Gulf Cooperation Council Members - Research Paper Example

?Gulf Cooperation Council (GCC) was founded in an agreement on May 25, 1981 in Saudi Arabia’s capital Riyadh. The members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates. Currently, it is a gulf’s regional common market. However, it was formed initially to address security challenges caused by Iranian-inspired activist Islamism and Iran-Iraq War. Through GCC, military chiefs of the six nations developed and implemented a joint defence plan to protect themselves. On trade matters, GCC help member countries to make consultations and develop common polices that cover trade, investment, banking and finance, transport and protection of intellectual property rights. The common market agreement among the GCC countries took effect from 1 January 2008. The members of Organization of Petroleum Exporting Countries (OPEC) is an association of developing countries, which include Venezuela, United Arab Emirates, Saudi Arabia, Qatar, Nigeria, Libya, Kuwait, Iraq, Iran, Ecuador, Angola and Algeria. OPEC was formed to help market oil and stabilize oil prices in the world. United Arab Emirates United Arab Emirates whose capital city is Abu Dhabi, Dubai covers an area of 82,880 Km2 and the land is predominantly desert with few pockets of agricultural areas. It is a member of OPEC. The country has an opened and highly developed economy, which is among the fastest growing in the world. The rate of inflation in United Arab Emirates is low and was 0.9 percent and 1.6 percent in 2010 and 2009 respectively. To boost trade, a free trade zone for manufacturing and distribution purposes. Presence of a deep-water port has also promoted international trade. The rate of interest charged by commercial banks was also lower at 6.2 percent and 5.9 percent in 2010 and 2009 respectively. Figure 1: GDP growth rate There was a sharp decline in the real GDP growth from 3.2 percent in 2008 to -3.2 in 2009. Sharp decline is attributed to the global financial turmoil. However, there was a strong growth in real GDP growth rate to 5.3 percent in 2010 due to recovering economy and increasing oil prices. OPEC Quotas in United Arab Emirates is 2.3 million barrels daily but its capacity is 2.8 million barrels daily. According to CIA (2011), United Arab Emirates’ reserves are estimated to be 97.8 billion barrels. Non- oil sectors include agriculture that produce dried fish, dates, watermelons, vegetables, eggs, poultry and dairy products (Department of State 2011). Non-oil sector covers tourism and international finance. United Arab Emirates produces cement, aluminum, fertilizers, boat building, commercial ship repair, textiles and handicrafts. Major trade partners include Japan, India, China, United States, Germany, Iran, South Korea and Thailand Saudi Arabia Kingdom of Saudi Arabia whose capital is Riyadh also referred to as Saudi Arabia covers an area of 2,149,690 km2 with arid climate. It is a member of OPEC. It has a command economy, where government controls major economic activities and depends heavily on oil exports. The GDP of Saudi Arabia was $623 billion in 2010. Inflation rate is slightly lower at 5.4 percent and 5.1 percent in 2010 and 2009 respectively. The unemployment rate in Saudi Arabia was 10.8 percent, 10.5 percent and 9.8 percent in 2010, 2009 and 2008 respectively. High unemployment rates are among the highest rates in the gulf region. Commercial bank interest rates were 7.3 percent and 7.2 percent in 2010 and 2009 respectively. The country’s proven oil reserves are 262.6 billion barrels (Sfakianakis 2011). Saudi Arabia has the largest oil reserves with and is the world top oil exporter. Oil generates 75 percent of the total budget revenues and comprises about 90 percent of total exports. Increase in oil prices caused by increasing demand has improved the economy of Saudi Arabia. The current quota for Saudi Arabia as set by OPEC is 9.4 million barrels daily. However, the country can produce up to 10.52 millions barrels daily. The non-oil sector real GDP growth rate has been declining steadily since 2004 to 2009. However, growth improved slightly in 2010 as compared to that of 2009. Apart from oil, Saudi Arabia has deposits of coal, iron, gold, copper, silver, zinc, uranium, phosphate, hydrocarbons, and tungsten. The country also produces cement, commercial aircraft and ship repair. Agricultural products include dates, livestock, milk, chicken, eggs, mutton, citrus, vegetables and dates, produced in 1.76% arable land. The government encourages growth and development of the private sector. They are also focused in power generation, telecommunications, petrochemicals and natural gas exploration (CIA 20111). The country also has religious tourism, which attracted about 1.61 pilgrims in 2009. Tourism revenue of SR50.2 billion accounted for about 3.6% of the total GDP in 2009. Major trading partners include