London is currently the world's second-largest financial and asset management centre after New York. It’s known for catering to high-net-worth individuals, government entities and major corporations around the world to maximise the value of an investment portfolio over time. And in a post-Brexit Europe, the UK is looking to strengthen its economic ties with countries worldwide, including the Gulf states.
In 2021, the UK attracted 51 financial services foreign direct investment (FS FDI) projects with a combined value of £646m. The UK’s international financial reach continues to be unmatched. In 2020, against the backdrop of a challenging year, the UK’s financial services trade surplus increased by 8% year-on-year to £63b. This surplus was higher than the US’ net financial services exports and higher than the value of France, Singapore, Germany and Hong Kong’s surplus combined, according to the latest report by the City of London and the Treasury Department.
In 2021, the financial services sector contributed £173.6b to the UK economy, 8.3% of total economic output.
Al Majalla spoke to Lord Mayor of London Nicholas Lyons, who acts as the UK international ambassador for the country’s financial and professional services sector. He also heads the City of London Corporation, the governing body of London’s financial district. The financial services industry is a major contributor to the UK GDP
Speaking at his office in the 18th century Mansion House at the heart of the city’s financial district opposite the Bank of England, Mr Lyons explained his purpose of the upcoming visit to the Arabian Gulf, the second this year. He visited Saudi Arabia and the UAE in February; this time, he’s visiting Qatar and Bahrain.
London is one of the world's largest exporters of financial services, sustainable finance, green economy and investment in clean-energy technologies and Lyons is proud that the UK has the highest number of unicorn startups in Europe and is home to world-class universities.
The UK is the world’s sixth-biggest economy. The economy is stuck in very slow growth but has so far avoided widespread expectations of recession and proved surprisingly resilient. Lyons welcomed the news that the annual rate of consumer-price inflation fell to 6.7% in August from 6.8% in July, describing it as encouraging, though it’s still one of Europe’s highest rates.
Last year, the UK launched free trade negotiations with the Gulf Cooperation Council (GCC), comprising Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait and Oman.
The GCC is the UK’s seventh-largest export market. According to the UK government statistics, the GCC bloc’s demand for international products and services is expected to grow rapidly to £800b by 2035, a 35% increase – opening huge new opportunities for UK businesses. Lyons said that a free trade deal would also open the door to increased investment from the Gulf, supporting and creating jobs across the UK. It’s the fourth major set of Free Trade Agreement (FTA) negotiations launched by the UK government with India, Canada and Mexico after Brexit.
Lyons said that a free trade deal would also open the door to increased investment from the Gulf, supporting and creating jobs across the UK. It's the fourth major set of Free Trade Agreement (FTA) negotiations launched by the UK government with India, Canada and Mexico after Brexit.
Here's the interview in full:
What areas do you plan to cover in your meetings with Gulf officials as the UK international financial ambassador?
We have a global investment futures campaign, which is a multi-year project working with the City of London Corporation, the Department of Business and Trade, and the Investment Association. We are talking to the major asset owners worldwide, to encourage them to invest more and more of their money through the UK. We run at the moment about £11.6t of money. In our asset management industry in the UK £11.6t is three times the GDP of Germany. And of that £11.6t, about 45% is overseas international asset owners. The second area of discussion is around the sort of the transition to clean finance and green technology. And, of course, the big hydrocarbon economy is on a journey. They are not only the biggest producers of hydrocarbons, the biggest exporters of hydrocarbons, but also the biggest investors in renewable technologies, and increasingly in clean energy. And there is a lot that we can do because I think London sees itself as a thought leader in this space of green and sustainable finance and transition finance. So, working with the very big hydrocarbon countries is an important part of our role in trying to deal with a global challenge that we have.
What are London's unique selling points to the Gulf and other countries as a financial services hub?
I think you should always think about London as a centre of excellence in services. As such, we're working, for instance, with India on the sustainable infrastructure programme. The Indians will look to spend over a trillion dollars in the next 20 years on sustainable infrastructure and look to London because we have very strong project management skills, financing skills, capital market skills, securities law, risk management, insurance, you know, so all of you put all of those pieces together. So that's, I think, why people come increasingly to London, particularly when they've got big complicated long-term, structural problems to deal with because this is where the intellectual capital is and where you can speak to experts. Within the square map, the winner is within 500 yards of this building. There are 65 insurance companies. We have an unparalleled system of legal expertise.
The UK is also a global intellectual hub as it has some of the best universities in the world. How can this help increase its global share of foreign direct investment?
The UK has seven of the best 20 universities in the world. It's a very entrepreneurial country and always has been. We are tackling the issue of providing late-stage venture capital funding for our tech, green tech, renewable tech, FinTech and biotech companies. So, we want to create opportunities, and we are creating opportunities for foreign direct investment. Using our expertise, we can attract foreign direct investment into the UK to help build those businesses. And we want to keep those businesses in the UK as much as possible.
You have ambitious plans to create a £50b UK tech investment fund to rival Silicon Valley in California. Can you tell us more about this fund?
Yes one of the things that I'm keen to do is to create a future growth fund, which will become the main collective investment vehicle for funding all of these growth economy companies. So, it will have huge diversification across UK Tech, fintech, green tech, and biotech companies. And that will be a wonderful play for international investors on British intellectual property. So rather than having to make, you know, a series of individual investments and specific companies and try and pick winners, this will be an opportunity to invest in a collective fund that has a hugely diversified portfolio of investments, and has the scale to be able to follow those companies through series B, C and D. I think this will be something very attractive to sovereign wealth funds, particularly Gulf sovereign wealth fund. We've recently signed a mansion house compact, which included nine of the biggest players in the DC (defined contribution) pension market agreeing to allocate 5% of their funds into unlisted equity. That will be a fund of £50b by 2030. We'll also look to attract a lot of foreign investment in that. And this, I think, is an end area again, where Gulf money will look to invest. The fact that people, you know, enjoy coming to the UK, working in a collaborative and multicultural environment, I think this's very helpful. You know there are more unicorns in the UK than in the rest of Europe. These unlisted companies have a valuation of more than £1b.
As the world is shifting to an energy transition from fossil-based systems to renewables, the Gulf states are also keen not to miss the investment and business opportunities as investors increasingly tend to prioritise environmental and social governance. What's your view on this booming market?
Over the next 30 years, we will end up with many stranded hydrocarbon assets in the ground. So, countries in the Gulf need to make this transition. And they are doing it very sensibly and intelligently. They are redeploying their wealth into renewable technologies, but also into financial services. This, I think, is something that we see a great deal even with our meetings with Gulf nations, where they want to talk not only about renewable technology, the journey to green, how they can make money from that, but also how they can build their financial services capabilities, how can they work with London to help build their financial centres. They recognise that they need to build their long-term investment, asset management, and insurance capabilities. I think there are lots of touchpoints which make the relationships between Gulf nations, Saudi Arabia, and the UK particularly important. Saudi Arabia has huge resources that need to be invested. They buy a lot of bonds; they also need to ensure they're buying green bonds. So, they will be a big, I think, a big purchaser of green bonds.