ABU DHABI, United Arab Emirates—Some firms in Gulf Cooperation Council countries are seeking new markets like those in the Indian Ocean to invest in as commodity prices continue to fall, according to sources.
But participants in the “An Indian Ocean strategy is vital for any player in the Gulf” panel at the Gulf & Indian Ocean Hotel Investors’ Summit in Abu Dhabi said it’s important to remember that investments in new areas might not translate to automatic success.
“We need to spread our risk across different geographies,” said Salim Bitar, CEO of hospitality and real estate at Dubai-based Aujan Group Holding. “Yes, GCC economies are different, but mostly they are led by one commodity, which currently is going through a difficult time. As you develop and grow, it is only responsible to shareholders to build value by diversification, but in (Indian Ocean hotels and resorts) you must asset manage and be involved in every aspect.”
While some say hoteliers are duty-bound to shareholders to seek new pastures, other panelists said GCC hoteliers should not even think about doing so. Risks are high, and there are plenty of opportunities in their own countries, they said.
Also based in Dubai, David Thomson, COO of JA Resorts & Hotels, agreed with Bitar. He said JA had for much of the last two decades been very much a United Arab Emirates company but that in the last five years it had started to look farther afield.
“Feeder markets coming to the Indian Ocean are the same as those of the GCC, so we’d be foolish not to capitalize on that in the Indian Ocean, which enjoys 40% repeat business and allows you to feed them into new properties in new geographies,” Thomson said.
“The cost of operations is very different in the Indian Ocean, too, where there is a large indigenous working population,” Thomson added.
Claude Attala, chief marketing officer at Jeddah, Saudi Arabia-based development firm Shamayel United Development Co., and Jahed Rahman, director of hospitality and leisure at Abu Dhabi-based developer Aldar Properties PJSC, said their companies are not opposed to diversification, but both were for now focusing on home markets.
“Do what you do well where you do it well,” Rahman said. “In The Maldives, for instance, you soon start talking about water-desalinization plants, and right there, as an owner, you’ve lost my attention. (Back home) some hotels we have opened in 60 days after being handed the building. You simply cannot do that in the Indian Ocean.”
“Across segments and geographies, I have so much to play with (in the GCC), even before getting on a plane,” Rahman said.
Attala also said his hands are full.
“Our Saudi Arabian owners think we have huge potential within (Saudi Arabia), especially in new residential districts,” Attala said.
Bringing it all back home
Thomson said these comments underlined the need to have local knowledge and feet on the ground wherever you head to.
“Diversification is pure survival,” he said. “In the GCC, operating costs are increasing, as is supply. Are you dependent on the X millionth new visitor arrival to the UAE? That’s a big thing to ask.”
Holding companies with pieces in many sectors have the ability to be nimbler, focusing on one sector in one country and another in others, panelists said.
“We’re now more active on the real-estate side, to accelerate returns and take advantage of currency devaluations in certain countries,” Bitar said.
Bitar added diversification in the region was reliant on joint ventures, for everyone to have skin in the game and to be seen to have an alignment of vision, especially in economies that might be deemed more difficult.
Rahman agreed but said he did not have to go too far to find those traits. He said companies who understood those risks would be best able to control them, but that at the moment the risk of geographical diversification was too high.
“Create regional powerhouses,” Rahman added. “Jumeirah (Group) and Rotana (Group) started in this way.”