Winning business in overseas markets: Middle East and North Africa

Winning business in overseas markets: Middle East and North Africa

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Good morning and good afternoon depending wherever  you are in the world i'm very pleased to   join you today to present the opportunities in  the Middle East alongside my UK Export Finance   colleagues Michelle Leong and David Moleshead. As  her Majesty's trade commissioner for the Middle   East, Afghanistan and Pakistan, It's my role to drive trade and investment between the UK and this   dynamic region creating jobs and growth in the UK as well as driving prosperity in our home nations.   International trade is vital to drive growth for the United Kingdom's economy. COVID 19 has shown us  

the importance of keeping trade flowing and  building diverse and robust supply chains. New free trade agreements are an important part of the long-term economic recovery   providing new opportunities for  businesses and entrepreneurs   in every industry. We are also working  to break down market access barriers in   international markets for UK companies, but  global economic growth is under pressure. Despite the IMF [International Monetary Fund] forecasting a less severe recession this month than it predicted in June, the   global economy is still in deep recession and the  risk of a worse outcome than in its new forecast   is still sizable. Global growth is projected at  minus 4.4% in 2020 and in the Middle East   region real GDP is projected to fall by 4.1%.  For Britain the latest forecasts now predict  

that the UK economy will decline by 11.3%  this year, the June forecast was 10.2%.   This means that the support that DIT [Department for International Trade] gives to exporters is more important than ever.   The region I cover as HM Trade Commissioner is diverse, with the wealthy oil export nations   typically in the gulf, to frontier markets like  Jordan, Lebanon, Iraq, Iran, Afghanistan and Pakistan.   But due to the limited time today I will  focus mostly on the markets of the gulf.

UK trade with the Middle East is significant,  particularly trade with the gulf markets. Total trade in goods and services between the UK and GCC [Gulf Cooperation Council] was 40.9 billion at the end of Q2 this year.   Outside of the European Union [EU]  the gulf, taken as a block,   is the UK's second largest export destination globally, behind the US and China only.   Within the GCC the United Arab Emirates [UAE] is  our largest trading partner accounting for 43% of all trade. Buyers in the region are willing to pay more for UK made products. In fact 48% of UAE respondents to a Barclays bank survey

on the perception of brand UK said they would pay more for goods made in the United Kingdom because they perceive the quality to be higher, to be more reliable, and internationally respected. And most importantly good value for money.   However the impact of COVID and the resulting drop in oil prices will have lasting repercussions. Oil exporting countries were hit  hardest by the double whammy of the pandemic and the resulting decline in oil demand and oil  prices. Those countries which are also tourist destinations such as the UAE and Bahrain were further impacted by the drop in visitor numbers.  

Countries are beginning to reopen, however, albeit somewhat cautiously. It's clear that the region's  immediate response to the pandemic including lockdowns, increased focus on healthcare provision   and PPE supply, massive testing programs, and fiscal  stimulus packages have come at an economic price.   This has meant that budgets  across all markets have been cut   and government focus turned towards the sectors  of most importance in the wake of the pandemic.   But there remain opportunities in the gulf  despite COVID.

Sector opportunities are driven by gulf vision strategies. Priority sectors have shifted with COVID but what has not changed   is the focus on technology to deliver their  vision strategies. Priorities include education, healthcare and life sciences, smart cities including energy and infrastructure, food and drink   including agri-tech to name but a few. In education ed-tech is key because of the increase in distance   learning which is likely to be a remaining  factor. Vision strategies include healthcare   as a priority. [The] COVID pandemic has increased the  urgency of this area. Energy and infrastructure   and smart cities are also part of gulf vision  strategies. These are front and center in Saudi  

Arabia for example through its giga projects such  as NEOM, Qiddiya, and the red sea development. In   the UAE it has expo 2020 in Dubai and in Qatar it is the FIFA World Cup in 2022 where   clean energy objectives meet smart city ambitions.  COVID's impact on the oil price means that there   is increasing pressure to diversify away from hydrocarbons. Solar PV is already picking up pace   and the region already holds the record  for the lowest solar PV cost in the world.  

Food security has been an increasingly important  sector in the gulf and there is increased focus   on domestic capacity to grow food supplies. You  are here because you are interested in winning   business in the Middle East. My department  within the Department for International Trade [DIT]   have advisors in 12 markets across the Middle East  plus our regional UK Export Finance team in Dubai.   And your local Export Finance Managers in  the UK are all here to help you do that.   Thank you very much for listening to  me this morning and I'll now hand over   to my regional colleagues in UK  Export Finance. Thank you very much.

