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What Is the Future of Ecommerce in the Arabian Gulf?

Date : 04/11/2018
Author:  Marmore MENA Intelligence

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The Arabian Gulf or the GCC region’s retail sector has been going through sweeping changes that are not only disrupting the conventional retail but reshaping its future too. In recent times, the mode of retailing in the GCC has gone through substantial changes that was unimaginable a few years back. There are clear signs of transformation in the retail sector in the region. There is increasing scope for e-commerce in the Middle East, with Saudi Arabia and the United Arab Emirates establishing the template for sustainable business models that other countries can look to emulate ( Fitch Solutions-Middle East E-commerce 2018).

Over the last decade, e-commerce industry has grown 1500% in the region. In terms of average spending, an online user spent US$300 in the UAE compared to US$90 in Saudi Arabia, US$94 in France and US$1100 in Canada in 2017 (Albawaba-UAE the next E-commerce capital-2018).  However the size of e-commerce in the GCC region is relatively smaller. According to estimates, e-commerce just stood 2% of the total retail sales in the region in 2017 with the UAE taking the lead, followed by Saudi Arabia (The National and MR Raghu MD Marmore MENA Intelligence 2017).

GCC e-commerce market was estimated at US$3.4 Bn in 2015, US$4.8 Bn in 2016, US$6.7 Bn in 2017 (Arabian Gazette- E-commerce Market Value in MENA 2017). Marmore research predicts it to reach US$20 Bn by the end of the decade, i.e 2020. The table below summarizes various predicted values for expected size of the market by 2020/22.

Table 1: Various Estimates of E-commerce market size in GCC countries 2018
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Source: Marmore and Secondary Research 2018

The ripple effects of digitized commerce will be wide and deep, directly impacting the conventional physical stores (retail industry), employment and the logistics sector. The growing youth population, higher mobile and internet penetration, high disposable income and booming FinTech industry, are expected to propel digital commerce. In the GCC, mobile penetration is recorded at 76% of the total population, and internet connectivity is reaching above 90% of the population in countries such as Bahrain, Qatar and the UAE (GSMA the Mobile Economy 2017).

In the GCC region, 73% of total mobile subscribers are having mobile internet, while smart phone adoption is 72% as on Q2 2017. Additionally, GCC regions top the other Arab countries and MENA in terms of technology adoptions and utilization (Ibid ). In terms of demographics, almost 50% of the population between 26-35 years prefer online transactions in UAE, Saudi Arabia and Kuwait. Younger population groups tend to have lower internet utilization. Similar is the case for higher and middle-aged population across 3 GCC countries, as shown in chart below.

Chart 1: Online Purchase Activity by Age Group 2017
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Source: Service Plan Middle East 2018
 
E-Commerce Ecosystem
In 2017, when Amazon acquired Dubai-based online retailer, Souq.com, it changed the rules of the online game forever in the Middle East. According to reports, Amazon paid US$850 Mn for Souq (Tech Crunch-Amazon Completes Acquisation-2017). The acquisition not only established Amazon’s footing in the region but also heated up the e-commerce competition and helped formalize the structure of the sector.

Table 2: Key E-commerce Market Players in the GCC
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Source: Sayidaty Digital Group-Brining Commerce and Content together 2017

Surprisingly, while more than half of the population is under the age of 25 in the region, (Youth in the GCC-Booz & Co. 2017)  only 15% of businesses in the region have their online presence (Practical E-commerce 2017).  On the demand side, the key reasons for the rise in e-commerce are, namely, ease of shopping, new payments mechanisms, development of FinTech, multiple merchant points, rise of e-wallets and other alternative payment systems (ICT report-E-commerce in Saudi Arabia). Thus there is an increase in consumers’ willingness to use and accept such technology. On the supply side, the wide range of shopping brands to choose from is one of the prime factors driving the e-commerce market. Huge investments, innovation in consumer mobile devices and connectivity, entry of new players, competitive prices, expanding logistics services are the other key factors shaping the e-commerce market in the GCC region.

Table 3: E-Commerce Benchmarking
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Source: Secondary and Marmore Research 2018. *approximately**Asia Pacific region 2017 of the total retail sales

Culturally, GCC countries are mainly cash-driven. Although mobile and internet penetration is high compared to global standards, the urge to touch and feel the physical product and, to some extent, a mild distrust in online payment mechanism have emerged as challenges before the region’s e-commerce market. In an environment of cultural conservativeness and technology evolution, Middle East is yet to embrace e-commerce on a full scale. The Table above provides the insights into online customers’ psychology.

