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MIDDLE

EAST SUPPLEMENT
A supplement to The Treasurer | J A N U A R Y 2 0 0 9

A new dawn beckons


Sweeping change promised in liquidity management

Gulf streams of wealth


A global capital facilitator

Leadership in the information age


A strategic framework for market success

Root and branch


Smooth cash service for luxury hotel
A treasury focus for the region
The Treasurer is the official magazine of
The Association of Corporate Treasurers,

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JANUARY 2009 MIDDLE EAST SUPPLEMENT 1


middle east supplement
LIQUIDITY

A new dawn
beckons the bold
CONTROLLING CASH AND OPTIMISING ITS VALUE ARE CRITICAL FOR CORPORATIONS TO MAKE THE
MOST OF THEIR MONEY OPERATIONS. NEW TECHNOLOGY AND METHODS OFFER SWEEPING
CHANGES IN LIQUIDITY MANAGEMENT FOR THOSE BANKS BOLD ENOUGH TO GRASP THE NETTLE,
SAYS MARIO TOMBAZZI OF HSBC.

Executive summary
The obstacles which an efficient liquidity management
programme must vault include the restrictions imposed by
market regulation, multiple banking solutions, and the
volatility of cash positions. Banks need to offer a truly
integrated, international liquidity proposition, which in turn
is built on an exacting set of criteria. A new generation of
technology and systems promises to enable this
improvement, and secure a dramatic leap in the quality of
liquidity management.

corporations is to maximise the use of internal sources of funds,


irrespective (where possible) of geography or business structure.
This objective takes two forms. First, the need to avoid the cost
of cash shortfalls that could be covered instead by surplus
funds at other group companies. Second, the opportunity cost
of idle balances that deliver sub-optimal returns.
An associated objective is the desire to reduce the “access
risk” of relying on markets or third parties for liquidity; events
since the third quarter of 2007 have been a fairly obvious
example of the importance of market/counterparty liquidity

L
iquidity management is vital to the financial well risk in its purest form, both from a sourcing (financing) and
being of an organisation. It is also one of the most deployment (investment) standpoint. A further risk to be
demanding disciplines, not just in terms of managing eradicated relates to the visibility and safekeeping of assets.
and optimising cash pools in multiple currencies and In an increasingly regulated world the costs and penalties
locations, but also predicting available liquidity accurately associated with compliance failure are far too severe to be
and matching those predictions against possible neglected.
contingencies over multiple timeframes. Finally, there is the desire to reduce the management
Advances in the techniques used for liquidity management overhead relating to the underlying end-to-end process. In
in recent years have been relatively gradual. Now we appear an entity as leanly staffed as the modern corporate treasury,
to be on the brink of something on an altogether larger scale; manual tasks are clearly undesirable, as is the need to be
liquidity management is on the cusp of a completely new continually (re)evaluating the same execution options and
generation of technology, methods and – ultimately – their pricing. In an ideal world, the degree of human
performance. intervention required for cash pool administration should be
minimal, with parameterised system logic and resilient
STATUS QUO OBJECTIVES While the feasibility and automated processes taking the strain instead.
effectiveness of liquidity management have significantly
improved over time, its general objectives have remained SERIES OF OBSTACLES Unfortunately, the treasury
broadly unchanged. The primary objective for many professional attempting to achieve these objectives is

2 MIDDLE EAST SUPPLEMENT JANUARY 2009


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LIQUIDITY

confronted by a series of obstacles of ascending complexity.


One of the first is the intricacy of the legal ownership
NOW WE APPEAR TO BE ON THE
structures involved in the liquidity management solution BRINK OF SOMETHING ON AN
configuration. Another is the unpredictability and volatility of
cash positions. Business seasonality, geographic distribution,
ALTOGETHER LARGER SCALE;
industry type, disbursement and collection practices all LIQUIDITY MANAGEMENT IS ON
influence the accuracy of cashflow forecasting. Liquidity
structures serve as a safety net for such uncertainty. The
THE CUSP OF A COMPLETELY
organisation’s management model – for example centralised NEW GENERATION OF
or decentralised – combined with the degree of autonomy of
local business units can also prove a substantial hurdle. In TECHNOLOGY, METHODS AND –
the Middle East, organisations tend towards centralised ULTIMATELY – PERFORMANCE.
models, however, the full value of their individual business
units’ working capital positions is not maximised at all times.
Also, where decentralised models exist, overcoming these spectrum of payment and collection instruments (from
hurdles might require considerable management effort. paper to electronic, from notes and coins to cards) across
Sooner or later, any discussion of liquidity management any region, including the Middle East. Furthermore, even
turns to the core issue of market regulation, which comes in fewer have been able to complement this with the
the form of various restrictions on capital movements and comprehensive portfolio of liquidity management tools
currency conversion. required to structure the optimal solution.
These apply across both developing and emerging markets The need for corporates to have a cash management
and reduce the efficacy of liquidity management structures. provider capable of covering all these bases cannot be
They include specific conditions applied to interest overemphasised. The maintenance of a continuous “clearing
compensation available on local and/or foreign currency to concentration” process chain is essential to the success of
holdings, prohibitions or clearance requirements on the a liquidity management structure. Once this process chain is
conversion of holdings between these currencies and fragmented by the participation of independent third-party
limitations on the activities permissible by non-resident providers or out-of-network intermediaries, inefficiencies
entities or on inter-company lending. A further burden comes creep in and value is lost. Different file formats, early cut off
in the form of administrative and reporting requirements times, inconsistent processing platforms and non-standard
relating to these restrictions. working practices are just a few of the elements that can
The Middle East is no exception to this, although many quickly cause this deterioration. To overcome the obstacles
markets have simplified tax systems to a degree, outlined above, a best-in-class liquidity management
corporations recognise that regulations and tax are dynamic structure has to be a sophisticated but operationally simple
factors that any liquidity management strategy must adapt piece of engineering. The addition of an external component
to accommodate. Compared to other obstacles, regulation or agent may not break it entirely, but will undoubtedly
and taxation are particularly problematic: while careful reduce its effectiveness.
planning can overcome problems relating to organisational
structure and volatility of flows, regulation and tax obviously JOINING THE DOTS Deregulation can only happen at a
cannot be directly determined by corporations. In most pace that is synchronised with the financial and economic
cases, tax planning and business transformation development of the country concerned; essentially an
considerations – such as in the adoption of a re-invoicing outcome with a long and uncertain timeline. More
centre or a commissionaire model – are a key influence (if immediately relevant is the paucity of international cash-
not a determinant) on the design of the liquidity solution. management banks that have the reach and depth of
This incurs a substantial initial investment in the analysis, services to offer a truly integrated cash and liquidity
due diligence and project/change management required, as management proposition on a regional, if not global, basis.
well as a periodic maintenance cost necessary to keep Any bank aspiring to claim such end-to-end facility has to
abreast of regulatory, fiscal or corporate organisational be able to meet a formidable list of criteria.
changes. One of the most fundamental of these is direct clearing
membership across all countries, clearing channels/zones and
CONTINUOUS PROCESS CHAIN These various obstacles instruments involved. As soon as any critical element of the
have meant that many corporations find themselves operating clearing process has to be outsourced, the risk of errors
with suboptimal liquidity management practices and and/or frictional inefficiencies arises, unless the agent can
structures. One further and highly critical factor in the success deliver additional value over and above the direct process
(or otherwise) of the results achieved has been the inability of ownership.
many cash management providers to offer a fully integrated, The corollary to this is the need for an extensive regional
pan-regional cash and liquidity management service. network capable of catering for full local banking services,
Traditionally, very few top tier international cash with the consistency and quality of delivery that is expected
management institutions have been able to support the full from an international institution. Apart from the efficiencies

