Don’t jail the entrepreneurs, let them learn from failures!

For Chairman of MBA Fakhro Group Mohammed bin Adel Fakhro, entrepreneurship is close to his heart. The taste for business he acquired from his lineage coupled with the streak of bold thought, nurtured by his US education, helps him understand clearly the matters affecting the Kingdom. While he hails the reforms introduced recently, he remains fiercely critical of the legal system, which punishes business failures. “It is time we value creativity and out of the box thinking,” he says and asserts that the set modes of behaviour and thoughts impede our development.  In an interview with DT News, he elaborates about his outlook, business and economic ideas, new ventures and the much-needed change. Excerpts from the interview: 

Let’s start from the recent reforms. What is your view regarding reforms?

I am in favour of the recent reforms, only because it is the necessary thing to do. We have been running a large fiscal deficit. The solution to this problem is to increase government revenues and reduce expenses. I think, the reforms have done both; for example, removal of government subsidies to cut expenses and the increase in taxes for cigarettes and alcohol to increase revenue.

Nobody likes to bear the additional financial burden. But, we have to act to bring down the debt. New taxes might need to be introduced.  I am opposed to steps like devaluation.  Devaluation may increase our oil-export revenue, but will increase the cost of imports and will also increase the cost of living.  It will also have a very negative effect on business confidence.  Hence, the current approach is the best route possible.

The pain involved?

There will be pain for everyone in such situations.  The word austerity is derived from the word austere, which means having limited comforts.  Unfortunately, we can’t avoid that and everybody needs to chip in to a certain extent.

When you interact with other Bahrain business leaders, how do you feel the confidence is among them? What is their mood?

The mood is Okay. Not particularly good or bad.

Most indications are that oil prices are on the way up with excess supply tightening up month-on-month. 

Most people share the view that oil prices are expected to stabilize at US$60.

And at that price, most of the countries in the Gulf can run a balanced budget.

When the price of oil started to crash, there was a bit of a panic and retail sales did drop significantly. But, now I don’t see that to the same extent and there has been a slight recovery.

As an owner of many businesses, what do you feel about the employee confidence in the Kingdom? 

When we talk to employees, there is some apprehension about removal of certain subsidies. Fuel expenses are covered by most companies and the removal of that may not have affected them much. But, as the effect of other subsidy cuts kick in, we might see people asking for increments.

However, most people know what the current overall picture is and they are happy just to have stable jobs.

We own a job portal, mofakro.com, and it recently witnessed a significant increase in traffic, mostly from people in Bahrain searching for jobs. This is one indication that people are very apprehensive about their job security.

Also, annual retail spending has been down by 10 pc from last year, according to our internal data.

When consumer confidence drops, people cut down on day-to-day spending. Whereas, when producer confidence drops there will be a reduction in capital expenditure.

I think we are facing both, a drop in consumer confidence as well as producer confidence. We have seen a pickup in our car rental business, Budget Car Rental, and it indicates to me a drop in capital expenditure. As companies get worried about their future, rather than buying a car they will rent a car.

We are still dependent on one or two factors to drive our growth. Unlike many other countries of similar size, we are yet to make an impact on the global level. What prevents us?

Running a balanced economy sounds like a huge challenge. However, it can be done through a step-by-step approach. Our government has been very generous with our citizens, whereas other countries that run a balanced budget are not so. Those countries probably would have taxes and wouldn’t have as many subsidies as we have.

Even if the oil price goes to US$60, there will still be a need for certain subsidies to be removed and a few taxes to be imposed for running a balanced budget.

One problem is that many subsidies were provided to people who really didn’t need them.

For example, if I can be self-critical, my petrol expenses have been subsidised by the government, even though I could afford to pay the full price.  Over a couple of decades, this has added a few thousand dollars to government debt and added an equivalent amount to my bank account.

Hence in many cases, subsidies could be removed without necessarily creating any negative economic impact.

What can be the unique selling proposition for Bahrain?

Primarily, it should be the proximity to Saudi Arabia, which is a 30 million strong market. We can attract MNCs to target that market by offering them a better lifestyle and a more educated workforce.

So, we should be encouraging the manufacturing sector to set up factories here?

