Abu Dhabi fund ADQ leverages economic diplomacy to build regional ties

DUBAI, Oct. 16 (Reuters) – Abu Dhabi’s strategic shift in using sovereign wealth fund ADQ to invest across the region reflects efforts by Gulf oil producers to use economic diplomacy to build regional alliances from Turkey to Israel and Egypt, three sources said.

The change suggests an increased use of soft power after Abu Dhabi, the richest emirate in the United Arab Emirates federation, appears to be leaning toward a tougher, even militarized approach to gaining influence in the Middle East and North Africa.

ADQ, the smallest of Abu Dhabi’s three sovereign wealth funds, started in 2018 as a vehicle for holding state-owned assets.

But it has expanded overseas. ADQ, which has $108 billion in assets under management, made 25 investments worth about $6.6 billion between January 1 and October 1 this year, making it one of the most active dealmakers in the Middle East, according to Global SWF estimates. one.

“The region is a priority. They want strong political ties with these countries,” one of the three sources told Reuters on condition of anonymity.

ADQ and the UAE foreign ministry did not respond to emailed requests for comment.

Abu Dhabi has pursued a hawkish foreign policy in recent years to curb Iran’s growing influence in the region and curb the rise of political Islamist movements.

The tough tone echoed the inflexible style of then-US President Donald Trump, who saw Iran as a villain and tore up a deal aimed at preventing it from developing nuclear weapons.

But military adventurism that saw the UAE mired in conflicts from Yemen to Libya and joined an Arab boycott of Qatar had little effect and led to tensions with Western allies.

‘Great financial resources’

Outlining foreign policy, Emirati officials said the UAE is now focusing on building economic bridges.

Abu Dhabi forged ties with Israel in 2020 while engaging with Iran to manage tensions and mending ties with Turkey and Qatar after years of hostility to Islamism.

In a recent transaction, ADQ launched a $300 million technology fund with Turkey’s sovereign wealth fund in March to invest in venture capital funds and opportunities within Turkey.

It has invested in Egypt, an ally of the UAE, as well as other Arab countries such as Syria – still under heavy Western sanctions – and Iraq is also in its portfolio, two of the sources said. It also signed an agreement with Israel.

Abdulkhaleq Abdulla, an Emirati political analyst, said, “The UAE is now using its enormous financial and economic power to achieve the same goals as using ‘hard power’.” Defining this goal as the UAE’s “vision to achieve a stable and moderate Middle East and advance the UAE’s national interests”.

He said ADQ had behaved in a similar way to Mubadala, another of the emirate’s sovereign funds, saying both had “political legs and investment legs”.

“They are the ones who promote the UAE’s economic diplomacy, its regional and global reach,” he said.

ADQ’s strategy shares similarities with that of Mubadala, which invests around the world, both locally and regionally, although its portfolio is skewed towards the US and Europe, while ADQ focuses primarily on national champions and the region.

ADQ insists its mission is purely commercial, even though its chairman, UAE National Security Adviser Sheikh Tanun bin Zayed Al Nahyan, has been his half-father, according to people close to the company. Half-brother MbZ’s foreign policy troubleshooter and brilliant businessman.

A source familiar with ADQ’s strategy said Sheikh Tahnoon likes to keep his roles separate, even though he does attend board meetings.

Andreas Krieg, associate professor at King’s College London, said: “He (Tahnoon) is a strategic pragmatist…he has a very strong external network that is very important to UAE statecraft. helpful.”

“good chance”

Sheikh Tahnoon visits Turkey and Iran as UAE begins to engage with them; after meeting with him in August 2021, Turkish President Tayyip Erdogan said if talks continue “in a good way”, UAE will “Major investments” soon to be made.

In contrast to Singapore’s sovereign wealth fund Temasek, ADQ started out as a holding company for government assets, including Abu Dhabi’s ports, stock exchange and a nuclear power company.

It consolidated and privatized some of these assets, used local stock listings to build domestic champions, and then began to expand into companies outside the UAE, often choosing markets hit by high inflation or currency devaluation.

In April, it poured nearly $2 billion into five Egyptian-listed companies seeking foreign currency after Russia’s invasion of Ukraine prompted foreign investors to withdraw billions from its Treasury market.

“Eighty to 90 percent of large strategic deals — like energy deals — are negotiated top-down at a government-to-government level. The rest are proactive — ADQ sees an opportunity and takes action,” said third a source said.

Like other wealthy Gulf states, the UAE is now more willing to invest rather than provide direct financial aid to allies to avoid corruption and inefficiency and gain its own interests. ADQ’s investments are focused on areas of national interest in the UAE such as energy, logistics, healthcare and food safety.

“Nobody is giving cash now. It’s very rare when this happens. I think it’s over. They’ve learned their lesson,” a third source said.

Reporting by Yousef Saba and Hadeel Al Sayegh; Editing by William McLean

Our standard: Thomson Reuters fiduciary principles.