There is room to enhance intra-gcc non-oil trade: IMF

KEY SHORTCOMING: Intra-gcc non-oil trade remains at a modest 10pc of total non-oil trade in 2016, despite low trade barriers under the GCC common market agreement.

A newly published report by the International Monetary Fund (IMF) has stressed the importance of greater intra non-oil trade between member states of the Gulf Cooperation Council (GCC) in fuelling economic growth across the region.

The report, titled ‘Trade and Foreign Investment – Keys to Diversification and Growth in the GCC’, says there is significant room to enhance intra-gcc trade. A gravity model analysis of trade trends, according to the report, suggests that intra-gcc exports by several countries are “below their potential”.

The report singles out Oman as particularly prospective with a gap of around 7 per cent of non-oil GDP, followed by Kuwait and Qatar with a gap of around 4 per cent each. Both Bahrain and UAE have large negative gaps as well, while Saudi Arabia has a smaller positive gap.

“Although Oman’s goods exports to GCC are non-negligible, a substantial portion reflects re-exports, particularly to the UAE, and adjusting for the re-exports yields a relatively large gap. Closing the gaps for the four countries can generate additional exports of about 4 per cent of nonoil GDP on average. Greater regional trade will also help to close total export gaps to other parts of the world,” the report stated.

Significantly, intra-gcc non-oil trade remains at a modest 10 per cent of total non-oil trade in 2016, despite the presence of low trade barriers under the GCC common market agreement that came into force in 2008.

“This suggests that complementarities within the region are weak, most probably due to similar economic structures and levels of economic development,” the IMF report observed, adding: “Out of the $85 billion intra GCC trade in 2016, the UAE accounts for the largest share, highlighting its role as a major re-exporting hub, followed by Saudi Arabia and Oman.”

As of June 2017, tariff barriers were essentially non-existent between GCC countries, while non-tariff trade barriers had been progressively lowered, according to the report. GCC nationals could freely participate in business activities related to retail and wholesale trade, recruitment offices, car rental, and most cultural activities. Restrictions on stock ownership and property possession by GCC citizens had also been reduced.

“The GCC countries had adopted unified GCC technical standards, and harmonised and reduced customs administrative procedures and clearance requirements. The remaining indirect trade barriers included preferential policies and practices related to public procurement, subsidies to domestic producers, and customs border controls,” it said.

In this regard, the world body called for a further lowering of non-tariffs barriers while enhancing integration into regional and global value chains to help spur the growth of the tradable non-oil sector.

“Given that low intra-gcc trade is mostly due to similar economic structures of the member countries, greater regional trade can be boosted by diversifying the economy toward tradables,” the multilateral agency said in its report. Eliminating the nontariff trade barriers will also help in this regard. Finally, higher levels of backward integration to global value chains, characterised by greater shares of imported foreign value added and used in the production of exports, can bring more regional trade into the GCC,” it noted.