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First Move with Julia Chatterley
The Oil Giant, Saudi Aramco Confirming It Is Going Public This Year; McDonald's CEO Ousted For A Workplace Relationship; Boss Of Amazon Speaks About Success In The Middle East. Aired 9-10a ET
Aired November 04, 2019 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
[09:00:15]
JULIA CHATTERLEY, CNN INTERNATIONAL ANCHOR, FIRST MOVE: Live from the New York Stock Exchange, I'm Julia Chatterley. This is FIRST MOVE and here's
your needs to know.
Saudi around-go. The oil giant confirming it is going public this year.
McDonald's shake-up. The CEO ousted for a workplace relationship.
And Souq success. We speak to the boss of Amazon in the Middle East. It's Monday. Let's make a move.
Welcome to FIRST MOVE. Once again, happy Monday. We may have turned the clocks back here in the United States this weekend, but I can tell you
there's no turning back for bullish investors this morning. We are in global rally mode. Take a look at U.S. futures right now. We are set to
add to Friday's gains. The Dow also set to open in record territory today following the NASDAQ and the S&P 500 on Friday, but it's no way near it's
just a U.S. story. We're seeing great gains in Asia and Europe, too.
Asia tech stocks boosted by reports that U.S. firms will soon get licenses to sell to China's Huawei and in that vein, too, President Trump over the
weekend talking about a U.S.-China trade deal signing that I think also helping sentiment right now. What about Europe though? European stocks
right now sitting near two-year highs shrugging off survey data this morning showing the manufacturing sector contracting for a ninth straight
month. It echoes what we saw from U.S. factory data in fact on Friday.
We talk about this a lot. It's a common theme here on FIRST MOVE. Investors continuing to discount mixed economic news. And I think the two
main reasons; one, trade deal hopes. We talk about them again and again, but also, I think Central Banks here riding to the rescue with fresh
stimulus.
What about earnings season though, too? We are now 75 percent of the way through earnings coming in around one percent lower than last year, but
three quarters of companies have clearly beat well managed expectations.
Now, speaking of expectations -- great expectations -- perhaps in certain quarters. Let's get to the drivers because it's official. The world's
most profitable firm will go public, Saudi Aramco to list shares in Riyadh.
John Defterios is on the story for us. John, it's happening finally, staying closer to home in Riyadh, which is an important point. Sweetness
offered it seems by the firm, too, but it is the bottom line here, but there's been a rationalization here on valuations, which is allowing them
to come to market now.
JOHN DEFTERIOS, CNN BUSINESS EMERGING MARKETS EDITOR: Yes, I think it's a rationalization of the valuation itself, Julia, but also a very big desire
to get this thing out the door. This is the mothership of Saudi Arabia representing 70 percent of revenues.
I'm in the headquarters of OPEC. It's apropos because this is the de facto leader of OPEC, Saudi Arabia and a founder back in 1960 at the same time.
It's hard to argue with the numbers that Aramco puts out. We have the nine-month figures of $68 billion, which are down on 2018, like for like,
but they produced $111 billion last year, two times the level of Apple.
And if you think about it, in terms of its scale, if you combine the reserves of the top five oil producers in the world, the IOCs, Saudi Aramco
has all of them combined in one company. So perhaps it's worth the evaluation comparison.
I added up the market cap of those five companies, it is $1.4 trillion. You want to get a target of $2 trillion the Crown Prince of Saudi Arabia
wanted, I think that's where the realizations coming in. I would expect though, Julia, they'd like to beat the number that Wall Street is thinking
at $1.5 trillion. It also tried to outgun Alibaba at $25 billion, the record IPO in September 2014. Going only in Riyadh right now helps them in
that process, because of the Saudi billionaires that are there, the national pride and having to float into the market to support them.
Remember, we talked about New York, we talked about London, we talked about Hong Kong, Tokyo, Shanghai; right now, it's only Riyadh with a desire to
make sure this goes smoothly out the door and we don't have a date yet.
CHATTERLEY: Yes, and to your point, it's such a huge flag bearer for the reformation - the reforms that Saudi Arabia is trying to be perceived as
seeing getting done here as well. But I love your -- I love your point about the earnings here because as soon as they came out this morning, I
was comparing to the likes of Apple, Exxon, Alphabet -- add them together and they're still dwarfed by what this company is producing here which is
incredible but you pointed out, steep drop between 2018 and what we've seen in 2019.
The fact is, tying up with OPEC Plus, restricting output is hurting their earnings here, and it's a balance, trying to keep oil prices up to make
this company look juicier has a burden when you're trying to restrict output. And we're seeing that playing through in the earnings here --
John.
DEFTERIOS: Indeed, they are the author of the OPEC Plus Agreement and that special alliance with Russia. They in fact, are cutting about 500,000
barrels a day per the agreement, but they've added another 400,000. Let's not forget they had the shock in September with the attacks against their
processing facility.
And there's two ways to look at this, Julia, that it wants to bill the -- that OPEC Plus provides around $60.00 a barrel? Or do they go for revenue
and market share.
