British Prime Minister Theresa May’s visit to Manama last month during the Gulf Cooperation Council (GCC) Summit highlighted an emerging reality: Post-Brexit Britain will use this freedom to strengthen its ties with the Gulf. As Philip Hammond, the UK’s Chancellor of the Exchequer, explained during his visit to the UAE last week: “As the UK moves towards exiting the European Union our trade relations with our traditional partners around the world are going to become more important to us. We will have a clear necessity to build on those relationships and also the opportunity to do it because being outside the EU will give us opportunities we didn’t have inside.”
Of course, the UK has historically had good relations with the GCC, which have garnered a lot of attention in recent times. Britain’s development of a naval base in Bahrain, large tourist flows on both sides and the acquisition by Gulf entities of particularly symbolic British landmarks and businesses, such as the Shard and Harrods, have created very visible links.
It is, therefore, only natural that the UK would use its newfound agency after the Brexit vote to speed up Free Trade Agreement (FTA) negotiations with the GCC. Talks on the issue between the GCC and the EU had stalled since the 1980s. On the face of it, speeding up the FTA negotiations looks like the obvious thing to do. But what makes it pivotal for GCC-UK relations is the slightly more unexpected reality that has emerged over the past few months: Brexit did not cripple the UK.
Britain’s economy registered unexpected growth in the months following the EU referendum, causing a number of institutions, including the International Monetary Fund, the Bank of England (BoE), the Office of National Statistics and the Organisation for Economic Cooperation and Development to revise growth figures and make a U-turn on initial estimates. The BoE almost doubled its growth forecasts for 2017 from 0.8 per cent to 1.4 per cent, the biggest upgrade the bank has ever made to estimates. These revisions, which reflect robust growth across different sectors since Brexit, are being attributed to stronger-than-expected consumer spending, and other vague factors.
The most visible economic impact of the referendum can be witnessed in the value of the pound, which fell dramatically at the end of June, became the victim of a flash crash in October and is still at 1.22 to the dollar — a value not seen since the 1980s. However, the drop in the value means a huge discount on British investment offerings, particularly for its historic economic partner, the GCC. This is not only because the pound is still 18 per cent cheaper than pre-Brexit levels, but also due to the fact that the dollar, and all dollar-pegged currencies, including those of five GCC countries (with Kuwait being the exception), are experiencing a long run of strength.
Although the UK will not officially leave the EU bloc until 2019, Brexit is likely to prove particularly timely for the GCC. Gulf states have approximately 53 million consumers and a combined gross domestic product of $1.4 trillion (Dh5.14 trillion), larger than that of South Korea or Australia. Growth rates in the GCC may be slightly subdued due to low oil prices in the past two years, but are still much more attractive than Europe and Britain’s other trading partners.
The most important aspect of the relationship, however, is the timing. The GCC is currently undergoing an important shift on political and economic fronts. Moves towards closer regional alignment have been clearly signalled through Saudi King Salman Bin Abdul Aziz’s visit to Qatar, Kuwait, Bahrain and the UAE last month before the start of the GCC Summit. Simultaneously, policymakers in the region have revved up the pace of diversification after a sustained period of low oil prices and planned the gradual implementation of long-awaited joint economic reforms, including the introduction of value added tax next year.
It is interesting to note that integration between Gulf states is increasing at a time when the UK is separating from the EU bloc. It is clear the GCC is maturing into a more unified economic and political bloc and, therefore, a stronger and possibly wider UK-GCC partnership is clearly on the cards. The partnership is also likely to see an important form of balance on both the political and economic fronts for both blocs as not only has the GCC a lot to offer, but it also has a lot to gain and learn.
The GCC can benefit from the current opportunity presented by its historic partner, which is looking for friends, particularly since the Gulf states’ relations with their other traditional partner, the US, are at a potentially ambiguous point in the wake of Donald Trump’s election as president.
Aruba Khalid is a senior analyst at The Delma Institute in Abu Dhabi and a contributor to the West Asia and North Africa Quarterly, which was launched this month. Omar Shariff is an editor at The Delma Institute.