Growth Opportunities in the Middle East Begins with Fintech
If you haven’t noticed lately, the price of oil is back to $50 US/barrel. For businesses in the Middle East or those looking to expand into the region, that means that the thaw might be over and that a rebound is at hand. Of course, oil is not the only business or determining trend of the region; megatrends that are occurring worldwide are having a profound effect and will have dramatic changes for the Middle East.
“The Middle East today sits at the epicentre of megatrends that are reshaping our world,” said Hani Ashkar, PwC Territory Senior Partner, Middle East.
Growing population, changing trade patterns, urbanization, climate change and technology will affect the area especially hard. Consider, the youth unemployment rate is 28% (one of the highest in the world), and that the population will grow another 50% by 2041. This is leading to rapid urban growth and the resulting infrastructure problems.
During times of substantial change are also times of substantial opportunity. Look at the recent announcement of Cairo Capital, a way to bypass the issues of urban redevelopment by just building a whole new city. To get that project going requires $20 billion dollars in financing and demonstrates the key position finance has in developing Middle East opportunities.
The region has its share of powerful, well-funded banks and these banks have a growing asset base. For example, the number of millionaires in Dubai and Saudi Arabia is projected to grow from 330,000 to 500,000. However, the region’s banks are traditional by nature and tend to focus on large clients, only funding a small portion of private business.
Many of the smaller firms, the drivers of growth in most areas of the world, seem disconnected from the formal financial sector, which is a major hindrance to growth.
Reconnect Banks and Firms
“Finding a way to reconnect banks and firms is crucial to enhance growth opportunities in the region,” said Debora Revoltella, chief economist of the European Investment Bank.
To improve, the banks need to strengthen their credit risk assessment policies and procedures. This will help generate credit for companies to expand, implement new technologies and create more employment.
However, the disconnect between finance and business runs deeper than credit alone. Many businesses are not even using banks. These companies don’t use cash-flow management or payment services and a major reason is the high cost of these services.
Middle East financial institutions should take notice of the new financial changes happening around the planet. Consider US banks, while powerful now, face competition from young, upstart fintechs. Or, the growth of adoption to new banking technology in Africa.
The ability to offer better banking and payment services will not stop at the regions borders. While, still early in the game in the Middle East, ecommerce is growing at a 30% clip. Internet penetration is over 57%, with a majority accessing via mobile devices. With young, tech-savvy populations in countries like Saudi Arabia (which ranks fourth globally in active Twitter usage), the demand for new payment technology, mobile money and other fintech developments will come into significant use, with or without the banks.
Expansion into the Middle East
Many international companies have recently expanded operations in the area. For example, Uber is investing $250 million to expand in the Middle East and North Africa and now operates in nine countries: Bahrain, Egypt, Lebanon, Qatar, Saudi Arabia, Jordan, Turkey, Morocco and the United Arab Emirates.
In the fintech sector, Mastercard has partnered with Tunisian Post to launch a new electronic payment systems. Moez Chakchouk, Chairman and Chief Executive Officer, Tunisian Post, states: “The Tunisian Post has adopted a strategy that relies on social and financial inclusion through the development of new digital financial services, based mainly on mobile payment technologies and programs that are in line with the needs of low-income groups.”
Bloomberg is also seeing the opportunity and has done a major expansion of its Middle East media offerings. The expansion includes: Bloomberg.com/MiddleEast , which is a dedicated Middle East edition of Bloomberg.com; a new, Dubai-based TV studio and production crew; and a new, prime-time morning show – Bloomberg Markets: Middle East. For those intending to do business in the Middle East, as these and many other examples demonstrate, now is the time to sow the seeds for prosperity.