Cairo – Decypha: With oil prices continuing to hurt the economic outlooks of GCC countries, local private investors and sovereign funds are looking outside the alliance for investment opportunities to counter the drop in oil revenue at home. In 2015 and 2016, GCC outbound direct investments reached $19.07 billion and $20.17 billion, respectively, compared to $16.4 billion in 2014, according to data from CEIC, a data-compiling portal overseen by the Euromoney Institutional Investor Company. Where and which sectors GCC investors invest in are not only determined by economic priorities, but also politics.
Not all GCC countries can promote outbound FDI. One example is Oman, which witnessed a contraction in outbound FDI since 2001 to date. Between 2009 and 2010, this contraction increased from $100 million to $1.5 billion. Since then, outbound FDI has contracted by at least $800 million a year, according to CEIC data. On the flip side, UAE outbound FDI reached $13.6 billion in 2016 compared to an all-time high of $16.7 billion in 2015. Outbound FDI had been increasing since 2002 with the lowest outflow reaching $2.5 billion annually between 2008 and 2010, during the global and Dubai financial crises. Qatar and Kuwait saw outbound investments in 2016 reach $3.3 billion and $2.3 billion, respectively. Saudi Arabia and Bahrain outbound FDI in 2016 topped $806 million and $170.2 million, respectively, according to CEIC.
Turkey, a Favored Destination
For GCC investors, Turkey is a unique and extremely attractive destination to invest in. In 2016, 12 delegation visits were organized between GCC and Turkey to promote crossborder investments. This is more than either have done with any other country or coalition. GCC investments in Turkey reached $460 million in 2015, up from $364 million in 2014, according to the Turkish Central Bank. Last years investment figures are not out yet. In the coming few years, $100 billion in investments from the GCC will be directed to Turkey, according to Turkish media.
This interest comes amid a devaluation of the Turkish Lira from TRY 1.9 to the dollar in 2013 to TRY 3.56 to date, and inflation increasing from around 7% to just under 12% between August 2016 and February 2017. “We decided to go ahead with these investments because there is real political cooperation between GCC and Turkey… I think we will be able to solve the high foreign exchange rate negative impact on the economy through investments,” said Zayed Bin Oweida, head of the Abu Dhabi Investment Authority as reported by Al Iktesady portal in January. He didn’t put a dollar figure on these investments
The high status of Turkey with GCC investors is the result of investment- and business-friendly legislation reforms that Turkey have been implementing to ultimately become an EU member state. Also, these reforms aim at diversifying Turkey’s investment landscape. “The investment laws in Turkey particularly appeal to Qatari and GCC investors, and this opens up investment opportunities in a number of sectors,” said Qatar Chamber of Commerce and Industry (QCCI) vice chairman Mohamed bin Ahmed bin Tawar al-Kuwari speaking to Al Khaleej Online in mid-January. Also appealing to GCC investors is that because part of Turkey is in Asia while the other is in Europe, local investments have easy access to the European market. “It is our door to Europe,” said al-Kuwari. “It is also a muslim country, which greatly reduces a lot of barriers.”
Investing in Food Security
Among the serious issues facing the GCC is that they import the majority of their food needs as they lack sufficient freshwater rivers and underground, allowing them water to have sizable arable land to meet local demand. If their strategy doesn't changes, GCC countries are forecasted to import around 90% of their food needs by 2030, according to an Oxford Business Group report published in 2015.
To ensure a sustainable supply of food, GCC investors are investing in agriculture and agribusiness in Sudan, Ethiopia, Mali, Mauritania, Mozambique and Tanzania among other eastern African nations. To benefit both GCC and the host nation, investments operate under a 50:50 production-split agreement, according to Khadim Al Darei, vice chairman of Al Dahri Holding, a Saudi conglomerate that applies this business model. “We have avoided many problems by using this model,” he told Oxford Business Group.
Sub-Saharan Africa is particularly attractive because its combined GDP growth by the end of 2015 reached 3.6% compared to a global average of 3.1%. Also, the region is critically underserved, and their leaders eager for FDI. This translates to investment incentives, flexibility in agreements and promoting public-private-partnership (PPP) projects to build basic infrastructure, according to OBG. The PPP model is prefered for GCC investors who would otherwise have to contend with the lawless and bureaucratic systems of said countries. Accordingly, several Sub-Saharan countries have reformed their investment legislative frameworks. In Kenya, leasing plots for investors and renewing agreements are contingent on negotiations between government and investor, after being a unilateral decision by the state. Meanwhile, Ghana is offering tax exemptions for foreign investments in agriculture located in the north of the country.
Being consumption-driven economies, there are diverse investment opportunities. In east African countries, manufacturing, retail and hypermarkets, automotives, commercial banking and tourism are high-potential sectors, according to a Dubai Chamber of Commerce and Industry report in 2015. “These are popular [sectors] with Gulf investors”, the report said. To date, GCC investments in Africa reached $9.3 billion between 2005 and 2015, adding another $2.7 billion during the first half of 2016. Among the projects planned for execution in 2017 is a $150-million sukuk issuance by Emirates NBD in Dubai to finance several infrastructure projects in Africa. Meanwhile, Dubai Ports are investing in a logistics center in Rwanda for an estimated $35 million.