JANUARY 2009 MIDDLE EAST SUPPLEMENT 3


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LIQUIDITY

this offers in terms of transaction processing control through attitude very much at odds with client objectives. As treasury
direct clearing participation, it goes very much hand in hand departments have evolved into more business-focused and
with the development of local expertise. This is critical to the cost-conscious organisations, their desire to minimise
process as a whole in various ways; in addition to delivering a manual intervention has increased. Management tools that
deep understanding of local business practice and clearing deliver maximum information plus the integrated facility to
mechanisms, it also improves the quality of regulatory act on that information are now a common requirement. At
intelligence. This can prove invaluable in terms of providing the same time, treasurers want their staff to undertake more
early notice of any possible changes (and perhaps even value-added tasks, rather than administering working capital
influencing those changes) that could affect the liquidity funding or investment policy. Once they have established the
structure, allowing any adjustments to be made in a timely policy guidelines and the acceptable instruments and key
manner. performance indicators, they would ideally like
However, such local capability is easily dissipated if it is not parameterised business logic to take care of the policy
supported by a robust regional and global liquidity execution and enforcement.
management platform and infrastructure. These are essential if
local capabilities are to be leveraged to the maximum macro NEW APPROACH NEEDED Needless to say, delivering all of
advantage for the client. Put simply, efficient consolidation of the above requires a substantial investment in both product
cash at a local level is quickly devalued if upstream systems functionality and application integration. The number of
introduce inefficiencies and delays in mobilising the liquidity banks prepared or with the capacity to make such an
across entities and locations. This has obvious implications for investment is limited. Nevertheless, only those banks that do
information management too; a bank may offer the most so will be able to lay the essential foundations for
sophisticated reporting tools with a superlative graphical transforming their liquidity service offerings and taking them
interface, but if platforms are incapable of extracting the value to the next level.
trapped in slow moving or suboptimally employed pools of However, corporations wishing to benefit from this
liquidity, these tools are powerless. transformation will require a different approach to the bank
To the treasury manager trying to forecast and plan in selection process. In the past, liquidity and transaction banks
multiple timeframes, it is not just the existence of cash that were typically chosen on an entirely discrete basis. This was
is important; it is also the certain knowledge of available understandable, as there was typically minimal overlap in
cash and of how it will flow through a liquidity structure. many regions between banks that could offer the best
What is obviously critical to the overall efficiency of the regional liquidity management and those that could offer the
structure is the consistent quality of delivery, but also of best domestic transactional banking. A fairly common
methodology: simply put, this translates to process outcome was that local banks were selected for transactional
standardisation and automation. Corporations are banking because of their stronger on-the-ground capabilities,
increasingly mindful of their own direct costs when assessing with an overlay regional bank responsible for the liquidity
liquidity solutions, particularly in relation to the cost of consolidation. The result was a fragmented banking
managing exceptions and errors, and more generally in relationship and a sub-optimal liquidity management
relation to inconsistent methods and procedures. At the very process. This is a long way from best practice, given the
top of a liquidity chain lie management tools and investment substantial investment made by some banks in
and funding instruments. implementing a more holistic transaction/liquidity approach.
Historically, some banks have regarded these as almost an Such an approach deserves a similarly holistic decision-
afterthought, or something to be dealt with by the client; an making process on the part of buyers.

4 MIDDLE EAST SUPPLEMENT JANUARY 2009


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xx XX
LIQUIDITY

NEW POSSIBILITIES The primary focus of liquidity management to Another benefit of bank investment in liquidity management
date has been on process automation within the concentration functionality is configurability; liquidity structures will no longer be
structures typical to the particular region and country where they are constrained by their providers’ domestic limitations. Instead, clients
located (eg physical/notional, single/multi-entity, domestic/cross- will have access to optimal multi-regional liquidity structures and
border). This is now progressing to the next level with market leaders in cashflow management tools that fit their specific business model
international cash management services investing in dedicated global and requirements. From a client perspective, this consistency and
liquidity management platforms to enhance their service. Such platforms flexibility of configuration has a tangible effect on the bottom line.
will offer expanded product functionality and new service features that Their liquidity positions in any market (subject to regulatory
will revolutionise the way clients manage their portfolio of working constraints) can for the first time make a positive contribution to
capital balances and access integrated funding and investment options. their overall regional or global position.
In a perfect world, this functionality should be available in any
market falling within the provider’s footprint, and such a footprint CONCLUSION At the core of these changes to the world of liquidity
should be as extensive as possible. Not all functionality may be management lie two things – the control of cash and its optimised
immediately applicable due to local regulation, but regulation is not value. Maximising the potential of both is the crucial foundation that
static and tends to evolve in parallel with a country’s economy. a select few providers are striving to achieve. Once that is in place,
Having the technical infrastructure already in place offers immediate new management tools and extensive integrated workflows will be
service consistency across all markets, while allowing for rapid future limited only by imagination. Eventually, end-to-end automation and
deployment when regulatory conditions permit. standardisation become a given, with enhanced analytics simplifying
The investment by leading banks in new liquidity-related decision-making and business-rule driven processes extracting the full
functionality also has the potential to break down barriers between value from working capital on a real time basis. Welcome to the new
perception and reality. A case in point is multi-currency pooling, liquidity horizon.
which has traditionally been regarded as too complex for clients to
understand and too unwieldy for providers to implement and Mario Tombazzi, senior vice president, Product Management
administer. In a brave new world, where both liquidity and The Hongkong and Shanghai Banking
transactional banking can be closely integrated in one provider, this Corporation Limited, Hong Kong
is no longer true; multi-currency pooling becomes immediately mariotombazzi@hsbc.com.uk
accessible to a far broader range
AMCT ad for TT decjan09.qxd of potential
19/11/08 12:11users.
pm Page 1 www.hsbc.ae

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JANUARY 2009 MIDDLE EAST SUPPLEMENT 5


middle east supplement
FINANCIAL SERVICES

Another time,
another place
THE MIDDLE EAST IS KNOWN FOR ITS AMBITIOUS BUILDING PROGRAMME, BUT ITS
BURGEONING FINANCIAL SERVICES SECTOR IS LIKELY TO BE ITS MOST POWERFUL
DEVELOPMENT. MICHELLE PERRY INVESTIGATES.

Executive summary
Financial services, driven by the development of Islamic
finance, are growing strongly in the Middle East. With a
rapid pace of change – “Dubai time” – and an increasingly
sophisticated market to attract business, the region is
appealing to those hoping to avoid the worst of the global
recession. And while some adjustment to local customs is
advised, this is a truly international environment.

without earning interest – in accordance with Sharia law. All


products must be signed off by Islamic scholars to ensure
compliance with the Sharia law.
Someone who has experienced that tremendous growth is
Raphael Ricaud, head of Islamic finance at Rothschild. Ricaud
arrived in Riyadh at the end of 2001, when IF “was close to
zero”.
“I have seen the development in the sector, particularly in

T
he Middle East has for millennia been the gateway this field, grow quickly,” says Ricaud, who has also worked in
for traders from the east and west offering HSBC’s Islamic division in Dubai.
entrepreneurs of the day the perfect location Since global banks such as HSBC, a pioneer in developing
geographically to sell and buy their wares. Sharia-compliant products, brought it into the mainstream,
As savvy as ever, the region’s rulers have been strategically many products are just as competitive as other commercial,
positioning the emirates over the past five to six years in a non-IF products.
bid to diversify away from its reliance on oil and gas – in What has also helped develop Islamic finance in the region
which incidentally they are still rich – to create a financial is endorsement and encouragement by the emirates’ rulers.
centre important enough to rival the world’s best centres. In Qatar, for example, the emirate created its own pure
And the jewel in the crown is, for now, Dubai, slowly edging Islamic megabank two years ago, explains Ricaud.
over Bahrain as the region’s most important financial centre. In other states IF has developed from the grassroots in the
Most people are familiar with the extent of construction – a form of small national investment banks that are Sharia-
barometer frequently used by insolvency experts to gauge a compliant. In the past, the older national banks in Saudi
region’s affluence – in the UAE, and particularly Dubai. They Arabia and Kuwait offered some IF products, but nothing to
know the area is exceptionally wealthy, but what is less well the extent we now see.
known is the development in the financial services arena. Today, most of the older national banks in the region have
IF divisions or subsidiaries but there are now also myriad pure
DRIVING FORCE One of the triggers for growth in financial Islamic finance banks, as well as the IF divisions of the global
services has been the development and sophistication of investment banks. It is increasingly a mainstream component
Islamic finance (IF) products, which allow Muslims to invest of the global banking system, with products having moved

