In today’s rapidly evolving global economy, the concept of collective intelligence is gaining significant traction. It represents the culmination of efforts from diverse individuals and groups collaborating to tackle complex challenges, driving innovation and economic growth. However, as this notion becomes more widely accepted, it is imperative to critically examine who truly benefits from these collaborative efforts and how the rewards are distributed. This is particularly relevant for the financial and economic sectors in the Arab world, where the implications of collective intelligence are far-reaching.
For decades, economic activity has been structured in a way that socializes risks while privatizing gains. This approach, which has long been ingrained in policymaking, disproportionately favors shareholders at the expense of other stakeholders, including workers, taxpayers, and the communities in which businesses operate. As bankers, economists, and business leaders, it is crucial to recognize that this model is unsustainable. The Arab world, with its rich history of commerce and trade, must now reconsider the narratives surrounding value creation to ensure that innovation benefits all stakeholders, not just a select few.
Collective intelligence is often portrayed as the driving force behind the knowledge economy, where diverse minds come together to foster continuous experimentation and innovation. This romanticized view, however, obscures the true nature of collaboration. It begs the question: who is genuinely creating value, and how are the rewards of this value creation being shared? In many instances, those who contribute significantly to innovation, such as labor and the state, are overlooked or dismissed. The traditional framing of the private sector as the sole value creator, with the state relegated to a role of de-risker or impediment, is both misleading and detrimental.
In the Arab financial sector, this issue is particularly pertinent. The role of the state in driving innovation is often underestimated, despite its critical contributions. Consider, for example, the development of mRNA COVID-19 vaccines, which were significantly funded by public investment. This illustrates the need to reframe the narrative around value creation, recognizing that innovation is a collective effort that involves multiple stakeholders, including the state.
To ensure that innovation benefits all stakeholders, it is essential to move beyond mere rhetoric and implement tangible changes in how profits are distributed. One of the most pressing issues is the allocation of profits, which should be reinvested in the real economy rather than being funneled into share buybacks or tax havens. Between 2010 and 2019, share buybacks in the US alone totaled $6.3 trillion, diverting resources that could have been used to drive further innovation and economic growth. Additionally, tax havens collectively cost governments between $500 and $600 billion annually in lost corporate-tax revenue, depriving all stakeholders of the benefits of collective intelligence and collaboration.
In the context of the Arab world, where economic diversification is a key priority, it is vital to address these issues head-on. To do so, one must first understand how collective intelligence contributes to value creation. Collaboration thrives on knowledge sharing, yet the privatization of knowledge and research often hinders this process. While intellectual-property rights are necessary to incentivize investment and innovation, they can also be abused if they are too broad or too strong. This can lead to technologies becoming inaccessible, stifling discovery and innovation.
Patents, particularly in sectors such as medicine and technology, must be negotiated with a view toward promoting the common good. Rather than serving solely as a tool to address market failures, patents should be seen as part of a broader knowledge-governance system that facilitates innovation while ensuring that the rewards are distributed equitably. For the Arab financial sector, this approach could significantly enhance the region’s ability to compete on a global scale, fostering a more inclusive and sustainable model of economic growth.
A genuine collective-intelligence framework would ensure that the rewards of innovation are shared more broadly, reflecting the collective effort that went into creating them. This could take the form of profit-sharing or equity schemes, where the monetary rewards are distributed among all contributors. Alternatively, it could involve making knowledge more widely accessible or ensuring that the prices of final products reflect the collective investment that made them possible.
For instance, in the renewable energy sector, many companies benefit from generous tax incentives, which effectively means that the public is subsidizing their profit margins without sharing in the gains. In the digital domain, a common-good approach would ensure that new technologies, such as artificial intelligence, create opportunities for public value creation, rather than simply enriching a few private entities. The Arab world, with its growing interest in AI and digital transformation, should consider adopting such an approach to ensure that technological advancements benefit all stakeholders.
Voice and representation are also critical components of a successful collective-intelligence framework. In many cases, policy outcomes are distorted by those with the loudest voices, often those with the most resources to influence decision-making processes. This can lead to policies that serve narrow interests rather than the common good. In the Arab financial sector, where decisions often have far-reaching implications for the broader economy, it is essential to ensure that all stakeholders have a seat at the table.
As Arab banks and financial institutions pilot these challenges, there are several key recommendations they should consider. First and foremost, they must recognize the importance of collective intelligence in driving innovation and economic growth. This means moving beyond the traditional view of value creation and embracing a more inclusive model that benefits all stakeholders. Additionally, banks should advocate for policies that promote the reinvestment of profits into the real economy, rather than allowing them to be diverted into share buybacks or tax havens.
Furthermore, Arab banks should play a proactive role in shaping the governance of intellectual property and knowledge sharing. By advocating for a more balanced approach to patents and other forms of intellectual property, they can help ensure that innovation remains accessible and that its rewards are distributed equitably. Finally, banks should work to amplify the voices of all stakeholders, ensuring that decision-making processes reflect the diverse perspectives and interests of the communities they serve.
In conclusion, the financial sector in the Arab world has a unique opportunity to lead the way in embracing collective intelligence as a driver of innovation and economic growth. By adopting a common-good framework, Arab banks and financial institutions can help build a more inclusive and sustainable future for the region. The time for action is now, and the rewards of doing so will benefit not just shareholders, but all stakeholders in the Arab world and beyond.
In early August 2024, the global financial markets were rocked by a confluence of economic shocks, leaving investors and financial institutions grappling with the aftermath. The ramifications of these events have profound implications, particularly for economists, bankers, and CEOs in the Arab world. As the dust settles, it is essential to dissect the causes and market reactions to better understand the strategic adjustments needed in this volatile landscape.
The Fed’s Monetary Lag: A Catalyst for Market Unrest
Central to the recent market turmoil was the Federal Reserve’s cumulative interest rate hikes over the past year. Historically, there is a lag between when these rate hikes are implemented and when their full impact is felt in the economy, known as the “monetary lag.” This lag, typically ranging from 9 to 15 months, began manifesting in the U.S. economy, particularly in the labor market. The July 2024 jobs report was a clear indicator of this, showing an unexpected rise in unemployment to 4.3%, a signal that the economy might be slowing more rapidly than anticipated.
Despite these warning signs, the Federal Reserve opted not to cut rates during its last meeting, a decision that only heightened investor anxiety. The hesitation to adjust policy in light of weakening economic indicators raised concerns among investors, leading to a significant sell-off in the stock markets. This move by the Fed underscored the delicate balance central banks must maintain between curbing inflation and supporting economic growth—a balance that, if mismanaged, can lead to severe market disruptions.
Warren Buffett’s Strategic Shift: A Warning Signal
The market’s instability was further exacerbated by Warren Buffett’s Berkshire Hathaway, which significantly reduced its holdings in Apple. This move by one of the most respected investors globally sent shockwaves through the market, signaling a potential revaluation of tech stocks. Apple, a bellwether for the technology sector, saw its shares drop nearly 5% following this announcement, contributing to the broader market decline.
Buffett’s decision to divest a substantial portion of Apple stock was not just a reflection of overvaluation concerns but also a strategic retreat in response to the broader economic uncertainty. For financial leaders, especially in the Arab world, this serves as a critical reminder of the importance of reassessing investment portfolios in times of economic volatility. It also highlights the potential risks associated with heavy reliance on technology stocks, which, despite their growth potential, are susceptible to rapid market corrections.
The Bank of Japan’s Influence: A Global Repercussion
While the Federal Reserve’s actions were a significant driver of market instability, the Bank of Japan also played a crucial role. In an unexpected move, the Bank of Japan raised interest rates for the second time in 2024 and announced plans to taper its bond-buying program. This decision, aimed at controlling domestic inflation, led to a rapid appreciation of the yen. For Japan, a country whose economy is heavily reliant on exports, this posed significant challenges as a stronger yen made its goods more expensive on the global market, squeezing profit margins for exporters.
The yen’s appreciation also triggered a global unwinding of carry trades—a popular strategy where investors borrow in low-interest-rate currencies like the yen to invest in higher-yielding assets elsewhere. As the yen strengthened, these trades became less profitable, leading to further market instability. The repercussions of the Bank of Japan’s actions were felt far beyond its borders, contributing to the global market rout and highlighting the interconnectedness of global financial systems.
