Opportunity knocks for GCC countries with Brexit tie-ups

Brexit could provide a golden opportunity for GCC countries to deepen their economic ties with the UK.

If enacted, Brexit would mean that GCC proposals to trade with Britain are no longer subject to the approval of a 28-country trading bloc. Gulf countries’ attempt to negotiate Free Trade Agreements with the EU since the late 1980s and formal negotiations since 1990 may finally gain traction with the UK on a bilateral basis.

There is significant room for growth, as the GCC’s trade with the UK accounted for just 2.7 per cent of the region’s global trade last year, according to ratings agency Moody’s.

Shortly before his appointment as secretary of state for Brexit under the UK’s new prime minister Theresa May, David Davis said the UK should move towards an export-based economy that leverages trade agreements with long-time allies including the UAE.

There is a strong economic foundation on which to bolster UK-UAE trade. More than 5,000 British companies operate in the UAE, which is also an important entry port for t he UK’s £150 billion (Dh725.37bn) regional market, much of which is re-exported to Saudi Arabia and Iran, according to the latest data from the UK government’s Trade and Investment Office. British exports to the Gulf include telecommunications, power generation, electronics and transportation.

The World Bank ranks the UAE as the easiest country to do business with in the Middle East, which bodes well for trade in the lead up to the Expo 2020 in Dubai.

Free trade agreements with the Gulf and beyond would be well-timed for the UK’s economy, as the British bank Barclays is forecasting a contraction in Britain until at least mid-2017. The bank is forecasting growth in the current quarter at an annual rate of minus 0.2 per cent, followed by minus 0.3 per cent in the fourth quarter and minus 0.4 per cent in the first quarter of 2017. Many businesses are shelving their investment plans until the political uncertainty over Brexit has cleared. These numbers are weakening investors’ confidence – the foundation upon which healthy economies are built. The severity of a recession that threatens to strangle the UK’s job and wealth creation will wholly rely on the effectiveness of the economic measures laid out by the Bank of England and the British government over the next quarter. A waiting game ensues.

There are potential bumps in the evolving UK-GCC relationship. A growing appetite among sovereigns and companies in the Gulf for internationally syndicated loans and bonds is often characterised by cheap pricing, which UK banks may not be able to sustain if the economy falls into a deep recession. Gulf borrowers would be safe, however, thanks to their already large and diversified sovereign wealth fund portfolios and lending partners in the US and Japan, and Europe to a lesser degree.

One piece of good news is that the weak pound enables Gulf investors to buy more coveted residential and commercial properties in London and the surrounding Home Counties.

Investors from the UAE, Saudi Arabia, Qatar and Kuwait are particularly keen on expanding their UK property portfolios to diversify their energy-centric economies. Gulf countries’ appetite for economic diversification through foreign assets has correlated to the steep downward trajectory of oil prices.

For now, Mrs May insists she will not invoke Article 50 – the process that would break the UK’s ties with the EU – until the country’s devolved nations – Scotland, Northern Ireland and Wales – all agree. When that might be is still unclear, though early 2017 looks likely. Gulf countries should get their negotiating teams on planes to London quickly, as the UK has already offered a Brexit-free trade deal to Australia and many allies are eager to lock in deals with the world’s fifth-largest economy.

Sean Evers is the founder and managing partner at Gulf Intelligence.


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