16-30 November, 2017

Levelling the field

Saudi Arabia’s heir leaves no stone unturned with surprise anti-corruption crackdown p30

Algeria…..…..…...... DZD 215 Egypt……...... …...... EGP 18 Jordan....…...... …...... JOD 2 Lebanon...... LBP 4000 Oman……...... …..OMR 1 Saudi Arabia...... …SAR 10 UAE...…....…..…...... …AED 10 Bahrain…...... BHD 1 Iraq……...…..…...... IQD 3200 Kuwait…...... …...... KWD 0.75 Libya…...... LYD 3.5 Qatar………...... …QR 10 Syria...... SYP 200 Yemen…...... YER 600 #BornToDare

BLACK BAY S&G ELINOR CARUCCI/TRUNK ARCHIVE 42

▲ B otox Themost lucrative, andsecret poisonous, formula onEarth 16 November, 2017 1 CONTENTS Bloomberg Businessweek Middle East 16 November, 2017

◼ IN BRIEF ◼ VIEW 6 ● US in the cold over global warming ● Delhi is even 8 Emmanuel Macron is off smoggier than Beijing ● British retail heads for doldrums to a good start, but he’s running a marathon, not a sprint

1 BUSINESS 2 TECHNOLOGY 3 FINANCE

10 Now it’s Apple’s turn 18 Amaz on got one 22 How to profit to try to be Netflix prime deal in Ohio … from human nature: First you have 12 Saudi firms backed by 19 … no w the company is to understand billionaires in probe have searching coast to coast $2.1 billion in debt for another bargain your own

14 Emirates’ order helps keep 19 T o dig the safest, cheapest 24 Deep supply cuts have Airbus’s A380 programme mine, just wire everything desired effect as Saudi airborne, for now Aramco raises the cost of Arab Light Crude for Asia 20 ... to discover why remote data is as good as gold 2

23 “There’s nothing quite so vivid and emotional as losing money, so when a stock goes down, people overreact.”

15 With aims to control $2 trillion by 2030, KSA’s PIF calls in heavyweight advisors

15 Arkad and ABB form marriage of convenience to ECONOMICS POLITICS aid expansion 4 5 16 Solar project offers ray of sunshine for Abu Dhabi 30 Water & Electricity Authority 26 The Chinese market One day that is a world apart changed KSA 17 Iraq’s oil exports suffer in October as former allies 28 Mexican workers—not 32 The state of State: What’s become foes Nafta—are the reason Rex Tillerson up to? companies go to Mexico 34 When it comes to pipelines, 29 E gypt’s president is happy America First promises with the effects of a free- prove problematic floating Pound, unlike the middle classes

CONTENTS Bloomberg Businessweek Middle East 16 November, 2017

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Facebook facebook.com/ Businessweekme Twitter @businessweekme 63 The One: Dyson’s V7 Trigger handheld vacuum

64 Game Changer: Roger Crystal left the operating room for the boardroom

50 People with a rare disorder 16-30 November, 2017 anxiously await Ron Evans’s Levelling the field miracle exercise pill. Body builders are also pumped Saudi Arabia’s heir leaves no stone unturned with surprise anti-corruption crackdown p30

Algeria…..…..…...... DZD 215 Egypt……...... …...... EGP 1018 Jordan....…...... …...... JOD 2 Lebanon...... LBP 4000 Oman……...... …..OMR 1 Saudi Arabia...... …SAR 10 UAE...…....…..…...... …AED 10 Bahrain…...... BHD 1 Iraq……...…..…...... IQD 3200 Kuwait…...... …...... KWD 0.75 Libya…...... LYD 3.5 Qatar………...... …QR 10 Syria...... SYP 200 Yemen…...... YER 600

00_COVERx.indd 1 12/11/2017 22:58 Photo: Sun, Sea and Robots: Saudi Arabia’s Sci-Fi City Luca Locatelli in the CARRUTHERS: DYSON. COURTESY VACUUM: CIE. & MOSER H. COURTESY WATCH: BUSINESSWEEK; BLOOMBERG FOR BERL EMILY BY PHOTOGRAPH EVANS: Desert IMAGES. FARAONE/GETTY PHILLIP ZHUKOVA: YOU. COLLECTIVE THE

◼ IN BRIEF

Middle East & Asia Europe

● Syria announced ● Donald Trump sent mixed ● Lebanon Prime ● NATO updated messages on North Korea it would join the during his Asian trip, saying Minister Saad its command Paris climate it would make sense for Hariri structure for the Kim Jong Un to come to agreement, leaving the negotiating table but resigned first time since the the U.S. as the only also attacking his regime on Nov. 4, Cold War, putting for turning the country into United Nations “a hell no one deserves.” citing an alleged cyberdefence member outside assassination on the same the accord. plot against him. footing as land, air, and sea defence.

● Tencent ● The Paradise Papers leak showed that Apple Holdings acquired sought to preserve its low a 12 percent tax rate after a change in Irish law closed a loophole 6 stake in Snap. the company had previously exploited. The tech giant ultimately transferred two subsidiaries to the island of Jersey, which does not tax foreign companies.

The announcement came hours after Snap’s shares plunged 22 percent in reaction to disappointing third- quarter earnings.

● Iran rejected accusations ● Silvio Berlusconi from Saudi Arabia that it had supplied Yemen with a helped missile “for the purpose of orchestrate attacking” the country. The Saudi military intercepted a win for a missile fired by Yemen his centre-right on Nov. 4. coalition in Sicily.

The four-time Italian prime minister will ● Schools were closed in New Delhi as air pollution reached levels 10 times attempt to lead the government again those in notoriously smoggy Beijing. after general elections next year. By Jillian Goodman Bloomberg Businessweek Middle East 16 November, 2017

Americas

● British retail had its ● Republican Senator worst October since 2008. John Cornyn of Texas said ● “Unfortunately, Household spending for the he’d work with Democrats month slowed to its lowest to close loopholes in rate in more than a year. background-check I am the biggest legislation after a Nov. 5 U.K. year-over-year spending growth shooting in his home embarrassment state left 26 dead. 4.4% 1/1/17 surrounding

3.8% 1/1/16 the campaign.”

2.4% 10/1/17 Trump campaign adviser Carter Page, in early November testimony on his 2016 DATA: BARCLAYCARD contacts with Russia that was unsealed by the House Intelligence Committee

● Total agreed to ● The New York Times ● Tiffany was widely ● Democrats reported that the U.S. pilloried for its Everyday acquire Engie’s Department of Justice will Objects collection, which put up a strong assets in liquefied require Time Warner to sell includes a tin can made showing in its Turner Broadcasting of sterling silver and vermeil 7 natural gas, System division, which on sale for $1,000. state and local making the French includes CNN, HBO, and elections on Nov. 7, other networks, before it energy company approves the company’s especially in the industry’s planned sale to AT&T for Virginia, where second-largest the party won a player. $85.4b hotly contested race for governor.

● Priti Patel, the U.K.’s ● About 2,500 Nicaraguans secretary for international will lose protected Africa development, resigned after immigration status in the disclosing that she’d held U.S. The Department unauthorised meetings with of Homeland Security ● South Africa’s FirstRand Israeli officials in September. extended protections for agreed to buy London-based Haaretz reports that Patel Hondurans, however, and is bank Aldermore for also traveled to the disputed reviewing the status of those Golan Heights, a violation of from Haiti and El Salvador. diplomatic protocol. $1.4b ● Zimbabwe President Robert Mugabe ousted his vice president in an apparent move to make room for his wife, widely seen as his intended successor. INDIA: DOMINIQUE FAGET/AFP/GETTY IMAGES. HARIRI: MOHAMED AZAKIR/REUTERS. BERLUSCONI: MARCO LUZZANI/GETTY IMAGES. IMAGES. LUZZANI/GETTY MARCO BERLUSCONI: AZAKIR/REUTERS. MOHAMED HARIRI: IMAGES. FAGET/AFP/GETTY DOMINIQUE INDIA: BULAWAYO/REUTERS PHILIMON MUGABES: CO. & TIFFANY COURTESY CAN: RATNER/REUTERS. BAZ PATEL: ◼ VIEW Bloomberg Businessweek Middle East 16 November, 2017

To read Jonathan Bernstein on Trump’s 2020 prospects and Megan ◼ VIEW McArdle on the tax plan’s impact on universities, go to Bloombergview.com Next Steps in Macron’s Reforms

● The French president has made a good start, but there’s a long way to go

Emmanuel Macron has accomplished more in six months than his predecessor managed in five years. Trouble is, that’s a low bar—and the president will need to keep pushing if France’s economy is to achieve its full potential. Macron’s first phase of reforms addressed the country’s 3,000-plus pages of labor rules. The changes are aimed at lightening the burden of regulation on employers—for instance, by letting 8 more of them negotiate terms directly with employees. The new rules are valu- able, especially for the small and midsize companies that account for almost half of France’s workforce. They’ll also make it easier for multinationals to fire workers at struggling French subsidiaries, while encouraging them to hire more workers when times are good. Yet these changes, welcome as they are, don’t go far enough. Macron agrees, and he’s embarking on a more ambitious second phase of reforms to help tackle the unemployment rate, which has stood at about 10 percent for years. authorities often block new construction. programs, such as those in Germany and Europe’s cyclical recovery has Skills should be the other priority. Switzerland, emphasize on-the-job train- helped to get joblessness down a bit The education system has failed to deal ing and encourage businesses to help lately, but around a quarter of France’s effectively with low levels of literacy and devise the programs. France’s system young people are still looking for work. a lack of skills for the digital economy. relies more on classroom instruction. Government spending isn’t the issue. It Vocational training has also been weak— This approach fails to reach the students already spends generously on finding plagued by a huge number of compet- who most need help, and participation of jobs for the unemployed. The real obsta- ing approaches and run by officials who unskilled youngsters has been dropping. cles are housing and skills. see little value in apprenticeships, which Macron wants to simplify the system Affordable homes are in short supply, have proved effective elsewhere. and get employers more involved. This especially in the cities where jobs are Macron is making a start on broader might not be easy: It will mean reduc- more plentiful. And the system of subsi- educational reform—reducing class sizes ing the role of France’s powerful educa- dized accommodation often ties workers in poorer areas and giving universities tion ministry. It’s essential nonetheless. to particular places—in many cases with more autonomy—but this won’t yield This second phase of reform, even nontransferable lifetime rights. France quick results. Reforming the appren- more than the first wave, will upset some also needs to build more low-cost housing ticeship program may be the best way to unions and a lot of civil servants accus- and supporting infrastructure in disad- improve the job prospects of the young. tomed to getting their way. Macron needs vantaged areas. At the moment, local The most successful apprenticeship to stick with it.

Bloomberg Businessweek Middle East 16 November, 2017 1

Apple Has Big Plans for B Your Little Screen The tech giant is making a foray into Hollywood. U Initial reviews have been less than boffo

S Days before Apple Inc. planned to celebrate the studio. The two men have sterling reputations as key release of its first TV show last spring at a Hollywood members of the studio that produced Breaking Bad. hotel, Chief Executive Officer Tim Cook told his dep- They’ve hired other industry veterans to oversee the uties the fun had to wait. Foul language and refer- development of new shows. They also plan to hire I ences to vaginal hygiene had to be cut from some at least 70 staffers—including development exec- episodes of Carpool Karaoke, a show featuring celeb- utives, publicists, and marketers—to fill out their rities such as Gwyneth Paltrow, Jessica Alba, Blake division. “They are professionals with deep rela- Shelton, and Chelsea Handler cracking jokes while tionships with many of the people who make some N driving around Los Angeles. of the best shows on TV today,” says Jon Avnet, who While the delay of Carpool Karaoke was widely directed 10 episodes of Sony’s TV show Justified. reported last April, the reasons never were. Edits Erlicht and Van Amburg have agreed to remake were made, additional episodes were shot, and Steven Spielberg’s anthology series Amazing Stories E Apple shifted resources to another show. When with NBCUniversal and are in the bidding for another Carpool Karaoke was released in August, it didn’t show, about morning TV show hosts played by Reese make much of a splash. The early stumbles highlight Witherspoon and Jennifer Aniston. Apple wants to the challenges ahead as Apple mounts an ambitious have a small slate of shows ready for release in 2019. 10 S foray into showbiz. The company plans to spend “I think for both NBC and Apple, it’s about finding $1 billion on TV shows over the next year and has that sweet spot with content that is creative and hired a team that’s already bidding for projects challenging but also allows as many people in the against the biggest media companies in the world. tent as possible,” says Jennifer Salke, president of S With $262 billion in cash and securities in its NBC Entertainment. coffers, Apple has the money to make as much TV However, Apple isn’t interested in the types of as anyone, but some in Hollywood are beginning to shows that become hits on HBO or Netflix, likeGame wonder whether it has a clear strategy. The most of Thrones—at least not yet. The company plans to valuable company in the world, Apple is under the release the first few projects to everyone with an constant glare of regulators, reporters, and competi- Apple device, potentially via its TV app, and top exec- tors. Furthermore, the people who use the hundreds utives don’t want kids catching a stray nipple. Every of millions of Apple devices have pretty mainstream show must be suitable for an Apple Store. Instead views about the brand’s appeal. Macs, iPhones, and of the nudity, raw language, and violence that have iPads are also often in the hands of children—a group become staples of many TV shows on cable or stream- unsuited for much of the edgy programming that’s ing services, Apple wants comedies and emotional fueled the new golden age of television. dramas with broad appeal, such as the NBC hit This The secretive company says little about its plans. Is Us, and family shows like Amazing Stories. People No one in Hollywood knows where the shows will be pitching edgier fare, such as an eight-part programme available to watch, how much they’ll cost, or even produced by Gravity filmmaker Alfonso Cuarón and how Apple will publicise them. But in recent weeks, starring Casey Affleck, have been told as much. a visit to Apple offices in the Culver City suburb of Yet like Netflix Inc., Apple is thinking globally. Los Angeles has become as much a rite of passage The company hired Amazon.com Inc. executive for Hollywood producers, agents, and filmmakers as Morgan Wandell to oversee its international divi- dining at Spago. So clues are beginning to emerge, sion and is about to hire Jay Hunt to oversee devel- based on interviews with more than a dozen people opment in Europe. who’ve met with Apple executives or work there. All this has led many producers to label Apple The company has had many fits and starts in as conservative and picky. Some potential partners Hollywood over the past two years, with as many say they walk into Apple’s offices expecting to be as four different executives claiming to be respon- blown away by the most successful consumer tech- sible for its big move into Tinseltown. To lead the nology company in the world only to run up against 16 November, 2017 latest charge, Apple hired Jamie Erlicht and Zack the reality of dealing with a giant, cautious corpo-

Businessweekme.com Van Amburg, former heads of Sony Corp.’s TV ration taking its first steps into a new industry. GROCH MARTIN BY ILLUSTRATION ◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017

11 ◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017

Apple isn’t the first tech company to under- beyond a couple of savage reviews. The show is “a whelm Hollywood. Yahoo! Inc. and Microsoft bland, tepid, barely competent knock-off ofShark Corp. spent millions of dollars on TV shows before Tank,” according to Variety’s Maureen Ryan. “There’s pulling back within a couple of years, frustrated no reason” for Hollywood to lose sleep over it, she by the slow pace of development and their inabil- wrote. Apple is betting the same won’t be said about ity to attract audiences. Even Amazon, at first con- its broader TV strategy. �Lucas Shaw sidered a success story, is now drawing complaints THE BOTTOM LINE Apple will spend $1 billion next year on from writers and producers over casting decisions programming for television. By sticking with mainstream shows, it and instances of buying scripts but not producing could miss out on viewers who increasingly favor edgier fare. them. The online retailer also fired its studio chief in October over allegations of sexual harassment. Streaming video is just one of many fronts in the global battle between technology titans. After years of flirting with Hollywood, Silicon Valley companies Saudi Firms Backed are finally writing big checks, spurring a doubling of video production over the past decade. Amazon by Billionaires in Probe spent an estimated $4.5 billion this year on movies and TV shows, while Facebook and YouTube will Have $2 Billion Debt spend more than $1 billion each. Netflix, which plans to spend $8 billion in 2018, dwarfs them all. Yet no one arouses more interest in Hollywood ● Government stresses it has only frozen the bank than Apple. One reason it quickly climbed the list accounts of individuals as it seeks to ease tension of places to pitch new shows: the almost cult-like among investors attachment many have for its phones. “Their brand is the most important thing,” says Avnet, who’s made shows for Snapchat and YouTube and is in Three Saudi companies, whose billionaire backers the process of making one for Facebook. are caught up in an anti-corruption crackdown, By funding original shows, the company also have at least $2.1 billion of debt maturing over the 12 can remind customers to think of the Apple TV next three years, according to data compiled by streaming device before the Roku or Amazon Fire Bloomberg. TV Stick and to use Apple’s year-old TV app instead Kingdom Holding, which is 95% owned by of Amazon Prime Video or YouTube. With iPhone Alwaleed and holds stakes in Twitter Inc. and growth slowing, the company is looking to other Citigroup Inc., has $975 million of loans maturing divisions to deliver sales. ITunes, Apple Music, in the next three years. and the TV app are part of its services business, Nasser Al Tayyar Travel Group had $262.4 where CEO Cook wants to double revenue by 2020, million outstanding as of August. to about $50 billion. Saudi Binladin Group raised $634.6 million in Yet Apple isn’t trying to compete with Walt 2014 to finance projects. The loan matures this Disney Co. or Netflix to become the biggest backer month. Lenders including Abu Dhabi Islamic Bank, ● Kingdom Holding has loans maturing in the of TV shows and movies on the planet. Instead, the National Bank of Abu Dhabi and Samba Capital next three years with a company wants its shows to complement those of helped arrange the loan. It also borrowed $159 combined value of other networks and streaming services that consum- million in 2014 from regional banks. The project ers already watch on Apple devices. Its new shows, finance loan matures in 2018. $975m however, will no longer be placed on Apple Music, Among those being held are Prince Alwaleed bin which will limit its focus to music-related video. Talal whose $19 billion fortune slumped by about Whether Apple can channel consumer demand $2 billion in the days following the crackdown. in TV as well as it does in smartphones remains to Also being detained as Bloomberg Businessweek be seen. Around the time Apple delayed the release Middle East went to press was Nasser Al Tayyar, of Carpool Karaoke, its top brass also decided the TV who amassed a fortune that’s tied to Al Tayyar unit should move up the release of Planet of the Apps, Travel Group Holding Co., one of Saudi Arabia’s a reality competition series in which entrepreneurs largest travel agencies, and Bakr Binladin, the scion pitched celebrity investors on their idea for an app, of one of the kingdom’s biggest construction firms. so it would make its debut on Apple Music in time Saudi Arabia said it has only frozen the bank for the company’s Worldwide Developers Conference accounts of individuals and not those of the com- in June. Apple execs loved the show and thought it panies they own or manage, as the kingdom seeks would endear the tech giant to software writers. The to ease tension among global investors over the show wasn’t supposed to be released for a couple of crackdown. �Archana Narayanan months, and there was no marketing plan in place—a THE BOTTOM LINE Three KSA companies backed by vital step in the age of too much TV. Apple pressed billionaires arrested in an anti-corruption swoop have combined ahead, and the show came and went with little fanfare debts of $2.1 billion, according data compiled by Bloomberg.

◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017 Emirates Negotiating Order for About $16 Billion of A380s

● Multi-billion dollar deal could save Airbus A380 programme

Emirates is negotiating a deal to purchase about 36 Airways to Lufthansa to Air France, have additional Airbus SE A380 superjumbos, accord- made the plane only a sub-category of ing to people familiar with the talks, a move that their fleets or even cut back their original would help extend the embattled programme’s life. commitments. Executives were working to seal an accord with Reuters earlier reported that talks were the goal of making a formal announcement on Nov. centreing around a deal for between 36 and 12 at the start of the biennial Dubai Air Show, said the 38 planes, citing a person familiar. 14 people, asking not to be named as the discussions In other news Emirates Group boosted are confidential. An order for that number would be first-half profit 77 percent as the biggest long- valued at $15.7 billion at current list prices, though haul airline cut jobs and benefitted from a the tally could change as talks enter the final stage. more stable dollar as it seeks to recover from Airbus has been working to secure a follow-on its first annual earnings decline for five years. order for the four-engine model from Emirates, Net income increased to 2.3 billion dirhams which would add another 4 1/2years to its backlog, ($630 million) in the six months ended Sept. 30, after the planemaker was forced to cut production with sales advancing 6 percent to 49.4 billion of the aircraft to just eight a month next year from dirhams, the Dubai-based company said in a 25 in 2016 amid slack demand. Outgoing sales chief statement November 9. John Leahy, who is looking to Emirates for a last Emirates has been grappling with the tough- triumph before handing over the reins to a succes- est operating conditions in a three-decade history sor early next year, is renowned for getting orders that’s seen it become an industry heavyweight by signed in the final moments ahead of an air show. exploiting the position of the Gulf at a natural cross- An agreement with Emirates would allow Airbus roads for inter-continental flights. The carrier has to continue marketing the plane, pursuing a series reduced the payroll by 3,000 people in six months, of smaller deals that wouldn’t otherwise have eliminating some senior cabin crew, support staff been viable without the new commitment from and IT workers, and has begun charging for perks its biggest customer for the double-decker model. such as advance seat selection in a bid to boost Representatives for Toulouse, France-based Airbus revenue. and Emirates, which is based in Dubai, declined to Factors that weighed on earnings last fiscal comment. year have also begun to subside, with the lifting The planemaker in June unveiled an upgrade of President Donald Trump’s laptops ban on to the A380, dubbed the “plus” that adds wingtips U.S.-bound flights from Dubai, an easing of the and a more condensed cabin layout to improve the Mediterranean immigration crisis and a rebound fuel efficiency of the aircraft. Airbus Chief Executive in European tourist visits that had dipped amid a Officer Tom Enders restated the company’s com- spate of terrorist attacks. There’s also less pressure mitment to the plane in Hamburg this month when from a dollar which hurt earnings booked in a host Emirates took its 100th jet of a total 142 on order. of weaker currencies because of the dirham’s peg Emirates already represents the only major to the greenback. customer for the double-decker, which has 317 net “The easing of the strong dollar against other orders in total. Most other customers, such as British major currencies helped our profitability,” Emirates ◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017

Chairman Sheikh Ahmed bin Saeed Al Maktoum said PIF was not immediately available for comment. in a statement. “We are also seeing the benefit from Representatives for Klein and Evercore declined to various initiatives across the company to enhance comment. our capability and efficiency with new technologies Klein, 53, is a prolific force in the M&A industry, and new ways of working.” � Benjamin Katz and landing roles advising on some of the biggest deals Christopher Jasper in the past few years. M Klein & Co. was listed first among advisers to Dow Chemical Co. on its merger THE BOTTOM LINE Emirates is negotiating a deal to buy an additional 36-38 Airbus SE A380 superjumbos, worth some $16 with DuPont Co., one of the largest-ever chemicals billion, a move that could save Airbus’s A380 project deal. He also worked as a go-between for the chief executive officers on Glencore Plc’s 2012 merger with Xstrata Plc, people with knowledge of the deal said at the time. Evercore, founded by former deputy U.S. Treasury Secretary Roger Altman, opened an office Saudi Fund Working in Dubai earlier this year to tap regional opportuni- ties. The firm now has about 10 investment bankers with Klein, Evercore based in the emirate’s financial hub, including new hires and some who have relocated from other on Strategy offices, the people said. PIF plans to borrow to boost returns from its investments and is targeting annual returns of 8 ● The sum Saudi ● Wealth fund brings in top advisors percent to 9 percent over the longer term, or 2025 Arabia’s wealth fund as it targets $2 trillion value by 2030 to 2030, Al-Rumayyan said an interview in Riyadh is putting into a global technology fund run by last month. The fund will also look for more part- SoftBank nerships like its tie-ups with money managers Saudi Arabia’s wealth fund, which aims to control Blackstone Group LP and SoftBank Group Corp., $45b more than $2 trillion by 2030, is working with rain- he said. maker Michael Klein and boutique Evercore Inc. on The wealth fund has agreed to contribute $20 15 its global investment strategy and financing plans, billion to a U.S. infrastructure fund managed by according to people familiar with the matter. Blackstone that could manage a total of $40 billion Klein, the former Citigroup Inc. investment in equity commitments from other investors. It banker who runs his own boutique, is advising is also putting $45 billion into a global technol- Public Investment Fund on its partnerships with ogy fund run by SoftBank. The deals are part of international companies and working closely with Public Investment Fund’s plan to have 25 percent of Managing Director Yasir Al-Rumayyan, the people its assets in international investments by 2030, up said, asking not to be identified because the details from 5 percent in September. � Dinesh Nair and aren’t public. Evercore is providing advice on stra- Ruth David

tegic and funding options, the people said. THE BOTTOM LINE Saudi Arabia’s wealth fund, Public The roles will cement the two independent Investment Fund, has brought in advisors Michael Klein and banks’ position in the transformation of the Saudi Evercore Inc. as it aims to reach a value of $2 trillion by 2030. Arabian economy as both are already working on the blockbuster initial public offering of the king- dom’s state-owned oil company Saudi Arabian Oil Co. Klein is said to be providing strategic advice to the government for the IPO of Aramco, as it’s Saudi Aramco known, while Evercore is working alongside rival Moelis & Co. as a financial adviser on the offering, Contractor Arkad Forms people familiar with the matter said in March. The boutiques will help the oil giant pick underwriting Venture With ABB banks, make decisions on potential listing venues and ensure the IPO goes smoothly, they said. ● Sales Arkad expects PIF, as it’s known, is bringing international exper- ● Joint venture will give Arkad a to generate this year tise as it pushes ahead with plans to transform itself foothold in Algeria, Kuwait and the into one of the world’s largest sovereign wealth United Arab Emirates $553m funds. The fund is at the centre of Saudi Arabia’s efforts to diversify revenue away from oil under an economic transformation plan known as Vision Saudi energy services company Arkad, which is 2030. The kingdom plans to sell shares in Aramco in building a nationwide pipeline network for oil giant what could be the largest IPO in history, and trans- Saudi Aramco, will expand outside the kingdom

PHOTOILLUSTRATION BY SJC, SHUTTERSTOCK SJC, BY PHOTOILLUSTRATION fer ownership to PIF. in a venture with ABB Ltd. that opens the doors ◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017

to business in North Africa and the Gulf region. exporter. “We see this as a clear growth opportu- Arkad signed a deal to acquire a majority stake in nity,” Per Erik Holsten, managing director of ABB’s a new joint venture with ABB’s oil and gas engineer- global oil, gas and chemicals business, said by phone ing, procurement and construction unit, Managing from Oslo. ABB “wasn’t getting enough scale” with Director Hani Abdelhadi said in an interview. The its existing energy contracting operations, he said. project will give closely held Arkad a foothold in Arkad, based in the eastern Saudi city of Al Algeria, Kuwait and the United Arab Emirates, he Khobar, is currently building a gas pipeline system said. Both Arkad and ABB declined to disclose the for Aramco that will span more than 1,100 kilometers size of their respective stakes and the value of the (685 miles) from Saudi Arabia’s Eastern Province to transaction, which they target for completion in Rabigh on the Red Sea. The network is part of the December. country’s Master Gas System that aims to supply “It has been our goal since the beginning to gas as a replacement for the oil currently used to become an international company,” Abdelhadi said generate electricity, and also to send gas to petro- in Dubai. “Through an acquisition, it’s easier market chemical plants. access than trying to go and set up in each country.” Arkad expects to generate 2 billion riyals ($533 Arkad is expanding at a time when energy-ser- million) in sales this year. Abdelhadi declined to vices companies worldwide are struggling to cope give estimates for 2017 income or projections for with lower crude prices, which have driven oil and future sales and income. Arkad, established in 2011 natural gas producers to slash investment. Crude as Saudi KAD, was re-named in February. is currently trading at about half its 2014 peak, The joint venture, to be called Arkad-ABB SpA, and Schlumberger Ltd. and Baker Hughes, the two will be based in Milan at the headquarters of ABB’s largest oil service companies, have blamed lacklus- existing oil and gas EPC business. Abdelhadi and ter earnings on the reluctance of North American Holsten declined to identify any of the venture’s explorers to boost their spending. The oilfield ser- clients. Arkad’s expansion aligns with Saudi Arabia’s vices business was the worst hit in the three-year Vision 2030 plan of diversifying the economy and crude-market crash. creating jobs through small to medium-sized enter- For Zurich-based ABB, a provider of power and prises.� Bruce Stanley and Jinan Warrayat automation technologies, the deal promises new 16 THE BOTTOM LINE Arkad and ABB Ltd will form a joint venture. opportunities in Saudi Arabia, where Arkad’s main The deal will help Arkad expand in North Africa and the Gulf, while customer is Saudi Aramco, the world’s biggest crude helping ABB gain scale.

Abu Dhabi’s Biggest Solar Project on Track to Start in 2019

● The 1.2-gigawatt project by Jinko Solar and Marubeni Corp is due to start operating by April 2019

The world’s biggest photovoltaic solar plant is set the planned facility. Prices for solar projects in the to start operating by April 2019, a managing direc- Middle East have set successive records with first tor of China’s Jinko Solar Holding Co. said. Dubai and then Abu Dhabi coming in with all-time The 1.2-gigawatt project in Abu Dhabi is “well low power pricing. on track and on schedule,” Mothana Qteishat, Jinko “What we have done will attract other Chinese Solar’s managing director for project development investors” to the region, Qteishat said in an inter- in the Middle East and North Africa, said at the view. There is room for solar power prices to fall Routes to China Summit organised by Bloomberg LP even more, he said. and sponsored by HSBC Holdings Plc. The project is Saudi Arabia has received the world’s cheap- being developed by Jinko Solar and Japan’s Marubeni est offer for supply of solar power. Electricite de Corp., with each company holding a 20 percent France SA and Abu Dhabi’s Masdar made a joint bid share, he said. to provide electricity for as little as 1.79 cents a kilo- Government-owned Abu Dhabi Water & watt hour, the Saudi energy ministry said in October. Electricity Authority received a then record-low A combination of improving and less costly

bid of 2.42 cents a kilowatt-hour for power from technology, free land earmarked for the plants, SJC BY ILLUSTRATION ◼ BUSINESS Bloomberg Businessweek Middle East 16 November, 2017

connections to national power grids and favour- able financing have helped cut the costs. Nations are investing in solar and wind energy to cut down on pollution from fossil fuels and to take advantage of reduced costs. In the Middle East, there is the added incentive to produce more alter- native energy for domestic use and export more crude oil. Saudi Arabia plans to develop 30 solar and wind projects over the next 10 years as part of a $50 billion programme to boost power generation. � Claudia Carpenter and Justin Carrigan

THE BOTTOM LINE 1.2-gigawatt solar project in Abu Dhabi will open in 2018. The project once marked a record bid for cost per kwh but this has since been superseded by a project in KSA

Iraq’s Oil Exports Decline as Kurdish Fight Cuts Output according to data compiled by Bloomberg. ● Kirkuk’s oilfields were thrown into Iraq has been OPEC’s star performer since the the spotlight when ● Shipments from OPEC’s second- start of the decade, nearly doubling crude pro- Kurdistan included the largest producer dropped to 3.72 duction as it brought in international partners to city in an independence referendum million barrels a day in October develop its giant fields in the south. While smaller 17 explorers bought up acreage in northern Iraq, production increases there have been plagued by Iraq’s crude exports fell 7 percent in October after disputes over crude revenue between the semi-au- the Kurdish region held an independence referen- tonomous Kurds and the federal government. dum that sparked fighting with federal troops, inter- Those disputes and a three-year battle against rupting pipeline sales. Islamic State militants weren’t enough to stop Shipments from OPEC’s second-largest producer Iraq from boosting output to a high of 4.63 million dropped to 3.72 million barrels a day in October, barrels a day in December, the month before OPEC’s from 3.98 million in September, according to cuts started. Bloomberg tanker tracking. Exports from the dis- Iraq sold 3.29 million barrels a day of crude from puted Kirkuk region halted amid the dispute, cutting Basrah port in the south last month, down 2 percent sales from northern Iraq in the second half of the from September, according to tanker tracking. Sales month to less than half their normal pace of 600,000 from the Kurdish region, which had included flows barrels a day, according to port agent reports and from fields in Kirkuk province, plunged 30 percent tanker tracking. Shipments were the lowest since in the month to 428,387 barrels a day. April when pipeline disruptions in the north and Kurdish forces lost control of Kirkuk and its oil jetty repairs in the south slowed sales. fields to federal troops last month. The Kurdistan Iraq’s faltering exports bolstered crude prices Regional Government included Kirkuk in its inde- last month, helping push Brent to a third monthly pendence referendum, which the federal govern- gain this year and its first close at more than $60 ment rejected. Kurdish forces had occupied areas a barrel. Global producers have been trimming of Kirkuk vacated by the Iraqi military in the face output to deal with oversupply that’s cut prices from of an onslaught by Islamic State militants in 2014. more than $100 a barrel in 2014. The Organisation China was Iraq’s biggest market last month, of Petroleum Exporting Countries meets later this with vessels carrying 845,101 barrels a day of crude month to discuss extending output cuts that started leaving the Persian Gulf country for the Asian buyer in January beyond March 2018. in October, according to tanker tracking. Most crude The country hadn’t complied fully with its from the Kurds went to Greece, with the European pledged output cuts until last month when fighting country taking 150,000 barrels a day of crude from with the Kurds brought production down to within the region, the data showed. � Anthony DiPaola limits in the OPEC deal. The country pumped 4.35 THE BOTTOM LINE Iraq’s oil output dropped to 3.72 million million barrels daily in October, the first month this barrels a day in October amid clashes between Iraqi and Kurdish year that it’s complied with the pledged output cuts, forces, helping push Brent to a third monthly gain this year. Bloomberg Businessweek Middle East 16 November, 2017 2 cash grants. The terms of a fifth agreement, which Republican Governor John Kasich announced in Amazon September, haven’t been disclosed because the deal hasn’t yet been signed by the state’s Tax Credit T Authority, a five-person panel composed mostly of local business leaders. Gets a Good The deals have required Amazon to create surpris- ingly few jobs. And JobsOhio’s lack of transparency E is part of the problem, says David Yost, Ohio’s state Deal in Ohio. auditor. He says that “$123 million is a lot of money, and you ought to get a lot for that. It’s really hard to know how much the state of Ohio paid per job.” C Maybe Ohio’s job-growth rate has trailed the U.S. average for 57 consecutive months; in August it was about 1.1 percent, compared with the 1.5 percent national Too Good rate. In 2013, after Yost, a Republican, threatened H to compel JobsOhio to show him more numbers, Kasich pushed a bill through the state legislature strip- ping public officials of the right to audit the agency’s ● The jobs payoff is uncertain books. A private auditor now conducts an annual N for millions of dollars in tax review, which is partly redacted before publication. “JobsOhio is succeeding where public efforts incentives and grants failed,” says agency spokesman Matt Englehart. “Amazon has shown confidence in Ohio’s talent by O investing and creating jobs here.” If a company fails to live up to its deals, Englehart adds, its incentives The emergency responders of Licking County, Ohio, can be revoked, and its funding clawed back. Amazon are under strain. At least once a day, a medical unit didn’t respond to requests for comment for this story. 18 L from West Licking Fire Station 3 makes a run to the In 2014, after negotiating with JobsOhio, Amazon Amazon.com Inc. warehouse 3.1 miles away, in the agreed to spend $1.1 billion to build three data centers township of Etna, about 20 miles east of Columbus. in the state in exchange for a 15-year exemption The calls for routine medical issues that occur in on state and local property and sales taxes, up to O grueling warehouse jobs come at all hours, says Steve $77 million. The value of the tax breaks will increase Little, the fire district administrator. Shortness of proportionately if Amazon spends more on construc- breath. Chest pains. Myriad minor injuries. During tion or expansion of the data centers from now to the busy holiday season, he says, the warehouse 2044. JobsOhio negotiated a $4 million tax credit G sometimes issues multiple emergency calls a day. to offset payroll costs in exchange for a promise of Amazon isn’t helping cover the costs. Under the 120 total jobs at the three data centers. It also gave deal the company negotiated in 2015 with local offi- Amazon $1.4 million in cash. cials and the state’s private economic development As part of the first deal, municipalities that wanted Y agency, JobsOhio, it’s paying no property taxes a data center had to offer supplementary blind bids. to Licking County for 15 years. As part of a two- David Meadows, economic development director warehouse deal, the state gave Amazon $17 million in of Hilliard, says the Columbus suburb gave Amazon tax incentives, and JobsOhio handed over $1.5 million $5.4 million in further incentives to land one. Nearby in cash, funded with income from the state’s liquor Dublin handed over $7.3 million, including 68 acres monopoly. The new facilities are “almost a million square feet we have to protect, but we get no extra money,” Little says. “We have no voice in these deals, and we get no cash. Our residents are being forced to pay instead.” In November, voters in Little’s district will be asked to approve a five-year, $6.5 million prop- erty tax levy to keep the fire department operating. While most big companies extract tax breaks from states and municipalities where they’re looking to expand, in Ohio Amazon has become something of a poster child for incentives that make it tough for public services to accommodate the added strain its facilities bring. In four deals struck through 16 November, 2017 JobsOhio since 2014, the company has received at

Businessweekme.com least $123 million in tax breaks, plus $2.9 million in BUSINESSWEEK BLOOMBERG FOR TOMPKINS CAROLINE PHOTO: 731; BY ILLUSTRATION PHOTO ◼ TECHNOLOGY Bloomberg Businessweek Middle East 16 November, 2017

valued at $6.8 million and sold to Amazon for a buck. A Second Home for Amazon New Albany provided a 15-year tax exemption on $10 million in new investments. That agreement calls Complaints about strained public services haven’t hurt Amazon for 25 full-time Amazon jobs but describes the detail much in the search for its second headquarters. Some 238 cities as a “good-faith estimate” that cannot “be construed applied for the honour, and the promised $5 billion in spending, in a manner that would limit the amount or term of before the Oct. 19 deadline. As the company begins narrowing the tax exemption.” New Albany officials declined its options ahead of a 2018 decision, here are 10 likely finalists. to comment. �Natalie Wong The second deal, in 2015, included the jumbo warehouse in Etna and another in nearby Obetz. The City Pros Cons following year, JobsOhio gave Amazon a $270,000 Atlanta ● Major flight hub; home to Amazon delivery ● Inadequate mass transit for tax credit to convert a former Chrysler plant in partner United Parcel Service Inc. a widely dispersed metro area Twinsburg, about halfway between Cleveland and Akron, into a sorting facility. Amazon promised only Austin ● Low cost of living; high quality of life; young ● Small metro area compared workforce; low-regulation state with no with others on this list 10 full-time jobs, plus 300 part-time or seasonal ones. state income tax; home to recent Amazon Even so, the city kicked in a seven-year, 50 percent acquisition Whole Foods Market Inc. property tax exemption, worth roughly $600,000. Boston ● Proximity to Harvard and MIT; flight hub; ● Officials have refused to “About 65 percent of that money would have gone relatively low cost of living; home to Amazon’s negotiate incentives for now to the school district,” says Larry Finch, Twinsburg’s robotics subsidiary director of planning and community development, Chicago ● Strong, diverse talent pool; major flight ● Not a tech hub though he adds that the deal should still be consid- hub with access to mass transit; heavy tax ered a win. In May, Twinsburg passed a property incentives tax levy of $6.9 million, or $241.50 per $100,000 of Denver ● Flight hub; high quality of life; young, ● Conservative on tax breaks home value, to fund its schools. educated workforce looking for tech jobs Earlier this year, Amazon’s fourth deal with JobsOhio secured $11.6 million in tax breaks to open Detroit ● Low rent; three big universities nearby ● Conservative on tax breaks; subpar mass transit; small another two warehouses. Kasich announced the fifth tech scene and latest agreement, to make a warehouse out of 19 a shuttered mall in the Cleveland suburb of Euclid, New York ● Young, diverse workforce; strong university ● High costs of living and on Twitter on Sept. 28. “Congrats to Euclid on the ecosystem; proximity to advertising and housing; limited space for fashion industries construction big win!” he wrote. Kasich has good reason to promote JobsOhio’s Pittsburgh ● Robotics hub; close to major distribution ● Far from other major metro deals. In 2010 privatising the state’s economic devel- points; large workforce with manufacturing areas and tech centers background opment agency was a big part of his campaign-trail plan to stem Ohio’s loss of manufacturing jobs. He Toronto ● STEM-centric workforce with lower ● Backlash from President argued that a private company staffed with seasoned, salaries than U.S. counterparts Trump well-paid executives could negotiate better than a Washington ● Highly educated workforce; strong public ● Expensive housing market; public agency would. “They will be given the power transit; Amazon CEO Jeff Bezos owns the limited building space to negotiate, all the way down to crossing the t’s and city’s top newspaper and its largest house dotting the i’s,” he said at the time. The first bill Kasich signed into law after taking office created JobsOhio. state legislator tried to fight JobsOhio’s takeover of If the agency were directly funded with public the liquor franchise. “Now, by the time the public money, it would be subject to public records laws. finds out, the deals are finished. They don’t have to Kasich came up with a financing scheme that allowed sell it.” Timothy Keen, Kasich’s budget director, says JobsOhio to avoid that requirement. He arranged for the private agency is better suited to the task than its the state to sell to the agency its liquor monopoly, public counterpart was. which dated to the end of Prohibition. The price: As economic development agencies have been $1.4 billion, mostly in payments to bondholders, for privatised in other states, some auditors like Yost a 25-year lease of a business that had been contrib- have tried to push back. Timothy Keller, auditor uting $250 million annually to state coffers. JobsOhio for New Mexico, successfully lobbied the private also agreed to make supplemental payments if liquor Governmental Accounting Standards Board to adopt profits exceeded certain thresholds, which they have. a nationwide rule that requires governments to start Since 2013, JobsOhio’s annual salary costs have risen publishing annual tax incentive totals by the end from $2.5 million to $11.5 million. The 83-employee of this year to get the bond-rating benefits of GASB agency’s president, John Minor, has a salary of certification. “We have created this self-enforcing $445,000, three times Kasich’s. cycle of competition between state governments to “Prior to the formation of JobsOhio, public offi- lure companies,” he says. “Hundreds of millions of cials had to be more open about what they were offer- dollars have been thrown away.” But the new rule ing to companies like Amazon,” says Dennis Murray won’t require states to show how many jobs they get Jr., an attorney in Sandusky who as a Democratic in exchange for tax breaks or whether the jobs are ◼ TECHNOLOGY Bloomberg Businessweek Middle East 16 November, 2017

