Gcc economies Essay
Challenges and Opportunities in GCC Economies. General Attitude towards Foreign InvestorsTrade integrating and Economic Philosophy in GCC economic systems. Economic Status of GCC economic systems.
Economic Stability. GCC ‘s Political Stability. FDI in the GCC statesThe size of the Market. Physical Infrastructure. Resource Endowment and Industrialization. Labor Force. GCC – India concern relationship.
Challenges. Trade Protection and Competitiveness. Lack of variegationThe Changing Economic Context of Gulf Politics. Recommendations and decisions
The Gulf Cooperation Council ( GCC ) is an attractive location for investing and a outstanding consumer market for imported goods and services, and information engineering to one of the youngest population that is considered to hold highest powers of disbursement in the universe.The common market of the six GCC economic systems are unfastened to foreign capital investing and are continually working to allow national intervention to all foreign investing houses and traverse state investing and services trade. By 2010, GCCs inter-state trade is expected to heighten by 25 per centum, and international trade in this provinces is anticipated to turn by multiples. Given its trade history and strategic location, the six GCC economic systems has had long trade and diplomatic relationships with Asia, Europe, and African provinces, proposing that it stands to profit in the long-run from the awaited growing of these states.
The GCC economic systems have upheld an unfastened system of trading, free capital motion, convertibility of currency with fixed nominal rates, and big labour inflows- both skilled and unskilled. Additionally, the GCC ‘s advanced fiscal systems have been an indispensable channel for progressing their trade integrating into the planetary community.Despite current planetary economic crises, the GCC has remained a really liquid sweep. The economic growing in several cardinal sectors is forecasted to be traveling forwards across the part. Any investor sing embarking in the GCC should be centrally positioned to take advantage of one of the universe ‘s fastest-growing markets.
Given the GCCs ‘ comparative advantage in oil, gas, petrochemical merchandises, and private capital, and given the India ‘s engineering, know- how, selling accomplishments and that can be marketed in a really ample market so. When states or trading spouses specialize on the footing of their comparative advantages, returns are maximized. Therefore Indian houses invested to a great extent harmonizing to the scheme stressing their comparative advantages in oil and gas service sector, which presents a great range for Indian endeavors to set about joint investings in these Fieldss.
The Gulf Cooperation Council ( GCC ) dwelling of provinces six Arab provinces ( Saudi Arabia, Bahrain, Qatar, Oman United Arab Emirates, and the Kuwait ) located in Arabian Gulf. The GCC economic systems are one of the fastest-growing international markets and have become progressively of import to the economic system of the whole universe.
GCC attracts an ever-increasing figure of foreign investings and across wide-ranging sectors. Its rapid development and enlargement has made it an active searcher for modern technological capacities, substructure development, and concern services. Development and betterments have been made to construct up a private sector that is fewer dependents on authorities or natural resources, therefore doing the country an attractive finish for investing and competitory market for expatriate workers and abroad enlargements ( Al Bawaba, 2007 ) .The GCC states investing clime is contributing to foreign investing. GCC states are continuously following policies and taking steps to better this clime and taking into consideration alterations in the international economic parametric quantities and factors.
GCC economic systems recognize the value of pulling and keeping foreign investing and have resulted to following steps aimed at pulling and promoting foreign investing.GCCs openness to foreign investing and capital has been motivated by an outlook that foreign capital and investing will pull fiscal resources- visible and unseeable, every bit good as conveying in modern engineering ( Al-Shamali & A ; Denton, 2000 ) . In add-on, it may besides raise selling potencies of the local houses by supplying entree to export markets. Foreign capital and investing can besides progress accomplishments and techniques of direction and put up state-of-the art installations of preparation.The enterprise for promoting invest largely focuses on the institutional construction and on making legal and administrative conditions appropriate for transporting out investing activities.Despite current planetary economic crises, the GCC has remained a really liquid sweep.
The economic growing in several cardinal sectors is forecasted to be traveling forwards across the part. Any investor sing embarking in the GCC should be centrally positioned to take advantage of one of the universe ‘s fastest-growing markets.However, investings and trade links among the Arab states leave much to be desired. Capital-rich states do non experience safe puting in people-endowed or resource-rich states.
