MENA Economy, Investments and the Specter of the Arab Spring

MENA Economy, Investments and the Specter of the Arab Spring

  • The obstinate political instability has weakened the macroeconomic fundamentals of the MENA region.
  • Investor confidence has been severely impacted resulting in a decline in the FDI received by the MENA region.
  • There is an urgent need for structural business and regulatory reforms, infrastructure development, and improvement of the education system, for the region to recover from the Arab Spring and regain its position as an attractive investment destination.

In this article we try and assess the repercussions of the Arab Spring on the MENA region’s macroeconomic and investment climate. In the first half, we discuss the trend of declining GDP growth (5.6% in 2012 to 2.8% in 2013) – a trend which is more pronounced in developing oil exporting countries – and the challenges faced by the region to recover to its historic average growth rate of 4%. We then focus on the falling FDI received by the region in wake of dented investor confidence, and how non-oil manufacturing and services sectors have been impacted more than their resource-rich counterparts, thereby creating a case for structural reforms if the region has to regain its position an attractive investment destination.

  • The unrest created by the Arab Spring is not limited to the political and social spheres only; rather, the persistent political instability has weakened the macroeconomic fundamentals of the MENA region.  An October 2013 report by the World Bank – “MENA: Investing in Turbulent Times” – tracks the on-going political turmoil, and its effect on the economy and the attractiveness of the region as an investment destination.  As per the report, despite the recovery in global macroeconomic conditions, MENA region’s GDP growth is expected to come down from 5.6 percent in 2012 to 2.8 percent in 2013.  The effect of unfavorable political and social conditions is starker in case of the developing oil exporting countries (like Libya, Iran, Syria) experience greater turbulence; as a result, their GDP growth will decline from 9 percent in 2012 to -0.4 percent in 2013.  GCC oil exporters’ efforts to increase oil production will help them outperform the region’s growth in 2013, but their growth will also be lower on y/y basis, as oil production is currently at capacity in both Kuwait and the United Arab Emirates, and Qatar’s growth continues to decline due to the winding-up of its natural gas program and the fall in crude oil prices.

MENA Economy, Investments 1

                                                                        Source: World Bank 

  • Per the report, MENA may revert to its average growth rate (of the past four decades) of 4 percent in 2014, in the event of greater political stability and improved policy measures.  However, we believe that achieving the 4 percent mark will be challenging, especially in the wake of lower credit ratings, rising inflation, weaker currencies, falling exports, inflated current account deficits, and declining tourism receipts in the region.
  • The spill-over effects of the instability also include dented foreign investor confidence, which has resulted in a decline in the FDI received by the region.  It is well known that political stability and favourable policy are among the key drivers of FDI into emerging markets. Therefore, it is not surprising that the onset of the Arab Spring coincides with a decline in FDI inflows into the MENA region.  A comparison of FDI inflows (see chart below) shows that while other developing countries were able to maintain FDI inflows post the financial crisis, MENA countries – developed as well as developing – experienced a huge drop in FDI inflows starting 2011-2012. This period coincides with the phase of extreme political and social turmoil in the region, where governments were overthrown in Egypt, Tunisia, Libya, and Yemen; civil wars erupted in Libya and Syria; and major protests were staged in Bahrain, Jordan, and Lebanon.

MENA Economy, Investments 2

                                                                        Source: World Bank

  • Finally, while FDI inflow into resource rich sectors remains unaffected by the political situation, FDI into non-oil manufacturing and services sectors declined to the political-instability and unfavourable policies. As per FDI Markets data cited by the report, resources & oil manufacturing and non-tradable sectors were recipients of Greenfield FDI worth USD 540 billion from 2003-12, which is ~50 percent higher than the amount received by non-oil manufacturing and commercial services sectors in the same time frame. One of the key reasons for this difference is the lack of democratic accountability, government instability, unstable business environment, and conflicts in the region, which matter more to foreign investors looking at the non-resource tradable and services sectors. Therefore, it is not surprising that while FDI investments focused on resource-rich sectors remained largely unaffected by the political situation, and the already low FDI to manufacturing and services sectors declined further due to the crisis, thereby depriving the region of efficiency seeking investments, which are necessary for job creation, technology enhancement, and sustainable growth of the region.

We believe that the facts above clearly highlight that finding solutions to the political situation should be a priority for MENA leaders.  However, we also believe that the need for structural business and regulatory reforms, law enforcement, infrastructure development, and improvement of the education system is higher than ever now, for the region to recover from the Arab Spring and regain its position as an attractive investment destination.

The article is written by Faisal Hasan for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

 

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The ‘Social’ Enterprise is here

The ‘Social’ Enterprise is here

  • ‘Social Business’ or ‘Enterprise 2.0’ is nothing but an additional layer of communication and sharing capabilities that is added to already existing online software which enables social-style interaction incorporated into enterprise software.
  • Software as a Service (SaaS) has been a prevalent model in modern organizations for a few years now, and major enterprise software vendors are incorporating core business functions of the organization into an interface accessible from any device.
  • ‘Consumerization of business’ is the next milestone in the enterprise software world, where functions available on social media channels such as chatting and messaging, posting on forums or user groups and collaborating on shared content are now being integrated into the enterprise software suites.

We live in the age of ‘social’ software and ‘smart’ devices, which could make you cynical when you hear terms like ‘social-this’ or ‘social-that’. However, sometimes the use of ‘social’ as a prefix is indeed merited.

An excellent example is the maturing field of social-style interaction incorporated into enterprise software, to create what is being considered a ‘Social Business’, or ‘Enterprise 2.0’.

Basically, it is an additional layer of communication and sharing capabilities that is added to already existing online software which enables employees, customers and suppliers to collaborate and organize information, using web and mobile platforms.