Although the e-commerce growth in recent times has been phenomenal, complete trust and confidence in the system is yet to develop among the GCC population. In Bahrain, for instance, product search and data collection are among the top online activities, and online shopping is done by less than one-third of internet users. Also, in countries with higher online shopper penetration rates, such as the UAE and Saudi Arabia, the frequency of buying online remains subdued (PN News Wire- GCC B2C commerce market report 2018).
Overall, the key pressing issues before the e-commerce sector are summarised below:

  • Prevalence of cash-on-delivery over other payment methods and consumer wariness of safer online payment transactions.
  • Most of the countries lack a unified address system which, on the one hand, creates challenges for last-mile delivery.
  • Extensive use of mobile phone to trace customer location (PN News Wire 2018) makes delivery difficult.
  • Lack of a well-developed unified online payment system.
The online payment infrastructure is still in the evolutionary stage in the region and lacks deeper public trust. In Saudi Arabia, for example, about half of the population remains unbanked and card payment penetration is just over 40%. In terms of logistics, most of the online retailers don’t have well established warehouses and the distribution network is still weak (AT Kearney-Getting in on the GCC  E-Commerce Game 2017).

Strategies to drive e-commerce transactions in the GCC
Given this background, some of the strategies to improve the ecommerce transactions in the GCC are discussed below:

For consumers in the Middle East and Africa, price-points or promotions (34%) are the most likely factor driving purchasing decisions, followed by brand (24%) (KPMG). This makes personalised messages and product recommendations crucial. Promotions using data-driven marketing and deep learning (a subfield of AI) can be widely used to understand the individual’s shopping wallet. Entry of new players can increase competition and add better quality of customer service and better discounts.

As exhibited in Table 3, a majority of regional customers prefer to check products personally. In such a case retailers may use strategies like providing comprehensive information about the product ingredients, easy returns and satisfaction guarantees. Also, understanding the motivation of shoppers, their behaviour pattern (behavioural targeting) through browsing patterns can improve the services offered by online retailers and make people transact more online. 

In order to improve the payment method, online retailers and local banks can leverage new forms such as QR code payment method which would enhance customer convenience. Online retailers providing “bank transfer” option at checkout can offer a dynamic QR code via app that consumers can scan using their mobile banking app and confirm the payment. In China, the ICBC’s (Industrial and Commercial Bank of China) QR code payment is used for all small payment services, thus speeding up the e-commerce payment experience. Such payment methods can also be more secure as the payment information is not carried through the merchant's store network.

Thus the e-commerce platforms can increase the outreach of customers in the region by redesigning the digital solutions that can increase speed, convenience and visibility. In addition, regulatory drivers like cashless societies, financial inclusion, protecting customers and more open banking competition can increase e-commerce transactions in the region. Though the GCC region is a late adopter of e-commerce, regionally tailored solution and strategies like improving the customers’ trust, better logistics, reliable online payment system and increasing competition among the e-commerce players can offer great results.

This article is published in "Marmore Blog"

Tags:  Ecommerce, GCC, Technology

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Mutual Fund Asset gathering in the GCC region – What it takes to click

Date : 13/09/2018
Author:  Marmore MENA Intelligence



 

Mutual fund assets in the GCC are quite small compared to the size of the GCC economy. The total Assets under management (AuM) in the six GCC countries stands just at USD 32.9 billion (Reuters). This is quite low when compared to the combined GDP of GCC countries of USD 1.5 trillion. In percentage terms, the total mutual fund AuM in GCC is just 2.2% of GDP. Considering the global equivalent of AuM to GDP at 15.2%, there is plenty of scope and opportunities for the mutual fund assets to grow in the region.
 
Asset Gathering has been difficult even in a liquidity surplus region
Asset gathering has been difficult in the region as seen from low size of mutual fund AuM compared to the GDP, in spite of the abundant private wealth and liquidity. Equity mutual funds, the primary vehicle for asset gathering were hit hard by the global financial crisis of 2008 which led most investors to pull their money out and the industry has not recovered since then. Then, there are other structural reasons as well. Local investors, many of whom have their own private family businesses have invested their surplus in overseas markets like the U.S which have performed exceptionally well since 2009. In contrast, GCC stock markets have underperformed which has created a negative cycle with fewer institutional participants leading to lower market liquidity which discourages other investors from investing in GCC focussed equity funds. Bond Funds are a relatively new product and since the GCC debt markets have only recently seen reforms, their size is also very small. Real estate funds, a popular choice of many GCC investors have given negative returns since 2015 and so have been unable to increase their AUM.


