x Abu Dhabi, UAEThursday 18 January 2018

A clear case for GCC states’ greater economic integration

From ports to airports to railways and pipelines, the GCC states' infrastructure build-out is part of a plan to diversify away from hydrocarbons, transform themselves into knowledge economies and ensure long-term growth.

Few regions have pursued their infrastructure ambitions as rigorously as the six GCC states over the past decade. From ports to airports to railways and pipelines – fuelled by windfall oil revenues – Arabian Gulf states have been able to finance and implement a long and growing list of world-scale projects.

The infrastructure build-out is part of the GCC states’ broader strategy to diversify away from hydrocarbons, transform themselves into knowledge economies and ensure long-term growth. So far, the approach has served the region well.

The region has become a global centre for trade, transport and energy, benefiting from advanced logistics infrastructure, good road networks and modern facilities for air, sea and land transport, strong shipping connections, and liberal market access as a result of free-trade agreements and low trade barriers. This in turn has fuelled economic growth and driven the expansion of the region’s non-oil economy.

The infrastructure-led approach has gone some way towards fostering economic integration. The GCC electricity grid interconnection is a case in point. The project has provided benefits to all member states by increasing efficiencies in the power sector and reducing investment requirements into new electricity generation capacity.

Similarly, the Dolphin pipeline, which transports natural gas from Qatar to the UAE and on to Oman, serves as an example of how cross-border initiatives can create value for all stakeholders. At the same time, intra-country initiatives such as the Abu Dhabi-Fujairah pipeline support domestic development but could also benefit the wider region if incorporated into a broader energy strategy.

The GCC-wide railway network, which is at an early stage of development, will offer an unprecedented level of regional integration once completed, connecting the region’s main cities and transportation centres, facilitating intra-regional and external trade, and offering environmental benefits.

The rationale for greater economic integration is clear. It streamlines the flow of goods, labour, capital and services within those countries, and puts them into a stronger position vis-à-vis the rest of the world to negotiate trade agreements. Increased intra-GCC trade, investment and development in turn would leave hydrocarbon-exporting states less exposed to global economic conditions and resulting swings in oil prices.

The case for integration is further supported by the fact that the region’s nations share a common history and values, and feature similar economic structures – notably the ongoing reliance on hydrocarbons and expatriate labour.

Successful integration can bring enormous economic benefits. According to Booz & Company, the European Union’s common market generated 2.75 million jobs over a 15-year period and 2.2 per cent of additional GDP. These gains were due in particular to the standardisation of customs and border regulations, which facilitated the movement of goods, services and labour, the consultancy said in a report on GCC integration.

At a time when GCC countries are faced with young, growing and ambitious populations, the benefits arising from closer economic integration could, in the long run, address the region’s labour market challenges.

Although GCC-wide integration initiatives have produced encouraging results, much more needs to be done. With global economic competition intensifying, GCC states need to push forward with even deeper integration. Long-awaited initiatives such as monetary union or open-skies agreements are still pending, just as the removal of trade barriers and further integration of the region’s energy infrastructure, via oil and gas pipelines for example, have yet to be tackled.

At the same time, GCC states need to adopt policies that aim at and support the creation of complementary, rather than competing economies – particularly in sectors such as transport and downstream energy that offer scope for integration but at present mostly compete with each other.

A sustained and joint push towards building out and further integrating transport and energy infrastructure could produce great benefits. Sitting at the crossroads of old and new trade routes such as the energy corridor that links Africa, the Middle East and Asia, the Arabian Gulf region has an opportunity to use its strategic geographic location and advanced infrastructure to capture a growing share of the ensuing trade. This in turn would enhance the region’s global standing as a leading trade and energy hub.

James McCallum is the chief executive of Senergy, a Dubai-based services provider to the oil industry.