Supply chain: Gulf States

Fahad Al Gergawi, CEO of Dubai’s Foreign Investment Office, offers his perspective on a new report from the Economist Intelligence Unit on the Gulf Cooperation Council’s trade and investment strategy.





Few places in the world better symbolize the power and opportunities of globalization than Dubai. Without large oil reserves, our future depends on our success as a trading hub and strategic position in the world. We are an open society not just in economic terms but in the make-up of our population. More than 200 nationalities live and work in harmony within our borders.

Given our location, our heritage and ambitions, the shape of global trade is crucial to our future success. We need to understand not just the major trends but the details which can help put the bigger picture into focus. Too often, and in defiance of traditional economic thinking, trade is still seen in terms of winners and losers. The true picture, as a new authoritative report into trade between the countries of the Gulf Co-operation Council and the rest of world highlights, is more balanced.

The report, of course, captures the astonishing rise in economic power of the emerging markets over the last two decades. In 1987, they made up just 16 per cent of global GDP. Today, they account for 31 per cent, a figure forecast to rise to 41 per cent by 2015. The skyline, not just the bottom-line, illustrates the remarkable shift underway. In 1989, the ten tallest buildings in the world were all in North America. Today seven are in Asia with the tallest here in Dubai.

As you might expect, the Gulf Cooperation Council’s (GCC) trade experience underlines this mega-trend. Thirty years ago, 85 per cent of the GCC’s trade was with OECD members, the group of countries dominated by the developed economies of North America and Europe. By 2009 the emerging market share was 45 per cent.

This switch, however, doesn’t mean trade with the developed world has fallen. It hasn’t. It is just that its annual growth of five per cent can’t keep up with the boom in trade with the economies of Asia and Africa.

The underlying figures also show that OECD countries will remain an important trading partner, especially in knowledge-intensive sectors such as education and healthcare. For investment, too, it will continue to be an attractive destination for capital from the Gulf, particularly for risk averse funds.

It is easy as well to caricature trade with the new economic powerhouses of the East as a transfer of raw materials to them with low-cost manufactured goods flowing the other way. In this scenario, the smartphone in your pocket is the perfect symbol of the new global economy.

Again, it is only a partial picture. It is, for example, not only goods but capital which is flowing out of an increasingly prosperous Asia. A third of Dubai’s 2009 sovereign bond issue was taken up by Asian investors.

Across Asia, too, the purchasing power and aspirations of a rising middle class are starting to be felt. Walk through Dubai Airport’s terminal three and you’ll see just how popular luxury brands are with Chinese and Indian tourists. In an extraordinarily short period of time, they have developed the same tastes and love of travel as their counterparts across the world.

China, in particular, figures large in any discussion of global trade trends. The country’s growing need for oil—70 per cent of which will come from the Gulf States by 2015—creates a long-term co-dependence between the Middle and the Far East. 

But to focus narrowly on such raw data is, once again, to miss the nuanced picture. India, culturally, is the GCC’s closest neighbor and there are more than six million Indians living in the Gulf. Indian merchants pre-date the British presence here. Such deep historical cultural affinity will be an important driver for bilateral trade. 

Nor can we afford to ignore the south when we consider future trends. Trade between the GCC and Africa is rising, from an admittedly low base, by an impressive 11 per cent per annum. Strong economic growth and increased political stability within Africa is likely to continue this performance.

There are, however, two further factors which could have an important impact on the links between Africa and the Gulf region. The natural fit between the continent’s abundant and under-used arable land and the GCC’s declared aims of securing food security for its citizens seems certain to be an important driver of future investment and trade.

Africa also has the youngest and fastest-urbanizing population in the world. GCC firms are already investing in these smaller, faster-growing consumer markets. But the future potential for low cost manufacturing in Africa is also likely to be increasingly significant.

In a world changing more rapidly than ever, it is becoming even more difficult to predict the future. We can, however, be certain that, as prosperity continues to spread, global trade will keep expanding. We can be confident as well that, through our location, our open attitude and continued investment, Dubai is ideally placed to help the increased flow of goods, services and people between north and south, east and west.

The report from the Economist Intelligence Unit—GCC Trade and Investment Flows; the Emerging Market Surge—examines trade between the Gulf Cooperation Council and the rest of the world.