GCC to invest $3tr in infrastructure
February, 04th 2011
DUBAI - GCC countries plan to invest about $3 trillion on infrastructure, leisure and tourism sector by 2020 to diversify their economies and exports as well to get the advantage of growing trade and investment ties with China and India, says a report.
“Having realised the urgent need for economic diversification since the past few years, focus on growing and investing in services trade has been one of the core development strategies in some MENA countries. Resource-rich countries, such as Saudi Arabia and the UAE, have significantly invested in services to further diversify their economy and exports while Saudi Arabia, Morocco and Egypt are also emerging among the favored tourist destinations,” says an in-depth research report issued by Al Masah Capital Limited on Saturday.
The report entitled ‘China and India’s Growing Influence in the MENA Region: Their Legacy and Future Footprint’ further said countries are also diversifying service exports.
“Dubai is promoting exports of ICT and media services in its Media city and Internet city. Morocco is becoming an important off-shoring centre, with the opening of a new off-shoring park in December 2007,” the report said.
China is the world’s largest importer of services, with over $100 billion of imports. Although, MENA countries are still small players on the global services trade platform, some countries including Morocco, Egypt, Lebanon, and Tunisia rank among the 30 largest net exporters of services worldwide. Outsourcing, particularly in Western countries due to their geographical location, could also become an important industry.
“MENA, benefiting from its geographical position, is expected to become a major services hub and trade link between Asia, Europe and Africa. In order to enhance ties with China, MENA companies could team with Chinese counterparts to supplement respective skill sets and offer closer proximity to the European, and African markets. Alternatively, Chinese companies can establish a regional base in MENA through FDI or joint ventures to secure easy access to neighboring countries and Europe,” the report said.
The report further said increasing importance of the China-MENA trade conglomeration on energy as well as on trade, investment, and political alliances is setting the stage for MENA’s need for greater economic diversification and emergence as a knowledge enterprise.
“Rapid economic development in China and India over the past decade has contributed to the significant rise in their energy requirements. MENA, with its abundant oil and gas reserves, has been a key energy supplier for the two countries. The historical trade relationship between India, China and the MENA has been predominantly based on oil imports. However, the picture is changing rapidly with growing trade diversification and expanding economic, trade and investment ties,” it added.
“With China and India continuing their economic uptrend, their dependence on the MENA for energy supplies is expected to increase. However, besides oil, MENA’s competitive advantage in other sectors such as petrochemicals, basic materials and fertilizers is yet to be explored. On the other hand, MENA’s drive to achieve greater economic diversification and become a knowledge enterprise is complemented by China’s and India’s expertise in the technology and services sector.”
China in MENA
China’s commercial relationship with MENA countries has grown stronger in the recent past. The UAE is the nation’s largest export destination, while imports come from Saudi Arabia followed by Iran, Oman and Sudan. The UAE and China have significantly expanded their trade relationship with total trade amounting to $119.4 billion from 1999–2009. Besides oil, trade also includes chemicals and allied industries, plastics and rubber products, base metals, textiles, machinery and mechanical appliances. China is also Saudi Arabia’s second-largest trade partner where trade between the two grew at an annual rate of 30 per cent and 50 per cent in 2003 and 2008, respectively.
“China is currently the second largest oil consumer in the world as the oil demand is expanding rapidly, keeping pace with the fast economic development. The country’s GDP has risen 9.5 per cent per year on an average during the past 30 years and is expected to grow 10 per cent and 8.7 per cent in 2010 and 2011, respectively. Hence, oil is expected to be the key trading commodity between China and MENA, going forward,” the report said.
Considering China’s huge energy requirements, energy security features among the top priorities under the country’s energy policy in the Middle East. However, China’s energy policy for the MENA region has undergone a major shift in recent years. Historically, the country utilised its ‘arms for oil’ formula to bolster its relationship with MENA countries. However, in recent years China has adopted an active policy in the MENA region driven by energy supply concerns and commercial interests of its national oil companies (NOCs). Chinese NOCs are under threat owing to the rapidly depleting domestic resources and increasing competition from foreign and domestic players. With regard to this, China’s government has allowed Middle East countries to invest in China’s downstream sector. Resultantly, Chinese NOCs are actively participating in the oil and gas projects in Kuwait, Oman, Qatar, Syria, the UAE and Yemen.