Software as a Service (SaaS) has been a prevalent model in modern organizations for a few years now. Every major software vendor now enables company staff to work from anywhere by incorporating core business functions of the organization into an interface accessible from any device.

What was missing, though, was the adoption of some of the best ideas and functions available through social media from the consumer side. Chatting and messaging, posting on forums or user groups and collaborating on shared content are all clear examples of what can be taken into the organization for its benefit.

Analysts and consultants call this the ‘consumerization of business’; but to keep it simple, it’s just businesses being smart and capitalizing on the changing nature of the typical employee.

People want the same communication experience they enjoy in their personal lives, to be available in their professional life; to share data with co-workers, and seamlessly communicate through messaging instead of just using email. If this increases their productivity and happiness, companies should realize its impact on the bottom line.

With the entrance of millennials into the work place – those born between the early-eighties and the turn of the century- it has become imperative to adopt such communication and collaboration abilities to retain younger employees.

That’s why the biggest players in enterprise software are getting in on the act.

In 2012, Microsoft acquired Yammer, a private social network, which puts people, conversations, content, and business data on one platform. At the time, more than 200,000 companies worldwide were already using Yammer to collaborate with employees. It was an example of businesses seeking out a solution, even from a small vendor, if the bigger software companies weren’t providing it.

So, Microsoft jumped at this opportunity demonstrating that social media in the enterprise is much more than a fad. Yammer is now part of Microsoft’s Office division, and is major part of its Office 365 strategy, within the SharePoint Online service.

Oracle, another major player in enterprise software, has recently purchased Involver, to create what it calls ‘a cloud-based social platform across marketing, sales and service touch-points’. Oracle is now presenting an expanded social platform using Involver’s SML (Social Markup Language). The result will be a more comprehensive, and consumerized, experience.

The enterprise software specialist SAP has also launched “Jam” which is a secure, social collaboration solution that extends across SAP’s entire technology landscape to give social capabilities.

IBM already has a Social Business division, and its aims in this field are well articulated. IBM says it wants to “connect employees and customers to share their best ideas and new processes’.

It would appear that the customer is now, finally, in control! Enterprises will also reap the benefits of enhanced feedback for the purposes of product and service development.

This is an ‘open’ age of information. So, enterprises are going to have to open up too.

There are, of course, software security challenges involved. But that’s part of this evolution, whereby the benefits truly outweigh the potential concerns, which can be tackled.

Empowering employees and communicating better with consumers must be every company’s goal. Positive experiences create satisfied customers, and more revenues. That’s the optimal goal that corporate IT departments aim to achieve.

For decades, businesses have claimed to be ‘at the service of the customer’. Now, such claims are being truly tested as technology weeds-out those who cannot deliver on that promise. Beware the rise of the ‘social enterprise’, you have been warned.

The article is written by Zeid Nasser for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Bitcoin in MENA Market

Bitcoin in MENA Market

  • Financial Institutions in the MENA region remain skeptical about bitcoins, despite a slow but steady growth in bitcoin adoption.
  • Small groups and Entrepreneurs are developing platforms to promote the digital currency, which can address the long-standing problem of financial inclusion in the region.
  • Low credit card penetration and difficulty to acquire a credit card or a bank account in the MENA region will drive the demand for the Bitcoins in the region. However, cultural and technological challenges exist.

Bitcoin was created in 2009 by an unknown person, or group of people, using pseudonym Satoshi Nakamoto. It is a decentralized (digital) currency, without any authority, company, website or symbol.

Bitcoins are created by a slow and highly iterative computing process called ‘bitcoin mining’, enabling individuals or companies engage in this activity in exchange for transaction fees and newly created bitcoins. Besides mining, bitcoins can be obtained in exchange for fiat money, products, and services, and users can send and receive bitcoins electronically for an optional transaction fee using wallet software on a personal computer, mobile device, or a web application. Bitcoins can also be bought from bitcoin exchanges by paying through other payment methods including cash.

Currently, 50 bitcoins are generated every 10 minutes; however, the mining process will get slower and complex with time. However, this payment method is getting increasingly popular, especially in the developed world. According to Coindesk.com, as of 26 June, one Bitcoin is worth about USD 570 and on average, 80,000 Bitcoin transactions worth over USD 100 million occur daily. In Dec 2013, daily value of Bitcoin transactions crossed Western Union transactions.

Global Bitcoin Transactions

Bitcoin 1

Source: seconmarket.com

Large number of financial remittances, low level of financial inclusion, and high mobile penetration rates in the Middle East creates a good market for the Bitcoins.

MENA region is home to large number of expats who send significant amounts of salaries back home. The region accounts for nearly 15% of global remittances and the bitcoin being a low cost money transfer option (compared to average 8% transfer fee for other money transfer modes), help save significant amounts of remittance fee.

The low levels of financial inclusion in the MENA region has led to limited access to any sort of financial services. According to Findex, MENA has the lowest percentages of adults with a formal bank account (18%) and of poor people with formal access to financial services (9%). The recent success of mobile banking is an example of how alternative payment methods can make their place in the market.

The mobile and internet penetration is high when compared to the global average. As per the Global Media Intelligence Report by eMarketer, at 525.8 mn, the Middle East and Africa had the second largest mobile phone population in 2013. Also the internet penetration is 37%, which is above the global average. These two channels can facilitate the use of Bitcoin and can help the region address the issue of poor financial inclusion.

Some groups are continually working on new platforms for Bitcoins in the region to make them popular and easy to use. In June 2014, BITBOX launched the Middle East’s first bitcoin ATM in Tel Aviv (Israel). The vending machine allows both purchase and sale of Bitcoins. Although Bitcoin is witnessing significant growth trend in Israel, however, at present all the transactions have to be through a bank, involving lot of bureaucracy. With the launch of the Bitcoin ATM, it will help the users to transact without being hassled by the bureaucracy of the banks. This will encourage the users to exchange Bitcoins for local currency and also create a wallet to store Bitcoins. This platform will enable sending Bitcoins via email and phone and redeeming them at any of the similar ATMs. The ATMs are priced at about $15,000 and includes biometric features which may be activated depending on the local requirements.

