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Cooperation strengthens Gulf markets

21 November 2024

 

The message was loud and clear at the second Gateway Gulf investment forum hosted by the Bahrain Economic Development Board (Bahrain EDB) in Manama in early November. Regional integration will be crucial to the GCC’s ongoing economic success story.

The comments by ministerial speakers and business leaders at the event underscored how the GCC has grown closer both politically and economically since the signing of the Al-Ula declaration in 2021, which effectively ended the Qatar diplomatic dispute that began in 2017, and kickstarted a new era of regional cooperation. 

The drive to bind the GCC as a more integrated economic bloc contrasts sharply with the political backdrop of the first Gateway Gulf. That event in May 2018 started the day President Donald Trump withdrew the US from the Joint Cooperative Plan of Action, better known as the Iran nuclear deal, and was set amid the GCC’s diplomatic dispute with Qatar.

Closer ties

The political backdrop is very different in 2024; the six GCC states enjoy warm relations, and tensions with Iran have cooled following a series of diplomatic rapprochements involving Tehran, Riyadh and Abu Dhabi. 

These diplomatic efforts have resulted in a more stable business environment that has produced robust economic growth, record levels of inward investment and record spending on projects. 

“As with every great moment in history, our region’s progress depends on continued unity and collaboration with current geopolitical complexities. A unified GCC can serve as a stabilising force shaping not only our own future but influencing the future,” said Bahrain’s Finance & National Economy Minister, Sheikh Salman Bin Khalifa Al-Khalifa, during his opening address at Gateway Gulf. 

The stability that the Gulf offers has enhanced its appeal to investors at a time of war and instability in other areas. 

“We have become one of the most promising destinations, not only for those looking to raise capital, but also for those looking to deploy it,” said Sheikh Salman. “Dynamic transformation is sweeping across the region.”

Saudi Arabia’s Investment Minister Khalid Al-Falih also highlighted how the GCC has managed to prosper while other regions struggle with challenges. “GCC countries come out of these tensions stronger. We know how to navigate unfortunate difficulties. We’ve seen it over many, many decades … and if you look at the numbers, our credit ratings are going up, our stock markets are strong, unemployment is coming down across the region,” he said.

Regional integration will be crucial to the GCC’s ongoing economic success story

Attracting investment

Investment funds also play a key role in the region’s success. “The GCC also has [Saudi Arabia’s Public Investment Fund] the PIF and the Emirati, Qatari and Kuwaiti funds that are all well-capitalised sovereign funds that can co-invest with global investors,” said Al-Falih. 

Over the past year, some of the world’s leading investment companies have formed joint ventures with the GCC’s sovereign wealth funds. 

In November, US-based Apollo and Abu Dhabi’s Mubadala Investment Company extended their multibillion-dollar partnership, initially formed in 2022, to capitalise on global private debt and equity opportunities. This extension enhances Apollo’s Capital Solutions division, supporting large-scale investment origination to meet rising demand for private financing. 

The partnership aligns with Apollo’s goal to reach $275bn in annual originations, with a focus on sectors like clean energy and digital infrastructure.

In April 2024, BlackRock and the PIF agreed to establish BlackRock Riyadh Investment Management, a multi-asset investment firm based in Riyadh. The venture began with an anchor investment of up to $5bn from the PIF, aiming to accelerate the growth of Saudi Arabia’s capital markets by supporting foreign institutional investment.

Al-Falih also highlighted changes in how sovereign wealth funds that traditionally used to invest overseas to offset volatility in the oil markets are increasingly looking to domestic investment within the GCC. 

“We are investing globally, but quite frankly, when we look around the world, we can’t find a better location to invest than within the region and in our own economies, which are transitioning,” he said. 

Sheikh Salman echoed Al-Falih’s comments. “I chair Mumtalakat, [Bahrain’s] sovereign wealth fund, and we look at where we deploy capital. What we have found is that the most compelling investment opportunities, with the highest return on equity, are increasingly at home or in the region. 

“Mumtalakat has in effect turned itself into the joint venture partner of choice for inward investment because it provides a higher return on equity versus other investments in other places,” he said.

Many of those investments have involved infrastructure, with notable transactions in oil infrastructure, the power and water sector and real estate. 

An example came in September, when Bahrain’s state-owned Bapco Energies sold a stake in the Saudi Bahrain Pipeline Company (SBPC) to a fund managed by BlackRock. SBPC owns a portion of the 112-kilometre pipeline supplying crude oil from Saudi Aramco to Bahrain’s Sitra refinery.


Sheikh Salman and Saudi Investment Minister Khalid Al-Falih met at Gateway Gulf 2024. Credit: Bahrain News Agency

Another emerging trend could be cross-border mergers and acquisitions across the GCC. Over the past decade, there has been a steady stream of consolidation as companies combine their operations. This has remained within national borders and typically involved government or government-related entities. 

Abu Dhabi, in particular, has been a hotbed for consolidation involving companies in a variety of sectors, including banking, hydrocarbons, industry, real estate and construction. 

The new trend is for companies to merge with other players outside their national boundaries, but within the GCC. Also at Gateway Gulf, Aluminium Bahrain (Alba) chairman Khalid Al-Rumaihi provided an update and insight into the proposed merger of Alba with the aluminium business of Saudi Arabian Mining Company (Maaden). 

The pioneering transaction could pave the way for further consolidation across the region. Al-Rumaihi emphasised that private sector deals need to make business sense when asked about the impact of the deal on future transactions. 

“When we talk about integration in the GCC, the private sector should lead, and we hope that others will look at this [transaction] and explore opportunities. It could happen in banking, it could happen in other industries, but I think it could accelerate, and it needs the transaction to make sense,” he said.

The GCC’s projected growth will provide plenty of opportunities for everyone

Promoting collaboration

As cooperation across the GCC intensifies, seasoned Gulf watchers will be reminded that the region has been through periods of accelerated integration, only to have those efforts dashed due to internal disputes and greater protectionism introduced during economic downturns. The most cited historical example is the single currency project pursued in the early 2000s, which was reportedly aborted after governments could not decide where to locate the GCC Central Bank.

At the same time, other regional projects, such as the GCC rail scheme, had failed to make substantial progress.   

Speaking at Gateway Gulf, Bahrain’s Industry & Commerce Minister Abdulla Bin Adel Fakhro said that the GCC has evolved. He explained that in the past, the GCC countries produced oil and exported it out of the region, which gave little economic incentive for cooperation. Today, economies are more diversified and trade with one another enhances cross-border collaboration.  

Collaboration is already visible in the projects market. There are schemes to connect the electricity grids of the UAE with Saudi Arabia and Oman, and the once dormant GCC rail project is advancing, with progress being made on rail projects in all six GCC states. 

Growth also supports integration. Sheikh Salman said that the GCC’s projected growth will provide plenty of opportunities for everyone. 

“The GDP of the Gulf countries is approximately $2.3tn. Over 50% of that is in Saudi Arabia and over 25% is in the UAE. That $2.3tn is conservatively going to reach $3tn of GDP by 2030 and $6tn of GDP by 2050,” said Sheikh Salman. 

“That in and of itself is the single biggest opportunity for any other GCC country – to ensure that they are providing the services, providing the growth engine, providing any sort of services to [support] that growth.”

On a similar note, Al-Falih explained that what is good for one GCC country will ultimately benefit all. “If it is good for Bahrain, it is good for Saudi Arabia, and what is good for Saudi Arabia is good for the rest of the GCC. It is the old adage that a rising tide lifts all boats.” 

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Colin Foreman

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    Global energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.

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