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Ben Poole reports on some of the Mena region’s key players in
the trade finance arena – each with its own personalities and traits.
Dubai
Out of all of the players in the Mena, Dubai stands out
because of its relevance to global trade.
“Dubai plays an important role in the Mena region,
having become a vital transit trade hub between the
major global trading routes,” says Martin Knott, head
of trade, GTS Emea at Bank of America Merrill Lynch
(BofAML). “Dubai accounts for some US$20bn of the
re-export market, after Singapore and Hong Kong.”
One of the more striking images from the global
financial crisis was the empty cranes and unfinished
building projects that became a symbol of Dubai.
To Dubai’s credit it has quickly moved from the idea
of property as being a driver for the economy and
gone back to its basics – trade, transport and tourism.
“Dubai has taken the lead in terms of increasing
efficiency and reducing costs for people who want to
trade through a regional hub,” explains Chris Jameson,
head of sales, CEEMEA ex-Russia, GTS Emea at
BofAML. “The capacity of the airports and ports,
as well as the creation of free zones, has really made
Dubai a successful centre for trade.” Above all,

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the re-export market is vital for Dubai.
“The fact that you can have goods arrive and leave
via the free trade zone means that the paperwork is very
simple,” says Tim Evans, regional head of global trade
and receivables finance, Middle East & North Africa at
HSBC. “For example, if you are exporting from China,
it doesn’t make sense to have one ship going to Dubai,
one ship going to Qatar, and so on. Instead, send one
larger ship to Dubai and re-export from there.”
Letters of credit (LCs) are popular trade instruments
in Dubai, while LC confirmations are also increasingly
common.
“There is a lot of interest in receivables finance as
a financing tool, particularly where you can wrap it
with credit risk insurance,” says HSBC’s Evans.
“Cash conversion has become far more important after
the financial crisis. People are looking very closely at
their working capital cycle and are trying to speed it
up. By doing this, companies are also removing it from
their balance sheets. This is a product that has existed
in Europe and North America for a long time, but is
only now being pioneered in the Mena region. It is a
very strong proposition in Dubai.”
UAE
With so much regional focus on Dubai, it can
sometimes be possible to overlook the rest of the UAE.
But there are important trends to be found here, and
there is a lot of investment taking place in terms of
infrastructure, and transportation in particular.
Beyond this, the UAE is also taking the lead in
looking for power generation alternatives, specifically
in terms of searching beyond the region’s traditional
powerhouses, oil and gas.
“Power generation is a big area where we are seeing
developments, both in the UAE and Saudi Arabia,”
says BofAML’s Jameson. “There is between 8 to 12%
predicted growth in electricity demand from these
markets over the next decade. To keep up with this
demand, there are a number of nuclear projects in
development. The first will be just west of Abu Dhabi,
so the UAE is leading the way.”
The suppliers for the power projects are to a large
extent Asian and Western European power generation
companies. As the projects are ongoing, there are all
of the usual trade requirements that go with that.
In addition to this, intra-regional trade flows
are also providing cause for optimism. “If you
look at something like LCs, just in volume terms,
approximately 45% is received from other countries
in the region,” says BofAML’s Knott.
Qatar
The big news in Qatar is the country’s successful bid
to host the 2022 Fifa World Cup, which is already
having a significant impact on investment in and
trade with the country.
“For the World Cup, there is around US$120bn
being invested in the stadia and infrastructure in Qatar,
US$40bn of which is for railways,” explains Knott.
The World Cup will also provide a platform for a
great deal of innovation in Qatar. After completion of
the tournament, there are plans to dismantle some of
the stadiums and send them to developing countries.
In terms of trade, Qatar is a mainly oil-based
commodities exporting country. “The main
destinations for Qatari exports are Japan, Korea, India,
Singapore and the UAE,” says Farhan Zaidi, head of
trade and receivable finance at HSBC Qatar. “When
it comes to imports, these are mainly coming from
the UAE, Korea, the US, Japan and Saudi. Products
imported include wire cable, machinery, cars and
pharmaceutical products.”
A mix of LC and open account is used in Qatar.
“In the oil and gas sector, open account is used,” says
Zaidi. “Countries in Europe, such as the UK, are
importing gas from Qatargas, and these are being done
on open account. With Asia, specifically countries
such as India, trade uses LCs for risk mitigation.”
Saudi Arabia
Saudi Arabia is another country in the region that is
spending heavily on infrastructure. “There is around
US$71bn being spent on infrastructure projects in 2013
in Saudi Arabia,” says BofAML’s Knott. “Saudi Arabia
represents 17% of the region’s GDP and it has the
world’s largest stock of proven oil reserves. These two
factors have helped drive trade growth in the region.”
