Throughout modern history, state-owned enterprises (SOEs) have played an important role in spurring economic growth and development in national economies. SOEs in the Gulf Co-operation Council (GCC) countries have been no exception. 

However, many of the GCC member states have launched ambitious development goals over the past few years. These goals are largely spurred by a desire to pivot away from an over-reliance on hydrocarbon production and exports, a need to create jobs for a rapidly growing (and young) population and a commitment to increasing fiscal discipline (subsidies have been slashed and new taxes introduced). Hence the focus on the need for a new generation of SOEs. 

Historically, GCC SOEs could be classified as either incumbent operators of in-state assets (such as Saudi Aramco and Etisalat) or sovereign-owned investors (such as Abu Dhabi Investment Authority and Kuwait Investment Authority). Increasingly, the latter are taking on a more transformational role. Previously relatively transaction-averse, these sovereign-owned investors have become global players executing large, complicated cross-border investments. Instead of recycling revenues from oil exports into, say, US Treasuries for future generations, sovereign wealth is being used to kick-start a regional economic and infrastructure transformation, both through regional investment and international tie-ups. They are seeking to achieve their objectives by sharpening their strategies, investing in human capital (with both homegrown talent and expatriates) and hiring the world’s best advisors.

The net result has been a remarkable regional boom in sectors as varied as aerospace, automotive, clean energy, entertainment, fund management, healthcare, technology and tourism. 

The outside world has reacted to these developments in different ways. For example, virtually no globally significant fund raising or sell-side transaction does not take into account potential bidders or investors from the GCC. Similarly, advisory businesses have beefed up their coverage of these sovereign-owned investors, with increasing numbers either opening offices in the region or moving more staff there. However, the world needs to adapt its mindset and practices in several ways when dealing with them.  

First, GCC sovereign-owned investors tend to be very media-shy and value confidentiality. They will generally insist on robust non-disclosure agreements and prefer settling disputes through arbitration (where confidentiality is available) rather than open court.

Second, GCC sovereign-owned investors seek to separate and safeguard their commercial activities from other government-owned assets. This sensitivity is further heightened by the presence of ruling family members and government employees on the boards of many sovereign-owned investors (SOEs). They therefore focus on contractual and structuring solutions to manage this separation and prevent ‘cross contagion’.

Third, when making investments, GCC sovereign-owned investors are increasingly taking a more prominent role in the governance of investees (through board representation and minority rights) and, in many instances, playing an active role in the strategic direction and operational oversight of companies.

Finally, partly due to these factors, GCC sovereign-owned investors are very focused on foreign regulatory approvals required to invest overseas. This is because (mainly) US and EU governmental agencies are increasingly asking probing questions about the structure, governance and unrelated dealings of these SOEs (in particular with Chinese and Russian entities) or publicly rejecting approval requests.

With increasing international reliance on GCC investments, the world is learning to adapt to the new generation of GCC sovereign-owned investors just as they in turn are adapting to their new role in the global economy. 

Megren Al-Shaalan, Marwan Elaraby and Renad Younes are partners at Gibson, Dunn & Crutcher LLP

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This article first appeared in the April/May 2024 print edition of fDi Intelligence.