Online payment gateway Payfort taps into the Middle East e-commerce market, only to find out that the sector will exponentially grow to $69 billion by 2020. This means, the numbers will have doubled in a span of few years.

This is good. A thriving sector is strongly emerging to favour the region’s economic development, which is largely fixated on natural resources for many years. Statista, for example, shows the all-round growth in the Middle East and Africa would reach CAGR of 11% between 2018 and 2022.

Today, young consumers (or millennials) are often attracted to the shopping experience derived from the use of seamless technology, and the additional service benefits that accompany with the experience. It seems, more than half of millennials, rather look for information from online retailer than in-store personal assistance.

In fact, a report by American global management consulting firm A.T. Kearney predicts the e-commerce growth in the Gulf Corporation Countries could reach its worth up to $20 billion by 2020 because “online commerce has performed particularly well” in the recent past “against a backdrop of economic, social and political challenges.” The numbers reflect an increase of more than $15 billion, from 2015, writes Damco Blog.

It is self-evident that this shift in consumer behaviour is prompting the need for strong, reliable logistics ecosystem—a system for tracking web purchase orders, and ensuring an on-time delivery of parcels across the region, which is the primal source of e-commerce expansion.

Ergo, a debate circling the question of what is the degree of logistics expertise in the Middle East—is still ongoing.

The next round of innovation in the Middle East e-commerce landscape will rise from integrating the logistics system with state-of-the-art technology. In the e-commerce world, new-age warehouses prescribed with advanced IT and digital solutions will help to smoothline business operations.

The Middle East and North African Transportation and Logistics Market, Forecast to 2018 report identifies the MENA region to have something like long-term business opportunities “in the areas of transportation, warehousing, and freight forwarding.” Another way to describe this is the region has transpired as “a major transshipment hub,” coupled with “strategic location advantage and improvement in air and sea port infrastructures,” as told on PR Newswire.

By example, some of the urban cities such as Dubai, Abu Dhabi, Riyadh and Jeddah have well established their logistics ecosystem. In fact, the governments “recognise logistics as an opportunity for their nations and top businesses to forge a profitable relationship,” writes Khaleej Times. And in this case, the government of Saudi Arabia will further strengthen the presence of the logistics infrastructure in Saudi Arabia 2030 vision.

In line with the infrastructure, Oman announced “through Royal Decree No. 24 of 2017” the build of a railroad stretching 400 kms to connect to the mineral mines in Salalah with Duqm. The project as part of the Oman national railway network has been designed to serve freight traffic as well “connecting the major ports at Sohar, Duqm and Salalah to the rest of Oman,” according to Lexology.  

But this is not it. The One Belt One Road initiative, where China and Oman have been working together to revive the ancient trading route—Maritime Silk Road. The initiative will reinforce trade in the region by enhancing the logistics infrastructure used to transport goods between China, Central Asia, Persia, Arabia, Africa and Europe.

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It is to be noted that talks are in the preliminary stage, as of now. ADCB has been clear in stating that it is possible that “they may not result in a transaction.”

If the talks are successful however, this three-way merger would establish an enterprise with a combined total assets of $115 billion and form the fifth largest lender in the MENA region(chart 1) after Qatar National Bank ($232 billion), First Abu Dhabi Bank ($188 billion), Emirates ($130 billion) and National Commercial Bank($121 billion).

All three banks will comprise of one mutual majority shareholder—Abu Dhabi Investment Council (ADIC). It currently owns 62.52% of ADCB, 50.01% of UNB and 100.00% of Bank Al Hilal (an investment which is not publicly listed). According to the official MENAFocus press release, this three-way merger could release “long-term value through economies of scale, synergies and overall restructuring for ADIC.” It mentions that such a proposition would be beneficial for ADIC as it would merely own a more profitable combined banking group after the implementation of cost restructuring—which in-turn would lead to surplus capital release, reduce the cost of funding and enhance the quality of the assets.

While the merger is not finalised yet and is still in its early states, the move is noted to be ‘credit positive’ for the UAE banking industry overall.

Moody’s investors service described that the merger would “increase banks’ pricing power, reduce pressure on their funding costs and increase their ability to meet sizeable investments.” The company noted that the merger could contribute to the consolidation of the “overbanked” UAE banking sector, which in turn will “increase banks pricing power, reduce pressure on their funding cost and ability to meet sizeable investments.”

