Like many regions, the Middle East continues to grapple with tough macroeconomic challenges of sluggish growth and poor productivity. But there are also more intense political concerns, such as the ongoing war in the region.
Indeed, the Levant and much of North Africa contend with conflict and political turmoil. And while Gulf Cooperation Council (GCC) countries have remained largely immune to such crises, oil price volatility must be reckoned with, being central to government budgets and diversification plans, while logistics have been impacted by ongoing attacks on shipping lanes in the Red Sea.
“The geopolitical unrest is quite a concern across different industries, in Oman and throughout the region, in addition to the business volatility and high interest rates environment,” says Muhsin Al Rustom, GCFO of ASYAD, a state-owned integrated logistic provider in Muscat, Oman. “If there is a time for treasurers to earn their seat at the decision-making table, it is now. Treasury has always been key, but the recent events have shown that importance even more.”
It is a sentiment observed by the World Economic Forum’s (WEF) annual survey of chief economists worldwide, with 61% agreeing that geopolitical factors will be important in affecting corporate decision-making for the rest of 2024, while 45% consider the overall health of the global economy will be as important in driving decision-making.
Needless to say, the two factors are linked, and a Middle East and North Africa (MENA) slowdown is expected, due in part to oil prices not expected to reach the highs of 2022. The World Bank has revised down its growth rate for MENA from 3.5% to 2.8% for 2024, as a result.
Depending on whether governments have surpluses or deficits, reforms may be ahead, particularly in taxation: “Tax was not a primary consideration, but now companies are setting up tax departments, and having a lot of discussions on the issue,” says James Adams, Vice President Treasury at Chalhoub Group in Dubai and chair of the ACT Middle East Advisory Panel.
The burgeoning business environment has driven MENA demand for treasurers
Global dynamics have been a boon for the GCC, with more companies setting up in the region, particularly in the United Arab Emirates (UAE), to take advantage of its geographic positioning between east and west, and as headquarters for Africa and the Middle East: “We’re now seeing global treasury centres set up out of the Middle East due to the strategic location and benefits it can offer,” says Adams.
This burgeoning business environment has driven MENA demand for treasurers, in addition to the overall maturing of the profession in the region. “Ten years ago, the concepts of treasury weren’t mature at all, with the conversation on what it is, and how to set it up. Today, it has moved on, with the discussion on what is best practice, what is the best technology, and what talent is needed, now and for future leaders,” says Adams.
The required skill sets still vary across jurisdictions, particularly in terms of banking infrastructure, tax regimes and other dynamics, such as trapped cash. “We have fewer issues with foreign exchange volatility in the GCC because the UAE, Saudi Arabia and others enjoy a currency peg [to the US dollar], but there are challenges around how to implement regional cash pooling and overcome some of the local nuances that you might not have in other regions such as Europe,” he says.
For many large corporates, sustainable financing is becoming a core part of their funding strategies
The diversification of the region’s economies away from hydrocarbons and the role of treasury departments in making that happen is on the radar, with target dates of some of the GCC’s national visions looming closer than others, such as the UAE’s, Qatar’s and Saudi Arabia’s in 2030, compared with Oman’s Vision 2040.
This is galvanising treasurers to ensure projects continue, and new ones get under way, while also considering the transition towards sustainability, such as the development of sustainable cities and public transport networks, including Saudi Arabia’s NEOM project.
“The role of finance and treasury in unlocking all these opportunities is key, from raising finance including green and sustainability-linked bonds or loans, to being in the forefront in roadshows for various types of investors and rating agencies, as well as developing, safeguarding, and reviewing ESG policies and frameworks, and how conducting our business may affect our ESG scores,” says Al Rustom.
Saudi Arabia has one of the most ambitious visions, and it is full steam ahead for treasury departments, says Daniel Tromans, VP Treasury at Riyadh Air in Riyadh, Saudi Arabia. “There is a lot of focus and interest to do more business in the kingdom. From the treasury perspective, that means a lot of vendors, a lot of providers, a lot of leasing companies, and a lot more international institutions doing more business in Saudi Arabia. It is very much on people’s radars and gives us more choice as there’s more competition in the market, and more opportunities to work with local, regional and international players,” he says.
Sustainable finance has also become a top agenda item following two UN climate change conferences (COP27 and COP28) in the region, in Egypt and the UAE, over the past two years. “Many companies have been working closely with their banking partners and announcing new initiatives, initially in the UAE, but now moving across the region into Saudi Arabia and other markets. This is a positive trend that will help drive best practice and it is increasingly becoming ‘business as usual’, mirroring the trends we have seen in the UK,” says Adams.
Tromans has observed sustainable financing moving into the mainstream in Saudi Arabia. “A number of green bonds were issued last year, and for many large corporates, sustainable financing is becoming a core part of their funding strategies,” he says.
While treasury departments are focused on myriad issues across the board, from adopting AI and how best to automate certain functions, to balancing diversification and ESG requirements, financing issues will remain a core focus in the current interest rate environment.
“Debt is not as cheap as it was, so there will be a lot of focus on debt forecasts, whether to fix rates, and what yield expectations will be. Treasuries need to help their companies prioritise investments and ration them for the best returns so higher hurdle rates are achieved,” says Adams.
Paul Cochrane is a freelance journalist specialising in the Middle East
This article was taken from Issue 3, 2024 of The Treasurer magazine. For more great insights, members can log in to view the full issue.