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In an exclusive interview with Finance Magnates, Achraf Drid, Managing Director of XTB MENA, recently discussed the global growth in trading volumes across the FX and CFD market. Drid believes that the MENA region holds a special place in the global financial services industry.
XTB is one of the largest financial brokerages in the world. Listed on Warsaw Stock Exchange, the financial trading services provider witnessed rapid growth in 2021.
It’s a pleasure having you with us Mr. Drid, for our readers, can you please introduce yourself?
Thank you for having me; it is my pleasure. I am the Managing Director of XTB MENA DIFC in Dubai, and XTB is one of the world’s leading brokerage companies. In my role, I’m actively involved in the company’s business development, legal processes, and all compliance aspects. I am also deeply involved in the company’s financial strength in investing in Fintech since we provide our customers not only the highest level of customer support but also the highest level of technology. Since XTB entered the MENA region, I have focused mainly on setting up and managing the company’s core sales and risk management processes. I’m also involved in the regulatory framework of the company to lead XTB into the future with integrity and transparency.
We are new to the MENA region, but we have been around since 2005 when XTB was founded in Warsaw as a company. We are one of the biggest brokerages in Europe and are also listed on the Warsaw Stock Exchange. Worldwide, we have been offering CFDs, Forex, commodities and indices for years, and then we saw an opportunity in the MENA region to cater to the increasing demand for a reliable and trustworthy broker in this part of the world.
What differentiates us from other brokers? First, we are not just a financial company, we are a fintech firm, since we employ more than 200 IT developers in our headquarters, and we keep improving our offering and services every month. We are not looking to be compared with other brokers; our goal is to be the Amazon or Netflix of trading.
Secondly, many brokers rely on the MetaTrader 4 platform, but we also offer our proprietary platform called xStation, which has won numerous awards. We have a large IT team responsible for keeping it up-to-date and who ensure it’s always working at top efficiency. I’m proud of our GUI platform and honestly believe it’s one of the best in the market.
Finally, we place a significant focus on education. I believe we’re one of the most education-focused brokerages in the world. Many resources are found on our platform, including various educational videos and reading material. The content recorded hasn’t only been produced by us and by some of the world’s most famous traders. We heavily focus on education when we present our platforms to the clients virtually and when we meet them in person.
Trading volumes across the FX and CFD industry jumped substantially in 2020 due to the lockdown, while the industry sustained growth levels in 2021, do you think the trend will continue into 2022?
The actual gross market value of OTC FX and CFDs has been rising; the Covid-19-induced market turmoil and strong policy responses drove developments in FX markets throughout 2020. This increase coincided with the significant depreciation of the US dollar against other major currencies. Acting as the primary vehicle currency, the US dollar was on one side of more than 80% of all currency pairs (measured by both notional amount and gross market value). Sizeable US dollar exchange rate movements can lead to more trading in FX and CFDs in the current year (2022).
Additionally, if you look back into the last ten years, forex trading has grown exponentially. Looking at the forex market in 2008, there were about US$48 trillion traded, and today that number is closer to US$80 trillion, which shows a growth of over 50%. I believe that the volume will continue to grow in 2022 at a steady rate, with forex trading making up 40% of the world’s total market.
In terms of financial services, the MENA region is one of the fastest-growing regions in the world, what makes MENA different from other locations?
The Middle East’s importance is rapidly growing in the global forex market, especially with its retail segment, compared to a relative slowdown and decline in other international markets.
It is driven by increased investor awareness of the opportunities available in global trading and the region’s strategic location between Asia and Europe as a hub. The local time zone enables it to capture market opening hours in the Far East and the US…and closing hours in the same working day, giving it better access to the broader global market, particularly the G7 currencies.
As we are based out of Dubai and regulated by the DIFC, we have experienced substantial growth of the UAE economy and the increasing number of ex-pats coming to live and work here; we have seen FX transactional flows rising, both in and out of the country.
Going forward into 2022, how is XTB MENA planning to expand its presence in the region?
The MENA region did go through significant challenges during the last two years, (with) the COVID-19 pandemic having an impact on the regional economy, like the rest of the world. However, some countries have adopted rapid, decisive and innovative measures to contain the virus, such as the smooth crisis management developed by regional governments.
MENA countries have responded rapidly to mitigate the economic consequences of the crisis on the private sectors and households and keep the financial market functioning. On average, 2.7% of GDP was allocated to fiscal measures, while 3.4% of GDP (over USD 47 billion) in liquidity injection was activated by Central Banks across the region during the first few weeks of the crisis.