The new Minister of Energy and the half-brother the Crown Prince has argued, they're going to stay with OPEC Plus right now. They have to say
risk or reward when it comes to Saudi Aramco. They did get their facilities hit, that's a risk. The reward, they were up within a week and
got full production up within a month. So they're extremely resilient.
And who can argue with the cost per barrel? $2.00 to $4.00 whether it's onshore or offshore, that beats everybody in the business, and they have
better than 260 billion barrels of reserves. So you have to make a play on the energy transition. Will the low cost producers survive over the next
20 or 30 years? Aramco at this point, listing in Riyadh is saying, yes, we will.
CHATTERLEY: Yes, quite fascinating here and particularly for a company when you're pledging to pay a minimum of $75 billion worth of dividends.
You've got to keep that oil price up or you're risk there, too. John Defterios from OPEC headquarters there. Great to have you with us. Thank
you for that.
Next driver, Under Armour under fire. Shares in the sportswear company plunging premarket. The Department of Justice is engaged in an accounting
probe of the firm. Paul La Monica joins us on this story. Lots of eyebrows raised on this one, not only because, of course we know the CEO is
set to leave in January of next year. What do we know about this accounting probe -- Paul.
PAUL LA MONICA, CNN BUSINESS REPORTER: Yes, this is very troublesome obviously for Under Armour investors. The company is being investigated by
Federal regulators for possibly shifting sales from one quarter to another. The company has said it will cooperate with the probe, but obviously
investors are very nervous.
As you pointed out, CEO Kevin Plank is set to step aside, stay as Executive Chairman, but he is passing the baton to Patrik Frisk, another executive
there in early 2020, and that timing of that CEO transition changes now very suspicious because of these accounting issues. And by the way, their
revenue outlook for the rest of the year is not very good either adding to the pressure.
Under Armour even before this was struggling to compete with the likes of Nike and Adidas and also Lululemon.
CHATTERLEY: I mean, it was quite incredible if we look at the timing on this as well, 26 quarters of at least 20 percent year-on-year revenue
growth, then they've struggled for the last two years. The final quarter of 2016, when they missed their targets there was when we suddenly saw the
sort of gear shift for this company, and then I look at the fact that they had three CFOs from 2016 to 2017. I'm just maybe adding one and one and
making far bigger numbers here, but there is reason to be cautious I think now that we're looking at it.
LA MONICA: I scratched my beard for good reason, Julia.
CHATTERLEY: Yes.
LA MONICA: It is a very astute observation to point out that this is a company that's had several Chief Financial Officers in the past couple of
years. That is something that Wall Street clearly has noticed and has made them wary.
The CFO is one of the most important executive, obviously, at any company and when you now have a company that is dealing with the possibility of
accounting irregularities, it does raise the question of, what did these CFOs see? And why did they leave? So it's obviously a very big concern
for Under Armour.
And again, if Under Armour was doing well, but had accounting issues, that would obviously be bad news, but this is a company that is struggling
against all its major competitors, so that just compounds the problem.
CHATTERLEY: Absolutely. And perhaps, hindsight is perfect sight. But yes, huge, huge questions at this stage. Paul La Monica, thank you for
that.
All right. Next driver, McDonald's CEO out over the weekend, too, fired for having a workplace relationship. McDonald's Donald say he violated
company policy. Clare Sebastian joins us on this story.
In the new #MeToo World, Clare, no questions asked, no debate here. The CEO ousted. What do we know about this?
[09:10:00]
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Yes, Julia, clearly when it comes to a relationship between a manager and a subordinate, that is a
clear no, no. We know that a lot of companies have been updating their policies around this. And of course they have to be seen to be enforcing
them.
So we know that they put out a statement on a Sunday night, you always know it's going to be something big when it comes on a Sunday night. The
company says Steve Easterbrook who has been in the job now for four years exercised poor judgment.
We also have an e-mail that Steve Easterbrook wrote to all McDonald's staff where he called this a mistake. He says that given the values of the
company, he agrees with the Board's decision that it's time for him to move on.
And that's part of this, you know, Julia the values of the company. This is a well-known family brand. McDonald's has also faced criticism and
indeed a number of lawsuits alleging it doesn't do enough to protect employees from workplace harassment.
So given all of that, given the Zeitgeist around the #MeToo Movement, they really can't afford even though as Steve Easterbrook is credited with
really turning around this business. They couldn't afford to be seen to not be enforcing these critical policies.
CHATTERLEY: You know, it's interesting, PwC did an analysis of 2,500 of the world's largest companies. For the first time in 19 years, more CEOs
were dismissed for ethical lapses than for financial performance or Board struggles in 2018. It's a quite fascinating shift that we've seen.
But what does this mean for McDonald's? Because in the time that he's been there, we've seen the share price double. He has pushed the digitization.
What do we think about the transition now and fresh leadership? And will the strategy maintain broadly the same here, Clare?
SEBASTIAN: Well, the company certainly is saying they will. The man who takes over is Chris Kempczinski who has been the President of McDonald's
USA. He gave an interview on Sunday night to "The Wall Street Journal" where he said this isn't going to be some radical shift -- radical
strategic shift. The plan is working, he said.
