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 2024 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.
Stephen Moss was appointed to the role of Regional Chief Executive Officer in April 2021 and has been a Group Managing Director since December 2018. Stephen Moss started his career with HSBC in 1992 and has held a series of roles in Asia, the UK, and the Middle East since joining.
How and where have Gulf-Asia trade and commercial ties developed since we spoke to you last year?
Last year, I highlighted the growing trade relationship between the Arabian Gulf and Asia, driven by the Middle East’s investment-led transformation and Asia’s post-pandemic economic recovery. Twelve months later, a series of economic and geopolitical factors are converging to potentially further reshape global trade and capital flows. Within the Middle East, as well as the tragic and considerable humanitarian consequences of the continuing conflict, it has caused ongoing disruption to global shipping routes and has drawn trade stability into sharper focus. Despite this challenging backdrop, commercial ties between Asia and the Middle East have continued to grow.
The Gulf’s economies have demonstrated considerable resilience, driven primarily by domestic demand, expansionary public policy and a resolute ongoing commitment to economic diversification. These factors are driving companies from both the Middle East and Asia to invest in a broad range of non-oil sectors. For instance, greenfield foreign direct investment from Asia to the Gulf surged from US$4 billion in 2018 to US$26 billion in 2023, according to FDI Markets.
Additionally, Gulf markets have found strong reception among local, regional and international investors. For example, while global IPO markets have seen a modest slowdown in the year, Middle East markets have been a bright spot of activity, with capital raised from IPO’s increasing more than 70 per cent year-on-year in the third quarter.
What is the outlook for trade ties between the Gulf and Asia over the next five years?
The Middle East’s significant economic transformation drive, Asia’s ongoing economic dynamism, and the necessity of creating sustainable economies are coming together to create substantial business opportunities. HSBC, positioned at both ends of the Middle East-Asia corridor and with more than a century of history in each, is directly supporting clients to capitalise on these trends.
According to HSBC Global Research, the annual total value of the trade of goods between the Middle East and Asia is projected to more than double, increasing from approximately US$950 billion in 2022 to over US$1.9 trillion by 2035.
Higher levels of government-to-government ties and strategic policy initiatives are supporting increased investment flows. China reconfirmed its status as the GCC’s largest trade partner following its Premier’s multi-day visit to the region in September 2024, and a flurry of trade agreements with other Asia-Pacific countries are set to increase and broaden these trade flows. For example, the UAE signed agreements with South Korea in May, and with Australia in September. When fully implemented, the Australia-UAE CEPA will eliminate tariffs on over 99 per cent of Australia’s exports to the UAE by value, making it the most liberalising FTA the UAE has agreed to date. High-level meetings, such as the Dubai Business Forum in Beijing held in August, have become essential platforms for sealing commercial deals against a backdrop of strong government support.
Which non-oil sectors have particularly benefitted from the Middle East Pivot to Asia?
Economic diversification in the GCC countries continues to create significant opportunities in infrastructure. Governments are directing unprecedented sums towards urban development, transport infrastructure and tourism. Indeed, Capital spending plans of the Gulf nations total more than US$3 trillion (Halligan, 2024a).
Saudi Arabia leads in such spending commitments. Since 2016, the Kingdom has awarded US$250 billion worth of construction contracts and, last year, set a record for greenfield investments by Chinese companies in Saudi Arabia (HSBC, 2024). GCC project owners have contracted Chinese, South Korean, Japanese, Singaporean and Indian businesses, drawing on their expertise in design, construction and operation.
The energy transition is another promising area, most notably in relation to renewables infrastructure, transport electrification and new green technologies. Saudi Arabia plans to spend US$270 billion on clean energy by 2030, while the UAE’s ambitions include spending of up to US$200 billion over the same period.
A huge push is underway to step up wind and solar power generation. The UAE is the regional leader in renewables, accounting for more than 60 per cent of renewable capacity in the GCC and a little less than 70 per cent of investments in renewables. Saudi Arabia is also a significant opportunity for foreign investors, accounting for more than half of energy consumption in the GCC and tendering several multi-gigawatt renewable projects.
The deployment of renewables infrastructure alongside the Gulf’s hydrocarbons industries creates openings for Asian contractors, exporters and investors. From 2020 to 2023, around one-fifth (19 per cent) of Chinese investment in Saudi Arabia’s energy sector was in alternative energy, according to the American Enterprise Institute’s China Global Investment Tracker.
These are just some of the examples of the non-oil industries growing thanks, in part, to the strength of the GCC-Asia corridor.
Gulf capital markets continue to expand with new listings and trading products. What material progress have we seen to connect the two regions’ capital markets?
For a long time, investors in developing economies deployed much of their savings in Western markets. Today, Asia’s rising share of global GDP, productivity and wealth is causing these funds to reallocate themselves within the region. The traditional retail investor in emerging Asia has also grown richer and more sophisticated, with access to more asset classes, more hedging products and better advice.
In terms of Asia and the Middle East specifically, there are significant pools of investible capital in both regions, held by both the private sector and sovereign wealth funds, and they have dynamic equity markets hosting profitable companies.
In terms of comparative growth, total financial assets in Asia-Pacific (excluding Japan) are projected to grow at 8 per cent a year from 2023 to 2028 and at a rate of 9 per cent in the Middle East and Africa – both of which outpace the global average of 6 per cent.
Hong Kong’s equity market offers a particularly potent source of capital for listed Middle East companies. Hong Kong Exchanges and Clearing added the Abu Dhabi Securities Exchange and the Dubai Financial Market as recognised stock exchanges, allowing companies listed on them to apply for second listings in Hong Kong.
We are in the early phases of this relationship, but we have already seen a lot of enthusiasm. For example, new Chinese ETFs tracking Saudi Arabian shares were well received on launch in Shanghai and Shenzhen.
I am confident we will continue to see more indicators of capital market development and interconnectivity between the two regions based on closer integration and a wider diversity of investors in both regions.
What are the energy transition or new economy opportunities that have most potential between the regions?
First, governments and companies on both sides of the corridor are looking to connect capital, technology and industrial capacity to find solutions to the green transition.
The role of regional investors was clear in the hosting of consecutive COP events – COP27 in Egypt and COP28 in the UAE – illustrating the leadership role the broader region can play. The COP28 Presidency made clear that the Middle East has an important role to play in supporting the transition as part of its wider economic growth agenda, and we expect this to continue to translate into greater opportunities for businesses across the trade corridor with Asia. We have seen renewable energy companies from the Middle East winning large power projects in Asia.
Second, the innovation which was once so concentrated in Silicon Valley or Shenzhen – is flourishing across more cities like Dubai, Abu Dhabi and Riyadh and extending across a broader range of industries.
This interview is taken from The Middle East Pivot to Asia 2024 report, which highlights key trends emerging in Gulf-Asia trade. Read the report here.
