UAE investors were active in 2021 with deals such as the EUR 1.27bn by Trendyol.com in Turkey through a consortium including UAE investors, UAE’s Masdar investing in Polish windfarms and Eagle Hills of UAE buying a stake Sunce Hoteli in Croatia. Is this a growing trend?
There is a well-trodden path for investment between UAE and CEE. While those investment routes are not on the same scale as the UAE enjoys with, for example, the UK or US, investment into CEE has been consistent over the years and appears to be growing. It is not one-way traffic though, and more and more companies from the CEE region—numbering in the hundreds—are investing and operating in UAE and the wider Middle East.
What are the attractions of CEE as far as UAE investors are concerned?
They see it as a stable region with stable economies, especially when contrasted with what we have seen in various Western European countries in recent years. CEE also offers a relatively low barrier entry point into EU markets for industries such as automotive, retail, technology and hospitality, but it’s also an interesting market in its own right. There is a sophisticated community of business people and advisors able to assist UAE investors navigate through transactions, and UAE investors feel relatively comfortable doing business there.
Are there any countries or sectors that are of particular interest?
Historically, UAE investors have worked across CEE. Recently we have seen a lot of interest in the Czech Republic, Romania and Hungary, but sentiment is by no means limited to those countries—we have also seen interest in Turkey, Ukraine and Bulgaria recently.
There are three main types of investors from the UAE for these purposes: (1) local conglomerates (typically family-owned businesses); (2) state-owned enterprises; and (3) sovereign wealth funds, each of which has a slightly different outlook. For local conglomerates, real estate and retail (including automotive) is a strong part of their outbound strategy and something they are very comfortable with, whether it’s hospitality, student accommodation or offices. These businesses are starting to diversify into other sectors as well though, such as agritech, fintech and autotech, which the local conglomerates can seek to bring home to the UAE to benefit other verticals in their groups.
State-sponsored investors generally focus on more defined sectors, such as ports/transport, energy and defence, while sovereign wealth funds look at larger infrastructure, telecoms and logistics projects, and they tend to have a large minimum size of investment. For the sovereign wealth funds, having a high minimum size of investment makes it more difficult to find deals of the right magnitude in CEE.
One of the features of Covid-19 was that the UAE (and other Middle East countries) recognised that their food sources relied too heavily on imports, potentially leaving them in a vulnerable position if trade was disrupted. The UAE’s National Food Security Strategy has become a greater feature of outbound UAE investment in light of this, where the UAE is looking to acquire farmlands and food/water technologies (including in CEE) to bring that technology and captive supply or food and water into UAE.
In terms of investment flowing into UAE, what are the attractions of UAE as a place to invest and do business? Are there any challenges?
UAE’s tax-free status makes it a very attractive place to work and do business. Over time, there will be some changes to corporate and income taxes in light of Pillar 2 of the OECD’s BEPS Strategy, but for the time being, the status remains very attractive.
The UAE has a clear public policy to be as attractive to foreign business and talent as possible. This has resulted in the UAE reducing barriers to entry such as costs and time required to set up businesses, easing restrictions on foreign investment, and enhancing the ability of businesses to employ talent more easily. These measures are intended to make it more attractive for foreign businesses to access the UAE market, and for their UAE hubs to be a springboard into the wider Middle East.
The UAE offers a good quality of life to encourage international talent (and their families) to feel comfortable relocating and living in the UAE. The government, the regulatory regime and law feel very familiar to international investors and there is a strong network of advisors, service companies and professionals to provide the support international business needs. English is the language of business in UAE.
All of these things make it a very attractive place to do business across a wide range of sectors, from tourism to transport, food processing to financial services and robotics to AI technology. Costs such as real estate and salaries can sometimes be high in the cities of Dubai and Abu Dhabi in particular, but they are lower in other parts of UAE.
How do you see the relationship between UAE and CEE developing in 2022 and beyond?
Many UAE businesses put investment on hold during the pandemic in 2020 and H1 of 2021. Those businesses are now sitting on relatively large accrued capital and are looking to deploy funds. There are only so many targets in the Middle East, so it is natural that they will be looking at other parts of the world and I would expect to see more deals in CEE, but it takes time to build relationships and create the right environment, so I expect it will be a slow build rather than any sudden dramatic increase in activity.
One aspect which could feature in this outbound investment is ESG investing. ESG has perhaps not had the same amount of focus in the Middle East as it has in Europe, however there are increasing drivers for investors, especially listed PJSCs in the UAE, to invest based on ESG principles. We would be interested to see how this drives deals for outbound investment into CEE in 2022.
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