Global Market Reactions: A Cascade of Declines
The ripple effects of these combined economic forces were most visible in global equity markets. The S&P 500, a key indicator of U.S. market health, shed $1.3 trillion in value in a single day, marking one of its worst performances in recent years. The Dow Jones Industrial Average saw a similar decline, dropping 1,034 points, or 2.6%, marking its worst day since 2022. The Nasdaq Composite, heavily weighted with technology stocks, plunged by 3.4%, underscoring the vulnerability of the tech sector in the face of economic uncertainty.
In Asia, the Nikkei 225 experienced its worst daily loss in history, dropping by over 12%. This dramatic decline was driven not only by domestic factors such as the yen’s strength but also by the broader global market instability. European markets were similarly affected, with the Stoxx Europe 600 index falling 6% over five days, reaching lows not seen since February 2024. The global sell-off extended to commodities as well, with oil prices falling sharply due to fears of reduced demand amidst a potential global recession.
Strategic Considerations for Arab Financial Leaders
For financial institutions and banks in the Arab world, the recent market turmoil offers several crucial lessons. The interconnected nature of global markets means that economic shocks in one region can quickly spread, impacting asset prices, investment flows, and overall economic stability in others. Therefore, strategic foresight and risk management are more important than ever.
Recommendations:
Portfolio Diversification: Arab banks should diversify their investment portfolios across different asset classes and geographic regions to mitigate risks associated with overexposure to volatile markets.
Strengthening Reserves: Central banks in the Arab world should consider bolstering their foreign exchange reserves to cushion against potential currency volatility and global financial shocks.
Vigilant Monitoring: Close monitoring of global central bank policies, particularly those of the Federal Reserve and the Bank of Japan, is essential to anticipate market movements and adjust strategies proactively.
Maintaining Financial Stability: Arab financial institutions should prioritize maintaining stability within their domestic markets by carefully managing interest rates, liquidity, and credit conditions.
Cautious International Investments: Given the current volatility, a more conservative approach to international investments may be warranted, particularly in sectors or regions currently experiencing significant upheaval.
The recent global market turmoil underscores the importance of strategic planning and adaptability in managing financial risks. For Arab bankers and financial leaders, staying informed and responsive to global economic trends will be crucial in safeguarding economic stability and ensuring the continued growth and resilience of the region’s financial markets. As the global economy continues to evolve, so too must the strategies employed by those at the helm of the Arab world’s financial institutions.
In 2023, the global economic environment was characterized by significant challenges, including geopolitical tensions, and rising inflation. These factors created an atmosphere of uncertainty and volatility in many markets worldwide.
However, amidst this global turbulence, the Arab world displayed notable economic resilience, driven by strategic efforts toward diversification and a strong commitment to financial stability. The Arab economies, particularly those in the Gulf Cooperation Council (GCC), leveraged their financial strength to maintain growth trajectories, underpinned by substantial investments in infrastructure, technology, and sustainable energy initiatives.
A key factor in this regional resilience has been the Arab banking sector, which has played a central role in supporting and sustaining economic activity across the region. With a focus on strengthening capital bases, expanding asset portfolios, and embracing technological advancements, Arab banks have become indispensable to their respective economies. Their strategic positioning and financial soundness have allowed them to not only withstand global economic pressures but also to drive forward economic development in their home countries. As the world continues to face economic uncertainties, the Arab banking sector stands out as a pillar of stability and growth, reflecting the region’s commitment to fostering a robust and diversified economic future. This introduction offers a comprehensive overview of the global economic situation in 2023, with a particular emphasis on the pivotal role played by the Arab banking sector in navigating these challenging times and contributing to regional prosperity.
Observations:
Concentration: UAE and Saudi Arabia and Qatar collectively represent a significant portion of both the number of banks and their total assets, highlighting their central role in Arab banking.
Growth Leaders: Several banks, such as CIB Egypt, Gulf International Bank and Kuwait International Bank, have showcased considerable increase in Tier 1 capital, indicating strong financial health and growth.
Regional Diversity: The top Arab banks are primarily from the GCC, with a few from other regions like Jordan, Morocco, and Egypt. This distribution indicates that while the GCC dominates, there is still representation from a broader range of Arab countries.
Return Metrics: The average return metrics suggest that while banks are large in terms of assets and capital, they are also efficient in generating returns.
Asset Growth: The positive average asset growth indicates an overall upward trajectory for Arab banks, hinting at an expanding financial sector in the region.
Detailed Analysis:
Top 10 Banks Based on Tier 1 Capital:
Bank Name
Tier 1 Capital (in $m)
Saudi National Bank
36,369
Al Rajhi Bank
28,307
Qatar National Bank
28,272
Emirates NBD
26,213
First Abu Dhabi Bank
25,044
Abu Dhabi Commercial Bank
16,160
Riyad Bank
16,004
Saudi Awwal Bank
13,877
National Bank of Kuwait
12,819
Kuwait Finance House
11,587
Analysis:
The latest rankings of the top 10 Arab banks based on Tier 1 capital offer a compelling insight into the financial strength and stability that underpins the region’s banking sector. At the forefront of this list is the Saudi National Bank, boasting an impressive Tier 1 capital of $36.369 billion. This dominant position not only reflects the bank’s significant market influence but also underscores its strong capital adequacy, which is critical for sustaining growth, managing risk, and driving innovation in a rapidly evolving financial landscape. Al Rajhi Bank and Qatar National Bank follow closely, with Tier 1 capitals of $28.307 billion and $28.272 billion, respectively, highlighting their robust financial health and their capacity to support expansive operations across the Middle East.
Emirates NBD and First Abu Dhabi Bank, ranking fourth and fifth with Tier 1 capitals of $26.213 billion and $25.044 billion, respectively, continue to demonstrate remarkable resilience and financial vigor. These banks are well-positioned to navigate the complexities of global financial markets while maintaining a solid presence in their home territories. Their strong capital bases not only provide a buffer against potential economic uncertainties but also enable them to capitalize on growth opportunities, particularly in areas such as digital banking and sustainable finance.
The presence of Abu Dhabi Commercial Bank, Riyad Bank, and Saudi Awwal Bank in the rankings, with Tier 1 capitals ranging from $16.160 billion to $13.877 billion, further emphasizes the depth and stability of the Arab banking sector. These institutions play a critical role in supporting economic development across the region, offering a wide array of financial services that cater to both corporate and individual clients. The inclusion of the National Bank of Kuwait and Kuwait Finance House, with Tier 1 capitals of $12.819 billion and $11.587 billion respectively, reflects the robust financial framework within Kuwait, showcasing a well-rounded and resilient banking sector. Together, these top 10 banks represent a dynamic and well-capitalized financial ecosystem that is poised for continued success and contribution to the economic growth and stability of the Arab world.
Top 10 Banks Based on Assets:
Bank Name
Assets (in $m)
Qatar National Bank
338,183
First Abu Dhabi Bank
318,168
Saudi National Bank
276,555
Emirates NBD
234,896
Al Rajhi Bank
215,493
Abu Dhabi Commercial Bank
154,423
Kuwait Finance House
122,613
National Bank of Kuwait
121,500
Riyad Bank
103,160
Saudi Awwal Bank
95,104
Analysis:
The latest data on the top 10 Arab banks based on asset size paints a picture of a robust and expansive financial sector in the Arab world. Leading the pack is Qatar National Bank, with an extraordinary asset base of $338.183 billion. This impressive figure not only secures its position as the largest bank in the region by assets but also reflects its extensive reach and influence across multiple markets. The bank’s massive asset base allows it to support large-scale projects, both domestically and internationally, positioning it as a key player in the global financial landscape. Close behind is First Abu Dhabi Bank, with assets totaling $318.168 billion, further underscoring the UAE’s strong presence in the financial sector and its strategic role in fostering economic growth and diversification within the region.
Saudi National Bank, with assets amounting to $276.555 billion, holds a strong third place, demonstrating the significant financial muscle that Saudi Arabia contributes to the Arab banking industry. Emirates NBD and Al Rajhi Bank follow with assets of $234.896 billion and $215.493 billion, respectively. These institutions play crucial roles in the financial ecosystems of their respective countries, with substantial asset bases that enable them to engage in large-scale financing, infrastructure projects, and innovative banking solutions. The strength of these banks is a testament to their strategic management and ability to adapt to changing market conditions while continuing to grow and diversify their portfolios.
