What The Middle East Did To My Brain
Alright. My name is Matiss, I'm an entrepreneur from Latvia. And I've built businesses in fintech and consumer lending around the world. And when those businesses are doing very well, I have a lot of extra time, so I get bored and that's when I do these videos. But not to say that I'm bored now, I just wanted to kind of drop my experience on the following topic, which is doing business in the Middle East. I think two years ago, I started a company in the Middle East in Jordan together with my business partner, with Davis and it's doing very well, better than we kind of anticipated in the very beginning because we had basically no expectations.
Now we're looking at doing business in the surrounding areas like Pakistan, Egypt and other places. And we're doing research, we're talking to potential investors, family offices, VCs; we're talking to lawyers that can help us with getting consumer finance licenses in those countries. So basically talking to business people in that region and also obviously having experience with working with our own employees where we have a couple of hundred of those in Jordan. And there's a lot of you know these kind of insights that give us an idea of the differences between, you know, how people in Europe do business and how people in the Middle East do business. And so I wanted to drop like a short summary of of those experiences and I thought I have kind of like seen it all or if not all then I've seen a lot of different countries like Sri Lanka, for example, where we have a company where we lend money to consumers. Mexico which is part of Creamfinance where we started in 2017 and other places outside of Europe. It seemed like, you know ,with obvious local specifics and characteristics, it's still kind of it's the culture of doing business is seemingly very familiar to when you're, you know, European. While in the Middle East, I
think, the difference is bigger than in other places. I would summarize it in in three key points. Number one is timing. The perception of time for people in the Middle East versus Europeans is probably very different when it comes to doing business. To put it lightly, people in the Middle East take more time for different reasons, understanding of the importance of time, perception of what time means to people and so on and so forth all adds up to these these difference. In Europe we like to think that everything needs to be productive on schedule, fast and done yesterday and so on.
It's very different in the Middle East, it just takes much more time and and that's hard to accept and often hard to deal with for me. There are examples let's say, where we spoke with an investor like a family office in one of those Middle East countries, we seem to be making great progress with the negotiation agreements, understanding you know how we're going to work together. And then like at one point you kind of hit the wall and from there for about six months there was no progress.
There was literally - - it was not an end and it was not continuation. So we were kind of stuck in some kind of weird limbo. Eventually we did get the deal done, we moved on. But yeah it took like it took much more than we would normally expect for things to happen in Europe and that's one example. You know talking to vendors like I don't know IT providers or or or legal service providers, whatever different types of vendors they come and they go and they often take they can take a month to prepare a proposal for a client that is ready to pay. So that's also seems, you know, different from how it's done in Europe.
The second point is relationship is everything. So the highway to making things happen faster and making things happen in the first place - if not even faster - but like doing things - is obviously getting connections and in business importance of relationships is paramount everywhere but in the Middle East it is super critical. It's like if you don't have relationships then you're standing in a line and things just for whatever reasons, they're just not moving. There's no progress.
To mention an example where we spoke, I met the Sheikh in Saudi Arabia. And after this meeting, I managed to get two CEO meetings with two different companies the next day. And I got great insights, you know, great feedback we had like, you know, a good kind of brainstorming session to understand what I'm trying to look for and if it makes sense in the local country, etc., etc.
But that was super quick. But that was after you kind of get your way into this this highway. If you're not there, then let's say you want to send an e-mail to a law firm that where you want to get a quote for their services, You can take like 2 weeks Or it can take forever. Then in terms of relationships also what's important is that people, since they put relationships first, and I think that's a very valuable way of doing business, they would invite you to their homes establishing personal relationship on the level of family is very normal, which is so different from most European countries. So that is something I think we could learn in Europe from our friends in the Middle East, very much. Another thing when it comes to relationships is that giving critical, direct and negative feedback is is not perceived easily and you know people are more sensitive to negative and critical feedback.
So that needs to be always thought about how to do it best and when and where to do it that's also pretty pretty important. And there's a bunch of many other examples like we were trying to meet some investment funds and we're trying to do like your regular kind of... not cold outreach, but, you know, true connections tried to reach random people in those funds and it just like it literally had zero result, zero effect. And the only introductions we managed to get and they were very quick and very useful and productive was when our general manager, our country had put us in touch with people in those funds that he knew or that he knew through personal relationship and then we got the open doors and that was a completely different conversation.