 
Source: Reuters; Data as of May, 2018
Note: Mutual funds whose geographical focus is GCC has been considered

Other asset classes like Private Equity have suffered because of corporate governance issues, lack of transparency, poor exit track record and paucity of information. Private wealth management has also not gained traction as banks focus more on offering products than offering solutions. Combination of these factors have contributed to the sluggishness of asset gathering in the region.

Private Wealth management – products not tailored to individual clients and segments
The GCC region is rich in private wealth with total investable and liquid assets expected to exceed USD 3 trillion by 2021, according to a report by the Boston Consulting Group. The percentage of households classified as ‘affluent’, those with investable assets between USD 250,000 and USD 1mn has been increasing faster than HNW and UHNW segments. And yet, GCC players have not been able to tap into this market. They are more sophisticated and tend to be engaged with their investments, but still need investment advisors to educate them and explain financial matters to them. GCC funds have also not been able to offer products tailored to individual client needs. For example, female investors are increasingly gaining in importance across all segments and have different investing styles than male investors. But, they are offered the same ‘plain vanilla’ options available to all investors and there is no specific proposition that caters to their needs. The fees charged by private wealth managers also tend to be very high, with investors paying as much as 3 -7.5% of their assets as fees every year, though this is also the case globally as well (https://www.ft.com/content/ecf13900-f0b2-11e3-8f3d-00144feabdc0).

Challenges faced by Mutual Funds in GCC
Mutual funds also face difficulty in marketing and distribution to GCC nationals who are primarily reached through banks. AMCs often enjoy exclusive access to their parent bank's distribution network. This creates a situation where it is difficult for an AMC to compete if it does not have a network of bank branches. The result is a few AMCs dominating the asset management industry with fewer options for investors. The low level of institutional participation is a big factor in the low liquidity in equity markets and discourages other institutional investors and hampers asset gathering.

Ways to overcome the challenges
Clients of GCC asset management companies generally comprise of high net worth clients and institutional investors like SWF’s, Pension funds and insurance companies. Semi-skilled and high skilled expats in the GCC could prove to be a viable customer base for them to target. Due to their affinity towards sending funds back to their home market, asset management companies in the GCC could possibly collaborate with fund houses in the expats’ home market to launch products oriented towards their home markets to attract investments from expats.

The current product structure is more skewed towards money market/ trade finance funds followed by equities whereas asset classes like real estate, bonds, commodities, etc. have negligible share. While clients do look for consistently good performing funds, they are veering more towards wealth management solutions than fund opportunities. Wealth management solutions focuses more on asset allocation and fill them up with funds, preferably low cost. Wealth management also focuses on other client needs like trust services and online portfolio tools. It will turn the game from “product” based to “solutions” based. Banks are quick to realize this potential and are moving towards elevating their private banking into wealth management focused. Such a transition for asset management companies will enable increase in asset and client base.

GCC Asset management industry also needs to evolve to keep up with the current times. Despite Baby boomers (born between 1945 and 1960) and Gen-X (born between 1961 and 1980) accounting for higher wealth share at the moment, fund houses must focus more on the growing Gen-Z population (born after 1995) as the former’s needs are already been well taken care of by now and hence may represent a dwindling opportunity for GCC asset management houses. Products must be tailored towards Gen-Z, who are more tech savvy, flexible, more risk taking, and social media friendly. Use of technology in areas like customer profiling, portfolio options, product evaluation, performance reporting, etc. would be beneficial in this regard.

Mutual funds can target segments where there are strong growth prospects like in Shariah-compliant investments. Even though Muslims comprise nearly 25% of the world population, less than 1% of financial assets are Shariah compliant. The total AuM of the global Islamic asset management industry rose from USD 53bn in 2012 to USD 59bn in 2016, a meagre annual growth rate of 2.44%. An area of potential growth is in pension funds which represent less than 1% of global Islamic funds. Considering that the size of government pension funds in the GCC is USD 438 billion, even a 10% market share would mean a USD 44bn Islamic pension fund industry, benefiting the Islamic fund Industry as a whole. These funds can also be marketed easily to GCC nationals and foreign nationals who are Muslim, who will respond favourably to a fund which has been approved by a Sharia board.

