Gcc trade and investment flows the emerging market surge

GCC trade and investment flows The emerging-market surge A report from the Economist Intelligence Unit Sponsored by Falcon & Associates GCC trade and investment flows The emerging-market surge Foreword S ustained economic growth in the Gulf Cooperation Council (GCC) countries, buoyed by government spending, has provoked intense interest in the region The traditional trading partners—Western Europe, North America and the wider OECD—maintain strong relationships with the GCC, but the emergence of newly dynamic, high-growth economies in Asia and other parts of the developing world is producing new opportunities It looks likely that emerging-market economies will enjoy an increasing share of the spoils GCC trade and investment flows: The emerging-market surge is an Economist Intelligence Unit report that explores the changing and growing economic relationships between the GCC and emerging markets It lays out the key findings of extensive research into trade and investment flows between the GCC and different emerging-market regions: Asia; Africa; the Middle East; Latin America; and Eastern Europe/CIS It also discusses the implications of the burgeoning interest in emerging markets for the region’s traditional economic partners in the OECD Ayesha Sabavala and Ali al-Saffar were the authors of the report, and Jane Kinninmont was the editor Aviva Freudmann and Stephanie Studer also contributed research and ideas The research has been sponsored by Falcon and Associates, a Dubai-based company The findings and views expressed in the report are the responsibility of the Economist Intelligence Unit, which conducted the research independently They not necessarily reflect the views of the sponsor  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge About the research I n December 2010 and January 2011 the Economist Intelligence Unit conducted detailed research and analysis on the trade and investment flows into, and out of, the GCC The data analysed, sourced from a number of international organisations as well as our own forecasts, were supplemented by 14 in-depth interviews with a selection of senior business executives (with responsibility for trade and investment in the Middle East), academics and investment experts The insights from the interviews appear throughout the report We would like to thank all the participants in the in-depth interviews for their time and help  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Executive Summary T he story of the rise in prominence of the Gulf Cooperation Council (GCC) is by now well known: the region sits on some of the world’s largest hydrocarbons reserves and has used its massive influx of revenue to fund large-scale infrastructure development and, more recently, economic diversification strategies Beyond oil, however, the complex and vitally important trade and investment relationship the GCC has with the world is less well known New markets are being sought around the world for a growing range of non-oil goods and services, while, on the investment side, both the well-capitalised sovereign wealth funds and an increasing range of private investors have built up wide-ranging investment portfolios Emerging markets, especially in Asia, are becoming increasingly important economic partners for the GCC To put this in perspective, 30 years ago, the OECD, a group of developed countries dominated by Western Europe and North America, accounted for almost 85% of all the GCC’s trade But since the 1990s there has been a perceptible shift in the pattern of trade, with emerging markets becoming increasingly important By 2009 the emerging-market share of GCC trade had reached 45% This share has been rising by an average of 11% per year between 1980 and 2009, compared to only 5% a year for the OECD The Economist Intelligence Unit has conducted a programme of research, analysis and in-depth interviews on the trends that will shape the GCC’s trade and investment flows in the coming years Some of the findings of the report are as follows l Emerging markets will drive global growth in the years ahead: We forecast that around two-thirds of the world’s economic growth will be generated by emerging markets in the next five years This means that by 2015 emerging markets are projected to account for 41% of global GDP, compared to an estimated 31% in 2011 l The increasing economic importance of India and China and the economic emergence of subSaharan Africa present massive opportunities for the GCC Multinationals operating in the Middle East already use the GCC as a base for their regional operations, but the GCC also has opportunities further to develop as a base for their expanding operations in Africa and South Asia However, the  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge GCC will also face competition from rival hubs and will need to keep improving if it is to maintain its competitive edge There is a