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Fri 1 Feb 2019 01:55 AM

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Is Brexit good news for the GCC?

Simon Penny, Her Majesty's Trade Commissioner for the Middle East, Pakistan and Afghanistan, is optimistic that the Gulf countries - and British companies operating in the region - stand to benefit from the UK's departure from the European Union

Is Brexit good news for the GCC?
Penney is playing a key role in UK’s efforts to boost export growth and two-way investment in the region

As Her Majesty’s Trade Commissioner for the region, Simon Penney has an enormous task in front of him, with a remit stretching from the GCC to the Levant, Iran, Pakistan and embattled Afghanistan.

But rather than be daunted by the enormous geographical scope of his job at a time in which the spectre of Great Britain’s exit from the European Union (EU) looms over the world, the former Royal Bank of Scotland (RBS) CEO is confident. Brexit, he says, will be a “positive story” in the Gulf.

Looking to the future, Penney – who also served as the head of wholesale and international banking at First Gulf Bank (FGB) between 2013 and 2016  – says the Gulf plays a crucial role in Britain’s trade plans across his region, accounting for £40bn ($50.83bn) of the UK’s £45bn ($57.19bn) worth of trade with the 12 countries that fall within his purview.

This figure, he explains, is set to soar to new heights as British companies increasingly look beyond Europe, with a rising number of British firms doing business outside the EU forming a significant part of the government’s aim of increasing trade’s contribution to GDP from 30 to 35 percent.

“[Brexit] is incredibly politically charged at the moment, for very obvious reasons. A lot of the focus is on the terms upon which the UK withdraws,” Penney tells Arabian Business. “If you look beyond withdrawal, and you look at the basis upon which the UK will trade going forward, it’s a very positive story, certainly for this part of the world.”

[At the time of writing, the UK is still scheduled to leave the EU at 11 PM UK time on Friday, March 29. There remains a possibility that a delay will be requested, as well as a chance that a second referendum may take place, which may lead to Brexit not taking place at all.]

If you look at the basis upon which the UK will trade going forward, it’s a very positive story

At the forefront of Britain’s aim of boosting the GDP contribution of exports, Penney says, will be British companies who at the moment are exporting solely to the EU, or not exporting at all.

“We’re not going to do that with the existing number of companies that export,” he explains. “A very significant focus of our export strategy [is getting] more companies to focus on exports.”

At the moment, Penney adds, there are approximately 400,000 export-ready firms in the UK that do not currently export – but will now be in a better position to join the thousands of British firms that are already present in the region, including 6,000 operating in the UAE.  “Our job in the region... is to identify and provide opportunities for those companies to export,” he says.

Penney says that the relative ease of doing business in the Gulf countries – largely because of low tariffs – means that the British government can focus more on bilateral areas of its trade relationship with countries in the region in which governments can work together, such as food import regulations.

“These are non-tariff barriers. They are more mechanical things that you can resolve today. You don’t need a free trade agreement and you don’t need to leave the EU to sort these things out,” he explains. “As far as we see things at the moment, it’s still very much business as usual in the immediate aftermath of Brexit.”

Switching gears

Historically, UK businesses in the region have largely been focused on what Penney terms “traditional” sectors, such as aerospace, infrastructure, engineering consultancy and the supply of building materials, as well as the food and beverage sector.

One of his goals, he says, is to bolster these relationships by lending British expertise to the various ‘vision strategies’ and transformation agendas that GCC governments have embarked upon, such as Saudi Arabia’s Vision 2030 and the UAE’s  vision 2021.

“Where we haven’t been as involved, at a government level, is in working with host governments to realise those transformation agendas,” Penney explains. “You’ll see that those transformation agendas revolve around things like education, healthcare, technology, artificial intelligence (AI), fintech [financial technology], and smart cities. The UK excels in almost all those areas. In fact, the UK, through its own industrial strategy, has faced many of the same challenges that the region faces.”

By lending a helping hand to governments currently undergoing large-scale transformations of their economies, Penney says the UK will ultimately change the nature of its trade relationship with the region.

“What we want to do is share the UK’s work in those areas with other governments,” he says. “It’s aligning the challenges that we’ve identified in the UK with the various vision strategies the region has. In that way, you become a lot more of a strategic partner to the region, as opposed to just selling goods and services.”

