Developing markets are emerging as some of the Gulf region’s most important economic partners, with trade and investment between China and the GCC in particular a game-changer
As developed markets have run into troubled water in recent years, emerging markets have more than picked up the slack when it comes to trade with Gulf Co-operation Council (GCC) countries, a new study showed.
The report, GCC Trade and Investment Flows, found that China and India in particular have the greatest potential to drive the region’s economic profile. China especially is touted as a “game-changer”: GCC-China trade grew faster than with any other significant trade partner in the three years to 2013, according to the study by the Economist Intelligence Unit (EIU). Asia as a whole accounted for 67 per cent of GCC exports and 40 per cent of imports in 2013.
The six countries of the GCC are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. The report forecast GCC-wide GDP growth of some 4 to 5 per cent to 2018. Infrastructure initiatives to revive the ancient Silk Road trading routes also have the potential to further boost Gulf-Asian relations.
"The development of transit and logistics infrastructures linking China to Europe via Kazakhstan plays into the geographical asset of the Gulf and especially its growing ports,” said Adam Green, EIU senior editor for Africa, Europe and the Middle East. "If that develops successfully, it provides another boost for the GCC as one of the most important geographies of the global economy.”
Investors, including Chinese investors, go on the basis of personal links
The new freight route through Kazakhstan – managed by Dubai’s state-backed ports operator DP World – has shaved as much as 10 days from the 25 it usually takes to move freight by sea from China to Europe, according to the report.
Still, it is China that is really leading the charge when it comes to the bilateral trade boon. Since 2007, Gulf imports from China have doubled and by 2020 it will be the Gulf’s biggest export market. China leads the pack when it comes to investment, too, particularly in construction, wholesale trade and retail, with increased registrations of Chinese companies in the UAE, according to the report.
India’s historically strong relationship with the Gulf has returned to form in recent years after slipping back. India-GCC ties are now growing at a steady clip: GCC exports to India grew at an annual rate of 43 per cent over the last decade, now accounting for 11 per cent of the total, up from just 2 per cent in 2005.
Asian investment in the Gulf has been more muted than trade to date, but that too is set to change. “As you get more wealthy Asian expats from India and the Philippines here in the UAE, for example, they are much more entrepreneurial and will be investors themselves,” said Green. Infrastructure, healthcare and financial services are all big potential growth areas for investments into the GCC in the coming years.
“The more proof of concept companies there are investing in the Gulf the more investment [levels will rise],” said Green. “Investors, including Chinese investors, go on the basis of personal links. We think investors look at data and government declarations, but just as important are business success stories within their personal networks.”
The study also identified growth trends among other emerging markets. Sub-Saharan Africa is drawing Gulf investment in infrastructure, banking and tourism. The growth of Islamic finance on the continent could also result in an uptick for the GCC, according to the study.
The EIU’s GCC Trade and Investment Flows report examines the region’s trade and investment ties with other regions worldwide, including Asia, Africa, Latin America, western countries, the CIS and MENA. The 2014 study was sponsored by Falcon & Associates.