The MENA market is estimated to witness significant growth, and at XTB, we feel very confident. The reason we decided to establish XTB regional office in the UAE is part of our strategic growth plan to support our customers locally, not only in FX but across other asset classes under our portfolio, including oil, gas and bullion.
Sponsorships played an important role in global brand awareness of financial trading platforms, how is XTB planning to use sports sponsorships for its global growth?
In the past, we had a partnership with McLaren Mercedes, then with Hollywood actor Mads Mikkelsen, and now we have a partnership with Jose Mourinho, and we have other plans for the future – for obvious reasons; we would like to keep this as a surprise!
MENA region’s GDP to surge by over 3x by 2050 according to Gulf Capital White Paper as reported by SME10X . In effect, the oil and gas trade revenues allow considerable financial power and a strategic position on the international scene for those exporting countries but also a source of vulnerability for their economies, especially in the aftermath of not only this recent COP26 but to also the ensuing COPs Let us nevertheless look at this prediction of this white paper.
MENA region’s GDP to surge by over 3x by 2050
A New report quantifies unprecedented growth opportunities across “Ascending Asia” which is set to drive 40 percent of global consumption by 2040.
The study, jointly published by Gulf Capital and Dr Parag Khanna, Founder and Managing Partner of FutureMap, reveals that the MENA region is expected to increase its GDP by over 3x by 2050, the ASEAN region is expected to grow by 3.7x, and India by 5x. This turbo-charged growth is in sharp contrast to the projected slower growth of the European and US economies at only 1.5x and 1.8x respectively for the same period.
Within greater Asia, the GCC and Southeast Asia are two ascending regions with rising youth populations where demographic and technological shifts will generate a significant expansion of the services sectors. Across these societies, rising affluence and consumption will drive business expansion, corporate profits, and higher valuations. Longer-term reforms including capital account liberalization and accelerated privatization will unlock fresh investment inflows into new Asian listings.
Dr Karim El Solh, Co-Founder and Chief Executive Officer of Gulf Capital, said: “The unprecedented growth opportunities presented by the emergence of ‘Ascending Asia’ have never been greater. The strong macro-economic fundamentals, a growing middle class and youth population, increasing GDP per capita, rapid adoption of technology, and growing intra-regional trade and investment flows will only strengthen the case for the Asian economies. We are fortunate to be investing and operating across Ascending Asia from the GCC to the Near East and Southeast Asia, where we have acquired a large number of companies in the past.”
Additionally, East and West Asia’s deepening trade and investment networks indicate that capital, companies, and consumers will increasingly traverse the Indian Ocean and strengthen ties along the new Silk Roads, stitching the region into a whole greater than the sum of its parts.
El Solh concluded, “Against the backdrop of the evolving megatrends of deepening trade links, sizable FDI flows, greater political cooperation, and the fastest growing consumer sector, Gulf Capital is ideally poised to capitalize on this once in a generation cross-border opportunity. It is our firm belief that if investors want to capture rapid growth over the next three decades, they need significant exposure to the fastest growing industries across Ascending Asia.”
Yalla is one of the leading companies in the Middle East and North Africa (MENA) area that has a voice-centric social network and entertainment platform. It operates two core products locally, Yalla and Yalla Ludo. Although the 21Q3 season did not show an exponential growth experienced in 21Q1, the company claims that the overall revenue increase and user expansion were maintained at a better level. “We achieved yet another quarter of strong growth, with good operating and financial performances,” said Yang Tao, founder, chairman, and CEO of Yalla.
Headquartered in Dubai, UAE, Yalla Technology was founded in February 2018. In September 2020, after only two and half years, it was listed on the New York Stock Exchange. Compared to other voice-based social startups, Yalla claims that it has gained more market attention — owing to its geographical location.
Rapid Growth in the MENA Area
As a “follower” in terms of the adoption of mobile internet, the number of mobile users in the Middle East and North Africa demonstrated rapid growth in recent years. According to a 42-page report by GSMA in 2020, the number of independent mobile users in the Middle East and North Africa reached a milestone of 400 million in 2020, representing a penetration rate of 65% of the local population, with statistics that were even higher in some countries.
By 2025, 700 million people will have access to mobile internet services. As digital technology becomes more centered around daily life, more people in the Middle East and North Africa will enjoy the benefits of the Internet and smart devices.