need further to strengthen the labour market, including the local skills base, and the regulatory environment l Asia will be the most important emerging-market region for the GCC This is partly a story about rising demand for oil: we forecast that oil consumption in Asia will grow by 4.4% per year on average over the next five years, while the OECD’s demand is expected to plateau But it is not just an energy story Growth in China and India is now moving into a new phase, from being focused on exports to a greater focus on domestic demand Rising consumption in Asia, fuelled partly by an expanding middle class, will produce a host of new opportunities for trade Tourism, one of the GCC’s competitive strengths, is already benefiting from the growing Chinese middle class l Most of our interviewees expressed certainty that China would be the GCC’s most important economic partner by 2020, although India’s historical and cultural links with the region will also stand it in good stead Nonetheless, South Korea, Singapore, Malaysia and India will remain important as providers of technology and know-how for the GCC states The GCC states already have an abundance of capital; in general, their main reason to attract foreign direct investment (FDI) is for the associated transfers of technology l Agriculture is a promising sector in Africa: As most GCC countries import the bulk of their food requirements, Africa’s abundance of arable land presents an opportunity for the GCC to implement food security strategies through the acquisition of land for export-oriented farming However, GCC investors need to be aware of legal and political risk in this area l In Asia and some parts of the Middle East, GCC investment will be channelled into infrastructure development: Large populations and a shortage of capital in Asia provide an ideal opportunity for the GCC to fill the gap Tourism and telecommunications, in particular, will be attractive industries for GCC investment In the Middle East, growth in Iraq has put a strain on the poor infrastructure and there are significant opportunities to invest in the region, particularly in the housing sector l Overall, the GCC’s investments in emerging markets are likely to focus on tried and tested areas of competitive strength, chiefly energy and services industries and sectors, such as port operations, tourism, retail, financial services (especially sharia-compliant finance) and telecoms Financial investments will also go into agriculture, minerals and real estate in a broad range of emerging markets In short, the opportunities are significant, but the rise of new economic powers also means new competition OECD companies and markets will remain important economic partners for the GCC, especially in knowledge-intensive sectors, but will need to work harder to maintain an edge  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge The rise and rise of emerging markets S ince the onset of the global financial crisis, it has become clear that emerging markets will drive global growth in the years ahead In 1987 these countries made up just 16% of global GDP, but today they account for 31% By 2015 the Economist Intelligence Unit forecasts that 41% of the world’s GDP will come from countries that are currently defined as emerging markets In 2011-15, emergingmarkets are expected to generate just under two-thirds of global economic growth This is partly because growth in many OECD countries is forecast to be fairly modest, owing to ageing populations, fiscal constraints and market maturity It also reflects favourable demographics, growing levels of investment, and the rapid adoption of technology in many poorer countries To some extent, emerging-market growth may also be a self-fulfilling prophesy, as confidence in emerging-market opportunities prompts greater investment, boosting growth This dramatic shift of economic power will also be accompanied by social, political and cultural shifts In one symbolic illustration, in 1989 the ten tallest buildings in the world were all in North America; in 2011, seven of the ten are to be found in Asia Emerging markets are by no means a homogeneous bloc Some will grow faster than others In addition, an official designation as a “developed country” does not necessarily mean a reduction in poverty and inequality; indeed, these indicators often worsen in periods of rapid growth The substantial rewards on offer to investors in high-growth emerging markets will also be accompanied OECD/ non-OECD global nominal GDP (share of total) Non-OECD OECD 1987 2010 2015 16 31 41 59 84  69 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge by high risks; state institutions may not be well-developed and rapid population growth will present political and social challenges, as well as opportunities What does this shift mean for the GCC? The growing importance of emerging markets presents massive opportunities for the six states of the Gulf Cooperation Council (GCC): Bahrain; Kuwait; Oman; Saudi Arabia; Qatar; and UAE The GCC is geographically well positioned to act as a trading hub between the east and the west, expanding on a role that it played for centuries before the discovery of oil Both trade and tourism can leverage on this strategic location, a point highlighted by John Grant, senior vice-president of a US-based route-development company, Airport Strategy and Marketing, who told us “The Middle East is almost an acronym for the middle of the world’’ The GCC governments are also proactively pursuing economic, financial and diplomatic links, particularly with Asia, and are developing shipping and aviation links with a widening range of emerging markets Our interviews with GCC businesspeople and investors indicate that there is a strong belief in the Gulf countries that emerging markets will be increasingly important economic partners Asia— especially China and India—dominates the picture Meanwhile, opportunities in other areas, such as Latin America and Eastern Europe, may be relatively overlooked  Multinational companies operating in the Middle East already use the GCC as a base for regional operations In the coming years, more will also use the area as a base for their growing activities in Africa and South Asia, especially when doing business in countries with weaker infrastructure and higher political risk For instance, a spokesman for Unilever, a consumer goods multinational, notes that, for his firm, “The GCC is an attractive market in its own right on account of a young, growing and increasingly affluent population, but it also provides a base for operations into Africa.” Markus Wildi, president for the Middle East at the Dow Chemical Company, told us, “Our company believes the GCC is on track to becoming the world’s petrochemical hub”, because of its energy resources and its current industrial development Hadi Damirji, deputy chairman at the London-based Trinity Group, notes that “the GCC has developed a brand name as a hub for the Asian economy,” although he adds that doing business between the GCC countries is not always easy The rise of new emerging markets certainly presents opportunities for the GCC, but will also bring with it new competition from emerging-market multinationals and from rival trade and financial hubs Maintaining competitiveness as a hub will depend on maintaining and building on the quality of infrastructure (especially international transport links), regulations and ability to attract talent © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge The story so far: The shape of trade and investment flows to and from the GCC I n 1980 the OECD, dominated by countries in Western Europe and North America, accounted for almost 85% of all the GCC’s trade The dominance of these blocs reflects geopolitical, as well as economic, relationships that stretch back centuries before the discovery of oil in the Gulf Since the development of the GCC’s oil and gas resources, trade with the OECD has largely involved the GCC exporting energy, while the OECD countries have provided a broader range of goods, from agricultural commodities to industrial materials and consumer goods For much of the past 20 years, the trade balance has been in the GCC’s favour This has left the GCC with a substantial capital surplus, most of which has been re-invested in OECD markets Since the 1990s there has been a perceptible shift in the pattern of trade, which accelerated in the early years of the last decade: growth in Asia, on the back of the rise of China and India, have made these markets far more prominent partners to the GCC By 2009 the emerging-market share of GCC trade had reached 45% This share has been rising by an average of 11% per year between 1980 and Growth in oil demand (%) OECD Non-OECD 8 6 4 2 0 -2 -2 -4 -4 -6 -6 2009 10 11 12 13 14 15 Source: Economist Intelligence Unit  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge 2009, compared to only 5% a year for the OECD In the coming years, oil demand will be an important factor in the shift in trade to emerging markets Our forecasts suggest that, whereas demand for oil will grow by only 0.1% over the next five years in the OECD, demand growth in Asia will reach 4.4% In emerging markets as a whole, demand for oil will rise by an average of 3.9% per year, according to our projections The increasing importance of non-OECD countries does not necessarily signal the absolute decline of the OECD, which is likely to remain an important trading partner and investment destination But the OECD countries—and businesses based there—will need to work harder to compete for market share and can no longer rely on being the first port of call for Gulf businesspeople or investors OECD GDP growth vs emerging markets GDP growth forecast (%) OECD Emerging markets 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 Avg 1995-2009 Forecast 2010-12 Source: Economist Intelligence Unit  