However this latter group of Arab countriescan insure nutrient safety, enlarged markets for industrialising GCC states and investing chances ( Al Bawaba, 2007 ) . Political hazard is frequently cited as a hindrance, along with bureaucratism. Most frequently authoritiess are blamed for failure to invent a system that motivates the populace every bit good as the private sector to joint attempts.This paper identifies investing chance and supply advice on the challenges and chances for an Indian endeavor intending to ship on an investing in oil and gas service sector in the GCC part.
Challenges and Opportunities In GCC Economies
General Attitude towards Foreign InvestorsBy and large talking, GCC Countries ‘ faith, societal cloth and norms, and their economic and political civilizations do non hold in any manner biass against foreign investors ( Al Bawaba, 2007 B ) . The fact is that there is a history of fruitful co-operation and strong tradition of cordial reception. The figure of foreign houses and expatriate workers in the part clearly manifest this attitude.
Hostilitiess in any mode of at any degree of contact are absent.Trade integrating and Economic Philosophy in GCC economic systemsThe GCC economic systems has had an evident grade of success in footings of trade integrating, capital mobility, labour creative activity, and in puting regular criterions in diverse ordinance countries. Some of the GCC members have extended affable privileges to foreign capitals and investing in countries such as share-market, investing, and authorities procurance.The longstanding economic doctrine of the part is evidently an unfastened free market and outward – oriented ( Al Bawaba, 2007 ) . Private belongings rights are good established and honored. GCC states, unlike many developing states, have ne’er experienced what could be called socialist dispositions.
Capital and goods are allowed to freely come in and go forth GCC states. Foreign exchange control steps are non- existent and as therefore exile of net incomes, remittals and dividends face no limitations.GCC states openness is besides manifested in their high foreign trade openness ratio which reached more than 70 % . For comparing grounds, the same ratio amounted to 16 % in U.S.A. and 18 % in Japan.
This manifests the dependance and incorporation of GCC economic systems in the international market ( Al-Shamali & A ; Denton, 2000 ) .Economic Status of GCC economic systemsThe combined Gross Domestic Product ( GDP ) of the GCC economic systems is estimated to make 1.15trillion dollars harmonizing to the Gulf Finance House ( GFH ) projections.
The projection by the Saudi American Bank ( Samba ) and Al Ahli Bank estimations that by 2018, entire investing in the GCC economic systems could make up to 670 million dollars.The GCC ‘s universe economic system portion is estimated to enlarge somewhat higher than the one-year norm planetary growing with an sum of 4.5 per centum, compared to globally one-year norm of 3.3 per centum ( Emerging Markets Monitor, 2008 ) . Within 10 old ages, the GCC states are expected to be providing about one-fourth of the universe with oil every bit good as increased measures of petrochemicals, plastics and metals.
The six states of the GCC possess many common and instead particular features. They all depend on oil and gas for authorities grosss and foreign exchange net incomes.
These authoritiess ‘ grosss and outgos move the engine of the economic system. The non-oil sector, while turning invariably, remains comparatively dependent.Oil will stay the major beginning of energy and the chief vehicle to development for old ages to come ( Al-Shamali & A ; Denton, 2000 ) . Its function in the international economic system as an of import strategic trade good needs no amplification here. Therefore, GCC states position as major manufacturers and exporters will go on to heighten their economic power. GCC production of this strategic trade good histories for more than 20 % of universe production. Of the universe ‘s proved oil and natural gas militias, GCC states hold 45 % and 15 % severally, harmonizing to conservative estimations ( Emerging Markets Monitor, 2008 ) .
GCC provinces have been entering positive GDP growing rates even at times of international recession. Their Amalgamate GDP has surpassed the landmark of $ 550 Billion harmonizing to World Bank. Outgo on capital formation ( investing ) totals more than 25 % of GDP.Another index of stableness, rising prices, has remained one figure, and below 5 % in most recent old ages in all GCC states.
Not merely that, but rising prices was recorded with a negative mark in some old ages.GCC provinces have maintained their realistic way of apologizing outgo and cautiously gauging grosss. This twelvemonth ‘s budgets which have been based on expected oil monetary values of $ 40 per barrel, at a clip when market indexs and oil experts ‘ outlooks foresee a monetary value near to $ 60 per barrel.
