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Thu 13 Apr 2017 11:49 AM

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Qatar’s love affair with the UK is at stake

GCC country plans to increase its investment in the United Kingdom by $6.3bn over next five years

Qatar’s love affair with the UK is at stake

Financial technology company Al Resala Group, based a short walk from the curve of Doha Bay, is growing fast. Its brisk international expansion means CEO Sakib Arain is often on the go, too; he spends about half of his time travelling.

Typically, at least once a month he visits the UK, where now more than one-third of the company’s business lies.

“We’ve become a lot more active [in the UK] since the end of 2014,” Arain tells Arabian Business in London. “We’re growing about 12 percent per annum in the capital we put forward to start-ups in the UK. UK start-ups, I would say, are about 34-36 percent of our focus, which is a very significant chunk. We believe there’s a lot of talent out here that needs to be nurtured.

“We’re holding steady at where we are at the moment, but we would hope… that we would grow our exposure in the UK to just under 50 percent [of the company’s total].”

The intention is increasingly common among Qatari firms. As the Gulf state’s economy wanes amid low oil prices and sentiment, they are looking for investment and business opportunities abroad — with the UK at the top of the list.

During the Qatar-UK Business and Investment Forum held in London at the end of last month, Qatar’s Prime Minister, Sheikh Abdullah Bin Nasser Bin Khalifa Al Thani, announced the country planned to increase its investment in the UK by $6.3bn over the next five years, with a particular focus on industries including infrastructure and healthcare.

The UK’s exit from the European Union, a process that was officially started last month, has added impetus to the two nations’ desire to work more closely. While the UK needs deeper bilateral ties, Qatar is already heavily invested in the country and has an interest in keeping the economy and asset prices strong.

About 90 percent of the UK’s gas imports come from Qatar, while the emirate owns or has stakes in major assets from Heathrow Airport to The Shard. Its real estate portfolio in the country is estimated to be worth about $50bn; it also has billions invested in Barclays; it owns or has stakes in Harrods department store and Sainsbury’s; and London is the number one choice for Qatari students and healthcare patients.

The Qatar-UK Business and Investment Forum brings together investors, ministers and senior government representatives from Qatar and the UK including Secretary of State Liam Fox.

British Secretary of State for International Trade Liam Fox, a Brexit supporter, says bilateral ties are now more important, particularly with existing partners.

“After 40 years, Britain will have a chance to develop our own trade policy. We’re now opening a new chapter in our history,” he told Qataris at the investment conference.

“We’re looking beyond the borders of our own continent. It means strengthening our commitment to our oldest friends and allies; Qatar is one of these.”

British Prime Minister Theresa May also recently announced a joint economic and trade committee to help facilitate a free trade agreement (FTA) between the UK and the Gulf Cooperation Council (GCC) member countries. Efforts to forge a similar deal between the European Union and the GCC have long been stalled. The UK’s exit from the EU allows it to pursue an FTA single-handedly and is more likely to be successful.

Qatari interests, too, are remaining bullish about post-Brexit prospects. Imran Zaidi, head of financial institutions for the Qatar Islamic Bank (UK), suggests Brexit would not deter potential investors.

“The UK is a financial hub irrespective of what’s happening in terms of Brexit and short-term uncertainty. In the long term [prospects are] very, very positive … We have very positive support from the UK government,” he says.

The strength of UK-Qatar ties is sometimes put down to history: what is now Qatar was under British rule between 1916 and 1971. While acknowledging this was a factor, Arain of Al Resala Group says present-day reasons are also at play.

“The UK has the infrastructure that we aspire to. They have the sectors in place. They have the systems in place. These are the things we’re trying to replicate in Qatar, not only in the corporate world, but in the political world as well,” he says.

But while Qatar has typically preferred headline-grabbing assets, the UK is attempting to direct more of its investment to regional areas. Fox argues “the greatest opportunities” for investors are outside London, particularly in northern England, an area that, like many other former European centres for heavy industry, is striving to regenerate.