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge The outlook by region Asia The current picture Asia is clearly the most important emerging-market region for the GCC In 1980 just 10% of the GCC’s total trade was with Asia By 2009 this share had risen to 36% Growth in trade has risen by 12% per year since 1980, double the rate of growth in trade with the OECD If this level of trade growth continues, Asia will be the GCC’s biggest trading partner by 2017, accounting for a greater volume of trade than the OECD India, China and Indonesia account for more than half of the GCC’s trade with Asia The Economist Intelligence Unit forecasts that oil consumption in Asia will grow by 4.4% per year on average over the next five years, while the OECD’s demand is expected to plateau According to Raja Almarzoqi Albqami, director of the Saudi-based Institute of Diplomatic Studies, “58% of China’s oil imports currently come from the Middle East region, and by 2015 this share will increase to 70%.” Regional oil consumption growth, 2011-15 (% change) China Asia (a) OECD 8 7 6 5 4 3 2 1 0 -1 -1 2011 12 13 14 15 (a) Asia includes India and China Source: IMF, Direction of Trade Statistics  © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Latin America The current picture Of the emerging-market regions analysed in this paper, Latin America appears to have the weakest trade ties with the Gulf countries Trade between the two regions has increased by a paltry 4% on annual average in the past 30 years, the lowest among all the other emerging-market regions Reflecting this, our interviewees generally focused on regions other than Latin America Ms Ziemba of Roubini notes that “The big obstacles are distance and lack of cultural and long-standing ties The ties are primarily with Brazil and not really with the rest of the region.” Brazil accounted for 85% of total Latin American trade with the GCC in 2009, mainly owing to food-related exports Yet there are often-overlooked opportunities to develop links with other rapidly growing Latin American countries, including Peru, Chile, Argentina and Colombia, in areas such as agriculture, ports, real estate and tourism, with an increasing number of air routes now opening up between the Gulf and Latin America Drivers of growth: The region has witnessed annual average growth of 3.4% in the past 15 years and the rate is expected to increase marginally to 3.5% in the next three years, primarily driven by domestic demand and infrastructure needs Opportunities l Agriculture: The GCC, which imports around 80% of its food, will look to Latin America as a vital food source, with investment in land acquisitions likely to increase Qatar has led the way with Hassad Foods, a company with a mandate to secure and improve food supplies, which was established after the 2008 price hikes in global food commodities According to the company’s chairman and managing director, Nasser al-Hajri, it spent around US$700m in 2010 to acquire farmland across the world, with Brazil targeted for the production of poultry, beef, sugar and grain production, Argentina for grain and Uruguay for rice, grain and meat Brazil is one of the world’s leading food exporters, with around 11% of food-related exports sold to the Middle East, according to the Arab-Brazilian Chamber of Commerce Around one-third of Brazil’s poultry exports go to the Middle East and it is a significant exporter of Halal products to the region l Ports Dubai’s DP World has moved into Latin America, where it has invested in Peru’s Callao Port In February 2011, Peruvian deputy trade minister, Carlos Posada, said Arab countries were interested in developing more projects in ports, tourism and water resource management in his country l Financial services Latin American banks were relatively well protected from the global financial crisis by their high levels of capitalisation and limited exposure to toxic assets Rapid growth in Brazil in particular is expected to drive demand for a wider range of financial services In 2009 Aabar, an Abu Dhabi investment fund, bought a US$328m stake in a Brazilian bank, Banco Santander l The political will to enhance the trade relationship exists on both sides and a number of Latin American embassies have opened up in the region 23 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Risks The main deterrent to trade and investment between the two regions is the adoption of protectionist policies Negotiations to establish a free-trade agreement (FTA) between the GCC and the Mercado Común del Sur (Mercosur, the Southern Cone customs union, consisting of Brazil, Argentina, Paraguay and Uruguay, with associate members including Bolivia, Chile, Columbia, Ecuador and Peru) have stalled as the two blocs struggle to agree on issues regarding exports The Gulf countries are pushing for the removal of import duties on petroleum and associated products from the GCC to Latin America, but the Mercosur members, who produce around 8% of