Changing region, changing business

Business is changing as rapidly as the MENA region is transforming. The evolution of risk in the MENA region, to a more risk-averse, diligent approach, is due to the various events that have unfolded regionally and globally. Take the political unrest that has rippled through numerous countries and the ongoing turmoil in Yemen, Syria, Iraq, Turkey, Libya and Egypt, which have together, created a climate of uncertainty. The sharp decreases in oil prices too, have played a major role in impacting various national economies. In addition, although the full effect of the sanctions being lifted on Iran after nearly 40 years have not been felt, some countries and businesses have been affected – both positively and negatively.

With headlines coming out of the region being made on a daily basis, some countries are seemingly more affected that others in these times. Take for example Saudi Arabia, an oil-rich country which took a hit when its oil production and prices plummeted. In addition, the construction sector has been greatly impacted in Saudi Arabia, where it is facing serious delays in payments and default of payments from some companies. The Kingdom is undergoing a rigorous plan to diversify its investments into other sectors, to shift the heavy reliance on oil.

The United Arab Emirates on the other hand has seen various changes in its trade sector, which has been significantly affected, such as in the food sector. This is due to the evolution of the geopolitical situation with Iran and currency devaluation in some African countries, which were main importers of food from the UAE.

Another market that has been impacted is Egypt, known as a ‘risky export market’. This is due to the significant devaluation of the local currency, the Egyptian pound, as well as the new regulations and controlling measures taken by the Central Bank of Egypt, which have resulted in slowdown of imports of different types of goods.

Other countries too, have felt slight economic shocks, and companies are altering their business models and taking preventive measures as they have become more risk averse.

Trade credit insurers in the MENA region have had to adapt to very specific adverse market conditions, and trade credit insurance, which protects a company’s biggest asset, trade receivables, continues to transform as a result of the repercussions of regional and global developments. Despite there being a spike in the demand for trade credit insurance policies after the Arab Spring developments, numerous factors in trade credit insurance have changed, such as the approach towards underwriting, how risk is viewed, and how insurers cover different sectors.

Some notable steps that few trade credit insurance companies operating in the MENA region are taking in these challenging times include:

Focusing on more ‘stable’ markets such as Oman, Kuwait and Egypt, to develop business prospects and reach. Despite the difficult economic situation being experienced in these countries, the credit default remains positive and stable. For example, despite the fact that imports to Egypt are deemed risky due to the currency fluctuation and foreign exchange restrictions, as well as difficulties in obtaining foreign currencies, the domestic policies that are issued in the Egyptian pound are showing favorable performance.

Companies in trade credit insurance are also being more vigilant when it comes to KYC or ‘know your customer’. Prospective clients are now subject to a complete analysis, including: Prospect Financial Performance, Prospect Credit Management and previous performance, a review of the line of business they operate in, type and quality of customers etc.

In addition, in order for companies to grant coverage for each customer, this decision is significantly influenced by macro analysis factors such as the country, sector and subsector performance in which they operate.

In summary, the challenges that regional and global changes have brought on to businesses will result in a more risk averse climate, with companies being more attentive to ‘red flags’ before venturing into business with clients or countries.

Karim Nasarallah

General Manager - Lebanese Credit Insurer (LCI)