Magazine Articles

July 15 2024

EU Election 2024: Worldwide Impact and The Future of the EU

BY DR SOHA MAAD

INTRODUCTION

This article presents a comprehensive overview of the European Union (EU) election ecosystem. The article sheds lights on the preliminary results of the 2024 EU election and its outcome and assesses the impact of the EU election on markets, global trade, banks, climate policies, EU defence spending, and EU integration. The article concludes with an outlook on the future of the EU and its forthcoming agenda.

EU ELECTION ECOSYSTEM

In the European Union (EU) 373 million voters choose 720 Member of the European Parliament (MEPs) in the Brussels bubble. This is how the EU election works and why it matters. With 373 million eligible voters, considerably more than the 233.5 million in the United States (US) in 2022, the EU election is a big deal.

In 27 countries, voters headed to the ballot boxes between 6 and 9 June 2024 to choose the next European Parliament. The winning 720 MEPs will have an important role running the EU, working on laws ranging from emissions targets to bank rules.

The first crucial job of the newly elected Parliament is to approve or reject the 27 people who will run the EU for the next five years.

The year 2024 election is significant as there is likely to be a sharp political shift to the right. That means the next five years could see a movement away from the EU’s environmental priorities toward more support for manufacturing, security and agriculture, and a tougher stance on migration.

The bigger the EU country, the more seats in the hemicycle chamber. German MEPs get 96 seats and the French get 81, while Malta, Cyprus and Luxembourg only get six each.

The European Parliament is based in both Brussels and Strasbourg, with MEPs doing the bulk of their committee work in Belgium, and most of the monthly sessions where they actually vote on laws in France.

CHOOSING THE EU NEXT LEADERS

The next chief of the European Commission, the executive body that proposes new EU laws, is supposed to come from the political grouping that wins the most seats.

After the election, the new European Parliament must approve or reject the nominees for Commission president and 26 other national commissioners, who will lead the EU for the next five years.

The commissioners (one from each country) oversee core EU policy areas including global trade deals, farm subsidies, antitrust fines against US tech giants like Google and Apple and the potential enlargement of the bloc to include Ukraine.

ROLE OF THE EUROPEAN PARLIAMENT

The European Parliament is one of the three main EU institutions, and the only one that is directly elected. The other two institutions are the Council, where the ministers and heads of government meet, and the European Commission, the bloc’s executive arm.

When MEPs get into Parliament, they find like-minded politicians from other countries and form political groups.

Currently there are seven groupings: The Left, the Greens, the Socialists & Democrats, Renew Europe, the European People’s Party, the European Conservatives and Reformists and the Identity and Democracy group.

The winner of the election is the group that has the most seats after the poll, and that is important because the EU leaders are obliged, according to the EU’s treaties, to take the election results into account when they put forward a name for the European Commission president.

KEY PERSONS IN 2024 EU ELECTION

Ursula Von der Leyen, who is European Commission president since 2019, is running for a second term of European Commission presidency.

The main rival is Nicolas Schmit who has been traveling across Europe connecting with Socialist and center-left voters, arguing for better housing, workers’ rights and not backtracking on the Green Deal.

European Parliament President Roberta Metsola, has been touring the EU to get out the vote, making a particular effort to attract youngsters to cast their ballots.

TURN OUT AT THE 2024 EU ELECTION

The 2024 EU election failed to draw the crowds, and turnout was lower than it is for national European election bringing with it a real legitimacy problem for the EU. The EU election typically sees lower turnout in Central and Eastern Europe than in richer northern and western countries.

Turnout by country in percentage points


Country	Percentage (%)
European Union	51.01%
Austria	56.30%
Belgium	89.82%
Bulgaria	33.79%
Croatia	21.35%
Cyprus	58.86%
Czechia	36.45%
Denmark	58.25%
Estonia	37.60%
Finland	40.40%
France	51.50%
Germany	64.78%
Greece	41.39%
Hungary	59.45%
Ireland	49.84%
Italy	48.31%
Latvia	33.82%
Lithuania	28.35%
Luxembourg	82.29%
Malta	73.00%
Netherlands	46.20%
Poland	40.65%
Portugal	36.54%
Romania	52.42%
Slovakia	34.38%
Slovenia	41.45%
Spain	49.21%
Sweden	50.70%

PRELIMINARY RESULTS OF THE 2024 EU ELECTION

The signs so far suggest that the European Parliament is in for a significant rightward shift.

IMPACT ON MARKETS

Reuters experts see that gains for the far-right in European Parliament election that prompted French President Emmanuel Macron to call a shock national vote puts the focus squarely back on political risks in Europe that financial markets had long put on the backburner.

The euro, French stocks and government debt were all hurt as investors assessed whether the far-right can repeat their success in French election and how much sway far-right parties can have on the new European Union executive.

Further economic integration may be slowed down instead of being accelerated with the EU’s rightward shift.

Barclays’s head of European equity strategy expects banks and utilities to bear the brunt of the uncertainty. Another concern is that populist parties could push for a bank tax which may also be creating unease.

Standards and Poors (S&P) cut France’s credit rating. The risk is a government less likely to comply with EU rules on keeping deficits in check, according to Deutsche Bank, with a strong showing for the Socialist party.

The French/German 10-year bond yield gap was 7 basis points wider. Experts expect some underperformance of French assets and by extension, some underperformance of European assets.

IMPACT ON EUROPE CLIMATE POLICIES

The Greens were one of the biggest losers of the 2024 EU election. The shift to the right is unlikely to undo existing climate policies, but could make it harder to pass new ones and add loopholes to weaken laws that are due to be reviewed.

IMPACT ON EUROPE GLOBAL TRADE

Parliament’s rightward shift could have an impact on Europe global trade. The EU is already planning to impose tariffs on Chinese electric vehicles.

According to Commerzbank, the political move to the right in the European Parliament and the outcome of new parliamentary election in France will undoubtedly lead to more trade barriers between the EU and China. Any retaliation would hurt European auto stocks.

IMPACT ON EUROPE DEFENCE SPENDING

Since Russia’s invasion of Ukraine, pressure on Europe to raise defence spending has mounted. While member states are primarily responsible for defence spending, further joint EU funding for selective purposes such as defence is expected. The bloc has also broached the idea of a new 100-billion-euro defence fund. Any far-right opposition to further fiscal integration could defeat those hopes.

There is also uncertainty over what the rise of the far-right in Europe would eventually mean for support for Ukraine, as markets grapple with a flurry of geopolitical risks.

IMPACT ON BANKS

According to Euronews, despite the meteoric performance of the EU banking stocks, the sector may encounter challenges amid the EU election, with the joint deposit insurance policy still unresolved.

Big European banks have been experiencing robust growth due to a resurgence in deal-making and high investment banking revenue. The Euro Stoxx banking index (SX7E) is up 19%, while the Euro Stoxx 600 Index (SXXP) rose nearly 9% in 2024. The index has also beaten its United States US peer, the Standard & Poor’s Depositary Receipts SPDR Select Sector Fund (XLF), which climbed 9% year-to-date.

