Gcc economies

Gcc economiesIntroductionChallenges and Opportunities in GCC Economies. General Attitude towards Foreign Investors Trade integration and Economic Philosophy in GCC economies. Economic Status of GCC economies. Economic Stability. GCCs political Stability . FDI in the GCC countriesThe size of the Market . Physical Infrastructure . Resource Endowment and Industrialization . Labor Force . GCC India business relationship . Challenges. Trade vindication and Competitiveness. Lack of variegation The Changing Economic Context of Gulf Politics. Recommendations and conclusions ReferenceExecutive Summary The Gulf Cooperation Council (GCC) is an attractive location for investing and a outstanding consumer grocery store for imported goods and serve, and information technology to one of the smallest state that is considered to founder in high spiritsest powers of spending in the world.The common market of the six GCC economies are open to unlike capital investing and are continually w orking to grant national treatment to all foreign investment firms and cross country investment and services sight. By 2010, GCCs inter-state cover is expected to stir by 25 percent, and international trade in this states is anticipated to grow by multiples. Given its trade memoir and strategic location, the six GCC economies has had long trade and diplomatic relationships with Asia, Europe, and African states, suggesting that it stands to benefit in the long-term from the anticipated growth of these countries.The GCC economies fool upheld an open system of merchandise, unloosen capital attempt, convertibility of currency with fixed nominal rates, and large labor inflows- both skilled and lubberly. Additionally, the GCCs advanced financial systems puddle been an essential channel for advancing their trade integration into the international community.Despite current global sparing crises, the GCC has rebrinyed a very liquid expanse. The economic growth in several key wel kins is forecasted to be moving forwards across the region. Any investor considering venturing in the GCC should be centrally positioned to take advantage of one of the worlds fastest-growing markets.Given the GCCs proportional advantage in anoint, gas, petrochemical products, and personal capital, and given the Indias technology, know- how, selling skills and that can be marketed in a very sizeable market indeed. When countries or trading partners specialize on the basis of their comparative advantages, returns are maximized. Therefore Indian firms invested heavily according to the strategy emphasizing their comparative advantages in oil and gas service sector, which presents a great desktop for Indian enterprises to undertake phrase investments in these fields.Introduction The Gulf Cooperation Council (GCC) consisting of states six Arab states (Saudi-Arabian Arabia, Bahrain, Qatar, Oman United Arab Emirates, and the Kuwait) located in Arabian Gulf. The GCC economies are one of the fastest-growing international markets and switch become increasingly important to the economy of the whole world.GCC attracts an ever-increasing upshot of foreign investments and across wide-ranging sectors. Its rapid development and expansion has made it an active searcher for modern technological capacities, infrastructure development, and business services. Development and improvements have been made to build up a secret sector that is fewer dependants on organization or natural resources, thus making the area an attractive culture for investment and competitive market for expatriate workers and overseas expansions (Al Bawaba, 2007). The GCC countries investment temper is causative to foreign investment. GCC countries are continuously adopting policies and taking measures to improve this climate and taking into consideration changes in the international economic parameters and circumstanceors. GCC economies recognize the value of attracting and maintaining foreign investment and have resulted to adopting measures aimed at attracting and encouraging foreign investment. GCCs openness to foreign investment and capital has been motivated by an medical prognosis that foreign capital and investment give attract financial resources- visible and invisible, as well as bringing in modern technology (Al-Shamali Denton, 2000). In appurtenance, it may also raise marketing potentials of the local anaesthetic firms by providing access to exportation markets. Foreign capital and investment can also advance skills and techniques of management and set up state-of-the art facilities of training.The opening night for encouraging invest mostly focuses on the institutional structure and on creating legal and administrative conditions appropriate for carrying out investment activities. Despite current global economic crises, the GCC has remained a very liquid expanse. The economic growth in several key sectors is forecasted to be moving forwards across the r egion. Any investor considering venturing in the GCC should be centrally positioned to take advantage of one of the worlds fastest-growing markets.However, investments and trade