The UK’s New Trade Priorities and Investment Prospects in the Middle East

The United Kingdom’s recent shift in political leadership, marked by the Labour Party’s victory in the 2024 election, is set to change the nation’s trade priorities, with a clear focus on revitalizing the economy through strategic international partnerships. In the wake of economic stagnation, the new government is prioritizing trade deals as a key lever to boost productivity and foster a more dynamic economic environment.

By Estelle Xiao

One of the key pillars of the UK Labour government’s trade strategy is the pursuit of new trade agreements, including with the Gulf Cooperation Council (GCC), Turkey, and Israel. These regions are at the forefront of the UK’s efforts to secure Free Trade Agreements (FTAs) that were initially targeted by the outgoing Conservative government.

The Labour government, led by Prime Minister Keir Starmer and Business and Trade Secretary Jonathan Reynolds, has set ambitious goals, including making the UK the fastest-growing economy in the G20. Their strategic focus on boosting trade abroad is seen as essential to delivering strong economic growth at home.

In this article, we will explore the UK’s evolving trade priorities under the new Labour government, with a particular focus on the opportunities and trends emerging for foreign investors in the Middle East.

UK’s trade strategy under the Labour government

The Labour government’s approach is geared toward attracting global foreign investment by creating a business-friendly environment, despite maintaining the current 25 percent corporate tax rate. However, the government has signaled a willingness to adjust tax policies if necessary to maintain the UK’s competitive edge to attract international businesses. Additionally, a proposed innovation of the business rate system underscores the government’s intent to level the playing field for high street and online retailers, further encouraging entrepreneurship and investment.

UK’s trade talks are expected to gain momentum in the fall of 2024, with a particular emphasis on sectors such as energy transition and infrastructure, which are critical to attracting global private investment. By prioritizing these trade deals, the UK aims to not only stimulate economic growth but also to reposition itself as a pivotal player in global trade, reinforcing its commitment to forging strong economic ties with key international partners.

Focus on GCC countries

The GCC stands as the UK’s seventh-largest export destination, with bilateral trade reaching US$78.29 billion in 2022. Within the GCC, Saudi Arabia and the UAE are leading trading partners, with the UK exporting US$8.6 billion and US$11.8 billion worth of goods, respectively.

What to expect

The importance of the GCC to the UK’s economic landscape cannot be overstated, particularly in key sectors such as energy, finance, and technology. The sixth round of the FTA trade talks, which took place earlier this year, spans 21 policy areas and 30 sessions, underscoring the depth of this prospective partnership. The trade talks are also expected to address issues such as trade barriers and aligning with international standards. Some key goals in the talks which are expected to facilitate bilateral trade and international investment include:

• The reduction of tariffs on renewable energy infrastructure and agricultural imports. It will be a focal point in the negotiations, potentially boosting energy diversification and food security within the GCC.
• The UK government is also working towards creating a free information hub for exporters, aimed at reducing costs, eliminating paperwork, and making it easier for businesses to tap into GCC markets.

Key sectors

GCC investors play a significant role in the UK’s real estate investment landscape. In 2023, they invested approximately US$2.35 billion into UK real estate, a figure projected to rise to US$4 billion annually due to favorable economic conditions. High-net-worth individuals (HNWIs) from the GCC are particularly active, with 33 percent investing in UK real estate, attracted by the long-term stability and emerging luxury residential markets in cities like Manchester, Sheffield, and Birmingham.

Beyond real estate, GCC investments are diversifying into financial services, healthcare, life sciences, and green technologies. The UK’s strong financial infrastructure, coupled with its innovative capabilities in healthcare and life sciences, makes it a prime destination for GCC capital. Additionally, the global push towards sustainability is prompting GCC investors to explore opportunities in green technologies within the UK, aligning their portfolios with emerging global trends.

Demand for imported products in the GCC is expected to grow rapidly, with projections suggesting it could reach US$1.04 trillion by 2035—a 35 percent increase from 2022. This growth will likely create substantial business and employment opportunities, creating opportunities to bolster the trade relationship between the UK and the GCC.

Expanding trade with Turkey

Turkey was the UK’s 15th largest trading partner overall, accounting for 1.5 percent of total UK trade. Turkey ranked 13th for goods and 25th for service trading with the UK.

Key areas of growth and cooperation

The services sector accounted for 81 percent of total UK economic output (Gross Value Added) and 83 percent of employment in April–June 2024. Unsurprisingly, one of the significant aspects of the UK-Turkey FTA under negotiation is its emphasis on the services sector. The modernized agreement is expected to boost UK service exports, including finance, technology, and professional services, thereby providing Turkish investors with enhanced access to this vital market.

Additionally, the FTA will address trade in goods, covering industrial products, fish, marine products, and processed agricultural products. Key industries such as textiles, iron and steel, and automotive will benefit from improved trade conditions.

Moreover, the FTA introduces new provisions for agricultural trade, offering incentives that could benefit both the Turkish and UK agricultural sectors. This inclusion aims to diversify and enhance the competitiveness of agricultural markets in both countries.

