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Farrukh Siddiqui is a founding partner of Emerging Capital Management Partners (EMCMP), a boutique corporate finance house established in Dubai in 2021.

EMCMP provides advisory services to clients in numerous areas, from working capital management to export credit agency financing, as well as guidance on risk, technology and sustainability across all industrial segments.

In this instalment of GTR’s Trade Leaders Interview series, Siddiqui – who previously spent decades in senior roles at JP Morgan and regional banks – discusses the challenges facing borrowers and lenders across the Middle East during a turbulent period, characterised by conflict and disruption, and how the trade finance landscape is changing as a result.

Siddiqui also suggests how companies can help widen access to trade finance facilities, and outlines how the sustainability agenda is already changing the ways banks, corporates and SMEs operate.

 

GTR: Geopolitical tension and conflict continue to loom large over trade. In the Middle East region, how has the war in Gaza affected the way companies are doing business? 

Siddiqui: When we were talking in 2022 or 2023, the impact of the Ukrainian war was there and we were all part of that crisis, but this conflict in the Middle East has completely changed the dynamic.  

The International Monetary Fund’s expected economic growth of 3.3% has been downgraded to 2.6% in the Middle East and Africa region, due to geopolitical conflict. 

Due to this conflict, trade in North Africa and the Levant is showing a negative trend, whereas oil exporting countries have marked strong growth.  

The present situation paints a complicated picture for regional and global trade.  

The business community never wants geopolitical conflict. It likes to have regional harmony and business continuity, and when you don’t have that it brings worry, whether you are a corporate or a lender. Current conflicts in the Middle East are with two parties and if this conflict escalates further, it could bring a serious challenge to the region. 

Increased restrictions due to tension between countries can disrupt trade flows and cause supply chain problems, even in third-party countries.  

These issues only add to the risk profile of the client, and lenders are always extremely careful in situations like this. It means lenders are having to take a deeper dive, carrying out more detailed due diligence, and that all adds to cost. 

 

GTR: How has this situation changed the financing environment in the Middle East, particularly around trade? 

Siddiqui: When you couple this conflict with high inflation and interest rates, it hinders the growth of trade activity. Ever since interest rates were elevated, the SME or mid-corporate – which are the fuel of the economy – have suffered the most. Whether you are importing or exporting, or whether you are talking about daily consumption of goods or long-term demand, bank support is always needed. 

Large corporates tend to have access to capital, but a major part of trade is contributed by micro-SMEs, SMEs and mid-corporates, and their access to finance has been impacted negatively. Trade banks are becoming more and more cautious, because they don’t know how these companies will sustain themselves in a high interest rate regime. The end result is that the trade financing gap remains high or even widens. 

With those structured products, sometimes you might have a very strong counterparty on the other side, for example, an SME dealing with a blue-chip company. In that scenario, it’s an easy decision for the bank. But SMEs will not always be trading with somebody like that – it could be a mid-sized corporate or another SME – and then the bank’s due diligence is not only on its client, but on its client’s clients, which brings more cost. 

 

GTR: Are you seeing changes in demand for particular trade finance products, and if so, how are banks responding to those changes? 

Siddiqui: Structured products are in much demand as trade is moving towards open account. Now, more and more corporates are keen to learn and ask for supply chain finance, receivables or payables finance, invoice finance and inventory finance-related solutions. Regional and local banks are pushed to offer these products as they see the asks from clients are growing, and that creates healthy competition and availability of finance for the right client.  

Large corporates generally face fewer challenges to accessing trade finance facilities, and their major focus is towards off-balance sheet structures. Just-in-time solutions are in demand as they help manage their balance sheet effectively. 

Then, when you look at the longer-term side, export finance is playing a highly significant role, and clearly, the Middle East is among the biggest recipients of that. Industries such as telco, utilities, transportation and infrastructure are good examples of where export credit agency (ECA) support is bringing massive growth. 

Looking at telco, it’s not just the largest companies we’re talking about, like Ericsson or Nokia. Export finance is bringing Chinese suppliers, Korean suppliers and a large number of smaller companies that complement that activity. Once the ECAs have provided that initial financing for equipment, then those companies’ payables and receivables businesses also come into the picture. 

Not to forget, fintech is streamlining trade finance through digital innovation and automated processes. Artificial intelligence, alongside other existing and emerging technologies, will be a key driver in increasing efficiencies and reducing costs. 

 

GTR: What would you suggest to a company that is struggling to access finance in this higher-risk and higher-cost environment? 

Siddiqui: Smaller and mid-sized companies should have more transparency in the business, rely more on data, and provide all sorts of information that can facilitate discussions with the bank. The more information you can provide, and earlier, the more it helps the lender. 

Besides traditional lenders, non-traditional finance can increase access to trade finance. These include multilateral development bank funds, blended finance, export credit and microfinance, as well as venture capital, private equity, crowdfunding and impact investing. Businesses can increase awareness of these alternative sources and access capital more efficiently.  

 

GTR: You mentioned the huge push towards sustainability in this region. How is that playing out in reality, whether that’s for banks, corporates or SMEs? 

Siddiqui: Cop27 in Egypt and Cop28 in the UAE brought a sharp focus on climate and sustainability, and the transition to renewable energy brings sizeable new opportunities in trade. More and more companies are integrating sustainability into their strategies and operations.  

Businesses are pushing hard to overcome barriers as they progress their sustainability agendas. One increasing trend is for companies to appoint a chief sustainability officer, and to build out dedicated teams to implement that strategy. 

Banks have allocated very large amounts of funding to the energy transition in line with long-term net-zero commitments. The major focus from banks is currently at the large corporate level, and I see why: it’s all linked to risk and reward. In many countries, major emissions come from mid-corporates, where real help is needed.  

I think this is a long journey that requires a great deal of advisory services to both corporates and banks, to help develop common understanding and goals. Greater efforts from governments and the private sector are required in order to push this initiative forward.