Iranians got a Bitcoin Marketplace, CoinAva, which allows people to buy and sell Bitcoin. Bitcoin Exchange is similar to a traditional exchange except that it is entirely online.

Lack of innovation, knowledge and skepticism are the main hindrances for the Bitcoin growth in the region. Although with lot of potential for growth of Bitcoins available in MENA, it is one of the toughest regions to operate and acquire Bitcoins. Some of the reasons that may be pulling down the potential are:

  • Absence of incentives to use bitcoin
  • Lack of innovation as the environment is still more reactive than proactive
  • Lack of confidence in the security and trustworthiness of the currency
  • Broader community in Middle East is still in the early learning phase about bitcoin
  • It was difficult to find options to exchange other forms of local digital money with Bitcoins till Bitcoin Nordic recently introduced CashU as a payment option

The central banks in the region have issued warnings against the usage of the Bitcoins making it tougher for the people to trust this digital currency. 

  • According to the Central bank of Jordan, the virtual currencies are not legal tender and there is no obligation on any central bank in the world or any government to exchange its value for real money issued by them.
  • According to the Lebanese Central Bank, due to its relatively small user base, the value of Bitcoins is subject to intense volatility and as the money is not backed by any central bank, the value of Bitcoin is not stable, and the price can drop to zero.

However, people in favor of Bitcoin argue that the technology is desirable as there is no issuing authority making it a borderless currency on Internet. Anyone having access to the Internet or a phone can access Bitcoin and leverage the financial services around it.

Combined efforts by governments and businesses is needed to drive the growth in the region. There is a lack of trust in online payments in the region leading to low credit card usage and growing but comparatively small e-commerce sector. It has to be tackled by educating people about bitcoin and related terms like wallets and exchanges and addressing issues with the conventional online payments.  Bitcoin entrepreneurs in the region are focusing on education and outreach which will include:

  • Showcasing at events like ArabDigital;
  • Building contacts at other tech start-ups; and
  • Reaching out to the region’s merchants and consumers.

Another challenge is incentivizing the use of the digital currency. However, it is a catch 22 situation because there is a need for more users to incentivize businesses to use it, and more businesses to incentivize users to use it. The region needs more innovators and risk takers, more ideas and solutions as the market is more reactive than proactive.

Bitcoin appears to be destined to grow big in MENA, however, it remains to be seen how long the cultural barriers and lack of technological integration stopping it from penetrating deeper in the region.

Cases of acceptability of Bitcoins in the Region and Warnings issued by Regional Banks

Despite being a favourable market, Bitcoin has a very low presence in MENA region with only two merchants accepting Bitcoin in the entire region: a restaurant in Dubai and a coffee shop in Jordan.

  • UAE homegrown F&B brand “The Pizza Guys” became the first restaurant in the wider region to accept Bitcoin. According to these pizza guys, they are able to accept the volatility in the price of Bitcoin because of their small transaction size
  • According to the owner of the coffee shop in Jordan, accepting Bitcoin payments, there is very low risk of losing money given the small size of the transactions

 

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Components of a Successful Email Campaign

Components of a successful email campaign

  • Email marketing is not mail bombing or mass mailing. It’s a misconception that you can just send an email to a huge list and expect bumper returns.
  • A disciplined and step-by-step approach when adopted can lead to very good and effective. A synched campaign with designing, testing, delivery, and post campaign management can give the right results.
  • If you are not a technical person, it is advisable to take professional help to ensure best results, especially with design and delivery.

In my previous article (Email Marketing: The Charm Continues), we did touch upon a few do’s and don’ts when it comes to an email campaign. This time, let’s explore what it takes to build a successful email campaign.

Most people simply assume that email marketing is mail bombing or mass mailing. Just send an email to a list of 100,000 users from a database purchased and you will get business…absolutely wrong. It’s a misconception that you can just send an email to a huge list and expect bumper returns!

It takes time and effort to build a serious email campaign. No shortcuts to success here. Put in the required effort and do it the right way, the results can surprise you (in a positive way).

Let’s get down to business now.

Step 1

You want to build a campaign and send it to your customers. Fine. But, do you have the list of objectives that you want to achieve from this campaign? Even before you create the content for your campaign, pen down what you wish to achieve from your campaign. If you have more than one objective, put it in an order – top most priority first to the least important objective at the end.

Step 2

Once your objectives are clear, you can pretty much arrive at the list of people (audience) who should receive your campaign. If you are sending a generic campaign like a New Year Greeting, you will probably send it to your entire list or database. If not, segment your list to target your campaign. For example, if you have a financial product that is specific to high net worth individuals (HNWI), you might want to target your campaign to the top management of your customers.

Note: The list or database should be your own and opt-in.

Step 3

What next? Well, it’s time to put your content on paper now based on your objectives. You then need to translate it into a proper campaign format. If you are not familiar with email campaign designing, you should get it done by a professional. An email campaign should include both text and images. Some design points that you should keep in mind:

  • The overall text to image ratio should be between 60:40 and 75:25
  • Do not include too many images
  • Avoid embedding images in your campaign (host them on a web server instead)
  • Avoid attachments (host them on your web server and provide links in your campaign)
  • Have a responsive design if possible (campaign that renders according to the device being used)

Are we done and ready to send the campaign? Certainly not!

Having a great design is just one part of a successful campaign. The most critical part is the delivery of this to the end recipient. If you don’t hit the inbox, it’s as good as not sending the campaign itself!

