Rapprochement in the Gulf: opportunities and challenges
On Wednesday 7th April 2021, Aperio Intelligence hosted a webinar to discuss the opportunities and challenges for businesses and investors in the Gulf region following the recent rapprochement between Qatar and its Gulf Cooperation Council (“GCC”) neighbours. The webinar highlighted the positive practical implications of the normalisation of ties for companies operating in the region, the remaining obstacles, and the wider geopolitical context.
The webinar was chaired by Aperio Intelligence’s Head of Middle East and North Africa (“MENA”) practice, Larissa Normanton. Three external panellists joined us to share their experience and insights:
- Dr Cinzia Bianco joined us from Berlin where she is a visiting fellow at the European Council on Foreign Relations;
- Mahmoud Abuwasel joined us from Abu Dhabi where he is managing partner of law firm Wasel & Wasel; and
- Joe Hepworth joined us from Dubai where he is Middle East director at trade, investment and economic development consultancy OCO Global.
A recording of the webinar is available here.
On 5th January 2021, the GCC leaders met in the city of Al-Ula in Saudi Arabia, where they signed an agreement to end the most far-reaching internal dispute the GCC has faced since its inception in 1981. The dispute culminated in a three-and-a-half year diplomatic and economic embargo of Qatar led by Saudi Arabia, the UAE and Bahrain. The effects of the Covid-19 pandemic on the oil-dominated economies of the Gulf, coupled with the arrival of a new political administration in Washington, are widely viewed to be amongst the key drivers of the detente. In their pursuit of rapid diversification away from hydrocarbons, the urgency of which was highlighted by the fall in oil prices caused by the pandemic, the dispute was a barrier that economies such as that of Saudi Arabia could not afford economically.
What have we seen over the last three months in terms of relations between GCC governments and what does this mean for state-level economic collaboration?
Dr Cinzia Bianco noted that GCC states are balancing the need to focus inwards on domestic economic priorities with the importance of collaborating with GCC neighbours to achieve their wider diversification goals. Dr Bianco also emphasised the importance of bilateral relationships between GCC states in guiding investment decisions, and the importance of understanding how political realities project into the economic sphere.
Following the normalisation of ties, Dr Bianco highlighted that on one hand, Saudi Arabia, Kuwait and Qatar are seeking to regionalise their economic plans and have injected fresh momentum into long-discussed energy grid, infrastructure and transportation plans. Bilateral investment between Saudi and Qatar also appears to be gathering pace. For example, Qatar is investing in Saudi’s Vision 2030 whilst Saudi recognises the opportunities that will arise from the 2022 football World Cup in Doha as it looks to develop its tourism sector.
Conversely, there has been limited collaboration between the UAE and Qatar, in part due to competition to attract the same types of FDI – they are “arguing over the same piece of cake” as Joe Hepworth put it. Instead, for the moment, the UAE is focusing on its economic relations with its core GCC allies Saudi Arabia and Bahrain, as well as looking further west, to Israel, following the signing of the Abraham Accords last year.
Oman, meanwhile, is currently focused on its domestic economic challenges as Sultan Haitham bin Tariq takes the reins and renews the focus on the country’s economic development.
Of note, the factors that initially drove the normalisation of relations between Qatar and its neighbours – namely oil prices and relations with Washington – will remain important in determining how the rapprochement and subsequent economic developments play out, in terms of economic and political pressure for regional collaboration.
Have companies operating in the GCC benefited from the normalisation of relations?
Mahmoud Abuwasel explained that, following the announcement of the rapprochement, a large number of projects which had been on hold for the past three and a half years, were promptly restarted. Trade relationships with Qatar have resumed, meaning that once again, companies with a presence in any one of the GCC countries can enjoy the benefits of the GCC economic union for ease of operations in all member countries, including Qatar. The rapprochement has significantly improved individual companies’ financial positions. During the embargo companies faced logistical issues and higher costs associated with trade routes bypassing Qatar. The normalisation has thus enabled many companies to increase their margins.
The return of Qatar to the economic union has been a boost for the UAE and its sales pitch as a base for international companies wanting to access the whole GCC. In this respect, Israel is now in scope too; the UAE can market itself as an access point to the whole region, including Qatar and Israel. Indeed Joe Hepworth mentioned that recent trade shows in Dubai show high levels of Israeli interest in investment in the UAE.
What impact has the rapprochement had on foreign direct investment (“FDI”) trends in the GCC, and what are the wider contextual and geopolitical considerations in this regard?
Joe Hepworth noted that over the last six to nine months the effects of the Covid-19 pandemic have delivered a major blow to FDI flows into the GCC. As a result, there is increased competition for FDI between individual GCC states and a flurry of new schemes introduced to pull in investment. These include announcements around 100% foreign ownership structures and even the introduction of residency visas, alongside Saudi Arabia’s announcement that foreign companies must relocate their regional headquarters to Riyadh in order to win business in the country. These all represent dramatic shifts for foreign investors and expats working in the GCC. Economic necessity means attracting FDI is becoming a more sophisticated and strategic process.
In terms of immediate opportunities for outside investors in the GCC, the two big upcoming events, this year’s delayed Expo 2020 in Dubai and the 2022 World Cup in Doha, will help galvanise interest. This is the first time that events of this magnitude have been held in the region and GCC governments will be desperate to make the most of them. Longer term, every country in the GCC has an economic ‘vision’ plan, the highest profile being Saudi Arabia’s Vision 2030. All of these have been put under pressure by Covid-19 and have been catalysed as the drop in oil prices has highlighted the critical importance of these economic diversification plans for the economic survival of the GCC states. These policies are set for the next 10 to 30 years and there are numerous ways to tap into them.
Looking further east, Chinese companies are beginning to set up in the UAE to facilitate trade with the US under a regional certificate. All GCC countries want to benefit from the Belt and Road Initiative, they “want to be welded on nodes” to it for the next 50 years, as Joe Hepworth explained.
Aperio Intelligence’s MENA practice provides due diligence, strategic intelligence, investigations and ESG services throughout the MENA region – from Morocco and Mauritania in the West to Iran and Afghanistan in the East. We work on behalf of financial institutions, investors, leading corporates, sovereign wealth funds and law firms to provide insightful intelligence and accurate analysis, supporting critical business decisions.
Larissa Normanton leads Aperio’s Middle East and North Africa (MENA) practice, managing a wide range of MENA-focused but multi-jurisdictional investigations, strategic intelligence projects and due diligence assignments for corporates and financial institutions. Larissa has spent a considerable amount of time living and working in the Middle East, including in Amman, Muscat, Dubai and Jerusalem. Larissa is a Certified Fraud Examiner (CFE) and speaks Arabic.