The imminent EU Parliamentary Election may bring uncertainties to the banking sector. The new leadership is yet to address a joint deposit insurance policy that had been raised again by the incumbent ruling party.

In April 2024, the European Parliament body approved a plan to establish a joint deposit insurance pool for the European Union’s (EU) banks. This was in response to rising banking system risks following the collapse of United States US regional banks and Credit Suisse’s failure in 2023. The measure aims to establish a broader European Deposit Insurance Scheme to implement joint deposit protection.

European leaders recognised the need to establish a banking union in response to the global financial crisis (GFC) in 2008, with the goal of enhancing the stability and integrity of the banking system within the European Union (EU), especially within the Eurozone. The joint deposit insurance scheme, introduced in 2015, constituted one of the three pillars in the framework of the European Banking Union. These three pillars encompass the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), and the European Deposit Insurance Scheme (EDIS).

While the first two parts were implemented in 2013 and 2014, the joint deposit insurance scheme has been controversial, posing a roadblock for the unity of cross-border banks. The joint deposit insurance aims to provide liquidity support to scheme participants, with all other contributors obliged to lend funds if requested by the board. It grants authority to the single resolution board to utilise and manage the fund.

European banks have made significant progress since the European debt crisis between 2008 and 2012. According to a report by Bloomberg, 71% of European banks surpassed market expectations in their first-quarter earnings in 2024.

Spanish banks have demonstrated particular strength as they benefited from higher interest rates, thereby boosting their lending income. Over the past decade, banks in the country have managed to enhance their efficiency by reducing staff and branches.

The revenue of the Spanish flagship lender, Santander jumped 10% year on year in the first three months of 2024, driven by growing lending income due to the high interest rate.

BANKS RISKS AHEAD

While banks may maintain their growing momentum, a potential risk may be ahead amid the outcome of the 2024 EU election. Banking systemic stability can be challenged during a time when there is no integrated solution in response to a “bank-run” type of crisis.

THREAT TO EUROPEAN INTEGRATION

During the COVID-19 pandemic the EU took unprecedented steps towards a fiscal union with an 800-billion-euro recovery fund, with France a key player in making that happen. A rightward shift in that country and beyond may weaken the case.

The risk premium on bonds issued by Italy, a key beneficiary of the pandemic recovery programme, widened but remains well contained.

Citi experts see that longer-term, diminished prospect, for programmes similar to the recovery fund would imply a higher structural risk premium on the bonds of the bloc’s high debt countries.

MAIN ISSUES ON THE EU FUTURE AGENDA

While each country has its own national concerns, there are some general themes on the EU future agenda:

Russia’s war in Ukraine, and how to boost the EU’s own defense capacities;
The sluggish EU economy;
How to make the EU’s ambitious climate and environment plans compatible with the interests of workers such as farmers and traditional industrial manufacturers;
How to make the EU more competitive on the world stage;
The EU’s recent migration and asylum pact;
The rise of the far right.

FUTURE OF THE EU AFTER 2024 ELECTION

The 2024 European election opens the next chapter for the European Union. The newly-elected Members of the European Parliament (MEPs) will take a number of key decisions on who will head EU institutions and resume Parliament’s work.

The first plenary session of the new legislative term will take place from 16 to 19 July in Strasbourg. Before that session, the newly-elected Members will form political groups based on shared political ideas. At the first plenary, the Parliament will elect its new President, vice-presidents and quaestors as well as decide on the number of MEPs who will be sitting in each parliamentary committee. At a later stage, MEPs will vote to elect a new President of the European Commission. Then they will assess candidates for commissioners through public hearings. The new Commission will need to secure Parliament approval in a plenary vote to take office.

June 10 2024

Building Economic Stability: The Role of Families and Arab Banks

Empower Families to Thrive: As family structures evolve, governments must shift social protection policies to strengthen family bonds and promote economic resilience.
Intergenerational Solidarity Matters: Robust family connections serve as natural buffers against economic shocks, fostering stability and cohesion amid global challenges.
A New Role for Banks: Arab banks can drive growth by supporting family-centric initiatives, enhancing economic stability and social cohesion in the region.

In today’s rapidly evolving world, the concept of family is undergoing significant transformations. Social-protection programs, historically designed to reduce family poverty, must adapt to these changes. Governments should focus on empowering families to act as natural buffers against economic and social shocks by promoting policies that foster intergenerational integration and solidarity. This shift is crucial for building economic resilience and social cohesion, especially in the face of unprecedented global challenges.

The Need for a New Approach

The 30th anniversary of the United Nations’ International Year of the Family (IYF) marks a pivotal moment to revisit and rethink social-protection strategies. Over the past three decades, demographic shifts, technological advancements, migration, urbanization, and climate change have dramatically altered societies worldwide. Responding effectively to these changes requires a departure from traditional social protection frameworks that treat families as static demographic categories. Instead, policies should strengthen the agency of families, enabling them to act as cohesive units capable of withstanding and recovering from economic and social disruptions.

Current Social Protection Frameworks

Since the adoption of the International Labour Organization Convention 102 in 1952, which sets minimum standards for family benefits, many countries have implemented various social-protection measures. These include periodic cash transfers, in-kind assistance, and other family-sensitive support like medical care, school tuition, and food rations for female-headed households. In the European Union, family and children benefits accounted for 8.3% of total social benefits expenditure in 2020, with some countries like Poland and Luxembourg dedicating as much as 16.2% and 15.7%, respectively. More than 120 low- and middle-income countries have also adopted cash-transfer programs to support poor families.

Towards a Holistic Approach

While these measures have alleviated family poverty and improved outcomes such as nutrition and education, a more holistic approach is necessary. Research indicates that strong family ties significantly contribute to economic resilience. For instance, in countries with robust family connections, such as Italy and Spain, families help buffer consumption losses during periods of unemployment. This familial support acts as a form of insurance against income fluctuations, fostering economic stability.

The Role of Family Solidarity

As climate change intensifies and the global push towards net-zero emissions continues, the importance of family solidarity cannot be overstated. Families serve as vital sources of social cohesion, mediating between individuals and the state and pooling resources across generations. The rise of intergenerational living arrangements, even in developed countries like the United States, underscores the growing relevance of family-based support systems. Policymakers can encourage such integration through tax benefits, paid family leave, and support for intergenerational care.

Policy Recommendations

To promote intergenerational solidarity, governments can implement policies that support multigenerational living. Housing interventions, such as Singapore’s Multi-Generation Priority Scheme and Canada’s On-Reserve Residential Rehabilitation Assistance Program, facilitate extended families living near each other, providing a stable environment for all members. These initiatives reflect the concept of economies of scope, where a single policy intervention addresses multiple social issues.

Significance to the Arab Banking Sector

For the Arab banking sector, understanding and supporting family-centric social protection policies can lead to enhanced economic stability and growth. Banks play a crucial role in financing and promoting policies that foster intergenerational integration. By developing financial products and services tailored to the needs of multigenerational families, banks can contribute to social cohesion and economic resilience. Moreover, supporting housing projects and family-centric community initiatives can help mitigate the impact of economic and environmental shocks on families.