the world’s oil, oppose this In addition, Brazil’s government is actively promoting the use of bio-fuels, such as ethanol, as an alternative to oil-derived products 24 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Eastern Europe and CIS The current picture: Trade with Eastern Europe and Russia accounts for less than 1% of the GCC’s total, which, despite growing by an average 17% per year over the last 30 years, amounted to only US$8.7bn in 2008 (and dipped to US$4.7bn in 2009) The weak trade ties can be attributed to a number of factors, not least the legacy of the cold war, in which the GCC countries were firmly allied with the west Russia accounts for 25% of total trade between the GCC and this region Ms Ziemba argues that “The relationship between Eastern Europe and Russia and the GCC is limited because they are producing the same products.” Both regions are oil and gas producers, but there are real opportunities in the retail sector Opportunities may also arise in particular niches, especially as many Eastern European countries are in need of capital; several had IMF assistance to offset the severe impact that the global recession had on the region Drivers of growth: Eastern Europe does provide opportunity for investors The economy there grew by more than 7.6% per year in 2003-08 (2009 saw a decline, largely owing to the global economic downturn), and is expected to register growth of over 5% over the next five years, more than double the growth expected in the OECD, making it attractive to investors seeking higher yields Opportunities Retail: The region offers opportunities in the retail sector as it is home to 335m people, but has a relatively underdeveloped retail industry The region has grown at an average of 5% per year in the past 15 years Russia and Ukraine, the two most highly populated countries in the region are the most attractive retail destinations According to a report published in March 2010 by PMR Publications, a research company that focuses on Central and Eastern Europe, Russia accounted for 73.5% of the total retail turnover in the Commonwealth and Independent States in 2008, followed by Ukraine (12.4%) Foreign retailers, such as Kuwait’s Al Shaya Group, have shown increasing interest in these markets Mohammed Alshaya, executive chairman of M.H Alshaya Company, a Kuwait-based trading company that operates throughout the Middle East and in some CIS countries, says “We could see the same opportunities in Eastern Europe as we saw here in the Middle East: an increasingly brandliterate market demanding international brand names, plus a growing affluence.” M.H Alshaya has established 175 stores in Russia since 2005 and is expanding elsewhere in Eastern Europe, notably Poland Although the economic recession in 2009 has affected these countries, they provide promising new markets for GCC retailers 25 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Implications for the OECD T he OECD countries will remain important economic partners for the GCC, but will face increasing competition A striking example is the success of a South Korean consortium in bidding for the UAE’s first nuclear plant, winning the contract ahead of a French consortium OECD businesses will need to focus on maintaining their technological edge For instance, Mr Wildi of Dow argues that “In the foreseeable future, from a manufacturing standpoint, North America and Europe will not diminish in relevance and impact, as these mature economies still represent the technology hubs.” Shin-Ichiro Fukushima of the Japan External Trade Organisation highlights education and healthcare as two priority sectors where Japanese countries can compete in the GCC markets, both being knowledge-intensive sectors Here, the main competition will come from Asian countries that have invested heavily in R&D, such as South Korea and India Western businesses that target the consumer market will also benefit from established brands Mr Alshaya argues that the West will face little competition for well known international brands: “I think that local consumers are primarily looking for well known international brands and, in my view, creativity and design will stay with the West, while manufacturing and consumption stays with the East.” In the area of investment, a senior UAE government official told us that, while he thought the emerging markets will eventually replace the OECD as investment destinations, governance structures must evolve for this to happen, something he did not envision taking place within the next decade Investments in the OECD are also expected to remain strong, as the effects of the 2008-09 global economic downturn fade from investor memory Developed markets will continue to be seen as a secure investment destination by the more risk-averse GCC funds 26 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Conclusion T he increasing importance of emerging-market countries provides significant opportunities for