The latter half of the list includes Abu Dhabi Commercial Bank, Kuwait Finance House, and the National Bank of Kuwait, with assets ranging from $154.423 billion to $121.500 billion. These banks demonstrate the depth and resilience of the banking sector across the Gulf Cooperation Council (GCC) countries. Riyad Bank and Saudi Awwal Bank, with assets of $103.160 billion and $95.104 billion, respectively, round out the top 10, reflecting the solid financial foundations within Saudi Arabia. The diversity in asset size among these top banks highlights the varying scales of operations, yet each institution remains a vital player within its market. Collectively, these top 10 Arab banks, with their vast asset bases, underscore the region’s financial stability and its capacity to continue supporting economic growth and innovation across the Arab world.
Country Representation of the Top Arab Banks:
Country
Number of Banks
Tier 1 Capital Sum (in $m)
UAE
15
106,134
Saudi Arabia
10
137,598
Qatar
8
58,545
Kuwait
7
35,624
Bahrain
6
12,719
Oman
6
12,752
Jordan
5
10,888
Morocco
5
15,317
Egypt
3
6,191
Tunisia
1
693
Analysis:
The table depicting the country representation of the top Arab banks by Tier 1 capital offers valuable insights into the regional distribution of financial power across the Arab world. Saudi Arabia emerges as the most dominant player, with 10 banks contributing a combined Tier 1 capital of $137.598 billion. This substantial figure not only underscores the strength and stability of the Saudi banking sector but also highlights its pivotal role in supporting the kingdom’s ambitious economic diversification plans under Vision 2030. The significant Tier 1 capital accumulated by Saudi banks equips them to drive large-scale infrastructure projects and innovative financial solutions, reinforcing their leadership position in the region.
The United Arab Emirates (UAE) follows closely, with 15 banks contributing a total Tier 1 capital of $106.134 billion. The UAE’s banking sector is characterized by its diversity and resilience, supporting a dynamic economy that is increasingly focused on technology and sustainability. With a substantial Tier 1 capital base, UAE banks are well-positioned to continue their strategic expansion both regionally and globally, further cementing the country’s status as a leading financial hub in the Arab world.
Other countries, such as Qatar and Kuwait, also demonstrate strong financial foundations with combined Tier 1 capital figures of $58.545 billion and $35.624 billion, respectively. These countries, though smaller in size, show a robust banking sector capable of supporting their economies and contributing to regional stability. Notably, Bahrain and Oman each have six banks on the list, with Tier 1 capitals of $12.719 billion and $12.752 billion, respectively, indicating a healthy financial sector that plays a crucial role in their national economies. The presence of banks from Jordan, Morocco, Egypt, and Tunisia, though smaller in total Tier 1 capital, reflects the widespread distribution of financial strength across the Arab world, showcasing the importance of banking institutions in these diverse economies. This regional representation underscores the collective resilience and growth potential of Arab banks as they navigate the evolving global financial landscape.
Conclusion:
The analysis of the top Arab banks, through the lenses of Tier 1 capital, asset size, and country representation, reveals a robust and resilient financial sector that is pivotal to the region’s economic stability and growth. The banks in this region have demonstrated exceptional financial strength, supported by substantial capital bases and extensive asset portfolios. These factors collectively ensure that the Arab banking sector remains a cornerstone of economic development, capable of driving forward key initiatives across various markets.
From a macroeconomic perspective, the distribution of financial power across different countries within the Arab world highlights the sector’s diversity and depth. Major financial hubs, particularly in the Gulf Cooperation Council (GCC) region, exhibit substantial capital accumulation, underscoring their ability to support large-scale infrastructure projects, foster innovation, and contribute to economic diversification. The presence of strong financial institutions across multiple Arab countries reinforces the region’s collective resilience, enabling it to navigate global financial challenges with confidence.
Overall, the Arab banking sector stands as a testament to the region’s commitment to economic progress and financial stability. The sector’s robust financial health, strategic management, and wide geographic distribution position it to play a leading role in shaping the future of regional and global finance. This positive trajectory reflects the sector’s adaptability and its capacity to continue supporting the ambitious economic goals of the Arab world, ensuring sustained growth and prosperity in the years to come..
Data for Arab Banks among the Top 1,000 banks in the World (Tier 1 capital) for the Year 2022
This article sheds lights on the global Information Technology (IT) outage that happened in July 2024. The cause for the IT outage is examined and its global impact is assessed. The monopoly from big technology (BigTech) and the wrong European Union (EU) regulation blamed for the outage are considered. The World Economic Forum call for enhanced cyber resilience is stressed. General causes for IT crashes are presented and various strategies and measures to prevent future IT outage are outlined. The article concludes with the call of the Union of Arabic Banks for the formation of a universal ecosystem to prevent global IT outage and the establishment of an independent body for the control and development of technology at the global level.
The 2024 Global IT Outage
On 19 July 2024, American cybersecurity company CrowdStrike distributed a faulty update to its Falcon Sensor security software that caused widespread problems with Microsoft Windows computers running the software. As a result, roughly 8.5 million systems crashed and were unable to properly restart in what has been called the largest outage in the history of information technology and historic in scale.
The outage disrupted daily life, businesses, and governments around the world. Many industries were affected including airlines, airports, banks, hotels, hospitals, manufacturing, stock markets, broadcasting, gas stations, retail stores, as well as governmental services, such as emergency services and websites. The worldwide financial damage has been estimated to be at least US$10 billion.
Within hours, the error was discovered and a fix was released, but because many affected computers had to be fixed manually.
About Croudstrike the Company That Caused the Global It Outage
A software update from a single cybersecurity company, CrowdStrike based in the United States, was the root cause of the chaos, underlining the fragility of the global economy and its dependence on computer systems to which relatively few people give a passing thought. Software updates are a critical function in society to keep computers protected from hackers. But the update process itself is crucial to get right and to safeguard from tampering.
CrowdStrike is one of the global top cybersecurity companies. The update to the Falcon software triggered a malfunction that disabled parts of the computer systems and software like Microsoft Windows. Three days after the incident, CrowdStrike reported that a significant number of the devices are back online and operational.
The Cost of The Global IT Outage
The health care and banking sectors were the hardest hit by CrowdStrike’s global IT outage, with estimated losses of $1.94 billion and $1.15 billion, respectively.
Fortune 500 airlines such as American and United were the next most affected, losing a collective $860 million.
The outage may have cost Fortune 500 companies as much as $5.4 billion in revenues and gross profit, not counting any secondary losses that may be attributed to lost productivity or reputational damage. Only a small portion, around 10% to 20%, may be covered by cybersecurity insurance policies.
Fitch Ratings, one of the largest United States US credit ratings agencies, said that the types of insurance likely to see the most claims stemming from the outage include business interruption insurance, travel insurance and event cancellation insurance.
According to Fitch rating agency, this incident highlights a growing risk of single points of failure. Single points of failure are likely to increase as companies seek consolidation to take advantage of scale and expertise, resulting in fewer vendors with higher market shares.
The eye-popping damage estimates underscore how a preventable mistake at one of the world’s most dominant cybersecurity firms has had cascading effects for the global economy and may prompt more calls for CrowdStrike to be held accountable.
Impact on Banking and Financial Sector
Microsoft and CrowdStrike stocks fell as a result of the outage. CrowdStrike’s stock fell more than 11% on 19 July, although Microsoft stock was down less than 1%.
Banks that were affected included Chase, Bank of America, Wells Fargo, U.S. Bank, Capital One and Charles Schwab in the US, RBC and TD Bank in Canada, Capitec Bank and other South African banks, and several banks in the Philippines, including RCBC, Metrobank, LandBank, BDO, UnionBank, BPI, and PNB.
E-wallets such as Maya and GCash also experienced problems in the Philippines. The website and mobile banking application of DenizBank in Turkey could not be accessed. Visa was affected. Numerous Singaporean companies, including Singapore Exchange (SGX) and DBS Bank, reported various levels of service difficulties.
In India, the Reserve Bank of India said that only 10 banks and NBFCs were affected by the outage.
In Arab countries, few banks use CrowdStrike tools and many banks’ critical systems do not run on the cloud. Hence, most Arab banks were unaffected.
The London Stock Exchange, while operating normally, was unable to push news updates to its website.
The Need for Systemic and Digital Resilience
The world economic forum issued the cyber resilience alarm heard around the world. The July global cyber outage caused an estimated $1 billion in global costs and was a signal sent globally to invest in cyber resilience.
There is a major lesson to be learned from the outage. We need to prepare for such incidents in ways that we can maintain the resilience of businesses and services. Whether caused by the intentional actions of an adversary or the innocent mistakes of well-intentioned actors, businesses and governments need to be resilient to cyberattacks and other cyber failures that can lead to major disruptions of business processes.