desirable. And it might not apply to private agencies Seventy-five miles outside town, Barrick Gold such as JobsOhio, says Yost, though he acknowledges Corp. is a year into the gold mining industry’s most that “it is better than the vacuum we had before.” ambitious experiment to modernise digging. At “Annual reports and redacted records aren’t Barrick’s analytics and unified operations centre, 20 enough to make a judgment about how well this a long bank of enormous screens and rows of com- agency is doing,” Yost says, referring to the current puters analyse data collected from thousands of system of JobsOhio disclosures. “I don’t think anyone sensors that record virtually all activity at and outside the organisation has enough information. around the vast underground Cortez mine. The It’s pretty much, ‘This is the way it is, these are the idea is to use Silicon Valley monitoring technol- numbers, trust us.’ ” In West Licking, Little says his ogy to mine more gold at cheaper rates while medics and firefighters are lucky to even get that reducing injuries and pollution. “Literally every much. “We are the last ones,” he says, “to find out we single aspect of the business should change,” says won’t be getting any money.” �Mya Frazier Executive Chairman John Thornton. In the past year, Barrick’s team—with help from THE BOTTOM LINE Amazon’s nine-figure tax incentives in Ohio have strained local public services as the state’s employment Cisco Systems Inc.—has built Cortez’s operations growth continues to lag the national average. center, wired the mine with underground Wi-Fi and sensors, increased its use of remote-control equipment and vehicles, and created an in-house software team called C0dem1ne. Digging costs at the subterranean 1,300-worker Cortez mine have A More Automated fallen from $190 a tonne to $140, and so far the team is under its $50 million budget for 2017. Gold Mine While that doesn’t sound like much for a company with a market value of $18.8 billion, Chief Operating Officer Richard Williams, a former officer ● Barrick and Cisco say their sensor- with the U.K.’s Special Air Service, has approached packed system will make mining safer, the project with military precision. Drawing on cleaner, and more efficient his experience in Iraq, where electronic networks allowed commanders to view a whole battlefield in real time, Williams says he’s working to integrate Surrounded by sagebrush and pinyon pine in a hundreds of incremental tech-driven improve- remote part of Nevada, the city of Elko appears out ments at Barrick’s three Nevada mines over the of the desert as if from another era, with its strip next 24 months, betting that the efficiency gains of 1960s neon-lit motels and casinos. But down will add up to more than the sum of their parts. the highway a stretch, the scene is unmistakably Other mines, he says, will follow.

21st century. Barrick’s bigger mines will require far more BUSINESSWEEK BLOOMBERG FOR ORTEGA ULYSSES BY PHOTOGRAPHS ◼ TECHNOLOGY Bloomberg Businessweek Middle East 16 November, 2017

sensors—hundreds of thousands rather than the 125 million tonnes of rock at Cortez last year, and ▲ From left ● Barrick’s tens of thousands likely to wind up in Cortez. But their upkeep totaled about $60 million, so avoid- Cortez gold mine in Nevada is being Williams says the advantages over traditional walkie- ing the domino effects of a breakdown can save a extensively wired for talkies are obvious. Sensors track how many bolts a lot of money. Wi-Fi and data analysis 21 given worker fires each hour and how many buckets Beyond traditional predictive maintenance, ● Workers are using more semiautonomous of waste rock his teammate moves. At a micro level, such as engine-temperature and fluid-level indi- and remotely operated the mine’s analysis software tells manag ers which cators, Barrick’s systems route data from each vehicles ● A custom workers are underperforming and whether that’s truck to the central computers to assess overall app helps predict maintenance needs because of employee error, fatigue (if, say, perfor- fleet issues well beyond what other software can for the mine’s fleet of mance flags over the course of a shift), or a type of do, according to Jamie Dwyer, who led develop- 350-tonne haul trucks rock that’s especially tough to handle. At a macro ment of the predictive-maintenance app. “Because ● Some 1,300 workers operate beneath the level, all those data feed into executive-le vel reports we’re building it ourselves, we can merge it all with desert sands ● A on overall production, but they also arm workers our other data, right down to who was driving the central operations with the information to suggest changes that can truck when it broke down,” Dwyer says. centre can analyse data from the mine’s sensors be made midshift in a matter of hours rather than Even so, skeptics question whether Barrick’s to suggest efficiency in days or weeks. C0dem1ne team can really outperform the pro- improvements midshift For example, miners might use Wi-Fi-connected fessionals. Other mining companies, including mobile devices to flag a certain chemical in cases Barrick’s chief rival, Newmont Mining Corp., have where it’s being depleted faster than expected. implemented a range of high-tech upgrades but While the system would try to figure out why, it stopped short of in-house coding. “Are you better would also generate a list of potential consequences off spending $100 million for a proven tool that and alert suppliers and others to head off those somebody else de-risked or gambling that you’ll risks. At a mine in Argentina, where Barrick has get it right the first time?” says Mark Mills, who spe- faced pressure and criticism from local officials cialises in energy technology analysis as a senior and the public for repeatedly spilling cyanide solu- fellow at the Manhattan Institute, a think tank. tion, the company is testing real-time monitoring Barrick employees say they opted to turn off of water quality. Caterpillar Inc.’s predictive-maintenance software At Cortez, logistics changes such as rerouting on their trucks once it was clear their own app trucks and reassigning miners are relayed to work performed better. “Some of the vendors we were crews midshift through the C0dem1ne team’s Short dealing with told us we were crazy to try this,” Interval Control app. A small fleet of underground says David Yazzie, a C0dem1ne project manager. loaders essentially runs on autopilot, continuing “We’re absolutely going to prove them wrong.” to work when humans can’t. Another app specif- �Danielle Bochove ically monitors the maintenance of Cortez’s 350- THE BOTTOM LINE Barrick says its Cortez mine in Nevada has tonne haul trucks, each of which requires enough already cut per-tonne digging costs by more than 25 percent by diesel to light a small city block. The trucks moved analysing data from thousands of sensors throughout the mine. Bloomberg Businessweek Middle East 16 November, 2017 3 F How to Profit From Human Nature I It’s easier to limit your own mistakes than N to exploit everyone else’s A N C

22 E This Is What A Hed Looks Like

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16 November, 2017 THE BOTTOM LINE Rera volore volorib erferum ium fugitatium fugit officid qui adi iducim quid ut optaquodit eatis coritium illuptas

Businessweekme.com dolorio restempore nusam. MOLLWING PATRIK BY ILLUSTRATION ◼ FINANCE Bloomberg Businessweek Middle East 16 November, 2017

When people can’t understand what markets are firm GMO LLC. For instance, in looking for over- doing, they often turn to psychological phenomena reactions, they may be finding some of the same to try and explain it: Think of stock phrases such stocks an old-fashioned value manager might have as “irrational exuberance,” “greed and fear,” and spotted. The challenge isn’t just knowing that other “climbing a wall of worry.” Even economists now investors can be wrong, but also having a measure widely accept that investors’ mental quirks mess that tells you when they’re so wrong that the stock with models of rational decision-making. On Oct. 9, is underpriced. “The difference between good and the Nobel prize in economics went to a University bad metrics is probably the difference between of Chicago behavioural economist, Richard Thaler, success and failure,” says Inker. Giovinazzo says it’s for exploring the biases and cognitive shortcuts that true that behavioural investing and value investing affect how people absorb and process information. are correlated. “That’s the basic idea,” he says. “But For an investor, the idea that other people in we’re coming at it from a different perspective.” the markets are making poor decisions is a tantalis- Stephen Wendel, head of behavioural science ing one. If humans are predictably irrational, does at investment research company Morningstar ● Thaler that translate into predictable patterns in the stock Inc., says he wouldn’t take the outperformance of market that a savvy trader can exploit? As it turns Fuller & Thaler funds “as a lesson to go do your own out, Thaler is a principal in a company that tries to behavioural fund.” Wendel’s job title is one measure do this. San Mateo, Calif.-based Fuller & Thaler Asset of Thaler’s influence, but he warns against thinking Management Inc. runs $6.1 billion in the small-cap it’s easy to use behavioural ideas to outsmart others. Undiscovered Managers Behavioral Value Fund for After all, one of our behavioural quirks is that we’re J.P. Morgan Asset Management Inc. and $261 million overconfident about our abilities. It’s dangerous in the Fuller & Thaler Behavioral Small-Cap Equity to think that because someone else seems to have Fund. Both mutual funds have done well, earning done it, you can, too. an annual average of 15.9 percent and 17.3 percent, David Booth, founder of Austin, Texas-based respectively, over the past five years. Both have Dimensional Fund Advisors, which has $548 billion bested more than 90 percent of their competitors. in assets under management, agrees that subjective The funds try to capitalise on the behavioural judgment can often lead investors astray. But “it is biases of investors. The Fuller & Thaler fund, for a leap from saying people behave irrationally some- 23 example, focuses on investors’ overreactions and times to saying that markets are mispriced,” he says. underreactions to events. “In general, people over- It’s not that it doesn’t happen, but it’s devilishly react to vivid, emotional stories and underreact to hard to tell when it does, and then to take advan- dull information or when they have prior strong tage of it. Booth believes some money m anagers expectations,” says lead portfolio manager Raife can outperform the market consistently, “but since Giovinazzo. “There’s nothing quite so vivid and you never know if you have that person or not, you emotional as losing money, so when a stock goes are best off behaving as though markets were effi- down, people overreact.” When he’s looking for cient”—that is, that prices reflect the available infor- evidence of overreaction, his strategy includes mation well enough that it will be hard to guess their screening for patterns of buying and selling by next move. Indeed, for most investors the best use “These company insiders. If he thinks the market is out of behavioural insight isn’t as a guide to spotting things persist of step, he looks at the company’s fundamentals others’ flaws, but as a reminder to stay humble. “It’s because and business model. much easier to imagine being successful in stopping people will The other side of the coin, underreaction, is tied yourself from shooting your own foot than turning to a cognitive bias called anchoring and adjustment, you into the next great stockpicker,” says Inker. always make which was identified by another Nobel laureate, For example, it’s helpful to know you have a mistakes” Daniel Kahneman, and fellow behaviourist Amos bias toward thinking of investing (incorrectly) as a Tversky. When someone settles on a number—say, game you can easily win, says Santa Clara University an earnings estimate—they get slightly stuck on it. finance professor Meir Statman, author ofFinance When they get new information, they adjust the for Normal People: How Investors and Markets Behave. number, but their adjustment is based around that On the surface, deciding to buy a stock often resem- initial number, so often it isn’t big enough. “These bles other kinds of purchases where good research things persist because people will always make mis- and savvy shopping can pay off. You might buy a takes, because they are human,” says Giovinazzo. cheap television at Costco and find that you like it, so As strong as the Fuller & Thaler funds’ records you like the store, too. So why not buy Costco stock are, it’s not easy to untangle how much of that perfor- as well? But stock trading is more brutally competi- mance comes from cutting-edge behavioural insights. tive than consumer bargain hunting—not everyone “It could be that the behavioural thing has conve- wins. “When you buy the stock of this company, niently helped them to uncover some sort of irregu- someone is selling, and that someone just may be larity in the market that isn’t strictly speaking driven an insider,” says Statman. by one of the classic tenets of behavioural finance,” Wendel says simply understanding such prob-

CREDITS CREDITS CREDITS CREDITS CREDITS says Ben Inker, head of asset allocation at investment lems as overconfidence can help investors de-bias MOLLWING PATRIK BY ILLUSTRATION IMAGES; OLSON/GETTY SCOTT THALER: ◼ FINANCE Bloomberg Businessweek Middle East 16 November, 2017

their thinking—if they take steps in advance More Tomorrow. Participants commit in advance to to protect themselves from their instincts. For contributing a higher percentage of their salary to example, to slow down decision-making in the their 401(k)s over time. A majority of large 401(k) heat of the moment, individuals can set rules in plans now have such an auto- escalation option. advance about when they can sell a stock or a fund. The professional investors at Fuller & Thaler “If they find they don’t like those rules, they have also use systems to guard against their biases. to change them and not just make an exception,” They don’t visit companies, says Giovinazzo— says Wendel. because when you meet with people, you judge One of the most celebrated examples of a preset them more on whether you like them than whether system that short-circuits bias comes directly from they’re good leaders. To avoid anchoring, he and Thaler’s work. Psychologists have found that people his c olleagues at Fuller & Thaler don’t set price place a high value on saving—when they imagine targets for stocks or make quarterly earnings fore- doing it in the future. In the moment, the tempta- casts. It’s good to know that markets can be irra- tion to spend is often stronger. And for many every- tional, but it can only help if you recognise that day investors, the most difficult investment decision you’ll be, too. �Suzanne Woolley is to set aside the money to begin with. Along with THE BOTTOM LINE Thanks to psychological biases, markets behavioural economist Shlomo Benartzi, Thaler sometimes overreact or underreact to news. Figuring out which is developed a retirement savings system called Save happening and when is the tricky part.

Aramco Raises Light Crude Pricing

24 to Asia to Three-Year High

● Market shows signs of tightening, indicating higher prices can be absorbed

State-owned Saudi Arabian Oil Co. increased its pricing for the Medium grade unchanged and cutting official pricing for Arab Light crude to buyers in Extra Light. Asia by 65 cents to $1.25 a barrel more than the Global stockpiles are declining and demand is regional benchmark, the company known as Saudi increasing, Khalid Al-Falih, Saudi Arabia’s oil min- Aramco said in a statement. That is the highest ister, said Thursday at a ministerial roundtable in since September 2014 and is well above the 35-cent Bangkok. Russia, which joined OPEC and other pro- increase forecast in a Bloomberg survey. ducers in the output cuts, sees “recovery” in the ● Aramco increased its official pricing for Saudi Arabia has led the Organisation of global oil industry, Energy Minister Alexander Novak Arab Light crude to Petroleum Exporting Countries in cutting crude said Thursday during a visit in Riyadh. buyers in Asia by 65 production to shrink a global glut. The kingdom Still, crude inventories remain larger than neces- cents. The price is now above the regional said it would be making its deepest ever supply cuts sary, meaning “the mission is not accomplished yet” benchmark by this month as it seeks to reduce the level of crude in for OPEC and its partners, Al-Falih said. Ministers storage. Brent crude prices have rallied 17 percent from Kuwait and the United Arab Emirates in $1.25 in the past two months, helped by the prospect that Bangkok also said OPEC is discussing whether to OPEC and partners like Russia will extend their pact extend the production cuts and will review prog- to lower output beyond March. ress at its Nov. 30 meeting in Vienna. “The Saudis are feeling pretty confident about Middle Eastern producers compete with cargoes the demand prospects in Asia even as the region from Latin America, North Africa and Russia for is getting more competitive for crude exporters,” buyers in Asia, its largest market. Producers in the said Edward Bell, a commodities analyst at lender Arabian Gulf region sell mostly under long-term con- Emirates NBD PJSC in Dubai. “The market is showing tracts to refiners. Most of the Gulf’s state oil compa- all the signs of tightening so that would imply the nies price their crude at a premium or discount to a higher pricing can be absorbed.” benchmark. For Asia the benchmark is the average Aramco also increased pricing for buyers in of Oman and Dubai oil grades. Northwestern Europe and the Mediterranean region. THE BOTTOM LINE Saudi Aramco raised its official pricing for The company raised Arab Light and Arab Heavy Arab Light crude to buyers in Asia by 65 cents, the highest since crude for the U.S. by 10 cents a barrel while keeping September 2014.

