Cash squeeze threatens UK military presence in Arabian Gulf

The British government’s pledge to bolster its naval strength in the Gulf is threatened by cash cuts, lawmakers said on Monday.

The UK wants to increase its military presence in the region where its minesweepers are highly valued by its Middle East allies, according to a report by MPs on the state of funding for the country’s armed forces.

Gavin Williamson, the UK’s defence secretary, said last month that the Royal Navy would send destroyers to the Gulf from 2019 to ensure that the UK was an “enduring presence” in the region.

The promises, however, are threatened by budget cuts in the military being considered as part of a broader squeeze of public finances, according to a cross-party group of MPs on the defence select committee.

______________

How might the West strike Syria?

______________

“The Government has signalled an intention to establish a more substantial presence ‘East of Suez’,” said the report.

“The growing ambition which the UK has outside of the Euro-Atlantic area will be a largely maritime-led endeavour.

“This needs to be backed up with sufficient resources to make a strategically significant contribution to our allies in the region.

“Without this, the Royal Navy may struggle to meet these new commitments in addition to an already onerous series of standing tasks.”

Britain re-established a naval base in Bahrain earlier this year, its first permanent military base built in the region since 1971. The UK also struck a deal last year to improve port access to its military ships in Oman.

Mr Williamson said last month that the moves signal that “we’re investing heavily in the Middle East at a time of unprecedented uncertainty”.

The UK’s Ministry of Defence declined to comment in detail before it has completed a review of military spending.

“The UK maintains the biggest defence budget in Europe and we have been clear we will continue to exceed NATO’s two per cent spending target.”

Ni Jian: Why China and the UAE are brothers

Lin Yaduo: This is the time for facts, not fear

Bill Gates: How the world can end the pandemic

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Cash squeeze threatens UK military presence in Arabian Gulf

The UK government said it was seeking to bolster its naval presence in the region