But if you look at the stock price year-to-date, there are some challenges, Julia. The sales have been growing but they are facing competition. The
stock has underperformed rivals like Restaurant Brands International which owns Burger King, like Wendy's. They just had an earnings miss. They've
got tension with the franchisees which of course are 95 percent of their stores.
So look, many analysts do see Chris Kempczinski as the man to do this, but I am seeing one downgrade today from Piper Jaffray, they say that this can
cause some disruption as they take a bit of time to build up a new team. So a little bit of caution on Wall Street on this.
CHATTERLEY: Yes, it's going to be interesting to see how the stock opens up this morning, too and perhaps a relative lack of reaction tells you
something particularly in light of what you were just saying about the last earnings and the challenges that remain. Clare Sebastian, thank you so
much for that.
All right. Let me bring you up to speed with some of the other stories now that we all following around the world. Washington bracing for a big week
in the Impeachment Inquiry into U.S. President Donald Trump. We've learned that four White House officials scheduled to give depositions in the hours
ahead are not expected to show up.
Lawmakers have scheduled interviews with 11 current and former U.S. officials to discuss President Trump's dealings with Ukraine.
Police in Hong Kong clashed with protesters for a 22nd straight week. Authorities say four people were injured during a knife attack on Sunday.
It happened outside a shopping mall where protesters have taken - protests have taken place -- excuse me -- earlier in the day.
A think blanket of smog is causing travel chaos in the Indian capital of New Delhi. Some flights have resumed after dozens were diverted from the
city's international airport on Sunday due to poor visibility.
New Delhi's Chief Minister says conditions are unbearable and the air quality has reached hazardous levels.
All right, coming up on FIRST MOVE, kicking the week off on a high. The Dow looks set to hit fresh records, but is it a good time to buy? We'll
discuss.
Plus, our conversation with the Souq CEO, Ronaldo Mouchawar, the man driving Amazon's push in the Middle East and beyond. Stay with us. We're
back after this.
(COMMERCIAL BREAK)
[09:17:03]
CHATTERLEY: Welcome back to FIRST MOVE live from the floor of the New York Stock Exchange where we're set to see fresh record highs for the Dow and to
add to gains of course on Friday's session. All the major averages set to begin in fact in record territory. A warm glow of course, too, from
Friday's U.S. jobs report and let's throw in trade hopes of a deal there. But factories, the manufacturing sector still in a funk.
European factory activity bouncing a little bit though in October, but the Eurozone PMIs, the survey data still remain in deep contractionary
territory. Christine Lagarde may have a few things to say about that. Her first speech, as the head of the European Central Bank comes today. It
also follows if you remember those weak survey readings in the United States and in China last week.
Chinese stocks shrugging that off though, rallying Monday and they were in fact up more than 19 percent year-to-date. What's going on? Let's get
some clues. Darius Dale, Managing Director at Hedgeye Risk Management joins us now.
DARIUS DALE, MANAGING DIRECTOR, HEDGEYE RISK MANAGEMENT: Good morning.
CHATTERLEY: Great to have you with us. Happy Monday.
DALE: Always good to be here.
CHATTERLEY: You were pointing out -- and we mentioned this on FIRST MOVE on Friday, the divergence between China's private company surveys for the
manufacturing sector and the official -- and the official is far more bearish than the private, which is eyebrow raising.
DALE: It is eyebrow raising. And so what are you referring to is this sort of three-year high associated with the Asian survey and the sort of
near three-year low associated with official data, we continue to believe that the trend in the -- all of the Chinese data, particularly nominal GDP
growth in secondary industries, which is the key measure to track are we see really the Chinese economy that's slowing at its fastest rate per the
most recent data.
CHATTERLEY: So in this case, focus on the official data, the signals that that is giving you.
DALE: Well, not necessarily focused on the official data, but focused on the rate of change in the official data.
CHATTERLEY: Important.
DALE: Markets care about what's happening at the margin, not necessarily what's happening from the static perspective.
CHATTERLEY: So what's going on, because one of the other things that you've also been pointing to is what going on in terms of credit and
liquidity actually tightening for the financial sector in China? What's going on there? And explain.
DALE: Well, so you have a tale of two cities, right? So from a trading perspective, the U.S. dollar's strength has been tightening financial
conditions in the Chinese economy just based on that composition, the PBOC balance, and we can explain those dynamics further.
But what we saw last week is actually now the dollar is starting to make a series of lower highs associated with your return of you know, better
growth expectations globally. We wouldn't necessarily chase those sort of expectations right here now because we still think the market is a little
head of itself.
But certainly if the dollar can set the feet on itself and make a series of little highs from here, then that would ultimately alleviate some of the
pressure we've seen in the Chinese economy from the financial sector.
CHATTERLEY: So you're saying what we've seen is a stronger dollar is basically creating further pressure here in preventing China from being
able to --
DALE: Well, that's the number one, number two, and number three reason the Chinese economy has continued to slow despite repeated attempts at easing
out of the PBOC.
CHATTERLEY: It is restricting their ability to stimulate the economy.
DALE: Oh, yes. Totally. Absolutely.
CHATTERLEY: In fact, it is in the opposite direction.