4 E C O N O M

26 I C S

A serious obstacle has emerged to that vision. ● China is creating its own It’s not Donald Trump’s threat of trade wars or international ecosystem. That Brexit or terrorism. It’s China. If we tease out the trends taking shape in China may not be good for everyone and its relations with the U.S. and other devel- oped countries, we can foresee an unhealthy schism forming and widening in coming years. After the fall of the Berlin Wall, many econ- The global economy could be split into two giant omists and policymakers assumed the parts. One would be centered in the U.S. and world would become one happy, prosperous the European Union; the other would revolve economy. Aided by the spread of capitalism around China. and technology, countries would be increas- Listening to the rhetoric streaming out ingly knit together by trade, finance, and the of Beijing, it’s easy to believe that China internet. There would, of course, be the occa- remains intent on melding itself into the sional setback—such as the 2008 financial global economy. In his speech to open the crisis. But ultimately the forces of globalisa- latest Communist Party congress, President 16 November, 2017 tion would prove irresistible and ever-tighter Xi Jinping promised to give foreign compa-

Businessweekme.com integration inevitable. nies wider access to China’s markets and CREDITS CREDITS CREDITS ◼ ECONOMICS Bloomberg Businessweek Middle East 16 November, 2017

protect their rights and interests. “China will not Meanwhile, these same Chinese players have strug- ● Exports to China as a ratio of those to close its door to the world; it will only become gled to attract an international audience. An attempt the U.S., 2016 more and more open,” he told the delegates. Xi has by e-commerce titan Alibaba to start a U.S. online also painted himself as a champion of free trade marketplace lasted only a year, before it sold control ● 7:1 Australia and an international statesman, eager to take the of the site in 2015. WeChat, which almost a half lead on global issues such as climate change, in billion people will use this year in China— according contrast to an isolationist, “America First” Trump. to an estimate by research outfiteM arketeer, has ● 3:1 Russia Don’t be fooled. The problem with Xi’s version had trouble expanding abroad beyond Chinese ● 2:1 South Korea

More to China to More ● 2:1 Brazil of globalisation is he wants to control it. Instead communities, despite aggressive mar keting efforts. ● 1:1 South Africa of integrating China into the existing world order, Heightened concerns about the use of private data ▶ he is creating a separate economic bloc, with dif- will likely limit the ability of China’s tech giants 1:1 Japan ● 1:1 Germany ferent dominant companies and technologies, and to become global players, since it seems almost ● 1:2 France ● 1:3 Turkey governed by rules, institutions, and trade patterns impossible that they could resist demands by ● 1:3 U.K. dictated by Beijing. the Chinese government for such information. In ● 1:5 India Xi’s government is in the midst of a national a 2016 report, the human rights advocacy group drive to develop or acquire its own technology and Amnesty International ranked Tencent dead last ◀ the U.S. to More promote its own companies to rival the West’s, in among 11 messaging-service providers in protection industries of the future ranging from robotics to of personal data through encryption. electric cars, often backed by a torrent of state aid. In reaction, the West is slowly pulling back The goal is ultimately to squeeze foreign companies from China, too. Washington policymakers have out of the gargantuan Chinese market, then use it as traditionally preached that economic openness a launchpad for Chinese powerhouses to expand and always wins the day, but as the alarm over Chinese compete globally. The scope of Beijing’s ambitions practices slowly grows, sentiment is turning toward is detailed in an industrial program called “Made protecting American interests. In September the in China 2025” that’s been widely reported on. As Trump administration nixed a bid by a China-backed Xi told the party congress: “China will support investor to acquire a U.S. chip company, while the state capital in becoming st ronger, doing better, government-ap pointed committ ee that reviews ● 1:19 Canada and growing bigger, turn Chinese enterprises into foreign acquisitions for national security threats 27 world-class, globally competitive firms.” hasn’t cleared the purchase of U.S. payment ser- A possible unintended consequence of such pol- vices outfit MoneyGram International Inc. by Alibaba icies could be the emergence of a distinct Chinese founder Jack Ma’s Ant Financial Services Group. market. While Beijing might be successful at pushing Across the Atlantic, European Commission President foreign competitors out of China—a market it can Jean-Claude Juncker in September laid out his own control—wooing foreign customers could prove plans for scrutiny of sensitive acquisitions in Europe much tougher. Burdened by a shoddy reputation by, for instance, “a foreign state-owned company.” and probably little or no technological advantage, Meanwhile, U.S. companies, feeling less and Chinese brands will have trouble displacing more less welcome amid Xi’s new economic national- established ones in major markets, while secu- ism, are souring on China. In its latest survey, the rity concerns could keep international companies American Chamber of Commerce in China found from buying Chinese-made chips and other IT gear. that 56 percent of its members consider the country The top four Chinese makers of smartphones now a Top Three priority for investment, down from command two-thirds of their home market; but 78 percent in 2012, while a full quarter said they’ve their combined market share abroad is less than moved operations out of China in the past three 15 percent, according to second-quarter data com- years or are planning to do so. piled by Strategy Analytics Inc. And despite all the China has no intention of becoming isolated. subsidies and investment lavished on the Chinese Beijing is crafting alternatives to the institutions and automotive industry, it exported fewer vehicles in norms of the West, aiming to foster a Chinacentric 2016 than in 2014. system of economic relations. For instance, Beijing We can see the process of cleavage most clearly in spearheaded the creation of the Asian Infrastructure China’s digital sphere. While most of us share baby Investment Bank, a multilateral lender to rival the pictures on Facebook, tweet on Twitter, and search World Bank. Xi is also promoting the massive “One on Google, Chinese communicate over WeChat, Belt, One Road” infrastructure- building program to run by Tencent Holdings; microblog on Sina Weibo; tie economies across Asia and Europe more closely and search on Baidu. That’s because the giants of to China. Projects will likely be financed by China- the worldwide web are either severely restricted or backed banks and executed by Chinese companies. blocked in China. Washington is certain to fight to preserve the Although it exists primarily for political current global economic system. “We will not purposes, the so-called Great Firewall also acts as shrink from China’s challenges to the rules-based a nont ariff barrier, allowing Chinese companies to order,” Secretary of State Rex Tillerson said in an flourish in the absence of international competition. October speech. ● 1:56 Mexico ROUNDED. ARE FIGURES DATABASE. COMTRADE UN DATA: ◼ ECONOMICS Bloomberg Businessweek Middle East 16 November, 2017

The separation between China and the West struggle to raise the incomes of its 1.4 billion people, will probably never become as complete as the still poor and rapidly aging. The odds of a military bipolar world of the Cold War. Chinese will likely confrontation between China and the West could continue to sip Starbucks lattes and wear Nike increase sharply. sneakers, and Americans will still find Chinese- This bipolar future isn’t inevitable. Perhaps made goods in their local Walmart. But as China Beijing will realise that it’s better off supporting asserts its growing clout and the U.S. and Europe the current order than undercutting it. After all, defend their companies, technology, and institu- China’s integration with the rest of the world has tions, the chasm will widen. Countries that have been the key driver of its economic success since their own issues with the West, such as Russia, the 1980s. The U.S. and its allies may step back from will get sucked more and more into China’s orbit. protectionism and continue to work with Beijing to Others, wary of China’s escalating power, such as meld China into the existing system. But the trajec- India or Japan, could move closer to the U.S. tory China and the West are hurtling down doesn’t A split would have terrible consequences for the bode well. If a new wall rises across the world, global economy. Companies in both blocs would find everybody loses. �Michael Schuman access to key markets restricted, hindering profits, THE BOTTOM LINE Xi Jinping’s vision of a world dominated by productivity, and job creation. Cut off from much- Chinese technologies and brands is one that threatens to split the needed technology and markets, Beijing could global economy into two distinct blocs. Mexico’s Irresistible

28 $12.43-an-Hour Pay Gap

● Despite the threat of Nafta’s demise, a host of companies are sticking with relocation plans

It wasn’t supposed to be like this, but the companies “If they just wiped out Nafta and went back to that specialise in helping U.S. businesses set up pro- normal trade tariffs, I think that’s manageable,” duction in Mexico say they’re having a solid year. says Ross Baldwin, CEO of Tacna, which is based Tecma Group says this is the busiest it’s been in San Diego. “Life would continue on, because the in three decades. The relocation specialist, which labour rate is so dramatically different.” has offices on both sides of the U.S.-Mexico border, The latest rounds of talks on the future of the helped a maker of cleaning equipment and a pack- 23-year-old trade treaty wrapped up on Oct. 17, with aging company move south in the past few weeks. Mexico and Canada rejecting controversial U.S. Chicago-based México Consulting Associates has demands on dairy, automotive content, dispute three new prospects interested in the country. Keith panels, and government procurement. Another Patridge, president and chief executive officer of bone of contention has been the Trump adminis- McAllen Economic Development Corp., expects at tration’s proposal that the revamped pact include ● Direct investment by U.S. companies in least 12 companies to set up shop in Reynosa this a so-called sunset clause, causing it to expire Mexico almost doubled year alone. And Tacna Services Inc. has assisted two every five years unless all three countries agree it in the first half of 2017 businesses that recently relocated to Baja California. should be extended. Negotiations will resume in While President Donald Trump’s vow to scrap or November, but the ministers agreed to put off any $3b revamp the North American Free Trade Agreement resolution of that question until next year. was expected to scare off companies considering Some economists predict a less rosy future than moving to Mexico, many are sticking with their do the relocation firms, which have reason to put plans. Lots of factors go into the decisions, but a gloss on their prospects. According to a study by these companies have made a simple calculation: ImpactEcon, a consulting firm based in Boulder, Cheap labour in Mexico—as much as $20,000 a year Colo., the end of Nafta would cause the loss of more less per worker compared with the U.S.—is enough than 250,000 jobs in the U.S. and almost 1 million to offset the costs of any tariff increase resulting in Mexico, whose economy has been transformed

from Nafta’s demise. by the pact. Mexico’s trade with the U.S. totaled CREDITS CREDITS CREDITS ◼ ECONOMICS Bloomberg Businessweek Middle East 16 November, 2017

$524 billion last year, up from $82 billion in 1993, the year before the pact took effect. Egypt’s Sisi Expects After his election, Trump used the bully pulpit to shame executives at U.S. companies that intended Pound to Strengthen to move manufacturing to Mexico. The campaign worked for a few months, with some companies After Float freezing their Mexico plans. But the flow of jobs south resumed earlier this year. New direct invest- ment by U.S. companies in Mexico was $3 billion in the first half of 2017, recovering from a drop to ● Decision to float the currency last $1.57 billion in the first half of 2016, according to year eased a hard currency shortage Mexico’s Economy Ministry. Under Nafta, companies in the U.S., Mexico, and Canada pay no duties on almost all goods that Egyptian President Abdel-Fattah El-Sisi said earlier cross the borders. Even if Trump decides to kill this month he expected the pound to strengthen the agreement, any tariffs the nations wanted to because the decision to float the currency and lift impose would be subject to limits set by the World most capital controls a year ago had eased an acute Trade Organization. On average they are less than hard-currency shortage. ● Abdel-Fattah El-Sisi 3.5 percent for Mexico and about 7 percent for the Even if the exchange rate “hasn’t reached a level U.S., says Benito Berber, a senior economist for that we can say is fair, at least in less than a year we Latin America at Nomura Holdings Inc. solved a lot of problems. Will it drop a little in the Many companies would still come out ahead coming period? I expect that,” El-Sisi told a media because of the wage gap. A starting salary for a briefing, referring to the price of the dollar relative Tijuana factory worker, including benefits, is the to the pound. “Because all the measures and prob- equivalent of about $2.50 an hour, according to lems due to the protected exchange rate, especially Tacna’s Baldwin. The average hourly wage for in the three years before the float, I think all these U.S. assemblers is $14.93, with the lowest-paid problems have been solved.” 10 percent in that group earning $9.24, Bureau of Egypt floated its currency in November 2016, 29 Labor Statistics data show. lifting most capital controls in an effort to end a Plus, Mexico’s labour costs have barely changed hard-currency shortage that nearly crippled trade over the past couple of decades, while those in and investment. Egypt’s foreign currency reserves China—a rival for manufacturing jobs—have steadily have recovered since the float, and foreign funds risen. Intermex Industrial Parks, which provides have invested heavily in Egyptian debt. The pound real estate and services for factories, says on its has halved in value, however, helping push infla- website that a U.S. corporation can save $20,000 tion above 30 percent and squeezing the country’s annually per worker and touts Mexico as “among substantial middle classes and causing pain for mil- the best in labour stability.” lions who live a paycheck from hunger. Kongsberg Automotive ASA, an auto-parts maker Fearing public anger, Egyptian governments had based in Norway, has announced that early next for decades shied away from considerable changes year it will close a factory in Easley, S.C., that makes in the country’s exchange rate regime as well as from hoses and tubes and move production to Mexico. The the deep subsidy cuts that Egypt has implemented plant employs 97 workers. “There is a strong need in tandem with the float as part of a reform program to become more efficient and reduce costs, which backed by the International Monetary Fund. But can only be achieved by relocating the Easley man- El-Sisi’s government has plowed ahead with struc- ufacturing operations,” Kongsberg said in August. tural reforms and Egypt secured a $12 billion IMF Halyard Health Inc. is closing a plant that makes loan package days after the flotation. medical devices in Buffalo Grove, Ill., and moving Speaking in January, as the Egyptian public ● Since its flotation in some production to Mexico, according to federal smarted from a sudden collapse in the value of November 2016 the filings. Layoffs of 85 Illinois workers began at the the pound, El-Sisi said it would likely strengthen Egyptian Pound has end of September. Halyard has factories in at least over the next six months. Still, the currency has fallen in value by about four Mexican cities, according to a company filing. A hovered stubbornly around 17.5 to the dollar for spokesman didn’t respond to a request for comment. months. El-Sisi in November reiterated the view 50% Tecma CEO Alan Russell sees no letup in activ- that the pound would recover, but did not say what ity. “Every client is expanding, and we have signed exchange rate he would consider fair or how long more new agreements,” he says. “People have it might take to get there. “What is coming is that gotten used to listening to the politics, and so it’s we will see an exchange rate that is different than not as scary as it was.” �Thomas Black the number we see now,” he said.� Ahmed Feteha

THE BOTTOM LINE Higher tariffs wouldn’t be enough to THE BOTTOM LINE Egypt’s decision to float its currency last offset Mexico’s labour-cost advantage, which is why foreign year eased a hard currency shortage, but the Egyptian Pound has

CREDITS CREDITS CREDITS CREDITS CREDITS manufacturers continue to shift work there. remained stubbornly low against the dollar. 5 P O L I T I

30 C S Crackdown on Billionaires and Other Top Officials Shakes Up Saudi Arabia

● Purge presents Prince Mohammed as even-handed in fight 16 November, 2017 against corruption, and brings him

Businessweekme.com closer to the throne CREDITS CREDITS CREDITS Bloomberg Businessweek Middle East 16 November, 2017

Even by the standards of Crown Prince Mohammed bin Salman, whose meteoric ascent has put him on the cusp of the Saudi throne at the age of 32, the crackdown on the night of October 4 was stunning. “Anti- In just a few hours, security forces arrested princes, billionaires, ministers and former top offi- corruption is cials as soon as King Salman announced a sweeping definitely a anti-corruption drive. Those detained included bil- new campaign lionaire Prince Alwaleed bin Talal, who was picked in Saudi up at his desert camp outside Riyadh, according to a senior Saudi official. Before midnight, the suspects’ Arabia and it’s names were already being leaked to local media, an effort by first as initials and later in full. Mohammed The king also relieved Prince Miteb bin Abdullah bin Salman from his post as head of the powerful National Guard, taking out one of the last senior royals to to present have survived a series of cabinet reshuffles that pro- himself as a moted allies of his son. Prince Mohammed became reformist” heir to the throne in June when his cousin was removed in a palace shakeup. The scale of the campaign fits into the style of the royal -- known overseas as MBS -- with a knack for shock and awe. Since 2015, the prince has embarked on an unprecedented shakeup to prepare the economy for the post-oil era, entered the kingdom into war in Yemen and severed diplo- matic and transport links with neighbouring Qatar. In the meantime, he has taken control of every lever 31 of power from defence to oil policies. “Anti-corruption is definitely a new campaign in Saudi Arabia and it’s an effort by Mohammed bin Salman to present himself as a reformist, as a popular figure who cares about the people, but there is certainly a political dimension to this,” Ayham Kamel, head of the Middle East and North Africa department at Eurasia Group, told Bloomberg TV. Sidelining powerful opponents has long been part of the plan to pave Prince Mohammed’s rise to the throne, and “he is only a few steps away from that now,” Kamel said. The purge also aims to deliver a wider message to those implicated: “Mohammed bin Salman will require loyalty.” The round-up risks overwhelming local and foreign investors struggling to get their heads around the rapid changes shaking the kingdom. Two weeks ago, he unveiled a blueprint for Neom, an envisioned megacity on the Red Sea backed by more than $500 billion in investments. A conference last month held at a convention centre adjacent to the palatial Ritz Carlton in Riyadh, drew some of the world’s top bankers and financiers, including Blackstone Group LP Chief Executive Officer Stephen Schwarzman. On the morning of Sunday October 5, a reporter who tried to visit found the compound completely shut -- the massive gates uncharacteristically closed -- without a security guard in sight amid speculation the suspects from the overnight actions were being held there. A duty manager reached on mobile said

CREDITS CREDITS CREDITS CREDITS CREDITS that the 492-room hotel was closed and guests PRESS MIKHAIL/TASS/ZUMA METZEL ◼ POLITICS Bloomberg Businessweek Middle East 16 November, 2017

were told the hotel had been taken over for gov- economy is really puzzling,” said Gregory Gause, ernment use. a professor of international affairs at Texas A&M The arrest of Prince Alwaleed, a major share- University and a Saudi specialist. It’s “a time when holder of companies including Citigroup Inc. and the kingdom is encouraging investment both from Twitter Inc., “could well dampen international inter- the local private sector and foreigners.” . � Vivian est in investing in the crown prince’s much-heralded Nereim, Alaa Shahine, and Sarah Algethami Vision 2030 to make the non-oil private sector the THE BOTTOM LINE Saudi Arabia’s anti-corruption drive new motor of the economy,” said David Ottaway, demonstrates that the wealthy and powerful are not above the Middle East fellow at the Wilson Center. law, and also strengthens the hand of the heir to the throne. Overseas investors weren’t MBS’s main audience, though. The prince’s move appeared designed to tap into a popular vein among young Saudis who are bearing the brunt of low oil prices and complain- ing, privately and on social media, that the king- dom’s elite were above the rule of law. Many shared a clip from a television interview The Engineer earlier this year in which the crown prince said nobody was above the law. Trending Saudi hashtags on Twitter, a key barometer in a country where polls are banned, on Sunday 5 included one celebrating the purge as the “November 4 Revolution.” The decision “made us proud as Saudi citizens,” Fatimah Al-Qhtani, a resident of the eastern city of Khobar, said in an interview. “Our leadership has ensured that we are equal, that corruption has no place among us and that we are all accountable for what we do.” Conversations with seven other Saudis who asked 32 not to be named showed a more mixed reaction. Some viewed the announcement as a sign that even the powerful could be held accountable even as it smacked of a power grab; others saw it as a pure political play. On Saturday October 4, the king also replaced Economy and Planning Minister Adel Fakeih with Mohammad Al Tuwaijri, his deputy. Removing Fakeih, who was close to MBS, helps “prevent the ● Can Rex Tillerson retool the State move from being seen as a witch hunt of critics or Department and save his job? potential rivals,” said Miriam Eps, regional secu- rity analyst at risk-management consultancy Le Beck International. “He cannot be seen as a critic Secretary of State Rex Tillerson doesn’t know what or obstacle to MBS.” to make of news reports that morale is low at his Al Tuwaijri, a former HSBC Holdings Plc banker, agency and that he’s not doing a good job running it. was already a member of the crown prince’s inner “I walk the halls, people smile,” he says in a recent circle in charge of steering the economy through the interview in his spacious office in Washington. “If transition away from oil. In the past two years, the it’s as bad as it seems to be described, I’m not seeing government has cut subsidies and slashed capital it, I’m not getting it.” spending to lower a ballooning budget deficit. That’s exactly the complaint many Department Authorities also plan to introduce value-added taxes of State employees have about Tillerson: He’s not for the first time next year. getting it. Early on, many career diplomats were opti- As austerity measures undermine a decades- mistic when the former chairman and chief executive old social contract based on exchanging welfare in of Exxon Mobil Corp. took over the 75,000-person return for unquestionable loyalty, “a visible crack- agency. He knew his way around the world and had down on corruption tells the country that they can decades of experience running a large, sprawling trust the government to not misuse their money,” organisation. He’d negotiated deals with heads of Eps said. state in some of the toughest places in the world to In the short run, however, the scale of change do business, and he understood the delicate balance may prompt businesses to pause before committing between using soft and hard power. Those skills more in the biggest Arab economy. would be put to the test by the array of urgent global “The attack on major figures in the Saudi issues awaiting him—including Iran, North Korea, and ◼ POLITICS Bloomberg Businessweek Middle East 16 November, 2017

