Little has been heard from Mohamed Fayed during the last decade.
He sold Harrods to Qatar Holdings as long ago as May 2010 and his other main trophy asset in the UK, Fulham FC, was offloaded to the US businessman Shahid Khan in July 2013.
That latter deal brought down the curtain on a controversial – to say the least – career during which he had been a prominent figure in British business for nearly 30 years.
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Fayed (he added the honorific ‘al’ to his name, despite having no right to, after he arrived in the UK in the 1960s) remains best known to the general public for the relationship his late son, Dodi, enjoyed with Diana, Princess of Wales and for the corrupt payments he made to MPs to ask questions on his behalf in parliament.
Before that, though, the Egyptian tycoon had become a notorious figure in the City and in British business circles for his unorthodox approach and his somewhat casual relationship with the truth.
Many people, including some who should have known better, bought the story that this son of a primary school teacher was, in fact, the expensively educated scion of one of Egypt’s richest shipping families – although he did, in the end, accumulate a fortune the size of which was never entirely clear.
Founding his fortune
That fortune was founded on his early dealings with Adnan Khashoggi, a wealthy Saudi arms dealer, whose sister he married and later divorced.
After working for Khashoggi, his ability as a deal-maker drew him to the attention of the Sultan of Brunei, for whom he worked for a while and under whom he accumulated sufficient wealth to acquire a shipping agency.
He later sought to establish an oil production business in Haiti, posing as a Kuwaiti sheikh, before the samples he had hoped might be crude oil turned out to be molasses.
He eventually had to flee the island after falling out with its monstrous dictator ‘Papa Doc’ Duvalier.
After acting as a middleman in more deals in the Middle East, Fayed pitched up in London, again posing as an Arab sheikh and setting himself up in an apartment on Park Lane.
Many were taken in by him. He and his brother, Ali, had sufficient funds or backing by 1978 to buy the Ritz hotel in Paris for $30m.
The nastiest and dirtiest takeover battles in history
What really put him on the map though, so far as the City was concerned, was the saga which began in November 1984 and which turned into one of the nastiest and dirtiest takeover battles in history.
The mining conglomerate Lonrho, which owned a sprawling portfolio of assets across the world but primarily in Africa, had for years been trying to buy Harrods – then owned by the House of Fraser department store chain.
Its chief executive, Roland “Tiny” Rowland, had built a 29.9% stake in House of Fraser as a prelude to a takeover bid for the company – which was referred to the old Monopolies & Mergers Commission by Margaret Thatcher’s government.
Mr Rowland, who had been famously dubbed “the unacceptable face of capitalism” by the former prime minister Edward Heath, knew the referral could be tricky.
So he hit on the wheeze of “parking” the stake with the Fayed brothers.
Unfortunately for him, he was double-crossed by Mohamed who, backed by the Sultan of Brunei, used the stake to launch a £615m takeover bid of his own.
He acquired the business and, in the process, deprived Mr Rowland of a treasured asset he had been stalking for the best part of a decade.
An enraged Mr Rowland waged a campaign against him thereafter to obtain revenge on the ‘”phoney pharaoh”.
The Department of Trade & Industry investigated the takeover and, when Mr Rowland obtained a leaked copy of its report, he published it in March 1989 in a special midweek edition of The Observer, the world’s oldest Sunday newspaper, which was at the time owned by Lonrho.
The DTI report pulled no punches.
A ruined reputation
In their most damning line, the DTI inspectors said the Fayeds had “dishonestly misrepresented their origins, their wealth, their business interests and their resources to the secretary of state, the Office of Fair Trading, the press, the House of Fraser board, House of Fraser shareholders and their own advisers”.
It forever ruined Fayed’s reputation and, arguably, ensured that he was never given the British passport he craved for so many years.
Two years later, in an unprecedented move, the Bank of England forced the Fayed brothers to relinquish control of Harrods Bank after deciding they were not fit and proper people to run a deposit-taking institution.
However, despite Mr Rowland’s best efforts, Mr Fayed retained control of Harrods.
He gave up his fight in 1993 when, just before Christmas, he and Fayed publicly embraced in the Harrods food hall.
Months later, Mr Fayed floated House of Fraser on the stock market, but kept Harrods.
Harrods
Troubled time at Harrods
The first two decades of his ownership of the department store were troubled.
Profits fell and Fayed was variously accused of electronically eavesdropping on employees and of firing minority employees with no cause.
Mr Rowland also alleged that papers he had kept in a security box at Harrods had been stolen and, while the police never charged anyone, damages were ultimately paid to Mr Rowland’s widow.
By the turn of the century, the business was in a bad way, with Mr Fayed’s management style ensuring a vast turnover of top management.
Between 2000 and 2002, Harrods lost no fewer than 12 directors, while between 2000 and 2005 it got through five managing directors.
Meanwhile the store itself, in the eyes of critics, degenerated into a “vulgar Egyptian theme park”.
Fayed finally got it right when, in March 2006, he poached Michael Ward, a retailer-turned-private equity executive, from Apax to fill the vacant post of Harrods managing director.
