EIBank chief on how to handle geopolitical headwinds

Illustration by Luis Grañena
Updated 19 August 2018
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EIBank chief on how to handle geopolitical headwinds

  • Sifri says Gulf region has lots of positive attributes to serve the internationally wealthy community, more so now with Saudi Arabia opening up to foreign investment
  • "Saudi Arabia is going through a significant transition which happens to coincide with a sudden change in the ruling conditions"

DUBAI: Khaled Sifri, chief executive of Emirates Investment Bank, uses two words much of the time: Headwinds, and geopolitics. It turns out they are virtually synonymous for him.

Sifri is in a good place to judge the financial scene in the UAE and the region. The bank, one of the oldest financial institutions in the Emirates, provides investment banking and wealth management expertise for some of the top business families and institutions in the Gulf.

Just recently, he announced a big jump in half-year profits, but was at pains to point to the “headwinds” the bank was continuing to battle in the regional and global economic environments. 

“The region has lots of positive attributes to serve the internationally wealthy community. Sooner or later it will be recognized as a wealth management hub, especially Dubai, and they will see the opportunities of investing in and from the region. All the more so now that Saudi Arabia has opened up to foreign investment,” he said.

Sifri reeled off the positives in the region’s investment architecture: Its location between the big wealth management centers of Singapore and Switzerland; its low tax regime; its more understanding regulatory regime compared with the West.

But then come the headwinds and geopolitics. “All these are the positives, but the geopolitics of the region often make it harder for the wealthy to view it as an alternative,” he said.

“The whole world is going through a big transition. The information revolution, the global financial crisis, even back as far as the demise of the Soviet Union. Trump, Brexit — is that not enough headwind? I have a negative view of Trump’s rhetoric,” he added.

Nonetheless, Sifri believes the region can overcome these challenges because of the unique advantages it enjoys.

Illustration by Luis Grañena

“The wealthy are concerned about tax, so they want to open for low tax jurisdictions like Dubai. That’s why many of them decide to become residents. Also many of them are aware of the heavy regulatory structure in Western markets, and that scares them away, too.

“There are tough rules in the West, and investors end up spending a lot of time and money on lawyers, regulators and compliance people. It is diverting business away from those places. London and New York, too, are being so difficult with compliance that they are throwing the baby out with the bath water,” he said.

It is not that Dubai and the other financial centers in the region welcome any investor regardless of reputation or background, but rather a different approach to the whole process of compliance and due diligence.

“In Dubai, we still have to be vigilant in terms of regulations, but we make an effort to sieve through the clients to separate the acceptable ones from the non-acceptable. The regulatory environment here is just as strict as elsewhere, but it is our willingness to go the extra mile to get to know the client. We spend a lot of money on due diligence and compliance,” he said.

Some analysts have recently added another “headwind” to the region’s challenges, especially in the UAE — a suggestion that key areas of the economy, from real estate to the retail environment through to tourism, are not performing in top gear.

Sifri does not agree with the pessimists. “On the local economy, the numbers from the IMF (International Monetary Fund) are probably more reliable than a view based on your choice of time to go to the mall. And the numbers suggest a positive view on the regional and local economy.

“The evidence on the streets of Dubai is probably more related to a supply overhang of goods and services, along with a reduction in demand. The supply side has built up massively in Dubai and Abu Dhabi, related to the growth in infrastructure and real estate,” he added.

But he recognized that there are some issues still to be resolved, especially in the property market. “Real estate is where the impact is greatest from the supply/demand formula. Dubai is in a particular condition because real estate increased dramatically as the emirate opened up. The cost of living has gone up quite a bit, and that is beginning to have an impact on life in Dubai,” he said, referring to a recent decision by Amazon to locate big chunks of its regional operations in Bahrain as a sign that the UAE is becoming an expensive place to do business.

Sifri believes that recent actions on fees, charges and levies in the UAE are positive signs that the issue is being addressed.

“I don’t want to look like I’m advising the government what to do, but in the region there have been two choices: The government can put limits on prices for schools and rents, for example. We saw it in Kuwait, where rents have been capped for a long time in some places.

“In the UAE the government has generally taken a view that it should not force prices down, but instead chose to increase the supply of goods and services. In the education sector, there has been a cap put on fees, but that is intended to address only a handful of schools that are top-end and especially in demand,” he said.

Many of EIB’s clients are wealthy Saudi Arabian investors, so he has had an opportunity to gauge the investment environment in the Kingdom as the big transformation of Vision 2030 kicks in.

“Saudi Arabia is going through a significant transition which happens to coincide with a sudden change in the ruling conditions. The Crown Prince Mohammed bin Salman is introducing dramatic changes, all of which appear to be positive. But there is a sensitivity about changing too fast.

“The aspirations are in the right direction and have broad support in the Kingdom and across the region. The majority of people want their aspirations to be fulfilled,” he said.

“But the bigger question is how and how long it will all take. Is it a long road to transformation, or is there a short cut? It’s like crossing the Grand Canyon: Do you go straight down and up in a straight line, or is it better to go around the valley to find an easier path?” Sifri asked.

He thinks the direct approach has advantages. “There was definitely a need to do something dramatic in the Kingdom. In the past, policy has been to change incrementally, like walking round the valley.

