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Author: 
KHALID I. NATTO 
Publication Date: 
Thu, 2011-05-05 17:45

We have recently met with a
CFO from Poland, who works for a prominent Saudi family. He was new to the
Kingdom, and he had very little knowledge about the financial tools that are
available. In fact he was extremely frustrated with the fact that his balance
sheet was literally leveraged eight times. The company made sales to government
ministries that are obviously slow to pay due to their own bureaucratic
hurdles. The foreign CFO seemed to be brimming with sarcasm and frustration as
he lashed out with disparaging remarks about being paid in, and I quote
“camels.”
The primary problem that chief financial officers (CFOs) are
faced with is the management of their cash flows. The various importers are
competing for bids at the various ministries in an attempt to win
multi-billion-dollar contracts. This situation applies to everything from the
sales of school buses to the Ministry of Education or computer servers to the
Ministry of Health. We at the KIN Consortium have been approached by Saudi
importer that came to us requesting financial solutions, because the delays of
the ministries payments are about to bankrupt the local importers. So we went
into our financial toolbox, and called a number of senior bankers in the Kingdom.
The solution is called, “Acknowledgement of Assignment of Contract Proceeds,”
and it’s available at almost all the local commercial banks.
The documentation consists of approximately three documents
that need to be signed by the ministry, the Saudi importer, and the local bank.
Once the products are delivered to the ministry, the banks pay the Saudi
importer, and the bank subsequently waits for the ministry to pay them. Of
course, the bank charges a fee for waiting on the bureaucratic ministry to make
its final payment; however, this solution removes the problem of huge account
receivables on the balance sheet of the Saudi importer. In fact with this
solution the Saudi importers can continue to vitalize the economy by doing
business as usual, while having the powerful local banks carry the risk of
waiting for ministerial payouts. The next question was about the size of the
risk to the banks. What if the amount exceeds the risk tolerance of any
individual bank; for example, if the contract is worth hundreds of billions of
dollars? The answer is merely a syndication of the outstanding amount amongst a
number of different banks, in order to spread the risk accordingly.
So now the foreign CFO has the solution that is obvious to
most Saudi CFOs. The only problem that I can see at this point is, why are we
hiring foreigners? The Saudi solution is available in a cost effective manner
at the local Saudi banks, and most Saudi CFOs are aware of the solution. I
suppose the Polish CFO might be excused for his rude remarks about payment in
camels, and the disgusting remarks about alcohol, since he is ignorant and new
to the region. What I can’t excuse is the sheer size of his paycheck. Why are
they paying this inept, uneducated, and rude man millions of dollars? We at the
KIN Consortium solved the problem within a few hours of research and phone
calls. I must confess that the situation truly baffles the mind. To compound
the issue even further, the Polish CFO denied that he requested the
information, as he attempted to take the credit for our research. Naturally we
at The KIN Consortium followed our company’s standard operating procedure by
e-mailing him a recording of our conversation, as evidence of the verbal
contract. The fact of the matter is that foreigners should not assume that all
Saudis are uneducated businessman that can be dismissed with a disparaging
remark about camels. Some of us Saudi businessmen have a better education, and
international banking experience that can easily surpass that of the foreign
employees. This story is factually true and it supports the case for the
Saudiazation of the work force, as per the wishes of the Government of Saudi
Arabia. The sheikh of the local company has yet to respond to us for a comment
on this outstanding issue.
We in the Kingdom have certain cultural sensitivities much
like every other nation. When foreigners come to visit or work in a country
they should attempt to immerse themselves in the traditional culture and
values. The experience can only enrich them as they begin to understand the
intricate aspects of the society. These fundamentals are the basis of the
valuation models of the society. For instance, the Japanese have a word that
they use for foreigners that generally lack the respect for their culture. The
word “Gaijin” is a word meaning “non-Japanese,” “barbarian,” or “alien.” They
tend to use this term to refer to people who lack the cultural sensitivity or
understanding of certain traditions like the tea ceremony, not wearing shoes in
certain areas, etc. I can only implore certain foreigners to refrain from
diluting or insulting our cultural values by showing an appropriate amount of
respect and decorum, if they plan on staying or working in the region. 
 
— Khalid I. Natto, [email protected], is chairman
& CEO The KIN Consortium
 

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