It was a fine and shrewd appointment.
During his first year in charge, Mr Ward increased annual profits at the business by 152% and, crucially, found a way of working with the owner.
Shortly after the Qatari takeover, in 2010, Mr Ward – who stayed with Harrods under its Qatari owners and propelled it to record annual sales and profits several times since – explained to the Sunday Times: “Once trust was established he was a very good person to work with. The problem, historically, was that nobody managed to cross that barrier.”
Interestingly, while Fayed sold both Harrods and Fulham, he never relinquished control of the Paris Ritz, the trophy asset he held on to longer than any other despite the fact that, for long periods of his ownership, it was heavily loss-making.
It will be interesting to see whether his heirs choose to cash in on this most valuable of properties after his death.
Donald Trump’s “Liberation Day” tariffs last week spooked the markets.
Stock markets tumbled on Monday, with most US markets down and stocks in Hong Kong falling 13.2%, their worst day since 1997 during the Asian financial crisis.
There was slight growth in Asian and UK markets on Tuesday, but recovery is still a way off after a steep decline in reaction to Mr Trump’s tariffs on goods imported to the US, which he announced last week.
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US economists at Goldman Sachs raised their assessment of the odds that America will tip into recession to 45%, up from 35% the week before.
And if most tariffs aren’t reduced or negotiated away, “we expect to change our forecast to a recession”, Goldman’s chief economist Jan Hatzius said in an analyst note.
Other economists are raising similar alarms, with JPMorgan putting the odds of a US and global recession at 60% and projecting inflation will reach 4.4% by the end of this year, up from 2.8% currently.
How do you know if a recession has begun?
The most commonly used definition of a recession is at least two consecutive quarters of economic contraction – or “negative growth” – in gross domestic product (GDP).
To break that down, GDP is the total value of goods and services produced over a specific time period. When it goes up, the economy is considered to be doing well.
When it goes down – negative growth or economic contraction – it’s not doing well. And when it doesn’t do well for six months, it counts as a recession.
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In the US, the National Bureau of Economic Research is the body which officially declares a recession – taking in a variety of economic data, not just GDP, defining it as “a significant decline in economic activity that is spread across the economy and lasts more than a few months”.
Currently, there are no signs the US or global economy is in recession, and it remains unknown if tariffs will have a large enough impact to knock America’s into reverse.
But it is this uncertainty that has the potential to cause the most damage.
“People are all at sea,” Sky News Business Live presenter Darren McCaffrey told the Sky News Daily podcast.
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“No one can quite work out whether President Trump wants a genuine rewiring of globalisation, what the consequences of that will be for the US and globally, and that these tariffs will remain permanent, or whether this is part of a negotiating tactic.
“That’s what no one can work out. That uncertainty is difficult, and it is going to cause damage.”
Stockbroker Russ Mould added that the markets are hoping the Trump administration is planning to use tariffs as a way of extracting better trade deals from existing trade partners. If this happens, it would help restore global trade to what’s been the standard in recent decades.
Pic: Reuters
What could a global recession mean?
If the US and the rest of the world falls into recession – even if the UK doesn’t – it will “fundamentally mean we will all be poorer in the future,” McCaffrey said.
He added that Britain especially has not had a prolonged period of serious economic growth for a long time – held back by the financial crisis in 2008, the shock of Brexit, COVID, the Ukraine war and now US tariffs.
However, it is not all doom and gloom.
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“The markets will always find a way,” McCaffrey says.
“The US is the world’s largest economy, but it is only 13% of global trade. Countries like China, Vietnam, Cambodia and others with high tariffs will find new markets. And one of the places that benefit from that in the short-medium term could be the UK.
“It will also force big wealthy blocs – the biggest of which is the EU – to look for new markets. Canada is also suggesting they would like a trade deal with the UK.
“This will cause damage to the US economy more than anywhere else, because other countries will want to be more reliant on more stable partners. As always with economics, there are winners and losers and ultimately the market will find a place for lots of these goods.”
How could the UK best prepare for potential recession?
Instead of retaliatory tariffs, the UK is looking to secure a post-Brexit trade deal with the US, Russ Mould explained, calling that “the UK’s primary goal”.
But if the UK is stuck with tariffs in the long-term, Mr Mould said it would be wise to consider deals with other countries.
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He said: “Statistics show that 87% of global trade does not involve US, so maybe you can look elsewhere for trade deals with countries who also feel they have been badly treated by tariffs. I would guess India would be at the top of that list.
“The question is how quickly can trade deals be struck, given the fact the UK has been casting the net around for the last five years without a huge amount of progress.”
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Mr Mould added that the recipe for economic growth in any market is the growth of the labour force coupled with productivity growth.
“In terms of productivity, [leaders] are probably looking at targeted tax breaks for investment and to stimulate research and development. Other positive things for long-term benefits include examining infrastructure and transport access,” Mr Mould said.
“In terms of encouraging labour participation, you are into the deep waters of whether it is education or tax breaks for child care. All of those are very long-term solutions to a potential near-term challenge.”
