The acquisition of Newcastle United is a blueprint for future investments
In October 2021, there were scenes of jubilation on the streets of Newcastle upon Tyne as news emerged that the KSA's £500bn+ Public Investment Fund ("PIF") had purchased an 80% stake in Newcastle United for £300 million.
Two years later the hopes of many of those fans appear to have been realised, with the team having risen up the Premier League and now playing in the European Champion's League. The PIF have not only seen the value of the club increase, but have also furthered their strategic goals of building an international sporting presence, through complementary investments in the LIV Golf League, tennis and motorsports, as well as winning the right to host the 2034 FIFA World Cup. These investments are having a transformational effect, changing the KSA's position in the world.
The importance of Vision 2030
To understand why so many "big ticket" investments have been made by the KSA in recent years, it is necessary to look to the Vision 2030 strategy, the ambitious plan overseen by HRH Mohammed bin Salman Al Saud, the Crown Prince and Prime Minister of KSA, and published in 2016. It articulates a paradigm shift, undertaken with the aim of realising the KSA's vast potential by “creating a diversified, innovative and world leading nation, for the benefit of future generations.”
The KSA's outward investments align closely with the objectives of Vision 2030. In making investments, the KSA:
(i) strives to be a global investment powerhouse (economic returns);
(ii) wants to diversify its non-oil economy (develop and transform the Kingdom), and
(iii) seeks to become a hub bridging three continents, connecting East and West (geo-political aims).
In line with these objectives the KSA is focussing many of its outward investments in key strategic sectors, including technology, renewable energy, manufacturing, tourism, and entertainment. Investments in the first three sectors aim to transfer knowledge and expertise back to the KSA to contribute to the growth of the KSA economy and create new job opportunities. Such investments not only bolster these sectors and accelerate their development, they align and keep the KSA at the forefront of future global economic trends. Investments in tourism and entertainment help the KSA more closely integrate into the global community.
Within Vision 2030 is also a commitment to ESG (environmental, social and governance). In recent years, there have been significant ESG changes within the KSA, particularly around women’s empowerment. For example, there is now a legal requirement for men and women to be paid equally and in the technology sector, start-up rates for women are higher than those for men – and higher than the European average. Therefore, investments are driven by the objective of securing a return over time, but also furthering KSA's ESG objectives.
Why is the North of England attractive to KSA investors?
The North of England is attractive for KSA investment because it presents opportunities that neatly align with the objectives of Vision 2030.
Economic Returns
KSA's goal of becoming a global economic powerhouse can be furthered through investments in the North of England because there are readily realisable returns.
In particular, the North of England has suffered from extraordinarily low levels of infrastructure investment in recent years (1). That has created conditions where it is now cheap to invest and returns can be generated comparatively quickly through the right investment of capital. The upside on investment can be significant in such circumstances, for example in certain areas of Manchester that have seen investment, Wasim Choudhury, Chief Executive Officer of Lote Global Investments observes that capital appreciation on property projects has been 20-25 percent, around five times greater than comparable parts of London.
Furthermore, the North contains many large sites that are ripe for regeneration, whether these are empty cotton mills in Stockport, former powerstation sites in Northumberland or former shipyards in North Tyneside. These are often perfect for large scale ambitious initiatives.
Moving away from oil towards the next generation of investment opportunities
The objective of investing in the growth sectors of tomorrow can also be readily achieved in the North of England. Again, the impact of underinvestment in recent years is that otherwise promising businesses have underperformed and therefore growth prospects can be transformed through capital investment.
Using Newcastle upon Tyne as an example, this historic city has five highly regarded universities within one hour's drive, all of which play a part in the knowledge economy, including through creating and nurturing promising businesses.
Three sectors that seem particularly promising in the area in and around Newcastle are:
- Space and Defence
In Autumn 2023, both Lockheed Martin and Leonardo announced significant investments in Newcastle City Centre. The American aerospace giant and the UK Space Agency are part-funding a £50 million space and technology centre, described as "MIT of the North" which will design and build satellites as well as train the next generation of space engineers. Initially attracted by a skilled local workforce and comparatively low costs, these businesses are being supported to grow and develop their offer, which is expected to lead to the development of a highly productive supply chain in the region.
