The Scene
Gulf countries are on the cusp of reaping rewards from decades of investment and regulatory overhauls and may soon challenge global financial hubs such as Hong Kong, London, and Singapore, the head of global macro and asset allocation at investment giant KKR said in an interview.
Fresh off a tour of Kuwait, Saudi Arabia, and the UAE — his second trip to the region this year — Henry H. McVey told Semafor he saw a region moving in the right direction in terms of diversification and providing opportunities for both expats and citizens, especially with the rise of women in the workforce in Saudi Arabia. The kingdom, he added, shared a curious trait with Israel: Both countries have growing, relatively wealthy populations, which is an important baseline for future growth.
“The region is moving from being an area where people came just to raise capital to one where it’s becoming a hub of investment,” McVey said. “Gulf economies are advancing on digitalization and are more geared towards consumption upgrades and global trade. It feels like it’s a good time for the region.”
To compete on a global scale, however, Gulf countries will need to deploy capital more efficiently, and their companies and workforce will have to step up productivity, McVey said.
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The factors that influence GDP growth are labor and productivity, and the Gulf already has an edge in finding workers — both expats and a young local population. Political stability, rule of law, and a pro-business approach are encouraging companies to invest in technology and restructure to improve profitability, McVey said. Organizations that focus on retraining and continuously “upskilling” employees are key to helping developing markets take off.
“The crown jewel of any emerging market,” McVey said, “is when you can combine labor-force growth with productivity.”
This transformation, McVey cautioned, takes time to unfold. In the Gulf, governments and the private sector are creating new companies and financial instruments that open opportunities for investors in both debt and equity markets. While stocks in the region, so far, have underperformed their emerging-market peers, letting down many investors, these lower valuations are attractive to KKR because of the positive macro trends.
Over time, the region’s markets will “become more reflective of the GDP-per-capita growth story,” McVey said.
Step Back
KKR is ramping up its presence in the region. The firm appointed former US General and CIA Director David Petraeus as Chairman of KKR Middle East in April and formed a dedicated regional investment team. It plans to deploy more capital in the Middle East, according to its co-CEOs.
The firm’s investments in the Gulf include data center operator Gulf Data Hub, ADNOC Gas Pipeline Assets, and a portfolio of commercial planes from Etihad Airways. KKR has offices in Dubai and Riyadh and has been active in the region since 2009.
Notable
Saudi Arabia’s economy remains vulnerable to oil price shocks, but the kingdom’s focus on supporting the non-oil sectors has made it resilient to “recent regional escalations,” S&P Global analysts write in an Oct. 8 report.
Correction
A previous version of this story incorrectly stated in the final paragraph that KKR’s portfolio includes a stake in ADNOC Oil Pipelines. The current investment is in ADNOC Gas Pipeline Assets.