The agreement also provides a stronger legal framework for business operations, ensuring greater protection for investors and fostering a more stable and predictable investment environment. By improving market access and reducing trade barriers, the updated FTA supports increased economic cooperation and growth.

Strengthening ties with Israel

The UK-Israel economic relationship is characterized by a dynamic and multifaceted partnership, driven by mutual interests in innovation, technology, and strategic collaboration. Over the past five years, the economic relationship between the UK and Israel has significantly strengthened, with both bilateral trade and foreign investment showing robust growth. The total trade in goods and services between the two countries reached £6.1 billion for the year ending Q4 2023, reflecting a substantial increase from previous years.

Foreign investment has also been a crucial component of the UK-Israel economic partnership. Israeli investment in the UK has contributed approximately US$1 billion in gross value and created around 16,000 jobs over the past eight years.

Currently, key sectors driving this robust trade relationship include technology and innovation, particularly artificial intelligence (AI), cybersecurity, and digital services. The life sciences sector is another major area of collaboration, with opportunities in pharmaceuticals, biotechnology, and medical devices. Additionally, the UK’s strong financial sector and Israel’s growing fintech industry create a dynamic area for economic partnership. The fifth round of negotiations for the UK-Israel FTA aims to update the agreement to include these areas, which represent approximately 80 percent of both economies but are currently underrepresented in trade.

Negotiations to modernize the agreement began on July 20, 2022, with the goal of creating a contemporary trade framework.

Opportunities

• Joint venture projects

Recent joint ventures illustrate the expanding scope of UK-Israel collaboration. The 2030 Roadmap for UK-Israeli Bilateral Relations, signed in March 2023, represents a strategic effort to enhance cooperation in multiple areas, including trade, cybersecurity, and technology. This agreement includes significant joint funding, reflecting a commitment to advancing innovation and shared goals. The defense sector has also seen notable developments, such as the US$137 million contract for Israeli drone technology, emphasizing the strategic importance of military and defense collaboration.

• Green focus and healthcare

The two countries are exploring new sectors for collaboration, including climate and sustainability, with joint efforts in renewable energy and green technologies. In health and medical research, there is a strong focus on innovative solutions and collaborative research in fields such as cancer treatment.

• Education and agrifood

The UK and Israel are also enhancing academic ties through student exchanges and joint research projects, while strengthening partnerships in the cultural and creative industries. Additionally, they are working to improve agricultural technologies and practices to address food security.

Opportunities for UK investors in the Middle East

Gulf Cooperation Council region

The GCC countries are becoming increasingly attractive for investment, particularly in the sectors of renewable energy, construction, and tourism. The region’s commitment to diversifying its economy and reducing its dependence on oil has created significant opportunities in these areas.

Investment in renewable energy is especially promising, as GCC nations are heavily investing in solar and wind projects to meet their sustainability goals. The construction sector remains robust, fueled by infrastructure development and urban expansion. Additionally, the tourism sector is experiencing growth as the region positions itself as a major travel destination.

Turkey

Turkey presents significant investment potential in the service, automotive, textiles, and agriculture sectors. The country’s automotive industry is expanding, with increasing opportunities for investment in manufacturing and innovation. The textiles sector continues to be a major contributor to Turkey’s economy, with opportunities in both traditional and high-tech textile production. Additionally, Turkey’s agricultural sector offers potential due to its strategic location and diverse production capabilities, presenting opportunities for agribusiness investments and partnerships.

Israel

Israel is a leading hub for investment in tech startups, cybersecurity, and pharmaceuticals. The tech startup ecosystem is vibrant and growing, supported by strong innovation and a robust venture capital environment. Cybersecurity remains a critical area of development, with Israel being a global leader in this field. The pharmaceutical sector also offers significant investment opportunities, driven by advanced research and development capabilities, particularly in biotechnology and medical devices.

Conclusion

The UK’s renewed trade strategy under Prime Minister Keir Starmer’s Labour government marks a significant shift toward fostering robust international partnerships, with a particular focus on broadening trade ties across the Middle East. As the UK seeks to rejuvenate its economy through strategic FTAs, the markets in the GCC, Turkey, and Israel emerge as key areas of opportunity.

The ongoing FTA negotiations with the GCC underscore the potential for enhanced trade in renewable energy and food security, paving new avenues for investment. Similarly, the evolving trade relationship with Turkey promises to modernize and expand economic collaboration, particularly in the services and agricultural sectors. Meanwhile, the UK-Israel FTA is poised to strengthen ties in technology, cybersecurity, and pharmaceuticals, further cementing a dynamic economic partnership.

For investors, these developments present a landscape rich with opportunities across diverse sectors, driven by the UK’s strategic emphasis on innovation and growth. Engaging with these emerging markets not only aligns with the UK’s trade priorities but also positions investors to capitalize on substantial, long-term benefits in a rapidly evolving global trade environment.

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