Brexit could mean long-term gain for Gulf, analysts say

The UK’s shock vote to leave the European Union last week – commonly known as “Brexit” – could boost Gulf economies over the long term, regional analysts said, citing the prospect of future trade deals with Britain.

Economists and financial analysts from Saudi Arabia, the United Arab Emirates, Kuwait and Bahrain – four of the six states that make up the Gulf Cooperation Council – told reporters that any short-term pain felt from Brexit would eventually lead to gain.

“A Brexit will open the door to the prospect of direct bilateral trade agreements between the UK and Gulf countries, outside the purview of EU regulation,” said Nour al-Hammoury, chief market strategist at ADS Securities, a trading firm based in the UAE’s capital.

Previous efforts to finalise a free trade agreement between the GCC and the Brussels bloc have long been stuttered – but Britain is widely seen as having more open arms towards the region.

The shockwaves from the Brexit vote to both the UK and the European Union member states could give Gulf states an opportunity to sign better trade deals with both, said Omar al-Ubaydli, an economist and director at the Center for Strategic, International and Energy Studies in Bahrain.

“The EU and the UK are going to be under greater economic pressure than before, meaning that if the GCC countries play their cards right they can get more favourable terms in economic deals, such as trade and investment agreements,” Ubaydli said.

However, the possibility of trade deals between the UK and the GCC – while likely lucrative to both sides “will take time,” said Elias Bikhazi, the chief economist at the National Bank of Kuwait.

Another benefit to Gulf states is the “prolonged period” of lower interest rates caused by the post-Brexit vote uncertainty, according to a study published on Sunday by a Kuwait-based investment firm.

‘Dovish’ views

“We expect the Brexit and consequent events to push the US Fed to take a much more dovish view which would result in a delay in the rate rise,” the Global Investment House study said.

Lower interest rates would be a positive scenario for the Gulf due to slowed growth from low oil prices, the study added.

Britain’s status as a safe haven for Gulf property investors is likely to stay intact, according to John Sfakianakis, a Saudi-based economist and director of economic research at the Riyadh-based Gulf Research Center.

Foreign property investors in London “will be seeing a lot of net gains because of [favourable foreign exchange rates] and also eventually because of lower pricing for real estate in London and other places,” he added.

The total amount of Gulf investments in Britain adds up to around $200 billion – a quarter of that in real estate, CNBC Arabiya reported. The UK takes up 40 percent of all Gulf investments in European property.

In the short and immediate term, however, the news is mixed. The shock vote had a pronounced side effect hard felt in a region dependent on oil revenues: a sharp 5 percent drop in crude prices in an already collapsed market.

For spendy Gulf tourists who flock to London every summer in search of cooler climes and luxury shopping, the weak pound from Brexit’s fallout is a cause for celebration.

Some have been keen to take advantage of the situation. In the wake of the Brexit vote, some UAE exchange houses began warning of a critical shortage of sterling after residents snapped up the bargain currency with dollar-pegged dirhams.

Bikhazi, the Kuwaiti economist, believes that the UK should remain a popular destination for the GCC investors for some time to come. “A lower pound adds to the attractiveness,” he said.

For many, though, there is now a waiting game to see what happens next.

“Many will want to wait and get more clarity about the direction of UK-EU talks, and about UK markets, before committing large sums.”