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Top takeaways from TXF Middle East

Last month TXF was delighted to welcome a host of international trade, export and project finance experts to its inaugural Middle East conference. The forum discussed and debated the trade and investment landscape across the region, from changes in debt levels and new forms of financing to geopolitical challenges and exciting frontier markets. Here are some of the key "takeaway" points from the event.

Last month TXF was delighted to welcome a host of international trade, export and project finance experts to its inaugural Middle East conference. The forum discussed and debated the trade and investment landscape across the region, from changes in debt levels and new forms of financing to geopolitical challenges and exciting frontier markets.

Here are some of the key “takeaway” points from the event:

1) Proactive measures bolster economic outlook: While deficits are expected to remain high, real GDP is projected to rise in 2017. The significant fiscal measures adopted by countries in the GCC – including fuel subsidy cuts – and the improving liquidity situation in the banking sector probably mean that the outlook for 2017 is better than that of 2016. This is further driven by strong political will and proactive measures towards adopting pro-growth policies.

2) Challenging geopolitical climate with key unknowns: The region has a myriad of geopolitical hotspots and problems but, in spite of this, new business and projects continue to come into the pipeline. As well as the difficulties engendered by troubled hotspots such as Syria and Yemen, real unknowns remain in the form of Turkey (and President Erdogan's intentions), as well as the Kurdistan/Iraq scenario. 

3) Oil price looks set to rise: For the first time in a long while there is a serious prospect of a rise in oil price, with the current stage of poker and power play looking like coming to an end. This will be key as the oil price has been a big issue for producers and corporates, as well as governments trying to work out their budgets.  

4) Rise in debt and debt forms creates opportunities:  The Middle East is a region that is discovering debt. In this sense, it is entering a new stage in its development which will lead to financing opportunities across the spectrum. Yet this also poses challenges, for example in the establishment of debt departments for sovereigns and the danger of becoming over-leveraged. For corporates, they face a banking sector in which the largest players are being more selective. 'Fewer but deeper' relationships seem to be the order of the day. On the local GCC bank front, they are back in the market for dollar-denominated financing; and institutional investors within the region are becoming increasingly important for project and ECA-backed deals going forward. 

5) An increased role for the insurance market: The credit & political risk insurance market has strong growth prospects on the back of the deal drive towards this region. The drivers behind its usage differ to Europe though, where capital management for example is a big driver. Indeed, understanding of the nuances of how local and regional banks approach insurance – rather than applying a Western or international template – is key to succeeding in the MENA insurance market. Within the trade and commodity sector, private trade credit insurance is seeing an uptick. In addition, either as a complement or competitor to the ECA offering, the private insurance market is seeing an increase in appetite and uptake, which is expected to continue.

6) ECAs can be very flexible partners: The need to explore the differences between ECAs before selecting one is critical. However, what cannot be underestimated is the flexibility of ECAs and users’ ability to shape their products and offerings somewhat if they have the right project, expertise and approach. Assuming an ECA is not a suitable fit because its off-the-shelf offering is not suitable could preclude deals that are actually perfectly feasible with a more detailed and patient approach.

6) Dubai is rising as a trade hub: Dubai continues to develop as a trading hub within the GCC region, and as a conduit for trade between regions. The continued industrial and urban development, and its overall diversification are key themes. It is also establishing itself as a great hub for talented professionals from emerging markets to relocate. The development of local businesses and certain groups, such as insurance, are strengthening the capacity of various sectors. The Sace opening of a representative office in Dubai this year is an example of this trajectory. The presence of more trade credit insurance providers, combined with strengthening regional and international banking offices, provides a powerful tool to facilitate trade in the region and mitigates against the aforementioned effect of geopolitical uncertainty. 

7) SCF is growing (partly on the back of tech advances): The supply chain finance (SCF) scene has made major inroads in the region, even if usage rates remains well behind other regions such as Europe or North America. The definition of SCF, despite the ICC et al’s efforts, remains a real problem and standardisation efforts will inevitably take time to normalise into the culture. This however has not dented banks and non-bank providers’ efforts to raise awareness and educate on SCF. One of the big questions that has to be answered for SCF to fully take off surrounds how risk-sharing is managed – who will take responsibility for/guarantee different elements of risk within a transaction. With regards to trade technology in SCF and short-term trade, there is a desperate need to go paperless as much as possible, and within trade finance we need much greater efficiency all round. New technologies are gradually being integrated into corporates’ toolboxes and this will have a big effect moving forward.

8) There is heightened ambition and a strong project pipeline: The growing ambition of some of the region’s biggest corporate borrowers has been a highly-distinctive pattern over last couple of years. Many of these borrowers are looking to ECA financing for their projects and transactions for the first time; for example we’ve seen Kuwait come to the table for ECA-backed projects. Similarly we’ve seen some ECA activity in Iraq and Iraqi Kurdistan. With such success stories, there will surely be more in the market to come. Indeed, the activity we have seen may well pale in comparison to the huge expected project pipeline, with major deals expected to be coming out of countries such as Oman, Qatar, UAE, Egypt and particularly Saudi Arabia in the next two to three years. For some, the use of sovereign guarantees will be a big talking point. 

9) The region is balancing its ‘old’ and ‘new’ economy: There is a distinction between old and new in the region, with the industrial diversification taking place in a number of jurisdictions, necessitated in some cases by the decline in oil price and drive towards sustainability in the long term. This is exemplified by the increasing development seen in the downstream sector in a number of countries, eg Oman and the Liwa project, as well as the development of domestic opportunities and creation of employment for local populations. The rise and development of clean technology and renewables is another integral part of the Middle East’s 'new economy'.

10) Trade is bigger than Trump: While the conference began in the shadow of a Trump victory and 80% of the audience thought his election would be 'bad for international trade', the subsequent sessions proved that international trade is far bigger than Trump – indeed than any one individual – and will not be derailed by him. For trade to prevail, you need experienced and dedicated trade practitioners, and the conference has showcased that there are plenty of them in the region.

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TXF China brings an exclusive group of senior structured finance professionals together in Shanghai for a day of collaborative discussion of regional opportunities and productive network building.

TXF China 2019