Looming Brexit takes its toll on Gulf Arab economies
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As Britain began its one-year countdown to officially withdrawal from the European Union (EU), decision makers in the Gulf Arab countries started to feel its increasing repercussions on their economies.
In a worst-case scenario, Britain could lose a total of 482,000 jobs by 2030 due to Brexit, according to a study by Cambridge Econometrics.
British media and airline tycoon Richard Branson expressed concerns that Britainâs divorce from the EU could mean âa disasterâ for his country.
Scores of British firms have already reduced, even ceased their business in the Gulf states, due to the dim economic outlook of Britain after its exit from the EU.
In December 2016, Britainâs General Trust and the Daily Mail stopped the 14-year publication of the free tabloid daily â7Daysâ in Dubai and Abu Dhabi.
On Feb. 23, 2017, British investment and financial consultan cy firm Killik&Co. terminated its 10-year presence in the Gulf region, shutting down its only overseas office in the banking free zone Dubai International Financial Center (DIFC).
Killik was not the only British firm which turned its back to the region recently. In February 2017, Britainâs biggest construction and infrastructure investment company Balfour Beatty announced to sell its entire Middle East business for 50.2 million dirham (13.68 million U.S. dollars) to its UAEâs joint venture partner Dutco.
Likewise, Britainâs second biggest construction service firm Carillion, which has been operating in the region for decades, hit the headlines on Jan. 15 when it entered compulsory liquidation due to its huge bank debt.
British media blamed the economic uncertainty, brought about by the Brexit, for Carillionâs bankruptcy.
The sluggish British currency also had an adverse impact on the property market of the Gulf states, in the form of reduced investment fr om British institutional and individual investors, said Craig Plumb, head of research for Middle East and North Africa at the real estate advisory firm JLL in Dubai.
The reason behind this correlation is simple: the Gulf Cooperation Council (GCC) currencies are all pegged to the greenback (with the exception of Kuwait whose dinar floats against a dollar-dominated basket of currencies), thus a lower pound sterling means less buying power for the GCC.
âBut for the approximately 100,000 British citizens living in the UAE, nothing changes, as their salaries are not exposed to currency exchange risk hence they do not suffer from decreased purchasing power when buying property here,â added Plumb.
But according to Jesse Downs, Managing Director of Dubai-based Phidar Advisory, there are no signs the sluggish UAE real estate market would perform a turnaround in 2018.
Low buying power was the reason why Lebanonâs biggest developer Solidere delisted its overseas shares as Global Depositary Receipts (GDRs) from the London Stock Exchange (LSE) in June 2017, citing âlow trading volumes.â
Other Gulf Arab companies said good-bye to London even before the Brexit vote. Bahrainâs major Islamic financial institution Gulf Finance House delisted from the LSE in 2015. Its management stated then that âthere had been virtually no activity in the Bankâs GDR on the LSE.â
Dubai Ports (DP) World, the third biggest commercial port operator globally, already pulled out of the LSE in 2014. DP Worldâs domestic market remains in the Nasdaq Dubai. Asked if the Brexit led to lower British investments into shares traded on the DIFC-licensed market, a Nasdaq Dubai spokesperson declined to comment.
Looking abroad, DP World stocks are still traded on Germanyâs biggest stock exchange in Frankfurt. âBankfurtâ, as the city is nicknamed, is the main beneficiary of the âBrexodus,â a portmanteau which describes the mass exodus of Britain-based firm s relocating to continental Europe.
Among these financial firms leaving the London Square Mile for the German business metropolis are lenders like Japanâs Daiwa and Sumitomo Mitsui Financial Group. Deutsche Bank and U.S. lender JP Morgan started to move ample investment banking resources from the River Thames to the Main River.
Nevertheless, Abdullah Bin Ahmed Al Saleh, undersecretary of the UAEâs Ministry of Economy for Foreign Trade Affairs said the UAE was eager to expand two-way trade âwith both Britain and our existing partners in Europe as well as with new partners in Africa, Latin America and elsewhere.â
The UAE is Britainâs largest importer in the Middle East, according to Britainâs Department of International Trade. The Europeâs third biggest economy exported to the Gulf state goods and services of 9.8 billion pound sterlings in 2016.
Lots of global brands have already adjusted their strategies in response to Brexit. From March 25, 2018 onwards , Australiaâs largest airline Qantas will no longer stop at Dubai from Sydney to London as the carrier will re-route its stopover to Singapore.
However, some remained optimistic on the future relations between the Arab world and Britain.
âWe have seen Saudiâs Crown Princeâs visit to London last week. Many deals were signed, which proves the strong relations and the historical ties between the Gulf region and Britain,â said Saeed Mohammed al-Tayer, CEO of Dubaiâs Electricity and Water Authority (DEWA).
During his three-day visit, the Crown Prince, who led the economic reforms âSaudi Vision 2030,â agreed with British Prime Minister Theresa May on a 65-billion-pound bilateral trade and investment target.
However, the dual-listing of 5 percent of the worldâs biggest oil producer Saudi Aramco on the LSE trading platform and its home market Tadawul in Riyadh has not been decided yet.
Saudiâs Energy Minister Khalid Al-Falih said last week that his go vernment was still considering the LSE as well as other exchanges.
âIn due course, we will announce the venue of the listing,â said Falih.
Saudi Crown Prince will meet U.S. President Donald Trump next week and a possible going-public of Saudi Aramco at the New York Stock Exchange will be discussed. The future of the post-Brexit Britain-GCC jigsaw is yet to be set.