EMEA in Conversation | Middle East in Motion

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Charlotte Broom: Hello Making Sense listeners! Today, we’re handing over the feed to “EMEA in Conversation,” a new J.P. Morgan podcast featuring in-depth interviews with industry leaders on what’s happening across Europe, the Middle East, and Africa. Making Sense will return to its regular schedule on Friday, February 20, as we unpack the latest data from the CPI report.  But for now, enjoy this special episode from J.P. Morgan’s EMEA in Conversation.

Ambar Morshed: Whether you you're a business leader, investor or just curious about what's next. This is your front row seat to the future of India. Welcome to EMEA in Conversation. Hi, I'm Ambar Morshed, and I head up Subsidiary Payments Sales for EMEA. And I'm joined by James Fraser here today who heads up J.P. Morgan EMEA Payments.

James Fraser: Great to be here, Ambar.

Ambar Morshed: So, James, when we think of the Middle East, it's often thought of as high energy, a lot of opportunity, a lot of investment. But if you had one word that you think could summarize the Middle East, what do you think that would be?

James Fraser: For me, I’d say transformative right. I think you can see it. You can feel it when you're there. There's a lot of activity. You can literally visualize it through, you know, worse traffic, more construction cranes. It's obviously very dynamic. And you have a lot of compete in the region. You have different countries in sort of different stages overall in terms of what their end ambitions are. But, you know, as you kind of travel around, that is sort of the common denominator.

Ambar Morshed: James, I couldn't agree with you more. If we really think back 20 years ago and if we think of ADGM, it was a desert back then. And now it's that actual global financial center for us. So when I really think about the Middle East at the moment, there's real momentum that's really growing there. And actually, that's a really good segue to introducing our next topic. When we really think about from where you sit today, why do you think there's growing interest into the Middle East? You know, given obviously a lot of factors around long term investment, long term structural investment that's going into the region? If you think about places like Saudi Arabia, there's obviously a lot of political reform that's also going into to the region as well. But from where you sit today, why do you think that surge of interest is arising?

James Fraser: I think I mean, there's a multitude of factors. I think when you when you look at the underlying policies that are being pursued by several of these nations we've already covered, there's a strategic angle, which is, you know, dates back sort of multiple decades, certainly in the case of UAE, when they sort of had a vision around becoming much more of a logistics hub. And the, you know, first plan, I think, was 1979, the Jebel Ali Port, which the largest manmade port in the world. There was a vision of creating sort of that economic free zone and attracting investment and ultimately driving a level of diversification away from hydrocarbons. And you can kind of see that vision really start to play out. And you can see that particularly in Saudi, sort of the vision 2030. It's investments around technology critical industries like health care, critical minerals defense. So it's really harnessing AI. It's really kind of harnessing where the demand is going to be the next five, ten years. And then so that's sort of the local vision and strategy that you just kind of see this gradual execution. And then you overlay what's really been happening geopolitically. And you see a lot more sort of east to east trade and west to west trade versus global trade. So trade still continues to grow, but the corridors are shifting and the Middle East is sort of recapturing that old history. Dating back to sort of Silk Road 70 or 80 generations ago. And they're making the most of that opportunity. So they're growing trade with Asia, they're growing trade with Europe, and they're growing trade with the United States. And there, that is that sort of vision around the logistics hub is is really coming to life. And so that's a massive, massive tailwind that I think when you step back, you say those these are kind of secular trends where we don't really expect a significant reversal. And so it really it gives you that view that what we see in the last ten years around that transition and investment into new sectors is here to stay.

Ambar Morshed: That makes sense. And actually, if you think about that, the Middle Eastern market a relatively and if you look at particularly in Saudi, I think they're just over 20 financial institutions that are actually registered with summer at the moment. So if you think about what that opportunity really represents for new entrants into the market for fintechs to enter into the market, I think is huge. I mean, I know it was publicly announced that Amazon Web Services are actually building data centers there in the region. And again, this is a real common thing that we're seeing from FDI that's actually coming into the region as well.