So relationships is super critical for doing business in the Middle East and then... this is kind of a point that we've seen quite a bit is you know your partners or also sometimes even employees or investors or let's say other business partners they can, they can come and you appear to have a productive conversation for some period of time and then they can out of nowhere drop off, no answer, no nothing. This is very strange for me. Let's say that was the experience of talking to this investor that I mentioned. Another experience was we managed to get a bank loan, a credit facility for doing our business. After having signed all the paperwork and having gone through the due diligence, etc.,
when we wanted to first do the first drawdown, the bank said OK, sorry, we're canceling our agreement, cooperation, bye bye. No explanation, nothing. Later on we found out, you know, there was some technical reasons, but it's just, it's just, it's pretty weird. It's pretty weird to say the least. The same applies to like any types of consultants, lawyers, you know, people that help you set up a business. You know you're ready to pay money, you say, "I need help," and they they can send you some kind of a proposal and then like 2 weeks later they just disappear and there's nothing to show for.
These are like just a couple of examples of what to expect when you're doing business in Middle East. Was kind of curious also to speak to somebody or or to some person in the Middle East that comes from Europe that's kind of an expat in the Middle East of their experiences and to kind of validate and ask some of the questions. And so that's why for this video I have a special format. So I did an interview with a guy called Janis Zelmenis. He's a prominent tax advisor and consultant owner of the BDO Latvia branch and he resides in Dubai for a couple of years for quite, quite, quite some time. And he, he had really like cool and interesting insights into, you know, these differences in perception and mentality.
So that's going to follow next. Take a look. It's gonna be in Latvian but with English subtitles.
Hope you enjoy it. So tell me about yourself in a couple of words and the main thing is How did you end up in Dubai? Why Emirates, why Dubai? And the third question — what do you do there? Professionally, I'd call myself a tax lawyer. I'm Jānis Zelmenis I was born in the same year when UAE where established. We have the exact same inception date. Why UAE? To say jokingly, it's warm and there's no taxes. But since I am a tax person in my professional qualification first and foremost, the rest I have developed during my career, so the tax system of the Emirates, of course, is, in a way, unique.
It's a country with a highly developed economics, but with zero income tax — there's gonna be a tiny corporate income tax starting 2023 — but it did not exist until now. So it's a country that does not know Annual Reports, they do now know tax declarations. It's a country that only 5-6 years ago introduced a VAT.
But, essentially, a country that finances itself thanks to excise tax income that primarily applies to oil, oil extraction, primarily in Abu Dhabi and Dubai. Dubai at the moment only partially. And by the end of the 80s they started to understand that -- --Dubai got this first -- that oil-based income economy will be subject to change So the question is: What will these lucky countries do with the record-income acquired during the oil surge So UAE, with then-acquired oil money, realized they need to develop something else. It can be called tourism, or transport and financial logistics. But I think it's all together. I think they understood first, evaluated their geographical location, realizing they'd be a perfect transit road between India, Africa, Australia and Europe. The constant warmth and unique tax system which is based on the fact that they opened their country up very slowly by establishing economic zones, and stuck to the principle that the nominal owner of a domestic company must be a local citizen, an Arab.
But there where many areas where it was sufficient for a foreigner — a person with a foreign citizenship but with a local resident status can establish a 100% their own domestic company. 2015 was when you first went to Dubai, to Emirates, yes? And then you saw all those interesting local things like taxes, pleasant climate, time zone... the proximity to Europe and ease of doing business and communication So the decision to move there came slowly or you knew you wanted to be away from Latvia? I'm not away from Latvia I'm partially still here.
I didn't even think of it like that. I was thinking of it like creating a legal entity, my clients where interested I was in it 100%, so it naturally progressed. So, it was slowly and not like you decided one day to move Yes, kind of There where various considerations, like access to various markets, bank services, opening an account 2, 3, 4 years ago the bank sector was significantly different from that of Latvia. Their due diligence and other vetting standards where incomparable to us.
