Analysis Economy Why the Middle East is now a ‘must’ for top UK companies By Andy Sambidge January 11, 2023 Creative Commons/ Timo Volz Infrastructure was among the non-oil sectors that saw a year-on-year increase in Mena revenue generated by FTSE-listed companies Revenues from the Gulf will add $1.9bn to UK coffersRegional presence in the Middle East is no longer merely a ‘nice-to-have’Year-on-year gains for healthcare, industrials, infrastructure and tech The Middle East’s contribution to revenues of major UK-listed companies is predicted to rise to record levels in 2023 on the back of an acceleration in green energy, industrials and infrastructure sectors. Lumina Capital Advisers report that money generated from the region this year will deliver an additional £1.6 billion ($1.9 billion) to UK Plc coffers. These revenues will build on those of 2021, reaching £11.1 billion. “The Middle East represents a rare global bright spot for UK companies,” George Traub, managing partner of Lumina, told AGBI. Middle East revenues made up 15 percent of global takings of UK firms in 2021, but Lumina expects this to increase to 17 percent this year. Traub said the Middle East and North Africa (Mena) is demonstrating its “ongoing overall global relevance”, adding that regional presence for aspiring global firms is now seen as “a must – rather than a nice-to-have”. UK-GCC trade talks set to enter third phase in RiyadhUK exports to Arab countries up 20% to $38bn in 2022VisitBritain to target GCC as tourist spending recovers Mena revenue generated by FTSE-listed companies is increasingly coming from non-oil sectors, says Lumina, with healthcare, industrials, infrastructure and tech all seeing year-on-year gains. Aerospace remains the largest sector but growth remained flat. Infrastructure grew through the giant projects being set up in the region, such as Saudi Arabia and UAE’s high-tech cities, multiple railway projects and the GCC’s push towards renewables. The Middle East continues to look to import renewable and sustainability technology and infrastructure in light of Cop26 commitments of reaching net zero by 2050 and 2060 for the UAE and Saudi Arabia respectively. “In 2023 we only see these sectors increasing as the region continues to diversify away from oil dependency,” Traub said. “Infrastructure investment will lead the way, with a focus on renewables and ongoing giga projects such as Neom, Diriyah Gate and the Red Sea Project. “Buoyed by an increase in oil prices, GCC governments have increased spending on infrastructure and engineering projects, in an effort to diversify away from the oil and gas sector. “This has been accompanied by a focus on broad-scale digital transformation in line with national visions and goals. Innovative technologies are being pursued and encouraged across different sectors including fintech, automotive, infrastructure and engineering.” Lumina managing partner George Traub said the region is “extremely well positioned for yet another strong year” UK companies already established in the area grew their operations in 2022, noted Lumina, adding that it also saw a continued trend of new companies expanding into the region for the first time. The number of FTSE-listed companies with operations in Mena has increased from 22 to 30, identifying the need to set up bases across the region to best gain access to opportunities. National Express, as an example, established railway operations in Bahrain in 2015, and has doubled revenues to £115 million annually since 2019. “Opportunities in the transport sector will continue to grow, with the UAE establishing a rail link between Dubai and Abu Dhabi. Saudi Arabia is also setting up a countrywide railway system,” Traub said. “Given headwinds in other, more developed markets, the region offers attractive opportunities for career and personal growth. “As an engine for global growth in 2023, it will continue to be attractive to new companies setting up and for top talent as individuals seek career growth and development opportunities in the face of more challenging global labour markets.” Lumina also predicted that foreign direct investment into Saudi Arabia is set to exceed that seen in the UAE this year for the first time since 2012. This is driven by the kingdom’s giga-projects such as Neom, which aims to deliver a $100 billion contribution to the kingdom’s GDP by 2030. “2023 will be a tale of two halves, with H1 seeing highly active Middle East corporates and funds continuing to invest into European companies, as domestic markets continue to face varying levels of economic turbulence,” Traub said. “In H2 we anticipate improving sentiment across developed markets, which will drive global demand for natural resources, oil included. The region is extremely well positioned for yet another strong year ahead.” Lumina also predicts that 2023 dealmaking will remain resilient despite global headwinds, with family conglomerates and private equity continuing to use the IPO boom in GCC public markets to facilitate exits and raise capital. In addition, a two-way street of capital flows between the Middle East and Europe is expected this year with “no let up” in the levels of regional infrastructure investment. “As global corporates and funds increasingly set up roots in the region, with talent continuing to move in, we anticipate 2023 being another record year for FDI into the Middle East,” Traub said. Top UK-Middle East deals in 2022 Saudi-backed Savvy Gaming Group bought FaceIt (UK) and ESL Gaming (Germany) for a combined $1.5 billion.Saudi’s Industrialisation and Energy Services Co, known as Taqa, bought UK-based engineering and manufacturing company Tendeka for $1.2 billion.Saudi’s Public Investment Fund invested $100 million for a 16.7 percent stake in Aston Martin.UAE-based E& bought a 9.8 percent stake in Vodafone for $4.4 billion in May and later raised its stake to 11 percent in December.Abu Dhabi’s Masdar bought UK-based Arlington Energy, giving it access to battery energy storage technology.Kuwait-based Agility bought a 100 percent stake in John Menzies for $700 million in August.UK-based JO Steel announced plans to Invest $865 million in Saudi Arabia to establish a manufacturing plant within Ras Al-Khair Industrial City.Actis, a UK investor in sustainable infrastructure, bought a 50 percent stake in Emirates District Cooling Company (Emicool) for $500 million.