A $13.8 billion friendship that will ‘drive world economies forward for decades’

And now, rather than look backwards on a comfortable nostalgia together, the UAE and UK have taken their bond to another level, a level very much focused on the future with the signing of the $13.8 billion (£10bn) UAE-UK Sovereign Investment Partnership (UAE-UK SIP).

The megadeal, between the UK Office for Investment and Abu Dhabi’s Mubadala Investment Company, will drive over the next five years increased investment into sectors including technology, infrastructure, and energy transition.

The ‘SIP’ builds up on the UAE’s existing programme of funding into life sciences which saw Mubadala commit £800 million ($1.1bn), and the UK Government £200m ($277m), to UK life sciences when the partnership was established in March.

The SIP will become the central investment platform under the new Partnership for the Future bilateral framework, which was agreed at a meeting between UK Prime Minister Boris Johnson and Sheikh Mohamed bin Zayed al Nahyan during a state visit by the Crown Prince. This will be underpinned by annual UK-UAE Strategic Dialogues, beginning later this year and chaired by the UK Foreign Secretary and her Emirati counterpart.

The UK and the UAE share an important trade and investment relationship, with total trade of £18.6bn ($25.7bn) in 2019, and two-way investment of £13.4bn ($18.5bn) in the same year.

While the ink is still drying on the deal, Arabian Business sat down with Simon Penney, Her Majesty’s trade commissioner for the Middle East, and Her Majesty’s Consul General for Dubai to delve deeper into its implications to the economies of the UAE and the UAE, and the global economy.

How significant is this agreement as both nations emerge from the shadow of the pandemic and seriously get back to business and international trade?

The UK is a long-term friend of the UAE: you only have to go around all of the Emirates to see the involvement the UK has had over the years, from some of the early infrastructure to a lot of the amazing buildings and beyond that you see today.

UK Prime Minister Boris Johnson and Sheikh Mohamed bin Zayed al Nahyan.

So we build off a deep friendship but it’s all about looking forward. As the UAE looks to the next 50 years, it’s also looking at its strategy and how its economy will evolve as the reliance on hydrocarbons moves across to other industries.

A lot of the sectors of the future are ones where the UK excels out, but we need partners to develop them – not just through the provision of money, but also through the provision of relationships, capabilities and skills.

The amount of $13.8bn is a significant vote of confidence in that relationship between the UK and the UAE. How much of this is based on old-fashioned bilateral relations and a great friendship versus a smart investment in the future that will pay off for both nations?

I would say it’s a bit of both and everything in the middle.

Clearly it is an important bond that has been built on trust and longevity, but the UAE, like everyone else, is a very smart investor and they will be looking for financial returns.

Mubadala, and the broader UAE, are looking at sectors where there is a real capability that the UK is developing and that they can work in partnership with. This would be not only to support growth in the UK but arguably, and even more importantly, to further encourage UK businesses to establish a presence here in the UAE in those sectors that are going to drive this economy and world economies forward in the decades to come.

Could you give us a broad idea of what life sciences encompasses?

In its broadest definition, it’s everything that is healthcare related into the development, the research of new capabilities, and new processes in the provision globally of healthcare.

It has come to the global fore, particularly with Covod-19, and is probably the most popular sector at the moment not only for investors, but also for R&D and university spinouts.

So are you hoping there’s going to be white label-technology that’s created through this partnership?

That is one such opportunity that can come out of it. But what we see in the UK is that a lot of the research that goes on in our universities is starting to feed its way out into the commercial sector.

What we’re trying to do with Mubadala – and other investors – is investing either directly in those companies that are spinning off out of universities, or through dedicated funds. A key aspect of the Life Science part of the investment partnership is that we’re also looking to attract dedicated Life Sciences funds, of which Mubadala is going to be instrumental in establishing in the UK.

Sheikh Mohamed visits Zayed Centre for Research into Rare Disease in Children in London.

It sounds like you’re almost creating, or investing in, an academy to create or identify unicorns before they’re actually out in the market.

That’s absolutely right. The fund-industry in the UK is very broad but, in certain sectors, we have gaps. In terms of Life Sciences, what we hope to achieve through this relationship, and others, is that we avoid UK spin-offs and start-ups becoming someone else’s unicorns – we want them to be the UK unicorns that the UAE can share a significant part of.

How has coronavirus played a part in this partnership and the investment in it?

A recent report from Deloitte confirmed that the UK is the number one destination for foreign direct investment but more particularly that one of the areas that has inspired investment confidence into the UK is the way in which the country has dealt with the pandemic.

But it’s also much more than just Covid-19. There are a lot of fundamentals as to what makes the UK an attractive destination but we as a government are focusing heavily on sectors that are going to drive the economy for decades to come – and that aligns very neatly with what the UAE, and all Gulf countries, are trying to do with their economy so there are natural synergies in us working much more closely together.

Where will this partnership generate prosperity for the UAE as well as the UK?

Firstly, the most obvious one is it is a further source of funding into the UK so it’s a vote of confidence in our economy.

Also, historically, we’ve tended to see investment focus more on the southeast of England whereas this partnership is particularly focused on the whole of the United Kingdom.

So it’s ensuring we get inward investment into areas of the UK that wouldn’t ordinarily have seen foreign investment funds. It therefore aligns very much with the UK’s leveling up and building-back agenda.

Thirdly, this creates jobs for UK people and that’s what it’s all about. It’s about creating jobs, building the economy and building back better.

Figures from last year indicate the trade between the UAE and UK was around $12bn. How do you see that deal driving this forward? Outside of this deal, what’s your forecast for trade in the coming years?

We saw quite a reduction in the Covid-hit years but are very optimistic that we will return back on trend in the next year or two as we see the global economy pull out of the impact of the pandemic.

But more particularly, we are very focused on that number growing above trend. The UAE very clearly articulated its ‘10 by 10 ambition’ to grow trade by 10 percent every year for the next 10 years. It’s no coincidence that they’ve specifically identified the UK as being a country within which they want to achieve that ambition so we have shared ambitions about growing exports in both directions.

One of the mechanisms that is often highlighted to facilitate are free trade agreements (FTA) and we do have a strong ambition and desire, now that we’ve left Brexit, to strike FTAs around the world.

Our Secretary of State has gone on record saying that the GCC is a really important market for us and we do have an ambition at some point in the near future to commence discussions.

Should we strike an FTA agreement, what do you think the impact of that will be on that trade relationship between the UK and this region?

The Gulf in aggregate is the UK’s third largest export market globally outside of the European Union and that’s been done without a free trade agreement. This is because tariffs are not that high, the maximum being 5 percent, and you don’t see many non-tariff barriers. So I don’t think we should see FTAs as a panacea like you might in some other countries.

But given the sheer volume of business that we already do, and the aspiration to do more, a free trade agreement will act as a further catalyst. In aggregate, if you multiply the tariffs across all of the exports it still adds up to a very big number so we will be reducing a fairly significant barrier to trade in both directions.