middle east supp jan 09

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SUPPLEMENTA supplement to The Treasurer | JANUARY 2009

A new dawn beckonsSweeping change promised in liquidity management

Gulf streams of wealthA global capital facilitator

Leadership in the information ageA strategic framework for market success

Root and branchSmooth cash service for luxury hotel

MIDDLE

EAST


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JANUARY 2009 MIDDLE EAST SUPPLEMENT 1

The ACT has survived and prospered over the years since its inceptionby providing an education bedrock for the development of the

treasury profession. This has not been limited to professional

teaching and examinations critical though they are to establishing

standards but has included practical, focused training, policy and technical

services as well as a broad-ranging events and conference programme. The

intention has always been to enable new entrants, students and experienced

members to come together and share knowledge in a variety of ways designed

not only to benefit their individual understanding but to enhance overall

standards in treasury, risk and corporate financial management. The ACTME

committee will draw on these principles to support the development and

enhance the sharing of treasury knowledge and practice in the Middle East.

The Treasurer reflects the ACT in that its mission is to bring the core

elements of treasury, risk and corporate financial management to its

readership. In addition it offers wide-ranging content in respect of career

progression, technical developments and a broad overview of business and

commercial topics. Supplements to the magazine have included articles on

pension matters and corporate finance, as well as the regular series on Cash

Management. The launch of the Middle East Supplement aims to bring a

published focus to treasury management issues for the region which will prove

of benefit to all our readers. It is our hope that the Middle East Supplement will

educate and inform its readership and facilitate the growth of the treasury

profession in this fast-moving and business-oriented region.

PETER MATZA MATTHEW HURN

Head of Publishing Chairman ACT Middle East committee

ACT Group Treasurer, Mubadala

Development Company

A treasury focus for the region

ContentsP2 A NEW DAWN BECKONSSweeping change promised in liquidity management for bold banks.

P6 ANOTHER TIME, ANOTHER PLACEWhy the Middle East is a truly international environment.

P10 ROOT AND BRANCH APPROACHCash flow at Atlantis The Palm Waterpark on Dubais exclusive Palm Jumeirah.

P12 GULF STREAMS OF WEALTHHow the Middle East is becoming a global capital facilitator

P16 LEADERSHIP IN THE INFORMATION AGEHow to use the digital age for competitive advantage

P18 WHERE CAPITAL FLOWSHow Middle East companies are moving in the wider global economy

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ISSN:0264-0937


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2 MIDDLE EAST SUPPLEMENT JANUARY 2009

middle east supplement

LIQUIDITY

L

iquidity management is vital to the financial wellbeing of an organisation. It is also one of the mostdemanding disciplines, not just in terms of managingand optimising cash pools in multiple currencies and

locations, but also predicting available liquidity accuratelyand matching those predictions against possiblecontingencies over multiple timeframes.

Advances in the techniques used for liquidity managementin recent years have been relatively gradual. Now we appearto be on the brink of something on an altogether larger scale;liquidity management is on the cusp of a completely newgeneration of technology, methods and ultimately performance.

STATUS QUO OBJECTIVES While the feasibility andeffectiveness of liquidity management have significantly

improved over time, its general objectives have remainedbroadly unchanged. The primary objective for many

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 costof cash shortfalls that could be covered instead by surplusfunds at other group companies. Second, the opportunity costof idle balances that deliver sub-optimal returns.

An associated objective is the desire to reduce the accessrisk of relying on markets or third parties for liquidity; eventssince the third quarter of 2007 have been a fairly obviousexample of the importance of market/counterparty liquidityrisk in its purest form, both from a sourcing (financing) anddeployment (investment) standpoint. A further risk to beeradicated relates to the visibility and safekeeping of assets.In an increasingly regulated world the costs and penaltiesassociated with compliance failure are far too severe to beneglected.

Finally, there is the desire to reduce the managementoverhead relating to the underlying end-to-end process. Inan entity as leanly staffed as the modern corporate treasury,manual tasks are clearly undesirable, as is the need to becontinually (re)evaluating the same execution options andtheir pricing. In an ideal world, the degree of humanintervention required for cash pool administration should beminimal, with parameterised system logic and resilientautomated processes taking the strain instead.

SERIES OF OBSTACLES Unfortunately, the treasuryprofessional attempting to achieve these objectives is

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.

A new dawnbeckons the bold


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confronted by a series of obstacles of ascending complexity.One of the first is the intricacy of the legal ownershipstructures involved in the liquidity management solutionconfiguration. Another is the unpredictability and volatility ofcash positions. Business seasonality, geographic distribution,industry type, disbursement and collection practices allinfluence the accuracy of cashflow forecasting. Liquiditystructures serve as a safety net for such uncertainty. Theorganisations management model for example centralisedor decentralised combined with the degree of autonomy oflocal business units can also prove a substantial hurdle. Inthe Middle East, organisations tend towards centralisedmodels, however, the full value of their individual businessunits working capital positions is not maximised at all times.Also, where decentralised models exist, overcoming these

hurdles might require considerable management effort.Sooner or later, any discussion of liquidity managementturns to the core issue of market regulation, which comes inthe form of various restrictions on capital movements andcurrency conversion.

These apply across both developing and emerging marketsand reduce the efficacy of liquidity management structures.They include specific conditions applied to interestcompensation available on local and/or foreign currencyholdings, prohibitions or clearance requirements on theconversion of holdings between these currencies andlimitations on the activities permissible by non-residententities or on inter-company lending. A further burden comesin the form of administrative and reporting requirements

relating to these restrictions.The Middle East is no exception to this, although many

markets have simplified tax systems to a degree,corporations recognise that regulations and tax are dynamicfactors that any liquidity management strategy must adaptto accommodate. Compared to other obstacles, regulationand taxation are particularly problematic: while carefulplanning can overcome problems relating to organisationalstructure and volatility of flows, regulation and tax obviouslycannot be directly determined by corporations. In mostcases, tax planning and business transformationconsiderations such as in the adoption of a re-invoicingcentre or a commissionaire model are a key influence (ifnot a determinant) on the design of the liquidity solution.This incurs a substantial initial investment in the analysis,due diligence and project/change management required, aswell as a periodic maintenance cost necessary to keepabreast of regulatory, fiscal or corporate organisationalchanges.

CONTINUOUS PROCESS CHAIN These various obstacleshave meant that many corporations find themselves operatingwith suboptimal liquidity management practices andstructures. One further and highly critical factor in the success(or otherwise) of the results achieved has been the inability ofmany cash management providers to offer a fully integrated,pan-regional cash and liquidity management service.

Traditionally, very few top tier international cashmanagement institutions have been able to support the full

spectrum of payment and collection instruments (from

paper to electronic, from notes and coins to cards) acrossany region, including the Middle East. Furthermore, evenfewer have been able to complement this with thecomprehensive portfolio of liquidity management toolsrequired to structure the optimal solution.

The need for corporates to have a cash managementprovider capable of covering all these bases cannot beoveremphasised. The maintenance of a continuous clearingto concentration process chain is essential to the success ofa liquidity management structure. Once this process chain isfragmented by the participation of independent third-partyproviders or out-of-network intermediaries, inefficienciescreep in and value is lost. Different file formats, early cut offtimes, inconsistent processing platforms and non-standard

working practices are just a few of the elements that canquickly cause this deterioration. To overcome the obstaclesoutlined above, a best-in-class liquidity managementstructure has to be a sophisticated but operationally simplepiece of engineering. The addition of an external componentor agent may not break it entirely, but will undoubtedlyreduce its effectiveness.

