Qatar Today article: “Trading with our neighbours”
Trading with our neighbours
by Qatar Today By Aparna Shivpuri, “Why has the profile of intra-GCC trade remained almost constant (in proportion to total trade) over the years? We go behind the scenes to find out what’s holding back the bloc.” The issue of boosting intra-regional trade within the GCC has been in existence since the Council was established in May 1981. The six GCC countries – Bahrain, UAE, KSA, Oman, Qatar and Kuwait – have implemented numerous measures to push this agenda forward. Even though trade flow within the Council has gone up, it hasn’t achieved the desired results. According to the International Monetary Fund (IMF), in 1980 trade flows among the GCC countries were at approximately $8 billion (QR29 billion), which was about 4% of the region’s total trade with the rest of the world. By 2008, it had reached $67 billion (QR244 billion), which was equal to 6% of the total trade. According to data from the Bahrain Ministry of Industry and Commerce, at the end of 2012 intra-GCC trade was close to $100 billion (QR364 billion). According to a report by Booz & Company, the European Union’s common market generated 2.75 million jobs over a 15-year period and 2.2% of additional GDP. These gains were due particularly to the standardisation of customs and border regulations, which facilitated the movement of goods, services and labour as highlighted in a report on GCC integration. There is no denying that the countries have been working towards promoting transport linkages in order to foster economic integration.
“The hydrocarbon industry will need to focus on ways to make the supply chains sustainable and cost-effective if they want to maintain, or even exceed, their trade within the Gulf region.”
Abdulwahab Al SadounSecretary-General
Gulf Petrochemicals & Chemicals Association The team at Etihad Rail reconfirms the importance of transport linkages and highlights that strong transport links are paramount for developing intra-GCC trade. Transport and trade are inextricably linked and it is not possible to have trade of goods without being able to transport them to the end customer. The Dolphin pipeline, which transports natural gas from Qatar to the UAE and on to Oman, serves as an example of how cross-border initiatives can create value for all stakeholders. According to Dr Kai Chan, Advisor at Emirates Competitiveness Council, currently there is not a great deal of intra-GCC trade. The major export destinations for the GCC countries are Japan, USA, China, Singapore, South Korea, India, and Thailand. A good majority of the exports are oil- and gas-related. In fact, even though total exports was nearly $1 trillion (QR364 trillion) in 2013, over 70% of it (measured in monetary terms) was accounted for by petroleum. This leaves just $272 billion (QR990 billion) in non-oil exports. So although the GCC region as whole has a combined GDP of $1.6 trillion (QR5.8 trillion) (ranked 12th globally – an economy slightly larger than Australia, but smaller than Canada), non-oil exports would rank the region 19th globally – and the lion’s share (75%) of that is from UAE alone. So as whole, the region does not produce many tangible non-hydrocarbon goods for export into the global market or the regional market. What it does export – beyond petroleum and their derivatives – are agricultural and primary goods (e.g. dates, fish) and, to a lesser extent, metals and textiles, while importing most of everything else, but particularly finished goods (vehicles, electronics, etc.) and food.As a whole, the bloc is a large economy, but driven primarily by oil – it accounts for almost 50% of the GCC GDP. Only the UAE and Bahrain have made inroads in diversifying their economy with hydrocarbon accounting for 30% and 20% of GDP, respectively. Dr Chan further adds, “Similarly, for imports, the major import partners of the GCC countries are India, China, USA, Germany, Japan, South Korea, France and Saudi Arabia. But the inclusion of Saudi Arabia in that list is a little misleading. Saudi Arabia is an oil economy and oil accounts for over 50% of GDP and 90% of exports. So although Saudi Arabia may be showing up in the list of top import sources for some of the other GCC countries (Qatar, Bahrain, Kuwait) it is not supplying the other GCC nations with the primary imports of the region, namely: machinery and transport equipment, chemicals, food, motor vehicles, textiles, manufactured goods, construction materials, clothing. ”
“The fate of intra-GCC trade depends on how well the region can diversify its economies.”