6 MIDDLE EAST SUPPLEMENT JANUARY 2009


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FINANCIAL SERVICES

beyond lending, insurance and investment funds to include


Sukuk, hedge funds, currency swaps, and more.
THE PACE WITH WHICH PEOPLE
The value of Islamic project finance deals being closed is MOVE IS VERY QUICK. DUBAI-
projected to grow to $3bn by 2012, representing up to 30%
of all major structured deals finalised in the region, according
TIME, THEY CALL IT, WHEN YOU
to the Middle East’s business intelligence service, Middle East DO THINGS RIGHT AWAY
Economic Digest.
International Islamic Financial Market (IIFM), an industry
association, calculates that corporate Sukuk issuance leapt
from $0.4bn in 2000 to $24.5bn in 2006. Killian, who has been based in Dubai for the past two
years, agrees. “One of the things we find is that the pace
GROWING COMPLEXITY IN TREASURY Although still with which people move is very quick. Dubai-time, they call
lacking the West’s sophistication, treasury services in the it, when you do things right away,” he says.
Middle East are becoming more advanced. As more expertise In terms of international corporates setting up in the
is brought into the region and local skills develop, the Middle East the region is young in knowledge and application
treasury function is growing in complexity. of governance and risk management processes. But Killian
“The products are simpler and the use of derivatives lower. says companies learn quickly and are “coming up the curve
The volume of the local stock markets are much less very fast”.
developed,” explains Ricaud. In fact, he says, there is much more shareholder
But he adds: “What I have seen is the development of interaction with companies and that is acting as an incentive
Islamic treasury products that weren’t there three years ago. to improve transparency and openness. Backed by the
It’s possible to structure a Sharia-compliant interest rate government, which holds a stake in many national
swap and currency swap now.” companies, transparency levels are improving significantly,
Still, treasury services have a long way to go before they say treasurers working in the region.
meet levels in the West. “If you need global treasury services Often, however, in a fast-paced business environment it
then you would be working with JP Morgan or HSBC rather takes a while for things to catch up. Buildings go up daily – in
than local banks,” says Michael Killian, executive vice fact it’s said that 27% of the world’s cranes are currently in
president and treasurer at Dubai Aerospace Enterprise. Dubai – but as Killian has observed, the infrastructure often
He adds, however: “They are coming up the curve quickly lags behind, whether roads or governance procedures.
because they can skip a lot of the middle stuff and jump The Middle East is managing to attract highly skilled
straight to the most sophisticated services.” treasurers to the region with great career opportunities and
The main challenge facing IF from the treasury perspective that ensures standards are kept high. Importing skills is also
is how to develop treasury products in a more sophisticated helping in terms of developing the local skills set.
manner, Ricaud says. “It is growing slowly, but I believe the
trend will continue.” RELATIONSHIPS ARE IMPORTANT It is very different doing
business in the Middle East to elsewhere in the world, say
FAST PACE OF CHANGE The pace of change is what those working in the region. There is little separation
impresses many foreigners in the region. Tushar Patel, between business and pleasure time. This blurring of the lines
assistant group treasurer at global port operator DP World, between work and play can confuse many Westerners, more
was asked to go to Dubai two years ago to help set up a used to abiding by the rules of a division in activities. But
treasury function following DP’s takeover of P&O. It was an they are not all disconcerted by these mores and if you want
opportunity he grasped with both hands and he has not to forge a successful career in the region it is advisable to get
looked back. used to combining work and pleasure.
“It’s very dynamic. DP is one of the most recognised “What I really appreciate in this part of the world is that
companies there. It’s right at the forefront in driving things in business is part of social life. The Arabs are very emotional
treasury. people and so the concept of trust is more developed here.
“We did the largest acquisition facility at the time. The It’s critical to build personal relationships before you can do
largest bond issue for 30 years and IPO all at the same time,” business,” says Ricaud.
Patel explains. “A lot of Middle Eastern companies look to DP It is a close knit community with around 15 players in
and follow what we do.” Islamic banking. While the level of sophistication in banking
Patel cites the company’s governance structures and risk relationships is not quite on a par with the West, bankers
management processes as systems that are also adopted by tend to stay in the region, if not in the same job, for a long
national companies looking to improve transparency. time, so nurturing relations is vital.
What inspires him most about the region is the national Investors work in the same way as in the West in process
companies’ energy. “Western companies are often more launching, structuring and distributing bonds. The
conservative, while Middle Eastern companies are more distribution cut is the conventional platform. “In that sense
dynamic. P&O was always one of those to wait and see what there’s not much different between the West and the Middle
other companies would do. DP prefers to be the first,” he adds. East,” says Ricaud.

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FINANCIAL SERVICES

COSMOPOLITAN AND TRADITIONAL CONVENTIONS Once they are au fait with the regional mores ex-patriots
There have always been strong links between Britain and the feel at home. Patel says since he moved out two years ago a
Middle East but Westerners increasingly gravitate towards lot of people who went to university or studied treasury
the region now, not least for its tax-free benefits. You can management with him have been offered a job opportunity
forge a comfortable and sociable lifestyle in the region as somewhere in the region.
long as you always remain aware that it is a Muslim country Dubai is a particular favourite with Westerners as out of
and there are conventions to adhere to. the seven emirates it appears the most Westernised. Dubai
The working week runs from Sunday to Thursday as Friday was built on a Western model, with many of the country’s
is an important holy day. And it’s considered rude or forward chief advisers having lived in London or elsewhere in Europe.
for men to shake Muslim women’s hands when they meet – It’s still part of the Arab world with strict customs and that
either in business or social situations. must be respected.
“Westerners sometimes forget that Dubai is part of the
Muslim world. It’s normal as it’s very cosmopolitan here with all
the skyscrapers and shops and you have a large Indian/
THE ARABS ARE VERY Bangladeshi community too. If it weren’t for the call to prayer
EMOTIONAL PEOPLE AND SO you would forget you were in the Middle East,” says Ricaud.
With a huge ex-patriot community the region is becoming
THE CONCEPT OF TRUST IS more and more international. Killian says: “This has been a
MORE DEVELOPED HERE. IT’S fabulous experience. It’s truly international here and a cross-
cultural experience is great.”
CRITICAL TO BUILD PERSONAL
RELATIONSHIPS BEFORE YOU CHANGING TIMES The oil-rich Middle East is cosseted thanks
to its wealth and booming economy from the current global
CAN DO BUSINESS financial crisis. However it is not completely isolated from it.
“The atmosphere has changed. It’s harder to raise debt in
the Middle East now but 2007 was an amazing year.
Everyone is waiting until next year to do anything,” says
Patel nostalgically.
Although the market is expected to be much tougher in
2009 than in 2007, it is unlikely the Middle East will be hit as
hard as industrialised nations.
On the upside however, “The market capitalisation of each
company is little but this has a positive side in the context of
what is happening now. Even if prices here are affected by
the crisis the region will withstand the global crisis much
better than the West,” Patel adds.
While some are less sanguine, we could nevertheless see
the Middle East taking advantage of cheap assets. It is pretty
much the only place on the planet at the moment with any
wealth to spend.
“The interesting thing about the Middle East is that it’s
sitting on oil wells and has a large wealth of capital and with
assets cheap we will see Middle Eastern companies look to
snap up some bargains,” predicts Patel.
Even British prime minister Gordon Brown visited the
Middle East in the autumn with his begging bowl. He went to
ask the Gulf states to increase trade between Britain and the
oil rich states, as well as to “persuade the Gulf states, who’ve
made an awful lot of money in the past few months... to
redistribute some of that to help other states”.
He also suggested the states had a duty to use some of
their massive oil wealth to help ease the impact of the credit
crunch on the world economy.
By the time the global recession eases it is likely more
Western companies will be under the banner of the Middle
East, with its burgeoning financial centre much more powerful
than it is now. Watch this space.

