Trade between the ASEAN and the Gulf Cooperation Council (GCC) has grown considerably in recent years, as economies in both regions seek to capitalise on mutually beneficial opportunities, and diversify their trade and investment partners. Indeed, trade between the GCC and Asian countries classified as emerging and developing by the IMF increased 34.7% from $383bn in 2021 to $516bn in 2022, according to data from UK-based think tank Asia House. The GCC’s combined trade with the US, the UK and the Euro area – comprising countries whose official currency is the Euro – grew by some 32% that same year. Trade between the GCC and emerging and developing Asia is projected to reach $757bn by 2030, nearly double its 2021 value, according to a 2023 report by Asia House. The same analysis indicates that trade between the two regions could surpass trade between the GCC and advanced economies – which reached $587bn in 2022 – by 2026.
Strengthening Ties
The GCC’s shift towards Asia signifies a major economic and geopolitical change. Although China and India are the principal emerging Asian economies driving this trend, the inaugural ASEAN-GCC Summit in Riyadh in October 2023 indicates growing cooperation between the two regions. This summit marked the first top-level GCC-ASEAN meeting since the organisations established relations in 1990.
The summit launched the ASEAN-GCC Framework of Cooperation for 2024-28, which is expected to pave the way for a new era of inter-regional cooperation. The joint statement that followed the summit indicated a mutual desire to bolster trade and investment flows. Stakeholders from both regions identified opportunities in a range of sectors, particularly agriculture, digital connectivity, digitalisation, health care, logistics, manufacturing, petrochemicals, renewable energy, smart cities, sustainable infrastructure and tourism.
The joint statement also highlighted shared strategic concerns. Among these, both regions acknowledged and agreed upon the important role that oceans and seas play in driving economic growth and prosperity. Additional environmental topics and socio-economic issues received due attention – with consideration for both their challenges and potential opportunities. This underscores the complex relationship between economic development, environmental sustainability and social equity, as well as the need to balance all of these aspects for a truly sustainable future.
Efforts to secure inter-regional trade and investment agreements that may unlock long-term opportunities have been ongoing for some time. For instance, Indonesia and the UAE signed a Comprehensive Economic Partnership Agreement (CEPA) in 2022, which seeks to grow bilateral trade from $3bn in 2021 to $10bn by 2027. The UAE is also eyeing CEPAs to remove barriers to bilateral trade and investment with Malaysia, Thailand and Vietnam. Indeed, the UAE has become the main driver of trade between the two regions on the GCC side, accounting for approximately 49% of GCC trade with ASEAN in 2022, followed by Saudi Arabia with 36%.
Investment Snapshot
Gulf sovereign wealth funds (SWFs) are at the forefront of investment activity in ASEAN member states. For example, the Abu Dhabi Investment Authority was backing the Indonesian ride-hailing and e-commerce conglomerate GoTo Group before its April 2022 initial public offering (IPO). Furthermore, Masdar, Abu Dhabi’s green power company, invested in the February 2023 IPO of Indonesian firm Pertamina Geothermal Energy. In broader terms, the UAE has committed $20bn to the Indonesian Investment Authority, the SWF established in February 2021 – with the funds targeted for use in strategic projects.
It seems that Gulf SWFs have ignited Gulf support for South-east Asia’s start-ups, providing much-needed capital as fundraising in the region hit a six-year low in 2023. There were 59 deals in the region involving a Gulf-based investor in 2022-23, according to data from London Stock Exchange Group – a sharp rise from seven deals in 2018-19. This boost helped to partially offset the global slump in venture capital funding and the slowdown of Chinese technology giants like Alibaba and Tencent. In January 2022 the Qatar Investment Authority invested in Carsome, a Malaysia-based, online used-car platform, during a $300m financing round. That year also saw the UAE’s Mohammed bin Rashid Innovation Fund back Indonesian software firm Avani.