Due to religious beliefs, cultural customs, and other factors in the Middle East and North Africa, in-person leisure activities are restricted, driving up the increasing demand for online entertainment. According to data from Hootsuite in July 2020, citizens in the UAE and Saudi Arabia, respectively, spend 3 hours and 17 minutes and 3 hours and 11 minutes on social media each day, which are both higher than the global average of 2.4 hours per day. By the time of the publication, the penetration rate for online social and entertainment in the MENA area is only 14%, still indicating areas for continued advancement.
In terms of purchasing power, the major countries and regions in the MENA area are comparable to the Western and the Asia-Pacific nations. A report from The World Bank in July this year suggested that the urbanization rate of the Middle East and North Africa countries such as Kuwait, Qatar, Israel, etc., is close to 100%. These cities are highly developed and their resident income far outstrips all the other parts of the region. Thus, users in these areas have a strong purchasing power, providing a solid foundation for the development of local online entertainment products, with Yalla being one of the beneficiaries.
In the third-quarter earnings report, Yalla achieved a revenue of $71.3 million, a 110.8% increase compared to the third quarter of 2020. Chat service remains as the main revenue source for Yalla, totaling $53.9 million, while revenue from game service was $17.4 million, which mainly benefited from the increase in paying users brought by new products.
The net profit in the third quarter was $25.3 million, with a net profit margin of 35.5%. In comparison, there was a loss of $31 million in the same period last year due to equity incentives and other factors. Overall, the non-GAAP profit margin in the third quarter of 2021 was 46.6%.
In the 21Q3 report, Yalla disclosed the operating data for its new product, Yalla Parchis. Yalla Prachis is a voice-based game platform targeting the South American market. It was officially launched in October and brought in 786,000 MAUs and 299,000 paying users for Yalla Group in the third quarter.
In terms of expenses, Yalla’s total costs and expenses in the third quarter totaled $45.6 million, a decrease from the $64.7 million in the third quarter of 2020. With a continuous expansion of business scale, Yalla believes that its ability to control costs has been gradually improving. Among the expenses, technology and product development expenses were $3.9 million, accounting for 5.4% of the total revenue.
Based on the company’s strategic planning, the management is projecting revenue between $67 million and $72 million for the fourth quarter of 2021. This will be an increase of 38.6% to 48.9%, respectively, from the $48.3 million in the fourth quarter of 2020. It is worth noting that, according to Mr. Tao Yang, Yalla is developing a cutting-edge social application, Yalla Chat, which may be launched as early as the first quarter of next year in hope of becoming the first metaverse social application specifically customized for the MENA region.
Yalla’s current price-to-earnings ratio (PE) is 60.73, which is at a lower range of the industry average, while its price-to-sales ratio (PS) is 4.40, which is down more than half from the historical average of 8.95. The significant drop has given Yalla a certain low valuation attribute. The China International Capital Corporation Limited (601995. SH) covered Yalla for the first time last week and gave it an outperforming rating. It is estimated that the company’s EPS for 2021-23 will be 0.71, 0.77, and 1.01 US dollars, respectively, while the non-GAAP will be 19%.
Politicians Subsidise Fossil Fuel with Six Trillion Dollars in Just One Year By Baher Kamal is an eye-opener to the sad reality of the world prior to the COP26. Would this recent and very hyped up event have any bearing on this state of affairs?
The image above is of an offshore oil rig drilling platform. Globally, fossil fuel subsidies amounted to 5.9 trillion US dollars in 2020, according to an IMF report. Credit: Bigstock
MADRID, Nov 16 2021 (IPS) – It sounds incredible: while politicians have been cackling about the climate emergency and profiling in empty promises to halt it, they have spent six trillion US dollars from taxpayers’ money to subsidise fossil fuels in just one year: 2020. And they are set to increase the figure to nearly seven trillion by 2025.
According to the study, 8 percent of the 2020 subsidy reflects undercharging for supply costs (explicit subsidies) and 92 percent for undercharging for environmental costs and foregone consumption taxes (implicit subsidies).
Efficient fuel pricing in 2025 would reduce global carbon dioxide emissions 36 percent below baseline levels, which is in line with keeping global warming to 1.5 degrees, while raising revenues worth 3.8 percent of global GDP and preventing 0.9 million local air pollution deaths. Accompanying spreadsheets provide detailed results for 191 countries, IMF adds.