Michelle Perry is a freelance journalist


editor@treasurers.org
www.treasurers.org

8 MIDDLE EAST SUPPLEMENT JANUARY 2009


middle east supplement
CASH MANAGEMENT

Root and branch


approach
CASHFLOWS AT ATLANTIS, THE PALM WATERPARK ON DUBAI’S EXCLUSIVE PALM JUMEIRAH
WERE ALWAYS GOING TO BE SUBSTANTIAL, SO THEY NEEDED A BANK THAT COULD COVER
EVERY ASPECT OF CASH MANAGEMENT.

Executive summary
Since opening in September 2008, Atlantis, The Palm has
attracted a huge number of visitors from all over the world,
creating challenges and complexities in payments,
collections and account management requirements. Abu
Dhabi Commercial Bank’s cash management team talks
about how they were able to service Atlantis’s transaction
banking requirements with creative yet practical solutions,
and how Atlantis is reaping the benefits from its smooth
and efficient functioning.

project’s development, Atlantis engaged ADCB for its


transaction banking services, particularly on collections and
disbursements requirements. Cash handling was a primary
concern because of Atlantis’s sheer size – translating into
substantial daily cash collections from various parties. Daily
denomination exchange was likewise required for “loose
change” transactions in Atlantis’s collection points within the
resort, ensuring top quality hotel service to its clientele.
Atlantis’s main concern was to have all its cash collections
for immediate credit to the account in a timely manner and
reduce as far as possible the risks of holding physical cash in
its counters. On the disbursements side, Atlantis wanted an
end-to-end solution to handle multiple payment types –
cheques, domestic and international fund transfers and
payroll; with single batch authorisation to expedite

A
tlantis, The Palm is a 1,539 room, ocean-themed disbursements to suppliers, customers and employees.
destination resort at the centre of the crescent of
the man-made Palm Jumeirah in Dubai. This US$1.5 CASH MANAGEMENT IS AN EXACT SCIENCE This is where
billion joint venture project was developed with the benefits of ADCB’s experience and approach came in. The
Dubai-government owned Istithmar. Opened in September bank prides itself on approaching cash management as an
2008, the resort occupies a 46ha site, with 17ha of water exact science. Client-need assessments are conducted to
park amusement, marine and entertainment attractions. take account of a company’s unique cash history, present
With the scale and magnitude of such a project, Atlantis operations and future plans. Through detailed consultation,
was faced with the challenge of having to manage sizeable ADCB’s client-focused specialists compile a holistic picture of
transaction volumes of payments and collections – in the all aspects of a business’s cash requirements, devising
most efficient and cost-effective manner. In parallel with the appropriate products and services. The on-the-ground

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CASH MANAGEMENT

implementation team ensures successful product delivery


with full after-sales support.
ATLANTIS WAS FACED WITH THE
On account management, ADCB provides simplified CHALLENGE OF HAVING TO
administration, efficient monitoring and control of cashflows,
reduction in back-office workload and enhanced account
MANAGE SIZEABLE TRANSACTION
structures for streamlined reconciliation. Liquidity VOLUMES OF PAYMENTS AND
management focuses on increasing funds availability and
providing ease and flexibility in managing outstanding deposit
COLLECTIONS – IN THE MOST
balances with ADCB. This includes installing effective cashflow EFFICIENT AND COST-EFFECTIVE
management, maximising returns in surplus or idle cash, and
reducing borrowings, cost of borrowing and overdraft charges. MANNER
Payments solutions focus on daily transaction banking
requirements, offering streamlining of processes, cost-
reduction, risk-minimisation, comprehensive services for customised cheques service for high volume payments to
domestic and cross-border payments, and structures for suppliers. Salary transfers in favour of Atlantis employees are
prompt and accurate payments. transmitted through a secure electronic channel for
Collections services enhance control to provide best use of subsequent crediting to payroll accounts in ADCB and other
valuable company resources and offer cost-effective funds banks across the UAE. Through ADCB’s Retail Banking Group,
collection, reduced clearing cycle, improved settlement of the bank supplied automated teller machines (ATMs) within
outstanding receivables and greater credit control. the Atlantis complex for use by guests and employees.
For channel management the bank provides information Implementation of ADCB’s bulk payments solution is
delivery and transaction initiation through multiple channels: under way, to convert most of Atlantis’s cheque payments to
fax, email and internet that achieve a seamless and flexible electronic fund transfers – both domestic and international,
interface between client and bank. allowing Atlantis to do single batch approvals for multiple
Atlantis was faced with the challenge of having to manage transactions of different payment types. With this service,
sizeable transaction volumes of payments and collections – reconciliation will be simplified and accelerated through a
in the most efficient and cost-effective manner. payment acknowledgement file provided at the end of each
batch payment run, to be uploaded into Atlantis’s accounts
A COMPLETE PACKAGE Using these skills, ADCB presented a payable system.
full range of cash management solutions to cover all of
Atlantis’s present and future requirements. An account BRINGING THE BANK INTO THE FOLD “We needed a bank
structure was established to identify all cash and cheque to manage all our day-to-day transaction requirements:
receipts from payment transactions. Atlantis was given online covering all our payments, collections and account
access to its accounts anytime, real-time through ADCB’s state- management,” says Tim Wise, senior vice president – finance.
of-the-art ADCB@ctive corporate internet banking system. “We were impressed by ADCB’s range of solutions, even
The bank’s end-to-end collections services Cash@Request before we formally opened Atlantis. Choosing a bank for its
and Courier@Velocity handle Atlantis’s entire collections cash management services lies beyond the usual criteria of
requirements. Cash receipts are collected daily at pre- the bank’s size, branch network and sophisticated product
arranged pick-up times from Atlantis’s various collection offering. The difference lies in its quick response, after-sales
points within the complex. Customer instructions and other service support and continuous improvement of products
confidential documents are handled to and from Atlantis and systems. It knows and understands our business and
using ADCB’s courier services on a regular basis. ADCB procedures, our problems and needs and offers customised
provides all reportorial requirements to Atlantis for all solutions. It’s like bringing ADCB to our company, Atlantis.”
collections processed during the period. ADCB is constantly developing cash management capabilities
On the disbursements side, Atlantis is making use of ADCB’s to provide the finest and most reliable range of products and
meet the growing demands of clients. These services are backed
by the bank’s sound asset structure, its investment in cutting-
edge technology, and team of highly experienced and motivated
WE NEEDED A BANK TO MANAGE corporate banking personnel, in-depth local knowledge and
ALL OUR DAY-TO-DAY ADCB’s extensive region-wide branch network.