The Expo factor

In the UAE, Penney and the British government’s goals received a welcome boost in the form of Expo 2020 Dubai, which he called a “massive” opportunity for UK businesses to showcase innovation at a time when the country is looking outside the EU to do business.

As an example, Penney points to the UK’s Es Devlin-designed pavilion for the event, which features a 20-metre high glowing LED façade that will beam out a collective AI-generated global message to which each of the Expo’s anticipated 25 million visitors will be invited to contribute.

The UK, through its own industrial strategy, has faced many of the same challenges that the region faces

“It very much showcases one of our key themes, which is artificial intelligence. The whole theme of our pavilion will be tech and AI, and that’s really important because that resonates with the UAE,” he says.

Penney adds that many British firms will also benefit from the event because of the exposure they will receive for being part of the larger effort to prepare the Expo 2020 site in collaboration with local partners and the Expo team.

“Expo is really big for the UK firms involved in the design of it, the construction of it and the infrastructure of it,” he says. “UK firms are involved in just about every aspect of it in terms of providing services or goods.”

The timing, Penny adds, couldn’t be better for the UK as it rapidly approaches Brexit, with Expo 2020 (from October 2020 to April 2021) roughly coinciding with the time period in which Britain is scheduled to bid the European Union farewell, following a transition period that will come after the country’s scheduled legal departure in March of this year.

“[It will be] bang in the middle of that time that the UK leaves,” he says. “It’s a fantastic opportunity to showcase itself on the international stage at a point in time in which we have left the EU.”

Long-term commitment to Saudi

Looking at long-term prospects in Saudi Arabia, with whom the UK has a £9bn ($11.35bn) trading relationship, Penney says he believes there is unlikely to be any long-term negative impact on the commitment of British firms to continue doing business in the wake of the killing of journalist Jamal Khashoggi.

He does acknowledge, however, that the incident – which led to several high-profile CEOs pulling out of the kingdom’s Foreign Investment Initiative Forum in October – has put businesses and their relationship with Saudi Arabia “very much in the spotlight.”

“Business was very much brought into the broader debate. You saw a lot of high profile chief executives withdrawing, which obviously politicised business a lot,” he explains. “What we saw was that firms that are familiar with the region and with Saudi Arabia, or already invested in Saudi, remain extremely committed... we haven’t seen any material change in attitude there.”

In the short-term, however, Penney admits that the Khashoggi case may have led companies searching for ways to enter the Saudi market to be slightly more reticent or take a slight pause. Building confidence among these hesitant businesses, Penney adds, is a burden than rests solely on the shoulders of Saudi authorities.

Our job is not just about supporting export, it’s about making sure we have the right trade policy framework in place

“It would be wrong to say that it hasn’t impacted perceptions around the kingdom as an FDI destination. Companies still remain keen, but it’s still a watch-and wait- brief to see what the outcome of the investigation is,” he says.

“The UK government has been very clear. They expect a transparent trial and those found responsible to be held to account. That is separate from business, but you can’t separate that from business. The need for transparency is going to be really important to build that confidence.”

New free-trade agreements?

While in the short-term, Penney maintains that the UK will continue a “business as usual” approach in the immediate aftermath of Brexit, he says that it is “clearly our ambition to have a free-trade agreement in the future.”

“Our job is not just about supporting export, it’s about making sure we have the right trade policy framework in place. You’ll hear a lot of discussion and talk around free trade agreements, future customs unions, et cetera,” he says.

“The EU does not have a free trade agreement today with the GCC. It’s been looking to have one for many years, but has never concluded one…that’s something that we will look towards at some point. But for now it’s not essential to doing business.”

UK at Expo 2020 Dubai

As part of its participation at the Expo, the UK pavilion will deliver a six-month schedule of cultural, educational and business activities under the theme ‘Innovation for a Shared Future’. According to organisers, it will serve to highlight the UK as a destination for trade, investment, education and tourism, as well as the latest British advances in education and science.

UK-Jordan Conference

On February 28, London will host the UK-Jordan Conference to highlight he kingdom as an investment destination for British and European firms, and to promote Jordan’s economic resilience and job creation. The conference stems from a commitment Prime Minister Theresa May announced when she visited Jordan in 2018.

“It’s not just about the UK-Jordan. It’s to provide a global platform for Jordan for everyone to come to,” Penney says. “In discussions with Lebanon and Jordan, we’ve been trying to look at how we can help them better showcase business opportunities.”