Can I ask you a question? There's a stereotype a notion that going to Emirates means opening up a company, opening a bank account which is essentially and off-shore It's easy to do and requires very little accounting, very little accountability, so it's basically an off-shore. Is that so? No, absolutely wrong. Especially about bank account. Hard to say if it's in the entire Arabic world or but when we talk about UAE, the standards are high and costs premium A case for those who don't know -- in UAE there has never been a tax... Internal Revenue Service. They've created recently.... ...There's just no environment... ... They've never had it. For 50 years! There was no need! Fantastic. But now they have a small structure that they call tax administration to communicate with other countries' tax administrations ...to understand how to collect taxes... No, to understand how to process, say, Germany's, France's requests for information and process them because France, Germany and other countries because UAE is a member of many tax treaties and is also a signatory these tax treaties oblige countries to cooperate in the exchange of information So it would be best... This term 'off-shore'
in a very vulgar sense is out of place You need to understand that one type of companies that are good for only a handful of things are these off-shore companies. You're a successful tax advisor, how would you describe your life over there in a few words.. what does it consist of? Just like any consultant, there are at least two phases: you either market or you serve and deliver your service. The marketing phase consists of golfing and lunch meetings or going to -- -- what I like to do often, is going to Dubai Opera. So there are meetings. So let's say in my personal marketing I put a focus on — but it does not mean there are groups or things I avoid altogether -- However for me, most often I network with the former Soviet group of people living there. The lesser communication — because it's the smallest group — for me is with with the local Arab contingent.
Do you rent a place there? I have a practical question for you. A European wants to do something in the Middle East, he wants to go there and anchor down and needs to understand the standard everyday expenses So If i'd like to rent a 100 sqm apartment, how much would I pay, for not the top and also not the worst rental — a civilised condo? The price range is enormous. Something very humble can be found a bit over 1000EUR/mo Up until, I think, 10-20 thousand a month The selection over there is huge. The local culture there is purchasing over renting and it's common to buy a property while it's still getting built. So often these properties are paid off at 90% in the construction process. So what we talked about the perception of time In my experience, and we have business in Jordan, I often deal with consultants and potential investors, where I often encounter cases when we think we have an agreement on something, whether it's a consultant or investor, but then they just suddenly disappear or there's a huge gap in communication and we have no idea 306 00:17:24,800 --> 00:17:24,440 what's happening with them.
So it's hard to comprehend whather I did something wrong or what. Even though it seemed like we had a professional communication on our intentions and finances, etc. Have you encountered anything like it? The sort of, let's not call them problems but just differences? Have you seen anything like his? And if yes, why? I really liked the analogy you used about the locals and their perception of time You mean — their time is like eternity but of us it's like a never ending rush? And we don't even know what we're rushing after... Yes, their relationship with time... nobody gives a damn about 30 minutes. One hour up to one and a half — yes that would be considered strange to make you wait this long.
But if the person is worth it, they take it easy So I don't take such things personally. It's not only about wanting everything to happen like Germans say — tsak, tsak, tsak, — productive and effective, but things can happen like in their wonderful saying — Inshallah! meaning what Allah decided, that will happen. Earlier we mentioned Ramadan. If you have bean negotiations before Ramadan, so be as kind — if you've noticed they're celebrating Ramadan, don't be surprised that during those four weeks there will be no activity.
So when Ramadan ends, communication will resume. Tell me, is it true that in their hierarchy, personal relationships are means of achieving things to happen faster rather than being a walk-in? Of course! I agree and I think that the entire society... because small side earnings and short consultations in the Arab world are the means to solve the problems they have created. On one hand, government buildings are very modern, digital, but I have recently encountered this: I go to the immigrations office three times But there they say, 'the system is down.' Yeah.
So you, as and IT guy, would find it weird. Ok, one time the system is down but what about the second time? By attracting these micro consultants turns out it's not that important because the clerks don't have an agenda to gain KPIs of any sorts or serve a ton of customers. All they want is to sit by their desk in peace and unbothered .... and finish their workday. Yes, and every clients who's sent away -- I have encountered a culture where you go to a person and say that you need this and that, 359 00:20:08,800 --> 00:20:08,580 and they go "DO YOU HAVE IT"?? And because it's my first time here, how can I know if I have it? I'm here to do other business. The law does not state it.
The Law states that everyone is equal. But in reality, it's not quite true. One shall receive but the other won't. And the nuance,
as I say, is whether a micro-consultant is necessary or not. Even with small everyday issues there can be problems. Even renting an apartment — If somebody thinks that renting an apartment is easy, then, for example, I had a huge problem to pay for an apartment because I needed to write a cheque. No other payment options are available. When there was a crypto surge, and it was a very different level of crypto, people could by real estate with crypto with Bitcoin.
