By Zafer Achi www.gulfnews.com
Mubadala Development Company is a study in contrasts. An investment company with assets of $24 billion (Dh88.153 billion), its businesses deliver both strong commercial and social returns — reflecting the government of Abu Dhabi’s policy agenda.
Its subsidiaries span multiple industries, including aerospace, energy, health care, hospitality, infrastructure, real estate and technology — and while its sole shareholder is the government of Abu Dhabi, it has announced plans to take several of its local subsidiaries public in the next decade. This makes it a virtual incubator of companies that the government expects to play a critical part in the economy that Abu Dhabi is building.
Among the most distinctive contrasts at Mubadala is its charter’s mandate that it should not only be profitable but also lay the foundations for a diversified economy in the emirate.
Its mission is closely aligned with Abu Dhabi Economic Vision 2030, an official document mapping out the emirate’s primary development areas from a government perspective.
In an era when fims around the world seek to integrate social values and the public interest into their business models, Mubadala stands as a vivid example. Its mission and structure are built around what it calls a “double bottom line” — pursuing opportunities that could deliver both strong social returns and commercial profit. Mubadala’s chief operating officer, Waleed Ahmad Al Mokarrab Al Muhairi, spoke about Mubadala’s role in Abu Dhabi’s economic development and the trade-offs the company makes to fulfil seemingly competing mandates.
The Quarterly: How do Mubadala and Abu Dhabi’s development fit together?
Waleed Ahmad Al Mokarrab Al Muhairi: The Abu Dhabi Economic Vision 2030 is a directional blueprint that maps out the primary areas of development for the emirate. Its purpose is to enable the emirate to, among other things, shift the balance of its economy from one primarily reliant on hydrocarbons as a source of GDP to one in which nonhydrocarbon industries will play a much larger role. If you look at the different priority areas where Mubadala deploys its capital, you’ll see that there’s a very good fit between what’s articulated in the 2030 vision and what we do.
We invest in highly innovative industries that play to Abu Dhabi’s strengths and competitive advantages, such as those that are capital-intensive or rely on world-class logistics. Such industries help meet our aspiration to increase innovation and the role of intellectual property in the Abu Dhabi economy.
How do you meld the pursuit of economic wealth and of strategic social goals in the public interest?
We look at a number of filters as we debate the Abu Dhabi Economic Vision 2030 and figure out what makes sense for Mubadala. Those filters range from goodness of fit — meaning playing to our strengths — to things like how significant a sector could be over time and the types of jobs an investment might create. We take a very deliberate approach to picking sectors, picking clusters, and understanding what’s needed to get from a large investment to a thriving, productive contributor to and, ultimately, driver of the GDP and the economy.
Take our investment in Emirates Aluminium. This joint venture between Mubadala and Dubai Aluminium is constructing the largest single free-standing smelter in the world. Phase one is already operational, and we think we’ll be able to reach 1.5 million tonnes per annum over the next few years, with an aspiration to be a top-three or -four producer worldwide. This investment was a good fit: aluminium is an energy-intensive business and relies on a multifaceted transport infrastructure, both of which we have. It also creates the type of employment we think will be quite beneficial for Abu Dhabi. So in many ways, it meets our priorities. Now, there are many opportunities for deals we might make to support Emirates Aluminium once Mubadala has firmly established itself in that space. For example, we want to diversify and secure our upstream supplies. We don’t necessarily have a target in mind, but we will look for potential transactions.
Does any part of Mubadala invest for purely financial returns — without a strategic objective?
Yes, although all our deployments of capital, even from a financial perspective, have had a strategic twist. For example, our investment in General Electric has certainly turned into not only one of our largest, and most important, deployments of capital on the financial-investing side but also into a very strong and very strategic relationship — as a result of the framework agreement that we’ve put in place. So what started out as, “Hey, we think it would be a great idea for you to invest in GE,” ended up with the creation of a significant joint venture, Mubadala GE Capital, along the lines of a GE Capital, here in Abu Dhabi.
We have many examples of investments that start out as financial investments but take on a strategic angle. But nothing prevents us from looking at pure financial plays — and we will do so increasingly over time.
How do you trade off financial returns against strategic contributions to society?
We tend not to compromise on this. Part of the thinking is that if you start making those trade-offs, you’ll end up on a slippery slope that can take you places you wouldn’t ideally want to be. So we always use financial returns as the first filter when making an investment. If it passes the financial test, we look at the strategic metrics and see if, together, the financial and strategic metrics create a cluster or businesses that make sense from an Abu Dhabi perspective.
If our shareholder asks us to do something that makes sense only from a social perspective, we’ll try to turn it around and engineer it in a manner that respects the mandate of Mubadala to produce economic returns. If that doesn’t work, we’ll go back to our shareholder and say, “We don’t believe this is the right project from Mubadala’s perspective.” And the government of Abu Dhabi and our board of directors are quite adamant about staying true to both sides of our mandate.