Not necessarily. My personal view is that manufacturing is an industry of the past and that going forward, we should be more focused on developing the services sector. 

When one invests in a factory, the primary focus is on the machinery, whereas when it comes to services, the focus is more on people.  With the development of robotics, factories are becoming even less labour intensive.

I feel the primary service that we should focus on is tourism, but there are many other services that can be developed.

Can you please share some ideas about this?

Beyond tourism, if we look at the long-term development of our economy, we need to develop a local workforce that has the capability to deliver. 

For example, what Singapore did from the 1960s onwards, was to start educational and training programmes for its people to become more capable to deliver services the government identified as critical to the development of Singapore; for example the semiconductor industry.

Bahrain needs to identify where it has comparative advantages and focus on those areas.

How do you view the education scene in the Kingdom?

Education needs to be improved in the Gulf as a whole, particularly English language education. This is one area where, I feel, Bahrain has a comparative advantage in the Arabian Gulf.

Our people tend to speak better English. Since we want the Kingdom to be the ideal place for all companies who want to be in the Gulf, it would be great if all Bahrainis spoke perfect English.

That would encourage companies to set up their operations here.

What should we do for this?

Better English training and a stronger English curriculum in the schools. It needs a long-term focus and children have to be trained from a very young age, by the age of three or four. In government schools, we need very strong English teachers and curriculum, and then we can produce quality English speakers.

As you are from a well-established business and merchant family and thus have a ringside view of the Bahrain’s business changes over the decades, what are the reasons for success you observe here?

Many of the entrepreneurs who have succeeded over the generations have always brought something new to the country.  Success has always been interlinked with innovation.  Whether it was the introduction of air conditioners, cars, or mobiles, it is always something new that launched business success.

Any prospective entrepreneur should thus look at providing something that is new to the country.

Who was your inspiration during your early business days?

I was inspired greatly by my family. My father had been a great inspiration for me and he nurtured my business skills from a very early age. I was fortunate to be surrounded by business people and I learnt a lot from all of them.

U.S. education, how did it help you?

I studied at Stanford, a university that is focused on entrepreneurship and with a great culture supporting that. The culture of the university was special because there is no fear of failure. If one fails, they can just start again.

It is unique.

It is not something that we find here in Bahrain, where there is a stigma associated with failure.

I remember a lecture from an entrepreneur during my college days; he came in a Ferrari and told us about his businesses and how he had failed five times.

And he was successful with his sixth company! We rarely hear about such stories in the Gulf.

Also, there, I was inspired by the focus on innovation and creativity. In the U.S., people who have creative ideas tend to excel, but here we have an environment, which is more focused on connections and the more traditional approach to business. Here, there are rules for everything, what you have to think, how you have to behave, how you have to dress, everything is well defined in this part of the world, and I think that indirectly prevents innovation.

There, you can go to work in a t-shirt, do your work on a bean bag, and even play video games in between meetings, as long as you finish your work by the end of the day. I was inspired by that work culture.

I am trying to create that work culture here. I have tried to create a level playing field with no hierarchy and with minimal structure.  In effect I am trying to bring a little bit of Silicon Valley to our businesses here.

Is it working?

Yes, so far.

Which are your favourite projects?

Right now, my team and I are actively working on a few online projects. We are working on an online shopping portal, Dukakeen.com, and a few other ones.

You are involved with guiding entrepreneurs, especially youngsters. What is preventing them from being successful, we haven’t seen many success stories around?

A few years ago, I made a statement that attracted a lot of controversy. It was regarding the legal system in Bahrain and that the system is very harsh on business failures. The statement was about the issue of people being jailed for bounced cheques. For every bounced cheque, people are put for three years in prison. It is a very harsh penalty. I have said that then and will say again, I think the government has to be more lenient towards business failures. As a subset of business failures, the government has to be more lenient towards bounced cheques.

I got a call at the time from a person in prison who said he has been sentenced to eighty years in prison because 25 cheques bounced.

What sort of an environment is that for an entrepreneur? 

You can’t claim to be having an enabling environment for entrepreneurs and also at the same time punish them for failures.