Infrastructure spending in Saudi Arabia is based on
a five-year development budget of US$385bn that the
Saudi council of ministers approved in 2010. Broad-
ranging in scope, this budget is being applied to sectors
as varied as energy, transportation and utilities, through
to education and healthcare, as well as tourism. Saudi
Arabia is also following the UAE when it comes to
implementing nuclear solutions to power needs.
In terms of imports, there is also a greater consumer
need in Saudi Arabia compared to most other Mena
countries, thanks to its population size. The provisional
statistics for imports to Saudi Arabia in 2012 from
the central department of statistics and information in
Saudi Arabia’s ministry of economy and planning show
that machinery and transport equipment were the most
popular import categories, together accounting for
SR257.6bn of the total imports figure of SR583.4bn.
Asia and the European Union are the most popular
sources of imports for Saudi Arabia.
Energy exports are big business for the world’s
largest exporter of petroleum products, both to Asia
and also growing economies such as Turkey. In Asia,
it is not just China that is the big target. There are also
countries where the manufacturing sector is gaining
traction, such as Vietnam and Bangladesh, which
“THERE IS AROUND US$71BN BEING
SPENT ON INFRASTRUCTURE
PROJECTS IN 2013 IN SAUDI ARABIA.”
Martin Knott, BofAML

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are providing opportunities for Saudi exporters. The
central department of statistics and information statistics
confirm Asia as the most popular direction of exports.
Egypt
The political turmoil in Egypt for the past few years
has been well documented and the country’s trade
profile today presents a mixed picture.
“Egypt’s main export earners are to experience slow
growth during FY13,” says Alia Mamdouh, economist
at CI Capital. “The drop in oil prices will rein in oil
exports (49% of total goods exports), while weak
demand from our key markets will keep growth in
goods exports in the low single-digit rate.”
Key export destinations for Egypt are the EU
(representing 41% of all exports in 2012), Arab
nations (20%) and the US (13%).
As a net importer, the slow growth of private
spending and the expected drop in oil prices (oil
represents 20% of total goods imports) will reduce the
pace of a widening trade balance. It is worth noting
that Egypt’s key import markets are the EU (33%
of imports in 2012), Asia (20%) and Arab countries
(17%). “These imports, coupled with strong transfers
growth, should narrow current account deficit to
US$6.4bn,” says Mamdouh. “This is down from
US$7.9bn a year earlier, representing 2.5% of GDP.”
Favourable changes in the region’s political stance
toward Egypt are very meaningful in the short term.
“Saudi Arabia, the UAE, Kuwait, and Jordan have all
since given their assent to the new interim president,”
says Mamdouh.
Together, Saudi Arabia, the UAE, and Kuwait
represent approximately 80% of regional foreign direct
investment to the country. “This could in the medium
to long-term help bolster FDI once again,” says
Mamdouh.
“It is worth highlighting that the EU showed
steadfast commitment to stand by the Egyptian people
in their endeavour to democratic transition. The EU’s
support is important for Egypt, given that its FDI inflow
contribution has averaged 40% over the past decade.”
Lebanon
Lebanon’s economy is dealing with the loss of one
of its most important trade partners: the country has
stopped trading with Syria as a result of the ongoing
civil war.
Most exports from Lebanon still stay within the
Middle East, with countries such as the UAE and
Saudi Arabia being particularly popular destinations.
“Jewellery is one of the key exports for Lebanon,
due to the value of the products and the skilled
handcraft workers in the country,” says Karim
Nasrallah, managing director at The Lebanese Credit
Insurer (LCI). “A lot of jewels will come in to Lebanon
– for setting of precious stones or for transformation,
for example – and will then be re-exported.”
The past few years have seen the emergence of
alternative trade instruments in Lebanon. Companies
such as LCI have been offering factoring and reverse
factoring services for both domestic and international
corporates.
“Although the banking sector is very liquid, there
is a big mismatch between the supply of, and the
demand for, credit,” says Nasrallah. “The banks are
not lending. There is a lot of demand for loans, but
the sector that is predominantly made up of SMEs
cannot afford to borrow. The banks are still lending
in a very traditional way, such as against guarantees,
for example.”
In a conservative banking environment such as this,
the drive towards innovative trade financing solutions
may be lead by the non-bank sector.
“ALTHOUGH THE BANKING SECTOR
IS VERY LIQUID, THERE IS A BIG
MISMATCH BETWEEN THE SUPPLY
OF, AND THE DEMAND FOR, CREDIT.”
Karim Nasrallah, LCI