Imtiaz Shah is a partner at Hogan Lovells based in the Middle East where he has closed hundreds of deals across all the major countries of the Gulf and the wider Middle East. His work is a mix of M&A, commercial, regulatory, and investment funds. Widely recognized as one of the leading corporate lawyers in Dubai, he heads our corporate practice in the Middle East.
In this hoganlovells.com interview, Shah discusses the market dynamics that will shape the outlook for Gulf Cooperation Council (GCC) transactions in 2017.
Will 2017 be a boom or bust year in the Gulf region?
Shah: There have been important developments in the GCC region. We are witnessing significant structural reforms in Saudi Arabia as they follow their Vision for 2030. And there have been legislative and regulatory changes throughout other countries of the Gulf. These structural reforms have been driven by stagnant oil prices.
We are not expecting 2017 to be a boom year. Growth is going to be largely flat. Although the fiscal gap is going to narrow because oil prices are going to rise, oil prices will not rise significantly enough to bring those economies into surplus. Having said this — it is not all doom and gloom. What people are saying is that the uncertainty and reforms will create pockets of opportunity throughout the region.
M&A activity we think might pick up because valuations are becoming more realistic for both investors and companies. It’s easier to deploy cash and consolidations in certain sectors — for example banking — are going to continue. 2016 was a particularly bad year for M&A in the GCC — 2016 both in terms of the number and the value of deals was the lowest since the depths of the crisis in 2009. So I think the only way is up.
What impact are the fiscal deficits in the region having on debt capital markets?
Shah: I’ve said that there will continue to be fiscal deficits. That has driven a growth in the debt capital markets, particularly by sovereign issuers looking to continue to invest and drive forward structural reforms and plug the gap between their revenue and their expenditure. In 2016, the sovereign issuances grew markedly. I think people expect that to continue throughout 2017 as governments continue to invest and drive reforms but don’t always have the revenues from oil and other sources to allow them to do that.
What changes are we likely to see in the legal and economic environment in the Gulf over the next year?
Shah: The structural reforms we think will continue. The low oil prices are a motivator for the Gulf economies to diversify. This is being led and driven by Saudi Arabia, the largest economy in the GCC, as they drive structural reforms. But it’s not just in Saudi Arabia — we’ve seen structural reforms continuing in the government and quasi government sector in Abu Dhabi. Dubai, which is the most diversified region in the GCC, has continued to develop its tourism capacity and infrastructure.
We’re also seeing the increasing use of private-public models to build out infrastructure in health, education, and transport — with places like Kuwait taking a lead. We think that the need for structural reform and the fiscal deficit may mean privatization will increase. If governments undertake privatization drives, that may lead to a stimulus in the capital markets and indeed in M&A.
For More Information
The report "Investment Outlook 2017: Deal trends in the GCC" explores the market dynamics that will shape the outlook for GCC transactions in 2017. It also provides new insights into the longer term shifts emerging as the world changes.
