Published: August 01, 2012
The Middle East & North Africa (MENA) is one of the most culturally and historically rich regions of the world, offering a wealth of natural resources with both the appetite and potential for enormous growth and diversification. At J.P. Morgan, the fourteen countries that comprise MENA are central to our growth and investment strategy as we anticipate and respond to growing interest in the region amongst the large multinational corporations that comprise our customer base. In this article, we discuss the growing importance of MENA to our customers, and how we are supporting their strategic plans in the region.
J.P. Morgan has a long and illustrious heritage in MENA, with a steady expansion in the depth and geographic reach of our activities ever since we first established ourselves in Saudi Arabia in 1933. Over recent years, we have further increased our commitment to the region, with 200 professionals now based in MENA, an increase of 75% over the past 18 months, and with 250 anticipated by the end of 2012. Not only have we expanded our reach across the MENA countries, but we provide our financial institution and corporate customers with a full range of services across commercial banking, treasury and securities services, trade services, investment banking and asset management.
This investment has enabled us to consolidate our reputation as the leading global bank supporting financial institutions in MENA, whilst also providing support to the increasing number of non-financial corporations that are expanding their business in the region. We continue to see and experience a surge of demand for trade finance services, not least due to the expanding trade corridors between Europe, Africa, Latin America and Asia, and the importance of Dubai as the world’s third largest export transit centre. Moreover, building a comprehensive range of local services, such as a wholesale bank in Saudi Arabia and extending our business across the United Arab Emirates, will allow us to support the needs of local corporates that are expanding internationally.
These companies are typically well-supported in their local banking requirements, but are now looking to leverage our global reach, global solutions portfolio and depth of local and international expertise, in order to support their business expansion and recognise the quality of J.P. Morgan’s reputation in the region. In many cases, these companies are involved in commodities, so we are helping to facilitate global trade whilst mitigating risk through our trade finance solutions such as offtake agreements.
Amongst our traditional North American and European multinational corporate customer base, we are supporting a growing range of industries as they recognise the strategic importance of the region as part of a global growth strategy. In addition to MENA’s already established industries, such as petrochemicals, diverse investments are increasingly being made in social development and infrastructure projects. For example, the Saudi government’s pledge to invest $373bn in these areas between 2010 – 2014, is creating significant opportunities not least for power companies, utilities, water and irrigation, plant and machinery, healthcare, education, retailers and consultancy services, to name a few. In many cases, although these companies could have had a presence in the region for some time, they may have relied on agents, distributors or joint ventures to represent their interests. With enormous potential as a key source of growth for the future, they are now expanding their investment in the region and establishing a direct local presence.[[[PAGE]]]
Companies who have a long-standing relationship with us are now seeking to expand this collaboration into MENA. This dialogue typically starts before a company has opened or expanded its facilities in MENA and extending this existing relationship, rather than building a relationship with a new banking partner, is proving particularly attractive. It is simpler and often much quicker, to set up accounts and cash management structures. There is less documentation and fewer Know Your Customer (KYC) processes are required, and equally, the business risk and operational requirements are greatly reduced. Leveraging our existing knowledge of customers’ business, and providing solutions customised to each individual market, whilst integrating them as part of our customers’ wider financial and operational strategies is of paramount importance and at the forefront of our client service strategies.
Every country in MENA has unique banking regulations and varying degrees of market sophistication; by understanding clients’ needs and aspirations we can help them take advantage of our detailed market knowledge and experience of working with customers with comparable needs. Local experts are able to help navigate through the intricacies of local regulatory compliance and market practices, which often differ considerably from those in the United States and Europe. For example, in some markets, services need to be delivered onshore, documentation requirements differ, and products and services need to comply with local regulatory, ethical and cultural requirements, such as Shariah banking. The type of support provided can even extend to where best to locate a client business - customers with large trading requirements often choose to locate in the United Arab Emirates, leveraging the infrastructure and attractive regulatory environment for trading companies. Oil companies may prefer to locate in the new economic cities in Saudi Arabia, while companies across a variety of industries are being incentivised to locate in free zones in countries such as Oman. The optimum location will depend on the industry and objectives, and it can be challenging to make a decision without detailed local and regional knowledge, so customers are finding it increasingly helpful to tap into our experience of working with similar companies.
Additionally, companies that require long-term financing, perhaps to support capital investment projects in the region, are particularly attracted to our experience working successfully with export credit agencies (ECA) in order to provide innovative financing solutions and increase credit capacity. With long-term financing likely to become more challenging in the future with the introduction of Basel III, this type of solution is likely to become more popular and significant as part of companies’ financing portfolio.
The combination of products and services that enable a company to do business easily and effectively in each individual market, together with a global approach to delivering technology solutions, information flows, consistency of service as well as cash, liquidity, funding and risk management framework, is very powerful for a company entering or consolidating its activities in a region such as MENA. Cash management and trade data can be processed through a single channel globally, and our local liquidity management solutions can be integrated into a global liquidity framework. Making payments, collecting cash, managing liquidity and repatriating cash are typically immediate considerations for companies entering or expanding into a new market or region, particularly one with the complexity and diversity of MENA, so relying on a partner bank that has the experience already in place is often critical in getting a business up and running quickly.
Not only do customers require different types of support, depending on the maturity of the business in the region, but they will also have different organisational structures. Some companies may have on-the-ground treasury management resources, while in others, cash and treasury management requirements in MENA may be supported through a regional or global treasury centre or shared service centre. We can tailor our support mechanisms accordingly, ensuring that customers are able leverage the advantages of regional or global centralisation, without losing the benefit of local expertise.
The next five years are expected to see massive transformation in a region that is already vibrant and dynamic, and we anticipate that the international corporate community will place significant strategic focus on the diverse countries of the Middle East and North Africa. We remain committed to facilitating our customers’ growth strategy in MENA in the same way as other regions across the world, and we continue to invest in resources, technology and solutions to achieve this. The United Arab Emirates, in which around 90% of regional treasury centres are based, is a particularly important location for multinational corporations, and as such, we are directing our resources and solutions accordingly.
Natural resources will continue to play an enormous role in the economic development of the GCC countries in particular, but there is a strong emphasis on diversification, which will continue to present opportunities for foreign multinationals. As this diversification process develops, talent and expertise will be particularly important to enable these countries that often have young populations to fulfil their potential. Furthermore, there will be new challenges to enable social and infrastructure development without expending valuable export resources on which the country relies for wealth creation. Consequently, innovative and sustainable development strategies, such as renewable energy sources and efficient water supplies, will become vital catalysts of growth.[[[PAGE]]]
As foreign investment continues, and wider prosperity increases, the capital markets are also likely to be stimulated, creating new opportunities for private investment as well as corporate financing through bond issuance. With our comprehensive portfolio of Wholesale Banking services, J.P. Morgan will continue to contribute proactively to market development in the region, building on our long-standing reputation in MENA for reliable solutions, our relationship approach and blend of local and international expertise.
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