JOINING THE DOTS Deregulation can only happen at apace that is synchronised with the financial and economicdevelopment of the country concerned; essentially anoutcome with a long and uncertain timeline. Moreimmediately relevant is the paucity of international cash-management banks that have the reach and depth ofservices to offer a truly integrated cash and liquiditymanagement proposition on a regional, if not global, basis.

Any bank aspiring to claim such end-to-end facility has tobe able to meet a formidable list of criteria.

One of the most fundamental of these is direct clearingmembership across all countries, clearing channels/zones andinstruments involved. As soon as any critical element of theclearing process has to be outsourced, the risk of errorsand/or frictional inefficiencies arises, unless the agent candeliver additional value over and above the direct processownership.

The corollary to this is the need for an extensive regionalnetwork capable of catering for full local banking services,

with the consistency and quality of delivery that is expectedfrom an international institution. Apart from the efficiencies



LIQUIDITY

NOW WE APPEAR TO BE ON THE

BRINK OF SOMETHING ON ANALTOGETHER LARGER SCALE;

LIQUIDITY MANAGEMENT IS ON

THE CUSP OF A COMPLETELY

NEW GENERATION OF

TECHNOLOGY, METHODS AND

ULTIMATELY PERFORMANCE.


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this offers in terms of transaction processing control throughdirect clearing participation, it goes very much hand in handwith the development of local expertise. This is critical to theprocess as a whole in various ways; in addition to delivering adeep understanding of local business practice and clearingmechanisms, it also improves the quality of regulatoryintelligence. This can prove invaluable in terms of providingearly notice of any possible changes (and perhaps eveninfluencing those changes) that could affect the liquiditystructure, allowing any adjustments to be made in a timely

manner.However, such local capability is easily dissipated if it is not

supported by a robust regional and global liquiditymanagement platform and infrastructure. These are essential iflocal capabilities are to be leveraged to the maximum macroadvantage for the client. Put simply, efficient consolidation ofcash at a local level is quickly devalued if upstream systemsintroduce inefficiencies and delays in mobilising the liquidityacross entities and locations. This has obvious implications forinformation management too; a bank may offer the mostsophisticated reporting tools with a superlative graphicalinterface, but if platforms are incapable of extracting the valuetrapped in slow moving or suboptimally employed pools ofliquidity, these tools are powerless.

To the treasury manager trying to forecast and plan inmultiple timeframes, it is not just the existence of cash thatis important; it is also the certain knowledge of availablecash and of how it will flow through a liquidity structure.What is obviously critical to the overall efficiency of thestructure is the consistent quality of delivery, but also ofmethodology: simply put, this translates to processstandardisation and automation. Corporations areincreasingly mindful of their own direct costs when assessingliquidity solutions, particularly in relation to the cost ofmanaging exceptions and errors, and more generally inrelation to inconsistent methods and procedures. At the verytop of a liquidity chain lie management tools and investment

and funding instruments.Historically, some banks have regarded these as almost anafterthought, or something to be dealt with by the client; an

attitude very much at odds with client objectives. As treasurydepartments have evolved into more business-focused andcost-conscious organisations, their desire to minimisemanual intervention has increased. Management tools thatdeliver maximum information plus the integrated facility toact on that information are now a common requirement. Atthe same time, treasurers want their staff to undertake morevalue-added tasks, rather than administering working capitalfunding or investment policy. Once they have established thepolicy guidelines and the acceptable instruments and key

performance indicators, they would ideally likeparameterised business logic to take care of the policyexecution and enforcement.

NEW APPROACH NEEDED Needless to say, delivering all ofthe above requires a substantial investment in both productfunctionality and application integration. The number ofbanks prepared or with the capacity to make such aninvestment is limited. Nevertheless, only those banks that doso will be able to lay the essential foundations fortransforming their liquidity service offerings and taking themto the next level.

However, corporations wishing to benefit from thistransformation will require a different approach to the bankselection process. In the past, liquidity and transaction bankswere typically chosen on an entirely discrete basis. This wasunderstandable, as there was typically minimal overlap inmany regions between banks that could offer the bestregional liquidity management and those that could offer thebest domestic transactional banking. A fairly commonoutcome was that local banks were selected for transactionalbanking because of their stronger on-the-ground capabilities,with an overlay regional bank responsible for the liquidityconsolidation. The result was a fragmented bankingrelationship and a sub-optimal liquidity managementprocess. This is a long way from best practice, given thesubstantial investment made by some banks in

implementing a more holistic transaction/liquidity approach.Such an approach deserves a similarly holistic decision-making process on the part of buyers.


LIQUIDITY


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xxXX

NEW POSSIBILITIES The primary focus of liquidity management todate has been on process automation within the concentrationstructures typical to the particular region and country where they arelocated (eg physical/notional, single/multi-entity, domestic/cross-border). This is now progressing to the next level with market leaders ininternational cash management services investing in dedicated globalliquidity management platforms to enhance their service. Such platformswill offer expanded product functionality and new service features thatwill revolutionise the way clients manage their portfolio of workingcapital balances and access integrated funding and investment options.

In a perfect world, this functionality should be available in anymarket falling within the providers footprint, and such a footprintshould be as extensive as possible. Not all functionality may beimmediately applicable due to local regulation, but regulation is notstatic and tends to evolve in parallel with a countrys economy.Having the technical infrastructure already in place offers immediateservice consistency across all markets, while allowing for rapid future

deployment when regulatory conditions permit.The investment by leading banks in new liquidity-relatedfunctionality also has the potential to break down barriers betweenperception and reality. A case in point is multi-currency pooling,which has traditionally been regarded as too complex for clients tounderstand and too unwieldy for providers to implement andadminister. In a brave new world, where both liquidity andtransactional banking can be closely integrated in one provider, thisis no longer true; multi-currency pooling becomes immediatelyaccessible to a far broader range of potential users.

Another benefit of bank investment in liquidity managementfunctionality is configurability; liquidity structures will no longer beconstrained by their providers domestic limitations. Instead, clientswill have access to optimal multi-regional liquidity structures andcashflow management tools that fit their specific business modeland requirements. From a client perspective, this consistency andflexibility of configuration has a tangible effect on the bottom line.Their liquidity positions in any market (subject to regulatoryconstraints) can for the first time make a positive contribution totheir overall regional or global position.

CONCLUSION At the core of these changes to the world of liquiditymanagement lie two things the control of cash and its optimisedvalue. Maximising the potential of both is the crucial foundation thata select few providers are striving to achieve. Once that is in place,new management tools and extensive integrated workflows will belimited only by imagination. Eventually, end-to-end automation and

standardisation become a given, with enhanced analytics simplifyingdecision-making and business-rule driven processes extracting the fullvalue from working capital on a real time basis. Welcome to the newliquidity horizon.

Mario Tombazzi, senior vice president, Product ManagementThe Hongkong and Shanghai BankingCorporation Limited, Hong [email protected]

www.hsbc.ae


LIQUIDITY


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FINANCIAL SERVICES

The Middle East has for millennia been the gatewayfor traders from the east and west offeringentrepreneurs of the day the perfect locationgeographically to sell and buy their wares.

As savvy as ever, the regions rulers have been strategicallypositioning the emirates over the past five to six years in abid to diversify away from its reliance on oil and gas inwhich incidentally they are still rich to create a financialcentre important enough to rival the worlds best centres.And the jewel in the crown is, for now, Dubai, slowly edgingover Bahrain as the regions most important financial centre.

