GCC states must target increased cooperation (page 1 of 2)

The global economic downturn and the travails of the eurozone have led to ever-louder calls for the GCC states to boost intra-regional trade, which amounted to just 6% of the region's external trade in 2011. And yet the only way concerted future growth will happen is if Gulf governments commit to closer cooperation, and drop the trade, infrastructure and mobility barriers which are currently preventing the GCC's six member states from achieving their true potential.

"The longer individual countries carry on with their own development plans, the costs of infrastructure integration become higher and the likelihood of that integration diminishes," warns Farouk Soussa, Chief Economist for the Middle East at Citibank.

"For instance, there are areas such as the Levant and North Africa that should be the region's breadbasket and more could be done to secure food, particularly in the GCC," he continues. "More could also be done with relation to gas and electricity, where greater integration could lead to greater sharing of energy, smoothing out discrepancies between countries with gas shortages, and those with gas to burn.

GCC electricity grid exemplifies regional potential

"It can be done, but it will require political will and the reality is that exporting natural gas to your neighbours may prove much less profitable than it is exporting it to more distant markets," he adds. "With electricity I'm much more optimistic, and the GCC electricity grid is a great example of how that sort of cooperation can take off."

Last year the UAE government said that the regional power grid project, which currently links the Emirates with Saudi Arabia, Kuwait, Bahrain and Qatar, may save participating countries as much as $5bn in electricity costs. "If you look at the annual growth rate of electricity consumption in the Gulf, it is far ahead of the average increase elsewhere in the world," UAE Oil Minister Mohamed al-Hamli told reporters. While domestic demand is high during summer, "in winter, we have a lot of spare capacity, we can even export," he added.

Oman, which had been scheduled to link to the grid through the UAE, last year announced that it will join directly in 2012 or 2013. The UAE can give and receive 900 megawatts (MW), Saudi Arabia 1,200MW, and Qatar 750MW, and nations will be penalised in future if they fail to maintain a minimum reserve level to support their neighbours in an emergency.

"There are enormous benefits to integration, particularly in the power sector, where in some countries now there are surpluses, while in others there are blackouts," confirms Dr Nasser Saidi, Chief Economist at the Dubai International Financial Centre (DIFC). "It means you have better connectivity, which increases trade, it means you have less poverty, and it means you have better efficiency in the use of resources."

Restrictive border movements hamper labour, tourism

According to Soussa at Citibank, one area of the services sector which would benefit from wider infrastructure integration is tourism, particularly package tourism from abroad.