COVID-19 will teach Gulf states sufficiency

As global lockdowns are lifted, businesses and regulators are rushing to re-adjust to a different economic situation.

The pandemic has demonstrated the higher comparative importance of traditional industries such as agriculture and health care in extreme situations, and encouraged several measures by the GCC joint committees. The low oil prices, global change in supply chain patterns, and fundamental self-sufficiency have been the main concern for the GCC nations in recent months, as logistics got complicated and national priorities differed in these stressful situations.

This resulted in the prompt approval of Kuwait’s initiative to form a food security system for GCC member-states in April. The GCC ministers of trade and commerce held an online discussion to transform this into an on-the-ground operating system.

The UAE has already launched ambitious agritech projects in Abu Dhabi that have attracted international investors’ attention at a time of timid foreign investments. The $100 million (Dh367 million) investment in Abu Dhabi is to introduce new technology that serves food security requirements and includes Wafra International Investments owned by Kuwaiti Public Pension Fund.

Pushing forward

Such mutual coordination between GCC states in such vital sectors is being set on a fast-track process to minimise unnecessary delays.

The GCC states have many forms of collaborations and joint ventures in vital sectors; however, there is a greater need now given the increases in population over the past few decades and more capital is needed to cover local demand.

The Oxford Business Group estimates food consumption in the GCC to reach $53 billion this year, up from $25.8 billion in 2004, with 90 per cent of it being imported. This steep hike in demand requires substantial capital investment and rationalises the idea of home-based substitute products.

Rise of ‘agritech’

Local governments have not neglected these matters and taken action to achieve the nationalisation of strategic industries where, for example, the government of Abu Dhabi launched a Dh1 billion fund backed by the Ghadan 21 programme to support agriculture-technology (agritech) projects. It provides incentives to aid the growth of agritech start-ups in the country, including international ones.

Agritech companies now rely on robotics to increase their production efficiency, minimise their exposure to human errors, and reduce operational costs in the long-term as well as the flexibility of being able to continue production as planned in extreme situations when human labour cannot function.

Import substitutes

The automation of the agricultural industry has proven to be a reasonable solution in countries that enjoy higher standards of living. It rules out the difficulty of competing with cheap imports from countries that have a larger low-income population. Indoor farming technologies, advanced greenhouses and automation may be the formula for an agricultural revolution in the GCC.

The demand witnessed in the first quarter on 2020 for stock market listed agricultural companies indicates how strong local purchasing power is, whereby Nadec posted a net profit of 18.19 million Saudi riyals against 3.67 million riyals loss for the corresponding period in 2019. There will be further indicators encouraging GCC governments to support the food security and supply chain initiatives to aid the creation of a solid agricultural and industrial base.

Another significant sector on the GCC’s self-sufficiency radar is health care and pharmaceuticals. The pandemic marked the importance of nationalising a larger portion of the region’s medical requirements. The Saudi-based Sulaiman Al Habib Medical Group recorded a 246.6 million riyal profit during the first quarter of 2020, and up from 234 million riyals the previous year. Its pharmaceutical sales recorded a 13.94 per cent increment for the same period.

Pharma as well

A case study by London School of Economics showed that there is a great difference between branded pharmaceutical products and generic drugs. The pricing comparison for a 20 milligram Omeprazole 14-capsule pack with identical chemical compound, dose and units can sell for a 50 per cent premium for its brand name, even when the patent has already expired.

The cost of an AstraZeneca produced pack of the medication is 6.48 Kuwaiti dinars (Dh81), whereas the same pack by the Kuwaiti Saudi Pharmaceutical Industries Co. costs 4.46 dinars (Dh55.75), and 3.1 dinars (Dh38.75) for medication manufactured by Oman Pharmaceuticals Co.

Domestic production in such industries is of strategic and shared interest for the GCC. The chance we have today as a region with great economic potential, an increasing population (which means strong demand), and advanced manufacturing is to define this opportunity as a gift from the COVID-19 pandemic. And worth considering for a more sustainable and self-sufficient GCC economy.

— Feras Adel Al-Salem is Vice President of Kuwaiti Business Council in Dubai.