What about the trade-offs between the responsibility to produce annual returns and long-term goals that are 20 years out?
Because of our bondholders, we are committed to being very transparent about our financials, which we release twice a year. We have our pro forma midyears and then we have final statements we release at the end of every year. We’re committed to doing that and think that’s done wonders, from a transparency perspective, for Mubadala. But we are an investment vehicle that is quite mid- to long-term focused. Our board has given us very, very clear guidance: “The shareholder wants you to think seriously about developing these clusters. We know you can’t do that on a six-monthly timetable.” So it’s important to keep yourself honest. It’s important to be transparent, hence the six-monthly reporting. But don’t lose track of your vision.
We’ve taken that advice to heart, and that’s really the way we manage as an organisation. Not having the intense quarter-on-quarter expectations takes away some of the pressure but none of the discipline.
Mubadala has a renewable-energy initiative, Masdar. How does that fit into your mission?
Masdar signals a commitment from both the leadership of Abu Dhabi and Mubadala to deploy significant amounts of capital into an area we think will have superior financial returns — and which we’ve also identified as a target area for innovation and growth from an economic — diversification and development — perspective. In many ways, Masdar is similar to our health care initiatives, our aerospace initiatives, our technology initiatives. You can think of it as our renewable-energy initiative. Now, it tends to be a little bit more encompassing than some of the others, in the sense that it has embedded educational partnerships, including venture labs and accelerators. So it’s a very holistic view of how we want to approach what we hope will be an important sector in Abu Dhabi’s economic future.
How do you deal with the limited availability of talent and labour in Abu Dhabi?
It’s one of the things that we’ve had to tackle quite quickly. Everything we do, in health care, aerospace, semiconductors, even Masdar — all that revolves around how we find solutions for human capital issues. It’s something I spend a lot of time thinking about.
As a result, we’ve worked quite closely on curriculum issues with the Abu Dhabi Educational Council, for everything from primary schools to tertiary education. And we’ve tried to find models that work for the different types of positions we need to fill in different industries. For example, in the semiconductor industry we need people with a polytechnic type of background, all the way to PhDs who can help us on manufacturing and process design. So we work with the authorities to create the linkages between industry and academia, and as a third and important pillar we’re thinking about how we can use R&D to help bridge that talent gap as well.
This is certainly important for the economic diversification of the emirate, but doesn’t it add to the portfolio companies’ cost of doing business?
I wonder if that’s true. The way we think about it is educating our own people and getting them in productive industries. Any way you look at this, it’s positive for the economy and therefore has benefits, whether through social dialogue or the impact educated parents will have on educating children.
Those are things we don’t quantify — we just take those positive externalities for granted because they are things we like. Education and training are a necessary part of doing business, and the issues aren’t unique or endemic to our part of the world. Think about aerospace, an industry that traditionally invests a huge amount in R&D and training. As you would expect, the innovation element of that is really quite high. So we’ve looked at what other countries have done — looked at Singapore and South Korea, both of which are quite strong in aerospace. We learned about how government and industry work together to ‘upskill’ the workforce, to take advantage of these positive externalities and ultimately have a productive workforce that’s able to deliver on quite ambitious targets.
Is the double-bottom-line mind-set something that you look for in new people?
We take our values and ideals quite seriously, so we always look for people who have both the discipline to make the type of returns we want but also the passion to create the types of strategic returns we’ve talked about. That’s a theme that connects the great majority of our people and a key element of distinction for Mubadala, so it’s incredibly important as we think about the people we bring in. It’s also something that we reinforce — as people progress, as people develop, as people look for new opportunities — and that we use to seed some of our businesses. So as we give people opportunities for line-managerial roles in our subsidiaries, we expect them to export not only their brains but their hearts as well, in the way they think about taking the Mubadala culture into some of the businesses we set up.
What’s your reaction to the emerging debate around state capitalism versus traditional capitalism?
The distinction may be slightly academic, at least in our context, since the economy in Abu Dhabi and the greater United Arab Emirates has evolved with a preponderance of government-related entities. That’s always been the case.
What’s interesting is that today you’re seeing spin-offs which are becoming more and more private sector-like, which illustrates the importance of state-sponsored capitalism. Although the government is the main engine for economic development, what you’re seeing is the spinning out of wholly private entities that are injecting the kind of dyna way from state sponsorship as the main source of innovation. For example, Mubadala is 100 per cent owned by the government of Abu Dhabi. But if you go a level down, to our portfolio companies, six or seven have already gone public through an IPO. That’s how we move away from 100 per cent government ownership to create opportunities for non-governmental actors. Obviously, each of those companies has tendrils and networks that reach even further into the economy and away from state-sponsored capitalism. So while state-related entities will be important in our part of the world for the foreseeable future, there is a clear direction towards increased private-sector innovation.
