Building Integration


Economic News

22 Jul 2010
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Although on the rise, trade among members of the Gulf Co-operation Council (GCC) is low compared to trade with other economic blocs. The recent push for implementation of a common currency in the region, now scheduled for 2015, has led many analysts and financiers to question the rationale. With regard to GCC integration, the real question has been in seeking to find out what the drivers behind this further push truly are.

A consultant at a leading global consultancy firm told OBG, "The impetus for integration will either be political, economic or a combination of both. The level of political impetus currently varies from country to country, and there seems to be quite a diversity of opinions as to what the goals of such integration should ultimately be. Considering economic factors, although cross-border deals and agreements between countries are increasing, it's not clear how anchored to the vision of GCC integration as whole these really are."

According to figures released by the International Monetary Fund, trade amongst the GCC members in 2005 amounted to roughly $16.7bn in exports and $5.5bn in imports, excluding oil. Qatar and Bahrain combined accounted for nearly one third and one fifth of intra-GCC exports and imports respectively, so alliances and co-operation between the two make economic sense.

The GCC Secretariat's latest statistics report that more than 14,000 licences were issued to citizens within the region in 2005 for businesses between GCC members and that number is expected to increase.

When looked at separately, some projects seem relatively small from a GCC standpoint. However, these seemingly unrelated projects are the key to interlinking the region and providing the necessary boost in trade to help move the region towards better linkages.

New infrastructure links, such as the Qatar-Bahrain Causeway, are seen as bringing the European style of open borders closer to becoming a reality and helping in strengthening the business environment in both countries. Such efforts will have a knock-on effect throughout the greater GCC region.

Current independent estimates show that around 8% of all trade in the region is between GCC members, a sharp contrast to the 50% in intra-EU trade prior to its implementation of a common currency in 2002. Therefore, financial and market observers see that increasing intra-GCC trade should come first, if the rationale is purely economic.

By working towards common goals of stability and economic growth, countries participating in efforts to build infrastructure and provide good legal and regulatory framework can significantly enhance intra-GCC trade numbers. In improving legal and regulatory framework, the environment for trade and investment becomes much more feasible and can grow at a healthy, sustainable pace.

"Some of the challenges affecting business in Qatar include the scarcity of highly qualified local professionals, the need to improve local levels of entrepreneurship compared to other markets, and a lack of long-term integration of expatriate professionals into the local labour pool," said the consultant. "Making the regulatory burden less onerous and more in tune with international norms can only help to achieve these goals."

Spyros Pavlides, Gulf region senior coordinator for Archirodon, an international construction group active in the region, including the Qatar-Bahrain Causeway project, told OBG that continued investment in infrastructure is key to ongoing growth and success in the Qatari economy.

"This project will have a broad impact for all of Qatar with its effects to be felt in all sectors of the economy, particularly in relation to labour and trade," said Pavlides.

Pavlides said, "It is highly important for Qatar to focus on infrastructure and capacity related projects, particularly with regard to trade. In order to compete on a global scale, trade capacity is of great significance, so along with transportation improvements, the causeway will essentially connect Qatar to another significantly important port in the region. This allows access for both importing and exporting, thus, delaying the significantly higher cost of constructing an entirely new port as demand continues to increase."

The rail aspect of the causeway project includes preliminary designs for a magnetic levitation railway with an option of extension to the United Arab Emirates (UAE) and Oman. This rail system should have significant impact in further building relations and business ties between the two countries. The route is seen as a natural continuation of other important links in the GCC region, such as the existing 25km King Fahd Causeway between Saudi Arabia and Bahrain and another proposed causeway between Qatar and the UAE. The move forward for such significant projects in Qatar is in line with efforts to link all six members of the GCC community by rail and road. "This [causeway] will exponentially increase trade capacity for both countries, thus enhancing the overall marketplace for the entire region," said Pavlides.

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