Setting up a regional treasury centre in Africa is a notoriously intricate process. This is precisely why informed multinationals have been looking for a more efficient route into the continent. Could Dubai’s geographical proximity, favourable business environment, and significant technological and infrastructure investments, provide the solution?
Earlier this year, Dubai International overtook London Heathrow to become the world’s busiest international airport. Whilst passengers have been travelling from Dubai to all four corners of the globe, there has been a noticeable uptick in traffic to Africa. In fact, Dubai-based airline, Emirates, is now the largest carrier in Sub-Saharan Africa and the main non-African airline into the continent.
Whilst this snapshot of the aviation industry highlights an interesting micro trend, it is also illustrative of a much bigger shift that is impacting the way in which multinational companies do business, and where they do it from. “Dubai is fast becoming a centralised hub, not just for conducting business in the Middle East and Asia, but also for doing business in Africa,” notes Geoffrey Gursel, Head of Sales for Sub-Saharan Africa, Treasury and Trade Solutions, Citi. “Just as airline traffic has increased, the payments flows between Dubai and Africa have also rocketed in recent years.”
A rising star
“Although Dubai has been a strategic port for millennia, what we are now seeing is something of a perfect storm,” adds David Aldred, Head of Sales for Middle East, North Africa, Pakistan and Turkey for Treasury and Trade Solutions, Citi. “The more traditional drivers for Dubai as a strategic business hub – such as its favourable taxation regime, comparatively easy operating environment, local talent pool, stable political and economic backdrop, and geographical proximity to Europe, Asia and Africa – are now being supported by significant domestic and regional advancements in technology and infrastructure,” he explains.
Indeed, the Dubai government has promised to invest over $8.1bn in new infrastructure in order to host the World Expo 2020. The aviation industry is set to be a primary beneficiary of this investment, as the emirate looks to further open its doors to both businesses and tourists. Another key initiative that is boosting Dubai’s attractiveness is the Smart City vision. The aim is to use the latest advances in technology – such as fibre optic wireless internet – to create a model for providing government services that are easily accessible, quick and efficient, using smart devices. These will include business-related services from ports, customs and bourses.
Elsewhere, the well-documented shift in global economic power is also working in Dubai’s favour, says Gursel. “Since Dubai enjoys a strategic location on the new Southern Silk Road, it is well poised to take advantage of economic activity into and among the world’s high-growth emerging markets (EMs), such as Africa, as part of the evolving South-South trade corridor.”
Being an emerging economy itself, and therefore familiar with the challenges of transitioning into a developed economy, Dubai is leading the way in terms of EM-to-EM connectivity, he says. And as Africa also becomes more sophisticated, connecting, integrating, travelling and speaking with the continent from Dubai is becoming easier and easier.
“Numerous Chinese banks and corporates have already realised this and are now leveraging Dubai as a means to access the African markets,” confirms Gursel. “Many other Western and Latin American companies – across all sectors – are also becoming increasingly interested in Dubai’s potential as the gateway to Africa.”
Treasury matters
For treasurers, the beauty of all this is that it is now possible to run African treasury operations from outside of Africa, whilst achieving the desired level of visibility and control. As Aldred explains, “With the ongoing drive towards centralisation and bank account rationalisation, the days of having seven treasury centres around the world are, to a large extent, behind us. Having an on-the-ground finance presence in every continent, or in some cases country, simply isn’t practical; neither is it necessary in the digital age.
“That said, to achieve the right level of governance, it is important for multinationals to be in tune with their local markets. So, increasingly, we are seeing global corporates cut back to having two or three regional treasury centres. And if the Middle East and/or Africa is part of the company’s growth agenda, then Dubai is a great place to locate a treasury hub.”
Whist deciding to locate the regional treasury centre in Dubai rather than in Africa might provide numerous strategic advantages, it does not de facto solve the cash management challenges that treasury in Africa involves. Citi’s 2014 Treasury Diagnostics results reinforce that corporate treasurers have a “need for speed” real time treasury management, continued centralisation (efficiency and control) and an acute focus on risk management. As a result, real time and quality data analytics to help clients manage their business and assist with bank account rationalisation, control and visibility are critical. Aldred adds “Citi believes that mobile and tablet technology combined with integrated FX Payment solutions will drive value, efficiency and be extremely relevant for our clients as the treasury organisation continues to centralise and become even more efficient. This view is supported by our clients and the key treasury trends that we see.”
According to Gursel, some of the most common questions asked by Middle East corporates looking to do business in Africa revolve around: enhancing visibility with real-time balances; managing FX, country and counterparty risk; centralising payments and trade finance activity; domestic and regional cash concentration structures; compliance and control; and last but not least, connectivity standards and formats, such as XML and SWIFT.
“There is no one-size-fits-all approach to overcoming these concerns,” he adds. “The answers or solutions will certainly vary from company to company, and while I would encourage corporates to of course maximise their bank’s physical network, today it is critical to understand how SWIFT connectivity and sophistication is changing the tide with ‘virtual branches’ and how banks are enhancing the connectivity for our clients. And don’t settle for a piecemeal solution. Yes, achieving the right level of local capability is important, especially in Africa, but it is also important that your bank can deliver platform consistency across the region. Otherwise, the integration and efficiency benefits of setting up the regional treasury hub will be severely diminished.”
Chart 1: SWIFT traffic from Dubai to Africa
Seizing the opportunity
Embracing digitisation will also be key to making the most of the African markets, says Gursel. “After all, digitisation is changing the way everyone – businesses, governments, and consumers – handle financial flows.”
“Mobile banking, for example, has revolutionised financial inclusion, and trade dynamics, in Africa: in February 2015, mobile network operators in Kenya facilitated 80,000,000 payments to m-wallets, compared to 2,500,000 ACH payments via banks. Therefore, consumers, corporates and banks are all in an era of technology-adaptation in Kenya. From a treasury perspective, mobile payment approvals and authorisations are now available across Africa. And with electronic banking also available in every country, real-time visibility is achievable, and on a multi-bank basis in many instances.”
“As digitisation takes hold across Africa, the reliance on traditional bank branches is being challenged. Bricks and mortar presence is no longer a must-have and electronic formats are making for a much more efficient financial infrastructure,” explains Aldred. “Treasury centres have a similar opportunity to rationalise and streamline their operations, whilst also leveraging technology and innovation to gain visibility and manage cash and trade flows across Africa – all from the unique vantage point that Dubai affords.”