DALE: Bingo. Bingo.
CHATTERLEY: So when President Trump is calling on the Federal Reserve to lower rates that arguably that would then reduce the strength in the U.S.
dollar, it is actually relieving some of the pressure on the Chinese economy. If he wanted to turn this cruise, he would be telling the Federal
Reserve to just do nothing.
DALE: Yes. But I think we're past that point in the investment cycle right? We're now talking about 2020 and his prospects for reelection. So
now, the prospect of him actually ultimately tightening the screws of the Chinese economy, we think that's off the table. At best, we're just going
to get an amelioration of tariffs in terms of December tariff.
[09:20:27]
CHATTERLEY: So how optimistic are you with the broader concerns that we're seeing, particularly the manufacturing sector in whether we're looking at
the Chinese data, in fact, to all of the United States trade data that a Phase 1 trade deal that we're talking about right now -- relieves that
pressure. You're laughing, so I cannot explain that myself.
DALE: The great big deal of 2019.
CHATTERLEY: Yes.
DALE: Indeed. So first, it is about isolating which factors we want to take advantage of as investors. Right now, the only thing we have a ton of
conviction on at the current moment is that inflation is set the pickup both domestically and broadly.
And so the ways in which we want to be allocated and have investors be allocated to that is just taking a better turn for inflation itself. Don't
be long on anything that's tethered to recovery in Chinese or U.S. demand, but rather just be long on things that tend to go up when the Dow goes
down. That's namely energy that's cheap. That's commodities that aren't linked to China. That's cattle, soybeans, cocoa, wood -- all of these
types of things that are going to be taken advantage of.
CHATTERLEY: I mean, some of the things that have been really beaten up, energy is a classic example of that.
DALE: Yes, totally.
CHATTERLEY: So actually, you're taking advantage of lower valuations here as well.
DALE: Absolutely. Yes, we like it with things that we like, for cyclical reasons are cheap. That's fantastic. And so really, we like when things
that we don't like are expensive would sink themselves. That helps.
CHATTERLEY: Are we focusing too much on the manufacturing data? I mean, we keep pointing out in the show, it's a small fraction of the U.S. economy
in particular and consumer strength is important, but you've been talking about income gains and wage gains as well.
DALE: Yes, we're actually slowing, so if you think about aggregate income growth, you sort of combine the total amount of people employed, the
average hours they work and the average amount of money they make per those hours worked. That's actually a 4.17 percent for the October jobs report.
That's a two-year low.
And so what corporations have been doing to save face on earnings have been cutting back on CapEx. CapEx in recession, second month down monthly year-
over-year and then they'd be cutting back on sort of employment and income gains.
And so you're seeing that sort of -- the deterioration help ameliorate their outlook earnings. But you can't have it both, right? The consumer
can't be great and earnings can be better than expected. This obviously is unsustainable dynamic. Something is going to have to get squeezed in here.
CHATTERLEY: Something gets squeezed and right now it's workers. CEO confidence is also declining. I guess. I'll bring it back to --
DALE: One of the worst charts out there.
CHATTERLEY: Yes. I'll bring it back to our Phase 1 trade deal again. Do we think that if we don't see tariffs or we even see some relief on the
tariffs that the U.S. has enacted on China that some of that confidence comes back because --
DALE: Yes.
CHATTERLEY: We've gone from 80 percent CapEx gross spending investment from companies to basically flat-lining. That's pent up demand if they
regain confidence.
DALE: Well, I don't know that it is pent up demand in the context of where we are in the business cycle. But I do think something is really important
is to happen these months.
We've gone from peak negativity associated with a potentiality for recession in late August and early September to take that off the table.
It's been commensurate with the sort of Phase 1 of the trade deal. But for us, it's really just been about the rate of change in the data probably
hiking at their fastest point then, and now the data starts -- some data starting to stabilize, some data starting to slow but at a slower rate.
And so I think the market is having a very appropriate debate in our nomenclature going from quad 4 to either quad 2 or quad 3. Quad 2 is
actually exclusively bullish whereas quad 3 is just better than quad 4.
CHATTERLEY: I mean, while that debate is happening though, I've just mentioned that the Dow is set to hit record highs today.
DALE: Yes.
CHATTERLEY: The NASDAQ and the S&P 500.
DALE: Totally. Well, that's what happens when you've got the defenses pinned up here and now you finally get a recovery in some of the signals.
Now, they're not breaking out to new highs yet and we still think that debate needs to be resolved in terms of ultimately what's going to make the
market higher from here, but right now, one thing we do have a lot of confidence on is being on the right side of that chart, i.e. inflation is
accelerating.
CHATTERLEY: Santa Claus rally?
DALE: Santa Claus -- perhaps, but not from this level.
CHATTERLEY: No.
DALE: We certainly think -- the biggest I've heard that that still exists out there is between the Fed's policy path and what's priced in the
financial markets via the other effect on futures that needs to compress. The Dow is going to start to go down and then you start seeing broad based
Santa Claus inflation rally.
But right now between now and the investors are far too complacent on this sort of growth recovery phase.
CHATTERLEY: They are too optimistic about the fact we need to provide more easing.
