Adnoc's $10 billion windfall shows 'UAE attractive as top FDI destination amid pandemic'

Analysts said that foreign investors will continue to seek out deals in the Emirates across sectors

The $10 billion (Dh36.7bn) brought in from the Abu Dhabi National Oil Company's energy infrastructure deal with six global institutions and funds is a testament to the strength of the UAE as a destination for foreign direct investment despite the economic uncertainty created by the coronavirus pandemic, analysts said.

Korea’s NH Investment & Securities, Singapore’s GIC, the Ontario Teachers’ Pension Plan Board, Italy’s Snam, Global Infrastructure Partners and Brookfield Asset Management are together taking a 49 per cent stake in a newly formed Adnoc subsidiary which will have the lease rights to 38 natural gas pipelines, covering a total of 982 kilometres.

"Globally there has been a huge drop in investments into the oil and gas sector. [But] Adnoc in the UAE and the likes of it in the region are very attractive for foreign investors,” Mazen Al Sudairi, head of research at Al Rajhi Capital in Riyadh, said, adding that the company’s diversification across the oil and gas value chain to become a more integrated firm adds to its value.

“When the oil market is down and capex is being rational, the most attractive is the GCC market, because the cost of production is low and level of reserves are very healthy, above the global average,” he said.

Global FDI is set to fall this year due to the coronavirus pandemic that has jolted the global economy, which is now facing the deepest recession since the World War II.

“The global FDI outlook is likely to become more challenging given the economic outlook and corporate and government pressures to localise supply/supply chain, so countries will be aiming to get a bigger slice of a smaller pie of investment,” Scott Livermore, chief economist at Oxford Economics Middle East, said.

However, the stability of the UAE, the Arab world’s second-biggest economy, its connectivity with the rest of the world and its advance infrastructure places it “in a good position to remain competitive in the FDI market place”, he said.

The pandemic, according to the United Nations Conference on Trade and Development (UNCTAD), is expected to slash FDI flows globally by as much as 40 per cent this year. Even before the outbreak foreign investments waned in 2018-19 on the back of the trade war between the US and China. The UAE, however, bucked the trend and was the largest recipient of FDI in West Asia. Investment into the country climbed to nearly $14bn in 2019, rising by a third from a year earlier, according to the UNCTAD World Investment 2020 report.

The US ride-hailing firm Uber’s acquisition of Careem for $3.1bn grabbed headlines in 2019, but the FDI flows into the UAE were underpinned by several big-ticket oil and gas investment deals. BlackRock, KKR and GIC were involved in a deal with Adnoc for its oil pipeline assets that brought in about $5bn. Italy’s Eni and Austria's OMV both took stakes in Adnoc's refining unit, the deals worth a combined $5.5bn.

Innovation and artificial technology are the upcoming sectors ripe for investment as the country continues to pivot to digitalising its economy amid the global pandemic.

The UAE, which has the sixth-largest oil and gas reserves in the world, is diversifying its economy to cut its reliance on sale of hydrocarbons for revenue. At the core of its economic diversification strategy is the government’s plan for rapid digitalisation of society.

On the federal level, the UAE Cabinet's AI 2031 plan aims to attract tens of billions of dollars in foreign direct investment over the next decade. And the world's first dedicated artificial intelligence university, the Mohamed bin Zayed University of Artificial Intelligence is set to open in January in Abu Dhabi.

“There is certainly a scope for FDI into digital [economy] sector because there is very good infrastructure for that [in the UAE],” Mr Al Sudairi said.

“If you look at digitalisation, we are moving more now into the next phase [of investments]. We are now moving more into AI, especially in education and healthcare, where it has become imperative to invest more in digitalisation of services: the coronavirus has changed social behaviours.”

UAE firms over the years have invested in technology and life sciences companies outside the country, but with the government’s pivot to digitalisation at home, “their own market is [now] very attractive of course - it is ripe”, Mr Al Sudairi said.

Mr Livermore of Oxford Economics said “the oil sector will remain important for FDI, but also new and emerging sectors that will come out of the crisis strong – government policy will be looking to support digital, health, education, creative … sectors as it focuses on supporting the post-Covid-19 economy.”

The country was ranked 19th in the 2020 Kearney Foreign Direct Investment Confidence Index released on Sunday.