Caveat emptor: investors beware!

If only the Middle East were a more transparent place then journalists could openly discuss the merits and demerits of some of the investment projects currently available in the region. But criticism is seldom welcome in this part of the world and the eye of disapproval soon falls on the critic.

So commentators are forced to talk in roundabout terms, and this article can only mirror local conventions. However, if you get into discussion with any group of businessmen or bankers these days the topic of conversation soon turns to the most outlandish projects.

It is tempting to offer blanket advice to investors, and say just do not invest. But in times like these there are still some very good projects underway. Let us consider what the ingredients of a solid business proposition are, and will always continue to be, even in the booming Middle East.

Good projects

First, a project needs management with a track record and the skill to make it happen. Secondly, there should be evidence of financial support from blue chip institutions, not a dependence on finance raised from participants in the scheme.

Thirdly, one might look at the geographical location of a project and the local administration involved. Finally, you might examine the specifics of the project and see if any of the claims made seem obviously untrue.

It really all comes down to one thing: who is getting hold of your money, and can they be trusted with it? Look beyond the name plates. Who are the shareholders of the company you are dealing with? Is the company in an offshore jurisdiction with which you are comfortable?

Financial viability

It is not enough to scan the full-page advertisements in Gulf News and presume that just because a company can afford to pay for such lavish advertising that it must be financially viable.

Ask your local banker friends for off-the-record views. Visit the Dubai Financial Market and chat with the brokers and investors there. Ask your neighbor or colleagues, it can't do any harm.

For one thing is very clear from any economic boom in history. Not every business project is going to succeed in meeting the expectations of investors, and those that ask the most questions end up making the most money.

This is called 'due diligence' in banking circles and is something that all investors should do whenever they contemplate putting money into a project. Sadly it is a process that is largely brushed aside in an economic boom, allowing less scrupulous operators to take advantage and the losses can consequently be serious.