In fact, this behaviour has helped GCC states to enter big excesss in their existent oil grosss during the last few old ages, and therefore assisted them in settling internal debt arrears, and refilling their foreign exchange militias.It is apparent that GCC states have started to harvest the fruits of the dare measures – adopted for the last few old ages – of apologizing outgo and encompassing the construct of efficiency in the direction of both the private and the public sectors. More significantly, they have succeeded in cut downing people ‘s outlooks sing the function of T he authorities in supplying subsidies, employment chances…
etc.GCC states have enjoyed excesss during the last decennary, sometimes significant, in the current balance of payments ( Al Bawaba, 2007 ) . High rates of nest eggs, nevertheless, have been unmatched by matching internal investings, the possible growing vehicles for these economic systems. The exhaustibility of their resources implies the pressing demand for long-run economic and fiscal planning in these states before one-sided tendencies take rootEconomic stableness and growing are besides combined with general tendencies which – among other consequences – strengthen and heighten foreign investings. GCC authoritiess are pursing policies towards more economic liberalisation, denationalization and giving a greater function to the private sector.
Furthermore, export – 0riented policies are ruling and manifested in the creative activity of export funding establishments and set uping specialised exporting units in ministries and Chamberss of commercialism and industry.
GCCs Political Stability
GCC states are renowned for their stable political and administrative administration. Power is swimmingly handed and regime alteration is less frequent as compared to most of the developed and developing states. The stableness of the governments in GCC states is wholly correlated with the stableness of general schemes and policies ( Al-Shamali & A ; Denton, 2000 ) . The strong legitimacy and popular support enjoyed by GCC governments is instead rare in other developing states and even in some developed 1s.
However, on the political and administrative degree, there are several cardinal jobs that have remained unresolved. Some imposts brotherhood are yet to be to the full implemented, while unstable bilateral understandings between single GCC provinces and other trade spouses undermine the consistence of the external duty government. The pecuniary brotherhood of some GCC economic systems has been called into inquiry and particularly by latest proclamation by Oman to choose out and by the reluctance of the authoritiess to hold on representative standards of convergence. Political tensenesss have been created between some adjacent GCC States, peculiarly between Saudi Arabia and Qatar, which could do the political stableness degree of the GCC economic systems to coggle.
FDI in the GCC states
Having recognized the importance of pulling FDI, GCC economic systems have adopted new steps aimed at pulling foreign capital and investing. These new steps and development precedences include recognizing sustained economic growing by raising investing rates of private sector ; heightening technological accomplishments and local capacities ; bettering the exports into the universe markets, making more competitory employment chances. Openness to foreign capital and investing has been stimulated by an outlook that this openness will convey in fiscal resources, while pulling modern engineering. In add-on, foreign capital and investing provides raises marketing capablenesss of local houses and entree to export markets.
It besides facilitates upgrading of the direction techniques and accomplishments.In the GCC economic systems, the FDI flow histories for more than the universe ‘s mean in two of the GCC provinces ( Bahrain and Qatar ) . Conversely, except for the UAE, FDI stock has accounted for a cardinal portion weighed against to the value of Gross Domestic Product in these GCC economic systems, as was evidenced in the instance of Bahrain, in which the stock reached more than 74 per centum and 70 per centum of the degree of GDP in 2000 and 2004 severally.
The GCC Service sector Market
The size of the market is considered one of the chief factors in finding influxs of foreign investings. The larger the size of the market and the greater its growing rates, the larger are volumes of foreign investings. Unfortunately, a popular perceptual experience, based on the population estimates merely, sees GCC provinces ‘ markets as little.
This perceptual experience fails to appreciate a figure of facts:First, GCC states constitute an economically united axis which entails – among other things – a market size of a population nearing 38.7 million dwellers. Second, the per capita income for GCC provinces is more that $ 14,317. In other words the populations of the GCC states enjoy high degrees of income, even by advanced industrialize states criterions. Third, the high incomes enjoyed by GCC states are reflected in high buying power and effectual demand.GCC provinces are besides strategically situated, by neighbouring the African and European continents and being the entryway gate to Asia. It should be mentioned that GCC imports from the remainder of the universe totaled about $ 119,524.
35 million in 2004.
Whenever foreign investing in developing states is discussed, unequal physical substructure is cited as a major discouraging factor. On the contrary, GCC provinces have succeeded in using their abundant resources in making a really good developed – by any criterions – physical substructure.
