In the past we have written a number of articles about the growth of Saudi Arabia, and we have discussed certain hurdles that are hindering the growth of the economy. The topic for this week is about the tools available in the financial industry in the Kingdom.
We have recently met with a CFO from Poland, who works for a prominent Saudi family. He was new to the Kingdom, and he had very little knowledge about the financial tools that are available. In fact he was extremely frustrated with the fact that his balance sheet was literally leveraged eight times. The company made sales to government ministries that are obviously slow to pay due to their own bureaucratic hurdles. The foreign CFO seemed to be brimming with sarcasm and frustration as he lashed out with disparaging remarks about being paid in, and I quote "camels."
The primary problem that chief financial officers (CFOs) are faced with is the management of their cash flows. The various importers are competing for bids at the various ministries in an attempt to win multi-billion-dollar contracts. This situation applies to everything from the sales of school buses to the Ministry of Education or computer servers to the Ministry of Health. We at the KIN Consortium have been approached by Saudi importer that came to us requesting financial solutions, because the delays of the ministries payments are about to bankrupt the local importers. So we went into our financial toolbox, and called a number of senior bankers in the Kingdom. The solution is called, "Acknowledgement of Assignment of Contract Proceeds," and it's available at almost all the local commercial banks.
The documentation consists of approximately three documents that need to be signed by the ministry, the Saudi importer, and the local bank. Once the products are delivered to the ministry, the banks pay the Saudi importer, and the bank subsequently waits for the ministry to pay them. Of course, the bank charges a fee for waiting on the bureaucratic ministry to make its final payment; however, this solution removes the problem of huge account receivables on the balance sheet of the Saudi importer. In fact with this solution the Saudi importers can continue to vitalize the economy by doing business as usual, while having the powerful local banks carry the risk of waiting for ministerial payouts. The next question was about the size of the risk to the banks. What if the amount exceeds the risk tolerance of any individual bank; for example, if the contract is worth hundreds of billions of dollars? The answer is merely a syndication of the outstanding amount amongst a number of different banks, in order to spread the risk accordingly.
So now the foreign CFO has the solution that is obvious to most Saudi CFOs. The only problem that I can see at this point is, why are we hiring foreigners? The Saudi solution is available in a cost effective manner at the local Saudi banks, and most Saudi CFOs are aware of the solution. I suppose the Polish CFO might be excused for his rude remarks about payment in camels, and the disgusting remarks about alcohol, since he is ignorant and new to the region. What I can't excuse is the sheer size of his paycheck. Why are they paying this inept, uneducated, and rude man millions of dollars? We at the KIN Consortium solved the problem within a few hours of research and phone calls. I must confess that the situation truly baffles the mind. To compound the issue even further, the Polish CFO denied that he requested the information, as he attempted to take the credit for our research. Naturally we at The KIN Consortium followed our company's standard operating procedure by e-mailing him a recording of our conversation, as evidence of the verbal contract. The fact of the matter is that foreigners should not assume that all Saudis are uneducated businessman that can be dismissed with a disparaging remark about camels. Some of us Saudi businessmen have a better education, and international banking experience that can easily surpass that of the foreign employees. This story is factually true and it supports the case for the Saudiazation of the work force, as per the wishes of the Government of Saudi Arabia. The sheikh of the local company has yet to respond to us for a comment on this outstanding issue.
We in the Kingdom have certain cultural sensitivities much like every other nation. When foreigners come to visit or work in a country they should attempt to immerse themselves in the traditional culture and values. The experience can only enrich them as they begin to understand the intricate aspects of the society. These fundamentals are the basis of the valuation models of the society. For instance, the Japanese have a word that they use for foreigners that generally lack the respect for their culture. The word "Gaijin" is a word meaning "non-Japanese," "barbarian," or "alien." They tend to use this term to refer to people who lack the cultural sensitivity or understanding of certain traditions like the tea ceremony, not wearing shoes in certain areas, etc. I can only implore certain foreigners to refrain from diluting or insulting our cultural values by showing an appropriate amount of respect and decorum, if they plan on staying or working in the region.
© Arab News 2011
