Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Driving commercial and political engagement between Asia, the Middle East and Europe
Asia House’s research report, The Middle East Pivot to Asia 2023 explores key economic trends emerging between the Gulf and Asia. As part of the research, Freddie Neve, Senior Middle East Associate at Asia House, spoke to Stephen Moss Regional Chief Executive Officer – Middle East, North Africa, and Türkiye, HSBC to discuss growing trade between the Gulf and Asia.
How and where have Gulf-Asia trade and commercial ties developed over the past year?
Trade between the Arabian Gulf and Asia is accelerating, re-energising one of the world’s oldest business corridors. The Middle East’s ambitious investment led transformation drive, Asia’s economic reopening from the Pandemic, and the global drive towards net zero are combining to create very substantial business opportunities. As the world’s largest trade bank with an international network covering 90 per cent of global GDP, trade and financial flows, HSBC is supporting our clients to participate in those opportunities.
The bright spots are plentiful, and the Arab World’s trade with China shines through strongly, with two-way trade almost doubling over the last decade to US$431.4bn (Jennings, 2023). Drill down and we see that China is now the UAE’s primary trade partner and bilateral trade is expected to reach US$200bn by 2030 (Zawya, 2023c). More than 6,000 Chinese companies have located operations in the UAE and multiple agreements were inked earlier this year to open further new trade opportunities, including in technology, infrastructure, and renewables (Government of Dubai, 2023).
A surge in economic diplomacy between the two regions has further supported the investment opportunity. Saudi Arabia has strengthened its ties in Asia as it makes further progress on the ambitious economic transformation agenda that underpins its Saudi Vision 2030 development blueprint. The Kingdom has signed 23 bilateral trade agreements with South Korea in areas including infrastructure, medicine and green-tech, and the nation’s huge SWF, PIF, plans to open an office in Gujarat state as part of a $100bn investment push in India (Kumar P., 2023c).
The UAE continues to build its position as a global trade and logistics hub through the signing of CEPAs. Having signed its first bilateral trade agreement with India in 2022, the country has added others since, including with Turkey and Indonesia, with more in the works, including Australia (Australian Government, 2023).
Qatar’s economic diplomacy has continued to grow over the years, boosting its trade and investments with Asia. The country’s SWF, the Qatar Investment Authority, has invested US$1bn in India’s Reliance Retail Ventures and has stated its intention for further public and private investments in China’s retail, healthcare, tech, and logistics sectors (Cornish, 2023; Reuters, 2023e).
In short, billions of dollars of trade and investment are flowing between China and the Middle East, including a notable shift in the sophistication of such trade and an increase in high-end technology manufacturing opportunities.
Where does the potential lie for trade ties between the Gulf and Asia?
What lies ahead for trade between the Gulf and Asia promises to be even more exciting. For instance, we think there is US$178bn of untapped export potential between China and the Middle East between 2022-2027 (Zawya, 2023d).
Yet it is not only in North Asia where opportunity awaits. While trade between the ASEAN bloc and the Gulf does not match the levels of China’s, its demographic fundamentals put it in a strong position to prosper from the corridor. As of 2021, the 29 countries of ASEAN and the Middle East accounted for just 7 per cent of global GDP but were home to 15 per cent of the global population, and their relatively youthful populations suggest further growth into the future (HSBC, 2023a).
“China is now the UAE’s primary trade partner and bilateral trade is expected to reach US$200bn by 2030”
These are figures that we only expect to increase – and at pace – backed by Asia’s pro-growth policies and the Middle East’s transformation agenda. The size of the project pipelines in the Middle East reflects the extent of the opportunity. The UAE has 1,965 major infrastructure projects in the advanced planning, or execution phases, with contracts worth an estimated US$616bn1. Take Saudi Arabia’s Vision 2030 as another example, the total value of Giga projects encompassing the Kingdom’s transformation programme is estimated to value US$879bn2. HSBC, positioned on both ends of the Middle East-Asia corridor with more than a century of history in each, is enabling that expansion – a generational megatrend that will have far-ranging implications for international trade, business, and politics.
We have witnessed growing sustainable cooperation between the Gulf and Asia. Is this a trend that you are seeing, and how will COP28 impact this cooperation?