TRANSACTION REQUIREMENTS. Glenn Cuevo, head of cash management


WE WERE IMPRESSED BY ADCB’S Raffy Vicencio, senior product manager
Cash Management Division
RANGE OF SOLUTIONS, EVEN Abu Dhabi Commercial Bank
BEFORE WE FORMALLY OPENED glenn.c@adcb.com
raffy.v@adcb.com
ATLANTIS www.adcb.com

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CAPITAL MARKETS

Gulf streams
of wealth
THE GULF IS NOW ACCEPTED AS A MAJOR FINANCIAL CENTRE, BUT HOW IS IT MOVING FROM
SIMPLY HAVING LOTS OF MONEY TO BECOMING A GLOBAL CAPITAL FACILITATOR?
GRAHAM BUCK FINDS OUT.

Executive summary
With a projected investment of $1.5 trillion in the Gulf over
the next few years, overseas interest has never been higher.
The younger generation, keen to exploit that potential, is
looking to encourage the free and transparent flow of
money through sophisticated financial instruments,
upholding rule of law and relaxed laws on foreign
investment. But it must also overcome potential problems
of high inflation, repatriation of wealth and potential unrest.

intricacies of a Sovereign Wealth Fund acquisition would be


discussed at length on Sky Sports News?” comments Andrew
Nicholls, a senior partner at Penrose Financial, the financial
services and capital markets PR consultancy.
With Western banks increasingly looking to the region for
growth opportunities as slowing growth in the US and
Europe is succeeded by recession, Penrose believes the
Middle East holds tremendous promise for companies able to
offer genuine business opportunities to the region. As the
firm notes, a staggering $1.5 trillion is projected for
investment across the Gulf over the next few years.
However, in responding to the region’s opportunities,

I
f further evidence were needed of the increasing power Western banks have heeded the crucial role of Islamic
and influence of the Middle East, it was provided by finance, so are expanding their range of Sharia-compliant
Gordon Brown’s trip to Saudi Arabia last autumn to products and employing Islamic scholars to advise them. It is
persuade its rulers to pump additional funds into the not yet clear whether this will be enough to win them
International Monetary Fund. business in the future, or if Arab clients will prefer to
The personal visit to the region’s leaders by the British continue banking with local institutions.
prime minister, who was accompanied by 27 Western Penrose’s recently published report, The Road of Opportunity:
business leaders representing the banking, energy and Evolving Capital Markets in the Middle East, examines the
construction sectors, came in the wake of Barclays region’s financial landscape in detail and assesses its viability
announcement that it had secured £3.5bn of investment as a bona fide and sustainable financial centre.
from Abu Dhabi’s ruling family and a further £2.3bn from There has been a plethora of material written about the
Qatar. Gulf and issues such as its ruling elite, its sovereign wealth
Middle Eastern wealth has also manifested itself in other, funds (SWFs) and Sharia investment – hence the need for a
more exotic, scenarios – one of the more recent being the guide that eliminates less relevant information and focuses
acquisition of Premier League team Manchester City by the on the opinions of Middle East experts and the main themes
Abu Dhabi United Group for Development and Investment. and trends likely to be important over the coming years.
“Who would have ever thought that some of the The report begins by noting that the Gulf’s elevation to a

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CAPITAL MARKETS

THE RULERS OF THE MIDDLE What are the likely future developments in the region?
EAST – MANY YOUNG AND
The report concludes by singling out discernible trends:
WESTERN-EDUCATED – ARE
GROWTH OF EQUITY AND DEBT MARKETS While Western
MOVING FROM BEING WEALTH economies suffer in the credit crunch, Middle Eastern markets will
ACCUMULATORS TO CAPITAL grow more significant as companies seek to raise funds from the
region’s vast pools of liquidity.
FACILITATORS
CAREER OF CHOICE FOR FOREIGNERS Bankers and traders in
the West increasingly see the region as a first choice in career
advancement. It has gained credibility and is regarded by those in
major global financial centre is commonly accepted by the investment community as a place to work and gain experience.
companies around the globe, while Western banks and their
“caravans of support services” have opened shop in the region. SPENDING There is a new awareness that the accumulated
But as its authors note, European and American wealth of the Middle East should be spent. New areas are under
commentators “swing between applauding and condemning review, with the investment plans of SWFs closely watched.
the region’s rising economic power.” Growth has been
EMERGING PLANS Investors and the media are realising that
accompanied by concerns over issues such as political
the region has a plan and that the infrastructure projects are the
stability and terrorism. And as the Sheikhs, their political elite
lynchpin.
and the all-powerful SWFs grow increasingly rich; questions
have arisen over how sustainable the region will prove to be REGULATORY CHANGES The relaxation of foreign ownership
as a financial hub. rules will be watched, with Saudi Arabia of particular interest. Will
“Much has been written about the region’s viability as the it seek to extend its financial reach and its banks attempt to
next financial centre – with comments varying wildly become the region’s leading financial institutions?
between eulogies about its potential to pointed criticism of
the lack of standardisation, rule of law and market THE NEW GENERATION Younger, Western-educated Arabs who
sophistication,” says Nicholls. “The reality, as always, is are setting up in business will influence the region’s development
somewhere between the two. as a financial centre. Businesses are likely to continue
“While nobody doubts the sheer wealth of their restructuring and cross-border merger and acquisition deals are
economies, we all know that it takes much more than likely in addition to regional and local ones.
accumulated riches to create a financial centre. However, the
rulers of the Middle East – many young and Western-
educated – are moving from being wealth accumulators to infrastructure represents rather more than mere ambition.
capital facilitators.” Instead it is providing “the necessary physical framework
This means they realise that a financial centre is based on around which the appropriate legal and regulatory system
the free and transparent flow of money in and out, the report can be placed to create an efficient and sustainable financial
suggests. So there is an increasing readiness to embrace hub” – or, in the words of one of the region’s major
foreign ownership, relax restrictive laws on outsiders, uphold infrastructure firms, Abu Dhabi’s ALDAR Properties, they are
the rule of law, enhance transparency and introduce regulatory “building a nation”.
controls and sophisticated capital market instruments. Some countries in the region are also looking further afield
While it is probably too early to judge whether this goal of and using existing relationships to participate in
lasting financial centres can be achieved, the region’s massive infrastructure projects in North America, China and
infrastructure projects already act as vehicles for increased elsewhere in Asia. An example was the $1.4bn deal signed in
liquidity. Dubai is said to account for at least 25% of the 2006 by Bahrain-based Islamic investment bank Gulf Finance
world’s active cranes and has, with Abu Dhabi, ploughed House to fund two tourism projects in Morocco.
billions into highways, major new cities, schools and hospitals.
While these enormous projects continue, there will be demand ATTRACTIVE LEVELS OF WEALTH The investment and
for debt and structured finance to fund them. Project finance is business opportunities for financial service providers in the
well suited to Islamic financial instruments, which, as the Gulf vary from one country to another, with the region’s
report notes, need to be backed by physical assets. wealth largely concentrated in the form of government funds
The structuring of the deals is becoming more complex and high net worth individuals.
and, despite the vast local wealth, developers are seeking to Over the last decade, media attention has largely focused
both spread risk and raise their public profile by involving on Dubai and Abu Dhabi. Both countries have actively
foreign partners. There is growing evidence to suggest that encouraged foreign participation, in a bid to diversify and
the Gulf “has the potential to be much more than a fleeting lessen the reliance of their economies on oil.
fascination for emerging market bankers”. The process has been accompanied by more social and
The report’s authors believe the huge investment in economic freedoms than in neighbouring countries, helping

