Despite the world health crisis, HSBC’s economists forecast that Egypt’s GDP growth will be 2.4% in 2020, while their expectations are for global GDP to shrink by 4.1% for the year.
In this context, Daily News Egypt interviewed Martin Tricaud, CEO of HSBC Bank Middle East, North Africa and Turkey (MENAT), and Deputy Chairperson of HSBC Bank Middle East Limited, to learn about the bank’s prospects for Egypt and the region.
Tricaud believes that the Egyptian economy has demonstrated adaptability in response to the novel coronavirus (COVID-19) pandemic. Moreover, Egypt’s numerous national projects, including the New Administrative Capital and the Suez Canal Economic Zone, are stimulating investment and the creation of new jobs, underpinning HSBC’s belief in the country’s long-term potential, he stressed.
What is your outlook for the regional economies in the Middle East?
The economic outlook for the region must be viewed from several different perspectives to get a complete picture. In the near term, the twin challenges presented by the COVID-19 pandemic and subdued level of oil prices are evident. In the longer term, the resilience and potential of the region’s economies are equally evident, particularly considering the appetite of long term investors to increase their exposure to the region.
In pure economic terms, HSBC economists forecast that Gulf Cooperation Council (GCC) economies will shrink on average by 5.6% year-on-year (y-o-y) in 2020. The forecast is then for growth of 3.9% y-o-y in 2021, which would be a level of growth not seen since 2015 and points to the strong underlying potential of the Middle East.
The strength of the region’s underlying economic potential is most clearly seen from the perspective of investors. Bonds are being bought in record volumes, order books are many times oversubscribed, prices are extremely competitive, and maturities are extending – that only happens when investors have faith in the long term.
The official league tables for debt issuance in the Middle East and North Africa (MENA) region, the figures reached an all-time first half (H1) high of $69.5bn between January and June 2020, up 26% on the same period in 2019.
Merger and Acquisition (M&A) activity also shows that investors are clearly encouraged by the value they see in the region and the economic diversification and transformation visions that will underpin new business opportunities in the decades ahead.
Again, the official league tables are an excellent guide. MENA M&A value recorded during H1 of 2020 hit $50.7bn. It is the third highest H1 of all-time after 2019’s $112.7bn and 2007’s $58.5bn. That would not be possible if investors did not believe in the long term potential of the region.
What justifies the strength of this investor demand?
An important aspect is the decisive policy response from governments everywhere around the region to the immediate economic impact of COVID-19. It has been supportive and forward looking, in line with the economic development and diversification agenda that had been accelerating prior to the pandemic.
Beyond COVID-19, there are also the longer-term fundamental considerations that investors are clearly saying they anticipate: staying the course of economic reform, of capital market development, of long term investment in infrastructure, in people, in technology.
These are all the things that governments around the region have been doing to encourage investment domestically and internationally and are likely to prove extremely important in the strength and durability of the economic recovery.
What are HSBC clients in the Middle East most interested in?
The sustainability agenda is centre stage and the green bond market is a clear area of focus for us and our customers. Issuance grew almost 60% in the Middle East last year and is up about 30% on that so far in 2020. HSBC was involved in every one of the public transactions and there are years of growth ahead for green finance in this region.
We’re leaders in Sustainable Finance globally, our Sustainable Finance bankers have led ground-breaking transactions for the region, and our Sustainable Finance product range covers both wholesale and retail customers – all of which underline HSBC’s contribution to the development of the region’s Sustainability policy agenda.
The International Renewable Energy Agency projects that the MENA region will need around $200bn in clean energy investments alone by 2030, so that is obviously a major opportunity for companies and investors in this region.
There is also a lot of customer focus on supply chains and on infrastructure.
It will not be business as usual for trade and supply chains after COVID-19. Some supply chains are moving closer to the end consumer and companies that were not digital before went digital during lockdown, which has fundamentally changed paper-based trade.
Digital technology has proven vital in releasing goods from ports during COVID-19 lockdowns. This is one reason why usage of HSBCnet – our online corporate banking platform – for trade and payments has increased 300% since COVID-19 started. Our investments in blockchain have helped take trade transaction times from 5-10 days to under 24 hours.
Applying digital analytics to supply chains helps to improve transparency and agility, and to eliminate waste and inefficiency. We think that sophisticated use of data will also be a catalyst for corporate restructurings and vertical and horizontal business integrations.
Meanwhile the drive for high quality infrastructure that is a common feature of economic transformation and diversification plans is another clear area of focus for our customers.
High quality infrastructure is fundamental to long term economic competitiveness and it is an area where HSBC has market leading expertise.
What is your view on the prospects for Egypt?
HSBC’s economists forecast that Egypt’s GDP growth will be 2.4% in 2020, while their expectations are for global GDP to shrink by 4.1% for the year. Robust and growing, the Egyptian economy has demonstrated adaptability in response to COVID-19. A clear example of this came from the Central Bank of Egypt and the Ministry of finance , which moved swiftly in the early days of the pandemic to ensure that the private sector had the support it needed to make the switch to digital, enabling telecom operators and financial institutions to offer self-registration for e-wallet services so that customers could make digital financial transactions. Another strong example is the government allocating 10 billion to pay contractors and companies, working on and implementing government investment programmes.