As we navigate an era of rapid change, it is essential for Arab bankers to recognize the evolving nature of families and the critical role of intergenerational solidarity. By aligning financial strategies with these insights, the banking sector can foster a more resilient and cohesive society, ultimately contributing to long-term economic stability in the Arab world.

June 10 2024

The Global Gold Rush: An Ideal in Uncertain Times

Global Instability Sparks Gold Rush: Geopolitical tensions and fiscal uncertainties drive gold prices to record highs, showcasing its value as a safe haven.
Central Banks Lead the Charge: Countries like China, Russia, and Poland boost gold reserves, seeking economic security amid global turmoil.
Relevance for Arab Bankers: Understanding the gold rush dynamics helps Arab bankers navigate economic uncertainties and protect financial stability.

Introduction

In the midst of a shifting global landscape, the recent surge in gold prices has captured the attention of economists and financiers worldwide. As geopolitical tensions rise and fiscal uncertainties loom, gold has once again asserted its role as a cornerstone of monetary stability and economic security. For Arab bankers, understanding the driving forces behind this renewed interest in gold is crucial for navigating these turbulent times.

A Return to Gold

Over fifty years ago, the global financial system experienced a seismic shift when US President Richard Nixon ended the dollar’s fixed-rate convertibility into gold. This marked the beginning of the fiat currency era, moving the world away from its historical reliance on precious metals. However, in recent years, the stability of fiat money has been increasingly questioned due to fiscal challenges and technological advancements such as blockchain and distributed ledger technologies. These factors have contributed to gold prices reaching unprecedented highs, surpassing $2,400 per ounce.

The Illusion of Stability

Traditionally, gold has been viewed as a stable investment, ideal for preserving value over the long term. However, this perception belies the reality that gold prices often reflect global instability. Periods of relative peace and stability, such as the 1990s, saw gold prices slump. In contrast, the metal’s value surged following the 2008 financial crisis, the COVID-19 pandemic, and more recently, reflecting a world grappling with heightened uncertainty.

Central Banks Leading the Charge

Central banks around the world have been at the forefront of the heightened demand for gold. China’s gold reserves, for instance, have grown dramatically from 395 tons in 2000 to 2,260 tons today. Notably, significant increases in China’s gold reserves occurred in 2009 and 2015, pivotal years that marked a growing skepticism towards globalization. Similarly, Russia and Turkey have amassed substantial gold reserves since 2015, a trend mirrored in the European Union by countries such as the Czech Republic and Poland.

Security Concerns Driving Demand

Security concerns are a key factor driving the current gold rush. When the Czech Republic joined NATO in 1999, it sold almost its entire gold stock, signaling confidence in NATO’s security guarantees. However, recent years have seen a reversal, with the Czech National Bank acquiring 19 tons of gold in the last quarter of 2023, aiming to increase reserves to 100 tons. Poland, facing proximity to Russia, has also augmented its gold reserves, currently holding 360 tons as a hedge against potential threats.

Historical Context

The association of gold with security has deep roots, particularly in Poland. After World War I, Poland’s new currency, the złoty, symbolized the nation’s rebirth. During World War II, Poland’s dramatic evacuation of its gold reserves to France underscored gold’s role in national stability. Similarly, the gold standard, established in the 1870s, provided a foundation for international monetary order following periods of conflict and civil war.

Relevance to the Arab Banking Sector

For Arab bankers, the global gold rush has direct implications. The stability of regional economies is often intertwined with global economic trends. The potential dethronement of the US dollar, rampant speculation, and the rise of alternatives like the BRICS bank underscore the need for diversified portfolios that include gold. As countries like China and Russia move to secure their economic futures with gold, Arab bankers should consider similar strategies to hedge against global uncertainties.

Conclusion

In an era of unprecedented change and uncertainty, gold stands out as a beacon of stability. For Arab bankers, understanding the dynamics driving the global gold rush is essential for making informed decisions. By recognizing gold’s role in ensuring monetary stability, the Arab banking sector can better navigate the complexities of today’s economic landscape, safeguarding their financial futures in the process.

June 10 2024

The Global Economy: Crossing Through Emerging Challenges

Geopolitical tensions and economic fragmentation threaten global market stability
Geopolitical rivalries, reduced support for developing economies, and climate risks undermine global economic integration.
Arab bankers must advocate for global cooperation and resilience in a changing economic landscape.

As global leaders remain focused on geopolitical tensions, social issues, and political dynamics, the critical aspect of global economic integration demands renewed attention. This element is vital for the stability of the global economy, which, in turn, significantly impacts banking sectors worldwide, including in the Arab world.

The current economic landscape presents a complex picture. On one hand, global markets, particularly those driven by technology and energy sectors, are experiencing high short-term profits. On the other hand, recent discussions at significant economic gatherings, such as the Spring Meetings of the World Bank and the International Monetary Fund (IMF), have highlighted growing concerns. These institutions have underscored the increasing risks associated with economic fragmentation.

Historically, the concept of an interdependent global economy within a system of nearly 200 sovereign states has been both ambitious and challenging. This balance was disrupted in the 1930s but was meticulously rebuilt after World War II on the foundations of agreed-upon rules, shared institutions, mutual understanding, and crisis management. For decades, economic policies were carefully separated from security concerns, a distinction that became crucial as diverse regimes integrated into the global economy in the 1990s.

However, today, these foundations are showing signs of strain. The momentum of economic integration appears to be slowing, with significant implications. Gita Gopinath, the IMF’s first deputy managing director, has pointed out that economic fragmentation could reduce the efficiency gains from trade, increase macro-financial volatility, diminish capital flows to the Global South, and undermine global public goods such as climate action.

Several factors contribute to this trend. Rising geopolitical tensions have decreased trust and reduced the willingness of key countries to cooperate. A potential crisis over Taiwan, amidst the Sino-American rivalry, could impact the global economic system. Additionally, nations are increasingly allowing security considerations to influence economic policies, aiming to secure inputs, infrastructure, and technologies. While these actions are understandable, they could lead to a rapid and complex process of deglobalization, posing systemic risks.

A deepening divide between the Global North and the Global South further intensifies economic fragmentation. Financial support for developing economies has decreased at a time when many are grappling with the effects of the COVID-19 pandemic and escalating climate challenges. This has interrupted the trend of economic convergence and increased discontent in the Global South. Net financial flows to these regions turned negative in 2023, worsening in 2024. This financial strain partly explains the reluctance or refusal of many Global South countries to align with the West on critical geopolitical issues.

Climate risks are also rising, with frequent extreme weather events posing challenges. Countries are facing these threats without a global safety net, and rather than collaborating on green technologies, nations are competing for dominance. The rapid growth of artificial intelligence (AI) is another area where national competition is overshadowing the need for global cooperation. Effective regulations and policies are essential to ensure AI benefits all, and the Global South needs to be included in these regulatory efforts.

Despite these challenges, the global economic system has resilient elements. The Global South, as demonstrated by recent G20 presidencies from Indonesia, India, and Brazil, remains committed to interdependence and global governance. The private sector continues to exhibit interdependence, and dedicated international organizations, global education networks, and civil society remain active.

