Global Trade Analysis: The Role of the GCC in Long-Term MENA Development (5/5)
Global Trade Analysis: The Role of the GCC in Long-Term MENA Development
The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The GCC was formally established on May 25, 1981. The council's purpose is to unify the countries' currency, trade markets, and other economic markets. There have been discussions to turn the council into a union with closer unity through a single currency and other economic integrations.
The GCC has made several changes to its policies that support its continued openness to trade. These policy changes include generating unified technical standards, harmonized customs administration procedures, and reduced clearance requirements to lower non-tariff barriers within the GCC. There are a number of special agencies in charge of creating and implementing technical standards, undertaking commercial arbitration, and registering patents: the Standardization and Metrology Organization for GCC in Saudi Arabia, the Technical Telecommunications Bureau in Bahrain, and the Regional Committee for Electrical Energy Systems in Qatar. These organizations have focused on making trade organizations more efficient.
The GCC Will Continue to Play a Crucial Role in International Trade
The following chart shows the trade openness of the GCC. This index is calculated by adding imports and exports in goods and services and dividing by the total GDP. The larger the ratio, the more the country is open to international trade.
All GCC countries are more open to trade than the world average.
The UAE has significantly increased its trade openness since 2006 and is currently the most open GCC country.
This openness to trade remains a significant strength of the region to attract new companies to offer products and services in and around the region.
Bahrain has maintained a historical and current openness to trade in excess of its GCC counterparts; this is likely due to the country's limited oil reserves.
The GCC's Greatest Long-Term Sustainability Risk Is Lack of Diversification
GCC countries remain wealthy due to their dominance of the global fuel market.
As global economies move towards renewable energies, the GCC can expect a reduction in oil revenue.
Therefore, for GCC countries to continue growing, they must diversify into non-fuel areas such as technology and services.
Factoring the oil industry into the GCC's GDP increases its real GDP by 50%.
The UAE Has Implemented a Successful Path to Diversification and KSA Is Set to Follow
As evidenced in this series, the UAE has diversified its economy and will continue to do so as a hub for global trade, technology, and services—particularly in the MENA region.
The UAE's investment in free zones and open economic policies have attracted businesses. These free zones include Abu Dhabi Global Markets (ADGM), Dubai International Financial Centre (DIFC), Dubai Multi-Commodities Centre (DMCC), and many more with specific industry focuses.
KSA will be a rising force in the GCC. The Kingdom's Crown Prince, Mohammed Bin Salman Al Saud, has made a commitment to the country's Vision 2030, which includes significant steps to diversify the economy.
Saudi Arabia's debt as a percentage of GDP remains very favorable: in 2019 the kingdom's debt was only 20% of the GDP, whereas countries like the USA and UK have over 100% debt-to-GDP ratios.
This completes J&A's series on global trade in the MENA region. The series covered major categories of imports and exports in the region such as raw materials, fuels, transportation and machinery, textile, and other product categories. The region represents approximately half the volume of imports and exports compared to the USA and China, but produces nearly 40% of the world's fuel supply. The general volatility of fuel has pushed leaders to diversify the economy. Food independence is a major objective of MENA leaders. The GCC's trade openness as measured by the World Economic Forum has significantly increased over the last 10 years. J&A anticipates trade openness to continuously increase in the region, particularly with the anticipated expansion of the Kingdom of Saudi Arabia and its Vision 2030 program.