I think, in many ways, Bahrain can achieve great things by focusing on our natural comparative advantages in this region. The great opportunity for Bahrain is to have laws that help build a culture like Silicon Valley, where if you fail, you can start again and you don’t have to go to prison.  This would create a strong incentive for start-ups to be based in Bahrain.

If the guy who gave us lecture in Stanford was in Bahrain, he would have been in prison rather than driving a Ferrari!

Has this rule been changed or is it still there?

To the best of my knowledge, it is still there. The government is doing some good work and I know progressive elements in the government are trying to change laws to be more conducive to entrepreneurship.

If you go through the newspapers, you will see that people who do heinous crimes get less jail time than those punished for bounced cheque cases!

I don’t, first of all, think cheque bouncing due to business failures should be considered a crime. But, if scrapping that is difficult for the government, at least they should show leniency and reduce the jail-term stipulated for such incidents. One option would be to reduce the maximum prison sentence to six months, even in cases of multiple cheque-bounces, provided genuine business failures are involved and not cases of intentional fraud.

When one entrepreneur is jailed like that a thousand others will be discouraged from starting on their own. Right?

Yes I agree.  It will discourage risk taking, which is a core ingredient for entrepreneurship.

Today, in Bahrain, one must be a little crazy to start a business. You have to be very courageous to do it and I wouldn’t advise people to start businesses until the laws are sorted out, especially people who are not well connected in the country.

I don’t want someone calling me after being in jail and saying that following my advice they ended up in prison.

The U.S. is able to achieve leadership positions because of their crazy people and we are not allowing our crazy ones to flourish?

Yes, that is true to a certain extent. A lot of successful people are a bit crazy and perhaps one needs to be a little different to drive innovation.  If you look at Steve Jobs, Walt Disney, and Thomas Edison, they exhibited some traits that you could say crazy people exhibit.

More generally though, the success of the US is about allowing people the freedom to do what you want in business without strict punishment in case of business failure, because it is considered an accident rather than a deliberate act.  Nobody fails on purpose, it is a business accident.

Statistics show that most of the new businesses fail. Therefore, unless we encourage risk, entrepreneurs can’t flourish, correct?

Yes, that is true. Most entrepreneurs succeed in their second or third businesses.

Even for conglomerates, even here in Bahrain, they have both successful businesses and unsuccessful businesses. We need to allow for failures to encourage people to take risks.

Your group website lists many innovative projects like tinted-glass buildings, recycling of old tyres, regional private-school network, and regional fitness network. What is the progress?

We had a feasibility study of the tyre-recycling project and it is on progress.

 We have our first school under development, with plans to be operational by 2017 in Bahrain and this project is aimed to be launched across the Middle East. That school will be called EtonHouse and we have signed a franchise agreement for the whole region. The Bahrain school will start for children of age three to six and every year we will add a grade.

We are also planning to start schools in Saudi. We will own 30 pc of the entire school franchise business.

The demographics of the region support more schools, with every family having three or four kids. Along with this, the fact is that the education sector in the region is not up to international standards and the products of this system are coming out without proper training in math, science, English as well as without good work ethics.

We scanned the global market and identified India, Norway and Singapore as the best resource for teaching talent. We zeroed in on Singapore and partnered with EtonHouse, reputed to be great educational providers with over 100 schools around the world, and we plan to open 20 schools under their brand over the coming decade or so.

I have considered being involved in the solar sector as we receive good sunlight throughout the year without much clouds. In addition to that our air conditioning expenses are huge. However, solar based technologies are a bit expensive and may take time to evolve in a way that will make businesses in the sector more economically feasible.  

We will have our fitness franchise, aimed at reducing the obesity issue in the region. The franchise agreement has been signed with Anytime Fitness. We are planning to open 100 gyms around the gulf, which will be open 24 hours a day and can be used by all members in any location at a very monthly nominal fee, in addition to having access to all of the other 3000 Anytime Fitness gyms around the world.

You had plans to start a venture capital fund. It is interesting as this region has almost zero early stage funding or seed funds to support entrepreneurs. What is its status?

Every problem is an opportunity by another name. If no money is going into the sector it is an opportunity because assets in that class would be undervalued.  We have registered a fund holding company and we are in the process of identifying a niche for the first fund.