Meet to spur inter-GCC investment

A decision by the heads of state of Gulf oil producers to end curbs on the operation of local companies in all members is expected to spur investment and trade among them as they push ahead with a landmark common market.

At their annual summit held in Abu Dhabi this week, the leaders of the six-nation Gulf Cooperation Council (GCC) countries endorsed plans to allow national companies to open branches in any member state, a move that will also give a strong push to the implementation of the Gulf common market.

Analysts said the decision would give greater access to the regional market by local firms seeking to expand operations in the six members as they start to recover from the repercussions of the 2008 global fiscal crisis.

“It should create the right platform for investments and trade to increase cross border flow within the GCC region,” said John Sfakiankis, chief economist at the Banque Saudi Fransi, one of the largest banks in Saudi Arabia.

“It is an important step but we need to see how it translates on the ground and what steps businesses take to overcome barriers,” he told Emirates 24|7.

The summit’s approval of that plan removes one of many obstacles blocking the full enforcement of the common market and the customs union, which have been launched over the past few years in line with the GCC’s 1983 economic pact which targets economic and monetary integration among members.

Other obstacles include trade agencies, long delay of shipments at border customs points and distribution of revenue from tariffs on foreign imports.

“Allowing national companies to open business in any GCC member and have equal treatment as local firms is a very important step towards creating a single market in the region…it will encourage GCC companies to invest more in the region and expand their exports to other members,” said Ziad Dabbas, financial adviser at the government-controlled National Bank of Abu Dhabi.

“Inter-GCC investments are already relatively high but this decision will further increase movement of capital among member states…but we have to wait and see how this decision will be enforced and what mechanism will be used.”

Official data showed cumulative foreign direct investment (FDI) among the GCC countries is estimated at around $74 billion until the end of 2008, more than a quarter of the overall FDI attracted by the six members.

The figures showed the UAE is the largest capital exporter to other GCC members, with a total capital of around $45.7bn including nearly $44.4bn in Saudi Arabia. A large part of those investments are controlled by Emaar Properties and Etisalat, according to the figures by the Kuwaiti-based Inter-Arab Investment Guarantee Corporation (IAIGC), a key Arab League establishment.

Kuwait came second with total FDI in the GCC standing at around $13bn, most of which are based in the UAE and Saudi Arabia.

Bahrain’s investment in the other GCC members stood at about $10.2bn, mostly in Saudi Arabia, while Saudi FDI in the 29-year-old Gulf group are estimated at nearly $3bn, including around $2.4bn in the UAE. FDI by Qatar and Oman stood at $1.75bn and $0.46bn respectively.

The six members are already among the most attractive destinations for global FDI in the Middle East, receiving a total of more than $283bn.

The six nations, which control over 40 per cent of the world’s proven oil deposits, have received most of the capital in the past six years, when their economies recorded one of their highest growth rates because of strong oil prices.

Saudi Arabia, the world’s oil basin, emerged as the largest capital destination in the GCC and the Arab world, receiving nearly $150 billion, just over half the total FDI pumped into the GCC, showed the figures by IAIGC and the United Nations Conference on Trade and Development (Unctad).

The UAE was the second largest recipient, with around $73.4bn, followed by Qatar, with nearly $30.7bn.

Bahrain came fourth with total FDI of around $15bn while Oman has received about $14.1bn.
 
Kuwait far lagged behind other GCC members although it is one of the world’s largest oil producers, with total investments standing at only $1bn.

The figures showed more than $125bn in direct investments in Saudi Arabia have been received during 2004-2008 as the Kingdom basked under one of its best fiscal and economic years and pushed ahead with a drive to attract capital within reforms aimed at diversifying its oil-reliant economy.

The UAE also received over $60bn of its FDI during that period as capital exporters took advantage of its surging economy, investment incentives and the opening up of more sectors to foreigners, including real estate.

Besides investment, merger moves by the GCC countries also sharply boosted trade exchange between them, jumping by more than six times to a record high of around $91 billion in 2009 from nearly $15 billion in 2002. Despite the global crisis, which depressed trade worldwide, inter-GCC commercial exchange soared by nearly 40 per cent in 2009 from its 2008 level of about $65bn, according to the Emirates Industrial Bank.

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