Qatar promise may trigger deluge of Gulf investments in UK

Creatice Commons

More Gulf sovereign wealth funds could make huge investments in the United Kingdom following a £10 billion commitment from Qatar.

On Tuesday the UK and Qatar signed a new Strategic Investment Partnership which will see the emir state invest billions over the next five years in key sectors of the UK economy including  fintech, zero emissions vehicles, life sciences and cyber security. 

Qatar’s pledge mirrors the £10 billion that Abu Dhabi’s sovereign wealth fund (SWF) Mubadala announced it would be investing in the UK last year.  

• Qatar pledges £10bn investment in key UK sectors

Neil Quilliam, associate fellow at Chatham House’s MENA programme, told AGBI: “It is likely that other Gulf SWFs will make similar-sized investments in the UK.

“It is no secret that they see many advantages to investing in the UK environment, especially outside of London, and it also gives them a stake in Brexit Britain and a chance to shape and influence key policy areas.”

Gulf states have all seen their revenues buoyed over the last year due to surging oil and gas prices.  

The partnership, which was announced after UK prime minister Boris Johnson welcomed Qatari emir Sheikh Tamim bin Hamad al Thani to Downing Street, is expected to create high-quality jobs in new industries across the country.

“The news that Qatar will invest £10 billion into the UK’s economy over the next five years (around 1.3 percent of Qatar’s GDP per year) is likely a sign that Qatari officials are loosening the purse strings a touch on the back of the high energy prices in recent months, which they have benefitted from,” said James Swanston, MENA-focused economist at consultancy Capital Economics.

Once known for its penchant for snapping up trophy assets – most famously Harrods and the iconic Shard skyscraper in London – this latest partnership shows a new approach to the Gulf state’s investment strategy.

“Despite Qatar being a high-income economy, it sits in a geo-politically unstable region,” added Dr Najat Benchiba-Savenius, founder and director of Gazelle Advisory Group, an independent advisory firm to royal Arab families. 

“It needs to maintain and sustain its economy and is making savvy investments and global partnerships.

“Qatar has committed to a national fintech strategy to diversify its economy, which will be solarised with the world’s second cheapest solar energy, to increase the proportion of renewable energy in its total electricity generation to 20 percent by 2030. The UK is a natural trade partner for the above.” 

Referencing the scope of the £10bn partnership, Quilliam said: “These are all cutting edge sectors, and areas in which the UK excels.

“Qatar would stand to benefit directly from advances made in each one, so there is a clear mutual interest to be met by such investments.” 

UK-Qatar trade was worth £4.8 billion last year and Qatari investment in the UK economy is already estimated to be worth over £40 billion. 

The UK may benefit from courting Free Trade Agreements with individual GCC sovereign states as opposed to a group agreement

Dr Najat Benchiba-Savenius, founder of Gazelle Advisory Group

During the high-level bilateral discussions, the UK and Qatar also signed a Memorandum of Understanding (MoU) that commits the two countries “to work together to boost innovation and collaboration, supporting the security of global energy supplies.”

Doha is already a major energy supplier for the UK, providing 40 percent of the country’s liquefied natural gas. 

“The partnership is a sign of greater economic cooperation between the two countries and may possibly signal that the UK will further seek to use Qatar to diversify its energy imports away from Russia,” said Swanston, who noted how data from April indicates that around 10 percent of Qatar’s LNG exports were allocated to the UK. The UK ranked as Qatar’s second largest European customer in 2021, after Italy.

“From the UK’s perspective too, becoming a greater customer of Qatar’s LNG exports now may prove beneficial over the medium-to-long term once Qatar’s North Fields expansion comes online in 2025-27 – the expansion will increase Qatar’s LNG production capacity by over 60 per cent – and could provide a larger and more stable source of energy imports to the UK,” Swanston added.

Qatari officials have been holding talks with numerous governments and energy companies across Europe, including Germany, France, Italy and Spain, to negotiate long-term LNG contracts and increase exports to the continent as it seeks new energy sources in light of Russia’s invasion of Ukraine. 

Reuters/Toby Melville

On May 18 Qatar committed to investing €4.7 billion euros ($4.9 billion) into Spain. The details of the investments were not made public beyond Spain’s government saying that they would help guarantee the country’s “energy security” and its transition to a “green economy.”

“One important context is that this announcement of QIA/Qatar funding in the UK is part of a broader push for deployment of new investments and new partnerships from Qatar in Europe,” said Rachel Ziemba, founder of geo-economic advisory firm Ziemba Insights. 

“It follows previous announcements of planned co-investment in Spain and other investments that aim to take advantage of EU sustainable investment funds and infrastructure.

“This in turn reflects two things: firstly, signs of what Qatar and other richer GCC countries are doing with their new windfall in the face of higher oil and gas prices and some post-pandemic improvement in demand, and secondly, readjusting portfolios to position in the face of repricing assets and growth prospects.” 

The UK is currently holding negotiations with the GCC to seal a bloc-wide trade deal, which is reportedly expected to be completed by the end of 2022 or early 2023.

“This (Qatar deal) is ahead of any UK-GCC Free Trade Agreement which the UK’s Department for International Trade (DIT) has yet to secure despite huge efforts in recent months.

“The UK may benefit from courting Free Trade Agreements with individual GCC sovereign states as opposed to a group agreement,” said Benchiba-Savenius.

“Each GCC state has a vision, such as Saudi Arabia’s Vision 2030 – the transformation and change roadmap it has been following with alacrity.

“The UK could benefit from a tandem vision with each GCC country to see future bilateral agreements, strategic mapping out of social and economic partnerships and a twinning of future ventures in science, R&D and education.”