If you are not a technical person (meaning, you are not sure how email servers work), it’s better to take the help of an expert here. You will need to consider a few things to optimize your campaign delivery:

  • Make sure your SMTP server’s IP address is not blacklisted
  • The “From Name” and “From Address” are valid
  • Throttle your campaigns if required (send x number of messages per hour; depends on your SMTP server)
  • Ensure that you have got SPF, DomainKeys/DKIM configured
  • A PTR record (also called Reverse DNS) is setup for your SMTP server

You are now almost there! But keep in mind the following as well:

  • The message subject should not exceed 50 characters
  • NO SHOUTING in your subject line (avoid all caps)
  • Always include a link to an Online version of your campaign and an Unsubscribe link (should be simple enough to use and action)

Test the Campaign

Want to know the 3 golden mantras of Success? Test, Test and Test.

There are online services (such as EmailonAcid) available to test an email campaign thoroughly. These services allow you to check at least two things:

  • How they render in different email clients
  • How they are analyzed by various anti-spam filters

Some of these services offer a free trial. Give it a try before you hit the trigger.

Post Campaign Management

There are a few things which should be addressed once a campaign is sent out. Your email marketing software should be able to manage them automatically for you. If not, you need to manually take the required action.

  • Bounced messages are actioned on merit (hard bounces should be removed or deactivated from your list)
  • Unsubscribe requests are honored at all costs

Conclusion

Email marketing is still the number one method to generate business leads. It’s cheaper and far more effective when compared to other methods of marketing. And it’s measurable unlike most of the other traditional marketing channels.

Until next time, happy Email Marketing!

The article  is written by A. Chandra Shekhar for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Choosing the Right Communication Method

Choosing the Right Communication Method

  • It is extremely important to choose the correct communication method, and the steps to take in deciding which method would be the most appropriate for your brand.
  • Knowing your audience and analyzing the reason for your communication, can be a starting point deciding your communication method.
  • While online marketing can be best to create awareness among the youth, establishing credibility is best done through a Public Relations Agency, and advertising campaigns are still one of the best mediums for brand building.
  • There are several factors that go into deciding the right communication channel for you, and time spent on doing this right will come back with rewarding results.

There are many pitfalls of agencies that offer only a single service, and many ways that campaigns fail when a service is forced on a brand or a brand on a service. It is extremely important to choose the correct communication method, and the steps to take in deciding which method would be the most appropriate for the brand in discussion. As a leading live communications agency, entourage marketing & events has worked on many different brands and through many different mediums, have insight to the process, whether you are looking for a marketing agency, a public relations agency, or a creative advertising agency. This discussion will definitely also help if you are working with an agency and trying to choose the right communication method for the brand you are assigned.

Why do we “communicate”?

In order to understand the importance of choosing the correct method of communication to get your message across, let us first go back to the reasons of “why we communicate.” When we have a certain message that we need to relay, we set out to communicate our messages. We need these messages to reach the right people in order for our message to be deemed effective. Our messages need to have an impact and need to have a reason of existing; are you communicating to increase awareness about a product, service or solution? Are you communicating a message to build credibility? We each have a reason to communicate, and because humans have evolved to use sophisticated means of communication, there are so many different methods to choose from.  It goes without saying that if the right method of communication is not chosen, the message will not reach the right audiences, and is henceforth, ineffective.

How to Choose the Effective Means

As mentioned, due to the diversity of options, choosing the right method is extremely vital. Here is a few tips and facts that might make your choice of communication method more appropriate.

The Younger Generation is Online

It helps to know that when your message is aiming to reach the younger generation, that the younger generation uses the social media platforms excessively. Statistics show that Arab users under the age of 30 in the Middle East on Facebook are 68%. Nearly 45% of all social media users are under the age of 24. Statistics on social media show that in the Middle East, content is prone to going viral. Such opportunities should be optimized on; viral content is creative to create, fun to produce and communicates directly to the younger generation enthusiastically.

Public Relations Builds Credibility

It’s the oldest story in time, rather than telling people just how great you are, having a third party address the matter helps build your credibility. That’s where PR comes into the picture. When the brand you’re handling needs to address a crisis or to build trust, PR is the way to go. Many people trust newspapers, and what the media tells them, and utilizing the media to tell your brand’s story or perspective plays a really big role in creating credibility for that brand and gaining trust. Improving the image of your brand by understanding that PR is about maintaining relationships with people will further help you choose a public relations route in order to create PR stunts or PR stories that interact with the stakeholders of a brand.

Creative Advertising Helps Maintain a Brand 

Whereas creative advertising is definitely important in creating the basis for any brand, maintaining the brand through creative advertising is extremely helpful as well. Many advertisements turn to minimal element usage simply because brands have already built such a strong identity that a simple creative advertisement would speak to people without an explicit explanation. For example, the Nike “check-mark” and tagline “just do it” have become so familiar to people that no explanation is need. Hence, creative advertising for Nike is based on the brand’s strong suit, and maintaining it as a brand can be easily done. So our advice is that if you’re looking for a way to communicate a message for an already existing brand, like introducing a new line for that brand, then creative advertising would be a smart way to go.

There are many more factors that play a big role in deciding on a communication method, but these simplified tips can help you go a far way in choosing which would be the most appropriate for where you stand at a certain point.

The article is written by Mohammed Tayem for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Microfinance in MENA

Microfinance Mena

  • Financial inclusion levels are alarmingly low in the MENA region, and the trickle-down effect can be felt on the region’s Microfinance market, which is among the youngest and slowest growing in the world. 
  • Although every country in the region has its unique challenges (use of technology, income levels, etc.), lack of institutional and regulatory support is a common cause for the undergrowth of the microfinance sector in MENA.
  • Growth be achieved if MFIs have the support of Arab governments in the form of good institutional and regulatory framework.

