Pakistan has benefited greatly from UAE's assistance. Christopher Pike / The National
Pakistan has benefited greatly from UAE's assistance. Christopher Pike / The National

Why is Pakistan not supporting its old friend?



Pakistan’s refusal to join the Saudi-led operations in Yemen could have serious consequences for its relations with the UAE. This was made clear in comments by the Minister of State for Foreign Affairs, Dr Anwar Gargash, after a unanimous resolution was passed by a special session of Pakistan’s parliament to remain neutral in the Yemen conflict.

He wrote that it is such times that reveal the Gulf’s true friends and allies, as the region enters a critical confrontation that puts their “strategic security at stake”.

The UAE has every right to be upset and disappointed over Pakistan’s contradictory position regarding the conflict in Yemen. Judging from the vote on Yemen, Pakistan’s foreign policy does not seem to consider the long-term implications of such a decision.

Pakistan’s decision, if it was made final, not only compromises the security of long-standing allies and friends, but also could undermine its own stability. The success of the operation in Yemen will not only remove the Houthi threat, but will also aim to destroy Al Qaeda’s stronghold there, which would have consequences far beyond the Arabian peninsula.

It might also lead to a situation of mistrust between old friends, Pakistan and the GCC countries, that have co-operated for decades on military and security issues.

The relationship between Pakistan and neighbouring Iran has cooled in recent years with increasing tensions over border issues.

Last year, Islamabad lodged a diplomatic protest after 30 Iranian security force personnel crossed the border searching for anti-Iranian militants and shelled Pakistani territory, facing an unusual retaliation from the Pakistani forces.

In addition, Iran began to develop closer ties with India, using Indian military expertise in the development of a strategic road connecting Iran’s Chabahar seaport and Afghanistan. It has also sought nuclear technology from other sources.

In contrast, UAE-Pakistan relations have been flourishing. The bilateral trade volume jumped from $7.6 billion (Dh27.9bn) in 2012 to $10 billion in 2013. Reports say there is a big potential to further enhance business relations. The UAE has been a strong supporter of Pakistan’s development over the past decades, helping the country during natural disasters and improving the access of its people to education and health facilities.

The UAE has always been among the first countries to deliver humanitarian relief and assistance to Pakistan in times of need – especially during the floods – including emergency food and shelter.

In 2011, the UAE’s Pakistan Assistance Programme (PAP) was launched to mitigate the effect of natural disasters by redeveloping Pakistan’s infrastructure and offering long-term development projects. The programme rebuilt roads and bridges, including the Sheikh Khalifa bin Zayed Al Nahyan Bridge. It has also built 64 water treatment and purification plants to provide Pakistanis with clean water.

PAP has also built schools, colleges, vocational training institutes, hospitals, clinics and medical institutes. The programme launched a far-reaching polio eradication campaign last year, in which millions of Pakistani children were vaccinated, and many more will get their vaccination by 2018.

The President, Sheikh Khalifa, praised UAE-Pakistan relations when he met prime minister Nawaz Sharif in Pakistan last year. He described relations as “distinguished and developing”, stressing the need for the two sides to continue their role for mutual benefit and emphasising the UAE’s keenness to continue to support the Pakistani people.

But is that about to change?

The Pakistani stance on the Yemen conflict is a potentially big setback for relations. Dr Gargash said Pakistan could pay a heavy price for its “unexpected” position. The question now is: are the Pakistanis willing to compromise such a close relationship?

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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.”

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