Most people are familiar with the extent of construction abarometer frequently used by insolvency experts to gauge aregions affluence in the UAE, and particularly Dubai. Theyknow the area is exceptionally wealthy, but what is less wellknown is the development in the financial services arena.

DRIVING FORCE One of the triggers for growth in financial

services has been the development and sophistication ofIslamic finance (IF) products, which allow Muslims to invest

without earning interest in accordance with Sharia law. Allproducts must be signed off by Islamic scholars to ensurecompliance with the Sharia law.

Someone who has experienced that tremendous growth isRaphael Ricaud, head of Islamic finance at Rothschild. Ricaudarrived in Riyadh at the end of 2001, when IF was close tozero.

I have seen the development in the sector, particularly inthis field, grow quickly, says Ricaud, who has also worked inHSBCs Islamic division in Dubai.

Since global banks such as HSBC, a pioneer in developingSharia-compliant products, brought it into the mainstream,many products are just as competitive as other commercial,non-IF products.

What has also helped develop Islamic finance in the regionis endorsement and encouragement by the emirates rulers.In Qatar, for example, the emirate created its own pureIslamic megabank two years ago, explains Ricaud.

In other states IF has developed from the grassroots in theform of small national investment banks that are Sharia-compliant. In the past, the older national banks in SaudiArabia and Kuwait offered some IF products, but nothing tothe extent we now see.

Today, most of the older national banks in the region haveIF divisions or subsidiaries but there are now also myriad pureIslamic finance banks, as well as the IF divisions of the global

investment banks. It is increasingly a mainstream componentof the global banking system, with products having moved

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.

Another time,another place


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beyond lending, insurance and investment funds to includeSukuk, hedge funds, currency swaps, and more.

The value of Islamic project finance deals being closed isprojected to grow to $3bn by 2012, representing up to 30%of all major structured deals finalised in the region, accordingto the Middle Easts business intelligence service, Middle EastEconomic Digest.

International Islamic Financial Market (IIFM), an industryassociation, calculates that corporate Sukuk issuance leaptfrom $0.4bn in 2000 to $24.5bn in 2006.

GROWING COMPLEXITY IN TREASURY Although stilllacking the Wests sophistication, treasury services in theMiddle East are becoming more advanced. As more expertiseis brought into the region and local skills develop, the

treasury function is growing in complexity.The products are simpler and the use of derivatives lower.The volume of the local stock markets are much lessdeveloped, explains Ricaud.

But he adds: What I have seen is the development ofIslamic treasury products that werent there three years ago.Its possible to structure a Sharia-compliant interest rateswap and currency swap now.

Still, treasury services have a long way to go before theymeet levels in the West. If you need global treasury servicesthen you would be working with JP Morgan or HSBC ratherthan local banks, says Michael Killian, executive vicepresident and treasurer at Dubai Aerospace Enterprise.

He adds, however: They are coming up the curve quickly

because they can skip a lot of the middle stuff and jumpstraight to the most sophisticated services.

The main challenge facing IF from the treasury perspectiveis how to develop treasury products in a more sophisticatedmanner, Ricaud says. It is growing slowly, but I believe thetrend will continue.

FAST PACE OF CHANGE The pace of change is whatimpresses many foreigners in the region. Tushar Patel,assistant group treasurer at global port operator DP World,was asked to go to Dubai two years ago to help set up atreasury function following DPs takeover of P&O. It was anopportunity he grasped with both hands and he has notlooked back.

Its very dynamic. DP is one of the most recognisedcompanies there. Its right at the forefront in driving things intreasury.

We did the largest acquisition facility at the time. Thelargest bond issue for 30 years and IPO all at the same time,Patel explains. A lot of Middle Eastern companies look to DPand follow what we do.

Patel cites the companys governance structures and riskmanagement processes as systems that are also adopted bynational companies looking to improve transparency.

What inspires him most about the region is the nationalcompanies energy. Western companies are often moreconservative, while Middle Eastern companies are more

dynamic. P&O was always one of those to wait and see whatother companies would do. DP prefers to be the first, he adds.

Killian, who has been based in Dubai for the past twoyears, agrees. One of the things we find is that the pacewith which people move is very quick. Dubai-time, they callit, when you do things right away, he says.

In terms of international corporates setting up in theMiddle East the region is young in knowledge and application

of governance and risk management processes. But Killiansays companies learn quickly and are coming up the curvevery fast.

In fact, he says, there is much more shareholderinteraction with companies and that is acting as an incentiveto improve transparency and openness. Backed by thegovernment, which holds a stake in many nationalcompanies, transparency levels are improving significantly,say treasurers working in the region.

Often, however, in a fast-paced business environment ittakes a while for things to catch up. Buildings go up daily infact its said that 27% of the worlds cranes are currently inDubai but as Killian has observed, the infrastructure oftenlags behind, whether roads or governance procedures.

The Middle East is managing to attract highly skilledtreasurers to the region with great career opportunities andthat ensures standards are kept high. Importing skills is alsohelping in terms of developing the local skills set.

RELATIONSHIPS ARE IMPORTANT It is very different doingbusiness in the Middle East to elsewhere in the world, saythose working in the region. There is little separationbetween business and pleasure time. This blurring of the linesbetween work and play can confuse many Westerners, moreused to abiding by the rules of a division in activities. Butthey are not all disconcerted by these mores and if you wantto forge a successful career in the region it is advisable to getused to combining work and pleasure.

What I really appreciate in this part of the world is thatbusiness is part of social life. The Arabs are very emotionalpeople and so the concept of trust is more developed here.Its critical to build personal relationships before you can dobusiness, says Ricaud.

It is a close knit community with around 15 players inIslamic banking. While the level of sophistication in bankingrelationships is not quite on a par with the West, bankerstend to stay in the region, if not in the same job, for a longtime, so nurturing relations is vital.

Investors work in the same way as in the West in processlaunching, structuring and distributing bonds. Thedistribution cut is the conventional platform. In that sense

theres not much different between the West and the MiddleEast, says Ricaud.



FINANCIAL SERVICES

THE PACE WITH WHICH PEOPLE

MOVE IS VERY QUICK. DUBAI-TIME, THEY CALL IT, WHEN YOUDO THINGS RIGHT AWAY


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COSMOPOLITAN AND TRADITIONAL CONVENTIONS

There have always been strong links between Britain and theMiddle East but Westerners increasingly gravitate towardsthe region now, not least for its tax-free benefits. You canforge a comfortable and sociable lifestyle in the region aslong as you always remain aware that it is a Muslim countryand there are conventions to adhere to.

The working week runs from Sunday to Thursday as Fridayis an important holy day. And its considered rude or forwardfor men to shake Muslim womens hands when they meet either in business or social situations.

Once they are au fait with the regional mores ex-patriotsfeel at home. Patel says since he moved out two years ago alot of people who went to university or studied treasurymanagement with him have been offered a job opportunitysomewhere in the region.

Dubai is a particular favourite with Westerners as out ofthe seven emirates it appears the most Westernised. Dubaiwas built on a Western model, with many of the countryschief advisers having lived in London or elsewhere in Europe.Its still part of the Arab world with strict customs and thatmust be respected.

