GCC economies and their role in the world economy - Research Paper Example

? GCC Economies and Their Roles in the World Economy GCC economies and their Roles in the World There are many organizations across the world. The organizations could comprise of countries within the same region, continent, and common members of a colony or international trade partners. Usually, member countries to particular organizations share common agenda and objectives. Most organizations are formed for the purpose of promoting trade and boosting each other’s economies. The Gulf Cooperation Council (GCC) is one such unique organization that unifies countries in the Gulf South of Asia, which produces oil. This paper will deliver a report analyzing economies of each member of GCC and their relation with the Organization of Petroleum Exporting Countries (OPEC). In addition, the paper will investigate the roles of GCC members to the world economy. Finally, the paper will wind up with a precise conclusion. Introduction The Gulf Cooperation Council (GCC) was formed on May 26, 1981. The GCC is an organization specifically formed to unite the Arab oil producing countries. Its major operation angle is to the southern regions of Asian continent. GCC is made up of six active Arabian countries that involve the Saudi Arabia, United Arab Emirates, Kuwait, Oman, Bahrain and Qatar. However, some new applications for membership have been received from other oil producing Arabian countries like Jordan and Morocco. The objectives of GCC are to unite the member states with the aim of harmonizing quotas of oil in the world market. The members have several factors in common among them religion, political structures, climatic conditions and natural resources. The organization also seeks to coordinate and promote economic productivity of the member states (Mohammed, 2011). The organization also intends to boost education, healthcare, employment and trade among the member states. Saudi Arabia Saudi Arabia in the views of Mohammed (2011) forms four-fifths of the entire GCC. Besides being a member of the GCC, Saudi Arabia is also a member of Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia has been voted the world’s largest oil reserve among the OPEC and the GCC member states. In fact, oil production is the backbone of all the economic sectors in Saudi Arabia. Estimates indicate that a third of the total oil produced by the OPEC comes from Saudi Arabia (Mohammed, 2011). Oil production in Saudi Arabia on a daily basis estimates at around 10 million barrels. As a result of massive oil reserves that infiltrate money to the country, Saudi Arabia enjoys a diversified economy with plenty of production industries that have offered jobs to its citizens and the world population in general. The oil sector has contributed to the development of various industries such as petrochemicals, fertilizers and steel manufacturing industries that boosted the export products of the country. Mohammed (2011) adds that Saudi Arabia has excelled in the production of dates and even becoming the world’s best producer of dates. Saudi Arabia also has expanded fishing grounds and a lot of money has been ventured to modernize and promote sea fishing activities. In 1998, OPEC slashed Saudi Arabia’s global supply quota to 8 million barrels per day. The imposition of the quota led to significant fall on the country’s total income. Telecommunications investment (% revenues) in Saudi Arabia In the reports of World Bank, telecommunication investments revenue in Saudi Arabia reached 84.12% in 2008. Telecommunication investments are expenditures associated with purchasing the ownership of telecommunication equipment infrastructures including land, building, labor and computer software. Source; Trading Economics, 2011 Current statistics in the world oil market show that Saudi Arabia has much potential to increase its oil injection by additional 2.5 million barrels a day (Daya, 2011). Such an injection can boost oil supply in the world market and even ease the world energy crisis. Oil production in Saudi Arabia represents 35% of the country’s total GDP. Revenues from oil productions also cater for 84% of the government total income. In the view of Malik and Niblock (2007), the Saudi Arabian government uses the revenues obtained from the trade of oil to finance infrastructure in the country. Saudi Arabians enjoy vast electricity supply and well built road system. Employment Structure of Saudi Arabia in 2009 Employment opportunities were assured to every learned individual in the economy. Saudi Arabia government also