Commenting on this fact, António Guterres, the UN Secretary General, said that “… promises ring hollow when the fossil fuels industry still receives trillions in subsidies, as measured by the IMF. Or when countries are still building coal plants…”
Every country, city, company and financial institution must “radically, credibly and verifiably” reduce their emissions and decarbonise their portfolios, starting now, said Guterres.
Time running out for oil and gas?
Hard to believe when just 11 countries presented the Beyond Oil and Gas Alliance at November’s UN Climate Conference in Glasgow.
Ireland, France, Denmark, and Costa Rica. among others, as well as some subnational governments, launched a first of its kind alliance to set an end date for national oil and gas exploration and extraction.
One of the Alliance members’ representative, Andrea Meza, Minister of Environment and Energy for Costa Rica commented: “Every dollar that we invest in fossil fuel projects is one less dollar for renewables and for the conservation of nature…” she added.
By 2050, 1.6 billion people living in cities will be regularly exposed to extremely high temperatures and over 800 million people living in cities across the world will be vulnerable to sea level rises and coastal flooding.
According to UN Habitat, which deals with human settlements and sustainable urban development, cities consume 78 percent of the world’s energy and produce over 60 percent of greenhouse gas emissions – while accounting for less than two per cent of the Earth’s surface.
Inger Andersen, the head of the UN Environment Programme (UNEP) reported that “We build the equivalent of new buildings the size of Paris every week, and if that is the way we are expected to expand we need to think about how we do it because of climate, biodiversity, livability, quality of life. We need to build better.”,
According to Andersen, building and construction are responsible for 37 percent of CO2 emissions with construction materials like cement, accounting for 10 percent of global emissions.
She also pointed out that over half of the buildings that will be standing in 2060 haven’t been constructed yet. According to UNEP, only 19 countries have added codes regarding energy efficiency for buildings, and put them in place, and most of future construction will occur in countries without these measures.
“For every dollar invested in energy efficient buildings, we see 37 going into conventional buildings that are energy inefficient. We need to move from these incremental changes because they are way too slow, we need a real sector transformation. We need to build better,” Andersen said, calling for more ambition for governments if they are to fill the promise of net-zero.
Cars, buses, trucks, ships…
The transport sector is responsible for approximately one quarter of global greenhouse gas emissions, according to the Intergovernmental Panel of Experts on Climate Change (IPCC).
The sector’s emissions have more than doubled since 1970, with around 80 percent of the increase caused by road vehicles. The United Nations environment programme UNEP calculates that the world’s transport sector is almost entirely dependent on fossil fuels.
“A world where every car, bus and truck sold is electric and affordable, where shipping vessels use only sustainable fuels, and where planes can run on green hydrogen may sound like a sci-fi movie.”
This is how governments spend trillions of taxpayers’ pockets to subsidise fossil fuels that can only aggravate the ongoing climate emergency.
At the COP26 summit, developing countries will request more money to mitigate and adapt to the effects of climate change, arguing that their contribution to the present climate calamity is minimal. But will Glasgow Fix Broken Climate Finance Promises? Promises were made twelve years ago, at a United Nations climate summit in Copenhagen, where developed nations promised finance of US$100 billion a year to less wealthy nations by 2020.
SYDNEY and KUALA LUMPUR, Nov 2 2021 (IPS) – Current climate mitigation plans will result in a catastrophic 2.7°C world temperature rise. US$1.6–3.8 trillion is needed annually to avoid global warming exceeding 1.5°C.
Creative accounting Rich countries have long broken their 2009 Copenhagen COP16 pledge to mobilize “US$100 billion per year by 2020 to address the needs of developing countries”. The pandemic has worsened the situation, reducing available finance. Poor countries – many already caught in debt traps – struggle to cope.
While minuscule compared to the finance needed to adequately address climate change, it was considered a good start. The number includes both public and private finance, with sources – public/private, grants/loans, etc. – unspecified.
Such ambiguity has enabled double-counting, poor transparency and creative accounting, noted the UN Independent Expert Group on Climate Finance. Thus, the rich countries’ Organisation for Economic Co-operation and Development (OECD) reported US$80bn in climate finance for developing countries in 2019.
Fudging numbers But OECD climate finance numbers include non-concessional commercial loans, ‘rolled-over’ loans and private finance. Some donor governments count most development aid, even when not primarily for ‘climate action’.