Westerners sometimes forget that Dubai is part of theMuslim world. Its normal as its very cosmopolitan here with allthe skyscrapers and shops and you have a large Indian/Bangladeshi community too. If it werent for the call to prayeryou would forget you were in the Middle East, says Ricaud.

With a huge ex-patriot community the region is becoming

more and more international. Killian says: This has been afabulous experience. Its truly international here and a cross-cultural experience is great.

CHANGING TIMES The oil-rich Middle East is cosseted thanksto its wealth and booming economy from the current globalfinancial crisis. However it is not completely isolated from it.

The atmosphere has changed. Its harder to raise debt inthe Middle East now but 2007 was an amazing year.Everyone is waiting until next year to do anything, saysPatel nostalgically.

Although the market is expected to be much tougher in2009 than in 2007, it is unlikely the Middle East will be hit ashard as industrialised nations.

On the upside however, The market capitalisation of eachcompany is little but this has a positive side in the context ofwhat is happening now. Even if prices here are affected bythe crisis the region will withstand the global crisis muchbetter than the West, Patel adds.

While some are less sanguine, we could nevertheless seethe Middle East taking advantage of cheap assets. It is prettymuch the only place on the planet at the moment with anywealth to spend.

The interesting thing about the Middle East is that itssitting on oil wells and has a large wealth of capital and withassets cheap we will see Middle Eastern companies look tosnap up some bargains, predicts Patel.

Even British prime minister Gordon Brown visited theMiddle East in the autumn with his begging bowl. He went toask the Gulf states to increase trade between Britain and theoil rich states, as well as to persuade the Gulf states, whovemade an awful lot of money in the past few months... toredistribute some of that to help other states.

He also suggested the states had a duty to use some oftheir massive oil wealth to help ease the impact of the creditcrunch on the world economy.

By the time the global recession eases it is likely moreWestern companies will be under the banner of the MiddleEast, with its burgeoning financial centre much more powerfulthan it is now. Watch this space.

Michelle Perry is a freelance [email protected]

www.treasurers.org


FINANCIAL SERVICES

THE ARABS ARE VERYEMOTIONAL PEOPLE AND SOTHE CONCEPT OF TRUST ISMORE DEVELOPED HERE. ITSCRITICAL TO BUILD PERSONALRELATIONSHIPS BEFORE YOUCAN DO BUSINESS


10/20



CASH MANAGEMENT

Atlantis, The Palm is a 1,539 room, ocean-themeddestination resort at the centre of the crescent ofthe man-made Palm Jumeirah in Dubai. This US$1.5billion joint venture project was developed with

Dubai-government owned Istithmar. Opened in September2008, the resort occupies a 46ha site, with 17ha of waterpark amusement, marine and entertainment attractions.

With the scale and magnitude of such a project, Atlantiswas faced with the challenge of having to manage sizeable

transaction volumes of payments and collections in themost efficient and cost-effective manner. In parallel with the

projects development, Atlantis engaged ADCB for itstransaction banking services, particularly on collections anddisbursements requirements. Cash handling was a primaryconcern because of Atlantiss sheer size translating intosubstantial daily cash collections from various parties. Dailydenomination exchange was likewise required for loosechange transactions in Atlantiss collection points within theresort, ensuring top quality hotel service to its clientele.Atlantiss main concern was to have all its cash collectionsfor immediate credit to the account in a timely manner andreduce as far as possible the risks of holding physical cash inits counters. On the disbursements side, Atlantis wanted anend-to-end solution to handle multiple payment types cheques, domestic and international fund transfers andpayroll; with single batch authorisation to expeditedisbursements to suppliers, customers and employees.

CASH MANAGEMENT IS AN EXACT SCIENCE This is wherethe benefits of ADCBs experience and approach came in. Thebank prides itself on approaching cash management as anexact science. Client-need assessments are conducted totake account of a companys unique cash history, presentoperations and future plans. Through detailed consultation,ADCBs client-focused specialists compile a holistic picture of

all aspects of a businesss cash requirements, devisingappropriate products and services. The on-the-ground

CASHFLOWS AT ATLANTIS, THE PALM WATERPARK ON DUBAIS 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 Banks cash management team talks

about how they were able to service Atlantiss transaction

banking requirements with creative yet practical solutions,

and how Atlantis is reaping the benefits from its smooth

and efficient functioning.

Root and branchapproach


11/20

implementation team ensures successful product deliverywith full after-sales support.

On account management, ADCB provides simplifiedadministration, efficient monitoring and control of cashflows,reduction in back-office workload and enhanced accountstructures for streamlined reconciliation. Liquiditymanagement focuses on increasing funds availability andproviding ease and flexibility in managing outstanding depositbalances with ADCB. This includes installing effective cashflowmanagement, maximising returns in surplus or idle cash, andreducing borrowings, cost of borrowing and overdraft charges.

Payments solutions focus on daily transaction bankingrequirements, offering streamlining of processes, cost-reduction, risk-minimisation, comprehensive services fordomestic and cross-border payments, and structures for

prompt and accurate payments.Collections services enhance control to provide best use ofvaluable company resources and offer cost-effective fundscollection, reduced clearing cycle, improved settlement ofoutstanding receivables and greater credit control.

For channel management the bank provides informationdelivery and transaction initiation through multiple channels:fax, email and internet that achieve a seamless and flexibleinterface between client and bank.

Atlantis was faced with the challenge of having to managesizeable transaction volumes of payments and collections in the most efficient and cost-effective manner.

A COMPLETE PACKAGE Using these skills, ADCB presented a

full range of cash management solutions to cover all ofAtlantiss present and future requirements. An accountstructure was established to identify all cash and chequereceipts from payment transactions. Atlantis was given onlineaccess to its accounts anytime, real-time through ADCBs state-of-the-art ADCB@ctive corporate internet banking system.

The banks end-to-end collections services Cash@Requestand Courier@Velocity handle Atlantiss entire collectionsrequirements. Cash receipts are collected daily at pre-arranged pick-up times from Atlantiss various collectionpoints within the complex. Customer instructions and otherconfidential documents are handled to and from Atlantisusing ADCBs courier services on a regular basis. ADCBprovides all reportorial requirements to Atlantis for allcollections processed during the period.

On the disbursements side, Atlantis is making use of ADCBs

customised cheques service for high volume payments tosuppliers. Salary transfers in favour of Atlantis employees are

transmitted through a secure electronic channel forsubsequent crediting to payroll accounts in ADCB and otherbanks across the UAE. Through ADCBs Retail Banking Group,the bank supplied automated teller machines (ATMs) withinthe Atlantis complex for use by guests and employees.

Implementation of ADCBs bulk payments solution isunder way, to convert most of Atlantiss cheque payments toelectronic fund transfers both domestic and international,allowing Atlantis to do single batch approvals for multipletransactions of different payment types. With this service,reconciliation will be simplified and accelerated through apayment acknowledgement file provided at the end of eachbatch payment run, to be uploaded into Atlantiss accountspayable system.

BRINGING THE BANK INTO THE FOLD We needed a bankto manage all our day-to-day transaction requirements:covering all our payments, collections and accountmanagement, says Tim Wise, senior vice president finance.We were impressed by ADCBs range of solutions, evenbefore we formally opened Atlantis. Choosing a bank for itscash management services lies beyond the usual criteria ofthe banks size, branch network and sophisticated productoffering. The difference lies in its quick response, after-salesservice support and continuous improvement of productsand systems. It knows and understands our business andprocedures, our problems and needs and offers customisedsolutions. Its like bringing ADCB to our company, Atlantis.

