Middle East: a high-potential region
Interview of Simon Eedle, Regional Head, Middle East at Natixis
Could you share your outlook on the financial sector in Middle East for 2018?
2017 was interesting : the lower oil price led governments and government-related entities (GREs) to borrow more, but this did not translate into the bumper year that many international banks had expected.
The reasons are twofold: first, that local banks quickly succeeded in diversifying their own sources of funding, and so were able to continue to lend; second, the additional borrowing by governments was done in the bond market. The result is that most institutions are hungry for assets, which looks set to continue in 2018, putting conditions very much in borrowers' favour.
This being said, we see a number of interesting opportunities in the coming year. The rising wave of privatisations in the government sector and the continuing opening up of local markets to foreign investors create clear opportunities for advisory services.
On the financing side, there is the huge ongoing renewables program as governments meet both additional demand for power but also look to replace old, inefficient plants. As one of the leading renewables banks in the Middle East, we will look to continue to enable this trend.
Finally, regional investors will be looking to diversify their investments globally, making us very well placed to provide investment and hedging solutions backed by our global offering.
What are the biggest uncertainties for the financial sector in the region?
Uncertainty is part of life in this region. A recent example is the seismic shift in the fiscal situation in the GCC since the decline of the oil price in 2015. Taking a step back, we should bear in mind that four of the six GCC countries are rated 'A' or above, meaning their credit quality is still much stronger than most emerging markets. Furthermore, the fact that the region's main export is priced in US dollars provides stability to the local currencies.
The big worry is of another large oil price decline, which would weaken the economic circumstances of the GCC, leading to more severe austerity measures or unsustainable fiscal deficits. Our house forecast is that oil remains at current levels over 2018 supported by OPEC output cuts and increased global demand on the back of solid economic growth.
Could you tell us about Natixis' activities in the Middle East ?
Natixis has had a presence in the Middle East and Dubai since 1998, and we opened our branch in the Dubai International Financial Centre (DIFC), in November 2006.
The Dubai Branch serves as Natixis' regional platform for the Middle East. Ninety per cent of our revenue is generated in the GCC countries, but we equally cover Egypt and the countries of the Levant.
Our business in the region was historically based around structured finance, primarily in energy and commodities, and project finance.
We have transformed the way we do business over the past five years, from a financing-led model to a true client-centric approach. Under Natixis' 2018-20 strategic plan, New Dimension, we are taking this further through a focus on delivering comprehensive solutions in the bank's core sectors of expertise, namely Energy & Natural Resources, Infrastructure, Aviation and Real Estate & Hospitality.
Green and sustainable finance is also at the forefront of our activities. We ranked first for renewable energy infrastructure financing in the region in 2017, and are also able to draw on Natixis' deep global expertise across sustianable finanance, for example in green bonds where were are a European leader.
What differentiates Natixis from its competitors locally?
The competition from local, regional and global players in the region is intense. We need to constantly ask ourselves why our clients should work with us rather than with our peers. We see three clear reasons:
-First, by always maintaining a portion of all loans on our books, we stay aligned with investor clients' interests, while providing them with exposure to otherwise inaccessible asset classes.
- Second, the proximity of our teams to our clients. The local setup we have put in place over the past five years has been especially successful in structured finance, where our clients greatly appreciate being able to work on complex transactions with our Dubai-based specialists.
-Third, a solutions-driven approach. We do not emphasise flow or transactional business, and the flow offering we do have is designed to support our solutions. This is the complete opposite of the product driven approach that large-scale flow operations tend to lead to. Our solutions focus has been particularly successful in our global markets investment solutions business, and in trade finance. It sets us apart from our peers.
Could you tell us more about your development plans for the coming years?
The expansion of our Middle East platform is a key target under the New Dimension plan. This is about continuity: building on our successes of the past five years, both through the businesses we have already established in the region, and through new ones. One example is equity derivatives, where Natixis is a widely-recognised global leader. We have taken the decision to expand our franchise in the Middle East through an on-the-ground team in Dubai, following the successful model we employed to establish our fixed income solutions business here. We will do the same with equity finance, once again building a local presence on the back of Natixis' global expertise. The biggest development, however, will be the creation of a local investment banking team. Our approach will be very focused, offering advisory services in Natixis' sectors of global expertise, namely energy and natural resources, infrastructure, aviation and real estate. On the investor side, we want to strengthen our business with governments and sovereign wealth funds, which are important clients now on both sides of the balance sheet, as well as with family offices, many of which are larger than the regional asset management firms in terms of assets under management. In terms of geography, our main challenge is to increase our wallet share in Saudi Arabia.