James Fraser: Yeah, that's right. But we've also seen kind of heavy adoption of digital money. And, and there's a lot of innovation. There's a lot of demand for global innovation around financial products. We've seen significant uptake among sort of Middle Eastern based banks for tokenized deposits is kind of one example. The region really stands out for the amount of global remittances. They’re kind of averaging 125 billion annually and growing, you know, at a pretty healthy rate. So I think the demand for those innovative products and easy to use products, I think, combined with the amount of investment that's going into financial services and fintechs explicitly kind of within their, you know, individual countries, ecosystems, again, is a really favorable set up. And you have to believe that their early adoption will occur in some of these countries. And really, again, it just helps sort of set the solid foundation for that next leg of growth.

Ambar Morshed: So, James, when we think about the Middle East and really the opportunity that exists out there, both in terms of long term investment, attracting talent, why do you think that is? What do you think some of the factors are that are really attracting businesses and companies to the region?

James Fraser: I think first it comes back to sort of the the infrastructure. Right. And it can be as basic as the rule of law. We've generally seen a lot of particularly these economic free zones adopting English law standards. And you can see that's how kind of cases get played out in the courts. So commercially, when you look at the at the opportunity, if you're, you know, deploying, you know, increasing footprint and talent on the ground, you can have you can sort of do that with confidence. We've seen a lot of growth, certainly on the private wealth side and a lot of asset managers moving. You know, folks from could be from Miami, London and other parts of Europe. And so I think that trend is a really reflection of what's going on at the ground. And really the value proposition, particularly for employees looking to to work there.

Ambar Morshed: So I think we've definitely seen a rise in Asian companies entering into the region as well. And they've done investments there. But what is also interesting is they also share feedback that there are some challenges. And if we think about banking interoperability, there's still a little bit of fragmented regulation across each of the markets as well. There's also different currency jurisdictions and controls that they also have to abide by as well depending on on the market itself. And another final piece is that obviously, if we think about the maturity of a lot of these companies that are entering the market, we're still in kind of that initial phase. But, I mean, there's definitely been speed there in the last 20 years, but this is definitely another journey to go.

James Fraser: I agree, it's certainly not a finished product, and I think you have to look at it a little bit to market by market because they all started their journeys as sort of different points. But I think you raise, you know, a key question, I think around to be the interoperability. And I think that is a reflection somewhat of kind of the legacy infrastructure, the legacy regulation. And so, you know, we referenced earlier, there's a lot of demand for digital money and sort of that sort of next generation of financial services. But the reality is you need, you know, highly constructive, supportive regulatory environment in order to really thrive. And again, I think different countries are really at different states. And ultimately the the frameworks need to evolve to meet the ambition.

Ambar Morshed: So, James, we've definitely seen a shift, I think, in the last five years where if we looked at what businesses and corporates were doing in the region in terms of treasury transformation, it was very much about how do they centralize funds within the Middle East or how do they repatriate back to headquarters? And so it were very kind of traditional LED. Now, if we've kind of shifted on five years from that, well, what we're really seeing in the market is this kind of rise in this demand for virtual accounts, B2B marketplaces, we've seen a ton of new entrants into the market. We talked about Amazon earlier, but we've seen, AliExpress come into the market, Uber as well. And a lot of these new large entrants are coming into the market, kind of driving the way that corporates and fintechs reacting to those new entrants. What do you think is kind of stemming some of that change that's happening in the region?

James Fraser: I think, you know, when you look at certainly the B2C side of payments, and even lending, they really are quite advanced. And I think part of that is a reflection of a dynamic, you know, growing youth population and significant uptake in things like mobile payments and ties. Back to the comment earlier on on global remittance activity, I think the the demand is there generally across the population on the consumer side. So you've seen some really innovative fintechs come up, enter the market and some of them, some of which are homegrown, to meet the demand for consumers. And I think, as you know, there's really is this shift now on the B2B side where there is demand for things like real time payments for virtual accounts and I think, again, the regulatory authorities in some of these key markets see those trends. They want to reinforce them, support them. And I think that explains some of the demand we've seen for certainly tokenized deposit. So the speed at which you can move money, the ease, the traceability, you know, the visibility are all really factors in play. I think the other interesting element, and we've seen this particularly in the Saudi market, is a growing, level of support and demand for extending working capital solutions throughout the ecosystem. So if they have visions on certain industries becoming increasingly dominant, there's a recognition that you have to support the entire supply chain, and particularly, you know, SMEs that are homegrown. And so there are innovative platforms that are being stood up to support, you know, working capital lending into those SMEs and just build, you know, more supply chain resilience. So it really is that sort of end to end view from SMEs to large enterprises, you know, back all the way to consumers. And how do we make that a very, you know, supportive, dynamic environment.

