12-19 mancashgovCHAIN Publisher Proof ReaderCreation date 05/27/09 Editor Production ManagerModifi cation date May 1, 2012 8:01 PM Art Director Advertising ManagerOutput date 05/15/12 Subeditor Picture Editor

12-19 mancashgovCHAIN Publisher Proof ReaderCreation date 05/27/09 Editor Production ManagerModifi cation date May 1, 2012 8:01 PM Art Director Advertising ManagerOutput date 05/15/12 Subeditor Picture Editor

Managing cash for government agencies

12 CASh AnD TR ADE MAY / JU nE 2012

Many governments are now seeking to secure greater funding from both banks and other external sources for a range of public sector

projects, particularly in infrastructure, while also ensuring that they manage their own internal liquid-ity more eff ectively.

Moreover, whereas in the past many local gov-ernment ministries worked with autonomy, and had paper-based relationships with their banking partners, today there is a big movement towards both centralisation and e-banking.

“Government expectations were changing prior to the unrest but, since then, the social agenda has taken on much more importance in terms of the timeliness of its execution,” explains Steve Donovan, manag-ing director, regional executive and head of global transaction services - Middle East, Pakistan and Turkey, Citi. “Th is has led to objectives to centralise the activities of various government ministries, the increased adoption of shared service centres and the move to a more automated environment.”

he points out that the products being off ered to citizens are becoming more sophisticated - and less cash and paper-based - as governments seek to max-imise both effi ciency and their own returns. Many government agencies are also running Enterprise

Resource Planning (ERP) systems to track payments and receivables.

“Governments are also exploring new innova-tive methods of  fi nancing such as Export Agency Financing and vendor fi nancing to ensure that the infrastructure build out continues,” adds Donovan.

Greater automationAt Emirates nBD, which services government, corporate and SME sectors, Samir Sahu, DGM - transaction banking, also recognises a greater movement towards automation, which is happening in three key areas:

n account reconciliation - governments are look-ing for special functions such as appropriate referencing for payments and collections as well as facilities to upload information to their ERP systems. In this way, they are looking to achieve seamless reconciliation using proprietary and industry standard formats

n handling of government payments - there is growing demand for straight-through process-ing (STP) and increased effi ciency. new modes of electronic payments such as “automated funds transfer” are replacing cheques

Ministries moveinto e-bankingGovernments across the Middle East are embracing change. � e social justice agenda, which has been rolled out across most of the region, has seen them place a stronger focus on spending on employment, healthcare and education reform - as well as investing in infrastructure and the private sector to encourage growth. LIZ SALECKA reports

12-19 mancashgovCHAIN Publisher Proof ReaderCreation date 05/27/09 Editor Production ManagerModification date May 1, 2012 8:01 PM Art Director Advertising ManagerOutput date 05/15/12 Subeditor Picture Editor

12-19 mancashgovCHAIN Publisher Proof ReaderCreation date 05/27/09 Editor Production ManagerModification date May 1, 2012 8:01 PM Art Director Advertising ManagerOutput date 05/15/12 Subeditor Picture Editor

CASh AnD TR ADE MAY / JU nE 2012 13

Government agencies are consciously managing their banking requirements like large corporates when it comes to their working capital requirements. This includes obtaining receivables financing rather than awaiting funding from the relevant ministry

While, initially, automation requests were concentrated in Dubai, we are now witnessing that federal bodies are increasingly looking for transaction banking services – and they are also very interested in benefiting from automation

n handling of collections - governments want to streamline collections from various entities and they are looking towards banks to assist them with automated solutions such as direct debits and payment gateways in addition to cash and cheque collection services.

“While, initially, automation requests were con-centrated in Dubai, we are now witnessing that fed-eral bodies are increasingly looking for transaction banking services – and they are also very interested in benefiting from automation,” adds Sahu.

Maximising cash managementMany Middle Eastern governments are also seeking increased automation in the liquidity management space so that they can track down spare cash and maximise its use.

“Governments are trying to automate as much as possible to gain improved visibility into their cash flows and available liquidity, pull funds together and maximise returns on investment,” says Donovan.

“Visability into, and use of liquidity/surplus funds, is being thought about more and more,” concurs haytham Al Maayergi, head of transaction

Haytham Al Maayergi, head of transaction banking, Standard Chartered UAE

Samir Sahu, DGM - transaction banking, Emirates NBD

14 CASh AnD TR ADE MAY / JU nE 2012

Managing cash for government agencies

Government expectations were changing prior to the unrest but, since then, the social agenda has taken on much more importance in terms of the timeliness of its execution

banking, Standard Chartered UAE, pointing out that better management of receivables is another focus area. “Government agencies are consciously managing their banking requirements like large corporates when it comes to their working capital requirements. This includes obtaining receivables financing rather than awaiting funding from the relevant ministry.”

he, nevertheless, notes that while governments are becoming more sophisticated in their needs, there is some resistance to moving towards total efficiencies as these come at a cost.

Partnership dilemmaGovernments’ growing needs in terms of automated payments, collections and reconciliation services - as well as their increased focus on liquidity manage-ment - have led to questions over which banks are best placed to meet their requirements.

Citi believes that local banks have a prevalent role to play in offering services to governments - but that global banks have the networks and technology required to help them. “We are working in collabora-tion with local banks to jointly deliver solutions to

governments by providing them with the technical infrastructure required, intellectual capital and also white-labelling our products,” says Donovan. “We are not a principle competitor to local banks but partner with them to offer services to governments. As gov-ernment requirements become more international, this falls more into our space.”