ADCB is constantly developing cash management capabilitiesto provide the finest and most reliable range of products andmeet the growing demands of clients. These services are backedby the banks sound asset structure, its investment in cutting-edge technology, and team of highly experienced and motivatedcorporate banking personnel, in-depth local knowledge andADCBs extensive region-wide branch network.

Glenn Cuevo, head of cash managementRaffy Vicencio, senior product managerCash Management DivisionAbu Dhabi Commercial [email protected]

[email protected]



CASH MANAGEMENT

ATLANTIS WAS FACED WITH THE

CHALLENGE OF HAVING TOMANAGE SIZEABLE TRANSACTIONVOLUMES OF PAYMENTS ANDCOLLECTIONS IN THE MOSTEFFICIENT AND COST-EFFECTIVEMANNER

WE NEEDED A BANK TO MANAGEALL OUR DAY-TO-DAYTRANSACTION REQUIREMENTS.WE WERE IMPRESSED BY ADCBSRANGE OF SOLUTIONS, EVENBEFORE WE FORMALLY OPENED

ATLANTIS


12/20



CAPITAL MARKETS

I

f further evidence were needed of the increasing powerand influence of the Middle East, it was provided byGordon Browns trip to Saudi Arabia last autumn topersuade its rulers to pump additional funds into the

International Monetary Fund.The personal visit to the regions leaders by the British

prime minister, who was accompanied by 27 Westernbusiness leaders representing the banking, energy andconstruction sectors, came in the wake of Barclaysannouncement that it had secured 3.5bn of investmentfrom Abu Dhabis ruling family and a further 2.3bn fromQatar.

Middle Eastern wealth has also manifested itself in other,more exotic, scenarios one of the more recent being theacquisition of Premier League team Manchester City by the

Abu Dhabi United Group for Development and Investment.Who would have ever thought that some of the

intricacies of a Sovereign Wealth Fund acquisition would bediscussed at length on Sky Sports News? comments AndrewNicholls, a senior partner at Penrose Financial, the financialservices and capital markets PR consultancy.

With Western banks increasingly looking to the region forgrowth opportunities as slowing growth in the US andEurope is succeeded by recession, Penrose believes theMiddle East holds tremendous promise for companies able tooffer genuine business opportunities to the region. As thefirm notes, a staggering $1.5 trillion is projected forinvestment across the Gulf over the next few years.

However, in responding to the regions opportunities,Western banks have heeded the crucial role of Islamicfinance, so are expanding their range of Sharia-compliantproducts and employing Islamic scholars to advise them. It isnot yet clear whether this will be enough to win thembusiness in the future, or if Arab clients will prefer tocontinue banking with local institutions.

Penroses recently published report, The Road of Opportunity:Evolving Capital Markets in the Middle East, examines theregions financial landscape in detail and assesses its viabilityas a bona fide and sustainable financial centre.

There has been a plethora of material written about theGulf and issues such as its ruling elite, its sovereign wealthfunds (SWFs) and Sharia investment hence the need for aguide that eliminates less relevant information and focuseson the opinions of Middle East experts and the main themes

and trends likely to be important over the coming years.The report begins by noting that the Gulfs elevation to a

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.

Gulf streamsof wealthTHE 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.


13/20

major global financial centre is commonly accepted bycompanies around the globe, while Western banks and theircaravans of support services have opened shop in the region.

But as its authors note, European and Americancommentators swing between applauding and condemningthe regions rising economic power. Growth has beenaccompanied by concerns over issues such as politicalstability and terrorism. And as the Sheikhs, their political eliteand the all-powerful SWFs grow increasingly rich; questionshave arisen over how sustainable the region will prove to beas a financial hub.

Much has been written about the regions viability as thenext financial centre with comments varying wildlybetween eulogies about its potential to pointed criticism ofthe lack of standardisation, rule of law and marketsophistication, says Nicholls. The reality, as always, issomewhere between the two.

While nobody doubts the sheer wealth of theireconomies, we all know that it takes much more thanaccumulated riches to create a financial centre. However, therulers of the Middle East many young and Western-educated are moving from being wealth accumulators tocapital facilitators.

This means they realise that a financial centre is based onthe free and transparent flow of money in and out, the reportsuggests. So there is an increasing readiness to embraceforeign ownership, relax restrictive laws on outsiders, upholdthe rule of law, enhance transparency and introduce regulatorycontrols and sophisticated capital market instruments.

While it is probably too early to judge whether this goal oflasting financial centres can be achieved, the regions massiveinfrastructure projects already act as vehicles for increasedliquidity. Dubai is said to account for at least 25% of theworlds active cranes and has, with Abu Dhabi, ploughedbillions into highways, major new cities, schools and hospitals.While these enormous projects continue, there will be demandfor debt and structured finance to fund them. Project finance iswell suited to Islamic financial instruments, which, as thereport notes, need to be backed by physical assets.

The structuring of the deals is becoming more complexand, despite the vast local wealth, developers are seeking toboth spread risk and raise their public profile by involvingforeign partners. There is growing evidence to suggest thatthe Gulf has the potential to be much more than a fleeting

fascination for emerging market bankers.The reports authors believe the huge investment in

infrastructure represents rather more than mere ambition.Instead it is providing the necessary physical frameworkaround which the appropriate legal and regulatory systemcan be placed to create an efficient and sustainable financialhub or, in the words of one of the regions majorinfrastructure firms, Abu Dhabis ALDAR Properties, they arebuilding a nation.

Some countries in the region are also looking further afieldand using existing relationships to participate ininfrastructure projects in North America, China andelsewhere in Asia. An example was the $1.4bn deal signed in2006 by Bahrain-based Islamic investment bank Gulf FinanceHouse to fund two tourism projects in Morocco.

ATTRACTIVE LEVELS OF WEALTH The investment andbusiness opportunities for financial service providers in theGulf vary from one country to another, with the regionswealth largely concentrated in the form of government fundsand high net worth individuals.

Over the last decade, media attention has largely focusedon Dubai and Abu Dhabi. Both countries have activelyencouraged foreign participation, in a bid to diversify andlessen the reliance of their economies on oil.

The process has been accompanied by more social andeconomic freedoms than in neighbouring countries, helping



CAPITAL MARKETS

The report concludes by singling out discernible trends:

GROWTH OF EQUITY AND DEBT MARKETS While Western

economies suffer in the credit crunch, Middle Eastern markets will

grow more significant as companies seek to raise funds from the

regions vast pools of liquidity.

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

the investment community as a place to work and gain experience.

SPENDING There is a new awareness that the accumulated

wealth of the Middle East should be spent. New areas are under

review, with the investment plans of SWFs closely watched.

EMERGING PLANS Investors and the media are realising that

the region has a plan and that the infrastructure projects are the

lynchpin.

REGULATORY CHANGES The relaxation of foreign ownership

rules will be watched, with Saudi Arabia of particular interest.Will

it seek to extend its financial reach and its banks attempt to

become the regions leading financial institutions?

THE NEW GENERATION Younger, Western-educated Arabs who

are setting up in business will influence the regions development

as a financial centre. Businesses are likely to continue

restructuring and cross-border merger and acquisition deals arelikely in addition to regional and local ones.