Microfinance in MENA, and the need for a Supportive Institutional and Regulatory Framework

Financial inclusion levels are alarmingly low in the MENA region.  According to Pi Slice, MENA’s first online microcredit platform, the region has a population of 370 million of which at least 26% are estimated to be living on less than USD 2 per day. Also, financial inclusion in the region is very low; as per Findex, MENA has the lowest percentages of adults with a formal bank account (18%) and of poor people with formal access to financial services (9%).

The trickle-down effect can be felt on the region’s Microfinance market, which is among the youngest and slowest growing in the world. World Bank estimates that microcredit accounts for just 0.2% of MENA’s GDP and lending by microfinance institutions currently reaches only 1.8% of the adult population. To put things into perspective, this is half the penetration rate as compared with South Asia or Latin America and the Caribbean. 

Therefore, it comes as no surprise that while there are ~6 million households eligible for a microfinance loan, the underdevelopment of the microfinance market in the region means that there is a gap of about 3 million potential microfinance customers for a total of nearly USD 3.5 billion in Gross Loan Portfolio (GLP), as per Pi Slice. And new research from responsAbility shows that this situation is unlikely to change soon since the growth rate of MENA’s GLP is predicted to lag all other regions, expect Eastern Europe. 

2014 Forcasts for Growth of Regional Microfinace Markets
Region Gross Loan Portfolio Growth Rate 2014
South America 15 – 12%
Central America 10 – 15%
Sub-Saharan Africa 15 – 25%
MENA 10%
Central Asia 15 – 20%
Estren Europe 5 – 10%
South, South East and East Asia 25 – 35%
Total 15 – 20%

Source: Responsability Research

However, within the region, microfinance markets are in different stages of development with Morocco, Egypt, Jordan, and Yemen showing higher levels of maturity as compared to relatively new markets in Iraq, Sudan. The variation in the maturity level of the microfinance market within various MENA countries can be observed by the number of borrowers in each country, as per the Washington-based Microfinance Information Exchange (MIX).

Microfinance Mena information

 Source: Microfinance Information Exchange (MIX)

Although every country in the region has its unique challenges (use of technology, income levels, etc.), lack of institutional and regulatory support is a common cause for the undergrowth of the microfinance sector in MENA. Products offered by MFIs in the region are primarily focused on credits while other financial services, such as saving, insurance or monetary transfer are negligible due to lack of an enabling legal, regulatory and institutional environment in the microfinance sector. While few countries like Sudan, Syria, and Yemen allow for savings mobilizations, the remaining markets are impacted by restrictive regulations and structure of their respective financial sectors, which limit the growth potential of MFIs. As a result, 60% of all external funding is done by local banks, but at high lending rates, thereby negatively impacting borrowers.

The lack of institutional support can also be gauged from that >90% of financial services for poorer households in MENA are provided by non-governmental organizations, with an underdeveloped financial infrastructure and low levels of financial literacy further inhibiting the sector’s growth.

It is abundantly clear that growth of the microfinance sector in MENA can be driven only through institutional support, and some recent developments lend hope. As per a 2013 report by the Economist Intelligence Unit (EIU), regulatory developments in the region point towards an effort to help MFI grow. Most notably: 

  • Morocco updated its Microfinance Associations Law, with an aim to encourage consolidation among smaller microcredit associations (MCAs). While some microfinance professionals have criticised it for assisting MFIs in transforming into commercial banks or NGOs, it should still be viewed as a step in the right direction to grow the microfinance sector.
  • Jordan adopted a microfinance strategy providing for comprehensive legislative reforms.
  • In Egypt, a bill to that effect was introduced to Parliament even before the Arab Spring.
  • In the Palestinian territories, a presidential decree has set the course for standard monitoring of the microfinance sector by the Palestinian Monetary Authority. 

Other positive indicators include:

  • increased diversity of financial service providers (banks, microfinance banks, non-bank financial institutions, service companies, and NGOs);
  • higher and deeper penetration levels;
  • a widening pool of experienced human resources; and
  • improved credit risk systems

The above are but a few steps that have been taken. However, much can still be achieved if MFIs have the support of Arab governments in the form of good institutional and regulatory framework.

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Think like A Genuine ‘Brand’

  • There are areas in our brain which can store certain brands and slogans but not all. The brands that truly influence our mind are the ones that emotionally we are attached with.
  • Many of the successful brands of today had created an exceptional customer perceived value and they compete for emotion as it stays connected with the customers’ heart instead of the head
  • Every human being is a brand, the way we dress, talk and socialize. To be a brand we should think like a brand, which requires a different mindset, perspective and unique approach.
  • Your promise as a brand is about how you want to be described and how you would like other people feel about you, for which we will have to raise the bar both at a personal and professional level.

The brainstromer Quiz of a recent group caught up my attention, moving away from its usual formats as it’s presented with a difference. The task given to the group was to identify a brand from a series of funny, catchy slogans, tag line used as an aid in promoting brands or products in the past and present. These catchy slogans have clever phrases and used as great motto to advertise and promote brands in a big way. When the Quiz Master announced the answers to each of those almost all the brands were known or we use in one way or other in our day today life, however, one could relate or memorize only 10% of the brands with these catchy tagline.

Why only few brands come to our mind and we look for those? Researchers have proved, the human mind has the ability to retain and recall things that are unique and distinctive. There are areas in our brain which can store certain brands and slogans but not all. The brands that truly influence our mind are the one that emotionally we attached with. Many of these products are unique and have enhanced our lives in one way or the other.

Perceived Value.

Many of the successful brands of today had created an exceptional customer perceived value which is mathematically equal to the benefit divided by the cost. The price is only one part of the three fundamentals i.e. Time, Feeling and Money. We often think the perceived value means lowest cost. There are brands that highlight the lowest prices as a distinctive point and generally this is an indication of the brand getting surrendered to the consumers mind as a commodity, lowering its value proposition and begins to start losing its brand identity. The crowd get attracted to the lowest price will be primarily being loyal to the price and not to the delivered value. They will leave when a competitor comes in at a cheaper price.