And, similarly, Sanjay Sethi, managing director, cash management and public sector head, global transaction services - Middle East and Pakistan, Citi, points out that governments typically need multiple bank partners to help them move towards e-government. If they are simply looking for a finan-cial portal, then their local banking partner should be able to offer it, but, for a niche solution, a global bank is more likely to step in.

“When it comes to liquidity management and visibility in a multi-bank environment, where govern-ments hold various pockets of cash, a foreign bank can provide solutions that aggregate their funds together or, at the minimum, provide full visibility across accounts with multiple banks,” he says.

“however, a local banking partner is usually better placed when it comes to collecting monies in on be-

Steve Donovan, managing director, regional execu-tive and head of global transaction services - Middle East, Pakistan and Turkey, Citi

CASh AnD TR ADE MAY / JU nE 2012 15

Governments typically need multiple bank partners to help them move towards e-government. If they are simply looking for a fi nancial portal, then their local banking partner should be able to offer it, but, for a niche solution, a global bank is more likely to step in

half of governments as they have the branch networks required to handle receivables more effi ciently. Th ey have an important role in the consumer- to-govern-ment fl ows space and ensure revenue collections take place smoothly.”

he adds that when off ering local and/or overseas payment services via diff erent channels, global banks can off er integration with ERP systems that enable payments to be made in a more effi cient, controlled and management information system-driven man-ner so that governments can benefi t from structured reporting and technological effi ciency.

Relationship managementMoving forward, there is a strong recognition among both global and local banks of today’s need to build

Dubai’s infrastructure fi nancing brainwaveMiddle Eastern governments’ goals to increase invest-ment in public sector projects have seen them arrange more sophisticated fi nancing facilities with their banks, and seek additional support from external bodies such as Export Credit Agencies (ECAs).

Th is is emphasised in Dubai, where innovative fi nancing has been arranged for a range of transport and infrastructure schemes, including the Al Sufouh Tram project.

Last year, the latter was one of the projects to ben-efi t from a novel fi nancing structure, devised by the government and the UAE’s banking sector, which involved the monetisation of cash fl ows from road toll receipts. Earlier this year, the Department of Finance in Dubai arranged a further USm dual-currency facility that will go towards the completion of phase one construction.

Th e latest transaction comprises a -year m loan, which will amortise over years starting in

, and is guaranteed by the offi cial government export credit agencies of Belgium and France. It also comprises a six-year m Islamic Ijara facility, split equally between US dollars and AED, which will amortise over three years, starting in .

“We have seen a very encouraging response to this fi nancing, which is a testament to the strong confi -dence that the international banks have in Dubai’s economy,” says h E Abdulrahman Al-Saleh, director general of the Dubai Department of Finance.

he points out that the Dubai government is always examining ways of optimising its funding strategy – and that the export credit agencies (ECA) fi nancing attracted so far is a proof of this strategy’s success.

“Th rough ECA, we have been able to achieve long-term fi nancing at competitive rates while continuing to ef-fi ciently manage the emirate’s fi nances.”

Citibank, Deutsche Bank and hSBC acted as man-dated lead arrangers and underwriters for the recent fi nancing.

Sanjay Sethi, head of treasury and trade solutions, Middle East and Pakistan, Citi

strong relationships with government bodies.“Working with governments over the long-term

always helps an organisation,” says Al Maayergi, pointing out that Standard Chartered has a clear fo-cus on Asia, Africa and the Middle East. “Th is focus places us in a competitive position to off er compre-hensive solutions, access to specifi c capabilities and enhanced product solutions, while leveraging our strong footprint in those markets.”

Local banks also recognise the importance of their government relationships – but are equally aware of the need to off er products and services that are on a par with the transaction banking capabilities of global banks.

“As a government-owned bank, we have strong relationships and have frequent interactions with government organisations. It is true that having a long-standing, strong relationship with government clients can give a bank some added mileage,” says Sahu, pointing out that the products and service

capabilities made available by banks such as Emir-ates nBD have started playing an increased role in Middle Eastern governments’ decision-making.

And he adds, “As a local bank operating in the region, we need to compete eff ectively with the large, global banks for transaction banking business. We have to be up-to-date in the solutions that we off er - with short implementation cycles - and cannot take things for granted.”

he explains that Emirates nBD has invested sig-nifi cantly in the development of solutions for govern-ment organisations - and continues to do so.

“We have a good understanding of their require-ments and have capabilities for payments, collections and account reconciliation services,” he says. “We off er highly automated solutions and our straight-through-processing processes are not just internal to us as a bank, but also extend to our customers. When it comes to meeting demands for automation, we are well placed.” n

16 CASh AnD TR ADE MAY / JU nE 2012

Managing cash for government agencies

Local banks recognise the importance of their government relationships – but are equally aware of the need to offer products and services that are on a par with the transaction banking capabilities of global banks

Social justice agenda drives automationTh e social justice agenda has seen central governments across the Middle East adopt strategies that recognise that the policies they create should have a broad benefi t to the average citizen, while also attracting capital - both human and FDI - to their countries, according to Sanjay Sethi of Citi.

“Th ese policies impact a variety of segments, includ-ing e-governance objectives, pension reform, improv-ing education and healthcare, and funding foundations that take care of future generations,” says Sethi, point-ing out that local governments, which are tasked with implementing and executing these broader strategies, are now more focused on providing more effi cient

services to their citizens. he explains that local governments are now off er-

ing their citizens a range of e-government services in areas such as payments for annual licences, public utilities, services and fi nes, which enable them to make their payments through a portal instead of having to queue up at a government offi ce. In other cases, the whole process of making pension payments and social benefi ts has also been automated.

“Also, in education, where governments sponsor payments to students and scholars locally or overseas, monies can now be paid directly into their accounts or onto pre-paid cards in a seamless manner so they do not have to wait so long for their cheques,” adds Sethi.