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CAPITAL MARKETS

to establish them as rewarding business venues for the region over the next few years and billions of it will trickle
foreign investor. By contrast, Saudi Arabia has proved to be down to outside investors, offering enormous business
possibly the most restrictive Gulf nation but is now slowly opportunities for Western companies.
becoming more accommodating to foreign business. Riyadh Add to this around 400,000 high net worth individuals in
is the most populous city with four million inhabitants and is the region who, according to a Capgemini and Merrill Lynch
regarded as the ideal centre for private banking and the report, have a combined wealth of $1,700 trillion and offer
biggest concentration of wealthy citizens. an attractive market for institutions specialising in private
The size of the region’s available wealth is undoubtedly its wealth and asset management.
biggest attraction. The steady increase up to last July’s peak As these vast coffers of wealth are “closely entwined with the
in the price of oil brought “incredible revenues” to the Gulf personal wealth of individual people and families”, there are
states, with each dollar rise in the price of crude bringing also ample opportunities for corporate and project financing.
further billions to producing countries. The report notes that this wealth lies in the hands of the
According to Penrose, of an estimated $3 trillion held by ruling elite and powerful indigenous merchant families.
the Sovereign Wealth Funds, $2 trillion is located in the Gulf However, as the younger generations gain control, they are
and the figure is set to reach $8 trillion-$10 trillion over the seeking to diversify their portfolios and this offers
next decade. SWFs such as the Abu Dhabi Investment opportunities for those able to advise or manage the move
Authority increasingly seek advice on how to invest and fund towards new ventures, divestitures and initial public offerings.
new ventures both at home and abroad.
Around $1.5 trillion is slated for investment across the Gulf SOPHISTICATED YOUNGER GENERATION Those
expressing scepticism over whether the Gulf can establish
itself in the long term as a credible financial centre
underestimate the sophistication of a new generation of Arab
THOSE EXPRESSING SCEPTICISM political and business leaders, suggests the report.
Many are Western-educated and are determined “to forge
OVER WHETHER THE GULF CAN a new economic future by taking the best of the West and
ESTABLISH ITSELF IN THE LONG adapting it to their own countries and business sectors”. They
are fully aware of the need to overcome obstacles such as a
TERM AS A CREDIBLE FINANCIAL lack of transparency in business dealings, high inflation levels
CENTRE UNDERESTIMATE THE and the need for the rule of law in certain areas.
This desire to modernise opens up business opportunities to
SOPHISTICATION OF A NEW firms offering financial, legal and communications advisory
GENERATION OF ARAB services, while Western banks have the chance to advise on
and manage new investment and business strategies
POLITICAL AND BUSINESS undertaken by the region’s traditional businesses that want to
LEADERS restructure so they can better compete in global markets.

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CAPITAL MARKETS

There is evidence in the growing number of initial public


offerings, with the total in 2007 up 50% from 2006.
ISLAMIC FINANCE IS ONE OF THE
Barriers caused by uncertainty and perceived corruption are GREAT BOOM INDUSTRIES OF
easing regulation steadily towards world-class standards,
helped by professional advisers. However, one potential
THE REGION. BUT IT IS A CLUB
drawback noted by Penrose is that Gulf countries remain RUN BY THE ARABS ACCORDING
kingdoms, and lack the same checks and balances as
democracies, meaning that any contract signed between
TO THEIR OWN RULES AND
businesses could be overturned without any legal WESTERNERS WILL STRUGGLE TO
consequences.
Press freedoms are also more limited than in the West,
BREAK INTO IT – DESPITE THE
although there is growing acceptance that the media needs EFFORTS OF SOME BANKS
to be involved in the region’s financial development, while
SWFs and family-owned businesses recognise the need to
engage with the West and improve ways of communicating
their future investment strategies. The Abu Dhabi a bubble waiting to burst if greater control is not put in
Investment Authority recently went as far as head-hunting a place,” the report’s authors comment.
leading PR manager. Possibly less recognised is the impact of inflation,
Demand for and trade in equities and Sukuk Islamic bonds combined with poor working conditions and long hours, on
is growing, while a relaxation on foreign ownership rules will the region’s vast lower-paid migrant workforce. There is
help the Gulf establish itself as a financial hub. However, to simmering unrest that could ignite something more serious.
ensure long-term success, it needs much greater critical The Gulf Co-operation Council (GCC) needs to address
mass. This would mean increasing its capital liquidity by these problems by controlling mass speculation in the
introducing sophisticated financial instruments such as property sector and accelerating progress towards a single
derivatives to facilitate the flow of funds. Large institutional GCC currency pegged to a basket of currencies.
investors such as hedge funds must also have a presence if
its equity and debt markets are to develop to the same level FOREIGN INVESTMENT OPPORTUNITIES The region’s lack
as those in the West and Asia. of transparency limits the opportunities for foreigners to
The absence of the two cornerstones of global capital invest directly in the Gulf. While the property and corporate
markets, derivatives and debt, plus the issue of Sharia sectors have begun to open up, there remains a host of
compliance, are largely responsible for the lack of capital ownership restrictions and doing business is made harder by
market sophistication. the need to appoint local agents as mandatory partners and
The region will need to develop these financial instruments secure suitable financial licences.
and their markets in order to compete effectively, the report Around 90% of businesses in the region are entirely or
suggests. A tentative start has been made, with Western partly owned by the ruling “merchant” families, with much
bankers calling for regulators to help develop the industry cross ownership of assets between families and rulers and no
and the offshore Dubai International Financial Centre (DIFC) clear distinctions between banks and SWFs creating conflicts
recently launching some regional derivative products. of interest.
Hedge funds are also curtailed by stringent rules against But making the effort to overcome these obstacles is
shorting stocks, although Saudi Arabia’s Ajeej Capital and worthwhile. As Penrose notes, the Gulf region’s enormous
Dubai’s Evolvence Capital have begun cultivating the pools of liquidity are only partly tapped by conventional
beginnings of a local hedge fund industry with Western financial structures. Sharia-compliant banking services and
partners. products will open up large new sources of revenue. Assets
Of course, opportunities for Western banks and exchange invested according to Islamic guidelines have grown at
operators to facilitate change by introducing new products around 20% annually worldwide and should reach the $2
and tools have become even more attractive due to the trillion level by 2010, says Ernst & Young.
economic crisis in the world’s other capital markets. But as one analyst notes: “Islamic finance is one of the
As a result, more bankers and traders are abandoning US great boom industries of the region. But it is a club run by
and European markets in favour of the Middle East, although the Arabs according to their own rules and Westerners will
as Penrose points out, Islamic finance’s lack of struggle to break into it – despite the efforts of some banks.”
standardisation will slow the introduction of financial And while the number of Islamic finance institutions is
instruments and the growth of investment funds. rising – with plans for the DIFC to establish a Sharia Centre,
Other obstacles highlighted by the report are high levels of an Islamic hedge funds platform, an Islamic finance portal, a
inflation – the emirates are likely to hit a rate of 13%-15% commodity murabah exchange and the creation of a judicial
this year – and the local currencies’ pegging with the dollar, academy and research centre – the report questions whether
which makes it difficult for foreign businesses and individuals demand will be sufficient to support all the potential new
to repatriate capital. High inflation raises the prospect of a entrants.
crash in the property market, which would damage the area’s
investment reputation as property has proved one of the key Graham Buck is a Reporter on the Treasurer
high-returning assets for both local and overseas investors. editor@treasurers.org
“The hype of the Dubai property market could very well be www.treasurers.org

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BUSINESS OPERATIONS

Leadership in the
information age
ALL INSTITUTIONS WANT TO BE MARKET LEADERS. INTERNET-BASED SOURCES SUCH AS
WIKIPEDIA HAVE EXPOSED A WHOLE NEW SET OF CONCEPTS TO FURTHER THAT AMBITION,
AS HARSHIT H JAIN FOUND OUT.

In their interesting book “Market leadership strategies for


service companies”, Craig Terrill and Arthur Middlebrooks
provide a good strategic framework that has formed the
basis for this article. “Wikinomics – How mass collaboration
changes everything” by Don Tapscott and Anthony D
Williams is also an eye opener on some of the concepts that
have suddenly become available to organisations in the wake
of the popularity of Wikipedia. It is interesting to look at the
application of these concepts to achieving and sustaining
market leadership in the financial services industry.