Emotional engagement

Smart companies of today compete for emotion as it says connects your brand, and with your customers’ heart and not with the head. Position the brand to keep your customers grounded with emotional engagements. In a brand value formula the perceived value should exceed the total cost both functional and emotional. A genuine brand understands that a lowest price strategy alone will not necessarily guarantee customer loyalty and satisfaction.

Brand Promise

In order to be passionate about a brand the organizations need to create, believe and deliver in a brand promise. Many organizations of today including the fortune 100 or 500 talk about their commitment and dedication to customers on one hand is looking for outdated and low cost solutions, overlooking how their brands are perceived in the market. It seems the corporate world of today are suffering from a ‘policy-mania’ that is a policy to control every possible process and actions. The policies are important however; remember promises are delivered by people and not by policies.

Integrity Dividend

We all use the word ‘genuine’, which often means authentic in other words ‘trusted’. In today’s world there are very few promises one can really count on and people appreciate if yours is one of them. The organizations which believe in creating such genuine brands and promises are the ones which benefit today from the “integrity dividends”.

Think like a ‘Brand’

Every human being is a brand, the way we dress, talk and socialize. To be a brand we should think like a brand, which requires a different mindset, perspective and unique approach. To become a personal brand doesn’t mean being powerful, rich or famous. Your promise as a brand is about how you want to be described and how you would like other people feel about for which we will have to raise the bar both at a personal and professional level. Create a paradigm shift today to deliver a promise tomorrow with exceptional esteem be it ‘You or a “Brand” in your mind.

The article was is written by Raghu Menon for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

 

Why Cash on Delivery is Good for your Business (if handled properly)

CAsh on delivery

  • Despite having one of the highest broadband penetration rates in the world, eCommerce in the UAE has not met its potential, as it merely represents just over 2% of overall retail sales.
  • Widespread use of cash on delivery and customer’s changing their mind and cancelling orders if they haven’t paid in advance, are the most cited reasons behind lower than average successful delivery rates in the region. 
  • However, a close analysis of eCommerce data gives useful insights into customer mindset, which can help eCommerce companies handle cash on delivery more effectively.

eCommerce in the UAE is not as big as it should be when you take into account the fact that we have one of the highest broadband penetration rates in the world, coupled with a population that loves to shop. Combining these two factors should make online sales as a percentage of retail relatively high, on par with standards in Western Europe and the US. However, the UAE lags behind and e-commerce still represents a very small percentage of retail sales (>2%).

One of the many reasons that commentators cite as to why eCommerce is in its infancy in the region is the popularity of cash on delivery as a payment method and the very nature of its unreliability.  Lower than average “successful” delivery rates in the region, are usually blamed on the widespread use of cash on delivery as a payment option.   This is based on the belief that people are more likely to change their mind if they haven’t already paid for it.

Courier services usually charge the seller once a delivery attempt is made, whether or not it is successful.  When the seller is reliant on cash on delivery for these items, their costs can mount before their sale has even been finalized (and cash has been received). There also remains a risk of the customer changing their mind and cancelling the order.

But does the data support these views?

Hassan Al Sayegh analyzed all the shipments we carried out in the past few months analyzing more than 15,000 eCommerce deliveries. An analysis of these transactions shows that 77% of all orders were cash on delivery. This gives us a clear insight into the market here, and its appetite for COD. Although the use of credit cards is increasing, the uptake is quite slow.

Another valuable insight is that the average basket size for a cash on delivery order is almost 2.5 times that of a credit card order (a whopping AED 439 compared to AED 176). A possible explanation for this might be that people are less inhibited, more impulsive and tend to opt for more expensive items if they don’t have to pay for them upon check-out. The check-out experience is also significantly simpler for a cash on delivery order, with no credit card details needing to be inputted, increasing the successful conversion rate of a website visitor to a buyer.

Both these elements show the criticality of introducing COD solutions to your customers to truly leverage the e-commerce scene.

Successful delivery rate

The successful delivery rate for a cash on delivery order is significantly lower than that of a credit card order. On average, 99.5% of all credit card orders received by MENAVIP are delivered to the end customer, compared to 92.5% for a cash on delivery order. Our goal is to always try to increase successful delivery rate and have introduced multiple thread of actions including the following ones.

One way that has been trialed by a number of clients is to qualify all cash on delivery orders with a phone call to the customer. Only after this confirmation is obtained is the order dispatched to the courier. A further phone call from the courier (standard practice at MENAVIP) is then made to schedule the delivery and more importantly, confirm the cash on delivery amount. Combining these two best practices increase the chances of a successful delivery substantially. One client trialed this approach and found that it increased the chance of a successful delivery from 92.5% to 96%.

In order to succeed, an eCommerce player in the region must cater to the local market, and it’s very clear that the market prefers cash on delivery. If a supplier wants to sell online in the UAE and take full advantage of a world leading basket size, cash on delivery is a must. Although the risk of unsuccessful deliveries is higher, there are ways to mitigate this: by taking a proactive hands-on approach to securing your orders by interacting with the customer prior to dispatch. Also the gains pertaining to being able to reach out to 4x the potential customer database should largely outweigh the increment of the return rate, especially if the delivery (and return operations) are being performed transparently and with a fast turn over (quick pick up, bringing products back into inventory, tracking system…).

Imagining delivery operations with the same return rate for credit card as COD along with a fast turn-around on operations and cash collection is – I believe – the true enabler of e-commerce in the region for the years to come.