ventured in agriculture especially with great focus on wheat growing, dairy farming and poultry, which accounts for about 4% of the country’s GDP. The agriculture sector has also employed about 12% of the country’s work force (Cavendish, 2006). In the 2009 employment statistics, Saudi males form the larger proportion of labor force as they represent 42% of the country’s total labor force. Females comprise a small proportion of 8% the total labor force. Foreign males dominated the labor market, as they comprise 43% of the labor force. Foreign females represent a considerable 7% of the total population. Saudi Arabia’s Trade links Saudi Arabia has close trade links with other countries like USA, Germany, Japan, and China among other African countries. In the views of Cavendish (2006), Saudi Arabia exported goods worth $113.3 billion while importing goods worth $36.2 billion. US imported 19% of Saudi Arabian oil products in 2004. Japan also imported 16% of the Saudi Arabia’s total export while South Korea, China and Singapore imported 9%, 6% and 5% respectively. Saudi Arabia also imported goods from the US that accounts for 9% of its import, Germany 7%, Japan 7%, Great Britain 5% and China 5% of Saudi Arabia’s import. SAUDI ARABIA’S EXPORT IN PERCENTAGE (2004 SAUDI ARABIA’S IMPORT IN PERCENTAGE (2004) The Economy of the United Arabs Emirates (UAE) Oil reserves in the UAE estimated to 97.6 billion barrels in the year 2007 (UAE Embassy.org, 2009). The reserves are evenly distributed across the country with the Abu Dhabi region accounting for 92.2 billion of the total oil reserve estimates in 2007. Dubai accounted for 4 billion barrels while Ras al Khaimah accounted for 5 million barrels in the 2007 oil reserve estimates (UAE Embassy.org, 2009). Oil production in UAE accounts for 10% of the world’s total oil reserves. Oil counts for 30% of the country’s gross domestic product. Despite the fall in the production power of other OPEC members, UAE has continued to maintain its 31% oil production since 2002. Source; Embassy of the United Arab Emirates in Washington, 2009 The UAE has opened economy to investors who join in to help in the exploitation of oil in its upstream reserves. Countries like Japan. USA, France, and Britain among other investor countries have obtained production rights in UAE (UAE Embassy.org 2009). Promoting foreign investors in the exploitation of oil has helped in the creation of jobs to internal and international population as well as increasing the country’s tax base. UAE has also joined hands with other nations in financing security forces to improve local and international security. The good relation between UAE and the US has accorded UAE chance to obtain high tech training for its armies. According to UAE embassy.org (2009), most of the oil and natural gas produced in UAE are exported to Japan. According to Al Arabiya news (2010), UAE ranks at position seven among the OPEC members after discoveries that it has oil reserves of 98.2 billion barrels. This was accompanied by increased oil production at an average rate of 2.7million barrels per day as per 2010 statics. With the world inflation in 2008, the cost of oil increased and this enabled UAE to record a 7.8% growth in the country’s GDP. According to Shihab, the UAE has witnessed economic improvement since 1970s due to its political and social stability coupled with better oil prices in the world market. Government has used revenues gathered from the sale of oil to improve social facilities and education in general. The agricultural base of UAE is poor with recorded 3.8% contribution to the national GDP in the financial year 1999. During 1975-1998, the agricultural sector recorded a significant growth rate of 12.6 % per year. Shihab reports that oil production in the UAE has helped the economy to drain all of its working population into the labor market. The low population of UAE and massive oil resources has improved the living standards of the indigenous citizens with little or no individuals living below poverty line. According to Shihab, the UAE opened its doors to the foreigners who streamed into the economy in 1970 to help in the development of the country. In essence, oil sector provides 1.6% of employment opportunities with the 39% involved in other service delivery institutions and self businesses. Shihab reports that unemployed population comprises only 0.5% of the county’s total population. The government of UAE has used the revenues collected from the sales of oil to improve the country’s education system. The government offers free education to all