Activity

The Case for Economic Diversification and International Trade Relations in the GCC

The Cooperation Council for the Arab States of the Gulf (GCC) is generally regarded as a success story for economic integration in Arab countries. The idea of regional integration gained ground by signing the GCC Charter. It envisioned a closer economic relationship between member states. Although economic integration among GCC member states is an ambitious step in the right direction, there are gaps and challenges ahead.

The diversification efforts by GCC member states reveals that, indeed, the non-oil sector has benefitted from increased FDI inflows as a result of several changes instituted by GCC member states. GCC countries have reduced the number of sectors that were previously closed to foreign investors. Foreign investors may now invest in a broad range of sectors, including tourism, renewable energy, energy and feedstock-intensive heavy industries, education, real estate, environmental technologies and financial instruments, petrochemicals, infrastructure, construction, transportation, agriculture, food and beverages, mining, services, banking and financial services, airline, steel, transportation, pharmaceuticals, satellite-transmission services.

To achieve economic diversification each GCC country must specialize in a focused domestics industry or high valued-added sectors where it has a competitive advantage compared with countries in the region and worldwide. For example, Bahrain can focus on financial sector, UAE on airlines, and Saudi Arabia on manufacturing. In addition, GCC countries should develop export-oriented development strategies (starting low technology base to increased export sophistication).