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GCC Trade and Investment Flows a Report by the Economist Intelligence Unit GCC Trade and Investment Flows A report by The Economist Intelligence Unit Sponsored by GCC Trade and Investment Flows Contents About this report 2 Summary and key findings 3 Chapter 1: The GCC and the world economy 5 Case studies Islamic Economy 6 Aviation 8 Chapter 2: Regional trade and investment flows 9 Asia 9 Sub-Saharan Africa 16 The West 18 Latin America and the Caribbean 21 Commonwealth of Independent States 23 Middle East, North Africa and Turkey 25 Conclusion 27 Footnotes 29 1 © The Economist Intelligence Unit Limited 2014 GCC Trade and Investment Flows About this report CC Trade and Investment Flows is an Economist Intelligence l James Reeve, deputy chief economist, assistant general GUnit report. The findings are based on desk research manager, Samba Financial Group, London and interviews with experts, conducted by The Economist l Nasser H Saidi, former chief economist at the Dubai Intelligence Unit. This research was commissioned by Falcon International Financial Centre (DIFC), member of the IMF’s and Associates. Regional Advisory Group for MENA The Economist Intelligence Unit would like to thank l Fabio Scacciavillani, chief economist of the Oman the following experts who participated in the interview Investment Fund (OIF) programme: l Ben Simpfendorfer, founder and managing director of Silk l George Abed, senior counsellor and director for Africa and Road Associates the Middle East, Institute of International Finance l Paras Shahdadpuri, president of the Indian Business and l Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Professional Council (IBPC) in Dubai, chairman of NIKAI Group Development Centre (DIEDC) of Companies (NIKAI, Crescent General Trading, TASC, Hyundai electronics) l Tim Fox, group head of research & chief economist, Emirates NBD l Mohammed Sharaf, CEO, DP World, Dubai l Omar Hashmi, consultant, Airline Strategy and Marketing l Jonathan Walters, director, Regional Programs and (ASM) Partnerships, Middle East and North Africa, World Bank l Daryl Hudson, director for Middle East and Central Asia, l Jorg Wojahn, EU Counsellor for Trade, Riyadh, Saudi Arabia South Africa’s Department for Trade and Industry (DTI) l Rachel Ziemba, director, Global Emerging Markets, Roubini l Gerald Lawless, president and group CEO, Jumeirah Group Global Economics, London l Elena Lazarou, Centre for International Relations, School of l Rassem Zok, CEO, Standard Bank Plc, MENA Social Sciences, Fundação Getulio Vargas, Brazil The Economist Intelligence Unit bears sole responsibility for l Joannes Mongardini, head of economics, Group Strategy, the content of this report. The findings and views expressed in Qatar National Bank (QNB) this report do not necessarily reflect the views of the sponsor. l Walter Morano, managing director and head of research, Iain Douglas and Louise Redvers were the authors of the BCP Securities report. Adam Green was the editor. 2 © The Economist Intelligence Unit Limited 2014 GCC Trade and Investment Flows Summary and key findings he Gulf Co-operation Council (Bahrain, Key findings TKuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) is an increasingly GCC members are increasingly diverse in terms important node in the global economy, and its of external market integration and investment future depends heavily on how its trade and friendliness. The United Arab Emirates (UAE) investment relations with each world region now and Qatar have proven the most outward- advance. oriented members of the GCC. Saudi Arabia, a massive market, has been less outward-facing; In 2011 our study showed how emerging markets it is more focused on inward development as were rapidly growing their share of trade and a result of a larger domestic market and more investment with the GCC, while the recession-hit limited foreign investment flows, but quickening developed world’s share declined. As the final liberalisation and favourable market dynamics quarter of 2014 unfolds, the picture has become suggest that it will attract high levels of foreign more complex. Emerging economies have entered direct investment during the period to 2018. a period of lower growth, while the economies GCC members’ business environments are of several high-income countries are starting to heterogeneous, with the UAE in the higher tier, pick up. What do these shifts mean for the GCC? Saudi Arabia, Bahrain, Oman and Qatar ranking middle, and Kuwait several tiers lower. From the historically dominant blocs of North America and Europe to the emerging markets, China-GCC trade ties are strengthening at a the GCC’s external relationships are continuously faster rate than investment. By 2020, China shifting as a result of internal growth dynamics will be the biggest export market for the GCC, and and global headwinds. This report maps the Gulf’s Chinese investment in the GCC is on the uptick, shifting trade and investment relationships with mostly in wholesale and retail trade, with a each world region since 2011, and looks ahead marked increase in Saudi Arabia. Gulf companies to growth drivers and forecasts through to 2018. have secured comparatively few refinery projects It seeks to understand why these relationships in China, in contrast, and portfolio investments are changing and how this will shape the GCC have been limited. economy to 2018. 