Banking & Finance ‘Economic diplomacy’: how ADQ is bolstering UAE goals By Reuters October 17, 2022 ADQ, the smallest of Abu Dhabi’s three main sovereign wealth fund, began as a vehicle for holding UAE state assets but has since expanded overseas The ADQ fund’s investments across the Middle East and North Africa are part of an “economic diplomacy” strategy designed to build the UAE’s alliances with the likes of Turkey, Israel and Egypt, three sources have said. ADQ, the smallest of Abu Dhabi’s three main sovereign wealth funds, began in 2018 as a vehicle for holding state assets, but it has since expanded overseas. The fund, estimated by Global SWF to manage $108 billion in assets, lined up 25 investments worth about $6.6 billion from January 1 to October 1 this year, making it one of the most active dealmakers in the Middle East. Abu Dhabi eyes aviation services giant to boost its manufacturingMubadala to lead $105m in funding for Brazilian fintech CercLulu Group targets Iraq and Africa ahead of Abu Dhabi IPO “The region is a priority. They want to have strong political ties with these countries,” one of the three sources told Reuters, speaking on condition of anonymity. ADQ and the UAE’s foreign ministry did not respond to emailed requests for comment. The UAE’s foreign policy is now focused on soft power and building economic bridges, Emirati officials have indicated. Abu Dhabi forged ties with Israel in 2020 while engaging with Iran to manage tensions and moving to mend fences with Turkey and Qatar after years of animosity over Islamism. ADQ launched a $300 million technology fund in March with Turkey’s sovereign wealth fund. The programme plans to invest in venture capital funds and opportunities inside Turkey. ADQ has also invested in Egypt, a UAE ally, and signed deals with Israel. Other Arab states such as Syria – still under tough Western sanctions – and Iraq are on its investment radar, two of the sources said. “The UAE now is using its huge financial, economic power to reach the same goal” that it had pursued using “hard power”, said Abdulkhaleq Abdulla, an Emirati political analyst. Abdulla defined this goal as the UAE’s “vision for a stable and moderate Middle East and for promoting the UAE’s national interest”. He said ADQ was acting in a similar way to another of the emirate’s sovereign funds, Mubadala, saying both had a “political leg and an investment leg”. “They are the ones that promote UAE economic diplomacy, its regional and global influence,” he said. Mubadala invests around the world, including locally and regionally, but its portfolio is skewed towards the US and Europe while ADQ focuses mainly on national champions and the region. ADQ insists its mandate is purely commercial, according to people close to the company. However, its chairman Sheikh Tahnoon bin Zayed Al Nahyan is a foreign policy troubleshooter for the UAE’s president, his brother Mohamed bin Zayed, as well as a prominent businessman. Sheikh Tahnoon likes to keep his roles separate but attends board meetings, said a source familiar with ADQ’s strategy. “He is a strategic pragmatist. He has immensely powerful external networks that are instrumental for Emirati statecraft,” said Andreas Krieg, associate professor at King’s College London. Sheikh Tahnoon visited Turkey and Iran when the UAE was making moves to engage with both governments. After a meeting in August 2021, President Recep Tayyip Erdogan said that if talks continued “in a good way”, the UAE would soon make “serious investments” in Turkey. Sectors of national interest Likened to Singapore’s sovereign wealth fund Temasek, ADQ started out as a holding company for government assets including Abu Dhabi’s ports, stock exchange and a nuclear power company. It consolidated and privatised some of those assets, using local equity listings to build domestic champions, and then began its push into companies outside the UAE, often choosing markets battered by high inflation or currency devaluations. In April, it sank almost $2 billion into five publicly traded companies in Egypt, which was on the hunt for foreign exchange after Russia’s invasion of Ukraine prompted foreign investors to pull billions from its treasury markets. “Between 80 percent and 90 percent of large, strategic deals – like in energy – are agreed top-down at a government-to-government level. The rest are proactive – ADQ sees an opportunity and moves on it,” a third source said. Like other wealthy Gulf states, the UAE now prefers to invest rather than extend direct financial aid to allies, to avoid corruption and inefficiency and reap benefits of its own. ADQ’s investments are mostly in sectors of national interest to the UAE such as energy, logistics, healthcare and food security. “No one gives cash nowadays. It’s very rare when it happens. This is gone, I think. They’ve learned the lesson,” the third source said.