GCC’s mighty economic size

The Combined gross national product (GDP) of Gulf Cooperation Council (GCC) is projected to cross the trillion dollars level in 2010. This marks only the second time that the monetary value of economic activities of the GCC has crossed the trillion-dollar level, and helps putting its GDP within an exclusive club of nations.

A report by the International Monetary Agency projects nominal GDP of Saudi Arabia, the UAE, Qatar, Kuwait, Oman and Bahrain amounting to $1.021trn in 2010 and increasing further to $1.118trn in 2011. According to the same report, GDP of GCC countries amounted to $1.076trn in 2008, but dropped to $869bn in 2009 reflecting changes in oil prices. Right or wrong, the oil sector is uniquely significant to GCC economies by virtue of comprising nearly three quarters of each of treasury revenues and exports as well as one third of the GDP. Hence, oil prices leave their imprints clearly on the fortunes of regional economies.

Oil economies
More specifically, nominal GDP of Saudi Arabia alone dropped by more than 20 per cent in 2009 to $375 billion due to unfavourable conditions in oil market. Needless to say, Saudi Arabia is the world’s largest exporter of oil, and thus changes in oil prices no matter how small affect the country’s level of income and spending and thereby value of economic activity.

To much of their credit, Saudi authorities openly admitted plunge of GDP while releasing closing accounts of fiscal year 2009. In reality, Saudi Arabia’s economy accounts for a hefty 40 per cent of GDP of GCC, and thus has a material effect on value of regional economies. According to World Bank statistics, Saudi Arabia’s GDP ranks number 23 worldwide, ahead of numerous European countries including Norway, Austria and Finland.

Changing GDP value reflects improving conditions of GCC economies, in turn caused by firm oil prices in the international market. The petroleum sector is uniquely vital in GCC economies by virtue of accounting for more than two thirds of treasury income and three quarters of exports. In retrospect, oil prices reached a record $147 per barrel in July 2008 only to hover around $40 per barrel in the first quarter of 2009. Sharp drop in oil prices occurred as a reaction to the global financial crisis, which amongst others caused confidence problems.

However, firm oil prices have since increased and remained strong as a sign of improving global economic prospects thanks to G-20 initiatives. Measures undertaken by G-20 include pumping money into local economies in order to generate demand and help raising oil prices.

Qatar leads
IMF projects GCC economies growing by 4.9 per cent in 2010 and rising to 5.2 per cent in 2011. Still, GCC economies grow merely by 0.8 per cent in 2009 on the back of turmoil in oil markets. This was particularly true in the first quarter of 2009 reflecting reactions to the global financial crisis.
Surprisingly, the IMF mainly attributes improved economic prospects in GCC economies to the outstanding growth level of Qatari economy. The Qatari GDP is projected to grow by 18.5 per cent in 2010 and 14.3 per cent in 2011. Undoubtedly, this is an exceptional achievement, reminiscent to performance of few economies like those of China and India.

Amongst other things, the extraordinary development of Qatari economy is testimony of the sustained expansion of gas sector. In fact, Qatar continues to consolidate its position as the largest exporter of liquefied natural gas (LNG). Latest available statistics put output at 54 million tonnes, up from 38 million tonnes a year only three years ago. Yet, nonstop efforts are being exerted to reach the goal of producing 77 million tonnes a year of LNG by 2012.

Abundant resources
Together, GCC economies comprise around 1.5 per cent of total GDP in the world. In effect, this means value of GDP of some 15 countries is independently more than that of GCC’s GDP. These countries include the US, Japan, China, Germany, France, Italy, the UK, Brazil and India. At more than $14trn, American GDP is undisputedly the largest in the world. As such, value of GCC economies combined accounts for merely seven per cent that of the US.

Yet, notwithstanding the limited size of GCC’s GDP in relation to other global economies, GCC states are particularly noted for controlling substantial oil and gas statistics. Together, GCC countries account for 23 per cent of global oil production. Saudi Arabia is both the largest producer and exporter of oil in the world.

Still, GCC states account for 41 per cent of proven oil reserves in the world. Again, Saudi Arabia alone accounts for 21 per cent of proven oil reserves. At the same time, GCC countries hold for 23 per cent of proven gas reserves in the world. Qatar ranks number three in the world amongst countries with largest gas reserves after Russia and Iran. As in the case of Saudi Arabia in oil, Qatar is the largest exporter of gas in the world. Clearly, GCC states are offering significant resources to the world notably oil and gas, in turn essential for sustaining modern day living. Airplanes, vehicles and a significant number of machineries operate on petroleum products.

Economic diversification
Still, GCC authorities are required to use oil proceeds to diversify their economies away from the petroleum sector such as industrial development and thus addressing another challenge, namely creating employment opportunities for locals. GCC countries are noted for relatively high population growth rates, around 34 per cent altogether, which translates into entrants of new job seekers in big numbers.

In turn, economic diversification should help GCC economies shield themselves in times of turbulences in oil markets, which occur every now and then, and cannot be ruled out in the future. As mentioned earlier, oil prices reached as high as $147 per barrel in July 2008 yet dropped sharply on the back of the global financial crisis, which caused uncertainties in directions of economies worldwide.

The author is an eminent economist and Member of Parliment, Bahrain 
DR JASIM HUSAIN ALI