BIG POTENTIAL FOR FINANCIAL SERVICES GROWTH IN THE MIDDLE EAST

I was a keynote speaker at the Middle East Banking Forum in Dubai this week, the first such event organised  by the UAE Banking federation. The forum was addressed by the Governor of the Central Bank, Sultan As Suawaidi.

I believe this part of the world has many opportunities for people with good financial knowledge.

A number of interesting points came up at the Forum

Only 20% of the overall population and 12% of women have bank accounts so there is great scope for expansion. Globally only 11% of Muslims have a bank account. Having a bank account enables people to use their money more efficiently, and is a way of escaping poverty.

Banking is growing in other parts of the world ,while it is contracting in Europe.

Of the top 1000 banks in the world in 1990, 444 were in Europe and 58 in the Middle East. Now, in 2013, only 283 European banks are in the top 1000, and 92 are in the Middle East. 257 of the top 1000 banks are now in Asia as against only 104 in 1990.

CAN WE LEARN FROM ISLAMIC BANKING ? ......  QUESTIONS ABOUT RATING AGENCIES

Islamic banking is growing at 13% per year (from a very low base) whereas conventional banking is growing at 4%. It takes a more patient approach to seeking a return on its investment, which insulates it from some of the recent errors of the Western banking model.

The role of Rating Agencies was strongly questioned.

Although they are relied upon to provide totally objective information, and are key players in deciding who can borrow and at what rates, Rating Agencies failed to see the crisis coming in US and European Banks.

One participant suggested that it was wrong that Rating Agencies seek to make a profit on their work because this creates a potential for conflicts of interest, and that they should operate on a non profit basis. A representative of a rating agency replied that the IMF is a non profit organisation and it did not foresee the crisis either!

THE FUTURE OF BANKING

I said that the banking industry worldwide needs to




1. innovate to provide the timely, accessible and secure banking
service that a young, mobile and discerning customers base needs.(There are a lot of young people in the Middle East so this will be a particular challenge there)




2. strike the right balance between face to face contact with
customers, and electronic speed and convenience (many customers still value a personal relationship with their bank and their needs should not be neglected in the rush to automate) 

and


3.  develop systems to provide finance for small and medium sized
business on the basis of good and reliable information about
creditworthiness.  Big companies may have no trouble getting credit for bad investments,  while small companies may not get finance for good ones.

JFK’s VISIT CONFIRMED A TURNING POINT IN IRELAND’S TRAJECTORY

I was fifteen years of age when President Kennedy visited Ireland in 1963. 

To understand the impact of President Kennedy, one has to understand that the Ireland of 1960 was a very different place, even to the Ireland of 1970. 

In 1960, the pall of nineteenth century disappointment still hung over the country.

There was still a strong sense, at that time, that we might not be able to make it as a successful nation, at least in an economic sense.

Having gained our independence in 1921, we had failed to achieve the economic potential that many assumed independence would automatically bring, just because the British had been removed. 

This economic underachievement was due to the physical damage done by warfare between 1916 and 1923, to protectionist economic and social policies between 1932 and 1956, and to the difficulties any small island economy faced, in the era before cheap air travel, containerisation, and information technology. 

Other European countries had simply overtaken us.

Then Irish politicians, like Gerard  Sweetman and Sean Lemass, had already begun to change tack, well before the Kennedy election. Protectionism was dropped, foreign investment and exports were encouraged, island status became less of a handicap, and the economy stated to grow. 

And then, as if to confirm and symbolise the more hopeful and outward looking atmosphere, one of “our own”, a man of Irish Catholic heritage became President of the United States. Not only that, he came in person to visit our country. 

The fact that a person of an Irish Catholic background could be elected President of the United States, and could present such a modern and suave image to the world, made everyone of the same religious and national background feel that they too should reassess their own potential, that they too could achieve great things, and that the stereotypes, to which we were subject for so long, need no longer constrain us.

The effect of all this was, of course, magnified by television. President Kennedy’s elegance, oratory and charm would have not have had a fraction of the impact it had, if it had happened in 1953, before television was widespread. He was probably the most televisual President ever, and he was able to use the medium to beam hope and confidence into every Irish home.

MUST THE COST OF HEALTHCARE GO ON RISING INEXORABLY?

The cost of health service is going to rise a great deal in coming years.

This is due to the ageing of the population and to the cost of medical treatments at the end of people’s lives.

Rising incomes in society also lead to higher expectations of health services and higher pay costs within the health service. 

Advances in medical technology make better treatments available, but these treatments are often costlier than the (less effective) treatments they replace.

POLICY CHOICES MAKE A DIFFERENCE

But there are choices that can be made.

For example, on certain assumptions, a McKinsey study suggested that the cost of the health service in Ireland in 2040 could range between 10% of GDP and 18%, depending on policy choices.

In the UK the range is between 11% and 14% of its GDP, and the range in the US is between 24% and 26%.

SO DO OUR OWN DECISIONS ON USING THE SERVICE

What can be done to contain costs?

I saw a report of a British NHS report on Accident and Emergency visits which suggested

+ one million of the 5.2 million annual visits to A and E were avoidable+40% of patients who visit A and E are discharged needing no treatment at all+ 50% of Ambulance call outs could be managed at the scene without going to hospital+ 20% of GP consultations could be dealt with by self care or a visit to a pharmacy

These statistics suggest that there is plenty of room to encourage people to learn more about looking after their own health. The challenge is to devise policies that incentivise this in a responsible way.