links among the Arab countries leave much to be desired. Capital-rich countries do non feel safe investing in people-endowed or resource-rich countries. However this latter group of Arab countriescan insure food safety, enlarged markets for industrializing GCC countries and investment opportunities (Al Bawaba, 2007). Political risk is often cited as a deterrent, on with bureaucracy. Most often political sciences are blamed for failure to devise a system that motivates the public as well as the common soldier sector to joint efforts.This paper identifies investment prospect and provide advice on the challenges and opportunities for an Indian enterprise intending to embark on an investment in oil and gas service sector in the GCC region.Challenges and Opportunities In GCC EconomiesGeneral Attitude towards F oreign InvestorsGenerally speaking, GCC Countries religion, social fabric and norms, and their economic and political cultures do not have in either way prejudices against foreign investors (Al Bawaba, 2007 b). The fact is that there is a history of fruitful co-operation and strong tradition of hospitality. The number of foreign firms and expatriate workers in the region clearly manifest this attitude. Hostilities in whatsoever manner of at any level of contact are absent. Trade integration and Economic Philosophy in GCC economiesThe GCC economies has had an unmixed degree of success in terms of trade integration, capital mobility, labor creation, and in setting regular standards in diverse regulation areas. Some of the GCC members have extended cordial privileges to foreign capitals and investment in areas much(prenominal) as share-market, investment, and government procurement.The longstanding economic philosophy of the region is obviously an open unbosom market and outward oriented (Al Bawaba, 2007). Private property rights are well established and honored. GCC countries, unlike many developing countries, have never experienced what could be called socialist inclinations. Capital and goods are allowed to freely enter and leave GCC countries. Foreign exchange control measures are non- existent and as thus expatriation of profits, remittances and dividends daring no restrictions. GCC countries openness is also manifested in their high foreign trade openness ratio which oscilloscopeed more than 70%. For comparison reasons, the same ratio amounted to 16% in U.S.A. and 18% in Japan. This manifests the dependence and incorporation of GCC economies in the international market (Al-Shamali Denton, 2000).Economic Status of GCC economies The combined vernacular Domestic Product (GDP) of the GCC economies is estimated to reach 1.15trillion dollars according to the Gulf Finance House (GFH) projections. The projection by the Saudi American Bank (Samba) and Al Ahli Bank estimates that by 2018, total investment in the GCC economies could reach up to 670 million dollars. The GCCs world economy share is estimated to enlarge slightly higher than the annual average global growth with an aggregate of 4.5 percent, compared to globally annual average of 3.3 percent (Emerging Markets Monitor, 2008). Within 10 years, the GCC countries are expected to be supplying nearly one-quarter of the world with oil as well as increased quantities of petrochemicals, plastics and metals.Economic StabilityThe six countries of the GCC possess many common and rather special characteristics. They all depend on oil and gas for government revenues and foreign exchange earnings. These governments revenues and expenditures move the engine of the economy. The non-oil sector, while growing constantly, remains relatively dependent.Oil will remain the major source of energy and the main vehicle to development for years to come (Al-Shamali Denton, 2000). Its role in the int ernational economy as an important strategic commodity needs no enlargement here. Thus, GCC countries status as major producers and exporters will continue to enhance their economic power. GCC return of this strategic commodity accounts for more than 20% of world toil. Of the worlds proven oil and natural gas reserves, GCC states hold 45% and 15% respectively, according to conservative estimates (Emerging Markets Monitor, 2008). GCC states have been recording positive GDP growth rates even at times of international recession. Their Consolidated GDP has surpassed the landmark of $ 550 Billion according to World Bank. Expenditure on capital formation (investment) totals more than 25% of GDP.an some(prenominal) former(a)(prenominal) indicator of stability, inflation, has remained one digit, and below 5% in most recent years in all GCC countries. Not only that, but inflation was enter with a negative sign in some years. GCC states have maintained their realistic path of rationaliz ing expenditure and conservatively estimating revenues. This years budgets which have been based on expected oil prices of $ 40 per barrel, at a time when market indicators and oil experts expectations foresee a price close to $ 60 per barrel. In fact, this sort has helped GCC countries to record large surpluses in their actual oil revenues