Arabian children. The education system consists of private schools, military schools, higher learning institutions and vocational training centers. The education centers are equipped with good facilities and high tech classrooms. The government also has worked hard to improve the quality of health care in the country. Shihab reports that the government worked to ensure that 95% of the UAE population have access to safe water as77% of the population enjoying good sanitation. The government also improved medical care by opening special hospitals in schools. Private health care is also encouraged and has contributed in improving the quality of health care in the country. Qatar Estimates indicate that Qatar contributes less than 1% of the total world’s oil production. According to Mohammed (2011), 80% of the country’s export is in the sector of crude oil and natural gas. Oil production in Qatar has contributed to development of other industries like food processing and fishing. Estimates by State.gov (2011) indicate that the gross domestic product of Qatar tuned to $128 billion in 2010 with oil and natural gas accounting for 56%. State.gov (2011) indicates that Qatar export trade in the year 2006 valued at a whopping $ 34 billion of which 47% comprised income from oil and 36% from natural gas. State.gov (2011) with reference to Qatar financial statement of 2007, reports that the country recorded a substantial per capita income of $ 67,000. This impressive performance of the Qatar economy placed the country at position five in the list of world’s best economies. Since the discovery of oil resources the country’s revenue base increased thereby improving the living standards of its citizens as well attracting large number of immigrants. State. gov (2011) unveils that in the year 2007, Qatar recorded an instantaneous oil production of 835,000 barrels on a daily basis. In addition, Qatar has been proven the third largest reserves of natural gas among the OPEC and GCC members. Qatar natural gas sector accounts for about 14% of the world’s natural gas reserves. State. Gov (2011) confirms that in line with the current oil production in Qatar, the oil reserves in the country have the penitential of existing for more than forty years under consistent exploitation. Furthermore, Qatar is listed as the world’s number one producer of liquefied natural gas among the OPEC members. In 2007, Qatar recorded an annually production of liquefied natural gas at the capacity of 31 million metric tons. According to reports of State.gov, production of liquefied natural gas in Qatar was expected to increase to 77.5 million metric tons by the end of 2009. Oil sector has resulted into emergence of other oil related industries. Among the industries is the petrochemical industry that uses oil products as raw materials, fertilizer industries for ammonia and steel industries. The oil sector has attracted other joint ventures like the US and Europe who is operating oil companies and other oil related industries. (State.gov, 2009). Qatar gross domestic product recorded $ 128 billion in the fiscal year 2010 with an incessant growth at an average of 19%. Close links between Qatar and other countries like the US and Europe have boosted world economy as they countries trade together. It is evident that Qatar imports most of food items from US and Europe in exchange of oil products. Qatar has also helped US to implement its strategies of improving the hydrocarbon energy. Qatar’s Foreign Trade Partners and Quantity of Exports and Imports in 2006 Qatar enjoys good trade relation with other countries and this has stabilized the country’s economy. Much of Qatar’s export composes of oil and oil related products. The main importers of Qatar’s products are Japan, accounting for 34.68% of the total, South Korea; 22.4%, Singapore; 10.3% and India; 4.86% in the financial year 2010. Qatar mainly imports machinery, food, chemicals and transport equipments. Qatar’s import partners in the year 2010 included USA; 14.43%, Italy; 8.34%, South Korea; 8.33% and Japan; 8.04% of the total imports (Economy watch, 2010). QATAR’S EXPORT IN PERCENT (2010) QATAR’S IMPORT IN PERCENT (2010) Qatar’s economy has opened doors to all inhabitants of the world as it does not restrict immigration of employees on the basis of religion, region or nationality. In fact, it is estimated that foreign workers in oil rich Qatar economy comprises 85% of the total Qatar population with most of them being Egyptians, Palestinians, Syrians, and Yemenis among other nationalities ( State.gov, 2009). Due to oil exploitation that