APPLICATION OF THE CONCEPTS IN FINANCIAL


SERVICES The strategic framework which I found beneficial
has seven building blocks:

■ Service business definition Most banks are sorely

tempted to be “all things to all people” so as to be a market


leader. But today’s marketplace is looking for niche segment
leaders who can delight – not just satisfy – customers in their
service-product market space.
Executive summary ■ Target market innovation Market segmentation is key –

particularly when it comes to banks –because being


In today’s financial environment, beating the competition is
innovative in “precision targeting” of customers can make all
tougher than ever. Good service is the key to customer loyalty,
but a strategy to build that is necessary. Online information the difference. In my own experience, customers in the area
sources helped the author build a seven point strategic of “liabilities management” (ie those who don’t require credit
framework to achieve market leadership for his bank. facilities) is an under-served market segment, often
overlooked by most corporate banks, but which can provide
good annual revenue streams.
■ Brand positioning innovation Today’s customers are

F
inancial institutions, though an integral and essential extremely brand conscious, have the problem of being
component of the service industry, have not been exposed to over-communication via myriad media channels
known to be particularly service-oriented. In a sense, and display low or no loyalty. A consistent, clear and easy
they have a lot to learn about customer service from message outlining the bank’s mission, vision, values and
airlines and hotels. Add to that the intensity of competition brand promise helps create and sustain the right imagery
and the emergence of the intelligent and savvy “butterfly” about the bank in the minds of the customers, potential
customer and it becomes clear that banks which want to customers and, very importantly, the employees within.
flourish and be market leaders need to adopt a holistic “Oppositioning” in an attempt to provide a different position
strategy. This article describes how the author has attempted in the minds of the target market is a concept worth
over the last couple of years to apply these concepts to exploring. One should not underestimate the power of the
practice in his business area at his bank. brand, particularly in these trying times.

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BUSINESS OPERATIONS

■ Service offering innovation Most banks claim to be

customer-centric, providing products and services to meet


BANKS WHICH WANT TO
their requirements. However their emphasis, brand FLOURISH AND BE MARKET
promotion, staff rewards and recognition parameters,
organisation charts, and the like, give their game away. Banks
LEADERS NEED TO ADOPT A
need to consciously court customer problems and HOLISTIC STRATEGY
complaints (rather than have an impersonal voice
mail/automated system taking note of the same) and then
get into rapid prototyping or structuring of product solutions while trying simultaneously to delight customers through use
to mitigate those problems. “Think of us whenever you have of technology. I believe banking is taking a 180 degree turn,
a problem” is not a bad dictum to follow on this front. This is with “the personal touch” now coming back to provide a
also the area where a Wikipedia mindset really helps – how strong competitive edge that banks are using to become
about engaging those “difficult customers” (often termed market leaders and regain customer loyalty. “Innovention”
internally as “painful”) as collaborators in the design of (ie proactive intervention) – a term that the authors use –
bank’s products, services and processes. You suddenly can unleash the creativity and empathy of the bank’s staff to
unleash the power of today’s savvy customer to your bank’s create unique service experiences for each customer. That
internal product development team, which may be indeed would be an entry barrier for other banks.
overstretched and/or under resourced and/or may like ■ Sustaining market leadership If becoming a market

“operating out of an ivory tower” because that’s what has leader is difficult, staying there is even more of a challenge.
made them successful historically. This is where senior management of the bank needs to get
■ Process experience innovation Getting the voice of the into thinking longer-term – much beyond their own interests
customer into the bank, though seen as important, has only to that of all shareholders and customers. Like the “flight of
slowly started to break into the fortresses that most banks the geese”, they need to ensure they can take a back seat
have been (as viewed by most customers). To be a market and let some of their able lieutenants take charge while they
leader, you need to have the customers decide the “value go back into the market and spend time with customers,
addition” in the bank’s processes rather than its archaic and front-line staff, service providers and all those with whom
inward-focused policies and manuals driving the same. they lost touch as they entered into the “corner office” – and
Constant job rotation within the bank (relationship managers then return rejuvenated with fresh marketing, branding,
moving to credit and vice versa; operations moving to services, process and people ideas. That’s the only way they
customer-facing service roles and vice versa) are easy but can build a market leader that will stand the test of time.
much-needed measures that senior management must
encourage to have everyone in the organisation remain Harshit H Jain is head of liabilities
focused on customers at all times, and become more management, corporate banking,
empathetic to their cause and perspective. Emirates NBD
■ People innovation Financial services is a people business jainh@nbd.com
and yet banks undertake a whole lot of cost-saving measures www.nbd

PRACTICAL ADVICE RECOMMENDED READINGS


Banks are in the service industry – let us learn not just from ■ “Market leadership strategies for service companies” by

the best banks but also from the best airlines and the best Craig Terrill and Arthur Middlebrooks, NTC/Contemporary
hotels. Publishing Group, Inc., 2000.
We need to avoid the “be all things to all people”
■ “Wikinomics – How mass collaboration changes
approach and remain focused on our core strengths and
everything” by Dan Tapscott and Anthony D Williams,
competencies.
Portfolio, 2006.
Being number one, with the “share of wallet” and “share
of heart” of ideal target customers, will make the bank a ■ “Firms of endearment – How world-class companies

market leader. profit from passion and purpose” by Raj Sisodia, David B
Listening to the customers on an ongoing basis and Wolfe and Jagdish N Sheth, Wharton School Publishing,
actively seeking out the difficult, demanding customers as 2007.
active collaborators will create a sustainable competitive
■ “The future of competition – Co-creating unique value
edge – by coming to the market with products, services,
with customers” by C K Prahalad and Venkat Ramaswamy,
and processes that customers will really accept, and being
Harvard Business School Press, 2004.
served by employees who own these fully and with all their
hearts. ■ “Killer customers – Tell the good from the bad – and

“Letting go” is an important part of senior management crush your competitors” by Larry Selden and Geoffrey
when it comes to redefining the franchise for the future. Colvin, Portfolio, 2003.

JANUARY 2009 MIDDLE EAST SUPPLEMENT 17


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GLOBAL INVESTMENT

Where capital flows


HOW PREPARED ARE MIDDLE EAST COMPANIES FOR MAKING THEIR PRESENCE FELT IN THE WIDER
GLOBAL ECONOMY. PETER WILLIAMS REVIEWS ONE SURVEY WHICH SUGGESTS SOUND PROGRESS.

Executive summary
Traditionally the Middle East has been seen as a magnet for
inward investment. Foreign corporations have invested
substantial capital and human resources over decades in a
bid to develop the potential of the region’s energy wealth.
While capital continues to flow into the region it is no longer
a one way street. Investment and capital is now moving out
the region as Middle Eastern companies are leveraging the
resources of the region to establish themselves as key
players in the emergence of an increasingly globalised
economy.

Countries included in the study were Saudi Arabia and Kuwait


(over half the interviews took place in those two countries) as
well as UAE, Oman, Qatar, Bahrain and Egypt. The results
showed that companies were focusing on investments in
countries within the region in the immediate future. However
over the next five years it is clear that Middle Eastern
companies will be taking steps to expand into foreign
markets.

