HSBC

Commentary

Turkey is a challenging environment – but it works. Inflation is around 85%, the currency is depreciating rapidly and very expensive to hedge, and funding is regulated and very hard to obtain. Two years ago, restrictions were placed on the remittance of dividends, though today, those restrictions have been lifted and there are no formal exchange controls. 

Despite all this, participants on our call generally reported growing businesses, with positive results.

The main challenges:

• Overdrafts are not available, or they are prohibitively expensive. This is not new: the country has always imposed cost penalties on short term borrowing. The central bank now requires a reserve deposit for all loans: one participant said this was 60%, while another reported 200%. Either way, this has effectively made local loans all but impossible.
• One way of satisfying reserve requirements is to purchase Turkish government T-bills. No foreign bank is prepared to do this, so funding via international core relationship foreign banks is no longer possible. Local banks are generally also reluctant to lend: the few exceptions are government owned banks.
• Bank deposits in foreign currency hardly receive any interest; local currency ones attract interest at around 30%, against an inflation rate of about 85%.
• Given this, and given the high rate of inflation, there is a lot of pressure on working capital: customers are seeking longer payment terms, while suppliers are looking to be paid early. One participant has sought, without success, to put in place supply chain financing solutions.
• Most participants manage to run their businesses with no debt. Cross border intercompany

Commentary

There are some things in life which are always a fixed time in the future: the big joke about nuclear fusion is that it is 30 years away – and it was 30 years away back in 1970. Similar comments have been made about Vietnam’s economic potential: despite being hailed by many as the next China for economic growth, with its population of nearly 100 million people, and high levels of education and entrepreneurship, it has remained one of the more difficult places to do business and manage cash.

• This call showed that the economy has made progress. Participants generally have businesses which are profitable and generating cash, and obtaining and remitting hard currency is not the major challenge it used to be. However, there is a lot of bureaucracy to be complied with, and it is not plain sailing.
• Cash repatriation and trapped cash are issues. The only truly viable way of extracting cash from the country is via dividends – this means cash accumulates until the financial year has been closed, audited, and tax paid.
• One participant has been involved in a situation where cash was repatriated via a prepayment of intercompany royalties – this required approval from the central bank.
• Intercompany loans out of the country are

Commentary

Saudi Arabia occupies a pivotal, and highly unusual, place in global politics and the world economy. As the world’s largest exporter of oil, and the holder of the second largest reserves of oil and gas, it is an essential part of the global economy – and has traditionally been relatively aligned with western and capitalistic countries. At the same time, it is a profoundly religious absolute monarchy, which practices a particularly conservative brand of Islam. This has always placed limits on its co-operation with western countries – limits which are being tested even more than usual in the current environment.

The current situation is particularly complex, as was clear in the call. Saudi Arabia has always imposed severe restrictions on foreign companies and banks, requiring local partners, and imposing local signatories and approvers for most, if not all, transactions. Limitations on where foreigners could live, and what they could do, have meant that many expatriate employees preferred to live with their families in Dubai, and commute to Saudi for the work week. However, the country has recently launched “Vision 2030”, which aims to open up the country and prepare it for a post oil future. This ranges from promoting tourism, allowing women to drive cars, and potentially allowing alcohol sales in specific places, to mega projects such as building a new city in the desert. It also includes pushing MNCs to transfer their regional headquarters to the kingdom. At the same time, foreign ownership is now allowed, either using a Saudi sponsor (with fees), or by paying 20% taxes. 

These developments are viewed positively by the participants – though several cautioned that there are many conflicting undercurrents in Saudi society, and the situation can always change at short notice. In all cases, Saudi Arabia is a large, and profitable, market, to which all our participants are fully committed, irrespective of the operational challenges.

Treasury practicalities:

• Nearly all participants sell into Saudi from an offshore location, usually in USD. The currency is pegged to the USD, and there are no exchange controls, so things generally work well.
• Several participants have opened local branches or subsidiaries, either to provide services or to act as sales offices, or technical offices to manage regulatory issues.
• To participate in the mega projects being run by the government, it is a requirement to transfer any regional headquarters operation to the kingdom. There is direct competition with other countries in the region for this, particularly the UAE.
• Saudi regulations state that the bank signatories and transactions mus

Commentary

Pakistan, Bangladesh, Sri Lanka – three countries with sizeable populations and even bigger economic and social problems. They are difficult places to do business at the best of times – but they have become even more problematic with recent world events, limiting tourism receipts in Sri Lanka and restricting the apparel export business in Bangladesh.

The themes across the three countries were remarkably consistent, though there are variations in the detail:

• For all our participants, these are important markets, so they are staying there, even though it is very difficult to get currency out. However, one participant is in the process of divesting their entity in Pakistan.
• FX has always been an issue in these countries, but it has got worse recently. However, the prospect of an IMF package has led to some improvement in Sri Lanka.
• Officially, none of the countries has strict exchange control regulations, but in practice, they are restricting the outflows of hard currency by a series of administrative measures. Goods imports tend to be prioritised over services, royalties and dividends.
• In Pakistan, central bank approval is required for all