DALE: For now. For now. We think they need to sort of ratchet those expectations down a little bit.
CHATTERLEY: Fantastic to chat to you as always. Darius Dale there, Managing Director at Hedgeye Risk Management.
All right. I've got another story for you. British Airways, they are spreading its wings in Spain. They're buying Air Europa for $1.1 billion.
Anna Stewart is in London flying the story us. Talk us through it. They are pushing to Spain here. They own quite a lot of assets there, so they
simply like this market.
ANNA STEWART, CNN REPORTER: Yes, definitely consolidating in Spain but also strengthening their presence in Latin America. No surprises there.
Actually, they tried a joint venture with American Airlines and the Chilean Airline early this year and it got blocked by Supreme Court. So not a
surprise move here.
It will take a share of passengers flying from Europe to Lat-Am from 19 percent to 26 percent, and also Julia, it is very much saying to day, it
wants to see Spain's airport in Madrid become a true rival to Europe's Big Four. Very interesting idea.
[09:25:03]
STEWART: Take a look at where Madrid stands in relation to the Big Four airports. Heathrow absolutely dominates with 80 million passengers;
however, that has been running at 98 percent capacity for well over a decade now. The other three below it, all within a million of each other,
so very interesting concept that Madrid could become a much bigger hub by more connections here.
Of course, terrible context, such a challenging environment for aviation. We've seen a dozen airlines go bankrupt this year alone -- Julia.
CHATTERLEY: Yes, it is. It's a complicated market at this moment. You know, I just look at this deal and I look at what they already own --
Iberia, Vueling of course, the low-cost carrier level in Spain and I wonder whether there is going to have to be some remedies here to get antitrust
approval. What do we think?
STEWART: I think it's highly likely. Speaking to analysts today, they would agree. Check this out, in terms of that operating of airlines and
routes within Spain, it's going to take it from 58 percent to 75 percent. IAG would own three-quarters of all domestic routes in Spain. I'm sure
that might be an issue for competition authorities. I imagine, we'll see some divestments and that was actually kind of echoed today in the call or
the Q&A about that as well -- Julia.
CHATTERLEY: Yes. Interesting. So what is the stock doing? With British Airways, what is IAG doing at this moment?
STEWART: Let's bring it up. I haven't actually checked in since the show started. I imagine it's slightly higher.
CHATTERLEY: Oh, sorry. This is live TV.
STEWART: And I'm just told we don't even have it.
CHATTERLEY: Oh, we don't have it. We'll check that in the market open. How exciting. Anna Stewart. Thank you so much for that. Happy Monday is
all I can say. Plenty more to come here on the show as we count down to the market open here at the New York Stock Exchange -- a record high to be
hit for the Dow we expect and adding fresh record highs for the NASDAQ and the S&P 500. When we get them, we shall see. Stay with us. We're back in
a few moments' time. Plenty more to come from FIRST MOVE.
(COMMERCIAL BREAK)
[09:30:03]
CHATTERLEY: Welcome back to FIRST MOVE live from the New York Stock Exchange. That was the opening bell this morning. The CEO and the
President of "Time" in fact celebrating a new year since it was acquired by Marc Benioff of course, the Salesforce CEO.
All right, as expected, we've got U.S. stocks in rally mode. The Dow hitting its first record high since July. The S&P and the NASDAQ also at
fresh records, too. Trade optimism, it seems raining this morning.
Right now, as you can see the NASDAQ up by seven tenths of one percent. We've also got plenty more earnings ahead, wrapping up earnings season with
80 companies for the S&P 500 set to report this week. We've also got Uber out later today, so that's going to be one to watch. The Disney earnings
are also going to be key, I think, and interesting this week out on Thursday.
Breath though could be a little better, one sector that has been left behind is small cap. The small cap -- Russell 2000 index down around one
and a half percent over the past six months versus the S&P's four percent rise. An interesting story there as you can see.
All right, let me talk you through the Global Movers today. McDonald's trading lower. The CEO Steve Easterbrook has been fired. He violated
company policy by having a consensual relationship with an employee. The President of McDonald's USA will now take the helm. Right now, that stock
down and when I say down only, but it's only down there some 1.8 percent, so we are going back to what we were saying earlier on in the show,
continuity perhaps in strategy here, taking the brunt of that news.
Now let's take a look at Under Armour, down 15 percent. Let's call it new chinks in the armor. Reports say the U.S. has launched an accounting probe
into how the athletic gear company booked sales. The firm did announce stronger than expected earnings before the bell this morning, but it's
lowered its 2019 sales guidance.
We also have a merger in the medical device sector. Shares of Wright Medical rallying. It has agreed to be acquired by rival Striker for around
$4 billion in cash. Wright Medical up right now 30 percent in the session.
All right. Let's bring it back to news we are covering today. Last week, in fact, I traveled to the UAE and visited Dubai's internet city. It's a
hive of activity for entrepreneurs focusing on new economy opportunities and things like FinTech, retail and entertainment.
Now, amid increasing digitization, e-commerce is seen as a huge growth opportunity across the Middle East and North Africa. Just to give you a
sense of perspective here. The market was worth just over $8 billion back in 2017, but it is forecast to triple in size to over $28 billion by 2022.