Egypt’s numerous national projects, including the New Administrative Capital and the Suez Canal Economic Zone, are stimulating investment and the creation of new jobs, underpinning our belief in Egypt’s long-term potential. Egypt has a strong track record of delivering on its commitments, with the economic reform programme that started in 2016 recognised globally as being a tremendous success, and offering clear evidence to international investors of the country’s ability to navigate through challenges to achieve its ambitions.
HSBC is playing its part in this important chapter of Egypt’s history, helping our customers in the private and public sectors to access diversified sources of funding to support economic growth. We have helped the Ministry of Finance issue its first green bond, and helped companies manage their working capital by providing our customers with a mobile collections service to keep business flowing despite the difficulties presented by COVID-19.
What is your perspective for HSBC’s prospects in this region?
HSBC is all about customers. Our purpose as the world’s leading international bank is to connect customers to opportunities and our customers tell us they want to grow in this region, which is why HSBC Group has identified the Middle East as a region for growth and investment.
The prospects for this region are very attractive. We have a geographic presence across the MENAT region that reflects the scale of those prospects and which enables us to make connections for customers across nine markets that had a combined GDP of around $2.9trn in 2019.
Sustainable finance, trade and supply chains, infrastructure, urban development and smart cities, economic diversification initiatives, capital markets and wealth management are some of the principal areas of focus for HSBC in MENAT.
These are areas where we are investing for growth, where we are committing capital and expertise to expand our business. Our lending portfolio grew in H1 of 2020, even as the economic slowdown triggered by the COVID-19 pandemic took hold and I have every confidence that our clear customer focus will fuel more growth in the years ahead.
So what about some concrete forecasts?
HSBC’s economists expect growth to begin bouncing back in 2021. For the GCC economies, they forecast GDP growth of 3.9% y-o-y in 2021, which would be a level of growth not seen since 2015.
Regional issuance in the debt capital markets is on course to top $100bn, that will be only the third time in history, and the current pace of issue suggests that 2020 will be a record-breaking year.
Merger and acquisition activity is also set for a record year, driven by inbound investments to the region. There is clear appetite from investors to take a stake in this region and so I would not be surprised if the total value of inbound transactions did hit the $20bn mark by year-end to set a record.
That all sounds very optimistic – what about the downside risks?
The fact is that the situation the world faced in the first quarter (Q1) is very different to the situation we face heading into Q4. Back then nobody knew what the scale of lockdowns would be, how badly economies would be hit, or where all the weak points were. You can’t properly manage a risk you do not fully understand. Now we know what the risks look like, it means we can do what we do best – manage risk and connect customers to opportunity.
You can see from our published numbers that we have been conservative in our provisions, as we always are. It is what gives us the financial strength we need to support our customers as they rebuild for the future – and that is exactly what regulators and society expect us to be doing. That’s why I am optimistic.
How is HSBC’s restructuring playing out in this region, particularly in terms of jobs?
HSBC Group is committed to being a bank that is fit for the future, which from a business perspective means focusing on areas of high growth potential and MENAT is a region that is targeted for growth. We are strengthening our transaction banking and our investment banking capabilities, and we have expanded our wealth management capabilities for high net worth customers. We are managing targets that will improve service for our customers and improve returns for our shareholders and we will have the right number of people to deliver those objectives.
How exactly have you been helping customers deal with COVID-19?
Keeping people connected has been our central pillar – whether keeping customers connected to their finances, our communities connected to support initiatives, or our colleagues connected to the systems that have enabled us to provide seamless service despite curfews, lockdowns and social distancing.
That has meant far more than a robotic roll-out of long-established and well-rehearsed business continuity plans that every bank has in place for emergencies.
It meant having thousands of one-to-one conversations with customers in retail banking, in commercial banking, in investment banking, in private banking, and engaging with regulators in every market in which we operate in the Middle East to help set the terms for how banks would help those in need – and then figuring out what more we could do in addition to those schemes.
We certainly did some things differently, such as accelerating customer access to our digital platforms to ensure uninterrupted banking services, and shaping packages of support measures in response to feedback from various customer groups. But we also reinforced our efforts to ensure commitments we had made to communities were met, such as sticking with our entrepreneurship support programme that helps young people turn their dreams into real businesses, as it is new ideas that will help us all to build back better from COVID.
Are your customers really that optimistic about the future?
The COVID-19 pandemic is a catalyst for change at many businesses around the region and altering the way they work. The Middle East has a strong entrepreneurial spirit, and we are seeing that very clearly in how companies are adapting to new ways of working and in how they are accelerating transformation plans. The positive side-effect of the pandemic has been to provide businesses and policymakers with a once-in-a-lifetime opportunity to truly consider the future of almost everything – transport, markets, customer engagement, digital development, city planning – so that they can build back better, and that is what we are focused on helping them do.