Official development assistance redesignated as climate finance should be categorized as ‘reallocated’, rather than ‘additional’ funding. Consequently, poor countries are losing aid for education, health and other public goods.
Jomo Kwame SundaramIndia has disputed the OECD claim of US$57bn climate finance in 2013-14, suggesting a paltry US$2.2bn instead! Other developing countries have also challenged such creative accounting and ‘greenwashing’.
Climate finance anarchy Developing countries expected the promised US$100bn yearly to be largely public grants disbursed via the then new UNFCCC Green Climate Fund. Oxfam estimates public climate financing at only US$19–22.5bn in 2017-18, with little effective coordination of public finance.
Developing countries believed their representatives would help decide disbursement, ensuring equity, efficacy and efficiency. But little is actually managed by developing countries themselves. Instead, climate finance is disbursed via many channels, including rich countries’ aid and export promotion agencies, private banks, equity funds and multilateral institutions’ loans and grants.
Several UN programmes also support climate action, including the UN Environment Programme, UN Development Programme and Global Environment Facility. But all are underfunded, requiring frequent replenishment. Uncertain financing and developing countries’ lack of meaningful involvement in disbursements make planning all the more difficult.
Financialization has meant that climate funding increasingly involves private financial interests. Claims of private climate finance from rich to poor countries are much contested. Even the OECD estimate has not been rising steadily, instead fluctuating directionless from US$16.7bn in 2014 to US$10.1bn in 2016 and US$14.6bn in 2018.
The actual role and impact of private finance are also much disputed. Unsurprisingly, private funding is unlikely to help countries most in need, address policy priorities, or compensate for damages beyond repair. Instead, ‘blended finance’ often uses public finance to ‘de-risk’ private investments.
Needed ‘adaptation’ – such as improving drainage, water catchment and infrastructure – is costly, but nonetheless desperately necessary.
But ‘donors’ prefer publicizable ‘easy wins’ from climate mitigation, especially as they increasingly gave loans, rather than grants. Thus, although the Paris COP21 Agreement sought to balance mitigation with adaptation, most climate finance still seeks to cut greenhouse gas (GHG) emissions.
As climate adaptation is rarely lucrative, it is of less interest to private investors. Rather, private finance favours mitigation investments generating higher returns. Thus, only US$20bn was for adaptation in 2019 – less than half the sum for mitigation. Unsurprisingly, the OECD report acknowledges only 3% of private climate finance has been for adaptation.
Chasing profits, most climate finance goes to middle-income countries, not the poorest or most vulnerable. Only US$5.9bn – less than a fifth of total adaptation finance – has gone to the UN’s 46 ‘least developed countries’ (LDCs) during 2014-18! This is “less than 3% of [poorly] estimated LDCs annual adaptation finance needs between 2020-2030”.
Cruel ironies The International Monetary Fund recognizes the “unequal burden of rising temperatures”. It is indeed a “cruel irony” that those far less responsible for global warming bear the brunt of its costs. Meanwhile, providing climate finance via loans is pushing poor countries deeper into debt.
Increasingly frequent extreme weather disasters are often followed by much more borrowing due to poor countries’ limited fiscal space. But loans for low-income countries (LICs) cost much more than for high-income ones. Hence, LICs spend five times more on debt than on coping with climate change and cutting GHG emissions.
Four-fifths of the most damaging disasters since 2000 have been due to tropical storms. The worst disasters have raised government debt in 90% of cases within two years – with no prospect of debt relief.
Funding gap Based on countries’ own long-term goals for mitigation and adaptation, the UNFCCC’s Standing Committee on Finance estimated that developing countries need US$5.8-5.9 trillion in all until 2030. The UN estimates developing countries currently need US$70bn yearly for adaptation, rising to US$140–300bn by 2030.
In July, the ‘V20’ of finance ministers from 48 climate-vulnerable countries urged delivery of the 2009 US$100bn vow to affirm a commitment to improve climate finance. This should include increased funds, more in grants, and with at least half for adaptation – but the UNFCCC chief has noted lack of progress since.
Only strong enforcement of rigorous climate finance criteria can stop rich countries abusing currently ambiguous reporting requirements. Currently fragmented climate financing urgently needs more coherence and strategic prioritization of support to those most distressed and vulnerable.
This month’s UNFCCC COP26 in Glasgow, Scotland, can and must set things right before it is too late. Will the new Cold War drive the North to do the unexpected to win the rest of the world to its side instead of further militarizing tensions?
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