EY’s regional head on adapting to the GCC’s shifting sands

What is your outlook for key countries in the MENA region this year? Do you expect conditions to be better or worse than 2016 and could they improve in 2018?

“I expect a lot of changes to happen. Greater automation, increased use of analytics, new industries like robotics that thrive in a knowledge economy, and traditional sectors like healthcare will all go through a fundamental shift. This is due to greater government spending, greater emphasis on science, technology, engineering, mathematics (STEM) education, and changing workforce dynamics, such as the youth and increasing participation of women.

“There will, no doubt, be enormous challenges in the region and these disruptions will take many forms. When it comes to meeting the skill requirements for jobs of the future caused by disruption today, it’s important that we are ready for it.

“I am not discounting the uncertainty, but I think people often forget the region’s growth story despite the challenges it has faced over the years. Every region and economy has an attribute and ours is resilience. We have an active private sector, governments that are predominantly business friendly, market sizes with critical mass, geographic location, very low taxation rates, subsidies on essentials, proximity to the largest population centres and the busiest trade routes. All of which are very attractive.”

How much of an opportunity is the implementation of value added and selective taxes in the Gulf region for professional services firms like EY? Have you had to hire new staff and expand your tax operations?

“During our conversations earlier in the year, we found that half the companies we spoke to hadn’t started to prepare for VAT yet. With only a few months to go before implementation, the time to start getting ready is now. With VAT affecting most transactions, businesses will need to adjust their procedures to ensure that their accounting and IT infrastructure is compliant with VAT regulations and to ensure their employees are trained in the new business processes.

“Businesses will need to set aside funds to deal with compliance. They’ll need to implement and fund changes to business processes, IT systems and train staff, for example. But after that initial expense, costs will become less material, and businesses will likely be able to recoup them.

“Audit and accounting firms are actively recruiting new staff with VAT experience to build up their capabilities in servicing clients in the UAE and other GCC countries. Traditionally it has been possible to source recruits from markets such as India and Egypt to meet the skills gap. However, with these two countries also in the middle of VAT initiatives, the availability of staff from these markets is in short supply.”

A key aspect of diversification plans by a number of regional countries is foreign direct investment. Is enough being done to attract FDI and could there be any changes to regulation that would encourage new investment?

“We recently published a report called BaroMed 2017 that looks at the attractiveness of the Mediterranean, Middle East and Gulf region for foreign investment. It found that although FDI was falling, the Gulf was the second most attractive region in that group for investors because of opportunities in the services sector and its diversification strategies. Nearly half of the respondents surveyed thought the region’s attractiveness would improve over the next three years.

“We also asked investors to name the six most important things to improve the wider region’s attractiveness. They highlighted stability, access to talent, digital and hard infrastructure, energy efficiency and easier access to financing. As a first step, countries in the region need to identify sectors that have the most potential to stand on their own feet and that can create genuine jobs outside the public sector. But this also requires action to attract investors to those new sectors — cutting red tape, making it easier for foreign companies to bring in capital and expertise, and investing in local training and skills.”

How is the current low-oil period impacting mergers and acquisitions and IPO activity within the GCC and wider MENA region?

“At a time of rapid change, MENA companies are increasingly taking proactive measures to manage their portfolios. Our recent Capital Confidence Barometer, which measures boardroom confidence in the capital market agenda, found that 66 per cent of companies in MENA have increased the frequency of their portfolio review process to capitalise on disruptive forces.

“Concerning growth, there is more optimism over the prospects for a modest oil price recovery. Companies have reduced costs, cut spending and removed inefficiencies. These companies are now better positioned for growth. With hopes that the worst may be over, at least for most in the industry, attention is now shifting to capital-efficient growth. Companies will be seeking to take advantage of opportunities to reshape their portfolios for sustainable competitive advantage.

“Countries in the GCC have made this a priority and have made moving away from reliance on oil and gas a cornerstone of their economic future. It is new territory, so there will be lingering questions and greater scrutiny on socio-economic decisions like taxes, reform and subsidies.

“The improving economic conditions in the region are a strong reason behind the recent growth in deal-making, which we expect to continue.

“When it comes to growth objectives, market volatility and lower oil prices have MENA executives looking at organic opportunities first.”

One of the key challenges for companies over the coming decades is expected to be the continuing development of new technologies. Are regional firms ready for this shift?

“I think there has been excellent progress. It’s not just regional firms that are showing great appetite for adapting to technology but regional governments are becoming a willing and active partner in facilitating regulatory and infrastructural ecosystems.

“As for pure automation across industries, we are in the early stages of these shifts and it’s hard to know exactly how they will play out. History shows that automation surprises us with new sectors and forms of employment. Just as digital disruption spawned jobs for web designers and app developers, the machine economy is likely to generate jobs, companies and even entire sectors that we are unable to envision today.”

How are regional companies’ digital transformation plans progressing compared to other parts of the world and what new technologies do you see impacting the way we work in the region?

“Let’s look at two major sectors with socio-economic influence which have been affected by digital technologies — banking and healthcare.

“The drive towards incorporating fintech into everyday banking is promising, but there is still work to be done in generating more awareness around fintech innovations and implementation. With the increase of mobile penetration in the region and a young population, there is a clear preference among millennials for conducting their financial services on an end-to-end digital platform. Bankers are noticing that a new generation of customers, one that has an increased trust in online platforms, are keen for real-time and off-site solutions.

“Consumers in the region believe that fintech innovations offer end customers a noticeably better value proposition, in terms of ease of use, cost, speed of service and integration with social media. This shifts the concept of fintech from a possible option for financial institutions to implement, to a necessity if they want to continue to gain market share.

“The healthcare sector is also a great example of how technology and digitisation has actually re-engineered how healthcare is expected and delivered. Patient expectations in the region are rising and their demand to be involved in every step of treatment is increasing. Our report, What is the cure for a better patient experience in the GCC? found that 78 per cent of respondents from across the GCC are eager to use new health technologies to empower themselves in making health decisions. A further 83 per cent believe there should be greater investment in healthcare technology. Reforms and initiatives will need to be introduced to create efficiencies in data and informatics related to unifying electronic health records, publishing clinical outcomes and rankings and enforcing licensing and accreditation programmes.

“Potential solutions for the GCC healthcare system include the digitisation of electronic medical records, mobile applications, remote patient monitoring, and the automation of medical centres.”

What are your plans for EY in the region in the coming years? Where will you be expanding your operations and are there any sectors or industries you will be allocating more resources to?

“In five years, EY will complete 100 years in the region. This is a huge milestone. EY’s growth and success is reliant on how best we can solve our clients’ issues and address their needs, particularly in times of uncertainty and disruption. While the MENA region is very diverse, it does share similarities in terms of areas of opportunity and growth. We expect sectors such as financial services, energy, government and public sector, hospitality and construction, and healthcare to have the most growth potential across the region.

“Having said that, growth will not be confined to a select number of sectors. We see the immense value of consolidation, collaboration and building alliances. Teaming up with major players that add value to the services we offer our clients is a key element of our growth plan. EY’s recent acquisitions, particularly in the digital space, have changed the way we do business with our clients. This is the kind of change that we encourage — moulding and adapting to the needs of the market.

“The future playing field in a post-oil era will look dramatically different to how we’re used to doing business. The fact is, with any kind of change, comes uncertainty. But with uncertainty, there also comes opportunity. You can either be the company that gets locked into a corner, adopting a ‘wait-and-see’ approach, or you can be the company that sees the opportunity beyond the challenge.

“In times of uncertainty, if you can manoeuvre and navigate, there will undoubtedly be an opportunity to grow.”