In the late 2000s, if you mentioned the Middle East to somebody in Silicon Valley, the image that would come to their mind would be of an oasis in the desert with camels, as the region was considered a laggard in technology. Many journalists would write long articles about the technology gap discrepancies between Asia and the Middle East.
But fast forward to 2023 and now, when emerging markets are mentioned, the talk is not just of China and India innovating with payment technologies but, in the same breath we speak about Israeli start-ups, the UAE blockchain hub and Saudi Arabia’s NEOM city development. There has been a remarkable change that has been brought about by sustained government efforts to tap into technology in developed countries.
The Global Innovation Index (GII), published by the World Intellectual Property Organization (WIPO) for the United Nations shows that between 2011 and 2022, UAE moved from a ranking of 34 to 31 while the Kingdom of Saudi Arabia went from 54 to 51.
Now, with the governments’ digitisation initiatives accelerating, IT hardware, networking and cloud infrastructure in place, the last five years have also seen significant technology investments by local and regional banks to stay relevant.
This is paying rich dividends, reflected in the 2023 winners of Global Finance awards, where regional banks could win while competing with global banks on cash management efficiency through MT940 SWIFT messaging, zero-balance accounts (ZBAs), cash pooling and seamless money market investments as standard product features incorporated in their digital offerings.
The market is witnessing a refreshing change where TMS vendors are looking to add product features relevant for the Middle East
This now becomes an opportune moment for corporate treasuries who are always looking to use technology for productivity gains. While reports suggest the global treasury software market has been growing at a 6.5% compound annual growth rate, in the Middle East Africa region it has been lower, at 2.5%. This makes the environment now very fertile for digital transformation.
Many Middle East treasurers have technology implementation and/or upgrades at the top of their minds, so their teams are busy setting the roadmap of vendor selection by comparing traditional treasury management system (TMS) providers with new cloud-based solution providers who have set up offices in Dubai, Abu Dhabi and now in Riyadh.
The market is also witnessing a refreshing change where TMS vendors are looking to add product features relevant for the Middle East, such as regulatory compliance, accounts receivable and trade finance solutions through fintech partnerships and bank account management.
Crypto, blockchain, ISO 20022 and SWIFT-related challenges seemed to dominate the conversations six months ago, but these are now shifting to traditional treasury management tasks like cash forecasting and counterparty risk because of the higher interest rate environment and risk flashpoints emerging from the US regional banks crisis. In 2022, the Middle East equity market turned out to be a sweet spot for the global IPO market with record IPOs (51 deals for $22bn) and while 2023 is trending lower, the IPO momentum remained active.
CFOs have woken up to the fact that S&P is forecasting $5tn of debt refinancing need in the US and expects turbulence ahead, so they are demanding treasurers generate much longer-term cash forecasts together with sensitivity analyses. Treasurers in turn look towards their much-vaunted TMS that have promised linear regression and index trend model forecasting, but are discovering that, unfortunately, many of these promised features are now either obsolete or cannot generate the necessary usable reports as the organisation’s data islands are not connected.
The true potential of technology investments made by the organisation can only be realised when it also makes an investment in its people
Many TMS vendors have realised that cash forecasting is the topical need, which has a strong trajectory for growth as digital transformation gathers steam in finance. So, they are positioning software-as-a-service (SaaS) solutions for TMS, such as those hosted in the cloud, which can allow corporates to easily extract historical bank statement data to train on cloud providers’ algorithmic models for more reliable forecasts.
However, leveraging machine learning for cash forecasting in the Middle East is still at a very early stage. With their teams being generalists in finance and accounting, corporate treasurers face the daunting dual challenge of getting certified in treasury and also learning specialist skills in data science.
Thus, organisations turn to TMS vendor resources and consultants to solve immediate needs. But, training machine learning models need internal team engagement and so the true potential of technology investments made by the organisation can only be realised when it also makes an investment in its people.
The most exciting topic of conversation with treasurers is always around AI. With the increasing complexity of systems and data visualisation, there is a strong demand for chatbots from teams in Middle East treasury centres. Even though large language models (LLMs) and ChatGPT have taken the world by storm, no working example has yet been showcased by vendors.
So, while we are in the early stages of technology release, there is already a lot of potential demand as treasurers await with bated breath the advent of ‘Treasury AI’. This could help them answer all their questions about which bank charges the most fees or which debt exposure is near to breaching its covenants so that the value of a centralised treasury can finally shine bright.
Rahul Daswani FCT is the founder of LHD Research and a former Microsoft executive
This article was taken from Issue 3, 2023 of The Treasurer magazine. For more great insights, members can log in to view the full issue. If you're not an ACT member, you can sign up for eAffiliate membership.
