Middle East has fastest growth in remittances

The Middle East has become the fastest growth region for the money transfer and remittance industry due to the huge development projects requiring increasing numbers of expatriates.

Jean Claude Farah, Regional Vice-President for the Middle East, Pakistan and Afghanistan at Western Union, said while the global growth rate in the remittance industry stands at eight per cent, in the region it is more than 15 per cent annually. However, he said soaring inflation has had significant impact on the value of remittances, despite the increasing number of transactions.



What is the impact of the rising inflation on the industry?

The last two years have witnessed essential changes in the remittance industry in the Middle East, especially in the GCC countries. Increasing inflation in the Gulf states has had an enormous impact on the remittances of expatriate workers and this situation has influenced all the countries that export labour to the region, especially India, Pakistan, Bangladesh, Indonesia and the Philippines.

The impact was very clear during the last two years as the average value of each remittance declined by between 15 and 20 per cent. According to our assessment, expatriates in the GCC region were able to cover their living costs using only 20 per cent of their salaries and they could keep 80 per cent of it free for remittances to their families or for their savings and investments. Following the inflationary wave in the region, the cost of living surged sharply to about 45 per cent of the expatriates' income. This had a significant impact on remittances. The value of each remittance declined.

The other change in the industry was the increasing number of remittances from the region due to the enormous economic development, which attracted a large number of expatriate workers in different development projects in the GCC countries. The overall value of remittances from the Gulf increased with more people remitting money home thus increasing the number of transactions, but the monetary value of each remittance declined.

The UAE remittance market is estimated at $6.5 billion [Dh23.87bn] in 2008, while remittances ranged between $4.5bn and $5bn during the previous two years. The Saudi market is estimated at $17bn; the second largest remittance market in the world after the United States, which reached $35bn. The Qatar and Kuwait markets are estimated at $5bn each. All GCC countries share the same story regarding the changes in the remittance market.

How do you assess developments in the Middle East remittance market?

The total global remittance market has reached $370bn and the share of the Middle East region is $78bn, which is an important portion. This represents remittances to and from the region, as well as within countries in the region. There are no totally accurate estimates in the industry, but this is our assessment.

Oil wealth is the main factor in this growth because regional governments are pumping oil revenues into local economies and huge infrastructure, real estate and investment projects. All these huge developments are attracting increasing numbers of workers from outside the region and are also increasing the movements of people and capital in the region.

What are Western Union's expansion plans in the region?

For Western Union, the Middle East is the fastest-growing market in the world. The growth rate in this region has reached high double digits. This major development has created increasing demand for Western Union's services and accordingly we opened several offices in Riyadh, Islamabad and Karachi to meet the requirements of our clients.

We are committed to expanding organically in the region. Western Union's share in the global remittance market was 17.4 per cent in 2007. The international market is growing by eight per cent and our operations worldwide are growing at 20-21 per cent annually, so our market share is expected to grow very fast.

Also, expanding our customer base is the cornerstone of our growth plan. Currently, we have tied up with about 120 agents in the Middle East who have about 7,500 branches in 16 countries. We are increasing our network of agents continuously to reach all potential clients in the region. We are expanding other services such as launching new loyalty cards.

What is the impact of increasing competition from banks on the money transfer business?

Banks, in fact, are our partners not competitors. Recently, there is increasing interest from banks in the transactions services because it is a zero capital source of income and also will add to their services for their clients. However, it will be very costly for banks to expand organically around the world. A lot of banks are going on deals with Western Union to service their clients for money transfer transactions.

Western Union has 335,000 units around the world and our deals with banks will give their clients access to this huge number of worldwide locations without the need for the banks themselves to open new branches. We have tied up with a large number of local and international banks working in the Middle East to offer remittance services.

What is the impact of new facilities such as mobile banking and online services on the remittance business?

This is a critical issue because money transfers are expected to witness a revolution over the coming years. People will be able to transfer money instantly from one country to another. The challenge is how to create an international network for mobile banking. Western Union started these services on an experimental basis. We have three units in the UAE where people can transfer money to mobile phones in the Philippines. We are planning to expand these services to India and Pakistan.

This expansion needs technological developments in the receiving countries because to transfer money to mobile phone accounts, there should be e-wallet facilities in the mobile phone networks. Mobile phone operators need to provide these services to enable such transactions.

At this stage, there are 6,000 merchants in the Philippines who are providing facilities for payment through mobile phones. This enables our clients here to transfer money to mobile accounts in the Philippines and their families can use these remittances for payments or money withdrawal. In this region, Egypt will start to offer e-wallet facilities soon and India is working on the technology. For Western Union, this facility will be a part of our operations and we hope it will expand globally, but traditional services will continue in the remittance sector.

In terms of fees and service charges, where does Western Union stand vis-à-vis the competition?

There is a misunderstanding about factors determining the level of fees. Some people say each company decides the level of its fees and others say competition among companies decides the fees, but in fact its is the clients who are deciding the level.

For example, charges for remittances to India from the UAE were very high a few years ago and clients were complaining about the high fees, so we reduced them to Dh35, which was still deemed high. Then we reduced charges to Dh25, but that was still too high. Recently we reduced our rates further to Dh15, which has been well-received by our clients because we are transferring money to 50,000 locations in India.

Western Union has also reduced rates for money transfers to Bangladesh to Dh15 for amounts of up to Dh1,500.

We interact with our clients and study their feedback and comments to reach a level that satisfies them. We are studying the needs of all communities and we take decisions according to their requirements. We review exchange rates three times every day and our rates are competitive compared to other service providers.

The difference in exchange rates is limited to the level that the company hedges itself against fluctuations in the forex markets. However, exchange rates in the region are nearly fixed against leading currencies and the fluctuation is very limited.

What is the impact of the new anti-money laundering regulations on your business?

We take it very seriously because we are convinced that if one illegal transaction is processed among millions of transactions, this will affect our reputation.

So Western Union is fully compliant with the rules of central banks in all the countries we are operating in. We also invested $40 million last year to strengthen our anti-money laundering systems and expand our staff strength.

Jean Claude Farah: Regional Vice-President,                 Western Union

Farah was appointed Western Union's Regional Vice-President for the Middle East, Pakistan and Afghanistan in July 2005. He oversees two regional offices in Dubai and Islamabad, Pakistan. He has earlier served as director for the same region.

Farah joined Western Union in 1999 as marketing manager for Dubai's office after stints as area manager for Orangina Pernod Ricard, France, and assistant marketing manager for Renault. Farah received a BA in business administration from St Joseph University in Lebanon and went on to do an MBA from the Europe School of Management in Paris.

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