Risky Business: Trading in the MENA Region
In every market, firms are exposed to numerous risks, whether political or economic. The Middle East and North Africa (MENA) region poses several risks for businesses, especially when it comes to importing and exporting.
Alongside the unpredictability of the MENA region, U.S. businesses seeking to conduct business might face difficulties in gathering financial information on potential buyers. There are also legal and regulatory issues.
Many manufacturers and producers seeking to do business in the MENA region take out a trade credit insurance policy to mitigate risk from an insurer who offer local market insights. Trade credit insurance protects companies from commercial risks, such as delays of payments or the insolvency of a buyer. It can also cover political risks in case of export transactions, such as war, transfer risks and license cancellation.
In addition, it enables customers to venture into markets that would have otherwise been too risky to go into, and can also ensure easier access to low-interest loans and much needed liquidity. Coupled with competitive premium rates, customers see it as a small price to pay for the peace of mind that they are offered in return.
MENA’s main export market is Europe, concentrated mainly in traditional products. Preference of export flows to Europe are mainly due to the proximity of markets and long-standing ties. However, more exporters are eyeing growth opportunities in North and South America.
Oil exporting countries in the MENA region are diversifying their economies to cut down their reliance on resource-based exports. Gulf Cooperation Council (GCC) countries such as Saudi Arabia, Qatar, and the United Arab Emirates are working on upgrading their industrial facilities, as well as pouring billions into infrastructure projects. In the case of Dubai in the United Arab Emirates for example, the bulk of their imports are machinery and electrical equipment, a window of opportunity for manufacturers and exporters of these goods.
North American exporters are advised to carry trade credit insurance from partners that know the region and potential markets well, in order to steer clear from bad debt and minimize risks. Trade credit insurers are often able to negotiate and set a rescheduling plan in the case of a buyer that defaults that leads to retrieving a large percentage of the money back.
Since companies are not obligated to share their financial reports in the MENA region, credit insurers develop extensive background information on potential buyers, helping exporters make informed decisions.
Karim Nasrallah is general manager of the Lebanese Credit Insurer (LCI) and former chairman of the Berne Union Prague Club.