Treasury and Trade Solutions
32
Greater centralization
Historically, the diverse economic,
regulatory and political environment
in the Middle East and Africa
has meant that many companies
managed both their operations and
treasury on a country-by-country
basis. As opportunities in the region
have broadened and revenues have
risen, however, many corporates
have taken a fresh look at their
organizational structures.
Increasingly, there is a move
towards the greater centralization
of activities across the region to
improve visibility and control.
It is important to note that while
there is a broad trend towards
more open economies and financial
systems across the Middle East
and Africa, reform is occurring at a
different pace in each country. Some
markets, such as Algeria, Egypt,
Morocco and Tunisia, continue to
have tough regulatory environments,
with restrictive central bank
reporting requirements or FX
controls that make the movement of
cash offshore difficult or impossible
while limiting the potential for cash
pooling. Meanwhile, Saudi Arabia,
Turkey and Jordan have tried to
make it easier to do business in
recent years. Qatar, Bahrain and
the UAE are examples of countries
that have more favorable regulatory
environments at present.
Naturally, the degree to which a
company can centralize treasury in
the region varies widely, depending
on its operational footprint (as
well as its organizational structure
elsewhere in the world). At a basic
level, companies can establish a
center for re-invoicing in order to
improve visibility and control, and
to keep liquidity out of countries
that have regulations or FX
controls that limit their flexibility.
Alternatively, companies can create
a more expansive treasury hub,
with responsibility for FX, risk
management, import and export
trade flows, cash and liquidity
management, and working capital
management. Some non-treasury
activities, such as human resources
and procurement, are also being
centralized in shared services
centers (SSCs).
For all companies — regardless of
how operationally decentralized they
are — there are considerable benefits
to improving the regional visibility
of cash positions. It enables FX and
risk management to be addressed at
group level and improves efficiency
and corporate governance while
aligning to the company’s overall
working capital strategy. Even if
local regulations prevent the use
of pooling, by improving visibility
companies can bring challenges,
such as trapped cash, into focus. As
a result, alternative solutions can be
considered, such as increased capital
expenditure (assuming attractive
opportunities exist).
Corporates
should select
banks with local
infrastructure
and experts
on the ground
to interpret
regulations.