Now one man who has capitalized on this growth is Ronaldo Mouchawar. He is the founder of e-commerce platform, Souq. If you're in the UAE, you type
souq.com into the browser, you'll get this -- because Amazon bought the platform for $580 million in 2017.
Ronaldo is now the Vice President for Amazon in the region, and we talked it through. Listen in.
(BEGIN VIDEOTAPE)
RONALDO MOUCHAWAR, FOUNDER, SOUQ.COM: We pivoted from a consumer C2C listing site to more a B2C business that you know, solve problems for
customers, but also help businesses come online. And that's where we really saw the growth exponentially in this region.
CHATTERLEY: From going from an online auction tool to a B2C business, you lost 80 percent of your revenues overnight. As an entrepreneur, you made
it --
MOUCHAWAR: It was a tough decision, but clear that the growth and the opportunity when you look at the consumer, especially in this part of the
world, people like brands, people like new products, we felt that that's where the bigger market is.
To pivot, you had to do less maybe to do more in the auction we had, you know, on the automotive section, the real estate section, collectibles.
These are things that don't work very well online in terms of the complete transaction.
So in one side of the site, we were asking customers to trust us to pay online and then you had the classified section that's asking customers to
call each other, so we felt you know, by doing less we focus, we solve the hurdles in front of customers.
Our main issues were delivery payment, things that we needed to focus on, that was kind of a pivot point for Souq.
CHATTERLEY: Give me the numbers. What kind of usage are you seeing now, in this region? What proportion of payments are done via credit card and
the payment system that you use?
MOUCHAWAR: It varies. So the region is multi-country, so you go in the UAE, we have a huge expat population and a very large credit card
penetration. So you see the majority 70 to 80 percent of payments are done with credit card.
As you move to Saudi Arabia, you see more debit cards being used online because that's the most prominent cards available to customers. You move
to a country like Egypt where still credit card and card and bank customers are less than 50 percent of the population, you see much smaller
percentages of customers paying online.
The trend is there. It is changing as customers are now more banked as you have more products available for them as trust is being built with the
services we are offering and we are seeing growth. So every year we see an evolution of how customers are moving more online from a cash based e-
commerce.
CHATTERLEY: Let's talk about Amazon. Was that the decision that you made you wanted access to a global supply chain? Is that what it came down to
in the end?
MOUCHAWAR: I mean two things, the DNAs of the two companies were fairly similar. We're in very similar businesses that Amazon is in, you know, we
had the marketplace business we have, you know, the countries that we operate in delivery, logistics fulfillment for merchant. So those are all
programs that Amazon run as well.
So there was a lot of DNA in terms of matching between the two cultures. But also we thought for this part of the word, we want to A, enable the
customers to have more choice and that's leveraging Amazon's technology and innovation, as well as the product and the global supply chain.
But also I felt for my team, it was away kind of to infuse talent, to give our team more opportunity to become part of one of the most innovating
companies in the world, a company that really advocates for customers and a lot of the DNA and values that we bring Amazon, so it was really not a very
difficult decision in terms of getting these two companies together.
CHATTERLEY: Could you have competed? If you decided not to become part of Amazon, if you decided to go it alone and Amazon would have come to the
region, could you have competed?
MOUCHAWAR: I think it's a good combination. I mean, we knew a lot about our local customers. So we have the local know-how. Amazon is a global
company. So we were serving customers in different ways. Amazon was shipping products to this part of the world. We're focused on local
domestic products and making sure those get delivered fast.
I think we had our customer base. It was a loved brand as well. But I think together we're just providing you know, global experiences with a lot
of local insight to make sure the service to the customer is just a lot better today than it was then.
CHATTERLEY: Talk to me about what the future holds for Souq or Amazon is it's now become here in the UAE?
MOUCHAWAR: As I said, we're super excited. The overall -- if you see the offering, how the service has changed. Since we've launched, actually now
amazon.ae, this part of the world so there's a lot of excitement going on.
For us, in the short term, we have this big event called White Friday. It is like one of our biggest sales of the year. We built this event about
six years ago, to create excitement about e-commerce, to bring brands to this part of the world. And this is upcoming, it's about in the next 20 to
25 days.
CHATTERLEY: Yes.
MOUCHAWAR: So, we're all geared up. It is an opportunity for us to do a lot more in a very short span of time and serve, you know, millions of
customers across the world. So that's my immediate kind of exciting thing that's happening next. It would be the first time on Amazon running White
Friday, but also on Souq, this is our sixth year so, it is super exciting.
(END VIDEOTAPE)
CHATTERLEY: You definitely got that sense from him. After the break. There's more from Ronaldo Mouchawar, the souq.com founder tells me how the
startup spirit is being boosted in the Middle East and the contribution he is making, too. Stay with us. That's after this.
(COMMERCIAL BREAK)
(09:41:51)
CHATTERLEY: Welcome back to the FIRST MOVE. Now, before the break we were talking about the growth of e-commerce in the Middle East and North Africa,
but with greater volumes come greater investment opportunities. Ronaldo Mouchawar says funding is becoming easier as the region opens up,
particularly compared to his early experiences hunting for capital investment. Listen in.