France, China, India, Japan, Singapore, United States, United Kingdom, South Korea, Taiwan and Germany (Sfakianakis 2010 p. 11). Qatar Qatar is one of the richest countries in the world and is a member of OPEC. It recorded highest rate of economic growth in 2008 of 25.4 percent, which dropped to 8.6 percent and 16.3 percent in 2009 and 2010 respectively. The country recorded negative inflation growth rate of -2.4 percent and -4.9 in 2010 and 2009 respectively. Commercial bank interest rates were 7.34 percent and 7.27 percent in 2010 and 2009 respectively. In 2010, Qatar recorded industrial growth of 27.1 percent, which was the highest in the world. The country also has the lowest level of unemployment which stood at 0.5 percent in both 2010 and 2009. Figure 3: Graph of Qatar GDP growth trends Qatar economy has prospered over the past years. Its total GDP was $150.6 billion, $129.5 billion and$119.2 billion in 2010, 2009 and 2008 respectively. This indicates a steady growth rate in GDP over the three years as a result of increase in oil prices from 2008 to 2010. OPEC oil production quota in Qatar is 731,000 barrels per day. However, in 2010, Qatar produced oil at an average of 1.437 million barrels per day, which was above the stipulated quantity by OPEC. It is estimated that Qatar oil deposits is about 25 trillion barrels of oil. Oil and gas amount for more than 50 percent of the total GDP, which constitutes about 85 percent of export revenues. It also generates about 70 percent of the government revenues (CIA 20112). Apart from oil, Qatar also has a vibrant agricultural sector that produce fruits, poultry, dairy products, vegetables, beef and fish. The industrial goods produced include fertilizers, ammonia, petrochemicals, cement, commercial ship repair and steel for reinforcing bars. Major trading partners of Qatar are Japan, India, South Korea, Singapore, France, Italy, Saudi Arabia, Germany and China. Kuwait Kuwait is one of the smallest countries in the gulf. It has an open economy and is a member of OPEC. The country’s GDP was $136.5 billion, $133.9 billion and $141.2 billion in 2010, 2009 and 2008 respectively. The government is privatizing its assets so as to diversify the economy. In May 2010, the government passed privatization bill, which will allow the government to sell its assets and business operations to private investors. The rate of inflation in Kuwait for the years 2010 and 2009 was 4 percent. The rate of unemployment is below 3 percent and is lower as compared to other GCC countries except Qatar which is about 0.5 percent. The real GDP growth rate reduced sharply from 5 percent in 2008 to -5.2 percent in 2009 due to global financial crisis. However, real GDP growth rate improved significantly to 2 percent in 2010 as the global economy recovered and oil prices increased. Zawya (2010) revealed that OPEC awarded Kuwait a quota of 2.2 million barrels of oil daily but has a capacity of 2.45 million barrels daily. Proven oil reserves are 104 billion barrels. Oil products account for over 50 percent of the total GDP and is comprised of 95 percent of the total income and 95 percent government revenues. The interest rates of the commercial banks are moderate at 5.4 percent and 6.2 percent in 2010 and 2009 respectively (CIA 20113). Non-oil sector is comprised of agriculture and manufacturing sector. Agricultural products include fish and industrial products are petrochemicals, ship building and repair, cement, food processing and water desalination. Major trade partners are Japan, South Korea, India, China, United States, Germany, Italy, and Saud Arabia. Oman Oman is the oldest independent and most stable states in the Arabic world. Its population is about 3 million people comprising predominantly of Arab, South Asian and Baluchi ethnicities. The country has been pursuing industrialization and privatization agenda to diversify its economy. GDP real growth rate reached 12.9 percent in 2008 but dropped sharply to 1.1 percent in 2009 due to global crisis that reduced demand for oil that led to reduction in oil prices. However, real GDP growth rate improved to 4.7 percent in 2010. The countries total GDP grew constantly from $71.98 billion in 2008 to $72.77 billion in 2009 and to $75.84 billion (CIA 20114). The country experience higher rates of unemployment which stood at about 15 percent in 2004. Rate of inflation is fairly low at 3.2 percent in 2010 from 3.5 percent in 2009. Omani Riyal (OR) is pegged to the dollar since 1973. In January 1986, OR was pegged at the level of 1RO:USD2.60. This helped the country to maintain law levels of inflation. The interest rates charged by commercial banks were 7.2 percent in 201 and 7.442 percent in 2009. The country has proven oil reserves of 5.5 billion barrels. Oil and gas contributes about 48 percent of the total GDP and is comprised of 65 percent of total exports. Major trade partners