Strength in Numbers: Delivering the Power of Digital in MENA
By David Aldred, TTS Sales Head for Middle East, North Africa, Pakistan and Turkey, Citi and Jagadeshwaran Kothandapani, Cash Management Head for Middle East, North Africa, Pakistan and Turkey, Citi
Digital disruption is exploding across the Middle East, North Africa, Pakistan and Turkey (MENAPT) region. With some of the highest smartphone penetration rates in the world, digitisation across these markets is being driven by new technologies, consumers, governments and businesses alike. For treasurers already operating in this market, or those looking to support their organisation’s growth plans into it, there are exciting opportunities to embrace this digitisation wave, improve workflows, optimise working capital, and deliver even greater strategic value to the business.
A number of misconceptions exist about the MENAPT region, not least that the local economic and business outlook is clouded by geopolitical instability. Certainly, there have been challenges, even in relatively stable territories such as Qatar – and of course the commodity markets have given the oil-producing nations something of a rough ride over the past few years, creating reserve and foreign exchange issues for many. Nevertheless, there is far more to MENAPT than meets the eye, and in recent years, the region has done much to part itself from the stereotypes of yesteryear.
As an example, the governments of oil producing economies across the region have become far more visionary, setting out clear plans to diversify away from their dependency on ‘black gold’. To this end, significant gains have been made in the region’s commercial and financial markets. In particular, there has been substantial investment – in terms of money, effort and creativity – in both digital and physical infrastructure across MENAPT. Doing so is both facilitating and encouraging a significant amount of further investment from corporates as they seek to develop and optimise their own systems and channels of delivery.
Box 1: Juggling treasury priorities
As the groundwork for a new digital future in MENAPT continues, corporates, of course, have other issues with which to contend, notably around optimising internal structures and developing efficiencies that work in harmony with the new digital way of thinking.
An immediate example of this is the introduction of the VAT regime on 1 January 2018 in UAE and Saudi, with other regional countries set to follow between now and 1 January 2019. All companies will be seeking clarity here, since it is a significant taxation shift and they will be looking to protect their interests as they grow.
With so many different priorities to address, treasurers must get a solid support framework in place – from their teams, the board, banks and vendors – to enable them to be in the best position to take advantage of market developments.
This is particularly evident in the United Arab Emirates (UAE), which continues to show leadership around achieving ‘smart city’ status. Dubai is especially keen to be seen as the ‘smartest’ city in the UAE, but Abu Dhabi is also running an ambitious project in this space. As such, the country is investing heavily in its own infrastructure, creating a genuine paradigm shift in the digital space.
In fact, the country is almost at the point of leapfrogging its Western counterparts in some respects, like financial inclusion for example. This was a key topic of discussion at the World Government Summit hosted in Dubai earlier this year and will be an interesting development to watch in the months ahead – especially since any such government initiatives will have benefits for businesses too.
Ultimately, the more consumers are ‘reachable’ through bank accounts, and the more of their lives they spend online, the more they can become part of a company’s e-commerce strategy. And by getting more customers onto their digital channels, it becomes easier for businesses of all shapes and sizes to maintain customer loyalty, both by embedding a superior payments and collections experience into that relationship, and by using data harvesting and analytics to better understand and respond to customer behaviours.
To achieve these desired financial inclusion goals, governments will not only be working closely with banks, but also with the growing fintech community across the MENAPT region. Examples include the FinTech Hive at the Dubai International Financial Centre (DIFC) within the UAE. Bahrain also boasts FinTech Bay, which is pushing to become the go-to ‘sandbox’ in terms of new solution development.
In tandem with fintech developments, e-payment and e-commerce innovations are a significant focus in the region. Governments are investing heavily in payments infrastructures, looking to embrace the global move towards 24/7/365 real-time digital payments as a means to support the growing e-commerce market – and the demands of millennial consumers.
Of course, this kind of evolution does not happen overnight, but individual governments across MENAPT are taking steps in the right direction. Not only are they innovating, but they are also calling for systemic efficiency across the payments landscape, with much of the momentum derived from the application programming interface (API) revolution seen across other marketplaces.
Turkey already has a thriving e-commerce ecosystem that leverages both payment and card payment infrastructure with the government also driving digital solutions for social and tax payments. Jordan was a frontrunner here, delivering its eFawateer project in 2014. This electronic bill presentment and payment (EBPP) platform enables consumers to pay their bills online, at ATMs and POS terminals nationwide. It has proved so successful that the format is now being replicated across the region. Egypt has also delivered eFinance and eFawry, a multi-channel consumer and businesses e-payment network and gateway solution for the development of e-commerce and automation of the government’s payables and receivables.
In addition, the UAE is setting up an e-commerce city; Bahrain is also purposefully attracting e-commerce players and is set to become a regional hub for Amazon Web Services. Other recent developments include the acquisition by Amazon in UAE of the largest e-commerce platform in the Arab world, souq.com, while Alibaba recently acquired Daraz in Pakistan. The potential for growth driven by e-commerce is enormous in MENAPT, given the size of markets such as Pakistan and Egypt – homes to 213 million and 100 million people respectively.
Treasury call to action
Although different countries in the region are approaching digital transformation in their own way, it is apparent that they are doing so with the same themes in mind. Despite the uneven progress, it is clear that digital innovation is a significant catalyst for change within the MENAPT business landscape. With this evolution, corporates must learn to reach further across the B2B and B2C divide in order to take full advantage of the digital opportunities on offer. Treasurers, too, must step up to the plate and understand the possibilities that digitisation brings – whilst still paying attention to all of the other developments in the market that matter (see box 1).