3 © The Economist Intelligence Unit Limited 2014 GCC Trade and Investment Flows GCC trade and investment with India has grown The Commonwealth of Independent States rapidly over the last decade, and Indians (CIS) is a rising market for the GCC. From a low are major investors in the UAE, but Gulf base, and flowing in both directions, the CIS has investment flows are held back by the business increased its trade and investment engagement environment. GCC exports to India have with the GCC in energy, petrochemicals, leisure, increased by 43% annually over the last decade, infrastructure and tourism. Notable increases the highest rate with any major trade partner, are the Russia-Dubai relationship in consumer and imports from India have increased by 26%. goods and hospitality, and the infrastructure Indian investment is a growth driver for the opportunities heralded by the renovation of UAE, but Gulf investment in India remains low, the “Silk Road” trading route linking China to owing to the challenging business environment, northern Europe. including unclear land rights and cronyism. The investment reform pledged by the new prime Free-trade deals are under-utilised. Free- minister, Narendra Modi, will be critical to trade agreements (FTAs) could deepen the GCC’s supporting GCC investment into India. integration into the global economy. Many were frozen in 2009 at the height of the global The Gulf’s push into Africa is broadening, financial crisis. A key sticking point has been by sector and geographical location. Gulf concerns about the threat of cheap GCC imports companies are placing more attention on new and to local petrochemicals industries—stalling the unfamiliar markets in east, west and southern India, China and Mercosur FTAs. A long-debated Africa. From telecommunications and private deal with the EU has overcome many obstacles, equity in West Africa to energy projects in South but the GCC’s wish for a free hand on export Africa and Mozambique, investment flows are duties on petroleum products remains a barrier. diversifying, concentrated in small to medium Completion of these agreements would facilitate deals. The GCC’s geographical proximity to the the Gulf’s deeper trade integration and reduce continent and its good air links are helping to tariff and non-tariff barriers. grow trade, and Gulf investors are seeking both equity and direct investment opportunities, although the surge of investor interest has made for a crowded field. 4 © The Economist Intelligence Unit Limited 2014 GCC Trade and Investment Flows 1 The GCC and the world economy he Gulf Co-operation Council (the GCC, charge. While the UAE and Qatar moved first and Tcomprising Bahrain, Kuwait, Oman, Qatar, fastest, others are following. Oman is developing Saudi Arabia and the United Arab Emirates) is a transshipment capacity, there are plans to critical node in the global economic system, as its develop logistical capacity in Kuwait, and Saudi larger economies diversify beyond hydrocarbons Arabia is investing in its Red Sea ports. The long- and into financial services, infrastructure, term ambition of these transport hubs is to move tourism, agriculture and private equity, to name away from being a transit point for international a few. trade and travel to become business locations. “If you look at the GCC members, they have been Ben Simpfendorfer, founder and managing increasingly important in the world economy over director of Silk Road Associates, a consultancy, the past 15 to 20 years, not only because of their says it is not just transport connectedness that massive oil and gas reserves, but also because attracts businesses to the region, but also “the of the way that the countries are positioning professional support services on offer, the themselves as important hubs,” says Rassem Zok, accountants, the lawyers and the commercial CEO of Standard Bank, Middle East and North banks”. These are strongest in Dubai, Abu Dhabi Africa region. and Qatar, but such services are increasing in other Gulf capitals. Transport and trade infrastructure led the The ability of GCC members to transition from Chart 1: Looking East linking hubs into business locations in their own right will depend partly on domestic reforms. GCC export and imports: share by region, 2013 (%) Free zones have been set up to encourage companies to build operations, with low or zero Exports Imports direct tax regimes and concessions implemented Rest of the World Rest of the World to encourage business relocation. This is most 10% 7% GCC pronounced in the UAE, which has 40 such GCC 5% 8% zones, and the hosting of Expo 2020 provides an opportunity for the emirates to encourage more 40% international businesses to lay down roots.
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