Ambar Morshed: You just had all the points of the ecosystem that we see there, right from through heavy industry supply chain down back down to the consumer. So James, looking ahead, we've talked a lot about the opportunity that we really see in the Middle East. But but what do you think really are some of the risks or the possible disruption that we could see looking ahead?

James Fraser: We touched on earlier what what's driving kind of the current level of growth. And there's what's been sort of planned and executed at the local level, which is generating. And we see a lot of the incremental investment in growth, etc.. And then there's the sort of macro geopolitical landscape that's shifted, and they are one of the primary beneficiaries of that. Yeah, globally. So I think when you think through what could be an unanticipated headwind, I think it would be potentially that sort of an end to that. Those some of these secular trends away from globalization or a trend around D globalization. I don't think it fundamentally changes the the end state or the long term prospects, but that's been it clearly a near-term driver. I think the the, the plan investments, particularly on the logistics side, some of the advantages we covered earlier in areas like, AI, and technology, those are those are here to stay. Those are those are economic benefits that I think companies that are either established, they're moving into the middle East will have for a long period of time.

Ambar Morshed: Yeah. No, I think that's a really interesting point, is that even though there could be possible further disruption that's out there, what's interesting is that actually they've set themselves up for long term investment. I mean, even if you looked at what they're doing in Saudi Arabia, I mean, that long term investment that they've put down, that it gives an element of certainty, right? They've put that investment in that building. It's still going to attract, no matter kind of what the disruptions lay out there. It could slow it down. But that long term investment is that already.

James Fraser: That's right. And I think when it comes to long term CapEx and infrastructure, you always have the lever to pull off of slowing down and that's, you know, that will be a tool that can be used. But I think the fundamental drivers kind of near term of some of the key industries where we've seen investment and we're seeing growth, those are, you know, those are foundational. And I think, it really will provide growth, you know, for the next decade. And beyond.

Ambar Morshed: So, James, if you think there's one conversation that you think people should be having about the Middle East right now, what would that be and why?

James Fraser: I think if you've spent time in the region, I spent a lot of time in the region the last five years. You really get an appreciation for some of these fundamental dynamics. But I think there's still, you know, there's still fighting perceptions, right, where everyone's sort of subject to recency bias. So I think, you know, we see some corporates in particular and multinationals, they understand the dynamics. They're moving quickly or where they see an opportunity. I think we've seen that again a little bit, you know, more broadly within financial services and areas like asset management. But I think that recency bias is still, you know, an issue globally. So I don't think there's wide recognition of sort of that growth and equity opportunity that exists. Because if you haven't been there and you haven't seen it and you don't understand it, you will think through the last 50 years, which is it is oil reserves. And yes, there's investment that's occurring. And it's a place to attract investment, if for areas such as, you know, private equity. But, you know, the reality is those equity opportunities, it's not just finding the funding, the opportunities will exist on the ground. And and it kind of I think that is not a widely known or appreciated fact. I think we've seen a lot of movement in the last 3 or 4 years, but I still think there's there's a bit of a journey there. And it will be, you know, it'll it'll take time.

Ambar Morshed: I think the shift that's now happening is actually quite, quite rightly, what you said is actually the on the ground activity and the actually on the ground investment that we're seeing today.  Super interesting. James, thank you so much for joining us as a part of this conversation here today. Of course, this is a first part in a multi series dialog called Amea in Conversation. The second part of this series will be coming up shortly, focused on Europe, and I hope you'll all tune in for that.

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