Chris van Dijl, Founder, Cugavadi:

Treasurers in the Middle East have had an interesting 12 months with a significant amount of economic and geopolitical uncertainty.

The lower oil price has led to lower government spending. Those regions that have diversified themselves away from oil revenues, such as Dubai, have additionally been impacted by the global economic challenges which has led to a reduction in global trade and tourism. Throw in some new developments in geo-political instability within the GCC and you can easily see why corporate treasurers in the Middle East have not had the easiest of times in the past 12 months.

Arranging finance

As a direct consequence we have seen a shrinking of liquidity at financial institutions leading to a stricter lending regime. For the treasurer in the region this has meant that they have had to become creative in obtaining financing for their ongoing operations. In many cases this has led to an inward focussed ‘living within your means’ approach, or in other words fund growth internally with an enhanced focus on cash forecasting and especially cash forecasting automation.

Introduction of VAT

In a region where tax departments are virtually non-existent, in some cases the treasurer has become tasked with preparing the organisation for the implementation of VAT in January 2018.

Whether or not he or she is responsible, the implementation could lead to a burden on working capital requirements as VAT is transferrable to the Federal Tax Authority based on invoice date, rather than collection date. In a region that is notorious for stretching payment terms, this requires significant planning and cash flow forecasting analysis to ensure that funds remain available for business operations. Again, sophisticated cash forecasting solutions have been looked at by several organisations.

Geo-political events

The sudden blockage of Qatar by several countries in the region highlighted that instant and real-time access to cash balances and positions is vital in today’s ever-changing environment. Treasurers were involved in the initial risk assessment as well as immediate action by moving funds back to the centre: moving funds back into Qatar for Qatari companies and out of Qatar for non-Qatari companies. As supply routes had to be sourced into Qatar, treasurers were also involved in establishing trade finance arrangements for these new trade relationships.

Because of these challenges, real-time visibility and access to positions and exposures have once again become very important and some organisations have taken the initiative to consider treasury management systems with daily MT940 reporting capabilities, centralisation of treasury operations and/or implementation of in-house banking solutions.

What treasurers in the region have shown in the past year is that flexibility and keeping an open mind is a very important professional trait. Especially during times of change and uncertainty, the treasurer needs to be even closer to the commercial operations in order to support operations and ensure that it’s business as usual.

Emre Karter, Treasury & Trade Solutions Head for Middle East, North Africa, Pakistan & Turkey, Citi:

As Middle Eastern economies continue to diversify away from energy-led growth and considering government spending made up of almost 70% of GDP, this has led to interesting results for the private sector who have been reliant on continued government spending to continue with their own growth.

Recent trends show that private and public sectors alike are tightening up their belts on expenses, pushing more efficiency measures, engaging in innovations and enhancing working capital cycles.

In a bid to improve efficiencies and reduce expenses, companies (especially the multinational corporates) have embarked on centralisation themes.

These include:

1. Moving transactions into shared service centres (with added benefits of control and standardisation).
2. Managing liquidity via a regional/global pool to centrally optimise internal versus external borrowing for working capital needs.
3. Evaluating options that allow the use of liquidity to offset transaction costs.

Citi has worked with various companies (public and private sector) to consult, advise and create such structures that have facilitated their vision. Additionally, the bank has recently developed products to support clients who have or are in the process of creating a regional treasury centre in Dubai.

The other theme that has emerged in a rather strong way is working capital.

While this is not new in the world of a treasurer, the requirement now is ‘off-balance sheet treatment’ and ‘extension of working capital’. The words ‘without recourse discounting’ of receivables and ‘extension of payment terms’ with suppliers is now a common practice.

We have rolled out numerous SCF structures (or expanded existing ones) with many clients in this region over recent years. Companies have also been interested in sales financing solutions (allowing receivable discounting), which is giving them a much-needed breather in their cash conversion cycle and supporting the balance sheet.

Corporates are also interested in adopting cashless strategies and extending payables to their long-tail suppliers. As a result, they are looking to leverage commercial cards and we have recently launched a solution in the UAE called ‘Early Pay’. This further enables corporates to pay their long-tail suppliers who do not accept cards as a means of payment, allowing these smaller suppliers to be part of a supply chain finance programme.

Enrico Camerinelli, Senior Analyst, Aite Group:

Treasurers operating in regions that are at a crossroads of international trade face even more demand to operate in environments characterised by international exchanges, multibank relationships, multicurrency transactions, visible financial transactions and efficient treasury staff activities. The ability to adapt to dynamically changing conditions with the appropriate use of people, processes and technologies represents competitive advantage.

The Middle East is a region showing a fast-growing import-export volume of goods exchanged with international trade partners: the countries in the Gulf Cooperation Council region (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) rank eighth among the most active in global trade flows.

Corporate treasurers in the Middle East are accountable and directly responsible for cash and liquidity management processes (FX/interest, cash management, trading/capital markets). Their responsibility is less direct (a higher percentage of them share control) for the settlements and trade finance functional areas that underpin the export-trade-driven nature of the market in which these organisations operate. Risk management remains a shared responsibility, while supply chain finance, collections and payables are far from where best practices suggest they should be. Corporate treasurers in the region seek to run their businesses beyond operations execution (cash management, reporting, liquidity management, cash forecasting) and to espouse “intelligent” decision-making in the context of a treasurer’s business strategy.

Treasury departments across the globe still use electronic spreadsheets extensively and companies in the Middle East are no exception. When asked to project their intentions for the near future, respondents strongly assert they will reduce the time spent on these systems in favour of more advanced and automated solutions. Enterprise resource planning (ERP) systems are likely to provide the functional applications that corporate treasurers in the Middle East will run to manage their business processes. Most likely, ERPs will soon be paralleled by more dedicated treasury management systems (TMSs).

The direct consequence of these trends is that companies in the Middle East are steadily moving away from building systems internally.

From an organisational perspective, corporate treasurers in the Middle East will continue to run traditional cash and liquidity management processes; based on research findings, anecdotal evidence, I expect it will take time (at least three years) to make the necessary steps and move toward a more decision-making role.

Most likely treasurers in the region will adopt a federated (ie regionalised) structure, and will expect banks in the region to provide the necessary support to facilitate the growing volume of trade flows to and from countries in the Far East. From a business process management perspective, corporate treasurers in the Middle East will continually seek information, technical solutions, and good practices to manage risk factors tied to interest rates, commodities and production operations.

In terms of information technology applications, corporate treasurers in the Middle East will migrate to ERP and TMS as their main applications platforms to run cash and treasury applications in the next three years. They will also use software applications for basic cash and liquidity management operations, while scrutinising solutions and services offered by banks.