CHANGING ORDER In the next year the countries set to


receive the most investment were UAE, India, Qatar, China,
Bahrain and Saudi Arabia. In five years time the order is
expected to be India, UAE, China, US and Saudi Arabia. In
terms of change in percentage of corporates planning a
significant investment between 2008/09 and 2013/14, the
KPMG survey suggests that India makes the most significant

A
series of surveys conducted during 2008 by KPMG gain followed by the US, Yemen, Brazil and Thailand. Middle
International investigated the future direction of Eastern investors are showing relatively low interest in
capital flows both globally and in specific regions Europe with the exception of the UK whose share of
around the world. The results from the survey investment remained steady at 8%. See box on
covering 15 countries around the world suggested that infrastructure investment.
investment was moving away from the US and into Europe, In the longer term KPMG paints a picture of companies
India and China. The survey results suggest the emergence of showing increasing interest in investment outside the region,
“a three-bloc world” comprising the Americas, Europe and especially in India and the US. The report says: “If Middle East
Asia Pacific. KPMG also produced a report focused on the investors are indeed widening the range of companies they
investment intentions among a group of large companies are willing to invest in, then this may increase the level of
based in the Middle East and North Africa. In a bid to discover competition that companies within the region could
where companies expect to go in the next phase of their encounter if they are looking to investment from a
expansion, 50 senior corporate investment strategists in neighbouring country. But this doesn’t mean that regional
seven countries in the region were asked which countries support disappears.”
(other than their own) they plan to invest in during 2008/09 Indeed Gulf Co-operation Council (GCC) states are
and where they are looking to invest in five years time. expected to continue to pour significant shares of Middle

18 MIDDLE EAST SUPPLEMENT JANUARY 2009


middle east supplement
GLOBAL INVESTMENT

East investment into neighbouring economies. In the near ahead five years those two are still expected to dominate
future the survey found that the most influential country with Qatar still seen as significant. However the near-term
aggregated across all sectors is Saudi Arabia, driven mainly position of the US and the UK is expected to wane in favour
by its very strong showing as the most influential country in of the emerging economies of China and India.
services. Second in terms of influence is the UAE, again It is clear from the KPMG survey that the primary focus for
largely through its presence in service industries. Looking GCC business over this period is likely to remain within their

Infrastructure capital demand


PUSH TO DIVERSIFY ECONOMIES IN THE MIDDLE EAST CREATES
HUGE NEED FOR INFRASTRUCTURE CAPITAL

In order to meet capital demands driven by strong “In the long term, we expect the current trend towards
population and economic growth, more than $100bn of continued greater private sector participation in
public-private partnership (PPP) investments in the Middle infrastructure in the Middle East to continue. Investors
East and North Africa region will be required over the next looking to compete for the lucrative contracts are going to
five years to supplement government funding, says a report have to cultivate relationships through consultants or other
by Ernst & Young. intermediaries already well versed in Middle Eastern
According to Bridging the Gap: Private Investment in Middle business practices,” said Mike Lucki, global leader of
East Infrastructure, current and active civil engineering infrastructure, Ernst & Young.
projects in the six nations of the GCC have a total value of In the Middle East governments traditionally have
$1.3 trillion. But with construction costs rising and dramatic contracted with regional or international companies to
economic growth, design and build
infrastructure needs are rapidly infrastructure such as
outstripping the region’s public EVEN WITH THE LARGE airports, ports or roads and
resources despite record government agencies have
exports of oil in recent years. AMOUNT OF REVENUE usually operated the
For example, despite the GENERATED FROM OIL infrastructure. While that is
Middle East boasting two- still true today, governments
thirds of the world’s EXPORTS IN THE REGION, are increasingly forming PPPs
desalination plants, the World GOVERNMENTS ARE HAVING with the private sector to
Bank has predicted that the build and operate projects.
amount of water available per TO FIND ALTERNATE MEANS Such partnerships provide
person in the region will halve OF FUNDING THE EXPANSIVE private investors and
by 2050 as a result of contractors with new
population and economic INFRASTRUCTURE business opportunities in the
growth and climate change. DEVELOPMENT PLANS Middle East, and enable
This suggests that a significant governments to share the
capital investment will soon be REQUIRED TO MEET RAPIDLY risks of project development,
needed to meet demand and GROWING DEMAND draw on the knowledge and
private sources will be experience of the private
increasingly looked to for a sector and leverage public
portion of this investment. investment in infrastructure
“Even with the large amount of revenue generated from with private capital. “No doubt the global credit crisis
oil exports in the region, governments are having to find will have some effect on regional project finance pricing,
alternate means of funding the expansive infrastructure terms and time to close, but it is too early to determine
development plans required to meet rapidly growing the magnitude. There are billions of dollars of
demand,” said Abraham Akkawi, Middle East Leader of announced infrastructure projects in the pipeline which
Infrastructure, Ernst & Young. have been planned on the assumption of varying levels
Despite oil revenues increasing to an estimated $381bn of private sector participation. These projects are critical
in 2007, countries in the region have decreased their public to the economic growth of the countries in the region,
spending by 5% since 2002, according to the Institute of especially GCC countries,” said Phil Gandier, Middle East
International Finance. Leader, Transaction Advisory Services, Ernst & Young.

JANUARY 2009 MIDDLE EAST SUPPLEMENT 19


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GLOBAL INVESTMENT

region. However at the same time, the mixture of foreign


partners taking an interest in the region looks set to change
MIDDLE EAST CORPORATE
in a way that reflects the wider changes that are likely to INVESTORS ARE AHEAD OF THEIR
take place in the global economy.
The KPMG survey looked at the factors that were
GLOBAL COUNTERPARTS. THE
important for companies that were looking to invest. The CHALLENGE REMAINS FOR GCC
survey found some key differences between what is
important for GC companies and those in the rest of the
INVESTORS TO ESTABLISH A
world. Respondents were asked to rate 12 country attributes LASTING MIDDLE EASTERN
by the influence they have on decisions to invest in a
particular country. Globally the more important attribute
PRESENCE IN THE WIDER
was access to new customers, followed by political stability. GLOBAL ECONOMY. AND IT
In contrast for GCC companies political stability was
paramount, especially for manufacturers which presumably
SEEMS THEY ARE WELL-PLACED
are concerned over the effects of instability on their factories TO MEET THE CHALLENGE.
or supply chains. GCC showed more agreement with other
respondents for factors such as impartial rule of law and
good infrastructure. However priorities diverged again over
the relative importance of high quality labour forces and the
tax regime. outside their region and doing so in a cautious and careful
KPMG suggests that the relaxed view of the impact of tax fashion. The report states: “They are not new to the idea of
on foreign investment may be due to some GCC overseas investments: over half (54%) have already put
unfamiliarity with more complex tax regimes found in other money into the countries they plan to invest in over the
parts of the world. next five years and 70% plan to use the profits from these
investments to build their presence in their chosen
EMERGING PICTURE According to KPMG, the picture that countries.” But investors from other countries are further
emerges from this study is of a group of companies part down the track of building a presence cross-border and are,
way through a process of establishing their presence according to KPMG, more comfortable taking the risks
associated with bringing in new money rather than relying
on generated profits.
One notable difference between GCC and other investors is
that GCC investors are less concerned than their global
counterparts about the influence of private equity in their
sectors. The report suggests that 60% of GCC investors are
most likely to find themselves bidding against private equity
investors or portfolio/strategic investors when making
overseas acquisitions. That compares with 36% in the global
study. Moreover 61% of GCC investors welcome private
equity investors in their sector as a good source of capital and
long-term supportive shareholders (58% globally). The
contrast in attitudes to sovereign wealth funds is even more
marked.
Nearly a quarter (24%) of global investors said they would
not welcome an investment from a sovereign wealth funds,
only 4% of GCC investors agreed. The survey suggests Middle
East corporate investors are ahead of their global
counterparts thanks to their familiarity with sovereign wealth
funds which look certain to become more important in the
years ahead. The challenge remains for GCC investors to
establish a lasting Middle Eastern presence in the wider global
economy. And it seems they are well-placed to meet the
challenge.
See www.kpmg.com/Global/IssuesAndInsights/
ArticlesAndPublications/Pages/Middle-East-capital-flows-
survey-2008.aspx

Peter Williams is editor of The Treasurer


editor@treasurers.org
www.treasurers.org

20 MIDDLE EAST SUPPLEMENT JANUARY 2009