The opening up of GCC real estate sector led to the participation of institutional players like REITs, pension funds, insurance companies etc. in the real estate industry. The equity markets can also benefit similarly with more institutional players. GCC Pension funds can be mandated by regulation to invest in GCC equity markets which will increase stock market liquidity and institutional participation, ultimately leading to increased AuM. GCC Pension funds can make also use of ‘securities lending’ to short sellers to increase their returns as short selling has been introduced to GCC stock markets. American pension funds have been able to increase their returns by 4 basis points (http://www.pionline.com/article/20171030/PRINT/171039988/securities-lending-makes-comeback-with-big-funds), which can be bettered by GCC pension funds considering their huge size relative to the total GCC market capitalisation. Encouraging family owned private companies to list in stock exchanges can provide more investing options for fund managers and increase liquidity in markets.

Private Equity funds can benefit from the on-going economic reforms in the region as it diversifies away from oil. Setting up of innovation centres like UAE’s AI smart lab provides opportunities for start-ups to flourish and PE funds to invest in them and get returns. Continuing with reforms will also increase foreign fund inflows improving liquidity in equity markets allowing profitable exits of Private equity ventures. Changes in regulatory framework of privately held companies can solve corporate governance issues which hamper private equity.


 
Source: Reuters

Finally, Asset managers in the GCC need to offer a wider variety of financial products to cater to both GCC nationals and expatriate workers who come from all over the world. Creating such products and marketing them to people with different risk profiles would be both a challenge and an opportunity for GCC Asset management companies.


This article is published in "Marmore Blog"

Tags:  Funds, GCC, Mutual

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Turkey Crisis: Impact on GCC

Date : 05/09/2018
Author:  Marmore MENA Intelligence



 

Turkey has been making headlines these past few weeks due to the massive rate at which the Turkish currency, Lira, has been depreciating against the dollar. The economy is under stress with the International Monetary Fund (IMF) downgrading the growth forecasts from 7.1% in 2017 to 4.4% in 2018 and 4.0% in 2019. Inflation levels are reaching record highs to an annual rate of 15.9 percent in July with the Lira depreciating over 40% against the U.S dollar so far in 2018. The events unfolding in Turkey has an impact on the Gulf Cooperation Council (GCC) region through various channels in the form of bank exposures, bilateral investments, trade and tourism among others. It is important to take a closer look at how this event has impacted one of the closest ally and economic partner of Turkey.
 
Impact on GCC Banks
Multiple banks in the GCC region have exposures either directly or indirectly through their subsidiaries in Turkey. Amongst the GCC banks, Qatar National Bank (QNB), Commercial Bank of Qatar (CBQ), Burgan Bank, Kuwait Financial House (KFH) and National Commercial Bank (NCB) have all seen a significant impact in their share prices on the back of the lira’s depreciation.

GCC banking exposure to Turkey

 
Source: Reuters, Data as of Aug 21

QNB owns Turkish lender Finansbank, the fifth-largest privately owned bank by assets in Turkey, which it bought for €2.7 billion 2016 from National Bank of Greece. About 15 per cent of QNB's assets and 13 per cent of its loans are linked to Turkey. CBQ, Qatar’s third largest bank by assets, owns Turkey’s Alternatifbank, has been deploying more capital and focus on its Turkey business in a bid to benefit from closer political ties between the two countries (Reuters). KFH, Kuwait’s second-biggest lender by assets has a sizeable business in Turkey with over 400 branches and has nearly 6,000 employees. Saudi Arabia’s National Commercial Bank (NCB) acquired a 67.03 percent stake in Turkiye Finansbank for $1.08 billion in 2007. Türkiye Finansbank has total assets of $5.6 billion.

As for the earnings impact, Turkish operations account for 19 per cent, 18 per cent and 14 per cent when it comes to KFH, Burgan Bank and QNB, respectively. It also contributes a sizable portion to CBQ and NCB amounting to 8 per cent for both the banks. KHF has the highest loan exposure to Turkey, nearly 30 per cent, followed by Burgan Bank, QNB and NCB with 20 per cent, 15 per cent and 12 per cent respectively. (Reuters, Shuaa capital)

Dubai’s biggest lender Emirates NBD agreed to buy Turkey’s Denizbank from Russia’s state-owned Sberbank for $3.2 billion with an aim to increase its outreach in the Middle East, North Africa and Turkey. The sharp fall in the Turkish lira since the announcement of the deal in May 2018, could trigger an adverse change in the clause creating the possibility for a renegotiation of the deal and a reduction of the acquisition price by as much as 25-30%. (Reuters)

Impact on Trade
Over the past decade, Turkey and the GCC states have actively pursued closer economic ties that has taken their trade volume from $4.8 billion in 2006 to around $16 billion in 2016, a more than threefold increase.

