Dear Reader,
Responding to huge demand, we are proud to launch the region’s first home-grown publication to focus on cash management and trade. During these turbulent times, we believe an independent analysis of these core business activities and market developments is crucial to both national and multinational corporations as well as the international banking and legal professions. By interrogating developments in these sectors, a more successful financial transfer industry within the region can be fostered. In a clear and succinct manner, Cash & Trade will present invaluable market intelligence to inform and advise senior decision-makers on how to enhance business efficiencies.
The development of the Gulf Cooperation Council’s (GCC) common market is widely anticipated to herald profound changes to commerce within the region, and will signal adjustments that businesses must respond and adapt to. We can learn much from the precedents of the development of other regional economic communities, most notably the European Union (EU ).
The experience of the EU showed that, with the increase in both the value and volume of trade and new communication technologies, a rapid evolution of sophisticated trading and settlement systems took place. This evolution added a fresh layer of complexity to the management of cash and trade flows for corporations, institutions and the banking sector serving them. This complexity was further compounded by the credit crisis that preceded the current economic downturn.
Regional businesses are demanding more from their banks. Meanwhile, banks are insisting on more from their technology suppliers and correspondent bank partners. Corporations and financial institutions, in the interest of the efficient management of cash, are insisting on new products and solutions that will provide better and faster information on account balances and movements, improve transaction speeds and enhance liquidity through tools such as netting and pooling.
Where local regulatory legislation permits, banks are also increasingly being required by their corporate customers to provide NOSTRO and VOSTRO accounts, i.e. accounts held in the currency and/or territory of a foreign country that facilitates easier cash management by avoiding the vagaries of the forex market.
Corporations based in the GCC region cite “trade and finance services” as the issues they are least satisfied with. Specifically, they complain of shortcomings in the quality of the advice, products and services that are available from financial institutions. They call for a faster service when negotiating letters of credit and other guarantee and collection products. They also require more flexible finance and credit facilities as well as better risk mitigation solutions for both conventional and Islamic trade finance.
For their part, the region’s Central Bank regulators and associated entities are increasingly concerned that the financial services sector as a whole evolves in a way that ensures liquidity is available to support core trade flows domestically and internationally. As much as 90% of the world’s merchandise trade, valued at between $13 and $14 trillion a year, is funded by trade finance through letters of credit – but there are growing worries (aired at recent G20 and WTO meetings) that liquidity in these traditional, low-risk forms of credit is drying up. This is having a disastrous effect on importers and exporters, particularly those from developing economies.
The increasing shortage of credit will inevitably have a negative influence on trade flows generally, which are widely acknowledged as the engine for reversing the current economic slump.
The GCC’s banks and corporations are under pressure from their overseas counterparts, suppliers and customers (many of whom have been hit even harder by the current global slowdown) for improved trade and payment terms. This puts greater pressure on GCC banks, corporations and regulators to ensure solutions are available to deliver the crucial liquidity that is required to stimulate an increase in domestic and international trade.
We have already seen the beginning of the evolution of a new generation of trade and cash management products and expect this to accelerate over the short to medium term. This publication is designed to be a dynamic forum to inform all the relevant stakeholders of this evolution, so that they can make informed choices and ensure the best possible return on their investments. Accordingly we invite and welcome your input and support.