The UK aims to drum up investment interest from the Gulf in the wake of Brexit-related uncertainty and renewed confidence among GCC businesses as regional economies recover, Britain's ambassador to the UAE said.
"Brexit raises questions in people's minds so we know that, even aside from Brexit, we have to keep on selling the UK as a great destination for investment, now and in the future," Philip Parham said in an interview with The National. Brexit "is an illustration of the fact that circumstances are always changing and you can't just rest on your laurels".
The UK on Wednesday kicked off an ‘Invest in Great Britain campaign to encourage higher levels of Gulf-driven investment in the world's fifth largest economy and seventh easiest place to do business globally, according to the World Bank. The campaign will showcase opportunities in healthcare, education, retail, energy, real estate and infrastructure.
“The UK has for a long time been very successful at attracting direct investment but we’re not complacent about the competition, which is considerable, and of course Brexit has had its impact," Mr Parham said. The decline in the value of the pound since Britain's vote to leave the European Union has made UK exports cheaper and the kingdom's market more attractive, he added.
UK-UAE bilateral trade increased by around 11 per cent year-on-year to £14.6 billion in 2016, Mr Parham said. The figure is significantly below the target set by both countries in 2015 to double trade by 2020, he said.
“This was clearly a very ambitious, aspirational, target,” he said. It had been based on a doubling of bilateral trade between 2009 and 2014, from roughly £7bn pounds to £12bn, due to a resurgence in business activity after the global financial crisis. The value of UK exports to the UAE currently stands at around £9bn per year.
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The ambassador is optimistic about growth in the year ahead. “There are lots of good reasons why [trade and investment] should grow. In the last couple of years, growth slowed in the UAE due to the low oil price but growth is predicted to bounce back again next year to somewhere between 2 and 4 per cent.
The UK exports more to the UAE than to any other country outside Europe apart from the US and China.
“Just take growth of UAE airlines,” Mr Parham said. “The value of contracts for the sale of aircraft engines by Rolls-Royce to Emirates and Etihad...and of course deals struck in one year then involve exports over the years ahead.”
UK aerospace giant BAE Systems’ plans to cut 2,000 jobs are unlikely to have a knock-on impact on the firm’s business in the Gulf, Mr Parham said, “because they see opportunities here and believe their operations are well suited to those opportunities”.
Meanwhile, UK construction companies – whose work in the Gulf was hard hit by the low oil price – are starting to see a resurgence of business due to improved market sentiment. “In Dubai, Expo 2020 is generating a significant deal flow for British companies,” he said.
There are around 100,000 UK nationals living in the UAE and around 1.5 million British tourists visit the UAE each year.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Killing of Qassem Suleimani
Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
