Zongyuan Liu describes the contours of the GCC’s economic relationship to ASEAN.
By Zongyuan Liu | April 2, 2017
The Bold: Fintech co-operation
On March 8, 2017, Abu Dhabi Global Market and the Monetary Authority of Singapore signed a memorandum of understanding for co-operation in the field of fintech. A few days prior to that, Bahrain held talks with Singapore’s central bank as it devised its own blockchain trial. Is this part of a larger trend?
Within the Association of South-east Asian Nations (ASEAN), Singapore and Malaysia have already experimented with establishing a flexible fintech ecosystem to encourage the development of fintech startups without jeopardising the broader financial sector. This presents the GCC models to consider, particularly regarding the regulatory sandbox – a ‘safe space’ where businesses can test innovative products, services, business models, and delivery mechanisms. The Bahrain Economic Development Board has brought Singapore FinTech Consortium on board to advise on the process of establishing the sandbox.
Within the GCC, there is no Islamic fintech hub right now. The UAE – especially Abu Dhabi and Dubai – Qatar, and Bahrain are competing for the top slot. Hence, there is little doubt that co-operation in fintech between the GCC and ASEAN will continue.
The Beautiful: Record-breaking real estate investment
Investing in real estate is often seen as a good option to mitigate risks in times of economic fluctuation. Gulf-based sovereign wealth funds (SWFs) have dominated the two most prominent real estate transactions in the past decade in ASEAN.
A record-breaking purchase was made in 2016 by the Qatar Investment Authority (QIA). The fund agreed to buy Asia Square Tower 1 in Singapore’s Marina Bay business and financial district from BlackRock for a whopping $2.5bn. This was the largest single-tower real estate transaction in Asia Pacific to date, the second-largest single-tower real estate transaction globally, and also the biggest in Singapore in terms of dollar amount and square footage, with QIA paying $1,960 per sq ft.
In 2007, before the QIA deal, a Mubadala-led Gulf-based consortium was behind “the single largest foreign real estate development in Malaysia, one of the largest real estate developments in the region, and one of the largest single foreign investments ever in Malaysia”. The consortium agreed to commit $1.2bn to develop an integrated international city project in Malaysia’s Iskandar Development Region over 20 years.
Top 10 Single-asset Real Estate Deals in Asia Pacific ($bn)
Source: JLL, 2016
The Controversial: Strategic food and agricultural investment
At a news conference during the first GCC-ASEAN ministerial meeting, ASEAN General Secretary Suring Pitsuan succinctly pointed out the mutual complementarity in food and energy between the GCC and ASEAN: “You have what we don’t have, and we have plenty of what you don’t have, so we need each other.”
There has been some ‘controversy’ surrounding the approach of some GCC states to securing strategic food supplies: Foreign farmland acquisitions. Views have been expressed against the strategy, with large state-backed institutions, sometimes SWFs, seen as scouting less developed countries and buying huge acres of farmland in Africa, South-east Asia, and Latin America.
Regardless of all the controversies, for the GCC states, despite their wealth, food, water, and energy remains a concern for long-term development. Hence, investing in foreign arable land is a convenient solution. ASEAN countries, with their favourable natural environment, relatively high agricultural productivity, and low production costs have made themselves attractive to GCC investors.
The Philippines hosts agriculture and farmland investments from all six members of the GCC. For example, a number of UAE corporations have significant agricultural investments in the country, including banana plantations on the southern island of Mindanao, and fish and cereal farms on the main island of Luzon. Saudi Arabia, which imports more than 60% of its annual food supply, has entered into a joint venture with a Filipino company to produce basmati rice, yellow corn, bananas, and pineapples on about 5,000 ha of land in the Davao Del Norte province. Bahrain, too, currently produces bananas on 1,000 ha of land in the country, and Kuwaiti investors are looking at 400 ha for rice cultivation.
Other ASEAN countries are also home to GCC investment in farmland. For example, Indonesia hosts investors from the UAE and Qatar, Cambodia from Qatar and Kuwait, Vietnam from Qatar, and Laos from Kuwait. The Kuwaiti government is reported to have offered Cambodia loans totalling $546m for dams and roads in return for 50,000 ha of farmland, possibly on a 99-year lease, to grow crops.