The Emirates Center for Strategic Studies and Research at Abu Dhabi had their annual conference recently, with the theme as internal and external security issues. On the conflicts in the region, there was a diversity of views on how the Gulf Cooperation Council (GCC) should react. A seminal speech was delivered by Prince Turki of Saudi Arabia. He pointed to the initiatives taken recently by Saudi Arabia to bring peace to the region, and how they were engaging with Iran. He said talks of any sectarian crescent were very much a western intellectual definition, and that the different sects had lived together, despite differences, for more than a thousand years. It is interesting to note the initiatives by the Saudis in the last six months, in Lebanon, Iran and indeed, in trying to solve the issues in Palestine. The US does not necessarily like this kind of independence—it would like to be the final arbiter of peace in the region and wants everyone to be concerned about the emergence of a Shia crescent. Fascinating, but not really my area. I am sure experts in India are taking notice.
I was asked to speak about economic interests between GCC and Asia. In the last couple of years, there have been interesting developments. At the core is the need for oil, and the dependence of China, India and Japan on oil from the Gulf. Demand for oil from India and China, coupled with the disturbances in several oil-producing countries and the resultant speculation in oil futures, has kept oil prices at high levels. The consequential flow of oil revenues has been close to $700 billion to the producers since 2003. All the GCC countries are reporting a healthy 5%-plus growth in GDP, and fiscal balances are now comfortable after a decade. Trying to avoid the mistakes of the past, GCC countries are attempting to create sustainable development models that would not be dependent on oil revenues alone. Private enterprise is being encouraged, and there is focus on manufacturing, on downstream use of oil-related products. The construction boom in Dubai focuses on use of resources for internal growth and employment generation, and seeks to develop alternatives to tourist and retail destinations such as Singapore. There is a boom in services—education, hospitality, health care and IT, financial services and markets. Several investment funds, flush with oil wealth, are eyeing investments in Asia.
I pointed out that in February, the foreign funds flow into US government securities that support the US fiscal deficit had been around $52 billion—for the first time, short of the requirement of around $60 billion. And, for the first time, there’s a steep rise in GCC investments into Asia, notably the Kuwaiti funds investment of over $700 million into an IPO in China.
The enhanced activity in the Gulf is driven substantially by China, for it recognizes its growing dependence on Gulf oil—58% of its needs would be imported by 2020, making it the largest consumer of oil. There is a lot of investment by Chinese companies, jointly with state entities in the Gulf, in oil exploration, and downstream activities. China is viewing GCC as a major alternative market for goods—on the road between Dubai and Oman, in a huge new Dragon Mall, over 4,500 Chinese manufacturers and retailers have opened shop. The recent visit of the King of Saudi Arabia to China and India has opened up new avenues of cooperation between the countries. GCC-Asia trade is likely to grow from the present level of around $50 billion to over $300 billion by 2020. Singapore is evincing keen interest in investing in the region. The Asean-GCC initiative is also extremely active.
There was an interesting debate on immigration. In the next decade, some seven million nationals would enter the labour force, which is growing at 6% per annum. Increasing privatization means fewer public-sector jobs, and there was expression of concern over lack of permanent job opportunities that citizens had been used to. There were strong views expressed against continuing inflows of labour and skilled personnel—a majority felt job permits should be for a limited duration. There was a call for governments to develop relevant skills among their nationals so that dependence on an imported work force could be avoided.
It is important to recognize this groundswell of resentment and to realize that Gulf remittances may not last more than a decade.
It is equally important to look at opportunities in the services and educational sectors—BITS Pilani, IMD, NIIT are all already present in Dubai. There are opportunities for many more educational and training institutions.
India enjoys a high comfort level that can be leveraged for opportunities in the IT and other sectors. There have been offers of joint development in the oil sector that should be pursued. We need to get our act together, quickly.
S. Narayan is a former finance secretary and economic advisor to the Prime Minister of India. Comments are welcome at email@example.com