Emariti investors to look beyond slowing home markets and expand into Africa, China, India and other markets
The introduction of new regulations such as the Public-Private Partnership (PPP) law in Saudi Arabia will see an increased number of PPP projects get off the ground in the region, with a growing focus on renewables, transportation, education and healthcare.
The impact of key market regulations will become clearer as they are approved and implemented, said Hogan Lovells, in its report, Investment Outlook 2019 Report: Economic Trends and Corporate Transactions in the GCC. Oman is likely to have a new PPP law, while the UAE is expected to see new foreign investment laws as well, it added.
In this year’s report, aside from examining trends for capital markets, privatisation and PPPs, Hogan Lovells also examines the prospects for foreign direct investment (FDI), growing trade and investment ties with Africa and China, and the Gulf region’s emergence as Silicon Valley’s leading venture investor.
The report also pointed out that Emirati investors will continue to expand out of their slowing home market and will look to take advantage of growth potential in Saudi Arabia, and increased ties with Africa, China, India, Russia and Latin America.
Furthermore, it said that sovereign wealth funds like Mubadala and Saudi’s Public Investment Fund (PIF) are likely to expand their investment in global ventures, which would be increasingly financed by loans. In addition, these funds could also start investing more actively into their home economies to make up for a lack of foreign investment and struggling private sectors, it said.
Hogan Lovells said that the macroeconomic picture in the GCC had improved significantly across the region over the last 12 months. Increased oil production and a more benign fiscal environment has translated into improved GDP growth, the report explained.
Saudi Arabia and the UAE returned to fiscal surpluses in 2018, which Oman’s deficit narrowed very sharply. Bahrain pulled back from crisis after receiving support from Saudi Arabia, the UAE and Kuwait, it added.
However, there are challenges in 2018 that could transition over to 2019, it pointed out, adding that GDP growth has not yet delivered a better environment for the private sector, it said.
“Also, the low hanging fruit has gone, hindering the high growth rates we have become used to. The global and regional framework grows ever more challenging and harder to navigate,” the report stated.
“However, there are also key opportunities shaping Gulf markets this year, including: Growing trade and investment ties. With the US becoming a less predictable partner, Gulf countries are making efforts to develop ties in new markets,” it added.
In Saudi Arabia, a number of privatisation deals, currently in the pipeline, are likely to be completed in 2019. Also, the sovereign wealth funds are investing into global ventures.
“The major opportunities shaping Gulf markets include the UAE’s strong position as a gateway for investment into Africa besides the transformation in China’s relations with the Gulf over the past year, and Brexit, whilst causing financial markets to suffer, could be seen as an opportunity for GCC nations to strike mutually beneficial trade deals directly with the UK,” it stated.
In addition, the Gulf states have emerged as leading venture investors into Silicon Valley, with key players establishing offices there to focus on high-value tech investments. Within the Middle East, there has been a wave of tech start-ups, most of which were founded after the recession. These are now reaching critical mass and attracting serious capital investment, it said.
GCC governments continue to attract foreign investment by offering far-reaching reforms, unlocking state-owned assets and loosening restrictions. New regulations such as the PPP law in Saudi Arabia, and possibly Oman, as well as the Foreign Investment Laws in the UAE and Qatar are encouraging investors to take a real look at the Middle East, remarked Rahail Ali, the managing partner of Hogan Lovells Middle East.
“GCC economies have proved to be resilient in the face of, at times, depressed oil prices. The growth potential of these markets is huge, and the reform drive is continuing, while government infrastructure spending has grown – a key hook for foreign investment,” noted Ali.
“That is not to say that there isn’t room for further development. Privatization, for example, takes time and local businesses need to adjust to the new regulatory environments,” he pointed out.
“However, government initiatives, such as Saudi Arabia’s Vision 2030, are committed to positive change – which we can already see in the development of sustainable market sectors,” he added.