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REGIONAL FOCUS: MENA's Rich Promise, Challenges

Tom Burroughes

23 May 2019

When two banking groups from different sides of the globe significantly boosted operations in the Middle East recently, it showed why this part of the world is a hotspot for the international wealth management sector. And North Africa also plays host to a number of big-brand banks and local players that deserve close attention. 

For all this and other reasons, this news service honours the region’s outstanding wealth management practitioners, and is holding its WealthBriefing MENA Region Awards 2019 gala event on 13 November in Dubai.

There is a lot to focus on. For example, in late November, Singapore-based DBS said that it intended to craft a “strategic hub” in Dubai amid an expansion drive for the Middle East during the next five years. That move puts DBS up against the likes of Bank of Singapore, which opened a 75-person office in the Dubai International Financial Centre. DBS has been present in Dubai for more than seven years. Meanwhile, Lombard Odier is opening an Abu Dhabi branch.

The Gulf Co-operation Council group of countries (Saudi Arabia, Abu Dhabi, Bahrain, Qatar, Oman, Kuwait) have been a magnet for wealth managers because they are energy rich, although the area’s position between Europe and Asia has also been a lure. (Dubai has been an important hub for non-resident Indian clients, for example.) First-generation energy tycoons are retiring; the area has its share of next-generation wealth transfer challenges, and there is a need for wealth structuring advice as well as work to diversify sources of wealth. The Middle East has, according to Capgemini’s World Wealth Report last year, a total of 656,350 HNW individuals, collectively holding $2.5 trillion. That population figure rose by 2.1 per cent from 2017. 

In North Africa, jurisdictions such as Egypt and Morocco have faced geopolitical headwinds. Morocco, however, remains an important wealth market, with international names such as Citigroup and Societe Generale operating there. (For example, Societe Generale Maroc, the local arm of the French group in Morocco, opened up in the country in 2013.) Citigroup has been present in Morocco for more than half a century. First Abu Dhabi Bank, which operates private banking, has a regional office in Cairo, Egypt (along with offices in Geneva, the UAE, London and Paris. 

Middle East and North Africa regional hires keep the market region in focus. A high-profile recent example was that of Standard Chartered, which in March 2019 appointed Ali Hammad as market head, private banking, for the MENA region. (In his case, he is based in London although no doubt the role involves much travelling.)

As far as Africa is concerned, Capgemini’s 2018 report said the continent had 167,000 HNW individuals, with a total wealth of $1.7 trillion; in percentage terms, the population rose by 6.9 per cent from 2017. It may be some way behind other regions, but that is all the more reason why potential percentage growth increases could be particularly attractive to wealth managers.

Middle East
Competition is heating up in the Gulf as financial jurisdictions battle over wealth management market share. And the digital changes upending banks’ business models worldwide also affect those in the region. 

It has been reported that Citigroup wants to boost the United Arab Emirates' role as an offshore booking centre, and is working to win a full banking licence in Saudi Arabia. Emirates NBD recently opened its first branch office in the Saudi Arabian city of Khobar in the country’s eastern province. Societe Generale has created four new positions in its Dubai hub, covering the sovereign client base, family offices, and global markets sales. Mashreq Bank said that it is the first private bank in the UAE to harness artificial intelligence tech for its offerings. State Street, the US-based financial services group, recently set up its first Abu Dhabi office, located in the Abu Dhabi Global Market.

In April, media reports said that a banking licence to operate in Saudi Arabia would be issued to Credit Suisse. The statement came from Mohammed al-Jadaan, the kingdom’s finance minister. (The bank has declined to comment.)

GCC countries need wealth management savvy because they know that carbon energy will, eventually, run out. That forces these jurisdictions to develop alternative ways of making a living in areas such as technology, legal services and real estate, among others. Not all the news is positive – and that leaves aside geopolitical issues, such as the conflict in Yemen or the West's position versus Iran, for example. Some financial numbers are not totally reassuring: a recent report said that the non-performing loans ratios of GCC banks are expected to see a gradual increase in the next 12 to 24 months, although the overall size of problem assets is expected to remain stable (Standard & Poor’s). The very fact that jurisdictions such as the United Arab Emirates now have value added tax shows that they are not as able to rely on energy revenues as much as in the past. 

Financial hubs
To some extent, the drive to diversify explains the ascent of the Dubai International Financial Centre – established in 2004 – and its younger neighbour, Abu Dhabi Global Market (2015). The older of the two IFCs lived through the tumult of the 2008 debt crisis, and the past decade has seen it ride up higher again as global markets rebounded. 

Statistics cannot describe everything, but the DIFC, for example, likes to point to a 10.4 per cent compound annual growth rate in the number of active registered companies in the jurisdiction, reaching 2,003 at the end of June 2018, and surging from 747 in the crisis year of 2008. Some 614 companies are (data as of end-June) regulated by the Dubai Financial Services Authority, the regulator in Dubai, of which 493 are financial services firms. DIFC-based organisations employ more than 22,768 people. At ADGM, more than 1,000 companies are registered and over 80 firms have financial permissions. The older IFC has an edge – so far.

DIFC knows that the race is intensifying. In 2015 it set out a strategy to triple in size by 2024. And it is looking across the whole spectrum from banking, through insurance and on to areas such as fintech. In certain areas, such as family offices, the region has not even fully started to realise the potential, Salmaan Jaffery, chief business development officer at DIFC, told this publication last year. For example, he said that the potential of the family offices sector in the area is “huge”.

In April 2018, DIFC unveiled three new strategic initiatives to bolster Dubai’s growth: attracting foreign direct investment, particularly from south-east Asia through Dubai; enhancing Dubai government entities to undertake financial transactions within the DIFC by offering necessary regulatory and legal framework; and providing Dubai-based financial products to local and regional markets. DIFC has also enacted two new laws: The Trust Law, which provides an appropriate environment for the operation of trusts in DIFC (a useful tool in a region predominantly under Shariah legal codes), and the Foundations Law, which is designed to add to the wealth structuring toolkit in a way that is recognised internationally. 

Over at ADGM, that body is led by Richard Teng, chief executive. He used to work at the Singapore Stock Exchange and the Monetary Authority of Singapore, and he brought his experience from the vibrant Asian city-state to the GCC table. At the end of 2017, financial institutions at ADGM collectively oversaw about $5 billion of assets; by end of the first half of 2018, that figure has skyrocketed to $23 billion, he told this publication last year. Firms registered in the ADGM include Citi, HSBC, State Street, UniCredit and BNP Paribas. Family offices are setting up in ADGM.

Tech
As this publication has reported before, the MENA region, and GCC in particular, is as excited by fintech and developments such as artificial intelligence, blockchain ledgers and machine learning as the coffee bars of California, Singapore or London. 

For example, Mashreq Bank says that it is the first private bank in the United Arab Emirates to harness artificial intelligence and robotics into its business. The bank, which provides services including wealth management, has worked with the US-listed Virtusa Corporation, which provides digital strategy, engineering and IT outsourcing services. The firm implemented the tech firm’s Blue Prism’s Digital Workforce offering.

The MENA region is complex and challenging but also rich in opportunity for wealth management.