“The economic opportunity for investors is very significant, but it also carries a significant amount of risk, and each investor needs to decide what level of risk they are conformable with. The geopolitical environment is one of these risks and might deter some investors. As a bank, we’re quite bullish on the KSA economy. It is a meaningful part of our business. We believe it will succeed in overcoming the geopolitical factors,” he said.

Sifri said that he had detected no signs of what some analysts have called “capital fight” on the part of Saudi investors. “No, we have not seen that. In fact, many prominent Saudis are pulling capital back in to the country. We have seen some repatriate capital recently. With complete sincerity, we have not seen any capital flight,” he said.

Inflows and outflows of capital are, in any case, a historic phenomenon in the Middle East, which are determined by global rather than regional conditions, he said. But these would not halt the region’s long-term ambition to be a leading wealth management center, with local and regional institutions in the vanguard of that trend.

“People have decided they had more control over their assets in a local bank. Even if they are doing international investments from a base here, they have more control over the relationship,” he said.

By way of illustration, Sifri told an anecdote about an important regional client who explained why he wanted to deal with a regional bank. “He said to me: ‘If you do something with my money I don’t approve of, even if I may not know your chairman personally, I will certainly know somebody who does. If anything goes wrong in a Swiss bank, I do not have that kind of control,’ he told me. That’s a big attraction,” Sifri added.

 


British PM May: 'I will not break up my country for EU Brexit deal'

Updated 21 September 2018
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British PM May: 'I will not break up my country for EU Brexit deal'

  • Theresa May hits back with angry statement after EU leaders rejected May’s Chequers plan
  • Sterling plummets as both sides warn they are planning for a no-deal scenario

LONDON: British Prime Minister Theresa May said on Friday Brexit talks with the European Union had hit an impasse, defiantly challenging the bloc to come up with their own plans a day after the bloc’s leaders savaged her proposals.
At a summit in Austria on Thursday, EU leaders rejected May’s “Chequers” plan, saying she needed to give ground on trade and customs arrangements for the UK border with Ireland.
The British media said the response had left her proposals in tatters, and May angrily struck back in a televised address from her Downing Street office, saying neither side should expect the impossible from the other.
“Throughout this process, I have treated the EU with nothing but respect,” May said. “The UK expects the same. A good relationship at the end of this process depends on it.”
Sterling extended its losses as May spoke, falling to as low as $1.3080, about 1.4 percent on the day, putting it on course for its biggest one-day drop this year, over growing fears Britain could leave the EU without any deal.
May has said the Chequers proposals for trade with the EU, which would resolve arguments over the border of Northern Ireland with the Irish Republic, were the only way forward. EU leaders in Salzburg repeated their view that the plans would undermine their cherished single market.
After the summit, EU leaders said they would push for an agreement next month, but both sides have warned they are planning for a no-deal scenario.
“It’s not acceptable to simply reject the other side’s proposals without a detailed explanation and counter proposals,” May said. “So we now need to hear from the EU what the real issues are, what their alternative is, so that we can discuss them. Until we do, we cannot make progress.”
May, who commands a majority in parliament only with the support of a small pro-Brexit Northern Irish party, said she could not agree to any deal which treated Northern Ireland differently to the rest of the United Kingdom.
The EU insists that there can be no hard border between the British province and the Irish Republic, with Northern Ireland remaining in the bloc’s customs union or effectively establishing a border in the Irish Sea if no alternative deal is reached.
“I will not overturn the result of the referendum nor will I break up my country,” she said. “We need serious engagement on resolving the two main problems in the negotiations and we stand ready.”
However, she said no matter what happened, the rights of three million EU citizens living in the United Kingdom would be protected.
Earlier, her Brexit Secretary Dominic Raab said some EU leaders had shown unstatesmanlike behavior in Salzburg.
“We’ve already compromised hugely with the Chequers proposals,” Raab told BBC TV. “What we’re not going to do is be salami sliced throughout this negotiation in a typical style that the EU engages in without movement on the other side.”
For the British media, the message from Salzburg had been clear. “Your Brexit’s broken,” the Daily Mirror newspaper said.
Newspapers led their front pages with a Reuters picture showing May, dressed in a red jacket, standing apparently aloof and alone from a mass of suited male EU leaders.
May faces a fight with angry Conservative lawmakers at her party’s annual conference from Sept. 30.
Many have voiced opposition to her plans, which they said would bind Britain into much EU regulation in return for free trade, and some would prefer a no-deal “hard Brexit” in March, despite warnings that would ravage the British economy.
“Theresa May’s Brexit negotiating strategy has been a disaster,” opposition Labour leader Jeremy Corbyn said. “The Tories have spent more time arguing among themselves than negotiating with the EU.
“The political games from both the EU and our government need to end because no deal is not an option.”
In response to May’s statement, the Confederation of British Industry and other business bodies said they wanted to see constructive dialogue, not rhetoric.
Last week, London Mayor Sadiq Khan added his voice to those including union and business leaders who said there should be a second Brexit referendum. Scotland’s top court ruled on Friday that the European Court of Justice should consider whether Britain could unilaterally change its mind on Brexit.
“The referendum was the largest democratic exercise this country has ever undergone,” said May, who has repeatedly ruled out a second vote following the original 2016 referendum. “To deny its legitimacy or frustrate its result threatens public trust in our democracy.”