Nevertheless, potential challenges should not be underestimated. The coming period may bring various economic and social shocks. If leaders respond with competitive policies, the process of economic integration could face significant setbacks, which could be challenging for policymakers to manage.

For Arab bankers, understanding these global dynamics is crucial. The Arab banking sector is interconnected with global financial systems, and economic fragmentation poses risks to financial stability and growth. It is essential for Arab bankers to advocate for global public goods, enhance communication with international counterparts, and support initiatives promoting global economic integration. As key stakeholders in the global economy, Arab bankers have an important role in ensuring the global economic system remains robust and resilient amidst emerging challenges.

In conclusion, maintaining the stability of the global economy requires a collaborative approach and diplomatic efforts. By recognizing the interconnected nature of our world and working towards collective solutions, we can safeguard the global economic framework for future stability and prosperity.

June 10 2024

World Gold Resources

BY DR SOHA MAAD

Introduction

This article surveys world gold resources. It overviews resources from the World Gold Council, Gold Price Group, Kitco and the World Bank and International Monetary Fund (IMF). The gold resources surveyed are gold prices and charts, gold demand and supply, gold market structure and flows, gold mining, the use of gold in various domains and countries with largest gold reserves. The article concludes with future outlook on Union of Arab Banks plans to establish the Arab Gold Gateway, a unique digital portal to knowledge about gold resources tailored and customised to the need of the Arab world.

World Gold Council Resources

The world gold council is the world gold authority. It is a membership organisation that champions the role gold plays as a strategic asset, shaping the future of a responsible and accessible gold supply chain.

The world gold council team of experts builds understanding of the use case and possibilities of gold through research, analysis, commentary and insights. This drives industry progress, shaping policy and setting the principles for a perpetual and sustainable gold market.

The World Gold Council provides knowledge and statistics about the gold market structure and flows, gold trading–over-the-counter and exchanges. The global gold market structure and flows depicts sources of gold supply and of demand, with an indication of trading volumes, and the scale and composition of above-ground stocks.

Gold Price Group Resources

Gold price group mission is to provide accurate fast loading, gold price charts in ounces, grams and kilos in a wide range of national currencies for visitors from around the world. It also aims to provide gold prices from major Gold Dealers in the United States, Canada, UK and Australia to allow our visitors to locate the best gold prices on gold bullion.

KITCO Gold Resources

Kitco is the global precious metals authority and retailer of bullion products, recognized as the leading voice in commodities information providing best-in-class news, data and insights. Kitco’s media division is a precious metals, commodities and mining global authority, generating and distributing cutting-edge news, market insights and data to a global audience.

IMF Gold Resources

The IMF holds around 90.5 million ounces (or 2,814.1 metric tons) of gold at designated depositories.

Until the early 1970s, the IMF acquired its gold holdings through four main channels:

At the IMF’s founding in 1944, member countries paid 25 percent of their initial quotas in gold. They did the same with quota increases over the next three decades. These payments represent the largest source of the IMF’s gold.
Members normally paid all interest owed on IMF credit in gold.
Members also could use gold to repay credit extended by the IMF.
Members seeking to acquire another member’s currency could do so by selling gold to the IMF, as South Africa did in 1970–71.

World Bank Gold Resources

The world bank open data portal provides various statistics about gold reserves around the world.

Gold Demand

Gold has emotional, cultural and financial value and is bought by different people across the globe for different reasons, often influenced by national socio-cultural factors, local market conditions and wider macro-economic drivers. Gold’s diverse uses in jewellery, technology and by central banks and investors, mean different sectors of the gold market rise to prominence at different points in the global economic cycle.

Gold is bought by a diverse set of consumers and investors across the globe. Gold demand is driven by:

· Jewellery Demand: Gold jewellery represents the largest source of annual demand for gold per sector. This has declined over recent decades, but it still accounts for around 50% of total gold demand. India and China are by far the largest jewellery markets, together accounting for over 50% of the global total. The Asian and Middle Eastern markets are dominated by demand for purer, higher-carat gold.

· Gold Investment Demand: Gold has unique properties as an asset class. Modest allocations to gold can be proven to protect and enhance the performance of an investment portfolio, reducing volatility and minimising losses during periods of market shock.

· Central Bank Demand: Gold plays an important part in global central bank reserves, and they are significant holders of gold. The 2008 financial crisis prompted a fundamental shift in central bank behaviour towards gold, encouraging a reappraisal of its role and relevance in reserve asset management. Emerging market central banks have increased their official gold purchasing, while European banks have ceased selling, and the sector now represents a significant source of annual demand for gold.

· Gold in Technology Demand: Gold is used as an industrial metal in a broad range of applications, but demand is driven by the electronics sector which accounts for ~80% of gold used in technology.

Use of Gold In Various Application Domains

Gold is a remarkable metal with diverse applications across various domains:

· Jewellery Manufacturing: Approximately half of all gold mined is used in jewellery.

· Electronics: Gold is a crucial component in electronics due to its excellent electrical conductivity and resistance to corrosion. It is used in connectors, switches, and printed circuit boards.

· Computers: Gold is essential in computers for efficient signal transmission. It is used in connectors, relay contacts, and circuit boards.

· Dentistry: Gold alloys are used for dental restorations, including crowns. Their biocompatibility and durability are unmatched.

· Aerospace: Gold-coated surfaces protect spacecraft components from extreme temperatures and radiation in space.

· Awards and Symbols: Gold medals, Oscars, and Grammys symbolize achievement and excellence.

· Glassmaking: Gold is used for decorative glass gilding and leaf applications.

Gold Geographical Diversity

Gold is geographically spread in China, India, Turkey, and United States (US).

· China Gold: In China, gold is often gifted to younger members of the family for special occasions, and there is a tradition of giving gold to new born babies in the form of tiny necklaces or bracelets. Gold also has a special place in the Chinese New Year when ornate pieces of jewellery in 24 carat, often featuring zodiac symbols are purchased for their investment value as well as their beauty.

· India Gold: India is one of the largest markets for gold, and growing affluence is driving growth in demand. Gold has a central role in the country’s culture, considered a store of value, a symbol of wealth and status and a fundamental part of many rituals. Among the country’s rural population, a deep affinity for gold goes hand in hand with practical considerations of the portability and security of jewellery as an investment.

· US Gold: Weddings are a major driver of gold jewellery demand in the US. While wedding rings have been a part of Western European culture for centuries, the modern American tradition of the gold wedding band took off during the Second World War, when soldiers fighting overseas wore rings to remind them of their loved ones back home.

· Turkey Gold: Turkey, perhaps better than anywhere else, illustrates the broad role gold can play in modern society. Gold is embedded in Turkish life: merchants pioneered the use of gold coins in ancient Lydia, and today gold plays an important and innovative role in Turkey’s economy.

Gold Supply

Mine production accounts for the largest part of global gold supply, typically, 75% each year. However, annual demand requires more gold than is newly mined and the shortfall is made up from recycling.

