RBC’s Middle East Expansion Aligns With Ottawa’s Trade Diversification Strategy
Royal Bank of Canada chief executive officer Dave McKay is exploring new banking opportunities in global markets – including opening offices in the Middle East – as Ottawa accelerates its plans to redraw trade routes for Canadian companies.
The CEO of Canada’s biggest bank recently returned from Davos, where he spoke with U.S. representatives about the bank’s role in the American economy and with officials from the Middle East about attracting investment to Canada and business growth in the region.
Mr. McKay was in the room as Prime Minister Mark Carney gave his provocative speech at the World Economic Forum, which cautioned that the old world order – “the rules-based international order” – is not coming back. Mr. McKay said the message was clear: All countries, including Canada, need to diversify their trade.
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“What I took away was the imperative to diversify for growth – diversify just like any company would. When you have the majority of your sales that go to one large customer, you’re susceptible to change in that customer over time,” Mr. McKay said in an interview.
“That to me was the core of the message. It doesn’t matter whether you believe or disbelieve there’s a fundamental change in the order, it’s just smart business to diversify.”
Opportunities in the Middle East were a significant topic of discussion among government representatives and business leaders at Davos, said Mr. McKay, who met with government representatives from Saudi Arabia and the United Arab Emirates.
The region is a major exporter of capital, and Canada has been eager to attract that investment as Mr. Carney has visited the Mideast in search of new trade deals. But the Middle East is also reinventing itself by investing in innovation in technology, artificial intelligence and energy, and has been attracting high-net-worth clients, according to Mr. McKay.
RBC’s European offices have been managing client requests concerning the Middle East, but the bank is now preparing to open offices in cities such as Abu Dhabi and Riyadh. The lender is applying for a bank licence to operate capital markets and wealth-management businesses in the region.
“It’s attracted a lot of interest and it’s important to Canada, which is the reason the Prime Minister has been there a couple of times,” Mr. McKay said.
“They want to get ahead of the curve, and for RBC, it’s really important that as a curator of capital and moving capital in the world from provider to supplier – that’s a big role that we play in our global capital markets operation and our wealth franchise – and therefore it’s important that we’re in the region.”
The federal government recently brokered a deal with China to allow about 50,000 Chinese-made electric vehicles into Canada at a low-tariff rate in return for lower levies on canola seed and a promised elimination of Beijing’s tariffs on other products.
While RBC does not yet have plans to expand into China, Mr. McKay said the bank is monitoring developments as Canada and China take steps toward repairing their relationship. He expects the partnership to increase opportunities for businesses in the canola sector and other industries.
As RBC sets its sights on far-off markets, it is also navigating escalating tensions in the U.S., where the bank employs more than 16,000 people and generates about a quarter of its revenue.
While speaking with U.S. government representatives at Davos, Mr. McKay said he was encouraged by their acknowledgment of RBC’s heavy investment in the country and the bank’s role in financing and facilitating cross-border services for businesses.
“We feel nothing but welcome in the United States right now and our relationships are strong – from the regulatory relationships to our relationships with business leaders to political leaders,” he said.
Canada is the top customer to 37 states in the U.S., many of which are predominantly Republican. Those state governors are aware of and vocal about the role Canada plays as a trade partner, Mr. McKay said.
Communication between Canada and the U.S. has soured over the past week. Following Mr. Carney’s speech at Davos, Mr. Trump threatened to impose a 100-per-cent tariff on Canada if it makes a trade deal with China.
Looming negotiations over the United States-Mexico-Canada Agreement and the relationship between Ottawa and Washington are “mission critical,” Mr. McKay said.
He said the USMCA will likely be adjusted to meet the changing needs of each country, but that ultimately, he believes, the central tenets of the agreement will remain intact.
Canada manufactures car parts, machinery and other goods that are more affordable for U.S. supply chains, and it provides resources that are integral to the country’s growing energy demands.
“There’s been a period of cooling in discussions,” Mr. McKay said. “It’s really important that we recognize the core of this agreement has been good for both countries, but the world has changed, the needs of each country have changed, and the ability of each country to deliver relative value continues to grow and change, and therefore it has to be adjusted. I think it will be adjusted in ways that accommodate the changing needs of each country.”
This article was first reported by The Globe and Mail