Turkey-GCC bilateral trade (in USD)
 
Source: Based on data from the Turkish Statistical Institute, November 2017

The Turkish crisis has not caused any major damages to the GCC region when it comes to trade. GCC imports and exports from Turkey account for just 2% and 1.4% of its overall trade volume respectively. Turkey too has a modest level of trade with the various GCC countries, with exports and imports of 7 per cent and 3 per cent respectively. However, Turkey is a key destination for non-oil exports for the GCC region where UAE was the 13th largest source of imports into Turkey last year.

The main exports for the GCC countries to Turkey include consumer goods, intermediate goods, fuels, precious metals, plastic, rubber and chemicals and the major imports are Consumer goods, Glass, Metals, Capital goods, Machinery, Electronics, Textiles and Clothing. (World Bank). Overall, we do not expect to see any major impact on the trading volume between the two regions due to the limited trading activity.

Turkey imports oil majorly from Iraq, Iran and Russia which together account for over 80%. Among GCC countries, Kuwait and Saudi Arabia oil exports accounted for 10% and 8.5% of Turkish oil imports, respectively.

Impact on Tourism
Turkey has been an attractive tourist destination for travelers from the GCC region due to its weather, presence of historic monuments and deep religious & cultural bonds. The number of tourist arrivals from the GCC region has increased by over 50% over the past 3 years in 2017 and the continued depreciation of Lira could encourage further tourists arrivals. On the other hand, the tourism industry of the GCC region would not be impacted, as people from Turkey do not constitute the main source of tourists.

Number of GCC citizens arriving in Turkey, 2001–2017

 
Source: Based on data from the Republic of Turkey Ministry of Culture and Tourism

Impact on Real Estate Investments
Gulf investors have been active in Turkey’s real estate market for a long time now. Acting as the gateway between Asia and Europe, Turkey has been successfully attracting Gulf nationals to its real estate sector. In 2012, Turkey changed the law to facilitate property investments by Gulf nationals, allowing them to buy properties by passports only and offering a one-year residency permit to foreign investors and their families. Other incentive introduced by the Turkish government includes the golden visa scheme. The government announced that it would grant citizenship to foreigners who buy property worth at least $1 million and invest a minimum of $2 million, or deposit at least $3 million in a bank account for more than three years.

Istanbul and Mediterranean coastal cities are popular with GCC investors due to their close links, both geographically and culturally. Over the past two years, GCC citizens have been among the most active participants in Turkey’s real estate market, with Saudis and Kuwaitis ranked 2nd and 3rd in houses sold to foreigners in Turkey in both 2016 and 2017. In fact, GCC citizens have purchased over one-fourth of all properties sold to foreigners in 2017. Kuwaiti foreign direct investments in Turkey are about $2 billion and the real estate sector accounts for 70 percent of the total. (OxGAPS Forum).

Number of houses sold in Turkey to GCC citizens

 
Source: Based on data from the Turkish Statistical Institute, November 2017

However, the continued depreciation of lira against U.S dollar has lowered the value of the investments. In 2018, Turkish Lira has lost approx. 40% of its value to USD implying that homes purchased for USD 1million a year back would now be valued USD 600,000. Though the perceived loss is notional, it exposes the investor to the vagaries of investing in emerging markets. The situation is exacerbated by strengthening dollar and rising interest rates, which generally portend capital outflows from emerging markets such as Turkey. Turkey could continue to face challenges unless policy credibility is restored and measures to boost market confidence are enacted.

This article is published in "Marmore Blog"

Tags:  Crisis, Economy, GCC, Turkey

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Can Dubai’s 3D printed building vision be a template for addressing the housing crisis in the GCC?

Date : 13/06/2018
Author:  Marmore MENA Intelligence


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According to a recent study from the World Economic Forum, the Infrastructure and Urban development industry worldwide, have a stagnant productivity due to its failure to innovate as quickly as the other sectors. This has caused a negative effect on the economy, society and the environment. Despite robust economic growth and the affluent nature, the GCC region has been experiencing a housing shortage.
 