during the last few years, and thus assisted them in settling internal debt arrears, and replenishing their foreign exchange reserves. It is evident that GCC countries have started to reap the fruits of the daring measures take for the last few years of rationalizing expenditure and embracing the concept of efficiency in the management of both the private and the public sectors. More importantly, they have succeeded in reducing peoples expectations regarding the role of t he government in providing subsidies, employment opportunitiesetc.GCC countries have enjoyed surpluses during the last decade, sometimes substantial, in the current balance of payments (Al Bawaba, 2007). High rates of savings, however, have been unmatched by corresponding internal investments, the potential growth vehicles for these economies. The exhaustibility of their resources implies the urgent need for long-term economic and financial planning in these countries before nonreversible trends take root Economic stability and growth are also combined with general trends which among other results strengthen and enhance foreign investments. GCC governments are pursing policies towards more economic liberalization, privatization and giving a greater role to the private sector. Moreover, export 0riented policies are dominating and manifested in the creation of export financing institutions and establishing specialized exporting units in ministries and chambers of commerce and industry. GCCs Political StabilityGCC countries are renowned for their stable political and administrative governance. Power is smoothly handed and regime change is less frequent as compared to most of the developed and developing countries. The stability of the regimes in GCC countries is totally gibe with the stability of general strategies and policies (Al-Shamali Denton, 2000). The strong legitimacy and popular support enjoyed by GCC regimes is rather rare in other developing countries and even in some developed ones.However, on the political and administrative level, there are several fundamental problems that have remained unsolved. Some customs union are yet to be fully implemented, while unstable reversible agreements between individual GCC states and other trade partners undermine the consistency of the external tariff regime. The monetary union of some GCC economies has been called into question and especially by modish announcement by Oman to opt out and by the reluctance of the governments to agree on representative criteria of convergence. Political tensions have been created between some neighboring GCC States, especially between Saudi Ara bia and Qatar, which could make the political stability level of the GCC economies to wobble.FDI in the GCC countriesHaving recognized the importance of attracting FDI, GCC economies have adopted new measures aimed at attracting foreign capital and investment. These new measures and development priorities include realizing sustained economic growth by raising investment rates of private sector enhancing technological skills and local capacities improving the exports into the world markets, creating more competitive employment opportunities. Openness to foreign capital and investment has been stimulated by an expectation that this openness will bring in financial resources, while attracting modern technology. In addition, foreign capital and investment provides raises marketing capabilities of local firms and access to export markets. It also facilitates upgrading of the management techniques and skills. In the GCC economies, the FDI flow accounts for more than the worlds average in twain of the GCC states (Bahrain and Qatar). Conversely, except for the UAE, FDI stock has accounted for a key share weighed against to the value of Gross Domestic Product in these GCC economies, as was evidenced in the case of Bahrain, in which the stock reached more than 74 percent and 70 percent of the level of GDP in 2000 and 2004 respectively.The GCC Service sector MarketThe size of the market is considered one of the main factors in determining inflows of foreign investments. The larger the size of the market and the greater its growth rates, the larger are volumes of foreign investments. Unfortunately, a popular perception, based on the population estimates only, sees GCC states markets as footling. This perception fails to appreciate a number of facts First, GCC states constitute an economically united bloc which entails among other things a market size of a population approaching 38.7 million inhabitants. Second, the per capita income for GCC states is more that $ 14,31 7. In other words the populations of the GCC countries enjoy high levels of income, even by advanced industrialize countries standards. Third, the high incomes enjoyed by GCC countries are reflected in high purchasing power and stiff demand. GCC states are also strategically situated, by neighboring the African and European continents and being the entrance gate to Asia. It should be mentioned that GCC imports from the rest of the world totaled round $ 119,524.35 million in 2004.Physical