(BEGIN VIDEOTAPE)
MOUCHAWAR: Definitely, the Amazon acquisition of Souq and coming to the region is testament that the ecosystem is changing. From the days when we
started, we had to go all over the world to try to raise, find investors who A, understand our region; B, also understand the space that we're in.
Today, I see the ecosystem have changed a lot. We have a lot more VCs and local funds as well as global fund that understand the region. The exits
that have happened, be it the Maktoob exit to Yahoo; Souq to Amazon, Careem to Uber are also a testament that, you know, there is enough -- the market
is big enough for the big players to come, and I think this is where we're seeing the change.
CHATTERLEY: You're also providing seed capital to startups here.
MOUCHAWAR: We love companies that focus on mobile and solve local problems and complete our ecosystem. Not a while back, we invested in a company
called Wing, which enabled delivery, which helps our delivery fleets and teams, you know scale.
Also in groceries, we have invested in a company called InstaShop. So we've done many investments, but mostly they are around empowering
customers, supporting our ecosystem, and they're mostly mobile driven businesses where we have seen a huge opportunity in growth.
CHATTERLEY: What support is available from a government perspective here in the in the UAE, or elsewhere that you could pinpoint and say, that's
helping foster an entrepreneurial startup culture here or is more support needed?
MOUCHAWAR: For the last two, three years, there have been many law changes to kind of, you know, harvest the ecosystem and build an ecosystem so you
see more incubators that are easier for entrepreneurs to come in.
The laws allow you to set up these companies a lot faster than it used to be. And also, Dubai is a place where you're able to attract fairly good
talent from across the world. People like to come here. There's a lot of support. There's a lot of expats in this part of the world. So talent is
here, the ease of setup, and overall now, we have a bit of an ecosystem of an entrepreneurship culture.
So sharing and learning is key to grow an ecosystem. So when I work with entrepreneurs or we mentor them, it's both way, right? I'm learning from
them and I'm impressed by their innovation just they want to learn from our experiences to avoid some of the hurdles and mistakes that we faced and try
not to repeat them. So this is what creates sharing, I think and having like-minded people in a similar place brew that ecosystem.
And this really has happened in Dubai, but not only in Dubai. We are now seeing it in Jordan. We're seeing a bit of it in Riyadh; definitely Cairo
has now a good startup environment as well.
So I think the region is just embracing entrepreneurship as a way to improve your life opportunities to another and I think the taboo around
failure has kind of been erased. That it's okay to try things. Maybe sometimes, they fail, you need to fail faster and learn from them. But I
think this culture wasn't there.
People say why aren't you in a multinational? Or why aren't you working in a big bank? You've got a U.S. degree. Go work at a big company. And
that's not the case. Now, you see young people wanting to create.
[09:45:10]
MOUCHAWAR: When they talk to me, they talk about the journey, how it started? What are some of the things that they can learn from and you see
a lot more acceptance around the community, around these type of ideas versus just going and working at a big company.
CHATTERLEY: I love that. The idea of the societal pressure or the societal mindset, perhaps starting to change. What about --
MOUCHAWAR: I mean, my dad wanted me to be a doctor or engineer. He was like, go get a job in one of those. Even though he was a merchant, in a
way, he was an entrepreneur and I felt like marrying engineering with technology and the trade and the business that he had just come as a seed
for what Souq started to be.
CHATTERLEY: It's so important. What about the women, too? because in the past few days I've been here, there's a real difference between foreign
people working here and the opportunities that Dubai or the UAE presents versus nationals and they've all talked to me about, to some degree the
societal pressures to stay at home if you have children or the challenge sometimes that balancing those things represents. What about that? How
long does it take for that to evolve?
MOUCHAWAR: I think our team is now much more diversified.
CHATTERLEY: Is it?
MOUCHAWAR: I think, on our team, we have many women who have very key roles who help me throughout the journey to create Souq and can now be part
of Amazon. We are seeing many of the new startups in finance, in you know, verticals like fashion and beauty. Many of them are run by women or are
founded by women.
So I think, again, just similar to all of us, the ecosystem is there and people are venturing out to take these steps, you know, and it starts with
one step starting something you love, probably that you know a lot about, and then just build around that.
So I'm optimistic and I think there is still a long way to go, obviously. But you have to start somewhere. And there are good role models and
examples of companies led by women and there are good entrepreneurship ecosystem and some funding that's going and supporting this initiative
that's helping kind of the startups get going. You still have to have a good idea.
CHATTERLEY: Yes.
MOUCHAWAR: So you can't just do it just because you know, you're an entrepreneur, your ideas have to be good. You have to think of your
customer. The fundamentals don't change much regardless, you know where you are, and if you're being incubated or not. You still have you know to
back it up with are you solving a real problem for a real customer? How do you think of the customer? What is it about the product loved by the
customer? How do you make his life easier and how you simplify things? So those innovations need to be there still.
