operations and controlsACTME CONFERENCE REPORT

Seizing the opportunity

In many ways the first ACT Middle East Annual Conference,sponsored by RBS, was an extraordinary event bringing togethertreasurers and chief financial officers (CFOs) from many of theleading companies and organisations in the Gulf region, advisors,

banks and bankers and the wider financial community, including localfinancial and general press and media. Over 190 delegates participatedin a variety of plenary and streamed sessions on topics ranging fromcorporate governance and foreign exchange (FX) risk to centralisedtreasury systems and cash management priorities. While some of thetension with respect to the recent travails of business in the Gulf –especially in property investment – has eased, treasurers are acutelyaware that ‘business as usual’ now means a greater sense of appropriatefinancial management pervades business activity across the region.

INTELLECTUAL FORCE The opening address from Sultan Bin NasserAl Suwaidi, governor of the Central Bank of the UAE, set achallenging intellectual tone to the day’s proceedings. The governor’sview was that although the financial crisis had impacted the region in

some specific sectors (and local deposits remain guaranteed),generally the regional financial markets had remained composed.Credit growth was constrained but banks are reasonably wellcapitalised for current and Basel III provisions. Economic growth hadreturned and the expectation is that – at least for the UAE – this willbe slower and more sustainable development. Future creditexpansion is likely to be more closely controlled with regulations inthe pipeline intended to cap the credit portfolio of banks once theyreach a certain limit.

The governor was kind enough to respond to a question andanswer session and suggested that the AE dirham/US dollar peg hadserved the UAE well and that further work was required on GulfCooperation Council (GCC) monetary union although the EUexperience had been instructive. In response to a question onlocal/regional bank mergers, the governor confirmed that currentlythere is no GCC mechanism to facilitate cross-border mergers ofbanks – an answer that perhaps opens up further debate! Thegovernor encouraged treasurers and finance professionals to

PETER MATZA REPORTS FROM THE INAUGURAL ACT MIDDLE EAST ANNUAL CONFERENCE.

02 MIDDLE EAST TREASURER JANUARY 2011

contribute to the development of thewider financial community in theGCC and the ACTME intends to be atthe forefront of this process.

CORPORATE GOVERNANCE Themain debating session of the morningwas a panel discussion on a topiccovered extensively in talkingtreasurysessions in the region: corporategovernance.

The financial crisis exposed seriousweaknesses in corporate governanceand there is certainly a need for corporate policy and leadership. Inbroad terms, corporate governance should be viewed as a valueproposition for an organisation, its owners and its management.

For their part, treasurers should be prepared both to beaccountable for their own activities and to engage with their boardson financial and business strategy – whether in specific areas such asmanaging counterparty limits with their banks or in more generalareas such as the balance between capital allocation and reward. A‘show of hands’ by the delegates confirmed the commitment thatthey had to ensuring this topic remains high up the corporate agenda

RISK MANAGEMENT The first track of presentations consideredvarious aspects of risk management, in liquidity management, FX riskand funding strategy. The key issue here is for treasurers to be inpossession of as much information about their organisation aspossible – to ensure that the board is offered a comprehensiveanalysis of various courses of action. Clearly this is a challenge in theGCC where risk management reporting remains a nascent science. InFX, for example, treasurers need to be aware of the real exposures ina business before looking at taking any hedging decisions. Treasurers,however, cannot own the underlying business exposure – that remainswith the operating units – but will own the mitigation/managementprocess.

The consistent advice given todelegates was for treasurers to alwaysbe clear in their communicationsabout risk, exposure and outcomeswith executive management, businessunits and other stakeholders, whereappropriate (see box).

The parallel series of trackpresentations focused on treasurymanagement and operational issuesand three main areas of managementconcern:

n financial control enabling efficient liquidity management; n risk management; andn resources and investment in systems.