The incident highlights the need to shift our perception of cybersecurity from a mere IT issue to the broader concept of cyber resilience as an integral part of business resilience. In the face of a cyberattack, businesses should be able to recover fast from an incident and resume business as usual.
To be cyber resilient, organizations need to first and foremost identify business-critical processes and ensure the continuity of those even during cyber incidents. This has to involve continuous conversations with business leadership to ensure alignment with the overall business strategy while conducting real-time prioritization.
We need also to think beyond cyber and business resilience and look at the big picture encompassing systemic resilience. As cyber threats become more advanced, businesses increasingly rely on a few sophisticated security software providers. This reliance creates a single point of failure, where a flaw in one system can lead to global cascading effects. Balancing centralized, highly protected architectures with decentralized, lower-impact systems is a difficult challenge.
Cybersecurity leaders from across the world should develop a common understanding of business cyber resilience and collect and systemize experience on cyber resilience tradecrafts that matter. As online and cyber infrastructures become ever more complex, interconnected and central to all sectors of business and society, the importance of cyber resilience will only continue to rise.
Senior White House tech and cybersecurity official highlighted the risks of consolidation and advised that we need to really think about digital resilience not just in the systems we run but in the globally connected security systems. The chaotic scenario that played out the IT outage did not involve a malicious actor but a lack of digital resilience.
Blaming the Monopoly Power of Big Tech
Numerous Fortune 500 companies use CrowdStrike’s cybersecurity software to detect and block hacking threats. Computers running Microsoft Windows crashed because of the faulty way a code update issued by CrowdStrike is interacting with Windows.
CrowdStrike, a multibillion-dollar firm, has expanded its footprint around the world in its more than decade of doing business. Many more businesses and governments are now protected from cyberthreats because of this, but the dominance of a handful of firms in the anti-virus and threat-detection marketplace creates its own risks, according to experts.
Experts argued that without diversity of cybersecurity providers there is fragility in technology ecosystem. Winning in the marketplace can aggregate risk, and then all consumers and companies alike bear the costs.
Blaming the EU Regulation
Microsoft stated that the European Union (EU) is to blame for the world’s biggest IT outage following a faulty security update. The 2009 antitrust agreement with the European Union forced Microsoft to sustain low-level kernel access to third-party developers. The 2009 agreement insisted on by the European Commission meant that Microsoft could not make security changes that would have blocked the update from cybersecurity firm Crowdstrike that caused an estimated 8.5 million computers to fail.
General Causes of IT Crash
IT crashes can be caused by a variety of factors, including both hardware and software issues. Common causes include:
Hardware issues such as failure of Random Access Memory (RAM) or Hard Disk, overheating and weak or fluctuating power supply
Software issues such as buggy or corrupt device drivers, operating system bugs, and third-party Software that are poorly designed.
Other causes may include virus or malware. Malicious software can disrupt normal operations and cause crashes. Invalid Memory Access from programs trying to access forbidden memory locations can cause crashes. Buffer Overflow and overwriting memory can lead to crashes. Unhandled exceptions including errors that the system or application cannot handle can cause crashes.
Strategies To Prevent Future Global IT Outage
Building resilience is essential. Businesses and governments need to understand their exposures. CrowdStrike and Microsoft are both reputable. But whenever an organisation is too reliant on an individual provider, there is always a risk, however small, of failures hitting its wider processes.
Once vulnerabilities are mapped, organisations need to build redundancy into their operations and develop contingency plans to ensure critical functions can still work in the worst-case scenarios. This includes diversifying their IT infrastructure by having more than one cyber security, operating system, or cloud provider.
Closer collaboration between the public and private sector is essential. Businesses benefit from accessing secure digital networks, as well as the public services that rely on them. This means there should be a common interest in sharing information on breaches, vulnerabilities, and stress tests. The cost of switching between IT providers, interoperability, and the ability of new entrants to compete also needs effective monitoring. But co-operation between regulators and tech firms is important to ensure any regulations are targeted, and do not stifle innovation.
Single points of failure also lurk more broadly in our globalised and highly networked economies. The pandemic highlighted how many businesses had become over-reliant on China-linked supply chains that supported their uber efficient just in time delivery models.
The logic of mapping, contingency building, and collaborating holds for mitigating most concentrated risks. Building resilience into physical and digital economic systems is essential, and should not be postponed. This will come at a cost, but will bring the benefit of insuring against even costlier threats.
General strategies to prevent IT crashes include:
Ensuring hardware reliability: by using quality components and high-quality and reliable hardware to minimize failure rates, implementing redundant systems such as RAID for storage, backup power supplies to ensure continuity in case of hardware failure, and conducting scheduling regular maintenance checks to identify and replace failing components.
Ensuring software stability: by executing regular updates thus keeping all software, including operating systems and applications, up to date with the latest patches and updates, and conducting compatibility testing to test new software and updates in a controlled environment before deploying them widely, and choosing reliable software that are well-reviewed and compatible to avoid conflicts and crashes.
Adopting various security measures: this involves using antivirus and anti-Malware to protect against malicious attacks, using firewalls and intrusion detection systems to prevent unauthorized access, and conducting regular security audits to identify and address vulnerabilities.
Conducting monitoring and diagnostics tools to continuously monitor system performance and detect issues early, regularly reviewing system logs to identify potential problems before they cause crashes, and conducting stress testing to ensure systems can handle peak loads.
Backup and Recovery: Maintaining regular backups of critical data to ensure quick recovery in case of a crash, developing and regularly updating a disaster recovery plan to minimize downtime and data loss.
User Training and Best Practices: Educating users on safe computing practices and how to avoid common pitfalls, keeping detailed documentation of the IT infrastructure and procedures, and scheduling regular maintenance checks to keep everything running smoothly.
Proactive Management: by using predictive analytics to anticipate and address potential issues before they cause crashes, and implementing a structured change management process to ensure smooth transitions and minimize disruptions.
These strategies can significantly reduce the risk of crashes and ensure a more stable and reliable environment.
Towards a Universal Ecosystem To Prevent Global IT Outage
A seemingly routine software update can reap such worldwide chaos should serve as a wake-up call. Crashes, hacks and data breaches are a mounting threat as the global economy becomes more digitalised and interconnected. Computers and the internet already underpin everything from stock exchanges and electric vehicles to central heating.
Creating a robust ecosystem to prevent IT crashes involves integrating various tools, practices, and strategies to ensure stability and resilience.
The Union of Arabic Banks calls for the formation of a universal ecosystem to prevent global IT outage and the establishment of an independent body for the control and development of technology at the global level.
The ecosystem will be governed by the legislative authority to audit the performance and operations of major technology companies to prevent the misuse of technology, hedge against the risks of IT outage, monitor performance and set standards to design technology according to human needs and not to destroy it, support the development of technology according to specified standards, and enforce digital infrastructure cyber resilience.
Unveiling the Finternet: Financial Access Redefined
Technology Empowers Global Financial Interactions
Arab Leaders: Pioneering Financial Innovation
In the wake of unprecedented advancements in communication technologies, the financial services sector stands on the brink of an era defined by efficiency and inclusivity. The evolution of the internet and smartphones has redefined the global communications landscape, and now, the financial industry must adapt to maintain pace with these developments. This adaptation involves conceptualizing a future where financial transactions are as simple and intuitive as sending a text message or booking a hotel online.
The Need for a Seamless Financial Network
Today’s financial systems operate in a fragmented landscape, often bogged down by outdated processes that hinder efficiency and accessibility. The concept of the ‘Finternet’—a sophisticated, interconnected network akin to the internet—promises a change in how we think about and manage financial interactions. This network would not only streamline existing operations but also extend financial services to underserved populations, particularly in emerging and developing economies where access to such services remains limited.
Technology at the Forefront
With mobile devices now possessing more computing power than ever, the potential to leverage these technologies in financial services is immense. The vision for the Finternet is to create a global ecosystem where financial assets can be transferred swiftly, securely, and at minimal cost. Whether it involves small daily transactions or large-scale business deals, the Finternet aims to facilitate financial activity that is bound by neither geographical nor monetary constraints.
Innovations such as tokenization and programmable ledgers are at the heart of this new system. Tokenization allows for a digital representation of assets, making it possible to secure and uniquely identify ownership and the rules applicable to those assets. Programmable ledgers, on the other hand, blend traditional database functions with advanced governance systems necessary for real-time updates and secure transaction recording.