(END VIDEOTAPE)
CHATTERLEY: Ronaldo Mouchawar there. All right, we're going to take a quick break here on FIRST MOVE. But coming up, we're live in London, at
the World Travel Market where global economic slowdown and global protests are playing on the minds of exhibitors. Oh, look, I spy Richard Quest. We
will look at the impact, next. Stay with us. Hi, Richard.
(COMMERCIAL BREAK)
[09:50:00]
CHATTERLEY: Welcome back to FIRST MOVE where it's time to take a look at today's "Boardroom Brief." Microsoft tested out a four-day work week in
Japan and it appears to have been a success. Productivity measured as sales per employee jumped 40 -- four zero -- percent. The shorter week
ultimately company saved on resources such as electricity. Wow, I'm all for that.
Apple has pledged two and a half billion dollars to combat the housing crisis in California. $1 billion will go towards jumpstarting affordable
housing projects. A further billion will go towards first time homebuyer assistance for teachers, nurses and first responders.
Shares of Ryanair are up around nine percent in Dublin. The airline posting better than expected profits. However, it cut its forecast for
passenger numbers because of further delays in deliveries of Boeing 737 MAX jets. It has more than 200 in fact on order.
Now as those earning from Ryanair shows traveling tourism remains big business which is why numbers for one of the industry's major trade fairs
are also quite staggering. The Annual World Travel Market in London creates almost $3.6 billion worth of deals. And this year, 5,000
exhibitors are vying for the attention of 51,000 participants.
While tourism and travel may be a lucrative industry, it's also a relatively fragile one. Global economic slowdown and unrest in Chile,
Lebanon and Hong Kong are also hitting some key tourist hotspots pretty hard.
Richard Quest traveled to London to take the pulse of one of the world's biggest industries. Richard Quest, I believe that was a Royal wave FIRST
MOVE earlier just now. Tell us what the pulse is telling you about the outlook here and great to have you with us.
RICHARD QUEST, CNN INTERNATIONAL HOST: Good morning or good afternoon from World Travel Market. Look, it's 10 percent -- the rough figures are
anywhere between 10 and 12 percent of the global workforce is in some shape or form involved in the business of tourism and travel.
And if sometimes the industry doesn't get the full attention it deserves. You certainly notice this, Julia, when there are problems. And if there's
one underlying theme, I think, this year in the industry, it is resilience.
How do you come back, for example, from the Bahamas, where you've been hit, devastated in some part by a hurricane? If you're looking at places like
Sri Lanka, which had a terrorist attack earlier in the year, how do you come back? How do you bring tourists back?
Egypt has had its own share of problems. We've got at the moment Hong Kong, where you're looking at the numbers sharply down. When in the case
of Egypt, I asked the very successful Egyptian Tourism Minister, I asked her, what do you do when your country is faced by a crisis, whether man
made or natural?
(BEGIN VIDEO CLIP)
RANIA AL-MASHAT, EGYPTIAN MINISTER OF TOURISM: What I would tell any country is that as much as the tourism sector has opportunities, it faces
challenges. And the idea is to be fast, to be open, to be prompt and always have your international and domestic partners with you in each shock
that you face. So we never shy away from admitting something has happened.
(END VIDEO CLIP)
QUEST: The fascinating part, Julia, about this whole place is that they're selling dreams. Bucket list in some cases, honeymoon, lifetime trips,
business trips. They're selling the idea of where you and everybody goes on holiday.
But it is a business and it is hit by geopolitical issues. It's hit by strategic issues and economics, and when you and I in our various venues,
talk about downturns, these people feel it and it's a massive business that will affect thousands -- millions of jobs worldwide.
CHATTERLEY: Yes, it's such a great point, Richard, as well. And to our point in the introduction, we were talking about the sheer quantity of
deals that get done there. What are we looking at and what specifically, what kind of deals actually do get done there?
QUEST: Okay, glad you asked, because you've got on this side of the building, you have Asia, India and the Middle East. On this side, you have
Europe, the U.K., and all the various things. And what you've got is lots and lots of booths. Sometimes they are just a single booth for a single
hotel. Often it's for wholesale distributors for example, hotel rooms, airline seats, and the like. And buyers and sellers come here to get a
good deal, a wholesale deal.
You want to renegotiate your contract, and therefore you're building up your portfolio as a tourism buyer. Later in the week, members of the
public come here and they of course are here to see where they might go. Where would you like to go for your next vacation?
CHATTERLEY: That's such a great question. Somewhere nice and warm, I think just as the winter hits here in New York. Richard Quest, thank you
so much for that. Great to have you with us.
[09:55:03]
CHATTERLEY: One last look at the stock market right now. Broad based rally underway. Broad based rally. Wow, that was a tongue twister. The
Dow hitting fresh all-time highs, the S&P 500 and the NASDAQ, too.
The tech -- the strongest sector in terms of performance that we're seeing carrying the wave over from the Asia session, too.
That just wraps up FIRST MOVE, but I'm going to leave you with a look now with dancers from Taiwan at the World Travel Market in London. We should
have asked Richard to join them as well. I'm sure he can execute a perfect pirouette. I'll leave you with that. Thank you for watching.
(COMMERCIAL BREAK)
[10:00:00]
END
