2006 looks set to be another record year but beware of ego

This is great news for the New Year, and economists predict another record year for regional GDP growth with record nominal GDPs in all the major economies. Regional business therefore faces an extremely favorable market environment.

However, overexpansion without regard to cash flow is a classic recipe for business failure. It is only too easy to become inflated by one's own enthusiasm and to disregard the basics of good business.

So the factor that most businessmen and woman should perhaps remember for 2006 is that their biggest single danger could well be themselves, not consumer price inflation or problems of obtaining qualified staff.

Boom before bust

For it is a truth that business booms also produce the most spectacular failures: banks become lax in their credit control policies; projects start to go ahead with very narrow profit margins; existing businesses feel that they have to diversify into unknown areas; and foreign assets are bought for inflated prices.

Hubris is the most common human failing in business, the inflated ego that brooks no questioning of decision making. It leads to decisions based on personal whim rather than solid business analysis which can ultimately undermine previously successful enterprises.

The problem in any economic boom that continues for a long period - and the present oil boom now enters its sixth year - is that reality becomes distorted by success. Solid, well meaning businessmen may also get caught out by exuberant personalities who really believe their own delusions.

Therefore, perhaps the best New Year's resolution that a Middle East business man or woman can have is to keep their feet firmly planted on the floor. If a business proposal lacks a business plan, and looks too good to be true then it probably is not good.

Late-cycle risk

Remember that late-cycle business investments are inherently high risk: for the good times are probably already priced into the project, while the upside may be rather limited compared to the potential for capital loss. This is perhaps a time when the wise will begin to pocket a few profits, just in case the boom does not last forever.

Many of the richest men in the world have remarked that they made their fortunes by selling too early. And Warren Buffett has often remarked that capital preservation is more important than capital gain in attaining great wealth.

So AME Info wishes you health and prosperity in 2006, and will be here as a reliable and constantly-updated online guide to business in the Middle East. But please try not to get too carried away in 2006 - the good times will not last forever!