One thing showing up very clearly in the crystal ball of commerce – affecting transaction banking in particular – is that the face of global trade is changing.
As we report in this issue, more than 150 fund managers, investors and bankers attended an HSBC conference in Dubai in March to hear global and regional economists and analysts debate with traders and bankers.
One of the key messages that came across was that emerging markets’ growth would outpace mature markets. What was also apparent was the continued interest in the Middle East from the world’s investment community.
It was said that in spite of the uncertainty and difficult macro-environment, there was real optimism and confidence in the long-term outlook for the region, “especially in terms of its interplay with other emerging markets”.
By coincidence, March was also dubbed “the month of the emerging markets” as both the Dow Jones Islamic Market Index series and the conventional Dow Jones indexes saw composites from the Middle East and East Asia rise.
A further fillip was the news that the Gulf States have projects worth an extraordinary US$2.2 trillion in the pipeline. Kuwait alone, for example, has announced a five-year plan worth an astounding $104bn. However, it is not just emerging market trade that is a current talking point within the MENA region. Inter-GCC trade has risen more than four times since 2002 due primarily to the establishment of a regional customs union. Worth only $15bn in 2002, regional trade soared to an incredible $65bn in 2008, the Federation of GCC Chambers of Commerce was told at an event in Doha in April to mark its 30th anniversary. Much of this was attributed to the rapid development of the private sector, now said to be capable of sustaining the regional economy in the face of dwindling oil prices.
Turkey is a huge market with an eye on membership of the European Union, and its strategic position between Europe and the Middle East has sparked increasing growth in Turkish–Middle Eastern trade flows. However, Turkey’s local banks may have to brush up in terms of offering transaction banking services and products.
As we explain in our “Meet the Neighbours” article, the concerns of Turkish corporates have changed, and the imbalance between domestic cash management and trade finance provisions must be redressed if local banks are to rise to the
market’s current challenges.
The chief anxieties of Turkish corporates are international reach, global understanding and the ability to ensure that cash can be used
effectively and efficiently worldwide, despite trade and/or tax restrictions. As a result, they require more from their transaction banking solutions, and the answer may lie in collaboration between domestic and international banks.
Perhaps the biggest indication of the “bridge” between emerging markets is a long-term upward trajectory in demand for Middle East oil and other hydrocarbon products, especially from the Asia– Pacific region.
As our lead article (“Oil Joint Ventures: The Refining Touches”) makes clear, consumption of crude oil in Asia–Pacific rose from 21.4m barrels a day (b/d) in 2001 to an estimated 25.4m b/d in 2009. This figure is expected to rise to 25.9m b/d this year, and to around 29m b/d by 2014. It is a similar story for natural gas. In 2009, the region consumed an estimated 459bn cubic metres (bcm) and demand of 582bcm is forecast for 2014.
Interestingly, though, Middle Eastern energy exporters have not been content simply to export hydrocarbons to Asia. They have also entered joint ventures to build refineries there to process the raw products. All of this investment and on-the-ground commercial activity in Asia by Middle Eastern energy companies creates considerable banking, cash management and regulatory challenges for treasury departments – challenges
made more difficult by the diversity of cultures and languages.
However, no matter what hitches there may be – or learning processes that might be required – it is evident that the flow of world trade is gradually changing and, increasingly, transaction banking and trade finance techniques will be among the driving forces.