Thank you Simon for your very insightful  overview of the MEAP region.   Good afternoon everyone. I am David Moleshead senior  counsellor for UK Export Finance and together with   my colleague Michelle Leong we are based in the  region and are responsible for originating UK   Export Finance transactions across the MEAP region which is the Middle East - less Egypt   plus Afghanistan and Pakistan - but in fact most  of our activities are focused on the GCC markets.   Both Michelle and I are former bankers, as indeed  is Simon the trade commissioner that you've just   heard from. Between Michelle and myself we have  lived and worked in the region for over 30 years  

so we are accustomed to seeing changes in which  is still a very fast growing region, offering a   range of opportunities despite the impact of  COVID and the dramatic fall in oil prices.   Yes, there have been cutbacks in capital  expenditure plans across the GCC, but by   comparison to many other parts of the world these  reduced plans are still very significant indeed.   Where we are experiencing a change of approach  is in the attitude of using UK Export Finance.  

Certain sponsors have admitted to us that  it had been an intention to fully fund   multi-billion dollar projects with equity only. Now  that they see interest rates at an all-time low   they want to take advantage of this position from  agencies such as UK Export Finance whilst at the   same time squeezing the margins for the contracts  awarded. My colleague Michelle will take you   through some slides which will provide an overview  of the project activity in the key markets,   highlight the amount of market risk appetite  that's available, and then give details of some of   the projects that UKEF has supported in the recent  past. Over to you Michelle.

Thank you David. The activities of the Middle East region can  best be described by this slide which shows the   value of contracts awarded to individual countries  over the last five years and up to the first half   of 2020. Over the last couple of years the  majority of the contracts awarded and executed   in the Middle East regions are related to  or concentrated to the two largest economies   in the UAE and the Kingdom of Saudi Arabia. UAE  once had the highest value of contracts awarded   but following the slowdown in the construction  sector since last year, the collapse of oil price,   the current impact of COVID, UAE - especially Dubai -  is in consolidation phase now although we expect a   pickup of sizeable activities in Abu Dhabi to spur  the UAE economy moving forward. Interestingly there   is a steady increase of contracts awarded in the  Kingdom of Saudi Arabia and by first half of this   year the Kingdom of Saudi Arabia has overtaken UAE  and the rest of the countries in the Middle East.  

Even in challenging times with various lockdown  measures, projects continue to be awarded and   executed such as the red sea and Qiddiya and we  expect more to come to the market especially   the PPP projects. We expect the pace of growth to  increase given the Kingdom's ambitious vision 2030   and certainly UK Export Finance would very much  like to be part of the Kingdom's growth engine. The next slide shows contracts awarded by  sector. Despite the slowdown in the construction   sector, the construction sector is still very much  an important sector to the Middle East economy with   the minimum UK content searching for and financing [Clean Growth]  projects. Projects that have a positive impact   to the environment such as those with low carbon  emissions, energy efficient, pollution prevention and   control etc. will be the forefront of UK Export  Finance activities in 2020 and 2021. And henceforth,  

construction on green buildings, clean energy  such as renewables, wastewater treatment, clean   transportation like taking diesel vehicles off the  roads, and projects which reduce harmful emissions   to the environment could potentially qualify for  UK Export Finance clean growth direct lending support   - provided there is a minimum UK content in  these projects. In addition to these sectors   the priority sectors for UK Export Finance would  be healthcare and education where UK has a very   strong and established supply chain and technology.  Why technology? That's because UK is the   third largest technology hub in the world after  the US and China. Both of these countries  

have large domestic consumption and hence  they are self-sustainable within their markets   - compared with UK which has a smaller domestic  market and very different demographic. Hence UK   technology companies have to export. If you look  at the Middle East region up to 60% to 70%   of its population are below the age of 35, who  are keen to adopt new technology; and also   the region is looking to build smart cities and  this is where we believe the UK could play a role.

This slide shows that over the last two  financial years from 2018 to March 2020.   More than 60% of the transactions  underwritten by UK Export Finance globally relates   to new transactions in the Middle East. In such  challenging times ECAs such as UK Export Finance   have been tasked to step up our support to fill  the liquidity gap in the market often vacated by   the private financial institutions - which find it  difficult to fund in particular long-term projects.   As of September this year I'm pleased to announce  that UK Export Finance has increased our market   risk appetite in over 100 countries. This slide  shows UK Export Finance market risk appetite for   the GCC and non-GCC markets. As you can see, UK  Export Finance has ample market risk appetite   to finance commercially viable businesses in the  GCC markets. Markets in GCC regions such as Dubai,  

UAE, Abu Dhabi, Kingdom of Saudi Arabia, and Kuwait -  our market risk appetite is in excess of £4billion each.   For the non-GCC markets we are more  active in Iraq and to a lesser extent in Jordan   though we are starting to see a spur of activities  from Pakistan. This slide shows some of the most recent notable projects financed by UK Export Finance in the Middle East. In the UAE we provided   £220million worth of support to support the  UK contractor Kier for the construction of the 17,000 seater state of the art Dubai Coca-Cola arena,  where there were 167 UK supply chain contracts.   The construction of the waste to energy company  Bee'ah headquarters in Sharjah using recycled   materials was financed by UK Export Finance. UK  content amongst others covered the architectural   fees by the late Zaha Hadid and the purchase of  artificial intelligence from Johnson Controls.  