InfrastructureWhenever foreign investment in developing countries is discussed, inadequate physical infrastructure is cited as a major discourage factor. On the contrary, GCC states have succeeded in utilizing their abundant resources in creating a very well developed by any standards physical infrastructure. Major industrial and population centers are connected to each other and to the ports with international standard road network. Recently installed telecommunication systems are in some way s even meliorate than some industrialized countries. New power and water capacity is being installed, and the consumption is being rationalized through meaningful tariffs (Diekmeyer, 2009).Most large urban centers in the region have been provided with industrial parks, complete with necessary utilities and other amenities needed by manufacturing operations (Diekmeyer, 2009). Resource Endowment and IndustrializationAs oil color and natural gas form the greatest volume of GCC resources, their industrial development has been directed mainly towards oil and gas based industries such as fossil oil refining, chemical fertilizers and petrochemical industries and/or to energy intensive industries such as aluminum and steel (Al-Shamali Denton, 2000). This goes in line with the concept of comp of comparative advantage i.e. if countries specialize in producing commodities on the basis of their comparative advantage, returns from production and trade will be maximized. The availability of cheap energy resources is a blessing for GCC industrialization. For example, the gas used as a feed stock to the petrochemical industry is associated gas and most of it is a by-product of crude oil production. The cost of producing this gas is very low and if it is not used it would have to be flared (Al-Shamali Denton, 2000).Developments in the level and efficiency of the industrial capabilities of the GCC region enhanced the availability of a number of foreign investment attracting factors such as the skills available to prospective investors, efficiency of local suppliers and service firms, and a net-work of supporting institutions, both private and public.Labor ForceThe substantial developments which took place in all economic sectors have affected GCC labor force in two major ways. First, it required and induced large influxes of foreign professional, skilled and unskilled labor. On the positive side, this has helped in bridging the shortage in local labor, expediting the deve lopment process, and exposed the local labor force to a variety of rich experiences and high levels of theoretical and practical training in all fields and aspects of life. That is definitely a plus and an encouraging factor for any future investments, both local and foreign. Second, the tradition and experience in bringing and dealing with well-trained foreign labor reduces the possibility of manpower bottlenecks. That is to say labor as a factor of production is no problem for whoever is interested in establishing production or services units.Expatriate labors as well as nationals do not pay income taxes. another(prenominal) important factor for foreign and local investors is that in the GCC region there is no record of business disruption because of labor disputes. Gcc India Business RelationshipGCC countries and India have strong trade relations. In 2005, the volume of trade between the two parties was nearly $20 billion GCC countries supply India with a large portion of its oil imports, near $6 billion (Alam, 2008).For GCC countries, their comparative advantages lie in the manufacture of hydrocarbons and the development of energy intensive metal and mineral based products. In addition to this there is a great scope for investment in small and medium size ventures. Furthermore, forecasts show that petrochemical industries for example can branch out into two categories during the next few years (Ramazani Kechichian, 1998). Industries in the GCC countries can specialize in basic petrochemical and energy intensive metals while Indian companies can benefit from such products by using them in manufacturing highly specialized and specialized and sophisticated products with higher value added (Alam, 2008). As a result, this step will certainly enhance the ability of GCC countries not only to import more specialized Indian products, but also will help them in diversifying their industrial base.The attractive investment climate and the geographical market pr oximity of GCC countries make them suitable candidates for export platform of Indian investments and joint ventures. This scenario is strengthened by the availability of more than 6000 GCC small and medium sized enterprises, covering a wide variety of manufacturing activities (Ramazani Kechichian, 1998). These include food, textiles, wood, paper, chemicals, metallic, non- metallic, engineering and other fields of activities (Alam, 2008). Studies reveal that about 90% of these SMES have plans for expanding their activities. This fact offers the Indian business community wide opportunities via joint ventures, turnkey operations, production sharing, licensing, and