Aired November 2009

Located in the south-western region of the Asian continent, the Arabian Peninsula covers about 3 million square kilometres. 6 of the 7 countries located here – namely, the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman – came together to form a trade and security bloc in 1981. The 7th country – Yemen – is in negotiations to join this regional alliance.

With evidence of civilisation dating back to 5,000 BC, the region has traditionally been involved in the sea-faring trade. Today, with the discovery of oil and the resulting vast amounts of wealth, the region plays a significant role in the global economy.

Known as the Gulf Cooperation Council, or GCC, the alliance came into existence in the capital of Saudi Arabia, Riyadh. The decision to form a unified regional grouping was aided by several events in the decade that led up to its forming.

Geographic proximity and shared security threats to their regimes were the primary factors that led the Arab states to the decision to react collectively. Although they differ in their perceptions of threats, the GCC states are unified in their definition of security – the status-quo continuity of each nation’s political regime.

In addition, the 6 members also share common economic and social objectives, including a general adoption of free trade economic policies. Because of its strategic location and history, the GCC has long-established diplomatic and trade relations with Europe, Asia and Africa. Several countries in the GCC have also individually pursued free trade agreements directly with the United States of America.

In response to concerns over security in the region when doing business, political and business leaders in the GCC community had this to say.

A GCC common market was launched in 2008, which grants national treatment to all GCC firms and citizens in any other GCC country. Thus, all barriers across the GCC to inter-state investment and trade have effectively been removed. By the year 2010, inter-state trade is expected to increase by 25%, and international trade is expected to increase by multiples.

The GCC nations have achieved a tremendous growth over the past thirty years, and their transformations do not seem to slow down. Up until the recent global economic crisis, the world heard announcements of eye-popping projects from the region – a palm-shaped man-made island, a one-kilometre high tower, an extension of the Louvre and local branches of top-tier universities.

Most of these fantastic announcements came from the region’s leading city of Dubai. The emirate is seen by many as a Middle East success story, and a leader in innovative ideas within the GCC.

Literally living up to its moniker as the “City of Gold”, Dubai has held on to its position as the world’s leading gold centre. The city has posted spectacular growth in the sale of this precious commodity, and imports an average of about 300 tons every year. One of the pioneer companies in this sector is Emirates Gold DMCC. With a reputation for producing the finest quality and superior service, a purchase here is bound to bring a lifetime of satisfaction.

Individual purchases aside, in reality, the numbers for growth and investment throughout the region are overwhelming. Over the last 5 years, GDP growth among the GCC states rose from about $720 billion in 2006, to over $1,100 billion by the end of 2008, and is predicted to hit $1,210 billion by the end of 2009.

Despite the staggering statistics, it has been indicated that more than financial investment, what is really needed in the GCC from multi-national investors is knowledge and the transfer of know-how.

The GCC is also seen as an attractive consumer market which has one of the highest rates of population growth in the world. A young population, coupled with a high spending power, has led to a huge demand for imported goods. It is estimated that food imports alone will double from about $25 billion in 2008 to nearly $50 billion by 2020.

The GCC states are keen to encourage foreign direct investment into their countries, and have already started simplifying the bureaucratic processes involved. From one-stop shops, to comprehensive purpose-built investment zones, the interested foreign investor no longer has a maze of jargon to stumble through. Other incentives to lure multi-national businesses to set up here include among others, low import duties and taxes.

As with any new venture in a specific region, doing business in the GCC comes with its own set of guidelines. Veteran players point out that what really matters when it comes to achieving success in the region is to understand the culture and have a strong local network.

Human Capitol

While the GCC countries enjoy a vast abundance of natural resources, and have managed to accumulate extensive amounts of wealth, they are keen to diversify their economy. With this aim, various stakeholders in the region regard education as their most important developmental challenge, and revamping the education system is at the top of the reform agenda for many governments in the region.

At present, most GCC countries have a high number of foreign nationals as part of their labour force. A revamp of the education system will hopefully lead to many of their own nationals being able to contribute to the future success of their economy, as one leading player of a GCC country points out.

The emirate of Dubai, a key player in the GCC, is already focusing on educating its growing population, so that the future generations will be well-prepared to work both in the private and public sectors. Dubai University is one of the main players in helping the emirate to achieve this vision. Offering professional courses in the disciplines of Business Administration and Information Technology, the institute aims to provide students with the highest quality of applied learning based on international academic standards.

The real estate property sector on the other hand, was experiencing a boom unparalleled by any other global region. In just one year, some GCC countries saw property prices double and treble. With the introduction of new property and residence laws in the various GCC states, expatriates flocked to the region.

Today, the reality is that the real estate market is undeniably slowing down, evidenced by the falling trend amongst speculators to quickly dispose of properties. Most property developers are cash-strapped, and several developments have been left standing in various phases of construction for a while now.

Yet despite these signs, the investment bubble in the GCC real estate sector seems not to have completely burst. While the buying trend has slowed down, there has not been a complete halt in buying by end-users – despite the still relatively high prices – attracted no doubt by the favourable property and residential laws still in place in many of the GCC states.

Indeed, while buying a holiday home may be far from the mind of many at present, it has been speculated that just as in the past – following the fallout of 9/11 and the 2003 invasion of Iraq – the GCC real estate sector will come out of this current global financial crisis a winner. The crisis is seen as no more than a slowdown in a bull market, and whatever consolidations emerge in the sector, it can only be healthy in the long run.

Finance

The vast amounts of wealth accumulated over the decades since the discovery of oil has led to an economy with large and variant financing needs. From purchase of real estate to consumer markets, from heavy industries to multi-billion dollar infrastructure projects, there is hardly a sector that does not require an increased amount of financial services. However, the financial services available in the various GCC countries have taken somewhat longer to diversify and meet the needs of its residents.

Recognising the potential to diversify their economy by building up their financial services, the individual GCC countries have embarked on various initiatives. To this effect, they have hired international experts to help them with the task.

The relative size of the financial sector, as reflected by its share in GDP, varies considerably among the GCC countries. Whereas the financial sector accounts for less than 1 per cent of Oman’s GDP, it makes up nearly 4 per cent of Saudi Arabia’s GDP, and over 10 per cent of Qatar’s. In Bahrain, the sector claims nearly one-third of its GDP.

Just as in the real estate sector, the financial sector in the GCC has also begun to pay attention to necessary areas of regulation and reform, ranging from corporate governance to credit bureaus and monetary policy. Government agencies have also reacted to the liquidity crunch by implementing stabilising efforts such as guarantees on bank deposits. For example, the UAE government has been proactive by pumping a massive amount of money – according to some figures, this is over $30 billion – into the banking sector to boost liquidity, and all deposits in local and international banks now have a government guarantee.

The state guarantee on deposits from some GCC countries has proven attractive to rich Arab investors who are exiting Western markets and going back to the Gulf region. International players who have chosen to stay put in the region also advise riding out the storm.

Despite the current economic crisis, the GCC remains a very liquid region. Continued economic growth is forecasted across the countries, with a positive outlook towards the end of the year. The GCC economies are expected to grow by about 4 per cent in 2010, thanks to steps taken by the countries to safeguard their economies and their development plans.

Aided by a strategic geographical location, a strong political continuity, and a large consumer base, ventures into the GCC region will stand to realise positive returns on their investment.