The Gulf state has not been immune to the regional business case. Qatar Petroleum owns 67.5 percent of Wales’ South Hook LNG Terminal Company, a joint venture between QP, Exxon Mobil and Total. Other Qatari companies are also investigating the opportunities. Doha-headquartered logistics firm GWC (formerly Qatar Warehousing Company), which already has more than 400 clients globally, is exploring options in the Midlands region in central England.

“Qatar has become a logistics hub… so us being here [in the UK, too] should add value to the client base we’re serving here,” spokesman Mohammad Daoud says. “It’s part of our growth strategy, to seek opportunities in new markets when there are fruitful opportunities that will offer best returns to our shareholders and best solutions and value to our clients.”

Regional UK businesses also are keen to attract Qatari investment. Properties Unique manages serviced apartments in and around Newcastle, a city in England’s north-east that has undergone substantial regeneration since it was hit by a decline in heavy industries that were once the centre of its economy.

Vivien Herrera-Lee, Properties Unique’s managing director and a member of the Arab-British Chamber of Commerce, says she has hosted visitors from the Gulf in her properties but is pushing for real investment, including property development.

“At meetings like this, perhaps you can meet someone interested in looking at it at a wider angle than just London,” she says, referring to the investment conference.

But the investment is not a one-way street. British firms are also keen to take advantage of the rapid growth expected in Qatar thanks to the infrastructure and other spending linked to the 2022 World Cup, to be held in Doha. The International Monetary Fund (IMF) has forecast 3.4 percent GDP growth in Qatar this year, up from 2.7 percent in 2016, in part because of World Cup-related spending.

There are already 80 wholly owned subsidiaries of UK companies in Qatar and more than 670 joint-venture Qatari-British firms in sectors such as construction, engineering and consultancy. Minister of Economy and Commerce Sheikh Ahmed Bin Jassim Al Thani says this number could be “improved substantially”, and Qatar is attempting to lure multinational firms to make the emirate their Gulf hub.

UK Prime Minister Theresa May and Qatari Prime Minister Sheikh Abdullah Al Thani attend the UK-Qatar Business and Investment Forum in London.

Omar Hussain Alfardan, president and CEO of the Doha-based family conglomerate Alfardan Group, uses the London investment conference to emphasise Qatar’s quality infrastructure and “dynamic private sector”. The lead up to the 2022 World Cup offers myriad opportunities, Alfardan insists.

“The government doesn’t want to run these facilities; they want third parties, joint ventures, companies with expertise to come and run them,” he says.

Among the Qatari firms seeking collaborators from overseas is Dallah Group, a Doha-based communications specialist. It is trying to partner with outfits with specialist communications expertise in the run-up to the football extravaganza.

“We’re looking at what we can do with cooperation with UK companies. After five years we have the 2022 [event], so any cooperation with UK companies would be good for us… bringing in expertise from the UK to the Qatar market in sectors that we don’t yet have experience in,” CEO Wassim Aldayah says.

The bilateral relationships between British and Qatari firms also will help rebalance Qatar’s trade surplus. After significant trade surpluses during the past decade — peaking at $102bn, or about one-third of GDP, in 2013 — it collapsed by more than half to $40bn by January, 2016. It had regained 74 percent as of January, 2017 but largely based on rising oil prices. To remain steady, Qatar needs to not only boost its non-oil exports but increase its self-sustainability in areas such as knowledge and services to limit its import of these skills.

Qatar's billions of dollars worth of investment in the UK includes Harrods department store.

Its bilateral trade surplus with the UK is already more balanced: in 2016 the country exported about $3.38bn worth of goods and services to the UK, while imports totalled $3.35bn. Yet, these are modest figures when compared with the UK’s trading relationship with countries such as fellow GCC member the UAE.

The long-time allies may be starting with a relatively low base, build mostly on trophy assets, but their mutual desire to grow together is sure to feed a blooming relationship that will help to prop up both economies.

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