While there are arguments on both sides a consensus emerged thatcompanies should avoid slavish adherence to centralisation and strikea balance that works and allows for some cost and efficiency savings.It was felt crucial that the CFO/CEO needs to be on board to cutthrough territorial protectionism within organisations.

Some warnings were offered about understanding different levels

operations and controlsACTME CONFERENCE REPORT

JANUARY 2011 MIDDLE EAST TREASURER 03

TREASURERS ARE ACUTELYAWARE THAT ‘BUSINESS AS

USUAL’ NOW MEANS A GREATERSENSE OF APPROPRIATE

FINANCIAL MANAGEMENTPERVADES BUSINESS ACTIVITY

ACROSS THE REGION.

1. Understand the fundamental exposure (e.g. FX or funding shortfall)

2. Obtain reliable, consistent data3. Clear ownership of the impact4. Teamwork – bring the experts together5. Clear measurement and reporting (including impact

of ‘do-nothing’)6. Strong policy and clear procedures

Box: Six steps to effective exposure management

of business development and theappropriateness of introducing treasurymanagement systems.

First any treasury system must caterfor the different needs of technicalaccounting, business cashcommitments and medium termdevelopment. Second people weregenerally conservative whenforecasting cash flow so layers ofcontingency make it tough to forecastrequirements.

Although implementing treasury systems can clearly help withthese issues, young and/or fast-growing organisations may need tohave a period of stability to reap the full benefits of electronictreasury management.

TREASURY MANAGEMENT After an excellent lunch and networkingin the exhibition hall, the afternoon plenary sessions offered theperspectives of a leading CFO and senior banker from conferencesponsor RBS.

n Yuvraj Narayan, CFO, DP World, looked at treasurymanagement from his perspective. Whilst unsure of thedevelopment of the current economic cycle he stressed thecritical importance of treasury planning within overall businessstrategy. From the CFO office, he expects treasury to have goodnavigational aids to manage the business, to be more alert torisks and to assume the worst (it will probably happen!). Creditavailability is tight and priced accordingly and hedge economicshave changed for the same reasons. On an operational level, it iscritical for treasurers to maintain liquidity and control cash andhave robust funding plans. Treasurers also need to managerelationships to ensure continued support from banks, investorsand other stakeholders.

n Simon Penney from RBS talked to the audience about getting themost from a treasurer’s banking relationships. In particular

treasurers should be asking difficultquestions of their banks about theirwillingness to supply credit and credit-related products for financing andhedging. By the same token Pennysuggested that banks may have much tooffer in advisory services for businessesexpanding into new markets or for thoseorganisations seeking new investors.n Trevor Williams, chief economist,Lloyds TSB Corporate Markets, is well

known to the ACT and his ‘debut’ for the ACTME was asentertaining and insightful as ever. He gave a quick-fire overview ofthe world economy and drilled down to matters of critical regionalinterest. His view was that economic growth across the region willbe sustainable at 4-6%pa based on modest inflation, low interestrates in line with the US dollar and modest growth in hydrocarbonprices sustaining public expenditures and tax revenues.

The lively panel discussion that closed the conference had twoimportant warnings for treasurers in the region: first, not to believethat interest rates would always remain low (despite Trevor Williams’point above) and second, that there is a need for treasurers to helpdevelop local and regional capital and securities markets to fundfuture public and private sector business growth. This applies toconventional and Islamic finance markets alike. Treasurers have anopportunity to shape business development in the region and shouldseize their chance.

Peter Matza is head of publishing, ACTME.pmatza@treasurers.orgwww.actmiddleeast.org

The conference was followed by the equally well-attended Gala Dinnercelebrating both the ACTME Deals of the Year Awards and studentachievement awards. For more information please visitwww.actmiddleeast.org/awards

operations and controlsACTME CONFERENCE REPORT

TREASURERS HAVE AN OPPORTUNITY TO

SHAPE BUSINESSDEVELOPMENT IN THE

REGION AND SHOULD SEIZETHEIR CHANCE.

04 MIDDLE EAST TREASURER JANUARY 2011