Brexit: How Thursday's decision will impact MENA

The United Kingdom will announce on Thursday whether it is going to remain a member of the European Union or depart, as the people vote on the referendum that became known as “Brexit”. “There is no doubt that the UK referendum on June 23 is one of the most important events in the UK – and, for that matter, Europe – in a generation. With the outcome too close to call, volatility across markets and asset classes will remain elevated ahead and, in the case of Leave, afterwards too,” Ole Hansen, head of Commodity Strategy at Saxo Bank, wrote in a statement. 

While this may seem like a local or regional problem for the UK and Europe, its implications travel beyond borders and are also felt in the MENA region.

Observers are currently taking a close look at the finance industry, expected to be one of the first and among the most to be impacted by the vote. Markets are already quite volatile with stocks dropping and bonds rising.

“A Brexit vote is likely to cause volatility in the financial markets, as well as other asset markets, such as commodities,” an Abu Dhabi-based equity analyst told AMEinfo.

He noted that such volatility may keep the Federal Reserve on hold “for the rest of the summer.”

The United Kingdom is regarded as the financial hub of the European Union, as London has attracted many international banks and financial services’ providers. Analysts forecast a noticeable impact on the finance industry in the UK and the European Union as a whole.

This week, ahead of the announcements, central banks in the US, Japan, Switzerland and the UK have chose to sit this one out and leave policies unchanged, until an announcement is made.


While the decision is yet to be announced, the impact of uncertainty accompanying the Brexit has already been felt in exchange rates of high volume currencies, such as the pound sterling, the euro and the US dollar.

The pound has been undergoing major price swings against other currencies, as forex investors are becoming increasingly reactional with their decisions ahead of the announcement. This volatility was felt in foreign exchange houses in the Middle East too.

Foreign exchange dealers in the GCC, mainly in the UAE, are already increasing their margins ahead of the announcement, as the demand on the pound increases. There are forward bookings, as investors are looking to seize some profit from the fluctuations the pound sterling is already witnessing and it is very likely to continue to fluctuate following the announcement.


 Foreign exchange dealers in Dubai have reportedly increased their margins from 0.5 per cent to six per cent on currency deals.

This is despite major speculations that sterling would face at least an initial slide in value if Britain decides to leave the EU.

So far, both the pound and the euro have witnessed fluctuations. The uncertainty leading up to the vote is making forex investments in pounds and euros more risky, making these currencies less desirable and consequently pushing investors away towards safer bets.

Moreover, the murder of Jo Cox, the Labour member of the UK parliament and a Remain supporter, has further complicated implications on the currency and the markets.

On a positive note, most of the Middle East currencies are pegged to the US dollar, so the weakening pound and euro have been beneficial for regional investors eyeing Europe

Other investments

London is a popular destination for many Middle Eastern investors and has been for many years. This is especially true for real estate, as regional investors have continued to buy property in the UK.

 Indirectly, the Middle East’s investments in the UK, regardless of the industry in which they’re being placed, would face volatility, at least until new trade and market access policies have been agreed upon throughout the transitional period.

However, while most are waiting for the referendum outcome, some GCC investors are seeing a small window of opportunity.

“We are seeing a number of savvy investors taking advantage of the current currency play and uncertainty to secure very good investments,” said Victoria Garret, partner of International Residential Sales at Knight Frank, said in a research report exploring the sentiment of GCC property investors over Brexit.

“This window of opportunity may be short-lived, depending on the outcome of the Brexit,” she added.

However, on the long run, the UK’s detachment from the European Union is likely to have a positive impact, especially on the United Arab Emirates, AMEinfo has learned through market observers.

 “In the long run, as the dust gets settled, we think Brexit would be positive for the UAE, as it will be able to strike bilateral trade deals with the UK government,” the Abu Dhabi-based analyst said.

“Recently, the UK has signed a Double Taxation Agreement with the UAE. As far as EU is concerned, GCC countries have been unable to reach a Free Trade Agreement, with the negotiations going back to 1988,” he added.