What are the likely future developments in the region?THE RULERS OF THE MIDDLE

EAST MANY YOUNG ANDWESTERN-EDUCATED ARE

MOVING FROM BEING WEALTH

ACCUMULATORS TO CAPITAL

FACILITATORS


14/20


to establish them as rewarding business venues for theforeign investor. By contrast, Saudi Arabia has proved to bepossibly the most restrictive Gulf nation but is now slowlybecoming more accommodating to foreign business. Riyadhis the most populous city with four million inhabitants and isregarded as the ideal centre for private banking and thebiggest concentration of wealthy citizens.

The size of the regions available wealth is undoubtedly itsbiggest attraction. The steady increase up to last Julys peakin the price of oil brought incredible revenues to the Gulfstates, with each dollar rise in the price of crude bringingfurther billions to producing countries.

According to Penrose, of an estimated $3 trillion held bythe Sovereign Wealth Funds, $2 trillion is located in the Gulfand the figure is set to reach $8 trillion-$10 trillion over thenext decade. SWFs such as the Abu Dhabi InvestmentAuthority increasingly seek advice on how to invest and fund

new ventures both at home and abroad.Around $1.5 trillion is slated for investment across the Gulf

region over the next few years and billions of it will trickledown to outside investors, offering enormous businessopportunities for Western companies.

Add to this around 400,000 high net worth individuals inthe region who, according to a Capgemini and Merrill Lynchreport, have a combined wealth of $1,700 trillion and offeran attractive market for institutions specialising in privatewealth and asset management.

As these vast coffers of wealth are closely entwined with thepersonal wealth of individual people and families, there arealso ample opportunities for corporate and project financing.

The report notes that this wealth lies in the hands of theruling elite and powerful indigenous merchant families.However, as the younger generations gain control, they areseeking to diversify their portfolios and this offersopportunities for those able to advise or manage the movetowards new ventures, divestitures and initial public offerings.

SOPHISTICATED YOUNGER GENERATION Thoseexpressing scepticism over whether the Gulf can establishitself in the long term as a credible financial centreunderestimate the sophistication of a new generation of Arabpolitical and business leaders, suggests the report.

Many are Western-educated and are determined to forgea new economic future by taking the best of the West andadapting it to their own countries and business sectors. Theyare fully aware of the need to overcome obstacles such as alack of transparency in business dealings, high inflation levelsand the need for the rule of law in certain areas.

This desire to modernise opens up business opportunities tofirms offering financial, legal and communications advisory

services, while Western banks have the chance to advise onand manage new investment and business strategiesundertaken by the regions traditional businesses that want torestructure so they can better compete in global markets.


CAPITAL MARKETS

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 ARABPOLITICAL AND BUSINESS

LEADERS


15/20

There is evidence in the growing number of initial publicofferings, with the total in 2007 up 50% from 2006.

Barriers caused by uncertainty and perceived corruption areeasing regulation steadily towards world-class standards,helped by professional advisers. However, one potentialdrawback noted by Penrose is that Gulf countries remainkingdoms, and lack the same checks and balances asdemocracies, meaning that any contract signed betweenbusinesses could be overturned without any legalconsequences.

Press freedoms are also more limited than in the West,although there is growing acceptance that the media needsto be involved in the regions financial development, whileSWFs and family-owned businesses recognise the need toengage with the West and improve ways of communicatingtheir future investment strategies. The Abu DhabiInvestment Authority recently went as far as head-hunting a

leading PR manager.Demand for and trade in equities and Sukuk Islamic bondsis growing, while a relaxation on foreign ownership rules willhelp the Gulf establish itself as a financial hub. However, toensure long-term success, it needs much greater criticalmass. This would mean increasing its capital liquidity byintroducing sophisticated financial instruments such asderivatives to facilitate the flow of funds. Large institutionalinvestors such as hedge funds must also have a presence ifits equity and debt markets are to develop to the same levelas those in the West and Asia.

The absence of the two cornerstones of global capitalmarkets, derivatives and debt, plus the issue of Shariacompliance, are largely responsible for the lack of capital

market sophistication.The region will need to develop these financial instruments

and their markets in order to compete effectively, the reportsuggests. A tentative start has been made, with Westernbankers calling for regulators to help develop the industryand the offshore Dubai International Financial Centre (DIFC)recently launching some regional derivative products.

Hedge funds are also curtailed by stringent rules againstshorting stocks, although Saudi Arabias Ajeej Capital andDubais Evolvence Capital have begun cultivating thebeginnings of a local hedge fund industry with Westernpartners.

Of course, opportunities for Western banks and exchangeoperators to facilitate change by introducing new productsand tools have become even more attractive due to theeconomic crisis in the worlds other capital markets.

As a result, more bankers and traders are abandoning USand European markets in favour of the Middle East, althoughas Penrose points out, Islamic finances lack ofstandardisation will slow the introduction of financialinstruments and the growth of investment funds.

Other obstacles highlighted by the report are high levels ofinflation the emirates are likely to hit a rate of 13%-15%this year and the local currencies pegging with the dollar,which makes it difficult for foreign businesses and individualsto repatriate capital. High inflation raises the prospect of acrash in the property market, which would damage the areas

investment reputation as property has proved one of the keyhigh-returning assets for both local and overseas investors.The hype of the Dubai property market could very well be

a bubble waiting to burst if greater control is not put inplace, the reports authors comment.

Possibly less recognised is the impact of inflation,combined with poor working conditions and long hours, onthe regions vast lower-paid migrant workforce. There issimmering unrest that could ignite something more serious.

The Gulf Co-operation Council (GCC) needs to addressthese problems by controlling mass speculation in theproperty sector and accelerating progress towards a singleGCC currency pegged to a basket of currencies.

FOREIGN INVESTMENT OPPORTUNITIES The regions lackof transparency limits the opportunities for foreigners toinvest directly in the Gulf. While the property and corporatesectors have begun to open up, there remains a host ofownership restrictions and doing business is made harder by

the need to appoint local agents as mandatory partners andsecure suitable financial licences.

Around 90% of businesses in the region are entirely orpartly owned by the ruling merchant families, with muchcross ownership of assets between families and rulers and noclear distinctions between banks and SWFs creating conflictsof interest.

But making the effort to overcome these obstacles isworthwhile. As Penrose notes, the Gulf regions enormouspools of liquidity are only partly tapped by conventionalfinancial structures. Sharia-compliant banking services andproducts will open up large new sources of revenue. Assetsinvested according to Islamic guidelines have grown ataround 20% annually worldwide and should reach the $2trillion level by 2010, says Ernst & Young.

But as one analyst notes: Islamic finance is one of thegreat boom industries of the region. But it is a club run bythe Arabs according to their own rules and Westerners willstruggle to break into it despite the efforts of some banks.

And while the number of Islamic finance institutions isrising with plans for the DIFC to establish a Sharia Centre,an Islamic hedge funds platform, an Islamic finance portal, acommodity murabah exchange and the creation of a judicialacademy and research centre the report questions whetherdemand will be sufficient to support all the potential newentrants.

Graham Buck is a Reporter on the [email protected]

www.treasurers.org

ISLAMIC FINANCE IS ONE OF THE

GREAT BOOM INDUSTRIES OF

THE REGION. BUT IT IS A CLUBRUN BY THE ARABS ACCORDING

TO THEIR OWN RULES AND

WESTERNERS WILL STRUGGLE TO

BREAK INTO IT DESPITE THE

EFFORTS OF SOME BANKS


CAPITAL MARKETS



16/20



BUSINESS OPERATIONS

Financial institutions, though an integral and essentialcomponent of the service industry, have not beenknown to be particularly service-oriented. In a sense,they have a lot to learn about customer service from

airlines and hotels. Add to that the intensity of competitionand the emergence of the intelligent and savvy butterflycustomer and it becomes clear that banks which want toflourish and be market leaders need to adopt a holisticstrategy. This article describes how the author has attempted

over the last couple of years to apply these concepts topractice in his business area at his bank.