Mine production does not respond to price changes quickly. There is usually a long lead time between exploring for new gold deposits and a mine entering into production. As it is virtually indestructible, nearly all of the gold ever mined is theoretically still accessible in one form or another and potentially available for recycling.

Gold mining is a global industry with operations on every continent except Antarctica, and gold is extracted from mines of widely varying types and scale.

At a country level, China was the largest producer in the world in 2022 and accounted for around 10 per cent of total global production.

Gold Mined Stock

The best estimates currently available suggest that around 212,582 tonnes of gold have been mined throughout history, of which around two-thirds has been mined since 1950. And since gold is virtually indestructible, this means that almost all of this metal is still around in one form or another.

Countries with Largest Gold Reserves

The United States holds the world’s largest stockpile of gold reserves by a considerable margin. The country’s government has almost as many reserves as the next three largest gold-holding countries combined (Germany, Italy, and France). Russia rounds out the top five. The International Monetary Fund (IMF) is one of the top gold reserve holders with 2,814.10 metric tons (3,102.01 standard tons).

Below we overview countries with the largest gold reserves in the world:

· United States: The United States holds 8,133.46 tons of gold in its reserves. During the height of the Bretton Woods international exchange system, when the US offered to house and protect other countries’ gold in exchange for dollars, it was reported that between 90% and 95% of the entire world’s gold reserves lay in American vaults. Decades later, the U.S. still holds the most. Gold makes up over 75% of its foreign reserves.

· Germany: As much as 3,352.65 tons of gold are held in Germany’s reserves. This represents two-thirds of its foreign reserves. The country’s government keeps its gold reserves in several locations, including: Deutsche Bundesbank in Frankfurt am Main, U.S. Federal Reserve Bank branch in New York, Bank of England in London, Banque de France in Paris.

· Italy: Italy falls in the third spot with 2,451.84 tons of gold. The eurozone crisis led some to call for Italy’s government to sell some of its gold reserves to raise funds, but no such plans ever materialized. The country stores the majority of its gold bullion, more than 87%, in the Bank of Italy’s head office and the United States. The remainder is divided between vaults in Switzerland the United Kingdom. According to the central bank, it stores gold in different locations for historical reasons and to minimize risk.

· France: With 2,436.97 tons, France has the fourth-largest gold reserves in the world. Former President of France Charles de Gaulle was partially responsible for the collapse of the Bretton Woods system when he called the US bluff and began trading dollars in for gold from the Fort Knox reserves. Then-president Richard Nixon, who knew that the fixed rate of $35 per gold ounce was too low, was eventually forced to take the US off the gold standard, ending the dollar’s automatic convertibility into gold.

· Russian Federation: Russia overtook China as the fifth-largest holder of the yellow metal in 2018 with 2,332.74 tons. Russia’s increase in its gold stores was seen as an attempt to diversify beyond American investments. Russia mainly sold US Treasury bonds to buy the bullion.

Gold Historical Value

Gold has long been viewed as one of the best stores of value. Gold is respected around the world for its value and rich history, which has been recognized by cultures for thousands of years. Throughout the centuries, people have continued to hold gold for various reasons. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal we fall back on when other forms of currency don’t work, which means it always has some value as insurance against tough times.

Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost of living increases. Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high-inflation years. This is because when fiat currency loses its purchasing power to inflation, gold tends to be priced in those currency units and thus tends to rise along with everything else. Moreover, gold is seen as a good store of value, so people may be encouraged to buy gold when they believe that their local currency is losing value.

Gold retains its value not only in times of financial uncertainty but also in times of geopolitical uncertainty. It is often called the “crisis commodity” because people flee to its relative safety when world tensions rise. During such times, gold often outperforms other investments. Its price often rises the most when confidence in governments is low.

Weakness of the US Dollar

Although the US dollar is one of the world’s most important reserve currencies, when the value of the dollar falls against other currencies, as it did from 1998 to 2008, this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled from 1998 to 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling from 2008 to 2012, rising above the $2,000 mark. The decline in the US dollar then occurred for a number of reasons, including the country’s large budget and trade deficits and a large increase in the money supply.

Union of Arab Banks Gold Gateway

The Union of Arab is establishing the Arab Gold Gateway, Arab Gold Gateway, a unique digital portal to knowledge about gold resources tailored and customised to the need of the Arab world.

The Union of Arab Banks Arab Gold Gate is a leading digital platform in the Arab world and in multiple languages

The Arab Gold Gateway is the first in the Arab world to provide gold tracking, learning and trading services and opens the door for gold syndicates and traders, mineral exploration companies and central banks to join.

The Arab Gold Gateway services include:

Gold Price Tracking
Monitoring gold reserves at central banks
Tracking the volume of gold usage in various sectors
Tracking the world’s gold production
Gold Mine Statistics
Tracking gold-denominated cryptocurrencies
History of Gold Systems
Research on the development of gold-backed digital currencies
Development of sandboxes to develop gold-backed financial products
Conferences and seminars
Newsletter
Publications
Gold Trading
Trading gold-backed digital currencies.

May 17 2024

Crypto Adoption in Turkey

BY DR SOHA MAAD

Introduction

Turkey is ranking high in crypto adoption. Crypto industry in Turkey is growing driven by continued innovation better infrastructure, more use cases, and a diverse ecosystem of distributed applications DApps. Institutional participants in Turkey are increasingly recognizing the potential and opportunities of digital assets from investing in crypto to leveraging blockchain technology for their operations and institutions.

This article overviews the major factors affecting crypto adoption in Turkey, the growth of crypto industry in Turkey and best practices to share with other countries. The article also highlights challenges and opportunities for the crypto industry in Turkey.

Turkey evolving crypto landscape

Binance Research report exploring Turkey’s evolving crypto landscape highlighted the following key findings:

Turkey has one of the highest cryptocurrency adoption rates in the world, with crypto being one of its most popular asset classes to invest in. Turkish users also have a positive outlook on crypto in the near and long term.
Often hailed as a crossroads where history meets innovation, Turkey stands as one of the top adopters of digital assets in the world. The country’s emerging status as a crypto hub speaks to its fierce appetite for Web3 innovation. In Turkey, the financial world is increasingly embracing the future of blockchain technology.

Crypto Adoption in Turkey

Turkey has one of the highest crypto adoption rates in the world. According to data from HedgewithCrypto, adoption rates in the country have more than doubled in the past three years, increasing from 16% to 40% of the population. It is estimated that two in every five citizens hold crypto. Based on data from Chainalysis, Turkey is also the fourth-largest crypto market by estimated transaction volume globally, ahead of other major economies.

Top reasons for investing in crypto in Turkey

Binance survey about the motivations behind investing in crypto in Turkey indicated that the potential for profits was the most compelling reason. Operational factors related to the ease and accessibility of investing also stood out as major motivators. This highlights the perceived benefits of this innovative asset class.

Challenges facing investment in Crypto in Turkey

Binance survey about factors against investing in crypto in Turkey reveals that risk was the main concern. The perception that cryptocurrencies are risky continues to be the main hurdle for adoption. The second and third most common areas of concern, namely insufficient knowledge and a lack of safety, also play a role in this perception.

