Speech by the Chief Secretary to the Treasury.
Your Excellency Dr Al-Assaf, let me warmly welcome you to Britain. I am delighted that you are here, and I hope that we can continue to strengthen the links between our two countries.
[Transliteration of Arabic]:
Ma’aali Al-Doktur Al-Assaf.
Marhaban beka fi-Britania
Yasorroni annak Huna fi-Britania,
Wa atmanna an-nastamer fi-ta’zeez al-rawabet bayna baladayna.
It’s not often I get to practice my Arabic skills, and I hope I haven’t done the language a disservice.
Your Excellency Dr Al-Assaf, Your Royal Highness Prince Mohammed, it’s a pleasure to be here, and I’d also like to say thank you to Dr Al-Shuaiby and the ABCC for organising today’s events. A vital forum to promote and build on the ties between the UK and the Arab world.
I’ve always keenly followed the Middle East. I’ve done my best to learn the language. But now, working at the heart of UK Government in the Treasury…I realise more than ever how important the economic ties to the Middle East are for our country.
And of course, Saudi Arabia is the largest economy in the Arab world, and its leading economic engine.
And it remains amongst the most dynamic even through a challenging international economy environment…
Home to a quarter of the world’s petroleum reserves, and the largest free market in the Middle East and North Africa region.
An envious record of growth in recent years, reaching over 6% this year alone.
And one of the world’s fastest growing countries on a per capita income basis.
Such growth can only benefit what is already a strong trade relationship between our two countries.
Saudi Arabia’s is already the UK’s largest Middle East trading partner. Last year, UK exports of visible goods to Saudi Arabia increased 16% to just over £3 billion, whilst Saudi exports to the UK increased almost 40% to just under £1 billion.
On top of that, the UK is the second largest foreign investor in Saudi Arabia, after the United States, and there are currently around 200 UK/Saudi joint ventures with a total investment estimated at around $17.5 billion.
Such strength is testament to the Kingdom’s economic reforms, liberalising trade and opening its economy to foreign investment, diversifying the economy and stimulating the private sector. Changes that now rank Saudi Arabia 11th in the World Bank’s Ease of Doing Business report.
As you’re all aware, we are living through an extremely difficult economic period. A period of extreme global economic turmoil. What was once a crisis of private and banking sector debt has transformed into a sovereign debt crisis.
And the Eurozone is at the epicentre. Doubts over some of the Eurozone’s biggest countries have rumbled on all summer, undermining stock markets worldwide.
We welcome the positive steps that have been taken more recently to restore market confidence, and we continue to urge Eurozone members to deal with the problems that affect us all.
But the UK is in a strong position to weather the storm.
Firstly, our banks are much better capitalised and hold more liquid assets than they did even a year ago. In the words of the IMF: “the Core Tier 1 ratios of all the major UK banks are in double-digit territory, which compares well with most European peers”.
Recently Moody’s downgraded 12 UK banks but they said explicitly that this did not reflect a deterioration in the financial strength of the banking system or the Government.
Instead, it was a recognition of the Government’s success in reforming the banking sector, removing the tax payer guarantee for banks deemed too big to fail.
Secondly, we have taken the necessary action to get a grip on our debt. Setting out plans to eliminate the structural current budget deficit. Plans which have established real confidence in this coalition Government’s credibility to restore the health of our public finances.
And the markets have backed our plan with gilt yields falling to record lows in recent weeks. Despite having inherited a deficit larger than Portugal, we have market rates close to Germany’s.
And that makes a real difference to businesses securing or re-financing loans, and to households paying their mortgages.
But in such an uncertain environment we cannot be complacent. We are sheltered but we are not immune from the ongoing turbulence in the Eurozone.
We have to do everything we can to stimulate an economic recovery.
But we cannot simply return to growth on the back of private and public sector debt. We know all too well that the debt fuelled growth of the last decade or so was unsustainable.
Instead, we are rebalancing our economy to one based on private sector enterprise, innovation, and export.
That means supporting high growth industries in the digital and technology sectors, but also capitalising on our strengths in sectors such construction, and of course financial services.
The UK is consistently recognised as a world leader in the financial services sector, and the sector will continue to play a critical role in our economic recovery.
Whilst we are driving through reforms to embed greater stability in or financial sector, these reforms cannot undermine the innovation and adaptation that has brought the UK so much success.
And as an example of that innovation and success, the UK is already the leading Western centre for Islamic finance.
There are more banks and financial institutions offering Islamic Finance products in London than any other Western jurisdiction.
We will continue to support this growth, maintaining the UK as a global gateway for international Islamic finance. We have already made a number of tax changes to level the playing field between conventional and Islamic finance products…like for instance, establishing the UK tax treatment for Corporate Sukuk such that there are now 31 listed on the LSE with a value of $19 billion.