Future initiatives to broaden China-MENA trade links include the ongoing negotiations with regards to a Free Trade Agreement (FTA) between China and the GCC countries. With this, China aims to secure oil imports from the GCC countries as well as develop export of garments, fabrics, and electronics. The country also aims to receive additional GCC investment in water and electricity supply, energy and mineral industries, transportation, communication, and closer cooperation in scientific and technological research. This is a welcoming move as non-oil trade between the two countries is largely unexplored.
In terms of investments, China’s total FDI investment in MENA accounted for just 1.3 per cent of its total FDI outflow during 2003–08. FDI inflow to MENA from China has grown from $23.4 million in 2003 to $498.7 million in 2007, before falling to $196.3 million in 2008. Investments were mostly concentrated in the oil-producing countries, including Algeria, Saudi Arabia, Sudan and the UAE. Yet, FDI from China is rising in sectors including: construction, tourism, telecommunications, software and engineering services, readymade garments, chemical products, and food.
India in MENA
MENA countries, particularly Saudi Arabia and UAE, have been major trading partners for India. These countries have been instrumental in meeting India’s vast energy needs. While India’s total trade with the GCC was $83.9 billion in 2009–10, its total trade with MENA stood at $116.9 billion. For the past four years, the UAE has been India’s largest trade partner globally as well as the country’s biggest export destination. Total trade with the UAE increased from $12.9 billion in 2005–06 to $43.5 billion in 2009–10. Additionally, Saudi Arabia is India’s fourth-largest trade partner, with total trade amounting to $21 billion in 2009–10. Oil is India’s major import commodity and Saudi Arabia is the country’s largest oil supplier. More than 90 per cent of the India’s total imports from Saudi Arabia comprise oil and related products, while around 33 per cent of imports from the UAE consist of mineral fuels.
India is the world’s fifth largest oil consumer and the country is expected to account for 12.59 per cent of Asia-Pacific’s oil demand by 2014. Hence, hydrocarbons are expected to boost India’s rising interest in the MENA region. Both the regions are also expanding their trade links beyond oil. MENA could benefit from India’s expertise in the services sector, particularly IT-enabled services, science & technology, and education. India and Saudi ?Arabia are also broadening their bilateral ties
Saudi King Abdullah bin Abdulaziz’s visit to India in January 2006, when several agreements/MoUs were signed between the two countries, was an important step in this regard. The progress in bilateral ties reflects in the increased investments made by both countries in diverse economic sectors.
During 2006–07, 82 new licenses were issued to Indian companies to form joint ventures or 100 per cent owned companies in Saudi Arabia. Projects under these licenses are focused on a wide range of sectors such as management and consultancy services, construction projects, telecommunications, information technology, and pharmaceuticals.
“MENA countries can leverage India’s huge skilled and semi-skilled labor bank. Increased knowledge transfer (both in terms of technology transfer and labor exchange) from India could help MENA achieve its goal of becoming a knowledge enterprise. In terms of trade enhancement and diversification, a GCC-India FTA is currently at the level of bilateral negotiation. The FTA aims to focus on exploring opportunities in the areas of oil and gas, petrochemicals, fertilizers, power, metals and pharmaceuticals, knowledge-based products, education, health, banking, avoidance of double taxation, a treaty to promote and protect investment, and infrastructure,” the report said.
“FDI investments in India by MENA countries are highly concentrated with the UAE being the largest investor. The UAE’s total investments in India during April 2000–September 2010 amounted to $1.8 billion, accounting for 80.6 per cent of the total MENA investments in the country and 1.5 per cent of the total FDI flows to the country,” the report concluded