other forms of non- equity involvement. The GCC Indian economic relationship would be enhanced byArranging visits for Indian businessmen to GCC countries so that they learn more about the regions investment and business opportunities. FGCCC can co-ordinate such visits.Organizing joint exhibitions both in the region and in I ndia.Organizing events to enlighten GCC businessmen with the available Indian co-operation instrument and institutions in fields of trade and investment.We notice a dearth of information on trade, markets and investment opportunities. There is a need for India GCC body to collect and disseminate such information.ChallengesTrade Protection and CompetitivenessAlthough many GCC countries boost of open trade policies, they extensively use production subsidies protect a large inefficient, domestic non-oil sectors, often public owned. Price related factors ones are usually among the most compulsive factors that affect trade outcomes (Al Bawaba, 2007). The prices of goods and services being traded are considerably influenced by tariffs level and non tariff barriers as well as by real efficient rates of exchange, which are themselves influenced by macroeconomic conditions and policies. There is a compelling evidence that trade protection is high for some GCC countries relative to their i ncome levels.Lack of diversificationThe GCC countries lack diversification in the sustainable economic base and need to devise a system which encourages private investment in industry, agriculture, exports and re-exports, i.e., production and movement of goods. The virtual absence of continuous local water resources and reliance on desalinated water, which is both expensive and insecure, is a constant challenge. Local food and agricultural production falls far short of providing self-reliance and security in light of a burgeoning population and evolving patterns of consumption. Population increase and a dramatic upsurge in education require finding appropriate employment for those with improved skills, as the present rate of growth in the non-oil sector leaves a widening opening between manpower supply and demand.The Changing Economic Context of Gulf PoliticsThe Islamist sectors in the states making up the GCC have grown more politically active since the time that the welfare state s were established in the 1970s. The population in these regions has also increased while the price of oil, the main source of revenue, remained fixed. The educated young generation is actively seeking participation in administrative and political levels of governance, while the middle demands work with good wages (Ramazani Kechichian, 1998). On the political and administrative level, there are several fundamental problems that have remained unsolved. Some customs union are yet to be fully implemented, while unstable bilateral agreements between individual GCC states and other trade partners undermine the consistency of the external tariff regime. The monetary union of some GCC economies has been called into question and especially by latest announcement by Oman to opt out and by the reluctance of the governments to agree on representative criteria of convergence. Political tensions have been created between some neighboring GCC States, particularly between Saudi Arabia and Qatar, which could make the political stability level of the GCC economies to wobble.Recommendations and conclusions The GCC countries investment climate is conducive to foreign investment. GCC countries are continuously adopting policies and taking measures to improve this climate and taking into consideration changes in the international economic parameters and factors. GCC economies recognize the value of attracting and maintaining foreign investment and have resulted to adopting measures aimed at attracting and encouraging foreign investment. For Indian enterprises trading in the oil and petroleum service sector, their comparative advantage lies in their specialization in production technologyThe Gulf Cooperation Council (GCC) is therefore an attractive destination for an entrepreneur wishing to invest in oil and petroleum service sector and the opportunities in this sector far outweighs the challenges.ReferencesAlam A., (2008) India and West Asia in the Era of Globalisation, stat mi New Century Publications, Al-Shamali A., Denton J., (2000) Arab business the globalization imperative, India Kogan Page Publishers, Al Bawaba, (2007 a), The Future of the Gulf The World Economic Forum Launches Scenarios on the Gulf Cooperation Council Countries, p1Al Bawaba, (2007 b), Saudi Arabia intensifies reform efforts to improve competitiveness around two thirds of $240 billion in planned projects outside oil, gas, and petro p1Diekmeyer, P. (2009) Export Wise, Summer, GCC Infrastructure Development Opportunities., p26-28, 3pEmerging Markets Monitor, GCC Implications Of The Credit Crunch. (2007), Vol. 13 Issue 20, p1-2,Emerging Markets Monitor, (2008) US Crisis GCC, 14 (26), p17-17, Ramazani, R. K. Kechichian J. A. (1998) The Gulf Cooperation Council record and analysis, US University of Virginia Press,