In their interesting book Market leadership strategies forservice companies, Craig Terrill and Arthur Middlebrooksprovide a good strategic framework that has formed thebasis for this article. Wikinomics How mass collaborationchanges everything by Don Tapscott and Anthony DWilliams is also an eye opener on some of the concepts thathave suddenly become available to organisations in the wakeof the popularity of Wikipedia. It is interesting to look at theapplication of these concepts to achieving and sustainingmarket leadership in the financial services industry.

APPLICATION OF THE CONCEPTS IN FINANCIALSERVICES The strategic framework which I found beneficialhas seven building blocks:

I Service business definition Most banks are sorelytempted to be all things to all people so as to be a marketleader. But todays marketplace is looking for niche segmentleaders who can delight not just satisfy customers in theirservice-product market space.I Target market innovation Market segmentation is key particularly when it comes to banks because beinginnovative in precision targeting of customers can make allthe difference. In my own experience, customers in the areaof liabilities management (ie those who dont require creditfacilities) is an under-served market segment, oftenoverlooked by most corporate banks, but which can providegood annual revenue streams.I Brand positioning innovation Todays customers areextremely brand conscious, have the problem of beingexposed to over-communication via myriad media channelsand display low or no loyalty. A consistent, clear and easymessage outlining the banks mission, vision, values andbrand promise helps create and sustain the right imageryabout the bank in the minds of the customers, potentialcustomers and, very importantly, the employees within.Oppositioning in an attempt to provide a different positionin the minds of the target market is a concept worth

exploring. One should not underestimate the power of thebrand, particularly in these trying times.

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.

Executive summary

In todays financial environment, beating the competition is

tougher than ever. Good service is the key to customer loyalty,

but a strategy to build that is necessary. Online information

sources helped the author build a seven point strategicframework to achieve market leadership for his bank.

Leadership in theinformation age


17/20

I Service offering innovation Most banks claim to becustomer-centric, providing products and services to meettheir requirements. However their emphasis, brandpromotion, staff rewards and recognition parameters,organisation charts, and the like, give their game away. Banksneed to consciously court customer problems andcomplaints (rather than have an impersonal voicemail/automated system taking note of the same) and thenget into rapid prototyping or structuring of product solutionsto mitigate those problems. Think of us whenever you havea problem is not a bad dictum to follow on this front. This isalso the area where a Wikipedia mindset really helps howabout engaging those difficult customers (often termedinternally as painful) as collaborators in the design ofbanks products, services and processes. You suddenly

unleash the power of todays savvy customer to your banksinternal product development team, which may beoverstretched and/or under resourced and/or may likeoperating out of an ivory tower because thats what hasmade them successful historically.I Process experience innovation Getting the voice of thecustomer into the bank, though seen as important, has onlyslowly started to break into the fortresses that most bankshave been (as viewed by most customers). To be a marketleader, you need to have the customers decide the valueaddition in the banks processes rather than its archaic andinward-focused policies and manuals driving the same.Constant job rotation within the bank (relationship managersmoving to credit and vice versa; operations moving to

customer-facing service roles and vice versa) are easy butmuch-needed measures that senior management mustencourage to have everyone in the organisation remainfocused on customers at all times, and become moreempathetic to their cause and perspective.I People innovation Financial services is a people businessand yet banks undertake a whole lot of cost-saving measures

while trying simultaneously to delight customers through useof technology. I believe banking is taking a 180 degree turn,with the personal touch now coming back to provide astrong competitive edge that banks are using to becomemarket leaders and regain customer loyalty. Innovention(ie proactive intervention) a term that the authors use can unleash the creativity and empathy of the banks staff to

create unique service experiences for each customer. Thatindeed would be an entry barrier for other banks.I Sustaining market leadership If becoming a marketleader is difficult, staying there is even more of a challenge.This is where senior management of the bank needs to getinto thinking longer-term much beyond their own intereststo that of all shareholders and customers. Like the flight ofthe geese, they need to ensure they can take a back seatand let some of their able lieutenants take charge while theygo back into the market and spend time with customers,front-line staff, service providers and all those with whomthey lost touch as they entered into the corner office andthen return rejuvenated with fresh marketing, branding,services, process and people ideas. Thats the only way they

can build a market leader that will stand the test of time.

Harshit H Jain is head of liabilitiesmanagement, corporate banking,Emirates [email protected]

www.nbd



BUSINESS OPERATIONS

BANKS WHICH WANT TO

FLOURISH AND BE MARKETLEADERS NEED TO ADOPT A

HOLISTIC STRATEGY

PRACTICAL ADVICE

Banks are in the service industry let us learn not just fromthe best banks but also from the best airlines and the besthotels.

We need to avoid the be all things to all peopleapproach and remain focused on our core strengths andcompetencies.

Being number one, with the share of wallet and shareof heart of ideal target customers, will make the bank amarket leader.

Listening to the customers on an ongoing basis andactively seeking out the difficult, demanding customers asactive collaborators will create a sustainable competitiveedge by coming to the market with products, services,and processes that customers will really accept, and beingserved by employees who own these fully and with all theirhearts.

Letting go is an important part of senior managementwhen it comes to redefining the franchise for the future.

RECOMMENDED READINGSI Market leadership strategies for service companies byCraig Terrill and Arthur Middlebrooks, NTC/ContemporaryPublishing Group, Inc., 2000.

I Wikinomics How mass collaboration changeseverything by Dan Tapscott and Anthony D Williams,Portfolio, 2006.

I Firms of endearment How world-class companiesprofit from passion and purpose by Raj Sisodia, David BWolfe and Jagdish N Sheth, Wharton School Publishing,2007.

I The future of competition Co-creating unique valuewith customers by C K Prahalad and Venkat Ramaswamy,Harvard Business School Press, 2004.

I Killer customers Tell the good from the bad and

crush your competitors by Larry Selden and GeoffreyColvin, Portfolio, 2003.


18/20



GLOBAL INVESTMENT

Aseries of surveys conducted during 2008 by KPMGInternational investigated the future direction ofcapital flows both globally and in specific regionsaround the world. The results from the survey

covering 15 countries around the world suggested thatinvestment was moving away from the US and into Europe,India and China. The survey results suggest the emergence ofa three-bloc world comprising the Americas, Europe andAsia Pacific. KPMG also produced a report focused on theinvestment intentions among a group of large companiesbased in the Middle East and North Africa. In a bid to discoverwhere companies expect to go in the next phase of theirexpansion, 50 senior corporate investment strategists inseven countries in the region were asked which countries

(other than their own) they plan to invest in during 2008/09and where they are looking to invest in five years time.

Countries included in the study were Saudi Arabia and Kuwait(over half the interviews took place in those two countries) aswell as UAE, Oman, Qatar, Bahrain and Egypt. The results

showed that companies were focusing on investments incountries within the region in the immediate future. Howeverover the next five years it is clear that Middle Easterncompanies will be taking steps to expand into foreignmarkets.

