James Dartnell caught up with KPMG global chairman John Veihmeyer on his recent visit to Dubai. he shared his thoughts on how the Middle East can emerge stronger from the oil price plummet, and what GCC CFOs can learn from their American counterparts.
Abroad one to start off with – what are KPMG’s main aims for the next five years?
Working closely with our clients to help achieve their objectives is a top priority. I think we’re very focused on differentiating the nature of the client experience. In a world where there’s a lot of uncertainty and risk, every company or government organisation needs to look at how they can transform their business operations. We’re certainly focused and will be over the next five years in broadening and deepening our capabilities in addressing all their needs and opportunities.
What do you think CFOs in this region can learn from their American counterparts?
That’s a loaded question! I think one of the things that US-based companies have been willing to do for a long time is look not just at their acquiring capabilities through traditional M&A activity, but also, how to partner with other organisations. What kind of alliance strategy does your company need, when one day you could be competing with someone and then the next day teaming up with them? I’ve seen that trend emerge much more rapidly in the US compared to many other jurisdictions, therefore, I think CFOs of US-based companies have been challenged in terms of how to build institutional capabilities and team with other companies to maximise opportunities in the marketplace.
The SME sector has become a big focus for your local business here in Dubai. Why should SMEs partner with KPMG?
A lot of people may not realise this but over 50 percent of our revenues derive from working with small and medium-sized enterprises. A large part of our culture and history has always been working with small and emerging enterprises. It’s a big part of our strategy in terms of our future success – which will be heavily linked by how well we serve SMEs. We’re investing in tools and solutions that are specifically geared towards those types of companies. They have different needs compared to a global multinational.
Over the last five or 10 years – I don’t care how small the company is – there are companies out there who are operating outside of their own borders. They may have subsidiaries located overseas, but almost every single company is looking to sell to consumers outside of their own home countries. Part of their sales channel or supply chain will be global as well. Being a small company doesn’t mean that global expertise won’t be useful to you.
Working across borders demands expertise on regulatory and tax environments. If your supply chain has components that are worldwide then that expertise is also important. Our ability to provide traditional audit, accounting and tax services as well as cyber strategy and analytic capabilities, forensic, corporate finance offerings across our portfolio are things that emerging companies need as well. Just because you’re small doesn’t mean that you may not be interested in acquiring another small company somewhere else. Our corporate finance and due diligence expertise can be very valuable in this case.
Which of the issues you’ve mentioned is the most important for an SME, particularly in the Middle East?
For an SME that is expanding globally, tax is always the thing you run into first. If you’re expanding into an unfamiliar market, the first thing you have to make sure you get right are the compliance related features of that country, and tax and regulatory issues full under that remit. Many SMEs who engage us when moving into another country always look for tax advice. Strategic decisions around how to penetrate a market, and what market to go to, are relevant to SMEs. Technology services are also very relevant. As your business becomes more global and you expand operations, figuring out how to ensure technology keeps up with expanding scale is a challenge for every enterprise.
What’s the US – and your – perception of this region?
Starting with mine – I don’t know if I’m indicative of a lot of people or not – I believe, as the chairman of KPMG, this is a very important region to us. It has been and I expect it to continue to be one of our fastest growing regions in the world. We’re growing at over 25 percent in Saudi Arabia, have double digit growth in the UAE, and this is a strategically important region because of its growth prospects and in terms of what it offers in terms of talent capabilities. We’re investing heavily in the region and will continue to do so.
A lot of Americans view this as a region, where, in a world where getting experience is so important, it is a great opportunity to distinguish yourself. Being astute and sensitive to different cultures and working in different parts of the world is important, and I think this is a market that Americans look to as a great opportunity for building out their opportunities and enhancing their prospects.
And what about the region’s economic prospects in light of the oil price crash?
Obviously the region has been hard-hit by the oil situation, but having said that, a lot of things that are being done in response to that situation are very important in building a sustainable and long-term diverse economy here. It may be painful in the short-term, but I actually think in the end it will be very beneficial to have gone through diversification initiatives. All the ministers that I talk to here in the region are focused on these initiatives. While the region may grow at a rate of around 3.5 percent – I think that’s the latest IMF prediction – that masks the opportunities that a lot of businesses in this region have. As the ministries here look to transform in this environment compared to the one they’ve enjoyed, that creates significant opportunities as they look to achieve their own objectives.
It’s like anything where something negative occurs; governments and businesses figure out how to adapt and change to new circumstances. I’m not saying the drop in the oil price is a good thing, but it will cause a rethink of how to operate, and of future revenue sources, which all creates activity in the marketplace that, if you’re creative, can generate business opportunities.
Speaking of creating business opportunities, will you be moving into the Iranian market in light of the lifted sanctions?
We’re being cautious about Iran. It obviously has significant opportunities here. In the late seventies it was the UAE’s biggest trading partner, so I know what an important partner Iran can be to the country. As sanctions continue to be reduced, that role can gradually reemerge. We’ll stay close to it and monitor the situation, but we’re taking a measured approach, and will react and respond as the market dictates.
The US has restrictions on Iran that many countries don’t, but Iran could nonetheless develop into a very active trading partner for a number of countries that use our practice.
Oil aside, what’s the biggest challenge that this region faces moving forward?
From KPMG’s standpoint, this is a region where our only constraint on growth and opportunity is our ability to attract and identify opportunities, and finding the talent to capitalise on them. We are actively recruiting and looking to – where it makes sense – shift resources into the region from other parts of KPMG. A big part of our objective is to continue to find local talent that can help us meet the challenges of the customers and governments that we’re trying to serve. Cyber and digital capabilities are tough in terms of finding talent, and in truth we’ve had difficulty in finding enough people with those skills.
How quickly is the GCC progressing with IFRS implementation?
I think it’ll continue to progress. There are around 100 countries around the world that are on IFRS. It’s clearly the accounting language that is being adopted worldwide. We’ll continue to support every country that is making those changes. I was in Saudi Arabia recently and companies there are worried about their capabilities to build the experience and knowledge that they need to implement IFRS on the timetable they need, but we will help them implement IFRS when required. I don’t see anything that will slow the pace of IFRS adoption outside the US.
What impact will the introduction of VAT have on the region? How will it affect your local tax business?
Frankly, I think we’ll have to build additional tax capabilities in the region for the collection of VAT, as well as some of the other similar measures being adopted in different countries. Companies we work with will need to appropriately comply with requirements. As we speak, we are relocating talent with VAT experience from outside of the region to this region, so that we’re ready to assist companies who need our help in that regard. There’s no doubt that we will have a bigger tax practice going forward in the region.
To put you on the spot, what are your thoughts on Donald Trump?
Without commenting on any of the election candidates, as optimistic as I am about the US economy, most business leaders I meet with in the US believe strongly that there are some policies that need to be looked at that could accelerate the growth of the US economy. They include the regulatory environment, tax policy – we need a competitive tax system in the US, which we don’t have. More important than which candidate is to continue to work with legislators and the administration to deal with policy issues that can make the most of our economic opportunities, including trade, immigration and tax policies.