Impact on Regulatory Frameworks and Institutional Roles
As we envision a streamlined financial network, the roles of central and commercial banks are also redefined. Central banks, in particular, are pivotal as they oversee the issuance of digital currencies that are likely to underpin the future monetary systems. Similarly, commercial banks will find new roles, interacting directly with consumers through innovative products such as tokenized deposits, which will be crucial in the functioning of the Finternet.
Furthermore, maintaining a robust regulatory environment remains a priority. The transition to an advanced financial network like the Finternet must preserve critical safeguards such as deposit insurance and stringent oversight of financial service providers. This will ensure that the integrity and stability of the financial system are not compromised.
Setting the Stage for Future Innovations
The path to realizing the Finternet is not without challenges. It requires a concerted effort from all stakeholders involved, including financial institutions, technology developers, policy makers, and regulators. The initiative must begin now, while the technological landscape and regulatory frameworks are still adaptable. We are presented with a unique opportunity to reshape the financial architecture into one that is more inclusive, efficient, and responsive to the needs of the modern economy.
A Call to Action for Arab Financial Leaders
For the Arab world, where economic diversification and technological adoption are already key agenda items, the integration of Finternet technologies offers significant opportunities. Arab banks and financial leaders are uniquely positioned to lead this charge, fostering innovation while ensuring the alignment of new financial technologies with the economic goals and regulatory landscapes of their respective countries.
To remain competitive and relevant, Arab financial institutions must invest in technology and talent that can navigate this new terrain. Collaborative efforts between governments, technology providers, and financial entities will be crucial. The adoption of the Finternet will enable Arab economies not only to connect to global financial networks more effectively but also to drive regional growth and financial inclusion.
As we stand at the precipice of this new digital era, the actions we take today will define the financial landscapes of tomorrow. Arab bankers and financial leaders are encouraged to embrace this wave of innovation, ensuring that the financial services sector in the Arab world not only adapts to these changes but also thrives, setting a benchmark in financial innovation globally.
In conclusion, the journey towards the Finternet is not merely about adopting new technologies but about reimagining the future of financial services. It’s an imperative stride towards a future where financial inclusivity and efficiency are not just ideals, but realities.
Historical Insight into AI: Explore how 19th-century lessons guide today’s AI integration in banking.
Strategic AI Deployment: Discover effective AI strategies that boost productivity and preserve jobs.
Future-Proofing Banking: Learn how Arab banks can set global standards for ethical AI use.
In the early 19th century, David Ricardo, a venerated figure in modern economics, witnessed the transformative power of machinery during the British Industrial Revolution. His insights into the nuanced impact of such technologies on labor markets provide crucial lessons for today’s era of artificial intelligence (AI), particularly in the banking and financial sectors. As we grapple with the rapid advancement of AI, understanding these historical parallels can help guide strategic decision-making in industries that are foundational to global economic stability.
Ricardo, observing the initial phases of automation in cotton spinning, initially argued that machinery would not diminish the demand for labor. This technology lowered cotton prices and increased demand for woven cloth, thereby creating lucrative opportunities for artisans. However, the subsequent automation wave, marked by the introduction of steam-powered looms, drastically altered the labor landscape. These machines displaced the thriving artisan weavers, relegating them to lower-paying jobs under stringent conditions in factories. By 1821, in the third edition of his seminal work, On the Principles of Political Economy and Taxation, Ricardo revised his stance, recognizing that if machinery were to perform all labor, it would virtually eliminate the demand for human labor.
Today, the financial sector is on a similar precipice with the integration of AI. Promises of enhanced efficiency, fewer mundane tasks, and more leisure time are enticing. Yet, there exists a palpable anxiety akin to that of the 19th-century weavers. AI’s capability to automate tasks, even complex ones previously handled by skilled professionals, poses a significant threat to existing jobs, potentially forcing many into lower-wage roles or outright unemployment.
The seductive allure of automation, with its promises of increased profitability and operational efficiency, is undeniable. However, the deployment of AI in banking and finance needs to be approached with strategic foresight that carefully considers the broader implications on the workforce. The historical lesson is clear: technology itself is neutral; the outcomes are significantly shaped by how it is deployed and who is making those decisions.
For bankers and financial executives, particularly in the dynamic and influential Arab banking sector, the pressing question is not whether to adopt AI but how to do so ethically and responsibly. The current trajectory in the tech industry favors automation, which often comes at the expense of augmenting human capabilities and can lead to job displacement and increased surveillance.
Arab banks, known for their robust growth and innovation, are uniquely positioned to redefine the integration of AI in finance. These institutions can lead by example, focusing on deploying AI to enhance employee productivity and improve customer service rather than merely reducing headcount. For example, AI could be employed to provide personalized financial advice, detect fraudulent transactions with greater efficiency, or manage risks by analyzing vast data sets with speeds and accuracies unattainable by humans.
Moreover, the Arab banking sector can influence global banking norms through a unique blend of regional values and international reach. By prioritizing ethical AI usage that respects privacy and enhances job quality, these banks can set new global standards for responsible AI application in finance.
As we navigate this new technological era, it is crucial to remember Ricardo’s revised insights. The deployment of AI should be a deliberate choice that fosters new opportunities for the workforce and respects the dignity of all workers. Arab banks should advocate for and help shape regulatory frameworks that ensure AI applications in banking prioritize augmenting human work and protecting client data.
In conclusion, the historical lessons from Ricardo’s era are incredibly pertinent today. As AI reshapes the landscape of banking and finance, it is incumbent upon today’s leaders to steer this technology towards outcomes that benefit the entire economic ecosystem. This entails advocating for policies that foster innovation while ensuring economic stability and workforce inclusivity. Arab banks and bankers have the opportunity—and indeed, the responsibility—to lead these efforts, ensuring that AI serves as a tool for progress, not merely profit. By doing so, they will not only safeguard their workforce but also strengthen the trust and reliability that are the bedrock of the financial sector.
In moving forward, Arab banks and their leaders must not only embrace AI but actively participate in shaping its trajectory. The future will likely hold incredible technological advancements, and by learning from the past and anticipating future challenges, these institutions can ensure that AI is harnessed as a force for good, propelling the banking industry toward a more inclusive and sustainable future.
The dawn of the AI super cycle heralds a transformative era for global economies, with generative AI poised to redefine productivity and economic growth. As AI innovations accelerate at an unprecedented pace, it becomes crucial for economists, bankers, and financial executives in the Arab world to understand and adapt to the emerging landscape. This article explores the implications of AI on capital, labor, and productivity, and offers strategic recommendations for Arab banks and financial institutions.
The Economic and Productivity Gains of AI
Generative AI’s adoption is anticipated to drive significant productivity gains and robust economic growth. By 2030, AI is expected to contribute a staggering $16 trillion to the global economy, according to PwC. These gains, however, will largely benefit the owners of capital rather than the labor force. The technological advancements underpinning AI, such as large language models (LLMs), require enormous capital investments, creating a concentrated group of winners, primarily among Big Tech firms with monopolistic market positions.
In 2023, the top US technology companies, collectively known as the Magnificent Seven, allocated $370 billion to research and development. This investment matches the European Union’s total R&D budget, underscoring the scale of resources required to maintain a competitive edge in AI development. The costs associated with training and operating LLMs, predominantly from high-end graphics processing units (GPUs) and data center operations, are substantial. Sam Mugel, CTO of Multiverse, estimates that training the next generation of LLMs will soon cost at least $1 billion.
Labor Market Transformations
The impact of AI on the labor market remains uncertain. Estimates vary widely, with Goldman Sachs predicting that AI could automate the equivalent of 300 million full-time jobs, while the World Economic Forum anticipates a much lower net loss due to job creation in green sectors and climate-change adaptation. Despite these divergent projections, there is a growing concern that AI will lead to long-term structural unemployment, affecting both skilled and unskilled workers.
The repercussions of job losses will vary across different sectors. While chip manufacturers and AI infrastructure developers are experiencing significant job growth, the broader economic impact remains unclear. Early studies suggest promising efficiency and productivity gains for remaining workers. A 2023 study by Erik Brynjolfsson, Danielle Li, and Lindsey R. Raymond found that AI tools boosted worker productivity by 14% on average, and by 34% for new and low-skilled workers.
Historical Context and Future Diffusion
Technological advancements have historically driven global connectivity, expanded access to public goods, spurred innovation, and improved living standards. AI is expected to follow this trajectory, albeit at a faster pace than previous technologies. Unlike earlier general-purpose technologies that required extensive infrastructure investments, AI can be deployed rapidly through existing digital platforms and devices.