have increased the revenue base of the country, education system in Qatar is above standards as most of the US and European universities have opened their branches in most parts of the country. The Qatar government offers free and compulsory education to children at the age of 6-16 years. Qatar government has been using its revenues from oil reserves to finance stable security both internal and in international arena. Qatar has joint forces in the GCC organization and has helped in various wars for democracy. (State.gov, 2009). State.gov reports that Qatar once in the 1990s faced a hard economic challenge when the OPEC organization lowered its quotas in the world market. This move led to the fall of oil prices in the international markets thereby crunching the revenues earned by the government during those periods. Bahrain Among the vast members of the GCC, Bahrain was the first discoverer of oil in 1932. State.gov reports that oil and natural gas comprises 10% of the total economy of the country. Revenues gleaned from the sales of oil contribute 75% of the earnings for Bahrain government. Bahrain oil sector boasts of its capability to produce about 40,000 barrels on a daily basis. According to fiscal reports of 2009, Bahrain enjoyed a gross domestic product of $ 20. 59 billion and a steady growth in the GDP were expected at the rate of 4.5% through 2010. Oil production also contributed to the superb per capita income of $ 38,400 in the year 2009 (States.gov, 2011). A part from oil, Bahrain also boasts for its extensive aluminum mines, textile, and natural gas and fishing grounds. Bahrain enjoys international trade depicted from its export values of $ 12.5 billion with massive contribution from oil sector. In the reports of State.gov, the natural gas reserves of Bahrain are expected to last for more than 50 years with regard to the current rate of exploitation (State.gov, 2011). Other industries such as aluminum smelting, iron, steel and textile makes significant contribution to the country’s GDP. In 2005, Bahrain managed to produce a total of 843, 0000 metric turns of aluminum. Bahrain economy is further boosted by the financial sector that formed 305 of its GDP in the year 2009. Many banks with headquarters in Bahrain have spread their branches to various parts of the world. Bahrain government has used the revenues obtained from the exploitation of oil to improve telecommunication system, health care and education. State.gov (2011), confirms that Bahrain line is the busiest among the GCC member states as reflected in the 2005 record of 4.8 million passengers transiting within the Bahrain airports. In addition, Bahrain has a busy seaport that offers convenient and direct connection to US and Europe among other countries. Bahrain economy also obtains support from the developed tourism sector that awards the country significant revenues. Kuwait The largest part of Kuwait export and source of income is in the oil sector. Kuwait is the world’s third largest country in oil production. It has large oil reserves that count 10% of the world’s total oil production (Mohammed, 2011). A part from oil production, Kuwait operates other industries like desalination, food processing, plastics, cement and metals. According to IBP USA (2008), Kuwait self confessed to have abundant oil reserves estimated to nearly 105 billion barrels, which comprises about 9% of the world’s total oil reserve. In fact, Kuwait ranks the world’s second oil producer among the OPEC member countries. Oil mining in Kuwait counts for 95% of the country’s gross domestic product. Revenues obtained from exploitation of oil cater for 95% of government income (IBP USA). According to IBP USA (2008), Kuwait solemnly depends on oil production thus leaving its economy in vulnerable state without other productive activities. However, the government of Kuwait is working hard to diversify the economy especially when it allocated $104 billion for the diversification of the economy. The government has also worked hard to reduce the foreign cooperate tax in order to attract foreign investors to help in diversification process. With reference to OPEC‘s statement, IBP USA (2008), confirms that Kuwait has an estimated oil reserve of 105.1 billion barrels. Kuwait also boasts of its capabilities to produce oil at the rate of 3.5 million barrels on a daily basis. Kuwait’s oil production sector involves many players who operate both in the offshore and onshore production activities. Kuwait also operates a number of oil related companies like petrochemical, ammonia fertilizer, polythene and