the GCC Trade and investment between the bloc and countries that have not been traditional partners has seen the market share of non-OECD countries in GCC trade increase to around 45%, up from just 15% in 1980 The shift towards these markets has been exponential, and has been led by China and India, although nascent markets in Africa and Latin American also present ample opportunity for GCC trade and investment The GCC’s investments in emerging markets are likely to focus on tried and tested areas of competitive strength, chiefly energy and services sectors such as port operations, tourism, retail, financial services (especially sharia-compliant finance) and telecoms Financial investments will also go into agriculture, minerals and real estate Overall, the GCC’s trade, investment and political ties with emerging markets are expected to develop in the next ten years, and although doubt has been raised as to the ability of these emerging markets to eclipse trade and investment with the traditional partners, Western Europe and North America, it is certain that emerging economies will continue successfully to eat into the share of the market controlled by the OECD This will be led by manufacturing trade and, just as importantly, by the growing demand for GCC oil and gas among rapidly industrialising economies 27 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge OECD/ non-OECD global nominal GDP (share of total) Non-OECD OECD 1987 2010 2015 16 31 41 59 84 69 Growth in oil demand (%) OECD Non-OECD 8 6 4 2 0 -2 -2 -4 -4 -6 -6 2009 10 11 12 13 14 15 Source: Economist Intelligence Unit 28 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge OECD GDP growth vs emerging markets GDP growth forecast (%) OECD Emerging markets 5.0 5.0 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 Avg 1995-2009 Forecast 2010-12 Source: Economist Intelligence Unit Africa growth trajectory vs world average and emerging markets average - 1995 - 2009 (%) Emerging markets Africa avg 8 7 6 5 4 3 2 1 0 1995 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 Source: Economist Intelligence Unit 29 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Africa GDP growth vs world GDP growth, 1995 - 2012 (%) Africa World 8 7 6 5 4 3 2 1 0 -1 -1 -2 -2 -3 -3 -4 -4 1995 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 Source: Economist Intelligence Unit Top 10 countries by Muslim population (estimated 2009 population; m) 220 220 200 200 180 180 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 Indonesia Pakistan India Bangladesh Egypt Nigeria Iran Turkey Algeria Morocco Source: Pew Research Center 30 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Middle East trade with the GCC, 2009 (share of total) Iraq Iran 45 Jordan 15 Lebanon Syria 20 Yemen 11 Source: IMF, Direction of Trade Statistics Regional oil consumption growth, 2011-15 (% change) China Asia (a) OECD 8 7 6 5 4 3 2 1 0 -1 -1 2011 12 13 14 15 (a) Asia includes India and China Source: IMF, Direction of Trade Statistics 31 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge India, China and Asean trade as a proportion of total trade with the GCC (%) China India Asean 16 16 14 14 12 12 10 10 8 6 4 2 0 2000 01 02 03 04 05 06 07 08 09 Source: IMF, Direction of Trade Statistics Growth in Asia compared with the OECD (%) China India OECD Asean 12 12 11 11 10 10 9 8 7 6 5 4 3 2 1 0 2010 11 12 13 14 15 16 17 18 19 20 Source: Economist Intelligence Unit 32 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge India vs China growth rates (%) China India 11 11 10 10 9 8 7 6 5 4 3 2010 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Source: Economist Intelligence Unit India, China and Asean trade as a proportion of total trade with the GCC (%) India China Asean 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 1990 82 84 86 88 1980 92 94 96 98 2000 02 04 06 08 Source: IMF, Direction of Trade Statistics 33 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge The regions defined Africa Middle East Latin America Asia Eastern Europe & CIS OECD 34 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging-market surge Africa: key resources oorrocco occo Tunisia u un Algeria Western W Sah Sa ahara har Libya The a uritania Gambia Cape Senegal Se a erde Egypt ali Niger Burkina Bu na aso Guineeea Guinea Bissau Ben nin Ghanaa Nigeria Sierra Leon one n ne Côte TTogo og d'Ivoir r e Libe berr ia Cameroo oon Equatorial Guinea São Tom T é & Príncipe Err it ittrrea e Chad Sudan Djibouti Djibouti Ethiopia CAR So oom malia m Ugganda Democratic Republic of Gab Ga abo bon Co Congo go Congo (Brazzaaville) Uranium Kenya Rwanda an Burundi T Tanzania Seychelles il Lead and inc alaw wi Angola Iron C Como ros ambia Diamond iimbabwe Bau ite Coal Namibia oz oozam zambi a que Botswana a daggas ascar a uritiuss Copper Gold km miles 1,000 500 2,000 1,000 South Africa Swaziland Lesotho Source: Economist Intelligence Unit 35 © The Economist Intelligence Unit Limited 2011 While every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in this white paper GENEVA Boulevard des Tranchees 16 1206 Geneva Switzerland Tel: +41 22 566 24 70 E-mail: geneva@eiu.com LONDON 25 St James’s Street London, SW1A 1HG United Kingdom Tel: +44 20 7830 7000 E-mail: london@eiu.com FRANKFURT Bockenheimer Landstrasse 51-53 60325 Frankfurt am Main Germany Tel: +49 69 7171 880 E-mail: frankfurt@eiu.com PARIS rue Paul Baudry Paris, 75008 France Tel: +33 5393 6600 E-mail: paris@eiu.com DUBAI PO Box 450056 Office No 1301A Thuraya Tower Dubai Media City United Arab Emirates Tel: +971 433 4202 E-mail: dubai@eiu.com [...]