The UAE and the UK: Moving Towards a Free Trade Agreement?
by Sophie Smith
On 24 March 2021, the United Arab Emirates (UAE) inked a deal to invest £1 billion in the United Kingdom’s (UK) life sciences industry – the first of its kind for the UK post-Brexit.[i] The UAE’s sovereign wealth fund Mubadala Investment Company will contribute £800 million to the sector, alongside £200 million from the UK’s Life Sciences Investment Programme, a public-private fund. Together, they will identify commercially viable investment opportunities in the £80 billion industry in an attempt to boost the next generation of life sciences industries and the wider economy.[ii] The deal comes as part of the broader UAE-UK Sovereign Investment Partnership (SIP), an investment framework to deepen cooperation between the two countries and facilitate economic growth post-COVID. It will see investments in the sectors of health, technology, clean energy and infrastructure over a 5-year period, building upon existing ties between the UK and the UAE.[iii]
A Backdrop of Strong UK-UAE Ties
The agreement comes against a backdrop of historically strong ties between the UAE and the UK. Once a British protectorate, the UAE has maintained strong ties with the UK following its independence in 1971. In 1971, the two signed the Treaty of Friendship that sought to continue cooperation between the countries. Indeed, the UK remains the only country with two embassies in the Emirates – most likely due to having two fully functioning outposts under the British protectorate. Over the years, there have been a number of high-level visits from both royal families, the latest visit from the Prince of Wales and Duchess of Cornwall being in 2016. Aside from diplomatic ties, the UK and the UAE have maintained close cooperation in security; the two countries have signed several agreements, including the Defense Cooperation Accord of 1996, to strengthen military cooperation and counter threats in the region. Moreover, the UAE remains a large market for UK arms exports, totalling to £442 million in the last three years.[iv]
Further, both countries have sustained strong economic ties. This includes tourism as UK nationals are the third largest tourist group in the UAE, totalling to 1.2 million visitors only to Dubai in 2019.[v] Besides, there are over 5000 British businesses active in the UAE, including oil companies BP and Shell, as well as financial firms, such as HSBC, as the UK is one of the biggest investors in the UAE, constituting 60 percent of the UAE’s total FDI balance in 2018.[vi] The same holds for UAE businesses, which have invested heavily into the UK in sectors such as transport, hospitality and finance. For example, Dubai Ports World has invested over £1.5 billion to create the UK’s newest deep-sea container port and logistics park as part of the London Gateway.[vii] In tandem, Mubadala has a long record of investing in the UK’s clean energy sector with stakes in the London Array, Hywind and Dudgeon offshore wind farms.[viii] And, more recently, the two countries signed an export partnership to boost trade and investment, which already grew to £32 billion in 2019.[ix] Indeed, the UAE is the UK’s largest trading partner in the Middle East and one of the fastest growing markets for its exports.[x] In turn, the UK is the UAE’s third biggest partner in non-oil commodities trade.[xi]
Deepening Existing Ties
The UAE-UK SIP will build on these existing ties, set to further increase trade and investment between the countries while laying the groundwork for future cooperation in a post-Brexit environment. This comes as the UAE and the UK have overlapping interests in numerous critical areas, such as renewable energy, technology and healthcare innovation. Such cooperation will allow them to better engage with these critical areas while strengthening research and development capabilities. Moreover, it will prove beneficial for economic recovery post-COVID, providing jobs and business opportunities that will fuel economic growth. In this respect, it will allow both countries to further take advantage of the business and investment-friendly environments that they offer. Indeed, in the UAE, it only takes 3.5 days to set up a business and corporation tax only applies to oil companies and foreign banks.[xii] And, there exist several investment opportunities, especially with the upcoming Expo 2020 Dubai, which opens up further prospects for investment in sectors such as infrastructure, energy and technology. [xiii] The same holds for the UK, which is the second largest foreign investment destination in Europe and was ranked the best country for businesses with relatively low corporation tax rates and low barriers to setting up a business (4.5 days to start a company).[xiv] Further advantages of engaging with the UK also lie with its existing engagement on the global market; for example, in fintech, the UK owns more than 10 percent of the global market share and, in renewable energies, it is ranked as the fifth most attractive country for renewable energy investment and deployment opportunities.[xv]
Pathing the Way for Future Relations
Evidently, the SIP will bring numerous economic benefits, contributing towards the economic prosperity of both countries. For the UK, it provides a significant opportunity to intensify its relations with the UAE as it seeks to re-establish itself on the world stage after Brexit and form relations with countries outside of the European Union. In turn, for the UAE, the UK offers attractive investment opportunities given its business-friendly environment and its engagement with the global market on critical areas, such as climate change; a partnership will thus contribute towards the Emirates’ wider goal of economic diversification to reduce its reliance on hydrocarbons.[xvi]
More widely, it sets a framework for future engagement between the UK and UAE in a post-Brexit environment. The agreement may act as a stepping-stone towards a trade deal in the future, with both countries having voiced their desires to do so. Indeed, the UAE’s Minister of Economy and Britain’s Minister of Investment have said that there has never been ‘a better climate’ for a free trade agreement between the two nations.[xvii] Such an agreement would further deepen ties between the UK and the UAE, allowing them to expand their engagement beyond the SIP and take advantage of more trade and investment opportunities to facilitate economic growth.
