By Hussain Rajab
Despite global tensions, trade is still a tool for growth, and the GCC aims to capitalise on the importance of international commerce to diversify its collective economy
With economic tensions between the world’s two most prominent superpowers growing ever greater, the role of trade as a tool for promoting growth – rather than a pawn in a game of geopolitical chess – can easily be forgotten. As traditional champions of internationalism seemingly turn inwards and away from established norms, pro-trade voices are being drowned out as they struggle to re-win arguments they thought were won back in the 1970s. Yet, amidst this increasingly competitive landscape, a new and perhaps unexpected champion for trade has emerged from within the Middle East.
The ramping up of oil production in the Arabian Peninsula during the early 1970s sparked unprecedented economic and geopolitical change, generating unprecedented levels of wealth and shifting the global balance of power. Driven by oil revenue, entire cities were built out of the sand. Yet at a time when the global trend was toward trade liberalisation, the region’s economies were tied inextricably to hydrocarbons. Now it is the Middle East, and in particular the Gulf Cooperation Council (GCC), demonstrating a steadfast support for trade as part of their diversification efforts as they seek to lessen their reliance on hydrocarbons and evolve and adapt to a rapidly changing world.
The last two decades have seen Gulf nations enter into a number of free trade agreements while removing non-tariff barriers as they seek to boost non-oil exports and foreign investments – essential steps for diversification, according to a recent IMF policy paper. As well as a GCC-wide Free Trade Agreement (FTA) and the broader Greater Arab Free Trade Area to promote intraregional trade, the GCC currently holds FTAs with Singapore and the EFTA states of Norway, Iceland and Switzerland. The GCC is collectively negotiating many more, including with China, Australia, Japan, Korea, New Zealand and the European Union.
"There may be lessons to learn from the GCC, which is redoubling efforts to promote trade, strengthening relations at home while forging new alliances across the world”
As well as collectively entering into international agreements, GCC members are also forging new partnerships independently. Of particular note is Bahrain’s FTA with the US – the first US FTA with any GCC country. Last year saw $1.2bn in imports and $683m in exports from this trade agreement alone. Furthermore, it has been a boon to Bahrain’s rapidly growing manufacturing sector, attracting international companies seeking to benefit from the kingdom’s low-cost business environment, advanced infrastructure, supportive regulation, highly skilled workforce and access to both the US and growing $1.5 trillion GCC markets. Confectionary giant Mondelez, 205 year-old textiles producer Westpoint Home and Bell Racing Helmets are just a few examples of manufacturers who have established facilities in the kingdom and are benefitting from tariff free access to the US economy.
The results of attracting these international businesses are starting to show. The latest World Investment Report (WIR 2019) from the UN Conference on Trade and Development (UNCTAD) found that global flows of foreign direct investment (FDI) had sunk to their lowest level since the global financial crisis. Despite this, the West Asian subregion, which includes the Middle East, bucked the global trend, seeing a 3 percent rise in FDI to $29bn. The report singled out Bahrain, which saw a 6 percent increase in FDI inflows, largely thanks to growing interest in its manufacturing sector.
It is an irony of today’s digital era that while the world is more connected than ever before, there is a growing trend toward nationalism and protectionism. In such a climate, there may be lessons to learn from the GCC, which is redoubling efforts to promote trade and strengthening relations at home while forging new alliances across the world. GCC nations can see the benefits for themselves and for the companies that they host. They are growing stronger because of it.