JP Morgan

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

This Treasury Peer Call took place a few days after the announcement that India had officially overtaken China as the most populous country in the world. Given the increasing speculation that India might also replace China as the world’s fastest growing major economy, it seemed opportune to get a view on how things are developing.

All participants are bullish about their businesses in the country. Several already have significant operations, and most see major opportunities. The good news is that several participants are generating meaningful profits and cash – the bad news is that this creates issues in terms of cash investment and repatriation. And, of course, India is India – there are always plenty of regulations to navigate.

Main points and concerns:

• For those companies who are generating cash, it is a challenge to invest it. Most retain a conservative approach, which means safe investments – these typically return a rate which is below inflation.
• Cash repatriation is not without issues. The main vehicle is dividends: these attract withholding tax (the rate varies according to the jurisdictions), and are subject to complex tax rules. Cross border pooling is not allowed, and intercompany loans are subject to central bank approval.
• Within India, cash pooling is

Commentary

For many years, Chile has been the poster child for Latin America: after a very difficult period in the early 1970s, it has become a haven for economic and political stability, with an economy which works well, few or no exchange controls, and an environment which is more business friendly than virtually any other country in the region.

The scenario has been somewhat tarnished since 2019, with violent public protests against rises in the cost if living, and a contentious referendum on changing the constitution – changes which were rejected by a large majority. However, in fairness, it must be said that the current constitution dates from the rule of General Pinochet, and the reaction of all political parties appears to have been that the proposal was too radical, and needs to be modified to reflect the wishes of the electors.

Against this background, all participants in the call confirmed that Chile is business friendly. For one, it has become a major market, while several others have made significant recent investments and acquisitions there. No participant has any serious doubts about the country or its future, and all view the absence of FX controls as greatly simplifying their lives.

However, all is not roses, mostly due to slow progress in administrative areas:

• There is a lot of bureaucracy. In particular, FX trades must be reported to the central bank, even though they are all allowed.
• The country seems to be slower than most in adopting digitalised banking. Wet signatures are required for virtually every payment and transaction, with no exceptions, even during COVID. This adds a layer of cost and inefficiency, which is surprising – Argentina and Brazil score better on this.
• Most foreign banks seem to have a weak presence. Citi operates through a partnership with a local bank, Banco de Chile. This works quite well, but you have to ask, for example, to get the benefit of group pricing or to access Citi’s banking platforms. These are available through Banco de Chile, but they do not necessarily advertise the fact.
• Many other foreign banks are present, notably Santander and HSBC. But it does not seem to be a focus market for them. 
• The regulations are onerous, and

Commentary

Cryptocurrency, digital wallets, virtual everything – there is a huge amount of change. China has been at the forefront of a lot of digital trends, partly due to the fact it had an antiquated banking system which has been thoroughly modernised, and partly because the explosion of internet shopping in the country required a digital payments solution. This is a challenge when there are no credit cards. 

This report is based on a Treasury peer Call which explored how this is affecting members’ companies, and how they are adapting to this brave new, digital, world.

• Most participants are accepting payment using WeChat Pay and Alipay. None is using these tools to make corporate payments.
• The collections process using these tools is efficient and effective: you work with a third party (usually accessed via a banking provider), who will transfer the funds to your account the following day. One participant did an RFP, with two Chinese and two foreign banks, and found the service was identical – though pricing was different, and not transparent.
• There was no mention of billbacks, the excessively high fees and acquirors which blight the use of credit cards in other countries
• The one complaint all participants had was the difficulty linking this process to internal systems, for the reconciliation of receipts or for compliance purposes in terms of identifying the source of cash. The third party companies do provide detailed lists of payors, but it can be difficult to upload these into the ERP system.
• There was a lot of discussion about....please sign in to continue