increasing tensions with China and Russia—when he But for Tillerson, applying the methods of corpo- arrived for his first day on the job in February. rate downsizing to the federal government is more Instead of focusing all his attention outward, than just a side job, it’s the job—one he considers though, Tillerson has indicated that some of his essential to the nation’s ability to conduct foreign top priorities are more inward-looking. He wants policy. “There’s a widespread American belief that to cut costs and reorganise the department, in part if you can just bring business practices to govern- to meet a White House goal of reducing the agen- ment, it would work better. And with that, there’s a cy’s budget by 30 percent. In the eight months widespread belief that this is easy to do,” says Ronald since he took over, Tillerson has spent consider- Neumann, a former ambassador to Afghanistan who able time immersed in the minutiae of head counts now runs the American Academy of Diplomacy. “I and organisational charts while ensconced in his suspect that he marched in with a businessman’s ‘I executive suite on the seventh floor of the Harry S know how to reorganise things and make them run Truman Building, where he sat for an interview with better,’ and then he finds he’s walked into quicksand.” Bloomberg Businessweek on Oct. 19. So far he’s trav- Tillerson’s approach has put him at odds with eled less than half as much as John Kerry and Hillary Congress and the staff he leads. His hot and cold rela- Clinton had at this point in their terms. tionship with Trump hasn’t helped, as rumors persist In Tillerson’s view, the State Department needs a that Tillerson is already plotting his exit and that dramatic private-sector-style mak eover—a “redesign,” United Nations Ambassador Nikki Haley is eagerly ● Thomas-Greenfield as he calls it. An outline of his plan sent to Congress in waiting in the wings. In the interview, he says his rela- September is written in the opaque jargon of corpo- tionship with Trump is “good” and that he intends rate management consultants: Tillerson envisions “an to stay in the job “as long as the president lets me.” evidence-based and data-driven process to enhance Coming off 11 years as the unquestioned boss policy formulation and execution, as well as optimise of America’s biggest oil company, Tillerson was and realign our global footprint.” always going to have to change to fit his new role. In a speech to the staff in September at the U.S. The question was whether he could. “I think Rex’s Embassy in London, Tillerson acknowledged the five- background has led him to keep an arm’s length, alarm fires in the world—North Korea, a soured rela- and I think it’s hurt him,” says John Hamre, the head tionship with Russia, the war in Syria, and the lasting of the Center for Strategic & International Studies, 33 violence of Libya’s civil war. But those problems, who’s known Tillerson for more than a decade. “There was he said, weren’t as crucial as getting State’s house Usually cautious and taciturn, Tillerson gets initially a kind in order. “The most important thing I can do is to excited discussing his reorg plan. “When you do enable this organisation to be more effective, more organisational redesign, it has a number of elements of buzz of efficient, and for all of you to take greater satisfaction to it. There’s the organisation chart itself, the boxes, excitement, in what you do day in and day out,” he said. “Because and who reports to whom, but the most important that we if I accomplish that, that will go on forever, and you aspect is always the process by which the work gets finally had a will create the State Department of the future.” done,” he says. A successful structure is one where The comments stunned many department people are “interfacing with others” without obsta- secretary who employees who already felt besieged by proposed cles. Tillerson’s redesign is expected to cut spending was willing to budget cuts and a president whose tweets frequently by $5 billion to $10 billion and slash about 8 percent look at how the contradict Tillerson’s diplomacy. Did the secretary of career staff. The department has studied closing organisation really feel his biggest job was optimising managerial some consulates and embassies around the world, efficiencies? “Regrettably that’s the way it got con- including in Basra, Iraq, and Alexandria, Egypt, a functions” strued,” Tillerson says in the interview. controversial notion considering the U.S. is trying Few would argue the State Department is a model to exert its influence in the Middle East. of operational excellence. Its technology is anti- Tillerson’s belief in the power of a good reorg quated. Its priorities appear to reflect a different stems from his time at Exxon, where he oversaw age—it has more consulates in France than in China. two major reshuffles. “We had very long-standing Along with old-fashioned diplomacy, it has its hands disciplined processes and decision-making. I mean in a grab bag of issues, from humanitarian aid to highly structured, that allows you to accomplish a democracy development to drug interdiction to pro- lot,” he told reporters aboard his official plane in tecting the oceans and managing energy resources. July. “Those are not the characteristics of the United And its reach includes almost 300 embassies, con- States government.” sulates, and diplomatic missions around the world. His effort to gain acceptance for his redesign Tillerson’s predecessors also tried tinkering stumbled from the start. In March, Trump man- with the ever- growing agency, which has doubled dated massive cuts at all agencies, with the State in size since 1995. Colin Powell sought to overhaul Department set for the biggest hit, more than the department’s aging IT system, and Clinton 35 percent. Tillerson opposed the size of those cuts launched the grandly titled Quadrennial Diplomacy but eventually acquiesced on the condition they and Development Review, intended to modernise not be so drastic and that he would get to choose

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tour” conducted by consulting firm Insigniam to deconstruct it.” Thomas-Greenfield says she con- Performance LP at a price of $1 million. That struck fronted Tillerson about staff reductions in March, many staffers as egregious, since the department assuring him that people in senior positions were was being asked to cut costs. Particularly galling nonpartisan and “ready to mold ourselves” to help was that while the consultants flew business class him. Tillerson thanked her for her service, she says, to visit embassies, State staff travelling with them and she never heard from him again. flew coach. And it’s in that department that he admits he’s Tillerson has identified several strategies—such fallen short. “That’s the one thing I wish, if I could as putting IT infrastructure into the cloud, overhaul- do it different, would be to do a better job com- ing procurement, and possibly extending staff rota- municating back out to the organisation what this tions overseas. He’s also cut the expanding ranks of redesign effort is,” he says. “As a leader, that’s my special envoys. Some of those moves, however, irked responsibility.” �Nick Wadhams members of Congress, including Republicans, who THE BOTTOM LINE Secretary of State Rex Tillerson is were skeptical of Trump’s proposed cuts and moved inwardly focused on overhauling the State Department, despite to assert their authority over the State Department’s a proliferation of foreign policy dilemmas around the world. spending. Draft legislation for State highlighted con- cerns that “the administration has a predetermined outcome for the reorganisation or redesign.” In an interview with Bloomberg News in May, Senate Majority Leader Mitch McConnell called deep cuts Another Pipeline to State “highly unlikely” and defended its budget with the kind of language Tillerson would appreci- Of Russian Influence ate: “I think the diplomacy part of what we do over- seas is a lot cheaper than the use of the military and ● Oligarch-owned Evraz lobbies frequently has a pretty good return on investment.” against Trump’s Buy American agenda Tillerson’s critics also say that the departure of senior diplomats, coupled with a hiring freeze, has hamstrung the agency. According to Neumann, that’s Four days after his inauguration, Donald Trump 34 led to a slowdown in visa-processing times and made signed a handful of executive memos to advance the it impossible for spouses of diplomats— normally a Keystone XL pipeline and revive the U.S. steel indus- pool the State Department has tapped for critical try. He invited builder TransCanada Corp. to reapply jobs—to fill posts. Tillerson has also seemed to con- for a permit denied by Barack Obama and ordered tradict his public statements. He says his top priority up fast-track rules forcing not only Keystone but also is security, yet the assistant secretary for diplomatic all new U.S. pipelines to be made from American security and his acting replacement were let go. The steel. “From now on, we’re going to be making pipe- position has yet to be filled. Tillerson also hasn’t filled line in the United States,” he said. out the top ranks of his agency, including officials in Made-in-America Keystone was a stunt. Most charge of Southeast Asia, Europe, and arms control. of its pipes had already been manufactured, a Despite the shortages, the department’s director fact the White House grudgingly admitted when it general (essentially the head of personnel) was dis- exempted the project from any new Buy American missed. Tillerson has further angered staff by focus- rules a few months later. While some of Keystone’s ing on nondiplomatic priorities. A recent email to pipes were made in the U.S., at least a quarter of staff said he would boost hiring to clear a backlog of them came from a Russian steel company whose Freedom of Information Act requests, while thinned- biggest shareholder is an oligarch and Trump family out bureaus would be expected to help. At the same friend. The company, Evraz North America, sup- time, foreign counter parts are being frozen out. This plied Keystone from its steel plants in Canada and summer, for example, the foreign minister of a top for years has lobbied in Washington against Trump- European ally canceled a visit to the U.S. because style protectionism. ● U.S. steel imports Tillerson, after weeks of failing to respond to mes- Ten months after his Keystone event, Trump has in metric tons sages, offered only a 20-minute meeting. yet to deliver on his pledge to boost the fortunes of 3.5m Tillerson has also missed a chance to cultivate American steel. Two self-imposed deadlines for trade allies at State, especially career staffers who agreed it action, one in June and one in July, have come and needs an overhaul. “To a person, we felt the depart- gone. Meanwhile, the prospect of tariffs has led to a 3.0 ment was in need of reform—there was initially a kind surge of cheap foreign steel into the U.S., with imports of buzz of excitement, that we finally had a secretary rising 24 percent in 2017, the fastest increase in years. who was willing to look at how the organisation func- As federal and congressional investigators probe 2.5 tions,” says Linda Thomas-Greenfield, a former assis- Moscow’s interference in the 2016 U.S. election, tant secretary of state for African affairs who retired Evraz North America shows that Russians are also in September after 35 years. “We came later to under- involved in pressing against one of Trump’s main 2.0

DATA: U.S. CENSUS BUREAU U.S. DATA: stand that it was not to improve the organisation but campaign promises. The company is a wholly owned 12/2015 8/2017 16 November, 2017

◀ Ivanka Trump and Dasha Zhukova watch tennis at the 2016 U.S. Open subsidiary of Evraz Plc, Russia’s second-larg est steel- In late May, Evraz won a contract with liquefied maker. It has two factories in the U.S., in Colorado natural gas company Cheniere Energy Inc. to supply and Oregon, and four in western Canada, where it the steel pipe for a 200-mile pipeline to bring natural produces steel and large-diameter steel pipe. The gas from Oklahoma to the Gulf Coast. The contract, company’s top shareholder is Roman Abramovich, worth an estimated $100 million, was expected to go a billionaire who owns 31 percent of Evraz’s stock. to a Florida-based company, Berg Steel Pipe Corp., In 2005 he was the first oligarch allowed to sell his according to the American Line Pipe Producers oil company to the state, taking in $13 billion in a Association. The association put out a press release deal approved by Vladimir Putin. in June arguing that Evraz was undercutting U.S. Abramovich’s ties to the Trumps stem from a companies. It asked the Trump administration to friendship between Ivanka Trump and Abramovich’s act quickly on new rules and stop “Russian-owned wife, Dasha Zhukova, from whom he announced a Evraz” from “aggressively” seeking U.S. contracts separation in August. Jared Kushner and his brother, ahead of any new tariffs or quotas on imports. 35 Joshua, invested in Zhukova’s art collection busi- The Cheniere contract shows how hard it is to ness. The Russian couple hosted Ivanka and Jared differentiate between foreign and U.S.-made steel. in Russia in 2014, and Zhukova attended Trump’s While losing out to Evraz cost Berg 216 jobs, or inauguration as Ivanka’s guest. White House Deputy 42 percent of its workforce, company Vice President Press Secretary Lindsay Walters called Ivanka’s rela- Jonathan Kirkland told the Mobile, Ala., Press- tionship with Zhukova unrelated to American trade Register in June, Berg makes pipelines using steel policy and said mentioning it was “incredibly irre- from Germany and France. U.S. steel supplies aren’t sponsible and misleading.” reliable enough, Chief Executive Ingo Riemer told Evraz won its share of the Keystone XL business the U.S. International Trade Commission last year. in 2009 and hired a Washington lobbyist named John In September, Commerce Secretary Wilbur Ross Stinson the next year, according to disclosures col- said the administration will defer a decision to impose lected by Bloomberg Government and Open Secrets, tariffs on foreign steel so it can focus on tax reform. a nonprofit that tracks money in politics. Over the The industry is getting impatient. Steel executives next seven years, Stinson lobbied the House, Senate, have been meeting with administration officials. More U.S. Department of Commerce, and Office of the U.S. than 60 steelworkers met with members of Congress Trade Representative, earning $2.2 million for rep- on Sept. 21 to tell them of their growing frustration resenting Evraz’s interests. He fought Buy American with the White House’s delays. “The president makes language in federal spending bills for transportation, his policy decisions based on what is best for the water infrastructure, and defence, as well as in a bill American people,” says spokeswoman Walters. specifically about Keystone in 2015—the same year Given the promises Trump made in the cam- Obama denied its cross-border permit. paign, there may be political blowback if he doesn’t According to federal disclosures, Evraz paid deliver. Although the United Steelworkers union Stinson $100,000 in the first half of 2017 to per- endorsed Hillary Clinton, many of its members voted suade Congress and the Commerce Department to for Trump, helping him to narrow victories in the exclude its Canadian products from Trump’s steel Midwest. “Those workers absolutely won’t forget if import crackdown. Stinson declined to comment. they are empty promises,” says Dan Simmons, pres- Christian Messmacher, the company’s vice president ident of Steelworkers Local 1899 in Granite City, Ill. for development, says its lobbying efforts are typical “Like Elvis says, we want a little less talk and a little for the industry. “We, like all other North American more action.” �Margaret Newkirk and Joe Deaux companies, work to provide public officials with our THE BOTTOM LINE Foreign steel imports into the U.S. are up insights on issues that affect us and our ability to 24 percent in 2017. As the industry grows angry at Trump’s lack of

LEFT: ELSA/GETTY IMAGES; POLITBURO; BLOOMBERG (1); GETTY IMAGES (9) GETTY IMAGES (1); BLOOMBERG POLITBURO; IMAGES; ELSA/GETTY LEFT: provide good North American jobs,” he says. trade action, Russia’s Evraz continues winning pipeline contracts. SPECIAL ADVERTISING SECTION

SPECIAL REPORT: TURKEY

TURKEY: BRIDGING THE DIVIDE FOR S1 BUSINESS

TURKEY’S ECONOMY HAS PROVED TO BE element of the country’s diversification strategy. As a country with a trade deficit, Turkey was keen to develop MORE THAN JUST RESILIENT IN RECENT a strategy to diversify its export markets and products. YEARS, SHOWING STRONG GROWTH EVEN AS Over the past 14 years, exports to the Middle East have increased sevenfold while Turkey’s overall exports have DEVELOPED COUNTRIES AROUND THE WORLD increased threefold during the same period, according EXPERIENCE STAGNATION. to Rahim Albayrak, country advisor, Investment Support and Promotion Agency of Turkey. Moreover, diversity became a pillar of Turkey’s trade planning in the wake Turkey has long benefitted from its position as a bridge of the financial crisis or 2008-9, and policies to boost between Europe, the Middle East and Asia. From Turkey’s trade and business ties with the GCC have ancient times when Turkey (then known as Anatolia) already proven they’re worth. served as a major link to Europe near the end of the “It was an important step for the Turkish economy as Silk Road trade route, to its more recent position as the it faced declining external demand from its tradition- seat of power of the Ottoman Empire, the country has al trading partners during the global financial crisis of enjoyed a privileged trading position. 2008-2009,” Albayrak says. Today this is a legacy that the government of the The numbers prove the point: As a result of Tur- Republic of Turkey is keen to advance as it seeks to key’s diversification policies, the share of exports to expand and diversify its international trade. In particu- the Middle East increased from 12% in 2002 to 26% by lar, Turkey is looking to the Middle East, and particular- 2016. Likewise, Turkey’s trade volume with the MENA Tly the GCC countries, as key partners for bilateral trade region has increased significantly. and investment. It is not just Turkey’s close proximity to Europe and Although European countries are the largest export the Middle East that gives the country an edge. It also market and the largest trading partners for Turkey, has a diverse economy and this is reflected in the goods trade with other markets has been an important and services it trades with the GCC. As of 2016, the

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DP World comissioned a $650 SPECIAL REPORT: TURKEY million container terminal in Turkey in May 2016.

main export products of the GCC countries (com- S2 prising Saudi Arabia, United Arab Emirates, Qatar, “Turkey’s foreign Bahrain, Kuwait, and Oman) to Turkey were: precious metals ($3.2bn), plastics and related articles ($1bn), trade volume to the aluminum and related articles ($441mn), and organic chemicals ($327mn), according to data from the In- UAE has increased vestment Support and Promotion Agency of Turkey. Also in 2016, the main import products of the steadily over the GCC countries from Turkey were precious metals ($3.0bn), iron and steel ($594mn), tobacco and sub- years, reaching stitutes ($516mn), electrical machinery and equip- ment ($384mn), mineral oils and products ($356mn), $8.6bn in 2008 and machinery and mechanical appliances ($346mn). Precious metals, along with natural or cultured pearls stemming from the and precious and semi-precious stones, are mainly traded with UAE, whereas trading of the other items is rise in exports of Turkey” well-diversified among the GCC countries. - Rahim Albayrak, country advisor, Investment Support and Promotion TRADE INFLOWS Agency of Turkey In terms of trade inflows to Turkey, the UAE is one of the biggest investors from the Middle East. Between 2005 and 2016, total FDI flows from the GCC to Turkey May 2016. Gulf countries plan to invest in projects amounted to $13 billion. As of 2016 there were 1,835 other than oil by 2030, and it will be possible for Turkey GCC companies operating in Turkey. Tracking Tur- to take advantage of this in the coming period. key’s FDI from the GCC offers an interesting perspec- Bilateral trade volume is another indicator of the tive on just how much investment has increased during health and growth of business between the GCC. Tur- the past 12 years, from less than $1.7 million a year in key’s foreign trade volume to the UAE has increased 2005 to $445 million in 2016. steadily over the years, reaching $8.6bn in 2008, stem- With regard to FDI, the stock of UAE companies ming from the rise in exports of Turkey, Albayrak says. in Turkey exceeded $4.6bn in 2016, and there are In 2009, the trade volume between the two countries more than 400 companies with UAE capital operat- fell to $3.5bn under the influence of the global crisis ing in Turkey. These include DP World, DAMAC, Emaar, before peaking in 2012 at $11.7bn. “It is a fact that the Etihad, and Dubai Islamic Bank. A recent example of a trade volume declined to $6.9bn in 2015; however, even major FDI contributor would be DP World, which com- that volume was above average for the past decade, and missioned a $650mn container terminal in Turkey in it recovered quickly the following year, growing 36% in

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SPECIAL REPORT:TURKEY

The proposed new airport in Istanbul will have six runways and is expected to be operational by 2028.

S3

2016 to reach $9.1bn,” Albayrak says. He adds that Interim trade figures in 2017 also show considerable year-on-year increase, which can be taken as a signal of recovery between the two countries. Turkey has a trade surplus with the UAE as it does 26% not import oil or gas from the country and there are Turkey’s share of exports to the no trade policy measures or investigations carried Middle East as of 2016 out by the UAE against products originating from Turkey. Considering these trends, the Investment Support and Promotion Agency of Turkey believes that the country’s trade with the UAE will continue on an upward trend. There are clear reasons to believe this is the case, with the Turkish government imple- menting some reforms to attract more investors from and accelerate trade with the UAE. To this end, the $1bn Turkish Exporters Assembly, with the support of the Value of plastics and related articles Ministry of Economy, commissioned a Turkish Trade exported from GCC to Turkey in Center in Dubai in 2016, the first of a series of trade 2016 centres worldwide. There are other incentives for big investors; in January 2017, with an amendment made to the Turkish Citizenship Law, foreigners that have ac- quired an immovable property in Turkey worth a minimum of $1 million are now eligible to acquire Turkish citizenship. Taking a step back from the number crunching, 28% Turkey has many advantages for international compa- Turkey increased its employment rate nies. “Turkey is a dynamic and growing G20 economy by 28% between 2008-2016 that links east and west in a unique way. In addition to being one of the world’s fastest growing economies, Turkey also supports international investors’ growth via a business-friendly agenda and through access to SPECIAL ADVERTISING SECTION

a large domestic market and neighbouring international TURKISH AIRLINES ON THE UP markets,” Albayrak says. Strong market fundamentals, such as a young and With Turkey’s economy performing above the global average, the country’s dynamic population with an average age of 30, a well- aviation industry has been just one of the beneficiaries. Turkish Airlines is educated work force, increasing rates of employment one example. The company, which maintained tight financial discipline in over the years, a growing middle-class, and a unique recent years, posted record net profit in each of the three quarters of 2017 geographical location, have all helped transform Turkey so far. The company posted operating net profit of $956 million for the first into the fastest growing OECD member country, Al- 9 months of the year, while average revenues for the first 9 months of 2017 bayrak adds. Turkey has performed particularly well in terms of job generation, with more than 6 million new reached $8.2 billion, marking an 8 percent increase over the same period jobs created since the global financial crisis of 2008- last year. 2009, which means the country has increased its em- ployment rate by 28% between 2008 to 2016. As of end-2016, Turkey was the 13th largest economy (GDP at ppp) in the world, with an average annual growth rate of 5.6 percent since 2003. “With our common Turkey’s location at the crossroads of Europe, Central Asia, and the Middle East, provides easy access to the aim to become European, Middle Eastern, North African, Central Asian, and Gulf markets. These markets comprise more than one of the leading 1.6 billion people and account for a total GDP of $28 trillion. More than half of the world’s trade takes place five star airlines within a four-hour flight radius of Turkey – a key reason why multinational companies have chosen Turkey as a of the world, we strategic regional hub for their operations. Turkey also stands to benefit from Saudi Arabia’s will continue this bold plans to diversify and develop its economy as part growth trend.” of the government’s Vision 2030 plans. Albayrak stress- S4 es that Turkey has already developed solid ties with -lker Aycı, Turkish Airlines Chairman of Saudi Arabia and that this relationship should contin- the Board and the Executive Committee ue to grow. “There has been a rapid increase in Saudi invest- ments in Turkey over the past 14 years. The FDI amount of Saudi companies in Turkey has reached $2bn since 2002. As of June-2017, more than 1,000 companies operate in Turkey with Saudi capital,” he says. “Turkey and Saudi Arabia remain, and will continue to remain, important and strategic economic partners.” In 2016, the trade volume between the two coun- population has just crossed 80 million and around 35 tries stood at $5bn. While this figure is the average of million are between the productive age group of 20-55 the past 5 years, it is still far below the potential of the years and 49% of the population is under 30 years, so two countries. based on the population statistics, there is a high local demand for housing. “More than 400 thousand marriag- BRICKS AND MORTAR es and nearly 150 thousand divorces taking place every Ozan Demir, operations and research manager, Reidin, year are fueling the demand for real estate as many a real estate information service, says that despite the need to move to their new homes,” Demir adds. recent political and economic unrest in the MENA region “When we look at the prices as of September 2017, and areas close to Turkey, the country has succeeded in according to REIDIN Turkey price series, residential remaining “politically and economically stable”, a factor sales prices registered 11.5 percent increase in the last which has helped contribute to the average GDP growth year and prices increased 44 percent in the last 3 years. rate is 7% in the last 15 years. On the other hand, rents increased 4.89 percent in the Moreover, real estate has remained a star performer last year and 32 percent in the last 3 years. Average among Turkey’s industries, even amid economic dips. gross rental yield for an average house is 5.5 percent as “Despite a lower growth rate (2.9 percent) in 2016 of September 2017,” he says. when compared to previous years, Turkish real estate Other factors also look set to encourage demand, maintained its momentum,” Demir says. “1.03 million not least the fact that a significant proportion of the house sales transactions took place in the first 9 housing stock in Turkey is in need of replacing. “There months of 2017 which is 10% more than the same is currently an urban regeneration in the Turkish real period in 2016.” estate industry and around 7.5 million units have to be Furthermore, the underlying demographics also point demolished and rebuilt within the next 20 years which to a sustained growth in the real estate sector: Turkey’s will create a market value of around $1.5 trillion.” 42 The Botox Margin of The mostvaluable supplychain the deadliest. By Cynthiathe deadliest. By Koons in thedrugbusiness isalso