CHANGING ORDER In the next year the countries set toreceive the most investment were UAE, India, Qatar, China,Bahrain and Saudi Arabia. In five years time the order isexpected to be India, UAE, China, US and Saudi Arabia. Interms of change in percentage of corporates planning asignificant investment between 2008/09 and 2013/14, theKPMG survey suggests that India makes the most significantgain followed by the US, Yemen, Brazil and Thailand. MiddleEastern investors are showing relatively low interest inEurope with the exception of the UK whose share ofinvestment remained steady at 8%. See box oninfrastructure investment.

In the longer term KPMG paints a picture of companiesshowing increasing interest in investment outside the region,especially in India and the US. The report says: If Middle Eastinvestors are indeed widening the range of companies theyare willing to invest in, then this may increase the level ofcompetition that companies within the region couldencounter if they are looking to investment from aneighbouring country. But this doesnt mean that regionalsupport disappears.

Indeed Gulf Co-operation Council (GCC) states areexpected to continue to pour significant shares of Middle

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 abid to develop the potential of the regions 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.

Where capital flows


19/20

East investment into neighbouring economies. In the nearfuture the survey found that the most influential countryaggregated across all sectors is Saudi Arabia, driven mainlyby its very strong showing as the most influential country inservices. Second in terms of influence is the UAE, againlargely through its presence in service industries. Looking

ahead five years those two are still expected to dominatewith Qatar still seen as significant. However the near-termposition of the US and the UK is expected to wane in favourof the emerging economies of China and India.

It is clear from the KPMG survey that the primary focus forGCC business over this period is likely to remain within their



GLOBAL INVESTMENT

Infrastructure capital demandPUSH TO DIVERSIFY ECONOMIES IN THE MIDDLE EAST CREATES

HUGE NEED FOR INFRASTRUCTURE CAPITAL

In order to meet capital demands driven by strongpopulation and economic growth, more than $100bn ofpublic-private partnership (PPP) investments in the MiddleEast and North Africa region will be required over the nextfive years to supplement government funding, says a reportby Ernst & Young.

According to Bridging the Gap: Private Investment in MiddleEast Infrastructure, current and active civil engineeringprojects in the six nations of the GCC have a total value of$1.3 trillion. But with construction costs rising and dramaticeconomic growth,infrastructure needs are rapidlyoutstripping the regions public

resources despite recordexports of oil in recent years.For example, despite theMiddle East boasting two-thirds of the worldsdesalination plants, the WorldBank has predicted that theamount of water available perperson in the region will halveby 2050 as a result ofpopulation and economicgrowth and climate change.This suggests that a significantcapital investment will soon beneeded to meet demand andprivate sources will beincreasingly looked to for aportion of this investment.

Even with the large amount of revenue generated fromoil exports in the region, governments are having to findalternate means of funding the expansive infrastructuredevelopment plans required to meet rapidly growingdemand, said Abraham Akkawi, Middle East Leader ofInfrastructure, Ernst & Young.

Despite oil revenues increasing to an estimated $381bnin 2007, countries in the region have decreased their publicspending by 5% since 2002, according to the Institute of

International Finance.

In the long term, we expect the current trend towardscontinued greater private sector participation ininfrastructure in the Middle East to continue. Investorslooking to compete for the lucrative contracts are going tohave to cultivate relationships through consultants or otherintermediaries already well versed in Middle Easternbusiness practices, said Mike Lucki, global leader ofinfrastructure, Ernst & Young.

In the Middle East governments traditionally havecontracted with regional or international companies to

design and buildinfrastructure such asairports, ports or roads and

government agencies haveusually operated theinfrastructure. While that isstill true today, governmentsare increasingly forming PPPswith the private sector tobuild and operate projects.Such partnerships provideprivate investors andcontractors with newbusiness opportunities in theMiddle East, and enablegovernments to share therisks of project development,draw on the knowledge andexperience of the privatesector and leverage publicinvestment in infrastructure

with private capital. No doubt the global credit crisiswill have some effect on regional project finance pricing,terms and time to close, but it is too early to determinethe magnitude. There are billions of dollars ofannounced infrastructure projects in the pipeline whichhave been planned on the assumption of varying levelsof private sector participation. These projects are criticalto the economic growth of the countries in the region,especially GCC countries, said Phil Gandier, Middle East

Leader, Transaction Advisory Services, Ernst & Young.

EVEN WITH THE LARGE

AMOUNT OF REVENUE

GENERATED FROM OIL

EXPORTS IN THE REGION,

GOVERNMENTS ARE HAVING

TO FIND ALTERNATE MEANS

OF FUNDING THE EXPANSIVE

INFRASTRUCTURE

DEVELOPMENT PLANS

REQUIRED TO MEET RAPIDLY

GROWING DEMAND


20/20

region. However at the same time, the mixture of foreignpartners taking an interest in the region looks set to changein a way that reflects the wider changes that are likely totake place in the global economy.

The KPMG survey looked at the factors that wereimportant for companies that were looking to invest. Thesurvey found some key differences between what isimportant for GC companies and those in the rest of theworld. Respondents were asked to rate 12 country attributesby the influence they have on decisions to invest in aparticular country. Globally the more important attributewas access to new customers, followed by political stability.In contrast for GCC companies political stability wasparamount, especially for manufacturers which presumablyare concerned over the effects of instability on their factoriesor supply chains. GCC showed more agreement with other

respondents for factors such as impartial rule of law andgood infrastructure. However priorities diverged again overthe relative importance of high quality labour forces and thetax regime.

KPMG suggests that the relaxed view of the impact of taxon foreign investment may be due to some GCCunfamiliarity with more complex tax regimes found in otherparts of the world.

EMERGING PICTURE According to KPMG, the picture thatemerges from this study is of a group of companies partway through a process of establishing their presence

outside their region and doing so in a cautious and carefulfashion. The report states: They are not new to the idea ofoverseas investments: over half (54%) have already putmoney into the countries they plan to invest in over thenext five years and 70% plan to use the profits from theseinvestments to build their presence in their chosencountries. But investors from other countries are furtherdown the track of building a presence cross-border and are,according to KPMG, more comfortable taking the risksassociated with bringing in new money rather than relyingon generated profits.

One notable difference between GCC and other investors isthat GCC investors are less concerned than their globalcounterparts about the influence of private equity in theirsectors. The report suggests that 60% of GCC investors aremost likely to find themselves bidding against private equityinvestors or portfolio/strategic investors when makingoverseas acquisitions. That compares with 36% in the globalstudy. Moreover 61% of GCC investors welcome privateequity investors in their sector as a good source of capital andlong-term supportive shareholders (58% globally). Thecontrast in attitudes to sovereign wealth funds is even moremarked.

Nearly a quarter (24%) of global investors said they wouldnot welcome an investment from a sovereign wealth funds,only 4% of GCC investors agreed. The survey suggests MiddleEast corporate investors are ahead of their globalcounterparts thanks to their familiarity with sovereign wealthfunds which look certain to become more important in theyears ahead. The challenge remains for GCC investors toestablish a lasting Middle Eastern presence in the wider globaleconomy. And it seems they are well-placed to meet thechallenge.

See www.kpmg.com/Global/IssuesAndInsights/ArticlesAndPublications/Pages/Middle-East-capital-flows-survey-2008.aspx

Peter Williams is editor of The Treasurer

[email protected]


GLOBAL INVESTMENT

MIDDLE EAST CORPORATE

INVESTORS ARE AHEAD OF THEIR

GLOBAL COUNTERPARTS. 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.

middle east supp jan 09

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