Roadblocks hamper economic integration

In late July, I presented a working paper at a seminar organised by the Emirates Media and Studies Centre in London dealing with integration of Gulf Cooperation Council (GCC) economies. I argued in my paper that whilst a painstaking exercise, economic integration of six-nation GCC is a worthwhile endeavor.

The cumbersome process reflects some contrasting economic facts in each of Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain. There is plenty of evidence in support of this argument such as relatively late discovery of oil in Oman. To be sure, oil was discovered in Oman in 1963 versus 1932 in the case of Bahrain.

This partly explains the view the other five GCC countries possibly had more opportunities than Oman in focusing on internal economic development. Arguably, it is against this backdrop that Oman has opted not to join the Gulf Monetary Union (GMU) project, which commenced at the start of 2010.

Amongst others, Oman wants to avoid being obliged to change the policy of linking its currency to the US dollar, as part of the GMU project. The possibility of linking the planned GCC currency to options other than the dollar can be ruled out.

On a separate note, there is a sharp difference with regards to economic size of GCC nations. For example, gross domestic product (GDP) of Saudi Arabia and Bahrain are ranked numbers 23 and 104 worldwide, respectively. In fact, Saudi Arabia is the only GCC and broadly Arab country enjoying membership at the exclusive G20.

Not surprisingly, Bahrain has been traditionally in the forefront of implementing GCC economic integration projects. This is partly true with regards to the Gulf Common Market (GCM), which started in 2008.

Free flows

The GCM allows for free flow of factors of production in member states. However, Bahrain basically implemented considerable amount GCM requirements ahead of schedule for the sake of enticing business from other GCC countries in order to address its economic challenges.

These economic challenges include sustaining highest possible GDP growth and finding jobs for locals.

Undoubtedly, addressing local economic needs enticed each of Bahrain and Oman to seek separate free trade agreement (FTA) with the US. Authorities from both countries looked up to the vast US economy, in turn second to none, to help attaining numerous economic goals at home.

In reaction to moves by Bahrain and Oman, GCC leaders assumed a uniform trade policy in late 2005 during annual summit in Abu Dhabi. The new policy stipulates collective bargaining with other countries and economic blocs with member countries banned from entering into unilateral agreements.

The initiative is paying off, with the first collective FTA for GCC clinched with Singapore in 2008. This was followed by an accord with the European Free Trade Association (EFTA). The pact was the first of its kind for GCC with any economic bloc.

Yet, differences of per capita among GCC countries put brakes on the drive towards regional economic integration.

Annual per capita in Qatar reportedly stands at $171,000, the second highest in the world. By contrast, GDP per capita in two GCC states amounts to less than $20,000 annually. This helps explaining the reason behind different level of urgency in carrying out economic integration projects.

Nevertheless, the facts and arguments attempt to provide a context for the slow pace of implementation of projects aimed at integrating GCC economies. In the age of globalisation, strength is in unity.

The writer is a Member of Parliament in Bahrain.