Now Baalbaki has three manufacturing facilities in Syria, Egypt and the UAE. Hassan Baalbaki describes them as “integrated facilities producing polyesters and a range of polyols as well as systems for rigid foams, shoe soles, and specialties.”
“All of the sites are integrated with adhesives as well, and we make grades of adhesive for flexible packaging and for a range of other uses, he said.
In 2014, Baalbaki acquired a factory in Egypt. This was, and is, the largest producer of polyurethane adhesives in that country . Since the acquisition, Baalbaki has integrated that plant into the network.
“Over the last two years to 18 months we’ve set up distribution and service centres in Jordan; the Lebanon; one in Northern Turkey and one in Southern Turkey. Baalbaki is starting another one in Nigeria,” he explained.
“Nigeria is market where we have closer contacts. There are a lot of Lebanese in Nigeria. Our network in Nigeria is very, very strong based on the Lebanese diaspora,” said Baalbaki.
“Their families are in the Lebanon but they work in Nigeria, they come to see the families, you do business over lunch or dinner,” he explained.
South Africa was less interesting to Baalbaki,. He said: “It’s a different story, you don’t have the diaspora and all the multinationals are there already, the business is already very, very well-developed.
There are two metrics
There are two metrics that companies could use when deciding where to set up a base or build trading relationships in the Middle East/North Africa, said Baalbaki.
These are volatility and ease of doing business.
A further complication is the way that each country reports its statistics. “It can be difficult to really understand what growth is happening in each country’s economy,” said Baalbaki.
The local political situation plays an important role in Baalbaki’s view of each country in which it operates, he said.
“Tunisia, for example is acting a slightly differently to the way it did before the Arab Spring. A lot of people are turning to local producers,” he said.
In Egypt “when the revolution struck the country’s consumption went down, and if you had a lot of material on the way, you were stocking for more than you needed,” he said suggesting the Egyptian market is becoming more volatile.
“The Saudi Arabian market could become more volatile too, he said “depending on what happens in Yemen,” he said.
The countries in which Baalbaki operates can be divided into three sectors:
- Relatively okay, including countries like the UAE.
- Increasing volatility: countries like Saudi Arabia
- Falling volatility: countries like Egypt.
Ease of doing business.
The UAE is the easiest country do business in, said Baalbaki. “This is because of the legislation and the culture. They want investors to come in, they want the multinationals, and they facilitate everything from entry and investment to electricity. They create a lifestyle that incomers like. So if you’re a foreigner and you want to live in the GCC (Gulf Cooperation Council) I would assume you prefer to live in the UAE rather than somewhere else. This is because they have created an environment which is closer to your culture, it’s not that one culture is better than another.”
“If you go to Egypt today, there is very little foreign exchange, this can delay imports,” he said.
This is a problem in many countries, as are currency valuations, “for example in Turkey there was a devaluation, there was a devaluation in Egypt and there have been devaluation in other countries.” Baalbaki said.
Each country is a story in itself
Is the answer then to trade in dollars and counting dollars? “You can’t, because you need to sell in the local currency.” He said “The local legislators will force you (to use local currencies).”
“In some countries you’re no longer allowed to put dollars in cash in the bank, because if you do that it means basically you’re speculating on the black market.
“Each country has its own distinctive situation. Each one is distinct. Each one is a story in itself. For example, “If you understand Saudi Arabia, then you don’t understand Morocco. And if you understand the UAE, you understand Dubai, you may not understand the other Emirates.”
“If you want to do business in these countries, it is better to have locals conducting the business for you unless you’re in a very, very cosmopolitan environment which creates what you need to do business,” he advised.
Baalbaki said that in the middle of April 2015 the situation was like this: The Syrian banking sector is still operating, despite the civil war. It is not easy to do business in Syria but the polyurethane industry “has retracted so a lot of what goes into Syria is sold from outside and the customer just pays for it.
“Tunisia is open, Algeria is a bit more closed; Egypt is much more closed because of worries over currency valuations; Saudi is very easy; GCC in general is very easy,” said Baalbaki.
Looking at net oil importers, Baalbaki said: “Egypt has some issues, Lebanon and Jordan no issues at all Iraq has some issues depending on where you are in the country north central or south. In the north there are some problems because, I believe that the government is not giving Kurdistan sufficient funding. Apart from that everything’s okay. Iran is a scenario in itself,” he added.
Turmoil leads to opportunities
There are opportunities in the Middle East, said Baalbaki. “But,” he warned, “they are interlinked with the ‘what if?’ scenario. For example, if the oil price is $50 a barrel then Saudi
Arabia is a different place than if it is $120 a barrel. Today Saudi Arabia is investing $7 billion in infrastructure this means that for the coming two or three years Saudi will be a good place to do business. If oil remains low, in four or five years’ time the budget in Saudi will change and effectively the growth rate will fall.”
For all the countries in the region the oil price is supremely important.
“Take Lebanon as an example, Lebanon has oil and gas reserved in its territorial waters. If oil is $95 a barrel the country has around $279 billion worth of gas in the sea. The foreign debt of Lebanon is close to $50 billion which means they have a potential surplus of close to $240 billion.
“Syria is another example with gas in the sea as well. Gaza also has gas reserves, but the only country that has been able to capitalise on the gas in the sea is Israel,” said Baalbaki.
If Syria, Lebanon and Gaza can invest and pump out the gas, “these countries will develop dramatically,” said Baalbaki.
PU in different countries
The big well-developed countries such as Egypt have the full range of production, said Baalbaki. There is “high growth in flexible foam because of the youth bulge and the fact that the polyurethane is substituting for cotton in some markets. There is potential growth in rigid polyurethane because of the building market and because of legislation and expansion in the home appliance markets with companies like Electrolux buying in to Egypt,” he added.
According to the Brookings Institution, a US think-tank “The Middle East is experiencing an unprecedented youth bulge. With over 30% of its population between the ages of 15 and 29, representing over 100m youth, this is the highest proportion of youth to adults in the region’s history. (http://www.brookings.edu/research/topics/middle-east-youth)
Egypt also has an automotive sector “which is growing, but slowly because of legislation.
“There is also shoe sole production, which could grow with legislation potentially putting tariffs on imports from China,” Baalbaki said.
“It is a similar situation in Iran because these are two countries with well-developed industry,” he continued.
“In the GCC most of the business is in rigid applications for insulation and utilities. Flexible foam is also growing dramatically because of the of the youth bulge,” he said, adding:
“These are basically be economies with developed industry. The rest of the markets for polyurethane are primarily either shoe soles and flexible foam and rigid foam; or flexible foam and rigid foam.
“The area will not go away, the area is lying on one of the largest areas of black gold. The needs of the area may change and that change may create some turmoil. I’m still positive about the area in the long term, said Baalbaki.