For over 2,000 years the Silk Road has been a conduit of business and investment, yet the dynamics playing out along its 6,400km expanse are now moving at a different pace, and in large part due to the energy transition.
Governments and companies on both sides of the corridor are now looking to connect capital, demographics, technology, and industrial capacity to find new solutions to the green transition. This is why any conversation about the two regions is incomplete without highlighting the massive drive to reach net zero. More than half of investments required in power projects, almost half of the industrial investments, and 40-45 per cent of investments in real estate, will be made in Asia and the Middle East.
The efforts of the economies in our Middle East, North Africa, and Türkiye region to diversify economically are globally important and the hosting of consecutive COP events – COP27 in Egypt and COP28 in the UAE – illustrate the leadership role the region can play.
The COP28 Presidency has made it clear that the Middle East has an important role to play in supporting the transition to net zero as part of its wider economic growth agenda, and we expect this to translate into greater opportunities for businesses across the trade corridor with Asia.
How can companies on either side of the Gulf-Asia trade corridor capitalise on growing sustainable opportunities in these two regions?
The most dynamic markets of the Middle East have introduced investment-led “Vision” plans to reshape, diversify and accelerate their economies in the decades ahead. Sustainability is a central factor as the region looks to move away from hydrocarbons.
The UAE’s ‘We the UAE 2031’ is one such example; among several other goals, in the coming 10 years, the UAE aims to double GDP from approximately US$817bn, and generate US$217bn in non-oil exports (Government of the UAE, 2023). The country’s national energy strategy will see domestic renewable capacity rise more than seven-fold by 2050. The UAE is already one of the world’s leading renewable energy investors, having invested around US$50bn in renewable energy capacity across 70 countries and it plans to invest another US$50bn in the decade ahead.
Being able to combine that track record and ambition in renewables investments with China, the world leader in solar manufacturing capacity and capability, will create vast potential. With trade and investment links between the two economies growing fast, this is an opportunity that is generating real business outcomes.
That is just one of the ways in which the profound shift in opportunities heralded by the transition to net zero can be leveraged between places with strong, historic trade ties – and a shared experience of world-leading economic innovation, diversification, and development.
We have seen SWF interest in Asia continue to grow. What in particular is attractive about Asian markets for Gulf investors?
With in excess of US$4trn of assets in support of economic diversification, SWFs in the Middle East seek to invest in emerging technologies and new or growing industry sectors that will shape the future. In general, the Gulf SWFs have been underweight in Asia compared with the US and Europe. However, backed by ambitious vision strategies and a commitment to sustainable economic diversification, we have seen an increasing shift towards opportunities in Asia. This is in part due to Asia’s robust growth outlook: HSBC analysts forecast Asia ex-Japan GDP growth of 4.4 per cent in 2023, and 4.2 per cent in 20243.
One area of notable change in the last year is in the private markets, where the Gulf’s SWFs are taking larger positions in Asian IPOs or through M&A.
The emergence of new sovereign vehicles in Asia is also drawing investment from Middle East SWFs looking to deploy funds in the region’s infrastructure transformation. The UAE has already invested over $10bn in the Indonesian Investment Authority which seeks to attract foreign co-investors to support economic infrastructure development.
The continued opening of China’s onshore financial market is enabling SWFs to be nimble, flexible, and manage their risk exposures in the world’s second largest economy and is drawing more interest. Earlier this year, the city of Shenzhen set up a Middle East-China cooperation fund with PIF to stimulate post-pandemic growth.
On the other hand, the assets of the region’s combined SWFs are also strong and clear indicator of the size of the opportunity for Asian investors, entrepreneurs, specialists in sustainable manufacturing and expertise in developing new industries.
All of these flows are built upon a diplomatic foundation of increasing depth and resilience, and it is this combination of geopolitical friendliness and underlying trade and investment that suggests there are good reasons for the Middle East-Asia corridor to expand.
Footnotes:
Stephen Moss Regional Chief Executive Officer – Middle East, North Africa, and Türkiye, HSBC.
This interview is taken from The Middle East Pivot to Asia 2023 report, which highlights key trends emerging in Gulf-Asia trade. Read the report here.