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Bloomberg Businessweek MiddleEast minus literally all of the public attention. presidential Secret Service in Ireland, itstravelsity to bring mind a it’s sent to Allergan’s facil manufacturing speck ofthetoxin goes andwhen missing, Allergan must account to theCDCifeven a animal orplanthealth.” ofthat, Because that could “pose a severe threat to public, agent ofheavily list regulated substances Control and Prevention’sDisease select ontheU.S.bioterrorism andis for Centers world’s most deadly potential agents of for breathing. It’s considered oneofthe person by paralysing themuscles used erful that atiny suffocatea amount can booze). Thebotulinum toxin sopow is prison-made food (and sometimes canned thatrium thrives and multiplies in faultily from botulinum, Clostridium abacte known tostances science. made with oneof the most toxic sub by alsohappens erasing wrinkles to be take yearscan off a person’s appearance exists because thedrugthat the security generated $2.8 worth protecting—lastit is year, Botox popular drug from competitors, though isn’t there to protect Allergan’s wildly with banksofscreens. the comings and goings from aroom filled measured andmonitored. Guards watch under is video surveillance.is All activity metal- are still more and, finally, glassbarriers windows,inside, behind double-paned people at work orwalking around. Deep and more PINpads. There are only afew lowed by stillmore keycard points entry are more doorsguarded by PINpads, fol keycard-activated doors, beyond which on. Theinitialentryway fitted with is your respiratory system. notto Try worry. weakness, andeventualleg paralysis of or arm speaking, difficulty double vision, you could develop symptoms including 36 hours thesecured ofentering labs, waiver acknowledging that within 18 to way Butfirstthingsfirst: out. Here’s a And onceyou’re insidethere’s noquick T Botox derived is from atoxin purified A baby-aspirin-size amount of scrutiny All this and precaution Assume you signtheform andmove enclosedw Botox laboratories Calif. in Irvine, here’s way noeasy into Allergan’s Error

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The Allergan inWestport, facility Ireland - - - was thenthat HerbertJr. discovered Westport, Ireland. eyedrops lenssolutionsandlookingto expand. andcontact It By the1970s, Allerganwas athriving publiccompany, making filling area, andthebalcony andstage were used for storage. into anoldtheater. Theprojectionboothwas usedasasterile in theU tivitis, andHerbertdevelopedeyedrop thefirstantihistamine gested thecompany formulate drops to treat allergicconjunc failed to develop a solution to stop thumb- Angeles.Los The founder, Gavin Herbert Sr., and had also tried allergy nose drops, Allergan, in a family-run called in pharmacy it’s to ontrack grow to almost$4billionby 2020. Botox, hethought itcould do$10millioninannualNow sales. jaw.too-square Herbertsays that when Allerganfirstacquired likewise expanding: Thenext neckandthe frontier thesaggy is beingstudiedfor fibrillation, orAFib. atrial is areCosmetic uses muscle for use in treating in trials spasms—and depression is and treatment for chronic migraines, overactive bladders, and severe Today it’s approved for nine different uses—including medical Botoxmuscles to blockstherelease contract. ofthat chemical. from passingmerchant ships. Her made up descendants raggedBritish bandfightingoffthe navy and booty extorting today, tour tirelessly guides retell thelore—O’Malley andher ago she ofaBroadway was thesubject musical; inWestport piratea 16thcentury queen namedGrace O’Malley. Ten years that from for onceserved astheheadquarters acastle na Mart, lenssolution. make contact his that firstdrew himthere—he was looking for asecondplace to untilHerbert showed Itstoodnies. empty up. breaks Itwas tax compa American to attract designed to buildafactory council 30 andunemploymentinto aneconomic tailspin, inWestport was cent. A local politician persuaded theWestport persuaded politician Alocal cent. industrial A

per When Herbert Jr. took over in 1957, he moved the company Westport, atown of6,000, gets Gaelicname,Cathair itsIrish At the time, the northwestern coast of Ireland was deep house. It got in the 1950s mixing batches its start of anti- llergan never set out to becomeaneurotoxin power .S. Itwas Allergan’s firstbig success. buster drugs,Botox’s hasa story sheep farms.Whereas andcattle centre surrounded by emerald ogist, and her husband, Alastair,ogist, a Carruthers, aVancouver ophthalmol covery. couple, Itwas Jean adoctor chapter onanentirely dis accidental Wall. Botox. Theotheris according to town architect Simon of inthemodernera ofthe award,” an honourdecade, “almost unheard Tidy Towns award three ina times Westport haswon Ireland’s coveted other sources. tourism:two One is nowand fishing, it revolves around once theeconomy ran onagriculture modern-day town, withitsquaint of the familypart that planned the As is often the case withblock often thecase is As ato htpoet h Botox empire isthe Part ofwhat protects the s ucking. A friend sug A friend ucking. 16 No vember, 2017 ------

PREVIOUS SPREAD: ELINOR CARUCCI/TRUNK ARCHIVE; LEFT: COURTESY ALLERGAN Bloomberg Businessweek Middle East 16 November, 2017

dermatologist, who stumbled on Botox’s anti-aging proper- corporation, this is when it’s especially comforting to have ties. Jean was treating a patient with eye spasms. The woman a drug like Botox, whose monopoly is made unassailable by protested at one appointment when she wasn’t given a shot government-assisted operational secrecy. in her brow; she said injections in that spot gave her a “beau- tiful, untroubled expression,” Jean Carruthers recalled in a t’s probably from somewhere near Irvine that the botu- TEDx Talk in 2012. At the same time, Alastair was looking for I linum toxin starts its journey to Westport. The company a better treatment for deep frown lines. The two teamed up won’t say where in Ireland the toxin makes landfall or how it to examine the use of Botox in forehead creases. Their recep- makes its way from there to Westport. “It never leaves Allergan’s tionist was the first patient. Within days, she had a smoother control,” says Paul Coffey, general manager of Allergan’s forehead and a “refreshed, open, younger expression,” as Jean Westport facility. “There would be a very small number of puts it now. But finding customers willing to be injected in the people who are aware of the shipment.” And it would be a face with poison wasn’t easy. So Jean decided to use the drug rare event—there can be a year or more between deliveries. on herself, and soon there was no shortage of takers. “I haven’t The company has “no concerns about our security pro- frowned since,” she says, laughing. cesses despite the madness that’s happening in the world at the Full list price for Botox is roughly $600 per treatment, moment,” says Coffey. “It just reminds us that if we ever were according to the research firm SSR LLC, and this drug sells thinking we didn’t need to have that kind of security, well, yes at full price more often than most. Roughly 55 percent of the you do.” As for whether Saunders has ever visited Westport’s business, by revenue, is for medical treatments. The other most secure production area—or even has the clearance to 45 percent is cosmetic procedures, which aren’t covered by enter—Coffey answers, “Absolutely not.” insurance. Patients pay full fare for the drug, plus what their If Saunders were to try, he’d start by turning off one of the doctor charges to administer it. few roads that leads out of Westport, looking for a small brown Some of the world’s largest pharmaceutical companies have sign that bears the company name. It points down a narrow lane tried and failed to develop their own neurotoxin-based drugs. that gives way to a long, winding driveway. The toxin arrives Part of what protects the Botox empire is the sheer complexity of the drug

In 2009, Johnson & Johnson paid $1.1 billion to purchase Mentor along this lane, through meadows and brilliant gardens, passing Corp., which among other things was developing PurTox, an by a small building that houses a 24-hour security staff. Beyond 45 experimental drug also derived from botulinum. Five years in, that is a campus whose beautiful grounds are a testament to J&J stopped work on it. Potential competitors have since been Herbert Jr.’s love of gardening, a facet of both the Westport encouraged by the Food and Drug Administration to develop and Irvine facilities. (Herbert Jr., 85, retired in 1995 and is now so-called biosimilar drugs, compounds that are almost bio- an owner of Roger’s Gardens, a home and garden centre in logically identical to the reference drug. But no one has taken Newport Beach, Calif., among other pursuits.) up the challenge with Botox. Mylan NV, which is in one of Coffey likens the security inside the facility to the layers of the st rongest positions of any company to attempt a Botox an onion. “Where we store our purified toxin is in the middle biosimilar, signaled an interest to investors in March but has of the onion,” he says. The storage room for the toxin is moni- not fully committed to trying. tored by cameras that, in addition to guarding the company’s Part of what protects the Botox empire is the sheer com- greatest asset, are used to help engineers diagnose equipment plexity of the drug. The recipe isn’t patent-protected—it’s a problems remotely. The rare few employees who have access trade secret, like the formula for Coke. As long as Allergan can to the room do so only after they’ve stripped off their street protect it, would-be duplicators have to start from scratch. clothes and suited up in full surgical garb. Even if the procedure were out in the open, Brin likens Botox From the core of this security onion, the toxin begins its trip manufacturing to making a fine wine—a winemaker can’t nec- back into the world, in a busy plant that employs more than essarily replicate a rival’s vintage. “The fundamental process 800 people. The first step in making the drug is to combine is an anaerobic fermentation process,” he says. “The amount saline solution with an almost incomprehensibly minuscule of time, the purification process, the reagents that are used quantity of the purified toxin. The liquid flows through a series with it, these are very, very important, and they’re heavily of pipes into a sterile filling room. These rooms are monitored controlled.” for temperature, humidity, differential pressure, nonviable par- Allergan was bought in 2015 by Actavis Plc for about ticulates, and other factors. The company takes some 16,000 $66 billion. Actavis took the Allergan name, a testimony to samples a month across these “cleanrooms” to test for bacte- the strength of the Botox brand. The new company has had its ria in the air. Should even a single bacterium show up, an inves- troubles. A year ago, CEO Brent Saunders had emerged as the tigation ensues. affable face of an enlightened Big Pharma when he promised to It’s a largely automated process that’s tracked by microscopic cap drug price increases. That ended in October, when Allergan cameras embedded in the machinery. In the final steps, the paid an American Indian tribe, which enjoys sovereign immu- saline solution is shot into tiny glass bottles and then reduced nity, to hold the intellectual property on its second-biggest to a fine powder. Those bottles, individually boxed, are what drug, the dry-eye treatment Restasis, a move designed to thwart doctors around the globe receive. One of the most feared sub- one type of patent challenge. Critics jumped all over Allergan. stances on Earth is now largely neutered, immensely valuable, Bloomberg View’s Joe Nocera labeled it “sleazy ... sneaky, and ready to be injected into a wrinkled brow or a sweaty palm. unscrupulous, and just plain wrong.” For a profit-minded No need for guarded private jets now. FedEx will do. Bloomberg Businessweek Middle East

Follow the Snaps

46 16 November, 2017

Snapchat needs some good news right now. Here’s some: It’s free of fake news

By Max Chafkin

To get a sense of how rough things are for Snapchat, consider the Dancing Hot Dog. In June the disappearing-messages app began letting users overlay their videos with a squat-legged cartoon wiener. It quickly became an internet sensation. Not that investors cared. On parent company Snap Inc.’s quar- terly earnings call in August, Chief Executive Officer Evan Spiegel boasted that the break- dancing tube steak had been seen more than 1.5 billion times on Snapchat, calling it “likely the world’s first augmented-reality superstar.” This goofy glory didn’t do much to soften the bad news: The company had brought in 47 less than $200 million in ad revenue and lost more than $400 million. After Spiegel answered a question about Snapchat’s slowing user growth, an analyst, who apparently didn’t realise his line was live, said, “I didn’t even understand his response,” sounding as if he were about to burst out in laughter. This was before the 27-year-old CEO said investors should have faith in Snap’s chances against much bigger rivals because “we’ve always been last to market.” In the runup to its initial public offer- ing in March, Snap was considered one of the tech industry’s most promising unicorns. Now its share price is down almost 50 percent from a Day-Two peak, and on Oct. 20 the company said it was laying off 18 recruiting staffers, signal- ling that its 2,600 employees are likely to meet far fewer new co-workers. Analysts say the problem is the near-monopol y power of Google and Facebook Inc., which together control the most popular social networks and most of the mobile ad market. It’s also tough for Snapchat to add to its 173 million daily users when Facebook, with a daily audience almost eight times that size, relentlessly copies its best features. For people who expected Snap to be the next Facebook, its stumbles appear Bloomberg Businessweek Middle East 16 November, 2017

disastrous. But while Snap hasn’t combine user- generated material with Stories, and augmented-reality gimmicks figured out how to be a profitable adver- professional camerawork. But unlike along the same lines as the dancing hot tising business, it’s proving to be a much newsy user-created videos on Facebook dog. Instagram Stories, rolled out last more competent media company than and YouTube, Snapchat’s are vetted year, attracts close to 50 percent more either Facebook or Google—and not just before they can reach a wide audience. viewers than all of Snapchat. (Snap says because it knows from dancing meats. Staff reporters and producers edit Our those numbers don’t tell the whole story.) Since September, Facebook and Stories, check facts, and clear the stories Despite their products’ similarities, Google have acknowledged selling with lawyers, like a traditional broadcast the corporate cultures of Facebook and political ad space to Kremlin-affiliated team. Much of Snap’s revenue comes Snap are very different. Zuckerberg, the groups that spread false stories about from ads that appear in its profession- earnest-sounding if awkward Silicon the 2016 U.S. presidential election. ally curated videos, and the company is Valley geek, speaks in lofty terms about While company representatives prepare betting that trustworthy content will ulti- Facebook’s ambition to “bring the world to testify before the House and Senate mately prove more appealing to viewers closer together.” He makes policy proc- intelligence committees on Nov. 1, Robert and advertisers alike. lamations in the mode of a world leader Mueller, special counsel for the U.S. While Snapchat has embraced its and regularly talks up Facebook’s voter Department of Justice, is reviewing the ad role as a curator of news, Facebook has registration efforts during the 2016 elec- buys for evidence that Russian agents col- strenuously objected to suggestions by tion. Spiegel is a creature of Los Angeles, luded with the Trump campaign. There members of Congress—or anyone else— more likely to crack wise than rhapsodise are signs of Russian activity on almost that it’s in the media business. “When about the grand sweep of history. He calls every American social network of any you cut off speech for one person, you Snap “a camera company” and doesn’t consequence, including Twitter, Reddit, cut off speech for all people,” Facebook talk publicly about politics. Tumblr, Pinterest, LinkedIn, and even Chief Operating Officer Sheryl Sandberg These different aims helped define the the smartphone video game Pokémon told news site Axios in October. “The companies’ divergent philosophies about Go. (Bloomberg LP is developing news responsibility for an open platform is the media. Where Facebook treats news programming for the Twitter service.) to let people express themselves. We as just more crumbs for its enormous Snapchat, however, has found no evi- don’t check the information people put content maw, leveraging its audience dence of political ad buys by anyone in on Facebook before they run it, and I size to compel press outlets to give up Russia. In fact, Snapchat appears to have don’t think anyone should want us to do their product for free, Snap has aggres- 48 no fake news at all. that.” Translation: You, the consumer, sively courted conventional gatekeep- The secret? “Humans,” says Nick Bell, bear the responsibility for distinguishing ers and tastemakers. “This is not social Snap’s vice president for content. “We which items in the News Feed are actu- media,” a 2015 company blog post reads. only work with authoritative and credi- ally news, and which are paid messages “Social media companies tell us what to ble media companies, and we unasham- from whoever can afford them. read based on what’s most recent or most edly have a significant team of producers, Sensing a rare chance to make popular. We see it differently.” creators, and journalists.” Facebook look bad, Snap is playing up its Every time you visit a Facebook Whereas Facebook deliberately blurs commitment to traditional news values. property, the company’s algorithms the line between personal status updates, If it can steal a few ad dollars from its crunch through an enormous trove of news articles, and ads— sticking all three competitors and rectify its e arnings data about you and everyone you know, in its constantly updating, algorithm- setbacks, so much the better, but the everything you’ve clicked on, and every- driven News Feed—Snapchat has taken company says recent events are simply thing that people like you are likely to a more old-fas hioned approach. The proof that it’s been on the right path click on; then you’re shown the posts app’s news section, Discover, is limited all along. “From the very beginning,” and ads you’re most likely to consume to professionally edited content, includ- says Chief Strategy Officer Imran Khan, and share. This is how Russian agents ing dozens of channels maintained by “we’ve felt a responsibility to make sure were able to reach, by Facebook’s esti- old-media outlets such as the Wall Street our community knows where their news mation, 10 million Americans with just Journal, the Daily Mail, the Economist, and information is coming from.” $100,000 worth of ads. and People. Snapchat’s coverage of Snap, on the other hand, is all about college campuses is overseen by a group Even when Snapchat was mostly known privacy. Instead of encouraging users of student-run daily newspapers. Its three as a sexting app, Facebook appeared to to build big audiences by interacting in regular newscasts come from CNN, NBC, be watching it closely, with more than a public view with people they don’t know and E!. Peter Hamby, a reporter hired little jealousy. Since 2013, when Spiegel in real life, Spiegel has said he wants you from CNN, anchors its weekly in-house rejected Mark Zuckerberg’s $3 billion using Snapchat mainly to riff with “your political documentaries. buyout offer, the joke in Silicon Valley has very close friends.” This has produced a As with Facebook and YouTube, been that Snap runs Facebook’s R&D lab. whiff of unsavoriness—Snapchat’s disap- part of Snapchat’s appeal is watching Facebook’s four main products—its name- pearing messages have been used by child videos unmistakably shot on cell phones sake service, Messenger, Instagram, and pornographers and insider traders—but by regular people. Sometimes those WhatsApp—all include features almost it has also largely insulated the service videos become newsworthy; when that indistinguishable from ones that made from fake news. happens, Snapchat includes them in Our Snapchat famous, such as self- destructing Snapchat Stories can’t be publicly Stories, short-form news updates that messages, a video-diary feature called shared unless you take a screenshot and CREDITSPREVIOUS CREDITS SPREAD: CREDITS PHOTO ILLUSTRATION BY 731; PHOTOS: GETTY IMAGES (3) in anattempt to verifythearrest. Charlottesville Police officers Department andrepeatedly andtextedattack, called withotherusers’footagetion data ofthe spent itstimeandloca hours comparing the clipwidely, aSnapchat producer almost immediately. But rather than post video appeared networks onothersocial screenshots oftheSnapchat and, infact, gone viral before itcould beconfirmed; or YouTube, thefootage would have 19 otherpeople.OnFacebook, Twitter, 32-year-old Heather Heyer andinjuring a crowd ofcounter the manwho allegedly drove into acar police arresting James Alex FieldsJr., posted onSnapchat appeared to show ashort videoclip 3 p.m. onAug. 12, on thescene.Aroundusing journalists ing videoandinterviews from Snapchat- few blocks of the protests, and gather public Snapchat postsfrom withina scanning Thatfor meant OurStories. ducer inNew York to create dispatches Va., inAugust, Bell’s assigneda pro team white rally nationalist inCharlottesville, reliability.without sacrificing the During inclusion inOurStories. and, if necessary,nalist for fact-checked reviewed by oneSnapchat at jour least than afew thousand views typically is including me.”it, Any post with more of views, ateamofour editors looksat gets story ual thecontent chief.Bell, “Ifanindivid about buildingalarge following,” says and foremost about your not friends, a few hundred viewers. first “Snapis almostneverviduals reach more than aresult, postsby As Our Stories. indi from your orbeenvetted friends for at the appglancing have either come material; the only posts you see when to keepto try peopleclickingonnew for. Snapchat doesn’t use algorithms you know exactly what you’re looking individual clipshard to findunless featureStories to designed make is On Snapchat itself, even the public post iton,say, Facebook or YouTube. editors looks at it” gets hundreds of thousandsof views, ateamof our about buildingalarge following. Ifanindividualstory “Snap isfirst and foremost about notyour friends, Bloomberg Businessweek MiddleEast at about 7p.m., after theSnapchat The clipappeared inOur Stories Snap hasproven get itcan ascoop