So honor and these things are a very important to them, even your job position title. If we understand that you can put Deputy CEO but in reality it's a janitor. Over there, they really do pay attention to that. So relationships, honor play an important part in their culture. Is that so? Or is it a wrong assumption? I'd say it is so. But I don't think that the Arab world is the only one. 385 00:21:38,900 --> 00:21:38,760 We know that the German world
and especially in Austria, Germany, Switzerland, all these titles, like phd, MD, lawyers, engineers.... In Latvia, we would never call anyone 'engineer Zelmenis' And it is a cultural specificity. Yes, they pay attention to that but I'd also say if we would observe these in our society, I think, for us these titles and names when it becomes similar to worshipping or very high praise, is more connected to government and bureaucracy.
There it matters whether you're a head of department or state secretary, or other leader. Who are you? Are you just an analyst or senior analyst, etc. In business, they also have this culture — whether you're a consultant or senior consultant. Manager or senior manager... it does matter. Yeah.
About religion over there in the context of business, not other domains, but in the context of business. In my experience, well very limited, but still experience with Arabs and UAE citizens, I wouldn't say that religion... if you look further, religion is, of course, culture... And about cultural differences, we could talk for hours. If we talk about religion in a more narrow sense whether somebody had tried to convert me to Islam, or had invited me to attend prayers together — no. In your opinion, do their religious views and beliefs impact how they view taxes? Not taxes but loans, yes.
In Islam, it's forbidden to earn interest. So they have very specific concept for this But both systems co-exist there. The so-called, Western crediting system, And Islamic banking system. If you try to find SWIFT codes or something in some application, I encountered this for the first time and I found it rather amusing to look for a bank on a list but there's no such bank. But you know it's big
with a name like Emirates Islamic or Dubai Islamic but it's in a complete different list. You have to press a different button that says Islamic Banking and there it will be. If you see 'bank' it doesn't mean it's the bank you need.
Also, inheritance rights according to Islam are very different. About 80% from fathers estate are inherited by sons and not daughters And daughters are a part of a different family. Arabs, of course, gets decent income, as they are people with "blue blood" And then there are those crammed in smelly vans and dirty barracks way outside of downtown so they wouldn't be as visible. They get taken to the construction site where they work their butts off in 40 degrees. And it is how the city has been built.
So they to this day has this two layer society structure. How strongly do you agree to this very simplified stereotypical description? Well, yes. I would say you're using pretty strong words and descriptions.
In general, I would agree to these impressions. That these people how you described, work in very tough conditions. And we also that during Qatar championship this question was raised You need to understand that they come from countries where we need to talk about poverty in general. So these folks consider it a stroke of luck to get there.
Looking from a spoiled Scandinavian's life style or wealthy American or even wealthy Latvian viewpoint, we're not -- we might be among the poorest in Europe — 470 00:25:53,900 --> 00:25:53,570 (we're a rather rich and normal country) in general, we look good especially, when compared to impoverished countries. So we can't call them slaves. They are... I don't argue with the fact that their work conditions are harsh but on the other hand, they have it way worse at home; there is no work at all.
Yes. And the climate is the same the temperature is the same; they are grown up in such conditions. If you and me would have to perform physical labor there we would crumble. We, Westerners, and especially Americans, tend to forget that we're prone to giving advice and teaching people how to live but we ought to be a little more tolerant 485 00:26:38,400 --> 00:26:38,290 and understand that other people are other people with a different set of rules and background. Those who have read Shantaram know that the protagonist tried to carry hot water upstairs himself and the Indian guy said that he's a fool for taking another man's job from him, and he won't have food on his table tonight and if he continues doing so, he'll leave that man with no food for a week. Think if you really want to do that. About war.
How has it impacted what you see in the Emirates. Clearly, I assume, they have more Russians, Ukrainians, so how is this war.... what is the outcome? Yea. In Emirates we see that the export of money, capital; also people in large amounts, has increased. Number of flights have increased and this is interesting — recently they resumed direct flights to Emirates with Aeroflot. What the locals fail to see is — definitely if I'd be inviting Ukrainians and Russians I would double check if it's safe to let them go together, if they know how to behave, if they're tolerant. But often people think
that just because they both speak Russian they're the same... so it would be strange not to take that into account now. What are the Russians who go there, doing? Where do they spend their money? Either in real estate or 517 00:28:17,900 --> 00:28:17,360 just in investment portfolios or seek for opportunities to start some business. But really, it's not that easy 521 00:28:23,900 --> 00:28:23,380 to carry any money out of Russia. It's a whole... how to say it...
it's a consultative and beyond financial exercise. To say it shortly, we see a rapid increase in Russian capital, Russian investors Russian community. Especially in Dubai but Emirates in general, too. OK, I think that's all thank you for the talk We're done with this.