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Mon 2 Sep 2019 07:49 AM

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What will a no-deal Brexit mean for GCC residents and investors?

Price hikes, slowing investment and bargains for investors - all possibilities under a 'no-deal' Brexit scenario

What will a no-deal Brexit mean for GCC residents and investors?
What does the prospect of a no-deal Brexit really mean for those in the GCC?

British Prime Minister Boris Johnson’s decision to extend the annual suspension of parliament until just two weeks before the Brexit deadline has stoked fears of a harmful exit for the UK from the EU, due on October 31.

But what does the prospect of a no-deal Brexit really mean for those in the GCC?

Price hikes

Gulf states are already the fourth-biggest non-EU export market for the UK. On a recent visit to the UAE, the UK’s international trade minister Liam Fox laid out plans for bilateral trade amounting to £25 billion (AED112 million) by 2020.

Foodstuffs are a major part of UK-GCC exports; a no deal Brexit could potentially make the overall supply of British food products more scarce and more expensive.

What’s more, supermarkets in the UK have warned that there could be empty shelves and higher prices. Modified tax structures and transport delays could all lead to a rise in prices — but British exports to the UAE could be mitigated by a fall in the value of the pound.

Slowing investment

As long as there is uncertainty surrounding a no deal Brexit, the immediate impact of this is felt through volatile local markets and a ‘wait and see’ approach to investment.

Britain has over the years accumulated the third largest amount of foreign investment by value, after the US and China, according to a report published in June by the United Nations Conference on Trade and Development, a UN intergovernmental body.

However, in the three years to June, foreign capital deployed in British greenfield investment fell by nearly 30 per cent to $83.4 billion.

Brexit bargains

In the event of a no deal Brexit, some analysts expect the UK property sector to see a boost in Gulf investment — since investors buying in dollar-pegged currencies such as the UAE dirham can pick up discounted deals.

“Many Gulf investors are sitting tight whilst others are actively seeking opportunities. The devaluation in particular has made UK assets attractive for dollar based investors,” CEO of Dubai-based Rasmala Holdings, Zak Hydari, told Arabian Business.

“Although Brexit will have a short term negative impact on the UK economy, it will remain one of the largest economies in the world and, despite the uncertainty, it will continue in its role as a safe haven for Gulf investors.

“Since the referendum in 2016 we have invested heavily in the UK and will continue to do so,” said Hydari.

Rasmala, which operates in the UK-Gulf corridor, has invested over $750 million in the UK in total.

“You may find this hard to believe but this year one of Rasmala’s most active strategies has been UK real estate. I’ve seen a lot negative commentary but I’m more optimistic and believe a hard exit could create once in a lifetime opportunity for Gulf investors,” said Hydari.

Professor Stephen Thomas, Associate Dean, MBA Programmes at Cass Business School (Dubai and London) said that currency markets are likely to ‘overreact’ to a no-deal Brexit.

Thomas predicts that there will be ample opportunities for Gulf investors to pick up London property and UK firms relatively cheaply.

“If a no-deal is accompanied by a pro-business, low tax government, then within a few years the UK economy will see a strong rebound and Gulf investors who commit now should see a handsome return.

“In other words, a no-deal should open up good opportunities for external, non-UK investors,” the business expert said.

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