Dr Kai ChanAdvisor
Emirates Competitiveness Council Dr Abdulwahab Al Sadoun, Secretary General of the Gulf Petrochemicals & Chemicals Association, reinforces the view even for the petrochemical industry. “Due to the relatively small regional markets, combined with the fact that the products portfolio of the industry throughout the GCC States is largely identical, the petrochemicals industry in the Gulf region adopted an export-oriented approach since its early production days in the 1980s. In 2012, the industry’s export market share accounted for 80% of the total output. This translates into 60.7 million tonnes of petrochemicals products valued at $55 billion (QR200 billion). The share of the GCC markets was 3.7 million tonnes valued at $4.8 billion (QR17.5 billion).”He further adds that they have been witnessing a steady double-digit rise in cross-border petrochemicals trade between the GCC countries – their research has shown that in the last 10 years, intra-regional GCC exports have grown cumulatively by 13% every year. Obviously, this is a positive trend, and there is also plenty of room for improvement. Exports are aided by associate service industries like logistics, transport and shipping, so the challenges for the petrochemical companies over the next 10 years will be in the optimisation of the supply chain. The industry will need to focus on ways to make the supply chains sustainable and cost-effective if they want to maintain, or even exceed, their trade within the Gulf region.
With all the best intentions in place, what have been the road blocks to trade and economic integration in the GCC? Is it the lack of infrastructure or a coherent policy? According to Etihad Rail, it has been the latter. Soft infrastructure (policies, regulations etc.) challenges are a greater bottleneck than any hard infrastructure challenge because they introduce costs invisibly either through lost business opportunities or costs that aren’t actively tracked or managed. Due to this, it’s harder to get these issues tabulated to get the right people to fix them.Dr Chan further adds to this and states that much of the roadblocks to increased trade in the GCC region are structural – the economies have little to trade with each other since they are all abundant in oil and gas and short on producing finished goods and foodstuff. Moreover, there are impediments to trade in the region. According to the World Bank, the region as a whole has yet to smooth out frictions for doing business: The average (GDP-weighted) ease of doing business ranking is 38. The region’s unified (GDP-weighted) ease of trading across borders ranking, however, is much lower at 57. And this figure is propped up very much by the UAE, with a rank of 4, while Kuwait drags the group average with a rank of 104. These rankings are the result of red tape and laws that make it difficult (with the exception of the UAE) for entrepreneurs and business owners to function.
Intra-GCC trade flow among the GCC countries
QR29 billion (in 1980)
QR244 billion (in 2008)
QR364 billion (in 2012)
Although GCC-wide integration initiatives have produced encouraging results, much more needs to be done. With global economic competition intensifying, GCC states need to push forward with even deeper integration. But what does the future hold when it comes to trade among these six countries?
Dr Chan is cautiously optimistic about it and lays great emphasis on the importance of diversification. “The fate of intra-GCC trade depends on how well the region can diversify its economies. In the short term there is not likely to be significant changes. With much oil wealth there is no pressure for structural changes in Kuwait, Saudi Arabia, and Qatar. For any real changes there will need to be more industrialisation and more development of sustainable agriculture. Here much will depend on bringing green technologies that will enable smart water usage and take advantage of the country’s geography (e.g. abundance of sunlight).”
He also points out that the construction of the GCC railroad network will help facilitate intra-GCC trade, but only if countries pursue diversification. Dr Al Sadoun seconds the importance of the rail network, especially for the petrochemical sector, and states, “The emergence of a GCC-wide rail network, for example, will be a huge opportunity for the petrochemical industry, as railways can move petrochemicals from point A to B in a safe, secure and timely manner. Railways can also transport a higher volume of petrochemical products, so trains provide a cost-efficient option for companies that are exporting their products in the region.”
It is quite clear that, while work is being done towards developing the infrastructural links which will go a long way in promoting trade among these countries, advances need to be made on the policies and regulations. The GCC countries need to adopt non-competitive policies that work towards the creation of complementary economies. This growth in intra-GCC trade will also strengthen the position of GCC countries globally and make them less dependent on the rest of the world and also streamline the flow of goods, services, capital and labour. Do we need more reasons to work towards greater economic integration?
Copyright © 2014 Qatar Today
Original article: http://www.qatartodayonline.com/trading-with-our-neighbours/
