Dubai: COVID-19 has inflicted unprecedented damage to the global economy. In an exclusive interview with Gulf News, Martin Tricaud, Chief Executive Officer for HSBC in the Middle East, North Africa and Turkey, spoke about a range of topics on the economic prospects of the UAE and its immediate neighbourhood and the prospects of the bank in the region.
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.
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In pure economic terms, HSBC economists forecast that Gulf Cooperation Council economies will shrink on average by 5.6% year-on-year in 2020. The forecast is then for growth of 3.9% year-on-year 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 high of $69.5 billion between January and June 2020, up 26% on the same period in 2019. MENA M&A value recorded during the first half of 2020 hit $50.7 billion. It is the third highest first half total of all-time after 2019’s $112.7 billion and 2007’s $58.5 billion. That would not be possible if investors did not believe in the long term potential of the region.
What is your view of the prospects for the UAE?
There is broad consensus that the world has been changed by the coronavirus pandemic and few nations in the world are as adept at successful long term change as the UAE. You can see that confidence in change management coming through clearly from investors in recent transactions for both the Abu Dhabi and Dubai governments.
If you take the most recent sovereign debt issues by both emirates, each attracted demand for roughly five times more than was sold. But the other crucial thing to consider is the length of the maturities – Dubai sold a tranche of bonds with a 30-year maturity, while Abu Dhabi sold bonds with a 50-year maturity to set a new benchmark for sovereign issuers in the Gulf. Both speak volumes about the confidence horizon of investors.
And if you drill down to the corporate level, business confidence in the future is similarly strong. Our Navigator survey of companies around the world shows us just how resilient the UAE is, despite the challenges presented by COVID. While UAE businesses surveyed said that they felt the immediate impact of the pandemic more strongly than the global average, just 1% of UAE businesses surveyed felt that their long-term survival was threatened by COVID, and 51% of UAE respondents to the survey said they felt strong overall.
A country built on an ambitious vision of the future is a natural home for the dynamism that we think will characterise the most effective rebounds from the COVID-19 pandemic.
We firmly believe that a post-COVID economy will deliver new avenues of growth, particularly in the realms of sustainability, digital economies and the re-imagination of supply chains. The creation of the Ministry of Industry and Advanced Technology clearly speaks to that potential.
With Expo 2020 Dubai still to come, we’re on the doorstep of one of the UAE’s greatest global moments, showcasing the best that the world has to offer as the future is reimagined.
What is your perspective for HSBC’s prospects in this region?
The prospects for this region are very attractive. We have a geographic presence across the Middle East, North Africa and Turkey 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 $2.9 trillion 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 the first half 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.
What about some concrete forecasts?
HSBC’s economists expect growth to begin bouncing back in 2021. Regional issuance in the debt capital markets is on course to top $100 billion, 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 US$20 billion 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 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 with the launch of HSBC Jade and a new securities trading platform in the UAE. We are managing against 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.