- Cleantech, including electrification technologies
The North East of England is home to Europe’s first battery manufacturing facility and one of the World's most productive automotive manufacturing plants. Over the last 15 years, a highly regarded battery cluster has been built which includes several component manufacturers and universities, such as Newcastle, Durham, and Northumbria, which are actively engaged in undertaking cutting-edge battery R&D and skills development. Growth areas in the coming years are likely to focus upon developing the critical supply chain, particularly cathode, anode and electrolyte production as well as new gigafactories.
This complements wider cleantech investments in the region, which includes KSA companies, including SABIC and Alfanar, that have made use of large former industrial sites around Tees Valley's former steelworks site.
- Digital Technologies
Newcastle has one of fastest growing tech sectors in UK, generating c. £2bn revenue in 2022 and providing employment for 30,000 people across 3,000 creative and digital businesses. This includes established operations such as FTSE 100 company Sage PLC, Ubisoft’s largest UK Games Studio and a new BBC Tech Hub, but also new arrivals such as Monstarlab, Thoughtworks, Xplor, Version 1, Arctic Wolf and Credera. These companies are attracted by the strong support networks in the area, but also a skilled workforce with low rates of migration.
Each of the above sectors is capable of growing through targeted investment and thereby developing its offering, but also complementing the work being carried out within the KSA.
Bridging three continents, connecting East and West
A key element of the KSA's geo-political vision involves making targeted investments in tourism and entertainment that will help the Kingdom integrate into the global community. In this regard, the North has the potential to play an important role. After all, Liverpool and Manchester have an international reputation for their contribution to music. Likewise only one of the last five European Champion's League finals has not involved a Northern football team.
Furthermore, the North of England has high numbers of interational students. Not only can they benefit from KSA investments under objectives one and two, they are also well positioned to help extend the KSA's geo-political objectives into other communities when they return home.
Support from the UK Government in facilitating further KSA investment
The UK Government is eager to support much greater KSA investment and in November 2023 announced plans to implement the recommendations made in the Harrington Review of Foreign Direct Investment, including, as an immediate step, reforming the existing exceptional Regional Growth Fund (eRGF) mechanism so that it can be used as part of a more proactive strategy for attracting new, strategically important investments. This will enable the Department for Business and Trade to offer public funding to secure the most strategically important investments within 60 days of accepting an application.
Another way the Government is encouraging closer trading links is by making it much easier to travel. Starting on 22nd February 2024, the new electronic travel permit allows KSA nationals to travel to the UK on a short-term basis without applying for a visa. The move has been reciprocated with lighter visa requirements for travel to the KSA.
Investment Momentum
There are signs that 2024 will be the busiest year yet for KSA investment into the North of England.
On a national level, trade and investment between the two countries is rapidly increasing. The data underlines the increased integration between the two economies, with total UK exports to the KSA up 23.1% and imports from the KSA up 60.9%, compared to last year.
On a political level, KSA investors will be aware of the possibility that a new administration may be in power by the end of the year and will therefore want to move quickly to secure Government support.
Most of all though, the types of transactions that PIF (and other KSA investors) will be planning take time to realise. Often due diligence with owners of major companies will be carried out over many months or even years. Therefore, what we see in the coming months may well have started in the months following the Newcastle takeover, but only come to fruition now.
Conclusion
Vision 2030 represents a clear rationale for the KSA to make significant investments in opportunities that further their strategic objectives. Economic returns are important, but only where these also contribute towards creating the jobs of tomorrow and further geo-political objectives.
The UK Government has committed to facilitate such investments. London will always be a main focus, but the conditions are in place for a wave of new investments to be made across the North of England too. Indeed, in 2024 we anticipate that KSA investment across the North of England will soar.
DWF is on hand to help you with your investments. We are the only legal services business which has offices in Newcastle, Leeds, Manchester and Liverpool as well as having the benefit of a regional headquarters license (RHQ) in Riyadh, KSA.
(1) If the North East of England was a country, Greece would be the only member of the 38 OECD group of nations to have seen less public and private investment than Northern England, according to the State of the North report by the IPPR North think-tank.