GCC housing crisis is spurred by macroeconomic drivers like urban population growth and the age structure. The working age population growth (worker’s spread increase the demand for new households and the willingness to consume better housing rises) in the GCC is significantly higher than the World and the MENA average.

Also, the steady increase in the urban population in the region (85% of the population lives in the city, expected to rise to 90% by 2050(PwC)) has hit harder on the lower and middle income households. Thus the pressure of housing affordability has been increasingly felt by the government and the population across the region.

In 2017, the shortage of affordable housing was 75,000 in Bahrain, 700,000 in Saudi Arabia. A recent Marmore study, GCC Affordable Housing, found that the demand for affordable housing is estimated to grow over the years in the region, with Saudi Arabia leading the set.
 
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Deloitte reports that significant affordable housing is required across Saudi Arabia, Kuwait and Bahrain. The GCC nations have planned new housing schemes to solve these shortages, Kuwait plans to build $14bn residential city with 35,000 units and Saudi Arabia to build 100,000 units over the next seven years in Riyadh(Deloitte).

The complexity inherent in the design and construction of buildings as GCC nations urbanise causes a serious challenge to have an affordable place to live. In addition shortage of qualified workers is one of the key reason for the industry’s stagnant productivity( World Economic Forum). Besides bringing changes in the housing policies, housing finance to solve the housing market shortage, technological advances like 3D printing can be well applied to meet these challenges.

3D printing is a technological breakthrough in the construction industry that changes the traditional way of construction process itself. 3D printing refers to the production of physical objects layer by layer by an automated computer-controlled machine. This can potentially increase the productivity across the sector as it involves more standardised elements with limited finishing work constructed on-site. 3D Printing can effectively reduce the cost (finance, materials and labour)(PwC) and increase the demand in the sector. Realizing the potential, UAE has launched the ‘Dubai 3D printing strategy’ that aims to promote Dubai as the leading hub of 3D printing technology by 2030.
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This initiative marks to bring positive economic returns and contribute to sustainable economic development. As a part of the initiative, Dubai operated the first 3D printed office in the world in 2016 (Constructed by Winsun). It also focuses on the construction of buildings for humanitarian causes, mobile homes, villas and so on.
Saudi Arabia has proposed to build 1.5 million housing units over five years using the 3D printing technology, to increase the number of available houses. Hence the GCC market for 3D printing is already lead by UAE and Saudi Arabia which is more likely to solve the cost-value gap.
For the emerging GCC economies, 3D printing technology could benefit the construction sector by number of ways
  • Mitigate the shortage of skilled construction workers
  • Improves the quality and accuracy of the end product
  • Affordable tailored designs
  • Sustainability
  • Increasing the speed of construction
  • Prefabrication based modular construction creates safer environment
These benefits of the 3D technology itself could solve the major challenges in the construction industry (Labour and Cost) paving ideal way to combat the housing crisis in the GCC region.

3D printing devices and materials are constantly evolving offering many benefits to the user. There are a number of start-ups offering 3D printing services by creating new, innovative projects (BCG and World Economic Forum).

MX3D- Amsterdam based start-up applies robotic 3D printing to the construction process, created the world’s first 3D printed steel bridge. The impact of the MX3D technology has significantly reduced the time and cost of building complex structures.

Winsun- Shanghai based company produces 3D printed houses at scale. Using 3D printed technology, construction units are pre-fabricated off site. This has increased the productivity and has caused significant cost savings. With Winsun approach, a standard house is built for about $30,000 and a new building can rise one storey per day.

Apis Cor- San Francisco based start-up prints entire house on-site rather than creating individual elements off-site and transporting them. The firm strongly believes that 3D printing is a solution to the housing crisis.

Realising such smart technology enabled development require considerable integration of government and the private sector. Adoption of 3D printing in the construction industry requires changes across legislations, funding, research and other public policy measures. Dubai has scaled up and created such incentives in five pillars to meet its 3D printing strategy namely infrastructure, legislative structure, funding, talent and market demand. Thus Dubai’s vision of technological application and creating a conducive market for 3D printing can increase productivity in the sector and aid to solve the housing crisis. This strategy could help the region and the world as it could be a prototype to better understand and take advantage of the 3D printing technology.