Revenue in the Cryptocurrencies market in Turkey

According to Statista Market Insights, revenue in the Cryptocurrencies market in Turkey is projected to reach US$139.2m in 2024. Revenue is expected to show an annual growth rate (compound annual growth rate (CAGR) 2024-2028) of 10.44% resulting in a projected total amount of US$207.1m by 2028. The average revenue per user in the Cryptocurrencies market in Turkey amounts to US$10.7 in 2024.

Global data shows that the highest revenue is reached in the United States (US$23,220.00m in 2024). In the Cryptocurrencies market in Turkey, the number of users is expected to amount to 15.25m users by 2028. User penetration will be 15.01% in 2024 and is expected to hit 17.30% by 2028.

Crypto adoption and Inflation in Turkey

According to KuCoin, as inflation is rising in Turkey, crypto adoption is also rising in Turkey. Over the last year and a half, crypto adoption in Turkey has increased from 40 percent to 52 percent of the Turkish population.

The growing number and percentage of crypto investors in Turkey indicate an increasing interest and acceptance of crypto as a hedge against inflation, especially with the Turkish lira losing over 50% of its value against the United States US dollar

According to KuCoin survey, 58 percent of respondents said that their primary reason for investing in cryptocurrency is to accumulate wealth over the long term, while 37 percent aim to use it as a store of value. Regarding which cryptocurrencies people are investing in, Bitcoin leads the pack: 71 percent of investors said they own Bitcoin, while 45 percent own Ethereum and other stablecoins.

Although men still are more likely to invest in crypto, young women in Turkey are increasingly investing in crypto. In Turkey, 47 percent of crypto investors between the ages 18 and 30 are female.

central bank digital currency (CBDC) in turkey

The Turkish government has been experimenting with a central bank digital currency (CBDC) called the Digital Lira. A deep and comprehensive understanding of the crypto community is crucial in designing a more encompassing and accountable financial ecosystem in Turkey. As the crypto environment keeps gathering pace, understanding crypto users’ actions, inclinations, and driving forces across various regions are becoming increasingly essential in developing a central bank digital currency (CBDC) for Turkey.

Outlook of Crypto Industry in Turkey

A majority of Turkish investors are optimistic about the outlook of the crypto industry in the country. Many investors in Turkey believe that crypto prices will increase in the future. Moreover, the number of crypto investors is expected to grow in the next five years, thus raising further the level of crypto adoption in Turkey and raising as well the use of crypto currency as a hedge against inflation. Turkey will continue in its endeavour to launch the Central Bank Digital Currency Digital Lira

May 17 2024

The Role of Central Banks in a Cashless World

Introduction

Money has changed a lot over time. Think about how people used to trade goods for other goods, like swapping vegetables for tools. Now we have digital money that we can send with a tap on our phones. This shift has made us rethink how money works in our economy.

Economists, the people who study how money and the economy work, have had a lot to say about money over the years. They’ve come up with different ideas about how money affects our lives and our businesses. Some of these ideas are really old, like ones from Adam Smith, and some are more recent, like the ones from John Maynard Keynes.

Recently, we’ve seen a big change with the rise of digital money. Instead of using coins and paper bills, many people now use credit cards, mobile apps, and online transfers to pay for things. This change is shaking up how we think about money and how we use it in our everyday lives.

In this article, we’re going to explore the history of money and how our ideas about it have evolved over time. We’ll also look at how digital money is changing things and what it means for central banks—the big banks that manage money in a country. By understanding these changes, we can better grasp where our economy is headed in this digital age.

Evolution of Economic Thought

Throughout history, economists have grappled with the complexities of money and its role in shaping economic outcomes. The evolution of economic thought mirrors the changing nature of economic systems and the challenges they pose.

Early economic thinkers, such as Adam Smith and David Ricardo, laid the groundwork for classical economic theory, which emphasized the role of money as a medium of exchange and store of value. Their theories focused on the mechanics of markets and the forces of supply and demand.

However, as industrialization took hold in the 19th century, new economic realities emerged, prompting a reevaluation of traditional theories. The advent of banking systems and the expansion of credit gave rise to new questions about the nature of money and its impact on economic activity.

In the early 20th century, the theories of John Maynard Keynes revolutionized economic thought, particularly in response to the Great Depression. Keynes challenged the classical view of money and advocated for active government intervention to manage economic fluctuations. His ideas laid the foundation for modern macroeconomic theory and the role of fiscal policy in stabilizing economies.

Building upon Keynesian economics, Hyman Minsky further advanced our understanding of money’s structural influence on economic stability. Minsky’s financial instability hypothesis highlighted the inherent instability of financial markets and the role of speculation and leverage in driving economic cycles.

Together, the contributions of Keynes and Minsky reshaped economic discourse, emphasizing the importance of understanding money’s role in shaping economic outcomes. Their insights underscore the dynamic and complex nature of monetary systems, challenging economists to develop more nuanced models and policy frameworks.

In the digital age, the evolution of economic thought continues as economists grapple with the implications of digitalization on money and finance. The rise of cryptocurrencies and digital payment systems presents new challenges and opportunities, prompting economists to explore novel approaches to monetary theory and policy.

As we navigate the complexities of the modern economy, the evolution of economic thought remains an ongoing process, shaped by changing realities and new insights. By embracing a multidisciplinary approach and drawing upon the lessons of history, economists can continue to advance our understanding of money’s role in driving economic prosperity and stability.

The Rise of Digitalization and Cashless Transactions

The advent of digitalization has transformed the way we conduct transactions and manage finances, marking a significant shift in modern economic landscapes. With the proliferation of smartphones, internet connectivity, and digital payment platforms, cashless transactions have become increasingly prevalent in everyday life. This evolution has not only revolutionized the way individuals interact with money but has also reshaped the dynamics of entire economies.

One of the key drivers behind the rise of cashless transactions is the convenience and efficiency they offer. Digital payment methods such as mobile wallets, contactless cards, and online banking allow individuals to make transactions with ease, eliminating the need for physical currency. Whether it’s purchasing goods and services, transferring funds, or paying bills, cashless transactions provide a seamless and convenient experience for consumers.

Moreover, the adoption of cashless payments has been accelerated by advancements in technology and the growing acceptance of digital currencies. Cryptocurrencies, such as Bitcoin and Ethereum, have gained traction as alternative forms of payment, offering decentralized and secure transaction capabilities. While still in the nascent stages, cryptocurrencies represent a disruptive force in the financial landscape, challenging traditional banking systems and centralization.

The shift towards cashless transactions also holds implications for businesses and governments alike. For businesses, embracing digital payment methods can lead to cost savings, improved efficiency, and enhanced customer experiences. Cashless transactions streamline payment processes, reduce the risk of fraud, and provide valuable data insights for businesses to better understand consumer behavior.