styrene. Kuwait’s economy has opened doors for joint ventures in its oil production with Britain playing a major role. Kuwait also boasts of its richness in line of extensive natural gas in the country. In 2009, OPEC allowed Kuwait to produce and sell 2105000 barrels of natural gas per day. Kuwait oil production base has superseded the OPEC quota allocation of 2.7 billion per day thereby compelled to supply excess than quota allocation (Salazar & McNutt, 2010). The vast revenues collected oil production by the government of Kuwait has been used to sponsor many sectors of the economy. The government has also used revenues collected from oil to finance national development programs. Citizens of Kuwait have also benefited from house loans, employment opportunities, free health care and free education, all financed through revenues collected from oil production. In the reports of IBP USA (2008), Kuwait government has signed trade treaties with many countries like USA, Singapore and other GCC member countries and this has refined its export and import powers. Kuwait economy gets additional support from fishing activities, which has been proved to be active in Indian Ocean (IBP USA, 2008). However, Kuwait’s economy has faced challenges in the sector of food production due to desert climate in the country. This fact has made Kuwait dependent on food supply from foreign countries. Kuwaiti government has indicated close international relation and important of all was its participation and contribution in the fight for Iraqi freedom. Kuwait has joined hands with other countries in the attempts to reconstruct Iraq. In addition, Kuwait is an active member of the United Nations (UN) and other international organizations (IBP USA, 2008). Besides joining efforts to improve security in the Arabian nations, Kuwait uses some of its revenues obtained from oil to finance and support international Security Council. Due to well established relationship between Kuwait and US, Kuwait has enjoyed massive assistance from US like training of soldiers, education of armies and financing Kuwait defense force in the past years. The relationship has also accorded US a favorable trade advantage with the Kuwait. Most of Kuwait import goods come from US, with largest portion involving food and technology in the defense and production sectors (IBP USA, 2008). Kuwait has also remarkable contribution in the world’s antiterrorism wars. Major Trade Partners of Kuwait Kuwait’s balance of trade shows a positive trend as it exports more than it imports. The main importers of Kuwait’s products in 2001 are Japan imported 23% of Kuwait’s exports, USA, 14%, South Korea, 13%, Singapore, 7%, Netherlands, 6% and Pakistan imported 6% of the total Kuwait’s export. Kuwait’s major import commodities consist of manufactured goods and food items. In 2001, total Kuwait’s import from USA valued 12%, Japan 8%, UK 8%, Germany 7%, China 5% and France 4% (East.org, 2010). KUWAIT’S EXPORT IN PERCENTAGE (2001) KUWAIT’S IMPORTS IN PERCENTAGE (2001) Oman In 1960, Omani oil reserve was estimated to be 3.8 billion barrels. The vast percentage of oil in Oman comprises of underground mobile oil. In 1997, oil production in Oman from Yibal reservoirs reached 250,000 barrels per day. In 2001, production assumed a down turn to 90,000 barrels per day (Simmons, 2005). A part from Yibal, Oman has other oil reserves in Nimr field that produced an average of 31,000 per day in the year 2001. Rima field is another considerable oil .reserve after it produced 91,000 barrels per day in the year 1993. Another oil remarkable oil reserve in Oman is the Al-Huwaisah which produces 30,000 barrel per day in the current oil exploitation (Simmons, 2005). Oman ranked the fifth largest economy among the GCC member states after acclaiming an average 3.6% increase in its gross domestic product in 2009 (Global research, 2011). In 2008, oil and natural gas contributed 50.5% of the country’s GDP. The value retracted in 2009 to 41% due to the world financial crisis. In 2009, oil production in Oman reduced by 38% and this led to massive loss of job and general decline in the country’s GDP. In 2009, Omani oil reserve managed to maintain a daily production of 812000 barrels. Oman unlike other GCC members does not entirely depend on oil for running its economy. Oman has diversified economy encompassing agriculture, fishing and artistry. Global Research (2011) confirms that other economic sectors like agriculture, industries, and service sector contributed collective 51.7% to the country’s GDP in 2005. The non petroleum sectors also contributed