The article was is written by Idriss Al Rifai for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Best Practices for Managing Outsourced Business Relationships

  • The importance of effective outsourced relationship management can’t be overstated as well managed outsourcing arrangements can create 20-40% difference in value over poorly managed relationships.
  • While most buyers understand its advantages, not everyone follows a systematic approach to vendor relationship management, thereby eroding value achieved from an outsourced business relationships.
  • Communication is at the core of best practices for managing such a relationship. Other key best practices include defining targets and SLAs, establishing performance measurement metrics, integrating and incentivizing the supplier and your in-house team, ensuring skill and knowledge transfer, and developing governance framework to monitor progress.

 

The importance of effective outsourced relationship management can’t be overstated. In part I of our Outsourcing article series, we had shared guidelines on how to choose the right vendor for your outsourcing initiatives. However, selecting the right vendor is only one-half of building a successful outsourced relationship. On-going relationship management plays an equally (if not a more) important part in ensuring that organizations are able to derive the intended outsourcing benefits.

To put things into context, a study by LogicaCMG and Warwick Business School found that well managed outsourcing arrangements can create 20-40% difference in value over poorly managed relationships.  A similar research by Vantage Partners found that, for both buyers and providers, ~30% of annual contract value is at stake when it comes to effective relationship management. The table below highlights how effective or poor relationship management can create or destroy value for buyers.

Impact of Good Vs.  Poor Outsourced Relationship Management

Source: Vantage Partners

While most buyers understand its advantages, not everyone follows a systematic approach to vendor relationship management. Even though organizations or individuals that outsource tasks understand that it is important to manage their vendors well, most of them do not establish the right processes to do so. As a result, vendor management oscillates between being a chaotic, ad-hoc process at some buying organizations to a well-defined, organized process at others.  However, given the stakes, it is imperative for all buyers to have well established vendor management processes that are designed to maximize value creation for buyers as well as providers.

Appended is a step by step approach on how to effectively manage and govern outsourced relationships, starting from the contracting and set-up phase to the on-going management phase.

  1. Define targets and SLAs: An important starting point for any outsourcing relationship is for buyers to list their expectations, and for providers to assess and communicate the degree to which those expectations can be met. This is usually done at the proposal and contracting stage to establish consensus on the targets/end-product and define Service Level Agreements (SLAs) accordingly.
  2. Establish performance measurement metrics: Once the SLAs are established, it is important to put in place the performance metrics that will measure success against the agreed targets and SLA. These metrics could include uptime/downtime for IT services, depth/quality of analysis for KPO services, maximum permissible error percentages for certain BPO tasks, or turnaround time (usually applicable to all outsourcing tasks).
  3. Select in-house vendor management team: Identify individuals within the buyer organization that will be responsible to overseeing the outsourced relationship on a day to day basis. For large organizations, it helps to have a vendor manager /single point of contact (SPOC) that is responsible for coordinating with various users within the buyer organization (similar to the role played by the project manager on the vendor front). For small organizations and individuals, owners should usually assume this important responsibility to fill the void created by the lack of a vendor manager designate.
  4. Integrate and incentivize the supplier and your in-house team: Let’s deal with integration first – it is natural for in-house teams to feel insecure when you decide to outsource operations on a large scale. In such a situation, it helps to communicate the rationale behind your decision (skill gap, cost saving, etc.) to your in-house team and also assure them that existing jobs are under no kind of threat, if that is the case indeed. Hold individual meetings or town halls, as necessary, but ensure that people hear from you directly and do not rely on corridor talk on this sensitive issue. Remember that unless your existing teams come on-board with your decision, it is next to impossible to expect them to coordinate and integrate with your outsourced team.
  5. Now coming to incentives. Remember that your outsourced team is an extension of your existing team, and therefore needs to be incentivized as much to outperform. So, draw up incentive structures which are fair and reward merit even in the outsourced team. Also, make sure to attach targets and rewards for your vendor management team so that they are incentivized to make the relationship work; these targets could be in the form of productivity gains, smooth delivery, innovation, etc.
  6. Ensure skill and knowledge transfer: Relevant for organizations outsourcing core tasks, e.g. an investment bank outsourcing part of its research process. In such cases, ensure that the requisite skill transfer has been made, and the outsourced team is up to speed with your in-house processes which are critical to achieving the output that you have come to expect over the years. Also relevant for individuals and small organizations that decide to outsource a specific task which they have been managing over a period of time.
  7. Develop governance framework to monitor progress: The governance framework is not limited to the performance measurement metrics developed in the set-up phase. Instead, it is the agreed upon set of roles, rights, accountabilities, principles, procedures, and escalation processes that guide decision making, issue resolution, and changes in the outsourcing arrangement.

   It includes periodic governance calls (daily/weekly/monthly/) between operational teams to discuss day to day operational issues and ways to overcome them. Also, such a framework would establish a process for periodic review by the management teams of the buyer and the provider to:

  • Discuss progress and adherence to SLAs and performance metrics, and improvement areas.

  • Give regular feedback to course-correct projects and establish benchmarks

  • Identify risk areas and discuss mitigation strategies

  • Any disputes that remain unresolved at the first level

  • Upcoming change in buyer needs, etc.

Remember that establishing the governance framework is not enough. Buyers need to ensure that they adhere to the agreed upon framework and follow-up on their set of responsibilities, as the onus of making an outsourcing relationship successful relies as much on the buyer as the provider.

8. Communicate, Communicate, Communicate: Lack of responsiveness from buyers can be perceived as lack of seriousness by service providers, and can only harm an outsourced relationship. Therefore, it is important to establish a communication loop that goes beyond the formal governance framework and helps you build a personal relationship with your supplier. Regular communication can also help:

  • Spot early warning signals and raise flags at the appropriate time
  • Spot any changes in the team that works on your project
  • Understand the growth of your vendor beyond your immediate contract, and the alignment of its growth strategies with your requirements. E.g. As they transition from a medium sized firm to a ‘big firm’, most vendors tend to give lesser importance to small clients and small projects. Or an IT vendor may decrease its focus on a particular technology service/product which you might be using, in order to focus more on a next generation technology that has better commercial future. It is important to be aware of such changes so that you can plan your procurement strategy accordingly, and change your vendor if required. In addition to regular communication, we also recommend a periodic strategic assessment of large/critical vendors that account for majority of your outsourcing spend.
  • Communicate changes taking place at the buyer organization, in order to update your outsourced team about the resulting evolution/change in their roles and expectations.