Major industrial and population centres are connected to each other and to the ports with international – criterion route web. Recently installed telecommunication systems are in some ways even better than some industrialised states. New power and H2O capacity is being installed, and the ingestion is being rationalized through meaningful duties ( Diekmeyer, 2009 ) .Most big urban centres in the part have been provided with industrial Parkss, complete with necessary public-service corporations and other comfortss needed by fabricating operations ( Diekmeyer, 2009 ) .
Resource Endowment and Industrialization
As crude oil and natural gas signifier the greatest volume of GCC resources, their industrial development has been directed chiefly towards oil and gas based industries such as crude oil refinement, chemical fertilisers and petrochemical industries and/or to energy intensive industries such as aluminium and steel ( Al-Shamali & A ; Denton, 2000 ) . This goes in line with the construct of comp of comparative advantage i.e. if states specialize in bring forthing trade goods on the footing of their comparative advantage, returns from production and trade will be maximized.
The handiness of inexpensive energy resources is a approval for GCC industrialisation. For illustration, the gas used as a provender stock to the petrochemical industry is associated gas and most of it is a byproduct of rough oil production. The cost of bring forthing this gas is really low and if it is non used it would hold to be flared ( Al-Shamali & A ; Denton, 2000 ) .Developments in the degree and efficiency of the industrial capablenesss of the GCC part enhanced the handiness of a figure of foreign investing pulling factors such as the accomplishments available to prospective investors, efficiency of local providers and service houses, and a net-work of back uping establishments, both private and public.
The significant developments which took topographic point in all economic sectors have affected GCC labour force in two major ways. First, it required and induced big inflows of foreign professional, skilled and unskilled labour.
On the positive side, this has helped in bridging the deficit in local labour, hastening the development procedure, and exposed the local labour force to a assortment of rich experiences and high degrees of theoretical and practical preparation in all Fieldss and facets of life. That is decidedly a asset and an encouraging factor for any hereafter investings, both local and foreign. Second, the tradition and experience in delivery and covering with well-trained foreign labour reduces the possibility of work force constrictions. That is to state labour as a factor of production is no job for whoever is interested in set uping production or services units.Expatriate labours every bit good as subjects do non pay income revenue enhancements. Another of import factor – for foreign and local investors – is that in the GCC part there is no record of concern break because of labour differences.
Gcc – India Business Relationship:
GCC states and India have strong trade dealingss.
In 2005, the volume of trade between the two parties was about $ 20 billion GCC states supply India with a big part of its oil imports, near $ 6 billion ( Alam, 2008 ) .For GCC states, their comparative advantages lie in the industry of hydrocarbons and the development of energy intensive metal and mineral based merchandises. In add-on to this there is a great range for investing in little and average size ventures.Furthermore, forecasts show that petrochemical industries – for illustration – can ramify out into two classs during the following few old ages ( Ramazani & A ; Kechichian, 1998 ) . Industries in the GCC states can specialise in basic petrochemical and energy – intensive metals while Indian companies can profit from such merchandises by utilizing them in fabricating extremely specialized and specialized and sophisticated merchandises with higher value added ( Alam, 2008 ) . As a consequence, this measure will surely heighten the ability of GCC states non merely to import more specialised Indian merchandises, but besides will assist them in diversifying their industrial base.The attractive investing clime and the geographical market propinquity of GCC states make them suited campaigners for export platform of Indian investings and joint ventures.
This scenario is strengthened by the handiness of more than 6000 GCC little and average sized endeavors, covering a broad assortment of fabrication activities ( Ramazani & A ; Kechichian, 1998 ) . These include nutrient, fabrics, wood, paper, chemicals, metallic, non- metallic, technology and other Fieldss of activities ( Alam, 2008 ) . Studies reveal that approximately 90 % of these SME ‘S have programs for spread outing their activities.
This fact offers the Indian concern community broad chances via joint ventures, turnkey operations, production sharing, licensing, and other signifiers of non- equity engagement.The GCC – Indian economic relationship would be enhanced by:
- Arranging visits for Indian business communities to GCC states so that they learn more about the part ‘s investing and concern chances. FGCCC can organize such visits.