h undreds ofthousands

pr otesters, killing

------News Feed, despite beingrepeatedly up thousands ofmentionsinFacebook’s traffic laws Irma after racked Hurricane showed sharks flagrantly violating Miami In September a video that purportedly cal. urban shark example wasn’t hypotheti hitting alayer ofeditors,” hesays. The can’t introduce ashady without article wider audience “You ontheservice. itand makecatch sure it didn’t find a devastated city, Snapchat’s editors would ming through the streets of a hurricane- to postaphony videoofashark swim an example, hesays, ifsomebody tried “we’re awalled inessence garden.” As Hambyit faronSnapchat, says, because pening inthefuture.” improvements to prevent from this hap promising itwould “make algorithmic apologised, and trolling. Google theories, for allowing misogyny, racism, conspiracy 4chan, ananarchic onlineforum known the shooter. ofthat Thepublisher story: that story identifiedaninnocentmanas music festival,News featured Google a 58 concert childless ... slut.”a “fat, Heyer called Thearticle network. social Stormer that circulated widely onthe lished by website theneo-Nazi theDaily pub deletinglinksto anarticle began left-wing Jews. that week, Later Facebook wing extremists, Jews, and/or extreme perpetrateda “falseflag” attack by left- suggestingstories that Charlottesville was Twitter were flooded with evidence-free Aug. and Facebook, 12attack, Google, presenting news. Inthedays after the havepanies acquitted themselves in to howtament poorly othertech com “We make phonecalls.” making judgment calls,” Hamby says. “It’soff onthepost. notjust humans Mills,bothsigned Sean content, original Snapchat anchor Hamby andthehead of an arrest” of the suspected attacker. ment that the video “appears to show (“got em”) withamore cautious state the producer replaced theuser’s caption producer spoke to police. Even then, That kindofmaterial wouldn’t make In October, after themurder of is a tes asaboast qualifies That this g

oers at a Las Vegasoers at aLas country ------the human get. help they can timed. Facebook use all anditspeers can its algorithms was, to putit gently, poorly inwhich foreignelection agents gamed to firedecision editors monthsbefore an was biased. Inretrospect, the the section August 2016,after conservatives claimed of adozen orsoTrending Topics editors in But thecompany laidoffthesmall team Topics that lived next to its News Feed. Trendinghuman-curated sidebarcalled reputable news organisations. by editors, andpopulated exclusively by off from the of the service, rest overseen own Snapchat-like news walled product, but Facebook could alsoeasily create its to keep aneye onitsads. That’s astart, has saiditplansto add 1,000 employees have to beextreme. For now thecompany larger wouldn’t buttheadjustments scale, might costFacebook, at especially its 100 people.Adopting similarchanges content operation staffed is by fewer than limit thespread ofpropaganda. Itsentire that budget, thanksto decisions design has managed to doitonareasonable content isn’t cheap, of course, but Snap the buyers paidinrubles. non-native speaker. English Insomecases with your ill-informed cousin or perhaps a and spelling you mistakes might associate errors ofgrammatical included thesorts company effort. made aconcerted and could’ve to been easy spot had the thanthoseof4chantrolls sophisticated werethe Russian hardly tactics more own disclosures, however, suggest that ing to subvert elections.” Facebook’s attempt towithnation-states nities deal anew challenge“It is for internet commu “Wethe task. are inanew world,” hesaid. plan and a caveat of about the enormity 21,includedanine-point video onSept. integrity,” as he put it in a Facebook Live response to concernsabout “election Zuckerberg’sunimaginable scale. halting sound likeelection aproblem ofalmost have made Russia’s meddlinginthe2016 regulation, Silicon Valley executives to ward they’ve tried As off Washington onYouTube.times has beenviewed more thanhalfamillion debunked by Snopes.com andothers.It New Yorkpublic by theNew Timesandothers, hasn’t released butwhich have beenmade Facebook posts, which the company Facebook had somethinglike a this, humanPutting eyes onuser- Many oftheRussia-linked ads and 16 No vember, 2017 g enerated - - 49 Bloomberg Businessweek Middle East 16 November, 2017

ORKING OU W T A FAT BURNING

MUSCLE GROWING

50 EXERCISE COMPLETELY FREE

MIRACLE PI LL

The drug still has a lot to prove before it makes it to your local pharmacy, but a biology pioneer believes a decade of research has solved that pesky tumour problem. By Adam Piore Photograph by Emily Berl Bloomberg Businessweek Month 00, 2017

51 CREDITS CREDITS CREDITS CREDITS CREDITS Bloomberg Businessweek Middle East 16 November, 2017

even some promise of building muscle in Duchenne sufferers. Seated in his third-floor office at Salk on the bluffs of La Jolla, Calif., where he’s had a stunning view of the Pacific for 38 years, RONALDEVANS Evans is already thinking about what comes next. “A drug that realised the word was out when scores of strangers, some fit promotes the benefits of fitness could have widespread applica- and some fat, started showing up at his biology lectures around tions,” he says with more than a little understatement. Beyond the country. Soon, via email and voicemail, they were hound- tackling obesity, a pill that replicates the benefits of exercise ing him at all hours. Was it true, some wanted to know, that he could help reduce the risk for chronic inflammation, diabetes, had pills that could vapourise fat? Could the pills really, others even cancer. From behind a desk buried in a pile of awards, asked, increase athletic endurance by 70 percent? Would he be DNA models, and photos of his twentysomething daughter, interested in coming over and doping a racehorse? Lena, Evans insists the previous efforts failed only because During a lecture for a crowd of 200 in Montreal, a pair of they were based on incomplete pictures of the human body. college athletes took the mic and peppered Evans with ques- “When you’re gaming a genetic system, if you overgame it, tions about the pills’ potential impact on the effectiveness of you activate genes outside your target, causing side effects,” human growth hormone and erythropoietin. They ignored his he says, rising from his chair. He walks past the two acoustic interjections that those two performance- enhancing drugs were guitars in his office and picks up a recent scientific paper. “Our banned by most athletic rule-making bodies. molecule is completely different.” That was 2007. Evans was finishing up a study showing that mice taking the drug, an experimental GlaxoSmithKline Plc Evans’s record sets him apart from the hucksters who’ve been compound called GW501516, vastly increased their fat burn peddling get-fit-quick schemes and weight-loss pills since the and athletic performance, even with minimal exercise. Some dawn of footwear. A pioneer in molecular biology, he was the mice demonstrated the kind of endurance that would normally first, three decades ago, to discover nuclear receptors. These require intense training. Evans, a researcher at the Howard microscopic proteins, sticking out from the surface of a cell’s Hughes Medical Institute and the Salk Institute for Biological nucleus like antennae, can be triggered to switch cellular pro- Studies, warned repeatedly that the pills weren’t ready for cesses on and off. These switches became the principal means human consumption when he published the study in 2008. by which scientists learned to manipulate genes. Ten years They were just a proof of concept, he said, using some poten- later, in 1995, Evans found the receptor that appeared to control tially dangerous substances. There were no studies showing the storage and metabolisation of fat, known as a peroxisome 52 they’d work on humans, no data on possible side effects. proliferator- activated receptor, or PPAR-alpha. A few years after His caveats didn’t make it into the headlines. By 2009 enough that, he identified PPAR-gamma and PPAR-delta, related recep- athletes had been caught using GW501516 (aka Endurobol) that tors that appear to activate fat-burning. the World Anti-Doping Agency banned it. By 2013 so many had The study published in 2008 started there. In 2003, Evans been caught that WADA took the rare step of issuing a health and his team tweaked mouse genes to turn the fat-burning notice. Human trials with the drug had been abandoned because switches on permanently in fat tissue, and their mice slimmed of “serious toxicities,” the oversight body noted. Among the down dramatically. A year later he flipped the fat burners on in side effects in mice: cancerous tumours. “For a lot of athletes, muscle tissue, and the mice developed Type 1 muscle, the kind winning is more important than their intrinsic health or the found in marathon runners and endurance cyclists. These mice risk they are taking,” says Evans, who at 67 has a lean runner’s lasted an hour longer on the treadmill than normal ones and ran build, tight black curls, and a thin goatee that’s peppered with twice as far. The downside was burnout, says Michael Downes, a a lot more grey than it was in ’08. “So I guess I’m not surprised senior scientist who’s been working with Evans since the 1990s. they were taking it. They want to win.” Permanently flipping all of the cellular switches on made the His story is an object lesson in what happens when the world mice’s muscles grow faster than any known medication had. can’t wait for the science to catch up with the hype. “The drug Big Pharma had seen all it needed to charge ahead. “Drugs companies got way ahead of our understanding of the biology,” were built pretty quickly, because there was enthusiasm for says Daniel Kelly, director of the Cardiovascular Institute at the new targets,” says Evans, meaning such targets as obesity University of Pennsylvania. “That kind of soured the field. The and heart disease. For the 2008 study he principally used biology now has caught up.” GlaxoSmithKline’s GW501516, along with a less potent drug Just about, Evans says. In July, almost a decade after that that worked in a similar way. GW501516 allowed the mice to first study, his company, Mitobridge Inc., in partnership with run 75 percent farther than normal mice before collapsing from Astellas Pharma Inc., began testing MA0211, a new drug that he’s exhaustion. But by the time Evans published the study, bringing betting can safely upgrade human cellular metabolism. The six- a stream of obsessive athletes to his door, Glaxo had abandoned year-old company has received $45 million in venture funding efforts to test GW501516 on humans. Only later did published to make it happen, much of it earmarked for development and papers link its testing in mice to development of tumours in the trials targeting those in the greatest need. The first treatment liver, bladder, stomach, and skin. is aimed at Duchenne muscular dystrophy, a genetic protein By then, however, the drug was already available from shady mutation that affects 1 in 5,000 men, causing a progressive loss overseas suppliers, and a number of websites were hawking the of muscle and killing most by the age of 26. Given the severity of active ingredient in a wide array of powders, pills, and other the disease, Mitobridge and Astellas can expect speedy approval products. And athletes kept taking it. (You can still find sellers from the U.S. Food and Drug Administration if their study, on Amazon.com.) WADA began catching cheaters almost as soon the first phase of which will be finished within a year, shows as it employed a detection test Evans designed; it suspended five Bloomberg Businessweek Middle East 16 November, 2017

pro cyclists for using the drug during one week in 2013. “Most furiously. On one counter a series of machines topped with of the time, as soon as a drug gets into clinical development, rows of sealed test tubes is vibrating at high speed, separating China does the reverse development and gets some powder out the proteins inside so gene expression patterns can be analysed. there,” says Oliver Catlin, president of the Banned Substances Inside a rectangular glass enclosure nearby, robotic arms are Control Group, a nonprofit that certifies health supplements moving compounds among machines 24 hours a day, testing as dope-free. During his years at the UCLA Olympic Analytical how rodent and human cells respond to various compounds. Laboratory, where he helped oversee drug-testing programs for By 2011 these tools and others had taught Evans enough the U.S. Olympic Committee, the NFL, MLB, and the U.S. mili- to start creating a drug without the carcinogenic side effects. tary, Catlin regularly saw drugs become more popular among He’d also identified an ideal business partner: Kazumi athletes after they were banned. Shiosaki, a founder of several successful biotech startups PPAR drugs in general have fallen out of favour because of and a managing director at venture firm MPM Capital. Evans side effects or related questions about their effectiveness, says first met Shiosaki in 2008, when she recruited him to serve on Penn’s Kelly. There have been no publicly documented cases of the scientific advisory board of Epizyme Inc., a Cambridge, athletes developing cancer linked to GW501516 and no systemic Mass., company developing a nticancer drugs. After one studies of their effectiveness or side effects in humans. But after board meeting, the two began discussing the potential for approved PPAR drugs used to treat Type 2 diabetes were linked Evans’s design. Shiosaki had already been thinking about to possible side effects in heart tissue, many pharma compa- the need for drugs that more discretely target similar path- nies abandoned development programs involving them. Evans, ways. “I thought, Wow, why isn’t anyone starting a company however, maintained that the right drugs could be created once in this?” she recalls. She co-founded Mitobridge in 2011 and the biological pathways they targeted were better understood. became its chief executive officer. “They were too potent,” he says of the 2008 study’s pills. The Mitobridge team, including a handful of researchers, “The natural physiologic way in which drugs work should be works out of a lab a few blocks from Harvard Yard, while similar to what happens in your body. If you don’t manipu- Evans and his team consult from La Jolla. Together they’ve late the system exactly right, then it gets messy.” He says his built a drug to activate the genes involved in burning fat while new PPAR drug, the first he’s involved in making and com- leaving most dangerous, unrelated genes safely off. Their mercialising himself, will be different. It won’t just flip all the testing process was much easier than the one that yielded switches to the on position; he’s spent the past decade learn- GW501516, Shiosaki says, because contemporary diagnostic ing how to fine-tune his controls. tools gave the scientists a much better sense of which genes 53 had been turned on or off, and in a post- Human Genome As he strolls through his 4,000-square-foot La Jolla lab, Evans Project world, they had a much better sense of what each passes rows of gloved assistants hunched over microscopes one did. “We know what negative or adverse signals that and test tubes, holding liquid-filled droppers and scribbling could lead to the negative results—like cancer—look like,” she says. The drug appears to increase endurance in mice with Duchenne muscular dystrophy, without the markers associ- “The challenge for ated with higher risk of cancer. After the Phase I safety trial is done, likely by July 2018, the next phase will involve people with Duchenne. “Our current intent here is to focus on rare diseases where there is unmet need,” Shiosaki says. Keeping the drug’s initial target narrow also makes it far more likely to win FDA approval. The FDA declined to comment because the study is pending. Like Shiosaki, Evans stresses that his first priority for MA0211 is treating Duchenne sufferers, and it’s too early to say THIS when the pill could be approved for other uses. In his office, though, he’s less measured about his endgame. Everyone should experience the health, cognitive, and other benefits KIND of consistent minimum exercise, he says, clad in mesh shorts and a tight-fitting Under Armour shirt after a trip to the gym. Evans isn’t quite ready to say he believes everyone, even OF the healthy, should be prescribed the exercise pill. But it’s clear he doesn’t think it’s a bad idea. “The challenge for this kind of drug is deciding who should get it,” he says. “I’m DRUG mindful that the FDA can only approve drugs that can actu- ally treat a disease. This is a new concept.” Athletes are probably already conducting their own off- is deciding who should get it. the-books studies, says Catlin of the Banned Substances I’m mindful that the FDA Control Group. “As soon as it is gets into clinical trials,” he says, “it will be in the hands of some doper.” But if an exer- can only approve drugs that cise pill is safe enough for everyone to use—safe enough that can actually treat a disease” everyone should use it—is that still cheating?

Meylan in the offices of Moser in Neuhausen am Rheinfall P U R S U I T S

59 Custom furniture goes the Warby Parker route

60 SWISS Tackle the Alps in a Rolls

62 MISCHIEF Junk bonds land on Broadway

63 In the risk-averse Swiss watchmaking industry, The Dyson V7 Trigger keeping young buyers interested is key to survival. handheld vacuum For Edouard Meylan, that means trying everything Bloomberg 64 Businessweek The man using his except playing it safe. By Corinne Gretler Middle East M.D.—and his MBA—to Photographs by Mark Peckmezian cure heroin addicts 16 November, 2017 WATCHES Bloomberg Pursuits 16 November, 2017

ven if you’re small, you have a voice,” CEO of megabrand TAG Heuer. “He attracts on political gifting in China. Swiss watch says Edouard Meylan, the chief exec- much more attention than his turnover and exports slipped for the first time since the Eutive officer of Swiss luxury watch- dimension would suggest.” U.S. financial crisis in 2008 curbed global maker H. Moser & Cie. In a reserved society such as Switz- consumption. (They are just now showing For Meylan, “small” means running a erland, sometimes just speaking up is signs of recovery.) family-owned company that makes about enough to get yourself heard. And with At the time, Moser was on the way to 1,500 watches a year with an average price stunts like making a watch out of Swiss profitability, and the news sent Meylan of about 33,500 Swiss francs ($34,327). An cheese and selling a mechanical version racing back to Zurich from a ski trip in the analyst at Bank Vontobel AG puts the com- of Apple’s smartwatch, Meylan has earned Valais Mountains. Unlike most of his com- pany’s 2016 revenue at 14 million francs—a himself a reputation as the prankster in the petitors, who were part of larger watch tidy business but a mere drop in the Swiss jewelry shop. groups such as Richemont and LVMH, milk bucket compared with the estimated Meylan would have to withstand these ill 4.7 billion francs Rolex SA raked in during n January 2015, the Swiss National Bank winds alone. It would be devastating. He the same year. roiled international financial markets pulled over alongside Lake Lucerne and Yet the 40-year-old has played an Iwhen it abolished the three-year cur- typed an open letter to the president of outsize role in a heated debate over the rency cap that had prevented the franc the Swiss National Bank. Swiss watchmaking industry, a fusty métier from appreciating beyond 1.20 per euro. “Over 95 percent of our watches are that’s been upended in recent years by cur- Immediately upon its release, the franc sold to people outside of Switzerland, rency fluctuations, changing tastes, and soared as much as 41 percent, reaching its and the first retailers called the same day competition from Apple, Google, Garmin, strongest level on record. The Swiss stock to cancel orders,” he wrote, warning that Fitbit, and other smart device makers. “He market plummeted, and luxury goods small businesses like his would be encour- is applying a very disruptive and intrigu- exporters saw prices for their wares unin- aged to leave the country. “Why not just ing communication— and social media— tentionally increase around the world. It move 2 kilometers into Germany and con- presence, which is quite unusual for such was a serious blow to the watch industry, tinue business as usual in the EU?” a small artisan,” says Jean-Claude Biver, already dealing with the second year of a Meylan smiles proudly as he retells president of LVMH’s watch division and slowdown caused by a strict crackdown the story at Moser’s headquarters in Neuhausen am Rheinfall, a five-min ute drive from Europe’s largest waterfall. 56 Many Moser watches feature a distinctive shaded fumé dial Cleanshaven and elegantly dressed, he wears a prototype watch called Endeavour that goes on sale in November. The watch features a tourbillon, a hard-to-produce watch complication the brand makes in-house. As with all Mosers, the watch has a distinctive, slightly audacious, colourful look. Like Meylan, the timepieces tend to make a statement. Moser was founded in St. Petersburg, Russia, in 1828 by Swiss native Heinrich Moser. It quickly grew to be the domi- nant force in Russia’s watch trade but moved to Switzerland after the October Revolution in 1917. The company traded hands a few times during the 20th century, and the Meylans bought it in 2012 from dental- implant billionaire Thomas Straumann. The brand’s tag line is “Very rare,” a nod to its small production numbers and its practice of finishing every timepiece by hand. A Moser hallmark is a fumé dial, with a bright centre and darker outer edges, that often lacks numerals. It’s a simple, striking visual effect. The brand’s 54,000-franc Endeavour Perpetual Calendar won the Geneva Watchmaking Grand Prix in 2006. Moser has sold time- pieces for 1 million francs, but its core collection ranges from 11,900 francs to 100,000 francs. WATCHES Bloomberg Pursuits 16 November, 2017