But we are keen to learn from our Saudi counterparts to bring this market to maturity.
After all total asset growth in the Saudi Arabian banking sector continues to out-strip Gulf Cooperation Council counterparts, growing to almost $350 billion.
And only two years ago the Saudi Arabia Financial Services Group was established between City UK, UK Trade & Investment and the Saudi British Joint Business Council.
This gives us a strong base from which to capitalise on the huge opportunity for further growth between our two countries,
For one, the Saudi insurance sector is set for explosive growth in the coming years and UK firms are willing and able to play a part in strengthening and supporting the consolidation of this high growth sector.
In the housing sector, should the newly drafted mortgage law be passed, it will be a key driver for affordable housing in the Kingdom, and one where there is scope for sharing UK expertise with our Saudi counterparts.
And as Saudi Arabia embarks on over $400 billion of infrastructure investment, we would welcome greater UK involvement in those plans.
In particular, with growing interest in Public Private Partnerships in Saudi Arabia, the UK is well placed thanks to our expertise in the area to assist in developing PPPs to deliver infrastructure.
Indeed in June this year Lord Sassoon, the Commercial Secretary at the Treasury, hosted a delegation from the Saudi Binladin Group to discuss the UK’s PPP experience.
We are following up on this through a PPP mission to Saudi Arabia this December led by British Expertise. We look forward to engaging with the Saudi Ministry of Finance on this in the coming months.
But the Infrastructure opportunities flow in the opposite direction as well.
Just as the Saudi Government is investing in its nation’s infrastructure, we have set out plans for £200 billion of investment in the UK’s infrastructure through our National Infrastructure Plan.
Plans which include a vast increase in transport and energy investment, and also an increase in private sector participation.
And that means making it easier for domestic and international investors to seize these opportunities. We know that what investors need is certainty and transparency.
The National Infrastructure Plan is part of our answer, but in addition to that we are producing National Policy Statements for each of our major infrastructure sectors. And on top of that, every quarter, we will produce a rolling two year programme of projects where public sector funding has been agreed.
And all the time we are working with international investors and the infrastructure industry to ensure we can deliver these plans and attract investment.
And we already have strong interest from the Gulf in UK opportunities with the Abu Dhabi Investment Authority taking a stake in Gatwick Airport, DP World’s ownership of UK port facilities, and Qatari Diar’s purchase of London’s 2012 legacy assets.
We would welcome Saudi interest and investment in some of our major investment projects…offshore wind generation and transmission assets, High Speed 2 rail from London to Scotland, and our next generation of nuclear power plants.
At a time of widespread market anxiety, when returns on most types of investment are extremely volatile and uncertain, investors the world over are looking to de-risk and secure long dated income producing assets.
Infrastructure investment has the potential to offer those secure, sustainable and strong returns that investors are looking for.
Later this year we will be publishing a complete list of the 40 or so major projects that we are prioritising, and we would welcome discussions with Saudi investors interested in participating these projects.
I encourage prospective investors to make contact with UK Trade & Investment, and work with us to build new partnerships and support both Kingdoms’ infrastructure ambitions.
Working together we can seize on the opportunities for mutual growth. Help support each other’s businesses right across the economy.
Earlier this year, the both Kingdoms signed a Memorandum of Understanding to secure long term cooperation in the medical sector. The Saudi Arabian healthcare market is the largest in the region, and represents a huge opportunity for UK business.
It is in both our interests to strengthen those commercial and clinical links, to maximise the benefits of partnership and shared expertise in construction projects, e-health and training.
Similarly we are keen to work with Saudi authorities to share our experience around delivery of employment and welfare to work services.
In the UK we are fundamentally reforming our welfare system to embed the biggest single payment by results employment programme…helping around 2.4 million people over seven years to get off welfare and back into work.
But more than that, we both have to ensure that our labour forces have the requisite skills to prosper in and drive a new economy. In the UK we are investing £1.4 billion over the next two years in apprenticeships, the largest ever investment in the UK.
And that’s on top of 100,000 work experience placements, and our University Technical College programme which brings together employers and colleges, to ensure young people gain the technical skills that employers need.
And our British schools, colleges and universities are already active across the Gulf, delivering degrees, developing training, and designing curriculums.
All are eager to support the Kingdom’s develop and implement modernised vocational and training systems as you expands your educational system.
Facing the international challenges that we face today, we have to do everything we can to build on our talents, our business strengths, and our trade relations with key partners such as Saudi Arabia.
Later this month, my colleague at the Treasury Lord Sassoon will be making his second visit to the Kingdom since we came to Government. Both visits emphasising the importance that we place on the relationship between our two Kingdoms.
I look forward to working with you all to build and strengthen these links in the years to come.