On a broader scale, governments are increasingly recognizing the benefits of digitalization in promoting financial inclusion and combating illicit activities. Digital payment systems offer governments greater transparency and traceability in financial transactions, reducing the prevalence of cash-based informal economies and enhancing tax compliance. Additionally, digitalization enables governments to deliver social welfare programs more efficiently, reaching underserved populations with greater ease.

However, alongside the opportunities, the rise of cashless transactions also presents challenges and considerations. Concerns surrounding data privacy, cybersecurity, and digital divide disparities must be addressed to ensure the inclusive and secure adoption of digital payment systems. Furthermore, the reliance on digital infrastructure underscores the importance of resilience and redundancy measures to mitigate the risk of system failures or cyberattacks.

The Need for Proactive Market Shaping

As digitalization transforms economic landscapes, policymakers must adopt a proactive approach to market shaping. Understanding the structural impact of money and finance is essential for fostering economic stability and growth in the digital age. This requires policymakers to anticipate and respond to emerging trends and challenges effectively.

Central Banks in the Digital Age

Central banks, as guardians of monetary policy, play a critical role in navigating the transition to a cashless society. Traditionally tasked with maintaining price stability and financial stability, central banks now face new challenges and opportunities in a digitalized economy. Adapting to these changes requires central banks to reassess their roles and functions in the digital age.

Implications for Banking and Financial Inclusion

The digitalization of payment systems has the potential to democratize access to banking services and enhance financial inclusion. By leveraging digital infrastructure, banking competition can be fostered, and underserved populations can gain greater access to financial resources. This requires investment in technology and regulatory frameworks that promote accessibility and affordability.

Managing Economies in Crisis

In times of economic crisis, digital payment systems offer new tools for economic management. The structural component of capital becomes pivotal in crisis management strategies, allowing policymakers to deploy targeted interventions more effectively. This requires robust infrastructure and coordination between central banks and other stakeholders to ensure timely and effective responses to crises.

Future Directions and Concluding Remarks

As we look towards the future, it’s evident that the role of central banks will undergo further transformation in a fully digitalized economy. The implications for Arab central banks and commercial banks are particularly significant, given the unique economic and cultural context of the region.

In navigating this new terrain, central banks must adopt a forward-thinking approach that embraces innovation while safeguarding financial stability and inclusivity. This entails several key considerations:

Embracing Innovation: Central banks must remain at the forefront of technological advancements, embracing innovative solutions that enhance efficiency and accessibility in financial systems. This includes exploring emerging technologies such as blockchain and artificial intelligence to improve payment systems and strengthen cybersecurity measures.
Fostering Collaboration: Collaboration between central banks, governments, regulatory bodies, and private sector stakeholders will be essential in driving digital transformation. By working together, these entities can develop cohesive strategies and regulatory frameworks that promote innovation while mitigating risks.
Prioritizing Financial Inclusion: As digitalization accelerates, it’s crucial to ensure that no one is left behind. Central banks must prioritize financial inclusion, leveraging digital technologies to expand access to banking services and empower underserved communities. This may involve initiatives such as digital literacy programs and the development of tailored financial products and services.
Strengthening Regulatory Frameworks: With the proliferation of digital payment systems comes the need for robust regulatory frameworks to safeguard consumer protection, data privacy, and financial stability. Central banks must work proactively to establish clear guidelines and standards for digital transactions, while also fostering innovation and competition in the financial sector.
Adapting Monetary Policy Tools: In a cashless world, traditional monetary policy tools may need to be adapted to suit the digital landscape. Central banks must explore new ways of conducting monetary policy, taking into account the evolving nature of money and finance. This may involve leveraging data analytics and machine learning algorithms to enhance economic forecasting and decision-making processes.

In conclusion, the transition to a cashless world presents both challenges and opportunities for central banks and financial institutions in the Arab region and beyond. By embracing innovation, fostering collaboration, prioritizing financial inclusion, strengthening regulatory frameworks, and adapting monetary policy tools, central banks can navigate this transition successfully. The future of central banking lies in proactive market shaping, ensuring that the benefits of digitalization are realized while safeguarding financial stability and inclusivity for all.

May 17 2024

Building a Better Future: The Role of Direct Cash Transfers in Financial Inclusion

“Discover how direct cash transfers are revolutionizing poverty alleviation and financial inclusion, offering bankers and financiers a strategic opportunity to drive sustainable growth and make a tangible difference in communities worldwide.”

In our quest for global development, one challenge emerges large: extreme poverty. Despite steps forward, over 700 million individuals still cope with surviving on less than $2.15 a day. This sad reality demands innovative solutions that can swiftly propel us towards our goal of eradicating extreme poverty by 2030. Among these solutions, direct cash transfers stand out as a powerful tool for promoting financial inclusion and empowering marginalized communities worldwide.

The concept of direct cash transfers is straightforward: providing financial assistance directly to those in need. While this idea isn’t new, its potential impact is vast and scalable. During crises like the recent COVID-19 pandemic, cash aid has been a lifeline for millions, with one in six people globally receiving some form of cash assistance. This highlights the crucial role of direct transfers in providing immediate relief and fostering resilience in times of need.

Research from numerous studies reinforces the effectiveness of cash transfers in lifting households out of poverty. These transfers not only boost incomes but also lead to tangible improvements in education, health, and entrepreneurship. Importantly, they do not discourage work or lead to increased spending on harmful substances. Instead, they empower individuals to make meaningful choices and invest in their futures.

The rise of digital technology has transformed the delivery of cash transfers, making them more efficient and accessible than ever before. Innovations in mobile banking and digital identification systems have significantly reduced transaction costs and expanded the reach of cash transfers to even the most remote communities. For example, Togo’s Novissi program utilized mobile phone data to distribute $34 million to nearly a million beneficiaries during the pandemic, demonstrating the potential of technology to reach those in need.

Building on these successes, there is a compelling case for establishing a dedicated global fund focused on direct cash transfers to eradicate extreme poverty. This fund, similar to initiatives like the Global Fund to Fight AIDS, Tuberculosis, and Malaria, would mobilize resources from various sources to scale up cash transfer programs worldwide. By complementing existing interventions, such as education and healthcare, cash transfers can address the immediate needs of the poor while laying the foundation for long-term progress.

For bankers and financiers, embracing direct cash transfers offers both opportunities and challenges. On the one hand, it presents a chance to drive financial inclusion by extending banking services to underserved populations. As individuals gain access to digital payment platforms, they become integrated into the formal financial system, thereby expanding the customer base for banks and financial institutions.

Moreover, direct cash transfers have the potential to stimulate economic activity and foster local development. Every dollar transferred has a multiplier effect, injecting vitality into communities and creating opportunities for entrepreneurship and job creation. By partnering with governments and other stakeholders, banks can play a pivotal role in facilitating the efficient delivery of cash transfers and maximizing their impact on the ground.

In the Arab world, where financial inclusion remains a pressing issue, the adoption of direct cash transfers could be a game-changer. With a young and tech-savvy population, the region is well-positioned to leverage digital innovations for poverty alleviation and economic empowerment. By collaborating with governments and international organizations, Arab banks can leverage their expertise and infrastructure to expand access to financial services and drive inclusive growth.