Let’s talk about Mubadala’s health care partnerships with Imperial College, Cleveland Clinic, and so forth. How did those happen?
If you spend time in Abu Dhabi or the UAE, you know that there’s a clear need for world-class health care. Lots of patients travel abroad to get health care. And as we thought about creating businesses, we always felt that we would distinguish ourselves by offering best-in-class service — in addition to doing things that hadn’t really been done before. Take, for example, the Imperial College London Diabetes Centre in Abu Dhabi. Here, we did a couple of things that were quite new.
First, we imported a very common business concept, the ‘one-stop shop’, into health care before other folks did, at least in our part of the world. Managing diabetes doesn’t mean managing a single disease but, rather, managing multiple conditions. We asked ourselves, ‘Doesn’t it make sense to have cardiologists next to nephrologists and ophthalmologists and podiatrists so that they can work with the endocrinologists on the front line of diabetes treatment to address the disease holistically — instead of what used to require eight different trips to a hospital?’
The second thing we did — and, again, this is very simple, but nobody had really done it before — was to design the diabetes centre from the inside out. We wanted to make sure that folks could navigate the building in a manner that reflected the way their condition was treated. We designed the centre in a circular pathway so that patients could start with endocrinologists, followed by cardiologists and other specialists, and then be done in an hour and a half. This was really quite game changing, quite revolutionary, from our perspective.
And the success of the diabetes centre has prompted us to look at creating more relatively small, self-sufficient centres of excellence around Abu Dhabi, both from a patient-services and a support-services perspective. Our goal is to create an integrated health care network, anchored by the Cleveland Clinic Abu Dhabi — a tertiary health care facility fed by a network of specialist centres that reinforce one another, all of which ultimately puts the patient at the centre of the experience. It’s a very simple but powerful idea, developed jointly with our partners, that has worked spectacularly well. It’s not a particularly large investment for us; it’s actually one of our smallest. But it’s a home run in terms of returns on invested capital — and from a social-impact and a personal-satisfaction perspective it’s had an outsized impact across the community and the region.
How would you describe the general progress towards the 2030 plan?
It’s too early to declare success, but there’s no question we’re heading in the right direction. Mubadala, as a reflection of that vision, is still quite young. Yet we’ve grown from a handful of people in 2002 to the 600-plus we have today, not counting the subsidiaries, and that’s really astronomical growth. Managing that growth, managing the cultural elements that propel you from A to B, managing the people issues and the institutional framework for reporting and cash management — these are all things we’ve had to look at, and we’ve had to learn very quickly as an institution. It’s been challenging but gratifying.
As Chief Operating Officer, Waleed Ahmad Al Mokarrab Al Muhairi oversees the company’s broad investment portfolio and is responsible for its strategic, operational and business development activities.
Al Muhairi is also a member of Mubadala’s Investment Committee. The committee is mandated to develop the company’s investment policies, establish investment guidelines and review all proposed projects and investments to ensure they are in line with Mubadala’s business objectives.
In addition to his position as Chief Operating Officer of Mubadala, Al Muhairi is a member of the Board of Directors of several key Mubadala Group and other operational businesses. He currently serves as Chairman of the Board of Directors of Yahsat, Mubadala Infrastructure Partners, the Advanced Technology Investment Company (ATIC) and Cleveland Clinic Abu Dhabi. He is Director General of Abu Dhabi Council for Economic Development, Vice Chairman of Tabreed and Piaggio Aero Industries and a Board member of AMD, Al Maabar, du and Abu Dhabi Future Energy Company (Masdar).
Al Muhairi was also one of the principal architects behind the Abu Dhabi 2030 Economic Vision.
Before joining Mubadala, Waleed worked with the UAE Offsets Program Bureau as a Senior Project Manager. He previously worked with McKinsey & Company as a commercial and governmental consultant.
He holds a Masters from Harvard University, USA, and a Bachelors of Science in Foreign Service from Georgetown University, USA.
Before joining Mubadala, Al Muhairi worked with the UAE Offsets Program Bureau as a Senior Project Manager. He previously worked with McKinsey & Company as a commercial and governmental consultant.
- Total asset base of energy and industry-related assets (primarily oil and gas) in 2009: 15.5%
- Raised by launch of Global Term Note Programme in 2009: $1.8b
- Operating income from Mubadala’s aerospace sector in 2009: Dh4.3b
Mubadala Development Company is a strategic investment and development company whose sole shareholder is the government of Abu Dhabi.
This article was published in the McKinsey Quarterly at www.mckinseyquarterly.com. The interview was conducted in July 2010.