include China, South Korea, India, Japan, United Arabs Emirates, United States and Thailand. In 2009, the trade agreement between Oman and United States took effect to remove trade barriers and promote foreign direct investment. Non-oil sectors include tourism, agriculture, mining and manufacturing. The government intends to increase the number of hotel rooms from the current 11,000 to 18,000 and number of tourists from 1.5 million to 2.2 million to in 2015. Agricultural products include dates, banana, limes, vegetables, camels, cattle, alfalfa and fish while industrial products are cement, steel, chemicals, copper and optic fiber (CIA 20114). Bahrain Bahrain is a small archipelago of thirty-three islands, which are located in Arabian Gulf and covers about 750 km2. It has a population of about 1,234,596 people. The capital city of Bahrain is Manama. Bahrain economy is performing well economically. In a bid to diversify the economy, the government has privatized some sectors. For example, production of electricity was awarded to a licensed private company called AL Ezzal, which commenced operations in January 2006. According to OECD (2011, p. 10), Bahrain has an open economy, which is considered among freest in the Middle East and was ranked among the 10 most freest in the world according to the Index of Economic Freedom of 2011 by heritage foundation. The country allows free movement of capital goods, foreign exchange and investments as well as foreign trade across its borders. CIA (20115) stated that Bahrain GDP has being growing from $27.69billion in 2008, to $28.55billion in 2009 and $29.71billion in 2010. However, Bahrain experiences high rates of unemployment. In 2005, Bahrain experienced 15 percent unemployment. Commercial bank interest rates are one digit of 7.25 percent in 2010 and 7.9 in 2009. This indicates that the country has low cost of capital and lower returns on capital invested. On 11November 1981, Bahrain entered into a unified economic agreement with the GCC member countries and on 1 January 2008, Bahrain and GCC members launched a common market. On 15 December 2005, Bahrain, Kuwait, Saudi Arabia and Kuwait created a monetary council to help promote a move towards a common currency. Bahrain effected Free trade Agreement with the United States in August 2006. Main trading partners of Bahrain include Saudi Arabia, Japan, India, United Arab Emirates, Brazil, France, United States and China. The country has maintained a fixed exchanged rate to US Dollar (USD) since 1980, which has helped contain inflation and protect the external value of Bahraini Dinar (BHD). In fact Bahrain’s level of inflation was 2 percent and 2.8 percent in 2010 and 2009 respectively. Figure 6: Sector contribution to the total GDP of Bahrain. Financial sector and oil sector are the largest contributors to the total GDP at 27 percent each. The country produces about 46,430 barrels of oil daily and oil proven reserves are 124.6 million barrels. Oil accounts for over 60 percent of total exports, which constituted 70 percent of government revenues. It has highly developed transport and telecommunication facilities. Other non- oil sectors include mining of iron ore and aluminum; insurance; ship building and fertilizers. However, the financial sector is a key driver of economic growth and development in Bahrain because it employs about 80 percent of all the country’s work force. The other non-oil sector that contributes most to the economy is tourism, which employs 17 percent of the total work force. In fact Bahrain promoted tourism and is the only country in the Middle East that developed Formula Once race track. References CIA (2011). CIAMiddle East: United Arab Emirates. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ae.html Department of State (2011). Bureau of Near Eastern Affairs: Background Note: United Arab Emirates. Retrieved from http://www.state.gov/r/pa/ei/bgn/5444.htm CIA (20111) Middle East: Saudi Arabia. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html CIA (20112). Middle East: Qatar. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/qa.html CIA (20113). Middle East: Kuwait. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ku.html CIA (20114). Middle East: Oman. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/mu.html CIA (20115). Middle East: Bahrain. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/ba.html OECD (2011). Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Bahrain 2011: Phase 1: Legal and Regulatory Framework. Paris, France: OECD Publishing. Sfakianakis, J. (2010) Saudi Arabia Economics. Retrieved from http://www.susris.com/2010/12/07/saudi-arabia-economics-%E2%80%93-bsf-%E2%80%93-december-2010/ Zawya (2010). Kuwait June oil production exceed OPEC quota. Retrieved from http://www.zawya.com/marketing.cfm?zi&p=/story.cfm/sidZW20110720000082/Kuwait_June_Oil_Production_Exceeds_OPEC_Quota_Report?cc Read More