Recent years have also witnessed notable ASEAN capital flows to the Gulf. In September 2019 Singapore’s SWF GIC invested $600m in the Abu Dhabi oil major ADNOC’s crude pipeline project. Moreover, private sector technology collaboration in the health care sector between Indonesia and the UAE is under way. In August 2020 the UAE’s G42 and two of Indonesia’s main health care companies, Kimia Farma and Bio Farma, signed agreements to work on Covid-19 related projects. The two countries are collaborating across multiple segments, including artificial intelligence, digital payments and education technology. In Saudi Arabia, Indonesian logistics player J&T Express announced in February 2022 that the company would establish its regional headquarters in Riyadh and construct the largest smart logistics industrial park in the Middle East.
Strategic Foundation
Trade between the GCC and ASEAN has been relatively steady, inching up from $77.9bn in 2010 to $85.2bn in 2021 – accounting for around one-fifth of trade between the GCC and developing and emerging Asia during the latter year. Amid the current global economic climate, this signals potential for accelerated growth. As the US and Europe shift away from Middle Eastern oil in favour of renewable energy, ASEAN and East Asia have stepped in as important destinations for Gulf hydrocarbons. Indeed, energy demand in ASEAN looks likely to grow alongside its manufacturing sector. Meanwhile, both regions are expected to feel the impact of climate change, which may drive the development of low-carbon technologies – with GCC countries seeking a first-mover advantage in areas such as green hydrogen. The Gulf is also working to attract foreign investment and talent by easing visa restrictions and modernising labour practices. Dual-listing opportunities in capital markets are also garnering interest from companies in Asia and the Gulf.
There is already a solid foundation for growing the partnership between the GCC and ASEAN. On the one hand, GCC companies have established oil refineries and petrochemical facilities in ASEAN, and have branched out into financial services, food and e-commerce. On the other hand, ASEAN businesses are contributing to the GCC’s hospitality and food segments, and are likewise making inroads in financial services. Trade in agricultural products presents another opportunity, given the abundant production of rice, soybeans and tropical fruits in ASEAN and the climate-related food production challenges in the GCC. By considering a broader range of agricultural imports to the Gulf, strengthening transport and logistics connectivity, and aligning halal requirements between the regions, the GCC and ASEAN could further boost trade in agriculture, food and beverages. Collaboration and knowledge sharing in priority segments could also deepen their relationship. For instance, GCC financial technology regulators could take cues from ASEAN counterparts like Singapore. Together, they could train halal auditors to pave the way for trade in a broader range of halal related, from food to pharmaceuticals.
Future Direction
The inaugural ASEAN-GCC Summit in October 2023, along with the formulation of a new framework for cooperation, served as a testament to the growing relationship between the two economic blocs, and the potential to accelerate the pace of trade and investment in both directions. Although the summit was not characterised by a wide range of specific binding agreements, the overall tone of the subsequent joint statement seemed to suggest a broad consensus among member states. This consensus, coupled with the willingness to foster and facilitate deals, painted an optimistic picture for future collaboration.
The attendance of heads of states and senior officials at the summit underscored the significance attached to this dialogue. Their presence hinted at a collective readiness to move towards establishing more formalised commitments in the future. One potential arrangement could be a free trade agreement between the two regions – an idea floated by the Malaysian prime minister. In the absence of such a deal, individual member states from each bloc could adopt a more personalised approach, pursuing their own trade pacts and forging other agreements with trading partners on a bilateral basis. While the major economies in each bloc may well dominate the investment landscape, other economies such as Bahrain, Oman, the Philippines and Vietnam are nonetheless positioned to reap the benefits from inter-regional and intra-regional cooperation.
Looking ahead, closer collaboration between ASEAN and the GCC – at both the multilateral and bilateral level – is poised to bolster growth prospects for both regions. This comes at a time when the global environment is becoming increasingly challenging, underlining the importance of such cooperation in the coming years.
Read More from OBG