The steam engine, electrification, and personal computers took decades to achieve widespread adoption. In contrast, AI’s deployment is set to outpace these technologies, potentially achieving significant productivity and efficiency gains sooner rather than later. This rapid diffusion will likely enhance economic growth, with substantial benefits for capital owners.
Implications for Capital and Taxation
As AI drives economic gains, the distribution of these benefits will skew towards capital owners. This shift necessitates a reevaluation of business models and government policies. Companies may increasingly adopt less labor-intensive growth strategies, amplifying the capital-to-employment ratio. Consequently, governments will need to reassess tax policies to capture the excess profits generated by automation.
A higher corporate tax rate may be necessary to address the economic imbalance. Additionally, the potential rise in structural unemployment could revive discussions on universal basic income, offering a safety net for those displaced by AI-driven automation.
Addressing Inequality and Geopolitical Tensions
The AI super cycle also raises concerns about widening economic disparities both within and among countries. The gap between technology leaders, such as the US and China, and the rest of the world, particularly the poorest economies, could exacerbate geopolitical tensions. Policymakers must consider AI’s impact on inequality and strive for inclusive growth that benefits a broader spectrum of society.
Strategic Recommendations for Arab Banks
Given these transformative changes, Arab banks and financial institutions must adopt proactive strategies to navigate the AI-driven landscape. Here are key recommendations:
Investment in AI Capabilities: Banks should invest in AI technologies to enhance operational efficiency, customer service, and risk management. Leveraging AI can provide a competitive edge and drive innovation in financial services.
Workforce Reskilling: To mitigate the impact of job displacement, banks should prioritize reskilling and upskilling their workforce. Training programs focused on AI literacy and digital skills will prepare employees for new roles in an AI-enhanced environment.
Policy Advocacy: Engage with policymakers to advocate for balanced regulations that promote AI innovation while addressing ethical and economic concerns. Collaboration with government entities can help shape policies that support sustainable growth.
Ethical AI Adoption: Ensure that AI implementations adhere to ethical standards, protecting customer data and maintaining transparency. Ethical AI practices will build trust and safeguard the bank’s reputation.
Strategic Alliances: Form partnerships with technology firms and research institutions to stay at the forefront of AI advancements. Collaborative efforts can accelerate AI adoption and drive sector-wide progress.
In conclusion, the AI super cycle presents both opportunities and challenges for the banking sector. By embracing AI and implementing strategic measures, Arab banks can harness the potential of this transformative technology to drive growth, innovation, and economic prosperity in the region.
The recent European Union Elections in June 2024 had a great impact on global markets including the Eurobond market. This article presents an overview of Eurobonds covering benefits, risks, types, regulations, markets and history of Eurobonds. The article sheds light on the latest development in the global Eurobond market. The size of the EU bond market is analysed. Eurobonds issued by Saudi Arabia, Qatar, United Arab Emirates and Lebanon are examined. The impact of the European Union EU 2024 election on the Eurobond market is assessed with an outlook on EU digital future towards financing defence technologies and the rise of EU defence Eurobonds. The article concludes with recommendations for Arab investors and issuers of Eurobonds.
Overview of Eurobonds
Eurobond is a type of bond that is issued in a currency that is different from the currency of the country where it is issued. These bonds are typically issued by multinational corporations or governments and are denominated in a currency other than the one in which they are issued.
Eurobonds are typically issued in the international market and are not subject to the regulations of any single country. This allows issuers to access a larger pool of investors and potentially lower borrowing costs. Eurobonds are usually issued in large denominations and have maturities ranging from a few years to several decades.
Benefits of Eurobonds. One of the main benefits of Eurobonds is that they allow issuers to diversify their sources of funding and access a wider range of investors. Eurobonds also provide investors with the opportunity to invest in different currencies and markets, which can help to spread risk.
Risks of Eurobonds. While Eurobonds can offer benefits in terms of diversification and access to a larger investor base, they also come with risks. These risks can include currency risk, interest rate risk, and political risk, among others. Investors should carefully consider these risks before investing in Eurobonds.
Types of Eurobonds. There are several different types of Eurobonds, including fixed-rate bonds, floating-rate bonds, zero-coupon bonds, and convertible bonds. Each type of Eurobond has its own unique features and characteristics, so investors should carefully consider their investment objectives and risk tolerance before investing in any particular type of Eurobond.
Market for Eurobonds. The market for Eurobonds is a global market, with bonds being issued and traded in various financial centers around the world. The Eurobond market is known for its liquidity and depth, making it an attractive option for both issuers and investors looking to access the international capital markets.
Regulation of Eurobonds. Eurobonds are typically not subject to the same regulations as domestic bonds, as they are issued in the international market. This can make Eurobonds an attractive option for issuers looking to raise capital without being subject to the regulatory requirements of a particular country.
History of Eurobond Market
The Eurobond market began with the Autostrade issue for the Italian motorway network in July 1963. It was for United States US$15m with a 15 year final maturity and an annual coupon of 5½%. The cross-border debt capital market continues to bring together borrowers and investors from all over the world and meets the funding needs of countries, supranational organisations, financial institutions and companies.
History of the Eurobond Market
Source: International Capital Market Association ICMA
1963 First Fixed rate issue: Autostrade
1969 Launch of Association of International Bond Dealers (AIBD)
1969 Launch of Euromoney
1969 Euro-clear established (forerunner of Euroclear)
1970 Cedel established (forerunner of Clearstream)
1970 First Floating Rate Note: ENEL
1979 First bought deal: GMAC
1981 First swap: IBM/IBRD
1989 Fixed price reoffer introduced
1989 First global bond: World Bank
1992 Association of International Bond Dealers (AIBD) changes name to International Securities Market Association (ISMA)
1994 First CDS: Exxon/EBRD
1999 Pot deal introduced
1999 Euro introduced in 12 countries forming the Eurozone
2005 International Securities Market Association (ISMA) and International Primary Market Assocation (IPMA) merge to form International Capital Market Association (ICMA)
2007 Global credit crisis starts
2008 Lehman’s default
2010 European sovereign debt crisis starts
2013 50th Anniversary of the Eurobond Market
Bond Market Size
The International Capital Market Association ICMA estimates that the overall size of the global bond markets in terms of USD equivalent notional outstanding, is approximately $128.3tn. This consists of $87.5tn SSA bonds (68%) and $40.9tn corporate bonds (32%).
In terms of country of incorporation, the global corporate bond markets are dominated by the US ($10.9tn) and China ($7.4tn). Between them they make up 45% of the total global corporate bond market. 53% ($21.5tn) of outstanding corporate bonds are issued by financial institutions.
Global Corporate Bond Markets
Source: ICMA analysis using Bloomberg Data (August 2020)
Size of EU Bond Market
The EU bond market encompasses debt securities issued by European Union member states. The EU bond market includes bonds issued by individual member countries, as well as bonds issued by EU institutions like the European Commission. These bonds serve different purposes, such as funding government expenditures, infrastructure projects, or policy programs. The European Commission, acting as the EU borrower, has a strong track record of successful bond issuances over the past 40 years. All EU bonds are denominated exclusively in euros. The proceeds from these issuances fund EU policy programs. EU bonds generally have low default risk and high liquidity. However, due to the varying economic strength of the 27 member states, yields and other bond characteristics can differ significantly. Investors should consider these factors when making informed decisions.
Since mid-2022 the Eurosystem’s balance sheet declined by around €2,000 billion, or more than 22 per cent. The largest part of this decline is due to banks having repaid a substantial share of the loans taken from the Eurosystem via the targeted long-term refinancing operations. This has released many assets previously used as collateral back to the market, including government bonds. Moreover, the Eurosystem owns smaller amounts of bonds since it no longer reinvests maturing bonds under its asset purchase programme.
The reduction of the Eurosystem’s balance sheet and the fact that governments across the euro area have issued record amounts of debt have substantially increased the availability of bonds to the market. This has helped to bring the Eurosystem’s footprint in government bond markets closer to pre-pandemic levels.
Size of euro area government bond market and the Eurosystem market footprint (EUR billions and %)
Sources: Eurosystem, The Centralised Securities Database (CSDB)
Various types of investors have stepped in and compensated for the Eurosystem’s reduced presence. While the Eurosystem has not actively sold bonds, it only partially replaced maturing bonds in its monetary policy portfolios. Two sectors have clearly contributed the most to absorbing the new debt since the Eurosystem began to reduce its balance sheet: households and foreign investors.
Sectoral absorption of government securities in 2023 (%)
Sources: European Central Bank
Saudi Arabia Eurobonds
Saudi Arabia sold $10 billion of dollar Eurobonds in three parts in January 2023. The deal was priced with the notes to yield 110 and 140 basis points over Treasuries.