... by the more risk-averse GCC funds 26 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Conclusion T he increasing importance of emerging- market countries provides significant opportunities for the GCC Trade and investment between the bloc and countries that have not been traditional partners has seen the market share of non-OECD countries in GCC trade. .. embassies have opened up in the region 23 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Risks The main deterrent to trade and investment between the two regions is the adoption of protectionist policies Negotiations to establish a free -trade agreement (FTA) between the GCC and the Mercado Común del Sur (Mercosur, the Southern Cone customs union,... engagement in the longer term.”1 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Africa The current picture Africa is becoming increasingly important to the GCC as a trade partner, a trend that we expect to continue over the next decade Trade links are limited at present: trade with Africa accounted for only 3.6% of the GCC s total trade in 2009 (the latest... compensation, and land being leased at below the market rate Such investments therefore need to be treated with care 20 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Middle East trade with the GCC, 2009 (share of total) Iraq 1 Iran 45 Jordan 15 Lebanon 8 Syria 20 Yemen 11 Source: IMF, Direction of Trade Statistics Middle East The current picture The Middle... Yemen and Syria) in 2009 The importance of Iran as a trading partner for the GCC, the UAE in particular, is therefore unequivocal, but could be jeopardised by increasingly stringent trade sanctions placed on the country by the UN and the US The GCC states, including the UAE, have made it clear that they will abide by the sanctions 22 © The Economist Intelligence Unit Limited 2011 GCC trade and investment. .. issued in the local currency, the ringgit” © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Prioritising markets He believes that the shift to emerging markets is predicated on manufacturing and since “India is less of a manufacturing powerhouse than China”, China will retain its role as the leading trading partner to the GCC However, other interviewees... since 2005 and is expanding elsewhere in Eastern Europe, notably Poland Although the economic recession in 2009 has affected these countries, they provide promising new markets for GCC retailers 25 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge 4 Implications for the OECD T he OECD countries will remain important economic partners for the GCC, but... in the economic importance of key Muslim countries such as the GCC states South Korea, Singapore, Malaysia and India will © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge remain important as providers of technology and know-how for the GCC states The GCC states already have an abundance of capital, and ultimately do not require foreign domestic investment. .. sharia-compliant finance) and telecoms Financial investments will also go into agriculture, minerals and real estate Overall, the GCC s trade, investment and political ties with emerging markets are expected to develop in the next ten years, and although doubt has been raised as to the ability of these emerging markets to eclipse trade and investment with the traditional partners, Western Europe and North America,... America, it is certain that emerging economies will continue successfully to eat into the share of the market controlled by the OECD This will be led by manufacturing trade and, just as importantly, by the growing demand for GCC oil and gas among rapidly industrialising economies 27 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge OECD/ non-OECD global ... Limited 2011 GCC trade and investment flows The emerging- market surge The rise and rise of emerging markets S ince the onset of the global financial crisis, it has become clear that emerging markets... trade and investment flows The emerging- market surge The story so far: The shape of trade and investment flows to and from the GCC I n 1980 the OECD, dominated by countries in Western Europe and North... opened up in the region 23 © The Economist Intelligence Unit Limited 2011 GCC trade and investment flows The emerging- market surge Risks The main deterrent to trade and investment between the two