The economic transformation of the Middle East is accelerating. Driven by several factors such as economic diversification, regional integration, digital revolution, and regulatory reforms, they are setting the course shifting the trajectory into the future irretrievably. From their dependence on oil and gas revenues, the region is increasing its focus to sectors such as tourism, technology, renewable energy, and manufacturing. This will create new opportunities for capital raising and investment across various industries and asset classes. GCC (Gulf Cooperation Council) IPO activities for example have remained relatively active in 2023 across both the public and private sectors with increased investors’ awareness on the region’s potential.
Abu Dhabi, the capital of the United Arab Emirates, showcases this shift. In the second quarter of 2023, it posted a GDP growth of 3.5% compared with the same period in 2022. Yet its non-oil economy expanded by 12.3% to top US$42 billion, the highest level it has achieved since 2014. In the first half of 2023, Abu Dhabi’s non-oil GDP expanded by 9.2% compared with a year ago, according to The Statistics Center – Abu Dhabi.
Moreover, the Middle East is becoming more interconnected through initiatives such as the GCC common market and the Belt and Road Initiative. These developments are adding to the growing trade, investment, and cooperation among the region’s economies and with other regions such as Asia and Africa. These are the megatrends of the coming decades. The rise of emerging markets’ portfolio flows encapsulated in the growing links between investors in the Middle East and Asia are underpinning new corridors of cooperation for business, commerce, finance and investing. The launch of the first exchange-traded fund covering Saudi Arabia and listed on the Hong Kong Exchange in November 2023 is yet another milestone of this accelerating trend.
Supporting the rapid change is the rise of the Middle East capital markets. Saudi Arabia’s Tadawul for example is now ranked the sixth largest across EMEA with a market capitalization of over US$1 trillion as at the end of September 2023. Together with the markets of Qatar, Abu Dhabi, Dubai, and Istanbul, they represent nearly 14% of the market capitalization of EMEA. One area that is set to make its mark is Islamic finance. Its growth holds much promise as issuers look at issuing Islamic bonds (sukuks) to support their growth prospects. Sukuk issuances was up nearly 53% to US$6.7 billion in the first half of the year. Overall, UAE’s debt capital market has crossed US$250 billion in size. Sukuk listed on Saudi Arabia’s Tadawul tops close to US$300 billion.
With the hosting of COP28 in the UAE, the expansion of the debt capital market is boosted by activity in ESG and sustainability debt instruments. In 2022, the GCC green and sustainable bond/sukuk market hit a record high of US$8.5 billion from 15 deals led by financial institutions, according to data from Bloomberg, from US$605 million in 2022. While the gradual adoption of AAOFI (Accounting and Auditing Organization for Islamic Financial Institutions) Standard 59 has dampened foreign-currency sukuk issuance in the UAE, it has conversely opened opportunities to develop the local currency sukuk market as a fundraising channel.
Given the rapid pace of change underway, and the growing interest in the Middle East-Asia corridor, The Asset is pleased to host the Asia Bond Market Summit, Middle East edition in Abu Dhabi. The Summit intends to shine the spotlight on the rise of the emerging markets, the pivotal position of the Middle East highlighting how the capital markets are developing in the GCC, the emergence of ESG and sustainability, what investors are seeing, and what needs to be done to further support growth.