All four phases of Dubai World Trade Center  were financed by UK Export Finance. Construction   of the fourth phase of Dubai World  Trade Center was by the UAE Al Shafar Group ASGC.   In Oman we supported IHG contracts for  the construction of the three hospitals.   In Bahrain we provided our direct landing  facility to the UK company Bluewater Bio   for their contract to upgrade the  wastewater treatment plant in Tubli.  

UK Export Finance has also provided cover and  direct lending to finance power infrastructure   projects in Iraq. That concludes my presentation,  I'll now pass on to my colleague David.   Thank you Michelle. I would now like to take you  through some features which apply to financing   projects in the GCC region. First of all the  acceptability of UK Export Finance. As Michelle has   shown UKEF has a good track record of providing  UKEF support in the UAE, Oman, Qatar and Bahrain   so it's well regarded and understood by buyers,  borrowers, contractors, and banks. The Kingdom of Saudi   Arabia is now getting engaged in using ECA finance  as it wants to bring international - hopefully UK -   expertise, and also because of the size of their  plans, alongside additional sources of finance.   Other sources of finance that should be noted: many of the GCC sovereigns have   very good access to capital - firstly from their  own reserves and sovereign wealth funds - which   have historically benefited from oil revenues. Also  from their reputation in the international capital  

markets. Since COVID all the GCC countries  except Kuwait have tapped into the capital   markets. This has been more challenging for Oman  and Bahrain but the Kingdom of Saudi Arabia, UAE,   and Qatar have been able to raise debt issues  which have been substantially oversubscribed.   It was also interesting to see that they have  obtained terms of 30, 40 and 50 years - unheard of   previously in the capital markets in the Middle  East. Also markets like Kingdom of Saudi Arabia   banks are pretty liquid and with a bit of persuasion from above are able to   offer long terms at attractive pricing. What  prompts buyers to take UK export finance?  

First of all the process of procurement  and finance are not linked in quite the same   way that we see in other markets. The procurement  team will look at contracts from a technical   and commercial basis and sometimes take into  account the in-country value and take no heed of   the financing potentially available alongside the UK source contract. It's only when the treasury   team steps in - sometimes months later - after the  contracts have been let, do they consider the   financing retrospectively. This can be supported  on a reimbursement basis by UK Export Finance   but it has challenges because the values  being sought then are usually in the hundreds   of millions of dollars if not billions. The credit  risk is not the problem, it is being able to undertake   the necessary due diligence to put the facilities  in place as quickly as the borrowers would like.  

It is unlikely they will look at small values for  UKEF financing on a standalone basis, and by this   I mean below tens of millions. However these can  be accommodated if they're included as part of a   JV arrangement or as a dedicated subcontractor.  Our preference is for the loans to take place   before construction and or supplies are  entered into and this allows exporters   to benefit from certainty of payment during the  contractual process. What are the recent trends?  

Those buyers and sponsors that have  access to the capital markets are very conscious   of their ratings and the effects of any downwind  movement impacting the cost of future funding.   There are definite moves to take the projects  off balance sheet, and PPPs are very much the order   of the day. PPPs have been used very successfully  in the oil and gas and the power sector where   there is known demand, but some of the other  sectors now being considered could be more   challenging especially if governments  are looking to reduce the level of   support underpinning these projects.  How does UKEF compare to other agencies?   First of all we are seen to be more flexible than  other agencies. UK Export Finance was one of the  

first agencies to support an IPP project in the  region, and as it happens I was involved in the   arrangement of this in 1995 in Oman. We were  the first ECA to undertake the first Islamic   [capital] market transaction in the same deal which was  to cover the delivery of Airbus A380s to Emirates.   We were the first ECA to complete a transaction  in Dubai after the previous financial crisis. The  [fact that we require]

20% UK content [to be] eligible for UKEF support puts  us well ahead of many other ECAs who require 50%   and above national content. Of course, as you've  heard before Michelle, the clean growth renewable   energy direct lending facility - at very attractive  fixed rates - is well regarded by sponsors. [Ineligible] ... [This] gives us confidence that this will  give UK exporters an additional edge.   Does the lead contractor need to be a UK  company? Again this puts us ahead of other   agencies who restrict their support to their  own national champions. In the recent past  

UKEF has supported contracts by companies  such as GE, Siemens and Technique. These of   course are not UK groups, but they either have the  footprint or the ability to source UK content.   We've gone even further, one of  the most active users of UK financing   is ASGC, a Dubai based contractor, who we have  supported with transactions in Dubai and Angola.   In summary, we're confident that you will be  able to [rely on us] to support you in the immediate future.  

There's a multitude of opportunities and  high value projects, there are many credit   worthy sponsors that we're happy to assume risk  upon, and as you'll have seen earlier we have severe   amounts of market risk appetite and some very good  attractive products. We look forward to supporting   you to win business in our markets. Thank you  and we're now ready to answer any questions.

2021-01-06 05:44

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