Middle East Intra-Regional Trade Up 28% between 2000 and 2007

Asia overtakes Europe as the largest exporter of manufactured and agricultural goods to the Middle East

Intra-regional trade in the Middle East has grown 28% between 2000 and 2007 and now represents 19.3% of all trade in the region, according to an Economic Note released by the DIFC Economics unit of the Dubai International Financial Centre.

The report, analysing World Trade Organisation trade data recently released covering the years through 2007, also revealed that Middle East trade was increasingly shifting toward Asia and away from the United States and was showing increased diversification toward non-oil products such as chemicals, travel and tourism.

Intra Middle East trade increased from 15.1% of total external trade in 2000 to 19.3% in 2007 but is still significantly below intra-regional trade levels in other regions such as the European Union (71.2%) and Asia (57.4%). This increase in intra-regional trade in the Middle East was led by a doubling in trade of agricultural products, an almost five-fold increase in fuel and mining products and a four-fold jump in manufactured good.

Given the shift in trade towards Asia, the report also said it is increasingly important for regional economies to negotiate free-trade agreements (FTAs) with emerging markets such as China and India, rather than focus on bilateral FTAs with developed countries.

The Economic Note added that the GCC Single Market initiated in 2008 and the expected launch of the Gulf Monetary Union in 2010 will help the GCC strengthen regional trade and increase its influence on the global trade map.

“The GCC in particular and the Middle East more broadly can build on the advances made in trade this decade by pursuing deeper regional integration and more structured trade policies. The current global economic crisis should encourage us to take bold steps towards greater economic and financial integration,” said Dr. Nasser Saidi, Chief Economist at the DIFC.

“Removing regional barriers to trade, investment and the movement of people would help set the stage for a broader Arab economic renaissance, as it would create a market of more than 300 million people and provide economies of scale and scope that would benefit producers and consumers alike,” Saidi said.

The study identifies the lack of an integrated transport infrastructure, burdensome customs procedures, non-tariff barriers to trade and lack of product diversification as the main barriers to regional Middle East trade.

“Deep(er) integration” among GCC countries –including increased harmonisation of economic, financial, cultural, environmental and foreign policies – could be the channel for greater Middle East trade integration, according to the Economic Note prepared by the DIFC Economics team, and main author  Aathira Prasad.

The growth in trade in services was highlighted by the analysis, which concluded that travel and tourism was the “best performing trade sector” for the region and an increasingly important source of trade diversification. “Its role is destined to increase with the coming on-stream of major airport infrastructure in the UAE and Qatar,” the Economic Note said.

By contrast, the large dependence on agricultural imports exposes the region to the rise in commodity prices, such as that witnessed in 2007 and 2008 that contributed to record inflation rates across the GCC.

In terms of trade with the rest of the world, the Economic Note reported that manufactured imports from Asia, as a share of total world imports to the Middle East, grew from 29.3% in 2000 to 33.9% in 2007, capturing the lead position from the European Union, whose share declined from 39.2% in 2000 to 31.5% in 2007. A similar shift happened in agricultural imports as well.

Not surprisingly, hydrocarbons led exports from the GCC, while chemicals were by and large the second largest revenue earner. Other leading GCC exports included pharmaceuticals, aluminium, iron and steel.

The DIFC Economic Note urged further action toward intra-regional trade liberalisation. “We believe that a more decisive effort to open borders and to embrace a more liberal trade policy model would be a powerful tool for the development of the region, increased competition and the improvement of living standards.”

The full report is available at www.difc.ae

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