9. Ensure smooth billing cycles and pay on time: Vendors appreciate clients that are as religious about processing invoices as about expecting results.  Trivial as it may seem, it goes a long way in establishing trust, especially in smaller relationships. Remember, if you consider your outsourced unit as an extension of your in-house team, then you must apply the same rules to both.

We hope these best practices will help you manage your outsourced relationships in a more effective manner and achieve the intended benefits. We would love to hear your thoughts on other challenges that you or your organization have faced in such situations, and best practices for overcoming them.

 

The article was originally published at: Arab Business Review
To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

Are Arabs shopaholics?

GROWTH OF MODERN RETAIL – it’s PROs and CONs

article_img_shopaholics

  • Modern Retail is essentially a recent development in the UAE & Middle East, starting in 1995 with opening of CONTINENT, which was the first large format Hypermarket in UAE.
  • The opening of these mega malls with their large format Hypermarkets and their Food Courts and Play areas have made for a whole new shopping experience. Grocery shopping is now a family outing and no longer remains the chore that it used to be.
  • But it also brought with it new terminology like Listing Fees, Rebates, Trading Agreements, Merchandising, etc., which have had financial implications for the various stakeholders and have turned the Supplier, Retailer and Consumer relationship on its head.

Modern Retail or Hypermarkets or large format supermarkets as we know them today are essentially a recent development in the UAE & Middle East.

In the olden days the retail scene was dominated by the Cooperative Stores, chain supermarkets like Spinney’s, Choitram’s, Lal’s, Emirates General Markets, etc or for those wanting to buy in bulk it was the wholesale market. Shopping in those days was a mundane affair and was done like any other household chore.

But 1995 saw all this change forever with the opening of Deira City Centre with CONTINENT as its anchor store. CONTINENT was the first large format Hypermarket in UAE offering everything from Grocery to Household, Butchery to Bakery, Jewelry to Electronics and Stationary to Furniture all under one roof.

The opening of these mega malls with their large format Hypermarkets and their Food Courts and Play areas have made for a whole new shopping experience. Grocery shopping is now a family outing and no longer remains the chore that it used to be. These stores have also brought enhanced benefits for the consumers in terms of Price Off or Added Value offers which are dynamic and change on a weekly or fortnightly basis. Due to it’s increased bargaining clout Modern Retail is able to get competitive prices for regular products as well.

Now with the above changes coming into play the Monthly Grocery shopping is no longer a monthly affair, it is now a weekly or fortnightly family outing clubbed with shopping so as to take advantage of the changing offers.

Further the Brand story has also changed over the last few years, where earlier only the big brands dominated the retail scene it is now a level playing field even for the smaller brands. Since shopping has now shifted to a large extent to Offers and promotions a number of small unknown brands have gained significantly by offering Consumer Incentives, In Store Sampling, etc. Big brands have also followed suit to jump on to the Promotions/Offers bandwagon although belatedly and with their deep pockets have been able to protect their turf to a large extent.

Entry of the European chains to the retail arena in UAE has also brought with it the Best Practices of the sector which had been formulated and honed in the developed world over a long period. But it also brought with it new terminology like Listing Fees, Rebates, Trading Agreements, Merchandising, etc.

These new terms have had financial implications for the various stakeholders and have turned the Supplier, Retailer and Consumer relationship on its head.

Let’s take a closer look at what large Retailers have introduced and how it has impacted the inter relationships between the various stake holders.

LISTING FEES:

Listing Fee is an agreed amount of money that the Suppliers pay to the Hypermarkets for listing their products for sale. This amount is fixed based on the number of SKU(Stock Keeping Units) or in layman’s terms number of items that the supplier wants to sell through the Hypermarket. This concept was first introduced in 1998 by one of the major chains on the opening of their Hypermarket in Ajman and since then it has been copied by all and sundry in this sector.

REBATE:

Rebate is a fixed/variable percentage of fees paid by the suppliers to the Hypermarkets on the entire sales made through their outlets. This is also called back end margin which the Hypermarket earns from the supplier on the products it sells through its outlets. Most suppliers have seen this Rebate progressively going up over the years and can range anywhere from 5% to 25%.

TRADING AGREEMENTS:

Trading Agreements (which also known by a number of other names) are signed between the Supplier and Retailers mostly on an annual basis. Rebates form part of this agreement but these agreements also include a number of other things, for instance a fee for Advertising support, the number of shelves they will rent, etc, etc.

MERCHANDISERS:

Most Hypermarkets have done away with their own staff or have severely curtailed them over the years, thereby saving a substantial amount on the wage bills. Almost all workers you see inside a Hypermarket with “MAY I HELP YOU” or “MERCHANDISER” printed blue T Shirts are the Free Merchandisers provided by the Suppliers to these Hypermarkets who carry out the shelf cleaning and filling activity for the retailers.

SHELF RENTALS:

Although charging a rental for shelf in a Hypermarket/ Supermarket is an old practice with the development of Modern Retail it has become rampant. Like every other rental that has skyrocketed in the last few years the shelf rental has also followed suit rising as high as 150%. Eg. a Shelf Rental for which a supplier paid AED2500 per month in 2006 he is now paying AED 6500 per month.

The above are some of the cons that come along with the advent of Modern Retails Stores, so every time you see your grocery or other bills go up a little more remember that apart from the macro economic factors like cost of imports, currency exchange rate etc. these micro economic factors are also contributing to it.

The article was is written by Subbooh Moid for Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review