muhakat Institute. “There will be more reliance on procurement and logistics to tactically fulfil this plan and procurement will have to add value as part of the chain,” he adds.
Such changes are happening across the Middle East, the majority of which is experiencing lower growth, higher fiscal deficits and rising concerns about unemployment. The focus turns more on procurement to optimise costs, which leads to procurement transformations and more professional and efficient processes.
“The United Arab Emirates (UAE) is progressing from a handshake negotiation and awarding approach, towards true strategic sourcing including category management and managing supplier relationships over the life cycle of a contract,” says one sourcing head. “Procurement has the chance to earn a seat at the table by facilitating all of this. Anti-bribery and code of conduct policies are now set up in major operations across the country and a cultural change is starting to gather momentum.”
The economic situation, with increased mergers and acquisitions in the last year, creates risk in supply and manufacturing, as well as increased legislative challenges, says Samer Haddad, project procurement and contract management manager at Emerson Automation Solutions, in Dubai: “We have a global organisation, if we’re dealing with a supplier we need to have done due diligence to register them on our system. Once a supplier is acquired by another company we have to do some work to ensure quality is maintained, checks are done, relationships are in place, and consider it from a legislative perspective.”
The UAE is immensely ambitious, and change can happen almost overnight. It is not yet 50 years old, and it is already among the most advanced and competitive on the planet. By the time it celebrates its golden jubilee it aims to be the safest and most entrepreneurial place on earth.
This is all part of its government’s Vision 2021, which wants a first-rate education system, world-class healthcare, a sustainable approach to infrastructure and to be a nation that preserves its own identity.
Examples of change and innovation are seen everywhere in the Emirates. Robot police will shortly be patrolling the streets of Dubai. Tesla self-driving cars will be added to the Roads and Transport Authority’s taxi fleet and a prototype flying car is being tested. The authority is also involved in plans for a hyperloop transport system to carry passengers through a vacuum tube network inside electronically propelled capsules at more than 700mph – to ease congestion that damages economic growth.
Dubai is the Gulf’s leading metropolis and one of the world’s top five cities for imports and exports, according to consultants AT Kearney and, while growth may have dropped off in recent times, a study by Kuwait’s NBK bank predicts GDP will edge up from roughly 2.5% in 2016 to 4% in 2018. Investment in research and development is a key indicator of competitive success.
In December, Dubai Future Accelerators, a programme to develop innovative companies whose high-tech projects can benefit the emirate, announced investment of AED120m in seven sectors. And Dubai’s Future Foundation oversees a number of appropriately forward-thinking projects. This includes the world’s first 3D-printed office building, the construction of which required 50% less labour than conventional buildings of a similar size.
“The UAE government is bringing in ideas on innovation and creativity, and procurement needs to be aligned with that,” says one senior sourcing manager. “A creative mindset is needed everywhere, procurement included. Every sector needs to contribute to new ideas and innovations for the business to move them on.” Perhaps unsurprisingly, the WEF’s Competitiveness Report places the UAE as the most competitive economy in MENA: “It is also the most diversified in the region and has made great strides toward improving technological readiness and innovation since 2011.”
And procurement and supply is in a strong position. The profession was the only one to register an increase in online job postings in the UAE last November, according to the Monster Employment Index. Total online job postings in the UAE dropped 35% year on year, while procurement and supply chain roles showed a 19% rise. Professionals are needed to cut waste and secure strategic deals. “You could argue that the UAE has finally arrived in the real world, and the gold-diggers’ age is over,” one CPO tells SM.
Perhaps the country’s current highest profile mega-project is Dubai Expo 2020, which aims to be a technological, cultural, architectural and gastronomic feast to rival the Great Exhibition of 1851. The tender process for AED11bn of 47 construction contracts began in January this year. This includes construction of three “thematic districts” to host the majority of the exhibitions with a hoped for 25 million visitors. And last year, the project’s procurement team won the award for best start up in the CIPS Middle East Conference and Supply Management Awards for its swift and strategic work so far.
Another nation grappling with a massive and high-profile project is Qatar, where the World Cup will be staged in 2022. It is the first time the international football event will be held in the Middle East and is reportedly costing the country around $500m a week. It has also been hit with allegations of corruption and poor treatment of workers. Transparency International says Qatar had the sharpest decline in its Corruption Perceptions Index in 2016 in the region.
But it is working towards change. The government’s Vision 2030 was published in 2008, with four pillars covering human, economic, social and environmental development. The Qatar Foundation (QF), which was established to help transform the country from a hydrocarbon- to a knowledge-based economy, was handed the mandate to be the engine driving the development of Qatar people, with the headline aim of ‘unlocking human potential’, says Mutasim ElHassan, head of business support in Qatar Foundation’s procurement directorate. His department is already benefiting from improvements made through processes.
As QF grew rapidly, analysis showed that 70% of the transactions were contributing less than 10% of the spend, explained ElHassan. A decision was taken to decentralise these transactions, while ensuring that the end user followed certain principles and controls.
These include exercising discipline and ethical practice in all transactions, following corporate and relevant procurement policies, as well as adhering to – and developing – internal procedures to carry out the transferred functions, exercising administrative and financial controls.
“Decentralisation improves efficiency and enables buyers to focus on the most important purchases,” says ElHassan.
The procurement department of QF is continuing to establish more processes, he says, and is benefiting from greater economies of scale, prices and terms. Business continuity is improving, reducing tendering processes and therefore efficiency. And partners are innovating.
Filipe Barreiros, procurement director for MENA broadcaster OSN, sees the growing professionalism in procurement. “People say ‘procurement’s like football, everyone can play,’ but not any more,” he says. “People are getting more professional in terms of skill, analysis and automation of processes, risk, ethics and so forth. Our profile has increased and we’re gaining momentum in categories like technology, sales and marketing – areas that are sometimes outside our scope.
“Procurement is getting more noticed by stakeholders, not only for driving sales but how we can be more agile in finding solutions and gaining value for organisations. Things are getting tougher, so people are getting much more professional – there’s no place for amateurs.”
• Innovation, transformation and cost optimisation are on the agenda at the CIPS Middle East Conference in Abu Dhabi this month
• Find training courses to improve the skills of you and your team at https://goo.gl/QS8fXa
60-second overview: oil price decline
For about three-and-a-half years (2011-2014) the price of oil remained largely at $90-$120/barrel. In mid-2014, prices started declining as a result of a ramping up of production in the US and a drop in demand from emerging countries. Since then, a glut of supply has spurred a sharp and continued downward spiral in oil prices. The cost of a barrel of oil was around $50 in April.
There are conflicting opinions for the future of oil prices. Some believe it is a cyclical affair and once global markets are healthier, so too will dependence upon – and therefore the price of – oil, while others contend the energy market has undergone such structural changes that low prices are here to stay.
Predictions for future prices vary wildly – last year analysts estimated everything from $10 to $90/barrel – but for 2017 most expect it to remain in the $50-$60 range. For nations like Saudi Arabia, the biggest member of the Opec group of oil-producing countries, there is no choice but to diversify the economy.