In conclusion, direct cash transfers offer a promising pathway to tackle extreme poverty and promote financial inclusion on a global scale. By harnessing the power of technology and mobilizing resources effectively, we can make meaningful strides towards building a more equitable and prosperous world. For bankers and financiers, embracing this approach presents an opportunity to drive positive change and contribute to sustainable development in their communities and beyond. As we chart our course towards a more inclusive future, let us seize the opportunity to make a difference in the lives of millions around the world.

May 17 2024

Rethinking Corporate Governance: Lessons from Boeing’s Crisis

“Discover the captivating tale of Boeing’s crisis, unveiling the hidden perils of prioritizing profits over people, and learn why Arab banks must lead the charge towards a more inclusive and sustainable future in corporate governance.”

In the field of corporate governance, Boeing’s recent struggles have become a symbol of the pitfalls of prioritizing short-term financial gains over long-term sustainability. Once known as an American industrial titan, Boeing now finds itself grappling with a series of self-inflicted crises that have rocked the aviation industry and beyond. This story serves as a sobering reminder of the need to reassess the prevailing ethos of shareholder primacy and its implications for businesses worldwide.

For decades, the prevailing wisdom in corporate boardrooms has been to prioritize the maximization of shareholder value above all else. This mantra, rooted in the belief that driving up stock prices and dividends is the ultimate measure of corporate success, has shaped the decision-making processes of companies across industries. However, the events surrounding Boeing’s 737 MAX aircraft crashes have cast doubt on the efficacy of this approach.

The tragic accidents, resulting in the loss of hundreds of lives, laid bare the consequences of prioritizing profits over safety. In the pursuit of cost-cutting and efficiency, Boeing overlooked critical safety features and failed to adequately address concerns raised by regulators and employees. The fallout from these failures has been profound, leading to significant financial losses, reputational damage, and legal liabilities for the company.

In response to the crisis, stakeholders ranging from customers to labor unions have called for a fundamental shift in Boeing’s corporate culture. Major airlines, including AerCap and Emirates, have urged the company to prioritize safety and quality over short-term financial targets. Labor unions have demanded greater representation on the company’s board of directors, arguing that workers’ voices have been sidelined in favor of shareholder interests.

The root of Boeing’s troubles lies in the narrow focus on maximizing shareholder value to the exclusion of other considerations. While shareholder value is undoubtedly important, it should not come at the expense of broader societal concerns such as safety, employee welfare, and environmental stewardship. The pursuit of short-term profits can lead to a myopic view of corporate success, undermining the long-term viability of businesses and their ability to create value for all stakeholders.

In the Arab world, where banks and financial institutions play a crucial role in driving economic development, the lessons from Boeing’s crisis are particularly pertinent. As custodians of capital, Arab banks have a responsibility to balance the interests of shareholders with those of employees, customers, and the wider community. This requires a more holistic approach to corporate governance—one that prioritizes long-term sustainability and inclusive growth over short-term financial gains.

Practically speaking, this entails investing in employee training and development, ensuring workplace safety and fairness, and actively engaging with customers and communities. It means recognizing that a company’s success is not solely measured by its financial performance, but by its impact on society as a whole. By embracing a more inclusive and socially responsible approach to corporate governance, Arab banks can help build a more resilient and equitable economy for the future.

In conclusion, Boeing’s crisis serves as a stark reminder of the dangers of prioritizing shareholder value above all else. As we look to the future, it is imperative that businesses, including Arab banks, reevaluate their approach to corporate governance and adopt a more balanced and sustainable model. By doing so, they can help ensure the long-term prosperity and well-being of all stakeholders, laying the groundwork for a more prosperous and inclusive society.

April 22 2024

From Data to Decisions: AI’s Role in Arab Banking

Introduction:

In the bustling financial epicenters of the Arab world, scenes reminiscent of global financial hubs unfold—a dedicated cohort of professionals diligently working late into the night, scrutinizing data and crafting presentations for clients. This tableau, emblematic of the finance industry’s enduring practices, has remained largely unaltered for decades, characterized by labor-intensive processes and reliance on conventional methodologies.

However, beneath this veneer lies a shifting landscape, marked by the transformative potential of artificial intelligence (AI) and the migration of tech talent from finance to the burgeoning tech sector. As we stand at this pivotal moment, it is incumbent upon banking leaders across the Arab world to recognize these changes and position themselves to capitalize on the opportunities they present.

The Potential of AI in Finance:

AI holds tremendous promise for the finance sector, offering the potential to revolutionize processes and augment human capabilities. From data collection and validation to predictive analysis, AI has the power to enhance efficiency and unlock valuable insights. By harnessing AI algorithms, financial institutions can extract actionable insights from vast datasets, empowering decision-makers with deeper market understanding.

Moreover, AI-driven predictive modeling can enhance forecasting accuracy and mitigate risks. Through advanced machine learning algorithms, finance professionals can uncover hidden patterns in data, leading to more informed decision-making and strategic planning.

Steering Talent Shifts:

In addition to AI’s transformative potential, there has been a notable migration of tech talent from finance to leading tech companies globally. While this trend underscores the allure of the tech sector, certain institutions in the Arab world have managed to retain their AI expertise. This underscores the importance of fostering an organizational culture that nurtures innovation and technological advancement, ensuring that talent remains engaged and motivated within the finance sector.

Big Tech’s Entry into Finance:

The expansion of tech giants into finance represents a seismic shift in the industry landscape. Companies like Amazon, Google, and Microsoft are venturing into heavily regulated sectors, including banking and healthcare. This expansion underscores the disruptive potential of large-scale diversification and highlights the need for traditional banking institutions to adapt and innovate in response.

For finance leaders in the Arab world, the entry of big tech into their domain presents both challenges and opportunities. While it may introduce increased competition and regulatory scrutiny, it also offers the potential for collaboration and partnership. By embracing technological innovation and fostering a culture of adaptability, Arab banks can position themselves as leaders in the digital age, driving sustainable growth and prosperity in the region’s finance sector.

Implications for Arab Banking and Finance:

In the Arab world, the convergence of AI and finance presents a unique set of challenges and opportunities. As global financial practices continue to evolve, Arab banks must adapt to remain competitive on the international stage. Embracing AI-driven innovation can enhance operational efficiency, improve customer experiences, and drive growth in the region’s finance sector.

Furthermore, fostering collaboration and knowledge-sharing initiatives can facilitate the adoption of AI technologies across the Arab banking industry, ensuring that institutions remain at the forefront of innovation and technological advancement. By embracing change and innovation, Arab banks can navigate the evolving financial landscape and emerge as pioneers in the digital age, driving sustainable economic growth and prosperity across the region.

Conclusion:

In conclusion, the intersection of AI and finance presents both unprecedented challenges and opportunities for banking leaders in the Arab world. By recognizing the transformative potential of AI and embracing a culture of innovation, Arab banks can navigate this evolving landscape and position themselves for sustained growth and success in the digital age. Through strategic partnerships, talent development initiatives, and a commitment to technological advancement, Arab banks can harness the power of AI to drive economic prosperity and financial inclusion across the region.