6 April 2021
[i] UK Government, ‘UAE and UK launch sovereign investment partnership with initial £1 billion in life sciences,’ Gov.uk, March 24, 2021. https://www.gov.uk/government/news/uae-and-uk-launch-sovereign-investment-partnership-with-initial-1-billion-in-life-sciences.
[ii] UK Government, ‘UAE and UK launch sovereign investment partnership with initial £1 billion in life sciences.’
[iv] Campaign Against Arms Trade, ‘United Arab Emirates,’ Campaign Against Arms Trade, n.d. https://caat.org.uk/resources/countries/united-a6rab-emirates/.
[v] Dubai Tourism, “Annual Visitor Report 2019,” Dubai Tourism, July 2020. https://dubaitourism.getbynder.com/m/3e56c8625ed93ce0/original/DTCM-ANNUAL-REPORT-2019-EN.pdf.
[vi] Creation Business Consultants, ‘UK Companies doing Business in the UAE,’ Creation Business Consultants, n.d. https://www.creationbc.com/news/uk-companies-doing-business-in-the-uae/; Adrian Oton, ‘The Potential for a Free Trade Agreement between the UAE and UK,’ Europe Emirates Group, n.d. https://uae-eu.com/blog/uae-uk-free-trade-agreement-stronger-ties-than-ever.html.
[vii] DP World, ‘Forth Ports and DP World announce a joint bid for a freeport on the Thames with the appointment of Vivid Economics,’ DP World, August 7, 2020. https://www.londongateway.com/news-media/news/forth-ports-and-dp-world-announce-a-joint-bid-for-a-freeport-on-the-thames-with-the-appointment-of-vivid-economics.
[viii] Mubadala, ‘A Global Investor in Clean Energy,’ Mubadala, May 12, 2019. https://www.mubadala.com/en/our-impact/global-investor-clean-energy.
[ix] UK Government, ‘UKEF signs new export partnership with the UAE,” Gov.uk, November 24, 2020. https://www.gov.uk/government/news/ukef-signs-new-export-partnership-with-the-uae; UK Government, “UAE and UK launch sovereign investment partnership with initial £1 billion in life sciences.”
[x] UK Government, ‘Overseas Business Risk - United Arab Emirates,’ Gov.uk, February 25, 2021. https://www.gov.uk/government/publications/overseas-business-risk-united-arab-emirates/overseas-business-risk-united-arab-emirates; Department for International Trade, ‘United Arab Emirates,’ Department for International Trade, n.d. https://www.great.gov.uk/markets/united-arab-emirates/.
[xi] Emirates News Agency, ‘British investments in UAE valued at $20.5bn, UAE one of 27 top investors in UK: Minister of Economy,’ Emirates News Agency, December 8, 2020. https://www.wam.ae/en/details/1395302893476.
[xii] The World Bank, ‘Starting a Business,’ The World Bank, May 2019. https://www.doingbusiness.org/en/data/exploretopics/starting-a-business; United Arab Emirates Government, ‘Corporation Tax,’ UAE Government, March 28, 2021. https://u.ae/en/information-and-services/finance-and-investment/taxation/other-taxes/corporate-tax.
[xiii] Department for International Trade, ‘United Arab Emirates.’
[xiv] Forbes, ‘Best Countries for Business,’ Forbes, 2018. https://www.forbes.com/sites/kurtbadenhausen/2018/12/19/the-best-countries-for-business-2019-u-s-down-u-k-on-top/?sh=2d2c888552d5; Elke Asen, ‘Corporate Tax Rates around the World, 2020,’ Tax Foundation, December 9, 2020. https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/; The World Bank, ‘Starting a Business;’ Ernst Young, ‘How can Europe reset the investment agenda now to rebuild its future?,’ Ernst Young, May 2020. https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/attractiveness/ey-europe-attractiveness-survey-2020-v3.pdf.
[xv] Ernst Young, ‘Renewable Energy Country Attractiveness Index (RECAI),’ Ernst Young, n.d. https://www.ey.com/en_uk/recai.
[xvi] UK Government, ‘UK’s global fintech leadership bolstered by new review,’ Gov.uk, February 26, 2021. https://www.gov.uk/government/news/uks-global-fintech-leadership-bolstered-by-new-review.
[xvii] Alice Haine, ‘There’s never been a better climate' for a UAE-UK free trade agreement,’ The National News, December 8, 2020. https://www.thenationalnews.com/business/economy/there-s-never-been-a-better-climate-for-a-uae-uk-free-trade-agreement-1.1125124.