‘Overbanking’ was also described in further detail in the official MENAFocus press release. It referred to the banking penetration which is measured both in terms of total assets held by the banks and the size of the population. The UAE banking sector has become by far the largest in the region, with $734 billion of assets held by banks as of end-2017—which was 194% of total GDP. Central Bank of the UAE (CBUAE) data revealed that there are 46 commercial banks operating in the UAE, with representative offices for a further 9 banks. This data did not include banks operating in the offshore vicinity of the Dubai International Financial Centre (DIFC).

These lenders were reported to cater for a population of only 10.5 million—which makes it comparable with 12 domestic banks and 15 foreign bank branches for nearly 33 million individuals in Saudi Arabia. The UAE comprises of a highly fragmented market separately, with few large banks (FAB, Emirates, NBD and ADCB) comprising of 53% of the total UAE banking sector, and many smaller lenders—something that makes it ripe for further consolidation.

UAE banks structurally are a diverse mix of conventional and Islamic entities—and are known for being both retail focused and corporate aligned in their stance. From a potential future merger perspective, this is known to offer value-added synergies. Merging of banks realises healthy synergies and in-turn potentially lowers the cost of funding through economies of scale and return on equities (ROEs). Better asset pricing discipline is also forecasted after banks merge with lower concentration risks in loan portfolios.

Overall, there is a large need for banking consolidation in the UAE, and Banks have a constant need to be better positioned to adapt to the rapidly changing operating environment. In addition, there are higher compliance costs with the implementation of new accounting standards. There is also the residual impact of VAT, which was implemented in January 2018, as well as the need for stronger corporate governance frameworks that also add to costs for the banks and increase pressure on small and medium-sized banks.

There are also regulatory amendments vis-à-vis capital market enhancements that include Base III requirements on capital adequacy and liquidity. With these, larger entities will overall be better equipped to handle global changes in the banking space over the long-term.

Moody’s also noted that banking competition in the UAE had intensified in recent years—with 60 banks being noted to serve a population of nine million. This meant that there was a drop in lending opportunities due to slowing economic and credit growth as a result of lower oil prices—and naturally leading to lenders being increasingly focused on high-quality borrowers at the expense of small-to-medium-sized enterprises—who generally have higher default rates.

Hence, a consolidated Banking system will positively impact the UAE’s currency, the dirham which is pegged to the US dollar. The reduction in competitive pressures and funding costs will lead to the reduction in the bank’s contracting net interest margins. Eventually, the banks will be able to increase their scale and revenue base—and will be able to improve their ability to meet the considerable investments related to compliance, digitalisation and new accounting standards such as IFRS9.a

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Dubai-based Q&A International first initiated the event in 2015. The event aims to bring together HR and IT professionals from around the Middle East region to sharpen skills and gain new insights. Thought leaders and experts will also be present to grace the event and discuss industry matters such as trends, challenges, opportunities and disruptions.

According to Zawya, Sidh N.C, Director, QnA International, said, “The future of HR, and the organization, will be a hodgepodge mix of people and technology such as Artificial Intelligence (AI), Robotics, and IoT to name just a few of the revolutionary tech affecting the workplace.

“To manage these new changes in the interaction between human workers and technology, and the technologies involved in managing human workers too, platforms such as the HR Tech MENA Summit provide a great opportunity for learning and understanding.”

This year’s edition will see something new with the Summit presenting a new format: the main conference will be held on day one and two parallel sessions featuring Talent Tech and Learning and Development Tech will be held on day two. Delegates can choose between the sessions and build peer-to-peer networking. The Summit will be held on 7th and 8th May 2018, at the Palazzo Versace, Dubai, UAE.

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Bahrain is next in line with 13.6% and Saudi Arabia with 11.5%. The report reads: “Digitisation continues to take the global economies by storm. As a revolution whose uptake in the Middle East and North Africa has gathered noticeable momentum, the digitisation of core financial and banking processes can no longer be termed as a passing phase.”

The MENA region has gained prominence for banks and other financial institutions, especially with the UAE and Saudi Arabia developing as two active markets in the digital space.

Chief Executive Officer of Al Masah Capital Shailesh Dash, said, “The Middle East, being no exception to the global trend, is now on the verge of a massive digital disruption. Businesses and governments are now alive to the fact that in order to optimise operating costs and resources, guarantee customer satisfaction, attract new customers, and gain competitive advantage, digital adoption is a must.”

Al Masah Capital explains the region enjoys a significant population of millenials, who are the driving force in the future of digital banking. The region is now under digital transformation in an effort to boost customer engagement and offer quality services. According to Zawya, major players are creating strong digital presence in the region with banking platforms such as the branch, ATM, e-banking and mobile banking apps.

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