Treasury Today Country Profiles in association with Citi

Middle East treasuries in catch-up mode

Modern subway line on the urban landscape in Dubai

An international sample of almost 120 corporate treasurers operating in the Middle East found that, for cash management, nearly half of them spend at least 75% of their time using spreadsheets and manual processes. The online questionnaire carried out between July and November 2013 by Aite Group, SunGard and the Association of Corporate Treasurers Middle East (ACTME), also shows that treasurers are trying to move beyond cost-centre status and that they understand the need for better risk analytics.

A paper entitled, ‘Market Insights, Corporate Treasury Practices in the Middle East’, was published at the end of last week on the back of the survey. In it, it is revealed that 74% of treasurers in the Middle East have full responsibility for tackling FX, whilst 70% control cash and liquidity management processes. Full control over trading and capital markets is held by 69% whilst responsibilities such as settlements (56%) and trade finance (48%) tend to be shared more equally with other functions. Risk management is also a shared responsibility, with credit risk and commodity risk being shared with other functions by 34% and 21% of treasuries respectively. The report, authored by Aite Group analyst, Enrico Camerinelli, also showed that – in terms of shared control – supply chain finance, collections and payables are “far too distant from where best practices would suggest”.

It seems that treasurers in the Middle East know that they face a number of key challenges in their operations. Top of the list for action is increased productivity and reduced manual processing, cited equally by 54%. The need to demonstrate treasury as a “value generator” and not a cost centre was stated by 46%, with the requirement for better risk analytics following on at 37%. These concerns are, says Camerinelli, “in line with international best practices”.

With oil-based products accounting for a significant proportion of all trade in the region, interest rate and commodity risk are naturally high on the agenda. Some 34% of respondents said interest rate risk was “high to very high”. The same level of concern was stated by 31% for commodity risk. However, trade credit risk was “moderate to none” for 78%.

When it comes to payments, the report noted a slow uptake in the region of SWIFT services. Middle East-based treasurers “appear more conservative” in embracing these bank-centric services and are apparently in “wait-and-see mode”. Only 18% of the sample currently use SWIFT’s basic payments model; 9% have adopted SCORE (the Standardised Corporate Environment closed user-group) and just 2% use the TSU (Trade Service Utility). Although around 25% are planning to use one or more SWIFT services in the next 12 to 24 months, around 30% said they remain “unsure” about doing so.

The uptake of more treasury-specific technology seems to be slow in the region. Most functions are being handled at least 75% of the time on a mix of spreadsheets and other manual processes. Some 44% of respondents said their cash management function was mostly managed this way, with 42% claiming forecasting, and 36% credit risk, mostly got the spreadsheet/manual treatment. The most automated (or non-spreadsheet based) function was accounts payable, with just 11% using spreadsheets more than 75% of the time.

The survey asked how treasurers might be operating their various functions in the coming year and it seems for most aspects the respondents would like to reduce their dependence on spreadsheets, most notably for cash management and forecasting which, if achieved, would drop from the current 44% down to just 4%.

Of those respondents that have more advanced technologies, Enterprise Resource Planning (ERP) systems are used by 11% for most of the time they spend on cash management and credit risk activities. Roll forward a year and 22% and 26% respectively wish to spend more time executing these processes through their ERP.

Similar increases in expected use can be seen for treasury management systems (TMS), with 11% currently using one at least 75% of the time for cash management and settlements, rising to an anticipated 37% apiece in the coming year. Use of in-house systems for most functions is low (3% to 6%) and will fall slightly over the next year according to the results.

When it comes to selecting banking partners, treasurers in the Middle East tend to stick with a limited number of tried and trusted institutions, the most even spread being between two to five partners located across the Middle East and Africa, Western Europe and North America. The presence in the list of bank partners from Asia Pacific and Australia/New Zealand confirms “the strong trade-related business relationships held by companies in the Middle East with counterparties from these more distant regions,” says Camerinelli.

However, just 4% of respondents say they will predominantly use bank cash management services in the coming year. He suggested in the report that either local banks are not yet up to speed for international services, or international banks are not yet geared to meet specific local needs such as Islamic finance.

Treasury Today will soon be conducting its 2014 Corporate Treasury Benchmarking Study in the Middle East, which delves into further detail around the themes and challenges raised in this article. To take part, please contact our Research Director