The kingdom attracted over $35 billion of investor orders for the notes maturing in five, 10.5 and 30 years as it seeks to take advantage of cooling inflation. Saudi Arabia run a surplus of 16 billion riyals ($4.3 billion) in 2023.
Qatar Eurobonds
Qatar is selling its first dollar Eurobonds in four years and its debut green deal, as one of the world’s largest liquefied natural gas exporters seeks to tap into a booming global market for sustainable debt. The government is selling green bonds with maturities of five and 10 years. Initial spread guidance is 70 basis points over United States US Treasuries for the short tranche and 80 basis points for the longer one.
United Arab Emirates Eurobonds
In April 2024, Abu Dhabi is selling its first Eurobonds since 2021. The oil-rich emirate, rated AA by all three major ratings companies, is issuing the Eurobond dollar deal with tranches of five, 10 and 30 years. The five year portion has initial spread guidance of around 70 basis points of US Treasuries, while the 10-year debt has guidance of 85 basis points and the longest tranche 125 basis points. Abu Dhabi Commercial Bank PJSC, Citigroup Inc., First Abu Dhabi Bank PJSC, HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley and Standard Chartered Plc are managing the bond sale.
Lebanon Eurobonds and the Financial Crisis
Lebanon has long relied on issuing dollar-denominated Eurobonds, whenever the state needed financing.
These bonds reached a peak in March 2020 when the government announced a default on payment, totaling $31 billion, including $11 billion owed to foreign bondholders.
This figure increased as domestic holders, particularly banks, bought bonds, bringing the total owed to foreign creditors to $16 billion, hoping to profit from the Eurobond price increase if reforms are implemented and an agreement is reached with the International Monetary Fund (IMF).
In Lebanon, the risks incurred by the state and Banque du Liban (BDL) in connection with the Eurobonds on which Lebanon defaulted in March 2020 are high. The risk of legal action by holders of Lebanon Eurobonds is increasing. Since Lebanon defaulted, the holders of Eurobonds have a straightforward debt claim against the state for non-payment.
Impact Of EU Election On Eurobond Market
French bonds and bank stocks were rocked by political turmoil following European Union Election in June 2024. French markets endured another brutal sell-off as political uncertainty unleashed the biggest jump in the premium investors demand to hold French government debt since 2011 and bank stocks tumbled.
France’s Finance Minister Bruno Le Maire warned the euro zone’s second-biggest economy faced the risk of a financial crisis with the far right winning of parliamentary.
French banks were hit hard. The country’s biggest three banks, BNP Paribas, Credit Agricole and Societe Generale, have lost between 12-16% in value, the highest loss since the banking crisis of March 2023.
The recent European parliamentary elections have brought despair for some parties after a substantial shift to the right shook the political foundations of the European Union. A stunning defeat of the Green Party, which had performed so well in the 2019 elections, also shows European voters’ declining enthusiasm for the Green Deal and other climate policies.
Fundamentally, the center right and far right achieved significant victories in EU Elections and this will shape European policy for the coming five-year term.
It is worth mentioning that the EU is the second-largest economy globally in nominal terms (after the US) and third-largest by purchasing power parity (after China and the US). Its GDP in 2024 is approximately $18.98 trillion (nominal) and $26.64 trillion (PPP). Key sectors include services (70.7%), industry (24.5%), and agriculture (1.5%). Exports and imports play a crucial role, with major trading partners like the United States US, China, and the United Kingdom UK.
EU Digital Future towards Financing Defence Technologies
To move away from a technosolutionist approach, it is important to envision a future where technology serves humanity, democracy, and the planet. The European elections in 2024 raised concerns over the continuous progression of the far-right within EU democratic institutions. With over twenty years of experience advocating for a free, fair, and open digital environment in Europe, a shift to the right poses a grave threat to Europe fundamental rights.
Looking ahead to the next mandate of EU institutions, there is anticipation of a rise in the market dominance of large tech corporations and the implementation of draconian state surveillance practices.
Much discussion surrounding the elections has focused on how technology could potentially address complex sociopolitical issues such as climate change, job insecurity, and the militarisation of public spaces. Technology is seen as the fastest route to profit and growth, yet its social and environmental impacts are ignored. In light of the European elections, the conservative majority forming the new European Parliament is expected to prioritise backing defence technology, especially for immigration and border control.
This will be manifested in the political push for age verification, undermining encryption, and the mass surveillance of digital lives.
Defence Eurobond Rising
During the eurozone crisis, the EU created a legal instrument, the European Financial Stability Facility. This allowed to issue bonds with a lending capacity of €440 billion.
With the COVID pandemic, this was repeated as the EU adopted a recovery fund with a firepower of €750 billion, financed through common debt issuance.
The same line of thinking has inspired EU politicians to issue defence bonds – to finance a major boost of the EU’s defence capabilities. Estonia’s Prime Minister Kaja Kallas highlighted in December 2023 the need for EU defence bonds to fight Russia’s aggression in Ukraine. The European Council President Charles Michel suggested that the EU should consider ‘European defence bonds’ to fund investment in European defence and security as part of a new push for deeper military coordination.
Speaking at the European Defence Agency annual conference on 30 November 2023, the European Council President said EU member states should pool what could amount to €600 billion in defence investment over the next 10 years. He also pointed out that European defence bonds would be an attractive asset class, including for retail investors.
Road Ahead For Arab Investors and Issuers of Eurobonds
In light of the above overview of Eurobonds and Eurobonds global market, we give the following recommendations for Arab investors and issuers of Eurobonds:
Recommendation #1. Beware of political uncertainties following EU elections
Political uncertainties are set to continue driving market volatility in Europe amid the surprising outcome of the French election. The split of political powers will cast increasing uncertainties on critical policies, particularly in government finance.
Recommendation #2. Choosing the right Eurobond currency
The euro currency swings amid political uncertainties. The euro weakened significantly against other Group of ten G-10 currencies in early June 2024 when French President Emmanuel Macron called for a snap election after the far-right party leader. The single currency fell as much as 2% against the United States US dollar to 1.0664 in the second half of June 2024. Recent election result put pressure on the euro again.
Recommendation #3. Analysing market sentiment
The resilient movement in the euro following EU 2024 elections is key to driving market sentiment.
Recommendation #4. Watching inflation
Investors are closely monitoring the market reactions to the French election in Europe. Additionally, both China and the United States US are set to release their Consumer Price Index (CPI) data, providing insights into the inflation trajectory of the world’s two largest economies. It is hard to predict the long term impact of EU election on inflation, but it is certain that political turmoil will have a long term impact on inflation and currencies in which Eurobonds are issued.
Recommendation #5. Assessing investment risk
The European stock markets experienced a sharp selloff after the first round of the French election. The risk premium on the French debt, measured by the 10-year government bond yields, retreated to 3.21% after reaching an eight-month high of 3.37% earlier. Meantime, the hardest-hit sectors such as banking stocks and green energy shares saw the sharpest rebound.
The retail world is witnessing a seismic shift as online shopping platforms revolutionize consumer behavior. Among the leaders of this transformation is SHEIN, a Chinese fast-fashion giant that has rapidly ascended to global dominance. As the most Googled clothing brand and the largest fast-fashion retailer in the United States, SHEIN’s meteoric rise encapsulates broader trends reshaping the retail sector, particularly the fierce competition between Chinese and Western companies.
SHEIN’s Business Model: A New Age of Retail
SHEIN’s strategy epitomizes the new age of retail, leveraging data-driven production, a vast online inventory, and aggressive social media marketing. Unlike traditional retail giants like Zara and H&M, which follow a seasonal production cycle, SHEIN operates on an ultra-fast fashion model. The company’s advanced automated systems enable it to produce and list over 1.3 million new items annually, significantly outpacing competitors who list between 12,000 – 35,000 products in the same period.
This capacity for rapid adaptation allows SHEIN to swiftly capitalize on the latest trends, capturing consumer interest with unparalleled speed. For instance, during a single flash sale, customers can purchase a royal blue Twist Front Cloak Sleeve Slit Back Dress for just $5.90 or a Striped Pattern High Neck Drop Shoulder Split Hem Sweater for $8.50. These eye-catching prices, combined with an ever-changing inventory, create a sense of urgency and exclusivity that drives consumer engagement.
