HSBC

Commentary

Saudi Arabia and the United Arab Emirates. These two countries draw a lively and enthusiastic participation every time we discuss them: they are important markets, due to their wealth, but they have historically been quite challenging. Despite their strong financial position and stable currencies, their regulations can be difficult to manage – and their position at the heart of a region of massive geopolitical tension adds to the complexities.

Saudi Arabia, while sitting on massive oil reserves, has always been very conservative. It only began allowing 100% foreign ownership of companies in many sectors in 2019: most MNCs worked via distributors, joint ventures and representative offices. So the economy is relatively open, but MNCs often have a weaker presence than would normally be expected. With recent political changes, many rules have been relaxed. Tourism and inward investment are encouraged and there are some truly massive infrastructure investments. As companies establish their onshore presence in the country, they are even required to establish a regional headquarters.

The UAE has always been more open, though this varies amongst the seven emirates which compose it. The two main ones are Dubai, which has always been a major port and trading centre, especially between India and East Africa, and Abu Dhabi. Dubai is the most open, and has traditionally welcomed foreigners and foreign investment: it is where most of our peers have operations – often managing the region - and where it is easiest for them to work.

Corporate Treasury & Banking in Saudi Arabia

Most of our corporate treasury peers are setting up RHQs in Saudi, as required by the legislation. Many of the challenges they face are part of the process of transitioning from an offshore mode of operations using distributors and representative offices, to being fully onshore. To some extent, the same can be said of the international banks.

Though the currency is pegged to the US dollar, and freely convertible, there are challenges:

• Cash pooling is only allowed with official....

Commentary

China is in the news a lot at the moment. Interestingly, this – well attended - call was very much in line with our usual discussions on the country: not a single mention of trade wars or tariffs. On the other hand, there was a lively discussion about all the usual issues related to pooling cash and managing banking relations – issues which show no sign of going away.

All peers on the call reported that business was strong, with most generating cash. They also repeated a theme familiar to people who know China: contrary to the common perception of a highly rigid and regimented society, there is a lot of confusion as to what the regulations actually are, and there are regular inconsistencies in how they are applied. 

This “summary” is long (the full report is 15 pages of granular detail): a lot of details were discussed, and these are generally appreciated. As always, these are the experiences and views of our peers, (lightly) edited for clarity.

The main topics:

• Domestic cash pooling: many, but not all, peers practice this. However, they do all come up against limits related to the equity of the pool header. 
• Cross-border pooling: this is where there is the most uncertainty.
  • There are two main schemes, operating under licences provided by either PBOC (People’s Bank of China) or SAFE (State Administration for Foreign Exchange). These have different quotas, rules and requirements and approval delays. 
  • There has been talk for some time that the two schemes will be merged, but there is little concrete evidence this is happening.
  • It has been suggested that, while existing schemes continue to operate, the approval of new ones has been slowed. Several peers are looking to implement new...

Commentary

Technology. Treasurers love it – and love to hate it. We depend on it, and appreciate the help it provides. But the treasury technology landscape is complex and changing fast. Treasurers have very different views on the best tools and approaches: it can be a real challenge knowing where to turn.

This call was a departure from the usual discussions on the pros and cons of robots, different TMSs and ERP treasury modules, or how AI can improve your cash forecasting. Instead, we had some very motivated peers who passionately defended the benefits of the second oldest treasury technology (after calculators!): spreadsheets. These peers’ comments bore out the conclusion from our ongoing Treasury Technology Benchmark: spreadsheets are very much alive.

Everyone understands the drawbacks with spreadsheets: they are prone to error, they are often not properly documented and can be changed too easily. They do not automatically provide sophisticated reporting tools, data is often entered manually (and potentially incorrectly), and access control can be a challenge. 

All these issues can be addressed – more below. But the peers stressed that...

Commentary

Several countries with the worst financial crises have decided to implement painful measures to improve their economies. We recently covered Turkey; this report is about Egypt, and Argentina will follow soon.

The measures are well known: significant devaluation (usually more than 40%), and raising interest rates to punitive levels - 30% to 50% is the norm. The impact on the domestic consumer is significant, but the early signs are that there is some improvement. Inflation levels are generally coming down, foreign exchange shortages have begun to ease, and foreign businesses are starting to have greater confidence, though all remain cautious.

This is certainly the case in Egypt: participants on the call all reported business levels which were difficult but not dire, and less difficulty repatriating funds. Inflation has been 36%, coming down to a reported 26% in September 2024 – but with a peak of 70% to 90% on some key food staples.

Sadly, geopolitics cannot be ignored. Turkey and Egypt live in a troubled neighbourhood: Egypt has a border with Gaza - a massive influx of refugees could destabilise the country. Its own recent history is one of constant conflict between more radical religious elements and governments which tend to be authoritarian, but relatively secular and pro business. Importantly, the United Arab Emirates and Saudi Arabia were cited by participants as a major source of foreign investment, which has considerably helped with the foreign exchange situation. In particular, the UAE has signed a multi billion dollar agreement for the development of a significant area on the Mediterranean Sea – the precise amount is not certain, but it appears to be at least USD 15bn, with total value potentially being above USD 100bn.

There is a problem on the southern border as well: Ethiopia is building a dam on the Nile. Egypt takes a very dim view of this – but it is not receiving much publicity.

What does this mean in practical terms?

• Pressure to use documentary credits (LCs) has....