Regional Trade Looks up
The GCC Doha summit has yielded vital economic results

The 28th summit of the Gulf Cooperation Council (GCC) held in the Qatari capital of Doha on December 3 and 4, 2007, proved to be unique in many respects. One, the head of states of Saudi Arabia, the UAE, Kuwait, Oman and Bahrain plus the host Qatar agreed to commence implementing the Gulf Common Market (GCM) from January 2008. Two, they made no mention in the final communiqué about announcing a position on the US dollar in the light of historical decline in its value. All GCC states, except Kuwait, link their currencies to the greenback.

Common market
The GCM would open wide avenues for inter-GCC trade and investment activities. The ambitious project covers all economic and investment services, dealings in the stock market and setting up of companies in the public and private sectors besides social insurance among GCC citizens. In practice, the GCM allows for free movement of factors of production amongst member-states.

Over the past two years, member-states have agreed to widen the scope of activities granted to GCC subjects. During the 27th GCC summit held in Riyadh, Saudi Arabia, in 2006, three activities were added to the list – engaging in insurance, clearance of official documents in governmental departments and transport. During the 26th summit held in Abu Dhabi in 2005, three other activities were included – recruitment offices, car rentals and most cultural activities.

In short, the Doha Declaration stated that the GCM aims at finding a unified market through which GCC nationals should benefit from opportunities available in other member-states. Certainly, critics will have to wait several years before deciding on the success or failure of GCM.

Market access
To be sure, the GCC states have earned the common market status. The most important announcement came from Saudi Arabia with authorities declaring that GCC subjects have the right to trade in shares listed on its stock exchange. What makes Saudi Arabia so special is the size of its gross domestic product (GDP). Real Saudi GDP amounts to more than US$320 billion, which is second to none in the region.

Also, Saudi Arabia is home to the largest stock market in the GCC. Prior to the GCM, prospective GCC investors looking to invest in the Saudi market could not freely buy and sell stocks at Saudi Stock Exchange (Tadawul). According to a monthly report issued by Tadawul, the total market capitalisation amounted to $426 billion at the start of December 2007. The Saudi market is known for its initial public offers (IPOs) of firms doing business in hydrocarbons sector in particular. Dubai and Bahrain have been largely practising common market principles for sometimes, doing so for their own benefit. It is possible that GCM could prove to be more useful to traditionally less open economies, notably Saudi Arabia. Amongst others, many GCC investors would seize the opportunity to invest into the Kingdom's capital market.

Monetary union
On another economic front, the leaders did not retract on the ambitious goal of achieving a monetary union amongst member states by 2010. Certainly, it is not easy for the General Secretariat based in Riyadh to clearly announce delay of the most ambitious project for the GCC. This was not surprising given the conservative nature of regional governments. Ironically, Oman, the next host, has gone public in announcing its intention of not joining the monetary union by the target date. Thus, the leaders called on the concerned committees to continue developing the criteria, which then must be presented at the next summit in Oman. The elements concern ratios regarding inflation, fiscal deficit, debt and reserves.

However, it remains to be seen whether or not the GCC would be able to meet the deadline. There remains the possibility that the delay would be announced in Muscat in late 2008 partly to appease the Sultanate, which remains the only member-state taking a clear position on the issue.

Appeasing Saudi Arabia
One thing is for sure, Saudi Arabia remains committed to implementing the project by 2010. It is believed that Riyadh, which hosts the GCC’s General Secretariat, has insisted that progress must be made towards carrying out the monetary union. This could be the price that host Qatar had to accept in order to entice participation of Saudi monarch King Abdullah. It was widely feared that the Saudi leader would shun the summit due to the Kingdom’s displeasure with Al Jazeera TV of Qatar.

Saudi Arabia withdrew its ambassador from Qatar several years ago in order to protest against the reporting of Al Jazeera about matters related to Saudi leadership. The argument goes that no single GCC project should stop merely because one or more members could not meet the requirements. Accordingly, similarities are being drawn from the European Union experience. The EU comprises 27 member-states, but not all, including the UK, are members of Euro zone.

Dollar link
However, the summit ignored taking any decision regarding the possibility of ending the linking of GCC currencies to the US dollar. Kuwait remains an exception. In May 2007, Kuwait decided to end the practice of linking its dinar solely to the US dollar. Instead, the authorities decided to return to the customary practice of linking the dinar to a basket of currencies, including the dollar plus euro and yen. The Kuwaiti authorities opted to make the move as part of efforts to contain decline in the value of the US dollar. The weakening of the dollar naturally reduces value of the linked currency versus other global appreciating currencies. Hence, Kuwait had to pay more to acquire products from the European Union and Japan. Business with Europe and Asia amounts to a sizable chunk of Kuwait’s imports. In effect, linking to the declining dollar amounted to importing inflation. Notwithstanding the issue about the US dollar, the 28th summit would go down in history as one of the most accomplishing one. It is time for GCC subjects to enjoy the benefits of their regional grouping.

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