57

Delicate watch components are kept safe from dust in the Moser workshop

eeing the attention his letter to Swiss creative way to use some leftover rectan- Raised in Le Brassus, a little town that’s National Bank President Thomas gular cases Meylan was trying to get rid home to watchmakers Blancpain and SJordan drew within the indus- of.) In the low-budget video that promotes Audemars Piguet, he spent his teenage try, Meylan decided to address another the timepiece, Meylan encourages people summer holidays working at the latter, threat, the smartwatch, with a stunt. In to “get a life and upgrade to a mechani- where his father, Georges-Henri, was early 2016, Moser unveiled a spoof of the cal watch.” Because it can’t make phone CEO for almost a decade. “Being born into Apple Watch, which had made its debut calls or send messages, he argues, the Alp watchmaking gives me more legitimacy months before. The 24,900-franc Swiss reconnects people face-to-face. How’s that to criticise. It’s like self-criticism,” Meylan Alp Watch was a mechanical replica of for functionality? Moser sold about 200. says. “I got that from my father: to be direct Apple’s device without any functional- Meylan says his love of timepieces and and provoke a discussion.” ity other than telling time. (It was also a his sharp tongue were both inherited. That contrarian attitude at first led 58 given watch globally, it’s a almostimpossibleto call tomers. With somany watch sourced parts that encourages brands to deceive cus such asMeylan seeitasmumbo jumbo made much critics fussabout this—but the smallcountry. The Swiss government more to production to bring companies the value oftheentire watch to encourage centage was increased to 60 Switzerland. year, this Starting the per come from andbeassembledinhad to halfthevalueat ofitsmovement least to besoldwitha“Swiss Made” label, Forissue: for awatch thepast decade, that his brainstorm—and it’s out sessions ofthese a group ofemployees to andfriends creative Twiceayear ideas. hesummons everyone to pitch inandcomeupwith andexpectsers thebrand to beastartup never farfrom view. He says heconsid Moser elegant watch his means is style talking-with-his-hands andhis an instant, among French, andEnglish in German, When Meylan walks in,heswitches office where Moseremploys 55 befelt intheNeuhausencan amRheinfall following year. his family at Moser andtook thehelm phone sector. In2012hereturned to help companypioneering intheluxury mobile X in2008 Celsius co-founded of theUniversity ofPennsylvania, he a master’s degree School at theWharton its swiftly growing market. After getting travelsHis there ledhimto understand end independentwatch brands inAsia. in 2003 to manage of high- distribution hereturned bit at to PwC, theindustry Technology in Lausanne and dabbling a ing from theSwiss Federal Institute of adegree inmicroobtaining engineer WATCHES The Swiss Mad (left) andtheSwissAlp The SwissMad(left) Meylan away from watchmaking. After The warmth ofafamily-led company Earlier in 2017, Earlier Meylan took onanother

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II SA, a orkers. - - - - ers create atruly 100 tiques andHong inZurich Kong inthe Moser’s watches are tested to ensure they canwithstand day-to-day movement andpressure years,two theaverage age ofthebuyer next 24 S Watchmaking Culture. donated to theFoundation ofSwiss a May Christie’s auction, withproceeds under the hammer for 125,000 oftheSwissand aprototype Alpwent label from TheSwiss itstimepieces. Mad Swiss Made Great Again.” that proclaims, inwhite “Make lettering, Throughout, hewears a familiar red cap met any cocoagrowers from theAlps?) Made labels,like chocolate. (Have you at various that products have Swiss as William Tell andthrows punches another video, inwhich Meylan appears the Swiss Mad watch, with anditcame of Swiss Hepiece—out cheese. named it per year. There are plansto openbou In protest, Meylan watchmak had his Moser also removed the Swiss Made the number ofwatches itbuilds has almostdoubledthe business ince the Meylans took over Moser,

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francs in in francs - - - others notdoing? Andwithour marketing “We needto ask ourselves, What are the advantage ofit,” adds LVMH’s Biver. fullyis aware andtakes brilliant ofthis analyst at BankVontobel AG. “Edouard Swiss AlpWatch,” says Rene Weber, an thanks to themarketing stuntslike the muchis more likely to buy another. person who owns onewatch from abrand watchmaking high; world.a is Loyalty panache. Youth key is to inthe longevity 15,000 timepiece at 11,900 of a lower-pricedintroduction entry-level ofthe reasonPart for the change was the previous range of55 to 65, Meylan says. from about 25 to 45, compared witha has dropped precipitously: It now ranges ‘Moser who?’ here, would“When Istarted friends say, changed over thepastfive hesays.years, become our trademark.” Thingshave edgy,campaigns, sexy, provocative have its niche and is gettingits niche and is more attention Swiss watch industry, butithasfound ancs; another part is Meylan’s is anotherpart ancs; “We needto bedifferent,” Meylan says. stillasmallbrand“Moser inthe is

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WATCH PHOTOGRAPHS COURTESY OF H. MOSER & CIE. COURTESY MAIDEN HOME some Point andsellitto three middlemen who eventually sellitto outdated model,” business Kapur says. show “They itat High are “They craftsmen. highly skilleddo local butstuckinthis Stanley, giantsshow butso andotherlocal theircollections, on the state’smated $5.39 billion impact economy. Ashley, show that draws more than2,000 exhibitors andhasanesti In 2015, Kapur went to HighPoint Market, abiannual trade by skilledCarolina insixweeks. North craftsmen stores rely deliver on,she can acustom pieceoffurniture made marketing,skipping that andproduction other thecatalogues, but big-ticket purchases such as armchairs and sofas. And by ever to buy furniture notonly smaller housewares online—and at thesametime.Kapur says shoppers are more ready than straight to thesource, buildawebsite, andsave peoplemoney (Casper), orclothing(Everlane)—then bypass the middlemen, go industry—whether (Warby glasses Parker Retail Inc.),mattresses Findanout-of-touch ofthepastdecade: disruptions e-commerce ticular market. You feel itwhen you’re shopping.” well-served. There are not that many par brands this serving she says. “And below, Ihad beenthere too andfelt itwas very above mewerecare are fine,because ofthem,”taking designers a designer.” pointlacked Butthat price options.“Iknew people spend “$2,000-ish” onasofa,“not$6,000. We weren’t hiring invest inanicesetoffurniture,” she says. They could afford to got anddiscovered married agapinthehomedécorcategory. Birchbox service subscription at beauty business Inc.Thenshe before at hercareer of becominghead Google Kapur began butcharmingshowroomunderstated inManhattan’s Tribeca, Maiden Home that Inc.,afurniture launched startup inMarch. shopping from thesamestore,” says NidhiKapur, thefounder of chair, “itfeels like you have three andthat choices, everyone is For thoseonthehunt for perfectly affordable— that perfect—and DESIGN “When Igot my firstplacewith my husband, we wanted to The first challenge was getting manufacturers to sign up. nextWhat came familiarto anyone is who’s followed the A 30-year-old entrepreneur who out runs her business of an cons

For Sitting Sitting For umer at a high-end boutique.”umer at ahigh-end Startup Startup Down The The

Bloomberg P - - ufacturers. “Somepeoplegotufacturers. itimmediately,” she says. thing you’ll get sick of.” about that an aesthetic will last fortalking years, not some high-quality,” she says. “Whenwe we’re about design, talk someone who wants to avoid trends andhave something “Everlane known for is andis for design simple,timeless and other online darlings arestartup more alike than not. them out first.” Even so, Kapur says the core goals of her goods, are andpeople want tactile to “These try Securities. Seth Basham, ahardline research equity analyst at Wedbush ferent from a$75 that pairofglasses have areturn policy,” says market “Big items barriers. like significant faces a sofa are dif of theprocess.” workan upholsterer doing“themostnuanced and artistic is be adding “details like welts ortufted buttons.” Inanother, sentto customers. might Inone,aseamstress is email alert So far, thecompany hasshipped almost500pieces. producedan anilineleather by a fifth- rons, charcoal anavy tweeds, leopard and, for $675 print, extra, availablepiece is in 37 including putty- fabrics, big-box chains West Maiden Home Elm Inc. and CB2 Inc. Each $1,000—sofas are roughly $2,000—is comparable to thoseof and larger of the chairs, which The price run about sectionals. peroffering:chairs,sofas, limited to four is styles the collection in thecountry. That’s unheard now.” ofright whatis we do:deliver custom furniture in six weeks anywhere one thing she wouldn’t compromise on was lead “That times. zero-inventory,establishing no-minimum arrangements, butthe furniture andamodernbuying experience.”terms ofquality ence. A store like Restoration Hardware eating their lunch, in is lookingfor thingsthatmodern consumer have is anonlinepres know changingandthat the “They modelis that theirbusiness 25 ursuits

man Despite that extra attention, theonline custom furniture The service is hands-on. Every hands-on. update” week is The service a“build ofmakingfewer spirit In thestartup thingsofbetter quality, Kapur endedupworking inthearea, withthree artisans about Carolina, trip to North On her first she cold-called

the furniture industry p by creating custom ieces for a grand, inieces six weeks or less By James Gaddy By Maiden HomeMaiden aims to upend Maiden Home’s Leroy chair, from $1,175 g eneration Italian tannery.eneration Italian c 16No oloured chev

vember, 2017

- - - - 59 CARS Bloomberg Pursuits 16 November, 2017

60

Reaching 7,976 feet above sea level, Switzerland’s spindle-thin Furka Pass is one of the highest mountain roads in the world. Heavy Its sheer edges are so abrupt they make professional drivers sweat. The climb is suited for something small and athletic, such as a Porsche 911, or the Aston Martin DB5 James Bond Hitter drove here during an epic chase scene in Goldfinger. It’s not typically where you’d land a 5,754-pound, 20-foot-long coach that’s meant to be enjoyed from the back seat. Yet that’s exactly the spot Rolls-Royce Motor Cars Ltd. chose to introduce its latest effort, the eighth version of its Phantom flagship sedan. For the first time since 2003, the carmaker has orchestrated a complete update on the model—only the second time it’s done so under BMW Group owners hip. The Phantom is the marque that John Lennon and Elvis Presley drove, the one Queen Elizabeth commissioned as her preferred mode of travel. First designed in 1925 by Henry Royce himself, it’s the oldest automotive model still produced today. Last year, Phantom sales generated about 15 percent of Rolls-Royce’s revenue in the After more than a decade, Rolls-Royce Americas; it’s the company’s single-biggest money- making series. is relaunching its flagship Phantom. It’s also the largest vehicle Rolls-Royce makes, with a 6.75- liter, 563-brake-horsepower, V12 engine powerful enough The result is a $450,000 hunk of power to run a tank. The Phantom can hit 60 mph in just over and opulence. By Hannah Elliott five seconds— remarkable for a car of its heft. PHOTOGRAPH BY YANN GROSS FOR BLOOMBERG BUSINESSWEEK quieter thanitspredecessor when moving at highspeeds. the Rolls-Royce buyer 44,down is from 56seven years ago newly The comforts. these affluent, expect average age of Theresultthe bulkhead. asuite that’s is officially10 alloyof felt between floor and along skins inside the cabin filled withnoise- Engineers tested 180 rural retreats and visiting passes I believe Zurich, near it. After threeEarth. days spent windingthrough mountain andaceilingglitteringwithtinypartment; lights. whiskey decanter, glasses, Champagneflutes, andchilledcom with wood polished cabinet panelling;drinks ing; high-gloss todesigned dazzlewithitsinch-thickdyed lambswool carpet towardcloses thefront ofthecar. specifically Theinterioris world frosted glass. inLalique glory; are headlights therectangular theonly inthe ones steel prongEach hasbeenhand- Taylor Giles designer has made all the other elements flow. its outside andadmire thesheer wall from ofthegrille, which CARS Today’s wealthy, many ofwhom are relatively young and Rolls-Royce says on thenew thequietest Phantom is car WithClimb in the back. a gentle pull, the rear-hinged door To appreciate the$450,000 vehicle’s fullglory, with start

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per Bloomberg P cent - - another late next antic at everyprising turn. train, it danced across the pass like a much smaller car, sur the Furka: Even asthePhantom thrustforward like abullet over any change was the secret to This indirection. breaking allows wheel each autonomy andvector to choosetraction forward andelegance. withauthority and the Phantom Excuse Push the gas pedal, right. time—they’re thecliché this smooth asa pension coupled system withanairride that makes as thecar advancedlogically thananythingthat’s comebefore. resources have lighter, made thecar stiffer, andmore techno buyerscar are undertheage of40.) ear. It had better be good. if you That is, need ted first-ever SUV fromted first-ever SUV Rolls-Royce, which arrives second-biggest market, China,38 buyers,car according to Kelley (InRolls-Royce’s BlueBook. and younger thantheaverage age of50among allluxury ursuits Rolls-Royce very proud is ofanew double-wishbone sus This bodes well bodes This for the Project Cullinan, the much Most impressive thecar’s is novel four-wheel drive. It A foot onthepedalreveals that BMW’s fullengineering ipa

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per cent ofallnew luxury 16 No vember, 2017 - - - 61 62 magazine labels him“America’s alchemist,” amanwho forges (Steven coronation. Pasquale), after his The cover ofTime financing.”is notanasset,” “Debt is debt!” hedeclares. “Debt around head his thecore “creative to ofwhat becalled came New York’s Theater, Lincoln Center can’t an older financier get In Akhtar’scash. study cautionary in previews of the period, at most voracious amongthemwere rewarded of withmountains investors chased yield, they embraced with the zeal—and risk makers to seedebtdifferently, began As asathingof value. ber theera ofWall Street royalty, when anew guard ofdeal winner Ayad Akhtar. “Or what fordays.” passes kingsthese ofJunkproclaims, thelatest play at thestart from Prize Pulitzer ofhow thestory kingsare is made,”“This ajaded journalist CRITIC financial wizards of the 1980s. We meet Akhtar’s protagonist, Robert “Bob” Merkin whoFinanciers lived through 1980swillremem the dizzy A Broadway show the dark side about of the

A Bond King Tragedy of Tragedy By David Gura David By

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gate. butEverson Thecompany hasbeenstruggling, hasn’t positioninEversona sizable at Steel, barbarians the hesees thousandshis of employees. When an outside investor amasses over asmallempire ofmillsandsmelters, feels responsible for Thomas Eversoncrystallises. Jr.flict (Rick presidingHolmes), from West Angeles, Los where Merkin based. Here, is the con Steel inAllegheny, andaworld Pa.,thousands ofmiles away Ibelievedleast itwas.” ing our lives,” says Akhtar after arecent performance. “Or at every day. to observe “I started how stuff transformwas all this offered to pay his rent ifheagreed to theWallread Street Journal junk bondboom.Whenhemoved to New York in1995, dad his himselfwas astudentofthe Akhtar kindofdealmaking. of this relevantespecially today, aswe reckon withtheconsequences changes, more thanoncenow. matter seems Butthesubject “We’re going to change theworld.” “We’re going to change history,” to acolleague. heconfides invincibility. Merkin himself as amodern-day sees J.P. Morgan. by avarice but also titillated by insulated risk, by asense of multi earlier this year,earlier this andinOctober, theindex setanew high. bility. TheDow average Jones industrial crossed that threshold laughter intheaudience debated asthecharacters itsinevita of“Dow thespecter raise 20,000.” colleagues and his Iheard on what changed andwhat’s happened. At Merkin onepoint, nition of“success.” Three later, decades it’s worth reflecting the country’s value system to shift, along with the defi started Milken. advice? His SeeMerkin asametaphor. “there isn’t lineto aconsistent bedrawn” Merkin between and some ofthemenwho hecautions, inspired But, characters. his theresuspects willbeticket holderswho of are acquaintances Milken extends beyond their near-rhymed surnames. And Akhtar but heacknowledges Merkin’s that Bob resemblance to Michael tors, reporters, andlawyers inJunk are Akhtar’s own creations, employees—feelsand his familiarandreal. inves Thefinanciers, notalwaysis about going whether someoneis to live ordie.” says. about getting “Gettingdoneis adeal done,butit a deal stakes dohave really consequence, is thechallenge,” Akhtar them edited anearly draft. igence. are friends Two closest infinance,andoneof ofhis of Wall Street willbegrateful duedil for doinghis to Akhtar of what happens. That said,viewers familiarwiththeways have to all the jargon understand to grasp the implications says.Akhtar The play isn’t overly though. You didactic, don’t what at least to understand thebasicconceptis,”dialogue, information for the audience, through and context action and to theatregoers? comprehensible—and, better still, transaction cial playwright’s jobdifficult: How do you make acomplex finan hassomeofthesamemystique,wizardry which makes the behind themagic well, scenes, becomes, Financial magical. less knowsartist that ifaviewer what fully understands happens been lookingfor alifeline. ursuits We have withthese that came thelessons learned certainly It helpsthat somuch intheshow—and theplightofEverson In Junk focuses onapivotal history, moment inAmerican when “Finding away to write about where business, thehuman incumbent on me, as a writer,“It is to provide enough Performing andsubterfuge. sorcery dependsonsecrecy The million-

Junk, Merkin’s takeover unsuspecting target Everson is dollar deals out ofdebtandequity.dollar deals He’s driven 16No compelling

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16No vember, 2017 63 64 it could only bemarketed for useintravenously, to reverse heroin overdoses, butper U.S. regulations spray. Naloxone had been usedsincetheearly 1970s in thebrain, that could beadministered asanasal the drugnaloxone, which pathways blocksaddiction Inc.—werePharmaceuticals developing a version of 2009, saw Crystal opportunity. his to becomechiefexecutive officerofLightlake in Therapeutics arose thatfor Whentheopportunity treat companies diabetics. atacquisitions andlicensingdeals GEHealthcare, andconsulted School, then did a stint Sachs atGroup, Goldman worked on career to pursue anMBA medical his from Business London requiredof addiction apopulation-level quit solution.Crystal become.”of thebrain can be, how can dysfunctional the circuitry addiction bad a disease up onheroin,” says. Crystal “That’s when justhow Irealised exposed,tines andallhewanted to dowas shoot “He was lying there liver withhis andintes needle. from infection adirty flesh-eating a heroin who’d addict a contracted that day,toughest case hesays, was operatinghis room. Even so, his Terror streamed into victims and injured more than 700. Underground killed56 on July HospitalCollege inLondon surgeon aton-call University CRYSTALROGER WAS THE , 2005, when a ofexplosionsseries inthe Researchers at Lightlake—now Opiant called He could provide care at theindividual level, buttheproblem

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By Darius Rafieyan Darius to onscale. atreat mass By addiction Roger Crystal Roger - GAME CHANGER Is anamateur triathlete Bloomberg P headlamp he used as headlamp heused b. 1976, Manchester, an ENTsurgeon Still ownsthe England - - trials ofadrugthat wouldtrials mostbenefitpeople who tend to be before itreaches thebrain. prompting theimmunea disease, system to destroy thedrug that would thebody trick into thinkingheroin are molecules Crystal’s next goal treatment aheroin aone-time is vaccine: Narcan, which now is available over the counter in most states. and DrugAdministration approval for its naloxone product, bigdeal.” abig, tion is In2015 thecompany received U.S. Food able to deliver thedrugat concentrations equivalent to injec ursuits In the past, it’sIn the past, been difficult to secure funding for clinical that transition zone out of clinical development.”that transition zoneout ofclinical setting,” he says. you “Then have our company: We’re are by restricted beingina government oracademic “Youmedicine. have minds,who themost brilliant andtheworldbridge scientists ofretail between beacritical thinksOpiantcan Crystal to bolster it, expensive With treatment. theincomefrom Narcan incarcerated oruninsured andlikely unable to afford you’re justchangingthedelivery system—but to be “People don’t realise,because it’s notsexy— which helpsfundOpiant’s research. the National Institute onDrugAbuse, gets,” says Dr. Nora Volkow, of head time. “It’s asuser-friendly asit be counted onto work every is easy to easy administer and can is by alayperson. the timewhen administered effective only 59 study found itto use—one be making itrelatively hard to The intranasal formulation 16 No

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