Implications for the Arab World
The implications of SHEIN’s success extend far beyond the retail industry. Economists and bankers in the Arab world must consider the broader economic dynamics at play. The rise of online shopping platforms like SHEIN reflects a significant shift in consumer behavior, driven by the increasing penetration of internet and smartphone usage. In the Arab world, e-commerce is projected to reach $49 billion by 2024, highlighting a robust growth trajectory driven by favorable demographics and proactive government policies.
In 2023 alone, the number of online shoppers in the Middle East grew by an astounding 18%, reaching 226 million individuals, which represents nearly 50% of the region’s total population. Additionally, smartphone penetration in the region has hit 85%, making mobile commerce a significant driver of this growth. Moreover, governments in the region are heavily investing in digital infrastructure, with the UAE allocating $2.3 billion to enhance its e-commerce capabilities over the next five years .
Competitive Dynamics: Chinese vs. Western Companies
The competition between Chinese and Western companies in the fast-fashion sector underscores larger geopolitical and economic shifts. Chinese companies like SHEIN benefit from a combination of domestic manufacturing capabilities and a strategic focus on cost-efficient, high-volume production. This contrasts with Western companies that often rely on global supply chains and face higher labor costs. Additionally, China’s robust digital ecosystem and advanced logistics infrastructure provide a competitive edge in managing vast inventories and ensuring rapid delivery times.
For example, while Western brands like H&M and Zara list around 12,000 to 35,000 new items annually, SHEIN’s website features over 1.3 million new products in the same timeframe. This staggering number illustrates SHEIN’s unmatched speed and volume in bringing new trends to market. Furthermore, SHEIN’s automated production systems allow for rapid scaling up or down based on real-time demand, ensuring optimal inventory levels and minimal waste.
Challenges and Ethical Considerations
However, the rise of ultra-fast fashion is not without its challenges. The environmental and ethical implications of this business model are significant. SHEIN, along with other fast-fashion brands, faces scrutiny over labor practices and the environmental impact of its production processes. Factories producing for SHEIN have been reported to operate under harsh conditions, with long working hours and minimal pay. Employees in some SHEIN factories reportedly work 18-hour days, earning less than four cents per clothing.
Furthermore, the environmental cost of producing millions of garments, many of which are made from non-biodegradable materials, is substantial. The fashion industry is the second-largest polluter in the world, and SHEIN’s contribution to textile waste and pollution is considerable. Reports indicate that SHEIN uses fabrics like polyester and spandex, which do not decompose, adding to the growing problem of global textile waste. The environmental footprint of shipping millions of products worldwide further exacerbates the issue. In 2023, the fashion industry was responsible for 10% of global carbon emissions, with fast fashion contributing significantly to this figure.
Opportunities and Responsibilities for Arab Economies
For bankers and economists in the Arab world, these developments present both opportunities and challenges. The growth of e-commerce platforms like SHEIN offers potential investment opportunities in the technology and logistics sectors. For example, the Middle East’s e-commerce market is projected to reach $49 billion by 2024, highlighting significant growth potential. Investing in infrastructure to support this growth, such as advanced logistics and warehousing solutions, could yield substantial returns.
However, the ethical considerations surrounding labor practices and environmental sustainability cannot be ignored. As investors and policymakers, there is a need to balance the economic benefits of supporting burgeoning e-commerce platforms with the responsibility to promote sustainable and ethical business practices. Encouraging local startups and businesses to adopt sustainable practices and investing in technologies that reduce environmental impact can help mitigate some of the negative consequences associated with ultra-fast fashion.
Conclusion
In conclusion, the rise of SHEIN symbolizes the transformative power of online shopping and the competitive dynamics between Chinese and Western companies in the fast-fashion industry. As the retail landscape continues to evolve, stakeholders in the Arab world must cross these changes with a strategic and informed approach, balancing economic growth with ethical and environmental considerations. The future of retail lies in the confluence of technology, consumer behavior, and responsible business practices, a model that will shape the global economy in the years to come.
The rapid growth of e-commerce and the dominance of companies like SHEIN present both opportunities and challenges for the Arab world. By understanding these dynamics and making informed, strategic investments, bankers and economists can help ensure a sustainable and prosperous future for the region.
Eighty years ago, the Bretton Woods Conference laid the foundation for the global economic and financial architecture that would shape international cooperation for decades. However, the institutions established then—the International Monetary Fund (IMF) and the World Bank—now appear increasingly inadequate in addressing the complex challenges of the 21st century. In light of evolving global economic realities and development priorities, radical reform is imperative. Here, we highlight eight priorities essential for constructing a monetary and economic order suitable for our time.
Giving Developing Economies a Voice
Since 1944, the global economic power landscape has shifted significantly, with emerging markets and developing economies now wielding considerable influence. Nevertheless, the quotas and voting systems at the Bretton Woods institutions remain skewed heavily in favor of advanced economies. For instance, countries like China and India, despite their substantial economic growth, still have disproportionately low voting power compared to their economic size. This imbalance not only undermines these institutions’ legitimacy but also hampers their effectiveness. It is crucial to reallocate quotas and voting shares and adopt a double-majority leadership selection procedure to ensure more equitable representation.
Strengthening the Global Financial Safety Net
The Global Financial Safety Net (GFSN)—the network of institutions providing critical financing in times of crisis—requires significant strengthening. Currently, the GFSN falls short in both the support it offers and its structural equity, leaving developing countries particularly vulnerable. For example, during the COVID-19 pandemic, many developing nations struggled to secure the necessary funding to cope with the economic fallout. Enhancing and equalizing the GFSN would better protect nations against climate shocks and other crises, enabling them to focus on local development.
Fair and Swift Sovereign-Debt Resolutions
An international mechanism for fair and swift resolutions to sovereign-debt crises is essential. An independent institution, detached from creditors and debtors, should be created to ensure equitable treatment. The ongoing sovereign-debt crisis in many parts of the Global South exemplifies the need for such a mechanism. This crisis obstructs vital investments in climate action and the United Nations Sustainable Development Goals (SDGs). Immediate solutions must be implemented to alleviate this burden and enable sustainable development.
Scaling Up Climate Finance
Climate finance must be significantly increased, aligning all financial flows, including lending by international financial institutions, with the Paris climate agreement goals. For example, the Green Climate Fund, designed to support developing countries in climate adaptation and mitigation, remains underfunded. International standard-setting bodies must commit to addressing climate-related financial risks and supporting this alignment to ensure sustainable progress.
Expanding the Role of Development Banks
The role of development banks—international, national, and subnational—must be significantly expanded. Climate-change adaptation and mitigation will necessitate vast investments beyond the capacity of commercial financial institutions alone. Public development banks and funds are thus essential for financing structural transformation and sustainable development. Multilateral development banks (MDBs) and development finance institutions (DFIs) must collaborate closely with their national counterparts to maximize their impact. For instance, the European Investment Bank has successfully partnered with national banks to fund renewable energy projects across Europe.
Progressing Toward a Multilateral Currency System
Progress toward a multilateral currency and reserve system centered on the IMF’s Special Drawing Rights (SDRs) represents the sixth priority. The current system, dominated by the US dollar, grants the Federal Reserve outsized influence over global monetary conditions. A more stable system would involve the IMF regularly issuing SDRs to meet global foreign-exchange reserve demands, with automatic allocations during crises. Additionally, MDBs and DFIs should offer financing in local currencies to mitigate currency risk for recipient countries. For instance, financing African infrastructure projects in local currencies would reduce exchange rate volatility risks.
Managing Capital Flow Volatility
To manage capital flow volatility, the IMF and regional financial institutions should develop policy-coordination mechanisms. Introducing an international financial-transaction tax could help limit disruptions from short-term capital flows. The substantial revenues generated by such a tax could then finance the SDGs and climate initiatives. For example, a small tax on global financial transactions could generate billions annually, funding renewable energy projects and poverty alleviation programs.
Fortifying the International Tax Architecture
The international tax architecture needs fortification to support equitable, inclusive, and sustainable development. Greater tax transparency and enhanced mechanisms for cross-border sharing of financial information could boost domestic tax revenues. Implementing a binding UN Framework Convention on Taxation, coupled with measures to combat illicit financial flows, would provide new development finance sources and reduce reliance on official development assistance. For instance, curbing tax evasion by multinational corporations could unlock significant resources for public investment in developing countries.
A Call for Collective Action
The 1944 Bretton Woods Conference was a landmark in collective action. Today, we stand at the brink of another such moment. A new, forward-looking vision for the global financial architecture is urgently needed. It is time for world leaders to advance a reformed system that meets the demands of the 21st century, ensuring sustainable and inclusive growth for all.