 

Tags:  3D, Affordable, Economy, GCC, Housing, Printing

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Debt Management Offices in GCC - A great institutional step

Date : 17/01/2018
Author:  Marmore MENA Intelligence


    

GCC governments have been active in setting up Debt Management Offices (DMO) in order to better understand and service their debt obligationsHitherto, the role of issuing debt, servicing them and repaying them were all taken care of by the respective central banks. While that might have worked when the debt were minimal, a specialist DMO is required in order to manage them by establishing a separate, independent entity that is in charge of the debt management to avoid the burden on the central banks. GCC countries have established a Debt Management Office (DMO) that is independent but act according to the limits set by the finance ministry. DMO and treasury act in a co-ordinated manner and their collaboration relieves the central bank of such duties and it could concentrate on its most important functions.
In the GCC region, Dubai, Abu Dhabi, Kuwait, Qatar, Oman and Saudi Arabia have set up their debt management offices in order to perform the cash management functions of the government. They take care of the cash requirements of the government; borrowing funds when there is a shortfall and placing the funds when they have a surplus. In the larger sense, the DMO functions as the executive arm of the treasury/central bank of these governments. Each of these offices is structured differently and has various levels of roles and responsibilities. The governments of the region have also been very eager to raise funds from international markets, taking advantage of the prevailing low interest rates globally.

The Dubai Debt Management Office

The Dubai DMO works under the supervision of the Dubai Supreme Fiscal Committee. One of the main objectives is to provide financial support and liquidity to government projects in support of the Financial Strategic Plan which has the objective of promoting economic development in the Emirate. The debt management division effectively has two sections an investor relation section and an operations section. The overall DMO falls under the purview of the Director General of the Government of Dubai’s Department of Finance. 


Roles & Responsibility of DMO



Saudi Arabia Debt Management Office

The Saudi Arabia Debt Management Office was established in the fourth quarter of 2015 following the decline in oil prices and the government’s intention to raise funds in its domestic and international market. The DMO was established with the objective of securing funds for the short, medium and long term finance needs within a pre-established risk framework. Saudi Arabia DMO is bequeathed with other responsibilities as well, such as managing the direct and contingent liabilities of the government, developing a medium term debt strategy, arranging, leading and issuing public debt in all forms (both local and international borrowing), developing the legal frameworks, governance, risk management policies that is related to public debt management.
 
Kuwait Debt Management Office

Kuwait has been the most recent country among the GCC nations to setup a debt management unit under Ministry of Finance and has been recently been noted down as a key reform measure by Moody’s that would help the country in the long-run.

In countries that have a dedicated office for debt management, the DMO comes under the purview of the department of finance. DMOs in the GCC region should have to take into consideration that too much public debt with local banks could result in crowding-out of credit to the private sector. Alternatively, government debt issuance could facilitate deepening of the local capital markets, diversifying funding sources and benchmarking the yield curve for corporate financing (GCC Surveillance Paper).


Why setting up a DMO is necessary for GCC countries now?

Until 2014, GCC countries did not face any significant funding gaps, and they didn’t have the need to develop any expertise in public debt management – until the steep fall in oil prices caused fiscal deficits, as the government had to borrow more than the revenues it received from oil receipts. Since then, the oil market has undergone a lot of turmoil which has resulted in a significant change in the way the debt has started to form an essential part of the GCC government funds. In the initial phases a lot of the government debt that was issued was absorbed by the local banks. However, most GCC governments took cognisance of the fact that parking too much of the issuances with local banks were crowding out the private sector and started going for international issuances.

With more funds expected to be raised using bond issuances route, it is of vital importance that GCC countries have a specialist organization that would be looking into the debt issuances and managing them instead of the central banks. In this regard, IMF provides certain action points on how to achieve them. In fact, in 2016 they had helped Saudi Arabia to help setup a DMO for managing future borrowing and Issuances.

  • Establish a DMO under the Ministry of Finance that would be responsible for developing the legal, governance, and risk management frameworks for debt management;
  • Develop a medium-term debt strategy to properly assess the trade-offs of alternative debt strategies in light of the expected fiscal deficits over the medium term; and
  • Promote debt management policies and practices that facilitate local debt market development, such as using auctions as issuance mechanisms and adopting efficient communication channels with market participants.
  • Give regular updates in about the debt issuances, open market operations, auction schedules in both English and Arabic
  • Perform regular conference calls with investors to address investor concerns.
Implement a strict timeline for addressing the query of investors.
 


This article is published in "Marmore Blog"

Tags:  Bank, Central, Debt, GCC, Management, Offices

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