Made in China
According to a study by The Economist Intelligent Unit (EIU), China is expected to become the GCC’s most significant economic partner by 2020. The resulting changes in global trade and labour markets are expected to produce opportunity for the GCC to address skills gaps within the region and form trading relationships with the emerging markets […]
According to a study by The Economist Intelligent Unit (EIU), China is expected to become the GCC’s most significant economic partner by 2020.
The resulting changes in global trade and labour markets are expected to produce opportunity for the GCC to address skills gaps within the region and form trading relationships with the emerging markets of the east.
While this is in part fuelled by the GCC’s increasingly price-sensitive market, EIU economist for the Middle East and Africa, Ayesha Sabavala, says the strength of the manufacturing and services sectors in China and also India, is driving the trend.
“There has been debate as to why China, rather than India, would become the GCC’s main trading partner, but the shift in emerging markets is driven by manufacturing.
“If you look at the economic structures of both China and India, you will see manufacturing drives the Chinese economy, constituting one third of GDP. In India services are a more important driver, making up more than 50% of
GDP,” Sabavala explains.
“In addition, China’s view of the GCC as a transhipment hub, interest in Africa, it’s unquenchable thirst for oil and the increase in domestic demand will all play a role in making China the GCC’s largest trading partner by 2020,” she adds.
The report also found that by 2015, emerging markets are predicted to account for 41% of global GDP, compared to an estimated 31% currently; a fact EIU consider proof of the evolving trend. It is also concluded that the emergency of such powerful economies will provide “massive opportunities” for the GCC.
Driving growth
By 2009, the emerging market share of GCC trade had reached 45%, a threefold increase since 1980, with an annual average rise of 11%, compared to an annual increase of 5% between the GCC and OECD countries.
The opportunities this will now provide will reach beyond the oil-related trade which powers China’s manufacturing industries, with EIU observing the GCC’s tourism industry is also feeling the benefits of China’s growing middle class.
Opportunity will also exist for GCC countries to invest in infrastructure developments in Asia and some parts of the Middle East, aided by a reported shortfall in Asian capital for such projects. The primary areas for investment for
GCC countries in these markets, lie in tourism, telecommunications and housing.As a result it is expected the bulk of the GCC investments in emerging markets will focus on such tried and tested competitive strengths, in addition to energy, services, port operations, retail and financial services.
According to the report, it is also expected that Singapore, Malaysia and India will become primary partners for the technology and knowledge industries.
Non-oil trade between India and the UAE rose by 24% in the last fiscal year, bringing its value to $29.02 billion and making the UAE India’s third-largest trading partner after the US and China, according to the Indian Embassy in Abu Dhabi.
India’s non-oil exports to the UAE in the last fiscal year increased by almost $2 billion and now stand at $15.47 billion.
Yet while the changing landscape will provide benefits, it will also bring increased competition for the region. In order to harness such potential, the report states Gulf countries will have to strengthen their labour markets and improve regulatory environments.
Changing times
The shifting landscape is also seeing more companies from these emerging markets diversifying — industrially and geographically — towards the GCC, particularly Dubai, due to its strategic links to the rest of the world.
“Dubai has established itself as a logistics hub and companies will look to reduce their transportation costs by setting up shop in the emirate. Such companies will trade in consumer goods, warehousing, and all the other components of export and import; or be from the tourism and logistics sectors,” Sabavala observes.
“In spite of all the debt troubles that have plagues Dubai, the investment in infrastructure prior to the global recession and the open business environment, make Dubai the logical choice for a business looking to service emerging markets, be it Africa, Asia or further afield,” he adds.
Quality control
In part the success of Chinese manufacturers can be attributed to the eleventh hour demands from various GCC countries and a number of business sectors during the boom; China has the man power to produce, in bulk, what other
markets urgently require. Yet despite convenient time-scales and prices, concerns have been achieve at these prices.
Observing the quality of aluminium goods from China is “of the lowest order”, Phil Ellerby, managing director of Rigidal Industries told The Big Project: “Chinese companies will always pose a threat to the industry here.
“As long as increasing volumes of imports are allowed, there will always be the contractors who only buy on the basis of price. We don’t buy from China at all, for a variety of reasons, despite prices being 20% less,” Ellerby asserts.
“It’s almost like going to the Souk and saying ‘I have this cladding for a building has anybody got any more discount to give?’
“Products are bought for the cheapest price without a thought for the quality side of it. At this stage their quality isn’t up to par,” he adds.
Sabavala agrees the West will maintain its competitiveness for quality products and well established international brands. “The OECD markets will maintain their edge as technology hubs — innovation, design and creativity will
stay with the OECD while emerging markets will have to prove that their products are quality products,” she adds.
Ayesha Sabavala, EIU economist for the Middle East and Africa , explains the factors leading the emerging trends
“The reason for the growth in trade between emerging markets and the GCC is partly owing to the acceleration of
economic growth in these markets and the reduction in economic growth in the OECD countries. For example India has
grown at an average of 6.1% per year since 1980; China has been even more impressive growing at an average of
10.1% in the same time period. There isn’t a single OECD country that has achieved those sorts of growth rates in
the past 30 years (with the exception of Korea). The increase in growth in emerging markets has led to shifting consumption patterns and the desire for more sophisticated products. Given the GCC’s location and the increase in quality infrastructure, the GCC has benefited from the increased trade flow into emerging markets.”
