Due to dependency on a specific sector, liquidity is often scarce, especially as hard currencies like the British Pound Sterling, US Dollar and Euro – which are crucial for international trade – are not easily accessible. To manage the available hard currencies, local governments (for example: Iran, Ethiopia, Nigeria, Egypt etc.) implement regulations to control capital outflow, and therefore repatriation of capital or dividend requires government approval. But, in times of low commodity prices, what we see happening is approval for capital repatriation being denied or very difficult to obtain, resulting in “trapped cash”. This leads to significant amounts of money being stuck in the country, and not being able to be used elsewhere, which – for IOCs and boutique oil companies – becomes quite problematic.
This piece was written by Kees Lakerveld co-founder of our partners 2FX Treasury, and is taken from our 5 day series on:
‘Transaction banking in the Middle East and Africa’
What to expect for the rest of the week:
Day 4 (Tomorrow) – Exchange rate setting
Day 5 (Wednesday) – Investor protection policies
Previously in this series:
Day 1 – Transaction Banking in the Middle East and Africa
Day 2 – Local Market Structure
Who are 2FX Treasury?
Specialists in international banking and payments, co-founders Kees Lakerveld and René Schilder are able to advise businesses on how to optimise payments and trade finance to/from Emerging Markets. They work in partnership with Menas Associates to provide a one-stop solution for clients facing political and financial risks in countries such as Nigeria, Iran and Egypt.