collective 60% to the GDP in financial year 2009. The sector of services including hotels accounted for 41.4% in the country’s GDP of 2009. Service industry in Oman includes the hotels and restaurants, transport, communication and financial institutions. (Global Research, 2011). The largest part of services composes of whole sale and retail services that accounted for 9.6% in 2009 GDP analysis. Whole sale and retail services contributed 22.2% to general service sector to the 2009 GDP. Health care, education and personal services comprises other segment of service sector that are growing at a faster rate. Hotel and restaurant form another active segment of service sector after recording 20.6% within 2005-2009. Industrial activities formed 30.3% of non petroleum sector and 18.6% to the entire country’s GDP of 2009. Manufacturing sector forms the largest portion of the general industrial contribution to the GDP (Global Research, 2011). Manufacturing segment accounted for 55.2% of the general industrial contribution to the GDP of 2009. Real estate and building sector also form very important component of Omani economy. In 2009, real estate sector contributed about 5.2% of the country’s GDP. Building sector on the other hand registered 6.8% contribution to the national GDP of 2009. Building sector has been voted the fastest growing sector in the Omani economy due to increased construction of structures. Real estate sector has also showed some elements of spontaneous growth as view through the fiscal years of 2005-2009. Agriculture and fishing sectors depicted 1.3% contribution to the national GDP of 2009. In conclusion, the GCC members play a significant role in the OPEC organization. Large amount of oil and natural gas produced under the watch of OPEC lies with the Arabian countries especially the GCC members. It is also imperative to acknowledge that oil production in the GCC countries has propelled the economic growth rates of the specific countries. The governments of the respective GCC members have proved good leadership qualities bearing the fact they use the revenues collected from oil to benefit all citizens equally. It is worth noting that most of GCC countries are agriculturally incapable thus the reason why they over depend on oil production as source for national income. References Al Arabiya news (2011). UAE to increase oil production by 2018. Retrieved October 9, 2011 from http://english.alarabiya.net/index/contents/en_archive?lang=en&name=en_meast&type=articles&source=section Cavendish. (2006).World and Its Peoples. Tarrytown, NY: Marshal l Cavendish. Economy watch. (2010). Qatar Economy. Retrieved October 9, 2011 from http://www.economywatch.com/world_economy/qatar/ Global Research (2011). Oman Economic Overview. Retrieved October 9, 2011 from http://www.menafn.com/updates/research_center/Oman/Economic/oab190111e.pdf IBP USA (2008).Kuwait Telecom Laws and Regulations Handbook. Washington DC: Int'l Business Publications Mohammed, S. (2011). GCC Countries. Retrieved October 9, 2011 from http://www.sheikhmohammed.co.ae/vgn-ext-templating/v/index.jsp?vgnextoid=b10a4c8631cb4110VgnVCM100000b0140a0aRCRD Niblock, T. & Malik, M. (2007).The political economy of Saudi Arabia. Madison, NY: Taylor & Francis Learners. PRNewswire. (2011). World Bank Recognizes Saudi Arabia as the 13th Most Competitive Economy; Top 10 by 2010 is Within Reach. Retrieved October 9, 2011 from http://www.prnewswire.com/news-releases/world-bank-recognizes-saudi-arabia-as-the-13th-most-competitive-economy-top-10-by-2010-is-within-reach-62104292.html Salazar, K. & McNUtt, M. (2010). Minerals Yearbook, 2008, V. 3, Area Reports, International, Africa and the Middle East. Washington, DC: Government Printing Office. Shihab, M. Economic Development in the UAE. Retrieved October 9, 2011 from http://www.uaeinteract.com/uaeint_misc/pdf/perspectives/12.pd Simmons, M. (2005). Twilight in the desert: the coming Saudi oil shock and the world economy. Hoboken, NJ: John Wiley & Sons Publisher. Trading Economics. (2011). Telecommunications investment (% of revenue) in Saudi Arabia. Retrieved October 9, 2011 from http://www.tradingeconomics.com/saudi-arabia/telecommunications-investment-percent-of-revenue-wb-data.html UAE embassy.org (2009). The UAE and Global Oil Supply. Retrieved October 9, 2011 from http://www.uae-embassy.org/uae/energy/global-oil-supply US Department of States. (2011). Background notes: Bahrain. Retrieved October 9, 2011. US Department of states. (2009). Background notes: Qatar. Retrieved October 9, 2011 fromhttp://www.state.gov/r/pa/ei/bgn/5437.htm Read More