- Forming joint exhibitions both in the part and in India.
- Forming events to edify GCC business communities with the available Indian co-operation instrument and establishments in Fieldss of trade and investing.
- We notice a famine of information on trade, markets and investing chances. There is a demand for India – GCC organic structure to roll up and circulate such information.
Trade Protection and CompetitivenessAlthough many GCC states encouragement of unfastened trade policies, they extensively use production subsidies protect a big inefficient, domestic non-oil sectors, frequently public owned.Price related factors 1s are normally among the most imperative factors that affect trade results ( Al Bawaba, 2007 ) . The monetary values of goods and services being traded are well influenced by duties degree and non duty barriers every bit good as by existent effectual rates of exchange, which are themselves influenced by macroeconomic conditions and policies. There is a compelling grounds that trade protection is high for some GCC states relative to their income degrees.
Lack of variegationThe GCC states lack variegation in the sustainable economic base and demand to invent a system which encourages private investing in industry, agribusiness, exports and re-exports, i.e. , production and motion of goods.
The practical absence of uninterrupted local H2O resources and trust on desalinated H2O, which is both expensive and insecure, is a changeless challenge. Local nutrient and agricultural production falls far short of supplying autonomy and security in visible radiation of a burgeoning population and germinating forms of ingestion. Population addition and a dramatic rush in instruction require happening appropriate employment for those with improved accomplishments, as the present rate of growing in the non-oil sector leaves a widening spread between manpower supply and demand.The Changing Economic Context of Gulf PoliticsThe Islamist sectors in the provinces doing up the GCC have grown more politically active since the clip that the public assistance provinces were established in the seventiess. The population in these parts has besides increased while the monetary value of oil, the chief beginning of gross, remained fixed. The educated immature coevals is actively seeking engagement in administrative and political degrees of administration, while the in-between demands work with good rewards ( Ramazani & A ; Kechichian, 1998 ) .
On the political and administrative degree, there are several cardinal jobs that have remained unresolved. Some imposts brotherhood are yet to be to the full implemented, while unstable bilateral understandings between single GCC provinces and other trade spouses undermine the consistence of the external duty government. The pecuniary brotherhood of some GCC economic systems has been called into inquiry and particularly by latest proclamation by Oman to choose out and by the reluctance of the authoritiess to hold on representative standards of convergence. Political tensenesss have been created between some adjacent GCC States, peculiarly between Saudi Arabia and Qatar, which could do the political stableness degree of the GCC economic systems to coggle.Recommendations and decisionsThe GCC states investing clime is contributing to foreign investing.
GCC states are continuously following policies and taking steps to better this clime and taking into consideration alterations in the international economic parametric quantities and factors. GCC economic systems recognize the value of pulling and keeping foreign investing and have resulted to following steps aimed at pulling and promoting foreign investing.For Indian endeavors trading in the oil and crude oil service sector, their comparative advantage prevarications in their specialisation in production engineeringThe Gulf Cooperation Council ( GCC ) is hence an attractive finish for an enterpriser wishing to put in oil and crude oil service sector and the chances in this sector far outweighs the challenges.
MentionsAlam A. , ( 2008 ) India and West Asia in the Era of Globalisation, Michigan: New Century Publications,Al-Shamali A. , & A ; Denton J. , ( 2000 ) Arab concern: the globalisation jussive mood, India: Kogan Page Publishers,Al Bawaba, ( 2007 a ) , The Future of the Gulf: The World Economic Forum Launches Scenarios on the Gulf Cooperation Council Countries, p1Al Bawaba, ( 2007 B ) , Saudi Arabia intensifies reform attempts to better fight around two tierces of $ 240 billion in planned undertakings outside oil, gas, and petro p1Diekmeyer, P. ( 2009 ) ”Export Wise, Summer, ” GCC: Infrastructure Development Opportunities. , p26-28, 3p ;Emerging Markets Monitor, GCC: Deductions Of The Credit Crunch.
( 2007 ) , Vol. 13 Issue 20, p1-2,Emerging Markets Monitor, ( 2008 ) US Crisis: GCC, 14 ( 26 ) , p17-17, ;Ramazani, R. K. & A ; Kechichian J. A.
( 1998 ) The Gulf Cooperation Council: record and analysis, US: University of Virginia Press,