By M.V.A. Kumar
DOHA: The British referendum to leave the European Union, is unlikely to adversely impact transactions in the Middle East, says a Dubai-based corporate lawyer, who also sees the region benefiting in many ways, like attracting new talent, because of its mostly dollar-pegged currencies.
Hamish Walton (pictured), Head of Corporate, Middle East, King & Wood Mallesons, however, does not rule out a general downturn in confidence, which might impact transactions in the region, but he feels this will not be much.
In many respects the Middle East is insulated from the impact of the Brexit vote. Most of the countries in the region have pegged their currencies to the US dollar, thereby avoiding the wild currency movements seen in the British pound in recent weeks.
“A significant proportion of the region’s revenue is generated from hydrocarbons traded under US dollar denominated contracts, with prices set on international markets.
While there is substantial trade between the GCC region and the United Kingdom, aside from the impact of currency movements, it is difficult to see how this could be affected. UK-owned SMEs operating in the GCC could in fact receive uplift if they are being paid by Middle East businesses in dollars.
The inherent non-currency related viability and cost of trade should be unaffected since the GCC region doesn’t have a free trade agreement with the EU. “The effects will be subtler, and mostly driven by the fall in the pound against the dollar, which could last through the medium term.”
Investors from the Gulf, who have invested in London residential real estate are faced with the fact that the city’s real estate has just got a lot cheaper with the depreciation in the pound versus the dollar. Though rental returns will be down in dollar terms, but for many Gulf investors, that is a secondary consideration where residential real estate is concerned, Walton said.
He added that investors may be more wary about investing in commercial real estate, until London’s position as the financial hub of Europe is clarified.
“GCC revenues should increase in sterling terms given the currency differential. Products priced in British pounds have suddenly become a lot cheaper and more competitive in the GCC marketplace. However, that will be little comfort for expatriates being paid in pounds. Those expats, living in what is effectively a US dollar economy, have just seen their incomes slashed by around 10 per cent,” he said.
Walton thinks swathes of professionals will apply for jobs across the Middle East, attracted by tax-free dollar salaries. “With the future of London as a major financial centre in doubt, with the opening up of Saudi Arabia, which will be a boon for lawyers, investment bankers and consultants generally, Expo 2020 approaching in Dubai and the World Cup in Qatar, the need for skilled labour should ensure plenty of opportunities in the region. This influx of new talent from the UK could also mean we see an increase in the number of new SMEs launching in the region.”
The Peninsula
