GCC Countries’ Economic Dynamism Attracts Investors & Wealth

04 April 2023
GCC Countries’ Economic Dynamism Attracts Investors & Wealth
GCC Countries’ Economic Dynamism Attracts Investors & Wealth

This article from WealthBriefing is published in conjunction with Emirates NBD Private Banking, and will be part of a series.

Both the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia “KSA” are predominantly oil economies which are focused on diversifying into tourism, renewable energy and technology. The governments are investing heavily themselves and encouraging partnerships through investor-friendly policies and streamlined business registration procedures. Taxes are low. Many international corporates are teaming up with local enterprises sharing technology, knowhow and building financial partnerships.

The UAE is already a leading investment destination, thanks to its strategic location, business-friendly policies, and strong economic growth. It is a hub for global trade, with world-class infrastructure and logistics facilities that make it an ideal location for businesses looking to expand their footprint. In addition, the UAE offers a highly educated and skilled workforce, with a young, tech savvy population.

A stable political environment, and a tax-friendly regime that encourages foreign investment. Dubai, in particular, is a hub for innovation and entrepreneurship, with a thriving start-up ecosystem that attracts top talent from around the world. All this make the UAE an attractive destination for investors looking for stable returns.

The recent global geopolitical tensions, bank failures and volatile market and business environment has driven home the need for setting up businesses and investing in safe environments which are well regulated. The UAE and KSA located at the fulcrum of the East and West offer digital economies, connectivity, are well connected to the rest of the world and are therefore proving to be attractive destinations for foreign direct investment and overseas wealth. Firms and individuals want diversification and to spread risk.

There are plenty of tailwinds, and a few cautionary notes. For example, the UAE signed the Abraham Accords with Israel more than two years ago – stimulating a two-way flow of capital, ideas and technology. The region caught the global spotlight with the 2022 World Cup in Qatar. During the pandemic, the UAE handled controls and lockdowns relatively well, and rolled out vaccines at one of the quickest rates seen in the world. Tourism is growing. KSA wants to attract a 100 million visitors annually by the end of the decade.

According to the Economist magazine in February 2023, KSA and the UAE account for more than 70 per cent of both the population and of the $21 trillion GDP in the Gulf region. Both countries are serious about diversifying away from oil revenues as well as being on the world map in terms of innovation, production and climate change.

Global investors like what they see. The UAE and KSA brought in a record foreign direct investment sum of $40 billion in 2022, showing a rise of 58 per cent over the previous year. And this figure was achieved as the world was starting to emerge from a global pandemic with the GCC perceived as being amongst the more robust economies which has been substantiated by the current strong economic growth when the rest of the world is talking about a possible recession. An important component of KSA is the Kingdom’s Vision 2030 economic programme. Morgan Stanley, in a research note in December last year, said it has a “constructive” view on KSA, backed by higher oil prices in the short run, and government-led reforms and predicts KSA’s gross domestic product to grow by 4.8 per cent this year and by 4.4 per cent in 2024, driven by investment, government and construction, but also household demand.

Wealth growth

Other numbers drive home how wealth in these countries is rising. Boston Consulting Group in 2022 predicted that KSA will chalk up a compound annual growth rate in new wealth of 4.8 per cent, rising from $1.3 trillion to $1.6 trillion from 2021 – 2026. Equities and investment funds in KSA make up the largest asset class at 46 per cent of total personal wealth in 2021 and are by 2026 expected to grow the fastest with a CAGR of 6.9 per cent. Currency and deposits are the second largest class at 44 per cent. In 2021, about 23 per cent of KSA’s wealth is derived from ultra-high net worth individuals (those with more than $100 million).

Turning to the UAE, the jurisdiction is already known as a wealth hotspot and home to international banks and large domestic players, as well as being a significant transport, communications, media and technology hub. Today, the UAE is the largest wealth market in the Middle East and the 26th largest worldwide (in terms of total wealth held). People living in the UAE together hold $925 billion in net assets. Around $470 billion (or 51 per cent) of that is held by high net worth individuals. In all, there are about 88,700 HNW individuals living in the UAE.

A report by EFG Hermes in November 2022 said the UAE, because of its relatively open nature, cannot shrug off all of the negative forces at work in the world, such as a global slowdown this year and rising interest rates. Financially, however, the UAE has significant assets and a strong position.

Expats

These jurisdictions have remarkably high non-domestic populations. In the UAE, it is more than 80 per cent, and 40 per cent in KSA, explaining why so many international and large domestic financial organisations are present on the ground, and growing.

Hubs and families

Dubai’s own financial jurisdiction – the Dubai International Financial Centre (DIFC) - continues to expand, as does the Abu Dhabi Global Market. Last August, DIFC opened a “global family business and private wealth centre,” targeting family businesses as a client segment. DIFC has said that an estimated AED3.67 trillion (or $1 trillion) of assets will move to the next generation in the Middle East during the next decade.

Both KSA and the UAE are focused on attracting listings by providing a more liquid and sizeable capital market, which they need to drive growth in the medium term. KSA has set a target of raising private savings from 6 per cent of household income to 10 per cent.

Local vs international

As a whole, Investors in KSA and the UAE tend to invest using local wealth managers while their peers in Asia rely more heavily on international institutions, according to Accenture Research in a report from October 2022. Investors in the region are also far more likely to have a relationship with just one wealth manager: 71 per cent of those in the UAE and 68 per cent of those in KSA versus an average of 62 per cent in Asia. A raft of international banks operate in KSA and the UAE. But domestic players are significant, and expanding.

The rise in wealth of the region, and the growing linkages, needs for advice around business transition, wealth transfer, and ability to work with new partners, all explain why wealth managers see the UAE and KSA as important markets long into the future.

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