Property Investment
Individual GCC investors and sovereign funds have long had an affinity with buying property in Europe, and especially the UK. “There have been very close historical, cultural and economic relationships between the Gulf countries and the UK,” said Andrew Prince, Director at British Business Group for Dubai and Northern Emirates, a marketing firm, talking to Al Arabya early February. “These relationships have... resulted in, among many other things, a desire to invest in the UK, and specifically London which many Arabs would consider their home-away-from-home.” GCC investors are allowed to rent-out the property they buy, known in the UK as “buy-to-let,” which is good for the diversification of income.
Property investments increased after Britain's decision to exit the EU and the subsequent devaluation of the British pound versus the dollar. This meant cheaper property for GCC investors because their currencies are pegged to the dollar. “Investors... are shrewd enough to recognize that any current Brexit-related volatility is short-term,” said Prince to Al Arabya. This is because the UK is a “mature, well-regulated market with a solid track record for capital appreciation,” said Robin Teh, the UAE Country Manager/Director Valuations & Advisory at Chestertons, a London-based residential property agent, whose GCC clients bought property worth $166 million in 2015, as reported by Al Arabya in February 2017. Prince added that the UK’s stable macroeconomic and policy outlooks make it a favored destination for property FDI.
In continental Europe, GCC investors are favoring hotel acquisitions. GCC buyers accounted for 20% of all hotel purchases in 2015, which topped $25 billion, according to HVS, a research firm specializing in hotels. This is three times more than what GCC investors spent on European hotels in 2007, which was the height of the property boom, according to CBRE, a property broker. GCC hotel investors made the most acquisitions in the UK with €2.7 billion. They also invested in hotels in Italy worth €570 million and France worth €566 million. "Medium to long-term investment into these top-tier hotel assets generally reward owners with a high level of stability in an increasingly volatile world of commodities and equities," said Nick Maclean, the managing director at CBRE Middle East to The National in January 2016.
By figures, Europe is the most attractive region in the world for touristic investments. By the end of 2015, 272 million visitors visited the five biggest European tourist destinations. The five biggest destinations outside Europe saw 236 million tourist arrivals. Europe is also outgrowing competing destinations with tourist arrivals to those five countries growing at 4.38% in 2015 compared to 3.84% for the biggest five destinations outside the continent.
The Investment Shift
Rewind to late 2015, and GCC investors were exiting investments in, an economically-weakening, Europe and increasingly looking to the USA for new investment opportunities. In October 2015, Qatar Investment Authority, which oversees the country’s sovereign wealth fund, had reported $12 billion in losses mainly from its investments in German automotive giant VW; and Glencore, a swiss commodities trader; among others. QIA had already sold its stake in Hochtief, a German construction firm, and was contemplating selling French builders Vinci, as reported by the Financial Times at the time.
At the other side of the Atlantic, in September 2015, QIA was inaugurating its New York office and announcing broad plans to invest $35 billion in the USA until 2021. “[We are] seeing more direct investment in the U.S. by Arab governments and individuals than at any time in memory,” said David Hamod, President of the National US-Arab Chamber of Commerce to The Arab Weekly. Supporting this expansion is the U.S.-GCC Business Initiative, launched in 2014 to promote US investment opportunities to GCC investors.
This positive outlook turned cautious during 2016 after the U.S. Senate approved the Justice Against Sponsors of Terrorism Act (JASTA) which will allow U.S. citizens, who have lost relatives in the 2001 911 terrorist attacks, to sue the Saudi Arabian government for compensation as the culprits were identified as Saudi nationals. "Populist legislation in the JASTA case prevailed over rationalism… The repercussions will be serious and enduring," tweeted Anwar Gargash, the UAE Minister of State for Foreign Affairs, after the announcement. Economists are concerned. "The law will certainly confirm the thinking that the US is moving away from its strategic relationship with Saudi Arabia and the rest of the GCC," said Christian Koch, director of the Geneva-based Gulf Research Centre Foundation to the National mid-2016.
Looking to 2017 and beyond, it doesn’t help that current U.S. President, Donald Trump is taking an anti-Arab stance, for example attempting to temporarily freeze entrance visas for some Arab nationalities just months after taking office. This is putting “billions of dollars in investments [in the USA] at risk,” said John Sfakianakis, head of research at the Gulf Research Center in Saudi Arabia to Gulf Business in December 2016.. Both Trump and the majority of the 2016 congress are democrats.
For GCC investors, with so much volatility in the alliance, they are left with little option but to invest their wealth elsewhere, at least, until their economies recover. “If the [U.S.] rhetoric becomes policy, then [GCC] investors will have to look for safe havens,” said Sfakianakis. “That will not be as easy as one thinks.”
By Tamer Mahfouz