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Trump’s tariffs could herald one of the most painful episodes in modern times – here’s why | Ed Conway
Of course this is dramatic. Of course markets are slumping.
Because if you take Donald Trump at his word (something investors are now finally beginning to do), he is attempting single-handedly to reverse and uproot decades worth of economic history in the space of a few months.
Because if this really is “the end of globalisation”, as a few politicians, including Keir Starmer, are now calling it, it constitutes one of the most wrenching, painful episodes in modern times.
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To see what I mean, the best place to begin is by pondering the hidden life of the device you’re reading this on. I’m assuming it’s a smartphone, specifically the latest iPhone, but most of the following applies for other smartphones and, indeed, many laptops or desktop computers.
The display was made in South Korea or Japan. The camera module was made by Sony in Japan (who have a particular expertise in this type of specialised silicon that few other companies have been able to match). The batteries (for the latest iPhone at least) are made in India, though these days, the vast majority of the world’s cells are made in China.
On it goes – the memory chips from South Korea, which has a near monopoly on solid state storage silicon. The logic chips – the ones that help the device “think”- made in Taiwan, albeit with intellectual property (IP) from all over the world, including America and even Britain. Some of the chips do indeed come from the US – in particular the modem, though the company behind them (Qualcomm) sometimes manufactures in Taiwan. But there are some from Europe too – most notably the spatial sensor chips that come from Bosch in Germany.
Globalisation is in your hands
If you are looking for an example of “globalisation”, you couldn’t do much better than the smartphone. But even this potted geography lesson understates it because those fabrication plants in Taiwan and South Korea, turning out those silicon chips that help the phone think and remember stuff, are totally dependent on machines made by a company called ASML, based in the Netherlands. Those Dutch machines, in turn, contain components from hundreds of other companies around the world, including in Germany and the US. On it goes.
Nor is this degree of interconnectedness solely to be found in high-tech equipment. The other day, I was up in Scunthorpe at the blast furnaces of British Steel. It turns out the iron they smelt there doesn’t just go into the rails that striate this country. They also make the steel that go into the tracks of Caterpillar trucks.
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That’s right: the iconic tracked diggers – for many people the most American of all things – are all mounted on steel “track shoes” made in the North East of England (the plant is a little further north of Scunthorpe, in Skinningrove).
The further you look around the world of manufactured products, the more you realise that nearly everything you touch on a daily basis has, in the months before it arrived in your life, been on a long trip from factory to factory, taking it all around the world. That device you’re reading this on may say “made in China” on the back, but that’s an enormous over-simplification. It was made more or less everywhere.
This is the way the world works today – like it or not. In a sense it’s the ultimate extension of what Adam Smith discussed back in the earliest days of economics, when he described a “pin factory” where the work of making a simple pin was divided up between different people, with each worker specialising in a particular task rather than trying to make the whole pin themselves.
The swings and roundabouts of globalisation
Today, we have a sort of international division of labour. Today, nearly everyone goes to China to get their batteries. They go to South Korea to get their memory chips. The upshot is these factories have become ever more efficient at making their products. And – here’s where it matters for the rest of us – the price of making and buying this stuff goes down.
Today, the reason one can buy what would once have been classified as a supercomputer for a few hundred pounds is because of this division of labour. Globalisation made everything, from computers to Caterpillar trucks to T-Shirts, that bit cheaper than they would have been had we attempted to manufacture them all in a single country.
Trader Christopher Lagana. Pic: AP
But the ugly side of this economic shift is that those regions that used to do the manufacturing – be it the “rust belt” of America or the Midlands and North East of England – have seen much of their traditional work disappear. And while economists have insisted that cheaper products make everyone better off in net terms, the reality is that these parts of our countries haven’t got better off. They have been hollowed out. And in time, resentment about globalisation has built up – for good reason.
Trump’s aspiration
This is the world we inhabit today. Unpicking it will be phenomenally difficult and phenomenally expensive. Trying to relocate all those functions – factories and labour markets with expertise that has built up over decades – would be incredibly difficult and would take a long time. But that seems, as far as anyone can tell, to be the aspiration of Donald Trump. That appears to be the objective of his tariff policy.
Up until now, most investors had assumed that the president wasn’t entirely serious about this – that he merely intended to scare a few Asian companies into opening factories in key swing states. And who knows – that may well turn out to be the case. But he certainly seems more serious this time around – and less fazed by the negative market reaction.
In the meantime, we are left with those tariffs.
Costs will go up
Think back to that iPhone. Think back to those Caterpillar tracks. All those components now face swinging tariffs when they arrive in the US. That will push up the cost of buying pretty much anything in the US and will accordingly push down the demand for those goods. And since America is the world’s consumer of last resort – the biggest importer of goods anywhere – that has an enormous bearing on demand around the world.
So, yes, of course, this is dramatic. Of course, markets are slumping. No one knows what the US president will do next. But either way, what happened last week in the Rose Garden will reverberate for a long time to come.
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